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How a Cold Email to Apple’s Tim Cook Led to an 8-Figure Windfall

April 9, 2021 |  

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Andrew Gazdecki was born in Detroit and lost his father as a young boy. He and his Mom grew up using food stamps. In College, Gazdecki created an online marketplace for freelancers (think a tiny version of Upwork). He sold his online marketplace for $50,000 and said it “felt like a trillion dollars” at the time.

Before handing over his marketplace, Gazdecki noticed something interesting in his search logs. There were a lot of businesses searching for developers who could build a mobile app. It was 2010. Every company wanted to have a mobile application. Few could afford the five-figure investment for a custom app from a development shop, so business owners were trying to hire freelance mobile developers at a torrid pace.

Gazdecki decided to take the $50,000 he had made in the sale of his first business and invest it to create a simple template any business could use to create a mobile app. He named the company Bizness Apps.

His timing was perfect.

The world was moving from desktop applications to mobile apps, and Gazdecki was the beneficiary. Bizness Apps grew to more than $7 million in revenue in just four years, which is about when he was offered $15 million for 70% of the company. Gazdecki was torn. Fifteen million dollars was life-changing money, yet Gazdecki had the sense he might be able to get more.

Gazdecki turned down the offer and continued to build Bizness Apps.

Soon after turning down his first acquisition offer for Bizness Apps, Apple made an announcement that would jeopardize Gazdecki’s entire business. Apple banned template-based mobile applications from their AppStore. The move triggered a five-month firestorm for Gazdecki, which only ended when he decided to cold email Apple CEO Tim Cook.

It was a Hail Mary, and it worked. Thanks to Cook, Gazdecki got his client’s Apps back in the App Store, but he was spooked by how quickly he could lose everything. Gazdecki decided to sell and promptly received an offer from the Austin-based private equity group, Think3. Think3 agreed to buy 100% of Bizness Apps in an all-cash sale that was well north of $20 million.

It was a fairy tale ending to a fantastic run, and in this episode, you’ll learn:

  • The change Bizness Apps made to its distribution model that created explosive growth.
  • The downside of showing up on the Inc. 500 list of America’s fastest-growing companies.
  • How to ensure you don’t get held ransom by your employees with more technical knowledge than you.
  • The email address Gazdecki used to reach Apple’s CEO, Tim Cook.
  • Why “platform risk” can undermine the value of your business.
  • How to perform reference checks on an acquirer.
  • How to dramatically cut your tax bill when selling.
  • What to tell your employees during diligence when an acquirer starts asking nosey questions.
  • How to say to your employees you’re selling your company.
  • Why Gazdecki ended up in a puddle of tears hours after receiving the wire transfer that would change his life forever.

Gazdecki’s most crucial supplier was Apple, so when they changed their criteria for apps that could be uploaded to their AppStore, it almost put Gazdecki out of business. Supplier risk is one of the three legs of The Switzerland Structure, a key driver of your company’s value. See how you’re performing on The Switzerland Structure by getting your Value Builder Score.

About Our Guest

Andrew Gazdecki has been an entrepreneur for longer than he can remember. Andrew likes to build stuff, mostly companies, and tries to tell a story that goes beyond what the company does to how it’s changing markets.

Andrew started two companies, Bizness Apps and Altcoin.io, which have both been acquired.

Andrew has been featured in NYT, Forbes, WSJ, Inc.com, and Entrepreneur Magazine, as well as prominent industry blogs such as Mashable, TechCrunch, and VentureBeat.

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Transcript

John Warrillow:

Hey, it’s John Warrillow. I wanted to record this quick message to let you know that I’ve got a new book that’s now available called The Art of Selling Your Business. Really, it’s a distillation of some of the best practices I’ve heard from some of the smartest entrepreneurs I’ve interviewed for this show. Having done now more than 300 plus interviews for Built to Sell Radio, I’ve seen that there’s this small group of founders who seem to really have incredible exits, ones where they make life-changing money from the sale of their company.

What I’ve tried to do is really analyze what are the transferable lessons among that small cadre of winning exits. I put those into an action plan, a bit of just-add-water recipe card for punching above your weight when it comes to selling your business. The book is called The Art of Selling Your Business. It’s available anywhere you buy books.

Have you ever heard of something called platform risk? If you’re listening to this show, you may remember a few weeks ago, I interviewed Adii Pienaar, in South Africa, where he talked about the sale of Conversio.

Conversio grew very quickly on the back of its relationship with Shopify. You could get Conversio from the Shopify App Store. As Shopify grew, so did Conversio. Only problem is that you become beholden to one company and it can ultimately destroy your company, which is something my next guest, Andrew Gazdecki, found out the hard way. He built a wonderful business, building iPhone apps, mobile apps for clients. He’ll describe the entire story of how Apple almost changed his life for the worse forever.

He’ll talk about how he emailed Tim Cook, and actually give you the actual email address to reach Tim Cook if you’re interested and how that turned around the controversy that he was in with Apple. He’ll talk a little bit about early in the conversation, his distribution model and how he changed it, which led to an inflection point of very fast growth by just one fundamental change to his distribution model for his company. He’ll talk about the downside of reaching the Inc. 500 list of fastest growing companies in the United States, how to make sure that you don’t get held ransom by your employees who have perhaps more technical knowledge than you.

He’ll talk also about how to perform reference checks on your potential acquirer. Andrew will also share some tax advice on how to ensure, especially if you’re a US citizen, how to reduce your tax bill. He’ll also speak candidly why he ended up in a puddle of tears after selling his business for life changing money. Here to tell you the entire story is Andrew Gazdecki.

Andrew Gazdecki, welcome to Built to Sell Radio.

Andrew Gazdecki:

Thanks for having me, John. Excited to be here.

John Warrillow:

Are you a Tigers fan? I could see the Detroit Tigers baseball bat.

Andrew Gazdecki:

Well, yes, I was born in Detroit. A lot of people don’t know that. Then I moved to a town called San Clemente when I was three.

John Warrillow:

Sure.

Andrew Gazdecki:

God just decided I needed to be in a better area luckily. I always kind of joke, if it wasn’t Eminem, it was going to be me. Now grew up in Detroit or was born in Detroit, grew up in Southern California, and now I lived in San Mateo Bay Area.

