Eric Grafstrom – How to Capture the Value You’ve Built When It’s Time to Exit

Intro: Broadcasting live from the Business RadioX studios in Houston, Texas. It’s time for Houston Business Radio. Now, here’s your host.

Trisha Stetzel: Hello, Houston. Trisha Stetzel here bringing you another episode of Houston Business Radio. Today’s guest is Eric Grafstrom, founder and CEO of Exit Guide, an online platform that helps small business owners get their companies ready to sell. Eric began his career at Broadcast.com before moving to Yahoo! And has since served as an executive for dozens of early stage tech companies in Silicon Valley. With Exit Guide, he’s bringing that expertise to Main Street, giving small business owners the tools and guidance they need to plan for successful exit, from understanding market dynamics to avoiding costly mistakes. Eric’s mission is to make sure owners are prepared to capture the value they build when it’s time to move on. Eric, welcome to the show.

Eric Grafstrom : Great to be here, Trisha. Excited for the conversation.

Trisha Stetzel: Yeah, I’m a long time coming. I think it’s taken us a little while to get here. I’m glad. And we also have someone in common. I’m just going to shout out to Chris Gay.

Eric Grafstrom : Ah, yes.

Trisha Stetzel: I’m sure he’ll listen.

Eric Grafstrom : That’s right, that’s right.

Trisha Stetzel: All right, Eric, tell us a little bit more about you and how you found your way into this business.

Eric Grafstrom : You know, I’ve had a long career in entrepreneurship. It actually started, um, speaking of Chris Gay, who I met when we were freshmen in college. Uh, he would have witnessed one of my first ventures, which is I was selling t shirts, um, and made enough money to buy a car in college and didn’t think about that as the first step in entrepreneurial journey at the time. But, um, you know, that’s kind of what happened. And so graduated, worked in politics, whole nother story. Met a guy in Dallas that, you know, after the campaign that said, you know, I’m working at this new company and, uh, you know, when all my friends were going and going off to MBA programs and law school and jobs with salaries and stability, um, I made the, the, the decision that it would be wise to try to sell webcasting when people did not have sound cards and speakers in 1996. So, um, yeah. Yeah. Um, ADHD does carry through adulthood. Just if anybody if anybody’s like, do you outgrow it? Um, would have been a wise question to ask. But it worked out. And, you know, from there, it just kind of led me to this career of of, you know, starting and building and growing companies. And most of the time it does not work out, and sometimes it does.

Eric Grafstrom : Uh, but through that, you know, I kind of evolved and I was taking a lot of these executive roles. And what I realized was, you know, when you look at, you know, the US market, I mean, small business, Main Street businesses are a massive it’s about 40% of our GDP. And you know, as a tech entrepreneur, I noticed that that, you know, this trend, which we’ll talk about more of people who are going to eventually need to retire and get out of these businesses, most of them are just simply not going to get served because they can’t afford or access people, M&A advisers, bankers, lawyers, things of that nature. So how can we create an online service that allows them to do most and maybe in some cases, all of the work that maybe a broker or someone else may do. Now we’re not out to replace brokers. We’re not out to to replace business advisors. We are there to serve that end of the market that that they just simply the unit economics just don’t make sense for them to help out. So we’re there for the very long tail of small Main Street business owners who need to figure this out.

Trisha Stetzel: I love that. That’s fantastic. And you’ve had yeah, entrepreneurship comes in so many different packages and selling t shirts. That’s one way we get there, right? And we can’t help ourselves. Yeah, I think I’ve been called a serial entrepreneur somewhere in my background, so I totally get it. Absolutely. Um, you talk about the trend of people buying what some would call boring businesses. So what’s driving that movement and what do you see in the market dynamics right now?

