Digital Social Hour - Doing $250M a Year, Exiting Companies & Building Company Culture I Peter Krauss DSH #372
Episode Date: March 25, 2024Peter Krauss comes on the show to talk about making $250M a year, exiting companies & building company culture. APPLY TO BE ON THE PODCAST: https://forms.gle/qXvENTeurx7Xn8Ci9 BUSINESS INQUIRIES/S...PONSORS: Jenna@DigitalSocialHour.com SPONSORS: Opus Pro: https://www.opus.pro/?via=DSH Deposyt Payment Processing: https://www.deposyt.com/seankelly LISTEN ON: Apple Podcasts: https://podcasts.apple.com/us/podcast/digital-social-hour/id1676846015 Spotify: https://open.spotify.com/show/5Jn7LXarRlI8Hc0GtTn759 Sean Kelly Instagram: https://www.instagram.com/seanmikekelly/ Learn more about your ad choices. Visit megaphone.fm/adchoices Learn more about your ad choices. Visit podcastchoices.com/adchoices
Transcript
Discussion (0)
time in a unique bubble that I don't know that we'll see again, or at least not for a long time.
People are raising money pre-revenue, like $100 million.
Yeah, yeah.
Just for an idea.
And there was a ton of money in the market, and that money needs to go somewhere, right?
And I always tell people, money needs to work.
If money's just sitting, it's not making anybody money, right?
So it's got to go to work, and you assume a certain risk portfolio when you're willing
and needing to put that money to work, right?
Wherever you guys are watching this show, I would truly appreciate it if you follow or subscribe.
It helps a lot with the algorithm. It helps us get bigger and better guests,
and it helps us grow the team. Truly means a lot. Thank you guys for supporting,
and here's the episode. Welcome back to the show, guys. Digital Social Hour. I'm your host,
as always, Sean Kelly.
Got with me a business mogul today, Peter Krause. Hey, how's it going? I'm good, Sean. How are you?
I'm doing good, man. Ever since I met you, I've been thinking about what you told me and I was really impressed with your story, honestly. Well, I appreciate that. Yeah, we know a lot of the same
people. Vegas gets to be a small town sometimes. Very small town. Ran into you randomly last night.
Yeah. It was like three or four randomly last night yeah yeah there's like
three or four people last night said the exact same thing we just all keep bumping into each
other so it's good yeah i'd love for you to kind of explain your journey your story and what you've
accomplished yeah so i i've my career is now 30 years long i'm i'm a little sad to admit that in
a sense as far as that i'm that old but uh yeah, I've been in business, sales, marketing, operations, production,
efficiency, you name it. My story, interestingly, and it wasn't by design, is I've made a career
out of joining companies kind of in the early or midlife and really helping that organization
level up. That's what I always like to say, is really get to the next level. So probably the
biggest success story that I could share was a company that had several partners. We became the largest gift card manufacturer in the
world. And some people go, okay, how's that possible? But if you think about all the gift
cards that are at Starbucks, Walmart, Target, any of the major retailers, restaurants, that was us.
We became the largest by far in the market. When I joined the organization, it was still pretty small.
And then we grew it to quite large.
And then we had an exit to private equity back in 2018.
And since then, I've been really focusing my time and dedicating my time to helping other businesses achieve the same kind of goals and objectives.
So really looking at their business, analyzing it.
And now I'm building a new career based on helping those same other businesses find that next level, find that next gear.
And honestly, it's been a lot of fun.
Yeah, it's been a lot of fun.
So your whole thing is you're not just putting up capital.
You're providing business leadership, culture stuff.
Like you're revamping the business.
Correct.
And in some instances, I'm not even putting capital into the business.
I'm just operating as a consultant, working with either the current ownership
or the founder, entrepreneur,
someone who has acknowledged
that they've got the business to a certain point
and now they can't get it to that next level.
I don't mean this condescending in the least.
