Dan Peña - 50 Billion Dollar Man Dan Pena QLA - Protege's Questions Answered (Audio)

Key Takeaways

Hi, my name is David Ricker. I've had the privilege today to interview Dan Peña. The purpose for this particular interview is to hopefully to give the entrepreneur that's in the process of making his quantum leap or her quantum leap an edge. The extra piece of information that maybe everybody thinks they've been looking for. Um, we want to ask Dan particular questions and get him to elaborate on particular issues you may be having problems with or in the future maybe something that you will be having a problem with. So, we've tried to approach this from the perception of people that have been involved with Dan as a partner in their own company for several years now. So, these questions um are real hard experience. And um Bruce Whipple, myself, Doug Elbert, and my investment banker and a few other people have had had um opportunity to put some questions into this. So, we really feel that this is from the business world and um hope that uh hope it helps you. And the first question that I would like to ask Dan is, Dan, what's the biggest mistake colleagues or business people in general make? Um in the last 27 years, uh without a doubt, they underestimate geometrically the amount of effort and commitment and tenacity that it takes to be a high-performance person. Without doubt, uh in the uh tens of thousands of decisions that I've made, over 65,000, and I've been involved with tens of thousands of people, very, very seldom, maybe 2/10 of of a percent of the time, do they understand how the weight of not only the financial capital to be super successful, but the emotional capital. And they're underestimated by a factor of three to five, and they ultimately most fail and give up just short of their objective. Um Ross Perot used to have a sign on his desk which I don't know if he does anymore. It says, "Success is on the razor's edge of failure." And they underestimate how many times you're going to have to fail before you are super success. Obviously, when you talk about emotional capital, you talk about that ability and the capital emotionally that you have to to to overcome the failures that we all know we have to do. Well, I mean fear is false expectations appearing real. And we're all afraid of something. From when we're a little kid, we're afraid of the boogeyman, the dark, or whatever. Uh and unfortunately, those fears transcend our lifetime. And then we become afraid of our employer or sticking up for our own rights and or going into a bank and asking for money or negotiating or asking a girl out on your first date. I mean, that fear transcends our life. Uh the You've heard me say many, many times, Dave, we have two great levers in life. Uh we have other people and other people's money. Uh and to deal with other people and other people's money, you have to transcend that fear and you have to get over the the the emotional handicap that we're you know, we're all raised with and it's it's a massive problem. But the people that are able to persevere and get through that block blockade are the ones that you read about in the newspapers and the ones that make a lot, a lot of money in their lifetimes. Is there one particular thing with the people that have overcome that issue what that what it may be that actually makes them overcome it opposed to somebody else? Um the desire. You know, we all we we we read and we talk about that cocktail parties. Everybody wants to be successful and currently at the end of this millennium in the late 90s, people are very much into self-help books and they talk about uh the very seminars they've gone to and the books they've read. But, the thing that's lacking in most everything that's written and that about success is the absolute 100% commitment to enduring long-range pain. You got to be able to endure long-range pain. And only desire will do that, right? That's correct. I mean, only desire. Uh as as as some of the people that will listen to this know that I used to run marathons and ultra-marathons and uh the uh And it wasn't that training that got me used to pain. But, if you run a 50-mile race, I mean, you better learn how to endure pain. Uh and uh for those that have participated in athletics, they understand the training of in various uh athletic endeavors. But, those same analogies carry forward in to from athletics to the business world. You've got to be able to push yourself beyond what you think and more importantly, what other people think you should think are your limits. And very, very few people can do that. Excellent. Move now on into the actual building stages, beginning stages of a company. In the beginning stages of a startup, when the CEO/visionary is trying to get things rolling, what corporate positions at the working level are most important to the company's initial success? We all know that the board of directors is important, but from the trenches position, um Well, I don't know if you call it the trenches position, but the chief operating officer and the chief financial officer, which will probably be on your board, uh will be executive directors, are are crucial. But the people that actually engage or oversee the day-to-day activities. Now, in the way I structure a company, the chief operating officer as opposed to the CEO is in charge of day-to-day operations. He's the one or she's the one or in in the '90s it's the one that actually is responsible and he is the one that the sales manager or the personnel manager or the various people in in in the the line of fire will uh ultimately report to. Um it's his leadership skills and how he deals with the day-to-day problems that will really give you a sense of whether your endeavor is going to be successful or super successful. And that's why one of the things that I like to see is I like to see people that have failed in a number of times. Or I like to see and or I like to see people with military backgrounds because they understand that failure doesn't kill you. Uh Nietzsche said that which does not kill you makes you stronger. And I like to have military backgrounds because you're more readily adaptable to discipline. Um and uh if we have a mix of that in our in our in our middle management team, then we have increased probability of success. Dan, we have all heard you say, "I can't appoint any I can appoint anyone to the position of president and CEO, but I can't make people respect you." Dan, what makes a leader? And God knows I've appointed some people to the position of president and a lot of people didn't respect them. So, I I say that from my own personal experience. What makes a leader? Well, let me back up a second. All the high-performance people you read about, you see on television, etc. have several characteristics that are in common. One, they have extraordinary communication skills. Not