How To Lose $200 Million

February 4, 2019 |  

About this episode


Procrastinating the sale of your business? One entrepreneur shares a cautionary tale that reveals the best time to sell your company may be when someone’s willing to buy it.

To read a transcript of this episode, click here.

You’ll never know the ideal time to sell your company — but in many cases, it’s when someone’s willing to buy it.

Rand Fishkin, the bestselling author of Lost & Founder, learned this lesson the hard way when his company Moz received a $25 million dollar offer from HubSpot despite only expecting to do around $8 million in sales that year.  HubSpot was offering three times forward revenue for Moz and Fishkin thought four times revenue would have been more reasonable. HubSpot’s bid included some cash and a hefty amount of their stock. With strong conviction that his company was worth more, Fishkin declined the offer.

HubSpot shares would go on to grow in value more than tenfold, while Fishkin struggled to manage his company after an $18 million injection of venture capital. Fishkin grappled with depression and ended up stepping down from Moz. During our interview, Fishkin reveals that today, his liquid net worth is around $800,000 – a far cry from the roughly $200 million he stood to gain had he accepted HubSpot’s offer.
What follows is a candid and heart-wrenching tale of ‘the one that got away’ told by Fishkin with humility and grace. You’ll learn:

  • The best time to sell is when someone’s buying
  • The early mistake that landed Fishkin in nearly half a million dollars of debt
  • The one mistake to avoid when approaching venture funding
  • The math behind venture capital and why it’s almost always a mistake to seek it out

Being ready to sell when someone wants to buy your company requires that you have a business that’s ready to sell. That’s one of the main benefits of going through the 12 steps of The Value Builder System™.  Complete Step 1 for free right now by getting your Value Builder Score.

About Our Guest

Rand Fishkin is the founder of SparkToro and was previously cofounder of Moz and He’s dedicated his professional life to helping people do better marketing through the Whiteboard Friday video series, his blog, and his book, Lost and Founder: A Painfully Honest Field Guide to the Startup World.


John Warrillow:                So when are you going to sell your company? My guess is your answer to that question is something like in the next five to ten years. That’s when you’ll have the business just perfect. You’ll have it up to a certain size that you’ll be able to get exactly what you want for the company. The problem is you never know when the ideal time to sell your company is and in many cases it’s when someone’s willing to buy it. And in my next guest Ran Fishkin’s case, he learned this lesson the hard way. He had an offer to buy his company Moz from a company called HubSpot. They were offering a cool $25 million dollars.

John Warrillow:                The interesting thing is $25 million dollars was not just cash. It was cash and HubSpot stock. HubSpot stock over the next few years would go on to grow in value more than tenfold. Ten times the value that it was when Rand was being offered is $25 million dollars in cash and stock. He ended up turning it down and ultimately would live to regret that decision for a long, long time. Your company is best bought not sold and then when you get an offer, an attractive offer, take it seriously I think is the advice from Rand Fishkin. Here to tell you the rest of the story is Rand himself.

John Warrillow:                Rand Fishkin, welcome to Built To Sell radio!

Rand Fishkin:                     Thank you so much for having me. Great to be here.

John Warrillow:                It is so good to speak with you because a mutual friend of ours, Stephen Gott, sent me your book Lost and Founder. And I get sent quite a few books and I could not put this book down. I think it is brilliant. And it really exposes the world of entrepreneurship, kind of the underbelly in many cases of entrepreneurship. So congrats on the book.

Rand Fishkin:                     Oh thank you very much. Yeah, I’ve been thrilled to see how many folks it’s resonated with and what a different broad variety of entrepreneurs and folks in business and medicine. And last night I was having dinner with someone who was in the educational school system and talking about how he and his staff all read the book. So yeah, exciting.

John Warrillow:                Good for you. Good for you. So let’s get into the story behind Lost and Founder. You started a company at the time it was called SEOmoz. It quickly morphed into a company called Moz. M-O-Z. Tell me about what Moz does.

