Paul Cronin walked into a $150M company in Iowa with one client making up 98.6% of their revenue, and no HR department. In this episode, the business consultant and turnaround expert breaks down why most business owners are sitting on a company worth half of what it could be, why the one question he asks every potential client separates the ones who'll succeed from the ones who'll waste his time, and the three moves that can double your business valuation before you ever think about selling.
Episode 24: How to Turn Your Business Into a Transferable Asset with Paul Cronin
Most business owners think they’re building an asset, but might actually just be building a job for themselves. What’s the difference between a business that survives and one that thrives? It comes down to common patterns that hold businesses back and simple principles that create lasting value.
In this episode, Zach and Mike sit down with Paul Cronin, a coach who works with companies ranging from a few million to hundreds of millions of dollars in revenue. We explore why corporate success doesn’t always translate into entrepreneurial success, how great leaders learn to coach people at every level, and why being “coachable” may be the single most important trait a business owner can have.
We also dig into an often overlooked topic: transferability. If your company depends entirely on you, do you really own a business, or does the business own you? You’ll learn how buyers evaluate risk, why some companies bring higher valuations than others, and how understanding the four capitals can dramatically improve both business performance and long-term wealth creation.
We also chat about the biggest mistakes founders make when preparing for a future exit, the importance of building systems that work without the owner, and why waiting until you’re ready to sell is often far too late.
“Don’t tell me what you’re saying yes to, tell me what you’ve said no to that probably was a better idea.”
“Your job as the owner is to create a highly transferable asset.”
“The number one reason companies struggle is not having the right people in the right seats.”
“If nobody wants what you have, it has no value.”
Paul Cronin helps owners of $7M-$150M companies escape the Founder's Trap, unlocking 3 to 8 times their enterprise value. Stop chasing EBITDA at the expense of engineered transferability, optionality, and your freedom.
Find Paul Cronin on LinkedIn
Email Paul Cronin: paul.cronin@cornerstone3inc.com
For Investors & the Fund – Learn how the Fund works and book a call
For Borrowers & Deals – Get funding and support for your next investment
[00:00.0] I'll just say this, the common thread from 10 million to 200 million, whatever the range is, is are they coachable? Right. If the founder or the CEO is coachable, I can do anything because they're open minded.
[00:16.0]
A good coachable leader cares more about the team than they do about themselves. Most people think saving money is the answer, but the truth is saving only gets you to zero. Join Mike and Zach as they flip the script from SA to earning from zero to unlimited potential.
[00:36.1]
Welcome to Save to Zero. Hey everybody, welcome to episode number 24 of the Save to Zero podcast. We are here with Paul Cronin from Cornerstone 3. Paul is a business consultant that among other things, helps businesses get themselves ready for And a.
[00:57.0]
A lot of people build a business that they think is saleable and then they, they try to sell it and, and come to find out that it. And Paul helps make sure that if you have a blue collar business or any sort of business really and you want to be able to sell it and path something for your legacy that you can pass along, that you'll be in a position to be able to do that.
[01:17.0]
Paul, thanks for coming on. Yeah, thanks for having me Zach, Mike, I really appreciate the opportunity. So tell us a bit about your background in business and why you started this business in particular and give us a little bit more information about what you do. Sure.
[01:32.8]
Well, I'll start with a little bit of history. I've been around a while so I won't take too long. But I started out in audit with a publicly traded public accounting firm right out of college. And right away you start going into businesses analyzing systems and financials.
[01:49.0]
And so I always train my brain to be looking for, what's working well and what's not working well. And subsequently I became an auditor with the internal auditor with Sheraton. Hotels travel around the world and in that process, not only was I doing systems and financials, but I was learning about cultures.
[02:06.3]
This is during the Foreign Corrupt Practices act and making sure that the hotels were behaving like US companies and Egypt and places like Kuwait and places like that. And it's these hotel leaders are saying, Paul, you guys kind of, you USA guys are kind of preemptive thinking that you can just have us behave the same way you behave.
[02:27.7]
So I learned a lot about culture during, during that time. And then at 27 my boss sent me out to LA. The Sheraton Grand Hotel was being built in downtown bunker hill of LA and it was 11 months, $11 million behind, budget and six months behind schedule.
[02:47.3]
And they said fix it. So it was my first turnaround situation and I had to work with a general contractor, the gc. William and Burrows wasn't. They stopped working because the change orders were so great. And I'm okay, 27 years old and have been on a construction project before.
[03:03.2]
But they dropped in a project manager who knew something about construction and together we started working with the GC and got them working again. And we actually cut both overruns in half and then opened the hotel up. Nice. Wow. It was interesting.
[03:18.3]
It was. I was used to traveling. I was just checking things out. I was using, do high intent stuff, always using my analytical skills, people skills. And then opening the hotel was fun, but I ended up in the seat of assistant controller. And that was great at 28 years old.
[03:34.2]
But I soon got bored. So I did something I learned from. But I probably wasn't the best two years of my life. I became a broker, with Merrill lynch in Beverly Hills. I was not gonna, I didn't have any relationships out there and I wasn't good at cold, calling.
[03:54.1]
So that was two of my most painful years. But kind of to your podcast like saving to zero. I was not interested in saving to zero. I was willing to take risk. And that one didn't work out for me. But coming out of that, the environmental engineering industry was just cercla sickra.
