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The Bait & Switch

June 4, 2021 |  

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Carrie and Dave Kerpen started Likeable Media, a social media agency, in 2006.

The business grew to more than 50 employees when the couple met for their annual partner’s retreat. The Kerpens realized their business had blossomed into a big success which they estimated was close to 90% of their net worth.

The Kerpens decided to sell and quickly received a 100% cash offer of 6.5 times EBITDA, which seemed too good to be true given that marketing services businesses almost always involve an earn-out.

Turns out it was.

After the Kerpens signed a Letter of Intent (LOI), the acquirer changed the terms of the deal offering just 60% upfront. The Kerpens realized they had fallen victim to a bait and switch and decided to walk away.

Lucky they did, as soon after, the Kerpens accepted an offer of around 8.5 times EBITDA.

In this episode, you’ll discover:

  • How to productize a service.
  • The power of naming and trademarking your offerings.
  • How to leverage interns to get your business off the ground for pennies on the dollar.
  • How to stop billing by the hour.
  • The difference between a small business owner vs. an entrepreneur.
  • How to ensure you control the outcome of your earn-out.

Show Notes & Links

(05:58) Dave Kerpen: “I was fortunately one of the first people to write a book about social media. And of course I didn’t really know much then, but I wrote what I knew, what I could figure out. And then, because the world of social media changes so often, I was asked to update the book. Again and again, I had to keep doing new editions.”

(10:15) Carrie Kerpen: “It was called the Content Credit System. This is one of Dave’s greatest hits.”

(11:15) Dave Kerpen: “packaging in those in a subscription model allowed us to sell annual recurring subscriptions. So whereas most agencies are going project to project, which doesn’t create value and it doesn’t create predictable revenue, we were able to create a recurring revenue stream based on client subscriptions to the content credit system.” Article: Eight Key Drivers of Company Value: Recurring Revenue

(20:20) Carrie Kerpen: “Content Cubed is different. We name everything. So Content Cubed is our process for subscription. So we always named and marketed everything. So The Content Credit System is how we charge, Content Cubed was how we executed, which was consult, create, connect, the three areas of what we did. Every piece of that is productized and then all of them together form what the subscription is.”

(21:33) Carrie Kerpen: “A training program called Smarter Social. Smarter Social helped combat social media going internal, everyone hires internally, but things change and you’re in your own ecosystem and your bubble and so you lose perspective from an outside agency. So we would come in and do internal trainings and refreshes and all kinds of stuff.”

(21:55) Dave Kerpen: “We did a conference called LikeableU allowing clients and prospects to come in and learn from the smartest and social. The name itself, I mean, Likeable itself obviously was a very, very valuable piece of the puzzle. We were able to own a word and a pretty popular word and the word is associated positively, right? So being able to own the word Likeable in our name itself, and then have a Likable Blog and a Likable Media and a Likable Podcast, and Likable books, et cetera was very valuable.”

(23:54) Dave Kerpen: “I think the thing is mindset. I mean, I’m President of EO, New York and I mentor quite a few small business owners. And the reality is that there’s a huge difference between an entrepreneur and a small business owner.”

(24:41) Dave Kerpen: “In the very beginning when we had no staff or revenue, the way we did that was hiring buzz builders who were interns and we built up our buzz builder force. I mean, we had 60 buzz builders working for college credit at the beginning and stipend.”

(26:05) Dave Kerpen: “of course, with Built to Sell, you build the sales team that can help to execute the work and then you build teams that can execute the work at X profit per product and then you can scale. And I think that we learned a lot from you in that regard, John. And Built to Sell and other great books that we read early on were Verne Harnish’s Mastering the Rockefeller Habits, now Scaling Up.”

(28:45) Dave Kerpen: “when we don’t delegate, we don’t give any chance at working on the business and getting out of our own way. And so I’d always rather take the chance on people even though I know they won’t do the work as well as I will, because if they do the work 80% as well as I would have, I can move on and build the business and that’s enough.”  Article: Eight Key Drivers of Company Value: Hub & Spoke

(43:34) Dave Kerpen: “it hit me just how right he was and just how much of our net worth was in fact tied up in our business. And I do think that’s a big part of that decision to take some off the table.”

(45:50) John Warrillow: “It’s a great illustration. We call is this thing called the Freedom Point, but when you’ve reach this point where selling your business would allow you to create this amount, nest egg that will fund whatever you want. Fantastic.”

(48:35) Carrie Kerpen: “one thing that was very interesting was because I was staying on, I was the person in the interviews and Dave was not, which was also very hard for the dynamic, because I would have to communicate to him. But the broker suggested that when you’re the person who’s staying on, you should be the person doing the interview because they’re really evaluating you and what if they fall in love with Dave? And then it’s like, it would really complicate it with Dave, which was pretty crazy.”

(49:39) Carrie Kerpen: “picture at this point, I have an LOI from 10Pearls, which is my acquirer, which is a fair offer. At that time, it was probably seven and a half times EBITDA. And I was feeling really good about them. I had met them in person, I felt good, but then this all cash kind of crazy offer comes in wacky, wackadoo, everything about it was wacky. And I met the woman that was in charge of this acquisition on behalf of this agency and I got caught…”

(54:06) Dave Kerpen: “That is a really important lesson. And there are those that would go into a negotiation pretending to be in good faith when their plan all along, I’m not saying this is what happened, but there are those where their plan all along or one’s plan all along is to go late into the process and then the last minute try to… And now I’ve heard stories too, literally folks on the closing table are trying to then change the terms of the deal at the last minute.” Article: Do I Need a Broker to Sell My Business?

(1:05:08) Dave Kerpen: “And it was really surprising. I mean, I felt very surprised given how much money we had in the bank. And ultimately I think the lesson learned, which is important for everyone listening to hear, John, is our issues are our issues and selling a company doesn’t change what we have anxiety about or fear of or depression around or issues with. I mean, our issues are our issues, right?”

(1:10:10) Dave Kerpen: “Carrie’s book is Work It: Secrets For Success From The Boldest Women in Business. That’s a great book.”

(1:10:26) Dave Kerpen: “Likeable Social Media is in its third edition and it’s in 13 languages. And I’ve written books called Likeable Business and The Art of People as well.”

(1:10:53) Dave Kerpen: “It’s called Apprentice and it’s a managed marketplace that connects CEOs and entrepreneurs with the best and brightest college students that serve as their executive assistant.”

(1:12:11) Dave Kerpen: “ChooseApprentice.com. Mention Built to Sell and get 25% off.”

(1:13:00) Dave Kerpen: “if anyone has any questions, comments, needs for help, I do office hours every week. Thursday afternoons, ScheduleDave.com, I meet with anyone that wants to meet and you can hit me up on any of the social networks. I’m happy to be helpful if I can be.”

About Our Guest

Carrie Kerpen
Carrie Kerpen is an entrepreneur, best-selling author, speaker, & global champion for women. She is the co-founder and CEO of Likeable Media, a women-led digital agency that she sold to 750-employee 10Pearls in 2021. She is the author of WORK IT: Secrets for Success from the Boldest Women in Business and a columnist for INC and Forbes. Carrie has been featured in the New York Times, ABC World News Tonight, FOX News, & CNBC. She has keynoted conferences in London, Las Vegas, Mexico City, & NYC.

Dave Kerpen
Dave is a serial entrepreneur, New York Times best selling author, and global keynote speaker. Dave is the co-founder and co-CEO of Apprentice, a platform that connects entrepreneurs with the brightest college students as well as the co-founder and CEO of Remembering Live, a virtual memorial service company. Dave is also the co-founder of Listening and Beyond LLC and the co-founder of Likeable Media, an award-winning social media and content marketing agency for big brands. Dave is also a columnist for INC.com, an investor, and most important, husband to Carrie and a Dad to 3 amazing kids. Dave’s newest book is The Art of People: 11 Simple People Skills That Will Get You Everything You Want.

Connect with Carrie:
Twitter
Instagram
Facebook
LinkedIn

Connect with Dave:
Twitter
Instagram
Facebook
LinkedIn
Clubhouse @davekerpen

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Transcript

John Warrillow:

Hey, you’re in for treat because you’re going to hear from Dave and Carrie Kerpen, who are the founders of Likeable Media.

