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Selling for Parts

March 4, 2022 |  

About this episode

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Calvin Johnson built Lykki, an office supply company, to more than $7 million in annual revenue.

Johnson had two divisions, one had office kitchen supplies (e.g. coffee) and the other sold office supplies. The kitchen supplies business was more attractive to acquirers than the office supplies side, so Johnson decided to separate the divisions and sell them separately.

In this episode, you’ll discover how to:

  • Carve out part of your business for sale.
  • Decide when launching a new product or division will increase your valuation (or detract from it).
  • Promote a happier workforce.
  • Protect yourself in a negotiation with an acquirer.
  • Evaluate the pros and cons between a share and asset sale.
  • Argue an acquirer should use your pre-pandemic numbers as the basis of their valuation.

This episode was brought to you by Work Better Now. Work Better Now has helped match hundreds of businesses with talented virtual assistants. Reach more clients, expand your influence and be more productive – not busy. Work Better Now is currently offering Built to Sell listeners and readers $150 off per month for three months, just by mentioning Built to Sell.

Show Notes & Links

Entrepreneur’s Organization (EO)

Heartcount – measure your employee pulse

“TheCultureKitchen”, Workplace Happiness

ClubNeed.org

 

Definitions


CIM: Confidential Information Memorandum

Definition: A Confidential Information Memorandum (CIM) is a document used in mergers and acquisitions to convey important information about a business that’s for sale including its operations, financial statements, management team, and other data to a prospective buyer.

Sourcehttps://corporatefinanceinstitute.com/resources/templates/word-templates-transactions/cim-confidential-information-memorandum/

About Our Guest

Calvin Johnson

As a lifelong Entrepreneur and Student Of Happiness, Calvin Johnson has always loved the challenge of creating businesses that infuse a little fun, creativity, and WOW.

In 2021, Johnson sold his latest company to a Fortune 500 after achieving lifetime sales of $290m and over 1.3 million orders.

 

Johnson’s two current projects are:

“The Culture Kitchen”, WorkplaceHappiness.com – a consulting business focused on Workplace Happiness research, speaking, coaching, and workshops.

CLUBNEED.org – an adventure travel company catering to EO and YPO members, their families, and forum groups, offering amazing curated trips with a giving component. We also consult with companies on how to create impactful purpose-driven giving programs within their organizations.

 

Connect with Calvin:

Watch the interview

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:

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John Warrillow:

Welcome to another addition of Built To Sell Radio. This is the podcast designed to help you punch above your weight in a negotiation to sell your company. Today’s episode is going to deliver on that measure. Before we go there, I wanted to share a little bit of a personal story. I think I’m the only person on the planet who still buys cable television. I think cable package you get when… they have all those terrible sitcoms. And they’ve got all those new shows and the movie channel, and of course sports. And the only reason I’ve kept cable is sports. But I tell you, I am getting really close to cutting the cord because of course, now we can start buying all that stuff independently. Of course, we can buy Netflix and Disney and all that stuff, but you can also now as I’m starting to learn, buy these sports channels in a penalty and I don’t need to be held hostage effectively to these cable providers to buy all these channels I’m never going to watch. Why am I telling you this?

John Warrillow:

Because no one likes to buy something they’re not going to use, and that includes acquires. And so when they look at your company and they’re evaluating your business to buy it, you want them to want the entire thing, not just one little sliver of what you do, but you want them to get excited about the entire thing. You’re going to want to get paid for your entire business, yet if they only value a portion of it, that’s when you’re going to have trouble.

John Warrillow:

And that’s actually the experience that my next guest, Calvin Johnson found himself in. He built a great business. He had had two very different of divisions. One was selling coffee into offices. And the other was selling office supplies, totally different gross margin, one different brands. It was a very different business model and not surprisingly when he went to sell it, as you’ll hear in a moment, the acquirers were only interested in one side of the business or another. All the effort that he had put into that side of the business was being discounted by one acquirer or the other. Here to tell you the entire story and what he ultimately did to successfully exit both businesses is Calvin Johnson. Calvin Johnson, welcome to Built to Sell Radio.

Calvin Johnson:

Hey, how’s it going, John?

John Warrillow:

I’m good. I got to let our listeners in on the laugh we just had, because one of the things that I usually do at the beginning of a podcast before we hit record, I’m like, “Hey, do you have a hard stop at the top of the hour? Do we have to know?” And your response was?

Calvin Johnson:

Yeah. Are you kidding? This is the most exciting thing of my day, so.

John Warrillow:

I just sold my company. Of course, I’m going to have a hard stuff. It’s beautiful. I’m so happy for you because this was a long road. Tell us a little bit about when it started. How did you get into Lykki?

Calvin Johnson:

Yeah, I started this company in 1989. So other than one little job I had at an exercise company, I actually had another company when I was 19. I got involved in… and we grew three retail stores of fitness equipment. And I just happened to stumble into it, and exited and sold that. So it was just dumb luck the whole way through. I learned so much about it, but I could do this. I could start my own business. And so we started Lykki, it evolved over time. This was pre-internet. And originally the company was a home delivery service for Costco Wholesale. But we grew and changed, and evolved over time. And so, 30 something years later here we are, right? So.

John Warrillow:

And so when did the… So for people listening, who aren’t familiar with… You had effectively two different lines of business, so you want to describe those.

Calvin Johnson:

Yeah, really in the last 10 years we really came into our own business. So, we’re e-commerce company that… So imagine a typical business in a downtown office tower, say a law firm of a couple hundred people, and they’ve got the coffee guy, the water guy, the toner guy, the paper guy. So like what Lykki did, we delivered all that in one delivery. So really, if you had to break the company into two main categories, it was office supplies, typical office supplies. And even in there, we had a print shop and did printing and furniture and things.

Calvin Johnson:

And then on the other side would be all that kitchen stuff. Office coffee, water coolers, snacks, fruit, milk, shockingly most businesses spend more on the food and beverage side than they do on the office supply side. And the office supply side, the receptionist, or nickel-and-dime you for a post-it notes, but they’re willing to pay crazy money for coffee. So margins on that side were… So as we evolved, we continued to grow to our office coffee division, which is a very complicated business to get into, and a very capital intensive, lots of equipment, $15,000 coffee machines they’re like robot machines and stuff. But… So basically we were unique in the marketplace and we did both on one truck, order by four, delivery next day of over 50,000 skews, so.

John Warrillow:

That’s interesting. So you were a mashup because I… when I think of office supplies, I think Staples for some reason, I don’t know why. But I go to Staples, order my whatever, post-it notes. And then on the coffee front, I’ve always been curious about that because I do see office towers having coffee. Usually my impression in the early days was the coffee was so bad, right? I think of it as like the old skating rink coffee where you get the venting machine, and you get the brown water that is like instant coffee, but then it totally revel. It got really high end out of very fancy machines after a while, and good coffee eventually.

Calvin Johnson:

Yeah. One of my passions is corporate culture and a lot of businesses seem to think that offering great coffee and fruit creates culture. It’s not really true. It’s a lot of about things going to it. But yeah, there’s a big evolution the last 10 years where businesses really spent a lot of time, free breakfast, free lunches, great coffee of course, and use it as a recruiting tool. So that side of the business really, really grew.

John Warrillow:

That’s cool. Which came first, the office supplies, then the coffee? Or starting with the coffee and you added office-

Calvin Johnson:

Office supplies first. And if you go to Staples and you go on their website, you’ll see a bag of candy or maybe some K-Cups or something. But usually a business would have several vendors. Sometimes you got to have a vendor for fruit, vendor for milk, vendor for coffee. So we did it all. We had big warehouse and fleets trucks and tons of inventory. It was super complex. We went 24 hours a day. It was a super complex business.

