Business Innovators Radio - Mac Lackey – Beyond Revenue Multiples: The Real Opportunity for Maximum Business Sale

Episode Date: June 2, 2023

In this episode of Megabucks Radio, Nina Hershberger interviews Mac Lackey – a successful entrepreneur, and mentor, who shares his insights on building businesses for successful exits. Mac shares his journey from building and selling six companies to focusing on helping other entrepreneurs design their businesses with a potential exit in mind.Key Takeaways:The real opportunity for a business sale is when someone buys for strategic valueFinding alignment with potential buyers can lead to powerful exits with significant premiums paidSelecting buyers who need and want valuable aspects of the business is importantOne should design their businesses with the option to exit in mindDue diligence demands extensive documentation and organizational efficiencyProper paperwork and agreements can maximize the deal valueFinding buyers outside of the industry who are trying to expand strategically can result in a premium priceEpisode Overview:Mac Lackey shares his journey from building and selling six successful companies to investing his time in helping other entrepreneurs design their businesses with a potential exit in mind. The key to selling a business is not financial metrics, but rather identifying unique aspects of the business that will entice potential buyers. Building and designing a business to be sold requires careful planning and organization to ensure all documents needed for the due diligence process are readily available. Mac also stresses the importance of identifying potential buyers outside of the industry who are trying to get into your industry strategically.Mac Lackey is a serial entrepreneur with a diverse background in founding several successful businesses. Before venturing into entrepreneurship, Mac had a successful soccer career, playing through college and even briefly professionally. After retiring from soccer, he began working in a small software company and soon launched his first internet business in 1995, right when the commercial internet was beginning to take off. This led to an eight-figure exit in 1998 and changed his perspective on building and thinking about companies. Mac went on to found several other companies, including a media company, an apparel company, and several sports-related tech businesses. With his years of experience and multiple successes, Mac Lackey has become a prominent figure in the entrepreneurship world.Max offered a free copy of his book: Creating the Exit Opportunity. Listeners can get this e-book at ExitDNA.com/book.MegaBucks Radio with Nina Hershbergerhttps://businessinnovatorsradio.com/megabucks-radio-with-nina-hershbergerSource: https://businessinnovatorsradio.com/mac-lackey-beyond-revenue-multiples-the-real-opportunity-for-maximum-business-sale

Welcome to Megabox Radio. Conversations with successful entrepreneurs, sharing their tips and strategies for success, real-world ideas that can put Megabox in your bank account. Here's your host, Nina Hirshberger. Welcome to today's show. This is your host, Nina Hirshberger. And today I have Mack Lackey on the line with me. Mac is a entrepreneur, an investor, and a member.

for those who want to sell their businesses, probably for top dollars, I would think, because he himself had started and sold six companies, all seven or eight figure exit. So he is Mr. Exit Strategy. So welcome to today's show, Mack. Nina, thank you so much for having me. Excited to be here. Yeah, so let's get right into it. Tell me those six businesses. Tell me your background, your history. Where did you get started? Sure. So I have a fair amount of diversity in terms of the businesses that I started.

The 32nd kind of pre-background, I spent a lot of my life childhood, I guess you would say, as a huge soccer player, fan, enthusiast. That was kind of my life. My life goals and dreams were all soccer-related. So I was really fortunate. I played. I played through college. I was a collegiate all-American.

I played briefly professionally, but I'm of an age that when I came out of college, it was before major league soccer and some of the current options were available. So a lot of my focus was around soccer. And when I stopped playing, I actually met a gentleman through soccer that was working for a small software company.

So that's kind of where I got my start in the working world as I went from soccer player to working in a software company. And this gentleman and I, we really just hit it off early around this idea, and this is 1995, really 1994, when we started working together. Early 1995, we believe the Internet was going to change everything. And although that seems really obvious now, the first quarter of 1995 when we started our company, is when Netscape launched the commercial web browser.

