I’m excited to introduce you to one of my quote unquote, real entrepreneur friends. I, today I use that, you know, air quotes just because, you know, personal brands and information marketing. I, I love, I mean, it’s my, my life it’s been our life. But I, I kind of think of it as distinctly different from most entrepreneurs, which are people who, you know, build a widget or a service or something that is not built around the person that has a true enterprise value. And we, we often don’t get to hear from a lot of those people. And so the reason that I brought on Kevin, so who you’re about to meet Kevin Cruz is a long time friend of mine. I mean, at this point we’ve probably known each other closer to 10 years and just kind of been in the circle. So as a personal brand, he’s very successful.
He is a New York times bestselling author of nine books. One of his books is called unlimited clients. He wrote one called 15 secrets. Successful people know about time management, which is really when I think our paths really kind of crossed. And then he wrote one called great leaders, have no rules. So he understands personal branding, but as an entrepreneur or an executive he was a co-founder at a company called Connexa, which went IPO, initial public offering. And then eventually got acquired by IPM IBM. He’s also had other companies, a company called ACI, a company called Axiom professional health learning a company just those companies also were acquired. And today he is the founder and the CEO of lead X, which is fascinating. It is an AI powered platform. So artificial intelligence that helps companies scale leadership behaviors and employee engagement. So he knows a lot about SAS software as a service. He knows a lot about personal branding, knows a lot about entrepreneurship. And anyways, I just felt like you got to hear some of the wisdom from Kevin Cruz. So buddy, welcome to the show.
Thanks for having me. I’m looking forward to chatting. I have no idea what you’re going to ask me, which is going to make this even more fun. Well, yeah,
I mean, I think, you know, I, I was mentioned to you before the show that brain builders group, we’ve got our curriculum and it’s divided into four phases. And our fourth phase is, is, is all really built around what we call eight figure entrepreneur, which is scaling a personal brand into a business and to a real business. And, and I guess my first question would be around that, which is what do you think? Personal brands, people who build personal brands either don’t know or don’t understand, or don’t see when it comes to building an actual business with enterprise value, like, what are they not aware of? And, and you know, that like how do, how do they not think, or how do they think differently than how kind of like a traditional entrepreneur might think?
Yeah. And I don’t know it’s a great starting place. And, and I don’t think of it as as a traditional entrepreneur that there’s different kinds of entrepreneurs. I think, I think it’s just, what are you focused on? What do you want? What I mean by that is I think a fundamental question and, and Roy, this is a journey I went on, you know, I, a fundamental question, when you decide to go into business for yourself, is, are you looking to be like a solo practitioner or do you want employees? Because that is a big thing, right? There are, are, do you want to be selling and delivering the work? So, and having a lifestyle, quote, unquote lifestyle business, and you make a ton of money doing that. If you get your brand to the right level and provide a lot of value, or do you want to build a business and it could be a small business, a five person business, a 50 person business that’s a big first question.
And if you decide, I don’t want to just be a consultant or a coach, I want to have a consulting practice. I want a coaching practice that gives you some scale. And that decision alone gives you the flexibility in that it’s rare for someone to buy a one person business. Because if that one person gets hit by a bolt of lightning, then you’ve lost the value. You’ve lost the business. But if I’ve built a 10 person coaching company, a 10 person consulting company, there is something there that even if I get hit by a bus tomorrow, there’s nine other coaches and the revenue will keep flowing in. So that’s a big decision. That’s a big wealth multiplier. And I did that the first few businesses when I, when I was younger. But then I saw the power of SAS software and SAS software. The valuations are incredibly different. So if you took a, a $1 million consulting company,
Yeah. Let’s talk about valuations for a second and just assume like ticket from the beginning, like, assume someone’s listening. Like they’re going, Hey, I used to be an employee. I started a personal brand. I’ve never even had the conversation about what a multiple is, or even though, or how, how it works, right? Yes.
