Jeremy Gon, the first employee at Tiny (Andrew Wilkinson’s holding company), walks through how a design agency’s excess cash flow became a $500M portfolio of businesses. He covers early deal mechanics, negotiation tactics learned from Chris (Tiny’s co-founder), the best and worst deals, and why most quantitative modeling is a comfort blanket.
Speakers: Shaan Puri (host), Sam Parr (host), Jeremy Gon (guest, early employee at Tiny)
Introduction: Chasing This Guest for Six Months [00:00:00]
Shaan: All right. I’ve been chasing this guest for six months, begging him to come on the podcast. Because I heard him on a podcast last year and, as much as this breaks my heart to say it, that was my favorite business podcast of the year — and it wasn’t even our own. He was so good that I asked him to come on.
His name is Jeremy Gon. He was the first employee at Tiny — and if you’ve listened to the podcast, we’ve had Andrew Wilkinson on many, many times. They basically turned $5 million of starting money into about $500 million of equity just by buying businesses that cash flow. They bought small businesses that cash flowed, kept recycling and recycling over 10 years, and turned it into $500 million.
I wanted to ask Jeremy what it was like in the early days, what those first deals were like. He was there before they even had a name, before they were even called Tiny. So we asked him about his best deals, his worst deals, the weirdest deals he’s ever done, and the negotiating tactics he learned. This episode is amazing — it’s a 10 out of 10 for me. Enjoy this episode with Jeremy.
Shaan: What’s up Jeremy, welcome to the show. We figured we’ve had your mentor on enough times now — Andrew is probably the most popular guest on the show. Enough of Andrew. We got to go to his protege, the young gun who was there from the beginning.
Jeremy: Thanks for having me, guys.
Putting Tiny Into Context [00:01:30]
Shaan: Let’s put Tiny into context, because I think maybe somebody listening to this doesn’t actually appreciate what we’re talking about. The simple story of Tiny is they had a services business — an agency — and then they had excess profits. I think the numbers were something like they took five or six million dollars of initial equity, put it into Tiny, and said “okay, we’re going to go try to buy a business.” And they ended up turning five or six million of initial startup capital into roughly a $500–600 million public company, where Tiny owns a portfolio of maybe 30 businesses, over roughly an eight-year period.
Kind of amazing — in eight years, turn $5 million into $500 million. I’m doing round math, fuzzy numbers. But first of all, is that roughly the right story? And walk us through the beginning days of that, because you were there at the very beginning at 19, 20 years old, employee number one. Walk us through that.
Jeremy: Yeah. I knew Andrew because when he was starting Metalab, I was working on another startup. We shared the same studio apartment — our office was in a studio apartment. He was in the bedroom area, we were in the kitchen. We would keep a blow-up mattress in case the fire inspector came around and would just say, “Oh, Andrew lives here, just has a lot of friends over.”
And yeah, effectively — Metalab, the short version — was throwing off a fair amount of free cash flow. I think it was in that range of low millions a year. The idea was just to use that free cash flow to buy a business. That’s the thing with agencies: there’s not a lot of reinvestment, so you’ve got to do something with the cash. And if you’re not going to put it in the S&P — which is too boring — then you’ve got to figure out something else to do with it. That’s kind of what we did.
It’s funny — holding companies and stuff are really popular now, and people ask how do I build Tiny effectively? The first step is: bootstrap a business that makes millions of dollars of free cash flow. Then get back to me. The rest is pretty easy. That’s the first step.
Shaan: And you said it took eight years — in reality I think Metalab, the agency, was already eight years old.
Jeremy: That’s right. Metalab was probably 15–16 years old now. So it was a long slug. Andrew just started really young.
Why Dribbble Was the First Target [00:04:00]
Jeremy: One thing that’s really helpful is Andrew, Chris, and myself were all big users and fans of Dribbble. And Andrew had that company in mind for a long time, which is another really nice thing to have. It’s very good to start with a deal — even when you’re fundraising — to actually have a concrete thing that you want to go do, and use that as the jumping-off point for building whatever it is. It’s always so much better to have that than to kind of abstractly be like, “I’m gonna start a fund” or “I’m gonna start a holding company.”
