[52] For the Climb of Life & Biz, You Need a Trail Team

Building a business is like climbing a mountain. The journey of life, the same. Your trail winds around, up and down over ridge lines, through the valleys.  There are overlooks where you stop and view where you came from, and where you’re going. There are…

Building a business is like climbing a mountain. The journey of life, the same.

Your trail winds around, up and down over ridge lines, through the valleys. 

There are overlooks where you stop and view where you came from, and where you’re going.

There are markers along the way, helping keep you on track. 

You come to forks in the trail, forcing you to choose your next direction.

There’s also crappy weather sometimes, even when you don’t have the right gear. Your boots get soggy, and you feel cold and wet.

And sometimes there are perfectly clear nights where you camp under the stars and, even without amenities, find yourself grateful for the journey. 

But the most important part of the climb, by far, is who you take with you.

There are co-hikers and fellow travelers, but those come and go. You hike together for certain stretches of trail, and then they split off on a different path. 

You are the only one who walks your own unique trail from start to finish.

But you are not alone. Or, at least, you don’t have to be. For a really successful climb, every hiker needs a trail team.

Your Trail Team is your brain trust. Your council of personal guides. On the trail, they’re with you all the time in spirit – always just a satellite phone call away. Some days, they meet you on the trail for those tough soggy weather slogs and hike alongside to keep you motivated. And when you reach a new milestone, they’re there to celebrate your progress.

Your trail team keeps you safe, and sane, along the journey.

So who is this trail team? 

Scientists

First, you need scientists.

Your scientists do your measuring for you. How long you have to go to reach the summit. How far you’ve come. What new gear you need, and what old gear you can get rid of. 

They keep you lean and stealth. They keep your heart rate monitor finely-tuned.

Your scientists are your three-headed monster: bookkeeper, CFO and CPA.

These days, there are a lot of ‘fractional’ scientists, who helicopter in but aren’t full-time. And that’s perfectly fine, as long as they’re there when you need them.

Guard

Second, you need a guard. 

Your guard holds your funds and makes sure they’re kept safe. He knows the lending landscape in case you need to borrow, and works with your scientists to make sure you’re healthy enough to do so.

Your guard is your banker. Your banker provides security. 

Some guards also serve the function of wealth manager, giving you advice on how to invest your excess funds. 

The more complicated your journey becomes, the more support you will need from your guard.

Scout

Third, you need a scout. 

Your scout provides your eyes and ears on the trail. They hike with you the whole way. 

Your scout is your chief of staff. 

And while they have other responsibilities to keep you on track, every once in a while you send them off trail to survey the landscape and bring back information. 

It’s important for your scout to have access to the rest of your trail team in case of emergencies.

Sherpa

And finally, every mountain climb needs a sherpa. 

They’re always there in the background, watching your progress. You share your GPS location with your sherpa so they can always see where you are, even from afar.

Your sherpa is your lawyer. 

Your sherpa helps you decide which forks in the road to take, and which to avoid. They help you make clear decisions on those cold crappy weather days when you’re feeling emotional. 

And they help you choose your next mountain once you’ve summited the last.

Read More

Quote: If you are distressed by anything external, the pain is not due to the thing itself but to your estimate of it. And this you have the power to revoke at any moment. –Marcus Aurelius

If you are distressed by anything external, the pain is not due to the thing itself but to your estimate of it. And this you have the power to revoke at any moment. –Marcus Aurelius

If you are distressed by anything external, the pain is not due to the thing itself but to your estimate of it. And this you have the power to revoke at any moment.

–Marcus Aurelius

Read More

[51] Business Owners Operate in Markets, Business Sellers Create Them

I often work with business owners trying to sell their companies. It’s a fun job – always keeping me on my toes. When there’s a lot of money on the line, the juices flow. The stakes are high. It’s the most exciting time in a…

I often work with business owners trying to sell their companies.

It’s a fun job – always keeping me on my toes. When there’s a lot of money on the line, the juices flow. The stakes are high.

It’s the most exciting time in a business’ life cycle, when the equity holders finally get to cash in.

It’s also super stressful for the owners since it’s when everything gets reviewed. All of the business’ operating history is laid bare for buyers to pick over. There’s nowhere to hide. The oversights of the past come to the forefront and need to be contended with. 

There’s a life lesson there, too. In life, you pay in the future for corners cut in the past. That part doesn’t just apply to selling companies.

The company sale process is guided by a key principle: The primary objective for any business owner is to maximize the value of their equity. And the value of their equity is expressed through the price paid for the business. 

But unlike public companies, whose prices are listed on public exchanges visible to everyone, private company prices are hidden. They’re behind the wall – opaque. 

For private companies, early price indications only come to light as a sale approaches. And prices are only made final when the deal closes.

So in order to determine the price, a private business owner has to prepare the business for sale and then create a private market.

A private market requires two key components: (1) Multiple buyers who are making offers, (2) in a concentrated period of time.

First, you need multiple buyers to give yourself optionality. Without multiple offers to reference, you have no comparables on price – and therefore no options. 

