Business Advisors - The DL S4E28
Business Advisors - The DLS4E28 is now available on your favorite podcast app!
In this episode of The DL, Diesel Laptops’ Founder and CEO, Tyler Robertson, is joined by John Barnes, CEO of Pendleton Street Business Advisors.
Pendleton Street Business Advisors’ comprehensive advisory services offer entrepreneurs and private business owners a strategic layer of financial research, analysis, and advice. They align all their work with the existing legal, accounting, and banking advisors their clients may have in place.
And their priorities remain consistent – business valuation and wealth creation for their clients.
Please like, subscribe, and share. If you have questions or would like to learn more about a particular topic, drop a comment and let us know.
As always, thank you for watching and listening!
Connect with John Barnes and Pendleton Street Business Advisors
LinkedIn - linkedin.com/in/📈john-barnes-aa22747/
Email – jbarnes@pstadvisors.com
Website - https://www.pendletonstreetadvisors.com/
Listen on your favorite podcast streaming platform below:
Transcript for Business Advisors- The DL S4E28:
Tyler Robertson:
I started my business in my garage dining room table, a lot of you know that story. I had the good fortune of actually having a family of entrepreneurs and business owners, so I had the opportunity to learn about all these things. And don't get me wrong, it doesn't ever prepare you for what running your own business is like, but a lot of small businesses out there, and a lot of the customers we work with, they started as diesel technicians and now they're running a shop, or they own a bunch of mobile trucks, or they're running a fleet, or whatever it is, and there's certain things you need to start thinking about when you're a business owner. For example, if I gave you $100,000 and said, "Hey, I need you to make sure I get a return on investment here," no problem, stock market, 6%, 8%, 10%, but we don't often think of that in our business, we don't often think of what is this business actually generating for me, and not only that, how long do I want to do it for.
And not only that, but what am I going to do with the profit? Am I going to reinvest it? Am I going to pay down debt? Am I going to take it out and go buy an island somewhere, or whatever you're doing with your excess cash as a business owner? In this episode, John Barnes, who is local here in the Columbia area, I've known him for a couple years, we're not a client of his, just a very smart guy that's helping a lot of businesses really figure that out and maximize the potential of a business and really helping them think of, well, when do I want to leave the business and what does my life look like and what do I need to get there? And that's all about putting together a plan. So John's going to break it all down for us in this episode.
All right. So John, before we even get started, Uganda, I saw the post on LinkedIn, what were you doing in Uganda?
John Barnes:
I was there doing some mission work. Our church has partnered up with a group that's based in Uganda, and we go over there and basically provide labor to do some mission work over there in the refugee camps that are run by the United Nations. And this was my fifth trip over there in about five years.
Tyler Robertson:
So is there stuff that'll just break my heart if I went over there and saw some of the things, or is it better than I envisioned it? I just know what I see in the movies. I've never actually been there.
John Barnes:
There are things that absolutely will shatter you, but at the same time, you run across people that are legitimately happy. They don't love their circumstances, but they could teach us a master's course in contentment and in being happy and also be impatient.
Tyler Robertson:
I've started to learn that. So I was just having a conversation with someone and they were asking about my brother, so he works for my dad, and I'm an entrepreneur, my dad's an entrepreneur, my brother just wants to work for my dad, so me and my dad are like, "We don't get it. We don't get it." And then the person was like, "Well, is he happy?" I'm like, "Yes, he's actually very happy." So I was like, "Okay, it's a different thing for everybody." So that's really cool that you go do that. I haven't done a lot of charity or volunteer work myself, so it's one of those things I want to do eventually. But why don't we just tell the audience what Pendleton Street Business Advisors is? I think you guys are a little bit unique in what you do.
John Barnes:
At our heart, we're basically financial advisors, but the asset that we advise on is a business. So all of our clients own businesses, and if you look at their net worth statement, the value of the business is going to be the largest number on there by far. They may have outside real estate, they may have stocks, bonds, whatever, but the business is the core of their wealth. And so a lot of times financial advisors want to sell you insurance or talk about stocks, bonds, mutual funds. We start with the business and with the owner, and say, "Okay, what does this asset need to do for you? And when does that need to occur?" Sometimes that's around retirement, like, "Hey, I need to sell my business to retire. What does it need to be worth and when does it need to get there?" Sometimes it's a company that's maybe eight or 10 years down the road, they're not a startup, but growth is starting to hurt pretty badly.
