Speaker 1 00:00:17 Good afternoon, everybody. Jordan Goodfellow here, gig ready, Joe Mack here. Ready to go. We hope everybody is doing really well today and that they are continuing to be the professionals that we know that they are. We've got a great show planned for today. We have Tom Stimson, president of the Stimpson group. Uh, they specialize in, uh, consulting to help companies become better at what they do. Tom. Thanks for being here today. Really, really glad to have you on today.
Speaker 2 00:00:48 Happy to join you. Thanks for asking.
Speaker 1 00:00:50 Awesome. Um, Joe, thanks for being here. I know you're a little sniffly today, but I want to make sure that everybody knows that you're here and alive and well and kicking over there in Portland, Oregon, how you feeling today? I'm doing okay.
Speaker 2 00:01:03 The pollen is blooming and for them. So we are sneezing our butts off here.
Speaker 1 00:01:07 Outstanding. Well, Tom being a, I guess I'll all three of us having been or are, and continue to be business owners. Um, the, the subject that I've been thinking about the last couple of weeks has been businesses that are built to outlast the owners and our industry, uh, especially in the audio visual world, whether it be labor companies, rental companies, production companies, I don't know if I've ever seen a company beyond one or two really big companies that just become too big to be bigger than the owner out last, the owner, the owner stops doing their stuff and boom, boom, everything falls apart. Okay. You know, everybody goes their separate ways and the gear gets liquidated and everybody moves on. Um, however, I, I think that those owners, as well as myself and, and others have wanted to grow a business that actually could outlast them a legacy if you will. Um, and so I, I guess the first question that I wonder, is it even possible to build a company like that that can outlast the owner beyond their lifespan or at least before they want, until they decide to retire?
Speaker 2 00:02:17 Well, I mean, of course, of course they can do that. Most, most business owners don't get started with that in mind. Um, the, probably the first thing they're trying to do is put groceries on the table and, you know, uh, a lot of us in our industry, we were either gig workers who got lucky and didn't have to gig and started running a business, or we are disgruntled former employees of somebody else's business. Yeah. Right. And that's, you know, and we know we're, we're not really business people and we're certainly not entrepreneurs. The number of entrepreneurs I meet in this industry is pretty small. Um, a lot of people think they're entrepreneurs, but in fact, what they are is opportunistic folks. Um, so an officer Bundoora starts a business with the end result, you know, the exit strategy in mind, they know what they're trying to do. And they're finding the shortest path there. Nobody comes to our industry to find a short path to wealth and success. They know that they're going to push sand up the Hill for the next 20 or 30 or 40 years. And then hopefully there's a, some, a rainbow at the end and somebody will take care of them. And that's really the most, the average business owner thinks about is that one day I will, I will sell and that will fund my retirement. But right now I'm too busy taking care of business. Huh.
Speaker 1 00:03:41 Wow. All right. I never thought, I mean, that's the first time I've ever heard anybody say that, you know, they didn't really see our industry as being a group of entrepreneurs. I guess maybe my impression of entrepreneurship has always been different. Um, and I love that explanation that they have an end result in mind. Um, I can honestly say I got into this business without an end result in mind either. Um, so expand on that whole entrepreneurial thing, like the entrepreneurs that you have met in our industry, what, like, what do they embody, what do they do that sets them apart from the opportunistic business owner, um, that sees the, the, where we are,
Speaker 2 00:04:23 You know, occasionally an entrepreneur has found themselves in this industry for all the reasons that I just talked about. They, they found something that worked or they saw a demand for something. And maybe back in my era, the eighties and early nineties now a lot of video equipment in particular was very expensive. And you could go out and buy a couple of video projectors and suddenly you were in business and the returns were fantastic. So that attracted some folks who saw the opportunity, you know, rental's a great business model, right? You buy something, you hand it to somebody else, they give you money and then they give the thing back to you. I mean, how cool is that? Um, and you can do it over and over and over again. Right? And so there are some people who have an entrepreneurial mindset who found themselves in this industry because they liked the rental aspect of it. And some of them stuck with it have become very, very successful. Um, they run large three letter companies, you know, three letter names companies and, and, and they do that well. So what did they have in mind? They just knew how to make money. Yeah. They looked at the business as a way to make money and they learned how to keep score and they played harder to get higher and higher scores. Got it. So all of us are just in this business cause we kind of love it for whatever crazy reason.
Speaker 1 00:05:49 Yes. We enjoyed really, really, really long days, lack of sleep. Um, the hard problems to solve, which I guess is one good thing. Um,
Speaker 2 00:06:00 I do it for the catering. That's all. And then for catering, just the free meals. Yeah. I don't. And if you've never, if you've never taken a nap wrapped in a loading blanket in a, in a box, you just haven't napped
Speaker 1 00:06:17 Guys, take the sound console lid and lay it down. And that, it, it, it makes a perfect bed in the back,
Speaker 2 00:06:25 Put off a lot of heat. That's a really nice place to take a nap. Nice and warm. Yeah.
