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May 18, 2022

How2Exit Episode 36: Gary Guseinov - CEO of RealDefense Holdings.

How2Exit Episode 36: Gary Guseinov - CEO of RealDefense Holdings.

RealDefense Holdings - a consumer privacy and security company headquartered in Pasadena California. He is also looking to acquire more B2C and B2B software companies.
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Contact Gary on
Linkedin:...


RealDefense Holdings - a consumer privacy and security company headquartered in Pasadena California. He is also looking to acquire more B2C and B2B software companies.
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Contact Gary on
Linkedin: https://www.linkedin.com/in/garyguseinov/
Website: https://www.realdefen.se/

If you’d like additional ways to support this podcast, you can become a patron here: https://www.patreon.com/bePatron?u=66340956
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Reach me to sell me your business, be on my podcast or just share some love:
Linkedin: https://www.linkedin.com/in/ronskelton/
Twitter: https://twitter.com/ronaldskelton
Facebook: https://www.facebook.com/How2Exit
Instagram: https://www.instagram.com/how2exitpodcast/

Have suggestions, comments, or want to tell us about a business for sale call our hotline and leave a message: 918-641-4150
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Watch it in Youtube: https://youtu.be/Rnt_JpTqWkk
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Other interviews:

Lane Carrick - serial entrepreneur and sold multiple businesses in his career: https://youtu.be/cAEGiqiieQw

Carl Allen - M&A Expert with Over $47 billion in deals: https://youtu.be/VIU2Lqj_FY4

Walker Deibel - the best-selling author of Buy Then Build: https://youtu.be/xoUH_Ixeook

Mike Mausteller - Business Coach, Executive Coach, Trainer, and Speaker: https://youtu.be/yYLEAfafxWc

Simon Bedard - Founder and CEO of Exit Advisory Group, M&A firm in Australia: https://youtu.be/obNiIbx5mJ0

Kison Patel - CEO and Founder of DealRoom and and M&A Science Academy: https://youtu.be/VR4nSM8HT18
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Ronald P. Skelton - Host -

Reach me to sell me your business, connect for a JV or other business use LinkedIn:
Ronald Skelton: https://www.linkedin.com/in/ronskelton

Have suggestions, comments, or want to tell us about a business for sale
call our hotline and leave a message:  918-641-4150

 

Transcript

Ronald Skelton  0:06  
Hello and welcome to the how to exit podcast where we introduce you to a world of small to medium business acquisitions and mergers. We interview business owners, industry leaders, authors, mentors and other influencers with the sole intent to share with you what it looks like to buy or sell a business. Let's get rolling.

Hello, and welcome to the how to exit Podcast. Today I'm here with Gary, say your last name for me one more time man.

Gary Guseinov  0:39  
Guseinov.

Ronald Skelton  0:40  
Guseinov. All right, yeah, I'm here. I'm here with Gary. Gary is the CEO of real defense, which owns over 12 brands in the computer security place. He's even looking to acquire more b2c and b2b software as service companies. Hey, welcome, Gary, thank you for being here, man.

Gary Guseinov  0:55  
I appreciate the opportunity. Thank you.

Ronald Skelton  0:58  
Let's just start off where I start every show off. Let's get people to kind of know who you are. What kind of started yourself like started, you know, your journey down the entrepreneurs face I jokingly say, you were born. And then now you ended up on my show what kind of fill in the gap in between?

Gary Guseinov  1:13  
Sure, sure no worries. Yeah, I started in a direct marketing space. I had a company in the late 90s Actually, that did everything digital. We did website design, we did pay per click advertising, display advertising. And my my clients, my early clients were at AMC and Atlantic Richfield, which is a big oil company, British Petroleum, Sony, Disney and all these big brands that wanted to have a digital presence. And they also wanted to do customer acquisition online. And so we started with Pay Per Click advertising before Google even became a search engine that we know today. And so if you recall, back in the day, we had Alta Vista and go to and all these different search engines that don't exist today. And so that was my entry into digital world. And then kind of skip forward, I started a cybersecurity company 2003 called Cyber defender we took it public. And then in 2011, I was asked to help a company called Anchor freedom product called Hotspot Shield. It's the most popular VPN product in the world. And we were very successful. During the Arab Spring, we kind of enabled Twitter and YouTube to work around the world and more in areas of the world where it was prohibited to access social media. And then 2015, I launched a co founded a company called Inc cast. It's a influencer marketing platform, and we brought Tik Tok to South America. And then we brought him up to United States and helped sort of orchestrate its move to the top. And 2018, I co founded a company called Real defense holdings. It's a acquisition company that acquires consumer privacy and security companies. And we've done some acquisitions, and continue to do more. And we're building a a consortium of products and services focused around consumer privacy and security services around for North America, in Western Europe, where consumers can access our anti virus technologies to tech support to VPN's and whatever they need to stay safe online.

Ronald Skelton  3:22  
So you've got a holding company, they're buying security companies now. Kind of just this run through that process, you know, you're out there, you're looking for companies that complement. If you're looking like in most private equity or holding companies, you're looking for things that complement the set of customer base, you already have that add value to the product. What is your selection criteria? I mean, what do you look for in the company? 

Gary Guseinov  3:49  
Sure. So, there's quite a bit, a few, a few things. But are we like companies that are divestitures or carve outs from bigger companies. So there are a lot of big companies out there and multibillion conglomerates that have these divisions that are just not being managed, and so they're too small or not at the target of their priorities, and so they kind of get ignored. So that's one of our, that's one of the areas that we look for one of the opportunities we look for. We also look for companies that are maybe too small for bigger entities to acquire or VCs to look at, or not growing as fast but need some type of management to accelerate their performance or as stagnant. In other words, they raise money. They performed at some point and then later flattened out. And so now they're not interested anymore and so not so much focused on high growth, high value companies are coming out of Silicon Valley where their multibillion dollar valuations, but that's not our focus. And also the other thing is there's not a lot of innovation and the consumer privacy security space. Most of the companies that are out there are focused on enterprise and rightfully so because there's more opportunity, there's more money being spent, that's understandable. But in the consumer security privacy side, there's just not a lot of options. And so we're trying to figure out how to build better products, how to creatively create a, an entity that has addressed all the categories that needs to be addressed from VPN to anti virus to tech support to Safe Search. And so we've done a pretty good job in sort of creating these components or adding these components to our, to our holding company. We're still far away from where we want to be, but things are moving the right direction.

