How to Sell When Everything Is Broken

Transcript

John Warrillow:

Hey there, it’s John Warrillow. If you’re brand new to Built to Sell Radio, welcome. It’s good to have you along for the ride. We’ve been doing the show now for five years. I’ve interviewed, literally, a different entrepreneur every week for the past five years. And I’ve taken some of their best practices, their tips and tricks and negotiation hacks, and distill them all into a field guide. It’s a book called The Art of Selling Your Business. And it is a little bit of a recipe card for you to punch above your weight when it comes to negotiating with an acquirer. You can get it at builttosell.com/selling.

John Warrillow:

So, how was last year for you? If you’re like a lot of entrepreneurs, it was the most difficult year of your career. Maybe it was difficult financially. It, most certainly, was difficult emotionally. And you may be at a point where you just want out. Your EBIT is down. Your profitability is down. You’re a shadow of your former self as a company. But that doesn’t matter to you. You just want to sell and move on with your life.

John Warrillow:

And if that’s the situation you find yourself in, I think you’re going to really enjoy my next guest. His name is Cesar Quintero. And he built a company called Fit2Go. They did meal delivery service, built it up to $3 million in revenue when COVID hit. COVID devastated his company as he will describe. And I think he takes away and shares some really wonderful lessons for anybody who finds himself in that situation. There is life after your business. And there may be a way to structure the sale of your company so that both you and your buyer ultimately walk away winning. Here to tell you how he did it is Cesar Quintero.

John Warrillow:

Cesar Quintero, good to have you on Built to Sell Radio.

Cesar Quintero:

Thank you, John.

John Warrillow:

Good to be with you. So, tell me a little bit about Fit2Go. What do you guys do?

Cesar Quintero:

Well, first of all, I want to thank you for having me. I’m a big fan of the show. I know everybody says that, but I have to.

John Warrillow:

No. It’s great to have you.

Cesar Quintero:

Fit2Go. So, a little bit about Fit2Go, I’m originally from Venezuela and South America. And I moved to Miami when I was 24. At 24, I decided to get married, move to Miami, to a new country, and start a business all at the same time because… why not?

John Warrillow:

Did you throw in a couple of kids in the meantime?

Cesar Quintero:

No, no. That, I told my wife. It’s like, she don’t want to move without getting married. So, I’m like, “Okay. Let’s get married, but no kids at least for five years. I’m starting up a company.” And I started Fit2Go. It’s a food delivery company. So, we cooked and delivered meals and took them to people in their office. Now, mind you, this is 2004. So, this is pre-Facebook, pre-Uber Eats, pre all of this. I had to knock on doors and convince people it was convenient to have your meals delivered kind of thing, right?

John Warrillow:

Wow. And so, who would take… I mean, was it people working in banking and white-collar industries that wanted-

Cesar Quintero:

That’s interesting you say that because our core target shifted, right? So, in my mind, I wanted a healthy gourmet, very high-level menu for the CEOs and the C level. And then, I realized that my target was people who are stuck at the office. Everybody wants to go out for lunch. And so, it was bankers, teachers, administrators, people who are just stuck in the office, but they wanted to eat something healthy.

John Warrillow:

They didn’t want to go down to the food court and get an A&W or a McDonald’s burger or whatever they-

Cesar Quintero:

Exactly. Exactly.

John Warrillow:

Got it. And so, you cooked a… so, did you have a kitchen where you’re actually cooking the meals?

Cesar Quintero:

Yeah, yeah. So, my background, I’m a process engineer. I graduated as a process engineer. And I saw this opportunity because… I was in P&G for four years in Latin America. And I gained weight, and I always had this struggle with weight my whole life. And when I moved to Miami, I realized there’s this gap of healthy food and people wanting healthy and then the convenience of delivery, logistics, right, process. So, how can I get a centralized location and deliver all over?

Cesar Quintero:

So, this was pretty innovative at the time. We were the first ones here. And so, we built a commissary kitchen. And as all startups, they told me, “It’ll take six months.” And with permitting and all that, it took a year and a half. So, I couldn’t start selling a meal because I decided the… so, I have a lot of bad experiences while building my business. And that’s good stories on what not to do. But coming into a new country, not knowing how to do the business, it’s part of the pain. And I was wondering-

John Warrillow:

Well, what was your biggest mistake in those early days?

Cesar Quintero:

I’ll say there were three things that were the biggest. I think the first one was wanting to do a kitchen from scratch and have it perfect. And I had this friends and family money. And I’m like, “Okay. I’m going to spend it in getting a new kitchen, getting these new things,” instead of just renting something that was already with permits and done. I could get or bought even now, and they… I would have bought a business with catering or permitting and all of that. So, that was one of the-

John Warrillow:

It’s so funny you mentioned this. A buddy of mine was talking about restaurants. And he was saying, “The only way to make a restaurant profitable is the fourth time.” I’m like, “What do you mean fourth time?” He’s like, “So, the first guy goes in, and he buys all the top-of-the-line stuff, right? And he goes bankrupt. The next guy goes in and buys it for 80 cents of the dollar. He goes bankrupt. The third guy comes in and buys it for 50 cents of the dollar. He goes bankrupt. The fourth guy buys it for 10 cents of the dollar, and he makes a profitable restaurant.”

Cesar Quintero:

Yeah. They know my pain. They know my pain. Yeah. So, definitely, that was something.

John Warrillow:

I don’t mean to laugh at it.

