How to Package Your Service Into a Product

May 22, 2020 |  

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Michael Spinosa and Scott Greenwell started a digital marketing agency called Unleashed Technologies at the start of the 2007 financial crisis. Spinosa believes the recession helped Unleashed get started because their flexibility and lower fees enabled them to pick up business from larger rivals who were losing customers amid cost-cutting. By 2019, Unleashed had grown to over $6 million in revenue when they were approached by LINC Partners, a private equity-backed group looking to do a role up of digital marketing agencies.

To read a transcript of this episode, click here.

Michael Spinosa and Scott Greenwell started a digital marketing agency called Unleashed Technologies at the start of the 2007 financial crisis. Spinosa believes the recession helped Unleashed get started because their flexibility and lower fees enabled them to pick up business from larger rivals who were losing customers amid cost-cutting. By 2019, Unleashed had grown to over $6 million in revenue when they were approached by LINC Partners, a private equity-backed group looking to do a role up of digital marketing agencies.

The big take away from the interview is how to package your service like a product. Spinosa characterized Unleashed as a “very average” digital agency when they first began. Then in 2009, the partners decided to rebrand their solution under their “Growth Package” offering where customers could get digital talent in “dosages” that fit their needs. This packaging allowed Unleashed to differentiate themselves from other digital agencies that billed for their time. This marked the beginning of a great run, which saw Unleashed grow 20% per year with 20% profit margins and 90% client retention.

Unleashed’s “Growth Package” is billed annually, which has enabled them to navigate the COVID-19 pandemic and avoid the worst of the recession.

Spinosa assumed a service business like his would trade at 2.5 – 3 times EBITDA, which is why he was pleasantly surprised to get an offer from LINC Partners of around double that. Spinosa and Greenwell agreed to sell a majority interest in Unleashed and decided to carry some of their shares into a new entity set up to acquire complementary businesses.

Our guest

Since 2007, Michael Spinosa has led Unleashed Technologies in delivering value for clients in the digital space looking to develop and achieve trackable metrics. Under his leadership, Unleashed Technologies has become a global leader in web development and design and has enjoyed 13 consecutive years of profitable operation. In his new role as president, Spinosa is committed to that tradition following the company’s acquisition in 2019 by the entrepreneurial investment firm, Linc Partners.

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Transcript

John Warrillow:

My next guest is Mike Spinosa who started Unleashed Technologies with his partner and built it to a $6 million company when he sold it to Linc Partners. My big takeaway from this interview is how to package your service like it’s a product. A lot of companies have time and material based pricing models, others offer a retainer, but the R word can be a real turnoff to a lot of businesses and a lot of consumers and as a result, what Mike did beautifully is create a retainer but packaged it in different language.

John Warrillow:

He talks about growth packages and offering his services in dosages that customers would need. He went on to sell his business which he thought was worth around two to three times earnings for about double. Here to tell you how he did it, is Mike Spinosa. Michael Spinosa, welcome to Built To Sell Radio.

Mike Spinosa:

Oh, thank you so much for having me, John. I’m excited to be here.

John Warrillow:

Yeah, so tell me about Unleashed. What do you guys do?

Mike Spinosa:

Unleashed is an enterprise digital firm. We focus on changing the organizations view the web. Particularly when people talk about things like web applications, websites, digital customer experience, engagement. There’s lots of different disciplines these days that affect the web and what Unleashed Technologies is really about is taking all of those different disciplines, putting them together and helping organization create exceptional experiences online.

John Warrillow:

Online. Okay. Got it. The staff that you have, are they strategists or are they coders. Who’s on your team that actually does the work?

Mike Spinosa:

Very interestingly enough, we’re a full lifecycle digital firm. The answer to your question is yes. We have senior solutions architects, we have developers, we have front-end developers, we have creatives like designers. We have a user experience specialist, we have dev ops. We manage the full life cycle there. That really goes in tune with our model, which makes us very different than other digital firms. Which is-

John Warrillow:

Yeah, I was going to say because there’s like… digital firms these days are a dime a dozen. How do you guys set yourselves apart? What’s different about you guys?

Mike Spinosa:

We really set ourselves apart in 2009, and the way we set ourselves apart was not in the services we deliver, but how we deliver them and how we educate the client on the way that it should be delivered ongoing. One of the driving principles of Unleashed Technologies was the web is fluid and always in motion. Meaning every day, every week, month, short-term now you’re seeing consumer demands change. You’re seeing B2B demands change from an online perspective, from a digital perspective.

