How Smart Founders Get 5–100× Higher Business Exit Value John Ratliff On The Homefront #183

Summary

Podcast Summary: "How Smart Founders Get 5–100× Higher Business Exit Value" with John Ratliff on On The Homefront with Jeff Duden (#183)

Release Date: June 10, 2025

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Introduction

In Episode #183 of On The Homefront with Jeff Duden, host Jeff Duden engages in a profound conversation with John Ratliff, the founder of Align5, a consultancy dedicated to helping entrepreneurs scale, thrive, and successfully exit their businesses. The discussion delves into the intricacies of business exits, the critical role of financial acumen, and the paramount importance of company culture in achieving exponential exit values.

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Business Exits and Valuation

Understanding the Exit Landscape

John Ratliff opens by addressing a pervasive issue: many entrepreneurs sell their businesses for less than their true worth. He attributes this disparity to a lack of knowledge about the exit process. As he states at [01:40], "there aren't many books written on how to exit a company," creating an imbalance where buyers, particularly private equity firms, hold significant advantages over sellers.

Buyer Advantages and Valuation Shifts

Ratliff explains how buyers like private equity firms often buy multiple companies annually, leveraging their experience and financial engineering to acquire businesses below their intrinsic value. He illustrates this with the Amazon-Whole Foods acquisition, highlighting how strategic buyers can unlock value in ways traditional market participants cannot, leading to vastly different valuations based on the buyer's perspective. At [04:27], he emphasizes, "Valuation becomes relative to the value that can be unlocked by the buyer."

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Importance of Financial Acumen in Exits

The Entrepreneurial Financial Gap

Jeff Duden raises a critical point about founders often lacking deep financial expertise, which is essential during the exit process. Ratliff concurs, noting that "at least 7 or 8 out of 10 entrepreneurs really don't understand the financial statements of their business" ([14:40]). This gap can lead to suboptimal deals where founders may accept unfavorable terms due to inadequate financial understanding.

Best Practices for Financial Preparedness

Ratliff advises entrepreneurs to:

1. Engage a Trusted Finance Resource: "You should have an unbelievable finance resource, someone that can build a model and show you pre and post valuations" ([19:44]).
2. Legal Support: "You need a great lawyer too to get it structured the right way" ([19:44]).
3. Avoid Rash Financial Disclosures: He warns against prematurely sharing incomplete or unrefined financials with potential buyers, as it can anchor the deal at a lower valuation.

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The Role of Culture in Scaling a Business

Frontline Focus and Employee Retention

Ratliff shares insights from his experience growing Apple Tree Answers, where high frontline turnover was a significant challenge. Initially, turnover was at 115%, but through strategic cultural initiatives, it dropped to 18% ([35:01]).

Net Promoter Score and Employee Experience

The key to reducing turnover was implementing a Net Promoter Score for frontline employees, allowing managers to gauge and improve employee satisfaction continuously. Ratliff emphasizes, "we challenged every salaried employee... to ask themselves, what can we do today to make the employee experience better than it was yesterday" ([35:38]).

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Building and Maintaining Core Values

Simplifying Core Values for Scalability

Ratliff argues that core values are foundational and should remain consistent as a company scales. He cites Atlassian, a global company that retained its original five core values despite massive growth ([48:19]).

Core Values as Decision-Making Anchors

He outlines three fundamental roles of core values:

1. Tiebreakers in Decision-Making: Employees can reference core values when making decisions with incomplete information ([49:22]).
2. A Secret Language: Core values serve as a unique internal language that aligns employees towards common goals ([49:40]).
3. Guiding Tough Conversations: Values provide a framework for addressing and correcting employee behavior respectfully ([50:26]).

Ratliff shares practical examples, such as incorporating core values into the hiring process, which significantly improved hiring efficacy by ensuring candidates aligned with the company's cultural ethos ([52:34]).

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The Dream On Program: Enhancing Employee Engagement

Creating Personal Impact through Dreams

Ratliff discusses Apple Tree Answers' "Dream On" program, inspired by the Make-a-Wish foundation. This initiative allowed employees to submit personal dreams, which the company endeavored to fulfill. Over four years, more than 300 dreams were granted, profoundly impacting employee satisfaction and loyalty ([53:52]).

Notable Success Stories

He recounts moving stories, such as:

• Publishing a Book: An employee's dream to publish her Spanish poetry book was realized through company support.
• Family Support During Crisis: The company orchestrated a heartfelt surprise for an employee whose husband was battling terminal illness, providing family reunification and memorable experiences before his passing ([57:03]).

Ratliff underscores the transformative power of valuing and supporting employees on a personal level, fostering an environment where employees feel genuinely cared for and valued.

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Vision and Strategic Planning for Entrepreneurs

Speaking a Bold Future into Existence

Jeff Duden introduces the concept of "speaking a bold future into existence," advocating for entrepreneurs to clearly document and articulate their business vision. Ratliff echoes this sentiment, sharing his methodologies:

1. Strategic Aim Exercise: Inspired by Michael Gerber's E-Myth, Ratliff emphasizes writing a seven-year strategic plan in the first person, present tense, envisioning success as if it has already occurred ([67:38]).
2. Painted Picture Technique: Borrowed from Brian Scudamore of 1-800-GOT Junk, this method involves writing a detailed, vivid account of the upcoming year as though it has been perfectly realized. Ratliff uses this technique annually, which helps in setting clear, ambitious goals and fostering creative thinking ([69:31]).

Realizing the Vision

Ratliff shares anecdotes of how these exercises have led to remarkably accurate business growth projections, instilling confidence and guiding strategic actions.

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The Value of Networking and Masterminds

Combatting Entrepreneurial Isolation

Ratliff highlights the loneliness that often accompanies entrepreneurship, stressing the importance of being part of a community where founders can share experiences and learn from each other's mistakes ([73:33]).

Enhancing Creativity through Pattern Recognition

He explains that engaging in networks and masterminds exposes entrepreneurs to diverse patterns and ideas, enhancing their creative problem-solving abilities. By absorbing varied business strategies and lessons, founders can make more informed and innovative decisions ([75:54]).

In-Person Connections Over Digital Interfaces

Contrary to trends favoring digital communication, Ratliff advocates for in-person interactions, which he believes are invaluable for building deep, meaningful connections and fostering a supportive entrepreneurial ecosystem ([77:59]).

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Final Insights and Advice for Entrepreneurs

Navigating Business Exits with Care

Ratliff warns against hastily entering negotiations without proper financial and legal support. He stresses the importance of having a clear "deal vision" and being steadfast about non-negotiable terms to avoid undervaluing the business ([24:07]).

Choosing Valuation Metrics Wisely

He discusses the pitfalls of relying solely on EBITDA for earnouts, advocating for more robust measures like gross margin which are harder to manipulate and better reflect the business's true performance ([31:39]).

Empowering Frontline Employees

Ratliff reinforces the idea that employee satisfaction directly impacts customer satisfaction and business success. By prioritizing employee well-being and aligning their experiences with core values, businesses can achieve sustainable growth and higher valuations ([40:22]).

Closing Motivation

John Ratliff encapsulates his philosophy with a poignant quote from his father: "True happiness comes from improving the experience of others" ([84:20]). This principle underpins his approach to business culture, employee engagement, and customer service, offering entrepreneurs a timeless guide to building meaningful and successful ventures.

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Conclusion

The episode provides invaluable insights into the often-overlooked aspects of business exits, emphasizing the necessity of financial proficiency and strategic cultural initiatives. John Ratliff's experiences and methodologies offer a blueprint for entrepreneurs aiming to maximize their business's exit value while fostering a thriving, loyal workforce. From recognizing the advantages held by sophisticated buyers to implementing heartfelt employee programs, the conversation equips founders with the knowledge and inspiration to navigate their entrepreneurial journeys successfully.

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Notable Quotes:

• John Ratliff at [01:40]: "There's not many books written on how to exit a company."
• Ratliff at [14:40]: "Most entrepreneurs look at their bank account and if the number's going up, it's good. If it's going down, it's bad."
• Ratliff at [84:20]: "True happiness comes from improving the experience of others."

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For more insights and resources, visit podcast.homefrontbrands.com or reach out to John Ratliff directly at [e-mail].

Transcript

[Jeff Duden]

Welcome down the homefront. I'm Jeff Duden. If you started your first business at the age of four selling cotton balls and became a business junkie, practically running a ski resort at the age of 16, sold your first business in your 20s and then started Apple Tree Answers and grew it to 650 employees before selling it, grewing it by 24 acquisitions and today run a Line 5, a full circle consultancy, helping thousands of founders grow, thrive and successfully exit to become the one who changes their family's future. Your name can only be John Ratcliffe. Welcome.

