My $100M Mistake + 6 Company Exit F**k Ups To Avoid (#522)

Today we are playing a drinking game on the podcast and we're playing Never Will I Ever. And it's a game where we're talking about all the mistakes that we made when we were selling our company and saying, never will we ever make this mistake again. And if you ever wanna sell a company or you've sold a company, if you sold a company, you're gonna be able to relate to some of these mistakes. I'm sure if you wanna someday sell your company, it's good to listen to so that you don't have to pay the same price that we did and make these mistakes. So go ahead, grab a drink. We're playing Never Will I Ever. Today we are talking about how to sell a company, and in fact, we're talking about how not to sell a company. These are mistakes that we made, uh, selling our company. So Sam sold The Hustle to HubSpot. And a big deal sold to a public company. I've had 2 exits now under my belt and I've sold one to a big company, Amazon, and one to a small group of private buyers. And every time you sell your company, you learn a bunch of lessons, but we're going to make this fun. So if you've ever played the drinking game, never have I ever, we have a new drinking game for you, MFM style, right? This is never will I ever, and never will I ever is a game where we say never will I ever do blank again. Um, because we made so many mistakes. We made these mistakes so you don't have to. We died so you don't have to here. And, uh, if you listen to this, you're gonna be a lot smarter when it comes to selling your company. Sam, are you ready to play the game?

What are you drinking? What's your drink?

I mean, I only have a little bit left here, but I got some greens in the morning. I'm, I'm looking a little athletic and I got some greens, not sponsored, but you know, send me a free box.

Yeah, that'll save you $80 a month. Dude, I have a ton of it. I drink it once in a while. It's really hard to stomach for me. You like, you could just drink that plain.

I love it plain. And I love that it doesn't taste that great because to me, I don't want my healthy shit tasting good. Right? I don't like my hot people to be funny too. I don't like when things that are not supposed to go together, go together. All right. Like that guy, Matt Rife, the comedian. Nah. Too good looking. I'm not watching that special. Number 1 on Netflix?

No, thank you. Well, you're pretty funny. What does that make you?

Pretty ugly. As the world should be.

Um, all right. What, how do we want to go about this? We have a bunch of points here. Which one you want? Let's start with the most straightforward thing. Okay. Uh, so never will I ever, you both, we both have this one, ignore QSBS.

I'll drink to that. Yes. Now explain, when you say ignore QSBS, what happened here?

QSBS, for those who don't know, I didn't know about it until like a year before I sold. My friend Jack Smith told me about it. QSBS, I'm going to try and state the law here, but it says, so it stands for Qualified Small Business Stock. QSBS protects up to 10x of your investment from long-term capital gains taxes of $10 million or 10x your initial investment. What that means, and a lot of people only pay attention to the $10 million thing. So with QSBS, how long do you have to hold it? Your stock? 5 years.

Yes.

So you hold a small business stock. So a privately held company that's a C corp, and you have to hold it for 10 or 5 years, and it has to be valued originally, or the assets of the company, which is the value, has to be $50 million or less. You hold it for 5 years and you can save $10 million in capital gains tax.

The first $10 million when you sell. So like, let's say you sell for 10, all 10 would be tax-free for at a federal level. And many states also honor QSBS, not California, but many states also do. So you could walk away paying zero in taxes if you sold for $10 million, which is remarkable.

Or now here's the or part that a lot of people forget, or you can save up to 10 times your investment, whichever is greater, the 10 times or the $10 million. Now what that means is let's say that theoretically you start as an LLC or you don't have a, your company isn't valued, but let's say you start as an LLC and you convert to a C corp. And when you convert, you value your company and it usually has to be done by a third party. So it has to be reasonable. You value your company. Let's say you're doing, uh, $15 million in revenue. Let's say you're doing $20 million in revenue and you say, great, I think we're a $40 million company. You get a third party that does it. So you can save 10 times $40 million in taxes.

$400 million. That's a $400 million tax shield right there.

Yes. And I know friends that are doing this now. This, this, this, this law, a lot of people don't know about it. It's maybe besides real, some of the real estate laws for tax savings in real estate, it's probably the greatest thing there is. It's better. Better. You think it's better?

It's better than real estate because in real estate you have, let's say, depreciation or the 1031 exchange. These are great, but they're deferrals. Whereas this is not a deferral. This is simply, you just have a, you know, you have an exclusion on 100% of your gains up to some number. So it is way better than a deferral. It's way better than real estate. I was talking to a real estate guy yesterday and I said, I have the greatest tax thing that no real estate guy has. He goes, what are you talking about? Real estate's the most tax advantaged. I said, yes, but you don't have QSPS because real estate is not eligible. For QSBS. There's only certain types of businesses can do it, but like, like Sam saying, you could stack it. So for example, what some people do, they have QSBS for themselves, but it's per tax return. So you could do it for yourself. You can create trusts for your kids and give each of them equity. And then each trust gets a $10 million exclusion in addition to your own. So you could have, you know, I was joking around with a QSBS guy and he's like, yeah, if you have 3 kids, I can get you, I can get you $40 million, $50 million in QSBS. And I was like, I was like, oh, this kid I have, you know, this next kid I'm going to have, this is, this is just a walking QSBS shield here. Like, this is awesome. And, uh, it used to be that it wasn't—

does that mean that your kid, when they're— but were your, your kids at the age of 18 have say in control over your business?

When they're 18, I mean, you know, exited by them by then, right? Like, but they're going to have— but maybe not, but they're going to have just a small equity stake. They're not going to get the majority, right? Like, you're just giving them enough so that they have a shield. They have like they have less, less tax and you, you know, while they're minors, you control the estate. You can always, you know, sure. I don't know. I don't think why a lot of people having is like little kids that 18 years later are like Succession hostile taking over like the company as they band together. I don't, I don't think that's the, that's the thing to worry about.