Mike Spinosa:

Unleash Technologies has built something called a growth package where we basically have constructed a team full of these professionals that you can access in the dosages that you need and it gives them the ability to have those senior architects to have those senior back-end developers to have all the people they need for a set amount of hours a month, and then we track goals to that. We give those web properties in those web applications because it might not just be websites, John. It could be web applications that help internal operations or it could be a myriad of things but in that digital space, we’re providing guaranteed service levels, we’re providing fast action from a team and we’re helping them reduce their costs all at once.

Mike Spinosa:

Traditional digital firms typically are time and materials or firm fixed price, and they operate in a very different way. This creates a lot of relationship hiccups. By following this fluid growth package model where we become an extension of your team, it’s been an incredibly powerful model and I think it’s really resonated in the professional networks.

John Warrillow:

Oh man. I just love this example because it’s so in the sweet spot of sort of what we talk a lot about, which is this idea of sort of productizing your service, branding it like a thing. What was it like to go through that? Because on the surface the idea of sort of a retainer, it’s like a terrible legal word, but like the retainer idea has been around for a million years, but you’ve packaged it into something really kind of sexy and cool and it feels really different. The word dosages, the word growth package, the fluidity of it.

John Warrillow:

I think a lot of people are listening to this right now going, oh man, I want to do that for my company. I want to take my generic service that I’m selling time and materials basis and I want to create and I want to productize it. I want to create my own version of the growth package. Help me through that process. How did you come up with the idea of growth packages, dosages that people need and require? What counsel could you give other owners trying to go through the same process?

Mike Spinosa:

Well, I would say Unleashed Technologies was founded in 2007. We got to the growth package in 2009 and the way that we found there is like any startup there wasn’t a lot of people working for us and we had this very serious realization that we were a very average mediocre digital firm. We were looking for ways to differentiate ourselves but what I came to was the differentiating… there was not a clear differentiator in the space that we played and I wanted whatever our differentiator to be, to be client-centric. I didn’t want it to be us-centric.

Mike Spinosa:

Too often we see digital firms that are just finding new ways to promote themselves, right? And so I said, what is it that we can do that fixes the flaws that we see in this industry? And you have to remember, John, this was a different time. Like it’s not like we’re 30 years down the road, but it’s been 13 years.

John Warrillow:

Sure.

Mike Spinosa:

I guess, ’11 from 2009 and this concept was not nearly as understood as it is today. What we did is, I took the concept of the growth package. I said, what do people hate in this process? They hate change management. Are you familiar with change management John?

John Warrillow:

Yeah.

Mike Spinosa:

They hate change management. They hate constantly being… go back to, they hate missed deadlines. They hate not getting quick responses, and what I learned is the flaw of the business, the problems that happen in professional services businesses are because we’re always looking for the next deal. How can I help the client and help Unleash Technologies and then at the same time create something that nobody would ever be disposed of.

Mike Spinosa:

One of the big problems in professional services, to all those people out there that are running time and materials that understand this, is you don’t know where your next big deal is coming from. This is a huge problem for the client. Not just for you, not just for the business owner and the reason it’s a huge problem is because what happens is you’ll take on a client and then another client will come in the door and says, “If you don’t take my business right now, I’m going to go somewhere else.”

Mike Spinosa:

Well, that’s very bad because unfortunately that particular digital firm really needs that revenue. They’re very scared to walk away from it. Particularly when you’re talking in the space of let’s go from a million dollar company to up to a $10 million company, John. That’s very tough to do. Well, what this model did was it allowed us to build in stable recurring income so that we knew exactly what we had every month and we could meet our SLAs. And in essence, our clients are helping protect Unleashed Technologies by ensuring that we have regular stable revenue. They’re getting the services at a level that they’ve never received them before and they don’t have to worry about me threatening their time with other deals that are coming through the door. Now there’s tons-

John Warrillow:

What sort of objections did you get in the early days when you were moving to the growth package and sort of talking to customers about, hey, we can do this growth package, doses in the amounts that you want. What were the common objections that you heard?

Mike Spinosa:

The common objections of the growth package are still the same today that they were in 2009. There’s always these core questions. What happens to my hours if they don’t rollover?

John Warrillow:

And what is the answer to that?

Mike Spinosa:

It is, you lose them, and that is exactly the reaction that I get. Silence. That is why educating in a model is so important because if I’m going to guarantee you a terrific level of service John and you have 160 hours a month, if you rollover a hundred hours in the next month because you’re not actively engaged with what we’re doing, how can I keep my promises in the next coming month with a hundred hours I wasn’t expecting coming in? I can’t, someone has to suffer, right?

