S3E49 – Patrick Donohue – Key Qualities a VC looks for

Key Timecodes

• (00:38) – Show intro and background history
• (02:53) – Deeper into his background history and business models he invests in
• (04:36) – Understanding his venture capital business model
• (11:11) – Deeper into his diverse portfolio of business strategies
• (14:59) – How he generates ongoing cash flow
• (17:33) – Deeper into his criteria and strategies
• (25:00) – What is the minimum investment size
• (27:26) – A key takeaway from the guest
• (28:58) – Another key tactical takeaway from the guest
• (31:37) – A bit about his book
• (33:57) – What is the worst advice he ever received
• (34:22) – What is the best advice he ever received
• (38:37) – Guest contacts

Transcription

[00:00:04.730] – Intro

Hey, this is Sean Tepper, the host of Payback Time, an approachable and transparent podcast on financial independence. I like to bring on guests who hear authentic stories while giving you actionable takeaways you can use today. Let’s go. My next guest is a lifelong entrepreneur and investor who runs a unique venture capital firm that doesn’t specialize in one industry. In this episode, he talks about what he looks for with founders, what he looks for with companies, and how his firm structures its deals differently than traditional VC firms. Please welcome Patrick Donahue.

[00:00:38.590] – Sean

Patrick, welcome to the show.

[00:00:40.410] – Patrick

Thank you. I appreciate being here. Sean, it’s always fun to talk about helping people with financial independence.

[00:00:45.560] – Sean

Absolutely. I’m glad you’re here. So why don’t you kick us off and tell us about your background?

[00:00:50.280] – Patrick

My background has been all in finance, and it started at a young age when I started a lemonade stand with my cousin Chad and also bought my first stock when I was ten years old, but I didn’t have the words for it when I was little. But I had entrepreneurship definitely in my blood, and so that’s what led me to where I’m at today, investing in businesses and owning a couple of other businesses as well.

[00:01:14.460] – Sean

Nice. Well, let’s kind of unpack that journey a little bit, going back to age ten. What was that stock you bought?

[00:01:21.030] – Patrick

Great question. So the first stock I bought was Coca Cola. And the simple reason is because, like most kids, I drank Coca Cola at a young age. I bought what I knew, and that’s why you can actually the stock certificates on my wall is some of the stocks I’d bought when I was a kid. And so that life lesson has stuck with me today. And that’s why even today, I invest in things I know, like Berkshire Hathaway and Coca Cola. So yeah, I was going to say.

[00:01:52.610] – Sean

That’S what Warren Buffett has taught us, and Ben Graham, of course, invest in what you know. If you don’t know it, don’t move. Yeah, we’re we’re big on that. I won’t drill into this too much, but I always joke with my audience, like, I know tech. That’s my background. But do I know anything about pharmaceuticals? Not a whole lot. So I stay away, run for the Hill, right?

[00:02:11.560] – Patrick

Yeah, except a lot of people use pharmaceuticals, so I do appreciate why the Pfizers of the world exist.

[00:02:18.320] – Sean

Oh, sure. There’s a need there. I get it.

[00:02:20.960] – Patrick

How they’re made is another story.

[00:02:22.670] – Sean

Yes. And distribution, supply chain, the government regulations, I don’t even want to get into it. Let’s drive forward a little bit. And you said you exited a few businesses, correct?

[00:02:38.370] – Patrick

Yes. Well, so I built a few businesses, and the exits were nothing to write home about, per se. So I helped start a few businesses over my career in the biggest businesses of what I’m running today, which is Hill Capital Corporation.

[00:02:53.430] – Sean

Regarding I know you said nothing to write home about. But I always like to ask, because our audience is listening, the type of business models you were building, were these service businesses like consulting or were you manufacturing some kind of physical product?

[00:03:08.010] – Patrick

Yeah, so my first Entree, or my real Entree into entrepreneurship as an adult was really services. And so that’s why I learned the hard lesson about selling time and how hard that is to scale. And I did productize that we created a number of online courses. I had over 30,000 learners at the time, but it was just tough because I got paid a lot of money doing corporate development for large companies, but that was all being paid for my time and it was really hard to scale products. And so I’ve been through the wringer, I’ve been in the ditch. And that’s why I have a deep respect for all entrepreneurs because the journey of entrepreneurship is really hard.

