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How a Simple Strategy Led to a 35% Higher Valuation for Conversio

February 26, 2021 |  

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About this episode

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In 2014, Adii Pienaar started an email marketing platform for retailers, which became Conversio. By 2019, Pienaar had $2 million in revenue and 14 employees.

Pienaar knew companies like his were selling for around three times revenue and was getting increasingly uncomfortable with the proportion of his wealth tied to his Conversio shares. Pienaar decided to sell his company, receiving multiple offers of around three times revenue. That’s when Pienaar pitted one acquirer off the other, ultimately increasing his take by 35%.

In this episode, you’ll discover:

  • How many companies you need to include on your long list to attract multiple offers (hint: it’s probably a lot more than you think)
  • How to decide when to sell
  • The biggest mistake most companies make in their early days when pricing their product
  • The difference between voluntary and involuntary churn
  • Why you should speak at your industry’s conference
  • Four things (other than money) to evaluate when considering an offer
  • What goes in your Confidential Information Memorandum (CIM)
  • How to know when an acquirer is serious about your business vs. just kicking the tires
  • How being 100%, remote may impact your value in the eyes of some acquirers
  • The one thing Pienaar refused to discuss with potential acquirers — even when pushed

Ninety percent of Conversio’s customers came from Shopify’s App Store, which made Pienaar feel exposed. If you’re curious to understand where the vulnerabilities lie in your company — and why some acquirers may discount your valuation — complete the Value Builder questionnaire, and we’ll walk you through a report designed to show you how an acquirer would view your business. Start here.

About Our Guest

Adii Pienaar is a technology entrepreneur who has founded and sold two global businesses, all while building his home and life in Cape Town. In 2007, Adii founded WooThemes / WooCommerce (which is at least the second-largest eCommerce platform globally after Shopify) before it was acquired by US-based, Automattic, in 2015. Adii then founded Conversio, marketing automation software for profitable eCommerce brands, in 2014 which was acquired by Campaign Monitor in 2019, where he currently serves as VP of Commerce Product Strategy.

Having worked with hundreds of thousands of businesses and entrepreneurs, Adii has had the benefit of seeing the impact of holistic entrepreneurship on a much broader scale and he brings a very specific perspective to business: one that is supposed to be life-first.

More information / links:
● Blog: https://adii.me
● Twitter: @adii
● Instagram: @adii

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Transcript

John Warrillow:

Hey there, it’s John Warrillow. Listen, 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 this show now for five years, I’ve interviewed literally a different entrepreneur every week for the past five years. I’ve taken some of their best practices, their tips and tricks, and negotiation hacks, and distilled them all into a field guide. It’s a book called The Art of Selling Your Business. 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:

Fun story coming up with Adii Pienaar, who built a company called Conversio. Listen to how he was able to increase the value of his business by 35%. Just listen to the strategy he used to gin up the value of his company. He’ll also talk about how many companies he went to in his long list of potential acquirers. I think the number may surprise you, to some extent. He’ll talk about three criteria he used to decide when to sell, a question we get a lot. He’ll share some of the mistakes he made in the early days around pricing, which are thought-provoking. The difference between voluntary and involuntary churn, and why both numbers are going to be important for any recurring revenue-based company. He’ll talk about how he triggered the negotiation process, in particular the importance of speaking at industry events in your category.

John Warrillow:

Four things that Adii looked at, other than the value of his company, that were important to him when he was evaluating letters of intent, so four intangibles to look for in a letter of intent. How to know, and this was a fun piece, how to know when an acquirer is serious about buying your business, versus just kicking the tires. One very specific thing to look for in the title of the person approaching you, to know whether they’re serious or not. He also talks about how being 100% remote, as we all are these days, impacted some acquirers’ view of the value of his company, and one thing that Pienaar refused to talk about in the process of the management meetings he went through prior to receiving letters of intent. This is the one thing, the one conversation theme that you absolutely must avoid with a potential acquirer. Here to tell you all about his fantastic exit from Conversio is Adii Pienaar.

John Warrillow:

Adii Pienaar, welcome to Built to Sell Radio.

Adii Pienaar:

Thanks for having me, John.

John Warrillow:

Conversio, what did you guys do? Tell me about this product.

Adii Pienaar:

Yeah. Conversio, we built email marketing automation for eCommerce brands. Predominantly Shopify, but also WooCommerce, which was the company that I co-founded before I got stuck into Conversio.

John Warrillow:

Email marketing for eCommerce brands. So if I sell gym equipment on a website, I’m going to need to market to people who have bought gym equipment from me before. So if somebody buys dumbbells, we want to convince them to buy a squat rack or whatever. I would need to cultivate that relationship, and send email out to those guys. Is that the software that you had?

Adii Pienaar:

Yeah, exactly right. We would essentially cover what I would call the full spectrum of what you should be doing for email marketing as an eCommerce brand. All of the automated things, from your first time visitor joining your mailing list, trying to get you to purchase the first time, to sending out periodic newsletters on the more manual side. But, also things like when you abandon a cart, sending reminders. “Hey John, there’s stuff left in your cart. You really need to exercise more. Here’s dumbbells that should be doing the trick.”

John Warrillow:

“You’re fat, man.”

Adii Pienaar:

Well, we luckily never went there, but I’m sure some of the brands that used the product went. But, we did all of those things. Everything that touched your email, we would be involved in. We tried to consolidate all of those things in some kind of intelligent manner.

Adii Pienaar:

Where we actually got started, and I think this might be interesting, is when I founded the company end of 2014, it was actually called Receiptful as a start, before we rebranded to Conversio two years later. I had stumbled in 2014. I had actually stumbled onto an article that was tweeted by my friend, and now my coach, Dan Martel who has been on your show as well.

John Warrillow:

Yeah, yeah.

Adii Pienaar:

Now that I’m remembering the story. He tweeted a link to an article that basically said email receipts are a missed marketing opportunity. Basically, what it proposed was the likes of Amazon, they’ve always included in your order confirmation whenever you would buy something, “Here’s a squat rack. You’re going to need your barbell.” They included that there. It wasn’t a new idea, but nobody had built this for smaller merchants. If someone had it, they were probably built as custom.