John Warrillow:

And so the answer… Does that pitch allay the concerns? Does it work? Like what’s your batting average with that response?

Mike Spinosa:

Well, we grow more than 20% per year with a 95% client retention year in and year out. Just last week we became the number one the global web… we’re sorry. Let me rephrase. We are the global leader in web development according to [lutch.co.

John Warrillow:

Congratulations.

Mike Spinosa:

It’s unconventional, right? And that’s the thing, is that everybody’s like that can’t work. Who would go for that? But the thing is, it’s the education. It’s the understanding of the value of the service and it’s not that we are trying… because a retainer based model is typically conceived of the firm is trying to get one over on somebody and that’s not what’s happening here. We actually start all of our growth package clients low and they build rapport and decide where they fall in, in terms of their hourly set asides and things like that.

Mike Spinosa:

Now, I want to be fair. If hours don’t get serviced because we’ve ever… if we’ve ever made a mistake inside of our model, meaning something’s happened where we can’t [inaudible 00:12:40], those roll over. That has to be that way. Because that’s not fair to the client. We have to understand and they have to understand that this is about a relationship and a relationship that’s built on trust and understanding what each of the organization’s needs are and by doing that, that’s how we create an incredible product and that’s how we do incredible things for our clients.

Mike Spinosa:

I think too often we look at ourselves as one off commodity vendors and that’s a dangerous position to take. Like we’re just so desperate. You’re just so desperate to win business that you stop realizing where you can present the greatest value. We’re willing to sacrifice on things that don’t make sense. Just say, yeah, yeah, all the hours rollover. Well now you’ve just set yourself up for a nightmare that you can’t possibly support.

John Warrillow:

What other objections do you hear? The rollover hours is one. What other common objections do you hear?

Mike Spinosa:

I don’t know that we need all that, is a very, very common objection. That’s why we have different sizes of packages and how we’ve changed the way and changed the way that we deliver our services. In 2009 it was formed and then to 2020 you can imagine there’s been a lot of maturity brought to that model. During that time, we never gave up on the model and there was lots of challenges in between there. Different groups view different thing… different websites and web applications differently. Some people don’t care about technology and continued development. They’re much more concerned with marketing and sales.

Mike Spinosa:

In that early on, one of the big contentions was I don’t need continued development month after month after month after month after month, right. Now we work full lifecycle there. We have those marketing capabilities in-house so that the growth package is meant to be flexible and because it’s flexible they can use their hours per month for whatever they need. John, you might come to me in month one and say, I’m looking at this new enhancement or we might recommend it to you. Proactivity is an important part of ongoing success in the growth package model. I might say, “Oh, we should do X, Y, and Z.” And you’re like, those are great ideas and it’s very development focused but next month after that, it might be design focused and we might have our set aside in our growth packages focused on SEO, SEM and marketing based services.

Mike Spinosa:

It’s really meant to say John, if someone hires on Unleashed Technologies, they’re the CMO of us, they’re the director of marketing of us, they’re the CTO of us. We want that experience to be like we’re in the office and that they hired a person and they have people in each one of those roles that they need. That is how we think about what we’re doing.

John Warrillow:

Tell me the thinking behind the word dosage. It’s unique word.

Mike Spinosa:

It is and I don’t know that I love the word dosage either. It’s the one that I guess popped up in my head. It’s just about giving… The thought process behind it was you don’t need a full-time user experience expert. You don’t need a full-time senior developer to accomplish a lot of the things that you’re doing in the mid-market. Even the SMB, let’s call it SMB in general. You don’t need those things full-time but to compete on a modern web or digital landscape, you need those specialty roles today because you can be rendered… A lot of companies don’t find value in the web because they don’t know how to make it valuable and that’s true even today as crazy as that sounds in 2020.

Mike Spinosa:

If they do see the value, they don’t know how to get there in a reasonable way. That’s why these growth packages exist because they allow upper small, and I would say mid-market businesses to be highly competitive in a larger arena because instead of saying I need to hire a $90,000 project manager, I need to hire a creative director, that’s 150,000. I need to get all of these different things for a fixed amount of money per month. I can give them exactly what they need and the dosages they need and they don’t have to renegotiate timelines every time. That’s the other part of it, is that when you do time and materials, you never know when someone can get something done. Well here I’m guaranteeing the time and I’m guaranteeing a certain level of SLS.

