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From Product-Driven to Purpose-Driven

April 22, 2022 |  

About this episode

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Paul Nielsen built HomeTech, a company focused on creating healthier homes by installing skylights for natural lighting and advanced systems for better air quality. The business was generating around $1.4 million in EBITDA when an industry competitor approached Nielsen about acquiring HomeTech.

The acquirer offered $4 million which Nielsen accepted, only to have the deal fall apart in diligence a few weeks later.

Nielsen learned from the experience and eventually ended up selling for around $8 million a few years later. In this episode, you’ll discover how to:

  • Systematize your business.
  • Transition from a product-driven to purpose-driven.
  • Calculate your walk away number.
  • Spot the “good cop, bad cop” charade.
  • Ace due diligence.

Show Notes & Links

The E-Myth

Solatube.com

Entrepreneur’s Organization

Think & Grow Rich

 

 

Definitions


Re-trading: Re-trading is the practice of renegotiating the deal price of a company after the initial price and terms have been agreed to. This occurs when the buyer performs due diligence during negotiations and potential risks are uncovered during the process.

From: https://www.divestopedia.com/definition/6650/re-trading#:~:text=Re%2Dtrading%20is%20the%20practice,are%20uncovered%20during%20the%20process.

 

About Our Guest

Paul Nielsen

Paul was born In New Zealand and currently resides in its capital city of Wellington.

Paul built HomeTech, a national installation business in the ventilation, heating, and skylight industries. In 2017, Paul sold HomeTech to a publicly-traded company, JWI. At the time, the company was turning over $20,000,000 in revenue, and it had the highest country market penetration for Solatube products in the world.

In 2016 Paul was a finalist in EY’s NZ Entrepreneur of the Year Award. He is a member of Entrepreneurs’ Organization and has been on the New Zealand board since 2019. In that time, the Wellington membership has grown over 100%.

 

Connect with Paul:
Paul’s website

Download a copy of Paul’s book free here:
Paulisms: Gold Nuggets for Small Business

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:

How do you now feel about the questions that they were raising? Do you think they were legitimate questions, or do you think it was just a sleazy attempt to re-trade and grind you down?

Paul Nielsen:

It was a sleazy way of grinding me down.

John Warrillow:

Welcome back to another edition of Built to Sell Radio, the podcast designed to help you punch above your weight in a negotiation to sell your company. I’m your host, John Warrillow. And today on the show, we’re going to hear from Paul Nielsen, who built HomeTech to $20 million in revenue, $2 million of profit before he sold it a few years ago for cool $8 million.

John Warrillow:

Before we get to Paul, I just want to point out that you can get the show notes for Paul’s episode over at BuiltTosSell.com. There you’ll find links to all the things we talked about out in the episode, along with some definitions. The world of M&A is filled with acronyms and lingo, which I think is designed to purposely confuse entrepreneurs. So, what we try to do is demystify this process by decoding some of that vocabulary and the tribal language that is associated with M&A. You can all find that on the show notes page, which you’ll find at BuiltToSell.com.

John Warrillow:

I also want to make a quick thank you shout-out to [Sheri 00:01:32], from Toronto, who wrote a wonderful review on iTunes. She said, “I read John’s book years ago, AKA before COVID, when time had actual meaning and an another business owner put me on to his podcast. I listened to just one episode before taking a call from a potential acquirer, and it was a wealth of valuable information. Thank you,” she says. So, thank you, Sheri, from my hometown of Toronto, very kind and generous review.

John Warrillow:

We’ve also got an anonymous review on iTunes this week, a new one. “I’ve been loving this podcast. Unlike other shows, John dives deeply into what it takes to build and successfully sell a business packed with so much value. Give it a listen.” Both Sheri and our anonymous reviewer uploaded those this week, and if you’re wondering how to support the show, wow, does a review mean the world to us. It means the show gets picked up by the algorithms, people find it, and of course that helps us expand the audience for this show. So, if you’re wondering how to support the show, a review on your favorite podcasting app is an amazing gift.

John Warrillow:

All right, back to Paul Nielsen. Here’s what I want you to listen for in this episode. At about the halfway point of the episode, he describes the point where HomeTech received an acquisition offer. They were doing 14 million in revenue, 1.4 million in profit or EBITDA, when they received an acquisition offer, which Paul agreed to in principle, only to enter due diligence. And the tactic the acquirer used during due diligence was to hire an outside firm to write a diligence report, which in and of itself is not that sleazy, but the tactic they used then was to invite Paul to come to a meeting in Auckland, New Zealand, where their headquarters was, and sit in a room by himself and read the diligence report prior to meeting with the acquirer to consummate the deal.

John Warrillow:

He will go into details as to why that tactic was used and the impact it had on a negotiation, which ultimately blew up. Years later, he sold a business for about double what he was going to accept. So, it had a happy ending, but for you, I want you to make sure you don’t fall victim to the same trick. So, have a listen to that point in the interview.

John Warrillow:

Some other stuff to listen for is how to systematize your business, how to transition your business from a product-driven company to a purpose-driven one, how to calculate your walk away number, and know how much passive income you need to live the life of your dreams, how to spot the good cop, bad cop charade in a negotiation to sell your company, and also how to ace do diligence. All that and more in this wide-ranging interview with Paul Nielsen.

