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Add mentionThis week, we start with a business owner who’s just learned his rent is jumping 40 percent and who sees three options: accept the new rent and essentially work for free, move and start over, or shut down and get a job. But when Paul Downs, Jay Goltz, and Ted Wolf do the math, they see another option—one the owner doesn’t seem to have considered.
From there, the conversation turns to the choices owners make when the answer isn’t obvious. Paul, as it happens, is wrestling with two of those himself. Before the year began, he developed a plan to start selling his custom conference tables in the Middle East. Then the missiles started flying. Does he still spend $30,000 to see whether the opportunity is real, or should he put that money to work closer to home? And then there’s a potentially lucrative R&D tax credit that Paul thinks could be “a gift from heaven.” He believes his company qualifies for the credit, but he also wonders whether claiming it could invite unwanted scrutiny from the IRS.
Different decisions, different stakes, but the same question: As Paul puts it, “What is your appetite for risk?”
Published August 18, 2026
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About 21 Hats Podcast
The 21 Hats Podcast presents an authentic weekly conversation with small business owners who are remarkably willing to share what’s working for them and what isn’t. Unlike many business podcasts, which tend to talk to highly successful entrepreneurs whose struggles are in the past, the 21 Hats Podcast features a rotating cast of business owners who are still very much in the trenches fighting the good fight. Every week, our regulars gather to talk about the kinds of important issues many owners won’t even discuss behind closed doors: whether their businesses are as profitable as they should be, whether they are willing to give up some control to an investor in order to grow faster, why they had to lay off employees, how they wound up with way too much inventory, why they don’t have a succession plan, and even why they are concerned about their own mental health. Visit 21hats.com to hear all of our podcast episodes, read episode transcripts, and learn more. The show is produced by Jess Thoubboron, founder of Blank Word.
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Jay Goltz Yeah, I, I just, I just find this remarkable. Like, he didn't put another option on the table. Let's assume that his rent used to run 10% on sales. That's probably close. So they're raising his rent 40%. If he raised his prices 4%, that would cover it. Like, how is that not an option? And then he's going to go, oh, my customers won't pay it. That's ridiculous. Most will pay it. I mean, he needs to raise his prices if the block's gotten hotter. I mean, that's how it works.
Lauren Feldman I think you're probably right that he's not thinking about it for some reason, but just for argument's sake, I bet all of his prices are going up. I bet he's paying more for coffee. He's paying, you know,
Jay Goltz Okay, whatever. Then you charge more. I mean, I've said this numerous times on this podcast. My biggest mistake was thinking, oh my I can't raise my prices. And I think it's the Achilles heel of most entrepreneurs. Like, you gotta charge what you gotta charge.
Ted Wolf I think today most people have to look at their pricing mechanism every 6 months, not every 18 months like it used to be. Are my prices, you know, in line, aren't they? You gotta constantly revisit it because it's one of the tools in your toolbox you have to use.
Jay Goltz The other thing from this is it's a good thing to buy the building you're in. I'm, I being the tenant is a problem and I've been there and I, It's unfortunate, but it's the way it is. I mean, it, if one can do it, and especially using SBA loans with 10% down, everyone in business would probably be well served to try to buy their building, especially if they're in the retail business.
Ted Wolf I would agree with that.
Lauren Feldman I mean, I think everybody agrees with that if you can do it, as you said, Jay. But to a lot of people starting a business, that just seems unrealistic.
Jay Goltz Listen, I didn't buy a building till I was in business for almost 30 years. So I, you know, I—
Lauren Feldman There you go.
Jay Goltz But I know, but when I moved in, my rent was literally, I'm not exaggerating, my rent was a dollar a square foot and then went up to 12 over, you know, because I was in an abandoned factory district, which I made it the first retail thing. So I've been where this guy's at and the answer is he needs to charge more and then he needs to maybe look for buying a building, but maybe not. Maybe it's okay. If the neighborhood's so much better now and he's giving a good product and service, the people will pay a little more. Not everybody. I would never say everybody, but even if he loses 5, 10% of his business, he'll still be okay.
Lauren Feldman Was it a mistake for him to pay to build out his space and in space he was leasing?