Ronald Skelton  5:38  
You have a unique advantage, I was looking at your website, you have a user base, according to your website of above a million users and have had your software deployed on it said over 100 million machines. So how does that impact like, I see why you say you don't you're not looking for high growth, high value, because you have a user base that they have a valid, great product, then you have a base to sell it to right.

Gary Guseinov  5:59  
Yeah, those are actually paying customers. Just to be clear, they're not free users, they, our business model is is really comes into sort of two flavors we sell, we sell direct to consumers. So Google Display, advertising, television, etc. We also licensed our technology. So a lot of our licensing partners are well known antivirus companies who take our code base and put it into their own applications. And so we are partnered with some of the biggest media, anti virus companies around the world. We're partnered with device manufacturers like Dell, Lenovo, and all the hardware manufacturers that you've heard of. And we're also in 20,000, retail locations. And so we're, you know, covering all the, all the sort of customer acquisition opportunities, and any company that we do acquire, we offer that those those channels to them. And so it makes perfect sense to do product acquisitions, in companies that are don't have, for instance, retail distribution, like we do or doesn't have the licensing channel that we have, it makes sense for us to make sense for us to do these deals.

Ronald Skelton  7:10  
That's, that's really cool. In the in the, you know, a lot of the guys that are listening to the show, they're wanting to get there, they're, they're looking for their anchor company, they're gonna bolt onto it and bolt onto it and bolt on it, you're well down this path, I think there's a lot more people to learn from you. Like, what's the, I mean, let's just kind of jump into some cool ideas or what's like a red flag, you're talking to a company you're starting to evaluate, and you're thinking about bringing them in, is there any kind of thing that can go on this, like a real knee jerk reaction, like I got it, again, can't get into this one?

Gary Guseinov  7:41  
Sure, there's a couple of things. One is companies who don't know how to properly quantify discretionary earnings. And so, you know, they'll run their, you know, car payments and all this personal expense to the company. And they either don't back them out correctly, meaning that they're making it seem like it's part of the cost, and it maybe shouldn't be, and so their profitability should be higher, or they take too much out, where they say, oh, that's personal expense, when in fact, that's not. And so when a company gets really small, and like the CEO doesn't want to stay with the, with the company and wants to leave, you have to understand that it you know, in many instances, you have to have someone there to run that business, like it's not going to run by itself. And so quantifying those costs and coming up with a valuation, that's reasonable. After you've adjusted the expenses, it's sort of a challenge, and some business owners are not advised correctly with through the broker. So they'll get into this very sort of challenging financial documentation, you know, spectrum where they keep adding and subtracting, and it just becomes messy. So the smaller the company, the more difficult it is to do that. The bigger the company, the less less difficult because you have bigger staff, and you can always say, well, who's number two and a company who's number three, then you can, you know, figure that out from pulling out that direction. The other one is compliance, and, and companies that, you know, are flying fast, and maybe not sort of covering all the, you know, all the areas that they should be covering in terms of cybersecurity, in terms of how to deal with personal PII data. And, you know, the following PCI compliance rules and doing all the sort of the, you know, the basic industry standards. And so, and when a business is small, sometimes they don't even know that they're out of compliance. And so you have to remind them that they need to be in compliance and bring them into compliance. And so we've done an acquisition once where the company was out of compliance, certain areas and they didn't know how to become compliant, but they knew they had to be compliant and so that that made it easier for us to fix it and bring them to compliance. But those are the two areas you know, compliance is why genuine is You know how to sort of how companies quantify their financials, you know, and that's when you're less than if you're a 10 $15 million company or smaller, that becomes challenging.

Ronald Skelton  10:13  
It is interesting that actually, one of the companies I consulted for was trying to go into business in Europe and a lot of people to understand that every country every, you know, pretty much every legal country has its own set of compliance rules, I think, yeah, they used to call it what they call it now. But it was called like safe harbor or something like that, to you had security guidelines to do business in Europe. So I was consulted to bring into one of these companies that wanted to take a mapping software tool, and this is years ago. Now, Google does better mapping than any of them, but a mapping and direction tool to Europe. And I had to go through their safety and security protocols and all their stuff and rewrite their operational manuals and everything, so we could get them safe harbor certified. So I get I get that like, compliance, you know, different. And if you go into different markets, that opens up doors to like, you know, okay, we're using this type of encryption here. And you can't do that across, you know, over in the Europe and those other countries, because the US won't allow it. So I get the complexity of compliance and stuff. What the what you thought up first about the discretionary earnings and stuff was interesting, because it's come up on the last three shows I've recorded. It's been a conversation over the last couple shows here that I've recorded, and some of them aren't out yet. So the guys that are listening, though, I heard that one that he kind of got to look past that a little bit. And go, do I have a product here I can work with? And, you know, it sounds like you already do that you already like you just have to do the correction of Yeah, you think your evaluations here, but you can't add back in, you know, 200 grand a year? You know, based off some car leases and stuff, you know?

