Jeff Standridge (Intro):
Welcome to season five of the Innovation Junkies Podcast. In this season, you’ll learn from successful innovators who have influential stories, practices, and strategies that will have your gears turning, prepare to be inspired, challenged, and empowered. This is the Innovation Junkies Podcast.
Jeff Standridge:
Hey guys, Jeff Standridge here and welcome to another episode of the Innovation Junkies Podcast. I am riding solo today from the host perspective. Jeff Amerine is out this week working with a group, and he’s left me with the keys, so I’m going to be driving, hopefully we won’t run it in a ditch somewhere. We got a great guest today. I had the opportunity to appear on Doug’s podcast, one of the best podcast names of any podcast I’ve come across. It’s called Leadership Powered by Common Sense, and that’s Doug Thorpe. Doug is the host of Leadership powered by Common Sense, from the military to the boardroom. He served in numerous leadership positions, guiding teams, large and small, 20 years in banking with JP Morgan Chase, and then 15 more as a consultant and serial entrepreneur. He’s led five startups, and since 2008, he’s been coaching and advising business leaders. Doug, great to have you with us today.
Doug Thorpe:
Hey, Jeff, pleasure to be here. And thank you so much for this opportunity to sit in on the other side of the table. And you’re right, I had a great time with you on my show and looking forward to being able to bang this one out.
Jeff Standridge:
Yeah, it was a great, great experience. Always loved talking leadership, but it was a great experience talking with you specifically. So tell us a little more, I read your bio, but tell our listeners a little more about who Doug Thorpe is and how you came to do what you do today and what your primary business is.
Doug Thorpe:
Yeah, so real quick that maybe add on to the backstory besides the classic resume filler that you described. I think the overarching theme is I’ve always been intrigued by this subject of leadership. I was blessed at an early age to get opportunities to be in leadership positions. I was asked to always stand up and maybe lead the group and do things, and that goes all the way back to elementary school and boy scouts and high school and into college. And I was just intrigued by the idea. And for me, the way I like to describe it, I think I was doing servant leadership before. That was a thing,
Didn’t know what it was. It was a little bit natural to me to stand in and do those things, but I never did any of it for the ego trip. And it was a sense of call to service. And that was very much part of the reason I went the military route in my early years and thought I would serve in uniform. It just made logical sense to me. And then one thing led to another, and it’s just kind of been with me. And as I got through my college program in business management, we actually never took a leadership course in my day. It wasn’t part of the curriculum. We had some organizational behavior and some psychology and some other things that were woven in, but nothing styled leadership. That came later. And as I went through my career, I had the opportunity again to stand in various leadership roles at all levels, all the way up to a couple of boardroom opportunities. But as I got later in my years, I thought, well, what’s missing here? And what I observed in general was there was a gap in corporate progression of career track. People got asked to be first line supervisors with no training to be leaders,
And they might get promoted up two or three times and still have no developmental effort given to them. And finally, at fairly senior positions, the company says, maybe we ought send this person to some leadership training. Maybe that would be a good thing to do. And that bugged me. So that’s kind of helped drive my desire to become a coach and help people in that journey.
Jeff Standridge:
Very good. Very good. And so you do that today. Tell us a little bit about your current business.
Doug Thorpe:
Yeah, my current business, the company is actually called Headway Exec, but I’m branded all over as social media, simply has Doug Thorpe, Dougthorpe.com, Doug Thorpe podcast, et cetera. But my business is a little bit split. Part is one-on-one and team coaching for executive leaders in Fortune 500-style companies. And I feel blessed to have served in a lot of pretty big brand names that people see all the time, global brands. But my ultimate passion is helping entrepreneurs, and that’s the other half of my business. And I’ve actually sort of redirected part of that effort. I’m very intrigued by the entrepreneur-by-acquisition phenomenon that we’ve got emerging right now fueled by the baby boomers who are wanting to cash out and exit their businesses, but they really don’t want to just cut close the door because they feel a concern for the team they built. So they would like to sell the business, but they can’t find enough buyers. And that’s where I’m merging my corporate training with this idea of move into entrepreneurship. So offering some training and support packages for people who may want to just leave that corporate job and jump out and go buy a business, take it over and it’s an amazing, phenomenal opportunity and I’ve got success stories already stacked up.
