Ryan Tansom 3:31
So the business was we sold copiers and did manage IT services and document management for the context. And my dad started by mortgaging our house and buying a $250,000 where they use Panasonic copiers from so we built it from the ground up and what he when he grew the business, we grew up to 21 million. And so right around the financial crisis, Jeremy, I had the choice of hey, go, I mean, there was not a lot of options at that point. So I started at the family business and he was very distant from the company. He had hired a GM and it was just kind of off and running. And he was he’s gone through a bunch of personal stuff. So when I started I had this like eight month bliss whereas like I just go be a salesperson work hard make sure that you’re not the entitled family members everybody thinks you are. And then I started joining the bank and the CPA meetings at the early age of 22. And realizing that the financial crisis hit us just like everybody else at the margins, the equipment just poof, gone. So cashflow became an issue. So literally every two weeks you know trying to hit that quarter million dollar payroll every Thursday for the wire wall reinvesting and changing things is what I meant by turning around so we’re gonna talk plenty about that if you want but over the next six years it was new accounting systems, people processes, strategies, all that kind of stuff.
Jeremy Weisz 4:45
I want to say you know, pause on the salesperson thing when I think of hardcore, I think door to door sales even copy I mean even Sara Blakely talks about she got started doing sales, man faxes. Yeah. So Tell me what again selling is, you know relevant to what everyone does what? Walk me through what that look like. Do you would you know we do cold call? Would you go in person? How did that? How did the sales work?
Ryan Tansom 5:13
And then I’ll I’ll do that and then I’ll tie back to even what you guys do arise 25 Bob building relationships, it’s building relationship. Jerry, Jeremy, like that when I started it was first of all that was back when you had to wear a suit to sell a copier. But it was hey, by the way, here’s your zip codes. And here’s a list of customers maybe or maybe not that our customers. And it was literally just get your business cards and go knock on doors and no joke, Jeremy, the first year I was 19 doing my internship. And I went straight to the tallest tower in Minneapolis. And I was like, well, there’s gotta be a bunch of built businesses in there. And someone said, hey, well, you gotta use you gotta you gotta make sure that the security guard doesn’t catch you. So you go up and you go to like, like level 22, then 16 and 17 and four, and literally, the security guy was like, finally I opened up the elevator. No, they were like, bummer. I got busted. But it’s truly just starting the conversation. That is the entire point is what would you
Jeremy Weisz 6:07
do? So you you’re like, Great, okay, this puts hair on your chest. I mean, when you do cold calling or cold, actually door to door, you’d go out? Okay, you go up in this building. And you walk in, what do you say?
Ryan Tansom 6:21
Oh, my God, I remember what I was saying back then it was probably something so horrible. Like, Hey, do you have any copiers and one of your leases. That’s how that was how poor the messaging was. There was no Donald Miller story brand at that point. But it was really trying to figure out like when we actually built out the right messaging, Jeremy, it was, Where is your business going. So if it was a law firm, they want to build more hours faster and growth. So our technology ended up supporting their abilities to build more and grow. And like, regardless whether it was copiers and printers, or faxes, or managed IT services, or AV or Cloud Hosting, all of those are supporting what they’re supposed to be doing. Took me a while to figure out how to, like lean in with like the story kind of does the story approach back then it was probably the copiers and what’s your price? And I could probably undercut by a 10%.
Jeremy Weisz 7:09
I mean, you are figuring out, do they have a need, but now it’s more relational selling, you’re you’re basically serving the benefit, you know, you know, kind of putting the benefits on a platter, as opposed to the features of whatever you’re selling, trying to listen
Ryan Tansom 7:22
to people like, Hey, what are your actual problems? Like, yes, you have these things called copiers devices or IT service but like they’re trying they have they wake up, don’t think they’re not thinking about that stuff. It’s Hey, you know, the Minnesota Wild was a client of ours, and it was keep everything going. So we can host the Stanley Cup. And we can keep getting butts in seats to sell more tickets to you know, sell more promotions, like understanding what are their goals? And then how is what you’re doing going to help them get to where they want to go.
Jeremy Weisz 7:48
So you went to turn around the company. And you said you had to revamp all of the systems. So break down for me a little about what did you start to repair?
