Today we are playing a drinking game on the podcast and we're playing never will I
ever and it's a game where we're talking about all
the mistakes that we made when we were selling our company and saying never will we ever make this mistake again, and if you ever want to sell the company or you sold a
company if you sold a company you're gonna be able to relate some of these mistakes. I'm sure if you want to someday sell your company, it's good to listen to so that you don't have to pay the same price that we did and make these mistakes. So go ahead
grab a drink. We're playing never will I ever and start stepping on?
Drink while we tell you about HubSpot our partner for this episode. Are we going to get back to the episode of second but I got to tell you about our sugar daddies the ones who make these episodes possible. That's right. We're talking about HubSpot because it's Q4 and this is where deals to close. This is where in my company we call people
Champions when they closed the year strong if you want to hit your Revenue targets,
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so that you have one place where you can find track and close all your deals. You got to be organized.
You got to be on top of things. You got to be taking the data from one place the tools I've got your whole team involved. That's why you need sales Hub. I got to tell you you got to stop sticking to the old strategies that we're getting you the old result and start
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HubSpot.com / sales. All right, let's get back to the pot.
I feel like I could rule the world. I know I could be what I want to do days on three. We are talking about how to sell a company. And in fact, we're talking about how not to sell a company. These are mistakes that we made selling our company. So Sam sold the hustle to HubSpot and a big deal sold to a public company. I've had two exits now under my belt.
Alt and I have sold one to a big company Amazon and one to a small group of private buyers and every time you sell your company you learn a bunch of lessons, but we're going to make this fun. So if you've ever played the drinking game never have I ever we have a new drinking game for you MF m style, right. This is never will I ever and never will I ever is a game where we say never will I ever do blank again? Because we made so many mistakes. We made these mistakes so you don't have to we died.
So you don't have to hear and if you listen to this, you're going to be a lot smarter when it comes to selling your company Sam. Are you ready to play the game? What are you drinking? What's your drink? I mean, I only have a brain juice after but I got some greens in the morning. I'm looking a little athletic and I guess of greens not sponsored but you know send me a free box. Yeah. No safety 80 bucks a month dude. I have a ton of it. I drink it once in a while. It's really hard to stomach for me. Do you like you could just drink that plane? I love it plain and I love that. It doesn't taste that great.
Eight because to me, I don't want my healthy shit tasting good right? I don't like my hot people to be funny too. I don't like when things are not supposed to go together go together. All right. They think I'm a trifle comedian. Nah Tink looking. I'm not watching that special number one and Netflix. Yes. That is all well. You're pretty funny. What does that make? You pretty ugly should be. All right. What how do we want to go about this? We have a bunch of points here.
Which one you want? Let's start with the most straightforward thing. Okay. So never will I ever you both we both have this one ignore qsb a these.
I'll drink to that. Yes now explain when you say ignore Q. So yes, what happened here
to SBS for those who don't know. I didn't know about it until like a year before I sold my friend Jack Smith told me about it Q SB s. I'm going to try and state the law here, but it says so it stands for qualified small.
All business stock Cube SBS protects up to 10x of your investment for long-term capital gains taxes of 10 million dollars or 10x your initial investment what that means and a lot of people only pay attention to the 10 million dollar things. So with two USBS how long you have to hold it your stock in five years. Yes, so you hold a small business stock. So a privately held company that's a c-corp and you have to hold it for
Ten five years and it has to be valued originally or the assets of the company, which is the value has to be 50 million or less you hold it for five years and you can save 10 million dollars in capital first
half million when you smell so like let's say you sell for ten all ten would be tax free for at a federal level and many states also honor qsb. Is that California, but many states also do so, you could walk away paying zero in taxes if you sold for ten million dollars.
H which is remarkable or
now, here's the or part that a lot of people forget or you can save up to ten times your investment whichever is greater the 10 times or the 10 million. Now what that means is let's say that theoretically you start as an LLC or you don't have a your company is invaluable to start as an LLC and you convert to a c-corp and when you convert you value your company and it usually has to be done by a third party. So as to be reasonable you value your company, let's say
Doing 15 million in Revenue. Let's say you're doing 20 million in revenue. And you say great. I think we're a 40 million dollar company. You get the third party that does it so you can save 10 times 40 million dollars in taxes
400 million dollar. That's a 400 million-dollar tax shield right there.
Yes, and I know friends that are doing this now this this this this law a lot of people don't know about it. It's maybe besides real some of the real estate laws tax savings in real estate. It's probably the greatest thing there. Is
it worth it.
Better better. You think it's better? It's better than real estate because in real estate you have let's say depreciation or the 1031 exchange. These are great, but they're deferrals whereas this is not a deferral. This is simply you just have a you know, you have a exclusion on 100% of your gains up to some number. So it is way better than a deferral is way better than real estate was talking to real estate guy yesterday and I said, I have the greatest tax thing that no real estate guy has he what do you talk about real estate's the most tax advantage I said, yes, but you don't have cute.
