The Ambush

May 11, 2016 |  

About this episode


How much would someone have to pay you to buy your business today? That’s the question Kris Jones was asked when billionaire Michael Rubin approached him about selling. Jones’ answer to Rubin’s question may surprise you.

To read a transcript of this episode, click here.

Figuring out your number is something you’ll do when we go through The Envelope Test, Module 12 in The Value Builder System. Start Module 1 for free by getting your Value Builder Score.

About Our Guest

Kris Jones is a serial entrepreneur, angel investor, best-selling author, accomplished public speaker and dedicated philanthropist. Jones first took the business world by storm in 1999 when he founded Pepperjam, a full-service internet-marketing agency and affiliate network that was sold for millions to eBay Enterprise (NASDAQ-EBAY) ten years later. With Jones at the helm as president and CEO, Pepperjam quickly distinguished itself as one of the most successful and fastest growing companies in the country. It was a three-time consecutive recipient of the prestigious Inc. Magazine Fastest Growing Company award (2006, 2007, 2008), as well as receiving dozens of other awards and honors.


John Warrillow:                So, what’s your number? You know, the amount of money someone would have to pay you today to buy your business. Interesting question. What I’d like you to think about as you listen to this next episode with Kris Jones because you’ll hear, Kris was put on the spot and asked exactly that question by his acquirer. His answer may surprise you.

John Warrillow:                Kris Jones, welcome to Built to Sell Radio.

Kris Jones:                          Thank you.

John Warrillow:                Thanks so much for doing this. Listen, you had this company called Pepperjam. Great name. I’d love to know the story. What were you guys selling?

Kris Jones:                          So it started out, right? So, I was a graduate student at Villanova in the late ’90s, and if you knew me at that time, I was that guy that would tell you that the internet was going to change the world. The only problem was, at the time I wasn’t an entrepreneur. I was an investor. I was investing in internet IPOs, among other things.

John Warrillow:                Where’d you get the money to do that at the age of whatever, 25?

Kris Jones:                          Oh, man. My original story was completely a bootstrap story where I maxed out credit cards and took whatever access to capital I could find, and turned it into hopefully more than I invested. But, it was really that study that I had in the late ’90s around the internet, and just sort of telling everyone that would listen about how I thought I was going to change the game. Well, I got a phone call from my brother, Rick, and he had pitched me on taking our grandmother’s gourmet food, called Mississippi Mud, and selling it on the internet. Long story short, we renamed the Mississippi… Well, long story short, I said, “That sounds pretty cool. Let’s do that.” We rename Mississippi Mud to Pepperjam by simply typing the ingredients into what then was probably AltaVista, and what came out is this product called pepper jelly. We didn’t want to be pepper jelly, so we called ourselves Pepperjam.

Kris Jones:                          Well, I went online, John. I self-studied around how to build a business online. I had quickly learned that I needed to thoroughly understand marketing strategies like search engine optimization, and pay-per-click marketing, and affiliate marketing. Through that whole process of self-education, we launched this gourmet food business and within short order, I had developed some skills around digital marketing, so online marketing, and others had started to ask me if I would assist them in launching affiliate program, and helping them set their business up for success.

Kris Jones:                          Therein, I sort of incubated, if you will, the digital marketing company called Pepperjam. So, my brother and I separated the two companies. He went off and managed the gourmet food business. That was called Grandma Jones’s Originals Pepper Jam. I maintained the domain, and over the next five years, I built one of the leading digital marketing and affiliate businesses in the United States.

John Warrillow:                I love this. So, a lot of guys will come to me and say, “Hey, did you look at my business plan? I’m thinking of getting in the business of doing, fill in the blank, company.” I always sort of smile at it because they’ve spent hours and hours, and decades in some cases, on their business plan. I’m like, “Get into the business and start selling something because you’re going to change so many times, what it is you’re selling.” You get the prize for changing the biggest pivot, if you’ll allow me to use that overused expression, selling pepper jelly into a digital marketing agency. That’s awesome.