Rand Fishkin:                     Sure, yeah, Moz makes software for professional SEOs—Search engine optimization marketers—and essentially helps people do things like keyword research, figure out what words and phrases people are typing into Google and how often, and what to do on their pages. It crawls their websites and finds problems and opportunities for them. It helps them build links and sees where their competition is getting links. All those kinds of things. Competes with companies like SEM Rush and Ahrefs and others. And Moz is about, just for a reference for your audience, so Moz started in 2003 as a blog that I just was doing on the side. It became a consulting company I think in 2005 and then switched to software in ’07 after which we raised a little bit of venture capital and I became CEO for the next seven years. We grew to about 30 million dollars in revenue in 2014 and then I stepped down as CEO, promoted my long time chief operating officer to the role and she is Moz’s CEO today. And Moz is about a 50 million dollar company in 2018.

John Warrillow:                Fantastic. Fantastic. And it’s a great story. Take me back if you would all the way back to 2003, 4 and 5. You were in business with your mom, if I got that right.

Rand Fishkin:                     That’s right. Yeah.

John Warrillow:                Not everybody’s started a business with their mom before. That’s pretty cool. Tell us the backstory there.

Rand Fishkin:                     I mean, certainly when we went and talked to investment folks, I think mom and son is the least likely venture capital funded founder set out there. But no, I started working with my mom after college. I dropped out of college actually and I had been building some websites in high school and into college. And her clientele … this is sort of in the transition between the offline and the online world in the late 90s, early 2000s. They started needing websites. She was running a small business marketing consultancy and I pitched in. So we were a web design business from ’01 all the way through to even ’05-’06 we were still doing some web design work. And I actually enjoyed it. I think I have a little bit of a creative side that I occasionally exercise. I wasn’t particularly great at it but enjoyed that work.

Rand Fishkin:                     And then once we got started, we found that we were terrible business people. And we were pretty deep in debt already in 2004 and it got worse in ’05. We, I think at our height, owed $500,000. Just under $500,000 to banks and credit cards and equipment loans that we had taken out for a consulting business. And I think a bunch of your listeners probably have operated in the consulting world and you know the one advantage is it doesn’t cost much money. You can work from home. You don’t have to hire people unless you have money to pay them with. Well, we didn’t do any of those things.

John Warrillow:                How did you ring up $500K in debt? What was the biggest mistake you made there to become so indebted?

Rand Fishkin:                     We owed around $130,000 dollars at one point and then we stopped being able to make the minimum payments on the debt. And that’s when the penalties and interest … within six months we owed $500K.

John Warrillow:                Wow. So this like credit card stuff and really penalizing debt?

Rand Fishkin:                     Yep. Exactly, yeah. The credit card rate back then it went from whatever the … oh 0% interest for the first two years promotional offer to 24.5% interest overnight.

John Warrillow:                How did you get out from under that $500K debt?

Rand Fishkin:                     Frankly the SEO side of the business is what did it. I started this blog called SEOMoz and as that started to take off, I was invited to some conferences and events. I got on some stages. There’d be a line of people to talk to me afterwards, people who’d read my blog and who saw me speak and they would say, “Hey, we’re looking for someone to help us out with this.” We’d exchange business cards. I built up some clientele that way and we managed to dig ourselves slowly out of debt over the next two and a half, three years. So basically by ’07, I think I remember the middle of ’07 we finally paid off our last bit of debt.

John Warrillow:                Fantastic. And so tell me about the transition from a consulting company into a software company.

Rand Fishkin:                     Yeah. So that … the book obviously goes into more detail on this stuff but that was a semi-unintentional move. We had built some software for ourselves that we used internally to do work for our own consulting clients. I really wanted to share it with people and show it off and I thought, hey, we’ll get more consulting business if we show people our super cool tools that, you know … to show how good we are at this stuff. And Matt, our developer, was like, “Rand, we can’t open this up. The demand, the bandwidth on the servers would overwhelm us. Everything would run super slow, it’d breakdown. There’s too many people who visit the blog. We can’t do it.” So I said, “Okay, well Matt, what if we put up a little PayPal paywall, right? You have to PayPal us $39 bucks a month and then you can get access to it? Would that cover the cost of whatever and prevent enough people from coming through to burn it down?” And Matt was like, “Yeah, okay, all right.”

Rand Fishkin:                     So over the holidays in 2006 he did that and then in February of 2007 we launched our software subscription which we didn’t … we didn’t know what SaaS was. We didn’t know what venture capital was. We didn’t know what cost of customer acquisition was or any of these things. Churn rate. But we launched this service and six months in, I think by July it was doing as much revenue as the consulting business. We kind of went, “Whoa. What is going on here?” We are getting hundreds of people who have signed up for this and they’re just paying us. They’re using this thing that we built one time other than Matt doing a little maintenance work on it, the money’s just rolling in. This is a great business. And that was us discovering self-service Software-as-a-Service.

