BiggerPockets Podcast 489: How Are You Preparing to “Exit Rich” in Real Estate? with Sharon Lechter & Michelle Seiler Tucker

BiggerPockets Podcast 489: How Are You Preparing to “Exit Rich” in Real Estate? with Sharon Lechter & Michelle Seiler Tucker

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Real estate is a business, but we often don’t think of it that way. A single-family home here, a duplex there, at the end of the day we’re just landlords, right? 

What if some large corporation or outside buyer wanted to buy your real estate business from you. Even better, what if you had such efficient systems in place that you could sell your business for 10x what you put into it. Sounds pretty sweet right?

Today we talk to Michelle Seiler Tucker & Sharon Lechter, authors of Exit Rich and Rich Dad Poor Dad. Michelle and Sharon have spent years building and selling businesses and have defined the 6 Ps to a profitable exit. Their main critique of most business owners: start planning to scale efficiently TODAY.

This can help you as a real estate investor start putting systems in place to grow your portfolio faster and with less work from you later on. If you’re willing to put in the upfront effort to start hiring right, systematizing, and opting for efficiency you most certainly will “exit rich”!

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Listen to the Podcast Here

Read the Transcript Here

Brandon:
This is the BiggerPockets Podcast show 489.

Sharon:
The wealthiest people in the world either make their money through real estate or they hold it in real estate. So, it’s a very important subject, but a lot of people read about it, go to seminars and never take action. So congratulations to you for not only building wealth for yourself, but also doing this podcast and sharing it with other people to encourage them to create a real estate foundation in their portfolio.

Intro:
You’re listening to BiggerPockets radio, simplifying real estate for investors, large and small. If you’re here looking to learn about real estate investing, without all the hype, you’re in the right place. Stay tuned and be sure to join the millions of others who have benefited from biggerpockets.com, your home for real estate investing online.

Brandon:
What’s going on, everyone. It’s Brandon Turner, host of the BiggerPockets Podcast, here with my co-host, Mr. Rich Daddy Greene. What’s up, man. How you doing?

David:
I’m good. I’m in Maui, checking out the condos that I bought, and working with my Maui Real Estate team on Maui here.

Brandon:
Yeah, that’s exciting stuff. I know you’ve been killing it on that front lately. And speaking of killing it, today’s show, our guests, plural, these two ladies killed it. They really brought a ton of tremendous amount of value today. And something that you might not think is that important for real estate investors necessarily, but trust me when I say it is vitally important. And so the topic today is growing and scaling and then selling a business. Now again, you might be thinking, “Well, I don’t have a business.” If you’re in real estate, you have a business. And the principles we talk about today, specifically, we go through six Ps that the two authors, that Sharon and Michelle, they talk about in the book Exit Rich. They talk about the six Ps. We’ll go through all six of them.

Brandon:
Now, if Sharon Lechter, if her name sounds familiar, you’ve probably seen her name, you probably read her books before. She co-authored Rich Dad, Poor Dad and a ton of other books in the Rich Dad, Poor Dad series. I mean, Sharon was CEO at Rich Dad for a long time. You’ll hear more about her story. But, I mean, she’s been a huge influence on millions of millions of people, and she continues to be. You’re going to hear about that today. And her co-author, Michelle, she’s been a mergers and acquisitions person forever and has a tremendous amount of business experience. So, all of that and more to come, but first, let’s get to today’s quick tip.

Brandon:
Today’s quick tip, BiggerPockets webinars. I don’t know that sounds like an advertisement. Maybe it is, but listen, me and David spent a ton of time putting together live trainings each and every week to help people invest in real estate, to help them succeed, because we remember what it’s like to be working jobs we didn’t like, or be working 100 hours a week to be making other people wealthy. And so we pour our heart and soul into these things and give you guys all the knowledge we can. So we do, again, somebody is doing a webinar every week on BiggerPockets, I would love if you attended. Just go to biggerpockets.com/webinar to sign up and you’ll learn about a ton of stuff with them. So, yeah.

Brandon:
But literally, thousands of people come every single week. So why don’t you join them? Biggerpockets.com/webinars. All right. And I think that’s it. We got to get in today’s interview with Sharon Lechter and Michelle Seiler Tucker. So we’re going to hear about how to exit rich. Let’s get to it. All right, Sharon and Michelle, welcome to the BiggerPockets podcast. It’s awesome to have you two here.

Sharon:
Well, delighted to be here. Thank you so much. Love this group.

Michelle:
Thank you.

Brandon:
Let’s jump in. And before we get into the book you guys wrote together, I want to hear more about that today, but I want to get a little bit of background on each of you on what you do in life, what you have done, where your background is, what your expertise is in, and then we’ll move on from there. So why don’t we start with Sharon?

Sharon:
Well, thank you so much. I appreciate both you, David and Brandon. I appreciate both of you. My background, I’m obviously been around a long time. So I started in the accounting field and quickly realized that people didn’t have a clue about money and ended up leaving public accounting and starting business, to start a Woman Magazine, started talking children’s book industry, grew that around the world. And then my oldest son ended up going to college, getting into college credit card debt. And I was devastated, angry at him, but more angry with myself, and realize that we aren’t teaching our kids about money in school. And that was December of 1992, and that’s when I dedicated the rest of my career to financial literacy and financial education. Fast forward a few years, I wrote a little book called Rich Dad, Poor Dad, and that started a-

Brandon:
Never had of it.

Sharon:
Yeah. Started a tenure business with Robert Kiyosaki and I, we were partners. I ran the company as a CEO, but wrote 15 books together on the Rich Dad series. And then from that, I ended up leaving the Rich Dad organization because we became not so aligned in what we wanted to do with the business. And that’s when I actually got the call from the president. President Bush asked me to be on the first president’s advisory council for financial literacy. And I served both President Bush and President Obama.

Sharon:
Few months later, I got the phone call from the Napoleon Hill Foundation, and we know what was happening to the economy, particularly in real estate in 2008 and 2009. And they asked me to step in and help reinvigorate the teachings of Napoleon Hill. So, not only did I have the honor of building the world’s largest personal finance brand, but then I’d be asked to stand and step into the world’s largest personal development brand. And I’ve written four books for the foundation, Three Feet from Gold, Outwitting the Devil, Think and Grow Rich for Women, and Success and Something Greater.

Sharon:
And written 26 books. Number 26 is over my shoulder here, called Exit Rich, which I wrote with Michelle Seiler Tucker. She’s an absolutely world renowned specialist in mergers and acquisitions, and business broker. And this information needs to get out because too many people own a job. They think they own a business, but they really own a job. So we’re very excited about it. Inc. Magazine has picked it up. It’s been published out of their imprint, and I’m a huge proponent of the power of association. And so we’re excited to have a new association with the two of you today. So thank you very much.

Brandon:
That’s awesome. That was the best explain about yourself I’ve ever heard. That was phenomenal. Before I get to you, Michelle … Usually people are like, “Well, I don’t know. I did this.” But yeah, you, man, this is awesome.

Sharon:
I’ve been asked that question a few times.

Brandon:
I can tell you’ve been asked this.

Sharon:
And that was the short answer.

Brandon:
I love it. Well, let me pad your ego a little bit more. So here on the BiggerPockets podcast, we’ve interviewed over 400 real estate investors, and business entrepreneurs, and agents and all sorts of people. And the last question, one of the last questions we ask every single episode is, what’s your favorite or most impactful real estate related book? And I would say 90 to 95% of everybody we’ve ever interviewed has said the same book, Rich Dad, Poor Dad, or one of them in the series. Yeah, it’s just been phenomenal. I mean, my life, I would not be sitting here today if it weren’t for Rich Dad, Poor Dad. It gave words to this feeling in my heart. So, I’m super honored. This is a big moment for me. So, thank you.

Sharon:
Well, thank you. And be strong in your own power. A lot of people read it and did nothing. And so, Brandon, that you applied it to your life, I was a real estate investor at 10. I used to have to scrub out bathrooms to rental properties my parents owned. So, I’ve lived with the real estate, and the wealthiest people in the world either make their money through real estate, or they hold it in real estate. So, it’s a very important subject, but a lot of people read about it, go to seminars and never take action. So congratulations to you for not only building wealth for yourself, but also doing this podcast and sharing it with other people to encourage them to create a real estate foundation in their portfolio.

Brandon:
Oh, well, thank you. Thank you very much. Well, Michelle, tell us about yourself. What’s your background?

