JF2139: Lessons From Owning Dozens Of Companies With Bart Rupert

Bart has 14 years of real estate experience and currently runs a merger and acquisition firm called Stone Peak Alliance. Bart has founded and has been able to grow about 30 companies and he explains how it isn’t really that hard to do. Bart’s perspective will challenge how you are viewing your business.

Bart Rupert Real Estate Background:

    • He currently runs a merger and acquisition firm called Stone Peak Alliance 
    • 14 years of real estate experience
    • Portfolio consists of 7 rentals, 1 commercial, and has also flipped multiple properties
    • Based in Denver, CO
    • Say hi to him at: www.spartansalliance.com

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Best Ever Tweet:

“The biggest lessons you will learn as an entrepreneur is failure” – Bart Rupert


TRANSCRIPTION

Joe Fairless: Best Ever listeners, how you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless. This is the world’s longest-running daily real estate investing podcast where we only talk about the best advice ever; we don’t get into any of that fluffy stuff. With us today, Bart Rupert. How are you doing, Bart?

Bart Rupert: Good, Joe. Glad to be here.

Joe Fairless: Well, I’m glad that you’re glad to be here, and I’m glad you’re doing well. A little bit about Bart – he currently runs a merger and acquisitions firm called Stone Peak Alliance, he’s got 14 years of real estate experience, his portfolio consists of seven rentals, one commercial property and has flipped multiple properties, he’s based in Denver, Colorado. With that being said, Bart, do you want to give the Best Ever listeners a little bit more about your background and your current focus?

Bart Rupert: Sure. I think that primarily what I’m doing today is mergers and acquisitions and helping other people learn how to buy and sell companies for a living. It turns out that 88% of all new wealth is created through the sale of a small business or through real estate, and within that focus, we often find that the real estate and the business transactions go together. So what I’m now working on having sold my own companies, grown several to very large successes, is working with individuals to be able to help them do the same thing through a defined set of processes and techniques to help demystify some of the acquisition process and the sale process just the same way we’ve done with real estate.

Joe Fairless: What companies did you sell?

Bart Rupert: There’s been quite a few across the portfolio, and a number that we’re still holding today, but primarily what I’ve done is groups within some degree of leveragability or flip. So you look at technology companies, you look at Software as a Service companies, things that we’ve done within different emerging industries like energy or renewables that have been able to explode pretty rapidly; those have been a lot of the sweet spot.

For my own companies, I’ve started a number of different technology companies, grown and sold those, and even involved a lot of different transactions for other people that have either sold to Fortune 500s or large groups on that front. So we grew a healthcare company from $8 million to $75 million upon the exit. We grew an organization from $22 million to over $115 million upon the exit. But primarily, what we do day in day out, is work with entrepreneurs that have a vision for their company or an exit strategy in mind, and utilize what we call the boost technique to get them the most value upon their exit.

Joe Fairless: Okay. Well, I would love to talk about the boost technique in a moment. Just so I’m clear on your companies that you sold, I’d love to learn more about that, and then we can talk about what you’re focused on now with how that’s evolved. You said you started a technology company?

Bart Rupert: Yeah, I’ve actually founded almost 30 companies.

Joe Fairless: Oh gosh, okay. Well, it’s a 30-minute interview, so we won’t have time to talk about all of them then. You founded 30 companies…

Bart Rupert: It’s actually not that hard once you get the system down, and particularly when you take on partners, what you find is that you want to be able to use different techniques that we really look at from an acceleration perspective, to either fail the companies really quickly or find out where their successes are and promote their successes. So the idea is that within a 60 to 90-day period, after really getting out there and trying some of the ideas and processes we’ve got deployed, you want to say that company’s not gonna work in the way that I had intended it so I need to pivot it or you need to find a way to say, “Look, it’s just not gonna work at all. The timing’s not right, the luck is bad; just fail and move on,” because you either want to get to the point where you fail a company or move it into a multimillion-dollar success on the path. The way I look at it now is to an exit, because the vast majority of–  the value as an entrepreneur that you can create isn’t from salaries and from running a company, it isn’t from stepping into the risk zone of 10% of all new companies that are created are successful. It’s getting to a point very quickly where you can see the success, recognize the success, and sell it to be able to recognize a multimillion-dollar exit.

