Welcome back to the 128th episode of Financial Advisor Success Podcast!
My guest on today’s podcast is Justin Goodbread. Justin is the founder of Heritage Investors, an independent RIA based in Knoxville, Tennessee that supports nearly $150 million of assets under advisement for 120 client households.
What’s unique about Justin’s firm, though, is the way they’ve crafted a niche in working with small business owners to the point that the primary asset they advise on is the client’s business, not their portfolio, and performance is tracked not via the returns of the portfolio relative to a benchmark, but by how the owner’s net worth increases over time through creating enterprise value in their business.
In this episode, we talk in depth about what exactly Justin does to advise small business owners. The way his process starts with traditional financial planning but then shifts in great depth into business planning instead, the tools that Justin uses to do an informal valuation for every small business owner client to start the conversation on increasing enterprise value, the 8 business areas of leadership, planning, sales, marketing, people, operations, finance, and legal that Justin advises on, and why Justin has found it most effective to work with small business owners by breaking his advisory fee that may be as much as $10,000 to $20,000 a year into a more business cash flow-friendly monthly subscription fee instead.
We also talk about how Justin built his marketing to reach small business owner clients. The way he created the marketing avatars of “Frazzled Frank” and “Frantic Frannie” to hone and focus his marketing messages, how becoming more laser-focused in the small business owner niche helped his marketing, the content website and podcast he launched to reach more of his target clientele, and how going deeper into the small business owner niche ironically ended out bringing him more prospects outside of his niche as well.
And be certain to listen to the end, where Justin shares the unique certifications and designations including the CEPA and the CVGA that he obtained to build his expertise in advising small business owners. The five business books he reads over and over again every year to bolster both his business advice and how to run its own advisory business more efficiently, and his perspective on how we as financial advisors can do a better job creating more enterprise value in our own firms as well.
What You’ll Learn In This Podcast Episode
- What It Means To Give Small Business Owners Advice [04:44]
- Who Justin Works With And What He Does For Them [22:15]
- How Justin Demonstrates His Value To Clients [31:09]
- The Three Tiers Of Change That Justin Uses To Help His Clients [38:15]
- How Justin’s Firm Gets Paid Under His Model [44:46]
- How Justin Uses Client Personas To Home In On His Ideal Clients [56:35]
- The Interaction Between Justin’s Two Business Segments [1:04:41]
- How Justin Developed His Unique Skill Set and Expertise [1:16:51]
- What Five Business Books Justin Reads Every Year [1:20:54]
- What Justin’s Additional Certifications Bring To The Table For Clients [1:23:48]
- How Justin Uses His Expertise For Clients Who Also Happen To Be Advisors Themselves [1:30:17]
- What Surprised Justin Most About Building His Business [1:43:22]
- What Success Means To Justin [1:51:49]
Resources Featured In This Episode:
- Justin Goodbread
- Heritage Investors
- Financially Simple
- The Ultimate Sale
- eMoney Advisor
- Corporate Value Metrics
- MAUS Business Valuation
- Certified Exit Planning Advisor (CEPA)
- Certified Value Growth Advisor (CVGA)
- Think And Grow Rich, by Napoleon Hill
- Richest Man in Babylon, George S. Clason
- Rich Dad Poor Dad, by Robert Kiyosaki
- Total Money Makeover, by Dave Ramsey
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Michael: Welcome, Justin Goodbread, to the “Financial Advisor Success” podcast.
Justin: Michael, man, I’m humbled to be here, brother.
Michael: I’m looking forward to the discussion today. We’ve had a few guests on the podcast over the past couple of months who have gone into, well, I guess, the traditional financial advisor niche of small business owners.
I started in the industry at a life insurance company. Most of the advisors there were similarly in a niche of small business owners, but small business owners niche at a life insurance company basically meant we find people who need buy-sell agreements and then we sell them the life insurance that they need to fund the buy-sell agreements. So we didn’t really do much of anything to advise small business owners aside from buy-sell agreements and the life insurance that we would use to fund it. Or if you were really lucky, the disability insurance you could do for the disability buy-sell on top of the life insurance for the life insurance buy-sell.
But you have this business in working with business owners that I think looks very different than a lot of other advisors, where the focus is actually more about literally giving the business owner advice about how to make the business more valuable as a wealth creation opportunity. And so, I’m just fascinated to talk about this world of, like, what does it really mean to specialize in small business owners when it’s not just about, like, I’m just trying to get your life insurance for your buy-sell or I’m only trying to get your liquidity event when you sell the business, but actually literally selling the value of advice to a business owner to give them business financial advice?
What It Means To Give Small Business Owners Advice [04:44]
Justin: Yeah. You just made a lot of points there. And I have to take it back to when I was 15 years old to kind of lay the dialogue to answer your question. So I started my first business cutting grass with my mom and my brother, running around in a truck with a dog in the middle of us in south Georgia cutting grass. And before you knew it, Michael, that business grew to where my brother and I were making about the same income my parents were making. And my mom and dad and their high school-educated at the time, my mom went on to receive a college education, their education, they said, “Son, you put some money back.” So I went to the “financial advisor,” I’m throwing up air quotes over here, and said, “Hey, I need to put some money back.” And the response I received was, “Hey, bud, whenever you get a little bit more money, come back and see me.” And, dude, that just left a nasty taste in my mouth.
Michael: You’re like, “I’m a teenager and I’m already making what my parents make by having started my own business from scratch and your response is, ‘Come back when you make some money.'”
Justin: Yeah. I looked at the financial world at that point and said, “Man, these guys are a bunch of arrogants.” And now fast forward some years later and I’m going…I am in the business, and I found myself one day talking to a junior Justin if you will, and said, “Buddy, we can help you.” And he said, “Well, how?” And obviously in my training at the time, it was exactly what you said, oh, yeah, sales and disability, sales and term life. Maybe put a little small, simple plan in place, etc. But as I began talking with this individual, it led into business. And here I am in the financial world at that point, have already started and sold three businesses for a profit. And so, instantly, the light bulb came off and I said, “Justin, anybody out there can sell life insurance and sell disability.” And there’s a need and market for that. I’m not bashing those individuals. But I had lived a life up to that point as a business owner and I viewed the business as the number one wealth creation tool available at that time.
And so what happened is I began working with a very close friend who was a dentist. He called me and said, “Justin, look, I just bought a practice, paid X number of dollars for this practice,” which was the average at the time for the dental offices that were selling. And he said, “Man, I’m stuck. I can’t produce any more revenue. I don’t know what to do.” So I said, “Man, let’s just talk business for a second.” I began just talking, as I now have learned what’s called value growth. But I learned, just start talking basic business with him. And Michael, after about a period of three years, he’s blowing his colleagues, his other dental office or his other dentist friends out of the water in production and net profits.
And at that moment, I’m a little slow on the uptake sometimes, but I had two individuals now that I watched their companies grow and I watched their net worths drastically increase. And from that, I said, “There’s really got to be a niche here to where we can help business owners grow their number one asset.” And sure, we’re going to do some traditional financial planning and those traditional financial services-type models like you had mentioned earlier, but ultimately, it’s about driving net worth. And so fast forward many years later, here we are.
Michael: Very cool. I love the pathway and just the whole point around the impact on people’s wealth and net worth and wealth creation value in helping them actually build and run businesses, or build and run more successful businesses if they’re somewhere along the journey already but have gotten stuck and hit the wall. It’s one of these things I’ve long observed within our industry in general and just sitting across from clients over the years. That there really is a unique thing around the value that gets created when you’re attached to a business and building a business. And obviously, a lot of people or most people don’t succeed in that. Most people don’t even go out and try and start businesses. Most of the ones who do don’t succeed. So entrepreneurship involves a very high failure rate.
But for the ones that do, we’ve… I’ve sat across the years from people that have hundreds of thousands of dollars that they saved and invested diligently and it was their life savings that would provide them a comfortable retirement. And I’ve seen people that accumulated $1 million or a few dollars because their incomes were a little bit higher, so they saved and invested a little bit more, and a few people who did particularly well of high-income doctor marries high-income lawyer. And they both live frugally and they save and invest a lot and do really well with equities for the long run and they get maybe $5 million, $6 million, $7 million. But I basically have never seen someone with more than a $10 million net worth who didn’t get there by being attached to value creation in a business. They built a business, they founded a business, they were an executive in a business who participated in the equity. Like just, you have to be attached to business creation value to get to a certain level of net worth.
And viewed from the other end, it’s like when businesses go well, the dollar amounts just get exponentially larger than what most people can save and invest towards on their own. And from the flip side, impacting the trajectory of someone’s business when they’re going down that wealth creation path is to me just orders of magnitude higher in the impact of the financial advice than almost anything else we get taught in the world of financial planning,
Justin: We entrepreneurs, and I consider we because you and I both are entrepreneurs, we think differently. And most small business owners or entrepreneurs think differently than the two-doctor family that you mentioned earlier. I honestly look at my practice or my businesses that I own and I say, “You know what? Yeah, I could take X number of dollars and throw it into a Roth IRA and over a 10-year period let’s say we average out 6%, 7%, 8%, 9% return.” Whereas I can take those same dollars and keep it or redeploy it into my business, receive some major tax benefits by doing this and have a return on my investment of 25%, 30%, 40% potentially, even sometimes 100% to 200%.
So when you’re looking at wealth creation, you’re exactly right. And at the time, whenever I started in the financial world or started in this…where I’m at today, I’m sitting here listening to my peers or my other financial friends around the world and they’re saying, “Oh, yeah, we’ve got to pull as much money out of the business as possible.” And there is a time for that. I’m not going to knock it. There’s a time to start ripping money out of the business. But from a sheer wealth creation standpoint, it’s just as a cost of capital, if you will, that we can greatly impact the net worth of a client if we know how to grow their number one asset.
See, most of us are trying to grow or we’re trying at least somewhat to grow an investment account. And we do it well, but for many business owners, 80% of their net worth is their business. And so I started running into this issue where they would say, “Hey, Justin, yeah, I don’t want to meet with you. If you’re a financial advisor, yeah, whatever, I don’t want to talk to you because you’re only dealing with, like, 1% or 2% of my net worth. And yeah, okay, so you can make 10% versus 8% versus 6%, whatever the percentage return, that’s just a bunch of gibberish. Whereas I’m looking at a net worth over here and 80% of it is my business and I’m lost. I don’t know what to do in my business to grow my net worth. Help.”
And man, whenever I started changing the dialogue, knowing business, knowing what I’ve seen in my own life and now working 100-plus clients who are business owners, it brings a different approach to being able to impact not just the business owner. See, behind every business owner, there’s also a team. There’s a bunch of people there that the business or the business owner is helping make car payments or house payments or college funds. So you’re able to impact the net worth of the business owner, but you’re also able to impact all of those team members: their employees, their strategic partners, etc. just by knowing how to drive the net worth or the equity position of that business.
Michael: Yeah, it’s a fascinating thing to me even when you just get down to interesting effects like helping you with your growth rate, right? As you mentioned earlier, we can say to the business owner, “Hey, I’ll invest your dollars, whatever that few percent is outside of your business, that chunk of net worth. And hey, if you’re a successful business owner and pull some money out, that can still be a pretty big chunk of change. And maybe I’ll try to get you an extra 1% growth, an extra 2% growth and try to lift your dollars up a little.”
But then when I look at this from the perspective of a business and the valuation of a business, if I’ve got a business that’s producing $1 million of profits in the first place, if I can lift the growth rate of that business by 1% and I put that into my discounted cash flow model, lifting the growth rate of your business by 1% could lift the enterprise value of your business by $1 million. And lifting your growth rate and your portfolio by 1% is like, “Hey, I’ll make you an extra $10 grand on your $1 million.” It’s just the way that numbers and dollars compound and the sheer impact of advice. When there’s a business in place, the impact on equity value just at some point becomes this enormous impact, which to me means huge opportunity to give advice and add value. Really add value for which then as an advisor, you can charge some pretty good advisory fees because they’re entirely justified by the value that you’re creating in the process.
