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Oct. 25, 2021

E: 32 Top M&A Entrepreneurs - Matt Bodnar - 8 Successful Deals - Forbes 30 under 30, Inc.

E: 32 Top M&A Entrepreneurs - Matt Bodnar - 8 Successful Deals - Forbes 30 under 30,  Inc. Fastest Growing Company, Chairman of Fresh Technology, Cofounder & Managing partner of Fresh Capital, Host of Science of Success Podcast with 5 Million downloads. 

00:00 Intro to Matt Bodnar 
03:29  His M&A Entrepreneurial Call to Adventure - working full time or owning equity
06:34  His first step - Guidance from Entrepreneurial Family - his first Zero Dollar Down Deal
13:45  His dad and being active in the restaurant space 
15:10  Slogging it out and eventually exiting the Aloha POS business, then acquiring an IT Data Center
18:10  How he negotiated and bought - in deal terms that make sense,  then grew the Data Center business
28:24  In a base line deal,  splitting upside, measuring the dollar value of contribution what the parties are bringing to the table. 
31:03  What happens to a stagnant owner - how they fit in after acquisition - what happens if they don't change trajectories
35:00 Categorizing the characteristic of a deal and identifying the right offers - Applicable  Deal Models
40:30 Does he have an exit strategy for acquisitions  - good deals create optionality - leaving blue sky for next buyer
44:22  What he learned from EPIC that he did not already know - tools in the quiver - what are different ways to do a deal - opens the door 
48:13 How being a coach for EPIC helps his deal flow
50:15  Is he looking for Wash, Rinse, Repeat Opportunity or just a Deal Maker - Playing World Series of Poker
52:47 How he snowballed to 5 Million podcast downloads
55:10 What he learned about "decision making" from professional Poker player Andy Duke


Jon Stoddard: Welcome to the top M&A Entrepreneurs podcast. Yeah, my guest today is Matt Bodnar. That is an EPIC coach with Roland Frasier groups. How's it going, Matt?

Matt Bodnar: What's going on Jon? Thanks for having me on here.

Jon: Yeah, Matt and I are actually working on a couple of deals together and if you can hear my dog, he's barking at home. So, let me introduce and tell you a little bit about Matt. Matt is named to Forbes 30 Under 30, a partner in Inc's fastest growing companies, dealmaker, strategy expert, Chairman of Fresh Technology, Co-founder and Managing Partner of Fresh Capital, and Managing Partner of Fresh Holdings. He's done over 8 deals. He's also the creator and host of The Science of Success Podcast with more than 5 million downloads. That's cool.  And he also did some work working for Goldman Sachs in Nanjing China. The first thing I'm going to ask you is... that's a pretty impressive background, but what it is like to work in China?

Matt: Just a slight clarification. I worked for Goldman Sachs but not in China. I also worked as a consultant in China. So, just clarifying those things a little bit. It was really cool. China's awesome. I lived there for... I wasn't there for a long time it's probably 6 months.

Jon: Yes.

Matt: It was amazing. That was back in 2007. So, it was Pre-Olympics, it's still hadn't been modernized, westernized, or developed. It had to some degree, but it was still very much like Wild West-ish in a lot of fun ways. But it was great. I really enjoyed it. My Mandarin used to be pretty good, now, it's pretty rusty.

Jon: What's the difference today? The perception of the CCP in China, Chinese people. Were you ever exposed to that? Or the government influencing...? I mean if you read anything about Jack Ma and Alibaba.

Matt: Yes.

Jon: He's worst challenge is... Oh, my God, the government actually owns his company.

Matt: Yes. I wasn't at the level where I was interacting with that. Honestly, most of the Chinese people I interacted with were super entrepreneurial. I met very few folks who were kind of just on a surface level, sort of toeing the party line, so to speak. But most of them were just as capitalist as anybody you would run into in the US.

Jon: I came across a deal that I didn't even open up. I put it in front of you, but it was 2 million, very profitable and wants to sell. I asked if where is the headquarters, it was in the United States. The CEO was Chinese, but he said all the developers were in China. I shared that with other people and just crickets. Nobody wanted to touch it. [laughs]

Matt: Yes, it's tough, the regulatory environment. I haven't done business in China in 15 years practically. It's been a long time but the regulatory environment there is very very... it's not pro-western, it's not very pro-outsiders. So, I think there's a lot of risks there that you just can't control. What happens if they nationalize your team or take it away, or just arbitrarily do something that inhibits your ability to compete? There's a lot of risks there. Obviously, a lot of people do business in China, but you've also seen a lot of big US companies that pulled out and don't do stuff in China earlier or [inaudible] [crosstalk] there.

Jon: So let's rewind and start after you work in a full-time job, or consulting or working with Goldman Sachs. Where did your MNA, like the entrepreneurial journey start and how did that start?

Matt: It started in a couple of different ways. Really, one of the biggest entrepreneurial... I had 2 wake-up calls, so to speak from an entrepreneurial standpoint. One was when I was at Goldman. I was reading this article about Larry Page and Sergey Brin. It was talking about... I forget which one of them was the CEO of Google at the time, but I was reading it. It was basically saying, Larry Page CEO of Google has a salary of $100,000 a year. I was a Wall Street Analyst at the time and my salary was more than that. I was in my early 20s and I'm like, "Man, I'm so cool. I make more than the CEO of Google." And then it was a comma and then the next part of it sounds, "And he's worth is 20 billion dollars in Google stock," or whatever that number was. Right? It was like it just smashed me in the face and I was like, "Oh, your salary isn't really the path to wealth. It's by owning equity and something you really truly build value."

So, that was one piece. Then the other one honestly is The 4-Hour Workweek by Tim Ferriss. I know it was a seminal book for a lot of people. This was ten-plus years ago but that book was very impactful and opened my eyes to the fundamental idea that a lot of the rules of the world are socially reinforced illusions that you can break through and live life in a much more self-defined path than following the traditional corporate structures and hierarchies and all of that. That opened my eyes to some degree to the potential of life, I suppose. Those are really the 2 big catalysts for me.

