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The 8-figure Expert

March 18, 2022 |  

About this episode

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Imagine turning your expertise into an 8-figure exit. That’s exactly what Sue Bryce did. Bryce built a $1 million photography studio in an industry where owners are often limited to low six-figure businesses that are dependent on them.

Bryce figured out how to extract herself and then, along with three partners, turned her attention to helping other photographers with the launch of a photography education membership site. Bryce recently sold her business for more than two times annual revenue.

This episode is packed with hard-earned wisdom for anyone determined to succeed. Specifically, you’ll learn how to:

  • Name your company to maximize your chances of selling it.
  • Transform a creative business into a sellable asset.
  • Systematize your business to accelerate new employee onboarding (download our guide to creating Standard Operating Procedures).
  • Convert your expertise into a paid membership online community.
  • Pinpoint the best time to sell.
  • Avoid getting ground down on price after signing an LOI.
  • Protect your private information in the early stages of negotiating with an acquirer.
  • Prepare to ace due diligence.
  • Decouple your name from your brand (even if it’s part of your company name).
  • Distinguish between a serious Letter of Intent and one that is likely to be re-traded on.

Show Notes & Links

Entrepreneur’s Organization (EO)

CraigSwanson.org

 

Definitions


Seller’s Discretionary Earnings (SDE)

Definition: Seller’s Discretionary Earnings (“SDE”) is a calculation of the total financial benefit that a single full time owner-operator would derive from a business on an annual basis. It is also referred to as Adjusted Cash Flow, Total Owner’s Benefit, Seller’s Discretionary Cash Flow, or Recast Earnings.

Source: https://www.exitstrategiesgroup.com/understanding-sellers-discretionary-earnings

 

Adjusted EBITDA

Definition: Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) is a measure computed for a company that takes its earnings and adds back interest expenses, taxes, and depreciation charges, plus other adjustments to the metric. Standardizing EBITDA by removing anomalies means the resulting adjusted or normalized EBITDA is more accurately and easily comparable to the EBITDA of other companies, and to the EBITDA of a company’s industry as a whole.

Source: https://www.investopedia.com/terms/a/adjusted-ebitda.asp

About Our Guest

Sue Bryce & Craig Swanson

Sue Bryce

Sue Bryce is a proud Kiwi, a professional photographer, an educator, and a speaker. Born and raised in New Zealand, Sue has lived in Los Angeles for 7 years. With 30 years of experience, Sue Bryce is one of the most recognizable photographers in the imaging industry.

Connect with Sue:
Twitter
Facebook
Instagram

 

Craig Swanson

Craig Swanson is an entrepreneur, business coach, and co-founder of the online learning platform CreativeLive. Craig thrives being the secret weapon, partnering with online businesses such as KaisaFit, Sue Bryce Education, and The Wedding School by helping them into the multi-million-dollar mark and even acquisition.

Connect with Craig:
craigswanson.org
LinkedIn
Twitter
Instagram

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:

Welcome to another edition to Built to Sell Radio. My name is John Warrillow, and this is the podcast designed to help you punch above your weight in a negotiation to sell your business. And on that measure, I think we will deliver today because we have Sue Bryce and Craig Swanson, who built a membership website for photographers and ultimately, had an eight-figure exit.

John Warrillow:

Lots to unpack in today’s episode. But before we go there, let me just say two quick things. If you like this episode with Sue and Craig, know that it was a nomination. Most of our best episodes come from you, our listeners who have suggestions for people to interview. If you’ve got someone who you think would make a great Built to Sell Radio guest, please visit BuiltToSell.com/Nominate. The other way you can support the show if you’re inclined is to give us a review on whatever platform you listen to us on. That’s super helpful for us spreading the word. While you’re there, hit subscribe, so you don’t miss an episode.

John Warrillow:

All right. Back to Sue and Craig. This episode is going to really unpack how to sell and monetize an expertise-driven company. And so, you’re going to learn, first of all, how to name your company to maximize your chances of selling it, transform a creative business into a sellable asset, systematize your business to accelerate new employee onboarding, convert your expertise into a paid membership online community, pinpoint the best time to sell, avoid getting ground down on price after signing an LOI, letter of intent, protect your private information in the earliest stages of negotiating with an acquirer, help you prepare to ace due diligence, decouple your name from your brand, even if it’s part of your company name, and distinguish between a serious letter of intent and one that is likely going to be retraded on.

John Warrillow:

Here to tell you the entire story of their exit is Sue Bryce and Craig Swanson.

Sue Bryce, Craig Swanson. Welcome to Built to Sell Radio.

Sue Bryce:

Hi, good to be here.

Craig Swanson:

Hi, Thank you for having us.

John Warrillow:

Yeah. So, let’s get into the business. Sue, tell me how you got into the photography business.

Sue Bryce:

I’ve been a portrait photographer for 33 years. First 12 years, I was employed. Turned 30, wasn’t making any money. Knew I had to go into business, had zero business education, bootstrapped a studio in New Zealand, and I managed to make it profitable. I took my little studio to a million in gross income in the year. And my revenue was really low because I was paying a lot of staff, and I just wanted to work it. And I did really well. And then, I started to grow. And then, I knew I couldn’t really scale it. It was a great business. And I looked at international franchise around 2009. It was a whole new market then, especially online. And I actually thought that I was going to create a franchise model around the world. I went to Australia to get some more intel and I found CreativeLive, which Craig had built and was really coming up in 2010 in Seattle. And that was an online education platform. And I was like, “Well, maybe this franchise model that I’ve written is really online education.”

John Warrillow:

So Sue, let me just jump in. So, it was a million-dollar portrait photography business, meaning your gross sales were a million dollars-

Sue Bryce:

Yes.

John Warrillow:

… of taking pictures of weddings and-

Sue Bryce:

No, not weddings, portrait.

John Warrillow:

No. Portrait. Okay. Okay. Got it. So, first of all, that’s a huge achievement of in and of itself. I’m guessing most portrait photographers never get near a million dollars in revenue.

Sue Bryce:

No, most of them don’t get near $100,000 in income. And I’m uneducated. I left high school when I was 15 years old. I didn’t get a high school or tertiary education. And I had a lot of things stacked against me in terms of being in business. But I also learned that I mastered my craft. So you can’t take mastery away. Whether you’re educated or not, mastery comes afterwards.

Sue Bryce:

So I mastered my craft and I really learned service. And then I had to learn really everything about basic law of commerce, which is just how to be sustainable and profitable. And I really built this amazing little business. And I also have a very unique niche in the actual craft department. My brand was unique. So that’s why I knew I could franchise it.

Sue Bryce:

And yes, it wasn’t until I started sharing that story that I realized my story was significant, and so that’s what made the education even more connected. I could teach people how to make money.

John Warrillow:

You and I were talking about the name of that company. And I assumed it was something and like Sue Bryce photography because it seems like every portrait photography is like their first name, last name.

Sue Bryce:

Right.

John Warrillow:

You know, whatever. But you named it something different. Describe why.

Sue Bryce:

Well, everybody kept asking me, “Why did you call it You?” And it was Y-O-U, but my tagline was, it’s all about you. It’s a very feminine brand, and it truly is about my clients. So, people [crosstalk 00:08:39].

John Warrillow:

So it was called You Photography?

Sue Bryce:

Yes, it was.

John Warrillow:

That was the name of the… Yeah, okay.

Sue Bryce:

Yeah. And everyone said, why didn’t you call it Sue Bryce? And I said, “Because I want to sell it.” And I just knew that one day I would sell the studio. It never really felt like mine. I felt like I had built a business model. And also, right from the beginning, small businesses inherently take a lot of cash. I refuse to take cash into this business. And because I said, I want every dollar recorded, so I can sell it. That was always in the back of my head. But to be honest with you, I did not know why or if I was ever going to do that.

John Warrillow:

Sue, I got to tell you. That is really unique among creative businesses. When I talk to creative business owners… So, graphic design studio owners, anything in the creative space, it’s almost dirty to talk about wanting to sell a company like that. Like, “Don’t you know we’re artists, John? Like we would never sell or we certainly wouldn’t build to sell.” And so, I find it unique that here you are in a creative business, which is natural in expression of you, it’s creative in every way. You had this vision to sell it. Oh, I’m curious to know where that comes from because it is very unique among creative people.

Sue Bryce:

It’s called working class hustle. That’s what it’s called. I knew very, very quickly. I was 12 years a photographer before I started my business. I had mastered my craft, but I did not know how to price it, sell it, make a product, make it sustainable, actually run a business, employ people. It just came down to money. I couldn’t charge the industry standard because I felt so guilty. It would cause me horrific pain to say my prices. I realized I had all the shame around money. I didn’t know how to value that and manage that. That’s what it came down to. If I did not learn this skill, I could not have this business.

Sue Bryce:

So, it was clear to me that my craft was already mastered, but nobody would buy it. And I was like, “But I mastered it.” But they’re like, “Yeah, but you’ve got to package it. You’ve got to sell it. You’ve got to run a system around this. You’ve got to market it.” And so, that’s what I had to learn.