Right. Okay. So if some, if someone, if I want to come along and buy your company, the fundamental question is, you know, what’s it worth, what’s a fair amount and everybody sort of who does this, they’re sort of rules of thumb about it. And, and there are times when valuations, the price of your company, the valuation is lower. Other times it’s higher. Like right now, valuations are very high historically. But kind of a rule is if it’s a service business, you’re going to get your company is going to get valued on a multiple of your profits. So if you’re making, if you have a million dollar, I’m just making round numbers. If you have a million dollar business with a hundred dollars in profit every year, I might come along and I’ll say, I’m going to give you,
Hold on a second. So Jessie, you’re saying a million dollar revenue per a hundred thousand in profits. So that’s a 10% profit margin,
10% profit margin. And I’m just using round numbers. Sure. I would say to you, I’m going to give you a multiple, a multiplier on that profit. Now it might be seven times the profit. It might be 10 times the profit. If I really like you and you’re growing, maybe I’ll give you 12 times that profit, but you’re basically going to take that hundred thousand dollars of profit and multiply it. Let’s say by 10 and your, your business is worth a million dollars. Okay. So on a service business, they’re viewed as no, there’s nothing wrong with them, but okay. They’re going to probably grow a little more slowly. And they’re complicated because at the end of the day, you’re selling hours. So if I’m going to double the size of the business, I need to double the number of hours I’m selling and delivering.
Like that’s the widget. The widget is an hour of somebody’s time.
Beautiful, right? Yes. That’s, that’s the widget. Now let’s, let’s say though, that you can figure out how to package your value into something that people will pay a subscription for. And it might be an app. It might be a piece of software that’s traditionally what it, what it is, but the entire world is moving to a subscription economy. We can go down that rabbit hole later, but let’s say now, but you’ll see
That with Disney plus. And like, everybody’s gone from like rent a movie at blockbuster to Netflix and Disney, moving to Disney plus and discovery plus, and they’re all there. Everyone’s doing that.
Everyone’s doing that. And it used to be when I was selling software connects in the early days, we would go to a company and say, Hey, give us a million dollars. And we’ll put this on your servers. You’re going to pay us 1,000,001 time. And there might be a maintenance fee, a service fee. But like you own that instance of the software by selling a subscription. I say, you know what, you’re only going to have to pay us $200,000, but you pay us year after year after year. And so it’s smaller upfront and you get all the upgrades, you get all the service, but you’re kind of locked in over time. And so back to that valuation, let’s take the same million dollar company with a hundred thousand dollar profit. So the numbers are the same in the business, but if it’s a subscription business, all of a sudden the valuation is a multiple off your revenue, not your profit.
So I’m going to say like right now, multiply the multiples on a, a, a SAS business, a small SAS business. It’s going to be 10 to 30 times revenue. So if you’ve got your million dollar company there and it’s SAS, I’m going to look at it. Now, look, if it’s like, if I say, ah, I don’t, I don’t trust the leadership. I think Rory’s going to quit on, or he’s not as good as he thinks he is. Or they’ve got some problems here or they’ve got a big competitor that they’re feeling pressure, or maybe they’re just not growing that much. All right. Maybe I’m going to value at one times revenue. So you’re back down the worst case scenario, a million dollars more than likely, I’m going to say, wow, you’re a, you’re a smart thinking entrepreneur who made this SAS business, you’re growing faster than a service business and your profit margins are going to get higher because you’re not selling hours. Once you build the widget, you can sell it over and over and over again. So I’m going to give you to you know, anywhere from, from 20 to 30 times revenue. So if you have a $1 million SAS business ballpark, you’re going to get 10 million to $30 million valuation on that business today now.
And if I have a service-based business that does a million dollars in revenue, then I might only get a few hundred thousand, maybe half a million or a million bucks would be 10, multiple, a 10, multiple on a hundred thousand in profit. If I got a 10 multiple of EBITDA on a service-based business, a service-based business to an a million in revenue might be worth a million dollars. A SAS business, doing a million in revenue might be 10 to 30. It’s 20,
$30 million. Today is the valuation of that business. That’s how high is that? So it’s assumed that the S that the whole world like software is eating the world. SAS is eating software. So the assumption is if you’re selling a million dollars today and did nothing, the market is going to demand more of that SAS. And again, like if we’re selling time, I’ve got to sell that same time. And this is, I mean, let me just, let’s just talk real world. Back when I had a dozen service professionals, we would build custom training programs for Pfizer pharmaceuticals. Okay, great. We’d land a million dollar project. You’re saying you actually did this. You had, this was one of my businesses in, when I was 25 to 30 years old. This was one of the businesses I sold.
