How To Rethink Your Business Like A Lobster

April 3, 2020 |  

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It’s ironic that Joshua Dick lives in Italy, one of the country’s worst hit by COVID-19 deaths. He moved to Italy with his family as a reward for selling his business, Urnex Brands. Urnex was in the unglamorous business of selling cleaning supplies for coffee makers. As is often the case, the least attractive companies are often some of the most profitable, and when Urnex ticked passed $5 million in EBITDA, Dick decided to sell. 

To read a transcript of this episode, click here.

It’s ironic that Joshua Dick lives in Italy, one of the country’s worst hit by COVID-19 deaths. He moved to Italy with his family as a reward for selling his business, Urnex Brands. Urnex was in the unglamorous business of selling cleaning supplies for coffee makers. As is often the case, the least attractive companies are often some of the most profitable, and when Urnex ticked passed $5 million in EBITDA, Dick decided to sell. 

This episode is full of great wisdom for business owners right now:

The “molt” is on: Dick, who is also the author of the book “Grow Like A Lobster” uses the analogy of a lobster’s lifecycle as a way to describe a business’s evolution. Its hard shell protects a lobster, but once it grows to a specific size, it must shed its shell and develop a new, larger protective layer. During this “molting” process, it lays itself vulnerable on the ocean floor while a new hard protective layer forms. Many owners feel unprotected right now, which is why — just like the lobster — now is the time to retool and build a more durable business. 

Focus: when Dick took over the family business, there were seven unique product lines, and he decided to jettison six of them to become the world’s most significant supplier of cleaning materials for coffee makers. That gave him Monopoly Control allowing him to beef up margins and grow more quickly.

The secret to selling is not having to: Dick loved his company and employees, so he knew that for him to sell, he would need to be offered a double-digit multiple of EBITDA. Being willing to walk away gives you the ultimate poker hand. 

Market to your customer’s goal. Instead of saying, “we have better cleaning supplies,” Dick marketed his cleaning supplies as enabling them to make their customers happy, by making better tasting coffee — not more sanitary machines—a subtle, but an essential twist.

There are several key takeaways from this interview, including:

  • How to gracefully manage the transition of a family business
  • How to structure your business so that it’s not dependent on you
  • Why hitting $5 million in EBITDA opens up a new world of possibilities
  • How to avoid customer concentration
  • How to structure a phantom equity program
  • How to pick your M&A professional
  • A definition of reps and warranties insurance

When Dick’s business crested $5 million in EBITDA, it triggered him to reflect on what a significant portion of his wealth was tied up in his company. What’s driving your decision to sell now? If it’s just the desire to escape the market turmoil and you haven’t got a clear picture of why you’re selling, you may end up regretting your decision to exit. To find out if you’re personally ready to exit your business, complete your PREScore™ now.

Our guest

Over fifteen years, Joshua Dick transformed a small family business into a global market leader in the coffee industry with customers in over 70 countries and distribution facilities on three continents, like Starbucks and Keurig. In the process, sales grew more than 25 times while earnings multiplied over 275 times. After the sale of the business, Joshua started a new adventure by moving to Florence, Italy with his wife and three daughters. He has now dedicated himself to helping others who seek to build extraordinary businesses based on what they truly love to do.

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Transcript

John Warrillow 

In the midst of all this COVID-19 crisis, I want to talk a little bit about lobsters. I don’t mean to make light of the situation but a lobster is actually an interesting analogy for where we are right now, I don’t know if you know this. I was taught this by our next guest that when a lobster actually grows to a certain point, in order to continue to grow, it actually needs to shed its hard external shell. It lies somewhat naked, vulnerable on the ocean floor until that new shell has time to form. It’s called molting. And we are right now, in a molting process. For many business owners maybe you feel the worst is upon us right now and that you need to restructure and rethink your business and that’s a molting process. It’s jettisoning what’s no longer working for you.

John Warrillow 

It’s bringing in a new way of thinking of your businesses as a more durable asset. Perhaps that’s recurring revenue subscription models, perhaps it’s a new product line, maybe it’s getting out of some things that are not serving you anymore. Either way, I hope this next interview helps you think about that process. My next guest. Joshua Dick just did exactly that. He went from running a family business with seven different divisions, he jettisoned six of them to focus on one built the company up and when they reached $5 million of EBITDA, he decided it was time to sell. He will tell you the entire story. And I think you’ll find it inspiring. He’s telling it to you from Florence, Italy, the epicenter of the COVID-19 crisis. So this interview has lots of layers to it. I hope you find it helpful in this time. Here to tell you the rest of the story is Joshua Dick

John Warrillow 

Josh Dick Welcome to Built to Sell Radio.

Joshua Dick 

John it’s such a pleasure to be here. Thanks for having me.

John Warrillow 

You look like you’re sitting in a beautiful I don’t know, European town. Tell me tell me where you are right now and why that’s significant to you.

Joshua Dick 

I am talking to you from my home office here in Florence Italy. A place that I chose to move with my wife and three daughters little almost four years ago after I sold a business.

John Warrillow 

Wow. And and how is it there now on the ground? What’s give me a sense.