It was like, Dribbble is really cool, we would love to be the right owners for that, Andrew knew the co-founders, and maybe we could buy it — and that would be the starting-off point. Very real, very concrete, versus “we’re going to build a holding company of technology businesses.”
Shaan: Now you’re three guys who’ve never bought a business before. Take me back — you’re sitting in the kitchen of your apartment-slash-hangout-lounge. Are you guys like, “Hey, can we look up Buying Businesses for Dummies?” How did you even figure out how to do it? And also whether it was a good idea, because it’s a big risk. I think four or five million bucks of equity went into that deal — that’s not a couple hundred grand at that stage.
Jeremy: Yeah. Like anything, there’s generally one way to categorize sellers: people who care about what happens to the business after they sell it, and people who don’t. For people who care, it’s a huge trust exercise — are you going to screw up my baby? In their case, they’d been working on it for a really long time, their names were very attached to it, it was a community. Community businesses are really difficult — the community can really turn on you fast.
Mechanically, it was literally — I don’t think we even had a book. We just looked it up online. I would go on LegalDepot and download an LOI, edit it. For the first few deals, I was 19–20, and Andrew would be like “can you go get an LOI for this?” and I didn’t know what that was. We’d just download one and write it up.
The interesting thing is — and this is an example of the benefit of not having a lot of experience — typically when you do an LOI it’s pretty far along in the process. But we would just fire them out because we read that an LOI is only binding on exclusivity. Nothing else — not the price, nothing. So we thought, okay, this is a totally non-binding thing, let’s just chuck it out there. It’s kind of like a term sheet, although even term sheets are socially more binding. We didn’t realize that in private equity, an LOI is a pretty sturdy commitment.
That was for better and for worse. On one hand, it let us move really fast. On the other hand, we learned pretty quickly that you’re not supposed to go back on what you changed in an LOI. There are all those little things where just not being familiar with the process let us move fast, let us be friendlier, and that was the whole point — we’d both had bad experiences with buyers and thought there’s got to be a better way to do this.
Sam: I had a handyman come over yesterday and he comes to my front door, shows me what needs to be done, and then goes, “Before we start, I need you to do something.” He pulls out a notebook, writes down “My rate is $50 per hour,” and hands it to me and says “Sign this.” I go, “Okay, cool.” He’s aware of it like — he spits in his hand, shakes it, goes “This is now official.” I was like, I appreciate your style. That was like the Tiny LOI.
Jeremy: Exactly.
Underwriting the Dribbble Deal [00:09:00]
Sam: At the time, was Dribbble obviously a good business? Because it turned out to be an amazing investment — probably like a 50x on your money, right?
Jeremy: More than that. More than 50x.
Sam: Amazing. What did you guys do to underwrite the deal? Were you in Excel dragging 10% growth out 20 columns? What did the deal look like and what did you expect?
Jeremy: It was pretty obvious that it was a great business. And I think Andrew has told this story before, but there were some immediate day-one levers — a big part of the business was advertising and we could find better advertising providers right away, so there were levers you could pull on day one that were going to improve the business.
It just felt like this big opportunity. It was a top 10,000 website, it had millions of active users, it was really important. When it launched, I think I bought my Dribbble invite on eBay or something — it was really hot for a while. It was just this cool thing that didn’t really exist. There aren’t a lot of independent social networks with millions of users.
We negotiated a pretty fair deal. The other Buffett line is “price is my due diligence,” and that helps a lot. But we never thought any of the deals could be 50-plus X’s. We were always just like, can we make 20 or 30% cash on cash per year from this business? That would be great. Anything after that is just upside.
