The base level threshold is this $1 million
to $5 million in annual revenue.
Now, I'm not categorizing these companies by profit,
by EBITDA.
I'm categorizing them by revenue because revenue is
easy.
We all know what revenue is.
I don't want to get into seller's discretionary
earnings.
I don't want to get into how profitability
is measured in all these businesses.
Revenue is very easy to talk about.
So $1 million to $5 million in annual
revenue.
I've used the term Main Street Mavericks to
describe these people.
And the reason that I think they're Main
Street Mavericks is because they've created a business
to enable their freedom.
My experience, the people who are able to
push through, and by the way, that first
hurdle is a million bucks.
And in order to push through that hurdle,
they have to have come up with an
idea that really resonates with a group of
people who are their clients.
And they've created this business for themselves to
enable their freedom.
That's what the business is all about for
them.
They need to develop trust in other people
so that they can continue to grow.
And what usually happens is the trust comes
in the first key person they decide to
hire, or the trust comes in the form
of a partner that they decide to bring
into the business or go into business with.
And that's where it unlocks their strengths and
they're able to pursue the things that they're
really good at while their first key hire
or their partner is able to pursue their
strengths and they're able to grow the business
in that way.
The challenge for these people is that realization
that they cannot or should not do everything
themselves.
So that $1 to $5 million mark, they
go up that spectrum by the more authority,
the more capability they delegate out to other
people, the deeper the trust they have in
other people.
These people are worthy of your investment because
to get through that million-dollar threshold, they
trusted somebody at some point and they're willing
to continue to grow and expand their business.
And they will most likely be on an
upward trajectory.
And my experience is this is the fastest
part of the cycle.
Once they break through the million-dollar barrier,
going from one to five is the fastest
part because they're like, oh, look, I can
bring in a CFO and the CFO can
help me manage to the numbers and I
can realize where my profit is leaking and
I can reduce the leakage of the profit
and put that money back into the business
and then bring in a salesperson or two
salespeople or a sales team and reinvest that
money back in the business as it continues
to grow and expand.
Harry, your thoughts on the $1 to $5
million area?
Yeah, no, I agree with everything you say.
I think the one thing in the one
to five you have to be a little
cautious on is they're probably taking a lot
of the profits and plumbing it back in.
I think a lot of people make mistakes
about the people they hire, the systems that
they put in place.
So I think you always got to operate
with some level of caution and get to
know your client.
You know, people do stumble, but I think
that if you're growing with them at this
pace, if you become a partner with them,
then that's just going to do you, you're
going to grow with them and you're going
to do very well with them.
So you can be more instrumental by making
introductions for them that don't really relate to
your business that could be helpful.
So I think that's where you can get
a lot of loyalty, you know, down the
road.
But I think this is the part where
people really build on their relationships.
And I think that's just better, you know,
for the future.
But you have to be willing to invest
the time to do that.
The one to $5 million area is, it's
really liberating because it's like their first introduction
to the drug of bringing in a team
to help them.
And they think that because they've done everything
themselves and they feel the weight of that
and pushing through the weight of doing everything
themselves is what gets them over that million
dollar hurdle.
And then they bring in, usually it's that
one key employee, right?
In some cases, it's the salesperson.
In some cases, it's an operations person to
take the operations weight off of them so
they can sell.
And all of a sudden when that weight
is removed and they can leverage their strengths,
that sense of freedom is what propels them
forward.
And it is exactly like a drug.
And they're like, okay, this worked really well
with sales.
Now let me see what I can do
with finance.
Oh my gosh, I brought in a decent
controller and the controller showed me what we're
doing here and how to be more efficient.
That's more money.
I can take that money and then hire
more salespeople or I can do more marketing
or I can do more advertising and it's
just fuel that continues to grow the business.
So the mindset of that one to $5
million entrepreneur is the mindset of like you
basically unleash the kraken.
You just release the beast and they feel
finally like they can move forward aggressively and
quickly.
The five to $10 million area, this is
the valley of death and I didn't coin
that phrase, okay?
That phrase has been told to me by
no fewer than like six or seven people
who are in that area right now and
who have been told that they're in the
valley of death.