Think of this episode as having two distinct sections. The first section is everything Dave and Carrie did to build a sellable business. They talk a lot about productizing their service, the dangers of billing by the hour and how they switched to an innovative system, which I won’t steal their thunder but I’m going to let them describe their billing model to you, which I think is really fascinating. Listen to the way they brand and name everything in their company, giving them a point of differentiation. And that’s just the first half. Once we get through the first half, they get into the second section of the interview, which is all about how they negotiated the sale of their company. And here I want you to listen for what happened to them with their all cash deal. It is more common than we like to admit, but there are acquirers out there who are using a bait and switch strategy.

And Dave and Carrie fell victim to that and in their own vulnerable way described what that felt like and how they worked themselves out of that. They also talk interestingly about the impact financial freedom has on their lives and you may be surprised at Carrie’s response to some of the questions I had around that. Here to tell you the entire story is Dave and Carrie Kerpen. Dave and Carrie, welcome to Built to Sell Radio.

Dave Kerpen:

Thanks for having us.

Carrie Kerpen:

So excited to be-

John Warrillow:

Yeah. It’s good to you both here. It’s a great two for one deal here because I know Carrie you’ve been running the company for a while, seven years straight, but I know Dave, you were involved in the start, the first seven years. So we’re going to have some fun talking about this amazing company you’ve started. Likeable, for folks who have never heard of it, just describe what Likeable does.

Carrie Kerpen:

[inaudible 00:03:22].

Dave Kerpen:

You can discuss it you did most-

Carrie Kerpen:

You started it. I think you go and then I’ll take it from there.

Dave Kerpen:

Likeable is a social media and content marketing agency that helps mostly big, big brands build an audience and leverage that audience to grow. So we’ve worked with a great number of consumer brands and B2B brands through the years and have helped them navigate the constantly changing waters of social media and content marketing to do better marketing.

Carrie Kerpen:

One of the first… And this social media agencies in existence, that’s basically it. It’s social media marketing since 2007, since before social media was kind of a thing.

John Warrillow:

And Carrie help me understand this because these big brands like Proctor & Gamble or Harley-Davidson, Lululemon, I mean, they would have an agency, right? Like why isn’t their agency doing the social stuff?

Carrie Kerpen:

Yeah. So the way that we always position ourselves, and I think you’ll find in the agency space that there tends to be a trend that goes from either they want a huge generalist or they want a bunch of specialists. And if you’re going to be a specialist, you have to be really good. And so the way Dave and I positioned this company was that we were much faster than a larger bureaucratic agency. We were the smartest in social. So we always had to be. We offered faster service from the smartest in social. We knew what was happening and we’re at the forefront of all of it faster than any other agency could and with likability guaranteed. Of course, people loved working with us. With a name like Likeable you have to live up to that.

John Warrillow:

How did you keep abreast of all the emerging technology? That just sounds exhausting to me, especially, again, you’re still young, but I mean, like you’ve got kids, you’re not like 25 and-

Carrie Kerpen:

We’re not that young, no.

John Warrillow:

And stuff just emerge. Like now there’s this thing called Clubhouse, which I don’t understand at all, TikTok, my kids are using, but I don’t get, how did you stay abreast of all the emerging social channels?

Dave Kerpen:

First of all, we got to get you on Clubhouse. I’m building a new venture at Clubhouse right now and you’ll be amazing, John.

John Warrillow:

Dave, I would be terrible. That’s all I need.

Dave Kerpen:

But I think very early on we took a position of becoming thought leaders and it was a burden, but also a huge gift. I remember we started a blog called Buzz Marketing Daily, and my wife was like, “We can’t do this. If you do a daily blog, then you have to update it daily.” And I said, “Exactly.” And then I was fortunately one of the first people to write a book about social media. And of course I didn’t really know much then, but I wrote what I knew, what I could figure out. And then, because the world of social media changes so often, I was asked to update the book. Again and again, I had to keep doing new edition. So we literally had no choice but to keep abreast and to keep learning and then of course, to build a team that would do the same.

Carrie Kerpen:

Yeah. That’s what it’s about. I mean, we were young. When social media started, we were 20 something. It was like, we were into this. We weren’t in college when Facebook became a thing, right? That’s how it opened. But as soon as they expanded beyond the college market, we were like on there. And so at that time we were very hip and cool and in the know. But as you grow and as you age, no matter how interested you are, you still are not native to the technology that’s being built. So the trick is about hiring people who live it and breathe it and understand the business benefit behind it because you can live and breathe it, my kids live it and breathe it, but they have no idea how a brand should use it. So you need that hiring the business sense and the love of social.

John Warrillow:

I’m glad you bring up people because… And can we talk about how much revenue you guys generated? I don’t know if that’s a public number or not.

Carrie Kerpen:

Yeah.

Dave Kerpen:

Sure.

Carrie Kerpen:

We can say how much we grew, we could say-

Dave Kerpen:

We can either do revenue or non EBITDA multiples or we can do EBITDA.

Carrie Kerpen:

No we were in eight figure revenue of adjusted gross, you could say that. Almost $10 million. Yes.

John Warrillow:

Okay. So what I looked at when I was preparing for this interview was your revenue per employee. And if I’m doing the math right, it was around a couple of hundred thousand dollars revenue per employee. That to me sounds high because when I think of social, I think of maybe a 100, $125,000 of revenue per employee, you’re almost twice that. And so it begs the question in my mind for a service business, how did you get such high revenue per employee?

Carrie Kerpen:

Okay. Deep, deep, deep expertise in each area. We understood and could provide the consulting around socials. We measured profitability around different areas of our business and the consultative area was in high demand and we could charge a lot for it. So what we did was we really looked at value based pricing, we said we’re going to go heavy into the consultative space, lots around that. And then around the creative space, we ended up converting our office to a full studio so that we could use that sort of as inventory too. We looked at everything that we did as inventory I think. We had so much space in the office. It was kind of like when you go into a restaurant and you’re looking at all the spaces inventory, we did the same thing with office space and we did it as content studio places to shoot.

Like we knew we could do eight shoots at a time. And so we knew that we could do that and tap into freelancers, into all kinds of things to help maximize that. And so I think it was heavy expertise and consultative, and then using the creative thinking about creative as inventory. So how much available inventory do we have and pricing based on that inventory. If I didn’t have availability and I had to pull in a shoot really last minute, I could charge more for that.

John Warrillow:

Got it. And so when you say shoots you’re talking about little videos that you would do for brands.

Carrie Kerpen:

Exactly. I mean, brands need a massive amount of content. They need content all the time. It comes from a variety of places. There’s user generated content, that’s what their fans are posting, there’s influencer content and then there’s content where people pay millions of dollars to shoot for TV ads that run for 30 seconds. There’s content that can live and be repurposed for their social advertising that lives on their organic channels, et cetera. And these brands are looking for content that is socially needed. Meaning that what works on your billboard is not going to work on social. No one cares. It looks like an ad, but if it looks like an experience they’re interested and so that content creation was really great. And together, we opened a process for charging for that. Actually after reading Built To Sell called the Content Credit System-

John Warrillow:

Built To Sell and what was the name of it?

Carrie Kerpen:

Okay. It was called the Content Credit System. This is one of Dave’s greatest hits.

Dave Kerpen:

That was yours.

Carrie Kerpen:

That was yours and we’ll find out this now. You can talk about it, explain the Content Credit System.

Dave Kerpen:

I mean, most agencies charge based on hours. And we thought that model was first of all, broken for the end client but really for the agency too it doesn’t provide the same level of predictable revenue. And so we built the content with Carrie, I don’t know why she’s giving me credit.

Carrie Kerpen:

I didn’t explain that you go slow. When you’re billing by the hour, you’re looking to build more hours. You’re looking to go slow.

Dave Kerpen:

Right. It’s a perverse incentive. So Carrie and team built a content credit system where the bottom line is clients were paying by deliverable instead of paying by hours. They’re paying for the actual deliverable product, X number of videos, Y number of tweets, Z number of blog posts. And packaging in those in a subscription model allowed us to sell annual recurring subscriptions. So whereas most agencies are going project to project, which doesn’t create value and it doesn’t create predictable revenue, we were able to create a recurring revenue stream based on client subscriptions to the content credit system.

