We can impact the world in each of our own little ways, but there is no denying the fact that you can do a lot more with more value. Steve Little believes that the best way for your business to make an impact on the world is to generate value, accelerate growth, and use it to invest in things that you care for. Steve is an acclaimed serial entrepreneur, investor, philanthropist, mergers and acquisitions expert, and the CEO of Zero Limits Ventures and Founder of Activist Capitalist. His experience in business goes way back when he was fifteen when he struck a six-figure deal for his company. He has seen tons of success as an investor since then. He joins Aaron Young on the podcast to talk about understanding the value drivers of your business, starting off with a solid exit strategy, and making an impact on the world through philanthropy.
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Generating Value For Your Business That Makes An Impact With Steve Little
It’s great to be back here with you for another episode where we are talking about owning a business instead of the business owning you. How do you build a business that works harder for you than you have to work for it? Many entrepreneurs out there say, “I own my own company. I’m my own boss,” but they’re a slave to their company. They’re self-employed on steroids. They’re working more hours, more days, taking more sacrifices and more risks to make less money than if they had a job. The reason most people get stuck in that rut is that they don’t know what success is, how to create success or how to duplicate it. They might get it once and then never know what happened. This show is talking all about what are the pieces, processes, systems and experiences that will lead you to become an unshackled owner and owner of your business. I’m excited about the guest that we have.
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We’ve got Steve Little from Zero Limit Ventures. He also has a company called Activist Capitalist. I met Steve through a mutual friend who’s been a guest on the show, Amilya Antonetti, who is a great woman who surrounds herself with brilliant people. When she said, “I want you to meet somebody,” I knew it would be a good thing. I sat and I listened to Steve and he’s done a lot of cool stuff, but it’s all led him to a place where he’s created a great company and process that helps create dramatically better sales valuations if you want to sell your company. For some of you who are getting started thinking about selling or getting a bigger valuation on your company, it might seem like pie in the sky, but it’s not. What is clear over time is that even if you’re at the beginning, the idea is to, as Stephen Covey said, begin with the end in mind. If we have some sense of what things need to be in place, what needs to be organized to be sellable, to have someone who wants to buy your business and to buy it for top dollar, you need to learn the lessons that somebody like Steve is an absolute rock star leader in. We’re grateful to have you here, Steve, with us on the show. Thanks for being here.
Thank you very much. I appreciate the opportunity.
We’ll talk about the company, the processes and all that stuff. I want to do a little biography. I never read bios. Some people I get interviewed say, “Send me a headshot and a bio.” I would love your headshot, by the way, I didn’t ask for that yet. I need that but the bio is in the interview. It would be a better bio, maybe not as pristine but it will be more interesting to these entrepreneurs out there than if we read something. Where were you born? Where did you grow up?
I was born in Syracuse, New York but my childhood was mostly in Daytona Beach, Florida. My dad was in the NASA Space Program down there during the Apollo days. We ultimately moved up to Washington, DC. I went through Pennsylvania first and Pennsylvania is where I started my first business.
When you say your childhood was in Daytona Beach, I was born in Southern California, Los Angeles area. When I was nine, we moved to Oregon. I say I’m from California, but I don’t remember much about California. How long were you down there in Daytona Beach while dad was involved at NASA?
We were there for 6 or 7 years. We’re in Syracuse until I was around three, then we moved to Florida for that program. He was in the Reentry Systems Group for General Electric. He’s one of the guys that got the astronauts home.
I’d say the reentry part is critically important, at least to the families of the astronauts. You guys moved to Pennsylvania and up to DC. Is that where you went to high school or college?
Yes. I went to college at the University of Richmond. I had an interrupted college. I went for a couple of years and hated it. I quit, I built a couple of businesses, and I had the notion of scaling one of my businesses to be a massive global general contracting firm like Heiman. I went and had lunch with a guy one day from Heiman’s executive suite and I told him what I wanted. He looked at me and said, “Steve, that’s the damnedest story I’ve ever heard. It’s amazing, but I have to tell you there’s not a single man in the executive suite of Heiman Construction that ever hit a nail. You’re out here punching nails and you want to know how you’re going to get up to our executive suite.” Somehow or another, I took that to me and I needed to go back to school.
You can’t work your way up from the job site.
It was hard, although I would have made it.
You’re that kind of guy that you would have transcended anyway. You went to school and you got a Business degree. What did you do?
Mathematics but I didn’t finish the program, but most of the Master’s Statistical, MBA work.
What did you hope to be able to do with that degree?
I have no idea. I was just going to school and I like math better than anything else.
What was that first business that you started?