Joshua Dick 

Yeah, it’s quite strange. You know, it’s really a weird thing because Florence continues to be beautiful and spectacular. And the weather here in Tuscany is marvelous, but it’s empty. You know, this whole situation with the lockdown and the coronavirus has been an overwhelming experience for myself and for my family. And, you know, as I said to you in the pre show the the catchphrase here in Italy is sto a casa. I stay at home, which is the sort of rallying cry of everyone here in Italy during this very difficult time.

John Warrillow 

Yeah. Why Italy? How? How come you chose Italy after you soldier coming?

Joshua Dick 

So the the sort of three criteria that my wife and I approach were an opportunity for our children to learn another language. We had been living in the New York area we wanted better weather, particularly my wife, and then we were really trying to identify strong international schools that gave our kids an opportunity to become global citizens but also to have a connection back to their American roots.

John Warrillow 

Got it and Florence ticked all the boxes.

Joshua Dick 

Yeah. And you know, also my business had a lot of connections to the coffee industry. So I had spent a lot of time in Italy supplying products to coffee machine manufacturers.

John Warrillow 

So you’ve lived the dream you built a company sold it and now are living in the kind of place of your dreams. So let’s go back to your story. Tell me about

Joshua Dick 

Yeah. So Urnex was one of seven product lines that had been part of a business that had been started by my great grandfather. It was basically a textile company that made all different products for the restaurant industry. And amongst those products where coffee filters, cloth coffee filters that you would filter in a big diner you might see. And after I had had a career in investment banking, working for Salomon Brothers, going to get an MBA and working for Unilever and consumer packaged goods. The business that was run then by my dad was struggling. And I was asked to come in and take a look at how things were going and what was happening. And I did sort of a traditional assessment of what was happening in the business, what was there, what I liked, and I quickly realized one that it was important to me to not necessarily work with my dad, but to focus and I made a decision pretty quickly that if I was going to do this. We were going to close six of those seven product lines, and I was going to figure out how to be something in coffee. And what ended up evolving was the company called Urnex Brands. This one offshoot of what had been the family business making cleaning products, detergents for cleaning coffee machines, we took and built our brand and brand identity and formulas. But very soon after I was able to take over the business in a family transaction, bought a competitor, the largest competitor that did this and really took those two product lines as two brands that focused only on coffee machines, decided I was going to really focus and build this into what could be an extraordinary organization.

John Warrillow 

What was your dad’s reaction to getting out of the six lines of business?

Joshua Dick 

You know, I don’t know that at the point that we really decided to close them. It was really my call at that point because we had gone through this. I think what I see in businesses both in my dad and in other businesses, sometimes we’re tempted to diversify ourselves, our business and business risks. And it causes us to kind of take on more things than maybe we have the capability or bandwidth to focus on. Because it feels like we’re worried that maybe one part of our business may not last. So we want to bring in something else. So I think my dad had done it, really only out of the goodness of his heart, trying to make sure that he was able to sustain the business for along time and I was coming at it from a different perspective. I didn’t want to just get by; my vision was that I wanted to have one thing that I could dedicate myself to and do really well. And I was going to take that chance. So I think my dad took it, he understood it. Maybe he thought it was a little crazy. But you know, he also got his sort of take in the transaction when he left so I think it wasn’t so much his his concern at that point. He was happy to see where it went.

John Warrillow 

So when you acquired the business, from your father, did he carry some equity into the new business?

Joshua Dick 

No, it didn’t. It was an interesting scenario because my dad made the agreement to leave the business. But he insisted I have a brother, he insisted that my brother and I both acquire the business together. So my dad left entirely. And my brother and I became partners. And it was during a period of about five years that he and I worked together, building the business, he and I worked together kind of to make decisions about what we were closing and what how we were focusing the business was we had quite a specific vision and mission and values that we had articulated well in writing. So my brother and I worked together until this point where the business was going somewhere that he wasn’t so interested in continuing. So I actually have been through two family transactions and this acquisition of a competitor, where my dad left entirely and eventually my brother left entirely. And if you were to look at the business in phases, there was this sort of, very short period of time that I worked with my dad, then there was this period of time I work with my brother. And then there was this period of time that the business was really all in, focused on building an extraordinary team of leaders and people that I could depend on. And it was from there, that next phase of the business where we interacted with and eventually sold toprivate equity and the business really reached these incredible growth rates and trajectories.

John Warrillow 

How did your father deal with the success that you enjoyed after he sold his share the business?

Joshua Dick 

With great pride and positivity and a distance that was measured? I mean, he didn’t really want to step on anything. And  our family relations and discussions about the business were very limited. Not in a you know, sort of unemotional way, but it was sort of like that’s business and that’s one of the ways that I think I was able to be successful. transforming a family business, was trying to approach with a very low level of emotion, to me, I was really running a business. The fact that it had these roots to my family was not that important to me. It served well from a marketing story and from the customer loyalty and customer attention. But I was really focused on making sure that I made business decisions that were right for the business, not because they were right for the personalities, or the egos of myself or anyone else that was involved. Sometimes that got me in trouble. But for the most part, it served the business well.

John Warrillow 

Alright, let’s talk about the business a little bit more. So we just moved into a new home. And whoever  built the house, they put in one of those kind of fancy coffee makers that are inset into the walls. And so Ithink I think you could, like watch the space shuttle from this thing, but you’ve got all these buttons. And if you’d like milk in your coffee, you’ve got to clean it because it gets all nasty if you don’t clean it. So I’m assuming that’s the stuff you sold is like the cleaning solutions you’ve put into those?