Speaker 1 00:06:30 All right. So if you want to, if you want to make tons of money, don't get into the AAV business. And if you enjoy comfort, don't get into the AAV business. Um, so a business owner comes into this industry and says, wow, I see great opportunity. Um, you know, in, in, in Joe's case, I mean his client came to him and said, Hey, we want to use you for everything. And boom, all of a sudden there's a business. Like it just, it happens. Um, so what is the first thing then as a business owner that we should be thinking about when we are looking at becoming an owner in the industry, being that it is a different beast than most other industries,
Speaker 2 00:07:14 Let me, I'm going to being a consultant. I'm going to take your question and I'm going to turn it around and ask the question I want to answer, which is what, what is, uh, what happens when a business owner wakes up and they realize that they don't know how to develop an exit strategy. They don't know how to make money, because nobody looks at our industry saying I'm going to get into this business. And Oh, by the way, I'm going in with an exit strategy. They wake up one day and it's usually in most of my consulting engagements start this way. They call me because somebody called them in and asked about buying their business. Did you want to sell? Okay. You know, they got, they got, you know, somebody was fishing, right? Um, they have somebody offered to sell their company to them, or they finally meet with their financial planner.
Speaker 2 00:08:05 Um, and the financial planner says, will you own a business? How are you going to get the money out of it? And they don't have an answer to any of those questions. And then they start going, well, where do I get the answer? And they have to start thinking about that. So first step is actually knowing that you are recognizing that you do need some sort of plan and that the idea, and maybe it's your children telling you, what are you going to do with the business? Cause I don't want to work in it. Uh, maybe it's a partner telling you, I want out of the business, you need to buy it from me. You know, we're all of a sudden you start thinking about what happens next or what is supposed to happen. Yeah.
Speaker 1 00:08:46 Okay. So at least acknowledge the fact that you need to have a plan. Um, so then where, where do we go next? So, okay. I need a plan. What's the next stage in that Le let's say we have a business that's already running. Um, and so now does this upend, the Apple cart and we just basically say, screw this and, and, and, and just change everything or, I mean, where does that, where does that even go? I know that's a long trail.
Speaker 2 00:09:16 Yeah. You know, the, actually what happens next is the business owner calls me and asks what their company is worth. Okay. Cause that's always the first question. What does my company worth? Because they want to benchmark it and they want to know, Oh wow. It's worth. And there's two responses. It's worth way more than I thought it was. Who will buy it? Give me a phone number right now versus you must be kidding. I'm worth way more than that. I'm not selling that for a penny, less than some astronomical number that they made up in a bar one night. Um, so they're usually on either end of that spectrum. Um, but once they come to the realization that what your company is worth is the right question. Now, what are you going to do with the information now that you have it? I had a, I had a client who, um, fell into the category of really undervaluing his business.
Speaker 2 00:10:12 He was, he was ready to get out. He w wasn't particularly old. Um, he just made a lot of money and wanted to do things with his family instead of work. And he was really undervaluing his business. And, um, he was shocked when we showed him and I'm not in the business of valuation. I just do napkin estimates to help people understand how valuations are started. And, you know, we spent a couple more years with him and he sold his business for a whole ton of money. That's, you know, that's a great story, but mostly we deal with folks who really think their business businesses worth, you know, they hear, hear about multipliers two times, three times, four times. Yeah. And somewhere in their head, they decided that was revenue two times revenue, three times revenue. When in fact it is two times profit, three times profit. Um, and so they have in their mind that there are $2 billion businesses worth $6 million
Speaker 1 00:11:05 When it's really worth like five, because they have a big old goose egg at the bottom of the <inaudible>,
Speaker 2 00:11:10 It's worth $500,000 because their assets are new. Yeah.
Speaker 1 00:11:15 Okay. Um, so we establish what the business is worth. Um, so those and those are all great things. Of course, those, those things vary. Um, what makes people come to like a consultant such as yourself to establish business value? Versus I know that there are other metrics within the corporate structure that you can, you know, try and find that
Speaker 2 00:11:39 They, they, they come to us, they come to somebody who might have answers. That's the thing. Yeah. Most of us aren't business people. We didn't, we didn't go get a business degree and start an AAV company or a lighting company or whatever it might be or a production. Um, we just found ourselves in that business. Um, and we're kind of like most of our technical careers, we learn as we go, it's on the job training for the first 20 years. Uh, and then by that time you've picked up so many bad habits. You can't unlearn them no matter how many, how many younger people tell you, we don't do it that way anymore. Yeah. Right. And so you have to figure out, well, how can I relearn this stuff and how can I know what I'm doing? Right. And know what I'm wasting my time doing.
