GatherUp - Don Campbell
Don Campbell - GatherUp
Bogy: [00:00:00] So Don, thank you so much for joining today and agreeing to do this exit interview. These are extremely helpful, words of wisdom that we're trying to collect from various successful entrepreneurs discussing their exit stories and the path, how they built the company, but, in particular, the conditions and the context of the exit and learnings, what they would do differently if they had to do it again. So maybe we start out by you explaining a bit more about GatherUp. When did you start the company and why did you start that particular company?
Don: Yeah, thanks, Bogy, my pleasure. I love these kinds of stories. I love hearing them from other entrepreneurs and I know I learned a lot from them and if there's anything I can pass on to another entrepreneur, that would be awesome. So, yeah. So, GatherUp was an idea that, I had two co-founders, and we came up with the idea in 2011. We were working with a lot of small businesses, and one of the things we noticed was that those businesses didn't really have any way of following up with their customer after the [00:01:00] sale or the transaction.
So, imagine a lot of physical location businesses and service-based businesses, and they have customers that they interact with, but then a lot of times they just don't ever follow up or never interact with them again. And we're like, "wow, there's gotta be a better way." And one of the things we noticed is we were really coaching these businesses as we worked with them on how to get feedback from their customers. One of the things that a lot of small businesses worry about are online reviews. They're worried about, "well, how do I get more online reviews? What if I get a bad online review? That wasn't a fair online review." There's all these things that they're worried about on Yelp and on Google and at the time Facebook and other places.
We decided, let's automate that process. Let's make it easy for the business. And we looked at something called the net promoter score. Have you ever heard of that before?
Bogy: Sure, yeah.
Don: So that's like a metric that big businesses use to determine the health of their customer relationships, right? And it was based on some research by Bain and Company a number of years ago. Fred Reichheld, I think, came up with it. They looked at all the survey questions that a [00:02:00] company could ask about their customers, and they figured out that like 80% of the value boiled down to one key question, and that was "how likely is it that you would refer us to a friend?" And so we wanted to enable small businesses to have that sort of metric in some way. So we worked with that as an idea to say, "how do we help these businesses deliver a better customer experience?"
And so that's what we built; we built a system for that, and it was really fun. One of my co-founders is someone that I had worked with in my last business. Thomas, he was my right hand man. I could trust him to take on anything. And then my other co-founder Mike is very well known in the local search space, probably one of the leading national voices on that. It was a pleasure to work with him. So he had a lot of deep knowledge in this space and on how to work with these businesses. So we ended up building a tool and my background especially was product.
I know how to build products. I love software. So we built this software, what they call the minimum viable product, and we started off, trying to see if people could use it, and luckily we found something people were willing to pay for, and we launched the GatherUp. It was called "Get Five [00:03:00] Stars" at first and then we rebranded a few years later to GatherUp.
Bogy: Why did you rebrand? Did you do research that the other brand is better ?
Don: Yeah, that's kind of its own story. What we found was that Get Five Stars was kind of a direct name about, "Hey, we're going to help you get more reviews," but what we didn't like about it, there are a couple of things.
One is that five stars is not an enforceable trademark. So when you put five stars in something, they call that a weak trademark because it's used in so many other ways. There was actually another company called five stars. We weren't getting any confusion at first with that, but we just were kind of like, "we need to be proactive here because we want a name we can trademark. We don't want any confusion with other brands." That was one angle and the other aspect of it was when we talked about the philosophy of what we were trying to do, we were coaching our customers, "don't worry about getting a five-star review. Worry about asking your customers how they're doing and delivering great value to them. The reviews will flow later and they don't all have to be five star reviews."
And so then we thought, "gosh, our name [00:04:00] is kind of conflicting with that message." So , maybe there's an interesting story I'll tell you later about how we had to get the domain name for GatherUp, but we wanted a brand and a domain that we could own and trademark. And it turns out GatherUp turned out to be a great name for us later.
Bogy: Okay, interesting. So you started out in 2011 and you actually launched the company in that year?