My first business was a lawn care company. I was thirteen years old. I was under my dad’s feet one day. He was out there working in the garage and he said something like, “Get the hell out of here. Why don’t you cut the grass?” I said, “I don’t know how to cut the grass.” In a frustrating manner, he dragged the lawnmower out there and showed me how to start it. He started it and he said, “You walk back and forth. That’s it.” I said, “Okay.” That was in Pennsylvania in the summertime. It’s hot and nasty up there. I walked back and forth four times of the yard. I said, “This is not for me.”
I saw my neighbor’s kid playing in the backyard. I was getting paid $8. I went over to him and said, “I’ll pay you $5 to cut the grass.” I arbitraged $3 for myself and went and played in the creek. He did that and that I got the idea. Lo and behold, by the summer, I had 35 guys working for me. I had two garages full of equipment and had over 130 yards to cut every week. I spent most of the week after school riding from door-to-door on the bicycle, reselling every job. One Saturday, it was August in Pennsylvania, the grass doesn’t grow all that fast. I started hearing people say, “Come back next week. It’s not long enough to cut now.” About five times in one day that happened, I thought, “It’s going to cost me some money. I have to figure this out.”
Generating Value For Business: You have to understand where the value drivers are in your business. You have to know who would buy it and why.
I came up with the idea of offering all of those customers a semiannual and an annual contract wherein the summers, we’d cut the grass and in the winter, we shovel the snow. In the fall, we’d rake the leaves and after a storm, we’d pick up the sticks and make their yard. Our job was to keep their property looking neat. We weren’t doing landscaping and other kinds of stuff. We didn’t work with fertilizers or anything like that, we just cut and kept things neat.
When I was fifteen, my dad came home and said, “I’ve been transferred. We’re going to move.” I said, “What am I going to do with my business?” My dad wasn’t involved very much in my life at that time. He didn’t understand what I meant. He thought I was cutting some neighbor’s yards. He didn’t know I had two warehouses full of lawn mowing equipment. He said, “I don’t know. I think your neighbors will understand. Let them know you’re not going to go cut the grass anymore.” I said, “I don’t think you understand, dad.” I went upstairs, I got this notebook I kept. You might remember the grade school, they had the blue cloth covers on them. I’d written in black magic marker, “Steve’s Big Book of Business.” I had all those contracts in there and anything related to the business was in that big notebook binder. I put it down in front of him and he starts leafing through it. He gets about halfway through and it dawns on him what he’s looking at. He said, “You cut all these yards?” I said, “I don’t personally cut all those yards but I have a team that does that.” He said, “How many?” I said, “Thirty-five people.” “You have 35 people working for you, so bring me your bank book.” I brought up my bank book and he looked at it. He said, “You’re making almost as much as I am.” I don’t think he was serious about that.
He was impressed.
He said, “I’m an engineer. I don’t know anything about any of that. You tell me what you want me to do and I’ll help you do it.” Right around then, companies like Lawn Doctor that were getting started and were getting into the area anyway, I’d seen their ads and trucks around. I thought, “Maybe they’d be interested in this thing.” I went over and my dad drove me into town. We met with one of the GMs there to franchise. I showed him the book and he had the same experience my dad did about halfway through. He realized what he’s looking at and he said, “We’d be interested in buying this business. Tell me about your assets.” All that was listed and he said, “Let me think about this.” He called me a couple of days later. He offered me $187,000 for it. My dad was like, “Congratulations.” It was 1973 dollars. My dad was like, “That’s incredible. Give me the check, I’ll put it in here.” I said, “Bullshit to that. We’re going to go to the next guy, we’ll see what he’ll give me for it.”
I ended up selling it for $247,000 as a fifteen-year-old kid in the ‘70s. It did pay for my college and then some I think, but I never saw any of that money. That experience taught me something that I could not have articulated then. I can articulate it now and I could some years later, but I didn’t realize then what I’d learned. What I’d learned served me and allowed me to build six other software companies, all of which I sold for nice nine-figure exits and then moved on to the Bay Area where I worked with top-tier venture firms helping them get high valuation returns on their portfolios. What that lesson was is that you have to understand where the value drivers are in your business. Most business owners are operating with the unfortunate misimpression that value is derived from revenue and earnings, but they never stopped to question that. If that’s the case, then explain Snapchat to me, a company with no revenue, no earnings and worth $38 billion, so there can’t be revenue there.
How about Amazon that ran in the red forever?
It’s a valuable company. There are these other factors. That was the secret to my success, I would invest the energy and understanding where the value was. To your point, in order to know where the value is, you have to know who would buy your business and why they would buy it. It was impossible for me to know that the reason my lawn care company was valuable was because of that book of contracts. If I didn’t know one of those contracts, I wouldn’t have known that was the value driver for the business.
