$2 Billion in 5 Years: Kajabi's Ultra Simple Growth Strategy w/ Jonathan Cronstedt

How would you identify when something has it?

How do you know when you can't constrain the growth? We moved through a growth period that was 2,153% in five years, you know, from 6 million to north of 100 million in ARR. Over 400 team members. Success is the only thing in life that you're going to choose to purchase that you won't know the price until after you've paid it. It's very much the I'm going to not live as well and I am going to reinvest every dollar into growth so that there is an exitable asset at the end of the rainbow.

I first met Jonathan Kronstad when he was a marketer like me trying to find his way in the world. And he built a name for himself working for other people, for other businesses. But what John became an example of was how understanding entrepreneurship and marketing could completely change a business and create many, many, many millions of dollars in value for himself and, and the companies that he worked with. Jonathan Kronstadt is the former president of Kajabi, if that sounds familiar, that's the app that so many Internet entrepreneurs use. And he oversaw the transition of that being a cool, nice little business to be coming valued at $2 billion under his leadership. In this discussion with J Cron, as he is lovingly called, he talks about that transformation from, from being a small business to being a billion dollar empire. But here's what you won't see that is so special to me bringing this to you.

John and I are peers. John's just a guy. I'm just a guy. We learned some skill sets.

I started my own thing. John got plugged into some other businesses.

I had some success.

John had more success. He plugged his skill set into a business and took it to a multi billion dollar valuation.

I share that with you because I want you to know that over the.

Next 10, 15, 20 years, these are the types of opportunities that people in your network and our community are going to be creating. We could have never predicted 10 years ago that John would build Kajabi to become worth billions of dollars. He was just a homie that I was eating Mexican food with here in Austin, Texas. That's what you can't see in your future. The opportunities that come down the pike and, and as you improve as an entrepreneur, as in a leader, the opportunities that you can create within your sphere of influence. So I hope this inspires you to think bigger, to go more aggressively and to be more optimistic.

So J Cron, when we met, you were, I think you were broke, right?

I would say just over broke.

Just over broke.

But very close to when we met. I was broke broke. I met you probably early on in my digital marketing career and I actually had an entire life before the world of Internet marketing came my way. I started, moved into Southern California from Chicago and wanted to get into life success like, because moving from the Midwest, being confronted by California is such a culture shock. And so it was like, all right, what am I going to do? So I jumped into sales that took me to telemarketing in high school, automotive sales at Fletcher Jones, the world's largest Mercedes dealer in Newport beach. During college, exited college into the mortgage business and then thought I had achieved success. I didn't realize that I was just good and well timed.

What did that mean you thought you had achieved success, like you're making money?

I was making more money than I ever thought was possible. I had a home, I bought a home for my parents to live in. I had a couple of cars. I was like, this is it, I've arrived. And then 2007 happened and I was smart enough to a hundred percent finance a bunch of real estate which never goes down. And, and the business that I was the vice president of went bankrupt. And very shortly after that I went bankrupt. So like the most humbling moment was the house that I bought for my parents to move into. I then got to help them move out of and was living on their couch. And here's where the digital marketing thing starts because the only idea I had was in the mortgage business. I got all of these info marketers selling their sales systems and I was like, you know, these info guys are rich. I want to learn how to do that. So I bought Dan Kennedy's whole enchilada. Three boxes of info products, workbooks and DVDs show up at the house. My parents think I'm crazy and that was my first exposure to this world of marketing.

And how old were you at this point?

Right around 26 or 7.

So 26, you're bankrupt living on your parents couch after moving them out of the house that you had moved them into. Because you're making all this money now you're starting over again with a box of tapes and DVDs and papers that you ordered from some infomercial looking thing that you found.

You know, when you say it that way, it sounds a lot sadder than it was like, like I like it.

You know, my job.

Like if there was a soundtrack, this would be like wah, wah. Like me, like paging through stuff. But no, it was, it was weird because like Steve Jobs said that the heaviness of success was replaced by the lightness of being a beginner again when he left Apple and started Next Computing. And I can totally relate to that because there was this moment where the houses went back and all of the expenses went away. And yes, I was worth less than zero, but I also didn't have anything that had any control over my time or anything else. So it was like, this online marketing thing's really cool. I'm just going to dive into it. So it was no knowledge whatsoever about how I would do it, but a very clear view of I'm going to do it.

But before you had your big home run, there was were a couple times that I know that you were brought into a company and there was some weird stuff that happened behind the scenes with founders and team members and interesting personalities. And you're at the helm, but you don't have the control of being the founder or the entrepreneur. I'm trying to be strategically vague to protect the innocent or uninnocent. But what can you. What's interesting to me is that as an entrepreneur you have duds until you have the biggest win. And as an intrapreneur, which is basically what you were. You had duds before you had your big winner too. It's interesting that there's a, there's a, a similar journey on both sides of it. So could you comment about some of the, what we'll say duds along the way?

Well, what you learn very quickly as a CEO and especially as a non founder, CEO or president and in the company you're being intentionally vague about, you find out very quickly that it might not be your fault, but it's still your responsibility. And you have to learn to be able to carry that mantle and respond to those things even in situations that you didn't create and sometimes have very little influence to impact. And I don't know that there's anything that teaches you how to do that other than it just being rammed down your throat because you don't have any other choice. And that was my experience in that particular enterprise. But it was something as well that like you very much begin to see that all of those things in that company, everyone was operating with the best of intentions. There wasn't any nefarious intent, there wasn't any purposeful mismanagement. It was just seeing personalities that were elevated to levels that were beyond their competency and they eventually got Peter Principled by their own success.

