Hey, welcome back to the influential personal brand podcast. It’s your friend Rory Vaden joined by my wife and our CEO, AJ Vaden. We are breaking down the interview that we did with Kevin Kruse. One of our longtime friends who is really successful entrepreneur done several wonderful things and just someone that we look to that expands our horizons and thinking on everything it means to be an entrepreneur and in leadership. So AJ welcome back. Good to see you happy to be here. So why don’t you kick us off, let’s dive into our, our three biggest takeaways from Kevin. And you go, you do it first.
Yeah, so my first one is short sweet and simple, but I think I fundamental building block of entrepreneurship and something that every single person should be asking themselves as they dive into. Do I want to build a business? And if the answer is, yes, how do I want to build a business? And I love this and he talked about it for quite a bit. And I think it’s just really important. And I had never really heard this before or even gone through this process myself. And he said, but as you are in the beginning stages of building your business, ask yourself this question, is this a lifestyle business, or are you building a business that you will want and, or require employees? And so it’s like, are you building a business that you can manage with maybe one team member or a partner or a spouse, or are you actually building a business that will need and require employees? Because those are two very distinctly different businesses with two sets of different responsibilities and outcomes and plans and budgets and time and all the things. And really what that comes down to is you have to, you have to ask yourself, do you want to be leading and managing others? Yes or no. And that will very much dictate the type of business you build. And so it’s really helpful if you know that on the front end.
Yeah, that’s good. That’s good. That reminds me of you know, like Dave Ramsey has a thousand employees and everyone comes to work and they’re like full-time. And then one of our other friends and mentors, Andy Andrews has built his whole bursal brand with zero employees. And they are both very successful in their space. I love that. One of the things kind of similar for me was, was my takeaway is that there were kind of like three primary ways that a business is valued. And again, it’s sorta like, you know this, but you don’t zoom out and go, oh, like, this is, this is very simple. This is how it comes down or what it comes down to is that basically a business can be valued on just the assets. What are the, what are the assets worth of a company? So you got, you know, whatever buildings and, and, you know, intellectual property and equipment.
And then the most common way that businesses are valued is that they are valued as a multiple of EBITDA earnings before interest taxes, depreciation and amortization, which effectively is profits, right? So there’s a multiple of your profits. And then the third one, which is kind of the fun one that we were talking about on this interview, which is the world that Kevin lives in, and this is playing in is to be a, that businesses can be valued based on a multiple of revenue. So a top line valuation versus a bottom line valuation of profits. And so that is going to mean the value of that company is many times more what the value of a company that is based on, on a bottom line valuation is, you know, is worth. And I thought, you know, that’s just good to know, like if you don’t know, those are the three primary ways that a business is valued. And then I think much of the conversation was which ones are valued at the top line multiple. And what do you do? And how do you get to have, have one of those, which was, which was fun. So that was, that was my first takeaway. Yeah.
My second is kind of a dovetail off of that and the great and powerful conversation that was had around subscription revenue versus service revenue, or one time revenue and how that is just such a key indicator of the way that businesses are evaluated today. And there’s just so much power in subscription-based revenue, specifically, SAS subscription-based revenue versus this one time, a service revenue. And it’s not necessarily to say that one is better than the other, but they are uniquely different. I haven’t had very different valuations. So again, back to, for all of you who are in the beginning stages, what a blessed and overwhelming time that you’re in but really knowing how do you want to set this up? And it’s really, I gathered, and this is how I garnered my internalization of this information. It’s am I building this business to keep it, or am I building this business to sell it?
And in that case, you need to have a long-term valuation strategy in your mind as you’re building out your products and services. And just going, it’s like if you’re building to sell, then subscription-based revenue with a high emphasis on SAS, right? So software as a service would be a key part of making sure you get the highest valuation and the highest sale. But if you’re building it to keep, that’s a different story. And so I think, again, it’s, you know, to me, it’s back to, do you want to manage and lead others? And then are you building this to keep or sell again, it goes back to those fundamental building blocks of how do you build a business that you’re actually going to enjoy and want to do for the longterm. It’s having those two things in mind.
Yeah. And so much of being a successful leader is always about like, you know, thinking about the big picture up front and that’s that certainly applies, applies here. And, you know, if you’re going to do the lifestyle business, you might choose to do things that are less stressful. Like maybe they have less value long-term, but there may be less stressful. And my second takeaway was related to that, just a another fundamental, which is the concept of churn. You hear that term churn and to what you were just saying, AJ I think, you know, when you have recurring revenue, you typically have higher valuations. The other thing is recurring revenue is also typically more stabilized revenue, which even if you never plan on selling it and you don’t care about the valuation, recurring revenue is an incredible way to run your business.
Another thing that we teach people all the time and in our, in our eight figure entrepreneur courses that a business worth selling looks a whole lot like a business worth keeping. And so you know, recurring revenue is very healthy, regardless if you’re going to sell it or keep it. But if you’re doing recurring revenue, the number one metric you want to look at is churn. And it’s just super simple. If you start the year with a hundred, what did you end the year with? Did it, was it more than a hundred? If so, you know, that’s, that’s a positive churn. If it’s less than a hundred, it’s a negative churn. And when you look at, you know, the value of that company, that’s one of the key metrics they’re looking at. And if you’re just keeping it as a lifestyle business, that should just be a metric you’re looking at to assess kind of the health of your revenue in the, in the delivery is, do you have positive or, or negative churn another symbol fundamental concept that has really, really big long-term impact. So that, that was my number two. What was your, what was your, your third takeaway for Kevin? Yeah. Well, just
A quick thing on that. I think that’s w that’s just a huge concept to wrap your mind around is that if you are building a business to sell it’s, that buyers investors are actually looking for only positive churn. Like it’s not even like a break even it’s like, no, I only want to see growth year over year. So the idea of losing anyone is not in your favor. I just really think that’s really important. And that really brings up the discussion of, again, if you’re building to sell, it’s like, what’s your retention plan? What’s your customer care plan. What’s your, all the things plan. And again, there’s just so many things that kind of go into this of going, if you’re going to have only positive turn and only seek growth numbers, there’s more than you just involved. Let’s just call it what it is.