Cesar Quintero:

Right? And the grease trap and the whole thing and the… permitting always changes. It’s terrible. The second thing is hiring family and friends. At the beginning, I didn’t know anybody here. And I’m just bringing in people. And I don’t think the issue was hiring family and friends. I think it was not setting the right boundaries or the right accountabilities on what each person was responsible for. And we were not aligned in vision. So, I think they were going that way. I was going this way.

John Warrillow:

Give me a real life story, Cesar, related to the downside of having friends and family. Like your uncle and your brother-in-law, we don’t have to actually name them.

Cesar Quintero:

Oh, I have my best friend. My best friend was part of our team.

John Warrillow:

Tell me a story.

Cesar Quintero:

Let’s see. There were times when we would mix social and business. So, at that time, we were startup. And we couldn’t pay anybody enough. And we were going through these things. And she was like, “I can’t believe I’m doing this for this price. And I could be doing something better.” And that way, I started thinking the same thing. I’m like, “That’s right. I don’t understand. I’ve been doing this for so long. And why am I not making more money? My friends are making more money.”

Cesar Quintero:

So, I think just that. So, that’s not an example of accountabilities. But having people that… you blur their lines of a friend plus business, but… different ways of tackling marketing. At that time, we were trying to spread a new concept. We were trying to teach people that you could have your meal delivered every day. And people just were like, “Why would I do that?” So, it was a gap we needed to teach. So, my approach was door to door and giving out free samples.

Cesar Quintero:

But then, we weren’t aligned, and we were losing our money out. And I was giving away meals. They were giving away weeks or months just creating buzz and doing different things. And it’s like we weren’t focused on the same thing, so… yeah.

John Warrillow:

What was the third mistake?

Cesar Quintero:

Yeah. My mom was a finance person. And she wanted to do an Excel, not QuickBooks, because that’s the way she did it all her life. And I’m like, “Okay. It’s my mom. What am I going to say?” But then, it’s not efficient. I have to wait a full month for financials. And I can’t. I’m running out of negative. So, that type of thing.

John Warrillow:

I’m with you. I waited. So, what was the third mistake?

Cesar Quintero:

Third mistake, I would say, is not knowing the market well enough. And I think you talk about this a lot in your show. And me being from Latin America, our main meal is lunch. And so, Fit2Go was done as a lunch delivery meal service for people in their office. And we want it to be at the $15, $20 mark because that’s the main meal. But then, people in America don’t want to pay more than 10 bucks for lunch. They can eat an apple. I can eat a Subway for five bucks.

Cesar Quintero:

And the creation and the value proposition of the business was flawed because people pay more for dinner, and they’re fine. Restaurants, they want drinks. That’s where they make their money. And I was a food delivery service for lunch. So, I got myself in the worst niche where people wanted to pay less for and undervalued our product.

Cesar Quintero:

So, that was a big mistake. And we had to pivot that where we started delivering lunch, dinner meal plans full days and things like that where we crafted and we pivoted to more value, more of what people needed.

John Warrillow:

Got it. You mentioned friends and family. So, how did you finance the business? It sounds pretty capital intensive, especially with the facility, the kitchen, and so forth. How did you finance it?

Cesar Quintero:

Yeah. So, I’m a bootstrap guy. I’ve never had a financing background. That’s why selling the business was completely different and foreign to me. So, I had three uncles. My mom was my partner at the time… so, she was part of this… and then me, all my savings. So, mostly, it was $250,000 in total that we put in to build a kitchen, do the whole thing. So, we just got what we could and just put it to produce. We were cashflow positive after eight months.

John Warrillow:

And, Cesar, the $250,000, was that debt? Or did you give them equity? Or how did you structure that from a-

Cesar Quintero:

Yeah. So, my mom was my 50% partner. We later realized that we could not work together. So, I became the 100% owner of the company and operational and everything.

John Warrillow:

Did you buy her out? Or did she just wait for equity?

Cesar Quintero:

She moved back to Venezuela. And she said, “I don’t want to be in a business. I don’t know why I wanted to be in the business.” Then, she just-

John Warrillow:

So, did you buy her out? Did you pay for her? Or was it just love money?

Cesar Quintero:

My first sell was I took her out of the company, so yes. So, the-

John Warrillow:

So, you did give her money?

Cesar Quintero:

2017, yes.

John Warrillow:

Okay. Oh, I see. So, when you sold the first tranche of your equity, your mom benefited in-

Cesar Quintero:

Correct. You got it.

John Warrillow:

I see. Okay. We’ll get to that in a minute.

Cesar Quintero:

Yeah. I guess she was an investment partner-

John Warrillow:

Got it.

Cesar Quintero:

… for those… what was it?… 2004 to 2017. So, yeah, that’s one of the-

John Warrillow:

Got it. And how about your uncles, did they invest and get equity? Or did they just lend you the money?

Cesar Quintero:

No. It was mostly loan type. Yeah.

John Warrillow:

Got it. Got it. So, you and your mom are 50-50 partners going into this? She’s doing the Excel spreadsheets. And you guys are cranking this out. How big did you get this company before you chose to sell half of it effectively? Which we’ll get to in a minute.

Cesar Quintero:

We got to 3.25. So, it went through different iterations. I think there was a first iteration where we got to a million and a half. I think it was five years into it. And we got stuck there for a little bit. So, we got stuck there for five years. And then, we were able to double once I understood that I didn’t have to do anything. And I learned how to be a better leader. So, I think it also came with age.

