My $100M Mistake + 6 Company Exit F**k Ups To Avoid

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 wanna sell a company or you've sold a company, if you sold a company, you're gonna be able to relate some of these mistakes, I'm sure. If you want to someday sell your company

Good to listen to so that you don't have to pay the same price that we did and make these mistakes. So go ahead. Grab a drink. We're playing Never Will I Ever. And start sipping on that drink. While we tell you about HubSpot, our partner for this episode.

Yeah. I feel like I can rule the world, I know I can be what I want to Today we are talking about how To sell a company. And in fact we're talking about How

That To sell a company. These are mistakes that we made. Uh selling our company. So Sam sold the hustle to Hub Spot. 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 to a small group of private buyers.

And every time you sell your company, you learn a bunch of lessons. But we're gonna make this fun. So if you've ever played the drinking game, never have I ever. We have a new drinking game for you. M FM 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 hear. And uh if you listen to this, you're gonna 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 left here, but I got some greens in the morning. I I'm looking a little athletic and I got some greens.

Not sponsored, but you know. Send me a free box. Yeah, that'll save you eight eighty bucks a month. Um Dude, I have a 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 playing.

And I love that it doesn't taste that great. Because to me I don't want my healthy shit tasting good. Right. I don't like my hot people to be funny too.

I don't like when things are not supposed to go together go together, all right? Like the guy Matt Rife, the comedian? No. Too good looking, I'm not watching that special. Number one on Netflix, no thank you. Well, you're pretty funny. What does that make you? Pretty ugly. As the world should be. Um all right. Wha how do we wanna go about this? We have a bunch of

Points here. Which one you want? Let's start with the the s 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 QSPS. What happened here.

Q SBS. For those who don't know. I didn't know about it until Like a year before I sold. My friend Jack Smith told me about it.

QSBS. I'm gonna try and state the law here, but it says so it stands for qu qualified small business stock. QSBS protects up to 10 X of your investment from long term capital gains taxes. of ten million dollars. Yeah. ten X your uh initial investment.

What that means. And a lot of people only pay attention to the ten million dollar thing. So With QSBS, how long do you have to hold your stock five years? Yes. So you hold a

s a small business stock, so a privately held company that's a uh C Corp. And you have to hold it for Ten or five years and it has to be valued originally or the assets of the company, which is the value. has to be fifty million or less. You hold it for five years and you can save ten million dollars in capital. Ten million when you sell. So like let's say you sell for ten.

All ten. Would be tax free for at a federal level. And many states also honor QSPS, not California, but many states also do. So you could walk away paying Zero in taxes.

If you sold for ten million dollars. Which is remarkable. Or Now here's the your part that a lot of people forget. Or you can save up to

Ten times your investment. Whichever is greater, the ten times or the ten 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 valuable. 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

Um, 15 million in revenue. Let's say you're doing twenty million in revenue, and you say, Great, I think we're a forty million dollar company. You get a third party that does it. So you can save Ten times forty million dollars in taxes. Four hundred million dollar. That's a four hundred million dollar tax shield. Right there. Yes.

And I know friends that are doing this. Now this this this this law A lot of people don't know about it. It's maybe w besides real some of the real estate laws for tax savings and real estate, it's probably the greatest thing there is. 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 z you know, you have a a exclusion on a hundred percent 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. He goes, What are you talking about? Real estate's the most tax advantage. I said, Yes, but you don't have QSPS because real estate is not eligible. for QSPS. There's only certain types of businesses can do it. But like like Sam's saying, you could stack it. So for example, what some people do.

