Michael Shea - Escaping the Owners Trap

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To match with a licensed therapist today, go to Talkspace.com and enter promo code S80. Welcome to the Exit Coach Radio show, the show for baby boomer business owners who are looking for cutting edge information as they plan their 3 to 10 year business succession and exit. Every week we interview top professional advisors for their best tips, strategies, and precautions so you can be well planned. And don't miss our one minute exit coach tip of the day. On exit coachradio.com. And now, here's your host, the exit coach, Bill Black. Thanks so much for joining us. We went a little bit over on that last interview. We'll make it up to our next guest Michael Shea from AdvoCoach in Carlsbad, California. Before I get to that, I want to remind you that we have interviewed well over 750 advisors, authors, and thought leaders, and you can find all of their interviews on the audio library at Exitcoach.com. So you can go to Exitoachradio.com. Uh, dig into our audio library. There's 40 different topic file folders. You'll find tons of information on a wide variety of topics. So Michael Shay is joining us from Carlsbad, and he helps privately held business owners to improve their business performance. And we're gonna speak today on escaping something called the owner's trap. So if you feel like you're in a trap, uh, we're gonna talk about that. If you don't know what we're talking about by the owner's trap, Michael's gonna make it clear to us. Michael, welcome to the show. Thanks for joining us. Oh, Bill, good morning. Thanks for having me. Hey, Michael, sorry for holding you up there. We're gonna give you your, your full 20 minutes here today, but, uh, you know, you, you have a company called Advic Coach. It's part advisor, part coach, it looks like. Tell us about how you came up with that name and what you do for folks. OK, well, you know, Avicoach is actually a national organization and is one of the pioneers in the business coaching industry, uh, having started over 20 years ago. We have coaches across the country and focus on helping those who own and operate their own business, make more money, build an effective team, and free up some of their own personal time, all while increasing the value of their company. So they're building equity in addition to generating current income. You know, Bill, over the decades of working with small and medium sized business owners, we've been able to build up quite a significant library of tools and other intellectual property that are designed specifically for the person who owns and operates his or own business. At our core, we provide information, education, and accountability, granting our clients a single-use license to the tools they need to grow their business. We meet them where they are, developing a customized program to meet their specific needs and working with them till they've addressed the gaps in their business performance and not one day longer. That sounds like a perfect recipe for what a lot of business owners are looking for someone who is not looking for a lifetime engagement. They just want, they, they want results and they, they need someone to come in and help assess, um, where they're gonna get their best use of those results. So let's talk about this owner's trap. What owners feel like they're trapped. What's the most common thing you, you hear from business owners when they say I'm trapped because, why? Well, they're, they're trapped, you know, the way to tell if you're in the owner's trap or you know more about your industry than anyone in your company. You're your company's best salesperson. Customers insist on dealing with you, and you find it difficult to grow sales and the business slows when you're away. You know, in a, in a lot of cases, Bill, it starts in the early days, and the owner, passionate about their business and short on capital does all the selling. As new clients come on board, the owner begins to offer more products to the shortlist of clients because it's more efficient timewise than to do more prospecting. And often that often the owner is also the key person in customer fulfillment. As well as running operations, this leaves the owner as the primary interface with key customers, consuming even more of their time. And, you know, the thing is, as business grows, many of the attributes that helped this owner become successful and make it over that fence of 80% of the business startups that fail, it begins to work against them. And for many of them, the dream they had becomes a nightmare where they're not able to go to the kids' games, they're not able to take a quality vacation. And they find it difficult to grow their business beyond a certain point because they're limited in the amount of hours they can work in each week. You just said a ton to describe a lot of our listeners. Uh, Michael, and I think the problem that, so what I'm getting from you is the trap is where you thought that um the dream of owning a business would be for your time, freedom and financial freedom someday. And instead, you've got just the opposite where the business owns you and it's running you instead of you owning the business and running the business. Oh, that, that's exactly right, Bill. Um, you