Sue Bryce:

I actually learned that over a three-year period with just intense learning because here’s the thing, I wasn’t going to pay my rent. I wasn’t a rich wife. I didn’t have a trust fund. I didn’t have anybody to support me financially. I had to do it and make my rent. So, to me it was like, if you don’t learn this, you are never going to get here. So, for me, it was just always there. Also, I am an artist, but the business I created is not my art form. It is something I have loved, and I created it with great love. It’s not my identity and it can go out into the world. But again, I say that. When I met Craig, we had the conversation that when you do sell a business, it’s like your teenager is going to college. They’re still yours, but you have no control over them anymore.

John Warrillow:

That’s a good analogy.

Sue Bryce:

And that takes that I would love to say that was easy for me. But from the moment I left that studio in New Zealand and went to Australia, I had probably a rock bottom year where I just couldn’t find my feet. And I knew what I had to do. I was just a little scared to take those next big steps. But yeah, that was always going to be my goal was to survive and learn about money. Once I learned about money, I’m now unstoppable in business because now, I know about money.

John Warrillow:

What else did you do? And I want to invite Craig into the conversation in a moment before though, I just want to kind of put a pin in this last section, which is for folks who are in a creative business and they’re hearing you talk about working class hustle, and they’re saying, “Yeah, you know what? I’m sick of being underpaid for what I do, or for my artwork to be bastardized, or undermined whatever. I want to create a business I can sell. And I want to create a service company that I can sell.” I’ve heard one thing that you did, which was to not name it your personal name. So to name it something different, so that you could sell it. Is there one or two others things that you did very tactical, actionable things that you did to make it a business you could sell?

Sue Bryce:

Yes. This step really was just training three photographers that were as equal to me, so that I was not the only one. Because obviously, if I was not working, we’re not making money, so I had to make money when I wasn’t there. That was obviously the first big step I did. And then, the second one was really just understanding that this can be run by anybody, like not owning it or being golem over it. But I sold to my business partner, so I didn’t go through a sale with this company. I didn’t get to experience what that was like. I got to experience what it was like leaving it. But I [crosstalk 00:14:02] get to go through the sale of it, right?

John Warrillow:

Here’s the thing. People are listening to that saying, “Yeah, but Sue, you don’t understand. Nobody does it as well as I do. Nobody takes a portrait photograph as well as I do. There’s no way I could hire people and train them my art form. So I have to be the one taking the photographs.” What was it that you did to get you out of taking the photographs?

Sue Bryce:

I trained three photographers in one month. And within the first month, all three of them had consistently over $1,800 average sales. So, I knew with just those basic steps and the support that I’d created, I could take them to an instant income in my business. And as soon as I did that, I was no longer the photographer. I was the [crosstalk 00:14:52].

John Warrillow:

But specifically, how did you train them again? And Craig, you’re raising your hand because you’ve got some thoughts on this because again, you know what I’m asking you, right Craig? Is so many artists think that what they bring to the table is their art. And so, the idea of building to sell, systematizing, somehow pulling themselves out of what they do is so foreign to them. Craig, what would you add to this conversation?

Craig Swanson:

So I would just say from the outside watching Sue, Sue is an extraordinary photographer, and Sue does create art there. But I would say Sue’s even deeper calling is empowering other women and other people to live their life. And so, Sue is constantly trying to raise up the people around her to take on the next step. So from my vantage point, I wasn’t there for those first three women, but Sue probably took more joy out of seeing them step up to take photographs and be able to build something, then she took out of joy out of her own photography.

John Warrillow:

Sure. I get all-

Craig Swanson:

She’s a natural trainer. She’s a natural trainer. And so, her art was as much the training as it was the photography. And so, that’s why she was able to let go of the training. Oh, the photography.

John Warrillow:

That’s super helpful. And what I want to get underneath is what your secret sauce is for training, Sue? Because what I’m hearing is empowering. People can’t do much with that. That’s like, “Okay, great. So she empowered these three women.” I get that, but I want to know tactically, did you give them a standard operating procedure? Did you document your system? What specifically did you do to empower those three women to build their business?

Sue Bryce:

So I just have to tell myself, I’m not that important. Even when I know I’m better at them, I’ve got to give them an opportunity to get better. I’m just further along on the path than them. But I’m just not that important. I had to keep saying it to myself, like you are replaceable. If you weren’t here tomorrow, other people can do this. And if they can’t, then you don’t actually have a business. And I would just keep saying it to myself. And then, I think I just had to let go. But like I said, that process took over a year. So, it sounds good when you say it.

John Warrillow:

One of the things I looked at before this interview is some of your video training. And I noticed that pricing is a topic that seems to be very common.

Sue Bryce:

Yes.

John Warrillow:

Was teaching these three photographers underneath you, how to price their services part of the equation?

Sue Bryce:

No. My studio was already priced.

John Warrillow:

I see.

Sue Bryce:

They were stepping into my price list. I was teaching them my craft and my system. They got the pricing instantly and because it was locked in, and it’s systemized, it sells because they were doing good work. It was really-

John Warrillow:

What’s the system?

Sue Bryce:

The system was how we photograph and then, how we basically create the packages that they’re going to buy. And then, we offer three packages.

John Warrillow:

Got it.

Sue Bryce:

So, it’s such a basic sales system all the way through. I mean, it has multiple points of connection to your client and service right through to referral. But I see in systems, and I create businesses end systems. And because of that, I systemized how to train them. Then I realized that was my franchise model right there. Then I went and saw Craig, and then I realized, no, this is online education. So I just took what I did, and I trained them. I said under a month, but I actually trained them in 28 days. And so, I took that training list. I presented it to Craig and I said, “I want to teach how I did this in 28 days.”

John Warrillow:

And the rest is history as it were. But Craig, let’s get into that because you met Sue, and you guys started talking about a partnership and union of sorts that would enable her to take her content and train other photographers on her system effectively. Pick it up from there.

Craig Swanson:

All right. So there’s this interim step. In 2010, I was the co-founder of a company called CreativeLive that does online live education worldwide. People get to watch for free. So we have thousands, tens of thousand people watching. And we built up this entire system with a heavy emphasis on photography that replicated what used to be kind of the model in photography, which is three-day interactive classrooms that people would come in person. And so, we were recruiting photography instructors to teach three-day classes in different subjects.

John Warrillow:

On how to become a photographer, a professional photographer?

Craig Swanson:

On how to do different areas of photography, whether it’s lighting, posing, business models, different things like that.

John Warrillow:

Got it.

Craig Swanson:

And Sue was probably the sixth or seventh instructor that we had had locked into a position. Sue, at that time, didn’t have much of a social following.

Sue Bryce:

No Facebook.

Craig Swanson:

No Facebook. But was getting standing ovations when she was teaching in person, and was the person that other top photography instructors were basically pushing me to say, “This woman is extraordinary.” And so, Sue and I ended up talking, and we booked her for CreativeLive, and she basically broke every record that CreativeLive had had up to that point in terms of audience engagement, sales, conversions, everything. She was extraordinary.

John Warrillow:

And then, you built a membership program that people could join that would teach them how to run and build a photography business.

Craig Swanson:

Effectively, yeah. So she taught on CreativeLive for about five years, or about four years. And then, she consciously left CreativeLive and started building her own online education platform. So she, in 2015, basically said, “I need to own my own platform. I can’t be on someone else’s platform all the time.” And so, she started building that.

Sue Bryce:

Craig said to me after my very first CreativeLive, I did three big workshops. My first year I did three of the biggest workshops on CreativeLive. And after the first one, Craig said to me, “If I was not building CreativeLive, I would build a company around you.” And because we instantly connected with this 1, 2, 3, 4, 5, 6.

Craig Swanson:

Yeah.

Sue Bryce:

And growth, people that can see growth in sales the way Craig does, they need a strong 1, 2, 3. And people like me with a strong 1, 2, 3 need that 4, 5, 6, because I could create anything, but I couldn’t really grow it or sell it. I wanted to build my own platform because I could not stop curating content for it. And even after putting out over 60 full filmed segments on CreativeLive, I still needed to take people through it because when you watch online, it’s just me doing it. Now you’ve got to go and do it, so they would pay to watch, but then they would go and try and then they go, “I can’t do that.” So I would just create training systems online that walk them through each step-by-step action every day as challenges. And ultimately, it just grew into a huge platform and yeah, I just had to keep creating it.

John Warrillow:

Craig, so CreativeLive was your business, correct?

Craig Swanson:

It was a business that I started with a co-founder. We ended up taking investment, and it ended up creating just a juggernaut, it grew tremendously. It was started in 2010. I actually left CreativeLive in 2015.

John Warrillow:

Got it.

Craig Swanson:

Yeah.

John Warrillow:

Can I ask you question? And it may sound kind of odd, but I think it’s important to the story. Who owned Sue’s content that she delivered at CreativeLive? I’m wondering-

Sue Bryce:

I have a copyright of all the content, but everything created on CreativeLive is owned by them, and they sell it, and I get the revenue percentage from that as an instructor.

John Warrillow:

I see. Excellent. And so, when you decided to leave CreativeLive and build this membership program with Sue, how did you think about that legacy archive of old content? Because in some ways, I’m assuming that was a bit of a liability because some of the IP that you were going to sell in the membership program existed in the public domain that people buy ala carte. So how did you think about that?

Craig Swanson:

Well, so one thing about spacing, just to be clear, I left CreativeLive, and it was about a year later that Sue and I came together to start building a membership site. She actually started building the membership site her first. She took the first step and then, I came in about a year later after that. And I would say one of our biggest competitors in building Sue’s membership…

Craig Swanson:

And I would say one of our biggest competitors in building Sue’s membership site was Creative Live. And In terms of how we viewed that it Sue is constantly creating. So the one thing is that Sue always maintained the right to all of her intellectual knowledge. What Creative Live owned was all the recordings of Sue’s [crosstalk 00:24:24].

