Kelvin Crosby: 0:06

Welcome to Investing in Accessibility, a Samaritan Partners podcast. We're not waiting for change, we're investing in it. Join us as we speak with entrepreneurs and thought leaders that are focused on creating a more accessible world.

Kelvin Crosby: 0:32

Hey, so good to see you, even though I can't see you. It's another beautiful day in the neighborhood and I'm so excited that you're here at Investing in Accessibility. I'm your host, Kelvin Crosby. We're going to be talking about lifestyle businesses and exit businesses and before we get into that, let me bring in my host, Chris Maher. How you doing, man?

Chris Maher: 0:54

I'm good, Kelvin. It's good to be with you today, as always My friend, how have you been?

Kelvin Crosby: 0:57

I've been good. We just got rocked over here in California with the earthquake and out of this recording I tell you I went swaying to the left, to the right and just a rumble. You know it was quite the experience,

Chris Maher: 1:10

But you're okay?

Chris Maher: 1:11

No, damage?

Kelvin Crosby: 1:12

I'm okay.

Kelvin Crosby: 1:13

Good, no damage. I was about an hour away from the main part of it and I know a lot of people had things falling off their walls and everything. But hey, we're okay, just the California wall falling off the walls and everything. But hey, we're okay.

Chris Maher: 1:25

Yeah, well, I'm on the other side of the country, about an hour outside New York City, and, and we were spoiled about a week ago, things were getting warm and the flowers are starting to bloom, and then last week we got cold weather and rain and it was a little depressing. I'm ready for spring to be here. I'm ready to welcome the warm weather and and the flowers blooming, that's for sure.

Kelvin Crosby: 1:46

So let's get into today's topic and that is Lifestyle businesses and Exit businesses. And I think one of the coolest things about today's topic, this is going to really help us, as people that want to invest in businesses and everything, really understand what the difference between Lifestyle businesses and Exit businesses. So, Chris, kind of tell us what does a lifestyle business mean?

Chris Maher: 2:15

Sure and this is a conversation that I have quite regularly with entrepreneurs that I speak with and just to provide some definition around Lifestyle and Exit.

Chris Maher: 2:28

Lifestyle, to the name, tends to be a business that the founder or co-founders are focused on growing more slowly, more organically, having, hence the name, a little bit better balance in terms of work-life balance with family to support their kind of desired way of living. Typically, they're growing the business off of cash flow or very minimal, maybe family and friends or self-funding versus professional investment. And they've got pretty much total control over the trajectory of the business in terms of how fast or slow they want to grow and whether or not they want to sell. You know, have an exit or a transaction or a liquidity event is a choice they may or may not make. And then versus an Exit business, which is very much about growth. About scaling that growth as quickly as you can. Taking on outside investors, professional investors like venture capitalists, where there is an expectation that there will be an exit or a liquidity event and that could be an acquisition, a merger, an IPO and the expectation is that's going to happen sooner than later, within five to seven, maybe 10 years on the outside, and typically the founder or founders are giving up a significant amount of equity to take on that capital to do that faster growth towards the exit.

Kelvin Crosby: 3:59

So what's really interesting is I had to make this decision whether I was going to make See Me Cane a Lifestyle business or an Exit business, and because I had to look at some numbers. One is that 10% of visually impaired people use white canes. That number is very interesting when you think about that. So out of the whole population of visually impaired people that could use canes, only 10% of them use them. Well, is that market really big enough to really scale for an Exit business? And I had to make that decision.

Kelvin Crosby: 4:36

And in my case, I made a decision to make a Lifestyle business because I knew if I wanted to scale this business, I want this to actually come to market, be successful, do the things it needed to do. I had to be creative and I had to have the flexibility to be creative. Because when you have an Exit business, you don't have a ton of flexibility to be creative and you don't have time on your side. In an Exit business, those investors are going to want your money. Those investors are going to want an exit as fast as you can possibly make it happen. And the other thing is for me, I really needed to make sure that See Me Cane was going to be a valid product for the visually impaired. So for me, I was able to take pottery sales and fund the first Prototype of the See Me Cane.