Don: Yeah. Yeah, but we took about four months or so to build the MVP and start gathering customers. And I think it was probably a good six months before we realized, "okay, wow, we have something here. There's a whole bunch more we need to do for it, but people already are willing to pay for this."
Bogy: And you sold in 2020?
Don: 2019, yeah.
Bogy: 2019, okay. So yeah, so quite a stretch, eight years and a bit.
Don: Maybe we launched in 2012. I'm going to have to go back and look. I seem to think it was about seven and a half or eight years total.
Bogy: Okay, good. And you mentioned two co-founders, so yourself and your right-hand person?
Don: Yeah, so, Thomas was somebody that had worked with me on expando at my previous company, which kind of [00:05:00] morphed into this. And then Mike Blumenthal was my other co-founder. Mike was somebody that I had met when I was doing research and going to conferences and learning about the space and somebody that I bumped into at an event and who just generously shared all kinds of insights, and he's just a great guy and we hit it off. Over the past few years, kind of got to know him, and we had some shared experiences, and then we started talking about this idea and he had a whole lot of ideas in his head about what he wanted to do here. And then I have to say he's got a lot of deep domain knowledge in the space.
Bogy: Okay, that's very important. So when you look at the fit, how you selected your co-founder and what happened later, are there any lessons in this? Was there something missing in the beginning that you had to compliment the team with additional talent, and how did it change over time until exit?
Don: Yeah, that's a good question, and a complicated one. I think in my previous business, I learned a couple of things about myself. I figured out, moving from having good jobs in corporate America, but [00:06:00] then starting into my own company - and I'd worked at some startups too - but when I had to do my own company, I realized there were some things that I'm just not very good at. And I had to you know, get people to come help me, right, so I can focus on the stuff that I like to do and I'm good at, and then have other people compliment me.
So for example, even though I'm, really careful with the numbers around the business, I'm not good at the details of the bookkeeping and the accounting. I just don't have the patience, and so I needed help with that. Thomas was my utility player. He didn't handle the bookkeeping and the finance; that ended up being my wife that took that part on, but Thomas was somebody I could throw anything at and he would figure it out.
So he started off our customer success team. That's where he started because we wanted to overemphasize, "hey, we're trying to build tools for companies to deliver great customer experiences. So we better lead by example." And so Thomas did a great job of building out that team to say, "how are we going to respond to our customers? And how are we going to , not just be a support organization, but reach out to them right away and build a relationship, so when they do have a problem, they already know who they're [00:07:00] talking to" and that kind of thing.
These guys had these amazing skills that could play a lot; they could do a lot of different things. And then Mike, I always joke that Mike, he was the best business development person I ever had worked with, and he wasn't even a business development person, he just had so many relationships and so much respect in the industry that, when he talked about stuff, people listened and trusted us.
Bogy: Interesting. So it sounds like you basically moved based on synergy and chemistry with people more so than particular qualities, right? That you specifically needed a salesperson, you didn't have one, so you just figured out how to move forward. But what was important is the chemistry with another person, right?
Don: Yeah, so true. I think that that's a good observation. I hadn't thought of it that way, but absolutely true because, what I found later was so valuable for us is that, in any company you start running into all kinds of stressful situations and problems and things like that. It's just part of the nature of what you're doing, right, is next problem comes up and you've got to solve it. And having people that [00:08:00] just had the same vision about how they wanted to treat their customers and what kind of company they wanted to build, that was just so valuable. I felt like all along the way, I don't think there were ever any major disagreements among the co-founders. I mean, there were disagreements like, "how should we handle this?" But at a level of philosophy around the company and what we want to be and how we want to serve our employees and customers, it was just very in sync.
Bogy: And did it change in any way? Like, around exit, which skills were most useful, do you think? Or is it the fact that you were a team? What was the most important when the exit opportunities started flowing in?
Don: Yeah, well, before that, I think it did change. You know, things changed with the things we needed to focus on, and then maybe somebody got a little burned out in one area and had to move around and then, okay, the customer sucess team is built up and then Thomas later moved to managing some of the product stuff because I was busy doing other CEO things.
