Speaker 1: 0:11

Welcome to Side Hustle City and thanks for joining us. Our goal is to help you connect to real people who found success turning their side hustle into a main hustle, and we hope you can too. I'm Adam Kaler. I'm joined by Kyle Stevie, my co-host. Let's get started, all right? Welcome back everybody to the Side Hustle City podcast. And guess what? Kyle Stevie in-house Yep Right next to me here In sweats. It's comfortable.

Speaker 3: 0:42

In sweats. I was business casual at a yesterday man I was like this is stupid. Oh, exactly.

Speaker 1: 0:48

Well, we've got Arthur, petropoulos Arthur, and I said that right, correct.

Speaker 2: 0:53

That's right. Good to good to connect. Gentlemen, appreciate the opportunity to be here.

Speaker 1: 0:57

Well, we got a big Greek population here and they invented. Skyline Chili Yesterday.

Speaker 3: 1:02

Yesterday at work, I met my first person I've ever met in my entire life from Rhode Island, Really, and today I'm meeting another guy from Rhode Island. It's like two in two days. It's a while, I think. I know about 20th of the population now.

Speaker 2: 1:14

Here we go. Hey, there you go. You know what? Everywhere I travel. When they say where are you from, I say Rhode Island. They say is that in New York?

Speaker 1: 1:21

Oh my gosh, that's the take. Wow, I think the one Rhode Island, think they're in New York. There's that.

Speaker 2: 1:29

You know what the joke? The joke in Rhode Island, because my wife's a native Long Islander in New York, and so the joke in Rhode Island. They call it Long Island light because it's in Greeks, jews, italians, pizza and bagels. Just a little less traffic, but more or less the same thing.

Speaker 1: 1:42

Well, I will tell you, Cincinnati is known for Skyline Chili. It's got Cincinnati style chili and people either hate it or they love it. But it's essentially Greek wedding soup poured over noodles, pulled over spaghetti noodles, with cheese, with a pile of cheddar cheese on top.

Speaker 2: 1:57

I hate it. How could you dislike it?

Speaker 1: 1:59

People are crazy. They're like this isn't chili and they just don't like it. I said what is different? Like do you not like Greek people? Because it's just Italian spaghetti? But you're replacing the pasta sauce, the marinara, the tomato paste sauce with a chili sauce.

Speaker 3: 2:13

Anytime you go into a facility to eat or drink and you have to wash your clothes after you leave that place because the smell of the sky just clings on you. That's not good.

Speaker 1: 2:24

I don't want that this is the problem.

Speaker 3: 2:26

In college it was fine because of cigarette smoke, but you were getting just wasted on Budweiser or Budlight. You don't get that fun at like Skyline or Dixie, Chili or Goldstar. It's just like the food.

Speaker 2: 2:40

They have similar stuff up here in the Northeast Rhode Island. In particular they have hot wieners where they're just like small hot dogs but they put like chopped onions and ground beef on it. But if you go into the place and you smell like it for three days and it was always the rumor that it was just horse meat. But, point being, it's like it's one of those things that everybody knows. But you say, well, is the juice worth the squeeze? Do I really want to go to the dry cleaner after an eight dollar lunch?

Speaker 1: 3:11

Oddly enough, I think it was a hedge fund that bought Skyline Chili and it was based in Rhode Island. I think. Yes, I believe so. I believe so. I'll have to look it up, but I believe so.

Speaker 3: 3:25

Well, it has a captured audience, because 99% of people around here love either love one of the two or, if you're Northern Kentucky, you love Dixie. I just don't get it. Yeah, I've tried to, I've tried to understand it and I just it it.

Speaker 1: 3:36

Well, we love the Greeks and Cincinnati. There are Greeks, great. There are people like yours all day long. Yeah, it's Germans and Greeks here. If you wanted to know that's what's going on here. We're doing it. We got the Irish. Yeah, there's some Irish. We got a strong thing of Irish.

Speaker 3: 3:49

Yeah, cause we're close to Kentucky, Kind of my family house on Sunday you'll see 1000% stereotype, stereotypical Irish people Loud and drunk.

Speaker 1: 3:57

Loud and drunk. Well, we don't have you on here to talk about Skyline Chili, unfortunately, we could probably we're a lot of drunk Irish people. We could do that for an hour. We are talking about finance, though. So, arthur, you're the founding and managing partner of Hillview Partners, so you work with mostly software B2B companies on. I should have known you. A few years ago we sold a software company. So, yeah, yeah, yeah, we should have talked, but essentially you're helping them to kind of grow and I guess you're going to take part in the exit in some way. So talk a little bit about how the company works and what got you here, what made you want to start it.

Speaker 2: 4:34

Yeah, sure, and so, yeah, our company. We effectively do two things we help companies sell themselves, we help companies find capital, really do it across all industries. We have done a lot in the software, b2b and B2C services and products and kind of a pretty broad spectrum. But I think the way we kind of characterize it is it tends to be privately held companies. All of the businesses we work with are generating profits between pre-tax profits of one to 10 million, and they tend to be owned by a small group of investors an entrepreneur, a family, I mean. They're a non-sponsored situation. So no private equity capital involved, non-sponsored, no institutional equity or capital in the capital stack. So we're kind of doing a lot of introducing businesses to kind of the ecosystem of private equity. And in my background I grew up here in Rhode Island, as you can tell from the bad accent, and I spent about 10 years in New York doing this on both the investment banking side then the private equity side, so on the side of assisting and advising the companies and then on the side of buying the companies, and I think what I saw was just a bit of a donut hole in terms of service and results for companies that kind of fall into this swath, which was a lot of kind of the middle market, lower middle market. There's a lot of the economy that comprises of this, where the companies are, think, too big and sophisticated or complex for a lot of the business brokers, yet they are not necessarily on the radar of the large investment banks or if they do get on it, they don't get kind of the same quality service as the multi-billion dollar companies. And so that's really the area that we specialize in and focus on. And again, when I was doing this in New York, you saw just the inefficiencies relative to how long it took. The process was very reactive, not proactive. It was a big distraction for ownership, it wasn't discreet and the results weren't excellent. So we started a company saying in Hillview is that we six month process offers in 100 days at 10 hours of our client's time, discreet results, 50% better than if somebody were to do it on an unrepresented or poorly represented basis. And so it's just kind of rinse and repeat and really knowing our strike zone and not veering too far from it. But that's effectively what we do, the area we focus in and kind of what the reason was to start the company and focus in that swath of the market, if you will.