Joe Fairless: Of the 30 or so companies that you founded, what’s been the most profitable for you?

Bart Rupert: It’s tough to say, because profitable I would now equate to the one resource you can’t ever get back, and that’s time.

Joe Fairless: Let’s talk about money though.

Bart Rupert: Looking at it from strictly a financial perspective, when we were able to grow the company from $8 million to $75 million and do the exit there, that was extremely profitable. So it took a good amount of time.

Joe Fairless: So it started at $8 million. So does that mean you bought it when it was at $8 million?

Bart Rupert: That’s correct, and it was a minority interest; it wasn’t majority on that.

Joe Fairless: Got it. That makes sense. So when you said you founded 30 or so companies, this founding also mean you bought a stake in a company?

Bart Rupert: So that number is much higher. The companies that I founded have not grown over $100 million dollars, but the companies that I have bought into or leveraged the purchase process to be able to go through and take a stake in, those were the ones that had the larger exit.

Joe Fairless: Okay. I mean, that makes sense.

Bart Rupert: So between the two, I’ve probably– if you look at founded plus bought into, it’s closer to 100 companies.

Joe Fairless: Wow. So of the 30 or so that you founded, what was the most profitable?

Bart Rupert: Let’s see. Well, there was a technology company that I started and I originally had some partners and then eventually bought them out, but I started that one many years ago, I’d say, almost 20 years ago. It was a technology company, and we did backups of files; this is back when you had dial-up and things like that. It was a pretty new concept, nobody knew how to do it. Everybody was dealing with tape libraries and such, and we actually moved that to what was before the cloud to the Internet, and started off with DSL and dial-up and things like that, eventually got it to the point where we had large customers on tier ones like Vanderbilt University, University of Colorado, brain imaging scans, we got HIPAA compliance, went International… So that was a good growth mechanism, and it allowed us to get a ton of money out of that organization.

Joe Fairless: Wow, what was the name of the company?

Bart Rupert: Circadian.

Joe Fairless: Circadian. And then on the opposite end of the spectrum, you were talking about, hey, fail within 60 to 90 days or prove the business model or pivot. What are a couple of failures that you’ve had, if any, of the companies you founded?

Bart Rupert: I think I’d start off by saying, if any entrepreneur tells you they haven’t failed, then they’re either lying to you or not really in the game. I think arguably, the biggest lessons that we’ll learn as entrepreneurs is failure, and there’s so many different gambits of what that looks like. I would say, primarily within failure, it’s focusing on too much of a micro-level, and not seeing the big picture. If you get too wrapped up in something like the operation of a company or the promotion of a certain brand or just the advertising and marketing, you’re not going to see the other elements of it. There’s an operational element, there’s a sales element, an advertising, all of that’s got to be looked at more holistically. So really, it’s where I started to see, instead of looking at operating the business day in day out, what I’d like to do is look at managing or orchestrating the operation of the business, to be able able to work with the individuals that have their own individual skill sets that they’re experts in, that they can turn around and tune-up in fine detail… But I’m looking at the big picture of where it’s going to go and strategically how to position it. Because when you get too laser-focused on a particular aspect of your business, you almost always miss other elements, and those other elements are what are going to allow you to expand it to double that growth next year, to increase the profitability, to get it to the next level, and you need to be able to do that as a business owner without emotional tie in one element of the business, without it becoming a favorite if you will. You’ve got many ways– just go out there and be very ruthless with how you assess your business and look at it. Its goal, its job is to produce profit for you, and you’ve got to know that profit is what pays your salary and everybody else’s and allows you to be successful, but what’s more than that is that’s going to be the main metric when you go to sell it later on.