The contracts gave you measurable future revenue.
It also gave them a multimillion-dollar upsell opportunity because he didn’t have to knock on those doors. He already had those contracts, he bought them. He could serve as those contracts. In the process of serving those contracts, “We can fertilize. We can fix this bald spot here. We can kill those bugs that are eating that rose bush over there.” All of that stuff was going to add revenue. He probably made tens if not hundreds of millions of dollars off those contracts.
That’s the thing, you figured out it was getting tough to go back and resell the job month after month. As soon as you put it into a contract and expanded what you could do so that it mattered seasonally and you’ve got them on paper, even if you couldn’t have enforced it as a fifteen-year-old kid, it was an agreement. In those days, an agreement maybe meant a little bit more than some people might think it would mean now, especially between an adult and a child. Here’s the thing about you that I like and that I hope the audience is thinking about. I know many people who went and did something fantastic, they knocked it out of the park and made a $3 million, $5 million or $30 million payday or the company was $100 million but they got $10 million of it in the sale and then it never happens again. They spend the rest of their career where people want to meet with them, want to share their ideas with them, want that individual to invest in the new ideas, or to be a leader in a new way. The fact is the person has no idea why it was successful in the first place.
They’re in the room.
They were there. They did something, but they didn’t know what they did and everything worked out and they got a big payday, but they never duplicate their success. The reason is that they don’t know why it happened in the first place. You learned a lesson that then you reapplied again and again, and you kept getting similar results even though the product changed.
The principle is the same principle. It was easy for me to step into a situation and see that, “Here’s the thing that’s going to drive value because we know who the buyers are. We know what they’re interested in. We can align ourselves to the maximum-paying buyer.” The thing to remember is you said something pertinent when you got started. It bears some repetition here. If someone came to me and said, “I’m thinking about starting a business. What’s the first thing I should do?” My answer would be to develop an exit strategy. The first thing they think of is, “I haven’t even started yet.” When I talked to an early-stage company, I asked them what is their exit strategy, “We’re just getting started.”
The point is that the exit strategy is not about the exit, it’s about the strategy. It reveals to you what you need to invest your time and money in, in order to generate value in that asset. Building a business is hard. It’s not for the faint of heart. I don’t care what kind of business it is. Building a business is hard work. If you’re not up to that, then keep your job. If you want to go out and do something, then you want to focus on building the value in that asset. I’ll tell my clients, “No matter how you cut it, whether you sell it, you take it public or you keel over dead at your desk, there’s going to be an exit. The bottom line is you’ve invested your life’s work in building that asset. You want that asset to be as valuable as possible.” I can’t tell you the number of business owners I haven’t worked with over the past 40 years that are disappointed with the value of their business because they never even thought about what drove the value of their business. They operated off of the misimpression that revenue and earnings growth drives value. That’s not true.
Many people who call themselves an entrepreneur, and may have great entrepreneurial thoughts, are still acting like an employee instead of looking at something like, “I’m alive on the planet. Here I am. I can still wake up in the morning and move my fingers and toes. I can move. I get to spend a portion of my precious lifetime on this thing I’m calling a business. How long do I want to be committed to this thing? What will be the result that will be satisfying to me for spending time on this versus something else?” Almost nobody thinks like that. They just think, “How I can make enough money to pay the mortgage?”
They stayed in that case. One of the things I love about your program is that as soon as you understand the concept of the principle I’m sharing with you, then your objective as the senior executive in your company is to get yourself out from within the business as fast as possible. You want to own the business. You want to work on the business. You don’t want to work in the business. That’s the objective. People say to me, “I like doing what I do and so on.” I said, “I’m not telling you can’t do what you do. Do whatever you want to do. The point is if you’re the owner and you know what drives value, you can do whatever you want to do.”
The excuse for not doing the work is, “I like what I do.” I promise you, you can love what you’re doing, the creative aspect of it, the interaction with people, the privacy of it, the precision of it and whatever you want to love, it’s fine. The sooner you can get into that chairman of the board seat, and you can manipulate the chess pieces around on the board instead of being one of the chess pieces that’s going to have to sacrifice or maybe get killed along the way. That’s a terrible analogy. The point is as soon as you can direct the asset instead of being down in the trench doing the work, people discover that they still love what they’re doing, but they love it more. You’re not on the job site hitting nails, you’re working on a multinational level doing huge projects in interesting places. That’s the difference between you, the beginning carpenter, and the guys in the executive suite and they’re like, “You’re missing the point.” Most entrepreneurs keep showing up at the job site with their tool belt, instead of figuring out, “How do I step back and put fertilizer on this thing and grow it, so that I now own this beautiful result that throws the money back at me every day? If I’m working, in my case, if I’m horseback riding, traveling, taking care of my parent with Alzheimer’s, I’m still getting paid.”