I'm always really proud of founders and entrepreneurs
who make that realization on their own
because sometimes they don't
and sometimes somebody will come in from the outside
and make that observation for you
that your business is struggling
or not living up to its full potential
because the business has outgrown you as a founder
or as an owner, as an entrepreneur.
And it happens very often.
Yeah.
And there's a lot of acquisitions that don't go well.
Far too many, to be frank.
So a big part of my consulting practice,
that's what I focus on is is really two things is the prep before the sale to hope that you have a
successful you know process as it's referred to yeah uh which there were more failed processes
last year than the last 10 really yeah so some of that's economy driven right just as people
are reassessing deals based on the current economic conditions. But a lot of that is because the companies weren't ready for the sale in the first place.
So as companies go through the due diligence process, they fail and the process fails.
And I tell clients all the time, you're better off not having a process than having a failed
process because it really puts a tarnish on the apple, so to speak. It really hurts your brand
and it hurts your potential
for a maximum exit or sale down the road.
So that's something you always got to look at.
There's a lot of failed acquisitions.
Yeah, I hear about them all the time.
So what are some common things during due diligence
that people overlook and that causes red flags?
Well, it's going to sound simple,
but it's really just having your house in order in general.
Your financials, and it can't be just your bookkeeper, right? You need to have outside eyes on your financials. So
no matter how small your business might feel, I always encourage clients to look at an outside
consulting firm to do a regular audit, not an annual audit, but even a quarterly audit.
So you have an outside third party who is certifying that the numbers you've put on
this piece of paper or in the spreadsheetifying that the numbers you've put on this
piece of paper or in the spreadsheet are actually the numbers, right? To the best of anyone's
knowledge or understanding. You go even a step further if you're a mid tier or slightly larger
company where you really want to have even a quality of earnings report done. You really want
to make sure your financials are, I hate to say this way, but bulletproof. They've got to be just absolutely bulletproof.
Because that's the first thing they're going to attack during diligence.
Are the numbers you're showing me the actual numbers?
I hate to say it, cook the books in a way.
Are you manipulating the numbers?
Prior to launching the sales process, did you just move a lot of stuff around to make your balance sheet or your income statement or your pnl look better savvy buyers know immediately where to look and they know even
what categories to look for where money and things often get moved around so interesting so working
with somebody like myself who helps you prepare for that yeah um you know unless you've done you
know six seven eight ten twelve transactions like i have um you may not know what
to look for and you may not know what questions you're going to get asked yeah and you get caught
out in diligence and that's where it starts to fall apart yeah because then your reputation's
screwed i mean yeah and it's like you know if you get caught in one misrepresentation or i'll say it
even more boldly one lie yeah now everything else you say is called into question.
So it's not even worth trying to make up numbers or anything.
It's going to get found out eventually.
Yeah, and look, I tell everybody, and anybody who knows me has heard me say this a million times,
if you want to be a $100 million company,
you need to start acting like one in the beginning.
So you put the right processes and procedures and protocols
and financial disciplines in place,
that's what's going to help you get to $50 to $100 to 100 to 200 to 300 million. And then when you're ready to exit, your books are going to be
what these larger institutional investors or buyers are used to looking at. Not something
in QuickBooks that your aunt was doing. And a lot of businesses that are in the small to mid-sized
category fall victim to that. Yeah. So you talk to a lot of people at a lot of different job positions
and levels of the organization.
What position in a company do you think is the hardest position?
They're probably all hard in their own way.
Maybe this is self-sufficiency.
Having been a CEO, I still think at the end of the day
that is the hardest position if you do it right
in the sense because the buck stops
with you right so um the failures of your team are yours the successes of your team are theirs
right okay um so it's it's it's a tough it's a tough gig and and steve jobs one of my favorite
quote you know basically says you know you play an instrument i play the orchestra um and that's
a ceo's job is you take all these players,
all these people, all these different personalities,
and you get them to play in harmony
to create something special, to build a business,
to build a company, right?
So it's really, really hard.
Second to that, and this is going to sound crazy,
I think you're HR professionals.
You do not get enough credit.
Wow.
HR.