Ryan Tansom 7:59
Well, the first was, there we were, we didn’t have the right financing, Jeremy. And there’s a long, whole long conversation behind that. But the right the wrong kind of capital structure from the line of credit in the bank, you know, that stuff, I’m gonna put a pin in that and put that over there because that that’s one component. But then the operations it was, is understanding how to create more sustainable, predictable and transferable cash flow, which we did not have. And we needed that in order to then hire the right people and implement the right strategies. So it starts with, hey, what do we need to be in the marketplace to compete, and it was no longer just copiers, the IT providers and cloud hosting providers and software providers are coming in town the telecom so as I understand that strategic plan, how we are engaging that conversation and helping clients and then saying how can we profitably do those things for the right types of clients, then it’s revamping compensation plans with the salespeople to align with our long term goals. And then it was a systems like the accounting systems and ERP systems and then the people who have the right people and the you know, the Jim Collins, people on the bus, we along a long list of people that were on the wrong bus and in the wrong seat. So it was like trying to take the strategies, the operations and the people and align that to where do we want to be as a business. And so within that, there was a lot of, you know, challenges and there was no framework to think about it back then it was really out a lot of our gut feel of what we thought was right.
Jeremy Weisz 9:20
You know, and I want to talk about the framework a little bit I know you have five different principles that you talk about, but I thought this would be instructive because some people listening may be experiencing this and they’re like, Ryan, I want to turn this around or even if it’s going well I want to do even better so talk about the the principles a little bit
Ryan Tansom 9:39
we’ll do and the Jeremy the principles came out of like valuing all these topics valuations, exits, investment banking, private equity in finance, strategic planning, it’s just like this huge cluttered mess of chaos and like, how do we think about this stuff? And Jeremy when I came out and we sold the business 2014 I realized that You know, you’ve got EOS and traction and a big huge fan and then scaling up with the Rockefeller habits. And Verne Harnish are the Strategic Coach, you mean these different systems and processes. It was like, You know what the big thing that I realized Jeremy was, they all assume that the business owner knows what they want from their business and why and how to go get it and what creates value. So what we decided to do, and I was like, you know, I just want to help people think about how all of these variables interact, but not tell them what to do, because I never wanted someone to tell me what to do. So these five principles, Jeremy came out of that desire to help you and others think about what they want, and then how to actually put a game plan into place knowing that everybody’s different. So the five principles and they go in order, because you can’t take one of them out because then they don’t work. And that’s the when I think about the word framework versus some other word choices, a framework is it’s a decision that we know that the decisions might be different every day, so Dalio has got his No, you know, the whole his whole framework on the economy. There’s so many different outcomes. And that’s what this is. So the first principle is called your drivers. What do you want from the business? And why truly the amount of people that haven’t really thought through that? Is it legacy? Is it disrupt an industry? Is it community? Is it family harmony? Is it you know, your lifestyle, and how much you enjoy leadership or strategic planning? I don’t know. No one should care except you. So writing that down is important. That’ll IndusInd said in principle two, which is your financial targets, there are three of them. One is your target annual income, cash flow for you personally, regardless of whether you have that business. So let’s say it’s just making 720 grand 10 grand a month, regardless of whether you have the business. So it might be a salary distributions and perks right now, but how do you maintain that no matter what the second target is your target net worth? Because your net worth impacts the decisions that you have with the business? Right? If you’re worth a bunch of money, you can just fold it up if you want. The third financial target is the value of your business. Understanding what creates that value? And how much would you would walk away with if you sold at any given point just gives you context, Jeremy, to say, this is what it’s all worth right now, and what does it need to be worth and then I’ll keep keep up the pace here. So principle three is exit options. There are five of them that we bucketed them into is one is internal partnerships, management, and family. Second one is acquisition entrepreneur, Walker dyeable. You’ve mentioned Joe Valley, that whole world of search funds. Third one is Aesop’s employee stock ownership plans. The fourth one is private equity. And the fifth one is strategic buyers. We yes do you can do you can go public, that’s not a place that we play a lot of top spend a lot of time in, but every one of those for cash flowing businesses. Each one of those options, Jeremy will impact when you get your money, how you get your money and your role post closing. So understanding one year ownership role as this equity of this asset is different than your management role, which is the wages that you get for the job that you do. They’re completely different out of all all those and then I’ll come up with this case study when we’re done if you want is understanding what you want out of both of those, then you can say here’s what I want, here are my financial targets. Now let’s grow to create these choices. leads us to the fourth principle which is grow enterprise value by creating sustainable, predictable and transferable cash flow. The more sustainable and predictable transferable your cash flow is, the more enterprise value you have, the more your multiple is and the higher the enterprise value, which gives you choices, honestly, to be able to do what you want. And then the fifth one is your team of advisors and you can go take your goals to them and help them optimize your plan instead of them wondering what you want from the business.
Jeremy Weisz 13:48
Speak to the teammate advisors for a second and who people should have on their team advisors.