I couldn’t possibly agree more. It’s a difficult lesson to accept until you have seen it in action and understand the principles that create that opportunity for you. There’s nothing more gratifying than that. The Activist Capitalist, I don’t want to bridge too far off course here, but that’s the outcrop of that vision is that because of the success I’ve had, I’m a philanthropic orientation, so my tendency is to give money to causes that I care about. The fact that I generated the success I did gave me a lot of opportunities to do that. I’ve been blessed and I appreciate that. I’m grateful for the blessings in my life. What I learned through this whole experience for years in the trenches building my own companies is that I know something a lot of people don’t seem to know. If I could teach them what I know, they could have this experience for themselves. They could be philanthropic givers, they could help impact the world. All of a sudden, I got in my notion that my job is to catalyze the catalyst. I want to get business owners to understand your role is to generate much value that you can have an impact on the world, whether it’s housing the homeless in Haiti, cleaning up the ocean or whatever thing your thing is.
Generating Value For Business: The exit strategy is not about the exit; it’s about the strategy. It reveals what you need to invest your time and money in to generate value in that asset.
We don’t plan these conversations in advance. My stated goal for my life at this point as I look forward to whatever years that I have ahead of me, I’m hoping at least for 30 more years before I’m sitting in a rocking chair with little oatmeal in my beard. I’m hoping to get that at least. My stated goal is to help more companies stay in business for more years making more money, knowing that contrary to what we hear from the Big Media, most businesses are small, business owners feel a commitment to their community. We’ll give money to the church, to the little league, they’ll buy twenty boxes of the Girl Scout cookies, they’ll give their people a raise, they will pay for health insurance, they’ll match a 401(k) if there’s a profit, they’re not greedily sucking it all to themselves.
Contrary to what people say who have never had to make a payroll, these idiots in the media never made a payroll in their life or these career politicians who don’t have any clue how business works. The reality is the business owners I know who do take the lion’s share of the profits if the business is great and they may be much wealthier to they’re employees, but when the economy turns, most small business owners or medium-sized business owners, privately-held companies, their leader will take the first big hit in the company. They’ll take a big pay cut to keep the employees in place and to keep meeting their obligations. People don’t know that. You get rich and you get broke. During the big recession of 2008, in order to not fire any employees, my business partner and I took an 80% pay cut and we both ended up short selling our beautiful homes and moving into rentals. The band was together.
When we came out of recession, we came out strong because we had a strong team and the team was committed to us because we didn’t fire them when they knew there was no work. We kept them going to work at about 30% capacity. Those people stay loyal. That’s what business owners do. Not me exclusively, not Steve exclusively. It’s how people who see stewardship for taking care of the project even if they have to take a hit when conditions change. If your project makes sense, it’s not insane and it’s not stupid.
People are used to hearing me do this, but there are many people that come to with a business idea. I don’t say it in these harsher terms, but I think, “What the hell are you thinking? That’s never going to work.” They go, “I’ve invested so much time, money, effort.” I’m like, “It’s the old Turkish proverb. No matter how far you go down the wrong road, turn back.” You’re exactly right, if we help catalyze the catalyst, help the business owner be more successful because they make the ripples. People will never know Steve Little’s name, who are deeply impacted by the work you’ve done. You’ve gotten paid for the work, but the value you brought to the market was dramatically bigger than the income that you got even with nine-figure exits.
That’s the thing, I fundamentally believe that we cannot solve the problems that plague humanity. Some of which we’ve recently experienced. Philanthropic giving is a good thing to do. To anyone who interpret what I’m saying to say don’t do that, you should do that, but that’s not going to be enough. What has to happen is we have to create businesses that sustainably serve the changes necessary over time. It’s great to build a village in Haiti, but then another storm is going to come, so we need to build a sustainable village in Haiti. You need to expand that because there are more people in Haiti.
They need to know how to make bricks and build buildings that won’t blow over as easily. If we come in and say, “Here’s a building, I’ve got to go back to Virginia.” I’m on the board of a thing called the Unstoppable Foundation. We build schools in Kenya and we’ve had over 40,000 girls who would never have been able to go to school without the program. Here’s what we found. Building the schools was not enough because you could build the school, but people didn’t come because they couldn’t eat and there was no water. We realized that we need to build a school, get the curriculum, desk, teacher and all that, and we need to provide meals for the students. We also need to provide one meal a day for their whole family. We also need to drill a well so there’s water. Now that there’s water, we need to teach people how to plant small garden plots so they can make their own food. We have to bring in medical help to keep them healthy because if you don’t have food, water, medical, you have no bandwidth to learn how to read, write and do arithmetic.