Speaker 3: 6:49

So you guys should be hitting the strike zone kind of like Greg Maddox used to do, Because there are still like hesitant money out there to fund deals but a lot of deals aren't getting funded. You guys are pretty much able to pick and choose where you go right now. Right, Because people are struggling to raise the capital that they were able to raise just 36 months ago, oh, when money was cheap.

Speaker 1: 7:11

Yeah.

Speaker 3: 7:11

Yeah.

Speaker 2: 7:13

And look, I think there's some qualitative implications there. I mean, you can, you know kind of your audience and so, like, the companies that we work with for the most part are kind of the Buffett, graham, charlie Munger type businesses that they're not always the sexiest things but they're consistent, they serve a real purpose and a real need, they're fundamentally sound, they have that competitive moat and they have pricing power and so when you combine those things and maybe in the frothy times when everything's going up, they don't seem as wildly growing, but at the same time in the choppy waters or in the more trepiditious times, they're a lot more durable, they have a lot more kind of downside protection. So they tend to be steady performers. And in this day and I think in this timeframe, when you see kind of the VC oriented stuff have a tougher time getting capital, when you see the larger company valuations start to come down to earth, that middle market, lower middle market, cash flowing, productive, consistent businesses there's actually more demand for it than there was a couple of years ago. Just because there's this come a rotation of capital. Because let's say you're a company and you're a large or, you know, fortune 500 company and you say what kind of company can we acquire that will move the needle but will not get us fired, will not get the stock and it's not like a, it's not a binary bet, right? You don't want to have a situation where it's like oh, it either does good or does terrible, right. Like if someone buys the companies we represent, they always do well. It's just how well do they do, right. And so, in this environment, if someone's looking to get into a new geography, to have access to a certain customer base, to have a certain capability, acquiring the businesses we represent is a great way to do it with a largely mitigated risk in many ways, because the companies tend to have done the same kind of performance for, you know, a decade plus in many situations.

Speaker 1: 9:02

Yeah. So I mean I'm pretty heavy in the startup world and you've got a lot of companies here that one of the problems that we have is everything gets aqua hired before it can really really grow, and it gets aqua hired by companies that are not innovative. So the problem is these companies are innovative. You know, they're small, they can move quick, they can make changes, they can pivot if they want to. Big companies can't do that. It takes a long time for that to happen, internal red tape, et cetera. So the problem is these companies get aqua hired. The big corporates, the Kroger's, the PNGs of the world, the you know so buses, I mean those are all here headquartered and they buy these companies because they really want to hire the people, right, and the people are like, well, I'm not going to come on, I got this thing going on. But then they bring them in and now they've got rules and regulations, they've got to follow all these company codes, there's a dress code, there's work days, there's all this other stuff, and it just kind of fizzles out and dies internally. I mean, are you seeing that with some of the things that you guys are doing Maybe not with your deals, but with other deals?

Speaker 2: 10:04

Yeah, and look, we have a lot of conversations with people that you know the joke about investment bankers is like asking a bartender if you need a drink or asking a barber if you need a haircut, like the idea is like so hey, should I sell my company? Yes, yes, yes. You know we try to take and we do. You know we're proud of taking a very objective view towards things and just to give people good advice. There are situations where we say now is not the time to sell because of that reason that you say right, like there's a certain gestation period and a certain level of growth and trajectory momentum that a company really needs to get to before it is traditionally sellable and in which case, if it does sell, it will not be disaggregated or kind of stymied when it becomes part of the large organization. Because, you're right, sometimes they'll buy a company and they say, hey, we want these 20,. You know there's a we saw it in, we talked to a company that's doing electric boats, right, so think of like Tesla, but for boats and they have a competitor that was acquired by a large engine company and the electric component basically went away. So they acquired the business, they took the 20 or 30 engineers and they said, hey, you're going to work on our traditional stuff that we want. And they said, well, what about this thing we're doing? Oh yeah, you know we'll get to that. So the point is is that they kind of mothball the innovative part and they just reposition the talent towards the stuff that they just were shorthanded on. So I agree, until it's, until something is sellable effectively on its own merit, not purely just an Aqua hire. You run the risk that that's the case. So you either need to be very certain that that's not going to happen or or be just forego selling your business and, you know, eat Skyline Chili for a little longer while you, while you wait to get there to sell it on its merit, such that it does not get kind of cannibalized once it's part of a large organization.

Speaker 3: 11:50

How does that conversation go? Because I can imagine someone saying, someone looking at their, their multiple and saying, well, we did 10 million in sales. I can get out of this and $40 million is beyond my wildest dreams. And you guys are like hold like, you're like hood or and hold. Hold the door, hold the door.