Jay Goltz He probably had no choice. The mistake might have been he should have negotiated a longer lease. I mean, that is a strategy of landlords to get a tenant in there, Fix up their space. I mean, my friend who's in real estate, he told me that years ago, especially with restaurants, that is the strategy, how they make money. This happens every day of the week. And the answer is, if you're going to put that kind of money into it, make sure you get longer than a 5-year lease because that's not a long enough lease.
Lauren Feldman While you're in space that you lease and you built it out with a lot of manufacturing equipment, did you ever worry that your landlord would price you out?
Paul Downs No, because Jay's math is correct. And also for the first 18 years of being in there, the space was so cheap that it hardly mattered if they increased it a little bit. But I think for a restaurant, it's a different story. And Jay's right, this guy needs to negotiate Come back, eat the 40% increase. And I just ChatGPT'd to see what the typical percentage of revenues rent would be for a small independent restaurant. Something is correct. It's less than 10%. So yeah, eat the 40%, negotiate a 10-year term, and if he's so confident that he can thrive, raise your prices and move on.
Ted Wolf For me, first 5 years we were in a service business in particular, so we didn't have the needs that Jay and Paul do as far as real estate and leasing, but we rented and leased. And then after 5 years we got our own building. And ever since that point in time, then that's what we were trying and wanting to do. But when we had remote locations, we leased and you paid it and you just, you had to grow your business and you had to Increase your prices and do all those things that you have to do because that is the market and you got to play by the rules of the market and that's supply and demand.
Jay Goltz The other lesson, if I was talking to the guy, I would tell him being a tenant is valuable to the landlord. He probably can push back a little bit because if he has to go re-rent that space, he's going to have to pay a broker for 3 months. He's going to have to give free rent for 3 months. It's going to be empty for 3 or 6 months. It's not like it'd be a good thing if he left. So he does have some leverage with the landlord to say, look, I'll give you 30% more. Because he, the landlord knows, I mean, landlords take advantage of the fact that they're more experienced with this than the tenants usually. But it's not like the guy can just go ahead and replace that rent instantly. Like the numbers I just gave you were accurate. It's going to cost somebody 9 months to a year's worth of rent to replace that tenant between the free rent, the buildout, The commission— commissions are significant. You've got a 5-year lease. The commissions are a few months. So the guy's going to lose an entire year's rent by replacing him. So he certainly has some leverage.
Lauren Feldman Is the landlord in this case doing anything wrong?
Jay Goltz No, they're landlords. Sorry. To use the word mensch, would he be a mensch to cut the guy a little slack? Sure, that would be reasonable. But I can't say what he's doing is wrong if that's in fact a market rent. I wouldn't do it. I'd cut the guy some slack, but, you know, he needs to stand up for himself to push back on that.
Paul Downs My biggest regret is that I haven't been able to buy a building. And so Jay's advice to find a place you can own is excellent and should be implemented by anybody who can possibly do it. The improvements we've made to our space are mostly just adding electricity, but it's a fair amount of wiring over the years. My equipment is portable and I could move it fairly easily. But when I look at what it would cost me to move to, you know, to buy a building and move to it and fit it out the way I need to, it's probably $4 million. So at the moment I'm paying about $25,000 a month in rent for 40,000-some square feet. And the numbers just don't work. It's still cheaper to stay here, but I wish I had different options 22 years ago when I moved in.
Lauren Feldman Well, when you look back and think about the situation you faced 20 years ago, say, is it possible that buying space might've been more viable an option than you realized?
Paul Downs Possibly. But at that time I had a partner. I was a young guy with a bunch of kids and serious family commitments. And moving into this space was actually a huge improvement over my previous situation. And the space I'm in is in a building that's part of a huge complex, and I would be pretty surprised if the landlord ever wanted to sell this building. And, you know, like the particulars of every situation can get real complicated fast, and this one is complicated. The 2 sons are now in the business, so they're going to take it over. My landlord inherited it from his father, and I wouldn't say that they're the best landlords, but they're not the worst landlords. And so they're the devil I live with. I know what I'm in for here.
Lauren Feldman So Paul, you've already kind of given us an example. I'm curious about, for each of you, Looking back over your careers, is there one decision that you still think about that you still wonder whether you should have handled it differently?
