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Kind: captions Language: en 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 a company or you’ve sold a company if you sold a company you’re going to 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 [Music] today 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 uh selling our company so Sam sold the hustle to HubSpot and a big deal sold to a public company um I’ve had two exits now under my belt and I’ve sold one to a big company Amazon and one 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 MFM 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 um because we made so many mistakes we made these mistakes so you don’t have to we died so you don’t have to here 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 little bit left here but I got some greens the morning I’m looking a little athletic and I got some greens not sponsored but you know send me a free box yeah now save you 80 bucks a month um dude I have I have a ton of it I drink it once in a while it’s really hard to stomach for me you like you could just drink that plain I love it plain and I love that it doesn’t taste that great because to me I don’t want my health [ ] tasting good right I don’t like my hot people to be funny too I don’t like when things that are not supposed to go together go together all right that guy Matt r that comedian no too good looking I’m not watching that special number one on Netflix no thank at all well you’re pretty funny what does that make you pretty ugly as the world should be um 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 the most straightforward thing okay uh so never will I ever you both we both have this one ignore qsbs I’ll drink to that yes now explain when you say ignore qsbs what happened here qsbs 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 qsbs I’m going to try and state the law here but it says so it stands for qu qualified small business stock qsbs protects up to 10 10x of your investment from long-term capital gains taxes of $10 million or 10x your uh initial investment what that means and a lot of people only pay attention to the $10 million thing so with qsbs how long do you have to hold it your stock is five years yes so you hold a a small business stock so a privately held company that’s a a C Corp and you have to hold it for 10 or 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 5 years and you can save1 million in capital G the first 10 million when you sell so like let’s say you sell for 10 all 10 would be taxfree at a federal level and many states also honor qsbs not California but many states also do so you could walk away paying zero in taxes if you sold for $10 million which is remarkable or now here’s the or part that a lot of people forget or you can save up to 10 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 isn’t value but let’s say you 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 it has to be reasonable you value your company let’s say you’re doing uh 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 company you get third party that does it so you can save 10 times $40 million in taxes $400 million that’s a $400 million 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 real estate laws for tax savings in real estate it’s probably the greatest thing there is it it’s better better you think it’s better it’s better than real estate because in real estate you have let’s say uh 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 I was talking to a real estate guy yesterday and I said I have the greatest tax thing that no real estate guy has what are you talking about real estate’s the most tax advantage I say yes but you don’t have qsbs because real estate is not eligible for qsbs there only certain types of businesses can do it but like like Sam saying you could stack it so for example what some people do they have qsbs 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 exclusion in addition to your own so you could have you know I was joking around with a qsbs guy and he’s like yeah if you have three kids I can get you I can get you 40 million 50 million in qsbs and I was like I was like oh this kid I have you know this is next kid you I’m going to have this is this is just a walking qsbs Shield here like this is awesome and uh it used to be that it was that mean that your kid when they’re but were your your kids at the age of 18 have say in control of your business with they’re 18 I mean you ex exited by them by then right like but they’re going to have but maybe not but they’re going to have a just a small Equity say they’re not going to get the majority right like you’re just giving them enough so that they have a shield they have like you they have less less attx and you you while they’re minors you control the state you can always you know sure I don’t know 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 with there’s a big asteris here which is this I don’t like calling it a loophole because that first of all I hate that word loophole because loopholes are good loopholes are legal like when someone says a loophole I’m like okay but you’re trying to spin this negative but like you’re just following the law TR tie in a shoe without a loophole huh yeah yeah it’s essential or people say shortcuts they’re 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 uh but so this loophole there’s an asteris here because I think two years ago it was it was up to vote if they were going to a it and the idea was they might make it only 50% or so they reduce it by um half uh I don’t know if this is going to be in play for how much longer this is not like real estate where it’s going to last forever right right yeah it it’s but it’s it’s been out for a while um and it’s it’s amazing especially in the in the tech industry I can’t find this client info have you heard of HubSpot HubSpot is a CRM platform so it shares its data across every application every team can stay aligned no out of sync spreadsheets or dueling databases HubSpot grow better all right so my turn never will I ever just shut down a company without trying to sell so well drink yeah have a drink for that I uh before I sold before my first 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 breakout and it was either wasn’t worth our time or it wasn’t able to get funding or whatever I specifically remember one app that we made that was if you remember bitmoji we had basically made an app that was like way better than bitmoji it just like and bitmoji was giving you an like a a personal ad little character for yourself that would be in these and then it would give you like 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 emojis are emojis are one of the greatest products ever