John Warrillow:                Fantastic. And so you mentioned it was doing about as much as the consulting. So what would that have been at that time? Like are we talking a million in revenue? A couple million in revenue? What was-

Rand Fishkin:                     Oh not even close. We were a very small company. I think there was many six of us? So I think we were doing about … I think in total for ’07 we did maybe $850,000 in revenue. Half consulting, half software.

John Warrillow:                Got it. Okay that’s helpful. And so from that point, where did you go from there? At some point you decided to bring in some external investors. Did you-

Rand Fishkin:                     Yeah, it’s kind of the other way around. It was a weird situation. So Michelle Goldberg, who’s an investment partner with Ignition Capital in Bellevue, Washington which is just across the lake from Seattle, she reached out and said, “Hey, this thing you’re building with Moz looks really interesting.” She asked me to speak at one of their meetings of their portfolio companies and talk about SEO, which I did. Ignition, mostly driven by Michelle, basically said, “Hey, is there another place that you think you can take this company? Do you think this could reach another level, $10 million in revenue, $15 million in revenue, if you were able to put some money and some effort behind it?” And my answer was, well, I don’t know about the money side but there is a thing that I really want to build and that is …

Rand Fishkin:                     I don’t know if you remember all the way back in the early days of Google, but you used to be able to use a command in Google called link. Link colon. So you could put in And google would show you all the links that it knew about that pointed to, which was wonderful, right? It was awesome. You could see anybody’s links. You knew who was sending traffic to this site and where were the important people that were linking to it. And Google generally ordered them in order of importance, right? And they took this away because they thought it was manipulative and that SEOs could game the system with it. And I wanted to rebuild that.

Rand Fishkin:                     So my pitch to Ignition was, “Sure, you give us a million dollars and we will rebuild the backend of Google, the web index, and bring this link data back. And I think a lot of people will pay for that.” And they took a chance on us, right? They basically said, “Okay. If we’re going to do that, we’re in.” Another investment firm who had also reached out partnered with them, Curious Office. And so we raised $1.1 million in November of 2007 and I became the CEO of this new venture backed organization. And at that point, we converted from an LLC to a C Corp. We spent the next ten months building that product actually with a friend of my wife’s from high school who was sort of a programming genius. And the product launched in October of 2008, which you’ll remember was a phenomenal economic time.

John Warrillow:                Great time to start a business. Yeah.

Rand Fishkin:                     Great time to start a business. Brilliant time. I was in New York City the day Bear Stearns collapsed. And-

John Warrillow:                There were a bunch of guys who with like those brown bankers boxes walking around?

Rand Fishkin:                     Yeah, exactly. Exactly. And I was supposed to … I was speaking at a conference but we also had a booth there and we had a bunch of press that was supposed to come and cover the event, the launch of this new product from us. And I remember I gave the talk and the audience was really excited and our booth was swarmed. But there was no press. They were all missing. They all emailed and said like, hey, we have bigger stuff to cover today. But yeah, to be honest, we didn’t even notice the economic slowdown. Moz’s business by the next month was profitable again and we grew at a rapid pace for the next six years, just 100% year over year growth.

John Warrillow:                And how much equity did you have to give away … I shouldn’t say give away. Sell, I guess, to raise the $1.1?

Rand Fishkin:                     We gave up 14% I think? Right around 14%. So not-

John Warrillow:                Still a pretty great valuation, given the fact that-

Rand Fishkin:                     Oh absolutely.

John Warrillow:                … you’re running $150,000 in revenue would imply your … you have over a $10 million business, even though you’re-

Rand Fishkin:                     Yeah, so I think the pre-money was 6 of 7 and the post was either 7.1 or 8.1. Something like that.

John Warrillow:                Got it. Got it. I’ll stick with podcasting instead of math. But you get the-

Rand Fishkin:                     Yeah, you’re close. Yeah.

John Warrillow:                So great, kind of great valuation. You grow the business. Now did you have to continue to raise money along the way? Or from that point forward maybe talk about how you funded all this 100% growth each year.

