Living The Red Life - Buying Businesses for Zero $ w/ Roland Fraiser

Starting point is 00:00:00 A lot of people don't know Google actually bought the company that had the AdWords technology. Google didn't develop that. They went out, they were like, you know, we should put ads on all of our searches. And they're like, yeah, that could be a lot of money, but we don't know how to do that yet. Well, here's a company that's already got it. They just bought it, relabeled it AdWords and had instant, huge ability to capitalize on that. So I think that whatever you don't have right now, chances are somebody else has already built it. My name is Rudy Moore, host of Living the Red Life podcast. And I'm here to change the way you see your life in your earpiece every single week. If you're ready to start living the red life, ditch the blue pill, take the red pill,

Starting point is 00:00:41 join me in Wonderland and change your life. What's up, guys? Welcome back to another episode of Living the Red Life. Awesome session today. I've got my friend Roland here. He is one of the top business experts. Anytime I get stuck or have a problem, he's someone I pick up the phone, the red phone, and dial. So, Roland, welcome to the show. Thank you. Thanks for having me. How are you doing? I'm good. I'm good. It's good to see you. Obviously, we saw each other a month or so ago, and we were talking about AI and M&A.

Starting point is 00:01:10 You've helped me structure some of our M&A and contracts and third grade level for anyone listening, that's buying businesses or taking businesses or acquiring businesses. And we're going to dive into that, how Roland's doing it and teaching thousands of small businesses to do it. So, Roland, just for anyone that doesn't know you, I know you've got a crazy track record in history. Could you summarize for everyone? Yeah, sure. I started a long, long time ago when I was 18, selling houses real estate wise, moved into raising money and doing offerings and securities, starting in the real estate space and then working into mergers and acquisitions. I got hooked up with a couple of companies in New York

Starting point is 00:01:52 to do leveraged buyouts back in the day when that was super hot. It's actually kind of coming back now. Really, that was where you use the assets of the company to pay for the company to acquire it. And kind of combining that concept with some of the no money out of pocket or nothing down concepts from real estate that I was doing, I started buying companies for either very little or no money out of pocket or helping them with things they needed via consulting to acquire equity interests in them. And so a thousand deals later and about 25,000 people who we've kind of shown how to do this type of stuff, we're still going strong going into this year with big plans to acquire quite a few things. We're doing roll-ups in the home services space, the real estate space and the personal health space and having

Starting point is 00:02:47 a good old time. Yeah, and I think it'd be interesting. There's a few things I want to add, but just quickly how many businesses have you took equity and shares and became an advisor for just to give people context? Currently, I've got 38 verticals, but several of those verticals will have 8 to 10 companies in them. So I'd say currently we're at about 125 that are active right now. And I think I know there's a good stat for you that I've seen you post about like the amount, you know, you've been part of businesses up to a few billion. Right. And all kind of the spectrum. Can you talk about that just for a second?

Starting point is 00:03:25 Yeah. I mean, I think like from what you can do with this and what my focus is, as it really depends on the situation, because there are times when you're looking for more leads and we'll just go out and acquire media and media might be inexpensive. It might be a Facebook group with two or three hundred thousand people that can then provide leads to other companies we've got. In that case, it's a deal that might be doing no money because they haven't monetized yet and we can turn it instantly into monetization or it might be a significant company. There's a couple of different companies that are doing a100 million a year that

Starting point is 00:04:05 we're in the process of acquiring right now. And so it kind of goes all over the board, but there is a strategy to everything because the lower ones now for me, if they're not actually going to increase the value of a company that I've already got, then it's too small a deal. But I don't really draw criteria and say, well, I'll never do a deal that's only got a million in revenue or it has to have 100,000 in profits because it might just be this beautiful hidden gem of an asset that hasn't been monetized that I can bolt onto in a business that I've already got and have instant huge benefits from doing that.

Starting point is 00:04:43 Yeah, it's kind of fascinating like the last few years since I got into it, because, you know, the first thing that was fascinating to me was the realization of, holy cow, I'm such an idiot for thinking so small that you had to buy, you had to get money to buy a company like buying a house, which from all my big real estate friends, I also learned isn't true now that you can do the same model of you know basically buying stuff without needing a bunch of money to put down so anyone listening I think that's the first realization that if there's a company that is selling for two million dollars it doesn't mean you need two million dollars right and what Roland teaches is often you could get

Starting point is 00:05:21 that company for zero down and some strategic buy-in or whatever right so that was the first like mindset shift because i think a lot of the time tactics and strategies are good but if you can have a mindset shift it can change your life right so so that was a big mindset shift that i learned from you and a couple of other big players in the space that i was friends or partners with and that actually allowed me to go on and take several companies. We actually just exited out of one last month and really just get my feet wet playing around with that.

