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How to Decide Which Type of Business to Buy

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If you’re thinking about acquiring a business, pass it through this set of filters first. 


Roland Frasier has bought—and sold—a lot of businesses over the course of his career. He knows what to look for, and what to stay away from, and he shares his expertise in this snackable episode.


Listen in for 9 things to consider when looking to acquire a business. 


#1: Buy a profitable business. 


Don’t buy one that’s in trouble and needs a turnaround. That’s a whole different skill set and a lot of extra work. There are plenty of profitable businesses out there that you can acquire.


#2: Know if you want to work in, on, or above the business.


There are three places you can work when it comes to a business. You can work in it where you’re doing all the work. You can work on it where you’re more of a CEO/manager. Or you can work above it—Roland’s choice—where you’re thinking more of the business as a product or an investment. Where do you want to fit in the hierarchy? 


If you want to be above, then you need to look for a business that’s not owner-operated. But owner-operated businesses are more affordable and readily available. If you do decide to buy one, you look first at the owner who’s selling. Maybe they don’t want to leave the business entirely. Maybe they still want to work there; they just don’t want to own it and have all the responsibilities. 


If the owner wants to leave, and you don’t want to be the operator, there’s a good chance that there’s someone in a managing role in the business (the CFO, CMO, COO, or CRO) who would like to run it. That’s a good person to think about interviewing, because they already have the experience.


If not them, then maybe a key employee who has been there 15-20 years would love to step up into the role. Even if they’re not qualified to do everything, you can hire someone to support them.


If not them, look at consultants or contractors the company has hired in the past for key roles. They have a long history and knowledge of the company. 


The next level is to query your network, to ask around. If that doesn’t work, you can hire a recruiting company. 


#3: Stay away from industries with a lot of regulations.


If you want simplicity, steer clear away from these. If it’s in the health space, and you don’t have experience/credentials in the industry, stay away from it. 


#4: Think about industries where you already have experience.


This will be very helpful and will give you a head start in growing your business.


#5: Consider an industry where you already have contacts or connections.


Do you have people who could advise or consult with you or connect you with people who could help?


#6: Find a business in an industry that’s growing.


One of the best ways to grow a business is to find one in an industry that’s already on a growth trajectory. A rising tide raises all ships.


#7: Find a business that’s likely to last. 


Don’t buy a business that’s just a fad, like a Y2K business. That’s a very ephemeral industry. It’s fleeting. It’s not going to last long.


#8: Find a business you love.


If you’re passionate about it, it will be way easier. Just make sure all the other qualifications apply too (no regulations, in a growing industry, likely to last, etc.).


#9: Find a business that doesn’t require a lot of capital investment to keep it going.


An audio/visual business, for example, has a lot of technical equipment that has to be constantly updated. You’ll spend a lot of money on things that depreciate quickly. If you can find a business that’s simpler, and doesn’t require that capital expenditure, go for that one instead. 