Joshua Dick 

Yeah, exactly. But the business really was focused on the commercial applications of cleaning coffee machines. Eventually it moved andevolved into household where I had lots of consumer products experience from Unilever, but the focus and I think the easier part of the business was the business to business side. So it really started cleaning what we would call filtered coffee machines, like you might see in a New York diner. And it evolved to everything that you could imagine behind the counter at a Starbucks from the fully automatic espresso machine to the milk system. Eventually, we got into the ice making systems that were used to make these frozen drinks as well. And really my focus what I built the business on was one theme of helping people make better tasting coffee. And it was incredibly important to have that focal point for the internal staff as well as for the community to which we did. We were really just talking to them about how can we help you make your coffee better. I actually have a patent in my name for the world’s first grinder cleaner. It’s an edible food safe tablet that you grind and it really came out of the this idea that we were going to figure out how to do anything that you needed to clean a coffee machine. Whether that the coffee tasted better.

John Warrillow 

Were there competitors in the space like who are you competing against that also help people clean these coffee machine?

Joshua Dick 

Incredible numbers of competitors exist and still exist for the business but all very regional, or type of equipment specific. So maybe there was there were two or three German guys, Italian guys, Australians, Koreans, Japanese, we succeeded in becoming the only company that was truly global. So we started from this just New York-centric, Metropolitan New York business. And eventually by the time we sold we were in over 75 countries with distribution centers in Holland and Hong Kong, and really satisfying every element of the coffee channel, from Starbucks to Pete’s to Costa, to these chains all over the world, you know, whether it be Japan, China with the same concept of helping them make them better tasting coffee.

John Warrillow 

So was it your strategy to differentiate yourself and say, go to a Starbucks or a Pete’s? Yeah, you could go with the local guys, but they’re not going to be able to give you service globally. We’re the one company that can actually fulfill your global needs.

Joshua Dick 

Absolutely, I think was also our strategy to convey our excellence and expertise as a way to reassure them that they were working with the best product, the people that understood the business, not just about cleaning, but about coffee and what they were trying to achieve. We were very successful in differentiating our chemical based products, from chemicals in general, for example, at a place like Starbucks, where they have a guy that buys the cleaning products for toilets and sinks and windows and countertops. Our products were actually part of the decision of the coffee buyer. The person making the decision about coffee because it was positioned as something that was not just a chemical, it was a special chemical. And for that it truthfully was and still remains to be because of the company’s knowledge and the team’s expertise in the types of equipment on which the products are used and the chemical that you used to clean these machines.

John Warrillow 

Was that proprietary, was there something unique about that? Was it essentially a generic clean product that you packaged into a proprietary product?

Joshua Dick 

No, they were all our custom formulas and approaches and brands customized to the types of equipment. We package them in powders, liquids and tablets, a lot of times changing dosages and control levels and foam levels to tailor them for the type of coffee and the type of machine that was being used. We also developed a whole business working directly with the manufacturers of coffee machines just like that Miele in your house. He would go to them and say imagine, Hewlett Packard went to outsource making their cartridges for ink, we became sort of the ink that went along with it all. Over 45 different manufacturers of coffee machines came to us for a custom product development program. So that also lent the credibility to what we were doing.

John Warrillow 

And so that what’s the transaction while I’m assuming you had you had salespeople that went and called on these customers?

Joshua Dick 

Very few, really very few salespeople. In the beginning, it was just me running around the world growing international relationships. My first and most important key hire was a head of North American sales. And then we eventually added someone in Europe. Today the company has people all around the world in China, West Coast, central US East Coast, I believe, Ireland, Holland, Switzerland, and we kind of go around the world where people are strategic. They place based on the types of customer profiles, whether it be the chains themselves or the manufacturers of coffee machines.

John Warrillow 

How big was the company that you mentioned? There’s seven product lines, you decided to focus on one, how much revenue are you generating at the time in that one product line?

Joshua Dick 

So when I got there, the company in the coffee space was doing under a million dollars in sales. We had 12 employees, we were really just selling some cleaner for coffee machines. And you know, sort of by the time we got to the first exit and closed all of the products, we were about 100 employees and as I said distribution in 75 countries. And after the at the point of the second exit, we had done a merger and an acquisition through help and assistance and oversight and decision making truly of my PE partners. And we had grown to a point where the ultimate company that was sold was over 460 employees with a breadth of products and all specialty cleaning focused.

Joshua Dick 

So when you’ve got to get this business and decide to focus it in your you’re less than a million in sales. You’re 12 employees. You mentioned you made an acquisition. How big was the company you acquired? top line?

Joshua Dick 

Half a million to a million, somewhere in that range. It was still a little little player. But that little kick helped us reach some scale and find a way to start to really grow. You know, one of the things that I always talked about, with the businesses being very consistent and controlled in the way we grew our business. So over 15 consecutive years, we grew 15% a year. We never grew 300% and we never grew less than 15%. And I was all about trying to manage the bandwidth and resources that I had and that the team had. I think it led to the focus of really having a clear understanding of who we wanted to be and what we were trying to achieve. It led to the freedom and the comfort to say no.

