Preparing Your Freight Brokerage for Succession | Episode 307

Speaker 1: 0:19

Welcome back. It's another episode of the Freight360 Podcast. We're talking succession plans today, and we'll probably sprinkle in some other good stuff. We were just talking off-air about things that you probably need to clean up before selling your company or passing it on to the next generation or whatnot. We'll get into that in a bit here, but first please, as always, check out all of our other content. Share us with your friends and colleagues in the industry. Make sure to leave that review, hit, subscribe All the good things there. If you're looking for educational options for yourself or for your team, you can check out the Freight Broker Basics course. That's right on our website as well. That's a 40 to 50 module, very in-depth course that will teach you everything from getting your brokerage organized and formed and founded all the way through building out your team and tons of sales, operations, care, development all the good stuff in there. So check it out, ben. What's happening, man? We're coming up to back to school season.

Speaker 2: 1:17

My daughter started school Monday. She had her first day of first grade Monday, so this is the second day of getting up early and actually she just started taking the bus this year so she was like super excited, it was so cool.

Speaker 1: 1:30

It always blows my mind how in the South you guys start school so early compared to us up North, Like we don't. Schools don't start here until after Labor Day, so we end up going into like late June.

Speaker 2: 1:42

And I think we definitely don't go into late June. I think it's also probably because it's getting hotter, maybe, but it's still hot now. But they also, I think, have more days off during the year, maybe, or maybe I just remember having less in-service days. I feel like there's just every other week or every three weeks they're off school.

Speaker 1: 1:59

Yeah, I don't know, couldn't tell you. My son goes to kindergarten this year, so I'll find out. Oh, producer Steven has said it has to do with the harvest season. So there you go. Fun little fact, all right, good deal.

Speaker 1: 2:14

Sports my boy, james Cook, running back for the Buffalo Bills, finally got paid this morning $48 million, four-year uh contract, 30 million guaranteed. It was like big. There's a lot of drama. Some people were like you know, because basically like he's not, he hasn't been practicing. But they called it.

Speaker 1: 2:34

They actually the the hard knocks episode two that came out this week. They kind of like broke it down where they said he's basically protesting the right way, he's showing up to practice, he's in meetings, he's basically protesting the right way, he's showing up to practice, he's in meetings, he's just not taking part in practice, whereas in the past people used to just like not show up and they like work out on their own, et cetera. So they did all the right things and Harden actually broke it down. Good, everyone wanted to get the guy paid. He's worth it. It was a matter of letting the GM figure out what to move around and restructure to be able to afford to pay him what he's worth, because otherwise someone else is going to have have their eyes on him. So, um, bill's looking good, I'm excited for it. How'd the Steelers do in preseason? Did you watch them at all or no?

Speaker 2: 3:13

I some of it. I mean they did really well and I mean all the recap was they kind of played better than expected. So I mean Aaron Rodgers did really well, I think for the little bit that he did play, but like I don't know, it's pretty positive I mean it's always really positive this time of year but I mean like it went from. I mean because we didn't really have our team put together until like a few weeks ago. So like most of the offseason it was like, oh my God, we have no quarterback. We don't want Aaron Rodgers. This is going to be a disaster. We have no idea what the team's going to look like. And all of a sudden it's coming together and like even the interviews I heard from training camp, like yesterday when they were up there, like they're like Aaron Rodgers is like actually like engaging, even with like the younger guys that aren't even playing, like spending time with them.

Speaker 1: 3:58

Did you see his interview? What he said, how like with the age difference and everything, dude, it's so funny. You got to watch the clip. He basically said he's like I kind of. I walked up there and I was like man, everyone's so young, who do I, who do I? Even know he's like. I just kind of like did the Biden thing and like, looked around, like all like and then yeah, but eventually, like you're going to have to embrace the younger players on the team because that's your team and they said, that's why it's kind of working, because most of those guys grew up watching him play, like idolizing him.

Speaker 2: 4:30

So like there's this weird vibe of like he's the superstar that they kind of say idolize, but like for sure watched when they were kids and like it's having like apparently a really positive effect because since big Ben left, like there really hasn't apparently a really positive effect because since big ben left, like there really hasn't been a leader like russell kind of did, but not really and nobody knew who the quarterback was gonna be. So it was like kind of maybe we're following this guy, not this guy, and now at the very least there's consistency on like who's leading and who's setting the tone for the culture of the team, which, yeah, I think super important in any company or any football team. So we'll see how it plays out.

Speaker 1: 5:06

Speaking of Russell Wilson, I saw him playing on Saturday. He came, him, and the Giants came into Orchard Park for a preseason game. Josh Allen did not play at all, so got to see basically Mitch Trubisky and Mike White compete for the backup job. Bills didn't win it's preseason, so whatever. But what was interesting is our kicker is injured right now. So what they did is, instead of using a backup, they went with the emergency kicker route. So Ray Davis, our second-year running back out of Kentucky, kicked an extra point and he made it and everyone was like, was that Ray Davis? Like what? But it was like the worst extra point I've ever seen made. But then you think about it. It's like actual kickers only make like 90 percent of those in the regular season, so he's one for one right now in the preseason. I'm just pumped, man. It's that time of year. You know I'm a big football fan, so we'll we'll see how things progress the next couple of weeks and, yeah, looking forward to it.

Speaker 2: 6:09

I'm just excited for winter.

Speaker 1: 6:11

Yeah, and in news I had written down here in our notes, the the Freightwaves Carrier 411 dispute. If you guys haven't heard of it, just go on X and just look up basically Craig Fuller's account or just look up anything about what's going on. It's pretty comical. You read more about it than I did. What's the down and dirty on what's going on from?

Speaker 2: 6:36

what you've seen. I'll let Steven kick it off, because he's read more of it than I did. I just caught up on it first thing this morning in the gym. But, steven, what is the, by the way? Shout out to?

Speaker 1: 6:45

steven, somebody left a comment saying why does the guy in the middle never talk? And I think it's because we we didn't edit you out of the one of the episodes that you didn't talk in and you're just sitting there the whole time. Steven's our producer, but steven what do you got? I'm just uh, that's mostly from vibes yeah, yeah, yeah.

