The Art of the Exit

Exiting a business successfully is often viewed as the pinnacle of achievement for entrepreneurs. This complex process requires meticulous planning and strategic foresight. This week on “Start, Scale, Exit, Repeat: Serial Entrepreneur Secrets Revealed,” seasoned entrepreneurs Colin C. Campbell and Michele Van Tilborg discussed what they call the art of the exit. Their discussions provide insights for any entrepreneur aiming to navigate this challenging phase effectively.

Each type of buyer has distinct objectives, from leveraging your business to enhance their distribution networks to seeking operational cost reductions or focusing on the financial metrics.

A key takeaway from the discussion was the importance of understanding the landscape of potential buyers and tailoring your business’s value proposition to meet their specific needs. Colin breaks down buyers into three primary categories: strategic buyers, competitors, and cash flow buyers, such as private equity firms. Each type of buyer has distinct objectives, from leveraging your business to enhance their distribution networks to seeking operational cost reductions or focusing on the financial metrics like EBITDA multiples. By aligning your pitch to highlight the most relevant benefits for each buyer type, entrepreneurs can significantly influence both the valuation of their business and the terms of the deal.

Furthermore, the role of leadership dynamics in the exit process cannot be overstated. Sophisticated acquirers often assess how independently a company can operate from its founder, which places a premium on the ability to delegate and elevate the team effectively. Colin suggests that entrepreneurs should consider stepping down from the president’s role a couple of years before selling to authentically demonstrate the business’s operational independence. Additionally, aligning incentives for key team members through equity stakes or financial incentives is crucial for a smooth transition. Timing the exit strategically is also paramount, as unforeseen circumstances such as economic downturns or industry shifts can jeopardize the business. Colin advocates for a proactive approach to starting, scaling, and exiting businesses, which helps entrepreneurs mitigate risks and maximize the creation of value over time.

Listen to the full conversation above! 

  • Read the Transcript

    The art of the exit. You’re listening to Start, Scale, Exit, Repeat, Serial Entrepreneur Secrets Revealed. Today, we are going to be talking about the art of the exit. There is a section in the chapter of the book, uh, called Exit. Uh, and we’re going to go through that and we have our panel of experts on here to talk about the what’s involved with an exit.

    But before we get started here, I just want you to know that this is actually a live show. If you’re listening to some podcasts that you can come on Fridays at 2 o’clock Eastern. Hello. And you can listen into this show and, and learn from the experts. You can come on stage, you can ask questions. You can also share experiences, uh, with the audience, with the live audience.

    It’s quite a lot of fun. We have fun every Friday afternoon. Michele, what do you think about today’s topic? And then also we probably should let the audience know about What’s been happening with the book, but, um, but first maybe, what are your thoughts on today’s topic,

    Michele? Yes. I love this topic very much. Obviously it’s where your hard work starts to, you know, really pay off as an owner or a founder. But gosh, you know, um, going through, having been through this a few times myself doing a big sell, a big exit. Gosh, there’s nothing more fun. It’s the most thrilling part, quite honestly.

    Um, to me, to be able to see someone else really putting a value to what you’ve worked so hard for Colin, because we can talk, talk, talk, and you know, about future value, but it, it, it really shows when the market speaks and puts a value, puts a premium, puts a multiple, whatever it is on your business. Yeah.

    And I think that it’ll be fun to hear the story about the big exit to GoDaddy. And we’ll get into that later on in the show and sort of some of the nuances and the negotiations and of course there’s some, there’s NDA so we have to keep, you know, we have to be a little bit careful how we talk about it.

    But we can talk about, you know, internally at what we’re, where our thought process was and, you know, how emotional it was and, you know, it’s like literally. The end of a play and, you know, literally the curtains closed and the tears started flowing, so it was very interesting to tell everybody that I cried like a baby.

    I think we all cried. I think we all did. And cause it was something, it was a, you know, you worked for 10 years on it. It’s your identity. It’s everything. But we’re going to get to that story. I think it’s a great story. I, you know, I do think that if you’re even, if you haven’t even, if you haven’t even started your business yet, beginning to think about the exit in keeping the exit in mind when you start that business, you know, the things that you can do.

    And in the book, Start, Scale, Exit, Repeat, we talk about why it’s so important to think about the exit when you’re in start mode. There are a number of things you can do. For instance, you can set up a virtual drive. This is something critical. Because I can’t tell you how painful it is to go through due diligence and not have all the contracts in place.

    Not have all the, all, all your, your, um, processes, uh, your SOPs, everything in place, all on a drive, easily accessible for a potential purchaser. Uh, you, I’ve been in transactions before where it’s taken months, uh, to complete a lot of that due diligence requests. It can be a deal killer, because one thing about deals, when you’re in exit mode, it’s a different pace.

    It is, do whatever it takes to get the football across the line, and I mean, do whatever it takes. There’s no such thing as weekends or week, weekday evenings. Everybody’s on all the time, pushing the ball, you know, pushing that ball forward and trying to get it across the line. It’s pretty, pretty intense.

    So if you’re in the audience and you want to contribute to this conversation, please raise your hand, come on stage. I know a lot of you have a lot you can offer. Or if you have a question of the experts, we’re going to sort of follow the book in the book. Start, scale, exit, repeat. We have four sections.

    Guess what? Start, scale, exit, repeat. So we’re going to take on the exit section today, and we’re going to talk about certain topics. Michele is going to moderate it and ask us a question or interview me if there’s others in the audience who want to come on stage. You’re welcome to do so. Uh, and we’re just gonna follow through that book.

    I think it’s starting with um, what’s the If you do have a copy of the book, we’re gonna start actually I just, you know, want to read this a successful exit has no, has to answer the questions of who, why, when, and how. So we’re going to start with that. Who, why, when, and how, by talking about, you know, where are you looking for buyers?

    What kind of buyers are you looking for? And what are the pros and cons Colin of different kinds of buyers? All right. So you’re jumping right, right away. You’re jumping right into. The types of buyers and there’s actually a really cool If you can if you’re on if you have the copy of the book on page 351 And and then i’m running off a pdf here.