[John Ratliff]

Hey, Jeff, how are you? Sounds way cooler when you say it. I. I lived it. It didn't seem that cool, but I like hearing it.

[Jeff Duden]

No, man, it's when the scabs heal and the blood stops dripping and, you know, it's like, I imagine it's like having a child. Once you have the child, you forget how painful it was to deliver it.

[John Ratliff]

That's what I've heard. We're not allowed to say that though, right? That's just for moms.

[Jeff Duden]

That's. Yeah, well, hopefully it's not the. It's the last thing I say that we'll have to edit. We don't edit anything, John. We just let it roll, you know, Let it roll. Let that opening question. Why do business owners sometimes sell their businesses that they've worked their entire lives to build or less than they are actually worth?

[John Ratliff]

You know, it's a great question because it's happening every minute of every hour of every single day.

[Jeff Duden]

Yes.

[John Ratliff]

And I think most of the time it's because they don't know what they don't know. And there's an interesting fallacy in business where, you know, you learn everything there is to learn about sales and marketing and culture and management and leadership. And like we, we do. There's thousands of books written every year on how to operate companies. Right. You can't, you can't walk through a Barnes and Noble without seeing thousands of them. But there aren't many books written on how to exit a company. And I think, you know, it's created this really lopsided marketplace where sellers, particularly private equity, they've kind of led the charge. But sellers in general have been able to create an outweighed advantage over unsuspecting. I mean, buyers have created an outweighed advantage over unsuspecting sellers. You know, a decent sized private equity company might buy 10 to 15 companies a year. Big private equities buying, you know, 50 to 100. As an entrepreneur, you might sell one or two in a lifetime. And you know the analogy we give, it's I always have to change the golfer, but I'll use Tiger Woods. It's like you found your grandfather's golf clubs up in the attic and you show up at the course having never played golf before, but you've watched it on TV a few times and you know, you get to the first tee and there's Tiger Woods. Well, who's going to win in that scenario? The same thing's happening in entrepreneurs trying to sell companies. They've never done it before and they think, well, I've watched it on tv, I know how to do it. And you know, it really creates a mismatch. There's a reason that, and again, I'll pick on private equity a little bit. There's a reason private equities compounded at 20% annual return for a couple of decades, they're not overpaying for businesses. In fact, in many cases they're in my view and I'm an opinion of one, but they're underpaying relative to what they're really worth. So that's probably the number one driver.

[Jeff Duden]

You make your money when you buy.

[John Ratliff]

Yeah, exactly. And, and there's normally, and again, the well run firms, there's normally a thesis about who they're going to sell to four or five, six years down the road. And they've already even made that decision. So yeah, they're, they're looking to buy based on a strategy that they've created, but that strategy is really predicated on who the ultimate buyer of the company is going to be. And when you, when you know all those things, you know, it's, it's easy to create scenarios where you have all the leverage and you have an outweighed advantage relative to the entrepreneur selling the company. So.

[Jeff Duden]

Well, you know, when people go to start a business, there's some classical questions. First one, who is the customer and where can we find them and what problem are we solving? So there's some customer questions. Then it's which, you know, Mark Cuban hates this question when, what's the size of the market? You know, when somebody come in, oh, this is a $42 billion. Like he says, I'm out immediately, I'm out if you're talking about the size of the market. But what is the size of the market? You know, I've gone down the path before where I didn't do that early enough and then I realized that it just wasn't that big of a market that we were trying to build. Into and probably wasn't worth the investment. But the third question, which nobody asks, I learned from a McKinsey guy, was who is the, who is the ideal owner for this business? And, you know, if you start with that, because strategically people are, well, we're going to add this, or we're going to add this service line or this product line, but you might make your offering overly broad and unintentionally lose 50% of your available buyers because now you're competing with them or some other thing. So, you know, building a business for a specific outcome and for a specific buyer Persona is, you know, that's, that's advanced.

[John Ratliff]

Yeah. And I, I'll take it a step further. Right. So we think about when, and we do this in M and A, but we kind of think about this now as sort of in general. But when you contemplate really how a company is constructed and what it consists of, we can boil that all the way down to Every company is a collection of assets and capabilities. And they use their capabilities with the set of assets that they've been able to acquire or create, and they leverage those assets through capabilities to create outcomes. That's as pure and simple as we can think about it. And if you look at it from that frame and you think about, all right, who might the buyers for this business be? You can start doing some calculus around, okay, what, what specifically about this set of assets and capabilities would buyer A value, would buyer B value, would buyer C value? And in many cases those are, are different things. So, you know, and I always, you know, I, I love to go back to examples and we look at the, the Whole Foods Amazon transaction, right? And in hindsight, it looks obvious, but at the time, you know, Amazon really got called into question about that acquisition. Why, why in the world the, the company that literally disintermediated brick and mortar is going to go back and buy a brick and mortar. But then you start to boil it down to assets and capabilities and you look at Whole Foods. Well, one of their, one of their key assets was all their physical locations. One of the things that Amazon really lacked was physical presence to interact with customers. And again, in hindsight, it's obvious. But you know, what was the biggest constraint for Amazon? Their whole brand promise was we want it to be an easy experience. Well, it wasn't easy to return stuff. You had to print a label and find a UPS store or FedEx or, and all of a sudden, overnight, know, they were able to take the entire footprint of Whole Foods and create a return Capability that they didn't have the day before. So if you look at, if you look at Whole Foods through the lens of a grocery store chain, you know they're going to get valued like the rest of the market, 4% net income, probably going to trade at something between 8 and 10 times that number and you know, a relatively discounted valuation. But you look at it through Amazon's lens and all these assets and all these capabilities at Whole Foods could be unlocked in a way at Amazon that you couldn't unlock anywhere else. So all of a sudden the valuation massively shifts and we see that even in, in you know, relatively small size transactions, you'll get, you'll get three buyers. And our processes, we, we love to get buyers to go from, you know, we'd like to own this business to we'd love to own this business. And then if we can get two or more kind of well resourced buyers to say we have to own this business because it fits our strategy, because it fills out our geography, because we need this customer list or access to this, you know, manufacturing capability, whatever it is, you get two deep pocketed buyers that say we have to own this business. All of a sudden you can throw all the industry average multiples out the window. Valuation becomes relative to the value that can be unlocked by the buyer. The problem is not a lot of advisors and not a lot of entrepreneurs are thinking about it that way. They see it through the industry multiple lens like, oh, I'm in the XYZ industry that trades at 5 to 8 and if I get 8 times EBITDA, I'm thrilled because I was at the upper end. But if you get a have to have buyer, you know, you could be at twenty, thirty, a hundred times EBITDA because that specific buyer can unlock value in a way nobody else can. And it really kind of turns things around. Now it's a lot harder to do M and A that way, right? You're casting a wider net, you're having longer conversations, you're helping buyers see the world strategically. It's a lot of extra work, but the outcomes are often exponentially better than industry average. So that's kind of how we think about starting it with the end in mind, but thinking about the assets and capabilities from the buyer's end in mind. And every buyer is going to value different things in different ways.

[Jeff Duden]

I've been to your website, line five and I'd love to understand the scope of services that you provide there because it appears as if you are.

[John Ratliff]

A.

[Jeff Duden]

Scale, you are a You're a consultancy that may be grounded inside of the scaling up methodology by Vern Harnish, that you engage with founder owners to increase capabilities in their business, to scale their businesses, and then it looks like you stand alongside them in the sales process. Is that accurate?

[John Ratliff]

Yeah, that's accurate. So I actually co owned with Vern. I was the majority stakeholder the Scaling up coaches organization for the last seven years. We exited, we exited our position just in February of this year. So congratulations. Yeah, we're. Thank you. Yeah, thank you. Yeah, we're deeply rooted in that methodology. And it doesn't have to be the scaling up methodology per se, but I mean, as you know, coming out of franchising, having an operating model that is scalable and repeatable is one of the fastest shortcuts to success in business. If you wake up every day and you have to figure it out from scratch, that's a whole heck of a lot harder than if you wake up every day and you improve and perfect on an already optimized operating model. So, yeah, we see the world through that, you know, through that mindset that it doesn't have to be scaling up, but it has to be something. And when we think about, we wake up our purpose out of line five and my purpose is to wake up every day in service to entrepreneurs. And we think about the entrepreneurial journey as a full circle. So, you know, you start up and then you figure some stuff out and you start to scale and then rapidly scale and then you've kind of got a mature business that you've optimized, then you start contemplating, you know, exit, whatever that means. That might mean passing it on to your kids or your employees or selling it to someone else. Then you go through the transaction and then you have a whole life kind of post transaction. If you think about that like a full circle, you know, our deal is we'll meet you wherever you are on that circle and we'll have resources for you to help you kind of along that journey and along that path. We're not the world's greatest with startups. We certainly can help startups, but you know, our passion is really in the scaling up. Contemplating exit, exit, post exit side of the world. That's what Align5 is about.