Gary Guseinov  11:50  
Yeah, so it's interesting, it's a really important point, actually, we can talk more about it. And there are instances where, for instance, first of all depends on who let's just talk about, who's the buyer of the company, there's two types of buyers strategic and financial. A financial buyer is interested in taking a business as is, and operationally maybe optimizing it, but wants to keep the business going, as is and grow it, whether they're adding additional capital for improving marketing, or they're doing something else to the company to make it function better, right. So that's a financial buyer, most financial buyers don't necessarily want to replace the management team, or they want to keep them, they want to keep the staff and let them let them keep going. And so, for that type of buyer, you have to present your financials in such a way that that makes sense for them, because otherwise, they're not going to value the business high. A strategic buyer is less interested about that, then adding what you're selling to their current organization, right. So they may be okay with the management team leaving because they just want the product. So maybe they may be okay with the whole company leaving as long as the product is functioning. And so in that scenario, you can quantify that outcome differently in terms of how you present it to the buyer and say, Look, if you did these things, with synergies, you will have this financial outlook. And that financial outlook is very different than a buyer who's looking to buy and let you stay on board and they keep paying your salaries. And so that's as a seller, you need to understand who the buyer is, in terms of discretionary earnings, it's important to separate personal expenses for the business, it's very simple. If you have a car payment that you're going through business, it's not going to be a new expense for the buyer, right? They're not assuming your car payments, or your lease is right. So it's in your favor, you can take those expenses out, we have to be careful is if you are the CEO of the company has 10 employees. And you're the only person that's responsible for bringing in your business, you're a salesperson and your company, which a lot of times a CEO is that person BD sales, all that you cannot say to the buyer that you're going to leave the day that the deal closes, and then suddenly, the guy who was making all the girls making everything happens, God, and somehow the businesses work the same, it's hard to say, because the person who's generating the business has gone. So you have to then say, okay, so we have to replace me, what would that cost without free. So it's there's a cost a CEO, you know, if it's California, you're looking at a few $100,000 Plus for a CEO, and if it's a bigger company could be millions of dollars. And so you have to look at that as a seller and understand as more sophisticated buyer is gonna want to understand these things. And less sophisticated buyer may say, or maybe somebody who's just wants to be the CEO and an operator, then it's fine. Then they come in and say look, I'm going to take over the reins, I'm going to run the business day to day I don't care about what your current situation is, I'm going to be the one responsible. So for that, that's a different buyer. So we're an institutional buyer. So for us It's about understanding these metrics very clearly. And so we we try to go for businesses that have this documented very well. But if we bought a company wants that, that didn't have an audit done, and in like 24 months, and so we had to perform what's called quality of earnings and say, financial diligence process, and we look at all the bank statements and all the receipts and everything, and we make sure that it's in line with what the company presented to us. And, you know, usually people like tell the truth, you know, it's, it's, there might be off a little bit here and there, but generally speaking, the business owners are honest, and they present information as best as they can. And with some adjustments, you come to some, you know, reasonable reality there and make to make the deal happen. But I've seen a few transactions where the company had no, everything was in order, and the financials are not gelling, and they're all over the place. And nobody, nobody will ultimately buys it because of that. So that's really important, it's important to have a good accounting team or a bookkeeper or somebody you trust, and they can organize their information. As long as it's, it's truthful, you know, you can, you can figure out how to fix something in terms of improving it by improving sales or, you know, reducing your expenses. But if that information isn't accurate, it's hard to, you know, it's hard to fix, because you can't, you can't measure it.

Ronald Skelton  16:23  
Some cases, you'll find these CEOs where they're doing four or five rolls, right three or four, like, they're the top sales guy, you know, I was talking to a guy, and he was looking at a machine shop, and the guy was the top sales guy landed all their clients, he actually repaired the machine, like when something wrong went wrong. And one of the machines in the thing, he was the maintenance guy, right? He was the CEO. And he did like one other role, I forget what it was, but basically did all the HR was a 1520 person company, right. And as a when you go to, you know, when he's needed any any needs to retire, he's got medical issues, and he's gonna retire, whether he wants to or not kind of thing. I don't wanna go too much into that. But he didn't, what he didn't realize is okay, there's no other person on this planet, there's going to pull 60, 80 hours a week, the reason that you do it is you own it. And he and he paid himself like a miniscule amount, like 40 or $50,000 a year, and it's Tulsa, Oklahoma, you know, that kind of area, it was a little north of here. So that's not a horrible salary. And then if he had a great year, he gave himself bonuses, right, so on great profitable years, he did a huge distribution, I think that doesn't work, when you look at, there's no way that you know, you're gonna have to, or the guy that was gonna buy this, he's gonna have to hire three, maybe four people, because nobody's gonna pull 68 hours a week and juggle, those are those four or five jobs, there's no way to replace that it's gonna, you know, and even here, the CEO for that spot, it's probably an 80 to $120,000 job, right, the sales reps gonna be, you know, for that they're a decent sized company probably going to be pushing, you know, 80, 90, you know, with commissions and everything, you know. It's, I think he did the math was at $350,000 a year expense to replace all the tasks this one guy was paying himself 40 grand a year for, and it just wasn't going to work, right. Like, you know, the buyer that is almost kind of have to be an owner operator, or, you know, they need to scale the business up, put those people in one by one and scale it to where it's running with those individuals running and then look at selling it. So I can see, you know, where the owner wants to leave, and they're taken on multiple roles, you know, just, you know, adding a single person salary back in isn't going to help you much.

Gary Guseinov  18:42  
That's an interesting point. So for, you know, I have friends that have small businesses, and they have the same problem all the time. And they come to me and say, Look, how do I deal with it? My recommendation is the following. First, you got to know how to delegate to people. You can't do it all. It's impossible. There's no, you can't be the CEO and accountant and the bookkeeper and whole thing you got to delegate. And it's okay, if when when you delegate to someone that they don't necessarily perform on your level, because that's part of the reason they don't want to delegate because they're afraid of the other person's not going to do it the way they expect them to do it. That's a process you got to go through. Let the person fail a few times, to teach them how to do it correctly. Be a mentor, be a guide, be the boss and let them figure it out. And then you'll have that leverage, because now you've got more time, you've just delegated somebody else. Now you have that time that you gain to do something more, which should be selling or raising money or figuring out the next product or figuring out the next marketing strategy. Right. So a lot of business owners don't know how to do that. That's one of the biggest reasons why businesses fail. And one of the biggest reasons they don't sell okay, it's because they don't know how to delegate to others. The other one is understanding Um, you know, priorities in your business. Okay, priorities is everything. And it's time, right? So time to people's priority equals value, right? If you don't know, like 10 things you're doing every day, if you don't know which of them is a priority based on the economic reward that you're going to get from that activity, then you shouldn't do it until you figure out why you're doing it. So figure out why you're doing it. And then rank those priorities in order of number one, number two, number three, number four, and then go execute and tell your team to do the same. If you can't do that as a CEO, you're just running around being busy.