John Warrillow:

The final recordings.

Craig Swanson:

The final recordings, and Sue effectively kept evolving in teaching and got better as a teacher. And so over time, everything on Sue Bryce’s platform was newer, fresher, more relevant.

Sue Bryce:

Well, when you, teach the way I teach you have to teach step-by-step and I teach step-by-step.

Sue Bryce:

And when you teach the way I teach in a private group, you’re watching people move. And when you watch people and they lose momentum or don’t gain momentum, or there are blocks on the path, or they don’t understand a specific level that they have to reach, or they constantly challenged by their own money blocks, I see that so clearly, it was so easy for me to just keep curating the next step, the next step, the next step.

Sue Bryce:

Because watching them take action was pretty much the metric for me as to what they needed next. And so when Craig says I evolved, I just kept evolving the education to the next level.

John Warrillow:

Great, great.

John Warrillow:

So you built this business that was branded Sue Bryce Education, which again, for folks listening, you all know what a membership site is. You’ve all attended a live event, these are things that everybody listening, whether in the photography business or not, are familiar with the membership website had content, how to content that was behind a paywall, effectively, you had three different levels that folks could join.

John Warrillow:

And then they also could participate in live events. Am I getting, and the business model right, loosely?

Craig Swanson:

Yeah. Yeah. That is the effectiveness of it. And Sue got into a rhythm. The first thing we really built out was a live weekly broadcast from Sue. So every Tuesday at noon, California time Sue was going live and people got into this rhythm of every week. Sue was there helping them learn something new and she was constantly creating new content, constantly teaching new things.

Craig Swanson:

And that was the heartbeat of this membership system. And then-

John Warrillow:

This… Yeah.

John Warrillow:

I was just going to say, this becomes relevant as we get into your acquisition story.

Sue Bryce:

Well, I just got to say when I started the LLC it was the Portrait System.

Sue Bryce:

I had every intention of building that platform and calling it the Portrait System. And then when I ended up partnering with Craig, George and Aaron, they all sat me down and said, “We’re calling it Sue Bryce Education.”

Sue Bryce:

So our LLC has always been the Portrait System, but Craig was like, “When I put your name on it, it sells more.”

Craig Swanson:

Yep.

John Warrillow:

Interesting. Okay. So we got to get into this. So, but just for folks to be clear, it’s called the Portrait System, which is a membership program, three price points.

John Warrillow:

I mean, everybody’s seen a paid membership program before.

Craig Swanson:

Yeah.

John Warrillow:

And Sue was adamant. I mean, she’d gone through this with her own portrait business. It wasn’t Sue Bryce portraits. It was you. And so she had this, this was obviously an important piece for her, but from your perspective, Craig, I mean, the numbers don’t lie when it has Sue Bryce’s name on it, it sells more.

Craig Swanson:

Exactly. And, and I was a strong advocate and we did, so the corporation was the Portrait System, LLC. And we had a complete design of the website that was branded the Portrait System.

Craig Swanson:

And before we launched, we had it out, team arguments, team debates, and we ended up launching as Sue Bryce Education.

John Warrillow:

So what happened, Sue? How’d you lose that battle?

Sue Bryce:

Look, I understand what they were saying, but I got to say the weird thing is it’s also a way to hide, not putting your name on it.

Sue Bryce:

And when you build where you help people build businesses. So often people, will put fluffybunny.com or whatever it is. And you just think, “Well, you can own who you are in this.”

Sue Bryce:

There’s some ownership there. I didn’t want to be that person. Why did I choose a subscription site, I think is more important because I was watching the market was all downloadable. And Craig had created Creative Life to be right there, downloadable.

Sue Bryce:

But I had this idea that I needed to have a library and I wanted a Netflix model. And I was very lucky to know somebody in the Netflix startup team, in the executive team.

Sue Bryce:

And I actually called him and I asked for council and we spoke for a couple of hours and he was like, “This will work for you because you have the content. Once you get that audience locked in there with their membership, it’s attrition, that’s your only concern.”

Sue Bryce:

And we went through it and I came back and I knew I wanted it to be the portrait system, I wanted it to be, and again, even though it was entirely my content, I still thought I could sell it.

John Warrillow:

Interesting. So I want to, I want to come back to the naming issue because I think it plays a central role in the acquisition.

John Warrillow:

Just a couple questions on metrics. So just give listeners, if you don’t mind, and again, I don’t know how much you could share, but say how big did you get the membership, the company in terms of revenue before you entertained the first acquisition offer? Where were you, top line?

Sue Bryce:

Before you say that? Can I just say the year before that I was on my own before you boys?

John Warrillow:

Yep.

Sue Bryce:

I kept that running very, very tight, my numbers tight, so I could really see how, what I got to build. And my first launch year, without the boys, I launched with 74 videos, we now have over 1,000, six years later. 74 videos. And I had an internal blog and I got 2000 students instantly at $25 a month. And my first year of revenue, just off that platform was 675K.

Sue Bryce:

Now I didn’t have any employees. I was running this from home. Everything else was virtual infrastructure in terms of who was building my website, my crew that would come in and film were all just contracted. So if I wasn’t shooting, they’re not working.

Sue Bryce:

So my profit was extremely high on that 675,000, but I had no sales or marketing set up at all, because I was getting all of my clients from my private group that I’d been coaching for years.

Sue Bryce:

So they not only came in on my second year, they rebuilt my site and we launched, we launched effectively 2.0, so I did manage to get that little year before them. And then when they came in, this is where they grew me. I really grew. Because I could never grow.

John Warrillow:

So Sue $675,000 a year is a pretty nice lifestyle business without a lot of employees to pay. Did you ever think about just running that independently?

Sue Bryce:

Yeah, because I also, that was the first time I’d actually got my personal income to a million dollars because I also had other income coming in from, my digital products, and what I do as a photographer.

John Warrillow:

Yeah. Why on earth did you give all that up?

Sue Bryce:

I know. My goal in life was to get my business to a million dollars, I did that in at 35, but when I got my personal income there, I remember thinking like, “This is exactly what I worked towards,” but I also knew that it wasn’t enough.

Sue Bryce:

I knew that it wasn’t enough to… I could maintain it, but I wanted to have more than that. I wanted to.

John Warrillow:

When you say more than that? Do you mean more money?

Sue Bryce:

More lifestyle, more money, more growth, I guess, more building. I was just always focused on loving what I was doing. So I guess that just mean I made more of everything.

John Warrillow:

Hmm. Interesting.

Sue Bryce:

Yeah, I don’t know. I often think back because I look at being boxed in and all these business and you are like, “That’s what makes it easy to sell them, when you start to hate them.”

Sue Bryce:

And I said, that “Craig, there’s something about me that I start to wilt, and I don’t just wilt. I wanted in that, after I built it and it starts really gaining traction, once it’s making money, lots of money, I’m not interested.” Yeah, that doesn’t interest me. What interests me is getting it to that place. And then they can have it after that, go for it.

John Warrillow:

Yeah. We’re also our own worst enemies when we get the business to be successful in some cases, because we do self-destructive things. I don’t know if that ever crossed your mind or you experienced that ever.

Sue Bryce:

I’m just never out of startup phase. Even now that I’ve got… Even since the last 10 years of income, I still act like I’m bootstrapping. I still work like I’m bootstrapping. I still work… I can pull 15 hours a day like I have to, like it’s my job. And I remind myself, I’m an entrepreneur.

John Warrillow:

So when Sue started and you really got involved in the business the previous year, it was 675 in top line. Craig, where did you get the business to before you received first acquisition offer in terms of top line revenue?

Craig Swanson:

So we got this up to, I think just shy of $7 million a year and there had been some expansion. We actually had a number of other elements added onto this. We did a conference, we spun off another site called the Portrait Masters, which sold other photographers’ work as downloadable products.

Craig Swanson:

And then Sue also added a photo contest and accreditation that brought it… So we had several different adjunct business models that attached onto this core business.

John Warrillow:

Give me the rough breakdown between those five, so conference in terms of percentage, again, it doesn’t have to be exact, but percentage of the 7 million. How much [crosstalk 00:34:40] conference?

Craig Swanson:

Yeah. The conference was doing, I think, Sue, just just shy of a million a year. Did we ever break a million with the conference?

Sue Bryce:

Yeah. 1.1, 1.3 in ’19.

John Warrillow:

What about Portrait Masters?

Craig Swanson:

Portrait Masters. I think we got that up to about 4 million. Oh, so Portrait Masters, which is the online or for individual photographers. I think that would be between 1.5 and 2.5 on an annual basis. It’s much more spiky and lumpy in terms of income. Because it’s individual [crosstalk 00:35:07]sales.

John Warrillow:

What about the membership?

Craig Swanson:

Membership, we got up to, I think just shy of 4 million.

John Warrillow:

Wow.

Sue Bryce:

Yep.

Craig Swanson:

Yeah, mm-hmm (affirmative).

John Warrillow:

And the rest between the contest and the accreditation.

Craig Swanson:

Yep.

John Warrillow:

In terms of the conference business, what was the churn like on the membership program? Like did you ever measure sort of annual churn rate or monthly churn rate?