Starting point is 00:05:53 Obviously, I do some stuff with Kevin Harrington as well, and he's helped me with some of that. So it's been a good journey for me because it's changed the way I saw acquiring companies, but also, and I would love for you to talk about this, growing companies, right? Because acquiring companies, but also, and I would love for you to talk about this, growing companies, right? Because until then, I also thought, well, if I want to grow to 100 million, I need to just grow my company to X amount of revenue. But then you actually learn, oh, well, Facebook acquired like 20 or 50 companies. I don't even know how many at this point, right?

Starting point is 00:06:21 And most big companies don't just grow vertically with growing their one company, they buy companies and merge companies in to grow their valuation. So can you, in a third grade level, just explain that a little? Yeah, it's an example wise, I think Tesla has acquired 14 companies, Apple has acquired 100 companies, Google has acquired over 200 companies. And they do it because there are capabilities that they see or assets that they see that those other companies have that already exist that would cut years off of how long it would take these companies to do. Google, a lot of people don't know, Google actually bought the company that had the AdWords technology. Google didn't develop that. They went out, they were like, you know, we should put ads on all of our searches. And they're like, yeah, that could be a lot of money, but we don't know how to do that yet. Well, here's a company that's

Starting point is 00:07:13 already got it. They just bought it, relabeled it AdWords and had instant, huge ability to capitalize on that. So I think that whatever you don't have right now, chances are somebody else has already built it. And that could be in terms of media, meaning that they've aggregated the attention and eyeballs of your ideal customer and you can do software, we didn't know how to develop software. We just went out and bought a company that already had a software team. When we want to add products and services to increase our average order value, we just buy companies that have services that our customers or products that our customers are buying before, during, and after the time they're doing business with us. If we decide we want to get more profitable and have a higher profit margin, we'll acquire up and down our supply and distribution chain, or we'll buy intellectual property to add new products, or we'll buy recurring revenue assets to add new extensions to our lifetime customer value. So that's like, those are just a couple examples. Maybe you want to expand geographically. So you go out and you buy a company that is in

Starting point is 00:08:25 the geographic area that you aren't yet. You want to expand into Europe or Asia or Africa, and you're in North America now, just go buy one of those companies and you've instantly got market in there. So across all of those things, it's just the easiest way that I've found to rapidly get additional capabilities, additional customers, additional products and services, etc. And I think this is great because no one teaches this really, right? Like me, I'm sure everyone listening or most people listening is like, I'm growing my company and that's all I'm going to do to keep growing my valuation and money and wealth and whatever, right? But actually, it's kind of the opposite.

Starting point is 00:09:02 I think you get it to a certain point and then you start compounding it by obviously growing it still, but then adding in all these mergers and stuff. One thing I would like to talk about now is also, I think a mindset shift for me too, was I only thought you would do that when you became a big company like an Apple or a Tesla. But most of the people you work with, you know, I know you work with someone that's like a doctor that wants to start a new business. But instead of figuring it out for five years and getting off the ground, they just, you know, take a business. So I want to shatter the limiting belief that everyone's listening, thinking this doesn't apply to them because they're only doing 200 grand a year or whatever. Can you talk about that? Yes, in two ways. One is that there's so much

Starting point is 00:09:46 startup culture that we've heard about that startup, startup, startup, and starting up a business is really hard. The SBA, the Small Business Administration in America says 65% of businesses that are new businesses ultimately fail. But over 90% of businesses that have been around for five years or more stay in business. Why is that? It's because all of those challenges of finding customers, building systems, getting a team, all of that kind of stuff goes away when you've got a business that's already working. So if you guys are listening or watching and you're thinking, man, I'm tired of being an employee or an independent contractor for other people. I want to start a business. Don't start it. Go find one that already that is what you want, but that's already

Starting point is 00:10:30 profitable. And then there are so many more ways to finance the acquisition of a business like that with no money out of your pocket and none of your own personal credit that you can instantly slip into a business that would have taken you three to five years to get up and going anyway. Plus, you had a 65% chance of failure. If you're a small or medium-sized business right now, then think about what are the capabilities? What are the problems that I would like to solve for? If you'd like to solve for leads, buy media. If you'd like to solve for a team, buy infrastructure. If you want to solve for more products and services or more sales, buy products and services. If you want to solve for profitability, buy up and down your supply and distribution chain, your value chain.