Ronald Skelton  20:41  
It's interesting, as I, I go through an audit regularly, like is this the highest and best use of my time, and if I look at it and go, No, I have a whole team, you know, even me, you know, an acquisitions, entrepreneur owns a few businesses, I have a whole team of people support staff, and even virtual assistants around the world they go, I shouldn't be clicking on this, and doing this for 20 minutes every day. This is something anybody can do, it needs to get done as part of a business it needs to happen, it doesn't need to happen by me. And to be able to clearly see that, I think, is a skill that a lot of people need to learn, right? It's just, it's just, I didn't, it wasn't default. To me, one of my team members on there, I seen him do it. And he was way more efficient at things started researching and on VAs to do stuff we were both doing on a big rollout project together. And I'm like, I need to go get a VA you get a lot more done than I do. And then you know, after hiring one, it was like, wow, you know, that's, that's pretty impressive. I get, you know, five times more work done this week, you know, I don't think that it's natural for most entrepreneurs, because we're creative. We want to solve problems, and we see something in front of it. And it's kind of a ready fire aim mentality, I just jump in, you know, we just jump in and get it done. Because it needs to happen. Instead of taking a step back and go, yes, it needs to get done. But do I need to be the person doing it? Right?

Gary Guseinov  22:00  
The other thing is, is how you communicate these priorities, it's really important that you don't become a micromanager. Okay, and small business owners are the most biggest micro managers on our planet. They want to know everything in every possible way sideways and forward that you would need to do is say, to the person you're delegating, to empower them, versus micromanage them, right. And empowering someone is by saying, Here's my ultimate goal, I want you to, you know, close the sale, right? Here's the tools to close the sale. But don't tell that, that salesperson to make to get up at six o'clock in the morning and make make coffee at 6:30, make a phone call at 7am, send a proposal at 7: 15. Like you start doing that kind of stuff, they're not going to perform because they may get tired of being micromanage. And you're going to be overwhelmed by doing these little small little tasks. And so if the person can't execute, if you're given someone a task and their responsibilities to do sales, you've given them the tools, you've given them know how the training the resources, and they can't perform, cut the losses quickly, fail fast, okay, don't don't think that it's going to change dramatically, because you're going to be nicer one day, you're going to bring doughnuts to the office like that stuff doesn't work. They're either capable, or they're not capable. And you have to give them the right period of time to figure this out. And you know, you can't be too aggressive. But you have to know when to cut your losses. And I see a lot of businesses, they'll hang on to people for years, they'll say, oh, it's going to work out Monday, or they're going to change or they're going to their life is not in the right place. And there's all these reasons, and you have to be, you know, sensitive to them. I'm not saying don't be, but at some point, you have to say what's really important at the end, because I'm supporting an organization, maybe my own family, maybe my own other employees who have families who have to be supportive, I think about the organization, not just that one person, right. So I think that's important to small businesses know how to move quickly make these decisions fast, and not be so worried about every little miniscule step that takes place, because you can't control it.

Ronald Skelton  24:03  
I like Perry Marshall has a book out by the set on the at prints 8020 principle, he didn't come up with it, of course, but it was something, he took it to another level. He's like the, if you look at the 8020, and you only focus on the 20, you can break that 20% down into an 8020 Rule inside of that, and you just keep going on and on. And you'll get to things that are so impactful to you. One of the cool things he does and I've tried this on the last last hire I did, he'll like if he needs a sales guy, you'll hire 10 of them. And he goes like either a two week or a 30 day challenge. And everybody gets the same parameters, do this, this and this and close as many business deals as you can in 30 days or for me it's like it was a virtual assistant and some social media management. I say you manage this account, you manage that one, and I give everybody something different than within 30 days. I see who performs best and you keep the top two, because eight or nine of them are just like three or four of them are just not going to show up. to do anything, a couple of them are going to be mediocre, one or two are just going to rock it and shine above everybody else. And you keep those guys. So I love the model that he came up with. I don't know that everybody's business can do that. But you do have to, you know, they say hire slow and fire fast, right? I believe in that I think that a lot of people hold on the, to people way longer than they should. I mean, I can think, you know, I'm an entrepreneur, I don't make the best employee and I can think of a few businesses that hold on to me way longer than they should. Because I was done with them way before they were done with me, right?

Gary Guseinov  25:36  
Well, it's not, you don't necessarily have to fire people either, you can just reassign them. Sometimes, sales force is not a sales force, maybe their customer support specialist or a account manager and not a not a hunter. And so, you know, you also have to look at their background and see when you're hiring them, but they have a quantifiable sales record. You know, how can they prove that they deliver? Can they show you results? And if they if you can't put your finger on the previous experience, and can't quantify the previous purchase experience? You're it's not it's, it's they're not the right person for you. And so, hiring is really important. I mean, at the end of day when you have if you don't have people on your company, right?

Ronald Skelton  26:16  
Absolutely. It's a people business acquisitions is a people business, you get to a certain level, and people think it's the offer, it's the structure, it's all this. But the reason a lot of these business acquisitions and mergers fails, the integration fails. They fail to match the human nature, the culture, the human expectations of all the employees, and they start losing them in the thing crashes, or burns, or it never integrates in because there's resistance, right. And that's all done through proper communication and set, you know, setting expectations. And, you know, and communicating well. I always tease it, you know, Ron, I have the running joke that what's the number one cause for divorce? And everybody's like, Oh, like, well, it's marriage, the number one cause for divorce is marriage, because you'd never get divorced if you were not married. The second one is unmet expectations. Both parties have expectations of the other party, that they're just they were eyes of grandeur or something. So it's a it's a breakdown in communication. And it happens in business all the time. There's this expectation or lack of expectation. And I think that's the biggest downfall a lot of integrations is they failed to meet the culture, the human needs, the set the expectations and meet the expectations, right. And if you don't set expectations for your employees, and especially when you're acquiring something, you'll say, here's what's going to happen to us, here's the opportunity, there's a in front of you, if you perform and stay around and stuff, if you don't do that they develop an owner and other that own expectation in their head, and you have no idea what to meet.