Justin: And if you take it a step further, Michael, who is going to give the advice? So you have entrepreneurs over here who are dealing with life issues. “How am I going to raise more revenue? How am I going to cut expenses? How am I going to increase my margin? How are we going to market this particular widget or service that we just created? How are we going to identify our customer segmentation?” All these basic business concepts.
And it’s okay for the middle market, which is $5 million in revenue up to $100 million, but whenever you break it down to that micro market, which is $5 million in revenue annual or less, who do they talk to? They’re left talking to the CPA. And there’s a lot of great CPAs out there, but as you and I both know, so many of them in that profession have turned into more compliance jobs. So they’re now trying to get some time with a CPA who’s really just worried about making sure their tax compliance is in effect, really not offering many ideas on business. And many CPAs aren’t business owners. They’ve never been there.
Or they can talk to their insurance agent, which they realize that ultimately are going to try to sell them something. They can maybe talk to an attorney, who a lot of good attorneys, and I work with tons of business attorneys, but many times the attorneys aren’t the best with math or business concepts. They’re really good at protection. So who are they left to talk to? And what I noticed is, in corporate America, those individuals who worked in the Fortune 500 companies who maybe ran a division, retire and they come out of corporate America in their 40, 50s, or 60s and now all of a sudden they’re a consultant and they’re trying to add big corporate America concepts to micro or middle-market businesses. And the business owner is like, “Man, this isn’t going to work. I don’t have the team to implement what you’re providing to me.”
So, as I sat back and started looking at this world of my friends, that I call my business owner clients and the business owners out there, there’s a huge blue ocean there of a need for educated individuals who are fiduciaries, who’s not there to try to sell them another tax return or insurance product or a legal document or any other widget for that matter. There’s a huge need out there for business owners just to be able to sit down and have an open conversation about, “Man, I’ve got a lot of car payments to pay here. I’m scared.” Or, “You know what? I’m retiring in 10 years and all of my net worth is in my business, at least 90% of it, how do I get out of this thing?” And when we start looking at the statistics, knowing that, if we’re looking at middle-market businesses, only about 3% of middle-market businesses sell without concession for the desired price, you drop that down to the micro markets and it’s very small percentage of business owners who’s actually able to sell their business without serious concessions.
Man, the business owners, they have a right to be concerned. And there’s really not a major industry who’s helping micro and lower-middle markets in the United States. And I just viewed it as, “That’s an area that I understand. And if I can build an advisory practice around helping business owners succeed driving their net worth.” I’m really not worried about looking at a portfolio and saying, “Okay, the S&P 500 is 7%, we’re now did 6%,” or we did a 7.2% or 8%. I don’t give a flying flip about that. I’m sitting here with the client saying, like I did last night, “Look, brother, 10 years ago, you had a negative $500,000 net worth, today we’re sitting on a $2.2 million net worth. And of that $2.2 million, $700,000 of it is in liquid cash or liquid assets.” That’s a whole different conversation than saying, “Oh, yeah, we started at the beginning of the year and the S&P has done this,” whatever index you want to talk about. It’s just a different conversation.
Michael, I’ve got to tell you, man, if I had to have that conversation talking about returns or dealing with stocks and bonds, I’d probably stick a fork in my eye and quit the industry. It’s not who I am.
Michael: No offense to, like, 97% of advisors out there who are doing what you just want to stick a fork in your eye for.
Justin: It’s not who I am. That’s not how I’m programmed. I like to think strategy. Whenever someone says you can’t do something, let’s figure out a way around. Let’s get the best or the smartest people around. Let’s pay them really well and let’s figure out how to make this thing happen. That’s a whole different conversation. That gets me up at night. That lets me work 60, 70, 80-hour weeks to help drive the net worth and be able to show clients, “Here’s your net worth increase year after year after year.” Man, that’s rewarding to me.
Michael: Well, and I just love that concept of, it’s not about tracking returns and returns relative to benchmark and all that, it’s, “Let’s track your net worth and the value of your business.” And granted, they’re the business owner building their business. That is largely their thing that they’re building, but, “How has that progressed? What advice have I been able to give along the way that’s helped nudge that trajectory forward?” Because when the dollars get big, it actually sometimes doesn’t even take a ton of advice just at a few key transition points in a business and you can completely change the trajectory of a business and therefore the net worth of the business owner.
Justin: Yeah. The way I describe it when I’m in the initial meetings with individuals, I’m just an old country boy. I love to ride tractors and play with my goats and chickens. Okay? So I use very simple scenarios or simple examples to break down what I consider complex, very difficult things for my little simple mind to understand. And I tell the clients oftentimes that, “You’re on an aircraft carrier and we’ve got to turn this thing. And it’s going to take some time to get it pointed in the direction to which you want to go. Many people don’t know where they want to go in business. So we have to identify our destination. And we’re going to turn it. And then once we get the ship pointed in the right direction, it’s really easy. It’s just a matter of when a wave comes along we just do a small correction.”
So in the first year or two as we’re working with clients, man, we’ll have a lot of work, a lot of work to do. But oftentimes after about the first 18, 24 months, it becomes super easy to then help the clients reach their destination or reach their ultimate goals.
May I use an example my dad taught me when we were building a house. I was 12 years old helping him frame up and physically build a house, he and I. And we were setting up the main board that holds the roof up in place, and he kept saying, “Son, you’re a little off.” And so, I couldn’t figure out what he was talking about. So he got down and he grabbed a pencil. A lot of carpenters will throw the pencil in their ear. And he grabbed the pencil out of his ear and he held his finger near the clasp where the metal part of the eraser grabbed the wooden part of the pencil, and he said, “Son, whenever you’re holding the board,” and he put his fingers to that clasp and he said, “All we have to do in order to affect the tip or where the lead would be on the full-length pencil, all we have to do on this eraser is just barely adjust it. And by barely pushing that eraser, you’re going to drastically move the lead point because of the balancing effect where your finger is at on that pencil.”
And the same concept applies in business. It applies in our businesses. If we know where we ultimately want to head, which oftentimes is one of the hardest things to deal with, but if we know where we want to head, all it’s going to take is some pretty firm course corrections in the beginning of our working together, and then at that point, it’s on autopilot and it’s just a matter of monitoring and reviewing and helping them stay the course. So I view it in simple terms for business owners, like you said earlier, just a couple of small minor changes could drastically, drastically change their net worth over a period of years.
Who Justin Works With And What He Does For Them [22:15]
Michael: So talk to us a little bit then about your advisory firm. How have you taken all this discussion of working with and supporting small business owners and turned it into an advisory business? Can you just tell us about, what’s the firm like? Who do you work with in practice? What do you do for them?
Justin: Sure. So our firm today sits in two different areas. We have two different companies. We have Heritage Investors. So we’ll talk with that first. That’s our registered investment advisor. And in our RIA we have two CFPs, we have a junior advisor, and we have an admin and one intern. So there’s a total of six of us, I’m sorry, five of us in the practice at this point. We have our second company, we’ll come back to a little bit later, but it’s our marketing arm of our company.
But in our registered investment advisor, currently, we work with about 120 clients or households as I call them. And in that households, we break our thinking down to three different areas. As like with any other practice out there, we started up and it was, anybody who could fog a mirror, we’d work with them. And we ended up with about 60 households, which are investment management clients. And really all we’re doing is the junior advisor and the other CFP, they work on managing their money, just basic RIA-type platform work.
With all new clients as effective last year, every new client that comes to the office or comes to our firm, we enroll them into the wealth management business planning model. And the way that we work is we walk through the traditional CFP steps of wealth management using eMoney software and a lot of the other softwares that somebody would use. But once we get to that implementation phase, whenever the CFPs and the junior advisor begins implementing, whether it be, “Hey, we need to replace a expensive term insurance with a lower-cost term insurance,” or, “We need to get your legal documents updated with your attorney,” everything that everybody would typically do, at that point, I break away and I begin working personally with the business owners on business planning. So there’s almost a double track taking place.
Whenever they hit an implementation, one area of the company works on implementation, works on asset management, basic financial planning techniques, and I jump down and do what I call business planning, which starts off with a business benchmark. It’s actually a valuation software that we utilize through Corporate Value Metrics. We use a software that we can do an X-ray of their business. And that software analyzes the eight key areas of business. We consider eight key areas of business being planning, leadership, sales, marketing, people, operations, finance, and legal. So those are the eight key areas of business. And I interview the client. It usually takes about 7 to 14 hours of actual client time to go through this process. And at the end of that 7 to 14 hours of face-to-face or video conference client time, we have a rough value on what that business is worth. We also have an X-ray of what is driving the success of the business and what’s also holding back the future success of the business.
And as I identify those weak areas in the business, then with my experience, my knowledge, we go in and start formulating plans. And with the softwares that we use, we can actually start testing those plans or those theorems of business modifications, and we can show a business owner, like I did this week, that he’s sitting on $675,000 in corporate enterprise value. And if we make tier 1, tier 2, and tier 3 changes over the next 3 years without any additional revenue, which is really amazing, without any additional revenue, we can move the enterprise value of his company from $675,000 to about $1.4 million. So we can drastically impact his enterprise value, ultimately his net worth.
So as we’re diving into this business process, Michael, I can do the X-ray. I can say, “Here’s where you’re weak at.” Then we get the client involved and the client’s team involved, whoever the team may be, whether it’s a larger or smaller company, and begin basic strategic planning and implementation of those value drivers which drive the business. After we identify that value driver, then we circle back around after a period of time, whether it be six months, nine months, or a year, and we walk through the financial planning process all over again. And it’s a repetitive cycle in that motion. Does that help you understand the kind of the process?
Michael: Yeah, yeah. It’s fascinating to me. So it sounds like stage one for you is not dissimilar to a lot of other advisory firms. It’s sort of the individual households, traditional financial planning projections. “You’ve got some assets. You’ve got some investment portfolios. You want to retire at this date. We’ll plug it into eMoney Advisor and project it out. We can do sort of the basic financial planning blocking and tackling.”
And then after you go through that stage, you’re doing this split where your team follows up on the other financial planning items, “Hey, if you’ve got a portfolio, sure, we’ll help you out with it, but it’s not the center of our value, but we’ll do it.” And then you’re often this, like, business planning module with them where you’re going much deeper into these conversations about the business. You’re doing a valuation of the business using your tools, and you’re starting to actually get into, “How do we give advice that changes the valuation of the business?”
Justin: Correct. Correct. And the reason why we start with a personal financial planning side, Michael, is because so many business owners reach that pivotal point in their life where they’re 50, 60, 70 years old and they spend all their time building this business, and statistically, they’re in a minority if they actually sell it. And so what I’m trying to educate them early on is, “Look, don’t be a statistic. We still have to do some basic financial planning. Yeah, you’re still going to have a 401(k). Yeah, you may have profit-sharing or cash balance position on there. And you’re still going to do some back door.” The simple financial planning techniques that everybody would use. That has to be there because ultimately that business may not sale. We don’t know what the future holds for the various demographics. So basic financial planning is paramount. And we do not break away from that.
We’ve actually had clients say, “Hey, I don’t want financial planning. I’ve got a financial planner. I just want to do business planning.” We’re like, “That’s not who we are. We’re going to run your whole life and we’re going to track your net worth.” So as we walk them through the financial planning process, yeah, if they need some basic implementation or traditional financial planning techniques, we’re going to jump on that and help them maximize their home front.