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Then listen in for everything you need to know about Level #3: Build an upgraded scalable operating system.   Two Big Errors Entrepreneurs Make   The first error entrepreneurs make is setting up an operating system without going through the first two levels. You don’t need an operating system if nothing is happening in your business.   The second error they make is just go go going without putting an operating system in place. If you build your growth flywheel, then fail to build and implement an operating system, you’ll grow your business into non-existence. It will implode from system overload. You can’t serve the people coming in, because it’s all happening too fast, and you don’t have a system in place to handle it. This will wreck you, wreck your family, and wreck your business.   This happened to Ryan. He almost lost his marriage over it. To build something that’s actually working—but have it almost destroy you—is one of the worst things that can happen.   What Is an Operating System Exactly?   No one can actually agree on a definition, but Google says this: “An operating system is a set of algorithms and a common language that enables different components to communicate with one another in the support of the desired outputs of a machine.” It’s like a computer where the mouse, the CPU, the printer, and everything else has to communicate with each other in order for it to work.   What do we mean by a set of algorithms? Standard operating procedures. What is a common language? Communications and meeting rhythms. What are desired outputs? Your goals and objectives.That forms the foundational framework of what it means to have an operating system.   The business owner generally knows what the desired outputs are, but they haven’t really been fully flushed out. You need goals and objectives and a way to communicate them throughout the company. You need standard operating procedures (SOPs) where one person knows how to do something, and documents it so others can learn and repeat it.   Roland and Ryan built a tool for their company internally and now it’s available to people in their  Scalable OS Accelerator.    Document Your Set of Algorithms    Visualize how your company creates value. What is your growth engine? Once you’ve acquired a customer, how do you serve them? That’s the fulfillment engine. In the entire process, you might have half a dozen value engines. There might be 3-4 stages that are really important. These are the ones that need to be documented.    Start with the customer and work backward. Go all the way back to Level 1: sell and serve 10. How do you do this well?    Document the entire process value flow Identify the power stages and build step-by-step checklists/playbooks around those Assign accountability.   Then use that to build company scorecards and establish the meeting rhythm. When will you meet as teams, leadership, all hands? Figure out your meeting schedule once you know about the scorecards. The meeting and scorecards are your common language.    Map Out Your Weeks, Months, and Quarters   Roland and Ryan do 90-day quarterly sprint plans. They look at their scorecards and ask: how are we progressing toward our goals? What’s working and what isn’t? What do we need to optimize? That determines the activities you need to do in the next 90 days.   If you don’t have all these systems in place, then what do you do? Everybody just has their own ideas, their own pet projects, then no one can agree on what to do next. You have to have the OS in place.    One you’ve got your growth flywheel spinning, you’ll need to spend 8-12 weeks building your operating system. While you build, you’re also tracking and measuring. That’s all through the scorecards. Then, the way you install the OS is to host your first quarterly sprint plan. Day 1 is a clarity day. Day 2 is your first quarterly sprint plan. You’re looking forward but also back.    Every three years: clarity day Quarterly: sprint plan Monthly: business review Weekly: team meeting reviewing scorecards   Roland and Ryan aren’t big believers in annual planning. They plan in 3-year cycles and execute in 90-day sprints.    The 6 Primary Tools that Go Into a Scalable Operating System   Value engine (visual representation like a whiteboard with post-it notes) Playbooks (step-by-step checklists that drill down into power stages) HOT canvas (High Output Team, assigning responsibilities) Scorecards (metrics and tracking weekly, reviewed monthly) Meeting rhythm (how often each team is getting together) Clarity compass (visually demonstrating desired outputs)   Roland and Ryan want to create more Level 7 entrepreneurs. They want to help more entrepreneurs scale themselves so they can scale their companies. They’re sick and tired of entrepreneurs burning out and quitting on themselves. They want them to stay at the helm of their companies for as long as they want to. It’s better for the world.   When you pass Level 3, you pass the scalable line. That’s when your company is officially scalable. Next up: making more money. Stay tuned for Part 3!   RESOURCES: 7 Levels of Scale Workbook - Take a brief assessment to see where you’re at and what’s next.   OUR PARTNERS: Get a free proposal from Conversion Fanatics Get 3% cash back on your ad spend with AdCard Get Roland’s book, Zero Down, FREE Join Roland's next EPIC Challenge  
  • Business Lunch podcast

    What to Consider When Buying a Company (Part 1)


