fbpx

The Humble Yogi Sells His Business

June 18, 2021 |  

Want to increase the value of your business by up to 71%?

Take the 13-minute survey and get your Value Builder Score

About this episode

Subscribe:

Along with three friends, Sebastian Johnston co-founded TheAmazeApp in 2014. The idea was based on a simple idea. Social media influencers could upload a picture of what they were wearing and tag the clothing on TheAmazeApp’s database of e-commerce retailers. Then, when one of their followers purchased the item, TheAmazeApp would receive a commission they shared with the influencer.

The founding team raised $800,000 through the San Francisco-based accelerator 500 Startups. By leveraging their influencers to drive traffic, TheAmazeApp quickly grew to 4 million active users per month. Eight months later, TheAmazeApp was acquired by Zalando, one of Europe’s largest fashion wholesalers.

There’s a ton to enjoy in this episode, including:

  • How the “traffic arbitrage” business model works.
  • How to get developers to accept shares instead of cash for their work.
  • How an acqui-hire works.
  • Why you should never reveal the names of the other bidders for your company.
  • How Johnston kept a poker face throughout the negotiation despite running short of cash while the acquirer dealt with an internal issue.
  • The surprising role humility, yoga, and meditation played in getting a deal done.

Show Notes & Links

(01:57) John Warrillow: “He is currently the founder of VIVERE. He’s an advisory board member at Bunting. He’s a mentor at the Founder Institute. He’s a mentor at Axcel Springer. He’s the founder of Hey Honey yoga wear. It goes on and on. Founding investor at Foodora, among others. A mentor and a coach. Just incredible entrepreneur.”

(06:34) Sebastian Johnston: “That’s called look-based shopping, meaning the curation is being done by an app or by an influencer.”

(10:40) Sebastian Johnston: “The picture Shoppable, there was so to say, only one comparable model, but it was not mobile, it was desktop, called AsSeenOnScreen.”

(22:38) John Warrillow: “Zalando. So this is the ultimate acquirer?”

(29:46) John Warrillow: “We refer to it as the Switzerland structure at Value Builder where it’s like a dependence on a single customer, employer, supplier. In your case, it was a supplier.”

About Our Guest

Sebastian Johnston is the founder and CEO of VIVERE, a new generation consumer brands platform driven by consumer desires, data, and sustainability. VIVERE, founded in 2017, uses data and technology to create brands and products that are valuable to the modern consumer and sustainable with natural ingredients. Before VIVERE, Sebastian founded several companies in the fields of D2C, social, mobile, VC, marketplace, SaaS, and e-commerce. He is also a board member for several German Corporations and start-ups.

During his studies at WHU in 2004, Johnston immersed himself in the professional and start-up world. He was one of the first employees of StudiVZ, worked at BBDO as a strategy consultant, and was instrumental in the digital development of the brands of the Condé Nast publishing house. In 2008 and 2011, he founded his first start-up companies (e.g., Regiondo, a B2B Software for ticketing in the leisure industry, which was eventually taken over by Pro7/Sat.1; Amaze, Foodora).  He also worked as a consultant in the digital, mobile, and e-commerce sectors and is VC and investor in several successful start-ups, such as ArtNight, BuildingRadar, Asana Rebel, Parcellab, and many more.

He acts as a mentor and coach for the accelerator Techfounders, which brings technology start-ups together with corporate partners and potential VCs. Sebastian also serves as a mentor for the Founder Institute, Plug and Play, and Wayra. His expertise in the area of entrepreneurship and investment flowed into the founding of the VC La Famiglia in 2014. In 2014, he founded the fashion commerce company TheAmazeApp, which was acquired by Zalando. Since 2016 he has been a co-founder of the yoga fashion label Hey Honey.

Connect with Sebastian:

Watch the interview

Want to increase the value of your business by up to 71%?

Take the 13-minute survey and get your Value Builder Score

Get Your Score Now

Transcript

Disclaimer: Transcripts may contain a few typos. With most episodes lasting 60+ minutes, it can be difficult to catch some minor errors.

John Warrillow:

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

Next up, you’re going to hear from Sebastian Johnston, who built a company called TheAmazeApp, which is a simple application. I’ll let him describe. They raised $800,000 of startup capital through an accelerator. Eight months later, they had grown to four million active users a month, and he sold the business to one of the largest e-commerce retailers in Europe.

What I found really fascinating about this interview is Sebastian himself. He is in a word, unflappable. And as he’ll describe through the episode, all of the twists and turns the company went through and the negotiation itself went through, all the while stayed steady as she comes. And when I look at his resume, I’m going to read you some of the stuff off his profile because it’s unbelievable.