Gary Guseinov  27:51  
Well, yeah, a lot of people, a lot of employees, when a company gets acquired, the first thought in their mind is that they're gonna get fired. Because that's sometimes that does happen, because companies want to create synergies and they think there's duplicates, and they fire people, we'll do that we actually do the opposite. We want to keep as many people as possible one of the acquisitions acquisitions we did recently, we gave everyone unlimited time off, we said you can take as much time out as you want, one, take a month off two months off, you can do so. And so we we gave them bonuses, we gave salary increases, we gave, you know, unlimited PTO, and we do so because we want to be perceived and want to be valued as someone who's doing a better job, the previous team and want to keep people around and not not let them go. Our Space is a little different, you know, we operate in this consumer privacy security spectrum. The knowledge that exists out there in the in the developer community, as you can imagine, is very limited. And so it's limited for many reasons. It's not because there's not like people understand it. And so, you know, when you look for developers in the space, you're not going to come across a big pool of people to pull from so it's different for us. But in other industries, there's there's more, there's more flexibility. And so anyway, as an acquirer, I think you need to you need to look at the cultural mix and find a way to create immediate sort of value, once you've done the acquisition or merger there where your staff and the new teams are compelled to stick around and think that you're going to do a better job than the previous scene, previous management.

Ronald Skelton  29:33  
Cool. And I liked that. You know, you brought up something at the beginning of what you do, like where you source deals from that I don't think I've had any guests talk about so I want to dive into it. Let's talk a little bit about divestitures. Basically, big companies bought something not working or doesn't fit in and they got what they wanted out of some of these big tech companies. They buy something for a couple of the engineers and one of the technologies and they don't need the product and they don't need the rest of the team. But you know, they got what they want to go pull in a lot of the big guys, they do it a lot they buy, you know, they bought a what I call Aqua hire, or I think that's a common phrase inside of the industry. They acquire, you know, great engineers and stuff through acquisitions. And then later on, they figure out, they just don't need the product. Right. So how do you source those? Where did those come from? Tell me about like, you know, what's the difference? Is there any? What are the similarities and differences from buying a divesture from talking to some founder somewhere and buying that?

Gary Guseinov  30:28  
Sure. So first of all, these are all personal relationships, right? And you're not going to there's no platform, there's no website is now a broker you go to, it's not something that's sitting out there on the internet, you literally have to call someone on the management team, one of the investors, one of the board members, and create dialogue with them already have a relationship with them. And you may even offer it and say, Look, I know you have this asset over here, I know it's not a priority. Do you want to do that you want to sell it to us? And they may say yes or no, depending on circumstances. Or they may say No, today, and then a year later, they may say yes, depending on, you know, weather. And so you just have to maintain those relationships. And so that's the best deal you're gonna make. In terms of value, because you have a deal that's not publicly marketed, there's no broker actively trying to sell the asset, and you're making an offer in a non competing environment. So you're making an offer for a company that may have gotten more, you know, from from if it was a publicly traded publicly offered transaction. And so you're going to do better, they're also you kind of want to buy an asset that's not being sold, right, because it's probably doing good, but it's just not priority, right, within a larger company. So we found a few of those. And we've done well with, in fact, every deal was done is comes from this type of relationships we already have. If you don't have the relationships you need to build them. You know, if you're a company that makes, you know, furniture, you should know other people who make furniture in your city, or other cities that are your size, you should have drinks with these people have dinner with them, socialize with them and figure out what they're doing. And maybe they do want to part ways with with their business. And so that's the best way now there are brokers out there, that that that sell businesses, you get a list and kind of look at their flow of deals. And I Johnson in a sub $50 million value market. And so the small business, I found those deals to be not so interesting there. They're always like, there's always something wrong, there's like some kind of fundamental problem with the company. And so I will be careful with those types of deals, sourcing on your own is the best just going to the to the owner and saying, hey, I want to buy, you know, we're take. If you can have those conversations with people, you probably do better than going to a broker and having to broker the broker, you can ask the broker do that for you. There are companies out there that you can hire, and they'll go and find you deals if you tell him your criteria. So that also can work.

Ronald Skelton  33:06  
One of the things I've even tried is I reach out to business owners all the time. And I like, Hey, I know you're in the I don't know, I'm picking something off I was I've got a buddy who's in the automotive space. We were looking through automotive companies, engine rebuilders, and all that stuff this morning, we'll talk to these, we'll call the auto rebuilders in town, the engine rebuilders and say, hey, look, we have a company in this space, we'd like to kind of expand into that. Do you know anybody that rebuilds engines that might be ready to sell? And a lot of times they go Yeah, me? What do you got, you know, another, you know, the guy down the streets looking to do it. I really don't want to, I don't want to like lead you to the thesis. A lot of these guys are friends. So you don't have to necessarily say Are you ready to sell? I think you're missing an opportunity. Sometimes if you didn't hit them approach and directly say, are you ready to sell? Just say, Hey, here's what I'm looking for who do you know? And they'll either raise their hand and say me or say you probably should go talk to Johnny. He's 80, you know, he's 80 years old. I don't do what he does. And I don't want to do what he does. But if he doesn't do something soon, that's gonna go away. Right?

