Every transaction advisor—lawyers, bankers, accountants, brokers—tells you the same thing: clean up your financials, document operations, fill gaps in the team, build systems so the business runs without your 70-hour weeks.

The problem? Every advisor will point at what’s broken; none of them show you how to fix it. And no one actually does the work with you. That’s the gap TSC fills.

TSC’s Exit Readiness Service makes your business more Viable, Valuable, and Investable, top to bottom, from cash in to cashflow out. We rebuild your systems—revenue, governance, operations, finance, HR—to make them buyer-ready. Doing this work makes your business more efficient (more revenue per dollar of investment) and more profitable (more profit per dollar of revenue).

If that sounds like you got two wins, you’re mostly right. You get three.

Win 1: Increasing your profit gets a multiple of a higher EBITDA

Win 2: Increasing your operational effectiveness reduces buyer risk, so they pay a higher multiple

Win 3: These compound. A 15% increase in your multiple (7x to 8x) plus 10% EBITDA improvement gives you a 26% higher valuation.

26% of any number is a lot to leave on the table. If your business sells for $30M, that’s $37.8M instead. You just left $7.8M on the table.

How much would you pay to not lose $7.8 million?
Drop us a note to find out how much you are leaving on the table.

First up: Exit Readiness is for owners aiming to sell in 12–24 months. Not the “tidy up your financials” advice or a to-do list you can get everywhere else, but real, deliberate help to actually do the hard work of eliminating valuation killers, implementing meaningful systems, and increasing the reliability of future cash flows.

Second: Business Readiness for underperforming or undermanaged companies. If you don’t have a plan, you can’t understand why you’re not making the money you want. We have a proprietary integrated governance system that takes your data, extracts insights, presents you with decisions, describes actions for your team, and evaluates your results. Then the system does it again.

Our next offering will help teams save 4–8 weeks each year. What do you lose from that month (or two!) your teams aren’t able to make forward progress because they’re collecting old data? More on that later.

Expect more blog posts showing you how these systems work, new web pages with more details, and videos long and short for those who prefer watching to reading.

I was annoyed to see this letter to the editor in the WSJ, whining about “paternalism” and the accredited investor rule.

For those new to the question, here’s what I wrote 8 years ago on exactly this topic because everyone was getting hot and bothered about it as crowdfunding was gaining steam: https://rickcolosimo.com/why-are-there-accredited-investors/.

I haven’t seen any evidence that private offerings have begun providing more disclosure (PPMs aren’t real in this segment of the market for tech startups or “local” startups, no matter what $50k fee crappy business brokers want to charge your) or have improved returns (cherry picking the companies that are going public is shameful; anyone wanting to provide investment advice to non-accredited investors should know better or be kicked out of the industry).

Just tried to update my past research on the percentage of angel investments that return $0.00.
– Here’s a 2022(?) chart that suggests a bit over 50% of angel investments lose money.
– All based on a 2007 study, here are other factors correlated with higher angel returns. What do they have in common? To my eye, most unaccredited investors are not likely to be able to improve their status on these factors. Can the typical $80k salary person analyze financial statements and projections? Some can, but almost none of them can afford the expense of a third party to do that limited diligence.

AngelList published/sponsored this 2020 paper, which provides the following data:

50 company portfolios had a median IRR of about 10%; 11% of these investors lost money.
20 company portfolios had a median IRR of about 7%; 16% of these investors lost money.
10 company portfolios had a median IRR of about 6% 32% of these investors lost money.
1–5 company portfolios had a median IRR 0%.
(Helpfully extracted by Koor.)

The core finding, which is the same as with venture fund investments, is that it’s a portfolio game. Making one investment is incredibly risky. Investors need a range of investments to hope to be lucky enough to have enough wins to generate an overall positive return. The power law is demonstrated throughout the AngelList paper; most of the returns come from very few investments. That matches lottery and slot machines, where claims of “98% payback” on slots is the average, including the person who wins $5m; most people, of course, lose, and the house collects their 2% no matter what.

And, the deeper problem with this data, rarely acknowledged in an angel investor context because the term is so closely associated with tech investing, is that this data is tied to stereotypical angel investments in tech companies, those that are intending to grow 100x, e.g., AngelList. I don’t know of any study that assesses private investments in what I’d call “local” startups: a restaurant, retail clothing boutique, pool hall, a awards & plaques manufacturing company, and so on. Actual businesses where the plan is to grow and become cash-flow positive and produce returns through earnings rather than a massive increase in equity valuation. I don’t think anyone knows what the returns on these investments look like across the board.

The accredited investor rule exists for 3 main reasons: those investors can better bear the financial risk of bad investments, they are more likely to be able to do their own diligence, and they are more likely to be able to pay someone to do diligence for them.

The WSJ letter talks about other crappy investments that government “lets” people make, including lottery tickets and sports betting. The SEC doesn’t regulate those, or they’d require a lot more disclosure, to be sure.

Suitability used to be a word that guided financial advisors. Now it’s “what’s my fee on a sale” as they push Reg A+ offerings because there’s enough disclosure to make it legal to sell them to non-accredited investors. And that’s the balance that the SEC has struck.