We're kind of going to loop around to this, but you mentioned to me that there's. There's a part in your new book where you talk about how everyone talks about hiring a players, but if you bring in a players into a broken structure, you're flawed from the beginning. And so this idea of always hiring a players is kind of a. It's kind of backwards and it's kind of. It's kind of what you're talking about here is that you bring people into. They might be a players, but they're above their competence level. There's nothing that you can do. So why do you think that hiring a players is a flawed idea?

Well, so if we were to look at the amount of books written on just hire a players, hire top talent, the who, not the how. I love you, Dan Sullivan, but I'm sorry, it's the book that I remember. Every company would be successful if it was as easy as hiring top talent. But every company's trying to hire top talent, and not every company is successful. So why is that? And I believe it's because a players don't want to come in and fix your dumpster fire. There's nobody that knows that they're good and knows that they're talented and is willing to be part of an organization rather than doing their own thing if they don't have an element of I want to go where I'm going to win and win the biggest. And that's not an interview that tricks you into joining a company and you join and you're like, oh my gosh, this is an absolute mess. Why didn't you tell me the truth? I'm out of here. And normally that's an owner that has all of these skeletons in the closet, cobwebs in the basement of areas of the business that they don't want to touch because it's too hard or it's too painful or it's outside of their competency. And so their idea is, I'm just going to hire someone to fix that. And then when someone sees it, it's like, why didn't you at least look here? Like, why don't you just shine a flashlight on it and acknowledge what it is you, you tricked me into it. I'm out of here. So I think that for me, the higher a players is often an abdication solution versus a delegation solution. And I think even going one step further, a players only want to work with a players. If you bring an A player into an organization that's all Cs. They're gone anyway because they're going to be so frustrated they're not going to want to participate.

Yeah. Would you. Would it be fair to say that it's often a common challenge that entrepreneurs talk about hiring great talent. It's hard to find good people. Would it be fair to summarize that as that means that you're not an A player and you're not a good person.

You know it. It's hard because I even the term A player at times. I don't love it because I think it is so situational. My view on organizational success is that your people will only shine as brightly as the stage you put them on and only execute as well as the tools you hand them. So I think it is far more the A players that we see. There is such a survivorship bias of where were they inserted, what were they standing on and what were they able to do more so than that person is the person that drove it. And I would say that's. That's my case even in my own career. Like you, you remember we were coming up in the industry together. The way that the people that would ignore my emails and phone calls on a product launch because I was a VP below a guy and I wasn't the peer to peer like. Yeah, I'll call him back. The way I'm received today, entirely different.

Yeah.

By third party validation that I had very little control over the beneficiary of it. But now all of a sudden that stamp changes that aspect.

So let's talk about that because at some point you got the call from Kajabi to come on and join their C level team and you like that the headline reads that they exited for $2 billion. So you oversaw the transition of going from where Kajabi was to a $2 billion valuation. What was the state of the company when you joined? And tell me a little bit about that path to the point of being acquired.

So the journey of the company has a couple of iterations. Iteration number one was the company started with Travis Rosser, Kenny Reeder and Andy Jenkins. They were the three founders.

I forgot Andy was involved at the beginning.

He left right after the first launch because he was doing work on the Blair Witch project and he wanted to work on movies, not Internet marketing. So Kenny and Travis bought him out.

That was the one that. Wow. I completely forgot the video boss.

Yeah. Miss you cousin Andy. But it's very much something where they started it and at the time, Andy's wife Janine Jenkins said, hey, you're in Orange County. There's a cool company in Orange County. You should connect with Kenny. So she puts us together via text. The initial text thread we had Kenny actually saved and it's in the foreword of my book. But so Janine says, you should connect with Kenny. So Kenny hires me to do consulting for Kajabi and I'm a consultant for like six months. They fire me to work with Frank Kern because Frank Kern was a much.

Bigger deal than us. And so I remember when he was involved there. And by the way, I just, I just want to highlight something where something I didn't factor into my career was the compounding returns on relationships. When you start off and you've got all your peers and your buddies and your homies who are just getting something going, some people win, some people lose. And over 10, 20, 30 years, those relationships mature and meet other people. And I never would have factored in or never knew to factor in where the people in this room are going to be in 15 years and how my relationship with them contributing now might come back to me or come back to somebody else over 15 years rather than three months from now or what we can sell right now. But thinking about the 10, the multi decade returns that come from those relationships and you're, you're saying the same thing. You know, you had these relationships with people that started a company and then someone introduces you, you do consulting work, but eventually it leads to a really, really big deal and a really, really successful company.

You're 100% right. My. If I were to boil down my entire life, it would be a split between the compounding power of relationships and the ability to access the right people at the very few inflection points that matter. If I only had those two things, that would be the entire formula for where I am in my life.

Could you explain that second point? The inflection points in their lives.

So, and definitely let's, let's come back to the Kajabi season. But so if you think about the few inflection points in your life that matter, like if you were to really sit down and chart almost a graph of your life, the ups, the downs, and where great things happened, you will almost always find that there are very few inflection points that have resulted in where you are today. And those inflection points typically have a sage, a guide, a chance moment of inspiration, there will be something that you took a different path. And so for me, growing up in the Midwest, my parents were wonderful parents, but the financial Acumen was not, not there. My parents were both VPs, never at the top seat, and they never really got outside of that middle class arena. And so I remember when I was about to join Kajabi, I was just coming out of Success magazine and I talked to my dad and I'm like, dad, I'm thinking about joining this Internet company, and the only downside is I'm gonna have to take a 50% cut in salary, but I'll have an opportunity to be an owner and really grow something. And my dad's perspective was always, you're insane. Take the biggest salary, you can, put it all in your 401k, save for the future, and you'll be able to retire comfortably. And I was like, okay, that's interesting. And I joined YPO about two years earlier. So I took out a buddy named G.S. and a buddy named Sergio, and we both had dinner and I was like, guys, you've done this. If you were me, what would you choose? And GS said, number one, equity is all that matters. It's where all of the value is created. And you need to do it now because the older you get, the harder it will be. You will not be able to work as hard at 50 as you can at 40. So now's your time. And Sergio said, well, could you get another job paying that if this didn't work? And I said, yeah, of course. And he's like, then take the ownership. He's like, that's where all the value is created. So I've got two guys that are living the life I want to live saying, take the salary cut and don't give it a second thought. And I've got my dad, well intentioned, saying, no way, take the salary. And that decision. I chose to take the cut in salary, take the equity. And that was the only decision that mattered. But had I not had those voices at that inflection point, I would have only known my dad's path and I would have not taken that thing that changed everything.