Rand Fishkin:                     No. In fact, I think … so a few things. I went out and pitched venture capitalists again in 2009, 2010, 2011 and 2012. I think I probably pitched close to 150 firms. So there’s a lot of people who I’ve had meetings with at one point or another trying to raise money for Moz. And almost everyone in those years … no, obviously everyone in those years said no. Some of them said no early. Some of them took six months and ten meetings to say no. But everybody said no. It wasn’t until 2012 that I reached out to Brad Feld, who again I knew through my wife. So Geraldine has run a popular blog called The Everywhereist. It’s for many years and Brad’s wife Amy was a longtime reader of Geraldine’s blog. She had seen Geraldine writing about me and Moz and sent it to Brad and he’d reached out. So we had a few emails. And I reached out to him, had a phone call and said, “Hey, who do you think might be a good match for this?” And Brad said, “Well, I can connect you with a number of good firms but let me pitch you on why I think you should take my money instead.”

Rand Fishkin:                     So yes, we ended up raising $18 million from Foundry in 2012, but … and I detail this in the book. I actually think that second round of funding was probably with the exception of a few million of those dollars that we used to sort of rebuild a data center, I think most of that money was wasted and the strategic approach that we took after raising was sloppy and inefficient and unwise and actually harmed the business much more than it helped it. I think very highly of Brad and Foundry, so I’m glad that we were able to build a relationship with them. But I think we made some serious missteps strategically in the business.

Rand Fishkin:                     The biggest one was we took our eye off the SEO ball. So in 2012 or 13, maybe even 2014, if you had asked a thousand SEO professionals around the world what software did they use and who did they think was the best, 60-70% of them would have said Moz. And I asked that same question on Twitter to my followers who are obviously pretty Moz-centric just a few months ago. I think 14% of them said Moz. And the rest said one of our competitors. Almost all of our big competitors, by the way, had their big growth years the same years that we took our eye off SEO and tried to broaden into a bunch of other categories and used our venture capital money to try and build software and expertise and brand in those spaces, too. Spaces like Social Media and TR and content marketing and all this other stuff. Big mistake.

John Warrillow:                I’d love to dig into that a little bit more. Before 2012, if I’m just following along on the trajectory here, 2007 you raise $1.1 million dollars and then you grow for the next five years sort of on that capital, self-funding the growth of almost 100% a year?

Rand Fishkin:                     Yeah, so we were profitable. With the exception of ’08, we were profitable every year after that. I love running a profitable business. I guess I’m a very risk adverse entrepreneur, especially for a venture backed entrepreneur I’m very risk adverse. We were very close to getting profitable again in 2014 when I stepped down as CEO. In fact, some people who are listening and some folks might be familiar with the fact that I had a ridiculous mustache. Literally one of those long ones that curl around and I had to wax it every morning. And that was because I made a bet with my team that basically said hey, I’m going to grow my mustache out until we’re profitable again. I thought that was going to be six months from the end of 2013. But when I stepped down as CEO, they was sort of a change in strategy and approach. So we ended up being sort of a money burning organization for another few years. It wasn’t until early 2017 that I got to shave that off, thank god.

John Warrillow:                If you want to have a visual in your mind as you’re listening, think Rollie Fingers-

Rand Fishkin:                     Yeah, totally.

John Warrillow:                … from the Brewers 1984 or something like that.

Rand Fishkin:                     That is precisely what I had, yep.

John Warrillow:                Awesome. Awesome. Good. Well, we got that shaved thank god. All right, moving on. Let’s talk about venture capital, because clearly you’ve had an enormous amount of experience. And frankly not all that good. In reading Lost and Founder, I was stunned at the candor with which you wrote about this industry. Usually a lot of the writing about the VC industry is very aspirational, right? Like entrepreneurs maybe wished to be funded, hoped to be funded, got funded, tech crunch et cetera. And there’s this sort of very positive glow about the idea of getting funded. But when reading Lost and Founder, I kind of left that feeling a lot more subdued about the idea of getting funded. Maybe talk a bit about the economics of this industry and some of your opinions on getting funded.

