Most business owners assume an exit is a single transaction. In reality, successful exits require years of intentional planning across leadership, growth, and personal identity. In this week's episode, Bill sits down with Tim Martinez, President and Founder of The Inside Man, to unpack what truly drives valuation, and why most businesses never make it to a successful sale.

Tim works closely with lower middle-market, family-owned, and founder-led businesses navigating growth plateaus, leadership bottlenecks, and exit readiness. Together, they explore why growth and marketing are often the most overlooked levers in valuation, how customer concentration and owner dependency quietly kill deals, and why storytelling—not just financials—determines what buyers are willing to pay.

Bill: Thank you for joining the Missing Half podcast where we're discovering what's missing in private equity, M&A, and all things business. I'm joined by a very special guest today, Tim Martinez, who is the president and founder of The Inside Man, an M&A advisor and partner, and also wears a ton of other hats. Tim, thank you for joining us today.

Tim: Pleasure to be here. Thanks for having me.

Bill: Tim, I want to dive right into the space you occupy, where you're participating in the market and the work you do every day and the types of companies you spend your time with, if you would please.

Tim: Yeah, sure. So I work with the lower middle market, depending on who you're talking to. That can mean a lot of things, but we'll say 25 million to 250 million somewhere in that ballpark. Obviously sometimes we go much lower and sometimes we go much higher, but generally in that universe. Owner operators, a lot of them, a lot of family owned businesses. Let's say they've been in operations for 20 plus years, pretty common. And they're usually having some friction in the intersection of growth and operations and leadership development and exit planning. Somewhere in there is where my phone starts to ring.

Bill: Tim, I love how you defined what middle market was and lower middle market because I often have the same conversations and during the conversation then I come to understand that my definition may be wildly different than other folks’ definition of the middle market and lower middle market, but that's great. And so you're participating a lot with family owned businesses and longer standing businesses. What are some characteristics you see that are common or maybe missing in some of those businesses as they're looking at either a growth lever or an exit lever or some type of decision that they're facing?

Tim: Yeah, inertia is one of the big things. So when you've had someone at the helm of the ship for a long time, they end up getting comfortable at a certain level. And a lot of times their staff, especially their senior staff has been with them for a very long period of time. And it's easier for inertia to build up when you've had, you know, let's say three or four people sitting at the top, they've all been working together for 15, 20 years and not a whole lot is going to change. So they start to kind of hit this peak and potentially decline. And if they're not bringing in new blood, new ideas, new talent, they're not investing in themselves, then you start having stalled growth and that might be okay for a while, especially if they're at a certain level and everybody's getting paid and you don't have enough customers kind of coming, but you're not hitting that next wave of exponential growth. There's something called the business growth cycle and it's about every five to seven years a business has some kind of peak. So when you get people that have been working together for 20 years or so they've gone through about two of those peaks, two to three of those peaks. And sometimes they just don't have enough gas in the tank. They may not have the creative ideas to go further. They feel like they've worked so hard to get to this point. So why do we want to go any further? And then when someone wants to sell the business, then we start having this conversation of, is it even ready to grow, would someone want this? Are you too central to the business? Could the business operate without you? And we started having all those types of conversations.

Bill: So there's a saying I heard and it was on the internet so it has to be true that most founders and businesses don't run out of cash or growth opportunities. It's just that the founder runs out of energy. And isn't that so true when you look at that five to seven year cycle and maybe they've done it three, four, some folks who've been around for decades have done it a lot. And they're just out, there's nothing left in the tank. Why is it so important for owners and specifically family businesses to try to identify this situation before it occurs? So they still have some gas left in the tank so they can still hit one of those growth episodes before they exit. Maybe talk about that a little.