John Warrillow:

And I also want to point out that Paul is from Wellington, New Zealand. And one of my favorite places on earth is the South Island of New Zealand. I had the opportunity to spend a bunch of time there at the invitation of Rob Nixon. And man, it is a beautiful country. The people are wonderful, and they also have, to my ear, a relatively strong accent. So, here’s my suggestion. I want you let Paul’s wonderful New Zealand Kiwi accent just wash over you. I want you to listen. And after five or 10 minutes, I think you will start to understand him in all his eloquence. So, please give it 10 minutes, because I find that if you just let your mind drift a little bit, you will start to be able to pick up the intonations in what is a beautiful and unique accent, to much of the anglicized world. So, I hope you are able to understand everything that Paul says and enjoy this wonderful interview with an entrepreneur from one of the most beautiful countries in the world, New Zealand. So, have a listen, enjoy this wide ranging interview with Paul Nielsen.

John Warrillow:

Paul Nielsen, welcome to Built to Sell radio.

Paul Nielsen:

Oh, it’s great to be here. I just can’t believe that I’m actually talking to you, John, because I’ve been recommending your book so often, after reading it, after I sold my business.

John Warrillow:

I can’t believe that book actually gets all the way down to Wellington, New Zealand. I think that’s awesome. It’s amazing. A book is funny, because it’s such an analog technology. It’s such a physical technology. And then, when I hear people like you across the world that have actually gotten a physical copy of it, I think that’s awesome. It’s so cool.

Paul Nielsen:

Well, a couple of weeks ago I was mountain biking in this commercial event, and this guy said this thing about selling his business. I said, “Mate, you got to read this book.” And that’s just one of many, many times I’ve recommended it. So, yeah, it’s just [crosstalk 00:06:14] New Zealand. [crosstalk 00:06:14]

John Warrillow:

That’s awesome. Well, thank you for spreading the word. Tell me about this company, HomeTech. How did you get into the business in the first place?

Paul Nielsen:

Well, it’s bit of a long story. I started a business in ’87 in a similar industry, in the home improvement industry. And we all know what happened in October ’87, and New Zealand was decimated. It took me a couple of years to get into it, but very naive entrepreneur, set up the business, wasn’t very well set up, lack of structure, lack of financial control. And basically, five years later… I’ve still got my statement position from ’93 where I was minus $50,000. So, I went in there with the nice house in the country at 28 years of age, and at 32 years of age I was basically broke, and the business went through a year later.

Paul Nielsen:

But out of the blue in July ’92, I got a call, and this was before the internet and email, and I’ve got a call from a guy called [Malcolm Hughes 00:07:09]. He said, “Look, I’ve been in a franchising seminar. I’ve seen this product called Solatube, which is the tubular skylight product. And it’s in Australia, and it’s going to America, and we want someone to run it in New Zealand.” And to me, having been already in the skylight industry, I thought, that sounds really boring. He said, “Look, I’ll send you a brochure.” So, he sent me a brochure, three days later, I was in Australia, procured the rights, jumped into business with two other guys coming out of the construction industry. They financed it. I did all the sweat labor, and it kicked off in December the 3rd, 1992. But what we did [crosstalk 00:07:46]

John Warrillow:

Did you call it a tubeless skylight? So, I’m familiar with the skylight.

Paul Nielsen:

Oh, sorry. Yeah, that’s my New Zealand pronunciation.

John Warrillow:

No, no, but you have a skylight in a home or office, it brings natural in. So, I’ve seen those. And this was a new sort of design?

Paul Nielsen:

Yeah. A new concept guy a developed, it was tubular opposed to square. So basically piping light into your home. And we started in the residential market, then we went commercial, and we’d install 100 in a commercial building or put them wherever.

John Warrillow:

Is that right? You bought the rights for product in New Zealand?

Paul Nielsen:

Yeah, we did. But by the end of ’93, I had set up 25 licensed in stores around New Zealand from one end of the country to the other. So, that enabled us to actually market the product nationwide, by TV or whatever home show. So, we were right into it.

John Warrillow:

Let me stop you there. So, ’93, you procure the rights to this product for New Zealand, and then you get a shipment of them. So, if you’re broke in the other side of your life, how are you juggling the cash flow to buy the rights, but also by the inventory?

Paul Nielsen:

Well, I didn’t put anything in, but my partners were. They were out of the construction industry, done pretty well [inaudible 00:09:12] market crash. They funded it all. But also, I learned a lot from a particular guy called Malcolm Hughes, because he said to me, “Paul…” Well, he taught me about money. And he was using a cashbook of all things. He would sit up in is room… And I had to do everything. I had to do the marketing, and I ended up training in stores, had to do all the technical side. We only had a one other person in the business other than the storeman.

Paul Nielsen:

So, they funded it, but he taught me, one of his sayings was, “Paul, walk around with bank balances in your head.” And I was with him, we’re all still good mates, and I bought him out three years later. He gave me that opportunity. And the thing is within 18 months, we paid back all the capital that was required. I think the first full financial year we needed 300,000 bottom line profit. So, it just went off. And it was just a fantastic journey.