Speaker 3: 7:03

So back in July if anyone's been watching what the Truck lately, they've had a lot of different people hosting other than Dooner. He left and it was relatively quiet until yesterday. Darren Brewer, Carrier 411, founder and CEO, he posted an image of a law firm.

Speaker 1: 7:26

That is it looked like a ancient artifact, like it literally looked like like it was from 1700s, with how like crinkly and brown it looked.

Speaker 3: 7:36

it looked like he put a sepia filter on it after like having it bundled up in his pocket like a sweaty. But apparently he's funding the law firm and it looks like they're going after Firecrown and Craig Fuller with the. For what? I'm not sure, Just for speculation, but I imagine it has something to do with what the truck or how the exiting of Firecrown is going.

Speaker 1: 8:06

The exiting of what.

Speaker 3: 8:08

Duder exiting Freightwaves and Firecrown.

Speaker 1: 8:12

What's Firecrown?

Speaker 3: 8:13

That's the media company that owns all the hobby magazines.

Speaker 1: 8:18

Oh yeah, yeah, that's right.

Speaker 3: 8:20

So Firecrown. So when they split off Sonar they created Firecrown. Firecrown owns Freightwaves and their plane magazines and their astronomy magazines and all the other hobby magazines.

Speaker 2: 9:26

I think Firecrown owns the airport country club thing too airport country club thing too, okay, and I wonder who this is that is behind popular aviation, because they certainly didn't not jump in. Sorry about the double negative end of this conversation yeah, there was some uh push.

Speaker 3: 9:46

I don't know who popular aviation is, but, um, they seem to be uh purist of the the airplane magazines and they are not happy with how Firecrown has handled the flying magazine that they took over, and they're very the one quote.

Speaker 2: 10:04

I'm just going to read this one. Yeah, so we're at another great inflection point in media history, pondering whether robots can produce publications. But it's not that simple. We know AI can generate readable, if not flawed, copy. What we don't know is if readers will find sufficient value in that content to consider it credible and stick their eyeballs to it widely enough to make advertisers willing to pay to support it. Firecrown, in my view, never understood what it had with Belvoir's well-regarded titles, and understood even less what quality editorial looks like Interesting. So, yeah, not exactly.

Speaker 1: 10:40

So yeah, stay tuned on that. In other news, ben I don't know if you saw this this morning interest rates people believe may get a small cut next month. Inflation was below the expected year over year, for I think it was for last month, so the stock market had a nice little day yesterday because of that, and what does that mean for us? I don't know.

Speaker 2: 11:08

I've seen it could be up to three cuts.

Speaker 1: 11:10

What's that?

Speaker 2: 11:10

I've seen that there may be expectations that there could be multiple cuts by the end of 2025. But, like there's overwhelming and overwhelming majority, I think, is, we're going to get a cut in September, which is, I think, good for the economy.

Speaker 1: 11:24

What do you think?

Speaker 2: 11:24

25 basis points yeah, probably small at first, because they're going to want to keep an eye to see if inflation doesn't go up. Because the biggest thing is, like, when the tariffs happen, nobody actually knew how much that could cause things to get more expensive. And they are getting more expensive. But there's a lag in that Right, like, just because companies pay. Even theoretically, if a company pays that tariff right in June, that doesn't mean they raise their prices when the products hit the stores. And also those products don't hit the stores in June when they come in they might not hit the store shelves until July or August, and then a company might wait two months before it raises prices. So, like, just because these have been happening all year, the Fed doesn't want to raise interest rates until they can see how much of an effect this will have on people's budgets. And it's having an effect, just nobody knows how much supply and demand thing.

Speaker 1: 12:13

You know what I mean. Like literally, if I go to raise my prices today because of a tariff that came in place today, it would be dumb, because then my competition just keeps their prices the same or below mine, that's market share and they get the business.

Speaker 1: 12:27

That's free market. So the same thing happens in trucking, right, if the cost of diesel fuel goes up this week and you know, if you know in one, one small slice of the truckers decide that to you know, raise what they want to get paid, they probably won't get the loads that everyone else is getting that. So that might have been not the best example, but the same thing kind of happens with market fluctuations anywhere, is. It kind of moves homogeneously together and somewhat slowly, so I guess, with the exception being post-COVID when it just kind of like was real fast.

Speaker 2: 13:04

So yeah.

Speaker 2: 13:04

And there's like I mean we could do like literally an entire day's discussion on this. But like there's a lot of moving parts that determine real interest rates, like the Fed just can drop the rate at which banks borrow from the Fed overnight, but that does not actually determine. Like mortgage rates, for example, like that's based on real interest rates, which is just. Every time the federal government puts out enough treasury bonds to the whole world for people to buy, how much are they willing to pay for those? And if people think the US government is getting riskier, even if the Fed drops the interest rates, the real interest rate does not go down. That is determined by just the entire global market's demand for the United States government's debt. And when you start a trade war and lots of other countries are not wanting to invest in the US temporarily, the demand for those T-bills has been going down, or at least has not been going up. So there's a possibility that and that's why the Fed's really worried is because this happened in the 70s. They can drop interest rates, but if everything gets more expensive and nobody still wants to buy US debt, the real interest rate still goes up. So you have things that are more expensive and people have less money, which becomes stagflation. It's just growth in prices and no growth in actual gross domestic product.

Speaker 2: 14:19

Jobs and the jobs rates are looking terrible, like the revisions of those numbers. They were estimated like two or three hundred thousand jobs were created in the spring and then when the actual numbers came in it was like fourteen thousand jobs, so like the labor market has just basically come to a standstill and that doesn't look great. And also like right now they track like the new home inventory is basically there's 9.8 months of inventory of homes, meaning like if people bought homes at the same rate, basically it would take 9.8 months to buy all those homes. That has only happened six times and in five of those times it was right before a recession. So it doesn't mean there will be a recession, but almost every indicator is pointing towards exactly what happens prior to a US recession.

