12 Concepts We Can Learn About Chocolate, Roll-Ups, and Successful Exits From How2Exit's Interview W/ Gia Cilento and Walid Costandi - Watch Here
Here is what my team and I learned from this interview: (These are notes from team members, writers, sometimes AI, and even listeners who submitted what i learned loosely edited and shared here) - If it seems a bit unrefined, you're reading our notes, so. yeah. -Ron
Introduction:
The podcast episode discusses business acquisitions and mergers. The hosts interview business owners, industry leaders, authors, mentors, and other influencers to share their experiences and insights on buying or selling a business. The hosts then introduce their guests, Walid Costandi and Gia Cilento, who share their backgrounds and how they got started in the M&A world. They also mention their collaboration on a chocolate roll-up project, which involved researching different industries and using tools and templates to identify the chocolate industry as the most suitable for their parameters. The episode concludes with a discussion on the importance of collaboration and sharing ideas as entrepreneurs.
Concept 1: Weighted Scoring System For Industry Evaluation
In this podcast episode, the hosts discuss the use of a weighted scoring system for industry evaluation in the context of business acquisitions and mergers. The guests, Walid Costandi and Gia Cilento, share their experiences and insights on the process of evaluating industries and identifying potential opportunities.
The episode begins with the guests mentioning a spreadsheet created by Ron, which includes criteria for industry evaluation. The criteria include factors such as valuation multiples, legal issues, availability of buyers, ESG focus, maturity, and competition. The guests then explain that they added a few additional factors to the spreadsheet and sorted them by priority. They also implemented a check box system, where meeting all the criteria would result in a score.
The guests mention that they looked at approximately 150 industries using this scoring system and came up with a weighted scoring system. The weighted scoring system assigns different weights to each criterion based on its importance. The resulting score ranges from 80 to 160, and the highest-ranking industry is selected as the most suitable for their parameters. In this case, the chocolate industry, dental, and home healthcare were among the top-ranking industries.
The guests discuss the appeal of the chocolate industry, noting that it is fragmented and presents opportunities for consolidation. They also mention the potential for synergy between the chocolate roll-up project and a dental roll-up project, as they could create a customer base for the dental industry through the chocolate industry.
The guests highlight the importance of weighting the criteria in the evaluation process. They mention that different individuals may have different priorities and criteria based on their own circumstances and goals. For example, one person may prioritize the liability of an industry due to having other assets to protect, while another person may prioritize the profitability of an industry.
The guests also discuss the practical aspect of implementing the weighted scoring system in Excel. They express their appreciation for the flexibility of the system, as it allows them to change the weights of the criteria based on their own preferences and priorities.
The show then shift the conversation to the progress of their chocolate roll-up project. They mention that they have focused their efforts on the right half of the country, as it is more manageable and convenient for them. They also mention that they have been engaging in deeper conversations with potential anchor partners in the chocolate industry to understand their issues, concerns, and growth prospects. They emphasize the importance of finding a strong anchor partner to build the roll-up project around.
The guests mention that they are using the Harbor Club method, which involves identifying companies that are open to partnering and growing through acquisitions. They note that these anchor partners are typically multi-million dollar companies. They also mention the importance of understanding the language and mindset of the industry they are targeting, as each industry has its own unique characteristics and dynamics.
The episode concludes with a discussion on the importance of collaboration and sharing ideas as entrepreneurs. The guests highlight the value of learning from others' experiences and leveraging their expertise to make informed decisions. They emphasize the need to surround oneself with knowledgeable and supportive individuals who can provide guidance and insights.
Overall, the podcast episode provides valuable insights into the use of a weighted scoring system for industry evaluation in the context of business acquisitions and mergers. The guests share their experiences and strategies, highlighting the importance of considering various criteria, weighting them appropriately, and engaging in meaningful conversations with potential partners. The episode also emphasizes the significance of collaboration and continuous learning in the entrepreneurial journey.
Concept 2: Chocolatiers Are Diverse And Passionate
One specific aspect discussed in the podcast is the diversity and passion found among chocolatiers. The guests mention that there are different personas and backgrounds among chocolatier owners, indicating that the industry attracts a wide range of individuals.
The first persona mentioned is the general worker person, who may be an employee or executive from a middle-class or upper-middle-class background. These individuals have a deep love for chocolate and decide to pursue their passion by becoming chocolatiers. This demonstrates that chocolatiers can come from various walks of life and have different levels of experience and expertise.
