Doing $250M a Year, Exiting Companies & Building Company Culture I Peter Krauss DSH #372

time in a unique bubble that i don't know that we'll see again um for uh or at least not for a long time people were raising money pre-revenue like 100 million dollars yeah yeah just for an

and there was a ton of money in the market and that money needed to go somewhere right and i always tell people money needs to work if money's just sitting it's not making anybody money right so it's got to go to work and you assume a certain risk portfolio when you're willing and needing to put that money to work right yeah

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Welcome back to the show, guys.

Digital Social Hour.

I'm your host, as always, Sean Kelly.

Got with me a business mogul today, Peter Krauss.

Hey, how's it going?

I'm good, Sean.

How are you?

I'm doing good, man.

Ever since I met you, I've been thinking about what you told me, and I was really impressed with your story, honestly.

Well, I appreciate that.

Yeah,

we know a lot of the same people.

Vegas gets to be a small town sometimes.

Very small town.

It's funny, but yeah.

Ran into you randomly last night.

Yeah.

There was like three or four people last night said the exact same thing.

We just all keep bumping into each other.

So it's good.

I'd love for you to kind of explain your journey, your story, and what you've accomplished.

Yeah, so my career is now 30 years long.

I'm a little sad to admit that in a sense, as far as that, I'm that old.

But yeah, I've been in business, sales, marketing, operations, production,

efficiencies, you name it.

My story, interestingly, and it wasn't by design, is I've made a career out of joining companies kind of in their early or midlife and really helping that organization level up.

That's what I always like to say, is really get to the next level.

So, you know, probably the biggest success story that I could share was a company that I had with several partners.

We became the largest gift card manufacturer in the world.

And some people go, okay, how's that possible?

But if you think about all the gift cards that are at Starbucks, Walmart, Target, any of the major retailers, restaurants, that was us.

We became the largest by far in the market.

When I joined the organization, it was still pretty small.

And then we grew it to quite large.

And then we had an exit to private equity back in 2018.

And since then, I've been really focusing my time and dedicating my time to helping other businesses achieve the same kind of goals and objectives.

So,

you know, really looking at their business, analyzing it.

And now I'm building a new career based on helping those same other businesses find that next level, find that next gear.

And honestly, it's been a lot of fun.

Nice.

Yeah, it's been a lot of fun.

So your whole thing is you're not just putting up capital, you're providing business leadership, culture stuff, like you're revamping the business.

Correct.

And in some instances, I'm not even putting capital into the business.

I'm just operating as a consultant,

you know, working with either the current ownership or, you know, the founder, entrepreneur, someone who has acknowledged that they've got the business to a certain point and now they can't get it to that next level.

I don't mean this condescending in the least.

I'm always really proud of founders and entrepreneurs entrepreneurs who make that realization on their own

because sometimes they don't.

And sometimes somebody will come in from the outside and make that observation for you that your business is struggling or not living up to its full potential because the business has outgrown you as a founder or as an owner, as an entrepreneur.

And it happens very often.

Yeah.

And there's a lot of acquisitions that don't go well.

Far too many, to be frank.

So a big part of my consulting practice is that's what I focus on is really two things is the prep before the sale to hope that you have a successful process as it's referred to,

which there were more failed processes last year than in the last 10.

Really?

Yeah.

So some of that's economy driven, right?

Just as people are reassessing deals based on the current economic conditions.

But a lot of that is because the companies weren't ready for the sale in the first place.

So as companies go through the due diligence process, right, they fail and the process fails.

And I tell clients all the time, you're better off not having a process than having a failed process because it really puts a tarnish on the apple, so to speak, right?

It really hurts your brand and it hurts your potential for a maximum exit or sale down the road.

So that's something you always got to look at.

There's a lot of failed acquisitions.

Yeah, I hear about them all the time.

So what are some common things during due diligence that people overlook and that causes red flags?

Well, it's really, it's going to sound simple, but it's really just having your house in order in general, right?

Your financials.

And it can't be just your bookkeeper, right?