Adii Pienaar:

That’s where we started. We literally built a very simple product initially called Receiptful, and it just allowed you to, initially, actually include a discount coupon for a future purchase into the email receipt. What we pioneered, at least in the Shopify ecosystem, was the ability to generate that discount coupon uniquely and on-the-fly. Every recipient got a once-off, unique discount coupon for them. It wasn’t one of these generic things where it was AD15, which would give everyone whom I shared it with a 15% discount, which made … You wanted to incentivize actual users, in a way. That’s where we actually started. From building that product and getting that traction, we ultimately got into this broader suite of tools that became this full spectrum, automated marketing automation system.

John Warrillow:

Interesting. I know nothing about Shopify. Shopify is based in Ottawa, Canada, where I’m from. I’m from Canada, not Ottawa. I see headlines about them all the time, I have no idea what they do. I know what Amazon does, because I buy from them all the time. I have no clue what Shopify does.

John Warrillow:

Can you explain, in layman’s terms, what Shopify does? And then, how you got to be part of their ecosystem?

Adii Pienaar:

Yeah. At the core, Shopify is an eCommerce platform, which essentially means that they allow you, as a merchant, as a seller online, to create a website that has a shopping cart, that allows you to display products. And then, it takes orders and you can fulfill those orders. That’s the core of it.

Adii Pienaar:

I think what Shopify have done really well over the years is they recognize that it is impossible for them, as a company, to build every single thing that every single merchant needs. They built this really fantastic developer ecosystem and app store experience, which makes it very easy for a merchant, whether you’re a newbie or you’re $100 billion brand, to actually just go into the app store. And say, “Here’s Conversio, it’s got 800 five-star ratings, whatever, average rate of 4.7, whatever the case is, I need email marketing, I’m going to give this a go.”

Adii Pienaar:

Again, this hurts me a little bit to this day. WooCommerce, my previous company, when we started with Receiptful back in the day, the first integration we built was with WooCommerce only. WooCommerce and Shopify are the two biggest eCommerce platforms in the world. Upon eventually selling, Shopify was about 90% of our business. I always hoped that a little bit of nepotism, almost, within the WooCommerce and WordPress ecosystem would help drive more sales there, but for whatever reason we could never make it work.

Adii Pienaar:

But, that’s what those things essentially do. WooCommerce and Shopify, they are eCommerce platforms that essentially fuels the independent Amazon seller. Many sellers that are on Amazon might also have their direct to consumer, owned channel which they run on something like a Shopify or a WooCommerce.

John Warrillow:

We talk a lot about something called the Switzerland Structure, which is where, if you become too dependent on a single partner supplier, it can undermine the value of your company. As you became more and more dominant with Shopify, more and more of your revenue … If I understood correctly, you said 90% of your revenue was coming from Shopify?

Adii Pienaar:

Yeah.

John Warrillow:

How did you guys reconcile how dependent you were on Shopify?

Adii Pienaar:

I guess it’s always a little uneasy. The context there, John, is that WooCommerce was built exclusively on WordPress. WordPress is obviously slightly different than Shopify in the sense that it’s open source. If WordPress ever did something, we would have had the ability to make some changes, whereas Shopify is an owned, closed platform at least, and if they made some changes that was detrimental to us, it could pose significant risk. The risk was there, but nothing, in either of those companies, did that matter ever pop up where I felt that it didn’t make sense to build these businesses on these platforms.

Adii Pienaar:

Ultimately, those platforms … The way I argued it with Shopify was, and especially after they became a listed company themselves, was that if they were to act in an unreasonable manner to us, I would just run to the first TechCrunch or New York Times reporter, I would give them all the facts, and that would have dented their share price, because a big part of their value was in the app ecosystem. I’m not trying to inflate my own ego and worth here, we were just one of hundreds of app development partners. But point being, I think for a company like that to do that, they don’t have 100% track record with regards to how they handle the partners in their ecosystem, they suddenly start creating doubt.

Adii Pienaar:

I think the best example we’ve seen, years ago, was when Twitter was a flourishing platform they had an amazing API and developer ecosystem. And then, they slowly started clawing back those rights, and all the developers left. If you look at innovation, Twitter compared to Facebook, and I’m not praising Facebook, I think there’s many, many flaws there, but they’ve at least continued to progress the product and innovate on things, make progress, try new things. Whereas Twitter’s mostly stagnated for the last couple of years.

John Warrillow:

Interesting.

Adii Pienaar:

A big part of that is that they totally overstepped their bounds with regards to this partner developer ecosystem that they have. That was always my theory, in terms of trying to quantify that risk. As I said, it’s a bit of uneasiness because you know this can change.

John Warrillow:

Sure.

Adii Pienaar:

But then again, we also just existed because of that platform. I think there’s a healthy tension there.

John Warrillow:

Yeah. How big did you get Conversio before you decided to sell? In terms of revenue, number of employees, that kind of stuff.

Adii Pienaar:

Yeah. By the time we sold we were, I believe, 14 full-time team members. And, a couple of million dollars ARR.

John Warrillow:

ARR standing for?

Adii Pienaar:

Annual recurring.

John Warrillow:

Annual recurring revenue, so top-line recurring revenue. So a couple million bucks in annual recurring revenue, 14 employees. What triggered you to want to sell?

Adii Pienaar:

Yeah, that’s a great question. I think a couple of things, John. The way I always describe it to people in the following way.

Adii Pienaar:

I think, firstly, if I take the perspective from my family and our financial situation, large parts of our theoretical wealth in our financial portfolio got stuck in this business called Conversio. I was really uneasy about that. That’s not a gun to my head uneasiness, but I was aware of that at least. I have a finance background, all the way back from university, and I at least understand the basics of diversification. I think that was the first part of it.

Adii Pienaar:

The second part of it was really the fact that, as a marketing automation platform, I think we found ourselves in probably the most congested, competitive space of the market, in terms of the software. It’s very congested, very competitive. I was aware of that, and I didn’t necessarily know how well we could grow the company, and how effectively we could grow the company, as an independent at least.