Ryan Tansom 13:54
When I speak when I say team of advisors, these are outside people so not like the consultants inside the operation. So if you’re hiring an EOS implementer not necessarily referring to them these are people that like your wealth manager your your CPA that helps on your personal in your in your profession, the company taxes, you got investment bankers, you got bankers, you got insurance, all these things that as if you think about truly if you’re running your business, like a private equity firm, like hey, this is an asset or like almost like a family office would. How do we wrap the estate plan the financial plan and everything around this asset? So that way I can continue to growing it and having as many choices I want the optimize what you want. Not one of our advisors knew what my dad and I wanted Jeremy because we didn’t know. Right? So like there’s sinner, throwing at technical solutions like Well, that sounds like an awesome tax plan. And then my dad, no walk out of a meeting like was that mean to us? I don’t know. Should we just go sell more copiers? Sure. So it’s like, you know, it’s like the general contractor that has a blueprint, a budget. And then all the people optimize based on the blueprint in the budget.
Jeremy Weisz 15:00
You know, you talk about this a little bit on your podcast. And people should check out Intentional Growth, you know about someone replacing themselves in the position to make it more sellable. So you give an example, let’s say someone’s making whatever $200,000. You said, Well, you can hire someone to do your job, right for whatever $150,000. And you can step out of that. So I love free to hear. You know, sometimes it’s hard to give up, relinquish control. And you’ve seen a lot of different cases. And I wonder, what’s your advice to someone you see this from the outside looking in the saying, Listen, you could replace yourself, what are some of the thoughts and questions that you would ask that person to have them think about? Do you want to actually or should you have someone come in and replace you or not? So yeah,
Ryan Tansom 15:57
I’ll absolutely go. Don’t want to step back for a second, though. What are the challenges Jeremy with that? That Could we hear this all the time I speak to CEO periods like EO and Vistage all the time, I got the podcast and like the the thing is, I hear the will just hire someone to replace yourself. Okay, let’s ask a couple more questions. And just that concept that we’re constantly telling each other as business owners. First of all, can you afford it? So I when I look at the numbers in our CFO business, like the amount of people that end up hitting like the $2 million mark, depending on your business model, and how cash comes in and out. Like, you might say, I’m finally making 150 grand and then this consultant comes in just Jeremy just replace yourself, you’re like, doing With what money? Like? Yes, what I love to sit at home making 150 grand instead of working? Of course, can I know. So the goal is to say, if you truly want to replace yourself, go back to principle two and say, What’s my target annual income. So you say, Okay, if I want to make 200 grand, I need to build the cash flow of this company up enough. So I can get the distributions consistently at the 200 Grand and afford that person. So when I hear I hit the ceiling, or we can do this, it’s it’s almost always a money thing, because you have to understand how those decisions are getting made. So going back to then your question about control, I think a lot of times, the money is one of the big huge factors, and that’s behind, I can’t because and no one’s really talking about it. Then there’s the second part of the ego, like, I mean, I’ve got like huge companies that we’ve worked with, when I say huge, huge privately held companies where the owner, by the time they get to this point where they got the strategic plan, they got the financial plan that’s tied to the strategic plan to grow value, they hire president and then they go in there and they screw it still screw a bunch of shit up, because they want to be the person that everybody goes to because they’re needed. So this goes back to principle one, which is if you’re, if one of your love languages is affirmation, just acknowledge it, right? Like, hey, I love to be needed. And just acknowledge it and make sure your role within the organization is still feeling your personal needs. So I think it’s just really coming down to like, what does it mean? That what do you actually want from this? And then we can start solving for the things that you want.
Jeremy Weisz 18:09
Ryan, back in 2014, when you sold the company, what were you intending to do? After he sold?
Ryan Tansom 18:18
I didn’t think about it once. Honestly, and this is, so the the reason that I have everything today that the business of this podcast and all that stuff is because I read Bo Burlingham book finished big a month or two after we saw Jeremy. And I was like, well, when that have been nice to read, like I don’t know, four months ago, before I made the decision. And Bose books. I mean, he interviewed like 300 business owners and like the Vistage small, you know, small business world, and 75% of them were unhappy with their exit, regardless of how much money they made. And it was because they didn’t know who they were, what they wanted from their business and why. And I was like, well check the box. That was me. The only person that that both interviewed that didn’t have that issue was like John Warrillow. He viewed it as a financial asset, who’s also been on my show, right? So you get this, like, the common themes of all the people you have been talking about. So I read Bo’s book, and I was like, Well, I’m in the 75% group of like, that sucked. I now don’t have my baby. All my people that I used to hang out with are gone and not needed. So I went through that whole process. And it was just interesting, because I realized that I was not alone. And it happens so much, because people don’t realize until after the fact, what the business meant to them personally on an on multi dimensional and in a multi dimensional way.