Joe Fairless: Yeah, and I want to learn more about the boost approach that you mentioned, because I imagine that factors into what you just said. Just to close the loop on maybe a lesson learned on a company that you founded that didn’t go right, what specific example of a company you founded that lost money and it didn’t go according to plan?

Bart Rupert: That’s a great example. So we had an organization that did training services, and we had successfully sold an organization that did online training or CD-based training at the time – this is many years ago – and we’re looking at another organization that was doing online and promotion of that, and years prior too, we’ve had great success by creating the best product in the industry. So literally, everybody that went and checked out the product line saw that it was the very best, they bought the product, we made a ton of money and sold the organization.

Years later, we thought the same strategy would work. We didn’t adapt to the new market, we didn’t adapt to the changes. There had been online organizations that had come out offering training programs, things that you could do in your own home that were maybe not as good as what we created, but they were far more plentiful. So what we had done is replicated our success from before by looking at, okay, let’s just create the best quality product, the best quality training solution, and we didn’t pay attention to the fact that all of our competitors were really leapfrogging us in terms of the delivery of that solution, the affiliate marketing, the ability to get that in front of others and… Think of it like Udemy today – very cheap online training, very easily accessible, and we got crushed by that. We absolutely got crushed because, again, we were laser-focused on one thing, which is quality of the product.

If you’re listening to this, you’re thinking, “Well, is that bad to focus on the quality product?” No, you need to; that’s great, but you need to have somebody that owns that, so that you can look at the big picture and be like, “How are my sales doing? How’s the adoption doing? What’s the feedback I’m getting from the market?” and if it shows that I’m not growing as quickly as I should or I’m really not getting as much traction, or the people might love it, but nobody knows it exists, you’ve got a real problem.

So we got very, very laser-focused on that, and it ended up not working out, because the competition outpaced us. Think about the old Bill Gates and Steve Jobs conversation, to where, essentially, when Steve Jobs finally found out that Bill Gates had his own product, the Microsoft Windows operating system, and he’d already gotten around the IBM platform, they were at this debut where Bill Gates had shown the world this product called Windows on the IBM. And Steve Jobs was sitting there contemplating and he shook his head and he looked at him and he goes, “Well, you won’t win, because we’re better than you,” and Bill Gates looked at him and he goes, “You just don’t get it, do you, Steve?” and he pointed to the fact that it was on the IBM, and he goes, “That doesn’t matter.” So he could see that, like, “You might have a better product, but it’s completely irrelevant, because my product is on the most popular hardware on the globe.” And we’ve seen the result, and arguably Apple’s made a phenomenal comeback due to Jobs and Jobs had a big lesson learned, but I had to, unfortunately, experientially, learn that same lesson, is that you can get laser-focused on one thing like, “Hey, I’ve got the best product.” It’s irrelevant if it’s not out there in front of people.

Joe Fairless: Let’s talk about the approach that you all take to help an entrepreneur determine if they have a business that is going to continue to thrive or has potential to thrive or they need to pivot or they need to go back to the drawing board. What is that boost approach that you mentioned earlier?

Bart Rupert: Two different things here – one of which is around the success or failure of an organization as you’re growing it; the other is around the sale of an organization. So the boost technique is specific to how you sell a company. What I would say to anybody that’s out there, if you’ve got a business, if you’re looking to buy a business and flip it, whatever your status is in that whole ecosystem, eventually you’re going to want to sell your business if you own a business. If you don’t own a business, you could buy one, but if you’ve got one, as you go to sell it, arguably, we’d all want to make the most amount of money possible. So over 90% of the businesses that are out there for sale right now are what I would call listed in the wrong way. They’re being done in a way that will minimize their chance of success, and unfortunately, the brokers out there give this process a bad name, because they’re lazy, and I say that as one of them. I would say most of my peers out there are lazy, which is why we just mop the floor with them. When it comes down to — if you’re presenting a business and you’re only focused on things like fundamentals, you’re missing the big picture. You’re not telling the potential buyer what it is that they really need to hear to get emotionally invested in that business. It’s all about how you tell the story. When I say tell the story, I’m not saying make anything up or do anything that it’s not accurate or ethical. It just comes down to how you’re actually going to describe what the business does.