[Jeff Duden]

You built a company called Apple Tree Answers and you did that. You started with two people, I think out of an apartment. And then somehow at a ripe young age, you started doing acquisitions. And the this question is heading towards when did you first learn finance? And so you started, you did 24 acquisitions and through that time you're paying multiples of three to five. In 2012, you exited that business with 650 employees at a 15 plus multiple. So I don't know what the EBITDA was, but it was probably a life changing event for many people on your team and exit. But like, what happens so much and even today, like, I understand that I have to have great finance people around me and I don't think founders really understand that finance, it's a foreign language. And if you wade into those waters and you try to negotiate on basic terms that there are 50 gotchas inside of that, that the private equity people are manufacturing and whether that's a preference on first money in or all of these types of things that change the equation, it changes the value equation. And you have to have a pretty comprehensive toolkit to handle a deal really of any size. When did you, how did you cut your chops in finance and when did you really make an awareness like this is really where the money's made. In addition to creating a great business and a great operating business and a great culture and competitive advantage inside of a business like you can blow it all with, with bad finance.

[John Ratliff]

Yeah, 100%. And you know, in our kind of, and it's all anecdotal, but in the entrepreneurs that we come across and work with and, and have been around, you know, I would say it's, it's at least 7 or 8 out of 10 that really don't understand the financial statements of their business. Certainly they kind of get P L, but as soon as you get the balance sheet and cash flow statement, the, you know, the blank stares start to come. I, you know, ironically, I was a finance major in college, which taught me absolutely nothing about finance other than to understand that the stock market's built on, you know, imperfect information and trying to get an arbitrage on information. That's. That was the extent of my finance degree in college. Probably the most meaningful class that I took as a business major was managerial accounting. But even that and I got a D, so I got to take it twice, which was great. But even that kind of just gave the basic rundown. It's really getting your hands dirty and working through some sample transactions with good finance resources that you start to connect the dots and put the pieces together. I can't agree more. And anyone that's going to contemplate anything transaction wise should have two things. I'll argue that you should have a good advisor, but that would probably be third on the list. I think you have to have an unbelievable finance resource, someone that can build a model and show you pre and post valuations, that can show you how cash flows in a business, how debt works, how equity versus debt financing is massively different in terms of the cost to the buyer. And I think you need a great lawyer too to get it structured the right way. Because you're right, there are so many gotchas. And you know, again, I always go back to beating on private equity, but when private equity was first contemplated, the idea was let's build centers of excellence, operational excellence, and help entrepreneurs operate companies better. Then they realized the arbitrage on that wasn't so great. So they've become unbelievably good at the financial engineering side of transactions. They've become unbelievably good at buying companies for significantly less than they're worth. And that can only be done through transaction structures and legal structures. And really understanding the finance side. It's funny because one of the things we caution everyone against. So I'm going to give this blanket caution to anyone that's listening. There's this really seemingly innocuous thing that happens when you haven't thought about selling your company and somebody knocks on the proverbial door, sends the email, makes the phone call, whatever it is, and asks the very simple, hey, have you ever thought about selling this business? And the answer is always, no, we haven't. But you know, we'd be open to the idea. And that that simple, you know, exchange ends up leading most entrepreneurs down a pretty suboptimal path. And it normally goes something like, send us over an NDA, we'll get your financials and we'll give you a rough idea what this business might be worth, which is the worst possible thing you could ever do. Number one, your financials aren't in an investor ready form. Very likely they're not. Number two, all the stuff that you're running through the business, your car payment, maybe a vacation here or there, club membership, whatever it is, all that stuff's still in there. So now you've revealed an unbelievable amount of your personal financial situation that you would never want to do. And if that ends up being the buyer, and by the way, they're a sole source buyer, so they know there's no competitor. Like, it's a terrible way to proceed. But even if they're the right buyer, you're going to behold, be beholden to that first set of financials you sent over forever. So if you ever get the call and you're like yeah, maybe this makes sense. We'll contemplate it. Push pause. Get a finance resource. Get the financials in an investor ready form. Try and get multiple people to the table. If you can't do that, I get it. But don't just fire off Your bookkeeper prepared QuickBooks financials and hope that you'll ever recover from whatever's in there that you wouldn't want somebody to see. So, yeah, truly understanding how cash works in a business and how the financial statements work, it's a rare gift among entrepreneurs. Most of them look at their bank account and if the number's going up, it's good. If it's going down, it's bad. And that's the extent of their knowledge. So don't feel bad for not knowing. Feel bad for not taking the time to put the resources around you that can really help you understand. I think it's one of the most critical, underappreciated skills for entrepreneurs.

[Jeff Duden]

Fair enough. I sold a business that I built for nearly 25 years and the I. I was messing around with a couple of inbound acquirers and doing exactly what you just said. I knew that I would run a process, but I was just having conversations and I was, I hadn't come to terms that I was actually going to exit the business at that point in time. So the CEO of this company that we had been talking to for months flew in and we went to a dinner and literally when he threw. And I had an inkling of what the business was worth and he threw a number at me and it was almost, he was almost like, how about it'd be like this, like, I'm like, man, your lip's not supposed to quiver when you give the price. I mean, I know. Like, that is, that is in. Within 12 months, I sold the business for five times that number. Yeah. And it's just like, you know, I mean, I would have. But many people would have taken that number because it, honestly, it would have been a life changing amount of money. I mean, it would have been fine. I mean, other than the fact that you would have left, you know, 80% of it on the table. Yeah, but it happens to people. It happens to people all the time, Jeff.

[John Ratliff]

It's happening. It's happening, right? Like someone probably just inked a contract in the last 30 seconds that it happened. Um, and yeah, when you wake up and realize what you left on the table, even if you got a life altering amount, it. It sits with you for a while. Um, and unfortunately, your story, you got five times More, I can't tell you how many times that same number gets thrown out and ultimately the entrepreneur gets one fifth of that number or one third or half or even 75%. Oftentimes the, the opening number is the North Star and you end up working down from that number, which is even more tragic. So yeah, really is an unlevel.

[Jeff Duden]

Yeah, I do, I lead a brand builder summit for certain emerging franchisors and I take, I bring my deal book hour and it's probably like 12 inches of paper, right? It's like that. And then I say, I asked the question on the screen. It says, when you ultimately go to sell this business, what's more important, price or terms? How would you answer that question?

[John Ratliff]

Terms. Thousand percent terms. Well, I literally was having this conversation an hour ago with a friend of mine who's sort of a client. The, the axiom is my price. Your terms. Your price, my terms. And you know, I, so many times we lock in on I sold my. Like no one ever says I sold my business for this cash at close and this earn out. And then we always say I sold it for X. And we get, we get enamored by X. And as soon as you get enamored by X, the buyer has all the power because they're going to help you get to X through their, you know, flavor of terms. And many times those terms are not in your favor. So I'll give you, I'll give you two transactions. You, you can sell your business for 50 million and you get a cash at close or you can sell your business for 80 million and it's 20 million cash at close and 60. 60 million in some flavor of, of, you know, variable comp earn up. Well, if I just said 80 versus 50, you're all, you're going to take 80 all day long. But if I tell you 50 versus 20 at close and 60 over some, you know, uncertain future, of course you're going to take, well, depends on what your confidence is in that uncertain future. But the terms matter way more than the number in both of those scenarios. And the way to think about it is whatever you walk away from the deal table with is the amount that you can relatively comfortably agree you're going to hold on to. Now that's why you need good lawyers. You don't even always get to hold on to everything you walked away with the deal table with. But at least they have, at least they have to pry that out of your cold dead hands to get it back versus they've got the pen and the checkbook to decide if they're going to pay it going forward.

[Jeff Duden]

They'd have to come to Thailand to take mine.

[John Ratliff]

Yeah. And you know, one of the things we'll do with an entrepreneur contemplating an exit is we take them through a deal vision exercise. So, and this is something everybody listening can do, sit down and come up with the entire list of all your have to haves, what has to be true on the closing day for you to say yes, I'm willing to put the ink on the paper and build that list. And in our advice, if you're going to waiver from it, be really, really thoughtful about giving up on a must have or have to have on the list. So it's, we'll call it need to have, have to have, must have on one column and then nice to have in the other column. So yeah, it'd be nice if they kept the brand. It'd be nice if my employees get two year employment agreements. It'd be nice if this, it'd be nice if that. And know what those things are. But get really clear on what has to be true for you to continue down the path and say yes. Because invariably what happens is my, my joke as an Advisor is it's 20% advisors, it's 80% psychologists.