Speaker 2: 12:10

Right. I mean, look, I think it depends. You have to put all the options or all of the scenarios in front of somebody and kind of weigh out the pros and cons, right? So if it's a situation where someone could sell a business for that kind of money and just walk away, well, if they're agnostic to the, to whatever happens to it, then that could be a solution. But if it's going to be a sale plus, you have to work somewhere for five years if you want to turn your business into a job, and how happy or unhappy you're going to be during those five years. And so there's a lot of variables to consider, and so so when we're having these kind of preliminary conversations with people, we say, look, here are the avenues you can sell to a strategic and sell their financials, family offices, independent sponsors, and the list goes on of different participants. But here's what your life will likely look like in each of those scenarios. And how much do you want that and how, how indifferent are you to the outcomes? And so I think it's a matter. It actually engenders a good level of trust, because we're not just saying, oh, which one of these generates the biggest fee? Right, it's, it's truly the best thing for our business is a happy outcome for our client, and so the best thing for them is is finding defining what the objective is. And so sometimes we kind of reverse engineer where we say, okay, you're on Island A, you want to be on Island B, and then we can back into how we get there and who we talk to and how we do it. But what is Island B? What does it look like? Right, so define kind of the ideal future state, and then let's go through each scenario and see how far or close each of these gets you to that thing. And so I think I think people appreciate the honesty and you'd be surprised. There's some situations where people say to us you know, I didn't think I wanted to sell, but now that I know that the old, these options exist, I do want to. And then others will say I was going home on selling, but now I think I need to get these things in place for the next two years and we'll revisit it. And and they do. And so the nice thing is is when you have a conversation with someone and the conclusion is, now is not the right time to sell, that when they ultimately do sell, you know they, they don't even talk to anybody else, they come right back because they know they got honest advice and that we weren't just, you know, selling our book.

Speaker 3: 14:13

That's right, that's fairly certain. For 10 million a year or whatever it is, after selling anything like below rated R, I think, in movies. Yeah, that could be done I'd be cool with for five years. Yeah, yeah, it's got to be below rated. R like PG 13 as pushing it, but I would suck it up for five million a year.

Speaker 2: 14:30

Hey, look, if you know what, that's a lot of dough. If someone said, hey, dig holes and fill the holes back up, you know, but everybody's like you. This is a life as a one lap race. So everyone gets the prerogative to roll the dice how they, how they decide, and it's our job to just, I think, lay out all of the options and, when the options decided upon, pursue it zealously to get the best result. But it's interesting with different people's kind of desired future state is and how different it can be. You know, when we first started and when I first started in this business 15 years ago, I always just said you know, top dollar amount must get everything done. But in reality it's not the case. What's the structure, what's the transition, what happens to employees, legacy, community, and so it's a very nuanced conversation in many ways, which it should be, because this is people's life's work oftentimes. But I agree you know that there are certain amounts of money that mitigate different considerations. Well, you know how.

Speaker 1: 15:29

I know God loves our podcast. I was a. Yesterday I got a call from one of my partners that does PR and he was like hey, I was approached by a company that's doing agency rollups but he wants we do different things, like he essentially partners with me because we do web design, creative, a lot of heavy tech work, application development, stuff like that. And he calls me up because they mainly do PR right PR, copywriting, social media and he's like hey, adam, but I think if we partnered up and we joined kind of our companies together, it would add a lot more value to our value and we could potentially ask for more money or it would add more value to this company that's doing these rollups and we already worked together. So literally got that call yesterday.

Speaker 2: 16:16

Yeah, and look, I think you know the dangerous word in acquisitions is synergies. It's always kind of the thesis on which rollups or aggregations are predicated. Sometimes they happen and sometimes they do not. Right, like, it makes perfect sense for the, the Graham cracker, marshmallow and chocolate company to be all be owned under the same roof and sell s'mores. But it has to fit dynamics, personalities, strategy, actual integration. There's a lot of different considerations, but but hey, you know what it's. So I always say when people come to us and say you know, I've got 10 people that want to buy us. They don't want to do something different with the company and I'm trying to figure out what the best is. So let's take a first step and say these are, that's a high class issue, to have right, to be so desirable, to be wanted. And then you can kind of dig into the merits of it and what you, if one plus one, can actually equal three in the situation.

Speaker 1: 17:09

Yeah, I could just see so many different. I mean, just based on that call yesterday, based on what I already know about M&A, I mean you could? I mean there's so many different scenarios that happen for all these different people and they probably think these scenarios are unique to them. But I'm sure it's something and I don't know how many deals you've done, but I'm sure this is something. You, whatever their problem is, it's probably something you've come across, or would you? But what would you do.

Speaker 3: 17:33

If you guys merged and you were acquired like, what would and what would your day look like? I don't know.

Speaker 1: 17:39

I just do whatever I want now I just kind of do like I can just go wherever I want. Hey, do you be?

Speaker 3: 17:44

I could be in Bali doing my job, would feel like you were changed to your desk like, oh my god, I know, then I would have to come in like I would I build 2,000 hours?

Speaker 1: 17:52

leave me the fuck alone? I know that's the one thing I'm like. I make my own rules now, which is actually probably, arthur, a detriment to my company, because I could probably grow up more. But I'm like I'm gonna go to Disney this weekend or I'm gonna do whatever. You know, and it's you kind of get fat and sassy, you know, after a while and you know You're not as hungry and you know I grew up broke and up in a bad neighborhood and I used to have this fire under me to just kill it right. And then you just get older and you get, you know you sell company or whatever, and you're just kind of like Ah, do you do? What do you have to do to like, keep people in that situation Motivated, because I'm sure you have people like that too. I mean, you, you have different scenarios that you run into, but then you also have Personality differences guys that flat, guys that have plateaued.

Speaker 3: 18:38

You're like dude. You were doing 8 million in revenue. Yeah, four years ago. Yeah, when we, when we, invested in this bad boy. Do you, do you take equity in? Yes, in these deals when you join? I'm assuming you do right.