Speaker 3: 15:07

I was just going to mention that because I'm currently looking for land. I haven't been for like eight months and it's anecdotal, but I've seen the reports of like the inventory and when I've went and looked at a couple of 40 plus acre plots in my area and they're just too high. But these people bought when interest rates were rock bottom so they don't care to sell unless they get the money that they want, which is fine. I mean get the money that they want, which is fine. I mean get your money, but it ain't coming from me. So but that is like I mean around us. I mean there are so many houses for sale. I mean I got. I got 2.4% interest rate on my house.

Speaker 2: 17:16

If I put it on the market, unless you give me some astronomical high price, I ain't going anywhere. Same thing right and this is a big part of freight right. Like when homes are being built and remodeled like that's a big portion of the commodities we move in the country. So when interest rates drop that low, it basically locked all those people into their houses almost indefinitely. My buddy used to work with a TQL. He bought like a $600,000 house or 700, I think, and around the Denver area at the lowest interest rate, so like one nine right. His mortgage on that house is like $2,100. It's like a seven bedroom house. He pays like two grand and he's like, dude, I could never move out of this house. Like he's like it would cost me a fortune to buy another. He's like if I bought my same house across the street right now, my mortgage would be like $8,500 a month and it's just like. I don't think people realize how much that affects what your buying power is when it comes to real estate.

Speaker 1: 17:58

Yeah, that's a great point. Well, we'll see how things pan out. Let's get into today's topic, which is succession plan. So this isn't you know. We're going to try and cast a wide net here and make this applicable for a variety of different folks in different scenarios. But the whole concept here is like if you build up a brokerage or you build up an agency, what do you do with that book of business if you want to retire or exit or whatever you want to call it, move on to the next chapter in life? If you're a W-2 employee, very likely that book of business does not actually belong to you. So this may not be applicable for you. But if you ever leave that model and start your own company or build out an agency, or maybe you are in a W-2 position where it's structured differently and you can do something with that book of business afterward, that's what I want to talk about, because we've had this question from a lot of folks in the past. We've had the question come through of how do I sell my book of business and all that. We'll talk about it in some different scenarios and whatnot.

Speaker 1: 19:05

Here's the deal. If you start a brokerage and it's just you and you decide, hey, you know I, I want to sell this and do something else or retire. You own your job. You don't really own a. I mean, it's a business technically Right, but you don't really own a developed, transferable business per se. You know, like a company that operates on its own. You own your job.

Speaker 1: 19:30

So the way I always look at it is like this If you can step away from your business 100%, will it operate effectively and smoothly? If the answer is yes, you're in a good place. If the answer is no, you are not in a place where you can easily transfer your book of business or sell your book of business, your company, easily. You're going to want to make some tweaks, make some changes, and there's a roadmap to get there. So, ben, I'm curious have you, based on the folks that you've dealt with in the past, have you had people that have sold or, you know, successfully transferred a book of business or company? I've got a few different examples that I've I've seen and I'm curious what you've come across.

Speaker 2: 20:16

I've talked to a lot of folks with this, mostly folks that have wanted to buy businesses, which is the other side of this right, Like the demand side.

Speaker 2: 20:24

I've worked with more folks yeah, trying to help them identify and evaluate the companies they're buying. But the thing that I also want to say is like it's a lot of work. It's a lot of work to buy another business because like and I don't think I think that is often overlooked right Is like, if you are going to buy a business, you need to get a return on it, Meaning like, if I'm buying this, there needs to be upside and a reason for me to buy it. Like, not just buying it to stay the same. That's mostly why anybody buys any business, and even other companies buy other companies because they're like well, hey, there's unrealized value If we plug in what they have to what we have. One and one equals three. That extra one is the reason you buy that other business, right.

Speaker 2: 21:04

But then the problem is, when you go to buy someone's business, everybody thinks, just like when they sell their house, that it's worth way more than the person that wants to buy it is willing to pay Right. And then what you really get into is the debate on how and what these things look like. And with small businesses it gets even more complicated because the owner of that business is usually the largest shareholder. They're usually taking more money out than maybe the person buying it would. So, like, their accounting statements and what's actually in it are even skewed. Because, again, if I own this business and run it like, my incentive is to take as much out of it as I can because, like, it's my business. But if you buy it from me, you're not going to take the same things out. You're probably going to reinvest that money back into the business. So it grows because you already have income somewhere else. Money back into the business, so it grows because you already have income somewhere else.

Speaker 2: 21:56

But then it comes down to OK, my business is, and you'll see people like oh, it also owns my vacation home and my business also pays for all my family's cars and it pays for all my family's health insurance and all their cell phones and like. Those are just like some simple examples. But that's all money coming out of that business. So when the person goes to buy it, looks at your accounting statement, they're like well, dude, the business only throws off a hundred grand. But then the guy selling it goes oh no, it actually makes like $1.2 million. I just take all of this out and do all these tax things, so I pay no taxes, but it looks like I don't make any money because the incentive to run a business is to show the least amount of profit when you go to sell it. You want to show the most amount of profit because that's the determining number that you get paid on.

Speaker 1: 22:34

Yeah. So the way that it should be done is like, if it's just so, let's say I own a brokerage and I've got five employees and you know, I know that I make, we'll just make it up. Let's say I make, you know, a million dollars a year is what I, you know I get to take and, you know, do what I want with. That is not the number you want to look at. You have to figure out if I remove myself and I have to hire somebody else to manage it and to run it operationally, that's going to have to happen when someone buys that business, right? So you have, like, what would it cost to pay a manager to come in and run this office? Because you got to think if you're working in the business, that's a salary that's going to have to be replaced.

Speaker 1: 23:19

Take that out and then you look at what's it actually valued at. That's why what a lot of smart business owners will do is they pay themselves a reasonable salary that equates to what it would cost if they're in to sell it. Someone else has to pay that salary to somebody and then the rest is owner distributions and you can totally do it that way and that's a clean way to understand what is your business truly worth at any given point in time. We're not going to go down that rabbit hole today, but I at least wanted to put that out there, because we did start off by saying if's just you, you just own your job right. And I've seen I've seen this happen with people that have, um, lawn care businesses, that have insurance agencies, etc. And it's like what you're trying to sell is a rolodex. That's really yeah. I mean yeah if you've got a lawn care business without the trust right.