So for example, let’s take that online backup business I talked about – if I go out there and listed that business to say, “Well, this is an online backup company. It backs up files, it makes $3 million in profit per year and it’s got x number of customers.” Okay, well, that’s factual. Do people really care? Probably not. But if I go in and tell the story in a different way and say, “Hey, this is a business that has literally rescued Vanderbilt University from audits, from financial repercussions and from data loss within patient records. This is like an insurance policy. This thing is recurring revenue like an evergreen tree that’s out there in the forest. It’s never going to go away. People always need their data and we see ourselves essentially as perpetual insurance agents… And oh, by the way, here’s how much money we make doing that. Here’s how fast we can close a client. Here’s why our technology stack is so much more powerful.”

Joe Fairless: Sold…

Bart Rupert: You don’t talk about– people who have software companies, they talk about features. Don’t talk about features, guys. Whether you’re selling to a customer, whether you’re selling your company, that’s the last thing you want to do. Talk about benefits, talk about value, talk about it through the lens of something that has an emotional tie to it. And it’s the same thing with property. This isn’t the house that I’ve got for sale. This is a legacy for a number of families; for potentially famous families who have actually experienced x, y, z as part of their life journey here. It’s a far more engaging way to present it, and that is at the core of the boost technique, because we’re able to regularly get 20% to 40% more from a company than anyone else.

I’ll give you an example. There’s a very no-frills company we’re representing right now. It’s a construction company. They do HVAC, and arguably, that’s not very exciting. So there’s not a great tremendous story you can tell around that, but there’s always a story with every business that you can tap into. We’ve been able to leverage our boost technique to get what is a valued company that values right now on fundamentals that enter in $50,000 and we’ve got an NOI that we’ve got executed that we’re going to close in the next 90 days for a $2 million offer. So that’s well over 100% more value on that business, which exceeds the 20% to 40% standard. But if you do the technique, if you follow the process of what I’m describing, you can get at least 20% to 40% more value from a company.

A couple of other tidbits around how to do that – you don’t just represent it the way every other broker does in America. That’s how you get the success rate which Morgan Stanley publishes success rates, the IBBA does as well; it’s 8% to 12%. So Joe, if you think about that, 8% to 12% of businesses that actually want to sell their business that engage experts like Morgan Stanley actually succeed. That’s paltry, that is pathetic. If you think about it, what job could you ever do where if you’re successful 8% to 12% of the time, that’s a massive success. These companies run press releases when they get above 10% because they think they’re so fantastic. We regularly close 60% to 80% of the groups that we represent because we just do things differently. You don’t just take a bit of data on the company and the fundamentals and list it; nobody really cares. In fact, most buyers, they don’t really understand that unless they’re doing this every day. But if you can take a company and really broadcasts that story, do it in a way that’s very visual, very professional, has a lot of colors and interaction to it, and focuses on the things that a buyer would care about emotionally. Now you’re on the right track to be able to get at least 10% to 20% more value out of it, and then there’s other things that you can do that are more sophisticated or technical like tax advantages or structural benefits around how you set up your corporations that allow you to get far, far more out of it.

Joe Fairless: It’s interesting; what you’re talking about for positioning a company for sale is apples to apples comparison or apples to apples applicable to positioning a property for sale–

Bart Rupert: Exactly, right.