I describe it as plugging the holes in the boat. Everybody has some leaky holes. We’re going to plug up the boat, the holes in the boat, so now I can have 100% of the business owner’s mind and of the business owner spouse’s mind so they’re not worried about what’s happening at home focused on the points in their specific financial plan, which drives their long-term success. But then we can’t leave it at a one-and-done. We have to assess that business on a semi-annual or annual basis so that the spouse or so that the shareholders within the organization or the business owner themselves doesn’t get tired. Doesn’t grow weary with the amount of changes or the amount of hustle that we’re helping them achieve to hit their specific goals.
So I’ll go back to the client. Last night, for example, again, many years ago, negative half a million dollar net worth and the spouse was raising children, has been raising kids this entire time. And so once a year we get together with husband and wife and we show them, “Okay, here’s the progress we made over the last year. Here’s how much your business net worth has grown. Here’s how much your real estate has grown, your real estate investments. Here’s how much your traditional investment accounts have grown or decreased,” depending on the time or where we’re at in the market cycle. “Here’s how much your cash position. Here’s how much we reduced your debt positions.”
And ultimately it keeps the family unit, which is paramount, focused on the destination that they want or aiming at, but it also gives that business owner and their significant other or spouse, if you will, the shot in the arm to say, “Okay, I know we busted it this last year, but we’re going to do it again because we’re driving full steam like an aircraft carrier going through the ocean. We’re full steam ahead. We’ve got to get you to your destination. Are you on board?” And once they see the success or the failure, because there’s…not every year is rosy. Once they see the success or the failure, then they’re, again, motivated. We walk them through the financial planning process again, make sure that there’s no holes in the boat, proverbial boat if you will, their personal financial plan, and then it was back into the business to drive hopefully that enterprise value.
How Justin Demonstrates His Value To Clients [31:09]
Michael: And so, it sounds like literally tracking net worth on an ongoing basis has become a fairly key metric for how you’re demonstrating value to clients and just the talking point, the discussion, sort of the scoring metric if you will, of, “How are we doing in this relationship?” I think most of us are beholden to, “Here’s your portfolio return relative to your benchmark.” You’re in this world of, “Here’s your net worth and how it’s changed while we’ve been working together.”
Justin: Yeah. And the reason why we track net worth is number one, remember the fork in the eye, I do not want to be a financial advisor. And I’m not ashamed of saying that. I really do not like that world. I love business. It doesn’t mean I’m not good at, I just don’t like it. But whenever you’re dealing with business, there’s so many parts. And whenever you’re dealing with net worth, there’s so many parts that we financial advisors, we Certified Financial Planners, whoever they may be, affect what we often don’t get credit for.
So, for example, we’ll huddle the team together and we’ll have the tax attorney and the CPA and the CFP and the client’s honor in a room together in November/December, which for me is the busiest time of the year. Not only is it deer hunting season or elk season, but it’s also tax planning season. So it’s like, “Man, I really picked the wrong career with my joys in life.” So I’m out here in the busiest time of the year working with this three-legged milk stool, so to speak, the CPA or the tax advisor, the tax attorney, and the CFP or business advisors, and we’re not only driving the enterprise value of the company, but we’re also hopefully, like many of us are doing, helping decrease their tax burden. And so many financial advisors, we are focused on trying to drive the net worth of the portfolio that the clients often forget that, “Look, there’s so much more value we have than just a 1% management fee. We actually decreased your tax bill.”
I was talking with a client yesterday with a CPA and a tax attorney, they were facing about a $700,000 state and federal tax bill, but because of the planning that the entire team put together, they ended up only paying like $200,000 in federal and state taxes. And that is amazing because that helped drive the net worth outside of the business.
So to me, if you’re truly trying to show your value proposition, I think it’s a losing proposition, my personal opinion, I believe it’s a losing proposition to try to show your value on a portfolio. I think that’s where we’re dealing so much with these fee conversations I see all over the place. If you’re really tracking the net worth and the client seeing a net worth increasing by 10% on the net worth, it’s a whole different conversation. And I’m no longer at a defense of my skill set. I’m not having to defend my fees. I’m not having to defend the work we do because we’re able to track the net worth. So to me, that is the number one driver that I really, really want to focus in on.
Michael: So I’ve a couple of questions about kind of how this plays out in practice, but I guess the first is just, where literally do you track and report out all this net worth tracking stuff? Have you made your own little spreadsheet to track these? Do you do it in eMoney and cram a business value in there? How do you just actually track this and show this for clients?
Justin: Yeah, we just simply use eMoney, eMoney software. And so we’re able to do a rough value. It’s not a true valuation obviously but a rough benchmark on what the business is worth when we onboard a client and we integrate into eMoney. And then after we run the initial, “Here’s where you’re at today,” we’ll record that. And then as we go through the process, after we get through the implementation of basic financial planning and after we get through the implementation of the basic business desires that we need to change, we’ll then do another assessment, another report updating all those values and being able to show the client, “Okay, here’s the effect of your enterprise value. Here’s the effect of your real estate. Here’s the effect of your various portfolios.” And we can lay those out side by side within the software itself.
Michael: Okay. And the valuation itself, I think you said you’re using a tool called Corporate Value Metrics?
Justin: Yeah, there’s actually two tools I’ll use. One is called MAUS, M-A-U-S. It’s an Australian-based company. It’s really popular in the exit planning world. The other one is called VOP, Value Opportunity Projection, but it’s designed by Corporate Value Metrics. The Corporate Value Metrics software, I like it the most because it’s using actual income, income-based valuations versus a factor-based valuation. But both of those tools have their place within our repertoire.
Michael: And so, you’re using these tools to essentially get a business valuation number that you can then attach to the plan. You can manually key it into eMoney Advisor. And then as they look at their eMoney Advisor reports, you can just see how the net worth tracks and changes over time.
Justin: That’s part of it, Michael. The other part of it is, with these tools, I’m able to show what business planning really yields. So for example, if we use a base example of, there’s an EBITDA of $100,000 and the current…it’s just simple, simple math here we can all follow. If we use a market-based approach saying that the multiple is 3, so 3 times $100,000 is $300,000. If I can show them that, “Look, yeah, we could go in and drive the EBITDA,” which is what a lot of corporate consultants want to do, “Let’s go in and drive our EBITDA,” we haven’t dealt with company-specific risk in any way. We just are driving more revenue, which potentially could drive more problems. So we could, yeah, go in and double the EBITDA from $100,000 to $200,000. So now if we keep our multiple the same, we’re at a $600,000 valuation. Or we could leave the value, we could leave the EBITDA at $100,000 and go in and raise the multiple from 3 to 6 and still reach a $600,000 potential enterprise value. Or we can do a combination of the two.
And those tools allow me to X-ray the business and show a client that, “If we integrate just some basic planning, if we move you from a marginal business to an average business or from an average business to a best-in-class business, that not only can you affect the multiple, but you can also affect EBITDA. And by affecting both of those simultaneously, you have a multiplicative value increase.” So those tools allow me to show that from a teaching perspective that the business owners get.
Oftentimes what I’ve noticed is business owners don’t give a flying flip about their personal finances because it’s not their baby, the business is their baby. And so if I can show them, “Yeah, we’ve got to get this boring financial planning out of the way, the basic stuff. Yeah, you’ve seen it before. You probably got out of a book from the bank. I’ve got to have this as an entry level to make sure there’s no holes in your boat, but now let’s focus on your baby and let’s make your baby beautiful. And let’s make this thing just stellar.” It’s a whole different paradigm to where now it’s no longer, “Well, how much does this cost? Yada yada.” It’s like, “When can we get started? Yeah, let’s go.”
The Three Tiers Of Change That Justin Uses To Help His Clients [38:15]
Michael: And so these levers that you’re then moving in the business and demonstrating to the business owner, I guess with kind of the valuation tools itself, like, “See, we pull this lever, your value goes to this. We pull this lever, your value goes to that.” You’d mentioned these tier one, tier two, tier three changes that you can get into of trying to impact enterprise value. Can you talk a little bit more about what those are? What kinds of things are you getting into with business owners in this area?
Justin: Sure. Sure, that’s easy. So for most businesses, if we’re doing a valuation, and we’re going to keep this simple for today’s conversation, the number one driver for value is the intangible assets. It’s ultimately the human capital, customer capital, structure capital, and a little bit of social capital. Okay? It’s making sure that your bench is really good. That you don’t have team members getting ready to leave.
So for example, I had an individual call me this last week. He’s got a business out of state. He’s currently net worth around about $75 million. So that’s a cool thing that happens is I’m watching net worths grow where people call on me. So he’s, like, $75 million and he’s like, “Justin, look, I just found out that 3 of my key team members are getting ready to retire. I have somebody interested in selling my business. What do I do?” I’m like, “Hey, brother, can we give them a little bit of shares in the company so that we can maintain them, at least through your transitional period so that the new buyers can replace them strategically versus them leaving us and us dropping the value?” So that comes into a particular lever, so to speak, that I could say, “Hey, what’s your succession plan with your team members?” And that’s the human capital portion of it.
You may deal with customer capital. I had a client yesterday who is potentially losing their number one customer. So they have a customer concentration issue. The reason why they have a customer concentration issue is that, when they have the big client came in, they stopped focusing on everybody else and now here they are with a huge risk in their company. And so now one of the levers we can go in and pull for that particular individual is say, “Look, we need a new marketing and sales plan and identifying specifically who it is you’re going after. And if we don’t get that in place, man, you’re at a major risk of some serious failure here.” So that’s an example we could do. We could deal with structure capital. That’s like lean-type services, making sure that the flow going through the business.
And you and I in our prospective businesses, we have a certain flow what that client is going to walk through from the time they say yes to the time that the process has ended. How can you streamline that flow? How can you get the checkpoints or the clogs out of that flow? Those are some levers that we can analyze and say, “Hey, let’s work on your…” I’m making something up here, “Let’s work on your employee handbook and let’s make sure it’s fully integrated with your CRM system. And let’s make sure every job is fully detailed. And let’s figure out what’s holding back your team members or preventing them from operating at peak capacity.” Or you could deal with social capital. Social capital being, “How does the consumer see you? How does the world see your business? What is causing your business to not carry a competitive advantage?”
So the softwares allow, through the questioning, through that 7 to 14-hour conversation in depth with a client, it allows me to look at it and say, “Oh, you don’t have a business plan? Okay, that may be a tier one, that may be a tier two, that may be a tier three scenario, but we’re going to have to get a business plan in place. Oh, you don’t have an HR department. Okay, there’s a major risk there. When do we have to implement the hiring of an HR professional or an HR service provider?”
So, it goes through those eight key areas. And like we talked about, that’s leadership, planning, sales, marketing, people, operations, finance, and legal. It goes through all those areas in depth and lets the client pretty much tell you what they know they need to do. And then it’s up to the advisor, it’s up to the advisor, me or whoever is involved with that team to say, “You know what? I see these 40 things that you need to do, you’re a small business owner and you really don’t have the time or the resources to dedicate to all these things, which are the biggest danger points or which is the biggest opportunities,” almost like an old-fashioned SWOT analysis would do, “That we can go in and identify, and then how are we going to create the objectives and the tactics and the actions that we need to take within the organization to shore these areas up?” Does that make sense to you?
Michael: Yeah, yeah it does. And I just, I really like the framing of just saying, “Hey, we’re going to rotate around these eight business areas: leadership, planning, sales, marketing, people, operations, finance, legal.” By the time you get through all that stuff with the business owner, you’re probably a year or two or three into the relationship. Because we can only deal with so much stuff, it’s so much time anyways.