Tyler Robertson:
Growing pains, we call them around here.
John Barnes:
And they're like, "Wait a minute, my sales are up, all these metrics have a smiley face, but why do the owner feel so awful about it? Or where is my bottom line? Or where is my cash?" We can come in and help them understand that as an asset, understand what's going on, and then pair a personal financial plan with the business plan to pull things more in line.
Tyler Robertson:
How bad is it 99.9% of my net worth's tied up in Diesel Laptops?
John Barnes:
One, I don't think it's bad if you know that. Most people, they don't really think about it that way. For most business owners, the business is their job, period, it stops there. We all know if a business owner had 10 million dollars in cash and they gave it to a, quote unquote, investment advisor, they would have one expectation and one expectation only, and that would be for the money to grow, but when a business owner looks at their own business where it's the largest investment, they're probably the single investor, they have zero expectation of it growing in value, they just want to get a paycheck and maybe get their cell phone paid for, and a family vacation out of it and stuff like that. And what we're trying to show them is that it can do, and it probably needs to do, far more than that for a longer period of time.
Tyler Robertson:
I can say my journey is definitely changing. So when I first did this thing, it was just, hey, make beer money. Then it turned into can I quit my job? Then it turned into build something. So you keep checking those boxes, and I never really cared about anything besides helping people solve problems and growing my business. And I think in the last six to nine months, it's really changed now because now it's like, "Okay, wait, I've created a really valuable asset over here that's doing a thing. What the hell am I doing? Where does this end? I need to have an end game, otherwise I'm just spinning my wheels and I can't make the right business decisions going forward unless I know where I'm trying to get to." And I guess I see that a lot in small businesses. So like you said, people, it's a job, I get a paycheck, I can do things, but at the end of the day, businesses generate a profit.
John Barnes:
They should.
Tyler Robertson:
They need to if they want to stay in business, but the owner has a decision on what to do with the cash that those things do. Can you talk a little bit about what... There's three buckets I believe they fall into.
John Barnes:
Yeah, that's right. You've been reading my posts.
Tyler Robertson:
I have been. I've been following you.
John Barnes:
We think that when you have profits, bottom line, cash flow, whatever word you want to call it, a business owner does have about three things they can do with it. They can pay themselves with it, that can turn into a vacation home, it can turn into a sailboat, fun stuff usually, college tuition, whatever, something that's going outside of the business. The second is they can accelerate debt payments. We would assume that if you have debt in the business, you're paying it as agreed for an amortization schedule or something like that, but this is like paying extra payments to knock it down. Or you can reinvest in the business, hire more people, more plant and equipment, just things that are going to help you do or generate more revenue, maybe become more profitable. What we do when we're working with a client is we help them understand which of those three do we need to answer, why do we need to answer it, and why is it important in terms of their financial plan.
Sometimes you do two of those, sometimes you do all three, sometimes you do one. Most business owners, I think, on their own tend to preference one of those. Some people love taking money out of the business and using it at home to do fun stuff, okay. Some people hate debt, if you will, and they just want to pay it down as fast as possible. Some people just continually double down and double down and double down and double down in reinvestment, again, not much wrong with that, but, again, going back to what we were saying earlier about what's return should you get on that reinvestment? And that's, again, where we come in and help clients understand, hey, if you're going to plow a half million dollars back into your business, and depending on what you're going to use it for, here's what you should expect in return, so that as you move forward after making that investment, you can give yourself a thumbs up or a thumbs down.
Tyler Robertson:
So I definitely fall in that third camp, the same analogy. I've been playing a game of blackjack here, just doubling down for eight years.
John Barnes:
Split, double, split, double.