And so, again, it’s just knowing all these things and being able to see the end in mind as you have the opportunity to start something new and fresh. And I think that’s really important so many times as you know, startup entrepreneurs, we’re looking 30 days ahead, and this is requiring you to look 10 years ahead. All right. And so again, all the things that I think just are important as you’re making those beginning decisions that definitely have domino effects in the weeks, months, and years to come. But my final point not to go on a tangent is just hearing his interpretation and his forecast about how the future of business is in apps, no matter how you slice it. But it’s just like, there is such a demand for SAS products, specifically apps that there is just no wiggle room of getting your way out of it.
If you’re, if you want to build an enterprise business or an eight figure business or a business that will sell, it’s like, this is an inevitable, at some point, this is going to be a part of your business. And that’s, that’s Kevin’s interpretation. I know that’s not the only one in the world but that was his. And I think that was really interesting to hear that there’s such a heavy, infinite emphasis on the app because as a consumer, I I’m overwhelmed by the option of apps. And so to have that many more apps just seems overwhelming to me, it’s like walking into TJ Maxx and there’s so many things in so many places, like I don’t even know where to look and I feel that way a lot about apps. And it’s like, I don’t need a thousand apps on my phone where I only look at one on a daily basis.
And so I thought it was really fascinating to hear his forecast and his prediction of that. And then also comparing it to my user experience where I use apps, but there are very few that I use on a daily basis. And so I think a lot of that comes to the innovation and ingenuity of how do you make an app that becomes a part of someone’s daily routine, not just to have an app for the sake of having an app. I don’t think we need more of that. It’s like, where, where does the app come in play where it’s like, no, it really becomes a part of my daily routine and a necessary part of how I find information, processed information, store information. And I think that’s like a whole nother discussion, but I would say his prediction and my interpretation were very, very different. Yeah.
But that’s funny that, yeah, there’s so many apps. Well, and certainly it’s like, there is a dependency on technology for sure. And the value of it is, you know, technology doesn’t call in sick. It doesn’t go on vacation. It’s like, it’s there all the time. It sure does break. It sure does have code updates and bug fixes and all that. But that, you know, my third takeaway was also around apps. And, and to what you’re saying, one of the things that I felt nudged by was like, Hey, we need to, we need to work on it. We need a brand builders app. Like we need to start getting going on this. And just like you’re saying incorporating into people’s daily lives. And, and I think that’s really cool. But when he was talking about building the app specifically, I thought this was a super valuable lesson where he said, the more you can describe it in detail before you start building the app is like the more valuable and, and, and the more likely that app is to succeed. It’s just like you have to do the work of, of translating and documenting as much of that user experience of what it’s going to be like when they open the app on paper, before coding and development ever, ever starts. And
Well, I think that’s similar to anything in life, right? It’s like even at brand builders group, you know, we’re a strategy firm. And, you know, somebody recently said to me, and I thought this was said to, you know, interesting to sit to say thing to say to me since I’m, you know, the CEO of a strategy firm. And they were like, I’m just a firm believer that execution eats strategy for lunch. And I was like, yeah, but what happens when you execute with no plan, right? And it’s so much wasted time and money and energy and frustration. And it’s like the power in strategies, what you just said. It’s like, the more that you can Strat strategically know, what is this do? Who is it for? What’s the benefit? What problem does it ha you know, what problem does it solve? How am I going to have market reach? It’s like the more that you know, that on the developer side, the more efficiently and effectively they are to build this. And that goes to same with building your personal brand, right? The more that you have the strategy in place, you can go to any vendor in the world and have a quality execution plan. Not to say that any vendor will do a good job, but at least you have a plan. Someone is able to execute without having a plan. You’re just throwing mud on a wall and hoping some of it sticks.
Speaker 3 (13:24):
I don’t think that’s a really good plan. No,
I don’t. I, I think it’s kinda like, you know, if you were going to set out on a sailboat, you know, execution is saying, all right, let’s learn how to pull up the sales. And let’s just go and, and not knowing how to guide the ship or where you’re aiming or where you’re going to. You’re just like wherever the wind takes me. And people do that all the time. When they build websites and they launch their brand and they write books, it’s just this kind of like often running and it’s expensive. Like it’s not only is it waste time and ineffective. It’s expensive. So amen to, to, to the power and the importance of that. You gotta be dialed in on that strategy and design it on paper before you design it in real life. Like if I had to grab it all in one sentence, that’s how I would say it. Design it on paper before you design it in real life. That’s your company, that’s your website. That’s your road trip. It’s your life plan?
It’s your marriage. It’s your finances. It’s your home. It’s all the things. Yeah. Yeah.
So anyways, any, any other thoughts on that one?
This is good. I feel like anyone who is an aspiring entrepreneur, a startup entrepreneur, or an entrepreneur who wants to sell their company one day needs to listen to this episode. Yeah,
Totally big, big one for entrepreneurs, real life stuff. And a, well, there, you have it. Go check out the full episode if you haven’t listened to it and either way, make sure you keep coming back. We’ll catch you here next time on the influential personal brand podcast.