He is currently the founder of VIVERE. He’s an advisory board member at Bunting. He’s a mentor at the Founder Institute. He’s a mentor at Axcel Springer. He’s the founder of Hey Honey Yoga wear. It goes on and on. Founding investor at Foodora, among others. A mentor and a coach. Just incredible entrepreneur. And as you will hear firsthand in a moment, humble. And he credits a surprising activity for that humility. And I’ll let him describe that. Here to tell you his entire story is Sebastian Johnson. Sebastian Johnson, welcome to Built to Sell Radio.

Sebastian Johnston:

Hi John. Pleasure.

John Warrillow:

All the way in Hamburg Germany. It’s great to have you here. We don’t do a lot of these from Europe. So it’s great to have a European entrepreneur on to tell us the story of Amaze. What does this company do, Amaze? Give me the backstory of what this company did.

Sebastian Johnston:

It used to be a mobile app for fashion commerce. So basically the possibility for consumers to buy fashion, so-called look based. That means, influencers were able to upload pictures, and creators were able to upload pictures of their daily look and style and so forth to the app, and also to create quite some virality around the app. And consumers were able to buy these looks and the different fashion pieces consisting of [inaudible 00:03:40].

John Warrillow:

So if I’m into fashion, I could download the app from the App Store or Google Play or whatever.

Sebastian Johnston:

Yeah.

John Warrillow:

And then people I recognize from television, from music, from pop culture-

Sebastian Johnston:

Exactly.

John Warrillow:

… would be served up to me.

Sebastian Johnston:

Yeah.

John Warrillow:

And I’ll be like, I really like that guy’s shirt.

Sebastian Johnston:

Yeah.

John Warrillow:

And then-

Sebastian Johnston:

I would be able to follow this person, or this influencer creator. I would be able to basically shop piece by piece or the entire look. It would be convenient. And actually that was six years ago, seven years ago. So it was quite new. Today it’s common, but we were one of the first ones in Europe doing it.

John Warrillow:

That’s kind of cool. It shows you how out of fashion I am. I didn’t even know it existed and you’re telling me this is like six year old technology. I’m like really? That’s incredible. So what’s the business model like? How did you make money?

Sebastian Johnston:

It was basically traffic arbitrage. So we were getting sales commissions from the retailers selling while we were only doing arbitrage based business and basically mitigating the consumer or the purchase. The commission was, I believe between eight to 12% based on basket size and per sale. So-

John Warrillow:

Got it.

Sebastian Johnston:

… [inaudible 00:05:13] sale.

John Warrillow:

So it was free to download for the consumer.

Sebastian Johnston:

Yes.

John Warrillow:

And for the brand H&M or Gucci or whatever, could also join the platform for free, or was there a fee for them-

Sebastian Johnston:

Yes.

John Warrillow:

… to join?

Sebastian Johnston:

But they could join the platform for free and list their so-called catalog. And so basically product data feed. But we had a cooperation also with large e-commerce fashion wholesalers, obviously representing multiple brands. So we got their feed and catalog as well. So we had quite some coverage from the very beginning, with regards to brands and products. So I believe like 800,000 products would have been listed from very first days on simply because we got this catalog from one of the big fashion e-commerce companies. And this was obviously in the back end. And then the front end, this was mapped with images. So there was T-shirt and jeans and a hat. And then a creator or inference upload an image was able to tag on the image, the product or the fashion piece, and this how enabling the consumer to shop it easily.

That’s called look based shopping, meaning the curation is being done by an app or by an influencer. And we know this from these days, from Instagram, today they have this, basically tax or product tax on images. But five to seven years ago that was not the case yet. At least not in Europe. I don’t know in the US. But usually with like feature roll-outs of, for example, Instagram, we are one to two years behind. So you get the new features usually earlier, and that’s why there was this big window of opportunity for this app.

John Warrillow:

So had you seen this working in the US?

Sebastian Johnston:

No. Theoretically, maybe back then, yes, but we haven’t rolled out yet. We were only in Europe.

John Warrillow:

No, I’m sorry. Had you seen this?

Sebastian Johnston:

No, no, no, no.

John Warrillow:

No.

Sebastian Johnston:

It was not-

John Warrillow:

This was [inaudible 00:07:32].

Sebastian Johnston:

… so to say, not a clone or copycat. No. We was basically our idea to realize this.

John Warrillow:

How did you get the influencer to play ball or to participate? So I get why the brand participates. They pay you a commission and they sell their purses and shirts and stuff like that. I get why the consumer would participate. But why does Brad Pitt care about uploading his look to Amaze?