Kris Jones:                          Thank you.

John Warrillow:                So you go on from ’99… and I understand there was a bit of an inflection point at 2003 when Michael joined the group. Maybe talk a little bit about that.

Kris Jones:                          Yeah, so those first couple of years, really from early 2000 through 2003, I had sort of… I was in the process of perfecting this model of building websites. As I had already alluded to, I had developed strategies around driving traffic. Really, the method that I put together was number one, find something that works. Two, replicated it, and then three, scale it. So this real simple formula that I put together, which by the way, when I say, “find something that works,” I was trying to find niches within websites, so gourmet foods, cookware, shoes, whatever it might be that I could arbitrage, that I could generate traffic to those websites and then arbitrage it through affiliate marketing.

John Warrillow:                What do you mean, arbitrage? I don’t understand that.

Kris Jones:                          Arbitrage, meaning… Let’s say acquiring traffic at $1, and then selling it at $1.50, right? So I would make 50 cents for every whatever, every click that I could get through my website. So during those first couple years, I had built… Let me put it this way. I’ll kind of conclude. By 2003, while I was in law school during those years, by the way. I was doing it full-time, but I was also going to law school full-time. I had really gone from rags to riches. I mean, I started out with no money, and by 2003, I had about two and a half million dollars cash.

Kris Jones:                          I took that money. I moved back to Wilkes-Barre/Scranton, Pennsylvania after law school, and I sat down with my best friend, Michael Jones. He was a practicing attorney. I said, “Hey, Mike. I want to take this business to the next level. I have some startup cash, a significant amount of startup cash, and I want to take what I’ve learned about generating website traffic and helping people make money online, and I want to build…” I’m going to be candid with you, John. Here’s what I said to him. I said, “Mike, I want to build the leading internet marketing company in the country, and then I want to sell it for millions of dollars to a publicly traded company, a strategic acquirer.”

Kris Jones:                          So, before I ever hired my first employee from an M&A and from a buying and selling perspective, I had intended to build a world class company that could eventually get acquired by a strategic buyer. I do remember saying to Mike in 2003 that I’d love to sell it to a publicly traded company. Now, I’m sure we’re going to talk more about it, but never did I think just five, six years later that I would eventually sell it to a publicly traded company named eBay, but we could flush that out. So Mike-

John Warrillow:                Before we do, I want to ask you kind of a personal question.

Kris Jones:                          Sure.

John Warrillow:                What is it about the money that was so important to you?

Kris Jones:                          You know, I can’t really identify with that question. It really wasn’t. I think money is like a scorecard. It’s part of the game. For me, it’s never been about the money. It’s been more about trying to build things that are really good that solve problems, or that really help people do thins. In the case of Pepperjam, I had founded that business having built my own business around the same strategies that I was offering to others to help accelerate their business. So for me, it was about self-actualization and being the best company that we could be, and building the best brand that we could build. In my case, as the CEO and the founder, was being the best possible leader that I could be. I guess, to some degree, the money was a part of how are we doing, but me wanting to found a company and sell it was more about the challenge and just the belief that I could do it, that I was capable of doing it.

Kris Jones:                          I will say, since you asked that question, when you look back at the last 20-25 years of my career, there is one unifying thing that defines me, and it’s not entrepreneurship. It’s a dedication to personal and professional development. A teenager started to listening to Tony Robbins cds, and really realized through that process of going through personal power that as an individual, we have this untapped, unlimited potential to do and accomplish whatever it is that we want to accomplish. The purpose of this interview is not to dive into all those things. It’s to really talk about buying and selling businesses, but that idea, buying and selling businesses, is one of probably 20 or 30 examples where I have just tried to leverage my unlimited potential to do things that most people don’t do.

Kris Jones:                          Another quick example is I never… As a teenager I thought, “Hey, if I can make a difference in this world, one way I can do that is by writing a book.” Who would’ve thought that I’d publish three books and have sold over 100,000 copies. But that… So you could do whatever it is that you set your mind to, as long as you get really clear on what it is that you want, and then you really hold yourself accountable to that process of what it’s going to take. It’s not easy. It’s not just a matter of saying, “I want to build and sell your business.” It’s a matter of really thinking through and setting yourself up for success.