And we'll wrap this one up by, there's a big asterisk here, which is this. I don't like calling it a loophole because that sounds like, first of all, I hate that word loophole because loopholes are good. Loopholes are legal. Like when someone says a loophole, I'm like, okay, but you're trying to spin this negative, but like you're just following the law.

Try tying a shoe without a loophole, huh? Yeah.

Yeah. It's essential. Or when people say shortcuts, they're like, that's a shortcut. I'm like, well, I love shortcuts. If I can arrive at the same destination just as safe and faster than a long cut, I'm taking the shortcut. Right. But so this loophole, there's an asterisk here because I think 2 years ago it was, it was up to vote if they were gonna axe it. And the idea was they might make it only 50% or so. They might reduce it by, um, half. Uh, I don't know if this is gonna be in play for how much longer. This is not like real estate where it's gonna last forever.

Right, right. Yeah, it is. But it's, it's been out for a while. Um, and it's, it's amazing, especially in the, in the tech industry. I can't find this client info. Have you heard of HubSpot?

HubSpot is a CRM platform, so it shares its data across every application Every team can stay aligned.

No out-of-sync spreadsheets or dueling databases.

HubSpot.

Grow better. All right, so my turn. Never will I ever just shut down a company without trying to sell. So we'll drink. Yeah, have a drink for that. I, uh, before I sold, before my first exit, I had built many companies, many products before that, and they all had reached some version of like, you know, an outcome. Some really had no momentum. Some had like some momentum, but not breakout. And it was either wasn't worth our time or it wasn't able to get funding or whatever. I specifically remember one app that we made that was, if you remember Bitmoji, we had basically made an app that was like way better than Bitmoji.

It just like, and Bitmoji was giving you like a personal avatar, a little character for yourself that would be in these.

And then it would give you like, kind of like these stickers that were in funny, like positions or phrases. We had made an app that was even better.

Making the world a better place, one emoji at a time.

Exactly. Emojis are one of the greatest products ever, right? Self-expression there. Um, so you, we had made an app that created a character of you. Um, and then you could, and then you could type any word. You could just type hashtag whatever, uh, boogie down and they would make your character boogie down. And we had every, like, whatever you could think of, like you could put, you could say hashtag. Single Ladies, and it would dress your character up like Beyoncé right away doing the Single Ladies dance. Like, whatever you could think of, we would— we had, because we would just every day, we would rank the top tagged terms and our artists would create like hundreds of these per day. So very quickly we had tens of thousands of combinations. It was really fun because you could just type something in just to see, does it do it or not? And people did this. We got half a million people to download the app in the first month. They were just pounding like tons of these little stickers. It didn't have great longevity, but it had this like amazing novelty factor. And we were trying to do it as its own messaging app, which was too hard. Like people wanted WhatsApp, they wanted Facebook Messenger, they wanted all these things. And I wrote this blog post called My $100 Million Mistake, because we took that and we said, well, this is not really sticky as a messenger. It's not big enough where you're going to get all your friends to switch and start texting you here. People love the character. They love these stickers. We don't wanna build a sticker company, so I guess we'll just crumble it all up and just kobe and just throw it away. And, um, that was so dumb in retrospect. What we should have done is taken that little app to all of the existing messaging companies and be like, hey, this feature is unbelievable. Building this is not easy. We've already built it. We've proven that people really like to do this. Look how many, like the average person is doing 60 of these. Um, You know, just buy this and put this into your keyboard. And shortly after, Bitmoji sold for $100 million to Snapchat doing exactly that because they couldn't make it as a standalone app either. And I have no idea why our instinct was just to like, just pivot, just turn it off and pivot versus like, take 30 days and have like 5 conversations. Even if it doesn't go through, like you owe it to yourself after, you know, 9 months of hard work or a year of hard work. and creativity on something. So never will I ever just shut it down.

You said we got 100, or sorry, we got 500,000 downloads in 60 days and had a brief moment at number 1 on the charts before falling into mediocrity. Uh, how much could you have sold this for?

Easily tens of millions. Easily. Like, you know, you think so? It either wasn't going to sell at all because there's only like 8 buyers for this. There was like 8 messaging apps that were major at the time. It was like Line and Kick and WhatsApp and Facebook Messenger, Snapchat. There's all, you know, there's 8 players that like could benefit from something like this. And either it just wasn't going to sell at all, but like, that's actually unlikely. There's a price. There's a kind of like a price for every buyer. The hard part would have been our team wouldn't have wanted to go with the acquisition. And so we would have had to like either try to just sell the tech, which is really hard, or sell the whole company, including the team. And then disband for a year, then come back together. And we just, you know, we didn't, but we, the thing is we didn't even really get to that point. Like we should have gone and seen what our options were, right? Like in poker, if you've already paid the blind, we'll just see the flop. Maybe you, maybe something good will come out of it. And we didn't do that.

Did you, by the way, you're, if you Google $100 million mistake, Sean Perry, there's, you have a Medium blog. You've got a lot of good posts here. So if you're listening, go check it out. Did you not, And this might bring me to my, my point. Did you not sell because your main investor didn't give a shit?

No, it literally just didn't come up. It's not like we had a conversation and one side said yes and one side said no, and we debated it. And then one side said, no, I have the voting control. Hell no. We didn't even think about it. We just moved on. We literally had lunch and then we just moved on. Like it was just like, it's the worst types of mistakes. The worst types of mistakes are the ones where you didn't even really explore the possibilities. You didn't even. Ask yourself, what could I do here? You just sort of quickly glossed over it. Didn't even give it the thought to make a decision. It was a non-decision decision.