Adii Pienaar:

I think the last bit there, almost the combo there, is the fact that I never felt that email marketing was my life’s work either. Literally, the combination of those things made me at least say, “You know what? Let’s literally put my hand up and say hey, we might be interested to sell. What would that transaction actually look like?”

John Warrillow:

I want to explore this idea of reaching the top of what you thought you might be able to do with the company. One of the things that I find curious about being part of an ecosystem like Shopify, and in your case, deriving the majority of your revenue, is at some point, I would imagine, correct me if I’m wrong, it would feel very restrictive, like you’re at the behest of Shopify. If Shopify’s traffic grows and they’re successful, you will in lockstep benefit. If Shopify has a bad month or a bad quarter, what do we do? We’re at the mercy of their traffic.

John Warrillow:

Was that a sentiment that you were feeling, when such a big portion of your revenue was coming from that ecosystem?

Adii Pienaar:

No, and I think some extent a big part of our growth was actually riding that wave in a positive sense. Shopify’s growth immediately added organic growth for us, by just being there. Which is actually a negative, because everything we all learn about business growth is you have to find those repeatable, scalable tactics, channels, strategies, et cetera, to keep growing your business. And yet, those have to change as you level up.

Adii Pienaar:

We had one major competitor in our space, for example. They were a couple of years ahead of us, I think about three and a half years ahead of us, and they kept raising money, for example. I knew from a personal/lifestyle consideration, more realistic consideration, I knew that I didn’t want to keep raising money. We raised a single round of money very early on, and I did want to keep playing that venture capital game because it wasn’t going to align with the kind of company that I built.

Adii Pienaar:

But with that in mind, knowing that our competitors, regardless of the organic growth and this rising tide that we were all experiencing by just being in the Shopify ecosystem, we probably got our ass kicked by competitors as well. I think it’s in trying to assess that. And then saying, “How much energy to I have, as an independent? How much belief do I have, as an independent? And, how do I try and then time a good liquidity event that makes sense for everyone here?”

John Warrillow:

So who’s the everyone? You mentioned you’d raised some VC. What’s the capital structure of the company look like at this point in the game?

Adii Pienaar:

Yeah. We only raised a single round of capital. Upon exit, I still had the vast majority of the company, which was in our family office. And, the other parts of it, about 30% of the company, probably almost half-half, was held by those early investors as well as team members. That’s really the everyone, there.

Adii Pienaar:

I would also be almost disingenuous by saying that the ultimately deal, whilst everyone got the same or similar-ish terms, the extent of the exit was only going to be life changing for me, as the vast majority holder of the shares. But, there was still that everyone consideration, I did want to return a healthy, albeit not unicorn return, to my shareholders for example. I did want to make sure that team members got a nice extra for having been on that journey, contributed to its success, for example.

John Warrillow:

Got it. That’s helpful, for sure.

John Warrillow:

When it comes to the wealth diversification piece, you were seeing the value of Conversio grow and the percentage of your net worth, it’s starting to get a to be a big part of the pie so that was part of the trigger. That’s helpful. What did you think the company might be worth? Before you went through the process of marketing it, did you have a sense of what other email marketing platforms were trading at? Any sense of what multiple it might be worth?

Adii Pienaar:

Yeah. I know a couple of brokers in the ecosystem, and generally sells SaaS solutions, sells software companies. I think my expectation was around that two to three X multiple on revenue, assuming you’re selling to a financial buyer. Financial buyers just generally tend to be more prevalent, compared to a strategic acquirer. But, that two to three X top line revenue was, I think, the starting point, at least in terms of shaping my expectations of if I try to go to market in the quickest, easiest way tomorrow, that’s probably what I would end up getting.

John Warrillow:

Got it, got it. Where did you go from there?

John Warrillow:

Just before we go further, I’d love to know the other key metrics like churn. What was the churn rate? And, how fast were you growing? You were at two million, so it must have been growing fairly quickly, if you started in 2014.

Adii Pienaar:

Yeah. I think in terms of growth, and I can’t remember the exact numbers John … We exceeded, I think, 20% growth year-over-year, in the last 12 months before selling I believe. I can’t remember how much, at least.

Adii Pienaar:

What was interesting in the growth trajectory as well is we had incredible growth initially, in that first say two and a half year part of the journey, the first half to the journey, and then that growth trajectory changed during the second part.

John Warrillow:

Meaning it slowed down, you reached altitude and you were growing at a slower rate.

Adii Pienaar:

Exactly right. I think part of that challenge, interestingly enough, was churn. Our churn was never bad. I think we consistently averaged, with our SMB-focused SaaS solution, we had averaged out to 5% churn over our lifetime. 5% every month, not annual churn. But obviously, at 5% you’re losing half your revenue every year, and you need to replenish that. In terms of scaling, that becomes harder.

Adii Pienaar:

A big part of that was, again, acknowledging some of the earlier mistakes we had made in terms of pricing and where we found ourselves in the market. We should have probably charged a little bit more a little bit sooner, for example. Because we had many stores, for example, both on Shopify and WooCommerce side, that they are so small, they start with us on our lowest plan, 20 bucks a month. But, they don’t yet have anything to sell, and two, three months later they churn out because they couldn’t sell a single product. That obviously had nothing to do with the product, them liking the product, them finding value in the product, they just had so many other things as a new business that they had to figure out.

John Warrillow:

Voluntary churn versus involuntary. For folks who don’t know that space, voluntary is the customer says, “I don’t like this platform, I’m going to go to an alternative platform.” Involuntary is they go bankrupt, they stop selling online, that kind of stuff.

Adii Pienaar:

Exactly.

John Warrillow:

So you had a lot of involuntary churn, it sounds like.

Adii Pienaar:

Yeah.

John Warrillow:

Did you ever try to parse, of the 5% a month, what portion was involuntary versus voluntary?

Adii Pienaar:

We tried, we never had exact data on it. I think the involuntary part, it was probably about 20% of our churn. It wasn’t the biggest problem that we had to solve. But like I said, you take 1% off of that, you’re suddenly looking at 48% a year churn versus 60%, which already adds 12% to your growth, year on year.

