Business valuation, growth, what drives both with world traveler David Fein cofounder and CEO of ValuSource. David is an entrepreneur, world traveler, and adventurer at age 16 he was the second youngest person ever set foot on the South Pole. To put himself through college, David started and ran a sailboat charter business. At the age of 25, he fulfilled a longtime dream by sailing across the Pacific to Tahiti on a 34-foot sailboat. In 1986, after returning from Tahiti. He cofounded ValuSource. For over 30 years, ValuSource has been the leading provider of business valuation software, data, and services.
South Pole at 16
- When I was about 14, I stumbled Sea Cadets, which is like Navy reserve for young guys. And it’s the same exact program that an enlisted Navy guy goes through. You take the same courses, you take the same tests, you learn the same kind of things. You go to an abbreviated boot camp in San Diego. And you also spent time…I was spending summers on tugboats in San Diego and Easter vacations in Port Hueneme in their missile recovery boats, and I spent time in Aegis missile destroyers, at 14, 14 and 15. So, to me, I mean it was so exciting. It was so incredible, I mean, it was like, you know, I was in high school and doing all this incredible stuff. And I was loving it, it was just an incredible experience. And then the Coast Guard open three billets on the USS Burton Island, 300-foot big red icebreaker. It was headed Antarctica. And as soon as I heard that, I mean never in my life did I want something so deeply. I mean it was just, you know, the lights went off, I was excited. And they told me that I couldn’t go because I wasn’t the right rank and I had too many tests in time, and you know, they basically said forget it. And I said, look, you know, let me try. And so, they did. And I managed to pass all the tests and meet the things, and so I got to apply. And to make a long story short, I got selected as one of the three Sea Cadets in the United States to go
- I remember talking to my father and, you know, telling him that, you know, I’m getting to the continent, which is enough of a miracle for a 16-year-old anyway. But what I really wanted to do was get to the South Pole. So, I’ll never forget what he said to me. He looked at me and he said David, you know, never let seemingly difficult things or even seemingly impossible things, get in the way of you putting your heart into going after what you really want. You know what I mean. So, I said, oaky. I mean, you know, what does that mean? He was a big thinker. And so, anyway, to make a long story short, we put together the South Pole project.
Sailing to Tahiti at 25
- That feeling in your chest where your dream becomes this fear, you know what I mean, it’s like it’s a little terrifying to think about, to really sailing across… It’s the reality is very different than sort of the romantic vision of being on the boat. So, I remember that moment where they called and the asked, and I remember feeling scared really, I mean wow, okay, this is the real deal, I’m going to set foot on a boat, throw the mooring lines off and not see land for 35 days.
- Sailing is sort of 80% tedium, you know, 10% of absolute joy and ecstasy, and 10% terror. And it’s sort of like life.
What is ValuSource
- ValuSource has become the leading provider of business valuation software in the world. Everybody from merger and acquisition people that need to do it, people that need to buy small businesses, and there are professionals that need to value businesses. For example, if a company issues stock options or someone passes away and there’s a business involved, or if there’s a divorce and that couple can’t agree on the value of the business, they bring in a professional.
ValuSource-the early days
- I graduated college, moved to San Diego and was helping a guy start a computer store and just out of pure coincidence ran into a guy that had started ValuSource a month before that. And he needed a programmer and I was a programmer and that’s how we started out together.
- He had the passion and the ability, you know, in business it’s always up and down, you know, it’s always, it gets to the point where it’s scary when you’re starting a business, there’s not enough money. You know, you can’t see how you’re going to make it past the next week or the next month. And you know, he’s the one that really was the initial person that really showed me and taught me, you know, what it really takes to make that work, and how do you, you know, how do you keep your cool when payroll’s due in two weeks and you don’t have enough money, and you have 12 people on your payroll. So, he just always had an incredible faith. You know he’s an incredible entrepreneur, went on to do some incredible thing.
- I became really aware of is marketing is a very critical thing, marketing and sales piece. And I was a programmer. I mean I had a natural sort of affinity with people, but I knew nothing about marketing and sales. So, I really devoted myself to learning marketing and then sales. And so, I think that helped, you know, I remember studying direct-mail back in the 80s, you know, how to write copy this sale. I actually still have – I’ll show it to you later – it’s the first book someone gave to me. I can see his face, I don’t remember his name.
- He gave me a book called Moneymaking Marketing by Jeffrey Land, which was a step-by-step plan. How do you market your business and specifically how do you write copy that sells?