So, yeah, I get it. We’ll look at the value of the business. We’re going to figure out where the pain points are. We’re going to solve some of these. We’ll work on them for a year or two. Business gets better, value increases. By the time we come back to the table, we’re going to take a fresh look at the value or fresh look at these eight areas. Inevitably something now is a pain point that it wasn’t before because the growth and solving one pain point usually creates a new one in the business. And just kind of wash, rinse, repeat of continuing to give the ongoing advice of, “Here are the levers we can move that increases the enterprise value of the business.”
Justin: Exactly. And so, with the experience and the technologies and the processes that we’ve implemented, I can measure at any given time each of those eight key areas. And the goal is to get maximum enterprise value or to become a best-in-class business. The way I define best-in-class is the business owner or their executives are able to go to a convention of their peers and teach their peers about what they’re doing. That’s what I call best-in-class. So in order for me to get them to a best-in-class, I really want to have all eight areas in alignment. I don’t want planning and leadership be super strong and marketing and sales to be super weak. We’re never going to reach the potential enterprise value of that company.
So I want to track all those on an ongoing basis. And through the…as the waves come on our proverbial ship going across the ocean here, as the waves come, as economic winds change, as business happens, as life happens, we’re constantly able to monitor those eight areas and say, “Hey, look, I know last time we dealt with finance, finance is shored up pretty good, but my goodness, buddy, our people side over here, we’re having some problems. Let’s shore this up now.”
How Justin’s Firm Gets Paid Under His Model [44:46]
Michael: So now help us understand how you get paid for all this stuff. How does the business model work?
Justin: So we’re a traditional RIA, and so underneath the RIA, we track assets under advisement. I know a lot of people track assets under management. Man, I’ll tell you the difference in that for us. But assets under advisement, we track about $150 million to $200 million worth of assets that we’re managing or advising on. Under AUM, we have about $55 million. So we’re charging traditional assets under management fees, 1%, 1.1%, give or take.
But when it comes to the business side, a lot of the advice we give falls outside the purview of regulatory advice. And so at this time, we’re running it all through the RIA. We’ve dealt with their state regulators at this point and had multiple conversations on how to deal with this. We’re actually charging a monthly recurring revenue model pricing that we look at on the front side we’ll charge a traditional financial planning fee of $2000, $3000, $4000. We found out if we break that, we’d have the business, or, sorry, have the business owner pay that on a monthly basis. It’s an easier pill to swallow to get going. So we break that financial planning fee over a 12-month period of time. And then we’ll go to an ongoing basis on basic financial planning. And then our asset management fees come on top of that like so many people do.
But then when it comes to the business side, what I’m trying to calculate is a rate of about $500 an hour. I know I’m totally against trading time for dollars. I’m so against that. But I have to have a basis to what I think my value is or what our team’s value is. So I try to estimate that the client is going to have X number of hours per month or for this first year, and then we’ll divide that over a 12-month period. So for example, in the last month, we’ve had fees come in at $2,000 a month, fees at $1,000 a month, $800, $500, $1,200, various time frames based on the complexity of the business and how much time we would incur in that first fiscal year.
So to answer your question simply, we have the traditional financial planning model that we’re charging $200, $300 a month for on an annual basis. We have a basic asset management fee that we charge if we’re managing 401(k)s, Roth IRAs, etc., etc. And then for the business consulting, I try to break it out to about a $500 an hour charge. And then we build a business on a monthly recurring revenue model.
Michael: And you charge each of these separately as they do it. It’s not a like, “Hey, if you give me $500,000 of assets, I’ll waive the planning fee or bundle in the business fee.” These are all separate pieces. They pay each piece as they go through that part of the process?
Justin: They do. And here’s why. We’re dealing with business owners. They’re broke. Most of the time, they have no assets. So I’m sitting here looking at a company that’s…
Michael: Just a bunch of income and cash flow.
Justin: Yeah, I’m looking at a company for myself that’s producing $700,000 to $800,000 of revenue after about 3 years of trying to run this thing and went up to $55 million of assets under management. That’s not a very good ratio. But at the same time, I have business owners that are pumping in somewhere in the neighborhood of $5 million to $7 million of new flow into their assets under management, which is growing exceptionally. So I can’t go in and charge them, “Hey, you’ve got a lot of assets, I’m just going to waive a fee.” Nor do I think that’s right. Just my personal opinion. I believe that you should get paid for the value you provide. I’m not in a race, as so many I see in our industry, to chase the price to the bottom. I’m not. Again, if I were going to be a financial advisor, I’d stick a fork in my eye and quit. I don’t want to do that. I want to track the net worth.
And so, if I can just do basic financial planning at a nice market rate, cover our overhead, if I can do good asset management, super simple. And here’s where it gets fun. In the asset management world, Michael, it’s basic core positions. Business owners don’t want to get super aggressive in their investments. So I don’t have to deal with a lot of what other financial advisors out there are having to talk about. I’m going to say, “Hey we’re going to have this much in large-cap, this much in small, mid, internationals,” and then we don’t have a conversation about until the next year for compliance reason we talk about the investments. They don’t care because they’re after driving their net worth.
So for the investment advisory side, we charge just a basic fee. And then when it comes to business planning, we have to charge a fee that covers the time and the value that we provide. And all those are billed differently. All those are billed separately at different times. And ultimately, it ends up, ultimately, my job is to show at the end of the year, “Hey, here’s much you paid us over this first fiscal year, and here’s the value you received. Do you feel like it was a fair value?” And I’ve yet to have anybody say, “No, Justin, you’re overcharging me.” In fact, people say, “You’re not charging enough.”
Michael: Interesting. And I’m fascinated that you break all of this then down into monthly fees because it just, I guess it fits the business owner cash flow. They’re paying all their other bills on a monthly basis. They’re doing their own cash flow distributions, pay their household bills on a monthly basis. So your fee just ties into the rest of their monthly cash flow activity.
Justin: Yeah. One thing I wish I had known years ago is that monthly billing helps make a sale. And I don’t mean that in a bad way, but it’s amazing to me. If I get to a business owner and I say, “Hey, look, you’re broke. You have no assets under management. None whatsoever.” Like a gentleman I had this week. Now, he’s worth $3.5 million but he has no money. “You’re broke. You’ve got, like, $200,000 in your cash accounts at your business and you’ve got this nice business over here. I want to come in and charge you a financial planning fee of $6 grand.” He’s like, “No, I’m not going to do that” is what he would say.
But if I say, “You know what? We’ve got to shore your position up. We’re going to charge you a $300 a month financial planning fee and our team is going to walk you through and make sure there’s no holes in your boat. We’re just going to take us about six to nine months to get through this entire process.” “Okay.” “And then we’re going to bill your business at a rate of $1,000 a month. And here’s the objectives that we want to have based on what you’ve said thus far.” That’s an easier check to stroke than it is to say, “Hey, we’re going to bill you $25,000 payable half up now and half in six months.” It’s just an easier process. So that’s the one thing that I’ve learned in the last year. That, man, if I would have gone to a monthly billing two, three years ago, it would have been drastically different today in as far as in terms of number of clients we would have.
Michael: Right. Because I guess from our individual household perspective, we’ve seen a lot of successful firms going towards monthly subscription fees just because it fits the household cash flow style. I get my paycheck every two to four weeks. I pay my mortgage or my rent on a monthly basis. Most of our bills come due on a monthly basis. So charging for planning on monthly basis fits in well.
I guess from a business owner’s perspective, it’s just sort of that magnified. Like, I’ve got to pay my business bills on a monthly expensive. I’ve got to make payroll on a monthly basis. Business owners tend to live that month-to-month cash flow dynamic even more so sometimes than households. You can have an incredibly valuable business that’s business rich and income rich but cash poor. They don’t keep a bunch of cash around. It funnels pretty quickly through the business. So when you make that a monthly cash flow that’s palatable, it goes easy. And the more that you lump it together into standalone fees, the more it quickly becomes unpalatable for them.
Justin: Correct. You’re exactly right.
Michael: And so you mentioned that you’ve got older clients from early on in the business who were the, “If you’ve got some assets, you can fog a mirror. You’re welcome to be a client here.” Now you’ve been building for a while towards this business owner end. So I guess I’m just wondering, is it awkward for the clients that you had early on now that you’re going more and more in this business owner direction and they may or may not have been business owners?
Justin: Not really. So I did a breakdown just knowing how your style of questioning is and I actually wanted to look at it for myself. We have roughly 120 households and out of those 120 households, roughly 102 of them are business owners. So we’re only dealing with about 18 of them that are employees of some sense or retired business or retired or they used to be business owners. So we’re not dealing with a lot here. What I’m finding is, is now a capacity issue. You asked about earlier about the team. So, two CFPs, one junior advisor and an admin and intern, there’s a lot of work that’s happening for the number of clients that we’re serving at this point.
And so what I’m…like anybody else, it’s a matter of, how do you grow? Do you end up cutting certain clients? And you have the emotional attachment that, man, these are the individuals who helped you get here, or do you bring an associate in or do you free capacity? So I deal with the same struggles that I’ve heard out of many, many dozens of your shows. So I had that same struggle. But ultimately it’s about, I believe in openness. I teach our clients to be open. So our clients, we write a quarterly newsletter to our clients, tell them about the process of the firm. Many of our clients know how much money the firm makes. I actually have them as advisors for us. We talk to them and say, “Hey, here’s what we’re thinking.” And so I’m just of the opinion, Michael, that if you’re open and honest with your team, and to me, our clients are part of our team, then you can add value across all aspects.
And so the way we’re handling it, as so many other of your guests have done, is bring a junior advisor in, free up some capacity and let me continue to move on to the more affluent or more needed areas of my business. So I think we’re managing it okay. I’m sure there’s room for improvement, but I struggle with that just like anybody else does.
Michael: Yeah. But I guess from the flip side, you’re not getting non-business owner clients who are saying like, “Oh, well, if you’re only doing that, I’m out of here. Drop mic, exit stage left?”
Justin: No, no. To the contrary what’s happened is, and this is where our marketing is having to get even better, is that we actually have, because of the marketing division, so many more people wanting to work with us because we’ve become hyper-specific. They’ll say, “Look, I realize you only work with business owners, but man, if you work with business owners, my life is so much simpler. I need your help.” So it’s the opposite effect. And it’s like, “My goodness.”
Michael: “I’m not nearly as screwed up as all your other clients? Can you work with me?”
Justin: It’s just fun. It’s a fun dynamic. And so one of the things we’re having to work on is honing our, what we call Frazzled Frank, that’s our persona, or Frantic Frannie in our office. We’re having to hone that down so our marketing even better targets our perfect persona. And so I’ve never dreamed, when I started the company in this direction some three years ago this intently that I’d have some 60 conversation with prospective advisors this year and tell more than half of them that, “You’re not a fit for our firm.” And until out of the 10 that we took home, the difference of them, that 20 that we didn’t take home, “You know what? I need you to do these following 3 things and let’s talk in about a year.” I never dreamed that that would happen.
But that’s the problem I’m having is that we’ve become so hyper-focused on business owners that not just business owners want the work, they’re seeing the results of… well, I wouldn’t say results, are seeing the process that we handle business owners doing exactly right. “Hey, we’re not near as difficult as they are, help us.” And so we’re getting an unbelievable amount of referrals and leads that we’re just like, “We don’t have the capacity to deal with this.”
How Justin Uses Client Personas To Home In On His Ideal Clients [56:35]
Michael: So, you mentioned there for a moment this persona, Frazzled Frank, Frantic Frannie. Can you tell us more about that, what you’re doing there?