John Warrillow:

Nice, nice. Tell us a little bit about this company Bizness Apps. What did you guys do?

Andrew Gazdecki:

It’s a good question. It was a company I started in college. I was 21 when I launched the company. We helped make mobile app development really simple and affordable for small businesses.

John Warrillow:

If I’m a lawn care company and I wanted to create a way for my customers to book an appointment, you could use Bizness Apps to create a mobile application for that? Was that …

Andrew Gazdecki:

Exactly. This was 2010, when we launched the company. We started with just iPhone apps. The backstory behind that too was I had a job board that connected mobile developers with businesses. I kept seeing people post the same job request over and over and over, mostly luxury restaurants to start, and are paying like $50,000 for these really simple applications. This is like 2010, when no one knew how to develop iPhone apps. Everyone was rushing to get onto mobile phones. I sold that job board for what felt like $10 trillion in college and use that as seed funding for Bizness Apps.

John Warrillow:

How much did you sell it for?

Andrew Gazdecki:

It was like $50 grand or something like that, but …

John Warrillow:

It felt like $10 trillion.

Andrew Gazdecki:

In college, that was the most meaningful exit of my life. It’s up there, that was one where it was … Because, candidly, I grew up pretty poor. I didn’t grow up with a lot of means, food stamps. My mom and dad passed away when I was six. Entrepreneurship, for me, was always like a way out. I was on student loans. $50,000 for me, yeah, add some zeros on that, that’s how that felt.

John Warrillow:

Awesome. You get this $50 grand and you build the beta of this thing called Bizness Apps. Where does it go from there?

Andrew Gazdecki:

Yeah. We initially started cold calling restaurants. We built a small template that was terrible. Basically, we could only use it ourselves internally to actually build the apps for clients. The idea was to have like a do it yourself app builder. We eventually got there. We bootstrapped the company. We only raised $100,000. Initially, $50,000 from a local angel investor by the name of Christian Friedland, who pretty much changed my life. He founded a company called Build.com, which is basically Home Depot online. They do like two billion GMB a year.

He basically helped mentored me and helped me build that company. We started out cold calling. That didn’t go so well. We acquired probably our first 70 customers cold calling. The problem was, it’s super hard to sell to small businesses. It’s a relationship type sale. We had this eureka moment. I’ll never forget it. It was a customer who had built … We were lucky because we got a bunch of press early on. We were featured in TechCrunch, Business Insider, New York Times, Wall Street Journal.

We have this compelling story as college kids making mobile apps for small businesses for less than the price of a newspaper ad. We got some inbound people using our platform and started … They had to spend hours trying to figure out how to make it work. Someone in Switzerland built some really nice apps for some really large Ramada hotels. I reached out to them, and I’m like 22, and I just thought, “hey, this guy is probably really wealthy and very successful, might have some advice on how to grow my business.” I talked to him. He tells me he doesn’t own the hotels.

He was an agency that was doing the marketing for hotels. Then my next question was immediately, “okay, how can I get you to sell more of these mobile apps, since you’re building them for your customers?” That was the business model of Bizness Apps, is it was a do it yourself app builder for small businesses. Yes, your lawn company could schedule reservations. We made a lot of apps for hair salons, bars, gyms, attorneys, any small business, even celebrities, athletes, Jordan Belfort from Wolf of Wall Street, some rappers.

We made more mobile apps than any other company in the world. At one point, we were powering 5% of the total apps in the iTunes App Store, which is crazy. What that customer said was, “If you can remove the branding of Bizness Apps from these mobile apps. I’d be able to go to my customers and sell these for a higher price. Because they look at your website and they see the pricing, and I can’t really justify $1,000 setup fee or $100 a month to manage the app”.

The business model behind Bizness Apps, spelled biznessapps.com, which is actually still up and you can still build apps with it if you want. We white labeled the platform, and then we began partnering with thousands of web design companies all over the globe. We partnered with 5000 agencies at its peak, translated the platform in 40 different languages, some public companies, definitely some brand names that you would know. That’s where our trajectory went from creating one app at a time to selling hundreds of apps at a time, and then eventually, thousands of apps at a time. Really, these organizations that have these preexisting relationships with small business owners, and we would just focus on the technology, leverage those relationships. Now it’s a win-win for us, and then a win for our partners as well.

John Warrillow:

If I was coming to you direct and I’m subscribing to Bizness Apps, excuse me, if I’m the lawn care company, what would I have paid? Then what would the agency where I’m going to build out 100 different apps have paid for the same service effectively?

Andrew Gazdecki:

If you came directly to Bizness Apps, we changed our pricing multiple times like most SaaS companies do. We started at $29 a month, and then we moved to $49 a month, and then we moved to $99 a month. If you worked with a reseller, you would typically pay a higher price, a much higher price. Sometimes, some partners of ours were charging a one to $10,000 setup fee, and then one to $500 a month to manage the mobile application. The beauty behind that was the lawn care company probably isn’t the best at building a mobile app.

They would gladly pay for that, because they didn’t know what features to add, how to make the app look good, when to send out push notifications, stuff like that. That’s how the partners were able to justify that additional costs, because they would add a layer of service on top of the technology that we built.

John Warrillow:

I’m assuming the early model was, as you said, you got a bit of press in TechCrunch, in New York Times, and people were coming directly to you. How did you go about signing up these agencies? Did you hire some salespeople to go call on them? Or what was that model like?

Andrew Gazdecki:

Yeah. We shifted almost immediately, because the first partner that signed up, we didn’t have any of the white label functionality built out. I talked with this individual in Switzerland, his name is Raoul, and his company is called Vendomat. I still keep in touch with him today, because he essentially changed the course of the business forever. We made an agreement that I would build out the functionality if he agreed to presubscribe to a certain number of apps. I can’t remember the exact number, but I believe it’s like a $2,000 a month contract. That was $24,000 a year.

I think our revenue at that time was $24,000 a year. The company doubled from that one customer. From there, and we’re still all in college. I had a minor in entrepreneurship that I was doing. Again, I was taking out student loans to allow me to stay in school and not go get a job. I didn’t go to any of my entrepreneurship classes, failed all them, but focused on the business. At that time, we’re all in college, started recruiting some of my friends that were in college to help with sales, help with customer support, uploading iPhone apps.