Jeremy: Regarding models — Andrew used to make me do discounted cash flows because it was kind of the thing you felt investors ought to do. And at some point I was like, here’s your spreadsheet, but I’m just making up all the assumptions in it. So many of these things are just comfort blankets. You’re doing this big scary thing and it makes you feel better that you have a model you can look at and say, “Yeah, we’ve modeled this out.” But it’s — you’re just making it up.
The Limits of Quantitative Analysis [00:12:00]
Sam: You also had a great quote — you said something to me like, “The more quantitative analysis you’re doing about a business, the more you’re commoditized in your analysis.” What does that mean? Unpack that one.
Jeremy: My favorite anecdote here is the Facebook IPO. Barclays put out a research report where they stated what they thought the business was going to be worth. The way they do that is through a discounted cash flow, and part of that calculation is terminal growth — what is this thing going to grow at forever? They put it at 3%, which is what most companies get, and that got them to a $200 billion valuation. The next 10 years, it grew 30% a year and it’s a $2 trillion company.
You do all this modeling and research and you’re just so off — an order of magnitude off. So what was the point of doing any of that? It would have been better to think really hard about how much Facebook could actually grow. Just first-principles stuff: what percentage of the planet could use this? A lot more basic.
And a lot of the quantitative stuff is totally commodified. People know how to do this, you can learn it in school. It’s a useful table-stakes thing, but you’re not going to get any edge that way because everyone can do it. Where the edge is in quantitative stuff is at the Two Sigmas and Jane Streets and the MIT PhDs — and you’re not going to be doing that either. So you’re not going to do a better model on a company than the next guy and somehow get an edge there.
What Actually Matters When Evaluating a Deal [00:14:30]
Sam: So when you’re looking at a deal — a small bootstrapped business, anywhere from $1 million to $30 million in revenue — what are you actually looking at to spot the opportunity? If it’s not the modeling, how much do the financials and cash flow statements actually factor in?
Jeremy: It’s pretty basic, right? Let’s make up numbers. It’s doing $5 million a year of revenue, $1 million of earnings. You think, okay, on day one I could raise prices by 30%, I could reduce headcount, I could launch this new product. Would you pay $1 million for that? Yeah, of course. Would you pay $3 million? Yeah, probably.
You can just kind of go from there. Where modeling gets important is when you’re at the very edge — would you pay $10 million for that? Well, a lot of things would have to go right, maybe. There’s some number where it’s like, I’d pay $3 million for a business making $1 million. So then the trick becomes: can you get the business for $3 million?
And that’s where it gets interesting. Tiny was in a lot of bids with other folks, and I don’t think we were ever the highest actual price. But we often won deals because we could offer other things. The very common thing that would happen is we’d get pretty far with the seller and then they’d say, “Hey, we like you guys, but we’ve got an offer for 25% more, so we’re going to go take it.” Very often we’d say, “Great, go explore that.” Then it turns out that offer was not as real as it seemed, or it was six months of diligence, or there was more debt, or they didn’t have the financing. You figure out that there are other things in a deal that are important — the ability to get it done, the ability to be honest, to be trustworthy, to move fast. All those soft things.
So it’s more like: are you able to get a price that’s really a no-brainer? That’s how I look at it. Versus “I’m smarter than everyone else and can pay slightly more.” That works for people, but it’s just a totally different game.
Chris’s Superpower at Tiny [00:17:30]
Sam: I’m always fascinated by the people behind these businesses. Tiny is a great business, but it was created by people — by Andrew, by Chris, by you. I asked you: what’s Chris’s superpower? Because forget Andrew — everybody knows Andrew, he’s popular, he talks, he’s got a big following. Almost nobody knows Chris. I had dinner with Chris and I loved this guy. He’s dynamic, engaging, asks great questions. You’ve known him a lot longer than I have. What is Chris’s superpower?
Jeremy: Chris’s superpower is just being able to modulate Andrew. Andrew is so high-paced and high-energy that Chris is just able to be the sober second thought — “we’re not going to do this” or “that’s way too much.”