Because real estate is not eligible for USPS only certain types of businesses can do it. But like like say I'm saying you could stack it. So for example what some people do they have just BS for themselves, but it's per tax return so you could do it for yourself. You can create trusts for your kids and give each of them equity and then each trust gets a 10 million dollar exclusion in addition to your own so you can have you know, I was joking out with a Q SBS guy and then he's like, yeah, if you have three kids I can get you I can get you 40 million 50 million in Q SB s
And I was like I was like, oh this kid I have you know, this next kid. I'm gonna have this is this is just a walking Q SB s Shield here like this is awesome. And it used to be that
it was like does that mean that your kid when they're but we're your kids at the age of 18 have say in control of your
business, but they're 18. I mean exhibited by them by then, right like but they're going to have the maybe not but they're going to have a just a small Equity same thing and get the majority. Right like you're just giving them enough so that they have a shield they have like
Have less less tax and you your while they're miners. You control the state. You can always you know, sure I don't know but I don't think what a lot of people having is like little kids that 18 years later are like succession hostile taking over like the company as they band together. I don't I don't think that's the that's the thing to worry about
and we'll wrap this one up by it with there's a big-ass fix here, which is this I don't like calling it a loophole because that's not good. First of all, I hate that word loophole because loopholes are good loopholes are
Eagle like when someone has a loophole I'm like, okay. So what you're trying to spin this - but like you're just following
along tying a shoe without a loophole, huh? Yeah. Yeah. It's essential to be able say shortcuts there. Like that's that's a
shortcut. I'm like, well, I love shortcuts if I can arrive at the same destination just as safe and faster than a long cut. I'm taking the shortcut. But so this loophole there's an Asterix here because I think two years ago it was it was up to vote if they were going to tax it and the idea was
They might make it only 50% or so. They might reduce it by half. I don't know if this is going to be in play for how much longer this is not like real estate. We're gonna last forever. Right? Right.
Yeah it is but it's been out for a while and it's amazing especially in the in the tech industry. All right, so my turn never will I ever just shut down a company without trying to sell so well drink have a drink for that. I before I sold before my first
And exit I had built many companies many products before that and they all had reached some version of like, you know an outcome some really had no no momentum some had like some momentum but not break out and it will either wasn't worth your time, or was it able to get funding or whatever?
I specifically remember one app that we made that was if you remember bitmoji, we have basically made an app that was like way better than bitmoji. It just like
and bitmoji was giving you an like a personal a little character for yourself
that would be in these and it would give you that kind of like these stickers that were in funny like positions or phrases. We had made an app that was even better
making the world a better place one emoji at a time
exactly a bunch of emojis are one of the greatest products ever right self-expression there so
Oh you we had made an app that created a character of you and then you could and then you can type any word. You can just type hashtag whatever book you down and they would make your character bookie down and we had every like whatever you could think of like you could put you could say hashtag single ladies and it would dress your character up like Beyonce right away doing the Single Ladies dance, like whatever you could think of we would be had because we would just every day we would rank the top tagged terms and our
Create like hundreds of these per day. So very quickly. We had tens of thousands of combinations really fun because you can just type something in just to see does it do it or not and people do this. We got half a million people to download the app in the first month. They were just pounding like tons of these little stickers. It didn't have great longevity, but I had this amazing novelty factor and we were trying to do it as its own messaging app, which was too hard like people wanted WhatsApp. They wanted facing messenger. They wanted all these things.
And I wrote this blog post called by hundred million dollar mistake because we took that and we said well, this is not really sticky as a messenger. It's not big enough where you're going to get all your friends a switch and start texting you here people love the character. They love these stickers. We don't want to build a sticker company. So I guess we'll just crumble it all up and just Kobe and just throw it away. And that was so dumb in retrospect. What we should have done is taken that little app to all of the existing messaging companies and be like, hey this feature is
All building. This is not easy. We've already built it we've proven that people really like to do this. Look how many like the average person is doing 60 of these, you know, just buy this and put this into your keyboard and shortly after bitmoji sold for a hundred million dollars to Snapchat doing exactly that because they couldn't make it as a standalone app either and I have no idea why our Instinct was just to like just pivot just turn it off and pivot versus like take 30 days and have like five conversations. Even if it doesn't
Go through like you owe it to yourself after, you know, nine months of hard work or a year of hard work and creativity on something. So never will I ever just shut it down.
You said we got 100 or sorry. We got 500,000 downloads in 60 days and had a brief moment at number one on the charts before falling into mediocrity. How much could you have sold this for
easily tens of millions easily like, you know, you think so either wasn't going to sell at all because there's only like eight buyers for this there was like eight messaging that there are major.
The time was like line and kick and you know, what's happened Facebook Messenger is Snapchat those although you know, there's eight players that like could benefit from something like this and either just wasn't going to sell at all. But like that's actually I'm like me there's a price there's a kind of like a price for every buyer. The hard part would have been our team wouldn't have wanted to go with the acquisition and so we would have had to like
either try to just sell the tech which is really hard or sell the whole company including the team and then disband for a year then come back together and we just you know, we didn't but with the thing is we didn't even really get to that point. Like we should have gone and see more options were right like in poker. If you've already paid the blind will just see the Flop. Maybe you maybe something good will come out of it and we didn't do that. Did
you by the way your if you Google hundred million dollar mistake, so I'm Perry. There's you have a medium blog. You've got a lot of good post here.
So if you're listening go check it out. Did you not and this might bring me to my point? Did you not sell because you're in main investor didn't give a
shit. No, it literally just didn't come up. It's not like we had a conversation and one get one side said yes, and one side said no one we debated it. And then once I said, no, I have the voting control. Hell, we don't even think about it. We just moved out. We literally had lunch and then we just moved on like it was just like it's the worst types of mistakes the worst types of mistakes are the ones where you didn't even really explore the possibilities you didn't even
Ask yourself. What could I do hear? You just sort of quickly glossed over. It didn't didn't give it the thought to make a decision. It was a non-decision
decision.
That's like your third or fourth or fifth multi like 10 multi tens of millions of dollars in steak. The first one being not joining stripe as employee 30 or 50 or something like that and not selling this app. And I think I think you might have
a food arm. I'm Shooter McGavin and Happy Gilmore when he says I pieces of shit like you for breakfast and then have you ever goes you eat pieces of shit like this. That's me. I've made mistakes more expensive than your net worth is like you made Stakes like this. It's like a multiple multiple.
