Key Takeaways
- There are five steps to growing a business: marketing, converting leads to walk-in customers, converting walk-in customers to sales, increasing number and amounts of transactions, and reducing margins.
- To be successful, a business needs a plan, a good management team, and a marketing strategy.
- If you receive an offer for your business, listen and consider it carefully. Don’t become emotionally attached.
- Investors will expect to have input into how a business is run.
Transcript from Interview
Jeff: Welcome to Deal Talk brought to you by Morgan & Westfield, I’m Jeff Allen. If you’re looking to sell your company now or at some point in the future, it’s our mission to provide information and advice from our growing list of trusted experts that you and all small business owners can use to help you build your bottom line and improve your company’s value.
It’s okay to make some mistakes. We’re all human. As business owners, however, it’s best to learn from our mistakes so that we don’t make them again, particularly when those mistakes often result in lost revenue, lost profits, or lost opportunities which can result in lost revenue, lost profits, and other lost opportunities, you see where I’m going with this. Now those are the things that can have a tremendous impact on the value of your business. My guest on this edition of Deal Talk is someone with a tremendous wealth of experience in guiding and selling successful businesses. His name is Robert Ritch and he’s the CEO of Secured Equity Group in Franklin, Tennessee. Robert Ritch, thanks so much for being with us on Deal Talk, it’s good to have you, sir.
Robert: It’s my pleasure.
Jeff: Let’s kind of get an idea about your roots, your background, Robert. You have so much experience to pass along to our Deal Talk listeners. If you have only 30 seconds to summarize your background and everything you’ve accomplished, what would you tell people?
Robert: Basically, that is an interesting question because quite honestly people ask me all the time what do you do. And that’s kind of hard to sum up in a simple sentence. I’m basically a puzzle master. I take little businesses and make them into big businesses and I take unprofitable businesses and make them profitable. Whether that means I buy them, or whether that means I invest in them, either way the process is always the same.
Jeff: What are the first steps that you might advise a business owner to take in order to increase the value of an established business that has seen little or no growth over the last several years? Maybe I’m a guy who’s just bought a business and this business has been stagnant. What would you advise that I do in order to get things running well again in order to build revenue and so forth?
Robert: It really comes down to five basic steps. Every business needs to address these five categories on a regular basis. And regular to me is at least bare minimum quarterly and probably monthly, if not weekly. Early on I think you have to address them weekly. The first is everybody needs leads – we’re more familiar with the word marketing. How do you even let people know you exist? Business is not the movie “The Field of Dreams”. “If you build it they will come.” You could have a cure for cancer but if they don’t know you’re there, they’re not going to buy. Second, you have to figure out how you’re going to get — so they have an ad in front of them, they hear about your company. How do you get that ad to convert them to customers, to get them to come into your store, to get them to call you and ask for your product or service, or go to your website? And then once you get them there, how do you convert that into a sale? And it needs to be a step-by-step process and everybody within the team needs to learn the same process. That will equal your customer base. Then, once you have the customer how many transactions did that person do with you on an annual basis? And then how much is the average sale of that transaction? And you need to address how you get more transactions as well as the average sale, how you get it to the maximum amount. That will equal your gross sales, and then the last step is of course margins. What’s your overhead cost, cost of goods, all the other things that it takes to operate the business that don’t necessarily produce income. Because it’s not, let’s face it, it’s not what we make, it’s what we keep.
Business is not the movie “The Field of Dreams”. “If you build it they will come
Jeff: You successfully built businesses, Robert, for sale or carried them to the next level. We’ve talked about that, touched on it a little bit. When building a business for sale, is it necessary to focus 100 percent on marketing efforts for the purpose of driving revenue first and foremost, or does it really simply depend on the individual business?