    So it may be maybe one or two pages off, but page 351 Uh, it’s in the chapter titled types of buyers chapter 43 and There’s a really interesting graphic there It shows that if you sell your company to a strategic buyer or a competitor that you’ll get a premium value. So there’s a strategic buyer or competitors looking to arbitrage.

    They’re looking to take your business. Let’s start with the competitor. In their case, they’re looking to take your business and reduce costs. And they’re not going to give you your full valuation based on the merged entity, but they will, they will negotiate and it will give you something in between.

    Okay. And that’s where you’re getting a lift over your standalone value. Now, a strategic buyer takes it to another level and that’s really, really interesting. Um, what they do, they actually look at your business and say, okay, if I’m going to take this business as technology or whatever it is, and I’m going to leverage it against my distribution base, then I can generate X amount of revenue and profits.

    And so there again are going to give you somewhere in between their arbitrage value and your standalone value. Now, I get to really learn this principle, Michele, when I was, um, essentially sold myself off, uh, bought by a Fortune 500 company. And one of the things I did after that, uh, exit was I worked for three years at the company.

    And one of my primary roles was to acquire companies. And I had an army of people behind me who would help me with business developments, helping with an analysis. And I got to really learn the methodology or the thought process behind the curtain. And in a fortune 500 company, you’re looking at, um, you’re looking at the, are the, the value that this acquisition is going to create, and this was a publicly traded company.

    So how much can it impact my, the stock price over X period of time? And, uh, and ironically, the company they did buy, the company that I did sell to them did have a substantial increase on their, uh, on their valuation as a company, but that’s, that’s really what it’s all about. Now, the other type of buyer or cashflow buyers often, um, dressed up as private equity.

    Okay, and you’re gonna think, oh, private equity is acquiring me. That sounds really cool. Well, maybe, maybe not, because private equity has some challenges. Uh, they often will leverage their, uh, purchases. So, and that leverage has declined over the last two years due to the market conditions and the willingness of banks to back these acquisitions.

    The second thing is that they’re going to look for cash flow generally, not always. Okay. Now there are exceptions to these rules. If someone’s in private equity in a company, Hey, wait a minute. You know, yeah, we just sold a company, uh, December, uh, 16, 18 months ago. It was a technology company, it had no profit, and we sold it for, um, we sold it for about six, for six times revenue, 6.

    5, 6. 5 times revenue. Okay, so there are exceptions to the rule here. I’m not gonna, I’m not gonna say there are not, but generally, we’re gonna, and by the way, in that particular case, that private equity was consolidating a space, and they wanted a primary company. To be the lead consolidator. And so our company fit that role.

    So in some ways it was a strategic sale to a private equity company, but I want you to be careful of these cashflow buyers. Cause what they’re looking at is simply a multiple EBITDA and, and by the way, as the interest rates climb, they’re going to want a higher and higher return. So right now they’re probably borrowing at a rate of around 10, 11%, and they need a return on capital.

    So they’re going to need a 20%. So let’s assume you have a very stable earnings base with little to no growth, but little to no decline. Very low risk company. You’re talking probably about five times earnings. Okay. If you have some growth, you might be able to push that up to six times. It depends on the industry, whether it’s recurring, whether it’s e commerce.

    E commerce right now is very low valuations. You’re probably talking anywhere from two times earnings to, to six or seven times earnings on the, on the high end, uh, in this current market condition. So we’re going to want to avoid the cash flow buyers and you’ll often get, I get, get calls every week from companies asking us, Hey, can we buy your company?

    Can we buy our company? And it was like, no, look, we were just done talking to these people because it was all about earnings per share. Well, let me tell you this. When we sold Hostopia, it was publicly traded. We sold it for 17 times EBITDA. Okay? Now it was a recurring revenue business, it was profitable, and we sold it for 17 times EBITDA.

    When we sold DotClub, and that’s under NDA, I can’t exactly say what we sold it for, but I will say the multiple was. Extraordinary. We, we, we received a, a, a real lift premium for that company. Uh, that far exceeds what is normally done in the industry. And again, it’s strategic because. club was an alternative to.

    com. net and GoDaddy had a much, GoDaddy registry had a much larger distribution base. So they could take our name, the naming rights to DotClub, and they could sell it to far, far more distributors. So, Michele, there’s the three types of buyers. It’s cashflow buyers, stay away. It’s strategic, and it’s competitors.

    And by the way, from day one, we made a list of buyers we wanted for DotClub, and GoDaddy Registry was on that list. Maybe this is a good time for you to talk about your experience, Michele. But I’m going to say also to everyone here, your competitor could also be a strategic buyer, right? Like in our case, we were partners with GoDaddy and they were also our competitors.

    So that can happen too. And that’s kind of a nice little trifecta, at least it was for us. Like they were very entrenched in the, in invested in the, um, vertical, which was domain name registries, and they had the perfect platform as well to sell them. So it was a really nice, um, Let’s just say union, but yeah, I, I think one thing I was thinking about when you were talking, Colin is, um, you know, just thinking about the process we went through before it got emotional and we realized that we were, you know, exiting was, we did a lot of work to prepare every meeting.

    We were preparing, we were really finding out and talking about like very succinctly. What were the most important points? And they weren’t about what were our most important points that we were necessarily saying what we knew would appeal to them as a buyer. So I’d like to hear you talk about that a little bit more about when you’re pitching the sale, how you’re, you’re not talking so much about yourself.

    You’re talking about how the, um, purchase will benefit them. Like, can you speak to that a little bit? Cause you’re quite the expert on that.

    Yeah, great. And we got some people also who want to come up from the audience. If you could bring them up, that’d be great. Uh, like, look, in this book, Start, Scale, Exit, Repeat, we talk about story, people, money, and systems. Those four things in each section. Under story, this is not the time to be humble. This is the time to be bold.