Carrie Kerpen:

What it also did was it allowed… So you’d subscribe to a certain number of content credits, you’d get X pieces of content a month. And it could adjust in one month you do videos, one month do tweets. It all mixed up, but it also allowed account managers to upsell because they were selling credits versus saying, “Oh, we need to sell you X hours of our time.” So it allowed people to remove that discomfort and just talk about actually the work in a really cool way. That’ll be 10 credits is a lot easier than saying that’ll be $10,000.

Dave Kerpen:

That’s right. It’s like you’re at the casino and you run out of chips, you need more chips. So if run out of credits you need more credits for more content. And to Carrie’s point in terms of instead of a perverse incentive, we’re incentivized to do better, faster work so that they run out of credits and they want more.

John Warrillow:

I love this. This is-

Carrie Kerpen:

It’s from you my friend.

Dave Kerpen:

Yeah. It’s all yours. Thank you.

Carrie Kerpen:

It’s from you. And really we thought about how to productize an agency as best as possible. And again, nothing is ever going to be totally non-custom and you want. As an agency, you’re a service provider. You’re not there for a transactional relationship, but we wanted to make things as scalable and repeatable as possible. And then when I talked about with the inventory stuff, that’s with cost per credit. A cost per credit would go up if we had fewer available resources. And so we really looked at how to do inventory based pricing around that, but still offer a consultative approach.

John Warrillow:

So many questions, I don’t even know where to start. I love this. So it was called the Content Credit System. And so presumably a video would require more credits than a tweet.

Carrie Kerpen:

Correct.

John Warrillow:

And a customer would sign up for a bank of credits per month or per year.

Carrie Kerpen:

Right.

Dave Kerpen:

Right. Let’s say you have 40 credits a month, they’re bankable also, if you don’t use them in one month, they roll to the next month. And you might have enough credits for a 30-second video and six tweets and seven edited images and, or a 150 word blog posts. And so you can mix and match. And it’s really based on what the client needs. But that’s sort of a subscription model, I think, was something that most clients that we talked to hadn’t seen before from agencies. And I think it was pretty, pretty welcomed by most.

Carrie Kerpen:

And this is fabulous, but I will tell you during the sale process, it was great, they loved it, but it was a little bit different from when you’re talking about a straight-up agency. So it required… So what I would say it did was it allowed us to differentiate. It allowed us to be profitable. It allowed us to have a scalable system that we taught our staff. And then when we got to sell, we had to almost learn… I kept talking about this, like how to be bilingual, like, okay, they understand hours, so how are you going to be speak in hours? What’s your average hourly rate? And so you had to learn that piece. Even though this was something that worked from a marketing perspective for us, it worked from a profitability lever perspective for us. We had to learn to be bilingual too. And that’s advice I would have as you’re looking to productize and look at that stuff is really… I know for me, I had to think about how I could speak during the sales process in hours and also describe the competitive advantage of the credit system.

John Warrillow:

What were clients’ reaction to when you first introduced the Content Credit System to them?

Carrie Kerpen:

Okay. So we started with… And this I remember well, this is many years. I think 2015 we did this, but we started with a couple of key clients. And one of the first things we did was say like, people we have relationships with, we said, “Would you take a chance on this type of system, we’re testing it?” And people loved it because remember also procurement is looking for ways to have new ways to charge agency and work with agencies and all of that stuff. So at first, it was very, very exciting. Then when we started selling to new clients, we only sold them the credit system. And we said, if they don’t do this for the content piece of our business, and again, this is only for the content production piece of our business, we won’t take business. And we started being really discerning about what we were taking on and they grew it, then we surveyed them twice a year on the credit system. Once we got people onboarded, do you like it? Do you understand it? Are there challenges?

And there were challenges. I mean, there were definitely challenges. When you get to an end of a year, if you decide you’re not renewing and you have leftover credits, what happens with that? If you’ve used too many credits and you’re not continuing for the next year, what happens with that? So there were all of these nuances that we learned along the way and built systems for which could have only come with feedback and time. We wouldn’t have known that starting out. And so asking for constant feedback. But people were willing to take a chance and then we knew it sold. It actually worked better initially in the selling process because people like to hear something new, they like to hear something different than the reality of it when it started, because that system had to be perfected. There were lots and lots of bumps.

John Warrillow:

What advice-

Dave Kerpen:

Yeah. I think-

John Warrillow:

Sorry, go ahead, Dave.

Dave Kerpen:

I was to say one of the biggest challenges was for bigger clients with multiple agencies if they were comparing apples to oranges on their end, from an ROI perspective, that’s sometimes challenging. There were some clients that literally demanded that we show them the other way. Even if we were billing them one way, we show them, well, what would this look like if you were to bill us like all of our other agencies?

John Warrillow:

What advice would you have… Because there are a lot of people listening to this right now who know that billing by the hour is not ideal, they’ve heard all the scale issues, but they just haven’t found a way to bridge the gap to a different model project-based billing and value-based billing, in your case, content credits, et cetera. They’re really feeling like they’re swimming upstream or into a headwind because the industry just builds that way. And that’s what all the competitors do. So what advice would you have for someone who wants to make the leap to something like the Content Credit System, but just is hesitant?

Dave Kerpen:

I would ask them to talk to their clients about the desired outcome. So nobody wants to pay hourly either. I mean, you don’t really fundamentally want to pay for hours, you want to pay for a desired outcome. So what does that desired outcome look like and how can we develop a product and deliverable of that desired outcome that works on my end economically and also gives the client what that desired outcome is at the end of the day. So for example, if I’m selling IT security services normally always an hourly basis, what am I really selling? I’m selling peace of mind.

So what if there were a monthly subscription that offers me unlimited support for a certain amount of money. If I could figure out how to make that work on my backend, then that might be a product worth experimenting with and then running the math on that with a few clients and seeing how that works. That’s one example, but ultimately if I’m paying for an IT security for firm, I don’t want to pay for hours, I want to pay for peace of mind. So how can I get there? That’s how I would sort of back into what that product might look like.

Carrie Kerpen:

I would say name it, highly package it, make it sound great, wholly believe in it and be willing to walk away if people don’t follow the direction you’re going in. I mean, that’s one of the things that was in your book and originally was like, okay, we’re only going to sell this and we’re going to say no to stuff that we’ve been saying yes to this whole time. And so I think that’s important. At the same time, by the way though, have the ability to be bilingual. So if somebody will buy it from you, but they want to understand it in terms that their boss can understand, that makes complete sense. And so we always were able to convert to hours if we needed to, but you had to buy into the belief that pricing by deliverable for social media can help you have a better presence.

John Warrillow:

Love it. The naming of it was a thing I wanted to get into. So it was called The Content Credit System, is that right? So the T, the C, the C and the S were all capitalized, I’m guessing.

Carrie Kerpen:

It was just always known as The Content Credit System. So it was-

John Warrillow:

Not Content Cubed?

Carrie Kerpen:

No. Content Cubed is different. We name everything. So Content Cubed is our process for subscription. So we always named and marketed everything. So The Content Credit System is how we charge, Content Cubed was how we executed, which was consult, create, connect, the three areas of what we did. Every piece of that is productized and then all of them together form what the subscription is. So first we consult, we listen, we tell you what’s out there in the world, what you need to do, then we create. So we have a full content studio to be able to build it and then we connect using influencers, paid social media and community management. It’s always the same. If you buy a full subscription, that’s what you get, but we are also modular, you can buy pieces of that product.

So it’s designed to be able to be sold and have products that meet any particular need of someone in social media. So always about the naming, always about the trademark game, we always played with that, always leaned into that. And always it’s a little bit of the magic of what you do. You’re an agency, right? People are hiring you for that creative energy. And so using that for yourselves is just key.

John Warrillow:

What else did you name out of curiosity?

Carrie Kerpen:

Oh my God, so many things. A training program called Smarter Social. Smarter Social helped combat social media going internal, everyone hires internally, but things change and you’re in your own ecosystem and your bubble and so you lose perspective from an outside agency. So we would come in and do internal trainings and refreshes and all kinds of stuff. That did really well. Dave’s named a million things.

