How Intellectual Property Helps Develop Your Successful Exit

Intro (00:09):
Welcome to innovations and breakthroughs with your host Rich Goldstein, talking about the evolutionary, the revolutionary, the inspiration and the perspiration and those aha moments that change everything. And now here’s your host rich Goldstein,

Rich (00:33):
Rich Goldstein here host of the innovations and breakthroughs podcast, where I featured top leaders and the path they took to create change past guests include Rex’s RA James Thompson and Steve Simon son. This episode is brought to you by my company, Goldstein patent law, where we help you to protect your ideas and products we’ve advised and obtained patents for thousands of companies over the past 27 years. If you’re a company that has software or product or a design, you want to protected go to Goldstein patent law.com, where there are amazing free resources for learning about the patent process. And you could email my team@welcomeatgoldsteinpc.com to explore if it’s a match to work together. You could also check out the book I wrote for the American bar association that explains in plain English, how patents work it’s called the ABA consumer guide to obtaining a patent. I have with me here today, Joe Valley, Joe has built, bought, or sold over half a dozen of his own companies. And over the past nine years, Joe has helped thousands of entrepreneurs find a path toward their own exit. Uh, as a partner in quiet light brokerage, Joe was personally closed nearly a hundred million in transactions and through his team he’s been involved involved in nearly half a billion in online exits Joe is author of the exitpreneurs playbook, how to sell your online business for top dollar by reverse engineering, your pathway to success. So again, it’s my pleasure to welcome here today, Joe Valley, welcome Joe.

Joe (01:58):
Good to be here rich. Thanks for having me, man. Appreciate it.

Rich (02:00):
Yeah, my pleasure. So let’s talk a little bit about your entrepreneurial background kind of before you got involved, helping people sell businesses, you were in business and you had several of them. So, um, so kind of where did it begin and how did it evolve?

Joe (02:14):
Oh, I don’t know. I, you know, it, it began when I was a kid rich, to be honest with you, uh, I won’t go too much into detail of those early days, but you know, I grew up in a little town called Gardiner Maine and the funnest most sucks. Well, the entrepreneurial job that I liked the most oddly enough was simply a worm farm. I used to go out at night with a flashlight when I was 13 years old. And it may, when in the Northeast anyway, you got a flashlight and you spot a Nightcrawler and then you kind of reach down and grab it before this back in the ground. I call it my, my first muddy grasp on supply and demand, but they used to have a worm farm down in the, in the basement. And, uh, my dad was kind enough to let me put a giant sign on the tree out front in a worse for sale for the fishermen that can buy. But that was the beginning, uh, that along with paper routes and, um, self-employment through college, uh, and then eventually finding my way back to self-employment as an adult that took a while I dabbled in a lot of different things, but, uh, it, it, it took awhile after, after I tried a number of different things and realized I gotta get back to what I love, which is entrepreneurship.

Rich (03:24):
Got it. And so what are some of the lessons you learn, I guess, in those early entrepreneurship experiences that you can take with you to today, where you’re helping people to, to position their businesses for sale? You know,

Joe (03:37):
Uh, I started a business in college, uh, that was a restaurant delivery service. If you, if you think about grub hub or door dash, Uber eats those types of things. I started a company in college that was similar to that. It was very early days of that. It was called the, it was called the wrong number, right? Obviously I was in college and I thought it would be funny. Uh, and it worked, you know, my students were college student oriented and, um, I w I went around to every college restaurant in the north. I went to Northeastern university and in that Boston area and everyone that I went to signed up, essentially in those days, I had a copy of their menus, all consolidated into one, used to hand them out. Students would have them in their dorm rooms or in apartments, wherever they lived, they’d call my number.

Joe (04:26):
And we thought it was funny to answer the wrong number, which it wasn’t, and then we’d fax their order into the restaurant. My drivers would go pick it up. Um, what I learned from that rich is that, you know, if, if there’s a demand for something, if you find a niche, uh, all you have to do is put your head down, work hard. And, you know, if you meet that demand, you, you have a business. That’s good. What I also learned though, was that lifestyle is really, really important. Now I was a full-time student at the time, and I was working from about four o’clock at night to midnight, seven days a week. And I did that for about six months before I realized, Hey, it’s too much. I want to be a college student and be as an adult, I really didn’t want to work every night of the week.

