Shark Tank’s Kevin O’Leary on How to Structure Your Earn-out

October 2, 2020 |  

About this episode

Subscribe:

Kim Walsh-Phillips founded Elite Digital Group, a marketing agency for clients looking to leverage social media. Walsh-Phillips built her firm to $3.2 million in revenue, but she got stuck when she reached 30 clients.

 

No matter what she did, Walsh-Phillips couldn’t break through the 30 client ceiling. 

 

Frustrated, she decided to sell and, within months, had three offers and sold for $450,000 upfront and a downstream set of payments tied to her company’s performance after she sold it. There’s a lot to ponder in Walsh-Phillips’ story, including:

 

Protect Your Earn-out: Before selling, Walsh-Phillips had the opportunity to attend an event where Shark Tank’s Kevin O’Leary offered her some sage advice: when structuring a deal that involves future payments (i.e., earn-out, licensing agreement, etc.), make sure you get the rights to financial reports prepared by a recognized accounting firm. O’Leary argued that, since the accounting firm’s reputation is at risk, they are much more likely to provide truthful sales data than an acquiring company motivated to fudge the numbers.

 

Pick one: Walsh-Phillips tried to run two businesses simultaneously, and whenever she focused on one, the other suffered. Instead of juggling both, she decided to sell one to commit 100% to the other. 

 

Document Your Processes: Walsh-Phillips documented their entire process for working with a new client right down to precisely what they should get from her team on each of their first 90 days as a client. In the end, it was those processes that were a big part of what her acquirer ended up buying. 

 

Walsh-Phillips’ approach to selling her company was unorthodox and certainly not what most professionals would advise, but that misses the point. Her goal was to start another company, and every day she ran her current one was a day she wasn’t building her new business. Having something you’re excited to do next is one of four factors that predict your exit satisfaction. Find out the other three contributors to a happy exit by getting your PREScore™. 

About Our Guest

KIM WALSH-PHILLIPS is the founder of Powerful Professional, a business coaching company, and is an MBA-free self-made millionaire. She’s grown an online following of over a million and was recently named “a must-read by those in business” by Forbes Magazine with multiple best-selling books including, The No B.S. Guide to Direct Response Social Media Marketing, with Dan Kennedy and The Ultimate Guide to Instagram for Business.

She’s shared the stage with and coached the top leaders and brands in business including Tony Robbins, Gary Vaynerchuk, Grant Cardone, Kevin “Mr. Wonderful” O’Leary, and Fortune 100 Companies around the globe.

Watch the interview

Transcript

John Warrillow:

You ever wondered what makes a happy and successful exit? I mean, at the end of the day, what makes a founder look back on the experience with a smile? I think a big part is getting fair value for the business that you built. But there are other factors that go into satisfying exit. And one of them is being really clear about what you want to go do next, and my next guests really nailed that. Kim Walsh-Phillips had a new business she wanted to start, and for that reason, she was not obsessed about getting every last dollar for her company. She wanted a quick exit, and she got it as she’ll talk to you about in this episode.

John Warrillow:

A couple of things to look out for. There were three big lessons for me in this episode. First was a really innovative way to protect your downside if you’re going to sign up for an earn-out thanks to Kevin O’Leary. The idea of picking one, not running two companies simultaneously, something Kim tried and failed. So she’s got some key learning to offer on that. And also the importance of documenting your processes and how that can be a big contributor to the overall value of your company. Here to tell you her entire story is Kim Walsh-Phillips.

John Warrillow:

Kim Walsh-Phillips, welcome to Built To Sell Radio.

Kim Walsh-Phillips:

Oh, thank you. I’m so excited to be here.

John Warrillow:

Well, it’s great to have you here. Tell me a little bit about Elite Digital Group. What did you guys do? What was the offering?

Kim Walsh-Phillips:

Direct response social media, which to a lot of people is words that shouldn’t go together in a sentence. But we took the power of reaching a lot of people all at one time via the social network and combined it with direct response marketing, which means marketing that will turn an immediate ROI. And we were early innovators in that process. So we got to work with a lot of major influencers on their campaigns, give them a high value sale, and it set us up to be able to do that work with a lot of different great companies.