John Warrillow:

Let me see if I can summarize where we’re at, at this stage of the game. You had a huge spike of growth right out of the gate, huge success, in large part riding the wave of Shopify. The growth starts to tail off a little bit, largely because of the churn, it’s very hard to replace the leaky bucket. So you’re at a point where you’re thinking, “Man, this is a big part of my wealth, and I’m not seeing the trajectory of being able to double every couple of years here. I’m starting to tail off, maybe now’s a good time to sell.”

John Warrillow:

Am I summarizing a little bit like where your head was at?

Adii Pienaar:

Yeah. Yeah, totally.

John Warrillow:

I don’t want to put words in your mouth.

Adii Pienaar:

Nope.

John Warrillow:

We’re good?

Adii Pienaar:

Yeah.

John Warrillow:

Okay.

Adii Pienaar:

Yeah, I think that’s a good summary.

John Warrillow:

Okay. What’s next? Where do you go from here? Did you proactively get on your front foot? How does the story evolve from here?

Adii Pienaar:

Yeah. What ultimately ended up happening was … I’ll get my timing right, here. In November 2018, I got invited to speak at MicroConf in Europe, which was held in Dubrovnik, Croatia. MicroConf being a community I’ve spoken at a couple of times. MicroConf being a community of mostly bootstrapped of self-funded software, or technology entrepreneurs at least. At the conference, I actually sat down with Rob Walling, a good mate of mine. Rob, I think at that stage, he had probably just sold his company Drip.

John Warrillow:

Drip. Yeah, I’ve had him on the show, actually, about two months ago. It was a great episode.

Adii Pienaar:

Exactly right.

John Warrillow:

Great guy.

Adii Pienaar:

Everyone here knows that story. I think at that stage, getting my timing right, that was about a year after Rob had sold and he was still working with Leadpages, was still working on Drip. I took him through where we were at with Conversio, the challenges that I had, the frustrations that I had, et cetera. He actually suggested, at that stage, to chat to his now co-founder partner in TinySeed, their investment fund, Einar. Einar Vollset, who also acts as a broker, is also a technology entrepreneur, went through YCombinator himself a couple of years ago, but really does this [inaudible 00:24:53] his company Discretion Capital, helps software founders sell their businesses.

Adii Pienaar:

Einar and I, I think it was December 2018, January 2019, essentially kick off the process of at least starting to chat. Einar shapes that expectation again, confirming that approximately three X rule of thumb at this stage. But then, essentially, lays out the processes of, “Here’s what this would look like, here’s what we need to put together, here’s how we would ultimately take the company to market,” which then kicked off the process.

Adii Pienaar:

To your question there, is it was a proactive exploration from my part to say, “I don’t know how to sell this business. Who do I effectively need to help me get this business sold for … ” I would say even maximum value, just in a transaction that actually makes sense for me.

John Warrillow:

What’s the difference, I guess? A lot of people hearing that saying, “Aren’t those synonyms? Maximized value and a deal that makes sense for me.” What was on your list of criteria for a deal that makes sense to you?

Adii Pienaar:

Yeah. I guess, a couple of things. Firstly, from a personal perspective, obviously the actual financial package. Is that cash or stock? What does that look like? What does the earnout look like, if there’s anything like that? Is it performance related? How long do I need to commit to the acquirer? I think there was a couple of things there, that’s very much about me.

Adii Pienaar:

For me, there was also things. It’s I really wanted to sell the product to someone that was going to take both the product and the team further. I wanted to sell to someone that was going to do right by my team. My team was very important to me, and beyond the product which I think was top-notch, the biggest asset we had was the team and the culture that we had. I wanted someone that would honor that, and again, take that further. Use that as a foundation, and go further with that.

Adii Pienaar:

I think that there are those other things, ultimately, that don’t necessarily show up in the ultimate documentation in the agreement, but that are hopes as well. Literally, that seller-acquirer fit, or seller-buyer fit kind of things, that was important to me at least. I was never going to sell to someone just because they gave me a lot of money but they were going to throw my team under the bus, for example. That was just not an option for me.

John Warrillow:

Not on the table. So from a value perspective, your head was in the two to three times revenue, that was what you were thinking. Cash versus stock, were you 100% cash? Were you willing to accept some stock? What were you thinking there?

Adii Pienaar:

Definitely willing to accept some stock, and I ultimately did accept some stock as well. Yeah.

John Warrillow:

Earnout, how did you feel about an earnout?

Adii Pienaar:

How do I feel about earnout, the process-

John Warrillow:

No, no, no. My question is, before the transaction, how did you feel about accepting an earnout? Was it something you’d be open to, or were you totally closed to it?

Adii Pienaar:

I guess, realistically, I always knew that there was no way to sell a company for a really great valuation, or a good transaction, without having me as CEO, as founder, being part of that process. So committing some part of that time to the acquirer always made sense, and I think just in terms of my personal values, that made sense as well. If I’m being true to my in saying that there’s other things except just the transaction that mattered, I would want to see through that transition at the very, very least. It was definitely something I was realistic about, I was totally expecting it. I was also entirely hoping that it would be as short or as easy as possible, for example.

Adii Pienaar:

Like I said, I knew that I was not going to get away from it unless I totally compromised on the sales value of the company. But, I was … I had heard many stories, at least, about earnouts that didn’t work as intended and as hoped, which skews that perception to the point where okay, let’s just get this as uncomplicated and as short as possible.

John Warrillow:

Einar, am I pronouncing his name correctly? Einar?

Adii Pienaar:

I hope so, because if you’re not pronouncing it correctly than I’m not pronouncing it correctly forever either.

John Warrillow:

He’s a Finnish guy, isn’t he? Or, Norwegian?

Adii Pienaar:

Norwegian.

John Warrillow:

Norwegian. Einar, his name has come up before on this show. Rob Walling’s talked about Einar before, among other people.

John Warrillow:

You hire Einar, and he takes the business to market. What does he find, what’s the reaction?