Gary Guseinov  34:05  
Absolutely. That's that's the best way, you know. And first of all, everybody's for sale. Right? Google is for sale. Facebook is for sale, right? It's just a number, right? It comes down to valuation. And so I think that's a rhetorical question when he was asked, so on your first sale, the answer's yes. Right. And so the next question is, how much and how and that's when you get into the nuts and bolts of it. But I think if business owners asked that question more often, they would get very interesting responses and it would learn a lot because you would find out what some of you may not know what they expect for their business. Until you ask that question. Right? So might be moving out of the country or they're having some life event going on. They're, you know, urgency level might be different than what you expect. And so by offering to buy, you're opening up a lots of Lots of opportunities for yourself. And I think more businesses need to do that. There's also lots of financing options out there for acquisitions, lots of financing options. And they're much easier than then getting a home mortgage. And so the underwriting process is not as complicated as you think. The numbers, you know, you can get hundreds of 1000s of dollars, you can get 10s of millions of dollars. And the more actually, the more money you want, the less complicated becomes. The least, the less money you want, the more complicated because it's really interesting. But banks and financial institutions that claim the space are, there's lots of, you know, lots of them out there in the United States, and they're very happy to give you a wall if you're doing an acquisition.

Ronald Skelton  35:46  
So interesting. You said that there's some business out there, they're all businesses are for sale. And the reason I laughed when you said that is, I had the article up earlier, where Elon wanted to take over Twitter, like, until last week, Twitter had no idea that ever for sale.

Gary Guseinov  35:59  
Right. Yeah. Musk is trying to do what's called a hostile takeover. And he's in he's gonna succeed at it, because he's really smart, he's got a lot of money. And so Plus, Twitter is a stagnant organization, they need to be disrupted. And I think Musk is that guy, he disrupts. And so I think it's a good healthy thing. And it's going to work out, I think, for small business owners, they should perceive the world in the same way, they can look around themselves and see, you know, like, again, the furniture manufacturer, maybe it's not a sexy story, but there's something in that air category that's doing really well. And if you if you focus on it, you can be the leader, or you can be a better priced or less expensive or whatever, you know, strategy you want to deploy. But even in a you mentioned, car, automotive industry, where you have repair shops, or maybe engine rebuilders. There's something that too, you know, there's something going on in that industry, that's really cool and sexy, and people should be focused on it. But sometimes they're not there. So heads down, and even doing what they're doing every day. They're not looking around. So it's really important.

Ronald Skelton  37:11  
You know, a lot of people think that the like, Okay, I'm looking to do, I'm gonna grow, I'm gonna go do maybe I'll do an acquisition, they started looking directly at their competitors. And if somebody asked me, you know, you know, who should I look at? If I'm starting to acquire? I was like, Okay, who do you pay right now? You know, like, when you mean, who are your suppliers? Like, if are you in the software world? Do you outsource any idea? I would ask you, do you outsource any of your, like your development? And on any of these companies? Do you have companies that you regularly outsource? Like, the crypto side? Or in the crypto but the encryption side of things? Or something very specialized? Do you have a hard time finding staff? Or do you outsource that? And then you say, if you said yes, I'd go to the same company over and over again? And they go, Yeah, well, that's when your acquisitions targets find out if they're for sale, right? Exactly. Like a concrete company I was talking to like, well, you know, who would you acquire? There's only like, so many people within so many miles was like, Could you buy your rebar from where you bought your steel from? Right, right? Who do you buy your,

Gary Guseinov  38:06  
Your supply chain, your supply chain opportunity is there the first place you should look, because you can reduce your costs, you can improve your supply chain environment, you can improve compliance, there's a lot of reasons why you want to do that I've made offers to almost every single one of my supply chain partners all the time. And if they say no, go back to them six months later, make another offer. And so some of them I've gotten very big during, you know, the tenure that we've been working with them just become, you know, unattainable in terms of valuation. But there are a few that that we want to acquire and weed for us, we do all the development in house. So all of our PhDs are focused on the encryption and compression, all those areas that are really important. We do that in house or outsource that. But there are components like feeling PCI compliance environments, and certain areas of the business. We don't want to figure out our E commerce like, you know, being an expert in one area, don't try to be an expert in everything. You're gonna waste a lot of money.

Ronald Skelton  39:11  
So you're, we're about 40 minutes into this, I don't want to miss this one piece. You're building this you've you've built and sold businesses before. So I have to assume or maybe it's a bad assumption. Right? They know what the, you know, the the phrase for assumption is right. But I have to believe that this is there's an exit plan somewhere. So do you have an exit plan, like kind of like a great concept of where this is going and you're already starting to plan your exit? You know, maybe that's a year, five years, 10 years down the road? Or do you even think about that yet?

Gary Guseinov  39:39  
Well, we went built real defensively. We never had a goal of selling a company that was not the intent and our our goal was to be very profitable. And so we are trying to get to certain levels of profitability, some levels of revenue, where you know, The company could be, you know, valued at substantial evaluation. And we can support continuing to do more more acquisitions. And so we don't have necessarily a timeline or horizon where we say, Oh, we got to go public, or we're going to try to sell the company now. So it makes us an offer. And just like we're talking about earlier, everybody's for sale at the right valuation. And so, but we don't have that as a directive within the company, our investors, and the board is not, doesn't say to us, Hey, guys, you know, two years, you got to sell this thing, or else, we don't have that. And so we're very operationally efficient. We try to keep our costs down and improve our margins constantly. And so we know how to do that we use artificial intelligence very efficiently. We have a very good FPN, a financial analysts and all those folks that make the business tech and so the answer is, no, the answer's no,

Ronald Skelton  40:58  
No, that's good. Yeah, I like it. So I was just curious, because like other people, yeah, we're gonna, we're gonna go public, and we're gonna get there in five years and see people it's like, no, this making a lot of money, we're gonna make a lot, I love your answer, we're gonna make we're making a lot of money, we're trying to become more efficient, we want to like make a lot more money. And at some point, we'll probably go public is kind of what I got out of that, right.