Craig Swanson:

Well, honestly I think we’re going to talk about what we learned in a due diligence process. To be honest, we didn’t really fully understand our churn rate. We knew it from a top line standpoint. We knew it a lot from individual stories of individual people, but we didn’t really know it analytically, the way we should have.

John Warrillow:

What did you come to learn about your churn rate through doing analysis, post…

Craig Swanson:

Well, let’s see, we were doing about a 10% churn per year and the difference between annuals and monthlies really played a big difference. So we ended up getting into a lot of annual subscription and so we had very lumpy income on the annuals. And I think we were running about a 10% churn, might be a little bit higher than that actually.

John Warrillow:

Got it, on an annual basis.

Craig Swanson:

Yeah, mm-hmm (affirmative).

John Warrillow:

I mean, that’s incredible. On membership websites, typically, they’re notorious for having a very high annual churn rate. So if you were retaining…

Craig Swanson:

That’s-

Sue Bryce:

Yeah, our loyalty rate is extraordinarily high and our engagement is extraordinarily high, especially when we got that very first private equity review, which Craig’s going to tell you about.

Sue Bryce:

But I think it’s, I now teach content curation and I teach people how to build online businesses, platforms, content, workshops, et cetera.

Sue Bryce:

And I realize that there really is no platform without a live component. And there really is no live component without a platform, and they really feed each other.

Sue Bryce:

Were we were very groundbreaking in the sense that we had a live broadcast going out with a custom built sort of chat inbox where I can just respond in real time to all around the world, and that engagement is extraordinary.

John Warrillow:

Yeah. Yeah. And want to get to that in a moment, but let’s get into the acquisition offer, because you’re almost at 7 million in revenue and you were approached… Talk to me about that. Craig, who approached you and what was that conversation like?

Sue Bryce:

So, it was a private equity firm that was doing a roll-up in the photography space with online businesses in the photography space.

Sue Bryce:

And they initially approached us through one of the companies, the first major company that they had acquired to start that roll-up. And they approached George, who’s one of our partners that basically has all the business relationships. He’s got the amazing Rolodex.

Sue Bryce:

And just asked how interested we were. We at the time had not really been interested, but we set up a flight out to the East Coast to have an all day meeting with both the private equity team, as well as the company that they were running.

John Warrillow:

Did you have any sense of what the business might be worth before you flew to New York?

Craig Swanson:

Mm. We only had a number that we, as owners were interested in.

Craig Swanson:

I think Sue had a post-it note for $10 million on her mirror at that point.

Sue Bryce:

I did. I’ve had that for since 2000-and I think 14, it had a special note and I’d written that as my my goal in life. Yeah.

John Warrillow:

What did 10 million mean to you, Sue? What was it about that number that was important enough to have a sticky note on your mirror?

Sue Bryce:

I’ve created that amount of content for someone else. And I wanted to do the same for myself.

Sue Bryce:

I think the post-it note was a rejection response. When I offered that content to sell before I built my own platform, I considered that I was smart enough to curate my own content and perhaps leverage that or license it on somebody else’s platform.

Sue Bryce:

I approached a few people, I presented it to them and this one guy laughed at me, and I was a little humiliated, but I had to post-it a little thing of bright pink post-its on top of my laptop. And when he like said this, this thing to me, I wrote it onto this post-it and he said to me that “Anybody, Sue Bryce, can build a $2 million brand, but there are not many people that can build a $10 million brand, and to think you could do so with your name is arrogant to assume.”

John Warrillow:

He used the word arrogant?

Sue Bryce:

Yeah. And I wrote that. I actually wrote that whole quote and then I wrote $10 million and I cried. I walked out of there, I cried and I just had a good, hard talk to myself.

Sue Bryce:

And I was walking through this park and there was, I just thought to myself, “I’m going to do this on my own. I did the first business on my own. This is where I’m the best, on my own. I’m not supported.” And I just went, (singing) I was standing there and this homeless guy on the park bench there went (singing). And I was like, “Thank you very much.”

Sue Bryce:

I didn’t know the next line. And I walked away and I just was like, “I’m going to do this. Watch me.” So to me, that note was a challenge. It was, “You can’t do this. You’re arrogant to think you even can.” And I remember thinking, “Well, that is all I’ve ever needed to achieve anything is people to tell me I can’t.”

Sue Bryce:

Because I’m sorry, people told me that my whole life. And I think that might just be where my rocket fuel comes from. So yeah, that’s it.

John Warrillow:

Awesome. So you fly to New York, Sue’s got her sticky note of 10 million on her mirror. What were those meetings like? I mean, can you describe that experience for me?

Craig Swanson:

Well, first of all, we were just meeting and then they sent us an agenda where they asked us to put a bunch of stuff together for a presentation.

Craig Swanson:

So it evolved from them pursuing us, to them wanting us to make a presentation to them about us.

Craig Swanson:

And I remember as a team, we were pulling together slides and we were trying to figure out how to show the best we could, show what we were. It was great, it was high energy. We talked all day, Sue really wowed them personally.

Craig Swanson:

And I think during that conversation, we also, as a team, started to see some of the weaknesses that we had. So we weren’t at $7 million at that time. So we had actually like hit our personal high point early in 2018.

Craig Swanson:

And for various reasons our revenue had started to decline a little bit. Some of the lumpiness had started to decline. We had gotten very enthusiastic about a bunch of ideas.

Craig Swanson:

So we were actually increasing our spending on a whole bunch of ideas.

Sue Bryce:

We were fat.

Craig Swanson:

We were fat. I think every one of the partners had a personal hobby or interest that they were advocating for. And so we had spun up all these individual projects because we could afford it. And we were making a lot of money.

Craig Swanson:

And as we had someone just evaluating our company from a financial standpoint, it became clearer and clear to us that maybe we weren’t quite as strong as we thought we were. And by the end of that meeting, we felt really good about how we showed. But we also, as a company said, “I don’t think we really want to pursue the acquisition at this point.”

Sue Bryce:

I mean, we had the conversation of, “Do we accept? Do we accept five? Do we accept four?” We had that conversation. Like “What’s the lowest you are prepared to go?” And I was like, when I realized we weren’t actually going to get to 10 million, because we weren’t ready for that anyway, in my head I was like, “Okay, maybe my next company will be 10 million.”

Sue Bryce:

I remember thinking that, but then I looked at them and I said, “No, I don’t… That’s not right.” And it wasn’t that the offer wasn’t right. I think we weren’t right.

Sue Bryce:

But we’d also… you go through, we were fat, yes. We were a little disconnected. You go through personal things. I lost a parent, you have bad months and we looked back and this was the perfect opportunity to look at it and go, “How do we make this better again?”

John Warrillow:

Okay. Hold on one second. Because you guys are skipping ahead in the story and I want to make sure our listeners are following along.

John Warrillow:

Okay, so you go to New York, you have an all-day meeting at this point. Sue’s got the sticky note for 10, the specter of… At this point they have not put an offer in front of you, is that correct? Correct.

Craig Swanson:

Correct.

John Warrillow:

So you have this long meeting where you’re putting together all these slides and you’re realizing, “Oh our revenue’s dropping a bit, our profits looking a little less than it was, because we’ve got all these pet projects.”

John Warrillow:

But you put the slide deck together. You have what you said was like a fruitful meeting that you felt like, “Wow, we really presented well.”

John Warrillow:

You’re leaving the room. Did they put a number in front of you at that point?

Craig Swanson:

No, they did not put a number in front of us at that point.

John Warrillow:

So you leave the room, everybody’s shaking hands. What did they say at the end?

Craig Swanson:

This was an informational meeting. We knew that they were interested. They had floated some numbers and based on where we were responding, I felt like they knew that they shouldn’t make us the offer at that time.

Craig Swanson:

So we were going to go regroup, talk as business partners, we were going to get back to them. They were going to get back to us. And we were basically going to talk what happens next after this information’s all been shared.

John Warrillow:

Okay. So they were throwing some sort of softball salvos over the transom to see your reaction.

Sue Bryce:

And I think what they were doing there really for was because they knew that we were probably not looking as good as we should. So if they throw a softball out, see if we are comfortable, then they can start cutting us down from that number.

John Warrillow:

Yeah. Yeah.

Sue Bryce:

That’s exactly what they did.

John Warrillow:

And so in the meeting, how did they… Did they say like, how would you guys feel about one time’s revenue or did they throw a number, how would you feel about six or five or how did they feel you out for that?

Craig Swanson:

So we were not really talking in terms of multiples. And at this point, this was a private equity firm and it was very apparent that the teams that we were working with at the private equity, they were negotiators.

Craig Swanson:

They were salespeople. They knew how to balance a relationship. They weren’t going to push harder than we were ready to receive. They weren’t the people that were basically doing all the hard numbers, they were trying to get a sense of us.

Sue Bryce:

There was a consistent conversation back then about EBITDA.

Craig Swanson:

Yeah, yeah.

Sue Bryce:

About five, six times EBITDA. Yeah. But so we were having that, openly, saying those words because-

John Warrillow:

Do you remember what your EBITDA was at that point, Sue? Ballpark?

Sue Bryce:

No.

Craig Swanson:

I don’t know… so we had about five different business, it’s something that came up during due diligence, but our PnLs had four or five different business models overlaid all on top of one PnL, it’s really hard to parse this out.