Joshua Dick 

Yeah, I talked a little bit about how my dad had gotten into a lot of different product lines, because they felt right. I think I benefited from sort of being frustrated by the fact that the people before me had been drawn in so many different places that I had this intense horse blinder-like focus on what I was trying to do. And it made me feel okay saying no to offers or opportunities to make a cleaning product for a deep fryer, or a kitchen or, you know, we were approached, ice cream machines. People wanted us to make those things and I just said, You know what, we’re good. We do coffee, and until we stop growing 15% a year in coffee, we’re good. And that really helped the business.

John Warrillow 

Yeah, it sounds like a lot of people right now. Once the shock of COVID-19 starts to wear off a little bit and now the reality of the landscape takes hold. I think a lot of owners will be looking at potentially making acquisitions of companies that are not doing well through the crisis and and need some sort of exit. What advice would you give an owner who is looking at the landscape and your case you found a company around a million in sales and you acquire to help you scale? What advice would you have for an entrepreneur who is potentially looking at making an acquisition in these times?

Joshua Dick 

Yeah, well, first of all, I think there’s gonna be a lot of opportunities because there are clearly businesses that are going to need help and going to be struggling. I think one of the greatest things for me about the business I bought was that it was this incredible brand. I bought a brand it didn’t really matter that what they were making, how they were making it. It was a direct competitor who I tried very hard to steal business from. I had gone out after his customers pretty aggressively in the previous couple of years, and some of them when I thought I had done my best sales job wouldn’t budge. And I started saying to myself, What am I missing? And I realized this guy had built a beautiful brand that I continued to maintain over the years and years after acquisition. So I think you have to be careful about thinking about what you’re going to buy, and what is the stickiness of what you’re going to buy and what you’re going to be looking at. I’d be careful about getting too far away from what you know and what you’re good at and really try and roll in things that that are a fit.

John Warrillow 

Got it got it, make sense and great advice. So you’re up to a couple million bucks in sales when when you make this acquisition and you’re growing at 15% a year. What was it that that made you think about selling back in 2015?

Joshua Dick 

Yep. So for me, it was super interesting. I had always imagined that I was just building a job to be really happy, I was trying to create an organization that could exist without my presence. That was from day one sort of my vision to create something that I didn’t need to go to every day. I have lots of other hobbies and interests and I have a family and I like to do other things besides just run the business. And I think I woke up one day, and it was pretty soon before the first sale and I sort of looked at really a clear sense of what our EBITDA had become, and that it had crossed certain thresholds. I happen to believe, you have to at least cross 5 million EBITDA before you should even start thinking about this stuff. And, you know, we were well beyond that. And I started thinking about where are we and what’s going on?

Joshua Dick 

And then I also started saying, Oh, my God, I own this whole thing. It’s a little scary, because I’m all tied up in this, you know, this is my net worth. So what really got me going was just the decision that we were real, the awareness that we were real and from there, it was sort of a four or five month barrage of reaching out and talking to everyone andanyone that I could to get a true sense of what the value might one day be and what I had to prepare myself for to get to the exit. And what I had to be sort of aware of would be the problems and the challenges. And also, I loved my job so much, that I was only going to sell it for a really, really special price. Because if that price didn’t come in, I was happy going back to my job. I liked my team. I liked where we were going, we were growing 15% a year I was taking a lot of money out of the business every year and I was living a pretty good life. The impetus to sell really got from that concentration of value that I became aware of.

John Warrillow 

So you’re looking at your net worth and you’re like wow, this is starting to become a huge nut, percentage and a risk. And you never know when the the next COVID-19 is going to happen. Right. This is clearly years before that, but you never know when that?

Joshua Dick 

Absolutely. You know, being in the chemical business, you never know when something’s gonna go wrong, or you’re going to have an accident or an injury or a botched batch, so many things you worry about. It’s very, very lonely in all sorts of businesses, and there’s all sorts of risk. And I had this beautiful sort of up and the right trend going and I looked at it and said, Oh, what if it goes down? I don’t want that to happen. You know, where am I now and my timing was fortuitous. And it was a very proactive process, the exit, really thinking about how I was going to be advised who I might want to sell to, what the value minimums were that had to make it interesting.

John Warrillow 

When you went around and did your sort of conversation and information gathering What were you hearing about valuation? How were companies like yours being valued was at a multiple of EBITDA? What were you hearing?

Joshua Dick 

It was all multiple of EBITDA. It was all a question about understanding multiples of EBITDA, stickiness of your customer base, lack of customer concentration, the quality of the team around you as a dynamic leader. And I looked around and I had kind of all those things going for me, we had no customer above 10% of total sales, consistent growth, great cash flow, development, very highly pedigreed senior leadership team that were incredible people that I relied on and worked together with and we’d really built this organization so those were the exactly the things that everyone’s saying. You needed to be able to show potential investors and I was like, wow, we have all that now.

John Warrillow 

Mm hmm. Yeah, yeah. Was your senior management team vested? Did they have some shares in the company yourself? Options are something?