John Warrillow:

And it’s very different. The office applies to your point, it’s very commoditized. It’s very much… They’re giant competitors, right? And you’re effectively in a dog fight with them every day.

Calvin Johnson:

Yeah. Box of copy paper, talk about commodity of commodities, right? It is what it is. And 50 pound box delivered upstairs and oh my God, it was the worst. And then you could… So we roasted our own coffee. We created our own brand of coffee and you can make 300% margin on coffee. So yeah, it was funny delivering both these things, but we were waning away from the office supplies, it’s just so much competition and margin was raced to the bottom.

John Warrillow:

Yeah. What would your gross margin be on a typical office supplies order?

Calvin Johnson:

Oh, office supplies in the industry and for us, just an office supply order would be in the high twenties. And then our food side could be as much as a hundred. So as a blended average for us, we were in the forties.

John Warrillow:

Got it. But on the food side it was way higher.

Calvin Johnson:

Yeah. Especially, yeah.

John Warrillow:

Why keep the office supplies business? Did you ever contemplate just shutting it down and focusing exclusively on coffee?

Calvin Johnson:

Yeah. I’ll get more into that story. When we came to sell, I didn’t realize what a big negative it was. But at the time, no, because we really went to market as a single source supplier. So we really leveraged that, “Hey, why do you want three different suppliers?” And there was some cool studies we would share with our customers about the cost of procurement. And this is great for all your listeners, it’s not… Every one of your listeners should go and look what the receptionist is doing with the credit card. And they’re going to… Potentially, this is my experience. They’re shopping around on Amazon and they’re finding the cheapest price on post-it notes. And then they’re going over here and getting milk over there and stuff. The average cost of a purchase order is $75 because it’s not just-

John Warrillow:

And it’s actually time of that person.

Calvin Johnson:

Forget about… So, when I’m talking with owners, I’ve done this conversation thousands of times, I said, “So, forget about the receptionist.” I said, “Wait, till that PO or whatever reconciliation makes its way into the back office, into your finance department. And they’re having to reconcile every line on a credit card statement, every invoice that comes in they have log into the GL, that’s where your $75 comes from.” And immediately these guys are running out there and they’re like, “Stop doing what you’re doing. Just order from one place, even if it’s more expensive.” And of course our claim to fame was, not only are you going to save on the procurement cost, but then because your average order size for us was hundreds and hundreds of dollars. In the industry it was $45, Staples average size is $45, ours was 250. So logistically for us picking, packing, delivering an order, we can be way more profitable that way too.

John Warrillow:

Interesting. This one stop shop value proposition was in… Years ago, before Amazon and before all of these… staples.com and so forth, the idea of a one stop shop was a very compelling value proposition because of all the things you’re saying with such an influx of e-commerce, people ordering everything. Did you see that diminish over time? Or how did that one stop shop message evolve in it’s pointed sieve for your customers over time?

Calvin Johnson:

Yeah, it… Say 10 years ago, 15 years ago. It was really compelling and became more and more difficult. One of the reasons why we decided to exit, the competition was just fierce. As an example, a large grocery chain in our area big, big stores and they decided to start doing deliveries. This turned out to be one of the people that came in and actually wrote an LOI. So they started doing home delivery grocery, occurred during the pandemic. Now that’s exploded in crazy. But out of the home delivery for this big grocery chain, they started picking up office customers because they treated their pricing model the same way they did in the stores. So back at the store is what? The cheap milk. And you got to walk your way past the chips and the all the high margin stuff.

Calvin Johnson:

So they priced it on their website that way. And when they came and talked to us during this LOI, and they said, “We have this business division we don’t know what to do with. We don’t make any money on this,” because they had a, I think a $20 minimum order. So they said, “We have these offices that are ordering one case of water, and we’re delivering it to a downtown office tower.” And of course, how hard it is to park downtown, right?

John Warrillow:

Sure.

Calvin Johnson:

And so they’re like, “This business model’s not working for us on the B2B side, maybe we need to look at you guys and acquire you or something.” So, yeah, there was business models popping up all over the place that made no sense that we just couldn’t compete with, so.

John Warrillow:

Okay. But that’s helpful for sure, for me to set the stage for your ultimate sales. So, you’re building this business all the way back to 89, but over years you-

Calvin Johnson:

Evolved.

John Warrillow:

… moved it up. Yeah. And you’ve got these two divisions, gross margin being a lot better on the kitchen stuff than the office stuff. Roughly from a revenue perspective, not a contribution but a revenue perspective. What was the relative size of each of the business units?

Calvin Johnson:

Yeah. About 25, 30% on the office supplies. At one time it was a hundred percent, right? But it slowly ate away at that. Now, just to add some color, the office supply side, we could offer 30,000 skews and almost all of it was just in time inventory.

John Warrillow:

So you’re not stalking your warehousing and that’s… You’re buying it and reselling effectively.

Calvin Johnson:

So our warehouse was full of the grocery side. So, just in time inventory is very cost effective. Basically you sell it before you buy it. And then the wholesaler would be delivering overnight.

John Warrillow:

So the kitchen stuff was sucking up more cash flow.

Calvin Johnson:

Huge. And then the capital investment in the coffee equipment too. And then the repairs and maintenance and parts and things. So two totally different models. It sounds sexy at first on the coffee side, but there’s a lot more intensity to it, right? And perishable, how much stuff you really got to watch, you have great buyers to make sure you’re not throwing stuff in the garbage or giving to the food bank.

John Warrillow:

Yeah. This is a really interesting challenge because you’re right. The office supplies is cash flow positive. There’s no inventory. It’s clean.

Calvin Johnson:

Margin are lower then, right?

John Warrillow:

But mower margin.

Calvin Johnson:

Low evidential. There was all these guys trying to do that out of their bedroom in one truck, right? So.

John Warrillow:

You mentioned you started to actually roast your own coffee. Did you have your own brand that you were offering? What was-

Calvin Johnson:

Yeah. Yeah. So we did our own brand and you can make big, big… We could roast a pound of coffee packaged and everything out the door for about 3,50 a pound, and you were selling it for $18 a pound, so.

John Warrillow:

So, you’re in forexing on that. So what’s the name of the brand?

Calvin Johnson:

It was called Cara Beans, beans. Cara Beans. So it’s an in-house brand. And… But anybody that wants to get into roasting coffee, there’s already third party roasters. You just find one in your area and go up to them, they’ll white label it for you. You can do your own cuppings and figure out your brands and slap a sticker on it, and you’re off to the races. And some people use them for charity. Other people just get a kick out of doing it, right? So…

John Warrillow:

That’s cool.

Calvin Johnson:

It was really cool. I might do that in the future again, just to have another little coffee brand and use it as part of a charity thing.

John Warrillow:

Yeah. Neat. Neat. So you’ve got… By the time you went to exit 70% of your revenues on the kitchen side, 30% on the office supplies. Got it. What triggered… So, and how big your company was at that time when you first started thinking about selling in terms of number of employees or?

Calvin Johnson:

So, yeah, 7, 8 million in there. 35, 40 employees at our height. We never broke 10 million. And-

John Warrillow:

Was that a goal?

Calvin Johnson:

Yeah. Yeah. That was definitely a goal.

John Warrillow:

What was it about 10 that was meaningful for you?

Calvin Johnson:

Well, 21 is my favorite number. So, 21 was actually my goal to really look at starting to sell. So…

John Warrillow:

What changed?

