Reducing Founder Business Risk

In this, The Faces of Business episode, Andrew Stotz, Co-Founder & CEO, A. Stotz Investment Research, talks about reducing founder business risk.

In this, The Faces of Business episode, Andrew Stotz, Co-Founder & CEO, A. Stotz Investment Research, talks about reducing founder business risk.

Dr. Andrew (PhD) is on a mission to reduce risk in the lives of one million people. To help people do this, Andrew shares useful education, helps people understand and improve their company exit value and assembles stock portfolios for institutional / high-net-worth investors designed to outperform the market indexes.

Andrew is also the author of “Transform Your Business with Dr. Deming’s 14 Points” and the creator of the course “Transform Your Business with Dr. Deming’s 14 Points,” which teaches a proven, step-by-step system to create lasting competitive advantage through real quality.

Download our free business valuation guide here to understand more about business valuations and view our business valuation FAQs to answer the most common valuation questions.

Andrew has hosted over 600 guests on his “My Worst Investment Ever” podcast and is the co-host of “In their own words.” featuring conversations about applying Deming in modern organizations.

Andrew has been a finance professor at Thammast University for 19+ years and is on the research faculty and international advisory board. He also serves as the president of the CFA Society in Thailand.

Brimmed with excitement, Damon welcomes Andrew, eagerly anticipating a promising Livestream session. The host shows interest in learning Andrew’s background.

Do you want to know if your business is ready for your exit or what you should do to prepare? Learn this and more with our business exit assessment here.

Andrew is a person who grew up in Cleveland, Ohio. He battled drug addiction and underwent three rehabs before finally getting clean at seventeen. This experience taught him to face his problems and deal with them head-on. He believes this has been the key to his happiness in life and business, as it has allowed him to bounce back from difficult times, including the 1997 financial crisis in Thailand, which almost stripped him of all his assets. Andrew’s fearlessness in facing challenges is rooted in his ability to confront and overcome his past.

Similarly, the investment wizard believes that facing and dealing with problems from the past is critical to achieving serenity in life. He advises people to acknowledge their problems, write them down, and start dealing with them. He applies this same philosophy when working with companies, encouraging them to face their financial situation even if they don’t have an immediate solution. By consistently facing and acknowledging the issue, it becomes harder to ignore or avoid it.

Andrew is a champion in finance. Working at Pepsi, he became interested in statistics. His boss recommended that Andrew attend Dr. Deming’s seminar in 1989, which significantly impacted him. Andrew realized that the problems in companies were often caused by senior management and that they needed to improve the system to move beyond the current level of quality and output. He attended another seminar by Dr. Deming in 1992, which taught him about the trade-offs and the idea that everything is a system.

Get the most value for your business by understanding the process and preparing for the sale with information here on our Selling a Business page.

Likewise, he learned about variation and randomness underlying everything, which helped him apply his knowledge to the stock market.

Andrew offers investment opportunities in real estate and outsourced CFO services to mid-sized companies around the world that want to improve their financial situation and increase their exit value. He helps these companies identify areas of improvement and ensures their finances are in good shape for a successful exit.

Andrew, who also hosts a podcast on overcoming the worst investment ever, talks about his mission to help one million people reduce risk. He believes sharing stories of bad investments can help people learn from others’ mistakes.

The guest lists six lessons he has learned from these stories:

  1. The most common mistake is failing to do research.
  2. The second most common mistake is not correctly assessing and managing risk. Andrew stresses the importance of separating the discussions on return and risk when making investment decisions.
  3. The third lesson is that investing is a marathon, not a sprint.
  4. Fourth, emotions can negatively impact investment decisions.
  5. Fifth, avoid investing money in things you don’t understand.
  6. Lastly, Andrew advises diversifying your portfolio and not putting all your eggs in one basket.

To reduce founder business risk, Andrew brings to light six common mistakes people make when investing. These include overconfidence, following the crowd, being driven by emotion and flawed thinking, misplaced trust, failing to monitor investments, and investing in startup companies.

Andrew suggests ways to avoid these mistakes, such as seeking a third-party perspective and setting up a monitoring system for investments. He also warns that investing in startups is risky and that most new businesses fail within the first five years.

Andrew, an experienced businessman, suggests that companies need to reach $5 million in revenue to afford a management team and the expensive business infrastructure, such as regulatory compliance and ERP systems. He advises against chasing revenue for too long without direction and emphasizes the importance of generating cash flows to increase the value of a business. Andrew uses a scorecard system to measure the financial performance of companies relative to global peers, focusing on the four drivers of value. He coaches management teams on identifying weaknesses and steps to improve their score and ultimately increase their market value.

In Andrew’s viewpoint, although operational improvements are essential, they do not matter until the management team improves financial performance. Andrew measures the result and engages clients for twelve months to make substantial progress and track their performance.