Speaker 1: 24:05

Exactly, if you've got a lawn care business, you've got some assets like some equipment and whatnot, and steven did did off air or offline, said he sees it a lot more often on the asset based companies, which is true. And there is more concrete. You know, very easy to identify the value of the assets there because you actually have, you know, trucks and trailers and you might have real estate et cetera. So we're talking about a brokerage in and of itself. So if you are working from home by yourself right now, running a small brokerage that just you work at, this is where you need to really start to think where do I need to get my business to a place where I can step away from it? And even if you're in your 20s or your 30 and you're not thinking about retirement yet, well, think about how do I get to the next step, which is to be able to take time off, to take a vacation, to sleep at night and not have to worry about the phone ringing because somebody broke down or missed an appointment at two in the morning on an overnight pick or drop, right? So we've talked about hiring in the past and I want to kind of talk through what that progression looks like from being a solopreneur through building an actual business that becomes eventually self-sufficient. So, when it comes to hiring, I want to preface with and we've probably mentioned this before in other episodes but I think the first time you hire somebody is one of the most difficult ones to traverse, because because first of all, you have to think about what does that role look like? What am I comfortable with having somebody do instead of me doing it, and then who is the right person to do that job? And most times, the first time you hire somebody, you either hire for the wrong role or you hire the wrong person.

Speaker 1: 25:49

I've seen too many folks, even within my own company. You know they build up a great agency and it's just them. They're like you know, I'm ready to bring somebody on and they hire a family member or they hire a friend. And I can tell you 100 percent of the time when this has happened and the sample size isn't small for us I've seen it happen dozens of times. 100 percent of the time it does not work out, not to say that family, you know family can't work together, but it's the way that you do.

Speaker 1: 26:18

It needs to be intentional and there's got to be a lot of thought and expectation, set that like, hey, if, for example, if I'm going to hire my son, my son's, you know, not working age yet, but let's say, let's say I had a 20 year old son and I wanted to hire him. Well, when we're at work he's my employee, when we're at home, he's my son. There's a boundary there that has to be different. So I've seen a friend hire another friend and they're not friends anymore because they don't agree on things, they didn't put stuff on paper, they didn't have clear expectations and it just went sideways. I've seen family with nephews, nieces, cousins, et cetera, and the family now has a big ripple in it.

Speaker 1: 26:57

So I think that determining the who to hire and what to hire for are two very difficult things that people don't often think about. So let's talk about the what to hire for first, to start to offload responsibilities, because you know, if you look at it, if it's just you and you never hire anybody, you are your own roadblock. Right, you are the, you are the reason you can't grow, because you have a finite amount of time in your day, you have a limited amount of patience and you don't want to basically frustrate yourself and stress yourself out to where you just say, screw it, I'm done Right. So you've got gotta be able to take certain things off of your plate to put on someone else's plate so you can focus on the things that will help grow the business.

Speaker 1: 27:38

And I always recommend and I'm curious your thoughts right if you've built up a good brokerage or an agency, you are the number one best fit to produce revenue and profits right, so don't go out hiring salespeople. Produce revenue and profits right, so don't go out hiring salespeople. You are the one that has clearly done a good job at building customer relationships, building rapport, growing and scaling your business to where it's at. So don't trust someone else to go out there and tarnish your company's name or think I'll just hire 20 agents or sales reps and they'll just grow the business. So I'm always for admin and operations as the first set of things to offload. What's your take there?

Speaker 2: 28:11

And I think the reason for that is because people tend to hire for the job they like doing least and that's the one that they try to hire for first, even though that's not the one they need to hire for. It's more of the emotional decision. Nobody likes to deal with the constant rejection of sales and the constant grind of getting told no over and over.

Speaker 1: 28:34

And dealing with hard conversations with customers when things go bad, trying to salvage his relationship.

Speaker 2: 28:38

All of that Right, and I think the number one position we hear from everybody we work with on what they're going to hire first is I'm going to replace myself with a salesperson and I'm going to go do back office stuff and, to your point, they lose their best salesperson and take the biggest risk. Because it is very hard to hire a good salesperson, Even if you just do this for a living. Because if you're just a recruiter, right, Like, and you get really good at asking questions, it is really hard to get a window into whether or not somebody's going to work out over six months or a year. And even a two hour interview that you do three times, even if you theoretically spent a week with them, that person's ability to succeed is not determined in that short of a time frame. So it's just really hard to hire for that one out of one time, Like you're probably. If you're going to hire five people, one or two is probably going to work out maybe out of five, it's probably more like one or two out of 10. And every time you hire the person that doesn't work out, you spend a bunch of money, a bunch of your time and you end up back at the same spot. It's like chutes and ladders. You just take the ladder up and it's right back down to that place.

Speaker 2: 29:41

The job to your point that I think makes the most sense to hire for is to clean up the admin side, to get the task stuff done. Those are easier to train, they're lower cost or lower risk and that frees up your time to go sell more, which is what people don't want to do. But if they do the hard thing and keep selling more and free up more time to bring in more business now the business has more income to actually afford to hire the next person Then you do that again. Now, if you keep selling and freeing up your time to bring in more customers and you can keep that Now maybe once you've got enough cash reserves and money coming into the company that you can hire a salesperson to work with. You see how they work. If they don't work out, then you do that again.

Speaker 2: 30:20

Right, but like the order of, I think growing your business with the least amount of risk makes far more sense to never hire the salespeople first to to hire your backend support and keep like you said, you are the star salesperson. You are the person that generated this business in the first place, creates enough revenue, understands what your business does and cares enough. Because, also, there's this other saying it's like nobody's ever going to care as much about your business as you. You own it. You get all the upside. Even if you've got small partnerships like they're still never going to care as much as you because you have more invested into it. Right, so you want to be in that most important role, because without more business coming in, every business shrinks and disappears.

Speaker 1: 31:06

Some of the roles that I'll outline here, and they're not in any particular order. These are some of your-.

Speaker 2: 31:13

Hold on one second. This story just came to me and it's really important from that point.

Speaker 1: 31:17

Let's hear it.

