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The Do’s and Don’ts of Acquisition Entrepreneurship with Elliott Holland, Guardian Due Diligence

July 27, 2022

If you’re interested in acquisition entrepreneurship, this episode with Elliott Holland will help you understand what it takes to be successful in this space. He explains how to differentiate between genuine red flags and workable problems, why trusting your gut is not the right approach to making decisions about buying a business, and the importance of having a “walk away” list.  

About Elliott Holland

Elliott Holland, “reformed engineer” and the founder and Managing Director of Guardian Due Diligence, is an expert in small and medium-sized business acquisitions. He has over ten years of experience executing middle-market deals, and his company is filling the void of options that exist for smaller acquisitions. 

Episode highlights:

  • When considering an acquisition, it’s essential to understand when something is a real red flag (and the deal should be avoided) or just a potential red flag that is worth trying to work through. Being too risk-averse or too gung-ho can cause you to end up accepting a bad deal or losing a good one. (17:51)
  • Don’t trust your gut! Yes, you read that right. Trusting your instincts is a dangerous game for an acquisition entrepreneur because deals can look much sweeter than they really are if you’re feeling dissatisfied (which is often the case for people looking to buy a new business). Instead, focus on the data; “if the numbers don’t jive, you should run.” (20:54)
  • If you want to buy a business, make sure you decide upfront on the point at which you will walk away from a deal (i.e., your “line in the sand”). Otherwise, you leave yourself vulnerable to entering into deals that will not serve you. (26:34)
  • The only way to get clients is through marketing, so it’s important to be laser-sharp when defining your ideal client and to be discerning about whose feedback you are listening to. (37:29)
  • There are countless definitions of success. Be very specific about what success means to YOU so that you don’t judge your progress based on someone else’s definition. (42:28)

Elliott’s best advice for entrepreneurs:

“Be very specific about what you call success and how you define it so that you can actually hit it and you don’t get confused by the “universal” definitions of success and grade yourself on somebody else’s ruler.” (42:31). Success is unique to each individual; build the life you want, not the life of someone else’s dreams.

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Transcript

[00:01:12] A.J. Lawrence: But in the meantime, since this interview has happened, I’ve become really good friends with today’s guest. We talk once a week. We are planning world domination for each other’s businesses. He is amazing. And he’s actually helped me on a couple of deals to really kinda save my bacon on some things.

[00:01:29] Today’s guest is Elliott Holland. You can go find him on Twitter as the king, the king of due diligence. He is an amazing due diligence provider. He and his team will go through deals so if you’re an acquisition entrepreneur looking at deals, he and his team provide amazing services as they’ve done for me, to help you understand really the quality and the levels of the finances that you’re looking at for the business that you’re trying to acquire – what’s good, what’s bad.

[00:01:58] Elliott has an amazing background. He went to Harvard Business School, he’s been his own acquisition entrepreneur. He and his partners have acquired numerous companies. He’s worked to help other businesses sell themselves. And he started Guardian Due Diligence back in 2016.

[00:02:17] He’s a great guy. They provide a great service. Listen to the interview because he brings up some really interesting points and you can look at this as not just an acquisition since it’s a lof of what we’re talking about, but almost any type of risk assessment or effort that you develop to kind of generate long term value when you have to make a big decision.

[00:02:40] We’re going to talk a little bit about what I’m calling Goldilocks Principle. He talks about looking at the red flags and understanding sort of which red flags in a deal you’re not able to deal with and are going to create long negative impact versus those that are actually things that you can fix or will help you change the company long term.

[00:03:03] Because some red flags, if you’re scared of, um, you’re gonna run away from a deal that maybe you shouldn’t. And there are gonna be others that if you’re being a little too higheyed about that, you’re gonna suffer in the long term. So really think a lot about where your risk profile is, which leads to another point.

[00:03:24] He talks about defining your line in the sand before you enter into the deal. Not during, definitely not after. But before you get in, define where you’re gonna end up pulling outta the deal if things start moving towards that line. Understanding what that means, because as I’ve learned myself in trying to make deals happen, sometimes you keep saying, ah, it’s okay maybe a little bit more, a little bit more, and then inadvertently you end up paying for it greatly. This is just repeated learning and common sense, but sometimes you gotta have common sense knocked upside your head as I have learned from my own efforts. So really worth listening and thinking about as you go about your own deal-making process. Where is your line of sand? And practicing it.

[00:04:13] Elliott is a very popular person in a few different groups, searchfunder.com for acquisition entrepreneurs and then also on Twitter in the SMB acquisition space, gets lots of followers and a lot of talks. He’s very clear about saying don’t judge yourself compared to other people in the space who you see online because their success and all the stuff they’re doing doesn’t mean anything compared to what’s important to you and to those that are important to you.