right self- expression there um so you we had made an app that created a character of you um and then you could and then you could type any word you could just type hashtag whatever uh boogie down and it would make your character boogie 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 we had because we would just every day we would rank the top tagged term and our artists would create like hundreds of these per day so very quickly we had tens of thousands of combinations it was really fun because you could just type something and just to see does it do it or not and people did 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 it had this like 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 Facebook Messenger they wanted all these things and I wrote this blog post called myund 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 to switch and 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 um 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 unbelievable 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 um you know just buy this and put this into your keyboard and shortly after bitmoji sold for $100 million do to Snapchat doing exactly that because they they couldn’t make it as a standalone app either and um 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 after you know nine months of hard work or a year of hard work uh and creativity on something so never will I ever just shut it down you said we got a 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 uh how much could you have sold this for easily tens of millions easily like you know you think it either wasn’t GNA sell at all because there’s only like eight buyers for this there was like eight me messaging app that were major at the time it was like line and kick and um you know WhatsApp and Facebook Messenger Snapchat there’s you know there’s eight players that like could benefit from something like this and either it just wasn’t going to sell at all but like that’s actually unlikely there’s a price there’s a kind of like a price for every buyer um the hard part would have been or 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 uh just you know we didn’t but we the thing is we didn’t even really get to that point like we should have gone and seen what our options were right like in in poker if you’ve already paid the blind well 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 you’re if you Google $100 million mistake Shan Perry there’s uh you have a medium blog uh you’ve got a lot of good posts here so if you’re listening go check it out did you not and this might bring me to my my point did you not sell because you’re a main investor didn’t give a [ ] no it it literally just didn’t come up it’s not like we had a conversation and one one side said yes one side said no and we debated it and then one side said no I have the voting control hell we didn’t even think about it we just moved 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 here you just sort of quickly glossed over it didn’t uh didn’t even 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 T multi- tens of millions of dollars mistake 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 dude I’m I’m Shooter McGavin and Happy Gilmore when he says I eat pieces of [ ] like you for breakfast and then Happy Gilmore goes you eat pieces of [ ] for breakfast that’s me i’ I’ve made mistakes more expensive than your net worth it’s like you’ve made mistakes like this it’s like yeah multiple multiple um 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 an exit as bad as like a 12 like when I was 12 years 12 years old and like a cute girl like you know like complimented my braces it’s like 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 [ ] I was so desperate I had all of my personal uh net worth my emotional net worth tied into this exit and I acted like a little [ ] and one of the ways not to do this is to have multiple options that’s the easiest most tactical one is to have lots of options the second one is you just don’t you you basically to act like a hot girl you’re like look I don’t care like I’m going to be fine regardless and I remember there was one point do you track your like your finances somewhere I have like a 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 and I would stare at that for like six months and it 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 when you have zero power that is the worst part to be in when you negotiate and the the best part when you can negotiate is to walk away and the and or to be able to walk away and to be able to walk away you typically just don’t give a [ ] 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 in that just like to that 12-year-old girl who was into me Aaron uh you know like they could sense it they could they could smell the the the the hormones on you like anyone could any hot girl could tell when you’re being desperate they could tell what a confident man is like and I was not a confident man can you put your retainer back in please it’s the same thing right yeah the um you nailed it in that last bit which is the rules the rules of a NE 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 I’ll be all right like you know like a funeral has happened but you the 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 is should be no grieving you convince yourself that that’s true that you don’t want your options to just be offer number one or offer number two because guess what offer number One’s Gonna have some hair on it offer number two is gonna be a little shaky maybe fall through you’re going to start to feel real desperate when offer two falls through and now it’s only offer one on the table you always need the one 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 than the other side that this deal goes through exactly as is if you could do that then you’re in pretty good shape 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 [ ] 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 uh never will I ever go with the highest offer sounds confusing like what do you mean why would you not take the highest offer you want to take the best offer not the highest offer and the best offer and the highest offer have a lot of differences the one of the differences what you just said likelihood to actually close will they do what they say they do they say they will do um I’ll give you a story from the milk Road sale we had a high offer and then we had a fair offer and at first we were like hell hell yeah we got the high offer this is great but they they did a bunch of weird stuff though there was some red flags but hey D like you know like anything else you know when when something’s really attractive that red flag this starts to look just like