All right here I've got one never will I ever act desperate you have on here you will only have one option. That is the way that not act desperate. That is one way but when I was building my company, I wanted an exit so badly like
give me an analogy on the spot analogy you wanted to exit as bad
as like a 12 like when I was 12 years old 12 years old and like a cute girl like, you know, like complimented my braces. It's
I want to close this so badly. I'm emotionally invested. If you don't like me, no one will like me and I'm a piece of shit. I was so desperate. I had all of my personal net worth my emotional net worth tied into this exit and I acted like a little bitch and one of the ways not to do this is to have multiple options. That's the easiest books must tactical one is to have lots of options. The second one is you just don't you basically have to
Act like a hot girl. You're like look, I don't care. Right like I'm going to be fine regardless and I remember there was one point do track your like your finances somewhere. I have like a spreadsheet and I remember one day. I just added like 10 million like you have like an other account so you can link all your accounts and I just had other and I just manually typed in 10 million dollars and I would stare at that for like six months and actually helped me believe that I already had it and so I was a little bit less desperate but I remember being desperate and when you are desperate you have zero.
Power and you have zero power. That is the worst part to be in when you negotiate in the best part when you can negotiate is to walk away and the and to be able to walk away and to be able to walk away. You typically just don't give a shit. So you're just like passionate about whatever you're doing and you don't need the money or you have other options and I remember being desperate and that just like to that 12 year old girl who was into me Aaron, you know, like they could sense it. They could make it smell the firm the the hormones.
As I do like Eddie what gives any hot girl could tell would be desperate they can tell what a confident man is like and I was not a confident man.
Can you put your retainer back in it's the same thing, right? Yeah, the you've nailed it and that last bit which is the rules the rules of a nigga of negotiating when you are when you're trying to sell your company number one. The most important rule is you must be okay, if no deal happens meaning not just like I'll
All right, like, you know like a funeral has happened but you might you know option one should always be we do no deal and we're totally fine. I would love to keep going and whether that's true or not. There should be no grieving, you know greeting Vince yourself that that's true that you don't want your options to just be offer a number one or offer number two, because guess what often everyone's going to have some hair on it offering a 2 is going to be a little shaky maybe fall through you're going to start to feel real desperate when offer to falls through and now it's only offer one on the table. You always need the 11.
Option on the table that you can control which is I will keep running my company it will grow and just be bigger and better if I keep going and you have to convince yourself of that. If you want to have a chance in these negotiations. The second rule is in any negotiation the side that cares the least wins and so you have to be the one who needs the deal less than the other party. And so whether that's true or not. It's a mentality. You must mentally need it less than the other side. You must mentally care less.
The other side that this deal goes through exactly as is if you could do that, then you're in pretty good shape.
All right, listen up one of the greatest things I ever did at my old company the hustle was I hired this woman named Step Smith step is amazing. She is so good at breaking down companies and help me give me predict trends of which businesses are going to blow up and she's so good. In fact that Andreessen Horowitz one of the most famous Venture Capital firms in the world. They stole her from me and they poacher from me. That's okay. I still love Steph and now
She's the host of their podcast called the a 16z podcast. It's their long-standing and chart-topping podcasts. And it's awesome and step is the host step comes on MFM my first million all the time you guys love her. She's a fan favorite and she's one of my favorite people and so you should check this out. So each week the a 16z podcast gives you Insider access to the people and ideas at the edge of innovation stuff sits down with luminaries like apples co-founder Steve Wozniak Neal.
Then and all types of amazing people. So check it out. It's called a 16z podcast. That's all one word a 16z podcast check it out. And you know, which deal is the best deal the one that will actually close that's another huge learning not all deals are the same the one that will close to close a deal. It's a really big deal to get an offer and go through diligence. That's not nearly as big of a deal you and I have both gone through stuff where the offer was great.
And the the people buying were either disorganized they were shitheads. They change their opinion something you want to do the deal that will close. That is the best deal
that that is one of mine as well. I put never will I ever go with the highest offer sounds confusing. It's like, what do you mean? No, you know, why would you not take the highest offer you want to take the best offer not the highest offer and the best offer in the highest offer have a lot of differences. The one of the difference is what you just said.
Likelihood to actually close. Will they do what they say they do they say they will do I'll give you a story from the milk Road sale. We had a high offer in the we had a fair offer. And at first we were like hell, yeah, we got the high offer. This is great, but they did a bunch
of weird stuff though.
There was some red flags, but hey dudes, like, you know, like anything else, you know, when something's really attractive a red flag is starts to look just like a it's like that maroon actually, maybe that's maybe that's orange, you know like that.
Read you start to overlook and talk yourself out of
a bunch of things. Right? So like what was one of those red flags? Can you say
they had a lawyer that would jump on the call that refused to ever turn his camera on had no LinkedIn sent us a document. That was like the term sheet that looks like our lawyer was like, there's no way a lawyer wrote this and we were like, okay, it's probably not good that they're lawyers. Not a lawyer but we don't understand also why why they would not have a lawyer. It's like it's this guy's friend. They says he's a lawyer.
that's like so strange is like they're not like scammers, but can you turn your camera on and you know, like
it was weird. This is like a little bit weird. That was like one. I
think they sent you money. Then they say well you were sent money.