Michelle:
Well, after Sharon, I don’t know. So I’ve always been an entrepreneur. I’m on many different businesses in different verticals. I did get that three letter word job for Corporate America. So I’ve owned businesses and events, face, graphics, technology, medical industry. I did go to work for Xerox. Xerox actually recruited me. And I was there for about six months and then I was promoted to regional vice president, overseeing 100 unruly sells people and realized very quickly that I didn’t like it. And I ended up leaving Xerox, starting a franchise consulting and development and sales business, ended up partners with several different franchise doors.

Michelle:
And I had so many buyers asking me for existing businesses because they didn’t want to buy franchises. So that’s really when I decided to start, a little over 20 years ago, I started my M&A firm. And we really specialize in selling businesses to a million dollars and up. But I learned, a long time ago, 20 years ago, when I got into this industry, that what Steve Forbes says is true. Eight out of 10 businesses don’t sell. 80% of businesses on the market will never sell. So I learned a long time ago if I don’t start fixing them, tweaking them, growing them, putting it on a bill to sell a program that, A, I’m going to starve to death and a lot of business owners are going to go out of business.

Michelle:
And so I specialize in not just selling businesses, but we buy businesses and flip them. I partner with business owners and invest my capital, resources, core competencies, to really grow that business, put them on a build to sell models. So at any given time, I own five to 10 different companies that we’re building to sell. I’ve personally sold over 500 companies. My firm altogether, have sold a little over 1,000 businesses. And I’m an international speaker, that’s where Sharon and I met, years ago at an event. And have written three books, Sell Your Business for More Than It’s Worth, in 2013, of course, Exit Rich. And then I have a book coming out after Exit Rich, on acquisitions.

Brandon:
Wow. Wow. That was equally awesome. You guys are so prepared. I got to up my game here when it comes to talking about my history because you two just nailed it. All right. So you mentioned, Michelle, we’ll start there. You mentioned eight out of 10 businesses don’t sell. So I want to get into this idea of why they don’t. We’re talking a little bit about buying, growing, selling businesses today. But before I even asked that, I’m wondering from the two of you, why should our audience, who are mostly real estate investors, maybe some agents in there, some lenders, but the real estate investing world, why should they care about this topic? They’re thinking, “Well, I don’t own a five guys franchise, I don’t own a consulting firm. Why should I care?”

Sharon:
Well, real estate investing is a business. And the issue is, are you doing what you need to, to create the foundation and strength of your business? So, I always compare a business to a house, a piece of real estate. You have to go down first to build that foundation. And the house isn’t going to sell if it doesn’t have an electrical system and a plumbing system. And so understanding that a business needs all of those elements in it as well, and understanding that many people get so excited about their new business, they’re out there selling their product and they making some money, but they haven’t taken the time to build the foundation around the business. And by not doing that, it falters. You can’t scale.

Sharon:
If you’re a real estate investor and you know how to buy three twos, after about 10, you probably need to start having some systems on how to manage those and how to grow them. And you’ve created a way that you review and buy them. And that is your system, so that allows you to go from 10 to 100, to 1,000, or you set that aside and you hire the right people to run that, and now you start looking and investing in multi-family. Those are all business systems that help you build that foundation of your business. And wouldn’t it be easier if you decide you want to sell your real estate business, to have a big player come in and buy all of it for you at 10X, 100X, multiples, versus trying to sell them one at a time. And you can do that when you build that foundation around your business.

Brandon:
Yeah, that’s really good. I have a company, we call it Open Door Capital, and we buy mostly mobile home parks. And so when I built that, when I started, because some of the best advice I ever got was, build your business as if you’re going to sell it someday, whether or not you are or not, because then you have the systems in place. Yeah, so we’re building a property management company in-house. Alongside all these mobile home parks, we’ve got over 2,000 units now.

Brandon:
And we’re building it, because I’m like, even if I don’t sell it all someday to one big hedge fund or some billion dollar company, at least in the meantime, I could have that exit option anytime I want it to, but it’s also just makes life so much easier. Because, maybe I can ask you this question, is I just give him my opinion on this, but what do you think, what does a buyer look for? When I say it makes it easier to buy, what does that mean? What does the buyer look for when they want to go buy a business? What makes a business valuable that somebody would want to buy it?

Michelle:
So there are so many things that make a business buyable. One thing is buyers want to buy a business, not a job. And unfortunately, so many business owners have created a glorified job in which you’re going to work every day versus a business that actually works for them. The number one reason that businesses are not sellable is because businesses are 1000% dependent upon that owner, because like Sharon said, they don’t have the systems in place. So you really have to have the people, you have to have the infrastructure, you have to have the processes. We call this, voting your business to run on all six cylinders, and in other words, all six Ps that we describe in our book, Exit Rich.

Brandon:
Yeah.

Sharon:
The other thing I’d like to add to that is, when you talk about owning a bunch of different mobile home parks, you have to have systems to manage all those. You have people in your office that are helping you manage it. But if Julie ends up leaving, are you going to be hurt? Because you’re dependent on a person, not a system. If you create the systems on how it’s run, Julie leaves, somebody else sits in the seat and they can pick up and know what to do. It’s so much easier to manage a business with systems than manage personalities. And the ability to scale is so much easier when you have strong systems that have been proven successful.

Brandon:
Yeah.

David:
Yeah. But it’s always easier to rely on personalities and elbow grease, right? This is the problem that we all run into. Like with my real estate team, it’s called the David Greene Team. Good luck selling that to anybody else, that isn’t named David Greene. That’s going to be a very tough sell for me, right? But I can sell rental property super easy because somebody else can run it just the same. I’m curious, Sharon and Michelle, before we move into the six Ps, how often is this principle the number one thing that hamstrings a business owner, that they’ve taken shortcuts that they didn’t realize they were taking?

Sharon:
I think it’s an epidemic. Most business owners take shortcuts because as entrepreneurs, we’re not very good managers. And so that’s why the first P, I know you want to get into that later, but the first P is people. Do you have the right people on your team? Do you have people who are strong where you are weak? And invariably, what I see over mentoring thousands of people, when a business owner gets all excited, they build this business, they get some success and the entrepreneurial is the innovator, they like to start and create new things, he like drive new results, but they don’t like to take care of the day-to-day.

Sharon:
And so they tried it, but they still try to do everything themselves. It’s so important to bring in the right team to make sure that you have people on your team that are strong where you are weak, so that you can continue being the innovator, being the one that’s driving the business, and know and trust that you have systems and people in place who thrive in the day-to-day management of the company

Brandon:
What have you two found in terms of people? How do you know you’re getting good people? That’s obviously a huge key to success is getting the right people in the right seat on the bus. So, what do you see as the right people? Is there any secrets that you know or shortcuts, or is it just a gamble?

Sharon:
Obviously there’s lots of different personality tests. I actually happen to like the Kolbe test. K-O-L-B-E, because it talks about that difference between the innovator. The quick thinker versus the one that likes facts and figures. And so if you have an element of each on your team, you’re going to have the greatest success. But I also think when you’re hiring somebody, you’re investing in them. And so I always say, “Hire slow, fire fast.” Making sure that you understand who they are, what their dreams are and how that aligns and fits into what you want. Make sure that they understand what your company culture is.

Sharon:
I have all my business owners that I’ve mentored have a code of conduct. What do you stand for? What’s your mission statement? What’s your code of conduct? So that when you hire somebody, they’re signing off and agreeing with that philosophy, and you’re building in that culture in your business right upfront. And in 10 years, when you want to sell your business, somebody come in and look at it, they’re going to go, “Okay, they got it. They started on the right foot with building a culture that was tight and agreed to by all people.”

Brandon:
How do you two, and maybe I’ll fire this one first to Michelle. How do you deal with the fact that you need competent people that are the best of what they do? This is something I think David, you probably deal with a lot, which is you train people to be the best, really good, and then they leave, or they could leave, because you just gave them all your systems and all your everything. But if you don’t give them all that instruction, then they’re going to stay and they’re going to be terrible. So how do you balance that, of having good people with giving them too much information? Again, that’s a problem with real estate investors all time. They train people to work for them and they just go do their sales. How do we avoid that?

Michelle:
Yeah. So, it depends on what position we’re referring to. If we’re referring to upper management, most of my companies, we do have them sign non-competes, employment contracts, things of that nature. And a lot of people say, “Well, non-competes don’t hold up.” Well, that’s not really true. It depends upon what state you’re in, it depends upon how it’s written, if it’s written correctly, et cetera. But at some point, you’ve got to trust. Like Sharon said, you’re really going into a marriage here almost. And when you hire somebody, you’re going to have to trust because you have to give them so much information, but we have people sign non-competes. I haven’t really had an issue with somebody leaving in all the companies that we’ve ever had. I don’t know, Sharon, have you ever had any problems with this?

