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6 Lessons Ryan Moran Learned From a Seven Figure Loss

January 8, 2021 |  

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Please note: this episode includes language some listeners may find offensive. 

Ryan Daniel Moran built Sheer Strength, a supplements business, up to a run rate of around $10 million per year when he decided it was time to sell.

He quickly got a few offers and settled on one from a private equity group that valued Sheer Strength at $17.5 million or around five times Moran’s $3.5 million in EBITDA. Moran and his partner were ecstatic and signed a Letter of Intent, but things were not quite as they seemed. In this cautionary tale of what can happen when you sell to the wrong buyer, you’ll learn:

  • Why Moran recommends going into an M&A process with your list of terms.
  • Why Moran equates the selling process to a bad episode of “The Bachelor.”
  • One common reason acquirers re-trade after an LOI is signed.
  • The danger of taking part of your proceeds in shares.
  • What happens when your acquirer goes bankrupt.
  • Why Moran advises doing absolutely nothing with your money for six months after you sell.

Moran sold to a private equity group that lowered their acquisition offer after signing a Letter of Intent. This kind of “re-trading” is a classic trick used by professional buyers. You’ll get a technique for defending yourself against re-trading in The Art of Selling Your Business: Winning Strategies and Secret Hacks For Exiting On Top, which dropped yesterday, January 12th — order your copy and choose from a collection of thank you gifts.

About Our Guest

Ryan Daniel Moran is the founder of Capitalism.com, where he teaches entrepreneurs to build businesses and invest the profits. Ryan is best known for turning a $600 investment into an 8-figure company and subsequently selling it for 8-figures. Today, his podcasts and videos have been downloaded well over 10 million times, and hundreds of successful students credit his trainings with helping them build 7-figure businesses. Ryan lives in Austin, TX where he loves to debate politics and religion, and his dream is to one day own the Cleveland Indians. Socials:
https://www.facebook.com/groups/capitalism.com.community/, https://www.instagram.com/ryandanielmoran/, https://twitter.com/RyanMoran, https://www.linkedin.com/in/theryanmoran/.

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Transcript

John Warrillow:

So right now there’s a lot of money chasing a few deals. Private equity has exploded, and with interest rates as low as they are right now, you’re seeing a lot of private equity companies jamming up the value of businesses. And my next guest went to sell his company, did so, and ended up regretting it. Here in lies the six lessons Ryan Moran learned in selling to a private equity group.

John Warrillow:

This is a cautionary tale, but I don’t think it’s all bad because there’s lots of learnings that Moran shares that you can take away from your deal. Whether you’re selling to a private equity group, a strategic or an individual investor, there’s some things you can do to protect yourself, and Ryan is generous with his advice.

John Warrillow:

Here to tell you the entire story is Ryan Moran.

John Warrillow:

Ryan Moran, welcome to Built To Sell Radio.

Ryan Daniel Moran:

Thanks, John. I’m really honored to be here. Thank you for having me.

John Warrillow:

Well, it’s amazing to have you here. Tell me a little bit about Sheer Strength. What did you guys do?

Ryan Daniel Moran:

So Sheer Strength was a sports nutrition company that was really early to the game in 2013 and ’14 to dominating the Amazon platform, specifically in the supplement and body building space. So from 2012 until… It may still be true now, supplements were the number one market on Amazon, and so we carved out a specific niche that was people who were adding muscle and that was our sports nutrition focus. We were also in about 1000 retail stores. About 60-70% of our revenue came from focusing on being the first mover in that space, specifically on the Amazon platform. So we sold supplements and pre-workouts and creatines and other consumables for the body building crowd.

John Warrillow:

Got it. When I searched on Amazon, I get hundreds of listings. How did you find your way to the top of the listing so people would actually see your stuff?

Ryan Daniel Moran:

That was our bread and butter skillset. So figuring out the Amazon algorithm and the Amazon platform was our secret advantage, was our strategic way of staying ahead of everyone else. And the Amazon platform is really driven by the number of sales through keyword. So if you search for fish oil on Amazon, the product that you click on and buy is like a vote. And Amazon will take those votes into consideration and rank products by how they convert relative to the other products. So we got really good at optimizing for what Amazon needed and wanted, and we also had partnerships with other influencers. We sponsored the Olympia Body Building Show and did a lot to build brand recognition and repeat customers on the platform.

Ryan Daniel Moran:

But to answer your question directly, we just got really good at knowing how the algorithm worked.

John Warrillow:

So fascinating because if you think about it, and I’m sure you’ve given it a lot of thought, but as a product gains momentum, it kind of takes a life of its own. It ranks because it’s ranking if you know what I mean. It starts to create its own momentum.

Ryan Daniel Moran:

Yeah. And the thing you can’t do there is have a crappy product and a crappy customer experience that breaks that system. So having first mover advantage can either make or break a company, and that was why at the very beginning of the company, there was this term that was being thrown around because Amazon was still a bit of a Wild West. They called them Amazon Businesses. And I hated that term because I didn’t want to have an Amazon business. I want to have a business that had real customers that were raving fans that wanted to pay a premium for working with our brand, and we just happened to leverage the Amazon platform.

John Warrillow:

Interesting, and did you guys get into subscription? I know that you can now subscribe to certain products. Did you guys do any of that stuff?