Through this yearly review, clients may learn valuable lessons about their industry, product, service, or management team and may decide to exit if necessary.

Damon comments that businesses have inflection points. If founders don’t recognize them, the company can flounder. At this point, they must decide whether to invest money heavily in the next phase or exit the business.

Andrew recommends the book The Power of Consistency by Weldon Long, one of his former guests. Weldon faced setbacks but consistently focused on his goals. He challenges “the ones who listen” to ask themselves how badly they want to achieve their goals and to turn and face their demons. As a facilitator, Andrew’s job is to identify problems and guide clients toward finding solutions. He emphasizes the importance of profitability and its benefits to a company and its employees.

At the end of the Livestream, Andrew offers a free scorecard for businesses to evaluate their current development phase. Interested individuals can contact him through his website and request the scorecard by providing data regarding three years of revenue, profit, and assets. The process is confidential, and Andrew does “not need the name of your business.”

The discussion ends with Damon thanking Andrew for stopping by and imparting his profound insights.

The Faces of Business

Learn about the strategies that have allowed other business owners to overcome all kinds of adversities and limitations to achieve their business goals successfully.

All The Faces of Business episodes are


Check out this episode on LinkedIn
The Faces of Business on Twitter:
Listen to this episode of The Faces of Business on these podcast channels


Exit Your Way® provides a structured process and skilled resources to grow business value and allow business owners to leave with 2X+ more money when they are ready.

You can find more information about the Exit Your Way® process and our team on our website.

You can contact us by phone:  822-BIZ-EXIT (249-3948)   Or by Email:

Find us on LinkedIn:  Damon PistulkaAndrew Cross

Find our Companies on LinkedIn: Exit Your Way®,  Cross Northwest Mergers & Acquisitions, Bowman digital Media 

Follow Us on Twitter: @dpistulka  @exityourway

Visit our YouTube Channel: Exit Your Way®

Service Professionals Network:  Damon PistulkaAndrew Cross

Facebook:  Exit Your Way® Cross Northwest Mergers & Acquisitions

Other websites to check out:  Cross Northwest Mergers & AcquisitionsDamon PistulkaIra BowmanService Professionals Network (SPN)Fangled TechnologiesB2B TailDenver Consulting FirmWarren ResearchStellar Insight, Now CFO, Excel Management Systems  & Project Help You Grow



people, business, randomness, companies, deming, scorecard, risk, finance, life, understand, face, exit, listen, investment, money, stopping, management team, thailand, world, revenue


Andrew Stotz, Damon Pistulka


Damon Pistulka  00:01

All right, everyone, welcome once again, the faces of business. I’m your host, Damon Pistulka. And I’m excited for our guests today because a couple things, first guests I’ve ever had from. But also, today, we’re going to be talking about reducing founder business risk with none other than Andrew Stotz. Andrew, thanks for being here today.


Andrew Stotz  00:24

It’s great to be here. And I’m happy to to help people reduce risks, because that’s one of the one of the many things that I live for.


Damon Pistulka  00:32

Yeah, yeah. Well, that’s it. This is gonna be great to have you on because I think this is, this is an under let’s see, less known topic that I think we should bring more attention to. And we’re trying to use my word right, that’s came out wrong, but so you you a while ago, you founded a starts investment research, and you’re helping people with business risk. But, Andrew, let’s start with your background, because I think it’s really good to go back aways and see kind of how you got to where you are today. So people can really begin to understand why they should listen to you about business risk.


Andrew Stotz  01:17

Well, I, I grew up a poor black child, as Steve Martin said, in his comedy show, no, no, that’s not true. But I grew up in Cleveland, Ohio, and kind of, let’s say, a Midwestern life, my parents, my mother’s, you know, a housewife, my father’s working at DuPont. And I think the first kind of remarkable thing that happened in my life is I got addicted to drugs. And that happened at a very young age. And that took me down a rabbit hole that was pretty scary and painful. And basically, I ended up in three different rehabs and then eventually got sober and clean at the age of 17.

So an underlying theme in my life is that I almost lost my life at a very young age. And so, and I’ve been, you know, I haven’t drank or done any drugs now for 40 years. So I would say it’s hard to break away from that, that underlying theme, which also, I would say, I had the benefit of being able to reboot my life. You know, I mean, we’re all messed up in the more Yeah, in, in our youth, like, we’re messed up by either our parents or our friends, or our school, or our teachers, or some idiot along the way that mistreats us in some way.

We’re all messed up, and I had a chance to stop, face it, deal with it, and then leave it behind me. And so I think that’s been the key to my, my happiness in life is that when I got out of that rehab, and my parents said, Well, now you can go out on your own, and I didn’t have any money or anything like that. And I lived, you know, I worked in a factory and all that, but but I was happy.