Sebastian Johnston:

We didn’t necessarily collaborate with Brad Pitt. We collaborated with, mainly female influencers having a fashion [inaudible 00:08:12] audience, and also bringing this audience to the app. There was our targets influencer that basically incentivization was a kickback on commissions or of commissions. Approximately 20% of the commissions we generated. And so to say was a revenue model or income model for creators back then.

And the logic was basically we would onboard creators with their images. They would tag on the images of the different products. They would also promote the app in other channels. This is how creating traffic on the app or, users on the app and basically having this back loop or this end to end loop of e-commerce sales commissions being generated. And that was in the early days because there was no hard, so to say, no competitor.

John Warrillow:

So let me see if I got the business model. So I’m a consumer, I buy a shirt for $100. Let’s just say. You get a commission. Let’s say it’s 10%. I know it range from eight to 12, but let’s just say it’s 10%. So you get $10.

Sebastian Johnston:

Yes.

John Warrillow:

And then the influencer gets $2.

Sebastian Johnston:

Yes, exactly.

John Warrillow:

Okay. So this really works when you get a lot of people using the app.

Sebastian Johnston:

Yeah.

John Warrillow:

Like to make this make sense for everybody, you got to have a lot of users, it sounds like.

Sebastian Johnston:

Exactly. Why did we realize a lot of basically downloads and usage, first off because it was free and second it was convenient. I mean, the purchasing process, but it was also convenient with regards to curation, meaning, lots of consumers actually make their mind how they dress on a daily basis or how they would like to dress or how they do dress. And they use obviously inspiration from people they admire with regards to their style. And this was basically represented in the app.

The picture Shoppable, there was so to say, only one comparable model, but it was not mobile, it was desktop, called AsSeenOnScreen. It’s actually, I think formally a US American or British company, they did something similar, meaning curating styles people were wearing in famous TV shows, so Sex and the City and whatever, Friends and so forth. And they will have these images on their website and on their platform, but it was not mobile. But this was so to say the only inspiration we had.

John Warrillow:

Got it. So this sounds like a massive idea. Like when I think of business ideas, I think of like, well, starting a lawn mowing company or, being a guitar teacher, like those are simple ideas that you start off without a lot of capital. When I hear about an idea where you’re like the world’s biggest brands and these influencers, and you’ve got to get millions of users, this just seems overwhelming to me. Like how did you… I’m struggling to see how you got… I guess my question is, how do you get the chicken or egg problem solved? How did you quickly grow? Did you raise a bunch of capital or how did you get to some form of scale?

Sebastian Johnston:

Luckily there was one movement, the fashion e-commerce market, so to say, showed signs of going mobile. Today, the mobile share is bigger than the desktop or the browser-based sales share. Back then we had the hypothesis and some proof points that the market would go mobile, and there was one growth driver so to say. The second growth driver was the creators bringing reach and audience to the app. And they did so.

So basically they posted on Instagram or in other channels, “Hey guys, I’m supporting this app for fashion, shopping and support. Find my style there.” So we got a nice share of free traffic, so to say. And this was another growth driver. The third growth driver was obviously performance marketing. So we tried to basically create installs or downloads and installs and monthly active users via acquisition marketing.

John Warrillow:

What does that mean, acquisition marketing?

Sebastian Johnston:

Acquisition marketing mainly means performance marketing campaigns, Facebook, Instagram-

John Warrillow:

So paid advertising?

Sebastian Johnston:

Paid advertising-

John Warrillow:

Got it.

Sebastian Johnston:

… to acquire-

John Warrillow:

It-

Sebastian Johnston:

… users.

John Warrillow:

… still sounds really expensive. Like how did you finance this growth? Did you raise a bunch of money or what was the-

Sebastian Johnston:

We raised in total, 800 K from an accelerator, a US American accelerator, 500 startups and from business angels.

John Warrillow:

How much of the company did you have to give away to finance that?

Sebastian Johnston:

I would say in total 40%.

John Warrillow:

40% to the accelerator.

Sebastian Johnston:

Yeah. These were the days when the valuations were not crazy high.

John Warrillow:

That’s still-

Sebastian Johnston:

So this was for German context or relations, it was a valuation pre or seed of, I think the first one, 2 million euros that was okay ish. It was not crazy high, but it was also not crazy low. And we were all first-time founders. So to say it was a good deal.

John Warrillow:

Who’s the founding group? How many of you were there?

Sebastian Johnston:

We’ve been four founders.

John Warrillow:

Four founders. Okay.

Sebastian Johnston:

Yeah.

John Warrillow:

So the four founders [inaudible 00:15:14]?