necessarily in writing, but I mean in speaking and communicating a message. Part of leadership skills are communication skills. A leader is a person that does a great job when he or she doesn't feel like it. Every morning that I get up I don't feel like being a cheerleader, a coach, and a mentor. Now, admittedly, almost every morning I get up, I do feel like being the the above. But not every morning. And the differentiation between a true leader and a pretend leader is a person that can transcend that personal feeling. I connote it to the fact that when I was a lot younger man and I'd go out as a single guy and have a lot to drink and I'd have a hangover the next morning, I didn't feel like going into the office. God knows I felt like just pulling the sheet up over my head like everybody else. But I'd go into the office because I realized at that time I had I had people that looked to me for their leadership. They looked to me for example, by example. We lead from the front. We lead by example. Um I can make Dave Riker CEO of great wisdom publishing. I can't make the CFO and the COO and the various administrative people respect Dave Riker. He has to earn his own stripes, so to speak. And the and it's it's it's a crucial thing that many of the younger entrepreneurs or middle-aged entrepreneurs that go off on their own, let's say that you were a vice president with IBM for 25 years and you You've got to your own company. But you've been in a line position all your life. Line meaning administrative or support. You've never really led the troops in battle. And I refer to warfare and battle a lot, and I probably will in this tape, because it is war. It's financial war. It's economic war. It's emotional war. It's It's It's true warfare at its very best. Uh especially now with the end of the Cold War and and and and warfare dying down except for a few hot spots in the world. But, if you're that line position individual, you probably don't have the leadership skills because you have not experienced what I call trench warfare. In the seminars I give in the keynote speeches, and I'm on my way to Fiji in a couple of days to give a keynote. I tell people, unless you've smelled mustard gas and know that even though it burned your lungs, it's not going to kill you. And they've dropped nerve gas on you, but not enough to kill you. There's a great line in Apocalypse Now by Robert Duvall when he's standing there watching the surf come in and the helicopters are coming in the background, and they're playing Wagner in the background. He says, "There's nothing like the smell of uh napalm in the morning." It's those people that have experienced that and know that they're not going to die, but they know they're going to get over it. Um yourself, when you first took over and you came to me with the idea of Great Wisdom Publishing and how you were going to transform the publishing industry, uh your experience level, these are what it is today 2 years later, is significantly different. Your leadership skills are significantly greater. How did they get greater? One, because you got your head in a noose, and you've got rope burns on your neck. You've got You've gotten screwed in business. I mean, not in just every orifice you have, but in every pore you have. I mean, people have lied to you, cheated you. I mean, everything that you can think of, every sin has been committed to an entrepreneur that has succeeded. Yet, you realize now that you've missed a payroll or two, and you've lived, and the company's lived. The employees stuck with you because they believed in you, because you told them it was going to be better. Employees, people in business, and your family want to know that no matter what happens, it's all going to be all right. You've heard me give the analogy, you're like a kangaroo, a baby kangaroo in the a mama's pouch. You just poke your little head up, and you poke out, and you look out there, and you see the real world, and so this is a bunch of crap. You put your head right back down there in mommy's warm tummy. That's what your employees That's what your subordinates want to feel, that everything's going to be all right. And when you learn the and and acquire the capabilities of transforming or translating that message to your your fellow employees, your colleagues, that's the first quantum step in the game of leadership. When you look at a successful Dan Peña or a successful Bill Gates, or somebody that's reached that level in life, so what you're saying is they obviously didn't start out with this type of leadership skills. You didn't. None of us did. And so by having the desire first, you'll figure out how to to reach the leadership by moving and and taking action, you'll develop the communication skills and everything that are required. I mean, is that necessary to be Schwarzkopf developed leadership skills over a 30-plus year career in the military. Uh I developed my leadership skills over 27 years in business, and my initial career as a career army officer. You develop those leadership skills over time, and through mistakes, and through havoc, and through chaos. You've heard me say from chaos comes order. I mean, most people don't understand that you cannot have a geometrically or rapidly growing operation unless you have tremendous chaos. There is chaos every day at Microsoft. Bill Gates has a sign and there was a great article in Newsweek a few months ago when he was talking about how he built Microsoft. Uh and he said in his little motto or initial mission statement was, "Think it, do it, fix it." The genesis of the idea came first in his mind. He went out and did it. And knowing that he probably wasn't going to get it right the first time, then he fixed it. It's just the opposite for all virtually everybody else in business. They expect their first go-around to be successful. And it's normally not. In fact, it's virtually never successful. Um and when you learn that it's you can't hit a home run, you can't even bunt unless you get up to the plate. And Earl Crump, one of my favorites who's come through the program, who says in in in testimonials, "Dan, if you tell the attendees anything, especially the women, you can't get even a hit using the baseball metaphor unless you get up to the plate." And not just women, but most men, most individuals never give themselves a chance because they never get up to the plate. Excellent, Dan. Continuing that same subject, how then does one keep the team excited and motivated when the project has taken longer than expected? And when it's gone in the toilet several times. Okay. The only way you're going to keep your people excited, motivated, enthusiastic is if you're excited, motivated, enthusiastic. They are going to do what they see you do. Maybe not at the level that you do it. But, if you're a 10 on the scale from 1 to 10, and you act as a 10 on a scale