Firing The Man
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Firing The Man
The Secrets to Raising Capital with Confidence with Jeff Barnes
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Welcome everyone to the Firing the man podcast, a show for anyone who wants to be their own boss. If you sit in a cubicle every day and know you are capable of more, then join us. This show will help you build a business and grow your passive income streams in just a few short hours per day. And now your hosts, serial entrepreneurs David Shomer and Ken Wilson.
Speaker 2:Welcome everyone to the Firing the man podcast, the podcast for entrepreneurs and business builders ready to grow beyond the hustle and into ownership that truly scales. I'm your host, and today's guest is someone who challenges the startup grind and champions a smarter path to wealth creation. His name Jeff Barnes.
Speaker 2:Jeff is a seasoned entrepreneur, private equity expert and founder of the Mastermind Investment Club. He's also a key player at Patriot Growth Capital, where he helps business-minded veterans and investors leap into the iQuadrant by acquiring existing cash-flowing businesses. With years of experience in mergers and acquisitions, deal structuring and business leadership, jeff teaches others how to stop trading time for money and instead start thinking like owners and investors. His approach isn't about building from scratch. It's about buying smart, operating lean and creating legacy wealth. In today's conversation, we'll dig into how everyday people can transition into business ownership through acquisition, the mindset shifts required to operate like an investor, and why now is the perfect time to explore business buying as your next move. Get ready this episode will challenge what you think and know about entrepreneurship and wealth. Jeff, welcome to the podcast.
Speaker 3:Thanks so much for having me here, david, I appreciate it.
Speaker 2:Absolutely so. To start things off, can you share a little bit with our audience about your background and path in the business world?
Speaker 3:Yeah, absolutely so. My path actually begins very, very early on, when my dad was self-employed. When I was a kid he owned a hardwood flooring business and unfortunately, due to a lot of really unforeseen circumstances in the late 80s, early 90s, and at some point we were actually homeless, we didn't have a place to live and that was my first introduction to this world of business and I said there's no way on God's green earth that I'm ever going to run a business, because I was watching what my dad was having to go through and this is a guy that was working harder than anyone I've ever seen 80 hour weeks, working nights and weekends and missing out on a lot of family time because he was just doing everything he could to keep the roof over our head and, to his credit, able to get back up on his feet and move things forward and start making a living again with his business. But it was ingrained in me I don't want to be a business owner. That's not going to happen.
Speaker 3:So I joined the Navy straight out of high school. I went into the submarine program. I was a nuclear power plant operator on a submarine. I was a scuba diver. I was a quality by the end of my time in the Navy. I was a quality assurance officer, I was in charge of the machinery division, I was running the nuclear power plant. I was writing work back because I was doing all this stuff and I realized along the way that, you know, my one of my core values is personal freedom and autonomy. And guess what you don't have either of when you're in the Navy, especially on a submarine right? Neither one of those right. So while I was in, I was starting to read books like Robert Kiyosaki's you know, rich Dad, poor Dad, cashflow Quadrant, think and Be Real Rich. I started doing all the personal development stuff that hopefully everybody who's listening is also doing or has done. And along the way I realized, okay, maybe business ownership is what I need to do, but I have no idea how to start that and how to go down that path. So I started going to seminars about real estate, investing and learning about marketing eventually, back in 2006. I ended up buying. I actually bought my first home, no money down.
Speaker 3:And when I was 21 years old, while I was in the Navy, and I got hooked, I was like I want to keep doing this and I didn't have enough money to, of course, sustain myself when I got out of the Navy. So I took a job where I didn't have to work in an office. I didn't have to work in nuclear power anymore and I didn't have to, you know, worry about the grind as much. I worked from home. So I've been working from home since 2006. You know so I'm one of the original remote employees, if you will, and in doing that job I learned a lot, because what I? I left the Navy as a nuclear power plant operator and very high level, and I actually became a boiler inspector for this large insurance company.
Speaker 3:And the nice thing about that even though I felt like my skills were completely underutilized was that I got to go to five to 10 different locations every single day and that meant I was looking at businesses and getting behind the scenes. Look. So you know I talk about five-star hotels that people go into and it looks amazing. I got to see all the ugly stuff on the back end. I got to go into power plants and manufacturing facilities and clean controlled atmosphere facilities and, you know, growers, you name it. I've literally been inside of over 10,000 businesses. Because I was doing that for years. I ended up running a department doing that and along the way I was doing all these side hustles.
Speaker 3:David, I've started over 20 companies in my career. You can imagine how many of them actually succeeded, given that I had to start 20, right? So a lot of them were side hustles, like constantly doing a lot of what you're talking about, like how do I get out of the nine to five grind? And mine wasn't even a nine to five grind because I worked remotely, but I was traveling 30,000 miles a year in a car. Initially, by the end of my career in the corporate world, I was doing 75,000 miles a year in the air. I was gone every single week, I was on airplanes constantly and, as a result, I was just not having the quality of life I wanted. So, even though I had a really nice, you know six figure salary and I had my own department and I was doing really cool, innovative things, I just wasn't. I didn't have freedom and autonomy like I really wanted.