Rand Fishkin:                     Yeah, I think that most venture capitalists would say something that I absolutely agree with, which is VC is wrong for 99% of companies. And I think the challenge in there is explaining sort of who it’s right for and why it shouldn’t be aspirational. And I think one of the problems is that many of the, not all of, but many of the biggest and most covered companies, in the tech world especially, but even outside of the tech world has received investment from these types of firms and as a result have gotten a lot of press and have acquired sort of this mythical status. And so venture capital itself has also acquired this mythical status.

Rand Fishkin:                     And that biases a lot of entrepreneurs to think that VC is the ultimate mountain for them to climb. And if they achieve that, they’ve reached some sort of pinnacle of their career. And I totally understand that. I think one of the biggest reasons that I raised venture capital both in 2007 and then again why I was pitching so hard for it for years and spent so many days and months on the road trying to raise was because I felt that I wasn’t a serious entrepreneur. I wasn’t a real start up CEO unless I had tens of millions of dollars in VC. And that’s a pernicious myth that definitely needs dispelling.

Rand Fishkin:                     So first off, good thing to understand is why does VC exist? And the answer is it’s an industry that was created after the … I think it was either Nixon or Ford lowered the capital gains tax rate from normal tax rates, same as everybody else, to whatever it was. 20% or 15%. And so you could pay a lot less taxes if you had gains on stocks and investments. And this is obviously a massive giveaway for the rich because poor people don’t generally own companies and stocks and investments. But as a result, venture capital came about and it’s essentially a tax dodge vehicle, right?

Rand Fishkin:                     So if you think about it as that, which is what it is, it’s taking money from limited partners, people like large endowment funds or pension funds or a lot of family offices. You know, billionaires and people like that. And then putting those into funds that invest in 100 companies with the hope that two or three of them become Google, Facebook, Amazon, Uber, Lyft, Airbnb. Those kinds of things. And return a 100x their money. And then another three or four companies maybe make them 5-10x their money and the rest of them kind of die and go away.

Rand Fishkin:                     So your odds, even if you raise venture, are very low. You’ve got to be in the top 2-3%, top 5%, to really be considered a success in that field. And some entrepreneurs do okay even when they’re not in that group. But a lot us do not. And I think those are all … it’s good to understand where the money’s coming from and also what the intentions are, right? The intentions are generally beat the market. So make enough to beat the S&P 500 just putting money into an index fund.

John Warrillow:                Right. You mentioned a lot of us do not and you chose the first person. Maybe talk … and again, in the book you do a great job of this. But maybe you could talk a little bit about your personal financial situation going through this. Because a lot of people assume Rand Fishkin raised $18 million dollars. He’s probably got $100 million dollars in the bank. That kind of thing.

Rand Fishkin:                     He does have … let’s see. I think I have almost $800,000 in the bank? Something like that. So not bad, right? Definitely enough to be able to afford some rocky times. I think a lot of that money is about to go away as we end up paying for some elder care for my grandparents. But that being said, yeah, it’s very different than I think a lot of people’s expectations. Which is not say … I think I’d feel pretty shitty saying, “Oh, you don’t make that much money.” My salary at Moz was $200,000 a year. That’s a great salary. But it is not I think what a lot of people assume. I get emails all the time that are like, “Hey, here’s this investment opportunity. Would you be interested in putting in half a million or a million to this?” I’m like, “I don’t have that money. What are you talking about?”

Rand Fishkin:                     So yeah, I think there’s definitely a big disparity between the perception of what a venture backed entrepreneur … even one that owns a lot of their company, even one who has had some relative degree of success. We’re not in the top 5% of Foundry or Ignitions portfolio but we’re probably in the top 25%, right? We definitely didn’t die early. Moz is a profitable company that is doing $50 million in revenue. It’s growing slowly, which I think is one of the big problems in venture. I think Moz is growing at maybe 9 or 10% a year every year. And that number really needs to be 30% before it becomes what they’d consider an interesting business. But yeah, it’s very different than expectations.

John Warrillow:                I again can’t remember if you talk about this in the book and if you’re not able to talk about it, totally understand. But were you able to maintain a portion of Moz? Although you have as you mentioned $800,000 dollars of cash built up, I’m assuming your shares within Moz are still worth something. Or maybe not.