Joshua Dick 

So maybe a year or two before I got serious about realizing that a sale was coming, I had an idea that I wanted to be in a position to be able to share with them what I was thinking, and not have them freak out that I might sell. And on good advice I created and built what we call the Urnex ELIP – employee liquidity incentive plan. And it was a structure that I developed with lawyers that really set aside a pool of shares or credits in the company only to have value in the event of a sale, and while the employee was still employed by the company. And I awarded these shares or these tickets or credits, whatever you might call them to my senior leadership team, as a way of saying, Listen, this is only good if the sale exceeds this value. But if it does, and you’re here and you support me through it, this is going to be the way we calculate how you participate. And I think that was great. Because it took this pressure off of me, I didn’t have to keep secrets from the key team, I was able to get their support and buy in and know that they had a clear incentive without giving up control. And it really was something that I’m very happy I was advised to do it by a friend who had developed something similar in a Silicon Valley company that was not public. And he was using it as a way to hire. He needed something like that as a way to bring people in, but he couldn’t give away anything before knowing what a sale might be, or where true valuations were.

John Warrillow 

And who did you choose to participate in the ELIP, everybody or just the senior leadership team?

Joshua Dick 

Just the senior leadership team. I had a core team of five or six from you know, marketing and chief operations officer and head of sales.

John Warrillow 

Yeah. And what advice would you give another entrepreneur trying to figure out, you know, what, let’s just like as a proportion of an annual salary, like how muchdo they need to kind of earn as a result of a liquidity event for to be meaningful for it to be kind of real?

Joshua Dick 

it’s interesting. So the pool was set up, if I recall, to be about 10% of a potential sale, but I never actually awarded the full term 10%. I sort of gave the credits out year by year. I think ultimately,  key people got as much as two between two and four to five times their annual base salary at the exit. So it was it was real, like I gave real money away.

John Warrillow 

Yeah, for sure. So when when you hear people refer to a phantom Equity Plan, it was essentially that?

Joshua Dick 

Essentially that but really done with a lot of thought to tax consideration for myself and for my employees, and it was structured in a really clever, thoughtful way by an employment lawyer that I had worked with.

John Warrillow 

Of course tax jurisdictions, depending on your tax, your jurisdiction, the United States or whatever. You were based in the US when you did it?

Joshua Dick 

Yes.

John Warrillow 

What were the tax considerations? Like, what did you do? What elegant sort of tips did you change?

Joshua Dick 

If I recall the the most significant part of it was that the compensation, it was better for me, probably that for them, was paid out as a salary at close. So to the business, it was an expansion and to the employee it was income, which wasn’t ideal for them, but it was still money that they weren’t counting on, and they were still getting their regular salary, because I think that was the most significant element of it.

John Warrillow 

Right. Okay. That’s, that’s helpful for sure. So as you did this canvassing and sort of informal conversations with folks, people were saying multiple of EBITDA. What sort of range were you hearing was a sort of fair range for a company like yours.

Joshua Dick 

Well, I wasn’t even interested in anything less than double digits. Because I looked at it as you know, I gotta get paid for at least the next 10 years. So yeah, it was definitely in the world. And that was where it was starting. And that’s what that type of business was high cash flow, very high EBITDA margin as a percent of sale. You know, it’s always in that sort of double digit range. And yeah at the same time, much smaller businesses that I had looked at or acquired, I wasn’t willing to pay that multiple for when they were smaller. Under 5 million of EBITDA, it’s a different multiple. And I’m no expert in this. I’m no expert in the tax stuff we talked about either.  It’s a matter of as that EBITDA that you can deliver gets bigger, it seems that the multiple goes up proportionally, and you get some pretty big scale lifts. And I think that was my very, very smart private equity investors that invested the first time that led it to the second private equity sale, knew what they were doing in terms of mergers and acquisitions, to build an EBITDA portfolio became very cashflow positive, it became very desirable for the next investor.

John Warrillow 

Got it. So, so let’s get into that now. So you’re you’re, you’re having conversations people are saying, you know, you might get double digits EBITDA for this. That sounds like they’re sort of telling you that’s a reasonable expectation. Do you hire an M&A professional? What was the next step?

Joshua Dick 

Absolutely. Absolutely. So yeah, so I set out and I basically started to identify who might be logical investment bankers to engage. And I selected four that I invited to do a presentation to me.

John Warrillow 

What criteria did you use to shortlist that data for?

Joshua Dick 

Well, it’s funny, a lot of it was conversation, a lot of the things I wanted specialists in chemicals, because I was a chemical company but I also wanted specialists in consumer products because I liked the fact that I could be positioned as consumer product as well as chemical. I went boutique-y and I went name brand. And those were the four and in the end, I felt like a business that was unknown, as unknown as mine, not particularly sexy like cleaning coffee machines was going to be helped by having a prestigious brand that was out there marketing the business for me. And ultimately I went with RW Baird, who were really a nice fit for us. But I had all four of these companies and every one of them, I think, could have done an excellent job. I just was very comfortable with the banker at Baird, how he and I worked together, and I had confidence that he was going to stick with me and not hand me off to someone else. I had confidence in the types of deals and transactions. But when I was an investment banker, they called the dog and pony show, where they’re all presenting their pitches, it was very comforting to me that all four of the banks were roughly in the same valuation world. So that confirmed for me that nobody was sort of selling me a load of garbage, and that there were real possibilities to think this way. But for me, it was really important to have a brand that brought credibility to who we were as a sort of unusual type of business and I thought Baird served well from that perspective.