Speaker 3:So my foray into business ownership actually started with my ex-wife. I was because I'd gotten my MBA. I'd been going to these seminars. I was learning about marketing inside and out, really good with technology, really good with understanding funnels and you know all the automations and everything that goes into, you know, digital marketing.
Speaker 3:When my my ex-wife was a chiropractor, I said you need to start your own practice, and because I've tried starting a whole bunch of businesses up until that point most of them failed Of course I was able to help her get hers going and that's when I learned the most important thing in business, which is if you don't have a product that people want to buy, then you don't have a business. Luckily, as a chiropractor, we had a business where people wanted to buy what she had, especially since insurance was paying for it. That made it a lot easier. So we actually took that practice from starting out in January of 2016. And by March of 2016, she had a full schedule. By the end of 2016, she'd already known over six figures in revenue, which is pretty good for a chiropractor, to be quite honest, and we also had hired another chiropractor massage therapist.
Speaker 3:By the time that we ended up getting divorced, unfortunately, we had about seven figures in income as a really small chiropractic and functional medicine practice. So that was my first foray really setting everything up and succeeding. I should say setting everything up from the very beginning and getting it going. And along the way, I realized that man starting a business sucks. It's very hard, it's very challenging, you've got to find the money, you've got to do all this sort of stuff. But while I was in the corporate world, I was doing some of the same thing, right, but people were coming to us because they wanted to get their technologies or their business into corporate America, and my job was helping them find where they'd fit in in the corporate world, and then we would either partner with them, invest in them or acquire them, and so that's what I ended up doing. We did over a billion dollars in transactions using that model, and about that same time is when we finally got the chiropractic practice going.
Speaker 3:I was like, listen, I'm traveling too much. I got to leave, I got to be done with this. This is just way too much stress on myself and my family and oh, by the way, these companies that are making tens of millions of dollars because I'm making the introductions and help them raise capital I'm not getting any of that. So it didn't really feel right. So I left in 2018 and I actually acquired Angel Investors Network in 2018.
Speaker 3:And AIN has been around since 1997. So that was my first actual acquisition, so I've started a lot of companies. Then I acquired a company that was already growing, already running, already had customers, already had employees, everything like that and I realized this is probably the better model of all of them. But the irony is in that business, at AIN, what I was still doing was teaching companies that were just getting started how to raise money, so I was using both sides of the aisle, if you will, and that was my foray into it. Since then Since that was 2018, I've literally helped hundreds of companies raise hundreds of millions of dollars, and we set up systems for companies that are raising capital and we put on events for investors that want to look at deals, and we get fed deals every single day. So it's really just up to us to say, okay, well, which ones do we want to take on and which ones do we not want to? And then, what are our investors really looking for? So that's kind of the long and short of it.
Speaker 2:I love it. I love it. I really like that story, and I am in a similar boat where, if you look at the number of LLCs I've probably had over the years, I'll bet it's approximating 15 or 20, most of which did not go well. However, I would do them all again because I learned, and I think that's- Every time. Yeah, and so one thing I want to dig into is your firing demand day, like the day that you had the aha moment. I'm done, I've had it. Can you share with me that day?
Speaker 3:So it's really ironic and it's not really a fun story for me, honestly, because it was at the stage of my life where, yeah, I live in the Seattle Washington area and my wife's family is from here and that's how I ended up up in this area. But the company I worked for was headquartered in Hartford, connecticut, and our parent parent company was in Munich, germany. So I was in this organization 55,000 people I was one of 15 people in the entire company that was doing this job of finding technologies that we would invest in and do all of that Right. So 15 out of 55,000 people kind of did what I did, but I did it with a very specific focus in one area in department engineering and equipment and technology insurance and I was the only person really doing that in the United States. So it was kind of cool to have this job and be able to do what it was that I did. I was working with VCs and private equity groups and I was working with companies all over the world and doing some really cool things. So I actually had a really cool job.
Speaker 3:It just so happened that I lived on the West Coast and the headquarters were the East Coast or Europe, and given that we had a chiropractic practice, we had two young kids, it's like I can't pick up and move, probably would have if I wasn't, you know, in a situation where I couldn't leave because the opportunities were there and I realized with the company they wanted to promote me, they wanted to put me in other leadership roles, but not if I wasn't going to come to where the company was. And that was a real challenge for me because, you know, here I was working remote, I was traveling all over the world, you know, working for them and doing all these things, but I couldn't get up to the next level. I mean, I had my own department, I was two layers below the CEO, but I couldn't get up to where I really wanted to be, which is running a much larger organization, if I stayed with the company. And so for me it was like hustling and staying in that grind for long enough, to the point where the side hustle my wife's business could finally take over. There were some health issues we had to deal with, so I had to stick in that job a little bit longer than I wanted to, for the insurance purposes and whatnot, and then finally, when the health issues all went away. It was like, okay, cool, I can finally leave.