know, most people start a business to be able to earn an income on their own terms. And They want to work when they want to work, uh, from wherever they want to work to earn as much as they can. And initially, there can be a lot of momentum and there's a lot of passion, there's a lot of energy, but, you know, without developing some leverage and Finding a way for other people to help you make the money you want to make. It's very difficult to scale up the business, and what happens is the owner can just get stuck. And when the owner gets stuck, that's, that's a horrible feeling. But what, what we're talking about is owners that are getting close to the age when they really are getting tired of the business and they want to start to plan their exit. And when they're stuck like that, what are the odds or chances that they're gonna be able to walk away from that? Well, it's very difficult and even, uh, you know, in, in terms of the, the liquidity of what they've built, because they're spending so much time in their business, um, they really, you know, we, we use the phrase, you know, they own a job, not a business. Now it may be, you know, some good amount of income, but who's going to buy that business? You know, another business owner has their own business to run. They're looking for strategic opportunity or some kind of integration with their current business. If you, if they've got to put someone in there 50, 60 hours a week at a high level, they're really going to discount the value of that business quite significantly. Right. And so if you have a business that um is taking you as the owner so much time and effort to run, then someone from the outside is gonna look at that and say, that's not really what I, what I want uh to, to purchase. I, I, I don't really wanna work that. I know some people might say I want to work that hard, but, but by and large, most people are gonna say, It's, it's, it's really taken, taken that person so much time and effort. I just don't see the value. And, and as a matter of fact, and you can speak to this, Michael, I mean, a lot of, a lot of um business owners that hope their kids might come into the business. Their kids are looking at them and said, Dad, you haven't seen one of my baseball games, and I don't want that lifestyle for my, for my, for my life down the road. Um, so it can really impact the, the legacy potential for a family business too, right? That's absolutely true. I, you know, I had a client where that happened where he had thought that his child was going to run the business and that had gone along for 10 years or so. And, uh, his son was in, you know, his mid-30s and showed up one day and said, Dad, you know, that I've got some other interests. I just, I see what you're doing and I'm really proud of what you built, but, you know, it's just not for me. And, you know, that can happen. There are some real differences between the generations these days. And, and the values that each generation have. You know, the other thing, Bill, that can happen to people, a lot of people that have a passion for their business just say, you know, I love doing this, and I'm gonna work in my late 60s or early 70s. But, you know, a lot of, a lot of baby boomers. Find out that they have some sickness or deteriorating health at some point. And if these conditions come on unexpectedly, as they often do, and the business is not positioned to sustain itself without their daily involvement, business values can erode quickly, potentially resulting in a fire sale that may not support the needs of the family and continuing medical care post-sale. You know, and unfortunately, this happens more often than you think. So, Creating a business that isn't dependent on the owner and can be scaled up significantly. Doesn't mean you don't have to spend a lot of time in that business if you wish to, but what it does mean is you have all the cards in your hands, your growing business is generating more income, it's increasing in value, and whether you want to leave that legacy and income opportunity for the children, sell the business or work until you're late in life if you have the opportunity to. All of those options are available to you. Essentially you have all the cards. And Michael, what, what you just said in that, that last little segment is so important because I've talked to, I, I don't know, I've interviewed maybe 50 or more people that sell businesses that are in that M&A world, and what they tell me is that more, a lot more businesses are sold on an unplanned. Um, circumstance, because of an unplanned circumstance, then, then according to plan, like, for instance, yeah, I'm gonna work till I'm 70 and then I'm gonna sell the business and life's gonna be great. The, uh, and then the owner passes away or gets sick, or, or their spouse gets sick, or they, there's so many things that can happen along the way. So these, you have to be ready for these unplanned situations that might come along. It's just like a fire drill. Do you have a plan if there's a fire in your building? Yes, of course you do. But you, do you have a plan if there's an unplanned emergency or or catastrophe or situation, or if someone comes along unexpectedly and says, hey, I love your business, I'm ready to sell. That's not the time to start your, your