And then we added an executive level person at some point, probably about three years before our exit, named Aaron. He came from the agency [00:09:00] world, so he had managed and run a big agency, but he had a great experience with marketing and sales and he helped us come in and sort of reinvigorate the user experience for our product. He helped us build out the team. And so he came in at the senior level working with me and Thomas and Mike. We found we needed that skillset. We needed help with sales and marketing and he was able to come in and, again, he had good strengths, but he could play many roles too, right? So he even helped with some of the user experience in the product and he was very valuable. And eventually, I appointed him CEO about a year before we exited.
That was one of my goals for my company, which took many years to achieve, but I read this interesting book called Built to Sell by John Warrillow. Read many interesting books, but that's one that stuck with me. You know, I love reading, so there's a bunch of them we could talk about, but something that book taught me was, if you are the center point of every part of your business, then your business doesn't have any intrinsic value without you. One of my goals from early on was, "how can I build a business where it [00:10:00] can operate without me?" And that was a lot harder than I thought it would be because I had to let go of a lot of stuff, but, at the end, by the time we exited, it was wonderful because, when we exited, we had many people that participated in that exit financially, and also it felt like a team effort, like we all were playing our own part. That was awesome.
Bogy: What was instrumental in allowing yourself to let go. I know in any situation that you are building something, you want to control the situation, you want to be in charge, and what was this kind of aha moment for you? Was it the trust that you finally had in Aaron that he was good enough to be the CEO, that you could step back? Was there something that happened in your psychology? Is there something that you can share here, any insight?
Don: Yeah, good question. I mean, I think that it didn't feel like an all of a sudden aha moment; I felt like we built a very good working relationship as a team. And I did get to the point where I felt like, look, I can trust this. [00:11:00] I'm still involved; I was still chairman, but I stepped out of the day to day operations, and I felt like, I knew even without me there, the decisions that were being made were consistent with what we'd all talked about.
Although, I have to say, I don't have a lot of ego, but boy, I'll tell you, letting go of this CEO role was a lot harder than I thought, even though I trusted Aaron and he's a great guy. It was nothing against him. It was just more, you've built this company from scratch and it was just like, that was difficult and a little painful. And it was painful for the team as well, even though they knew Aaron, it was challenging. And any kind of big change like that is tough, but it all went very well.
Bogy: And I think, especially as you're preparing the company for exit, because I imagine that there was a certain moment that you said, "okay, now we are moving into a new process," and we'll get into that in a second, but before we get there, can you talk a little bit about the funding? Did you take external money from outside sources or you decided to build it with your own resources?
Don: Yeah, no, we pretty much bootstrapped it. [00:12:00] I financed it at the beginning and then I was doing consulting work for Red Bull media house, and I would work there in the day, and then at night I would team up with these guys and I would take my consulting money and put it into the company. We decided we didn't want to try to play the unicorn game. We were like, "Hey, let's build a company where we just work with the people we want to work with, where we're building what we love, and nobody's telling us, 'you have to do this or grow sales by a thousand percent,' and take care of our customers. And then, we want to run it profitably. And then, we'll just keep running it if we're making good money, unless some amazing offer comes along."
That's what we always talked about wanting to do, and I feel like we did that. Later on, we were able to turn down a few offers that, we liked the people who were doing the offer, but it just didn't come in financially where we wanted it to be, and we were able to say, "Oh, no, we'll just keep our heads down and keep cranking for a while, and then our value just keeps going up." I'm glad we did that. It came with trade-offs for sure. But I'm so glad we did it that way.
Bogy: Right. It seems like a safer way of building a [00:13:00] business, the bootstrapped way, because at least you keep your sanity and you're doing what you really believe in, as opposed to being forced to spend money and build something much faster that maybe is a lot more risky as well.