Paul Nielsen:

But if I didn’t have that university training five years earlier of losing everything, I wouldn’t have been able to do it. And so, going back to losing it, I was quite embarrassed for about 25 years. I tried to hide it from everyone. But now I look back and I’m actually quite proud of what I did, because I put everything on the line. So, we got onto it, about seven years later we introduced some ventilation products, starting to lobby our national social housing group, Housing New Zealand, and got a nationwide contract installing ventilation across the country. And then we got into other sales channels, volume group builders, et cetera.

Paul Nielsen:

One significant thing though, was that, I go back to that flawed model that we got supplied with, ’93, I got introduced to the book, The E-Myth, and that’s where I had my first experience in systemizing. And I went on to systemize the business, particularly in our in-home selling system. Because at that stage, most of it was about going in the homes, and I systemized that, and that was adopted by Solatube International, and that system was still in place. So, [inaudible 00:11:25] in that those systems were very important at the end when I sold my business, and at the end, $20 million, you think EBIT, about 10% averaging. So, we were in a good place. And we had people knocking on our door.

John Warrillow:

Got it. So, before we get to the decision to sell, I’d love to just understand a little bit about the way you thought of your relationship with your customers. Because in the beginning, you bought the rights to this product, this new solar panel technology, or ceiling skylight technology.

Paul Nielsen:

Yeah, Solatube. Yeah.

John Warrillow:

And then, you got into other products, some ventilation products. So, the end customer, what was the brand name of the lighting product?

Paul Nielsen:

It was called Solatube.

John Warrillow:

Solatube. Okay. Like T-U-B-E.

Paul Nielsen:

Yeah, T-U-B-E.

John Warrillow:

Got it. Got it. So, was the end customer buying from Solatube, and assume that you were “just” a local installer? Or were they buying from HomeTech, and you happened to supply Solatube product? Do you know what I’m getting at?

Paul Nielsen:

Yeah. Yeah. I’ll tell you. So, we were the importer and the marketer. And then we have a licensed installer who’s basically a salesperson who would go into the home and sell the product. The closure rate was 67%, generally. And we would, initially, with the flawed model, we’d had those guys on commission and product on consignment, it was an absolute mess. So, we simply went to a model of buying the product and selling it to them. They would invoice the end customer. Most of our leads came from referrals, about 68 word of mouth referrals. And we had the highest market penetration of solar tubes in the world for 25 years, I think it’s still the case of any country. Yeah, it was a great journey.

Paul Nielsen:

And they only ended up probably only around about 30% of our business, because we got into heating as well, we had a contract for noise mitigation for Auckland Airport, and those sort of things. So, really, we became a company that created healthier homes. We worked on a purpose a couple years before we sold it. Better spaces, better lives. And it was all about that day lighting, heating, and ventilation, healthier home.

John Warrillow:

What made you want to explore your purpose as a company?

Paul Nielsen:

It’s interesting. I work out, I was on holiday one… When you go away on Christmas, sometimes you’re really exhausted. And I just slept for about three days, and I normally don’t have much sleep. And I woke up one day and said, “I haven’t really visualized to anyone what the company is, what the model is.” So, I scratched around and put it on one sheet of paper and I got a cartoonist to do some… And there was a model. And then through an EO colleague who specialized in purposes… And we’d need to rebrand at the same time, so we did the whole thing, the whole rebrand, new logo and went to this thing. And being miserable as I am spending money, going through that process that appeared to be expensive at the time was not expensive at all.

Paul Nielsen:

But what had made us turn from a product-driven company to a purpose-driven company, so we went from driving a product to better spaces, better lives. The whole purpose now was to improve people’s lifestyles. That was an interesting exercise. But I’m more about a purpose of a company rather than the, perhaps, vision, and et cetera, and mission statements. I think the purpose, what you’re all about, is so important. And I think that’s what leads things. [inaudible 00:15:37]… Sorry, I better move on, because I’ll start to be a bit opinionated on that.

John Warrillow:

No, no, opinions are great. What were you going to say?

Paul Nielsen:

Well, I was going to say, I think you got to get your purpose right first and then everything else flows behind it. You need to know where you’re going and what it is, and that helps you with your focus. And that’s the other thing about doing that branding exercise and waking up one day and put all on one piece of paper, we knew where the focus was. And when someone come along and say, “Hey, we want you to sell our product.” And then you say, “Well, it doesn’t fit that model. Thank you, but no.” And that made us more focused.

John Warrillow:

It’s interesting, because you went through that exercise of discovering your purpose relatively late into your business journey. It had been many years that you had been running HomeTech with, you’ve got the first year into the solar tube and then the ventilation products, but it was years into the business before you sat down and actually got the animator and wrote up a purpose. I’m wondering, was that the right call? How do you think things would be different had you created a purpose from the beginning? Do you think that would have been… How do you think that would have changed?

Paul Nielsen:

It would have been a lot different. And I reflect back now, I don’t think much about the business I sold, but what I do think about, things I could have done better. And one of the things I could have done better is follow those Built to Sell principles. Because what happens with an entrepreneur, as we all know, we like chasing shiny things. And something goes on [inaudible 00:17:19], “Hey, that seems good, we’ll start importing that.” And you’re stuck with stock in your warehouse or something doesn’t sell. And it also ties in with our discipline with accounting, we got better towards the end with our accounting, and seeing how profitable our sales channels were, which we weren’t doing before. And that all fitted in.