Tyler Robertson: Yeah, let's keep rolling the dice, we're on a roll. But I think that's changed here now. We brought a CFO in, we got a chief revenue officer, we got a chief operating officer, and all of a sudden it's like, "Hey, we need to focus on EBITDA and decide where we allocate this money to." And I get it. I think I was still treating this like I was in my garage and dining room table and just doing whatever I wanted to do to do cool projects, and now it's almost a little more sense of responsibility. You have employees, you have vendors, you have a business and people that count on you, it becomes a different thing. So it's definitely changed for me now. I've always talked about growth. Every LinkedIn post I'm like, "Oh, growth, [inaudible 00:09:25] 5,000." I love that part of it. So it's taken me a little bit of time to get my ego out of the way and be like, "Okay, maybe that's not the metric I should be focusing on. There's some other important KPIs here."
John Barnes:
It's interesting you talk about growth, just a brief little side story, I used to have these orange trees and they were small and they were in pots, and I bought them when they were young, they were immature, and the guy that I bought them from said, "Hey, this could be at least three years before you start to get something out of it." And I followed all of his directions and they began to really grow, and they looked dynamite, no fruit. So this is about the fifth year, I'm like, "Where are the blossoms?" But it had all this growth in foliage, and long story short, he's like, "You need to prune the." Okay, so I pruned them, sent him another picture, he's like, "More, prune more." At this point, I cut a third of the leaves off.
Tyler Robertson:
So nothing left.
John Barnes: He's like, "More, more more." It got down to almost a few branches and I was like, "Stewart, I think I killed it." He's like, "Wait." Got the fruit the next year. So the growth looked beautiful, but in terms of what I really wanted, which were these little doorknob size oranges, I wasn't getting it because the tree was producing all this growth, it was using all of its resources to make the leaves pretty, and he's like, "Yeah, you got to cut all that away to get the stuff you want." So that maybe I just ended the show, but it's like that's the-
Tyler Robertson:
That's a great analogy though. I'm going to remember that story. It's the perfect analogy though. And I think especially as a CEO founder, it's hard to get out of your own way sometimes.
John Barnes:
You're like, "Look at this tree, it's beautiful," and someone's like, "Well, I can't tell what kind of tree it is because there's no fruit."
Tyler Robertson:
It sounds just like us. Oh, look at this revenue, where's the profit? I'm like, "Don't worry about that. Worry about all this revenue top line. Look how great we're doing here." So it's definitely a mind shift. And I know you work with a lot of small businesses, it sounds like, and we do too, a lot of independent shops, guys that are mobile maintenance guys, and a lot of these journeys are people that were great diesel techs and then they decided to go hang their own shingle and go do their own thing, and it really is a totally different skill set. Is that the journey you see with a lot of these small business owners?
John Barnes:
Oh, 100%. There is no school for business owners. Even when I meet people that they may have gone to graduate school for business, getting an MBA does not in any way, shape or form prepare you for business ownership. It prepares you to make great PowerPoint slides and-
Tyler Robertson:
[inaudible 00:12:00]
John Barnes:
... And you know your way around an Excel sheet, but, no, there's nothing, it is definitely trial and error, hard knocks, life happening is what most people do. And that's why we see them where most people do see it just as their job. They don't want to work for someone else. Or maybe they used to work for someone else in their industry and they're like, "Hey, if this guy can do it, I can do it." They strike it on their own, they max out a credit card, and that's the old familiar story for a lot of people, but no, no one's really trained or prepared to do that.
Tyler Robertson:
So how often when you first engage with someone, are they crystal clear on what they're focused on, or is it one of the job stuff? Oar are they like, "I'm out of this thing in five years, I got 10 years, my kid wants it, I'm going to give it to my kid."
John Barnes:
I think it's not unlike a lot of medical diagnoses where you go see your doctor when something's uncomfortable or something weird is going on and you notice. You don't know what's causing it, but you know that something's wrong. And so we hear from a lot of business owners when they're at that point, for instance, someone that's maybe three to five years away from when they would like to retire realizes what they know is wrong is, oh my gosh, I don't really know what I have and I definitely don't know what someone else would be willing to pay for it, oh, and I also don't even know what I need to get out of it. So that's that scenario. Or in the case of a company that's a couple years in, they're like, "I'm taking in all this money, all this revenue, and I've hired people and all my reports have a smiley face, but where's my cash? What am I going to do to keep this growth going?"
And so, again, they sense that something's wrong. They usually hear or see one of our videos or what we've been writing about and they're like, "I need to go see the doctor." And so a lot of times we start out with trying to diagnose the problem, but then we're saying, "Okay, once we get this fixed," talk to the business owner like, "Where would you want this to go? Again, what do you need this business to do for you other than provide a job, other than to be profitable, but what's the medium and long term destination?"
