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How to Double Your Take From a Sale Without Being a Jerk

October 16, 2020 |  

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David Jondreau built American Sign Language, a company that supplied interpreters on contract, to $2 million in annual revenue when he decided it was time to sell.

A broker introduced Jondreau to New Language Capital, an investor doing a roll-up of language services companies. New Language agreed to buy American Sign Language for 3.5 times pre-tax profit or around $700,000. The two parties signed a Letter of Intent, and they were amid diligence when Jondreau won a massive new contract. That’s when Jondreau decided it was time to re-negotiate and managed to double his proceeds from his sale.

Jondreau shares some sage wisdom in this episode, including:

Document your processes: Jondreau took over American Sign Language when his father died suddenly. Most of the company’s procedures had been in his father’s head, so Jondreau started to piece together his systems for running the company. These processes enabled the business to run well without Jondreau — which was critical to the acquirer.

49/49/2: Jondreau inherited American Sign Language with his sister. Instead of splitting the business 50/50, the siblings decided to give 2% of the company to Jondreau’s mother, making it a majority women-owned business allowing them to bid for lucrative institutional contracts that often showed a preference for majority women-owned businesses.

Adjustments: Before going to market, Jondreau tidied up his P&L, removing any personal expenses, and having his books audited, which went a long way to increasing the confidence of New Language Capital.

There’s lots more to learn from Jondreau, including:

  • The surprising reason he decided to sell in his 40’s.
  • How to deal with accounts receivable when you hand over the keys to your business.
  • A definition of a bridge loan and when you might need one.
  • The candid truth about the psychology of selling a business.
  • The difference between “F.U. Money” vs. “Thank You Money.”

Jondreau’s deal almost got derailed because of a negative cash flow cycle, which means the faster he grew, the more likely he would get squeezed for cash. The opposite is a positive cash flow cycle, which means you accumulate more money, the faster you grow. We’ll help you turn a negative cash flow cycle into a positive one in Module 10 of The Value Builder System™ — complete Module 1 free now by getting your Value Builder Score.

Our guest

When David Jondreau inherited American Sign Language, Inc. (ASLI) in 2004, he had no idea what he was doing. He was familiar with the company, a small service that provided onsite interpreting services for the Deaf. He had grown up in it after all but he lived in a desert cabin 2,000 miles from its NYC headquarters, was 28 years old, and had never run a business. Fifteen years later, David had turned into an entrepreneur. He and his sister, Jennifer, had learned on the job, increasing revenue seven-fold and getting the exit they wanted. Now, he spends his time designing software and consulting on how to manage the practical and emotional ups and downs of business ownership. He can be reached on LinkedIn https://www.linkedin.com/in/david-jondreau/ or by email david@jondreau.net

Watch the interview

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Transcript

John Warrillow:

This episode of Built to Sell Radio is brought to you by PREScore™. What on earth is a PREScore™? PRE stands for personal readiness to exit your company. And here, we’re looking to evaluate how personally ready you are to leave your company. When you go to sell a business to have a successful exit and look back on it without regret, you need two things. Number one, a company that is attractive to an acquirer. So, a company that’s built to sell. And number two, you personally need to be ready to exit that business. We found that there are four drivers of a happy and lucrative exit, four ways you can personally ready yourself to exit your business. By completing your PREScore™, you are going to see how you’re performing against those four major drivers of a happy and lucrative exit. Just go to PREScore.com.

John Warrillow:

If you’re a long time listener to this show, you know that we spend a lot of time talking about unscrupulous buyers who try to renegotiate the terms of your letter of intent. It’s called re-trading. We have never, however, up until today, talked about the opposite, which is when you, the entrepreneur, re-trades. And I’m happy to tell you that my next guest, David Jondreau did exactly that. He was in the process of diligence after having signed a letter of intent when he won a contract that would have the potential to double the size of his company, effectively doubling the value of his company. Well, as you can imagine, he wanted to renegotiate, and that’s exactly what he did. I’ll let him tell you the story. There’s lots of really good lessons in this. Listen for the 49,49, 2. I won’t spoil that, I’ll let David talk about why he did that.

John Warrillow:

He talks a lot about processes and the importance of documenting those, and the psychological impact of selling a business that his father actually started. Lots to share in this really wide-ranging interview with David Jondreau.

John Warrillow:

David Jondreau, welcome to Built to Sell Radio.

David Jondreau:

Thanks so much, John. It’s-

John Warrillow:

I got to feel a little French. I go to sound a little cultured.

David Jondreau:

I understand completely, yeah.

John Warrillow:

Jondreau. Sounds like, I don’t know, you’re a maitre d at a very fancy French restaurant.

David Jondreau:

I like to think of it more as like a trapper in the Canadian wild.

John Warrillow:

Like a beaver trapper.

David Jondreau:

Yeah.