John Warrillow:                Let’s dig into some of that and go back to our story on Pepperjam, here. So, let’s get into some of those details. So 2003, you sat down with Michael. You said, “Look, I’ve got a couple million bucks in startup capital. Where does the conversation go from there? Did you join forces? Did you become partners? How did that work?

Kris Jones:                          Yeah, so he and I sat over lunch. Remember, this guy, he’s in his early 20s. He had a child when he was in his teens, when he was at Villanova, so he’s an attorney, I don’t know, let’s say making $55,000-$60,000 a year at that time. He was my best friend so I was simply telling him what I was about to do. I promise you, and Mike will tell you, I didn’t offer him a job. I mean, it wasn’t like that. I did say to him that “Mike, I want to hire the best and brightest people that I could find,” using that whole Warren Buffet hire smart people and get out of their way, idea. But, I did not say to Mike, “Hey, come on as my co-founder. Hey, join the team.” This is a true story.

Kris Jones:                          A couple days later, Mike calls me and tells me that he wrote a letter and he’s prepared to resign from the law firm and join me. So, he did that. I was floored. I was like, “This is incredible! This is great!” So it was just Mike Jones and myself. Our first office was this $275 square foot office. We’re kind of looking at each other for the first two weeks.

John Warrillow:                How did you guys divide up the equity? I mean, you were bringing a lot of cash to the table. Did you go 50/50? How did you figure that out?

Kris Jones:                          No, we didn’t. He was a minority owner, but he’s was taken care of and he clearly became a millionaire when we sold the company.

John Warrillow:                Got it. So then you and Mike starting off sort of in a very small office, and you built this company, ultimately up to a point whereby 2009, you had sort of thousands of customers in this affiliate offering that you had. Is that right?

Kris Jones:                          Yeah. I mean, we went from really starting to help small businesses, if you will, to then sort of graduating to larger businesses. Then by ’06, ’07, ’08 we were working with some of the largest brands in the world. The turning point really was we were a world class digital marketing agency. We offered search engine optimization and pay-per-click marketing, and started to get involved at that time, the early days of social media marketing. I had felt from the beginning that if we’re going to eventually sell this company, we’re going to need technology. So what I was doing was… We were generating a lot of positive cash flow, and I would use a significant portion of that cash flow to invest in a division of our company that was sort of stealth, if you will, where they were building our technology.

Kris Jones:                          I had about a dozen or so full-time developers and IT people who were really tasked with building technology for us. We had worked very closely in the affiliate marketing space, which is about a two to three billion dollar industry here in the US. There were three big players: a company called Commission Junction, which was owned by publicly traded ValueClick, a company called LinkShare, which was owned by publicly traded Rakuten, and a small little company called Performix, which was eaten up by a huge company called Google. So they were our three competitors, but guess what? They were big and bloated, and we felt like we were close enough to the industry to build an affiliate network, basically, an affiliate technology that addressed some of those problems.

Kris Jones:                          Their end was really our claim to fame, which was this affiliate network. We launched it on January 13, 2008. By mid-year, there were reports that we were quickly becoming one of the top five affiliate networks in the country. I mean, we were closing 100 to 200 new advertisers on the platform a month.

John Warrillow:                Kris, for people who don’t know, maybe you could really laymen explanation. Explain what affiliate networks are.

Kris Jones:                          Yeah, it’s really simple. You own a website and you’re looking to monetize that website, right? You’re looking to make money from the website. Affiliate marketing is a technology that allows you to partner with businesses that will pay you a percentage of a referral or of a sale when you post a banner, or a link, or a video, or whatever it might be on your website, and someone clicks through to that and then purchases. You either get a referral fee or a commission. We built technology that provided the tracking, the reporting, the sort of solution for you to log in and see how you’re doing. We built that solution, and like I said, we built it for the purpose of sort of taking that industry to the next level by addressing some of the problems that existed.

