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The Carve-Out Exit

July 9, 2021 |  

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Cary Moretti is the founder of NewSportMedia, an IT consulting company that does work with sports leagues. Along the way, Moretti created a software application called LeagueStat. The app helped hockey leagues like the AHL and CHL provide fans, journalists, parents, and scouts with real-time statistics on their favorite teams.

NewSportMedia grew to 27 employees, but Moretti was conflicted. The professional service side of his business required a different model than the software app that he had built. He knew that if LeagueStat were to reach its potential, he would need a deep-pocketed investor or a new home with a company that could invest in the business. Moretti decided to carve LeagueStat out of NewSportMedia and sell it as an asset separate from his consulting company.

Moretti is a self-described “nerd” who loves to code but knew little about negotiating the sale of his business. In this episode, Moretti describes what he learned about selling a company with humor, candor and a heaping dose of humility.

You’ll discover:

  • The pricing model that led Moretti to the brink of bankruptcy twice.
  • How Moretti fixed his business model.
  • The nuances of carving out a part of your business to sell.
  • What Moretti wishes he had known about selling a business.

Show Notes & Links

(05:47) Cary Moretti: “we did work with, for example, the Canadian Hockey League… then also you have the American Hockey League was probably our best client.”

(10:10) Cary Moretti: “it essentially worked like this, one team became two, became three, became five, became 10. And at one point, I was getting very close to what I would call critical mass. So within a given league, if you have enough teams that are clients for a given service, you have a door opener there where you can approach the league itself. Literally, it was organic. So that’s exactly what happened.”

(15:46) Cary Moretti: “I don’t think I spoke to anyone at the GTHL until I was basically approaching the era when I was selling to an acquirer. So I started pretty much at the top. I spoke with the American Hockey League. They’re the league that is the feeder to the NHL, they’re the affiliate of the NHL. The ECHL, again, similar to the AHL, they’re affiliated with the NHL, the Canadian Hockey League. So a lot of people think that junior hockey in Canada is amateur, it’s pretty much a pro sport. There’s some cities where they’ll watch the local junior hockey team, the major juniors, before they’ll go to an NHL game. It’s pretty hardcore here in Canada.”

About Our Guest

Cary Moretti is a serial entrepreneur, innovator, and technology advisor. Cary built his first business at the age of 17 and has, through every iteration of his career, been passionate about helping clients adopt new technologies to drive positive innovation. Cary has created, financed, and led private companies in multiple verticals, including retail e-commerce, sports & entertainment, and healthcare.

Cary believes strongly that the future of work is remote and has lived that philosophy since 2002. In 2008, Cary built his first 100% remote organization and hasn’t looked back since. Remote work has been key to Cary’s success in sourcing – and keeping – the best employees, navigating major economic cycles, and pivoting to transform organizations – his own and his clients’ – through year over year strategic growth.

 

Connect with Cary:

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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:

When’s the last time you read a book on selling your company? My guess is you’ve never read a book on selling your company. Why bother when the only books out there read like textbooks, filled with acronyms and terms you’ve never heard of, written by people who make it their job to make themselves look and sound smarter than you. Why bother? Well, The Art of Selling Your Business tries to do exactly the opposite. It features the stories of the founders I’ve listened to for the podcast. I’ve taken their best practices, their secret hacks, and bundled them into a storytelling format so that you can take away the key lessons, the action plan, the field guide, without sifting through the boring textbook that is most books on the topic of selling your company. You can get it at BuiltToSell.com/Selling.

Before every episode of Built to Sell Radio, I chat with the guests. I give them an overview of the show, and I’m like, “Yeah, we try to point out some of the tips and tricks of how to sell a company, some of the gotchas in the negotiation.” And invariably, their response is, “Man, I wish I’d known about this show before I sold my last company.” Because look, we don’t get a chance to sell our business every day. For most of us, it’s a once-in-a-lifetime opportunity. And yet, we can make unforced errors along the way that can cost us hundreds of thousands, millions of dollars if we get it wrong.

And my next guest, Cary Moretti, is admittedly a little bit of a technology nerd. He wasn’t really savvy about selling a company, that value of his company, yet he went through the sale and learned a lot of tips and tricks along the way. Here to tell you the entire story and the things he might do differently if he had to do all over again is Cary Moretti.

Cary Moretti, welcome to Built to Sell Radio.

Cary Moretti:

John, thank you for welcoming me. Thank you for having me on the show.

John Warrillow:

Yeah. So tell me a little bit about NewSportMedia, what did you guys do?

Cary Moretti:

NewSportMedia was a company that focused on real-time stats and scoring, primarily for hockey, but we also did all the ancillary services that came with that, so launching websites for teams, leagues, etc.

John Warrillow:

So if I’m a huge fan of some team and they’re not on TV or I can’t get to the game or whatever, I could pull up the stats and find out that my favorite player just took a shot on goal because you’re tracking it in real time?

Cary Moretti:

That’s exactly it. Yeah.

John Warrillow:

Okay. A lot of really, really over-energized type A parents trying to see their kids and how many goals they’ve got and how many penalty, minutes they’ve got. Is that part of this universe?

Cary Moretti:

John, not just parents, I swear to God, I got calls from uncles and aunts.

John Warrillow:

Really?

Cary Moretti:

Yeah. And their ability to track down my personal information was mind-boggling. On my personal cellphone, not even my work number. I remember one uncle-

John Warrillow:

“Little Timmy had six shots on goal, not five shots on goal. What are you doing?”

Cary Moretti:

Yeah, yeah. “Can you please change his stats because he’s being scouted.” This is big money for these kids and their families.

John Warrillow:

Oh, for sure. For sure. Did you bend to any pressure? Did you ever change anybody’s stats?

Cary Moretti:

Never. No, never. That was a hard, hard stop for me.

John Warrillow:

Okay. So how did you get the stats? Did you have rovers all around at these games or how did you actually get people? That sounds expensive to have people monitoring these games?