HR, yeah. know the closest people
in my organizations were it was me my cfo my hr executive um why because i'm so focused on people
and i recommend any business if you take care of your people and you take care of your customers
you know the bottom line sort of takes care of itself. That's always been my recommendation and advice.
Again, me, CFO, the financial, HR, the people.
Those are the top priorities.
Those are hard jobs.
HR, again, because you're dealing with people.
HR, wow.
I never would have thought of that one.
Every time I give that answer, people are a bit surprised.
I think it goes overlooked or underappreciated,
just how critical and how important that role really is.
In an organization that has a healthy corporate culture.
Right.
And I thought it was interesting,
you told me at the soccer game,
you retained 90% of the employees
when you joined the company, right?
Yeah.
So at the company that I was talking about,
the gift card company,
we did six strategic acquisitions
as part of our growth strategy.
And in every one of those, we kept the business.
We kept 90 plus percent of the people.
And we made all those acquisitions incredibly accretive to our business.
They were very beneficial.
We knew at some point we were going to exit
and we were going to sell at a certain valuation,
at a certain multiple.
We had sought advice.
What is a company like ours going to be worth on the open market when the time comes?
So part of the barometer for me was,
if we're going to sell here, I need to be buying companies here.
So that's that immediate accretive value that I had built in, if you will,
when we did these acquisitions.
But more acquisitions fail actually when they're successful,
meaning you close
the deal and now you don't properly assimilate the business you don't properly realize the synergies
that you thought like you mapped out on a piece of paper oh we're going to move this we're going
to move that we're going to consolidate we're going to get rid of this person keep those five
people right more often than not those acquisitions fail because people don't actually execute that
properly what do you think the percentage of acquisitions fail because people don't actually execute that properly.
What do you think the percentage of acquisitions that fail is?
No joke, it's 50% or better.
Is that high?
It's that high.
Whoa.
It's that high.
And let's define fail.
The transaction closes, the deal gets closed, the business gets bought, but the implementation,
the execution of sort of the melding it all together fails more than 50% of the time.
Right. When I say fail,
I mean they spent the money
and they didn't get it back.
Are you interested in coming
on the Digital Social Hour podcast as a guest?
Well, click the application link below
in the description of this video.
We are always looking for cool stories,
cool entrepreneurs to talk to about business and life.
Click the application link below
and here's the episode, guys.
That's a harder one to answer. It really varies. I would say that's probably a much smaller
percentage in that 20%, maybe 15%. You could find a way to squeeze a juice out of a lemon,
right? I mean, let's be honest. But whether it's my definition of success was, as you said,
did we retain most of the people and keep them employed
right did we shrink or did we grow and was it really accretive and beneficial to our business
did we we were also a manufacturer so i was like did we gain manufacturing capacity right did we
gain capability right can we now better serve our clients if the answers to those things were yes
then it was a win yeah so you grew that company's revenue from $19 million to $250 million
through acquisitions, right?
Through organic growth and acquisition.
In one year?
No, it was over...
So I joined the organization in a full-time capacity in about 2008.
We exited in 2018.
That was over a 10-year period.
Wow, that's insane.
I mean, that's what, 12x revenue?
Yeah.
And more importantly, our EBITDA was incredibly healthy.
So when I joined the company, we were roughly,
I'll use rough numbers to protect the not so innocent,
but we were, like you said, 18, 19 million in revenue,
roughly 2 to 3 million in EBITDA.
When we sold the business, we were nearly 30 million in EBITDA.
Holy crap.
Yeah.
So the multiple was probably really good then.
It was a good multiple, and it was because we were a healthy business.
We were a healthy business making money, operating efficiently.
And again, that's what I always tell people.
Look, there are certain business segments that focus far more on revenue than they do bottom line.
We all know that.
But when you go to sell that company, very few people are buying companies on revenue anymore.
Really?
Oh, yeah.