Speaker 2: 19:29

For the most part, we're an intermediary. We have come into certain situations where you know We'll take some equity and when we're particularly when we're raising capital, well, we'll take a piece of equity and live cash if it's an equity oriented investment. So it's situational. But uh, but to your, to your point. Look, business is not this yeah, I forget what the name, what it is in quantum physics, but it's like when everything, everything kind of like, devolves back into chaos at some point. Oh, yeah, yeah. And business is very much the same way, where there's inertia and there's momentum, but it only lasts so long and we say businesses age like wine or they age like milk, and so if there's not kind of the continuing reinforcement of the good things, then the business does Either stagnate or can deteriorate. And the thing is is that there's always kind of a young, starving, hungry, vicious person that's kind of permeating every business. And so if you are at the top in something and you do not have the energy, you know, because business has these kinds of like next level of Of constraint, right, so you grow and grow and grow and you hit this log jam and you have to do something to get through that log jam to the next one. There's a certain point in most people's trajectory where they don't want to Undertake the effort to get to the next one. They've done it for long enough. They say, hey, you know that's for the next guy to kind of get through, that next guy or girl to get through that season of the business. And so what we say is like that's the point at which it makes sense to sell, because you're going to have maximum momentum, maximum trajectory, and that's the part too. So whenever someone comes to us and says, you know, do I sell a business? Or or just raise capital and keep growing, it Say are you still obsessed with it? Like, do you dream about this? Do you wake up every day vicious and ready to jump out of bed and do this, agnostic of how much money you're making? And if they say you know what? No, I really want to do this other thing. Oh, time to do the other thing. If they say, yeah, you know, I, I do, but I get nervous that we might not be able to grow or this or that, and it's like, well, if you're still vicious about it, like there's other solutions. You can sell a third of the company. After the company, 80% of the company. You can. There's other ways to Monetize it and get some chips off the table. But that's really what it boils down to. Is the fire there? If so, do it. If not, find where the fire is, because, the end of the day, think a person without a mission is, is, isn't a challenge, state of existence. And so, whatever that mission is, do it right. And it may not be running your business, maybe spending time with family or doing whatever, but that should be the, that should be the, the front and center.

Speaker 1: 22:08

How did the SBA allowing people to buy partial businesses with? You know SBA 7a's or whatever I know that's I don't even know if it's a 7a that they can buy part of a business with now but I remember there was a thing that came out there was last year, maybe the year before where now you can buy a partial yeah, like you don't have to buy the full business anymore, you just buy a fraction of the business. Yeah, how did that change what you guys do to that? Did you get more calls, like what happened there? Like anytime.

Speaker 2: 22:36

I don't want to get too much into my own political beliefs here, but just about anything the government gets involved with that they are allocating money. They tend to mess up Right. And so whether it's, yes, guaranteeing home loans, whether it's guaranteeing student debt, whether it's, you know, getting into business loans, it's, I will say the SBA programs for full acquisitions of small businesses is probably one of their most successful avenues. I actually think that's facilitated a lot of kind of generational Transitions in business. I think the challenge when you can start owning fractional things Like the SBA's money is not really supposed to be there To allow people to be passive investors and things. The goal is so that someone can buy a company to then Kind of plow their efforts into and grow economic development and hiring and stuff like that. So you know we do get more. I think anytime the the capital markets broaden or deepen, you're going to have different people reaching out saying, hey, we can provide capital for these situations. Or you're going to have people coming in saying I want to sell this or do this thing. So I don't think the fractional SBA stuff hasn't been too much on the radar, but just the regular SBA acquisition loans for companies Over the last few years. There's a few really good banks that have been out there that are focused on it. I mean live oak is one of them that we've worked with and they have they've really utilized that as a strong means of kind of that initial acquisition. And so you had these companies out there that Were oftentimes kind of gobbled up by private equity aggregators at low values. The virtue, by virtue, of the SBA coming in on a lot of that capital supporting search funds, supporting independent sponsors, supporting just individuals wanting to buy businesses. It's really pushed up values for that lower middle market business, which has been great. Because you know, there was a day when a company that was doing a million dollars in evita, I would trade for two million dollars of evita, and now, a million dollars of evita, I'll trade it five times evita or six times evita because there's competition. So now look, there's two sides to that right. It's the same logic is saying if the government guarantees a 30-year mortgage, that 200,000 dollar house is now 500,000 dollar house. Is that good? You know, there's arguments to be made on both sides but from our perspective, if our job we're sell side only, we're only representing owners of businesses looking to sell, looking to fund capital. If the goal is maximizing the terms of their sale, well then the availability of capital to the buyer certainly helps us in that Totally.

Speaker 1: 24:59

Yeah, I mean if, if liquidity is out there and the government is just handing out money and it's cheap like it was a couple years ago, then that probably definitely helps your business. But where do you see valuation or say like multiples for businesses now, because cash is not as cheap as it was? People may not just be throwing money at businesses like they were a few or a couple years ago or a few years ago, I think.

Speaker 3: 25:21

I think people I think people are getting a cut. I'm sorry to cut the. I think people are getting accustomed to seven percent interest rates. Now I think they are. I mean I. I think I think the shock is worn off. I think people are figuring in their way to weed through it. Well, the shock happened really fast. Yes, it did, and I don't think anything's going to happen like quickly. But I think people have come to terms. They're in a stage of grief where they've come to terms with it. They're no longer angry or sad. They're just like all right, I gotta live my life.

Speaker 2: 25:52

Yeah, and I think I think people are accepting it. I think asset values, you know, I think in the most kind of tangible way of seeing that isn't a lot of real estate value, commercial real estate, it's not necessarily reflecting it. Yet the nice thing in our businesses they're not really highly leveraged deals for the most part. So if you're buying a company at five times, you're going to be very happy when you get to that. You're going to be very happy when you get to that. Thank you, EBITDA right, You're kind of implying a 20% return. So if capital costs you 8% let's call it on a loan and you're buying something on a 20% yield, it still makes a whole lot of sense. The leverage is accretive if you know how to run the business and do this stuff the right way. So it's not really having a dampening effect on the stuff that we do, because the stuff that we do tends to be cash flowing and profitable and growing. I think early stage capital, I think later stage, higher value, large things, I think are definitely seeing that effect of things. But I agree, I think people have. There was shock. Now there's acceptance and I think in some assets it's starting to trickle through to pricing, Our area of specialization. I still think it's going to be pretty well insulated, but we'll certainly see how things progress.

Speaker 1: 27:01

And explain to people, because they're not familiar with EBITDA, the difference between EBITDA gross revenue, why an acquiring company is going to look at EBITDA versus your overall revenues, your regular profit.