Adii Pienaar:

Yeah. What we ultimately end up doing is a couple of things. We compiled a one-pager anonymously, that doesn’t mention the company, it just mentions some highlights. So a one-pager as well as an extensive … I can’t even remember what it was called, acronym.

John Warrillow:

CIM, confidential information memorandum.

Adii Pienaar:

That’s it.

John Warrillow:

Yeah. Or CIP, confidential information presentation. They’re the same thing.

Adii Pienaar:

Yeah. We compiled those two things.

Adii Pienaar:

And then, we also created a list, probably about 150 potential acquirers. Everyone from this is a financial buyer, to this is a potential strategic, and really not excluding anyone. We didn’t include Salesforce on there for example, but Shopify was on the list for example, even as a listed company at that stage. Realistically, that could have been an acquirer. So really, no limits to that list.

Adii Pienaar:

And then, the process ran. We just started outreach, doing our cold outreaching saying, “Here’s a company, here’s the one-pager. If you want more, sign the NDA and we will send you the CIM.” At the time that we started outreach, within our initial batch, we get a bite from a company that ultimately ended up bidding. We also got inbound interest from Campaign Monitor. Campaign Monitor is owned by Insight Partners Private Equity Firm. We got an inbound ping from the private equity firm saying, “Would you be interested in chatting?” We had pinged someone else at Campaign Monitor, at that stage. Those two are then the companies that were ultimately in the bidding process to acquire Conversio, and ended up being where I spent most of my time, in terms of conversations. But even with that, we kept doing outreach. I had a few other conversations as well. That even though conversations were progressing with Campaign Monitor and the other company that bid for us, I still had other conversations as well.

Adii Pienaar:

We ultimately, I think, we had serious interest from about six different companies.

John Warrillow:

So you started 150 on the long list, and then two inbound, serious inquiries, and then another four relatively serious conversations.

Adii Pienaar:

Yeah, exactly.

John Warrillow:

Got it. I’ve got two questions about that. First, what does a bite feel like? A fisherman, when you feel a bite, it’s an immediate tug on the rod. You’re like, “Okay, that was a bite.” What is a bite in this process feel like? How do you know it’s a bite?

Adii Pienaar:

Well, I think there’s some sensibility to it. This is not to blow the smoke up Campaign Monitor’s ass, for lack of better words, but the fact of the matter is when they came in … I can describe this bite. When they came in, it was immediately a hell yes moment for me. Firstly, because way back when I started in software with WooThemes, alongside Basecamp, one of the aspirational companies that were out there was Campaign Monitor. I think Campaign Monitor itself 17, 18 years old this year. I’ve been a user for much of that. So I have huge brand affinity, firstly, that’s the first part of it.

Adii Pienaar:

The second part of it is …

John Warrillow:

But, my question is less about why you reacted the way you did. I’d be curious, I think people would be curious to know … In a sports context, if you are being recruited by a team, there’s all sorts of different ways that you can get recruited. Everything from the assistant coach sends you a generic email, which is not a good sign, to the head coach coming to your town to watch you play baseball, as an example, in the baseball context. Or rugby, in your example.

John Warrillow:

What does it feel like? What is a buying signal in this process that sounds real, as opposed to just superficial? What was it, in Campaign Monitor?

Adii Pienaar:

Yeah, that’s a good question. I’ll go back to the Campaign Monitor example there. Beyond that brand affinity thing, I think the other part of it was the fact that this was a senior person at the private equity firm. It wasn’t just, I’m going to say, just a junior analyst. Obviously, all analysts have to start somewhere, and I don’t mean to demean that. But, if it’s an analyst, generally, the decision hasn’t been made. So I think that’s the first part, the person reaching out is likely involved in the decision. Whether they’re the final decision maker, maybe not, but they are probably involved in the decision at a high level. That was true for everyone that we spoke to, so I think that’s the first part of it.

Adii Pienaar:

The second part is that, when I mentioned sensibility check, or sense check to it, which was if this company were to buy us, what would they do with us? Without asking them, without them telling us, could we actually see how this would play out? With Campaign Monitor, this was obvious. We knew that within their product, their product wasn’t perfectly suited to eCommerce. Whilst eCommerce merchants could use it, this immediately felt like oh, this could be a great fit, so I think there is that bit to it. Where it’s just logically asking yourself are they just fishing around, or is there a play here? Can we put some parts of the narrative together, without having them sell us on it?

John Warrillow:

It sounds like … I’m going to reverse engineer this. On your list of 150 potential acquirers, there were some where the strategic fit was dubious or questionable. Not dubious, but less strong than it was with Campaign Monitor, is that correct?

Adii Pienaar:

Yeah, exactly right. Some of them, it would be more of a stretch.

John Warrillow:

Yeah.

Adii Pienaar:

For example, I mentioned Shopify could be a potential acquirer at that stage. Realistically, I knew that this would be a stretch for them. Purely because there’s other email marketing tools in the ecosystem, it would send the wrong signal to those, et cetera. There’s a bit of that almost a sniff test that says, it’s possible but unlikely. I think, in different scenarios, you have to have that bit of a sniff test there. Can you actually see this working, post-acquisition?

John Warrillow:

I guess some people listening to this are saying, “Okay, I get the sniff test and I get the strategic fit.” Isn’t the risk quite high in going to such a big list, 150 names, if you know that 50 of them are probably long shots. There’s some people saying, “Why would you go to people, risk the disruption, risk the potential that your competitors and your customers are going to find out, when you know they’re a long shot anyways?” Do you know what I’m asking?

Adii Pienaar:

Yeah.

John Warrillow:

Some people are probably asking themselves that question. How do you answer it?

Adii Pienaar:

Yeah. Honestly, that was never a concern, John. I didn’t think there was anything in our CIM that could have helped or given a competitor a leg up to compete against us, for example. Knowing what our churn is, or knowing what our growth rate is, I didn’t think that’s an issue.