Sebastian Johnston:

It was also like an agency, like a development agency, specialized on app development, also involved, also in the cap table. So shareholder. They were not really founders, but the founding party as well, or founding agency as well, because we actually wanted it to be like that. We couldn’t pay them and we did not want to pay them. We wanted to incentivize them entrepreneurial. So that’s why we paid with shares. And basically they have been in the cap table.

John Warrillow:

Got it. So a handful of founders who had the idea, you went through the accelerator, you got some cash, and then you convinced your web development shop to take shares as opposed to cash?

Sebastian Johnston:

Exactly.

John Warrillow:

Got it. That’s helpful for sure.

Sebastian Johnston:

So it was kind of sweat equity or shares for resources and development, which was back then quite common, so to say. The question was more, would the developer like this incentivization. To my feeling till today, not that many developers really enjoy the fact of being entrepreneurial incentivized. They’re kind of I believe more risk resistant than business founders. That might be a stereotype, but I believe back then it was the case that it was hard to find a CTO and tech people being share incentivized. So equity incentivized, and not being salary incentivized. So it was in retrospective of it was right decision, but it was not an easy one to solve.

John Warrillow:

Because every entrepreneur with an idea probably comes to them with the same pitch, hey, do the development work for free. We’ll cut you in for some shares [inaudible 00:17:31].

Sebastian Johnston:

Exactly.

John Warrillow:

How did you convince them that you were legit?

Sebastian Johnston:

There was some friendship before. We knew each other because of other projects we did together. And we worked together beforehand, but on other projects. And then it was the business case. Business model. It took some convincing, but at the end of it, we were successful.

John Warrillow:

Fantastic. And how big did you get this company before you decided to sell it? Like what was the size at the time [inaudible 00:18:14]?

Sebastian Johnston:

We had, I think like four million monthly active users, and up to, in a good day, like one to 2 million daily visits of the users. We were also basically measuring obviously, activity of users on the app, how many looks did they check out? How many purchases or click outs were they doing? And what was obviously the transaction volume. And then we got to a certain point, we noticed that actually at the same moment that we are quite successful, but on the other hand, also quite dependent on the few big e-commerce retailers that were giving us their product data feed.

We had no own product data. We were only an arbitrage business model and basically a traffic mitigator. And this was, how to say? Black and white situation, because we were dependent. Also the exit environment showed that we would need to sell, or we would even be forced to sell to one of the parties giving us their product data feed, because we were dependent on them. And also they had the most interest in our app and technology given the fact that the consumer would like to do mobile shopping.

And this was actually then the window of opportunity with the good news and the bad news at the same time. And also based on this, we started the exit negotiations, basically looking into each other’s eyes and saying, “We have an app being dependent on your product data feeds, but the app is quite interesting with regards to reach consumers usage, and basically USP. You don’t have it.” And based on these, basically arguments, we negotiated the exit process.

John Warrillow:

So let me dig into a little bit more there. So you mentioned the data feed was coming from a few e-commerce retailers. Again-

Sebastian Johnston:

Yes.

John Warrillow:

… I’m ignorant to this. So I’m assuming when you say feed, this is not somebody typing in this guy’s shirt color, and like typing it all manually and taking a picture of the shirt. It’s all automatically fed through the-

Sebastian Johnston:

Exactly.

John Warrillow:

Through computers?

Sebastian Johnston:

It’s like a database.

John Warrillow:

Database. So the database includes both the visual image of the shirts as an example-

Sebastian Johnston:

Exactly.

John Warrillow:

… as well as the description and price point-

Sebastian Johnston:

Exactly.

John Warrillow:

… [inaudible 00:21:23]? Got it.

Sebastian Johnston:

Yeah.

John Warrillow:

So it would be untenable to do this manually, right? Like you’d have tens of hundreds of thousands of skews. You said 800.

Sebastian Johnston:

Exactly.

John Warrillow:

So there’s no way you could do it through people. You had to have these feeds. And so these big e-commerce retailers, how many of these e-commerce retailers were feeding you data?

Sebastian Johnston:

A handful. Five.

John Warrillow:

Five. Okay. And those five, the vast majority of your… Was it 100% of your inventory if you will?

Sebastian Johnston:

Yes.

John Warrillow:

Got it. And of the five, was it roughly equal like 20% each or was one dominant?

Sebastian Johnston:

There was one big shot, having the majority or representing-

John Warrillow:

Like 60, 70%, like more than half?

Sebastian Johnston:

Exactly. Also this meant we are, or we were dependent on them. Also they were the most successful ones basically providing the consumer highest convenience, return, time and so forth.

John Warrillow:

What was the name of the one that had the majority of the-

Sebastian Johnston:

Zalando.