[00:03:48.380] – Sean

Definitely. Okay, so thanks for that context. So it sounds like more service, more consulting. And we’ve had a few service business owners on the podcast, which is a fine business model if you really enjoy what you’re doing. But the multiple you get on that if you try to sell your service business, what we found is it can be one X EBITDA, two X, maybe if you’re lucky, three X, but that’s about it, right?

[00:04:11.700] – Patrick

And that’s what I’ve found because the vast majority of services businesses are so tied and dependent on the founders or the key executives. So if they’re able to build a business that truly has a number of employees that are executing the business model, then it can get a higher multiple. But vast majority of service businesses is because of the talent of a few people a lot of times.

[00:04:36.320] – Sean

Right. All right, let’s dive into your venture capital firm. So, listeners out there, this is Hillcapitalcorp.com again. Hillcapitalcorp.com, why don’t you tell us about your firm and what do you focus on?

[00:04:49.940] – Patrick

Sure, Sean. So, our fund invests in various businesses. We are agnostic to the industry we want and have a diverse portfolio. And so our companies, the common denominator is that they’re all founder led and we’re really investing in and partnering with the entrepreneurs, the executives that are running those businesses. And that’s what motivates us with our capital and community to support those businesses when they’re looking to break out to the next level. That is what is our decision factor to invest in those businesses. So, for us, typically, a business is doing a couple of million of revenue and they want to get it to five or 10 million to the next rung of success. And that’s where we look to invest in companies. And so our portfolio is diverse. We have invested everything from ecommerce companies to software as a service to custom tile manufacturer.

[00:05:50.970] – Sean

Let’s dive into because again, audience, they really love examples. Can you give us maybe three examples. Can you even give us names?

[00:05:59.260] – Patrick

Definitely. All of our portfolio companies are listed right on our website. And so they go to the website and click on the portfolio. They can see the companies themselves. A great example. A company that I’ll announce here first. We haven’t publicly announced it, and I know by the time this is aired, it will be announced is Mercury Mosaics. And it’s a custom tile manufacturer. They make artisan tile by hand right in northeast Minneapolis. And Mercedes is a rock star entrepreneur and she’s been building this business for 20 years now, has done very well, but she now has a business model where she wants to take it to the next level. And so with our investment and plus our community, what we mean by community is our advisors and the people that are part of our network to help support Mercedes and her business take it to the next level, that’s where the magic happens. And that’s where we are looking day to day for companies to invest in and invest in people like Mercedes.

[00:07:01.600] – Sean

Got it. Okay. Mercedes with Mercury Mosaic Tile Manufacturer.

[00:07:06.730] – Patrick

Yes, exactly. And that was the first investment out of Hill Capital Fund too. So our second fund is a $25 million fund and that was the first investment. So a pretty special investment for us. And kind of fun to be able to share that news with your audience here today.

[00:07:23.660] – Sean

Right on. I forgot to ask this earlier. When did you found this company?

[00:07:27.120] – Patrick

Hill Capital Corporation was founded in 2016.

[00:07:30.290] – Sean

2016. Got it. Okay. All right. Great example there our first example. Can you give us another?

[00:07:36.500] – Patrick

Yes. The next example is babies on Broadway. And Babies on Broadway is founded by Adele Starren. And Adele started a baby store on Main Street in Little Falls, Minnesota. And that main street is called Broadway. And so she named it Babies on Broadway. And she gets a lot of notoriety from the east and West Coast because of the name and is really hit on with the mom forums and the circles on Facebook and so forth. And so because of that, she created a large e commerce presence. And so she has customers from all over the place, a lot of hands on service. And then that business has also evolved into providing durable medical equipment and so children that may need a special wagon for transportation or breast pumps. There’s a number of things related to babies and their mothers that are available as durable medical equipment. And so Adele has done a wonderful job diversifying her business way beyond the original baby store on Broadway in Little Falls, Minnesota.

[00:08:43.990] – Sean

Yep. I’m actually going to the site right now. Really well put together e commerce site, straightforward. I love that she’s got her, looks like her photo, a few kids right there on the homepage. Kind of personalized. The CEO, I see that as really important today as more CEOs kind of putting their face and name out there instead of just being propped up by a brand.

[00:09:04.490] – Patrick

Well, and it’s a story we absolutely love because the story of Adele, she started Babies on Broadway because she wasn’t able to find the products and the quality items that she was looking for in her area. And that’s why she started the Baby store back in the day. And so there’s nothing better when the stars align with a founder and entrepreneur that are doing what they’re passionate about and have created a business, because they wake up every day very motivated to take care of their customers, take care of their employees and build their business. And so that’s what really resonates for us as investors.