So that was an inflection point for you. But you also mentioned that part of your success in your career has been identifying those inflection points for other people and seeing where you can provide value for those people at those inflection points. So how do you identify those inflection points in other people?

So if we go back to the Kajabi journey and I'll weave that into finding the inflection point, they fire me to work with Frank Kern. About a year or two later, they hired me back as vp of business development to help them in marketing. And I quit a week after to join as CEO of digital Marketer. So when Kenny fired me as a consultant, we went to a Starbucks in Tustin. I took him back to the same Starbucks in Tustin and quit. Kenny laughed. He's like, well, you know what? I did fire you, so now we're even. And so then they continued to grow. I continued to grow. And as I'm leaving success, I had been renting an office from Kajabi because I needed an office in Southern California and success was in Dallas. Another company was in St. Petersburg, another company was in Austin. So I was always traveling and I needed a place to work. And so on a Monday morning, Kenny walks into my office. Hey man, how was your weekend? I was like kind of transitioning out of success. They told me the job was only in Dallas. I'm not moving to Dallas because I promised Nicole I would never force her out of California. I don't really have much to do. Kenny's like, well, you've grown a bunch. We've grown a bunch. We should probably figure out how to work together because it's easier than moving your shit out of the office. And at that stage, Kajabi was approximately $6 million in ARR, about 25 team members. And Kenny and I sat down and he's like, man, I just know that this can be a thing, but I need someone that's really ready to make it a thing with me. And I was like, awesome. Here's where I'm good, here's where I'm not. And so Kenny very much was the technical founder. Like he had the engineering and the product side and I was the marketing and the customer experience and the community building. But what was so unique about it is we actually got to manage the company very much like co CEOs, like we, we were in every meeting together. It was a charmed partnership. I mean we had one in the history of our five year growth trajectory, we had one fight that lasted about 30 minutes on a walk around the office on whether it was right to use stock photography to increase the throughput of marketing or we only use real photos of real heroes because it's more authentic but it's more expensive and takes longer. I was on the stock photo side because I was still very much a marketer at that point. Kenny was on the real photo side. We went real photos and never looked back. And I would say for me that was a learning in being the president to the CEO. There is a need to recognize that you are there to help amplify and accelerate the vision that exists. And so my journey was very much if Kenny decided we were going left, I would argue like hell for right. But the moment that Kenny said we're going left, my only response was, I love left. Let's do it. Because I knew that if left was wrong, we'd go right real quickly and he'd tell me I was right. And it allowed us to make changes very quickly, have the velocity that was necessary to take on Mach 3. Hair on fire. As we move through a growth period that was 2153% in five years. You know, from 6 million to north of 100 million in AR, over 400 team members going and navigating that through Covid and you know, what period of time is that?

6 million. You said 20 to 100 million.

2016 to July of 21, when we stepped out of our operating roles.

So four years from. From six to over 105 years. And the company was how old when you joined? Because it wasn't five years. Okay, so five years to get to six. Five more years to get over 100.

Yep.

It's kind of a big jump.

Well, I would say I. That's kind of like I've gotten very honest with where I'm good and where I suck. And like there are people out there, There are those 0 to 1 founders that are like the perfect croissant chef. Like they will sweat the details of how many layers to make something big, light and fluffy and perfect and buttery. I'm not that guy. I'm the Burger King croissant wich guy that I'm like, you've got a super cool thing and we can sell a billion of them if we do it this way. And that's where I love to play is.

Is what you're saying that you're not the inventor?

No, I'm the scale guy.

You can tell when something has it and when something has it. You know how to throw gasoline on the fire.

Yes.

How would you identify when something has it?

How do you know when you can't constrain the growth. So where we learned this and it was after joining Kajabi because I've always had a passion for this creator universe because I was the customer. We had a gentleman that worked for us for a minute and we were at an event and I was like, did you ever attend events like this? He's like, no, I've always been backstage with the speakers. I'm like, then you'll never get it. You'll never understand what it means to be sitting in that seat, to have bought a ticket on a credit card, to be trying to figure this out. You'll never get it. You just won't. You know, you might block and tackle the way that this industry requires, but you're not going to understand it at the level of I had to do.

That and what it means when somebody makes their first thousand dollars or $10,000 or gets their first customer.

And that first thousand dollars was where the Kajabi Hero program came from. Which we can talk about that being an amplifier to our growth, but it was very much something where we were at the time spending about.

A million dollars a month in paid media. It was our first attempt at really going after scale. And we were like two months into this, which was like $2 million, which is a lot of money. And our marketing team kept saying, it's scaling like crazy. Our attribution is amazing. Like, we were printing money and Kenny and I were like, I don't know. Just doesn't feel right. And so sure enough, we just decided to turn off all paid media and our marketing team was like, what are you doing? And we're like, shut it off for a month. If we're wrong, growth will stall. But it doesn't matter. We're bootstrapped. We don't have any investors. We don't have to answer to anybody. Well, sure enough, we shut it off and the growth rate remained entirely unchanged. And so what we learned was the money we were spending wasn't doing anything so we could save the million a month. And we learned that the virality, this, this flywheel within the company was what was driving the growth, that the product experience, the networked effects, the Hero program, the partner program that was driving the company, not this paid media.