Cesar Quintero:

At 24, 26, 28, I thought I knew everything. And I had to be the leader that told everybody what to do. And then, I quickly grew up. 2012, ’13 is when we doubled. So, we went little by little. And boom, boom, boom, boom, boom, and we grew. So, that’s when we got to the valuation. And that’s when Josh came in. Josh came in two years before I sold-

John Warrillow:

Okay. We’ll get to Josh in a minute. But I’d love to know what you learned about managing because I think a lot of people listening to this will be like, “Yeah. We’ve been plateaued at a million, at three million, or five million,” whatever the number is, “for years. And I would love to know what Cesar did to, all of a sudden, double,” because that’s a big change, right, to go from a million and a half for five years and then, all of a sudden, then double.

John Warrillow:

So, there must have been something. And you just chalked it up to age. But there must have been tactically something you did differently.

Cesar Quintero:

Yeah. So, knowing your show, I’m just going to open up and say the truth and be vulnerable here. But actually, it was something that happened to us. In 2012, we got hit with a class action. And it was a bogus claim. We were the fifth company targeted by this girl and attorney. And I had plateaued. We were plateaued for four years, trying to get to the next level. And I realized that we got hit with this lawsuit. And my ego decided to fight.

Cesar Quintero:

We were like, “We need to fight this. I’m in the right. I’m going to prove that I was right.” And my team, everybody banded. And we’re like, “We’re all going to prove this is… she’s not getting a dime.” So, she got three of the new guys to go with her. So, that’s why it was a class… actually, it was four people, five, I think, at the end. But all my team just banded together, right? And this year, 2012, was a very tough year for me. My first daughter was born. That’s one.

Cesar Quintero:

But then, the lawsuit didn’t allow me to concentrate in the business. All my energy just waned out. My health deteriorated that year. I got diagnosed with three different things, genetical things. I think the stress was just causing me to do these things. And I remember there was a point in that year… it was Black Friday… where I’m $0 in my bank account, $0 in our company account. I saw my team. We were in a meeting. And I’m like, “I don’t even know what to do now,” literally, a tear down my face.

Cesar Quintero:

And I’m like, “Guys, I think I hit this… I don’t know what to do.” My ego got in the way. And I wanted to fight this. We won. She got $500. But her attorney, my attorney, and the process cost $250,000 or something. And I don’t know what to do. And that’s when I realized my team stepped up, and they said, “We can do it too,” right? And they cut their salaries. Let’s make this work. I think it was the first time that we all had a purpose that aligned towards this.

Cesar Quintero:

It’s the first time that something galvanized us to one thing. And it was to pay the attorneys in one year. That was our goal, right? And that’s one of the reasons I sold the business, was I read this book by Jack Stack called The Great Game of Business.

John Warrillow:

Great Game of Business, yeah. Or A Stake in the Outcome is his other one. Yeah.

Cesar Quintero:

Exactly. And I said, “You know what? I’m going to follow this book to the tee.” So, I didn’t even make calculations. I followed the same percentages of bonuses, all that. And I said, “Okay. This is where we’re at. These are the books. What can we do?” And they’re like, “Okay. Let’s cut here. Let’s cut there. Let’s do this. Let’s do that.” And incredibly, we paid the attorneys off in one year. And that gave us-

John Warrillow:

Wow. And that was a $250,000 bill?

Cesar Quintero:

Yeah.

John Warrillow:

And you said the attorneys got $500. Are you saying $500,000 or $500?

Cesar Quintero:

No, no. She got $500. That was-

John Warrillow:

Okay. Meaning, the woman who brought the class action suit?

Cesar Quintero:

Yes. And remember, they got 50% of that, right, because they have to give their attorney that. My only thing in the settlement-

John Warrillow:

You won, dammit.

Cesar Quintero:

I don’t know if I can share this, by the way. But hey, I did.

John Warrillow:

Oh. And so, the-

Cesar Quintero:

That was long enough.

John Warrillow:

Yeah, yeah. And so, your attorneys charged you $250,000 to defend the case?

Cesar Quintero:

No. It was her attorney plus my attorney plus the process, the mediation process.

John Warrillow:

Through lots of stuff.

Cesar Quintero:

It was just a long process.

John Warrillow:

What was the class action suit over? What were they suing you for?

Cesar Quintero:

It was over wage an hour. So, I had Uber before Uber. So, they were contractors, cars, insurance. They had their own thing. And they were claiming that I had to pay them $55 on the mile… 55 cents on the mile, unlike what the IRS says. And it’s like, it was just complete nonsense. It was dismissed by the judge eventually as well, at the end. And they forced her attorney to just settle. But it is what it is.

John Warrillow:

Yeah, yeah, yeah. And I mean, you-

Cesar Quintero:

I think the last time was that… it was the worst and best thing to happen to me. It brought me closer to my team. And it made me realize that I didn’t have to have all the answers because that was… you asked me before, “What was the change in leadership?” And I think that’s why I told this story, is because that’s when I realized that leadership isn’t about telling people what to do. It’s mostly just allowing people to take ownership of their jobs and their roles.

Cesar Quintero:

And so, that’s when I did a purpose discovery, the Simon Sinek strategy. And then, I did EOS. I did Jack Stack Game of… so, I did all these things of just trying to decentralize me and connect with my team, which was a big game-changer for me.

John Warrillow:

I’d love to explore a little bit about open-book management and bringing the team on board. What was the most surprising thing… clearly, there was an initial surprise of how engaged your team was and how willing to step up they were and how committed they were. So, I want to acknowledge all those things. And as you went through the process of running the company in an open-book style, I’d be curious to know, six months, nine months, 12 months later, what was the most surprising thing? Was there anything that you didn’t expect?