Eric Grafstrom : You know what’s driving the the the the movement is demographics. I, I kind of started on this journey a couple of years ago. And, and what I’ve observed is, um, you know, it’s it’s it’s a natural trend. I’m not going to say it’s healthy or unhealthy, but it’s it seems to have reached or is reaching a fever pitch where you notice some influencers are coming in and saying, okay, buy my course, and here’s a seminar and things like that. And some of it’s good. A lot of it is maybe not worth the money in the time. Um, and so what you have though is, is when I really kind of look at this and I think this is a bit of a myth when people think about this. So 90% of small businesses in the US are worth less than $2 million. So most of them are really small. The people who have businesses that are worth five, ten, 15, $20 million, they are considered small businesses. They can afford to get the help when the time comes. Someone who will help them package it, present it, engage a buyer, move through due diligence, and close the deal. But again, when you look at it, you know the businesses you know about 9% just are really small. They’re 300,000, 600,000, maybe 1 million to 1,000,005. So how do we educate and empower these people? And I like to say, look, we have tools.

Eric Grafstrom : We have a dashboard. We do this in a way that that is very technology driven, kind of like a Legalzoom or TurboTax. But how do we do this in a way that gives them, you know, comfort and confidence? And so, um, the the market is not quite Um is rich and is deep with people. Think of it, you know, just the fantasy of, you know, some 72 year old guy sitting in a warehouse with post-it notes and sticky paper, and he just has no idea that it’s just throwing off cash flow. And if he just digitized it, I mean, I do get people who want to ask about that. I’m like, look, that’s just that may have happened 15, 20 years ago. But in this day and age, uh, with self-funded searchers, search funds, private equity and others, there’s so many people that are trying to kind of move into this space and, and largely because of, of, you know, what they’re seeking, they’re all competing for that same 5 to 8% of the market. So, you know, I’ve taken a kind of a counterintuitive approach, which is I want to help the really, really small guy, but I’m not looking to build a service based company. I’m looking to build kind of legalzoom for business exits.

Trisha Stetzel: Okay. Yeah, I like that. So I did use the words boring business. I want to make sure that we don’t offend anybody.

Speaker4: They’re boring. Businesses are great. Look, I will say with.

Eric Grafstrom : Confidence and conviction, as a total Silicon Valley nerd insider, I spent 20 plus years in that. Um, it’s not as cool as everybody thinks. And you know what? I rather go join some hotshot venture backed business in Palo Alto. Um, or, you know, sell the yellow paint that goes on the roads that everybody has to have. Trisha, give me the yellow paint business all day, every day, and twice on Sunday. So, um, there are great businesses. It’s stuff we need.

Trisha Stetzel: Yeah, it’s absolutely true. Absolutely true. Well, and it’s all relative when we’re talking about boring businesses, what’s boring to you may not be boring to me or boring to somebody else, right? So who knows? I have a business walking dogs and some people might say you must be crazy was my first business. It’s 16 years old and I still continue to love that. Industry might be boring to others, not to me.

Eric Grafstrom : How can you go wrong?

Trisha Stetzel: I know.

Eric Grafstrom : Right?

Trisha Stetzel: Two thirds of every household has a pet, so why not?

Eric Grafstrom : Yeah.

Trisha Stetzel: Um. Okay. I’m loving this conversation. I had no idea. And I’m. I’m in the business coaching space that 90% of our businesses are really so much smaller than I. Than I thought they were. So can we talk a little bit about beginning with the end in mind? I know we’re here to talk about exit planning, but oftentimes our business owners, when they get into business, hey, I’m going to go sell t shirts. They never think about what is five years down the road, ten years down the road. So let’s talk about that. What are your thoughts on begin with the end in mind?

Eric Grafstrom : Yeah, there’s there’s there’s two things that tend to happen. And some of this is is a longtime entrepreneur who’s, you know, coached other entrepreneurs. And so one is, you know, most of these businesses start or they get involved because they’re passionate about the thing or they’re trained at it. I’m trained as a plumber. I’m, you know, how to run restaurants, whatever it may be. Uh, is a business grows the thing they don’t always think about and find. And in my experience, it kind of hits that maybe 1 to $2 million mark is. Wait a minute. I’m no longer doing the thing that I started out doing. I’m now managing people. I’m doing all these other things and whatever it may be. So that’s surprise number one. Surprise number two is, you know, look, what I love about what Exit Guides mission is, is, you know, they’re like, well, who’s your target market? Like 100% of small business owners are going to exit. Father time remains undefeated. So the question is, is whether you’re going to do anything about it. But everyone has to go do this. And so, you know, when I look at the market, you know, if you do a tech startup, you’re thinking about the liquidity event. You want to bring investors, you want to get a ten x multiple. There’s all those pressures that are there. But you know, when you start a small business, usually it’s, hey, look, this is what I’m good at. It starts to grow and it just kind of seems to happen. And then you wake up and you’re like, okay, you know, do I have a business that’s sellable? And that’s kind of the linchpin for for why we exist. Uh, failure rate for a small business owner who tries to do this on their own is over 80%.