Paul Downs Well, I mean, there's probably 50. I think a decision I made a long time ago that everybody assured me was an enormous mistake, which they were mistaken about, was taking a partner and At that time, I was young and I was sort of topped out on what I could accomplish by myself. And taking a partner had upsides and downsides, but on the whole, looking back, that was a great decision because my partner brought resources and sort of a point of view that set us on a path to expanding And it's all over time worked out very, very well. But a lot of that was just luck that the partner was a very good guy and that even when our partnership became highly stressed in the first recession, he wasn't somebody who looked for any satisfaction sort of destroying me, which he could have done. And so our partnership dissolved and I didn't talk to him for a number of years, but then We did reconcile, and I'm glad of that. He was a good guy. Another decision was whether to pay attention to this crazy thing called Google that started sending us clients back in 2003 and 2004, and whether shifting to conference tables was a good idea. And that's turned out great too.
Lauren Feldman I was kind of looking for decisions. that you still wrestle with because they didn't work out quite the way you hoped they would? Paul?
Paul Downs Things that didn't work out. It's mostly been people I hired.
Jay Goltz Yeah, I've got 100 of those, but—
Paul Downs Or equipment I bought, you know, things, machines you thought would work and they just didn't.
Lauren Feldman Do any of you have a decision you're wrestling with right now that you're not sure which way to go on?
Paul Downs Okay. I've got 2. One is we have the possibility of doing business in the Mideast, and earlier this year I had a more or less a reputable person who was repping a company we do a lot of business with in the Mideast, and we were all set to move forward with him demonstrating our products to his customers, and which were mostly the defense departments of the Gulf states like Oman, Qatar, Dubai, Kuwait. Well, we were all ready to go in March, and then our esteemed president decided to go to war there. And so the question is, do we continue to move forward at all with this relationship or just say, okay, bad luck, missiles are still falling? It's not a huge investment, and I'm inclined to do it, but one of my designers is, who's also involved in actually designing for this guy. It's like, why are we doing this? This is crazy. Which is a good question. So that's one. I don't have any answer yet.
Lauren Feldman Tell us, well, what does that entail? What is the investment? What is the risk?
Paul Downs What we would have to do would be to construct some sample pieces and ship them over there for our rep to use in various shows that are scheduled to happen. In the fall and over the winter. And the clients would be defense officials in these smaller countries. And when the shows were scheduled, there was like, you know, we're sleepy little Gulf states and we like to spend money on fancy conference rooms. And I'm not sure that their budget priorities are fancy conference rooms anymore. So, They're going to need to figure out how to stop Iranians from firing stuff at them.
Jay Goltz Wouldn't the freight be terrible on that?
Paul Downs To get these samples? Yes, we're going to freight them. Yeah, the whole thing. Let's say it's $30,000. That's probably about right. So, Jay, would you roll the dice with $30,000 on a marketing initiative?
Jay Goltz Well, but I would argue, I could argue, I will argue, would you not be better off putting your energy into marketing in the United States? It's much easier to deal with because the downside is much less. Is the upside worth the downside? That's the question. I don't have the answer to that.
Paul Downs Well, that's what my designer is saying. Like, why are we doing this when we have customers here who are calling us already and we could be doing stuff for them? And I said, because they're calling us already. Like, why bother? Let's see if we can open up a new market. But I think it's not a bad idea, but the timing may be terrible because we just don't know how this war's going to end.
Lauren Feldman $30,000 doesn't sound right. Is that just for the shipping or does that include actually—
Paul Downs No, we got to build, we got to build a couple of pieces. The shipping's probably, I actually don't know, but let's say it's $6,000 or $7,000.
Lauren Feldman But so you could build the pieces for $25,000?
Paul Downs By the time we're all in, yeah. I mean, they're not large. It's mostly that we have to think about a bunch of things. we wouldn't normally have to worry about.
Lauren Feldman Because I know you sometimes charge a lot more than that for a table.
Paul Downs Yeah. That's cost though. Yeah. This is, we have to design, fabricate them, but they have some particular requirements. They have to be very lightweight. They have to be able to go in the back of an SUV. They have to also fit onto something called a Euro pallet. We have to get Euro pallets. We have to, all the wood has to be certified insect-free. There's like a bunch of bullshit that has to happen.
Jay Goltz You mean bullshit like not sending stuff with powder post beetles in it, that kind of bullshit?
Paul Downs Yeah, that's one kind of bullshit. But there's also registering as an exporter with the US government, making sure there's— when you're exporting, there's quite a bit of rules.
Jay Goltz Sounds like a lot of trouble for limited gain.