You’re exactly right, that’s the whole sustainability component of what I said. It takes business to do that. It’s a sustainable investment over time. It’s a sustainable contribution to build a sustainable system that sustains life around the world. That’s it. My view is that business is the platform for that. The bottom line is this, if I can improve the value of your business by 50%, 100% or 200%, you have 50%, 100% or 200% more to work with in terms of the impact you’re going to have on the world. If I can do that by having your business conduct impact, then we’re having an impact along the way. That’s why those are such important components of the work we do with our clients is that we want to implant inside the company the things that drive value, that create a value acceleration in the asset that you’re building. That number one is it is more valuable in the end, that’s a true statement, but it’s not about the exit.
Think of it this way. If I’ve built a valuation growth strategy for you, you’re on that strategy, you need investment capital and because your business is more valuable than the next business, you’re going to take lower dilution on that capital infusion. In other words, you have to give up less of your asset to get the money you need to expand your business. Understanding what drives the value of your business helps you all the way through the process every step of the way. You also get visibility into value acceleration potential you may not have followed up because you’re looking at the things that drive value.
This goes right back to what you said about charitable giving is not enough. What we said was, “Teach a person to fish instead of giving them a fish,” is the old shorthand for that. The other thing that you said that’s good is that if you come in and get involved with somebody and helping them to create greater valuations, that’s not happening in a vacuum and it’s not a black box. The executives, founders, whoever is the primary stakeholder in the business, by involvement and by your mentorship, they’re going to learn new tactics and skills they didn’t have, it’s the same reason people take The Unshackled Owner Class is that we’re going, “I know you’re functioning and you’re doing fine, but there’s an even bigger, better way to do it.”
People are always saying to me, “Do I need to pay to go through the class?” I say, “No, you’re in the class.” Our goal is to get you to the finish line, not for me to get another tuition payment for you to get the success. What happens is once they’ve learned the lessons, then they’re going to teach other people that stuff who are never going to know that Aaron Young ever taught a class. It doesn’t matter. It only matters that they got more successful and they helped other people be more successful. You and I will make our money. We’ll live a lovely life without ever having to be Bill Gates.
This is the whole principle of The Richest Man In Babylon. If you accept that as reality, then the fact that I’m helping other people gain more value in the business. I’m perfectly happy with someone buying a big house if they make money to do that. I don’t think there’s anything wrong with that. If they want to invest in technology to clean the oceans, that’s awesome too. Those are the kinds of things you enable. You have the next generation of people who learn from the people who’ve learned from you and learn from the people who’ve learned from the people who learned from you, and you have that keep going. Here’s the thing, because you are the spark, you will be blessed. You don’t have to have to worry about where it’s coming from. It’s coming. There’s so much leverage that you’ve created by sharing this gem that has now been replicated and catalyzed thousands of times that you’ve increased the capacity of an economy. You’ve increased the capacity of a nation, community and the world. If you get to the biggest scale, then we can get ahead.
We’re the currency of last resort for the world. The US dollar needs to be strong. Far and away, it’s the biggest economy. China is 50% smaller than us, as big as they are. The United States, at this point in history, if we make small business owners successful, and small business is 86.3% of our gross domestic product, the companies of 50 employees or less create 86.3% of the GDP. We have to help them be successful and stay in business longer. By the way, if you want to go even a step further into the bureaucracy, the bigger the valuation that you get realized, in other words, not on paper, they get paid that bigger valuation that you helped them create.
At the very least, they have a capital gains issue, so state tax if they’re in the 42 states that have a state tax and then certainly federal capital gains, which is at least 20%. All of that money of that big cash-out goes into the public coffers. That’s what pays for things like bailouts over the COVID-19 generation. That’s what pays for the social services for people who cannot take care of themselves and who need help. That builds the roads and it provides the infrastructure for us to do things. Even at that level of the tax level, which none of us love paying tax very much, but still if you play small, the amount going to the tax rolls is smaller. Play big, even if your percentage is smaller, Warren Buffett versus his secretary, does it matter if she’s paying a higher percentage of her tax? He’s paying a hell of a lot more tax.