Furthermore, the guests highlight that there are two distinct routes within the chocolatier industry. There are chocolatiers who work with ready-made chocolate of high quality, and there are chocolate makers who produce their own chocolate from scratch. This differentiation shows that chocolatiers have different approaches and techniques when it comes to creating their products.
Additionally, the podcast mentions that some chocolatier owners are purely business-focused and see chocolate-making as a means to scale up their businesses. These individuals have ambitions for growth and are driven by business expansion, capitalization, marketing, and other related factors. On the other hand, there are chocolatiers who are more focused on the artistry and craftsmanship of chocolate-making. They prefer to stay small and maintain a more intimate and personal approach to their business.
Despite these differences, the guests emphasize that all chocolatiers share a passion for chocolate. Whether they are business-focused or more artistically inclined, chocolatiers are united by their love for cacao and the end product they create. This passion is evident in their dedication to producing delicious chocolates and their participation in industry conferences and competitions.
The podcast also touches on the global nature of the cacao industry. Cacao can be grown in various regions around the world, including West Africa, South America, Central America, and even Indonesia. This highlights the diversity of the industry in terms of geographical locations and the different flavors and characteristics that can be attributed to cacao from different regions.
Furthermore, the podcast briefly discusses the issue of farmer exploitation in the cacao industry, similar to what is seen in the coffee industry. The guests mention that there are movements and efforts to treat farmers well and ensure they receive fair compensation for their work. This indicates that chocolatiers are aware of the challenges faced by farmers and are actively working towards creating a more equitable supply chain.
In conclusion, the podcast episode highlights the diversity and passion found among chocolatiers. Chocolatier owners come from various backgrounds and have different approaches to their craft, whether they are business-focused or more artistically inclined. Despite these differences, they all share a deep love for chocolate and are dedicated to creating high-quality products. The global nature of the cacao industry further adds to its diversity, with cacao being grown in different regions around the world. However, it is important to address the issue of farmer exploitation and work towards creating a more sustainable and fair supply chain. Overall, the podcast provides valuable insights into the diverse and passionate world of chocolatiers.
Concept 3: Transparency And Delivering On Promises
One important theme that emerges from the podcast is the importance of transparency in business dealings. The guests emphasized the need for chocolatier owners to be transparent with their stakeholders, including employees, customers, and investors. This transparency allows for open communication and fosters trust among all parties involved.
Transparency also extends to deal structures and expectations. The guests share their own experiences of learning the hard way about the importance of being upfront with deal structures. They stress the need to clearly communicate expectations from the beginning of negotiations, avoiding surprises later on. By being transparent about their own expectations and listening to the expectations of others, chocolatier owners can find a middle ground and reach mutually beneficial agreements.
The podcast also emphasizes the importance of delivering on promises. The guests highlight the significance of keeping one's word and following through on commitments. They stress that when a chocolatier owner says something, it should be treated as a promise. Failing to deliver on promises can damage relationships and erode trust, which is crucial in any business endeavor.
These lessons learned from prior experiences are invaluable in the current roll-up and future acquisitions. Chocolatier owners can apply these lessons by prioritizing transparency in their business dealings. They should be open and honest with stakeholders about their intentions, expectations, and deal structures. By doing so, they can build trust and foster long-term relationships.
Additionally, chocolatier owners must ensure that they deliver on their promises. They should be reliable and consistent in their actions, meeting deadlines and commitments. This reliability builds credibility and strengthens business relationships.
In conclusion, transparency and delivering on promises are essential principles for chocolatier owners to uphold. By being transparent with stakeholders and delivering on commitments, they can build trust, foster strong relationships, and ultimately succeed in their business endeavors. These principles are applicable not only in the chocolate industry but also in any business venture.
Concept 4: Build A Valuable And Sellable Business
One of the key takeaways from the podcast transcript is the importance of building a valuable and sellable business. The guests discuss the need for business owners, particularly baby boomers, to ensure that their companies are in a position to be sold for the desired amount of money. They recognize that many business owners may not have reached their goals or achieved the level of success they desire, and they want to help these individuals cash out with the value they deserve.
The guests introduce a program called Cash Out Wealthy, which aims to assist business owners in selling their companies in a buyer's market. They emphasize the need for owners to delegate critical decision-making processes and create systems that allow others to take on important tasks. By doing so, owners can free up their time and focus on growing the business, ultimately increasing its value.
The guests highlight the importance of regaining one's time and achieving a better work-life balance. They stress that owning a business should not mean sacrificing time with family and missing out on important events. By implementing strategies to delegate tasks and gradually remove oneself from day-to-day operations, owners can regain control of their time and enjoy the benefits of their hard work.