Cesar Quintero:

Two things, I think. The first exercise the book tells you to do is walk up to your team and say, “Okay. So, we sell this meal for $10. How much do you think we get, as a company, for selling this meal for $10?” Right? And the average response was $6, $7, which, to their mind, is 60%, 70% profit. I’m like, “No. We get 55 cents on the dollar for every bag we sell.” And they’re like, “What? That makes no sense.” And I’m like-

John Warrillow:

You mean 55 cents for every meal you sell?

Cesar Quintero:

For every meal. For every meal, yeah.

John Warrillow:

Okay. You said, “On the dollar.” So, I-

Cesar Quintero:

No. I apologize. I apologize. I mean, for every bag we sell. Yeah.

John Warrillow:

Oh, no. That’s okay. I just want to make sure. So, after you pay for all the wages in the kitchen and the food inside, you get 55 cents?

Cesar Quintero:

So, when we started, it was 5.5%, which is the average on most restaurants, right? And I didn’t have the beverage and all that. So, that’s what I thought was normal. And within a year, we got to 12% net profit. So, we more than doubled our profit by doing this. And these are the little things that happened, right? So, there was a guy in our kitchen who is accountable for utilities, right? And he would watch the utilities sheet every week.

Cesar Quintero:

Every Wednesday was our open-book meeting. And he noticed that the gas was going up. The propane gas was going up little by little. It’s something we wouldn’t notice because it’s so small. But he noticed, and it was going up and up and up. And then, it’s like, wait, wait, wait. We renegotiated the deal. We went down. We dropped the percentage. But then, not only that, when he was in the kitchen, when somebody left the fridge open, he would be the first one to be like, “Close the fridge. Close the fridge.”

Cesar Quintero:

He was in charge of utilities, right? And imagine that to every level inventory, utilities, all these things that just happened that were… I, before, was accountable for all of these costs. And nobody cared. Now, every single person took ownership of these things.

John Warrillow:

And, Cesar, did you let them participate in the business? How did you incentivize them? Did you change their incentivize [crosstalk 00:21:28]?

Cesar Quintero:

Yeah. So, the book gives us… it’s a game, right? So, everybody gets two goals. The first goal is a company-wide goal which, in our case, was profit. So, if we all achieve profit, we all get a certain amount of bonuses. So, for a $10-an-hour person, they would have gotten probably to… if we got to that, it would have been a month of salary a year, right? And then, the second one was per department.

Cesar Quintero:

So, if kitchen was under 11% of sales, if purchasing was under 32% of sales, if… and we had department targets, then they would… if they hit that, it’s another… they double the profit, right? So, that first year, I never thought we would double profit. We set the goals like, “Oh, yeah. If we go over 10%, we got two months of salary.” Everybody got two months of salary at the end, right? And it was crazy. You’re talking about line cooks and all this.

Cesar Quintero:

And that’s one of the things that… and great [inaudible 00:22:33] business also, the example is a factory, right? So, this worked really well with people who did not understand how financials worked because it taught them that everything that they do and how they affect the bottom line… and it was incredible. Yeah.

John Warrillow:

So, they did not become shareholders, to be clear. They had a two-part incentive structure-

Cesar Quintero:

It was bonuses.

John Warrillow:

Got it.

Cesar Quintero:

Yeah. And then, we paid them off every quarter, 10%, first quarter, 20%, second quarter, 30% then 40%.

John Warrillow:

I’ve talked to people on the show before about open-book management. And one of the potential downsides that I’ve heard… and I wondered if you had a reflection on this at all… is that open-book management can be great in the early days because there’s not a lot of profit. But if the profit starts to become significant money and you’re making hundreds of thousands a year, millions a year, all of a sudden, they look at you and say, “Hold on, Cesar. I need to renegotiate my $15-an-hour wage,” whatever it is that they make.

John Warrillow:

Did you contemplate what would happen if you really started to get really profitable?

Cesar Quintero:

I’m going to be fully honest. Number one, I was in the food industry. So, I’m in food and logistics. So, they’re both low-margin businesses. So, for me, that was never an issue. But to answer your question, I think it’s about education. Now I do this with a ton of companies, not open book, but I consulted with many companies. And what I see a lot is companies that… I lost my train of thought. Sorry.

Cesar Quintero:

But companies don’t want to disclose certain things. But then, they don’t understand that, when you’re growing, you need cash. And when you do different things… so, the financial education of this… and it’s not like I’m disclosing how much I’m making on open management. It’s not like I’m disclosing how much you make or how much… no. These are line items, right? These are salaries. These are purchasing.

Cesar Quintero:

So, when you’re doing open-book management, it doesn’t mean that everybody can look at the details around every count. It’s more line items and what we need to look for, right?

John Warrillow:

Got it.

Cesar Quintero:

So, like the office, the whole office expenses was just one block, right? These are the office expenses.

John Warrillow:

The other side of the coin that I’ve heard, in terms of downsides of open book, is that if you run into a period of low sales where the revenue drops, it can really freak people out.

Cesar Quintero:

Yeah. That happened to us. And actually-

John Warrillow:

It happens to him a lot.

Cesar Quintero:

… that’s what led to my sale. It wasn’t drop of sales. It was drop of cash for growth. So, I don’t know if it’s time to go to that.

John Warrillow:

Yeah, go for it.