Joe (05:14):
Right. It just not what I wanted to do. So that helped me early on. Think about if I’m going to be an entrepreneur, which is my path in life, what type of life do I want to live? Where do I want to be able to work from? And what kind of hours do I want to work? Do I want to be in a business where it’s really heavy around the holidays, where I want to be in the business, it’s kind of slow around the holidays. And I get to spend more time with my family. A lot of those lessons I took from those early days as an entrepreneur, you had a,

Rich (05:43):
That’s really interesting. Um, and I think a lot of entrepreneurs don’t realize that you can choose, you can choose kind of what type of lifestyle you want. You can choose who you get to work with. Um, and, uh,

Joe (05:56):
And you, and you have be happy with who you work with, in my opinion, whether it’s your clients or the people on your team, if you’re not happy with those, it’s going to be drudgery all the way through, and then going to be complaining about it at night to your spouse. Um, and that’s just gonna make your days that much longer, than much harder. So if you get to choose what you do as an entrepreneur, uh, choose wisely and make sure it’s, you’re surrounding yourself with people that you believe in you trust

Rich (06:25):
And that you’re not micromanaging is the other part that I’ve learned really. Um, I don’t want to say a hard way, but I’m at the point now where I know I’m not a good manager. And so I hire very successful people that are, you know, in most cases, smarter and more successful than I am, and that way they don’t need any managing, so to speak. They just need some mentorship and guidance and motivation from now on. Now in that, yeah, I agree. I think no one wants to be a micromanager. It’s, it’s some combination of you have to have the right people in the right, um, in, in the right jobs to, to be able to, to handle it without being micromanaged. And to some extent, as a mindset too, that might have you feel, well, no one can do it as well as I can. And so even if they are competent, um, then you know, maybe I still need to micromanage this. So I think it’s, it’s again, no one wants to micromanage. It’s usually combination of those two, some combination of, of just making sure the right people around and making sure that you trust that the right people are around.

Joe (07:33):
Yeah. So if you want to build a sustainable company, one that will, um, transfer easily in an exit or allow you to exit without exiting, meaning you hire people to basically run the business for you. You have to be able to hand those tasks off, because if it’s, if it’s you and a, an a thousand minions or a hundred or 10 minions, um, and you go away, you’re in trouble, your business is in trouble. So you really have to have good, strong people around you that can make decisions without running them by you. Uh, first and foremost, and, and that’s going to help you build a more sustainable business, but also allow you to have a better life, uh, outside of businesses.

Rich (08:13):
Yeah. I mean, I guess it’s necessary for it to be scalable for you to not be the bottleneck of the company, to have put people in their roles and let them do their thing, but also for exit it’s necessary for you to exit for anyone who’s acquiring it, to see that you are not the thing that’s holding everything together. And that like, um, it’s possible for others to step into the shoes that you’re holding and for it to continue on and, and thrive. Yeah.

Joe (08:44):
Yeah. And, and the thing that I think is really important for people to understand is that you are going to exit your business one way or another. You’re going to exit, if you’d say on a planner, I don’t want to think about that. I’ll get to that someday. You are going to wake up some day, it’s going to be here and you’re not going to have a good exit, whether or not that exit is an actual sale of the business or an exit because 50% of the listeners are going to get a divorce and the spouse and the listeners is going to be fighting over who gets the business or the proceeds from it. We have a partner that doesn’t work out. You just don’t do a good job in competition

Rich (09:24):
And somebody passes away one way or another. Um, you know, you have to set yourself up for exit. Yeah.

Joe (09:32):
Yeah. And the best, there’s two scenarios in their routes. The best exit is know, one is that you, you run a great business for a great buyer to take over at a great price. And the other is you run a great business for a great manager to take over. So you can exit without exiting and still have the proceeds of the business for years to come. That’s tough though. You had to get to a certain size for that to happen. Doesn’t happen all that often.

