Pedro Rojas On Five Things You Need To Know If You Want To Build, Scale and Prepare Your Business For a Lucrative Exit

An Interview With Jason Hartman

Market Potential — A Key Selling Point: Viability as an acquisition target hinges on market potential. Attractiveness to buyers is determined by the addressable market’s size and growth prospects. If a market’s growth is limited, selling the business becomes challenging. Consider a scenario like VHS tape manufacturing, where demand is waning. Investors seek dynamic prospects for lucrative exits, making market potential a cornerstone.

As a part of our series about “Five Things You Need To Know If You Want To Build, Scale and Prepare Your Business For a Lucrative Exit, I had the pleasure of interviewing Pedro Rojas.

Pedro Rojas is the Founder and President of Platano Advisors. He has over half a decade of experience specializing in M&A in the healthcare industry. He is responsible for having built one of the largest and fastest-growing full-service healthcare acquisition engine in the healthcare industry. Pedro founded Platano Advisors in 2023 with the mission of providing physicians and practice owners with the knowledge and advisory to grow and scale their businesses, achieving hyper growth. Pedro received his B.S. in Finance from Florida International University, and his MBA from IE Business School in Madrid.

Thank you so much for doing this with us! Before we dive in, our readers would love to learn a bit more about you. Can you tell us a story about what brought you to this specific career path?

My career is primarily in acquiring small businesses. While I have worked with very large organizations and publicly traded companies, I have always enjoyed the impact you can have in small organizations — especially those in the startup space. I have decided to focus on working with these smaller organizations, because you can have a larger impact on them.

Can you share a story about the funniest mistake you made when you were first starting? Can you tell us what lesson you learned from that?

There have been plenty of them. It’s not a specific mistake — but something I had to bridge and work through. When I started my career in M&A, I was basically thrown to the wolves, and had to learn from mistakes. When I was starting, I didn’t have that much experience in business, and didn’t always know what I was talking about. Funny enough, I was tasked to convince tenured business owners to sell their business to our organization. It was probably very amusing for the owners (and frustrating) to speak with someone who didn’t have much experience, but those situations required me to be better and step up what I had to offer clients.

Can you please give us your favorite “Life Lesson Quote”? Can you share how that was relevant to you in your life?

There’s one that’s been top of mind lately that is from Gary Keller, the founder of Keller Williams, which is as much as a quote as it is a framework — “What’s the one thing you can do, such that by doing it, everything else will be easier or unnecessary?” You should always be striving to improve everything you do. Simplicity is key.

Ok super. Thank you for all of that. Let’s now shift to the main part of our discussion. Can you tell us a story about how you were able to build a business from scratch, scale and sell it to a bigger firm?

Understanding your business’s current standing in terms of enterprise value is vital. This involves factors such as a substantial customer base, profitability, leveraging capabilities, and human capital, all contributing to a buyer’s recognition of their power. This progression transforms a startup into a stage where enterprise value is established.

Though it might seem complex, comprehending investor value is essential. Investors are often categorized as either “financial investors” who prioritize cash flow and profitability or “strategic investors” who focus on an organization’s future potential and synergies through mergers. Tailoring your business approach to the investor type is crucial when aiming to sell.

Having participated in numerous business transactions as a financial investor, I’ve encountered a common narrative. Entrepreneurs create profitable small businesses, subsequently being acquired by larger competitors seeking infrastructure and cash flow. This scenario often results in entrepreneurs achieving a lucrative exit, marking the end of a successful journey.

Conversely, the Silicon Valley narrative presents a different tale. Entrepreneurs tackle significant problems with strategic investors like angels, venture capitalists, and funds investing in early-stage endeavors. The hope is that within 5–10 years, their efforts will yield impressive results. As a personal anecdote, a friend of mine illustrated this phenomenon by crafting a $20M valuation for their business within a month of inception. Despite having minimalistic assets, their adept articulation of the problem-solving approach attracted strategic investment, showcasing the dynamism of capitalism.

This dynamic interplay between financial and strategic investment models highlights the diverse pathways and potential outcomes for businesses seeking growth and capital infusion.