John Warrillow:

So let me unpack this. I think of social media because I’m old, stuff like Facebook. I know that’s not today’s media. But whatever. So that’s a social media platform, as is LinkedIn and Twitter and so forth, Instagram. And I think of them as, in many ways, direct response mediums in that they have links in them that you can go click on, et cetera.

Kim Walsh-Phillips:

Right.

John Warrillow:

So help me understand practically what you did. Maybe it would help if you gave me an example of a client and something you did for them.

Kim Walsh-Phillips:

When social media first was around from MySpace, even to Facebook, people were thinking that is a way to chat with friends. And then it started being more of a branding opportunity. You might post a picture of yourself going on vacation or a boat, and people would kid all the time about, “I don’t want to see what you ate for lunch. I’m not going to use that platform.” I came from a world of what’s called direct response marketing, and that was traditionally done in the spaces of direct mail. People would do a mailer to get a return. An infomercial, newspaper, very traditional marketing. And there was this thought that that type of marketing can’t work on social media because people aren’t expecting it and the social media platforms won’t allow you to advertise that way.

Kim Walsh-Phillips:

So we found a way to combine what works well in social media, which is engaging, entertaining, inspiring content. With the direct response messaging, which is to get you to take action right now, and go not just to click on a post and become my lead, but actually go from me not knowing you at all to buying a very expensive product, program, or service in just a few clicks.

John Warrillow:

That’s cool. So give me an example.

Kim Walsh-Phillips:

So one example might be for financial advisors. We had an entire division of the company that would get people to click on an offer for a free book, and then by the thank you page, they had booked an appointment. There would be a followup campaign that would run, and they would get high-end affluent clients into an agency, a financial services agency all through direct response Facebook ad.

John Warrillow:

Love it. How did you guys charge for your services? What was your business model?

Kim Walsh-Phillips:

I started by taking anybody who would pay us basically whatever they’re willing to pay, and that was a terrible model that was very exhausting and not scalable. And then at some point we recognized that we needed to create some limits. So we eventually got a base monthly fee, which was $2500 a month, and we would scale up from there. It was from between $2500 and $8500 a month based on the services that we did, and we would increase our fee based on services, not based on ad spend. So we were unusual in that way. We wanted to encourage our clients to spend more because we knew they would have better results, and we didn’t charge them more for our services if they spent more on the platforms.

John Warrillow:

Got it. Okay. And so I would pay you, and this was recurring revenue. How long did people usually stay? What was the churn rate like?

Kim Walsh-Phillips:

We had year long contracts, and we had a really great retention rate, gave really high service. And there were certain niches we found were harder to keep than others. Realtors seemed to be one we would get in and they would be incredible clients, but they would tend to jump to shiny objects. They loved new and different and exciting. So they didn’t have as long a return, but we ended up getting really deep into the influencer space and the author space. So we got to work with a lot of well-known people in that world.

Kim Walsh-Phillips:

Some of your folks might know Dan Kennedy. He’s one of the grandfather’s of direct response and Rich Schefren, Ron LeGrand. These are people who are well-known in that space. When they saw we had taken these old school principles and applied them to this new technology, we started getting them in as clients. So I got to work with some really big folks in that world, which was amazing because we got to work with people who got marketing in a new way that they had never done before.

John Warrillow:

It seems like a very specific set of services that you provided, one based on lots of secret sauce. How did you teach people on your team to do the work as opposed to you, Kim, doing all the work?

Kim Walsh-Phillips:

I quickly got out of doing all the work because I wasn’t sleeping, and so I had to start to systematize the process of which we took. I was very much into going through Rockefeller Habits and going through all the processes. So we would start to document all of the things that we did on a daily basis until we could create a complete system that we were able to outsource. But very quickly I brought a team member with me into the fold of account management. That was one of the first things that I handed over because I knew that wouldn’t be the right space for me to continue to go. We would be limited in scaling, and so that was piece number one. And then we were able to build up departments under her for the different service lines.

Kim Walsh-Phillips:

We found some companies that are like that set it up so every single staff person, like a person will manage an entire account, which I get that. But I felt like you can never be a specialist if you did that. So instead, the way we built our agency out is that each person had a specific thing that they did for all the clients. So one person might create all the ad images. Someone else did the copy. Someone else would be writing the follow up campaign. So they each had a place where they knew really well and that they could optimize the results on.