Kelvin Crosby: 5:34

I was able to do pre orders to get the first 125 See Me Canes sold and then I was able to take my first investor that was essentially doing a social good investment in my company, knowing that the investor wasn't going to really have a return on his investment, but maybe, we have hopes. And lastly, going and building partnerships that can cover different costs of my business. And the one most favorite thing about my whole thing is I'm being creative around how am I going to employ to have this human being made? Because there's a lot of tax options there as well as grants. And so when you think in those terms to build your business, a Lifestyle business allows you this flexibility and an Exit business you might be able to pull this off, but there's not a lot of time on your hands when you think about it in those terms.

Chris Maher: 6:34

You're a great example, Kelvin, I think of an entrepreneur's choice to go down one path or the other, and I think for you, there are several factors that you had to weigh to choose the path of a Lifestyle business. One is, and this is really important, when it comes to an Exit business, what's the addressable market, or the TAM, the T-A-M, the total addressable market. And you did the numbers correctly, it's more of a niche market for the See Me Cane versus something that has much greater opportunity in terms of growth. So that addressable market size is critically important, especially for professional investors like myself, venture capitalists that are investing in companies that are Exit businesses. The other thing is funding, and you got incredibly creative, from self-funding to then funding off of revenue to finding one or two individuals who really believe in the social mission of your business and are thinking about it less as a for-profit investment, or a return investment, and more of like hey, I want to be along on this journey. And then you also have a partner, is a nonprofit, to help assemble and sell your canes by leveraging and providing employment to the community, which is amazing. And so what you are not sacrificing by going with a Lifestyle business is the social mission of your for-profit business. You can balance your social mission and your financial mission, whereas Exit businesses many times, when you take on that outside capital, that professional money where there's the pressure, as you said, to grow and scale as quickly as you can and to get to that liquidity event, the financial performance of the business and growth of the business tends to take priority and the social mission or cause or impact that you're driving for tends to take a back seat and it might not even be number two.

Chris Maher: 8:45

It can start to go down that list pretty quickly and so that's another potential con or sacrifice of going down the Exit path. But two things that you did really well is you sized up your addressable market and you used amazing creativity around the funding of your business and it was a conscious choice that you made to balance the social mission and the profitability of your business.

Kelvin Crosby: 9:11

There are some other businesses that are out there that have done other creative ideas. That are lifestyle businesses that have been extremely successful.

Chris Maher: 9:19

In terms of other lifestyle businesses, there are a couple that come to mind. One is a company that provides companion care for families that are traveling with family members or loved ones that have disabilities and or are aging and need assistance and need pretty consistent care. And the entrepreneur. I met with this entrepreneur several months ago and she was really thinking, oh, I need to raise venture capital money, I need venture capital money to scale. But when we started talking about her business, she's got a business that's doing about a half a million dollars in revenue after only starting the business a few years ago. She's got three full-time employees, including herself, and they're profitable. So what they do is, they match families that need companion caregivers for when they take vacations and when they travel, with registered nurses who have experience in the caregiving, and specifically with people that maybe have dementia or physical and or developmental disabilities, and so they pair them together and they take a fee for that.

Chris Maher: 10:39

And as we dug into their business and she talked about it more, I said you think you need venture money, but like, could you double your business this year by just doing a little bit more marketing and with the same three people on your staff? She's like absolutely, there's no doubt in my mind. I'm like, okay, so you could double your business and go from half a million to a million dollars, be even more profitable. So scaling, doubling your revenue year over year without adding any bodies, I go that would be amazing. Like, why do you need venture money? And she's like, well, as I scale, I'm going to need more technology to manage the business in terms of managing the network of nurses, connecting with families, all of that. I said, okay, well, if you double your business the next year and you have even more capital to self fund with from your operation because you're profitable, couldn't that be where you get the capital to build out the technology? She's like, yeah, you're probably right. And I go and if you had a little bit of technology, could you then the next year double your business again and go from one to $2 million? She's like, yeah, I'm fairly confident. And she kind of, as we talked about, I didn't even have to tell her. She's like, yeah, maybe I don't need professional investment. I can grow this business 100% year over year for the next two years.