Justin: Sure. So, persona being Frazzled Frank. So I believe that the more hyper-niched you can be, the more business that you will have. That’s my personal belief. I think you and I would share that belief just based on some conversations that I’ve heard you have. And so, whenever I launched our second company, Financially Simple, I was struggling with how to handle how we’re going to market it, how we’re going to market. I’m a personal believer that if Apple is spending $1 billion-plus in marketing, at least some 3 years ago, that small business owners mess up because we take too much money out of the business and we should market much more heavily than most of us do. That’s personal belief I have.
So as I began marketing, I did like so many other business owners would do. I began scattering a shotgun approach to try to market. I grew the Financially Simple up to a certain point to where I needed some help. And I went out to our local community and I hired the best website programmer, content manager I could find. I hired him away from one of the top website companies in town and the very first thing he taught me was persona. He said, “Justin, we have to be laser being focused on who we’re going to work with.” So I began doing the self-assessment, like so many people do, of, “Really, who makes me happy? Who do I really want to work with?” My brother is a business owner. He often tells people who give him a hard time, he says, “I can stay at home with my family whom I love and be broke. I don’t have to come to the world and be frustrated and broke. I want to work with the people I like and make a good living.”
And so I took that same approach and I found out that Frazzled Frank kind of came to fruition, or Frantic Frannie. That way we’re not showing a sexist type of issue. But these are business owners. These are business owners who are typically married. They’re typically small in nature, under about $12 million, $14 million in annual revenue. They’re typically service-oriented. So they’ll be, like, an entrepreneur doctor or they’ll be a contractor or an auto repair company. They’re not a manufacturing or a retail-type environment. So we’re dealing with service-type industries. They typically have 5 to about 50 employees.
Frazzled Frank is frazzled. He’s frazzled because he has seen every pitch out there. He’s had the insurance agent, like we began the conversation with, tried to sell them that whole life insurance policy or that disability insurance policy, or, “Hey, you move your money to us because we can make 12% return,” or whatever the number is of the day. Right? So they’ve heard all these pitches. They’ve even maybe gone to the bank and got the little financial planning book that the banks give out, or even maybe they paid a financial advisor to actually do a great financial plan, but they’re frazzled because their business is controlling them and they’re not in control of their own destiny. They really don’t know where they’re headed.
And so, we identified all the emotional triggers that Frazzled Frank…I wouldn’t say all, we identified most of the emotional triggers that Frazzled Frank would have, one of the biggest is they’re tired of paying the tax man. And so we often hear, “Man, my taxes are killing me.” So that’s why we work so closely with CPAs and tax attorneys.
But once we identified all these metrics for Frazzled Frank, which ultimately is me, Justin, it’s Michael, it’s you, it’s the entrepreneur who has too many things going on and who see so much opportunity out there but not enough resources or manpower to reach the opportunity we see, that they…we want to put the emotion out there in front of them, the knowledge base that, “Look, I get you. I’ve been exactly where you’re at and I’m where you’re at. I’ve walked this path before. I have started businesses. I have sold businesses. If there’s anything in business that you can experience, I have dealt with it.” And through Financially Simple, I literally give away 99.999% of the information I have in my head or I hear from other individuals. And if I knew that 0.001 point difference is I’m not giving away, I would give it away.
So I give this away. And what these business owners find is they find someone who can empathize with them, someone who gets them, who are our type people. I say, my people. They like to live life outside of their business. They really do care about their team, their employees. Their family is paramount. They really want to go elk hunting in November versus dealing with tax planning. These are their struggles that they have in their life.
So the minute I began identifying and through the help of our team identifying who Frazzled Frank is and then begin speaking to their pain points and then giving away every bit of information I can give away throughout the various media channels that we use, that began a domino effect to where we have phone calls, we have emails, we have content through multiple different channels where people are like, “Man, I need help. I need help. I get it.” And it’s just a different approach from saying, “Hey, let me manage your money for you. Let me sell you this insurance.”
And so as soon as we identified Frazzled Frank, Michael, our world changed so drastically. It not only changed from a percentage of getting crystal clear in our thinking, it also changed from a system of more potential clients than we can handle. It’s just amazing the more hyper-niched and more laser-focused that we can become as business owners or as financial advisors or planners, the more abundant our businesses become.
Michael: Because you just get so deep, right? There’s, however many, many hundreds of thousands of Frazzled Franks out there, right? Business owners who are drowning a bit in their businesses to varying degrees. And because they’re already in pain, they’re out there looking for answers. Whatever they do. They read blogs. They listen to podcasts. They Google search. They read articles, whatever it is, and they find their way to your stuff because you’re writing things that precisely solve their problems. Because you know all the problems because you’ve literally made the little avatar, Frazzled Frank, and wrote up all their problems, and then you’re just creating articles and podcasts to answer their problems.
Justin: Yeah, exactly. There’s 5.6 million micro businesses in the United States. That’s businesses who produce less than $5 million in revenue who actually employ an employee somebody. These are not solo practices or solopreneurs. These are business owners who have employees, 5.6 million. Then if you go from $5 million to $100 million, there’s 351,000 business owners in that middle market.
Now, here’s where it gets crazy. Whenever I saw this, my mind is like, “Man, I see so much ocean” that I now became Frazzled Frank myself, that in the next period of time, in the next close to be about 11 years, let’s just deal with middle market. Out of 351,000 middle-market businesses, a quarter million, 250,000 of them are going to try to sell and the next 10 to 11 years. If you’re in that ratio in the micro markets, you’re dealing with 4 million business owners who are going to try to sell before 2030. The reason for that is the Great Recession. So many business owners were getting ready to retire, the recession hit and they ended up having to go into their cash reserves and now they’re trying to build it back. And now we’re seeing a lot of activity on the M&A front. But now the baby boomers, as they’re getting older, they’re trying to retire.
And so all I’m doing is I’m speaking to these individuals who already want what we have. They want somebody who can say, “I’m a business owner. I’ve been a business owner. I’ve been a business owner three times. I’ve sold a business. I know what you’re going to face. We’ve assembled a team, a national team that we can pull in CPAs, tax attorneys, CFPs from other firms who are specialists in your various areas to help you reach your goal.” Whenever you take that particular type of approach versus a, “Everything’s got to be internal. It’s got to follow a particular model,” man, Michael, it revolutionized our business. It just totally changed the way I think.
The Interaction Between Justin’s Two Business Segments [1:04:41]
Michael: So talk to us a little bit more about this Financially Simple platform you’ve built. You’ve referred to it for content. At one point you just I think called it the marketing arm. So what is Financially Simple, and I guess, what is Financially Simple as distinct from Heritage, your advisory firm?
Justin: Sure. So there’s a little bit of backstory here. So, before starting the RIA back in 2017, December 2017, we were in a typical broker channel. And I was watching several of our comrades, yourself. I love to watch Jeff Rose and Ted Jenkins and Joshua Brown. I like to watch the names that you and I would easily recognize. And I was watching them push this amazing content out saying, “I can do that.” And they’re helping so many people but they’re not helping Frazzled Frank. And they had their own markets, and they all serve a great market. I still love watching those individuals. And I’m sitting here one day and I was like, “We’ve got to get out of this brokerage channel. I can’t do what my comrades out there in the industry whom I respect are doing.” So we started the RIA and went through about a year or so of just kind of doing the transition from the brokerage world, trying to get our feet underneath us to start marketing toward Frazzled Frank.
And lo and behold, somebody called me and offered me a sale or purchase of Heritage Investors, this RIA that was newly formed. They had known me in the industry. And I’ve got to tell you, Michael, for a second there, I almost took the bait. And I remember, I want to stick a fork in my eye if I’m going to be a financial advisor. And I was so close that my wife and I, we went down to the beach and were sitting on the beach and having this conversation about, “Should we sell this RIA now at age 38?” And I was talking to her and she said, “Look, Justin, you can’t sell it.” I’m like, “What do you mean?” She goes, “I don’t want you home.” Like, “What?” She goes, “I don’t want you to sell and come home. Stay away from my house.”
Michael: The things the spouses say when you’re an entrepreneur. “I love you. Don’t spend time at the house.”
Justin: Yeah. And she’s like, she goes, “Look,” at the time our youngest was eight, she said, “Jude,” is our youngest, she goes, “He’s 8 years old, what are you going to do for 10 years? Yeah, we’re going to retire at some point. What are you going to do? No, I don’t want you in my feet. Go do something.”
So that’s kind of the backdrop for Financially Simple. So I began thinking about, “Okay, I’m building Heritage Investors to ultimately sell it at some point, whether it be to a strategic buyer or through an ESOP internally or through a strategic buyout within the company as it grows.” I’m not embarrassed to say that. The clients know that. Our team knows that. So I’m building this company to sell it. And at some point, now that I’m age 40, I’m not going to quit working whenever I sell it. Whether that’d be 45, 50, 55, 60, whatever it is, I’m not going to quit working. I like to work. I like what I do when I’m talking to people about business, again, not stocks and bonds, but business.
So Financially Simple came in light honestly watching the individuals I spoke about before. Ted Jenkins and I give him a shout out for this with his oXYGen Financial and Good Financial Cents. Sorry, Your Smart Money Moves is Ted’s. And I’m watching them saying, “That’s brilliant. He’s got two different organizations. From the psychology, he’s able to communicate without the appearance of selling that we would in the RIA platform.” So I give Ted the credit for that. I know he’ll probably listen to this. And I’ll say, “Ted, thank you, you inspired me there.” I watched Jeff do the same thing. I watched Josh do the same thing. Joshua did the same thing. So I’m watching the comrades out there, I’m like, “Man, that is so brilliant.”
So hence I came Financially Simple because I like to break complex things down to my south Georgia vernacular. I’m just old country boy that likes to get on a tractor. In fact, I’ll be on a tractor here this afternoon cutting the grass to about midnight just having a blast. So, I like to break it down to where business owners aren’t being spoken to as financial people would normally speak. So I began writing Financially Simple in the term of a blog, and it ultimately became a business plan. It became a business plan to where my desire in Financially Simple is to do twofold. Number one, to be the communication arm to show people there is a method of growing net worth through education portal. So we created Financially Simple University. We actually already have courses that are being created. We have one out. We have a couple more coming out. We have books that are due to be published here or go live here very soon.
Podcasts, I want to give this information out and interview people in the community or in the community of advisory world that can add value to business owners. Just again, give 99.99% of it away. What I didn’t expect to happen, and I don’t know why, but I didn’t expect for, as people began listening, that the communication would start coming back saying, “Hey, we want to hire you. We need some help. You’re speaking to our pain point.”
Michael: So you kind of, you did it initially just, “Hey, I’m going to build a little personal brand platform on the side and just get out some things in my brain I want to get out there to help people.” And lo and behold, it turned out it actually started becoming a referral channel or an inbound channel for clients?
Justin: Oh, yeah, most definitely. And Michael, whenever I first started seeing the world of blogging or the world of podcasting or YouTube channels and all this other stuff, I want to just get in front of camera and just kind of say, “Hey, I can actually crry on a conversation.” At some point whenever I’m 45, 50, 60 years old, I want to be paid to speak, etc., etc., etc. I want to write a couple of books.
And that was all my thinking was at the time, but over the last three years, what we’ve noticed is, not only is it a revenue-centric business that’s actually generating revenue from the various things that bloggers or podcasters or writers would do, but it is driving an unbelievable amount of awareness for exit planning, succession planning, financial planning for business owners so much so that we have prospective clients who are not running $1 million revenue businesses but are running $70 million revenue businesses calling up and saying, “Hey, Justin, I need some help, man. Can you help me?” And I’m going, “Holy cow, you actually listened to me on the podcast?”