Adii Pienaar:

Again, this was unvalidated, but if I sent that document to our customers and I said, “Here’s our financial performance,” I also don’t think they would have acted, or made any other decision, in that regard. IE either churn or say, “Hey, you guys are so profitable, you can charge us less.” I don’t think that there was any of that information in there. And maybe, part of that mentality was just ingrained in when we were both working through WooCommerce, being open source, we always knew that people could literally buy our product, and then they could fork it, IE they could copy it, and they could rebrand it as their own. And then, they could resell it. That’s what open source licensing allows you to do.

Adii Pienaar:

I think with that in mind, this idea of competition and putting information out there feel counterintuitive to me. I think, in many things in business, you have to be not stupid, but somewhat vulnerable at least, about how do you actually have a conversation if you’re not going to add any information to that conversation. How are you going to start a conversation, if you’re not willing to take the first steps?

John Warrillow:

Got it. What was the most surprising thing you were asked, prior to getting a letter of intent, from Conversio and the other guys? What was the most surprising thing that you were asked during this process of courting these potential acquirers?

Adii Pienaar:

I think probably in the realm of having a remote team. We were remotely distributed, and getting questions about how was this even viable to build a significant business with a remote distributed team. That at least surprises me, because I come from a place where, having built two businesses that have been remotely distributed, now having incredible examples of really big businesses that are fully remotely distributed as well.

John Warrillow:

Shopify is pretty remote these days.

Adii Pienaar:

Exactly right. But even pre-pandemic, because we still sold pre-pandemic, there was still examples. Automatic, GitLab, Envision, 1000 people plus companies that are fully remote. That was always a surprise to me, almost to the extent where I don’t really actually understand the question. It’s just a team, we’ve obviously proven that we can work together. What’s the matter?

John Warrillow:

That’s really interesting. What’s your best tip for people who are new to working remotely?

Adii Pienaar:

I’ll steal this from a friend of mind, Jason Cohen, who’s the founder of WP Engine. I caught onto this late, in the sense that I didn’t think with WooCommerce we got this right, but then I was very proactive and conscious of this with Conversio. But Jason’s the one that said that, “Every team, every company, has a culture, whether you know it or not.” Just that notion of culture is ultimately the way we work together, and you might as well be explicit about it.

Adii Pienaar:

So, truly thinking through what are your values as a team, how does that relate to the culture that we create, the way that we work, the way we think about things, I think that’s crucially important. Because if you’re not physically in the same space, and you can’t literally manage by bums in seats and visibility, I think the only way to keep a team together is by keeping them close to those values, keeping them within that culture. Because those shared values are the things that connects people, and drives them forward to collaborate and do good work.

John Warrillow:

Got it. Let’s go back to the sale. You’re thinking two to three times is probably reasonable, you’re getting some interest, probably quite a bit of interest it sounds like. What was your first round of letters of intent? How many did you get, and what was the valuation range?

Adii Pienaar:

Yeah. The first LOIs that we got, again we had two bidders from whom we got LOIs, Campaign Monitor being one of them. The first range was pretty accurate, was at approximately that three X revenue range.

John Warrillow:

What was your reaction to that?

Adii Pienaar:

What was the reaction? I guess it felt good. I think the first reaction, the gut feel, is it validates that we’ve built something that’s worth something to someone else. That they’re willing to pay significant money, at least in absolute terms. This is a relief in that, in just being validated.

Adii Pienaar:

And then, I think the second part of it, almost immediately afterwards, which is okay, now let’s start negotiating kind of thing. Let’s see what we can outdo, because this is only the starting point. I think, at least the fact that I understood that we were going to run a process, and we were going to have multiple people hopefully bidding for the company, I knew that we were hopefully going to get that ultimate price up.

Adii Pienaar:

Interestingly enough, and I’ll share this only because I mentioned Dan earlier, and I know he’s been on your show as well. I was actually, whilst negotiating, I was at Dan’s SaaS Academy conferences.

John Warrillow:

This is Dan Martel you’re referring to.

Adii Pienaar:

Exactly.

John Warrillow:

I can’t remember what episode of Built to Sell Radio he was, but you can Google Dan Martel Built to Sell Radio and go back and listen to it, if you want.

Adii Pienaar:

Exactly. I was at one of Dan’s SaaS Academy conferences whilst I was negotiating, and he had invited someone, a founder CEO who runs email marketing automation tool, much bigger than Conversio. I don’t know how much, but they were on our list of acquirers as well. Similar to the process that I’d run with Einar, Dan as my business coach at that stage, he had proposed something very similar. “You have to get multiple people involved in the process.”

Adii Pienaar:

I actually go up in a break, I go up to Dan and I said, “Listen, I’m not going to do this if you’re not okay with this, this is your conference after all, but that founder, I’m totally going to go up to him and I’m just going to say,” whatever, his name is Pete. Say, “You know, Pete, we’re in the process of talking to acquirers of Conversio. Would you be interested?” I literally walked into him whilst he was in the hotel lobby, just on his way out, and I actually did that. Which I’m an extrovert to that extent, I’m not a salesperson either, but that’s literally me understanding the process, and understanding that a key part of getting the best deal possible was to get as many people engaged in the bidding process as possible.

John Warrillow:

Now, was Pete a third offer? Or, was he … ?

Adii Pienaar:

He wasn’t interested. He said fire over the CIM and he’ll have a look, and there wasn’t any interest in follow-up after that. But that’s the extent, the outreach wasn’t just us sending emails, and spraying and praying. Coincidentally, I was at a conversation and I actually went up to a potential acquirer in person.

John Warrillow:

Let me get this straight. You’ve got two offers, so it’s not like you’ve got 20 offers, but you’ve got two. So better than one, but it’s not 20. Let me see how you played this.

John Warrillow:

On one hand, both offers, it sounds like … Was there much difference between the two? Or, were they both in and around that three times top line?

Adii Pienaar:

In terms of total valuation, they kept following each other. As context as well, Campaign Monitor being a truly strategic buyer in that sense, IE they own other email software properties within their portfolio. The other company was a holding company, so slightly different prospect. I think the biggest change and difference except for valuation at that stage, between the two, was the fact that in the holding company, I would have still held a significant stake of Conversio myself. Significant minority at least, so they would have acquired majority but I would have had a significant minority still.