Chris Maher: 11:51

And then I asked the question I go and, oh, by the way, like what do you want to be when you grow up with this business. You could have a really nice lifestyle business where you're retaining the majority of the equity in your business, you're controlling its growth, you're controlling the strategy. You don't have the pressures of outside investors wanting you to scale this quickly and get to an exit. What's so wrong with that? Right? And she's like that's a really good point. Now here's the math on a Lifestyle exit versus an Exit exit. So a lifestyle business, the entrepreneur may choose, hey, we're never going to sell it. We're just going to take a nice salary, pay ourselves nice bonuses and dividends at the end of the year and we're just going to run this and hand it off to the next generation. Amazing.

Chris Maher: 12:35

Or, you might grow your business to three or four million dollars in revenue, maybe you get to five and down the road there is a strategic partner, acquirer that approaches you and say buys your business for you know, 12 or $15 million.

Chris Maher: 12:52

Okay,on what, what a typical multiple might be.

Chris Maher: 12:55

If you're, if you have retained by a lifestyle business, you still own 80, 90 plus percent of the business.

Chris Maher: 13:03

That's a significant outcome or exit for the founder.

Chris Maher: 13:08

Right, now, if you take outside investment from VCs, you're going to dilute yourself for sure, and in some cases you can dilute yourself down to 15%, maybe plus or minus 15%. To get the same outcome on an exit, you've got to grow your business to probably be in the 20 to $25 million range to get a three or four time multiple. So a lifestyle business can still actually provide the founder the same exit amount in terms of dollars as if you took outside investment and grew it to be a much bigger business. Because you're going to take dilution, no doubt, and in some cases it can be significant dilution, and so that's just when you start to think about numbers like that. For some people the lifestyle business can become a much more attractive road because you retain the majority of equity you you contain control. You continue to control the vision of your social mission and the financial performance of the business side by side, versus the financial performance starting to take priority in a pretty significant way when there's an expectation from professional investors to get to a liquidity event.

Kelvin Crosby: 14:18

But this doesn't mean that an exit business is a bad idea. Building assistive services and programs and all of those different things. There is a very lucrative way to build investment and get investment. If you have a product, service or a program that is serving a universal access for all kind of model, when you think in that term, there's your opportunity for an Exit business. So, Chris, kind of talk to us a little bit about an Exit business and what are the things that a lot of these Exit businesses that are in the accessibility space are looking like?

Chris Maher: 15:13

Yeah, I think it's a great point, Kelvin. Part of that is focused on a larger addressable market, as we talked about, but also the ability to scale the delivery of those products and services to more people or to more businesses, which then gives you a greater opportunity to scale your revenue to a significant level. But by getting it into the hands of or to more people and businesses, that's also giving you a chance to have more dramatic, permanent and systemic change for good. So scale is a big part of, especially what I look at as as a venture investor. You know, addressable market and scale have a lot to do with the whether or not something is kind of, you know, venture worthy in terms of an investment. And so one example where it, within the accessibility and disability space, that has shown that you can achieve scale not only in terms of delivering the service to the greatest number of people, but also in driving significant revenue that then can get to liquidity events, and a great example of that is digital accessibility.

Chris Maher: 16:27

So digital accessibility, website remediation. There are numerous examples of companies that have raised significant venture dollars, like in the tens and tens of millions. Some of them have gone public, acquisitions have started to occur where private equity is coming in, or larger players are acquiring smaller players, and this is driven by a couple of things, right. A big part of what was driving that in the early days was, I think, legal risk mitigation, because companies were starting to get sued because their websites were not accessible, and so it was kind of like insurance, which is not a you know, don't not not the best kind of reason for doing things is like we don't want to get sued. Laws are changing, right.