Jeff Standridge:
Great. Let’s dig into that a little bit because I’m very intrigued by this as well. Was doing some research not long ago that said, this is the year that the baby boomers turned 60, and so 10,000 people a day are turning 65. If you go down to the 55 year age, you move five years into the next generation, which is my generation, the Gen Xers. I’m two years away from being a boomer, so I’m a Gen Xer actually, but I behave more like a boomer. And so you go down five more years into the Gen Xers, you’ve got 12,000 or so that would be in that 10,000 that are retiring every day. Now it’s 12, 12 and a half, something like that. And somewhere around 10% of them own a business. And my experience is working with a lot of these folks, they’ve thought for years they’ve not done a lot of retirement planning.
Now I’m thinking on the sales side right now, they’ve not done a lot of retirement planning because they’ve always thought they’re going to sell their business for $3 million and it’s going to carry them on as they ride off into the sunset. But what they didn’t realize is every bit about that business is built around them, so when you pluck them out of the business, it’s probably not worth 300 grand and they’ve got a problem there. Number two, they haven’t brought up any leaders from within the organization to really do a management buyout, but for a variety of reasons. The historical data suggests that if they’re transitioning that business to a second generation owner, not necessarily within the business, maybe even an outside buyer, but a second generation owner from the founder generation, some like 70% of them will ultimately fail to make that transition effectively. Correct. And then if you say to the third generation, you’re talking about 84%, those are staggering numbers in terms of the need out there, not only to help sellers get their business ready to sell, but help buyers buy those businesses and actually successfully transition them.
Doug Thorpe:
Right, right. No, I agree with the numbers you’ve quoted. Those are very similar to the numbers I see. And that notion of only about 30% of the people who want to sell, get to sell,
And some of that, quite honestly is conflicted by opportunity. People that maybe would be ideal buyers just don’t know that the transaction is there for the taking and how fundamentally easy it is from a financing standpoint to get there, even if the value of the business is in fact 3 million. A lot of people think, well, geez, I don’t have $3 million in the bank. I can’t do that. Well, guess what? The SBA has some amazing programs that you can leverage and you can do a leveraged buyout with the SBA and probably only be obligated to about 10% of that nut.
Jeff Standridge:
Well, and then there’s also, I’ve done several transactions being on the buy side where I’ve gone to the bank for underlying real estate, 80% of the underlying real estate and fixed assets put up that 10% myself as well, and then worked with the sellers to actually do some seller financing. On a second note, there are multiple ways to skin that cad and the SBA is a great way to skin it as well.
Doug Thorpe:
Well, and to your point, if you do have a willing seller who is going to do a little bit of a seller note, Carrie, the potential out-of-pocket for the buyer may only be 5%, you can fill in that other 5%, which is technically the hurdle rate at SBA is a 10% down payment. You satisfy that up to half with seller financing.
Jeff Standridge:
Correct. Yeah. Very good.
Doug Thorpe:
So it is a whale of a great time. It’s a perfect storm as some have called it. You got high demand for people wanting to exit. So there’s a flood in the market of good opportunity if we’ve got a gap anywhere it is in potential buyers being ready to make that leap. And to throw some more numbers around, if we may for a minute, what I’ve calculated is that according to the labor department, and not to get political, I know those guys are under fire for how accurate their numbers are, but nonetheless, according to the labor department, when I do a stratification, there are some 45 million Americans working in corporate jobs that are in the age band between 28 and 50.
And if that’s a true number, 45 million people filling those jobs, and the further up the age bracket you go, you get into your late thirties, early forties, you’re probably starting to get some vibe in the jungle drums that you’re not going to be the next CEO of that company for sure. And that’s not to speak ill of anybody, it’s just the numbers game reality of how big business works. And even though you’ve invested 10, 15 going on 20 years of service time with an industry that doesn’t guarantee you a long-term future with a giant retirement pad. So it’s an ideal time to consider this, and likely that population has done pretty well, saving up a little bit of cash. They do have some liquidity, and they can make those five or 10% down payments on those businesses up to 5 million is the SBA cab. And what that buys you, by the way, is a business that is likely, if you’re up in the higher range of that three to 5 million top side revenue of the business, you’re probably looking at annual, what we call seller discretionary earnings. The money you could take out of the business if you wanted to in the realm of 400,000 to 700,000 a year and maybe even higher. And so if you’re putting down three to 400, even if you’re doing the whole down payment yourself, that tells me you can get that back in the first year.