John Warrillow:

Okay. Okay. So you don’t know roughly what your overall EBITDA margin was on the 7 million? You’re not sure exactly.

Craig Swanson:

Yeah.

John Warrillow:

Okay. But they were floating. Let me see if I get this straight and for folks listening to this, who’ve never gone through the process. I think they’re curious, like “What’s it going to feel like when I get into the boardroom and how am I going to know what they’re doing?”

John Warrillow:

And so what I’m hearing you say, Sue, is they were softly throwing out numbers like five to six times EBITDA…

Sue Bryce:

Well, this was a really unusual experience for me. Hang on. Because those people sitting there for those hours, I felt like we were naked and standing on stage.

John Warrillow:

Sure.

Sue Bryce:

We were looking through our PnL numbers, our PnL, through our private stuff and asking, “Why was that dropped this year? Why did this go up? Why did that go down?” It was like everything you’ve ever done was now put up on that board and you were standing there like a kid going “Yep, I did that. I made that decision.” We did that for you. [crosstalk 00:47:56].

John Warrillow:

But again, that’s helpful to know.

Sue Bryce:

Yeah.

John Warrillow:

That feeling.

Sue Bryce:

Yeah.

John Warrillow:

And again, I think that’s very natural…

John Warrillow:

… that feeling.

Sue Bryce:

Yeah.

John Warrillow:

Again, I think that’s very natural. But to be clear, they threw out numbers, like five to six, and then you, in the back of your mind, doing the back of the napkin math saying, “Well, that’s not going to get me to 10.”

Sue Bryce:

No.

Craig Swanson:

Yeah.

Sue Bryce:

I remember a thing in doing that EBITDA and, in my head, going, “Oh, they’re going to offer us probably seven or eight, and I’m never going to-

John Warrillow:

Yeah.

Sue Bryce:

Yeah, not [crosstalk 00:48:26] it.

John Warrillow:

That’s super helpful. Did you ever call them on the apparent “bait and switch” almost, because you were being wooed? It’s not like you went to them with a book and you went to them hat and hand saying, “Please buy us.” You were being wooed; they came to you. You were going to New York to have this mini and all of a sudden they throw this agenda at you and they want four years of financials and your growth projections. Did you ever call, “Well, hold on a second. Time out. You came to us?”

Sue Bryce:

Oh no, we were excited.

John Warrillow:

You were excited? Okay.

Craig Swanson:

I would also say, there was this other overlay happening on this, which is, there had been some internal debates and differences within the partners in terms of what business we wanted to grow, different directions, some unresolved. These were also in play with the four of us as we were going through this process. Sue had lost a parent. Also, early in 2018, Sue had taken herself off Facebook, had basically, to protect her own sanity stopped being as visible, and we had not replaced a marketing engine that wasn’t Sue or necessarily even acknowledged that we needed to. So there were a lot of things that we were on this slow glide that were probably the first year into a glide path that we were not quite admitting, and pulling these numbers together really surfaced for us that we had been gliding for the last 12 months instead of growing.

John Warrillow:

When you say “gliding” you mean to plateauing in terms of revenue?

Craig Swanson:

Plateauing. It’s a glide because our attrition was not terrible but, the numbers, we were slowly decreasing in all our numbers.

John Warrillow:

Yeah. So you leave that meeting, they’re all pleasantries and shake your hands and wonderful, how did you leave it? What was the commitment to one another at that point.

Sue Bryce:

A falling knife?

Craig Swanson:

Well no, that’s later Sue. We said we’d get back to them, George would get back to them.

John Warrillow:

Get back to them about what?

Craig Swanson:

We’d get back to them after we had a chance to group. We left the physical meeting saying we need, as partners, to connect, see if we want to pursue this. Just effectively, everyone’s learned something, let’s connect next week and see where everyone’s standing. So there was no [crosstalk 00:50:57].

John Warrillow:

Did you have a nondisclosure agreement with the private equity group?

Sue Bryce:

Yes.

Craig Swanson:

Yep, that’s it.

John Warrillow:

You signed one prior to a meeting?

Craig Swanson:

We did.

Sue Bryce:

Yes.

John Warrillow:

Okay. Then where does it go from there?

Craig Swanson:

We, as a team, just said, “We don’t want to pursue this.” It didn’t feel like it was going to work. George called them back and said, “We’re going to pass at this point.” He said he was very sorry to hear that and effectively came back, I think about a day later, and said, “Look, we totally hear that you’re passing. Can you just do the exercise of give us a list of what it would take for you to say yes?” So we hear the no, but tell us what would be a yes. That’s where we, as a group, basically went back and made a bullet list of what we were interested in.

Craig Swanson:

Some of the things on that list actually were things that were coming up in the meeting that we were really clear about that, that were some of the reasons we said no. One is, they would’ve been acquiring all these digital companies and needed someone to help run them and were seeing the “us” as a leadership team coming into the companies they were acquiring, and we didn’t want to do that. Our list was that we, as owners, didn’t want to have to work more than 10 hours per week in any transition point, and we didn’t really want to be longterm employees of whatever we were working on.

Craig Swanson:

We didn’t necessarily want to be longterm part of the sale that they were buying, and we had some numbers in terms of, we want a bit. We didn’t want jobs after the acquisition, we didn’t want limits of what we can do outside of photography, and we wanted a cash target of an acquisition of $8 million. Those were the things that we gave them as a bullet point and said, if they came back and said we can do those things, then we’d be interested in talking. But other than that, we had made peace that we were basically passing and we going to go fix our business and make it more valuable and then have a conversation later when it was fixed.

Sue Bryce:

Was it then they did they survey?

John Warrillow:

What was their reaction to the bullet list?

Craig Swanson:

They said, “I think we can do that.”

John Warrillow:

They said they think they can do that?

Craig Swanson:

And they ended up giving us a term sheet at $8 million with, I think, a $2 million holdback.

John Warrillow:

When you say “holdback” what do you mean by that?

Craig Swanson:

Was it a holdback? I think it was $2 million was going to be in the form of stock or in terms of ownership in the roll up companies. Although honestly, at that point, the whole idea of a roll up was still quite a new concept for all of us.

John Warrillow:

Okay. So it was a $10 million offer, $2 million of equity carry, $8 million cash offer.

Craig Swanson:

$8 million offer, $2 million carry.

John Warrillow:

So of the $8 million, $2 million carry?

Craig Swanson:

Got it.

John Warrillow:

So $6 million in cash, $2 million in carry.

Craig Swanson:

Exactly.

John Warrillow:

Got it.

Craig Swanson:

And I think we all decided, “Yeah. If this could work, this work.” This would be great for Sue to throw in something.

Sue Bryce:

Yeah, I think everybody was “yup” except for me.

John Warrillow:

You had that damn sticky notes.

Sue Bryce:

I know, and they would’ve just shook their head at me.

Craig Swanson:

Then we were in due diligence. So basically, at that point, we signed the term sheet.

John Warrillow:

Hold on, I want to explain it. Sue, you were shaking your head “no” you didn’t want to do the deal, is that right?

Sue Bryce:

I just remembered thinking in my head I’d set this number, and in my head I was working towards that.

John Warrillow:

How did you get comfortable, because it sounds like you signed the term sheet?

Sue Bryce:

I guess. I don’t know. I think back to then, it was happening and, again, I think I was just excited to be able to exit so I could build something new. So I was probably struggling with the idea.

John Warrillow:

Yeah. Interesting. So you signed the term sheet, what happens next?

Craig Swanson:

Well, then we kick off due diligence and then the paperwork starts flowing. They spun up digital rooms for us to start documenting everything. Aaron, who is our head of operations, basically he started working nonstop on pulling these things together. We pulled up-

Sue Bryce:

For months.

Craig Swanson:

For months. Basically, there are four areas of due diligence, there was market and customers, there was financial due diligence, there was legal due diligence, and then there was staffing and leadership due diligence. Each one of these, they had a separate team basically going in as deep as they could. They had a third party company come out and start interviewing our customers and surveying our customers, serving the audience as a whole, adding on what they already knew about the market, because they had been doing a lot of market research in the photography space. Anyway, it’s part of the roll up. They started doing lot of financial due diligence, which was the most problematic part for us. The way I looked at it, you could almost look back through our financials like rings of a tree that’s grown and understand different ways we thought about our business at each year as they were shifting, but they didn’t necessarily hold together in a coherent way.

Craig Swanson:

Our expenses had really ballooned in 2018, so all this was surfacing with financial due diligence. Legal, we had some relatively complex legal structure that we were trying to surface. And then staffing. Some of this was really surfacing debates and internal conversations we’d had before, because we did aspirationally say we wanted to build a company that could work without us or without Sue, but all of our behavior inside of the company tended to be opposite to that stated intention. We didn’t necessarily have a marketing system that could work without Sue. We had no content creation system that could work without Sue. Sue was feeling the weight and was also pushing back against growth because she saw growth as adding weight to her shoulders, as opposed to being something that she should feel joy in.

Sue Bryce:

Therefore, you want to set fire to it.

John Warrillow:

In the private equity group term sheet, how did they treat Sue’s ongoing involvement? In the three bullets it was like, 10 hours a week is max, we don’t want to be employees, we’re not running this thing. Right? They said, “Yeah, we’re good with that.” How did the term sheet specify Sue’s role ongoing?

Sue Bryce:

I remember, with them, I only know this one, this last one.