Sharon:
Well, I love Richard Branson’s quote. He says, “Teach people enough so that they can leave, treat them well enough that they choose not to.”

Brandon:
Oh, that’s good.

Sharon:
And so that’s, is relating to elevating them to the position of highest potential in their world, but giving them enough trust and support, and treat them well enough that they are so happy being with you that they’re not going to leave. You can’t control individuals. The people have issues at home, they end up moving out of state. Now there are times when people will leave. The issue is, is it going to be one of you support them? I celebrate when I have people, because I teach people to be entrepreneurs. And when I have people that have worked with me and they decide they want to start their own business, I’m their first investor. I support them. I want the baby birds leave the nest and create success.

Sharon:
But when you have a corporate environment and you have very key, key man positions is important to protect yourself and protect that position. And to make sure you have a system for monitoring and understanding the content of that individual, if it’s somebody that you have total reliance on. And everything in life comes back to communication. Having that communication, that ongoing check-in with them to make sure everything’s okay, because you’ll know if habits start changing and you start seeing coming a little later, taking a Friday off when they haven’t taken a day off in years. And those are things you just have to start paying attention to that stuff, and keep that line of communication open.

David:
That’s really huge, I think. Nobody likes meetings, but that’s one of, to me, the most important components of a meeting, is that I can hear the tone in their voice, I can see their body language. You can catch those micro-expressions when you see some … When someone else on the team has a victory and they look angry about it, you’ll notice that in a meeting versus when you’ve got this checklist of tasks they’re supposed to do, and they want to work from home. If everybody wants to work from home, but you don’t see the resentment that’s building. So I think that that’s a super important part when you’re-

Brandon:
That’s really good.

David:
Because oftentimes those things will grow into, like Sharon just mentioned, they’re going to leave you because of that. But if you nip it in the bud, you can just address it, make a change right off the bat.

Sharon:
Well, and gossip, that’s the culture of the company. Gossip can create such problems within a company, within an organization that’s unnecessary stress and worry. And every time we have a weekly meeting and the first thing we do is we going away, we do a check in with everybody. They’ll tell us if something’s happened at home. It’s just a normal thing. If we want to know you as a person as well as an employee, which I hate that word by the way, I use the word team, but you want to know what’s going on, what’s happening, let’s check in with each other and then get down to the business of the company, because if somebody’s struggling …

Sharon:
In the last two weeks, we almost lost my father-in-law. We’ve been spending a lot of time out there. So there are the things, it’s like, so my mind hasn’t been focused as dramatically as it normally is. People who know me, they pick up on that. Same thing in a company where you know the people that are working for you, you can see when there’s something happening.

David:
Yeah. Michelle, anything you want to add on that?

Michelle:
Well, I think it’s also good. Depending upon the size of the company, I think it’s good to have a liaison. A liaison, a human resources manager. My husband and I own medical clinics, and we have a lot of employees. And if it wasn’t from that one liaison, that one COO basically, that reports everything back to my husband and I, we can’t communicate with everybody all the time. It’s just impossible. We have multiple locations, but she’s been with us for 20 years and she’s our right hand person. She’s our eyes and ears. I mean, she communicates everything with us. So depending upon the size of your corporation, it might not necessarily be the owner.

Michelle:
And the owner is not always the best manager, like Sharon said earlier. A lot of times owners don’t know how to deal with employees. They’re not necessarily always the best leaders. So you want to make sure that you have that liaison, that you have that chief operating officer, human resources that can walk with employees, communicate with employees and then make sure they communicate that to the owner.

David:
I’m going through that right now.

Michelle:
Because my husband’s not the best at that. My husband’s like, “Oh, my gosh, the best thing I ever did was getting a liaison to help with that,” because he’s like, “I don’t know their names after they’ve been here for six months.” I go, “Well, that’s not good either.”

David:
Yeah. We had two agents on my team quit. And they gave no indication they were going to quit. They quit out of nowhere. And when I asked them what happened, they said, “These buyers are just draining me of all my energy. They’re calling me every single night, all night long.” Nobody was checking in to find out they were going through that, and so they finally hit a point where they just said, “I can’t do it anymore.” And I realized, I need exactly what you guys just mentioned. I need a liaison in the office that is talking to my staff and picking up on that. That’s what I’m hiring now.

Sharon:
It’s really important in the real estate industry because you have so many different personalities. If you’re doing development, you’ve got all the tradesmen, you’ve got the manager that’s on site. Then you’ve got the person handling all the ordering, and something doesn’t come in and it just explodes down the line. And so it’s really important. Again, it all comes back to communication, but understanding that each role that’s there requires a different set of skills. And when you have an owner that’s upset that something’s not happening right in the house, you need somebody that knows how to manage those kinds of temper issues. Not somebody that just says, “We’ll just get over it.” So it’s important to have the right people.

Michelle:
Yeah. And that’s why I said the owner isn’t always the best person because the owner’s mentality a lot of times will be, “Just deal with it. I’ve had to deal with it to be here.” That’s a lot of times the owner’s mentality, the owner’s perspective. So, you do need that person who can be empathetic.

David:
Yeah, the bigger you get, the more you need people. The more you need people, the more complicated and complex your problems become because people are, so the more you need a person to manage those. That’s a great point. So, the first P here is people. What would the second P be?

Michelle:
So the second P is product. And when I talk about product, I like to give a little history. When I wrote Sell Your Business for More Than It’s Worth in 2013 and did the research, I learned that 95% of all startups will fail. And we all know that, that’s common sense. But then when I did the research for Exit Rich, I was just flabbergasted because the landscape has changed dramatically. And I showed it to Sharon, and Sharon’s like, “Are you sure? Are you sure? You should research that again.”

Michelle:
So the business landscape has actually flip-flop. Now only 30% of startups will go out of business, but out of 27.6 million companies, those businesses, and this is all across every vertical you can imagine, those businesses have been in business for 10 years or longer, 70% of them will go out of business. 70%. You hear about the big public companies all the time, but you don’t hear about the private businesses that are exiting poor, selling for pennies on the dollar. And the reason for that … I mean, don’t you guys find that shocking?

Brandon:
Yeah, that’s crazy.

Michelle:
That 70% of businesses are going out of business. They’ve been in business 10 years?

Brandon:
That’s nuts because you think, oh, you’ve made it over the hump. You’ve got traction, you’ve been going for five or 10 years, you should be fine. I mean, I would assume it’s 70, 80, 90% are fine for decades longer, but crazy, that’s just not the case.

Michelle:
Well, and it’s flip flopped and the reason has changed, because I always say it’s lack of AIM, always innovate and market. You always have to innovate, you always have to market. I mean, I look at Toys “R” Us. Toys “R” Us went out of business after being in business 75 years. They never really innovated. Blockbuster, they looked at Netflix, had an opportunity to buy Netflix, they didn’t do anything. And so, so many business owners are going out of business because they stopped innovating, they stop marketing. So product is a second P, you have to ask yourself, is your industry, your product, or your service on the way up or on the way out? Real estate right now is on the way up. I mean, it is booming, it is thriving, especially-

David:
Yeah, very much so.

Michelle:
Residential estate.

Brandon:
All right, so you got the right product, you got the right fit there, you got the right people. What else comes next?

Sharon:
Well, the third P is processes. Yeah, processes. And that comes back to business systems. And when we talk about a business, I can’t believe I haven’t used my favorite word yet, asset, asset. You’re financially free when the income from your assets exceed your monthly expenses. You want your business to be an asset. You don’t want to be the asset. You want your business to be an economic engine that works for you. And as we’ve already shared a little bit already in this interview is, the importance of business systems. Those processes that allow your business to be, not just successful, but make it sustainable and scalable so that it can be sellable at some point. And having an independent unit from you so that if you don’t show up, it’s not going to hurt business that day. Your business is already thriving and moving on its own.

Brandon:
Yeah.

David:
So what do you say to the business owner who says, “I hear you Sharon, but nobody can do it as good as I can do it?”

Sharon:
Well, I can tell them that they’re not going to reach the success they deserve. And then I’m going to suggest to them that they find a mentor, because a mentor is going to help them realize that there’s more out there for them. And so many times, we want to hold on to everything and we have to do it ourselves, or we’re afraid to delegate. And at the end of the day, that means you’re not going to grow. You’re not going to reach the heights of success that you deserve, because you are self-sabotaging. And so that is what I would say to them, a little bluntly, but yes, that you’re self-sabotaging by not building in those systems that can allow their business to thrive with or without them.