Chris Maher: 17:12

So Europe, in June of this year, all websites have to be digitally accessible, otherwise you're going to be paying fines. But also, I think it's the industry's realizing that hey, if our website is accessible to more people, that's a better customer experience, that's going to generate more revenue, which is better for our bottom line. The other thing about the digital experience is there are certain. So first of all, a couple of stats. Only 4%, the last statistics I saw about 4% of all websites on the internet are actually accessible. So there is a massive portion of customers that you're missing out on because of that as a business. But then you also throw into that, like 80% of people like to be in dark mode, whether on their phone or on their computer and dark mode, you start to lose on a lot of functionality and graphics and images as well, and where accessibility can accommodate for that, and so that's a great example where there's been significant venture investment, significant growth and now they're starting to get to outcomes in terms of IPOs, acquisitions, private equity acquisitions as well. So I think that's a good example of a space, within disability specifically, that has shown that that you can have successful exits.

Kelvin Crosby: 18:31

When we think about some of the businesses, so like when we look at digital accessibility I've been in this space myself and it definitely there's so much going on in it because the general population can benefit from it and when we think in those terms from a Exit business, when we look at that, we're seeing there's a lot of opportunities besides just the disability market that really grows it. I mean, can you give us some successful exits that actually have occurred with the accessibility first in mind for people with disabilities, but really had a bigger outcome?

Chris Maher: 19:18

Yeah, it's a great question. That's the whole curb cut effect concept, right? So, where you know, years ago it was put into law that all curbs had to have the cut in them for people with largely physical disabilities. You know wheelchair users. But the general population loves it right? Parents pushing children in strollers, the delivery person who's got a dolly they've got to push up, you're walking around with your wheelie bag for traveling? I know just personally. When I'm walking in the streets of New York I always go straight for the curb cut when I'm going up and down curbs myself. That's like captioning. Closed captioning on TV. I know the younger generation and me, now that I'm getting a little older and my hearing's not as good, using captioning all the time.

Chris Maher: 20:07

That was obviously created for people with disabilities. Speech recognition, so like speech to text, is another fantastic example of that was built for and developed for people with disabilities. The general population has seen amazing value in that and they use it all the time. Something as simple as a toothbrush the original electric toothbrush was made for people with limitations to their motor skills and I don't know too many people that don't have electric toothbrushes now and still use the old school. Do it yourself. You do nice, Kelvin. And so those are just a handful of examples of technologies, services, assistive technologies that were created and developed specifically for the disability community, that had that curb-cut effect where they, over time, became valuable and useful for the general population, and so that creates greater addressable market, greater scale in terms of the good and the value you're delivering to a greater set of customers, which then leads to greater revenue opportunity, which then leads to more potential liquidity events, or exits.

Kelvin Crosby: 21:20

So when we think in these terms, this is where an Exit business is ideal, and I think, as we explore more with the Investing in Accessibility podcast, we're going to see more and more examples of what it looks like from the really building an Exit business, because that's what Investing in Accessibility is about is building an Exit business that is scalable.

Kelvin Crosby: 21:51

And I think the key word that you need to remember whether you want to invest in accessibility focused businesses or you are a business owner that is looking for investment you're going to want to really analyze this. Can this be scaled beyond the disability market so that way, all people can have access? This is extremely, extremely important when you are thinking about an exit business, because once you start bringing in those investors, the stress levels of getting that thing to be a three-time X return or more is a ticking time bomb I say. Because you only got so much time before you get your investors not very happy with you. And next thing, you know you got some challenges ahead of you. So, Chris am I missing anything that we need to make sure we cover today?