John Warrillow:

Zalando. So this is the ultimate acquirer?

Sebastian Johnston:

Yeah.

John Warrillow:

Got it. Zalando, is that with a C or an S?

Sebastian Johnston:

With a Z.

John Warrillow:

Oh, with Z. Zalando. Okay.

Sebastian Johnston:

Yeah.

John Warrillow:

Got it. Got it.

Sebastian Johnston:

It’s a 10 billion revenues fashion e-commerce player.

John Warrillow:

My fashion sense is starting to reveal itself all the way through this interview. I put on a shirt for you for the YouTube interview, I thought you’d be happy with that.

Sebastian Johnston:

And same for me.

John Warrillow:

Zalando. So they’re one of the big five, and not only one of the big five, they are the dominant of the big five. More than half of your stuff is coming, the data feed is coming from them.

Sebastian Johnston:

Yeah.

John Warrillow:

Like would it be, when you say more than half, are we talking like 80%, 90%? How much more than half would have be coming from Zalando?

Sebastian Johnston:

I would say 70%.

John Warrillow:

70%. Okay.

Sebastian Johnston:

The thing was also, I mean, if you want to have a really good fashion purchase experience for the consumer, you want to have a holistic, complete product catalog. Otherwise consumer would say, “Let me check out the here and there as well if I find something better.” Same for this look based shopping logic, influencers were literally able to upload any nice image of a nice daily look they would have. And they would be able to find these products that they were wearing in the app and would be able to tag them, these images.

And this would have only been possible with a complete product data feed. So it was kind of a vicious circle we were in, and meant for us, okay, we are dependent on product data feeds. Obviously also on the fact that someone fulfills fashion orders physically, because we were only a mitigator, only in traffic arbitrage model. Somebody else had to fulfill the order, and they were doing best. And then it was kind of a logic exit scenario for both sides, to basically join forces. And then that’s why we sold the company to them.

John Warrillow:

Got it. Just to go back to some of the metrics, you mentioned four million active users per month-, and one to two million daily visits per month.

Sebastian Johnston:

Yes.

John Warrillow:

Got it.

Sebastian Johnston:

[inaudible 00:25:22].

John Warrillow:

One to two daily visits per day.

Sebastian Johnston:

Yeah.

John Warrillow:

And then what about revenue? Like you mentioned, you got commissions of 10%, anywhere between eight and 12. What would that commission pool have amounted to in a typical year?

Sebastian Johnston:

Per month you mean?

John Warrillow:

Or per year. It doesn’t matter. Per month is fine.

Sebastian Johnston:

Per year, one digit million per year and per month less, unfortunately. So we were saying in the retrospective, this commission model ends up in being a little chicken shit only. Because I mean, you have a basket size is exactly the calculation you were doing before. You have a basket size of 100 euros or dollars. And let’s say its commission would only be 10% of this. So we’re talking about a fraction, unfortunately. So on the one hand, the model scaled quite nicely, but it wasn’t really that much at the end. So it was, we were too big to die, but too small to be really, really, really, scaling and really interesting for a different exit scenario. So that’s why we took this opportunity.

John Warrillow:

With Zalando. What changed? Because I’m imagining going through the accelerator process, there was some PowerPoint slide deck at some point that had this like hockey stick. Right?

Sebastian Johnston:

Yeah. Exactly.

John Warrillow:

Because no one would give you 800 grand if they didn’t think this had real huge potential. What changed?

Sebastian Johnston:

We were able to hire content creators… I mean, content curators, more like doing this tagging process for the influencers that would be too lazy. So we sometimes support it to help them. And we were able to hire some more developers, performance marketeers, and so forth.

John Warrillow:

So that’s helpful. My question was more the original business idea that you went through the incubator or the accelerator with, you’ve got an $800,000 investment or 40%.

Sebastian Johnston:

Yes.

John Warrillow:

So my assumption would be that, that accelerator thought this idea could be maybe generating hundreds of millions of dollars at some point in the future or tens of millions of dollars. Right?

Sebastian Johnston:

True.

John Warrillow:

So what changed? What did you find to be that the… What was surprising?

Sebastian Johnston:

It was this window of opportunity we saw and we had to use, meaning the dependence on these large retailers we were having. And also the question, if we would have waited too long, probably they wouldn’t be that much more interested into our app because they could have built something themselves or, the market could have changed. We saw this relatively close window of opportunity. I mean, so to say it was also a quick flip for the accelerator. I think we sold the company, I mean, eight month or 10 month after the accelerator invested. So it was really-

John Warrillow:

Wow.

Sebastian Johnston:

It was really fast.