Paul Nielsen:

So, what I would have done is not gone into so many sales channels, not gone into so many products, I would have just focused more their beautiful product, Solatube, where we started, and our national contract with installing ventilation and Housing New Zealand houses, and probably would have focused on that. I think we’ve been far better off, probably more around the EBIT, and not as busy. And also got introduced to the 80/20 rule and all those things. So, it all tied in together.

Paul Nielsen:

So, I suppose you have to reach a tipping point in your business, probably because you get into a zone all those years, and you’re not bogged down in your business anymore. And all of a sudden, you just go to a different level. And we had a bad experience with a company trying to acquire us, and two and a half years later, we were doing 39% more turnover and far more EBIT than we were before.

John Warrillow:

What happened with the bad experience? Can you share where you were at when you went through this failed M&A attempt? What was your top line? What was your bottom line? And then sort of tell me the story.

Paul Nielsen:

Well, it goes back seven years now. And look, we had some other approaches and came and met this person, and then they’re running a, it was a company that was owned by venture capitalists and a very high profile company in our industry. And they came along, and look, I was pretty naive, and we weren’t ready to sell anyway. And they came along with a figure, and that seems quite nice, because I had to actually planned to sell the business 10 years earlier. I learned how to do goal setting. I’ve got my goals from 1985, December the 31st. I still got the same piece of paper. And every year I renew them and I still renew my goal… I actually had a goal session yesterday with some EO buddies.

Paul Nielsen:

So, I’d set my goal to sell the business. And it wasn’t necessarily about the amount of money I was going to get, it was about what would enable me to never work again for the rest of my life. So, along came this company, seemed all nice. They said, “Oh, we’re going to give you this nice bit of money.” And he comes along with a term sheet, all this sounds good. And then we started to get into this due diligence, and they were quite aggressive. But I wasn’t ready to sell, but not only from a point of view of the company wasn’t ready to sell, I wasn’t ready, I didn’t have the expert team around me. And I’ve used my normal lawyer. And these people are nice and not going to screw me over. And yeah, they got really aggressive pushing me, and the due diligence had gone on for a long time. So, they got a outside accountant to do the due diligence.

Paul Nielsen:

But I can sense that they… I was waiting for the little tap on the head, trying to… I knew they were going to start to grind. And I said, “Right, we’ve done the due diligence, let’s have this meeting in Auckland.” So, I said, “Hey, well, come along about three quarters of an hour earlier, Paul, and we’ll let you read the due diligence report. So, he stuck me in a room for three quarters of an hour, and I walk into this room, I’m not with anyone else, I haven’t got an M&A lawyer, because these people were pretty nice people.

Paul Nielsen:

And then the grind started. And I could see their faces, and they’re just looking at me, eyeballing me. And they started asking all these questions. And it wasn’t very nice, it wasn’t very pleasant at all. And I stage where after about an hour, I said, “Hey, look, I know where this is going. Thank you for the opportunity.” Stood up, walked out. And that was it. But what I experienced, I learned so much through going through that. Hey, I need a good team around me, I needed a really great recommended M&A lawyer, I needed a stronger accountant. We just had recently changed accountants, so we got [inaudible 00:21:28]. I never had a proper in-house accountant, by the end, when we did eventually sell, we had two in-house accountants who were really strong in their accounting.

John Warrillow:

Before we go there, I just want to go back to the story for a second. So, just for a little bit of clarity, roughly, where were you in terms of top line revenue and profit at the time of this conversation with the company [crosstalk 00:21:58].

Paul Nielsen:

We’re talking about 14 million. I think we’re doing about 1.4. The model was around about 3.5, I think.

John Warrillow:

They were offering around 3.5?

Paul Nielsen:

Yeah. I was trying to find the term sheet, because this goes back seven years now, but also, there was this disguised earn-out in there, and there was [inaudible 00:22:17] tranches amount of money. And I always remember, a mate of mine said to me afterwards, he said, “Never take an earn-out, because you’re never going to get it.” And I learned from that and…

John Warrillow:

I want to just dig in, because I think a lot of people might learn something from this, Paul, because I think, again, a lot of our listeners are being approached and they get, oftentimes, into conversations with potential acquirers where the acquirers seems friendly, and they’re all happy, and it’s all wonderful, and then they get into the room and the tone changes. So, it would just be helpful, so, you’re at 14 million, 1,400,000 on the bottom line, ballpark, it’s fine, if we’re roughly, and their offer was around 3.5. So, call it, if I’m doing the math right, kind of-

Paul Nielsen:

Oh, it was 4 million. Yeah.

John Warrillow:

4 millionish, something like that, in that neighborhood?

Paul Nielsen:

Yeah.