from 1 to 10, you will lead your people to be six, seven, eights, and nines. If you're a six on a scale from 1 to 10, you're lucky if your people will get out of the dugout of life. You've got to always be enthusiastic. You've got to always be optimistic. You've got to always know that the deal's going to get done. Whether it gets it falls in the toilet once, twice, three, or four, or five times. One of my partners, who you know well, uh Lucinda Burke, her first transaction fell out of bed 30-plus times. And I still remember after it fell out of bed 15 or 18 times, she called me and said, "You know, Dan, I can't Boy, I'm glad that's over with because I can't believe or I I it's impossible for it to fall out of bed again." And I said, "Oh God, please don't say that." And it fell out of bed almost as many times thereafter before they closed the transaction. Uh a transaction isn't closed until the check is cashed and the money's in your pocket, not even in the bank account. It's in your pocket. You've got to stay enthusiastic. And it's tough to stay enthusiastic day after day, week after week, month after month, and in some cases, year after year. I use the analogies um in in the seminar. Um I guess it was Thomas Edison that did the 10,000 experiments. Uh I mean, um I I mean, I as enthusiastic as committed as I am, after three or four 500, I would have hired some dude to do it. Because, I mean, 10,000 I mean, I would I I I I honestly believe I might have given up if I had spent 20 years and 10,000. And some of these heartache stories that you read about, uh Jack Goeken, the founder of MCI, um and and some of these other great entrepreneurial stories of the last hundred years had failure after failure after failure after failure failures we had nausea yet they never lost hope or at least if they lost hope they sure as hell never shared it with anybody the single biggest fault that I see with the amateur the the neophyte entrepreneur is they share their doubts. The big hitters in life don't share their doubts with anybody including their spouse unless their significant other is co-ceo or co-managing director or co-whatever probably co-dependent. I mean they don't share doubts. Yet I hear and even at the castle seminar which you've been to the graduation night black tie and they all had a lot to drink and I go around and listen and I hear ever so slightly a doubt being shared amongst some of my partners and there at Godfrey which you you've been to I mean their inhibitions come out but it's all right there because we're all equal but you start sharing doubts with your employees and you'll see how the enthusiasm the committed state of mind will disappear like I you know an amorphous you know like a like a fart in the wind it'll be gone. What makes the enthusiasm never wane? What makes it stay? Whether it's is or not the perception is that their enthusiasm never dies. In fact it builds upon itself whether they have a down inside or not nobody knows. Well the thing that that uh that is I'll speak for myself right now although I know this is for all the high performance people I've ever met it's the undying unswerving commitment to being a high performance person and and and and growing geometrically. As you know, uh um in the um 8 years at Great Western Resources, which is the kind of company that everybody looks to as an example when they were talking about me, it grew 562,000% almost a half a billion percent in 8 years. We averaged 67,000% a year. Now, that I mean, those numbers sound astronomical. And when you put that in on top of the fact that we were in a collapsing market, we'd buy company A before the ink dried, the assets were down 25% cuz the drop the the price of natural resources had dropped 25%. Now, for me to go into the boardroom and for me to walk around the offices of Great Western Resources at 1111 Bagby with a smile on my face knowing I just lost 25% of my net worth cuz in those days my whole net worth was in the company, I mean, you got to be like Lord Olivier. You got to be a a a Oscar winning actor. But, that's what it takes. I mean, Donald Trump, to his credit, when he was in trouble and he's back on top again, but to his credit when he was in trouble a few years ago, I mean, I'm not in trouble. I'm not in trouble. I'm not in trouble. Yet, you read about the little guy or you go to a cocktail party, your next door neighbor says, "Oh, business is terrible. I lost 20% of my business." I mean, and you wonder why he's got a a company that does $180,000 a year in turnover or revenue. You've got to maintain that enthusiasm at all times. My wife tells the story in the 28 years that she's known me, "Has Dan ever been depressed?" She goes, "I've seen him down one day in 28 years." One day. And I don't agree with her that I was depressed, but she came home on my birthday in 1976 and I was tears running down my cheeks and I was drinking a bottle of Jack Daniel's about half empty and my two Great Danes at the time, Chewbacca and Penelope, were licking the tears off my cheeks because I was 31 years old and I was at the top of my career. Ostensibly, yet I wasn't happy. But nobody knew that. Nobody knew that at the Wall Street firm that I was part of. Everybody would just look to me in awe, look at how successful he is. You've got to maintain that positive attitude. And how do you maintain a positive attitude? You hang The first step is you hang around with people that have a positive attitude. And as you know from the program, the PMA methodology, you have a mentor. And the only person you share your doubts with is your mentor. To wrap that up, what do you believe is the most important ingredient which makes an entrepreneur successful? And I'm not referring, of course, to million-dollar idea or money in the bank. Desire for the fulfillment of their dream. You can't There's a line in South Pacific, I believe it is, that Julie Andrews sings, you can't have a dream come true unless you have a dream. Most people are not doing what their dream is. You know, most people plan their vacations with more care than their careers. I contend, and I speak in Europe all the time, uh and I'm get I'm in fact I'm giving a a seminar at Nyenrode University, which is in Holland, which is the Harvard of the Benelux countries, and I tell them, "The reason why you people take 6 to 12 weeks vacation in Europe is cuz you're not happy with what you're doing." The reason high-performance people can honestly say, "I haven't taken a day off it since 1971" or "I've only taken one vacation since 1965" or whatever, is because they're in love with what they're doing. My bottom-line advice is find something you can can about that you can lust after and wrap your career around that. And you will won't have the same problem that virtually everybody else on the planet, the other 5.7 billion people have in staying motivated. Find something