John Warrillow:

I love it and again, I love not only the business model but also the packaging around it because for a lot of people making the move, they would say, oh, it’s a retainer. You can have this many hours and in your case, you’re using words like dosage and growth package and it feels really quite unique. You started this business at a time that is, I guess in a lot of ways similar to what we’re dealing with now. We’re recording this and in the early part of May, 2020. We’re in the throes of a pretty serious recession.

John Warrillow:

What was the toughest part for you? How bad did it get for you in the ’08, ’09 recession or any time during your tenure running this company?

Mike Spinosa:

Interesting. It’s totally different moments in time. In 2007, 2008, the recession was an advantage to Unleashed Technologies.

John Warrillow:

In what way?

Mike Spinosa:

Scrappy young startup that could be very flexible and agile with our hourly rates. We can move on a dime and it was easy for us to have a very high level of service at that time while undercutting much more established players in the market. I would dare to say that the business model born of that recession is the one that was meant to protect us today. Learning from those experience our entire model is focused around recurring revenue and having long-term relationships with people that find continual value from Unleashed Technologies and we find value in growing with them.

Mike Spinosa:

When we come to 2020 and we’re in this COVID crisis right now where we’ve got this nationwide, I should say global pandemic and the B2C market has just been hammered by this, right? We did a couple of things really, really smart. The first thing we did is we have… our industries, we have different verticals and those verticals are very distinct from each other. This helps give us some insulation to what’s happening with COVID. The biggest damage we’ve seen from COVID so far is the reduction in sales pipeline.

Mike Spinosa:

A lot of people that are currently working and currently doing things, we’ve definitely had people… the thing about anything in life is whether you have a contract or not people… if there’s no money, there’s no money, John, at the end of the day. We’ve had to be very aggressive with working with our B2C clients to make sure they know that we’re equally committed to them and then on the incoming pipeline, we’ve had to open up new creative ways to try to reach out to people because there are slowdowns there and that’s true for everybody.

Mike Spinosa:

I think one of the things that we do in business, John, is we try to hide our pain because it’s viewed as weakness and I don’t think that that’s something that we should do. I think as a business community we should band together and say these are the challenges that we’re seeing and this is how we can tackle it.

John Warrillow:

Just specifically, how have you helped your business to consumer customers who are in, as you point out, in desperate straits right now? What specifically have you done to support them? Have you deferred costs, lowered their growth plans? Like what specifically have you done?

Mike Spinosa:

A couple strategies that we’ve done so far is that we’ve deferred their contracts. If they needed a deferral, we’d give them a deferral. If they wanted to work on… you basically put the words in my mouth, it was well done. We’ve given them temporary reductions in their growth packages and if anybody’s in dire need of something that can’t be taken care of today, we take care of that and then we work it out and I can’t get more detailed than that. I hope you understand.

John Warrillow:

Yeah. I know for sure.

Mike Spinosa:

But the reason we can do that, and I think this is important point, is because Unleashed Technologies is so financially strong and we’re financially strong because we have long-term recurring engagements with our partners and our clients and everybody and that gives us a base to work from and that’s why I always encourage something like this model because if you’re living that T&M life right now, if you’re living that project based life right now, you must be really feeling the burn.

John Warrillow:

What are your terms in your growth package around cancellation? Are they 12 months rolling over? Do they have the option to cancel any time? How have you structured your cancellation terms?

Mike Spinosa:

I think that might be a bridge too far for me, John, in terms of how like the true nitty gritty of how the growth package is run and what our legal terms are. I will say that we typically build our contracts on an annual basis and then they have options to do extended terms upfront. Two year, three year but most things are done in annuities.

John Warrillow:

Got it. That’s helpful for sure. How big did you get this company before you decided you wanted to sell it? Like in terms of revenue or number of employees or some proxy for sort… How big were you when you decided it was time to sell?

Mike Spinosa:

About six million. We were hitting-

John Warrillow:

six million.

Mike Spinosa:

…the six million range. We’re a three-time Inc. 5,000 company. It’s interesting because one of the things that we did in 2016 or ’17 after winning Inc. 5000 three years in a row is we decided we wouldn’t grow like that anymore. We made that conscious decision.

John Warrillow:

Why?

Mike Spinosa:

We weren’t able to control the quality of the product and it was causing us all kinds of headaches. We have a motto at Unleash Technologies. 20% per year at a 20% profit with a 90% client retention.

John Warrillow:

20/20/90 love it.

Mike Spinosa:

Yep. 20/20/90, everybody in the company knows it.

John Warrillow:

Got it.

Mike Spinosa:

That’s how we did it.