We went down the path. We took the offer and there's a time to close but the again one of the stupid things they did they wrote the offer as when we signed the term sheet, which is not the deal is not closed you sign the term sheet. They wired us all the money. They had two wires all the money on day one, which again was like, I just can't see that's why are they doing that? That's not how
The supposed to go but we were like well, I guess we're getting money. So like what do you know and it was during that kind of closing period that we started to get a little sketched out and said look, I don't think this is the right deal for us. Maybe we should just go back to options one. We'll just keep running our company. We don't have to do this deal. So we wired back millions of dollars voluntarily because we had made the mistake of going with the highest offer first and the best offer is a combination of it's likely to close.
Tell you a funny story about that the people involved are high quality and they're people you want to be around because it's not a sort of hit it and quit it. You're never going to see these people again, like business. Even if your deal is kind of like you walk away clear. Like I don't know the business world is actually kind of small you run into people. They now own your company your brand like you don't want it in the wrong hands you'd rather do business with great people who you might do more business with in the future, which is what we ended up doing. So the best offers different now, let me tell you a story about
A about likelihood to close so we get this High offer and we're comparing the high offer with the fair offer and I call Balaji and people do biology is one of the smartest people on earth I call biologist apology. What would you do if you were me and he's like, well, that's a higher offer. But let me ask you a question. Have you of course like intelligent people can get to the heart of the issue right away. Like he just like a metal detector. Just knew and he goes are you negotiating these on the
Tank same time scale and I was like, I don't know what that means. He's like, who did you talk to you first and how far along how long have you been talking to them and how long you can talk to the high offer? I said, well, I'll talk to the fair offer way earlier. We've negotiated a treaty negotiated it they've done diligence and the high offer is new bubble, I guess. Okay. So this is not the real offer and he's like you need to apply a discount. I said, well, what do you mean? He's like, well, you don't know if this deal is going to close. You don't know if this number is going to stand you don't know if they're going to change their mind. They said this is
Fresh and a fresh deal is not the real deal. And so he's like you need to just mentally apply some discount factor for if this is even is going to be the final offer that gets sent to your bank account. And so I was like, okay so like 10% He's like tell me what you know about this person. I told him everything. I know he's like 50% and so we had the company offered by 50% mentally to you know, compare apples to apples and that was some of the best advice we got was that one piece of advice. So now I always in any deal.
I have to ask myself. What's the discount Factor here meaning How likely are they to close? Have they done all their diligence yet? Have we already had the deal? We already negotiated this to a stalemate where kind of both sides feel like they've gone as far as they're willing to go because that's when you can reduce the discount
when we were selling to HubSpot. I remember the just like I said, the the my contact the one I was speaking with she sensed weakness, and she sensed she sensed that I was in a tough place.
Motion Ali it's not because I was constantly ask is were sobbing. All right. What else did where how do how do we move this forward? Yeah. She could like chicken. She's like, oh yeah. Are you laying down when you're talking to me? Like she could just like sense that I was like laying on the floor and been the difference between what you did and what I did was two things one. I sold to a public company which meant basically the decision maker was not the CEO or the owner of the company. It was the person who reported to the person.
Who reported to the person who reported to the person it was like for you know ladders down probably the decision maker the CEO was probably like they just saw it on there like board meeting every once in a while like, you know quarterly know like okay cool. Whatever now can we talk about ports up and this woman she was like look,
We don't care about you. Well, you know, she's basically said she's like our company is worth like 20 or 30 billion dollars in this is a rounding error for us our reputation matters more than this little deal and it would hurt it would hurt our reputation more than the than the cost of this deal in order to dick you around if we say we're going to do something we're going to do something now shut up and relax as basically like what she was saying to me and I remember feeling this like I feel so much better. And so I think there's a difference between selling
To like selling a small business to a sole proprietor or to a PE company or to a really large T to company. I think the way that you deal with those sellers is different more buyers are is
Delta that in I haven't never will I ever never will I ever
assume the person I'm talking to is the person who's buying my company. So this is
when we sold to Twitch, which is owned by Amazon. I'm talking to Corp Dev. It's very easy to think I am assuming you're talking about somebody in Cork
Dev. Yeah and Corp Dev since in this lady was wonderful. She was like my therapist for three months and Corp Dev
is very helpful. There there there the router there the project manager of any acquisition, but they are not the decision maker and actually the thing you described I actually think is not that true meaning I actually do think there is a decision-maker. They are pretty high up. It's either the CEO.
Or it's the VP or the SVP. He runs like you know or somebody the c-suite who like matters to sign off on a transaction right of of you know, multi eight-figure transaction. That's not it's actually not it actually that this is an actually does ladder but by Design these companies design it so you're never actually going to get to talk to that person because they need good cop bad cop. They need the person whose job is it to move the transaction along or find out information and then that person can't actually be the
One who's negotiating with you? They're going to be like cool. I'll go back and find out and that layer those layers of bureaucracy or actually a huge negotiating advantage that a start-up typically doesn't have unless you're working with bankers and whatnot where you where you do have an intermediary that's able to do that for you. And so one of the most important things you got to figure out is who's actually buying this company. It's not a company that buys a company. There is a person in a company who needs something for their job.
And you have to figure out who is that person? And what is the fire under their ass, you know, what is the thing that they are they in trouble for their job and they need to do something because the competitor is getting ahead are they super strategic and they had a dinner with somebody and they had an epiphany and now they're there Steve Jobs. There are Visionary and they're trying to make that Vision come true. You need to fit that story. Like, you know, you have to figure out who is that person in the company? And what is the fire under their ass if you ever want if you want have a chance of being able to sell a company because
You're selling to that person that champion alone not to a multibillion-dollar corporation.