Speaker 2 00:12:26 Um, and it's, there's no, it's funny. And in my generation, you know, there's a lot of people my age, who are afraid to call anybody and ask them for help with their business. Cause I think that's, there is an unwritten rule that if you get help, you didn't do it on your own. Yeah. And it's, it's kind of insane, but you know, we've all been frustrated by, you know, a technician, you know, Joe, that didn't pick up the phone and call for help because they didn't know what they were doing. And the show failed when all they had to do was ask somebody, right. And they let their ego get in the way they let their pride get in the way. And business owners are the same way. So eventually they'll find somebody that they can talk to a banker or their accountant, or, you know, a family, some industry, not like me.
Speaker 3 00:13:13 I, I, for one, when, uh, you know, the opportunity for me to start a business and to, to grow it, uh, came onto the table. I mean, I, I went to every business owner I knew, and I asked as many questions and, you know, the first thing they said is, okay, well, make sure you have a good lawyer, a good accountant and good insurance. And I made those phone calls within the first week. And I put together my team that's, you know, that was backing me and was able to call it, you know, anytime I had some silly new thing that I'd never dealt with before, um, uh, is there, is there a, a business structure that's better than another when you're, when you're basing those decisions? Like when you're, if I'm just starting out, you know, how, how do I want to structure my business? How do I want to set it up for success so that I'm not, you know, chasing my tail from, from day one.
Speaker 2 00:14:08 Yeah. There, there is that it is a fantastic question because there is a right way to set up any kind of business. And in fact, there's probably four or five right ways. Um, I spent a lot of my time helping business owners find the right way for them and for their business and their company. But most people start on the wrong end of the equation. They start about how do I want to, how do I want to set up my business to be successful rather than figuring out what businesses their, their market, their market needs and the designing their business for their marketplace. Right? Which they, you know, they take that. If you build it, they will come and build the business that they want to build the way they think it should work. Only to find out that customers don't want to buy that way.
Speaker 2 00:14:56 Or employees don't want to work that way or bankers don't like that balance sheet. Right. And so not having that perspective makes it difficult for them sometimes to make the choices that they need to make. You did it. Right. You, you got some good advisors, um, and, and yeah. Get an attorney, get a CPA, you know, get a banker, but please don't let them run your company. No, get, get help from them on how to set things up and how to do things. And yes, it's okay. You do that. Absolutely. You should use a payroll company, blah, blah, blah. Yes. Pay your quarterly taxes. Um, but don't go to them for business advice about how do I deal with this customer? How do I deal with these employees? Because that's not what they're good at. Um,
Speaker 3 00:15:44 Yeah. And you're, you know, as the business owner, that's, that's your secret sauce, right. Is how you handle the customer versus the other guy. And, and I think we all take pride in the way we handle our customers, uh, on an individual basis. So, so you're absolutely right with, with not letting, letting your team run your business.
Speaker 2 00:16:05 So going back to your question, you know, about what's the best way to set up the business. One of the questions I ask or try to ascertain is what is the secret sauce for that company? And a lot of companies don't know what it is. They don't know what their own secret sauce is. They have a superpower and they don't see it because they're too close to it and therefore they're not leveraging it. So ultimately the goal is we want to run an optimized model for the business that you're in, where you're going to be most successful, where you have a steady stream of willing clients out there who will pay you money. And if we can find those things and get those things in the sink, then you can run a very successful business, but there's no one right way to do it. Uh, but there are lots of well-documented wrong ways to do it.
Speaker 1 00:16:57 Okay. Um, so if we have a couple of different right. Ways to kind of form this piece where, um, I'm trying to think of how like, from a business structure standpoint, does it matter if I pick corporation S Corp LLC, uh, you know, one of those formats and comparison to any other one,
Speaker 2 00:17:24 Right. Well, there's, the corporate structure is a, is a legal question and a finance question. Okay. Right. So that's where having the attorney to advise you and having a financial planner or CPA to advise you will help you make the right choice. Got it. Um, I've worked with owners over the year. It was very fashionable in the 1990s. If you started your company to make it a C corporation, and therefore there would be shares and the corporation would pay taxes and then the employees would pay taxes. Um, but then it became very popular towards the end of the nineties to do S corporations. Right. And now we have a lot of privately held companies that are LLCs, which is another legal entity. They're all right. And they're all wrong depending on the situation. Got it. Right. But understanding why you would choose one or the other, and all of it has to do with where is liability begin and end, where to taxes begin and end, uh, particularly in the U S is most business structure is based on tax tax law. Yeah. Okay.
Speaker 1 00:18:30 All right. Well, I mean, that is, gosh, there's so much there. I'm like, Hmm.