Jeremy Weisz 19:39
Ryan other favorite books that have influenced you. So you mentioned the bo Burlingham John Warrillow what other books do you recommend?
Ryan Tansom 19:47
Oh my gosh, man, I am an audio book addict. So I’d say the ones that I like that I’d mentioned the most one is conscious capitalism. I don’t know if you’re familiar with that. But like, I like to do good and make money. And like I think there’s this new kind of Capitalism crisis right now. And conscious capitalism shows how you can make a bunch of money and make a huge impact, which I really like. And right now, Ray Dalio is the changing world order, where if you’re wondering what the heck’s going on with our world and money, monetary policy and everything, as you can see, as you can see, I like other frameworks and how to think, because I can’t know all this stuff, and none of us can. And sometimes the anxiety builds, like, should I read that? Should I digest that content? But if you understand our framework, then it’s easy to say yes or no to what you should be focusing on.
Jeremy Weisz 20:32
I could see you right after the sale going in a million different directions. So why are Arkona in fractional CFO
Ryan Tansom 20:42
when I was sitting in a management meeting, after we had sold Jeremy, and there was 11, mid managers at this company. And I got out of that meeting, and I was like, Oh, my God, I am not meant to be an employee. Because before I’d have an idea on the, you know, from the gym on the way to work, and then I would implement it by noon. And now I’m sitting in a committee of 11. No one has any responsibilities technically. And then I’m just like, holy cow. And I watched, it was an integration meeting, where I watched people dismantling the baby that I had had. And it was just this, like, what the heck is going on, I’m sitting in a cube next to an intern after running a $20 million company at the age of 26. I’m going this is not exactly how I wanted any of this to full unfold, which kind of goes back to your earlier question, a lot of I wish I would have. And I don’t regret anything now. But it was, I don’t want anybody else to regret some of the biggest decisions that they have. And it’s like the red pill in the matrix. Like, if you can see the zeros and ones, I think every entrepreneur business owner that I’ve ever met Jeremy, we have a level of self responsibility and ideas, that we’re willing to fail to better understand ourselves and understand who we are. And by reflecting, then we can make our own choices. And so my goal was with the training, that was the first business that we created, I don’t care what you do, Jeremy, but here’s how it all works. And sort of choose your own adventure. But he like, it’s kind of like gravity, you can choose not to believe in it. But if you jump off the roof of your building, it’s gonna, it’s gonna be there. So like, you might as well know how it all works. We didn’t invent any of this Jeremy, it just organized it in a way that allowed people to, you know, take the red pill in the matrix. And then the fractional CFO services came from after hundreds of people coming through our training, looking at the module in principle for about finances and how it helps grow value. And they were like, We don’t have any of this information. So kept, I mean, it was almost one of those things where we couldn’t ignore it at that point, because so many people were asking us, and then realizing that the numbers was the clear, tangible path, right? Because you can take the value Builder System score, which is amazing. But then the next question is, what do I do with that? Now that I know what I want, or where I want to go? How do I actually get from here to there, and be able to measure my progress. So I know if I’m on track or off track, and the numbers became a unbelievably clear black and white way to see that.
Jeremy Weisz 23:10
I’m going to come back to what you said, I want you to paint the picture about what you mean by dismantle, you know, so people can understand what happened at the end. But before we do talk about what was resonating with your training, why were people taking the training?
Ryan Tansom 23:30
You ever been in one of those meetings in your business? Like we’ve had this conversation? 14 times, I’m getting frustrated. I mean, I’m using your partner, John, and me and John are like in disagreement, but we don’t know what reality is. And we’re trying to get to somewhere, we’re not sure if our visions are aligned, we’ve got the shared company, that’s our shared asset. I’m just frustrated. I feel like it’s on Groundhog’s Day. And I don’t feel like I’ve
Jeremy Weisz 23:54
been listening in on our conversation. And I’m just gonna read Big John my like a married couple.