Tyler Robertson:
So I have this conversation a lot with my dad. So he owns a business, him and his brothers, and I've had conversations with them too, and the answer they always give me is I don't know. And it seems like that now when I look at it, I was telling you before we recorded, they're late 60s, early 70s, and all of a sudden they're like, "What do I do now? What's the end game?" They spent 40 years not thinking about it, and now reality's hitting them right in the face and it's not like you can just go sell your company. Well, you can, but you shouldn't. Right?
John Barnes:
Yeah, I think that what stops a lot of business owners, they open the door and they take a peek and then they shut it again, because it's dark in there, if you will. They're afraid of what's on the other side of that door. When we're working with people, we get them to talk about what they would like to see on the other side of that door. If you can catch that distinction. It's like, "Okay, imagine life after the business." Most of our clients don't want to use the word retire, they're used to being constantly engaged. And even if they're at a point where they're really just putzing around in their business, they've got professional management or other people that are really loading the trucks and doing their books and all that stuff, they've got their badge on and everybody tips their cap or whatever, but it is to just talk about what do you want life to be like?
Now, what we know in every case is that it's going to take money to pay for those things. So that's where we begin to look at what do you need? If you were to sell it, based on how you live your life and you didn't have access to that cash flow anymore, or a salary, or whatever you're getting from it, what does it take to be you financially? And we back into a valuation, we call it a target valuation to say, "Okay, based on what we learned here from basically a financial planning exercise, your target value is 100 bucks." Then we look at where the business is now, and it might be worth 80 bucks, so then you've got a $20 gap, and then we work with them on the specific financial drivers in the business. It's not just profitability or revenue.
There may be some other measurables that are pertinent in their industry that an outsider will look at and see more value there. We tell our clients, "Look, you're a founder, you did this for the love of the game, you love what you're doing, and you've got the bumps and bruises to prove it. The next owner of your business is an investor." And not that they're all cold, heartless killers, but they are far more objective about business in general than maybe a founder.
Tyler Robertson:
You don't have the emotional attachment, right?
John Barnes:
Correct.
Tyler Robertson:
And what you're describing to me is the exact thing we do on strategic planning. We're like, "You start at the end, not where you're at. This where I want to get to, great, now how do I get there?" And I remember having that conversation with my dad. He's like, "Tell me how much you'd net out." It was X dollars. He's like, "Ah, I don't know, blah, blah, blah. It's not that much." I'm like, "Dad, how many years would you have to work to get that same number?" He's like, "20." If I really think of it that way-
John Barnes:
In 20 years from now, you'll be 89 or whatever.
Tyler Robertson:
How's this going to play out? So it's been interesting to see it from my side at Diesel Laptops what I'm going through, my dad going through it, talking to people, and it's really difficult decisions that people have to make ahead of time. So if someone's listening to this and is like, "Yeah, I do want to eventually sell my company," how much time do they need to plan for that? Or is it ever too early to start planning? Where do you [inaudible 00:17:53]
John Barnes:
It's not too early, but I think that sometimes when something is, say, in your mind a decade away, it's just easy to do it tomorrow. So I've been doing this since 2007, and what we've noticed, and again, this is just from our sample of clients, is basically for every decade you've been in business, you really need a year and a half to almost two years of solid planning. And planning doesn't necessarily mean you're trying to figure out what you want to do, but it's you're figuring out what you want to do, you're understanding where you are, and you're trying to work on those drivers, because a lot of times there is a little bit of mechanic work, if you will, that needs to be done financially in the business. And that's all normal because you're trying to position yourself financially with your statements and everything that you have to be able to prove that target value to a professional buyer of companies.
The nightmare scenario for most business owners is that they get educated about their own company by the buyer. You never want to be at what we would call an informational disadvantage to a buyer of the company. And so that's where, again, our clients are good at what they do, we are good at that part. And a lot of times when there is a transaction, we don't broker sales, but we do sit on our client's side of the table and we talk finance pro to finance pro with that buyer. And where most people imagine these protracted negotiations with hung up phones and yelling on a conference call and stuff like that, the deals that we've been involved with are not like that. It's just cold, hard facts, it's calm, rational explanations on numbers, and a professional buyer sees value immediately.