That's like your third or fourth or fifth multi, like multi tens of millions of dollars mistake. The first one being not joining Stripe as employee 30 or 50 or something like that and not selling this app. And I think you might have a fourth.

Dude, I'm Shooter McGavin in Happy Gilmore when he says, I eat pieces of shit like you for breakfast. And then Happy Gilmore goes, you eat pieces of shit for breakfast? That's me. I made mistakes more expensive than your net worth. It's like, you've made mistakes like this? And it's like, yeah, multiple, multiple.

All right, here I've got one. Never will I ever act desperate. You have on here, you will only have one option. That is the way to not act desperate. That is one way. But when I was building my company, I wanted an exit so badly.

Like, give me an analogy. On the spot analogy, you wanted to exit as bad as—

like a 12, like when I was 12 years old and like a cute girl, like, you know, like complimented my braces. It's like, I want to close this so badly. I'm emotionally invested. If you don't like me, no one will like me. And I'm a piece of shit. I was so desperate. I had all of my personal net worth, my emotional net worth tied into this exit. And I acted like a little bitch. And one of the ways not to do this is to have multiple options. That's the easiest, most tactical one is to have lots of options. The second one is you just don't— you basically have to act like a hot girl. You're like, look, I don't care, right? Like, I'm going to be fine regardless. And I remember there was one point— do you track your, like, your finances somewhere? I have like a spreadsheet. And I remember one day I just added like $10 million. Like, you have like an other account so you can link all your accounts. And I just had other and I just manually typed in $10 million. And I would stare at that for like 6 months and it actually helped me believe that I already had it. And so I was a little bit less desperate, but I remember being desperate. And when you are desperate, you have zero power. And when you have zero power, that is the worst part to be in when you negotiate. And the best part when you can negotiate is to walk away and the, and, or to be able to walk away and to be able to walk away, you typically just don't give a shit. So you're just like passionate about whatever you're doing and you don't need the money or you have other options. And I remember being desperate, and that, just like to that 12-year-old girl who was into me, Erin, uh, you know, like, they could sense it. They could, they could smell the, the, the hormones on you. Like, anyone could— any hot girl could tell when you're being desperate. They could tell what a confident man is like, and I was not a confident man.

Can you put your retainer back in?

It's the same thing, right?

Yeah, the, um, you've nailed it in that last bit, which is The rules, the rules of a nego— of negotiating when you are, when you're trying to sell your company. Number one, the most important rule is you must be okay if no deal happens. Meaning not just like, I'll, I'll be all right. Like, you know, like a funeral has happened, but you might, the, you know, option one should always be we do no deal and we're totally fine. I would love to keep going. And whether that's true or not, there should be no grieving. You have to convince yourself that that's true, that you don't want your options to just be offer number 1 or offer number 2, because guess what? Offer number 1 is going to have some hair on it. Offer number 2 is going to be a little shaky, maybe fall through. You're going to start to feel real desperate when offer 2 falls through and now it's only offer 1 on the table. You always need the one, one option on the table that you can control, which is I will keep running my company. It will grow and just be bigger and better if I keep going. And you have to convince yourself of that if you want to have a chance in these negotiations. The second rule is In any negotiation, the side that cares the least wins. And so you have to be the one who needs the deal less than the other party. And so whether that's true or not, it's a mentality. You must mentally need it less than the other side. You must mentally care less than the other side that this deal goes through exactly as is. If you could do that, then you're in pretty good shape.

And you know which deal is the best deal? The one that will actually close. That's another huge learning. Not all deals are the same. The one that will close, to close a deal, it's a really big deal. To get an offer and go through diligence, that's not nearly as big of a deal. You and I have both gone through stuff where the offer was great and the people buying were either disorganized, they were shitheads, they changed their opinion, right? Something. You want to do the deal that will close. That is the best deal.

That is one of mine as well. I put, never will I ever go with the highest offer. Sounds confusing. Like, what do you mean? Maybe you're not, why would you not take the highest offer? You want to take the best offer, not the highest offer. And the best offer and the highest offer have a lot of differences. One of the differences, what you just said, likelihood to actually close. Will they do what they say they do? They say they will do. I'll give you a story from the Milk Road sale. We had a high offer and then we had a fair offer. And at first we were like, hell, hell yeah, we got the high offer. This is great.

But they, they did a bunch of weird stuff though.

There was some red flags, but hey, dude, it's like, you know, like anything else, you know, when, when something's really attractive, that red flag, it starts to look just like a, it's like, is that maroon actually? Maybe that's, maybe that's orange, you know, like it's not so red. You start to overlook and talk yourself out of a bunch of things, right?

So like, what was one of those red flags? Can you say?

They had a lawyer that would jump on the call that refused to ever turn his camera on. Had no LinkedIn, sent us a document that was like the term sheet that was like, our lawyer was like, there's no way a lawyer wrote this. And we were like, okay, it's probably not good that their lawyer's not a lawyer, but, um, we don't understand also why, why they would not have a lawyer. It's like, it's this guy's friend. He says he's a lawyer. It's like so strange. It's like, you know, they're not like scammers, but it's just like, can you just turn your camera on and, uh, you know, like It was weird. It was just like a little bit weird. That was like one.

I think they sent you money, didn't they? Well, you were sent money, right?