that you can be passionate about and the desire will come much easier. I'd like to now go into some questions about financing and and deals in particular. Explain types of financing, i.e. senior debt, mezzanine, sub debt, and then straight equity players. Um and then the advantages and disadvantages of each. Well, the bottom line is if you can get any one of those forms of finance, that's an advantage. That's the bottom line, okay? Whether it's mezzanine, you call it what you will, but to get the money, and remember, we're dealing with other people's money and you know part of the methodology is that you can finance these things 100% or even 105 or 120% using someone else's money. Now, most of the people that come through our program have no money, so they've got no money to put in anyway. So, it should be pretty simple that that and you know, the fundamental foundation is since you have no money, ergo, you've got no money to put in. Yet, I still find it that's this is an aside, I still find it difficult sometimes getting this point across. They talk like they've got $3 million cash in the bank to put in these deals. Okay. Senior debt is is debt that you normally get through from a traditional financial institution. Not always, there are boutiques that give it. That is longer term debt. Senior debt is normally at a lower coupon or a lower interest rate. Today, senior debt can be derived from 8, 9, 10% level from the Bank of America's or the NationsBank's or whatever. And it's debt that the financial institution's going to look at the transaction, the company, and see can this debt service be carried comfortably. And what's comfortable to one bank and what's comfortable to another bank is is is a different subject. Uh at at some level. Uh normally, let's say it's a 7-year piece of paper, senior debt. That means over 7 years you're going to have to pay it back. Now, that may mean that you're paying interest and principal equally for 7 years. That means it's amortized over 7 years. It may be amortized over 25 years, meaning that you're going to pay the interest rate as if you were paying over 25 years with a lump sum at the end. Uh it may it may mean also with the the principal at the end. It may be 3 years free of principal and only paying interest. It may be 1 year free of principal and interest. I mean, there's all different kinds of of ways to structure senior debt. But at the end of the day, senior debt is normally something like 5 to 10 years. Uh the interest rates in today's environment, which this is January 1998, uh somewhere between, depending on the credit or the the structure of the deal and the credibility of the deal, somewhere between 8 and 1/2 and 10%. Um mezzanine debt is debt that is normally short-term. Uh mezzanine debt uh can come from financial institutions. It can all banks, i.e. banks. It can also come from uh uh credit companies, like GE Capital. Um Um And it is and it can be associated with a a piece of your company. For example, you may have a piece of of senior debt of let's say $5 million. You've got a piece of mezzanine debt for $1 million. On the $5 million you're paying 9 and a quarter percent over seven years, and it may be amortized various different ways. Second piece of paper would be a mezzanine piece for one million dollars, and let's say you're paying 11 or 12%. Um and it it it may have a participating factor, meaning that they're going to participate anywhere from 5, 10, 15, 25 up to 40% of the upside of the company, meaning they'll take an option at some level to buy in at a nominal fee of a dollar or a hundred dollars, and they will at when you exit or sell the business or the transaction off and get 5, 10, 15, or 40% of the company for that piece of mezzanine debt. Now, another way of looking at mezzanine, some people look at it as, you know, it's really an equity portion, but it's an equity portion that you're paying back. And and and sometimes the neophyte or the the person who hasn't been involved in finance thinks equity means they're putting it in and you don't have to pay them anything on it, which is just the opposite. If you any of the listeners of this tape know any such players that will put in mezzanine debt and without any payments on any kind of basis, please write me or call me, and I'll be glad to fly there with about 10 transactions that we can fund. Uh now, there are let's see, you asked me about senior, you asked me about mezzanine, uh what was the other one? Then straight equity. Straight equity. Straight equity is an equity player will come in and let's say that you've got a transaction that's going to cost five million dollars, and you can finance it between senior debt and mezzanine debt 90%. Let's say 75% senior debt, 15% mezzanine debt. That mezzanine player, let's let's say is going to give going to get 15% of the deal, the upside for that. The senior debt player is going to get nothing. Now, you've still got 10% of finance. Now, you go out and you find either an angel or venture capital. They They're called angels and these are people that invest in deals. They're private individuals. Some people have other names for angels, which I I won't go into on the tape, but it's an individual or a venture capital firm that will put up the 10%. That 10% player will normally get more equity in the deal than the mezzanine player and the and the senior debt player is getting none. So, he may take for that 10% of the deal or on a $5 million deal uh half a million dollars, he may get 10, 20, 40, 50. I've seen him take as much as 80% of the deal. Uh and um they will also want to get paid back some at some level. Maybe they'll not take their participation until the very end, until you roll out of the deal, but it the the interest rate or whatever the rate or the hurdle rate or the internal rate of return that they're looking for will compound uh and and be paid when you sell the deal. I You've heard me say we're selling the deal. These transactions should be entered into and one one of the precepts of the QLA methodology is we're buying or starting these companies and consolidating and acquiring or making acquisitions with the idea of selling in 3 to 5 years, selling up or going public. So, the exit strategy and the thing to remember both a traditional bank, a mezzanine player, or a straight equity player is going to be interested in in how you plan on getting them all their money back and how you plan on exiting. If you're planning on financing a transaction that you want to live with, that you're going to fall in love with, you're going to have pride of ownership with for the rest of your life, you will find it exceedingly difficult to get financed. Nobody wants wants to put money in forever. Boy, I think for sure. That's for sure. In regards to investment bankers, Dan, what should we be looking for? If that's a route individuals are looking for