[Jeff Duden]

Yeah.

[John Ratliff]

Because the psychology, you're on a roller coaster. It takes a year, nine months, a year, 15 months to get a transaction done. And you'll have moments where you're like, this is the greatest thing that's ever going to happen to me. And you'll have other moments like this is another nightmare, it's never going to get done. And it's in those moments where you're in the nightmare mode that you're really vulnerable to getting retraded by an unscrupulous buyer. And if you've been really clear on what has to be true for you to go forward in those uncertainty moments, you have a lot of things to anchor to. If you don't, you really run the risk of getting taken advantage of. And I, I hate to be all doom and gloom because it should be a happy moment selling your company. But this is through watching hundreds of transactions go wrong and see all the different points where, you know, entrepreneurs get their unsuspecting sellers get totally taken by very, very sharp and calculated buyers.

[Jeff Duden]

Yeah. And you know, unscrupulous. There's many different flavors on that spectrum. So one thing I've observed, some people will try to negotiate an earn out with you, but you're no longer running the company. So how you know, whose control is it that this earnout is hit or not hit or going to be sandbagged or whatever. There's no language that you can put in there efforts or anything else that, where they're going to, if it's material, they're going to hit that earn out, they are going to go right up to that 12 months and, and come in underneath it. And then so you, like you said, if you're comfortable with getting what you're getting, walk away from the table, then that's, that's the deal. And you know, and then the, I heard there's one horror story from a YPO guy that you know, sold the business for some, let's just say $15 million and got three. It was a, you know, he's trying to get out, he needed to get out of the business and took three or four million dollars down and the day after they closed was hit with like a 500 page lawsuit by the buyer challenging everything that they had given him. And they fought for the next three years and spent $2 million and ended up with nothing. And it was, and then once you find out that now there was, there was a bunch of people laying in wake of that company that had done it, but they had all signed NDAs and couldn't, you know, so there was nothing that you could, that you could have known. But I think like understanding who's buying and it's not like that's an extreme example, but even fund life, right, let's just say that you're selling, you've run a process and you've got two people at the end of the line and maybe one's $3 million higher than the other one and they're both going to let you roll back as much as you want to roll back. But one is coming to the end of their fund life and the other one is in the beginning of their fun life. So you know, from a perspective of okay, well I can take $3 million today and let's say I roll back $10 million, but they're going to resell that business inside of a year. So how much am I going to make on that 10 versus rolling that $10 million back into the second deal. And if they're, if they're acquisitive and they're doing things that are accretive and they're investing in the bit, you're going to get a longer ride, you might get a 5x on that $10 million versus a 30%. So I mean, you know, that's And I don't, you know, advisors would probably have to be careful in that situation because nobody can really tell the future and they have to just say, look, here's this and here's what we see and here's this and here's what we see. But for all you know is that second company makes a bunch of bad acquisitions and they, they stumble through it. I mean you can't really tell, but I mean there are things that would give you more information that would not be something that a founder would really think of going through their first exit.

[John Ratliff]

Yeah, well, and the assumpt, the safe assumption is always that the future goes to zero. And if the future went to zero, would you still be satisfied with giving up the economic engine that was supporting you and your family based on what you got at close? And in the vast majority of these big earn out style structures, the answer is no. So now to your point, you're beholden on somebody else in an operating control position crafting and creating your future for you. And it really creates a lot of misalignment. Back to the YPO example. There is, there are a couple things you can. And think about them like trial balloons that you can float out there that I, I always, I always love to know the cards people have in their hands. And there's some subtle ways you can, you can get at least some tells from buyers to see how they're thinking. And there's a provision called an anti sandbagging clause which basically says anything that you discovered in diligence, you can't call back after the fact and say hey, this, this wasn't right, that wasn't right. And anyone that pushes really hard against an anti sandbagging clause may have some designs on sandbagging you after the close. So it's not about that that clause is going to protect you per se. It's about I want to see the reaction when we float that trial balloon. And if there's an allergy to it, I want to gauge the level of allergic reaction to see is this something that maybe they're contemplating? And there, there are little kind of things like that that you can do on the, on the earn out front. One of the things you can contemplate and this one, I've pulled it off a handful of times. It's, it's harder to get done but again it, it's a tell and it'll tell you how the, the buyer's thinking. You know, you look at, you look at EBITDA as the most common metric to Measure earnouts by. It's also the easiest thing to gain the system manipulate.

[Jeff Duden]

Yeah, absolutely easy.

[John Ratliff]

The harder one is gross margin. And I'm in the, I'm in the middle of a negotiation literally right now where we're contemplating an earn out and cherry on top of the Sunday earn out. But we're, we're going to, we're going to base it on the gross margin of the business. Way harder to gain gross margin. Now buyers will tell you how they think about earnouts by their reaction to the trial balloon of let's base the earn out on gross margin. If they're vehemently allergic to it, there's a really good chance that they're good at gaming the system around EBITDA to not pay earnouts. If they're open to the idea, but they want a little bit more detail, then maybe that's a different tell. And if they're totally open to the idea, then they're really looking at it as a partnership in my opinion. So there are some.

[Jeff Duden]

Can I ask a question? So the gross margin, would that be on percentage gross margin or would that be on actual dollars contributed to gross margin? I would think it would have to be the latter.

[John Ratliff]

Yeah, typically the latter. You know the, the idea being that you know, you're, you're, and this is one of the great paradoxes in M and A, you're valuing the business based on the past trailing 12 months and I want to see your historical financials but really you're buying some future expectation. You're buying a future state of the business. Gross margin is probably the most accurate measure to determine if you got to that future state or not. You may make growth oriented decision around reinvesting some of those margin dollars in marketing or whatever it is that would have a short term effect on EBITDA and the bottom line. But you're not going to damage gross margin. You may trade future top line revenue for gross margin accretion. And that's when you could make the argument hey, we should be basing this on the percentage of revenue side, but that's going to be a little bit harder to pull off. I think gross margin dollars collected is the easiest, most accurate and probably most fair way to think about did you get the value you wanted in the future or not?

[Jeff Duden]

Yeah, John, I'd like to shift over to your build of apple tree answers and specifically about some of the lessons learned around culture. And as the story goes, you've got the top line, you've got the bottom line and you've got the front line. And the front line is where all the interaction is for us as a franchisor. Our front line is our 70 corporate employees here at the home office. Almost everybody touches the franchisees in one way or another. And that's our front line. And then the front line of our franchisees is their customers, their end user customers. And it's the people that are interacting with those end user customers. So I think we have kind of a two, we're fighting a two front line war here. And you know, what are some of the things that you learned in growing this business? It was over 18 years to 650 employees. Where, where did you stumble? What did you learn and then, and where did you end up with it?

[John Ratliff]

Yeah. So, you know, it's interesting, in 2000, I think it was 2008, maybe our frontline turnover was about 115%. So for every frontline employee, we were hiring more than one frontline employee a year. And interestingly, we had a core group of about 50% of those that never turned over. And the other 50% we turned over like two or three times a year. So we had like a really aligned sort of loyal group of frontline employees. And then we just, you know, part of it was hiring, part of it was our culture, part of it was.

[Jeff Duden]

It by location though. Like these locations didn't turn over and these did.