John Warrillow:

That’s cool. I’d love to go back to systematizing process because I think a lot of founders, a lot of people listening to this would’ve heard that idea. Maybe they read the E-Myth from Michael Gerber or one of the other books, and they’ve got this notion of I’ve got to systematize my process. And when I talk to entrepreneurs about that, a lot of times they notionally get it, and then they start creating a process and it just becomes so overwhelming. And they bail on it because it’s just so overwhelming. What advice would you give an entrepreneur who’s feeling just overwhelmed by documenting their processes?

Kim Walsh-Phillips:

It has to be done in schedule time versus spare time. The goal to get it done will never happen unless you make it accountable by including other people in the process on a scheduled date that you must keep. Because it’s never going to be on fire, so it’s never going to get your attention. When the thing that’s important but not on fire, doesn’t have accountability, it doesn’t get done. So it needs to occur in a scheduled time. But we created it, and it’s a beautiful thing because if you think about something you have to do over and over and over again, if you didn’t have to touch it again, that’s worth torturing yourself for a full day of planning. So you don’t have to touch it again.

Kim Walsh-Phillips:

So we would create these days where we would document, systematize, and I would put on the calendar. It would be the team would work on it. We would plan out a fun lunch, some fun activity, and then back when we could go out to happy hour, it’d be happy hour after. So we would make it into a fun day. But we got it to a point where we had automated… We used Basecamp as our project management tool, and we would get it to a point where every single day for the first 90 days of a client account was systematize. That we knew exactly what should happen that day, and the emails are written. They’re templated.

Kim Walsh-Phillips:

The gift that the client’s going to get at certain points because we would recognize them. Like their first 100 leads when they got in, they would automatically get a gift recognizing that. The first 1000 leads, when they got weekly check-ins, the reporting. We took a service and we created it into almost a factory line because we were able to template so much of it.

Kim Walsh-Phillips:

And I didn’t even do any of that honestly with the plan of selling the company. I did it because I wanted to be able to bring additional staff people on and for me not to have to be the only one that could tell them what to do. We wanted to have a system that it could actually be scaled inside the company.

John Warrillow:

Got it. Got it. And speaking of scale, so how big did you get this business? What was the top end before you decided to sell?

Kim Walsh-Phillips:

When I sold, we had 18 employees, and we were over $3 million in revenue.

John Warrillow:

Got it. And did you have a sense at that point what you thought it might be worth? Were you working off any sort of industry benchmarks that said you should be able to get X?

Kim Walsh-Phillips:

We were looking at a multiple of EBITDA, but we being a service based, recurring revenue business, there’s so many nuances in there because there’s the client relationship of the people that I brought in. And I had a good reputation in this niche. When it came to the point of selling, I’m not going to lie, I had this little God whisper for a long time that I was meant to serve more people. And basically when we were at about 30 clients in the agency, we were stretched thin. And it seemed like no matter how many employees I added, that never changed. So I knew that I could never… And I started doing some coaching on the side, but anytime that I would spend time on that, the business would start to fall. So then I’d get sucked back into the company. And finally when I said, “Okay.” And I’m a spiritual person, and when I handed over God, I’m like, “It’s yours. I don’t know how I’m going to stop doing this company anymore. But I’m willing to do whatever it is.”

Kim Walsh-Phillips:

John, it is crazy but that week I had three offers for my company, not having put it on the market. It’s insane. And one of them was from Josh Turner of LinkedSelling who did basically the same thing that I did in my company but instead of for Facebook, he did LinkedIn. He was willing to keep all of my employees that I was going to leave in the company. So I knew they would be well taken care of. I could take with me the employees that I was planning on taking with me in the future. I would need to have very limited involvement, besides to give them some leads, and I was going to have a long term payout plan with them. So it was like within 90 days of me finally saying, “It’s yours. I’m handing it over,” my company was sold. It was amazing. Yeah.