[04:12.5]
A lot of the, environmental engineering laws are being passed. And I got involved with the indoor air quality business and a lot of small startups. And so I started becoming in sales and general management in these small startups. And I really got to see how business were founded and how they needed to grow and the idea of putting in systems and hiring people.
[04:33.2]
And eventually I was hired by Earth Tech, in Long Beach, California. They were a geotechnical firm and a groundwater soil remediation firm. They decided to get in the indoor air quality business and they hired me to grow it. And I had seven really great years there.
[04:50.2]
And so good that they promoted me to regional vp And I was running a geotechnical engineering group and half the team was from Sri Lanka. And these guys are saying to me, paul, how is it that you're our boss when you don't know anything about geotechnical engineering?
[05:06.8]
And I said, guys, it's because I know how to make money and you don't. Right?
[05:14.9]
It was a lot of fun. I turned that, that was our largest office In Southern California, in Irvine. It was an $8 million office. I turned that around in six months, and then I had six other offices on the west coast. And some were doing okay, but, most of the turnarounds were replacing the head guy because they were taking these engineers who were solid project managers and then putting in position of general management.
[05:40.6]
But they didn't know how to. They didn't know how to recruit, they didn't know how to hire, they didn't know how to onboard. They didn't know the P and L. They could run a project and they could sell, but they couldn't run a P and L. And, as a result, they didn't understand business.
[05:55.7]
And a lot of times they didn't make money. So that was my early career. Earth Tech got sold to Tyco International in New Hampshire, and in doing so, they. They terminated all the regional vice presidents. I was one of them.
[06:11.3]
And it's wait a minute. I've been getting my bonus 100% every year for seven years. And I lost my job. And so, we moved to my wife. We had gotten married, and my wife and I. She's from Minnesota. She has an identical twin sister.
[06:26.6]
I thought I was a smart guy, but I did not see this coming. Hey, honey, why don't we move him back to Minnesota? And I'm back. I've never been. And so, we ended up here in 98. I ended up running a staffing company for a year, and then a larger staffing company, the regional for a much larger company.
[06:48.5]
And the industry collapsed. The staffing industry, I don't know if, around 2,000, you know, when, particularly in the IT space, these guys were, rocking and rolling. They were selling themselves off for high dollars for, for cars and bonuses and things like that.
[07:04.0]
And. And, all of a sudden, remember 2000, the industry collapsed, right? So I'm out of a job again. So I decided to become a turnaround guy. And I went into companies that were, falling apart. They were troubled.
[07:20.2]
And so I spent six years turning around companies. Didn't matter what industry this. The problems were the same. People didn't know how to hire, right? They didn't know how to organize structure. They didn't know how to manage workflow. They didn't realize that their supply chain was part of their team, and they treat them poorly.
[07:37.2]
You they didn't keep their brand promises. Just a whole bunch of dysfunctional things. And the more they were Family orientated, the worse they were in a lot of cases because of the dysfunction that parents have. They love their kids so much and unfortunately they want to make life easy for them.
[07:53.5]
But it's almost not believing in them. And they give them these cushy jobs and these titles and these incomes and they put them in positions of importance. But the company doesn't function well. So that's why only 3% of family businesses survive to the third generation, and only 17 to the second generation.
[08:11.2]
So there's so much dysfunction out there. So that's how I started. That's the basis of my, my business learning, I just analyzing, seeing things that weren't working, looking at the systems. And so then I became a coach because I was, I didn't want to be cleaning other people's messes up anymore.
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I wanted to go out and see if I could prevent them from occurring or at least maybe clean them up in the, while they were. Before they went defunct or before they got too, too bad or before they decided to sell and the private market said, we're not interested.
[08:50.8]
Right. So, that's kind of the genesis and I'll stop there. That's where it all started. That's my background. Well, Paul, that's a lot to unpack. This is fantastic. This is going to be fun. So the first thing I want to say is my second company was a construction company that focused on property damage repair, so fire, water, vehicle impact, et cetera.
[09:12.5]
And we repaired about 250 houses a year, give or take. And there was a guy I know who entered the industry. I was in Idaho, he was in California. And he entered the industry at the same time as I did. But he was a Wall street, investment banker.
[09:27.9]
He only lasted about 16 months, as smart as he was. And he was an MBA from Columbia. He didn't understand that you don't have an HR department anymore, bud, you got to handle it. You have to hire. Because he was starting himself. He started out by himself as a solopreneur and then he didn't have an accounting department.
[09:47.1]
He didn't have somebody that was going to come and do maintenance. He had to do all the little stuff that employers have to do. So I find it interesting when you have people that are in the corporate world that aren't able to transition, to the smaller business world because they don't have the, they just don't have the skill sets.
[10:06.3]
And you talked about these engineers that were surprised that you were the boss and you hit it right on the head. Well that's fine. You know how to be an engineer, but you don't know how to make money. We got to make money or we're not going to pay you as an engineer. Right on. My brother's an investment banker.
[10:23.6]
He's six years younger than me. And I say, rob, you could not manage yourself out of a paper bag. You understand how to look at spreadsheets. And you know what? He admitted it. He said, yeah, you're right, I couldn't. That's funny. Okay, so let me ask, what did you do?