[John Ratliff]

It was sort of bi location. Yeah, for sure. And you know, when we looked at, you know, we looked at every metric there was to look at and we ultimately landed on net promoter score for the frontline employees. And that's how we knew how effective our managers were, how happy their employees were. And that was, you know, the, the biggest key to keeping them. I know it sounds like rocket science, but the biggest key to driving turnover down was really we challenged every salaried employee in the company every day to ask themselves, what can we do today to make the employee experience better than it was yesterday? I, I think brands especially, but I think companies in general get it wrong. They spend all this money externally to create a brand expectation with customers. They don't spend any internally to get their employees to fall in love with their brand. And then they have emergency meetings trying to figure out why they can't deliver on their brand promises to customers and why employees really aren't aligned around the brand promises. I think you should do it the opposite way. And this is what made Starbucks so successful early on. They spent all their marketing dollars internally to get their team to fall in love with the Idea that was Starbucks. You know, health insurance and all the things that they did. And customers came through word of mouth because it was a remarkable experience to go to Starbucks. You know, Starbucks advertising budget early on was really insignificant because they spend so much on employee engagement. And I actually, I still feel that way that, you know, we have to think about that customer interface piece as the most important link in the value creation chain of a business. And so for us in the call center world, it was, it was interesting. We would buy a company and oftentimes they'd be in like class C office space. And we, we didn't really do a lot of class A and A plus, but we were all class A minus or B plus at the worst. So we had to move a lot of these companies that we bought and we would bring in a space planner. And every single space planner we ever worked with wanted to put all the management offices where the windows were around the outside and put the call center kind of floor with cubicles internal, with no windows. And we used to say, no, it's the opposite. Figure out the best views, the best real estate, the best space inside this new office. We're going to put the frontline people there and then we'll figure out where to put everybody else. The number of times I got into arguments with space planners like, that's just not how it's done. You don't understand the subtle differences of putting. And you could call it servant leadership, call it whatever you want, but the subtle difference of making the, the frontline employee the most important, you know, and I hate calling an employee an asset, but your employees really are part of your assets. The most important asset inside a business to me is so fundamental, I would never be talked out of it. But it is certainly not the norm. You know, we, we, we did a whole kind of, one of the things that would happen, we'd buy a company and all the frontline people were sitting in the worst office chairs you've ever seen, right? The wheel fell off of one and the arms are unlevel and like they're, you know, they're eight hours a day trying to type on a keyboard where all the letters have been worn off. And so one of the first things we would do is we would go in and upgrade all the technology and the office chairs and everything for the front line. And invariably management team would be like, what about us? Well, you know what, where like, you'll get to sit on whatever the best of the crap that's left over is for you. Your job is to take all the rocks out of the river for the front line and make their experience as easy and seamless as possible. Unless you want to sit there for eight hours a day and answer the phone and serve our customers your job. They're. They're our internal customers, the frontline employee. And your job as a leader here is to do anything you possibly can to improve the experience of our customer, which is the frontline employee. And it took a while for us to kind of get that mindset right, but once we did, you know, turnover went from 115 to like 18%. It changed everything in the business.

[Jeff Duden]

But very, very subtle, but significant. Yeah, Sends a strong message.

[John Ratliff]

Does. And it changes the level of empathy. You know, I always. We had a program called Dream on. You touched on it a little bit when we were prepping for this. But I want you to imagine this scenario where you have a frontline employee and your CFO and they're both driving to the same office on the same roads to get to work, and there's a pothole on the road and the frontline employee hits the pothole and gets a flat tire. And Maybe they're a $20 an hour frontline employee, so they're paid okay, but, you know, not great. They hit the pothole. Like that's a crisis, right? They don't have aaa. They don't have roadside assistance. This is their only car, whatever it is, they don't have the cash in the bank. So now they have to get a new tire. They're late to work because no, they had to find a friend to pick them up all the things. And they get to work and they sit down and you say, well, before, before we start. This is the third time this month you've been late. We're going to have a verbal warning and you got to sign off that we had this corrective action and you've got four points and if you get to 10 points, you're going to get fired. And like we literally rain all over them right after they had this crisis. And then we tell them, what's the last thing we say after all that? After we rain all over them, we go, now go sit down, put a smile on your face and serve our customers. The CFO hits the same pothole, same flat tire, calls Mercedes roadside assistance, that comes and picks her up, drops her off at the office. We'll bring your car back when it's done. Don't worry, your warranty covers the tire. It was a non event. And they're a half hour Late. And they come in and what do we do? Ah, that pothole. I hit that last week. Can I get you a cup of coffee? When are they going to fix that pothole? Like, yeah, that's terrible. Like we commiserate with the person that had the non event and we destroy the person that had the crisis. Like we have it all backwards. The frontline employee. And you know, I'm a big believer in the entrepreneur. And like I said, I wake up every day to be in service to entrepreneurs. But what a privilege as an entrepreneur that these people are showing up every day to turn our vision in the world into a reality. Like we owe them the greatest debt of gratitude of all time. And instead we do the opposite and we treat them not always the best. And one of my, I have so many rants on this culture side. I always challenge entrepreneurs to pull out their employee handbooks and I give them a highlighter. If we start working with them on culture, I have them take their handbook and I give him a highlighter and I say, you need to sit down and read this. And I insert some expletives handbook from beginning to end. And I want you to highlight everything in here that's in here to address the behavior of the bottom 10% or 20% of your team. So anything that's for the bottom 10%, highlight it. Jeff. Every single time. We have 110 pages and like 90 of them are bright yellow, right? Like that's how we run companies. We run companies in the least common denominator way. Like, well, if someone shows up at work with a gun, it better be in the handbook. That that's a. No, no. Yeah, no kidding. That you can't bring a gun to work. Like putting it in the handbook, is that going to change someone's behavior or not? And what you do is when you hand that handbook to an A player, they get 110 pages of why you tolerate all this C player behavior at your place. So much so that you have to put it in your damn handbook that you know, don't be a C player, don't be a C player, don't be a C player. And it's totally upside down.

[Jeff Duden]

I just rewrote our handbook. You ready? Use common sense. Be a decent human, do your job.

[John Ratliff]

Love it, sign it. My version is, my version is we're, we're all adults. If you act like an adult, you, we will treat you like an adult. And if you choose not to act like an adult, then you can work somewhere else.

[Jeff Duden]

Like that's it, that's it, yours is.

[John Ratliff]

Yours is even better.

[Jeff Duden]

I, I, I, you know, we just went through this, you know, because we got, we have, we have hr, we've got corp, we've got in house counsel from the beginning and we've got, and you know, the handbook came out and then all this stuff got in there and I'm just like, you know, you're just, you're creating a culture of working a system within this set of rules that shouldn't even apply to adults. An adult workplace.

[John Ratliff]

Correct.

[Jeff Duden]

It's just a shame. Like how big can a company get where you can still run it? Like I built my business like I built. So here was my thing and when I interviewed everybody, I would say look, here's the deal, here's our values. Which one resonates the most with you? We have carers values, community, accountability, respect, excellence and service. That was my values at the other company. That's our values here. If a franchise owner wants to build anything inside of those values, now I teach them because your values break the ties. Your values give you a framework within which to handle difficult situations, whether that be a job that went wrong, whether that be a, an employee situation. But then if you want to build, there's a franchise business, if you want to build a faith based business inside of that, have a set of principles, that's great. You want to build a veterans based business. If you want to build a immigrant, like whatever it is, we've got a guy in from, where is he from Ecuador today, you know, and so everybody has their value, their principles that are authentic to them, that's going to help them attract people and keep people, you know, to them inside of that. But like I would tell people when I hired them, I said which, which one of our values resonates the most with you? You'll learn more from that question than any other question that you could have in an interview because they'll tell you who they are and what matters to them and why and they'll give you specific situation. You want to talk about a company competency based interview, ask them talk about their values and why and when, when they proved it and applied to it. And then the second thing was, look, we, nothing gets in the way of serving our customers. And if you have a problem with another employee, you don't need to love them, you don't need to go out to work, out to eat with them, you don't need to go out to lunch with them. But you have to get to work together. And if, and if Anything, any little click or a silo happens because people don't want to, want to make it hard for somebody else. You're going to go to lunch with that person and you're going to come back and tell me that it's good or who's leaving. And that was it. And like. And that worked for 25 years.

[John Ratliff]

Yeah. You know, and there's this fallacy that as we get bigger, we have to be more formal. And so Atlassian, They're a global 50 size software company based out of Australia. Right. When they were, when they were 30 employees, they created their five core values. They have the exact same five today with the exact same icons, the same video and how they teach new employees. And they're, you know, 20,000, 30,000 employees globally, they have the same five core values. So I, I do believe you can scale now. Do, do you need more lawyers? Do you need more policy? Do I get, yeah, you need all that stuff. But at the heart of it, the values don't have to change in my, in my view. And you know, for me, core values do. And I, I think it's one of the most important things you can do in a business. You know, we can all find lots of successful companies that don't do core values well. We can all find lots of failed companies that don't do core values well.

[Jeff Duden]

Right.

[John Ratliff]

It's really hard to find a company that's been a complete failure that nails their core values like it normally doesn't happen. So why not stack the deck in your favor? For me, core values do three things well. They do more than three, but there's three kind of fundamental ways to think about core values. Invariably, and you talked about it being a tiebreaker. Invariably, employees have to make decisions when they have incomplete or nebulous information. They don't have all the facts and their confidence takes a hit when they have to make those decisions in a vacuum or incomplete. And they can either run to you and ask you a thousand questions and take all your time, or if they have a really deeply adopted set of core values inside the company, they can anchor those decisions to a core value. So at least they have a defensible position. Hey, I know this went wrong, but here was the value I was thinking of and here's why I made the decision. And now you can have a conversation about their thought process and the value.