Rich (09:54):
Yeah, absolutely. But it sounds like it’s a similar path in terms of, of getting things organized in a certain way, getting your team running, um, in a certain way that would lead you towards, um, kind of both of those possibilities, the ability to step away somewhat, or, or to a larger extent while the business is operating. And also, um, the ability to have someone kind of take over, like purchase it, take over,

Joe (10:23):
Um, viewed exit. Yeah. And the thing that I’ve seen over the last decade, talking to thousands and thousands of entrepreneurs like myself, is that there’s only a very, very small percentage and that actually set goals. They just sort of grind it out and think entrepreneurship means running this business and grinding it out day to day without actually any, you know, exit goals. And so there, you know, there’s three things that I’m always shooting for when I talk to somebody and that’s, let’s get dollars down. What do you want to exit for, let’s get a date down and let’s get your feelings down. I know that’s a little touchy, feely, but dollars date and feeling. So I want to sell my business for $5 million in the first quarter of 20, 24. And I will feel unburdened because I have money in the bank, no debt. And I get to spend more time with my family. And you can shift that 5 million to, you know, I will exit my business when I’m doing $5 million in revenue, because my C O O will become the CEO COO. And I will have a steady stream of X dollars in income. And I’ll get to spend more time with my family and so on and so forth. But you got to have the feeling in there. Cause that’s the thing that’s gonna drive you past those really tough days that we all have as entrepreneurs.

Rich (11:40):
Yeah, absolutely. So I guess, and a lot of that sometimes is unconscious. So until they have a conversation with you about those things, they haven’t really thought about that. And then, so it’s just in the background, making the decisions about what they do, but until you bring it out there, it’s kind of more unconscious than it is something that they could work towards and make conscious decisions towards.

Joe (12:04):
Yeah. And I’m trying real hard to make it a conscious decision. Um, you know, with, with the FBA aggregators, as we call it the rise of the aggregators, the THRASS, the elevated, the boosted, the perch, those guys they’re reaching out to FBA business owners and say, Hey, I love your brand great brand. We’d like to buy that. We closed in 30 days, all cash, blah, blah, blah. Here’s how much we’ll pay. First of all, they don’t close in 30 days. It’s most often not always cash. And they, you know, look for working capital in the terms of a couple of months with an inventory. Um, but you, they, if they catch you at a time when you are trying to get over one of those hurdles, that there’s a giant pothole, you can’t get around and you’re having a really bad week. You may open up conversations to the sale of your business without ever really setting goals to sell your business.

Joe (12:53):
And I, through experience, I know that you’re not going to get the best value if that’s the approach you take, because it’s like training rich, I’m, I’m training for a 5k right now. I’m not a runner. The last time I did a 5k, I woke up and decided to run a 5k because my kids were doing it. And I was, I was really proud of myself cause I’m, you know, looking over my kids at the starting line going, isn’t this a proud dad moment, right? We’re both dads, um, starting, going off, my kids were gone. I didn’t see them for the rest of the race. Cause they were so far. And these are like 10 and 12 year olds. They were gone. That was the first moment of reality that I should have trained for that. The second was about a mile and I got passed by two women.

Joe (13:34):
That’s not monumental in itself, but they were both pushing strollers. So very monumental. I didn’t train for it. I’m training for this one. And I know my goal, my goal is to improve by 15% over my last time. And that last time it was like 10 years ago. Um, and at the same goes for exits, right? If you don’t train for it, you’re still gonna exit. It’s just going to be crappy. You don’t know it yet, but it’s going to be crappy and you’re going to have a hard time just like I didn’t that 5k. But if you train for it bit by bit, piece by piece, um, you will have a better exit someday. You’ll have more peace of mind to be more excited when you’re running your business because it’s more fun when you have a goal.