Cesar Quintero:

But Josh came in. So, one of the things that happened was that when I made that realization and we grew the company and I was a ceiling of my company and that’s why we had plateaued, when I realized, okay, I need to surround myself with people that know more than me, I brought in a chef who was a… Josh, he was a Turnberry Golf Club chef, a country club chef, very renowned, and had a lot of experiences in this field.

Cesar Quintero:

And he was looking for something that wasn’t weekends and nights. He was looking for something… his boys were teenagers. And he was looking for something that was more daytime job. And he found us, and he came on board. And it was part of open management. He knew our books. He knew our numbers. He knew all these things. We were trying to expand, at the time, to Orlando, Tampa, and different cities.

Cesar Quintero:

And he said, “You know what”… and everybody knows. “Hey, we don’t have cash. We need to find cash. We need to find”… yeah. So, remember, all these things are great things for goal setting because it bands everybody together on one, same goal. So, if we don’t have cash, we need to either cut costs or we need to grow sales. So, how are we going to do this? Everybody needs to be on the same page, right? So, that’s the benefit of that.

Cesar Quintero:

And then, I didn’t know Josh came from money or anything. But when he came on board and saw, hey, this is the opportunity, these are the things that we can do, we need more cash, we need more things, he’s like, “Hey, hey, hey, your mom isn’t here. Can I be your 50% partner? Can I be part of this? I always wanted to be part of something that was mine,” right?

Cesar Quintero:

And that process was amazing because, then, that triggered the open-book management, plus the vision, plus the culture, plus different things Josh said, “I want to be a part of this.” And it came to my surprise. I was going through SBA and finding different financing ways to fuel the expansion. And here was Josh saying, “I want to be part of this.”

John Warrillow:

So, what are your sales at this point when you’re starting these… what’s your revenue? You mentioned a three and change.

Cesar Quintero:

Yeah. No. Wait. No, no. This is when Josh came on. So, we were probably three, around three.

John Warrillow:

Three million in revenue?

Cesar Quintero:

Yeah, yeah.

John Warrillow:

Got it. And so, Josh is like… I just want to clarify. So, you said your mom had gone. You mean she left for Venezuela?

Cesar Quintero:

Yeah. She didn’t live in the US. Yeah.

John Warrillow:

She was still a shareholder, though, at this time?

Cesar Quintero:

She was still a shareholder, yeah.

John Warrillow:

Okay. But she physically left. Okay.

Cesar Quintero:

Yeah, yeah.

John Warrillow:

Got it. And so, Josh is like, “I’d really like to be part of something.” And so, you started to think about selling part of the company to Josh. Is that right?

Cesar Quintero:

Yes. So, one of the creative ways of saying it is, “You know what”… and at the same time, I had already started two other businesses because I was less and less in the business. So, that’s when I said, “You know what? I can start. This is a perfect opportunity for me to become my mom, right? Now, I don’t have to be part of the business. I can have somebody who’s the operating partner in the business, and I can move out.”

Cesar Quintero:

So, it was a perfect way for me to step away. And at the same time, he could buy my mom out. And I take my mom’s place as a 50% shareholder. And then, he’s the operating partner. So, that’s the outcome that we came out with. And it was a great way for me because the whole… and we didn’t talk about this. But I didn’t realize that the business was not my purpose. I started this business because of an opportunity. I saw a gap. I went into it. I don’t know.

Cesar Quintero:

Food, it’s not my thing. I realized that my passion was the people. That’s why I did all these things, right, and elevating people and allowing them to have… and empowering them to have the life they want to live. And that’s what I discovered was my real purpose. So, I stopped shifting my focus on food, delivery, product, service. I let them do that. And then, I just focused on them. That was a big trade-off.

Cesar Quintero:

But at that point, I started consulting, doing different things, and doing that for different companies. And at the time, I was selling the software to different restaurants. And that’s where I’m like, “I’m not in the business anymore. So, maybe I need somebody who’s there to grow the team.” And that was the other side, right? So, Josh coming in was allowing me to step out from the day to day.

John Warrillow:

Got it. So, clearly, you’re going to sell half of the company to Josh?

Cesar Quintero:

Yep.

John Warrillow:

What did you think it might be worth? Before you started down the path of valuing it professionally, did you have any sense of what you thought it might be worth?

Cesar Quintero:

I am financially illiterate, right? So, I didn’t even know how to start. Remember, this was a surprise for me. I never thought that an employee wanted to buy my company. So, we just said, “Hey, how do we valuate this company? I don’t know. Is it one-time revenue? Is it four times EBITDA? What measure do we go?” So, to be honest, I’m going to… and that’s what this is about.

Cesar Quintero:

I just said, “Yeah. Let’s do a valuation. We’re going to do a shotgun agreement anyway, right?” So, we’re going to do a shotgun… let’s get the insurance to do a valuation on our company on how much we should get for our buy-sell agreement, right? And then, we got a side valuator, which wasn’t the top-notch valuation company because they were charging 10,000 bucks or 12,000 bucks just to do a… we can do an overview.

Cesar Quintero:

And I’m like, “Well, let me get one that’s a little cheaper and see if it comes around the same amount.” And coincidentally, thank God, they both came around that same amount.

John Warrillow:

And so, what did they value the company at? You’re doing $3 million, top line, if I’m doing… right, to 12% net margin. So, you’re roughly 300 grand on the bottom-ish?

Cesar Quintero:

Yep, yep, yep.

John Warrillow:

So, what did they value the business at?

Cesar Quintero:

It was four times. So, it was 1.2.

John Warrillow:

Okay. And so, they said four times EBITDA was what the company was worth?

Cesar Quintero:

Yeah.