And a lot of times they don't want to feel like they overpaid, but we try to understand what they can pay relative to that target value, and we just push and push and push, but we got facts and data to back it up. It's not just where we're pulling a number from the sky or that we're being unreasonable or something like that. The pros know, yeah, it's right. I don't love it, but I agree with it.
Tyler Robertson:
So I can put the exclamation point in that because of what I went through about two years ago, I was like, "Cool, I'm going to go sell a minority share in Diesel. I can use some of that cash personally, take some money out, and I can leave a big chunk of it in the company, and we got some fuel to grow." And I didn't have a CFO, we monthly financials and income statements, but we couldn't answer a lot of questions, and that's really what it came down to is when you go do that capital raise process, you get the financial people and you get the strategics. And the strategics, they would understand one of the eight aspects of our business and not seem to care about the others, maybe more than that sometimes, but the financial guys, man, I couldn't answer basic questions that we should have been able to answer.
So I went through that process of six months, or maybe even a year, and what I got out of that was worth my time and money we spent in that process, because I learned, oh, these are the same... I had four financial guys all ask me the same question about churn rate, maybe I should figure what that is and be able to really put some facts behind it, not just a bullshit answer. So you learn a lot going through that process as well, which is, again, someone that owns a business, they don't even know the questions are coming, but you do, you've been there and done these things.
John Barnes:
Yeah, there's so many unknown unknowns that are out there. And for our clients, they're going to get one shot at that sale, they're basically selling their life's work. Our clients are typically not the serial entrepreneur that just starts something and moves on and moves on and moves on. These are people that have decades in the business, there might even be multiple generations that have been in the business, but something has changed or a circumstances is needing them to sell. Or, like I said, it might not be end of career stuff. It's just, man, we've gotten into this plateau when we were a two million dollar business I understood it, when we were a five million business I still understood it more or less, but now we're a 10 and I feel like this thing is really getting away from me, but all the right things have happened, why does it hurt so bad? So again, we'd come in there and look at it that way too.
Tyler Robertson:
And we're talking about this, and I know people are like, "Oh, what does he know?" My business is different, it's a shop, it's a trucking company, whatever it is, business is business at the end of the day, and you have worked with a trucking company as well?
John Barnes:
Yeah, we've had a number of clients in transportation. We love having actually transportation clients because we do manage money on the backend for our clients that have sold. We are a registered investment advisor, but we don't chase people around asking people to manage their money. We only do that from exits. But transportation is great because they're the ultimate canary in the coal mine. They see downturns first and they see the upturn first. And so anecdotally we like always having a couple of those in the mix, because it helps us on our money management side. And we've got clients in 14 states, so we're based here in Columbia, South Carolina, but we're doing work almost all over the country, and it is fun to work with business owners, but business is business, we don't really specialize in industries per se, all those things have tended to cluster up because of referrals and word of mouth.
Tyler Robertson:
Well, talking about that, you've done a lot of things that we've been doing. I know you're active on LinkedIn, so I'm assuming that's working out well. I'd love to hear your story there. And then I know you got the podcast that you're doing as well.
John Barnes:
LinkedIn was just one of those things where it's like if you can't beat them, join them. We did have a great business that was rocking along on word of mouth, but I'm only 45, my partner is even younger than me, and we've got definitely more gas in the tank. And we just love working with business owners, we're business owners, and the work is actually really fun of taking someone and helping them understand what an asset they do have and helping them see that they can get a lot more out of it than just their job. And so the posting on LinkedIn, I write my own posts, they're very matter of fact and almost like war stories of what we've seen, and they really have started to resonate.I've only been doing it since August of 22, so not quite a year. We've gotten three clients engagements out of just these posts of folks that I never would've known before being connected on LinkedIn.
Tyler Robertson:
People don't understand the power of that social media stuff. They think it's hogwash and influencers selling makeup on Instagram, whatever, but it's really finding your tribe. And LinkedIn, obviously, a lot of business owners are on there. And same thing here, I don't really ever go on there and just start marketing my products and pitching my products, and try to tell my story and what we have going on, the wins, the losses, but every week, multiple people are like, "Hey, I'm interested in a tool." There was actually two today that I got that were like, "Hey, I just want to learn more about your tools. Who do I talk to?" So many times people reach out when they see value and appreciate what someone's putting out there.