John Warrillow:

It’s like some sort of maple syrup tapping, tree hugging … Well, it’s good to meet you, David. I’m so happy to be having this conversation with you. Tell me a little bit about American Sign Language. I’m really interested in what this company does. I’ve obviously seen guys like when politicians stand up there, they’re giving a speech, there’s all like the sign language guy in the background. Is that the kind of stuff you guys did?

David Jondreau:

Yeah, yeah. We actually … That’s exactly what we did. We did it kind of on a much wider basis. We did do some political conventions, Hillary Clinton’s speech after 2016 was one of them that was interesting. But we basically, 90% of our revenue was from on-site sign language interpreting, right? And this is a category in the larger language service provider kind of industry sphere. So, a deaf person, they have a doctor’s appointment or they’re going to a college class and they want equal access to communication, which is given to them by law. Mostly the ADA, but there’s some other ones. And so they need a person there that knows English and knows sign language, ASL and can interpret between the two. And we were the service that you would call, and we would provide those people. And we had … we serviced the New York City Metro area, we serviced Delaware, all the way up through upstate New York, and we dealt a lot with hospital networks, and state agencies, and college and universities. So, we did some individual companies, but it was more larger network type things.

John Warrillow:

Got it. And so the people who do the sign language, were they full-time employees of yours or subcontractors?

David Jondreau:

They were all 1099 subcontractors. Once in a while, we flirted with having employees, but generally speaking, the profession is very grounded in freelancers and contractors, which I use those terms interchangeably. 1099 freelance contractor. Yeah.

John Warrillow:

Good, I think people get it. So, what was the business model? Did you charge by the hour or did you get a lump sum from a hospital? How did it work?

David Jondreau:

Yeah. It was pretty hourly-based. So, we send the interpreter on site, usually had a two hour minimum, and we paid the interpreter based on the time they’re there and we bill the client on the time they were there.

John Warrillow:

How big a market is it? Like I’m thinking how many … what’s the politically correct term, is it deaf people or audio impaired? How would someone describe someone who needs a sign language individual?

David Jondreau:

Sure. The term is Deaf with a capital D.

John Warrillow:

Okay.

David Jondreau:

Yep.

John Warrillow:

So, how many people struggle, are deaf in the United States? How big is the market I’m trying to get at here?

David Jondreau:

The number that’s thrown out is usually around two million.

John Warrillow:

Okay.

David Jondreau:

But the people that are using interpreters may be a little smaller than that. People have other accommodations, hearing aids sometimes are enough to understand spoken English. I would say there’s companies that were doing what we’re doing at a substantial level. There’s a few hundred, 500, maybe 1,000 maximum in the country. So, it’s definitely a niche company, a niche business we were doing.

John Warrillow:

And how much of the market did you have?

David Jondreau:

I don’t know. We were probably … I mean, in terms of overall revenue or in terms of-

John Warrillow:

Sure.

David Jondreau:

… market share? I mean, when we started the sale process, we were doing about $2 million revenue a year. That’s when we started. And when we ended, it was significantly different and we can go into that as well. But yeah, so and that was probably, I don’t know, for the regions we were covering, 1/20th of-

John Warrillow:

Okay.

David Jondreau:

… what was out there. I’m not sure.

John Warrillow:

So, you were a tiny fish in a big pond in the grand scheme of things?

David Jondreau:

Yeah, yeah.

John Warrillow:

That’s helpful. I don’t mean tiny in a pejorative way, but I mean there’s lots of more market share you could have sort of tried to capture, presumably.

David Jondreau:

Right. But there weren’t many companies that were significantly bigger. There were a few, but I don’t know anybody who’s really doing more than 10 a year, but maybe there was. I don’t know.

John Warrillow:

Okay. So, it’s pretty fragmented.

David Jondreau:

Yeah.

John Warrillow:

I understand that you came to own this business as opposed to starting it. Maybe walk us through how you became and came to own it.

David Jondreau:

So, I mean, to make a long story shorter, I actually grew up in … When I was in grade school, my dad became part of the deaf community. He wasn’t deaf himself, he just socialized and became friends with some deaf people, and learned the language, and started teaching sign language. He was a teacher by training. And I came home and he was teaching sign language out of our living room to some hearing people in our apartment in New York. This is in sixth grade. And then over the years, the school grew until it was actually 200 students every six, eight-week semester. And in parallel with that, he was also doing sign language interpreting, and so he had these two businesses, one was a school and one was an interpreting service.

David Jondreau:

And they’re pretty successful, pretty well known in New York City. And in 2000, I started helping out with him. I was living in New Mexico and I live in New Mexico now, in Santa Fe, and he wanted somebody to help run the interpreting side of things. Basically, be a coordinator, take phone calls, book jobs, and I said, “Sure, I’ll do that, but I’m living in New Mexico.” And so we figured that out, how to work remotely 2,000 miles away, 20 years ago, and I did that for a year or two. And then in 2004, he passed away unexpectedly, suddenly, heart attack, middle of the night. My sister and I inherited this company, both companies, which while we had both been associated with, we didn’t know how to run a business, we didn’t have business ownership experience.

