Speaker 1
Most people are asking about the BIBO. In fact, I’ve been asked the same question probably in like three different ways. Like what’s the language you use for a BIBO? What’s the structure for a BIBO? First of all, obviously BIBO stands for buy in, buy Out, and very simply, it came from the idea that it’s really easy to get a stake in a company. It’s really easy to take a 15, 20% stake in a business, but a bit like a dog chasing a car, what the hell do you do when you catch the car? What do you do with these 20% in companies? Because basically you’re a passenger, you’re a minority shareholder in a company, and it’s very hard to do anything with it. Basically, the idea with BIBO is that when you approached these people, you say, “If I can solve X, Y, Z for you, can I have 20% of your company?”
Speaker 1
Then the next part of the conversation is, “And in that case, once I have 20% and I’ve done X, Y, and Z, I’m not particularly useful to you anymore. I’ve done the bit that I’m good at. How about we either sell the company together,” and remember you have the drag and tag and the preemption rights and everything that we talk about in the legal hack section of the Harbor Club. You have this contract that enables you to force a sale. You can say, “How about we sell the thing together, or you can buy me out. You can use the company’s profits to buy me out over a period of time.” Effectively, you’re kind of positioning it like it’s a vendor finance transaction so that they have that opportunity. Now, what happens is as soon as you fix the biggest problem in their business, they fall in love with the business again.
Speaker 1
Once they’re back in love with the business, they will value that 20% much higher than anyone else on the planet would. They will see the business, they’ll see the 20% as being worth 100 grand, making the whole company worth 500 grand. Whereas perhaps if you tried to sell it, the maximum you’d get would be 200 grand for the whole thing. They will always overvalue that portion, so it’s much better to sell it back to them and being that they’re in love with it again, they’re an obvious buyer. Now obviously, at the beginning of the process, a few months before you told them that they can pay for out of their own profits, that was true. What you’re now going to reposition it as is the loan company. You’re going to say, “Hey, you can pay for it out of its own profits because I’ve got this company that will lend you the money to buy me out.”
Speaker 1
Then by doing that, you’ll effectively detach any implied warranty they might feel they have toward you that would have enabled them to stop paying you at some point in the future. Whereas with a normal vendor finance, you’re just kind of trusting them to keep paying you every month until the debt is extinguished. By using that lending company model, you’ve really got them by the short and curlies when it comes to making sure that you get paid. That means you can give yourself a fairly predictable income going forwards relating to the sell back of those shares. One of the questions that comes up occasionally as well, is it really that easy to get 20%? God yeah. I mean, if you’re providing any kind of consulting service, that could be worth a percentage in the company, you could implement the LLP structure, you could implement the turnaround structure, the turnaround tactics that we talk about on on the course.
Speaker 1
You can massively improve their cashflow or their profitability and you could put them through a CVA and write off half their debt, so they have to only pay the other half over five years instead of having to pay 100% of all their debts tomorrow. There’s really loads of things that you could do, even just for giving advice that could give you a percentage in a company. This really is quite a low hanging fruit strategy. It’s probably the most common deal that Harbor clubbers do, because it’s a great way of breaking that deal virginity and getting some confidence, and they’re absolutely the deals that are in your phone.
Speaker 1
There’s people that like, trust, respect you in your phone, that have businesses that you could probably take a stake in, add a load of value and then either sell the thing together or sell it back to them. It’s a very simple structure. It’s very powerful. It’s no money down. It’s a good way of replacing income if you need to extricate yourself from some kind of full time occupation that is stopping you from doing this full time. It’s a really nice little structure. Good luck. Go out and do your first BIBO.