Michael: Yep. It’s one of those powerful lessons I think for anybody you spend some time really building and growing businesses. Early on you get this vision like, “If I could just go a little further, I could get the one or two more people or resources or things that I need to do the next few things that I want to do.” And then when you grow far enough and do it long enough, it’s like, “Oh, no, you actually never get off that train.” If you’re kind of a vision-wired entrepreneur, there’s always more things you want to do than the resources that you have. And then you get all the same pain points that start forming around the business as it just gets more people and more complex regardless of the size.
Justin: Yeah. I spoke at a convention or meeting here not too long ago when we talked about running on zero, running in the red. And I have a tendency to run my companies in the red. And what I mean by that is I have so much ambition that I want to accomplish some things that I’m running the company at a break-even point. And I can turn the throttle up, turn it down really fast, but every time I get into the black or get real close into the black or profit where I can take some more money, I don’t need that money at home. Just like any other entrepreneur, I want to turn that back into the business because by steering it back into the business then the enterprise value of these two companies can go to X or to Y, to Z and then I can lift all the team members up and we can build a net worth that all of us can have this, take this job and shove it, a day in the future we can take the money and walk away.
So I have the same struggles with the clients whom I advise are dealing with. But man, I would never dream that a blog or just be putting my thoughts out in writing would turn into now 5 full-time subcontractors employees spending 6 figures-plus in revenue or in expenses to drive a 10-year dream that I’m going to be like the hybrid Tony Robbins, Dave Ramsey of the world. That’s kind of where my vision is.
Michael: That’s quite a vision.
Justin: Yeah. Buddy, you’ve got to aim for something. If you don’t, you never hit it, so I might as well aim for some big goal out there in the future. So it’s been fun. It’s been a fun journey to travel down. But the Financially Simple arm, it’s been amazing. I’m excited about all the different things that have come about. I’m now asked to speak publicly, paid to speak. Who wants to pay an old country boy to speak? But people do. And I’m asked to be on TV. I’m asked to…many times a week I’ve had people say, “Hey, Justin, let’s come interview for a podcast to talk specifically about this pain point that we heard in your blog or on your podcast.” So it’s just ultimately, at the end of the day, it’s amazing how many people you can impact that have the same pain points that you and I would have.
Michael: So help me understand a little bit more just how exactly does trying to put a podcast out, talking about business stuff, or writing a blog, how exactly is that leading to clients? Or how are you getting the word out to people who would become clients who actually then come and read your stuff and listen to your podcast and become clients? I feel like, for a lot of people, they try this like, “I wrote some things on the internet, no clients showed up.” So why is it that when you write things on the internet clients show up?
Justin: I cannot answer that question honestly because I don’t know. So here’s what I could tell you that I do know. I hired some really, really, really talented people who are much smarter at that world than I am. They tell me where to jump, what to say, how to do it, and I follow. But it came back to a business owner saying, “Here’s where I want to go, team. This is what I want to accomplish. I want to have 10 books out before I’m age 50.” I mentioned Ric Edelman earlier whenever you and I were off-air. I love Ric Edelman. I like his stance. I love his demeanor. He’s been an idol, so to speak, of mine, since the first time I came to the industry just watching how he does. And I don’t want to be a Ric Edelman by no means, but I like his demeanor.
So I told the team, “Look, I want to write 10 books. I want to write it for two reasons. Number one, because I can’t spell worth a flip and I want to prove people that I can actually write.” I literally can’t spell. In fact, I actually failed my English class in college because for every time you misspelled a word, you got a negative 25. And my English teacher, she’s like, “Justin, you’re awful.” I’m like, “Yes.” I said, “Well, one day I’m going to write a New York Times bestseller and I’m going to show you I’m not awful.” So that’s been my driving force. So I want to have 10 books and have a New York Times bestseller.
Michael: I feel like we get an interesting glimpse into your personality right there. Like, “I had an English teacher tell me off once, so I’m going to write 10 books and a New York Times bestseller.” Make sure you don’t get to be one of the chips on Justin’s shoulder.
Justin: If someone tells you don’t do something, I’m going to charge hell with a water pistol proving you I can do it, right? That’s just who I am. And I guess that’s most entrepreneurs.
But no, I told the team I want to write a book. And I want to take the knowledge that I have in my head and share it with as many people as possible so that… I once heard a wise woman say, “Experience is a great teacher.” It is. Every time you can experience something, you learn a lot. But man, someone else’s experience is a far better teacher. If you can learn from other people’s experiences, you may not have to have the same pain. And if I can share those things from a Certified Financial Planner standpoint, from a CVGA, CEPA, those credentials that we have and as a serial entrepreneur to help business owners realize, “There’s more to life than business. There’s more to life than money. You do have a family at home. The business doesn’t have to run you. You can be prepared for catastrophic events.” If I can teach that and give it away, brother, man, there’s nothing I have more valuable in my life than to do that.
How Justin Developed His Unique Skill Set and Expertise [1:16:51]
Michael: Talk to us a little bit more about how you learned to do this stuff. I know you…well, you’ve mentioned some kind of school of hard knocks, built a business or two along the way and sold it. You also just mentioned a couple of designation programs: CVGA, CEPA. So can you talk to us a little bit more maybe about some of the programs and then, I don’t know, I guess the rest of the personal life experiences journey as well that gets to the point of doing this kind of advice?
Justin: Sure. Sure. So like I said, I started when I was 15 years old with a mom and dad who loved us dearly, who want to teach their boys how to…or teach their children how to be entrepreneurs. The lesson my mom and dad taught me was when I was 15 years old, my dad basically said, he didn’t exactly say these words but, “Son, if you don’t have a job by Friday, don’t come home.” And it wasn’t the exact words, but it was, “It’s time for you to get a job.”
Ultimately, he arranged for an extra neighbor of ours where I could cut the grass for the next-door neighbor and the neighbor paid me $40 for about 2 hours’ worth of work. I can remember my dad coming home from the Georgia Port Authority in south Georgia where he loaded grain: corn and soybeans and stuff like that on big major transport boats. He came home about 6:00 just exhausted, beat to death. And I’m sitting there in a shower and he’s taking his boots off and I come out about 15 years old and he says, “Look like you had a good day.” And I said, “Yeah, Dad, I made $40 today.” And he put his hands on my knee and he said, “Son, I want you to realize that you can always make more money working for yourself than working for the man. You’ve actually made more money than I did today in two hours’ time. And your mom and I want you guys to have the best experience in life.”
I’ll never forget that, Michael. That started the journey. That started the journey. And then my mom, who’s a registered nurse, ends up getting a master’s degree in nursing then took off work making tons of money as a nurse and trained my brother and I how to work. She taught us that, “Whenever you’re doing landscaping you always make sure the leaves by the front door are picked up so when they come home they…they might be a leaf in the backyard, but by the front door you want to look as good as possible.” They taught us how to communicate. How to respect those individuals no matter who they were. So it all began there, and it ultimately led into a business that I ended up selling. My first landscape business. And I sold it because my wife Emily is from East Tennessee and she didn’t want to live in south Georgia and we thought it was a good idea to move to East Tennessee.
And I began studying business. I’ve never had a formal education in it, so to speak. Earned my CFP degree or CFP marks in 2000 and… I think it was ’05 when I passed the test. May have been late, early ’06. But it was right whenever the CFP made the decision that you had to have a four-year degree in order to use the mark. So I had passed the credential, but I didn’t have the education and I didn’t have the experience. So I was, like, six months away from being able to use the mark, being grandfathered in without having the four-year degree. And of course, I missed it. I petitioned to the Board and they said, “Nope, this is the rule.” So went back to the University of Phoenix online while I was working in the basic insurance brokerage house and got a business management degree.
Michael: So you actually went…you went back to college to get your four-year degree to qualify for the CFP marks, and obviously as you said, because you wanted to learn business as well, but you went back to school to get the degree and be able to have the marks.
Justin: And you know what? If it wasn’t for that rule with the CFP, I probably would not have gone back to college. I was homeschooled my whole life and I’m taught that if…I can learn something a lot faster than somebody talking to me. So I’m not a big proponent of classroom time. It just drives me crazy.
So, I began reading at that point when I went back to school and started getting a list of books. From about the age of about 16, 17, I’ve tried to read a book a week. And so I just started engulfing my mind in business books. And if you can say a book, I’ve just about read. In fact, I put a post on Twitter not too long ago. I was at Barnes & Noble or Books-A-Million, one of those places, and I was in the business section trying to find a new book to read and I literally have read every book on the shelf in the business section or the finance section. So I’m like, “Oh.”
The Five Business Books Justin Reads Every Year [1:20:54]
Michael: I’ve got to ask really fast, favorite business book or two? What’s business book essentials for you?
Justin: I’ll tell you five books that I read every year. I read them consistently every year. The first one is “Think and Grow Rich” by Napoleon Hill. Love it. One of my favorites, I like “The Richest Man in Babylon.” I read that one every year. I read through the Bible every year. I think Ecclesiastes and Song of Solomon, Proverbs have some wisdom that we can apply in business. And then I like to read the two contraries of Robert Kiyosaki’s “Rich Dad Poor Dad” and Dave Ramsey’s “Total Money Makeover.” So those are the five books that I read every year to this year. There’s lots of other business books that I could… I just finished up this for the third time, “The Goal.” I forget who wrote that book. It’s from 1980s talking about the theory of constraints. My mind just went blank on who the author of that. So I like to read books.
And to answer your earlier question, I started reading these books and I just began applying as I saw business owners. It’s basically the education that I began investing in myself. I would say, “Hey, here’s all you need to do.” And it worked. I was like, “Well, that worked. Okay, let’s try it again. Here’s what you need to do.” And it worked. And it ultimately came to where it got funny, where if someone had an MBA degree, an MBA designation, I wouldn’t work with them because they knew more than I did and they were broke. So I loved the fact that I could go into these business…
Michael: No offense to the MBAs.
Justin: No offense to the MBAs. I don’t mean any slam by that. But I guess it really was a slam. But anyways, I loved the entrepreneur MBAs because I could go in and say, “Man, you’re broke. Forget everything you learned in school. Let’s go to actually what works in the streets here.”
And so as I began working through this, I began looking back in my life, all these businesses that I had sold and said, “If I had to do it again, what would I know different?” And so that led me into the Certified Exit Planning Advisor credential through the Exit Planning Institute. Took that some three, four, five years ago. Just gave me a different thought process on how to coordinate an exit. I had personally gone through these, so I knew the process, but I’d never thought about the coordination and how it fit in with a holistic financial planning. And through the Exit Planning Institute, I learned about the Certified Value Growth Advisor, which is ultimately what I had been doing for years. I just didn’t know the framework on how to conduct value growth. So I learned about this. I took a week-long course and a lot of study and a lot of material on the Certified Value Growth Advisor.
And after that, Michael, it becomes a true practice, becomes a true practice working with now over 100 business owners, showing them how that this vast amount of knowledge and education that I have either self-taught or work through credentialing or now in real life practice I have the ability to go in and show business owners ultimately how to grow their enterprise value and grow their companies.
What Justin’s Additional Certifications Bring To The Table For Clients [1:23:48]
Michael: Can you help, I don’t know, just contrast for…I don’t know, compare and contrast for us, what are you learning and talking about in designations like CEPA and CVGA versus what we do in CFP world? I feel like these are far enough from the usual financial advisor designations that I don’t know if people even have context about what these mean.
Justin: Yeah. So for the Certified Financial Planner role, most of us know what that means. It means you’re going to follow the process of taking a personal, a family unit from data gathering, implementation, recommendations, etc. Simple approach that most of your listeners and I utilize in personal planning.