[00:04:44] So putting that effort in to define your success, he thinks is very, very important. And we talk a lot about that as part of being a deliberate entrepreneur is defining your success for your own purposes. So it’s really cool to have such a great entrepreneur as Elliott talk about this. I really, really enjoyed talking with Elliott. So listen to this and I hope you enjoy him as much as I do. He’s incredibly smart, incredibly nice guy. So let’s get going on this.

[00:05:15] Hello Elliott. Thank you so much for coming on the show today. I am really, really appreciative that you’re here.

[00:05:22] Elliott Holland: I’m happy to be here. I think we’ll have some fun and it’s good to sort of talk about these topics.

[00:05:26] A.J. Lawrence: Yeah, I know. This is so much fun. I was just telling the audience about your background and all the cool things you’re doing and just, it’s always cool to have someone on the show where I’ve been on your newsletter for over a year, we’ve been interacting on Twitter for a bit

[00:05:40] Elliott Holland: Mmm-hmm

[00:05:41] A.J. Lawrence: so it’s like- I love the story you’re telling about due diligence and about just, you know, your involvement in the acquisition space. So it’s like I get to be a little bit of a fanboy here and have you actually on the show so thank you.

[00:05:54] Elliott Holland: No worries and I’m glad that you’ve been a part of that and you enjoyed it.

[00:05:58] A.J. Lawrence: You do really great stuff out there and we’ll talk a little bit more about how everyone else in the audience can check that out. But getting right into this here, you’re building one of the premier due diligence for the self-funded acquirer here. Besides your help of entrepreneurs itself, where do you see your own entrepreneurial journey being right now? Where are you?

[00:06:19] Elliott Holland: I am somewhere between creating a, almost like an investment bank for sort of SMB deals and being a sort of ultra-specialized advisor for sort of select entrepreneurs who seek to make acquisitions and sort of have a fine understanding of when you’re placing million dollar or 5 million dollar bets, the benefit of getting 5-digit, 6-digit support can be invaluable. It can be 10-100x ROI.

[00:06:53] And so, in some moments I’m thinking kind of a more merchant bank investment bank, multiple services for the same community. In one way, I see a more specialized advisory model and I’m actually, A.J. sort of allowing the market to tell me what’s most interesting and what’s most needed. Because I think in the part of the market that I love, that I’ve chosen to service, one of the bigger pieces is that people have this resistance to spend money until a deal is real. And then the smart ones have almost an endless, willingness to pay to get good help in this like 45-day period. And so I’m still working through what’s the best way to service that client base.

[00:07:35] A.J. Lawrence: Yeah, it’s funny because I’ve been thinking about, before the show, since I am also in my own acquisition, my own self-funded search fund, I’ve been thinking about how to use you also, use your services and it is that kind of like, all right, in the sense keeping you in the back of my mind as I look at deals, but yeah, there is that, like how far out do you go with the business model because I mean, I would love to be able to probably “pull out of your delivery comfort zone” and be like, Hey, can you advise me even as I think, can I do this stuff? So, yeah, you’re in a fun position right now, at least you’re getting pulled. It’s a good problem to have, I think for you.

[00:08:17] Elliott Holland: Amazing problem, and probably I get 3 to 5 emails a month, you know, Hey, can you advise me with this part of my deal approach process I’ll call it, sort of in between your first confidential information memorandum or set of taxes, and like your first or second LOI. A lot of people I think are looking for something there and I think there’s a bear there. And what’s fun is being requested is flattering, right? And then from an entrepreneurial perspective, it’s how do you deliver value to that audience at that specific time, in a way that also makes sense in your own sort of business plan, and doesn’t detract from how you’re able to serve your current core customer. So there’s like these different constraints that you think about as you move forward.

[00:09:06] A.J. Lawrence: Well, you’ve been doing this now for over five years. Yeah, ’16, which I remember picking up a Walker Deibel’s book in ’17, you know, and there was like a few little whispers about this crazy thing about buying a company. I’m not sure which is more popular NFTs or acquisition entrepreneurship right now. You know, you’re OG in this space, the way you’re running your company, how is that changing now as things are kind of getting so hot?

[00:09:37] Elliott Holland: The biggest piece is having to really be laser-sharp on the customer types that can best use my services, because they change as I educate the market more and more. So five years ago, it was just, do you need a cause-effect for quality of earnings, right? Now, it’s do you recognize the benefit of having a deal professional, you know an OG I use your words, or someone who’s been around this specific space for 15 years managing accountants on your deal so that you get a deal advisor and you only pay for a quality of earnings.

[00:10:12] And so as I get more to this latter definition of where I think the core market is for my services, you also get to realize that the way you have to speak to those folks, how you manage those relationships changes. And also, some of the people who formerly were in sort of my target group are moving out of it as I refine my services. So a lot of the growth and sort of the change is just as the market matures, as my business matures, you get a better sense on who your core customer is.