planning for this, right? Well, exactly, and that can happen these days where, where, uh, you know, people are looking for growth and, um, you know, it's easier to acquire growth than to start something up. So you'll, you'll find unsolicited offers are, are quite common. So, Michael, when you are working with somebody and um and you start, you start, it sounds like with a kind of an analysis. OK, let's talk about before I can prescribe uh what you need like a doctor, I need to diagnose where you are and understand the diagnosis. So you start with the diagnostic process, it sounds like, and And then is it dependent on what you find as far as you create an action list and, and get to it and how often do you meet with your clientele when you're when you're, uh, how often would they expect to be planning in the planning mode? OK. Um, you know, the, the builder system is a statistically proven method for increasing the value of your business and we've looked at over 13,000 transactions over the last 3 years, and we took this data and Terry algorithm. That ranks any business across 32 different value drivers and we're able to boil all of this down to a score of 0 to 100. Now the really interesting thing, Bill, is that we were also able to work backwards and determine the offer values in relation to that score. So it turns out that businesses with a score of 80% or higher were able to receive offers that were 71% higher than the average offers. So the average offer came in at about 3.7 times pre-tax earnings, while those with a score of 80 or above were able to achieve offers that were over 6 times earnings. We can provide an assessment for any business that determines not only their overall score but also their score in each area along with suggestions to improve their score. From that point, we'll put a monthly plan together and what we do is we try. to meet twice a month and we'll take one section at a time, obviously from the lowest score up to the highest score and try to put these processes in place. It's all web-based. The owner can do some work while we're not together and I can see the work that the owner's doing and we'll work together on each module till we get to that business to a point where the owner is satisfied. So a very methodical, and I've seen some of these reports, uh, for our listeners' sake, and I can tell you that not only is the information eye-opening in a lot of cases, but it, there's enough meat in these reports that you can use it as a management tool to discuss with your key people about, hey, we're ranking really low in this one area. Let's talk about that, and it even gives you things like Um, action questions you can work with your advisors and other people. So it's very robust information. I've seen it, Michael, and it's really good stuff. And uh, when somebody, uh, comes to you initially, what's a first step? What do they, what do they, what do you want them to do? Uh, well, the first step is, is we're going to talk for just about 15 or 30 minutes because, you know, each. Individual business is unique and the owners are unique and, and, and what their goals are and what they're trying to accomplish and, and, you know, what they're worried about, what they're concerned about, that's where I want to start. Um, I tell people all the time that, you know, I'm a lot like the plumber that comes to your house and I, I've got a big truck full of tools. Now, I'm not going to need all those tools, but I, I need to know from you whether the bathroom faucets stripping or whether the kitchen drain is clogged because it requires different tools. So I've got a fairly large tool kit of intellectual property that we've developed over our 20 years of helping business owners. So what I want to do is find out what are the concerns of that business owner, and then I can suggest the right tools for their situation and what their concerns are. And, and we'll do some assessment and some gap analysis and put a little plan in place before they even hire me. It will give them an idea of what we're going to work on, what kind of outcomes other business owners in their situation have found, and, and what they can expect, and then we'll make the decision whether to work together or not. OK, so a lot of um giving involved in that, which we love that model, give to get. You basically come out and say, before we even uh ask you to think about writing a check for any of the services, we'll help you with the initial discussion and diagnosis and you'll be better off for that conversation. If nothing else comes out of that, we'll just part friends and maybe sometime in the future, you'll say, you know, I'm ready to do this. Now, when people, uh, when, when someone asks you, you know, When is the best time, Michael, for me to start my planning for my future business either exit or transition or whatever? What, what do you tell them? You know, I, I, you know, going back to just some of our previous conversation, I, I always tell them, you know, the sooner the better because it's, you don't have to sell. So preparing to have a sellable business or a scalable business is, is just in your interest because, you know, as an owner, you really started it to, to build some equity and to have, you know, to have some free time and to have a certain kind of