Paul Downs Well, everything's a lot of trouble, but I don't see it as necessarily being limited gain. So in my experience, The little pile of trouble that I have to climb over at the beginning of this project is very similar to the piles of trouble I had to climb over to do multiple things that have been very successful for us in the long run, mostly because we were willing to just dig in and do all this crap right at the beginning. All the business that I do with the Department of Defense here, or the Architect of the Capitol, or Lockheed Martin, it all involved a bunch of bureaucratic stuff, a bunch of hoop jumping, a bunch of demonstrating that you could do this or that and the other thing. And that's the game. You know, you make your decision.
Jay Goltz So here's the question though. Your salesperson, is he an independent rep? Is he part of sales?
Paul Downs No, no, no, no, no, no. This is my main designer.
Jay Goltz Okay. So one factor I would think as the business owner is, do you want to keep your salesperson happy that thinks he has an opportunity? I think that's worth something that the answer to your other guy, this is why you're doing this. Well, because our sales rep found this and I want to support him. That's an argument to be made.
Paul Downs You need to know like who's a risk taker. So there's zero downside for him if I go ahead with this. There's considerable possible upside for both of us if we open up a new market that wants big, fancy, expensive things. He's going to be selling them. He'll be taking home a decent commission. If we do nothing, nothing happens.
Jay Goltz Right? Right. No, that's why I'm saying it might be worth doing because you want to support your sales guy and,
Paul Downs You know. Yeah. Sorry. I thought you meant because you want me to agree that this risk is too much risk.
Jay Goltz No, no, no. I meant the opposite, that if the sales guy found this lead and he's excited about it, it's, you know, not great to tell your guy, yeah, I don't want to do it unless you got some legitimate, you know, it's a factor. That's all. I'm not saying I'd do it just for Paul,
Ted Wolf I think I would look at it, just a suggestion, is number one, don't spend more money than it's going to hurt to lose. It's like, hey, okay, if I lose this, it's a flyer. I know it. It's not going to kill. It's not a strategic portion of my assets and cash and things like that. So if it's losable money, number one, okay, then it's a matter of timing. When are the bombs going to stop and who's going to win? Nobody knows those questions, but I can't believe at some point they're not going to stop. I would say probably sooner rather than later, something'll happen because of the midterms. I'd look at it though and say, is this could be the sweet spot to get in there because when the bombs do stop, and they will stop at some point, you know, some of these people are going to be spending an awful lot of money, a very unique rebuild in the Middle East in many instances, many countries to say, yeah, we got to go out now. And one of the things we're going to show off is a conference room because I think that does carry a message in some cultures of we're rebuilding and we're dedicated. And part of that is look at what we've done in our facility. So I don't know if it's that much of a flyer, but it's a matter of, is it going to hurt if it all goes to bust and you lose your $30,000, which I don't think it would. And then what's the timing look like? Because there will be an opportunity, but I don't know when, like, There's no way of knowing when it's totally safe and certain for any investment.
Paul Downs No. I mean, the other thing is that this year to date, we've spent much less in our marketing expenses than we have in the last 3 years. So it's like we would've spent this money on something anyway. And if we're going to market, go ahead and market. If we've got 2% budgeted and we're not, we're spending 1% today, we're going to roll the dice. I've rolled the dice on a lot of occasions and usually it works out well because rolling the dice is not just doing something stupid and unconsidered. It's actually approaching an opportunity and then doing what's required to do it correctly.
Ted Wolf I would just consider staying power. How long can you stay at it? Because a lot of times you put money into an investment, it takes a little longer to get to where you want. You may have been ahead of the market a little bit, but if you're there and you've done your homework all along, you probably are in a pretty sweet spot. At least that's what I experienced. You know, it takes time. Things do unfold, and if you're smart, you're listening to the market, you can be at the right place at the right time. Staying power. How long can you stay there?
Lauren Feldman I think you said you had another decision you're wrestling with right now.
Paul Downs I did.
Lauren Feldman What's that?