Tim: Yeah. Well, I always like to say there's not infinite options in a business. There are finite options and with 100% certainty, you will exit your business. It's just how will you exit your business? Will you die at the desk? Will you be intentional about it? Will you file bankruptcy? Will you have an asset sale? Like what is your certainty that's going to happen out of let's say your five options. Right. So you don't have 50 options. You have about five. Right. So which one of those five is the best for you? And honestly, in some cases, I've met a lot of business owners that say, well, I've bought all the real estate, I've funded my 401k, I'm ready to retire, our lease is up in a year or two, we're just gonna let it die and then we're gonna do an asset sale and we're gonna write off. Awesome. You're intentional about it. It's just the intentionality, it's that missing component of intentionality because as you know, business is nothing more than problem management all day long. You're just dealing with a series of problems. And one of the biggest problems is the loss of revenue. And if you have heavy customer concentration and a customer leaves or vendor concentration, and now your product pricing goes up because of whatever reason, you're upside down. And that, as you were saying, that energy, it takes a lot of emotional energy to get right side up. An employee lawsuit, a customer lawsuit, any of these things, it just takes the wind out of your sails. You're 20, you're 30, you're 40, 50, you get to the 70s. You're like, how many more cycles do I want to go through? And there's something called risk stacking. So when you stack all the risks against your business, you have more pressure upon your business than you don't. When you wake up in the morning, lawsuits, lawfare, cybersecurity, AI, employees, just go down the list. It's just nothing but risk. And you get to a point where you say, okay, well, where's the balance? When, when am I willing to take more risks? And when am I willing to walk? Some businesses aren't terribly risky. If you have a vacuum repair shop, it's probably not terribly risky. But if you're running, let's say some SaaS tech company with 2000 employees and offices all over, yeah, you're going to have more risks. So what kind of energy do you have to deal with those risks on a daily basis? And how intentional are you about where you're going to end up?

Bill: I love that. And when you think about, when you meet with some of these owners or founders of these family businesses, do you kind of bring to them some type of framework or some type of approach that really helps them categorize this exit philosophy?

Tim: Yeah. So I have what's called the three exit framework and I got there because we would have a lot of exit conversations and everyone assumes that the exit is just a one stop shot. Like you do it one time. It's just one approach. It's always cookie cutter and then you're out. And I believe there's three exits that need to occur before you're lying on a beach. The first one is the emotional identity exit. So you need to exit your business from just an emotional standpoint. And that's where you have this existential, who am I if I'm not the CEO? What am I going to do with my time? Right. You kind of got to go from this identity standpoint and really ego and identity keeps people in bad businesses for a long period of time and good businesses, but ego and identity really needs to be handled first. Once we're clear and we've made a decision that we are going to exit and this has to happen, then we can move to the second exit, which is the role exit. So people don't want to buy your job. They want to buy a business that produces a financial result, right? That's what they want. They don't really want your job. Depending, you know, private equity might do it a little different or strategic buyers, what have you, but we have to remove yourself. And this is really where we're building out the bench. And sometimes it's not just removing yourself. It might be removing you and your COO and your, maybe someone's been at the business for 20, 30 years and they also want to go when you go. So really have to look at layers two and layers three of succession. That's very important. So having a strong leadership bench is just going to help your valuation. Then the final exit is the final exit. This is where we get your valuation. We do comps. We figure out what we're willing to do from an earn it earn out standpoint, where we're willing to negotiate where we don't want to bend. We have to go through all that, shop the deal and negotiate and then then we're out. That last piece is what people think about when they think about an exit, but they don't consider the other two parts.

Bill: So I have exited a couple of businesses and as a younger man, I probably didn't take the time to really reflect and understand. But as you characterize that three exit framework, it's so true that that occurs, right? You have to emotionally get over it. You have to like separate yourself. And then I've been involved in two exits where one, we, I think we did a good job of preparing roles and kind of like established units, so we were less involved. And we got paid more for that deal, certainly, than another one where it was a different situation and it just kind of like pop gone. And I don't think we achieved the value we could have, because we didn't have the bench developed as deeply, it wasn't as organized. So there was more risk, so the buyer was willing to pay a little less. So I can see how that absolutely impacts deals.

Tim: Yeah. And I would add to that, that the more certainty you have baked into a deal, the more leverage you have and the more you can charge for it and building out your bench and making sure you don't have the customer concentration that I mentioned early and all these little things, you're just stacking the deck in your favor. And that's how multiples go up and up and up. And statistically, 50% of business owners get forced out of their business because of the five D's: death, divorce, disease, dysfunction, or distance, meaning someone wants to move to where the grandkids are, but their business is located here. So when you say, okay, well, I have a 50/50 chance that I'm going be able to exit on my terms. Right. If I'm running a business today and I get some illness and I just can't, well, now I'm forced to take bottom dollar. So you really got to think like we don't live infinitely and yeah you can have your insurance policies and all that, but you know, business is a living, breathing organism as well. And if you're at the helm of the ship and you're mortal, we have to take that into consideration.