[10:38.8]
Because I think that's one of the biggest things in business is the ability to pivot. And it sounds to me like you've pivoted multiple times. I to be, a 27, 28 year old kid and go to to sorry, be in charge of building a hotel and you nothing.
[10:58.3]
Yeah, that's wild. That's impressive. So I gotta ask, I don't know if it's a conscious thing for you or if it's just you learn as you along. Where did you get this ability to pivot? Because I think a lot of people can't pivot, you So Al Thomas was my boss, in the internal audit department at Sheraton Hotels.
[11:17.8]
And we had a lot of trust in each other. We really cared about each other. He was a brilliant guy and he knew I was responsible, and dependable. And I used to, I said, al, listen, send, send me to the east coast or the west coast, but don't put me in some hotel in where I am now in, Minnesota.
[11:36.6]
Yeah. And so there was a couple things. There was a, there was a high need and there was a gap. And he just knew I was, I mean when you travel the world and you're able to go into a hotel in Kuwait and come up with 58 audit points and stay alive, it was, he knew that, this is back in the 80s, but he knew that I had the ability to work with people and solve problems.
[12:02.1]
And so he trusted me to do that. And so I think it starts with mutual trust. And there's a thing called the EQ versus the iq. Sometimes I wonder about the iq, but I'm pretty good with the eq. I get along with people really well.
[12:19.7]
I care about people. I sincerely want to help and solve problems and because of that I'm able to facilitate, I'm able to stand back and let the problem present itself and Work through it, not try to have all the answers.
[12:35.6]
And that's one of the biggest things I learned, and I have to do that as a coach, is not to go in there as a consultant per se, but to go in there as someone to facilitate a conversation with a bunch of people of which maybe not one person has the answer, but together the team should have the answer.
[12:53.7]
And then just always asking for supporting documentation where this come from, what's the root cause, things like that. And we were able to do that and gain that trust. And Williams and Barros, they went bankrupt just a short time afterwards, but they made a big mistake.
[13:11.2]
They bid the job without complete drawings. And there was a time pressure and they decided to do it. And so they had some culpability there too. And they knew it. So they didn't even really know what they were going to be building, but they bid anyway.
[13:26.4]
And then it didn't work out. Right. Right. They didn't know 100%. It was the sixth or seventh set of drawings. Sure. But it kept on changing. Yep. Interesting. Okay, so let me ask. It said you indicated here that you work with organizations from 50 to 200 million.
[13:47.5]
Those are completely, and obviously don't need to tell you this, but those are completely different animals. I mean a company doing 5 million and a company doing 200 million, I mean, that's completely different worlds. How do you pivot with something like that? Because there's different education levels, there's different cash flow, there's different pressures.
[14:07.1]
How do you meld within each of those? Because that's major. I mean, that's like a contortion. Yeah, thanks for recognizing that. That's a good observation. And I would, I would say let's start with the smaller sized companies. There's, there's more opportunity and also more problems in the smaller type companies because in the smaller type, and I'll just say this, that the common thread from 10 million to 200 million or whatever the range is, is are they coachable?
[14:34.3]
Right. If the founder or the CEO is coachable, I can do anything because they're open minded. Again, they care more. A good coachable leader cares more about the team than they do about themselves.
[14:50.5]
And so as long as they're open minded and coachable and otherwise they wouldn't be out looking for me and asking me in. That's one of my screens before I take an opportunity is I determine by asking them whether or not they're coachable.
[15:08.3]
And you should see the ones that aren't. They start wiggling in their chair and start making excuses and so forth. Right. What types of answers do you get? Because I can't imagine most people say, yeah, you can't coach me at all. Maybe some do, but, how do people weasel their way out of that one? Well, the ones who aren't get really.
[15:23.8]
They get, really nervous and they start kind of prevaricating and they start sweating. And I just said, well, it sounds like this is making you uncomfortable again. I'm an east coast guy. I don't worry about upsetting the apple cart a little bit.
[15:39.5]
I need to find out. There was one year I didn't, and I ended up firing three clients within 90 days. And I don't ever want to go through that again, because the first engagement is three days full time, and I pour out everything.
[15:55.5]
I teach them so much so fast. It's like if I lose a client in 90 days, I just wasted a lot of good information that I shouldn't have. Right. So it's not good for me, it's not good for them. So it's really important that I. They pass that test. But, but, but just so for the, for the sake of information, those that are coachable, it doesn't matter the size of the company if the.
[16:18.7]
The leaders and the team is coachable. Now, if the leader's coachable and some people on the team aren't, we can fix that. But if the team is coachable, and one guy said that to me, well, my team is very coachable. I said, hey, great, good to hear that. How about you? Y. We didn't get started.
[16:35.1]
That one didn't go forward. Right. So it's really about that. That's number one. Number number two is the smaller ones. If they're not invested in it, they don't have. If cash is a problem, having been a turnaround, cash is king. You really have to get good at identifying the next most important thing to say yes to.
[16:54.0]
So that's what I call opportunity cost. Right. Don't tell me what you're saying yes to. Tell me what you said no to. That probably was a better idea, right? Because the, opportunity cost in business is most people don't measure this, but it's often what kills you because you didn't make the next right decision with your money.
[17:11.7]
Right. You took the easy path or, or you didn't let go of somebody that you should have, you so. So working with the smaller companies, sometimes these folks are, less, experienced. They haven't Been through it yet. They, they're, they're sometimes a little bit bright eyed and they're kind of concerned.