[00:10:46] A.J. Lawrence: You know your feelings for that. Yeah, I can see it developing, kinda battle-tested into that. I wanna kind of dive a little bit more into, you know, some of the things you learned, but since we’re right here, you are talking about that balance and playing, where do you see you guys moving into?

[00:11:02] Elliott Holland: I would love to be like a one stop shop solution for every.

[00:11:06] Motivated dedicated self-funded or sort of cost conscious independent sponsored group that wants to do deals, which means currently we do sort quality of earnings that comes along with sort of deal advisory. We help folks with lot of negotiations understanding trade offs, what does it mean to be 10% off on EBITDA. What I love to do is have more educational products. So we talk sort of about that from beginning your process to your first LOI. Helping people do that process from your first LOI to your first or second or third signed LOI. And then also to have some umbrella services. A lof of folks are building holding companies, so they’re buying things or owning them up. And for those folks, they show a different level of dedication and I think there’s different ways to help now that they have a platform business that’s already working.

[00:11:56] And so I think in five, 10 years, we’ll have a more complete suite of services for this marketplace and almost like a graduated process for folks to sort of, Hey, you’re within the first month of starting, the best service for you is this educational product. Hey, you’re 3 to 6 months in, we should really move you to this next product. And then, you should really be in quality of earnings land here soon, we should go to this other thing. And so what I’d like to be able to do is to cover more of the needs in this sort SMB buy then build ETA ecosystem.

[00:12:30] A.J. Lawrence: Yeah, it’s, the vocabulary alone is the fun part in this space.

[00:12:36] Elliott Holland: Yeah, that’s the thing that’s weird. And then you’re a marketing guy. And so one of the things that’s challenging at times is, there’s not a whole lot of difference in between a Self-funded Searcher and ETA Entrepreneur, Micro PE acquisition Entrepreneur, Walker Deibel’s word, and like a Permanent Capital Proponent. Like those five things and then really to them like independent sponsor that does like smaller deals, those are six definition of very similar ecosystem but those people hang out in very different places.

[00:13:12] A.J. Lawrence: Thank God, someone else is seeing this because it is like, look as someone who’s gone over 25 years in the digital space where it’s like, wait, isn’t that this? No, no, no, no, no, it is this. If you call it this, you are unsophisticated.

[00:13:29] Elliott Holland: Yes.

[00:13:29] A.J. Lawrence: Yeah. It’s just like, I think people like Gridley and a couple of others are kind of just whatever don’t effin care. But like, if you hang out in the searchfund.com world and then like you look at some of the European with like Jeremy Harbour crew

[00:13:42] Elliott Holland: yes, yes, yes, Carl Allen

[00:13:45] A.J. Lawrence: yeah, Carl Allen came out of Jeremy’s group, you know, so it’s like I almost wanna like just do one of those charts and like, oh, you’re from here. Oh, the Chicago folks. You’re the –

[00:13:59] Elliott Holland: Yes, and then being an OG, I know it’s all the same. But to somebody who is like I’m an acquisition entrepreneur, but not a Self-funded searcher and the ETA folks have fancy MBAs and don’t know anything. They’ve stuffed sometimes because I’ll be on phone calls and I’m like, you’ve hired the same companies, you’re confusing the same marketplace. You have the same capitalization but it’s not, again, from a business owner and entrepreneur perspective. That’s a futile discussion, right? And so calling people what they call themselves and speaking in their specific language is mission critical.

[00:14:32] And so instead of necessarily trying to push everyone into the same bucket, I’m sort of recognizing the buckets, but then also realizing that, okay, now that we’ve defined how you define yourself as entrepreneur, let’s just realize it, sort of, once you get a deal under letter of intent. You still need the same sort of rigorous yet white glove entrepreneurial quality of earnings to not be the biggest source of pain in your deal, which a lot of accounting firms end up being, and also be able to help first time buyers understand what this 30 to 40 page document actually says, doesn’t say, mean and how they can use it, right.

[00:15:14] And so that’s where it really gets fun is that I’m a 100% sure I’ve sent quality of earnings reports that the client hasn’t read. I didn’t tell what the deal was, you know, so bad they needed to run. And that was kinda their checkbox,and for their level that was where they were, right. And then some folks read every single page. I have a meeting with a client later today and I love the client. They just sign up for new deals, but we’re gonna go through every single page. So it’s an interesting ecosystem.