out there, I mean, what what makes an investment banker better than another? By investment banker or in in in in the United Kingdom in Europe, merchant bankers. Merchant bankers. They uh Well, a track record. I mean, some of the smaller boutique investment banking firms, uh some of the small boutique merchant banks, you know, have good track records. They have small capitalization, meaning that they're relatively small in size as compared to a Gold- Goldman Sachs or a SG Warburg or a Merrill Lynch. Um and they may be right for you in the beginning, a small investment bank. Uh you you're looking to them for track record. You want to talk to the last three to five clients that they've funded successfully in the last year or two. At the same time, you'd like to to talk to one of their clients that they didn't fund and find out why they didn't fund them. You want to know how are they when the deal changes? Do they support you? Are they there when they say they're going to be? Do they do their stuff their their their business in a timely fashion? Are you a high priority item to them even though you may be a small deal? You may be a half a million or a two million dollar deal as opposed to a 50 or 100 million dollar deal or a 50 or 100 million pound deal. Do they support you? Are there enough people involved in the transaction to make sure it gets done? Um an an other um um thing that you should look at, uh and this is really more uh germane in the United States, is are there any regulatory problems? Have they been in trouble? You know, there's all kinds of data uh bases and computers now where you can go back and you can check to see if they've been in trouble, uh have they funded anything that got, you know, got them in trouble with the Security Exchange Commission, etc. Uh and um I mean, the public information now that exists uh uh vis-a-vis the the computer is is phenomenal. I mean, you can pull up all kinds of deals. You can find there are there are associations, directories, books, uh journals that list uh investment banks and merchant banks by size, vis-à-vis how much money they they're able to underwrite or help you raise, uh by category of industry, uh by category of location. There are certain uh in the United States, especially, that are geographic, that are only in the southeastern United States, only in the northeastern United States, only in the Midwest. Um and uh but remember that you're going through these investment banking firms or merchant banks, and you're interviewing them to find the right fit, the right chemistry for you, your team, your transaction. Not all venture capital, excuse me, not all merchant banks, not all investment banks will invest in or help the invest or raise money in the same field. There are certain that are just high-tech oriented. There are certain that are retail oriented. There are certain uh as with even venture capitalists that won't invest in real estate. There are certain that will just that they're they're hot betting in real estate. And the only way you find this out is to go to the learning process of making the phone calls. And at the end of the day, the guy or the gal that succeeds is the gal or the guy that makes the most phone calls. You know, we haven't got to that question. I don't know if that question's coming up. But I mean, you've got to live the phone out of your ear. You've got to make hundreds, if not thousands, of phone calls. Um as a side note, when I was uh uh with Paine Webber, uh early in my career, my um boss, uh when I asked him what our sales training would be, and he threw me the Yellow Pages. He says, "Call everybody in the Yellow Pages, and that's your sales training." Well, after about 10 or 12 months, I had called everybody in the yellow pages and I I went back to him and said, "I've I've I've I've made all these cold calls and he then he threw the the white pages on my desk and said, 'That's your advanced sales training, Pena. Now, you know, as you call me, call everybody in that book.'" Well, I mean, it sounds funny, it happens to be true, but I mean, the people that succeed are the people that understand and develop the discipline to make hundreds of calls. I get reports from my partners weekly if they've been a partner six months or less and monthly if they've been a partner six months or more and I see some in at the suggestion of another partner, Bruce Whipple, who helps me review these reports. He said, "Let's put some performance guidelines on the bottom. How many presentations did you make? How many calls did you make?" etc. etc. When I see somebody made zero presentations and nine phone calls, I might I I as much might as well write them off. I mean, because I know they have no chance. There's just no chance. When I say, you know, 85 phone calls, nine presentations, I mean, they're headed in the right direction. Uh and but those are some of the guidelines that you look you should look for. And and and and another aside, just because you're in Europe doesn't mean an American investment bank can't finance your deal or or vice versa. And one of the things that we have learned in the last 12 to 18 months especially for the European my European colleagues is that many of the US investment banking houses like the Credit Suisse First Boston, which is, you know, even though Credit Suisse is a European company, First Boston is an American investment banking firm, and the Merrill Lynches and the Goldman Sachs are looking at European deals very hard or actually deals all over the planet. Before I move on to the next question, you had brought up I think we should elaborate on underwriting capability that of course not all investment bankers have underwriting. Obviously underwriting is the is the availability there in their own their own bank to be able to fund a deal. And or they use the Rolodex and they shop they shop out. I mean really when you're talking an investment banker that doesn't have underwriting capability it really amounts to the Rolodex, doesn't it? Which I've heard you say before, but now that I've been into it I mean their universe of potential investors is what you're is what you're betting on. Yeah, and and their universe is going to be relegated to how many people have made money with them in the last 6 to 36 months. I mean if an investment bank, God forbid, has had a just a string of unsuccessful transactions I mean you can you can bet your bottom dollar he will have to trouble, you know, raising money even for a future Microsoft. Um but right now in a bull market even with the the problems that we're having in the Asian stock markets now um it's hard to find an investment banker or a merchant banker whether a small one or a big one that hasn't made money. So right now is an ideal time uh to raise money as as as the audience is over the last couple years have heard me say the world is more flush with cash now