Ryan Tansom 24:00
And same thing with our partners. And that’s what but when it when you can do that with love, it’s way easier than if it’s out of you know, fear and tension. And the reality is Jeremy’s that a lot of people, there’s three things that we think that every business owner wants, and if they’re all working, it’s magic happens, create wealth, enjoy, work, and make an impact. And if one of those is missing, Jeremy out of the hundreds of podcasts interviews I’ve had, that’s when I see like kind of an emptiness or someone wants something more is that yearning for something else, where if you’re, you could be making a lot of money and having a lot of fun. The next question, you say, Well, what’s this all this? What’s all this for? You can be making a huge impact. Having a lot of fun, like, Man, I’m broke. I got to do something about this. So you start to like play with those three things in the goal. And we say intentional growth is in the middle there where you’re constantly having fun. You’re enjoying the journey and the progress towards that. And then you can see when you say what’s resonating is there’s, it’s how we package it but then we’ve ran business Jeremy, I mean, I love so many advisors. But I mean, at the conference I was at last week, you know, CPA goes up there and is telling people what to do. And I don’t know, man, I started my business because I don’t like to be told what to do. I want to be told how here’s how the game works. You choose the plays, you choose the team, you know, you choose the sport, but like, and so I think it’s the combination like here. So all works. We’ve been there done that. And here’s some examples of what went this way versus that way. So I think it’s the, I don’t know, you’re not we’re not selling anything. It’s just education for the most part.
Jeremy Weisz 25:33
And there’s a cautionary tale, you know, when you say dismantle, so I want you to unpack that a little bit when you sold your business.
Ryan Tansom 25:41
So I’ll go back to why what was I doing in the business and so like, as I was hiring the people, so like, tapping into my network of college friends, or like all my community, building the the employees for the vision that I want it to be this business to business technology provider, when we won like things like Minnesota Wild and some big accounts we were making, we were shaking up the industry. Well, I example in the Minnesota Wild is 330 employees, we had packaged up copiers print centers on site staff OG. And we had a cloud hosting provider, we had a Colocation data center with them and a combined shared IT help desk with them all boiled in on a price per user bank finance locked in contract for five years, like it was so like, like innovative for how was all packaged, how easy it was from the purchase that that took me four years and millions of dollars in so many headaches to build that offering up to be like a rat like to be a pioneer in that space. The revenue percentage of coming from IT service is way low, in proportion to the copier sales and the copier maintenance. But it was built through blood, sweat and tears and a lot of challenges and a lot of miserable nights. And when I sat down with the buyer, which great buyer, and honestly, they’re there, they’ve been amazing to all of our people for the last eight years that they did that they brought on, they had a different vision for what that space was going to do and how they deliver the services. So they were more optimizing for equipment at that point. They’ve evolved since then. But you know, it was just so when they got there, they didn’t really know how to value. Now, this is not a financial term, Jeremy, but they didn’t know what it was that I built. And it was like, no, like, I don’t care what you do with it, just don’t shut off the server, we just spent millions of dollars and years building that my team got put on the different teams, they shut down the server, everybody had to use their systems, and then the new service model was different. So it was this alignment of who we are with the business, how our strategies are and the vision for our culture. It’s not like the buyer was wrong at all. It was just I didn’t know that this was gonna be a thing. So when I sat in that integration meeting, and it was like, shut that server off, shut that server off. Paul’s gonna go there. Brian’s gonna go there. Scott’s gonna go there. And I’m like, Oh, no. The Wire had already come through and it was all done. I just didn’t know what that was gonna be like, in that circumstance. that paints a picture of dismantling? For sure.
Jeremy Weisz 28:18
Yeah, it’s a different vision. And, and, you know, I was talking with with John Warrillow. The other week, and we were talking about non negotiables, because there was someone who had specifically for non negotiable, some looking back, going back to your your younger self, what non negotiables would you have maybe had at that time, when you were selling going to sell your company.
Ryan Tansom 28:44
It’s hard because the nature of the exit we chose, wouldn’t have been able to allow most my non negotiables Jeremy, which is why I wouldn’t have chose the route I chose. So that comes back to the I wish I would have and again, I’m love how everything I love my life now. So I don’t want to like it. Life is a life life of journey. And life is a journey of learning. So I learned now I have a different view on life. So I don’t want to replace that. But it would have had a different set of choices. I would have considered based on what I want to answer the direct directly answer your question. I had a vision for what I wanted our business to be in the marketplace. I had a culture I read the Zappos Delivering Happiness book. And that’s the culture I integrated and I didn’t want to fire anybody. I was changing people’s lives using the business like sending people to grad school, whatever it was. So I had all I was using the business as a vehicle to do good. And that vehicle was gone after we sold. And so it was more of and then then there was the IT services how we were doing that. So to directly answer your question. To be intentional with this, you have to take principle one, right everything that you want down, then make sure that you do everything you can do to keep it and by growing a more valuable business. You’re going to be able to tell people know that I don’t want to sell No, I don’t want to take that finance at you take control. If you decided to sell to a third party, you can say, Jeremy, here’s everything I want and why. And if you don’t want it, I’m not selling to you. And so is in the earnout agreement in the purchase agreement in the loi, every step of the way you’re outlining is everything you want, and why. And if they don’t do it, then you have all the resources in there. But because it’s a blank slate, Jeremy, it’s hard, because it’s not like, oh, I filled out those four checkboxes not those four, it’s literally specific to each seller, what do they want and writing it down and making sure it’s mandatory as part of the exchange,
Jeremy Weisz 30:39
I can see Ryan in Arkona, there was an evolution right started off with the training and the framework. And then people were demanding other things of you and the company, they wanted to get their financials in order. So I want to walk people through a little bit of an example. There was one person they are company that have come over 30 years 70 staff. Tell me about that.