If you’ve ever upload an iPhone app, it takes about 45 minutes. We eventually automated that process. We went all-in on the reseller model when we started to see some traction and really, just recruited friends, anyone who wanted to work at Bizness Apps at CSU Chico State. I said, come on in, I could use your help 100%.

John Warrillow:

How big did you get this business? I’m curious, Raoul made the first offer of 24k a year. How big did it get using these resellers to go to market?

Andrew Gazdecki:

In terms of like revenue or …

John Warrillow:

Mm-hmm.

Andrew Gazdecki:

We got to about $10 million in revenue. We grew from $0 to $3.6 million in the first 36 months. We got number 58 on the Inc. 500 fastest growing companies for that.

John Warrillow:

Wow. Congratulations.

Andrew Gazdecki:

Then the next year, we were number 91. We grew from 0 to 7.2.

John Warrillow:

3.6 to 7.2, you mean?

Andrew Gazdecki:

Well, zero to three. I could be getting these numbers wrong, but assume zero to three in the first three years, and we went from zero to seven the year after that. We effectively doubled.

John Warrillow:

I see.

Andrew Gazdecki:

If that make sense.

John Warrillow:

What was …

Andrew Gazdecki:

Then we stopped sharing numbers with Inc. because I had to change my cell phone number every single time we’d be on there.

John Warrillow:

Why? Who would call you?

Andrew Gazdecki:

Everyone. My friends would send me pictures, like friends that were in recruiting, and they were like, my boss just told me to call everyone on this list. If you get on the Inc. 500, you’re going to have a lot of people reaching out.

John Warrillow:

What was the change in strategy that enabled you to go from three to seven in one year? What was that inflection point about?

Andrew Gazdecki:

It was really just scaling the team, simple as that. I think, really, what happened in a key to Bizness Apps success, and I say this all the time, is the number one reason that startups succeed is market timing. We were just in the right place at the right time in a gigantic market with an obvious problem selling an obvious solution. There was pretty much every web agency in the world was looking to provide mobile solutions to their customers, but they didn’t want to hire in-house developers.

That was our pitch, is we could allow you to offer this way for your customers to connect with their customers on their mobile devices. You don’t have to hire in-house developers. We’ll handle all the technology and all the development, all those submissions, the app stores, iTunes, and then also Android. I mean, there was just such a wide demand. It got to a point, I’m just trying to think back, where we wouldn’t be able to answer sales calls unless people were looking to sign up.

I remember one day on Easter, and I’ll never forget this, I sent out like a 20% off email from my laptop in the kitchen saying, “Hey, the reseller program is 20% off”. We added, I believe, like $70,000 in annual recurring revenue in one day from that, and that’s on a Sunday. No one’s answering the phones. No one’s available. It was such a weird ride, because I was so young and I didn’t have any part job experience, no professional work experience, no sales experience, no marketing experience. I’m not a technical founder. I hired developers. I hope that answers your question, but I’m just …

John Warrillow:

Yeah, for sure, but I’ve got a lot more.

Andrew Gazdecki:

Kind of gone down memory lane here.

John Warrillow:

No, this is great. I understand what the customer would pay if they came to you directly. I also understand what the reseller would charge that customer if they chose to go through a reseller. What did the reseller pay you? What was that model like?

Andrew Gazdecki:

Good question. We had volume discounts. We had a barrier of entry to enter the reseller program. The typical package would be, if you pay $300 a month, we’d allow you to build 10 apps, so it’d be $30 a month per app, and now it would allow you to publish 10 iOS apps. Then we had Android apps entirely free. We eventually started charging for Android apps. Then we eventually expanded out to progressive web apps, which are basically mobile websites that perform like native apps. It was essentially $30 a month per app to start. Their margin was pretty sizable.

If they were selling apps for $100 a month, we were charging 30. Then as you scaled up and you got over, say, 100 apps, we’d lower that down to 20. You got over 1000, we’d lower down to 15. I don’t remember the exact volume scales, but that’s how we priced it. Sometimes we would do … If we had a really high-end customer come in or well-known brand, we would structure something that made sense, like lower volume or lower cost per app based on higher volume. That was the base package.

We would have that in place, because we would train people on how to use the platform. We would support them, we would set up all their developer accounts, we do a lot of onboarding with the customers. We put that in place. We didn’t have a bunch of people just flooding in saying, I want to be a partner of Bizness Apps. Then we would just set up all these accounts and not know that we’re going to receive any revenue in return.

John Warrillow:

Yeah, so they had a bar to climb over to get into the [inaudible 00:18:48].

Andrew Gazdecki:

It was essentially a barrier to entry, yeah.

John Warrillow:

Yeah, yeah. You mentioned, in your own words, not a technical founder or a non-technical founder, which is a Silicon Valley term. Like when you’re in the SaaS world, you’ve got product people who are developers, and then you’ve got sales and marketing folks. I think it goes beyond in my experience just software companies, there’s all kinds of companies where the founder is not necessarily deep in the weeds of what it is they sell. Could be a lawn care company that actually doesn’t know much about cutting lawns, the person just has a great sales marketing engine and can outsources the actual cutting of the lawn.

To use a very simplistic example. One of the challenges I think I hear a lot about is when you’re a non-technical founder, it can lead people to always feel a little beholden to the technologists and a little bit vulnerable, maybe even held hostage from or to those people. Did you ever get that sense of feeling you’re in their hands. If so, how did you overcome that feeling?

Andrew Gazdecki:

I never felt that feeling. I built a distribution company, not a software company. I tell my team that all the time. People can copy your features, people can copy … The barriers to entry to software companies are extremely low. Funding is no longer a barrier. Technology is no longer a barrier. You can look at companies today and copy their technology in six months if you build the right team. We focused heavily on distribution from day one. That’s how we were able to fund the company without outside investors, aside from the three angel investors that I had.

I get what you’re saying. I think what all founders should at least be able to do is manage product teams and have a good relationship with them. You don’t get that like, I’m building the software, I should own the company, and pay fair wages and stuff like that. That’s probably not the best advice, but that’s what I did. I worked really closely, I considered everyone on the development team part of the company. We outsource a lot of our developers. We had engineers in Russia, Brazil, China. We had a big team in China, which is interesting.