John Warrillow:

Got it. Can you explain what a… I’d love for you to explain-

Cesar Quintero:

Now, they didn’t-

John Warrillow:

… to us what-

Cesar Quintero:

Oh, sorry. Yeah.

John Warrillow:

No. What were you saying?

Cesar Quintero:

No. Go ahead. Go ahead. Sorry.

John Warrillow:

I was just going to ask you. Could you explain what a shotgun agreement is in layman’s terms? And then, also, I’d love to explore what role insurance has in that. But first, I need to understand. And I think there are probably people listening who might benefit from hearing what exactly you mean by a shotgun agreement.

Cesar Quintero:

Yeah. This was a friend of mine. I’m part of the Entrepreneurs’ Organization. So, a friend of mine had just done this. And he said, “This is the way you need to do this.” And I’m like, “Okay.” So, as I had no idea what I was doing, this was a great way where a shotgun… the way that works is if you get it… I got into an agreement with Josh, right? So, if I want to… let me get this right, right?

Cesar Quintero:

So, if I want to buy Josh out, right, I need to say, “Okay. I’m willing to put this amount of money.” But then, he makes a decision of whether he’s going to buy for that money or buy me out for that money, right?

John Warrillow:

You have to accept the same offer that you make him?

Cesar Quintero:

So, if I name the price, then the other person gets to choose who stays and who doesn’t, right?

John Warrillow:

Mm-hmm (affirmative).

Cesar Quintero:

So, that’s part of that. But in order to do that then, you also get an insurance because, if someone dies, there’s also a buy-sell there where, if I die, right, then… what is it?… my spouse… no. He gets my… what’s it called?… the insurance to buy my wife out. So, it was a double thing that we had to do in tandem. So, I’m like, “Hey, the insurance has to do a valuation anyway.” Mind you, I wouldn’t recommend this to anyone. But insurance valuations, they want to jack it up because they want to sell you more insurance.

John Warrillow:

Right. So, they’re incentivized, theoretically, to jack it. And I hadn’t even thought of that. Interesting. But you did have an outside valuation done?

Cesar Quintero:

Well, that’s what I think about it, right? I don’t know. I don’t know if that’s true.

John Warrillow:

Yeah. And then, you did have an outside valuation done as well. They came in roughly the same.

Cesar Quintero:

And then, they came in the same. So, I guess it proves that I’m not right. Yeah.

John Warrillow:

Got it. And when you were looking at the 300-grand profit, did you go through the process of adjusting that profitability to go through and take out personal expenses and do all the things that you could do to jack up that profitability?

Cesar Quintero:

We did. To be honest, at that time, we were at growth mode. So, a lot of that cash was being reinvested in the business. So, there wasn’t a lot of cash coming, really, out. It was just, we are very… there was a lot of inventory, a lot of stuff that we had to purchase and do and grow, and the VAT. So, there wasn’t that much cash in the business, but yeah. I’m not sure if I answered the question well.

John Warrillow:

You did. And so, what was Josh’s reaction to the valuation of 1.2?

Cesar Quintero:

So, we had both thought it would come back at one or one something. So, what we said is, “You know what? This is so new. And this is part of our agreement, but”… I don’t know how much I can disclose. But we agreed that we would stay at what valuation we would do. But then, he would get a bonus if we met certain metrics of growth and all that in the first couple years.

John Warrillow:

I see. Okay.

Cesar Quintero:

Since the company was plateaued, we were trying to grow. So, what we wanted to do was I wanted to incentivize him to really operate in a growth mindset because I was stepping away. And I want to make sure that the company grew without me. So, that was part of the deal as well.

John Warrillow:

So, did he write a check for 600 grand?

Cesar Quintero:

Yep.

John Warrillow:

And what did you do with that money? Did you get to pocket that, give half to your mom? Or what happened to the 600 grand?

Cesar Quintero:

No. That was 50% of my mom’s, right, and that we bought her out. She earned her ramp up. And at that point, I got back a little bit of my seed investment. But it was mostly, I was buying myself my lifestyle. That’s how I saw this sale. And I know different people sell for different things. I think my reason for selling was because I had something that I love to do on the side. And this was not my passion anymore. I had lost my passion.

Cesar Quintero:

And I think that was one of the main reasons for plateauing, because my passion was just not in the business. And proof of that is Josh grew at 30% the first year, right? And I wasn’t in it. So, I think that’s proof of what happened. And so, my purpose was really to get out of the business. And at that point, I didn’t sell 100%. And I think it was most of the mind trash in my head saying that, if I sold all of my business, I would stop being an entrepreneur.

Cesar Quintero:

And I kept to it because I wanted to stay in the, “Oh, I would still want to be an entrepreneur,” because, on the side, I was doing a lot of teaching. All the things that I did for myself as an entrepreneur, I was doing for other entrepreneurs. So, I was training forum in EO. I was doing an accelerator program in EO. I was doing EOS implementation.

John Warrillow:

EO being Entrepreneurs’ Organization, which is-

Cesar Quintero:

Entrepreneurs’ Organization, that’s right.

John Warrillow:

Yeah. Which is something most people listening will have heard of, but maybe some-

Cesar Quintero:

Yeah. I was doing EOS implementation, the operating system. I was doing purpose discovery. So, everything I went through, I was doing for other entrepreneurs. And I loved it, right, because it was so tied to my passion to the things I wanted to do. But I didn’t want to be labeled as a consultant or a coach or… I want to be an entrepreneur.

John Warrillow:

Yeah, yeah, yeah, yeah, yeah.