than any time this century. Uh and I mean if you can't fund your deal now, it's only because you haven't made enough calls and you haven't gone to enough places. Say you found the right investment banker that you think can do your deal based on all the things you just brought up. They assess a lot of deals from entrepreneurs like us. What are the hot buttons that turn the investment bankers on? And how about the kiss of death? What's what's that? Um Let me tell you let me start with the kiss of death. By the kiss of death I I I believe you're referring to what not to do, what not to say. Correct. Well, what not The first thing not to do or not to say is to come in and with any doubt or reservation whatsoever in your mind that this deal one isn't the greatest thing since sliced bread, motherhood, Sears and Roebuck, apple pie, and God. That's for starters. If there's any doubt in your mind whatsoever, get rid of it before you make your first call. Because it will it will come through, whether it's on the phone or whether it's in person, very clearly. Okay, that's the first kiss of death. The second kiss of death is once you've put a presentation together to underestimate your rates of return. Right now, venture capitalists, banks, whatever, are looking for high rates of return that the project is going to make. Because the higher the rate of return, the more margin there is to make sure they get their money back. For people to come in and say this project's going to make 8% cash on cash internal rate of return or 12 or 15%, don't waste your time putting the presentation together, don't waste your time rolling out of bed, just sleep your life away because you're not going to raise a dime or or or or a pound or or a one Deutschmark. Those are the things make sure you don't do. The things to do, make sure that you look professional, sound professional, act professional. Make sure that you've surrounded yourself vis-a-vis the QLA methodology, Quantum Leap Advantage methodology, with a world-class or as close as you can get to a world-class board, an anchor chairman, which the methodology is based on like an anchor tenant in a in a 50-story building. You want You want the anchor tenant to lease up 40% of the building so you can leverage off that tenant to get the rest of the tenants. So, you want a board that is credible, that the financial institution and the people that you're talking to will believe that this board did not come together with the idea that this thing was going to do anything other than succeed. You want to surround yourself with a Well, it's a big four. It used to be big eight, then big six, now big four accounting firm, maybe soon to be a big three accounting firm. You want as big an accounting firm as you can get. Uh you want a as big a law firm as you can get. And again, you want them to be committed so committed to the you first, the idea second, that they're willing to go on a success-oriented fee basis. And And you know what that is, Dave? That's a fee basis that they will be paid if and when you do successful transactions. Um that is a big level of commitment. And it's it's not easy to get, but it's not impossible to get. But you certainly can't get the success-oriented fee basis commitment from these professionals unless you ask. We've had some people, I can't remember who it is now, but actually got I think it was Deloitte um to go 6 months beyond their first transaction before they had to pay their first fee because they didn't want to crimp their cash flow. I almost fell down dead when I heard that because I had said as a throwaway line, "See if you can get the accounting firm to go out 6 months." I would have been a person. I had no idea that the individual was going to actually ask for it. And on top of that, I had even less of an idea that they were going to get it. But, you know, you get you you don't get unless you ask. Um so, when you go in on that basis dress like a professional talking like a professional. In some cases, I've even had partners that have taken elocution lessons. Uh some of my foreign partners Well, some of my foreign partners uh Dutch and German speak as good of English as you, Dave. But then again, that I that might not be saying a lot, but they speak as good English as you. Some of my Scottish partners uh although English is their native language you couldn't believe that they were from the same planet. You think they were an alien because you can't understand them. But the important thing is to be able to communicate like a professional, use the the buzzwords uh uh that the the professionals use. I can't think the the name of the book right now, but it's a a primer on investment banking or merchant banking. In fact, my partner Kenny Scott from Edinburgh, Scotland um uh read it and it it gave him a fundamental It's kind of like a fundamental MBA course. It's in, you know, 300 pages. All you need to know is the words. You don't need to know exactly how the transaction works. But the those are the fundamentals when dealing with financial professionals or any professional for that matter. What approach How does an entrepreneur decide whether the investment banker an exclusive investment banker is the right idea for them and or they should continue to to um work on raising the financing without any other financial professional other than themselves? Well, I mean everybody's different, but I you know, I tell people I coach people to trust their instincts. You're going to talk to a lot of fi- uh financial professionals and you're going to get on with some of them better than others. Some you're going to think are arrogant SOBs and you can't stand. Uh at the end of the day, when you know, when when the [ __ ] hits the fan, you're going to want somebody that's in your corner. No matter what. That you're a you're a high priority item to them. Not just because you're paying them a fee for this transaction. Um and hopefully because they really like the transaction and they believe in the idea. But if if not for that reason, because they think you're going to have you're going to produce for them an ongoing stream of fees and have a long-term relationship. What you want is you want to build a relationship that's long-term, so you don't have to keep reinventing the wheel. You don't have to continue to romance and go through the foreplay and the candies and the roses, etc. You want somebody that's going to be with you for the long haul. You want somebody that is going to, you know, when when when the mustard gas comes in and is being dropped on you, uh that they're going to believe enough in the transaction. Uh how you develop that and how you decide whether to stay with that individual, let's say a small first investment banker, is how they perform. What I would like to do and what I coach people in uh is that always stick with the ones that brought you to the