Speaker 2: 27:14

Sure, so I'll take this opportunity for a shameless plug of our YouTube channel. If you type my name in in YouTube, you will see we put out videos twice a week. Actually, one of them that we had recently put out and the reason I shamelessly advocate for myself is we did one saying why does EBITDA matter, and EBITDA in particular? And so it's EBITDA, so it's earnings before interest, tax, depreciation and amortization. But the notion is that a lot of these things are non-cash expenses and so, really, you want to sell your business on the cash flowing power of the business, right, like how much cash does it actually spit out every year? And so interest is dependent on how much debt you have. When you sell a company, the person who buys it you should be looking at it on an unlovered basis, and so your interest doesn't, your interest expenses don't matter to them. Taxes you want to look at things pre-tax, because everyone's tax situation is differently. Depreciation is just hard asset accounting expenses, but it's not a cash expense. Amortization is intangible asset amortization. So basically, if I bought a company for $2 and there was a dollar of assets, I'll have a dollar of goodwill in the balance sheet that gets amortized over time. So point of EBITDA is, effectively it's just a proxy for how much cash flow does the business throw off before taxes and that's the best metric. And so I think what we are seeing in this environment is less of what I call kind of make-believe metrics. And so the frothier an environment gets, the more people start to just make up value metrics. And so they'll say like, hey, we have a startup ice cream company. Oh really, how much is it worth? Well, it's worth 50 times how many scoops of strawberry ice cream we sell on a Tuesday afternoon. And it's like who made up that metric? And so you'd see these wacky, like, okay, it's 80 times the monthly customer acquisition costs or whatever it is. And then in a normalized market, things trade on profit and, to a lesser degree, on revenue, because those are the real things that fundamentally push a business forward over time. I think lifetime value of a customer, cost of acquisition of a customer, those are very important metrics, but relative to value, it's still going to be the fundamentals. And so we always say like again, not to tilt too much into politics, but when survival matters to a society, things get very normal very fast. And so when survival matters to a business, the metrics that are fundamentals and classically work are the things people talk about versus you know how many nickels it takes to buy an ice cream.

Speaker 1: 29:54

We know what you're saying. Yeah, we're on the same page.

Speaker 3: 29:59

So for me, in my mind, net operating income I'm sorry, ebitda is basically net operating income, but you add what you paid in taxes back into it Taxes the cost of interest that you've paid on debt and then any non-cash expenses.

Speaker 2: 30:16

So depreciation and remunization mean non-cash expenses. So yeah, if you look at net ordinary income, net operating income, if you're assuming there are no non-cash expenses, add back what you pay for tax, add back the interest you paid on debt and that's it. Because the idea being, you really want to see the revenue of the company how many widgets you sold, how many subscriptions you sold, what is the cost of that? So, if you're selling pencils, how much did the wood cost? That's your cost of goods sold. That gets you to gross profit. And then operating expenses. So, truly, what are the expenses? To support the business? Not to support how much leverage you want on the business? Not to pay your taxes? Because you live in New York or California, you have to pay a lot of taxes. But it's truly trying to just hone in on what's the cash flowing of the business. You run a lemonade stand, you buy ice and lemons. You then have three people working it for you. What's after that? Because that's really going to say what's most pertinent to the business and how much it makes.

Speaker 1: 31:09

Yeah, because you're going to buy QuickBooks, you're going to have some POS software selling your ice cream. You're going to have gasoline you put in the ice cream truck when you take it out.

Speaker 3: 31:18

Yeah, it's like with real estate. I'm just trying to wrap like, compare the two, where you're kind of like you're not going to have the same debt instrument that I have, so we're not going to worry about that when we do the valuation.

Speaker 2: 31:32

Right. So that's why you see in real estate, you see a cap rate, because that's an unlevered look at the profitability of the asset, right, and so the same thing. We like to look at our stuff because everyone's going to take a different view towards leverage, but the business is what the business is.

Speaker 1: 31:47

When I know that when they used to value startups so Instagram, you know, they sold for a billion dollars or whatever well, they looked at the users so they were like, what's the cost of acquiring users? You have a billion users, a dollar piece or whatever. You know whatever. I don't know what the metric was, but this is how much your business is worth because they were losing money.

Speaker 3: 32:09

I mean the business itself was. All they had was advertising money Right. All they had members.

Speaker 1: 32:12

You don't have any memberships, you don't have any money, like you're not making money, you're just. Your job as a company is to acquire eyeballs for advertising, and the more eyeballs you have, the more valuable the company is. A way is that? Is that fair?

Speaker 2: 32:26

Yeah, I mean, look, I think you got to know what game you're playing and what game you're good at, right like I, have friends that have made a grillion dollars in the startup space and in social media in the early days. And I'll tell you a funny story. I went to law school and I was at an LSAT prep class when we were getting ready to take the test for the admissions and there was a woman I met who went to. I went to Providence College, she went to Brown University and we were sitting next to each other and she was a nice person and we got along and we chatted and about halfway into the course she said you know, I'm done with this, I'm not going to law school. And I go yeah, what are you doing? She goes I got a job at this company on California called Facebook and this is like 2006.

Speaker 1: 33:08

Yeah right.

Speaker 2: 33:09

And I said I said oh, that's the thing, you know, like people putting pictures of themselves, you know. I said you think that's going somewhere. And she said yeah, I think so. And I said, well, look, I said people like gossip. Right, I have to believe it's going to have something and I can't imagine she's working anymore. So point being is, because it doesn't make sense in my mind does not mean it does not work to some extent, but it's like what game do you want to play and what game? Where do you feel comfortable? On the risk perspective of things. So, yeah, I mean that's a metric and it certainly worked. I'll say, you know, for every Facebook there's a bunch of things that never did work and that graveyard is filled with dead things. In our business, I think you have less volatility, but perhaps not the same kind of exponential stuff. So it's just a matter of you know, we always joke and say I don't like businesses as look, dig for gold. You like businesses that sell shovels, but it's kind of what your flavor of ice cream is, and there's many that work.