    And to really confidently and authentically spin the story. And you’re going to want to really do this in several ways. One of the things we did with GoDaddy registry is we had mentioned to GoDaddy, I think it was three years by the way, from the time that, that the president of that division walked up to me in Vegas, and that’s another story.

    We will definitely not go into this particular story, but this show. But, but from the time he walked up to me in that, that, that day, it took three years before he finally bought the company. And there’s a lot of struggle for them to get their head around the valuation that we were looking at and asking for.

    And they were like, are you crazy? And it took really a, you know, I think we had three separate meetings and every time they kept, because he was a numbers guy, he was tough to break through, if you remember. Uh, and I’m not going to name names, but he was tough to break through. But, but, but, you know, he’s always earnings for sure.

    Earnings for sure. Earnings for sure. And I’m like, okay, but what is this worth If you can distribute it more broadly amongst your own base. So even though that’s obvious, we’re going to want to repeat that the benefits of the of what your customers what your acquirer is going to how it’s going to how they’re going to benefit from the acquisition.

    One of the other things that we did is we come up with these things called one liners. Right? So we’d have a one liner and we’d repeat them over and over again. Every six months we’d meet with them, we’d repeat the one liners. And by the way, we’d practice them. By the way, they’re not by accident. One of the one liners was we’re going to raise the price a dollar a year forever.

    See, we sold the domain names for about, I think it was 7. 80, uh, and then we, and it was 8. 05, whatever, and then we raised it a dollar. And, and we didn’t lose any customers and they still didn’t believe we could raise this price a dollar a year forever. And then the next year we raised it a dollar again.

    So two years in a row, we raised it a dollar and then we, we kept telling them we’re going to raise it a dollar a year forever. Well, by the time the final negotiations took place, they were telling us, all right, we already know you can raise the price a dollar a year forever. So they’ve already begun to factor in, uh, uh, the pricing and the pricing power that existed within this business model and began to give us credit for that component of the transaction.

    So, so these things may be evident to you. They may even be evident to some people on the other side. But don’t think that you shouldn’t point these things out. And the other thing, too, is you have to repeat yourself. I love one liners, because one liners, people can remember them. And they, and guess what?

    They always, every one you pitch to, they remember you. They always have a boss, even the president of this division had the boss, which was the president of GoDaddy. So he had to go back to GoDaddy and says, okay, why do you want to pay that much money? And he’s going to say, because they’re going to raise a dollar a year forever.

    We did the math. It looks really good, this acquisition at this price. And you position yourself very, very well for it. So that’s something you want your story to be sexy. You want it to sell. I was working with, uh, one of the companies I’ve invested in. They have, um, uh, Zendu. They have a, um, an accounting, uh, automated accounting system.

    And this was like four or five years ago. And I said, you know, you’re spinning this wrong in the offering. You need to tell people the truth that this is an AI. Accounting system, and this is before I was sexy at all, but it was starting to come in favor and a lot of different flavors at the time. And so I said, you need to really spend that.

    And, uh, you know, they did that and they were able to get a much, much higher valuation. And this, this wasn’t selling the company. This was doing a race, but these are the times when you want to think about your story and how it changes and how you can spin it, uh, to particular acquirers. Um, how do you attract these acquirers?

    That’s another one, Michele, literally by going to trade shows, literally by meeting your potential buyers at the bar at 10 o’clock at night at these trade shows, getting to know them, people like to buy from people they like. And that, and that’s the other thing too. So I know Michele, the process, you know, that we went through was about, I don’t know, it was about two months.

    We just think about two months, the whole negotiation due diligence. Yeah. What was probably the most stressful thing about that process? Well, I would say the most stressful thing I felt was, you know, it’s, there’s a lot of due diligence at the beginning and a lot of, of, uh, You know, let’s just say hard questions while each party is trying to get a sense of where the other person is on the price.

    So that is probably the more stressful part, but um, it also can be very fun as well. I know that might sound ironic. It’s, it’s, you really just have to prepare yourself, right? Like know your numbers and feel confident about them and why you’re At where you’re at and for, you know, and in my case, not just this, but in other situations like this too, don’t be afraid to kind of hold firm.

    That’s, that’s part of how negotiations work. Um, I also say to myself mentally, like. It’s okay if they’re pushing back. It’s okay if they want, are going to come back to you in a couple of days. Those are all really good positive signs. What’s not a good positive sign is if they go dark. So it’s, it’s kind of the thrill of the chase in a way, if I could say so, Colin.

    Yeah, absolutely. Uh, and we have, uh, Janelle on the stage. Is that how you pronounce that, Janelle? And I appreciate you coming on stage and, uh, I’ve added back and now we’re friends on the Clubhouse app. Um, uh, we, we lost him here. That’s okay. If you want to come up again, Janelle, um, we can have you back up.

    Here he comes again. What about Roland? I’m gonna ask Roland. Yeah, Roland’s an expert. He can, uh, he can come on here. There you’re back up, Janelle. Am I pronouncing it correct? Janelle, Janelle, are you able to, um, to, to, uh, yes, yes, you are pronouncing it correctly. I’m so sorry. I’ve been away from clubhouse for quite some time.

    And a lot of us have, a lot of us have, you know, more importantly, Mr. Colin and Ms. Michele, uh, this was some really great insights into, um, understanding, uh, the businesses. Especially that are tech focused and all. My question was particularly regarding businesses that are order book driven, especially their focus is on turnover, especially where, to be more specific, where the capital structure for the business is usually around 80, 90, percent debt, 20 percent equity in such cases, how would you, uh, justify the valuations?

    And at the same time, uh, what would be a very, I know there is no, um, black and white book, but it merges an acquisition because, uh, Um, so my question was regarding order book driven businesses, especially that are focused onto public sector infrastructure, where the capital structure is around 80 percent debt, 20 percent equity or 90 percent debt or 10 percent equity.

    In such cases, what would you do? Yeah, so when you’re looking when evaluators or anyone generally sophisticated acquirer, uh, comes in, they’re looking at a company, they’re simply going to value your company on what it is, and they’re going to ignore the debt. Okay. And then if there’s debt associated with it, they’ll deduct that off the purchase price and a lot of cases that did debt is not transferable in some cases it is.