Right? And and so the buyer really matters and understanding what motivates them. A lot of times the people Corp Dev. They just want to keep their jobs and they want to look good. And so as the seller you have to sell a company and you have to make them look great. You have to make it easy for them to look. Wonderful
you you have such different incentives. They are just trying to not fumble the bag you are trying to get your first bag and you are going to behave totally.
You're going to Value different things. And if I ever said to me something like this is kind of a rounding error or like, you know, this is where huge this is not this is not a see, you know, this is a small small piece of it. I be like cool round up the price just went up 10 million then right like, you know, if this money don't matter to you it matters a hell every dollar of this matters to me. And so maybe we have the price strong actually then let's get the price right before we continue. All right like that is and by the way, you saw this, we just renegotiated our
Deal with HubSpot and like you know without going into the the gut everything matter everything mattered and you saw how I approach that we me and you have very different approaches to negotiation. What did you see or describe? It was my
bad. So this is like a Midwestern values the thing which is if I order a steak and you send me out a pizza. I'm just going to shut up and eat it and I ain't going to claim the way that you
distinct taste
different. Yeah. I love my steak with mozzarella and pause.
Sighs that is exactly how I like it. You handled it differently and I and frankly I that was one of them that was an example when I learned from you. I think you said something great. You said whoever could be most uncomfortable will win and you need all these fucking guys for everything and in my head I was like what why who gives a shit and you're like this word needs to be that and I'm like, what are you doing? And and you're like the It All matters it all is really important and frankly you got your way.
At least for the big important stuff and when you got your way, I got my way to get the
negotiation on both sides have to get their way. But you have to figure out what really matters to them and what really matters to us and those two things are not going to line up and you need like Sam Altman, you know, he's on the news right now and he said something great about negotiation. He goes, I'm not interested in binary negotiations. There's nothing interesting there where it's just a number and you want it to be lower and I want it to be higher. That's just to tell you that's just a tug-of-war. That's like, you know, that's not interesting.
On a sport that's like slap fighting versus MMA right? Like the slap league is literally just one guy standing there with no defense and one guy's going to smell slap them as hard as you can. It's kind of interesting to see but like it doesn't have the same. It's not as satisfying to to sophisticated Barbarian like us who likes, you know, you have C instead and so the sophisticated Barbarian cares about a nonzero-sum negotiation. And so it's like, how do I give them? What the french
word?
Is Je, ne sais quoi. What does that? What does that? All right if I saying that
right there's an art there and so you have to figure out what are the things they really care about that. I only kind of care about what things I really care about that. They only kind of care about how do we all get what we want in order for this to work but you're right that I was willing to be more uncomfortable than you or maybe most people just because I don't know this is our baby and this is like one line item for them. But this is like our this is like the basis of what we do and it has potential to be like such an awesome.
Our
lives like you know, I have to get this right. This is my kid. It's like, you know my kid vs. You know, how am I teach how when they go to school how a teacher is going to teach treat my kid like they care but not the same way I do about my baby, right? It's different there's levels to that. And so yeah, you know the party that's going to be more uncomfortable. Generally when or the way my dad taught me was the more stubborn person wins in any negotiation. Can I tell you a dad negotiation story? Yeah, so I worked with my dad for about nine months.
I think in my life and I'm really
happy in your dad does everything right? He's like like he does projects. He
started as an engineer lowly engineer and he has like, you know, he is like office space or like Dunder Mifflin or something like he was sitting in his cubicle and he kept getting patents. There's wall had like twenty two patents on the wall, but his salary stayed the same and he's like, how come like, you know, just like the guy who dresses up nice. So he works for me for six months. I get this patent he gets promoted. I stay here like wait am I in the wrong job so it took him 10 years to figure that out.
Maybe I should move to the business side. He works at a he works at BP for like 30 40 years. They finally like leaves and he does then he started doing more entrepreneurial things one of which was we both worked together in this company in Australia. And when we were working there, I got to see my dad in action it like it's so funny like you see your dad at home and dads at home or just like these like totally different creatures when they're like done with work for the day. I had to see him like interacting with other people especially for an immigrant Dad. It's like it's like, oh you have this level of
Of Polish. Why is it home? Do you turn into this like a caveman? And so I got to see him just actually differently and one of the things that happen was they we were negotiating with this other party. The other party was the slick-talking Australian guy who literally look like Leonardo DiCaprio This Guy's on like the Australian CNBC every week and he's super polished. Just amazing talker and I just think oh my God my dad's I'm gonna have to get watch my dad get beat up in this negotiation. This guy's like
Charisma mr. Smooth, everybody already loves them. The decision-maker loves them and they want one thing we want another my dad's, you know, this, you know, this Indian guy who can barely you know, he forgets to add the connecting words and sentences. He's just going to get walked all over this thing and then they walk in and this guy's got like binders of like, you know spreadsheets presentation like he's got everything prepared. My dad is nothing don't even like a pen on him and the guy that guy makes his case first he kind of passes it around. He's like, here's what I think we should do.
Do and I want to run the project and give me the funding and here's what we're going to do with it. It's going to be great. Everybody's like this is super well-put-together. Thank you so much blah blah blah and it's my dad's turn and my dad basically kind of like refuses to speak and then he starts to speak and I'm like, where's The Logical argument? He's not like using any logic. He's just saying no, I'm not doing that. I want to do this and I'm not doing it for doing it that way and then they're like, yeah barrage we have
You know this plan it makes sense. Look I know you're not getting the exact Equity you want you're not getting to run it but like this guy will run it but you'll this make sense. Right? And my dad's just like foot on the table. He's like, I'm just telling you right now. It's not happening. Never not happening and I'm like, what are you doing? Like you don't even backing up your words you just say no and you're just refusing. You look like such a stubborn idiot, and he just acted the fool for like an hour.