    Acquiring and selling businesses is one way to live a rich and happy life, but how do you know which companies to buy?   In today’s episode, Roland Frasier walks us through some important things to know when buying a business. This is part one in a series where he’ll be sharing some of his extensive knowledge and acquisition experience.   Listen in as he talks about the first two questions you need to answer before you buy.   How Am I Going to Define My Acquisition Criteria?   That’s question #1. If you don’t know what kind of business you want to buy, it’s easy to get overwhelmed. You’re like a kid in a candy store. You’ll save yourself a lot of headaches by establishing criteria first. Roland uses a matrix for this. It can be as simple as a whiteboard or a piece of paper with four quadrants:   What you enjoy What you have experience in What skills you have What connections you have   Quadrant #1: Make a list of things you actually like to do. Being an entrepreneur is hard. It’s more motivating to go forward and deal with problems if you’re actually passionate about it. Take an inventory of your interests.    Quadrant #2: What do you have experience in? Brainstorm all your prior experience and things you’ve actually done in the past. Write down all of it, even if it doesn’t seem relevant. You might see connections later.   Quadrant #3: What do you have knowledge, training, skills in? This is similar to #2, but this time you’re writing down specific skills you have.   Quadrant #4: What are your connections? What networking resources do you have access to? What things are you a member of? What business contacts do you have? List all of them; don’t leave anyone out.   These four things will help you determine what kind of business you want to buy. You’re looking for common threads among things you’re passionate about, have experience in, are skilled at, and have connections for. What kind of business makes the most sense when taking all four of those things into consideration?  How Do I Select a Target Type?   This is the second big question to ask yourself. How do I select a target type of business? The type of company you’re looking to acquire can fall into several categories:   A company that no longer exists A company that exists but isn’t profitable A company that’s breaking even/profitable   Roland recommends focusing on that last category, unless you have specific skills in turnaround. Not everyone is cut out to acquire failing businesses and turn them around. It’s hard. There are plenty of profitable companies to acquire. In the break even/profitable category, if he doesn’t see things that could make it profitable in 30 days, he’ll pass.   How do you decide how profitable a company needs to be before you acquire it? Roland doesn’t care about sales. He cares about profits. There are two types of profit. The first is SDE (seller discretionary earnings). That’s how profitable an owner-operated company is. Then there’s EBITDA (earnings before interest, taxes, depreciation, and amortization) for a company that’s professionally-managed.   You might want a company with an SDE or EBITDA of a certain amount. What do you want that amount to be? First, ask: how much do I want to pay myself for doing this deal on a monthly business? Let’s say $10k/month. That’s his new target type—a company that’s profitable and making at least $10k/month.   In addition to that, ask: what am I going to do with this company? Let it go as is, or do you actually see growth potential and there will be a little bit of investment to help it grow, either to sell or to make more money to pay yourself more?   And finally, ask: how much money do I want to budget to spend on increasing growth? Let’s say you want to spend $10k/month on growth. So you need a profit of $20k/month total. You need to find a company with an SDE or EBITDA of $240k/year.   That’s how Roland selects the kind of company he wants to go after. He asks which businesses fit his four criteria and have a profitability of $240k/year or more.    Stay tuned for Part 2!   OUR PARTNERS: Get a free proposal from Conversion Fanatics Get 3% cash back on your ad spend with AdCard Get Roland’s book, Zero Down, FREE Join Roland's next EPIC Challenge  
  • Business Lunch podcast