One thing about the Tiny partnership at the beginning that I thought was really quite unique is that Chris and Andrew had Tiny as a vehicle they would share together, but they could also do things on their own — investments, businesses. I don’t even know if it was intentional, but that provides a great release valve. Andrew would come up with some cockamamie notion about some restaurant or whatever, and he would just say “I’m going to go do that on my own.” Chris could do the same thing — Chris was great at investing in public equities and he could go do that on his own.
One thing that can really go wrong in partnerships is if it’s like “you’re dedicating your whole life to this thing and everything you do goes through it” — it can really turn into a prison if you don’t share the same taste as your co-founder. Having that release valve, and being aware of it, is really nice.
Sam: People normally pick partners who are like them. But Andrew and Chris are not like that. What did you learn from that?
Jeremy: Andrew is really good at sales and creating a new vision. Chris is really good at being the negotiator and actually getting a good deal and structuring it well.
Negotiation Tactics: What Chris Taught Jeremy [00:20:00]
Jeremy: Structurally — I would be the front guy on a lot of deals and would come back to Andrew and Chris and they’d quarterback it. What was nice is I would throw out an offer I thought was really aggressive — the most I could emotionally stomach. And I want to be clear, this was back in the early days when we had no money and we were really trying to be scrappy. I’d say, “Okay, I’ve really got this down.” And they — because they’d never talked to the seller — would look at me and say, “I think you can go 25% lower.” And sometimes I felt like I wanted to throw up.
Sam: Talk through that — when you have to present a lowball offer to someone, how often do they just go for it?
Jeremy: More than you’d think. And what’s even rarer is the thing I always feared — that they’re just going to lose it, get red in the face. That almost never happens. It happens sometimes, but almost never. And a nice dynamic there is you can always say, “Hey, I’m on your side.” It’s the old car salesman move: “My manager’s killing me.” Same setup. That’s super helpful.
Chris shared all kinds of tricks with me. One great one: when you float an offer, just don’t say anything else. People will immediately start negotiating against themselves. A trick you can use — it probably doesn’t work on Zoom, but if you’re on a call — you can say your offer and then hit mute. They’ll start talking, say “oh you know, whatever,” but they’ll just hear the silence on your end. That’s a big thing, because oftentimes you just need to let it float out there, but it’s too uncomfortable to actually do that.
Sam: I’ve got this friend who works in the CIA and he has to negotiate with people — basically his job is to convince people to become spies. If he goes to the Middle East, he has to convince someone loyal to some country to commit treason. His tactic is the same thing. He said, “I say what I want to happen, and then I shut up.” And a co-worker was there who’s not part of that world, and he was like, “Dude, they do this to me all the time at work. I’ll notice they say something and I just want to fill the silence and I keep talking and talking and talking. They sit back, not saying a thing, and they always get their way.”
Jeremy: Totally. One very cynical way of looking at negotiation is that it’s just who can bear to be uncomfortable longer. You can do that in a retail setting. Sean does that all the time, right?
Shaan: Yeah, I’m very comfortable being uncomfortable in a conversation.
Sam: He’s the mayor of Awkward Island.
The Deeper Frame: You’re Both on the Same Side [00:23:30]
Sam: Jeremy, you told me something else Chris taught you — less about the gamesmanship. When we think about negotiation, we often think about what do I say, what do I not say. You mentioned another piece: it’s not you versus them. Can you explain that?
Jeremy: The more mature way to frame it — one you can use for your entire life without being known as the bastard who’s relentless to negotiate against — I love this idea: in a traditional negotiation you’re sitting across the table from one another. The way I really like to reframe it is, you’re both sitting on the same side, and what’s on the other side of the table is the problem. The problem can be: you want $50 million for the business, I want to pay $20 million. But it’s still “okay, this is a problem — let’s work together to figure this out.”