It’s NEVER been against the law to sell private securities to non-accredited investors; you just have to give them substantial disclosures. Almost all private companies raising money decline that expense and hope that the accredited investors they pitch will just ask for a pile of documents and a few fancy decks with nice pictures.

Our co-founder, Mike Princi, coined this triplet years ago. He used it as a shorthand to remind people that new businesses, whether tech-style startups, corporate carveouts, or IP commercialization attempts, have to satisfy all three of these requirements to survive. If they don’t, they’ll look very different than they hoped.

Viable

Viability for a new business focuses us on core economic principles: is there a market for what the company does? Is there a business model that covers not only the cost of operations but also the cost of necessary capital investment?

Silicon Valley has many graveyards’ worth of companies that provided services for free and never found a business model. Burning VC cash is not what “viable” looks like. Free cash flow from operations (FCFO) is.

Valuable

Value comes from the size and scale of the returns the business can create. Does it cover its cost of capital? What are its returns on invested capital (ROIC)? The bigger those numbers, the more Value the business creates.

Investable

Investable is the biggest disconnect between folks who start small businesses and those who create “startups.” “Investable” means that a business has characteristics that make it a good candidate for third-party investment by a financial investor (one who explicitly seeks a reasonable return on their investment). What does investable look like?

Investable:

• scalable, either because there’s a big market or there are meaningful economies of scale (network effects are the poster child for economies of scale)
• repeatable – the business has to be able to repeat what it does. A business that owns a single asset does not have a repeatable business – at least not yet.
• reliable – the business has to be basically compliant and well-run, so that litigation, financial misdeeds, and ad hoc decisions are substantially less likely to derail the business.

Not investable:

• services business with high-paid employees – lawyers, consultants, doctors. These businesses only become investable when they are either (1) large enough that the individuals providing the service are no longer critical to bringing in work or (2) large enough that they can bring in clients even with turnover of professionals. FWIW, your small firm is not the exception: Accenture is.
• low profits – as a young teenager, I ran a fruit stand at the corner of my dad’s gas station in Daytona Beach. One thing I often bought from the distributor was a case of great-quality red delicious apples for $20. At the price I sold them, I made $25 in revenue. That 20% margin sounds great, but it was still only $5. Low sales prices require tremendous volumes to work – like Google’s ads at $0.15 a click.
• Costs not accounted for – typical small businesses are often run as sole proprietorships. The owner runs the business and keeps the money. That applies at high-dollar values too, such as with single-doctor medical practices. In a business like that, it’s easy (and common) for the business owner to think that their business makes $x a year, but that number isn’t really economic profit. Those types of businesses ignore the fact that the owner’s work has independent value. How much would you have to pay a third party to do that work? You have to account for that to figure out what the real profits are. That’s the difference between a high-paying job and a business.
• Sloppy accounting – it’s absurdly common for small business owners to mix business and personal expenses, to have relatives on the payroll for no clear business reason, to have loans back and forth between related entities, and so on. All of that makes it clear that the business is not professionally run (yet) because the actual financial results are not clear on the face of things.

Why does this matter?

Lots of small business owners believe that new capital investment will make things great, that it will solve all their problems. But the problem is that many of these owners don’t realize that their businesses aren’t ready because of one or more of these problems.

Businesses seeking professional private capital need to be Viable (solve this first!), then Valuable (solve this second), and Investable (solve this third).

The TSC commentary to this rule: “But sometimes an A needs a job and a B is the one offering.” Just because you have someone good working for you doesn’t mean you’re an A player; maybe you got lucky. Turn ’em loose.

The interesting point is the idea that focusing rather than juggling doesn’t speed up the last thing to get done but does get the first thing done sooner. In common parlance, focusing allows you to ship something sooner than trying to do a little bit of work on everything at the same time.

I can think of some scenarios where the two different outcomes create differential value, meaning there would be benefits to picking one over the other.

A couple quick thoughts: when you see the word “pareto,” start paying attention. That’s one of the ways economists say “free money.”

This article describes a research project by a team investigating the work inputs and outputs of a team of Italian judges with a somewhat specialized caseload (significant because it presumably means more homogeneous workload meaning comparisons across judges are more valid). The net result seems to be that those judges who focused on closing current open cases, i.e., getting things done, had overall better throughput than those who opened more new cases before closing older ones.

Everyone wants their case to move so everyone pushes judges to work on their case a bit. This tactic leads judges to spread themselves thinly across a larger number of cases, meaning little progress on any one case over time for the same amount of effort.

However, the authors imply that there’s more to it than just the work being done — more input and scheduled work decreases output for the same amount of effort.

What does this mean? Well, it means that with a properly conducted business process reengineering effort, especially one tied to functional analysis and unified performance management, you might be able to improve your results without requiring more or different work. Particularly at the C-level, this approach can help you improve “scheduling,” to put a common label on it, in such a way as to get more out of what you’re already doing. Pareto means free money. Do you need help to find it? Our proprietary tools and processes will help you zero in on exactly where in your business processes you can make meaningful improvements — after all, figuring out how to pay your creditors sooner usually doesn’t increase your free cash flow. It starts with a detailed analysis of how your business model really operates, from generating revenue all the way to creating free cash flow. That structure, coupled with comprehensive data-driven analysis allows for informed decision-making about what to change and how to change it. Those steps naturally lead to an ability to give intentions-based guidance to your team so that they can implement changes, measure effects, and report results for you to review in light of the initial analysis.