You got 12 people on your team and build a custom training program,
Right? So we go to Pfizer. We say, Hey, let’s, let’s build some workshops and some training, and we’ll go teach all your reps about sales and leadership and all this. And we get a million dollar contract. Wow. That’s fantastic. Well, what happens January of the next year? Rory I’m back at zero again. So just to get the same level, I got to go back to Pfizer or a new company and say, Hey, do you want a million more dollars worth of workshops? You got to sell it to them all over again, but now what do I do today? I go to fight. Well, I won’t, I won’t say we go to Pfizer. I go to Northwestern mutual. So world’s largest a life insurance company, financial service company. I say to them, don’t give me a million dollars for give me hundreds of thousands of dollars for this leadership app for this subscription. And you’re going to give it to me year after year after year. And they say, okay, and now suddenly I’ve got that 20 multiple, because my leadership training is through a subscription model. It’s not through Kevin showing up in front of the classroom, guiding them through because I’m selling my time.
Yeah. Now when you talk about subscriptions revenue, okay, so you have like service revenue, which is this one-time revenue subscription revenue is I’m paying on repeat, but inside of subscription revenue, like coaching, like you can sell a coaching program that subscription revenue is that multiple higher, lower, or the same than like a software subscription revenue.
Great question. So, five years ago, it wouldn’t have counted as subscription. Like it had to be softer. People be like, ah, that’s still, even though you’re subscribing, you’re still selling hours. We don’t believe that today you will get credit for that subscription service revenue. If, if you can show that the clients are buying more every single year. So if you sell a subscription to Kevin and I don’t renew, they’re gonna be like, eh, that’s, that’s not really subscription. He’s not keeping it going beyond six months, 12 months. But if you say, you know what, Kevin gave me whatever, $5,000 for consulting services, you know, in 2021. And then in 2022, he gave me 6,000. It was so good. He wanted to keep it up, but he, he elevated to the next level, you know, the 2 0 1 level course. And the year after that, he escalated to 3 0 1.
You will get credit for that revenue today, but they are, they want to see negative churn. So churn is a term about when you lose your customers. So if I have a hundred customers, you know, at the start of the year, at the end of the year, I’ve only got 80. I churned 20% of them. Well, they want to see as you start the year of the a hundred customers. And at the end of the year, you’ve got the same hundred and they’re giving you more money at the end of the year than the beginning of the year. So it’s all about are, is it follow the dollar? So it doesn’t have to be software, but software so powerful, but even if it’s not software, are the clients renewing and expanding renew.
And you think that service based subscription revenue, let’s say it has negative churn. You think it would get, this could get a similar multiple as a software revenue. They are Roy,
Let me, we’ll just, I’ll just say it. So the giant company out there called better up many coaches will have heard of them or be part of the better up platform. Okay. They have been raising hundreds of millions of dollars. They just latest hire was prince Harry. And they’re raising it out of Silicon valley as a tech company, even though they’re selling ours. Now they have a little app that kind of tracks the sessions. I’m sure, you know, there’s, there’s other platforms out there that do that. And the reason why, and for, for years, many of us traditional software SAS are like, how are they pulling the wool over everyone’s eyes? Like this is crazy. And it turns out, I mean, the there’s so much money in the markets that better up is getting valuations. Maybe not as pure as a true software company, but, but like a SAS. I mean, it’s like, Hey, they’re custom, they’re adding customers. Those customers are buying more this year, over last year. There’s a little bit of a tech component. Boom. Let’s give them that 10 to 30 multiple. So
That’s amazing. That’s, that’s really, really fascinating. You know, because, so, so, all right. So let me ask you this. When the role of personal brand, you’ve done SAS, you’ve done subscription revenue. What, where’s the real opportunity for personal brands to develop subscription revenue? Like, what are, if you just said, let’s only talk subscription revenue for personal brands, what are different ways they could pull that together? And like, how might that actually look in real life?