David Jondreau:

I was a fine employee, but I wasn’t an owner. So, it was like … I mean, it’s a huge shock to have your dad die suddenly, and we dealt with that for a few months, and then we also had a business to manage and run at the same time. So, it was a pretty intense time for us.

John Warrillow:

What was the most … Obviously, the emotional impact of losing your father would be the most difficult, but when we get to the business itself, what was the most difficult thing to pick up?

David Jondreau:

Right. So, what was I? I was 28 years old and I was doing everything, right? So, and that was how my dad ran things too, that’s what I had seen was he just, he kept everything in his, right? And he ran things, and he made all these contacts, and then when I started working for him, I took a little bit off that, but I put it in my head. And what I learned, and there were some really helpful milestones along the way, one of which I think for me was reading the E-Myth-

John Warrillow:

Great book, yep.

David Jondreau:

Yeah, just that idea of like, “Stop working in your business so you can work on your business.” And realizing like I had to get this stuff out there and develop systems and processing so it wasn’t me. Like if I wasn’t around, this business should run. And that took years for us to figure out that that’s what I needed to do, right? So, that was a big thing, and then making the business mine, right? It had a certain sales process, it ran a certain way, but that’s not how I could run it, so we had to figure that out of, “How are we going to do sales?”

David Jondreau:

Where my dad’s a super charismatic guy, he could sell snow machines to an Eskimo, but that wasn’t me. I was a lot more like in … I couldn’t make a sale like that. What I could do is I could write and I could read, right? But I could do RFPs and work through that process. And so over the course of five, six years, we figured a lot of this stuff out, how to run this business our way, then into our strengths.

John Warrillow:

Give me an example of some of the processes that you documented? I think people have heard, “Oh, I’ve got to have standard operating procedures.” They’ve kind of heard the work on that end, but I think they get stuck at the next step. Like, “Okay, so what am I supposed to document?”

David Jondreau:

Right. So, for example, we send interpreters to businesses, right? They’re at the hospital, and they don’t like certain interpreters or their patients prefer other interpreters. So, instead of that all just being in my head, we just started developing a database, right? And it seems pretty basic, but we weren’t doing that. We weren’t recording what preferences were for individuals, for who they wanted to be their interpreters. It was all in our heads or it was written down somewhere or the coordinator kind of knew. So, we had to formulate that and we did some documentation, but a lot of it got integrated into a system, a FileMaker database that just kind of collated all that stuff. And over time, it just grew and grew until like our process for collections, pressing a button and running it so it shows all the overdue invoices that are 45 days out or whatever. Like all those kind of like policies and procedures would end up running in the system, in the database.

John Warrillow:

Got it. And you used FileMaker for all that?

David Jondreau:

Yeah, we did the FileMaker database.

John Warrillow:

Got it.

David Jondreau:

There was one in everything. And then overtime, it started doing more and more stuff that we could offload and that was really helpful.

John Warrillow:

I’d be curious to know about the dynamics with your sister because clearly she inherited the business as well. Was it sort of 50/50 down the middle, you own half, I own half and away we go kind of thing? Or how did you guys deal with that stuff?

David Jondreau:

Yeah, we split it evenly. We actually split it 49/49 and then gave my mom 2%. My parents had been divorced but they had a good relationship and we thought it’d be nice to have her included. And coming from this being a family business and so we wanted to include her, and it also made us a woman-owned business, 51% woman-owned, which was helpful. Yeah.

John Warrillow:

No, in what way? I don’t now why that would be helpful.

David Jondreau:

So, we started to moving to doing a lot of RFP based contracts-

John Warrillow:

I see.

David Jondreau:

… and states have preferences for woman-owned businesses or they have at least minimum requirements that you sub that out if you’re not a woman-owned business. So, being that gave us a few points towards winning contracts.

John Warrillow:

Got it. That’s helpful.

David Jondreau:

And the dynamic was what we did, we basically, for the first few years at least, we kind of alternated, right? So, she was in charge for a couple years, then I was in charge for a couple years. We tried that and then the end, the last several years, she was like the advisor and I was running things towards the end there. It just-

John Warrillow:

Who’s older?

David Jondreau:

She is. She’s about four years older.

John Warrillow:

Were you resentful that you were doing all the work and she was standing to gain all this money if you sold the business?

David Jondreau:

No, not resentful. I mean, I was very clear and very upfront to myself that this is an ownership thing, she gets half, I get half, that’s fine. We had had trouble over the years around other business aspects, around strategy or how we identified culturally in terms of what’s our business. So, one of the reasons we talked about selling was there was a strain on our relationship. We were together, we were doing it together for 15 years, but we definitely struggled at times. And by struggling, I mean, we would have fights like brother and sister. Yeah.

John Warrillow:

And you figured to safeguard the relationship, it might be better to sell the company?

David Jondreau:

That was one of the influences for me, yeah.

John Warrillow:

What other influences were there?