[00:15:42] A.J. Lawrence: I love it because it’s sort of the same in marketing. I had used to do hardcore keyword research to like for private equity firms. Like this is the trends, people are searching Orlando, there’s growth so that means blah blah blah and aligning. They’re just like, is it good or bad? It’s good. Okay, good. And, you know, paying me time. And then I had clients, like I literally, one of my very first clients would like every time, like find some line like 20 pages into our reports. Now, he was, you know, some senior manager he’s now actually a C-level at Salesforce. So, you know, he’s like, you could see the ones who like, oh, you care about this. You know, you’re not just busting my balls, but you actually care about the data and you’re learning. You know, maybe that’s a good indicator of, okay, this could be the thing. You could have a side business for those of us who also besides doing our own, like to invest in other searchers, you’re like, oh, this guy cares about the data.

[00:16:48] Elliott Holland: Yes, absolutely. And that’s been funny because I’ve approached some of the folks that are investing in self-funded search. But what’s interesting is until they experience our product and our process relative to whoever their in-pocket provider is, it’s tough to get those openings. And as a former buyer, and kind of sponsor and investor, I actually totally understand why.

[00:17:14] I’ll also say something that’s funny. You’ll be amazed A.J. at how many people pay for the quality of earnings, because they know it’s a smart investment in the correctness of the financials that they’re betting a personal guarantee of a million dollar size, but are too inlove with the deal to actually digest the red flags that the report produces.

[00:17:40] And then I find myself in the precarious situation of, Hey, this deal is off by 30% on, you know, EBITDA cashflow, right. But actually it’s probably off more like 50% or 60% when you bring in these non-financial factors, like, can you run the business without the seller? The state of the industry recent EBITDA movements have been purely a function of people cutting down staff to boost EBITDA or an owner that can do five different things that you’ll never find a replacement for. And so I find myself in this situation quite a bit where I legit have to ask my clients, is there any value in me telling you that you probably shouldn’t do this deal?

[00:18:26] A.J. Lawrence: It’s funny you bring that up because one of the things I just saw recently and I didn’t even know was a thing. Now this from brokers, from a little bit of broker side of it complaining about something LOI, where what folks were doing was making initial LOI and then sort of at the last second saying, oh, we gotta change it, the deal’s dead. There was some term for it, but, and I get that’s one thing to kind of the crappy, like, Hey, you knoe. The flip side is for something legitimate, you come in, how do you help an entrepreneur who is interested in buying the business red flags? But not, I guess the question is, are they incremental red flags or are these drop dead? Like, uhhhhh, yeah, this is, let’s say it’s more those incremental red flags cause

[00:19:15] Elliott Holland: sure

[00:19:16] A.J. Lawrence: I was looking at something recently and I was like, Ooh, that concentration’s way higher than I like, because that blew up my last agency. I had a two and you, I learned the hard way, you know, I’m like, OK, let’s say there are flags, but they’re not deadly. How do you help them? Besides just telling them they exist, how would you go about suggesting to deal with something like that?

[00:19:39] Elliott Holland: Well, there’s a couple different ways, and I’ll talk through them as they typically happen. So the first one is that the seller claims that they don’t have a mission critical data point and they explain the way as, we’re old, we’re not technology savvy. We can’t pull our bank statements, whatever. And the client wants to believe it. So the initial thing is, Hey, get me on the phone with the person and that asset list that they don’t have I’m just going to ask them, so do that mean that I walk on your lie and save through your checks so you would know? Oh no, no, no, the manager down there has a great. Okay, so then we just need to get him on the phone and he’ll communicate the list. Right?

[00:20:19] So first is sort of getting there and then saying, Hey client, that’s a red flag because that person is trying to minimize the data that they give you, on a deal that they understand the magnitude, the size of and I just want you to be aware of it. It’s not a reflect yet but I need to sort of put this plug in your ear. And then, we get to the initial, we always do an executive summary review about a week into our process and typically there you’ll say things like, Okay, they’re trying to push a PPP loan through as EBITDA, another red flag. Or they’re telling you that they’re paying certain employees in cash. Once somebody does that, you don’t know how many people they’re paying in cash, so be careful. And then sort of two weeks in, now in my mind having done this for so long, I have a list of like 20 red flags, right?

[00:21:14] So to your point about incremental, the first couple don’t do it but now you’re at there’s 20. And there’s two sort of clients generally there. There’s one that it’s like, Ellie, I wanna hear all of this. So we set up a meeting and I go through the 20 and they’re like, thank you so much for telling me. Five of them are mitigated, five I don’t care about, these 10 I wanna figure out. And then there’s the client that explains away the 20 red flags with information they don’t have, and they really just wanna get away from the jobs that they’re working currently and be their own boss. And so that’s when I typically have to ask them, Hey, is there value in me producing a quality of earnings that recommends you don’t do the deal?

[00:21:58] A.J. Lawrence: Yeah. You know I was like, what idiot would do that? Then, not specifically on deals, but I’ve remember times where it’s like, Oh I’ll be able to handle that and that kind of coming to bite me. It is very, especially with entrepreneurs, we can fall into our own, I call it our own ego trap. But it’s that idea that, yeah, that’s hard. Okay so, yeah.