And here's why this is categorized as the
valley of death.
It's because they try to take the people
who got them to say $4 million or
$5 million, they try and take those people
and use those people to get them to
$10 million.
And the caliber of person to go from
five to 10 is very, very different.
To get to $5 million, you can be
very tactical.
You can be very action oriented.
You can be very hands-on and you
can get to $5 million.
As long as you buy into, hey, I
bring people in to leverage my strengths.
I can be a day-to-day manager,
a day-to-day salesperson, a day-to
-day person with my nose buried in the
finances and I can strong arm the business
to $5 million.
But to go from five to 10, to
scale that way, you need to be more
strategic and you got to take a step
back and you have to really start surrounding
yourself with situational expertise.
You got to surround yourself with people who
are smarter than you.
So to go from one to five, and
this is, I'll give you my experience and
I learned this with the ExecuState brand at
Marriott.
To get from like one to five, I
had great tactical people.
I had people who could make everything work
on time.
But to go from five to 10, I
needed people who had to think differently because
working more hours was never going to be
the answer.
Salespeople who had to go after bigger clients,
salespeople who were smarter about the way they
used leverage.
They realized they couldn't cold call their way
to $10 million.
They had to do presentations and they had
to put on events to put hundreds of
people in the room so that we could
pitch to them all at the same time
to go from five to 10 versus one
to five where we could sell to them
one at a time.
So the people who get you to five
are way different than the people who get
you to 10 and you as a professional
servicing a business that's going from five to
10 need to realize that the advice you
give to a business owner who wants to
go to 10 needs to be more strategic
and less tactical.
You need to get them to hire the
people to do the hands-on stuff and
surround themselves with really smart people who have
situational expertise.
Harry, your thoughts.
No, I agree with that.
One of the issues you always have with
clients when they do grow between the five
and 10 million, a lot of times they
will change advisors because of the brother-in
-law or somebody else.
I think that you need to be in
a position to help them and you gotta
be aware at the same time that they
will just make changes.
We had a situation where the client just
says, well, we're evolving.
I said, what the hell is evolving in
the relationship?
So you gotta be very careful about how
you're seen and if you just let them
grow without being part of that team, you
could be part of that evolving aspect of
it.
But I think that the five to 10,
I would agree.
A lot of companies do fail because of
a lot of bad implementation of systems, hanging
on to the wrong people for too long
of a time period, but not being able
to identify that.
And I think that's one of the big
issues of what you call the valley of
death where a lot of people fail.
The other thing too is in that area
there, you're losing part of that entrepreneurial part,
as you mentioned, Dave.
And once you lose that part, your company's
just different.
And I think, especially in today's world, a
lot of us dealing with AI and a
bunch of other things, how do you invest?
Because you don't necessarily have the knowledge to
do the investing in those areas.
You need to bring in other people who
have that experience, whether it's somebody on your
team or you hire a consultant to help
you.
And that's where, even in our field of
accounting, that's why you're seeing a lot of
the roll-ups because you can't compete with
it.
It's just imposters too much.
So that's where you have to really focus
in on.
So a couple of things to think about
to Harry's point with you not getting thrown
out with as they're changing the advisory team.
If you're the person who's helping push them
toward the change, you're less likely to be
part of the change.
This is the thing.
You're either on the bus, driving the bus,
or you're under the bus, right?
So you don't wanna be under the bus.
My preference is always to be the guy
driving the bus.
So if I'm sitting with my client and
I say to my client, how fast do
you want to get to 10 million?
And the client says five years, I say,
why not 18 months?
And they look at me.
And there's a very famous story that's told
about Peter Thiel, where he says, let me
see your five-year strategic plan.
And they give him the five-year strategic
plan.
And he looks at it.
He goes, this is a great plan.
He did a really good job on it.
And the guy's really happy.
He goes, now I want you to implement
it in 18 months or you're fired.
Five-year plan, implement it in 18 months.
Your job as an advisor is to always
be pointing your clients in the direction they
need to go.
You should always be taking your clients where
they need to get to.
Because if you are, you're driving the bus.
You're less likely to be under the bus
when it goes by.