Speaker 3:And so I had to tell my boss. I was like, listen, I've just I got to take care of my family. I love what I do here, I love working with you guys, I love everything, but it's just not for me, and I really appreciate all the time and energy and education they poured into me, which they did. They did a great job with that. I just had to.
Speaker 3:You know, it's one of those situations. It wasn't like I was really firing the man. I actually felt bad because these guys had given me all this opportunity and, granted, I earned it. I worked my butt off to get there. I'm not saying it was a handout, but I felt bad because these people trusted me and believed in me. But I eventually had to say no, I got to take care of my family, and so that was in October of 2018.
Speaker 3:I finally left. I'd already taken on, you know, worked out kind of well for a couple months. The problem was I didn't know this, you know, shame on me is that my, my wife said hey, listen, we're done. You know we can't continue this path, and so we ended up getting a divorce in 2019. So it was January of 2019, we decided so. I left in October of 2018, in January of 2019.
Speaker 3:So, again, looking back, it's like did I really want to quit the job? Not really, cause it was a great paying job. I actually did some really cool things. I was able to do my side hustle I was consulting on the side at the time, um, but I ended up having to leave and, you know, shut that whole thing down. So wasn't really your typical. I can't wait to get out of here. Screw this company, I'm, I'm gone. It was like, yeah, it's kind of some mixed feelings there and if my ex had told me we want to get a divorce before I left the company, I probably would have stayed with him a little bit longer and seen where it went, because we were standing up our own innovation centers and venture capital arm and everything like that, and I was entrenched in all of that.
Speaker 2:Very nice, very nice. And I've heard a number of firing man stories on here. And you know, I've heard a number of firing man stories on here and I often find that people that are a little bummed out when they're leaving as opposed to the person who wants to give everyone the middle finger on the way out just means that they use discretion when they were selecting a job and they had a good one, and that's great, and so you have a wealth of experience with raising capital, and I'd like to dig into that a little bit. I think when people think about I'm firing the man, I'm going into business for myself, often the path that they're thinking about is bootstrapping and growing from the ground up, and prior to my working in the corporate world, I always felt like capital raising was reserved for Silicon Valley and people on Wall Street. And so what are some? Just some general, like let's talk through generally, how does capital raising go and what does that look like for the borrower?
Speaker 3:So there's so many different ways that you can, you know, paint this canvas when it comes to raising capital. There's the traditional you know what everybody thinks about which is we call it your friend's family and fools round. You know, very first, money in you should actually be the first money. And if you don't put your own money into doing something which generally means I'm buying the equipment or I'm paying for the marketing or I'm paying to do the setups, like you have to put your own money in first. Then you have the triple F round, as I call it the friends, family and fools. Your friends will give you money, your family will give you money if they believe in it, they like it, and then the fools will give you money just because they're like yeah, you know, it sounds like I'm talking anywhere from 5,000 to, if you're lucky, upwards of $100,000. These are your close inner circle of people. And this is if you've never raised money before, if you've never been successful in business before. You know, elon Musk goes out there and says I'm going to start a new business. He doesn't have to ask for raising money. People just write him a check, right? So if you're doing it for the very first time you have to realize that, regardless of how great you were in your last business, how awesome you were in your career, how much what your pedigree looks like, your education, doesn't matter. Everyone sees you in the role that you had, not the role that you are creating, and so they don't believe that you they're not going to tell you this, of course they don't believe you're going to succeed in this new role because I'll use myself as an example.
Speaker 3:When I was in the Navy, I ran a department very, very well. When I was in corporate America, ran a department very, very well 25, 30, 40 employees underneath me and everything went great. But that's because I had an ecosystem I had. It wasn't me by myself trying to figure everything out. And people realize that they think about that, even if it's just subconsciously. So they're not just going to like throw money at you just because you say, hey, I'm quitting my job, I'm going to start a business. That's not the way it works and some people seem to think it is or that they deserve the money just because they're taking the risk and starting up a company. You know there's no worse way than to raise money by being desperate right, being desperate and feeling like you need the money or you deserve the money. That's the worst way to raise capital. So what happens with the friends and families? They give you a little bit of money to get started, if they can. My grandma said no to me. My grandma was the only one with money in my family at the time. My grandma said no to me. My grandma was the only one with money in my family at the time and she said no to me. She's like sorry, no chance. So all right, fair enough. So I had to go out there and learn the hard way.
Speaker 3:The next round is your angel round. These are the people that don't know you but are high net worth individuals. They can maybe write a $5,000 to $50,000 or even $250,000 check. And the 250,000 guys and gals they're definitely on the higher end of the spectrum and they're only going to do that if they have a lot of liquidity and they really like your deal. And what that comes down to is really making people believe in you and your vision. If people don't believe in you and your vision, then they're not gonna invest your angel round.