Kris Jones:                          Might I say that back in the late ’90s, as I told the story earlier, and early 2000’s, when I said find something that works, replicate it and scale it, that’s what I was doing with websites. I was building websites and I was saying, “How can I make money from these websites?” Affiliate marketing was the primary revenue vehicle that I used during my law school years to make all that money that I referred to.

John Warrillow:                So you’re kind of running two businesses in parallel. You’re running a professional marketing services business where you’re working with other brands and helping them by keywords and optimize their websites, and then kind of as a skunk-works project, you’re building this second business with I would imagine, some very different operating metrics, this affiliate network.

Kris Jones:                          Yeah, absolutely. We were very bold to launch this piece of technology because we were relying on those other platforms as strategic partners. So suffice it to say, they weren’t happy with us when… Remember, I referred to my tech team as in stealth. In other words, people didn’t know they existed. We launched our technology on January 13, 2008, that affiliate industry really was like, “Wow! What just happened?” Nobody saw this coming. To be completely candid, we had a great team of developers that built this. It was done in-house. We knew how to do it, and as I said, within the first six months, we were publicly being compared to the big ones that I mentioned earlier.

Kris Jones:                          Later that year was the first of… It was actually the second call that I got from a company based right outside of Philadelphia called GSI Commerce. At the time, they were about a two and half billion dollar company traded on the NASDAQ. They worked with hundreds of the leading E-commerce companies. So if you looked at the internet retailer top 500, nobody managed more of the E-Commerce solutions that GSI Commerce. We knew of these guys. The CEO, Michael Rubin, had reached out to me back in 2007 before we even launched our technology, and just inquired about what we were doing. He said he just saw us around a lot and whatnot, but fast forward there to late 2008, we get a call from GSI saying, “We’re really impressed with what you’re doing.” So therein was really the beginning of some strategic acquisition discussions that lasted for several months, and then culminated in an acquisition in late 2009.

John Warrillow:                Let’s talk about that. So GSI is obviously a big player in your space, a strategic acquirer. When they approached you the second time, it was clearly for the purposes of an acquisition discussion. Is that right?

Kris Jones:                          It was. The interesting thing, and this is the advice I give to young entrepreneurs, is strategic partnership is sort of pseudo code for “let’s walk before we dance, let’s dance before we run.” So the two words early in the relationship kind of mean the same thing, but what type of strategy exists? They invited us out there to begin the discussion overlapping our two services and really thinking about what would Pepperjam bring to the table. In the case of GSI Commerce, at that time I think they were doing 100, 200 million dollars, it could’ve even been more, I don’t recall, in affiliate sales for the E-commerce companies that they managed.

Kris Jones:                          They weren’t using us. They were using a competing platform called LinkShare. So they were really interested in getting into this affiliate technology game, and here’s this company, Pepperjam, who had just launched their platform less than a year before, but really went on to the scene with a ton of excitement and a ton of support, and momentum, and leverage. Once we started to have the initial discussions, John, about what value Pepperjam would bring to the table for GSI Commerce, it became quickly, quickly and readily apparent that for both sides, there were… Strategically, it just made a lot of sense.

John Warrillow:                Who made the first move? I mean, did they provide you with an offer? Did the CEO say, “Hey, Kris. What’s it going to take to buy your business?”

Kris Jones:                          Oh, man. I don’t know if you read this article. I’m guessing that you didn’t. So this is one of the, I think, one of the great stories of this whole transaction. I had gotten to know the CEO, Michael Rubin. Both Mike and I, and several members of our senior team had been going back and forth between GSI and Pepperjam. But I get a call from Michael and he says he wants me to come down to GSI Commerce, but just to come by myself. He said, “Don’t bring Mike. Don’t bring anybody else.” This story that I’m telling you actually, I had later wrote an article for Inc Magazine and it’s published in there. So anybody who’s listening to this could just type in Kris Jones, Michael Rubin, and you could read the whole article. So I was like, “Okay, cool.” Maybe he just wants to chum with me, maybe go out for a nice lunch, maybe get a glass of wine, get a dinner.