It sounds like we’ve just given away the keys to the kingdom. But as I’ve said before, the best strategy is one where you can tell everyone what you’re doing and how you’re thinking and your “competitors” will be either unwilling or unable to change what they’re doing. In pushing and pulling these projects in different environments, it’s not a trivial change in mindset that’s required – things do not look the same, but the bottom line is always the same. Once you see it, you realize that it’s the only way to run a railroad.

Depending on who you are and where you’re sitting at the table, you will need a different one of these at different times in your life.

Inexperienced investors most commonly confuse the first two with the last one, and inexperienced founders confused the third with the fourth.

Disaggregate data – take per-segment => per-customer analysis. @McKinsey catches up with @maprinci circa 2007 http://t.co/vi4bsVbCdS

— rickcolosimo (@rickcolosimo) December 5, 2013

The world has been moving to big data, and at the same time executives keep trying to abstract away the inherent bumpiness in the data. Instead, they should be embracing properly grouped details (adding and simplifying complexity based on the particular leadership decision facing them). The head of sales for a large corporation needs a different view of the results when briefing the board than when doing 1:1s with division sales leaders. Those leaders need a different perspective when meeting with a group of sales managers across product lines, geographies, and sales reps.

The sales manager who totals up everyone’s numbers and says “we hit quota!” is missing out on a world of opportunity without even knowing it. We all know that sales managers are supposed to coach reps individually on their specific weaknesses. But time doesn’t always allow for that, or the sales organization doesn’t even have the structure or mindset to look more deeply into the activities and outcomes of the team, customer by customer, contract by contract, purchase by purchase.

When I work on strategy, I tell everyone that a great strategy is one where you could tell all your competitors and they either wouldn’t or couldn’t copy you. We feel the same way about this discussion – we can write it here in black and white, but very few people will be willing to rearrange their comfortable averages and see what’s really going on – because they realize that they don’t know, and if they don’t know, it might be bad, and if it’s bad, it’s either going to be their fault or their responsibility to clean up, and responsibility means the prospect of failure. And that’s where most people stop the internal dialogue. But when the P&L is tied to your bonus, or your equity gains value when the company creates value, there’s upside to be had.

In the case of services that offer contract templates, if I don’t know who prepared a template, I’m not going to trust it. Even if I do know, I’ll be skeptical unless given good reason not to be.

I had this exact comment the other day with respect to “standard” “form” documents prepared by a large corporation. I know enough from my own journey with MSCD and my own review of similar documents to know that the samples will be bad. Another person released open-source versions of documents “vetted by legal…experts.” If you can’t trust the drafting, how can you trust the analysis? All you can do is use it as a starting point, like spell check. If you don’t know the difference between “anxious” and “eager,” Word’s not going to help you.

If you don’t have a business plan that covers the main points (where your capital comes from over time, how you’ll employ that capital, how you’ll generate revenue, and how you’ll manage the other elements of your financial statements to create free cash flow), then you should stop right now and figure that out.

That’s the business plan you need: something that describes how your company interacts with the world financially. You can pay us $10k to discover the answers for you, which is why some people charge a “nominal fee” and others charge real money.

If you can’t talk through the points I raised, you either don’t have a real plan yet or you don’t know it well enough to convince an investor.

And, your answers should come from within first, which is the best answer. Here’s a useful post that will also point you in the right direction:

http://sethgodin.typepad.com/seths_blog/2010/05/the-modern-business-plan.html

You shouldn’t need anyone to get you to those kinds of answers. (And as far as working for investors and startups and my Silicon Valley experience and the finance credentials of my team, well, they speak for themselves.)

You need to be able to tell investors about the assumptions and risks inherent in your business model, explain to them that the plan is reasonable, and show them that your team is capable of executing it. Those are investor-focused communications that you have to make, and they’re made to people who are (or should be) heavy-duty financial professionals who run individual companies as part of a portfolio, who make risk-based analyses, and who have to decide based on what you tell them.

If you can get those answers down, and they make sense for your business model, then you just have to find the investors with whom everything resonates (not simple, but doable); if you don’t have the answers, it doesn’t matter who you meet: what you have won’t be ready for them to buy.

Oh, and those Valley tech companies you read about? Usually, the answer is that everyone is talking in shorthand because the founders, team, and investors all know enough about the relevant market, competitors, business models, and valuations that they only need a handful of pointers (“compression algorithm” “ad personalization” “multichannel optical router”) and they can fill in all the gaps themselves. The other time that no business plan is required is when the founders and team have already had successful exits, to an extent that the investors can assume that the team knows that a plan is important and is capable of both coming up with something meaningful and making changes as needed. Knowing that they can solve the problem is, in this case, just as good as seeing the solution up front.