Bill: Whenever you think about those five D's, in a lot of ways, I think when people hear something like that, they think, if you're a mom and pa shop, I guess we can't say that anymore. A small entrepreneurial team shop that is one to five million. And you're the you're the person running the whole thing. That seems to be very relevant and appropriate. But those five D's can have impact with businesses up to 250 million. Right. Because, just because it's that much bigger doesn't mean that that bench is so deep.

Tim: Yeah, 100%. I mean, I have a scenario right now where a CFO has been in the seat for, let's say 30 years and they just don't want to leave. They don't want to leave. They want to stay, but they're not in the greatest health and everyone knows it. They don't know what they're going to do if they don't work. But so then you have this individual and because they don't want to leave, they really don't want to develop anyone underneath them. Because they know the second they create and the whole point of leadership is to create someone that's better than you could have ever been. That to me is the marker of good leadership is like you're better than me. So it requires some humility, but this individual doesn't want to leave. So they're not developing underneath them. And therefore the owner of the business is stuck with the CFO who has just stopped growing and it's kind of past their prime. So what do you do? It's like, well, that's called a hard conversation and you have to make, have a hard conversation. You have to make a hard decision. It's not easy. It is what it is, right? Or you just keep your company bound and locked. And that's, that's a choice as well. You get to me, you get to make the choices of business, business owners, just know that it's affecting culture. It's affecting growth. It's affecting all these things, but yeah, business owners, your choice.

Bill: Well and it seems to me that you want to, and I get that this is, you go back to that emotional ego, like bucket. This is not something you can just like snap your fingers and it's all better and you're over it, right? People are wrestling with this, but you want to be the one who makes the decision, not have the decision made for you. And if you're not dealing with, the five D's are coming, right? Like you said, there's a finite list of opportunities for your future, for each of us. And you want to be in the driver's seat. What do you tell owners, and this is complete morbid curiosity, completely off of what we talked about in the pre-show. I'm getting maybe some free counseling here. What do you tell the owner who has no interest in going to the beach? Like as they're preparing for that exit, how do you coach or counsel them to like really pursue other passions that are work, but maybe not the same work?

Tim: Okay, so let's just take a step back on this one. About 25% of businesses that get listed sell. So if you, one in four businesses sell on average. And there's a wide array of reasons why they happen. But I'll tell you, misaligned expectations is the number one reason why the 75% don't sell. So even if someone wants or is wrestling with, I don't know if I'm gonna, you know, wanna be on the beach or what I'm gonna do, it's like you have such a slim chance of actually selling your business. Let's just deal with that first and foremost, right? Cause that's, that's a major hurdle. So what happens if you don't sell your business? Like what literally what happens and how long do you run that thing? People have to develop themselves as humans. It's not my position to tell them that, you know, you spend more time with your grandkids or that wife that you neglected for 30 years or husband, right? Like it's not my position to tell them. I'm just here to say, present reality to you. Consider me life. And sometimes you forget that life actually exists. Well, today, when you're sitting here in front of me, I will pretend that I'm just life. I'm father time in this conversation. Right? So I don't care if you want to go to the beach. If you don't want to go to the beach, that's irrelevant to me. But the one thing I know for a fact is a choice will be made. And it's going to be one of the five D's. It's going be one of the risks that come and take your business. It's going to be some force is going to be pushing upon you. That's trying to take you out. I don't know why it is. It just is. Right? It's just called being a human and being in business. So why don't we design a future where we can kind of get away from those business risks and we can take all the hard work, effort, energy, capital, resource, all that stuff. And we could point it towards something different whenever that time comes. And you, and you have a 25% chance that you're to get there anyways, because you may kill the deal and chances are you will kill the deal.

Bill: So one of the things my dad always taught me is that everything is for sale because if someone comes through the door with the right number, you should take the number. And I've never had a problem personally with that idea because I can think of 10,000 things I would like to do. My bucket list is so big that I need a thousand lifetimes to get through it all. So I don't share in that, oh, what would I do if I sold this tomorrow? Not a problem, let's go. I’ve got other things, but I know that's not true.