We get a kick out of this. I closed a transaction not too long ago. My daughters were visiting at that time, one is in college and one is out of the house. They’re a little older but they are visiting and I opened the envelope with the payment in it. It was a nice number. I mumbled under my breath. I said, “I’ve clipped off another big chunk of your debt.” They both said, “What are you talking about?” I said, “I’m talking about the $23 trillion of debt we’re handing to you. I’m taking a chunk of it off now.”
“What are you talking about? You’re not giving me any money.” “No, I’m giving you $600 a week in unemployment.” That’s me paying that. People don’t understand, and we can sit here because of who is listening, but the bottom 50% of the wage earners, the ones employed pay little to no taxes. They are getting money taken out of their paycheck, but then they get it back at the end of the year. It’s the top 10% who pay almost all of the taxes that run everything. One thing we’ve learned through the COVID-19 pandemic experience is that you shut the economy down and it doesn’t take long for the states who cannot make a deal with the fed and print more money. States are living paycheck-to-paycheck too, like the people living in the state. You cut off the tax revenue from operating businesses, tourism, gas taxes, inventory taxes, all the stuff associated with the business. The state coffers start to dwindle quickly. That’s all driven by business. The more successful the business, the more all the social things can happen. The idea that fiscally-conservative people are detached from the plight of the poor is insanity. It’s hyperbole, spin and complete BS because it’s the fiscally-conservative who are making more money and paying more taxes that are helping fund all the social programs.
This is a conversation I’d like to have with my governor. He’s keeping the autonomy to shut down and he hasn’t gotten a tax break. I still have to write my check.
I’m not huge, but we make a good-sized payroll twice a month, deeply into the six figures. We have to do that over and over again. We’ve never missed a payroll in all these years. We match the 401(k), we pay for college stuff, we provide health insurance, dental, medical and life insurance. We provide all that stuff. By the way, this is not me trying to pat myself on the head. This is me trying to make a point. I have not taken a pay raise since 2002. My salary has stayed flat since 2002. I took a pay cut during the recession but I’ve never taken more. We only get paid at the end of the year percentage of profits that are leftover.
I’m the same way. I haven’t taken a paycheck in years.
Generating Value For Business: Business owners need to understand that their role is to generate so much value such that they can have an impact on the world.
Why take a paycheck? The law says I’m supposed to take a paycheck. We rise and fall. Our lifestyle is all based on how effective am I at bringing revenue in and how efficient am I with that revenue? There’s discretionary cash left over after taxes. At the end of the day, there’s money left. If I do a good job with that, then the youngs can do something more. Otherwise, we’re making a paycheck.
It’s interesting how that lines up with the principles that I’m sharing is that’s the operational truth. That’s the operational value of money in an operating business. That’s how you get paid and that’s how the business continues to self-capitalize and so forth. Underneath that is the growing asset value of the thing you’re building. That’s where the high leverage return is. It’s not necessarily to give you a windfall. It’s there to provide forward leverage. Imagine this, one of the data points that we have in our data is that there’s an optimum window of time for an early-stage company to position themselves for acquisition, the founder-based company. It’s not that it’s not going to grow long-term, it’s that the founder’s effectiveness as a founder begins to diminish after this window of time. The smart move is get it ready, sell it early, keep 15% or 20% of it in your equity pool and move on and do it again.
Take note of what Steve said. It’s important. It’s the last chapter of my book, it’s knowing when to replace yourself because the skillset that makes you a great entrepreneurial brain, seeing an unserved need, figuring out a way to make it happen, being that alchemist who spins gold out of straw, that thing. You probably are brilliant at that but you suck at managing stuff. They’re two different skillsets and the likelihood of staying in any significant management role and continuing to scale is the Law of Diminishing Return. It’s the Peter Principle elevated to the point of your incompetence. Get in, do your magic and then put real managers in place, go on and do it again.
It’s more sensible. I have a presentation I give to entrepreneurial groups and I have two lines on there. One of them is the way things used to be and it’s a line that runs along the X axis and the chart has a little hiccup, a little bump in the end about twelve years out. What this is, it’s the probability of a successful exit over time. There’s another line on that chart that starts at zero and it goes way up high and then drops way back down in that window of time to basically 2 to 4 years. It’s a little bit more precise, but basically that’s it. The point is that if I get on the extra trajectory early and sell on that fast growth wave, I will not have taken any dilution and the maximum return on my investment of time and money.
If I get on the other curve and I plod my way through all the things I’m going to have to do for twelve years, when I start to get tired and decide I want to sell my business, I will have taken 10 to 12 years’ worth of dilution. I’m going to get the same money twelve years from now that I could have gotten two years from now. If I get it two years from now, how many more times could I do that? If I was energetic enough to drag my business through this quagmire for twelve years, I could do six businesses and generate six times as much return with simple math. Presumably you’re going to get more efficient and better at it, so it’s probably going to be more than that. The point is that this notion that you’re starting something that you become a slave to for the duration of your professional living breathing life is insanity. You’re not the best person for that job.