Kris Jones:                          I drove down there and I get to GSI, and they’re like, “Mr. Rubin is in the conference room waiting for you.” So I get there. It’s Michael. On his other side is his CMO General Counsel, on the other side is Michael Khan, his CFO, and there may have been one or two other people in the room, and then here I am on the other side. Again, I had already established a rapport with him at this point, but I will be honest, he point blank said to me, “What’s your number?” And that was it, and then just silence. “What’s your number?” In the back of my head I’m thinking to myself, “Well, geez. I think this is sort of M&A 101. You don’t give them a number.” I mean, you give them number, then you know what the high point is, right? But at the same time, the strategic fit between these two companies was so awesome, and he knew it, and we knew it, that here’s what I did.

Kris Jones:                          I actually, in my mind, because anyone who’s at this stage of sort of an M&A is already thinking about what the price is. So, I basically took that high price, and then I took what is basically the puke number, which is like anything below that, I’m feeling like this is a fire sale, and I literally went with what would be sort of in the middle of those two numbers, and I blurted it out. There was some silence, and he looked at me, and he said, “I think we’re going to get a deal done.”

Kris Jones:                          That was early 2009 when that happened and as I mentioned earlier, the transaction went public on September 1, 2009. So, we got the deal done and of course, I don’t necessarily… I would recommend to those listeners that are out there to be very careful when just blurting out a price like that. I didn’t mention this, but during my law school years and whatnot, I do have some background in finance. The whole idea of mergers and acquisitions is something that I’ve studied very closely, so at that point, I saw that as an opportunity, potentially, of building some trust with the buyer. Trust, I think is what I built by giving him a number and then sticking with it. But I would suggest to others to be careful. I think that a better strategy might be to stay coy, and/or make sure that you have an M&A banker advisor in the room who could shield you from having to answer that question.

Kris Jones:                          In my case, I didn’t, but when I give this presentation, I give this thing I call the M&A checklist, which I go through about 16 different lessons that I’ve learned from having bought and sold businesses. I would say that having a banker or having a good representative when you’re negotiating the sale of your business, is a really, really great idea. In fact, I would be… Moving forward in some of the companies I’ve bought and sold, I always make sure that I have some advisors very close to me.

John Warrillow:                Did you feel kind of ambushed by Rubin when he brought in the other-

Kris Jones:                          People ask that. I just told this story last week in New Orleans. I look back on that moment in fondness. Michael is friend. Michael is a multi-multi-billionaire. This guy is extraordinary. He’s a tough cookie. There’s a reason why he’s successful. My guess is that if a book is written about him at some point in the future, it’s going to take a real critical look at him, but I think his success speaks for itself. Did I feel ambushed? I’m a very confident individual because I focus so much on personal and professional development in becoming the best possible me that I can become, so I didn’t crap my pants. I didn’t pee my pants, and I gave him a number that we eventually got to. You know what? I have no regrets.

Kris Jones:                          I look back on it with incredible fondness. The fit, as well, the strategic fit speaks for itself. I would say about 90+ percent of my original team that I built before I sold is still in place six years later. My partner, who you mentioned earlier, Mike Jones, is now the CEO, but not just the CEO of Pepperjam, which we didn’t get to. I sold to GSI Commerce and within about a year, we were acquired by eBay. Then the affiliate network that I founded had become the eBay enterprise affiliate network. It is now considered the number two affiliate network in the world, next to Commission Junction, at least publicly. I don’t… That little company was able to accelerate its growth and play at a level that Mike and I dreamed about. We look at it and it’s extraordinary. That original team’s in place.