David Jondreau:

I’d say there’s two other things. One was I was in my early 40s and this was something that had been bequeathed to me and it wasn’t something that I had chosen necessarily. I had made it mine, I felt pretty confident and comfortable by that point that this was of me, but I was kind of wondering what else was out there, and I felt like I may not have enough time to really dig into something, into something new in my life unless I was able to transfer this out of my life. And then there was a just a lot of stress in the particular business, mostly around getting new business, and finding new clients, and new contracts, and there’s a lot of uncertainty when contracts come up if you’re going to get it again.

David Jondreau:

The kind of triggering event was in April, we had gotten notice that this contract that we had submitted for that would be a huge contract, like it would double our revenue, that we did not get it. So, after that, we’d kind of got deflated and felt, “Maybe now. We’ve been talking about it for a couple of years, maybe now is the time to pull the trigger. Maybe now is to get serious about selling because we didn’t get this big contract.”

John Warrillow:

Got it. So, you’re a couple million in revenue at this time?

David Jondreau:

Yeah.

John Warrillow:

And you figure that some of the stuff, your age, your sister, you’re figuring now is the time to sell. What did you do? What was the process like?

David Jondreau:

Two things. The first thing was internal. Since we had been talking about it for a couple of years, I made sure that we kind of got, again, our system’s together, we had very clean books, we had books that were audited. There’s a lot of stuff that business owners may do to reduce their tax burden, claiming things-

John Warrillow:

Sure.

David Jondreau:

… that kind of stuff. So, we kind of moved a lot of that out and made it more like we were strict, knowing that that you help us in a sale. Getting key people in place. So, we did some internal work. And then to find buyers, I started going to conferences, language conferences. Not just sign language ones, but general language service provider conferences and talking to people and letting them know, “Hey, are you guys interested? Are you looking for anything?” In the process, I met a gentleman who, he wasn’t exactly a business broker, he was more like he made contacts, but he didn’t walk you through the whole process, and he took kind of a smaller percentage than a traditional business broker would. And we hit it off and made a connection, and then he ended up introducing us to a handful of people over the next few months.

John Warrillow:

And what was the reaction from those handful of people?

David Jondreau:

The first three or four, it was mostly a phone conversation or two. They were, I guess the word’s “kicking the tires.” Experimenting with the idea of it, but maybe not serious.

John Warrillow:

Were these industry peers of yours? Were they other language companies or were they big investment firms, or?

David Jondreau:

They were other language companies, but they were not sign language. So, there’s other language companies out there that provide foreign language interpreting, right? Or video or over the phone for hospital or other combinations of these. So, these guys were interested in maybe … it’s kind of like a strategic purchase of adding this service under their umbrella.

John Warrillow:

But I would imagine the customer base is quite different between a language interpreter and someone who needed a sign language interpreter. Would that be fair to say?

David Jondreau:

They get lumped together a lot.

John Warrillow:

Do they? Okay.

David Jondreau:

Yeah, so a hospital, it depends on the hospital. Most hospitals, their language services are one department, whether it’s sign language or Chinese, right?

John Warrillow:

Okay.

David Jondreau:

Some hospitals actually split it out, but for the most part, they do fall under providing language access.

John Warrillow:

Okay. So, you had a few conversations with potential strategic other language companies. It sounds like those conversations are somewhat bland, there’s nothing really that comes out of them?

David Jondreau:

Yeah, nothing really came out of those. And then that summer, I got a phone call, it was an introduction, and the guy I was talking to, we just hit it off and had a really good conversation, and then he turned out to be a pretty serious buyer.

John Warrillow:

And so you said you made an introduction, so how did they come to learn of you?

David Jondreau:

It was through that business broker, Michael, referral guy who had originally connected me with the previous three or four.

John Warrillow:

Got it.

David Jondreau:

Finally found somebody that seemed serious.

John Warrillow:

Got it. And so what was the nature of their company?

David Jondreau:

They’re actually private family money that was looking to build a language services provider that provided kind of all those services I had talked about, and they had already purchased several other companies. So, they’d already purchased-

John Warrillow:

So, what was it that made you guys hit it off so well?

David Jondreau:

Personality. He was from New York, I’m originally from New York. We just could have a conversation, it was very frank, and just seemed like a good guy. And open and honest. I think by our second or third conversation, we were talking numbers and it just felt there was like a personal connection and that made a lot of difference.

John Warrillow:

Where did it go from there? So, you’re starting to exchange numbers. Did you have a sense of what the company was worth? Did you have any idea what you thought it might be worth?

David Jondreau:

Yeah. So, by this point, I’d already done a fair amount of internet research. I’d listened to a great podcast, Built to Sell Radio. And I had an idea of going for three to four times net is kind of where we were, and I actually asked my sister before we started this process what her number was, and it matched up with mine, and it kind of matched up with our revenues and our percentages to about three and a half percent, I think. Three and a half times.

John Warrillow:

Got it, got it, got it.

David Jondreau:

Yeah.