    So let’s say your company is worth, uh, a hundred million dollars and you have 80 percent debt, then they’re going to give you 20 million. That’s basically how the structure works. I mean, there could be, if you have a locked in loan that was assignable, you know, you could obviously get a premium for that.

    If you had locked in at low interest rates. It could be something to that effect, but that’s generally not available in the marketplace. So I hope hope that answers the question really don’t care what the debt is. There’s deduct that off the The purchase price well, uh, the actual follow up question is so order book driven when I say order book driven is Usually say for example, you have a contract Um for 15 million and uh at the same time you’ve secured it You’ve completed that your company runs on a very turnover basis.

    So when you actually secure a bank guarantees, they are Based on turnover Um, the, the possibility of the future business, these work orders have been locked in where a certain part of the equity also gets, uh, So having that order book security of the work that is ahead of the company, does that play a crucial role?

    Yeah, absolutely. Absolutely. This is, you know, there’s a little bit of, um, a difference between a sizzle and a fact, right? So if you’re coming to the table and saying, you know what, we’ve been, we’ve got a pipeline. It’s amazing. We’re going to close X amount of deals. That’s a little bit of sizzle, but if you actually have contracts, you’re going to factor that.

    I mean, again, a potential acquirer will look at a company often we’ll take, okay, what’s the actual revenue that’s been committed to and earnings that’s going to generate this company. And then they might use a discounted rate. I mentioned earlier, private equity is probably using a discounted rate right now of probably around 20%.

    So they’re going to, you know, I think that’s too extreme by the way, but, uh, but the fact is you’re going to say, okay, if the company is going to generate X amount of. Earnings for the next 10 years. We’re going to discount that back based on on a certain percentage rate So, you know, they they will look at that.

    We do have a lot of people on stage right now Uh, Michele, so I don’t know if you want to moderate go to this And let’s just jump maybe to gaurav next. All right. Thank you very much for your input. Mr. Colin. Yeah. Thank you It really helps Absolutely. We are very interested to hear You Um, what your experiences or what your question is, Gaurav, you’re on mute.

    All right. Let’s skip. I see a Dr. Susie looks like she’s on the phone. So let’s go to Vincent and then we’ll come back to you, Vincent. Oh, Gaurav’s there. All right. Go for it. Hi. Good evening, everyone from India. Evening. So, so I basically I’m a technology innovator. I’m a technology innovator. Who created an absolutely original and technology, absolutely path breaking technology platform over five and a half years of immense and relentless, relentless hard work, but rather than being able to see the fruits of my labor, this business was stolen.

    And it was replaced discreetly with the failed startups business who are living my life for the last 10 years in spite me taking them to the court, which unfortunately in India do not favor the common citizens. And that’s the life that I have been living for the last 10 years trying to get justice and even getting my story out.

    Thank you. That’s what I basically wanted to share with everybody here on the podium. Yeah, it’s absolutely a shame that that has happened to you. And I feel for you. You know, often, um, you know, a lot of companies that if they, if they, if they can get patents and trademarks, uh, they can, you can increase the value.

    And I know this is not necessarily your case, but if you can, if you can demonstrate that you’ve protected the assets, um, either through patents or whatever it is, copyrights, trademarks, if you can demonstrate that those assets, that increases the valuation of your company. Absolutely. Absolutely. In fact, I have a IPR, I have a copyright legally valid for next 60 years as per laws in India.

    And in spite of that, that’s the, that’s the unfortunate part. And the business that had created was sold at a whopping valuation billion at its peak. Well, that’s incredible. Build some. Sorry, Vincent. Go ahead. It sounds like you can build some pretty great stuff. Rather than like, trying to find something like, you’re getting any headway on, 10 years is a long time.

    Like, if you dedicate yourself to something else, who knows, maybe you can sell it for like, three times that, 18 billion. But, right now, like, uh, unless you have any like, significant headway, I would divert most of your time towards new projects. Because I bet, I’m sure if you came up with one that was worth, like a walk evaluation of that, 6.

    4, then I’m sure you can do something even better the next time. No, definitely, Vincent. I agree with you. And in fact, that’s my whole takeaway from this learning that I’m now building more businesses because they can steal one of the things that I built. They can’t steal my skillset. Thank you. They can’t steal you.

    No, I love that. I love that. And you know, that. We talked about that in the book, um, about an incident when I was 28 years old, where we were running a publicly traded company, we agreed to sell the company, the stock went to over a billion dollars and I own 13 percent of it, and, uh, but I was locked up for 18 months, and the company went into receivership, uh, a year after the dot com crash.

    It was absolutely devastating, emotionally straining to go from, and by the way, it was the fastest growing company in Canada, number one. To last place finish within two years was a disaster. And I know we were not the ones in control of it, but you know, losing a hundred million dollars at the age of 28 was, was painful to watch.

    And there are two key lessons that I, we liquidity or control. And the second was bad things do happen. The world does change. There is a case for selling your business. And let’s just look at the first one, uh, liquidity or control. This means that if you ever going to sell your company, you are either in control 100 percent in control, or so you could sell 49 percent of your company.

    Generally. I mean, depends on on on on the structure that you use here, but if you were just to sell 49 percent of common shares, you’d still be in control generally. Uh, so you have control or liquidity. You have stock or cash, and I’m not talking about stock in a penny, you know, penny stock that someone’s promising that has no liquidity.

    I’m talking about a real company, you know, like a Fortune 5000 company or a Nasdaq traded company. That’s what we’re talking about here. The second, bad things do happen. Well, does anybody here remember 2022? We had the crypto crash. We had the tech wreck. I mean, e commerce companies, you know, one of them, one publicly traded company went from 3.

    5 billion down to 150 million. And by the way, that was pretty much every e commerce company out there. It was a complete wreck in 2022. We had the war break out in Ukraine. We had a hurricane, Ian hit the Florida, I mean it was a really bad year if you had businesses associated with each of these disasters.