Chris Maher: 22:57

No, I think I think you've, we've nailed most of it. If I was just going to kind of try to summarize a few things, for whether you're an entrepreneur or you know the professional investors, like venture capital capitalists, this is stuff they know through and through around addressable markets and the ability to scale revenue. The multi-use, it's not just for one population. It can be good for the general or a broader or multiple populations, but maybe someone who is more interested in becoming an angel investor and dipping their toe into early stage investing. But, I think for entrepreneurs this is a choice and I think that a lot of entrepreneurs start off by saying, oh well, I'm going to have to raise venture capital to help grow my business. That's not necessarily the case.

Chris Maher: 23:42

As you've shown, there are creative ways to raise capital or get access to capital. Some of those are dilutive, like taking on angel investors or friends and family dollars. There's non-dilutive ways through grants and government subsidies, and then there's just self-funding through the revenue that you're generating with your business. That's a slower path, it's a more organic path, but you maintain control. You maintain control of the equity of your business. You maintain control of the strategy and the vision for your business. You also maintain control of how much or little you want to emphasize the social good that you're trying to deliver with your business. Okay, all of that is within your control. What you give up as the entrepreneur is the ability to grow your business more quickly. Maybe you're limiting your addressable market and your financial growth and then that's going to limit whether or not you can sell that business down the road. And if you can sell it, it's probably going to be for a lower price. The counter to that is you're going to own a greater percent of your equity. So there's still the potential for a very good financial outcome if you are able to sell it.

Chris Maher: 24:51

If you choose to, you may not. So there are pros and cons to think about on that side and then on the Exit business side, again, it's a choice and if you want to go big and you want to go hard and go fast, getting that professional capital, not only does the money help you to grow the business, you can just hire more quickly, do more marketing etc. You can go to market and scale your customers and your revenue more quickly. But hopefully you're choosing professional investors that are also going to bring additional value to the table Operational expertise, a network effect of contacts that they've got in the industry for introductions, strategic thinking about your product roadmap, additional ideas around going into new markets whether that's industry verticals, other geographies. If you choose wisely, those investors can bring more to the table than just capital. They can bring real operational expertise and strategic vision and know-how to help you grow your business bigger and faster to get you to that exit or that liquidity event.

Chris Maher: 25:58

Now, as you said, there are some potential cons to that where a lot more pressure on you to grow your business fast, your work-life balance is going to fall to the wayside pretty quickly.

Chris Maher: 26:11

The social mission of your business may start to take a backseat to your revenue growth and you are going to have an expectation that you need to get this thing to some sort of exit or liquidity event sooner than later.

Chris Maher: 26:24

They're all trade-offs, they're pros and cons and I think entrepreneurs sometimes don't spend enough time thinking about it. And it's not just at the beginning when you start your business. I think it's also periodically, as your business is hitting certain milestones, to revisit that conversation with yourself. But at the end of the day it's a choice, and I'm not here to say that one is better than the other. I happen to be in the business of investing in Exitable businesses, but I believe that we're going to be partners that are going to allow them to drive their social mission equally with their financial mission and growth. It's choice to be a Lifestyle entrepreneur might be what's best for you and your team and your family versus another entrepreneur who chooses to go down the Exit path because that's the right choice for them. You just want to make sure you balance the pros and cons of each before you make that decision.

Kelvin Crosby: 27:17

I mean at the end of the day, when you think about See Me Cane, I still am going to have to weigh out is investment a good opportunity or am I okay being creative in different ways of building my business? At the end of the day, neither one is wrong. Each one of them has its own challenges and, as we wrap up Investing in Accessibility, you know what I always say go live beyond you're a challenge and we'll see you in two weeks.

Kelvin Crosby: 27:56

Thank you for listening to Investing in Accessibility, a Samaritan Partners podcast where we invest in change for accessibility, not wait for change. If you want to follow us, you can find us on YouTube or LinkedIn at @Samaritan Partners. If you would like to invest in Samaritan Partners, email Chris at chris@ samaritanpartners. com. If you'd like to learn more about us, go to www. samaritanpartners. com. You can take the first step in investing in change by giving us five stars and sharing this podcast with everybody that you know, so we can spread the word, so that we can give access to all by Investing in Accessibility.