Cary Moretti:

Yeah, no, I didn’t. Actually, the service was quite inexpensive, a mistake that after the sale they rectified very quickly. But yeah, what we did was we worked with teams in the beginning, and then eventually we went up to the next level and we sold our services at the league level rather than just the team level. And they provided their own staff for scoring the game. So what we did was we provided the input tool. So the software that they would log into onsite, whether it’s in an arena or at a field, a stadium, wherever it was, they would log into our secure private portal. And we had all the tools available for scoring whatever game they were needing to score, and then that game comes into our servers.

John Warrillow:

So in the early days, if I’m a hockey team, someone on my staff will be responsible for updating LeagueStat in real time and then parents or the-

Cary Moretti:

Yeah, stat volunteer.

John Warrillow:

… parents, recruiters can be watching in real time LeagueStat as a user. Got it. What was the business model? How did you make money?

Cary Moretti:

Software as a service, really simple. It was sold as a service.

John Warrillow:

Who was the customer?

Cary Moretti:

The customer was, like I said, in the beginning it was the teams, and then later on it became the leagues.

John Warrillow:

And what would a league pay you on a monthly basis to have access to a LeagueStat for their teams?

Cary Moretti:

Oh, that’s a good question. It’s been a few years now. It can really vary. So for example, I’m in Canada, hence the hockey angle there. And we did work with, for example, the Canadian Hockey League. Canadian Hockey League, when we started working with them have roughly 60 teams, but we also did work with leagues that had 12 teams. We did work with a league in the UK that had, I think seven teams. And then also you have the American Hockey League was probably our best client. To this day, I still have good personal relationships with that league. And that league only had, at the time we started with 28, they grew up to about 30 teams. So half as many as the Canadian Hockey League, but they had over a million visitors a month.

The rates really varied by client, and they would be based on the things you would typically do for software as a service, and that is, number of users, number of teams, amount of data we’d have to store, number of touch points we’re scoring, and of course, web traffic. So we’d weigh all these. And then for every league, it would be a one-off pricing. We didn’t have an a la carte model where they could just say, “Oh, I’ll take this for $11 a month,” or anything like that. We really were quite niche in that way.

John Warrillow:

SaaS is a beautiful business model, but it’s expensive to get started because you’re not getting all the money upfront, you’re getting it over time. How did you finance the business?

Cary Moretti:

By going broke. I’m bootstraped, so I think that your listeners will resonate with my awful sad story. I’m going to be open with you, John. I came close to bankruptcy twice in my journey towards the eventual sale, and it was really tough. Essentially, it was a passion play. I didn’t do this because I had a brilliant idea. I don’t have an MBA. I didn’t just strategically do the Jeff Bezos thing where I said, “Oh, there’s a market opportunity here in hockey in Canada.” No. You know what? I had a little business, a little software business. I built custom applications for clients, and this was in the late ’90s just around the dot-com boom and everyone was jumping on the internet and I was getting interest here and there.

And it wasn’t so much that I saw an opportunity as I had a couple of clients that actually ran hockey teams. One of them was, I can say this, at the time they were in Brampton, they’re no longer there, Brampton Battalion, and I was also doing some work for St. Michael’s Hockey down in Toronto. So these are just two little clients. I was charging 50 bucks a month for a website and monitoring. And I was chatting with the president of one of the teams, and I said to him, I said, “Why don’t you guys do real time data? Why don’t we update your website so the fans and everyone can watch from home?” He’s like, “How does it… ” At that time, you got to remember, late ’90s, he didn’t really get how the internet worked. He had not actually been on any websites at the time. This is pretty early days.

So I sketched out this idea for him, and he’s like, “That sounds really good.” He says, “We’re really struggling because we have a radio contract, but we can’t get the broad… Can you do the audio broadcasting too? Can you stream radio?” I’m like, “I don’t know. Let me look into it.” So with this one little team, we set up a real-time scoring system. We had live stats. On top of the scoring, I also had stats for the players. And then I started doing audio streaming. I don’t remember even what software I was using, like Real Player or something like that, but we did the whole thing. It’s just for this team, I did it for nothing like nothing. Nothing.

I charged him a little bit to do it, but I was doing this nights and weekends. That’s when they play. So during the day, 9:00 to 5:00, there I am, building websites. I got a few staff, a very modest business, no big deal. And at night, I’m heading out to Brampton and watching hockey games, I’m sitting with their broadcasters.

John Warrillow:

I love it.

Cary Moretti:

I built them a recording studio. I went to Long & McQuade. I remember I bought a mixing panel, I bought mics, I had cabling. And this is like scotch tape and baling wire, it was hilarious. And I loved it. So when you say, how do you fund it? I didn’t, I just did it all for nothing, and it worked.

John Warrillow:

Okay. So how does it go from the Brampton Battalion to a SaaS company? Tell me about that journey.

Cary Moretti:

I’m not going to give you all of the steps in the middle, because it’s boring. But really, it essentially worked like this, one team became two, became three, became five, became 10. And at one point, I was getting very close to what I would call critical mass. So within a given league, if you have enough teams that are clients for a given service, you have a door opener there where you can approach the league itself. Literally, it was organic. So that’s exactly what happened. So I got one team, and of course word gets out pretty fast when you’re doing things like live audio broadcast in an era when no one else was doing it, live stats, etc, other teams call and say, “Hey, I was talking to Joe over at the Brampton Battalion, he said you did this. Can you do that for us?”

I made lots of mistakes. It was a disaster. I gave everyone the same price, like 30, 50 bucks a month for all this stuff. And it wasn’t until I was doing five, six teams I realized I am losing my shirt. I’m driving around places on weekends, I’m helping people set up audio mixing.

John Warrillow:

Oh my God, this is crazy.