Cesar Quintero:

So, at that point, I’m like, “No. I’m going to sell 50%. And I’m going to have the best of both worlds.” I want to be-

John Warrillow:

Right. Do what I love, but I’m going to be an entrepreneur, et cetera.

Cesar Quintero:

I’m going to do what I love. But on the side… yeah.

John Warrillow:

So, what happened to the business when you stepped away? Josh took over. You mentioned he grew it to 20% or 30% the first year.

Cesar Quintero:

I think the first year was 30%. Second year, it declined a little bit. There was a lot of competition, a lot of different things in the market that were happening. A lot of consolidation in the market was happening. The big fish were trying to buy smaller fishes. And it was tough. We never blamed the outside world. But at the same time, internally, there was a little conflict and different things there. And then, COVID hit next year, the year after, right?

John Warrillow:

2020.

Cesar Quintero:

Yeah. And that hit us hard because you… so, our niche was delivering healthy meals to people in corporate. We did not want to deliver to residential because delivering one meal in residential took you 20 minutes. Delivering 100 meals took you five minutes in a corporate setting. So, COVID hit us hard, hit us hard. And we were in the process of finding… there was a consolidation process happening in South Florida.

Cesar Quintero:

So, we were in the process of looking for buyers and seeing if we got bought in different ways. And then, COVID hit. And it put everything into a halt. And that’s when I realized, you know what, I should have sold, three years ago, my 50%, but I didn’t. And right now, I’m impeding the company of moving forward because I’m not in the company. I can’t help the company right now. I’m doing all these things on the side. I have two other businesses that depend on me.

Cesar Quintero:

So, that’s when the operating partner came up and stepped up and said, “You know what, Cesar? I’ll buy your 50%.” So, at the end, I ended up selling to two of my employees. Yeah.

John Warrillow:

How did you value that second tranche of equity? Because the business had dropped a lot.

Cesar Quintero:

Yeah. We were less than half of-

John Warrillow:

What were you at, revenue-wise, at that time?

Cesar Quintero:

We were less than half of revenue that we were with my first sale. And it was a difficult decision. And I think that a lot of people… and again, I think my reason for sale was to focus on the things I love to do and what I was doing. And this was an amazing opportunity for… my operations manager came to the US five years ago with $1,500 in her pocket. And she worked two jobs and then became manager.

Cesar Quintero:

And when she became manager, I’m like, “This can be your only job. We’ll make it work. And these are the bonuses. These are the open management. If you make these numbers, you make it work.” And she made it work. And the business could not work without her. And Josh knew that, my chef, the person who bought my first 50%. And he knew that. And so, between him and I, a sale fell through.

Cesar Quintero:

And him and I said, “You know what? What’s best for the company?” And what’s best for the company is for Francis to take this 50%. And we found a way creatively. There was no valuation. We weren’t going to do a valuation. Probably, it was zero at that point, mid-COVID. And we came up with a very creative way of getting me out of all the debt and then paying me, within three years, my different installments and different things. And now, she’s 50% owner.

John Warrillow:

And what debt did you have on the business, Cesar?

Cesar Quintero:

We had some line of credits. We had some loans we had taken off for the growth side and equipment loans we had. So, it’s mostly just taking me off everything in the… so, I had no other guarantees in the business, no backing guarantees, no liens, no equipment guarantees.

John Warrillow:

Did Francis have to assume personal responsibility for those?

Cesar Quintero:

She did, yeah. So, she assumed those as part of the purchase. And then, we went to the thing. Now, the impressive thing is that, and all honesty, her and I are very much optimists. And I knew she would make it work. And she’s proven that, right? So, the business has done a full turnaround. Now, it’s not only a meal delivery service. It’s a kitchen commissary where they produce keto cookies and different things for different vendors. And she always had the vision.

Cesar Quintero:

So, when I sold and she took on these… it wasn’t, I wasn’t selling a dying business. It was, we all understood that this needed a pivot. And this needed to change what it was. But I just didn’t have the energy to do that.

John Warrillow:

But how did you agree… what was the formula by which you agreed to be paid out? Was it future profits or share-a-future profits? Or how did you structure the payments that the business will pay you in the future?

Cesar Quintero:

Well, it was a fixed amount we agreed to, based on the gap between what we considered the valuation of the company and what that was. So, it was a difference of that.

John Warrillow:

How did you figure out what the value of the company was?

Cesar Quintero:

We just replicated where we were now. And the three of us came to an agreement on that, but I’m not sure. It wasn’t a third-party decision. We all agreed-

John Warrillow:

Right. But specifically, there was no profit in the business at that time, right, because COVID had hit. Everything was killing-

Cesar Quintero:

We were still-

John Warrillow:

Still profitable. Okay.

Cesar Quintero:

We were very little, but we were still profitable, yes.

John Warrillow:

So, did you apply a multiple to the profit? Or did you use revenue the second time? And what was the valuation technique?

Cesar Quintero:

What did we do? How did we come up with the number? It was the debt plus… how did we come up with the valuation at the end? I don’t know. We just sat down and talked it over. And then, we saw what we had in the books. We saw what we had. I think, at the end, it was a revenue number. I can’t say exactly what it was.

John Warrillow:

That’s fine. That’s fine. So, clearly, in your own admission, finance is not something that-

Cesar Quintero:

It wasn’t-

John Warrillow:

… it jazzes you up or whatever. Yeah.

Cesar Quintero:

And to be honest… yeah, I don’t know.

John Warrillow:

To be honest, what?