a it’s like is that maroon actually maybe that’s maybe that’s orange you know like it’s not so red you 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 was like our lawyer was like there’s no way a lawyer wrote this and we were like okay it’s probably not good that their lawyer is not a lawyer but um we don’t understand also why why they would not have a lawyer it’s like it’s this guy’s friend he says he’s a lawyer it’s like so strange it’s like you know they’re not like scammers but is like can you just turn your camera on and uh you know like it was weird uh it was just like a little bit weird that was like one I think they sent you money didn’t they then you were sent money we we went down the we took the offer and um there was a time to close but the again one of the stupid things they did they wrote the offer as when we signed the the term sheet which is not the deal is not closed you sign the term sheet uh they wired us all the money they had to wire us all the money on day one which again was like are these guys idiots why are they doing that that’s not how this is supposed to go um but we were like well I guess we’re getting money so like what 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 I’ll tell you a funny story about that um the people involved are high quality and they’re people you want to be around because it’s not a uh 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 um which is what we ended up doing so the best offer is different now let me tell you a story about uh about um likelihood to close so we get this High offer and we’re comparing the high offer with the fair offer and I call uh bology and people know bology you know he one of the smartest people on earth I call bologi I said bology what would you do if you were me and he’s like well that’s a higher offer um but let me ask you a question have a of course like intelligent people can get to the heart of the issue right away like he just like a metal detector just new and he goes are you negotiating these on the same time scale and I was like I don’t know what that means he’s like who did you talk to First and how far how long have you been talking to them and how long have you talking to the high offer I said well I’ve talked to the fair offer way earlier we’ve negotiated it renegotiated it they’ve done diligence and the high offer is new blah BL blah he goes okay so this is not the real offer and he’s like um you need to apply a discount and I said well what do you mean and he’s like well you 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 say this is all 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 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 to cut the offer by 50% mentally to to to you know compare apples to apples and that was 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 um have they done all their diligence yet have we already had the deal have 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 woman I was speaking with she sensed weakness and she sensed uh uh she sensed that I was in a tough Place emotionally and she and cuz I was constantly asking her were sobbing all right what else do you need where how do how do we move this forward yeah she could like she could she’s like are are you laying down when you’re talking to me like she just like sense that I was like laying on the floor and and the difference between what you did and what I did was two things one I sold to a 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 who reported to the person it was like four you know ladders down probably the decision maker the CEO was probably like they just saw it on their like board meeting every once in a while like you know quarterly and they’re like okay cool whatever now can we talk about important stuff and this woman she was like look we don’t care about you you know she basically said she’s like our company is worth like 20 or 30 billion and this is a rounding air for us our reputation matters more than 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 that’s basically like what she was saying to me and I remember feeling that like I feel so much better and uh so I think there’s a difference between selling to like like selling a small business to a soul proprietor or to a PE company or to a really large large strategic company I think the way that you deal with those sellers is different or buyers is different I’ll tie that in I have 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 uh which is owned by Amazon I’m talking to Corp Dev as very easy to think I I’m assuming you’re talking about somebody in corp Dev yeah in corp Dev she this lady was wonderful she was like my therapist for three months right and Corp Dev is very helpful they’re they’re the they’re the router they’re 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 the VP or the SVP who runs like you know or somebody in the SE Suite who like matters to sign off on a on a transaction of of of you know a multi8 figure transaction that’s not it’s actually not uh it actually the decision actually does lad up 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 are actually a huge negotiating advantage that a startup typically doesn’t have um 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 you know 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 with somebody and they they had an epiphany and now they’re they’re Steve Jobs they’re a Visionary and they’re trying to make that Vision come true you need to fit that story like um you know person in the company and what is the fire under their ass if you ever if you want to have a chance of being able to sell a company because you’re selling to that person that champion alone not to a multi-billion dollar Corporation right and and so the buyer really matters and understanding what motivates them a lot of times the people in corp Dev they just want to keep their jobs and they want to look good and so as a 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 differently and you’re going to Value different things and if they ever said to me something like oh this is kind of a rounding error or like you know this is we’re huge this is not this is not a this you know this is a small small piece of it I’d be like cool round up the price just went up 10 million then right like you know if 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 wrong actually then uh let’s get the price right before we we continue all right like that is um and by the way you saw this uh we just renegotiated our deal with HubSpot and like you know without going into the you know the guts everything matter everything mattered and you saw how I approached that me and you have very different approaches to negotiation what did you see or describe describe