[00:09:39.140] – Sean

That’s awesome. All right, can you give us a third example?

[00:09:42.600] – Patrick

Sure. The third example is kind of very different from those first two because it is a lot of deep technology and it’s a biotech company called Cytotherx. And Cytotherx is generating human liver cells. And the challenge with human livers is that once the human liver dies, there’s really nothing that can be done, unlike the kidney, where you can get kidney dialysis. And this has been one of the last frontiers for the human body. And so with their technology, they’ve been able to develop and grow human liver cells. And so there’s a lot of science and a lot of technology there. Early investors are the Mayo Clinic and others that understand biotech very well. And so, of course, they’re headquartered in Rochester, Minnesota. And that was a very interesting one for us to make an investment in, because this is way more complex than what we would normally invest in, but because the product at the end of the day was so simple and the market is so simple, meaning human liver cells, very straightforward. And then the buyers of these liver cells, like pharmaceutical companies, research facilities, they pay upwards of $10,000 per gram for this material.

[00:10:58.680] – Patrick

And so it was very easy for us to kind of understand the need in the marketplace. And so for a number of reasons, and plus, again, with the people that were involved with the business, we got comfortable making the investment in Cytotherics.

[00:11:11.600] – Sean

This is something that we’re talking about just offline before we jumped on the podcast, is you’re not specific to an industry, and as you did mention, that’s right. You’re more agnostic, which is interesting.

[00:11:25.610] – Patrick

Want to have a diverse portfolio. So most investors, most venture capital funds will specialize in just SaaS companies, software, so on and so forth. And we don’t do that. We want to have a diverse portfolio. We have a different thesis on how we’re making our investments and how we work with these portfolio companies.

[00:11:45.910] – Sean

Sure. And you also mentioned offline that you’re not looking for not always looking for that ten X. You’re happy with that? One, two, three X. Right?

[00:11:55.050] – Patrick

Exactly right. So all of the money behind hill Capital Corporation is from individuals. We don’t manage institutional money and that’s an important differentiator. And with that, a number of our investors own businesses and have owned multi generational businesses. And so we want to be able to support the entrepreneurs in their journey. And if Adele with Babies on Broadway wants to build her business and hand it over to her kids someday, that’s completely fine. So as part of our investment, we make an investment. We like to call it an equity based note, but we take equity risk all day long. That’s not a problem, but we structure it so we can get paid back. So if a business owner wants to be able to hold on to their business for 20 years, we want to support them in that journey. Because the one challenge with venture Capital and Angel Capital and any private capital like that is when somebody buys stock in a private enterprise, the only way they’re going to get a return is to sell that stock for cash. And that is a fundamental problem with angel and Venture capital. And so if somebody, an entrepreneur takes in money from a VC, they have to sell their business for cash in five to seven years.

[00:13:10.590] – Patrick

And that’s problematic because it’s a short amount of time and they have to do a lot and create huge returns for those investors. And so companies like Babies On Broadway, Mercury Mosaics, they don’t fit that traditional 100 X return profile potential in seven years. And so that’s where we come in and as our differentiator in the marketplace.

[00:13:32.930] – Sean

Yeah, I like that. It’s not that pressure cooker which can happen with VCs. We got to see those quarterly, even though it’s a private company, like those quarterly statements improving and then that trajectory, like you said, to sell within five to seven years, because they’re either making their money to sell or go public. Otherwise they’re waiting and waiting and waiting with no liquidity. Right?

[00:13:55.020] – Patrick

Exactly. And that’s why in the book I just wrote, the Breakout Valuation, I actually talk a bit about that, actually quite a lot about that, which is the time value of money. It destroys investment returns. And so if somebody all of a sudden has to wait around for ten or 20 years to get a return, that two, three X doesn’t look so great because 500 statistically would have well outperformed that. If you own illiquid stock in a private business and you only get a three X return in ten years, that’s a tough day because you statistically well underperformed the S and P 500 index.

[00:14:34.560] – Sean

Sure.

[00:14:34.940] – Patrick

So investors in private companies have to be able to get the type of returns that would justify them doing something other than buying an index fund. So that’s the stuff we think a lot about, is the time value of money and how entrepreneurs can kind of think about getting to where they need and then what we call capital matching, making sure they’ve got the right capital to meet the needs of where they’re going.

[00:14:59.500] – Sean

Could you dive a little further in? This will be good for entrepreneurs that may be interested in reaching out is how do you make ongoing or how do you generate ongoing cash flow? Because you are a VC, but your revenue model is structured a little differently.