    And unfortunately we did here at the incubator, but we managed to persevere and get through those periods. But I will say that bad things do happen, and that is a major case. For selling. I know you hear about people who want to hold on and build companies and get to that unicorn, but the world changes and things do happen.

    And I do believe, and that is the central thesis of the book. I do believe that start scale exit repeat is a better strategy than start scale keep, uh, and, and not repeats. And I believe that’s the case for multiple reasons. But the number one is. Bad things do happen. It went, you know, it hit me at 28, and I know it could hit other people as well in many different industries.

    So I’ll jump down now to Dr. Susie. Thank you for being patient. We love it when you come on stage, uh, and just out of your back. I didn’t realize we weren’t friends there. So, um, thank you for coming. Do you have a thought about exit and the art of the exit, a comment or a question? Dr. Susie, you’re on the air.

    She’s preoccupied, we’ll jump down over to Joe. Joe Slaughter, love having you on as well on the show. So Joe, what are your thoughts? So, I’m kind of in the opposite side. I know of a very sticky business with sticky products, and the owner at some point will want to be exiting. What are some, um, let’s say I do not have the funds, and if I’m currently working for that same company, There’s no way for me to surpass the amount of income in order to make that acquisition currently.

    What are some other ways that one could structure a A bid for a company. So you’re talking like a leveraged buyout, like an employee buyout? Is that what you’re thinking? That’s what I’m thinking. Okay, so this is really about the mindset of the owner. Uh, and if you’re on good terms with the owner, you can often structure something that will work in place.

    That will give you the ability to acquire the company over a period of time now Again, this is this really is is up to the owner to to really determine Uh, how reliant is this company on your abilities because that could be a leverage point as well

    I’d say i’m account acquisitions right now. Okay, so not not more. How many how many how many is it a big company? It’s like a how many Could you, could you work together with all the people in account acquisitions to do some type of buyer, but, but these things are, yes, I’d say the company is small enough that by the time that he’s probably looking to exit, I’d say half the company is turned over at that point or retired, right?

    Yeah. So, I mean, look, he’s. It’s a lot of companies. It depends. I don’t know what the type of company is. Um, some companies are highly liquid. They’re very easy to sell. Some are more challenging, especially if it’s some type of consulting business or anything like that. They’re much, much harder to sell, and they tend to be more candidates for leveraged buyouts versus, uh, versus something like a tech company that you can invest in.

    Or a real estate company, you know, a piece of real estate, you can put it up and you’ll sell it in two weeks. Right? They tend to have fairly good liquidity. So, I don’t know what the company’s in a situation where the liquidity isn’t as great as those type. But if it is, it’s a very difficult play on your head.

    If it isn’t, uh, and it is some type of consulting or some type of business that, you know, is hard. They’re just, frankly, some businesses are hard to buy and hard to sell. And those businesses that are hard to buy and hard to sell tend to be very labor focused or reliant on the owner to deliver what x, x and x.

    Um, an example of that would be, and it’s not to say this hasn’t been done, but an example of that would be, um, a landscaping business, right? A pool service business. You know, these types of businesses would be very hard to sell because even if you build up a book of business, It’s hard for for them to look to sell now that being said if you’re in a business like that and you wanted to sell And you know, you’re not gonna get top dollar or you’re very frustrated business.

    It’s better to find a structure that you can use versus Just shutting it down. We had a company up in Canada. Was it an outdoor media company? And we were just very frustrated. It’s actually, we had all the taxi tops in Toronto, Canada, and, um, we, we still have them all today as part of another company, but we met up with the competitor, you know, we got to know him over two, three years, we’d invested 1.

    5 million in this company and we said, okay, we’re done, but instead of shutting it down, we went to our competitor and says, would you like to buy it off us for 0? And I don’t know if this is possible in your case, Joe, so I’m just trying to throw out a model here. Okay. Would you like to buy it off us for zero dollars, but, um, and, but you’re going to give us a five year royalty, uh, of X dollars per sign per month for five years, which was basically our own profits being used to buy us.

    Um, and you’ll also give us 15 percent of the combined entity of the entire media company. And we did that transaction. It was working out really well for us. We’ve got back about a third of our capital after the, you know, 18 months, two years, and then the pandemic hit and the caps went away and it almost got ground to zero.

    Uh, however, very recently, cause we had a royalty set up for, um, digital tops, uh, 5 percent of the revenue of digital tops. Uh, we are actually hitting record royalties right now on that transaction. Uh, and so we’re getting pretty close to paying it off and we still own 15 percent of the combined entity, which means we got an upside event two years, three years down the line, uh, of maybe a couple million dollars.

    So, that being said, there are different models out there. I don’t know if that helps Joe or not, but I’m sort of jumping around a bit. It slightly does. Um, I’ve seen similar companies at this scale, maybe larger scale, go to employee owned or at least they just formally transitioned from uh, a two year contract.

    One sole proprietorship to an employee owned company after they exceeded 50 percent equity. Um, so I can see a almost like buyback as an option. Is there any, um, in this case, I would presume that he wouldn’t want to give up any equity until a certain date. But is there ways or language that would work well for saying, Hey, I’m going to make the offer, but in four years, it’s not really going to come to fruition until four years pass.

    Yeah. I’m not a, a, an M and a lawyer. Okay. So I’m basing a lot on just my own instincts here. And thoughts about this one. Uh, there is a structure where you could own it and have to pay a certain percentage a year of revenue for X number of years, that’s a potential structure. You know, here’s an idea. I’ve never done this before.

    I just come into my, it’s just going through my mind right now is if, if, if you could find the right private equity partner that you would go to the private equity partner and say, okay, here’s what I’d like to do. I’d like to work with you. To acquire this company again, I don’t know the nature of the company, but that could potentially be a way of buying the company.

    Now, again, you’re not necessarily in control of the company. This is a private equity firm. And if you remember, I just said liquidity or control. But then if you have multiple shareholders with employee ownership, that can also be a model, a difficult model to manage as well. Um, so, I mean, there could be alternatives, but if there’s some way you can Uh, leverage the company upon say, you know, so let’s say, uh, you’re able to get some financing on this company.