Based on your experience, can you share with our readers the “Five Things You Need To Know If You Want To Build, Scale and Prepare Your Business For a Lucrative Exit”? Please give a story or example for each.

1. People — Building a Strong Team: At the heart of your business lies its people. Cultivating a proficient leadership team alongside high-performing employees is pivotal. A shared understanding of roles and contributions to overall success is essential. As organizations grow, a layered management structure often evolves. For businesses generating less than $2M in revenue, the entrepreneur often embodies the organization. Scaling to $2M-$10M calls for a structured leadership team including CEO, COO, Head of Sales and Marketing, CFO, etc. Larger enterprises establish departments with middle management beneath these roles. Though not rigid, this pattern frequently emerges from experience.
2. Processes — Enabling Business Independence: For a seamless transition, a business’s operational independence is vital. Many businesses fail to sell due to dependency on the owner’s presence. Buyers are wary of acquiring a venture contingent on specific talent. The ability for the team to function autonomously is key. This challenge is familiar to consultants whose business revolves around personal knowledge. To enhance sale potential, a consulting firm must establish processes for client acquisition, support, staff, and systems.
3. Market Potential — A Key Selling Point: Viability as an acquisition target hinges on market potential. Attractiveness to buyers is determined by the addressable market’s size and growth prospects. If a market’s growth is limited, selling the business becomes challenging. Consider a scenario like VHS tape manufacturing, where demand is waning. Investors seek dynamic prospects for lucrative exits, making market potential a cornerstone.
4. Leveraging Systems and Technology: Elevating enterprise value significantly relies on systems and technology. Technology’s potential to drive innovation, scalability, and competitive advantage is undeniable. Amazon’s trailblazing example illustrates this. Their One-Click Purchase innovation eliminated checkout friction, streamlining the shopping experience. Additionally, their data-insights engine enhanced customer engagement through personalized recommendations. Such technological advancements bolster enterprise value and investor appeal.
5. Harnessing the Power of Media: Media emerges as a potent lever for enterprise value creation. The advent of social media has empowered small businesses to amplify their voice and extend reach remarkably. Savvy investors recognize this potential and leverage a company’s media presence as a synergy tool. Channels like blogs, YouTube, Instagram, and TikTok are harnessed to promote products and services within a niche. The beauty lies in the potential for merging such media-centric businesses, multiplying returns and capitalizing on this dynamic avenue of growth.

By strategically capitalizing on the power of people, optimized processes, expansive market potential, cutting-edge technology, and dynamic media strategies, businesses position themselves for success, growth, and ultimately, a rewarding exit.

In your experience, is there a difference in approach for building a service-based business versus a product-based business when you have the intent to eventually sell the business? Can you explain?

Yes. Service-based organizations, likely require little to no capital to jumpstart and reach profitability quickly. My first service-based business turned profitable in the first week. Think about it, it was just me and a laptop providing a service. However, these businesses are a lot harder to scale. To scale, you will have to add more staff (expensive and labor intensive) or remove painful and time consuming areas of the process through technology, which can be very difficult and not straightforward.

Product-based businesses on the other hand, require more capital to start. Depending on the organization you will need to spend some dollars on R&D. Just with these two variables, it will take some time until the organization sees a dollar of profit. On the other hand, once the organization reaches product-market fit, the organization is a lot easier to scale as it literally just needs money for ads and to keep on manufacturing (and fulfilling orders).

How does one go about the process of finding a buyer?

This is quite simple. People tend to be scared, but, you need to look at competitors. Those are your buyers. If they are in your industry at a higher level, they are your number one candidate to be a buyer.

To find strategic investors, it is more complex. You do need to have a deep understanding of the industry that you operate and how other businesses can make a lot more money just by acquiring your business. Then you also have to be ready to answer the question “why are you not doing this yourself?”.

How can one decide if it is better to build a business in order to exit, or if it is better to stick around for the long term and let the company bring in residual income, or if it is better to go public?