[00:15:13.970] – Patrick

The fund gets paid back over time. So note we’ll take equity risk, but we’ll structure to get paid back over time. So it’s not the same. But it would be akin to some of these new models. Like revenue based financing.

[00:15:28.430] – Sean

Yes.

[00:15:28.900] – Patrick

Don’t tie it to revenue or anything like that. We’re underwriting to understand where a business can get to to generate free cash flow. And then it’s like, okay, when a business has positive cash flow and the ability to pay us back, then they can pay us back over time and that’s the key. Differentiator.

[00:15:45.770] – Sean

Right on. And then is it usually payments monthly, quarterly or annually?

[00:15:51.950] – Patrick

Monthly.

[00:15:52.780] – Sean

Monthly. Got it. Okay. And how do you calculate how much you’re paid every month then?

[00:15:58.480] – Patrick

Great question. So in underwriting, when we’re investing in a business, we do some very detailed financial forecasting to really understand what that business model is and what it’s going to look like over time, and doing a forecast and making a determination of when and how it can pay us back. And then if that makes sense, if it makes sense for us as investors and it makes sense for the entrepreneur, that’s where the magic happens. It’s like, okay, thumbs up, this investment works. Let’s go ahead and execute to this.

[00:16:29.520] – Sean

Sure. Got it. Okay. I like that model. Again, a little lower pressure than the typical VC to make that big exit, but it’s a win win because they need to be generating positive cash flow and you want them to. So you’re going to do everything you can to get them to that state at some point.

[00:16:46.690] – Patrick

Right. Like usually most of our companies, they’re burning cash that they have negative cash flows for 12, 18, 36 months or whatever. And that’s why in large part they’re not bankable because a bank, they literally can’t, with regulations, be able to provide them a loan if they’ve got that degree of negative cash flows. So that’s what we’re solving for. That’s our bread and butter. Now if a company is going to be like shooting for the moon and going through tens, if not hundreds of millions of dollars over the next five to ten years to build the next really big thing, that’s not for us. That is right up the alley of most VCs that can put in multiple capital, really pump something up and make it huge. That’s what we would shy away from all day long.

[00:17:31.180] – Sean

Right. Got you. Okay, let’s dive into what do you look for? I know you put a big emphasis on the CEO, but could you unpack that a little further?

[00:17:41.900] – Patrick

Yes. So a lot of times what we’re looking for is what I described with Adele and Mercedes founders that have built their business. There was a problem that they were solving for, and they had an itch to solve it and want to continue to build upon that. That’s a big piece for us. And understanding their goals is a big part of our underwriting when we’re trying to understand where they’ve been and where they’re going to. And so getting to know them is very important to us. Maybe it would be stating the obvious, but we do full background checks. So if anybody has any issues in their past of like, felonies or mismanaging money, there’s no way we would invest in that. We can’t make up for the risk of potential fraud. So we’re looking for people who have a strong vision to where they want to go. We, as a partner with Capital and Community, can help them get there. And then if we see them as good business partners and they need to see us as good business partners, that’s where everything comes together. That’s the magic. Because if things will go wrong, it’s when they will go wrong.

[00:18:52.300] – Patrick

Every business has a challenge, and so we want to have that partnership in place and a solid foundation of trust. So when things get challenging, we can work through that. And that’s a big piece to us, is making sure that we have those strong lines of communications. Because our thesis is pretty simple. We can get through the economic cycles, we can get through the ups and downs. As long as we have really good communications, that checks a huge box for us.

[00:19:18.930] – Sean

Right on. When you’re in the kind of due diligence process and talking to these founders, I love hearing other VCs talk about this, is they look for founders who are teachable, because there’s founders out there that know everything, even though they don’t. Then there’s founders that are like, I need to learn more. They aspire to keep learning. And if you have ideas, they totally welcome them with open arms.

[00:19:45.010] – Patrick

Completely agree. And so we are big believer in peer groups. I’m a member of Entrepreneurs organization commonly known as EO. So we look for that. We don’t require it, but we highly encourage all our founders to be in. It doesn’t matter to us too much if it’s EO YPO CEO Roundtable Vistage we want them to have peer groups. We want them to have support networks. And so that is a big indicator to us. Like you said, Sean are they teachable. And that’s what we want, is to have them be receptive to new ideas. Now, on the flip side, we don’t take board seats. We don’t dictate strategy. And so we’re a little bit like Warren Buffett and Berkshire Hathaway. From the standpoint of when we invest in a business, we need to trust that Adele’s just going to continue to do well building babies on the Broadway. And so we don’t go in there and dictate hiring and strategy, that’s completely up to her. Now, when she comes and asks of like hey, I need some help finding a new employee to run a store or whatever, all ears. And we do everything we can to connect the dots and help find resources for that.