They have QSPS 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 ten million dollar Exclusion. In addition to your own. So you can have

You know, I was joking around with a a Q S B S guy and it's he's like, Yeah. If you have three kids, I can get you I can get you forty million, fifty million in QSBS. And I was like I was like, Oh, this kid I have, you know This next kid uh you know I'm gonna have this is This is just a walking QSBS shield here. Like this is awesome. And uh it used to be

That But does that mean that your kid when they're But were your your kids at the age of eighteen have say in control over your business? When they're eighteen, I mean you Exited by them by then, right? Like but they're gonna have But maybe not. But they're gonna have a just a small equity save. They're not gonna get the majority, right? Like you're just giving them enough so that they have a shield. They have like you know They have less

Less uh tax. And you you know, while they're miners, you control the estate. You can always You know. Uh I don't know. I don't think what a lot of people having is like little kids that eighteen 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 asterisk here. Which is this I don't like calling it a loophole'cause that's so first of all, I hate that word loophole,'cause loophole's are good. Loopholes. Are legal. Like when someone says a loophole, I'm like, Oh, okay, but you're trying to spin this negative, but like you're just following the law. Yeah. Yeah. It's essential. Or when 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 asterisk here because I think two years ago it was o it was up to vote if they were gonna ax it and the idea was They might make it only fifty percent.

Or so they might reduce it by f um Half Uh I don't know if this is gonna be in play for how much longer. I this is not like real estate where it's gonna last forever. Right, right. Yeah, it is but it's it's been out for a while. Um And it's it's amazing, especially in the in the tech industry. All right. So my turn.

Never will I ever. Just shut down a company without trying to sell. So Or 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 break out and it was either wasn't worth our time or 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 um like a a personal character for yourself that would be in these and then it would give you like kinda 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 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 Tagg terms.

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 in 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 My Hundred Million Dollar Mistake, because we took that and we said, Well, this is not really sticky as a messenger. It's not big enough where you're gonna get all your friends to switch and and start t 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. Well we should have done is taking 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 a hundred million dollars to Snapchat, doing exactly that'cause 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 thirty days. And have like five conversations, even if it doesn't go through like you owe it to yourself after, you know, nine months of hard work or a year of hard work. uh and creativity on something. So never will I ever just shut it down. You said we got a hundred or sorry, we got five hundred thousand downloads in sixty 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, he either wasn't gonna sell at all,'cause there's only like eight buyers for this. There was like eight mess messaging that they were major at the time. It was like Line and Kick and

Um, you know, WhatsApp and Facebook Messenger, Snapchat. Those are all you know, those eight players that like could benefit from something like this. And either it just wasn't gonna 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

our team wouldn't have wanted to go with the acquisition. And so we would have had to like either try to just sell the tech, which is really hard. Or sell the whole company, including the team.

And then disband for a year and then come back together. And we uh Just, you know, we didn't but we but the thing is we didn't even really get to that point. Like we should have gone and s seen what our options were, right? Like in in poker. If you've already paid the blind. We'll just see the flop. Maybe you'll maybe something good will come out of it. And we didn't do that. Did you by the way, you're if you Google hundred million dollar mistake, Sean Perry, there's uh you have a medium blog.

Uh you've got a lot of good posts here. So if if you're listening, go check it out. D did you not And this might bring me to my my point. Did you not sell because you're in main investor Didn't give a shit. No, it it literally just didn't come up. It's not like we had a conversation and one get one side said yes, one side said no, and we debated it, and then one side said no, I have the voting control. Hell no, we didn't even think about it. We just moved on. 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 in the stake. The first one being not joining Stripe as employee thirty or fifty 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 in Happy Gilmore when he says I eat pieces of shit like you for breakfast and then Happy Gilmore goes, You eat pieces of shit for breakfast. That's me. I've I've made mistakes more expensive than your net worth. It's like, You've made mistakes like this? And 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 twelve like when I was twelve year twelve 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 shit. 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 bitch. And The one of the ways not to do this is to have multiple options. That's the easiest, most most tactical one is to have lots of options. The second one is you just don't You you basically have to act like a hot girl. You're like, look, I I don't care. Right. Like I'm gonna be fine regardless. And I remember there was one point, do track your like your finances somewhere. I have like a spreadsheet. And I remember one day I just added like 10 million, like you have like an other account. So you can link all your accounts and I just had other and I just manually typed in 10 million dollars.