[17:30.3]
But if they're coachable, we can start using the money wisely. Then we can grow appropriately because you can't grow too fast and you can't grow too slow. Both are bad. So that's where I as a coach can help a lot. And at that point in time it's a lot about execution.
[17:48.6]
Product market fit is important, but executing correctly and keeping your brand promise is, is essential. The bigger companies, you they, they, one of the big areas and, and Mike, you mentioned it earlier. I want to do $150 million company down in Iowa.
[18:06.8]
And I walked through the door, they had one, they had one client. They were 98.6% with that one client. Oh, revenue concentration. Right. That's good. Until it's not. Yeah, yeah. And, and they had no HR department. I said how did you get to $150 million without an HR department?
[18:26.3]
You and this, this guy's become a great friend. He's referred a number of clients to me. He's now at 450 million. And we got the revenue concentration down below 60%. But it took a long time. But he was very coachable.
[18:42.1]
He was second generation and he's extremely coachable. And we just put in the systems and the processes and the, and we train his people how to be better leaders and better coaches so that they too would build great teams below them. So in that kind of model it gives me a lot more opportunity to reach down and through the organization because I don't just work with the leadership team.
[19:04.6]
I work, I have a program, called Leadership plus coaching Equals Accountability. And I teach that how to be a great leader and a great coach to get accountability. It's the combination, it's an algebraic equation. It's L plus C equals A. And if you don't do both well, you really can't have that leadership and management role.
[19:24.4]
And so that helps a lot in these bigger companies. And so I love that because I have the opportunity to teach two and three levels deep. Whereas in the smaller companies it's typically just, you the founder and a couple of key players. And they're, they're doing everything.
[19:40.5]
So ask what, so that our audience knows what is the smallest size company that you generally work with? About 7 million below that. So if you look at studies, there's about 34 million companies in the United States. Only 4% get above a million dollars.
[19:57.2]
And only 0.4% get above $10 million in revenue and only 17,000 exceed 50 million. So there's a whole, the pyramid is really wide at the base. And so it's harder for me because there's fewer companies. But again, those companies in the million to 3 million, it's probably not a good use of my time or their money to engage me at that level.
[20:21.8]
Unless they're a software as a service and they have a big market, opportunity, then that would be appropriate. But if they're a mom and pop H Vac company or electrical company, it's probably not a good use of their money or my time.
[20:36.9]
How much time do you typically spend with a company and then, going along those lines, how do you know when your work is done? Yeah, well, sometimes I've had a fire myself. So, I, when I don't believe I can bring value anymore, my ethical standard is.
[20:52.8]
And I, that guy I told you about that, we grew to 450 million. I told him, I said, I really care about you and I know you care about me. We've had a great run. It's been eight years, but I can't justify the monthly fee anymore. It's so. And he said, well, I was glad you brought that up.
[21:08.8]
He's such a, Iowans are really nice people and they don't like confrontation. And so it's like I had a fire myself. But again, that's kind of the relationship we build. We have that kind of trust. Fantastic. I love it.
[21:25.0]
I start out with a two to three day workshop to get started and I hit them hard with a lot of ideas and infrastructure. And then I have a cadence of a half day in the first and second month of the, of the quarter and then a full day or two half day quarterly and then two half days and then a four half.
[21:47.2]
Sometimes they want to do a full day and I'll do that in person. If they want to do it online, I'll split it into two half days on week 10 and then again on week 12. And do kind of with the okr system where you're, you're, you're dividing up your half days.
[22:04.6]
There's but. And when I kick them off, when I start them out, I actually meet with them every week for 13 weeks to kick off the weekly, what I call the weekly level 10 meeting. It's an EOS traction tool. I find that level 10 meeting that Gina Wickman created to be the best weekly meeting cadence when done properly.
[22:26.8]
And so many people don't know how to do it well. So I actually facilitate that for the first time, 13 weeks. And after that I'll drop in once in a while to see how it's going, making sure that it's going well. But when I started out my coaching program, I actually, that's how I differentiated myself because Gino doesn't, didn't teach it that way.
[22:47.0]
He thought that was not a good use of coaches time. And I said, gino, your book's called Traction. This is where the traction is. Because these founders, particularly the founders, they're more visionaries, which means they're more leadership skills. And they're not coaches, which is more internally focused on the people.
[23:05.1]
And they don't like or know how to facilitate a really good weekly meeting. And so now some force themselves to, but it's just not their thing. So, I, I did that and I was able to get traction really fast.
[23:20.9]
And again, being a turnaround guy, I like speed. I like to see things happen fast. So I did that in the beginning, but now I've had a, it was just too much, at one point in time I had 15 clients and Mondays and Tuesdays were full of level 10 meetings.
[23:36.5]
And it was just crazy. Wow, that sounds crazy. That brain stretch. You must have been tired of eos. It's definitely two years. And finally I said, what happened? I went from EOS to scaling up. And scaling up was a four day training program.
[23:52.7]
And my educator, my coach was Shannon Susko who started and sold two financial tech companies. And I said, well, you can be my coach. And then in that room were other people who had founded businesses and written books. And the level of coaching talent in that room was oh my goodness.