Dave Kerpen:

We did a conference called Likeable You allowing clients and prospects to come in and learn from the smartest and social. The name itself, I mean, Likeable itself obviously was a very, very valuable piece of the puzzle. We were able to own a word and a pretty popular word and the word is associated positively, right? So being able to own the word Likeable in our name itself, and then have a likable blog and a likable media and a likable podcast, and likable books, et cetera was very valuable.

John Warrillow:

A lot of people listening to this will be curious to know how did you make the leap from practitioner to 50, 60 employee company? Because especially in social, where you’re really just selling people’s time at the end of the day, even though we can package it up differently, et cetera. As David Olivia said the assets go up and down the elevator every night, there’s no hard tangible things that you offer with exception of the studio maybe in your case. I think a lot of people are like… But I mean, anybody can hold their shingle out as a social consultant and a lot of people do on UpWork and you can hire them for pennies on the dollar. How did you guys go from just offering your services, sort of your time, your expertise to a 50 employee company? That’s a big switch and I’d be curious.

Carrie Kerpen:

Well, I will tell you, Dave spends a lot of time crediting me from the latter half of the business. The scale of the business and moving beyond the two of us was absolutely his vision of how we were going to grow. So you have to tell the story of how you grew. You have to help us build a little I think, what do you think?

Dave Kerpen:

Sure. I’ll tell about that.

Carrie Kerpen:

Okay. Tell your thoughts.

Dave Kerpen:

I think the thing is mindset. I mean, I’m President of EO, New York and I mentor quite a few small business owners. And the reality is that there’s a huge difference between an entrepreneur and a small business owner. And most small business owners aren’t able to think as entrepreneurially and they aren’t able to get out of their own way, and they are too stuck working in the business versus on the business. And it’s funny because people talk about it all the time, and yet they’re still unable to really execute and to get out of their own way. And I think one thing that we were good at from the start is hiring people to do the work so that we could focus on building the business. In the very beginning when we had no staff or revenue, the way we did that was hiring buzz builders who were interns and we built up our buzz builder force.

I mean, we had 60 buzz builders working for College Credit at the beginning and Stipend. But we were able to manage resources by delegating to a very, very young, very, very inexperienced people. And now as we grew and we started working with more and more sophisticated larger paying clients, we had to go upstream with our staff as well, of course. But what we were able to do at the beginning and really from there on out is to think about building teams and to think about delegating and to never… I mean, I think what I’m proudest of in terms of my own impact on the company of those first several years is building a mindset where Carrie and the rest of our executives, as we built up our management team, were always thinking on the business and not getting stuck doing the work.

I mean, that is the most typical, not only an agency model, but it’s really all small business model is you sell the work, then you do the work and then you sell more work, then you do that work. And of course, with Built to Sell, you build the sales team that can help to execute the work and then you build teams that can execute the work at X profit per product and then you can scale. And I think that we learned a lot from you in that regard, John. And Built to Sell and other great books that we read early on were Verne Harnish’s Mastering the Rockefeller Habits now are scaling up.

Carrie Kerpen:

I think that was key during the strategic plan from Rockefeller Habits. And I think that… Also I mean, I am somebody who works more on the business versus… No, I work more in the business, Dave would work on the business. And I think you need certainly at the beginning to get to a space of scale, you need to believe that you can. And so for me, having somebody as a partner who believed that we could, helped me as somebody, as I’m sure many of your listeners are, people who are really working and grinding in the business, it helped me realize that once we achieved a level of scale, then I could take a breath.

It was very, very hard for me to imagine that. And so I would encourage any listeners who are at a smaller space to either go to that kind of abundance working on the business mindset, or find a coach or somebody who helps you get there, because it’s just not natural especially… For me, I feel especially for women, it’s very, very hard. We focus on security, we focus on as business owners we want to make sure we’re secure, profitable, all of these things and it inhibits a level of risk that you need to take to get to the level of scale that we ultimately did.

Dave Kerpen:

One more thing I want to add, because I’ve talked about this so often, I know what the objections are. So I know there’ll be listeners that are thinking, well, they can’t do the work as well as I can. And the answer is, yes, that is a 100% true.

John Warrillow:

They being employees.

Dave Kerpen:

They being the employees. There were so many times, John, where I knew I was delegating work that wouldn’t be done as well as I could do it, and that they were going to make mistakes. And I had a choice. I could either not let them try it and do it poorly and, or make mistakes, or I could let them have a shot and learn from their mistakes. And guess what? People made mistakes and people learned and people got better and sometimes they didn’t and we moved on and let them go. But either way, when we don’t delegate, we don’t give any chance at working on the business and getting out of our own way. And so I’d always rather take the chance on people even though I know they won’t do the work as well as I will, because if they do the work 80% as well as I would have, I can move on and build the business and that’s enough.

Carrie Kerpen:

But also with social media it works suddenly less. But we have younger people coming up, it’s actually one of the few businesses where you have an advantage to be a little inexperienced because you’re digitally native in a different way. So that’s one unique thing to the social media agency that might be a little different from other places.

Dave Kerpen:

Yeah. By the way, you opened the interview by talking about how you didn’t know so much about TikTok and whatnot. I don’t know about TikTok either, right? And I’ve literally had to rewrite the book on social media three times.

Carrie Kerpen:

He is not a TikTok user.

Dave Kerpen:

So eventually it is truly about building teams that know this stuff better than we do.

John Warrillow:

Well said, let’s turn to the final chapter, which we always do on this show. I mean, the business is eight figure business, successful business, what triggered you to think about sell? Don’t look at him.

Carrie Kerpen:

Okay. You start. We don’t know which one is going to answer.

Dave Kerpen:

When you interview both of us and you don’t give us a name, we’re all going to want to jump in.

Carrie Kerpen:

Okay. You start.

Dave Kerpen:

But what I’ll say is this, we’ve been business partners and we’ve been married for 15 years here. And we take annual retreats, just the two of us. So we do retreats for our businesses, but we also do retreats just the two of us. And it’s every year. It’s addressing our businesses. It’s addressing our family. It’s addressing our careers. It’s addressing our lives. And so as the business grew, we made it a standing item on our annual retreat, “Hey, is it time to talk exit strategy yet or do we keep on building?” And 2019, when we had that conversation, we said, “You know what? It’s time to talk exit strategy. The business has grown a lot, we want to de-riskify a little bit. We want to take some of that value that we’ve created off the table and have some more safety and security for our family. And we want to explore what that might look like.”

And so we took the following year to really get our books in order. I mean, Carrie did an amazing job of having the books fit. We had amazing feedback about how well she kept those books, but that said, we got the books in even better order. And a year from then, 2020, obviously was a crazy year, but it was a good year for us. Actually, digital marketing in many cases grew. And in our case it was a great year. And then end of 2020 came and we had our strategic planning retreat and hey, a year ago we said we were going to do this, how does it look? It looks good, let’s do it. And we just made that decision and we went to a broker and she told us that it would be 90 days and we couldn’t believe it. And we closed 87 days later. So it really was-

Carrie Kerpen:

And that was actually with a bunch of stops and starts, which I’ll tell you about. I will tell you that the motivation as somebody who was in the business, right? So I’m working and running it. I felt personally that I contributed every ounce of growth and vision that I could have done on my own. And Dave had a variety of other successful businesses at this point. So him coming back to kind of, other than brainstorm with me on retreats, that wasn’t really happening. And I wanted to think about how I could be a part of something bigger when I wasn’t yet totally done. I was afraid that if I waited too long to sell, and I was feeling miserable that any earn-out I did would feel like the worst handcuffs in the world. And so I wanted to sell before I felt unhappy in the business, and I was afraid that eventually I would get unhappy because I only had enough vision to take me to X and I wasn’t going to take it to a $100 million company.

I didn’t have the risk tolerance to take it to a $100 million company and I didn’t want to get so bored or unhappy or anything with where I was going, I wanted to do it before that so that I could contribute. I knew I would have to be a part of something and therefore I wanted to be an energetic, involved, and a happy part of something. And so that’s really where the timing came because I wasn’t done. Like I didn’t feel done. And I don’t know if you’re supposed to feel done, I read a lot of your stuff. I didn’t feel done. I felt done enough. I felt like, okay, I could be a really good asset to somebody else. This is a beautiful baby that we made. Look at this profitable, gorgeous baby, somebody’s going to grow it and mature it, and I’m going to help them do it. And that is truly, truly how I felt. I wasn’t done, but I wasn’t totally not done. That’s the moment that hit.

