Office Hours: Planning Your Exit Strategy, Investing Advice to a 16-Year-Old, and Mentoring Young Men

Scott answers a question about planning an exit strategy and gives advice on when to sell a company. He then takes a question from a 16-year-old listener who wants to know how to invest and manage their money. He wraps up by explaining why it’s important for children to have more male role models and speaks about his approach to mentoring. Music: https://www.davidcuttermusic.com / @dcuttermusic Learn more about your ad choices. Visit podcastchoices.com/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:01Scott Galloway?

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• 0:56Scott Galloway?

  Welcome to the PropG Pod's Office Hours. This is the part of the show where we answer your questions about business, tech, entrepreneurship, and whatever else is on your mind. If you'd like to submit a question, please email a voice recording to [email protected]. Again, that's [email protected]. First question.

• 1:14Speaker 01

  Hi Scott, I am Rodrigo calling from Lisbon, Portugal. I'm a huge fan, big follower. I really enjoy listening to your podcasts. I learn a lot from them, so keep coming up, of course. So my question is, I'm currently a partner and general manager at a small software company. We are just over 20 people. And we have been getting some heat for a possible acquisition, but nothing concrete just yet. But it's been getting me thinking if this is the right time for my exit strategy, or at least to start planning my exit scheme. And I was wondering what type of things should I consider?

• 1:55Speaker 01

  What type of actions should I put in place within the company in order to make it, so to speak, more sellable, more attractive for the sale? You know, anything else can be really useful for me. Thanks a lot.

• 2:10Scott Galloway?

  This is a great problem, right? So first off, companies aren't sold, they're bought. And that is how I have handled acquisitions or selling my companies is that I wait for a credible inbound offer. And that is if you just go out and try and sell the company, one, it's very hard to get any reputable small investment bank to represent you. They essentially don't want to do any work. They want to send out a book, field inbound offers, and then take their one or 2% fee. And the sniff test on whether they think they're going to make a big fee off of you or a decent fee is if you already have an inbound offer. And quite frankly, acquirers are smart. And this is when you sell, and this is what is sort of contrary to your gut.

• 2:53Scott Galloway?

  And I think one of the keys to being a great investor, and to a certain extent, you're trying to be an investor here, you're trying to figure out when to sell the shares in your company, is that you have to ignore your emotions. What do I mean by that? Whenever your company is doing really well, the inclination is to hold on and not sell, right? Because we're to the moon. This is great, let's hold on, we're gonna, our company's going to increase in value, let's not sell now. And then when the company's kind of shaky and you're worried about next year's revenues, you think, okay, we should sell now. You should do the opposite. Because here's the thing, acquirers are smart, and in due diligence, they will smell the same opportunity you do when you naturally don't want to sell. So I have always sold into strength after I have received a credible inbound offer.

• 3:37Scott Galloway?

  So when you get a credible inbound offer from an interested party, you either engage an investment bank, usually a company of this size can't get a credible investment bank, so you might just want to hire a deal attorney. And then you go out to a small universe of potential acquirers, and the truth has a nice ring to it. You say, we have a credible inbound offer, but we wanted to speak to you first. Also, keep in mind, when you sell, you don't get to leave. No one's going to give you a pot of money and say, go away, or I've never seen it. It means you have another four years, because smart acquirers will say, okay, we'll give you, say, half of the money upfront, and the other half over the next three to four years, based on numbers and projections that you provided them, right? That's the hard part, is that you Want them to pay a lot for the company, so you will give them numbers.

• 4:22Scott Galloway?

  And the bad news is they might believe you and tie a lot of your compensation to those numbers you presented them and what's commonly referred to as an earn out. Now, now, what is the decision to sell? What are the drivers? Well, one, market dynamics always trump individual performance. In 1999, my profit, my brand strategy firm, we were doing 5 million in revenue, 5 million. And we were approached by all these overvalued, you know, dot com, sciant, viant, CKS. I don't even know if you remember any of these things. And Sapient Nitro, or Sapient, I think it was at the time, offered us $55 million, 11 times revenue

• 5:07Scott Galloway?

  for a brand strategy consultancy. And I'm like, no, we're going to the moon. I was 33 at the time. This is amazing. We're going to build a billion dollar company. What a fucking idiot. I absolutely should have sold. Worked my ass off for another three years. Took on a round of capital, so I got diluted from whatever it was owning half the company to a third of the company. A lot of risk, a lot of stress, cost me my hair, cost me my first marriage. And in 2002, after the dot bomb implosion, we were doing 10 million. Much, much stronger firm, diversified revenue base. No one client was more than 10 or 15% of our revenue. And I ended up selling my shares to Dentsu for 28 million.