I had this experience. I had a small company, I built it up. We sold it for about $127 million to a larger company. They kept me on as the acquisition executive. We bought nine more companies like my company. We glued them all together and they put me in as the GM. The day they did that, I walked into the CEO’s office. It was Al Shugart at Seagate. I said, “Al, this could not be the worst decision.” He said, “I know you don’t want to work anymore. You’ve got all this money.” I said, “That’s not what I’m talking about. I am the last guy you want running a 3,000-person company. I don’t know anything about any of that. I know how to work with five people on a team. That’s what I do better than anybody, but you’ve picked the wrong guy for this job.”
It is true that if we want to have stability, we can build something and keep the plates spinning. You’ll be frustrated at some point because you’re going, “I’ve been around, I know all these people. I’ve learned all these things and yet I’m still hanging in here $300,000 a year languishing.” You see other people that move on but it’s because they’re willing to release the reins, empower somebody else to do the work that’s better than them because what happens is a lot of people feel their value is in knowing the answers to everything. They want the line of people at their door saying, “Do you have one minute?” They love that, “Look at how many questions I answered. Look at how brilliant I am.” I promise you, readers, Steve I bet will echo this promise, it’s better to go for a long time with nobody asking you a question. It’s better when you can go days and not talk to the office and know everything’s okay.
For all the reasons you’re describing, it’s absolutely true but also remember this, your security is not determined by that machine. If you put yourself in a position where you’re no longer accountable for doing that thing every day, there are only many rounds of golf you’re going to be able to play. You’re going to go out. You’d have an entrepreneurial mind. You’ve started a business. The business has grown. It’s producing enough profitability and revenue to pay your way. What are you going to do? You’re going to sit on your thumbs, start something else, invest in real estate, learn how to be a day trader and do something that starts to multiply the value of that asset. That’s what you’re going to spend your day doing. You’re focused on the business and on the assets in your life, not in the assets in the business.
That’s a great place to end. I want to add this one little thing. I try to explain to people that in the beginning, you’re trying to figure out, “How do I make enough money to live? How do I make a little more money to improve my life a little bit?” For almost all of us, I won’t say everyone, but most of us will get to a place where we go, “I’m comfortable. I like where I am.” It becomes a matter of taking your time back and you want your time because having money but no ability to go out and sell direct doing what you want to do, not what you need to do becomes a drag.
If you can believe and have enough confidence that assuming the project you’re on has a snowball’s chance in hell of surviving. If there’s some belief that it’s going to work, then be willing at the beginning to work on the process, to listen to mentors, to begin to empower other people, “I’m afraid they’re going to steal it from me. If I tell them what I’m doing, they’re going to steal it.” They’re not going to steal it. If they understood what you know, they would have done it themselves. They’re great at marketing, sales, accounting or technology but they don’t see the vision that you see.
Don’t be afraid. Empower people. Surround yourself with people smarter than you and then figure out how to quickly extricate yourself from the equation by building a great culture, a great team based on a great outcome that you’re all working toward. Get them together and then you become dramatically less important in the day-to-day. I promise you, you have 1 or 2 successes and the whole world will come to you and want a little piece of your magic. Steve, how can people learn more about Zero Limits and the Activist Capitalist?
The easiest thing is to go to the website, which is ZeroLimitsVentures.com. There’s a special page I have set up for people who want to get to the meat of it. It’s ZeroLimitsVentures.com/access. There’s a way in there to download a free report. There’s a video there that speaks to the whole evaluation growth principles that I share with people. There’s a way to schedule an hour with me on the phone.
Do you have any parting words? I’m going to lead you on this one a little bit because I don’t normally do this but I’m going to ask you this. As we come out of this thing and the world is somewhat different than it was pre-COVID, like it was different before 9/11, like it was before the internet. Some things remain but things change. Some things are going to be the same and some are going to be different. What counsel would you give to people as they come out of this so they can come out of it powerfully rather than in a fire sale?
It’s the reason I launched a program that I’m running every Wednesday now. It’s free. I spend an hour online with as many people who want to show up. It’s called the 24 New Fundamentals of Resilience to Recovery and Value Growth. The point is this is a great time. During this period of uncertainty and all the noise, racket and turmoil and whatever, take this time to focus on the fundamentals, get deep on the fundamentals. Put in place the value-driving essentials for your business. There are eighteen core value drivers, there are six non-core value drivers. Get focused on them, get them buttoned-down, locked in. One of them, by the way, is the work that your team does. That’s why we recommend all of our clients go to your team for the compliance work because that’s fundamental.