You need to have outside eyes on your financials.

So no matter how small your business might feel, I always encourage clients to look at an outside consulting firm to do a regular audit, not an annual audit, but even a quarterly audit.

So you have an outside third party who is certifying that the numbers you've put on this piece of paper or in the spreadsheet are actually the numbers, right, to the best of anyone's knowledge or understanding.

You go even a step further if you're a mid-tier or slightly larger company where you really want to have even a quality of earnings report done.

you really want to make sure your financials are, I hate to say it this way, but bulletproof.

They've got to be just absolutely bulletproof.

Because that's the first thing they're going to attack during diligence.

Are the numbers you're showing me the actual numbers?

Have you, you know, I hate to say it, cooked the books in a way, right?

Are you manipulating the numbers prior to launching the sales process?

Did you just move a lot of stuff around to make your balance sheet or your income statement or your PL look better?

Savvy buyers know immediately where to look and they know even what what categories to look for

where money and things often get moved around.

So,

working with somebody like myself who helps you prepare for that,

you know, unless you've done, you know, six, seven, eight, 10, 12 transactions like I have,

you may not know what to look for and you may not know what questions you're going to get asked.

Yeah.

And you get caught out in diligence, and that's where it starts to fall apart.

Yeah, because then your reputation's screwed.

I mean, yeah, and it's like, you know, if you get caught in one misrepresentation, or I'll say it even more boldly, one lie,

now everything else you say is called into question.

Right.

So it's not even worth trying to make up numbers or anything.

No.

It's going to get found out eventually.

Yeah.

And I look, I tell everybody, and anybody who knows me has heard me say this a million times.

If you want to be a $100 million company, you need to start acting like one in the beginning.

So you put the right processes and procedures and protocols and financial disciplines in place.

That's what's going to help you get to 50 to 100 to 200 to 300 million.

And then when you're ready to exit, your books are going to be what these larger institutional investors or buyers are used to looking at.

You know, not something in QuickBooks that your aunt was doing.

And a lot of businesses that are in the small to mid-sized category fall victim to that.

Yeah.

So you talk to a lot of people at a lot of different job positions and levels of the organization.

What position in the company do you think is the hardest position?

Oh, my God.

I mean, they're probably all hard in their own way.

Maybe this is self-I mean, having been a CEO, I still think at the end of the day, day, that is the hardest position in the sense if you do it right,

in the sense because the buck stops with you, right?

So the failures of your team are yours.

The successes of your team are theirs.

Right.

Okay.

So

it's a tough gig.

And Steve Jobs, one of my favorite quote, you know, basically says, you know, you play an instrument, I play the orchestra.

And that's a CEO's job is you take all these players, all these people, all these different personalities, and you get them to play in harmony to create something special, to build a business, to build a company, right?

Yeah.

So it's really, really hard.

Second to that, and this is going to sound crazy,

I think your HR professionals do not get enough credit.

Wow.

HR.

HR, yeah.

So,

you know, the closest people in my organizations were, it was me, my CFO, my HR executive.

Why?

Because I'm so focused on people.

And I recommend any business, if you take care of your people and you take care of your customers,

you know, the bottom line sort of takes care of itself.

Yeah.

And that's always been my recommendation and advice.

So again, me, CFO, the financial, HR, the people.

And those are the top priorities.

And those are hard jobs.

HR, again, because you're dealing with people.

Yeah.

HR.

Wow.

Never would have thought of that one.

Yeah.

Every time I give that answer, people are a bit surprised.

But I think it goes overlooked or underappreciated.

just how critical and how important that role really is.

Yeah.

In an organization that has a healthy corporate culture.

Right.

And I thought it was interesting, you told me at the soccer game, you retained 90% of the employees

when you joined the company, right?

Yeah.

So, you know,

the company that I was talking about, the gift card company, we did six strategic acquisitions as part of our growth strategy.

And in every one of those, we kept the business.

We kept 90 plus percent of the people.

And we made all those acquisitions incredibly accretive to our business.

They were very beneficial.