• 5:50Scott Galloway?

  So our company had gone from being worth 12 times revenue to a much better company where I ended up selling for 2.8 times revenues. What was the difference? No difference in the company, other than we were stronger. The difference was the market. So you want to look at the market. And if the market is frothy in your sector, or more generally, that's when you sell and you sell into strength when you're doing well. But that still isn't the number one consideration around when to sell your firm. What's the number one consideration? You. Specifically, what is your financial situation? I think that, I think that people are men or heads of households have a responsibility to bust a move as quickly as they can to a certain level of economic security. What do I mean by that?

• 6:35Scott Galloway?

  The first million is not only the hardest, it's the most important. Cause once you have seven figures in the bank, you can experience what I finally experienced at the age of, well, I thought it was going to be when I sold Profit, but I was going through a divorce. My ex got the majority of the money there and then I doubled down on a bunch of internet stuff and I ended up in my 40s with, you know, basically broke. But when I sold, I did a secondary, I'll come back to that, a secondary at L2. But when you bank that kind of first one, two, three million bucks or whatever it is that gives you financial security based on your burn rate, the exhale that takes place over about the next one or two years feels really fucking good. If you don't have that money already in the bank,

• 7:19Scott Galloway?

  then bust a move to financial security and that might be selling your company. And guess what? I believe, as I think it was Carnegie said this, I got rich selling too early. You know, you want to talk about land of unintended consequences and I'm really taking this an opportunity to talk about me. L2 was originally called Luxury Lab. I initially wanted it to be a department of, what's it called? A department, a center at NYU Stern, looking at luxury. I wanted more credibility in the academic world. I wanted to be a star academically. So I thought, I'll start a big center on luxury. It'll attract students, we'll get a ton of prestige. And I did this thing called the L2 Digital IQ Index. And then the head of the marketing department or the vice chair of faculty, I forget what a role was set.

• 8:03Scott Galloway?

  This really isn't academic research. We're not gonna, we're not gonna do this, but you can own the IP. So I said, okay, I was disappointed and I spun it out into a private firm called Luxury Lab. And then P and G and Unilever called us after we got every luxury brand as a client. We essentially did 1,200 data points across a brand's digital footprint and then sold them back the data, benchmarking data. And then we changed the name from Luxury Lab to L2. Long story short, seven years later, sold it for $160 million. So it worked out really well that NYU did want a center called The Luxury Center. And it worked out really well that in 2014, four years into it, WPP made an offer for 30 million, half upfront, half.

• 8:45Scott Galloway?

  Over the long term, and then we missed our numbers in the midst of the bloodletting, the full body cavity search that was due diligence. And they said, we're going to have to scale back the upfront payment. And I said, no, and walked from the deal. And anyways, three years later, we sold for 160 million. Point is the following. If you have an inbound, a credible inbound opportunity, hire a deal attorney, do a quick assessment of five, six, 10 likely buyers. Go out to them, say, you know, speak now, forever hold your peace. Well, you can only do this once every two or three years. Otherwise, the word gets around that you're trying to sell and you become less attractive. Nobody wants to buy a company that's for sale. They want to buy a company they think they can't get. But more than anything, look at your own financial situation. And if you have the opportunity

• 9:28Scott Galloway?

  to bank financial security at a young age, my brother hit the bid. Thanks for the question. Question number two.

• 9:35Speaker 02

  Hey Scott. So my name is Mick Wayne. I live in California and I'm 16 years old and I just started working my first job at Porter's Bakery in Burbank. And I'm going into 11th grade and I have two, I'm gonna have two to 3,000 bucks saved up by the time that I'm done working for the summer. I'm gonna work during the year too, but by the end of summer, I should have around a few thousand bucks. And I'm saving 100% of my paychecks and I want to invest like almost all of my money into something. And me and my friends also have like some ideas of what we do to like start a business or use some capital for that. Just because we all sort of have like a sort of entrepreneurial like mindset, you could say. I definitely know that I want to invest, but I was wondering just in my situation, any sort of advice or any sort of knowledge you have for me

• 10:20Speaker 02

  just based off like what I should invest in or how I should go about using my money for something, you know, meaningful and useful. I don't really have any sort of direction besides my dad, but we haven't really sat down and talked about it. So I figured why not just submit to the pod and ask you. So yeah, just anything would help. Thank you for listening. Thank you.

• 10:39Scott Galloway?