[Jeff Duden]

Number two, it's absence and presence. Right? So I tell them, my owners, I say, you need a team of people that will make the same decisions in your absence as they would. In your presence. You can't scale without it. You can't make every decision for people.

[John Ratliff]

And the values are like the perfect way to set the stage for that.

[Jeff Duden]

Yes.

[John Ratliff]

The second is it's a secret language. Like cares to you means something completely different than it means anywhere else on the planet. And the C for community means something very unique to you. We had seven core values at Apple Tree. I won't run through them all, but I'll give you one. We stole it from John Wooden. Be quick, but don't hurry up. Yeah, that meant something to us that it didn't mean anywhere else on the planet. I sold the company in 2012. If I found one of my old employees on the street today and I said, hey, be quick, but don't hurry, they would know exactly what I meant because it was that specific. So that's number two, and then the third. And I think this is maybe the most important part. The values can be the bad guy in the tough conversations.

[Jeff Duden]

Yeah.

[John Ratliff]

So you know when, when something goes wrong or something breaks and you gotta have one of those what the bleep were you thinking? Conversations. Instead of that, instead of what the bleep are you thinking? You can say, you know, we had one that was think like a customer. Hey, here's the scenario, here's what happened. How do you think that lines up with think like a customer? I want you to just measure it against that value. And then any rational human being realizes, all right, yeah, I wasn't thinking like a customer at all. And now think like a customer is the bad guy and we can have a dialogue about it. Instead of me feeling, you know, attacked and you pissed off that I didn't think like a customer in the first place. So that when done right, they're unbelievably powerful. And I'll take it one step further on your hiring process. So we were in the call center space, we were really getting it right on the culture side. And so we were getting tons of. When we had a new position open, we were getting tons of outside interest, but our employees were referring a lot of their friends. And, and we were so overwhelmed with resumes and applications, we were doing a terrible job at responding. So imagine an employee who's so excited to refer one of their friends, and we don't even call that friend back for an interview. And now all of a sudden we're doing damage to our really happy employee. And it was my sister in law. We, we banned the term hr. We call it the employee experience department. She ran the employee experience department. And so what she did was on our online application. Every employee had to start with an online job application. The very first question was, these are the seven core values at Apple Tree. Pick one of the seven and tell us a story about how you live that value personally or professionally. And then this was the secret in parentheses. It said optional. It was not optional. It was the fastest way to opt out of working for us was to skip the question. About 40% of the people just skipped it. So they were immediately eliminated.

[Jeff Duden]

Oh, that's brilliant.

[John Ratliff]

That was a screen for will. They didn't even have the will to answer the question. So they were out. Then 60% would answer. We would read that first. And if the answer to the question didn't resonate, they were out. And they could have the perfect. And I'm sure we missed out on some decent candidates, but they could have the perfect resume, the perfect skill set, the perfect everything. If we read the answer to that question and thought, eh, they were out. So instantly we were only talking to applicants that we resonated with first off around values. It took our hiring efficacy probably 10x it and we did top grading and all the things. But that simple move. And we did that out of desperation. We were getting 400 applicants for one call center job which was impossible to screen. We were able to screen 70 or 80% of them just with that question. And then we could focus on the ones that really resonated with us. So just a subtle, powerful tool.

[Jeff Duden]

Powerful tools. Inside of a business, living your values consistently is important. How did you use the Dream on program to really demonstrate care for your front line?

[John Ratliff]

Yeah. So essentially Dream on was just to. Just to set the stage for it. And again, came out. Most of the things we did came out about our desperation. This was one of them. So we had a quarterly planning meeting. I was at a conference with a buddy of mine and ran a business in Canada. Looked very similar to ours, a little bit smaller. And we were having a conversation about frontline turnover. And he asked, what's your voluntary Frontline? And I said, we're about 115%. And he looked me dead in the eye. And this is a guy I respect a ton and great operator. He looked me dead in the eye and he said, that's fantastic. I was like, no, it's not fantastic. He goes, well, you know, our industry average is like 200%. We're at 150 and I think we're doing well. You're better than we are at 115. And it's like, this is ridiculous. So it was time for quarterly planning. I went back and said, listen, this is our prayer. We have to solve this. This is a problem. So one of our team members said, well, what if we had the Make a Wish charity model? But we did it internally for our team. And that turned into a series of conversations that turned into a program called Dream On. Dream on was the opportunity for every employee in the company with no restrictions to submit a dream. Something they, you know, if they could wave a magic wand, what would they make happen? We ended up granting over 300 of them between when we launched the program in 08 until we sold in 2012. And we, we actually stopped measuring the ROI because it was so good. It didn't matter. To go from. We had, we had 500 frontline employees when we sold. So imagine hiring whatever 115% is. 580 versus 18%, which is less than 100. Even at a, even at an average cost of $5,000 to hire a frontline person, like saving millions of dollars a year, like, we couldn't grant enough dreams.

[Jeff Duden]

What would be an example of one that was like a really small, simple one versus one that was more complex?

[John Ratliff]

Yeah. So there's so many great ones. We had an employee in Puerto Rico who had written a book of Spanish poetry, and her dream was to get it published. So we published, we got our publisher, and we did a thousand copies of her book. We had a mom whose daughter was in the Navy and they couldn't afford to get her home for Christmas. She was based in San Diego. The mom was in Pensacola. And so we didn't tell the mom, but we surprised her with, I think we gave her at least a week. It might have been two weeks off of work. And we got our place in San Diego and told her daughter and she was in on it and bought her plane tickets and we sent her to San Diego for Christmas. Like, unbeknownst to, to her, we, we bought a headstone, two of them actually, for two different employees that lost grandparents and they couldn't afford headstones. We hosted a fifth birthday party. We did a 40th anniversary party for someone's parents who I had never met. We, we, we, we must have sent 20 people on honeymoons and trips. And, you know, we had amex points. And.

[Jeff Duden]

Right.

[John Ratliff]