John Warrillow 

Got it. So they put together a book and started the shop. Do you remember how many companies they went to in the initial round?

Joshua Dick 

Two parts  I’ll address there. The first is I put together the first book. But before I went to anyone, I basically said, I need to put in writing, how I would sell my own company to someone else. What are we doing well? What are our problems? I sort of laid it all out. I wrote about 50 pages for myself organized it almost along the lines of my business plan. You know, what are these sections? What is our plan? Who are our customers, what’s our customer concentration? So they came to me with an initial list. Once they were awarded the business, they put together the book, they give me a list of private equity firms that might be relevant partners, as well as strategics. And I had real concern about working with a private equity firm that were not cool. We’re not good guys. I have a lot of friends that are in private equity to this day from my previous life, and some of them I just would not want to be in partnership with as investors in my business.

John Warrillow 

Why not?

Joshua Dick 

I think as a guy who was an operator of a business for so long, I have a little bit of skepticism toward just financial engineering. I wanted to find a private equity investor or strategic partner, but I was pretty young, I wanted to maybe have a chance to stick around in the business and be convinced I would stay longer. But I wanted to feel that someone was going to bring something operationally to the business that was new and fresh and challenging for me. I wasn’t interested in the firm’s that were just straight numbers. Let’s put a bunch of debt on it. Let’s strip thi. I wanted to build a great business. I still loved my job. If I was going to go back and work with these guys as my partners, because I did retain significant equity, I wanted them to like show me something and bring something good to the table. So for that reason, it was a very, very small universe of bidding companies. I loved myself business I was advised by a few friends, and even one of the private equity firms who was a little bit self interested not to show it to too many people, because word would get out maybe to our customers about the mechanics of the business. So it was a small subset of under 10 that we took it to who I met with individually personally, took through, shared everything with and it was very much a personal decision about the firm I went with more so than just about straight dollars and cents. It was about how they impressed me what I thought they could bring, and how much I was gonna want to work with them. Because I kind of wanted to work with them. I wanted some friends. I wanted some partners. I wanted someone to take the load off my shoulders, too.

John Warrillow 

Yeah, how many of the less than 10 ended up giving you a letter of intent?

Joshua Dick 

I want to say six, five or six. And then we got a little bit down the road with two strategics. Looking with strategics from my perspective, strategics had to really really outbid private equity for me to be interested in selling 100% all at once. I liked the idea of keeping a little bit behind to see what would happen and how it would grow and have that proverbial second bite of the apple.

John Warrillow 

What was the proportion of the deal that PE firms were asking you to carry? How much equity with a most asking you to carry?

Joshua Dick 

They all wanted control. I think the it was between 55 and 80 in there that they wanted. They wanted as much as they could get. Yeah, between 55 and 80. There were different deals, different terms, different debt loads that they wanted to put on the business as well which you know, had some factor to do with it. But for me, it was very important to me to have confidence that the PE firm that I went with, was not going to retrade me. I wanted to know that the initial offer that they were going to give me for the business was not going to be nibbled away during due diligence. And the firm I ended up going with, I can say their name, the firm called Quartet Group. The advice on their reputation that I had had from Baird and from others was that these were good, solid, trustworthy, honest guys. And for that reason, I let them go at the business alone with 30 days to sign and close, and they were fantastic. They asked the right questions, they asked true questions. We had some hiccups in the business in that 30 day period that we talked through. I explained but not once did they change what they committed to in the beginning and that to me all along said that was the right firm to go with because they held true to their word.

John Warrillow 

So retrading of course is for those listening is that is the kind of insidious sometimes legitimate, oftentimes illegitimate attempt by a buyer to renege on what they offer in a letter of intent during the due diligence phase and in your case you validated with your investment banker that no these guys have a good reputation. What else did you do? Again thinking practical things that other entrepreneurs could could follow to ensure they weren’t going to retrade on you?

Joshua Dick 

Well, I mean, for me, I said it earlier, like, I love my job. I love doing what I was doing, and I was pretty committed and confident that if they retraded, I didn’t have to sell. And so all of those mechanics were there. Sure, it had been a lot of work. But it was also done in a very compressed period of time because I didn’t want to stop running the business. So I pushed the pace on everything. It’s funny, I’m pretty proud of the fact that from accepting the offer to closing was 36 days and we just ran through it, I gave them the right and we had  30 days you have to wait for antitrust anyway. And we had this deal done and I wanted to get back to running the business and if they were gonna mess with me or something was going to change. I was going back. I had my business, and that was that mindset, that mentality, that comfort that I like the job I had really gave me a lot of freedom, a lot of power, I think to be stern in the things that I shared.

John Warrillow 

What was the range in value, like on a percentage terms between the low and the high of the six offers that you’ve got? Are we talking kind of 50% 10%? Like how big a range?

Joshua Dick 

5% they were tight. Really tight. They were all right in there. Yeah, some slightly deal different deal structures, different payout terms, different incentives, simply but if you really put it down, they were tight.

John Warrillow 

So you like the guys at Quartet. What else made their offer? Like I’m thinking of the deal terms, what else made their offer the most attractive?

Joshua Dick 

Well, I think they did a really good job at that point 2015, it was still early, repping warranty insurance was part of their deal from day one.