Paul Downs I was recently approached by ADP, my payroll company, and they said, hey, we want to talk to you about the R&D tax credit because the big beautiful bill that got passed whenever it did completely revamped that program. And I hadn't really been paying much attention to that because I had looked hard at it 4 or 5 years ago and it was not really going to yield anything to me. But given the changes in the program, All of a sudden it looks like we could make a legitimate case that all of our engineering labor, almost all of our shop floor labor, and about 70% of our material budget every year qualifies for the credit. And that's now you're talking about real money. If I am aggressive about what I claim as at-risk activity, in other words, we don't exactly know how it'll turn out when we start it, which is almost everything we do because we're custom manufacturers, then we can get a 10% credit on the expenses generated by that. And again, looking at kind of an expansive amount of that, that's almost $2 million a year. Well, that's exciting news, and this has all come up in the last week or so, and Part of me is saying, woo-hoo, more money from the government. I haven't seen anything like that since PPP and I'm all over it. But then there's always a little bit of a voice saying, oh, if you, if you go back and claim a huge credit from the government, you're going to get audited and it's going to suck and blah, blah, blah, blah, blah. And then the little voice that criticizes the little voice is saying like, there's nobody even left at the IRS. They fired everybody. Like how, what's the actual chance? audited, which is not true, but you know what I'm saying? Like you make decisions about what the downside risk is and you have to look at the actual percentage of people who are being scrutinized. So I don't know exactly what to do. I haven't done anything yet other than thank the ADP people and then go to my accountant and say, hey, can you do this a lot cheaper than they want to do it? She's like, sure we can. So It's not too expensive to refile the taxes for the last 3 years and sort of set it up for this year. We have all the records to support any assertion we make regarding which of our activities are at risk and involve novel creation or engineering. We do that all the time. It's almost everything we do. This program couldn't have been designed as a better fit than for someone like me. So, I don't know. That's the decision.
Jay Goltz I would suggest you talk to some bigger accounting firms. I don't know how big your accounting firm is that has some experience with this because there's someone out there that knows whether this is a slam dunk or not because they know how the IRS works because they deal with them every day. Like for instance, my accountant once told me, oh, you should get residency in Florida. They never check anything. And he called me 6— yeah, forget what I told you. He's got a huge problem with a client that did that and It didn't work out well, but they do this all the time and they probably have some experience as to whether there's been any pushback on it. It's worth asking.
Paul Downs Yeah, I talked to another accountant yesterday and he is like, you know, go for it.
Jay Goltz Well, I'm going to save some money to bail you out either in the Middle East if we got to get you out of there, if you were taken hostage, or if you are in the jail from the IRS.
Paul Downs I'm not personally planning on going to the Middle East. I, I did do business with Afghans. Boy, if you go to Kabul, we can set you up with a ton of customers. And this is in 2007. I'm like, hell no. My wife would kill me if the terrorists didn't get me first. I have been to Dubai and Kuwait before and it was fine. But anyway, I would say that part of this entire discussion is what is the entrepreneur, in my case, me, what is your appetite for risk?
Lauren Feldman What is the risk, Paul? What is your concern about getting audited? Are there things in there that you're afraid you're going to get caught having done?
Paul Downs It's just a pain in the ass. That's all. That's really it. If we do this, I'm going to go back and, I mean, I sort of gave ballpark numbers to the accountant, but we have records on every single thing we built for the last You know, 20-some years now. So we can go back and look at the exact, was this something novel? How much of it was novel? What did we spend on materials? I mean, we can do all that and really document that. Yeah, what we do is risky. Every day we think is something risky. I mean, I've got 5 projects on the shop floor right now where we're kind of like, yeah, we're halfway through this. We're encountering problems. What are we going to do? And so that's pretty much what the IRS 4-part test is all about. Are you at risk for what you're claiming? And are you trying to think of new things? And that's what we do all the time. So I'm comfortable with the concept of deferring. The exact numbers would be more like down to the penny. What is the credit for each year? That's more of the concern.
Lauren Feldman You asked your friend ChatGPT what it thinks?
Paul Downs I sure did. And summarizing, it appears you qualify and for a pretty good pile of money. So what's that worth?
Lauren Feldman Not a lot.
Paul Downs But it's not like, hell no, back off, stay away.
Lauren Feldman Right. I'm not sure you're facing that much risk here. Anybody disagree?
Ted Wolf No, I don't think he's facing an awful lot of risk, and I think Paul's thought it through pretty thoroughly, and I'm sure he knows he's got timelines. If it's not paid off by this time, I'm out. This is what'll be happening if there's no activity. So I don't think, Paul, I don't think there's risk there that you have to worry about going to the Middle East or refiling tax returns in the way that you said. I think they're low-risk gambles, to be honest with you.