Cary Moretti:

Yeah, it was stupid. So I did that for a couple of years, and I finally started saying, “Okay, I got to charge you guys something.” And so I individually negotiated with each team a more rational rate. I dropped all the audio stuff because that was really expensive, and there was another IT company at the time that was doing that sort of thing. So I’m like, “Yeah, go get that done somewhere else or get a radio station to do it for you.” And then the league approached me, I got approached by the league, and they said, “Can you do this for all of our teams? We want to sign one contract for everybody.” And that got the ball rolling. By the way, that took over a year to get done, because you don’t sign these contracts overnight.

John Warrillow:

And was the Canadian Hockey League or the GTHL?

Cary Moretti:

It actually wasn’t, it was the Ontario Hockey League.

John Warrillow:

Oh, Ontario Hockey. As you built out the business and started going to other hockey leagues, did you stay with the same grassroots model where you’d pick up individual teams and then get critical mass and then go to the administration and the entire league, or after you figured it out, so to speak, did you start going directly to the league itself?

Cary Moretti:

Yeah, the latter. I really thought my business model, and it took a very good personal friend of mine, by the way, to point this out to me. I thought my business model was brilliant. I was just going to keep getting teams until I have thousands of them and I’m going to charge them all 30 bucks or 50 bucks a month. I’m going to get so rich. And he’s like, “Dude, you’re losing so much money.” He’s an accountant, he’s a CPA. And he sat down and he looked at my books, he did this business analysis, he says, “You are going to be fully bankrupt any day now. You can’t sustain this. The more customers you get, the more money you’re going to lose.” And I’m like, “What?”

And he pointed out, he said, “You do have a decent model here at the league level.” And so once he pointed it out, it became pretty obvious. I’m like, “Yeah. Okay.”

John Warrillow:

So what was he pointing out? So at an individual team level, you weren’t charging enough?

Cary Moretti:

I just wasn’t. Yeah. At the time anyways. Again, the financial model, we’re fast forwarding now, 15 years here, when I started, the financial model just couldn’t bear it. There wasn’t enough online advertising revenue out there, teams really weren’t focused on the internet, and to a certain extent, they still aren’t, their gait is their money. They don’t sell tickets, I don’t know how, to be honest, they’re all surviving this pandemic. But without that, they just don’t have the revenue. So the web was really a bit of a cost center for them more than a revenue driver.

Now, that model has massively changed in the last, I’d say 10 years, but in the time that was the issue.

John Warrillow:

Bring us up to present day. What’s different now?

Cary Moretti:

Well, I’d say, if you’re a sports fan, you understand this, but I guess we’re talking to non-sports fans as well. So now the internet is the model. So if you’re not online, if your team or your sport doesn’t have a phenomenal online presence, and I don’t just mean real-time scoring, I’m full stats, interactivity, chat rooms with players. The access fans get to their favorite athletes is pretty amazing. If we think back, I mean, when I was a kid, 1,000 years ago, if I wanted to meet a famous hockey player, I had to go down to a big stadium and stand in a line-

John Warrillow:

Maple Leaf Gardens with your hat in your hand and saying, “Darryl Sittler, I want to see your autograph,” whatever.

Cary Moretti:

Right. “Sign my hockey card or my baseball card.” But now, it’s not like that. You you can chat with players on Twitter anytime you want. They’ve gotten Instagram accounts, TikTok.

John Warrillow:

Okay. So I want to get into what you did to pull yourself out of these near bankruptcy situations. It sounds like the business model in the early days was to Daisy chain your way to these teams and then get to the league. You switched it and went directly to the league, so that helped, number one. Were there other things you did to change the financial model to get yourself out of… making it more advantageous from a financial perspective?

Cary Moretti:

Yeah. I tried to come up with, and I mentioned this before about the a la carte thing. So when I first switched from the team to the league model, the first thing I said was, “Okay, I need to set a rate, I need to publish this on my website. I have to have a price so that lots of leads can see me and I can sign up hundreds or thousands of them around the world.” That failed. I very quickly found that I couldn’t set a fixed rate for these leagues. For one thing, the leagues I was dealing with at the time I started with some, fairly professional level leagues. I didn’t start with, for example minor hockey associations. You mentioned the GTHL, for example, I don’t think I spoke to anyone at the GTHL until I was basically approaching the era when I was selling to an acquirer.

So I started pretty much at the top. I spoke with the American Hockey League. They’re the league that is the feeder to the NHL, they’re the affiliate of the NHL. The ECHL, again, similar to the AHL, they’re affiliated with the NHL, the Canadian Hockey League. So a lot of people think that junior hockey in Canada is amateur, it’s pretty much a pro sport. There’s some cities where they’ll watch the local junior hockey team, the major juniors, before they’ll go to an NHL game. It’s pretty hardcore here in Canada. Yeah.

John Warrillow:

Yeah, keep going. No, I was going to say, so back to the changes you made. So you focused on the conferences, but then I’m curious to know, again, you alluded to these near bankruptcy situations. I got to believe there were other things you did to make the business model hum beyond just focusing on the conferences. You were getting into the conversation about pricing. Was there something you did around pricing?

Cary Moretti:

Yeah. So the first thing was to come up with a rational formula, one that I couldn’t broadcast because there I couldn’t just say it’s $10 per team per month or anything like that. I came up with a flat rate per month that I started discussions with at the league level. And then what I did was I said, “Look, I can’t do this. I don’t have a VC backing me. I don’t have any money. I literally have me and I have a mortgage, that’s it, so I can’t get a credit line. That was it.” So when the leagues came in, and as they do with SaaS products, they’re like, “Well, I love your product and we’re happy to pay, but we really need it to do this or that.”

So the second piece of my financial tweak that solved all my problems was, “Okay, we have two parts. Then we have our SaaS model and we have professional services. So you get what you get the way it works is the way it works. We’re not going to customize. We will bend over backwards from a customer service perspective, but our application is our application, it’s very expensive to change. You want to change? No problem. That’s where professional services come in.” So I had two revenue streams. And honestly, some years, my professional services were better than my SaaS revenues.