Tim: Totally. But that's also entrepreneur brain.

Bill: Yes. Yes.

Tim: Yeah, self-starter, industrious, gonna make it happen no matter what. Like, that's different than employee brain. And even if you're the owner of the business, you could also have employee brain if you've just been stuck in it doing the same thing day in day out for too long.

Bill: Let's talk about that irrational expectation that kills so many deals. If you were going to pick one or two things that you think is missing from owners' ideas of the valuation, where do they get stuck?

Tim: Uh, sure. Well, they don't really understand often that there's these comparables in the market and that's how we arrive at these valuations. I mean, there's a lot of ways you can do evaluation. There really are. And there's a lot of ways you can structure a deal, but your average business owner isn't that sophisticated when it comes down to it. They may think their business is worth 10 X and you think it's three, right? You can have a CPA that goes for one X and he's like, I've been doing this for 30 years. And you're like, that's what it goes for. One X. So they go, well, it's not even worth me selling it. You go, great. Then don't sell. Cause you had a 25% chance that you would sell anyways. So it's like, well, and then it comes like, okay, well, what can we do to get it to a two X or a three X? Okay. Well, now we, if you have a couple of years, if you have a little time, then we can maybe build in some technology or open up a new side of our business or hire some aggressive talent or–these are some things we can do here to get your value up. But I would say the first thing, the misaligned expectations is just really understand how businesses are valued. That would be the first. And then the second misaligned expectation is very rarely you are going to get one check with your name on it and someone says, see you later. Most likely is not going to be the case. They're going to want you involved in the business for two to three years. This means you have a new boss. And why do you want a boss? You've been your own boss for 30 years or 20 or 10 or whatever, but now you have to answer to someone. You have to hit certain hurdles and benchmarks. If you want the full, you know, clip a lot of things that you weren't really prepared for. And now you say, well, it's probably not worth my time to sell. It's I don't need it. I was making more money on my own. I'll just write it out. And there you have it.

Bill: Whenever you think about that owner who has a business that's let's say 1x, 2x, and they think it's four or five, and you think about helping them find a path to possibly achieve more, is growth and marketing something that was missing in their execution? Is that usually the lever you're looking to pull or is it more on a cost cutting optimization lever? And I mean I know this is broad generalizations and each one is unique but what is more common: operational efficiency deficiency or a growth marketing mindset deficiency?

Tim: It's growth deficiency. Growth and marketing. Because we can always optimize systems. And after a certain point, you can only optimize systems so far, except for my Six Sigma people out there. They're like, no, what are you talking about? It's art, you know, God bless you. But for the most part, you know, you can have some SOPs, people can get into a rhythm, cost cutting. I'm sure you've done it a million times. You always get to a point. You're like, there's nothing left that I can cut. But when we talk about growth, growth can mean a lot of things. It can mean new markets, new products, new pricing models. It's big. So I think that's one of those where we've always sold it this way. We've been selling it this way for 10 years. This has been our price for 10 years. And you're really not paying attention what's happening in the market. We see this right now in professional services. Professional service businesses, white collars, if ever there was a time to review your business model and optimize what your deliverables are and your speed to deliverable and your retainers and whatever you're charging, it's now because it is all going away. It's all going away. So you can, we always say, it's always 5,000. It'll always be 5,000. It's been 5,000 since the Roman Empire. You could put it on my gravestone. I don't know why. How much does it cost to get a publicist? Oh, it’s $5,000. How much does it hire an agency? Oh, it's $5,000. It's just always like, it's just weird nebulous $5,000 number. So, and that's been that number for 20 years. Right and we're at a point where you're like, well, I could just go into AI and voila. I don't need to pay someone to write a press release anymore and to do all these things or I can upload my PNL and I can get a full analysis in here and it just kind of goes and goes and goes and goes. So the revenue side is so important, but I'll tell you why it's the most important in an exit conversation because an exit is all about storytelling. So you need to tell a growth story. And your growth story could say something like, well, we invested in a new CRM that now connects to our marketing tech and we have this whole engine going. We have all this automation, this thing's humming. And then all we're really doing is setting up sales reps overseas because they're low cost and we're getting these new markets. And it could sound that way, or you could say, well, we've just been doing it this way forever and we think that's gonna continue for the next couple of years.