Speaker 2 00:18:36 Let's, let's just, uh, here's how I explain it to my clients. If you're a, primarily a service-based business, most legal advisors are going to push you to an LLC model. Okay. If you're an asset based business, as in rental inventory, they're going to push you to a, an S corporation. Okay. If you're going to be a huge multinational enterprise with lots of different lines of business, and you want to be able to easily sell the company because you're an entrepreneur and you were thinking extra strategy from the beginning, they might push you into a C corporation. Got it. So C corporation is probably the least likely thing that most people need an artist
Speaker 1 00:19:15 For sure. Um, how do I change my mindset? If I walked into this, this is a selfish question, by the way, because I'm looking at, you know, things going down the road. I mean, how I got into this, because for me one it's fun. You know, I was doing it for 15 years. It was, I loved it, but I wanted more, I was in a position where I wasn't growing. I wasn't moving, I wasn't doing anything beyond kind of going out on tour and, and, and doing a technical position. And then I happened to make a trade with a company that owed me a bunch of money. And I got two projectors in that trade. And it was either sell them immediately and recoup my money or take them out for a test drive and see what we could do with them. Um, my wife was very adamant about just selling them, cutting it, loose, getting the cash out of it and being done with it.
Speaker 1 00:20:12 And then, and I was more of in the mind of, well, I like this. Let's see what we can do with it. And so that's, that's what we did. And, and things actually started to grow. And, and over time we realized, you know, this is working well now I had no end in mind other than to get my money back. I mean, that was the, that was my, you know, the end in mind was okay, use this to get the 30 grand that some, that these people owed me and now I'm good. And then it just started to grow from there. So where, I guess, do I go to say, okay, find what that end is first off. Cause you have to figure out what you want it to be and then work backwards to, you know, to basically plan back to where we are right now. Um, even though we are in quite an odd situation in the way that the world is working right now as it is.
Speaker 2 00:21:06 Hm. So was there a question in there? Yeah.
Speaker 1 00:21:17 How do I discover my end in mind? Like how do I find the end in mind?
Speaker 2 00:21:21 This, this is, this is the simplest answer I can give you. Um, and nobody does it is write a business plan. Okay. If you didn't write a business, if you write a business plan, you have to ask that question to write the business plan. It's the it's on the first page. Yeah. Just Google business plan and every business plan, generic download you get, we'll start on. What's your end result? What's your exit strategy? What are you going to do? And it takes you from there. Why do you want to be in business? Well, I just thought that owning equipment and getting money for it was really cool. They don't have a box for that. Like this, like most things don't even work on a rental model. My lawyer, my lawyer on day one, he said, first thing, plan for your divorce. And I said, from my wife and he goes, no, from your company, that's the first thing you do.
Speaker 2 00:22:17 And I like, that's pretty morbid. He goes, yeah, but that's, what's going to end up. So you have to have that exit strategy to start so interesting. Particularly if you have partners, you have any good advisor of two people or three people who are going into business together. The first thing you discuss is how you're going to end it. You can't come to terms with how to end the business equitably. You have, you shouldn't be in business together. And every, every business owner I talked to all told me don't have partners. Yeah. And, and yeah, that's, uh, that's why it's wise, uh, advice
Speaker 1 00:22:56 And that's, and that's what I've I actually have done the same thing. I didn't bring on partners either. I didn't want partners, but I think that, unfortunately, in my case, not bringing on partners also hamstring me directly into the comment you made earlier, Tom, which was afraid to ask for help. Because if I don't, if I ask for help, then I'm not doing it by myself. And somehow equating, not having partners to doing it on my own. And then if I ask for help, somehow now I'm, uh, I just, I'm not doing it. You know, now I'm doing it with someone else. If that makes any sense,
Speaker 2 00:23:28 Right? Oh no. I, I hear it all the time. I, I know what you're saying. Okay. Um, you know, some business owners, I mean, they join, you know, CEO groups, you know, this age, alternative board, EOS, somebody like that. So they can spend time with other business owners and talk business owner re stuff. Right. Um, and they listened to guest speakers and people pushing books and whatnot. And, and so they spend a little time every month or every quarter working on their business. And that's just not enough. That's not enough time to where you gotta to work on your business every single day and not just, you know, join a group that reminds you that you should work on your business. Uh, it's gotta be part of who you are. It's like Joe said earlier, you have to figure out what the mindset is to be successful. Got it. And knowing that your business is this living, breathing entity, and you've got to put some life into it constantly, and you're constantly trying to improve it because if you don't businesses have gravity, right. They, they are going to slow down. If you don't put energy into them, they're going to slow down pretty soon. They're going to wrap their tentacles around you and they're going to pull you down with them. Um, and that it's really hard to get them pulled back up again.