Ryan Daniel Moran:

Yeah. So we were actually one of the first brands on the platform to be able to take advantage of subscribe and save as it started to expand to the rest of the platform, and it was a huge win for us. So obviously the more members that you can have one subscribe and saving giving recurring revenue gives you more stabilization and can help with the valuation of your business when you go to sell. So we were early on in that game, but we were able to take advantage of that.

John Warrillow:

What proportion of your sales were subscription or recurring?

Ryan Daniel Moran:

I have no idea. I should know those types of numbers, but it was an interesting time because subscribe and save was being rolled out as we were scaling the company. So I would have loved to have prioritized subscribe and save as the thing we built the company around. But Amazon didn’t have that ability to do yet, and it was only until about two, maybe two and a half years into growing Sheer Strength that subscribe and save even became an option for us. And then we sold in year four.

John Warrillow:

Got it. Wow. Year four, that’s a fast run. I want to get to the sale. Just before I go there though, I just want to understand the business model. So I’m assuming you’re not manufacturing this stuff in some lab somewhere. You are effectively putting your label on someone else’s stuff that you were buying. Was that the business model? Like a drop ship or something like that.

Ryan Daniel Moran:

Well, almost all of our products were custom. But the way that we went to market, our race to market was to private label something that was good enough for us to put our name on it, and as soon as we were able to test that there was a market there, then we went back and formulated our own custom formulation for it. That was working with the lab to come up with something that we were really proud to put our name on, and then building that into our sales channel to be able to have the best product in the marketplace.

John Warrillow:

Got it.

Ryan Daniel Moran:

But you’re right, we were not making the products ourselves. We had several different manufacturers that we worked with closely. And they shipped straight to Amazon, and then we fulfilled through Amazon.

John Warrillow:

So what kind of margins are you making? I’m trying to get a sense because you’re selling on Amazon. Then you get to buy the stuff, you got to get Amazon a cut. What would have been a reasonable margin at the end of the year in your business?

Ryan Daniel Moran:

Supplements have great margins. So we were operating at about a 40% profit margin.

John Warrillow:

Wow. Now is that gross profit on what you sold or net profit after paying everything?

Ryan Daniel Moran:

That’s contribution margin.

John Warrillow:

Okay.

Ryan Daniel Moran:

After Amazon takes their cut. So that’s before the employees are paid, but that is on the actual products themselves.

John Warrillow:

Yeah, that makes sense. Got it. That’s helpful. And so how big did you get this company in four years to the tune that you decided to sell?

Ryan Daniel Moran:

Right before the acquisition happened, we had our first million dollar month. So we were pacing. I mean, I think the 12 month trialing was just over $8 million when we sold, but we were on pretty aggressive growth trend as we were going to market. And part of that’s intentional. You want to be selling while you have that aggressive growth happening. But we were having million dollar months in the last few months when we owned the company.

John Warrillow:

So it begs the question why sell? It sounds like a golden goose.

Ryan Daniel Moran:

I mean, so I sold when I was 29 years old, John, and at 29 years old, I had been an entrepreneur for a decade. But I had never had a $10 million company. I can say this, my partner and I had grown the company to our capacity. That was our capacity as entrepreneurs, and I’ll tell you one of us wanted to sell more than the other did.

John Warrillow:

Which camp are you in?

Ryan Daniel Moran:

My partner wanted to sell more than I did.

John Warrillow:

Oh, really. Okay.

Ryan Daniel Moran:

But we were ride or die together. He and I had built a company to our capacity collectively. The two of us had exceeded our expectations. We’re running a business that was pacing low eight figures, and we didn’t know how to take it to 25 or 50. I’m the type that is like, “Well, let’s figure it out. Let’s make some mistakes, man.” And Matt is more like, “I’m not so much sure I can keep going at this torrid pace.” And to his credit, he carried… I was visionary. He was integrator, and he carried that company on his back. And it freed me up to be crazy idea person and let’s do this and let’s do this and let’s do this. But neither of us had built real infrastructure when it came to building quality teams that could support that. So it honestly felt like a bit of a shaky foundation of we’ve never done this before. We’re beyond our capacity, and we need to go get real infrastructure help. And I would rather be a part of somebody who is taking it to $25 and $50 million and watch how they got it done, than try to figure it out myself.

Ryan Daniel Moran:

The real answer is we exceeded our capacity, and we were ride or die together. And if one of us wanted out, the other was going to back that decision.

John Warrillow:

Were you guys 50/50 partners?

Ryan Daniel Moran:

Yes, we were.

John Warrillow:

So what was your next step? So you make the decision to sell. Where’s it go from there?

Ryan Daniel Moran:

Oh, John. So this is the part of the story where I’m the warning sign.

John Warrillow:

Okay.

Ryan Daniel Moran:

So I’m the warning sign at this point because we sold the company I think 2017, and we were the first in our space to go to… We were the first Amazon based company to have a significant acquisition. So we were a little bit of a trailblazers in this space. It was kind of like buying websites was 10 years ago. There’s not really appropriate market valuations for something like that. So we made all the mistakes for everybody else. So I’m a little bit of a warning sign, and some of these things are still relevant. And I’ll go into those things that I wish I had done differently. But our next step was there was one brokerage that was going out and specializing in Amazon based businesses. And they approached us, and they gave us numbers that surprised us. Numbers of what they thought we could get for the business. So we had a non-binding agreement with them that allowed them to take us… All it did was give them an exclusive to negotiate on our behalf, and they would go start courting offers.