We went down the path. We took the offer and there was a time to close. But again, one of the stupid things they did, they wrote the offer as when we signed the term sheet, which is not— the deal is not closed. You sign the term sheet. They wired us all the money. They had to wire us all the money on day one, which again was like Are these guys idiots? Why are they doing that? That's not how this is supposed to go. But we were like, well, I guess we're getting money. So like, what do you know? And it was during that kind of closing period that we started to get a little sketched out and said, look, I don't think this is the right deal for us. Maybe we should just go back to option one. We'll just keep running our company. We don't have to do this deal. So we wired back millions of dollars voluntarily because we had made the mistake of going with the highest offer first. And the best offer is a combination of it's likely to close. I'll tell you a funny story about that. The people involved are high quality and they're people you want to be around. 'Cause it's not a, a sort of hit it and quit it. You're never going to see these people again. Like business, even if your deal is kind of like you walk away clear, like, I don't know, the business world is actually kind of small. You run into people, they now own your company, your brand, like you don't want it in the wrong hands. You'd rather do business with great people who you might do more business with in the future, which is what we ended up doing. So the best offer is different. Now let me tell you a story about likelihood to close. So we get this high offer and we're comparing the high offer with the fair offer. And I call Balaji and people know Balaji, you know, he's one of the smartest people on earth. So I call Balaji, I said, Balaji, what would you do if you were me? And he's like, well, That's a higher offer. But let me ask you a question. Of course, like intelligent people can get to the heart of the issue right away. Like he just, like a metal detector, just knew. And he goes, are you negotiating these on the same timescale? And I was like, I don't know what that means. He's like, who did you talk to first and how far, how long have you been talking to them and how long have you been talking to the high offer? I said, well, I've talked to the fair offer way earlier. We've negotiated it, renegotiated it. They've done diligence and the high offer is new.

Blah, blah.

He goes, okay, so this is not the real offer. And he's like, you need to apply a discount. And I said, well, what do you mean? And he's like, well, you don't know if this deal's going to close. You don't know if this number's going to stand. You don't know if they're going to change their mind. This is all fresh and a fresh deal is not the real deal. And so he's like, you need to just mentally apply some discount factor for if this even is going to be the final offer that gets sent to your bank account. And so I was like, okay, so like 10%. He's like, tell me what you know about this person. I told him everything I know. He's like, 50%. And so we had to cut the offer by 50% mentally to compare apples to apples. And that was some of the best advice we got was that one piece of advice. So now I always, in any deal, I have to ask myself, what's the discount factor here? Meaning how likely are they to close? Have they done all their diligence yet? Have we already Had the deal— have we already negotiated this to a stalemate where kind of both sides feel like they've gone as far as they're willing to go? Because that's when you can reduce the discount.

When we were selling to HubSpot, I remember the— just like I said, the, the, my contact, the one I was speaking with, she sensed weakness and she sensed, uh, uh, she sensed that I was in a tough place emotionally and she— and not because I was constantly asking, because you were sobbing. All right. What else do you need? Where, how do How do we move this forward? Yeah, she could like, she could, she's like, are you, are you laying down when you're talking to me? Like she can just like sense that I was like laying on the floor. And the difference between what you did and what I did was two things. One, I sold to a public company, which meant basically the decision maker was not the CEO or the owner of the company. It was the person who reported to the person who reported to the person who reported to the person. It was like, 4, you know, ladders down, probably the decision maker. The CEO was probably like, they just saw it on their like board meeting every once in a while, like, you know, quarterly. And they're like, okay, cool, whatever. Now can we talk about port stuff? And this woman, she was like, look, we don't care about you. Well, you know, she's basically said, she's like, our company is worth like $20 or $30 billion. And this is a rounding error for us. Our reputation. Matters more than this little deal. And it would hurt our reputation more than the cost of this deal in order to dick you around. If we say we're going to do something, we're going to do something. Now shut up and relax. That's basically like what she was saying to me. And I remember feeling that I was like, I feel so much better. And so I think there's a difference between selling to like, like selling a small business to a sole proprietor or to a PE company or to a really large strategic company. I think the way that you deal with those sellers is different. Or buyers is different.

I'll tie that in. I haven't, never will I ever, never will I ever assume the person I'm talking to is the person who's buying my company. So this is when we sold to Twitch, uh, which is owned by Amazon. I'm talking to Corp Dev. It's very easy to think, I think, I'm assuming you're talking about somebody in Corp Dev.

Yeah, in Corp Dev. She, this lady was wonderful. She was like my therapist for 3 months.

Right. And Corp Dev is very helpful. They're, they're the, they're the router, they're the project manager of any acquisition, but They are not the decision maker. And actually the thing you described, I actually think is not that true. Meaning I actually do think there is a decision maker. They are pretty high up. It's either the CEO or it's the VP or the SVP who runs like, you know, or somebody in the C-suite who like matters to sign off on a transaction of, you know, a multi-eight-figure transaction. That's not, it's actually not, it actually, the decision actually does ladder up, but by design, these companies design it. So you're never actually going to get to talk to that person. Because they need good cop, bad cop. They need the person whose job is it to move the transaction along or find out information. And then that person can't actually be the one who's negotiating with you. They're gonna be like, cool, I'll go back and find out. And that layer, those layers of bureaucracy are actually a huge negotiating advantage that a startup typically doesn't have. Unless you're working with bankers and whatnot, where you, where you do have an intermediary that's able to do that for you. And so, One of the most important things you gotta figure out is who's actually buying this company. It's not a company that buys a company. There is a person in a company who needs something for their job, and you have to figure out who is that person and what is the fire under their ass? What is the thing that, are they in trouble for their job and they need to do something? 'Cause the competitor is getting ahead. Are they super strategic and they had a dinner with somebody and they had an epiphany and now they're Steve Jobs, they're a visionary and they're trying to make that vision come true. You need to fit That story, like, um, you know, you have to figure out who is that person in the company and what is the fire under their ass if you ever want, if you wanna have a chance of being able to sell a company, cuz you're selling to that person, that champion alone, not to a multi-billion dollar corporation.

Right. And, and so the buyer really matters and understanding what motivates them. A lot of times the people in corp dev, they just want to keep their jobs and they want to look good. And so as the seller, you have to sell a company. And you have to make them look great. You have to make it easy for them to look wonderful.