Calvin Johnson:

Well for me on my 50th birthday. So like I said before, I had this passion for corporate culture and also personal happiness, and just the science of happiness. So on my 50th birthday, I took a month and I went and studied under a guy that was a guru in the Workplace Happiness space in Denmark. So I hung out with him for two or three weeks. And then, I went to Bhutan. Actually with an EO on my EO group, and we to Bhutan-

John Warrillow:

EO would be Entrepreneur’s Organization for-

Calvin Johnson:

Entrepreneur Organization. And just… You’re 50 now. And wife worked in the business too for probably the last 15 years, and she didn’t like it. She didn’t like the employees, not like the employees. She doesn’t like the stress of running a business and the drama of employees, and you’re always having to put on a smiley face and it just wasn’t her. We’re entrepreneurs, right? So we’re glut for punishment more than… Dragging your wife in, but she did the purchasing. So anyways, I just looked when I was 50 and I’m like, “I don’t know, it’s time for another chapter.” And this was pre COVID, right? So, and we were rocking and rolling, and things were doing good. And I thought, “Let’s at least start looking into what this will look like.” Sole shareholder didn’t have anybody to answer to. Didn’t really need any more money. How much more money do you really need at the end of the day? So, started looking at… Yeah, maybe it’s time to move on and focus on some other passions.

John Warrillow:

So, it was the 50th birthday that triggered this sort of-

Calvin Johnson:

My happiness trip. Yeah.

John Warrillow:

Yeah. Calvin, this is not the nature of our podcast, but I’d be remiss not to ask you, what drives happiness in a work context? What have you learned?

Calvin Johnson:

Well, in work, it’s really about… Back to your mission vision values, like purpose. If people coming to work just for a paycheck, or they don’t have a reason why they want to get up in the morning, all the way from the top down, that’s usually the root of unhappiness you can get.

John Warrillow:

How did you guys do it? Because look, I get it when you’re… If you’re Elon Musk and you’re talking vision and you’re like, “We’re going to transform the world to alternative energy.” I get how you can be like a big vision guy or girl in that context when you’ve got a company that’s literally changing the world. You guys are selling thumb tax and sticky notes, and coffee. How on earth did you convince people to get excited about your vision when what you’re selling-

Calvin Johnson:

Well, we had two things. So, one, a big sign on the wall was to create healthier, happier, more productive workplaces. And by our single source, by giving them great coffee and all that kind of stuff, and teaching our customers how to then translate that to their staff on one side. And the second, we started a charity that for every dollar that a customer bought, we would donate a liter of safe, clean drinking water. And for every piece of fruit that we sold, we sold thousands of pieces of fruit a month. For every piece of fruit we sold, we would donate a piece of fruit to a food program. Both of these were in Nicaragua, in an area around an open pit garbage dump, severe poverty. And so between the two of those, we talked a lot about our charity internally and with our customers and that gave us purpose.

Calvin Johnson:

So, back to answering your question, I think if people are working in an organization and they don’t understand the purpose of the business beyond just making money, and that shouldn’t be the reason, then usually there’s deep rooted unhappiness at certain levels. And then of course, being able to measure that. So we had some great tools that we tried to be able to keep the pulse. We pulsed our staff every week. We use something called Heartcount. You go to Heartcount. I’ve probably tried 20 of them and Heartcount it’s not a Ballet Russe, but is a great… It is free, I think, for the first 20 people even so. And it was fantastic, all based in science the question, so great pulse to do every week. And it is a great suggestion. If any of your listeners take anything away, go on Heartcount every week.

John Warrillow:

That’s a great suggestion. I’ll put that in the show notes as well. Let’s go back to the original question. So you have this milestone birthday, you’re 50. What did you do next?

Calvin Johnson:

So I realized I needed to understand what it is to actually sell a business. And I don’t know. I never really thought about the day of selling, you just get into the grind and you just start going through it. And you know it’s a value somewhere and I’ve borrowed against my house, and I’ve been close to bankruptcy the other time, the highs and lows of every typical entrepreneur bank calls your loan, and so-

John Warrillow:

Did that actually happen to you?

Calvin Johnson:

Yeah. Yeah. Maybe about 20 years ago. Yeah. We had the bank call our loan, our line of credit and so you have good years, bad years and everything in-

John Warrillow:

What’d do?

Calvin Johnson:

We had to go find another bank and was able to take money out of our house to prop it up, to make it through some challenging times, so.

John Warrillow:

Okay. So you contemplated this idea of selling, but never on your front foot. Never proactively. So what next? You have this birthday, what’d you do?

Calvin Johnson:

Especially back to the Entrepreneurs Organization, being in that sense, so just started schooling myself on what it takes to sell a business. So, that was in 2018. And so-

John Warrillow:

Were the best resources for schooling yourself? Were there online courses that you took or your EO form mates? What did you find the most-

Calvin Johnson:

Yeah, EO people, just anybody in your network. We’re going to be part of EO, but anybody in your network and then, you usually in business. Somebody knows somebody that knows somebody. So-

John Warrillow:

In your case-

Calvin Johnson:

You start asking like, yeah, “Hey, who sold a business? What was your experience? And who did you talk to?” And then it didn’t take long before people said, “Oh, you’re going to need to talk to this guy, or you need that lawyer.” And so what came out of that conversation was, we were 6, 7, 8 million in sales and they said, “Hey, if you want to get maximum value, if you can sell something that has valuation like 10 to 20 million, closer to 20 million, you’re going to get way better. You’re going to get private equity involved and people are going to come in and scoop you up, saying, okay. So why don’t you go out and roll up some smaller players? 2 million, 3 million, all players. Roll them in. We had a big distribution center of great ERP. We’re super advanced. Great eCommerce site. We’re a hundred percent online,” thought, “Yeah, this is great idea. Let’s go do that. I don’t know how to buy a business, but can’t be that hard.” So, you know how hard it is to buy a business?

Calvin Johnson:

So I’d go to all my competitors, especially on the coffee side and meet little guys, they’ve been around for a long time. Now they’re going to age out. I thought, “Oh, this is a slam dunk.” And I just approach them, “Hey, are you thinking about selling.” And they’re like, “Oh, Lykki,” and we had a good reputation. We didn’t have any bad negative stuff. So we thought, “Hey, come roll in with us. And maybe you could either let us buy you,” went to the Business Development Bank of Canada and was able to figure out how to borrow money or they could just take some share, whatever. No, no, no, no, no. Couldn’t get anybody. And as I learned-

John Warrillow:

What were you offering Calvin in terms of-

Calvin Johnson:

Well, we didn’t even get that far. People were just, “I’m not ready to sell.” I said, “Well, everybody’s ready to sell at some price or…” And they’re like, “Nah, you know I think I’ll stick it out.” Unfortunately, the office coffee business, even a small player… Sometimes I think a small player might be even more profitable. So I’d say a $2 million guy with a couple employees could be pulling in half million bucks. And so he is like, “Nah, I’m good.” It’s like, “No, no, come with me.” So.

John Warrillow:

Yeah. And let’s provide folks in context, because obviously COVID would’ve sent an office product company for a tailspin. So I want to just orient people in terms of the timeline, what time-

Calvin Johnson:

Pre COVID.

John Warrillow:

Yeah, use pre COVID 2019, 18, 19, something-

Calvin Johnson:

Yeah. So, that was 2018. And so researching how to sell started approaching people, doing a roll up, realized that it wasn’t that easy. We needed people in our local market too. We’re not national or anything. So it took about a month for us to realize this strategy isn’t going to work. And so, went out and started to build a team. I can get into if you want, that we needed to sell including an emanate company.

John Warrillow:

So, you’d originally been told if you can get this thing to 20 million in value.

Calvin Johnson:

Yeah. 10 to 20 million is like you’re going to open it up to national players, private equity.

John Warrillow:

Private equity, et cetera.

Calvin Johnson:

People… Nobody wants to do a deal for a couple million bucks.