Bill: We see that consistently and especially whenever. So two sides of that coin. Sometimes we deal with manufacturers, industrial companies that whether they're communicating to us that are looking for an exit or not, they're looking for that growth lever to be pulled and it to become a core competency. And they need it because they've had that old school view for so long that they are in decline. You know, they're probably being saved top line by inflation and their ability to raise prices. So, wow, we've been hitting two and three every year. Great. You're only losing ground. So we see that. On the flip side, we'll see a lot of private equity that are buying businesses, some that are just add ons and maybe not core that they have to then reimagine the growth function to really extract their level value, right? Because they're not going to buy it and keep it the same. They feel that there's upside. So they're looking for us to take that and really develop that upside and really extend that growth. So we see that growth lever and not just because that space we work in, just operationally, I think there's tremendous opportunities for improvements. And we've been doing all have been doing that since the beginning of time. AI is going to also accelerate that function where we're going to be able to wipe out massive cost centers in every business. But growth will always, I think, continue to be a challenge for these businesses. And whether they identify it as something they can tackle quickly themselves, or they need outside support, that's the question that they're going to wrestle with as they try and figure it out.

Tim: Well, you know what surprises me is like, there's an endless amount of brilliant, smart individuals like yourself and myself. I'll put us in that category.

Bill: Thank you.

Tim: There's an endless supply of them that if you just hire them and get out of their way. They'll improve your business for the most part. They're in business to improve your business. And there's always this weird hesitation to hire an expert and to listen to them, especially when you're after, when you're at a certain level and you have enough millions of dollars and you can make reinvestments and get it. You don't have to spend millions of dollars. You can spend a hundred thousand dollars and get pretty dang far, but there's always this hesitation to bring in an expert. I don't know why. Maybe it's we’re injured Fonz or we've been burned too many times or, you know, but I say, listen, go find an expert, hire them, let them do what they do and get out of their way. Let them improve your business and then go do it again and again and again and again. And then you'll get further than you are right now on your own. It's that whole pie of the unknown unknowns where if you say what you know you know is a tiny, tiny sliver. What you know what you don't know is a little sliver and then you have this massive universal where you don't know you don't even know. That's where you make major gains is you're bringing these experts that open up and unlock those. I didn't even know. I didn't even know I could go into this market or I could do it this way or I could charge this thing or I could use this tech or or or. So my advice would be hire experts.

Bill: I think we're seeing a resurgence of, if I can kind of categorize this like more seasoned where seasoned professionals who have tons of experience are becoming valuable again. There was a period, especially in the digital revolution, the information revolution, where we, the younger folks who were new out of college, who understood technology really quickly, were outpacing their more seasoned colleagues. But now, strategy and perspective are at a premium because every day there's a new thing to click on. Every day there's a new AI, there's a new version, there's a new something. And while those things are important and we need to adopt them, having the experience and knowledge and I would say the other word would be exposure. Having been exposed to a lot of these things to see how they work together is coming back as a premium value for experts. Because we're getting hired more and more every day for strategy than we are to click on Facebook quickly. Right. I mean, anybody can click on Facebook, anybody with a mouse and computer screens, whether they're doing a good job, whether that's the right approach, whether we're positioning it correctly. Those are different conversations. But when we look at B2B and whether it's for private equity, whether it's for the companies themselves that are family, closely held, they need strategic insights. And I think you're right, we're seeing an opportunity for folks like yourself and I to have an outsized impact where for maybe a number of years, there was less value placed on experience and more on speed of technology.

Tim: Yeah, I would, I would fully agree with that as a long time management consultant. I would agree with that. I don't, I don't know who coined the term knowledge workers, maybe Peter Drucker or someone way back in the thirties or something like that. But I, uh, I wrote a blog about a year ago where I fired myself from knowledge work and I, built my Tim GPT on ChatGPT and I built it because I said, well, I want to be out of the knowledge game. I want to be in the wisdom game. You know, King Solomon prayed for wisdom. God said, I'll you anything you want. He said, give me wisdom. So I was like, great. Let me be a wise human and let me help my clients make wise choices. Not, they don't need more knowledge. It goes back to my belief in minimalism and reduction and less, where, you know, the best things in life are free and simplicity is the ultimate sophistication. You could go to ChatGPT and Google for more. You come to me for less. So I'm not going to give you a whole bunch. I'm going to give you the few things that I believe because of all my studies and my bookshelf and all the, you know, all my stories and travels and all these businesses I've learned. And I'll just shoot you straight and we'll try to keep it uncomplicated and relatively simple. You're going to die. So if you have a chance to sell your business, sell it, right? It's like.