Well, hold on. There's, there's some, there's something missing here because you go from 6 to 106 million ARR. To 100 million. And you said that you were, you could tell that you couldn't contain the growth. It's growing faster than you can contain. But it took five years to get to 6 million. So it took five years for it to hit some sort of inflection point. And you had an intuitive knowing somehow that it was at an inflection point.

So if you were to ask Kenny.

And something had to change.

Well, the first five years of Kajabi and Kenny will absolutely talk about this as well, is it was a lifestyle business. It was, it was not built to be the. I See, let's take this zero to 100. It was, I mean, the company like when the Call of Duty 2 came out, there was no engineering for probably eight weeks. It was just go to the office and play call of duty 2. And then the zombie mode came out and that was another eight weeks of let's not do anything. So I mean, that, that was the company like, I mean, in my opinion, and I mean, hats off to Russell. He built the thing that everybody wanted, which, you know, a digital marketer we used to joke about as the Funnel Builder 5000. But if, if Kajabi was attacking the world the way we did in our second half as from day one, the vast majority of things that were brought into this market wouldn't have needed to be brought into this market because we would have built them.

Would you explain the difference or the, the change from what you're referring to as a lifestyle business to really making a go at something? Because that is a strategic decision and it's a decision that we've talked about that whether it's E commerce or it's digital marketing or it's consulting, you reach a certain point at which you've, you've accomplished what you set out when your goal was freedom. And then you're given a choice of if you're going to make a real go at making this a company or if you're going to let this continue to fund your lifestyle. Would you explain that transition and the different approaches?

Sure. So I think it's actually one of the hardest decisions to ask an entrepreneur to make because what you're essentially asking is, and it's an element of your definition of success. But success is the only thing in life that you're going to choose to purchase that you won't know the price until after you've paid it. And so it's one of those moments where you've achieved escape velocity, your lifestyle expenses are being paid. But as far as getting to that next level of scaling and selling something, you don't know how long it's going to take. You don't know who the buyer is.

Or if it's going to work or.

If it's going to work. So you won't find out until afterwards. But it's very much the I'm going to not live as well, and I'm going to reinvest every dollar into growth so that there is an exitable asset at the end of the rainbow.

And what's different about the approach, obviously, when you decide to go systems scale.

All of the Elements that as the lifestyle entrepreneur are boring and left alone and ignored and, and, and literally, dear God, hire anyone so I don't have to do this. You live there like success is extremely boring. It's why most of the people that are amazing at that 0 to 1 phase have no appetite for scale at all because it's just doing the same over and over and over and over again and getting it slightly better each time.

And the 0 to 1 million is just so full of dopamine hits and highs and crazy growth and everything is new and fresh and fun and then you go and build a company and it's not so much a dopamine rush.

No.

Anymore.

No, it, at times it's soul sucking. Like, I mean, you are hiring and you are paying and you're paying people that might be making more than you, that are underperforming or not making you happy or not making the decisions you'd make. And you're like, why didn't I just keep it in the garage and, you know, be comfortable and have my lifestyle paid for? So there are certain businesses that I think are amazing lifestyle businesses. Like the businesses I feel the worst for are businesses that are meant to be lifestyle businesses that people try to scale. That's the saddest one. The saddest one when it's like, this is an amazing car, but I'm going to try to make it a boat or a plane. And the car was great as a car, but it's not going to be a boat or a plane. And depending on how much you spend trying to turn it into a boat or a plane, that's where you get the homer mobile and you just give up.

And, and, and to keep the analogy going, that's usually when you've got a cool car, everybody else thinks you got a cool car, but then you meet.

Someone with a boat, then, then it's.

All over and then you say my car needs to be a boat. And that's when you try really hard to make your very cool car a boat.

There's no doubt about it. I when you look at hedonic treadmill adaptations in life, there is so much wisdom into purposefully constraining what success looks like for you before you are successful because you can move the goal posts endlessly for the rest of your life. And if you are happy with a lifestyle business, don't let anybody talk you out of it. Yeah, if you are happy with a small scale up and exit, don't let anybody talk you out of it. Because we as entrepreneurs the grass is always greener. And I know because I'm living this, like, there are people that are all like, oh, my gosh, you did it. You, you know, you retired before you were 40 and you brought in these private equity partners. How cool is that? And I'm like, yeah, but you have a cash flow business. Like you, you know that that money will come in next month. Me, I'm just like, spending. It's horrible, demoralizing.

Everyone who's had an exit is jealous of the people who have casual businesses. And everyone with a cash flow business is jealous of the people who have an exit 100 and the truth is, you can make a whole lot of wealth having a cash flow business and putting money into the S&P 500 and waiting a long time. You can all day long. You can have a really big exit that way. What was different when you came in and Kajabi was a lifestyle business where people are playing Call of Duty. And how does the culture change when you and Kenny decide we really want to make this a thing?