John Warrillow:

I had no idea it was that fast.

Sebastian Johnston:

And we obviously paid back with, I think a small multiple, I mean, the accelerator of, I think two or something.

John Warrillow:

Great, great. So let’s get into this. So I think a lot of people listening to this will really identify with whether they know anything about fashion commerce and so forth. They will certainly identify with this feeling of being somewhat dependent on a single supplier. We refer to it as the Switzerland structure at Value Builder where it’s like a dependence on a single customer, employer, supplier. In your case, it was a supplier. This data feed was coming from Zalando. And you felt that. So who was like, how did that… When did you come to the realization that the gig is up here, we’re really dependent on Zalando and we should probably do some sort of M&A, like we should probably sell the company to them?

Sebastian Johnston:

It was on the positive side the fact that consumers wanted to shop mobile, which was beneficial for us and basically a growing market. Second, look based shopping curation, curated content was also something hot, so to say. Also on our side from assets and basically, value. And on the other hand, there was this market concentration with regards to product data feeds and market share at the end of the day, and the question, who would be able to give us the most complete product data feed. And that was only this one play at the end of the day. And so what did we have to sell as assets? It was team, it was some tech content, curated content, and some reach. [inaudible 00:31:27]-

John Warrillow:

And some which?

Sebastian Johnston:

Reach. Like reach, in terms of usage and customers and consumers and users. And this was something we packaged and sold.

John Warrillow:

And did you go to all five of the companies that were providing you with data?

Sebastian Johnston:

Yeah. Good question. Obviously we did, but it narrowed down to two interested parties, and then the second one also gave us at a certain point of time, a negative feedback. They were saying they would do something themselves, something similar themselves. They actually did so and it was perfectly fair. And the later one of the acquirer basically was interested mainly in team, so acqui-hire and some tech. And the fact to basically be able to offer mobile e-commerce solutions.

John Warrillow:

Got it. So you go to all five, you get two on the line, one of whom bows out and says, “I’m not going to.” So what was your feeling when you found out that, that second company had chosen not to pursue an acquisition? What did that feel like?

Sebastian Johnston:

It’s obviously requiring a poker face, let’s say, because the question is, if you only have one bidder, should you disclose that there is only one bidder? Or should you signalize or pretend that there is a huge rat race? And at the end there was a fair idea. It was not unfair for both sides. And I would say we had realized an exit obviously, and the acquiring party had realized speed, I would say. Speed by acquiring a fast team, speed by acquiring some product in tech, speed by acquiring the logic of offering the consumer a curated [inaudible 00:33:55].

John Warrillow:

Sure.

Sebastian Johnston:

And when you count into the calculation as an acquirer, I would say it is revenues, assets, and speed. And that’s probably what they did. Revenues was factor X assets. I mean, all of them [inaudible 00:34:17] technology and so forth is factor Y, and speed is factor Z, and then they do their combination and basically calculate or propose the purchasing price, which we accepted end of the day.

John Warrillow:

So just to be clear, the poker face analogy which you use, which I thought was great, you did not tell Zalando that the other bidder had bowed out or had decided not to proceed?

Sebastian Johnston:

No.

John Warrillow:

For intents and purposes, Zalando could have thought there were 10 other bidders.

Sebastian Johnston:

Exactly. And I would say that’s the normal scenario that, first off the bidding processes are double blind. So bidder A does not know the bidder B and C. Neither does he or she know the name of other bidders. So it’s an in-transparent process, always I would say to my knowledge. And I would say it’s something perfectly fair, both parties did or played, and there was negotiations, and then you meet [inaudible 00:35:39].

John Warrillow:

And did Zalando know they represented such a large proportion of your data feed?

Sebastian Johnston:

Yes.

John Warrillow:

So they knew they had a very strong poker hand.

Sebastian Johnston:

Exactly.

John Warrillow:

What did you think the company might be worth before you got any offers? Did you have a multiple of revenue or EBITDA that you thought was reasonable?

Sebastian Johnston:

Yeah. Back then there was no real comparable. There were lots of mobile startups. Yes. But no big exit cases yet. Neither in Europe nor in the US I would say. And also if there would have been [inaudible 00:36:28] it would have been always so to say, they would have been a huge spectrum [inaudible 00:36:35], either on revenues or on EBITDA. And obviously, also if you take the big acquisitions in the US, take WhatsApp or Instagram, they were all pre revenues when they were acquired by Facebook, for example. And so to say, long story short, there were not no comparisons. We only did some internal assumptions with regards to revenue [inaudible 00:37:07] and EBITDA [inaudible 00:37:08], and more or less we met them.