You have such different incentives. They are just trying to not fumble the bag. You are trying to get your first bag and you are going to behave totally differently and you're going to value different things. And if they ever said to me something like, oh, this is kind of a rounding error, or like, you know, this is, we're huge. This is not, this is not a, you know, this is a small, small piece of it. I'd be like, cool. Round up the price. Just went up $10 million then.

Right?

Like, you know, if this money don't matter to you, it matters a hell of a lot. Every dollar of this matters to me. And so maybe we have the price wrong actually then. Let's get the price right before we continue. All right. Like that is, and by the way, you saw this, we just renegotiated our deal with HubSpot and like, you know, without going into the, you know, the guts of the details.

Everything mattered.

Everything mattered. And you saw how I approached that. Me and you have very different approaches to negotiation. What did you see or describe that?

So this is like a Midwestern values thing, which is if I order a steak and you send me out a pizza, I'm just gonna shut up and eat it and I ain't gonna complain the way that you did.

This steak tastes different.

Yeah.

Yeah.

I love my steak with mozzarella and pasta sauce. This is exactly how I like it. You handled it differently. And frankly, that was an example when I learned from from you. I think you said something great. You said, uh, whoever can be most uncomfortable will win. And you needled these fucking guys for everything. And in my head, I was like, what? Why? Who gives a shit? And you're like, this word needs to be that. And I'm like, what are you doing? And, and you were like, it all matters. It all is really important. And frankly, you got your way, uh, at least for the big important stuff. And when you got your way, I got my way too.

To get the negotiation done, both sides have to get their way, but you have to figure out what really matters to them and what really matters to us. And those two things are not going to line up. And you need, like Sam Altman, he's all in the news right now and he said something great about negotiation. He goes, I am not interested in binary negotiations. There's nothing interesting there where it's just a number and you want it to be lower and I want it to be higher. That's just a tug of war. That's like, you know, that's not interesting. That's not a sport. It's like slap fighting versus MMA. right? Like the slap league is literally just one guy standing there with no defense and one guy's going to smack, slap him as hard as he can. It's kind of interesting to see, but like it doesn't have the same, uh, it's not as satisfying to, to, to the sophisticated barbarian like us who likes, you know, UFC instead. And so, um, the sophisticated barbarian cares about a, um, a non-zero-sum negotiation. And so it's like, how do I give them What's that French word?

Je ne sais quoi. What is that? What is that? Ari, am I saying that right?

There's an art there. And so you have to figure out what are the things they really care about that I only kind of care about? What are the things I really care about that they only kind of care about? How do we all get what we want in order for this to work? But you're right that I was willing to be more uncomfortable than you or maybe most people, just because I don't know, this is our baby and this is like one line item for them, but this is like This is like the basis of what we do and it has potential to be like such an awesome part of our lives. Like, you know, I have to get this right. This is my kid. It's like, you know, my kid versus, you know, how my teacher, how when they go to school, how a teacher's going to teach, treat my kid like they care, but not the same way I do about my baby. Right. It's different. There's levels to that. And so, yeah, you know, the party that's willing to be more uncomfortable generally will win. Or the way my dad taught me was, The more stubborn person wins in any negotiation. Can I tell you a dad negotiation story?

Yeah.

So I worked with my dad for about 9 months, I think, in my life. And I'm really happy.

And your dad does everything, right? He's like, like he does projects.

He started as an engineer, a lowly engineer. And he has like, you know, he is like Office Space or like a Dunder Mifflin or something. Like he was sitting in his cubicle and he kept getting patents. So his wall had like 22 patents on the wall. But his salary stayed the same. And he's like, how come like you know, this, like the guy who dresses up nice, he works with me for 6 months. I get this patent, he gets promoted. I stay here. Like, wait, am I in the wrong job? So it took him 10 years to figure that out. He's like, maybe I should move to the business side. He works at a, he works at BP for like 30, 40 years and he finally like leaves and he does, then he started doing more entrepreneurial things. One of which was, we both worked together in this company in Australia and when we were working there, I got to see my dad in action. It's so funny, like, you see your dad at home, and dads at home are just like these totally different creatures when they're done with work for the day. I had to see him interacting with other people, especially for an immigrant dad. It's like, oh, you have this level of polish? Why at home do you turn into just like a caveman? And so I got to see him just act totally differently. And one of the things that happened was we were negotiating with this other party. The other party was this slick talking Australian guy who literally looked like Leonardo DiCaprio. This guy's on like the Australian CNBC every week and he's super polished, just an amazing talker. And I just think, oh my God, my dad's, I'm going to have to get, watch my dad get beat up in this negotiation. This guy's like Mr. Charisma, Mr. Smooth. Everybody already loves him. The decision maker loves him and they want one thing. We want another. My dad's this Indian guy who can barely, he forgets to add the connecting words and sentences. He's just going to get walked all over in this thing. And then they walk in and this guy's got binders of spreadsheets, presentation. He's got everything prepared. My dad has nothing, doesn't even have a pen on him. And that guy makes his case first. He kind of passes it around. He's like, here's what I think we should do. And I want to run the project and give me the funding and here's what we're going to do with it. It's going to be great. Everybody's like, this is super well put together. Thank you so much.

Blah, blah, blah.