So we literally launched our first internet company right when the commercial internet was kind of starting. And so that's kind of how I got my start in entrepreneurship. It was a typical or stereotypical, I guess you'd say, garage startup. I was living in a one-bedroom apartment trying to get this business going and struggling and sleeping on the floor. And thankfully for, you know, a lot of great. reasons that business grew very quickly and we ended up selling the company in 1998 and an eight figure exit. So, you know, I was in my kind of mid to late 20s and had a life changing exit that really changed my view of how to build companies, how to think about them. And so that got me started

and I'm happy to talk about any of them, but I had, you know, a media company, an apparel company, a couple of sports-related tech businesses. So I had a lot of diverse. in my career starting with that first internet business. I got to laugh, though, when you say about 1994, 1994, 1995, because I'll never forget my husband's saying, what is the internet? And he also asked, what is we're processing? You're right. We do laugh at those things today.

But, you know, it was cutting edge at that point. So you started, you talked about a media, you talked about apparel, you talked about a different kinds of companies and then and sold them. So did you get to the point where, you know, it become, you understand how to start and then exit and you thought, instead of my starting another business, I'm going to help others know how to do that or do you still own a business? Yeah, it's a great question. So a lot of my working life, I would always describe that there two things in the world. One is whatever company I was running at a given time and my family, which was a huge priority to me, everything else in the world was, I mean, I had in my head in the sand.

I didn't follow current events. I couldn't tell you the day before the Super Bowl, who was even playing in it. I just was ultra focused. And so one interesting thing happened in October of 2018, when I sold my sixth company, I got asked to speak at this event. And the organizers, you know, reached out to me and I said, look, I'm not, I don't go to events. I'm not a speaker. I'm not even sure I would know what to talk about. And they said, well, you just exited your six company. We have a group of entrepreneurs that they aspire to that. So just share your exit journey. You know, what did you learn? What did you do right? What did you do wrong? And so I ended up agreeing to go to this event, which was something I, again, typically would never do because I just didn't do that type of thing.

And I got up on stage and just shared the lessons I had learned. Mistakes I'd made, things I'd done well. And as I walked off the stage, six or seven of these entrepreneurs kind of ran over to me and said, Mac, I need your help. I have been talking to M&A advisors. I've been talking to my attorney. I've been talking to CPAs. And I've never heard the stuff that you just shared with us.

It's very different. It's very new. And so I realized, I guess, right at that moment that my set of experiences was unique. Again, very fortunate and blessed to have sold one company, much less six. And so across the course of time, I did love. learn a lot. I made a ton of mistakes and I was fortunate enough that after I would make a mistake selling a company, I would realize, oh, that was a stupid way. I structured that or I made a huge mistake in something. I had more opportunities, but most founders or entrepreneurs in their life

are fortunate if they have one exit and they don't want to look back and say, oh, I had the one chance and I left a lot of money on the table just because I didn't know what I was doing. So I kind of made a decision at that point that that was going to be a part of the second half of my life as I wanted to mentor entrepreneurs through that journey. And so that was a long-winded way to say, you know, yes, I have kind of shifted my focus to primarily helping entrepreneurs in that kind of exit journey. I have a program I created to help specifically with that. And I do still own a few businesses. I own a professional soccer team in Spain, which is, again, kind of a light passion of mine. So I have a few things that are still I'm actively working on, but a big part of

my focus is just helping entrepreneurs on their exit journey. No, Mac, that was a great, you know, no, I loved having that. So when you talk to entrepreneurs, is every entrepreneur in their own business always think about when I'm going to sell, or is that even anything that they sometimes don't even think about selling? Well, I think my view is that one of the most powerful things we can do as entrepreneurs is create the option to exit because what typically happens is an entrepreneur may or may not even be thinking about exit and then something happens in their life. They suddenly need or want to sell their business.

It could be, you know, someone in their company or their company or or their significant other gets an illness and suddenly they need the time. It could be that they've been not taking much money out of a business and all a sudden they have kids that need to go to college and they need to fund college or they want to buy a house or a fishing boat or retire, any number of things. And the reason that is negative is because all of a sudden you go from not thinking about exit to needing or wanting to. And what I've learned over the years is that we need to be actively designing our business so that it can be sold to create that option.