Brandon:
When is the right time to start putting those systems and processes in place? If somebody is just starting a new business, whether it’s a real estate thing, they’re buying rentals, or they’re starting a consulting thing, should they wait until they figure everything out or do they … I mean, systems, is that day one?

Michelle:
Day one. From day one, they should start building those processes and procedures from day one, in my opinion. And like Sharon said, you have to let go of that control. You will never grow unless you let go of the control. And entrepreneurs really have to focus on their strengths. We’re not good at everything. Let’s admit it. We have to focus on our strengths, [inaudible 00:29:05] our weaknesses, and otherwise, we’ll never grow. And that’s the biggest issue. But processes, in my opinion, need to be started from day one. And I think a lot of owners get this wrong. Processes really need to be designed around the customer experience, not around the owner’s agenda.

Brandon:
Can you explain that?

Michelle:
So we have to ask ourselves, what do we want our customers to experience? It’s like McDonald’s. Did y’all watch a movie, the Founder, based upon the McDonald brothers?

David:
Yeah, I did.

Brandon:
I haven’t [inaudible 00:29:32].

Michelle:
That’s great movie, right? Yeah. And so, back in the 1950s, I think it was 1950s, Mcdonald’s started McDonald’s, but they said, “We want to start a fast food restaurant. We want to design the processes around the customer experience. What do we want our customers to experience?” And I said, “Great tasting food that’s fast and hot. 30 seconds or less.” And remember, they went out to the tenant courts throughout the processes. I mean, even though it was done way back then, and it’s been tweaked along the way, you can end up at McDonald’s anywhere on the road and get the same experience.

Michelle:
The problem is business owners stop asking their clients, “What do you want? What do you need? How can I make it easier for you to do business with us?” Consumers buying habits have changed dramatically. And whoever makes it easiest for the consumer to do business with them as a company that’s money. Amazon is winning because you can practically buy a horse in Amazon and have it delivered to your house in days.

Brandon:
I’m going to try that.

Michelle:
So, [inaudible 00:30:23]?

Brandon:
I’m going to try to that. [inaudible 00:30:23] ship a horse to [inaudible 00:30:25].

Michelle:
Yeah, my daughter did the other day. She tried.

Brandon:
I love it. I love it.

Michelle:
So I think processes are huge and I really think they need to be designed from the beginning. I mean, do you agree, Sharon?

Sharon:
Oh, absolutely. I think it’s so much easier to design it right upfront than to try and have to go back and untangle the mess. Same thing with attorneys, right? Having the right attorney to help you set yourself up and get these agreements in place.

Michelle:
Absolutely.

Sharon:
People say, “Oh, attorneys are too expensive.” I go, “They’re a lot more expensive later on when you haven’t done it right and you’re trying to untangle the messes.” So it’s a matter of really being, using that professional mindset to say, “I want to build this to be successful. So I want to do it right. I’m going to create the system.” And the systems that you start off with, as you get bigger, you may have to evolve to larger and more robust systems as part of business. But that’s a good thing, because that means you’re successful. But to start off with, I had an interview yesterday and this guy was talking to me about a client of hers. $50 million construction company that had been in business for 20 years, had no database. Their customers were in paper files and filing cabinets in a separate room. All right. That means, they think they have a system. The question is that system isn’t very sellable.

Michelle:
No, it’s not. And evaluation. I mean, the first thing that we would do is do a cost analysis at what it would cost to bring that company up to 2021. And without that, from the purchase price … We just sold a company, a distribution company, same scenario. Everything was on paper. Everything was on Rolodexes. Entire inventory system was on paper. We’re selling a $70 million company right now, 300 employees, and you would think they would have all their processes and policy, procedure manuals, SOP checklist together.

Brandon:
You think so.

Michelle:
Right? So [crosstalk 00:32:28].

Sharon:
Hence the importance of Exit Rich, because if you follow the process we outlined in Exit Rich, before you start wanting to sell your company, you will be, wait, so what happens, and Michelle, you can jump in here, but you want $10 million for your business. And so a purchaser is interested, they come in. They ask you for your corporate docs. They’re not in order, that 10 goes to nine. They ask you for the agreements with your vendors, your suppliers. “Well, some of them are here. I think I can get them for you.” That goes down to eight.

Sharon:
All of a sudden, you’re not addressed for the party. And so you want to create that foundation and be prepared, have your documents in order, have your valuation, discover that intangible asset, that fourth P is proprietary. Your intangible valuation, identify it, protect it and leverage it. And that’s the value that we provide in the book, Exit Rich. Taking you through this process on how to strengthen the core of your company so that it can grow much more quickly.

Michelle:
Yeah. Because otherwise, it’s not going to be sellable-

David:
Yeah, you mentioned it earlier.

Michelle:
And like Sharon said, we’re not going to be able to maximize value, or we’re going to have to time out. And I have to go in and get everything and work in order.

David:
Sharon, you mentioned earlier that it seems too expensive to do some of this stuff. And I’ve noticed that in our companies, one of the biggest enemies to success in the companies that I run are when people say, “Well, it was faster just to do it myself.” It feels too expensive in the moment to stop and create a procedure and train someone to do it, even if it’s as simple as, can I just go to a website and click a button? But over 10 years, how many button clicks did you have to do because you didn’t want to show somebody else how to do it, make a system?

David:
And I think what that does is it turns into having all your files in a filing cabinet 20 years later when you go to sell your business. And now, it is very expensive that you didn’t systemize it. So, I’m constantly having to just be disciplined and say, “Yes, it would be faster and easier to do it myself.” But if I make that decision every time, I never have a business, I always have a job. Is that in your two opinion, really the genesis of where this problem comes from and when it grows into something that’s a huge problem when you try to exit?

Michelle:
1000%. Yeah.

Sharon:
You ask a business owner, “Are you unique?” “Yes, I am. Nobody does it the way I do. I’ve got this trauma and yeah.” “So where did you get your legal agreements?” “Oh, I download them off the internet.” So if you’re unique and you’re using pedestrian agreements, how unique are you truly? So let’s get the right talent on board that can identify that uniqueness and protect that uniqueness so that you can get the greatest valuation possible. And again, it comes back to that if you’re too cheap to invest in the foundation of your company, you will never reap the rewards of the value that you can create.

Brandon:
Hey, can we-

Michelle:
I was just going to say the other big that I find-

Brandon:
Oh, go ahead. Go ahead. Go ahead, Michelle.

Michelle:
That really the biggest reason that businesses are not sellable is because all the data’s in the owners head. I mean, even this company that we’re selling for $70 million right now, that has 300 employees, buyers are going to buy a percentage of the company because the company still will not operate without that owner, because so much of the data is in your head. So you really have to get the data out of your head onto paper, otherwise, you’ll never be able to scale and we won’t be able to maximize value.

Brandon:
Yeah. Can we take a side detour here real quick and talk about how a company is valuated? Because a lot of our audience, they’re real estate investors, so they think, well, that house is worth what those three houses sold for, right? It’s comp-based, but that’s not quite the same when it comes to buying and selling a business. So maybe Michelle, can you explain how is business valuated? What are multiples? How does that whole world work?

Michelle:
Absolutely. So, I’m going to give you a crash course on valuations.

Brandon:
Please.

Michelle:
And then I’m going to take you, Sharon and I will take you in a proprietary because proprietary, all those proprietary assets, those proprietary synergies, that can take you from a five multiple to 7, to 8, to 10 and up. So this is a perfect transition. So I always say the companies are under a million dollars in EBITDA. EBITDA’s Earnings Before Interest, Taxes, Depreciation, and Amortization, or typically trade anywhere from one to three, three and a half, depending upon synergies, unless you’re in SaaS. SaaS is a multiple of revenues. Now, the sweet spot is when you get your EBITDA over a million dollars. Over a million dollars, we have so many buyers. There’s five types to buyers.

Michelle:
And over a million dollars in EBITDA, typically starts at five and up. Five and up depending upon these synergies, because for five and up, and then you got private equity groups, buy-based on platforms and ad-ons, you got strategic/competitors that will typically pay the highest multiple because of buying synergies. And are paying for synergies not only in that company, or they’re going to put their current company to the next level, like databases and contracts and patents.

Michelle:
And then the last type of buyer that we talk about, sophisticated entrepreneur. But the synergies, the proprietary assets is what gets you the higher multiple. And this, out of all the Ps, to me, is the highest value driver. There are six pillars that I talk about in proprietary. Do you want to go through these?

Brandon:
Sure. Let’s do it.