And it's my dad's turn and my dad basically kind of like refuses to speak and then he starts to speak and I'm like, where's the logical argument? He's not like using any logic. He's just saying, no, I'm not doing that. I want to do this and I'm not doing it if we're doing it that way. And then they're like, you know, but Raj, we have like, you know, this plan. It makes sense. Look, I know you're not getting the exact equity you want and you're not getting to run it, but like, This guy will run it, but you'll— this makes sense, right? And my dad's just like, foot on the table. He's like, I'm just telling you right now, it's not happening. Never. Not happening. And I'm like, what are you doing? Like, you're not even backing up your words. You're just saying no and you're just refusing. You look like such a stubborn idiot. And he just acted the fool for like an hour. And, uh, they were like, this is going nowhere. And they walked out. And I was like, dude, you blew it. And he was like, no, that went perfectly. And I was like, what do you mean? And he's like, uh, he's like, oh, I could never compete with that guy. He's like, you know, super charismatic and he, he has all the facts on his side. I was like, so what's your, your plan is what? He's like, oh, I'm just going to— the most powerful word in any negotiation, no. He's like, I'm just going to say no, I'm not doing it. I'm not doing it that way. And I'm not going to, I don't need to explain why I'm not doing it. And actually I'm offended that it's going this way. I'm pissed off and actually I might blow this whole thing up. And he's like, I only have one piece of leverage, which is that they need me to play along in whatever we're going to do here. It's going to be hard for them to replace me in this thing, so I'm just going to say no. And I learned so much that day. He told me, he goes, the more stubborn guy in the room.

Did they come back? Yeah, of course. Did they come back?

They came back. And in fact, the exact opposite happened. By the end of the whole thing, we negotiated this deal and there's this kind of like, okay, let's take a break. We'll go get the Yeah, yeah, we, I'm—

what were you doing?

I was there. I was—

where's the we?

I was moral support. And they leave the room to take like a break or they're printing out the papers or whatever. And my dad turns to the middleman guy, he goes, so how, what do you think? He goes, he goes, I think we're playing poker, but all the chips are on your side of the table now. And actually my dad made a mistake, which was that he negotiated it way too hard and took all the value in the end. And then they, then they realized it and they were like, you know what? We let the stubborn idiot take the whole thing, the whole enchilada. Like, no. And they went back to no. And we actually ended up more like at a 50/50 deal. But if he had just given a little bit back, you always want to kind of give back at the end where they feel like they have something to lose. He took it so far. He won the negotiation so badly that they had nothing to lose in closing the deal. They're like, well, what do I have to gain by closing this deal? Nothing. It's just all the value's going to him at this point. And so he had taken a little too far, but I'll never forget that idea that, you know, in any negotiation, it is not the side that has the better argument or the more, or more logic. It's whoever has more leverage, number one. And then within that, you're, that's like the, the, the substance. And then you have the style and the style is whoever's a little more stubborn and a little more crazy, a little more irrational. That is to your advantage in a negotiation.

We gotta have your mom and dad on the pod. I think we've, we've heard a lot of stories about them. All right, I'll do, we'll, we'll do one or two more. Here's a really easy and simple one. Never will I ever be disorganized. And I'll give you an example of that. We changed payrolls like 3 different times. It was like Gusto and then ADP and then like Zenefits and then Rippling because Rippling can track your computers. Like when you give out computers or Gusto pays 2 days later so I can keep the cash for 2. It was so stupid. And here's why it's so stupid. When you selling a company for $30 million and $300 million, it's the same thing basically. As in a lot of times when you sell a business, let's say, I don't know what that threshold is. It could be $10 or $15 million, but when you sell a company for $300 million and $15 million, they basically give you this Excel sheet and it has 5 pages, and each page has literally 50 bullet points, and each bullet point is a big deal. For example, one bullet point will be under the HR tab, and it will say, show me the payroll for the last 5 years, or show me, um, every contractor you've ever hired.

Yeah. Add the contracting agreement that you have with every single contractor, including the confidentiality. It's like, oh, we don't even have that. Yeah.

Like, yes. Yeah. And here's why it's a big deal when you switch pay. Here's a very specific example. When you, if you just use one payroll, that's easy. You just click export. That's easy. But I didn't. And so I had to, and then if, you know, if it's been 3 years, you have to call Zenefits, be like, I don't have access to my account anymore. Do you guys even have these records? And I thought this was stupid. And I was like, I remember telling Kip, the CMO of HubSpot, I was like, Kip, I used Fiverr one time. I paid $150. Out of my PayPal account. I even paid it personally. And he's, I was like, why does this matter? And he's like, well, you know, I can't hire Bballer84 on Fiverr because that goes against Fiverr's terms of service. And that would be like, I can't, I have to make sure that everything was by the book because every little thing matters. And that made a lot of sense to me, but I was a fool and I was disorganized. I would use PayPal for some stuff. Every once in a while I would just Venmo someone. I'd be like, here's $500. Thanks for the freelance stuff. Or I wouldn't track confidentiality agreements. It was a fucking mess. I used Google Drive to store some stuff, Dropbox to store some. It was a mess. And I'm telling you, when you're selling a company for what I sold it for, I only had 40 employees and you can't tell anyone that you're selling the company. So it was basically me and Edie, this woman who worked with me, and we went through all of these documents to find all of this shit. And it literally took 3 months to find documents. That's 3 months working every day for 12 hours a day. It is so hard to get all the documents. It is so challenging and you don't want to give them anything that's messy. Otherwise you'll look not buttoned up. And if you look not buttoned up, they'll say, what else are you missing? Or like, are you lying about something? And you need to present things in a really nice orderly fashion. And so start being organized from day one is really, really important and not like being a maverick and being like, I'll just, here, I got $20. I'll pay you for this. I'll use PayPal for this. Like, it's a mess.

Well, I got to drink to that because I made that same mistake. No surprise. I'm like the most disorganized guy on earth. And you know, I made mistakes. Like I thought, you know, hey, startup, you just got to move fast. Don't waste time incorporating and getting trademarks and doing all that. And you know, that could be the difference between long-term capital gains or short-term gains or having to, you know, explain why, you know, the IP is over here, but it should be over here. Or, you know, we made a mistake of—

Did you mail in your 83B?