Oh, I thought it was always like a one or two x or whatever it's
your your multiple is really going to be your true multiple and true valuation and i'm glad
you brought that up because no matter how many times they tell you they did a one or two x
multiple of your top line revenue yeah there's an analyst behind the scenes that has been tearing
apart your number getting to an ebata number that they feel comfortable with that they think is the
real number.
And that's what they're actually building their multiple model on.
And that's what they're going to make their offer based on.
Because revenue doesn't, as we all know, equal profit.
It doesn't equal positive cash flow.
So it depends on the industry segment.
I mean, look, we all heard all the dot-com stories and all that
where, heck, even Amazon, how many years did they lose money for?
But those days are gone. In in certain segments that still exists in most traditional
business segments you better have a healthy ebita a healthy bottom line you better be actually
producing cash flow and that's what your multiple is going to be based on yeah i was never a fan of
those companies that would not be profitable for like u, for 10 years, I was like, it doesn't make sense to me.
It was a unique time and a unique bubble that I don't know that we'll see again,
or at least not for a long time.
People were raising money pre-revenue, like $100 million.
Yeah.
Just for an idea.
And there was a ton of money in the market, and that money needed to go somewhere.
And I always tell people, money needs to work.
If money's just sitting, it's not making anybody money, right?
So it's got to go to work, and you assume a certain risk portfolio
when you're willing and needing to put that money to work, right?
But yeah, I always tell people traditional business,
real business is multiple of EBITDA.
Yeah.
I've seen you make some comments about the younger generations,
and you're kind of concerned with their reliance on technology, right?
Yeah. Look, I love technology, and I've been an early adopter my whole life right i'm i'm older
you know i'm 53 years old i'm not ashamed to say that um and i've been an early adopter my whole
life right so every new technology that came out right i saw i saw the invention of cd dvd laser
disc digital media i still have the first iPod on my desk.
I have every variation of the iPod since its inception.
And I'm a big fan and student of everything that Apple's done too
from a technology standpoint.
So I'm not against technology at all.
I think what it's done, unfortunately, is it's made it harder
for some people to relate with other people in all candor
and then interact and be able to
have a conversation that just is organic and flows like this yeah um but it's also done a lot of good
i mean there's information that's at your fingertips or you know not even your fingertips
anymore just hey siri hey alexa hey google right um and that's changed everything in some ways for
the good in some ways for the bad yeah i have this debate with myself and others all the time.
Did the good outweigh the bad, in your opinion?
I think the proof will still be in the pudding on that, as we say.
I think the good has outweighed the bad in most respects.
I think so, too.
Yeah, I think in most respects it has.
It's given us immediate access to information we never had before.
It's changing education, education. Because traditional education,
why do I need to go read a book when I can just ask my phone?
I think it's changing that dynamically and forever.
I think that'll continue to evolve and to change. I just wish people
had learned more of the people skills, the ability to relate and interrelate with people,
not dependent on
technology for that because that instant gratification we get from technology today
doesn't always translate into the real world no it's a pet peeve of mine when i'm talking to
someone they're on their phone it's like it annoys me yeah and i do it too but like it annoys me for
sure even at the event you were talking about last night right you look around the table and
half the table is down at their phone doing something, interacting with somebody else instead of interacting with the person right in front of them.
Yeah.
So I think there's downside to that.
I don't want to sound like the old crotchety guy, right?
But there's definitely more good than bad that's come from it, let's be honest.
For sure.
So what keeps you going these days?
I mean, you've had so many exits.
You could have retired probably 20 years ago.
Yeah.
Well, yes, I could have. I'm years ago yeah um well yes i could have i'm
too young to retire in my mind for sure um as i always like to say i got way too much gas left in
the tank um you know what's cool is you get to a point where you know throughout our lives in our
careers we do all the things that we have to do when you get to a certain point you get to do what
you want to do and that's really exciting and that's really liberating and i'm thankful that's kind of where i'm at so i get to pick projects i'm interested
investments that i'm interested in uh products and people that i'm interested in right so
uh right now i dabble in a few different businesses that are near and dear to my heart
i'm a car guy i love cars always been a part of the car community my whole life so now i'm in
sort of vested and invested in businesses that are in that space.