I found one really good developer on Upwork, and just asked if I could hire all of his friends. I just said, “Do you have a bunch of friends? Because you’re amazing.” His name was Ray, and I still keep in touch with him today. I can see why founders can almost use that as an excuse like, I’m not technical, I need a technical founder. I don’t buy that. I think if you’re not a technical founder, just hire an agency to start. If you really are able to figure out the go-to market, you’re going to find customers, then you can use that revenue to hire in-house engineers. That’s essentially what I did.

John Warrillow:

Got it. How big did you get this company? You mentioned you hit $10 million in ARR. Was there some trigger that made you want to sell the company?

Andrew Gazdecki:

Yeah. We had a little bit of a battle with Apple in terms of their guidelines. For people listening that develop mobile apps approval guideline 4.2.6, there’s a bigger story behind that, I won’t share the whole thing. Essentially, Apple made it a little harder to submit templated applications. I actually worked with Phil Schiller to have this rejection changed and revised, but he …

John Warrillow:

Forgive me. Phil Schiller works at Apple? I don’t know who he is.

Andrew Gazdecki:

He’s the guy that gets on stage and basically presents. We got his attention. The longer story is we had an app that appeared on the Laura Kelly show. At the time, Apple was saying the apps that we were developing would no longer be accepted into the App Store, because they were built with a template. It had nothing to do with the quality. It had nothing to do with the use cases of the mobile applications. I mean, true story, I emailed Tim Cook, tcook@apple.com, at like 9:00 on a Saturday, just saying like, “Hey, check out this mobile app that is on Laura Kelly’s show.”

It was a mobile app that one of our partners made that helped prevent teen suicide, and it had these individuals showing the app and how it helped them. I just asked a simple question. I said, “Hey, so you’re banning templated apps, are you saying that this app isn’t helpful or relevant or beneficial to people? Does this not really belong in the App Store because it’s built a certain way, and you’re not judging on the quality of the application?” Then all of a sudden, I see the email being opened in Cupertino, in San Francisco, Berkeley. I was like, what’s going on?

Then Phil Schiller responded back, and we ended up having a little bit of back and forth conversation and came to terms in terms of what those guidelines, how they can be revised. We ended up meeting in the middle. That affected the whole industry. Big companies really went out of business because of that. It didn’t hurt us in terms of growth. It was just such a stressful time. It was so stressful. My whole team was like, “what are we going to do?” We had customers that were selling mobile apps to their customers, and they weren’t able to get these apps approved. This went on for maybe five months.

John Warrillow:

Wow.

Andrew Gazdecki:

After that, and then once the approval guideline was removed, I was just burned out. I had so much of my net worth tied up in the business, essentially, all of it. I was getting married in a few months and I was just ready to sell. I wanted to move on to something new as well. I was 29 when the business was acquired. I had grown up building this business and being so young, I wanted to go … I love technology. I love startups. After going toe-to-toe with Apple, it beat me down a little bit. I wouldn’t say that’s the reason I sold.

The point being there is, when you run a business for eight years, especially a startup like Bizness Apps, every year can feel like four years. It’s so intense, so many competitors. We saw a lot of competitors blatantly copy our software that built substantial businesses, which I love to see. It was just such a high pressure business, and managing a large team. Long story short, I just got tired and thought, maybe this is a good time to sell the business. We got an offer that we couldn’t refuse. That’s really what happened.

John Warrillow:

I want to get into that next. Before we go there, I mean, take me inside your head, just envisioning, Apple announces this change saying they’re not going to let templated websites on. You’ve got almost 100 employees, I think, at the time. You’ve got literally thousands of these agencies selling tens of thousands of apps. What’s a day in your life like during that five-month window? Take me inside what that looks like.

Andrew Gazdecki:

It was pretty rough. Because they targeted us …

John Warrillow:

The blood’s rushing out of your face as you describe this, by the way.

Andrew Gazdecki:

I mean, just thinking back, so I remember the day that we found out. Apple announced the new guideline change at the Worldwide Developer Conference, which we always dreaded. If you remember when the iPhone 5 came out, they made the screen size a little bit longer. We had to rush to every app that we submitted now had to have these new iPhone 5 size screenshots. Every time WWC came out, we would basically be like, okay, watch this, and then some crazy new thing is going to be released with iPhone.

We’re going to have to scramble and update all of our iPhone, phone, all of our mobile applications. We watched it, and it was announced. We thought, okay, this is probably going to affect mostly like clone games. We just make a game and you … Justin Bieber is the main character, and then you rescan it and then Elon Musk is a character, and you just keep rescanning it. That’s who we thought it was targeting. Then I remember we were doing a mobile app launch at a local restaurant in San Diego. My VP of product called me and he said, “Hey, one of our partners just had like 50 apps rejected all at once.”

John Warrillow:

Oh my god.

Andrew Gazdecki:

I just thought, maybe this isn’t a big deal. Well, every problem has a solution. We’ll figure it out. I always try to think on the positive side. It turned out it was a bigger issue. What Apple had essentially done was put a tracker on our mobile application. Any app that we submitted, no matter what, regardless of how it looked, regardless of the functionality that we built into it, was rejected immediately, like not even … Because you get emails, like your app is in review.

Then usually when your app goes in review, you get another email like, two days later, it says your app is approved. It go, in review rejected, so immediate rejections, not even looking at our applications. We knew we had a problem. From there, we made appeals to Apple for extension, so we could essentially reconfigure our business model, because we wanted to work with Apple. We loved Apple. They’ve helped us build our business. It was a glove and hay relationship, especially with the constant changes and stuff like that, so a little bit of platform risk.

Just thinking back what it was like, lots of conversations with customers around what we’re doing. We didn’t have a lot of answers at the time. A lot of conversations with the team about what we’re doing, my communication with Apple. Luckily, I had some good connections into Apple. I had a friend that worked at Instagram, he connected me with one of the head Apple reviewers. They were very helpful in terms of working with us. We got like a three-month extension, which meant we had to start building more custom applications.