John Warrillow:

Yeah. And so, you’re like, “Okay, well that’s a big chunk of change and that sounds great.” So, you have this meeting, they say, “Come…” I love the tactic of, read the due diligence report. It’s your frigging report, it’s not my report. I don’t need to read it. But that was a tactic from them, right? Because they’ve got the third party due diligence company, and it’s not me. It’s like, they’re playing the good cop, and it’s this due diligence company that’s the bad cop. And so, you have to read the due diligence report. And they’re obviously telling you all these terrible things about the company. So then, at that point, the damage is done, but they start picking you apart in the meeting. So, they were obviously trying to pick apart your business and re-trade. Did they raise the specter of lowering the valuation, or did you preempt them by saying, “Look, guys, I know where this is going. I’m out”?

Paul Nielsen:

I preempt them, because some of the questions they were asking me were… They were well informed, and there was money being fired at me from the due diligence accountant. And yeah, quite a nasty guy. And he said, “Oh, on this particular sales channel, your sales were down, blah, blah, blah, going back three or four years ago.” And I said, Yeah, but New Zealand had the last building ever that year. So, what are you going on about?”

John Warrillow:

How did that feel for you?

Paul Nielsen:

Oh, it was terrible. I built this beautiful… But one really important thing, which, and the whole due diligence process just went on forever. In the back of my mind, I was saying to myself, “Paul, you’ve earned this. This is your life for 25 years. You’ve built this business up. If you get it wrong, you get it very, very wrong.” And that’s the motivator for walking out, it was going to go really bad, and all that energy, being away from the family, and the journey could have been all destroyed and quick tied by taking an offer which wasn’t a very good offer [crosstalk 00:25:21].

John Warrillow:

And you’ve had some time to reflect on this. How do you now feel about the questions that they were raising? Do you think they were legitimate questions, or do you think it was just a sleazy attempt to re-trade and grind you down?

Paul Nielsen:

It was a sleazy way of grinding me down. They just set it up to… They were going to screw me up. But they picked up that I was naive, and I wasn’t prepared, and as they say, lamb to the slaughter. Look, this is not a generalization, because when I sold the business I had a fantastic journey there, but they were just really… So, what they wanted to do, because they sold about three years later, they just wanted to gobble us up, take the revenue, take the bottom line, bundle us up with some other companies and flick it on.

John Warrillow:

Yeah. You mentioned the $4 million had a veiled or hidden earn-out. Can you just explain what that means? Because again, a lot of people listening would be like, “Yeah, I don’t want one of those.” But in what way was it hidden, and how did you discover it?

Paul Nielsen:

I tried to find that term sheet, but it was something like $2 million cash, and further down the track, we reached a certain point, profitability or whatever. That was their devil part, really, that they probably had no intention of trying to make that happen anyway, because they’re more seasoned. What they’re going to do is come in and chop overheads out of the company.

John Warrillow:

Yeah. Okay.

Paul Nielsen:

So, yeah, I wouldn’t have ever seen that.

John Warrillow:

So, they flashed the big number of, we’re going to pay you 4 million, but then as you got into the details of the actual offer, it was 2 million in cash, plus the potential for another 2, if certain profitability thresholds were met.

Paul Nielsen:

Yeah. And also, John, just a point now, thinking about it, is that, I use my own lawyer that I’ve been using for 20 years, and if I had used an experienced M&A lawyer, he would have picked it up in no time, but also got that person to do negotiation. So, when it came to finally selling the business where most of the negotiation was done well after we settled on a price, et cetera, basically handed it over to my lawyers to finish the journey off. That was a lot easier process and having that expertise around me, just-

John Warrillow:

Yeah. Yeah, one of the things we talk a lot about is the importance of having a mergers and acquisitions team that is, that’s what they do. So, an M&A lawyer, as opposed to a general list that you may have had to incorporate your business, but maybe doesn’t necessarily do M&A law. It’s a different discipline.

Paul Nielsen:

Yeah. And I think if that bad due diligence experience with that company, if I had [inaudible 00:28:29] right at the beginning, I would have never gone through that trauma. That was a very, it was a bad experience, stressful. Take your eye off the ball, your company doesn’t perform as well, what’s going on, and fix your confidence. It just wasn’t very pleasant experience.

John Warrillow:

Mm-hmm (affirmative). What was the reaction of the potential acquirer when you got up to leave the room?

Paul Nielsen:

A particular guy followed me out, said, “Look, it didn’t go that well. I don’t think that accounting company took that kind of job, and I don’t think I’ll use them again. Sorry it hasn’t worked out.”

John Warrillow:

And so, where does it go from there? So, you have this failed M&A deal, that can be quite demoralizing as you rightly say, can sap your energy and suck your confidence. But you picked up the pieces. So, to take it from there, where does the story go from there?

Paul Nielsen:

In 2016, I went to a seminar organized by the bank there was a presentation by an organization called Entrepreneur Organization, EO. And all of a sudden I’m in this organization, didn’t know what I was getting into. And then, someone mentioned my name to Ernst & Young, and then I ended up a finalist in the New Zealand Entrepreneur of the Year award that year.

John Warrillow:

Oh, the Ernst & Young Entrepreneur of the Year. Yeah, know it well.