John Warrillow:

I want to dig into that completely divine intervention I think is the first time on Built To Sell Radio. I like it. So let’s go back. You’re building this business. You reach this 30 client plateau. Had you built up any sense of what the market… What it would be worth? Did you have advisors telling you, “Oh, it’s worth X,” or fellow entrepreneurs saying, “You should be able to get Y for it.” Any advice or-

Kim Walsh-Phillips:

Yeah. I mean, I had talked to a couple people when I had that decision that I’m going to sell it. I had a couple come to me. The answer that I got was a huge range. It was from a million dollars down to $250,000. It was very different range. And a lot of them were dependent upon me being willing to become basically an employee for a certain period of time of the new company, which I wasn’t willing to do because the reason why I was selling was so I could get out of the day-to-day of this company.

Kim Walsh-Phillips:

The first offer I got was actually… I’m not going to disclose what I got at the end of the day, but it was closer to the seven figure than the six figure. So we’ll leave it at that. And then I got to retain partial ownership. So when it is sold eventually, we’ll have a payout, which is nice.

Kim Walsh-Phillips:

But the first offer I got was for only six figures. It was $100,000. I was like, “I don’t think that’s right.” And my gut told me that wasn’t right and that wasn’t going to make a lot of sense. But that the offer when it presented itself, and I hate to say that it was less about the money I was receiving, but that it was the best way to transition out of something that almost felt like a box that I was being held in that I finally could be released to do the thing I was meant to do.

Kim Walsh-Phillips:

And this is so crazy. So I held onto those 30 clients for so long, scared to let go of them because I had recurring revenue. And I knew where it was coming from. And once I sold the agency, I was going to have a nice payout. My first payout was like half a million dollars. It was great payout. It was going to get me a lot of money that I could use for the next stage, but that was it. I wasn’t going to have anything else. Within one year of selling, we had brought in 11,000 customers in our new company. So it’s like I held onto the 30, but the 11,000 was right behind them all this time. And I just had to be willing to let go and give those 30 to the right next owner so I could go on to do my next thing. And it’s the best decision I ever made.

John Warrillow:

Got it. I’ve got just a ton of questions around this. So before we get into the actual sale itself, I’d be curious to know, you mentioned you were doing over $3 million in revenue. How profitable was it? Can you disclose on a percentage basis roughly what you were able to put to the bottom line on the $3 million revenue?

Kim Walsh-Phillips:

I’m not going to go into exact percentages, but at the end of the day, it was not a huge profit margin. Staff is expensive, and so a great staff running an agency, that was our main expense. We had an inexpensive office, travel was a little bit, but it really was personnel. Because to get great copywriters, great designers, we were spending a lot of money.

John Warrillow:

Yeah, yeah. So marginally profitable as a way to think about it. So I’m curious to know was that intentional? Were you thinking, “I’ll grow this business and we’ll become profitable when we’re bigger,” or what was your thinking around the way you were approaching profitability? Because another approach would’ve been, I guess… I don’t know if this occurred, but to keep it very small, maybe just you and one other person or a couple of assistants and make it really wildly profitable because you didn’t have all those employees to pay. Did you think you were going to make it up on growing the size and becoming more profitable based on just being bigger, or what was your thinking-

Kim Walsh-Phillips:

That was frankly something I really struggled with. I was not good at the scaling model. We kept trying to hit the right level of service to personnel, and we would have certain times where the profit would shoot up. Then it always seemed like then the team would get taxed. That was definitely a weakness of my leadership and management skills. That’s why I got involved with things like EO, trying to solve that problem because that’s something I just was not good at. It’s like there are things I am amazing at, which is coming up with a marketing message and selling. These things I’m so good, but actually managing that part of the business, I don’t know that I ever figured that piece out.

John Warrillow:

Yeah. Yeah. It’s challenging, right?

Kim Walsh-Phillips:

Yeah.

John Warrillow:

It’s in many ways one of the most difficult conundrums. Anyways, you reach this plateau, 30 clients keeping you super busy, and you have this moment. So literally you’re a spiritual person, so you said, “I’m putting it in your hands. I want out, but I’m not…” Did you put it on the market? Did you hire an advisor of some sort, or…

Kim Walsh-Phillips:

I did not. I did not. I told a good friend about this, and her attorney specialized in M&A. So she told me, “Have a conversation with him.” So I did. And so that’s where I got some advice. But I do believe that I was following a path that was put in front of me, that’s why this was so simple. I literally was a top affiliate for Josh Turner. I went to a mastermind meeting because I was a top affiliate. I mentioned in that affiliate meeting quietly that I was thinking about selling, and I wasn’t sure what I was going to do next. And during lunch, he pulled me aside and made an offer to buy my company. That’s how this happened. It was amazing.