that so this is like a Midwest value thing which is if 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 complain the way that you did this steak tastes different yeah yeah I love my steak with mozzarella and uh pasta sauce this is exactly how I like it you handled it differently and I and frankly I I I that was uh one of that was a an example when I learned from you I think you said something great you said um whoever can be most uncomfortable will win and you needled these [ ] guys for everything and in my head I was like what why who gives a [ ] and you’re like this word needs to be that and I’m like what are you doing and and you were like it all matters it all is really important and frankly you got your way uh at least for the big important stuff and when you got your way I got my way too to get the negotiation done 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 um like Sam Alman you he’s he’s all in the news right now and he said something great about negotiation uh he goes I am 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 a tug that’s just a tug of war that’s like you know that’s not interesting that’s not a sport it’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 gonna SM slap him as hard as he can it’s kind of interesting to see but like it doesn’t have the same uh it’s not as satisfying to to to the sophisticated Barbarian like us who likes you know UFC instead and so um the sophisticated Barbarian cares about a u a nonzero sum negotiation and so it’s like how do I give them what what’s that French word jqa what is that what is that all right am 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 one of the 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 um 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 part of our lives like uh you know I have to get this right this is my kid it’s like you know my kid versus uh you know how my 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 uh yeah you know the the party that’s willing to be more uncomfortable generally will win or the way my dad taught me was the more stubborn person wins in any negotiation uh can I tell you a dad negotiation story yeah so I worked with my dad for about um nine months I think in my life and I I I’m really happy and your dad does everything right he’s like like he does projects he started as 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 so his wall had like 22 patents on the wall um but his salary stayed the same and he’s like how come like you know this like the guy who dresses up nice he works with 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 he’s like maybe I should move to the business side he works at a he works at BP for like 30 40 years and he finally like leaves and he does then he started doing more entrepreneurial things one of which was uh we both worked together in this company in Australia and and um when we were working there I got to see my dad in action and like it’s so funny like you see your dad at home and Dad’s at home are 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 Polish why at home do you turn into just like a caveman um and so I got to see him just act totally differently and one of the things that happened was they uh we were negotiating with uh this other party the other party was was this slick talking Australian guy who literally looked like Leonardo DiCaprio This Guy’s on like the Australian CNBC every week and he’s super polished just an 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 Mr Mr Charisma Mr Smooth everybody already loves him the decision maker loves him and they want one thing we want another uh my dad’s you know this PO 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 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 has nothing doesn’t even have 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 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 um 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 if we’re doing it that way and then they’re like you know but Raj we have like 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 this makes 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’re not even backing up your words you’re just saying no and you’re just refusing you look like such a stubborn idiot and he just acted the fool for like an hour and uh they were like this is going nowhere and they walked out and I was like dude you blew it and he’s like no that went perfectly and I was like what do you mean and he’s like uh he’s like oh I could never compete with that guy he’s like you know super charismatic and he he has all the facts on his side I was like so what’s your your plan is what he’s like oh I’m just going to the most powerful word negotiation no he’s like I’m just gonna say no I’m not doing it I’m not doing it that way and I’m not gonna I don’t need to explain why I’m not doing it and actually I’m offended that it’s going this way I’m pissed off and actually I might blow this whole thing up and uh he’s like you know I only have one piece of Leverage which is that they need me to play along in 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 in the room did they come back yeah of course come back they 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 just kind of like okay let’s take a break we’ll go get the yeah yeah we what were you doing I was there I was where’s the moral support and um they leave the room to take like a break or they’re printing out the papers or whatever and my dad turns to the middleman guy he 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 that he negotiated it way too hard and took all the value in the end and then they then they realized it and they were like you know what we let this stubborn idiot take the whole thing the whole enchilada like No And they went back to no and we actually ended up more like at a 50-50 deal but if if he had just given a little bit back you always want to kind of give back at the end uh where they feel like they have something to lose he took it so far he wanton them go so badly that they at the end had nothing to lose in the negoti in closing the deal they’re like well what do I have to gain by closing this deal nothing it’s just all 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 it is not the side that has the better argument or the more or more logic it’s Whoever has more leverage number one and then within that you’re that’s like the the the substance and then you have the style and the style is whoever’s a little more stubborn and a little more crazy a little more irrational that is uh to your advantage in a negotiation we got to have your mom and dad on the Pod I think we we’ve heard a lot of stories about them um all right I’ll do we’ll do water two more uh 