And I would stare at that for like six months and 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 shit. So you're just like passionate about whatever you're doing and you don't need the money or you have other options. And I remember being desperate in that just like

To that. twelve year old girl who was into me, Aaron. Uh, you know, like they could sense it. They could they they could smell the firm the the the hormones on you. Like anyone could any hot girl could tell would be desperate. They could tell what a confident man is like, and I was not a confident man. Can you put your retainer back in? It's the same thing, right? Yeah. You've nailed it. And that last bit, which is

The rules the rules of a neg of negotiating when 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 might 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 no grieving. Convince yourself that that's true. That the 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 gonna 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 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 um 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 shitheads they changed their opinion. Right. 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? Maybe you're not 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. I have a lot of differences. 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 were some red flags, but hey dude you know, like anything else, you know, when when something's really attractive Yeah, 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 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's not a lawyer, but um

We don't understand also why why they would not have a lawyer. Like it's this guy's friend. He says he's a lawyer. Yeah, they're not like scammers, but Is it

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 s well didn't you were sent money. We we went down the pat we took the offer. And um There's a time to close, but the f the the again, one of the stupid things they did

They wrote the offer. as when we sign the the term sheet, which is not the deal's not closed when 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 gonna see these people again like Business, even if your deal is kinda 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 biology, you know, is one of the smartest people on earth. So I call biology and I said biology What would you do if you were me? And he's like, Well, that's a higher. 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 t 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 along how long have you been talking to them and how long you've been talking to the high offer? I said, Well I'll talk to the fair offer

Way earlier. We've negotiated it, renegotiated it, they've done diligence and the high offer is new. Blah blah 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? He's like, Well You don't know if this deal's gonna close. You don't know if this number's gonna stand. You don't know if they're gonna change their mind. This is 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 f discount factor for if this is even is gonna be the final offer that gets Sent to your bank account.

And so I was like, Okay, so like ten percent? He's like Tell me what you know about this person. I told him everything I know. He's like Fifty percent. And so we had to cut the offer by fifty percent mentally to to to you know compare apples to apples. And that was some of the best advice we got was that one piece of advice. So now I always in any deal

I have to ask myself, what's the discount factor here? Meaning How likely are they to close? 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. 'Cause that's when you can reduce the discount.

When we were selling to HubSpot, I remember the Just like I said, the the my contact, the one I was speaking with. She sensed weakness and she sensed uh Uh She sensed that I was in a tough place emotionally. And she and I'cause I was constantly asking.

H how do we move this forward? Yeah, she could like She's like Are you laying down when you're talking to me? Like she can just like sense that I was like lay on the floor. And Uh and w 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. No, can we talk about important stuff? And this woman She was like, Look. We don't care about you. Well, you know, she's basically said she's like our company is worth like twenty or thirty billion dollars, 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 gonna do something, we're gonna do something.

Now shut up and relax. That's basically like what she was saying to me. And I remember feeling that I was 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 sole proprietor or to a PE company or to a really large strategic company, I think the way that you deal with those sellers is different. Or buyers are is different. I'll tie that in. I haven't never will I ever Never will I ever.

Assume the person I'm talking to. Is the person who's buying my company. So this is When we sold to Twitch. Uh, which is owned by Amazon.

I'm talking to Corp Dev. It's very easy to think. I th I'm assuming you're talking about somebody in Corp Dev? Yeah, and Corp Dev. She and 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 S V P who runs like you know, or somebody of the C suite who like matter to sign off on a on a transaction of Of of you know.

A multi eight figure transaction. That's not It's actually not Uh It actually the decision actually does ladder up. But by design, these companies design it. So you're never actually gonna get to talk to that person.

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 gonna be like, Cool, I'll go back and find out. And that layer those lay 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. Uh 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 somebody and they they had an epiphany and now they're 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 Yeah, you have to figure out who is that person in the company and what is the fire under their ass. If you ever want if you want to have a chance of being able to sell the 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 wanna look good. And so as the seller, you have to sell a company And you have to make them look great. You have to make it easy for them to look wonderful. You you have such different incentives. They are just trying to not fumble the bag. You are trying to get your first bag. And you are gonna behave totally differently and you're gonna 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 not a

You know, this is a small small piece of it. I'd be like cool. Round up. The price just went up. Ten million then. Right. Like you know, if 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. Alright, like that is um

And 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 of the details. Everything mattered and You saw how I approach that we me and you have very different approaches to negotiation. What did you see or describe that? So this is like a Midwestern value state, which is If if I order a steak and you send me out a pizza, I'm just gonna shut up and eat it and I ain't gonna 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 fucking guys for everything. And in my head I was like What? Why? Who gives a shit? And you're like this word needs to be that.