So I would say it started slowly, and then the growth began to force on us elements that were difficult but necessary. So it started with conversations and vision resetting of. And the way that we always told the story and would talk to the team about it was at some point someone will write a book about this industry and the only question will be, will the book be about us or will we be a footnote in the book of. It was super cool. They started this thing and then somebody else ate their lunch. And I'll be damned if someone's going to eat our lunch. So it was ratcheting up the intensity. I will say, for those people listening that are readers, Frank Slootman's book Amp it up is without question the greatest management of people as a CEO book I've ever read. And it. It is unbelievably simple. Like, the takeaway is being a CEO is a confrontational job. Like, if you as a CEO want to be great, you will not be liked. You might be respected, but you will not be liked. And the book is incredible. But so for us, it was deciding to ratchet up that intensity that in the meetings where the team would say, it'll take us three months, it was, well, can you do it in three weeks? And the crazy thing was they always could. So the team would come in and say, it's going to be three months. We're like, we need it in three weeks. And then they'd show up on a Monday and it's like, oh, we did it over the weekend. It's like, then why did you say three months? Like, we could have skipped all of this awkward posturing and, you know, frustration, like, you just got it done. But it was one of those where what we realized, and this was one of our biggest failures in our people strategy, which again, is why I don't like relying on people strategies. We Peter principled a lot of people, we had this nostalgia of because you were there and because you were first, you get the title. So if you were an engineer that then managed engineers, well, you must be our CTO or, well, you were a product guy who hired product guys. You must be our chief product officer. And over time, what we realized is we pushed people to a level with the best of intentions that in the process pushed them beyond pressure that they wanted. And we had people that after we pushed them to roles that they were unable to execute on, they resigned those roles. They gave back equity. They were like, man, I can't do this. And it wasn't on them, it was on us. Like, we, we foolishly let people just say, I want to take the shot. We didn't ask could they take the shot. And we unfortunately broke some people along the way. And those were the elements. As, as we were scaling it, the growth just kept compounding and compounding and compounding. And it was one of those where it's like, we'd like you to do this. Then it was, we need you to do this. Then it was, if you can't do this, we're really screwed and have to find somebody that can.

Both you and I grew up in the digital marketing, customer acquisition.

Scale, advertising world. And as I'm listening to you, even though that's your background, it sounds to me like the reason why you had so much success at Kajabi was not because you were trying to make something work. It was because something was working and then you had to go build the infrastructure to support it. It was bigger than your marketing campaigns could withstand. You shut off all advertising and it was still. The ball was still moving. What do you look for? Or how do you know? Or why do you think that something took off on a life of its own while so many of us who have the marketing backgrounds are trying so hard to get something to work.

So I would say at Kajabi when I joined, I knew it would be successful, but I had no idea it would be as successful as it was. Like, even I was on my drive down here this morning. Kenny and I were catching up and it, it, it's so much fun, like just getting to go to work every day with your best friend and build something. It was amazing. And we're talking about it on the ride down and it's like, wow. Like, the platform just crossed over $7 billion earned by these creators. And we started this business replacing DVDs and workbooks with everything priced ending in a seven. Like, holy cow, this is different. And it's amazing to see what became. So it's like I knew enough to know that the creator economy was growing, that more people were gaining access to broadband Internet a la Diamandis, rising billions, that those people getting connected would want the passions and the proficiencies and the professions that our platform was enabling. I knew it would be good, but I didn't know it would be this. And so I want to be clear about that. Like, if somebody has the divining rod, where it's like, it's going to be this big, like, I want to meet that guy. But I would say that we began to notice indicators and when we saw those indicators, then it was like, buckle up, let's go. Like, wow, this, this is growing even when we're ignoring it. Yeah, we better go. We better really go, because if we don't, someone else will.

The company was acquired at a valuation of $2 billion, or technically we raised.

$550 million on a $2 billion valuation anchored by Tiger Global, with TPG, Owl Rock, Maritech and Tidemark joining. And that was the raise in March of 21.

Okay, I'm glad you clarified that because it's a new world for me how corporate financing often works. Right. I know you build something, you sell it, somebody writes you a check. But I've only recently, in the last year, discovered there's all kinds of ways of creative financing and, and financial engineering, and there's all kinds of things that $2 billion valuation could mean.

Oh, sure, you got liquidation preferences, you got participating, non participating preferences. And if you don't know what these words mean, dear God, get an attorney before you sign anything. We were very blessed. Like, I always joke about the fact that when I got into this industry, I didn't know enough to know the mentors to seek out. And God watches out for fools and little children. And I'm half of each. And I got to meet the most high integrity, high character people in a world that there's a lot of marketers you shouldn't learn from. I was very blessed in that regard. And we had that same blessed element at Kajabi, where When Spectrum Equity came into our world, we didn't know any different. Like, when we joined Spectrum Equity, our finance department was Kenny, myself, QuickBooks and a controller. And Spectrum was like, really? Like, that's it? Yeah, it's. It's working great. You know, credit card payments come in, and then we pay people and it's cool. They're like, all right, well, you need an FP and a department. Google's FP and a. Like. Like that kind of thing. And it was one of those things, too, where you begin to find out how teams impact you. I mean, our. Our diligence with Spectrum versus our diligence with Tiger. The diligence with Tiger took one tenth the time because Spectrum was the lead investor, and that's how Spectrum is viewed in that world. But so the. The corporate finance side is one of those things where, again, we had great attorneys, but we were fortunate that we also had great partners. And the way that we found that out is we had so much inbound interest in Kajabi. And the way that Spectrum won, because we said no to everybody. And Spectrum actually bought a ticket as attendees to our user summit, sent us a selfie from the lobby. They're like, yeah, we just wanted to hang out with some Kajabi users, find out what you guys are up to. And we were like, they give a shit. Like, they had to buy plane tickets to hang out here for a day to meet our customers. Oh, dude, they're super cool. Let's do it. And so that's how Spectrum actually won the deal. And then when Spectrum worked with us, learning about all of the elements of finance and structuring was unbelievably valuable. Because what you'll find, and the way I would summarize corporate structure and finance is as an entrepreneur, you can always have your price. If I can have my structure, right? And that is the best summary I can give you, is the price is irrelevant. It's the structure that matters.

Could you give a couple examples of that? Because, I mean, the way we say it is, you name the price, I name the terms.