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 computers uh like when you give out computers or Gusto pays two days later so I can keep the cash for two 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 lot of times when you sell a 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 and each page has literally 50 bullet points and 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 show me um every contractor you’ve ever hired yeah add the Contracting agreement you have with every single contractor including the confidentiality it’s like H 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 if you know if it’s been three 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 Kip the CMO of HubSpot I was like Kip I used Fiverr one time I paid $150 out of my PayPal account I even paid it personally and he’s I was like why does this matter and he’s like well you know I can’t hire B baller 84 on Fiverr because and that goes against fiverr’s terms of service and that would be like I can’t I have to make sure that everything was by the book because every little thing matters and 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 I would just venmo someone I’d be like here’s 500 bucks thanks for the freelance or I wouldn’t track uh confidentiality agreements it was a [ ] mess I used Google drive to store some stuff Dropbox the store some 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 selling the company so it was basically me and Edie this woman who worked with me and we went through all of these documents to find all of this [ ] and it literally took three months to find documents that’s and three months working every day for 12 hours today 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 buttoned up they’ll say what else are you missing or like are you lying about something and you need a 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 uh like it’s a mess well I got to drink to that because I made that same mistake no surprise I’m like the most disorganized guy on Earth and uh you know I made mistakes like I thought uh you know hey start up you guys got to move fast don’t waste time incorporating and getting trademarks and um doing all that and you know that could be the difference between long-term capital Gams and short-term gains or having to you know explain why you know the IP is over here but it should be over here um or you know we made a mistake of um did you mail in your 83b uh one year I did and for one company I just didn’t do it and I was like I was like oh 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 in the 83b election basically but if anybody 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 um because I’m gonna exercise them now it’s like $100 I’m gonna exercise these shares now um tax me you know so it’s like the original strike price was one cent and then they’re valued at one and a half cents and so you’re like tax me today on that gain so that I’ve exerise the shares at this price so that when I sell I don’t have to uh 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 postmark it and then you want to like you you write in the letter like send me a receipt of this it’s like a really manual process and you’re like dear IRS please send me proof that you received this and you have to store that in your records in case you all ever get audited and I think now this like I think there’s some automation around this but yeah I I was messy about that uh you know I had this great meeting when I wanted to sell my company 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 [ ] I’m doing here um can I explain to you what I’m currently doing and then you tell me what I’m doing that which which parts 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 to 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 that’s I did I had uh lunch with this guy fad and uh he’s the CE of this company called array now he had sold I think he sold like five companies or some [ ] like that and um he pointed out two mistakes that I was making number one he goes uh he’s like oh wow you got like okay you have an actual offer on the table and I was like yeah dude it’s been so hard such a long road you know even though it only been like 40 days when I was like dude 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 reached the starting line now it’s time to Sprint and and I’ve repeated that advice to so many people of now it’s time to Sprint because so many times this happened let’s say you’re fundraising for a company and you spend you know three months try a fund raise you finally get money in the bank and you’re so happy So Satisfied your whole body just wants to relax it’s like oh you no welcome to the start of the race now now it’s time to run you ready to run and like the work starts especially true when it comes to closing uh uh m&a it’s like when you have the op what a lot of people don’t realize is it it it takes from getting the offer to actually getting the money that can take six months that could take for me it took they emailed me in they emailed me in September or October I got paid in February yeah exactly three months six months is a very common and so you um yeah that’s the time to spit the hardest the second thing he said was he goes um show me your data room and I was like oh uh we have a Google drive but like it’s kind of messy right now and he goes um he goes you’re selling your company think of it like a product on Amazon how does Amazon sell a product I’m like there’s like a page and a one like a oneclick buy he goes exactly you need to turn your entire company into a giant buy button and I was like what is that he’s like you need to like answer all the questions now get it all organize now put it all in place now so that when they look at this stuff they are ready to oneclick buy if the more questions they have to ask you the more you have to go dig stuff up the more half or incomplete information you have uh to give them the more reasons that this deal could fall apart turn your company into a giant buy button that’s the other advice I’ve get given which is like what are all the the Ducks I can line up here so that this just becomes a you know easy to understand easy to consume uh you know process for them and like it was the one you know 30-day period of my life where I became Marie condo I organized the [ ] out of my company I took everything I was like look this need needs to be bulletproof and uh I’m so glad that I did cuz it was it was extremely necessary do you want to do one last one yeah oh by the way I have one never will I ever uh run my company like a personal piggy bank so uh I made this mistake before and I have a story of a friend of ours who uh made this mistake before so what a lot of people do when they run their