[24:10.4]
I was so glad I decided to jump into scaling up. And then from there. When Shannon started her own program, 3ag way and metronomics, I got trained. I was number seven in the world getting trained in that program. And now she has over 150 coaches worldwide and she's written a number of books.
[24:26.8]
But there's so many operating systems out there and I've been through them all. They all have holes and they all have some really nice fine instruments in there to pick out and use. I like Shannon's three Hag Way book because it took Michael Porter's work from Harvard and she actually synthesized it and created tools around it.
[24:47.7]
So it was easy for a coach like me to implement, and it was easy for the team being coached to understand it. I can take someone through strategy in a day and have them understand more than they did after being in business for a number of years by using those tools. So, she did me a big favor by recreating those tools and writing that book.
[25:09.8]
So from listening from the beginning of the podcast to now, I'm seeing the theme, and I suspect you're aware of it as well. You're coachable. Oh, yeah.
[25:25.6]
So that's why I think you do well at your positions, because, you do well in your company because you've had so many pivots, and you can't pivot like that unless you're coachable, because you stay in your lane and you're willing to say, well, wait a minute, let me see what's going on in that lane.
[25:44.6]
So you hit on something for me is I've had two companies. This is the third one that I have now with Zach that, is a sponsor of this podcast, which, is a private lending business. And one of the things I had difficulty with in each of my first two companies is I am a visionary.
[26:04.2]
And I sometimes have difficulty coaching others because I don't consider myself particularly intelligent. And Zach would agree that I'm not particularly intelligent. So, I don't get why people don't see what I see sometimes.
[26:21.1]
Like, no, it's right in front of you. How do you not see that? It's right there. So I figure if I can see it, they have to be able to see it. And if they can't see it, there must be something wrong with them. I need somebody new, and I've done that. How do you coach people? How do you coach people like me?
[26:39.6]
Well, first of all, Mike, you need to be coachable, and I think you are. The second thing is you need to know who you are and where you bring value. And I have those conversations with people like yourself in particular, and Gino, again, going back to Gino, he does a good job where he points about the visionary.
[26:59.1]
The visionary shouldn't be the coach. A guy like you, you need a number two. There's a book called make the Noise Go Away by Larry Lynn. It explains it so perfectly well. And it's about, you need to delegate what you're not good at. Your time is better spent thinking about the next product, the next idea, where a product market fit works, where you can make big bucks, right?
[27:23.3]
And you need a number two. Or right hand person that can do the hiring and the infrastructure and the coaching, because typically you're not cut out for it. And this is why a lot of companies struggle in the early stages is they don't understand that they have a superpower, which is their superpower, but it's also their anchor.
[27:44.5]
And because they're so good over here, they have a hard time understanding they might not be good over there. And it's not whether it's you're right or wrong or good or bad, it just is what it is. And as soon as you accept that, right? As soon as you accept that, then you can say, okay, there's a gap here.
[28:02.7]
How do I fill it? I need my alter ego to come in. But then you have to let that alter ego do their job, right? You identify the job and let them go get them. Let them just go do it. Okay, Think about, think about the companies.
[28:19.1]
Like Ford had a number two guy, right? Jobs had. Wozniak Gates had, what's his. Paul Allen, right. All those companies had number different. Their alter ego.
[28:35.0]
Okay, so they had an integrator who could actually make it happen. Yeah, gotcha. Okay, so you also prepare companies for sale to And A. And I was listening. I've become aware in the last six months that Alex Hormozy has a partner.
[28:55.4]
And I didn't know this until recently, and from what I understand from his podcast, his partner is that he has sold. He's had $2 billion exits from companies that he started and been involved with.
[29:11.4]
And the reason Alex hired him or took him in as a partner was because Alex has said, I've never had a billion dollar exit. I had to bring somebody in. But I found something very interesting, and I want to know if this is something that you do, is that what he said was in his first company they went out and when it was time to sell and they went through that process, the second time he sold, what he did was he would go to an And A company when he wasn't ready to sell and ask them what he.
[29:45.3]
He would act as if the company was for sale so that they would poke holes in what he was doing and they, okay, I'm going to fix those things. Then he'd work on them for a period of time and then go to another And A company and say, okay, I'm thinking of selling now. And then they poke holes.
[30:01.1]
And that's how he prepped it. So how do you prep your clients to be ready for a sale without going to an And A company when you don't intend to sell. Yeah, I love those guys who are able to put their egos in check and go out and find somebody who's already done it better than them.
[30:17.0]
So, kudos to Tony Robbins, kudos to Alex Hormozi. And I understand, according to my son, who loves, Hormozi and reads everything he does, I guess the. The smarter one is the wife. So I don't know if this is going to go across the airways or not, but, she's.
[30:32.5]
She's. I've listened to her a couple of times. She's quite right. Just so, Paul, they're. They're big fans of ours, so I'm sure she's going to hear it. And the next time, I guess I'll let her know I'm a fan, too. But I just want to know. I just want to let everybody know where the brains are.
[30:50.7]
So get into your. So this is the deal, guys. And this is what I'm building my category around. Really what happens. I call it about being transferable. Think about the concept. If nobody wants what you have, it has no value.
[31:06.8]
Yes. Fair enough. Okay. Is that fair? Yeah. So in order to make what you have valuable, it must be transferable. Right? So that's where I come with the concept of transferability. Your job as the owner is to create a transferable, highly transferable asset.