You know, and that helped me because I know in the world of business, we have our ups and downs, and you can be stripped of everything. And I’ve had times where I’ve lost almost everything in 1997, we had the 97 crisis in Thailand, which I’ll talk about how I came here.

But the point is, I was pretty much almost stripped of every asset I had, but I wasn’t stripped of my happiness. And I think that that core foundation of, you know, serenity and happiness is what’s key. It doesn’t mean it’s not painful. Yeah, it doesn’t mean I wasn’t, you know, I mean, I definitely had depression at a time and my sister passed away right in the heat of that moment.

And it was just like, it was brutal. But when we have the tools, and when we’ve been through it, you know, so I always, you know, start off by recommending everybody who’s anybody who’s got, you know, things in their past that they haven’t dealt with, you know, you can run away you can run from them, but ultimately, when you turn and face them, they almost wither away.

But we were very rarely turn and face them and I think that’s the same. That’s probably what I bring to my life into my business and all the stuff I do is that I’m fearless to turn and face. You know, the challenges that I see.


Damon Pistulka  04:30

That is, it is it’s interesting that you say that about turning and facing and I man I commend you for overcoming that and looking at that at 17 as a reboot in a real opportunity to go back and go How am I going to do things differently going forward?

And I was reading the other day it was forget the book about it, but it was actually was talking about this when you If you don’t go back and look at your past, and you don’t deal with that, and then make amends or recreate that into something positive, like you came out of it, it helped me to reboot and do that it said it haunt you forever. But if you go back and really face it and address it and move beyond it, it’s something that can


Andrew Stotz  05:18

help you go forward. Yeah, man, it’s interesting, because I hear a lot of people talk about, you know, leave the past behind, and, you know, focus on the future and all that my own experience was, by turning and facing it, and dealing with it, then I was able to, you know, resolve it permanently. And that’s where I think you get a level of serenity in life. And so, for anybody listening or viewing, you know, I would challenge you, if you are facing a problem in your life, personal professional, you know, take this as some inspiration that, you know, turn, face it. Now, that doesn’t mean you’re going to solve it all in one day.

But acknowledge it, write it down, you don’t have to even talk to anybody else about it, just write it down and start that process. And that’s one of the things that I do with companies. Here, where I am in Thailand, when I work with companies in Thailand and around the region around the world. Basically, what I try to do is I try to get them to face their financial situation. And they don’t have a solution, and they may not have a solution. But if we face it, and we see it consistently, it’s very hard not to deal with it.


Damon Pistulka  06:45

That’s for sure. That’s for sure. Wow. That’s That’s some good stuff right there. And a powerful, you’re a powerful example of what can happen. If you do take the time to get things right in your mind and move forward. Sure.


Andrew Stotz  07:03

And I’ll just, I’ll close out my my background by saying that. I had an undergraduate degree from Cal State Long Beach in finance. And then I did an MBA there. And I was working at Pepsi in Los Angeles in manufacturing. And I had a good career opportunity. I think Pepsi gave me a lot of opportunity. And there was plenty of things to work on there. I got interested in statistics, because I was kind of more of a numbers guy. And I was on the factory floor because I’m also a people’s people guy.

And so and then when then my boss said, Hey, since you like statistics, you should go see this guy named Dr. Deming. And they flew me to Washington, DC. And I attended a seminar of Dr. Deming in 1989, I think it was 9090. Dr. Deming was 90 years old at the time, I was a young guy, and I just sat in the front row, because I just didn’t know anybody. And all the other people were super old, you know, like, there’s like 500 people in the room, and they were all in their 50s or whatever.

Yeah. And I was mesmerized by what He taught. In particular, he really laid the blame for the problems in companies on senior management. And as a young guy, working as a supervisor in a factory, it all made sense, because I could see that we were operating within certain constraints laid down by senior management. And it would be, you know, it’s nice to go and tell everybody work harder. And here’s your KPI and this and that.

But unless they improve the system that we were operating within, it was very hard for us to move beyond that level of quality, that level of output. And so it made a lot of sense. And then in 1992, Dr. Deming came to Los Angeles, and I thought, well, I’m going again, and Pepsi. Thanks to Pepsi, they paid for that. Also, when I was working there, and I did the same, and sat down the front row and just listen. And it really instilled in me the idea of understanding a few things. The first one was that we operate within a system.

And everything is a trade off. You know, it’s a great example. I mean, what what the world thinks nowadays is that we’ve got all these great drugs that can help solve different problems. But what they don’t realize is that, that every thing is taking from something else. We’re not creating new things. So a great example of that is I had a client of mine many, many years ago said he stopped drinking coffee and I said, why? And he said, I just realized that coffee was bringing all of my energy from the afternoon into the morning.