Yeah. So I think in real life, I mean, you know, so I’ve, I’ve started over several times in the last, you know, 30 plus years, including, you know like when I did the 15 secrets book, I wasn’t known as a time and productivity expert. You were, I mean, other people were, I wasn’t. But when I launched that book, I said, all right, well, you know, let me spend a couple of years earning my, keep, you know, in, in this area, you know, royalties, coaching, keynotes then you start by, then you start adding on, right? So you do the, the the group coaching programs. So that’s the easiest thing. Hey, you’re going to give me now the traditional model is you give me, you know, $2,000, you’re going to get all this online, digital video content. Plus every week you’re going to hop on the phone with me, we’ll have a live group session, and you’re going to go into a Facebook group forever.
Okay. That’s a good start. But if you’re buying more time in the values in those videos, you don’t have to deliver it all yourself. But instead of it being, give me $2,000 and you get this eight week program, give me X thousand dollars and you’re in the monthly forever program. And in fact, I don’t know if if you follow him, but a lot of coaches out there know Brendon Burchard who has a pretty big brand, right? And his high performance academy is big and he’s look, he’s successful. He’s got a, of people would like to have his brand and his books in his full workshops. He’s launching an app. I called the growth app or something like that right now. Yeah. So a growth day growth day. There you go. So even someone as successful as, at that level, they realize, wow, all this money I’m making by scaling my personal brand and delivering and all the ways he delivers the ultimate way to scale is get someone to build an app that people will pay for month after month after month. Now, I think a bigger question, Rory is if I can, everybody should do this. Who’s going to be serious about this space. You know, you’re not just buying a talk. You’re not just buying a book. You’re not just buying a two month program. You’re subscribing the way I would to Fitbit or Peloton or something like that. This, you know, this is your ongoing fitness program for the topic of X, you know, whatever your, your expertise is.
So let’s talk about apps because on the, on the one hand, it’s like, great. Let’s, let’s build an app and get a million dollars in revenue and sell it for 10 million, no big deal. Like that sounds great. Let’s can we let’s do it this weekend? What do we do this afternoon? Grab a beer. The reality. Okay. Talk to us about the reality of, of apps. You had to go there. You had to say reality. How do we, how do you build one? What does it take? How much does it cost? Where do you find the people? What’s the w w like, give us a, give us a reality check. Cause, cause I mean, literally you’re saying build an app, get a million dollars of, of, you know, ARR annual recurring revenue, and that you might be able to sell that thing for 10 to 20 to 30 million bucks. That seems like a pretty good plan. Talk to us about the actual roadblock it takes to get there. Okay.
So let me, let me give you real data, but then, then start with a smaller version of it. So as an example, roughly if Lalit X app is doing a million dollars in annual recurring revenue today, and we are getting valued at around $20 million, what did it take to build that million dollar app? Well, it has taken me four years and about $4 million of investment into building that app. Wow. A million dollars of revenue that I’ve spent four years and a lot of investment putting into that’s one way looking at wow. He spent 4 million and he’s only doing a million a year, the other way, look at his, he spent 4 million in four years and just got a valuation of $20 million. So there’s another, you know, there’s the upside to it. Where do you get that startup capital? I didn’t start on day one with 4 million.
So in my case, you know, I was able to self-fund for awhile, but I went to friends and family angel investors and got enough money to do this. Right. Like I I’ve done this before. So it was like, Hey, I’m going to hire a software engineer. I’m going to hire a software designer. I’m going to hire, you know, there’s going to be a small team and we’re going to put a million in and every year and let’s raise that first million and grow. Now, that’s not the way I started doing things 30 years ago though. And I think the easiest thing to, first of all, it’s cheaper than ever before to launch software, right? So it’s whether you’re, you’re buying developers, you know, off of Upwork or whatever it is, whether you’re renting server space on AWS, it is easier and cheaper than ever before to do this.