Ryan Daniel Moran:

I wish that we had gone the traditional M&A route. I wish that we had professionalized the business and gone out and gotten the right partner, but this was a team that specialized in selling things, not professionalizing things. So we looked at the numbers that they quoted us as what they thought they could get us. That sounded exciting. Didn’t cost us anything. We negotiated on terms in terms of a percentage that it would cost, and we went to market. And honestly, we were just like, eh. I mean, we don’t think anything is going to happen but maybe something will. And to our surprise, some people came knocking. That was our next step.

John Warrillow:

Super helpful. I’ve got lots of additional followups. What did you think the company was worth before the broker sort of threw out their number?

Ryan Daniel Moran:

I’m a salesman, John. So my approach to most things is you come up with a number that you’re really happy with and then you justify it. On paper I thought the business was worth about $18 million. So our EBITDA was $3.2, $3.3 million. So I was expecting about a six times EBITDA going to market. So I expected $18-20 million when we went to market.

John Warrillow:

Got it. Got it. And what the broker think that you might get?

Ryan Daniel Moran:

The broker thought we were being optimistic. But they sold us. So they thought that they might be able to sell the company on the following year’s EBITDA, meaning like projected EBITDA versus actual EBITDA. So they thought five times future EBITDA, which would have put us at about $20 million. They were not able to do that. So based on current EBITDA, they thought that we were being optimistic. And to be honest with you, I felt a little bit bait and switched at that conversation.

John Warrillow:

So if I understand correctly in the lead up to you agreeing to sell through this brokerage, they kind of said, “Well, we can probably get five times future,” which gets you to $20. And then after you signed the deal, they’re like, “Well, maybe you can’t get future. Maybe we got to think about past, and maybe it’s not six. It’s a little closer to five.” That’s kind of the way you felt bait and switched.

Ryan Daniel Moran:

Good summary, John. It’s like you were in the room.

John Warrillow:

Yeah. Yeah. Okay.

Ryan Daniel Moran:

If it’s okay with you, John, I’d like to say what happened when we went to market, and also I think the biggest mistake we made. That if I could give one person just one thing to do differently when they go to market, this is the thing. Buy me a steak later, man. This’ll pay for it.

Ryan Daniel Moran:

So we went to market. We started getting LOIs. Phone calls and LOIs from… It felt weird. It felt like we were getting married after one date. We hop on a phone call, we get an LOI. WTF is this about? And LOIs were, in the $16-17.5 million, which looked close to in range. And I think the one we signed put us at $17.5. So we were mostly happy with that price.

Ryan Daniel Moran:

Here’s what I wish we had done differently.

Ryan Daniel Moran:

I wish we hadn’t waited for an LOI. I wish we had come to the conversation with our own list of terms. I wish we had come into the conversation not being the price taker but the price setter. I wish we had come into that conversation saying, “Hey, here’s what we’re…” I would hop on most phone calls and feel like I was selling ourselves and the company. I wish we had just known that we had a great company and said, “These are my terms. Our terms are we’re looking for a company that has done this before in our space, and we’re looking for a company that has experienced growing companies from $10-25 million. We’re looking for a company that knows the value of the growth of this space and the growth of our expertise and is willing to pay for it. I do not want to do a long negotiation process. Our price is $20 million. I’m open to terms. I’m open to earn outs. But those are our terms. And I’m looking to have X number of it up front.”

Ryan Daniel Moran:

I wish we had just come to the conversation with those terms. But instead, since we didn’t do that, we were evaluating every conversation about just on one thing, and it was how much we thought we could take home from it. And the result was we ended up partnering with a company that I wish we hadn’t partnered with. I wish we had gone a completely different direction, but we saw it as they had the pile of money. So they were the hot girl at the dance.

Ryan Daniel Moran:

Here’s what I learned, John.

Ryan Daniel Moran:

I learned that there are people in the private equity and acquisitions world who wake up every day wishing that there were good companies to buy. I was the hot girl at the dance the whole time and I didn’t know it. I was the hot girl at the dance who doubted her own attractiveness. Everybody saw it but me. And I had the leverage and I didn’t know I had the leverage. There were more people who wanted to buy the company than there were companies available.

Ryan Daniel Moran:

So if entrepreneurs get that, they’re the one with the asset. They’re the one who put in the blood, sweat, and tears to build this thing that’s spitting off millions of dollars worth of profit. You’re the hot girl at the dance. Everybody wants you. There are investors and buyers and competitors who want you.

Ryan Daniel Moran:

So had I known that, I would’ve relaxed around the timeline. I wouldn’t have been in a hurry to sign the first LOI that came to my door. I wouldn’t have cared if I said no to that private equity group. I wouldn’t have any problem walking away from the deal. So I wish I had shown up to every conversation with my terms and been willing to walk away from every deal.

John Warrillow:

Such good advice. So let’s get into the terms for a moment. So again, you wanted someone who knew the industry, someone who had done it before, 10 to 25. Someone that was going to value your company in the $20 million range, and you were open to a portion of that on an earn-out. Is that right?