And I'm like, what are you doing? And and you 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 gonna line up. And you need um Like Sam Altman, uh you know 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 sma slap him as hard as he can. It's kinda 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 um a non zero sum negotiation. And so it's like, how do I give them What's that French word? Je ne sais quoi? What is that what is that R am I saying that right? There's an art there. It's like you have to figure out What are the things they really care about that I only kinda 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. Then 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

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's gonna 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 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 to And your dad does everything, right? He's like Uh like he does projects. He started as an uh engineer, lowly engineer, and he has like, you know, he it's like office space or like a Dunder Mifflin or something. Like he was sitting in his cubicle and it he kept getting patents. So his wall had like twenty two 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 dr dresses up nice, uh, he works for me for six months, I get this patent, he gets promoted, I stay here, like Wait, am I in the wrong job? So it took him ten 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 thirty, forty 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 um When we were working there, I got to w see my dad in action. And like it's so funny. Like you see your dad at home

And dads 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 would 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 the slick talking Australian guy who literally looked like Leonardo DiCaprio. This guy's on like uh 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 You know, this Indian guy who can barely, you know, he forgets to add the connecting words and sentences. He's just gonna 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 gonna do with it. It's gonna 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 Kinda 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 wanna do this. And I'm not doing it if we're doing it that way. And then they're like

Yeah, 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'll it it just 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 was 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 gonna the most powerful word in any 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 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 gonna do here. Like it's gonna be hard for them to replace me in this thing. So I'm just gonna say no. And I learned so much that day. He told me he goes, the more stubborn guy in the Did they come back? Yeah, of course. Did they come back? They came back. And in fact, the exact opposite happened. By the end of the whole thing.

We negotiate this deal. And like you know, there's this kind of like okay, let's take a break, we'll go get the Yeah, yeah, we. I'm What were you doing? I was there. I was the we're of 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 middle man guy. He goes, So how d 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 can then they realized it and they were like, You know what?

We let the stubborn idiot Take the whole thing, the whole enchilada, like No. And they went back to no. And we actually ended up more like a fifty-fifty deal. But if if he had just given a little bit back. You always want to kinda give back at the end.

uh where they feel like they have something to lose. He took it so far, he won the negotiation so badly that they had they had had nothing to lose in the negotiation and closing the deal. They're like Well, what do I have to gain by closing this deal? Nothing. It's just all the value's 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 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 d that's like the 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 gotta have your mom and dad on the pot, I think. We've we've heard a lot of stories about them. Um

Alright, I'll do we'll we'll do one or 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 Xenophits and then

Ripley. 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 s uh selling a company For thirty million. And three hundred million, it's the same thing, basically.

As in A lot of times when you sell business Let's say I don't know what that threshold is. It could be ten or fifteen million. But When you sell a company for three hundred million and fifteen million

They basically give you this Excel sheet. And it has five pages and each page has literally fifty 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 of it.

Uh, we don't even have that. Yeah. Like Yeah. Here's why it's a big deal. When you switch pay, here's a very specific example. When you if you just use one payroll, that's easy. You just click export. That's easy. But I didn't. And so I had a