Paul Downs With the tax returns, there's a potential huge payoff too, which would make it way more valuable what I take to market soon. And so that's very alluring to just go ahead with this and see what happens.
Lauren Feldman Paul, you mentioned going back 3 years and making alterations. Is that because this is retroactive or because you have to do something to set it up to be able to claim it in the Current year.
Paul Downs Is my understanding based on what the ADP people told me and what ChatGPT told me is that we can refile for the previous 3 years and then for 2026 we can file. And so, and you can also carry forward the credit if you have a loss the next year. So it, the credits don't expire for 20 years or something. It's a complete revamping of this program in a way that's way more advantageous for anybody who's spending money on R&D. I think the previous program, if you took the credit, you couldn't expense the same expenses as, you know, against ordinary income. And that's a problem. So with this, let's say I'm spending $100,000 on engineers who think of new things all day. I can still expense that right off the top of my revenues, like take some expense, but then the credit would be an additional 10%. So it's just like free money. The program previously also required you to depreciate the credit, so it was just not worth much trouble. But Trump and his, you know, like whatever they decide to do, it's just like It's a way more lucrative thing now, which is why ADP was calling around seeing whether I could possibly be interested because they were asking for 20% of the credit as their payment. So then I went to my accountant and it's like, hey, how hard is it to do this? Not hard at all. Instead of just got to, you know, got to file.
Jay Goltz My question is, did the accounting firm say, we've done this for 10 other people and it's all worked out? Have they done this for other people?
Paul Downs Well, she, she, nobody wanted to do it until recently because of this revamp.
Jay Goltz Yeah, I would definitely want to talk to some other people that have done this, that are in the middle of it, because I found there's frequently some insight. Not that it's a bad thing, it might be a great thing. I just would want to test the waters on that.
Paul Downs When PPP rolled around, Jay, did you sit around and ask people whether it was a good idea or not? You just saved some money.
Jay Goltz No, I needed the money and I took it.
Paul Downs How'd that work out?
Jay Goltz I think okay.
Paul Downs Absolutely.
Jay Goltz I'm not in jail or anything.
Lauren Feldman Paul, I'm pretty sure your investment in selling conference tables in the Middle East will qualify for this, if anything qualifies.
Paul Downs Yeah, absolutely. I mean, every, we do all kinds of things where we're thinking of a new solution to a problem. And that's pretty much what we do all day, every day. If my clients could get what they wanted out of the catalog, they'd do it. They wouldn't spend more to have me do it. I just feel like we're a good fit for it. And sure, Jay, I'll try to find somebody else, but it's a new wrinkle on an old thing. So I—
Jay Goltz No, no, I'm not being cynical. I just would do it if you can see if you can get somebody to You know, have done it.
Paul Downs That's good advice.
Lauren Feldman All right. In a little bit of time left, I'm going to actually ask for a little bit of advice for myself. As I think all 3 of you know, I've announced a 21 Hats Succession Solutions Workshop. The basic premise is that it's not easy for business owners to both run their businesses and simultaneously check out all the succession options they might consider. Especially since they really need 2 succession plans, one for leadership, one for ownership. That problem is compounded by this, where wherever owners look for guidance, they tend to run into people who are trying to sell them on a specific path. My idea is to bring together 10 owners over 8 virtual sessions, meeting once every 2 weeks. We'll do 2 things. We'll have each of the 10 report on what they've learned, what they're considering, And I'll bring in special guests who've been through this and can talk about their experiences without trying to sell anybody on anything. This is going to start in January. And I'm curious, what questions might you ask?
Ted Wolf What's the experience of the people that will be conducting those work sessions for you?
Paul Downs I was going to say exactly the same thing. Like, who's the expert?
Lauren Feldman Great question. Mostly it would be entrepreneurs who themselves have chosen a path and gone through it and can now talk about how it worked for them. There would also be a handful of people who are in the business of helping businesses go through successions, but they're people I've gotten to know who I've kind of vetted and who I trust not to come in and give a sales pitch, but to just share the information that business owners need to consider. Does that answer your question?
Paul Downs Yeah, I think if you can credibly state who's going to be doing it, which particular approaches they're going to be discussing, and this would be bonus points if you could say, here's some other options you may have heard of that we don't think are worth explaining or for whatever reason, we could not come up with somebody to talk about them. So that if your initial promise is that you're going to be giving us the universe of options, and I'd like to know if some of the planets are off limits.