Gary Guseinov  41:19  
I'm not a big fan of going public anymore. I took a company public, once, it's such a mess of being public company. It's, it's fraught with with litigation and complexities and compliance. And for business, that's, if you're worth less than a billion dollars, you shouldn't go public. The thing is, it's not the cost of going public, it's maintaining public listing and liquidity environment. So in Europe, public markets like the Frankfurt exchange, and then well, that's, yeah, they're not, they're not very liquid. And so meaning that if you're a startup and you're in your less than it's a half a billion dollar market cap company, you're not going to get a lot of activity, you're not gonna get a lot of analysts coverage, and I'm gonna get a lot of trading volume. And so you're constantly going to be bouncing around and a stock is going to keep up and down very volatile, and not a lot of not a lot of volume. And so when you go to NASDAQ and your stock exchange, that's where the volume comes in, and fists, all investors around the world trade and these exchanges United States. So the problem with public markets today is that the same get the same benefits you get from public markets, you can get some private markets. It's not like public markets are the only way to go raise money, the only way to grow your business. It's actually absolutely the opposite. If you you can go and raise money, doing private deals forever. Okay, you can keep recapping restructuring debt, restructuring your equity, acquiring companies and not have to deal with public scrutiny. The public markets scrutiny is horrible in the United States, particularly because the the fit and the rules that exist out there and SEC requirements. And the Sarbanes Oxley and Dodd Frank, all those, it's because a few bad players, you know, if you remember the, you know, the Enron situation, and all those things, they caused some of these laws to come into into play. And so if SEC calls the back and makes public environments less, you know, litigious, and less cumbersome, less complicated, less expensive, then I think we're gonna have a resurgence of IPOs. And smaller companies go public. But today, there's alternatives. There's the crypto and the blockchain environments that are that are sort of, you know, competing with with with IPOs, and wants to get regulated properly, maybe they'll be the option. We've got these crowdsourcing platforms where people are raising money through crowdsourcing environments. There's other ways, you know, through the Small Business Programs to be sort of a quasi publicly listed company. So there's other options. I'm just not a big fan of, of IPOs. In general, today, in today's environment, that might change hopefully, you know, a year from now two years from now. But you know, you can do just as well being private and raise money, it's plenty of capital out there, it's, it's fine. You don't need to go public.

Ronald Skelton  44:11  
One of the things I always like to ask, especially people like you who've done multiple acquisitions in this in this current business structure you have now and all the ones you've done before, what would you say your favorite acquisition was?

Gary Guseinov  44:24  
Well, it's our flagship products got Iolo. We're excited about the business. This company's been around for 20 years, a 8-time winner of PC Magazine Award, you know, used by millions of consumers around the world. And the best feeling I have is when I call someone, let's say I'm raising money, or I'm talking to a potential business development partner, and they tell me that they're using my software for past seven years, you know, where we go into a business or bank, for example, and say, oh, yeah, we have your software running on the machines here in the office. And so it's kind of cool, like, oh, you know who we are, and I don't have to say Oh, you want who I am, you know, you've already been using my product. And so that's a good feeling. But I Oh, yeah. Iolo is our flagship. We're excited about it and, you know, growing it, and I think it was our best deal, so.

Ronald Skelton  45:16  
I get that feeling just from this podcast. I was actually an entrepreneur thing a couple of weeks ago, somebody said, you, Ron Skelton, right. Yeah. He was I watched your podcasts, I'm thinking about buying some businesses is like, this is like I'm in year two, probably about 35, 40 recordings to have somebody do that they recognize you. And they have. We talked for 20 minutes, and I'll answer some questions. And I said, You do realize that I'm doing acquisitions and mergers, maybe one and a half, two years into it? Because yeah, but you've talked to all the experts, you probably know more than people that have been in this business for 15 years. I said, that's why I do the podcast. I get to learn from people that have been there, done that. And hopefully, I learned your lessons. So I don't repeat your mistakes. Yeah. So that said, what's the worst off acquisition you've either done? Or almost like he bought something like, Oh, God, I wish we hadn't done that?

Gary Guseinov  46:02  
No, I think we haven't done that on everything we've acquired as worked out. There's deals that we wanted to acquire, that didn't work out. And usually, well, this is one instance, an example that the seller backed out because we this is one mistake we made, I'll say, this is for your listeners don't ever make this mistake, which is we got to the process of signing Letter of Intent with the seller agreed on the price agreed on a transition period. And we're about to start asset purchase agreement, which is like the last stage of the transaction. But during our meeting with the seller, they asked us, What will you do with their company, because you're gonna buy us and you've got to keep all of us around we our goal was not to let anyone go, we wanted to keep the CEO, the CFO, the CFO, everyone was understand board. And we we were hesitant in giving them this information. Because we said what if they just take this information and run with it, then we decided, You know what, we have a deal that's almost done. We're at the 11th hour, that's not going to happen. So it gave him like a high level playbook of what we're going to do. Guess what the light went up in our head? Like, why are we selling the company, this guy's just told us how to be extra revenue three, so profitability. And so I'll never forget this, I got a text message. And I got 430 in the morning, the day before, we're supposed to close that says we don't want to do the deal. Sorry.

Ronald Skelton  47:31  
So in the real estate space, I used to call this don't ever solve the problem before you have control of the asset. 

Gary Guseinov  47:36  
It's all right. 

Ronald Skelton  47:37  
And we used to buy a lot of houses out of foreclosure or like estate issues, and they're like, Oh, my God, they see this huge problem, and you glass, not a big problem, and you just do step 1, 2, 3, 4, 5. And it's gone. And then they never call you back, right? Like, you can't take the pain away until you control the asset.

Gary Guseinov  47:53  
And, of course, given the whole playbook and we were high level, you know, we try to incentivize them by saying, Look, you're going to make more money as an employee and earn more you're going to grow your company, you're going to be part of a bigger organization. But the our views were so I guess there became much clearer to them. After they thought them through. They said, You know, they don't want to do it. Also, sometimes sellers don't want to part with their baby, you know, they did build it from scratch. And they figured okay, so now I have millions of dollars in my bank account, I can go and you know, play in the sand or whatever I want to do, right? My motorcycle and my boat? And then and then what? Right? Like, and so they figured that if they really want that, then just take a vacation, right? For a month or two, just go disconnecting, do your thing. Come back to your business, it's still there. It's still producing, and it's fine, right? So that's fun.