I can't stress that enough.
Harry made the point.
I'm just emphasizing it.
You have to be the person to help
them go from five to 10.
You're the tour guide taking them through the
valley of death as fast as you possibly
can.
And you have to be comfortable, politely challenging
them.
You have to challenge them to say, you
have to challenge them and say to them,
you told me you had this goal.
You wanted to get to 10 million.
You said five years.
I told you you could do it in
18 months.
Let's talk about what it would take in
order for you to do it in 18
months.
And then you challenge them and ask them
in order to do it in 18 months,
what's missing right now?
Well, I'm missing this.
I'm missing this.
And I'm missing this.
Okay.
Who do you know that can help you
get those four things in place?
Let's get to work on it.
Let me help you get to work on
it.
I don't care what your role is.
If you're a lawyer, you're their insurance advisor,
you work on real estate for them.
If you tell them you wanna help them
get to 10 million, how are they gonna
say no to you?
They're gonna want you around because you're helping
enable them to go from that five to
$10 million mark.
Now, one more thing about this, and Harry,
I need your opinion on this as well.
If they're in love with certain people and
they don't want to abandon those people, maybe
it's their son who's part of the business
or another relative or someone that's been with
them for 100 years.
What you can do is you can share
with them the educational opportunities that could bring
that person along maybe to make them better
and make them into a potential $10 million
person.
The example I'll give you in this is
a company that I worked for called Concord
Hospitality.
They had a general manager in Allentown, Pennsylvania
who was like a technology wonk.
He always had the latest technology in his
hotels.
He was really into technology, would save up
money from his budget to invest in the
latest technology.
The CEO of the company recognized this guy
had an affinity for technology.
He knew he couldn't afford a chief technology
officer at that time in Concord's history.
He invested in this guy, paid for him
to go get a master's degree in something
in technology, paid for him to learn about
infrastructure and everything else, and he also invested
in him going to every technology, hospitality technology
conference there was.
30 years later, this guy is now the
chief technology officer for Concord Hospitality, which has
like 190 hotels all over the US and
Canada, and he's, by reputation, one of the
best CTOs, chief technology officers, in the hospitality
industry today.
He didn't start out that way.
He started out as just another general manager
who had an interest in technology.
They invested in him to make him the
$10 million plus, now he's the $100 million
plus chief technology officer.
So if your client has somebody who, to
them, is personally indispensable, help them find an
education path that could potentially make them a
$10 million person, but make sure they understand
that that education comes with the price, and
the price is time.
If that person is critical to the growth
of the company, you may be better bringing
in a steward for that role while this
other guy apprentices for four or five years.
Harry, your thoughts about that?
No, I think that's a great example.
I think the other way you can do
that in either, you know, let's say in
the accounting or financial area, if you have
somebody who doesn't have the experience, we have
seen people either bringing in other mentors that
the family knows or the business knows, but
you can also bring in, on an interim
basis, CFOs to help train them over time,
where you're dedicating a couple days a month
to do that process.
So I think you can attack what you're
talking about in a couple different ways.
You just have to be open to what's
going to work best for the company and
not drain all the cash and doing it
in the meantime.
So there's a lot of different ways to
slice it, but I think that whole process
of doing that, what you also get out
of that, Dave, too, though, the loyalty that
is then going to be seen by everyone
else by keeping those people and showing that
you're willing to invest in people is huge
from keeping your turnover down and long-term
people want to stay.
Some of those people are going to leave
as you're growing, but I'm not a proponent
of throwing them overboard just for the sake
of saying, well, you're only a $5 million
person and I got to go to $10
million, so I got to jettison you.
I think you try to elevate everybody.
You try to bring everybody along, but there
are three or four key positions.
And Harry, I'm curious as to your thoughts
on this.
For me, there are three or four key
positions that accelerate growth.
So strategically, the first one is in the
finance space.
I think you go from probably at $5
million, you go from a glorified bookkeeper to
a real finance person who knows what your
books should look like, knows how to use
the financial reporting in order to manage the
business.
And then at 10, you might even be
able to go to a real CFO, correct?
No, that's about right.
But again, in the meantime, you can also
bring in people to assist in that process.