Jon: Yes. What did that look like? I do meet some when I live in San Francisco and I was doing the High Silicon Valley thing. We met a number of the best bankers out there. I go, "How many hours do you work?" "Oh,120 hours a week." I was like, "How do you do that? How do you work as an investment banker for 120 hours a week and your life would be just a ball and chain on it? Yes.

Matt: It's an expectation going into it. Right? You're signing up to go through that crucible and be forged by it to some degree. Everybody going in the industry knows that's what they signing up for. Now, some folks obviously don't like it or drop out or whatever. I was an intern the summer before I started and so you get a sense of what that lifestyle is like. I knew that I wanted to do that at least for a couple of years just to really understand what life looks like inside one of those companies and see. I learned pretty early on that I probably didn't want to be a lifer at a bigger institution like Goldman because there are so many restrictions and rules and regs, and all that stuff. So, I wanted to have a little more control over my destiny. It was a good experience to do on the front end to jump in.

Jon: Yeah. So did you start looking for companies to acquire or invest in while you were still full-time? Or did you just quit and go cold turkey?

Matt: It was a hybrid of those 2 things. I was really lucky. My family has been very entrepreneurial, and I've been able to witness what they've done when I was growing up and all this other stuff. My father's big in the restaurant industry and he's been a big restauranteur and he's done a lot of things. My brother is very active in that world. And I, invest in a lot of restaurants with them.

While I was at Goldman, I would see what they were doing and they would show me deals and real estate investments and all this stuff they are working on and I would see that. I'd say, "Oh, this is interesting. Let me put some money into this," or "This is really interesting. Let me invest in that." Ultimately, I got to a point where that lifestyle became a lot more compelling than sitting behind a desk for 100 hours a week or whatever. They chained to the markets and all of that. I jumped and joined my dad and my brother and we had a company called Fresh Hospitality or Fresh Holdings. That was an investment platform in the restaurant space.
And so one of my first tasks basically was, I let acquisitions for that portfolio for a decade basically and bought a bunch of different companies in a couple of sectors and things.

While I was doing that, I started also buying deals opportunistically on my own. If I would see something I would say, "Oh, this company's really interesting." The first deal I did was an old... It was a point-of-sale reseller ship, which is adjacent to the restaurant space, and acquired...

Jon: Yes. I know [inaudible] industry. What point-of-sale business was that?

Matt: We were in Aloha reseller?

Jon: Aloha, Yes.

Matt: It was a terrible business. I mean, on day 1, that company was doing about a million in revenue but they couldn't make payroll. They had $5,000 in the bank, they had $3000,000 of accounts receivable that was aged. It was over 180 days, 360... it was super-aged stuff that had been neglected for years and they had a major... That was the first real lesson I learned in business. There's a difference between paper profits and collecting your cash. If you don't manage accounts receivable, you're not going to have any cash.

So, I was able to basically buy that business for essentially zero dollars down. I paid 70 grand for it which was over 4 or 5 years. But again, the business was basically defunct when I bought it. That was one of the first deals where I personally bought an equity stake in the company and then there's a whole saga with that business. Where we built it up, we actually got completely out of the point-of-sale business, we pivoted into IT services and then we also pivoted into software and then sold out the Aloha business entirely. Since we have really pivoted and focused primarily around SAS, we've acquired 3 or 4 other SAS businesses within that. That's been a great kind of platform that we're continuing to scale up to this day.

Jon: Well, I got to ask you about the receivables. Did you ever collect any of those or did you just write them off?

Matt: Oh, yes. No. I collected... I mean, I spent the first probably 6 months, just collecting as many receivables as possible. Like going to people's offices, threatening to shut people service off, and all of that stuff. We definitely didn't collect everything but we played hardball with a bunch of people to get as many receivables as possible.

Jon: You know my buddy used to install Aloha systems and he said the easiest thing to do is just go to a restaurant and if they haven't paid their bill you go, "Hmm, yes. I'm going to shut it off."

Matt: Yes. Yes. [crosstalk] We would basically say, "Hey, guys you need to pay us or we're shutting your terminals down." Do you know what I mean?

Jon: [laughs] Yes.

Matt: I had meetings where guys were throwing stuff at me and all kinds of stuff. But, that customer base which a reseller is selling to mom-and-pop operators mostly, who are just skating by, barely able to pay their bills in a lot of cases, and those systems were pretty big installs that had heavy hardware components.
The company is shelling out, you're probably making a 30% profit margin on an installation. But you could have a $67,000 install of which 40 of that is hardware, a hard cost that you're paying to Aloha. Then you go install that and they don't pay you anything. You're in a really bad spot.

Jon: Yes. Wasn't the money in the merchant service accounts though? Because we used to do this when I work into it. They started selling a point-of-sale system and the resellers came on and we said, "Look you're not going to make any money on this point-of-sale system, it's a computer. Get the merchant service account because you're going to get reoccurring route."

Matt: Yes. The credit card processing, the ancillary services, all of those are ways that you make money. Ultimately though if you have big daddy Aloha, breathing down your neck the whole time, it's just not a very good business model. I thought it was a terrible business, but we were able to use that customer base and then a couple of acquisitions to get into pure-play IT services, where we were doing manage desktops, and VoIP phones, networks, and all this kind of stuff for businesses. Both were originally the same customers as our Aloha base but also branching into medical and all kinds of other different customer segments.

We also piggybacked on that same customer base and started getting into the software space. We really just said, "Hey, there's... This is the beauty of MNA, right? There's clay there that you can shape into something, right? Instead of being a start-up where we said, "Hey, we're starting with zero dollars and zero customers." We actually took a customer base and pivot it into 2 or 3 different revenue streams and then made those into a standalone business, got completely out of the original business, and built those into pillars that are still profitable, diversified businesses with thousands of customers now across all kinds of geographies and industries and stuff.

That took 10 years and the journey is not even finished yet. That was a very long process of many acquisitions, many starting out in the back office of a bunch of small restaurants getting yelled at by people who weren't paying their bills type of thing, but eventually, we were able to pivot it. If we had tried to do a startup, we wouldn't have had the customer list. We wouldn't have had the people to be able to execute against all the stuff that we executed against the scale that business up.

Jon: So are those business units like the Aloha, which you got rid of, and then you add this IT firm. Were they in silos? Did they share the same customer base? Or was it...?

Matt: They were structured as standalone as SPVs or standalone entities within the parent company that we rolled everything up to. When we spun out the Aloha business, we basically carved that whole business out, got rid of it, and then kept the other two. That company probably has... I don't even know. A half dozen, a dozen LLCs that also roll up into its trunks and branches and so forth. This is pretty typical for the way we structure stuff and most things are structured generally. So, they're all standalone siloed business entities.

Jon: Is your dad still involved like a Board of Advisor, Chairman, or Executive rolled into one?

Matt: All in the restaurant world. Yes. He's still very active. He's a restauranteur, he's been one since he was basically out of grad school and he's super active in that space. I'm still relatively active, too. I'm working on a restaurant acquisition right now for a fresh portfolio.

Jon: Matt, did you read that article about... what is named for Tita?

Matt: Yes. [inaudible] Yes.

Jon: Yes. Where he took all his restaurants to SPAX, and now he's worth double the amount before Covid.

Matt: Yes. Now, SPAX? We actually looked at doing this back, and we're behind the curve on it because now, there's the market sentiment around SPAX, I think it turned quite negative.
But there are some folks who crushed it early on in this back world and I'm remiss that we didn't get into it sooner because I think it could have been a really good opportunity set.

Jon: What kind of restaurants is your dad's? Do we know them? I mean, a sample.

Matt: Being on the West Coast you probably wouldn't have encountered any of our stuff. It's all primarily in the Southeast, but we have probably 12, 15 different restaurant brands in that portfolio of which several of them are decent-sized multi-unit brands beyond just one or two kinds of mom and pop type thing.

Jon: Yes. So, when you started looking at this, when you're in Aloha business, did you guys just decide and call, "Hey man, this is a dead-end business. We want to be bigger. Let's acquire something else." Where was that thinking in commerce...?

Matt: The compressed timeline of telling the story doesn't really do justice. But it was years and years of slogging it out and trying to figure it out until we finally... and we tried a bunch of stuff that didn't work, too. We tried like startups within the company where we say, "Hey, we're going to spin up a new division. We're going to do X." And it would blow up and not work. Or, "Hey, we're going to do Y."

Ultimately, we just tested a bunch of different things and part of it was just through acquisition, right? By buying. In one of our earlier acquisitions, we acquired a data center company that was basically going out of business and the seller was just retiring and didn't want to be in the data center business anymore. He basically gave us the company. We took over all of his revenue in exchange for taking over all of his expenses and servicing his customers. We paid him an earn-out over time. That gave us a whole another treasure trove of customers to go after and sell them more stuff. But it was really just a question of spending a lot of time looking at what's are our capabilities, what's our customer base, what are the things we could do for them other than this current business that we're in?

We even acquired another Aloha dealership, which ended up being just more of the same headaches. And so, we ultimately decided, "Hey, this business is just a slow margin." To some degree, we looked at the writing on the wall with a square and all this other stuff that was going on and said, "Hey, the day of the $100,000 POS install is going away and it's all moving to these low-cost tablets solutions. We saw both it was a pain in the butt as a business. We also saw the writing on the wall in terms of what we thought that the broader industry was going towards, and so we wanted to migrate away from that as quickly as we could.

Jon: So, those kinds of let say not lean years, but frustrating years, did you buy any businesses where you had to shut down? I mean, I did, I freely admit. I bought this... not coaching, but it was a course business and I had to shut it down after 6 months.

Matt: I don't know specifically within FTI. I don't know if we've had to shut any acquisitions down? But we acquired a POS company and then we basically got out of the POS business. So, it wasn't like a slam dunk exit, it was basically like, "Hey, we want to get out of this." We had a minority partner in the deal who like the POS company and wanted to stay with it. So, we basically gave him that company and traded for some stock in another business, and went on our merry way.

We definitely had lots of failed projects and stuff like that. That's pretty regular, but I don't know. I'm just trying to think back to the history of the company if we had specific acquisitions that failed. I mean not anything magical that we did and I don't think we necessarily had any but, that's just how things panned out.

Jon: Yes. About that hosting business and you pretty much walked into that. How did you see the opportunity to turn around making money because that's a kind of a commodity business?

Matt: Yes. It was like data center collocation, the technical term for what that business was. There are bigger competitors and really as things like AWS and other things come online, like collocation gets less and less relevant as a business model, but we basically modeled it out and said, "Hey we can take this business over day one." It was doing a couple of 100,000 in revenue and we piggybacked it onto our operating expenses. It was basically net cash flow positive on day one. Even after payments to the seller. It was just like incremental cash flow that we added on. Then over time, that business has basically treaded water, it did okay, but we were able to use that customer base. We were able to use the credibility of having that, we were able to use that revenue stream to fund our bigger kind of IT services division. We build out the sales team there and go and expand the customer base and do more stuff in like voice over IP phones and networks and all these other kinds of elements of that business model.

We basically used what we could of the company's infrastructure. But again that business wasn't like, "Oh my gosh, we need to go buy data center." It was like, "Hey..." literally my attorney I think, or maybe one of our sales guys actually... I'm trying to think about it. He just reached out to them and he was like, "Hey you guys want this company? Because I'm going to shut it down otherwise."

Jon: Yes. And you're like, "Well no, it's a gift. Why not? Can we turn something into it?"

Matt: We looked at it and part of it, too is... this was before I'd ever heard of Roland and the whole Epic Methodology and all this stuff, but, we basically just said, "Okay. Well, what's a deal that makes sense?" Right? This is how I underwrite most deals, I basically asked myself, What makes sense for me?" And then I'll propose that as a deal, right? If they say, "No."... I've put out a lot of proposals for a lot of deals that I thought. I was like, "I'll do it under these terms." Which are potentially very advantageous for me. And if the person says, "No," then, "Okay." Do you know what I mean? I don't do that deal but every now and then somebody says, "Yes," then you get a great deal.

So, I try to look at every opportunity as to what is the win-win way to structure the deal? Maybe you're at least, "What's the way to structure the deal where I can't lose," right? And so I'll figure it out. Okay, if we paid half a million dollars in cash for that business? I'd be super pissed about that acquisition. Do you know what I mean? But I paid...

Jon: That would be dumb.[laughs]

Matt: Right? But we didn't. And I could have... If I had only had one approach to it, I could just say, "Oh, well, I can't pay you half a million bucks for this deal so I'm just going to move on. Thanks." Right?

Jon: Did they have any expectations of making any money out of it or was he...? You know.

Matt: He made money out of it. He didn't make hundreds of thousands of dollars, but he made a decent amount of money on the sale. Again, I don't know... this was pre me having encountered a lot of Roland stuff. But Roland has the same idea where he says, he doesn't negotiate, he only collaborates. And that's how I try to approach any deal. I just sat down with the seller in that deal and I was like, "Hey, what do you want? What are you trying to accomplish? Here's what we're thinking about." It wasn't a hardball style of thing. It was like, "Yes. Let me think about it." See if I can come up with something that checks enough boxes for everyone that it makes sense for us to do it.

That's how I approach most stuff. I'm not trying to necessarily ramrod like a certain structure. Sometimes, there are only like one or two structures that really are worth pursuing and so you have to do that, but I just try to say, "Hey, here's what makes sense, for me. Here's what I'm thinking about if you don't like it, that's fine. You're not going to hurt my feelings. If you have alternative proposals, tell me about them." I try to tell every seller or person that I potentially jiving with that. I view every deal as a statue that you're starting with a block of marble and you're just sort of chipping away and getting it more and more refined. So, don't get offended at the first chips at the block of marble because we still have a lot to do to figure out where it lands.

Jon: Yes. Did you start out with that? Do you say "Hey, this what works for me." You're sitting on the same side of the table and you say, "I like to tell you what would work for me."

Matt: I don't necessarily frame it in that way. What I usually say is... I'll frame it like... I'll think about it in that way. It's like, "Okay. Well, at what terms would I do this deal?" Right? That's the question that I'm always asking myself instead of just saying no, it's like, "Okay. Well, I would do it if the seller carried a hundred percent and it was a positive carry. Right? And it was big enough to justify the time and effort that I would take.

Again, maybe the seller doesn't ever want to do that. But that's the starting point. It's like a spectrum, right? What works for me and then how far along can I get on that, to where I start to get into the zone of it also works for the seller. If there's an intersection there then there's a deal to be done. And if there's not, then... I am more value-oriented in the sense of I'm not going to die on the hill of having to get a deal done versus being like this deals like starting to get outside the zone of what I think is a good deal so I'm just going to move on. And not get caught chasing it. So, that it blows up.

Broadly when I'm interacting with the seller, it's more of, "Hey, here are some ideas that I have. I welcome it if you have other ideas, throw them out. I'm not trying to pigeonhole us into anything other than just seeing if there's something that works for both of us." Do you know what I mean? I'll give you... This isn't an apples-to-apples comparison but I was pitching somebody on a deal, maybe 4 or 5 months ago, I could have just pitched a straight, "Hey, I think the company is worth X and I'll buy it at this price." Mostly all cash or maybe with some seller financing or whatever. And instead, basically what I said was like," Look I see kind of two options here and you tell me which one you like better, which is either A, I can just give you a chunk of cash and that's it. You walk away or B, I can give you kind of payments over a time that is equal to approximately what you're making in the business today. Maybe you can keep some equity upside, but it'll be like a pass of ownership. and you know, you can basically keep making that, you can have some upside kicker and I'll step in and take over the company and do what I think is best for it."

And I threw that out as a kind of Hail Mary. I don't think they're going to take that when they could take all cash. They were like, "I really like the sound of that one. The deferred payments and I can keep getting money every year, every quarter, or whatever."

Without me just tossing that out there and just creating that possibility, they might not have ever told me that, and I might have just been pigeon-holed in like, "Oh, I have to pay. I have to come up with 4 million dollars in cash to buy this company versus hey, the sellers actually willing to carry a big chunk of this deal structure.

Jon: Yes. How would you know that? What kind of questions did you ask to present those two offers? And let me give you on the scale of things. You look at a business and say, "I'm going to give him cash and it's on this side." or he got the same business but I'm going to ask for 7 years of seller financing because it's zero out of pocket, it's 5 million out of pocket here. How did you know what kind of questions to ask to say? That seems like on both extremes. How did you...?

Matt: To start, I just try to get a sense of, what are they making from the business, right? I've done a ton of baseline deals in my life and most of them, all stemmed from this premise of what are you making today? Right? Especially for smaller businesses, a lot of people think that, "Hey, I'm making $250,000 a year from the company today, right? That's what I'm taking out of it in a combination of salary and profits and all this stuff. It's weird but I don't characterize it as seller financing because I think that has some baggage around it. Sometimes I just put that in a term sheet and it's like, Hey, I'm going to give you... I want you to carry 30% of the deal," or whatever. But that's usually if there's more market like brokers, advisors, and type of staff.

For a baseline deal, the way I framed pretty much every baseline deal I've ever done, is we don't even talk about valuation. I sidestepped that question and I use this framework to sidestep it, which is to basically say, "Hey, you're making 300 grand a year out of your company. Here's what I would propose. Let's create a structure where you keep making 300 grand and we can partner together, and I'll bring some resources to the table to help the company grow and we split the upside in some form or fashion." Right?

What that effectively does... Then you come back in later and say, "Okay. Well, let's say, if you're making 300 grand, let's say for the next 5 years, the business will keep paying you 300 grand, and then it'll kick out to a point where we just split the profits 50/50 or 60/40." Again, it depends on if they want to keep being active or whatever else. Effectively, that sets evaluation and it sets a term and it's all seller-financed, right? That's implied in that structure, but you do it without ever having that conversation about, "I'm going to pay you this and it's going to have this interest and you're going to carry..." and blah blah blah. But the way I basically frame it is like, "Hey, you keep making what you're making, we'll split the upside in some way, right? If you want to be passive and ride off in the sunset, I'll take 70% of the upside, you take 30%, or I'll take 80% to the upside, you take 20%," or whatever. Or, "If you want to be super active and you want me to keep being active, maybe it's like a 60/40 or 50/50," or whatever.
And then, I maybe bring...

Jon: [inaudible] sorry to interrupt.

Matt: I'm sorry, keep going.

Jon: You say, "Hey, I'll keep giving you 200,000 a year. I'll give you for 5 years, a million dollars kind of sets the valuation. And then, the upside is, you bring your resources in. How do you determine how you going to split that because they're doing the same thing or they may be lagging or whatever and how...

Matt: Again, you can do it. There's no right answer other than you can just do it in a way where you don't have to have a conversation about what's the dollar value of what I'm bringing to the table? And what's the dollar value of what you're bringing to the table? Right? Sometimes you can frame it and if you want to invest capital or it's a necessary component, you can do a baseline deal where it's like, "Hey, I'm going to bring, let's say $200,000 of growth capital to the table and you keep making your 200 grand a year, I'm going to put that in the business and I'm going to take a majority of stake and I'll have 60%, you have 40% and we'll keep going.

In that scenario, you can maybe invest it as cash or you can take out a line of credit in the company's name and use that as the capital that you're bringing. Or you can say, "Hey, I'm going to provide $200,000 worth of resources or $500,000 worth of resources, and that could be services in kind, it can be consulting, it can be another business that you can grant them. Say, "Hey, if I were to give you... and this is something that also Roland is really good at, which is basically saying... This is how you frame it to a seller, right? Let's say, I gave you half a million dollars or I put half a million dollars in the company, what would we spend that on to grow? Right? So, if we say, we would spend $100,000 on sales. Okay. That's one thing. We'll spend$100,000 on marketing. Okay, that's another, right? So, we'll just use those two as examples. You can say, "Okay, great. Well, when I take over, I'm going to bring my marketing company to the table and that marketing company is going to actually give us $200,000 worth of marketing services for free, right? Or whatever. And so you can say that's an effective $200,000 cash contribution, maybe even more than that, but you don't actually have to come up with $200,000. Those are some just illustrations or ways to...

Jon: [inaudible] pretty good at. Yes.

Matt: Yes, exactly. Figuring out ways, you can sort of say, "Hey, I'm bringing non-monetary contributions." Now, you can also just do it where you can just... It doesn't work in every case, but you can take out a loan in the company's name and have that be your contribution, right?

Jon: What happens to the owner? Normally those guys, when you're buying female or male or female and you say they grew their business, but they're stagnant. They just don't know how to get to the next level which is what your $200,000 or two hundred thousand dollars in marketing contribution does.

Matt: Yes.

Jon: How did they fit in after that for the next 5 years? Are they just they know all? Or do they...?

Matt: It varies. They can be totally passive or they can still be running the company.

Jon: Yes.

Matt: I think part of that depends on what's your thesis for the deal and what's your relationship? Do you want them to be involved or do you want them to completely be uninvolved? Right? I think with a baseline there's an inherent element of their continuous involvement to some degree, because otherwise, as a baseline, it's not really the right structure because if you want to buy them out completely, like get them out? You can still use seller financing but a baseline is a sort of implied that they're going to be involved on a go-forward basis and you're going to come in and you're going to help split the growth or whatever.

In that scenario, generally, they're going to stick around. Now, I've done baseline deals where we've had to come in 18 months later and be like, Hey look, I know you wanted to run the company but it's not really working, you can keep your payments and everything, but let's figure out a way where you can focus on something else within the business that you really like to do. And maybe we bring in another manager from outside. Or we promote somebody from within to take over X, Y, Z functions.

Most people if they're stuck, they're frustrated, or whatever, they're going to know that it's not working, and they need something or they need someone else to take over. Sometimes those are harder conversations, but a lot of times it's just if you look at... Okay, what happens if we don't change trajectories, right? Everybody loses and so let's figure out something where we can create a win for everyone.

Jon: It sounds like your Aloha experience as well, if you don't pay we will shut you down was a good working experience for these kinds of conversations.

Matt: Yes. I mean look, I've had a lot of difficult conversations with people. To some degree, the Aloha thing was a turnaround-ish. But counting that business, I've turned around like 2 or 3 companies. It's a very simple conversation that you come in and say, "Hey look, we have a couple of alternatives, we can either shut the company down, in which case everyone gets nothing, or you can say, "Hey, you call your landlord. I have 2 options, I can either not pay rent because I'm going out of business, or I cannot pay you rent for the next 3 months while I get the company fixed. Which one of those would you rather have happened." Right? So, that's an easy conversation to basically say, "Okay. Well, I'll defer your rent for 3 months or whatever. If they don't just pay, "Okay, cool, then I'm just going to close the business down and it's a loss for you and it's a loss for me."

Sometimes you just have to look at the inevitability of the situation to have a very clear-eyed picture of what's going to happen and what needs to happen. Whether your slashing expenses or restructuring a business or whatever, I know we've worked on some stuff in that realm a little bit as well.

Jon: Full disclosure, man. I worked on a couple of offers for a hosting business for a large elastic where a search-type business which didn't go through, but we'll see.

Matt: Not yet. But that's going to where we looked at and say, "Okay. There's a lot messed up about this deal." But like what's the deal we would do and we pitched him on the deal we would do and he didn't want to do it. But you got to have 10 plus conversations like that where one of them hits and then suddenly you have a great deal.

Jon: Yes. Now, is there any characteristic of the business where this type of offer makes sense? Is it a distressed situation? Or have you ever presented this offer to somebody that you'll say, to ongoing... And they're actually growing 10 or 15% per year.

Matt: We've been talking a lot about baseline deals, right? That's one arrow in the quiver of doing deals that there's a ton of different arrows in that quiver broadly. So, this isn't to say this is the only way you can do deals by any stretch. Right? You can do tons of different deals. For baselines, in particular, I think it works better if there's a growth story and it's not as compelling for a turnaround. Or especially depending on the nature of the turnaround, but I think a baseline is basically, works great if someone wants to grow, and they don't know how. That's probably the best use of a baseline, which is, "Hey, you don't know how to grow. What are you making today or the business?" Keep making that, so your downside is, this is the status quo. Right? Because you're going to keep making that, either way, we're going to split the upside and we'll figure out a formula for that. And I'm going to come and bring resources, right? It might be capital, that might be intellectual capital, it might be relationships, and it might be Sweat Equity. I'm going to come to bring resources and we're going to split the growth, right?

I think it's also not unreasonable to have some mechanisms where you hold your side of the equation accountable for achieving stuff, too. I've done baseline deals that I haven't been able to generate growth and I've literally handed them back and I wasn't required to do it by the contract, but I basically gave them back the equity. Like, "Hey, you know what? I didn't deliver on my piece of the puzzle. So here, take the equity back. I don't want to have any bad blood, keep doing what you're doing. I'm sorry that I couldn't be helpful.

I would much rather do that and have a very honest conversation with them as opposed to having them leave that being like, "Okay, you live up to the ethos of our agreement versus I haven't delivered but I'm keeping my equity anyway. I don't want to have that kind of energy or vibe, or whatever in my dealings with people.

So, baseline deals don't work out in every case, right? But it's just a very derisk way to do a deal because you have a lot of asymmetric upside for a low contribution and you also end up essentially getting the seller to carry a huge piece of the deal without ever having to actually talk about seller carry and valuation and all of these issues which can get sticky and tricky to deal with.

Jon: Yes. I was curious that if you could say that a baseline deal is good for businesses that are stagnant, the owner wants to stay but unsatisfied. [crosstalk] [inaudible]

Matt: I think that's...

Jon: He didn't like the characteristics of the deal, the better you get out presenting an offer that will be accepted.

Matt: Yes, I think that's right. To me, baselines are one deal type but the way that I look at doing deals is I'm always trying to collect what I would call deal models or like mental models for ways to structure transactions. They can be wholly disparate and completely different from one another in the type of company they work for, the type of opportunity they present well into and etcetera. What I try to do is have as many different deal models as I can keep in my head and I know work and then when I see an opportunity, I can basically say, "Hey, this is the model that I think is the most applicable for this opportunity," right? And then I try to plug that in and say, "Hey, this deal feels a lot like a baseline deal." Or, "Hey, this deal feels a lot like an SBA deal or this deal feels a lot like..."

The only way this deal gets done is if I take it down with a traditional bank loan and smiling and dialing high net worth investors for a hundred K checks at a time to get the equity that I need to close it. There's nothing wrong with any of those approaches. I fall prey to this, too. But especially in the broader kind of MNA community like Epic and all that stuff,
I think it's easy to get seduced by the idea of doing a deal that doesn't require any equity or no cash down or whatever. But those deals are much harder to find, right? A lot of times, it might take just as much effort to get a deal done where it's like, "Hey, this is actually a pretty good deal. But I'm going to need to pay mostly cash for it. And I need to go raise a million dollars or a million and a half dollars of equity or whatever. Just smiling and dialing for that and going and leveraging your network and calling people and getting the equity check and getting a bank loan for the rest of it.

Now. There's a lot of downsides to doing that too. But that is a method of doing deals. Lots of people have done deals that way in the past even if they didn't have any Equity to put in themselves. It's another modality that you can use to do transactions outside of just trying to always find an angle for a no-cash deal.
Now that said, I always try to figure out. Can this deal be done without Equity, right? Those are 5 different filters that I look to do, to try and do that. But some deals that don't work might still be a good deal that you're like, "You know what, it can't, but I really like the company, the founder, the market," or whatever and I still want to do it. So, I'm going to figure out another way to do it.

Jon: Yes. Do you have in mind an exit strategy for the business? The first day you go in or do you say, "You know, I like the market, I like the people, I like the growth potential of this. Let's see how we can afford it or buy it." What's the exit strategy in this?

Matt: I may be atypical about this, but I really don't try to have a very tightly predefined exit strategy. My fundamental thesis is, if it's a good deal and you execute well, it creates optionality from an exit standpoint. Right? If the deal grows a bunch or it's doing really well, that's a great company. You're going to have lots of things that you can do from that point forward, right? Three of the biggest paths would be A, you can just keep if it's a cash flow generator, you can keep cash flowing in the company and not sell it and just hold it for cash. Again, you don't necessarily have to do that. But that is an option and if the company's run well and you built it and it's great, they can just be a passive cash cow type business potentially.

Scenario B would be, do a recapitalization of the business, a dividend recap, or something like that. Where you can basically pull a bunch of money out of the company without selling it by recapitalizing it in some way whether that's with debt or Equity or whatever.

The third would be just exiting and selling, right? So, I don't necessarily have a predefined I need to exit this business for 3years or 5 years or whatever. It's more, "Hey, based on this opportunity, I know if we execute we can maybe do any of those." Rather than lock myself into one course of action, I'd rather get to a place where the business is performed really well. Then make a determination at that point. It's like "Hey, maybe I just cash flow this thing and keep going," or "Hey, you know what? It's time to get out for X, Y, Z reason. We can get a crazy price, the market might be turning, we've really hit a lot of the growth, we want to realize our economics or whatever. There are lots of reasons. But I say all that to say, I don't have a predefined exit because if the business does well, exiting or doing something else is really easy and if it doesn't go well, then you're just going to be like dealing with that regardless. Your exit plan didn't really matter.

Jon: The reason that I bring that up is one of my prior guest, Michael Baris Lasky [?]. He buys SAS businesses, content businesses. And then he buys them from somebody that's maxed out their capabilities. He brings his resources to it and then grows it to whatever, but he knows... we got to get... He's done 300, he's like knows what to hold them, knows when to fold one, knows when to run, because if you hold them too long, it's less painful. He always sets it up for the next big fish [inaudible]

Matt: Yes. If you're aiming for an exit like there's very much a compelling argument to leave some blue sky for the next buyer. Right? That's almost a key part of any good MNA sale and the same thing applies in real estate, too. But not necessarily try and extract every piece of value before you exit and this is something Roland talks about. But to leave like, "Hey, the next person buying this wants to have a story, need to have a story that they can tell themselves of, "Hey, when we buy this, there are still XYZ opportunities to expand and grow and improve," versus just, "Oh, they did everything and now the business is just mature and we can't do anything to grow it." You're going to trade it to a lower multiple than if you are like, "Oh, we still have 10 more growth opportunities and 5 new markets we can get into. We just started doing this." Sometimes selling when a lot of that stuff is about to happen. You can generate a lot more interest from fires.

Jon: Yes. Yes. So what did you learn from Epic that you weren't doing already?

Matt: There are a couple of things. What I learned from Epic was more than anything like a vocabulary of some stuff that I had been doing, but I hadn't really put labels and buckets on it. It was really helpful to categorize that. I think the other thing, too is, weirdly I had done multiple zero out-of-pocket deals as Epic or Roland would call them. I never really thought of them that way and even... has someone who had done a couple I thought to myself like, "Oh, if I want to buy a company, I have to come up with all the money," right? Or "I have to have millions of dollars in my pocket to do it."

For whatever reason like Roland's content really resonated with me to blow apart those assumptions and hear stories of how all these transactions are being done without necessarily a huge Equity check or without having millions of dollars in your pocket. It was just very similar almost to what Tim Ferriss was just in terms of opening my eyes 10 or 15 years ago, I think Epic opened my eyes to like, "Hey, there's a lot more deals to be done. And there are a lot more creative ways to do deals than I had ever imagined." So, it was very helpful.

Even when we did a big SAS acquisition after coming across a lot of Roland's content, I think if we hadn't, we probably wouldn't have been able to structure that deal to where we did it with zero cash out of pocket. Just having that framework of like, hey, there are all these ways to do deals. There's all these ways to find the financing was very helpful. It's almost just like permission to think that way and the awareness that it's possible. Both of those things make it easier and more likely for you to do it if that makes sense.

Jon: Yes, it makes sense, and then this is part came to my mind about this. If you were in the successful mind like inspiration coaches, Tony Robbins, and all those guys. If you first started out, you wanted to buy something, you would say from a, "I can't afford that." Right? But all the success coaches tell you, "Stop saying that. Figure out how to say, I can afford that. How do I do this?"

Matt: Yes.

Jon: This is the perfect scenario, the business is like, "Well, that's a 50-million-dollar business, don't say, I can't afford it because you can." Nobody's going to write a check for a hundred million dollars. Say, "How can I afford it?" And leave to the resources to do that.

Matt: Yeah, exactly. And that almost comes back to what I was talking about earlier of trying to have a lot of different tools in the tool belt or like arrows in your quiver or deal models to do deals, is like once you know that there are, this is not like the definitive number I'm saying, once you know, there are 7 different ways to do a deal or 15 different ways to do a deal or infinite ways to do a deal, when you see a deal that you think is interesting, suddenly it's not, "I can't do that." It's, "What are the different ways that I can do this?" Right? And so you can say, "Can I do it with the seller carrying most of it? Can I do it as a baseline? Can I do it as an asset back deal? Can I do it as an SBA deal? Can I do it as an independent sponsor? Can't I do it as a traditional like Equity raise?" There are all these different ways you can do it. And so you see an opportunity you like and then you start to slide it into, "Okay. This could be a really good deal to do this way." That way may not work, but you know, you got to... Sorry.

Jon: The scholar doesn't want it. [inaudible]

Matt: Yes. Yes, but you got to take a lot of shots. This is definitely a game of sourcing a lot of opportunities, taking a look at a lot of stuff and filtering through the few things that really are interesting and makes sense and can be done.

Jon: How is being a coach for Epic helping with your deal sourcing? Because you and I have already talked about 2 different deals, one we made an offer on and another one we... it's still open.

Matt: Yes. It is still made to materialize. It's been really interesting. I wasn't sure what to expect. I've really enjoyed honestly, connecting with the Epic Community because it's like a ton of people that are very like-minded and approaching stuff in a very similar way. I think some of the people in Epic are probably maybe even more advanced than I am, in terms of deal execution and track record, all that stuff. There's a lot of people that are similar. I think there's a lot of people that are maybe a step or two behind me. So, it's great to be able to just be like, "Oh, well, I was just dealing with that thing and here's how I did it." Do you know what I mean? Part of the reason I've got a podcast, too that I started and all that. Part of the reason I like that stuff is just I naturally gravitate to teaching, coaching, helping people. Epic has been great from that perspective, but it's also been great because I've connected with a lot of dealmakers. Honestly, it's almost hard to keep track of a lot of the deals I get sent on Epic because many of them are just like somebody who like peeled a broker listing and showing it to me, which I'm like the guy's...

Jon: That's a [inaudible] like I do. This is the same from a broker and losing... [inaudible] [crosstalk]

Matt: I have to like camera home, like that. I can go peel Broker Sims on my own. If you send me something that's brokered, the value proposition is very low. But I've been amazed there are some really innovative guys and I would put you like near the top of that list in terms of folks who have been sourcing stuff off the market, like being really creative, like generating real opportunities, and it's been great. It's been a lot of fun. If I've probably been drin-... It was probably a more interesting deal flow than I thought I would see more quickly, but it's been great.

Jon: Yeah. Are you looking to say, "Hey, if I could just get a wash reprieve, rinse repeat model in there, or are you just...? I looked at your bio. You're in the real estate, and you're into restaurants. Restaurants are something I avoid a thousand percent.

Matt: If my family I wasn't in it I wouldn't be in it, right? It's a very specific niche that we have a lot of expertise and that kind of stuff.

Jon: Yes. Are you looking to continually move up or a certain model? Or is this any deal that comes on? I'm going to see it. What kind of proposal I can make and then we're going to do it because it's fun and there's nothing wrong about doing what's fun.

Matt: Yes. I'm a deal guy, basically. Do you know what I mean? I like doing deals. I like looking for them. I like negotiating them. I like putting them together. So, I'm always kind of hunting around for the next deal and I just like to do it. Do you know what I mean? I probably could make my life easier and like, look at less deals and slow the pace down a little bit. But I'm still very hungry and I feel like, I want to execute much more than I've executed so far. Maybe at some point, I'll slow down but really I just want to get to lie. I'm a poker player too, played in the World Series of Poker the last handful of years like... since Covid.

I just want to get the big game. Do you know what I mean? I want to keep leveling up. I'm looking at massive companies and huge deals and stuff. I just look at it as like every deal is just accumulating chips so that I can keep playing a bigger poker hand. Basically.

Jon: Yes. I just got off the phone with a proposal we made to a restaurant which I'll talk to you about after this. They are trending doing 80 million a year and they were wanting to still look at raising money. And I said, "Look, we're not interested in helping raise two million. I mean, it's just as easy to raise $20 million. It is $2 million.

Matt: Yes.

Jon: Because it requires the same skills. You're rewarded and we just said, "Hey, look we can do that for you, but we're not interested in that." So yeah, I know what you're feeling and that you keep moving up because it's the same game. It's just a bigger challenge, a bigger mountain.

Matt: That's right. and it gets more competitive too. Right? You start to butt heads with big private Equity groups and all this stuff, which I try to stay under their radar at least for now, but at some point, my goal is to level up deals that we're looking at and do bigger transactions.

Jon: Yeah, beautiful. How did you get to 5 million downloads on your podcast? Because this is a podcast, it's on YouTube and all the other stuff. How did you get 5 million?

Matt: That's a whole episode and a half probably worth of stuff, but I mean..

Jon: You got 5 minutes and that's it.

Matt: Yes, honestly, I've been doing that show for six-plus years at this point. So, it's been around for a long time. When we launched originally, we launched on like in partnership with a website that was in our niche. So, we were able to get some initial snowball traction from their audience base. That helped seed it and then really we just doubled down on that and were able to get new and noteworthy. Which again, helped it.

Sort of a snowball where you keep getting some critical mass, but I think it was a combination of launching in partnership with somebody who was already targeting the existing audience that we were targeting. So, that we had a built-in audience from day one. It wasn't like me and my mom and like to other people listening to it, and that was very helpful. Then I think really the other piece is just we've been able to get some cool guests on the show over the last 6 plus years. Lots of people in the psychology personal development, even the business world who are not insanely famous, but we've had people from Shark Tank. We've had like famous astronauts. We've had championship poker players. We've had the top psychologists and like psychology influence in the world, like all the stuff. And most of that is the same thing. It's the same skill set that it takes to do a deal, which is just, you got to be very... like follow up constantly. Like asked a million people, don't be afraid to ask them, and eventually and we followed up with some people for years before they say yes to being on the show. Do you know what I mean? It's the same thing by a company to do the right kind of deal.

Jon: Yes. You know who [inaudible] in this?

Matt: I don't think so, but...

Jon: He's about a pool company that did [inaudible] It took me 6 months to get him and I had to cancel because of something else and it's going to take me another 3 months to get them on the podcast, but he's a guy I wanted to talk to.

Matt: Nice. Yes. But again, it's just like relentless follow up just staying on top of things and figuring it out, not giving up. Not giving up.

Jon: We only got a couple of minutes. But what did you learn from that poker expert about playing poker?

Matt: So, we've had 3 or 4 poker folks. One of my favorites was Annie Duke, who's a relatively well-known poker player. She's written a bunch of stuff about decision-making. Actually, that to me... In those episodes, we don't talk about poker strategy per se. We had another Poker Guru guy named Jared Tendler. He's one of the top mindset coaches in the poker world. He's like one of bunch of stuff. We had...I'm trying to think... We had at least one other poker player. I'm trying to remember who it was. The poker lessons for me are less about what to do in poker because that's a whole another thing. But there's a ton of lessons from poker that can be applied to life more broadly.

Jon: Yes.

Matt: Thinking in expected value, thinking in bets, focusing on decision quality instead of the outcome. All of those are lessons that you learn in poker. One of the things I liked about poker as a crucible for getting rid of ego is, poker doesn't care about you being on tilt or you are having an ego problem that's getting in the way of your performance because you'll just get crushed and lose all your money, right? If you're making bad decisions because [crosstalk], yes, well if you're making bad decisions because your ego is in the way, you're just going to keep getting crushed over and over again. The game is totally merciless. Life is like that, too. But the difference is that the feedback loop in poker is immediate or very short-term, the feedback loop in life and business can be very long. So, people never see their mistakes or they don't understand how their decision-making is getting in the way of better performance.

Poker really teaches you to focus on decision quality and try to understand whether or not your decisions are good. Why or why not they're good. What are the factors that go into it and try to improve on your thinking in your decision quality because that's something that can have really good impacts? But you have to be very... You have to really understand why decisions work and why they don't. Because just like in poker, you can go all-in with the worst hand, preflop, and still win, right? In life, you can make bad decisions and get rewarded or you can make great decisions and they cannot go well. So, you have to be able to parse through like was the decision quality good or bad? Was the outcome good or bad? And how do you differentiate between those two things and see through the noise? Much, much harder to do in business than it is in poker because poker is a very definitive mathematical framework, but it's still a great crucible to teach the importance of those lessons as a whole.

Jon: Yes. What is that... I can't remember who said that "You can deny reality, but you can't deny the consequences of reality."

Matt: Yes. Yes, exactly. Poker just teaches you that in a very short timeframe where you learn to like, "I need to get out of my own way and figure out what works and if I don't, then I'm just keep getting destroyed."

Jon: Yes. Yes. Beautiful. Matt, thank you so much for your time. I greatly appreciate it. And we'll be talking soon.

Matt: John, thank you so much for having me on here. It was an honor and I appreciate you inviting me.

Jon: I, gonna stop recording. And then I'm going to...