And then it, you know, if it's been three years, you have to call Zenfits, 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 a hundred fifty dollars

out of my PayPal account. I even paid it personally and he's I was like, why does this matter? He's like, Well You know I can't hire B Baller eighty four on Fiverr because 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 five hundred bucks, thanks for the freelance. Or I wouldn't track Uh confidentiality agreements. It was a fucking mess. I used Google Drive to store some stuff, Dropbox to store some. It was a mess. And I'm telling you, Wh 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 this shit. And it literally took Three months to find documents. That's and three months working every day for twelve hours a day. It is

so hard to get all the documents. It is so challenging. And you don't want to give them anything that's messy. Otherwise you'll look not buttoned up. And if you look not buttoned up, they'll say, What else are you missing? Or like are you lying about something? Right. And you need to present things in a really nice orderly fashion. And so start being organized from day one is really, really important. And not like being a Maverick and being like I'll just here, I got twenty bucks. I'll pay you for this. I'll use PayPal for this. Uh like it's a mess. Well, I gotta drink to that because

I made the same mistake. No surprise. I'm like The most disorganized guy on earth. And uh you know, I made mistakes like I thought uh you know

Hey, startup, you guys gotta move fast. Don't waste time incorporating and getting trademarks and Um, doing all that and Yeah, that could be the difference between long term capital gains 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 eighty three B? Uh ye 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.

The eighty three B election, basically by for anybody who doesn't know, is like a You can basically get shares in a company and you could tell the IRS, hey, Tax me now, this year. On the gain of these shares.

Um because I'm gonna exercise them now. And it's like a hundred dollars. I'm gonna exercise these shares now. Um Tax me you know. 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 game. So that I've exercised the shares at this price. So that when I sell you I don't have to

Uh ha pay this huge markup on the on the exercise uh of the and you only have like thirty or sixty days to mail it in. And you basically literally have to write a letter Is it ninety days you have to write a letter? And you wanna like postmark it and then you wanna like You you write in a 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 there's 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. I didn't know how, and I went and I met with five people who had sold cum multiple companies and I was like, Okay. Hey. I don't know what the fuck 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? Yeah,'cause 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 what I did. I had uh lunch with this guy Fwad, and uh he's the CEO of this company called Array now. He had sold I think he sold like five companies or some shit 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'd only been like forty days, but I was like Dude, I yeah, it's just been ups and downs, but finally we're here. And I was talking like I arrived at some destination. He goes. He's looked at me and he's like This is not over. Actually, you just reached the starting line.

Now it's time to sprint. And I I repeated that advice to so many people of now it's time to sprint. Because so many times it's happened. Let's say you're fundraising for a company and you've spend, you know, three months trying to fundraise, you finally get the 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? Yeah, and like the work starts. Especially true when it comes to closing uh uh M and A. It's like And what a lot of people don't realize is it it it it it takes From getting the offer to actually getting the money, that can take six months. That could take exactly for for me, it took

They emailed me and They emailed me in September or October, I got paid in February. Yeah, exactly. Three months, six months is very common. And so You um yeah, that's the time to spar the hardest. The second thing he said was he goes, um show me your data room. And I was like, Oh, uh we

I have a Google Drive, but like it's kinda messy right now. And he goes, uh He goes, You're selling your company. Think of it like a product on Amazon. How does Amazon sell a cr product? I'm like Uh there's like a

page and a one like a one click buy. He goes exactly. You need to turn your entire company into a giant buy button. And I was like, Was that he's like, You need to like Answer all the questions now. Get it all organized now. Put it all in place now. So that when they look at this stuff.

They're ready to one click buy. If the 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'm getting given, which is like What are all the the ducks I can line up here so that this just becomes a Yeah, easy. to understand easy to consume, uh, you know, processed For them.

And like it was the one you know thirty day period of my life where I became Marie Condo. I organized the shit. out of my company. I took everything. I was like, look, this thing needs to be bulletproof. And uh I'm so glad that I did because it was it was extremely necessary. Do you want to do one last one? Yeah.

Oh, but by the way, I have one never will I ever uh run my company like a personal picky 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, Fuck, taxes suck. 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 I'm gonna do is I'm gonna start doing some tax stuff. I was 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 a office and I'm like I mean, what are you doing? You're just trying to save like two hundred grand of taxes, and what you're doing is actually you're ruining your books. So like When I looked at his business The business looked like it had no profit.

And he's like, you know, so happy that he's either has this like shitty margin, shitty shitty net profit margin, because in that year it saved him on taxes. But the reality is If you're building a company that you want to sell. You need to take some short term pain of having clean, simple Books that you pay you know. Legit taxes on.