One year I did. And for one company, I just didn't do it. And I was like, I was like, oh, I got to like go to the post office. And I just didn't do it. Now, luckily, that company failed and I didn't have to pay the price of that. But like, you know, the 83B election basically, for anybody who doesn't know, is like a— you can basically get shares in a company and you could tell the IRS, hey, tax me now this year on the gain of these shares. Um, because I'm going to exercise them now.

It's like $100.

I'm going to exercise these shares now. Um, tax me now. You know, so it's like the original strike price was 1 cent and then they're valued at 1.5 cents. And so you're like, tax me today on that gain so that I've exercised the shares at this price so that when I sell, I don't have to, uh, pay this huge markup on the, on the exercise.

Uh, and you only have like 30 or 60 days to mail it in and you basically literally have to write letter, is it 90 days? You have to write a letter and you want to like postmark it. And then you want to like, you, you write in the letter, like, send me a receipt of this. It's like a really manual process. And you're like, dear IRS, please send me proof that you received this. And you have to store that in your records in case you ever get audited.

And I think now there's like, I think there's some automation around this, but yeah, I was messy about that. Uh, you know, I had this great meeting when I wanted to sell my company. I didn't know how, and I went and I met with 5 people who had sold multiple companies. And I was like, okay, Hey, I don't know what the fuck I'm doing here. Can I explain to you what I'm currently doing? And then you tell me what I'm doing, which parts, point out the dumb parts. Okay. Can you do that? Because I was like, if I just ask you for your advice, who knows what you'll say. But if I draw you a picture of what I'm doing and you could point to the ugly part, that'll help me. And so that's what I did. I had lunch with this guy Fouad and he's the CEO of this company called Array now. He had sold, I think he sold like 5 companies or some shit like that. And he pointed out two mistakes that I was making. Number one, he goes, he's like, oh wow, you got like, okay, you have an actual offer on the table. And I was like, yeah, dude, it's been so hard. Such a long road. You know, even though it only been like 40 days, but I was like, dude, I, yeah, it's just been ups and downs, but finally we're here. And I was talking like I arrived at some destination. He goes, he just looked at me. He's like, this is not over. Actually, you just reached the starting line. Now it's time to sprint. And I've repeated that advice to so many people of now it's time to sprint because so many times this happened. Let's say you're fundraising for a company and you've spent, you know, 3 months trying to fundraise. You finally get money in the bank and you're so happy, so satisfied, your whole body just wants to relax. It's like, oh, you know, welcome to the start of the race. Now it's time to run. You ready to run? And like the work starts, especially true when it comes to closing a M&A. It's like when you have the offer—

and what a lot of people don't realize is it, it, it takes from getting the offer to actually getting the money, that can take 6 months. That could take—

exactly.

For, for me, it took— they emailed me and they emailed me in September or October, I got paid in February.

Yeah, exactly. 3 months, 6 months is very common. And so you, um, yeah, that's the time to split the hardest. The second thing he said was, he goes, um, show me your data room. And I was like, oh, uh, we I have a Google Drive, but like, it's kind of messy right now. And he goes, he goes, you're selling your company. Think of it like a product on Amazon. How does Amazon sell a product? I'm like, they have like a page and a one, like a one-click buy. He goes, exactly. You need to turn your entire company into a giant buy button. And I was like, what is that? He's like, you need to like answer all the questions now, get it all organized now, put it all in place now. So that when they look at this stuff, they're ready to one-click buy. If the more questions they have to ask you, the more you have to go dig stuff up, the more half or incomplete information you have to give them, the more reasons that this deal could fall apart. Turn your company into a giant buy button. That's the other advice I'm getting given, which is like, what are all the ducks I can line up here so that this just becomes an easy-to-understand, easy-to-consume process for them. And like, it was the one, you know, 30-day period of my life where I became Marie Kondo. I organized the shit out of my company. I took everything. I was like, look, this needs to be bulletproof. And I'm so glad that I did because it was, it was extremely necessary.

Do you wanna do one last one?

Yeah. Oh, by the way, I have one. Never will I ever run my company like a personal piggy bank. So I made this mistake before and I have a story of a friend of ours who made this mistake before. So what a lot of people do when they run their company is you start to make some money and then you're like, oh, I have to pay taxes. And then they're like, fuck, taxes suck. And you're like, what can I do to like reduce my—

spend it all.

I think smart people, smart people have like tax stuff they do. So what am I going to do? Let me start doing some tax stuff. I was like, okay, what's the tax stuff? And they're like, oh, let me, like we talked to a guy recently that was like, oh, I created my own captive insurance program and then I bought this property that we're using as like an office. And I'm like, I mean, what are you doing? You're just trying to save like $200 grand of taxes and what you're doing is actually you're ruining your books. So like when I looked at his business, the business looked like it had no profit and he's like, you know, so happy that he's, you know, has this like shitty margin, shitty net profit margin. 'Cause in that year it saved him on taxes. But the reality is if you're building a company that you want to sell, You need to take some short-term pain of having clean, simple books that you pay, you know, legit taxes on in order for you to have a big exit at the end. 'Cause they're going to see a track record of multiple years of solid profits that you're going to sell on the end, right? Like that is just generally better. There's of course exceptions to both cases, but like generally that is a better approach.

We have— and if you don't want to sell, there's a, there is like a bullshit category on QuickBooks that you can put stuff into. But that is not ideal if you're trying to sell.