John Warrillow:

Got it. Love it. Love it. Was there a sort of a trigger that made you think, okay, now is the right time to sell? Like, I mean this thing’s growing like a weed and things are great, Inc. 5,000. Why sell? What was the trigger?

Mike Spinosa:

I wasn’t looking to sell. That’s the most interesting part. I wasn’t looking to sell, I was taking calls. Oh my God, I wasn’t taking them is probably the word I would use. I was receiving calls probably once a month and I don’t know how that happens, but I think when you hit a certain threshold and the taxes, like people scan the tax returns to figure out how big you are and the markets you’re in.

John Warrillow:

Well, the Inc. 5000 is probably big… big driver that too.

Mike Spinosa:

Right. They were reaching out like crazy and I would just say, I’m not interested. I’m not interested. I’m not interested, and then through a mutual friend, I was introduced to what is our now CEO Muhammad Hutasuhut and this guy gets on the phone and he says nothing of interest to me. Just to be perfectly honest. Nothing of interest to me, and I’m like, yeah, maybe we’ll talk again sometime soon.

John Warrillow:

So wait. Muhammad was introduced to you through a mutual friend. What was the guy’s under which the introduction was made, like, hey, this is a good guy you should know or hey, he runs like this company. How was the introduction set up?

Mike Spinosa:

The introduction was set up as, hey, you should talk to this guy and I said, “I’m not really in the market for that.” And he said, “Just hear what he has to say.” And I said-

John Warrillow:

What you said, you’re not really in the market for that. What was the that you were describing? Okay. So you knew he was looking to acquire your company?

Mike Spinosa:

I did and so… All of us in our lives take meetings that sometimes are meant to help a friend out, right? To be like, yeah, alright, I’ll talk to them. Something like that. The first conversation I was like, yeah, maybe we’ll talk again and then this is where it gets gray for me but we had another conversation like a week later and we ended up talking for two hours about business and about what we’re seeing in the market and what he’s interested in, what he’s looking for and I felt like I could talk to him as a friend and that was an interesting thing and that was the beginning of opening my mind because I had this hard line in the sand for taking on outside money or doing anything like that. And I did-

John Warrillow:

Why?

Mike Spinosa:

Because I didn’t want to be controlled. I didn’t want anybody from the telling us the best path forward and I wanted… so many times while we were building out this very unique model and the way that our company is founded, people told me it wouldn’t… nobody believed that it would work. I didn’t want that kind of feedback because I knew that it would work and it did work and it is working. There’s some secret sauce in there and a lot of lessons learned over the last 10 years, John, but I didn’t want that kind of interference with where we were heading.

Mike Spinosa:

Now, as I talked more and more to Muhammad I realized that this wasn’t about taking away my control. This was about creating an opportunity for the company because the vision of Unleashed Technologies as is written in the wall the second your right… you walk in, it’s huge. You can’t miss it. It says, to be the most influential digital firm in the United States and I said to myself, “How am I getting there? How old am I going to be when I get there?” Because I knew… I believe in my heart and I’ve always believed in my heart that we could get there on our own. What was the question was the timeline.

Mike Spinosa:

There’s a wealth of knowledge of really intelligent people out there that oftentimes we as business owners can’t access in the doses we would like because free advice is free advice. I really started looking to Muhammad. I started investigating his professional background and I started listening more about what this private equity firm, this group was looking to do and what they were looking to do blew my mind. It was everything that I wanted.

John Warrillow:

What were they looking to do?

Mike Spinosa:

Unleashed Technologies has this incredible reputation in the marketplace, that’s been cited by the things that I mentioned earlier. We have a very notable and driven name and that’s really cool for a small company, which is what seven… I came from a big business background. To me a $7 million company is a very small company, in my mind. I’m sure others in the web industry, I don’t think it would be viewed that way, if that makes sense.

John Warrillow:

You said something about what Linc one, do was intriguing to you.

Mike Spinosa:

Oh no.

John Warrillow:

What was that?

Mike Spinosa:

I’m sorry. I was beating around the bush a little bit there. What Linc wanted to accomplish was they wanted to take Unleashed Technologies and they wanted to basically build it into this large national brand and make it the parent brand. 90% of the time when you start having acquisition discussions, it’s by a group that wants to assimilate your company into a larger company and eventually wipe out its name and do a lot of different things to it and of course, this group was looking to make Unleashed Technologies that parent brand.

John Warrillow:

And then go out and acquire other smaller digital firms and put them under the Unleashed umbrella. What did you think-

Mike Spinosa:

Believed in the culture in the way that we were doing things. Yes, and that was so appealing to me that I was just blown away.

