Rick Ruback

This is really unique to small firms. In small firms, the owners, to some extent, live inside of the company. It's routine that in a million and a half dollar EBITDA business, the owner is spending $100,000 on personal expenses and running them through the business. And as a buyer, that's his decision. You're going to add that back to EBITDA because it's really EBITDA spent in another form.

This is really unique to small firms. In small firms, the owners, to some extent, live inside of the company. It's routine that in a million and a half dollar EBITDA business, the owner is spending $100,000 on personal expenses and running them through the business. And as a buyer, that's his decision. You're going to add that back to EBITDA because it's really EBITDA spent in another form.

And that's just common. I'm not making a moral judgment on it. It's just common. But what you have to watch out for is sometimes you see these companies where the owner has just gone wild and there's just this gigantic amount of living within the company. It's not 5% or 6% of EBITDA, it's 50% that's getting added back.

And that's just common. I'm not making a moral judgment on it. It's just common. But what you have to watch out for is sometimes you see these companies where the owner has just gone wild and there's just this gigantic amount of living within the company. It's not 5% or 6% of EBITDA, it's 50% that's getting added back.

And the issue you have to start thinking about is not even documenting that to make sure that's true. It's that If this person is so willing to take those kind of risks and color outside the lines, how is he going to treat you as the buyer who, no matter how much due diligence you do, the information advantage is asymmetric and in the seller's favor?

And the issue you have to start thinking about is not even documenting that to make sure that's true. It's that If this person is so willing to take those kind of risks and color outside the lines, how is he going to treat you as the buyer who, no matter how much due diligence you do, the information advantage is asymmetric and in the seller's favor?

And so at some point you have to say, there's an ethical question here that could stab me in the chest. That's a small firms thing. You don't encounter that when you're buying shares of Microsoft or dealing with companies that go into big PE firms.

And so at some point you have to say, there's an ethical question here that could stab me in the chest. That's a small firms thing. You don't encounter that when you're buying shares of Microsoft or dealing with companies that go into big PE firms.

And so does the seller.

And so does the seller.

I agree with that. That's the pattern we see again and again.

I agree with that. That's the pattern we see again and again.

Yeah. Rick, I entered academics 15 years ago to partner up with you. You've been in this longer, so I'm going to be really interested in what you say. I would offer two things that we've done consistently. One is the class is extremely practical.

Yeah. Rick, I entered academics 15 years ago to partner up with you. You've been in this longer, so I'm going to be really interested in what you say. I would offer two things that we've done consistently. One is the class is extremely practical.

There's very little theory taught because we think that the students come to this class because they want to evaluate whether they want to do this as a profession. And then if the answer is yes, they want to stack the odds in their favor of doing it. Every time we write a case, every time we develop a teaching plan, we're always thinking about what practical lesson are we teaching these students?

There's very little theory taught because we think that the students come to this class because they want to evaluate whether they want to do this as a profession. And then if the answer is yes, they want to stack the odds in their favor of doing it. Every time we write a case, every time we develop a teaching plan, we're always thinking about what practical lesson are we teaching these students?

And the second thing we do is we bring in the case protagonist. for almost every class. And part of this lets the students ask questions and breathe some additional life into the case.

And the second thing we do is we bring in the case protagonist. for almost every class. And part of this lets the students ask questions and breathe some additional life into the case.

But really, the reason we have them there is there are two questions that Rick and I know are on the students' minds, that they can look at this person and listen to this person, and they can answer, do I want to be this person? And can I do what this person does? And that's hard to teach, but easy to show. And so

But really, the reason we have them there is there are two questions that Rick and I know are on the students' minds, that they can look at this person and listen to this person, and they can answer, do I want to be this person? And can I do what this person does? And that's hard to teach, but easy to show. And so