company is you start to make some money and then you’re like oh I have to pay taxes and then they’re like [ ] taxes suck and you’re like what can I do to like reduce my spend it all like I think smart people um smart people have like tax stuff they do so what let me let me start doing some tax stuff I like okay what’s the tax stuff and they’re like oh let me uh uh 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 as like a office and I’m like I what are you doing you’re 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 has this like shitty margin shitty net profit margin because in that year it saved them 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 have a big exit at the end because they’re going to see a track record of multiple years of solid profits that that you’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 [ ] category on QuickBooks that you could 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 of success and uh versus like you know I had a friend who would go to the bank on December 30th and take out a bunch of cashiers checks that they were going to use to pay vendors and it’s like um prepay vendors for the next year and then the next year they’re like ah I want to quit this vendor but I’ve already prepaid them or they’ll like take two of the checks and never even pay and put it back in the bank a month later hope nobody notices it’s like dude just don’t do this [ ] like don’t treat your company like a personal piggy bank if you want to sell this someday because nobody wants to buy your hot mess and um 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 asteris to your own books that like you need a buyer who’s willing to go and do a bunch of ADB backs and try to figure this out in order to feel confident that they should buy this business when Dave poroy sold you know he sold BARC Sports a couple times but the first time he sold it he was like I was an idiot he’s like I owned a racehorse that I bought through barol Sports and so bar stool Sports owed like two racehorses uh a trailer for the racehorse uh they owned like the house I was in like he said all the stuff that the business owned and he’s like we got docked so hard 000 L of Jin that we acquired like yeah that’s what he said he’s like he’s like chin didn’t want to buy like Skippy the racehorse um but the business owned it and we it was really hard you know when he first sold that business he sold the first portion of it and at the time barol was a big deal he only sold it at a $15 million valuation crazy when it was worth way more than that and it’s probably because it was he was just sloppy uh 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 [ ] like that and gamble he’s like we gambled like crazy because it was content um is that it I got one more never will I ever just 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 Zoom calls add in the inperson afterwards uh the in-person meetings are so important um you know I’ll I’ll tell one story which was uh just a deal we closed recently uh the you 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 is 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 very disruptive to travel if I go if I leave the house for like five days or whatever but I did for this one deal it didn’t the deal didn’t go through but I could sleep easy at night cuz 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 you know we did everything that we could we could do we did what was in our control um with a deal that we just recently did the other party was like cool like after the initial conversation of Interest they were like cool uh 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 in same day fly out same day it it’ll be easy um and I was like I respect this person and 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 um remember I told you about the high offer and the fair offer we had said no to the fair offer took the high offer then regretted it so we went back to the fair offer months later and we were like uh I was like you know what I want to see what those guys are up to and see if there’s a deal to be done here and uh I kind of called or emailed and it was sort of like we just had like a quick I texted I think and it was like really wasn’t an opening but I was like hey I’m going to be in the city tomorrow um you know for my niece’s soccer game um so I was like I’ll go see my niece’s 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 the soccer game and I was like uh y we love to catch up he’s like yeah great let’s do it and so we drive into the city um car breaks down on vaness and my car literally just shuts off in the middle of the road your car breaks down car shut uh I don’t know what happened the car stopped stopped driving and I like and the momentum to let me just get it to the side of the road but I’m there with my don’t you have like a brand new Escalade this is the BMW before that so um this is you know I’m with my wife my two kids are in the back in the car seats car’s broken down I got this meeting in you know 10 minutes and um I’m like [ ] I guess I got to cancel this meeting and whatever who like who knows what if this meeting anything would have even come of it anyways but like whatever we’ll wait for AAA and my wife is like no you got to go you told you’ve been telling me all morning how this is an important meeting like you think that you have a feeling that you could be able to to get this deal back on like you know go and um I was like I’m just not g to leave my wife and kids on vanest in San the middle of San Francisco in a broke down car and she’s like just go we’ll be fine I was like okay you don’t have to tell me twice and so I hop out and uh I literally run I I run down vanest like you know a mile basically get to the coffee shop meet the guy deal comes back to life by the end of that coffee meeting and we ended up selling to them and and I’m like I I think I’m I’m actually like 100% sure if I hadn’t gone to that coffee meeting that deals doesn’t happen and um because in that meeting we were able to clear up some things that like were not as exact transactional but like you know kind of what his fears were and what our hesitations were and really kind of sus it out and get get comfortable with each other in person so yeah insane insane that that happened and uh this is like a this is like an anti-ad for BMW yeah don’t trust them yeah don’t trust them they’ll ruin your deals um well that’s sick um 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 trying to come up with great topics that we can kind of shoot the [ __ ] on and share maybe you know either our answers or uh 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 in the YouTube comments what you think all right well well and there and that’s the pod