It doesn’t mean it’s cheap and easy. It’s cheaper and easier than ever before. And you know, one of the things that I did with lead ex learning from experiences, I went out and got a technical co-founder, you know, so I Lucas Carlson is my CTO. And there’s different ways you can structure those deals, but you know, you can, if you have money, you can hire an engineer or a couple of engineers to do it. You can outsource to a small firm to build your app, although like outsourcing anything, pros and cons cheap and easy, and you turn on, but like they screw it up or they go out of business and there goes,
They ghost you like the, the biggest, the biggest pain on this is getting reliable kelp and people to be responsive and hit deadlines and show up and do what they say they’re going to do. I mean, that’s the 1%,
If you’re working with individual contractors, they just, there’s often a reason why their individual contractors, you know, the reason why they’re not employed by somebody. And again, like I learned that the hard way I lost a lot of money and more important, lost time by going to like, Hey, you know, here, I’m a F I’m a full service app developer in whatever country around the world for $2,000, I can build drive. Hey, sounds great. Go. And it’s horrible. It’s terrible. There’s no responsiveness. You’ll spend a lot more going to a small company, maybe one in, you know, in your state or in your country that is geographically, you know, nearby, but they’re going to be more reliable. They’re not going to disappear or ghost you. So it’s not Rory, what I want to say is, first of all, any anyone out there who already has like, they’re already well into six figures, they have a small consulting firm.
They should have a digital transformation, subscription strategy in place. Like if I was running a five person consulting firm or coaching firm, I would say, okay, we’re not gonna do this overnight, but how are we going to launch an app one year from today? Like you just have to do it now, if you’re a one person personal brand, you know and you want to do that, your app doesn’t have to do everything. You know? W what is it you want the app to do? Is it just gonna deliver videos? Is it gonna be a little financial calculator? Is it going to be a way for you to give them messages every morning? There’s a lot of different things you could do, and you just add to it, iterate it, make it better, make it better, and then you’ll, you’ll grow it.
Huh. And then in terms of app, like what do, what do I need to know as a non-technical person about the language? You know, like what programming languages do they write in? What skills do I have to ask them if they have like, cause you know, I think most entrepreneurs are not the coder that like you’re saying, you, you bring in at, it helps to bring in a technical partner. But like, I mean, is that basically it is going, Hey, you got to have someone that’s a technical partner.
Well, no, well you need to either have a technical partner or hire your technical partner, you know, as an outsider. And now I am not technical. So I don’t know, like, I, I don’t know enough about any of those things you asked about to like, maybe I should, you know, but to me what’s most important is not just having the general vision, like, Hey vendor, Hey freelancer. I’m a, I’m a coach in this area and I want to make an app. Like the more you can describe it in detail, the user opens it up and they’re going to see a picture of me or they’re going to open it up and it’s going to ask them to enter their goal, or they’re going to open it up and they’re going to inter there are three strengths, like whatever you need to translate, the big picture into what does the user do when they open the app?
That’s what you need to do. And then a good partner will sketch it. Like in, you know, they call it like wireframes templates though. They’ll mock it up before they code it. So then you would say to them, all right. So I’ve told you the use case, you know, I’m a, I’m a fitness coach and I specialize in working with busy executives over age 50. So I want them to be able to put in their, their weight and their fitness goal. And then I want them to look at exercises and have a meal plan. All right. Great. Well specifically, what do you want? Go down, down, down, and then your partner should give you almost like a set of slides or PowerPoint. Okay. Here’s when you open the app, it looks like this and it might be a sketch. It might be placeholders. It might be a stock image, not a picture of Rory on there, but then you’re going to say, oh no I didn’t mean that.
I meant this over here. You almost design it on paper before they then design it in, you know, in real life. And the only other key I would say is, is iterate. Keep the loops very short. You know, we, it used to be when I was doing e-learning software, we would work on quarterly releases and people thought that was fast. So every 90 we tell our clients, Hey, over the weekend, we’re going to release this new version. Here’s, what’s new in it. We do releases every week now. So it might be, Hey, let’s add a disc assessment and boom. Now that’s the release of this week. Next week, it’s going to be a new performance report. It’s going to be a new set of nudges or whatever it might be. So just think about, it’s not like you design it and someone’s going to deliver it a year from now.
No, you tell your partner, here’s my design. And I want, I want a delivery that I can actually a minimum viable product, an MVP, a minimum viable product. I want an MVP in 30 days. And then they can say, well, what you’ve asked for is too much. And then you say, okay, well what can you do in 30 days? And then boom, they deliver it. And you give them feedback, add a new feature and they deliver it again in 30 days. So it’s more about iteration and, and, and never stopping. You know, it’s always, it’s always improving.
And then when do you go for revenue? I mean, do you just like right out of the gate as soon as you can. And do you do, is it like a dollar trial? Is it free for 30 days? I mean, or is it just kind of like you try all of it and see what, see what actually gets people to sign up?