And they were like this is going nowhere and they walked out. I was like dude you blew it and he's like no that went perfectly and I was like, what do you mean and it seems
like
she's like, oh I could never compete with that guy. He's like, you know, super charismatic and he has all the facts on his side. I was like, so what's your plan is what? He's like, oh, I'm just going to be the most powerful word. No negotiation. No, he's like, I'm just gonna say no. I'm not doing it. I'm not doing that way and I'm not going to I don't you explain why I'm not doing it. And actually I'm offended that it's going this way.
Pissed off. And actually I might blow this whole thing up and he's like, you know, I only have one piece of Leverage which is that they need me to play along and whatever we're going to do here like it's gonna be hard for them to replace me in this thing. So I'm just going to say no and I learned so much that day. He told me he goes the more stubborn guy and then they come back. Yeah gonna come back he came back and in fact the exact opposite happened by the end of the whole thing. We negotiated this deal and like, you know, there's this kind of like, okay, let's take a breather. We'll go get the yeah. Yeah. We
I'm over you doing I was there I was where's the weed?
Support and they leave the room to take like a break or the printing out the papers or whatever and my dad turns to the middleman guy goes. So how what do you think he goes he goes, I think we're playing poker. But all the chips are on your side of the table now and actually my dad made a mistake which was a heat Associated at way too hard and took all the value in the end and then they can then they realize it and they were like, you know, what?
We let the stubborn idiot take the whole thing. The whole enchilada like No And they went back to know and we actually ended up more like a 50/50 deal. But if you just give it a little bit back you always want to kind of give back at the end where they feel like they have something to lose. He took it so far. He won the negotiation so badly that they had then had nothing to lose in the negotiate and closing the deal. They're like, well, what do I have to gain by closing this deal? Nothing? It's just only all the values going to him at this point. And so he had taken a little too far but
I'll never forget that idea that you know the in any negotiation is not met side that has the better argument or the more or more logic. It's Whoever has more leverage number one and then within that your that's like the substance and then you have the style and the style is whoever's a little more stubborn a little more crazy little more irrational that is to your advantage in a negotiation.
We gotta have your mom and dad on the pot. I think we've heard a lot of stories about them. All right a quick break everyone if you run a successful company, you don't really have
That many peers to you can talk to about spending and investing or being happy and all that type of stuff that kind of sounds lame if you talk about publicly and it's actually one of the reasons why I started Hampton, it's my company that's a private community and peer group for startup Founders. The way it works is that members are put into eight-person core groups who have similar size and type of companies and we meet and we talk about all types of stuff including how much our companies make how they work our personal portfolio and other private stuff that you would basically never share with anyone. So if
Our founder if you're a CEO of your owner of a fast growing startup or company. You should check it out. It's join Hampton.com. It's a community of vetted CEOs and Founders your put into a core group that meets monthly with other companies like you we also host hundreds of dinners and Retreats and other events. The average sized company right now is doing about 25 million in Revenue, but they range all the way from folks who are doing one or two million in Revenue all the way up to publicly traded companies to startups that don't have Revenue yet, but have raised tons of funding so we have all types of digital companies check.
Out join Hampton.com. All right back to the Pod. I'll do what we'll do one or two more. Here's a really easy and simple one.
Never will I ever be disorganized and I'll give you an example of that. We changed payrolls like three different times. It was like Gusto and then ADP and then like zenefits and then Rippling because Rippling can track your computer's like when you get back a Peters or Gusto pays two days later so I can keep the cash for to it. It was so stupid. And here's why it's so stupid. When you selling a company for 30 million and 300 million. It's the same thing basically as in a
Times when you saw business, let's say I don't know what that threshold is. It could be 10 or 15 million, but when you sell a company for 300 million and 15 million, they basically give you this Excel sheet and it has five pages in each page has literally 50 bullet points in each bullet point is a big deal. For example one bullet point will be under the HR Tab and it will say show me the payroll for the last five years or so.
Show me every contractor you've ever hired.
Yeah, add the Contracting agreement you have with every single contractor including the confidentiality is it we don't even have that yet. Like
yes. Yeah and here's why it's a big deal. When you switch Pay Here's a very specific example, when you if you just use one payroll, that's easy. You just click export that's easy, but I didn't and so I had a and then it you know, if it's been 3 years you have to call zenefits be like, I don't have access to my account anymore. Do you guys even have these records and I thought this was stupid and I was
Like I remember telling kit the CMO of HubSpot as like it. I used Fiverr one time. I paid $150 out of my PayPal account. I even paid it personally and he's like, why is this matter? And he's like, well, you know, I can't hire be baller 84 on Fiverr because if that goes against fibers terms of service and that would be like, I can't like I have to make sure that everything was by the book because every little thing matters and that made a lot of sense to me, but I was a fool and I was disorganized.
I would use PayPal for some stuff every once in a while. Just venmo someone I'd be like here's 500 bucks. Thanks for the freelancer or I wouldn't track confidentiality agreements. It was a fucking mess. I use Google Drive to store some stuff Dropbox the store. So it was a mess and I'm telling you when you're selling a company for what I sold it for. I only had 40 employees and you can't tell anyone that you're someone company. So it's basically me and EDD this woman who worked with me and we went through all of these documents to find all this shit and it literally took three months.