Starting point is 00:11:08 Like that's it works for everybody. It's as a matter of fact, I would argue it works way better for smaller businesses and people that are looking to acquire than it does for the big companies, because the big companies already have entrenched cultures and all this politics and all these other complicated things that they've got to work out. When you've got something that you're looking to acquire to get into business or to add on to your small or medium-sized business, you've got less friction to the acquisition and integration of the thing that you're acquiring. It becomes much, much easier. You can give it more focus and you don't have so many divisions that are so far removed from you

Starting point is 00:11:48 who have the vision of what you want to do this for that are responsible for making it happen. And so I think it's actually easier. Yeah, and it's fascinating too because it becomes such a far away dream or idea and it feels so complicated, but it's just like anything in life. Once you've done the first one or two, it's not a big deal.

Starting point is 00:12:09 It's like hiring and hiring an employee. In terms of that complexity, I mean, a lot of the deals we do are done with, you know, two to five page agreements. And and we'll have sometimes we'll do due diligence after the deal slows because we've got reps and warranties and we're not using our money to acquire anyway. I mean, it can be a very simple, very fast process. And even the the bigger deals that we do, the, you know, tens to hundreds of millions of dollar acquisitions, you're talking about a three to four month complete time between when you start and when you close. For these littler deals, you can be talking about a week to three weeks to close a deal. Yeah, I mean, the first couple for me became very expensive and drawn out. And one of them was a software. So it became very complicated and

Starting point is 00:12:56 cost tens of thousands. But I did learn a lot through that. And then they became a lot more simpler. And what's funny now is because we have more of a framework you know doing a deal is sometimes less complicated than when i used to run my agency and we'd have a client redline a bunch of stuff for like a an agency retainer which is wild to think about and one thing i would say to people listening to is it's kind of like relationships like you know when a relationship's ending that person getting out the relationship or both parties is like a dream relationship for someone else. Right. And it's kind of like people move on in their life. They're in different phases. So you might think, well, why would anyone give up a business that could be really good?

Starting point is 00:13:36 Because to you, it's your dream business. But to them, they hate it. Right. They're burnt out and doing nothing with it. Or maybe they're like us where we so many successful things that it's kicked to the side and it's just dying so they might as well get rid of it so you always have to go with that open mind it's i don't know what the saying is but it's like someone else is garbage or trash is another person's like you know whatever right it's kind of like that so i i think just being open-minded i would love to just talk about now, like, what are a few lessons or tips? Because I like to keep these strategic, too, for someone that's listening goes, OK, this is interesting. Obviously, they can go work with you, follow you and you have the full system. But just a few tips to get them started. How do they start looking at this, thinking about this and where do they go from here?

Starting point is 00:14:22 So I'd say the thing would be to think about what is the need that you want to solve for? If you're looking to solve for market share, leads, personnel and infrastructure, average order value increase, profit increase, lifetime customer value increase, or innovation, those are the seven primary areas that M&A is very, very good for.

Starting point is 00:14:44 And I just want to say it's super strategic, guys. Listen to what he said there. Those are the seven primary areas that M&A is very, very good for. And I just want to say it's super strategic, guys. Listen to what he said there. You see how he listed off seven categories? And I think a mistake I made and a lot of people, I don't think I made it necessarily, but I see how you could where you just do it for the sake of doing it because it sounds cool. I made sure I added specific things to fill gaps I needed or my customers needed. And you obviously broke down those seven things. So don't do it because it sounds cool. Do it because it's strategic. Right. Yeah. So I'd say that those seven things really are the questions to ask.

Starting point is 00:15:17 What am I solving for if you've got a business now? If you don't have a business now, then you're thinking about acquiring what we call a platform. It's called a platform because it means that that's the thing we're going to stand on and then go and buy more businesses with. And so if you're thinking about your first business or a business in a completely different area from what you're doing right now, then what you want to do is just be sure that it is already profitable because you have done a lot of turnaround stuff. And as you know, that stuff is really, really hard. If you go into a business that's already making money and you look for a motivated seller and a motivated seller is somebody that's got a reason. They're not just like, you'll ask a lot of people, you know, Hey, have you ever thought about selling your business? They're like, well, I mean, I guess not haven't, but if somebody paid me stupid money for it or way too much money for it, I do it.

Starting point is 00:16:05 That's not who you want to buy from. Right. You want to find somebody that's going through a life event that might be it might be boredom. It might be shiny object syndrome. They found something else they want to do. Maybe they're getting divorced. They've got health problems. Maybe they inherited the business from somebody that died. Maybe they just want to relocate. You know, there's lots and lots. Maybe they're having challenges with their partners. I've done lots of deals there, but they're already profitable businesses. That's thing one.

