This is a special week for us here at Built to Sell News as we dropped an interview with Josh Abramson, who has one of the most storied resumes we’ve ever seen:
- Started CollegeHumor and got a $9 million acquisition offer from his dorm room
- Started Vimeo — the video sharing platform
- Sold three companies to IAC’s Barry Diller for a reported $20 million
- Started TeePublic and sold it for $41 million (listen now)
Abramson’s story is so rich with insight that we’ve decided to dedicate this week’s newsletter entirely to lessons from the show. First, let’s get the headline numbers out of the way: Abramson owned the vast majority of Teepublic, which he sold to Redbubble for $41 million, so by any measure, Abramson is a magnificent success and his story is full of insight for business owners.
However, in this week’s episode, Abramson also shares four critical lessons he learned along his journey:
🚨 Beware the Downstroke
Abramson started CollegeHumor, a website devoted to sharing jokes, during his freshman year in college. While still at University, he was presented with a whopping $9 million acquisition offer for CollegeHumor. However, as Abramson explained in his interview with John, the venture capital firm behind the offer only guaranteed a few hundred thousand dollars upfront. The remainder of the deal—over $8.5 million—was tied up in a perplexingly complex earn-out scheme. Abramson calculated that if he managed to meet the objectives stipulated in the VC’s earn-out plan, he’d be far better off retaining the business and collecting the cash flow himself. He rejected the suspicious proposal—a decision that proved wise as the VC firm went bankrupt eighteen months later.
Don’t be lured by a grandiose headline acquisition offer. Recognize that the downstroke—the guaranteed cash-on-the-table in an acquisition offer —might be the only payment you ever receive.
🦍 Goliath Often Crushes David
Choosing to retain CollegeHumour, Abramson expanded his empire by launching BustedTees and the video-sharing platform Vimeo. In 2006, he sold a 51% stake of his business to IAC Interactive, a conglomerate of internet companies owned by Barry Diller. With the deal, Abramson acquired a “put option” which allowed him to force Diller to buy the remaining 49% of Abramson’s business at a “fair market” price. In case of disagreement over what was “fair,” the case would move to arbitration.
At first glance, the agreement appeared reasonable to Abramson. However, when the time came to sell his remaining shares to Diller, he came to an alarming realization: any arbitration would likely tilt in Diller’s favor. The arbitrator, cognizant of the fact that IAC’s business could be a potential gold mine of future assignments, was unlikely to rule in Abramson’s favor.
Regardless of how airtight the legal stipulations are in your share purchase agreement, suing the company that acquired you rarely works out well for either side.
🥩 Acquirers Have a Greater Risk Appetite
When it came to growing CollegeHumor, Abramson was the quintessential bootstrapper. His approach was marked by careful decisions and stringent cash conservation. However, under IAC’s majority ownership, Diller nudged Abramson to “swing for the fences” on some high-risk bets. While risking CollegeHumor made sense to Diller, who had a vast portfolio of larger internet properties, Abramson was uncomfortable with such a cavalier attitude towards the 49% of his equity that he still held in CollegeHumor. Yet, as the majority stakeholder, Diller had the final say — kind of like being the passenger in a car with an intoxicated driver: loaded with risk, bereft of control.
If you’re contemplating becoming a minority shareholder in a business you started, steel yourself to take monumental risks with your minority stake.
🚶♂️ Entrepreneurs Thrive on Their Own
Once under the control of IAC, Abramson’s t-shirt business began to wane. The profits plummeted from approximately $1.5 million a year to under a million. At one juncture, Diller told Abramson that he didn’t want Abramson devoting any time to BustedTees. If the business ever fell short of earning $250,000 per quarter, Diller would pull the plug.
Chafing under the constraints of life at a giant company, Abramson proposed to repurchase BustedTees from IAC. In exchange, he would relinquish his rights for severance under his employment contract, unvested stock options, and some cash. All told, Abramson estimated that he reclaimed Busted Tees for an equivalent of around $2 million. Fast forward six years, Abramson sold the now rebranded and transformed BustedTees (TeePublic) for a cool $41 million.
If you like running your own show, you’re probably not wired for life in a giant company.
📽️ Clip of the Week
Watch this clip as Abramson describes his clashes with Barry Diller, the founder of IAC Interactive and the legendary acquirer of hundreds of internet properties.
📣 Quote of the Week
” I don’t want you spending a single second on this business.
– Barry Diller instructing Abramson not to invest his time in BustedTees, a business Abramson bought back from Diller for around $2 million, only to sell it six years later for $41 million.
💸 How To Get More Cash Up Front
Abramson had to roll 49% of his equity when he sold to IAC because Diller wanted Abramson to stick around. If you want to make a clean break when you sell your company, create Standard Operating Procedures so an acquirer can see how your business can run without you. VidGuide is the world’s best way to create SOPs because your instructions pop up in front of your employees as they use the software that enables your business. See for yourself by scheduling a one-on-one VidGuide demo.
🏆 A Lavish Trophy for the Upscale Owner
To commemorate the successful sale of TeePublic, Abramson expanded his already impressive watch collection by acquiring a few Patek Phillipe pieces and a gold Rolex Daytona. For those keen on luxury timepieces or fellow collectors like Abramson, he discusses his watch collection in depth at 1:27:00 of the episode.
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