Kris Jones:                          So to answer your question, no. Listen, I mean, business is tough. You’ve got to have a spine. What I say to young entrepreneurs is that most small businesses fail, but if you look at the 5% or though that after 10 years succeed, those ones that succeed are the ones that learn the lessons about why businesses succeed and why they fail. If you build up your skillset around understanding the difference, for instance, between financial reporting and financial analysis, understanding just valuation, understanding how to manage your growth and to build a great sales team, and all of those fun things, I think that you go into a meeting like that and even though I didn’t have representation, I was as prepared as I could be and I have no regrets about it. Michael Rubin continues to be a friend and a supporter. He supports a number of my portfolio companies, now.

John Warrillow:                Kris, one of the things that we’ve seen again, from a lot of our other case studies on Built to Sell Radio, was that there’s an initial offer that the entrepreneur and the buyer agree to in a letter of intent, this sort of a first step. And then, there’s a due diligence period, a few months. Usually, the number that’s accepted in the first meeting, it doesn’t necessarily look the same as the number that actually transacts at the share purchase agreement stage because things come up in due diligence and the number kind of shrinks a bit. In your case, you blurted out the number at the ambush meeting, or whatever we’re going to call it.

Kris Jones:                          The opportunity meeting.

John Warrillow:                The opportunity meeting.

Kris Jones:                          Build trust, yeah.

John Warrillow:                The trust building meeting. And then in September 2009, you closed. So how close were the numbers between the opportunity meeting and the ultimate close-

Kris Jones:                          Ironically, they were almost identical.

John Warrillow:                Isn’t that-

Kris Jones:                          Ironically, they were almost identical. I mean, there were opportunities for us to get that number higher. If you think about September 2009, there were not a lot of transactions taking place.

John Warrillow:                That’s an understatement.

Kris Jones:                          Because of what happened in 2008, our number was not significantly higher or lower. It was right around what I had suggested I would do the deal at. When the deal got done, we were very, very happy about it. The integration process, the joining of the teams and whatnot went very, very well. I don’t have… It was a very positive experience. Challenging, yes. I mean listen, I’m optimistic and I’m positive, but that doesn’t mean that it wasn’t a great challenge, both pre and post, but listen, I feel like so grateful for the entrepreneurial experience that I had in being able to build a company from Wilkes-Barre/Scranton Pennsylvania and sell it to a publicly traded company that eventually became owned by eBay. The amount of doors that that has opened for me, John, post-transaction, because that happened six years ago, have been… I can’t even put it into words. I just… I’m so grateful and I feel like that experience prepared me very, very well for the investments that I’ve made and what I’ve been able to do.

Kris Jones:                          I mean, I founded KBJ Capital as sort of a family fund, if you will. It’s only my money, but I invest my family’s money. I made about 20 investments. Just in the last 24 months, I’ve helped those companies raise about 36 million dollars. We have some real winners, some extraordinary businesses that I’ve invested in, several of which I’ve founded, that have gone on to become multi-multi-million dollar businesses. So, oh man. I can’t… Everything about that, I just feel so grateful. I’m so fortunate that I got it done at a time in our economy where there were not a lot of transactions going on, but I got it done.

John Warrillow:                Have you ever asked Michael, what if you hadn’t given him the number. Have you ever asked him, “What would you have done with all those people in the room, the CMO, the CFO, the [crosstalk 00:31:52].” We’d love to-

Kris Jones:                          I haven’t, but that article, like I said, was published in Inc magazine. He has since taken meetings… I’ve chatted with him, but he has since taken some meetings with some of my portfolio companies, so my guess is that he still has considerable respect for me. He didn’t look at that as me disclosing too much, but no, I haven’t.

John Warrillow:                What do you think he would say? If you had said, “Look, that’s off-side. I’ll take whatever offer you want to give me, Michael, but I’m not giving you the number.” How do you think he would’ve reacted, know what you know about him now?