    Let’s say it’s 50 percent of the value of the company. And then he were to take X percent of revenues or earnings for X number of years, uh, then, then that would be, and you were in control of the structure. Then I think that might be a model that could work in that particular situation. Um, I, I’m not a corporate lawyer though.

    Cool. And I haven’t had experience doing this. So that’s pretty much all I got on that one. I don’t know if anyone else has anything to add. Um, so, um, Mr. Joe and Mr. Collins, these were some of the really amazing inputs. So this is just an experience I had when I was planning on an acquisition of a manufacturing company as a backward integration to my business.

    Um, So it was, uh, something very predominantly focused on, uh, constructing, uh, the metal, uh, girders that actually goes on the bridges, uh, especially for Metro and rails and everything. And, uh, the deal was practically structured in a way that my whole hundred percent acquisition would have gone into effect over the course of four and a half years.

    Um, the, uh, we spent, uh, Five to six months. I did actually have an access to a corporate law firm who was doing a little bit of diligence on my end. And, um, there was an investment banker as well. So, um, it was not more of a leverage buyout. It was more of a management buyout because, um, the top management of the firm that was being acquired, they had already, uh, reached at a certain Age point and everything.

    They were not looking to get into too much risk or anything as such. The only reason that it actually fell through was because my line of work, it truly requires on the promise and the pipeline of the projects. And it’s one of the main reasons why I did not work out. One thing I learned that over the course of four years, how they had structured was there was always a part of profit sharing because this was a manufacturing business.

    This was more of a backward integration to my business itself. So yeah, there’s that. And, uh, whatever the earnings that would come out of the business, it was always going to be pumped back into the, uh, existing form. And over the course of four years, you slowly, steadily, you just keep on buying equity.

    From the earnings itself. So our first target for the first year we had set for uh a project For manufacturing at least in 300 metric tons of metal girders But yeah, it was not sustainable over the course of four years So I decided not to go forward with it, but this is just my two cents on it. I mean, I hope this helps No, thank you.

    Thank you for that Go ahead, Joe. I was just going to say thank you for that advice. Yeah, uh, I like it. One thing about any structure you think about here, I want you to think about liquidity or control. Uh, if you get, you know, it could be a model where you start, oh, I’ll say 10 percent equity, and then you get up to 40%, and the guy’s got control, and then he pays himself a million dollars a year salary, sucks all the product.

    Like, it’s, it’s, if you’re going to go down a structure of this, you got to figure out a way of getting control. Okay. The owner’s going to get paid out, but the owner’s going to get paid out with you in control. And that’s something I would just, I would not, um, I would not, I would, I mean, the only other way that they would get control back is if you didn’t make your payments or something like that.

    I mean, you can have some type of reversal clause like that, but as long as you do everything on your side correctly, you should be, You shouldn’t be screwed, you know, if you work for four or five years to do something like that. But in any case, um, I did want to mention since you brought up lawyers or we brought up lawyers here is that a good M& A lawyer is absolutely critical for an acquisition or a sale of your company.

    And sometimes the lawyers can mess up the deal. So you really have to plan this out when you’re working with your lawyer and going into that negotiation, you have to talk about what are the things that you really care about and don’t care about. And I remember in that negotiation with GoDaddy Registry.

    We, uh, you know, there were about, I’d say about 30 times I would literally override the lawyer. And by the way, it was a tactic that I used. I’d override my own lawyer and give in, in front of all the negotiators, making the other negotiator look really good. Uh, and of course it was something I didn’t really care about.

    I know sometimes the lawyer did. I remember one, we had a big argument about jurisdiction. The lawyer was going on for 20 minutes. It has to be in Florida, Florida. And then they said, no, we always do deals in Delaware, Delaware, and I’m like, okay, that’s it. You’re done. You’re done talking. We’re doing it in Delaware.

    That’s it. Move on. And the other side was like, okay, this is pretty, you know, and it was great because it gave you some, uh, it gave you some capital to try to negotiate and get stuff you really wanted. And this also, this deal also included a complicated earn at now. I want to distinguish a couple pieces of transaction.

    There is the amount paid up front. Sometimes there’s an earn out and sometimes there is a hold back. Okay, hold backs are typical and they typically run about 10 percent of the value of the company. It can go higher if you’re doing a stock, you know, a stock, you’re selling your stock and there’s some risk associated with the stock.

    Uh, it can go a little higher than that. Uh, but that’s typical in deals that I’ve worked on the, uh, an earn out is something that you should be very wary of, especially if the company’s smaller. Um, but be weary and if you do go down a path of an earn out, you really need to document and think about every potential scenario that can occur.

    So there’s a couple of thoughts. We have Eric on the stage. Let me add Eric, and we didn’t go to Vincent yet. Oh, my gosh. You’re right. Vincent Vince has been helping us out with the other and he’s been so patient. Sorry, Eric. Oh, uh, so patient. I took a call. My bad. I’m so sorry. Um, how is everyone today doing?

    Well, I hope I’m actually on Starlink right now at the remote islands in, uh, Western Florida at one of our Airbnbs, actually, that we rented. Sweet. That sounds great. Um, yeah. Uh, I come to see if I can add value in any way and garner any information or knowledge I can. Because, well, this is a place where I can give and receive help.

    Uh, currently, I’m just painting because, uh, pfft, I was for a long time, uh, seeking, um, investors, but, uh, I realized, um, I’m also an abstract painter. That I could, I’m trying to figure out a way that I can create an AI model that, well I already created an AI model that I put on like Sotheby’s and other auctions, uh, blah blah blah.

    Techno, techno mumbo jumbo that I don’t need to talk about. Uh, but turns out I can just, uh, get my artifice and then leverage that and have the bank. Give me cap credit. So, um, yes, I’m painting today.