Paul Nielsen:

Yeah. And that was a great experience and that, but it was also mainly from the networking point of view. And started talk a few of the EY guys and they said, “Hey, have you thought of selling your business?” Seems to be a common thing people say, “Are you thinking about selling your business or thought about selling it?” They said, “Oh, well, how about we put information [inaudible 00:30:16] for you together, and we’ll start showing it around.” And again, I’m tight, I bitched a moaned about the cost, but it was one of the best things I ever did. So, I’ve shored up the company, put better structure and processes in place. We’re very strong. Now, information made it around and they’re showing it around. And [crosstalk 00:30:38]

John Warrillow:

Where are you in terms of top line? This when you’re close to 20 million now?

Paul Nielsen:

Yeah, close to 20 million. And we’re averaging around about 2 mil-

John Warrillow:

In profit.

Paul Nielsen:

… in profits. And then, we go to a EO university, business university in Hyderabad. And I’m in a bar on Friday night, as you do, and talking to a guy, another EO from New Zealand. And he said, “Oh, have you ever thought of selling your business?” And I said, “Well, as a matter of fact, I’ve got [inaudible 00:31:10] around, and I’ll send it to you overnight.” So, this guy called Tony Falkenstein from a publicly listed company, at that time, just [inaudible 00:31:18] out called Just Life. So, next morning I got a text, “Hey, do you want to meet for coffee?” And so, the moral of that story there was really, we are ready now. We got prepared. We’re ready to sell tomorrow, basically.

John Warrillow:

Yeah. You had this, I’m used to hearing the term CIM, or confidential information memorandum, but in New Zealand it may be referred to as just an IM, or information memorandum, but it’s effectively a book that describes your business in quite a lot of detail, including your revenue, and profitability, and projections, and so forth. So you’re an EO in Hyderabad, and you happen to have a drink with the CEO or founder of Just Water, which is… Explain what Just Water does.

Paul Nielsen:

They supply drinking water to residential and mainly commercial business [crosstalk 00:32:11]

John Warrillow:

So, if you’re in a home, and I think in New Zealand, it’s the same here in Canada, the water out of the tap is fine, but some people want the extra clean filtered water. And so, they would install the filtered water systems.

Paul Nielsen:

Yeah, but mainly in the commercial area, and they had a couple of other [inaudible 00:32:32] as well. And they’ve been listed on the New Zealand Stock Exchange for 15 years, so long established. And they were on the acquisition trail, as it turned out. And they were struggling to buy 100% of companies. So, their strategy was to go along, find people like myself and buy 51%, so they get their foot in the door. So, next morning we discussed just over, in Hyderabad, a cup of tea, and we came to a figure of… and shook hands, basically.

John Warrillow:

Wait, sorry, that’s a big leap of logic here. So, you’re at EO university, you have this drink, he says, “Let’s meet up for coffee.” And all of a sudden, he’s making you an offer for the business?

Paul Nielsen:

Yeah.

John Warrillow:

Literally. And what was the offer?

Paul Nielsen:

Well, the offer was 4 million, we ended up at 4 million, and then Tony is probably going to to listen to this, Tony Falkenstein, but there was some discussion around taking shares as well, which in hindsight probably would have been a good idea, but look, I’m not very good in the share market. If I go in the share market, everyone should get out, because I’m not very good at it. And I just wanted clean cash. And bearing in mind, I sit this, in the back of my mind is, how much money do I need and I don’t have to work for the rest of my life? So, we do us a little bit of negotiation, and he obviously had been speaking to his fellow board members back in New Zealand and, let’s do a deal.

John Warrillow:

So, he goes back to his board after the Hyderabad event, and then obviously he got approval to make you the offer to consummate the deal, and you guys agreed to proceed. You sold 51% of your business.

Paul Nielsen:

Yeah. And the term sheet came through and we signed that. And I’ve got a M&A lawyer involved, [inaudible 00:34:26] and I’m more prepared now. They decided to do their own due diligence. There’s a lot of accountants in that board. And it was a very pleasant experience, probably one of the reasons, also, because we were prepared. We’ve been through that bad due diligence. We got it all there. And of course it was a great company. It was transparent. [crosstalk 00:34:50]

John Warrillow:

How did you feel about giving up control, but holding on to such a big chunk of your equity? Because here you are selling 51%. Sometimes you sell 90% and you hold 10. Well, at that point you’ve sold 90, so who cares about the 10? But in your case, you’ve sold 51%, so, control, but you’ve still got a huge chunk of your wealth sitting in this company you no longer controlled. Did you think about that?

Paul Nielsen:

Yeah, I did, but also, that chunk was enough to help, first of all, satisfy my goals, to a certain degree, but I knew that in time I was still going to be managing director of HomeTech, if only 49%, that’s going to be a struggle because I’ve never had a board, never had an advisory board, I’ve always made decisions myself. So, I knew it was going to be a struggle, but I got this money in the bank, and we were getting on well and going to board meetings, et cetera. But as new companies do, they got to bring in their own team, they got their own way of doing things.

Paul Nielsen:

And come April, they bought the company on 31st of December, come April, went and saw Tony, and said, “Hey, Tony, why don’t you just buy the other 49% now?’ And he said, “Paul, I think it’s a good idea.” So, he said, “Right, I’ll give you that 4 mil.”