Rich (14:14):
Yeah, no, absolutely. That makes, that makes so much sense. And in terms of, of training for it, lining things up for it, let’s talk about the role of IP and exit, like the role that you’ve seen IP play in exit scenarios and, and then maybe moving into what people can do as they’re running their business, to set them up best with regard to their IP for right,

Joe (14:39):
For critical things that buyers look for when they’re buying a business it’s risk, growth, transferability undocumentation whether or not they know that they’re looking at that they are right. And as you drill into a couple of those categories, but risk is the big one where IP is. So if someone has a trademark, a design patent, a utility patent, if they have that, they’re more defensible and the risk goes down the lower, the risk, the higher, the value. So if you’ve got two identical revenue and profit businesses, but one has a utility patent that utility patent business is going to sell for a higher multiple. So if they’re both doing a half million in discretionary earnings, maybe they’re going to sell for, let’s say four times. Right. Um, but the one that doesn’t have the IP might be three and a half. And the one that does have the IP might be 4.5, who knows. Right. But you know, that’s a huge swing if you’ve got the right IP trademarks honestly are not that I don’t know. They’re not that that they don’t swing the, the, the value bar very much because it just, it just doesn’t matter as much for some people, but the utility and design patents are pretty huge when it comes to IP and boosting value to business because it decreases that risk.

Rich (15:59):
Yeah. I, um, that’s, that’s very interesting. And with regards to the trademarks is I wonder, um, those, it not necessarily swing the needle too far when you have them, because it’s kind of assumed that you will have them assume that you own the brand where like, if you don’t have the rights to the brand and there’s a conflict, a trademark conflict, that could be a deal killer too.

Joe (16:22):
Yeah. So the brand itself, um, you know, uh, if you will, if you develop the brand, you own the brand it’s yours. And I know that if you’re using a name that has a trademark out there, hopefully you’ve done at the very least done that search and figure that out. You, you know, you don’t want to develop a new pair of running shoes called Nike’s. Right. Of course you wouldn’t do that. But if you did, you, your business is not going to sell because it’s not transferable. So you’ve got that risk factor. And then you’ve got the trans transferability aspect of the business. If they, if the key assets of the business that drive revenue, not transferable, you do not have a sellable business. The third piece in that documentation, one of the bullet points under there is, you know, having documentation of trademarks, copyrights, patents, and making sure again that those are transferable.

Rich (17:10):
Yeah, absolutely. So I guess, like having a patent portfolio of good IP IP that’s relevant to the business can, uh, you know, the way you’re describing, it sounds like it could sway the multiple a bit, you know, it could, it could be a factor in bringing you from a 3.5 to a 4.5 or something along those lines. Yeah.

Joe (17:31):
It’s going to be more attractive for buyers because it’s less risk and the lower, the risk, the higher the value.

Rich (17:38):
Okay, great. Um, okay. So, um, I want to talk some more about the book and like one of the, really things in the book there, this there’s a bunch of major areas that you cover, um, in terms of, of how you mechanically, how you exit, but also kind of how you set yourself up. Uh, like I like in particular part two of the book, you talk about the value score, bulk board, basically kind of the things that will lead toward the value and how you manage those. And, uh, so, and you’ve got these four main pillars, let’s say, um, risk, growth, transferability, and documentation. I just wonder if you could talk just a bit about that and kind of like the, the, the, the highlights of what, um, of what leads to those four factors or leads to the ascertaining of those factors by someone looking at your business.

Joe (18:34):
Yeah, yeah. You know, when it comes to the value of the business, 10% of it is math and logic. It’s critically important that the math and logic is accurate and black and white, right. But the 90% part is really art. And that’s where the risk, the growth, the transferability undocumentation come into play. And also, you know, the, the owner of the business, it’s the mortar that holds those four pillars together, um, in the book under that chapter, under that section, there’s those four pillars. Then under each there’s six different things to focus on. I think it’s critically important so that as you’re growing your, and this is, these are the things that affect the value of business really dramatically beyond the numbers. And that’s why it’s important to get an understanding of these well in advance of the sale. If you wake up and decide to sell the business, like I woke up to decide to run that 5k, you won’t have a good experience because of these four pillars, unless you’re just, oh, I don’t know, just naturally brilliant and naturally, you know, understanding what everybody wants. Um, but you gotta focus on those four things. The risk we kind of covered. Uh, the, the growth is really, really important when it comes to the overall value for a couple of reasons. Number one, buyers want a business that is growing. They’re not looking to buy a business and just make it a, uh, an ATM machine where they’re just taking money out and there’s no growth because they want to, they want to do that, but they also want to grow it and then exit it as well.

Rich (20:02):
It’s not even just a matter of that. The business is growing, that they see opportunities for growth channels that they can open up.