John Warrillow:

Perfect. I love it. And a great best practice that we talk about, but very hard to execute. Very few people have the, I’ll call it, discipline to know that they’re not done, but they’re kind of what is it like? I can’t remember the old expression, but it’s like it’s not the beginning of the end, but it might be the end of the beginning. I don’t know who said that. Was is it Churchill who said that?

Carrie Kerpen:

Right. I mean, I don’t know if he said it, but I’ll tell you it is true because that’s exactly how I felt. And I knew I would be a good asset. I knew the team and the company was a great asset, but I knew I would be a good asset to somebody and I couldn’t tolerate. And I know a lot of entrepreneurs can, I couldn’t tolerate selling and being totally checked out because theoretically you can. With an earn-out, you could just say, okay, the rest of that’s on the table, and maybe I won’t get it, maybe I will and I’ll just sort of emotionally check out. That wasn’t for me. For me, I wanted it to be a part of something and be able to really ensure that for the next few years at least, I was really focused on making sure the business was set up for beautiful success.

John Warrillow:

And Carrie, it sounds like you knew or assumed that any sort of deal would have an earn-out component to it. What was your assumption that that would look like in terms of duration, percentage of risk? What were some of the assumptions you had?

Carrie Kerpen:

So I’ll answer and then if there’s anything that you want to add on this… I knew that I was willing to commit to three years. I knew that no matter what I could happily be deeply invested in three years, and I wanted to look for a place that maybe had the potential for me to do more. Like if I liked it, I could stay. It would be great, but three years was all I wanted to commit to. And we knew that together. We had discussed that sort of in our planning that for three years we’d be good to go. And then in terms of risk, we knew that there was a certain amount we wanted up front. We weren’t going to take so little upfront that it wasn’t going to be beneficial for us.

And also I was very concerned on the earn-out making sure that I partnered with a company that had reasonable goals, because there are people who actually have less percentage of earn-out. You can have a tiny earn-out with ridiculous goals. I didn’t want to do that because I’m somebody who wants to hit my number. So actually, if I found somebody who I thought had a reasonable attainable plan, then I might be a little bit more flexible. I wouldn’t go past a number that Dave and I decided together, but I might be more flexible if you had an earn-out number that seemed like something that made sense for me.

John Warrillow:

And when it comes to earn-outs, I think people who maybe have never gone through one maybe it would be helpful to share is it, in your case, like an all or nothing deal, like either hit it or you don’t, or is it sort of shades of gray? There are different sort of trenches that would trigger different payouts?

Carrie Kerpen:

So there are two trenches of payouts based on extremely… The reason we took this deal was that the goals were basically to keep the business as is. Grow it ever so slightly literally like inflation level, just grow it. As long as it doesn’t implode, we get that earn-out. And so I really loved that because it enabled me to feel like, wow, I have three years to run this business kind of as is to dream bigger with them to scale if they… This is what is so amazing about those founders and that company, if we want to invest in growing it, they’re going to invest in growing it, not out of our P&L. So that I felt and wanted to pick a partner that was committed, that gave us the enough financially that we felt like this is great because we had a number of offers, a number of them.

And I ended up saying to Dave, “I feel most comfortable going to this group because they just want me to really maintain the business. I’ll be successful at that.” So I won’t feel uncomfortable in my time or at least I felt I wouldn’t be uncomfortable in my time there and it would be manageable enough. And then there was tons of opportunity for upside tons, which now having been here for a little bit, we’re going to hit. So that’s what’s amazing. Like we cross sell their services. There’s all kinds of opportunities for upside, which is great, but the earn-out is more of a… To me, the way this one was structured it was like it was more of like a consultant agreement. Like I’m here, I keep the business afloat and I’m there for them, which is great.

John Warrillow:

Is it tied to revenue or profit?

Carrie Kerpen:

It’s tied to a base maintaining the same margin. You maintain the same margin you had. So I couldn’t like-

John Warrillow:

Profit margin.

Carrie Kerpen:

Profit margin. Yes. Maintain the same profit margin and I’m keeping the revenue basically almost but just growing a little bit.

Dave Kerpen:

Yeah. And one thing I’ll add because I have seen a lot of agencies sell and seen a lot of earn-outs blow up and I think that it’s a real risk when folks are selling and when agencies are selling. So one thing that was really important to us was negotiating full control of the P&L because without full control of the P&L, companies can make decisions that impacted the earn-out metrics negatively and then the seller is screwed basically. And so with full control of the P&L, hiring, firing, et cetera, that allows Carrie to execute on her own basically with only upside. And if anything goes wrong and hopefully it won’t, but if anything went wrong, it would be our own doing, it wouldn’t be the impact of the acquirer.

Carrie Kerpen:

That’s exactly right.

Dave Kerpen:

And that’s not the case in a lot of agency earn-outs.

John Warrillow:

No, not at all. Most times bookkeeping and accounting gets consolidated at head office. So how did you structure it so that you could maintain control over your profit and loss?

Carrie Kerpen:

How did we structure it? We put it in the agreement. First of all, the goals that they set forth were extremely reasonable. So this year maintains totally flat. You’re growing. I mean, we’re not increasing over the three years. On the guaranteed earn-out portion, it’s under a million dollars. It’s not a significant number. And that’s over a three-year period. So what we said was we will hit these numbers as long as we have full control over what is spent and who was hired, who was fired, et cetera. If for some reason I dipped by $2 million in a year or something, they could come in and we would have shared right together to do that. But the way that we put it in the agreement was all items related to the P&L are under seller discretion. And so that was really it.

And having that in there and they have stuck to that. And really it’s been great. If this was about choosing the right partner and right fit because the numbers were the numbers, as far as I was concerned, and you could negotiate one against the other and we did, but really at the end of the day, it’s about picking the right partner. If you plan to stay, if you acknowledge that there’s going to be an earn-out… I’ve heard people on your show who say, “Nope, it’s not going to be an earn-out. I’m not going to do it.” And they’ve managed somehow magically to do it. I never felt that that would be the case and I really never wanted it to be.

John Warrillow:

What proportion of a deal were you comfortable putting at risk so to speak in an earn-out? Like I’ve heard agency deals where it’s like 30% upfront, 70% in an earn-out, it’s a massive lead tilted away from you. Were you comfortable with sort of 20, 30% kind of thing or was it a bigger just like her, are you able to share?

Dave Kerpen:

And to be exact, it was 50,50.

Carrie Kerpen:

50%

John Warrillow:

You’re comfortable with that?

Carrie Kerpen:

We did. Yes. But 50, 50 and the all and also it’s not all based on an earn out. There’s a variety of other little trenches of things that you’re going to get. So there’s certain things like that, but yeah, we were okay with 50, 50. We were.

John Warrillow:

Yeah. I’d love to know… And again, you don’t have to share the numbers, but a lot of people grow up and when they start their business is worthless. It’s just an idea on a napkin, but as it grows, A, it becomes valuable, B, it becomes a huge percentage of their net worth. Take me into that retreat, Dave. In 2019, did you have a sense of what proportion your net worth was sitting in this company?

Carrie Kerpen:

That’s a great question.

Dave Kerpen:

Yeah. That’s a great question. And to your point, it was a huge percentage of our net worth. We’ve been fortunate to have a terrific financial planner for many years now. And I’m a, as probably you could imagine, very bullish investor in aggressive growth stocks and crypto and all of these things. But he said to us… I remember when we were meeting with him a couple of years prior, he said, “Dave, by far, your riskiest investment is your company. It’s a huge, huge investment. And it’s by far your risky more. It’s riskier than Bitcoin. It’s riskier than all of your technology stock, your Facebook stock and this and that.”

And it hit me just how right he was and just how much of our net worth was in fact tied up in our business. And I do think that’s a big part of that decision to take some off the table. And especially we raised two kids, on our way to raising our third and 14 years into this business. And yes, I’ve started some other businesses and yes, we have other opportunities for sure, but to your point, it was, I don’t know, 90% probably or maybe 95% of our overall sort of net worth. And I think we have to address the financial realities of that and think about that as we proceeded. And so I think we didn’t do it that way per se in that meeting, but I think it was a big part of the way that we thought about the timing of things.