You know, we knew at some point we were going to exit exit and we were going to sell at a certain valuation, at a certain multiple, right?

We had sought advice.

You know, what is a company like ours going to be worth on the open market when the time comes?

So part of the barometer for me was, okay, if we're going to sell here, I need to be buying companies here.

Okay.

So that's that immediate accretive value that I had built in, if you will, when we did these acquisitions.

But, you know, more acquisitions fail actually when they're successful.

meaning you close the deal and now you don't properly assimilate the business.

You don't properly realize the synergies that you thought, like you mapped out on a piece of paper.

Oh, we're going to move this, we're going to move that, we're going to consolidate, we're going to get rid of this person, keep those five people.

More often than not, those acquisitions fail because people don't actually execute that properly.

What do you think the percentage of acquisitions that fail is?

No joke, it's 50% or better.

It's that high?

It's that high.

Whoa.

It's that high.

And let's define fail.

The transaction closes, the deal gets closed, the business gets bought,

but the implementation, the execution of sort of the melding it all together fails more than 50% of the time.

Right.

When I say fail, I mean they spent the money and they didn't get it back.

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That's a harder one to answer.

It really varies.

I would say that's probably a much smaller percentage in that 20%.

Oh, okay.

Um, maybe 15%.

You know, you could find a way to squeeze a juice out of a lemon, right?

I mean, let's be honest.

Um, but you know, whether it's my definition of success was, as I said, as you said, did we retain most of the people and keep them employed?

Right.

Did we shrink or did we grow?

And was it really accretive and beneficial to our business?

Did we, we were also a manufacturer, so I was like, did we gain manufacturing capacity?

Right.

Did we gain capability?

Right.

Can we now better serve our clients?

If the answers to those things were yes, then it was a win.

Yeah.

So you grew that company's revenue from $19 million to $250 million through acquisitions, right?

Through organic growth and acquisition.

In one year or was it?

No, it was over.

So I joined the organization in a full-time capacity in about 2008.

We exited in 2018.

That was over a 10-year period.

Wow.

That's insane.

Yeah.

I mean,

that's, what, 12x revenue?

Yeah.

And more importantly, our EBITDA was incredibly healthy.

So when I joined the company, we were roughly, I'll use rough numbers to protect the not-so-innocent, but we were, like you said, $18, $19 million in revenue, roughly $2 to $3 million in EBITDA.

When we sold the business, we were nearly 30 million in EBITDA.

Holy crap.

Yeah.

So the multiple was probably really good then.

It was a good multiple, and it was because we were a healthy business.

We were a healthy business making money, operating efficiently.

And again, that's what I always tell people.

You can, you can, look, there are certain business segments that focus far more on revenue than they do bottom line.

We all know that.

But when you go to sell that company, very few people are buying companies on revenue anymore.

Really?

Oh, yeah.

Oh, I thought it was always like a one or two X or whatever.

Your multiple is really going to be your true multiple and true valuation.

And I'm glad you brought that up because no matter how many times they tell you they did a one or two X multiple of your top line revenue.

Yeah.

There's an analyst behind the scenes that has been tearing apart your number, getting to an EBITDA number that they feel comfortable with, that they think is the real number.

And that's what they're actually building their multiple model on, and that's what they're going to make their offer based on.

Because revenue doesn't, as we all know, equal profit, doesn't equal positive cash flow.

Right.

So it depends on the industry segment.

I mean, look, we all heard all the dot-com stories and all that where, but heck, even Amazon, how many years did they lose money for?

Right.

But those, those, those days are gone.

Yeah.

In certain segments, it still exists.

In most traditional business segments, you better have a healthy EBITDA, a healthy bottom line.

You better be actually producing cash flow.

And that's what your multiple is going to be based on.

Yeah, I was never a fan of those companies that would not be profitable for like Uber for like 10 years.

I was like, it doesn't make sense to me.

It was a unique time and a unique bubble that I don't know that we'll see again

for, or at least not for a long time.

People were raising money pre-revenue, like $100 million.

Yeah.

Yeah.