Speaker 2: 31:18

We were taking Ava to this was last year, we were taking her to. It was like a summer golf camp for little kids, right. So it was mostly like them playing, just learning to walk around and be out there. But there was a guy sitting next to us who was an attorney and he worked in like private equity and we're chatting, you know like, oh, like, what do you do? He's like, oh, well, like my wife wants to start a business. And he's like, oh, you do like business consulting? I'm like, yeah, I'm like a few different things, but you know, we just started talking about it. I'm like, oh, and I started asking her a few questions, like, again, just met these people.

Speaker 2: 31:50

I was like, oh, what do you enjoy doing and what are you thinking about doing? Right, because I always feel like if you don't enjoy the thing, you're going to start a business. I'm like it's got a pretty high likelihood of failure. And the woman goes well, I want to start a bakery. And I go well, that's interesting. I said, oh, no, I hate baking and I don't know how to do it at all. And I went huh, and I went okay, well, like what, what's the interest in opening a bakery? Like why do you think this would be like a good business that you would want to like go and build or run? She's like oh, I just felt like it's cause it's pretty easy.

Speaker 2: 32:25

Like you just hire a baker and then like, put a menu together and then, like you just cut them a check and then like, put a menu together and then, like, you just cut them a check and then you make money off of it and like to me it was like this perfect example of what you don't want to do and this giant underestimation of what it takes to build a business where people that have access to capital right Cause she's like, oh, you know, we can just get the money to do this.

Speaker 2: 32:47

I'm like, yes, but like you don't have any of the important ingredients to make this work. Like you, giving somebody else money to go work at a bakery is not going to turn that into a successful bakery and you hate the thing. To begin with, you're not even going to want to show up, which means like there is zero chance that this is going to work out before you have even taken your first step. And it's like to me, thinking about this is that like building a business is hard and risky and takes effort and personality. If you don't want to be in there doing that, then you should find something else that you enjoy doing.

Speaker 1: 33:18

Dude. So I know probably four or five people in my life that have either started a restaurant or a bar because they liked being the customer at restaurants or bars.

Speaker 2: 33:33

I like going to restaurants and bars.

Speaker 1: 33:34

They didn't want to run it.

Speaker 1: 33:35

It's like and they all failed. That's 100% accurate and I'm glad you shared that story. So the tasks and some of the jobs and responsibilities that are common for the first thing to hire for are your non-revenue generating. They're your support roles that allow, they're going to free up time for you to go generate more revenue. So things like billing, scheduling appointments, your data entry, and you could also automate some of these too.

Speaker 1: 34:04

This episode is not on automation today, but there's ways of offloading these tasks from you. But there's there's ways of offloading these tasks from you. So if you only have, let's say you only get two hours a week to try and prospect new business because you're too busy doing whatever else, those whatever else things are the things that you need to look at and the easier the task is, you can. You can compile those into a, a job description, essentially Right. So sometimes you'll bring someone in and they might do. You know operations work, things like, all right.

Speaker 1: 34:37

For all these loads, we need to make sure that they're updated in the system. Track and traces is, you know, accomplished either through setting up and monitoring gps or configuring eld telematics connection to the TMS or sending out links for whatever manual check calls, talking to dispatcher, stuff like that. Right, it could be. You could take it a step further and retrieving PODs and invoices from carriers when the loads are delivered, calling the receiver to make sure the delivery was done. It's customer service, it's operation support, things like that Delivery was done, it's customer service, it's operation support, things like that. And I would have them get comfortable with all that before they're customer facing and that someone could be a stud and pick it up in a few weeks.

Speaker 1: 35:21

Some people might take months before they fully understand what this wild industry of freight brokering is that we work in and live in every single day. Then you can get to more of the the customer facing, things like calling to make sure appointments are scheduled properly and to make sure that the driver got loaded correctly, because when you start having your customer hear another voice, that's not you. There's good and potential bad to that, depending on how you handle it. The good is you can then duplicate your efforts of well, now the customer is feeling more comfortable with this new person and they know it's not just me anymore. But if you don't tell them that, hey, I'm going to be hiring someone to help out to give you guys better service and all of a sudden they hear from Jimmy one day instead of Ben. They're gonna be like what Ben doesn't know love from Ben anymore. What's going on here? I like Ben, so the way in which you propose that to your customers, I think is is just as important as picking the right persons.

Speaker 2: 36:17

Great.

Speaker 1: 36:17

The bill is a huge one because you know you have to invoice customers to get the money in the door. Yes, but it's you know. It's also one of those things where, like, if you spend all day billing and you're using that part of your brain and you're not doing the you know developing relationships, business development side of the brain, you know it's taken away from your potential. So, and on top of that, the faster you get invoices sent out, the better it is for having healthy cash flow, healthy cash flow. So if you are like I'll do all my billing on the weekends, well, you're adding potentially up to five days or six days of lag time between when you could have invoiced that customer and when you actually invoice that customer. And if your customer is on 30 day terms to pay you, that clock doesn't start until they get the invoice. It doesn't matter if it delivered and you were ready to invoice it on Monday. If you don't send it out till Saturday or Sunday, that's on you.

Speaker 2: 37:11

Yep Stephen, what was your interjection? That you were saying?

Speaker 3: 37:16

That you were talking about. You know you want to stay in sales and hire for whatever your administrative roles. So I recently took over Arbor Bridge. I've been the top salesperson here for three and a half four years, but we never really had management. So I did the opposite thing I took myself out of sales. But the purpose was to clean up our processes, make everything faster, easier and better, and then, in that meantime, the people who are still selling the leads and stuff that I had I would look at.

Speaker 3: 37:53

Okay, what does this person predominantly do? What's their network look like? What's their book of business look like? Ok, this prospect fits with this person. Let me make an introduction. I'll go back to managing the business and then filtering things out. That way, the last two and a half months, we've closed more customers in that time than we have in the last year, because I'm giving these people warm leads and I'm also managing that business better. I've taken time. I've taken tasks away from those brokers that could be handled by a single person myself, which is running me then, but they have more time to do the sales, bring in the revenue and then eventually we can create jobs.

Speaker 1: 38:38

This is exactly the progression that we're talking about that someone should be in for.