Don: Yeah, it's kind of like what we talk about at Founder Partners, the Mustang founders, right? I feel like it is like that. And by the way, we did take a hundred thousand dollars of angel money from someone that was in the industry that we knew well, so we all knew the person. We mainly wanted him to be sort of involved in the company as an investor.
And for me, I was managing the cashflow very, very closely. My wife and I were managing, and we wanted that hundred thousand as sort of like a cashflow buffer. Even though we were profitable, as soon as we would get profitable and start getting a bank account, we would then hire another person, and then the money would go down. And so it was that game. So, we did take a little bit of money, but I kind of feel it was more of somebody we knew and for cashflow.
Bogy: Yes. Okay. So you are seven years into the [00:14:00] process and, I'm sure the product has changed, and I'm sure the company matured, and how you looked at the value that you bring to the customers and that your customers bring the value to their customers. Could you maybe. Talk a little bit more about, using customer success as a competitive advantage? Was it really happening?
Don: Yeah, we had such great people, knowledgeable people on customer success. They were feeding information back into the product team. They were helping to manage all that stuff and we created a culture where they could come to us and say, "guys, you have to listen. We're getting killed over here on this problem. So you need to change the product schedule and fix this."
I mean, the product was good, but every product's got these things. They were able to change the course of the product in some ways, because we gave them that seat at the table and we trusted them and they're like, "look, if you want to make customer support more efficient and our customers, happier, you have to do this."
And so, they were involved in so many aspects of the company. They helped us with onboarding for our larger [00:15:00] clients. They helped us with the product. In fact, we had a whole quality initiative one year where we were like, "guys, we've grown so much. We need to take a step back and address quality." so they worked closely with our engineering lead, who, again, was another amazing person, and all of us. From the executive level, we were every week just pounding on the quality thing.
So, my point is, we over-invested in customer success, which hurt our profitability, but it was okay because I felt like it helped us through tough times with the product, because we had good relationships with our customers. We had knowledgeable people that were answering their questions. For the most part, our customers felt like we were listening to them, and customer success is the interface with our customer. We spent a lot of time thinking strategically about how to make that, not just about support, but about being very proactive and being engaged with the customer right from the very beginning. And I'm so glad we did that. Every company that I do will have something like that going forward.
Bogy: Okay. And how many years later, after you started the [00:16:00] company, did you decide to build that function?
Don: Well, we started early. We started early. I mean, we called it customer success from the beginning. I told you one of my co-founders, Thomas he took point on it. And so we started early, and then we got these two people, this is a friend of mine from before and one of his friends that were interested in what we were doing, who approached us early on and said, "hey, we want to participate." I'm like, "I can't even pay you guys right now; I don't have any money." They're like, "we don't care."
And then they dug into the product and started learning it and just started doing the support for free for a few months before Thomas came back to me and said, "we have to figure out a way to hire these guys. They're doing amazing!" So we had a lot of good things happen where we had super awesome people that were leading that. So, I feel like it was from the start, but it was constantly revised all throughout the entire life of the company. We were constantly learning and upping the bar about what we wanted to do and things with customer success, because we saw the value in it.
Bogy: Right, right. And what should be the relative cost of customer [00:17:00] success function? Are there some ratios that you could share for a company, as a gross.
Don: You know, I would have to go back to the numbers to give you a clean ratio. But one thing that I found interesting , this is a story by the founder of Superhuman, Rahul Vohra, it was on a podcast and I was listening. I really pay attention because everyone talks about that customer experience as being fantastic for Superhuman. And I was like, "what is going on?" So I signed up. I listened to his podcast, and one of the things he said was very interesting; when you sign up for Superhuman, you can't sign up without going through an onboarding, a 30 minute onboarding, with one of their customer success reps.
You literally can't turn the product on until you've done that. You're basically revolutionizing your email. That's what it does. It's like an email client, which you think, "well, what's the big deal?" Well, this person, when I signed up, they did some research on me, asked me some questions about how I use my email. I'm using Gmail. I'm a power user. I'm using the keyboard commands, all this stuff. We had our call; by the end of it, I knew exactly how to use that product.[00:18:00] I was immediately productive with it, right, instead of me having to fumble around and try and learn stuff. And I had a contact at superhuman that I could reach out to anytime. I knew his name. He just spent 40 minutes with me on a zoom call.