We just were scrambling to reconfigure our software. Then we were scrambling to improve our progressive web applications. All of that was working, but we still have this pipeline of applications that we were wanting to submit to Apple, but they’d be rejected. It was tough. I mean, we got there, we kept pushing. I mean, the only reason we really got through that was my team was just so good. Some teams would quit, some teams would have been like … A lot of companies, actually, either merged or went out of business entirely or just completely pivoted. We just worked with Apple and figured out a solution. It wasn’t fun. I’m just going to leave it at that.

John Warrillow:

At what point did you email Tim Cook? You mentioned it was five months from WWC to the time you got the problem overturned. When did you email Tim Cook?

Andrew Gazdecki:

It was a Hail Mary. It was definitely like towards the end of exhausting all my options of, can we do this? Because we had some good ideas. We were talking to Apple like, what if … Because their concern was we were submitting thousands of applications, tens of thousands of applications. They felt that we were essentially spamming the App Store, even though we were building many high quality applications for many high quality businesses. Really, without a tool like Bizness Apps, a small business can’t afford a custom application.

John Warrillow:

Sure.

Andrew Gazdecki:

It costs like $40,000 to $50,000. We’re almost fighting for small businesses in a sense. We had some suggestions like remove them from search. Because that’s how most customers of a small business would find out about that. They would directly search. Remove it from the categories or something like that. We had other suggestions like, what if we just uploaded the app into one developer account? That was what we ended up agreeing upon. That’s, I believe, the guideline now. I don’t check on the Apple guidelines now anymore, and it feels great.

Tim Cook hopefully listens to this podcast. I’d like to say thank you. I hope he does. Again, this was three years ago. It was definitely towards the tail end of it. Actually, probably five months into it, because two weeks after I emailed him, the rejection thing was gone, like completely lifted. We were like, “okay”. Then we found out first, because I had spoken directly with the team at Apple, and we actually tried to acquire our competitors who thought that it was game over for them. That didn’t work out. I was happy, regardless, to know that we can continue operating.

That was definitely a big speed bump and just opened my eyes like, hey, when you build a business, things can change very quickly. You can get disrupted. You can have a big partner change their guidelines. That really was eye opening to me. It made it very clear it was time to sell the business and move on to something else.

John Warrillow:

Yeah, yeah. You mentioned a big part of your net worth was tied up in the company. Did you have any sense of what it might be worth at this stage of the game?

Andrew Gazdecki:

Yeah. I mean, so towards the tail end of Bizness Apps growth, start topping off a little bit. We were hitting … We had a lot of churn with customers. As we got to about 10 million in revenue, we were constantly adding new customers, losing customers. Because a lot of resellers would sign up, never use the product, cancel. Growth started to get to low double digits. In terms of what the business was worth, and typically trading at 1 to 5X, depending on who the buyer was, on …

John Warrillow:

1 to 5X of what?

Andrew Gazdecki:

ARR.

John Warrillow:

Annual Recurring Revenue.

Andrew Gazdecki:

That was our ballpark. At that point in time, we hadn’t really … I mean, I thought it was worth like $100 million. Like any entrepreneur, I over thought the value of my business.

John Warrillow:

Where do you go from there? You make the decision. I’m out, like it’s just too emotionally draining. I’m 29. I’ve getting married. Did you hire an investment banker? Or what was the next step?

Andrew Gazdecki:

I actually hired an investment bank in 2016. I worked with them. We had a number of different offers from large strategic companies. We did a full roadshow. We had one large PE firm offer like $15 million for 70% of the company or something like that. I was young. I was like 26 or something. I still had a little bit of gas in the tank. I was like, no, this is $100 million business. Let’s keep going.

John Warrillow:

Okay, but I got to pause you there. In your own admission, you grew up with food stamps. Six years earlier, $50 grand felt like a trillion dollars. What did it feel like at the age of 26 to be offered $15 million for your company?

Andrew Gazdecki:

For 70% of it. The idea was they were going to bring in a new CEO who had prior experience …

John Warrillow:

Sure.

Andrew Gazdecki:

… building enterprise, mobile applications, take the business up market. I get a stake in seeing them. They were going to do a roll up and all this stuff.

John Warrillow:

Second bite of the apple, you probably got that pitch?

Andrew Gazdecki:

Yeah. I mean, I called my mom. She was crying. She was like, “I’m so proud of you.”

John Warrillow:

What did she say?

Andrew Gazdecki:

I can’t remember. I mean, we were in Boston. I was in Boston. I was just by myself in Boston, and just called her. Because I had just got out of the meeting. It wasn’t like a done done deal. We went to the fanciest restaurant ever and the most expensive steak I’ve ever had, and this guy, and I won’t say the firm, but this guy’s worth, I don’t know, a trillion dollars or something like that. The bankers I was working with say, were like, “He never comes to dinner.” The fact that he’s coming to dinner is a really good sign.

Then I went to get a beer with the person that was going to be coming on, who was an entrepreneur in residence at the private equity firm. He said, “This is going to be life-changing for you. This is going to be awesome. We’re super excited to work with you.” I got back to my hotel room, I called my mom, I was like, “Mom, I think … ” I mean, it went from like “we’re interested” to like “we’re serious”. I just didn’t know. I don’t know, thinking back, I didn’t really understand. I didn’t think like this is enough money to retire on. I think I remember feeling like, “I think we do better than this” or something like that. I was thrilled. I was humbled that they would offer something along those lines.

John Warrillow:

What did your mom say?

Andrew Gazdecki:

I can’t remember. I don’t think she believed me. My mom, I always try to tell her what I’m doing. I usually will send her press articles. Or I’ll send her this podcast and she’ll listen to the full thing, and then she’ll be like, “Okay, I get what you do.” I don’t think she really believed me, if I’m being honest. I think she was like, “Oh, I’m so proud of you. This is great”. I’m pretty sure she cried, but I don’t know. This was five years ago. This memory is a little fuzzy and it was like 10:00 p.m. I mean, it was surreal. I can say that.

John Warrillow:

I bet. Where does it go from there? After the steak dinner, what did you do next?

Andrew Gazdecki:

Turned down all the offers, just walked.

John Warrillow:

Okay. Why? What happened to make you want to …

Andrew Gazdecki:

Well, I thought we could keep pushing. I wanted to keep pushing. I was still excited about the business. I still thought we had so much opportunity in front of us. In me, it was a hard decision. I guess in another way, Bizness Apps was like my baby. I guess I wasn’t really mentally ready to give it up. I mean, if I can go back, I would have taken the idea on second because then I could put the money in the market, let the money grow, and then maybe that 30% would have been … At the time, I was so emotionally involved in Bizness Apps. This truly was my baby.