Sure, you can look up the market multiples of revenue or EBITDA for your industry, and you should. But that’s only one indicator. It provides more of a price range and an indication of overall market conditions rather than the specific value of your business. Remember: Each private company is a singular stand-alone asset, whose value is only truly determined during the lead up to sale within a private market.

Second, to create a private market you need the multiple offers to happen during a concentrated period of time. 

Ultimately, that’s what governs a market: time. Or, more specifically, time constraints.

Public markets function because there’s an exchange willing to state prices because they know there are buyers and sellers standing by in real-time ready to transact. 

In a private market, you have to create the timing constraints for your buyers yourself. Without the constraints, you can’t value your business properly. 

Imagine you receive a soft offer to buy your business in January, and then another offer in July, and then two more before Christmas. It sounds great, four offers! But it’s not all that helpful. The data points are too spread out and disparate. The passage of time destructs your ability to compare and contrast. 

What you need is to get all of your potential buyers to make their bids within 30-60 days. Those guardrails on time are what give you a functioning private market.

And without establishing that private market, nearly everything else in the business sale process is secondary. The LOIs, the due diligence, the negotiations and legal paperwork – all secondary to whether you have first established a private market.

The same construct can be applied to a business taking on investment. While not a company sale, you still have to establish the business’ value and therefore need a private market.

And the same construct applies to other business scenarios. For example, if you are a service provider, you need to get multiple prospects to respond to your quotes within a concentrated period of time in order to determine whether you’re charging too much or not enough.

Value is determined in markets. And when there isn’t a public market to find your price, you have to create your own.

Read More

Quote: “I tell you: one must have chaos in oneself to give birth to a dancing star.” — From Thus Spoke Zarathustra by Friedrich Nietzsche

I tell you: one must have chaos in oneself to give birth to a dancing star. — From Thus Spoke Zarathustra by Friedrich Nietzsche

I tell you: one must have chaos in oneself to give birth to a dancing star.

— From Thus Spoke Zarathustra by Friedrich Nietzsche

Read More

[50] Embracing A.I. and the Pace of Change

Over the last few years, I did a complete overhaul of my personal organizational system. I reorganized my calendar and how I manage my time. I created checklists for everything – my so-called standard operating procedures (SOPs) for repeatable tasks, even basic stuff like how…

Over the last few years, I did a complete overhaul of my personal organizational system.

I reorganized my calendar and how I manage my time.

I created checklists for everything – my so-called standard operating procedures (SOPs) for repeatable tasks, even basic stuff like how I manage my household.

I hired an executive assistant to support me full-time, not just in my legal practice but as the COO of my life.

And I streamlined my finances, bank accounts and cards, etc. – and developed a personal accounting system for me to review as the CFO of my life.

The resulting changes in my quality of life are profound. Going through the process reshaped how I view the world in 2024. One core insight is that now I appreciate how much technology is helping us win our time back – in a visceral way. I feel it everyday.

I also built new systems for my work life. Recently, I reevaluated all the software tools that I’m using to run my legal practice. This includes the mundane – billing, accounting, matter management, payment systems, file organization, security – all of which have been completely rebuilt and fine-tuned. 

And I jumped into AI – using it every day in my legal practice for the last six months, without fail. 

My thoughts? In a word: WOW. 

Even now, after six months as a user, I get insights about how to use it better almost every session.  

One thing I know for sure: the way legal services will be delivered to clients is about to change drastically.

But I’m not worried about it taking my job. At all. 

I’m excited to see how much better of a lawyer I can be. Faster, with information readily accessible, and a virtual hitting partner to dig deep into issues and ideas. With the aid of these new tools, I’m already becoming more strategic and creative – adding new value for my clients.

This is going to be an awesome ride. Me and the machine together are gonna make a badass team.

“The best chess player in the world is neither a human nor a computer, but the two combined.” –Garry Kasparov

Humans entering into the advanced machine age has resulted in hockey stick growth, across the board. I saw this chart recently that blew my mind:

We are blessed to be alive today, right now, surfing on a tidal wave of change.

And cheers to my grandfather, who taught me to embrace it.

Read More

[49] IRAC² – A Lawyer’s Ninja Trick for Getting to the Bottom of Things

In the first year of law school, lawyers-to-be learn the acronym IRAC. It’s a handy tool that has served me well throughout my legal career.  IRAC is my starting point of first principles thinking whenever I need to do a quick-and-dirty legal analysis.  It stands…

In the first year of law school, lawyers-to-be learn the acronym IRAC. It’s a handy tool that has served me well throughout my legal career. 

IRAC is my starting point of first principles thinking whenever I need to do a quick-and-dirty legal analysis. 

It stands for:

  • Issue
  • Rule
  • Application
  • Conclusion

I add “squared” at the end since we’re going to do the Conclusion twice.

IRAC²

Here’s how it works:

ISSUE

The first step is to spot the issue. 

The issue is best presented in the form of a question, but not just any old question. It’s a finely-tuned question, specific to your circumstances. 