Just for an idea.

Well, and there was a ton of money in the market, and that money needed to go somewhere, right?

And I always tell people money needs to work.

If money's just sitting, it's not making anybody money, right?

So it's got to go to work.

And you assume a certain risk portfolio when you're willing and needing to put that money to work, right?

But yeah, it's, I always tell people, traditional business, real business is multiple of EBITDA.

Yeah.

I've seen you make some comments about the younger generations and you're kind of concerned with their reliance on technology, right?

Yeah.

And it's look, I love technology and I've been an early adopter my whole life, right?

I'm older, you know, I'm 53 years old.

I'm not ashamed to say that.

And I've been an early adopter my whole life, right?

So every new technology that came out, right?

I saw the invention of CD, DVD, laser disc, digital media.

I still have the first iPod on my desk.

I have every variation of the iPod since its inception.

And I'm a big fan and student of everything that Apple's done too from a technology standpoint.

So I'm not against technology at all.

I think what it's done, unfortunately, is it's made it harder for some people.

to relate with other people, in all candor,

and then interact and be able to have a conversation that just is organic and flows like this.

But it's also done a lot of good.

I mean, there's information that's at your fingertips or, you know, not even your fingertips anymore, just hey, Siri, hey, Alexa, hey, Google, right?

And that's changed everything.

In some ways for the good, in some ways for the bad.

Yeah, I have this debate with myself and others all the time.

Did the good outweigh the bad, in your opinion?

I think the proof will still be in the pudding on that, as we say.

I think the good has outweighed the bad in most respects.

I think so, too.

Yeah, I think in in most respects it has.

It's given us immediate access to information we never had before.

You know, it's changing education, right?

Because traditional education, how does it compete?

Why do I need to go read a book when I can just ask my phone?

Right.

So I think it's changing that dynamically and forever.

I think that'll continue to evolve and to change.

I just wish people had learned more of the people skills, the ability to relate and interrelate with people,

not dependent on technology for that, because that instant gratification we get from technology today doesn't always translate into the real world.

No, it's a pet peeve of mine when I'm talking to someone and they're on their phone.

It's like it annoys me.

Yeah.

And I do it too, but like it annoys me for sure.

Well, even at the event you were talking about last night, right?

You look around the table and half the table is down at their phone doing something, interacting with somebody else instead of interacting with the person right in front of them.

Yeah.

So I think there's a downside to that.

I don't want to sound like the old crotchety guy, right?

But there's, there's definitely more good than bad that's come from it.

Let's be honest.

For sure.

So what keeps you going these days?

I mean, you've had so many exits.

You could have retired probably 20 years ago.

Yeah.

Well, yes, I could have.

I'm too young to retire in my mind for sure.

As I always like to say, I got way too much gas left in the tank.

You know, what's cool is you get to a point where, you know, throughout our lives and our careers, we do all the things that we have to do.

When you get to a certain point, you get to do what you want to do.

And that's really exciting.

And that's really liberating.

And I'm thankful that's kind of where I'm at.

So I get to pick projects I'm interested in, investments that I'm interested in,

products and people that I'm interested in, right?

So right now I dabble in a few different businesses that are near and dear to my heart.

I'm a car guy.

I love cars.

I've always been a part of the car community my whole life.

So now I'm sort of vested and invested in businesses that are in that space.

But I'm always looking for the next thing.

Okay.

You know, I think that's what gets me out of bed every day.

And it's going to sound a little corny, but what I love about my consulting business now is really helping people, mentoring people.

Just sitting around the table last night, you you know, with a, with a group of people, and they were in, you know, one was 25, one was 30.

Yeah.

And just the questions they were asking were great.

Yeah.

And being able to impart some of that wisdom and that life experience that I've been through, that's exciting to me.

Yeah, it's cool to see you in a room like that because people probably had no idea who you were, but you're like the most successful guy there, probably.

And you're giving advice.

Yeah, I think, you know, it's funny.

You never know who anyone is right these days or how anyone makes their money, which is kind of part of the unique fabric, I think, of today's economy in a sense.