John Warrillow:

Okay. So, you’re looking for roughly three and a half times. I think broker’s call it SDE, seller’s discretionary earnings. But essentially, your net, your profit before tax, and also I’m assuming that you did some normalization or some adjustments to your profitability so that as you talked about, you went through the process of making it look like a clean business.

David Jondreau:

Yeah.

John Warrillow:

That you weren’t running a bunch of things through it for tax purposes or whatever.

David Jondreau:

Like I said, we had kind of tried cleaning up already, so there wasn’t a ton. There was mainly our individual compensation was maybe it. What would it cost to replace me? Am I getting paid more than what it’d cost to replace me was basically it.

John Warrillow:

Were you drawing a market rate salary from the company? You figure you were earning what you should be paid if you had a job?

David Jondreau:

Yeah. I mean, there’s always some flexibility I think.

John Warrillow:

Sure.

David Jondreau:

But it’s in the right ballpark. I mean, a business owner … Yeah, we were in the right ballpark.

John Warrillow:

Got it. So, just to be clear, the three and a half to four, did that include your salary? In calculating the profitability of the company, did you include your salary in making that calculation or not?

David Jondreau:

No, we basically, it did not include … So, we added my sister’s back on because she wasn’t really doing day-to-day stuff, but I was doing day-to-day stuff, so we kept mine in there.

John Warrillow:

Okay. So, your sister’s was scrubbed out and yours was left in?

David Jondreau:

Yeah.

John Warrillow:

And then after that, what sort of margins are you earning on your two million ballpark, like on a percentage basis?

David Jondreau:

Eight to 10%. Basically, it’s like since we were billing and paying by the hour, we could calculate our gross margins real easily, and those were running at about 35% and then our operations were taking like another 25%, so we were coming away with 10% or so.

John Warrillow:

Got it. So, a couple million in revenue, a couple hundred grand in profit?

David Jondreau:

Yeah.

John Warrillow:

Got it. And so you’re sort of applying a multiple to that. That’s helpful. And where does it go from there? So, when you’re actually having this conversation, I believe the company is called New Language Capital, is that the-

David Jondreau:

Yeah.

John Warrillow:

So, when you’re talking to New Language, did they say, “Hey, what do you want for your company?’ Did they offer that number up? Where did it go from there?

David Jondreau:

Yeah. So, like I said, they had already purchased a translation company and a foreign language company, and they were kind of assembling a stable of companies that they could combine. So, it was a little bit of strategic, a little bit of financial, and we’d had these conversations up front, and this relationship that we developed pretty quickly was very handshakey and he said, “How much do you want for your business?” And I said, “I want this much.” And he said, “Okay, I’ll go talk to my owners.” And that was it. And he came back and said, “That’s fine.”

David Jondreau:

And, “What are the terms?” “These are the terms we wanted.” They said, “Great, we can deal with that.” One of the things that was attractive was that they were offering, I think it was 85% upfront and then 15% later, a year later, within a year.

John Warrillow:

Got it. So, you kind of gave them a number to which … What was their reaction when you said three and a half times or whatever? Did you give them the actual number?

David Jondreau:

Yeah, I said 700.

John Warrillow:

Right.

David Jondreau:

So, that was the number, that’s what it worked out to be and he was like, “Okay. I’ll run that past the owners and we’ll let you know.” Right?

John Warrillow:

Got it.

David Jondreau:

And it worked out really well because I didn’t want to like get into a lot of negotiation around price. And I think I made that clear. But this was what my sister and I thought were fair. We weren’t overstepping, we weren’t undercutting ourselves. This is what it would take for us to walk away and that’s what we’re going to tell you. Our personalities are not the type to kind of play a lot of negotiating games.

John Warrillow:

Got it, got it. So-

David Jondreau:

Did we leave money on the table to resolve that? Maybe. I don’t know, but that’s okay.

John Warrillow:

Yeah. Talk to me about the deal structure. So, it sounds like for you, it was important that a large chunk be paid upfront.

David Jondreau:

Yeah. Uh-huh (affirmative). Yep. I mean, these are people we don’t really know. I had heard horror stories about not getting paid later and all that stuff. So, and just have a clean break, that’s what we wanted. That was what we wanted, yeah.

John Warrillow:

Nice. And the 15%, what was that? Was that tied to something, your tenure, was it just time based?

David Jondreau:

No, it wasn’t tied to anything. It was just a year. Time based, yeah, one year.

John Warrillow:

Okay. So, you had to work in the company for one year?

David Jondreau:

Did I have to work? No, it wasn’t tied to working, it was just tied to they needed another year just to-

John Warrillow:

Got it.

David Jondreau:

… hold back. And I don’t know, now I don’t know how to recalculate … it was also outstanding accounts receivables I’d added onto that too. So, I can never remember if that gets counted as part of the sales price or not. That was another couple hundred, something like that, yeah.

John Warrillow:

Yeah, like a working capital calculation.

David Jondreau:

Working capital, yeah.

John Warrillow:

Right, to figure out how much of those receivables you get to keep and how much they’re going to get to keep.