[00:20:59.090] – Patrick

We don’t try to tell people what to do because if we did, that probably wouldn’t make it through our underwriting process.

[00:21:05.250] – Sean

Right?

[00:21:05.830] – Patrick

There’s that fine balance of they want to be teachable, but they need to have the confidence and they need to be going and doing their thing and executing to that, but continue to surround themselves, continue to get better and better. And I live a day to day as the founder behind Hill Capital Corporation. I could speak volumes for the things I’ve gotten out of my association with entrepreneurs, organization and things I’ve learned from my peers as entrepreneurs that have helped me tremendously in my journey. So I find it very invaluable.

[00:21:34.580] – Sean

Right. You can’t go at it alone. You have to build a network and.

[00:21:38.670] – Patrick

It’S extremely lonely and it’s very dangerous too. Entrepreneurship can be very dangerous and if people aren’t really understanding the risks associated with losing money and it’s tough.

[00:21:52.840] – Sean

What else do you look for outside of the CEO? Do you have a minimum revenue you like to?

[00:21:59.750] – Patrick

Typically when we’re speaking on public we would talk about companies typically having a couple million in revenue. But when we invest in Cytotherics, they had no revenue. So for us, what we frame it up as Sean is we will take execution risk, we don’t take concept risk. So if there’s a bunch of money that needs to be spent on figuring it out, then they should be going to things like accelerators or startup weekends and doing other things to kind of figure it out. But revenue just happens to be highly correlated with something have been figured out. And so when something has a definite fit, that product or service definitely has a fit in the marketplace. That’s where the rubber meets the road for us. And so, at the end of the day, it doesn’t matter too much if it’s a few hundred thousand of revenue. And we’re underwriting a business today that’s 40 million of revenue, which is way larger than we ever dreamed of. But for us, it’s all about making sure that the product and services in the market and has a fit there and then can we help it, take it to the next level.

[00:23:06.330] – Sean

Got it. Product market fit is definitely needed. I talked to some VCs and they’re rigid on those dollars. We want to see minimum of whether it’s 2 million, 5 million, whatever. So that’s good to know. You care more about product market Fit, not so much revenue.

[00:23:24.010] – Patrick

Correct. And a big reason too is because if we were too close minded on this, we wouldn’t have invested in Cytotherx. And Cytotherics is a wonderful business, and there’s a number of companies I mean, we first met Mercedes in 2019, and we just made this investment here in 2023. But a lot of times we will speak to founders, get to know them, support them, ask them to come to our events, like empire builders, or refer them to 1 million cups and stay in touch, and they’ll circle back. And so we always love to have the conversation. We help wherever we can, but you just never quite know when something can pleasantly surprise you. And so, for those reasons, we always like to have a conversation and not be too rigid on something. Like, it has to be exactly over $2 million. To me, that’s nonsensical, quite frankly.

[00:24:16.440] – Sean

Right. Let’s take a quick commercial break. Have you ever lost money in the stock market? Maybe you heard or saw a comment on YouTube, TikTok Reddit, or another social platform, or maybe you just received bad advice from a friend. Yeah, I think we’ve all been there. Most people lose money in the stock market because they make decisions based on emotions. What if you could remove emotions from investing? What if you could make consistent returns in the stock market based solely on logic? And what if there’s a software that could handle that logic for you? Introducing Tykr, a platform that helps you manage your investments with confidence. Get started today with a free trial. Visit Tykr.com. That’s tykr.com again Tykr.com. All right, back to the show. And then what is your minimum investment size?

[00:25:04.690] – Patrick

Great question. So we invest half a million to a million dollars, and we stick to that. So that is one of our key criteria. So a company really needs to have a capital need in that range. Now, if they need more, like, Cytotherics was raising over $10 million at the time. When we got to know them, that’s fine, because they had other investors that were coming in, and we were able to come in as part of that round, and that’s completely fine. We helped kind of top the tank, but for our check size, it’s always a half a million to a million dollars.

[00:25:38.080] – Sean

Got it. Okay. And it sounds like you’re definitely seed round.

[00:25:42.910] – Patrick

Yeah, I’m not a huge fan of labeling rounds.