And what Rahul said in this podcast, somebody asked him, "how can you scale like that? How can you scale your company by onboarding every customer?" And he said, "I could probably scale to a hundred million dollars doing this, and the reason is because, once someone is onboarded in that way, they're going to stay. They're going to stay with me because they already know how to use the product; they have a contact; they know who we are. They're not going to be as mad when something goes wrong, because they have a person they can talk to. All this stuff. And he said, my onboarding specialists now know all of our customers and they can do this very efficiently. They can do it in a half hour, they can onboard somebody, and they can move through a lot of those every week.
And so that's an example, I think, of when you do your customer success well, it touches the product. It touches almost like your account management with [00:19:00] your customers, especially as you get bigger customers. It's like part of the sales effort. Your customers are so happy they're telling everyone else about it. And it makes your product better and it becomes a sales tool for you as well. And it reduces your churn. It helps in so many ways. Having a ratio, that's a good idea. I should go back to the numbers.
Bogy: Actually, it's more of an impact because the ratio by itself is not going to show the result, unless you see that other trends are also improving, right? Because from what you said, lifetime value goes up; churn goes down; you know the clients better; you spend less time on each account, right? I mean, the motivation of this team seems like a really big part of doing this well. That's so interesting.
So, sometimes you could say that maybe product is not so critical, that if you have great customer success, you can get the information that you need - what is not working for the product - and improve it. Because a lot of people spend so much time on the product itself. And introducing it and doing it in steps with great customer [00:20:00] success seems like a good formula, at least it was for you, right?
Don: Yes. It leads to another problem, though, that I should bring up because I think it's important for founders. So, first of all, we had a spectacular VP of engineering, Lucas. I mean, our whole team was great. Lucas built up a team of engineers that was able to move through this stuff. But one of the things we found was we got a lot of requests from support. And then you run into the problem that all product managers in companies run into: how are we going to prioritize what we do? We've got this huge backlog of stuff: all of us as the founders had all these millions of ideas based on what we wanted to do; our customers are telling us stuff; customer support's telling us stuff.
I found something very interesting. We would go by intuition at first, like, "we really need to have this support in the product because these customers are telling us about it." And I found that you just can't keep up. You can just never keep up with all the things you want to do in your product.
So I learned about this method; it's called Hacking Growth by Sean Ellis. And it was about [00:21:00] this idea of growth hacking to help the product. So he did work with Dropbox and Twitter and other companies on how to get started. And it's kind of like a whole topic into itself, but what I found interesting was using a method like he laid out in the book to say, "where are our customers getting stuck? What is blocking them from reaching that aha moment in the product?" And instrumenting your products so that you know where your customers are and where they're getting stuck. And always continually improving that. In fact, he talks about hacking growth in terms of customer acquisition and current terms of customer engagement and customer retention and having to continually hack in all of those areas.
But anyway, my point is, when we started to think about it in those terms, that helped us prioritize the product in a different way, because we realized we were spending incredible amounts of time for probably two years on parts of the product that we wanted, but they weren't the most important parts of the product that helped our customers to [00:22:00] get to that moment where they're like, "oh my God, I see the magic in this. I totally get the value out of it." We had a lot of customers that were bounced off of that and didn't get through because we weren't paying attention to the right area.
Bogy: Interesting. Interesting. Were you reading all these books in parallel to doing your business? Did you find time to do it so that you have this constant learning? How did it work for you?
Don: Oh yeah. For me, books like that are just fuel. I read a book like that and I get so fired up that it gives me energy, and it gives me new ideas to try. Either that, or I would always go to the Saster conference, or there were a few conferences that I would go to as well, including one called Local University that my co-founder initiated for small businesses. I love this space and I love creating products, so it's kind of a fun way for me to just re-energize myself.