John Warrillow:

Got it, got it. So, that’s what you’re being told. So, you try the acquisition that didn’t work. So did you… I just want to… So at this point you’re… as you said, around 7, 8 million, something like that. So you just shive that threshold. Did you think about just continuing to grow to get there independently? Or did… or it sounds like you throw your hands at-

Calvin Johnson:

Yeah. Some great advice I got right away is, so if you’re marching down the road to selling and you’re sales take a dip or anything, that’s like death. So, and nothing is better for negotiation or even to renegotiate it is a nice hockey stick curve. So you’re just growing like crazy.

Calvin Johnson:

So at time and time again, as everybody said is it, “Are you ready to tidy things up and just go balls to the wall?” Because every dollar of sales is going to equal times your multiple, whatever you’re going to get on. So just go lean and mean and go crazy on sales. So, that’s what we started to do too, to make sure that we were going to try and grow. But taking it from seven or eight to 15 in two years in our industry, unless I was going to sink a ton into the business, it wasn’t going to happen overnight. So, we did, but it started to have some good effects, but there’s no way we were going to add another 30% of sales in a year.

John Warrillow:

Got it. So, you’re deploying two strategies sounds like simultaneously. One, is to continue to do as best you can to grow the top line of the business. As at the same time you’re hiring an M&A team, like a team-

Calvin Johnson:

Yeah. Building the team, which M&A… What turned out to be great advice and it was true was the most important person that least I found in our deal was a M&A lawyer. A great M&A lawyer. This is your negotiator. I didn’t really understand the role of the M&A. Somebody explained it to me and said, “The M&A guys they’re like your realtor, right? They’re just going to sell the house. They’re going to go out and market it and find the right people.” But once you get down to the brass tax, they’re not negotiating the deal. Usually it’s going to come down to a great M&A lawyer. So finding an M&A lawyer, finding M&A accountant, or making sure that… A lot of times you don’t have that in your current accounting firm.

John Warrillow:

So, this is again, all things you’re hearing from your four mates, “Hey, you got to have an M&A lawyer. You got to have an M&A accountant that’s done deals.”

Calvin Johnson:

Yes.

John Warrillow:

Got it. What… So you found this team, what sources did you use? I’m assuming these are all personal referrals. You got to the team-

Calvin Johnson:

Pretty well. Yeah. You floated out to your group and somebody knows somebody that knows somebody, right? So, especially… I can’t stress enough the entrepreneurs’ organization, right? And within there, there’s many people obviously have sold businesses, bought businesses. So it’s just getting introduced to the right people and then starting to build a little bit of a team around you.

John Warrillow:

Yeah. Yeah. So what happens next? Did you get offers or what-

Calvin Johnson:

So, with the M&A company, then we built out our SIM, our [crosstalk 00:30:42]

John Warrillow:

Information.

Calvin Johnson:

Yeah. And that was good. The best advice I ever got from the M&A lawyer that came back to really pay dividends later was, “Build out your data vault.” And that took a ton of time to do everything from collecting your leases, and all your contracts, all that stuff that goes into. It takes a ton of time, but that pays dividends in due diligence later because you have it already at your fingertips. So we built out our SIM and then went to market and had… The M&A company did great. Yeah. And-

John Warrillow:

And did they give you a sense of what they thought you might get for?

Calvin Johnson:

Yeah, actually probably better than. So they bought into the idea that although our company was two houses under one roof and they thought that, “Let’s market this to an office supply company that wants to get into food and beverage. Let’s market this to a food and beverage company that wants to just tack on office supplies that they’re looking to…” And we did feel there was some indication of that happening. And so, evaluation wise, it was fair. I was pretty happy with it, is say again, 0.75 times top line as an example.

John Warrillow:

That’s what they were saying you should be able to-

Calvin Johnson:

Yeah. Yeah. So I was like, “Oh, that’s in where we thought.” But their strategy was do a share sale, obviously it’s cleaner, you need capital dividends. And it’s usually cleaner for a seller to do a share of sale. So we did get lots of offers, not lots, I’d say four or five. And that’s pretty exciting, but to jump forward, long story short that none of them really worked out because in the end, all these LOIs said, “Well, but we like this side of your business, but we don’t really want that size. We’re just going to devalue it or we don’t want it, and maybe we’ll do an asset sale and just take your customers,” or something like that. They didn’t want the whole package. So, we decided… Because we were doing such great work inside the company, really leaning things out and bringing some good people and our sales were doing good. And it was 2019, we decided to double down and pull it off the table. And double down on the office supply, sorry, office coffee side.

John Warrillow:

The kitchen side of the business.

Calvin Johnson:

Yeah. Yeah. And grow that maybe to like 80, 85%. I’m not going to throw the baby or the bath water on the office supplies, but we decided to just let it run its course. We’re not going to-

John Warrillow:

I want to pause you there because I think this is such a huge lesson because of course, so many entrepreneurs, we focus on revenue because that’s how we are measured, right? You got top line revenue is how we boast about one of the success. And so you’ve got these two revenue streams going on, which improves your gross revenue or allows you to merchandise gross revenue. But when you showed that to acquirers, their reaction was, “We either like the office supplies or we like the coffee side of the business, but we don’t like both.”

Calvin Johnson:

Exactly. Yeah, exactly.

John Warrillow:

Interesting. And so did you entertain any of those offers? Did you say… Did some like office, others like kitchen and…

Calvin Johnson:

Yeah. We challenged them on saying, “No, you’re missing… Here’s the vision, right?” And you’re trying to explain this. So, most of them were significant buyers, but all of them, we felt had one thing in common, which they were trying to enter B2B delivery or something like that. And we thought we would be a nice tidy little… Some of them were so big, we said, “But this is like pocket change. Buy us and then use us as this little test bed to see if this thing even works,” right? And also we were looking at potentially other larger buyers that maybe weren’t strong in our territory. They were very strong in another territory, and they were maybe moving into our territory and we knew that was coming too with competition.

Calvin Johnson:

So we thought, “Hey, we’re turnkey, ready to go. 18,000 square foot distribution. We got it all. You plug and play and you can move into our area.” But again, they looked at it. Well, especially office supply didn’t want it because that’s not the way that model works. So we decided to pull it off the table and think, “Okay, well, we’ll go back to market in a couple years and jokes on you, right? Now it’s worth more. You’re going to have to pay more.” And also possibly one of these roll ups might come to fruition, who knows, right? And let’s get it over 10 million. And we had one party that literally said, “If you guys were over 10 million on the coffee side, we would snap you up in a second.” And it’s like, “Okay. Challenge accepted.”

Calvin Johnson:

So, that was late 2019. And then right into 2020, and we landed like a group of like 50 banks. And so, remember COVID is two months away, right? So, this is January and we get this contract for these 50 banks and they all want coffee equipment. So we take out a $350,000 term loan and buy equipment. It’s a place and all these banks. And-

John Warrillow:

Did you have a firm order from the banks or did they have the wiggle room to get out of it?

Calvin Johnson:

How the office coffee industry works is you give them the equipment for free, and then you make it back on the poundage of coffee, so to speak, right? So you’re just running coffee. So, the agreement was, you have to use our equipment for the next three years and sure. In there it says, “You need to use X number of pounds of coffee per week or per month.” But once COVID hit they’re like, “You’re happy to leave your equipment here if you want, but the banks are closed.” So…

John Warrillow:

Oh my gosh. I want to get into COVID. Just be curious to know what was your wife’s reaction to your decision to pull it off the market?