Michelle:
So number one is branding. I always say the more well-branded you are, the more I can sell your company for as long as your brand is relevant in the mind of the consumers. Is anybody paying any money for Blockbuster?

Brandon:
Yeah. Well, I had some friends, we all went to visit a friend who was running a race in the same town as the last Blockbuster, which I think is Bend, Oregon. And so, I don’t know, they went and bought 20 Blockbuster jumpsuits. So, people are buying something from the last Blockbuster, but that’s about it. Tracksuit. Yeah.

Michelle:
So the more well-branded you are, the more we can say … The most valuable brand in the world. Do you guys know who? The most valuable brand in the world?

Brandon:
Coca-Cola, maybe.

Sharon:
What company?

Michelle:
Coca-Cola is in the top 10.

Brandon:
Apple, maybe.

Sharon:
Apple.

Michelle:
Yay. Have you been reading my stuff, listening to my podcast, Sharon? Apple is worth $359 billion. That’s just a brand. That’s not assets, inventory, real estate, EBITDA, or anything else. So build your brand. And then trademarks, extremely valuable. Trademarks, your company name, your slogans, your podcast. We have a company has got 12 different products that has a federal trademark for each product because one product is exclusive to Target, one is exclusive to Walmart. The biggest mistake I see with trademarks, and Sharon could probably speak to this too because her husband, as a bonus, is an intellectual property attorney. But trademarks are huge. And a lot of business owners come up with a name. They go to GoDaddy and they punch in the name and go, “Okay, I got the.com.” And I know, go to real estate, get a stay trademark. But then they never checked the federal database.

Michelle:
So they can be in business 5, 10, 15 years, I see this happen all the time, and all of a sudden, they receive a cease and desist letter in the mail, and they have to stop using that company name, and they’ll have an attorney, they’ll throw a lot of money at it. And probably let’s say you have Michael [inaudible 00:39:54], they’re probably going to lose and they’ll have to start the rebranding process all over again. Do you agree, Sharon?

Sharon:
It happens all the time. It happened twice last week with a group that I was with. They got, “Oh, I got the domain name.” “Well, have you checked the trademark?” And it’s really easy. It’s just uspto.gov, you search trademarks and you can see who has the name. And if somebody owns the name, just find another name. Come up with something different.

Brandon:
Yeah. I might have that issue in my own. I got to look into this. And this is obviously a deeper conversation, but I have a company called Open Door Capital, because I had a company called Open Door Properties. And we’ve been around for, I don’t know, 15 years now we have Open Door properties. Well, there’s a massive billion dollar company out there right now called Open Door. And they’re significantly bigger. Now they started, I looked up their name, they started way after I did, but they’ve got a lot more money. So I’m assuming at some point, I’m going to get that letter in the mail. I’m going to have to switch out my company name, even though I can say I had it first, but I don’t know if I ever trademarked it.

Michelle:
Well, the question is did you have it protected? You actually, if you can prove that you were using it first, you probably [crosstalk 00:40:59]. You have rights. You have rights of a trademark when you start using that. If they didn’t register it until later, you have rights, but those rights may only be in your geographic area. I am not an attorney, for everybody watching and listening. So do not consider this legal advice. However, you may want to check it out to see what your position is because you may be okay. The question is, do you want to go global? Do you want to go to national? That’s where you might have some problems.

Brandon:
All right. So branding, one more question on branding. David mentioned a minute ago, his company is called the David Greene Team. David Greene, David Greene Team. I got another buddy, his name’s Pat Flynn. He has a show called … You know what? His whole thing is Smart Passive Income with Pat Flynn. It’s very tied to his name. How dangerous is that when you’re trying to sell a business where it’s just really connected to a personality?

Michelle:
Well, Tony Robbins-

Brandon:
Yeah, that’s a very good [inaudible 00:41:52]. Yeah.

Michelle:
It’s probably a perfect example of that. And he had to do an ESOP. He ended up selling to his employees.

Brandon:
Oh, really.

Michelle:
He had Eker who wrote the Millionaire Mindset. I think he was able to sell his empire. Right, Sharon? I think-

Sharon:
Yes, because it was not called [inaudible 00:42:10].

Michelle:
It was called Peak Potentials, right?

Sharon:
Yeah. Right. Peak potentials. And that’s, I talk about the difference between a mission brand and a celebrity brand. So a mission brand is what problem do you solve? What need do you serve? When we started the Rich Dad company, it was our brand, we thought was cashflow or board game, but it quickly became Rich Dad. The world knows us as Rich Dad. And seven years into it, Robert decided he wanted to be a celebrity. So it was all about Robert Kiyosaki.

Sharon:
But same thing, Tony. Tony could not sell his company because his name was attached to the company. And he would have to go with it. And so when you’re building a company, when you think about what you want your exit to be, you want to build that factor in. If your name is tied to it, then you will probably be tied to the company. It’s hard to separate the two, unless you want to lose your name. And so that’s a very important thing to think about as you’re building companies.

Brandon:
So if you were David Greene here, thinking maybe two years, three years, five years on the road, he wants to sell his real estate business, because I mean, it’s a super successful real estate business. What should David’s … Do you think David should … Because right now, he needs that name to grow it, but at the same, or he thinks he does, right? I’m curious of what you guys’ opinion would be on something like that. Should he start to diversify from that name?

Michelle:
If I was him, I would definitely diversify. There’s been some success stories, like Keller Williams, [Salar Takara 00:43:36], but I brand myself, but I also brand my company. Keller Williams brands the company. Like Sharon said, is it a celebrity brand or it’s a professional business brand. But I would definitely rebrand at this process. I mean, how long [inaudible 00:43:52]?

Sharon:
My education company is pay your family first, and then my celebrity brand. My speaking and everything is under Sharon Lechter, but David could easily start dropping David and just have Greene as the name of the company. As a generic enough so that if he wanted to sell at some point, somebody would establish that brand. But is something to think about as to what you want, where you to go. Now, in a services company, a lot of times your purchaser is going to be purchasing your contacts, your contracts, your employees, and your database. And so they would have an asset purchase as opposed to the company purchase. So they might not be necessarily buying your logo, but they do want to have your reputation. And so it’s very important to think about that in every aspect of it.

Michelle:
And I would also add to that and say, 98% of sales are asset sales, not stock sales for multitude of reasons. But most of the time, the buyers want to continue that name. So they’ll get their own entity doing business as, and they will continue that name. The only time that we see buyers change names is when they’re doing big roll-ups.

Brandon:
That makes sense. All right. So you were talking proprietary. There was branding, was the first one. You said you had six things under that, over those. The first one was branding.

Michelle:
Well, we talked about branding, we talked about trademarks. Patents are big. If you’ve ever watched Shark Tank, they sound like a broken record. They have a patent on that. They have a patent on that. They have a patent for need. And we cut [inaudible 00:45:27] for $18 million. It wasn’t making much money, but they had 18 patents. So patents are extremely valuable. Does your husband do work with patents, Sharon?

Sharon:
Oh, my gosh, yes. He’s internationally known for his patent news technologies. He’s an electronic engineer. And patents are the strongest form of protection. They protect your idea. Copyrights protect the expression of your idea, but somebody can read something that you write and go and make it and do it, and there’s no protection against that. And so trademark is the source of the goods. So you protect the source of the goods. A copyright protects the expression of what you’re writing, and a patent protects why you’re doing it and what it does and what it can accomplish. And so that side of it is very, very important. And it’s important to do an entire Arsenal Events lecture property. Have the trademarks, have the copyrights, have the patents.

Michelle:
And have that IP in a different entity too. Right, Sharon?

Sharon:
Yes. And always in a different entity. In fact, I’m doing some projects with Brandon Dawson. He’s the equity owner, started Cardone Ventures with Grant Cardone. And he sold his company about seven years ago for $151 million. 77 times EBITDA.

Brandon:
Wow.

Michelle:
77 times EBITDA.

Sharon:
Yes. Yes. Amazing. And so I had known him for years. I’ve spoken for his organization and he rolled up a bunch of hearing aid companies. And that’s what, the company was called the Audigy. And he was a big fan of my book, Three Feet from Gold. And I just learned this a couple of weeks ago. I did not know that he … In one of my conversations with them, he was telling me about this training that he’s developed for all his companies within this group, Audigy. And I said, “That’s your stuff. This is your knowledge. Are you putting this on a separate entity?” And he said, “No.” And I said, “Well, you should because then you can license it back to the company, but that’s you. That’s what you know.”