So the best example I have right now, and you can Google it, because it's very public and very sad, is fanduel. Fanduel was one of the most amazing growth stories, and the founders sold for half a billion dollars and got zero dollars. Like, could you imagine building something that sells for half a billion dollars? And it's like, thanks for playing, Go get a job. And that happened because of liquidation preferences. So what liquidation preferences are. And I'll Explain this in the, in the way that an idiot like me understands it is you get money into a company. Let's say someone puts a million dollars into your company and they have a 1x liquidation preference. That means if the company sells for $900,000, they get all $900,000 because they have a liquidation preference on a million. Now you can see liquidation preferences at a 2x or a 3x, which means I get 3x my money before you see a dime. And then what gets even more nefarious is what's called participating versus non participating. So participating means after that liquidation preference, I still have my equity piece for whatever is remaining in that bucket and I'm now getting that piece. So you have all of these elements of what's called a waterfall, which is where the capital starts at the top, flows through the waterfall and all of the buckets and things. And that's kind of how it works. But if you're an entrepreneur and you're like, look at the top number. I'm so pumped. And then you're like, but what fanduel half a billion zero dollars. What happened? And that's what happens.

Everybody runs the headline about what the top end number was. And from, from your perspective, the way you're describing it is yes, have legal counsel review everything because some of these structures can get you into trouble. But on the other side of it, it opened up a whole new world of what is possible in terms of coming to agreements. And I realized how limited my understanding of money was, how limited my understanding of like money comes in, money goes out, you save some, you sell some stuff. But money is just this way that we structure agreements and all of a sudden money doesn't even feel real anymore. They're just a way that we come to terms and agreements and it all of a sudden feels very creative. And when you study just a little bit of that corporate financing, you realize that doing acquisitions or hiring people or creating up, creating comp plans can be a very creative process. It is not just a trade. It's coming to an agreement where everybody is getting what serves them and supports their long term goals. Was, was there any creativity in the way that the deal was structured when you raised money for in our case.

And again, going back to that, there are times where it's better to be lucky than good. Like we had amazing investment partners. Our liquidation preferences are. All of those elements were in, in our favor. And I mean, John Connolly, who is the managing director at Spectrum, described it best. He said, you know, look guys, if we're splitting a nickel, you're getting three pennies. And he even said he's like, I like the after part of the deal more than I do the deal. He's like, the contracts and the negotiations, I hate this. I can't wait to just grow the company together. And he even told us going into it, which again, very prescient on his part. He said, there will come a moment where you are completely ready to walk away from this whole thing because you are so frustrated and the attorneys are at loggerheads and the deal is dead for all intents and purposes. And that's when you're going to call me and we're going to just get on the phone and we're going to tell the attorneys what's going to happen. And true to his word, that happened. There was a moment where it was like, nope. And sure enough, one 30 minute phone call, the attorneys like, oh, okay, if that's what you guys wanted, we'll draft it that way. Like, if it was up to attorneys, no one would ever buy anything, ever, from anyone. And the other thing you learned too, going back to the deal points, like, we were fortunate in that we decided to cap our legal fees because normally when a company is doing due diligence on you, the legal fees are your expense after the deal. And so I never knew when I was a kid, like, you go to New York, you see these skyscrapers with, you know, lawyers names on them, and you're like, how in the world do these guys have skyscrapers with billable hours? Like, I mean, what is that? And then you get a legal bill that's seven figures and you're like, oh.

That'S how they have to do that. John, as you're, as you're sharing all of this, my brain is just like piecing together the overall bird's eye view of the story. And what I am gleaning from all this is you double down on relationships and thinking long term. You had a skill set, there was some luck involved, but you built good friendships and relationships and working relationships. You kept developing your skill set as a leader and as, as a, a, a manager. But none of that really created the big upside until you found the opportunity where you said, this is bigger than me, this is bigger than one person, and this is creating a life of its own. And spotting that opportunity seemed to be the real inflection point. Would you agree with how I am summarizing all this 100%.

And I can tie it back to a couple of ways so there are some Things we built at Kajabi that I would say were critical to our growth engine that we can dive into. But I would liken it to the fact that you've always heard in real estate, you make your money when you buy it.

Yeah.

There's no difference in business that if you're going to build something, if you don't already see, like if you're, in my case, if you're not going to start something from scratch, you have the luxury of choosing a thing that is already doing what you know it needs to do for it to get to the destination.

So you're. We're in a room of entrepreneurs who all feel in a rush.

Hi everybody.

Because they see, they see everybody else crushing it, right?

Well, of course.

And social media tells you that. Yes, exactly, exactly. And yet there is, when we have conversations, it often comes back to not being in a rush and waiting for the, the right opportunity, which is so hard when you just want to make something happen. And it feels counterintuitive because when you're going from zero to a million, it is about just hustling your way to a million. But when you're looking at a billion dollar valuation or a hundred million dollar exit or whatever that it, you can't hustle that it, it takes a little bit more thoughtfulness or providence for that to float into your field of opportunities. So how would you comment on that paradox?

Well, if you look at Warren Buffett, 90% of his wealth came after he turned 60. And I believe 95% of his wealth came from only seven investments. So when you look at the amount of investments he's made, but seven of them are the vast majority. That 80, 20 rule that is pretty much immutable. The idea of I'm going to force something versus I'm going to prepare myself so that when it shows up, I'm ready. To me, one of those is a path for extreme enjoyment and peace. And the other one is a constant path of fear and missing out and a lot of missed shots and putting yourself in a position that like, for example, I might have missed the Kajabi opportunity. Like if, if I was so frenetically focused on I've got to do something, I've got to replace the salary, I've got, you know, all of these expenses. I can't afford to be without that salary. If I had all of the forcing functions that would have not allowed me to be in the right place, that when Kajabi came up, I could have totally missed it.

So what does it look like to prepare yourself for the next opportunity.