Calvin Johnson:

Yeah, that’s a great question, actually. I haven’t really thought about that too much. So, first, somebody gave me some great advice too that, “Don’t underestimate the impact to your family, your friends, your spouse.” Sometimes you think their work is over here, “Hey, I’m going to sell this,” or something. It’s a lot of planning, especially if you’re going to retire, right? What are you going to do with the money or something like that? So of course she was ecstatic to get out, but she understood the strategy, right? All the way through. So, although she was disappointed, it wasn’t… Because every time we would get an LOI and I’d show her and she’d be like, “Take it.” So I’d go, “Whoa, whoa, whoa. It’s not that easy. It’s only LOI. We’re not married yet.”

John Warrillow:

Yeah. Yeah. And LOI of course stands for Letter Of Intent for folks who maybe new to that acronym. So your late 2019, you get this huge order from this bank group, 50 machines, three year contract. Take us forward from there.

Calvin Johnson:

And so, funny enough, I’ve got this little side public speaking or things like that. So I got invited in January too to go to India and Sri Lanka through EO to do some public speaking, and some workshops on corporate culture happiness in the workplace, things like that. And I remember coming back, I was flying through Hong Kong, just changing flights and all these people were wearing masks and people were checking the temperature of your head and this is COVID, what is this? This weird thing. And I came back and I was explaining to people and nobody had heard of it, or it was barely on the news. And I was like, “I think this is bad.” And sure enough. It’s like everybody else, March 17th or something like that. We had some really large customers, our claim to fame was like Microsoft head office or Industrial Light & Magic.

Calvin Johnson:

Our area is just full of these game studios and things. And they just spend money like it’s going out of style, right? And within a day or two, almost all of them… And some of them are thousand employees and we’re selling like $20,000 a month to them, thousand employees. And they’re calling them and saying, “Yeah, we’ve shut our offices.” And if you’ve ever had that feeling of ice in your veins or the blood drains out, I was just sitting there like, “This isn’t registering. This doesn’t make any sense. What do you mean? We deliver to you every day and you’re not… When are you going to open again?” I remember the big one. So when do you expect to be open? And they said, “Oh, we’re thinking… Well revisit this in January,” January. I thought maybe a week or two, they’re like, “Yeah, yeah. We’re just going to shut down and get people to work from home.” Work from home, that’s not going to work. Nobody wants to work from home. So overnight our sales drop by about 85%.

John Warrillow:

Oh, did you have contracts that you could enforce like minimums or?

Calvin Johnson:

Well, the only real contracts we had, like I was saying is say on the coffee equipment, so great. You breach your contract, “Hey, you’re not buying enough coffee. Okay, come get your machine.” So, actually from March, April, May and there we just decided that… to go pull those machines and bring them back. They were so brand new and they’d barely been used that we would rather have them back. So, like a repossession in a way, we just went and took them all back and said, “Okay, well, when you guys are up and running, we’ll come and reinstall them.” Imagine our technicians, it takes hours to get it up, water plumbing. And so now we had hundreds of thousand dollars worth of equipment, basically brand new sitting back in our warehouse. And we’re servicing that debt. I can’t remember, it was 4,000, 5,000 a month just in servicing that debt. And we got all this equipment there and we’re like, “Oh my God, we’re screwed.”

John Warrillow:

Oh my gosh. So I was just going to ask, where does it go from there?

Calvin Johnson:

I can laugh, but no.

John Warrillow:

It can be better.

Calvin Johnson:

So yeah. So just like everybody else, we just started cutting costs, cutting staff. And we bounced back a bit over that summer. Everybody on COVID, that was where we bounced back about 50%. We actually tried to launch a grocery home delivery, built out a website and things were looking really good. And… But it didn’t matter. The supply chain was so messed up that you couldn’t get product. So we just pulled the plug before we even launched it. And it stayed with our core. So, we thought we could move into something else. But of course, all the grocery stores now we’re coming online and trying to do home delivery.

Calvin Johnson:

So we were going to get killed anyways. So we just buckled down and fraction of our staff and it was… you think, “Okay, in the fall when kids go back to school, or things are going to bounce back and no,” and then now Christmas and January. And so by January, 2021, so now we’ve basically gone 9, 10 months of just hanging on. I did a pretty good job actually at not bleeding too much cash because we just cut back.

John Warrillow:

How many staff did you have to let go?

Calvin Johnson:

Well, luckily in our area with our government, there was all these funding and things, so you don’t really have to let anybody go. They just got paid by the government. So, it was good.

John Warrillow:

Yeah. Calvin for folks listening, Calvin’s in Vancouver and in Canada, we had some federal government programs, which basically supported some of these workers that were in industries that were complete decimated by-

Calvin Johnson:

So. Yeah, I know you’ve got people all over the place that… it might be interesting to share this. So what saved us was, there was… of course we’re going to pay for this later. And I don’t know, I don’t want to get all political, but the government paid 75% of our rent, 20,000 a month it cost us for our warehouse. So, 75% of that was covered. And then anybody who we still had on staff at the height was 75%. So we can keep our full-time staff and they paid 75% of payroll. And then the people that didn’t want to… we couldn’t have comeback, they were just paid by the government to sit at home. So, that definitely saved it, without that we’d be toast overnight. But… So both of those programs really, really paid off and there was some no interest programs and things. So, we took advantage of that like any entrepreneur would of course, so.

John Warrillow:

Sure, sure, sure, sure. So you’re were going to say January 2021, what happened?

Calvin Johnson:

Yeah, so 2021, then my wife and I sat down too, and these programs were going to get pulled soon at any time, they were threatening to pull and they said… if pull those programs we’re toast for sure. It’s shocking that these customers aren’t coming back and we’re running out of pivots, right? So, my wife and I sat down and thought, “Okay, well, we’ll… again, pursue two paths. One is bankruptcy.” So what does it look like to go bankrupt? I don’t even know. And again, you reach out to your people and meet with some bankruptcy lawyers and it’s actually not that easy to go bankrupt. So, and it sounded expensive. So, I thought, “Okay, well, the only thing left to do is we got to try and just sell this again.”

Calvin Johnson:

So luckily some great advice that I had in hiring my M&A people is a couple clauses. One was that… How did it work? Basically you can do a deal outside of the M&A company, as long as it hasn’t gotten, say to a signed LOI as an example. So we had retainers with them. They got lots of money out of us anyways, on a monthly retainer. But because they had brought some people to the table and… but there was no signed LOI or no deal that moved forward. Then we… If we decided to call them and pursue something on our own, it was in the contract that we didn’t need the M&A company.

John Warrillow:

Yeah. But every contract is a little bit different. So I’d encourage-

Calvin Johnson:

All the difference.

John Warrillow:

Yeah. Make sure you understand, if you do hire merger and acquisition professional that you really understand what your obligations are to them, usually there’s going to be… If they introduce you to someone you end up doing a deal with them for years into the future, they would get commission. So it’s… Just make sure that you read carefully your letter of agreement with your M&A professional because each one is different and you want to make sure you honor those. But in your case, you were able to get around them.

Calvin Johnson:

Yeah. Our M&A guys were just fantastic and they understood the position we’re in. And I just called them up and said, “Hey, look, I think… Obviously I’m going to probably take a haircut on this and I’m desperate. I need to do… And there’s just no meat on the bone if I got you involved again. And basically I’m just going to try and pursue this.” And although I didn’t have any contractual obligation, I made sure that they were cool with it. And they helped me along. They gave me notes from when they were calling some of the people. And I just picked up the phone. And my first call was to the people that we… was a Fortune 500 company.

Calvin Johnson:

Luckily for me, I had some inside scoop that I had another guy that had an office coffee company about half my size. And we had banter back and forth about doing a merger of some sort. And he got scooped up by Compass canteen. Yeah. Compass Group with Fortune 500 company that’s all over the world in doing office coffee and things. So he got bought because he was just a pure play office coffee. So he got bought in December, just prior. And so he filled me in and said, “This new CEO that came to Canada, he’s got a big war chest and he spent it all for 2020. But because of COVID, this is a new strategy for them and he’s going to get another big trench coming at the beginning of the year. You just got to get your foot in the door.”