Yeah, exactly. If you're trying to sell, you want to be able to show a track record of success and versus like, you know, I had a friend who would go to the bank on December 30th and take out a bunch of cashier's checks that they were going to use to pay vendors. And it's like, prepay vendors for the next year. And then the next year they're like, ah, I want to quit this vendor, but I've already prepaid them. Or they'll like take 2 of the checks that never even paid and then put it back in the bank a month later and hope nobody notices. It's like, Dude, just don't do this shit. Like, don't treat your company like a personal piggy bank if you want to sell this someday, because nobody wants to buy your hot mess. And, um, I think it's very— and you can't undo that. You can't really unwind that. These are like, it's in the, it's in the history books. Every year that you're doing that, you are kind of like making your— you're adding a bunch of asterisks to your own books that like, you need a buyer who's willing to go and do a bunch of add-backs and try to figure this out. In order to feel confident that they should buy this business.

When Dave Portnoy sold the, you know, he sold Barstool Sports a couple times, but the first time he sold it, he was like, I was an idiot. He's like, I owned a racehorse that I bought through Barstool Sports. And so Barstool Sports owed like 2 racehorses, a trailer for the racehorse. They owned like the house I was in. Like he said, all this stuff that the business owned and he's like, We got docked so hard.

3,000 liters of gin that we acquired.

Like, yeah, that's what he said. He's like, he's like, Chernin didn't want to buy like Skippy the Racehorse. But the business owned it and we, it was really hard. You know, when he first sold that business, he sold the first portion of it. And at the time, Barstool was a big deal. He only sold it at a $15 million valuation.

Crazy.

When it was worth way more than that. And it's probably because it was, he was just sloppy. A lot of it was sloppy. And he was like, I also like made so much profit and I didn't put any of the profit back into the company. I just would buy horses and shit like that and gamble. He's like, we gambled like crazy 'cause it was content. Is that it?

I got one more. Never will I ever just stay at home when there's a deal to be closed. So this is the rule of just get on a plane. Go meet people in person. Don't do Zoom calls, or if you're doing Zoom calls, add in the in-person afterwards. The in-person meetings are so important. You know, I'll tell one story, which was just a deal we closed recently. The, you know, one deal that we didn't close that I got on a plane for, and like, you know, for me, the running joke on the spot is I don't leave my house. And it's true. I really don't leave my house. I don't like to do that. I got little kids and I don't know, it's for our family life. It's very disruptive to travel if I go, if I leave the house for like 5 days or whatever. But I did for this one deal. It didn't, the deal didn't go through, but I could sleep easy at night because I'm like, I did everything. Like I made multiple offers on this deal. I got on the plane, I met them in person. Like, you know, we did everything that we could, we could do. We did what was in our control. With a deal that we just recently did, The other party was like, cool. Like after the initial conversation of interest, they were like, cool. Uh, would love to just next chat. Would love to do it in person. I'm happy to fly out to you wherever you are. Let me know which day works. I'll fly in same day, fly out same day. It'll be easy. Um, and I was like, I respect this person and I trust doing business with this person because they understand this principle of like, you just got to get on a plane and you got to go meet somebody and you should be willing to do that. When we sold the Milk Road, I had a similar situation where We remember I told you about the high offer and the fair offer. We had said no to the fair offer, took the high offer, then regretted it. So we went back to the fair offer months later and we were like, I was like, you know what? I want to see what those guys are up to and see if there's a deal to be done here. And I kind of called or emailed and it was sort of like we just had like a quick, I texted I think, and it was like, really wasn't an opening, but I was like, hey, I'm going to be in the city tomorrow for my niece's soccer game. I was like, I'll go see my niece's soccer game, but I'm really doing this to meet you. But I made it sound to him like I was going to the soccer game and I was like, we'd love to catch up. He's like, yeah, great, let's do it. And so we drive into the city, car breaks down on Van Ness, and my car literally just shuts off in the middle of the road.

Your car breaks down?

Car literally shuts off. I don't know what happens. Car stopped driving and I momentum to let me just get it to the side of the road. But I'm there with my—

don't you have like a brand new Escalade?

This is the BMW before that. So, um, this is, you know, I'm with my wife, my two kids are in the back in the car seats, car's broken down. I got this meeting in, you know, 10 minutes. And, um, I'm like, shit, I guess I gotta cancel this meeting, you know, whatever. Like, who knows if this meeting, anything would have even come of it anyways, but like, whatever, we'll wait for AAA. And my wife is like, no, you gotta go. You told, you've been telling me all morning how this is an important meeting. Like you think that you have a feeling that you could be able to get this deal back on. Like, you know, go. And I was like, I'm just not gonna leave my wife and kids on Van Ness in San, the middle of San Francisco in a broke down car. And she's like, just go, we'll be fine. I was like, okay, you don't have to tell me twice. And so I hop out and I literally run, I run down Van Ness, like, you know, a mile basically. Get to the coffee shop, meet the guy, deal comes back to life by the end of that coffee meeting and we end up selling to them. And I'm like, I think I'm actually like 100% sure if I hadn't gone to that coffee meeting, that deal doesn't happen. And 'cause in that meeting we were able to clear up some things that like were not as exact transactional, but like, you know, kind of what his fears were and what our hesitations were and really kind of suss it out and get, get comfortable with each other in person. So yeah, insane, insane that that happened.

And, uh, this is like a, this is like an anti-ad for BMW.

Yeah, don't trust them.

Yeah, don't trust them. They'll ruin your deals. Um, well, that's sick. Um, hopefully people dig this. We did a little Q&A for this episode, except on one topic. I think we're going to keep doing these every other Tuesday, right?

Yeah, we're trying to come up with Great topics that we can kind of shoot the shit on and share maybe, you know, either our answers or, or, uh, stories that, that we've been through. So I think that was good. I think people will like this one, but let us know, let us know in the YouTube comments what you think. All right.

Well, we'll end there and that's the pod.