I know that from an acquirer perspective, that’s a no-no, everybody wants their MRR really, really high, but there was nothing I could do. I was bootstrapped, I was self-funded. The only way I could make it work was this. And you know what? It did. Once I got those two things figured out, A, that I don’t have to give everyone the same price because they’re not getting the same output, and B, I can charge to upgrade my software if a client asks for it and they’re willing to pay for it. So once I had those two things sorted, I never had another near bankruptcy again after that.

John Warrillow:

Awesome. With regards to the professional services, did you charge for those upfront? Did you bill them over time? Was it staged billing? How did you charge? If I said, “I love your product, but I want it to be in pink instead of black,” you said, “Sure, that’ll be an extra X.” Was the X billed upfront, over time, at the end? How did you bill the professional services?”

Cary Moretti:

There were a couple of different ways of doing it, but by and large, a lot like any small IT company would. So we had a small number of clients, we had dozens verging on hundreds, we didn’t have thousands. So it was really easy. A little bit would depend on the request. If something was really big and I saw a few clients were asking for it, then I would say, “Hey, I’m sending this out. Anybody who wants it, it’s a fixed rate, you’re going to get it. Anyone who doesn’t sign on and pay may or may not get it one day, but we’re not going to be deploying it across our network.” And we had ways of feature gating, so we were able to actually release certain features for certain clients so that we didn’t get any of that backbiting where, “Oh, how come you gave it to them for nothing and I had to pay you?” So that avoided all that.

In terms of flat rate versus hourly, there was a little bit of an art to that, less than math or science. A little bit was what I felt that the customer would be willing to pay, would they be okay if I actually charged them my real time? And sometimes they weren’t and I really wanted the feature, so again, it comes back to the passion thing. At the time I was a coder, so I just code at night, in my spare time and eat the loss and have a better product as a result.

John Warrillow:

I get the fact that different prices is a little bit of art than science. I’m actually really curious about how you chose to invoice the customer for the custom work. So I appreciate that it varied a little bit depending on the request and who was asking, but once you had agreed that you were going to make that customization for, let’s put a number on it, $10,000. So that’s what the customization was going to cost. Did you do the work, send the invoice at the end? Did you send the invoice at the beginning? Did you cut it up into payments? How did you bill the 10 grand?

Cary Moretti:

Oh, okay. Yeah. That simple question answer. Normally, we would do the work, we would release the feature, we would have the customer validate it that, “Yes, you have delivered what I wanted.” And at the very end of that month, it would go on the invoice that had their next monthly SaaS. So we also billed the monthly SaaS fees monthly. That sounded weird.

John Warrillow:

Got it.

Cary Moretti:

So January one, they’d get an invoice for February’s fees. So the next round of invoices, and again, we did this to save money on administration and accounting, we would just throw any professional services that were approved and deployed, we’d just throw them onto the next invoice, and they have net 30 to pay.

John Warrillow:

Got it. Okay. That’s helpful. How many employees did you have at the company at its height before you decided to sell?

Cary Moretti:

27.

John Warrillow:

  1. And what were they all doing?

Cary Moretti:

Make it 29. Oh God, I don’t know. It was such a mess. I should also say, NewSportMedia did a lot more than just the real time stats at scoring. The professional services spun up and it turned into its own beast. We started doing websites for sports teams and associations that had nothing to do with our core product. And at the time, I still had that small business mentality. Someone calls me and says, “Hey, can you do this?” The answer is, “Of course, if you’re going to pay me, I’ll do it. Whatever. We build websites.” Back then, we didn’t care what the hell kind of website we built, we just build it in charge. So it made a bit of a mess. It’s actually what led to the sale in the end. Our company got so wide, like I said, 27 staff, I’d say of those 27, less than half were actually part of LeagueStat, quite a bit less than half, I’d say maybe six, seven them.

So what are all these other staff doing? We had some people doing project management, custom development, integration. We had retail web stores, we were building shops and websites. Yeah, we were really scattered.

John Warrillow:

And so you were alluding to this, what I wanted to get into next, which is actually the decision to sell LeagueStat. So you’re at 27 employees, seven of whom are working on this SaaS product called LeagueStat, but there’s also a lot of other stuff going on. Was there a straw that broke the camel’s back that made you say, “Okay, now I’m going to sell LeagueStat? Was there a triggering event of some sort?”

Cary Moretti:

No, there really wasn’t. LeagueStat was kind of a funny thing. Like I said, I have no illusions to intelligence or business acumen, I don’t have either of those. I’m just a guy. I’m actually just a nerd, I’m barely a guy. I love coding, I love writing software. Now I mostly managed programmers, but at the time, I lucked into a lot of it. A lot of good timing, being around in the early days of the internet, literally, when SaaS was just growing up. I didn’t even know it was called SaaS at the time, to be honest. So, when it came to the triggering event, it wasn’t so much that there was an event as it was a… I look back at it now and I’d say, it was clear that I was moving this way, I just didn’t know it. So I had never been part of an acquisition or sale. I was very much a an entrepreneur, for sure, I loved building new products and applications, but I never thought of myself the way they did in the valley.

I didn’t have that dot-com mentality or that startup culture thing, I was like my dad. My dad’s a hairdresser.

John Warrillow:

So what happened? Did someone teach you? How did it-

Cary Moretti:

They did. Yeah. The very first year before I even had my first league launched, someone approached me to acquire the software, and it was a silly offer, I was making more than what they had offered. And then what happened was, I’d get somebody would come along like every year, someone would acquire and they rarely ever talked numbers. Sometimes I couldn’t even tell that they were making a play for me. I was that clueless, honest to God. I’d get these out of the blue inquiries from a VC, literally saying, “Hey we’re interested in businesses and startups, would you like to have a conversation?” I’m like, “I don’t know who this guy is.” And not even follow up. But after a little while, you can only do this so many times and not eventually clue in, no matter how dumb I am.