Calvin Johnson:

And then sure enough, giving him a call and we had met with that team earlier. And they had said no because of the two divisions. So I knew my strategy going in was when I called and said, “Hey, great news. We broken the company into two, and you only need to buy the office coffee division, but you got to take all my assets. You got to take all my equipment and I’ll sell you my customer list. And we’ll just do an asset sale,” which of course is music to a buyer’s ears, right? And literally on that call he was a pretty cool guy. He’s like, “So I don’t know, what do you want for it?” And I just threw in a number. And he was like, “Okay. So, I’ll get my team to call your lawyer. Thanks.” I was like, okay. And so that was March, or beginning of March. And we had a signed money in the bank by May 17th.

John Warrillow:

Wow. Okay. So I want to just press pause here for a second because there’s a lot to unpack here. [crosstalk 00:49:52] Yeah. Yeah. So you call the CEO, the Canadian head of Compass Group. And so how did you arrive at a number, let’s start there. He asked you what do he want for it and you threw out a number. Where-

Calvin Johnson:

Yeah, I took the old SIM and doctored it with new numbers and really made the argument. Nobody knew that COVID was going to last that long, but basically just made the argument that this is just a dip and let’s park the abnormal one or two bad years that we’re going to have, and it’s going to bounce back and we’ve got legacy sales and legacy customers, so they’re all going to come back.

Calvin Johnson:

And what’s nice about the office coffee division too is having the equipment in an office is like planting your flag, right? So, we’re the incumbent, even though they’re not buying right now. And they’re sophisticated, he knew that. He knew… He’s out trying to buy up. What I’ve heard lately is they’ve bought over 30 companies in Canada. So luckily we were just on that list, but we were a little bit of a different animal. And so coming up with valuation, I just took the old SIM and shot high and they were happy with it. So, I think he just had money to spend and we were close enough to fit the bill and there wasn’t a lot of negotiating, so.

John Warrillow:

So you took the old SIM, which had numbers from the pre pandemic numbers related to the coffee business revenue, gross margin and profitability and so forth. And so do you remember roughly what you would’ve been… In the first go around in 2019, did you place a value on the coffee business independently of the entire piece? Or was it… Did you get a sense of what you-

Calvin Johnson:

Yeah. The new SIM then stripped out the office supplies and just had this one division. So of course the numbers were lower and different. And now, when you go to sell pre COVID, the SIM looks like, “Here’s where we are today, but really we’re trying to sell future growth, so we want you to pay for future growth,” and they try to pull that stunt. So the new SIM was, “Okay, let’s strip out the office supplies. And although our sales today are in the toilet, future sales will bounce back to the run rate that we had before.” And so we sold not necessarily future growth, but future recapturing post COVID.

John Warrillow:

And so when you said our revenue… When you’re negotiating with Compass Group at 2021, your revenue would’ve been dramatically lower than 2019.

Calvin Johnson:

Yeah. Yeah. Sinking and sinking. Yeah.

John Warrillow:

And it’s still dropping at this point.

Calvin Johnson:

Well, it bounced back. Right out of the gates, we dropped like 85% in sales, but then we bounced back 50, 60%. Started climbing up, but then it started plot towing of it.

John Warrillow:

Yeah. So you’re still 50% off your 2019.

Calvin Johnson:

Yeah. Exactly.

John Warrillow:

And so I guess what I’m getting at is, are… Did you get into value with the 2019 number or the 2021 number?

Calvin Johnson:

We took past performance and forecast that forward and basically said, “Let’s not look at the COVID numbers. Let’s look at pre numbers, strip out the office supplies and-”

John Warrillow:

And he bought that argument?

Calvin Johnson:

Dude, we were ridiculously fortunate of that… It was a very small deal in comparison to some of the other deals they were doing. And I think this is great for your listening… I’ve told this story to a few people and heard similar cases. It never hurts to pick up the phone. You never know what the other side is doing or what they need. So for us, although it was great timing and we were over a barrel. On the other side it’s like, we got to spend this money and we’re just trying to acquire as many competitors as possible. And back to my early… What made me feel better was when we tried to do a roll up and how hard it was to buy a company.

Calvin Johnson:

And what I’ve heard since having this relationship with them that, of course we’re the ugly duckling, right? They didn’t want us. They had already asked every single other player in our territory, can I buy you? Can I buy you? And most of them said, no. And of course here we were data vault ready, SIM ready, I’m not going to say fairly sophisticated, but I knew how to game played. I have my team in place and that’s why we were able to get a deal done in 90… We were an easy deal, that a lot of times I think that the big players that come in and why they don’t want to do anything less than 10 or 20 million is because it costs the same for them to do a $2 million deal in the due diligence than everything. So, because the advice I was given is like, “Really show them that you’re ready to go.”

John Warrillow:

What was the multiple of revenue you asked for in that conversation when he said, “What do you want?”

Calvin Johnson:

I think it was about 0.75 still.

John Warrillow:

0.75 of your coffee or specific revenue.

Calvin Johnson:

Yeah, exactly. So I tried not to deviate off our earlier SIM. I just basically stripped out that division and remarketed it back, but also now as a asset sale, not a share sale.

John Warrillow:

And to be clear, the revenue was adjusted so to speak. It wasn’t the actual revenue that was 50% down. It was like, under normal circumstances, we should be about this. And-

Calvin Johnson:

Exactly. Here was our pre-run rate. Here’s where we expect to be in the future. So you’re buying future sales, let’s just park this deviation. And as it turned out later, finding out what was a value to them was, one, they were on a mandate to get deals done. They had a Warchester money they needed to get deals done. And now I found out that a lot of the other players in Vancouver had said no. So thank goodness for us. They were desperate for people. And our people were fantastic, of course, high functioning corporate culture, which they were really struggling with in assimilating… Imagine… They had a hundred thousand square foot warehouse and they’re trying to plug in 10 companies and it was a shit show. So, they really wanted our people because our people already did huddles and high functioning culture. So, and it’s turned out well for them that way. And we had some marque customers.

John Warrillow:

What was the impact of taking an asset sale for you? For folks listening, you can either sell the assets of your company or the shares. When you sell your shares, the buyer assumes your liabilities as well. You’re effectively selling the entire company including its ongoing liabilities. Whereas when you sell the assets, the acquirer is just buying literally the assets that could be your customer list, your brand name, et cetera. What was the implication for you personally to sell your assets versus your shares?

Calvin Johnson:

I’d say that early on I didn’t really… I was so fixated on a share sale. Everything I’d been told was, “Ah, you got to do this, and it’s the only way to go.” And obviously it wasn’t an option for me, but what I found was especially working with a really good accountant. I don’t even understand how half this stuff works. I know that for the buyer, they just love asset sales. There’s all these deduction and depreciation and all that great stuff, right? It’s no brainer for them. But on the personal finance side or accounting side, I don’t understand how all of it works, but it’s not as bad as I expected. I expect these huge tax bills, but I don’t know, you hire good people and somehow they’re able to make sure they leverage all the right things.

Calvin Johnson:

So, I… Let me explain that, I still own Lykki. I still own the company. I own all the shares. And so, there’s a value there but because of that, there’s a lot of money that is still inside the company that… And of course you could take it out with dividends, that’s a typical way. But there’s other… at least in Canada, there’s other ways that are very, very, very low taxes. So, we started executing on them.