It’s this subtle thing but it makes a huge difference. It’s how you start to unearth: maybe it’s not just about the cash number. What is it that makes $50 million important to you? Why do I feel like I can only pay $20? That works really well. I use it every day. You can use it for relationship problems, everything — make the problem “other,” put it out there, and say let’s work together on solving this thing.
Sam: Well, Jeremy, the problem that we’re trying to solve is I want the money in your bank account to be in my bank account.
Jeremy: That Chase account should say five zeros.
Sam: It is true though. One of the best things my dad ever taught me — he said the same thing: it’s not us versus them. He said, make a table of your needs and your gives — what do you have to offer, what do you need back, and then the same for them. They’re never perfectly symmetrical. Some things they need are very easy for me to give, cost me nothing. And their big sticking point was actually something that’s not that hard for me to give on. Maybe I could even give more in that area than they’re expecting. And in this other area, I need something, and they’re happy to give it.
Jeremy: My favorite question in any negotiation is, “What would need to be true?” Okay, you want to sell your business for $100 million — what would need to be true for me to pay $100 million for it? Lay it out. What would make this a no-brainer? You can do that in any situation, and sometimes it’s impossible, but oftentimes it’s far more possible than you think. When everyone actually lays it out, there’s usually some sticking point that you didn’t realize, or something outside the scope of things you’ve already talked about.
I’m always amazed by how much that works. As I’ve been fundraising it works — what would need to be true for you to feel like it’s easy to give me money? For a trip: what would need to be true for everyone to be excited about going on this trip? It just sets that up as: let’s collaborate on this.
Sam: That was my pickup line. “What’s a guy like me got to do to be with a girl like you?” And then she was like, “Do you have a friend?”
The Asymmetric ROI of Cold Email [00:27:00]
Sam: You have this other thing where you talk about how a cold email is the most asymmetrical trade. And you’ve actually cold emailed a bunch of people — there’s one person in particular you listed that I want to ask about. It sounds like the cold email has done really well for you.
Jeremy: I’ve been saying this a lot more publicly, into groups and stuff. If everyone cold emailed, the arbitrage would go away. But I think it’s just too scary, so people don’t do it — it’s still a huge opportunity.
The addendum to that advice: you’ve got to have the goods when you show up for the meeting or the call. I get a lot of cold outreach, and the second part of the advice is you’ve got to be really good when you show up. But if you are — it’s just this incredible, kind of hidden secret. There’s always a scarcity of talent. No matter who you are, no matter how much money you’re worth, there’s a scarcity of really awesome people. Everyone has an infinite appetite to meet people who are interesting, talented, have a unique view on things. If you can present that, you will really go a long way.
And the downside — I can’t even remember, I’m sure I’ve sent hundreds that didn’t get responded to. I’ve never gotten a bad response. It’s usually just no response, and I don’t even remember the non-responses. But the ones that have gotten responses have been amazing.
If you’re young or you’re a student, that alone can be enough of a hook. Most people will meet with a student if they seem switched on and interested. I’m still amazed that more people don’t do it. But I’ve started to see people do it and then they show up and don’t have anything to say, don’t have questions prepared — and that can be really bad.
Best Deal, Worst Deal, Weirdest Deal [00:29:30]
Sam: We already know the first deal — that was Dribbble, which might also be the best deal. What’s the worst deal? The big mistake. Name names, list their email addresses and social media handles.
Jeremy: The worst deal is actually the one I can say the least about — which should indicate how bad it was.
Sam: The abstract worst.
Jeremy: The worst one was just that the person was dishonest, and I should have known, and I ignored it for greed reasons. I thought this was such a good deal I could look past certain things.
Sam: What are some things people could look out for? What can I learn from that?
Jeremy: It wasn’t this deal, but a friend of mine who buys similar companies did a deal where they flew the founders in to meet in person. The first night, the founders wanted to know where they could get drugs. That is not in itself a strong signal, but in that context, in that situation — what more do you need to know? It turned out they were doing a bunch of stuff they didn’t disclose.