Trisha Stetzel: Um.

Eric Grafstrom : And if we’re going to have a flood of these coming down to the market, that’s just simply unacceptable. That’s a that’s an economic issue for our country. And so what what we want to do is we want to be able to get in there. And, you know, at a minimum, someone is starting to think about it and ask some basic questions. When do you want to exit? You know, do you have a business that’s sellable? Those are two questions that you should ask yourself and maybe get some input on. And you know, when you look at that, you know, you got to get an objective view, which is, you know, people aren’t necessarily in a small Main Street business looking at it the way they would with a venture backed startup. And, you know, it’s it’s not forward looking opportunity of, you know, things where I might be able to ten-x it’s incremental increases in the business. And so you got to have some basics in place for someone to be able to look at the business and not view it as a, you know, project that needs a whole lot of investment and elbow grease, but it’s something that they can optimize and scale.

Trisha Stetzel: Right. So two great questions to start with, right? Um, am I am I sellable or can I yeah. Can I be sellable and when do I want to sell. Right. How far down the road. So really great things to think about as you’re getting into business. So can we take a little bit deeper dive into what are the steps I should take in order to be prepared for that?

Eric Grafstrom : Yeah. And you know, this kind of, you know, falls under this umbrella of what I, you know, a lot of people like to call owner dependency. And so if you are entrenched in the business, that’s great. You’re working hard. You know, that’s it’s very admirable. Uh, and it doesn’t mean you need to be completely and totally hands off. But if you know your relationships with customers, with vendors or partners or people, just people in the community, you know, and a lot of times I see this when people have their name attached to the business. Again, nothing wrong with it. But if you’re if you’re thinking ahead, you realize that if somebody wants to to buy this business, you know, they’re going to want to run it and know that you leaving isn’t going to basically cause the business to crater. And so the thing that to really start to ask yourself about is this sellable starts with, okay, how dependent am I or how dependent is the business on on my involvement? Um, from there, it’s really starting to kind of say, okay, have I created some of the documentation if I put systems in place, do I have protocols? We don’t need a big employee handbook. Look, I’ve I’ve failed spectacularly as a as a corporate executive in very constrained environments. Shocking to anybody watching this, I’m sure. Um, but you know, it. It’s it’s, you know, the business can’t be in your head. And so some of this has to kind of get down, which is Trisha’s the person who runs all of our marketing. I know some of the metrics and things like that, but she’s got a great handle on this. And if I leave, she’s going to not only be there, but she’s going to rise to the occasion. She’s an invaluable resource. So it’s it’s a little bit of systems, it’s a little bit of documentation and process and it’s a little bit of, you know, trying to basically be honest with yourself about how dependent the business is on you showing up every day just to simply function.

Speaker5: Oh, that’s so yes.

Trisha Stetzel: Yes and yes. So I’m thinking about for those owners that are sitting out there who can’t step away and take a vacation, you need to start working on that right now. If you don’t have systems, if everything that you’re doing is in your head, you got to get it out of your head. So when you can take a vacation, you’re on your way, right you are.

Eric Grafstrom : If you can’t take a vacation from your business, you can’t sell your business. Bottom line?

Trisha Stetzel: Okay, I like that. It makes it so darn simple. So we’re about halfway through. Eric and I am sure that people want to connect with you already. So what is the best way for folks to reach out and connect with you to have a conversation?

Eric Grafstrom : Sure. It’s Eric Eric at exit Guide.com so it’s exit and guide. Just one word. And, uh, I’m generally pretty darn good about responding to emails. I’m on the social medias and all that other stuff. You can find me on LinkedIn, um, and all that good stuff. But Eric at Exit guides the easiest way.