I loved everyone I worked with. I loved the product. I loved our customers. I thought selling might be … Might feel like selling-out a little bit. It wasn’t like a billion dollar offer. Being young, I thought maybe this is my one chance, just maximized it. That’s the best answer I can give you. There’s no logic behind it.

John Warrillow:

Let me just understand the math behind it. If there’s no logic, let me just do the math. I guess it’s around a $20 million valuation if they were going to pay 15 for 70%-ish.

Andrew Gazdecki:

I remember they came to 30 or 35.

John Warrillow:

35?

Andrew Gazdecki:

Yeah.

John Warrillow:

But …

Andrew Gazdecki:

On the LOI, the valuation was 35 million.

John Warrillow:

They were going to give you a 15 upfront?

Andrew Gazdecki:

It could have been 17 or 18, something in those numbers. I don’t know, minority stake, I would walk with … I think it was eight million upfront and then seven after two years or something like that. Maybe the number is off, but 30 million is coming to mind right now.

John Warrillow:

Got it, okay.

Andrew Gazdecki:

Maybe it’s … I don’t know.

John Warrillow:

Do you recall what multiple of revenue at the time it would have been? You mentioned you thought it was worth between one and five times annual recurring revenue. What was that original offer as a multiple of annual recurring revenue at the time, ballpark?

Andrew Gazdecki:

That was 2016, maybe like four.

John Warrillow:

4X revenue?

Andrew Gazdecki:

I think. I think we’re at seven million at that point when we went to market.

John Warrillow:

Got it.

Andrew Gazdecki:

I could be totally wrong, to be completely honest. That would be my final answer for you.

John Warrillow:

If I was Regis Philbin. Was that the guy who did that show? I’ve forgotten his name.

Andrew Gazdecki:

It was. I wish I could phone a friend.

John Warrillow:

Yeah, exactly.

Andrew Gazdecki:

That sounds right.

John Warrillow:

Okay. That’s helpful, for sure. You walked away. What next? Because my original question was, tell me about the sale. You went through this thing with Apple. How did you actually end up selling it?

Andrew Gazdecki:

After the thing with Apple, we were approached by a private equity firm out of the blue. Literally out of blue. Just, “Hey, are you looking to sell your business?” I was like, “Maybe. Are you guys legitimate?” The funny part about that was … Another reason I didn’t want to sell too was the investment banks minimum fee was like 800,000. It was going to be a huge fee on that. I just thought, I don’t know, you guys have the best job in the world. You just introduced me to a few people and you’re going to away with a million bucks.

Once we were approached by the PE firm our tail with the investment bank was gone. I was thrilled to entertain offers. We weren’t actively looking or shopping the company. We were approached by ESW Capital. They made an offer that was very generous for the company. They moved extremely quickly. I was hesitant at first because just I’d never met you guys. I always saw an acquisition the way it happens is they come, they meet you, shake your hands, take six months. Little did I know, we had been in conversations with them previously. During the dealership …

John Warrillow:

The first round that was run by the investment banker, ESW was one of the companies that were in part?

Andrew Gazdecki:

No. Even before that, we were … We had a conversation that I just didn’t remember. I only remember this part because during due diligence when they asked for all the NDAs I’d ever signed, I found one from ESW Capital. I was like, oh, we talked six years ago like that’s, cool. Yeah, it just came out of the blue and the timing couldn’t have been perfect. I was about to get married. I started thinking about like, okay, I’m no longer just a 20 something year-old. This is a chance to really change the course of my life. Let’s go. I actually thrilled to get the offer.

John Warrillow:

I mean, a lot of people listening to this would get those kinds of calls from private equity groups all the time. The, “hey, do you want to sell your business?” phone call. Some of them are legit. Others are less than reputable. How did you evaluate the credibility of ESW?

Andrew Gazdecki:

I reference checked the hell out of them. I called probably eight CEOs that had been purchased from them. The number one thing I was always scared about was, I never want an earn out. I never wanted to go and work at another company. Because I always knew, if I took like a two-year earn out or something like that, I get to month three and quit, and then I’m like, okay, great. I got 10% of what was offered to me because I just can’t stand. I literally just cannot stand working for someone else, not in a bad way. I just really love building companies.

I reference checked them. Their terms were all cash, 30-day due diligence, so quick due diligence. What I was looking for was insurance on would they do what they said, meaning, are we going to get to the ninth inning and then we get a haircut because they found something or just typical private equity, horror stories that you always hear about. I heard fantastic things across a number of different people. One person who said, “If you sign that LOI, that’s what you’re going to sell your company for. They do what they say.”

I remember the CEO gave me some advice too, he’s like, “I hope you don’t have a drug problem. I hope you don’t have gambling problem. Because it’s going to be all cash. You’re going to do exactly what they said.” I was like, “I don’t have either of those.” “Okay, great. Thanks for the feedback.” I don’t know if he was saying that because something went wild on his end, but just did reference checks and made sure they were a credible buyer, and I heard great things and moved forward with them.

John Warrillow:

In terms of the reference checks that you did, how did you identify the eight CEOs that had sold their companies to ESW? Is ESW sort of portfolio companies on their website? Or how did you track that information down?

Andrew Gazdecki:

They did. I don’t think they do anymore. I went on their website and just reached out to people over LinkedIn that had sold their businesses to them. Some responded, some didn’t, just like anything. I spoke to the ones that responded. Across the board, it was very consistent with answers in terms of all cash. Due diligence is obviously never fun. You get through that. They’ll do what they say. Also, another part I loved about ESW was they kept the business alive. They run it for the long term.

They wouldn’t buy it, turn it into Google App builder, and then I can’t look back on what I spent, essentially not my childhood, but like my young 20s building. Bizness Apps is still alive. I actually built an app on it the other month, just for fun to go in. I felt like I was in my college dorm room house or whatever. I really liked that aspect. That turned out to be true. It’s definitely the software’s still up, the customers are still taken care of, that was all really important to me.

John Warrillow:

Were you able to share what multiple revenue ESW offered you?