The podcast transcript also touches on the significance of continuous growth and expansion. As the business grows, owners can hire more employees and delegate more responsibilities, allowing them to focus on finding new markets and opportunities. This not only increases the value of the business but also opens up the possibility of selling it for a significantly higher price.
In conclusion, the podcast transcript emphasizes the importance of building a valuable and sellable business. The guests provide insights and strategies for business owners, particularly baby boomers, who may be looking to cash out and retire. By delegating critical decision-making processes, regaining control of one's time, and focusing on growth and expansion, owners can increase the value of their businesses and ultimately sell them for a higher price. The principles discussed in the podcast transcript are applicable to any business venture and highlight the importance of transparency, delivering on promises, and building trust with stakeholders.
Concept 5: Start Planning For The Future
The podcast transcript begins by discussing the long hours and dedication required to build a successful business. The guests mention that many entrepreneurs start off working 90 hours a week, with the expectation that this intensity will eventually decrease. However, they note that for many business owners, the long hours and constant hustle never go away. This highlights the need for entrepreneurs to start planning for the future early on, as the demands of running a business can take a toll on their health and well-being.
The guests differentiate between two types of business owners: those in industries like software, where the expectation of long hours is present from the beginning, and those in brick and mortar businesses who may have become accidental entrepreneurs. The accidental entrepreneurs are individuals who stumbled upon a business opportunity and started their own ventures based on their skills or a market demand. These individuals often find themselves overwhelmed as their businesses grow, taking on more responsibilities and working longer hours than they initially anticipated.
The podcast transcript stresses the importance of separating oneself from the business and developing it into a larger enterprise. The guests emphasize that this process should start as early as possible, as unforeseen circumstances or health issues can arise that may force a business owner to sell their company. By building a scalable and profitable business, owners can increase its value and attract potential buyers. This involves delegating tasks, hiring employees, and implementing systems and processes that allow the business to operate independently of the owner.
The guests provide an example of a friend who missed out on the opportunity to transform his business and maximize its value due to health issues. They regret not staying in touch and helping him develop the business further. This highlights the importance of maintaining relationships and seeking advice from experts or mentors who can provide guidance on growing and selling a business.
In conclusion, the podcast transcript emphasizes the importance of planning for the future and building a valuable and sellable business. The guests provide insights and strategies for business owners, particularly baby boomers, who may be looking to cash out and retire. By delegating critical decision-making processes, regaining control of one's time, and focusing on growth and expansion, owners can increase the value of their businesses and ultimately sell them for a higher price. The principles discussed in the podcast transcript are applicable to any business venture and highlight the importance of transparency, delivering on promises, and building trust with stakeholders.
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Concept 6: Fast Action Team Saves Companies
The podcast transcript begins by sharing a cautionary tale about a company that faced financial difficulties after the sudden death of its owner. The company was eventually sold for trucks and assets, leaving nothing for the owner's family. This highlights the importance of having a plan in place for unforeseen circumstances and the potential risks of not being prepared.
The guests then discuss the idea of a fast action team that can step in and run a company in the event of an emergency or transition period. This team would work to keep the business running smoothly until it can be sold or transferred to new ownership. The guests acknowledge that finding the right team and navigating the legalities of such a situation can be challenging, but they believe there is a potential market for this type of service.
The guests also stress the importance of having legal paperwork in order, particularly in the case of a business owner passing away. They recommend having a will, power of attorney, and other necessary documents to ensure a smooth transition of ownership and to protect the interests of the owner and their family.
Additionally, the guests discuss the benefits of working with professionals who have experience in business audits and exit strategies. They argue that by bringing in experts, business owners can expedite the process of preparing their business for sale and increase their chances of getting a higher valuation. This can save business owners years of trying to navigate the process on their own and potentially losing out on opportunities.
The guests also touch on the impact that closing a business can have on employees and the community. They emphasize that many business owners care deeply about their employees and would prefer to find a solution that allows the business to continue rather than shutting it down. They highlight the importance of considering the broader implications of closing a business and the potential negative effects it can have on the community.
Finally, the guests discuss the current market trends in private equity and capital raising. They mention that there is still a significant amount of money available for acquiring companies, and business owners should be aware of the potential opportunities and risks associated with these transactions.
In conclusion, the podcast transcript emphasizes the importance of planning for the future and building a valuable and sellable business. The guests provide insights and strategies for business owners, particularly baby boomers, who may be looking to cash out and retire. By delegating critical decision-making processes, regaining control of one's time, and focusing on growth and expansion, owners can increase the value of their businesses and ultimately sell them for a higher price. The principles discussed in the podcast transcript are applicable to any business venture and highlight the importance of transparency, delivering on promises, and building trust with stakeholders.