John Warrillow:

Yeah. I want to get to this one, but in that private equity group, how did they treat it?

Craig Swanson:

I mean, honestly, they gave us what we asked for. I think they knew that if they got us farther down the road they’d be able to make changes. They were experienced. They were not afraid to basically adjust the term sheet as necessary based on what was surfaced during due diligence. I would say, if we’re going to compare different systems, the term sheet from the private equity firm came super fast. It came within the first conversation and it basically mirrored what we said we would need to have in order to say “yes”. Then we went into deep due diligence and they knew all along that they were going to have a second term sheet, which we suspected, but we didn’t know. We had that second term sheet that showed up around November that basically took everything they had learned from due diligence and started basically picking it apart.

John Warrillow:

So the original term sheet was $6 million cash, $2 million carry, Sue, 10 hours a week max, you’re on your own to go do other things, have fun, love you. Second version of the term sheet after due diligence, what was the difference?

Craig Swanson:

Second version of the term sheet, I think, got down to $5 million cash with no carry. Still, none of this is binding, and I think even then it was still them just getting what seemed justifiable, but also part of just chipping away at the conversation. Based on what they had seen in due diligence where we were due diligence, I was pretty sure they were not going to close at that. This just felt like a resetting of expectations at that point.

Sue Bryce:

Yeah.

John Warrillow:

Interesting. So you knew that it was going to drag out even further, like pulling out yarn on a sweater.

Craig Swanson:

Exactly.

John Warrillow:

Interesting. So you’re down to $5 million cash. In the second version of the term sheet, was Sue’s role changed at all? Did they try to lock her into ongoing?

Craig Swanson:

No, not at this point. Although, at this point, we had not gotten as heavily into the staffing part of the due diligence portion. So basically they were chipping down based on the financial due diligence. And really, where really things came out, which also explains why they were engaging with us, is we absolutely maxed out in the customers and market awareness. So basically what the market thought of us and what our customers thought of us was… They put a little two-by-two graph and we were far up in the upper right hand corner in terms of what the market perceived as excellence in education. Our finances were messy and had been declining for 12 months. The legal and staffing, they were somewhat delaying on getting deep into that because they were going one step at a time.

John Warrillow:

So you’re down to $5 million cash, no carry, what was your reaction to that second term sheet?

Craig Swanson:

Well, I think we started to think that we were probably done, but maybe it’s worth keeping this thing alive a little bit longer to see where it goes next. But certainly enthusiasm is starting to drop within the partners. Also, there was not a lot of confidence that it was going to close at that new term sheet.

John Warrillow:

Sue, you want to add to that? What was your reaction?

Sue Bryce:

Yeah, I just gotten to that point where, when I read the survey, the results especially, how we were being perceived, it said that we were-

John Warrillow:

By your customers?

Sue Bryce:

Yes, that we were a recession proof company, that we had the highest loyalty they’ve ever seen in a company they’ve reviewed. I was reading that saying, “But we still have the magic.” I’m of a firm belief that all the players, whoever the owners are, whether there’s one or 10, they have to be in alignment, and we got out of alignment for there. Like Craig said, we had private projects and stuff. But when I saw that survey, I remember thinking, “We have the magic; we’ve just had a bad year.” When he asked at that meeting, when he specifically said, “Why did you have a bad year this year?” they all looked at me and I talked about how two of us lost a parent that year and we went through all the stuff. Personal stuff comes into your business and life and you’ve got to expect that. It’s just what it is.

Sue Bryce:

Business partnerships are like a marriage. When you get into business, you don’t talk about the divorce because you don’t think you’re going to get divorced, but there’s got to be some exit plan, especially when you’ve got a whole lot of chefs and no cooks. You got four people there making decisions. That’s four people pulled different ways. That’s always going to create a problem. Once we got there, I was like, “The business wasn’t fractured; we were.” So I figured we could be fixed. My worst case scenario was, I’m never going to run a ship aground while I’m at the helm and this ship has my name on it so I go into “save it” mode where I’m like, “Right, how do I turn this around? If the boys don’t want to be in anymore, I have to buy them out. Maybe I flip them out, I take this back and I run at it.” But we sat down, we saw that magic in that survey, we reconnected, we all got back into alignment. We created a plan to bring it back and we just got into alignment again. That was it.

John Warrillow:

At some point, it sounds like you chose to disengage from this private equity group. Who cut it off? You’re down to $5 million in cash, second offer, you’re rekindling it, but who actually made the first move to say, “You know what, this isn’t really going to work?” Did you call them or did they call you?

Craig Swanson:

What we did is we basically said, “Hey, we need to start rebuilding the business. So around October, November, we had a lot of heart-to-heart conversations. We basically said, we’ve been out of this for a while. Whether we sell this now or sell this later, these things have to the business to make it function. And so we basically said, let’s start rebuilding it today for the business, it needs to be [inaudible 01:03:38]. Then we let this due diligence process continue just because we figured, why pull out of it? Why not let this thing continue? But I don’t think any of us had a lot of belief it was going to be something we were going to end up closing on.

Sue Bryce:

Although it’s the incredible experience that we got that inevitably taught us so much that it actually was probably the catalyst as to why we rebuilt the business that year.

John Warrillow:

One of the best ways to see what drives the value of your company is try to get acquired and have it get derailed.

Craig Swanson:

They spend about $250,000 on the due diligence process. They flew me, George and Aaron out to Boston to basically go over every line item of our books that they’d reconstructed with this flanks of eight CPAs from Ernst & Young, so we probably got this massive education process of how you build a business in hindsight.

John Warrillow:

What was their reaction when you finally said, “We’re out?”

Craig Swanson:

They knew the numbers that we were going to say “yes” to, so the person that’d been basically managing this all along effectively knew that they were going to have to continue chipping away at that $5 million based on what they were seeing. They also knew we were not going to say “yes” to that. So it was more of a soft ending of the process. Basically, they said, “We…” I think this was in December. In December, they said, “I don’t think we’re going to pursue this any further. We’re still interested. We don’t want to formally end the relationship, but we’re not going to continue putting in work into the due diligence process. We’re going to let all the agreements lapse at this point.” We were not arguing against that. We were at the same place they were.

John Warrillow:

On the term sheet, was there a specified length of time for due diligence? Usually, it’s 60 days. Do you recall if that was stated specifically?

Craig Swanson:

You know what, there was a stated length of time for the validity of the term sheet, but due diligence itself was not mapped out in any way.

John Warrillow:

Yeah. So for my listeners who are entertaining this kind of deal, one of the things to keep in mind is, if you can put hard parameters around the due diligence period, sometimes you can avoid some of this feeling like you’re pulling a yarn on a sweater that just continues on ad infinitum. So, that’s something to think about.

Craig Swanson:

One other thing also to point out, we also didn’t bring anyone else from the outside. They started this conversation. We did not go out and find anyone to represent us for the process. So it was for relatively newbies on our side, letting them largely guide the process. And so we were very reactive to what was going on as opposed to even necessarily knowing what it’s supposed to look like.

John Warrillow:

So the deal comes to an end at the end of 2018?

Craig Swanson:

2019.

John Warrillow:

  1. Okay. Got it. Where does it go from there? You reconstituted the partnership, you realigned, you refocused. We could talk for the next five hours, but I don’t think we should. I think we should focus in on maybe two or three things you did to really clean up the business, improve its value, leading up to what ultimately was your acquisition.

Craig Swanson:

This conversation really started around October, November, but we, as partners, basically made a number of decisions together. One is, our leadership team was really muddled. The four of us were co-equals looking for consensus among that. We basically said the next phase of this is the company needing to be stabilized and, of the four of us, Aaron is now going to effectively function as the head of Sue Bryce Education. Sue is not going to be the head of Sue Bryce Education, Aaron is basically going to run the company.

John Warrillow:

How’d you guys do up the equity? Was it equal shares for everybody?

Craig Swanson:

It was 50% Sue and the remainder amount is one third, one third, one third. George, Aaron and I split the other half a third each.

John Warrillow:

Okay. So Aaron is a shareholder but a minority shareholder, but takes the role of CEO?

Craig Swanson:

Yeah.

John Warrillow:

Got it. One cook in the kitchen. Sue, how did you feel about relinquishing control of a company that is your namesake to Aaron?

Sue Bryce:

I don’t have any control. I’m a content creator. I should not have any control. I don’t manage people. I should not manage people. I just create the content. So you make a platform and I’ll turn up and I’ll do really, really well, but don’t give me anything else to do. You need to put somebody in place to manage me.

John Warrillow:

Great. That’s super helpful. You mentioned one thing you did was align the management team and make Aaron CEO. What else did you do to clean it up?

Craig Swanson:

This was me advocating, one of the problems was we were doing too much. We were doing way too much. We were spinning up new business models, we were spending money on side projects. Effectively, no longer were the owners to find their personal satisfaction or side projects within the business. If we had things we wanted to do that didn’t match what the business needed, it was our job to go start another business, go do something else. But the goal was to keep our time in the business to 10 hours or less for each of the founders, for each of the [crosstalk 01:09:04].

Sue Bryce:

We did that by putting a block on creating anything new, because we are people that, in order to… If you said to me, “We need to make an extra $200,000 this quarter,” I would make something to sell because that’s how I operate. So we had to do this next round of rebuilding without creating anything new but taking what we had and just maximizing, using everything, every system, making sure everything we had was incredible. That was a great challenge, to not make anything, because you’re just spending more money again to try and get more money.