So I didn’t want that I wanted a more even distribution of my energy. Now for me, I drink coffee in the morning because I because it does concentrate energy in the morning, right. And I do get majority of my work done in the morning. But it made me really realize that you don’t get things in this life without taking from something else. So I think Thomas saw was one of the great thinkers out there. And he said, there are no solutions only trade offs.

And so I just learned that everything’s a system. And if you think you’re going to squeeze in one area, it’s going to have an impact on another. The second thing is that, because I had been studying finance, I understood statistics. And then I started to understand from Dr. Deming about the idea of variation in the idea of that the there is no such thing as an identical part, as an example, everything has some variation.

And there’s randomness underlying, and it’s very easy for us to see that randomness if I was to say, you know, imagine we had 10,000 people in a stadium, and we asked them all to stand up and flip a coin, and we asked them to sit down, if you know, to go to one side, if they flipped heads and to go, the other side was a flip tails, and then ask them to flip again and say, Look, if you flipped consecutively, heads, heads or tails, tails, then stay standing.

And if you flipped, heads, tails or tails, heads sit down. And we went through that 10 times, we then met with 10 people on both sides. Now, I started learning how to apply this in the stock market. And that’s where I really took off was working in the stock market.

But the idea made a lot of sense that if we were to say that, well, 10, Tails is bad and 10 heads is good. We could have had people with very good outcomes of 10, consecutive, you know, flips of heads and 10 consecutive flips of tails. And there’s just nobody that’s going to dispute that, you know, it’s very clear to see the randomness in that.

But when you start to look at people’s behavior, our behavior, what’s happening in our companies, what’s happening in our lives, people, all of a sudden, they lose that focus on the the randomness underlying thing. So I think what I learned from him was the system way of thinking, and then the randomness underlying it. And once you understand randomness, then you you kind of stop chasing your chair tail.

I think what’s happened, what happens for most people, when they don’t understand the teachings of Dr. Deming, or that type of systems thinking is that they end up chasing after problems that are happening in their business, not realizing they’re just random variation. And they’re not really seeing the bigger picture. And it happens all the time in business, for instance, when they’re giving out bonuses.

How do you know that the bonuses you’re giving out this year, what what extent of that performance was driven by randomness. And that’s very hard to accept, because we are brought up to say, I’m in control. It’s my arm, the one who shapes my destiny. And if I’m the boss, I’m like, it’s up to you. I don’t want any excuses about randomness. But there’s there is randomness underlying. And so when I left California, I moved to Thailand to teach finance 30 years ago. And then within a year, I realized I’m not gonna make any money teaching.

Then I took a full time job as a financial analyst in the stock market, what we call sell side analysts. So I started analyzing companies and for clients around the world that was 1993. So we would have fund managers like in fidelity or something like that, they would call and say, you know, I want to invest in Thailand. And you know, what do you think, and I would go through that with them.

And, well, that’s a great place to analyze randomness, and try to understand what’s happening in the market. So I did that work for 20 years in the world of finance. And in 1995, my best friend had come to see me in Thailand, and, and then earlier, and then in 1995, we set up a coffee factory in Thailand, which I’m sipping some of that coffee right now. And we set up that coffee factory coffee works 30 years ago, just about 30 years ago.

And and that’s really where we also while I was head of research and running research teams, and being an analyst in the stock market, I was also building an analyzing that business together with Dale Dale is the managing director and he runs it. And I’m kind of from the outside looking in, but we’re equal partners in it. And we’ve managed to survive a lot of ups and downs. And so to bring it to full circle, the way we met was the podcasts where I have a podcast called My worst investment ever, where I interview people about their worst investment and what they learned from it. I’ve now interviewed more than 600 people.

And really what I’m on a mission to help a million people reduce risk in their lives. So I’m happy to be here to share. And so that provides like a lot of framework for where I’m at now in my life. I I manage money when I have I have basically investment strategies that I provide that are global investments. strategy. So I have clients that are investing in those.

And then I have what I call an outsourced CFO business, or a value accelerator where I help companies that are mid sized companies with management teams that really are looking for an exit. And they know that they’re not going to get the exit value that they want, where they’re at right now. And so how do we identify that and from a financial perspective, make sure that their finances are at a point where when they exit, well, they exit their way.


Damon Pistulka  15:36

And this is why it’s so awesome talking to you. Because when you hear your background, from the starting at 17, getting yourself clean, getting your mind and, and your that part of yourself going, and then your incredible experience, you’re only one of maybe three people I know that was ever in the room with Dr. Deming before.