To find documents. That's a three months working every day for 12 hours a day. It is so hard to get all the documents it is so challenging and you don't want to give them anything. That's messy. Otherwise, you'll look not buttoned up and if you look not button up, they'll say what else are you miss it or like are you lying about something and you need to present things in a really nice orderly fashion and so start being organized from day one is really really important and not like being a Maverick and being like I'll just here I got 20 bucks. I'll pay you for this. I'll use PayPal.
For this like it's a mess.
Well, I gotta drink to that because I made the same mistake. No surprise. I'm like the most disorganized Scout Earth and you know, I made mistakes like I thought you know, hey start up you just gotta move fast don't waste time incorporating and getting trademarks and doing all that and that could be the difference between long-term capital gains a short-term gains or having to you know, explain why you know, the IP is over here, but it should be over.
Here or you know, we made a
mistake of did you mail in your 83
be one year? I did and for one company, I just didn't do it and I was like I was like, I gotta like go to the post office and I just didn't do it now luckily that company failed and I didn't have to pay the price of that but like, you know the 83-b election basic, but anyway doesn't know is like a you can basically get shares in a company and you can tell the IRS. Hey tax me now this year on the gain of these shares because I'm going to exercise
as them and it's like a hundred dollar. I'm going to exercise these shares now tax me that you know, it's like the original strike price was one cent and then they're valued at one and a half cents. And so you like text me today on that game so that I've exercised the shares at this price so that when I sell you, I don't have to pay this huge markup on the on the exercise of
the and you only have like 30 or 60 days to mail it in and you basically literally have to write a letter is it 90 days you have to write a letter and you want to like post mark it and then you want to like you write in the letter like
Send me a receipt of this. It's like a really manual process and you like dear IRS. Please send me proof that you receive this and you have to store that in your records in case y'all ever get audited
and I think now this like I think there's some automation around this. But yeah, I was messing about that. You know, I had this great meeting when I wanted to sell my company. I didn't know how and I went and I met with five people who had sold multiple companies and I was like, okay. Hey, I don't know. What the fuck I'm doing here. Can I explain to you what I'm currently doing? And then you tell me what I'm doing that what?
Which part should point out the dumb Parts? Okay. Can you do that? Because I was like if I just ask you for your advice, who knows what you say, but if I draw you a picture of what I'm doing and you can point to the ugly part, that'll help me and so I did I had lunch with this guy for Wad and he's the CEO of this company called array now need sold. I think he's so like five companies some shit like that and he pointed out two mistakes that I was making number one. He goes, he's like, oh wow, you got like, okay you have an actual offer on the table?
I was like, yeah, dude. It's been so hard such a long road, you know, even though it's only been like 40 days but I was like dude I yeah, it's just been ups and downs, but finally we're here and I was talking like I arrived at some destination. He goes he's looked at me. He's like, this is not over actually you just reach the starting line. Now, it's time to Sprint and repeated that advice to so many people of now it's time to Sprint because so many times it's happened. Let's say you're fundraising for a company and you spent three months trying to fundraise you finally get money.
In the bank and you're so happy. So satisfying your whole body just wants to relax. It's like oh, you know, welcome to the start of the race now now it's time to run you ready to run. Yeah and like the work starts especially true when it comes to closing ma. It's like when you have the on what a lot of
people realizes it takes from getting the offer to actually getting the money that can take six months. I could take exact for me. It took the emailed me and they emailed me in September or October. I got paid in February.
Yeah exactly three months six months is a very
And so you yeah, that's the times for the hardest. The second thing. He said was he goes she'll be your data room and I was like, oh, we have a Google drive but likes kind of messy right now and he goes he goes you're selling your company think of it like a product on Amazon. How does Amazon sell a product like, there's like a page and it wasn't like a one-click by he goes exactly you need to turn your entire company into a giant by button and I was like, was that easy?
You need to like answer all the questions now get it all organized. Now put it all in place now so that when they look at this stuff, they're ready to One Click by if the more questions I have to ask you the more you have to go dig stuff up the more half or incomplete information. You have to give them the more reasons that this deal could fall apart turn your company into a giant by button. That's the other advice. I've been given which is like what are all the the Ducks I can line up here so that this just becomes a easy.
To understand easy to consume, you know process for them and like it was the one, you know, 30-day period of my life where I became Marie. Kondo. I organized the shit out of my company. I took everything I was like look this neaten these to be bulletproof, and I'm so glad that I did because it was it was extremely necessary
to undo one last one. Yeah.
Oh, by the way, I have one never will I ever run my company like a personal piggy bank. So I made this mistake before and I have a story.
Of a friend of ours who made this mistake before so what a lot of people do when they run their companies you start to make some money and then you're like, oh I have to pay taxes and then they're like fuck taxes suck and you're like, what can I do to like release might spend it all and I think smart people smart people have like tax stuff they do so what I'm going to do some start doing some tax stuff is like, okay, what's the tax stuff and they're like, oh, let me like we talked to a guy recently. That was like, oh I created my own captive insurance program and then I bought this
property that we're using is like a office and I'm like
What are you doing? You're just trying to save like 200 Grand of taxes. And what you're doing is actually you're ruining your books. So like when I looked at his business the business looked like it had no profit and he's like, you know, so happy that he's either has his like shitty margin should be net profit margin because in that year it saved him on taxes, but the reality is if you're building a company that you want to sell you need to take some short-term pain of having clean simple books that you pay, you know legit taxes on in order for you to
to have a big exit at the end because they're going to see a track record of multiple years of solid profits that they're going to sell in the end. Right like that is just generally better. There's of course exceptions to both cases, but like generally that is a better approach
we have and if you don't want to sell there's a there is like a bullshit category on QuickBooks that you can put stuff into but that is not ideal if you're trying to sell.