[00:25:45.930] – Sean

Okay.

[00:25:46.700] – Patrick

People tell you have different criteria for precede seed. I think these labels are really a disservice to entrepreneurs. So one could frame it as that. The other reason is, too, is when people label that that may be appropriate for traditional venture capital rounds. When we invested in babies in Broadway and Mercury Mosaics and so forth, they didn’t label their round as a seed or Series A and so forth. But I could make the argument that it’s like Series A capital or seed capital, depending how people frame it up. But I shy away from the labels.

[00:26:20.820] – Sean

I love it that’s more that Warren Buffett thinking. Like, we’re not here to put labels on it. We’re here to make money and make you. That’s it.

[00:26:28.430] – Patrick

Yeah, exactly. So if a business needs capital and to get to the next level, we want to have the conversation. Yeah.

[00:26:35.500] – Sean

I was with one of these large VC firms. It was a networking event and very corporate, very rigorous. And they’re like, we only do Series A, and not even anything in that seed and nothing B. Even if it tips over the scale a little bit in either direction, it’s like, we’re only this and that’s the way it is. Okay. I get how it would be working with you.

[00:27:00.710] – Patrick

The funny thing is, like, if you Google Series A, there’s a ton of different definitions, and it’s something different to everyone else. And so why a fund or a firm would put themselves out there as only doing this thing that’s labeled as such it’s one thing to have criteria, but to just say we only do Series A, it just doesn’t quite make sense to me. But again, I think very differently than the vast, vast majority of venture capitalists.

[00:27:25.220] – Sean

Right. We’ve got a lot of, like I said before the show, a lot of investors and a lot of entrepreneurs. They’re looking to start a business. Maybe they did start a business. They really want to get things going in this audience because they talked to me offline, they’re like, we like to be tactical. We want to know what actions we can take. Do you have any really hot tips you can give the entrepreneurs today, things they can do to really move the needle with their own business?

[00:27:52.010] – Patrick

Well, from a personal point of view, my hottest tip and what has moved the needle for me, in my experience, is get out there and to network with other entrepreneurs. So join groups like Entrepreneurs Organization, go to events like 1 Million Cups that was started by the Coffee Foundation. There’s a ton of events happening around entrepreneurship these days. So whatever’s happening around you, wherever you live, that’s where I think the best piece is, is for someone to kind of break out or to be able to go out on their own and to share insights with others that have done it. That’s where I’ve seen all where the rubbers met. The road for everybody is when they talk to other entrepreneurs, other peers, and share those insights, that they’re able to kind of get the traction on their own.

[00:28:39.430] – Sean

Sure. I love that. I remember starting a previous business in the business agency, and that’s one thing that really did help accelerate was get into networking groups, start shaking hands. You don’t know who these people know, but that’s how introductions are made.

[00:28:56.160] – Patrick

Exactly.

[00:28:59.050] – Sean

What else? Anything else tactical you can give our audience things they can do right now.

[00:29:04.060] – Patrick

Things that they can do right now is always get more comfortable with the topic. Of money. Money is always challenging. I’ve been in finance my whole career. It took me a long time, it was just a number of years ago I realized I love finance and I hate accounting. And I was at an event. It was called Cash Day, run by EO Accelerator. And I realized I was the Cobbler’s kid. I loved helping my clients doing corporate development, which is merger acquisition work and financial modeling and capital formation. But I was terrible at the things that were actually paying my bills, and that is invoicing collecting and all that stuff. And so money is challenging for every entrepreneur and it doesn’t matter how young or old or how long they’ve been doing it, it can be complex. And it’s a big reason why I wrote the book Breakout Valuation, was to really help entrepreneurs get a good pulse on how money moves in a business and how to create value. Understanding how money moves in a business and so wherever your audience can get comfortable with the topic of money is going to be very beneficial.

[00:30:15.890] – Patrick

And I know you do a lot for people around, like thinking about investing. But anything where Cash is moving, not only in investing, but for building a business and how you can get a profit on that business and make it valuable someday. You can never start early enough. And there’s a lot of work to do there, right?

[00:30:34.090] – Sean

And I always say it’s so much easier when your numbers are smaller to create airtight systems and processes, because as you start to scale, you can see where the dollars are going.