John Warrillow:

What next? Third thing you guys did?

Craig Swanson:

The big thing is basically to build a succession plan to run and grow the company without Sue. So that meant that we had a marketing and sales team that was empowered to sell without Sue. Previously, Sue was integral to the sales and marketing and also was feeling reluctant to grow the business because it was just creating more weight on her shoulders so she would be the theoretically leading or part of the sales team, but also pushing against selling. So we basically had a team that-

Sue Bryce:

That’s when we employed Sarah. She started to do a full-time ninja online marketing strategy and creating ads. She’s been with us since that month. And of course, we were instantly seeing results. Our numbers were just climbing straight back up again, and then bang, COVID.

Craig Swanson:

Yep.

John Warrillow:

Before we go to COVID I’d love to ask… Well, I want to get there too, but just related to pulling Sue out of the business, how did you approach the branding. Again, the name of the program was the Portrait System, but the name of the company was Sue Bryce Education. Any changes there?

Craig Swanson:

The next really critical piece, and this is from Aaron and I watching another content membership company that was sold, we started a podcast for the company with one of the leaders in our company who was not Sue. We started creating a voice for someone who is not Sue to represent the company. That was Nikki. We started recording a podcast with her, effectively interviewing members about their success stories. We produced a bunch of that through October, November, December. It launched in January and really started building her as the next visible leader in the company that could be doing all the live and all the engagement with the audience without it having to be Sue.

John Warrillow:

But the podcast having another voice was important. What else did you? Anything else that you did too?

Craig Swanson:

The one thing about that podcast is we knew we were going to rebrand at some point back to the Portrait System as the company name, so we named the podcast the Portrait System. So the podcast became the Portrait System and, we’re jumping ahead, but a year after post acquisition, the website is now branded as the Port-

Craig Swanson:

We are now… The website is now branded as the portrait system. So we’ve actually now completed this transition of moving Sue’s away. So it’s now The Portrait System by Sue Bryce as the name. So this was a strategy we had started to implement back in late 2019. It just took a long time for it to actually become visible.

John Warrillow:

Great. $1 million of your revenue came from live conferences thereabouts, COVID hits three months after you put a pin in the private equity deal, how did that impact your business?

Craig Swanson:

So actually, this was a really hard debate within the partners, because George loves conferences and really, really was strongly advocating for doing a virtual conference. And we, as a company had said we’re going to simplify, we’re not going to be creating new things. And effectively, we had said everyone has to go get a hobby if they wanted to have a hobby. So George took and effectively licensed our name to go do a conference, a virtual conference in a company that he started. And he did a virtual conference during COVID.

John Warrillow:

So you got some licensing revenue for that. Was it revenue sharing deal or did he pay cash for that or…?

Craig Swanson:

No. No, we figured… We just effectively… It was more important that actually the business didn’t take on that hassle. So it was really… It wasn’t a revenue play as much as it was trying to keep the business from becoming more complex. And so we let basically George run with that.

John Warrillow:

So you walked away from $1 million of revenue then in the live event?

Craig Swanson:

Not a live event, it became a virtual one because COVID was on board, but-

John Warrillow:

Yeah, but-

Craig Swanson:

Yeah.

John Warrillow:

But before COVID, you mentioned the conference business was around $1 million of revenue, so-

Sue Bryce:

Well, the boys did something even better. They did… I’d been behind a paywall for so many years that people had stopped actually seeing my content. And I’m not a big publisher of content on my social media, because I sell it and I don’t give it away on social media. So if you weren’t really inside that paywall, how would you see what I was creating or what we were doing? And at that time, the first month of COVID, we’re watching our numbers drop. 500 to 500 members are disengaging because people are losing their income. And I was like, can we survive this? I remember that survey saying we’re recession proof. And that’s when the guys opened up online free week, free access week where we actually opened our doors for seven days and we allowed people to come in and have a look around and you can carry on from there, because it’s such a great story.

Craig Swanson:

Yeah, we basically, we did a free week, everyone was locked at home. This was in April and it was just explosive. It was the first time that we had really done any marketing around giving access to the site, because was actually one of the things that Sue had been adamantly opposed to was never from a philosophical standpoint, I don’t ever want people to get access to this for free. And we made the choice that during COVID, we’re going to give a week of access to free for the world. It exploded within the photography space. We broke every record in terms of traffic, audience, everything else. And basically, that turned what year we assumed was going to be a huge downturn into kind of an explosive year of growth.

John Warrillow:

How did you end 2020 in terms of top line revenue, bottom line profit? Do you recall ballpark where you guys were?

Craig Swanson:

So I think top line, I think we were just above four million. So down quite a bit, down quite a bit from our high point and we’d shaved off the conference. But in terms of profitability, we were significantly higher. So basically what we did is we said top line revenue no longer matters. So this was in late 2019 top line revenue does not matter, let’s focus on much profitable. Let’s say no to opportunities like the conference, like other things, and let’s just focus on making [crosstalk 01:16:06].

John Warrillow:

So what margin would you cleared on the four million before tax on a percentage basis?

Craig Swanson:

It would be about a million. It’d be about a million between salaries and everything else. I think it’s about a million to distribute as dividends, and then probably another half a million is owner salaries in various forms. So, depending on how you look at the money, we pay ourselves as salaries that could either be viewed as profit or as just role function.

John Warrillow:

And again, I’ll talk directly to my listeners here for a second. There’s two different types of ways to express your profit in these deals. SDE, which stands for sellers discretionary earnings, which is all of the economic benefits you get from your business, including your salary, plus these dividends that Craig is describing. In a larger business, it’s more common to use adjusted EBITDA, which would be assuming a market rate salary for the owners, how much profit is left in the company.

John Warrillow:

And again, it depends on the size of your company, but a company of this size with $4 million of top line, I think it would be more common to use EBITDA. And so, it sounds like after paying salaries of the owners, you were clearing about a million dollars of EBITDA ballpark.

Craig Swanson:

Yeah. Mm-hmm (affirmative).

John Warrillow:

Yeah. Okay. That’s super helpful. And so I know there’s probably lots of other things you did to make it more valuable, but I’ve captured some of the biggies. What happens next? Did you [inaudible 01:17:45] the business? Was there a trigger that made you want to go back to market and sell it?

Craig Swanson:

No. So we were rebuilding to be able to make it available. And we did talk about selling it. George reached out to his connections and specifically he reached out to a company called Emerald Holdings, which is the largest trade show company in the United States. Has one of the largest wedding and portrait photography events in the United States. It’s like the big event for photography. And because of COVID, all of their business had basically evaporated, so they were an in-person trade show company and COVID completely wiped them out.

Sue Bryce:

Over 100.

Craig Swanson:

Yeah. Over 100 conferences.

John Warrillow:

Talk about necessities, a mother of invention, having to reinvent yourself on a dime.

Craig Swanson:

Exactly.

John Warrillow:

Wow.

Craig Swanson:

And they did have pandemic insurance, so they were actually made whole in the first year of losses.

John Warrillow:

Oh my gosh.

Craig Swanson:

So they had the funds to be able to acquire companies.

John Warrillow:

They had the pandemic insurance? Who has pandemic insurance? That’s incredible.

Craig Swanson:

Apparently some VP, I don’t think they even knew which VP it was [inaudible 01:19:05]

John Warrillow:

Give that guy or gal a raise.

Sue Bryce:

This was the feedback. They came in and they said they were in an executive meeting and someone walked in with big wide eyes and open mouth and said, “It turns out an unnamed CFO for insured this company for a pandemic insurance 10 years ago, and nobody knows who or why, but guess what?”

John Warrillow:

So they’ve got cash and they need to reinvent themselves literally on a dime.

Sue Bryce:

They run George [crosstalk 01:19:34]. Are you guys for sale? And George said, “Everybody’s for sale.”

John Warrillow:

Where does it go from there?

Craig Swanson:

Well, so actually, there’s a huge difference between the way it worked for private equity versus this company. So we had a lot of relationships. George knew everybody involved. So George… This company that ran one of the largest photography work conferences in the United States had actually acquired that company 12 years ago. And George had been the VP of that company way back when, so George had been acquired previously with a company like this. So he knew everybody involved. And in fact, we hired an ex-employee who used to be the second person in charge of their acquisition team to be our representative to manage this acquisition.

Sue Bryce:

We brokered the first deal with George.

Craig Swanson:

Because we also knew that we couldn’t do this again as novices. So we had this list of things that we had done wrong so we knew we needed to be represented. George found a representative that knew not only the people, but all the deals. The-

John Warrillow:

Do you remember what you paid him or it was a him?

Craig Swanson:

It was a him. I think we paid… So I think the normal rate was about 6%, something like that for a normal broker, but we already had the deal in place and he wasn’t a formal broker. I think we paid him 2%.

John Warrillow:

Okay. Got it. That’s helpful.

Craig Swanson:

Yeah. Mm-hmm (affirmative). Yeah.

John Warrillow:

So you’ve got a representation and Emerald. So where does it go from there? I mean, do you get a term sheet or what happens?

