S3 Ep 24 The Kidnap Test: Is Your Business Actually Sellable?

Everything's not necessarily black and white, all numbers driven. There is a human element to everything that we do in the consulting world. Welcome to Manage Chaos Podcast, where we give you the startup business rundown in less time than it takes for you to get to work. I'm Katrina Purcell, and today I am joined by Mark Hartman.

He is a New Jersey-based M&A advisor, business broker, author, and former eight-figure business owner who clearly never sleeps. He helps Ocarus sell their companies with greater confidence and stronger outcomes. As principal of Hartman-Rhodes, he advises privately held business owners to pay from the $1 million to $25 million range on valuation, positioning, deal strategy, and transaction execution. Having built and sold his own company, Mark brings a first-hand operator experience to every conversation, giving business owners practical guidance rooted in real-world results.

He's also the author of Sweat Equity Payday. Mark, what do you eat for breakfast in the morning? You are busy. Thanks for having me, Katrina.

I'm not a breakfast guy. This dirty little secret, I'm the diabetic who doesn't eat breakfast. I don't even know what to think right now. The world is going to, this is breaking news.

I feel the best, believe it or not, when I eat within a very narrow window. I feel really great when I eat within a five or six hour window. So if I have a lunch and a dinner within six hours, I feel the best. Intermittent fasting, I think they like to call it, right?

That's the trendy name. Trendy name. Sure, I guess you could call it that. You are not just an M&A advisor.

You've actually built, scaled, and sold your own eight-figure business. So talk to us a little bit about some of the managed chaos, the messy middle that you experienced while you were growing and scaling your business. We only have 15, 20 minutes here. That's a lifetime story, 15 years, convinced into one answer.

It's funny. I was taking a class once years ago, and the professor said to me, Mark, you're really good at dancing in the moment. And when you're growing a business, especially small businesses in America, you have to be everything to anyone at any moment in time. So sometimes you're the stiff upper lip when an employee has a death in the family.

Sometimes you're the customer's psychotherapist. I shouldn't say that. I'm probably going to charge with unlicensed practice of psychotherapy tomorrow. Other times you've got to be the heavy with the customer.

Pay your bill or else. I'm not going to work for you anymore. All of those hats you might have to wear within the same 30-minute period. So you have to be nimble.

You've got to be flexible. And you've got to be willing to roll with the punches. Dance in the moment. Can't dance in the moment.

it becomes very difficult to be successful in small and medium-sized businesses in America. And I think that I was good at that, or at least I faked it really well. That's what got me where I ended up, probably in life. I love that dance in the moment.

When you look at your exit, what was the biggest operational shock that you experienced when you went through that transaction process that you now warn your clients about? It's more emotional than you can fake. I often describe what I do every day as really two-thirds buyer and seller psychotherapy, and the rest is split between keeping the lawyers from destroying the deal and administrative nonsense That what I do And there is so much emotion to selling a business especially when you have a business where the founder is selling it or it been in the family for three generations and now they're selling it to someone else.

There is an enormous connection that is constantly, constantly underthought about, underrated. Even in my own thing, I definitely had some seller's remorse. That happens and that's real. So I think it's easy for us to talk about the headline number, so-and-so sold to so-and-so for X million dollars.

All right, that's wonderful and fabulous. But there's a lot of emotion involved. And I think that that's something that isn't necessarily, quote-unquote, the operational challenge, but certainly will occupy a little bit of brain space as you're going through the process. What's going to happen to my people?

How are they going to be treated the day after the closing? And ultimately, when we sold the company that I had previously, Ethic Care Advisors, I chose the offer that made more sense for the people. I do quite a bit of founder therapy too. I don't call it psychotherapy.

I'll have to check and see if I can call it that. But there's quite a lot of therapy in our business, I think in general. I think in all of consulting, I think there is. Whether it be legal consulting, lawyers, whether it be accountants with accounting, why do I owe so much tax all the time?

Woe is me. I think there's a lot of that that goes on in the consulting world. And I think you You have to be somewhat sympathetic to your client's needs and what they're emotionally going through. Everything's not necessarily black and white, all numbers driven.

There is a human element to everything that we do in the consulting world. Exactly. So in your book called Sweat Equity Payday, which I love that name, you talk heavily about reducing founder dependency. We've spent quite a few episodes talking about this.

It's the number one thing that kills enterprise value. Tactically, how do you convince a control freak founder to stop putting out daily fires? And what's that first sort of operational system that they need to put into place? Sure.

It's funny because a lot of people will tell me one of two things. Eighty percent of the time, they'll openly confess to me that they're a control freak. And I was that myself for many years. The real issue boils down to the following.

How much are you needed and where are you needed? I have to talk about the kidnap test. So it's real simple. This is the kidnap test.

Katrina, you want to sell your business great. How much involved in your business are you? Not at all. Not really.

So if I kidnap you this afternoon, what happens? Nothing. That I buy. So how about the rest of the week?

It's Monday, Friday. I don't know. And immediately I'm starting to hear cracks in your story. The next thing that happens is what?

I'm going to kidnap you for two weeks. What's going to happen? Who's doing payroll? You have the right team in place.

Who's doing the customer quoting? Who's ordering the vendors? Who's authorizing? Now I'm going to kidnap you for a month or a quarter.

Where do things fall apart? And when I have this discussion, I remind them that the longer you're involved in your own business, in integral day-to-day stuff, the harder it's going to be for me, your M&A advisor, to convince the buyer not to give you an earn out or to lock you into golden handcuffs for 12 or 24 months afterwards. Some business owners will be like, Mark, I'm 65 years old. I just want to sell my company.