John Warrillow:

Okay. The tax is going to be different in each country. So we’ll move on from that. But talk to your accountant about the implications, the after tax implications of selling your shares versus your assets. But if you still own Lykki, what is to stop you from setting up as a competitor tomorrow using the same website?

Calvin Johnson:

Yeah, no there’s non-competes in NDAs and things like that. What’s actually funny with Compass is it’s only for a hundred kilometer territory, so I could actually go reset up, but I don’t want to be in that business.

John Warrillow:

What was your reaction to executing that sale?

Calvin Johnson:

So, well, there’s two different emotions and again, great advice I got from people is, “Don’t count your chickens till they eggs are hatched,” whatever and that… Deals fall apart all the time, or get ready for the other shoe to drop, right? They’re going to come back and ask for something different. So I think that was good, and I made sure with my wife to say, “This is not a done deal. This is only the first phone call of many to get it…” When you get the check in the hand. So, I really prefaced that with my wife, for sure, right? Get the check in the hand. So it was suppressed excitement definitely, to walk through-

John Warrillow:

Did the check come through in May as promised?

Calvin Johnson:

Yeah. That day… It was surreal, right? I didn’t even go… Where you go down to the lawyer and they handy you the check and you look at it, and walk out of there or something and high five, that never happened. They just deposit it and you just… you’re clicking a refresh, right? You’re like, “Holy shit. Wow, that’s pretty cool.” But all the money was inside the company too. So, you got to try and figure out how to get it out of the company, but that’s another story. But yeah, it was pretty cool on that.

John Warrillow:

And Calvin, to be clear, was it a 100% cash upon the sale of the assets? Or did you take portion of your proceeds in an earn-out?

Calvin Johnson:

Yeah. That’s a great… for your listeners that… So my buddy with his company he chose a way higher multiple, and he went really strong on the earn-out side. Unfortunately, they’re taking 10 different off supply companies and rolling it into one. So it’s turned into a bit of a shit show there. So he’s really stressed about his earn-out. I decided to go with a cash deal. I’m sure I could’ve negotiated probably higher with an earn-out, but many times people would tell me, they said, “Treat an earn-out like the gravy. Don’t ever expect to get the earn-out if you do great, but don’t count on it as part of a deal. Try… Cash in hand is cash in hand.”

John Warrillow:

Yeah. But in your case it was a hundred percent cash.

Calvin Johnson:

So it was cash and there’s a holdback. I’ve got some money coming this spring or something. So they do a bit of a holdback that’s tied into your reps and warranties and things, just so things go smooth.

John Warrillow:

That’s pretty common. So 10% or something like that.

Calvin Johnson:

Yeah. Actually it’s lower, that’s where your lawyer comes in too, right? So, he ground that down. I think it was 3% or something. It was pretty lower, so.

John Warrillow:

Just a small portion.

Calvin Johnson:

Yeah. Yeah. It was good.

John Warrillow:

Let’s move to the office supply. So lower margin.

Calvin Johnson:

So, now my dilemma is we looked at, “Well, can we run this just on the office supplies?” The ugly duckling, we haven’t put any effort into for the last couple years, “And who’s going to buy this?” So I went back to the phones and myself, and actually some other small independent office supply people. I ended up… is like dating, you’re dating multiple people or something like that. So I had like three or four conversations on the go. And I really wanted to go with a small group, these two guys, and they were scrappy and [crosstalk 01:03:13]

John Warrillow:

… with the small group or you from doing M&A professional or a-

Calvin Johnson:

No, no, no. People to buy it, right? So, I called up a large competitor in my area, an independent large competitor. Unfortunately, they were having significant problems. They had just moved into a brand new big facility, blew their ward, and then COVID hit. So they said, “Happy to take you on a hundred percent earn-out.” Okay. But they had a big sales team, I thought, worst case, right? I don’t want to flush it, it’s still worth some good money. And there was another-

John Warrillow:

But it’s a pretty small business at this point because you… It was only a third of your revenue to begin with and revenue is off 50%, so.

Calvin Johnson:

Yeah. Yeah. So yeah, we were probably down under 2 million in top line, even lower than COVID. But so now I’m trying to sell a $2 million business, less than that even. And so there was a small group, two guys, independent guys, and they’d done really well. And so we were quite far along with them but at the same time, somebody we had an LOI with Prior, which was a large national office supply company. And it took them, it… I think they were interested from the get go, but these big companies are just so big, “I’ll get back to you in two weeks.” And then say, “Hey, we talked with our executive team, we brought up in a meeting. We’re interested send us something,” right? Everything that dragged out and dragged out, but I basically had to almost do the deals in parallel, so this is still March.

Calvin Johnson:

And by the end of June, we were handing over the coffee business. So, our business as a single source, as our website and everything was going to look entirely different. So we needed to basically make an announcement to our customers that, “If you want off supplies, go there, and you want coffee go there.” We tried to time it out to the day. So I had to do a deal pretty quick, luckily enough that the large office supply, national office supply guys, they were transitioning into Western Canada and looking to build up some sales. So the timing, again, it couldn’t have picked a better timing that they were looking for. They had just hired three or four salespeople to go after the market in the west. And they could plug in and… entire account base, and off they go.

John Warrillow:

And again, same questions. Multiple of revenue, deal structure, earn-out like what-

Calvin Johnson:

That one was… So I’d say it was a 50, 50 deal. I was again, prepared. So, 50% cash. I’d say it was half revenue or something. It was a lot lower deal, leaner deal because the margins there too-

John Warrillow:

50% of revenue.

Calvin Johnson:

50% of revenue and then 50% cash, and the then 50% earn-out. And as it’s turning out, so the earn-out… I didn’t want the earn-out to start last summer, because I hope COVID would end. So, the earn-out actually started January for one year on a percentage of sales idea and things. But they’re struggling. I’m probably not going to get anything on the earn-out. They’re not going to hit their targets. So, but again, I was warned up front like, “Anytime you do earn-out deal, don’t count on it.” So, it would’ve been nice. It would’ve been nice.

John Warrillow:

Were you able to make the same case to the office supply acquirer that use… look at my pre 2020 numbers to estimate our revenue.

Calvin Johnson:

Pretty much. I had what’s… No, I can’t say that, that was my LOI. I was going to say who they were, and why they knew our sales. So they knew a lot about us and our run rate and things. So they’re pretty sophisticated. They knew that it was okay numbers to work with.

John Warrillow:

Because they assumed-

Calvin Johnson:

Again. Yeah, yeah, exactly. And they were expecting it to come back too.

John Warrillow:

Got it. Yeah. And to be clear for our listeners, we can’t name the national office supply company, but-

Calvin Johnson:

Yeah. I’m in the middle of an earn-out to them. Yeah.

John Warrillow:

No mean nameless.

Calvin Johnson:

But for your listeners, so it’s hard answer your questions because yeah, yeah. A lot of this was a moving target that… I didn’t want to look desperate, but you’re trying to just do a deal, which… but it was weird with the M&A people that I had… because I was behind the scenes and they were doing a lot of negotiating and things. So, which was… I don’t know, it’s two different ways to do it, but literally I was on the front lines, just hashing a deal out. I’ve heard some people just do it on a napkin over a lunch, right? So you can do a deal almost anyway, I guess.

John Warrillow:

I asked this question at the very beginning of our conversation and you said, “I’ll come back to that because I want to give you a bit more detail about the actual sale.” But my question was, did you ever think about shutting down the office supply business to focus exclusively on the kitchen piece, the coffee and so forth? And I guess my actual question now that we’ve heard the entire story is, if you had it to do over again, if you could rewind the clock, say 10 years and go back to 2010, would you have shut down the office supplies to focus on the coffee side?