    That’s awesome. That’s it. I love the way you come on stage and share these ideas with us. You have a lot of great ideas. All right, Eric. Eric, thank you for being patient. Good afternoon, everybody. Um, with respect to Joe’s, Inquiry or his question, um, you know, there’s also, uh, uh, an opportunity for, um, executives, uh, in the company to, uh, maybe sit down with the ownership, have a, um, you know, a quarterly meeting, put some goals out there and ask ownership.

    If we meet these goals on a regular basis, uh, you know, can, can we get some equity in the company? Um, I’ve seen it work before and I just wanted Joe to hear this, but, um, you know, it could be a possibility. Yeah, I wonder though, Eric, I mean, about this idea of, you know, actually having control though. So it’s one thing to, to pitch, you know, the owners, um, the need for you to getting options in a company.

    And, and by the way, I, I, if you believe in a company, you believe in a concept, you believe in a leadership, absolutely pitch for options, absolutely negotiate for options, because I think that is something that, Can really increase your, your, um, wealth in life, um, for, for multiple, multiple reasons. Um, but, but in some cases, if you could go down that path and the owner, you know, you could work, work, work for five years and then.

    The owner still pulls the rug out from underneath you unless you have some form of control. Any thoughts on that, Eric? That’s the, that’s the necessary evil of a corporate attorney. Making sure, making sure it’s in writing. Yeah. Contract is king. Yeah, and everything’s gotta be in writing. Everything’s gotta be done correctly when you’re on exit.

    This is not the time to cheap out on lawyers. This is probably not even the time to use ChatGPT for your legal documents. I know that I’ve been using ChatGPT for multiple legal documents and in a lot of legal work that we run here. But, um, but that being said, uh, we talked about the type of buyers, uh, and the arbitrage.

    You know, we talked about the people. I don’t know if we really touched a lot on the people yet about how important it is at the time of exit to check your ego at the door. Elevate the team around you. See, one of the things that you, you know, most entrepreneurs don’t realize is that when they sell their company and they pretend to sell themselves off as the leader of that company, the sophisticated acquirers know that the vast majority of entrepreneurs will never stick with that company.

    Over three years and we’re talking. I don’t have an exact percentage, but we, but we know it’s, it’s, it’s, it’s gotta be 80, 90 percent of offer. So they’re gonna want to see a company that can run independently from the, uh, from the owner. And if the owner goes in there banging their chest like I did this I did that i’m amazing i’m amazing All you’re doing is devaluing your property.

    You want to you want to add value to your property you need to Authentically step back and by the way, I tell people, you know year two before sale you want to prepare for sale this is the time to literally Stop paying yourself, you know for two reasons one If you’re going to be sold on an earnings multiple of let’s say even six times or eight times multiple You You pay yourself 200, 000 a year.

    Well, that’s 1. 6 million that you just added to, um, that you just added to the valuation of the company. Now, second to that is be authentic and actually have the team run the company independently of you, because that can help you can still be involved in strategy and high level and whatnot, but step back, you’re, you should not have the title of president.

    When I sold dot club, Michele here, she took over as president. She ran the company for. Two, two, three years before it sold right now. She’s running another company called paw. com. And, you know, obviously we’re going to, we’re interested in selling paw. com. Anybody interested in buying? Uh, but she’s in the process of turning that company around and making it successful.

    So it’s really about check your ego at the door and elevate the people around you. Any thoughts from anyone on stage about that concept? Michele, starting with you. Yeah. I mean, negotiations go really bad. When people just start, um, you know, dealing with their own personal egos, because look, if you’re trying to sell your company, like Colin said, they, they don’t care so much about you, or at least they shouldn’t, unless there’s some specific reason they’re just trying to buy you.

    if you’re Elon Musk or whomever it might be. So it’s, it’s critically important. But one thing I was thinking of while you were saying that Colin is, you know, how much you have your people involved and how you position them is absolutely critical and how you treat them throughout the whole process. So What’s your opinion on that?

    Like how much are you disclosing to your staff? Like where, where do you lay down the line here to give the, uh, folks here a little bit of, um, more insight. Yeah. I don’t think you want to pull your team in or your staff in unless there’s a few key people close to you. And so you really are serious and going down the path and I want you to think about all your key people in your organization.

    What is in it for them? This exit in the case of dot club because we sold to a competitor. They eliminated all the staff, but every one of the staff members had options in the company. So they were getting a nice payout. This was also a, uh, something that benefited their resume. They were involved in a very successful exit of a company.

    And a number of them have gone on to do very successful things outside of, um, uh, the incubator or the companies that I’m involved with. So, you know, that what’s in it for them. Let’s think about that. And that’s important. I do think that you need to bring people in at the right time, but you really don’t want to be, Oh, we’re talking to a private equity guy this week or that week.

    And just freaking everybody out. And they’re all worried about their jobs and what’s going to happen a year from now. No, unless it’s really, really serious. You want to keep those conversations very close and tight to your chest. I know we got six minutes left here. Michele, sorry. Yeah, I’m just going to add, you know, before we end today, another important thing here is you don’t want to distract the whole team because the last thing you need is for everyone to be worried or change directions.

    You know on strategic, you know goals or initiatives that you have in place that could really mess things up Not just for yourself, but for them too quite honestly Because hopefully you have treated them well and they have options or and they have something there or maybe they stay with the company Like many times that does happen and you want to make sure you set them up All right.

    We got a couple more speakers coming back on two more speakers to go. Um, Raku raku, I hope i’m pronouncing it correctly Raju, uh, you’re up next. Colin, uh, good evening, good afternoon. Ragu, like a, like a spaghetti sauce. I love it, I love, I love ragu. Yeah, um, oh no, I’m just want to thank you for this wonderful room, always.

    Dropping gems, you know, and, uh, I’m here to pick it up some good. I just wanted to bring it to your attention maybe next time, uh, because you probably, uh, don’t have time now. Um, this mj.com, if you noticed, uh, gone on a fractional sharing kind of thing on a, a road rally. Do you know about that? What’s going on?