So I eventually figured out that, “Oh, there’s people interested in my software.” And once I figured that out, then things changed pretty fast. I’d say from the moment, that aha moment, like, “Hey, this is a thing that I can sell and people will give me money for,” to the moment that I actually found an acquirer that was a good fit, I’d say that was about four years.

John Warrillow:

Wow.

Cary Moretti:

Yeah, I’m not that fast.

John Warrillow:

No, no, I didn’t mean to suggest that it was… It’s incredible. So what happened in those four years? I assume you started to answer those inquiries slightly differently.

Cary Moretti:

Yeah. So in total, by the way, it was almost 15 years from start to sale. So it was really just, the first nine or 10. I was not interested, literally, why would I sell my income? It was the only way, it was how I paid my mortgage, raised my kids. It’s how I earned a living, and I sure didn’t want to get a job. After you do this long enough, you can’t work for anybody. I’m totally unemployable. So what happened was, I clued in at some point, maybe, I don’t know, 2010, 2012. And then I guess I just matured a little. And when the offers started coming in, I really started looking at them. So I started having more serious conversations. And I really didn’t like what I saw, to be honest. Remember, this was not a planned thing that I did. I did it because I love, love sports and I love stats.

John Warrillow:

What didn’t you like about the offers? What was not appealing?

Cary Moretti:

Honestly, it was never the money. It was never the money, because in most cases, I didn’t even get to the fiscal discussion. It was what they proposed to do with my… My? … with the application. I thought of it as mine. I just didn’t think it was a good fit. Most of them were companies that were trying to make a strategic move or expanding into sports in general and they just wanted to check a box, say, “Yeah, now we have hockey.” And I’m not going to name names, they’re all still out there. All of these companies are still there. It’s a small space, IT for sports, very small space. So I just wasn’t interested. And then one day, the eventual acquirer came along and he didn’t approach me directly, the owner of the company, it was someone who knew me through one of my clients that I had met at a hockey conference and blah, blah, blah.

And he said, “Hey, I’m doing some work with this great new company that I think we could do some work together.” I thought that he wanted to buy my software, not my software, I thought he just wanted to become a customer, to be honest. It was a strange email. I said, “Yeah, sure.” And so we met, we had lunch, coffee. And it was a very weird lunch because I’m sitting there thinking, “Oh, this guy is working for a league.” And then at some point I’m like, “What are you saying?” 30 minutes into our chit chat, I’m like, “I have no idea what you’re asking. Are you looking to become a customer?” He goes, “No, no. I think we can there’s some synergies” He’s throwing out all these business terms and I have no idea what he’s talking about.

John Warrillow:

I want to go for it because I love this… Was this the president of the company that you were having lunch with or was it the broker, not broker, but the middleman?

Cary Moretti:

He was actually neither, actually. He was just an employee at the company. And I guess they had some executive meetings and the owner was like, “Okay guys, we have some problems here. We need more software.” I don’t know, like some kind of, “We’re going to expand. I’ve got some money to spend. I want to make good strategic acquisitions.” I’m just guessing, I really never got around to ask how it happened.

John Warrillow:

So this guy’s an employee of this company and he’s talking about all these big words, synergy, optimization-

Cary Moretti:

Yeah. Partnership.

John Warrillow:

Yeah. Got it. How did it go from a bunch of double-talk to… At what point did you actually realize, “Oh no, he actually wants to acquire us”?

Cary Moretti:

He named dropped, he dropped a couple of names and then I’m like, “Oh, these aren’t customer names, these are something else. These are money people. Then I stopped, and I said, “Okay, are we talking about this, an acquisition?” He says, “Yes, we are.” I said, “Okay, maybe I should talk to whoever… ” I’m like, “Okay. We got to stop talking, I need to talk to the right person.”

John Warrillow:

And what did he say to that? Because that could be viewed by some people as a bit offensive like, “You don’t want to talk to me?” Did he take offense to that?

Cary Moretti:

I don’t know. Well, John, you and I haven’t known each other very long and we’re going on 30 minutes now, I’m a very blunt guy. NewSportMedia had no sales staff, by the way, literally. When we were at 27 people, we had, I think three project managers, 23 programmers, literally hands on keys, individuals who wrote code, and one office administrator. By the way, worked part time. No sales, no strategy, no marketing. We were just code slingers. So I don’t have a lot of the skills of being nice. So when I said this to him, I don’t know, I may actually have pissed him off. I genuinely don’t know, but we’re still friends.

John Warrillow:

Where does it go from there? So you’re like, “I got to talk to the decision-maker here.” So what next?

Cary Moretti:

Well, I’d have to check my calendar to say exactly what next, but basically it was a string of meetings. Immediately he put me in contact with… And this was a private acquisition, so it was really person to person. The two of us started with a meeting actually, not even a phone call. And they invited me to their offices, sat down, chit-chatted, and I really loved what they had to say. You asked me before, what was the decision? And at that time, like I said, for about four years, I had already been thinking, I should find a home for LeagueStat. It’s outgrown me. I’m not a great business individual, I don’t have these big visions or how to manage, or I certainly didn’t at the time.

I feel like I know hell of a lot more now, but at the time I knew that if I really wanted the software that I love, that I was passionate about, if I wanted it to become a world beater and grow even more, I either had to get a lot of money from someone, and I knew nothing at the time about VCs and investment, I know a lot more now, or I had to find another company in the space that had pockets deep enough to take my software to the next level. And all those other acquisitions, they weren’t either of those. They were either just looking to check a box, which meant to me my software was dead, or I frankly just didn’t like the company, I didn’t like their chances of success.

So this meeting came around or this series of meeting, and the more I learned, the more I liked. They were very niche, they were very focused. The new owner was-

John Warrillow:

Who is this company we’re talking about?

Cary Moretti:

HockeyTech, sorry. HockeyTech and [crosstalk 00:32:31].