Starting point is 00:16:36 They're not actively listed for sale. That's thing two. They got to be off market. Don't go to a business broker because you'll pay way too much and they'll ask for all cash. And then be sure you have a motivated seller, somebody that's selling not because they're ready to just have a pile of cash, but they've got a reason for selling because they're going to be more flexible in giving you terms like seller financing or earn outs where you don't have to come up with all the cash up front. And then the other tip that I would give is two tips. One, there are so many deals out there at any given

Starting point is 00:17:06 time. There's about three and a half to 4 million businesses that are for sale in the United States alone that meet our criteria of motivated sellers that have tried to list their business for sale, but failed. 80% of the businesses that get listed for sale do not ultimately end up selling. After that, they're very motivated. And so know that there's lots of fish in the sea. So don't just take the one deal and say, I've got to make this one work. This is the one. So whatever it takes, I'm going to make it work. There are plenty. Say no, that deal will probably come back six months later and be even better for you. And then the last thing would be don't accidentally give all of your profit that you're going to get from taking this business over to the seller when the seller hasn't earned it yet.

Starting point is 00:17:52 Meaning that if the business currently makes 500K a year and you're negotiating with the seller and the seller is like, yeah, but when you do this and this and this and all the things you're thinking about doing, it's going to make 2 million a year. That's not their money. That's your money. Do not pay them based on anything the business might do in the future because that's going to be what you earn, why you bought the business. They only get paid for past performance, only get paid for what the business has earned in profits over the last 12 months, times whatever multiple you negotiate that applies to the deal. So those are probably my biggest things that I think people should think about. Yeah. And I just want to add to that last thing, because I think it helps people understand how when you say, well, you can get a business with no money down and you don't have to buy it for a bank. I want to give a couple of examples of how I've done those deals. And maybe you add

Starting point is 00:18:43 a couple of examples too, so it feels more real, right? So I'm going to make up these scenarios for ease sake, but say a company is worth a million dollars, right? And it makes 50 grand, say it makes 30 grand a month profit or something like that. You might go in and the person wants to be out. You might go in and say, hey, well, I'm going to give you the 30 grand a month profit for a year or two, right? And then I'm going to get the company, I'm going to pay you out of the profits, and then I'm going to keep whatever I add. So if I take it to 60 grand a month profit, I'm going to keep the other 30 grand, right? And I'm not saying these are the best structures, just examples to get your head

Starting point is 00:19:17 around it. So in the seller's mind, if they start running the business, that 30 grand profit they're currently getting may go to zero. So they're still motivated to get the monthly profit and you're not really paying anything because as long as you maintain that it's paying for itself right and another way that we've done it is we trade services right so we go hey we're going to take half the company and we'll run the marketing for a couple of years and that's worth like half a million dollars in in advertising and not in in what we would you know pay our staff and retainer and obviously if we co-own the company we're going to run the marketing anyway right so you're exchanging those services so like they're two kind of creative ways and i'm sure you have better ways but just so people can kind of understand in their head how they can do it without pumping a bunch of cash into it. Do you have any other common examples or edits to those?

Starting point is 00:20:10 Yeah, I think those are great. And along that way, the biggest thing I think that people can relate to is, number one, why would somebody sell something for not all cash up front? Well, if they're motivated, I gave you, I think, eight or 10 just a minute ago, reasons that people might be motivated to sell. Now, when they're motivated, they want to move on. And so they're thinking about there's another opportunity that they're going to go to or there's a life after this business that is more appealing than life with this business. So if you give them the ability to realize some value for the business, the ways that I find are easiest to do that are through seller financing and earnouts. So those are two of about 300 ways we've identified to do these deals. That means that seller financing is just you're saying, hey,

Starting point is 00:21:02 if you want $300,000 for this business, I'll give it to you. I'm just going to give it to you over time. I'm going to go in and be responsible for running the business and everything. And then you'll continue to get those profits, even though you didn't continue to own the business for this period of time. So they're getting the full value for the business. They're just not getting a lump of cash right up front for it. Now, there are lots of ways to get cash that you don't have to come up with that the business might already have assets that we can turn into cash to give the seller a closing. So I'm a big fan of no money out of pocket deals more than no money down deals because most sellers are going to want