Paul Nielsen:

But I’d already organized this holiday for the family in Fiji. This was before the business even sold the 51%. So, to the extent of, I’ve got my grandchildren, children there, and we’re on this island in Fiji, and on June the 28th, I get this phone call from my lawyer, and he says, “Paul, the money is in the bank, the final trans.” And I was like a little boy in lolly shop. I was running around the island punching the air going, “I’ve fucking done it!” I’m sorry, [inaudible 00:36:48]. “I’ve done it! I’ve done it! I’ve done it! I’ve done it!”

Paul Nielsen:

And it was much [inaudible 00:36:52] than the first time, because now I’m done, I’ve done and dusted, I’ve done it. I’ve reached those goals now, I can’t believe it. I just love winning, whether it be sports or whatever. And it was just an incredible, incredible experience. And we went out that night with the family, and we had a nice meal, and they were really excited, when you show them your bank accounts, say, “Look at this, you could do that one day.” And it’s just hard to describe how excited I was and just thrilled. I still get really worked up about it now.

John Warrillow:

You got to back up a little bit. So, I love the Fiji story, by the way. That’s amazing. So, Tony buys 51%. So, I’m trying to get my head into his head a little bit. So, he’s got you on the hook for 49%. You’ve got some money in your jeans, but you’re still motivated to make this work, because you got such a large chunk, but you’re not used to having a boss, and you’re not used to having people looking over your shoulder, and that was his intent, is to say, “Okay, I’m going to bring in my own team here.” So, you were the one to originally raise the specter of being bought out, the remaining 49%. He didn’t initiate that conversation, it was your initiation, is that correct?

Paul Nielsen:

That’s correct. Yeah.

John Warrillow:

Okay. And what was his reaction? What was his body language? How did he react when you raised that?

Paul Nielsen:

Just go on holiday. Just go to the holiday house and just leave us to it, leave us to get on with it. And look, it was hard, but actually, I was surprised how at that six months, how I felt. It wasn’t too bad, I just, gritted my teeth and… But so many people are in that situation, but they had a plan, and I would have moved on eventually. So, I just fast forward. And obviously, three months into a company, they set it up pretty well by the end, and also having a founder around can be a bit of a nuisance.

John Warrillow:

Yeah. And that’s why I’m curious just to know why… There was obviously a reason that Tony didn’t buy 100% of your company upfront. There was a reason that he didn’t do that in the beginning. And I’m just-

Paul Nielsen:

And that’s a great point.

John Warrillow:

… curious as to what changed.

Paul Nielsen:

Great point. Because their strategy was strike [inaudible 00:39:41], because they’re still on an acquisition trail, but their strategy was, failing to buy 100% of companies, so just go for the 51% percent. Now, I thought of this too, in that Hyderabad cafe, if I said, “Tony, how about buy 100% rather than 51.” And if we had to construct a discussion about it, I put a structure in place and explain and things like that, I’m sure he would have gone for that. But they were just following their strategy, and I’m pretty sure they’re pretty delighted too. Long established company [inaudible 00:40:08], it was a lot of traction for a lot of companies.

John Warrillow:

Yeah. Certainly in the first few months he would have been able to see what he had bought and realized it was a good company, well run, and therefore, maybe his appetite to buy the rest had gone up in those few months.

Paul Nielsen:

Yeah.

John Warrillow:

It’s possible, I guess. Yeah.

Paul Nielsen:

[inaudible 00:40:31].

John Warrillow:

What was the reaction of your family in Fiji when you told them about what had happened?

Paul Nielsen:

Oh, they were just really thrilled for me and my wife. Because remember, they were part of the journey from when they were coming out of nappies. I’ve got photos of them at work with me. And both have gone on to run their own businesses as well, and successful businesses. And they just understood the journey and they understood the [inaudible 00:41:05] sacrifices.

Paul Nielsen:

Because I’ve got this guilt thing about, I was an absentee… I’m going quite deep here, but my daughter came home from kindergarten, or play set, or whatever you call it when I was setting up those 25 installers around the country, three years, four months away from home, because I was running a national business and I didn’t really resource around me, she came home from kindergarten, and there was my wife, and there was her sister and there was a cat… Sorry, her mother and sister and cat, and I was missing. And this really hurts today, and I probably did push too hard, but they understood that journey, the sacrifice. Because it’s not only the sacrifice of being away from home, but also like that time where I lost it all, where you had to move into a house [inaudible 00:41:53], when you used to have a swimming pool and a nice house in the country. So, they understood those sacrifices, and they were there for me.

John Warrillow:

Yeah. Have you ever… I haven’t read these books, so forgive me, I’m going to butcher it, but have you ever read the love languages book? The Five Love Languages?

Paul Nielsen:

Yes I have. Yeah.

John Warrillow:

Okay. Because I think one of them, correct me if I’m wrong, is around this idea of, the way I show love is I provide. I provide economic resources. Is that one of the love languages?

Paul Nielsen:

Yes it is. Yeah.

John Warrillow:

Okay. And from what I’m hearing, it sounds like maybe there’s some of that in you. And I don’t mean to put words in your mouth, so tell me if you think I’m wrong, but you were trying to communicate to your daughter that, while I missed all those years when you were young, I’ve done right by you, and I’ve I’ve achieved something, and similarly to your wife. Am I reading between the lines correctly? Or tell me if I’m wrong.