Craig Swanson:

Well, that was the interesting thing. We got a verbal intention very early on, where we said we wanted 10 million, so we wanted… Where we said we wanted eight figures and they said they could do that. But the acquisition team really didn’t come back with a term sheet until the very end. So unlike the private equity that gave us a term sheet right at the beginning that basically got shipped away, this process, they probably spent about a month starting the due diligence process, or at least going through some of the numbers before they had it down enough to be able to give us an actual firm term sheet. But then that term sheet never varied whatsoever. So basically once they had started the process, they delivered exactly what they were intending to deliver.

John Warrillow:

That verbal offer, so it sounds like they had said, what do you want for it? You threw out a number and they came back and said, “Yeah, I think we could do that.”

Craig Swanson:

Yeah. So, and actually this was going through our representative. So we had someone that really knew everybody inside. And so yeah, we had an agreement to basically move forward on all of that.

John Warrillow:

Got it. How did they treat Sue’s role in the final letter of intent that you received?

Sue Bryce:

It was good. We talked about how long I would stay in. I’m still doing live broadcast, so I’m there for three years. And then we talked about the name change and what that would mean going from SBE to The Portrait System by Sue Bryce. And they actually created a license, a royalty and license for me on top of my deal. I have a restraint for five years, but not as a photographer, just as an educator in that space. And I’m still fully engaged in my broadcast with my students and loving every minute of it. And so I’m licensed for three years for that name and then they’re going to review it.

John Warrillow:

Got it. So they have the rights to use the Sue Bryce name underneath The Portrait System for a period of three years?

Sue Bryce:

Yes.

Craig Swanson:

Yep.

John Warrillow:

And so, the structure of the deal in addition to… So how did they structure it from a cash burnout carry perspective? How was that structured?

Craig Swanson:

So the final deal ended up being a better… Being more than the original eight million that we had targeted for in the first deal. So it was in the very, very, very low eight figures with a 20% earn out over the next three years.

John Warrillow:

Fantastic.

Craig Swanson:

And all the employees, the four of us as partners, had various consulting arrangements with the firm after the acquisition. So Sue is contracted to create content on a monthly basis for the next three years. I had probably the shortest period of time, which was bringing the marketing team up to speed. And then George and Aaron had various areas. So we are all under a three year contracting agreement, which is 10 hours or less for each of us per month.

Craig Swanson:

And then we’re working with their internal teams to help them run it about a year in, early in, they started to realize they needed more consistency and a deeper dive. And actually our operations lead, Aaron, accepted a deeper contracting relationship where he basically is running the company in the second year for Emerald as they continue to build out their team and get everything to speed. And the great thing is the employees all went with this. From the standpoint of the audience, there hasn’t been that much change. And from our standpoint, the employees were already running a lot of the key aspects of business already.

John Warrillow:

Fantastic. Because you’ve made some of those important changes and not in the least of which was getting Sue out of the marketing sales piece personally. This is great. It’s very rare that we get to just see it before and after. So I really appreciate you guys spending as much time as you have with me. Sue, I have to ask, how do you feel about licensing your name to a company you don’t necessarily control anymore?

Sue Bryce:

Well, I guess, you can always do the whole… On social media, they can use your voice in a way that you don’t and things like that. But honestly, they get how the magic works and the magic is a pretty cool system. It’s a great business. And we have this amazing… Like Sarah, the creator of that marketing, she creates marketing that looks exactly like my brand and my voice because we make sure that the people that do that are there. I guess it’s a trust thing. You have to let it go to some degree. I don’t actually have control. I know one thing, I’ve been online for 12 years, I can be speaking, I can be crying. I could have a booger during a life broadcast, and that would become an online meme. So it really doesn’t matter how people use your name. You’ve just got to trust, I think, that you don’t have control of it anyway. So it’s okay. I mean, my child grew up and went to college and is doing a whole lot of stuff I don’t want to know about right now. That’s how I look at it.

John Warrillow:

As we all did. Are you guys ready to do a little bit of due diligence or a little lightning round of questions? I won’t follow up these., I just want to get your answer to each of them. I will address them to the person I think is most likely to have maybe the most experience in that area. But if you feel like you’ve got a follow-on, please feel free to weigh in. Craig, what was the slimiest trick an acquirer played on you in the process of trying to buy your company?

Craig Swanson:

Well, I mean, it would probably be just giving us everything we asked for to start the conversation, and then knowing that they could chip away later.

John Warrillow:

Craig, what was the biggest mistake you made during the process of selling?

Craig Swanson:

Not knowing our numbers tightly enough.

John Warrillow:

Sue, what was the lowest point you reached during all of your exit negotiations across both deals?

Sue Bryce:

The moment where I felt like I’d lost my identity and who I was. I had to find that again.

John Warrillow:

Sue, what was the highest moment you reached during your exit?

Sue Bryce:

I teach a thread of value new through everything I do. Teaching people how to be more valuable, how to work with more value. It felt like to me being acquired was solid proof that I was valuable. It was a metric that was quantifiable and I’ve got goosebumps. It made me feel like I was really as valuable as I built myself up to be.

John Warrillow:

Do you still have the sticky note?

Sue Bryce:

Yes.

John Warrillow:

You should frame that.

Sue Bryce:

I did.

John Warrillow:

Craig, what’s one thing you wish you’d known about the exit process before you started this whole journey?

Craig Swanson:

I wish I had known how to amortize our annual plans based on the way the revenue would be realized on a accrual basis because that drastically affected value.

John Warrillow:

Say that again for folks. I think you just need to just explain that a little bit more.

Craig Swanson:

So we were looking at the cash as it was coming into the business, and so we took an annual 12 month pre-payment for a subscription. Our acquiring company viewed that as 12 monthly breakouts over the future year, whereas we looked at it differently and that’s had a great impact on our earn-out and on the way that our company profitability is viewed.

John Warrillow:

That is worth the price of admission right there. Thank you for sharing that, Craig. That’s a really important point for folks. Craig, as you approached this whole journey and started to educate yourself about exiting a company, it sounds like you leaned on Aaron and George to some extent, but were there other resources and again, I’m looking for a Ted Talk, a book, an online course, something that you could turn people onto that was super helpful in helping you understand the exit process?

Craig Swanson:

Well, I mean, so first of all, I highly recommend EO as an organization. My group and my forum really was a huge back up for me personally, as I was going through this. In terms of books, I mean, BuiltToSell really created a lot of the milestones and a lot of the markers for us as we were starting to rebuild the business in terms of philosophical approach to understand how we needed to move things beyond. And I would say probably BuiltToSell is probably one of the top ones for me.

John Warrillow:

Well, that’s very generous and I will put a show note into th e show notes at BuiltToSell.com with EO’s address as well. [inaudible 01:30:56] are great organization, lots of our listeners, our members. Last question and it goes to Sue, what did you buy yourself? What was the trophy that you bought to commemorate this huge exit?

Sue Bryce:

There wasn’t one. I thought about that. I think that you just… I didn’t know how I was going to get out of that business. It got so big and heavy and they do, they get big and heavy. And so for me, just the fact that that situation somehow manifested and became what it was, it was like some kind of incredible gift. I figured that this time, this is probably the second time I’ve been given this incredible gift of being able to grow again. And so now I think I’m just going to do this a whole lot smarter. Yeah. Oh, yes. Okay. So I had not purchased a home and I was 49 and my goal in life was to buy my first home before I turned 50, but I’m a weirdo. I had a goal that I wanted to buy my first home with cash before I turned 50, not have a mortgage.

Sue Bryce:

So I had been saving for a long time for this house, and when the actual business went through, we were, my husband and I were purchasing our first home, but not from the sale of the business. So I kind of felt like I got my dream home, my home, but it was something I had been working towards. But yeah, I guess that doesn’t mean a lot to people when they are homeowners or if they have multiple properties. But my parents were actually in their mid-forties before they got their first home, first bought their first home. And I was 16 at the time, 15, 14, sorry. And I remembered thinking I would do that and it was a huge part of my life.

John Warrillow:

I bet. I bet. It’s an amazing story. I’m really just incredibly indebted to you for sharing all of the twists and turns and journey along the way. It’s a real pleasure that you’ve shared it. Where is the best place for people to reach out and find you online? I’ll start with you, Craig, and then we’ll end with Sue.

Craig Swanson:

So for me, LinkedIn is a great place for me and my hub is craigswanson.org. So it’s my name .org, not .com

John Warrillow:

Craig. And again, we’ll put that in the show notes at BuiltToSell.com. And Sue, what’s the best place for folks to find you?

Sue Bryce:

Yeah. I’m suebryce.com. Sue Bryce Photographer on Instagram. suebryce.com is pretty much the easiest place to get me.

John Warrillow:

Sue, Craig, thanks for doing this.

Sue Bryce:

Thank you so much. That was a great talk. I really enjoyed that.

Craig Swanson:

Thank you. This has been wonderful.

John Warrillow:

I hope you enjoyed that conversation with Sue and Craig, I know I did. Hey, for show notes and all the links back to anything that we referenced on the episode, please go to the episode page on BuiltToSell.com. Also, don’t forget to nominate anyone who you think would make a great guest, just go to BuiltToSell.com/Nominate. And if you’re interested in supporting the show, please drop us a review on whatever platform you listened to us today and make sure you hit subscribe so you don’t miss an episode. Today’s show is produced by Haley Parkhill. Special thanks to Denis Labattaglia for handling the audio and video engineering, and thank you to the entire community of Certified Value Builders™ who help us bring our message to you. I’m John Warrillow, talk to you again next week.

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