That way when something happens in life, we can say, okay, well, we've got the business set up in the right ways. We've really thought strategically about it. We kind of know who might buy it. We've created a lot of value that we can talk about. So now we have the option. If we want to sell it, great. If we don't want to sell it, having the option just means we've built a better business. So I learned kind of through this journey that if you optimize for exit and get someone that

wants to buy your company and pay maximum value for it, that's all you've done is create the option. You don't have to sell it. You can keep it. But if you haven't created that option, unfortunately, a lot of entrepreneurs get to the point where they suddenly need to sell and they haven't done any of that and they can't maximize the opportunity. Or maybe even not be able to sell it at all. Is that even possibility? It's a great point.

As a matter of fact, statistically, only about 25% of entrepreneurs who are trying to sell, who want to sell, ever get a deal done. So it's only about, you know, really somewhere between one and four, one and five entrepreneurs who are actively trying to exit can get a deal done. So the odds are not in your favor, but there are a lot of things. that we teach people how to do that really changes that dynamic. Okay, so let's go back onto that stage in 2018, and you were delivering amazing stuff.

So share with us some of those tips that you shared that day. Yeah, I don't know if I would define it as amazing. At the time, I think I was a very amateur speaker, but I guess I was saying some things that were unique. And one of the things that really resonated with that audience was I mentioned specifically that of my six companies, I never once sold for a financial metric, meaning I didn't sell for a revenue multiple or a EBITDA multiple or profit number, which as you know and most of your listeners will know, if you start talking about the value of your company, you'll very quickly, people will immediately. go to what's your last 12 months revenue, what's your last 12 month EBITI, and they'll start talking about three times EBITI or five times EBITA or eight times because you have these multiples that exist in the industry that you happen to be in. And my experience was, and certainly

is today, that the real opportunity is when someone buys your business because of its strategic value. And the strategic value can be lots of different things, but you have something that is very meaningful to a buyer. It could be your geographic location in the world. If you have a retail store, or if you have a traditional business, where you're located, who your customers are, the products and services that you've created. Maybe it's something unique about your supply chain, how you procure products or how you distribute products. Those things that are strategic, that's what someone pays significant premiums for, not three times EBITI. Those are very low level foundational things. So focusing on strategic value and helping people discover what are these things

in my business that are valuable and who in the world is interested in them, who needs them? And when find that alignment, that's when you can create powerful exits. So, Mac, when you were back in the 1995 time frame, three years before you guys actually sold the business, were you thinking in those terms at that point? No, it's really the first time, first and only time in my life that, you know, we started that business because we were excited and we, you know, we had this theory or thesis around the internet and e-commerce and all these things that we thought were going to be big trends. And that business created a lot of value and all of a sudden the market kind of came to us and

said, you guys have created something unique. You seem to be ahead of the curve. You've got great clients. You've got this great location. All these things that kind of mattered. But it wasn't until we sold that business and we sold it into a company that did a roll-up. they did, I think, 25 to 30 acquisitions of companies like mine, and they took all of that public.

And I watched that process and why they were paying certain amounts for certain companies and how all that sort of worked. And that was the eye-opener for me. So from that point on, I designed and thought about every business in terms of, are we creating a business that has strategic value. Who cares about that value? I would have on my initial presentations for the companies I started, you know, when I would talk to strategic partners or potential investors, I would have a list of potential acquires and why they would be interested in acquiring what we intended to build from day one. Not that I was going to, you know,

flip the business. I got accused of that kind of in a negative way, you know, a decade ago, people are like, oh, you just build and flip companies. And several of my companies, I would have run the rest of my life. I loved them. I, you know, enjoyed the subject. I had a lot of passion for what we were doing. But when you create enough value and someone comes in and says, I want to pay you millions and millions of dollars for this, I would always say, well, I've got other things I want to do. So this is great. I can transfer that value to a buyer. I can use that money to go start my next company or to travel with my family, which some of the decisions I made. You know, I pulled my kids out of school and traveled the world for a year. You know, that was

because I made a decision to sell early versus just keep the business for another five years. But it wasn't designed to sell. It was just that I was constantly thinking about are we creating the option. Are we creating enough value? Who would buy it? What would they want? And that constant, you know, thinking in the background really created these options for us. Yeah, when you said that, you know, most businesses who want to sell only one in four or one in five will actually finish a deal, that's probably because they haven't thought of that value, I'm assuming. Yeah, I think one of the things that happens oftentimes is, again, you get to this point where you need or want to sell and you haven't proactively thought about all of the things that a prospective buyer is going to care about. And so all of a sudden you might even have someone interested and they say, hey, I'd like to buy your company.