Bogy: Okay, great feedback. Okay Don, and how did it happen that you started thinking about exit? Was it a structured process? How did you prepare for it? How did you think about it? When did you reach a decision that, "Hey, let's start thinking about it."[00:23:00]
Don: Yeah. So, as I mentioned, we had talked about operating the company profitably and then , you know, "what, if we don't exit?" And that was an interesting conversation for new people who came in and wanted equity. I had to have that conversation, saying, "look, we might not ever exit." So, let's talk about different ways to compensate you because that might not happen, or it might. We don't know." And so there were some interesting conversations because people in Silicon Valley, they want equity, no matter what. People in Europe are like, "Yeah, I don't know." I'm generalizing of course, but there were a lot of people in Europe that were like, "yeah, I don't really care about the equity so much. Just make sure I'm being treated fairly." And so anyway, there were some interesting conversations, but we were prepared to operate.
We started getting a lot of inbound from VCs and from PE firms where they would reach out and say, "Hey, we want to learn more about your company and maybe want to invest," or whatever.
And we weren't interested in taking VC investments. But my co-founder and I were really interested in just understanding: what are they asking? What does a PE firm or a [00:24:00] potential acquirer want to know? It was really fascinating to hear the questions. So we started taking a lot of these calls just to understand and kind of be in the conversation, and that was enlightening for us. Some of them were just trying to do research and flush out their plan for the market that they were going after. Some of them were genuinely interested.
We got a couple of offers by, one was almost a competitor the other was sort of an adjacent market. But, you know, it was more like, "Hey, here's some stock, and then you'll get stock in the combined company and a little bit of cash." They were earnest offers, but they just weren't where we wanted. And so that forced us as a team to go back and we made a little spreadsheet. And we were like, "Okay, what is the outcome where we would say yes to an acquisition?" And we all kind of had to put our numbers together and then say, " we wouldn't even think about it unless we were to have something like this.
Bogy: Were you close? The three of you, were you close to each other?
Don: Yeah, I mean, because we all had different percentages, right? So we, had to say what would be the outcome for each person that would make sense for all of us. We wouldn't do it if it just optimized for one person. And so, that was kind of a neat exercise.
And then we [00:25:00] put that away for a while. We had a few offers we said no to politely. It was really nice to get an offer, but it didn't work out. And then, then we started talking to someone who was sort of like an M&A specialist. He just didn't give us any clear direction. So we just said, "look, nothing's going to happen for awhile. So we're going to just put our heads down and keep executing." And then my plan became, "I want to find a strategic partner that could potentially be a strategic acquirer.
So I'm thinking of somebody that has thousands of customers already. And one of the things that I learned is in general, a PE firm, they're talking to you about your cashflow and your EBIT. And they want to buy you based on a multiple of EBIT. But in our case, we were operating at about a 10 or 11% profit. We would pour everything back into building the company, so our EBIT wasn't very big. But a strategic acquirer, they could look at us and say, "hey, we have thousands of customers. This completes our product portfolio. We could sell this right away and just turn it on. And now, all of a sudden, our value to them is much greater. So that was kind of the light bulb that went off [00:26:00] for me when I started digging into acquisition.
I thought it would take at least 18 months to find some strategic partners, start working with them as a partner, until eventually they said, "Hey, why don't we just acquire you guys?" But then, I'm imagining it's at least 18 months or more before anything were to happen, and then Aaron and I got a call from this PE firm that we had talked to maybe a year ago.
And he said, "Hey guys, I know that you're not looking to sell right now, but we're really interested in your space, and we ended up buying one of your competitors about 18 months ago and they've doubled in size. And we are competing with you in the market and we know you're good. We just would invite a conversation. Just send us over a few numbers. We'll put something out there. You don't have to take it. It's fine."
So we looked at each other and said, " nothing they're asking for is super top secret." So, we came up with a little thing for them and sent it over. And then he called us back two days later and he said, "yeah, well, what about this number?"