Kim Walsh-Phillips:

So I couldn’t tell anyone this was going on. I wasn’t advertising that I was selling because I had clients who had come to work with me. So you also don’t want to ruin your company by all of your clients hearing you’re leaving because that could hurt the value of the company as you’re trying to sell.

Kim Walsh-Phillips:

So I’m in a meeting. I had opportunity, a group of entrepreneurs. We hired Kevin O’Leary for a day to do some consulting work with us, and so we brought him in. And we were just talking to him about value and company. And I couldn’t mention that I was selling, but I started asking just random like, “If you were going to,” or, “A friend is doing this,” kind of questions. And number one, he was very impressed that a social media person understood numbers. So I ended up getting him as a client that day, so that was pretty cool.

Kim Walsh-Phillips:

But number two, he gave me an incredible piece of advice, and it was that if I’m going to be paid or if someone is going to be paid a percentage of sales after the sell. So if partially part of your payment comes from what happens after you sell the company, put into your agreement that you must get the financial reports from an accounting firm, not from the person that you sold to because an accounting firm is not going to risk their licenses and accreditation to put any false numbers on a document. And that’s where you’re going to get the cleanest numbers. And if not, you’re probably not going to be paid fairly.

Kim Walsh-Phillips:

And I thought that was such a great piece of advice. We put that in our contract because of it, and then it served me incredibly well. A great piece of advice I got at that time.

John Warrillow:

So this is on a situation where there’s an earn-out or some sort of transition period where part of your compensation is coming in the form of future payments after you sell based on the performance of the organization afterward. And rather than taking the word of the entrepreneur, make sure it’s from an accountant.

Kim Walsh-Phillips:

Or their finance department even. It’s just that when someone gives you the documentation and they have to put their name on it and they’re legally held to that, it’s going to be correct.

John Warrillow:

Yeah.

Kim Walsh-Phillips:

[inaudible 00:21:59] otherwise. Yeah.

John Warrillow:

So I’m fascinated by this conversation you had with Josh. First of all, I don’t know what you mean by an affiliate. So what does it mean to be a, you called it master affiliate or some sort of affiliate.

Kim Walsh-Phillips:

It’s when someone sells a course or a program and you promote it, you get paid a percentage of the price of the program that-

John Warrillow:

I see. So Josh had a course, and you suggested people take it and got a rebate or a kick back. I don’t mean kick back in a-

Kim Walsh-Phillips:

No, it’s fine. It’s like a $2000 program, and we might make $500 per person of my world that buys it. And then he had a group of us that sold more than anybody else, and he invited us to come to St. Louis where he is located and had a one day mastermind meeting where we get to all talk to each other about our businesses and really have a brainstorming session of how we can support each other.

John Warrillow:

And what was it in your company that he saw that was so attractive that he wanted to make an offer right there and then?

Kim Walsh-Phillips:

It was complimentary because they were doing direct response marketing in LinkedIn, and we were doing it in Facebook. And he had been getting so many requests from his clients. What about Facebook? What about Facebook? So it gave him a way to instantly expand his services without having to build out a whole new company or train people.

John Warrillow:

And at the same time I would imagine he was worried that given the fact that it was a service business, you, Kim, were a big part of the equation. How did he get comfortable with the idea that there was something there other than you, if that makes sense?

Kim Walsh-Phillips:

Yeah. We created a system for using a webinar, an automated webinar to drive clients in, and because I created that and I did that, once I decided to sell and I knew he was buying, I’m like I have to put something in place that will take me out of day-to-day sales. So I created a presentation. We put it on automation. We were able to generate clients in the door, and they got that as well as the follow up process as part of the sale and my agreement that I would show up live a few times a year to do it as well. So they were still able to use my name, my messaging, and I written a lot of books about marketing, and they were able to use… I still had links to that company in there, and part of the agreement was I would keep those in there for forever. So that if people were looking for done-for-you services, they would still be the solution my world would see.