Yeah, so great questions. I think, you know, th the sooner you can get real potential customers using it the better. So if you have to give it away for free or give it for free to your current customers, the better like you need real world, Guinea pigs using it, reporting bugs, giving you feedback. So you always want to think of them as like an advisory council. You’ve got your 12 target market users who are always going to have it for free and give you feedback in return for giving you feedback. Then the, the bigger question, it’s a business model thing. And so like with lead ex, when we launched four years ago, I had this vision, Rory that everybody loves leadership as much as I do. And if you look on Forbes, there’s millions of people following their leadership channel. If you look on LinkedIn, there’s tens of millions of people following the leadership, you know, channels.
I thought, oh, this is great books. As we know, you know, tons of people buying leadership books, let’s release a leadership app to consumers and let’s do a freemium model. So, Hey, go download this for free, play with it for a month, give us $20 a month like LinkedIn, and you’ll love it. And they don’t show up. They didn’t show up. And LinkedIn did not build LinkedIn initially on consumer subscriptions. So we pivoted and said, you know, who pays a lot of money for leadership development, big companies, you know, Roy, you think about how many people write keynote speaker checks, big keynote speaker checks. It’s not small businesses. It’s not individuals, it’s big companies for their annual event. Like they invest in leadership. They investing in culture and associations. And so we pivoted, and that was my Connexity’s. It’s like, why, why was I trying to think I was the B2C just because I was selling books and doing that stuff.
So when you’re selling to an enterprise customer, a big fortune 500 fortune, 1000 company that freemium and stuff, doesn’t, it goes away. Now it’s calling up a director of leadership development or wellness, or a head of VP of sales, you know, wherever you’re in is and saying, Hey, we got this solution. That’s going to transform your culture, your skills, et cetera. Why don’t we do a short pilot to see if it really is as good as I’m telling you it is. And then if you like it, you’re going to write a big check for a year’s worth of usage. And so I’m not against B to C for other people like that. It’s just, wasn’t my background and not my passion. My personal and now corporate mission is to spark the next 100 million leaders around the world. That’s a big number. I’m not going to do that with my books, my articles, my speeches. And I thought I could do it with B-to-C. And we have a free B to C version Rory, but that’s the real way to do it is to get companies, you know, that already have a hundred thousand employees around the world to give it their, to give it to large organizations.
Got it, got it. This has been so fascinating, Kevin, like, so it just I just, this is exactly what I hope for this unique blend of someone who really deeply understands personal branding and who really knows e-learning and who knows SAS and who knows entrepreneurship business valuations coming together. Because I mean, look, there’s, it’s no accident. Y’all wide brand builders group is a monthly coaching program. Like it’s, it’s no, it’s, it’s, it’s no secret why we do this. And coaching is something that we have a lot of experience doing and, you know, we’ve, we’ve received some of the benefits of, of some of what you’re talking about. Now, the app thing that that’s a, that’s a new venture, and I’m literally going to have to go have a conversation with AIJ and I’m going to be like, listen to this interview with Kevin, because now we need to hire 15 programmers. And we’re going to spend $10 million in the next couple years because Kevin said it was good idea. And and then if it doesn’t work ominous complainant on you, Kevin, where do you want people to go? If they want to connect with you? I mean, you, you write for, you written for so many online publications, you’ve got your books. Where should people go to connect with you?
Here’s what I’d say. If anyone is at all interested in leadership type personal development, just go to your favorite app store type lead X, Lea D X. You can download the free app and check it out. If you’re interested in my thoughts on personal branding, go to master your personal brand.com and you can download a tip. I run the lead X leadership podcast. We’ve got about 400 episodes. People can dive in and just email me [email protected]
And I’m happy to connect with anyone.
I love it. Well, we’ll link all that up in the show notes, man. Thanks for your wisdom. And just for sharing so openly about what you’re up to and what you’ve learned. I mean, just super duper valuable. I’ve always trusted you. I’ve always admired you and always just been grateful for our friendship. So keep going, man. We, we, we wish you the best and you know, I just, all I want is a ride in the private jet. That’s all I’m saying. I appreciate the opportunity, Rory. All right. See you, man.