Bill: That's great. You're going to die. I imagine Tim at dinner parties, you are a hoot because like, hi, I'm Tim. You're going to die. Let's get, where do we go from here? Right.

Tim: We always say if you can sell, you should sell. If you can, you should.

Bill: Yes, I love it. So I think you're spot on and AI is going to make it worse because the more questions I ask AI, the more information it gives me. And so our agency is 50 Marketing. That was our founding brand. And the concept there was in, and I think it was 1896, John Wanamaker said half or 50% of my advertising is wasted. I just wish I knew which half, right? And if you look at that, like that philosophy every day with now I guess ChatGPT is now going to offer ads. There's one more thing, one more thing to put put on the list. I was at a conference and I was at a roundtable and they were asking me questions and they said, do you ever think, you know, AI is going to offer ads? I was like, well, they got to pay the bills somehow. Like they're not going to just keep going to the street for money and lose $125 million a day forever. At some point in time, someone's going to say, hey, the bill is due. But when we think about, I feel like our job in this, and I love the word wisdom and I've heard that used before, is there are finite resources of both time and money the companies have. And we have to pick the best available path to give them guidance to go from point A to point B, whatever those are, whether they're selling, whether they're trying to grow, whatever it is. And AI in the current versions that I, maybe I've downloaded the wrong versions, maybe I'm using not the pro version, and that's what will change all this, just gives you more, more to do, more to read, more to review, more to consider. Oh man, it's a grind. It is a grind.

Tim: It doesn't feel helpful sometimes. Sometimes it's a grind. Yeah. Well, well, you know, I'll tell you this as a long time advisor, the toolbox is deep. So there's feasibility studies, financial models, market research, business plans, decks. You put it together. There's really nothing from a documentation standpoint that is heavy lifting that we haven't done over the years. And sometimes it needs to be done. Someone has to go in, do the due diligence, tear apart the books, and AI is very helpful to expedite a lot of that. And it has made us advisors 100% more effective because what might have taken me eight weeks is now taking me a day. And that's real. That is real. But that just means that I can spend more of my time really asking those bigger questions versus when previously all of my time was spent grammar and spell and editing and moving images around and making another PowerPoint, you know, like I could just offload that now. Also, I was in a meeting like a year ago with a CEO and he had an assistant sitting there taking notes of our meeting. And I was like, oh my gosh, I haven't seen that since like, when was this like the nineties? Like I haven't seen this in so long, an assistant sitting there and like taking notes, right? Just put your phone on and just hit record and voila. Right. So a lot of those little things is helping us move a lot faster. And I think that's bring us up. So when I get in front of a client, I feel fresh. I can, like, you know, I could really just pour into them. And like to your point earlier, it's like, I can go have lunch with them. I can go have a coffee, I can just go hang out, I can go play golf and not have to worry about it. I can do all these relational things that AI won't do, because I'm not stuck in the office, you know, working on financial models for weeks on end.

Bill: I also think we're going to see better consulting based on more voice of customer research. In the past, we, I feel in this knowledge space, have been limited by our clients' budgets in how much we can really dive into their problems. We often have to take them at face value. What are the top five problems you're solving for your customers? Hold on a second. Here you go, like, and they show you what they think it is. Whereas now we can say, because we can move these other things so much more quickly and invest less in them, we want to invest more in actually understanding your clients, their problems, how you're solving them and doing that type of research as opposed to accepting at face value what the seasoned executives and the superstars that the organization tell us is, you know, that internal lore. I think since you mentioned Drucker, Drucker said the lies of yesterday become the truths today that we base the future of the business on because we keep telling ourselves them over and over and over again, right? It has to be true because someone else said it, right?