Speaker 3:You're generally raising a million to maybe upwards of $5 million. You're generally raising a lot lower chunks of capital initially and you're giving away more of the company. You're giving away straight equity. Most of the time it's either through a convertible note or a safe note, or sometimes people just do straight equity financing. Which means, let's just say I'm going to raise $100,000 and, david, you're going to give me 100 grand and I'm going to give you 10% of my company. Great. Now I've just valued my company at a million dollars and you own 10% of it today.
Speaker 3:The next time I go raise money, hopefully the value of the company's increased because I've taken your $100,000 and I've deployed that into smart things like marketing and sales. Literally almost nothing else matters, unless you're doing software or tech and you're doing development because you need to do that, and now my company might be worth $5 million. Well, if I go raise another million dollars at 5 million, I've given away another 20% of the company. Right, and so that's kind of the way that we look at this. And then, once you get to these series A plus rounds then you're going after venture capitalists, you're going after family offices, you're going after private equity firms, corporations, things like that, and they write checks starting at $10 million, 10 million on up.
Speaker 3:What we've ended up doing is helping companies that are what we call in the capital gap. They're past the angel round, like their company valuation is maybe 15, 20, $50 million, but their revenue and their profits aren't really there to justify getting a VC involved. But it's too rich for the angels, and so that's really where I help companies. They're already successful, they're already growing, but they still need more money to get to that next level. But there's a lot more to it than that. That's just a brief overview.
Speaker 2:No, that's really helpful. And I would like to continue this conversation into kind of communicating to the newbie, the person that's never bought a company before and may not have the rich uncle or person in their network that would be able to help them out in that friend's family and fools which I really like that, by the way the three Fs family and fools which I really like that, by the way the three Fs. So let's use an example of a $5 million company. You had mentioned that the entrepreneur needs to have skin in the game, which that makes complete sense to me. On a $5 million deal, what would just the general expectation be of this is what you're bringing to the table.
Speaker 3:Yeah. So when you say a $5 million deal, I'm going to assume maybe it's a million dollar EBITDA and a 5X multiple, so the company's worth $5 million. Here's what a lot of people will generally do when they get going is they'll go to the bank and they'll tell the bank that I want to get a loan and if it's a $5 million deal, it's an SBA loan, right Like you can qualify. And I will tell you, out of all the deals I've done, I haven't done a single one where a bank finances it. Not one I've tried.
Speaker 3:But banks are, in my opinion, the worst. They are the most risk averse, and I used to work in financial service. Well, I've been in the financial service industry for over 20 years now. Banks are the most risk averse organizations on the planet. They are not in the business of risking money at all, and so they have an underwriting department that is. I don't care what bank you go to. Their underwriting is the most stringent, strict thing you'll ever go through and it's a real pain. And to me that's just not worth the headache, because there's so much more money in the world available to us than what's inside the banks and, as a result, I tend to go with private investors. I, you know you can call them angel investors, but they're just private individuals and people that have money in their IRA, their 401k, you know their bank account. They might have money in stocks, bonds, mutual funds, whatever, and they have cash that they can invest.
Speaker 3:Well, I have a $5 million deal. We're going to say we want to get debt and equity. And what do I mean by that? Well, debt is I'm going to go get a loan from somebody or some institution. Now, when I say dealing with banks, I'm talking about, like SBA, commercial banks, those kinds of things. They're really challenging to work with. There's plenty of other commercial lenders. There's other types of banks out there. There's private banks that will do loans, but they're only going to lend maybe up to 70, at best, 80% of the value of the company or the purchase price.
Speaker 3:So if it's a $5 million deal, let's just say they're going to be really generous and they're going to give you 4 million bucks for this, okay, and that's after you have proven beyond the shadow of a doubt that it's a good deal, and then it's going to continue to be a good deal even after you buy it, and that's. That's a hard. That's a big hurdle. Most people, you know, glaze over that fact and I've been through enough due diligence and compliance reviews to know that that's not easy to go through. So but let's just say you pass all that and they're like okay, cool, they're going to issue what's called a term sheet. They're going to say, here are the terms of our offering and we will give you $4 million and it'll be a three-year term. You're going to pay maybe interest only in the first year and principal interest on the second and third year and you have to repay us with a balloon payment on month 36. And they're going to outline what all those terms look like. And then it's your job to say take that back to your CFO. Or, if you're doing the financial analysis, say, ok, well, can I make these numbers work with this deal? Hopefully you still can and you might accept the term sheet. Once you accept the term sheet, they go into underwriting and they start taking everything over to their compliance team to start reviewing everything. They're looking under the hood of everything In the meantime, because this can take anywhere from, at the short end, 30 to 45 days. Generally three to six months is what we see taking time when you're getting a lender like that.