Paul Nielsen:

Yeah, you are. And that’s part of my nature. Someone said to me the other day, “Paul, one of your faults is you’re too much of a giver.” Because I like helping small business and I don’t charge and whatever. And my EO role on the board of growing Wellington, it’s not about necessarily growing EO, it’s about growing all those business people that come across. I get so much joy out of it. And then, with my children, as I say, they’re both running successful businesses, and it’s really nice when they ring me up and say, “Hey, dad, what do you think?” And that’s just a great feeling. So, somehow I redeemed myself from those times of setting up where we’re at.

John Warrillow:

Yeah. Yeah. Well, I think it’s great, and I’m glad it came full circle for you, and the success is amazing. So, are you up for a little due diligence? A couple of quick questions that I just want a quick short answer to, and I won’t ask follow questions.

Paul Nielsen:

Yep. Sure.

John Warrillow:

All right. And I think I might know the answer to the first one, but you tell me. What is the slimiest trick a perspective acquirer has tried to use on you to bolster their advantage?

Paul Nielsen:

Stuck me in a room and told me to read the DD, due diligence report.

John Warrillow:

Yeah, I figured that was the answer. What was the biggest mistake you made during the selling process?

Paul Nielsen:

The end selling process wasn’t a mistake, but the first one was. But I think it was, I probably left some money on the table. I wish again, the Built to Sell, or not chasing so many shining things. I wish I’d know what I know now. I think I could have had a far more profitable business. But anyway, it doesn’t really matter, because I’m happy.

John Warrillow:

What was the lowest point you reached emotionally during the process of selling your company?

Paul Nielsen:

Not as low as the previous one, DD, but I suppose it was not really low points, it was just really, is it really going to happen? So, you get a couple of weeks into the due diligence and you say, “Well, is it really going to happen? Is it all going to fall over now, because it’s so close?” And so, you start to worry about that.

John Warrillow:

What was the highest moment you reached during the process of selling your company?

Paul Nielsen:

Being on an island in Fiji with my family, running around the island like a little kid punching in the air, saying, “I made it. Done it. Done what I planned.”

John Warrillow:

What resources did you draw from? You’ve been very generous with you mentioning Built to Sell, which is fantastic, but what else did you… Oh, you also mentioned The E-Myth was helpful for you to create systems in your company. Did you rely on any other resources, tools, conferences, online courses, books, that helped you prepare to exit your company?

Paul Nielsen:

Not really. I read a lot of self-help books in my early days, like Think and Grow Rich and those sort of books, and discovered… The E-Myth was just amazing, because I drive people crazy about systems. I think system is the most important thing about a business and people should [inaudible 00:46:08], it’s about, not that people are less important, but systems are probably more important. And I didn’t have a board or anything like that, and just continued learning. And every day I learn, and it’s why I’m still an EO. Every day is a learning experience.

John Warrillow:

Yeah. Yeah. Great point. What did you buy yourself as a trophy to commemorate this experience?

Paul Nielsen:

Remember I’ve mentioned a couple times I’m pretty miserable, so my trophy was actually finishing up with that passive income. I didn’t go and buy any flashy cars. I paid off some mortgages. Nothing has really changed, and it doesn’t change, I still go into a bottle shop and buy the $20 bottle of wine over the $30 bottle of wine. That’s just the way I am. It’s hard to change my upbringing. So, the trophy really was, well, I say to my EO buddies, I’m living the dream, so that’s my trophy.

John Warrillow:

Well, I know you’re going to stimulate some conversation, so I want to let people know how they can reach out to you. You’re based in Wellington, New Zealand. Paul, what’s the best way for folks to say hi on social media or get in touch?

Paul Nielsen:

Well, I am on LinkedIn, but probably my email, which is Paul@Nielsen, spelled the same way as AC Nielsen, N-I-E-L-S-E-N.co.n… Do I say zed or do I say Z? What do they say in Canada? Z?

John Warrillow:

You’re good. I know Z.

Paul Nielsen:

But Nielsen.co.nz.

John Warrillow:

.co.nz. Yeah, and we’ll put all that. And Nielsen has spelled a bit uniquely, so we’ll put that in the show notes at BuiltToSell.com. Paul, thanks for doing this.

Paul Nielsen:

Oh, no I’ve really enjoyed it, and I thank you for the opportunity.

John Warrillow:

Hope you enjoyed conversation with Paul Nielsen. For complete show notes, including links to everything we referenced in today’s episode, along with definitions for some of the technical terms referenced, visit the episode page, which can be found as always at BuiltToSell.com.

John Warrillow:

Paul was a nomination. And if you’re wondering where our best guests come from, it’s usually someone who nominates them. And so, you can nominate a guest, just go to BuiltToSell.com/nominate. We also want to make a big shout to Sheri from Toronto who gave us a wonderful review on iTunes this week. If you ever get a chance, it would mean the world to us to have you rate the show on whatever podcasting app you use. While you’re there, hit the subscribe button, so you never 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 us bring our message to you. I’m John Warrillow, talk to you again next week.

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