And I’ve been in manufacturing, I was in it forever, and growing up. And that is quite an honor to see him not once but twice. And really understand what that is. And if people, there’s people that are listed today that don’t know who that is. But if you’re in manufacturing, you don’t know who it is you don’t go get a couple of books or read a couple articles. And you really realize what he did for the world. Not just us,


Andrew Stotz  16:32

but get the book to get his new economics on Amazon, and they re released it. And it was his final book that came out when he in his last year of his life in 1993. But that was that’s a good, good way to start. And in addition, you know, the Deming Institute produces a lot of stuff.

They’ve got something called Deming next, where you can do training and learn more about what his teachings were. And then you can also listen to Deming Institute podcast where I’m hosting and interviewing a lot of people who are those remaining people who have met with him and really knew him personally, as well as others that are just trying to think about what he’s doing. And how do we apply that?


Damon Pistulka  17:15

Yeah. And that’s incredible that the the podcasts talk about that. So so you’ve got so you got two podcasts, you’re doing actually the worst investment ever. Now, it’s 600 episodes on that. Holy cow, that’s you must have heard some real stories that


Andrew Stotz  17:35

I’m relentless. I just keep going, like the Energizer Bunny, but I, I I’ve heard a lot of different stories in, in, in some cases, you know, there’s stories that people haven’t told before, they haven’t really thought before. And as I was saying to one of them, I got one of my, you know, people that came on the show last week was, it’s a little bit of a confessional for some people, because they haven’t really worked through that pain.

And ultimately, when we talk about our worst investment ever, we’re really, you know, talking about something that’s very sensitive, and it costs us time and energy, and pain and suffering. And so I appreciate the people that come on the show, because I remember I had a guy I invited on the show through LinkedIn, many years ago.

And he wrote back, interesting idea, not my style. And I just realized, yeah, there’s a lot of people that do not want to talk about that. But for those that do, and I guess, you can look back and start off where we started this conversation about looking at our past and overcoming it. And you can see why that podcast is so interesting to me.

And my goal, you know, I’m on a mission to help 1 million people reduce risk in their lives. And I’m doing that by getting people to share their stories and sharing that out with the world. And so it’s a fantastic thing. And I would say I can I can very quickly summarize the six lessons that I’ve learned. Very good. Let’s hear him. Okay. So number one the most, most most, I mean, I’m an analyst, so I listed them all out and I analyzed them.

The most common mistake is failed to do research. It’s incredible the number of people that jump into things without doing the research. And I look at one of my stories, Josiah Schmelzer, which was one of my earliest stories when he was trying to flip houses, and he thought he would save money by not doing all the inspections beforehand and paying the money for those. And what ended up happening was he bought a money pit and dragged him down, you know? So that’s the lesson is really do your research.

And what I like to tell people is focus on the upside focus on the return. Focus on what you think is the potential Hear as a start, which brings us to the second most common mistake, which is that people basically failed to properly assess and manage risk. And assess risk is how we look at something before we buy into it.

And manage it is how we handle it. When, when we do have purchased it, for instance, just recently, in fact, I, in one of my portfolios, we have a small exposure to the financial sector. And I had to make some decision about it, I had to decide how are we going to manage this risk. Now, one of the ways we manage this risk is we have other investments that move opposite such as gold, so financials go down, gold tends to go up.

So we’ve managed it through some sort of diversification. But eventually, I decided that well, we’re going to cut this out of our portfolio, because it’s just not worth the ride right now. And that’s the idea of managing risk, which means cutting loss. And assessing risk really is how we look at something before we get into it. And I’ll tell you just a quick story for coffee works my company, Dale had an opportunity to expand our business to Vietnam, or we could expand in Thailand further.

And he we agreed that he would look at it and he went to Vietnam met with people, we did a lot of research. And he put together a very good analysis over a month or two. And we agreed we would meet on one Monday night, I went over to the office after my work. And we sat down. And he presented the case, we’re like, yeah, pretty good. Not bad. You know, there’s some upside there. But it wasn’t as huge as we wanted. But it was doable.

So it was pretty exciting. And then after that, we went and had dinner. And then a week later, we met to talk about the risks. And what we did is we separated our discussion from return and risk. So that’s why I saying focus on that. Focus on return, enjoy it, think about it, right. And don’t bring the discussion of risk into that. Allow yourself to go there and enjoy what you think the potential is.

Now, once we sat down and went through the risks, we think, holy crap, this is more expensive, much more difficult, more complex, because we’re going to a new country, the risk to our capital is high. And we could just expand within Thailand at a much less lower level of risk and achieve almost the same amount of revenue. And we decided not to do the expansion, we decided to stay and expand within Thailand. So when we look at return, and when we look at risk, I highly recommend that you separate your discussion on those two.


Damon Pistulka  22:27

Yeah, that’s really good advice. Holy heck.