dance floor first. So, I always do some business with the initial people that helped me raise the money, no matter how big I get. And uh because you'll outgrow a small investment banker from Chicago, for example. Uh and you're going to have go ultimately with a First Boston. Um but always remember there's a place for that person. Maybe they can do part of the mezzanine. Maybe when the when the when the big firm syndicates the deal out, is looking for some partners, they can do part of it. There's always a place. Uh at the end of the deal, you ideally you want to go with somebody that can take you at least one or two levels more initially. Uh that doesn't always happen, but that's what you want to look for. But the bottom line is you've got to find somebody that's going to do the deal. Uh you may not like them, they may only do one deal with you, but at the end of the day, I mean, you've got pride aside, you've got to get the deal done. And so, you go with who's going to get the deal done. You may, at the end at the end of the day, only find one person that's willing to do the deal. You know, ideally you're going to have a choice of five or six or seven or eight. But I've had deals where I was lucky and fell to my knees and thanked the Lord that I had one that was willing to fund it. In fact, I've had too many of those in recent years and um but uh it only takes one to do the deal. And speaking of that, a sidebar comment. Another big difference between a high-performance person that's done transactions and one that is a neophyte is they try they let it show through to the professionals that they need the deal done. They let it show through to the other side in negotiating the the buy the seller or the buyer, depending on which side you're on, that you've got to get the deal done. And as soon as that happens, the the the momentum shifts, the whole leverage shifts, and now you're on the defensive. You got to be able to walk away from every transaction. You've got to be able to act like you're willing to walk away from every transaction. Uh and not look back. And that is oh so difficult when you're didn't make your payroll this week, you're 2 months or 3 months behind in your mortgage payment, you're having to hide your car at the airport because it's going to be repossessed. I say all this to the listeners cuz all these things have happened to me and to partners that are listening to this tape right now. I have a partner, at least one, that had to hide her car at the airport so it wouldn't be repossessed. Um and uh the I know that you can miss at least three mortgage payments before it gets serious about losing your house. I know all these things. I'm not happy with all these things, but unfortunately, or actually really fortunately, I've lived through them, so I know it doesn't kill you. You may think you're going to die, but you don't. Then, when we approach acquisition candidates, what are the romancing tactics to get the sellers comfortable with us? To get the deal done, to get them really want to um to sell the company to us? Well, at the end of the day, all transactions, whether they're little, medium, or small, are individuals dealing with individuals. And the easiest way to build rapport with a with a seller is to actually deal with the seller on your own. Now, in some transactions, you'll have business brokers. When business brokers get involved, they try to distance you from the seller cuz they don't want to lose control. The best way to build a rapport with that seller is to either yourself or party one of your senior members of your team to go, ask for a meeting with the business broker and the seller so you meet face-to-face. You're not cutting the business broker out, he won't be as nervous and get paranoid, but at that meeting, say, you know, if there's any problems that we exist, please, here's my number, call me. At the same time, he'll you ask for his number so you can deal directly with him because more deals fall apart because business brokers think that they're going to get cut out of the deal, and that way, I mean, they don't. Um it's uh but it's one-on-one. Talk to the the individual that's selling, whether things are going right or wrong, all the time. Constant discourse. Constant dialogue between you and the seller or your person that's in charge of the acquisition. In the beginning, it's going to be you, though. Of the many M&A deals you've been involved with or have observed, can you give some examples of either mediocre deals or the gold deals. Well, I can think of the idiot deal right now and I think you were in the room when it happened when um a gentleman who had uh asked me uh about how to finance colonizing the moon. And uh he went through about a 10 or 15-minute speech and I uh I I looked kind of stunned. I looked out at the audience and I still remember I mean you were in the audience and my wife was sitting in the back and I said to the audience, "Well, that's some heavy shit." And everybody just roared. But then I went in and I told him who would fund it. Now, as an aside, that guy, I mean uh was a brilliant mathematician. And uh but that's the craziest deal I've ever heard. The the the probably the the best not not the best deal, but some of the better deals that I've heard in my lifetime um was the financing of Nike shoes, which uh as you know, I had an an opportunity to be a part of that and I turned that down. Um the um the financing of uh of some of the financial service um products that exist today that 20 25 years ago nobody thought they would exist. Um the um the the best deals lie where the the greatest greater the universe is for in fragmentation. So, there's a higher degree of of disconsolidation so you can consolidate. The best deals exist in the mom-and-pop. The more mom-and-pops own them, the easier they are to deal with. Um uh I mean buying right because remember, sometimes you're going to be the only person that's ever come to this individual or this couple and offer them to buy their company. Uh buy their baby, buy their asset maybe in their whole life. Those are the best deals. Now, when you get to be a big big huge company, then the best deals lie where you can get the most financial leverage. But always remember, look for where the margins are the biggest. Because it allows for the the most mismanagement. And when you're a young manager, a young entrepreneur, a young leader, you're going to mismanage the hell out of these deals. You want huge margins. Reminds me of your what you've always said during times of rapid streams of revenue, mismanagement mistakes are forgiven. Whereas, boy, when your revenue's down, seems like all the mistakes appear, don't they? Yes, and they they seem like they're a lot more costly. Okay, we're in the trenches here. We um we've got an offer on the table. We've been trying to buy one particular company for about three