Yeah exactly is if you're trying to sell you want to you want to be able to show a track record of success and versus like, you know, I had a friend who would go
Go to the bank on December 30th and take out a bunch of cashier's checks that they were going to use to pay vendors and it's like prepay vendors for the next year. And then the next year. They're like I want to quit this vendor, but I've already prepaid them or they'll like take two of the checks and ever even paid and put it back in the bank a month later. Hope nobody notices. It's like dude just don't do this shit. Like don't treat your company like a personal piggy bank if you want to sell the someday because nobody wants to buy your hot mess and I think it's very and you can't undo that you
You can't really unwind that these are like it's in the it's in the history books every year that you're doing that you are kind of like making your you're adding a bunch of asterisks to your own books that like you need a buyer who's willing to go in and do a bunch of add backs and try to figure this out in order to feel confident that they should buy this
business when Dave poured noise sold the he do he sold Barstool Sports a couple times, but the first time he sold it he was like I was an idiot. He's like I own a race horse that I bought through.
Still Sports and so Barstool Sports soda, like to raise horses a trailer for the racehorse the owned like the house. I was in like you said all this stuff that the business owned and he's like we got doctors. So
Harley thousand liters of gin that we acquired like yeah,
that's what he said. He's like, he's like turning didn't want to buy like Skippy the racehorse but the business owned it and we it was really hard. You know, when he first sold that business he's
Hold the first portion of it and at the time bar stool was a big deal. He only sold it at a 15 million dollar valuation crazy when it was worth way more than that, and it's probably because it would he was just sloppy a lot of it was sloppy and he was like, I also like made so much profit and I didn't put any of the profit back into the company. I just would buy horses and shit like that and gamble. He's like a gamble that crazy because it was content. It's at
it. I don't want more never will I ever just sit just stay at home?
When there's a deal to be closed, so this is the rule of just get on a plane go meet go meet people in person. Don't do Zoom calls or if you're doing some calls add in the in person afterwards. The in-person meetings are so important, you know, I'll tell one story which was just a deal we close recently the yeah one deal that we didn't close that I got on a plane for and like, you know for me I my the running joke on the spot.
I don't leave my house and it's true. I really don't leave my house. I don't like to do that. I got little kids and I don't know it's for our family life. It's a very disruptive to travel if I go if I leave the house for like five days whatever but I did for this one deal didn't the deal didn't go through but I can sleep easy at night because I'm like, I did everything like I made multiple offers on this deal. I got on the plane. I met them in person. Like yeah, we did everything that we could possibly could do we did what was in our control with a deal that we just recently did the other party was like
Cool, like after the initial conversation of Interest. They're like cool would love to just next chat would love to do it in person. I'm happy to fly out to you wherever you are. Let me know which day works. I'll fly and same day fly out same day and it'll be easy and I was like, I respect this person. I trust doing business with this person because they understand this principle of like you just got to get on a plane and you got to go meet somebody and you should be willing to do that when we sold the milk Road. I had a similar situation where
we never told you about the high offer in the fair offer. We had said no to the fair offer took the high off or the dreaded it. So we went back to the fair offer months later
and we were like
I was like, you know, I want to see what those guys are up to and see if there's a deal to be done here and I kind of called or emailed it was sort of like what we just had like a quick text and I think it was like really really wasn't an opening but I was like, hey, I'm going to be in the city tomorrow, you know for my niece's soccer game.
As I was like I'll go see my knees soccer game, but I'm gonna I'm really doing this to meet you, but I made it sound to him. Like I was going to a soccer game and I was like, yeah, we love to catch up. He's like a great let's do it. And so we drive into the city car breaks down on Van Ness and I'm like are literally just shuts off in the middle of the road car breaks down hard
looking for car breaks down. I don't
know what happens car. Stop stop driving and I like the momentum to let me just get it to the side of the road from
there with my lunch.
You have like a brand-new
Escalade. This is the BMW before that so this is yeah, I'm with my wife my two kids are in the back in the car seats car's broke it down. I got this meeting and you know 10 minutes and I'm like shit, I guess I got to cancel this meeting and whenever I like who knows what if this meeting anything would have even come of it anyways, but like whatever wait for AAA and my wife is like no, you gotta go. You told me you've been telling me all morning how this is important meeting like you think that you have a feeling that you could be able to get this deal.
Icon like you know go and I was like I'm saying to leave my wife and kids on Van Ness and Sam from the middle of San Francisco to Brokedown car and she's like just go we'll be fine. I was like, okay, you know if somebody twice and so I hop out and I just literally have not ice. I run down Van Ness like, you know, Mi basically get to the coffee shop meet the guy deal comes back to life by the end of that coffee meeting and we end up selling to them and I
Like I think I'm actually hundred percent sure. If I hadn't gone to that coffee meeting that deals doesn't happen. And because in that meeting we were able to clear up some things that like we're not as exact transactional but like, you know kind of what his fears were and what our hesitations were and really kind of suss it out and get get comfortable with each other in person. So yeah insane insane that that happened and
this is like a this is like an anti ad for
BMW.
Yeah, don't trust him.
Yeah, don't trust him and they'll ruin your deals. Well, that's sick. Hopefully people dig this we did a little Q&A for this episode except on one topic. I think we're going to keep doing these every other Tuesday, right? Yeah. We're going to try
to come up with great topics that we can kind of shoot the shit on and share maybe, you know, either our answers or stories that that we've been through. So I think that's good. I think people like this one, but let us know let us know the YouTube comments what you
think. All right. Well,
well one there and that's the pot.
I feel like I can rule the world. I know I could be what I want to put my all in it like all Days on the Road Less Traveled never looking back.