Robert: As you well know and just so the audience will know, I’ve built four. Sold them all and they were multi-million dollar businesses when I sold them. And these were businesses I founded and built myself. That’s while I was invested with and helped build multiple others. The biggest thing is you have to have a plan. The old saying that goes, “Fail to plan, plan to fail” is very true. You never build one without having an exit already in mind. That doesn’t necessarily mean that it’s a defined exit. “I’m going to sell it to this company when it gets this size”. It’s, “I want to reach this goal, and then I want to evaluate and then set a new goal”. It’s really not a destination, it’s a journey. But you have to have milestones in that journey. And you have to reach those milestones and then reevaluate: “Do I want to stay? Has my team taken it as far as it can take it? Or is it time to go? Or are a bunch of other players getting into the market that are bigger than us that are going to squash us so we need to sell now?” There’s a million reasons and it’s really hard to in a general discussion talk about every industry because they’re all very unique. But the principle’s the same. You have to have a set goal, “We’re going to reach this amount in this date and time, and then we’re going to reevaluate and figure out where we go from there”.
Jeff: But I think your point is well taken, to have that exit strategy in place, and that the exit plan in place does not have to be fixed, in fact, it shouldn’t necessarily be fixed, you should reevaluate it. It should be living, on-going and organic, and evaluate where you’re at from time to time, maybe once a year or more frequently if necessary depending on your personal needs and where you’re at in your life, what your time horizon looks like so that you can make changes as necessary to that exit plan and you’re able to accommodate those changes rather quickly as long as you know that you have a plan. And any changes that may take place that alters that plan, you’re able to make quick decisions on the fly in order to put that plan into action when necessary.
Robert: Part of that is if you have that plan, you’re spending, everything you’re doing in growth is geared toward reaching that milestone. One problem businesses have is, they reach out and they try to expand into multiple areas. They all have a plan. They just say, “Oh, there’s an opportunity, let’s go chase it.” Never figuring the financials and the different things that go into reaching that goal. And sometimes it’s just bandwidth, because we only have two things to invest in life, time and money, and we have a limited amount of those. And our team has a limited amount of time. Do you even have the right people in place to take over the additional market or do you need to wait until those right people come along?
sometimes it’s just bandwidth, because we only have two things to invest in life, time and money, and we have a limited amount of those
Jeff: There you go, absolutely correct. I think it’s a really good question we’re pondering. What I would like to know, Robert, in your background as a venture capitalist, you’re searching for your next opportunity. You’re looking for ways to help other business owners reach the next level. What do you look for in a company before investing in that business? What’s important to you, as a business owner and someone who steered your own successful businesses? Talk to us about some of the tangibles and intangibles that are really, really important to you as an investor.
Robert: First of all it’s the plan, do they have a plan. Secondly, it’s the management team. Hopefully, Microsoft won’t sue me for saying this. For those of us who that are old enough to remember the 80’s and 90’s, Microsoft is not the best operating system on the market but they had the best plan and the best team. And until the iPhone came out Apple was almost gone and a lot of the other operating systems disappeared because Microsoft took over the market, to the point that I believe the government sued them for becoming a monopoly. That’s probably the biggest thing. Investors tend to use the old acronym, “We back the jockey, not the horse.” The team is very key. So plan a team, then is there a market for the product or service? And then even more important than is there a market, can you take it to the market at a profit margin? Because you could take something out that the people need but if they can’t afford it they’re still not going to buy it. And then part of that also is not just is there a market but can you afford to break into the market? Because there may be big players that already hold a large majority of that market. People come to me and say “It’s a billion dollar market so we only need one percent of it.” That’s great, but how are you going to get that one percent? A lot of people come with a plan of how they’re going to operate, how they’re going to distribute, how they’re going to do all that but they don’t have a solid marketing plan. And that to me is the most important part of the business other than the margins and financials on the backend is, how are you going to let people know you’re there? And not “We’re going to use SEO” or … you know. I need specifics not generics.
Jeff: Excellent point. Robert Ritch, he is the CEO of Secured Equity Group in Franklin, Tennessee and we’re learning a little bit today from Robert Ritch about what he believes are some of the keys to developing your business, and not just developing your business but really improving the value of your business. And also to he’s giving us an idea of what’s important to him as an investor is looking at new businesses that he can help to fund, capitalize, and that he himself can invest in, look at and say, “I’m part of something here and these guys, these women, this business has what it takes to move forward.” My name is Jeff Allen, you’re listening to Deal Talk. I’m going to be back with my guest Robert Ritch, CEO of Secured Equity Group in Franklin Tennessee when Deal Talk returns after this.