Let's start due diligence. send me all your financial, send me all your documents, and you realize how unprepared you are, how some employees you have great paperwork on, and some you don't, and you have agreements with some suppliers and some are handshakes, and your financials are updated, but not real recently. And that is the type of thing that sounds really simple, but it's why deals fall apart. People come in and look at your company and say, it's not really prepared. It's not really professional. It's not really organized.

And those are simple things to fix. It's a lot of what we teach is how can we do little simple things now that compound into value over time versus waiting until you're six months away from hoping to exit and scrambling to get all this work done. I wrote an e-book trying to share all the stuff that I kind of learned. and I talk about some of the shifts that you need to make in your business in this e-book, which I think would be great for your listeners. It's free.

I used to sell it. I sold thousands and thousands of copies of it. And then I said, you know what, I just want to make this free because I want entrepreneurs to understand that there are simple, simple things you can start doing right now that really increase the odds of even getting the deal done, period, to your point. Because a lot of people don't think about it until it's kind of too late. Give me a couple of those simple ideas. So one of the really interesting things that I found early on is that if you decide to sell your company and you have an interested buyer,

one of the first things they're going to do, they'll give you some form of indication of interest, maybe a letter of intent or a document that says what they might pay for your company. But the minute you even lightly agree, the next step is, is you're going to start formal or informal due diligence, meaning they're going to send you a list of request, a request list for all of the things that they would like to review about your company. It's the equivalent of a super deep dive into the history of your company and all the details. Well, I took one of the largest transactional law firms in the United States that I've worked with a few times.

I took their due diligence request list, which is very thorough, very detailed. It isn't fun to receive it when you're an entrepreneur. And one of the things I always recommend to our people we work with within exit DNA is let's take the structure of that due diligence request list. And this weekend, maybe on Sunday, take whatever you use, whether it's Google Drive or Dropbox or Box or whatever you use as your file kind of management, and organize your Dropbox folder with the,

exact same structure as the due diligence request list. So there's, you know, seven or eight primary sections and there are all these details. So it might take you a few hours to get that simple file structure in place, but then every single week going forward 15 minutes, 30 minutes on a Sunday, for example, just make sure that all of your employee documents or anybody knew you've hired or fired or reviews you've done are dragged into those folders. And then anytime you sign a new agreement with someone, it's in the appropriate folder. So it's basically ensuring that you have this really simple file structure. Well, that doesn't sound like a big deal, but a year or two years from now, when someone says,

Mac, can you send me your materials? Here is the due diligence request form. that becomes a massive scramble for almost every company unless you've already organized everything, at which point you can right click and share and say, oh, here's all of the information you need. It will floor those prospective buyers. They're not used to seeing that. They're not used to people responding quickly, certainly not in the exact same file format and structure that they've requested the documents. So it's a real, that's a tactical one, right?

It's real simple, real tactical, but game-changing in terms of the impact it has when someone wants to take a look at your company. It just really impresses them, if nothing else. Yeah, no, that makes a lot of sense. I want to go back to the value of a company. I'm sure that entrepreneurs haven't thought about that, so you probably go in, and that's one of the benefits of using your services as well, is help them really understand what that value is. That's right.

I think we as entrepreneurs know that we have value, of course. If we're a growing profitable business, for example, the way I always start to look at it is whatever is helping you generate those profits, it's not a financial thing. It's because you have better products than your competitors. You have a more strategic location. You have a better marketing strategy. You have a better sales team.