Joe (20:10):
Yeah. That’s where I talk about, you know, clear paths to grow. So if you think about, you know, growth is one thing you’ve got consistent 20% year over year growth, that’s wonderful. That feels good. Buyers can predict project out, um, how quickly they’re going to earn their money back. You know, for instance, the multiples of the businesses are based upon a, you know, a multiple of discretionary earnings. So if it’s a three time, multiple, a buyer expects to earn their money back in three years, if growth is zero, but if it’s 25% year-over-year growth, they’re going to earn their money back in like 2.2 years because of the growth. And so they’ll do math and I’ll help them and whatnot, and anybody, a good advisor will help them do that math buyers. Right. Um, but what you’re talking about is, you know, built in paths to growth.

Joe (20:57):
So let’s say you’ve launched, oh, I don’t know, you’ve got a total of 15 skews, but you launched five of them in the last 12 months. And those five already represent 25% of the total revenues, but they were actually launched in the last six months. That’s all built in paths to growth. And I have to do is wait and let time pass. And those skews revenue are going to continue to grow. So that now you’re, you know, a year from now, you’re going to have 15 highly profitable skews instead of 10 plus five that are newbies built in paths to growth are really, really important because it just makes it easier for buyers. They’re taking over a business that you built from scratch. And they’re initially concerned that they don’t have the ability to do it and to run it the way that you’re running it. So, you know, having that built in path to growth, having relationships with manufacturers that will help you expand your skews or, you know, developers on your team that will add new upsells or writers, where you’ve got a whole slew of articles to be written, all those things are built in pass to growth and really instill confidence in buyers, more than anything else. And again, confidence instills trust and trust means they’re willing to pay more for your business. So that built in path to grocery.

Rich (22:13):
And I think that’s where IP can play a role. Also, it’s like, it’s, it helps show those paths to growth is like, if you, uh, if you have the IP for the brand, then you could, then there’s an opportunity to expand that brand perhaps into other products. Or if you have the, the, um, the, the patent for the, the technology of what you’re doing, um, then that justifies expanding into other channels where other people can easily enter those channels without, um, without the IP that you own. So, I mean, I guess it occurs to me that that IP can often be part of what shows that, um, those potential pathways to growth. Yes.

Joe (22:56):
Yeah. And the IP takes time. Right. So you’ve got to run a business that you’re not going to flip in 24 months. Um, you know, you can get it sooner many cases, but, you know, running the business with the right mindset in place, I think is really, really critical that, that that’s the mindset again, that you are going to exit at some point, either to someone else or, you know, let somebody run it and you’re going to move on to your next adventure entrepreneurs, do that. They get bored. We want to move on. We can’t focus on one thing for too long. So, you know, three to five years, maybe seven, if you’re lucky, and then you need to move on to your next adventure and that that’s either through a sale or somebody else running your show.

Rich (23:34):
Now, um, let me ask you about, um, a certain notion here that, um, you know, a lot of times when I’m counseling clients about IP, um, I mean, there are various reasons, um, and pathways, which she could help the value of the business. But one thing that’s kind of like a soft benefit of it that always occurs to me is that if you, if you dot the I’s and cross the T’s with regards to your IP, it shows someone who’s evaluating a business, doesn’t know you, um, it shows that you’re the type of person that dots the I’s and crosses the T’s, which then probably cuts across other areas of your business in terms of like how well you’ve organized and been running things. Does that kind of think that enters into the equation a bit,

Joe (24:18):
A hundred percent of the time, right? Because that’s your running the business, not with how much money you’re going to put in your pocket in mine. So lay right. You’re running it to, to, to build a great business and you’re mature and you’re taking care of it so that you can exit either again to a manager or to somebody else. And when you do things like dotting, the I’s crossing the T’s, it instills confidence and trust. I’m not going to stroke a check for a million bucks or two or three for, you know, to buy a business. If I don’t like or trust you, right? Like ability, something you have to play in, play in there, but you’ve got to be trustworthy. Otherwise somebody’s not going to buy your business. And you can do that with great documentation,

Rich (25:01):
Which is a great segue to what you call the, the, the fifth pillow that isn’t in your bunk. Um, and, uh, and I just love this phrase. It’s if you want to be a great exit preneur, start by being a good human being.