You know, there's, I call it the new economy.

There's making so many people making so much money so many different ways now.

I can't keep up with that either.

No, it's crazy.

And then I meet people and they appear to be highly successful.

And I'm like, how does that guy make money?

Yeah.

Like,

how does he pay for his life?

How does he pay for his lifestyle?

But that keeps it and makes it interesting.

But

look, I've, you know,

it's not very humble to say that you're humble, but so,

but I try to be.

You know, I was brought up to treat the janitor like the CEO and vice versa.

I

treat everybody with that level of respect because we've all been there.

Yeah.

And candidly, you know, Sean, that's the thing I'm most proud of is that now that I'm a consultant, I really kind of poke fun at the career consultants because most of the career consultants, and I've said this in some other conversations and even interviews, career consultants haven't been in the trenches.

They haven't been in the foxhole.

Right.

Right.

They didn't have to make payroll.

Yeah.

They didn't have to hire and fire people.

They didn't have to make the tough decision.

They're imparting book knowledge to people that are actually doing.

Yeah.

And I have a problem with that.

I do too.

You're talking about like those big companies, right?

I think I know what you're talking about.

Yeah.

They have no business experience.

No, none whatsoever.

I mean, they graduated school with, you know, a couple pieces of paper and good on them.

And now they're working for a big consulting firm.

Charging 10K a month.

10K a month or whatever.

They parachute into these businesses and they're imparting all this book wisdom and things they learned in class, but they've never actually done it.

Yeah.

They've never actually tried it and failed.

They've never actually tried it and succeeded.

And I pride myself on the fact that I've done that all.

I've done all that.

I'd much rather hire you than some guy at EY that doesn't do anything.

No, I've looked, I've made the mistakes.

I've learned from the mistakes.

You know, my goal as a consultant is to short circuit the process for you.

Yeah.

Right.

Don't trip and fall.

I'm going to help you avoid tripping and falling, right?

That's the whole point.

So

it's interesting out there, right?

Yeah, it's similar to like business college professors.

Yep.

I can't even take those guys seriously.

No, it's hard.

I mean, did you go to college?

I dropped out.

Couldn't deal.

Yeah.

No, couldn't I being genuinely serious?

And I catch heck for it from some people and some, you know, I got a lot of friends that are Harvard, this, and that, whatever.

And,

you know, I got to work and I'm proud of that.

And I'm still in my grind.

That was early to drop out.

Now it's more like.

Now it's more common and some people just aren't going to school straight up and they kind of embark on their journey in high school or straight after high school, right?

Yeah, no, it was, I was bucking the trend for sure.

You know, when I did it, you either didn't go to school at all and you just, you know, got a job and you started a career somehow.

Yeah.

You went to a trade school, right?

And you got a trade.

You were a mechanic or you were whatever.

So yeah, I was,

I don't want to say I was a rebel because there were quite a few people that did it, but it was definitely early.

So you must have not have gotten a lot of support at first from your family and friends.

There was a belief system, but there were a lot of people, you're crazy.

You know, look,

if you're a go-getter, if you're a type A personality, or if you're a shark, use whatever term you want to use.

You're always going to have people around you that go, you can't do that.

And I always respond, no, you can't do that.

There's a big difference.

There's a big difference.

So funny.

And I always say the difference between arrogance and confidence is the ability to pull it off.

Right.

So if you can't back it up, and if you can't pull it off, then you're arrogant.

I love that.

If you can really back it up and pull it off, then you're just confident.

There's nothing wrong with being confident.

And I, I, yeah, I'm confident.

Yeah.

because I have the battle scars and the wounds to show for it.

Right.

And again, that's what I'm most proud of.

Nice.

Was there any like rock-bottom moments along your way?

I wouldn't say rock-bottom, but there were definitely, you know, there were some decisions I wish I could have took back.

I'm not one to live with regret, you know, but you look at it and you go, okay, how could I have done that different or how could I have done that better?

You know, if I'm getting real, that was probably more in my personal life than in my professional life.