I want out today. That's not reality because you've set your business up where you're the center and the hub and the spoke And as a result you have a problem The thing that I say here is if you think you a business owner and you want to sell your business in 2026 be prepared for a fire sale because we already too late in the year for that probably Business owners have to realize that a lot of things need to get done before the LOI, before the pitch book. And if you do that the right way, you'll have a better business operationally.

And this is not an easy conversation. It's harder with the boomer generation. It's a little easier with my generation, but it's still not an easy discussion because giving up control is not something that most business owners want to do. But explaining to them that buyers want you to sell them the business and they don't want to have the risk of you having to be attached after the closing.

It's not an easy conversation. Everyone takes on a life of its own, but if one that has to happen and it needs to happen sooner versus later because there are things that potentially could be done in the short term that will pay off in the long term and make the business more transferable. More transferable equals better transaction and potentially more money. I think it's funny to me to think about people who are considering selling their businesses yet are so much of a control freak they can't give up to the day-to-day.

How are you going to feel when you eventually sell it? I get a phone call at least once a month with a business owner that says, the following. If I can't get my number, I'm just going to shut the business down. What's your number?

I'm just going to throw a number, $2 million. So if somebody offers you $1.5 million, you wouldn't take $1.5 million.

If I don't get $2 million for this business, I'm just going to shut it down. Okay. I can't wrap my head around this. Whatever you do, you.

The next thing is I'm not working for them for one minute after closing. It just doesn't work like that unless you don't do anything now. And even that, let's just say you show up once a week on Thursdays and sign checks. They're still going to want to lock you down for consulting.

That's just the way it is. So there are those business owners that are like that. They need to have a honest labeling discussion with Mark where I bring them to the light, if you will, and remind them that this is just not the way deals are done. If you're going to play this hard-nosed game in the beginning and you're not going to be flexible, I'm not going to be able to get you to the closing table.

There's an enormous amount of flexibility that business owners have to have. And you got to know when to negotiate tough. You got to know when to give. So have a list like the old Chinese menus, column A, column B, column C.

Absolutely must have, really great to have, and things I can give away in negotiation and don't care about. And give me that list and let me work on that for you. I talk about this a little bit in my book, page 35, Negotiate Like a Terrorist. Yeah, that's a funny part in the book.

I wanted the book to be about negotiation. and when I was working with my editor and publisher, they're like, what do you think the title could be of this book? This was way early on, like early draft, writing things. I'm like, how about negotiate like a terrorist?

They're like, no, that's not going to fly. But there's something to be said about having the mindset of having a clear, concise plan when you go into the negotiation. Just like I said, absolutely must have, nice to have, things I can give away. So our recent legal series touched on how due diligence typically uncovers hidden brand risks that might terrify a buyer.

But from your perspective, what is the single biggest operational red flag that would cause a buyer to walk away Can I tell you my secret philosophy about due diligence I love it Yeah let do it All right I going to share it with you right now In God we trust everyone else prepare for due diligence Everyone else. So everything should be checked six ways this Sunday. And when I'm on buy side engagements, trust me, that's what's going to happen. We're going to check everything.

So operational risks. It's all about dependency. It's all about single suppliers. So I talk about owner dependency early on, but then we have to think about things like single source vendors, huge problem.

What does your customer concentration look like? Who are your sales team? Does each one of your prime customers have two points of contact within the company that are not one of the owners? These are things that if you don't think about this and get the planning done early on, you can't just transition that the week before the closing.

Buyers are going to smell that during due diligence and go, wait a minute, we have a problem here. And the last thing is the books. The books are really an operational thing. Sure, it's money, but how you run your company and how you set up your books and how you operate for year after year after year is an operational thing.

You can't just flip the switch in June or July and say to yourself, look, I'm going to change things on a go-forward basis because I'm going to sell next year. It's not going to work. So the books you have to run your business and pay the IRS their taxes and whatnot isn't necessarily a transaction set of books. We need to be thinking about that early on.

That's a huge operational risk that business owners need to really be thinking about as they're getting ready for a sale. And Dr. Covey taught us, start with the end in mind. So if your goal is to sell your business, then you should be working on that each and every day.

Exit planning is good business planning. If you run your business and always be deal ready so that when the phone rings and it's a prospective buyer and they say, look, we want to buy your business because it's a great strategic fit with us. Or we're rolling up these businesses in this category. You're going to be our hub in this state.

Always be deal ready is something that I remind people because if you're always deal ready, you're probably running a very clean, a very well organized business and you probably have a lot less sleepless nights. Isn't that what we all want? A lot less sleepless nights. How can folks find you, Mark, if they are looking to potentially sell or buy a business?

Sure. It's HartmanRoads, H-A-R-T-M-A-N-N, Rhodes, R-H-O-D-E-S.com. I'm also on LinkedIn.

And shameless plug, can I make a shameless plug for the book? Of course, a shameless plug. Sweat Equity Payday, bestseller on Amazon. Great resource if you're thinking about selling your business for the next few years.

Perfect. We will have all that contact information in the show notes as well as a link to the book so you can purchase that. And I'm sure there's going to be some really good jokes in there around kidnapping and perhaps terrorism negotiations. There is.

Of course, thank you so much for joining us. Follow and subscribe to us on anywhere that you get your podcasts and we will see you on the next episode. contact at powell.