But I'm, I'm always looking for the next thing. You know, I think that's what gets me out of bed
every day. And it's going to sound a little corny, but what I love about my consulting business now
is, is really helping people, mentoring people. Just sitting around the table last night, you
know, with a, with a group of people and they were in, you know, one was 25, one was 30.
Yeah. And, and just the questions they were in you know one was 25 one was 30 yeah um
and and just the questions they were asking were great yeah and being able to impart some of that
wisdom and that life experience that i've been through yeah that's exciting to me yeah it's cool
to see you in a room like that because people probably had no idea who you were right but
you're like the most successful guy there probably and you're giving advice yeah i think you know
it's funny you never you never know who anyone is right these days or how anyone makes their money which is kind of part of the uh
unique fabric i think of today's economy in a sense um you know there's i call it the new
economy there's making so many people making so much money so many different ways yeah i can't
keep up with it no it's crazy and then i meet people and they appear to be highly successful
and i'm like how does that guy make money. Like, how does he pay for his life?
How does he pay for his lifestyle?
But that keeps it and makes it interesting.
But look, I've, you know, it's not very humble to say that you're humble, but so, but I try
to be, you know, I was brought up to treat the janitor like the CEO and vice versa.
I treat
everybody with that level of respect because we've all been there. Yeah. Um, and candidly,
you know, Sean, that's the thing I'm most proud of is that I'm, now that I'm a consultant,
I really kind of poke fun at the career consultants because most of the career consultants,
and I've said this in some other conversations and even interviews, career consultants haven't
been in the trenches. They haven't been in the foxhole right right they didn't have to make payroll yeah they didn't have to hire and fire
people uh they didn't have to make the tough decision they're imparting book knowledge to
people that are actually doing yeah and i have a problem with that i do too you're talking about
like those big companies right i think i know what you're talking about yeah they have no business
experience no none whatsoever.
They graduated school with a couple pieces of paper and good on them.
Now they're working for a big consulting firm.
They parachute into these businesses and they're imparting all this book wisdom and things they learned in class, but they've never actually done it.
They've never actually tried it and failed.
They've never actually tried it and succeeded.
I pride myself on the fact that I've done that all.
Yeah.
I've done all that.
I'd much rather hire you than some guy at EY that doesn't do anything.
No, look, I've made the mistakes.
I've learned from the mistakes.
My goal as a consultant is to short circuit the process for you.
Don't trip and fall.
I'm going to help you avoid tripping and falling.
That's the whole point.
So it's interesting out there.
It's similar to business college professors.
I can't even take those guys serious.
No, it's hard.
Did you go to college?
I dropped out.
Couldn't deal.
No, I couldn't.
I was being genuinely serious,
and I catch heck for it from some people.
I've got a lot of friends that are Harvard,
this and that, whatever.
I got to work, and I'm proud of that and back then i did it that was early to drop out like
now it's more like now it's more common and some people just aren't going to school straight up
and they kind of embark on their journey uh in high school or straight after high school right
yeah no it was i was bucking the trend for sure um you know when i did it you either didn't go
to school at all and you just you know
got a job and you started a career somehow yeah uh you went to a trade school right and you got
a trade you were a mechanic or you were whatever um so yeah i i was uh i don't want to say i was
a rebel because there were there were quite a few people that did it but it was definitely early
yeah so you must have not have gotten a lot of support at first from your family and friends
um there was a belief system but uh there were a lot of people you're crazy yeah you know look if you're if you're
a if you're a go-getter if you're a type a personality if you're a shark use whatever term
you want to use you're always going to have people around you that go you can't do that
and i always respond no you can't do that there's a big difference there's a big difference so
and i always say the difference between arrogance and confidence is the ability to pull it off. Right. So if you
can't back it up and if you can't pull it off, then you're arrogant. If you can really back it
up and pull it off, then you're just confident. There's nothing wrong with being confident. And I,
yeah, I'm confident. Yeah. Because I have the battle scars and the wounds to show for it. Right.