John Warrillow:

Versus Conversio. So it sounds like a truly financial buyer in the hold co, where you were going to roll some equity into the deal, and then Conversio was more of a strategic acquirer.

Adii Pienaar:

Yeah.

John Warrillow:

Got it, got it. I guess, my point was some people who would get offers that met their expectations … Because it sounds like you were expecting two to three, in that space, and that’s what you got in the first round. Some people would have been like, “Fantastic, I got my number! Where do I sign the document?” That wasn’t your reaction.

John Warrillow:

Why did you feel there was more value to capture?

Adii Pienaar:

Yeah. I guess, just faith in the system. I think having a system, or a process, proposed by someone like Einar, who was a recommendation from Rob, who’s a friend who I’ve known for ages. That has gravitas, I think that’s the first thing. Having that process effectively vetted by someone like Dan Martel, I think Dan has sold three of his companies as well, and has advised many, many other SaaS founders.

John Warrillow:

So both Dan and Einar are saying, “Okay, let’s go. Don’t accept the first number.”

Adii Pienaar:

Exactly right. “Don’t accept the first number, negotiate. That’s why you have multiple people in that bidding process.”

Adii Pienaar:

I think at that stage, maybe it’s ignorance, maybe it’s somewhat your youthfulness almost, but it is trust in that system. Trust in the process, trust in that if you do this and you do this well, there is at least some upside. Can you double the first offer? Don’t know. Is it a 5% increase? Don’t know. But, there is at least this belief that the first offer is not the last offer.

John Warrillow:

What happened next?

Adii Pienaar:

Yeah. I think the best thing that ultimately ended up happening, and without incriminating myself here, but the thing that Einar … Incriminating not in a criminal manner. But, Einar always told me that, “Adii, when you go on this call and you speak to these potential acquirers, you can speak to them about anything. Speak to them about your love of wine if that’s what they want to chat to you about. The only thing you’re not allowed to ever speak to them about is numbers. Speak to them about the company numbers, never about valuation. If they ask for a valuation, tell them they have to talk to Einar about that.”

Adii Pienaar:

After every call, I actually just went back to Einar and I said, “Listen, this is where we got, this is what we chatted about.” And he said, “Okay, good,” and then he went off and he had separate conversations with the acquirer.

Adii Pienaar:

Actually, come to think of it now that you ask that, I don’t have much visibility into how those conversations went. I don’t know whether Einar just said, “Listen here guys, you have to up this by X,” I was just not involved in that part of the conversation.

John Warrillow:

Were you asked about valuation by either of the two bidders?

Adii Pienaar:

Yeah, by those and others that were interested that were not as far.

John Warrillow:

How would it be calculated? What kind of questions would they ask you?

Adii Pienaar:

I think literally, “Adii, at what kind of number do we get a deal done here?”

John Warrillow:

How would you answer that?

Adii Pienaar:

In the same way that I just answered you which was, “Hey guys, the deal … ” I would always be lighthearted about it and I would tell that story. I would say, “Einar forbids me to speak about valuation, you will have to check to him about it.” I would just downplay and say, “There’s Einar, chat to him. I’m not allowed to speak to you about it.”

John Warrillow:

Did they push and they’re like, “Adii, Einar works for you doesn’t he?”

Adii Pienaar:

Yeah, and I think the reason that they respect that is everyone involved in the process knew we were running a process. I think, if you saw the business, you could totally overplay your hand in this. But, as a seller you have the asset that someone else wants. And if you have multiple people involved, they don’t necessarily know who the other bidders are, or to what extent they want this asset. I think, thus, you as the seller, you have some leeway to impose some rules of the game, some rules of engagement.

Adii Pienaar:

One of our rules of engagement was just that yes this is my company, yes this is ultimately going to be my decision, but you need to chat to Einar about valuation. We never got pushback on that at least.

John Warrillow:

Did Einar forbid you to talk about the other material deal points, like earnout, stock versus cash? Were they all in the you’ve got to talk to Einar bucket?

Adii Pienaar:

Yeah, those things were … I just know that we negotiated after LOI, at least. The LOI I think was light on those kinds of details, but those were details that I was part of those discussions.

John Warrillow:

Got it, got it. What happened to the offers? Were you able to get them up at all? Or, what was the final?

Adii Pienaar:

Yeah, from first LOI to final LOI, we got just a little more than 35% higher.

John Warrillow:

Wow.

Adii Pienaar:

Running the process created a lot of extra value.

John Warrillow:

That’s incredible. Congratulations.

Adii Pienaar:

Thanks.

John Warrillow:

That’s amazing. Good for you. It’s life-changing money, in the grand scheme of things, that you were … How did you celebrate? Was there a trophy, did you buy a new house? I mean, this is a big deal.

Adii Pienaar:

Yeah. Initially as a family, we didn’t celebrate by buying things. It was interesting at least, given hindsight now. What we did decide to do was probably now about three years ago, 2018, I’d never been on a cruise at all and we did a Disney cruise in the Mediterranean with the kids. I remember back then, my wife sold me on the idea, or convinced me that we should do it. I was like, “I’m not that convinced. My sea legs aren’t all …” It’s 50/50, firstly.

Adii Pienaar:

Secondly, can I handle Mickey Mouse for a whole week? At that stage, my boys were four and seven. It ended up being a magical week for us, as a family.

Adii Pienaar:

What we did post-acquisition is we committed to taking my whole extended family, so I’ve got two younger sisters and my parents, and one of my sisters also has two young girls, and we committed to taking the whole family on a Disney cruise, which should have been June last year. But then, the pandemic hit so we never did that, unfortunately. At this stage, it’s still TBC to see if we can still do that.

Adii Pienaar:

What ended up happening though, John, is I don’t think … Again, I don’t want to be disingenuous about this. I don’t think my wife and I are flashy people at all. We have a lovely home, we live in a beautiful polo estate, that’s just a golf estate, in the wine lands of Cape Town. What we ended up doing is, just before the pandemic as well, we took transfer of a beach house just before South Africa went into our first lockdown.