Trisha Stetzel: Cool. Fantastic. Thanks, Eric, for that. Let’s dive into Exit Guide. Uh, I know you’re on a mission to go out there and help these businesses that are 2 million or less that are ready to get themselves ready to sell. So let’s talk more about Exit Guide and how that tool is helping these business owners get where they need to go to exit their business.

Eric Grafstrom : So really it’s just kind of a dashboard. And the dashboard allows somebody to log in, you know, they’re paying a monthly fee and it’s walking them through steps. And what are the steps? Well, the steps involve writing, uploading and inputting. And so if we had a $20 million business and I was the broker, I’d have, you know, some 27 year old analyst in the background who’d be chasing these things down and writing this stuff up and showing it to the business owner. We’re just putting that into the owner’s hands. So it starts with just kind of the basic information about your business. What’s the entity type? When did it start? How long has it been around? You know, tell me about your involvement in the community. Just so someone says, okay, now I understand the business too, is, you know, writing down, why is this a good business to buy? And, you know, it can’t be. Well, it’s just a good you know, these are things that sometimes you think in your head, you have an answer. But if you have to write more than 4 or 5 sentences, it becomes a bit of a struggle. So it’s, you know, really spending some time and thinking about that. So Organizing the story and the narrative of your business is step one. Step two is what is this worth? Okay. We use a market based valuation methodology. If you’re bigger you can use discounted cash flow. You can use other things. But for our businesses we’re just kind of trying to basically use something that’s relatively straightforward. And so that means people are going to start uploading things like PNL statements and balance sheet. And then the third step is, okay, you know, someone’s going to say, this sounds interesting because we’ve created a package for you.

Eric Grafstrom : But then the question becomes, okay, then what? So if they start to lean in and say, I’d like to learn more, that kicks off what is known as the due diligence process. And 50% of deals fall apart during due diligence. And much of this is preventable. Um, one time kills deals. So if you don’t have things and someone says, you know, they get your prospectus, they look at it, they want to engage, you sign an NDA, and if they’re waiting, you know, two, three, four weeks for you to, you know, generate your financials because you’re out of town and then your bookkeeper is busy and all these other things. Someone who’s looking at buying your business is probably looking at buying other businesses. And if it’s taking you considerable time to kind of just get them some basic information they feel like you should have on hand. It’s it’s probably going to affect not only the deal momentum of whether it’s going to close or not. So, you know, what we want to do is the dashboard also kind of says, okay, here’s the things you need to upload. Here’s whatever, you know, other information some of that gets packaged into, you know, how to present your business, but then some of it is more confidential information and you’re simply clicking and sharing, sharing access from the work you’ve done. We’re telling we’re kind of guiding someone through creating what in the M&A world is known as a data room. But we’re not saying you need to create a data room, because that’s just gobbledygook and doesn’t necessarily mean anything if they’re following their steps, they should actually have created that data room. Click share. And it’s going to answer most of the questions that are going to come up during due diligence.

Trisha Stetzel: Okay. So I know that there’s some business owners listening out there that don’t know their numbers. They’re afraid of the numbers. They’ve been burying their head in the sand for a really long time. All they know is how much money’s in the bank and can they pay their bills. So what would you say to those business owners that are just running from month to month right now?

Eric Grafstrom : You know, this is really, really hard. And, um, what I would say is you don’t have to know everything, but you got to know something as an entrepreneur. And I was talking with an entrepreneur last night, I said, look, you know, too often I see business owners or startup founders and they say, okay, I know I need marketing. I went and hired somebody from marketing, and she’s just doing what she’s doing. And when you dig into if you set goals, are you creating a cadence where you’re checking in and you’re measuring their performance? Oftentimes the answer is no. And so most bookkeepers in in accountants actually are pretty nice people who are happy to educate you, but they’re not going to proactively add these are not salespeople and marketers. You know, they’re they’re more reserved. But, you know, get a get a P and L statement, get a balance sheet. If you can’t figure it out, find a friend or ask your bookkeeper for an hour of their time to help walk you through it and do it a couple of times. Just start. Just start with some of the basic. Now, we’re not going to ask an owner to kind of do a deep level financial analysis, but if you don’t know your numbers, you know, again, if you don’t know your numbers, you’re not going to sell your business. So what’s the downside of not doing this? Shutting your doors. What’s the upside of doing this. You might actually be able to converse with somebody and potentially sell your business. So it’s kind of up to you as to what path you want to take.