John Warrillow 

Explain that for people that don’t know what that is?

Joshua Dick 

So generally, in a transaction like this, there’d be an expectation to put a certain amount of the deal value in escrow, usually up to 10%. Sometimes it could be more or less to pay for any unknown. Maybe tax liabilities are things that were not discovered in the beginning. And at that point, I think it’s pretty common right now. They were incorporated into the deal on the price insurance that covered them, in the event that there were unknown expenses so that I was not forced to put nearly as much of the deal value in escrow, very comforting. I think also their diligence, their speed to get through the process. The thoughtfulness of the way they approach the transaction, the structure, my employment role, they presented it all at once and said, this is how we see you involved, this is how we want you involved, we want you to do this. So really all of the things and also, I like the thoughtfulness of the options package they wanted for the key team and more team than I had in that ELIP plan that we talked about earlier. So they really thought about everything, you know, this is what they do. And I’m sure many PE firms do it that way. But I was just impressed and confident and comforted by the order of the organization and the speed at which they delivered things very clearly.

John Warrillow 

Got it. Got it. So that was that was comforting for you. And because the valuation range was so limited, it  sounds like there were other factors other than just the sheer valuation that were involved.

Joshua Dick 

I don’t think they were the highest. They’d like to say that too. They always like to tell people stuff like that, but I’m pretty sure they weren’t the highest, you know? Yeah. But I made a choice because of them and a little bit here or there, it didn’t matter if it was the right deal.

John Warrillow 

And they were gonna apply some debt on the business?

Joshua Dick 

Everybody put debt on the business. Yeah, everybody was putting on different levels of debt.

John Warrillow 

And were they asking you to in some way, guarantee that debt?

Joshua Dick 

No, it was, you know, I rolled a certain amount of equity. And, you know, I own part of the company that it held the debt anyway. So I, you know, I had debt in that sense, but nothing personal no.

John Warrillow 

I’ve always wondered this. So they’re placing a value on your company of x times EBITDA, then you are rolling some equity into their company. How do you determine the value or the valuation of their company? I’m assuming it’s the same x times EBITDA that they placed on your company.

Joshua Dick 

Oh, I don’t remember exactly, precisely, but the value is the value. I mean, there’s I think there’s probably some tax differences of what the value of the basis that you roll versus what you’re doing. But I think in effect, you’re basically selling the whole company and buying back at their price.

John Warrillow 

Got it? And so were they rolling you into other assets that they own in the cleaning product space?

Joshua Dick 

No, it was an independent business within their portfolio. See?

John Warrillow 

Yeah, I see. I was under the impression that they had other assets that they were going to kind of stitch together to break.

Joshua Dick 

That was not how it was set up. It was a standalone business that was one member one part of their portfolio and run that way. Ultimately down the road after I moved abroad. They made decisions with the business with my input and other people’s input about mergers and acquisitions and things like that.

John Warrillow 

So were you staying on as CEO?

Joshua Dick 

Yeah, I stayed on a CEO for about 15 months. And it was pretty soon after the sale that I had this sort of epiphany type discussion with my wife about this newfound financial position we were in and what we might want to do with things in life and for ourselves and for our young family. And I remembered the board meeting where I sat with the partners and the investors and said, This is what I want to do. I gave them a year, and I worked with them to hire my replacement, to get the team ready to organize things to manage customer transitions. And I moved from there when I got to Italy to a board role.

John Warrillow 

Got it, got it. And it’s funny, you know, I’m wearing my skeptics hat a little bit, but like, I’m looking at this private equity company and I’m saying Okay, these guys know nothing about coffee. They know nothing about cleaning products. All they have is a checkbook and the ability to borrow money. So what are they adding to the equation that you couldn’t do on your own? Do you know what I mean?

Joshua Dick 

Yeah, I do. But you know, I guess I think what they were adding for me was a little bit of relief of the responsibility. So all of a sudden, every million dollar capital investment wasn’t all my million dollars. It made me feel freer to think more aggressively. I think they really helped professionalize some of our staffing. I think they they helped us think a lot about our online presence, which they had quite a bit of experience with. They also helped us hire and think more about the business to consumer side of the business, which even though I had a background in it wasn’t too focused on and that was a place that they did have a fair amount of experience operationally and with other businesses. So I think there are plenty of PE firms that are just money guys and just financial engineers. I think there are also others that have true operational knowledge savvy from years of experience about how to deal with pretty common business things, and I’ve seen it done a few ways, and you know, I had seen a lot done myself as well. But it was exciting to have this breadth of responsibility and to share and knowledge.

John Warrillow 

Yeah, yeah. And I understand that they went on to sell the company in 2019. Is that right?

Joshua Dick 

Exactly.

John Warrillow 

And how that transaction for them?

Joshua Dick 

It was, it was great for everybody. When I talked about that consumer piece, the merger of the business was done with a another business that was excellent in specialty cleaning products for households with distribution of products in stores like Walmart and Target and the like. And we had this great coffee machine cleaning expertise, but had not done a great job developing the business to consumer business. So the idea of the merger was really to bring that other partner into the space to let them oversee what was happening with the business to consumer and allow the Urnex team to stay focused on that business to business model. So it was a really smartmodel, specialty cleaning to go through and from an exit perspective, I don’t know if I’m at liberty to say exactly what the multiple was, but I believe in general Quartet’s deals are publicly, plus three times multiple on exit of what they’ve been investments been doing. So they’ve performed pretty well like tripling their investments on average.