Concept 7: Scared Money Affects Buyer's Decisions
The podcast transcript highlights the impact of "scared money" on buyer's decisions. The term "scared money" refers to buyers who are risk-averse and prefer to invest in lower-risk opportunities. In the current uncertain economic climate, buyers are looking for sure deals that are less impacted by the economy.
Private equity firms, strategic buyers, and even competitors are all cautious in their investment decisions. They are looking for companies with steady growth, well-managed operations, and positive cash flows and profits. Buyers have become more selective and are not willing to take risks on companies that are trending down or have uncertain prospects.
The podcast transcript mentions specific industries that are seen as less impacted by the economy, such as dental services and pet-related businesses. These industries are considered "passion products" that people will continue to use regardless of the state of the economy. This highlights the importance of identifying sectors that are more resilient and attractive to potential buyers.
The transcript also discusses the need for business owners to objectively evaluate their own companies. It is common for owners to have a biased view of their businesses, seeing them as their life's work and legacy. This can prevent them from accurately identifying areas that need improvement or changes that need to be made.
To overcome this bias, the podcast suggests bringing in a third party to conduct an audit and provide an objective assessment of the business. This can help identify areas that need to be addressed and improved to make the company more attractive to potential buyers.
Furthermore, the transcript emphasizes the importance of having a management team in place rather than relying solely on the owner. Buyers are not interested in purchasing a company that is dependent on the owner's presence. If the owner is the sole operator, the sale process becomes more challenging as the buyer will require the owner to stay on and provide guidance for a significant period of time.
In conclusion, the podcast transcript highlights how "scared money" affects buyer's decisions. In the current uncertain economic climate, buyers are more risk-averse and are looking for sure deals with steady growth and well-managed operations. Business owners need to objectively evaluate their companies, address areas for improvement, and have a management team in place to make their businesses more attractive to potential buyers. By understanding and addressing the concerns of buyers, business owners can increase the likelihood of a successful sale and secure a higher valuation for their companies.
Concept 8: Value Your Business Accurately
The podcast transcript emphasizes the importance of valuing your business accurately. It starts by discussing how our minds have a tendency to overlook flaws and fill in gaps, both in our writing and in our businesses. This can lead to blind spots and prevent us from seeing the true value of our own companies.
The transcript goes on to discuss the common practice of adding back certain expenses and benefits to calculate the seller's discretionary income or seller discretionary benefit. This can artificially inflate the value of the business and lead to unrealistic expectations from sellers. The example given in the transcript is of a business with a net profit of $200,000, but after adding back various expenses, the seller's discretionary income is calculated to be $300,000. However, the podcast argues that buyers are not looking to buy a job, but rather a business that can be run by someone else. Therefore, the net profit of $200,000 should be the basis for valuation.
The transcript also criticizes business brokers who fail to accurately assess the value of a business. It highlights a case where a broker added back the CEO's salary but failed to account for the fact that the CEO was also performing other roles within the company. This oversight resulted in an inflated valuation that did not accurately reflect the true value of the business.
The podcast suggests that business owners need to value their businesses properly in order to attract potential buyers. It emphasizes the importance of considering all the roles and responsibilities within the company and accounting for them in the valuation. By doing so, business owners can provide a more accurate representation of the business's value and increase the likelihood of a successful sale.
In conclusion, valuing your business accurately is crucial in order to set realistic expectations for potential buyers and increase the likelihood of a successful sale. It requires a thorough assessment of the company's financials, including all expenses and roles within the organization. By understanding the true value of their businesses, owners can attract serious buyers and secure a higher valuation.
Concept 9: Delegate And Collaborate For Success
However, many business owners struggle with this process because they try to do it all themselves. They take on multiple roles and responsibilities, working long hours and sacrificing their personal lives in an attempt to grow their businesses. This approach not only leads to burnout, but it also limits the potential for growth and profitability.
The podcast transcript highlights the importance of delegating and collaborating for success in running a business. It emphasizes the need for business owners to let go of the mindset that they have to do everything themselves. Instead, they should open themselves up to working with a team and sharing the workload.
One of the key benefits of delegating is the ability to focus on high-value tasks. The podcast mentions the example of hiring a full-time salesperson. By bringing in someone dedicated to sales, the business owner can free up their time to focus on other important aspects of the business. This not only leads to increased efficiency but also allows for a more strategic approach to growth and expansion.