John Warrillow:

And what is their business model? I don’t know anything about them.

Cary Moretti:

Well, literally what they were at the time is what they still are now. They are everything hockey. When it comes to technology, they provided also, video streaming services, scouting, data, stats, scoring websites, soup to nuts all the way from the pros and HR, all the way down to rec hockey.

John Warrillow:

And selling to the leagues themselves just like you?

Cary Moretti:

Correct. Yeah. They had league clients. At the time they were working with, I believe almost all the NHL teams as well, so I really, really was impressed with the organization.

John Warrillow:

Got it. And obviously very focused on what you were focused on and so forth. So at what point did the specter of valuation come up? Did you have any sense of what you thought on a multiple of revenue you thought your company might be worth? Before they made an offer, did you have any inkling of what it might be worth?

Cary Moretti:

It’s funny, I feel like such a dummy now that I say to you, it was about three, four years that I was thinking about it. In that three, four years, I never really settled on a number. I never really had like, “Here’s how I’m going to do it.” I just got this idea that I knew I needed money. I was so focused on the software, and this is going to sound a little narcissistic, but I really thought I had built something great, and that it could be even better. But it wasn’t to me a way to get rich or to make money, so I never focused on the money side. I kept thinking about, “How do I make this literally the number one stats application in the world?” And that’s all I focused on.

The money, the exact numbers, I wasn’t going to sell it for $50,000, so there was a number in my head, but the real number didn’t occur to me until literally until we got to brass tacks. We signed all the NDAs, they started reviewing my books, all the numbers, invoices, receipts, and they got really low level. And that’s when they said, “Hey, we would… ” It was really a discussion between EBITDA and a multiple of revenue. That’s what it came down to. And we discarded EBITDA pretty quick, I don’t remember why, probably because it was too complicated for me maybe, who knows. And a multiple of revenue is so easy, just to say, “Hey, it’s 1X, 2X, 3X, which one is it?”

And then there’s the negotiation. So we started from here, which was, we’re going to go with a multiple of revenue top line, keep it nice and simple, very congenial. There’s not going to be lawyers and accountants screwing it all up. It’s going to be one owner talking to another owner. And I had a partner at the time as well, a minority partner, and we were very, very close. We still are very, very close, and he’s still my partner in one of my companies. But we just said, “Look, we’re just a couple of people talking this through, let’s not over-complicate this.” And I really appreciated that approach because honestly, I had so little experience, very little.

John Warrillow:

Got it. Before they made an offer, again, you didn’t really have a sense of what you thought was fair as a multiple of revenue?

Cary Moretti:

No, I didn’t have a sense. I knew it was going to be greater than one times revenue and it would be less than 10 times. Of course, I see the news, I see what Uber was getting from VCs and what Facebook got from [inaudible 00:36:13]. I don’t want to paint this picture that I was a babe in the woods completely. I had never gone through an acquisition myself, but I keep on top of my industry, I’ve always been fascinated by the business of technology. So I had some ideas that we needed to be somewhere between one times and 10 times. And really, a 10 times multiplier, that wasn’t going to be in the cards for me, not at all. I wasn’t running that kind of a business.

This wasn’t a business that had a global potential customer base, very niche. And I wanted to keep it that way, and I got that. To me, like I said, the focus was, “Let’s find a number, even if it’s a number that I would not feel as happy with, but that would guarantee a future for my software.” This was not all about me getting an exit and retiring. I knew that no matter what I got, I wasn’t going to move to Hawaii on the money no matter what, so why fight?

John Warrillow:

Did they make the first move or do they ask you, what do you want for it?

Cary Moretti:

They asked first. Absolutely.

John Warrillow:

And what did you say?

Cary Moretti:

I prevaricated completely, I waffled.

John Warrillow:

What does prevaricated means?

Cary Moretti:

I waffled, I was like, “Well, I don’t know, blah, blah, blah.” I had no idea what to say. And I knew the question was coming, and my partner at the time and I, we had talked about it and I was just, I don’t know, I just couldn’t say, I was I don’t know, embarrassed.

John Warrillow:

Probably it was a wise move in the sense that he who starts first always loses in the negotiation at least, there’s a philosophy around that. So what was their first offer in terms of multiple of revenue?

Cary Moretti:

Well, they started right at the bottom. They started at 1X. They’re like, “What’s the bare minimum we think we can get away with?”

John Warrillow:

And what was your reaction to that?

Cary Moretti:

Even one times to me was actually not that bad. It was not a bad number again, because it was more focused on the software, but we went up from there, of course. I don’t want to say how far or anything like that because it was a private sale.

John Warrillow:

Okay. No problem. When you’re talking about one times or 10 times, the ranges and so forth of revenue, were you talking about the entire business, all 27 employees and the professional services as well, or was it really just the revenue associated with the product, the LeagueStat?

Cary Moretti:

Good question. No, this was an asset sale. They made that clear at the outset. They were not interested in my empire, the whole footprint. They were hockey, it’s what appealed to me, they said, “We’re looking for the hockey business and of course, the software to go with it.” So they wanted those customers, they want to add them to their family, their suite of technology tools, which were already pretty impressive. And as a matter of fact, we already had some overlapping customers too, which was pretty cool.

John Warrillow:

So you’re going in, and you knew upfront that this was a bit of a carve out, they didn’t want all of your business, including the specialist services stuff, they want just LeagueStat, which was a portion of your business, but not all. And so when you’re going back and forth on multiple of revenue, you’re aware at this point that they’re just looking at LeagueStat revenue. They’re not going to give you a multiple revenue on the other stuff. You’re aware of the LeagueStat conversation.

Cary Moretti:

Yeah, absolutely. From day one, that was never questioned. I suppose for a little while in the conversations, there was some confusion. I don’t know that the other side, the people on the HockeyTech side, I don’t know that they realized how much other business I had. They certainly did once we exchanged our spreadsheets, but that confusion was resolved very quickly.