Rand Fishkin:                     Yeah, I’m trying to think of … what am I allowed to say? I think I’m allowed to say that I attempted many times over the last 18 months, especially as I was leaving the business which was on mixed terms, let’s say. I went out and talked to a lot of people who buy private stock to see if I could sell some of our shares. So my wife and I own maybe 17% of Moz’s in common shares. Granted there’s a very small preference stack, so the preferred shares don’t carry a ton of overhead. But yeah, the answer was no. Nobody was buying. We sold a little bit of shares to one of our investors, to Foundry. But yeah.

John Warrillow:                So the liquidity option for that is, I guess, Foundry decides at one point they want to sell the business? Is that something that will likely happen?

Rand Fishkin:                     Yep, that could certainly be one way that we would benefit. The question then is Moz a sellable entity? Is it something that someone wants to buy and when and is it growing too slowly to sell? If it does sell, what does that look like? And how do common shares get paid out and all those kinds of things. So it’s possible that at some point in the future it will return a nice payday for us. But I talk about in the book this offer that we received in 2010 to sell the company that I have regretted not taking for close to a decade now.

John Warrillow:                At the risk of making you relive this, this is why I wanted to have this conversation. For many reasons but if I could decide one thing, it was this story that you told in the book about HubSpot. So let’s talk about it. It was 2010. Maybe walk us through what the business was doing in the way of revenue at that point. How this conversation started.

Rand Fishkin:                     Yeah. I think we had just finished a year where we did 5.7 in revenue. We had shut down our consulting business the year prior, so it was all software revenue. And we were growing, like I said, at that 100% year over year rate. And Brian Halligan from HubSpot who was someone I’d known for many years sort of since he started the business primarily through his co-founder, who’s a good friend of Geraldine and I’s, Dharmesh Shah. Dharmesh and I have been, I don’t know, phone and tech entrepreneur buddies for years and years. And always had a wonderful relationship. So Brian reached out and basically said, “Hey, I’d like to chat with you about Moz.” And we sat down in sort of an abandoned cafeteria that was dark with most of the lights off, just near the entrance. And he pitched me on, “Hey, you should consider joining HubSpot and we’d like to make an offer for Moz and maybe open a little office in Seattle or potentially have you move to Boston. But let’s talk about how we can make that work.” He came back to me with a number.

John Warrillow:                What was the number, do you remember?

Rand Fishkin:                     I think it was … I think the opening was around $25 million and he was sort of, hey we could maybe go a little up from there. And I came back to him with a … I think … Moz is going to do more than $10 million dollars this year, this coming year. I think 4x revenue is reasonable so I think $40 million is kind of our floor. And he came back and said, “That’s too rich for our blood. Sorry it didn’t work out. But if you change your mind, let me know.” And I was really cocky and confident and sure of myself. I looked at HubSpot’s trajectory. I looked at Moz’s and I thought, gosh, we could be HubSpot’s size in just a couple of years. Yep, there you go.

Rand Fishkin:                     But of course, two things to realize about this deal. One, I think that it is very … I believe it is very likely that if HubSpot had bought Moz, two amazing things would have happened. One, HubSpot would have helped make SEO more standard and helped that industry probably more than Moz and its ten closest competitors have been able to over the last decade. I really believe that. I mean, HubSpot’s a remarkable company. When they embrace something, they can translate that to millions of people. That would have been a really exciting thing. The second one is from a financial standpoint, my mom, myself, all the Moz employees at the time, and our only investor at the time, Ignition, would have made a nice amount of money initially. But you know, it would have been a cash and stock deal. And three years later, four years later, HubSpot went public. That stock would have been worth 20x as much? D’oh. I mean, imagine, right? $10 or maybe $20 million in HubSpot stock could have been, I don’t know, $200 million? Oops.

John Warrillow:                That’s a big deal.

Rand Fishkin:                     Yeah.

John Warrillow:                So with regards to when Brian approached you the first time, you’re doing roughly $5-6 million revenue, all recurring, all SaaS based. You’re growing 100% a year and so what’s your level of confidence that you’re going to be twice as large the next year? So not $5 million but $10 million? Like is this pretty good or are you almost virtually guaranteed that?

Rand Fishkin:                     Once you … I wouldn’t say virtually guaranteed but close. The way SaaS works is it very much builds on itself. If you have X amount of customers, you’re growing at that rate, even if you have a slow second half of the year the first half is where most of that’s coming from. So high confidence. 75-80%. You really know, you often know in March what your whole year is going to look like.