Whatever it is that you believe at your core is helping you grow, differentiate from your competitors, win customers. Those are the kind of things that we need to start putting up on the whiteboard and saying, okay, these are potentially valuable because they're helping my business grow, but they're probably also valuable to prospective buyers. And so what I always start is, again, very, very high level just like that, helping entrepreneurs identify potential areas of value. And then what we start looking for is who out in the world needs those things, cares about those things, and ideally needs them bad enough, they're willing to pay a premium for them. When you get into that needs them bad enough to pay a premium category, that's when we start getting typically.

a lot more strategic and less tactical. So, for example, one of my companies many years ago, I think it was in 2014, we sold a business to NBC Sports. And it was basically a technology company. We had a lot of things that we had done, that we had created, that we thought were some of the best products in the industry. But the reality is what we had that NBC wanted so badly is we had an exclusive agreement signed with a provider that gave us access to 6,000 customers in the United States.

And the only way to get to those customers was either to cold call them and try to market to them in the traditional form, or they knew if they bought my company, they had 6,000 customers the next day. And so my customers and the exclusive agreement to get to them was worth millions and millions of dollars to them. So even though we had a team and all this technology and all these things, an exclusive agreement was what they really honed in on that they needed and wanted bad enough to pay a premium for it. So you're right. It's a little bit of art and a little bit of science for us to work with entrepreneurs to help them identify not only what is that value, but who in the world, what companies want it, need it, or willing to pay a premium for it? Yeah, I mean, that's a real key thing.

I mean, because I'm going back to you when you sold your first business, and what you experienced from that point on was to pay attention to those things. Because, you know, you think, okay, who would buy my business? Let's say it's an auto repair guy. Now, I'm mentally thinking, okay, maybe it's the location. like you say. So who would want to buy this location? Is that kind of, you know, the path you would go down?

That's exactly right. I think some of it starts as simple and straightforward as that. You know, you're an auto repair shop in a certain market, and you think who in the world wants an auto repair shop in this market? The path of lease resistance is a larger auto repair shop that doesn't have that market, right? So they're in a neighboring town, they're in a neighboring state. You find out that they're looking to expand into your area or your state. In some cases, it could even be a competitor that wants to just reduce competition and control a bigger share of the market.

What we've learned, and I've had some, you know, very, you know, fortunate kind of looking back is that the biggest multiples are paid when you find someone outside your industry who's trying to break in. And so what I mean by that is if you were to find someone just to kind of continue with your auto parts example that said, you know what, we have an auto parts manufacturing and distribution company that has the parts and it's a warehouse. And one of the things that they're trying to do strategically is have the full supply chain all the way down to installation and repair. So today they're a parks company,

but they're trying to get into the actual repair and installation part of the business. And in order to do that, they're willing to pay a premium because they don't have that today. And the fastest way to do it is to buy it. Now, they could build it over time, but if you have the answer

to how do they get into the auto part repair and installation business, that's a perfect match. and you'll often get a bigger valuation than if you just sold to a competitor. So let's keep with the auto repair guy. So he's, you know, getting of the age. And he's thinking, yeah, I really would like to exit this. So how do you recommend he starts even looking around for those people who might

or companies who might be interested? What does he do? Does he send them letters? What happens? So one of the things within exit DNA we do, we have this, we have a whole session on finding the best buyers. And it's often one of the bigger challenges for an entrepreneur is to start thinking strategically beyond their own industry. Because that's, again, the path of least resistance. Most of us would say if we own a $5 million auto repair business, let's go find a $20 million.

or $30 million auto repair business because they're probably going to be the best buyers. And that is true in terms of they probably will be interested. But I need my members to start thinking of three to five industries, so totally beyond the auto repair. So that's when I would start saying, let's look at both sides of the equation. Are there some manufacturers who don't have a presence in the United States, for example. Maybe they're manufacturing products in Europe and they really need a present in the United States. Manufacturing is a whole industry. So that's an industry. Now let's look at

auto park distribution companies. Distribution is a different business. It's warehouse and it's fulfillment. That's a different industry. We might also say are there new companies launching that would like to have products put on cars installed and they don't want to go through traditional distributions, they would like to go direct to the retailer. And so I really try to force our members to just get out of the box. A lot of times I have to work with them just to think about a lot of different industries. Then the real key is they start researching and tracking those. industries and even some of these specific companies. They don't have to know if they're interested

yet. They just have to start reading their press releases and, you know, reading what's going on in the industry because all you need as a business owner is one hook, one manufacturer putting out a press release saying our German manufacturing company is hoping to start working with retailers in the United States. With that one little nugget, you can pick up the phone and call that manufacturer and say, I have the answer. Or you can go to an M&A advisor and say, we think manufacturers are going to be interested because I read this press release.