John Warrillow:

And were you ever tempted to sell the whole business, including the professional services piece?

Cary Moretti:

No, I wasn’t. For one thing, I knew that the professional services would have very little value to anyone. My CPA buddy told me that early on, he said, “Yours is tiny little business.” He said, “If you’re running 100 million a year, maybe.” But it was a small little business. The relationships were 100% with myself, or my partner, or one of the staff, so that kind of business really doesn’t have much value to an acquirer, or that part of the business didn’t.

John Warrillow:

What was the structure of your deal around your personal involvement going forward? Did you have to sign up for an earn-out, how did they structure the payment unless you’d agreed to it, did you have to stick around in order to get the money?

Cary Moretti:

Yeah, I did. And there was some chit-chat about that too. Since then I’ve been involved in other acquisitions since that one, and I know that there’s a lot of ways to structure this, but what happened in this case was everyone was, again, it was pretty clear, I wasn’t just selling this for money, I was selling this because I was looking for a way to expand LeagueStat. So part of the deal was that I want to come along, I’m going to bring all the technology staff needed to support the software, but I want to know that there’s going to be an investment to take it to the next level.

And honestly, that investment wasn’t about me, it wasn’t about my earn-out or I’m going to get a bonus. But hey, maybe I should have done all those things in hindsight. I definitely should have, but I didn’t. I literally all I had these blinders on, and all I wanted was, “Look, I’ll come with the software and I’ll stick around long enough to make sure that it stays on its feet, but I also want to take this money, this investment, and grow it. I’m not selling this to get rid of it and cash in, I’m selling this to watch my baby get all growed up.” That’s what I wanted to do.

John Warrillow:

Yep. I get it. You guys agree to a deal, help me understand the structure. So you agree to a multiple of revenue, we can’t get exactly into the numbers, but it’s somewhere between one and 10, probably not as far as 10.

Cary Moretti:

No.

John Warrillow:

That’s cool. And then did they say, “Okay, we’re going to pay you a portion of that now and a portion later if you hit a certain set of goals”? Or was it, “We’ll pay you 100% now, and we’re going to put you on salary for six months or a year or two years”? How did they compensate you for sticking around basically?

Cary Moretti:

Two pieces, one was that the sale itself wouldn’t be final nor would all the funds be transferred until I had met certain obligations within the contract, so we set up a contract, that I was to come on board full time. I came on, I can’t remember what my initial title was, but I became CTO for HockeyTech. It was pretty simple stuff. We had the sale, we agreed on numbers. It was not going to really close for about, I can’t remember if it was 12 months, 18 months, something like that. And there were incentives for another couple of years after that, which made me feel good. Maybe that was part of the ploy, again, I was not very savvy at the time, but it did make me feel good.

It made me feel like I was wanted at this new company, that I wasn’t-

John Warrillow:

These incentives?

Cary Moretti:

Yeah. There were incentives in terms of my equity, my stake, and it was really clear. And the new owner made it super clear, he said, “I value you, I want you here, and I’m going to prove that in this contract.” So there was like, I couldn’t be fired, as long as I met the obligations, I had pretty much had a guaranteed job for several years. It was really honestly, really a pleasant experience. I know not every sale is, but mine was.

John Warrillow:

You mentioned equity, are you saying that some of the way HockeyTech bought your business was by giving you equity in their business?

Cary Moretti:

No. That was more of a bonus, it’s an after the fact, like a thank you. The sale was the sale, it was pretty cut and dry. And then the contract for my services sticking around, it was small thing in there to say, like I said, it was all about good faith.

John Warrillow:

Yeah. You mentioned it wasn’t a year until the deal or the money extra changed hands, was the contract, like it was literally just you showing up to work was the obligation and passing over the keys to the server and stuff like that, it wasn’t that you had targets to hit in order to achieve the agreed to amount or was it?

Cary Moretti:

A little bit of both. Yeah. It wasn’t just me showing up, I was responsible for the customer base. I’ll just give you a crazy scenario because it never happened and it was not going to happen. But if after, let’s say three months, it literally every single customer had walked, that wouldn’t have been so good for the deal. So there was a stipulation in there, everything was very reasonable. It wasn’t like I was forced to require to double revenues or anything at all like that, but there was certainly an expectation that I wasn’t going to do all this and then sell out the customers or swing a deal with a competitor behind the scenes, all that kind of crazy stuff.

It was a very above board, the kind of thing you’d expect in a contract like this, “We’re paying you X for this asset sale. A portion of that, you’re not going to get until you meet the terms of contract.” And the contract was super reasonable, “There’s a role here for you, we want you to fulfill your role as any employee would, a bonus maybe thrown in.”

And of course, if things go to crap, there’s also provision in there for that, if I were to do something awful or send away or steal away the entire customer base, things like that.

John Warrillow:

Yeah. I’m digging in here because the pandemic has been such a curve ball for so many businesses where anyone running a company for 10 years would very predictable saying every year, all good, customers are happy, and then all of a sudden you have a pandemic and literally some businesses go out of business, literally overnight. Like restaurants in Toronto, didn’t matter how loyal your customers were, how successful the business was, they were closed on April 1st, 2020, and there was nothing you could do about it.

So I’m curious from a risk management perspective, when you signed up for that contract, that said, “I’m going to show up for work and I’m not going to take the customers away and start a competing business, etc,” what was the threshold, like how many customers could you lose, or how much revenue could you lose? If you had lost, I don’t know, 20% of your revenue or 20% of your clients, would that have penalized the deal, or was there a threshold that you agreed to that said like, “We’re good as long as you don’t drop X%”?

Cary Moretti:

There was, again, private sale. I’m still very good friends with the owner, and so I don’t want to give away any of his tactics or strategies or anything like that, but I will say, yeah, there was a number. There was a very specific number in there. And should the revenue, if it drops below this percentage there, I don’t remember what the penalty was because honestly, it was very generous, there was no way it was going to happen. And frankly, the reverse happened, revenues went up every year.