Carrie Kerpen:

And I will say that that business was the cash cow for raising our family, buying our homes, doing all of our things that produced an annual income that was sort of, if we needed money, it was always there and we could always pull it. And that shift from now there’s money that’s in the bank that’s all pretty much like invested in retirement or wherever. We put it in lots of places and everything’s fully funded and all these things, it’s a shift. It’s a mindset shift for me to go from having a business that’s like, okay, we can just pull this, pull this, where I won’t do that.

Once the net worth is extracted, I won’t do the same because the net worth of a business that you own feels infinite, the net worth of what’s sitting as a bank and invested in all of these things doesn’t feel that for me. I think Dave’s all good, but for me it was a shift and you could see who’s the more conservative of the two. I mean, basically, this is why we are such a great balance for one another and need each other because of the shift and the push and pull that we have within our own dynamic.

John Warrillow:

Wow. It’s a great illustration. We call is this thing called the freedom point, but when you’ve reach this point where selling your business would allow you to create this amount, nest egg that will fund whatever you want. Fantastic. And I hope a lot of people listen to this episode because I think you could really help a lot of people with this especially the forward thinking around selling before you’re fully done. Let’s get into the actual negotiation itself because it sounds like there were multiple bidders. You hired an advisor, a broker who went and shopped the deal. First of all, before I ask you that, what was your expectation? Shall we say around multiple of EBITDA or multiple of profit, did you have, going into that process, an aspiration that you thought your business might be worth X or Y multiple of earnings?

Dave Kerpen:

Yeah. I mean, it can be a pretty wide range for agencies anywhere from I’ve heard as low as three to as high as eight. And we certainly hoped that we would be on the higher end of that because of some of the things that we talked about, subscription recurring revenue and in a trendy area of marketing. But you don’t know until you know. And it’s the same thing with multiple bidders. I mean, obviously we knew that if we could attract more than one bidder, we’d be in much better shape. I’ll tell you a super funny somewhat related story, but not too related. When I wrote my first book, I was so excited to write a book and to have somebody that wanted my book.

McGraw-Hill came to me and said, “Hey, would you write a book?” I said, “Great.” So somebody said, “You need an agent.” I said, “Why do I need agent? They asked me to write a book.” She said, “Well, no, you need agents.” So I hired an agent and she said, “Well, we’re going to shop your book around before we sign with McGraw-Hill.” I said, “Why would you do that? They wanted to the book already. We already have a deal.” She said, “That’s literally my job. That’s literally why you hire me.” And so I said, “Okay. Yeah, you’re right.” So she shopped around and she was able to optimize what the deal was for. And I think you don’t know until you know. So by hiring a broker, we were able to shop it around and to generate multiple offers and to generate the best possible multiple.

John Warrillow:

What was the reaction? How many sort of interested parties did you get close on? How many letters of intent did you get, that kind of thing?

Carrie Kerpen:

Okay. So we had at least six interested parties. We met with four. So one thing that was very interesting was because I was staying on, I was the person in the interviews and Dave was not, which was also very hard for the dynamic, because I would have to communicate to him. But the broker suggested that when you’re the person who’s staying on, you should be the person doing the interview because they’re really evaluating you and what if they fall in love with Dave? And then it’s like, it would really complicate it with Dave, which was pretty crazy.

John Warrillow:

With Dave?

Carrie Kerpen:

Yeah. And then I think… So we had a lot of interest and then we had a really wacky one where it was an inexperienced buyer from an agency that had never done an acquisition before, had had several failed acquisition attempts and offered all cash upfront, which was a fascinating journey. So then I’m like, okay, what do we do? Do we pursue this or was-

John Warrillow:

What was multiple earnings was it?

Carrie Kerpen:

Well, it was about the same offer.

Dave Kerpen:

Probably less.

Carrie Kerpen:

So it was eight and a half times EBITDA, one hundred and something.

John Warrillow:

So eight and a half times EBITDA all cash?

Dave Kerpen:

The all cash was a little bit less.

Carrie Kerpen:

All cash was… No, wait, I’ll figure it out. It was six and a half, six and a half, six and a half times EBITDA.

John Warrillow:

Six and a half EBITDA all cash.

Carrie Kerpen:

Okay. Don’t worry but it was a pipe dream. Okay. So picture at this point, I have an LOI from 10Pearls, which is my acquirer, which is a fair offer. At that time, it was probably seven and a half times EBITDA. And I was feeling really good about them. I had met them in person, I felt good, but then this all cash kind of crazy offer comes in wacky, wackadoo, everything about it was wacky. And I met the woman that was in charge of this acquisition on behalf of this agency and I got caught… We were like, okay, let’s acquire a million women owned businesses, and we’re going to take over the world and we have this much money that we can do with and talk about growth. And she’s like, “And next year’s goal will be $30 million,” which was nowhere near. We’d basically have to double.

So looking at all of this, I had to think do I go with this and risk 10Pearls or do I not? And actually, this is very interesting, Dave was like, “Don’t do it. When something looks too good to be true, it is.” And he knew, but I said, “Well, I have to try,” because it was also I got caught up in the whole idea of what it could be. It wasn’t like I was going to take the cash and be out, but the enough cash up front is so much security.

And so I took it and I called 10Pearls and I said, “Listen, this is too big for me not to explore. It’s too much money up front.” I told them literally what it was. “It’s probably not going to work. I hope you’ll still talk to me when we come back.” Like, this is the answer. There were a couple of other offers, I didn’t like them. I’m like at a good place but 10Pearls, I’m comfortable. They were extremely gracious. The owner said I would do the same thing for my family and try, which I think speaks extremely highly of them. I tried, I get on… I was like three weeks into due diligence thinking this is going to close.

John Warrillow:

So you’d sign the LOI?

Carrie Kerpen:

I signed. And then I went through due diligence by myself. I’m trying to describe to Dave how wacky it is. But it’s wacky. We’re not talking. There’s no evaluation of the past business, it’s only talking about the future, very excited. I’m like, this is the easiest due diligence ever. Finally, they get me in the room where they’re going to have the parent company lawyer and accountant and whoever on the phone. And I just watched their faces asking me questions. “So how long do your clients sign for?” I’m like, “A year.” Like, “Okay, how long are your contracts?” I’m like, “They’re 12 months. That’s what they are.” And I watched their faces and then right after that call, they called and were like, “We would like to readjust the offer to be…” I think at that time it was 60% upfront they wanted to do. And I was like, “Oh no, no, no, you guys are wacky. This is all wacky, I would never earn that earn-out. I’m calling 10Pearls.” And that’s when our broker really helped us, we called and we were actually able to… This is ironic. We were able to negotiate more.

You would think we would have negotiated less because we were coming from a place of weakness, we were able to negotiate more because we said, “We really want to go with you, but here are the things that are bothering us. Here are the things.” Because they knew we would get multiple offers. We probably would never get all cash up front. That’s ridiculous. But they knew that we would get more offers. And so they were willing to and they came up quite a bit. And so it was great and they felt happy and we were happy. So that’s kind of an awesome story. They forgave me.

John Warrillow:

Wow. I’m so intrigued by that. I don’t know where to start. So the all cash offer of six and a half, you’re like, this is too good to be true, but if they’re willing to pay me all cash, and at the time you’re looking at a seven and a half, but 50% upfront, 50% at risk. So you’re like, “Okay.” So six and a half upfront and what was it about the way you answered the questions to the corporate folks during diligence that triggered them to lower?

Carrie Kerpen:

The basics of an agency, John. How long-

Dave Kerpen:

John, it was a bait and switch. I mean, it was a bait and switch.

Carrie Kerpen:

That’s what he felt from the beginning. He’ll tell you. He would have known.

Dave Kerpen:

There was not a true intent to close at those deal terms from… I just don’t think there was. And look, we learned the important lesson that if it seems too good to be true, it probably is, right?

Carrie Kerpen:

It’s a good lesson.