I would say focusing on who you're becoming in the process, what are you learning, what are you studying, who are you around, and how are you making sure you're placing yourself in areas where opportunity can find you. And then after you have that success, opportunity will find you. And then it's more of a vetting process. Like, it flips. Like, I remember, for me, I spent the first 10 years of my life in Internet marketing, being everywhere all of the time. I was the earliest person at the event. I was the last guy in the bar at night. I was trying to meet everyone and anybody I could that could possibly be a promotional partner, knowing that at some point someday that would turn into things. And it's like, I didn't know that Joe Polish would invite me out and become a friend who I've met a bunch of people through. I didn't know that I would have Mike Koenigs be my guy that would hire me as an affiliate manager that would let me assist Roland Frazier being an affiliate, that would then roll in, recommending me for CEO at Digital Marketer. I didn't know the consulting for Kajabi because Janine thought we were both in Orange county would lead to Kenny and I becoming friends. That would lead to a serendipitous opportunity where I didn't have a job and I wanted a job. And it turned.

These are all relationships, and being contributive to these relationships and looking for something to give and being some. Someone that if I were to tie.

That back to my life, like, where I learned that it was the humbling experience of going bankrupt out of the mortgage business, because my wife, literally, I tried to get her to marry me when I was in the mortgage business. She said, you're a cartoon character. I don't even want to talk to you. And what I learned is having that success, you find out very quickly that the toes you step on on the way up are going to be connected to the ass you're going to kiss on the way down. And that was a big learning for me. So I went into the marketing world where everyone is posturing, whether virtually or in person, and I was like, I just want to be nice to everybody. Like, I've never left a job that wouldn't hire me back today. I've never hopefully had anybody that wouldn't work with me again. I mean, I. I don't know of anybody that would not say, yeah, I would. I would totally work with him again. And. And it's so wild. Of how impactful, just being kind and. And asking how you can add value to people's lives, it absolutely compounds even when you're not seeing it.

Every time I'm out in public, I realize how few people are even occasionally polite or kind or don't have their nose in their phone or go the extra mile. And so if you do it even a little bit, you end up passing most people completely.

The bar today for succeeding has never been lower because there are fewer and fewer people that will actually do any of the work necessary. Yeah, like, I mean, we live in a world today of intellectual junk food and YouTube. Like, there's not a person today that wouldn't rather be a YouTube influencer. It's like, well, why don't you just roll up some H vac companies, sell it to a private equity firm for 50 million bucks, and be done? No, man, I'm gonna make videos. Cool. Catch you later, buddy.

You're finally writing something which you've been talking about for a long time, allegedly. And when you have talked about it, it sounds to me like you have you sat down and thought about what really made Kajabi break out. Like, what made a product bigger than a lifestyle business? What made a product have the. The viral coefficient to where it was something that spread on its own. It sounds to me like you've. You sat down and thought through what those pieces were so that other people could identify those opportunities. That's how I hear when you talk. That's what I hear when you talk about your book.

Well, this is a moment where I actually get to publicly thank you because I was walking around my pool. Sounds terrible. When I hear myself say that and I'm thinking about, I want to write a book. And the word billion dollar bullseye comes into my brain. And so, like any good marketer, the first thing I do is find out if the URL is available. I'm like, it is. That's the book. And now I'm like, how would I flesh that out? And I remember calling you and saying, billion dollar bullseye. Grow as big as you want, as fast as you want, and exit if you want, on your terms. And I'm going to use the bullseye as a metaphor. And here's how I'm going to build it. And you, as a good friend of mine who encourages me, said, wow, I feel like a lightning bolt just hit the tip of my brain. And we talked about the book. And you're like, you have to write this book. And I'm like, well, now I have to write this book. So the way to win at darts in my metaphorical teaching is you don't want to be good at darts. You want to throw at a bigger bullseye than everybody else. And so if you're throwing at a bigger bullseye than everybody else, it doesn't matter how badly you throw, you're going to win. Warren Buffett said it as I try to only purchase companies that can be run by idiots because one day they will be. It's that. And so if you think about the. The dartboard, you've got purpose at the center, then profit and product. Those core three, if you don't have it, you don't have a business. Then you've got your amplifiers of those three, which is prestige, promotion, persuasion, and people. And those are going to be the amplifiers that drive those core three. And when I look at the way that Kajabi worked, purpose was crystal clear from day one. We're going to live closer to our customers and care more about them than anybody else. Profit was crystal clear as well. We were bootstrapped and profitable. We didn't do anything that didn't make money or if we took money out, it was suspended on lifestyle. Product was paramount. We had a product that was built by software engineers. Because in our world there are two types of people. There are marketers that build software, and there are software engineers that learn how to market. And the latter category builds way better tools. Then we move into.

Before you move on, what's going on, my brain is. I'm thinking about where my businesses are deficient in there. So I didn't mean it that way. No, no, what I mean is like if, if, if you assume that you need all those three things and you say, okay, like business is profitable and I really believe in this purpose, why isn't it taking off? We have a product problem. Okay. I have to sit down and think, what is the product that will be in the greatest service to the purpose and do it profitably? And so I can kind of reverse engineer the different pieces. Or if I think I have a great product and I'm making profit but I'm not growing at the rate that I want, then I probably don't have a defined purpose of why this exists bigger than me.

Yeah, you don't care.

And if I have a great product.

But I'm not profitable, you're not going to grow.

You don't control your destiny.

Yeah, those, those are the. Those are the starving artists. I have a. I have a mission and a purpose and I made something Great. But you're not profitable, so you'll never grow. And so when you say those three, I think about, okay, I can identify where I have gaps in order to piece it all together. And that's when I know that I have something that is bigger than me.

Well, and if we, if we even take it one step further, if you look at the rings that you're deficient in, we as marketers, first, we will supplement or surrogate the areas that are the actual work and the actual value with the things that we enjoy. Like, everyone knows the marketers I'm talking about that have a dog shit product, but are on their third visit to figure out the 47 point Facebook ad hack strategy that's gonna result in them selling the company. And all they're really doing is scaling a shitty product. Like, you can polish a turd, but it's still a turd.