[00:22:22] Elliott Holland: And the other piece just to kind of talk here to bring more reasonableness to it. Because I don’t think smart people do dumb things on purpose and repeatedly. We all have bad days, right? But when they’re betting the house, I don’t generally think that they’re doing dumb things. I think we sometimes miss their motivations.

[00:22:40] One of the things I realize in this business, most of my clients are working fulltime jobs and buying a company on the side. And what they want to do is only leave their day jobs if the deal is consumated, which means during diligence, they’re actually working two 40-hour a week jobs. Diligence is absolutely that 40-hour a week thing and now their job is. The only people that would have the motivation to go try to buy a business are probably less than satisfied with their job. So now you have a dissatisfied employee who wasn’t satisfied at 40 hours of working. Now they’re working 80 to get a future where they may be able to work 20. And they’re also going from a 6-figure salary to a 7-figure opportunity.

[00:23:26] And so in that context, just from a psychological perspective, most entrepreneurs, if you looked at it like mathematically or structurally should not trust their own instincts because there’s too many things pushing them to do any deal.

[00:23:39] A.J. Lawrence: We shouldn’t be trusting our gut. We should be one, relying on the data, learning the data. How can we handle, I’ve seen this just in the few I’ve gotten to ADC. The ability, you know, to make Ani, you kind of have to throw something in, write something pretty close to, in sand of what you’re gonna do. Then all of a sudden, you see very quickly afterwards, oh, this isn’t really what they’re saying. How do you deal with that? How do you either, one of it’s better, how do you kind of appropriately either compensate the owner for that better set or b, deal with, you know, I don’t, I don’t like it when you try and hide, but still at the same time, find that. But moreso, I think is the case, things aren’t really what you believe they would be. There’s kind of an elegance to how you can do this so how do you go back to the table to make things a little bit fair?

[00:24:34] Elliott Holland: And this is part of why some of the upfront guidance is worth as waiting gold, even though a lot of self-funded folks don’t wanna pay. So 80% of letters of intent that I read, and I have a free offer ongoing to read people’s letters of intent, you can just go to offerfromelliott.com and put it in there, right. But like 80% of them don’t list EBITDA or working capital in their letters of intent, which means they say something like, Hey, I’m gonna pay you $3 million for this business and then blah, blah, blah, blah, blah, subject to due diligence. So they haven’t communicated effectively to the owner that my valuation is based on a million dollar of EBITDA in a wonky spreadsheet that some broker sent me and a quarter million dollars of working capital. What’s nice about once you put those things into the letter of intent, is that now two months in, you’re at $600K of adjusted EBITDA after we finished our quality of earnings and a $100K of working capital. And now you go back to the seller and he’s gonna say, I don’t think my business has work a multiple of cashflows. It has work the same thing this year as there was three years ago when I had more revenue and EBITDA you know, blah, blah, blah.

[00:25:48] But now, they signed the document where in the same paragraph says I’m gonna pay you $3M for your business, I said that was based on a million dollars of EBITDA and a quarter million dollars of working capital. So whatever your valuation thoughts are, owner, I communicated mine. We need to have a discussion about what’s fair now because had that number been fair, then I’d be paying you the 3. It’s not. And even if you just did a straight line reduction based on the reduction of EBITDA size, we now know what the valuation would be. We need to talk. And so typically that becomes the communication, right. That somebody has to be strong enough in the buyer seat to push the issue, the seller is going to come back and say, hog wash I want all the money and the letter of intent. And the buyer has to be strong enough to, oftentimes ingest information from someone who’s twice their age, from a brokers proprietary twice their age, and say, Absolutely not.

[00:26:53] At best, I can do, you know, dollar for dollar reduction and the rest needs to go in some other form. And so it’s one of those things, A.J., where you need to create elegance and strength-based negotiation. Any buyer worth their salt has a line in the sand where they’ll walk away. And sometimes for folks who don’t have a line in the sand where they walk away, it’s dangerous for them because they’ll try to figure out why they should pay somebody $3M for a business to make $600K EBITDA, that’s marketed as $1M EBITDA.

[00:27:29] A.J. Lawrence: Yeah, I like that because line in the sand kinda becomes your first level of like, we all believe we’re gonna 20X everything. We all are geniuses who just, give us the toys and we’ll go to town. But the reality is we’ll do much better by protecting as much as possible, the downside, you know, risk. And I like that. I was like, yeah, I would walk away. But I like the idea of maybe had a time coming up with what are the if this happens, because every deal is you know, it’s like yes, I’ve been building my thing- and I’ll share with you afterwards, this is what I want, but I realize, you know, oh yeah, there’ll be this, but not that. And this kind of goes, so it’s like alright, coming up with that No-Go List, sort of like that same don’t hire assholes. I will not do this if this.