Collaboration is another crucial aspect of running a successful business. The podcast transcript discusses the importance of bringing in outside perspectives and expertise to help identify opportunities for growth and improvement. By working with a team, business owners can tap into a wide range of skills and knowledge that they may not possess themselves. This collaboration can lead to innovative ideas, improved processes, and ultimately, increased profitability.
Additionally, collaboration can help business owners navigate complex tasks such as creating recurring revenue models or entering new markets. These endeavors require time, expertise, and resources that may not be readily available to a business owner trying to do it all themselves. By collaborating with others, they can leverage the skills and resources of their team to achieve these goals more effectively and efficiently.
Furthermore, delegating and collaborating can also help business owners prepare their businesses for sale. By involving others in the running of the business, owners can demonstrate to potential buyers that the business is not solely reliant on them. This increases the perceived value of the business and makes it more attractive to buyers. Additionally, by working with a team, owners can identify areas for improvement and implement changes that will increase the profitability and valuation of the business.
In conclusion, the podcast transcript highlights the importance of delegating and collaborating for success in running a business. It emphasizes the need for business owners to let go of the mindset that they have to do everything themselves and instead open themselves up to working with a team. By delegating tasks and collaborating with others, business owners can focus on high-value activities, tap into a wider range of skills and expertise, and ultimately increase the profitability and valuation of their businesses. So, if you want to achieve success in running your business, delegate and collaborate!
Concept 10: Transparency And Preparation Are Key
The podcast transcript titled "Transparency and preparation are key" sheds light on the importance of transparency and preparation in the context of running a business. The speaker shares their experience with a concrete manufacturing company and how the lack of transparency and preparation led to the deal falling apart.
The speaker explains that they had signed a letter of intent (LOI) with the concrete manufacturer, but the deal couldn't go through due to the company's financial troubles with the IRS and other debts. One of the reasons for the deal's failure was the owner's belief that the business couldn't run without her. She had a deep understanding of the company's operations as a third-generation owner, and she constantly put out fires. This mindset hindered the sale of the business because potential buyers either saw it as unsellable or wanted the owner to stay on as an employee.
The speaker advises the owner to change her perspective and work on fixing the issues with the IRS and the company's accounting. By being transparent about the problems and seeking help from attorneys and forensic accountants, the owner could rectify the situation and increase the value of the business. The speaker emphasizes that transparency and preparation are essential for a successful business sale.
The podcast also highlights the limited pool of potential buyers for businesses where the owner is heavily involved in day-to-day operations, working long hours. The speaker suggests that business owners should consider delegating tasks and collaborating with others to create a more attractive and sellable business. By doing so, business owners can attract buyers who are looking for a different job and are willing to put in the hours required.
The speaker further explains that there are different options available for business owners looking to sell, including employee stock auction programs (ESOPs) and other exit strategies. They mention that brokers may not always have the necessary credentials to provide advisory services, so it is important to differentiate between brokers and advisory groups when seeking assistance.
In conclusion, the podcast transcript highlights the importance of transparency and preparation in running a business. It emphasizes the need for business owners to let go of the mindset that they have to do everything themselves and instead open themselves up to working with a team. By delegating tasks and collaborating with others, business owners can focus on high-value activities, tap into a wider range of skills and expertise, and ultimately increase the profitability and valuation of their businesses. So, if you want to achieve success in running your business, delegate and collaborate!
Concept 11: Prepare Early For Selling
Furthermore, the podcast stresses the importance of preparing early for selling a business. The guests emphasize that it is never too early to start thinking about the eventual sale of a business. By starting the preparation process early, business owners can ensure that their business is in the best possible position for a successful sale.
The podcast highlights three key points to remember when preparing for a business sale. Firstly, it is important to start preparing now when you want to sell. This means taking proactive steps to increase the value of the business, such as improving financial records, streamlining operations, and building a strong team.
Secondly, the guests suggest that business owners should open up and think about their business in terms of not being the most important person in the world. This means recognizing the importance of delegating tasks and trusting others to handle certain aspects of the business. By doing so, business owners can focus on strategic decision-making and growth opportunities.
Lastly, the podcast emphasizes that business owners do not have to go it alone when it comes to selling their business. They encourage listeners to reach out and ask for help. Whether it's seeking advice from industry experts, consulting with mergers and acquisitions professionals, or connecting with potential buyers through networking, asking for help can greatly increase the chances of a successful sale.
In conclusion, the podcast highlights the importance of preparing early for selling a business. By starting the preparation process early, delegating tasks, and seeking help when needed, business owners can maximize the value of their business and increase the chances of a successful sale. So, if you are a business owner considering selling your business, take the advice from the podcast and start preparing now.
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