John Warrillow:

Got it. Got it. Okay. That’s helpful. So that was important to Josh that you were willing to lend effectively your name and personal brand to the business. And did you put any sort of time limits on that, or was that evergreen forever?

Kim Walsh-Phillips:

He was really much better at this process than I was to be frank. He done this much longer than I did. We just sent marketing agreement for three years, but for me to maintain percentage ownership that I have inside the company in case it is sold some day, it will go on forever. It’s been absolutely fine though because we don’t want to do done-for-you services. And so I have an arm that I can send people to when they request it. So it’s actually worked out great.

John Warrillow:

Great. So how did he structure his… First of all, how did he know what to offer you on the spot? That’s such a bizarre thing. I mean, what did he ask you about your company to know what-

Kim Walsh-Phillips:

I don’t have any other explanation for this. I really feel like God guided the entire thing, and I know that’s such a fluff answer. But that’s the most truthful answer I could give. It was like we said it was kismet. The moment he started talking to me about his vision of what he would do with it completely matched what I was thinking about. There was no contention in the sale. There was maybe one or two things, like I had a lease on the copier, and he didn’t want to take that fee on. And he didn’t need my designer because he already had one. And that was about the only two things we had to negotiate the entire time. Everything else was very… It was just we were on the same page.

John Warrillow:

But how did he come up with a price?

Kim Walsh-Phillips:

I don’t know. But it was the price that I had inside my head that I’d be comfortable with.

John Warrillow:

So how did you come up with that price in your own mind? We all have our number that we feel like, “Okay. If we ever got that, it would be a fair transaction.” What was your number, and if you don’t want to share, that’s okay. But I’d be curious to know the basis for the number, if you know what I mean. How you calculated.

Kim Walsh-Phillips:

Okay. So this just shows you the kind of person… I knew I wanted $450,000 cash up front because I wanted to (A) take my entire team on a all expenses paid cruise with their families. I knew how much that was going to cost to thank them for helping me build up this company. And (B) I wanted to use the rest of the funds to buy leads. I know how to do paid lead generation in a really effective way, and I knew how many leads I needed to bring in to generate a certain amount of sales to kick off my company and provide enough income to keep it sustainable. And so it wasn’t so I could do anything else. I wasn’t going to go buy myself a new convertible. I wasn’t going to do anything like that. I wanted to take care of my team to say thank you and buy leads to start my new company, and that’s what we did.

Kim Walsh-Phillips:

And we were able to take those funds, take the team on the cruise, and use the money to launch my new company, which within three years we hit the Inc 5000 in the company I own now. So it absolutely worked. I wasn’t greedy. He gave me the offer. Ideally, I was greedy. I had this vision. He set it. I was able to get out and do I believe what I was truly created to do.

John Warrillow:

That’s awesome. How much did the cruise cost?

Kim Walsh-Phillips:

It was about $27,000 I think plus some additional travel. Mm-hmm (affirmative).

John Warrillow:

Right. Yeah. And what were your team’s reaction to the cruise, the offer to take them away?

Kim Walsh-Phillips:

They were thankful. I’ve always run that kind of culture in my company that will take good care of our people and do things for them, and we had that kind of relationship. This is really interesting. So even one of the people on that team started her own company since I since sold mine, and she’s become a coaching client. That’s the kind of relationship I had with my staff. It was very much a mentoring, caring relationship, and the staff I took with me has been with me for more than 15 years and still works for me this day. I’ve got a very strong relationship with those that I’ve had the absolute blessing to work with. So it was great thing. I took my parents with me too and my kids. It was a wonderful celebration weekend.

John Warrillow:

That’s awesome. So I’m still confused though because you mentioned that you took some of the staff with you to the new company, and certainly the new company, although different, has some similarities. What was Josh buying? That’s the part I’m not quite clear on. I realize that he did LinkedIn and you guys did other platforms. But what specifically did he get?

Kim Walsh-Phillips:

He got that system that we created that systematized all the client services from the message they would get every single week for the first 90 days and-

John Warrillow:

Yeah.

Kim Walsh-Phillips:

… after that. Our ad structure, and he did get my media buyers. He got the copywriters. He got the designers. Those that were running all the campaign. So the person I took with me was my chief operating officer, my assistant, and a marketing director I had. So it wasn’t the agency could absolutely run without those of us that I took. He had a team that had already been trained that was effectively working and a book of business that continued after I left.