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Jeff: Welcome back to Deal Talk, I’m Jeff Allen with Robert Ritch, CEO of Secured Equity Group, and we’re talking about not only how you can improve the value of your business but now what we want to talk about is Robert’s own personal experience having sold his businesses and he’s led, and owned, and sold several successful companies. Robert, the first time that you sold a company, I’d like you to walk us through what you were feeling at the time, the emotions involved, and any anxiety that you went through, the process, how long it took, and whether or not it was something that kind of met your expectation or was a different experience for you altogether that really caused you to learn a great many things and allowed you to grow as a business owner and do things differently later. Let’s just talk about it. Walk us through how that all went for you, and what business it was that you sold, that first one.
Robert: The first one I ever sold was a logistics company. And basically we started out doing simple courier work for banks, we were picking up the proof of deposits. Understand we’re back in the ’90s at this point and you didn’t have electronic deposits and everything. Everything was still paper. It still had to be gathered at each branch and then it was run by a computer processing center and then ran to the set. Times have changed, and technology has definitely changed that industry. Then we started doing delivering supplies for the banks. Then they wanted us to warehouse the supplies. So it kind of developed into its own. And then as we were running out to their different vendors to pick up supplies we found that we had empty trucks, and so we started filling them with other freight, and then a circle started developing, and relationships. That’s kind of what it was. We were rolling along, we were doing fine, we were doing over 30 million a year so life was good. Then I was approached, and it’s a public company that basically they said, “I just want to come by, buy you dinner, and let’s chat.” And I thought, okay. I’d never really thought about selling but I thought, “Well, let’s at least see what the man has to say.” He actually sat down and said, “This is going to be a simple discussion. We’re either going to buy you or we’re going to put a terminal down the road, start undercutting all the prices until we put you out of business, and then we’ll just pick up everything.”
At first I was very offended and obviously scared because these people, they were a big publicly traded company, they were nationwide. I was a little regional carrier. And I wasn’t sure whether to be offended or whether to get up and walk out, or exactly how to react. And at this point … I wasn’t a kid but I was in my mid 30’s, so I just kind of thought, “Okay, I’m going to do what my mentor said. I’m going to shut up and listen.” And he said, “I don’t mean to be offensive” as we kept talking. He said, “I want you look at the offer before you react.” Because I realized that is a threat, he said, “But it is what we do. It’s our business model.” So I thought, okay. He sent me the offer and he actually offered me 15 percent more than I would have asked for the business. With some options and all, they offered me a position to stay on which at that point honestly I’m just not a corporate America employee kind of guy so I had no desire.
But the biggest lesson I got out of that was don’t overreact. Sometimes the old saying that my grandmother used to say, “You have two ears and one mouth for a reason.” Listen to the whole offer before you overreact to their statements. Because a lot of times they’re just laying groundwork ahead of time so that there are no misunderstandings, and that there was no negotiation room. A lot of buyers, if they know they have the advantage, they’re not going to give you a lot of negotiation room. And I actually asked the man because he came back later … I didn’t really ask him, I was just kind of shocked and I think he knew it, he said, “The reason we gave you 15 …” He didn’t say 15 percent because he didn’t know what the number was. But he said the reason they made that offer at the rate they did. “It was cheaper to buy you than it was to compete with you.”
“You have two ears and one mouth for a reason.” Listen to the whole offer before you overreact to their statements
Jeff: How about that. How did that make you feel? Do you remember how you felt when you heard him say that?
Robert: Yeah. Partly, it made me realize that if I was really going to be in this, and I had ideas of moving on because I was already a part of what was a private equity firm more so at that point. And this was just one of my holdings as well as being a part of the group. It made me realize that if you’re going to play this game and be in this, there’s a lot of money in small businesses but you really need to know how to play at both levels. So it encouraged me to start learning the markets, and learning the value of public companies, and how to use those two as a conduit for both raising capital and various other things. So it was probably one of the best lessons I’ve ever had as far as giving me that inspiration of which direction to go to start building my career. And this transaction took place in 2001. So it’s been 14 years I guess at this point. And I have been able to build my net worth a lot more than I would’ve ever if I had just kept that company.