    Kendra Scott on Fashion, Family, and Philanthropy


    Kendra Scott started her iconic brand with $500, a spare bedroom, and a newborn—and now her company is valued at over a billion dollars.   The 1st Annual Scalable Impact LIVE took place in Austin, TX in early November of this year, and Kendra Scott was one of the big-name guests. She sat down with Roland Frasier to talk about how she started her business, how it became so wildly successful, and why she’s so passionate about giving back.   Listen in for some inspiration and brilliance from this woman on fire.   How It All Started   Kendra’s first son was born on 11/11/01, just two months after 9/11. She vividly remembers what it felt like to be given this tiny human being in such an uncertain time. No one knew what the world was going to be like going forward, but there was an incredible opportunity for hope and connection.   Kendra knew she wanted to be the best mom she could be, but she’d also loved fashion and design since she was a little girl. “If I could do what I loved,” she says, “that would be the greatest thing in the world.” Her first business failed, then her stepfather died, leaving her with this thought: “We have one life, and it is short and it is fast. While we’re here, we need to use the gifts we’ve been given to do good.”   She started her business very quietly, because she didn’t want people to see her fail. She was terrified that people would laugh at her.    How She Worked Through That Fear   Fear is real, Kendra says, and it is okay to be scared. “I wake up every morning, leading a business that is bigger than it was the day before. I’m walking in uncharted territory every time I get out of bed.”    It helps knowing she doesn’t have to do it alone. She’s not afraid to ask for help. Mentors are huge for her. And she has built “the most awesome team ever.” She has 3000 employees, and 96% of them are women. The brand is the DNA of all the people who work with her at her company. It’s her name, but they’re truly a team. She was alone in it for a long time. Now, when she has a problem, everyone puts their heads together and rolls up their sleeves, excited to help solve the problem.    Choosing entrepreneurship means not choosing the easy route. It is so fun when it’s fun and so scary when it’s scary. Entrepreneurship is peaks and valleys, just like life. When you’re in the valleys, you think this is it. I’m going to lose my business. When you start realizing you can get out of the valley, and you have a team doing it with you, it’s so cool. You overcame something together, and your bond is so amazing.    The Kendra Scott company is on a mission to do good. Their core values are family, fashion, and philanthropy, and their customers share those values. They’re caring, optimistic, and fun, and have a heart that beats for their community. “You can put your team and your community first and still have a fiscally successful company,” Kendra says. “And now I’m teaching others how to do it.”   What 2020 Was Like For Her Business   In a retail business where you have 120 brick and mortar stores, “a pandemic isn’t great,” Kendra says. She remembers all the news channels with their doomsday pronouncements of “brick and mortars have seen their last day.” She didn’t sleep for a couple days in March 2020. She and her team went back to the white board and started completely over. They changed everything overnight.    The only thing that didn’t change was their core values. How do we stay true to our core values? was the only question that mattered. They did all their Kendra Gives Back events virtually. They created new connections with their customers—sending them letters, calling people and checking on them, making masks, delivering things to people’s homes.    They fought the urge to over-strategize. “We have to paint this train while it’s moving,” Kendra told her team. They couldn’t stop the train. They knew they might make mistakes, but they were determined just to learn from them. You can’t be inflexible and unwilling to change your plans. You’ve got to be agile. You’ve got to pivot. Or you won’t survive.   How She Managed Growth While Maintaining Control   When Kendra first started her company, no one would invest in her. She had two small sons, went through a divorce, had no investors, and was doing everything on lines of credit. She signed everything she owned up for collateral. Her sister, who had a good job, moved in with her to help with rent. She couldn’t pay for her tiny team and couldn’t afford to lose anyone. She sold her car to pay a vendor for stones and jewelry.   Looking back, she says she’s not really sure how she did it. But she would look at her sons’ little faces and think, “Failure is not an option. We are going to figure this out.” She didn’t get any investment capital until 10 years after she started her business.    After 10 years, she wanted the cadence of going to a board on a quarterly basis and getting feedback. So she set up an advisory board with three people and gave them an earned-in, very small equity position over a four-year period. One of them became her first investor. He gave her a very generous $20 million evaluation and bought 5% of the company.   Building a Team and Stepping Away from CEO   Bringing on a COO changed everything for her. She read a book by Marcus Buckingham called Now Discover Your Strengths that talks about writing down everything you love and loathe. She loved the customers, engaging, design, marketing, and creation of the experience. She loathed dealing with vendors and negotiating marketing contracts. She knew she needed a team that loved the things she loathed. She hired a COO and everything elevated, because she was no longer doing the things that sucked the life out of her.    She knew she wanted someone with a personality that fit with hers, a winner, someone with passion and drive, who gets excited about this age and stage of a business. He got an offer from Whole Foods at the same time that Kendra couldn’t match, but he saw something in the Kendra Scott company that he believed in. His equity position turned into $40 million.   Kendra recently stepped away from CEO into a chairwoman position. After 20 years, her strengths have changed. “The biggest impact I can have is to be out there and focus on our core pillars,” she says. “I’m out in stores, I’m on calls. I want to learn so I can make this brand better every day. The philanthropy pillar is huge for me. My mission is to get more women entrepreneurs funded and help them be successful in their businesses.”   She sees the Kendra Scott brand as a pre-teen. Ralph Lauren did men’s ties for 25 years before he branched into other things. This doesn’t happen overnight. She knows there are opportunities to expand beyond jewelry, but she doesn’t want to do just anything. She wants to do it thoughtfully. She wants to see where the white space is, where the gaps are. Where are things her customers need and desire that they can’t find? It’s got to be something disruptive, and that excites her.    We all have the opportunity to change the world, she says. Lead with your heart. Let your team fly. Give them the tools to soar. When they become leaders like you, that’s how you’ll know you’ve become a true success.    RESOURCES:   Now Discover Your Strengths Scalable.Co The Ready to Lead podcast DigitalMarketer Podcast Perpetual Traffic podcast   OUR PARTNERS: Get a free proposal from Conversion Fanatics Get 3% cash back on your ad spend with AdCard Get Roland’s book, Zero Down, FREE Join Roland's next EPIC Challenge
  • Business Lunch podcast