John Warrillow:

Got it. Okay. So there was definitely some stuff that he was getting. That’s helpful, for sure. Got it. Okay.

John Warrillow:

One thing that often comes up in acquisition deals is the non-compete. Most acquirers want you to basically say you’ll never work anywhere near the industry for the rest of your life, and most sellers want to be able to make a living after they sell. How did you guys work through the non-compete?

Kim Walsh-Phillips:

It was not a problem for me because I did not ever want to do one-on-one client services again for the rest of my life. So signing a three year non–compete was not a problem.

John Warrillow:

But what were the guardrails on the non-compete? What did you agree not to do effectively?

Kim Walsh-Phillips:

We were not going to do done-for-you marketing services.

John Warrillow:

Okay. And that’s really what the client service model is that you’ve got a client, you do all the work. Got it. Okay. So he limited it to that, and what was the duration of the non-compete?

Kim Walsh-Phillips:

Three years.

John Warrillow:

Got it. So you get this big chunk of money up front, and then how did you structure the downstream payments after that?

Kim Walsh-Phillips:

They were quarterly based on the revenue the company produced after I sold it.

John Warrillow:

Okay. And you also took some shares in Josh’s company, or how did you guys work that?

Kim Walsh-Phillips:

In this company because they kept it as a separate entity. So in the company that I sold, I kept shares in there. And then we also because I teach people how to do marketing and direct response marketing, we also agreed to include additional offerings that Josh has in my marketing channels. And we get paid continual on those. Anytime I sell something that’s from them, I also get paid on. So it was a very creative I think plan that worked well for both of us, but it just really required that if someone came to me and wanted done-for-you services, I was going to send them to them.

John Warrillow:

Mm-hmm (affirmative). Mm-hmm (affirmative). Got it. You mentioned the low ball offer initially. You got three offers and Josh’s was the most attractive. But you had two previous in that window. I’m blown away that somebody thinks they can buy a $3.2 million company for $100,000. What was your reaction?

Kim Walsh-Phillips:

And I was supposed to work full-time for them too in that also. They came in. They were a big brand. I’m not going to say who they are, but they’re a big brand. So they thought I’d just be enticed by their name and would want to be able to say… They literally words come out of their mouth, “You being able to say that we bought you would be worth so much.” I’m like, “No. No, that would not be worth so much. No.”

John Warrillow:

What about the other offer, the one that we haven’t spoken about, what was that like?

Kim Walsh-Phillips:

It seemed as though in our initial conversations, again I would be required for a very long period of time, years, to be actively involved day-to-day in the company if I was sell. Because I wasn’t doing this for the money, I was literally doing it so I could stop doing that job and still make sure my team was taken care of. It wasn’t an attractive offer for me.

John Warrillow:

Got it. Got it. It sounds like we talk about push and pull factors a lot. Push factors being things that frustrate you about your company. Pull factors being things you wanted to go do. In your case, it sounds like you had both push and pull. You were frustrated by the client service model or the do-it-for-you, so that was pushing you. But this new company that you were excited about was certainly getting your attention.

Kim Walsh-Phillips:

Yeah, absolutely.

John Warrillow:

Got it. Got it. That’s helpful. That’s helpful. If you had the negotiation to do all over again, and it sounds like it was again divine intervention, but what would you do differently if you had to do it over again?

Kim Walsh-Phillips:

I wouldn’t. I really wouldn’t change a thing. I’m happy with how it turned out. I believe they were taken care of well. It was a fair agreement. I got the incredibly dramatic moment of being able to sign, do the final DocuSign at 11:31 PM on New Year’s Eve. All of the things were perfect the way that they were. I’m glad I took good care of the… I mean, I spent a lot of money on my team saying goodbye to them, but I’m glad that we did that. That’s worked well in the end. So I really would not change anything about it except perhaps I would have done it sooner because I’ve never been happier in the year since I did it. So that might be my only change. But if I decided to sell it sooner, that offer probably wouldn’t have been there. So I’m really happy with how it all turned out.