Speaker 1: 34:08

Well, when we sold our business, we were told that one in 100,000 startups reach a nine figure, exit 100,000. Yeah, I mean there's probably. They're probably popping up every day and closing down the next day. You know there's some like that, you know, or founders get into it, they close it down because that I mean the founders. You know your team is. I'd say one of the most valuable things you can do is pick the right team. But if you were going to give, say, a startup company, somebody wanted to start a tech company, sure, what kind of advice would you give to young founders, somebody who has the ID? I haven't picked a team yet. I haven't gone out and found anybody. I need to build that team. What would you? What would you tell them to start thinking about right now?

Speaker 2: 34:55

All right. I think from a motif or thematic perspective, we I always tell people build it forever right, as if you're going to own it forever. So everything you think about you know, measure twice and cut once. And how are you going to implement the processes and how going to take the people on and what your product or offering is going to be? I think a lot of people start companies with the notion that they're going to sell it in two years and it's like to get married with a plan to get divorced in two years. It's like you may do that and that would be a good outcome. But you don't want to play the game of the bigger fool. You don't want to just create something where you're only exit or you're only monetization of something is to find someone that you can convince that it's worth more than you think it's worth. You want it to stand on its merits and such that it fundamentally works. I said build a business that fundamentally works. The unit economics work is going to be profitability at some stage, that you're not always just going to have to be running around for the next dose of capital to survive, because whether you drown in the middle of the lake or five feet from the other side of the shore, you're still drowning. If you can build it in an intelligent way, then you always have the options. If you build a sound business, maybe it takes a little longer to grow it, but if it works and there's something actually innovative and compelling about it, you'll sell it and you'll make a lot of money and you're not going to be so heavily dependent on. What's the difference between the companies that sold two years ago, that were fundamentally unsound, versus the companies today that can't sell at a fundamentally unsound. They're going to die on the vine. Do you really want to make your life's work so susceptible to the oscillations of the macro economy? I wouldn't. If I'm going to spend all my time and effort and stuff. You'd want to make something that works, no matter what that's. What I say to people is build it as if it's forever. Build it to be all season. Do it the right way and still aggressively grow it, and you'll be happier with what you ultimately do, even if you do sell it that you're not like. Oh no, I hope something doesn't happen today and interest rates go up. Or oh no, I hope I can convince this investor to really believe my vision for this or that. That's a part of it. But you don't want to be so reliant on just whims and fancies. You want to be able to point to something. I would say we want to make it idiot-proof. If you can point out a pile of money and say, hey, we made that and this machine makes more of that, you don't need to be a genius. No, it's just yeah self-explanatory, you just want to be able to kind of grunt at things and say this business makes this money, do you like? Right? And if that's the pitch and it works, then you know you've got something good.

Speaker 1: 37:37

That's right, that's right. So how many deals have you guys worked on? How many deals do you normally work on at a time? Is it mostly East Coast stuff, or how do you guys kind of set up? I?

Speaker 3: 37:49

go ahead and do you have something about the same thing.

Speaker 1: 37:52

He says he's about to ask that same question.

Speaker 2: 37:54

Oh nice, yeah. So our goal from the start was actually to be and we were a little ahead of kind of the Zoom meetings and everything, but we wanted to be national and international at this size because traditionally it's been a hyper regional business where it's been three guys drinking in the back of the golf course with the guy who owns the lumber company and it's like if you went all over the country, there's just there's someone in Hartford and someone in Boca Raton and someone in Austin. And so our goal when we started the company was to work with companies with the complexion and size of the businesses that we function with, so that one to 10 million profit largely privately held companies, but do it on a national and international basis and so have that. So we work with companies all over. The United States Tends to be that our clients are domestic US, but we've sold companies nationally and internationally. We've done some work internationally Western Europe, some Eastern Europe, small amount in Middle East and some in Asia, more Japan but the vast majority of what we do is in the States. We've done in our as hill view partners over 100 transactions over a billion dollars, largely of and that takes into some other stuff but of transaction value and I'd say tends to be. They were working on kind of eight to 12 deals at a time, you know, largely picking up a new engagement a month and then everything usually on a six-month kind of cycle. But that tends to be kind of the cadence in size and we continue to grow. We have a team of 11 right now and figuring out how that next kind of layer of growth looks like in our business as well.

Speaker 3: 39:39

How did you guys create the partnerships for the exit, for the extended? Was it simple? Was just like all right, these. There's like a select group of people who are going to purchase companies at this size. We're just going to contact them and go through it or where they like business. The relationships that you guys just took with you to this and they grew from there, Like how did you find that in purchaser?

Speaker 2: 40:02

Yeah. So it's a mixture and I will say that what's unique about the space that we function in is, I think, it's the broadest swath of acquirers, right. So like if you were selling a pizza place that made $200,000 a year in profit, like you're really going to be selling it to other individuals, maybe a couple of people that want to grow a business that small group of investors, right. Or if you wanted to sell a company that made $20 million in EBITDA, pre-tax profit a year, you're really going to be talking to large strategics and large private equity. But in the space of $1 to $10 million of EBITDA, you've got Fortune 500 companies, you've got large private companies, you've got other public companies, you've got private equity private equity backed strategics, lower middle market private equity, family offices, independent sponsors, search funds, high net worth individuals. The point being, it's a huge spectrum. I think it's the broadest for companies of this size, which is great because you can create a real market for what you're doing if you know who to talk to. From my experience in New York, I used to have I worked on 59th Street and I used to work down on Fulton Street, but I always used to have places where I could walk to to take phone calls from the office. I just remember every day for a decade having like three guys I got to call at lunch because I wanted to talk about this. It was always just about mapping out the ecosystem right who buys what and why do people like things and who looks at what? Over time, when I was in New York, I was building up an internal database In time, so we have our own internal database of thousands and thousands of people and what they look at and how they're approaching things. Then there's other databases as well that we do research around, whether it's CapIQ, Pitchbook Data. Then, in addition to that, there's just information out there, Like if you said, hey, we are a company that does lawn irrigation services, pool cleaning services, or hey, we're a software company that focuses in dashboards for construction companies or whatever it might be, you can tend to find this rabbit hole out there of who's buying it, who's providing capital, who's getting involved. I joke about our business and say sometimes our knowledge is a mile wide and an inch deep. But there is a key to this business of knowing enough in any particular sector that you have a good idea of who's involved and then diving into it and having those conversations and talking to people and mapping out the ecosystem in whatever industry it is. It's a combination of experience, a combination of. I think we're at a point now where we've talked to so many people that, yes, if we want to get Microsoft to look at a deal, or Oracle or Walmart or whoever, there's people that we call and they'll look at a deal big, small, otherwise because they do know the level of professionalism but at the same time, every deal will have new participants that we have not talked to. It's a matter of what's the process of getting the information in front of them, getting them to look at it. That's part of the magic, because I think sometimes people think that the best way to present your company to the world is 150 page pitch books.