- How do you communicate in a persuasive manner in writing or whatever you’re doing? So, you know, that was one turning point, realizing that I had to shift from sort of the technical guy to the business guy, and more specifically, the marketing sales guy.
Sold and bought back
- You bought the business back.
- Our primary market, CPAs are doing….we call sort of litigation support sort of perspective. There’s divorces, there’s stock options, there’s, you know, someone passes away. So, you know, that is a little different than my journey, which is more in a business growth by self. Most of our clients are not using it to buy and sell businesses. Although we’re moving into that. I mean we’ve got a program… And I realized about five years ago, as a member of a couple business groups and CXO in Denver and TiE Rockies in Denver. And innovation pavilion. And people, when they found out I was an evaluation guy, I always get these questions, you know. I remember talking to a woman and she was saying… And she had substantial funding for a startup, and what was the story… I think they were issuing stock options and she just couldn’t bear to write the big check for the valuation of stock options. She was asking me, you know, what are my options, how does this work? Or people have talked to me about I’ve got a business and I need to sell it or I need an investor and I can’t afford, you know, formal valuation. What I do?. And so, what do they do? So, that was the question, I had all these people come to me and say, what’s my business worth, how do I figure this out?
- We had bought a small company that had the largest database of business sales comparables in the country. And that data’s really hard to get. Sort of like an MLS for businesses. You can see what other businesses in the industry sell for.
P&L versus Value
- Most business people focus on P&L because that’s what keeps the lights on. So, you’re looking at revenue, you’re looking margins, you’re looking at net. And you know, can you survive? I mean every business owner has got that number in his head and he stops sleeping when you start getting close to that. We’ve all been in that position. So, that’s one primary focus, and I think small business owners focus on the P&L. Now, you’ll notice, you know, when you listen to either public companies or very large companies, they’re not focused on the P&L, they’re focused on value.
- Businesses that have the same revenue and the same cash flow are selling for wildly different things. The question is why? What is driving that? What does that mean? Most business owners don’t even understand that’s happening.
- So, we’ve come out with some software that helps people understand, you know, an estimate of what the business is worth, and it gives some indicators to why. We just partnered with a company called CoreValue, which helps dig into that exact thing. In other words, what are the things that are driving value?
18 Value drivers
- 18 different value drivers, 18 things that drive the value of business. And what business owners tend to focus on is the P&L. They don’t focus on the things that are driving value, and they get busy to work on the business, they’re working in the business, they’re putting out all the fires that are happening every day and they don’t realize that, wow, they better diversify that customer base.
- I’m a business owner and I’m so involved in sales, if I leave, sales are going to tank. You know, all of those kind of things, having a solid process for financial statements, having good HR process, having the legal coverage, having a market that’s growing, having penetration, having branding.
- We were having dinner with some friends, we half-jokingly said, wouldn’t it be cool… Because we got 20 requests, we gave one away, we bought one. So now we have 18 left. So, we said, wouldn’t it be awesome if we could get those 18 a tree. So, our friends said, well, we’ll pitch in some money. So, we bought, I don’t know, two or three more, and then the Gazette ran a story about what we were doing and they had a picture of the boy’s home tree. And it was amazing.
- That first year, we gave away 300 Christmas trees in like 14 days. It was unbelievable.
- I’ll never forget an article that was in Inc. Magazine, it was like… It must’ve been 25 years ago and I still remember it. It was an article by a guy who I think he was a special forces guy in the military, and he had done combat, he had been in combat.
- He he said in combat there’s adrenaline, there’s fear, I mean there’s all these powerful emotions, and some of them are downright scary, but they’re intense for short periods of time and you sort of know when you’re in them and when you’re out of them. And he’s a business person.
- He said, in business, the fear never leaves. He’s always worried about something happening or whether it’s money or personal, human resources, whatever, there’s always challenges, right. So, for him…but his bottom line was business was scarier than war. To me, I would never imagine anyone would say that.
- You must know the heartbeat of your business.
- If you don’t know the heartbeat of your business like intuitively, like every day. If someone calls you at three in the morning and says what is this piece of your heartbeat and you don’t know it, you’re flying blind, you really have no idea what you’re doing. I’ve always sort of taken that to heart.
- One is our online business valuation programs that helps small business owners figure out what their business is worth and 60 minutes.
- The partnership that we just started with CoreValue. Helping business owners understand how their business works, how they can make it much more effective.