Ryan Daniel Moran:

Sure, sure. Yes.

John Warrillow:

And so when you got these offers, you mentioned you settled in around $17.5. How did it compare with what you were looking for, other than obviously not quite the 20?

Ryan Daniel Moran:

So once again, there’s things I wish I would’ve done differently because we signed a $17.5 LOI. And then came the due diligence process, and the due diligence process is where they look at ad backs and they look at things that they wouldn’t qualify as contributing to the bottom line. And they start tearing apart your books. And it felt a little bit like a bad episode of The Bachelor. It was like we got our first rose, and then you start getting into a competitive process. And then you get another rose. You go into the next stage of the deal, and by the time the deal is three months in, you have so much invested in it. You might as well just finish the show.

Ryan Daniel Moran:

That process sucks. It was just because I didn’t set proper terms up front. If I had set proper terms up front when they knocked our EBITDA from 3.3 to 2.9, I would’ve walked away. But we were so far into the process, it was like, “All right. Are we going to say no to an eight-figure check? Not at this point. Are we going to go back to market and start all over again? Not at this point.” I wish I had been willing to go back to market. I wish that I had been willing to just say, “All right. I guess you guys weren’t the one. We’ll go to some place else.” That would’ve made way more money, and I would’ve found a much better partner had I done that. But I did not know that going into it.

John Warrillow:

Interesting because on one level, you were clearly a fast growth company. Four years, you’re trailing 12 months is over $10 million. You’re receiving these LOIs easily. So in a way I’m surprised that it didn’t… I don’t want to say dawn on you because I don’t mean it in a negative way. But I’m surprised that it didn’t connect, “Oh man, we’re attractive here with all these crazy offers.”

Ryan Daniel Moran:

Well it did in that sense. It was just a new world for us. I didn’t know anything about the private equity world then. I was a scrappy entrepreneur who started this company with $600. I started this company with $600, grew it to a run rate of $18 to $10 million in four years with a team of four people. I didn’t know anything about the private equity world. You just assume that because they’re called private equity they’re smart investors. I learned that’s not the case. It was hugely affirming for me after everything was done because I realized, “Oh, there’s not some like big controller out there who knows anything more than me.” It was just how I viewed myself and the process, and I put the money on a pedestal versus my business on a pedestal. So I found myself chasing the money versus chasing what was best for the business. What would’ve been best for the business would’ve been partnering with the best firm that knew how to grow our types of companies. That’s what would’ve made me the most money.

Ryan Daniel Moran:

I am completely guilty of playing that deal for the short term rather than the long term. We even had the conversations amongst ourselves. “Hey, if these people run it into the ground, we got our money up front.” I should’ve never said that statement. I should’ve said, “Let’s partner with the company that we know is going to grow this business into five times what it is now because that’s when we’re going to make the most money.” But two kids from Midwest American who started this company with $600 we didn’t know. We just didn’t know. We just didn’t know.

John Warrillow:

And so when the private equity company started to re-trade and they effectively pulled part your books and said it’s not 3.2. it’s 2.9, then then presumably lowered the corresponding offer.

Ryan Daniel Moran:

Correct. So the offer was a multiple of EBITDA. It end up being five times EBITDA.

John Warrillow:

Yup.

Ryan Daniel Moran:

Not a number. So they calculated the 17.4 based on whatever the stated EBITDA was, which if my math is right is 3.3.

John Warrillow:

Mm-hmm.

Ryan Daniel Moran:

Or 3.5 or whatever that is, and then they knocked it down to 2.9.

John Warrillow:

Yeah, yeah. What was your reaction when that happened?

Ryan Daniel Moran:

When they knocked down the EBITDA?

John Warrillow:

Mm-hmm. And they let you know that was going to obviously effect the final sale price.

Ryan Daniel Moran:

They were cool about it. So it didn’t have a lot of negative reaction to it. I had a lot of faith that this company knew how to grow our business after the transaction until the closing bell.

John Warrillow:

What happened at the closing bell?

Ryan Daniel Moran:

Let me just say they started bringing in members to the team. They started hiring and we were really confused. We were really confused about why they were hiring the people that they were hiring to grow the team, and that was a red flag that we should’ve paid more attention to. But in our minds, they had done it before. In our minds, they know better.

John Warrillow:

Mm-hmm.

Ryan Daniel Moran:

They have bigger goals. This is their baby now. This is their company now. These are their mistakes to make. I wish I had paid more attention to those warning signs.

John Warrillow:

Usually with a private equity deal, they’ll buy 70% of the company, 80% of the company, and then sort of have you roll a bit of equity into a new entity. How did they structure that piece with you guys?

Ryan Daniel Moran:

Yeah. It was either 60% or 70% that we got or that we sold. And then we maintained either 15% or 20% of it back.

John Warrillow:

So they bought 60, you guys were equal partners. So you had 20 each to make a…

Ryan Daniel Moran:

Yeah.

John Warrillow:

Got it. Got it. Got it. And do you continue to hold that 20 or what are your expectations around-

Ryan Daniel Moran:

I did. I did until the acquiring company went bankrupt.

John Warrillow:

Oh.