Exit planning is not that dissimilar. It’s more of bringing the business owner down to, what is their goal? And what is their goal for their business? The business owner often will say, “Well, I want to sell it for X number of dollars.” And maybe that’s attainable. Maybe it’s not. Or the business owner may say, “You know what? I’ve got this group of employees or this team that’s been with me for years. If I sell, I really don’t want them to be kicked out by the new buyer.” Or, “Really, I want to have my company transition to my son or my daughter or my family unit, how do I do that?” And so the Exit Planning Institute deals with addressing the transition of a business.
One thing is for certain. Unlike financial planning, there’s a lot of ifs and whens, etc., etc., but one thing is for certain, we’re going to leave our business. Whether we retire, whether we die, whether it dissolves, we’re going to leave our business. And the Exit Planning Institute has a really good, structured process that helps the business owner identify the way in which they want to leave their business. And it also brings together in the EPI world, the Exit Planning Institute world, a group of multi-talented, multi-credentialed parties.
So in my class, we had attorneys. We had one of the top ESOP attorneys in the country inside the class. We have CPAs. You had IT professionals because IT work, it comes into play whenever you’re doing a transition. You had business valuators. There are so many different credentials or different expertise that come into play whenever a business is transitioning. And so what EPI, the Exit Planning Institute is teaching somebody, which is different than the CFP world, is how the business owner can navigate their various credentials when they come into play during that transition, and ultimately how a CEPA can help quarterback the overall transition of the company. So that’s kind of the CEPA.
But in between the CFP and the exit planning advisor, what happens if like so many people are, you want to retire in 3, 4, 5, 6 years, whatever the number is, and you get a business, you go to your business broker and they say, “Hey, your business is worth $2 million,” and you’re like, “No, it’s not. It’s worth $4 million.” “No, it’s worth $2 million,” what do you do? And so that’s where the value growth advisory world comes into play, is, what can you do to double the enterprise value of that company in a two or three-year period? And I say that and people are like, “There’s no way.” Yeah, there is. Now, it’s going to require a heck of a lot of work. But there’s a way that you can double the enterprise value and get that business owner ready for that exit.
Michael: There are more ways to do it than just go out and double your clients, right? From like a valuation sale value perspective, “Go get twice as many clients” is not the only path to, “How do you double the value of your business?”
Justin: Not only is it not the only path, typically, it’s the worst path. Because whenever you double the client, you also double the problems. And when you double the problems, you didn’t address company-specific risks, which then hurts your valuation. So, all those credentialing, that CFP knowing the personal front and how to work the emotions of the personal financial plan and knowing how to exit the plan, then the CVGA for me came in between showing, “Okay, here’s how we’re going to now void or bridge the gap, bridge the value gap between what that businesses could be worth and what it’s currently worth.” So, when you buckle all three of those together from my mind, it gave me a start to finish process on how to move that business owner from, “Here’s where I’m at today and I also want to retire in 10 years,” and, “Here’s how we’re going to get to that point.”
Michael: So it sounds like you would very much frame these two as complementary. Like, CVGA lets you start, gives you tools about, “How do you increase enterprise value?” CEPA on the exit side is like, “Okay, now, how are you actually going to do the exit sale, transition, succession, whatever?” It’s like, “You made the thing, now, what is your actual exit path going to be?”
Justin: Correct. And then after the CEPA is done, then the CFP credential comes back into play, because now that they’ve sold the business, what do they do with the money? So now you’re back into the CFP world. And that’s why we go…if we digress in the conversation, it becomes not a one-time financial plan, it becomes a long-term relationship to where you are working with these clients weekly, in some cases, for hours a week, or at least monthly you’re having communication with the clients and you’re almost like a quasi-cheerleader, quasi-coach, quasi-parent. You’re there driving their long-term vision saying, “You can reach your goals.” And whenever we get you through this value growth and we get you out of the business, whatever that comes about, we’re going to go back to basic plain Jane financial planning.”
And now those individuals, here’s what I love about it, Michael, and I’ve had the privilege to do this, those business owners who were never liquid, who maybe have $100,000 in an IRA or maybe $400,000, $500,000, $600,000 in a 401(k), all of a sudden comes into $6 million, $7 million. Who are they going to trust? They’re going to trust the team that has been with them from the very beginning to say, “Look, we trust you guys. You guys manage our money for us. Let me go cruise the world. Let me go hunting non-stop or fishing non-stop. I just trust you guys.” So it becomes a holistic financial plan for business owners.
How Justin Uses His Expertise For Clients Who Also Happen To Be Advisors Themselves [1:30:17]
Michael: Could I ask, you’re doing all of this business learning, business advisory stuff. You’re living it in your advisory business as well. I’m just curious, from your perspective, what do we as advisors usually not get or do right as business owners that you actually see as a background of someone that helps people create value in their businesses? Like, what does it look like when you take all this stuff you’ve learned and actually applied in our industry to the typical advisor?
Justin: What was funny is I’m the financial planner for three Certified Financial Planners nationally. I think it’s great. They’ve actually hired me to do…
Michael: You’re doing planning for planners in this exact realm. Planners who are business owners, I guess, right?
Justin: I’m Frazzled Frank. You’re Frazzled Frank. So I actually have CFP who hired me to do planning for them. And we actually, here’s where it gets even more fun, we can manage their money for them. So it gets really comical when you start having these conversations.
But we have the same struggles that business owners have. One of the first things I see is that we take too much money out of our companies. We see, “Okay, we need to have a 30%, 40% margin, or we need to have 20% margin,” depending on the size of the company, and we don’t deploy enough of the assets back into the organization. We don’t understand cost of capital. Truly, we don’t understand what cost of capital is as financial planners. And so we pull money out of the company, we throw it into our respective investment accounts and hopefully we can do better in our business. So we pull too much money out of our company. That’s the first thing I see. The second thing I see is we don’t know how to market. We don’t know how to get micro-focused in marketing and we don’t deploy enough resources to marketing. I personally believe you should be spending 10% to 20% of your top-line revenue in marketing. And everybody just had a heart attack when I said that.
Michael: If you look at the typical industry benchmarking study, it’s actually quite consistent almost regardless of the size of the firm. The average advisory firm spends 2% of revenue on marketing.
Justin: And this is why we have the problem, Michael, of, “Let’s fuss about fees. Let’s go out and try to validate why we can charge 1%.” Because we haven’t really identified who our true target market is. Who is your “Frazzled Frank” or “Frantic Frannie,” who is that individual that you’re really going after? If it’s a retired individual, let’s get hyper-focused in that area. And maybe it’s people retiring from a particular industry. Maybe it’s people, retired schoolteachers. Maybe it’s a retired government official. I heard an episode that you were talking about the gentleman who work with just professional fisherman. I loved it. I’m like, “He’s got it.” And so, as business owners in the financial world, we take all the money out, and because we take all the money out trying to live this high extravagant lifestyle, we don’t have the resources to market to our true target market. So I see those two problems.
And third, I see we don’t hire fast enough. It ultimately boils down in business to where it’s teams and systems, teams and systems, and this marketing system and the teams. And we are really not good at that. We’re good at managing money. We’re good at doing financial planning. I’ve seen some of the most creative plans and just loving to hear people that you have on your podcast, very talented, unbelievable people, but we’re often lousy business owners. My advice to us financial planners would be, quit taking all the money out of the company, pour it back in, learn what cost of capital is and pour it back into your marketing, get specific in your marketing and then, go ahead and hire up. Don’t be afraid to operate on zero because if you build it, they will come.
And we have a luxury. We have an unbelievable luxury as financial professionals that so many of the people I work with don’t have. We have a recurring revenue model. We have the golden goose that so many other professions can’t figure out how to do. We have it. And so, if I spend $10,000 in marketing dollars and I pull in a $10,000 recurring revenue model, a recurring revenue client that happens to be 30 years old and putting a ton more dollars in there, the multiple effect on that client is 2, 3, 4, 5 times. We have something that so many other businesses don’t have. But because we don’t understand business, we don’t realize how much value we can drive just by not taking out the cash out of the company, marketing and getting the team and systems in place.
Michael: Yeah, it’s been a striking thing for me that I had a version of this shift myself. I think I mentioned it on one of our prior podcasts a month or two ago. But I got to a point probably, like, seven or eight years ago as I was starting to build businesses and business enterprise value and kind of seeing like, it does take a few dollars to get these things off the ground and then you do want to reinvest, but, wow, when you start really building enterprise value, the growth rate of a successful business kind of makes the wealth creation and then the S&P 500 look really small by comparison, at least if you can actually do it successfully and get a business to grow, that I got to the point where I stopped contributing to retirement accounts.
I stopped pulling dollars out of my business and out of my income and putting in retirement accounts and looked and said, “I get so much more business and wealth creation value by not putting any money in my retirement accounts right now and plowing it back into business opportunities,” either for me the current one plus a few new ones, since I’m a little bit of a serial entrepreneur that way. But always putting dollars back into the business because the wealth creation of reinvesting in yourself and your businesses is way higher than what it is when you, I’ll call it, do traditional saving and investing into investment accounts.
And obviously, at some point, you have to flip that switch and kind of go into harvest mode of drawing some dollars out. I’m not going to do this when I’m 90 years old. But I’ve got a pretty long run between where I am now and the point where I actually need to start trying to harvest the value out of the business.
Justin: And so, let’s take it back 360 or full circle back to where we were about 10, 15 minutes into the conversation. You’re a lousy client, Michael, for the average financial advisor. By the way, so am I, because I’m doing the same thing. I’m not pouring a ton of money back into my retirement accounts. I’m putting a little bit to kind of just hedge it a little bit, take some money out, but I’m pouring a ton of money back in my business. So the average financial advisor who’s out there working for a firm is going to look at me or look at me and you and say, “We can’t help you because we can’t sell anything.”
So you just identified one of the clearest marks that we see as a Frazzled Frank, and that is, they see the long-term value of their business and they have clear objectives but now they don’t know how to quantify it. They don’t know how to quantify, “When should I flip that trigger?” What they know is they don’t want to be that statistic. They don’t want to be the Exit Planning Institute statistic that 80% of your net worth is in your business. I don’t want that. But we also realize that if we run a cost of capital model on our business at this point, we can grow 20%, 30%, 40% in our businesses in a given year, as I have seen in my…we had almost a 200% growth increase in our business in 1 year’s time. Never seen that happen in the stock market, at least as I’ve been investing money. So, you and I and most small business entrepreneurs are really lousy clients for the financial world.
And go back to where I’m at today, it’s like, you know, but we, you and I and other entrepreneurs, need my mind and your mind and other financial planners’ minds. We need our minds. We need the planners to kind of temper that aggressiveness in our emotion, that aggressiveness in our entrepreneur, that strong D personality. We need somebody to temper us and quantify the times whenever we, “You know what? We probably shouldn’t pour back as much money into the business this year. And here’s why.” And challenge that entrepreneurial mindset a little bit so that the people whom we love, the clients whom we want to serve don’t end up being that statistic that now they’re 60, 70, 80 years old and they’re broke because they can’t sell their business or because their business became non-sellable because of some legislation or economic wind, etc. So, you and I make lousy clients, which is why I love working in the world.
Michael: You and I make lousy clients in this world where you’re charging people $500 a month, $800 a month, $2,000 a month giving advice in good relationships with people that nobody else wants to take as clients.
Justin: Yeah, it’s pretty amazing. I was tracking one of the things. So I track a couple of different metrics in our company. One of the things that I track is our recurring monthly income from planning fees or from business planning fees, I should say. Two years ago, I’m sorry, a year ago, whenever we first went on monthly planning, I think we were doing about $600 a month in total monthly planning fees, because we had just never done that before. Here we are now, we’re pulling in somewhere around about $10,000 to $12,000 a month. I’ve got three proposals out that will double that if the clients agree to move forward, which they probably will. So we’re now looking at $200,000, $300,000 a month in just consulting income, in addition to financial planning income, in addition to asset management, in addition to just doing some basic term insurance that every business owner needs that most of them don’t have. Just doing some basic stuff we’re now all of a sudden producing a heck of a scalable business that really there’s not much competition in. It’s pretty amazing to me.