John Warrillow:

What were you hoping to get for the company in terms of multiples of revenue?

Sebastian Johnston:

Two times revenues and infinite EBITDA, because the EBITDA was negative.

John Warrillow:

I always loved the infinity EBITDA. That’s great. So two X revenue is what you were hoping for.

Sebastian Johnston:

Yeah.

John Warrillow:

What was your reaction to the first offer from Zalando? Like when they gave you a term sheet, what was your reaction?

Sebastian Johnston:

Positive because we had no other option.

John Warrillow:

Where did they land on the… Were they around the two X revenue?

Sebastian Johnston:

Yeah. It was actually a little more, because they counted in quite nicely, the acqui-hire, and basically the team value, and also some tech.

John Warrillow:

Did you ever-

Sebastian Johnston:

It was including-

John Warrillow:

… get a sense-

Sebastian Johnston:

… an earn-out for, there was the not so attractive part.

John Warrillow:

What proportion of the more than two times revenue was at risk in an earn-out?

Sebastian Johnston:

I can’t really say because I was not in the earn-out. Only two founders were in the earn-out. The other two were able to leave, and I can’t really answer this question correctly.

John Warrillow:

Okay. How did you get away with leaving, and how did that play out with your other three founders?

Sebastian Johnston:

It was a decision everyone was able to make quite independently. I decided to go for another business model and found another company. And two others, I think also they decided to go for the learning curve and the responsibility because, they were later then managing the entire mobile department of the acquirer, which became very big. Mainly because also the market became that big. Mobile commerce, I mean, today it’s bigger than desktop or browser-

John Warrillow:

It’s huge.

Sebastian Johnston:

… based commerce and fashion. I think even for the category agnostic ones like Amazon, I think the mobile share is bigger than the desktop share.

John Warrillow:

I guess, Sebastian, what I’ve heard a lot from all founders. And I’m trying to remember one off the top of my head where I can’t. If there’s two founding partners, one leaves, one stays, there’s often some resentment from the one who stays because they’re like, oh you get to ride off into the sunset and start another business. And I’m left holding the bag, working for some giant corporation and filling out my time sheet and dealing with like three weeks of vacation a year. Well, not Germany, but you know what I mean? There’s resentment that gets formed. Did that happen in your case?

Sebastian Johnston:

No. I stayed close friends with one of them. He did a, I think a great experience and learning curve, and he founded another very successful company afterwards. So I think everything fine and no [inaudible 00:41:01]. And I would say it’s everyone made his own decision. And also we were not pushed or forced to force each other. Everyone was able to make his own decision, as I said. And two years later they left or one of them left and founded another company, as I said, very successful one. So I think all things good.

John Warrillow:

Got it. How did it work? Did they want you to stay? Did Zalando want you to stay?

Sebastian Johnston:

No. It was basically half and half between the founders. Half were asked to stay and half were asked to leave. And then we discussed internally and split up and all fine.

John Warrillow:

Fantastic. And then you went on to start another company-

Sebastian Johnston:

Yes.

John Warrillow:

… which was successful and also was acquired as I understand as well.

Sebastian Johnston:

Yeah.

John Warrillow:

So it was a great learning [inaudible 00:42:18].

Sebastian Johnston:

And also the other founders, two went for VC and did their own funds. One went to found another company, in a completely different space, logistics. And I also went on to found another company and do VC.

John Warrillow:

Sebastian, when the due diligence part of the process with Zalando was going on, and they would have clearly come to the realization that they had a tremendous amount of power over you, so to speak. Did they try to retrade or lower their value as they learned more about how dependent you were on them?

Sebastian Johnston:

Luckily not. All the business people involved wanted this deal. There was one hiccup, so to say, that one of the lawyers, the corporate lawyers became sick, and also severely sick, which stopped the transaction for, I would say at least four weeks. That was to be honest, a time when everyone became quite nervous, mainly on the selling side. Simply because the transaction was not completed yet. I mean, we were like at, I would say 80% of the due diligence and the transaction, and then the corporate lawyer and he was also the head of corporate law and acquisition, head of legal in total. And he became quite sick. This stop the deal for four weeks.

John Warrillow:

What was that like for you personally?

Sebastian Johnston:

It was, we were all quite nervous.

John Warrillow:

You guys are relatively young, it seems like. Did you know that… I mean, this is your, as you say, you were all first-time founders. So you’ve all gone on to start other businesses since, but at the time, first time, how did that play into your reaction to the four week delay caused by the corporate attorney or the lawyer? Do you know what I’m asking, like being young and sort of naive to the process, I’m assuming, did that impact how you reacted to that pause?