David Jondreau:

Right.

John Warrillow:

Because when you hand over the keys, there’s money owing to the company, there’s money in the bank, how you sort of dealt with all that stuff.

David Jondreau:

Right. And that’s what the buyer pays twice, right? They pay for the business and then they pay to get the cash flow going again.

John Warrillow:

Yeah.

David Jondreau:

Yeah, so there was some negotiation around how accounts receivables get paid out. At that point, we had zero debt and a little money in the bank. Yeah.

John Warrillow:

Got it. That’s helpful. And as you went through the actual diligence process, what was the most sort of surprising thing that you had to deal with through diligence?

David Jondreau:

So, how easy it was.

John Warrillow:

Wow, that’s great.

David Jondreau:

Like it really-

John Warrillow:

That’s the first time I’ve heard that.

David Jondreau:

I know, that’s why it was surprising. It was pretty smooth. We got a lawyer, somebody who’s familiar with M&A, and he was great, Ben Thompson, New York City, Broad Street, great guy. And he just kind of helped us get all the paperwork together, and share it, and they reviewed the books, and we were kind of in this process of like we’re just on the verge of getting this done when everything completely 100% changed.

John Warrillow:

What happened?

David Jondreau:

Threw the whole deal apart, basically. That contract that we had not been awarded back in April that would have doubled our revenue, we were told in early September, three days before the start of the school year in New York City that they had made a mistake, and that we had actually won that contract, and they expected us to start performing on this contract, which would double our business, and we had to start performing in three days. Yeah, it was-

John Warrillow:

How far into diligence is this? You signed a letter of intent, but you haven’t handed over the keys years.

David Jondreau:

Letter of intent we’re just in due diligence, yeah. So, we’re just kind of looking over books and stuff. Yeah.

John Warrillow:

So, what’d you do?

David Jondreau:

Well, I sat down for an hour and just my brain just started going of, “Okay, what the hell is going on here?” And then started prioritizing, right? First thing was we’ve got to perform on this contract, so everything related to the sale, that has to be put on hold. Sorry, guys. We think you’re great, but this came in, and this could be a great opportunity for you, but I can’t talk to you. I got to deal with just this for the next week or two. This is going to take up 14 hours a day of my time because we have to ramp up this over three days. We got 90% done in three days, but just this whole process of ramping up service.

John Warrillow:

But why did-

David Jondreau:

… our business, yeah.

John Warrillow:

Yeah, but why did you care? I mean, you had sold your company in theory. Why not just say, “Hey guys, here are the keys, you might want to call City of New York because I think they’ve got a contract they want to award you guys?”

David Jondreau:

Oh, because this is going to double our business. This is doubling our price. We weren’t going to sell for the same price. We did a new deal. This was if we had gotten this back in April, we probably wouldn’t have sold, so are we even going to sell now? Because that was part of the original reason. So, we needed time to do the work and then process the kind of the emotional stuff that we had already dealt with and then figure out what was happening next. Yeah.

John Warrillow:

Was there a part of you that struggled with, maybe you or your sister struggled with, you’d made a commitment and signed a letter of intent, there was a genuine good faith offer from the other side, they’d given you what would wanted, was part of you conflicted with the idea that, “Is it fair to pull the plug even though this contract is twice the size of the company?”

David Jondreau:

No, not at all. No.

John Warrillow:

Are you crazy?

David Jondreau:

We’re talking real money here.

John Warrillow:

Yeah.

David Jondreau:

Yeah. So, there was no question that things were changing, right?

John Warrillow:

Got it. Okay, so what’d you do next? So, you focus on getting the contract fulfilled, I’m assuming?

David Jondreau:

Yeah. So, we focused on that. There was two issues. One was that I knew this contract very well. This contract, working with the Department of Education for New York City Public Schools has been around for as long as I’ve been alive, right? And I have known about it for 15 years, and we just had our act together to really, to fill it now, and I knew what it was worth, right? It’s a five-year contract. I know it’s with $2 million revenue a year, but the buyer doesn’t. The buyer, they don’t know this area like I do. They’re going on my word, so why would they pay me what I think it’s worth? There’s no history, there’s no past performance. So, that was a sticking point, right? Like how do we negotiate that?

David Jondreau:

And in the end, I mean, I just want to say like the buyers were so flexible and understanding. It was really amazing. I think that might have been a result of just having this connection. That’s what I felt from them. So, we ended up negotiating it and what I wanted was a clean break, right? 85% upfront, the rest in a year. Well, now it’s going to be a performance based earn out over five years, the length of the contract, right? Again, if I’m in the three to three a half percent range, well, over five years, that’s 75% a year, so-

John Warrillow:

Sorry, you lost me on the three and a half to five. I don’t know what you meant right there.

David Jondreau:

Yeah, yeah. So, 75% a year for five years works out to being three and a half times, I keep saying percent, three and a half times revenue. So, what I thought three and a half times revenue off this contract would be, we set it up that way as an earn-out basically.