or four, five, six, seven months now, going on the eighth month. We've gone through four financing opportunities have all fallen in the toilet. The seller's beginning to question whether we have the wherewithal to do this deal. At what point does an entrepreneur like myself level a little bit more with that individual, or do we? Or how do we get around the issue? Well, the the best way to get around it is you always have to have two, three, four, or five potential avenues of funding. That's the best way, the easiest way, the most intelligent way. It's not always the way that you can do because life being what it is, as the kids would say, [ __ ] happens. But that's the best way to get around that. Um but you've got to be up front. I mean, uh you you never mislead them. Uh uh when you say that the funding is going to come either directly or indirectly from our board of directors and our professionals, you are telling the truth. Because those are the people that are giving you the inroads to the financial institutions. Uh you have to stay positive. Uh people that are transaction-oriented, your accountants and your lawyers are going to know that financings are going to fall apart, especially 100% financing is going to fall apart. The one that you've got to worry about the most is the seller. Cuz the seller doesn't understand that cuz you're normally the first person that's ever tried to buy their business. And that it's hand-holding. I mean, you just got a constant discourse, constant dialogue, constant being positive. You know, we've funded transactions like this. Our team has funded hundreds of transactions. That's why it's so important to have a team that has done hundreds of transactions. Uh and just a con- constant upbeat. You can't ever get down. You can't ever let them hear it in your voice. Okay. How does one respond to the question when we're working on deals or we're talking to professionals, the question does come up, "Okay, Mr. CEO, how much money is your team putting in?" And my answer is almost always as little as humanly possible, and that's probably none. All of the board members have been brought to this board for their financial expertise, their transactional abilities, uh and their experience, and their business acumen. Uh I'm often in in in probably the best answer that was ever given vis-à-vis me being as chairman, Lucinda Burke said, "Mr. Peña can write a check for any transaction. What's more important to us is his time. His most valuable asset is his time." Um you will tell them that virtually all the big transactions, the big players put little or no money in transactions because they dictate the terms. What the neophyte, the amateur, has to learn to do to become a high-performance person that's transaction-oriented is to learn how to dictate the terms. Just as we've gotten our accountants and our lawyers to agree to success-oriented fees because we dictated the terms, we asked. We have to do the same vis-à-vis uh dictating the terms and putting in money. I'm in- involved and I had was involved just recently in a 500 million pound bid for health care company which we failed against in a UK company. We were going to put no money in 500 million pounds. They said that sounds reasonable. You're putting in your time. You're putting the team together. You're bringing the finance together. But you've got to learn to dictate the terms. 30 plus companies you're chairman of. Which companies are succeeding the quickest and why and really here I'm I'm talking about the qualities that exist on the ones that are succeeding most. How could the others pick up the pace? Well, two of the ones that are succeeding the the most rapidly well you're one of them Great Wisdom Publishing. Lucinda Burks Annacott Worldwide Enterprise to name a couple and if the others were to model you what you're modeling me and what I've done in the past long hours managing smart total delegation and hundreds if not thousands of phone calls hundreds of presentations if not in person on the phone and a total commitment and passion to what you're doing. I've we've talked as mentor and mentee just as Lucinda and I talked as mentor and mentee and there's there's there's something that the successful people have in common that their unswerving devotion to the project. In your particular case you've got a supportive wife and for those of you that are listening to this tape you can't do it alone. If you've got a significant other and if he or she or it is not behind you no pun intended you'll never make it. You've got to have a unswerving belief in the system and you can make the system work. Earlier during this taping, I just remembered what it was and I wanted to ask you about instincts cuz you mentioned about it's about instincts. You know, you go on your gut, you go based on how you feel. Is there anything that an entrepreneur can can get from your experience level when it comes to instincts? How how does one hone those instincts? How do you how do you make them better? Cuz once you use them and use them, you eventually get to your level and you you know what's the right decision. How does one get better with it? Well, instincts vis-a-vis conventional wisdom, conventional wisdom is almost always wrong. You get better instincts, like anything else, by using them. You get to be a better golfer by practicing, you get to be better in any athletic endeavor by practicing. You get to be, uh, I'm told a better lover by practicing. I mean, everything in life is practice, practice, practice. You get to trust your instincts more and be more accurate with your instincts by letting them go. My mentor, uh, God rest his soul, who recently passed away, um, Jim Newman wrote a book, Release Your Brakes. And it's one of the books I recommend highly and he talks about you go through we most people go through their life like with their emergency brakes on. And for those of us that are old enough to driven a car with the emergency brakes on, you realize what happens when you take them off. The car surges forward and you real it's like you've got a new burst of energy. If you allow your instincts to take the brakes off, it's like a dog can't hunt on a leash or a lead for those of you in Europe that are listening to this. I mean, trust your instincts. Let them go. Let them flow. Go with the flow. And there was a great line in Star Wars, "Let the force be with you." And when, uh, Luke Skywalker is there with his eyes, uh, blinded or with a shield over his head, he's fighting with a laser sword and he can't see, but he's trusting his instincts and Obi-Wan Kenobi, Sir Alec Guinness, is telling him that that to trust the force. Let the force be with you. In closing, I would tell this audience that's listening to this, let the force be with you. Trust your instincts and you will grow geometrically beyond your wildest imagination. Thank you very much.