Can you reach out to five of them for me? So it sort of starts the ball rolling. Wow, Mack, that is really, that's brilliant, absolutely brilliant. I am looking at the clock, and unfortunately the clock is never my friend, but several times you've talked about your program, your members. Let's go down that route. right now. What is it you can provide for people who might be listening to this because they're all business owners who really might want to have some of the service like yours?

So I would say two things. First, I mentioned, you know, I wrote an e-book. It's really valuable. I would encourage any of your listeners to download it because, again, it's free. It's at exitdn.com forward slash book. You can download the e-book. It's got actionable steps you can take in there. So I would encourage everyone to do that. If you download the e-book, you read the e-book, which is pretty quick, I think it's maybe 60 to 80 pages, and you decide, you know, I really want to work with Mac. I really would like to go deeper.

We do have a program that's called Exit DNA where I work directly in kind of small groups with entrepreneurs from all over the world. So it's not only me sharing proprietary content, but it puts you on this journey with other business owners, which can be really valuable because they're trying to figure out the same thing. So again, if you go to exitdna.com, you can learn a little bit more about what we do. You can apply to kind of join us, but it's an opportunity for me to share everything I've learned good and bad directly with members. We have a 24 by 7 online platform so they can download and review and all the stuff I've talked about today. And 10 times more that is available through exitDNA.com. Well, that's very, very valuable.

So you probably, of your members, I mean, you said the normal is 1 to 4, 1 to 5 will actually sell. For those who take advantage of your service, who use your knowledge and your skills, is their sale ability higher? I think our members, we've got a lot of testimonials on our website, for example, we have changed the way a lot of entrepreneurs look at their own business. We have worked with a number of entrepreneurs who have tried and failed. As a matter of fact, one of our members right now has signed a letter of intent for a very, very strong eight-figure exit that was not able to complete a transaction last year.

And they feel like what we've been able to kind of share and work with them has changed their ability to not only get a deal done, but at a much higher valuation. So we have seen some really, really great results, and I'm very gracious for our members providing testimonials. And so, yeah, that's, you know, my, I'm hearing from most of our members that the return on investment of exit DNA is 10 to 100 times what they pay because I don't take any of the business. I don't have any upside. My only incentive is to help founders get the best deal done. So it's a really, really straightforward opportunity and we've been seeing some really nice

results. Well, I suspect, I expect, I mean, you're going to help them even systematize, document, organize, and just doing that probably even makes their business better, even if they don't, aren't in the market to sell right now. Yeah, that's exactly right. I believe that this is truly a no-brainer for pretty much every business owner, because if you take these steps to optimize your business to give you the option to exit, you end up creating more freedom in your life because the business is more, you know, process and system driven. You have smart people that are helping do things on your behalf because a business that's sellable is a business that the founder or the key entrepreneur is not involved in the critical path of everything. No one wants to buy a

company where Mac is answering the phone, writing code, fulfilling software, you know, installing products on cars. I have to have designed my business so the business can operate to some degree without me. So part of this process of getting it ready increases your personal freedom, gives you more typical scale in the business. So it's kind of a no-brainer. I've rarely run into anyone that can convince me that this isn't something they should be doing as an entrepreneur.

Yeah, that makes sense. Well, Mack, time is out. But I want to thank you for being such an amazing guest and giving such amazing value and information. to the people. That's what I love. I love when somebody can listen to this and literally walk away and do something in their business.

So thank you so much. Thank you very much for having me. So this is Nine Hirshberger. Again, go to exit, e-X-I-T-D-N-A dot com. And you'll learn all about Mac and what he does, but if you add slash book at the end

that. You can get the free download. His e-book is called Creating the Exit Opportunity. So until next time, go out and make a difference. Thank you for listening to Megabucks Radio with Nina Hirshberger. To learn more about the resources mentioned on today's show or to listen to past episodes, visit megabucksradio.com.