Speaker 1: 38:41

So if I'm running a brokerage myself and I am, so I'll paint the picture this way. If I'm running a team, I'll just give you a hypothetical scenario. I've got a book of business I'm doing, let's say, $2 million a year in sales and I hire an operations person, and that allows me to boost myself up to $3 million a year and then to $4 million a year. And now I hire a second operations person and maybe the first operations person has been introduced to my customer and helps out with some of the account management. Right, we're not talking about new business or sales. We're talking about managing existing business that I'm able to keep coming in the door. Right, that allows me to go out and get more and more business. So maybe now I'm at $6 million, or $6 million, $10 million, and I've got a team of three.

Speaker 1: 39:26

The goal, eventually, is to get yourself doing less and less and less of the day-to-day and allow yourself to hand off those business activities to other people. Right, so you could. There's all different ways to do it, but it could be that your core business that you know was able to fund and grow this whole thing. You are still a relationship owner with those group of customers. But you've got account managers that are dealing day-to-day with quoting and dealing with any issues or customer updates. You've got an operations team that's helping out with track and trace. It could be cradle to grave model, where these folks are doing both. There's all kinds of ways to skin the cat on it and then eventually your goal would be well, how do I pass now this beautiful role that I'm in, where I don't have to show up to work eight to five every day, I don't have to worry about answering the phone when a customer or a carrier is an issue, but I'm still the relationship person, right? Well, that's when you look at all right, maybe I need to get a sales manager, right, and it could be an account manager that moves up, it could be an outside hire, it could be all different things, and that's a whole other discussion of how do you pick the right person for those roles, based on their strengths and all that stuff.

Speaker 1: 40:35

But eventually you just get to the point where you own the business, you've got someone who's managing the sales side of it and they've got account managers. Maybe they then have some hiring classes of some new sales reps that are going to come in and make their own cold calls, try to build up their own book of business. You might have an account manager who really loves dealing with customers and says, hey, can I make some calls myself? I'd really love to do this. So maybe you give them a chance at trying that chessboard and the entire puzzle and make sure everything is still together while giving your folks flexibility to grow and develop on their own, because if someone just stays stagnant and never has an opportunity to grow or try something new, they're probably going to get sick of it after a while.

Speaker 1: 41:21

But exactly what you said, steven to move, you know be in the top salesperson. Well, if I'm a one person brokerage, I am am the top salesperson. If I want to eventually get to a point where I'm not doing that day-to-day, I have to find a way to replace that. Your example is amazing because you can then take all your experience and knowledge of what you know goes on in your brokerage and then you can take all those other back-office areas and make them more efficient and run smoother and let the other brokers and account managers manage what's going on and help grow that business. So that's exactly the the they're not mutually exclusive.

Speaker 2: 41:54

We were just kind of outlining, I think Nate and I when we started the conversation of what it kind of looks like from one person as they're growing to that place. Right, where you're coming from is like if we're going to come into like a 20 to $50 million company, for example, right, even if somebody brings me on this at multiple times, you're like well, just go bring in business. Like you can go close sales more than everybody else, and I'm like agreed. But I said also we have to look at the whole business first in its entirety. Like Nate is saying it's like okay, like let's go through and see what everybody's doing. Are they doing the most important thing? Are they just doing necessary things? Do they have like creative avoidance and like that is even going into like accounting? Okay, what is happening there? What are our average days to invoice? How many days are we waiting to get cash in the door? Are we efficient there? Answer might be yes, might be no. Might need more people, might need less people, might need people doing different things, might need different software. Right, then it's, you're going to that one level up. Even I'm going okay, like how are we actually doing with retention of the existing customers, because, yes, there's bringing more in.

Speaker 2: 42:56

But I always use the analogy of like if you have a hole in your and you're fishing well and you keep catching fish, but they just keep swimming out every time you catch them. Like I can be really good at fishing but I'm still going to end up back at the dock with the same amount of fish because no one's paying attention to my fish keeps swimming away. So then it's like going through and, like Nate said, like account management, how are we doing? Is our business going up or down with these customers? Are they seasonal? Are we managing them well? Are we missing basic, fundamental things like track and trace, getting PODs in the door? Are we servicing them in the way that they should? What is taking up most of their time? Are they the right things?

Speaker 2: 43:29

And then you kind of go all the way upstream and once you've kind of got your arms around all of it, then you can decide like, okay, does it make sense for me to just do a little bit of sales, a little bit more sales? Maybe it does make more sense for me to spend more time getting more salespeople in now, because the business is generating enough consistent cash flow that we can make those gambles and hire salespeople Like that's your next growth level, because ultimately, one person is not going to grow a company to $100 million. You need more salespeople to eventually get past these benchmarks. One person can get you to $20, $30 million probably, maybe even arguably, two or three salespeople can get you to $50. But when you're starting talking about bigger numbers and larger companies, that feels like a lot to me, but, but you know this is an exaggeration.

Speaker 1: 44:11

It makes the point, though. Yeah. So the other thing I want to hit on here too is you know, how long does it take to transition those relationships and and how do you do it? So something to think about here, because if people are like, well, I don't want to make my customer nervous that all of a sudden. Something to think about here, because if people are like, well, I don't want to make my customer nervous that all of a sudden, jimmy's calling them now, well, you have, you propose that in its positive sense, like hey, I'm, I'm bringing this guy in or I'm moving into this role so I can help service you guys better. Now there's going to be, um, basically two of us, right, and this person's going to focus solely on x, y and z. I'll back them up it if needed, and someone else can back them up as needed, and I'm here to make sure our relationship and our service levels are stellar, right, and that happens slowly and over time, but you preface it ahead of time.

Speaker 1: 45:02

You have to remember also, your customers are going to have personnel that change over as well, so this is a constant thing of keeping caught up with, as you have new reps in your company that are customer facing. The person at the customer is likely going to change as well, right? People get promoted, people change jobs, they grow their departments, et cetera. The way I've seen it play out, timeline wise, has varied depending on the situation. So I've seen a book of business that someone was able to transition the day-to-day relationship with the customers in as little as six months, and I've seen someone do it over a 10-year plan. They're like, hey, I know this ops guy right here who his next role is going to be in a management or a leadership position and the goal is he's going to eventually take over this company from me in 10 years and that person becomes very well known by the customers over a decade, whereas if you have a six month window, it's a lot more.