Ronald Skelton  48:54  
it's running, right, not everybody could do that. I know a few owners if they leave, and for 30 days, their business is gone. Somebody asked me how do I tell if my business is ready to sell. I said take a three week vacation come back, if it's doing better than it was when you left, wait a couple of weeks and take, take 30 days off take like a month of December off. And if you if it's running better, when you come back, you're there, it's ready to sell. Like if you're wanting to sell and leave. You need to be able to prove you can leave and it still runs well. So.

Gary Guseinov  49:21  
That's all right. That's a good point. 

Ronald Skelton  49:24  
We're at 50 something minutes, we're at the top of the hour, I'd love to ask people like if if you can leave people listen into the show with one or two top takeaways. What would that be?

Gary Guseinov  49:33  
I would focus more on operations of your business and necessarily and how to sell it. And I would say that know how to prioritize that's really important. Know how to delegate and know how to empower and he knows the three things that I would focus on as a business owner, a CEO, even if you're not a CEO. If you're, you know, lower level sort in the organizational stack. I would do, I would do those three things. And I would really think them through and, you know, pause, like pause one day and just kind of like write them down and understand what this means. Because if you really figure this out, you'll see material improvement in your organization. You don't need to go spend money on lots of books, and preoccupy yourself with lots of opinions about these things. They're pretty fundamental, like prioritizing your activities is not some science. It's not some exercise that you got to go through by watching a bunch of YouTube or TikTok videos, like you can just sit down and think about it. And you'll come to an answer very quickly, because most businesses don't have a lot of activities going on. Like, unless you're running General Motors, you know, you're gonna have a few things you're doing every day that you're not maybe thinking through, all the way through all the way through. And so those would be my three things.

Ronald Skelton  50:55  
Cool. Awesome. I appreciate that. One last thing before we go, what are you looking for? I know, it's a b2b and b2c software as a service companies just somewhere in the personal security space. But if my listeners or our listeners are out there, and they're out there looking for companies to acquire, and they come across one, that was a you know, not a fit for them, but maybe a fit for you, what would that fit look like? I mean, what you know, if they if they wanted to make an introduce deduction to you reach out to your LinkedIn and say, Hey, I looked at this company, it's not right for me, but I think it's right up your alley at what would the alley be?

Gary Guseinov  51:28  
Sure. So we look for consumer privacy and security categories. So anti virus VPN utilities that are that software utilities that sit on your desktop computer, or they sit in the cloud or on a mobile device. We also interested in very, very much interested in supply chain enforce infrastructure. So for instance, billing systems, ecommerce platforms, optimization technologies, that optimized content or optimized advertising, artificial intelligence environments for specific areas of the supply chain, like for instance, a call center, artificial intelligence technologies, or call centers, just the call center themselves, you know, remarketing technologies, retargeting, anything that allows to optimize outbound marketing and customer retention tools, lifetime value improvement technologies, average order value improvement technologies, anything in the marketing tech tech stack, that you can add to your organization to improve the things we just talked about. So on the front end, it's consumer facing software and apps, utilities on the back end, it's a supply chain products that can adapt that can be used for any technology product, but can be used for but the products that we sell, so it's a pretty wide spectrum. So I covered a lot cutting out a lot of areas, like we're not buying restaurants, okay, yeah,

Ronald Skelton  53:02  
I get that. So if people want to reach out to you, I'm gonna put your LinkedIn profile back up, it's been on the screen, the whole show whole show. I'll put it in the show notes. For those of you guys who are listening to this on your podcast. It is, It's the LinkedIn is a standard linkedin.com, slash in, G A R Y, G U S, E i N O V. Again, it's the linkedin.com/in/, G A R Y G U S, E i N O V, and that'll get you to his LinkedIn profile. And then their website is real. I think defense with the .se is the last hits R E, A L D, E, F e n.se.

Gary Guseinov  53:49  
And we're not a Swedish company. We're an American company. Pasadena. That's just the URL.

Ronald Skelton  53:55  
Yeah, you got created. That's the first time that's like, you know, because there's a lot of, there's a lot of security companies that are, you know, in other countries and stuff on so I started I did the research, or as I did, it's just a cool way to make the domain name. I was my first instinct, like, Oh, they're a Swedish company. You know, I know people over over there. And then I looked at looked at the reason like, no, he's in Las Vegas. I mean, Los Angeles was probably not. And then I started looking at like, I it clicked in my head. It's real defense. He just had a really crazy way to make it the domain name.

Gary Guseinov  54:22  
That's all it is. That's all it is.

Ronald Skelton  54:24  
So, I appreciate having you on the show. Thank you for being it. Do you have anything else to say before we go?

Gary Guseinov  54:29  
I'm good. I appreciate opportunity. Thanks so much.

Ronald Skelton  54:32  
Awesome. All right. Thank you. Hang out for a second after the show. I'm gonna end it now. Thanks, everybody, for listening. And that was how to exit.com. Hey, it's your host, Ronald Skelton. I want to thank you personally for watching the show today and invite you to call our new hotline 918-641-4150 That's 918-641-4150 Call us and tell us about our show. Ask questions, suggested guests or even tell me about a business you have for sale and we'll reach back out to you. Again that number is 918-641-4150 call our hotline leave us some information. Thank you, the investors and entrepreneurs professional mastermind. The investors and entrepreneurs professional mastermind combines that are traditional peer to peer mastermind introduced first in Napoleon Hill's famous book Thinking Grow Rich, with accountability partnering, where your peers help you ensure that you set goals take action and get results. If you want to scale blow past roadblocks and achieve success faster than you might think is possible. I suggest you take a visit over to tiepm.com That's T i e. P m.com. And check out the investors and entrepreneurs professional mastermind

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