Sharon:
And when he sold the company, and that company continues to grow, is over $4 billion today, and he has a license with them, but now he’s able to take that intellectual property and build Cardone Ventures, because he’s got that technology and the rights to use it. So it’s so important to understand. I have a separate company for all of my intellectual property, outside my financial education company for the same reason.

Brandon:
Smart. All right. So, the 77 times EBITDA, that just sounds crazy because why would somebody … Is that because there’s a competitor that wanted it and they were going to pay way more, it got bid up? I mean, is that why that happens?

Sharon:
Well, he wrote this because of the intrinsic value that he was able to roll up across the country, all of these individual Mom & Pops, Audigy clinics and roll that up and a big player bought it. And he did very well. And what he did was he actually also, when we go back to that number one, people, he made sure every one of his employees got a big reward and every one of the companies that he rolled up got more than they would have if they tried to sell individually.

Brandon:
Yeah. Well, let me just summarize this whole valuation thing for people. You explained it. I just want to make sure I got this right. So Michelle and Sharon, correct me if I’m wrong in any of this. So let’s say a business is going to sell for a, for easy math, let’s just say a 10 times multiple, which would be high for most businesses, but let’s just say it’s a 10X, right? Not 77. So this company brings in an EBITDA, or basically profit, for simplicity terms, I guess you could maybe say, of $10 million a year. So it brings in 10 million a year and it sells for a 10X multiple of that. So it sells for 100 million dollars.

Brandon:
So the cool thing about business and why I love this concept of buying and selling businesses, buying or building and then selling businesses, is because if you can take that company from $10 million and increase their revenue up to $12 million, using the same stuff we’re talking about today, the right people and the right processes, or you buy a distressed company that should be worth 10 million, you buy it for five, right? Because they don’t have the right things in place. You put it in place and now you take your $10 million thing, turn it to a $12 million a year profit business. And at that same 10 X multiple, now it’s worth 120 million, not 100 million. So an owner could buy a company for 100 million. I mean, again, there’s some complexities here, but you buy it for 100, fix it up a little bit and sell it for 120. When you say flipping businesses, that’s what you’re getting at, Michelle, right?

Michelle:
Absolutely. And here’s the bottom line. Valuations are more of an art rather than a science, because, again, when we get EBITDA of over 2 million, 3 million, 5 million, private PEGs, Private Equity Groups won’t even look at platforms unless you have an EBITDA of at least $3 million and up. And so we go to market without a price because we know we’re going to bring so many buyers to the party that in most cases, we’re going to create a bidding war. So, valuation is an art, not a science, because you really have to look at the synergies and then you have to determine what buyers are willing to pay top dollar for those synergies and outbid everybody else, because there’s a lot of things to take into consideration here.

Michelle:
Number one, is not just a synergies, but economies of scale. A lot of buyers look at a business and go, “Okay, well, I can take advantage of these economies of scales and decrease overhead, increases EBITDA like that.” Also, what can I decrease in infrastructure? We’re selling a manufacturing business right now that has a $5 million distribution center. We have a manufacturing buyer that has distribution all over the United States. The first thing they’re looking at, that we knew they were going to look at, that’s why we targeted them, is that they’re going to take and cut that distribution center, decreasing $5 million from operating expense, increasing EBITDA from day one to closing on the sale of the business. So it’s all about bringing the right buyers to the table, who are willing to pay maximum value for those synergies. And that’s what we really go into great detail in Exit Rich.

Brandon:
That’s cool. That’s awesome. And one of the things I wanted to stress on this point for a little bit here is because our audience, of course is a lot of real estate investors. And so, when we’re talking about residential property, like I mentioned earlier, with small deals, your house is worth what another house is worth, but when you get into the larger stuff, 5, 10, 50, 100 unit properties, this is how those deals are evaluated. Now they don’t use the same terminology necessarily. We’re not usually talking EBITDA, we’re talking cap rates, and we’re talking NOI, but the concept is exactly the same.

Brandon:
For example, Open Door Capital, we’re aiming to buy a billion dollars of mobile home parks over the next seven years. We should close this year out at, I don’t know, 150 million, something like that. So if we can take a billion dollars of real estate and improve the profit that it brings in, the NOI, the net operating income, every single year that comes in, by decreasing expenses, increasing income, and like you said, the efficiencies, because if we own one mobile home park, this is what it costs to own or manage it. Or we own one apartment, this is what it costs. But if we own 50 of them, there’s a lot of efficiencies. We can cut down costs.

Brandon:
So the idea, but yeah, then we can sell that billion dollars real estate for 1.5, 1.6, $1.7 billion because we’ve now improved the NOI. And then my investors get a huge chunk of that, I get a huge chunk of that. And so the reason I … Yeah, commercial real estate is business, right? Which is exciting to me. I love this stuff.

Michelle:
I have very good friend of mine, owns half of Chicago. Okay. Multifamily. He will tell you he owns a long calf, but anyway, he owns a lot of multifamily and he’s the first one … And I said, you have to read Exit Rich because he does everything himself. He doesn’t have the right people in place. And we’ve been friends forever, and we’ve been to different conferences. And Sharon, you’ve probably met him. I’m not going to say his name here, but he doesn’t implement any of these things that we’re talking about, as far as processes, and people, and everything else. He’s like, “No, Michelle, if I want it done, I got to do it myself.” And I’m like, “You’re never going to be able to maximize value.” So, again, he has a business. I mean, he has several multifamilies. I forget how many doors he has, but he needs to start running it as a business and not he’s not doing.

Brandon:
Yeah.

David:
Let me comment on that, because you’re right. He should be doing exactly what you guys are saying. Part of what makes real estate so beautiful is you can get away by running it sloppy, terrible, because there’s so many less people involved. Real estate is like cheating in business, because borrowing money is so easy at such low rates, valuing is incredibly simple. Nobody likes property management. Compare that to business management, you’ll love it. It’s not even close. If you look at the 20 agents I have to manage on my real estate team for the money I get versus the 20 houses that I have, and I don’t even need one person. I have half a person, because the property managers deal with it. Real estate is this amazing sweet spot in business where you can get away without all the same work that we’re talking about here, but that makes it enticing to cut corners, because you can get away with it.

Michelle:
But imagine if you did everything that Sharon and I are talking about today-

David:
Yes.

Brandon:
Exactly.

David:
That’s where I was going.

Michelle:
[crosstalk 00:54:52] line in Exit Rich, how much more profitable you would be.

David:
And that’s exactly where I was going with that, is that don’t take that bait. You can get away with it, but it’s not good. You should be running it like a business. You should be making sure you’re maximizing rents because that’s maximizing profit. If you ran a business you’d be maximizing your profit, for sure, you wouldn’t be selling an apple for less than what you could get. But landlords be like, “Ah, it’s fine. I’m doing good enough. I won’t raise the rents.” And they’re not creating systems so that … Most of us buy real estate assuming we’re going to hold it forever. But you guys have me thinking, “What if I bought real estate with the purpose of exiting into a REIT? What type of property would I buy? What would a REIT be looking for? How would I strategize-”

Brandon:
That is exactly how I built Open Door Capital, was thinking, I’m going to sell this to a REIT or do a hedge fund. What do they want? They’re going to want systems, they want people.

Sharon:
And a REIT is not going to be interested in you if you have even a million dollars worth of property, $10 million worth. They’re not, but when you’re $150 million, they might at least take a call. But when you’re at a billion dollar, okay, they’re going to [crosstalk 00:55:56].

David:
And if my financials are in order and I have the right people in place and their systems that they could just grab, plug it in, make it work, they’re going to be looking at me. If it’s all, oh, remember the Dumb and Dumber scene where they wrote down the IOUs on the back of napkins of all the money they spent from the suitcase, right? That’s how a lot of investors run their business. Like, “Here’s the one for the Ferrari. You might want to keep that one. It’s worth a lot.”

Brandon:
All right. All right. So this is awesome. So we don’t want to keep you guys all day. So why don’t we wrap up the rest of the Ps so we can get y’all out of here today. And of course, encourage people to get the book, which we’ll talk about more in a moment. So we covered, last thing we talked about proprietary step. What comes next on the Ps?

Michelle:
So the fifth P is patrons, and that’s your customer base. Most businesses follow the 80/20 rule, right? 80% of their business comes from 20% of their clients. They have customer concentrations, say customer diversification. I mean, I’ll give you a perfect example. We’re selling a media company. They have five clients. We’re selling around 15 million. Five clients, that’s all, but they were catering to casinos. Here’s the problem. Problem is they lost two clients. They lost two casinos. I was selling them and our EBITDA, the revenues dropped in half. The EBITDA dropped even more than that. And the big issue is they have to keep the talent for the other three casinos. So they were not sellable anymore. We ended up merging them with another marketing company.