Adii Pienaar:

Many people know buying a holiday home is probably the worst financial decision you could ever make, there’s no financial return on that unless you get a ridiculous buyer coming in, offering you silly money for it. But, we bought a house on the beach. I don’t know whether it’s just the year that we had, but as a family we spent a lot of time together, and it’s probably been one of the best purchases. It’s not even just the money part, but really just the best thing that we’ve added to our life in a long time. That would not have been possible had the acquisition not occurred.

Adii Pienaar:

I guess, as I said, that came a couple of months after the acquisition, but that’s probably a great memento. And, a physical memento as well, of building a business and selling it for life changing money.

John Warrillow:

I love that. I’m a huge fan of having a physical reward trophy, because I think you work so hard. And it is, in your case, what a wonderful physical memory of what you contributed, because you enjoy it with your family all the time. I think that’s really sage.

John Warrillow:

This has been incredible. I’m grateful. I feel like that was the disingenuous close, to use your word. One question that I didn’t ask that I should have. Related to the final deal, how did you net out on some of the other deal points, like earnout, stock versus cash? What can you share with us about that stuff?

Adii Pienaar:

Yeah. I’m fortunate in the sense that I had a simple earnout, that was not performance-related at least, that required me to stay with Campaign Monitor for a year post-close. I ultimately ended up leaving about 14 months after closing. I think I would say I was fortunate, and I’m really grateful for the way Campaign Monitor conducted themselves as an acquirer in that sense. I think it was mostly very founder-friendly. I’ve heard much, much worse, let me say that. I don’t think everything, for example, worked out as all of us had hoped or planned at least. Again, this is not me blowing smoke up their ass, but how they treated me as a founder selling a business, I think there’s a lot to be said about that. It was very honorable to that extent, and my earnout was not a nightmare, as I’ve heard from many other founders.

John Warrillow:

Let me get this straight. Your earnout was tied simply to your employment, you agreed to stay on for a period of time. If you met that threshold, then you got your extra traunch or whatever.

Adii Pienaar:

Exactly, exactly.

John Warrillow:

Wow. And then, what about stock versus cash?

Adii Pienaar:

Yeah. My deal was about half-half in that sense, and I still have the stock that I have, I’m still holding that.

John Warrillow:

That’s a privately held company, is that correct? Is there any liquidity on that stock? How would that stock become liquid for you?

Adii Pienaar:

Hopefully, in future it becomes liquid. I guess, I’m not super familiar with how this works. But, the whole greater Campaign Monitor group is held by … or, the majority owner at least, is Insight Partners, it’s a private equity firm. I believe that the liquidity, it’s always on the horizon. What that horizon looks like, I don’t know. But, I think that is the hope, that either there is a sale there, an outright sale and there’s liquidity there. Or, that there is some opportunity for some secondary sale of some sorts.

John Warrillow:

Do you have any put options? Meaning, do you have any rights to put your shares to the private equity group? And say, “I want out. I want fully out.” Is that an option at all?

Adii Pienaar:

It is an option, to the extent that I can negotiate that. But, there’s no agreed-upon option, put option, in place.

John Warrillow:

Got it, got it. Okay, great.

John Warrillow:

What are you doing now? I’m sure people are going to want to reach out to you. Tell me a little bit about the book, and where people can reach you.

Adii Pienaar:

Yeah. Just as we’re recording this John, a couple of weeks ago I released my new book. It’s called Life Profitability: The New Measure of Entrepreneurial Success.

John Warrillow:

Adii, you’ve got to do that slowly because I didn’t understand it. Say the name of the book again?

Adii Pienaar:

Yeah. By the way, my wife constantly tells me, “Speak slower.”

John Warrillow:

Well, especially because the accent is unique to my ear, and then you’re speaking really quickly and I’m, “Whoa, what was that?” So go slowly, one more time.

Adii Pienaar:

I’ll go slowly. The book is called Life Profitability: The New Measure of Entrepreneurial Success. The core idea of the book is very much based on my journey with Conversio, and I think the mission of building a business that’s not just financially profitable, in the narrow sense of the word. But truly, life profitable in the more broader, diverse, holistic sense of the word. I managed to release the book a couple of weeks ago, became an Amazon bestseller within 48 hours, which was incredible.

John Warrillow:

Congratulations.

Adii Pienaar:

Thank you. That was a process. I started working on the book shortly after selling to Campaign Monitor, worked on it nights and weekends project with a publishing team. That’s been exciting, in the recent past.

Adii Pienaar:

And then, I have also just started up building a new SaaS company, a new software for all of my sins, it’s called Cogsy. And staying in the realm of eCommerce, Cogsy helps eCommerce brands make better purchasing, smarter purchasing decisions for their inventory, ultimately helping them optimize their working capital. Just gone through raising a small pre-seed round of funding, and getting the first version into beta customers’ hands. That’s called Cogsy, so that’s very exciting as well.

Adii Pienaar:

For anyone that wants to follow what I’m doing, by the way, the best place to go to adii.me, that’s my blog. A-D-I-I.me. I think what is interesting there is I’m building Cogsy in public, which means I’m sharing the behind-the-scenes things of what’s going on. And crucially, like many other entrepreneurs in my space at least, do this as well. What I actually hope to do is I hope to create some accountability, where leaders would call me on my bullshit when I’m doing these things, and I’m working too hard, and I’m not doing this in a life profitable way. I think many of the ideas that I have, they are learnings in hindsight. And I now want to put it to practice, in a new business. Go from building Conversio in a way, and now doing that better with Cogsy, and doing in a way, as I said, that is truly life profitable.

John Warrillow:

Awesome. Life Profitability is the name of the book.

Adii Pienaar:

That’s it.

John Warrillow:

Cogsy, the name of the company.

John Warrillow:

Adii, it was a great pleasure. Thank you for joining us.

Adii Pienaar:

Yeah, thanks for having me, John.

John Warrillow:

Hey if you liked 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’ve been able to negotiate an exit far better than the benchmark in their industry. Sometimes, two or three times more than they would have expected. I was curious to understand the tactics and strategies of these entrepreneurs, and what they do differently from average performers. 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’ve put together a collection of gifts for listeners who order the book. Just go to builttosell.com/selling.

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