[00:28:26] Elliott Holland: And that’s critical because, you know, as an engineer, reformed engineer is what I say, I love the ability to put process around unstructured things, because it really gives you an edge as an entrepreneur. So the way that you should structure diligence is you should create your list of if these things happen, I’m walking away, you should legit create your walkaway list. And then you should start eliminating items on that list from the biggest one to the smallest one, in order as you go through diligence. Why?

[00:28:56] Because of the biggest one, if that doesn’t work, you should stop. If the second biggest one doesn’t work. You should stop. So you should not be doing the fourth biggest one first, because you could get the fourth through ten things are fine, and then one through three don’t work and you would’ve wasted time and money. And so part of the process, and why the quality of earning is such a critical piece at the beginning, is because I don’t care what that business is. If the numbers don’t jive, you should run.

[00:29:27] A.J. Lawrence: I like that thing. Cause I think I’ve been kinda thinking like, oh, it’s just the thing to kinda. I like that thought process because it is, it is very much true. It’s like, look, go through this, find this, everything can be negotiated, dealt with. Yes. There are some things where it’s like, okay, this is complete scam, but the reality is most businesses are just not perfect. So having that structure, you could quickly go through, just make sure where those things are that you just, you know, you won’t be able to handle. And then the rest. I like that. I am gonna push you on that because that just changed a lot of my thinking on this so much. And it’s so straightforward. I’m like, what?

[00:30:10] Elliott Holland: I like being pushed, but that’s the benefit of being in this so long because here’s the other thing, most people are walking into broker deals, so a broker has spent six months with this seller and put together some 3-30 page thing about how rosy it is, right. And now you need your analysis that you only get 2 to 4 weeks to create, you know, we call it a quality of earnings, to actually data check everything that’s in this confidential information memorandum. Because what you need to be able to do is say, Hey, seller, I’ve invested money to get the truth. Based on basic primary documents, your financials and bank statements, the truth is this. Now, we can negotiate. So in the instance earlier, it’s not that a million dollar EBITDA business that you thought is really a $600K business and the deal is done, it’s that what are you willing to pay for a $600K EBITDA business. And is the seller and broker in tune enough to be willing to accept a fair price based on the real facts.

[00:31:16] A.J. Lawrence: And what’s interesting is, with like one of the things I’ve trying to experiment a little bit on smaller deals I’ve been playing with is, some of the other advise that’s out there about your number, my deal structure. What I like about looking at what you’re talking about is it gives you a better insight into the reality of what those numbers are so you can better structure things.

[00:31:42] I just did something for a friend and it was small, just domain flip and it was still just like the amount of craziness just to kind of get some thought process around it but taking from yours, yeah. The beauty in a deal is it’s just whatever works best between the two parties. There’s no has to be, or this is the way it is. It’s just those two players.

[00:32:03] Elliott Holland: It’s a open air negotiation between two supposedly sophisticated entities that can end up zero to a million. And that’s what I love. There’s no guardrails like in corporate America it’s like plus or minus 10% most negotiations, right? Entrepreneurs are plus or minus 100%, and so you have to sort get that going. And the price structure debate is spot on along with people’s list of I’ll walk away ifs. There should also be a list of I’m willing to move these levers this much. Right? So for instance, if you’re looking at million EBITDA dollar businesses, you should have but I won’t something below 400 and in between 400 and a million, I will adjust to seller notes and the escrow to mitigate my risk. If you’re intelligent enough to realize all the levers that you actually have to pull, which is another reason why getting an adviser or coach can be so helpful, then you can actually find out better if a million dollar EBITDA business is really a $600K EBITDA business, rework your letter of intent to have a million dollars in total purchase price, but be priced effectively for a $600K deal.

[00:33:17] A.J. Lawrence: And that I think is the magic, because even on smaller things I’ve seen that where it’s like, okay, sure. That’s what you want, but we’re gonna have you know, extending out the time of payment of things. Let’s get back to you talking about you as an entrepreneur. What’s the thing that you feel like either was a regret or mistake you had in building Guardian here that as an entrepreneur, not about the business, but as an entrepreneur that you feel would resonate and feel that other entrepreneurs could learn from?

[00:33:53] Elliott Holland: I’m gonna answer that two ways. One, is pre-Guardian when I was still an independent business buyer, self-funded searcher, and then one would be inside the Guardian. So I think there’s a lot of hurrah in the market about going all in, right in the ships in, I’m all in. And you say it on Twitter. You say it to your friends. You feel it in your heart, I’m a warrior, there’s only one battle and I’m gonna win it. And I did that, and I fell flat on my face. And being self-funded for people who don’t have wealth tucked away in their wives, their family, something else is a nasty thing because starting from zero is a hundred times harder than starting from like 10,000 bucks.