Jay Goltz I can tell you there's a huge hole in the market because every one of these things that I've looked at, just the ones I've looked at, they're run by financial places that want to get your money when you sell the business. And I've gone to some of these seminars and they've been completely worthless. And in one case, I even went out of town to a whole, you know, they had a trade show about it. And the fact of the matter is they couldn't even find one entrepreneur that could actually say, here's what I did. It was a racket. And I do think there's a hole in the market for getting honest input, not from somebody who just wants to get their hands on your money when you sell the business.
Ted Wolf I think that's a big part of the market, no question, Jay, and the incentive behind that referral of trusted advisors and things like that. But I think it comes down to, Lauren, I think you covered your bases, having people that have actually gone through the transaction and the experience of starting, growing, and then exiting a business. But that's only one option, exiting. Obviously the challenge is how do I get my money out of the business? If I can't get my money out of the business, I'm in trouble. It should be in my private account. So how do I go about doing it? But there's specific techniques you can use to do it so your company becomes transferable. In the finance world, they call it optionality. You always have financial leverage if you build certain systems in a certain way. I wish I would've known that when I had my business earlier. We did do a lot of things right, but the one thing we didn't do is we didn't start preparing for it soon enough before the actual sale or acquisition took place. And today you have to understand, only 30% of the businesses that are up to be acquired actually get acquired today. You got a 70% fail rate. So you better understand what's going on, understand EBITDA, understand how to negotiate. Because, but I think it's up to 60% now of all acquisitions in some way or another are done by private equity. And if you look at the multiples that were just published, I think within the last month, last year, the average multiple for a business was about 5.5. This year it's a little over 3. Tremendous drop. And they attribute it to people not having good AI implementations, whether it's right or wrong. That's the way it's, that's the way the market's going.
Jay Goltz And the problem is the private equity people are not looking at businesses with an EBITDA of $600,000. They want extremely profitable companies. So the fact of the matter is the typical entrepreneur doesn't make enough money to even use private equity, even if they wanted to. And then the advisors that we all use really have no expertise in this. Most accountants, most lawyers, from what I've seen, they don't have. So you really have to go out and look for it, which is why it's great you're doing this because you have been curating people for years that can help with this. And I fully support, I think it's a great thing you're doing because I haven't seen it anywhere else.
Ted Wolf There's a definite hole and need in the market. There's a gap there that's got to get filled, and there's organizations that are actively doing that.
Lauren Feldman And it's interesting to me, you mentioned that you wish you had started in thinking this way a little bit sooner with the business that you sold. I don't think I'm going to have a problem filling my cohort of 10, but I do keep hearing from owners who've reached out to me since I announced this and say something along the lines of, wow, this sounds great. I love it. I'm not quite ready for it. I don't think I need to do this yet. Maybe in a year or two. What do you think is the right time, Ted?
Ted Wolf The day you start your business, you gotta know who's going to buy it. So you gotta start putting the feelers out there. What are they going to buy? What's value in a business versus just what's my EBITDA number? Is the business transferable so a new owner can take it without losing dramatic pieces of the business revenue in particular? So I don't think you could ever, ever start too soon in understanding what EBITDA is, why you need it, and where it gets misused. The whole quality of earnings experience, first time you go through it, you're not going to find it a pleasurable experience, but you've got to go through it.
Paul Downs Explain what that is, Ted.
Ted Wolf Quality of earnings is where they came in and they actually justify the quality of your earnings, meaning will your contracts, hold and do the numbers stand on their own that you're giving me that when you leave the primary mover of the business, I still have a business that's left so I can transfer it into what I'm doing and how I'm doing that. And first-time sellers are usually slaughtered in the whole choreograph of what private equity has in their playbook to get that multiple down. Because You know, they make their multiple by buying a low multiple company, fixing it up and reselling it again. I mean, it's like car sales in effect. I bring it in, I refurbish, buy it low and sell it high.
Jay Goltz One of the key elements of quality of earnings is that you don't have 50% of your business from one customer.
Ted Wolf Oh yeah, absolutely.
Jay Goltz Which is a problem.
Ted Wolf All of those things come into the quality of earnings and you got to prepare for it. That's how you Build your business plan so one client isn't 50% of your business. Yeah, you're right about that. That's one of the key things of quality of earning. What's your revenue concentration like?