Speaker 1 00:24:46 Okay. So start at the base, create a business plan. I actually just pulled up my original business plan from 10 years ago, which I haven't touched in 10 years. It probably sounds like it's time to go backwards and revisit that, but even just glancing through it, I realized that like the goals and like the objective of the business, I didn't like, I was very theorial. I was very like, kind of out there, out there who provide good customer service to people so that they like us and call us again as an objective of the business versus actually establishing a clear end in mind goal am I, is that what a lot of people do?
Speaker 2 00:25:24 There's a lot of people do answer those questions that way, because they don't realize the question is actually asking you for your selfish reason for doing this. Okay. If a business owner is not selfish, of some part of them is not selfish, they're going to make horrible business decisions. Got it. Okay. So what's the reason you're doing this because I like to eat. Okay. I want to eat every day, sometimes two or three times a day. And I don't want to re you know, rely on craft service or stealing food from the hotel hallway. Yeah. Um, I want to buy my own groceries. Okay. That's a, that's a good selfish reason to be in business. Okay. Um, another selfish reason to be in businesses. I'm a lousy employee. I don't, I don't want to have a boss. I want to be my own boss. I want to make my own mistakes. Now this, these are good. So figure out what your selfish reason for doing this is. And then the other, the flip side of that is what is your altruistic reason for doing this? Okay. I want to put my kids through college. I want to support a charity. I want to retire and give a bunch of money away because I was so successful. And if you can balance your selfish reason and your outros mystic reason and keep those things in mind, there's a real chance that you're going to run a
Speaker 3 00:26:44 Good business because those two reasons are very powerful. Huh. Rather than I just answered the phone and we did some stuff and then the phone rang again and we did some more. Yeah. Interestingly, I would suggest also on the altruistic, uh, side of things, to have a clear definition of, of what you're giving to your, your team and your employees. Um, so that, that can't be, uh, taken advantage of later on down the road. Yeah.
Speaker 1 00:27:19 Interesting. Well, I can say that based on the way that you described that time, which is outstanding, I realized that I have definitely put much more focus on the altruistic reasons of doing this versus the selfish reasons. Um, so if I want to then now kind of make some changes to begin that path. I get, okay. Figure out the business plan end in mind. I want to sell my business someday for $10 billion. Just some crazy stupid number that no Avi company will ever sell for at least not in the next 150 to 200 years. Um,
Speaker 4 00:27:54 Where, what,
Speaker 1 00:27:56 Where's the next thing? So is it business structure, business plan, both of those work in chicken junction with each other? Where, where do I go next? What I'm saying? Okay. Now I'm looking forward. I have that goal. Where am I looking to to create that structure?
Speaker 3 00:28:14 So this is one of those things where I'm going to kind of reframe the question when the owner says, okay, Tom, I need to sell my business where I want to sell my business. How do I get it ready? Yup. How, what should that, I've never paid attention to business, but now I want to make it sellable. And I know it's not sellable. And what do you do to get a business ready to sell? And I, my answer is always the same, the exact same things that you would do if you were trying to run a better business. So the most sellable businesses, the business that is the best run. Okay. So we want to run the business. Well, what makes it, what is a well-run business? You're getting a good return on the investment for the amount of risk involved. Now, the problem in our industry has anybody that's done shows before is we're an extremely risky business.
Speaker 3 00:29:03 Um, not only is our work environment risky and potentially dangerous. Um, we are very seasonal and we suffer a lot of ups and downs and it is as the pandemic has shown us. Um, we can, we can skid along the bottom for a really long time. Yeah, no, it's a high risk business in terms of, of financial investment. So if you're looking at it as an investment, it's very risky. Therefore your returns have got to be very high to offset the risk. Yeah. And here your assets to, you know, uh, we live in a technology age. That's just constantly changing and updating itself. So, you
Speaker 2 00:29:42 Know, you, you buy that video wall, uh, this year and by the time you've paid it off, it's been outdated for five years, you know, it's it's yeah. So what's going to happen as we get out of this pandemic is the same thing that happened to a lot of folks. And the, after the 2001, 2002 recession, and then the big recession, which was all of a sudden, their assets were three more years out of date. Yeah. And that hurt their ability to be innovative. Now the good news is everybody else has asked us for three years out of date manufacturers hadn't designed or manufactured anything new for three years. So you did have about 18 to 24 month window to get caught up in. But if you were overcapitalized to begin with, and you were paying down a nut, or you at least been paying depreciation on all that equipment and you didn't have any other way to make money than off the equipment, then you're in really big trouble.