[31:26.8]
Now, why is it not transferable? Most privately held companies are dependent on the founder, owner, and that's the number one problem. I mean, you hear Tony Robbins is talking about it right now. Everybody's talking about it right now. Owner dependence. Right, but they're not going deep enough.
[31:43.5]
The owner dependence is costing you two to three times on your multiple. Okay, so I just said something that I tell you. If 100 business owners were listening to the show, 70 wouldn't know what I meant by the multiple. Okay? The multiple is the indicator of risk. So most business owners, they're focused on the top line, and they stick out their chest and say, I'm a $10 million company.
[32:04.9]
I'm a $50 million company. And it's okay, good for you. Right? And then some other ones, maybe about 30% of them say, Hey, I got a strong EBITDA. And it's is that a Latin word, or do you know what it actually means? Right. Yeah, right. I just know I'm supposed to say, exactly.
[32:25.2]
And it's earnings before interest, tax, depreciation and amortization. And then some people call it cash. And it's Not really, because you haven't included the balance sheet, right? Your assets, your receivables, payables, and your inventory, which is your working capital. Now you have cash, right?
[32:42.9]
What I'm trying to say is what most owners of privately held companies don't understand is that the private equity firm, firms out there which buy 7 out of 10 companies, right, they're the ones that do most of the transactions. When transactions are done, they're buying cash flow streams.
[33:01.1]
And they're not buying just cash flow streams. They're buying predictable cash flow streams. And in order to be predictable, there can't be any risk, or risk has to be mitigated, right? So the mo. So people are looking at revenue and bottom line, and they're looking at their company as being valuable.
[33:20.6]
But the question is, how come I can have two $10 million companies with the same EBITDA and one's worth more than the other? It's because one is more risky. So one of the things that I focus on is de risking the business, right?
[33:38.1]
And so, well, how do you de risk the business? Well, you look at the four capitals, right? So the number one capital is human capital, right? So do you have the right people in the right seats doing the right thing, which is, again, a lot of coaches talk about that, but do they know why? Do they know what the impact is on the multiple?
[33:54.8]
Right? So if I have an H VAC system, like this guy Fred, who I talked to recently, been in the business for 40 years, and I got referred to him, and he says, well, you Paul, I've been offered a 3.5 multiple. I said, fred, we don't know each other, but that's really low. Yeah, I know.
[34:11.5]
I said, well, your accounting firm suggested we should talk. And I said, you give me two years, maybe three at the most, I can get you to six or seven, you know, that's another five to 10 million bucks. And you what he said to me? I'm in. He says, I've been at this for 40 years.
[34:27.0]
I'm 70 years old. I have a house in Arizona. My wife says, I want you to be done. He says, I have to go. And I'm fred, are you kidding me? He says, paul, I wish my advisors had introduced me to you two or three years ago.
[34:50.8]
That's the problem in the marketplace. The marketplace does not understand the math of, creating value and the math of creating Value is two buckets, the EBITDA bucket, or cash bucket, preferably, and the multiplier bucket, which is based on risk.
[35:07.3]
And the job is to de risk the business such that the multiple goes up so I can have the same revenue, the same EBITDA, but one's going to get an 8 multiple and one's going to get a 3.5 multiple. Do you find your clients find that hard to believe that they can increase the multiple that much, or do they, once they reach out to you, do they kind of understand what you do?
[35:30.2]
Well, so that's a great question, Zach, because belief is when they choose to, engage me or not. Yeah, right. If they don't believe me, they're not going to engage me, right? If, if they do believe me, they're going to engage me. Right.
[35:45.5]
And again, then they're the. Then there may be the few just consuming Hopium. Right. I hope this guy's telling me the truth. Right. But in the first, in the first. In the first 30 days, what I do is I get their financials.
[36:02.4]
Just last year, I have them answer my readiness bundle. So their personal readiness, their business readiness, and their business attractiveness. And it's about 20 minutes to go through those questionnaires. And then I do research on the market that they're in, and I help them understand in the range of values based on their ebitda, the net operating income, ebitda, and where their multiples likely to fall based on how they answer those questions, whether they're in the middle of the pack, the high end, best in class, or low end.
[36:35.7]
And I can show them where they are. This. It's not perfect, but it's hey, guys, you're about a three, three and a half, four. Best in class is 16, right? What do we need to get there? I can actually show them. We work on these four things and we can get there.
[36:51.9]
And this is what it means to you. I'm working with a client in New York right now. We started, last week, last year, in June, right? He was doing 9 million last year. At the end of the year, we did 15. We're trying to get to 50. We're looking at about $100 million in three years. Wow.
[37:07.9]
Yeah. Holy cow. That's what we're talking about. Holy cow. And I showed him all this, right? And so I can prove that if people give me the opportunity, I can show them how to do it. And, there's so many companies out there, guys, that now I've got one group that I talked to.
[37:25.3]
There's three partners and one of them. And there's four actually, one of them suing. So that's part of a problem. But I said, well, how much do you need, guys? And they looked around, they said, well, probably, it's probably worth 4 or 5 million right now. We need it to be a 25 to 30 million. I said, okay, let's pull out the exercises.
[37:42.3]
So I did this as a trial run to try to close these deals. And I showed them all the work I just explained and I said, okay, does this make sense to you? And then I went through it and I said, you can change any number you want. Let's go through it together. And an hour later I said, can you see how we can make $30 million?