Ryan Daniel Moran:

So that’s-

John Warrillow:

That’s a bit of a twist. So what does that mean? How does that impact you guys?

Ryan Daniel Moran:

Well, John, how many curse words can I say on this podcast, John?

John Warrillow:

As many as you like, man. Go for it.

Ryan Daniel Moran:

It fucks us over, that’s what it does to us. So basically the chapter two if you will is… And I mean, look, to be fair, there were things outside of the acquiring company’s control. But there were things within the acquiring company’s control too.

John Warrillow:

Mm-hmm.

Ryan Daniel Moran:

There’s bad expensive management brought in. Management that put strain on the books and that did not know how to grow this company and did not allow my partner to grow the company in the way that he had executed for years. So they didn’t liberate the entrepreneurial spirit. They hamstrung it. They bureaucratized it. They made it bulky. They made it hard to be nimble. Competitors started passing us, and that brought down cashflows further. There was debt on the purchase that made it hard for us to execute upon the plans that we wanted to do.

John Warrillow:

Meaning the private equity group borrowed money to buy you guys.

Ryan Daniel Moran:

Correct.

John Warrillow:

So the company had to pay back that debt with the profits you were making as its first priority.

Ryan Daniel Moran:

Correct, correct.

John Warrillow:

Okay.

Ryan Daniel Moran:

Now had things continued to grow, it’s a great strategy. But when the company has debt and poor management, that can’t happen. So there was actually a point where they fired the management, freed up my co founder to lead the company for a while. He brought it back to where it needed to be, and then they brought in more bad management. The company that bought us just didn’t have experience in this sector and in this type of business. So they were really good in other sectors, and I think they were diversifying in their acquisition of us. They wanted to go in a different direction. I totally get that. But it hurt us in the long run. So the company went bankrupt, and they had to sell assets. The bank chose who was going to get the assets that were the company. I put in a very aggressive bid. I wanted to buy that company back. I wanted to take that company back to its previous glory. Unfortunately it went in a different direction.

John Warrillow:

Got it, got it. And so to be clear, the company went bankrupt as opposed to the private equity group that invested.

Ryan Daniel Moran:

Correct. That’s correct.

John Warrillow:

So when they go bankrupt… Again, I’m not a lawyer. So I want to make sure I’m getting… They effectively wash out any shareholders. So you had this 20% holding. You and your partner were each 20, and that became effectively worthless.

Ryan Daniel Moran:

Zero. That’s right.

John Warrillow:

Yup.

Ryan Daniel Moran:

That’s right. I have somewhere… Did I frame it? I framed the bankruptcy notice. Is it in the screen?

John Warrillow:

That’s a morbid thing to do, man.

Ryan Daniel Moran:

No, because here’s the thing, John. So you have to realize the reason I’m… For a while I was really embarrassed to talk about this story because I feel like I left millions of dollars on the table. And my baby went bankrupt. That’s like the Scarlet letter. Like entrepreneur who went bankrupt. But I learned so much in this process, John, and here’s what I came out realizing. I came out realizing I built that company. I came out realizing I was better than them. And there’s people that I put on a pedestal who came to the table with a big check that knew how to professionalize businesses. I realized that I was better at my game than them. Now they’re better at me than lots of things, and I trusted that company to do what they were good at. It was my error in judgment that put the company in that position, but it made me realize that I had real talent. Because when I walked away, the company went bankrupt. It made me realize I had something special.

Ryan Daniel Moran:

I don’t know, John. I think every entrepreneur for at least part of their career carries some part of imposter syndrome. There’s some aspect of am I really good at this? Am I really qualified to build a company that’s worth $17.5 million or has $3 million in profits per year? Did I get lucky? Was it good timing? Did I have the right partner? Guess what, all those things are yet. I had an amazing partner. My timing was perfect. I chose a great business, and I had the right skillset to make that grow. And the fact that it went under after I stepped away, surely it’d be once the new team stepped in because Matt continued to run the company. Is just an amazing, amazing entrepreneur. But the fact that when I went away, the company went under meant that I had something. I was a huge value creator.

Ryan Daniel Moran:

So I framed the bankruptcy notice, and it’s hanging somewhere in my house.

John Warrillow:

That’s really cool. I’d be curious to know how they structured your role in the company after the investment because you and your partner, you mentioned you were the visionary. Your partner was the integrator, which was a reference to the EO model. EOS model with integrators and visionaries.

Ryan Daniel Moran:

Yeah.

John Warrillow:

What was the structure that came in, the new management… Did you have a boss all of a sudden or how does that work?

Ryan Daniel Moran:

So I worked into the deal that if somebody else is going to be step… They were adamant they were going to bring in a CEO. I worked into the deal that if they were going to bring on a CEO that I wanted to step down. I wanted to step away. That I did not want to be working for somebody else. That I was happy to become an advisor. Because we were kind of at the capacity of our talent at the time, I said, “I don’t really have a role right now. I’m the visionary, and we’re not really able to execute upon my vision.” We just haven’t built that infrastructure yet. So if you’re going to bring in a new visionary, I’m replaced, and I don’t want to be involved. So I was no longer involved the day we closed.