You know, we forget as entrepreneurs this amazing network we've created, especially if you're YPO or EO or CEO, any of these organizations. Like, we had a kid that wanted to meet the guy that wrote SimCity, the game, the software game, SimCity from like the 90s, I guess. And we were able to get him to lunch with the, like the creator of SimCity. Like there, there were all, you know, we bought cars and tires for cars and you know, it was really an across the board thing. We, we also did some pretty special things. You know, we had an employee that. There were some amazing stories. I can tell you a quick story. One of the things that came out of it that like, still to this day I, I half the time can't get through the story without like an emotional breakdown. But we had a kid who was the husband of one of the very first women that I ever hired. And it was probably, you know, I hired her in 97 and this was 2008, so she had already been with us for quite some time. I hired her as an 18 year old, you know, right out of high school. And her husband got diagnosed with stage four Hodgkin's. And it was September and they basically said, you need to start getting your affairs in order. Very likely he won't be here at Christmas time. And you know, the two little kids, six and eight year old kids. So the dream was his, his wife worked for us and his sister worked for us. So, so the sister, on behalf of the wife, she submitted a dream on behalf of this guy's wife to get him to one more NFL football game before he passed away. So I'm a season ticket holder at all the Philly sports teams and I had a really close contact at the Flyers, which is our NHL affiliate, and she reached out to her counterpart at the Eagles and they sprung into action and created this amazing day. Literally got like a nurse and sent a special limo and IVs and he's on the sidelines and sat in the box with like all the spouses and girlfriends. And after the game they'd bring him down right outside the locker room. They had asked who his favorite player was. And one by one, every player, 53 guys on an NFL roster, one by one, 53 guys out of the locker room signed a game football for him. Good luck in your fight. Last guy out of the locker room was the guy he identified as, as his favorite player. He takes off his game, warm jersey over a suit and tie, signs it, spends like 20 minutes with them. And so they leave and go on their separate ways. And you know, we, we think, you know, that at least he's gonna had one final experience before he passes away. And he was really sick. We had pictures from it. He was like. You could tell he was really, really struggling. And so that was that. And, you know, on we go. And about two weeks later, Vern Harnish from Scaling up called me. And he had known about Dream On. And he said, hey, how's that Dream on program going? I'm like, vern, we just had one that was, like, just rocked me to my core, you know, I told him the whole story. And Vern said, and you gotta know Vern well to really appreciate this, but he's on the board at Reardon Clinic. They're like integrative medicine, kind of doing a lot of research in sort of alternative therapies and stuff. And Vern said, did you say Hodgkin's disease? And I said, yeah. And he goes, is. Is he a firstborn son? And I go, I don't know. He's the employee. Like, he's my employee's husband. I've never met him. He goes, well, you have to find out. But more importantly, does he have an unresolved issue with his dad? And I go, the hell am I supposed to know? I don't even know if he's firstborn. He said, well, research just came through Reardon that firstborn sons with unresolved paternal conflicts have, like, this massive elevated risk of developing Hodgkin's or non Hodgkin's lymphoma. I'm like, huh? So he goes, we'll just find out. So I called Jackie, who. Who's been with me 11 years, so I can ask these questions. I said. I said, jackie? She's like, it was amazing. Thank you so much. I go, I have two really weird questions. Just bear with me. I said, is Dan a firstborn son? And she said, yeah, he's got two younger sisters. I go, all right, here comes the weird question. Does he have an unresolved issue with his dad? She goes, oh, my God. How do you know about that? I go, well, I don't know about it, but tell me about it. And she goes, yeah, he had this massive fight with his dad, and they weren't speaking, and his dad had a heart attack and passed away, and they had this unresolved conflict. And he's like. He's, like, torn up about it. I'm like, all right, well, here's the deal. And I lay out all the research, and I go, well, at the very least, let's just get him into therapy, like, now. So at least if he is going to pass away, he passes away, like, in peace. Like, you shouldn't Take this with him. So we do, we get him into therapy a couple days a week, two, three days a week. And this is like October. And so he goes, he goes back to the doctor in January and the doctor did what all great western medicine doctors that can't understand anything other than standard of. Sorry, I shouldn't have said it that way. The doc. I'll just. No, no, no narrative for me. The doctor said, dan, we have to apologize. We can't find any trace of Hodgkin's and we think we misdiagnosed you from the beginning. Now I can show you the picture with the football and the guys signing it and you could give it to a four year old and they could tell you that he was on death's door, sick. He was, he was dying. I mean, full on dying. And this was 2008, what is it, 20, 25. He just celebrated his 43rd birthday, I think his 25th wedding anniversary, like, or whatever it is. Yeah, still going super, like, never look back. And I'm not saying we saved his life in any way, shape or form, but I'm saying we took a guy who was at the depths of despair and gave him a little bit of hope and he did the work. He healed himself. However, he healed himself. But he was given a 10% chance to survive. And you're probably not going to make Christmas. And that was over two decades ago. So amazing. We, yeah, we, I think we kind of forget. And it's what I, it's what I alluded to earlier. We are so unbelievably lucky to live the lives that we live and to be on an entrepreneurial journey and have that level of freedom and independence. And I don't care if you work 80 hours a week. You make your own choices as an entrepreneur about what you want to work on and what you don't and what you get to do and what, what you know, everything. And that comes at an unbelievable price. And that unbelievable price is we need to do everything in our power to make the people that show up to help us do that. Like the stars of the show. Like, we have to honor their commitment. We don't have to like them or love them or, you know, Joe asked me, Joe Polish from Genius Network asked me at the end of an amazing interview one time. He goes, john, all this culture stuff sounds great, but what if you just don't like people? And he was totally being a smart ass and it was classic Joe. And, and I, I, and I paused for a second and I laughed, thinking to myself, we just had a great interview. Why would you ask this dumb question? And I said to him, I go, joe, I know you were being a smart ass and you know, this was supposed to be funny. I go, but it's actually the, the right question. You don't have to like people. You certainly don't have to love people. But if you can't honor the fact that they're showing up for you and your vision and your dreams, then you don't deserve to be an entrepreneur. You don't have the right to be an entrepreneur. It's your privilege and your responsibility to do anything you can to honor their commitment to you. Like, that's just fundamental reciprocity. And it was, it turned out to be a really cool moment in the interview, even though it was totally meant to be a gotcha at the end and smartass question. But, yeah, I believe that. And, and, you know, there's different theories. I'm an employee first, customer second guy. No one will ever convince me differently. I know all the rationale for customer first. I know all the rationale for everyone's equal. I know all the rationale for stakeholder first and community. But for me, it's employee first. Everything else is second. And if you get that right, amazing things happen and fall into place. So, all right, that was super long winded, Jeff, but that's my bias around culture.

[Jeff Duden]

I can't tell you how much I appreciate that story and that answer. I've just got a couple of things and I want to target this directly to entrepreneurs. We have 260 franchise owners. 240 of them have been in business with us less than 24 months. We're one of the fastest growing platforms in North America. One of the things we talk about and we teach is this concept of speaking a bold future into existence. And Cheshire Katz said it great. The great consultant, Cheshire Cat said, if you don't know where you're going, any road will take you there. And it is incumbent upon the owner, the founder, the visionary, whatever you want to call it, to clearly document and articulate by every small detail that you can possibly what this future is going to look like, what it's going to mean for the people that are involved, how you're going to do it, the big things, the little things. One of the things that I shared, I share a story that I sat down with the guy for four hours in 1995 and I described to him in great detail what was going to happen building our business. Thousand trucks, this many markets, all of that and ultimately 25 years later it came exactly true. One of things I said was we were going to have an orange citrus smell coming out of our tailpipes. So it at intersections and in people's driveways that we would be touching all of their senses. I never get the APA stifled me on that one. I was not allowed to do that. But other than that, I mean with, with great clarity and consistency, like we built the future that we described. So tell, talk to even a startup business owner, a young person, a new to business person. Like in simple terms, how do you speak a bold future into existence? How do you document it and how do you use it?

[John Ratliff]

Yeah, I'll give you, I'll give you kind of two ideas on that front because I've made them both work really well for me. The first one happened, I read the e myth in 1997 or 8 or something. And in the E. Myth, which I think is actually one of the most important business books ever written for early stage entrepreneurs, the E Myth Revisited by Michael Gerber. So he talks about in there your strategic aim and he wants you to write a seven year look ahead of exactly what in first person. And this is the key, this is the key first person present tense, as if it's already happened. And that theme's going to go in both of these stories. So I write my strategic game, seven year look ahead, same thing in massively specific detail. We're in an embroidered denim shirt and this is what the offices look like and this is our technology. But all the things, we're 50. Meanwhile, we're one location at the time losing money. And I write we're 15 locations and this revenue and this level of profitability. And I'm thinking this is all utter nonsense, like none of this is going to happen. But I did the exercise, why the hell not? And we ended up stuffing that in a drawer and we found it like in a clean out six years later. I'd forgotten I ever even had done it. And we pull it out at the six and a half year mark and it was literally like I was Nostradamus and predicted the Future. We had 17 offices, not 15. We were wearing the exact shirt that I thought we had, the exact customer. Like everything, it was bananas that it all had like come to fruition. My, my current method that I've been doing for a decade now is an idea from a guy named Brian Scudamore, the founder of 1-800-GOT Junk. It's called Painted picture.

[Jeff Duden]

Right.

[John Ratliff]

Brian suggests you do it three years in Advance. I do it one year because I can't. I'm not smart enough to think three years in advance, but I literally will. On the first week of January, I will write in unbelievably vivid detail as if it's New Year's Eve of that year. First person, present tense. I'm talking to myself about what an unbelievable year we had. And I write it from the framework of perfection. So this is really important for me so that literally we had an impossibly perfect year. My litmus test is if more than half of what I put in my painted picture actually came true. I didn't think big enough for that year. Now why would I do that? Because Interestingly, in years two and three, the 50% that didn't come true in year one often happens in years two and three. So every year I write that like, wildly exaggerated vision of the year as if it's happened on New Year's Eve. And I'm not like, you know, I'm sitting by a fire having a scotch or smoking a cigar. Like, I write it like that, like, you know, as I gaze into the fire on this amazing New Year's Eve, like that level of like putting yourself like visually imagining you're in that place and it's all happened. But that's the key is right it like so over the top that a nobody could ever question you on it because it's obviously like based in massive hyperbole. But be as if it's already true and magic just starts to happen from there. I've been doing it for 10 years again. This is one of those, no one will ever talk me out of it being a good idea. That's my method. That's how I, I do it. And they end up being 15 to 20 pages long. And they, you know, there's a section on our website and our marketing department and our sales process and like all the different things. And now I do it personally and professionally, but at the very least do it for the business. I think it's, I think it's one of the most powerful things you can teach.

[Jeff Duden]

Yeah, that's where it all begins. It's where it all begins. One last question I'd like you to speak to targeted towards entrepreneurs. You mentioned YPO EO CEO. I'm a, I'm a YPOer. I'm a CEO. I'm a strategic coacher. I'm a genius networker. I mean at some point when my, my career changed trajectory, when I joined Vistage and I got around a chair who had built Husqvarna North America. And he poured into me over nine years and basically just changed the slope of my line. Dave Zerfos, incredible founder, not incredible leader of a $530 million business and largest, you know, big power outdoor power equipment company and through dealerships. So me building through franchising, it was perfect. And then getting into ypo, which then informed my thinking on I could sell this business and actually there would be my identity didn't have to go with it. I could still be me and I could still do. And I would have, I would have enough gas in the tank at 50 to be able to do something else. And I don't know what it would be, but it could be of my own design. And then getting into CEO and strategic coach and now Genius Network. It's. It's this power of the network. So on. On align 5 website, I saw masterminds and I saw retreats. When is it too early for founders of businesses to engage in masterminds and retreats? Is that something they should do from day one? How do they choose? And then how do you use those tools within your business to help entrepreneurs scale their business?