John Warrillow:

Okay, you still lost me a little bit. So, the contract is worth a couple million dollars a year in revenue?

David Jondreau:

Mm-hmm (affirmative). Yeah.

John Warrillow:

Over five years.

David Jondreau:

Yep.

John Warrillow:

Go ahead.

David Jondreau:

Right. We took that, we took the margins, we subtracted an admin fee for them, and then we subtracted out taxes, and then we said after that we’re going to split the net after taxes.

John Warrillow:

Got it. So, it would be..

David Jondreau:

Yeah.

John Warrillow:

So, what impact did that have on the sale price?

David Jondreau:

Doubled it, basically. Maybe me. We don’t know yet because we’re still in the middle of it, but it was significant, yeah. And it’s an earn-out, so we get paid every quarter, every year.

John Warrillow:

Okay. So, I think I get the three and a half times now. The three and a half is the multiple on your profitability. So, you’re projecting at the profitability of this contract.

David Jondreau:

Right.

John Warrillow:

I’m trying to figure out and then apply a multiple to it.

David Jondreau:

And 75% times five.

John Warrillow:

Yeah.

David Jondreau:

It was three and a half.

John Warrillow:

Yeah, yeah.

David Jondreau:

That’s how I figured it. And that seemed reasonable to me, and that seemed reasonable to them, and we went back and forth just discussing it a lot, but we came to an agreement, and that worked out, and that was great.

John Warrillow:

And how do you police that agreement now having left? Because they would have an incentive if they were less than reputable to sort of fudge the numbers and say, “Well, the margin isn’t quite as good.” Or, “We had to apply to some costs here.” How do you police that the profitability of the $2 million contract is correct.

David Jondreau:

I have kind of advised them on the billing because it is a pretty complicated billing system to build this very bureaucratic organization. So, they want me kind of helping them. I basically know exactly what the numbers are.

John Warrillow:

I see.

David Jondreau:

If I didn’t, I’d still feel pretty trustworthy towards them. They’ve built up a lot of goodwill. Yeah.

John Warrillow:

Did your lawyer, presumably they had some protections in there, did you get the rights to audit the contract?

David Jondreau:

Yeah, there’s an annual statement that they’re supposed to put out, and also, I just know the business well enough that I know what the numbers should be. And if they weren’t there, then I would suspicious and I’d want to look closer, but they’re there.

John Warrillow:

Got it. And so how many months or years are you into this earn-out?

David Jondreau:

So, three years into the five years of it.

John Warrillow:

Okay. And have they been hitting the numbers each quarter?

David Jondreau:

Yeah, it’s been great.

John Warrillow:

That’s fantastic.

David Jondreau:

It’s in everybody’s best interest to keep this going.

John Warrillow:

And how much of your personal time have you had to commit to the company in those three years? Like on a monthly basis, let’s say?

David Jondreau:

Well, there was a transition that was kind of separate from this, right? So, I stayed on board for nine months and helped them transition everything. And then since then, I put in maybe five hours, 10 hours a month.

John Warrillow:

Okay, so pretty limited. Over that nine months of full-time work, did you just draw a salary or how did they compensate you during that nine month period?

David Jondreau:

I was paid as a consultant on a monthly retainers.

John Warrillow:

And did you negotiate that as part of the sale?

David Jondreau:

Yep.

John Warrillow:

Okay. So, it was consulting agreement, yeah.

David Jondreau:

Yeah, consulting agreement.

John Warrillow:

And did they commit to a number of hours or just an hourly rate and then it depended on how many hours you billed?

David Jondreau:

No, it basically was like it was on a per month basis, so it was full-time for nine months, yeah.

John Warrillow:

Got it. Got it.

David Jondreau:

And I don’t remember what that was, actually. Yeah, I don’t recall. But there was one other problem. So, we had all this negotiation around that, but then something else came up before we could even close and that was a cash flow issue. We doubled our business, and because this was a new contract and it’s such a bureaucratic organization, it took them seven months to make their first payment.

John Warrillow:

Wow.

David Jondreau:

Yeah.

John Warrillow:

On a $2 million-

David Jondreau:

Yeah.

John Warrillow:

How’d you manage that?

David Jondreau:

I basically maxed out all my personal credit and business credit and all of that, and the buyer gave us a bridge loan, and with the understanding that they’d be paid back first. But it was an incredibly, incredibly stressful time, right? If we hadn’t been in the process of selling, we might not have actually survived. I would have had to have scraped up a few hundred thousand dollars borrowing from family probably, which would have been possible, but it was hard. It was so hard. There was so much stress involved because I was pretty sure that we would get paid eventually, but there was no guarantee, right? And there’s a buyer here being like, “We’re giving you money but we don’t have this guarantee that we’re going to get it back.” It was a huge leap of faith.

David Jondreau:

But I was like, “Look, this is New York City, right? They’ll pay. It might take a way, but they’ll pay.” And it was tough, and they didn’t start paying until after we closed. They closed on it with that still unanswered, and eventually, we started getting paid about three months after we closed.