    5 Exits of Every Successful Business Owner


    What is often called “the five evolutions of a business” can also be thought of as “the five exits every entrepreneur makes in a business” over the course of their entrepreneurial journey.   Today’s episode is another snackable one with Roland Frasier. It’s short and sweet, something you can listen to while you’re running a quick errand or getting something done around the house. This one is all about the five exits you make on your journey from solopreneur to selling your business.   Exit #1: From Solopreneur to Manager   When you first start a business, you’re wearing all the hats, doing all the services. You’re the CEO, CMO, janitor, sales team, and everything in between. Your first exit is from doing to delegating. Instead of you doing the basic thing the business does (offering a service or actual product creation), you hire someone (or several someones) to do it for you. When you hire your first person, you start this first exit.   Exit #2: From Manager to CEO   The next level of exit is going from manager to leader or CEO. We’re not talking about a CEO who does everything—that’s a solopreneur, not a true CEO. A true CEO is someone who has people reporting to them and getting their marching orders. The CEO is truly leading the company and figuring out how to implement the Board of Directors’ vision for the company. When you stop managing and delegating, and you’re responsible for bigger things and being an actual leader and communicating/channeling the directors’ vision, that’s the second exit.   Exit #3: From CEO to Board of Directors   The third exit is when you go from being the CEO to being on the Board of Directors. At that point, you’re really responsible for the strategic direction and vision of the company, how it’s doing in the world as a corporate citizen. You’re communicating with the CEO and saying, “This is our vision, and it’s your responsibility to communicate this to the company and get them to execute it.” You’re not the leader. You’ve stepped off the organizational chart of the company, but you’re still very involved in it. You may have sold a majority part of the company at this point.   Exit #4: From Board of Directors to Investor   Your fourth exit is when you go from the Board of Directors to investor. At this point, you might sell more of your company. You might decide you don’t want to be burdened with, or responsible for, creating the vision of the company any more. You’re interested in what the company is doing, and you’re a shareholder/owner, and you have the ability to impact who is on the Board of Directors, but you’ve moved back several levels to being a simple investor. Your main concern is: how will this asset perform for us in terms of income generation?   Exit #5: Exiting Ownership   The fifth exit is exiting ownership. You don’t want to be an investor anymore. You’ve gotten enough return on your investment, and you’re going to retire from the entire relationship you have with the company. Now you’re a free agent with your capital, moving on to whatever else you’re ready to do.   It’s good to know about the different exits, the different levels of evolution. It’s good to know your options. Maybe you’re tired or burnt out or have other ideas to explore, and it’s time to start making those exits one at a time. Maybe the responsibilities are more than you want to shoulder as CEO, and you can move to the Board and still have impact, but less responsibility. You don’t lose the ability to impact the company until you go through all the exits. Seeing the big picture helps you figure out what fits best with your life and other business opportunities.   RESOURCES: Scalable.Co The Ready to Lead podcast DigitalMarketer Podcast Perpetual Traffic podcast   OUR PARTNERS: Get a free proposal from Conversion Fanatics Get 3% cash back on your ad spend with AdCard Get Roland’s book, Zero Down, FREE

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