Joe Fairless: –because it’s one thing to talk about the features, it’s also a different thing to talk about the benefits, and especially applicable to single-family home for sale properties. I think that’s probably even more relevant than, say, a commercial property, but still, it could all be applied in focusing on the emotional benefits. Do you all do anything with companies from a structure standpoint, prior to sale, or from a process standpoint? So actually help them become more profitable or help them optimize something within the system?

Bart Rupert: Yes, we do, and we’re one of the few that focus on that because we believe it’s so material to the success of an organization. So for example, we’ve got something we offer called the instant savings program and we do this for the clients we take on where we’ll go through and find ways to renegotiate their existing contracts, because that’s part of what we do is what we call asymmetric negotiation, and we will get their contracts locked in at far lower costs. We can often save them 20% to 40% on their operational costs within 30 days just through some of the tactics and techniques and processes we’ve deployed for everybody else we work with; that can result in– it depends on the size of company, but in some cases, we’ve saved people 5% or more percent in profit in their organization. So if you think that most companies are sold on a profit multiplier, and then it’s just a negotiation around what that multiplier is, and then you think that we’d be able to come in and add, say, 5% or more percent to the profit margin… Think about a company that originally was looking at 10% margin, that’s what they’ve been operating on for years, if we can move them to 15% and the multipliers off the profit, we’ve literally increased the value of that company by 50%, and we’ve done that within 30 to 60 days.

So we view it as an absolute necessity to be able to go through it and do that structuring. Plus, that’s not even where you can get the most lift, and this all goes into the boost technique. You can get a lot of lift into the structural elements of how you set up corporations as well. So for example, you can set it up to where there is not just one entity that does everything from an LLC or an S-Corp or C-Corp perspective. You can have a scenario to where you’ve got an LLC that collects all the revenue, but doesn’t own the assets; an LLC that holds all the employees, but doesn’t collect any revenue other than leasing those employees back to the primary company that’s collecting the revenue; and you can have another company that holds all the assets. Not only does that structurally protect you from a corporate perspective, but there’s extreme tax advantages if you do it correctly that are all legal, that are out there. It’s just very, very few people are taking advantage of it. If you structure that before you actually get a letter of intent on the company, then you can boost the value of that whole thing, or at the very least, sell it for the same price and get the owner double-digit percentages more out of the business by saving them on tax liability. And further, if you take that to the next level, you can even get into more complicated processes that we look at.

Very, very few people in the United States have ever heard of what’s called a nested C-Corp, but there’s advantages to being able to say you’re going to own something, say, at an S-Corp level, but having an aspect of the business that produces revenue or profit embedded within that organization or fully owned subsidiary that’s actually a nested C-Corp. Now a C-Corp, if you turn around and sell that company, it faces double taxation, which is not good for the owner. But if you essentially have all the taxation done on the revenue that it generates at just the C-Corp level without the sale, you have a lot of tax advantages, particularly if you, as the owner, are in the upper tax brackets. So you save a lot of money while the company is generating money. You grow that for a couple of years if that’s your goal, and then when you turn around and flip it, there’s a specific technique you can do. It’s like a tax equity flip in a way, but there’s a certain thing you can do to be able to make sure the value of the business is not taxed twice, like it typically would at the C-Corp level, to get the best of both worlds.

Joe Fairless: Have you ever come across a potential new client of yours who has a business, it is not profitable, but they come to you and say, “Bart, I want out, I want to sell. My business has gotta be worth something”? If you have come across that scenario, how do you approach it?

Bart Rupert: There’s two ways we go about that. I would say for me, personally, I don’t deal with a lot of those anymore; I used to… Because I’m typically focused on much larger transactions these days. But I work with a lot of people, teaching them strategies to buy and sell companies on their own, and these are folks that I directly coach and mentor and I’ve got a program that does that. So those guys do those types of deals all day long, and they’re very successful at them, because a lot of them want to take that company that’s plateaued or distressed and grow it to be able to get a multi-million dollar exit, and it’s actually a very easy way to get into this business in a very low-risk way. I mean, you can do it without a lot of capital.