John Warrillow:

Yeah. No. For sure. What did you think the company was worth before you saw their offer. I’m sure heard multiples out there. What did you heard that digital firms were trading at?

Mike Spinosa:

Well, John, it goes without saying that Unleashed Technologies is clearly worth a hundred times whatever. That being said I was expecting a three turn, maybe a two and a half.

John Warrillow:

On profit or revenue?

Mike Spinosa:

EBITDA.

John Warrillow:

Okay. Where did you get the two and a half to three times EBITDA number?

Mike Spinosa:

I didn’t know what to expect and there’s always this… so product firms are always like, oh it’s worth 10X multiplier on the total worth of the company. It’s crazy and they’re like, nobody wants professional services firms. Nobody’s interested in professional services firms. You’d be lucky… Like if we did a pure on company assessment value you probably get one and a half turns on that. If you did it by this, you’d get that and I was always listening, always learning from people and what I always learned is nobody liked me.

Mike Spinosa:

I guess I wasn’t particularly sexy and particularly for the reason that professional services firms from an acquisition perspective present risk because the owners are typically very involved with the relationships with the clients.

John Warrillow:

Sure.

Mike Spinosa:

This is common. This is a well known issue in that a lot of times people are buying the people and those people in that retention is crucial for the ongoing success of the organization. I wasn’t expecting a huge multiplier. Now, what I got far exceeded my expectations and just like Tom Brady would thank Bob Kraft over here, I’m going to thank Linc Partners. It was great and I was very excited about what was presented and where we ended up going.

John Warrillow:

Got it and so when did the conversations go from… it sounded like you had a relatively insignificant first conversation, but the second conversation where Mohammad really talked about his vision and your vision of really becoming the most influential digital firm in the United States. Things started to gel and you started to kind of get closer. Where did it go from there? What was Mohammad’s next step?

Mike Spinosa:

Mohammed’s next step was… I would say we did three conversations, then we executed an MNDA and then we immediately started sharing openly. One of the things that was really great about Muhammad… I want to give my team credit for this as well, is that the first thing we did when we decided we were really going to take a look at this, and I did bring critical members of the team up to speed early on it, was… and I said, if we’re going to do this, we’re going to do it arms wide open. We’re not going to be defensive and untrusting.

Mike Spinosa:

We’re going to show and lead by trust and I think that has made all the difference in this process. So MNDA, we started sharing our finances, we started sharing our business model. We did a huge presentation for Muhammad so we could get closer to understanding the business and how it operated and what it did and where the strengths and weaknesses were and that’s what the next step was after those conversations.

John Warrillow:

And so you’re revealing all this information. At what point does it become more formal? Does Muhammad prepare a letter of intent or indication of interest of some sort?

Mike Spinosa:

Yeah.

John Warrillow:

Okay.

Mike Spinosa:

Yeah. A letter of intent was prepared after those initial discussions and based on his initial review of the finances and it was a little more in-depth than that, but that’s the general gist of what happened next.

John Warrillow:

And what was your reaction to the letter of intent?

Mike Spinosa:

Well, my emotional reaction to the letter of intent was at first I’m going to be… this is like not a lot. It was actually… there was fear when I got the first letter of intent.

John Warrillow:

Why?

Mike Spinosa:

…to be honest. I suppose that requires some explanation, doesn’t it?

John Warrillow:

Just a tad.

Mike Spinosa:

Yeah. The thing that I had been working on for the last 13 years of my life was about to be someone else’s. Like this was real, this wasn’t a kicking the tires kind of thing that we were doing here. It was real and I didn’t know how that was personally going to affect the identity of Michael Spinosa and who I was. From a professional perspective, had I done enough diligence to understand how my team would be affected in this? The people that have trusted and invested in me to run a great company. Did this person really want the same business goals that I had or was I getting bullshitted?

Mike Spinosa:

It was a very difficult position to be in, in the sense that this was a major change for me as a professional.

John Warrillow:

What was your reaction to the valuation?

Mike Spinosa:

Favorable.

John Warrillow:

You were expecting two and a half to three. Where did it come in at?

Mike Spinosa:

I can’t tell you what it came in at exactly from the valuation perspective, but well north of those numbers.

John Warrillow:

Like north of five-ish, five to six in that range. Five to seven?

Mike Spinosa:

We’re in the target zone. That’s as far as I can go with that.