Ryan Tansom 31:03
So this manufacturer 30 years, very, like devoted to their culture, their legacy, because this gentleman actually had sent like 60 or 60, people through Tony Robbins, Unleash the Power Within and their spouses, so like, not cheap man, like, so that obviously he cares about his people. And he had two family members in the business to out of the business. So he goes to the training, we are to touch on the five principles. So I’m going to talk about the epiphanies, Jeremy is he said, Hmm, why i i want options. And I going through your training, I now realize that my wealth manager, just arbitrarily put $7 million is the value of my business on my personal statement and said, Yeah, you’re financially free. Now, I realize that, I’ll give you some specifics here on 14 million in revenue, he was doing about 1.1 or 1.2 million in EBITDA, normalized EBITDA, which is essentially just a proxy for cash flow, his market and his value was you times it by five as a bottom, it was worth about five and a half million bucks, enterprise value, which is top line, then you have the payer debts and keep your cash, then you have your equity value, he pays some taxes, you’d only walk away with two and a half million bucks. And he’s going ah, what I’m 65 like, this is not me, my wealth manager said I was financially free on 5 million short. And if he wanted to maximize his financial targets, principle two, he would have had to do the route that we did sell to a local competitor, but the company sacrifice principle one drivers of legacy, his his family, car and all those things, he probably could have squeezed out a couple more million bucks with a synergistic sale. But he said no. So what he said is I’m going to put some intentional focus. Now, I want to go from 1.1 million in EBITDA to 2 million. So I can go from a five multiple to six. And then I can go from a five and a half million dollar valuation to 12. And then I’ll net $8 million. And I can do an ESOP and sell to my employees. And within the first year and a half, you’d already paid down one and a half million dollars in debt started growing as EBITA. Up and like, I mean, when you have only so much resource, so many resources, Jeremy have your cash flow and your people and your time, making sure that whatever you’re reinvesting back in and whatever strategy you’re doing, are those three things, growing your multiple, by de risking your cash flow, growing your EBITA and paying down debt, you pull all three of those levers at once you’re now in the private equity game and wealth creation is absolutely possible and at an exponential rate that most people are not familiar with. For people listening,
Jeremy Weisz 33:41
Ryan, explain ESOP. And where is the appropriate scenario? Do you think people should consider that?
Ryan Tansom 33:48
So an ESOP stands for employee stock ownership plan. And essentially, I’ll give you want me to do like the four minute overview of just kind of all how it works, or so essentially, this trust buys the shares your EIN number, your entity, and it’s based on the financial value. So it’s based on the risk of the cash flow, so you’re not going to have a synergistic value there. But in that trust purchase, the the employees are the beneficiaries of the trust. And so what happens is, one is when you sell to the ESOP trust, that entity becomes tax free, but the entity is a pass through so literally, you’re not paying any state or federal taxes. So Minnesota here, you got a million dollars in EBITDA, you’re in your midst, you’re no longer having to pay 300 to 350 grand in taxes. And therefore, Jeremy, you, a bank will usually give you 1/3 to a half of the money up front. So they’ll they’ll lend the company, you know, and a $5 million sale hypothetically, then you might get two or two and a half million bucks up front. The seller has to carry a note for called 10% which by the way, I don’t know where anybody can get 10% Return on something that they created at today. You know, inflation and interest rates. And it’s all it’s all in control for the most part of the business owner. So if you focus on growing that intrinsic value, you can pre engineer the value of that business and sell it to your employees, your employees don’t have to take any money out to buy it. And then at that point, Jeremy, this is where Jack stack he never talked about him. He did this with I have SRC is the company that grows value. And the employees are vesting in that based on the growth together. And so what I find interesting about an ESOP, Jeremy is that even if you don’t want this and you don’t gravitate towards it, if you focus on the intrinsic value, you can always fall back on this fall back on an SBA loan with an internal transfer, you’re not hoping that some third parties in it come in and take your headaches away from you at a high purchase price. And what I think is also the last comment about Aesop’s is like, I hate the words Exit Planning more than life itself. And I can I’ve got a five year journey of misery to explain to you why I don’t think most business owners like it, either. And it’s because the reason that people don’t do E’s, that’s because if you called me up and said, Hey, Ryan, I want out like Jeremy, how to watch your job or the equity in the asset. And you would most likely look at me like, like I’m a Martian, because you’ve never been challenged like that, because most people like what do you want to because like in an ESOP, you can what the example I just gave is, you can reach in and liquidate