  Mick from California. So first off Mick, you're going to be successful in life. The fact that at the age of 16, you're thinking this way means you're well ahead of where most 16 year olds are, specifically 16 year old boys or men. It sounds like, quite frankly, you're acting more like a man. And that is, young men are more risk aggressive and that's the bad news. Or it's good in some ways, but the bad news is they're usually not thinking long term, like their female counterparts whose prefrontal cortex matures faster. And quite frankly, they're just more mature. But you're reflecting the maturity of saying, sacrifice now, not spending money, saving money. If I put it into investments, I'll be able to have a much meister life later in life. And most people can't think long term when they're 16. If you were to take that $2,000 and invest it right now, it's

• 11:24Scott Galloway?

  reasonable to think that by the time you're my age, by the time you're my age, if you could keep investing, say $2,000 a year, by the time you're my age, you'll be a millionaire, guaranteed. Doesn't that sound nice? In terms of where you invest, I would take half of it and put it in index funds or ETFs. I like QQQ, which is technology, or SPY, which is just the S and P. If you're interested in looking at foreign ETFs, there's all sorts of stuff. But go to Vanguard and look at the different ETFs and just find stuff that appeals to you. The key is low cost, low fees. You don't want to let fees eat up your returns. In addition, you might want to take half of it and buy two or three stocks and companies that you like and use it as a means of learning.

• 12:07Scott Galloway?

  Follow those companies, get to understand why the stock goes up or down. But don't beat yourself up if the stock goes up or down. Don't think that you're really good at it and should start stock picking. And don't think you're an idiot if the stock goes down in the short term. Because my brother, your biggest advantage is one, you're mature and realize that wealth isn't a function of how much you make, but how much you spend and specifically how much you save and invest. And when you start investing at your age, you're developing an army that's going to grow and start fighting for you in your sleep. And that's a wonderful, a wonderful thing. So your advantage is time. And my brother, you're going to be the guy that didn't go to Palm Springs for that fun weekend or didn't buy that cool, those cool kicks or whatever.

• 12:50Scott Galloway?

  And then when you're 30, when you're 40 and when you're 50, you're going to be a baller. You're going to be able to take care of your parents. You're going to be able to focus on the things that matter in life, relationships, and you're going to be able to do really wonderful things. I'm hard on myself, but one thing I always did, I generally always lived below my means and I always invested, always invested. I always tried to find money and invest it and then hold on to it for a long time and recognize capital gains. I bought a bunch of Apple stock in 2008 after the Great Financial Recession. I think it's up like 40X. So again, time, time and youth are on your side. So just invest it, talk to your dad about it, track it with him. It's a fun way to bond with your father. But let me finish where I started.

• 13:34Scott Galloway?

  Mick from California, you are 16, you are 16 and you are acting like a man. This is a great gestalt. This is a great approach to your life to start investing early. This is fantastic. This is fantastic. If you reach out to me and you say, I'm Mick from California, I will match that $2,000 as long as you put into a low cost ETFs. And with the agreement that in 10 years, you call me and tell me what happened to that money. And we can share a laugh or hopefully virtually or digitally high five each other. Thanks so much for the question.

• 14:05Scott Galloway?

  We have one quick break before our final question. Stay with us.

• 14:11Scott Galloway?

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• 14:40Scott Galloway?

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• 15:12Scott Galloway?

  Welcome back. Question number three.

• 15:15Speaker 04

  This next question comes from a listener in New Jersey. He asks, "Hi, Scott. My name is Sam and I live in New Jersey. I'm a fourth grade teacher and I really admire you around your thoughts of mentorship and young men and how you have become such a thoughtful leader, willing to be vulnerable, willing to tell others that they matter to you, that you care about them, and that you want to improve yourself. And I want to be the same mentor for young people. And my question is, as a teacher and as a parent, how do you see yourself being an effective mentor for young people? What do you do to, you know, improve your mentorship and improve the lives

• 15:58Speaker 04

  of young men in your classes and online? And then my second question is around my career. My goal is to be an exceptional educator and one day be an administrator. So how do you see the best attributes of an administrator and a leader in a school, as well as managing teachers? I would love to know your thoughts and looking forward to hearing that. Thank you so much for your work."

• 16:22Scott Galloway?