John Warrillow:

No, that’s fine. The other piece of obviously letter of intent is sort of structuring. What were the sort of big frameworks around how long you would stay on when you would get your money effectively. Were you getting some upfront and then some sort of in the future? How do they structure the deal?

Mike Spinosa:

Again, I’ll give you what I can give. Almost all professional services firms when they’re bought and everybody has a different flavor. There’s always these outliers, but you have some version of a net earn-out, meaning because the retention and migration of the business is so crucial when selling a professional services firm.

John Warrillow:

Sure.

Mike Spinosa:

I would tell you that for me, I required the majority of my money upfront for me to be interested. Remember, I was in a very unique position, John, that other people usually aren’t, which is I had no reason to sell. I didn’t have to sell if I didn’t want to. This was an interesting opportunity. For me, I just was like, okay, if this works out, this will be wonderful and if it doesn’t, okay, this will still be wonderful. I was in a very unique position where I could really be confident in my negotiating space, if that makes sense.

John Warrillow:

It does, for sure. So you’re looking for the majority upfront. The other piece, I guess there’s two ways I’ve seen it structured. I’d be curious. Sometimes it’s structured as an earn-out, meaning there is a set of goals in the future that you’ve got to hit and if you hit them then there’s a triggered additional payment. Other times, however, in particular with private equity groups, it’s more of an equity carry, meaning you essentially rollover some of your equity into a new entity and become almost partners with the private equity company and sometimes it’s a combination of both. In your case was it one or the other or a little bit of both?

Mike Spinosa:

Interesting, it was all three.

John Warrillow:

Interesting. Okay.

Mike Spinosa:

We did a lot upfront. I rolled equity and we have some earn-out there.

John Warrillow:

Okay. That’s helpful, and I understand and we talked a little bit before we hit record that Muhammad is now at least in title, it may be perhaps more than that, the CEO of Unleashed Technologies. Maybe talk a little bit about the backstory on that and how you came to terms with that.

Mike Spinosa:

Search Fund Partners which works with Linc in this group. There’s a particular type of investor out there John, and I’m sure you’re probably familiar with, but if not just in case. They’re called searchers and what this group does is there are people with larger business experience that are particularly targeting well-established, highly reputable firms that are looking to go to the next step, and so what Muhammad brought to the table was a very, very strong financial background and incredible past track record in M&A and what made that interesting to me was that I am a marketing sales and vision guy and what he could bring to the table and why I felt that he could accelerate our growth was because he was tremendously familiar with this M&A process. He was tremendously familiar with how to structure things as companies grow.

Mike Spinosa:

Maybe I’m talking down about myself a little bit, but when I think of finances I can do P&L. I can do all those things. I can run a profitable organization as been proven. I don’t have strong relationships with banks. I don’t have a huge investment network because I never focused on those things. I turned away from them. Bringing in Muhammad and having him become the CEO, allowed me to focus on the things that I feel that I’m exceptional at and it also allowed me the opportunity from a personal professional perspective to learn from someone that can help me not make a ton of really big mistakes in that process.

John Warrillow:

How did you-

Mike Spinosa:

[crosstalk 00:41:11] appealing to me. Very appealing.

John Warrillow:

I can imagine, just given his depth of experience and qualifications, how did you… I guess, what was your emotional reaction to no longer being in full control? What sort of impact has that had on you?

Mike Spinosa:

Well, it was a rollercoaster of emotions and here’s what I would say. When I first did it, it was relief and I’ll tell you why it was relief, because I had been at the helm of the ship for 13 years and I felt like that there was some kind of reprieve, even though it was fictional. Remember we have two states of mind. Which is, let’s call it objective and emotional.

John Warrillow:

Sure.

Mike Spinosa:

From emotional perspective, I felt like a burden that I happily carried was lifted off my shoulders temporarily. If I had someone that was carrying that heavier mantle for a moment, that was the first thing I had. In terms of dealing with the changes, that came later. So we sold and we really… let’s call all conversions done November, okay.

John Warrillow:

Of 2019.

Mike Spinosa:

Right. November, 2019. Where it went to next was… first time not being at the helm impacted me last couple months where I saw things that I wanted to correct and I realized that that was no longer for me to correct. I don’t know if that makes sense.

John Warrillow:

It does. Give me a specific example. Like are we talking about like the pencil sharpener was in the wrong room, we should put it over here. Like what sorts of things would you want to correct but no longer be able to?

Mike Spinosa:

Like if something happened in production or there was decisions made about resourcing and how we go about certain things, it was just more overall and I realized for the first time ever, I think of running a business like a highway. There’s five lanes and maybe… let’s see if I got my lanes right. You’ve got sales, you’ve got marketing, you got finance, you’ve got production. Okay, four. You have four lanes here. When I was CEO, I could bob and weave between all the lengths whenever and however I want.