Cesar Quintero:

In my mind, the way… when I sat down to that conversation, of course, to make it a win, win, win, because this was a three-party negotiation, my mind was set on, I love doing what I’m doing and my two other businesses. And this is an opportunity, I think. And it’s aligned with my purpose with a lot… empowering somebody to take ownership and do that. So, in my mind, it was, when we agreed to the numbers, I never really took into account that I was going to be paid in the next few years, right?

Cesar Quintero:

In my mind, it was like, Let’s just be… if you’re responsible for the business, take me out of the debt. Take me out of different things that I needed to get out of. And then, that gave me sanity. And then, the extra was just gravy on the top for me because we were just negotiating numbers. When I took that ego out of saying, “I got hit with these multiples,” I think that’s why, when you asked me, I’m like, “I really don’t know the details. We just sat down. And we just agreed to a number.”

Cesar Quintero:

And I was okay with that number. It’s middle COVID. And we’re trying to reinvent the business. And at the same time, I didn’t have time to be there to help them. So, I think it was guilt plus different things. At the end, I think… and I’ve been paid. So, that’s been great. And they’re doing much better than what we thought they would. But they ended 2020 in a better state than what we thought they would.

John Warrillow:

And do you participate in that benefit? Or did you just get your-

Cesar Quintero:

Not at all. We just got a fixed number because Francis was smart. She already knew what she was going to do. And we all knew the plans. But I wasn’t sure she… and they had two contracts already in the works and all these things. But I’m okay. I’m okay. This is not an ego thing. For me, it was about leaving my baby and my business to somebody, for Josh and Francis, that could really carry it over, could grow it, can make good of it in a terrible situation that we’re in with restaurants in this period.

Cesar Quintero:

But at the same time, it aligned with my purpose of empowering my employees. And just a story of me selling my company to my employees, I think, is what… it got me into the show, right? So, it’s like, I never thought I would be here, even though… so, I think, in my mind, selling the company was never an objective. So, I think it was just aligned with my purpose. And I think part of what you talk about too is, why do you want to sell this?

Cesar Quintero:

For me, it was because it was aligned to my purpose for my employees and allowing them… to empower them to live the life they wanted to live and also to empower me to live the life I wanted to live. It was just a-

John Warrillow:

I think there’s a lot of people listening-

Cesar Quintero:

… a friendly divorce.

John Warrillow:

I think there’s a lot of people listening who have gone through COVID and are going through COVID and are feeling very much the same way you feel and you did feel, right? They’re burnt out. They want to go do something else. This has been, for a lot of people, crushing, really, really emotionally difficult period for a lot of people. And I think they will hear your story and think, Did he sell for hundreds of millions of dollars? No.

John Warrillow:

But is he doing what he wants to be doing? Yeah. And I think that’s interesting. I’d be curious to know… and for folks who are thinking about going through something similar, selling to a partner maybe over time so you’re not getting some fantastic valuation, if you had it to do over again, the second sale, the second tranche where you exited to Francis and Josh… you’ve had some time to think about it… is there anything you might do differently?

Cesar Quintero:

I don’t go through the… I think, if I were to do something different, I would have sold my whole company three years ago. But you can’t go back. I think my head trash of selling my baby, selling a company that defined me for so long… I was 16 years in my company and all that. So, for me, doing that was… I think that’s what I would have changed, but I’m not sure. I think it allowed me to grow in different ways. And Francis wouldn’t own it right now. So, I don’t know.

Cesar Quintero:

Now, I remember, you asked me before how we came up with the number. And it just popped up. We had a valuation that a guy was trying to buy us out. So, we had a number. So, we already had a number. So, you just use that number. Sorry.

John Warrillow:

Okay. So, you’d had an offer that had fallen through?

Cesar Quintero:

Yeah, yeah, yeah.

John Warrillow:

Got it. Got it. So, if you had it to do over again, from a negotiation standpoint, you may have sold 100%. But you’re hedging a little bit because Francis may not have had the opportunity she has today?

Cesar Quintero:

You know what? And that’s what I like the most about this sale, is giving the ability for somebody else who’s a true go-getter to be an entrepreneur and really own her business, so… yeah. And I know I’m a different type of story in your show than most others. But for me, I’m making more money than ever. I never dreamt of making this amount of money now because now I’m focused. And I love what I do. And I’m so passionate for what I do. So, at the end, it was a win, win, win. There was no down there, so… yeah.

John Warrillow:

Well, I’m glad you shared the story with us, Cesar. Where can people reach you? Are you a LinkedIn guy or a Twitter guy? What’s the best way for folks to reach out if they wanted to say hi on social media?

Cesar Quintero:

Yeah. LinkedIn, Cesar Quintero, Cesar E. Quintero, I think, is the handle, and then theprofitrecipe.com.

John Warrillow:

Awesome. And we’ll put that all in the show notes. So, Cesar, thank you for joining us.

Cesar Quintero:

Thank you, John. It was great talking about different stories.

John Warrillow:

Hey, if you like today’s episode, you’re going to love my new book, The Art of Selling Your Business. The book was inspired by the cohort of my guests over the years who have been able to negotiate an exit far better than the benchmark in their industry, sometimes two or three times more than I would have expected. I was curious to understand the tactics and strategies of these entrepreneurs and what they do differently from average performers.

John Warrillow:

The result is a playbook for punching above your weight when it comes to selling your business. To learn more, go to builttosell.com/selling where we put together a collection of gifts for listeners who ordered the book. Just go to builttosell.com/selling.