And we just, looked at each other and said, "oh man, that was like way [00:27:00] over what we had been expecting," because again, we were just thinking heads down for a while before anything was to happen. So we ended up talking to them. We said, "all right, well, let's have a conversation." We ended up negotiating that offer up even.
So my point is, we were planning down the road to sell, but we weren't imagining that would happen right away and didn't expect it by a PE firm. And that was what was interesting is that this firm was building a MarTech sort of a practice, or I don't know if practice is the right word, but they had about seven companies including one of our competitors. And part of our terms for the agreement was that they wouldn't just take our company and break it up or just merge it into one of the other companies, because we wanted our employees to keep their jobs. They honored that. They said, "no problem at all. We want your employees to stay and to be happy, let's figure out a way to make that happen. We're not going to merge you in. We see you as complimentary to the other company in the portfolio. We're not going to make you guys merge." And so they were interesting because they were also talking to us about SAS multiples and not EBIT multiples. They were a [00:28:00] PE firm that understood the space and the opportunity there, and they were actively involved in that. So it was a different conversation than I had had with some of the other ones.
Bogy: Okay. Okay. So you basically started out with PE firms. You learned how they look at your business without yet having a specific goal to sell to them.
Don: And VCs too, like we were talking to VCs and then reading about SAS business. We'd go to Saster conference, and so anyway, you know, we were just trying to like ground all that.
Bogy: Yeah. And then you come up with the path that a strategic is going to give you a lot of synergy value. But you didn't really try that path, right?
Don: We started down it. We definitely started and I put the plan together. And we had some partners that we were talking to, but I was expecting it would take a while to build the partnership, to get to know each other, to build the sales channels. But that was something that was fascinating to me is, you know that old saying " plans are useless, but the act of planning is indispensable"? I found that to be so true. The fact that you go through [00:29:00] in this thinking and try and put the plan together, sometimes something that you think is way out there just all of a sudden happens, right? And it's kind of exciting. That's one of the things about running a business. Serendipity.
Bogy: And I think also, the fact that you talked to quite a few people before you were serious about exiting, that built relationships, right, and provided all this contact and context so that you felt much more comfortable once the real offer came. You knew that this was a good offer, that you should grab it, right, as opposed to waiting for the strategic sale.
Don: Yeah, that's a great point, Bogy. I think that every founder should be doing that. From day one, they should be thinking about just taking those calls, talking to people. Even if they're not getting approached, find someone who knows someone who works at a VC or a PE firm and just have a conversation with them. Talk to somebody at Founder Partners, whatever. Talk to them about "what do people look at when they want to buy your company? What's the track record that they want to see? What are the ratios and the [00:30:00] KPIs they're going to look at? What do they care about?"
For example, we talked about EBIT before and then SAS multiples. There was an interesting rule that I learned about called the rule of 40 that's being used. Have you heard of that rule? It's like, basically, you can take your growth rate and your profit, and then you add it up, and if it's over 40, then that means you're growing at a respectable rate. And so it's interesting. You start to learn some ways that they start to think about a company and then that helps you in your conversations with them too.
Bogy: Right, right, right, right. And, in conclusion, what were the three most important things that you would stress someone should remember preparing for an exit? Where did you put the focus and your attention to really make the transaction happen?
Don: Hmm. Well, obviously just talking to people all along the way. Even if you're not talking about flipping your company, maybe it's going to be five years from now or seven years from now, be thinking about who your strategic partners should be and who you can talk to way in advance. That'd be one thing.
The other would [00:31:00] be the financials and the books . We've worked, Bogy, with some startups that already have a data room put together. And they're not trying to sell their company right away, but they've got a real-time dashboard of their metrics in terms of their churn and their revenue growth. They've got documents about their product and it's like, I would do that. I would get very organized, and we tried to do that with our business. My wife took that on. She made sure we had like impeccable financials. We didn't have to go back and redo any books or accounting or anything like that.
