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- [00:00]
Ryan Dice
Good deals start as meh deals and they become. They get honed down. I mean, it is that diamond in the rough, but like, it looks like a frickin rock.
- [00:12]
Roland Frazier
How much more successful would you be if you had lunch once a week with insanely successful entrepreneurs who share their biggest secrets on how they think and achieve success? Grab your seat at the table because this is Business Lunch with Roland Frazier and Ryan Dice. Welcome to another episode of Business Lunch. And today's a snackable episode with Roland where he's going to get into some more tactical strategies that you can start using to live a rich and happy life. If this is the first snackable episode you're hearing, I'd encourage you to go back and listen to some of the other episodes that Roland has put out. And if you want to get notified every time we release a new episode, go to the new businesslunchpodcast.com website and we'll send you detailed notes along with every episode. That's businesslunchpodcast.com www.businesslunchpodcast.com and you can sign up for the free email newsletter where you'll be able to get all the highlights and resources from the episodes.
- [01:04]
Ryan Dice
Hey, everybody. Welcome to the Business Lunch podcast with your hosts, Ryan Deiss and me, Roland Frazier. Ryan, what's happening?
- [01:14]
Nothing. I'm incredibly bored out of my mind. I've got nothing to do. That's not true. But compared to what you've been working on, it feels like nothing. You've got a pretty cool deal in the mix that, that I wanted, that you were telling me about. And we were like, we could talk about this, just you and I, or we could, you know, flip on the recording and share this with all of our business launch pals. So tell me about this, this deal you got going.
- [01:40]
Yeah, this is the perfect example of why we do this, this program, because we would normally just chat about this as along with most of the things that we talk about on here. And, and so we're just kind of saying, hey, fly on the wall. If you guys want to see the stuff that we're doing and talking about. Here you go. Okay. Yeah.
- [01:58]
So I think it's important everybody needs to know I'm hearing about this in real time. Yes, we made sure. Cause you were gonna do. It's like, ah, let's. So I have no idea what you're about to say. What you could hear is like, ryan, we're doing this deal and you're freaking out, bringing in another investor. We're doing a hostile Takeover. It'd be an awkward episode.
- [02:18]
The reason that I have you trapped on this show is as we are talking, your office is being door lock changed and all the codes, all the computers. No, the, what we have is, is a deal that came up and it was from somebody that, that we were looking at maybe creating a strategic relationship with. And interestingly enough, this has come up twice in the last week. So in this particular one, I like this one because it lends itself to the possibility of creative deal structuring, which as you guys who are watching and listening know, is one of our favorite things to do. So here's the deal. Ryan. Basically, company, they're doing about, doing about 30 million in sales right now. The entrepreneur has built 100 million plus businesses before. This one is kind of relatively new and it needs capital to basically get ready for one of its big seasonal order. It's kind of a large bump in seasonal stuff around this time of year.
- [03:41]
We can't say the company name for privacy reasons, among others. But can you say the industry?
- [03:47]
Online retail, kind of, I guess, E Commerce. E commerce, okay. Consumer, yes. So there's some, there's some events that are coming up that are big times, big pushes for them and they get significant orders, kind of like Black Friday is for most other people. And so they're looking for some capital and not a ton, but a couple million bucks. And they're going to use it to get ready for, you know, to buy inventory, basically to get ready for, you know, for the event. And they are going to get, you know, some working capital and payables and all the normal things people do with that money. They have the ability to get the capital from a couple of different sources, but it's relatively expensive. They've got the private equity option where you're looking at around 15% plus in terms of what the, you know, the companies that are interested in potentially funding.
- [04:46]
Want, you've got is that 15% for debt or like interest rate or that's what they take in equity?
- [04:55]
Both, basically. So a, an interest at a favorable valuation plus it's preferred preferred debt, effectively that is going to return 15 before anybody else gets anything. And then another option which was basically a reverse royalty where somebody would put in the money and then they would get an override on gross sales in perpetuity. Kind of like a shark tank deal if you've ever heard those.