Speaker 3:Now you have to go into the process of raising the other million dollars. And I'm just going to assume it's an all cash deal. Seller won't take any seller carry, they're not going to do any rollover, they are expecting all cash at closing. So now you got to go find the other million dollars. Well, this is where money partners or private investors come in. And I'll also assume maybe this person only has $100,000 at most to throw at a deal. So now you have to raise another 900 grand. Well, what do you do in this case? This is where we say the company is worth $5 million right now and this person is going to be an owner-operator. They're going to continue to grow the company. Hopefully they're going to turn it from 5 million into 10 million in the next, let's just say, five years. Yeah, we'll be really generous here.
Speaker 3:Well, I would go to my warm network, my friends, my family. I'd ask for recommendations, I'd ask for referrals, I'd tell them what I'm doing, I'd create a pitch, I'd create a presentation. I actually found this amazing company. I've already got the bank and this is key. I've got the bank to tell me they're willing to lend on it, which means I only need to come up with whatever's left right, in this case $900,000.
Speaker 3:The reason that's important is because it's a lot harder for someone who's never raised money before to go out there and raise the full $5 million from private individuals, unless they happen to know a lot of great people at the country club, the golf course or whatever, or somebody that just had an exit that wants to back them. Generally doesn't happen, especially the first time around. So going to the bank first or going to find somebody who's going to give you the debt for 70 to 80% of the purchase price really solves a big problem for the rest of the investors, because now you can come to them and say yeah, well, I'm looking for nine people to put in $100,000 each Out of that and I can't do all of the math in my head right now but for each, let's just say $100,000, that's. You know, I guess I could try and figure that out. $100,000 divided by 5 million, that's 2%, right? So for every 100K you get 2% of the company, right? We're just doing really basic math here. So now I'm raising $900,000. Well, that's 18% of the company. So I'm willing to give up 18% of the company for 900 grand, all right. So you know.
Speaker 3:If somebody put this on a spreadsheet, it's pretty straightforward. I put it in my own 100 grand Plus I'm giving up 18% for another $900,000. That equals a million. Now I've got my million. The bank comes in with a 4 million. That's my capital stack, right. So it's a little bit of my own equity, right. I'm putting in more equity from other partners. Those people are now shareholders in your company. They're not legitimate, not full-on partners unless one person put in the whole, you know, 900 grand or whatever. They're minority shareholders and that's how you avoid giving up a lot of the company, right? And the debt covers the vast majority of the purchase price. So hopefully that was helpful and people could follow.
Speaker 2:Absolutely. And one follow-up question there. So the debt portion of it there's going to be like what is expected. Well, there's going to be some principal and interest payments up the road On the equity side of things and sticking with this example, 2% for 100,000, when at sale they would be making money. But what does that 2% entitle you to? Does it entitle you to 2% of net income? What does that do for the equity investor?
Speaker 3:Yeah, it's a great question. You can structure it in so many different ways, right? Somebody who comes in and puts in $100,000 to help this company get go, or help you with the acquisition. They may ask for a job. They may say, yeah, I have the hundred thousand, but I want to be an advisor, I want to be your CFO, I want to be whatever? Okay, great, now you can actually say okay, we'll give you a salary position in addition to this. Right, that's one piece.
Speaker 3:The other thing that people will want is they're going to want dividends. Well, the challenge with paying out dividends, and especially when you're doing your projections, is that your dividends are paid out after everything else is done. Right. So now there's net profits. So we have EBITDA and everybody understands EBITDA earning before interest, taxes, depreciation and amortization. But then you have this other subset of all this other stuff. Now I have to pay interest, now I have to pay taxes, now we have our depreciation and amortization expenses. Plus we want to have retained earnings, meaning we want to keep cash in the bank to continue growing the company. And then, after all of that, now we have our net profits and let's just say, this company that we said is doing a million dollars in EBITDA really only has, at the end of the day, $200,000 in net profits. Well, 2% of $200,000 is not much right. So you're getting four grand a year give or take for these people that just put in the $100,000. So they put in $100,000, they get, you know, 2% of this. So they're getting $4,000. So they're getting a 4% rate of return effectively.
Speaker 3:Okay, and that's if you're paying dividends out. A lot of people will opt for we're not going to pay dividends out. We're actually going to keep rolling everything back in. We're going to increase our marketing and our advertising expense so we can keep growing the company. That's the smartest thing a lot of people can do if they have a good sales and marketing system. If they don't, it's not a great idea. But you want to continue growing the value of the company because, really, where these people are going to make their money is on an exit. Okay.