Mike Spinosa:

I could just zip around, weave in and out of traffic. If I wanted to drive zigzag across all of it, I could. Now I have two primary lanes and I stay in those lanes and if I see something over there, I feel like I’m yelling out the car window going a hundred miles an hour to the person-

John Warrillow:

Great analogy.

Mike Spinosa:

Right. Like it’s messed up. Like yeah. I can’t go into that lane at all. Like that’s not my spot anymore and so I found myself having a hard time dealing with that but what I did learn about that was that, maybe I was stepping on some toes a little bit while I was a CEO because I would come in and I would solve and I would act on those things and by the way, when I use the term issues if it’s an issue for me, it may not be for them because they’re seeing it differently. Does that make sense?

John Warrillow:

Sure. Yeah.

Mike Spinosa:

They’re like, no, this is how we’re doing. I’m like, well, that’s an issue and they’re like, no, it’s not.

John Warrillow:

If you had it to do over again, this entire experience, selling to Linc, what might you do slightly differently? If you could take the last say 12, 18 months. That window the beginning conversations with Mohammad through a sharing offer now sort of post offer. What, if you had one thing you might do differently, would it be?

Mike Spinosa:

I underestimated the value of finance like I always do and here’s what I mean by that. I had amazing guide through the LOI. I had amazing legal counsel through the final contracts, but I didn’t engage finance soon enough to help me understand tax implications and things that I should be considering and how different sources of revenue are marked different things and how taxes affect those in the sale, and now I will say Linc Partners and their team were extremely helpful in those last minute things because I got caught, shocked a little bit and my estimations were off, but I should have brought a finance team in to help me get the lay of the land in what I should be expecting earlier.

John Warrillow:

Yeah and when you say that you’re really thinking about when it comes to the finance piece, the tax implications of a sale of your business.

Mike Spinosa:

I apologize, absolutely.

John Warrillow:

And has that come down to… were you selling shares or assets of your business and was that the kind of surprise that came out?

Mike Spinosa:

It was an asset transfer. It was an asset sale.

John Warrillow:

Okay. What specifically surprised you about the tax implications of the proceeds?

Mike Spinosa:

Without being too specific, there’s different tax classifications for different services that you provide inside any professional services firm.

John Warrillow:

Nice.

Mike Spinosa:

If something is deemed as like product or you have a certain amount of… if I have $400,000 worth of assets that are physical, those are taxed differently than the professional services and the revenue I generate. Just to transfer in the sale of those assets, I think it’s like 30% or 35% or something like that, which made me drop a chalupa for manufacturing firms. Oh my God. When I realized what they’re doing-

John Warrillow:

Chalupa.

Mike Spinosa:

Chalupa. I realized what they’re probably dealing with because of the type of business that they’re in, I mean my head would pop off.

John Warrillow:

Because they’ve got hard assets.

Mike Spinosa:

Yes. Hard assets, absolutely. Also some of what you’re hearing here too is I am very strong in vision, sales, marketing, strategy, those things. I have never claimed to be a strong financial CEO. I never claimed that. I got enough from the accounting class in college to get by.

John Warrillow:

Yeah. Well, I think you’re not alone. I think there’s a lot of people listening that feel the same way, strong on vision, strong on product, sales, marketing and maybe less deep in hard finances. I guess the lesson is really have an advisor who can help you understand the tax implications of structuring your deal.

Mike Spinosa:

Absolutely.

John Warrillow:

The in your jeans number at the end may vary depending on how you structure. I’m just so grateful for you sharing the story. I love the way you productize the business. I think it’s an amazing example of success and professional services. If people want to check out you, the company, where would you point them to?

Mike Spinosa:

I would point them to our primary website. I would point them to unleashed-technologies.com and I would very much encourage anybody to reach out to us via phone (410) 864-8980.

John Warrillow:

Excellent and are you okay accepting LinkedIn connections as well?

Mike Spinosa:

Of course.

John Warrillow:

Okay, so it’s Michael Spinosa, right? And we’ll put that in the show notes.

Mike Spinosa:

Absolutely and if anybody ever has any questions about or they’re looking to go through that process, I’m always willing to talk about my experiences.

John Warrillow:

Well, you’ve been very generous with your time that I… Mike, so I appreciate you doing it and best of luck with the new partnership.

Mike Spinosa:

All right. Thank you so much.

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