  Look, first off, thanks so much for what you do. Teachers really, where supply and demand has not worked in our economy is around teachers. And it's easy to talk about. There's research showing that the most important thing in a kid's life is not the parents. It's where they live. Because the external forces outside of the house kind of shape the kid, specifically his or her peer group. And, and more important than the school you send them is the teachers they get. You'd rather have a good teacher at a mediocre school than a mediocre teacher at a school with a strong reputation. In addition, in addition... We need to attract more men into the teaching profession. I think one of the issues around why men are struggling is that they don't have very many champions

• 17:06Scott Galloway?

  at primary schools or elementary schools and high schools. And that's not to say that women can't champion young men, but it's natural that women are going to champion the people they identify with. And who are they going to identify with? People to remind them of themselves. And you have a lot of boys who I think really suffer from a lack of male mentorship. Maybe they live in a single parent home. Eighty percent of elementary schools are female, and I think it's two thirds of high school teachers, maybe it's more now. I think it's maybe closer to three quarters. Men are leaving the profession faster than women. So in sum, what you do, Sam, is really important, and we're desperate to attract more male teachers and keep more male teachers. So I hope you stay in the profession.

• 17:50Scott Galloway?

  With respect to mentoring men, I do a lot, or young men, I do a lot of virtue signaling here, and I feel like an imposter because I try to mentor young people and especially young men. I think I'm okay at it. Sometimes I'm good at it. I'm not sure I'm great at it. I need better follow through. I need more patience, but a couple of things I do. One is just on a qualitative level, I just try and listen. I ask a series of questions and just listen because a lot of the times the kids come to me or parents have asked me to speak to somebody, and I'm essentially going to say the same thing their parents have been saying or that other people have been telling them. But if I listen and they don't think I'm judging them, they tend to take me a little bit more seriously. I also ask very straightforward questions.

• 18:34Scott Galloway?

  How much time do you spend on porn? Are you making any money? Are you getting along with your parents? How do you feel about yourself right now? Just basic questions and let them talk, and I try not to judge them. My kind of hack, if you will, around Coaching young men is I ask for their phone and I look at screen time and I look at where they're spending time. And it is scary how much time young people and young men are spending on apps. You're talking four to seven hours a day. So I try to explain to them that at this point, the capital they have to invest is their time and that we're going to reallocate some of that capital, some of that 20, 30, 40, 50 hours a week they're spending on Coinbase, on Twitter,

• 19:19Scott Galloway?

  on TikTok, on porn, whatever it might be. And we're going to reallocate it into one of three things, or three of three things. First and foremost, we're going to start working out four to six hours a week. I think strength and fitness is good for your mental wellbeing. I think it makes you feel better about yourself. I think you become kinder. We're going to get fit. The second thing is, the second thing is, we're going to start making some money. It doesn't matter what it is, becoming a dasher, becoming an Uber driver, going to CVS, going to a Panera, you can make 15, 18 bucks an hour right now, working at Panera, because the best way to make a lot of money is to start making a little bit. And the third thing is, we're going to find

• 19:59Scott Galloway?

  environments, whether it's a nonprofit, whether it's a league, a sports league, whether it's a riding class, where you have random contact with strangers in the agency of something bigger, because I want you to start learning how to make friends, how to find mentors, and ideally, how to start expressing interest in a potential romantic relationship while making the other person feel safe. I think that's an important skill that young men need to acquire. But we're going to reallocate your capital around these three things. And quite frankly, they usually don't live up to it across all three. But they do see, I do see, I have seen a decrease in some of their usage of apps, and they start learning. I've always found that CEO of the company that acquired my company, L2, the CEO of Gartner, said something really powerful to me once. He

• 20:44Scott Galloway?

  said, you know, you think they're ignoring you, maybe you don't see a change in behavior, but what I've found is over the medium and the long term, that they are in fact, listening. And that's what I found with the, the boys and the young men that I've mentored, that you don't see a lot of short-term results, but they do start to listen. The key to happiness is just the number of deep and meaningful relationships. So if you don't establish those skills earlier on, how to make friends, how to ask people out, I worry that young people, especially young men, are sequestering from society with these tech companies that want to give them a reasonable facsimile of life, but not really true life in victory itself. So anyways, thanks for all you do. I think male teachers are super important.

• 21:26Scott Galloway?

  And I don't know if I have any kind of go-tos or user manual around mentorship. I would say maybe even just more than anything, just taking an interest in a young man's life or a boy's life. That's the single part of failure. When things come off the track, when a boy has no male role model. So, you know, the question isn't what to do, it's what not to do. But again, let me finish where I started. Thanks for your good work. You're doing important, meaningful work.

• 21:52Scott Galloway?

  That's all for this episode. If you'd like to submit a question, please email a voice recording to [email protected]. Again, that's [email protected].

• 22:11Scott Galloway?

  This episode was produced by Caroline Shaveran. Jennifer Sanchez is our associate producer and Drew Burrows is our technical director. Thank you for listening to the Prop G Pod from the Vox Media Podcast Network. We will catch you on Saturday for No Mercy, No Malice, as read by George Hahn, and on Monday with our weekly market show.

• 22:30Speaker 05

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