John Warrillow:

Got it. And for those of you who aren’t familiar with that term, a bridge loan, describe what that means and sort of what would the terms of that have been.

David Jondreau:

It was basically like they were loaning us money to make it through to cross a chasm of debt until we started getting paid.

John Warrillow:

And what were the terms of that loan?

David Jondreau:

I don’t remember. In terms of percentages or anything?

John Warrillow:

Yeah, was it sort of close to prime or was it prime plus 20? Was it a huge premium they were charging, or?

David Jondreau:

No, no. It was totally generous. It wasn’t even prime. I don’t remember. Sorry.

John Warrillow:

And what about guarantee? Did you have to personally sign a guarantee for that bridge loan?

David Jondreau:

No, I don’t recall personally signing that, but again, there was a lot of trust on both sides.

John Warrillow:

And a lot of paperwork it sounds like, signing in blind faith.

David Jondreau:

Yeah, I mean, there was tons of paperwork. The guy who was kind of negotiating on the buyer’s side himself had been a lawyer, so he was doing a lot of the contract work. I had my guy doing a lot of the contract work, and they were talking directly all the time. And there was a lot of fine print that I’m not that well versed in, I just trusted my lawyer to make sure that everything worked out.

John Warrillow:

Yeah. Well, it sounds like it did in spades. I’d love to ask you about the emotional impact of selling. I mean, this was your father’s business, your late father’s business, so I imagine there’d be some pretty heavy emotion attached to that. What was your experience like?

David Jondreau:

It was hard. This is something that had been associated with the Jondreau name, right, since I was 10 years old. It had been decades. People, interpreters would be like, “Hey, your Fred’s son. I took my first sign language class with him.” And now they’re like professionals in their field. People have known me when I was a little kid and yeah, it was weird. It was a little bit of an identity crisis of, “Now that I’m selling this that I’ve been associated with for so long, who am I? What’s my role in the professional world?” I’m married, have kids, I know my role in the family, but what’s my role here as a professional or in my work life? It was hard. It was mixed. It felt good at the same time. There was definitely a burden that was lifted off, so it’s complicated.

John Warrillow:

What sorts of emotions did you experience in addition to feeling lightened by the monkey off your back, so to speak? But what other sorts of emotions did you experience?

David Jondreau:

The big question was, “Is this the right decision?” There’s always a little bit of doubt. I don’t know if that question 100% is even answered now. Would my life be better if I hadn’t sold? Would things be different? I mean, in retrospect with COVID, man, I am excited to not be owning a business right now. That would have been, mostly because it’s an enormous amount stress to be a business owner. Personally, for me, I feel the weight of ownership, of being responsible to my staff and my interpreters and my customers and the deaf people who are getting sign language interpreting. Every time we didn’t fill a job, that was a deaf person that didn’t have access to a doctor.

John Warrillow:

Sure.

David Jondreau:

I always felt very responsible for stuff. So, but part of me feels like that was a good place for me. I like being responsible for stuff. I don’t know, it’s hard.

John Warrillow:

You have a sense of freedom now. What are you doing now? What do you do with all that freedom, I guess?

David Jondreau:

Yeah. I mean, it’s been really nice. I’ve got three kids, eight, 10, and 14. So, I’ve spent two years now, it’s been two years since the transition period ended, right, so I haven’t worked full-time in two years. I spend a lot of time with the kids, I work out a lot. I’m in the best shape of my life, and I do some consulting on the side. So, I do some kind of database business application consulting, and I do some kind of general business mentoring. I’m kind of into the, there’s a personal finance scene, Bogleheads, Mr. Money Mustache, that kind of stuff. And there’s a thread that pops up every now and then among that community of like, “Oh, when I retire, am I just going to be bored out of my mind?” And the answer is absolutely not. I’m not bored at all. This has been fantastic.

David Jondreau:

Not saying that I’m retired because the payout I got isn’t, as they say, “F you” money, right?

John Warrillow:

Yeah.

David Jondreau:

It’s not that much. I’m actually going to start probably working a little more in the next few months, but it’s more like “thank you” money. I’m super grateful for having been given this gift by my dad, by having been able to work in this situation with my family, my sister, my mom, my brother in law. Most of our early employees were all family members. I’m grateful that we were lucky to have a buyer that was so understanding and flexible. I’ve been super lucky and I’m feeling a lot of gratitude as a result of that sale.

John Warrillow:

Yeah, that’s amazing and it’s refreshing to hear, David, and I’m thrilled for you. If people want to reach out, what’s the best way for folks to find you?

David Jondreau:

I’m on LinkedIn. J-O-N-D-R-E-A-U is my last name. And you can email me. David, my first name, @ my last name, which is Jondreau .net. That’s the best way, David@Jondreau.net. Just email me directly.

John Warrillow:

That’s awesome. That’s awesome. David, thanks for doing this.

David Jondreau:

Thanks so much, John.

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