I interviewed Jude Graham CEO of JudgeGraham.com to discuss strategies on growing and scaling a business for successful exit.
Judge is a hard-hitting, action-oriented serial entrepreneur with a successful track record of growing companies with little to no revenue and selling them for multi- and hundreds-of-millions of dollars. Judge started www.JudgeGraham.com to lead the charge in helping small to mid-size businesses catapult in growth value to create strong legacies or prosperous liquidity events.
Judge served as the Chief Marketing & New Business Officer of Ansira, the second-largest independently owned CRM and digital marketing agency in the USA. Judge was a part of the core deal team and instrumental in selling Ansira to Advent International in 2016. Prior to joining Ansira, Judge was the former Co-Owner and President of Sq1, which he sold to Ansira in 2015. He was also the former Co-Owner and President of Rassai Interactive.
Judge has helped hundreds of small and Fortune 500 companies to focus on growth and the ability to identify and capitalize on opportunities to improve revenue and corner markets through integration of cutting-edge positioning, culture, technology and sales.
Can you tell us a story about what brought you to this specific career path?
I grew up during the dotcom era, and the degree I earned in college was the first degree offered for e-business. My experience in those formative years was a core compilation of computer science, marketing, finance and business management. So, in a way, my career path from a college perspective actually chose me. It forced me to head in the digital marketing direction.
I’ve always had a fascination with wanting to make money by getting into marketing. In digital, specifically, I was able to touch multiple sectors of businesses and help them generate revenue.
Can you tell us a story about how you were able to build, a business from scratch scale and sell it to a bigger firm?
I remember telling myself to promise total grit and dedication to any project. So I just vowed to muster the grit every single day to go out and start selling and actually generate revenue. You have to establish those kinds of personal ground rules before you can start building a business. After that, step one is to quit pontificating and thinking about what your goal is and get out in the marketplace.
I was able to do that with something like Sq1, the full service data-driven marketing and optimization agency where I was co-owner and president, and I saw that people wanted to buy-in to what we were offering. Then once we actually started to get sales and revenue, we started molding and shaping the business to prepare it to eventually be scaled and exited.
Can you share a story about the funniest mistake you made when you were first starting?
When people are building their business, everyone fills out lofty excel spreadsheets, saying, “Oh man, I’m going to be rich in six months, and people love what I have and I’m going to be a multimillionaire.”
Confidence is essential, but the biggest mistake when I first started was underestimating the effort needed to get to those goals.
Can you tell us what lesson you learned from that?
If you believe that it’s only going to take six hours a week in order to get, say, seven sales, it’s more like 60 hours a week. If you think that your first project you can get done in 10 hours, in reality it’s probably going to be closer to 100 hours or so.
Not having a true grasp and understanding of the effort it takes to really win is something I learned. Don’t underestimate the business at hand and be prepared to sacrifice and do hard work.
Can you share with our readers the “6 Things You Need To Know If You Want To Build, Scale and Prepare Your Business For a Lucrative Exit.” Please give a story or example for each.
1. Culture matters — You need to establish a work environment that inspires other to go on that journey and achieve the same goals you’re putting everything on the line for.
2. Get your niche — Make sure your business is packaged and positioned correctly with a high-value niche to set you apart from the competition.
3. Keep the bottom and top in line — Show that topline growth is possible with your current business strategy, but make sure to tighten up bottom-line as well since it is more important for an exit phase.
4. Keep growth in mind — Your business model has to show how you can scale by at least five-to-10 times to truly be successful.
5. Promise recurring revenue, and mean it — What works this year must work next year and beyond.
6. Client concentration — No one client or account should be more than 15 percent of your total revenue.
Can you give a few examples of things to avoid when trying to build a business to sell?
Client concentration is difficult to avoid, but should be properly managed. Let’s say you have a company worth $10 million with 10 clients, and each one of those clients pays you a million bucks. That’s really great client concentration because if you lose one, you’re only down a million.
But let’s say you have 10 clients, but one of your clients is worth $5 million. Now you have a high client concentration, and if you lose that client you’re very vulnerable. You may not be able to make payroll, you’ve got to fire a lot of people, you may not be able to afford your workspace, and so on. Businesses would look at that and see working with that company would be too risky, and wouldn’t want to buy-in because they have a high level of client concentration. So you want work to spread out client concentration. No single clients should ever be more than 15 percent of your total revenue.