- [05:26]
Yeah, I was gonna say that sounds like a Kevin O' Leary. Mr. Wonderful. I'm gonna give you money and you're gonna give me A royalty.
- [05:32]
So what's cool is that means there's funding that's available. And they approached us and said, you know, hey, we, we have lots of strategic stuff that we can do together. Would you be interested in, you know, would you be interested in and having the opportunity to invest at, at a relatively favorable valuation, but it's not really favorable given what the company's doing. It's favorable based on if the company can get to where it needs to get, you know. Ever wonder how some people build real wealth through acquisitions while others just sit on the sidelines? Well, I'm here to tell you it's not about luck. It's about having the right system, the right deals and the right guidance. And that's exactly what we give you in the EPIC Deal Fast Track. If you've been thinking about buying a business, but you keep getting stuck, whether it's finding the right deal, structuring the financing, or negotiating with sellers, you are not alone. Too many people waste months, even years just thinking about acquiring a business while the real opportunities pass them by. The EPIC Deal Fast Track is not another course. It's actually an implementation program and it's designed to get you from the idea to the acquisition in just 16 weeks or less. We work with you one on one to help you find, fund and close your first or next deal. And once you do, we're going to plug you into our elite EPIC board community so that you can keep scaling through acquisitions. We install three powerful systems in your business. The first is the Deal flow engine so you always have high quality off market deals coming to you. Number two, we give you our offer and funding system so that you can structure offers through that, get accepted and fund them creatively many times with no money out of your own pocket. And number three are closing and integration systems so that you don't just buy a business, you actually successfully run and scale it once you have acquired it. Plus you'll have direct one on one support from an EPIC Deal Advisor every step of the way. And that's people that have actually come up through this system and done these deals themselves. That's the only way to become an EPIC Deal Advisor. And if you're serious about acquiring a business this year, don't just sit on the sidelines. Just text I'm in to 334-458-9034 and we'll get you in. So text I'm in to 334-458-9034 will get you in. No fluff, no wasted time, just real Deal making from people that are actually out there doing deals right now. I'll see you there. Where we think it's going to get, you know, but it's, it's. It definitely wouldn't support that valuation now. So here we are on the opportunity level with it. We would love to do a deal because they have a customer database that we would love to get into. They have industry contacts in a vertical that we're not in that they would love or that we're in just a tow that we could get in up to our waist with them. And so we'd love to figure out how to help, as always, whether we had anything to get from it or not. And also how. How do we make a deal happen? But to put a couple million bucks in and be a minority shareholder in a deal that's overvalued, that has no, like, liquidation ability is interesting.
- [08:51]
I think it's worth pausing there just to acknowledge, like, this is what most deals start out as, right? Most people are, like, looking for that great, amazing deal that, like, it's just this diamond in the rough. And it's like, how has nobody ever found this? Because, oh, my gosh, like, the valuation is so low and I can come in and I can, you know, put nothing in it and make all this like. What you gotta realize is the deals that start that way are probably not deals that you want to be in.
- [09:17]
What?
- [09:18]
This is where the good deals start. Good deals start as meh deals and they become, they're, they're. They get honed down. I mean, it is that diamond in the rough, but, like, it looks like a fricking rock right now and we gotta chip away the stuff and polish it to see if it'll gleam. So I just thought that was worth pointing out because this is how the good. This is how meh deals become potentially great deals. They look like this from the beginning. Not overly exciting, but like. I love the word used interesting.