Speaker 2 00:30:42 Yeah. So if you're completely dependent on the rental assets to make you money, then you're suffering the ups and downs of the rental industry, the risks that go with it and the chance of the technology, um, will all of a sudden be obsolete. We, we, we w we were a video, the company I worked for the nineties, we were very heavy into video and we were buying whatever the latest, greatest video projector is. We bought as many of them as we can get our hands on. And there was a period there when Barca was, uh, coming out with projectors every six months. And I bought the lines of video projectors. I bought an entire series of video projectors, which included all new lamps, all new lenses, all new cases. And that projector was obsolete in six months. Wow. I couldn't, I couldn't give the damn why in six months, um, because they had jumped, they had jumped their own inventory two times. So that's the kind of risks that you, that you run, but sometimes you get lucky and you invest in Shure, SM 50 eights. And the same damn design has been around for 57 years.
Speaker 1 00:31:54 58. Yeah. Those audio guys darn it to got off. They have all the luck. Um, so with man, so company, we want to sell, we run a good business. We're, we're, we're what are, what are couple of things we should focus on then as, uh, as a business owner to run a better business,
Speaker 2 00:32:19 The first thing I would say is understand how it is that you actually make money. And, you know, I do a lot of financial analysis. I look, I look at a ton of P and L's and many business owners don't make money the way they think they make money. For instance, um, they are a production company, so they've got rental inventory, they've got technicians on staff. They hire freelancers and over hires when they need to. And they go out and they sell shows and they think they make all of their money on the equipment. And so they try not to discount the equipment, but they only sell the labor at 10 over. Yeah. Right. So they're not making any money on labor, which is higher risk than the equipment. Okay. And you're more likely to have to eat labor than you are equipment. So here they are, the highest risk part of their business, um, which on, in production lighting world, that could be 20, 25% of the job and corporate AAV, that could be 40 or 50% of the job.
Speaker 2 00:33:22 They're not making any money on that revenue. Wow. Right. Because they thought they made so much money on the rental equipment. Yeah. That they didn't have to make money on the labor. When you sit down with them and you show them, okay, you could be making 10 times more money on the labor and you can afford to make less money on paper, on the equipment, because they're overlooking the expenses on the equipment. They D they forget the depreciation as an expense. They forget that repairs and expense. Okay. Yeah. They forget that when they sub rent something, instead of buying it, they are actually money in cash ahead. They think their money in cash behind because they think they have to own everything. As sudden rentals are bad. Whereas sub rentals prevented them from buying more equipment than they need. So they're, they're whole, they're completely upside down about how the whole economics of this works and where it bites them, where it gets them in trouble.
Speaker 2 00:34:22 And we saw a lot of this, um, probably around 2010 when we were coming out of the recession, when people stopped buying equipment, what asset-based company stopped buying equipment to depreciation stops. And then all of a sudden the company is making more money and there's a huge tax bill. And the main reason you invest in equipment and you invest every single year is to keep that depreciation number up. So you're building your assets, but you're pushing taxes down the road. Yeah. And so not understanding about how that part of your business works. If you make a mistake and don't buy equipment for two years, one, you're going to have an obsolete inventory. You're going to have trouble being competitive. And, Oh, by the way, there's a tax bill hiding around the corner that you weren't expecting that you're not going to have the cash for, because you've been making profit based on the wrong model. Okay. So most companies should be twice or three times as profitable as they are getting by with it to run a successful business.
Speaker 5 00:35:33 Wow. Huh. So then what,
Speaker 1 00:35:38 I mean, would you say that that is the biggest, that that is the biggest challenge to creating a scalable and sustainable business model that accompany could then sell as the, is that finding where that needing more profit, but also depreciation and kind of finding that, where that balances as you grow.
Speaker 2 00:35:58 Yeah. You have to find the right model for the line of business that you're in. Okay. So it's, and that's where it gets really dicey because everybody's business model can be slightly different, but they may look the same on the outside, but on the inside, they can be set up completely differently. Um, well, so understanding how your company makes money and do you need the assets in order to have value or are the assets pulling your value down? So there I have clients who are over capitalized on rental inventory. They should own a quarter of the rental inventory that they have, which means that they need to outsource more. And if you show them the numbers, you'd be making a lot more money. You will be worth a lot more. I have other clients who are under-capitalized and they should be buying more equipment to make more money. Yeah. Some people should have no equipment at all. Something, some companies should have no employees. Yeah. So there's four extremes in there. All right. In the correct situation. Okay.
Speaker 1 00:37:01 Wow. Um, how, how can I create more profit? I mean, first recognized, which type of those four extremes I am, you know, like if I'm a business owner and I'm saying, let's say I'm in the corporate AAV. And I, we do all we do is shows where we, we provide audio, video, lighting the staffing for them. Um, you know, and there are certain pieces of gear that we know we use so often that we just, you absolutely should own them because they make money. That's just what the,
Speaker 2 00:37:31 I mean, said like a rental guy.
Speaker 1 00:37:35 No, and that's okay. I mean, I challenge my assumptions. I'm great with that.