You also want to have recurring revenue in your business model that’s predictable, and you want to know, with a high level of accuracy, what amount of money the company will make this month and this year. That’s very important to businesses that buy businesses.
What are some of the differences in approach for building a service based business versus a product based business with an intent of selling the business at a lucrative price?
In both scenarios, you want to become very niche. The more niche you are, the higher multiple you’re going to get. With a product based business what you’re trying to do is really just continue to show operational optimizations. In whatever I’m selling, how do I manufacture or build or distribute it and, with scale, what it the most cost effective way possible? How do I get the most margins out of it without sacrificing the product and then showing that I have an ability to go from having to make a million a month to 20 million a month?
From service perspective, things like client concentration become much more important because you have much fewer accounts. If you’re selling a product, like a widget for example, you could have 10 million customers. If you’re a service-based company you may only have 15. So client concentration becomes key.
The other thing that becomes key when building and selling a service-based business is, is can it be duplicated? If other competitors can come in and quickly copy it, that’s a lower value from from a margin perspective.
How does one go about the process of finding a buyer?
If you’re a really hot company, and you have good P.R., buyers typically will find you or you hire business brokers and investment bankers. So if you want to scale, you would come around and find somebody like me that is tied into that community and can help you get ready and then find the appropriate investment banker to help sell your company. If you want to find them they’re verticalized, so if you’re a manufacturing company there’s investment bankers that practice in that area. If you’re a service-based marketing company, there’s investment bankers, but you’d have to seek them out.
How can one decide if it is better to build a business in order to exit, or if it is better to stick around for the long term and let the company bring in residual income or go public?
It all starts with establishing your endgame. If your endgame is wanting to put $10 million in the bank in six years, the probability against you. You’re more likely going have to build a business to sell. If your endgame is accumulating that $10 million over the 30 years, then you could build a business not to sell.
Anybody is foolish to not be building a business to sell. When you start building a life-long business, you make bad decisions. You’re not as aggressive and ultimately you’re just punishing yourself. You should always go into that mindset even if you don’t want to sell. Why not build a business that’s sellable? That way you’re alway in control. It’s your choice.
Can you share a few ways that are used to determine a good selling price for the business?
Usually it’s EBITDA, which stands for “Earnings before interest, taxes, depreciation and amortization.” So, if I did $50 million, and after taxes at the end of the year and once I paid everybody, and what was left in my bank account is $10 million, that would be my EBIDTA.
When people buy companies they look at the financials of the previous year, what the growth was, what the EBIDTA was, did they grow year over year, and has the EBIDTA remained as a percent of the same or higher? And then they value the business typically against EBIDTA, and what they do is they give you a multiple of it. So if you have $10 million in EBIDTA at the end of the year, depending on your industry, you’ll sell it anywhere from five-to-12 times the EBIDTA. If you sold at a six-times-10, you’d have $60 million.
Almost every single business is bought against current financial performance and projective future financial scale and performance.
You are a person of great influence. If you could inspire a movement that would bring the most amount of good to the most amount of people, what would that be? You never know what your idea can trigger. 🙂
To me it would be a true win/loss movement. I think we’re in a society right now where we’ve forgotten what it feels like to lose because everybody supposedly wins. The problem is, is when you get into the marketplace, there’s a disconnect. If you deal with a guy like me, I would want to create a movement to understand what it feels like to lose, because losing is so important to achieving the opposite. It prepares you to win.
Can you please give us your favorite “Life Lesson Quote”? Can you share how that was relevant to you in your life?
“Make it happen.”
So many people just never start, they don’t know how to navigate a situation, and they never achieve the outcome they want. For me it’s a matter of starting, but also doing what it takes to win. If you’re going to start something, just make it happen. Figure out a way to do it. Use Grit and grind and push through it. Sacrifice and do whatever it takes. That’s what’s gotten me to the level of success where I am today.
How can our readers follow you on social media?
People can head to my site or put in JudgeGraham.com/social to connect with me. On socials, in my YouTube videos, or on my podcast I’m always trying to engage and give audiences a foundational plan of attack to not only inspire, but empower them to learn important lessons and help build lucrative business strategies.