John Warrillow:                That’s helpful. So you’re in 5 and change and the original offer from Brian is 25. Because some people would look at that and go, “That’s 5x revenue! That’s an incredible offer!” And so kind of Brian’s basing it on the business as it is today. And you’re wanting to get paid for what the business is going to be worth a year from now.

Rand Fishkin:                     Exactly.

John Warrillow:                You’re multiple is 4x you have the $10 million a year for them.

Rand Fishkin:                     Yeah. And you can look at various numbers, right? So you can take what’s our current month’s revenue x12, which I think at the time was like 7.5 or 8. Or you can look at well what’s the year ahead. Or you can look at trailing, which is what’s the year behind. So there’s a bunch of valuations. Some investors and buyers came mostly about EBITA. Or how much cash the business is throwing off versus what’s the revenue in growth rate. But it’s … so it depends on the buyer, depends on the market situations, all sorts of things.

John Warrillow:                So even if you annualize the 8 and you said that if we just take what we do this month, Brian, and we multiply that by 12, we’re at $8 million.

Rand Fishkin:                     I think maybe we were a little under that … that 7-something but yeah.

John Warrillow:                Yeah, for ballpark. And so again, Brian’s coming in with an offer of maybe 3x the business today if you think it’s 8×3 is 24. So he’s kind of in the 3-3.5x if we just buy the business on today’s revenue.

Rand Fishkin:                     Yeah.

John Warrillow:                Got it. And so where did you get the idea the business should be worth 4x next years revenue? Where’s that idea coming from?

Rand Fishkin:                     So I think it’s mostly like every venture backed company, we get to see comparables. Our investors sort of will show those to us and there’s a bunch of reports that come out every year that sort of say, well, here’s business in this field. You have to do what’s called a 409A valuation for your company’s stock for the employees.

John Warrillow:                Say that again, Rand. A 409, is that what you said?

Rand Fishkin:                     Yep, a 409A valuation. It’s required by the Securities and Exchange Commission for valuation of stocks so that, you know, when you give out stock to new employees or to current employees, it sets a particular strike price for that stock. And then that’s supposed to be a fair market value estimate. So all these third party companies, financial firms, come in and give you an estimate of what you’re business is worth and they compare it to bunch of public market comparables which are these companies that usually have their revenues public because they’re on the stock exchange. And so you can see what’s the variation. And at the time, 4-8x revenue was pretty much the valuation of public SaaS companies.

John Warrillow:                4-8x current revenue or future or trailing?

Rand Fishkin:                     Trailing.

John Warrillow:                To what degree did Michelle influence your thinking about what the company was worth at that time? Because she had made the first investment. She had skin in the game.

Rand Fishkin:                     Yeah. She was … so I mean she had skin in the game but so little that Ignition, I think their fund was … it’s in the book but I can’t remember exactly. It was in the $3 or $400 million range. So let’s say Moz had sold to HubSpot and just for a cash price, right? So say it sold for even $40 million dollars, the high end. So Michelle makes $6? That doesn’t move the needle on her fund. Like it’s totally meaningless to her. In fact, let’s say it sold for 10x that amount. Say it sold for $400 million dollars. She makes $60? That still doesn’t do much. That’s still … Ignition will chalk it up as a win. It’s nice. But that is not really helpful to their fund. That’s a drop in the bucket.

John Warrillow:                And so what was Michelle’s reaction to Brian’s $25 million offer?

Rand Fishkin:                     It was, “Rand, I will support you in whatever what you want to do. I got your back. You tell me what you think is right. I will give you a bunch of information, I will talk you through the emotional side of this, I’ll talk you through the financial side of this. But from Ignition’s perspective, if you sell that’s great. If you keep going, we’d love to keep supporting you.” Pretty awesome. I mean, honestly, I could not have asked for a better friend and mentor at that time. I might have wished she’d have given me a little nudge in the other direction but hindsight is 20/20.

John Warrillow:                Right. How have you dealt emotionally with this potential windfall? I’ll tell you a quick story. I have a friend who bought a lottery ticket and his numbers came up. The only problem was he bought a lottery ticket at 11:58 pm and the numbers were for the next day. And literally it has had a profound impact on him, his emotional wellbeing. And I wondered for you, in a lot of ways, this was a massive lottery ticket. This is super what they call it in American, I can’t remember… I’m thinking like the Superball-

Rand Fishkin:                     Powerball.