[38:01.2]
So that's a bump of 25 million in three years. That's impressive. Yeah, that's a little impressive. Just a little. And I don't know what you charge and I'm not asking, but a lot of people, it's can you afford not to do something like this if you've got a business and you have all this value sitting on the table?
[38:20.0]
Well, so, these guys, cash poor, they're in a lawsuit with a disgruntled partner. I said, guys, you gotta pay me a little bit. I'll do it as a percentage, but you gotta put some money in because the recidivism rate's too high.
[38:38.9]
If you don't have some money, for sure get to have some skin in the game they can't get their head around. They can't get their head around it. I said, so you mean I'm not going to tell you the percentage? I said, but you mean to tell me that, if I help you make 25 million, you won't pay me X on.
[38:57.1]
On a percentage. I know. How do you. How do you like? I don't know. Yeah. Wow. Yeah. Some people can't get out of their own way, right? I know, Right? Yeah.
[39:12.2]
I gotta tell you, I used to, work at a psychiatric hospital in, the Alcohol and Drug Treatment Services unit. And I had to learn that sometimes you just need to walk away even though you know they're wrong. They know, they know they're wrong, but they're not willing to acknowledge that they're wrong and accept it and do something about it.
[39:32.9]
And they keep being wrong. And you come back five years later and they're just as wrong as they were five years later. The only difference is five years have Passed. Right. Yeah. You know, and it's a shame, but sometimes there's nothing you can do. Yeah, you can't. I know. Yeah, I know. It's too bad just seeing somebody, stuck like that, and you can see all this potential, and you can tell them, guys, I've done this because, a lot of people, a lot of owners get.
[39:55.4]
Get scared away because there's an industry called the exit planning industry, right? And. And I know my avatar very well. I know you guys as founders of businesses. And the last thing you want, unless you're like Mike, who's a serial entrepreneur, the last thing you want is talk about exit, because your identity is tied to your business.
[40:16.5]
And, so what happens is it stops the conversation from happening. So that's where I like to talk about transferability. And I'll give you one really good example. Nine years ago, I was introduced to a guy, and we started working together. And he said, paul, I want you to get my wife to run the company so I can go out and be the visionary, right?
[40:33.0]
And sell as well. And, long story short, made that happen. So these two have been growing the business. And I said, what do you want? And they said, we want to be financially independent. And I said, you already are. No, we're not. And they both came from the poorest side of the tracks, right? And I said, guys, you could sell your business tomorrow and you could have that $20 million in a portfolio making 4% after taxes and getting $800,000 a year tax free.
[40:59.7]
That's your financial freedom. That's what you just said to me. That's what I call the wealth gap, right? What's your wealth gap? They had saved a million five. They needed 20. We needed to hit 18 and a half million. I said, but right now, you have a company that has a chance of growing. And so there's a profit gap and a value gap.
[41:18.2]
We can work on that. And so we did that. We had a BHAG of, of $20 million at the end of 10 years, right? And we had a goal of growing the business, and we take out cash every year over and above, working capital and taxes, right.
[41:35.7]
In eight years. In eight years, they hit their b hat. All right? The company went from 25 million to 145 million during that time. In eight years. Over eight years. And. And they hit their wealth gap, right?
[41:50.9]
So that, they're at 25 million in. Above it. Right? They're. They're 5 million above it. Yep. Right. And we. I just did their family planning last year. And I said, well, what's the new b hat going to be? You hit your bhag for both the business and the personal.
[42:06.9]
Right. You're financially free. What, God, God forbid anything happened, you're still financially free. Right. What their bhag is? We want to give away $100 million in the next 10 years to charity. Good for them. So the point is you don't have to sell, you don't have to have a transaction.
[42:27.4]
So the fear of exiting, you don't, if you go to some people, they're yeah, yeah, yeah, let's exit. You don't have to exit. You just have to run a really healthy business and do what you want with your money. Right. So these guys haven't exited at all.
[42:43.2]
Yeah. What is something that our listeners can do in. You I'm sure this is opening up a Pandora's box for you and there's be a lot to unpack. And what is it something that they can do?
[42:59.6]
What are the three top things that they can look at to see if they're going in the right direction? Is that even an appropriate question? Sure, yeah. So the, it goes back. Another way of asking the question is, Paul, what's the most common problem you find when you walk into a business? Sure.
[43:15.0]
Okay. Okay. So the most common problem in a general box is called dysfunction. Right. And so a lot of that. If you can just read one article from Fortune magazine in 1999, June of 99, by Dr. Ram Sheran, she says, why do CEOs fail?
[43:33.0]
And the number one reason they fail is because they can't execute. And the root cause of the poor execution is not having the right people in the right seats. And get this, when you read the article at the very end of the article, they know it and they don't do anything about it.
[43:48.8]
And the article gives the six reasons why they don't. That's the number one reason why companies in particular family held companies, struggle and often fail is personnel decisions and then letting them stay in the seat when they shouldn't be there.
[44:07.1]
That's number one. Number two is product market fit. So this is the EBITDA side. Right. The most highly leveraged, item on the EBITDA bucket is price. And I'll go into every client and I'll say, raise, Your price is 10%.