John Warrillow:

And did you participate in some of that extra revenue? Were you able to get those bonuses or whatever when you exceeded?

Cary Moretti:

Yeah. Again, everything was great. I don’t want to say this was a fairy tale, it wasn’t, but things rolled out the way we all expected, the software did well, the synergy was really good between the various pieces of IT in this company. Were there bumps along the way? Tons, lots of drama. We had some staff issues, but mostly, it was all good. It was really good. And it did, we had a wonderful trajectory, it grew rapidly. And we had really good feedback from our clients. And that was, again, on the personal side, I wanted my software to do well, but I’d built personal relationships. These are customers that I had some of them for 15 years, and the last thing I wanted to do was screw them. And I didn’t, quite the opposite. They were very happy.

John Warrillow:

This deal closed in 2017?

Cary Moretti:

Mm-hmm (affirmative.

John Warrillow:

So we’ve got four years of water under the bridge.

Cary Moretti:

Well, actually, 2014 or ’15 was when we closed, I left the company around 2017, 2018.

John Warrillow:

Got it. So the deal closed six or seven years, it’s irrelevant, but my point is, you’ve had some time to think about it.

Cary Moretti:

I have.

John Warrillow:

And I guess my question is, look, here’s the deal, I think a lot of people listening to this will identify really, really at an emotional level with your focus on the product, your focus on your customers. The fact that you weren’t trying to maximize every dollar and you didn’t go to some fancy business school to learn all these tricks, tips, and tricks for how to sell business, I think there’s going to be a lot of your story that people are like, “That’s me. I don’t know anything about to sell a business. I know everything there is to know about running my company, and I know all my clients, but I don’t know anything about acquirers.”

I think there are people listening to this who will listen to you and they’ll be like, “That’s me.” And so my question for you is, if you could rewind the tape, God, I’m dating myself even saying that, if you could get to rewind the tape seven or eight years and go through the sale of LeagueStat that one more time, is there one thing you might do differently in the process that perhaps other people about to go through the process that are a lot like you maybe should be aware of?

Cary Moretti:

Wow, that is interesting. So one thing, if I had to pick one thing, can I pick two, would that be okay?

John Warrillow:

Sure, go.

Cary Moretti:

One is called one and a half. I would probably have been found someone, either my partner or a third party to help with the negotiations in terms of just everything. In the end, I want to be clear, it turned out great. It was a wonderful experience, there no acrimony. But the reality is I was very inexperienced. My partner actually had a lot more business experience than I did, but even he had never gone through an asset sale before. And I think that had we had someone else guide us through the process, let’s say, it would have been better, it would have been better for us in the end. I don’t want to be too cryptic here, when I say better, I think that it would have been better all around, better for HockeyTech, better for us.

I think that, again, money aside, could we have negotiated a higher number? I don’t know. To relitigate that now, tough call. I could probably call them up and say, “Hey, how much money did I leave on the table?” I’ve never asked. I don’t probably want to know. But I think that because I didn’t know a ton, maybe there were different ways to structure it, different things I could done. And I remember, because it was an asset sale, I still had another company, and I did find for a little while probably the first six to eight months, it was really hard. I was working somewhere else, I left my old company, all the employees, all the staff that didn’t come over with part of the sale with me were still there.

They were still working for the old company doing their thing. And so I struggled a little bit with that. I wanted to be fully dedicated to this new experience, but at the same time, I had a going business there and I couldn’t afford to let that go belly up because it was a very significant asset of my own. And my partner was running it and that was awesome, and he ran it pretty much solo for three years. But again, that’s something that I wish I had, I don’t know, maybe a mentor or someone that my partner and I could have gone to say, “No, no, no, this is the right thing to do.”

And I don’t know, it was a very weird sale too, not a lot of people do this, what we did, sell just one piece of software, split the two partners in half, send one off with the software and then the other one stays behind to do what, to keep running what was left over. It was tricky.

John Warrillow:

You mentioned there were two things that you’d do differently if you had to play the whole thing over again.

Cary Moretti:

Yeah. One was the mentor negotiator, and then the second one that I would do differently is, again, one and a half, they’re related, I would have found a better way to balance the two roles. I think I moved a little too far to one side, I dove into HockeyTech once I went over, I loved it. It was everything I thought it was going to be, it was so much fun. I was just loving it. They did invest. They never mind the letter of the contract, in the end, they never looked at the contract again. It was full steam ahead, I was having a blast. But I think I did a bit of a disservice to my personal future by leaving my partner, I don’t want to say I left him alone, I didn’t.

We had weekly calls, I was always checking in, monthly, I still had to look at the books, etc, but I think that the second piece of that was that I should have maybe set things up a little bit differently.

John Warrillow:

And giving yourself a little bit more time to run your business.

Cary Moretti:

Yeah. A little more time.

John Warrillow:

Got it. I just really appreciate you sharing with such humility because I think, again, as I said earlier, I think so many people are great at what they do, but don’t have the opportunity to sell their companies, and there’s lots to it as you’ve found. If people wanted to reach out and get in touch, is there a place that they can learn more about you or do you take LinkedIn requests, or what’s the best way for folks to reach out if they wanted to say hi in social media?

Cary Moretti:

You hit it, LinkedIn. I do take LinkedIn requests. I do a lot of consulting now, which I love. And I’m back to my old IT company, I do that as well. So my partner and I are back together, the marriage has survived. But LinkedIn is the best way to reach me, and I love chatting.

John Warrillow:

Fantastic. So we’ll put your LinkedIn profile in the show notes at Built To Sell Radio, actually, BuiltToSell.com. And I really appreciate telling your story. Thank you for joining me.

Cary Moretti:

John, thank you for having me.

John Warrillow:

Thank you.

Cary Moretti:

This was a blast. I really enjoyed it.

John Warrillow:

Thanks, man.

Cary Moretti:

Have a good one.

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 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.

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