Speaker 1: 45:52

There's a lot more chance for you know things to, you know go south or someone like, yeah, we don't really like working with this person, et cetera. It's definitely not overnight, right? And that's why I say that you know this stuff. You need to have it in a place where you are not the sole person that is doing everything, because if you want to sell it or pass it down to your kids and the new owner or your kids have never talked to the customers. Well, the customer is probably like all right, well, that service level is totally gone because so-and-so just decided to retire. So we'll go over the other five brokers that have been providing good service to us. So, and again, low is, you know, as slow as you can do it, right Is the ideal way to do it.

Speaker 2: 46:34

And here's the thing, right, like, keeping it very simple is like if you're going to sell a business, you need to think how much of this business stays together, generates the same amount of money coming in and money that goes out of it. If somebody else was here instead of me, right, and what is the risk? That when they take it and I hand it off to them, some of that just disappears and goes elsewhere. Like there's some portion of that. That is almost always going to happen, right? And if you think about it, like lots of businesses run that way, just think about how we are as people, like, if you trust, going to a local sandwich shop and the same person makes your sandwich over and over and you get to know them and you see them two days a week, every Wednesday and Friday you go and get a sandwich and then next week they're gone and all of a sudden there's a new owner there. You'll probably still eat there for a little bit, but a lot of the reason you go there is because, like, you like to see that person, you know them and like it's weird, but like the food even tastes different if they use the same ingredients. Someone else puts it and it's as simple as a sandwich, right when, like I know, there were places I'd go to for years and then, once they're gone, like I just didn't feel like I wanted to go.

Speaker 2: 47:38

Like in our twenties, like the best example was like bars and waitstaff. We would go with our friends to certain restaurants and bars where the food is like probably just as good as the one across the street, but you like the waiter, you talk to, you like the bartender, and that was part of why you enjoyed doing business with that business and then someone else buys it and it's like, yeah, it's the same food, but like I just kind of don't know this person. It just doesn't feel as familiar. So like let's try the place across the street and little by little you get to know those people and then you start to frequent those places. Right, the same thing happens in really just about every business to some degree, but it's very, it's very exaggerated in hours because like there's not really contracts and the most of the reason your customers are doing business with your brokerage is the people that they're talking to they choose, to the name and the banner on the window.

Speaker 2: 48:25

That's why non-competes have been so prevalent for so long. It's like even large companies like CH and TQL kind of knew this. Is it like their customers have loyalty to that broker? Not the name on the invoice, not the name on the email? And when those people would leave to go to another brokerage, the customers are like yeah, man, like I know Nate. Nate knows my supply chain. Nate's an extension of my business. My people trust Nate when he says he's going to get something done. And if TQL gives me a different person, they go well, he'll do just as good. And I don't know them. Yeah, I'm still going to probably do business with them, but like I'm going to start looking at who's the guy that I liked almost as much as Nate, that I just didn't give him as much to.

Speaker 1: 49:11

And I'm going to give them a little bit more, little by little. And that's why the business starts to funnel out. I'll give you two examples one on your restaurant side and one in brokerage. So, like one of my favorite restaurants in the town over from me, I've been going to for years. Since I was a kid my parents would take us there and to this day, the owner he's much older now, he's still on a Friday or Saturday night comes in there during dinner hour and walks around and says hey to all the regulars, but he's not flipping burgers, he's not waiting tables, he's not managing the bar staff. He is the owner and he walks through there because he loves that business and he knows if he wants to leave for three months and go to Florida, he sure can. And when he comes back people will be happy to see his face there and that's a great succession right there. And you know he, if you've got kids, that's a great way to pass it down, like now, kids, the manager and you're still showing face.

Speaker 1: 49:53

But even the brokerage I work for Pierce Worldwide, my, my boss, the owner, kevin. He's been there for over 40 years and is he calling customers, cold calling? No, is he dealing with big picture things for a customer when needed, yeah, he'll step in there and do that. But he has been able to create a subordinate level of leadership and expertise around him over many, many years to the key relationships with that company have gotten to know the you know the next generation of of the Pierce's over the last 10 plus years. So that is the.

Speaker 1: 50:35

That's a great example of a slow, you know, a slow burn, slow transition. You know to to get these folks in there. And if it's not family owned, that's fine. Right, you, you could own a restaurant and you've got a stud. Maybe the guy starts off as a server and then becomes a bartender, then a bar manager. You know that he's going to want to buy it off you when you're ready to throw the towel in.

Speaker 1: 50:56

Well, you could do the exact example I gave, where this person is learning how to run the business while you're still somewhat present there and still showing face, etc. And then, when the time's right and you've you've had enough right People know who that next person is and it's you know whether it's taken six months or it's taken 10 or more years. Um, you have to kind of do it at whatever pace works for your you know your business and your and your customers. But, um, you know, you can't just have it be a flip of a switch overnight and think about like, um, right, like, I'll go to the restaurant example, and it's probably the same for you know, trucking company or brokerage, if a, if a restaurant that you love going to shut down during COVID, right, and somebody bought that building and tries to open it up and make the same kind of restaurant, you might have that like initial buzz at first, like what's this place like?

Speaker 1: 51:43

And then like usually you figure out pretty quickly like is it gonna last or not? Because they're, they're truly starting from scratch. Right, it's the same building they might have.

Speaker 1: 51:56

I've even seen pizzerias that like sell the uh, their sauce recipe and everything and then they just it's not the same vibe, right, like we had one in our town where this guy was for years great pizzeria sold it to um a family, an indian family, who still sold the pizza but then started doing more Indian cuisine and they gained a lot of people that liked Indian food. But the regular pizza going customers were like no, they, they just, it's just different. You know, they still got the pizza, but like they're not, they're leaning in on the, on the Indian cuisine thing and it's just. You know, I'm going to go to the pizzeria down the street. So that's really how it can go wrong.