In order for you to have A big exit at the end'cause they're gonna see a track record of multiple years of solid profits. that that you're gonna sell on 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 to sell There's a there there is like a bullshit category on QuickBooks that you can put stuff into.

But that is not ideal if you're trying to sell. Yeah, exactly. Is if you're trying to sell, you wanna ha you wanna be able to show a track record of of success and uh versus like Yeah, I had a friend who would go to the bank on December thirtieth and take out a bunch of cashier's checks. that they were gonna 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 wanna squit this vendor, but I've already prepaid him.

Or they'll like take two of the checks they've never even paid and then put it back in the bank a month later and hope nobody notices. It's like Dude, just don't do this shit. Like don't treat your company like a personal piggy bank. If You wanna 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 see you can't really unwind that. These are like It's in the it's in the history box every year that you're doing that. You are kind of like making your You're adding a bunch of asterisk to your own books that like You need a buyer who's willing to go and do a bunch of add back and try to figure this out.

In order to feel confident that they should buy this business. when Dave Portnoy sold the you know, he sold Barstool sports a couple of 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 Barstool Sports. And so Barstool Sports owed like

Uh a trailer for the race horse. 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. Three thousand liters of gin that we acquired. Like Yeah That's what he said. He's like he's like Chernen didn't want to buy like Skippy the racehorse. Um but The 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 Barstool was a big deal. He only sold it at a fifteen million dollar valuation. Crazy. When it was worth Way more than that. And it's probably because it w 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 shit like that and gamble. He's like we gambled like crazy'cause it was content. Um Is that it? I got one more. Never will I ever

Just s just stay at home when there's a deal to be closed. So this is the rule of Just get on a plane. No meat. Don't meet people in person. Don't do Zoom calls.

Or if you're doing Zoom calls, add in the in person afterwards. Uh The in person meetings are so important. Um you know, I I'll I'll tell one story which was

Uh uh just a deal we closed recently. Uh The uh yeah, w one deal that we didn't close that I got on a plane for and like, you know, for me I I my the running joke on the spot is I 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 f the deal didn't go through, but I could sleep easy at night because I'm like I did everything. Like I Made multiple offers on this deal. I got on the plane. I met them in person. Like you know we did everything that we could po we could do. Uh 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 We'd love to just next chat. We'd 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'cause they understand this principle of like You just gotta get on a plane and you gotta 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, 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 off for months later. And we were like, uh I was like, you know what, I wanna 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. It was sort of like we just had like a quick or I texted, I think, and it was like really wasn't an opening. But I was like, Hey, I'm gonna 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

Yeah, we'd 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 Van Ness. And my car literally just shuts off in the middle of the road. Your car breaks down. Car literally just shuts off. Uh I don't know what happened, the car stop.

Stop 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 own. This is the BMW before that. So Um This is yeah, 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, ten minutes. And um I'm like shit, uh I guess I gotta cancel this meeting, and whatever. Like Who knows what w if this meeting anything would have even come of it anyways, but like whatever, we'll wait for Triple A. And my wife's like

No, you gotta go. You told you 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 gonna leave my wife and kids on Van Ness and say 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 know, summ me twice. And so I hop out and uh I literally run. I s I run down Van Ness like, you know, a mile basically. Get to the coffee shop. Meet the guy.

Steel comes back to life. By the end of that coffee meeting and we end up selling to them. You know, and I'm like I I think I'm I'm actually like hundred percent sure. If I hadn't gone to that coffee meeting That deals doesn't happen. And um'cause 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 suss 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 B and W.

Yeah. Don't trust him. 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 and A for this episode.

Except. on one topic. I think we're gonna keep doing these every other Tuesday, right? Yeah, we're trying to come up with Great topics that we can kinda shoot the shit on and then share maybe, you know, either our answers or or uh

Been through. So I think that's good. I think people will 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 pot. I feel like I can rule the world, I know I can be what I want to

I put my all in it like my day's off On the roadless travel never looking back

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