lifestyle. It wasn't just about, you know, delivering for, for customers. It was, it was about your own freedom and your own independence. And so getting all those cards in your hands as quickly as possible is really the best option because you don't have to sell your business, but a sellable business is also a business where you have a lot more time and freedom, and it's much easier to scale because you've improved the leverage where you're managing process rather than people and so you can become the CEO of an organization rather than the individual proprietor. So to put that, to put that in perspective for our listeners, uh, as a matter of fact, many, many of you will not sell your business to an outsider. Uh, the, the statistics we hear over and over again from people that sell businesses and um, Whether they're business brokers or M&A people or even, uh, people that are private equity groups that buy into businesses are that 8 to 9 out of 10 deals don't go through. Um, so you have a huge number of businesses that are going to be up for sale. Michael, with the baby boomers, of course, we're, we're looking at somewhere. Around 5 million businesses that are probably trying to sell over the next 10 years because of age, and most of them won't sell, so it's only in your best interest to start planning on how to create a transferable value and a valuable business for yourself and for whoever might have to take it over internally down the road, right? Oh, that's, that's exactly right, Bill, um, because you, you know, if you create that, you don't have to sell it. So the options you really face so, I could create a business that I could sell, but I don't have to, or I could not create a business I could sell, and maybe I'll have to, and what happens then? I mean, as you said earlier, just from a risk management point of view, you know, as a business person. You, you have to plan for those unplanned events, and it's just gonna take a lot of pressure off you as well. And, and the peace of mind you'll have, um, is, is just, you know, hard to exaggerate. I know one thing I've learned over the years, um, listeners, you will be remembered someday for your planning or for your lack of planning. Be remembered for your planning, uh, get started. Now, there's a, uh, this is, uh, this is an evergreen kind of an interview, and of course, this could be played anytime in the future. But, uh, here we are with a webinar coming up on September. 8th, 2015 and uh there's a discount code available. It's called Escaping the Owner's Trap given by John Warrilow. He's a great speaker and the bestselling author of Built to Automatic Customer. Michael, how do our listeners get in touch with you to find out more about that? And of course, if it's after September 8th, 2015 and you're listening, then to find out about any other upcoming events or offers that you all have. Sure, well, they can, uh, you know, as far as John's webinar going, you know, I've heard John speak several times and he's a great author and really, really gives a great presentation, and he's the girl behind all this value builder stuff. They can just go to, um, they can go right to the website for the webinar. Now John's charging $49 but I have a discount code. It's bit.dot.s valuebuilder, all one word. So bit. do valuebuilder. You'll find a promotion code there. It's just an eventbrite page. In the promotion code, put thanks Mike, all one word, and you'll, you won't have to pay the $49 fee, you'll get in for nothing. And uh it's really worthwhile. And they can reach me Bill at www.mham. advocate a I A H.com. And there's a contact button there and they can fill out the information and I'll get right back to them as soon as I can. Michael, great information. You're also a member of a group that I, I hold very dearly to my heart. I'm a member of called Provisors, which makes you very well connected in the Carlsbad in Orange County, really the whole California area. So if, if anybody has any questions, you want to find other advisors as well, call Michael Shea, get, get in touch with them. Go to Mshaa.addvocoach.com. Get in touch, Michael, thanks so much for joining. It's been a real pleasure to have you on. You've given our listeners a lot to think about, so I appreciate that. Great, Bill. Thanks for the opportunity. We're gonna take a short break. We'll be right back after this, so please stay with us. You're listening to Exit Coachradio.com, the information station for age 50 plus business owners, where we're interviewing top advisors for their best tips, ideas, and precautions so you can be well planned. We upload new one minute tips every day. Exitcoachradio.com. Come listen for a minute. Business owners, if you came back from lunch and there was a resignation letter on your desk, which employee would you really, really not want it to be from? What are you doing to prevent this from happening? At Exit and Retirement Strategies, we design plans that attract, motivate, and retain key employees. For a free consultation, called Bill Black, the exit coach at 866-370-3774. Call today. Thank you for listening to Exit Coach Radio. Hey friend, I know how it feels, waking up exhausted after multiple trips to the bathroom and feeling embarrassed by sudden leaks. 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