[00:34:32] And when you go all in and truly burn the ships, if you win you’re Michael Jordan, you’re the cavalier winning the championship, right. But if you lose, you’re one of those people that fell off and nobody writes about you and you’re kinda outta sorts for years rebuilding. So that’s kinda one mistake I made as entrepreneur, getting caught up in that all in.

[00:34:54] In building Guardian, I had to learn marketing on the job, A.J., and so when you have business like mine, it’s how good are you in delivering the service, right. But the only way you actually get clients is you gotta market, sell it. So I was ill-informed/lazy in how I defined my target customer initially, and so I thought that this whole ecosystem was sort of one persona, small business buyers without a fund, right. And that’s kind how I defined it. And a couple years in, when I started speaking to people, I was like, hold up. There’s like at least three different personas here. There’s like the person that’s just starting and really running away from their job or a bad marriage. And they’re just, they want to assert their power through I can go buy a company and be a boss, but don’t they don’t have a budget, they’re not researching, they’re not on SMB Twitter. They’re not really serious.

[00:35:46] Then, there’s like these halfway serious folks who have like negotiated six months of play time with their partner. They are taking a three month sabbatical on their job. And if they find the Beyonce or Michael Jordan of deals on that time, they’ll close it. But the likelihood of that happening in the 3-month period is so low, they’re not serious either. And the real players in this market are the ones that have dedicated the time, dedicated the budget, dedicated the time to understand this marketplace. And those three groups don’t hang out together. They may be in the same place, but they don’t hang out the same way and trying to the speak to all of them at the same time is poor execution. And so once I start to realize that there are these different parts of the same market, it become way easier as entrepreneur to realize why John just told me paying $20K for quality of earnings is the stupidest thing he ever heard. John’s running away from a full time job. John’s only got $10K in his pocket to do this. So anything over his budget is he’s not gonna make it to the finish line anyway, Elliott don’t listen.

[00:36:57] Steve, he’s talking about this 2-month sabbatical he’s got, and he’s got some money because he’s working but the likelihood that he actually gets a deal on LOI is so small. So when he’s asking endless questions about LOI negotiations, that’s not where you should focus either. So hopefully for who are marketing their own services, the separation of personas I think was the lesson there. And also being thoughtful about whose feedback you’re listening to.

[00:37:26] A.J. Lawrence: Preaching to acquirer there because yeah, I know exactly that feeling because I remember early in my agency. It was like, I used to joke, we’ll do anything include take out their garbage if they pay us. If someone wanted to talk, oh my God, I have a prospect. It didn’t matter. The first year in, I realized I’m like, wait, this guy think he’s related to royalty and what did I just do? Literally I had

[00:37:56] Elliott Holland: and I did it too myself. That’s the thing as entrepreneurs, because you have these degrees of freedom when something is messed up, you did it to yourself.

[00:38:06] A.J. Lawrence: Yep, it was all on me. And it was, I think some of it is also just confidence that we get as we, yes, we’re making mistakes, but we start delivering and we start building business and then all of a sudden it’s like, oh, I don’t have to chase these other personas that are a little, you know, a little wacky and yes, there are some, and I know that are way out there, but a lot of times they’re kind of more like mixed.

[00:38:34] There’s aspects of them that’s legitimate, but then there’s like, Ahaha, they’re kind of going into you know, what I’m realizing is gonna kill me or eat up my time with no return. Growing up to be able to have that, that’s a, that’s a fun part. Once you kind of get that initial structure. All right. That is okay.

[00:38:55] Cool. Before the show you were mentioning, you’re moving then to South America and you know, you are definitely, Guardian is really doing really well here. How are you going about defining what success means for you now and where do you want that success to take you? Not the company, but you moving forward.

[00:39:18] Elliott Holland: Sure. One of my biggest life lessons and entrepreneurial lessons is being very specific about what you call success and how you define it so that you can actually hit it, and so that you don’t actually get confused by the “universal definitions of success” and grading yourself on somebody else’s ruler, which I think is insanity.

[00:39:37] Success for me is simple, good clients, fun work, helping people. If I can nail those three things consistently, I’ll be the happiest dude on the planet. I mean, I’m not saying every one of my customers is the nicest person to deal with in the world. Let me not tell that fit. When I tell you the folks I’ve worked with in the past couple of years, are the coolest ever people I’ve met, in years. And so the way I define success for me is, fun work, great people and helping sort of entrepreneurs not get hacked in this difficult process and so sort of helping.

[00:40:14] I think unencumbered helpers of entrepreneurs are rare. My friends call me untethered and when good people are untethered, they’re able to share their gifts with more people in more creative ways. In ways that may not be capitalist, that may not maximize shareholder value, but that are needed.