This is a great time to get that taken care of. What’s going to happen here is this thing is going to go. I’m not a prognosticator. My personal belief is we’ve got somewhere between $4 trillion and $6 trillion extra dollars floating around out there now. When it starts to turn, it’s going to turn hot and fast. You want to make sure you’ve got things in place that allow you to capitalize on the growth potential. It’s the value growth potential that exists in your business. My best advice to people is don’t panic and don’t freeze. That’s the number one thing, they say fear stops you. I don’t think fear stops you. Fear makes you make stupid decisions. Uncertainty stops you and there have been plenty of uncertainty. The way to break through uncertainty is to look. You study what’s happening in my business, “Where am I exposed? Where can I shore things up a little bit? Where can I improve my fundamentals?” When it turns loose, in my opinion sometime in Q3 and Q4, you’re going to want to be in a position to capture the acceleration potential that’s existed for you. Now is a good time for that.
I didn’t want to interrupt, but you used the word that was in my mind the whole time you were talking, which is there’s a tremendous sense of potential energy. The spring has been wound uptight. It’s waiting for a chance to pop. I’ll tell you, if you open the restaurants, they’re going to fill up. If you open a barbershop, it’s going to fill up. If you open up Disneyland, it’s going to fill up. The money didn’t disappear. They just stopped everybody from spending.
There was a lot pent up to begin with. You and I spoke about this before COVID. There’s so much parked on the sidelines anyway and now we’ve parked $6 trillion more out there. This thing is going to be unmanageable in its growth potential.
If you do the nitty-gritty, go back. Do you know the story of The Arkansas Traveler? The guy comes walking by the little cabin and the old man sitting on the front porch and it’s pouring rain. There’s all this water spilling into the house. The guy walking by says, “Old Tyler, why don’t you get up there and fix the roof?” He says, “I can’t fix it in the rain.” “Why don’t you fix it when it’s not raining?” He goes, “It doesn’t leak.” When you’re okay, you don’t fix stuff that you know needs to be fixed, but it’s not in your face at the moment. When you’re in a terrible moment, you don’t have any bandwidth to fix the problem. That’s a cautionary tale of the ignorant behavior. This is your time to patch the roof, patch the holes, make sure your foundation is solid and get a game plan. That is so you come out on the front of the wave and the wave pushes you instead of driving you into the rocks. Steve, what a pleasure to have you here. Go over to ZeroLimitsVentures.com/access and get your report and watch the video.
Generating Value For Business: Understanding what drives the value of your business helps you all the way through the process every step of the way.
See if Steve is somebody that you could use his help because if you want to begin with a big end in mind, Steve Little is an expert at helping you achieve that. He studied math, that’s what happens when you go to one-year junior college. You’ve got to defer all the engineering math to somebody who got their degree. The opportunities are coming and they’re huge. Don’t be doom and gloom. Every time there’s a big shift in the status quo, there’s going to be a tremendous amount of people that lose and there’s going to be a group of people who have tremendous wealth. Everybody says, “The stock market crashed down low.” I said, “You’re not thinking. For everybody that sold off at the low price, somebody bought those shares.”
That’s a great close there. Now is not the time for doom and gloom. Now is the time for optimistic forward-looking. If you’re a business owner, you’ve built something that has value. Make the investments necessary to shore it up. Make sure you’re in a good position to take advantage of the growth that’s going to happen. It will not be any other way. What’s the old saying? There are more billionaires created during times of economic depression than at any other time. This is your opportunity, so take it.
Our guest has been Steve Little, fabulous guy. You can go out and get to his website. We want you to be able to build businesses that are real businesses, not just glorified jobs. We want you to create assets. You will find a whole fabulous, beautiful, bright, shiny life you didn’t even know existed by changing a few things in the way you handle your business and how you perceive yourself in that business. Until next time, that’s it for us. Go out, make it a great day.
Important Links:
- Zero Limit Ventures
- Activist Capitalist
- Amilya Antonetti – previous episode
- Unstoppable Foundation
- The Unshackled Owner Class
- The Richest Man In Babylon
- ZeroLimitsVentures.com/access
- 24 New Fundamentals of Resilience to Recovery and Value Growth
About Steve Little
Steve Little is an acclaimed serial entrepreneur, investor, philanthropist, and mergers and acquisitions expert well known for generating accelerated value growth and extraordinarily high acquisition value multiples for his companies and clients.