- [09:47]
And the truth is that the other deal is similarly. The second deal, which is in a SaaS, is similar in that the valuation is high. The opportunity to invest is. Was presented. So the strategic partnership would be valuable to our company that they're talking to about investing. The entrepreneur has a proven track record and it is not particularly appealing. Right. So I'll go back to this one in the consumer. The consumer E Com deal. So one of the things that occurred to me was that we could obviously do a deal that was the reverse royalty deal. I like that you get paid in perpetuity. You pretty much it's based on sales, so there's no risk of manipulation of numbers or anything like that. And it would, you would have your money back in about 18 months and then forever more. They have a, they have a good model of what they're doing. They really need creative help in deal structure. One of the things that they said was like I said, what's the biggest constraint that you've got? I always ask that question. I love the theory of constraints and I love. Because it really brings down what's the, if we could find one bottleneck, that's the big bottleneck right now for them, it's that they can't bring enough big companies because they're kind of aggregating other companies by offering them their platform. And some of the companies are paying to be brought in and some of the other companies are just coming in and then the cash flow happens on a split. So the ability to cut these deals is, is the biggest constraint. They have the software, they have the teams, they have the warehouse space to do all the stuff. It's truly just the deal. And I drilled down on that question with them. So one of the things that, that we could bring to them that would be valuable if they didn't need actual cash would be we can accelerate cash flow through deal flow conversion. Right. And so that's something that I think, because we haven't presented what we're going to do yet.
- [12:11]
And just so I'm clear, what that would be is, is so what it sounds like they sell their own products through their own platform. But if they could bring in other.
- [12:20]
They sell other people's products through their platform as well. They're similar to Amazon in that, in a particular niche. Right.
- [12:26]
And from that perspective, they wouldn't have the inventory constraint as long as the partners they were bringing on had inventory. Then they would create, you know, cash flow and profitability and all that stuff without having, without needing the $2 million to go and put it into, you know, inventory. Because they're effectively utilizing other people's inventory. Lower margin, but totally free, free cash flow at that point.
- [12:49]
Exactly. So, so love the business, love the entrepreneur, brilliant model and everything. One of the ways that we could help would be let's do, let's help with deal flow conversion. I have that particular set of skills, so I could definitely do that. And then while it doesn't help them with the short term cash need, it definitely could help get us into the deal. So kind of looking at what are creative options to get yourself into deals that you Know, what are the skill sets that you have that you could bring that will help eliminate constraints that the people that you're talking to have? This is one where that definitely fits. The other option would be straight investment. I don't really generally like having to take our money and put into deals ever. If we don't have to. Generally we don't have to. So I don't like that one. Definitely like the idea of getting into business with these people. So the other thing that I suggested was, couldn't we just sell our way to solving this challenge? Because they only need about a quarter of the total that they were talking about to satisfy the short term need. And, you know, you and I both know we've done a million dollars plus in a day. So if we have offers that we could either ourselves through a third party or through these people themselves, deploy to the audience that they've got or that we've got, that could benefit them. I think we could actually just earn the money that was needed for them to do their, you know, their immediate thing, call it a half million, and they're taken care of and then we've helped them solve a problem. We could either do that and say, and when we do that, we get equity, or we could just basically do it to be good people and say that plus the deal flow should open up, should solve the challenge you've got, plus open up the ability to invest in the, you know, or to have ownership in the company because we prove value. And so I'm just kind of kicking all that stuff around in, in my head right now and wanted to hear what your thoughts and questions are.
- [15:05]
Well, I think it's interesting. You know, everybody, when they go to raise money, they always need either 2 million, 10 million or $20 million, you know, and then it goes up. But it's funny, it's always like, I need $2 million. And so the first place where I would want to dig in more, and it sounds like you did this, is what is the use of funds? Like, what's that use of proceeds if you get the 2 million? Because very often the things that people think they need 2 million for, it's like, well, we can solve for that in other ways. So now you don't need to do that. You don't need to go and take on unnecessary debt. You don't need to dilute yourself anymore.
- [15:42]
We definitely don't need to stockpile cash.
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Yeah, yeah, yeah. And that's. You don't want to put money in a business where it's like, yeah, we just want to have dry powder. It's like, oh, that makes me nervous if there's not a clear kind of deal. And you know, you said that there's some operational stuff and things like that, so we'd want to unpack that.