Jeff: There you go. And of course, you’ve had other businesses since then that you’ve sold. Robert, that’s a great story and one that’s a little bit different than may play out for many of our listeners because you were approached by a large company and you had no real ideas or plans of selling your company at that moment. This is just something that happened. You were successful with your business at that time. What kind of advice though Robert from where you sit now as kind of the head of this venture capital firm that you preside over and as an investor and a serial entrepreneur, someone who’s owned multiple businesses. What kind of advice would you give to those companies who may go about selling their business on their terms, who are going to … maybe they’re not approached by a competitor or a larger corporation but they have a plan to sell their business eventually. What kind of advice would you give them based on everything that you’ve learned in selling your own businesses that could help them that you think most business owners probably don’t give much thought to or probably don’t consider because they’re so busy running their businesses at this moment?
Robert: The biggest thing is don’t take it personal. Because if you’ve built it from scratch or you’ve built it from a seedling to a mature business it’s almost like raising a child and you’ve got to take the emotional attachment out of it. Because the biggest part of it is you’re not selling your child. You kind of are but at the same time the average business owner only owns a business five to seven years. At that point they either burnout or it’s going to the point they can’t personally take it to the next level. Or they’re interested in doing something else. So be realistic and in your acting price, also in, are you willing to carry a note? And the first answer I have when I’m ever meeting with people and to have a discussion is, “Oh no, I’m not going to carry a note.” And I said, “Okay, that’s great that you realize that if they don’t have perfect credit, and even if they do they can only get a loan for …” They’re going to end up getting a personal loan from the bank. There is not a whole lot of financing out there. So if you’re trying to sell a business for 30,000. Okay, they can probably get that financed but you’re not going to carry a note. But if you get into 250,000 and more dollar business you got to have options of it, and you got to have your checks and balances already in mind. Don’t wait for them to come to you, already go to different hedge funds and venture capital people.
Because I love business brokers, I do a lot of business with them, but one of the biggest mistakes I see that in the M&A industry is they want to market to people that … You didn’t go to the lenders first and get it kind of pre-approved, and I don’t mean SBA pre-approved because the SBA is a wonderful thing when it’s operated properly but right now they’re not doing what I call, they won’t turn you down. They’re doing what I call the compliance turn down. If they turn you down you end up on their statistics and they have to report that they turned you down, which if you’re a minority, your different things can get them in trouble. If they keep telling you they need more documents and put you off until you just go off out on your own, that’s not a turn down. So they’re never saying no, they’re just stringing people out until they go away.
The reality is the financing is the key part. So I have been encouraging and even in my own firm, reaching out to help that industry and say, “Look, give me a business ahead of time, let me tell you what I think it’s worth. Let me help you with, we would carry this amount or we would do a note for this amount and then go find a buyer that fits that.” So you’re not wasting the owner’s time showing a business that they can’t buy, if that was clear.
Because if you’ve built it from scratch or you’ve built it from a seedling to a mature business it’s almost like raising a child and you’ve got to take the emotional attachment out of it. Because the biggest part of it is you’re not selling your child
Jeff: Absolutely clear. Let’s take the SBA and let’s take the banks out of the equation for a moment, Robert. What do you think are the biggest reasons, and I could be asking you directly, what are the biggest reasons for you that you would turn down a start-up so that it has to go elsewhere or start-ups have to fend for themselves? Why do companies have to tell a start-up, “We can’t help you”?
Robert: The biggest thing is honestly the team, they’re not flexible. I’m going to use this example so nobody be offended here because I’m exaggerating. But they want their brother-in-law who’s been a plumber all his life, which is an honorable profession, all of a sudden be the CFO of the company. As an investor I’m not looking to run the company. I could, but I’m not looking for employees, I’m looking for people to invest in. If I was going to have to step in and make sure all these things are done right then I don’t need them, I’ll just go do it myself. It’s the team. Do they have the right team? And are they flexible? Because they may not know somebody who’s qualified to be that CFO and I may. And some of them get offended thinking that I want to load the board, or load the management team with my people, and in some cases I may be. It’s the golden rule, he who has checks makes the rules. You got to be realistic.