    No, I don’t. Did they sell? Uh, yes, they are telling us shares. So, MJ. com I’m not a good way of presenting it, okay? So, pardon me for this. But, I’ll just tell you. MJ. com was fractional at Go, um, RallyRoad. com. You can buy a share for 20. They only have, uh, million dollar shares. You can buy it 20 per share, and you can be part of MJ.

    com. And future lives, you can imagine the value of MJ. com. A two word name. So it’s a big news, uh, in our domain, uh, space. I love it. And you know, we’re definitely veering off here of the main topic. And we’ve got to run a show in the next few weeks about this because, uh, raising money has become so much more interesting in the United States.

    I would make certain they’ve done their documents correctly. Never invest in a company unless they’ve got their documents done correctly. And no one can solicit for securities no matter what, unless they have filed with the SEC. Uh, this is, um, they can do it under REG CF up to 5 million and under REG A plus up to 75 million dollars.

    So there are options out there for assets that can be collateralized or broken down into tokens and whatnot. Just make certain they’ve filed with the SEC. We have a project here on North Cap Tiva. We’re considering three houses. It’s a 5 million dollar project. We do a REG CF and we sell tokens for 10, 000 a token.

    But again, if we solicit whatsoever, we have to file the right documents. Usually we also add a private placement memorandum, which includes risk factors as well. But I don’t want to get into that right now. Dr. Yang, you’re last up. Any thoughts on exit or questions? Oh, hi, Colin. Hi, Kel, Mimi, everyone. I just got here a couple of minutes ago.

    I missed this session. Actually, I haven’t, uh, going to this startup room for ages. Uh, So I mean, I’m thinking to start up to have a startup. So only can get some, uh, uh, knowledge or partners from this room or something. Um, are you with me? Or

    so you talk about that? Yeah, I can hear you. Yeah. Yep. No, thank you, doctor. We’re out of time though. Um, and I appreciate you coming on there. Uh, I would like to say that, um, this was a very interesting show. So we, we’re going to, I think we’re going to extend it into next. Week as well. I don’t know. Mimi, do we have a guest speaker next week?

    I can’t remember, uh, but if we don’t, we’ll extend this. We’ll do R to the exit 2. 0. This is actually going to be the topic of a master class, uh, which we’re doing on Entree, uh, with a PowerPoint presentation detailing, uh, the things you need to do for the exit. And it’s it’s a free master class that we’re putting on.

    And after after the live session, it goes into the, uh, Um, content of Entree, which you need a 300 membership to join. I think it’s 300 or 250 or something like that. Uh, so if you want to catch that, you can check it out on the calendar on startup dot club. We also will send an email out about that. We have some really incredible announcements coming up.

    Uh, we also have a book deal coming up where we’re going to get you, um, this one particular author is coming on and he is going to offer the book for 24 hours at 99 cents on Amazon. So And we’re going to uh announce that on the email list But if you’re not on the email list go to startup. club sign up to the email list.

    There’s giveaways. There’s we usually announce Speakers shows a lot of cool things, uh big big announcement this last week There were two announcements on the book. We were one of three finalists for the ibpa benjamin franklin awards uh, and uh That was just incredible to think this was the You One of three, uh, finalists for, for the business book of the year and, uh, that’s, we’re going to hear on April 26th.

    I’m flying to Colorado with my wife and, and we’ll see if Start, Scale, Exit, Repeat can take the top business book of the year, which would be really, really cool. But even better than that, this last week, Kirkus. One of the most prestigious rating services, uh, gave Start, Scale, Exit, Repeat a star rating, something they do on only two to ten percent of books that they review.

    That is considered to be sort of the Michelin star of ratings. We’re pumped about that. We worked so hard on it. You know, the team. You know, it was really 10 years writing it, two years with a team of six, putting this book together, over 200 interviews, uh, of which 50 made the book. It’s incredible and couldn’t have happened without Startup Club and the community of Startup Club.

    If you haven’t already got a chance, grab the book and sign up to the email list. There’s so, Oh my gosh, we’re doing so much with AI coming out on startup club. It’s free. We do this for free, absolutely free. We don’t have any masterclasses. We don’t sell anything. We do it for free because that is our passion in life, right?

    Mimi to help and Kyle to help others, to help others succeed, to make a difference in the world. And that’s why we do everything we do. So please sign up to that email list and get some of the free stuff. We’re going to start sending. Sending out to you. All right. Very good. Thank you all. And we’ll see you next week.

    Mimi, do you have next week’s show? Is it? Yes. We don’t have a guest, so we can continue this conversation. Yeah. Cause we didn’t even talk about timing is half the value and selling your systems and all these other really interesting things. So come back, uh, next Friday, I might be on a plane, but if it’s not next Friday, it’ll be the following Friday.

    Colin, um, just real quick. Um, if you were doing anything on AI and trying to help people, um, all in, uh, and by the way, I’m about to hit your Instagram with the painting I just did. Um, like, uh, but very much so. I’m quite knowledgeable on a lot of these tools and I’ve been a practitioner and engineer. I just want to make sure that entrepreneurs and businesses are choosing them the way that they’re most optimal.

    So, yeah. Yeah, so we have three projects in the pipeline. The first was the, it was taking the book and all the shows. We’ve got 140 podcasts, uh, and all the small short videos we’ve done. So if somebody can go to this search engine, simply type in a question like, how do I exit in this show? We’ll pop up. So there’ll be four or five shows about exit.

    There’ll be short videos and there’ll be segments from the book that they can. They can look at the second is businessplan. ai. com, which is a free business plan builder. Uh, and the third is pressrelease. ai. com, which is a free press release development, uh, site to help you build press releases. So those are things coming down the pipe and you’re going to hear more and more about that as part of Startup Club.

    This community is more than just about us. It really is about building tools and helping, uh, entrepreneurs launch their startup. Yeah. Uh, That’s, uh, I’m about helping people, so, uh, if that’s what you’re working on, I, each one of those things, I might be able to add some value, too. That’s awesome. No, no worries.

    Just, uh, put it out there because I appreciate you. We love that. We love that. Thank you very much, and we’ll see everyone next week. Bye for now.

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