- [15:57]
They need about a quarter of it. That's what I drilled down to.
- [16:00]
But how do you make sure that once that is solved that this cash flow constraint doesn't just keep. Because that's one of the challenges with E commerce businesses, right, Is you don't always get great economies of scale. Sometimes they get worse as you scale and your providers can't fulfill. You got to go to other ones and the quality declines or you know, prices go up. So how does this not become an issue in six months where the first problem is solved for. But then it's, it just rears its ugly head again and now we're back around saying like, well, we still need 2 million bucks. Who are we going to get it from?
- [16:32]
Yeah, and the answer there here would be they will always, every season, need to bulk up on inventory as long as they're growing. It's one of the, one of the evil cycles of E commerce businesses is hey, yeah, we're super successful. Downside. Yeah, we need more money for more inventory, you know, so, so I don't see that that need would go away. I think a, you know, a warehouse credit line would be something that we would work towards that would be helpful so that we could tap that for seasonal demand. The other stuff is just general growing pains. I think that they've recently honed the model down. I believe the model will cause cash flow. I think there's a way to turn the model they've got into cash flow that self liquidates, which would be one of the things that I think, think we could bring to the table there. So I, I don't believe other than general growth challenges that, that you're basically solving for something that only pushes the problem off until your cash is gone. So I think that's, that's a positive there. So I think that's, that's good information for you to have.
- [17:40]
And does it reach a point where that you can go? Because I know right now interest rates are high, banks are holding on to line, you know, lines of credit and stuff like that, you know, pretty tight. But like, is there a path or do they have existing banking relationships where, you know, they could get that line of credit? If not, I mean, and I believe I know the answer to this, but could we help them to secure that.
- [18:04]
Yeah.
- [18:04]
As a part of the deal.
- [18:06]
Absolutely.
- [18:07]
And that. Yeah. And that becomes the thing. It's like right now the reason they can't go and get a bank line of credit or something at even by 2020, 2021 standards, high interest rates, but still very doable interest rates is probably because of some of these growing pain challenges, some of these things that make it not look as compelling. So if we can solve for that, then they can go and get the less expensive debt that is more revolving is that line that they just need as a function of business. And we could probably help them do that.
- [18:35]
And I looked at one of the options would be a bridge, right. We could do a bridge loan that would mean cash out of pocket for us potentially. Although there are other ways we could potentially get that money. We could even broker a third party bridge loan that would take care of them and get somebody that we know a good interest rate, but not take cash that we might not want to deploy or risk that we don't want to take that somebody else is comfortable with. I think that could be good like a short term inventory loan. I've done that many times where I would loan somebody, you know, whatever it was that they needed. Usually it's less than a million, but for 30 days and get 20% on my money because they're going to take it and make double. Right. And, and I know it and they're proven and I feel comfortable with that. And it's just, you know, as long as they manage money that way, you know, it works for both of us. So that, that would be a potential thing that we could do. The other thing would be that there are assets that the founding team has that could secure, that are outside the business that could secure the loan and then you would be comfortable that you would have a collateralized loan and the ability to get it back. They could potentially use those assets to fund as well and just might not know the sources for that for, for the little bit of money that, that you know, that they need, the several hundred thousand that they need. I think that that would be really easy to put together and it would be way better for them. Because one of the things I was telling, you know, them was, I mean, don't do something with a PE firm or a royalty deal that you're stuck with forever to solve a problem that's a short term problem. Let us earn our way, you know, let's, let's. I always say us when I'm talking to people, I say let's earn our way out of this. You know, let's, let's take the challenge. We got to figure out how to put, you know, a million dollars in sales in the coffer in the next three weeks to make this happen. And then let's go do that. Because from that, our profit would be enough to fund what needs to be funded. And so it's just kind of. Hey, Roland Frazier 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, you 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 wanna 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.