Ryan Daniel Moran:

I took a little bit of a smaller cut of the deal. Like a couple percentage points. My co founder got a little bit more money than me because some way that we factored in salary into the overall valuation of the company. So I went away. I think it might’ve been I didn’t get five times my salary in the deal, and I was only paying myself like $60,000 a year or something. So wasn’t a huge deal, but I didn’t get that in the total amount that was closed. Matt got a salary and I didn’t. So I walked away. Matt stayed involved. And I got a little bit less out of payout, but I was out. That’s how it was structured. I walked away.

John Warrillow:

Yeah. Yeah. Yeah. And in retrospect, what might you do differently given everything, all the water under the bridge and everything that happened, specific to your role after the sale? Have you reflected on how you might structure that different?

Ryan Daniel Moran:

That’s a great question. I’ve never been asked that before, and today, now, I really like advising companies. So earlier today, I have an investment fund now. I raise $1.6 million to deploy into other similar eCommerce companies. It’s called Capitalism Fund is my new company. It’s called Capitlism.com.

John Warrillow:

First of all, how did you get the website Capitalism.com? You must have spent a fortune.

Ryan Daniel Moran:

I did, but it was a part domain that was owned by somebody who was a very committed to the cause of capitalism and was sitting on it for 16 or some years. He said he got two offers a year. I contacted him and gave him the vision for the company that I wanted to build. It was a vision that he thought was worth supporting. So he had a price, and I paid the price.

John Warrillow:

What was the price?

Ryan Daniel Moran:

It was low six figures. It was just over $100,000.

John Warrillow:

Awesome. Good for you. That’s great.

Ryan Daniel Moran:

Thank you.

John Warrillow:

So that’s Capitalism.com for everybody listening.

Ryan Daniel Moran:

That’s the name of my podcast and name of my podcast, name of my blog and name of my company.

John Warrillow:

So go back. So question, how would you structure differently?

Ryan Daniel Moran:

So earlier today, I was on a call because we’re considering investing in a company through my capitalism fund. In 30 minutes, I created a lot of value for that company. And I really enjoyed going through that business and giving my recommendations for what I think they should do next. I wish I had taken that type of a roll for Sheer Strength once I left. One of our postmortem’s if you will right before the company went out of business or was bankrupted and sold to other management was one of the people who bought it said, “I don’t know that I realized that you actually did want to be involved. We tried to kind of respect your desire to be out of the business and didn’t realize you still have a lot of value to bring to the table.” I said I don’t know that I realized that either. I don’t know that I really enjoyed being an advisor to a company from an outside perspective. It’s something that I’ve learned in the years that have followed.

Ryan Daniel Moran:

So I wish that I had taken more of that active advisor role of saying, “You guys should do this, and you should do this. And we should go here.” I always wish that I had become a mentor to the new CEOs that they had brought on. But I believed that they knew more than me about how to grow a company. I undervalued my own unique contribution to the direction of the company and that’s what helped me learn and grow so much as a human being. But unfortunately I learned by making mistakes.

John Warrillow:

How would you-

Ryan Daniel Moran:

I run into walls and adjust.

John Warrillow:

How would you structure that advisor relationship if you had it to do all over again so that it wasn’t just teach and learn form, it wasn’t just you had the title of advisor? They actually either had to listen to you or were strongly encouraged to listen to you because clearly you had a big chunk of your wealth tied to this 20%. So you had skin in the game. Oh, the founder wants… How do you avoid just them paying lip service to you and actually having to really listen to your advice?

Ryan Daniel Moran:

I wouldn’t. I wouldn’t structure it that way. If they’re not going to listen to my feedback, then it’s their mistakes to make. I just wish that I had been much more assertive with what I knew was best. I know I keep making this point, but every time I walked into that office, I still kind of had this belief of I was second. Not that I worked for them but they were the big shots and I was the small potatoes. And I wish I had recognized that that wasn’t the case. And I wish that I had been willing to say in the room, “Look, if you guys don’t listen to me, you’re fucked.” And I wish I would’ve used that language. But in that room, in that atmosphere, it would’ve been very unprofessional. I wish I just didn’t care.

Ryan Daniel Moran:

So I actually wouldn’t have structured it for them to have to listen to me because I like having that liberation of being able to give advice that is very truthful. This is much more a story about me owning my own position in where I add value than it is to anything else about how I wish I protected myself in this way or structured it in this way. I wish I had just known my own value and fallen on that sword.

John Warrillow:

How would you characterize the cultural difference between the private equity group and you and Matt?

Ryan Daniel Moran:

I think there is just a difference between an entrepreneurial spirit and a corporate environment.

John Warrillow:

How would you characterize that?

Ryan Daniel Moran:

Slow. Structured. Instead of fast, nimble and dirty. Dirty isn’t the right word. Fast, nimble, and humble. A willingness to make mistakes. A respect for the grit. I relentless service to the customer. That’s such a… Man, John. That’s such a good question. It was the difference between a relentless service to the customer and a relentless desire to grow bottom line profits because they’re different and one drives the other. Relentless service to customers drives profit. But when you’re managing a bulky payroll with debt and boards and quarterly presentations and trying to not get foreclosed on, it becomes much more complicated than it is about serving the customer. So you miss that service element, which is what drives all business. So as soon as you lost sight of the customer, you’re out of business.