Speaker 3:Now, if your folks are familiar with real estate transactions and whatnot, then they might give this and this is one thing that people can do. It's not very typical but it is possible. Let's just say you go five years in operations in this business. The business is not worth $10 million, but you don't actually want to sell it, but you do need to take out that. That bank, let's just you know I know I said 36 months earlier, but let's just say it was a five-year loan you want to take out that financing, but now the company's worth 10 million. Well, to keep the number simple, I owe $4 million to the initial bank and I owe $900,000 to my other investors. Well, I could maybe go get a five or a $6 million loan. I could pay the bank loan off and I can pay my investors back all of their money and they can continue to retain equity in the company if we want to do that.
Speaker 3:There's no hard and fast rule about how you are required to pay all of your investors back, but there is one rule that's absolutely pertinent, which is you should pay your investors back. Right, it's just how you do it and when you do it and all of that. That's all up for negotiation, right? You can structure it as a safe note. Hey, I'm going to go raise a million dollars, but we're not setting a valuation on the company right now. We'll set the valuation later, and so, instead of it being a million dollars, gets you 20% of my $5 million company, I'll say no. I'm going to set the valuation cap at $10 million because we're going to try and grow this company. So now your million dollars are worth only 10% of the company, assuming I get to that level and I do another financing round. So there's no hard and fast rule. It really comes down to how creative can you be and what's the best opportunity and offer you can make to your investors.
Speaker 2:Got it, got it. No, that makes a lot of sense. That makes a lot of sense. There are probably some people listening right now saying I don't have a rich uncle, I don't have a ton of money in savings, so buying a business, an existing business, is not in my cards. What would be your response to that group of people?
Speaker 3:That's the most short-sighted thing that you can think. But I would tell them I was like no, you shouldn't buy a business, because if that's your thinking, then you will not be able to run a business, plain and simple. Um, buying or starting any business and growing anything of your own and and being successful at it, requires a growth mindset. It requires you to break through any barrier and any wall and any impediment in front of you to make sure you succeed. Right, so if the very first roadblock that comes up, you say, oh, nevermind, let's turn the car around and go home, we're not going to do this. You shouldn't own a business, because I don't know of a single person ever who has been successful their first time around without any challenges, problems or heartache. Most of the time they say you know, they did a study a long time ago and they said what was the average number of attempts it took for you to become a millionaire? And the average number and this is you know, back in the nineties, the average number of attempts for these really rich people to finally break through a million dollars was 11 times 11 failures before they finally succeeded. Okay, so anyone who is getting going and saying, oh well, I don't know anybody with any money, so I guess I can't do this. You're probably right, because if you have that mindset, you're not going to succeed.
Speaker 3:On the other hand, somebody says, oh, I don't know anybody who has any money, but I want to make this happen. How do I do that? That's a different conversation. That is, it's about building your network. You have to expand your network. You can do that online. You can do it through Facebook groups and LinkedIn communities and groups. You can do it by going to networking events in your local neighborhood. I know people that have gotten money by going to church. Talking to people at church, you know. Talk to your CPA, talk to your financial advisors you name it, you know. Just because you don't know somebody or you don't think you know, like there's a book called the Millionaire Next Door. I can't remember the name of the author right now, but there's more millionaires in the United States and around the world than there ever has been, and you can throw a stone and hit somebody with a million bucks somewhere. Does it mean that it's all liquid? No, but they're worth it and there's a way to get their money out.
Speaker 3:One of the things and I'll give your folks. This kind of strategy is that you may not know people with a lot of money, but I bet not too far from where you live, there's people out there that have a lot of equity in their home and equity in a home is the most useless thing out there until you pull it out right, because equity, you know and I'm assuming everybody understands this. But we'll give a really simple example. Housing market out here has doubled in the last five years, like literally a hundred percent increase in five years in houses. So somebody that bought their house, let's just say 15 years ago for $500,000, let's just say the mortgage is now 400 grand, maybe a little bit less, but their house is now worth a million dollars. That means there's $600,000 of equity. That's just sitting there doing nothing.
Speaker 3:So could you go to somebody that you know that has a really nice home that they've been living in for a long time, that has a lot of equity, and say, listen, I would love to show you a way that you can actually arbitrage the term, the equity in your home. So what if you went and you got a $500,000 loan on your home, you paid off the 400 grand, you have an extra 100 grand in there. It's not much more than you already owned on your home. You still have a lot of equity left. If you took that $100,000 and you invested with me and I paid you 10% and you only have to pay the bank 6%, you're making 4% per year by doing practically nothing right, that's an example. It's an oversimplified example, but it's an example of how people can get creative by finding somebody that might have the ability and the means to invest.
Speaker 2:I like it. I like it. That makes a lot of sense and it sounds like, yeah, you just need to be gritty on and really go for it on the fundraising side of things.
Speaker 3:So yeah, it's not about having your resources, it's about being resourceful. If you're not resourceful, you shouldn't do it.
Speaker 2:Yeah, I think that's a really, really good perspective. So I one thing you had mentioned at the beginning of this episode was that you've had the opportunity to be in and out of 10,000 businesses, and I would imagine over that period of time, you've you've made some observations on what makes a great company and probably on the flip side, what does a company look like if it's failing, or what are some telltale signs that things are not going well? And so let's start with the positives. What are some characteristics of a really healthy company that is suited for growth?