Calvin Johnson:

Yeah. I don’t think we would’ve, just because our brand recognition was all about single sourcing, so it’s our claim to fame. But in prepping something to sell the multiples in the office coffee business were much greater. And then looking back on acquisitions and rollups and things, and although the office supply industry in the states is going through a massive rollup itself right now, just knowing what business you’re in and which one’s probably more profitable. So, to answer your question, I guess if I had the opportunity without a whole lot of damage to wind on the office supplies, then focus on a core business with higher margins and better multiples of selling, right?

John Warrillow:

Yeah. It’s an interesting question we can’t really answer, but it’s fun to look back in hindsight to know, because each business has such different strengths and weaknesses, obviously. I’m sure-

Calvin Johnson:

I think what I learned from it and moving forward with any other business is exactly what your title is, right? Built To Sell. If you’re going to build something ultimately you want to sell, then figure out who your buyer is, and then if you add a new product or service or line, or even move into a new tariff or something like that, is that enhancing or is that detracting?

John Warrillow:

Yeah. Yeah. Yeah. Well said. Hey, listen, let’s do our lightning round of questions. This is where I would love to get your unvarnished knee jerk reaction to a couple of questions that we’ve got cooked out for you. Are you ready to go?

Calvin Johnson:

Okay, let’s try this.

John Warrillow:

What is the most questionable stroke slimiest tactic an M&A acquisition acquirer tried to pull over on you or tried to use on you?

Calvin Johnson:

Slimy or something like that. Overall what jumps to mind is just people purposefully dragging their feet, using time to their advantage, knowing they can put the screws to you. So, there’s lots of times that’s happened, right?

John Warrillow:

Yeah. The biggest mistake you made in selling?

Calvin Johnson:

Biggest mistake. Not for seeing COVID, well, that’s silly, but… Yeah. Pursuing… Once you’re into it, I don’t know if it was the right move or not to pull it off the table. We had a lot of momentum going and all I needed… was I getting greedy? Did I need to just restructure? All we had to do was do what I did myself, split the company up, don’t get so hung up on the share sale versus assets, and just get a deal done because we had a lot of people at the table. So probably strike while the iron’s hot.

John Warrillow:

What was the lowest emotional point for you in the selling process?

Calvin Johnson:

During the sales process. Just… I don’t know, I just lived in a state of fear that if I couldn’t get a deal done, just waiting for a note. Every time the phone would ring or you hear a phone, you’re like, “Oh God, I’m one phone call away from…” Because at that time with the COVID thing, it was basically bankruptcy or get these deals done.

John Warrillow:

Highest point during the selling process?

Calvin Johnson:

This is going to sound weird, but post sale. So now we’ve transitioned the customers over pretty well. All the staff is gone. It’s my kids. I have a 16 year old and 18 year old, they grew up through the business too. It’s summertime, we’re trying to wind down our warehouse, big warehouse, right? And I was really looking forward to this, the moment in Cheers, where they shut the lights off in the last episode, right?

Calvin Johnson:

So I literally was in there… I sold everything right down to the broom. We had to take down the racking. I saw the forklift, I was putting stuff on Craigslist and it was like this bootstrapping moment from the days of when I started, I was the last guy standing and you’re cleaning the carpets and I loved it. And it was like, “Wow, this is…” Because a lot of people said, “Well, it is going to be really emotional.” And it wasn’t, it was a closure over the summer of just taking the stickers off the door and winding everything down. And I had a really a good time.

John Warrillow:

Trophy you bought yourself to commemorate the win.

Calvin Johnson:

Yeah. Nothing. Well, it’s nothing tangible. It’s… I can’t remember the exact quote that I read it’s… there’s power, there’s money and things, but the most valuable thing is time. So like just sitting, I don’t know, nobody needs me, that’s what we said at the beginning of the call, right? You’re like, “How’s your time?” I’m like, “My time’s great.” I got other projects I’m working on, but the value of… you can’t buy time. It’s really hard to buy time, I guess. Sleeping in-

John Warrillow:

Nice said.

Calvin Johnson:

Yeah, great.

John Warrillow:

Speaking of what you’re up to now, point people to where they can reach out to you. I would remiss and not asking you specifically about club need. Can you just give us a [crosstalk 01:14:30] description of that?

Calvin Johnson:

Yeah. Super excited about that. So within Lykki, we spun off this charity component in Nicaragua. And what came out of that was this club need travel adventure company, where people wanted to come down and build homes in Nicaragua. So we bring down executives, and a lot of EO people have come, people bring their teenage kids to show them what real poverty is all about. So I’m spooling that up to do more trips. So our signature trip is Nicaragua, but funny enough, we’ve also done some forum retreats for forums and our signature trip there is… have you’ve seen The Amazing Race?

John Warrillow:

Yeah.

Calvin Johnson:

So, one we’ve done several times it’s called the Maui challenge and these forum groups they just fly in, and we tell them to bring a backpack and we own them for four days, and they’re just like GPS Core and things like that, just running all over the island for four days and loving it. So I think we’ll spin that up a bit more.

John Warrillow:

That’s really cool. So the club being the charity, how is that a charity? How does it raise money? What does it get money from?

Calvin Johnson:

Yeah, so we’re not actually raising money or a charity, so much as we bring people down and show them… this is a area called Crystal Ray, which is an open pit garbage dump. There’s about 10,000 people that live around that and cheer poverty. So, we bring down groups to build homes, but also if they want, they can sponsor some kids, send them to school and we’re more of a facilitator than actually collecting money. So, as an example, one EO guy, he has a large construction company. And says, “I just love this idea of this one for one water thing.” He does projects that are in the millions.

Calvin Johnson:

He said, “Wouldn’t it be great, if in the pitch,” he says, “Hey, this 8 million job that we’re doing, we’ll donate 8 million liters of safe, clean drinking water. And then on the day that we hand over the building too or something, we’ll give you this plaquey you put on the wall.” He said, “But I don’t know how to do this. I don’t know how to facilitate that.” And so that’s where we’ve gotten involved and this construction company just sends us the money. And then we make sure that it is spent accordingly, but they don’t get a tax receipt right now, so it’s unsophisticated, but anyways, we’re helping to support this community.

John Warrillow:

And that’s clubneed.org.

Calvin Johnson:

Yeah, ClubNeed.org. So, running some trips down there.

John Warrillow:

Awesome. And if people want to reach out to you otherwise or on social, where would you point them towards?

Calvin Johnson:

Yeah, I’m on LinkedIn, Calvin Johnson. LinkedIn’s a good place. So, I do a little bit of stuff on the side. I’ve got this website called Workplace Happiness, WorkplaceHappiness.com. And so just pre COVID, like I said, I just started doing some workshops and public speaking and things like that on happiness in the workplace, kind of a fun gig on the side.

John Warrillow:

That’s awesome. That’s awesome. Well, Calvin, we’ll put all that in the show notes, BuiltToSell.com. Thank you so much for doing this. It was great to hear your story. I’m glad it worked out at the end without a few twists and turns in the record.

Calvin Johnson:

Exactly. We’re so unbelievably fortunate. I tell you. Yeah.

John Warrillow:

I’m glad you are. I’m glad you shared the story.

Calvin Johnson:

Yeah. Yeah. Fantastic. Thanks for having me on.

John Warrillow:

Hey, I hope you enjoyed that conversation with Calvin Johnson. If you’re wondering how to support the show, the best thing you can do is give us review wherever you listen to your podcasts. While you’re there, hit the subscribe button, so you never miss an episode. Today’s show was produced by Haley Parkhill. Special thanks to Denis Labattaglia for handling audio and video engineering. And thank you to the entire community of Certified Value Builders™, who help us bring our message to you. I’ll be back into your earbuds next week. Thanks for listening.

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