Joe (25:14):
Yeah. Yeah. It’s look, when I was younger, rich, all I wanted to do as an entrepreneur was made money. Right? That’s all I care about. Uh, you could see some gram, my chin I’m actually, uh, you know, I’ve got some years under my belt and I’ve had some success. And now I understand that if I run a great business with the customer in mind, more than anything else, if I can help them as much as possible, well, guess what I am actually going to make great money. Uh, so be a good human and take care of the people that are critical to your business. First, the customers and the employees, and it will come around to help you build a better business and exit at a great value, not just for you though. And that’s where the good human part comes in. You’re not just building this to flip it.

Joe (26:03):
You’re building this to give it to somebody else to can take it to the next level. You’ve got to understand who you are, you know, can you go from zero to 5 million? But that five to 20 million is just not in your wheelhouse. Then you know, that, get to know who you are, run that great business to 5 million and then sell it to somebody. That’s a good person that wants to make a great investment and run it to 20 million. Maybe they’re going to say, I can only get a 20 and they’re going to sell it to somebody that can do a hundred, but be a good person. None of this. This is not wall street negotiations during these things. You know, it’s, as I said, a lot of it’s math and logic and trust. You know, people are in the, in the online world, they’re buying businesses, people that are on the other side of the world or the other side of the country, and they meet them on a zoom call. And they look at the data before sitting across with them at a table. And that trust being good, good persons, critical. Don’t be posting a divisive stuff, let’s say on, on social media, because your buyer’s going to look, they’re going to find it. Or their spouse is going to look and find it because it’s a big investment and they’re going to dig deep on you. And if you’re saying stupid stuff, you need to put it down. You need to, you need to delete it and just be a good person all around to everybody.

Rich (27:16):
I think that’s awesome advice. And I think, um, you know, ultimately, um, the decision to, to buy the business gets made on the data, but, but in order for the, the actual action of buying the business to take place, there has to be a good feeling. Like you have to feel right about it. You have to feel good about it. Um, and then the data justifies kind of that this is the right move. So, you know, I guess the having a good feeling about it has to be there. And as a person selling your business, you need to support that by, um, by being a good person, doing the right thing and making sure that they have a good feeling about you.

Joe (27:56):
Yeah. These are personal decisions by the buyers, for the most case, even if it’s an aggregator, uh, the people that are buying the businesses, you know, in the umbrella of the aggregator are human beings. They are incentified by buying good businesses, good transactions. If they don’t feel good about you. And there’s something off, if your data’s not right, if you’ve got a little gray on the add backs are a lot grant, did it go there? You’re going to pull back and they’re going to negotiate hard, or they’re going to walk away. So if you do the right thing for yourself and your future buyer, you’re going to get a better value for the business. No question about it.

Rich (28:35):
Awesome. I love it. Um, and I love the advice you have in this book. Um, uh, people want to learn more about you and get in touch with you. How do they go about doing so, and, and make sure you let us know too, how we can get ahold of the book or, or find out more about this.

Joe (28:52):
Sure. Um, you can always look me up on LinkedIn, connect with me there it’s Joe Valley, um, or go to exit preneur.io. There’s some free chapters that we give away. I, you know, I’m never gonna make any money on book sales, rich, this isn’t, what is it, what it’s about? It’s education on helping lots of people. As many as I can, whether they want to work with my team over at quiet light or sell their business on their own or work with their favorite advisor, the information in the book will help. So chapter 11, free to download. It’s all about the add backs and how to calculate seller’s discretionary earnings, critical, critical piece, if you’re selling to, to anybody on your own. Uh, and then there’s, you know, deal structures and negotiating those deals structures, especially with the aggregators these days, those chapters are available for free download as well. And that’s all I exit preneur.io.

Rich (29:40):
Awesome. Well, Joe really appreciate you, you taking the time to be here today and, um, you know, just thanks so much for being on the podcast. My pleasure. Thank you.

Outro (29:56):
Thanks for listening to innovations and breakthroughs with your host, rich Goldstein. Be sure to click, subscribe, check us out on the web@innovationsandbreakthroughs.com and we’ll see you next time.