Bill: So Tim, we have gone so far off of our pre-show script. It is awesome, but this has been a fantastic conversation. Let's come back around to companies really as they're approaching their exit. What do you feel… so you mentioned earlier the story is so important. You have to be able to tell the story. What do you feel are the most common missing elements to companies' stories that are really reducing the value they're seeing at exit? Is it brand? Is it the financials? Is it the management structure and maybe like seats and role? Like, where do you see it?

Tim: So I'll just give you a practical example. I'm always looking to buy businesses. So if I'm looking to buy a business, I will just ask for their three years of P&L right off the bat. Send me, right after my NDA is signed, I take a look and then I have all these questions, right? I'm going to look at the revenue because this is me. I don't want to take as much of a–I don't want to take a risk. Why do I want to take, I’m too far along in my career to really take a risk? You know, I I'm investing in growth. So I need them to explain to me how this thing continues on once I own it and I help them get out. I also need them to tell me that how this thing goes on without them and without me. I don't want to work in the business. That's not why I'm buying a business. I'm okay to hover a little bit and do my thing or to place in one of my people or to build up one of their people. But what's going on in this human aspect. So just, just explain to me in very simple layman's terms. Like can a 10 year old, a five year old, would they get it if you were to tell them that story? What's happening in your industry? How is AI going to grow it or shrink it? And how do I get to participate in that upside? And then when we talk about earnouts, it's like, do I have to give all your money up front? Is that a deal breaker? If you can make it easier on me, I can make it easier on you. If we could come some negotiation, I'll make sure that you get the better end of the deal because time is important to me and leverage on my dollars is important. So that's what I'm thinking about when I'm looking at businesses to buy. And then when I help my clients, I just think of it practically as if I were to buy that business or if I were to sell the business. Now I own a business right now and if someone were to buy it from me, I would think, okay, I want the highest price. I want to get out as fast as possible. Right. But then I have to put the other hat on and say, okay, well, obviously we have to negotiate. I need to make them feel very warm and fuzzy. That this business will continue on in my absence and that the market and the industry is going to continue to grow. That we have good, you know, we don't have any customer concentration. We always say the rule of 30, which is a 30% EBITDA margins is like a dream. So if we're in that 20 to 30% doing really good. 30% year over year growth, that's a dream. But if we're like 20%, that's pretty dang good. Obviously the bigger the business things can flex, but that's pretty good. So customer concentration. We don't ever want to see one customer more than 30%. That's a big number, right? You lose one customer, you lose 30% of your revenue. So I just use that law of 30 as kind of like a benchmark and then try to work my way up or down in that. So if I'm buying a business or if I'm selling a business or I'm consulting on someone doing the same, I just look at these, what would the average practical human want? And then we can get into different things like, well, private equity is willing to pay a little more because of X. They have these windows or a strategic is willing to pay a little more because you know, you have these synergies that are going to compound. Then we get there. But first I start very practically. It's like, show me the P&L, show me how this thing continues on in your absence. Show me how this thing just continues to trend up.

Bill: Love it. Whenever you're thinking about taking one of these businesses and evaluating the difference between a strategic or financial buyer, is that just what the market presents? Or do you really feel you can identify characteristics in a business that you can really target one or the other? To sell to.

Tim: Yeah, that may come down just to the final negotiation. You know, private equity doesn't have a good name. For a lot of reasons, people look at private equity and think, oh look at what they do, it’s soulless. You know, it kind of goes down that road. Private equity largely has the backing that you need to go for that second bite of the apple. So if you say I'll sell 50% of my business, 51% and my business plus five other businesses that are all going to get rolled into one is going to make this outsized gain. And then we're going to get a second bite. That's going to be even bigger than I would have done it on my own. And I have enough gas in the tank and enough energy and I'm willing to let it rip. Godspeed, have at it. You're going to do something very big. And I've met people that have done something very big in that world. You probably have too. The strategic says, it's kumbaya. It's warm and fuzzy. I know your industry, I know your customers. I probably know a lot of your employees. We've been in the same business for a long time. I'm not going to do anything radical. I might lay off a few people here and there, but for the most part, like I'm going to ensure your legacy continues. It's all that warm and fuzzy language. And sometimes business owners want that. It just really kind of comes down to who you have behind the seat and how big of a game you want to play.

Bill: That's great perspective. Whenever you're thinking about having this conversation about exits, what are some of the mistakes you see being made that are the hardest to unwind in the exit process?