And again again that's
what i'm most proud of nice was there any like rock bottom moments along your way i wouldn't
say rock bottom but there were definitely you know there were some decisions i wish i could
have took back um i'm not one to live with regret you know but you you look at it and you go okay
how could i've done that different or how could i've done that better um you know if i'm getting
real that was probably more in my personal life than in my professional life. Um, my professional life,
win or lose. I just saw it as, as a chess game, right? You win some, you lose some,
a loss is still a win in a sense that you learn from it. You gain experience from it. Um, you
know, the, the bigger things I wish I could take back were probably in my personal life more so
than my professional, you know, and when, and when you're a career-minded individual and i just will probably speak to a lot of people
um you know your career is your first love your your work is your first love and you don't always
make room for other people um that's a life lesson that you learn later that's deep you learn that
later but you know it also gets you to where you got yeah so that's a thing to consider yeah it's tough to
get there with that family balance you kind of got to just go all in in the first five ten years i
feel like you have to and and i and i started early i started in my relationships early and
and i did i was always i was early everything i was the youngest manager of this and the youngest
this of that right so uh my mom always said i was 13 going on 30 right from the very beginning but
um yeah you again you learn some of those lessons along the way.
But I always tell people, everybody in their 20s right now and their 30s right now,
now is your time to make hay.
Grind.
Grind like you've never grinded before.
Work 20 hours.
Work two, three things.
Try four or five different projects and ideas because now is the time to do it.
I agree because you don't
have as much stress without kids no when you don't have a you know a mortgage bill to make and you
don't have a wife to support or a husband to support and you don't have the family like you
said it's it takes a lot off because you fail okay so you eat top ramen for a week you know you suck
it up you deal with it but when you have people who rely on you and count on you it's a whole
different deal.
For sure, yeah.
I attribute a lot of my success to those first five years where I grinded really hard.
But then there's a certain point where you've got to get out too.
You don't want to just coop up.
No, you can't.
I got a little too extreme there for sure.
Of going out too much?
No, not going out at all.
I forgot how to talk to people.
Yeah, it was bad.
Yeah, it's not good. But yeah, there's that balance, man. And now you talk to a lot of people now i do it for a living yeah everything comes full circle right there you go so what's
next for you it's a really good question i got a couple projects i'm working on um i can't get
into the details on the one that i'm most excited about due to some nda stuff but um it's a medical
device play from europe bringing it here to the United States and hopefully scaling and growing it really aggressively.
That's something that I've become really interested in over the last couple of years.
Again, as you get older, you start getting even more interested in health
because that is the greatest wealth. You've heard all those expressions.
I'm excited about that. Hopefully that's a couple months away.
That will keep me busy for a little bit. Other than that i want to keep uh watching over some of my investments and and
consulting for and helping as many people in as many companies as i can nice and having some fun
along the way yeah so you have some more uh soccer games i hope so going to see the uh see the
football game this weekend so pre-season yeah you got these writers i i so it's funny story and this
is one of my regrets so i i
bought a suite at my old company yeah because it was when the raiders were first coming to town
so before the stadium was even built we pre-bought a suite when i sold the business i desperately
tried to get them to let me take the suite with me and they wouldn't so they kept it
damn uh and then at that point they were all sold out so no oh man those suites are nice yeah no
they're really nice.
And yeah.
So it's one of those things, too.
It's like you don't have to have a boat.
Just have a friend that has a boat.
Yeah.
That's how we met.
That's how we met.
Shout out to Blake Wynn, man. That's right.
Thank you, Blake.
Anything you want to close off with before we wrap up?
No, just, well, I appreciate the conversation, first of all.
I love what you're doing.
Anybody who's looking for help to grow or scale their business, that's what I'm about.
Really helping you find and take yourself to the next level.
PMK underscore consulting on Instagram and I'd love to help you out.
Awesome. Thanks so much for coming on, Peter.
Now it's my pleasure.
Thanks for watching, guys. See you next time.