And call that the golden turd.

Correct. And it's one of those that, like, I get it because for me, I always went to marketing and sales. It's not working. Marketing and sales.

Me too.

Market harder, sell harder, work well. What about the product? No, we don't have time for that. That's really hard. Do you have any idea what it would cost to redo this? And that's one of those things. Like Kenny's vision, I have to give him credit for this because there was a moment in 2015 that Kajabi was a 5 million-ish company. And Kenny's like, all right, we're going to cannibalize Kajabi Classic. It's like, wait a second. That's the girl that brought you to the dance. That's the platform that was launched. That's the platform everyone is on. Well, yeah, we're going to launch new Kajabi and new Kajabi is going to eat old Kajabi because new Kajabi will have landing pages and, you know, websites and email marketing and everything it has today. But in that moment, he said, we have a $5 million software company and we're going to build a thing that's going to eat that thing. And sure enough, in a year, it ate the whole thing. And had he not said, we're going to kill that to build this, Kajabi wouldn't be here. So there was that moment where he did that. But so if you look at building out those, those bullseye rings, if you skip product, everything after that is going to suck. Your customer experience is going to be terrible. Your customer experience teams will turn out like crazy. Because they just get bitched at every day. Your marketing is going to have to be super hype to cover up for the deficiencies of the product. Your sales team is going to have to close super hard to cover up the deficiencies of the product. Damaging relationships with each close and your people ring is going to be terrible because no one wants to work for a company with a bad product and bad employees. Right through.

Right.

So every ring you miss everything where it's like I'm going to do the sales and marketing, you remove your ability for that to be a multiplier in your organization.

Now the subsequent for prestige, persuasion, those seems to be. Those seem to be the band aids that a lot of people use to try to hemorrhage the wound when they don't have purpose or they don't have a good product.

And if you gave me the choice between the two, I would supplement and surrogate with prestige before promotion.

To tell tell me why that word prestige is. Is very precise.

So having a customer experience that wows people means you really don't have to sell or market. Like if you've done something so well that leaves people shocked and awed when they interact with you, they will just tell other people.

That's what you mean by prestige. Shock and awe in the customer experience.

Absolutely. And where prestige plays an interesting role with product is being product led. And having a world class product is hard and it's expensive. So you're not going to get that out of the gate unless you're an unbelievable genius. And you might get it out of the gate. But what you can do is supplement that with amazing customer experience that informs what the product needs to do. And you can cover a lot of the shortcomings in the product with amazing support. So that as you get the resources to build the product you know you always wanted, you've still got people around that are excited to buy it.

That's a really interesting way to define prestige. I appreciate you sharing that persuasion and go through the others.

Persuasion is your marketing promotion or sorry, promotion is your marketing, persuasion is your sales. And then people are driving all those systems. So prestige, promotion, persuasion people give a.

Quick plug for the book again the name and when it comes out, Billion dollar Bullseye.

Grow as big as you want as fast as you want and exit if you want. And it is a Ryan Moran approved title and it'll be coming out in mid September. But you know, quite frankly, I'm not doing a crazy bestseller campaign. I just want this book out in the world. Anyone in Your universe that wants it. I'm happy to give it to them.

I want to close with a quick story and then we'll go to Q and A if you want.

I would love that.

Okay, let's do that.

I want to go to the people that don't know me as well as you because this is very, very intimidating for me. I feel very vulnerable.

Well, I'm going to share a vulnerable story to wrap this up. So I was here in San Diego in 2011 or 12 in 2012 and I was just kind of disenfranchised with the Internet marketing community, trying to find my place in the world, looking for new pastors and I was in line for, I think it was Internet marketing party run by David Gonzalez. And I ran into this guy in line and I recognized him and I said hi. We started talking and he ripped me a new one for being as successful. I was living in Cleveland with no network and he said, if you don't move, I'm going to see you the next time here in a year, I'm going to slap you. He pointed to me and he said, you get off your ass and move. And I did. I moved to Austin, Texas and the person that I met in line was Andy Jenkins.

I remember that, cousin Andy. And that was the San Diego traffic and conversion that the IM party did. A party during traffic and conversion.

Wow, good memory. I was at that and that was the only interaction I ever had with Andy. And Andy then went on, started, helped start this company that you joined. And in that weird way that's kind of how we met and came around. He's no longer with us.

No. So but the company that he founded after that, Cartra, is still doing amazing things, growing like crazy.

But I think he would be very proud of not just the company but also the impact of just the relationships that come around full circle.

I am sure old cousin Andy is laughing.

He usually was. It's good to see J. Cron. Congratulations.

Thank you so much. Hey.

It's rare that I recommend a book that isn't my own, but I would highly encourage you to grab a copy of John's book, Billion Dollar Bullseye because he tells me that I had some influence in getting it written. I have definitely over indexed in understanding marketing and I've had to learn product. I've had to learn how to create something that spreads whether I market it or not. John also had to learn that and he mastered it. And that's one of the reasons why Kajabi became so successful and why everyone who was involved got rich because they created an amazing product. If you combine amazing product with good marketing can change your entire financial future. So go grab a copy of John's book. I think you will find it to be a helpful compliment to my book 12 months to 1 million. Because people often tell me that I need to talk more about product creation, I say go read John's book for that one. He's mastered it more than I have. I hope you enjoyed today's episode. I hope it makes you more bullish, more optimistic, more forward thinking, more willing to bet on your own expansion. And if you did, let me know in the comments. Thanks so much for watching.

If you want to get started on.

Your road to 1 million, go to capitalism.com playbook Download our free resources and I hope you'll subscribe to the channel and be here for the rest of this series. Thanks for being here. See you next time.