It’s always stuff like that. Someone who’s really flashy is almost always a bad sign. These little things. Even in the case of this deal — I introduced the person to a bunch of different friends and experts, and they were all like, “This guy is really something. I don’t really know why you’re dealing with this person.” It is funny how you get blinders on when something looks so good. We’ve all made that mistake.
It just turned out there were a bunch of things we didn’t know about, and it went very badly. We lost all our money. It was a really small check, fortunately — that was the one upside. But that one was pretty rough.
The Meal Lime Story [00:32:00]
Sam: What’s the most unique or weird deal?
Jeremy: The best one — it’s kind of too early to tell on some of them. One that I really love is this company called Meal Lime. It’s a meal planning app that Tiny bought in 2018. Four, four-and-a-half million people use this app. You say what ingredients you have and it gives you a bunch of recipes, lining them out for breakfast, lunch, and dinner.
It was just this really awesome app made by this really amazing technical guy who had built a great product. I remember the moment that sold me: you know how the iPhone screen turns off when you put it close to your ear? He realized you could use that sensor — if your hands are dirty while you’re cooking, you could wave your hands over the sensor to go to the next part of the recipe. All these little things. And there are these huge butterfly effects — turns out when you do that, Apple thinks it’s really cool, and they feature you in the App Store.
We bought that business and it grew a lot. We got all of our money back in the first couple of years. And then — this was the only business Tiny had sold to date — two major grocery retailers came along. I guess in a boardroom somewhere they’d just decided they needed an app. So they both became interested.
I viewed it as my chance to get another go at selling a company to a public business. The company I was at before Tiny, we’d sold to Workday and it was a pretty difficult experience. So this was going to be my turn to get a good deal. And we sold it for a huge revenue multiple — made a lot of money, in excess of 25 times our money.
It’s still used today. The original team is still there, they were very happy with the outcome. I just love that because it was this perfect little situation — this great little craft app, someone who cared a lot about making a great product.
The Zero-Basis Deal [00:36:00]
Jeremy: And the weirdest deal — basically, a big Fortune 500 tech company bought a business, and that business had two units. The Fortune 500 only wanted one of them, so they had to divest the other one very quickly.
We were able to buy it — it was doing $10 million of recurring revenue and it was shrinking, because it was built on top of another platform that was becoming less popular. We were able to buy it for so little that we borrowed all the money and then paid back the loan in like three or four months. So we basically got it for free.
We bought this out of the Tiny fund and could write this great update to our investors: “Hey, we didn’t call any capital, but you now own this new business, and we’re going to do a distribution soon.” Small dollars, but it’s cool to pay nothing for a business.
The interesting part: we also got a domain that’s probably worth $1 to $2 million depending on how fast we wanted to sell it. So it was this fun little deal — can you actually buy a company for no money down? It won’t grow 20x, it’s not going to grow for 10 years, but we’ll make many multiples of our money on it.
In the actual fund statements that KPMG does, they have to list the cost basis. The accountants listed it as a $36 cost basis — which is, I guess, the actual money that went into the deal. Those are cool. You can be really, really creative. You don’t have to put a lot of money down.
Sam: How did they find you, or you them?
Jeremy: In that case, we knew a board member. It was the situation where, again, we made a bid and they didn’t like it. They went and shopped it around, and it turns out there’s a very limited set of buyers for that kind of thing — especially ones who can do a deal really, really fast. We understood why we had the right to win this deal. We understood that money was not the most important thing here. So we were able to get it for this great price.
Part Two Preview [00:39:00]
Shaan: That’s it for part one. We actually kept talking to Jeremy and it was so good that we’re turning it into a two-parter. The second part is all about what he would do today. The first part was kind of how they built Tiny — the deals, the lessons learned. That’s the past. In the next part I asked him: if you were going to do Tiny today, what would you do? What deals would you be looking at? What businesses do you think are great buys? What opportunities do you see?
He tells us the single best investment opportunity he sees today. That’s coming out tomorrow.