Speaker 2: 52:29

And the other thing, too, is the trust between ownership or management and the employees. Right Cause the bar, example. My uncle owned a bar for like 25, 30 years and the one thing he used to tell me cause I used to ask him when I was like younger, in my twenties I'm like like, why are you there as much as you are at this point? Right, because he's like almost retirement age and it was right before he saw him. I'm like you know, you're still there on like all the busy nights and you're still spending a lot of time. Like, do you, do you need to at this point? And he said, well, here's what happens, ben, he goes when I'm not there.

Speaker 2: 53:00

People act differently. And he's like okay, if there's a new manager there that the bartenders don't trust, guess what? All the regulars, instead of getting one ounce in their drink, of whatever they're drinking, they're getting one and a half ounces. Why? Because the bartender gets a little bit of a better tip and the bartender's like, well, you know, red's not here and like the new manager is not going to care as much. And then, a little bit at a time that starts to erode your profits, then, little by little, they're showing up a little late, or they don't care as much because they don't feel like the new owner cares as much as the last guy. Why not? Because they're not there as much when the owner's just physically at work with his team. People work differently, care more because they feel like they're working with that person.

Speaker 2: 53:43

And that's another risk you've got to kind of think about is like as you scale yourself up and out of the business at a certain point the culture will feel different, because they don't feel like they're working with you. They feel like they're working for you, but you're not there. So then people just start to do a little bit less, work a little less harder, pay a little less attention until, little by little, all these mistakes start to add up and you're like what the hell is going on? All these mistakes start to add up and you're like what the hell is going on? 25% of our business is out the door. None of our invoices are getting paid and nobody noticed that, like we didn't send any of this stuff out. And everyone's just like oh, I didn't really notice. And you're like wait a minute, this is somebody that's cared for five years working for me. All of a sudden, when I'm starting to scale myself out of the business.

Speaker 2: 54:23

Everything starts to fall apart, and that's what people buying a business are worried about. Is that like, yeah, you built this great team that works with you, but most of that isn't going to transition overnight to another company that buys your company in 45 days to 60 days, to your point? When you transition it to somebody that works there, that has been with those people in the trenches, it tends to go a lot smoother and there's less risk. When you're selling this outright to a whole other organization that comes in, that's a different feeling. I mean, think about anybody that's ever worked at a company and new ownership comes in. How does everybody feel? Are they all super excited?

Speaker 1: 54:56

I quit the last company that did that to me, so that's a whole other conversation, but here's something you can do too I know we're getting towards the end here, but you talked about the manager at the bar and this could be a sales manager or an operations manager at a brokerage. As you're grooming them for that next role, you can give them skin in the game and that could look like a quarterly bonus based on profitability, or a quarterly bonus. If you look at things like did we keep our days to invoice as low as possible? Did we keep our rating on DAT, our days to invoice, as low as possible? Do we keep our rating on DAT? You know, are we staying at that 97, 96, whatever it is? Is our? You know our Google? You know X amount of stars rating? Is that still maintaining?

Speaker 1: 55:43

And if things start to slip or you've got negative results, and those KPIs can be all different depending on what you're. You know what matters most to you. But you can then correlate that performance to some sort of incentive, and that incentive is different for everybody, based on what's important to them. But that then gives them skin in the game. To make sure that that bartender is not pouring, you know, extra drinks for free, Right, Because we're going to see how much liquor we went through versus the amount of sales that came in, the amount of that got thrown out because it was overordered and it got spoiled, stuff like that.

Speaker 2: 56:14

So, and that's why earnouts come in, and again we'll kind of wrap with this, but like an earnout is just, if Nate buys my company, I agree to stay on with Nate for some period of time a year and a half or two years and I'm only able to get the same money that Nate's paying for my business by keeping the business doing what it was doing as I'm leaving. So basically, you have skin in the game after the transactions happened and then the previous owner stays on under certain metrics to make sure things are being kept up as it switches, and that's really common with smaller companies too.

Speaker 1: 56:42

I'll give you, I'll give you a great example in a brokerage setting of that. Right, if let's say you, your brokerage, you, um, let's say bottom line, it does a million dollars a year and, um, you, you come to a forex evaluation on it, right, so four million dollars is the sale price. Well, the way that I I've actually seen this not with those numbers, but I've seen it happen this way is they said OK, it does a million dollars a year, $4 million purchase price. The way that we're going to do that is that I am going to as the seller, I am going to receive all of the profit. The buyer comes in and gets a salary as the manager to run it, and I get all of the profits for the next four years, up until $4 million If we don't hit $4 million.

Speaker 2: 57:29

So you take my job. I keep all the money until the business pay me what it's worth. I just don't have to do that day to day. I have some responsibility, but exactly but.

Speaker 1: 57:37

I have skin in the game because if, if, four years comes and it only made $2 million, well, they just got it for half price because I didn't do my job to make sure I got my $4 million by making sure that over those four years we transitioned it properly. And I have seen that. And I've seen it done in other ways too. Where it's it's tiered at different dollar amounts or percentages each year. I've seen it three years, I've seen it for five years, I've seen it done over a year and that didn't work as well. But those are creative ways to ensure that. That's kind of like your owner finance way of doing it.

Speaker 1: 58:08

So, instead of just getting a check and selling off the paper you have to make sure if I'm going to get this price, it is because it's structured this way. And then I have to make sure that the person I'm selling it to is set up for success, Otherwise.

Speaker 2: 58:30

I don't get paid. So I have a buddy of mine right now we're doing with. He's buying a dentist office with the building and he has another practice and that's exactly the way we're trying to structure it for him is to be able to get the earn out. The guy who owns the building owns the practice. He gets a small cash payment up front but then basically that practice is going to pay him out over the next few years and then there's little incentives and kickers. But yeah, but I mean the concepts hold true, no matter what business you're doing with.

Speaker 1: 58:53

They're all kind of similar principles, Absolutely so, no matter where you are in your journey, think about what's that next step right? What is that next hire? What's that next landmark achievement I want to get to to get me one step further down the road towards that end goal. So good episode, good episode, Good discussion. Let us know your thoughts in the comments. Ben, final thoughts here.

Speaker 2: 59:11

Whether you believe you can or believe you can't, you're right.

Speaker 1: 59:15

And until next time go Bills.