[44:24.6]
They'll look at me like I'm nuts. You don't know me, you don't know my client. I said, well, I Know the fact that nine out of ten people I talk to are fearful of raising prices. As a result, your prices are too low already. And we could do a test here, but if you raise it 10% and you don't lose anybody, what is that telling you?
[44:45.5]
And they do. And all of a sudden there's no friction on price. So unless they're in a highly cost industry, like, you grocery store or something like that. But most of the companies I'm working with are not like that. And when they do it, I've already paid for myself.
[45:01.6]
Right. If you're a ten, million dollar company and you raise your prices by 10%. Right. You just made a million dollars. Bingo. For the year. I've more than paid for myself for the year. Yep. Right. And so, so that's the other thing is looking at product market fit, understanding that and then understanding pricing and some of the ones you may have lost.
[45:22.3]
I was a turnaround guy. One of the first things we did was the waterfall. Examples like which clients are making us money and which clients aren't. And I would fire the ones that actually cost us, cash. You we work for them, but it cost us money to work with them.
[45:38.0]
I said, you have a choice. We can raise our prices and you can pay us a profit or you gotta go. And I was actually saving money that I was saving cash that way. Right. So it's no different. Do you come in and you do a waterfall effect, and if you're already making a lot of good margins on some clients accidentally, and on the ones that aren't paying you well, raise the price on those then.
[45:58.6]
Because one client or two or three are already telling you it's worth it. And somehow, some way, somebody in your organization who may have had control over price has negatively impacted. And that's the other thing. Price should be on the CEO's desk, not on somebody else's desk. When it's on the CEO's desk, this is a book by Herman Miller called Confessions of the Pricing man.
[46:19.9]
He had 40 years in pricing. If it's on the CEO's desk, it's like 40% better. So that's number two is looking at your pricing. And that because it's so highly leveraged. Interesting. And then the last thing is workflow management.
[46:37.6]
Workflow is horizontal thinking from left to right. And if you're in a business where the handoff is kind of quirky, in a, any type of business where you get information from the client, it comes back in engineering or Somebody has to design it and.
[46:54.1]
And then it has to go and you have to do a bill of materials and. And all of a sudden it gets into the shop and you can't put it together because the information was poor. So it's kind of running the 4x4. Right. If you don't do the handoff well, I don't care how fast the TO four people are, they're never going to win the gold medal because they keep dropping the baton.
[47:13.6]
So in any workflow management system where you have passing the baton, if you don't have good controls, good information, good teamwork, the cost of making a mistake is so detrimental to those types of businesses.
[47:31.6]
And so you need to take a look at that. And what I call there is, if you, if you chunk that up as constraint management, where are the constraints in the business? And then identify the number one. This is Eli goal rat from the goal. Identify the number one constraint and fix that, and then go to the next one and fix that.
[47:51.6]
So it's about, where's the constraint? Understand the constraint and fix that constraint. So I think that's three. Yep. That is okay. Well, Zach, you got any final questions for Paul? No. Paul, this was incredible. You gave a lot of information.
[48:09.7]
Oh, this is fantastic. This is fantastic. I can see, Jack, that we have a. If Paul's happy with it, we have a potential second interview with Paul. This was fantastic. Yes. I love you guys. You guys are fun. I'd be happy to come back. Oh, no, this was. Paul, you dropped a lot.
[48:26.6]
Especially for smaller companies that don't have access to someone with your skill set and the pieces that you've given them. I've got a couple things, that you've given me, and I've built and sold two companies. But it just. I think you act as, the type of person that I think is important in that, from this perspective, is that when you're in the picture, when you're in the frame, you can't always see the picture.
[48:53.0]
So you're on the outside and you're looking in. And I think that is so vital to companies because sometimes they don't know what they don't know, or they're too busy doing this and they don't take time to do this. When in reality, if you come in and you say, stop doing this, do this. And this is why.
[49:08.8]
Oh, I never even thought of that. So, no, this is fantastic. Paul, this is. When you were talking, I found myself thinking up 10 or 20 things I could ask you. And I'm okay, no, just pick one and then we'll have a conversation about that. There's so many different directions this could go, so I think definitely have to have you back.
[49:26.6]
I enjoy this opportunity, so, please, anytime you want to chat again or if you have, if you ever do a panel, get me on a panel. I'd love to do. Do this. I'm working on TED Talk right now. Pretty soon I'm going to have a TED Talk out there. Fantastic. So how can people get a hold of you?
[49:43.0]
They want it. We'll put this in the, in the note. The show notes. Yeah. So. Well, my LinkedIn, you know, Paul A. Cronin, Paul Anthony Cronin, there's a Paul E. Cronin somewhere, that. That isn't back in Massachusetts. That sometimes people mix this up, but Paul A. Cronin. My email is Paul Croninornerstone, the number3inc.com.
[50:04.4]
So that's in my contact information and LinkedIn. I'm also posting on, TikTok and Instagram and Facebook pages. I've been studying, learning how to do that. And I have this thing called repurpose IO that spreads it, that pushes it out to all the different social channels.
[50:22.9]
So, my kids teaching me some things. Anyway, so those are different ways. Hopefully, hopefully you'll find me. Okay. Awesome, Paul, thank you. All right, Paul, thank you so much for your time. You're clearly a busy guy, and we really appreciate your time out of your schedule to, speak with us and our audience.
[50:40.5]
Thank you so much. Thank you, guys. I enjoyed it.