John Barnes:
And so you put a story out there of how you have helped someone. I don't make posts that say, "Please hire us," but I'll write stories about, "Hey, here's something that we worked on today, or here's what a client found themselves, and here's what happened." And what I've learned, there's only really probably seven or eight actual business problems, but they can have a few different manifestations of those. And so someone will read that and say, "Hey, that's me. I'm dealing with the exact or very, very similar things. I've got a particular twist or a turn on something." But people see themselves in those stories, and I think that's what they connect with you.
Tyler Robertson:
My mind's thinking here too, you're probably right, because it's taxes, employees, income, market, there's certain buckets.
John Barnes:
You can have a filing system, and you only need about seven or eight folders, and you can drop pretty much every business problem that we encounter into one of those categories.
Tyler Robertson:
Well, the podcast, so I know why I do my podcast, why do you do your podcast?
John Barnes:
We started that really during the pandemic and probably the latter part of 2020. It seemed like content just exploded everywhere and a lot of videos and a lot of interviews. And I was a fan of a lot of different podcasts, people that I'll never meet, but just to get information you listen to in your car. And my partner and I, Matt, were talking, we know all these stories because of the clients we've worked with. And I don't know if you remember, but during that time there was a lot of negativity just flying around everywhere. And not that we wanted to ignore reality, but we said, "Hey, there's a lot of good stuff that has happened and that will continue to happen. Let's just tell some stories." We did not do it as a way to advertise our firm.
We really did it, what I've learned now after hiring a marketing firm, is that we were branding, we were getting our brand out there to say, Hey, "Pendleton Street Business Advisors is willing to put, frankly, the money into high production value," because they're on video. We do release audio, but we start them on video, like you're doing here, and then we release the audio afterwards. And so we used a group called Pierson Collective to make them sound good and look good, and we just started going and grabbing people that we knew their stories. And really, we are about to release, I think it's episode 54, so we've done this for about two and a half years. Most of the episodes are not our clients. They're just stories that we think need to be told. Sometimes we're talking to clients, and we don't really out them as clients because, again, we don't want the show to be about us.
It's really about them and just getting these stories out. But that has also become an effective business development tool. It did not start out that way. We just thankfully had some margin that we could spend on something like that to make it look good and to have it be indicative of our work. You certainly don't have to spend what we're spending to get these things out. You just record audio, it would be super cheap, and you're just another podcast out there. We wanted to add that video component to just say, "Hey, if Pendleton Street had a show, this is what it would be like."
Tyler Robertson:
It's been great. I've been following all the episodes. I told you before we got on the air here, I would've never stayed at Hotel Trundle until I saw him on your podcast.
John Barnes:
And they should watch your episode. You were on there.
Tyler Robertson:
Yeah, but I was like, "Man, this is a great..." I usually go to the chain things, and I was like, "Wow, I will stay down here all the time. It's perfect." Well, if people want to learn more about what your company does or connect with you, where should they go?
John Barnes:
Well, our website is pendletonstreetadvisors, all spelled out, .com. You can find me, John Barnes, on LinkedIn. We have a company page on LinkedIn as well. Those are the best places.
Tyler Robertson:
Well, I love the content out there. It's great to see other people, especially in the Columbia area, consistently putting out content and having conversations and getting people talking about things. And that's really where a lot of it starts. So props to what you're accomplishing over there and the people you're helping at your company, so it's been great.
John Barnes:
And thanks for what you're doing here at Diesel, not just on your day job at Diesel, but doing stuff like this and just putting stuff out there to help people, because, again, you've got plenty of things you could spend your time on too, and just I appreciate you highlighting that story.
Tyler Robertson:
No problem. So as we end every episode, it's not just diagnostics, it's diagnostics done right. As a business owner, you really need to focus and figure out where your end game is and start putting that plan together. Reach out to John, reach out to Pendleton Street Business Advisors. I know they can help you guys out. Thank you for watching and listening. Like, comment, subscribe, share. We appreciate it.
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