Michelle:
So you really want customer diversification. The other thing I see too, is a lot of businesses have been in business 20, 30, 40 years, the customers are aging out, and the business owners are not innovating and marketing and rich to reach new customers. And the newer generations don’t purchase the same way as baby boomers do. So, yeah, it goes back to what do you need? What do you want? How can I make it easier to do business with us? So patrons. And then profits. Obviously, everybody’s in business to make money. Always say, lack of profits is never the problem. It’s always a symptom of not operating on one of the five Ps. Clients come to me all the time and say, “Michelle, I have a profit problem.” I’m like, “No, you have a people problem. No, you have a process problem.” But lack of profits is never the problem.

Brandon:
Oh, yes.

Sharon:
Yeah. I’d like to talk about patrons just a quick moment, because particularly in the real estate industry, my husband and I got involved with eXp Realty to help train and get realtors to understand that is a business. They’re running a business. You can have transactional, revenue commissions, but commissions only go, last you to the next commission. Let’s build that ongoing passive income stream. But in today’s world, all right, particularly in this younger generation, they live, they think their database is in the sky, in Instagram, Facebook, LinkedIn, Clubhouse. They get so excited because they have all these followers, but you don’t own those. They’re great to be there. You want to be there, their lead generations, but you have to invite them home to your database, entice them to come back.

Sharon:
Top five things to know before you sell your house, top five things you want to know before buying a house, and get them to come and download that so that you have their names so that you can create a relationship, particularly in real estate. Too many real estate agents have transactional mindsets. And so they, somebody buys a house from them and they forget about them. And I go, let’s create a relationship with all of them so that you have an ongoing opportunity to maintain contact, so that they refer you to someone else, so that when they decide to buy an investment property, they’re going to call you.

Sharon:
And for years, I’ve always talked about, when real estate agents people want you to cut your fee, well, as an investor, I pay my agent more than what they’re asking, because when they get a good deal, who do you think they’re going to call? And so, again, it’s patrons. Having that patronage. The loyalty, that relationship with your database. There are companies that are sold because of their database, when you’ve got a competitive company coming in to buy you because they want your customers.

Brandon:
Oh, that’s huge right now. I mean, the whole big data concept in businesses. Isn’t that what they’re really getting at?

Michelle:
Yeah. We didn’t get to finish proprietary. So database is in proprietary. It’s one of those pillars. And I was like, Facebook pay $19 billion. So WhatsApp, and WhatsApp was hemorrhaging money, but they had a billion users. So databases are huge. We always valuate databases.

Brandon:
Yeah, that’s huge.

David:
Brandon, this idea of owning your database and actually making it an asset in your business, this is really similar to what you’re doing with your text newsletter behind the beard, right?

Brandon:
Yeah, that’s exactly. So Sharon and Michelle, what I did is, so I have 250,000 followers on Instagram, which is great. And I raised a lot of money over the last couple of years for my real estate business through that. However, like you said, I don’t own that. I mean, I’ve heard of people getting their Instagram accounts hacked and then like, “Hey, if you don’t pay us a million dollars, we’re going to delete your account.” And then if you don’t pay them, they delete your account. I’m like, that would terrify me. And so, yeah, I started a … Yeah, I could have done an email list and I have that as well, but I figured where the world is moving towards. So I started a text letter, I call it.

Brandon:
So they joined this behind the beard newsletter. So every week I text them five things that I’m learning or buying or doing. And so now I’ve got this list. I think I’ve almost, I don’t know, 10,000 on that. Those are mine. I can communicate to those people, I can talk about what I’m working on, I can raise money, I can build relationships because that’s mine. So I would encourage anybody who is in, especially in internet marketing of any kind, if you have a website, yeah, that list is vital, because you don’t own your social media.

Sharon:
It’s a huge problem for particularly younger people that are starting businesses. They don’t even think about a database, because they’re so excited about being a pillar [crosstalk 01:01:49].

Brandon:
Yeah, “I got the blue check mark on Instagram. I should be fine.” Yeah. Yeah. Until you lose that, or until Instagram changes the algorithm. Yeah. Crazy.

Michelle:
Yeah. I’ve been hacked on Facebook twice.

Sharon:
Well, I lost my personal profile on Facebook. It got back from somebody in Vietnam. They took over my business page shoe. We were able to get our business page back, but I can never get my profile back.

Brandon:
It’s a good reminder, everyone to set up two-factor authentication now on all their social media. Most social medias, they still got in.

Sharon:
I have that.

David:
Oh, man.

Sharon:
They went in and somehow they got in and they changed my emails and my cell phone out of the account so I can longer access it.

Brandon:
Yeah, that sucks.

Sharon:
Crazy.

Brandon:
Yeah. It’s a crazy world. So yeah, own that list that’s yours, of your people. Whether you’re a real estate investor or a business owner, own that list.

Michelle:
That’s any business. You have to build that database and don’t roll [inaudible 01:02:42].

Brandon:
Yeah. So good.

Sharon:
Yeah. Social media is great. You want that, but look at it as lead gen and bring them home. Nurture them home.

Brandon:
Really good stuff. All right. So we covered, the last one was profit then, right? Did we hit all the Ps there?

Michelle:
Yeah. We covered all the six Ps.

Sharon:
And too many people just focus on the product and the profit, and they don’t have the success they deserve because they haven’t built the structure of their business. And that’s the whole reason Michelle and I got together to write Exit Rich, to share people the information they need. Just one or two things out of the book can increase your valuation of your company tenfold. When that’s what we want you to do, is to invest 24 bucks for a book that’s going to help you create greater value and longevity and success in your business.

Michelle:
Well, then it can also help you not become part of the 70% statics that businesses going out of business, and the 80% of businesses that will never sell. There were three things that are proprietary. Contracts are extremely valuable. Buyers will pay a lot of money for contracts, manufacturing, vendor, distribution, franchise, or of a franchisees, any type of exclusivity. Obviously, client contracts are the most valuable, especially if they have a subscription model of reoccurring revenue. The caveat to contracts, the mistake that I always see business owners make, because most deals, most sales are assets. That was not stock sales. Most sales are asset sales. They never had the two sentence transferability-

Brandon:
[inaudible 01:04:11] that clause?

Michelle:
Contract. So if the buyer doesn’t agree, the two sentence transferability clause [crosstalk 01:04:16]

Brandon:
Oh, okay.

David:
It’s basically like a wholesale deal.

Brandon:
Okay, yeah, yeah.

David:
Sign me.

Brandon:
Oh, I didn’t know that. Okay. I wonder if I have that in mine.

Michelle:
Yeah. So the problem is, is that the buyer doesn’t agree to stocks out and look, I got a client right now that’s got 5,000 customers. They’re not going to go get 5,000 [inaudible 01:04:31] to transfer. So you want to make sure you’re proactive and put that language in there. Also celebrity endorsements are huge. We have a client that has products with Oprah. And strategic will pay a lot more money for celebrity endorsements, especially, I call it digital real estate when you have radio personalities, those celebrity endorsements, they can only endorse one real estate company at a time or one skincare line or something like that because otherwise, they lose credibility. So that’s like prime real estate.

Michelle:
And then e-commerce businesses, any of those top positions on Etsy, Amazon, Wayfair, et cetera, strategics will pay a lot of money for that. Content, where it’s selling a huge educational platform business right now and they have so much content, so many books in our pipeline. That’s worth a lot more money, [inaudible 01:05:19] a higher multiple. Do you agree, Sharon?

Sharon:
Oh, absolutely. I think it’s also very important when you have content, that when you’re building the value of your company and you’re using outside third parties to distribute your content, that you know that little thing on online that says, “Check the box that you agree to our terms and conditions.” Do something new and different, read them. Because a lot of times when you read them, that company you’re giving them permission, you’re letting them have a perpetual license to your content that they can do whatever they want to with it forever, right? And we see this time and time again. How many times do you check the box and not read that? So you have to see what it does, what it says and what kind of ownership, because it can impact the value of your company if you’ve given somebody else rights to it.

Michelle:
And even if you hire people to write content, you want to make sure that you own that content, not the employees, not the interns, not the freelance writers.

Sharon:
Number one issue. And small to medium companies, people that are now using Fiverr and outside sources, somebody to do their website, you have to have a work for hire agreement, which says, “When I pay for it, I own it.” Your headshots, big one. A lot of people don’t get that kind of, so you don’t really own the headshots, they do. And you are restricted to your use. So every time we do anything here, every agreement is, “This is mine. I own it when I pay for it.”