Look, I mean, the three areas of any
company is going to be financial, operations, and
sales.
That's the three that you got to get
right.
Yeah.
And, you know, depending on what's going on.
So it's a limited number of areas.
Now, depending if you're in a regulatory environment,
you might need legal more.
But those are the three main areas you
got to focus in on.
Yeah.
So to Harry's point, one of the places
that I worked had a laundry, had a
commercial laundry.
And during a recession in, actually when the
dot-com bubble burst, like right around 2000,
most of you weren't even born yet.
Sheldon was born.
But everybody else probably wasn't even, you weren't
working at that time.
But around 2000, we decided we were going
to take laundry from other hotels and charge
the other hotels because we were one of
the only hotels in our geographic area that
had a functioning laundry.
So the laundry became a profit center, but
we were overwhelmed.
We were already, we were working seven days
a week, two shifts because we were doing
our own hotel's laundry, but we had some
capacity on the evening shift.
So we were doing such a good job
that we filled that second shift and we
thought we needed to buy more equipment to
handle the capacity.
And my boss at the time was smart
enough to say, well, the equipment is going
to cost basically like two whole years profit,
and we probably won't be in a recession
in two years.
We don't even know if we'll continue to
be doing outside laundry in two years.
Maybe there's another way to do this.
And we called a guy who all he
did was consult with commercial laundries.
His name was at the time was Charles
Eiffel, and he was literally the guru of
commercial laundries.
And he in 48 hours transformed that business,
made it an incredible profit center.
And all he did was show us how
adding a third shift, the expense of hiring
and adding a third shift could be easily
offset in just four months by making that
third shift at least 50% capacity five
days a week.
So we were absolutely able to, we got
it to 100% capacity five days a
week and then eventually expanded it to six
days a week.
And it was an incredibly lucrative opportunity for
us.
But we didn't think of going to a
third, it's a hotel open 24 hours a
day.
We didn't think of running a laundry on
a third shift in the hotel because for
the entire life of the hotel, they only
had one and a half shifts.
They only had a half of the people
on the second shift.
That guy bringing in that consultant different thinking,
$10 million plus thinking completely transformed that entire
business and made the hotel a ton of
money from a department that was supposed to
be an expense.
After we experienced that, just FYI, the division
that I worked in was responsible for housekeeping,
laundry and recreation.
We had an indoor pool in New York,
okay?
We were one of the only hotels in
our area to have an indoor pool.
So we said to ourselves, shit, we brought
in this outside guy who was really smart,
had fresh eyes.
If we did that, if we do that
with recreation, let's see what a consultant in
the recreation space comes up with.
And sure enough, we started selling memberships to
our health club for the hotel and to
the pool, okay?
Indoor pool, retractable roof, great facility.
And because the hotel wasn't busy, it was
a freaking recession, we went nuts.
And I had people going door to door
selling memberships to this fancy hotels health club.
The recreation department went from being an expense
to being a profit center.
We had a consultant, a health club consultant
come in, brought us the entire operating procedure
for a fraction of what we made in
the long term.
Again, we were $5 million thinking these people
are $10 million plus thinkers, that situational expertise,
that's what breaks you out of the valley
of death.
Harry, your thoughts?
No, those are great examples, Dave.
I mean, that's why you need to bring
in those people.
The issue you always have is finding those
right people because there's a lot of consultants
out there.
So that's gonna be the real issue.
You need to talk to someone else who
really has worked with them to see how
instrumental they have been.
But those are things where you gotta start
thinking, how do you get to that next
level and how did you break out?
You know, the other thing too is even
people in business, we've had this with clients
who have told me this, is going to
talk to other people who have broken through
it on their own, even if they're competitors.
A lot of times they'll open up because
they want to help you.
Whatever the case may be, we had one
where a competitor told one of our clients,
you need new trucks.
You gotta have new trucks because you'll make
a lot more money because people are going
to think it's another level of professionalism.
And he did it and things went very
well after that.
So, you know, you gotta get the Steven
Jobs theory.
People will give you good information if you're
willing to ask, even if it's a competitor.
Yeah, that's great advice.