John Warrillow:                Powerball. $200 million dollar lottery. How is that been emotionally for you over the last eight years?

Rand Fishkin:                     Yeah, I mean, I generally don’t think of it that way. The way I think of it is this would have been between a $5 and $15 million dollar payday for my wife and I and also for my parents, for my mom and dad. And that would have made a lot of the things over the last decade easier in terms of lifestyle stuff and family stuff and being able to help people in our lives. And do some of the things that we might have wanted to do. But no, I don’t have … I think that the bigger challenges for me have been things that happened in later years at Moz. I mean, I certainly have regrets around that but saying no to that particular offer, I think that would have been a financially smart move and emotionally smart move. I could have spent a few years at HubSpot probably learned a tremendous amount and then gone on and done another start up. But that’s what I’m doing now. So these things are all okay.

Rand Fishkin:                     I think the biggest regrets I have are on the financial side are just, hey, that would have been a tremendous amount of security for us and it would have felt like a great win. But I think the really good part is I feel like, as a result, I have a lot more humility. And maybe that’s a wonderful gift, too. To be a less, “Hey I built this thing and then I sold it and I’m amazing. You can be too.” I know a lot of tech guys like that. They’re not great to hang out with. So I’ll take what I can get.

John Warrillow:                I can tell you first hand as a reader, I think Lost and Founder is 500% better because of your humility. And if that story gave you any of it, then it’s a wonderful gift even though it may not be financially rewarding. It certainly is an amazing gift. Your humility and the way you tell your story, it’s just a generous of spirit beyond imagination.

Rand Fishkin:                     Oh man, well, I really appreciate that. I mean certainly part of the goal is to help other folks feel less alone for going through these kinds of things. And I think that many, many entrepreneurs … it won’t be exactly this but it will be similar types of roller coaster up and downs. And obviously, not to spoil the end, but the last few chapters go into things like some of the mental and emotional issues that I suffered from when I stepped down as CEO. That was because I had a very severe case of depression and I talk about the layoffs that Moz went through a few years after I stepped down and the painful process they’re in. And some of the many, many lost relationships as a result of my actions and the company’s actions and how I behaved, how we behaved, over those years. Yeah, so, I think this is a learning process. My biggest hope is that both myself and hopefully thousands of other people who’ve read the book can internalize some of those lessons and not have to make those same mistakes again.

John Warrillow:                Well said indeed. And before I let you go, I would be remiss not to just touch on SparkToro, because there’s a new chapter opening up for you. Maybe talk briefly about that.

Rand Fishkin:                     Yeah. So this is a company that I’ve been building for the last eight or nine months now and I am excited to get the opportunity to do that again. It’s funded in a very different way. Angel Investors with a unique investment structure that allows us remain an LLC and sort of grow profitably and do profit distributions as well if we so opt to.

John Warrillow:                What does the company do?

Rand Fishkin:                     Yeah, so we are … right now we are working on technology that will allow sort of a simple solution to a pernicious problem, which is say you are a marketer or a startup owner and you’re trying to figure out what are the publications and people that my audience pays attention to. I want to know what podcast to advertise on. I want to know what conferences should I exhibit at. I want to know what magazines and websites that I should get my brand mentioned in. Or where I should do some marketing of whatever kind, organic or paid. I want to know which social media accounts are influential to my audience in particular. That’s really hard information to come by right now. Generally speaking, people have to run large scale surveys or contract to PR firm or an audience intelligence firm. And we think that data should be available through a search. You type in dentists in Florida and we can tell you they listen to these podcasts, they go to these events, they follow these people, they read these websites. And then you can go do your marketing in those places. That is SparkToro’s goal, to build a search engine for audience intelligence.

John Warrillow:                Fantastic. I can’t wait for that product to come live. What’s the best way for people to say hi to you, if you want to mention a Twitter feed or what’s the best way to reach out?

Rand Fishkin:                     Twitter is actually someplace I’m very active, where I’m @RandFish. And you’re also, yeah, if someone has specific questions about me or Moz or the book or SparkToro, is my email.

John Warrillow:                Rand, the book is an amazing gift. It’s called Lost and Founder, available everywhere. Thanks so much for joining us.

Rand Fishkin:                     My pleasure. Thanks for having me.


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