John Warrillow:

Mm-hmm (affirmative). Mm-hmm (affirmative). I think a lot of people feel probably frustrated in their current companies. It’s like you can’t steal second with your foot on first. I know that’s a terrible baseball analogy. But the idea being you need to cut one safety line to go to the next. What was it… I guess my question, it relates to what gave you the confidence that you could recreate yourself in a new company? What were the specific objective milestones that said, “No, no. I’m going to be fine. All I want to do is get out of this company and do the next one.” What were the indicators that you’d be fine in the new company?

Kim Walsh-Phillips:

I truly had to have faith. I had never done it before. So I was walking into the unknown. At the end of the day though, I was getting an opportunity to do things again. I happen to be someone who has been married before. I’m married a second time, and I knew in the second marriage I was going to do things differently because of the first time, both of us were to blame. So I was going to find a partner the second time who understood the same things, same values, same focus. And in this new company, I knew I was going to do it differently in that I was never going to work with someone that I didn’t like. So my clients would always be people or the members we have would be people I want to hang out with. I would never take money from a client who I wouldn’t be a customer of, vote for, or donate to. And that I would focus in my zones of genius, which were to write and speak and coach. And everything else, I was going to hire on. And I was going to remain only doing the things that I was created to do.

Kim Walsh-Phillips:

And having that opportunity to get to have this second chance and do things differently was such a game changer because immediately it became joy filled. I didn’t dread Monday. I couldn’t wait until Monday. I didn’t dread a client emailing us. I couldn’t wait to answer their emails. It revolutionized the way that my work life balance happened because it was such a joy to get to do the work that I do now and to bring that home to, as an example, to my girls is to incredible.

John Warrillow:

That’s fantastic. So briefly, what is it that you do now?

Kim Walsh-Phillips:

We coach businesses that are amazing companies but rely upon word-of-mouth marketing, how they can finally start to scale their business using digital marketing. And I tend to work with incredibly successful and smart people that get completely freaked out when it comes to scaling their business with marketing. And they’re my favorite folks to work with. They’re action takers, but they just need a blueprint to follow. So we give them that blueprint.

John Warrillow:

Awesome. And I guess that was where I was going next because it sounds like you’re doing it for them again, but no, you’re giving them a blueprint, some sort of formula that they can follow on their own.

Kim Walsh-Phillips:

We have courses and coaching that we offer. So we walk alongside them and show them the way, but they’re doing the work.

John Warrillow:

Got it. Got it. Were you ever tempted to just pivot your old company and start doing this and continue to run it in parallel? Was that something you considered?

Kim Walsh-Phillips:

We did, and I tried that for a long time. For over a decade I had a small marketing, coaching company. We had 100 members, paid us recurring revenue. I have a magazine we still run this day that started them. But again, that wasn’t really paying the bills. So the people who were paying the bills were the clients, and if you pay me money, I’m obligated t o you. I’m going to do that first. So that would always get my time and attention, and anytime the coaching business would start to rise, the agency would suck us back. So I was not capable. I know that there are people who are capable. In fact, Josh runs, the guy who bought my company, he runs a coaching business, and he runs a done-for-you services. So he effectively does it. I was not that way. I have this personality called a contributor personality, and if you have a problem, I’m going all in until I solve it. So I would give so much time to client accounts that there wasn’t any time left to do other things.

John Warrillow:

Got it. So running the parallel was just a disaster to-

Kim Walsh-Phillips:

It didn’t work for me. Yeah.

John Warrillow:

Almost a formula to ensure the coaching business would never take off.

Kim Walsh-Phillips:

Correct.

John Warrillow:

Got it. Well, I think it’s an amazing story. Again, I’d never heard divine intervention being the main driver of a deal which is great. I’m happy for you. Where can people find out about what you do?

Kim Walsh-Phillips:

Powerfulprofessionals.com. It’s powerfulprofessionals.com. Or if you look at my name, I’m the only one with three of them, Kim Walsh-Phillips. And I’m on all the social medias, and I’d love to connect with you there.

John Warrillow:

Awesome. Kim Walsh-Phillips, thanks for taking the time.

Kim Walsh-Phillips:

Thanks for having me. It’s been so much fun.

 

BACK TO THE TOP

Build, Accelerate and Harvest the Value of Your Company

© All Rights Reserved | Built To Sell