So the way we would typically do that is one of two ways. We’d either just go in and buy the business, because it’s not that much capital, it’s not hard to do. We’ve got access to financing here. Like right now, I need to place about $100 million dollars in different companies, so I’m looking for things to buy. So that’s not a big acquisition for us, we just pick it up, and then we add it to our portfolio, we’d work with the owner that would be within our team and grow that for a period of two to three years. We’d look to at least 10x the amount of value we get out of from what we paid, and then we’d flip it. And we’d have them use our techniques, we’d have them use our acceleration systems to be able to grow it very, very quickly, and learn all the lessons in a very short period of time that took me two decades to figure out through a lot of failure, so they don’t make the same mistakes.

The other way to do it is you can actually keep that business owner on as a partner. You could say, “Look, I’ll take on a certain percentage, maybe a minority percentage,” if we believe in that owner, “but you need some guidance, and so we’re going to rewrite your operating agreement where we’re going to come in as coaches and we’re going to have a vote, if not a majority vote on what it is you do and how you do it. We’re gonna bring in our systems and processes to help you get there,” and then everybody wins. It’s a great win-win scenario, because the existing owner gets far more out of it over time. They stay employed, they get to grow the company, they get new skill sets. The person or people coming in to help them, they’re able to be part of that journey as well in that venture, and everybody exits for a whole lot more money.

Joe Fairless: Anything that we haven’t talked about that you think we should as it relates to positioning a business for sale, and also any type of relevant information regarding that?

Bart Rupert: Yeah, I would say that buying businesses and selling them – because that’s what I do for a living – it’s very misunderstood. There’s a lot of people out there that feel it’s complicated, it’s difficult, and it is; there’s elements to it. But just like anything else, it’s a system, it’s a process. Everybody that’s listening to this is familiar with buying real estate and what real estate transactions look like, and we’ve all heard about flipping houses. I would say, just equate this to flipping houses, except it’s flipping businesses for a living. The difference is typically when you fix a house or flip a house, you’ve got to go in, buy it and then do maybe $30,000, $50,000, $100,000 worth of repairs, upgrades, renovations to be able to flip it. The great thing about businesses is that’s not always the case. We can flip businesses within 30 to 60 days. We can go in, take a business on, add 3% to 5% more profit to it, and turn around and flip it. So if that’s appealing to you, I would invite you to look into it. I’d invite you to reach out to us. We can give you some sample techniques on how to go about using that… Or see if you wanted to work with them on that type of stuff with us, because we’re looking for folks that are eager to work with as partners and take these opportunities on, because there’s literally more opportunities out there today than any one group can handle.

Joe Fairless: On that note, how can the Best Ever listeners learn more about what you’re doing?

Bart Rupert: They can check out our program at www.spartansalliance.com. If you have questions, you want to know more about it, reach out directly. We’ve got somebody in our team by the name of Austin, and you can reach him at Austin@spartansalliance.com.

Joe Fairless: I had a lot of fun talking about this stuff, and I’m grateful that you were on the show. So Best Ever listeners, we’re making this Situation Saturday episode. So you’re listening to this on a Saturday. Well, if you listen to it on the day it comes out, you’re listening on a Saturday.

Bart, thank you for being on the show, thank you for talking about how to prepare our business in order for it to be sold, and then how to position it during the sales process. Ultimately, we are all entrepreneurs who are in real estate, so this is applicable to us whether or not we do sell a business, because certainly, we can apply your techniques to selling properties. Thanks for being on the show. Hope you have a best ever weekend. Talk to you again soon.

Bart Rupert: Yeah, thank you, Joe, and I just want to say, I really appreciate what you’re doing. I’ve been honored to be part of this and keep it up. I think there’s a lot of people out there they get tremendous value from your podcasts.

Joe Fairless: Thanks a lot. Appreciate it.

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