And I think that even though those are basics, a lot of people miss that stuff. And so we had all of our customer contracts signed. We had all that stuff in order. So I would say that would be another thing. And then it's just learning the KPIs for your particular type of business and knowing how to talk about those.
I mean, churn is a really big one, net revenue retention. There's a few metrics that you really want to understand and be able to talk to very intelligently when people ask you. So for example, churn, it seems really easy to talk about: what is your churn rate? Oh, man, that is such a deep and nuanced [00:32:00] topic depending on your product and your business and your customers and what segments you're talking about.
And so being able to break that down and have an intelligent discussion about what that number is and how that impacts your business, you have to be there right. In order to have that kind of good conversation to sell your company.
Bogy: Yes, yes, yes, yes. Okay. And did you work with an advisor? Did you consider hiring an M&A advisor to help you through the journey and that last stretch? Or was it not necessary - it all happened too fast?
Don: You know, we actually thought about it at one time and we talked to a person about it, but it didn't go very far. I feel like we had one of the advantages in our favor, and that was we didn't need to sell. So that gave us some negotiating leverage. And I've heard advisors tell me that that's one of the levers and the other one is having multiple offers.
Well, we didn't necessarily pursue the multiple offers. Even though we did get multiple offers at different points in time, we didn't leverage those against each other. And I think that's an area where an M&A advisor could have really helped us [00:33:00] to do that. Overall I'm really happy with our outcome, and we were able to negotiate it up.
But I definitely think an M&A advisor is a good idea for a company. I think it's so important because, as an entrepreneur, you're only going to go through this once or twice or three times, whatever, but an M&A advisor, might've done a hundred deals. And the person you're negotiating against, they've done a bunch of deals too. And so you're sitting here at a disadvantage, I think in terms of experience, without having an advisor.
Bogy: And it costs you a lot of energy to figure out all these different metrics and processes. And if you have someone by your side that has experience, but you know, it's always a question of finding the right person, right, that also has the right chemistry and can really work well with the team. And between the three of you, three of you were actively involved in the exit process, or it was more on you and Aaron?
Don: Well, in the exit process, in the negotiation and all that, yes. Aaron took point on it. And then when we did the diligence, which was a whole nother ball game, Aaron and our CFO, they ran that [00:34:00] basically. I mean, we were involved, but they were the main points of contact and drove it.
Bogy: Okay, so you could have a little bit of distance because it's so important to have also a distance and that perspective, right, doing the final deal to really make sure that you're covering all the aspects because it can fall apart last minute you never know.
Don: Oh yeah, for sure. And it's so tense too because you're so distracted from your business, trying to pull all this data together and answer these questions. And then we had a weird tax thing we needed to clean up where the IRS, they got all of our payments, but they didn't get one weird dot form. We were afraid that was going to blow the deal up, and it was just little things like that where you're just like, "oh my God, it was so stressful."
Bogy: Yes. Yes. Okay, Don. Is there anything else that you would like to underline before we finished that would put a useful light for a prospective seller, a founder who is thinking of exiting.
Don: You know, two things. One is I think that having great co-founders is just so important, because there are times in a business where I was just overwhelmed and I felt [00:35:00] like, "I don't know if this is going to work," and then my co-founder could kind of be there and pick me up or vice versa.
And so having that kind of support is, like, for me, essential. I've heard many other people talk about it that way. And the other thing is I would say, there are times when you're living in the middle of this thing and you sometimes wonder , "wow, am I doing the right things? And is this ever going to work?"
I think you should have more confidence in yourself. Like, I should have had even more confidence when I was going through that, that it was all gonna work out because if you can manage your cash, you can stay and continue to execute long enough to get lucky.
You have persist. You have to be around. So many companies that I talk to now that don't make it, it's just because they fumbled on the cash, managing their money. So, you know, just get smart about that.
But anyway, I think, it's an exciting journey. I hope this helps some other founders to maybe not make some of the mistakes that we did.
Bogy: Thank you so much. Really insightful. Thank you so much, Don.
Don: Yeah. Thanks, Bogy. Appreciate it.[00:36:00]