Michael: And I do have to ask, just because you mentioned it a few times, you’ve talked about, as advisors, we don’t think well about what cost of capital means in our own businesses. Can you explain how you…how do you explain that for advisors? How should we be thinking about that? Because you’re right, cost of capital is not a term we tend to throw around in advisor world when we’re talking about practice management sessions for financial advisors.
Justin: Okay. So I’m going to use financially simple terminology here. And so, whenever I say this, you and every other planner out there who knows the specific definition is going to just attack me. But here’s the way I can best describe it so that my business owners understand it. Let’s say I have $100,000 sitting in the bank account for my business. It’s just in a cash position. I could take that $100,000 and I can deploy it into a CD making 2%. So by holding that $100,000 in my cash account, I’m losing 2% or $2,000 cost of capital. That capital is costing me $2,000 if I were to deploy it into the CD. If I were to shift it to a bond account making 3%, 4%, 5%, you can calculate that out. If I were to put it into an equity position making 6%, 7%, 8%, whatever the number ends up being, let’s say 6%, that $100,000 by sitting there in cash, whether I take it out to myself or deploy it into a stock account, I am losing $6,000.
Where cost of capital comes in for the business owner is when you run the return on investment of the business. And let’s say the business is growing, like so many small businesses do, at 20%, I can show that client that, “Look, if you take this $100,000 and leave it alone, you’re losing $20,000 a year because we could deploy that into your business. Or if you take that money out of your business and you pay taxes on it and you increase your lifestyle, for whatever reason, you’ve now forgone that cost. That capital that you’ve now pulled out of the company has cost you $20,000.” You can start calculating what’s called hurdle rates and see how they should grow the business. And when it gets really fun is whenever you’re now working with your tax advisory team and they’re saying, “Hey, if we deploy this type of tax plan, this $100,000 could generate a 40% tax deduction or tax benefit.” So now by holding that cash in place or by taking that cash out for our lifestyle consumption, we can end up losing $40,000 in benefit.
So I know I just totally abused cost of capital. I know I did, but that’s the easiest way I can describe it to business owners to where they realize that every decision they make, you and I, every decision we make in our business to choose to either pay ourselves and increase our lifestyle has a cost to it. It’s going to cost us something. It’s also if we don’t do it, if we don’t bring it out of our company to our business, we’re going to forsake something on our personal life. So every time we deploy capital somewhere, there’s an inherent cost on that. What I’m trying to teach the business owners is, “Let’s get the best return for our money that we can use to drive your total net worth.” So that’s my financially simple definition for cost of capital.
What Surprised Justin Most About Building His Business [1:43:22]
Michael: So having gone through all this stuff and then building your own business, what surprised you most about building your own business? Like, I don’t know, book knowledge versus what happens when you do it in the real world yourself.
Justin: We can put all the book knowledge together. What surprised me the most is I wish I’d listened to my gut a lot more growing my company, dealing with this career that we’re in.
So, back in 2009, the day after Bernie Madoff entered the news, I began a five-year season of a business divorce with a previous firm. And Michael, it was five years of hell. And I don’t say that lightly. Sure defense, ultimately ended up being settled. But we’re going through five years of a lawsuit. We’re dealing with FINRA. We’re dealing with a lot of nastiness. Ended up getting settled and I took about three, four, five, six months off to physically build a house that we live in.
And I’m just kind of reminisce in this tragic five years, this five years that I felt like was a wasted life for me. Just a very lowest point. During that five years, my dad died unexpectedly. Family members whom I loved died unexpectedly. I had seven key family members who would have been around the kitchen table die at the same time I’m going through this, now starting a company from scratch during Bernie Madoff’s time, defending a lawsuit, dealing with FINRA. Ultimately did get settled and I’m building this house and I’m sitting back looking and saying, “Man, if I had to do it all over again, what did I miss? What did I miss in the books? What did I miss from the experience?” And ultimately I can boil it down to this. I wish I’d listened to my gut more. Intuition, gut, providence, whatever term you want to put there, I wish I listened to that more. Yeah, we had good advice. I had CPAs, attorneys in all that transition, but I just wish I would’ve listened and followed my intuition.
I can say that today, but at the same time I’m going to kind of rebuttal what I’ve just said, and that is, during that five years of holy hell, just unbelievable heartache and stress, I would not be where I’m at today with clarity of vision, with clarity of direction, with the passion that I have to just impact business owners and impact my particular business and elevate my team and elevate the teams of those business owners. I wouldn’t have that bigger had it not been for that five years. So, to answer your question directly, man, I wished I’d listened to my gut more.
One of my business partners who was with me at that time I say, “Man, just something is not right here,” and he goes, “I’m listening to your gut buddy, whatever you say, we’re good.” I wish I’d listened to my gut more, but at the same time, brother, everything has a purpose. I heard a statement one time that we are being prepared for what we’ve been prepared for. And nothing that we’ve gone through in life up to this point, there’s not a person who’s listening to this podcast or you and I know who’s not dealt some sort of heartache. Not a person. And in that heartache, in that tough times, we’re ultimately being molded and prepared for an unbelievable sunset, for an unbelievable journey that we are ultimately in control of. That we are ultimately our chief navigator.
And man, the one lesson, brother, is listen to your gut, but at the same time, if you don’t listen to your gut and you go through a hard time and you fall flat on your face, get up, pull yourself up, get some clarity and then just charge hell with a water pistol. And buddy, it has been a ride. It’s been a ride that I’ve enjoyed, I love, and I’m excited about how that experience can now…I can use that to now say, “Hey, buddy, if you’re in business, there’s not a thing that you can go through that I haven’t personally seen.” And not many people can say that.
Michael: It’s a striking thing to me that I’ve talked to a lot of advisors over the years that have been in various partnerships and business deals that didn’t work out and had to end out splitting up. And sometimes just people grow apart. They go different directions. You sit down with your partner, you’re like, “Look, I think we’ve grown apart in different directions. I think we need to split this up.” And it may be a little stressful, but you figure out how to do it amicably and everybody gets through it.
And then you get to the subset of ones where ugly stuff happens, where bad stuff happens. And what stunned me, I have yet to talk to a single person who went through one of those who didn’t say at some point when they were in like the early stages or maybe like the final stages before some deal got signed, some agreement got made and then they were stuck bound to a person that turned out not to be a good person. I’ve never talked to anyone who went through that who didn’t say, “You know my gut was telling me something was wrong but I didn’t feel like I could stop or pull out at that point” from whatever they were doing or working on the deal, and then they ended out regretting it. It always seems like there’s a gut feeling.
And we end out following through anyways because all the pressures or social pressures or some costs, or worse, we’ve been working on this partnership thing for so long, or whatever it is, we pushed through to the finish line anyways. But just, I’m so struck. I’ve never talked to anyone who didn’t say, “My gut was telling me something but I just couldn’t stop at that point,” when you probably could have but didn’t want to because the awkwardness.
Justin: Yeah. And the gut may not be anything nefarious. It may not be anything bad. And it may not be anything evil, but it nonetheless impacts your life. And like I said, every person I know that is walking this earth has some trouble, whatever that trouble may be, good, bad, just something went unexpected. I don’t think, Michael, that it’s the circumstance that we go through that’s the problem, I think it’s how we deal with the circumstance and how we’re going to overcome those challenges, because everybody has a challenge. It doesn’t mean it was bad or evil or negative or anything, it’s just challenging.
Now, some people have heartache. And I’m blessed. I’m blessed in that avenue. I don’t have much heartache out of that particular event. But nonetheless, ultimately, when we go through that trouble, when we get stuck in the mud, when we go through heartache or whatever it may be, it’s ultimately how we’re going to deal with it on the backside. And my dealing with it came in term of Financially Simple and being able to just talk to people out of my heart. Being able to say, “Here’s some things that I’ve learned.” And yeah, I’ll always trust my gut for now on. But buddy, there’s been so much has come good out of. Financial Simple, we’ve got a book coming out. I’m excited about that. That would never have happened had I not gone through that five years of difficulty.
So there’s so much goodness that can come out of their struggles. And I don’t know if somebody is out there, maybe there’s a takeaway, somebody is saying, if you’re going through a hard time right now and you feel like the whole world is crashing on you, I’ve been beside a pine tree in south Georgia bawling my eyes out at the deepest, darkest time of my life, and today, I don’t think we’re on the mountain top but man, there’s sunshine. There’s always summer and spring after winter time. So just stick with it. Hold it. Be True to yourself. Follow your passion. Pick yourself up. This too will pass. And there’s some success. There are some things ahead of you that you can achieve.
Michael: Yeah. I love that message that just at the end of the day, bad stuff happens to all of us. Maybe a few of us are slightly more unlucky than others. But no one has a perfect path in this. Bad stuff happens to everyone. The difference I find for the advisors that are most successful and build the most successful businesses is it’s much less about whether or how much bad stuff happens to them and way more about how they pick themselves up and move forward afterwards.
What Success Means To Justin [1:51:49]
So as we wrap up, Justin, this is a podcast about success, and one of the themes that always comes up is just that word “success” means different things to different people. Sometimes changes for us as we go through a few of these hardships that hit us in life but bring a lot of clarity on the other end. So you’re building this successful business. You’ve actually done this run a few times in the past of building and selling businesses. And so, how do you define success for yourself at this point?
Justin: You know that question that I knew was coming has been troubling me brother since the first time I heard you ask it some hundreds of my podcast ago. And I have answered that question in my head differently every time you ask a colleague of ours. It troubles me because I can’t answer the question. And here’s the way I would answer it. And this is the simplest way I can answer it. To me, one of the saddest places I know is a cemetery. And it’s not the fact that somebody has died, it’s the fact that so many people leave this earth with experiences, wisdom, life changes that could have impacted this world. That could have changed the direction of another fellow human.
And I look at success and I view it as, it’s not like my dad used to say, he used to say, “Son, life is not about, get all you can, can all you get, and sit on your can.” It’s not about that. I laugh at every time I say that. He would say that to me a thousand times growing up. And I didn’t understand what he meant until I went through heartache and I went through time and then now you see some measurement of success. There’s so much more to that.
So I begin, the way I describe success for myself is, is imparting the experiences, the knowledge, the insight I have on my children, my family, my clients, my peers. Giving every bit of the information I have within my very person away so that people can learn so they can accept it. They can reject it. They can think I’m a fool. They can use it and make a challenge. To me, success is that whenever I am laying on my death bed or whenever I’m gone, whenever I leave this earth, that my family, first of all, my closest friends and those who’ve had the opportunity or misfortune, however you want to say it, to run across my path can truly say, “He gave everything he had.” I think that to me is success.
And perhaps my epitaph will read, “He gave everything he had for the benefit of others.” I don’t view it as a holy grail. I don’t view success as trying to raise some sort of a totem or raise some sort of a monument. I don’t want to whenever my time comes to leave this earth that I enter the grave holding on to some sort of knowledge that could have helped or changed or defined or challenged or whatever somebody else’s life. And to me, success is pouring out everything I have every second of the day so that can help others.
Michael: I love it. I love the service mentality, the service to others focus of it. It now kind of puts everything else in clearer context, I think, of giving away everything you are on Financially Simple and the multiplier effects of trying to work with business owners and all the rest as well. It’s amazing.
Well, thank you, Justin, for joining us on the “Financial Advisor Success” podcast.
Justin: It’s been an honor, my friend. Thank you for having me.
Michael: Thank you.