Tim: Identity. I would say being too central to the business is very hard to unwind and also being potentially too central in the negotiation process. You got to be careful on who you talk to and when you talk to them and what information you're sharing because you can screw the whole thing up if you start talking to these competitors or you know you tell someone that they're going to have the business and then a better offer comes around. You can run your name through the mud. You have a lot of reputational risks that could happen during that time. So, I mean, this is like the negotiation side of it, but being too central to the business off the bat is, a big check in the wrong box. And then also, again, I can't say it enough, but customer concentration. If you have 40% of your business is coming from one customer, that's bad. If you have a real toxic culture, a real bad environment. Like just because you have good revenue, you have a really bad culture, you could pick a bad market and not have evolved. So you can't really unwind those things so quickly when it comes down to it.

Bill: Yeah, because if you lose a customer that has 30% of your business, then your other 30% roles are going to evaporate because you're not going to grow. You're going to try and replace them. Your EBITDA is going to evaporate. So it's just, it's all bad. And Tim, I've also seen this culture issue where we've worked with some companies who have a great product or service, deliver great outcomes and have a terrible culture. And I wouldn't want to buy that business if it was making me all the money in the world, because it would just be miserable to deal with. And those are hard to unwind because even if you start hiring other people into that business and try and change culture, that's going to take a long time. And that becomes very, very difficult.

Tim: Well, we've probably both seen neurotic business owners. I don't know why that's a category and why that's the type, but neurotic business owners, come on. It's like, do you want to buy their business and then work side by side with them for two years during an earn out? You’ll kill yourself. Why would you do that? And they don't know they're neurotic or narcissists.

Bill: No, they're normal, we're the weird ones.

Tim: Yeah, exactly. Exactly. And then they're going to do something weird somewhere along it will happen. You know, so that's why that's why most people just walk and they say, I'll go find another business.

Bill: Sure, because there's a lot out there. And as you've said, as the numbers prove, 75% of them don't sell. So there's a lot of opportunity out there to pick and choose among some of these others.

Tim: And yeah, I mean, I grew up in the mean streets of LA and like the rule is just be cool. Just be cool. Most things will go your way if you're just cool. You know, just be cool. Just keep it mellow. Be a nice person. That's good.

Bill: I think that's gonna be our thumbnail for this episode. Just be cool.

Tim: Just be cool. Just keep, yeah, just calm down. Just you know.

Bill: Well Tim, I want to give you the opportunity. We're all about shameless plugs. I want you to plug you, your business, everything you've got going on here. This will also be included in all the show notes, all of the footers and the places they post these things. But go ahead and just kind of give us your elevator explanation and share with us about your company.

Tim: Sure. Yeah, it's called The Inside Man, which an acronym for Tim. My website is theinsideman.biz because I started in 2006, I believe. And that's when dot biz was cool. And I just kept it. You can find me on Substack. That is probably my number one platform where you find my voice. So on a weekly basis, I just write what I'm hearing, what I'm thinking, thoughts I've had, every week. So if you hear something, because I was having that conversation with the client most likely, or it was keeping me up in the middle of the night. Usually very short one minute reads. I intentionally do that. Or you can find me on LinkedIn. Love to connect with people. Just tell me which podcasts, you know, and drop me a line so I know you're not a bot. And I'm always happy to connect with you.

Bill: Love it. So Tim, this has been a fantastic conversation. I've really enjoyed getting your perspective and some of the wisdom that you can share from your experiences. And I feel like if we use the thumbnail be cool, everybody in my universe, including my wife and children, will start to throw that back in my face on a consistent. Dad, be cool. Just be cool, dad.

Tim: Just be cool. Just be cool. Well, maybe I … you’re welcome. Maybe I did you a favor there.

Bill: Yeah, so just so you know, when you start getting Christmas cards and birthday cards from my family, it'll be because they I have turned over a new leaf and I am now a low key cool guy.

Tim: I love it. I love it.

Bill: Tim, thank you so much for joining us today. We really appreciate it.

Tim: Thanks for having me. It was a blast.

Bill: Thank you for joining the Missing Half podcast where we're discovering what's missing on a lot of cool subjects. Like, share, subscribe. Have a great day.