Trisha Stetzel: Yeah, absolutely. Okay. So, um, I’ve done my due diligence, my my due diligence. I’ve gone and I’ve filled out the paperwork, I’m getting ready, and I think I’m going to go sell my business, and I want way more for it because I put all this blood, sweat and tears into my business. Let’s talk about that valuation.

Eric Grafstrom : Valuation. Valuation. The best analogy I draw for people. And sometimes I’ve had owners that they’re like, why it’s worth this? Because it could be so much more. And I said, well, you know, if I put my house on the market, I can’t be 50% above every house in the neighborhood. I mean, I can I can stick the sign in the yard, but I’m not going to get any bites because people are all going to ask, like, what’s inside? Like gold bricks or like, you know, cold fusion, like what’s happening inside that house. So you can pick any number you want. The reality is, is are you picking a number that’s, you know, in line with the market. And so that’s the first piece of this. But also you got to have a payback period. And if someone’s saying, well my payback period for this thing is 15 years, that ain’t going to fly. So what’s driving that price is is not what you want for it, but what someone’s willing to pay for it and what someone’s willing to pay for, it is going to be based on. Okay, how does this compare to some other businesses that I’m looking at, and do I think that there’s room in the business for me to to maybe increase revenue and margins, that I can have a reasonable payback period? And in three years, for example, I own 100% of the business and it’s all gravy. But if someone is coming in and you’re at a price where it’s a five, eight, ten year payback period, it’s going to be, I’m not going to say it’s impossible, but, um, you will you will need some help from from the Lord and probably other factors to make that happen. I’m not sure how it would work. It’s the best advice I could do is just pray. Yeah, yeah.

Trisha Stetzel: Well, and it’s hard, you know, when you get into and I’m going to make reference to a book, you know, you bake pies and you love pies and you make pies, and then you decide to go into business making pies, and you don’t get to make the pies anymore because you’re running the business and someone else has to make the pies, but you can’t sell the business because everyone’s so dependent on you to give them the recipe and the vendor all the things, right? Um, it’s hard as a business owner to really step away and put on that shield that says, okay, I know I love my business. I put in all the blood, sweat and tears here, but I need to really take a look at it from a buyer’s perspective, not an owner’s perspective. Yeah.

Eric Grafstrom : So as entrepreneurs, you know, this is maybe a little bit of a tough love statement, but I’m like, it’s what we signed on for, right? And it’s a hard thing. It’s easier advice to dispense than it is to to to accept for yourself. But you know, people are like do you know what I’ve put into this? I’m like, I mean, I do, and I can appreciate that. But I’m not going to say a buyer doesn’t care, but they’re going to be like, I respect that, but I’m not giving you an extra $300,000 just because you feel like you deserve it from an emotional standpoint, it’s just not. It’s just not there.

Trisha Stetzel: Yeah, we have to separate the emotion from the facts. And that’s really what this is about. So Eric, tell me for so there are some people out there right now, they’re like, okay, I’m, I’m ready to sell, but I’m not sure where to start. What would you tell them?

Eric Grafstrom : You can go to exit. Com or email me Eric at exit guide.com. Um, you know, we’re there for that. But the things that you can go do step one is, you know, get your financial statements, get PNL statement, get a balance sheet and learn, you know, if you’re not conversant in if that’s step one, like everything is gated, if you’re if you’re not able to to to to kind of have a sense of, of it. Uh, the other is start to think about, you know, when in, in, in who a potential buyer would be. Um, the worst time to sell is when you absolutely have to sell due to life circumstances or the business has had a downturn, whatever it may be. So, you know, if you’re if you’re thinking about this and planning for it is something that you’re just going to simply make a business decision, then that business decision is when the business is probably doing quite well and running at its peak, which you’re going to say, well, wait a minute, why would I sell the business if it’s making me a lot of money? Well, nobody wants to buy the business when it’s not making money. So you know, we got to get to that point.

Trisha Stetzel: Mhm. Yeah I love that. And so being comfortable with the tools that you have out there and the instructions and guiding them through the process. So you guys go send Eric an email Eric at exit Guide.com or even visit the website for more information. So last question for you as we wrap up today, for those people that are listening that don’t yet have plans or they haven’t even been thinking about selling their business, what is some practical advice that you would give them to start preparing today for when that time comes?