[00:30:46.860] – Patrick

Yeah, it just by default, it compounds and gets more and more. If you’re starting a business, set up your accounting software and take the time to kind of understand how these things work and then you can get a bookkeeper and so forth. But you have to have some baseline. Because the reason I’m so passionate about that, Sean, is I’m so tired and the reason why I wrote the book is I’m so tired of seeing entrepreneurs get fleeced. And it happens all the time. They get fleeced by CFOs bookkeepers other founders in the business. It happens all the time. And so no matter somebody’s background, all entrepreneurs have to get some familiarity with numbers. They don’t have to be accounting gurus or finance gurus or anything close to it, but they have to be familiar with how money moves in and out of a business so they don’t get taken advantage of someday.

[00:31:38.110] – Sean

With that in mind, I know we’re going to transition to the rapid fire round here shortly, but the book is titled Breakout Valuation. Why don’t you tell us a little bit more about the book and then later on in the episode we’ll have you promote it where people can get their hands on it.

[00:31:53.000] – Patrick

Sure. So Breakout is all about getting the value today based on what a business can do in the future. And so in the book, I talk about the things that really drive value in a business. And the reason I did that is because I was at an event a number of years ago, and entrepreneurs were talking about getting an EBITDA multiple. And it hit me. I’m like, oh, my gosh, Wall Street got you. Because I was there when the term EBITDA was made up. And it’s not a term that should be mainstream. And EBITDA multiples are very misleading, especially for entrepreneurs. And so that’s why I wrote the book, to help them redirect their focus to what really builds value in a business. Things like a magnetic vision and culture and innovation and the things that really build value in a business. And so that’s what the book is all about. It’s really helping entrepreneurs get value today based on what a business can do in the future, so they can build a valuable assets for them and for their families.

[00:32:52.400] – Sean

Love it. All right, well, let’s transition to the Rapid Fire round. This is the part of the episode where we get to find out who Patrick really is. If you can, try to answer each question in 15 seconds or less. You ready?

[00:33:04.350] – Patrick

Let’s rock.

[00:33:05.310] – Sean

All right, what is your favorite podcast?

[00:33:07.950] – Patrick

My favorite podcast is Econ Talk by Russ Roberts. It was one of the first podcasts I ever listened to, and I still do today religiously.

[00:33:16.750] – Sean

Thanks for the tip. All right, next up, what is a recent book you read and would recommend?

[00:33:21.790] – Patrick

Recent book I read, it was mailed to me by an entrepreneur I met while attending the Berkshire Hathaway annual meeting in Omaha. And it’s ten X is easier than two X, and it’s one of Dan Sullivan and Dr. Hardy’s new books and loved it.

[00:33:37.750] – Sean

Another guest just recommended that I literally ordered it that same day. So it’s sitting on my shelf right here. Nice. Cool. All right, I’m a total movie nerd. I have to ask, what’s your favorite movie?

[00:33:48.880] – Patrick

Dead Poet Society.

[00:33:50.470] – Sean

Really? Okay. Classic Robin Williams.

[00:33:53.780] – Patrick

A lot of good life lessons.

[00:33:55.520] – Sean

Yeah, yeah.

[00:33:56.540] – Patrick

Great.

[00:33:56.810] – Sean

Great cast. Wow. All right, we got a few business questions here, starting with what is the worst business advice or worst advice, in general, you ever received?

[00:34:07.150] – Patrick

I think the worst advice I’d ever received is this idea that I’d learned early in my career of always be selling. I think it’s really bad advice. You can see those people coming from a mile away, and everybody yes.

[00:34:22.050] – Sean

Great call. All right, flip the equation. What is the best advice you ever received?

[00:34:26.730] – Patrick

The best advice I’ve ever received is be yourself. So a very good friend of mine is a professional actor, and he actually teaches people to give talks, and his name is Chris Carlson. And so when I was giving a prepping for a keynote ten years ago, chris had helped me out, and he just said, Remember to be yourself. So you are speaking naturally and things come out so you can engage with your audience and don’t worry about the rest, because that’s what you need is to be able to connect with people and to be yourself. And so that stuck with me, and it has served me very well.

[00:35:01.810] – Sean

Nice. Is he based out of North Dakota?

[00:35:05.030] – Patrick

He is based out of Minneapolis.

[00:35:07.260] – Sean

Okay.

[00:35:07.760] – Patrick

Unfortunately, it’s quite a common name. It’s chris M. Carlson.

[00:35:11.470] – Sean

Okay, got it. I was jumping on. The site I use often is IMDb Internet Movie database. And there’s a Chris Carlson I found.

[00:35:18.140] – Patrick

Oh, sure, yeah.

[00:35:19.960] – Sean

But you’re right. Very common name.