Dave Kerpen:

That is a really important lesson. And there are those that would go into a negotiation pretending to be in good faith when their plan all along, I’m not saying this is what happened, but there are those where their plan all along or one’s plan all along is to go late into the process and then the last minute try to… And now I’ve heard stories too, literally folks on the closing table are trying to then change the terms of the deal at the last minute. And I think that I’m really glad it didn’t even go that far. So the good news is, it was a couple of weeks of due diligence and very, very stressful, difficult times, but we got through it. We got to another deal and the rest history.

Carrie Kerpen:

But I did feel very ashamed. I felt very much like, oh my God, I’ve told my… I called my mother crying saying, “Mommy, you’re never going to have to worry. This is all upfront and look at this.” And then I have to be like, “Actually, I was kind of hoodwinked. This is not actually true.” And then at the end of the day, our next offer was fabulous. It was fabulous more than we ever dreamed about when we started this business. But it was very humiliating to me that I felt like I fell for it. And if something’s too good to be true, it usually is. That’s going to go like maybe on my tombstone. Maybe it’s not the most-

John Warrillow:

Again, I’m just so grateful for you sharing because I think this bait and switch you refer to or re-trading is just so common. And a lot of people, as you did, Carrie get emotionally committed to the deal. You tell people or employees or family or spouse and they’re kind of embarrassed about it. And you had the courage to put the brakes up. When you put the brakes on the all cash deal, what was the reaction to the other side? Did they try to negotiate?

Carrie Kerpen:

Well, first of all, this was the benefit of having a broker too who was great, okay? So she did the communication here. I was just done. It’s interesting they reached out after our acquisition happened and was announced to congratulate us. Okay. Thank you. I really haven’t communicated since, because it was very, very painful. I haven’t felt fool. I’ve been running business for a long time, I haven’t felt foolish in a long time and that really did tap into a feeling of foolishness. And especially because he knew, he knew.

John Warrillow:

Dave was always right?

Carrie Kerpen:

He was always right. And he couldn’t join the call. So he felt… For him, it must’ve been like watching a train wreck. I’m on these calls by myself, I’m trying to say, “Oh no, it’s great. It’s great. It’s great.” He knows and then it falls apart.

Dave Kerpen:

Yeah. That analogy almost pulls up except I’m actually on the train.

Carrie Kerpen:

You’re on the train with me.

Dave Kerpen:

With you.

Carrie Kerpen:

I’m sorry.

Dave Kerpen:

It was difficult. But I mean, again, the important thing is we learned some lessons and we were able to get to the other side with a different outcome.

John Warrillow:

So they came and said… So you heard from your broker that they were changing the terms or did they tell you directly they’re changing the terms?

Carrie Kerpen:

No. They only told the broker and he was like-

John Warrillow:

The broker. And so how-

Dave Kerpen:

And the broker realized-

Carrie Kerpen:

The broker realized that the broker ending didn’t have a good job-

Dave Kerpen:

But the broker realized that she… She basically said, “You can talk to them if you want, but it’s probably really not worth the time at this point.” I mean, that’s a fundamental betrayal where the terms change that much. I mean, it’s just not… So it didn’t really make sense to continue with the conversation.

John Warrillow:

Yeah. And your calculus at the end of the day having water under the bridge and hindsight being 2020 is that it wasn’t a naive acquire, it was likely a strategic move for them to re-trade.

Carrie Kerpen:

Yes. I tend to believe that positive intent and always, so my initial reaction was naivete that they didn’t realize, I don’t think that’s what it was. I think in retrospect, I’ve kind of joined Dave’s team on that, but either way, it doesn’t matter. It doesn’t matter whether it’s somebody who’s trying to manipulate you or someone who doesn’t know what they’re doing, you know what you’re doing. And you know that in the history of agency deals, you’re generally not getting that. Why would you? Who would acquire a business that has 12 months contracts around services for all cash upfront? The owner could leave. I happen to be one human who wouldn’t have left. I would have actually worked so hard to earn their money back for them. And then some, but most entrepreneurs said, “Don’t buy,” I checked out. I really wanted to be in it.

John Warrillow:

And when you went back… So a lot of people hearing this would be like, how on earth did they go back to 10Pearls? Tail between the legs kind of thing saying, “Oh, we got in that stuff or whatever.” Like what I’m much more used to hearing is that when you go back to the original dance party, the terms are less favorable, right? Because you’re like, well, you wanted somebody else and now we’re in a lower, how did you get them to go up? That’s blowing my mind.

Dave Kerpen:

I mean, John, I think that the reality is and I’ll toot her horn since she won’t toot her own horn, the business had a lot of value and they knew it. And the economics of the deal didn’t change with the fact that this other deal fell through. If anything, they knew that we would have other suitors and that if they did walk away, that we were okay with that, because we would have other suitors and the business didn’t have a lot of value. And so I think that it was our own confidence in the value of the business, and frankly, more important, the actual value of the business that Carrie had built up and had worked on that allowed us to get favorable deal terms with 10Pearls.

Carrie Kerpen:

I also just think that when we met, we knew it was a really good fit. We knew when we met prior to all of this. So it broke my heart to say no to them in the first place. And when I said, no, they understood why I was saying no and that I might be back. So I think it was okay, how can we structure this so that you feel really good about it so I don’t have to… Because their offer wasn’t the best at the time. So they had to make it the best in order for us to work. But just because you love each other, the offer still has to make sense for the great business. And so we got to that middle ground and it was wonderful. And it worked as it should.

John Warrillow:

When you originally presented the all cash deal at 10Pearls and said like, “Don’t hate me, but I got to do this because…” Did they attempt to negotiate at all at that point?

Carrie Kerpen:

Yeah. They played around. They’re very sophisticated with financial modeling and they’re very smart. I mean, this is like, I went with like the smart, safe boyfriend versus the crazy lunatic boyfriend. Like they are not boyfriend because it’s quite something-

John Warrillow:

Well, just Dave, we just get that clear.

Carrie Kerpen:

Sorry. He is the best boyfriend. That’s my only boyfriend. They did but they weren’t going to go beyond what the business was actually worth and they shouldn’t have. And so that’s what I loved about them too. I felt that if they were treating me this thoughtfully about our acquisition, then I knew that as they grew as a business they would do the same with other companies that they acquired. And so I felt just really like it was a match and fit. So they did, they came up a little when we said all cash but he knew. He said, first of all, it’s like… And he’s like, “Carrie, I know who does that. And also you’re coming back. I will talk to you the minute you come back, don’t feel bad.” Basically he’s like, “When it doesn’t work, don’t feel bad.” And I was like, “I know but got to try it. I got to try it.”

John Warrillow:

That’s wow.

Carrie Kerpen:

And what would I have thought if I didn’t try it? What would have happened? I wouldn’t be sitting here right now telling you I had an all cash offer, but I chose the nice boyfriend. Okay. So I chose the nice boyfriend, Dave.

Dave Kerpen:

What’s with the boyfriend, Carrie?

Carrie Kerpen:

And I would always be talking about the all cash boyfriend and you can’t do that.

John Warrillow:

Dave’s going to be really insecure after this call.

Carrie Kerpen:

No, he’s everything.

John Warrillow:

So I would love to explore. And maybe you guys can choose who wants to answer this question, but you’ve gone from having like a really profitable, successful company albeit in your own sort of admission, maybe Dave, as much as 80 or 90% of your network, a huge chunk to being liquid, having money. And Carrie you’re saying all the things are funded and everything’s sort of done. How does that feel? Did you buy yourself a trophy or is it the feeling that you had… Carrie, you’re laughing, why don’t you start?

Carrie Kerpen:

Okay, I’ll start and then I’ll let Dave answer it really. I have tremendous financial anxiety and always did. So you’re going to get like full real vulnerable moments. Like Dave used to say to me, when we had no money or very early and I worked to put $40,000 in the bank in savings as an emergency fund, and I would take a $1000, I’d have to fund the car repair, and then I’d be like, “Oh my God, there’s only $39,000 in the bank.” Dave would say to me, “How much money do you need in the bank to feel safe and secure?” There’s no answer because there’s never enough money for me to feel safe and secure. I’m out of my mind. So the net worth shift actually was weirdly worse for me because I’d come from even though there are millions of dollars sitting there, I feel like, oh my God, this is all we have and what if everything goes away for the rest of our lives?