Eric Grafstrom : Uh, the first thing that I would do is I would review the financials and start to get conversant in that. The second thing that I would do is I would, whether it’s a friend or maybe somebody in the business community or a business coach yourself. But I would ask if if you could get some time, whether you are getting an hour of someone’s time at no cost or whether you’re paying a professional, you know, for 2 or 3 hours, what I would want someone to do is to basically do an assessment of of the readiness of my business. And, you know, what you need is you need an honest, objective view. Looking at financial statements will generate a objective valuation on the business. You may or may not like it, but it’s, you know, it’s objective. But, you know, really what you want to do is, is start with, um, you know, is is how do other how will other people look at my business. This. And if you get some some tough answers to that, you can either use that to lose hope or you can say, okay, great, I don’t need to sell this business until at least three years from now.

Eric Grafstrom : Somewhere between 3 and 5 years, I now have time to start saying, okay, what do I need to do? And you know, so if your business isn’t sellable today, then let’s get you on a pathway of working with someone like yourself who’s a coach or just somebody who can say, okay, what are we trying to get to? And it’s invaluable. I know I’m preaching to the choir here. It’s invaluable if you walk into a business coach and say, my goal is to take my valuation from $450,000 today to $800,000. And in order for me to do that, I just need a plan, and I need help, and I need some guidance on how to get there, you know? But now I know what I’m what I’m targeting. Well, then someone like yourself can come in and start to kind of say, okay, let’s look at, you know, profit margin, let’s look at systems, let’s look at things that we can do to reduce your operating expenses. That just becomes that kind of first stepping stone. So don’t worry about posting it. Don’t worry about selling it. Worry about making it sellable. Mhm.

Trisha Stetzel: Love that. And thanks for dropping those little cookies out there. For those of us who are in the business of helping them actually meet their goals, right. And maybe even creating goals as oftentimes we get into business. And I know we talked about this at the beginning, but we don’t think about when it’s time to sell. But nobody wants to just drop their business in a hole and walk away from it. We never get into business to do that. We want to leave a legacy. We want to sell it. We want to. We’re not going to be in this business forever because time is not on your side when it comes to being around forever, right? Yeah. Um, this has been so much fun, Eric.

Eric Grafstrom : Absolutely. Same here.

Trisha Stetzel: Tell people one more time the best way to reach you. And, um. Yeah.

Eric Grafstrom : And about Eric and exit. Guide.com. It’s Eric with a C. Don’t worry about Grafström. For the very small percent of your listeners who may be Swedish, it’s easy. Everybody else, don’t worry about it. So it’s Eric and exit Guide.com and reach out and, you know, reach out to Trisha. Chris gay. There’s there’s plenty of great business coaches that are out there that will work with you and say, hey, look, I know you want to exit someday. Maybe you’re not ready to kind of even start preparing your business. Maybe this is 4 or 5 years out, but we need to get the business sellable. So, um, reach out to me, and I’m always happy to direct you to people if, if, if we’re not in a position to help you. But, uh, love to hear from people.

Trisha Stetzel: Fantastic. Eric, thank you so much for being with me today. By the way, for those of you who do need to look him up and want to connect with him on LinkedIn, his last name is spelled g r a f s t r o m so that you can find him on LinkedIn or you guys, it’s so much easier, easier just to go to exit Guide.com. A calm. And by the way, as usual, I will put all of these links in the show notes. So if you’re sitting at your computer, all you have to do is point and click. If you’re in the car, wait till you get home.

Speaker6: Please do point and click while you’re in the car.

Eric Grafstrom : I don’t need that responsible. Yeah. Thank you. It was great to be with you.

Trisha Stetzel: I appreciate your time today. That’s all the time we have for today. If you found value in this conversation that I had with Eric, please share it with a fellow entrepreneur, veteran or Houston leader ready to grow. Be sure to follow, rate, and review the show. It helps us reach more bold business minds just like yours and your business. Your leadership and your legacy are built one intentional step at a time. So stay inspired, stay focused, and keep building the business and the life you deserve.