Speaker 2 00:37:40 So you, you start with who the customer is, what our customers want from you, what do they value? What will they pay you money for? What will they pay you more money for them? They would pay somebody else money for they're going to pay someone. How do you get them? Why would they hire you? Yeah. Most of the time, it's not because of your rental inventory. Yeah. It's almost, it's almost never, it's because of something else that you do. Yeah. Right. And figure out what that is. And then what's the business model that supports that, that makes the most money owning rental inventory in a production company is I finance decision. Okay. It's not a brand decision. It's not a business strategy. It's merely a finance decision. Wow. Customers actually do not care most of the time, whether or not you own the equipment that you're to them, if they do care is because they do not trust your ability to do something. And they're using your ownership of equipment as a metric to say whether you were fully invested in their job, but if they already believe that you're fully best in the job, they don't care what you don't want to, where you got it from.
Speaker 1 00:38:54 Got it. So you run a good business. You figure out whether you should own inventory or rent the inventory, whether you should have employees or not. Um, how do I get ready to really start marketing my company to actually sell it? Um, and, and find somebody who's willing to make that investment from a company who is well-run and, and can actually be profitable for them. Yeah.
Speaker 2 00:39:20 Yeah. Okay. If you are trying to sell your company, which means going out and finding a buyer or hiring a business broker, who's going to find a buyer for you for a certain steps you take. And it requires 18 months to shoot years to get your business in shape, to sell that way. It's not a decision you wake up and do, because you have to get your business set up correctly to be attracted to that buyer, which means is you've got to get your debt balance. You've got to get your cash flow sorted out. You've got to get your long range sales forecast. You've got to be able to show that you've been growing continuously for at least two years. There's so many things that a investor who's looking at that business is going to be looking for, and they're not going to take well, we've had a good six months.
Speaker 2 00:40:13 Now, my company's worth more money. Now. They want to see a track record and they want to see trajectory. Okay. They want to know that you've been doing better or doing well on an upward swing for the past 18 to 24 months. And they want to see another 18 or 24 months out that tells them that it's going to be okay, because investors are buying future earnings. Yeah. Nobody cares what you did in the past, other than what it tells them about your potential for doing well on the future. Got it. Okay. Um, we, we can't fix your past, but we can start right now and everything we do going forward, we can do with better intention to be what investors are looking for and what buyers are looking for to make your company worth what you need to get in order to sell it.
Speaker 1 00:41:02 Yeah. Okay. That's awesome. Um, so then on the, let's go, then instead of me looking for someone to buy it, let's say that I want to retire then. So the other side of that, I'm getting kind of thinking, all right, three, four years down the road, I think I want to retire. I don't want the business to just stop. I stopped working and then suddenly my clients I'll go elsewhere. Um, you know,
Speaker 2 00:41:26 No one has ever come to me and said, I'm worried about my legacy after our retire. I mean, that's just, it just doesn't happen. Say I plan on retiring in three or four years. I'm hoping my M my kids don't want the company. Maybe my employees do. Maybe I can find a buyer, but I know I need to start thinking about it now. Well, good. That gives us time to do something, but the problem is in three or four years might be the exact wrong time to sell. So when somebody says, I'm looking at figuring out what my exit strategy is, I say, tell me what your window is. Okay. What's the earliest you can exit. What's the latest you can exit. And if you don't have a five-year window, we're having the wrong conversation. Got it. Okay. Because you can be all ready to sell and everything's perfect. And the business is cranking and the equity market won't have anything to do with you because of what's going on over there. So if the economy dips, you may not find a buyer or the economy could be booming and you don't have a company that's sellable. Yeah. Right. So there's almost always a fire sale out there, but who wants to retire on a fire sale? Yeah.
Speaker 1 00:42:38 So, okay. Then, then for a, from a percentage standpoint, is it really possible to, to take an audio visual company and, and have it be sellable enough that people say, I want to invest in that?
Speaker 2 00:42:53 Sure. Absolutely. There is. I mean, if you're making, if you're making 20% EBITDA, somebody's going to buy ya. Yeah. That's a, that's a good return on investment. Kind of, if let's say well-run company and is throwing out some tremendous cash, lots of people would look at it. Got it. But selling your business, isn't the only extra strategy. Okay. Got it. You can do, you can have employee buyouts, you can have employee earn-outs, you can turn it into an ESOP. Um, you know, there's, you could treat it as an annuity and just have the company continue to pay you while you enjoy your retirement and have a management team that runs it for you. There's a whole lot of ways to get, you know, to get to the grave after you're done working on a day-to-day basis.