Starting point is 00:21:39 some cash at closing. The cool thing is, is that you can use assets they've got like accounts receivable or other assets or credit card reserves or lines of credit that already exist in the business that they can then tap, get cash for, and then you take over the business. Maybe there's debt on the business and you just assume the debt. So you say, hey, look, my company that's buying your company will take over that $400,000 in debt that you've got. Well, that's just as good as cash to them because otherwise they would have to pay it off. Even if you close the deal and pay them that cash, they'd immediately have to turn it around and pay it to the people they owe the money to. So if you just say, let's continue those loans for a period of time, then you get

Starting point is 00:22:25 the business, the seller gets out of having to pay that back, and the creditors ultimately get taken care of. So it's win, win, win. So it's really just kind of looking at each of the situations and saying, this is what I can do. And I'll give you three quick examples. One I just did, it was a company making $30 million a year, acquired an interest in that. I helped a friend of mine acquire an interest in that company in exchange for services that he was going to render, but also for a $2 million note. So he bought into it for $2 million, but he didn't pay $2 million cash. He has five years that he can continue to have that business interest, which will pay him about $760,000 a month, so $720,000 a year. So he's going to get $720,000 a year for five years. That's a little over $3.5 million. At the end of five years,

Starting point is 00:23:21 he has to pay that $2 million note off. Seller was happy to do the deal because the seller is getting the cash and they're getting interest on the note. The interest on the note, though, is being paid by the profits from the company. So that's just a very simple, you know, think about it. If you kind of got lost in that effectively with no money out of pocket, this guy bought a $2 million interest in a company he doesn't have to pay for for five years. His ownership interest in the company will pay him $600,000 a year more than the interest cost of carrying the note and will completely finance the note plus pay him a couple hundred grand a year. And the business is growing. So it's going to continue to grow in value and in the amount of distributions. And that's just like, that's just one deal. You and I do a lot of deals

Starting point is 00:24:11 where we'll acquire interested companies for services. So I had a $10 million profit company that I acquired 10% of for in exchange for a million dollars worth of services that I would provide to the business. And once the services had been done, I own 10% of the company, meaning I get a million dollars a year. Since I bought that, that's grown to 2 million, 3 million. And now this year will probably be about four. That comes my way as a result of just doing that deal. Again, no money out of pocket, did it for services.

Starting point is 00:24:43 And then one company you're familiar with, I think it's how we met, their digital marketer. That's a company I acquired for a million dollars. I acquired a third of no money out of pocket. The sellers financed 60% of that over three years. I paid $200,000 a year at the end of each year for three years. But I started with a $360,000 profit distribution, which paid for that. And then the other $400,000 I got from friends and family who loaned money to be able to get the $400,000 that I had to give them at the closing. And I paid them back within two years out of the money that I got from the company, we sold part, we've sold one, two, we've sold four of the companies that that company owned for millions and millions and millions of dollars.

Starting point is 00:25:33 And I still own the, that interest in that one company. So like, those are just a few examples of things you can do. It's so fun because you're only limited by your creativity and there's no shortage of deals out there. I know you and I say no to probably 30 to 100 deals a month where people are coming to us saying, can we do these? And those are all no money out of pocket deals. And we've been able to get pickier and pickier because we've had so much success doing these

Starting point is 00:26:02 things. Well, I think a couple of things to wrap up on today. One, that's the power of the brand, though. That's why brands are so iconic, right? Like Shark Tank's a great example. We're friends with the Sharks, you know, between us. And that's one of their big benefits now is the amount of deal flow they get offline, not on the show, like massive companies, too. And then secondly, I do want to point point out because a lot of people listening or maybe

Starting point is 00:26:25 going well what about the owners that sell don't they get taken advantage of or whatever but like for digital marketers because i know all the behind the scenes you've helped them a ton so for them it's paid off too so they've won and you got immersed in this world and they got your connections and it's like a win-win a lot of the time for everyone so there are benefits for both sides so it's always a win-win i will not do a deal that the seller is not excited to do i'll say no because i don't want any bad karma out there of course so roland we'll have to do a second one on like ai side and business side and all your experience because we're there on time for this but i think it was a jam-packed session, a masterclass in 20 minutes on M&A.

Starting point is 00:27:05 Where do people find you to learn more? You can find me at EpicNetwork.com. I've got a podcast called Business Lunch that you will be on here later today. Also, I'm on all the socials at forward slash Roland Frazier on YouTube, on Instagram. Those are probably the best places to connect. Great. Guys, I hope you enjoyed that. Let us know when you get your first business. Thank us later.

Starting point is 00:27:27 Roland, thank you for your time. And everyone else, keep living the red life. I'll see you guys soon. Take care.

Living The Red Life - Buying Businesses for Zero $ w/ Roland Fraiser

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