Jeff Standridge:
Yeah, which is a huge ROI payback period. I mean, if many acquisitions are looking at that three to five, can I get my cash on cash back in three to five years, 12, 18 months? That’s almost a dream. So, do you work predominantly with buyers or with sellers or both?
Doug Thorpe:
I’m actually working with both. Some of the programs I’ve got that I’ve made available are, first on the buyer’s side, getting the acquisition entrepreneurs trained up and ready to go and get into the transaction. But I have a team that is working on the exit side for sellers who are wanting to join in. And one of the challenges on the seller’s side is that there’s two things I run into pretty regularly on the seller’s side, and that is number one, the expectation of valuation. Right. Often these guys come to the table for the very first time with a number in their head that was given to them by no valid method other than a brother, a cousin, a golf buddy, a beer buddy who said, oh, you’re a business ought to be worth seven x. You’re making 400. You ought to be able to get 2.83 million for it. Well, hang on. Yeah, for sure. Let’s lean into that. But to your early point for the business that is done nicely for the owner-founder, but hasn’t really matured as a business, there might just be three or four material initiatives you could undergo and give yourself another maybe year runway of doing those things a little bit differently.
And you could get that value from 2 million up to three or 4 million. And that’s part of what a group that I’m working with now and informing, that’s our kind of exit planning coaches to help sellers be ready to get a better evaluation for their business.
Jeff Standridge:
Very good. Very good. Any particular industry that you’re working in?
Doug Thorpe:
Not really. If I plotted what I’ve been doing, I’ve been doing a lot of work in the home services space, but I’ve got a couple of folks I’m working with now that are more in manufacturing, small manufacturing operations, a couple in fabrication plants. There’s one that’s doing window manufacturing and others doing high energy home manufactured homes, but they’re a very unique design for the northeast.
Jeff Standridge:
Very good. Well, let’s talk a little bit about leadership and how you work with these buyers. You’ve talked about getting them trained up to really step in. Maybe they’re moving from a corporate job into becoming an acquisition entrepreneur. Talk to us about how you work with them.
Doug Thorpe:
Well, on a very personal level, the big issue that I challenge potential clients on is, are you really ready to be an entrepreneur? And we have discussions about fundamental questions. What is your risk tolerance? How much certainty do you have to work within to feel comfortable? Or what starts making you nervous or creating panic? Because as those of us who have done it before, entrepreneurship is not a game for the faint of heart. It’s an ever present whirlwind of ups and downs. And if your mindset and your psyche and even your sense of emotional balance is not quite ready for some of that wild ride that you’re going to get as an entrepreneur, I feel obligated as a coach to tell people, let’s rethink this strategy. Maybe we do need to be talking about career planning and career advancement where you are.
Jeff Standridge:
Yeah, that’s a great point because what I’ve observed is that there are just like the best technicians who tend to get promoted into leadership more quickly, don’t make necessarily the best leaders, the best salespeople don’t necessarily make the best sales leaders, people who are great employees, even great leadership employees don’t always make great entrepreneurs. Correct.
I actually was in a merger and acquisition role for the publicly traded company I worked with for almost 20 years, probably did 50 acquisitions over the course of the time that I was there. And I can point to one founder entrepreneur that made the transition from being a founder entrepreneur, selling his business to a publicly traded company, and actually making the transition into being a corporate executive himself, one out of 50 companies, but multiple executives within those 50 companies. And so I think the thing to keep in mind is that what brought you success today in whatever role you’re in, may not bring you success tomorrow in whatever role you move into.
Doug Thorpe:
Yeah. Well, to that point, I’ve actually developed an assessment quiz. It’s real simple to take. There’s not a lot of deep science in it, but it hits really critical four critical areas kind of profiling what an entrepreneur ought to be thinking about. And it will give as assessment zero to a hundred of where you are in each of those four areas. And the argument I make to anybody that takes my quiz, if you come up, it’s a red, yellow, green kind of thing on the report out. If you come out red in two out of those four areas, I’m sorry, my friend, you’re probably not ready.