Ryan Daniel Moran:

I find that that was too jarring of a switch of going from relentless service to the customer to satisfying the board. The customer got lost and because of that, the company wasn’t able to stay in business.

John Warrillow:

It certainly sounds like the eye was not on the right things. I also heard you characterize with some sort of qualitative adjectives. Small, nimble, humble, gritty, the opposite of which I’m assuming you’re referring to a private equity group was big, structured, and perhaps arrogant.

Ryan Daniel Moran:

Yes.

John Warrillow:

When the private equity group took on debt in order to buy the company, who guaranteed the debt?

Ryan Daniel Moran:

Well, the bank took an equity stake.

John Warrillow:

Okay.

Ryan Daniel Moran:

So it was guaranteed by the company’s assets.

John Warrillow:

Okay. So the limited partners of the private equity didn’t personally guarantee any of the debt.

Ryan Daniel Moran:

I didn’t. As far as I know, the private equity group didn’t.

John Warrillow:

Yeah. Usually not.

Ryan Daniel Moran:

It was just bank. It was just backed by the company.

John Warrillow:

I’ve heard of some slimy deals where the founder sells and the private equity group has the founder effectively cosign the debt that they take on to buy the company. It’s like-

Ryan Daniel Moran:

Oh my goodness.

John Warrillow:

I’ve never… Yeah, anyways. But that was not what happened in your case.

Ryan Daniel Moran:

No. It was not.

John Warrillow:

Forget the technical question, but I’m curious. You mentioned you were paying yourself around $60,000 a year. Clearly your market value given everything you know about the internet and so forth is much more than that. Did you normalize your salary in your profit and loss statement before you took the company to market, or was that one of the adjustments that the private equity group made in the due diligence process?

Ryan Daniel Moran:

It was one of the adjustments made. We didn’t normalize anything.

John Warrillow:

Got it.

Ryan Daniel Moran:

We were taking bonuses along the way, and we had plenty of profits to bonus ourselves out. But all of that was adjusted during the due diligence process.

John Warrillow:

Mm-hmm (affirmative).

Ryan Daniel Moran:

Again, lots of things I would do differently, but we learned on the fly.

John Warrillow:

I’m so grateful for you sharing. But you still walked with some good cash-

Ryan Daniel Moran:

Yeah, sure.

John Warrillow:

… in your jeans. Yeah.

Ryan Daniel Moran:

Like what a dick am I for complaining about only walking away with $5 million. What a dick thing to say. But it’s just one of those things where you tell people… Most entrepreneurs got one shot at this. And I’ll get another shot. I was 29 when I sold. I’m 33 now. I’ve started other companies. I invest in other companies now. I got to learn from my mistakes. I’ll get other shots. Not everybody gets a second shot. So some people take that regret to their grave, and that is no fun. So the more that I can kind of speak out against that, the more that I know I can help the entrepreneur who has had this dream for a long time and make that a reality.

John Warrillow:

Yeah. Yeah. Well said indeed. Did you do anything with the money? I mean, again, you’re 33. You’d be completely excused if you went out and bought some ridiculous car or some fancy house. But tell me you did something with this money.

Ryan Daniel Moran:

Yeah, sure. So I own a lake house here in Austin, Texas. Paid cash for it. I’m in it right now. Fixed it up exactly as I wanted to. I have my Tesla Model S P100D. It’s sitting in my garage charging right now. I made some investments. I started my new business. What you realize is I felt different for two weeks, and now it’s like I have the house I want. I have the car I want. And I am still left with all my junk, all my internal junk, all my internal beliefs, all of my self-doubts. And that is when you really get to discover who you are. And that is the most interesting time when you realize that you’ve become something but you’re the same person. And now the real internal work begins. I feel like I’m just getting started. I feel like I have paid for me to go under the hood and discover who I am and what I want and what I want to do, and now I’m just starting chapter two. That’s an exciting place to be.

John Warrillow:

It certainly is, and I’d be curious to know have you come across any resources that have been helpful in helping you reconcile the stuff under the hood? Any courses, retreats, books, anything that you could share with folks?

Ryan Daniel Moran:

How much time we got? I’m trying to think of where to take this, John, because I could take the answer to this question in several different directions. I mean, I could take this in the therapy direction. I could take this in the Ayahuasca direction. I could take this in the spirituality direction. I could take this in multiple ways. But all of those routes and modalities that I’ve used, tested or discovered just come back to an awareness and a piece about who you really are and how much energy we spend trying to create an identity that is not who we really are. It’s like constructing this identity to be facing the world rather than uncovering what is there. All modalities come to that.

Ryan Daniel Moran:

Therapy will expose the roles that you played in your family and the stories that you believe from your parents and the way that that structured your beliefs about the world. Ayahuasca will take you to Planet Zarcon where you don’t have an identity and make you realize that you’re one with everything and that the whole ego structure is man-made and made up. And that you didn’t need money in the first place. And then the spirituality route will take you to your connection with whatever you call God or whatever you call a higher power and how your identity is more real in that than it is in whatever we identify with in this plain.

Ryan Daniel Moran:

So people get there in different ways, but you kind of realize that all the things that you put on a pedestal never deserved to be on a pedestal. You don’t deserve to be on a pedestal. There is no pedestal. We’re just making it up as we go, but you can make it up consciously. So you can get there in many different routes, but that’s kind of the end of the story.

