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© 2012 Robert T. Slee. All Rights Reserved. 1

In Search of the Midas Touch

Presented by

Rob Slee, CBA, CM&AA, MA, MBA

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www.MidasNation.com

The U.S. versus the World• This is not a country versus country battle• This is 5% versus 5% fight (the 90/5 Rule)• For the first time in humankind’s history, everyone

has access to the world’s communal resources • What decides winners from losers?• The math of IC leverage• Maybe it’s time to get strategic

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The Strategy Thing: every so often the rules of business change

Agrarian Age… (lasted for 3,000 years)

Industrial Age… (lasted for 300 years)

Information Age… (lasted for 30 years)

Conceptual Age… (10 years)

Aggregation Age… (?)

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An Aggregation Age of Paradoxes• It’s a confusing time because the past may not be

predictive• Intellectual capital – not financial capital – is king• Midas Mashups unlock extreme value• As the world gets bigger, niches get smaller• Hoarding of best practices and proprietary ideas is

out; sharing, collaborating, and open-source is in (crowdsourcing the next step)

• Midas Ramps…network marketing on steroids

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What Business Age Are You In?

Information Age Conceptual Age Aggregation Age

Left brain Left and right brain Right and left brain

Tactical Domestically strategic Globally strategic

MBAs & wonks Designers/deliverers Value architects

Checkers Chess Risk

….story time

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My name is Rob…

and I’m a Niche-aholic

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Becoming a Niche-aholic in Your Business• Incrementalism versus departurism…do the math

• Steps:

1. Complete a physical inventory of your intellectual capital

2. Describe the needs/wants/compliance behavior of your current markets

3. Several niches (based on providing solutions) should ‘present’ themselves

4. Design a compelling value proposition for each niche

5. Test…test…test…fail…fail…fail…6. Set-up the buffet and pull the customers to you7. Rinse, lather, repeat

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Create a Niche Conglomerate

Preach

Write

Create

Engr.

Innovate

Seminars

BooksOwn Stuff

Advise

Mentor

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Value Architects Rule• Tradespeople - mechanics; fingerprints on everything;

low leverage (less than 2:1); earning a living; $50 per hour people

• General Contractor - still fingerprinting; some leverage (less than 5:1); earning a lifestyle; $150 per hour people

• Value Architect - fingers on pulse; substantial leverage (more than 10:1); creating value/wealth; $>500 per hour people.

• VA’s are the Maestro's…R&F example

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Capital Markets Overview

Sales($millions)

5 150 500 1,000

Small Lower Middle Upper Large

Businesses M I d d l e M a r k e t Companies

2-3x 4-7x 8-9x 10-11x >12x

5.4MM 300,000 2,000

15% 40% 45%

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The Middle Market – What’s Happening?• The US middle market is one of the largest economies in

the world• There are roughly 3,000 private equity groups (PEGs) in

the US – with >$1 trillion in spending power• PEGs own around 30,000 middle market companies

(10%) – but this represents about 40% of the market equity

• Hedge Funds are newer to private investments – but they have raised more than $1 trillion in the past five years

• Strategics are selective, but are the most active now• Realized returns are dropping like a rock

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Intermediated Value Gap

Middle Market InvestmentsExpected versus Realized Returns*

InvestmentsExpectedReturns

RealizedReturns**

5 Year 10 Year 20 Year

Venture capital 38% 4.6% -1.5% 17.8%

Mezzanine capital 21% 2.7% 2.3% 6.7%

Private equity 30% 5.8% 2.8% 11.3%

*Thomson Reuters US Private Equity Performance Index (PEPI)**Realized returns are net to investors after management fees and carried interest.

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Owner Value Gap• Most lower middle market companies have a cost of

equity capital of 20-30%• Yet 80-90% of owners do not generate returns on

investment to cover this cost of capital• This means that over time, a value gap occurs (the

difference between what the owner wants/needs the value to be…versus what the market says it is worth)

• The value gap shows-up in a number of negative ways (lack of job creation; diminished GDP; lower loan demand, etc.)

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PERSONAL BUSINESS MARKET

Do Most Owners Even Want to Create Entity Value?• No – it’s about lifestyle for most. What’s wrong with this?• What are the three most important things in real estate

valuation? In business valuation?• Let’s play the transfer timing slots game

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Private Market Timing

How to play this cycle?

U.S. Ten Year Transfer Cycle

Deal Recession Prime Selling Time Uncertainty (Buyer’s Market) (Seller’s Market) (Neutral Market)

1980 1983 1988 19901990 1993 1998 20002000 2003 2008 20102011 2013 2018 2020

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Paradoxes Shape M&A• M&A is more of a SPORT than a BUSINESS• Companies that NEED help the most are the least

WILLING to pay for it• A deal only STARTS once it had DIED three times• The LARGER the deal, the EASIER it is to close• The MORE you care about a deal the LESS likely it is

to close• Buyers BUY great businesses, but Sellers won’t SELL

great businesses• You can do EVERYTHING right yet still come up

EMPTY!

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Aggregating Niches (our machine shop)

1. Aim compelling value propositions at Navy ships

2. Become the one-stop repair service for each trade

3. Hire Guru’s for each of the trades

4. Then take over preventive maintenance as well

5. Look out world!

Result: VA status and financial independence

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Where Do We Go From Here?• Please listen to Midas Marketing• Clarify your goals … how important is financial

independence to you?• Do you want to become a Value Architect?• Join MidasNation.com• What else can you do?

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Thank You

Rob Slee

6201 Fairview Road

Suite 200

Charlotte, NC 28210

704-523-7888

[email protected]

slee tens in search 4 16-12

Economy & Finance