Speaker 1 00:43:36 Okay. That's awesome. Um, lots of ways I hadn't even thought about, so if I'm, then, um, let's talk about the, the, the little guys, the, the, what I call super freelancers. They own, they own a couple of, uh, they own a couple of boxes. They own this or that, but they want to actually begin to create something more. Um, you know, they have the business, they've got the LLC, they've got these little things. What can they do to say, okay, I want to go to the next level and, and really start to create,
Speaker 2 00:44:08 I, I, I get these calls and I love that people reach out to me and ask me for advice when they're starting out like that. Um, and so the three pieces of advice that I give freelancers who are trying to start their own business by focusing on something, brokering some labor, buying a few pieces of gear is number one, calling yourself a freelancer, the word freelancer ever leaves your lips. Again, you're undermining whatever business you're trying to set up a number to present yourself as a business and not as an individual. Yeah. I start using your business name, start acting like a business instead of a freelancer with some GAC. Um, and then three stop working your own gigs. Okay. Yeah. Business owner works. Their own gigs is a bad freelancer.
Speaker 1 00:45:04 Yeah. No, that's great. I couldn't agree more. Yeah.
Speaker 2 00:45:07 All right. So you've got to get yourself out of your gigs. You've got to price yourself out of your gigs. You know, if you're white, if they're hiring you to get your gear or they're hiring your gear to get you, you're not a business, the business
Speaker 1 00:45:25 Be a business first and, uh, grow from there. That's awesome. Well, fantastic, Tom. I think that's a great place to wrap it up, actually. Um, we appreciate everything that you do. You just finished a book that I've actually read. I think I've read through it twice now. Um, it's outstanding. It's called demand. Um, talk to us real quick about it. Tell us what it, what you're using it for and, and how, um, what you would like to see people get out of it.
Speaker 2 00:45:53 Yes. It's called a demand how to build a smarter sales funnel. So you can turn, turn down better business. You can find it on Amazon. Um, I, you know, I, we actually, we're going to release this book right? When the pandemic started, it was supposed to come out a year ago and we pulled back saying, okay, our industry just changed. And we, it just changed forever. You know, as I said, in my, in my, my webinars, and we wanted to see if this was, what are we going to have to do to retool the book? Actually, we shelved it three arms. And then by the end of the summer, I realized the biggest problem everybody had right now, as they moved into their pandemic pivot, whatever it might be, whether they were a freelancer starting their own business, a company that was going to do streaming now, instead of rentals, um, is that they didn't know how to market their business to begin with.
Speaker 2 00:46:44 Now, they were marketing a new business to a new customer. Yeah, we did a little bit of retweaking on the book, like changed up the story, the parable of Sam in there, we changed that up a little bit to better match the times. And I use it because most of my customers need help with marketing. And there's no good place for them to start that isn't too convoluted, too complicated or too expensive, or too focused on things that are absolutely useless to them like SEO. Okay. And they were just getting really, really bad advice. So I wanted to give them the baseline advice, get it down to the brass tacks, as we say, here's what you actually need to know. And everything else right now is noise. You get this much done. We can, you know, the sequel to this we'll build from that model. But most people, if they just execute the digital marketing model, that's in this book, um, it's, it's way more than they've ever done before. And we'll get them the kind of results that they're looking for.
Speaker 1 00:47:49 Yeah. It's, I mean, I can tell you from firsthand experience, we're in the midst of revamping everything that we ever did based on the book and what you've done, and it's been, uh, it, it was so simple to execute. I mean, the, the practical tools and tips, uh, that, that I got out of the book was just huge. I can't honestly thank you enough for finally putting it into words. I mean, I've been listening to marketing experts for three years and never put it all together in a succinct, you know, 130, 40 pages, whatever it was to cleanly. Define that. So thank you. And for those of you who want to build a better funnel and want to actually create more demand for your products, I highly recommend you grab the book. So Tom, thanks for writing it. It's it was like,
Speaker 2 00:48:35 Thank you. Go, go to go see the demand book.com.
Speaker 1 00:48:39 Awesome. The demand book.com. And lastly, where can people, uh, where can people get over, uh, kind of get in touch with you, your blog, your information, your webinars. Where's the best.
Speaker 2 00:48:51 My website is Tiara stimson.com. If you'll just sign up for the newsletter or register for a webinar, we'll keep you in the loop. And, um, I share a share valuable stuff every week. You do
Speaker 1 00:49:03 Hundred percent. Well, Tom, I can't thank you enough for all the value that you bring to, to the industry. Um, I mean, it's been so good and needed through this whole time period. So thank you. I appreciate your time today. Uh, your expertise does not go unnoticed. I know a lot of people really appreciate it and my friends talk about it regularly. So it's awesome.
Speaker 2 00:49:22 Well, thank you for having me and thank you for the kind words.
Speaker 1 00:49:24 No problem. Thanks, Tom. I hope you have a great day.
Speaker 2 00:49:27 Take care. Cheers guys. Take it easy. Okay.
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