John Warrillow:

Yeah, that makes a ton of sense.

Ryan Daniel Moran:

Does it? Because I think I just went into the pile of woo and yelled cannonball.

John Warrillow:

Kumbaya. Look, I think it was great. Having a company fills our egos, right? I think a lot of entrepreneurs, it puffs us out and makes us feel like we’re important. People acknowledge us for that, and then when you sell, you get a bunch of money in the bank. But you’re no longer that person anymore.

Ryan Daniel Moran:

That’s right. That’s right. And now you have to completely rebuild what you believe is yourself, and that can really trip you up if you believe that you are your company or that you believe that you are an entrepreneur or that you believe that you are the construct that you built in order to become a successful entrepreneur.

John Warrillow:

Yeah. And I think especially when the terms under which you separate from your company are… Allow me to use this term. It’s not right but it’ll do. As violent as they were with you in the sense that it’s not a graceful exit where they have the party and years of service where your advisor and your the sage wisdom. It’s like all of a sudden-

Ryan Daniel Moran:

You’re out.

John Warrillow:

… you’re out. Right. So that violent exit I think can exacerbate that.

Ryan Daniel Moran:

For sure. There’s like a whiplash. There’s this void that is created on the other side of it, and then you’re just left with you and your stuff.

John Warrillow:

And so obviously you’ve done lots. Again, if it was a buddy of yours just sold his company for a truckload of money, what would you suggest they do as their first step?

Ryan Daniel Moran:

Oh man. First thing I’d recommend is they do nothing for six months. I mean, don’t invest the money because the biggest thing is that people are going to think that they have to… They haven’t normalized having that money in the bank. So don’t go buy a bunch of index funds and hiring financial advisors because you feel like you have to do it. You don’t have to do anything. It’s your money. Just enjoy having a big number there for a second. You’re not going to miss the opportunity of a lifetime in six months. You don’t have to buy Bitcoin. Just hang out for six months.

Ryan Daniel Moran:

Don’t start another business for six months. Don’t market yourself as an investor, an advisor for six months. Go do dumb things. Go to the beach. Go read books. Go write. Go be with your family. Go get bored. Go rake some leaves. Go wash your car. Go do things that you think are poor people things. Mow your own grass. Do the things that are mindless that bore you that allow your brain to just normalize your new life.

Ryan Daniel Moran:

Then six months from now, all the businesses that you start, all the investments that you make will be from choice not from need. When you’re operating a company, you do a lot of things from need. Got to make payroll. Got to make investors happy. Got to make a sale. Got to grow profits. And you lose sight of why you got into this in the first place, which was to have a freaking amazing life.

Ryan Daniel Moran:

So when you got the money to do nothing, you have the power to be able to do everything from choice, which is go build a freaking amazing life. But what I did and most of my peers have done is you go from hustle to hustle and you’re like, “Where’s my freaking amazing life?” Well, you never allowed it to show up. So do nothing for six months. Let the good stuff come.

John Warrillow:

Sage wisdom indeed. Ryan, you’ve written a book.

Ryan Daniel Moran:

Yeah.

John Warrillow:

Start To A Million. Am I getting the name right?

Ryan Daniel Moran:

It’s called 12 Months to $1 Million.

John Warrillow:

Thank you. 12 Months to $1 Million.

Ryan Daniel Moran:

It is the roadmap to going from nothing to a million dollar business in 12 months. Roadmap Matt and I kind of pioneered. I’ve literally had hundreds of people tell me that they build million dollar businesses just following… We documented the whole business on my podcast. So we kind of tracked what we were doing, and hundreds of people say they followed it and built million dollar businesses doing it. So [crosstalk 00:54:49]-

John Warrillow:

That’s fantastic.

Ryan Daniel Moran:

… wrote a book on the topic. It’s currently a number one business book in America. So it’s doing really well. I’m really proud of it.

John Warrillow:

Congratulations. That’s awesome.

Ryan Daniel Moran:

Thank you. Thank you.

John Warrillow:

And seven-figure number is such a threshold for a lot of people. But it’s both aspirational, it’s a meaningful number.

Ryan Daniel Moran:

Right.

John Warrillow:

And once you get there, you can start to invest in systems, and it starts to build from there. So amazing resource. And Capitalism.com. Just talk a little bit about what people will find there and they can find the podcast obviously. What else can they find there?

Ryan Daniel Moran:

I believe in capitalism. I believe in entrepreneurship. I believe in creating change through business. So Capitalism.com is both my media property for entrepreneurs, like my YouTube channel and my podcast, and it’s also my lab where I am teaching to aspiring entrepreneurs but I’m also investing in them. I have a fund that I raise to invest in physical products companies. And it’s like my lab where we are starting, investing in, and mentoring entrepreneurs because I believe that’s the fastest way to create change.

John Warrillow:

Awesome.

Ryan Daniel Moran:

That’s what we do at Capitalism.com.

John Warrillow:

And the website, Capitalism.com. We’ll put that in the show notes. Ryan, it was an absolutely pleasure. Thank you for sharing with such candor and humility. It was a real life lesson.

Ryan Daniel Moran:

John, thank you so much. I so respect what you do. I appreciate you having me on.

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