Brandon:
I found that out my first photography headshot I ever did 10 years ago, I posted the picture online later, and the photographer reached out and was like, “This is a friend too.” Was like, “Hey, just so you know, I own that. You’re not supposed to post that online.” I’m like, “I hired you for me to do headshots.” She’s like, “Well, just put my logo on all the pictures you put online.” I was like, “Screw that. I’m not going to do that.”

Brandon:
So yeah, very good point. Very good point. All right, you two, we got to start wrapping things up. So we got the last section of the show here. We call it our famous four. It’s the part of the show we ask the same four questions to every guest every week. And so we’re going to throw the first ones at you, or all four at you, but I’ll start with, why don’t I go, Michelle, Sharon, each one of these. We’ll start with Michelle then end with Sharon. First question, is there a habit or a trait that you’re currently trying to improve in your own life?

Michelle:
Working out consistently. I get up at 4:00 AM to workout and sometimes it is, “Don’t do that.” So doing that consistently.

Brandon:
Oh, that’s really. What’s your go-to workout?

Michelle:
What’s my go-to workout?

Brandon:
Go-to workout things.

Michelle:
The climber, the actual climber. And I do that, I do 100 pushups and 150 squats with weights.

David:
Wow.

Brandon:
Wow. I love it. All right. Sharon, habit or trait that you’re working on?

Sharon:
Once a quarter, getting to the beach, to the ocean at sunset. That is something that I promised myself a long time ago. And I’ve been pretty good at it, but not the last couple of years. And you can add on the same thing, and this is my seventh day getting up to a new exercise routine and a new nutritional plan. So, working on that too.

David:
All right.

Brandon:
Well come visit me on Maui. I live out here in Maui, Hawaii. Come visit sometime. Well, [inaudible 01:08:32].

Michelle:
Are you in Maui? Oh, my gosh.

Brandon:
I have. Yeah.

Michelle:
Invite me. I’ll be there.

Brandon:
It’s not bad.

Sharon:
You’re both in Maui?

David:
That’s where we’re right now. Yeah.

Brandon:
Yeah, it’s not bad. All right, question number two.

David:
Next question. What is each of your favorite business books?

Michelle:
Exit Rich. Can I say that?

Brandon:
You can say, but I’ll ask for another one too.

Michelle:
Oh, I love … You guys have already said it. I love Rich Dad, Poor Dad. I love the original Napoleon Hill Foundation. I also like the ONE Thing by Gary Keller. So I gave you more than one. Sorry.

David:
That’s great.

Sharon:
Think and Grow Rich, Hands Down by Napoleon Hill, released 1937. It’s as relevant today as it was when he released it. I tell people I read it every year. The book doesn’t change, but I do. And every year I find something in there that I don’t remember being there the year before, because it’s what I needed at that moment in time. So Think and Grow Rich. And then I like Dale Carnegie’s, How to Win and Influence People.

David:
Oh, yeah. Both so good. Yeah.

Brandon:
By the way, I do think that I read Rich Dad, Poor Dad every year and every time, it doesn’t change, but I change. So again, thanks. All right. Number three.

David:
All right. What are some of your hobbies?

Michelle:
Well, I love to write. So I write songs and poetry, and just anything. I love writing, that’s one of my biggest hobbies. Travel, friends.

Sharon:
So my hobby, we have a ranch. It’s a guest ranch, cherrycreeklodge.com, here in Arizona, three hours. I’d been next. And so we spent, every time we can, we get up there to, we have four new horses, two colts and two fillies that were born the last two months. So, that’s a pretty big hobby. We have fishing, shooting, horseback riding, and all kinds of fun. We do business retreats up there. So that would be it. And reading, I’m an avid reader. So that’s definitely, yeah, it’s probably not a hobby, is an advocation.

Brandon:
There you go. Very cool. Yeah. Well, that’s actually on your website earlier today, Cherry Creek Lodge, and that looks like a lot of fun, so I will have to complete that for me.

Michelle:
Hey, if you’ll sell enough books, you can go there. It’s [crosstalk 01:10:40].

Sharon:
All right.

Michelle:
It’s one of our book buy.

Brandon:
That’s awesome.

Michelle:
[inaudible 01:10:44].

Sharon:
I’ve been offering people a gift certificate if they sell 10 books or more.

Brandon:
That’s awesome. Well, everybody go buy a copy of Exit Rich because I want to go to Cherry Creek Lodge. [inaudible 01:10:56]. All right, last question from me. What do you think separates successful entrepreneurs from those who give up, fail or never get started? Obviously, there’s a million things, but if you had to really narrow it down to one thing, what separates those who succeed from those who don’t?

Michelle:
Oh, sure. There are a million things. The first thing that comes to my mind is grit, perseverance. Mentorship, I know I said more than one.

Brandon:
That’s good

Sharon:
For me, it’s faith. Faith in yourself, faith in what you’re doing, faith that is needed necessary, successful businesses solve a problem or serve a need. And that we self-sabotage because we allow fear to paralyze us. And so if you can learn how to just get rid of the fear, Outwitting the Devil can help, one of my books with the Napoleon Hill Foundation, but converting that fear into energy and into faith. Faith that what you’re doing when you have faith, you can do anything.

Brandon:
I love it.

David:
It’s awesome.

Brandon:
All right.

David:
All right, ladies, where can people find out more about you?

Sharon:
Michelle.

Michelle:
So for me, my main website is seilertucker.com. Sharon, you want to tell them your main website and then we’ll give them information about how they can get Exit Rich?

Sharon:
Sure. You can find me at sharonlechter.com and Sharon Lechter everywhere else. LinkedIn, Clubhouse, Instagram, Sharon Lechter. And to get the book, Exit Rich, you can visit exitrichbook.com. Exitrichbook.com will get you an electronic copy right away, and then when the book is actually released, we’ll send you the hard copy on June 22nd. But exitrichbook.com, and in addition, you get all kinds of bonuses when you order the book. Michelle, why don’t you share those?

Michelle:
Sure. And I was going to say, you can follow me too on social media, Michelle Seiler Tucker. But exitrichbook.com, $24 and 79 cents, which is less than Amazon. And before June 22nd, which is our official launch date, we’ll shift the hookup at your doorstep, no additional shipping. You’ll get a lifetime membership into the Exit Rich book club, you’ll get video content where we do deep dives and different strategies and techniques, plus documents, like Sharon said, documents to operate your business, documents to sell your business, And then we’re also giving a 30-day free membership into club seals, which is an entrepreneurship mastermind where we do the hot seats Q&As to help build the sustainable, scalable, sellable business. So all of this is at exitrichbook.com for $24 and 79 cents, which is less than lunch. Right, gentlemen?

Brandon:
I love it. I’m such a big believer, I have this theory in life. If there’s a book that I think maybe I should buy, I buy it. No matter what. Because I’ve never read a book and had it not give me significantly more value than what I paid for. Never. It doesn’t matter. I could pay a thousand dollars for a book. Every book I think I’ve ever read, nonfiction anyway, has given me more value on a cost. So if this book, if you get one idea or one thing that helps you at any point in the next 70 years of your life, is it not worth 25 bucks, 100% [inaudible 01:14:22].

Sharon:
Well, and it’s so true. And my friend, Steve Forbes, he’s just, [inaudible 01:14:26] says, it’s a gold mine for entrepreneurs because it truly is.

Brandon:
Awesome. Well, thank you two so much for writing this book and for all the books that you guys have written and all the work you’ve done in the world. It’s been phenomenal to have you here today. So, thank you.

Sharon:
Well, we appreciate you. Brandon and David, thank you so much for making this opportunity and providing this learning resource

Michelle:
Thank you so much, Brandon and David. We truly appreciate it.

Brandon:
Thank you.

David:
Thank you ladies. This is David Greene for Brandon, bigger, small, he’ll read them all. Turn, signing off.

Outro:
You’re listening to BiggerPockets radio, simplifying real estate for investors, large and small. If you’re here looking to learn about real estate investing, without all the hype, you’re in the right place. Stay tuned and be sure to join the millions of others who have benefited from biggerpockets.com, your home for real estate investing online.

 

 

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In This Episode We Cover:

  • What business owners do that costs them millions in company valuation 
  • The 6 Ps to a profitable (and stress-free) exit
  • Building systems that allow your business to grow efficiently 
  • Focusing on company culture and having an employee liaison
  • Why most business owners won’t let go of their “hands-on” role
  • How a business is valued (and what you can do to boost your valuation)
  • And So Much More!

Links from the Show

Books Mentioned in this Show:

Connect with our Michelle and Sharon: