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EARNOUT @EARNOUT_STAR

Serial entreprenuer with multiple successful exits. Helping others exit with higher multiples for fun. Current portolio of 3 lower middle market Cos. DMs open Texas Joined July 2024
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EARNOUT @EARNOUT_STAR

2 years ago

@CCgong @ycombinator love this! #givehersomeequity

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EARNOUT @EARNOUT_STAR

2 years ago

Love this! An important exposure to the underbelly of what being an entrepreneur really looks like from the inside for most people. The sad truth is many people go through this and don’t come out ahead. Mostly only the big success scenarios make it to the front page. The guys that grind out for years and fail end up on page 7. Notwithstanding, there are strategies and groups to help you navigate this. People that have faced the same challenges.

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EARNOUT @EARNOUT_STAR

2 years ago

Institutional money trope: “if it takes X time to do any size deal, makes better sense to chase the biggest deals you can do.” For entrants utilizing financial engineering to do deals this is probably sage advice. However, as @SievaKozinsky pointed out, if you have the operational expertise and the emotional fortitude to manage much larger vicissitudes in cf there is huge upside. My advice, if you consider this strategy pick an industry on the upswing, or one that has very high barriers to entry. Otherwise, regardless of expertise, it is hard to grow a business if the economic climate is shifting away from you(Think Oil and Gas or Government Regulated), or if your competition can race to the bottom on pricing. If you want to scale you have to play by the rules and invest in infrastructure. If small fractionalized versions of your business can survive off one customer it will be very hard to compete with a pricing strategy. Dust off that old 5 forces analysis you studied back in business school and never looked at again before you pull the trigger. It will be worth your time.

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EARNOUT @EARNOUT_STAR

2 years ago

Completely agree, for #1 a year seems to be a little short, but that might be specific to your business. A few other things to consider on the topic. High retention rates are indicative of low growth. In very high growth companies the roles outgrow the people. The director of Operations for a 1MM company is different than 10MM. Few people can expand capability at the same rate. Expect to turn over MGT. High turn over could be an indicator that you are over paying. This may be your strategy and that is okay if that is your choice, but if its not, this could be a sign you are well above market. Make sure to benchmark these pay rates. Plenty of websites to do this.

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EARNOUT @EARNOUT_STAR

2 years ago

See a lot of responses for retrade with earn out/seller financing. This is definitely the right answer, but also the owner pulling back = revenue decrease triggers a question of the planned effort of the buyer doing sales. Sounds like the owner is the salesman. More payroll for sales team needs to be modeled. Diligence needs to expand to key customer interviews, how many customers are loyal to the owner vs the business/product? If confidentiality of the transaction is possible you can always say you are bankers or insurance. Have done this several times with no issues.

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