Sebastian Johnston:

Yeah. I mean, you need to manage uncertainty as a founder and also in a transaction. To be honest, we had no real backup scenario. So we had to manage high uncertainty and the likelihood of success of the [inaudible 00:45:15] to action for four weeks was uncertain. So we had to wait. Also this information that there was this sick leave, leaked, I would say after two weeks, not earlier. This kind of calmed us down a bit again. But obviously, we were dependent on the presence and also the good will of the acquiring party, giving, or given this delay factor being the sickness of the head of legal. So it made us, long story, short, nervous. We were also about to run out of cash. All the shareholders were nervous. And we had to wait a bit.

John Warrillow:

I’d be curious to know if you were able to continue that facade, that poker face we described that you had early. Here’s what I’ve seen, when you go through all of the negotiation before the letter of intent is signed, I think it’s maybe a little easier to have a poker face at that stage because you still haven’t accepted an offer. Then you accept an offer and there’s due diligence and it’s painstaking and difficult.

And they’re starting to find out some of, where the bodies are buried, where the skeletons in the closet, as they say, where the problems are. I think a lot of founders struggle to remain poker faced at that stage and undermine their negotiation leverage because they start to panic. What did you do in that state where you’re running out of cash, you’re young guys, you’re worried, the guy gets sick? Were you able to keep the facade or did you start to show your panic?

Sebastian Johnston:

No. I think we were able to keep professional and keep the facade. And luckily there was no red flag in the due diligence. I mean, if an acquiring party wants to find a red flag-

John Warrillow:

They will.

Sebastian Johnston:

… it will. It’s always possible. And basically you are always able to kill a deal, I believe, no matter which transaction. And this was I think the main driver for uncertainty was the sick leave literally of this leading stakeholder on the other side, responsible basically for the entire transaction. C-level approval was already there, and also goodwill and everything. And just I have to say, the executer was missing. And obviously we felt lucky that we all ended up at the [inaudible 00:48:49] after some weeks.

John Warrillow:

Where does that come from, from you personally, Sebastian? I get the sense that you’re unflappable. Like you’re very like… Where does that come from?

Sebastian Johnston:

It’s always rationale. You never realize a successful exit or a company with too much emotions, neither positive or negative. You have to keep quiet rationale, I believe [inaudible 00:49:31] and execution driven.

John Warrillow:

But Sebastian, I want to know for you personally, where that comes from. I get the fact that you have to stay rational. I get the fact that you execute. But you were able to do that while 99% of the people would’ve crumbled under the pressure. So where does that come from for you? Is that your upbringing? Like where does that sense of not staying on point, not getting emotional about the transaction?

Sebastian Johnston:

Back then I did a lot of yoga and meditation, which helped.

John Warrillow:

Really?

Sebastian Johnston:

Yeah. Literally. And also I would say that most of the co-founders remained profitable… Profitable. I’m sorry. Professional and calm. And also, so to say, humble. We try to basically disclose everything, all cards on the table. This is now the due diligence, this is now all pants down. And we tried to manage this transaction professionally. And then the other side moved with some breaks, unfortunately. And what helps, I would say is mindfulness, humbleness, and exercise.

John Warrillow:

Awesome. The trifecta of doing a deal. What are you doing now? Where can people learn about what you’re up to now? Send us to a website. Can we connect with you on LinkedIn? Like give us a sense of what you’re up to now.

Sebastian Johnston:

I’m now since, approximately two years, founder and CEO of a consumer brands holding. We are operating a data and tech driven platform for consumer brands and products. We are developing these brands and products from zero to hero. So literally end to end from data points and idea to global execution and distribution. We’re based in Hamburg. It’s a very international team. We are active in 10 countries, approximately, mainly in the space of beauty, wellness, and spa, fragrances and sense.

John Warrillow:

So a company similar to Zalando?

Sebastian Johnston:

No. We are literally owner of the brands, while Zalando, for example, is a wholesaler more or less.

John Warrillow:

Okay.

Sebastian Johnston:

And yes, a platform as well like we are, but more in a sense of marketplace. While we are a platform for owning and operating consumer brands and products.

John Warrillow:

That’s helpful. And what’s the URL?

Sebastian Johnston:

It’s vivere.io. Vivere is Latin for living and life. Vivera.io-

John Warrillow:

Awesome.

Sebastian Johnston:

… based in Hamburg.

John Warrillow:

And we’ll put that in the show notes at Built to Sell.

Sebastian Johnston:

Thank you so much.

John Warrillow:

Sebastian, thank you for doing this.

Sebastian Johnston:

Likewise. Thank you so much, John. It was a huge pleasure.

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.

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.

BACK TO THE TOP