Speaker 3:So, David, I'm going to start by giving you a little bit of context here. When I left the Navy, I was on a submarine. I was a scuba diver, I was in charge of the quality assurance program and if anything broke on the boat it could potentially be life or death situation for not just yourself but over a hundred other people right and the military. When you first get on a submarine, they actually play you a recording of the USS Thresher that went down in the 60s and they have the recording of what it sounds like when a submarine implodes. They were doing sea trials, they were testing something out and the boat literally sank and you can hear the hull imploding.
Speaker 3:Okay, so the gravity of proper operations on a nuclear powered submarine is ingrained in you from day one and you carry that discipline and that mentality throughout your entire life when you're an operator like that. When I started inspecting businesses, I was blown away by how terribly most of them were run. I mean, equipment was dirty that they needed to use on a daily basis. Equipment would break down. I'll give you one example a really, really, really large food distribution company that everybody would know I won't throw them under the bus here In California ended up having a situation where their entire 1 million square foot warehouse of food a big chunk of it had to be thrown out because the food spoiled, because their air conditioning went out, because there was a blackout in the system and they failed to maintain their backup generators. Right, and this is a billion dollar plus. Company Failed to do one silly little thing cost them hundreds of millions of dollars. Ridiculous, Absolutely ridiculous. It's stuff like that. You're like I'm blown away that people aren't doing these things, and it could be anything from improper marketing, improper operations, you know, not telling each other what you're working on.
Speaker 3:I'll start with what I think. For small businesses anyway, the number one biggest impediment to growth is when you look at the entire business like a hub and spoke model and the CEO is the hub and everything needs to connect to the CEO. Right, the CEO or the owner. That is the biggest impediment to growth. If you are a CEO, if you're a founder, if you're the owner and everybody relies on you for every decision inside the business, you will not grow, right? That is one of the biggest challenges. So the flip side of that what is it that makes companies really successful? It's systems, of course. You want people to manage the systems and the systems to run the business, but there's three interlocking systems I look at. So, if you think about a Venn diagram and you have three circles, the best businesses are in the center of where sales, marketing and operations all fit perfectly together.
Speaker 3:In other words, your salespeople need to have a good, good product to sell. If they don't have a solid product to sell with a great offer, they're going to suck. And it could be a sales system, it could be a sales funnel, it could be a video sales letter, it could be your e-commerce store. You got to have a good product to sell, which means your salespeople need to understand the product inside and out the benefits, the features, the opportunities, the competition. The salespeople really need to understand the product.
Speaker 3:Ok, then, your marketing needs to set your salespeople up for success. Because somebody that's coming in that doesn't know anything about your product, your service, your opportunity, you're wasting your salesperson's time. Your marketing needs to be make selling superfluous, as Peter Drucker says. So your marketing needs to set your salespeople up for success and your operations team and this is 80 to 90% of the business people, the folks in the business your operations need to support your sales and marketing, not the other way around. And this is the big challenge I see in bigger companies is that, because the operational people make up 80% of the human capital, they feel like sales and marketing should kowtow to them.
Speaker 3:But it's the other way around, because your sales and marketing should be going after the customers and figuring out what the customers want and what they're willing to buy, and then your product team, your dev team, your operational people, should help to make that happen.
Speaker 3:Right? So you can look up case study after case study of all these different people who said, oh well, we built this product because we wanted to do this and we wanted to do this for these people, and then, all of a sudden, after a year or so of selling it, they're like these people are not buying it. What the heck's going on? Turns out this person's buying it, using it for a completely different reason, right? Turns out, this person is buying it, using it for a completely different reason, right? Your sales and marketing needs to shift and focus on that, and your operations team needs to fall in line and stop, you know, worrying about this other product that they wanted to sell. So that Venn diagram, if you could just sum up how businesses run successfully. It's your sales marketing operations team all running like a fine-tuned machine.
Speaker 2:I really like that.
Speaker 3:And the Venn diagram is a good visual because obviously all three of those are going to be existing at a company and the point you made about generally 80% is operations and sometimes that they get their way instead of the sales and marketing. That is something I have not thought about, but that makes complete sense and I could see where that would be a recipe for disaster. Cousin was a car executive and he thought Homer had these great ideas. Homer, I want you to design our next car. And Homer starts designing the car because he's the guy. He's like the product development guy. Oh, I have all these ideas.
Speaker 3:We're going to put a horn here, a horn here, a horn here. I need this cup, roll this cup. He makes this absolutely atrocious vehicle that no one ends up buying, right. On the other hand, if you start with, you know the lean startup kind of methodology and you're thinking about how this whole process works, you're solving problems for real people and that's your sales and marketing team needs to relay that back to the people who are designing the product, who are doing the service, all of that, and your sales team should be the one that's relaying information back to let them know hey, this is what they really, why they bought Not because you put this cool little widget in here. They bought it because of this thing over here that no one's talking about, and that's how you actually continue to grow a company.