Kris Jones:                          Listen, I think the deal would’ve got done either way. I mean, the real question is would I have gotten a lower or a higher number. For me, I think it was less about me giving a number that he could chew on. I think what happens in this buy and sell business is that we could waste each others time. Right? So if the seller goes in, and if I had some completely ridiculous expectations for what the sale price of my business would be, I think it’s a fair question that the buyer would say, “Give me a range, or give me an idea.” Now remember, the uniqueness of this transaction was that they’re a publicly traded company on NASDAQ, so they have all of these SEC requirements and regulations. They can’t, for instance, just be going and acquiring businesses for 100 times EBITDA, or something like that. So it was a professional environment. If I didn’t answer it the way I did, I’m not sure it would’ve impacted it.

Kris Jones:                          I think it’s probably a better story to share than it is the complexity that went into those nine months or so of everything that went on behind the scenes to get the transaction done, including them sending in a team of people from their technology team to spend days with my tech team, and to really see if my tech team was up to particular. We built a platform that was generating, I guess at that time, probably 100, 200, 300 million dollars in transactions, at least we were by the time we were acquired in September. I’ll tell you what. The feedback that I got from the GSI team on my team was all in the A-range, which I’m really, really proud of. So there’s a lot more that goes on behind the scenes during that whole due diligence process, beyond just coming up with a number. There’s a lot of tests that could be passed or failed.

John Warrillow:                I want to get to the diligence piece, but before we do, when Michael Rubin asked you, “What’s your number?” You’d obviously given it some thought on the plane out there, or whatever. What was the valuation methodology you were using to come up with your number?

Kris Jones:                          I was looking at… I mean, I don’t think it was super concrete because I didn’t expect him to ask me the question, but at that time, I was really looking at forward revenue, probably 18-24 months, and probably 12 months before. I was kind of thinking to myself, if we use a revenue multiple, I’d love to get somewhere in that three times-ish range. If I use an EBITDA multiple, I’m really going to have to focus on the forward looking because the past we had so much infrastructure investment and whatnot. But I said to myself, from an EBITDA standpoint, I’d love to get somewhere in that sort of six to eight, maybe as high as 10, because technology companies at that time, if you look at comparables, there were some examples of some companies going off 12, 15 times EBITDA, but most of them were in that sort of cluster of say six to 10%. I had gone into that meeting-

John Warrillow:                Not six to 10%, six to 10 times EBITDA. Yep, just for clarity.

Kris Jones:                          Yep, six to eight times EBITDA. So I had gone in there knowing my numbers, and the number that I blurted out I knew was a good number.

John Warrillow:                Talk about diligence. We don’t have time to go through all of the issues that I’m sure came up in those months, but what was the most difficult issue to work through? What was the most emotionally charged, the thing that almost brought the deal down? What was the single biggest issue you dealt with?

Kris Jones:                          Oh, that’s a great question. I’m not going to suggest this was the thing that almost brought the deal down by any stretch, but I would say one of the things that was most difficult for me to really think through and come to terms with was the amount of receivables that we had that were outstanding. I think one thing I learned through the process of my initial process through M&A, is that you’ve really, really got to pay attention to your revenue flow. So in short, what I found was… Let’s just say the number was five million dollars of receivables that we were waiting to come in, in terms of cash. What percentage of those… Or I should say, the percentage of those that were post 30 and post 60 was gut-wrenching.

Kris Jones:                          I had an internal controller. He was reporting numbers to me on a monthly basis, and Brian did a great job, but I think that I kind of wasn’t paying attention enough to aging, and so what happened was when I was discussing the value of those receivables with GSI, I learned that they wanted to discount them fairly significantly, and I had to really come to terms with that and think through whether or not their discount was reasonable. So, we hired an internal collector to try to get as much in as possible because of course, the value that they were going to give me of money in was a heck of a lot higher than money owed. And so, that was a difficult challenge for me.

Kris Jones:                          It was kind of a disappointment for me to realize we had so much money owed to us that had just aged. I wasn’t paying enough attention to it. I could tell you since the GSI transaction, with all of my businesses, most are either pay up front or I had very strict guidelines for rendering services to customers or clients who don’t pay. But I would say that was one of them.