your assets on the upwards like I mean, my partner did a very large ESOP. And continue being the CEO and running the company for as long as you want. Jack stack, turned his company into an ESOP personally made the wealth in the 80s. And now the company is doing, he’s got 1600 employees, 100 million in cash, and he’s created multimillionaires. But he wanted out of the financial asset, not out of his job, if you wanted out of your job, you might take the earlier route of grow the distributions big enough, so you can hire a president and keep it. So I think just that concept of like, what are you trying to optimize for, and then the employee, the ESOP, specifically, just a way of, you know, mechanically changing the ownership to the owner, or to the seller where they can get the money, and then the employees don’t have to pay any money? Because the tax free nature of it is going to help with the transition.
Jeremy Weisz 37:11
So one reason someone wouldn’t do it is they just want out of the business. Obviously, they’re not going to do it if they just want to what is another reason why I would have what right out of yeah, just I guess, out of their job, that position that they want to
Ryan Tansom 37:25
bingo, Jeremy, because if you came to me and said, I want out, and you and you, then we asked as the clarifying question, you’re like, I’m burnt out, I don’t like my job anymore. I’m very stressed. And then I looked at and said, Hey, if you actually wanted to do an ESOP, you’re going to have to spend five years investing all your distributions back into the company, and then doing all these hard things, then you might get these app after five years, and you’re gonna look at me going, I just told you, I was tired. And that’s where like, when someone wakes up and hears the word exit, like now I’m ready. But then I say, by the way, you got seven years of hard work to get what you want. That’s a shame, instead of saying growing value, with intention to create choices, so when you’re ready for a change, you get what you want. That makes sense.
Jeremy Weisz 38:09
Yep. Is there anything else? I want to circle though? Another question in a second. But with that person who had the comedy for 30 years, 70 staff, is there anything else that we left out that you wanted to touch on?
Ryan Tansom 38:23
When this this concepts that we’ve been talking about the the asset versus the job? And I mean, people listening in partners, family members, investors, there’s a lot of people that are tied to and you know, companies, when you have this level of discussion, Jeremy, like, tensions and stress goes down, because we’re acknowledging, like, here’s how the game works, man, like, Okay, here’s how the numbers work. Here’s how the value works. What are you solving for Jeremy, so if it’s family members, like sort of my point about this case study, to the family members in the business to out of the business, they’re not trying to make things equal through payroll, it’s it has to be fair, which is the people working in jobs in the company get paid. And then the family of the estate plan is in the estate plan, and the company’s asset is in the estate plan. So like, it just helps clarifying all this stuff. So that way people don’t have to fight man, it just doesn’t have to be that hard.
Jeremy Weisz 39:16
So a business owner comes to you CEO comes to you and says, Brian, Sign me up. I want in with our Kona, I need fractional CFO services. I imagine there’s a lot of stuff you need to unravel, unwind. Where do you start? The the business
Ryan Tansom 39:34
owner? So the Intentional Growth framework, we have four stages, learn, plan, grow, choose, learn is the training, everybody’s got to go through the training because I think about my dad and I in the back. We don’t back when we had the company. Jeremy, we don’t want to work with someone that doesn’t know the difference between working capital in their personal piggy bank. Because again, where are you going Jeremy like what are we trying to do? We want to help you think through that. So the training is set One plan is where we build this financial model. And we’ve got a financial assessment on the on the website that people can go in and take. But really understanding how to tie all three financial statements together, and then project them out into the future allows you to see, like, literally, if you tie all three of those together, you can see that the value of your business five years out, based on what you’re trying to do, and that becomes the roadmap. And so that’s the plan phase. And then the fraction CFO services we use, we kind of leverage the, you know, the, the exposure that EOS has had, and all these systems where our CFOs and our consultants, they go in there integrate on the management team meetings. So like they’re running these companies with these business owners, so on the weekly meetings, and they’ve got people internally reporting to them working with the banks and CPAs. And it’s an hourly rate. And our goal is like, hey, about 30 hours a month, you know, is pretty much the normal deal, no contracts and think about it as like a trainer. Jeremy, if you hired a trainer, right now, I’d say, Okay, here’s how all these exercises work. Here’s how all this stuff works. What are your goals? And then let’s put a plan in for you. If you don’t want to be Olympic athlete, let’s not build a plan for that. You don’t I mean, like, so it’s really just trying to what you learned. It gives the insights to the plan that we’re going to create. Yeah.