Here’s a bad example: Is there a breach of contract?

Here’s a better example: Whether there’s a breach of contract when Party A refused to pay after Party B failed to deliver the services on the delivery date designated by contract, even though there was a major rainstorm that day and Party B has promised to deliver at a later date?

See the difference?

Articulating the issue carefully is the most important step. The issue question should include a description of who is involved and a few important facts. It’s kind of like writing a good prompt on ChatGPT.

Once you’ve laid out the issue properly, turn to the Rule.

RULE

The second step is to find the Rule. There are a few layers to dig through to find it.

First layer: Is there a written contract? Or some exchange of written communications between parties that govern the situation? If yes, start there. This applies to commercial transactions – where there’s a contract between two parties – as well as corporate situations where there’s partnership or shareholder paperwork between business owners. 

Simply put, find whatever you have in writing that pertains to the question you’re asking in the Issue. If what you have in writing is clear and seems to lay out the Rule, you probably don’t need to go down to the second layer.

Second layer: Contracts are supported by law found in statutes. Statutes are formed when legislators have come to an agreement on a common set of rules, called “codes” and we, through our representatives in the government, have all agreed to follow those rules. Each state has a set of statutes. The federal government has one too. 

So in the second layer, you search through the statutes for the Rule applicable to your situation. 

The state codes will cover nearly all your run-of-the-mill business IRAC² analysis needs, with the federal code being more handy for broader issues or for situations regulated at the federal level. 

These statutes act as support beams underneath your written contracts from layer one. And, in a few outlier situations could even trump whatever it is that you agreed on in your contracts.

Third layer: Underneath the code layer, you find case law.

Case law is when parties litigate in court and a judge issues a ruling about how the law applies. So a judge has looked at a particular situation and reviewed all three layers. They’ve analyzed (1) the written contracts in layer one, (2) the statutes in layer two, and (3) the previous case law in layer three (also known as precedent). Then they made a judgment based on what happened, laid it out in a written opinion, and added that opinion to layer three. 

The need to dig down into the third layer for case law is rare and only needed in idiosyncratic situations – or when you feel like what you’ve found in layers one and two aren’t sufficient. You need a lawyer for layer three unless you really know where to look.

In sum, dig down as far as you need to until you understand the Rule that applies to the question raised by the Issue. And don’t forget to note any stated exceptions to the Rule – they are often built into the law for a reason. 

“The young man knows the rules, but the old man knows the exceptions.” – Oliver Wendell Holmes, Sr.

Now it’s time to turn to Application.

APPLICATION 

The Application step is an exercise of applying the Rule to the facts of your situation. Some IRAC frameworks use the word “Analysis” instead. I find them interchangeable.

The first step in performing the Application is to become a detective. Go through all the information you have about your particular situation. Hunt through your emails, contracts and files. Ask people close to you what they remember about what happened, and whether they have anything in writing. Do web research. Make a list of all the people and companies involved. 

Gather everything you possibly can and organize it into a timeline and a summary. Call it the Statement of Facts. 

IMPORTANT: Be objective here – don’t just cherry pick facts that you think present your side in a favorable light. Include everything you can find in the statement of facts – the good and the bad – regardless of how it makes you feel. Facts don’t have feelings.

Once you have your Statement of Facts, turn to Conclusion.

CONCLUSION

Starting from the top, re-read the Issue, then the Rule, and then your Statement of Facts. 

How do you answer the question posed in the Issue? What’s your initial reaction? 

Often you’ll find that you can easily answer the question posed in the Issue and come to a Conclusion. 

Congratulations, you’ve just completed your first IRAC. 

But there’s one more step to double check that you aren’t letting your emotions hijack your rationality.

CONCLUSION²

The final step is to double check your Conclusion. 

Munger says: “I never allow myself to hold an opinion on anything that I don’t know the other side’s argument better than they do.” 

Review your Statement of Facts and imagine that you’re the guy or gal on the other side of the situation. How would you interpret the facts differently if you argued against yourself? 

Does it change how you would apply the Rule?

This last step – Conclusion² – is often overlooked. We tend to build our Conclusion as we go along – interpreting the Rule favorably against a cherry-picked Statement of Facts. So we land on a Conclusion that suits us. But this misses the point of how Rules work, and why we have them. 

Imagine you’re watching football and your team is playing in a big playoff game. With only seconds left on the clock, the referee throws the flag. If the call goes your team’s way, they win. If not, they lose. 

Using IRAC², you have to be the referee, not a fan. The second pass at the Conclusion is there to force you to argue the viewpoints of both sides, giving each equal merit. 

Munger was smart enough to realize that humans naturally fool ourselves to be biased towards our own desired outcomes. This is why I add the “squared” to IRAC, so I don’t trick myself.

—————–

So there you have it.

IRAC²

If you find yourself in a business dispute with someone reasonable, going through IRAC together will solve 95% of your problems. 

But if you’re dealing with someone who’s only willing to be a fan and not a referee, it probably won’t work.

Read More