John Warrillow:                The working capital calculation, by the way, that would impact… The working capital calculation, how much working capital you had to leave in the business when GSI took over the company. So, if you’re listening to this and you’re wondering why do the receivables matter, the receivables are usually part of the working capital calculation. In your case, it sounds like it was… It could’ve been a deal breaker.

Kris Jones:                          Yeah, it really could have been. I imagine if I had responded in a combative way to that issue, versus kind of really trying to think through and reach out to some of my advisors and say, “What do I do here?” Again, their feedback was collect as much of it as you can, so we put into process some pretty… We had marginal success with collections at that point.

Kris Jones:                          The other thing I would say is… Maybe I shouldn’t share that. What I was going to say is you have to be… If there are any outstanding legal issues… So when an acquirer comes in, they don’t want to buy liabilities, right? They want to buy assets, right? If there are any outstanding liabilities, you’ve got to address those during the due diligence process. So, there was one, or two, or three things that in the normal course of business, if I wasn’t getting acquired, I would kind of be like, “It’s a normal course of business.” Who cares if a client, and this is not a true example, but who cares if a client that paid us $10,000 over the last 12 months sent us a letter in the mail saying he demands all $10,000 back. Nobody in their right mind, assuming that we rendered services, is going to send them a check for $10,000.

Kris Jones:                          However, during that whole due diligence process, you do have to disclose everything about the business. So, there were one, or two, or three thins that came up that really sort of kind of caught me as, “Oh, man. Crap! I guess we do have to deal with this.” You know what? What ends up happening, John, and you know this but for the listeners, is that you end up conceding on some of these things. So that example I gave if a client has asked for 10,000, you sure as heck don’t want to give them 10,000, but you may end up giving them six, just to get them to sign off on a non-disparagement, or whatever it might be.

John Warrillow:                Or a lease of some sort.

Kris Jones:                          Yeah, or a lease of some kind, yeah. But yeah, I don’t really remember any major… I think the deal from start to finish, there was never a point where I said this deal isn’t going to get done. It felt really good. The strategic fit was there. When the transaction did take place on September 1, 2009, I’ll tell you this, what really signifies it is you do the signature pages, but what really signifies it, because that happens first, is the money transfer. Right? That’s a weird thing as an entrepreneur, at least it was for me, almost like a non-believable event. I felt like even once that initial transfer went through, I just felt like maybe I’m going to get a phone call, or maybe somebody from the GSI team is going to pull me over and say, “We were just kidding.” Or, maybe we sent a number that was too big. But, that didn’t happen.

Kris Jones:                          When I look back on that memory, that’s one of the things that struck me. It was sort of… Bear to say it, it was sort of an anticlimactic moment when that money was transferred because it was sort of like, on the one hand, it did commence a new era for Pepperjam, new owner and everything else, but for me it was sort of like a flood of emotions of… What’s next? Is this going to go away, or whatever? It didn’t take long before I realized that, “Hey, listen. When you sell your business, you’re no longer the owner.” Right? One of the reasons I eventually left… I mean, I left in fairly short order. I left within about 18 months. Where my passion is, is in entrepreneurship. It’s in building businesses. It’s in that first year, two, three years of business where you could go from zero, to a million, to five million, to 20 million.

Kris Jones:                          I just… For me, that’s where I get a lot of my passion. Now, I’ve been able to do that. Since selling Pepperjam, I’ve founded probably five or six multi-million dollar businesses, and then I’ve invested in some that are significant, in terms of size and scale, and the impact that they’re having in the industries that they’re in.

John Warrillow:                Fantastic. Kris, where do people get in touch with you?

Kris Jones:                          You know what? I am very social. I have been on Twitter and Facebook since the beginning of both platforms. On Twitter, I’m KrisJonesKom, with a K. On Facebook, my fan page, if you will, I think they still call it that, is KBJCapital, which is the name of my fund. Dm’ing me on either of those platforms will get me. It will go directly to me.

John Warrillow:                Kris Jones, thanks very much for joining us.

Kris Jones:                          Thanks, John. I appreciate it.


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