[00:40:37] And so I think my success will take me to a place where I’ll be able to invest in other segments of the marketplace that need help. So for instance, I’ll speak on one segment. I’m a reformed engineer, engineers are mathematicians, but they don’t teach us net present value, forecast modeling, or valuation multiples. And so engineers get stuck being these masterminds mathematically, but don’t have business so they get run over in these circles.

[00:41:08] There’s a huge opportunity to teach that segment or a lot of other segments about this world. So they can sort of unlock their math excellence in this new place with this language that’s really wonky, but actually really simple relative to some of the languages that I had to learn as an engineer. And now, you’ve unlocked a group of people’s ability to go play a game that they’d probably be really good at.

[00:41:35] So I think there’s some other groups that could benefit from that knowledge. And I hope to be able to share it when I’m successful because I will be.

[00:41:43] A.J. Lawrence: And that’s very cool cause I’ve always been fascinated. I mean, I did my Undergrad Economics thing on sort of what is the concept of value add? Because there is always this argument of, well, you only do the things that give you that immediate financial impact benefit that there’s enough. This is a problem. You start moving in, you know, economics being, you know, already a soft science and then kinda talk even further out there. It is like, well, you know, I actually believe, and there’s enough soft social research out there that kind shows no, you actually are maximizing your long term value.

[00:42:26] I create, you know, “karma”. I like that because that’s something I love doing here on the show. Cause I do think there is long term value in being able to, cause I know like, look just the amount of information you share online has already led, and I’ve had conversations with other searchers, you being one of the defined people for this space. Now that’s just

[00:42:53] Elliott Holland: right

[00:42:53] A.J. Lawrence: I know that’s early in where you’re looking on your journey. I remember I was asking where you wanna go and you were like, where I am going to go? That’s a very cool difference. And yes. Yeah, that is, I like that a lot.

[00:43:07] Elliott Holland: I’m working as hard as anybody on this podcast is working on their goals. You should believe I’m working on mine. And what I love about what you just said value add also depends on your definition of success, I think as a human. Now, when you talk about in a capitalist society or business-driven, I understand those rules, I know them well, Harvard MBA, been in this game a long time. But when you think about value add, again, if you define your own definition of success so like Mother Teresa, for instance, are we gonna say her work wasn’t value add becase it didn’t create economic output? That’s baloney. That woman had a definition of success that had to deal with helping people, moving souls, creating optionality and hope. And as you deliver on that success, as you work towards it, you actually get the value add in the same metric that you’re measuring. And I think that’s what’s really cool.

[00:44:01] A.J. Lawrence: The increases in education, the decreases in poverty, just those little things, the economic, you know, when you do then get to the numbers where people want everything, it’s like, you know, and all likelihood, you know, you can see that benefit and kinda go there.

[00:44:20] Cool. It’s always good to talk to another value add thinker. Now I could just keep you here for a long time and we can keep diving stuff, but I am so appreciative of, you know, you dove into some things today specifically about make sure you have that, why you’re going, not why you’re not going to do something.

[00:44:40] I mean, already, that just changed a lot of my thinking and I know my audience is gonna love. You’ve shared so much. Thank you. Where can the audience go and find you if they wanna kinda dive a little bit more into what you’re doing and how to, you know, reach out to you?

[00:44:54] Elliott Holland: So if you visit guardianduediligence.com, and if you just start typing that into your search bar it’ll come up very quickly. You can consume all the content that I’ve put up there, my phone number and email are on the website, you can also schedule time with me there so it’s very user-friendly.

[00:45:13] I’m on SMB Twitter, elliotteholland. That’s E L L I O T T E as an elephant Holland, like the country. And I try my best to tweet about diligence, but also just positive and mental models that speak to the mindset of a deal maker. I’m also on LinkedIn and I’m a communicative in all those places. So please, if anything here interested you, come to the website, check out and download some things and you, like A.J., would be on my email list, which I think people really enjoy.

[00:45:48] A.J. Lawrence: Just thinking I had it but now what I like is it kind of set you depper into what you can do and as a searcher, we’ll just use that term, it will feel overwhelming, everything that’s out there. But knowing that there are folk like Elliott out there that really can help take a good worry as you progress into that space. So please go check out Elliott. We’ll have everything in the show notes folks, and on socials and the newsletter, et cetera. We’ll have all the links, we’ll put stuff up and you know. Elliott, thank you. I’m gonna do everything I can to have you come back on the show in a bit, especially as my search goes on a little bit further, but this has been

[00:46:22] Elliott Holland: I’d love to come back.

[00:46:23] A.J. Lawrence: Great, thank you. This has been terrific. Thank you, Elliott.

[00:46:31] This episode of Beyond 8 Figures is over, but your journey as an entrepreneur continues. So if we can help you with anything, please just let us know. And if you like this episode, please share it with someone who might learn from it. Until next time, keep growing and find the joy in your journey. This is A.J., and I’ll be talking to you soon. Bye bye.

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