Speaker 1: 43:11

Yeah, they do, yeah, they do.

Speaker 2: 43:12

And it's not right. And I think it's like everybody wants the short and sweet version of something without losing the substance. And so how do you have those conversations? What materials do you put together? How do you approach people? It's all something that we've learned time and time again through iterations, that I think we have a real process down, and that is why we don't deviate size-wise from the companies, because I believe anything smaller or bigger has a different cadence and a different dance, if you will. And so as long as we stay in our strike zone going back to the Tom Glaven, greg Maddox references right, we know how to paint the strike zone, know how to get the things in front of the right people and get their attention. So I.

Speaker 3: 43:54

It's crazy because whenever people like me, who weren't part of the entrepreneurial world until I met my buddy over here, we always thought of exits and you think of, like the mansions that you get, and you get the girls, and you get the cars and you get the you don't ever have to work again and you might become, you might lend company to a startup later.

Speaker 1: 44:13

I still live in another hood.

Speaker 2: 44:14

Yeah, I know you do.

Speaker 1: 44:17

But, I'm a cheap bastard, you can squeeze a dime out of me. It's pain in the ass. This morning I got. This morning I got broke.

Speaker 3: 44:24

No, no, no. This morning I got on buy, sell, lease, sure and like a lot of what you're talking about, like I saw those. Those are. Those are successful exits too. It's people that built I don't know some. Some guy was selling a mobile MRI unit. Like for two million and they were netting 600,000 years. Like why in the hell are you selling that thing? Yeah, I just keep the 600K doing all right, but that, but that, that's like I don't know. That. That's like the kind of like a mind shift for me when you were, when you were, when you were just talking right there, I'm like, oh, holy shit, he's talking about the guys that you see on buy, sell lease, who you think that those are failed companies. They're not. Those are successful companies that want to get out and enjoy the rest of their life or do something else, and for them the $500,000 that you're going to pay for their business might represent something positive. It could be the restaurant with bankrupt and it's trying to get as much money out as it can.

Speaker 2: 45:18

Look at, every situation is different. Every person is different, you'd be. The currency or consideration for any particular individual is going to be very different. Where we have some people, where it's it's they want to work forever and make money, and so if they're selling business, it's to pivot to and focus more on the main thing. Other situations, it's just they've hit a hit a dollar amount or in their savings, or they hit an age where the priorities have shifted and there's no, there's, no I always say there's no one best flavor of ice cream. It's just finding what yours is and pursuing it. Right. I think the worst thing you can be doing is eating ice cream you don't like, right? I should say, in today's world, if that's the worst thing that happens in your week, you've had a good week. But you know, continuing with the anecdote, right, if whatever it is that you want to do, figure that out and pursue it. But I agree, I mean there's. There's so many different ways that people make money and so many different businesses that have been successful doing all sorts of different things. You know, I think sometimes the average entrepreneur I will say that I talk to struggles with trying to find what that innovative idea is, and I think they look a little too much about. We always joke what's the billion dollar idea? I say, figure out the one dollar idea, right, like look at any service in the world and do it in half the time. Yeah, right, and that's business. That's it.

Speaker 1: 46:39

Yeah, you're making money.

Speaker 2: 46:40

You're, you're killing it, right, and so you can figure out how to make a dollar, iterate and grow that business. But but yeah, to your point, there's a lot of difference. Every scenario is different, and but it's important to figure out what the objectives are, and then how do you get there?

Speaker 1: 46:56

We got a lot of questions all the time from startups, especially technology startups, to say what kind of legal structure should I have? And you know you want to vest ownership and you know what you got to talk to lawyers and lawyers are scumbags.

Speaker 3: 47:11

Yeah, he said, lawyers are scumbags.

Speaker 1: 47:13

But but what? What do you recommend? And then, like operating agreements, like what I mean, or investor agreements should we do like a safe, what should we do Like what would you say? I mean, is it an LLC? Is that the answer, you know? With, with vested, with vested equity? And then, when we start taking on investors, do we do we do a safe agreement Like what would you suggest for, like technology startups?