Andrew Stotz  22:32

Yep. And Number Number three was driven by emotion and flawed thinking, there’s just so many times that people just get caught up in emotion, they get caught up. Also, in not really thinking things through, there’s all kinds of behavioral biases that we can do. And the way to overcome this is to find someone who’s a third party, who’s not interested in this, but you know, can understand what it is, and sit down and talk with them. And I always tell people, you know, the best tool for listening is writing.

So when they’re speaking, you damn well better be writing. And because it’s very difficult to speak and write at the same time. And that brings us to number four, which is misplaced trust. It’s incredible how if you think about many people in business, they’re really tough, you know, in negotiations, and you know, they’re, they’re, they’re really put the pressure on, but when they come out to their personal life, someone walks along, and all of a sudden, they trust this person, and then they send money to him. I had one of my guests, who’s a very, you know, successful financial guy.

And basically someone called him and said, Hey, I’ve got great opportunity for property right out of sight out of London, and it’s going to be a booming time, you know, and baba, baba, bah, next thing, you know, within a week, you’d send him $12,000.

And he never saw that money again. So misplaced trust is number four, number five, is failed to monitor their investment. I know, most of the people listening to this are super busy. And so you end up thinking and getting excited about an idea, I’m gonna buy silver or whatever that thing is. And then you get into it, and you realize, oh, my God, I didn’t, you know, I don’t have time to monitor this.

And instead of exiting it, you just kind of let it sit there. And then in most cases, it withers away, but you know, some cases, you could be lucky that you didn’t look at it, and it becomes something huge, but that’s number five failed to monitor their investments. So what I suggest is that you set up a monitoring system where once a month, you set a date, and you look at it. And then number six is invested in startup company, and this is one of the ones that is so common that people are losing their money on.

And basically I like to say go into startup knowing that it’s likely you’re gonna lose all your money, it’s binary, you’re either gonna lose all your money, or, well, it’s not really binary, I’d say You’re either going to lose all your money, you’re going to barely survive for 10 years, and then exit, or you’re going to hit it big. And when we look at the statistics about businesses surviving, I don’t know what the latest statistics, let’s say, five or 10 out of 100 survived five years. I don’t know what do you know what those statistics are these days?


Damon Pistulka  25:22

Yeah, that I read something recently said a startup going 10 years, it’s like less than 10%.


Andrew Stotz  25:30

And I would say that that’s massively overstated.


Damon Pistulka  25:33

Yeah, then I want to I thought that was pretty high,


Andrew Stotz  25:36

it’s probably closer to one, if, if we remove companies that aren’t paying dividends, yeah. And what I always tell people is that, if you’re starting a business, the first thing you got to do is you got to rush to get to $5 million in revenue. The reason why you need $5 million in revenue is you need to be able to afford the management team to run the business. So it’s not a one man show.

The second reason why you need to rush to get the $5 million is infrastructure for business is expensive these days. Whether that’s regulatory compliance, you know, government just never stops coming down on business and people and it just grows in complexity and cost, or whether it’s the ERP systems that you need, and the software systems that you need, it costs serious money to have a infrastructure for running a business.

So one of the things I always tell people is, you know, in the beginning of business, what usually happens is what I call chasing revenue. And that’s where we go in with an idea, we’re going to start this type of business, but we find out there’s no customers or, you know, bad idea. So then we start shifting, and we start chasing revenue in every direction. But you can’t be in chasing revenue mode too long, or else, you’re not going to really get a direction to go.

But once you get that direction, you’ve got to try to get to that 5 million mark as fast as possible. Because in the end, the value of a business ultimately, is the cash flows that that business can generate. And that brings me to kind of my last port part that I would say about my experience in what I try to bring to companies is that I, I created a scorecard that I used for coffee works, because I was finding it hard to kind of train the management team to understand finance, and how do I keep them focused on the right things.

So I came up with a system for measuring the financial performance of any company relative to its global peers, I have a database of 27,000 companies and I use this, whether I’m picking stocks in the stock market, or whether I’m supporting or what I call mentoring a startup company, or a mid sized company that is going for exit, then that is we update that scorecard every single month. And we meet as a management team. And I focus them in on what I call the four drivers of value.

And so because I’m academically grounded in the financial aspect, I can talk specifically about what is going to drive the value of this business. So if your business has a value of $100 million, and we can move the needle on the for drivers of value, we could move that exit value from 100 million to 120 130 150, depending on where you are right now. And that difference makes a huge difference. So that’s really, you know, what I do with companies to try to help them.

And what I do basically, is that it’s a simple scorecard with one page with no financial ratios. And that’s what makes it so that everybody on the management team can understand. And then I focus everybody in on the four, you know, obviously we’ve got everybody’s got work to do. The purpose of this is not to overload people, but to start to raise their awareness about the weakness in this business relative to global peers, and then say, what are the steps we’re going to take?