Jeremy Weisz 41:15
I mean, there’s also an accountability piece in there too, right? I mean, you’re building a plan, but now they’re accountable to the CFO, your company to do that. I mean, that’s one of the things that attracts me to a trainer is they make me show up and do the work. I mean, I may do the work. Right. Go ahead. Yeah.
Ryan Tansom 41:33
Because as I say, like, accountable to what you said, your trainer holds you accountable to your goals, not their goals for you. Right, like, in the good trainers. By the way, let’s say you had all these goals, and you walked into the gym from for our session, and you’re smoking said eaten a Big Mac at seven in the morning. And you had all these cosmic chairman? Dude, what are you doing? Like, I don’t care. I’m not smoking the cigarette in the Big Macs, but like, Come on, man, you got these goals? Like, are we gonna get closer or farther away? And so it’s the accountability to yourself. And that’s why the training is so fun. Because I want people to want something and us to help them get there not like I said, Man, we don’t know and started their business to be told what to do. You taken all this crazy risk. So that way, you don’t have to be told what to do.
Jeremy Weisz 42:18
Yeah, I mean, as I get older, my goals are like not to get injured. And they get lost. But But yeah. So learn, plan grow. What was choose
Ryan Tansom 42:32
choose? And essentially, that’s just whatever point in time down the road where you wake up, and you say, I want something different. Oh, guess what, you don’t have to sacrifice anything. Because you focus on growing value and you get choices.
Jeremy Weisz 42:45
Yeah, my goal is do the Murph in May, if anyone knows that the Murphy’s with cross training, the 100 pull up or a one mile run 100 Pull Ups 200 Push ups, 300 squats, and then another mile run in a 20 pound weighted vest. So I may skip the 20 pound weighted vest and go 10 pound weighted vest. But you know, and you know, when I started, I can maybe do one pull up so that I’m not upper by you, you could probably you could probably do it like I you know, I could say I got
Ryan Tansom 43:19
this picture based on that story earlier of that picture of Vince, Vince in old school where he’s doing the range with the signals. And I can
Jeremy Weisz 43:30
you know, tell people, where can they look at that you were mentioning a financial assessment, where can they find that
Ryan Tansom 43:35
Arkona.io underneath resources is the financial assessment. And it’s 23 questions, you don’t need your financials. And it’s just judging people on how well they’re doing on the four components of a financial package. And then on the results page, Pat and I my partner, who was a CFO for 35 years, did a bunch of m&a. And we walked through what it looks like, because I think it’s one of those things like what, what is it supposed to look like? It’s actually a noble thing.
Jeremy Weisz 44:03
One last question, Ryan. First of all, I want to thank you for sharing your stories, your lessons, I want to encourage people to go to our Arkona.io That’s A-R-K-O-N-A.io. Last question. And people can check out your podcast as well as Intentional Growth. And I’d love to hear some of your favorite episodes and maybe some of the lessons you learned from some of the podcast guests.
Ryan Tansom 44:27
On the podcast page on the website, too. I’ve got the most downloaded and favorite episodes. I would think you know, John Warrillow has been great on the show. Bo Burlingham is on that landing page too. And he’s so calming Jeremy like hey, you just need to figure out what you want. Amen. It’s just it’s pretty great. I there’s another one on there. It was sunny Vander back. He’s him and I completely dissect private equity. Jeremy we’re like and there’s another one on he says but the one on private equity is sunny. He’s got a conscious capitalism based private equity firm. So we’re walking through in dissecting for an hour how it all works. And I think it’s pretty powerful because, you know, there’s a lot of people getting out of the blue offers these days. So, going through that as enlightening. I like them all and probably you you probably got the same thing. Everybody’s got a different flavor and a different taste. It’s hard to judge.
Jeremy Weisz 45:16
So everyone, check out our Arkona.io Check out Intentional Growth. And Ryan, thanks so much.
Ryan Tansom 45:23
Jeremy, thank you so much for having me.