My professional life, win or lose, I just saw it it as a chess game, right?

You win some, you lose some.

A loss is still a win in a sense that you learn from it, you gain experience from it.

Yeah, yeah.

You know, the bigger things I wish I could take back were probably in my personal life more so than my professional.

You know, and when you're a career-minded individual, and I suppose probably speak to a lot of people,

you know, your career is your first love, your work is your first love, and you don't always make room for other people.

That's a life lesson that you learn later.

That's deep.

You learn that later, but you know, it also gets you to where you got.

Yeah.

So that's a thing to consider.

Yeah, it's tough to get there with family balance.

You kind of got to just go all in in the first five, 10 years, I feel like.

You have to.

And I started early.

I started in my relationships early.

And I did it.

I was always, I was early everything.

I was the youngest manager of this and the youngest this of that.

Right.

So my mom always said I was 13 going on 30 from the very beginning.

Yeah, again, you learn some of those lessons along the way.

But I always tell people, everybody in their 20s right now, in their 30s right now, now is your time to make hay.

Grind.

Grind like you've never grinded before.

Work 20 hours.

Work, you know, two, three things.

Try four or five different projects and ideas because now's the time to do it.

I agree.

Because

you don't have as much stress without kids.

No, when you don't have a, you know, a mortgage bill to make and you don't have a wife to support or a husband to support and you don't have the family, like you said,

it takes a lot off because you fail.

Okay, so you eat top ramen for a week.

you know, you suck it up, you deal with it.

But when you have people who rely on you and count on you, it's a whole different deal.

For sure, yeah.

No, that's, I attribute a lot of my success to those first five years where I grinded really hard.

But then there's a certain point where you're, you got to get out too.

Yeah.

You don't want to just coop up.

No, you can't.

I got a little too extreme there for sure.

Of going out too much or maybe not going out at all.

I forgot how to talk to people.

Yeah.

Yeah, it was bad.

That's not, yeah, it's not good.

But yeah, there's that balance, man.

And now you talk to a lot of people.

Now I do it for a living.

Yeah.

Everything comes full circle, right?

There you go.

So what's next for you?

It's a really good question.

I got a couple projects I'm working on.

I can't get into the details on the one that I'm most excited about due to some NDA stuff, but it's a medical device play from Europe, bringing it here to the United States and hopefully scaling and growing it really aggressively.

Okay.

That's something that I've become really interested in over the last couple of years.

Again, as you get older, you start getting even more interested in sort of health

because that is the greatest wealth.

You know, you've heard all those expressions.

So I'm excited about that.

Hopefully that's a couple of months away, and that will keep me busy for a little bit.

Other than that, I want to keep watching over some of my investments and consulting for and helping as many people in as many companies as I can.

Nice.

And having some fun along the way.

Yeah.

So you have some more soccer games?

I hope so.

Going to

see the football game this weekend, too.

So preseason.

Yeah.

You got to do it.

49th graders.

So it's a funny story, and this is one of my regrets.

So I bought a suite at my old company because it was when the Raiders were first coming to town.

So before the stadium was even built, we pre-bought a suite.

When I sold the business, I desperately tried to get them to let me take the suite with me and they wouldn't.

So they kept it.

Damn.

And then at that point, they were all sold out.

So no.

Oh, man.

Those suites are nice.

Yeah, no, they're really nice.

And yeah.

So, you know, it's one of those things, too.

It's like you don't have to have a boat.

Just have a friend that has a boat.

Yeah.

That's how we met.

That's how we met.

Shout out to Blake Lynn.

That's right.

Blake.

Anything you want to close off with before we wrap up?

Yeah, just, well, I appreciate the conversation.

First of all, I love what you're doing.

You know, anybody who's looking for help to grow or scale their business, that's what I'm about.

Really helping you find and take yourself to the next level.

PMK underscore consulting on Instagram, and I'd love to help you out.

Awesome.

Thanks so much for coming on, Peter.

Now it's my pleasure.

Thanks for watching, guys.

See you next time.