And within 12 months, if you look at that scorecard every single month, you meet as a management team together. And I basically coach them on how to, you know, look at that, identify what are the steps you want to take, now you’ve got a good measurement scorecard, that’s going to come back and tell you whether you’re making progress or not. And because I’ve done analysis, from an academic style of analysis to try to understand 27,000 companies, I look at their performance on a quarterly basis.

And then that’s our benchmark that we use. But I also understand when a company is moving up or down in that scoring, how does that impact the market value of that business? And we can see exactly how much you can increase the value of your business if you can move up in that scorecard.

And that’s really a huge thing that that I do. And I love to do, because what I always tell people is that I teach finance, and I tell my first year finance students, when I teach I say finance adds no value. Well, you can imagine how scary that could be if you’re just choosing a major of finance and you’re thinking wait a minute, I came here because I thought that this was valuable. Well, what I’m saying is that What brings value in business is your product and service. That’s it, the better it is, the better you can deliver it, people will pay more for it.

And that is what drives value not finance. Finance is a tool. And so as I say, finance is a mirror. And so my job is to make sure that the mirror is nice and clean, scrubbed up and in your face, every single month. And if we can do that, we’re going to get the feedback we need from the finance department of a company, or the CFO of a company, that feedback then needs to be understood by the whole management team.

And that’s the big problem is that, you know, people don’t always understand it. And then a finance a CFO tends to talk and hire really hieroglyphics for most people, you know, when they listen to all the different things that they say. But if we have a standard scorecard, we look at it every single month. And we’re just relentless about that, that continual focus on the same thing, just that focus drives value.


Damon Pistulka  31:10

I’m just gonna let people think about that for a minute. Because it’s something that we do with every client, you gotta get scorecards and if you don’t have them in what you’re talking about the monthly scorecards, where you’re measuring business value and business value relative to peers, and really not just going, you know, here’s a multiple of EBIT, da or something like that.

But understanding how you’re even as a percentage compared to revenue compared to the market, you know, all around like that can really affect your value, because their valuation ranges within a given industry or a given size of a company, and you can be at the bottom of that range or fall out or go way out of the top. Depending upon where you’re at in that,


Andrew Stotz  31:55

me, it’s totally your choice, you know, where you want to be in that. And it’s tough to get to the top of that. But if you the reason why companies sell at higher multiples is because they have higher growth, and higher profitability.

And so that’s the key. And you get those measures, and you get the multiple. What’s fascinating about the way I go about it, is that there are other people, many, many people like yourself, and many others who really understand the operations of business, maybe how do you fix the sales department? How do you improve the quality? And all those are methods that are exciting and very great, and many of them are very important and valuable. But they do not matter if they do not move the financial performance. And ultimately, I am measuring the end result.

And the end result is what are you producing from the things that you’re doing? Yeah, and some things take a long time to I mean, it’s like, that’s why you need time to look at that on a consistent basis. When I engage clients, I engage them for 12 months. That’s it, no shorter, no longer if they can’t make substantial progress in 12 months by getting the feedback on the scorecard and our discussions that we do about what they’re doing. That’s also a very valuable lesson.


Damon Pistulka  33:18

Yes, it is. Yes, it is. Yeah, it’s your right. If there’s nothing changing in 12 months of understanding where you’re at and your team, you’re not making some significant changes from the information and the feedback you’re getting, then you’re not going to


Andrew Stotz  33:33

I mean, you’re learning something maybe about your industry, about your product about your service, you may be learning something about your management team, you know, that they may not have the capacity to bring it to the next level. And then that’s a valuable lesson right there. You may decide, okay, I think it’s time to exit, you know, at what we’ve got.


Damon Pistulka  33:51

Yes, yeah. Because really, there’s there are these inflection points in businesses. And if you’re an owner, or a founder, or an owner, in a business, or even even on the board of a business that’s seeing these kinds of things, and don’t realize those when you hit one of those inflection points.

You can really spend a lot of time floundering. Whereas, you know, it is a point to where you’re either going to have to look in the mirror and go we are going to invest heavily into getting into the next phase. And that means that the people, the systems, the customers, everything might have to change for us to go to that next level. Or, as you said, it is really our best time to get out now.


Andrew Stotz  34:35

Yeah, one of my guests, former guests on the podcast, Weldon long, wrote, wrote a book called The Power of consistency. And it’s such a great book and I love it, I highly recommend it. And you can get an audible I would definitely listen to the book. But you know, when you consistently focus on something, you have the potential for CRE eating it. And it’s important to consistently focus on it.

And he constantly faced setbacks because he didn’t start his his career and his journey from a cushy place. He started from prison. And he was in prison for a long time before he got out. And he was faced faced a huge amount of challenge and resistance to build himself out of that I highly recommend this book. But every time he faced the obstacle, he asked himself, how badly do you want it?