Jeff Standridge:
And are there multiple questions that get aggregated into those four areas?
Doug Thorpe:
Yeah, yeah.
Jeff Standridge:
Gotcha.
Doug Thorpe:
Multiple questions in each area that give you that rating, but it’s a good barometer to frame up the discussion. And if you’re light in a couple of those areas, that’s okay. With some coaching and development, you can probably get yourself equipped. And part of it is as all leadership development goes, it starts with creating some awareness of what are your strengths, what are your weaknesses? And in the weakness area, what do you need to work on to fill the gap?
Jeff Standridge:
And so what are some of the biggest gaps? Let’s say that you assume or you’ve done the work that looks like they’re going to be good entrepreneurs, but then you’re working with them. And what are some of the leadership gaps that you see that you usually end up training on?
Doug Thorpe:
Well, the big ones in the smaller business, and you kind of alluded to it, is the idea that we’ve got to move, the master plan needs to be, let’s move away from owner centric operation where everything in the business passes the owner’s desk to a company that is run by a leadership team.
Doug Thorpe:
It doesn’t have to be a big team. Maybe it’s only three people, maybe it’s five people depending on the size of the business. But the argument is that immediately, if you’re going to be the buyer, you need part of your due diligence ought to say, well, who’s on the roster? Who am I inheriting if I buy this business? What do they really know? What do they do? What are they suited for? And see if you can’t determine the early makings of a leadership team that you can recruit to work with you on the business, and immediately you get challenged with the idea, can I delegate authority? Can I trust somebody on my team to do the work that I want done? And that again, is an individual leadership challenge for the new owner,
Jeff Standridge:
Are you sourcing deals and matching them to potential buyers, or how are you involved in the brokering process?
Doug Thorpe:
Well, truthfully, we’re not quite there yet. A lot of our buyers are relying on brokers that they’re finding in the target markets they want to go into, but I do have some things in play right now that’s going to work a lot more on that seller side to proactively identify individuals who might want to be selling and just haven’t dipped their toe in the water yet.
Jeff Standridge:
Very good. Very good. Well, how can our listeners find you if you’ve struck a chord with them today and they would like to reach out to you to discuss your services a little more
Doug Thorpe:
For the Entrepreneur by Acquisition? The whole story is over on my company page at headway exec, EX eec.com. My leadership content, my leadership development coaching and training is on my own personal side@dougthorpe.com. There’s a link to my podcast and all of that is available there.
Jeff Standridge:
Yeah. Leadership Powered by Common Sense is that podcast, there’s a quote on your website in your bio that I feel like there’s a backstory there and I want to hear your thoughts on it. Doug believes that, quote, the right word from the right person at the right time can change a person’s life. Tell us a little bit about that.
Doug Thorpe:
Yeah, that, that’s actually a quote I borrowed from somebody, but when I heard it, it really made sense and it, I think epitomizes what I have tried to do as a coach and an advisor, and that is work with my clients, help answer their questions, kind of be more of a Sherpa to kind of help guide them on their journey. They’re the hero of their story. I’m not the hero of anybody’s story, but I am a guide. I’ve been there, done that. I’ve been up the mountain a few times and back down again and helping people that are wanting to make that climb. That’s what I do, and I can repeat a theme or a topic multiple times, and then all of a sudden there’ll be this moment of, aha, I got it. I hear it now. And so it’s the right word. Spoken at the right time can really make that difference.
Jeff Standridge:
Very good. Doug, thank you so much for being with us today. This is Doug Thorpe with Headway exec, dougthorpe.com and his podcast Leadership Powered by Common Sense. I encourage you to check him out. Doug, thanks for being here.
Doug Thorpe:
Thank you, Jeff. Appreciate the opportunity.
Jeff Standridge:
Yes, sir. Been a pleasure. This has been another episode of the Innovation Junkies Podcast. Thank you for joining.
Jeff Amerine (Outro):
Thanks for tuning into another episode of the Innovation Junkies Podcast. We hope you gain some valuable insights and inspiration from today’s conversation. Be sure to subscribe for more episodes featuring leaders in the forefront of innovation, and don’t forget to connect with us on social media to continue the conversation. See you next time.