Andrew Gazdecki:

We’re still under NDA. I’ve actually never told anyone what I’ve sold my company for. I swear I’ve never told anyone outside of my wife and my team, but you can add it up. I mean, the business is at 10 million revenue. PE buys SaaS companies at two to five multiple. Things I’m comfortable saying, we had two million in cash on hand. They paid a 1X multiple on that. I owned 90% of the business at close. We benefited from QSBS. They did a stock purchase.

John Warrillow:

Sorry, what is QSBS?

Andrew Gazdecki:

Qualified Small Business Stock exemption or tax exemption.

John Warrillow:

Thank you.

Andrew Gazdecki:

Basically, what it means, if you hold small business stock, I’m not an accountant so I don’t have all the details, but essentially, if you hold small business stock for five years and the value of your enterprise is under 50 million, you have no federal taxes to pay on the first 10 million of the sale of the company.

John Warrillow:

Got it.

Andrew Gazdecki:

I essentially paid 12% tax, because I live in California on the sale of Bizness Apps.

John Warrillow:

Fantastic. Yeah, we have something similar in Canada, qualifying small businesses selling the shares. I think different countries, the UK has something similar. I think different countries around the world have some way they promote small businesses and enjoy the capital gain.

Andrew Gazdecki:

If there’s anything anyone gets out of this podcast, look up QSBS, because I didn’t even know I applied for it. As we were working with … Because we hired a big law firm. We hired Pillsbury. They were super expensive, but really, really good and a really, really good accounting firm. We were going through everything. I was told you’re not going to have to pay any federal taxes on this. That was huge. That’s why we asked for the PE firm to buy the cash on hand. Because typically, when you sell a business and you dividend the cash out, you’re going to be taxed as normal income or 40%, or something like that. When they bought the two million cash on hand, we paid 4% tax on that, since it was included in the total sale of the business.

John Warrillow:

Right, love it.

Andrew Gazdecki:

The structure of the deal, was just very tax favorable, and allowed me to maximize the outcome personally, which I greatly appreciate it.

John Warrillow:

Yeah, yeah. How did you handle the Apple saga with ESW? At what point did you share with them that five months saga?

Andrew Gazdecki:

It was documented in TechCrunch. We have a petition. There was no way you couldn’t see it. We didn’t even have to really talk about it. It was already … Their guidelines had been officially changed. I worked with a reporter at TechCrunch, in terms of covering the news, sharing the story. If you look up Apple 4.2.6 TechCrunch, you’ll see images of Bizness Apps, mobile apps at the top. We help share that story. Obviously, when the guidelines are changed, we helped to explain that as well, in terms of what we were hearing from Apple. It was really public.

There was nothing to really hide. It was just, this is the world of Apple, guidelines change. We don’t have control over that. We have been operating. Things had gotten back to normal essentially, is probably the best way to put it. All the apps that were in the backlog were going through just fine. We were hovering back round at 98% approval rate in terms of the iPhone apps that we submitted. That 2% rejection rate that we would see would be for apps that just we knew shouldn’t be in the App Store, just low quality content type mobile applications Apple doesn’t typically approve. Things were just back to normal.

John Warrillow:

I guess, my question though is, ESW would have obviously been aware of the liability, frankly, or the potential liability the company had on its dependence on Apple. Did they raise that with you or did you have to allay their concerns that, who knows what the next regulation is going to be and that could effectively jeopardize the business as seriously as it did in your hands?

Andrew Gazdecki:

It was never like a meaningful conversation. It was discussed. It was explained that, like I said, when iPhone 5 came out, we had to scramble to change the software. I could name a number of different scenarios. I’m sure they’ve had to update the software with the new iPhones, the iPhones mini. You have to adapt the mobile app to apply to all the screen sizes, or they won’t be approved. We discussed that a lot in terms of our relationship with Apple, how we improve our apps when Apple makes changes, how do we get notified.

That was more of the topic, like how do we continue to make sure that our apps are up to Apple’s really high bar for approval? I remember talking about that a lot in terms of just our quality control, how we … We had a lot of built-in things to ensure that apps would be approved. You couldn’t even submit an app to our team, unless you literally had every part of your app filled out. If you have the word android mentioned in iPhone app, you couldn’t submit it to our team, because that was something that Apple would reject. You couldn’t mention Apple, BlackBerry.

There was all these little approval terms. We had a really advanced and scalable system that we had built that allowed us to constantly have apps approved. I remember we were looking at our approval rates pretty frequently. Again, they were at 98%. That was most of the conversation. Really, most of the conversation was around existing customers. How many existing customers do we have? How many existing live apps do we have? Those numbers were pretty sizable. Because again, I’m pretty sure we made more mobile apps than any other company in the world.

That was another focus, is how do we maintain these apps? How do we keep these customers happy? How often you have to update the applications? Because there was a lot of moving parts. That’s where most of the discussion was. I can see it being a concern. I don’t recall having really any conversation around that specific topic, because we had six months to show that approvals have been going well and the business was operating.

John Warrillow:

Well, you mentioned that you’ve never told anybody what you sold your company for other than your wife and your team. What was your team’s reaction when you told them?

Andrew Gazdecki:

I waited until we had a closing date because … This is funny. During due diligence, it was me, my VP of product, my VP of engineering, and my CFO. We just locked ourselves in our conference room. If you have the whole exec team just locked in a conference room, everyone’s going to be like, “what’s going on?” So, I told the team we were being audited by the IRS, just … Because I didn’t know if the deal was going to go through. Because when you tell your team that you’re selling your company, the reaction is, am I becoming a millionaire?

Or am I getting fired? It’s that and everything in between. I didn’t want to shake up everybody without 100% certainty that this deal was going to close. Once we had an agreed closed it with our legal team and we had completed due diligence, and it was just a matter of getting everybody and closing day, and we had a formal closing day, which I’m happy to talk about, which was surreal. I told… We were going to close on a Monday, I told the team on Friday, and just basically brought everybody into the room and said, “There’s going to be a change of ownership. We’re selling the business. This is what I know. We’re going to close on Monday.”

John Warrillow:

When you say everybody, do you mean the leadership team, the VP of engineering, VP of product, or everybody in the company?

Andrew Gazdecki:

Everybody in the company.