Speaker 2:I like it. I like it Well, before we get to the fire round, I would like to talk about Patriot Growth Capital and what you guys have going on over there. Can you discuss that a little bit?
Speaker 3:Yeah, absolutely so. Patriot Growth Capital is a veteran-owned and operated private equity firm with the sole focus of buying small mid-sized businesses to then hire veterans to graduate to a CEO role and eventually sell the business to veterans. So what we're doing is we're impacting veterans and their families through business ownership. That's really what our focus is. Our mission is to impact 1 million veteran families over the next 10 years and show veterans how they can become business owners, because a lot of them are going to be like me, where they have this amazing skill and experience and training and discipline while they're in the military, but the rest of the world has no idea what to do with them when they get out. And so, as a result, you end up getting a job at a company that will hire you because, let's face it, you don't retire rich from the military. I don't care how long you were in, and yet you don't feel like your skills are being used, and for me, it's also giving them a purpose after the uniform.
Speaker 3:You know when you're in the military and this is something that a lot of people don't talk about I was on a submarine and I had 130 other guys you know we're brothers essentially working together and we had no idea what the mission was that we were doing most of the time, because a lot of it was really top secret. You get to find out some of the stuff you're doing, you're patrolling but you all felt this pride because you were part of something much bigger than yourself. And when all of a sudden you get out of the military, you not only take away that you know being part of something bigger than yourself, but you also take away all the people who are in the shit with you, right? So we all, you know, say misery loves company, and that's you know. They say a bitching sailor is a happy sailor, and there's a lot of truth to that, right.
Speaker 3:So what happens is you take all of that away from them and then you put these people into a role that they're overqualified for or it's so mundane and boring and they don't see how they fit into the big picture and they don't really see how they're actually making a difference. Because really, what are we doing? We're increasing shareholder value or making other people rich, right? That's kind of the way people feel about it. And so, by showing them how to become the shareholder, become the owner and step in this place where now they have a team of people underneath them again. They're supporting other people, they're supporting their families and their employees' families. It gives them another sense of purpose and it gives them something bigger than themselves again to work towards and it allows them to continue moving on in the trajectory. That's positive, as opposed to feeling lost and alone out there in the corporate world.
Speaker 2:I love that business model. I love what you guys are doing with veterans. I'm going to post a link to that in the show notes and to everybody listening. Go check it out, whether you have a business for sale or you're interested in investing. It's just a really cool organization and a different type of private equity that has a great social purpose, and I love that.
Speaker 2:So, jeff, this has been an awesome interview. Before we wrap up, I would like to do the fire round. This is four questions we ask every guest at the end of the interview. Are you ready? Let's do it All right. What is your favorite book?
Speaker 3:let's do it All right. What is your favorite book? I have two, um man's search for meaning and unbroken, and they're both about you know the human spirit and how it can endure, and in spite of overwhelming odds.
Speaker 2:Very nice. What are your hobbies?
Speaker 3:I have two boys so they play baseball a lot so I'm out there coaching little league, helping them out. Uh, we like going shooting. My wife and I love going shooting and, um, you know I hate to use the word playing with guns, but it's kind of like playing with guns going out in the woods and shooting all sorts of fun stuff.
Speaker 2:Very nice, very nice. What is one thing that you do not miss about working for the man?
Speaker 3:Uh, I, I love my freedom of autonomy, I love to be able to set my own schedule. And I I never liked it when I was told like I had to fly the night after the Seahawks lost the Superbowl. I had to take a red eye flight in a snowstorm with a bunch of people that were on the same plane from China, and it was really terrible. Like how to do stuff like that just to appease somebody else's schedule. I don't miss that at all.
Speaker 2:Yeah, yeah, I agree with that. And final question what do you think sets apart successful e-commerce entrepreneurs from those who give up, fail or never get started?
Speaker 3:Oh man, we didn't even get into my e-commerce back when we took one business from zero to 17 million in about eight months. And the number one thing that I think is going to eight months and the number one thing that I think is going to cause any e-commerce business owner to fail is not tracking everything tracking the data, tracking your numbers, knowing where your customers are coming from what, knowing everything about that customer journey and having the data. The more data you have, the more informed decision you can make, and if you're not tracking, then you don't have a way to make a good decision.
Speaker 2:I like it. I like it. All right, Jeff, if people are interested in getting in touch with you, what is the best way?
Speaker 3:Yeah, well, you already talked about Patriot Growth Capital, so put that in the show notes. And then my personal website is jeffbarnesceo, so you can learn a little bit more about me there. Outstanding.
Speaker 2:Jeff, thank you so much for your time today, and looking forward to staying in touch Sounds good. Thanks, david.