Speaker 2: 47:36

Yeah, I mean, look, llcs I find the most kind of malleable form to own a business. It's the simplest. It's a pastor entity. You know, if there's multiple owners, everyone just gets a K one at the end of the year and and so I find LLCs and then stacking those LLCs, so if you have three owners of a business, everybody has their own LLC that owns their share of kind of the corporate LLC. If there's real estate, it sits in a different one, but it's a nice way to kind of map it out. There was a day where I think C Corp had a lot more kind of legal history. At this point the LLCs are pretty well regarded and and that's it's an easy way to start a company. You know you have an operating agreement that you put in place saying what are the decision making protocols and wind up and wind down capitalization as it pertains to capital on the startup side, in today's environment the best form of capital is the capital that you can get. So in some regards it's, you know, I think, a good way to start it. I mean, the safes are great if you can get people to agree to them. I think an easier way to do it is to just put a value on a percentage of the business, make it a passive situation, just structure it as an injection of capital in exchange for, you know, just a straight ownership of the company and then, I think, from an equity. So it depends If you can get people to agree to the safes. You know I'm kind of like no value basis, great, but that's. We've seen people use safes for kind of bridge loans so they're not marking down the last money that they raised. So it's not really we haven't seen as much of it from the first money in the company. You know, first money in the company it's like sell a small percentage to the three Fs. You know joking where you say friends, family and fools, right, but and then bring them into the business and you know where their money is, doing goodwill to some extent as well as kind of being an investment. And then, as it pertains to giving away equity in a company, you know we've had people the partners of a company will be the partners who started. Giving away equity to new people is a sticky, sticky wicket and so because you can't put the toothpaste back in the tube once it's done, so we always suggest people start with a profit share and then with a path towards an equity component if someone performs to a certain level, does a certain thing right, because a profit share is just an amendment to an operating agreement or purely a contract. You know, if you make a profit share part of someone's employment contract, then those switches can be turned on and off much easier than trying to like unwind. Like there's a lot of companies out there that have an old grumpy person partner that has nothing to do with the company anymore but it just owns like 7% of it because of a bad, you know equity agreement. So I would say, as it pertains to giving away pieces of the company, I'd rather give people a profit share than give them actual ownership. And maybe you say there's a profit share plus, if we exit the company, you will get X% of the proceeds. So it's kind of an implied, almost like phantom ownership, but it's not pure, like they have shares of the company. So it depends. It depends what people are willing to negotiate and stuff. But you know it's the kiss principle Keep it simple, stupid, right, like just you don't need the remember the old like Rube Goldberg cartoons with like 50 different things happening to crack an end. Right, Like we say don't crack a peanut with an anvil, just simple LLCs, nice operating agreement, share the profit, give away equity down the road. If you get to that point where people have kind of proven themselves out and as you're raising capital, sell a small percentage for the capital you need, grow as much as you can with that and then you can kind of figure out the more complicated mechanisms thereafter.

Speaker 1: 51:24

Well, arthur man, this has been very informative. I love it. It sounds like you guys are killing it. I want people to check out his YouTube channel at Hillview Partners on YouTube. That's I'm gonna. I've already subscribed, so you got one new subscriber out of this, and I'm sure Kyle will jump in there too, because you definitely know what you're talking about. So talk, tell us how people can reach you.

Speaker 2: 51:46

We got. The YouTube channel is kind of our main means of putting out the content. We put the same content on YouTube and on our company LinkedIn page twice a week, so depending on where everyone wants to find it. But I'd say reaching out our website. There's a contact us element there where people can reach out and actually just self schedule a conversation with us. I try to be on as many of those as I possibly can, but at least someone on our team and then reach out to me directly on LinkedIn, arthur Petropoulos, or our company page, hillview Partners. We're always happy to chat. I think people get a little nervous when it comes to a sale of a business because they don't want to do it today, but they still want to get educated about it and that's perfectly fine. I think we're happy to talk to people about what that looks like, what shape it takes and what the potential paths are, just as a resource Cause the best thing we can be is they on people's radar, because when they talk to their friends and who wants to sell a business, they'll say I talked to this guy or I talked to this company and they're all right, and sometimes that's all the momentum you need on a situation. So I'd say LinkedIn website, youtube. However, people want to consume the content. Reach out, we're always happy to chat.

Speaker 3: 52:50

And the best part is, you don't even have to spell your last name in YouTube search engine.

Speaker 1: 52:53

You just put P-E-T-R and it pops right up, it just pops right up, yeah, yeah All right.

Speaker 3: 52:59

I was so nervous there.

Speaker 2: 53:00

The more we grow, the less things you have to type in to get us right. Like I'm still waiting until we can beat out the old remember, like the cartoon Arthur from like PBS.

Speaker 1: 53:10

Oh yeah.

Speaker 2: 53:11

The art bark. Right, I'm waiting. That's our goal to be. When you type in Arthur, we come up before him. You know it's like. It's like a. It's like a. What was the movie? Like spinal tap, remember. It was like puppet show and spinal tap. It's like I told them so many times spinal tap, then puppet show.

Speaker 3: 53:29

Well, I'll tell you, man, if you you're like a third, then because Arthur from Peaky Blinders was on there. So if you can beat out Arthur from Peaky Blinders I mean, even if you can't get to the PBS show Arthur that's a pretty good feather to have in your cow, cause that's a pretty badass character.

Speaker 2: 53:44

Hey, we'll take it. I have the picture, can't see it back there. That's Thomas Shelby, that painting up there.

Speaker 1: 53:49

Oh nice, oh okay, yeah, yeah, yeah, gotcha. Just a little bit of it. I can see the half of it.

Speaker 2: 53:54

Yeah, yeah, yeah, that's funny, but all right. Well, good company to be in, I suppose that's right.

Speaker 1: 53:59

Well, arthur, I appreciate your time. Sir, I know you're a busy man, so we'll let you get.

Speaker 3: 54:02

We'll get you get back to your weekend here, just judging by your background, I assumed that after this show cause you got your jacket on and you got your office and all proper and cleaned up. You're going to take a pipe and go, look at the ocean and the whales go up and down off the road on the coast, something like that.

Speaker 2: 54:19

Yeah, you know, go buy a few cheeseburgers and sit in my car. But one or the other, but this is good. I appreciate the time. Gentlemen, this has been great and I look forward to the next one.

Speaker 3: 54:31

All right, I'll see you, man. Thanks.

Speaker 2: 54:33

Take care guys.

Speaker 1: 54:35

Thanks for joining us on this week's episode of Side Hustle City. Well, you've heard from our guests, now let's hear from you. Join our community on Facebook, side Hustle City. It's a group where people share ideas, share their inspirational stories and motivate each other to be successful and turn their side hustle into their main hustle. We'll see you there and we'll see you next week on the show. Thank you.