[00:35:21.590] – Patrick

Anyway, he does more theater production than he does.

[00:35:25.110] – Sean

Okay. Okay. Gotcha. All right. And now we have the time machine question. If you could go back in time to give your younger self advice, what age would you visit and what would you say?

[00:35:35.070] – Patrick

Well, I would probably go back to the six, eight year old self or at some point where I could really remember and kind of shake the kid. But I would tell him, like, breathe through your nose. Breathe through your nose. So I read a book recently called Breath by James Nestor. Absolutely. Transformational to me in my life.

[00:35:55.890] – Sean

You have my interest here. Go a little it. Yeah. Talk a little bit more about that.

[00:36:01.120] – Patrick

So there’s a lot to this, but I grew up with allergies and asthma, and I’m fairly convinced it may not have solved all of that, but it would have been massively different if I had learned to breathe through my nose. So the story I can give that’s a real example, Sean, is I’m not a runner. I actually hate running, but I started to run a little bit a few years ago because when my kids are little, it’s about the only exercise I could get. Well, I was running, and it’s fine. I read this book and I went out for a run one day, and I said, I’m going to try running, just breathing through my nose. It was as gross as it sounds. It was hard. But then after about a mile, it kind of got easy. Now. That’s all I do. And again, I don’t run. And last summer I went for a run, I force Gumped it, and I just started running, breathing through my nose. I end up running 28 miles that day and saying that I’m in disbelief because I’ve never run a marathon, I’ve never run a race. That’s not me.

[00:37:04.180] – Patrick

But the power of being able to breathe through the nose and regulate your breath and the filtering mechanism and what it does to the oxygen in your bloodstream is amazing. And the research that James Nestor has done in that book was Transformational for the Rest of My Life.

[00:37:23.180] – Sean

This is the book called Breathe?

[00:37:25.330] – Patrick

Yes.

[00:37:25.950] – Sean

Book is called Breathe. Okay. Interesting. I’ve always been very in tune to health and fitness optimizing, both nutrition and my fitness, so I don’t injure myself. I’m now 40, and I’ve had some injuries through the years that take a while to recover from. It’s like, yeah, let’s not do stupid things like that anymore. So those things I’ve been able to learn, but the breathing, that’s a new one for me.

[00:37:51.910] – Patrick

Once you get familiar with this and you read a bit about this, when you go out for a run and you see people huffing through their mouth, or you go to your gym and you start seeing people breathe through your mouth, you can’t unsee it and wow. People are breathing through their mouth and not regulating their breath. They are under oxygenated, basically.

[00:38:09.900] – Sean

Got you.

[00:38:11.390] – Patrick

It’s wonderful stuff. It’s absolutely wonderful stuff. And he got into this whole stuff because of the free divers, and he wrote a number of books about free diving and that whole subject and articles and so forth, and about the power of breath.

[00:38:25.480] – Sean

This is James Nestor. Yes, got it. I just found it on Amazon. Good recommendation. Thank you. All right.

[00:38:33.300] – Patrick

I’m happy to pay it forward because I found it all from someone else.

[00:38:36.130] – Sean

That’s awesome. All right. And the last question here is, where can the audience reach you and tell us where they can get your book?

[00:38:43.800] – Patrick

Yes, so the book is available everywhere. The vast majority of sales, like everyone else, are on Amazon, and they can get a hold of me. I’m active on LinkedIn, and so if you do reach out on LinkedIn, if you just send a note, that where I met. I’m happy to if we met here on this podcast, I’m happy to connect and accept there and then. Also, it’s Patrick@breakoutvaluation.com. So if anybody wants to email me directly or ask any questions, I try to be as open and available as I possibly can.

[00:39:14.190] – Sean

Awesome. Thank you so much for your time, Patrick. This was great.

[00:39:17.440] – Patrick

Yeah. Thank you, Sean. This was a lot of fun. I appreciate the opportunity.

[00:39:20.880] – Sean

All right, we’ll talk to you soon. Hey, I’d like to say thank you for checking out this podcast. I know there’s a lot of other podcasts you could be listening to, so thanks for spending some time with me. Also, if you have a moment, could you please head over to Apple podcast and leave a review? The more reviews we get, the more Apple will share this podcast with the world. So thanks for doing that. And last thing, if you do hear any stocks mentioned on this podcast, please keep in mind this podcast is for entertainment purposes only. Please do not make a buy or sell decision based solely on what you hear. All right, thanks for your time. We’ll talk to you later. See ya.