Let’s talk about going public… you have access to capital. When anyone can invest, accessing capital is easier. You need to understand if you need it. You’ll be under scrutiny, and it’s a heavy lift for compliance. This can all seem undesirable to entrepreneurs. Having a business that runs on its own and is running long enough for residual income can be difficult to obtain, because businesses always require oversight, which can only be reliably done with a good operator. If you exit the business or run it, true wealth is generated when there’s a liquidation event, raising capital. It’s a long road for cash flow without management, and it will take a long time to amass wealth. Whereas if you sell the business, you can have money within 30 days.

Can you share a few ways that are used to determine a good selling price for the business?

Unveiling Business Valuation: A Blend of Science and Art:

The essence of business valuation is a blend of science and art. A crucial starting point involves analyzing investor stakes. There are two distinct categories: financial investors and strategic investors, each with their unique approach.

Financial Investors’ Lens: Profitability as the Pivot:

Financial investors are predominantly focused on financials, employing standard valuation methods that emphasize profitability. This methodology draws parallels to real estate evaluations, encompassing market dynamics and variables. For instance, in a hair salon business context, cash flow becomes paramount. A typical sale price ranges between 3–5 times the cash flow. The business’s solidity significantly influences the valuation outcome.

Strategic Investors’ Holistic Perspective:

Conversely, strategic investors adopt a broader perspective. They assess not only the business’s assets but also the potential synergies post-acquisition. This comprehensive evaluation results in an augmented final valuation. Consider a scenario where a network of salon products exists; this could tap into an existing customer base, amplifying the overall value. This valuation process is inherently intricate. While buyers anticipate upsides, implementing synergies entails risk and is contingent on future expectations.

Navigating the Complex Valuation Landscape:

The intricate nature of valuation underscores its complexity. Strategic investors bring forward-looking foresight, merging assets and anticipating synergistic gains. This future-oriented approach introduces intricacies tied to risk and reward. Overall, valuation represents a dynamic interplay of methodologies and perspectives, encompassing both quantitative and qualitative factors.

You are a person of great influence. If you could inspire a movement that would bring the most amount of good to the most amount of people, what would that be? You never know what your idea can trigger. :-)

I would like to influence business owners to understand that an exit is not losing the game. It’s the moment when they can capitalize on their gains and their efforts over the years, and to be able to capitalize on the gains and significantly build wealth for themselves and their family.

How can our readers follow you on social media?

Follow @Iamplatanoguy on Instagram!

Thank you so much for joining us. This was very inspirational.

About The Interviewer: Jason Hartman is the Founder and CEO of Empowered Investor. Jason has been involved in several thousand real estate transactions and has owned income properties in 11 states and 17 cities. Empowered Investor helps people achieve The American Dream of financial freedom by purchasing income property in prudent markets nationwide. Jason’s Complete Solution for Real Estate Investors™ is a comprehensive system providing real estate investors with education, research, resources and technology to deal with all areas of their income property investment needs. Through Jason’s podcasts, educational events, referrals, mentoring and software to track your investments, investors can easily locate, finance and purchase properties in these exceptional markets with confidence and peace of mind.

Starting with very little, Jason, while still in college at the age of 19, embarked on a career in real estate. While brokering properties for clients, he was investing in his own portfolio along the way. Through creativity, persistence and hard work, he earned a number of prestigious industry awards and became a young multi-millionaire. Jason purchased a California real estate brokerage firm that was later acquired by Coldwell Banker. He combined his dedication and business talents to become a successful entrepreneur, public speaker, author, and media personality. Over the years he developed his Complete Solution for Real Estate Investors™ where his innovative firm educates and assists investors in acquiring prudent investments nationwide for their portfolio. Jason’s sought after educational events, speaking engagements, and his popular “Creating Wealth Podcast” inspire and empower hundreds of thousands of people in 189 countries worldwide.

While running his successful real estate and media businesses, Jason also believes that giving back to the community plays an important role in building strong personal relationships. He established The Jason Hartman Foundation in 2005 to provide financial literacy education to young adults providing the all-important real world skills not taught in school which are the key to the financial stability and success of future generations. We’re in a global monetary crisis caused by decades of misguided policies and the cycle of financial dependence has to be broken, literacy and self-reliance are a good start. Visit JasonHartman.com for free materials and resources.