[John Ratliff]

Yeah. So obviously a lot of facets to that question, but I feel really strongly that if you're cut out for it, that the ultimate journey in life is the journey of the entrepreneur. You're totally responsible for the outcomes you create. You have total autonomy and freedom over your time. Again, even if you're working 80 hour weeks, they're your 80 hours to do the things you want to do your way. And that creates unbelievable opportunity, but it also creates an island of unbearable loneliness. You can't talk to your friends. You know, I my two best friends growing up, one's a school teacher and one's an attorney. They think I'm a cartoon character. Now I'm a fun cartoon character because we've done lots of cool stuff together because we have the resources to do it. But I can't talk to them about what it's like to fire somebody, what it's like to miss payroll, and they just don't have the frame of reference. So your world gets really, really lonely and as you scale, it gets smaller and smaller and smaller. So first and foremost, just knowing that you're not alone and being in community with other lunatics that chose this path is really powerful. I also feel really strongly that if I can hear from people that have made mistakes ahead of me and learn from their mistakes and not have to learn the lessons the painful way which is making them myself. That's like the ultimate productivity hack. Like, hey, we tried that thing that you are totally gonna try 11 times and it broke 11 out of 11 times. And here's the 93 ways that it broke and four things to think about and one thing to absolutely, no matter what, not do. Why not have the opportunity to hear from someone like that? I also now, and you know, it's funny, I got the question years ago because I'm, I'm in all the coach, genius, ypo eo. I was really active. I was president of my industry, trade associations, users groups. Like I was like 40 days a year of personal development. At one point, right, Somebody asked me like, what could you possibly be getting from all this personal development? And it was a great question. And I hadn't really contemplated it because it was, it was like, you know, probably half a million plus a year just in spent.

[Jeff Duden]

What was your answer? I know mine. What was yours?

[John Ratliff]

So I got really clear on the idea that the most important skill we can have as an entrepreneur is our creativity. And creativity to me comes from pattern recognition. And I looked at all those different opportunities to be in all those rooms with all those people as the chance to like hyper accelerate the number of patterns I could ingest. So if, if I hear from you in the, you know, the dryer, washer and dryer repair industry, about six things you, you know, made mistakes on. I see those patterns and I can translate how those patterns fit me. And the restaurant business and the sales organization and services, all the different things I'm ingesting all those different patterns and I'm informing my gut so that I make better next decisions when I'm confronted with challenges because my gut's been so well informed. And now I think as the world splits into like, we're outsourcing a lot of our community and you know, personal interaction to technology through AI and other things. I actually think we're amplifying the value of being in person and just the energetic exchange between two people in physical proximity versus screen to screen. Or, you know, if I hear one more person say, my AI agent's going to talk to your AI agent and they're going to negotiate. That's fantastic. But that certainly is going to fill my soul from a, from a community and a connectedness standpoint, right? So I'm going to seek those things out even more. So I actually think the value of in person is, is actually on an upward trend, not a downward trend because of what we're doing on the technology. Side. But, yeah, so I. I feel really strongly you have to. You have to inform your gut. You have to adjust the patterns, and you have to be in physical proximity with each other because it's lonely as hell being an entrepreneur.

[Jeff Duden]

Yeah. For me, it helps me stay out of my own way. It helps me keep me from making my world too small by. By trying to control it. It continues to just stretch me. I mean, it's like when I go to a genius network meeting, my head's just pulled apart and it's in and it's open, and maybe it is patterns. I hadn't thought about it that way, but I know that when I joined YPO and after several years and participating in leadership there and then just understanding people's journeys, everybody had sold the business. And that business was broader than just my business. And, you know, it really stretched me and changed me in that way. And then after that, I seek every room that I can afford to be in or I want to be around the most interesting people that I can possibly get around. Anybody wrapped up inside of themselves makes a very small package. And, you know, we expand when we think expansively and we can leverage other people's thinkings to help us do that. And I just love it. I just. I'm a. I'm a junkie. I'm a curiosity junkie. I get so excited. I get so excited when I hear people speaking at those meetings or, you know, doctor, A doctor this or. It all translates.

[John Ratliff]

It all translates.

[Jeff Duden]

It all translates. Awesome. All right, so this has been amazing. John, I've got a curveball and a fastball for you. And are you ready for the curveball? Can you hit a curveball, by the way?

[John Ratliff]

You know, if it. If it breaks more than 20 inches top to bottom, we'll see. But no, yeah, fire away. I think I got.

[Jeff Duden]

All right, here it comes.

[John Ratliff]

Although I don't know what you're going to say, so.

[Jeff Duden]

Well, gun. Gun to your head. Something you care about. Incredibly at risk. You have to start a business in 30 days, and it's not something that you are currently active in. Based on your perspective and view of the world as it is, what would that business be? Take your time.

[John Ratliff]

Yeah, so leaning into that theme of, you know, I do think community matters. I actually. And I love when. When every trend in business goes one way and. And you go the other way. We. When you started, one of the things I. I wanted to kind of interject is I'm a micro economist, so I look at macroeconomic trends only to kind of like inform me at a, at a high level. But I believe in any market as a microeconomist you can, you can find your niche and your way. So I would probably want to be in some form of brick and mortar style community based business. And I, I'm a, I'm kind of simple when it comes to like how I think about the world. And the obvious answer here is, you know, I want to be the first AI solopreneur to build a billion dollar business. I just don't like that just doesn't light me on fire. So I would want to have some sort of community based. You know, I was, I was in Omaha for the Berkshire meeting last week and Omaha has these. I don't even know what the heck they are, but they're like indoor miniature golf. Kind of think like, you know, like upscale bar, miniature golf, like entertainment center. And they're thriving in every way and they're, they're expanding and growing them. So some form of business where you can actually bring people together in some novel way around community and just create an escape. So that, that's the first thing that comes to mind. That's, that's probably not the billion or, or trillion dollar idea. But if you're a, if you're an early stage founder entrepreneur and you want to find, you want to find a niche that me, and I'm a blue ocean, not red ocean guy for sure. Something that brings people together in community where you can really amplify that in person experience, I think is going to get more and more and more valuable as we, as we go. And I also, also believe brick and mortar is going to be less and less and less expensive as the world kind of splits. So there's something about the retail in person experience that's always lit me up.

[Jeff Duden]

Yeah. History always repeats itself. Some things, some things come back. It may be in a slightly different shape or different form, but we're at the end of the day we're tribal and yeah.

[John Ratliff]

100.

[Jeff Duden]

We'll revert back to that main. Awesome.

[John Ratliff]

It's why pickleball is, is cleaning tennis's clock because it's a much more social.

[Jeff Duden]

Yes.

[John Ratliff]

Engaging, kind of easy to produce, put communities together, skill levels, all the things like that. You need look no further than, than that trend right there that people want to be together in ways that are, you know, are socially rewarding, not necessarily, you know, physically overwhelming.

[Jeff Duden]

You can't put tequila in the handle of a tennis racket, but you can in the handle of a pickleball racket.

[John Ratliff]

Exactly.

[Jeff Duden]

A subtle but significant difference in those two sports. John, how can people get in touch with you before I throw this one right down the middle?

[John Ratliff]

Yeah. So my email is really simple. It's jratliff R, a, T, L, I, F, F at a line, A, L, I, G, N and then the number five dot com. That's probably the best way I'm happy to share my cell phone. You can pop that up, whatever. Whatever works best. But yeah, [e-mail] would be the simplest.

[Jeff Duden]

Yeah. Any entrepreneur, any size, go to the website. There are things there for you, if not now, in the future. But there's a lot of wisdom that is aggregating around John Ratliff. All right, here we go. If you had one sentence to make an impact in somebody's life, what would that be?

[John Ratliff]

It would be a quote from my dad. And that quote was, true happiness comes from improving the experience of others. I put that quote in every talk that I give on cold. I put it in every talk that I do. I say it all the time. True happiness comes from improving the experience of others.

[Jeff Duden]

Perfectly said. John, thanks for being on today. This has been so awesome.

[John Ratliff]

Thanks for having me. It's been fun.

[Jeff Duden]

I'm Jeff Duden. We've been here with John Ratliff and we have been on the home front. Thanks for listening.