What if everything goes away and then we have to plan for this and okay, we’re going to live to like 93, let me do the math, nuts. So he has to deal with the nuts and that’s not so easy to deal with. So we do celebrate, we are taking trips, we’re doing things, but it is a hard shift for me, which is why I’m laughing, because I feel terrible that this man helped scale and bring about this amazing business. We finally have what we want and his lunatic wife is still nervous that one day we’re going to lose everything in the world, right?

Dave Kerpen:

Well, I mean, I think your vulnerability is powerful and I mean, it’s very, very sad. I will say, obviously because you were honest that I’ll continue with your honesty, I felt very surprised. We sat down to do a budget and it was like, we need to cut this, this, this, and this from our spending.

Carrie Kerpen:

I’m sorry.

Dave Kerpen:

And it was really surprising. I mean, I felt very surprised given how much money we had in the bank. And ultimately I think the lesson learned, which is important for everyone listening to hear, John, is our issues are our issues and selling a company doesn’t change what we have anxiety about or fear of or depression around or issues with. I mean, our issues are our issues, right? So before we sold the company, yes, we had 90% of our net worth in our business.

Carrie Kerpen:

Because I made it a potential.

Dave Kerpen:

And Carrie had a lot of financial anxiety, and I didn’t have any, I knew we’d be fine. And we sold the company, we have millions of dollars in the bank and Carrie still has financial anxiety and I still know we’ll be fine. And so our issues are our issues. So I think it’s good insight because now we know what we need to keep working on. And the same question that I asked Carrie years ago about what would you need to be happy, to be safe, to feel secure, we can continue to answer that question on a year in and year out basis. Right now it’s more around income because now our guaranteed income per year isn’t the same. And how can I, as Carrie’s husband, best support her feelings of security around income if that’s what’s important to her.

Carrie Kerpen:

It’s a shift. And this is the learning, when you sell your company, you’re going from something that may be most of your net worth, but has the unlimited potential, because that potential is within your control to money, which has potential, but money potential is limited. You can invest in some places and earn some, but when it’s you selling your stuff, that’s unlimited potential. But what I, of course, have to realize is that all of that unlimited potential of me is still there. I didn’t lose me in selling that company.

And so it’s I think specifically for… So if there’s someone out there who is a risk averse, sort of risk averse, reluctant entrepreneurial, who started their agency, who is a nervous wreck, who did it maybe for control or more time with their kids or anything like that, they got it to a scalable place. They’re nervous about when may sell. It’s all the same. Another thing that would go on my tombstone is six of one half a dozen or the other, whether it’s in the business or it’s in the bank, it doesn’t change the shift how you feel about it, if that makes sense.

John Warrillow:

Yeah, no for sure. But I do have to ask the followup question, which is Dave, you said like issues before the selling are the same as after selling, it’s the same issues. Do you regret selling?

Carrie Kerpen:

No. Do you?

Dave Kerpen:

No.

Carrie Kerpen:

No, not even a little bit.

Dave Kerpen:

No, I don’t think so. I mean, I don’t think we needed to have a trophy to celebrate, and I think that I want for my wife feelings of safety and security and happiness as I’m sure she wants for me to feel happy. And I think that but ultimately the reasons that we sold, to the time that we sold are completely still true and the value that we were able to generate and the wealth that we were able to generate completely is still there. And look, we joke about problems and financial anxiety, but it’s a lot easier to deal with rich people problems than to deal with poor people problems.

Carrie Kerpen:

Exactly.

Dave Kerpen:

Right. And I think if we take a step back and say one of us might still have some anxiety and another might still feel discontent or whatever but like Carrie said, we have funded our children’s education and lives-

Carrie Kerpen:

Oh my God. That was the first thing we did.

Dave Kerpen:

And we have made it such that our family will be safe and secure for the rest of their lives. And that, for me, it’s a very fulfilling feeling and a feeling of great pride in the work and sort of culmination of the work that we did with them.

John Warrillow:

Let’s stop there because it just isn’t going to get any better than that. I think you guys have been just incredible guests. I think there’s so many lessons for folks to take away right from how you packaged the business, the productizing and all of the tips and tricks around negotiating and the lessons learned around re-trading. So I’m just amazingly grateful to you two. Where can… Now, the book, remind me, Dave is called Likeable Social Media. You’ve written it up three times.

Dave Kerpen:

I’ve written four books.

John Warrillow:

Give me. What’s the-

Dave Kerpen:

Carrie has a book. So Carrie’s book is Work It: Secrets For Success From The Boldest Women in Business. That’s a great book.

John Warrillow:

I love that.

Dave Kerpen:

And Likeable Social Media is in its third edition and it’s a 13 languages. And I’ve written books called Likeable Business and The Art of People as well. And one business, if I could… Can I mention one of my-

John Warrillow:

Yeah. Plug away. Yeah.

Dave Kerpen:

Thanks. One business that I started a couple of years ago that I’m really, really bullish on and excited about, even if I’m 15 minutes late for a meeting with my co-founder-

John Warrillow:

Sorry.

Carrie Kerpen:

It’s okay.

Dave Kerpen:

It’s called Apprentice and it’s a managed marketplace that connects CEOs and entrepreneurs with the best and brightest college students that serve as their executive assistant.

John Warrillow:

I love this. This is cool.

Dave Kerpen:

So imagine if you were to hire a Harvard business student the day that they graduate, you have to pay him or her 75 to $100,000. But if you hire that same exact person, John, a year prior to graduating through me as an apprentice, you’ll pay just 30% of that cost. I pay the students and they get an amazing experience working with entrepreneurs and small business owners in a real life experience. So I started that actually with my apprentice. We mentioned college students, I’ve had college students working for me for 14 years. And Rob, who was my executive assistant at the time while he was at Hamilton said to me, “I think there’s a business model here.” And I said, “Yeah, you’re right.” So we started that business and we’ll do a million dollars this year and it’s growing very quickly, which will-

John Warrillow:

I love this idea, Dave. So where do people learn about Apprentice?

Dave Kerpen:

Thank you, ChooseApprentice.com.

John Warrillow:

ChooseApprentice.com.

Dave Kerpen:

ChooseApprentice.com. A mention of the Built to Sell and get 25% off.

John Warrillow:

Wow. Okay. I’ll be the first to do it. It’s funny because many times I’ve thought of hiring apprentices and I thought there’s these great business schools and we probably can’t afford them when they’re fully out, but I know we can help them a ton, like cutting their teeth in the business world. And we would love to have… That’s a cool business. So it’s called ChooseApprentice.com. Is that right?

Carrie Kerpen:

It really a great business.

Dave Kerpen:

It is. And thank you for letting me riff on it for a moment.

John Warrillow:

You had it all.

Dave Kerpen:

Responsiveness is one of my personal core values, John. So I won’t speak for Carrie because she’s got Likeable business to run in and an earn-out to do, but if anyone has any questions, comments, needs for help, I do office hours every week. Thursday afternoons, ScheduleDave.com, I meet with anyone that wants to meet and you can hit me up on any of the social networks. I’m happy to be helpful if I can be.

John Warrillow:

That’s very generous and we’ll put all that in the show notes at BuiltToSell.com. Carrie, Dave, this was a true pleasure for me. Thank you for doing it.

Carrie Kerpen:

Thank you so much.

Dave Kerpen:

Thanks so much for having us, John. Pleasure was all ours.

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 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 ordered the book. Just go to BuiltToSell.com/Selling.

Built to Sell Radio is produced by Haley Parkhill. Our audio and video engineer is Denis Labattaglia. If you like what you’ve just heard, subscribe to get a new episode delivered to your inbox each week. Just go to BuiltToSell.com.

Outro:

Thanks for listening to Built to Sell Radio with John Warrillow. For complete show notes with links to additional resources, visit BuiltToSell.com/Blog. John is the founder of The Value Builder System. To find out how to improve the value of your business by 71%, visit ValueBuilderSystem.com. John is also the author of Built to Sell: Creating A Business That Can Thrive Without You, and The Automatic Customer: Creating A Subscription Business In Any Industry. Connect with John at Facebook.com/BuiltToSell or on Twitter @JohnWarrillow, W-A-R-R-I-L-L-O-W. Thanks for listening.

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