And so my challenge to anybody listening to anybody viewing is science. How badly do you want to, you know, when you get to be our age, you know, my age, I’m getting close to 60. It’s like, it’s exit time. You know, I got five, maybe 10 more years in me. And it makes a difference now. And so how badly do you want it? And are you ready to take the steps to say, I’ve got to face this. So I think as we come towards the end of this, I would say that, we kind of go back to the beginning, turn and face your demons.

Yes. And say that I need to overcome this. And that’s really what I do. And I, I, there’s no magic to what I do. And I’m not a consultant, I don’t come in and look at a business and say, This is what you got to do. What my job is, as a facilitator a little bit like in group therapy, when I was in treatment, it’s like, Alright, we’ve identified the problem, what do you think are the next steps?

And then we meet the next couple of days and say, Okay, you thought that maybe writing it out would be a good thing? How does that feel? Did that work? You know, but with the feedback mechanism of the financial statements, it’s raw, and it’s powerful, and it’s strong, and it’s harsh. And if we can have all great talk and all the great ideas, but in the end, the end, the question is, is it moving the needle? And exactly, you know, that you can have all kinds of discussions about what you want to do in this world.

And, you know, some people come to me and say, Well, I’m not so interested in the profit or the value. And I say, I always say, you may not be interested in profit until you until you’re until you’re suffering the pain of loss. And then all of a sudden, you may think, holy crap, maybe that profit in what it provides my company, to hire the right people and, you know, provides my people to get good pay and get good bonuses, and it provides my people to be able to donate and make the world a better place with the profits that we make. But if you don’t make it, Yang got it.


Damon Pistulka  37:29

Yeah. Yeah. Andrew, I just want to say, thank you so much for stopping by today, man. It’s been a pleasure listening to you and learning from you. And I also want to take just a moment real quick before we end up the show us a Marcia a thanks for stopping by. She had a whole bunch of great comments. George is good. Joey OSH excuse me, I butchered her name. But thanks so much for stopping by. And all the other people that dropped the comments here and everyone that was listening, I’m going to tell you what, go back and listen to this from the beginning.

Because as he was going through that, the six different things that risks that he sees that people overlook or don’t things that they don’t consider in business and the other goal that you dropped here, I just want to say, Get back, listen to that. And and go back through it, because it will help you and your scorecard, I cannot agree with you 100% 200% 500%. Because listen, at the end of the day, you need to create financial results with with these things it might not be this week, this month, might be next year, but those financial results have to come from the work you’re doing. And if it’s not, it’s not. And


Andrew Stotz  38:48

in fact, if somebody’s listen to that, listen to this, and they think this matters to me to you personally, then just go to my worst investment My site, you can go to the connect button there with connect with me, that comes directly to my personal email.

And and then you can ask me and say you heard from this from Exit, Exit your way in from this discussion, and the phases of business. And then I’ll provide you with your own scorecard for free. And let’s look at where is your business? I’ll need on the three years of data and but I only need revenue, profit and assets. That’s all I need. And I don’t need the name of your business. Don’t tell me the name of your business. Keep it completely confidential. Feel free to contact me and then I’ll I’ll do that.


Damon Pistulka  39:42

Yes. And when we say that again, Andrew, were the best way you said worst investment ever. Yep, that’s that’s your website. All right. That’s where you want people want to get a hold of Andrew. He’s website there but Andrew Stotts thanks so much for being here today. Thanks for talking about you know, helping redo Using founders business risk at man, it was just such a wonderful conversation. I appreciate it. Thank you,


Andrew Stotz  40:06

David. Thanks for having me. I appreciate it too.


Damon Pistulka  40:08

All right, everyone else. Thanks for listening and we will be back again with another interesting guests on the face of the business. Have a great weekend, everyone

Schedule a call to discuss your business goals and answer your questions on growing business value, preparing for sale or selling your business.

Check Out Posts Talking About Sales.

Related content

These posts may also interest you

The Faces of Business Live Schedule

The Faces of business Livestream / Podcast episodes are conversations with interesting people sharing life and business experiences to entertain, engage, build community, & help others succeed.

Putting Your Soul Back into Your Work

In this episode of The Faces of Business, Cari Jacobs-Crovetto, executive coach, and the mind behind The Force Majeure / Cari Jacobs-Crovetto discusses how she helps professionals reconnect with their true selves to rediscover who they are and lead more meaningful lives.

Stand out by Writing Your Own Book

In this episode of The Faces of Business, Michael Levin, the visionary behind the Michael Levin Writing Experience and New York Times bestselling author shares how writing your own book can help you stand out, demonstrate thought leadership, and help you break free of the commodity trap.