John Warrillow:

Were they shareholders in the company or do they have options or …

Andrew Gazdecki:

They did.

John Warrillow:

All of them, from the bottom down to the top?

Andrew Gazdecki:

Yeah. Some had unvested shares, some had … There were new employees with a four-year stock option when you’re cleave. Everyone received … Then on top of that, ESW Capital gave me a $500,000 bonus to do whatever I want, to start my own next company or whatever, literally just a blank check on top of the purchase price. What I did is I took that 500,000 and I distributed it entirely to my team. On top of them benefiting from the sale of the company, because I figured I was going to be … I was definitely going to be the one taking most of the profits from the sale.

I took that 500K and distributed it across my team based on … I can’t remember exactly how we did it. The largest bonuses went to my exec team or how long you had been with me. Everyone benefited from the sale.

John Warrillow:

Look, as a percentage of one year salary would these bonuses have been for folks, would have been like 10% of a year salary or 50%?

Andrew Gazdecki:

I distributed it to everyone in-house. I think the smallest was at least 10,000. Then the biggest was like 100,000 on top of what they would get for their stock options as well.

John Warrillow:

Got it. Got it.

Andrew Gazdecki:

I have this big Excel sheet that I have like everyone’s name in it, like divvying up the 500K on top of, and then I let the attorneys figure out who’s getting like what and stuff like that. Because I sent that to ESW, so they would send the money directly to these people instead of just me, so I don’t get taxed. Then I got to send it to them. I don’t know if …

John Warrillow:

What was their reaction?

Andrew Gazdecki:

Honestly, there were some tears and there was some champagne popping, and a little bit of everything. We were like a family. I was going to leave the company. I had a 90-day transition plan. I had already started working on another company, which I don’t recommend if you’re selling a business. Take a break, travel the world when you’re allowed to. That is my best advice, is like, if you sell a business, celebrate the win. I didn’t really do that. I started another company immediately afterwards. I was leaving and it felt like the end of an era.

I told the team like, “This isn’t goodbye, this is just … See you around”. It felt like graduating from college when you’re with all your friends and you’re not going to see them every day anymore. It was bittersweet, and I still keep in touch. I talked to my VP of product, VP of engineering, VP marketing literally yesterday. We all got on a call together. Because we just built such deep camaraderie working together for so long. It was bittersweet. I mean, it was awesome, because we built the company to be acquired.

It wasn’t a cash flow business, because I had a fiduciary duty to my investors to show return on their initial investment and just believing in me at 21. I mean, it was about high fives and a lot of like, you know what, this was awesome, but just graduating college is probably the best way to explain it.

John Warrillow:

[inaudible 01:00:39]

Andrew Gazdecki:

Some people were sad. Some people were like, yeah. Then everything in between.

John Warrillow:

Got it. Got it. You mentioned closing day was surreal, in what way?

Andrew Gazdecki:

It happened. Eventually, we moved the company down to San Diego at one point. I flew in basically everybody. We had some employees in San Francisco, because we ran it for a while in San Francisco, and moved it down to San Diego so we can lower operational costs. We were able to do that because we had a remote dev team. We mostly hired entry level customer support and sales. That’s a story for another time. I’ve written about it if you want to Google like TechCrunch, Andrew Gazdecki, had I moved my company from San Francisco to San Diego.

I was just with a few people. The wire came in right before the deadline, which I think is like 1:00 p.m. or something like that. I was just alone in this conference room with my CFO. It was just one of those like … Because we were so anxious and just like, “is this really going to happen? Really, really?” I couldn’t see anybody. I was just so nervous. Again, it’s like, I’m coming from nothing. This is a life changing moment. I was just trembling, and then the wire came in.

The associate from ESW send me some banker-esque tags, which was like light up the cigar, put the foot, the puff or some sort of a slang that I didn’t understand. I checked my bank account, and I just was like … Then I had to leave the office. I left immediately. I went home. Hugged my wife. I cried, as lame as that sounds. I cried, because it was just such a culmination of so much work. I worked like 100-hour weeks for like eight years, and we finally sold the company. It was on good terms. It was all cash. It was to a great buyer.

My team was taken care of. My customers were taken care of. My investors were happy. They saw over a 10X return. It was such an accomplishment. Also, at the same time, I was scared too. I was just really scared in terms of this was something I spent so long building. Who am I now? I remember feeling like that for a little bit. It was also a bittersweet like this is amazing, but then once the … This is awesome feeling hangover comes in. You start to think, oh, what did I just do? I really loved that company. No, it absolutely no regrets.

In the moment, it was just so emotional, because … I don’t know. Your life just goes [snaps] Like that, and it changes. I had really, really good guidance from my investors as well. I didn’t do anything stupid. I didn’t buy anything dumb. I still haven’t.

John Warrillow:

No trophy, whatsoever?

Andrew Gazdecki:

I bought a C63 AMG. That was probably my only thing I bought. My dad helped. He used to be a Ferrari mechanic and he helped design the De Lorean, and so always been a car person. I bought that just it reminded me of him because he always liked muscle cars. I bought it used. It was only 35,000. I didn’t buy like $100,000 brand new AMG, but I bought that. Bought a house for my family. That’s it.

John Warrillow:

Awesome. I am so grateful for you sharing this story with us. I think you shared it with so much candor and humility. I just think it’s amazing. You’ve really helped a lot of people today. Thank you for sharing it.

Andrew Gazdecki:

Yeah, that was fun going down memory lane. I felt like I just re-felt some of those memories. Thanks for letting me share that story.

John Warrillow:

Oh, it’s amazing. It’s amazing. If people want to learn about you, what you’re up to next, is there a place they could do that? What’s best?

Andrew Gazdecki:

Yeah, probably Twitter, just @agazdecki at Twitter. Or you can add me on LinkedIn, Andrew Gazdecki.

John Warrillow:

Awesome. Yeah, and we’ll put the spelling in the show notes at builttosell.com, G-A-Z-D-E-C-K-I, I believe, if I’ve got that right.

Andrew Gazdecki:

You do.

John Warrillow:

Awesome. Andrew, thanks for doing this.

Andrew Gazdecki:

Anytime, John. Thanks for having me.

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 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. 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 order the book. Just go to builttosell.com/selling.

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