John Warrillow 

In part, that’s the debt that they apply. And then a part of it’s valuation improvement, I’m assuming over time, growing and so forth. I want to turn if I made just to kind of the personal side of the equation. So you moved to Italy? Young kids. Everything’s on the internet these days. So if they haven’t already, I’m sure the kids have sort of figured out Dad’s done pretty well out of this company. How are you dealing with that conversation with your kids?

Joshua Dick 

You know, I think the conversation with my kids is all about appreciating the world they live in. I think one of the things moving to Italy was important to us, was giving them an opportunity to be exposed to so many different cultures and languages and ways of life. And in a city like Florence, there are different levels of success of people, but in the community that we’re living in, I think that we live our life no differently than we did 10 years ago. We’re not extravagant people, personally, but we’re also not wanting to be in a situation where we’re being extravagant towards our kids. We’re here about life and experiences. And I think that’s what we impress upon. Our kids are not about material things. It’s about relationships. It’s about cultural understanding. Those are the things that we, as a family get great value in observing how different communities, different friends, different backgrounds, approach different holidays. You know, we had a long conversation with my children this week during this whole coronavirus situation, about how the culture in Italy is one of multi generational living. So many of their friends not only live with their parents, but also live with their grandparents. And that’s something that is not really common in the US. For my kids, it’s even more distant. They’re learning about how to use Zoom and this house party app to talk to their grandparents, who they’ve been far away from, and in this situation, their grandparents are well protected, because my kids are floating around everywhere. Who knows what they might be bringing around? Yeah, but my family, you know, it’s about those types of things and closeness with each other. So, financial things aren’t so important. And we do our part to try and really talk about with the kids and involve them in philanthropic opportunities, to give them each an opportunity to select causes and charities and situations that are important to them to make contributions to and to be involved with. I have one daughter that wants to be a tick scientist, because she’s always learning about the flow of the ecology and things like that. But so that’s how we look at it.

John Warrillow 

What do you miss most about running a company?

Joshua Dick 

The people, the teams, you know, my teams and the thrill of the collective teamwork, on accomplishing something, on a new sale or solving a manufacturing problem, or achieving that new hit of efficiency that we had never done before. And that’s what it is. I mean, to me, as a leader, as a CEO of a company, your job is just about the people. So the hardest part, but it’s also the best part, it’s helping them stay focused. It’s helping them stay prioritized, helping them avoid distractions, but also finding ways to celebrate each other and celebrate what you’re building together. I think that’s what I miss. And now I’m trying to do that in other parts of my life. Yeah.

John Warrillow 

Do you ever get lonely?

Joshua Dick 

Well, not really, you know, I was pretty lonely being CEO. I’ll say that as much as I love my team. And sometimes there are times that I really, really felt alone, especially before investors, do I get lonely now? No, not really, you know, it’s a very social environment. I’ve spent a lot of time since stepping down as CEO getting involved as an investor, private equity investing in the coffee industry. So with other partners, I have a small private equity firm that actually makes investments in much smaller businesses that we hope to help build to extraordinary growth. Some in Germany, some in Switzerland, some in the US, and I work closely where I can with those CEOs and those teams, giving them my advice, my sort of vision, I think mostly just asking them tough questions that push them to where they should go or what they should think about.

John Warrillow 

Tell me what the book because the book sounds apropos these days.

Joshua Dick 

Yeah. So so the book that I wrote it was published last fall is called Grow Like a Lobster. And it’s subtitled how to plan and prepare for extraordinary business results. And the book is based on all these things that I felt I learned running my business that I wish someone had told me when I was getting started, and is really my thing that I hope to give back. So if you had worked for me for many years, I would talk about the lobster. And I would always say to everyone, yeah, things are great right now, but remember, the molt is coming. And what I meant by that was that every time a lobster needs to grow, it has to literally rip its soft inner body out from inside of its hard protective shell. And it ends up laying totally vulnerable on the ocean floor, ready for anybody to eat it. And there are times running a business or times in life that are I feel like I’ve molted, where everything is not going right. And I believe that if we remember the lobster and how a lobster grows, and we can understand that the mulcher going to come, we’re going to be better prepared to handle them and, and deal with them when they arrive. So right now, the world is clearly molting. We’ve all lost our shell. We are all this crazy, vulnerable, weak, confused, uncertain group of people, that I think there’s a huge opportunity to stop, breathe a little bit, see what we can do to plan and prepare for the time when the malt ends. And our shell will be hard again. And you know, in Italian, they say andra tutto bene, everything will be okay. That’s the callsign. So I have to hope it will be sometimes I worry, but I believe that everything will be okay eventually.

John Warrillow 

Yeah, so the book is called Grow Like a Lobster. Available anywhere you buy books in particular Amazon, I’m assuming.

Joshua Dick 

Exactly, exactly.

John Warrillow 

Well, this was an amazing and very timely interview. I really appreciate you doing it Josh.

Joshua Dick 

I had a total pleasure. Thank you so much for including me and I really enjoyed it.

John Warrillow 

Awesome. Well, thank you. Take care.

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