The next thing is again, I’m not saying term, I guess flexibility is probably a good word to use. You go into a investor group — or even the loans anymore because hard money — are basically investors are just doing it as notes instead of taking equity or like we do in most cases do a combination of both. And they’re not hoping to — it becomes a negotiation all the way down to the business plan. You’ve got to be willing to accept input because if these people have the money to do it, I’m not going to say they’re always right, they may have inherited the money, they may have never run a business. They’re all going to expect to have input, at least in the early stages as to how things are run. Shark Tank the TV show’s a prime example of that. The board that sits up there and then decides who’s the best, believe me, they have a pretty strong say-so in how things are done, moving forward.
Jeff: Very, very good point. Robert, we are running out of time here on this edition of Deal Talk and I’d like to just end by asking you a question here about character, and leadership, and what really helps a business owner become successful. You are a veteran of the United States Navy. You have a lot of business experience. You’re an attorney, serial entrepreneur, tell me just a little bit and as quickly as possible in about 60 seconds how important it is to combine business smarts, intelligence, character, and just the whole package in order to be successful in leading a company and growing a successful business, whether a man, woman, no matter what kind of walk of life you come from. Just give me your thoughts on that.
Robert: The first thing I would say to anybody is control is an illusion. The first thing you have to learn is how to delegate and you have to learn how to select the right people that you know can do their job so when you delegate it to them. Don’t micromanage them, you know it’s going to get done. Yes, you do need to verify, have your checks and balances in place because everybody makes mistakes. But at the same time, don’t try to run everything because you can’t do it. But again, you only have two things, time and money, and you have a limited amount of both. The fact it would be that now that you’ve got your team in place you have to have a set goal in mind, and everybody on your team … you’re selecting your team I’ll even add this is part of that.
Pick people that are not like you. You need a diverse team that have different backgrounds, different experiences. If everybody thinks the same way, they’re always going to agree, that’s not necessarily what you need. And then when you pick that team pick people that you’re not automatically going to have personality conflicts, whether it be over religion, politics, whatever. Because it’s easy for everybody to get along when things are going well, but nothing ever always goes well. So you need people that you can work through the issues with without outside influences and emotions getting involved. You don’t need crybabies. And a true leader knows how to pick the right people, put them in the right spot. Because so many businesses get good employee, and because they’re good at one thing they keep dumping responsibilities on them, that are probably beyond that person’s bandwidth. Or they overload one employee and then they wonder why they quit. Again, puzzle master would probably a good word there. Picking the right people, assigning the right task, making sure you have the right people in the right task. And sometimes it’s not always hiring. Sometimes it’s finding an outside firm and outsourcing some of the work where it’s their responsibility to get it done, and you have one person to call if it doesn’t get done. Again, it’s not trying to hold everything so tight in control that you squeeze the life blood out of the business.
The first thing you have to learn is how to delegate and you have to learn how to select the right people that you know can do their job so when you delegate it to them
Jeff: If someone out there would like to get in touch with you, and if several people would like to get in touch with you, people would like to speak to you about your experience, or maybe they’re interested in looking for advice or even perhaps capital. They’re looking to grow their business, they’d like to talk to you about that. Where can they reach you?
Robert: My website, it’s robertritch.com, and I have a contact form on there. You can feel free to reach me on LinkedIn. Look up and connect with me, I’ll be happy to. And then securedequitygroup.com is the venture capital firm. If you’re looking for capital that’s the place to go.
Jeff: That’s Robert Ritch, R-I-T-C-H, the spelling on that. Robert Ritch thank you so much for spending time with us today, we really enjoyed the conversation.
Robert: It was my pleasure.
Jeff: That is Mr. Robert Ritch, and Robert Ritch is the CEO of Secured Equity Group in Franklin, Tennessee. We want to thank him once again for joining us today on Deal Talk.