Ep 483 Exit Story: Frank Shultz on Escaping the 50/50 Trap and Buying Out a Partner
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Hi there, and welcome back to another edition of Built to Sell Radio, the podcast designed to help you punch above your weight in a negotiation to sell your company. I'm the executive producer, Colin Morgan, and today this is an exit story episode where we dive into the strategies and lessons learned from founders who have successfully sold their company. And today, John sits down with Frank Schultz, who learned firsthand the risks of a 50-50 partnership. We're

When faced with a deadlock, he had to navigate a complex partner buyout, a process that involved preferred shares, valuation disputes, and tough negotiations. In this conversation, you're going to hear why 50-50 partnerships can be a dangerous setup, the key mistake many founders make when issuing preferred shares, how to structure a partner buyout without sinking the business.

Now, whether you're thinking about bringing on a partner or preparing for an exit, this one is packed with insights. Without further ado, here is John and Frank Schultz. Enjoy. Frank Schultz, welcome to BuildSell Radio. Thank you, John. Appreciate it. Tell me in layman's terms, because I'm not a techie, in layman's terms, what does Infinite Blue do?

Now, Infinite Blue started out as a company called BC in the Cloud. And so we didn't pivot. I guess we kind of evolved as we went through our evolution there. But we primarily focused on the resilience market in business continuity, disaster recovery, crisis management, and mass notification.

So ultimately, thinking about how your business operates under normal circumstances and documenting that who depends on what, what do you depend on internally, externally, vendors, locations, and then what would you do if something went wrong? And so thinking about it ahead of time. So if a hurricane were to hit, you know, kind of your primary distribution center and you had a lot of inventory there, what would you do as an alternative? Or maybe there's a data center

in the path of a flood approaches a data center or power outage for an office. And we just had these fires in Los Angeles. I'm sure there were a lot of businesses impacted by those fires. Absolutely. Wildfires. We could talk the whole hour about wildfires, but just the prevalence of wildfires, especially today. I'll just say there was no shortage and there continues to be no shortage of disasters impacting individuals and businesses worldwide.

And so, I mean, it sounds like a consultancy. You were working with companies and trying to flesh out their disaster recovery plans. Was it a consulting business or was it more of a technology business? Technology and software. So we had a software product initially called BC in the Cloud, which was the name of the company and the name of the first product that we developed. That would help organizations to come in, survey the business through a risk assessment process.

which ultimately would give them a couple of different things like fire, hacking, some competitive kind of analysis as well.

and then do a business impact analysis or a BIA, which would ultimately survey where the business was at today. And then they would create plans that they could activate in the software themselves. And so we started off really doing no advisory, no consultant work at all in the beginning and eventually worked that in to essentially support the software business. But primarily for us, about 90% of our revenue was done directly support off the software business that we developed.

90% software, 10% advisory services. And was that the same when you sold it or was that just the beginning? That was primarily where we started in the beginning. We probably got somewhere around 20% services and some of the services were either oriented toward the advisory or consulting piece, some staff augmentation that we would do if someone didn't have someone running resilience in our organization. We could staff somebody there part-time up to full-time. And

And then we could also help them kind of implement the software. So if they wanted to make changes, we could have someone work kind of part-time all the way up to full-time to help them orient it really to the way their organization was. Because we really focused on meeting them where they were at instead of trying to make them use our software in a very rigid sort of method. And so when we went to market, we were very much kind of in mind, in the mindset that every business is different.

And we have to work the way they work. We don't want to be disruptive when we're planning for disruptions. Yeah, that's an interesting angle for sure. Who's the we? So did you have a founding team or was it just you or what was the who is the we? Originally, I had a co-founder in the business and we started the business in 2013.

We were working, we had actually met at a startup and your traditional mom and pop was husband and wife team that ran the business. It was an interesting business. It was doing well, not a lot of reinvestment back into the business. And so, you know, we decided, hey, we want to go somewhere where essentially we can have kind of an original software product that can be invested in. It was built on SharePoint, that first startup. And so, we were working on that.

And we went to another organization that was another startup that we thought we could be influential in the business. And that was an interesting ride. They actually had a product that essentially they stopped selling and kind of put us on retainer while they redeveloped the product solution.

and stop paying us during that retainer period. And so my partner in the business and I said, "Hey, if we're not going to make money here, let's go do it on our own." We've worked for two other startups. And I didn't have that elaborate business plan. I didn't have this like, "Here's what I want to do in year two, year three." It was more, we know the space. And so we're just going to go create something and we're going to go to market and see what we can do with this. And so

How'd you guys divvy up the equity? How'd you find, like, did you just kick in the same amount of money or how did you figure out that stuff? We did capital calls. We were 50-50 partners in our operating agreement. We did capital calls as we needed to. I was pretty...

a line within kind of $5 increments, but bootstrapped the business really up until his exit. And so I took outside capital to buy him out in our sixth year. And that was the first time we ever took outside investment. So, you know, we spent, you know, between the two of us, it was probably maybe under $200,000 of investment in the business.

Started in July of 2013, went to an industry trade show in September of that year. And we signed our first customer in January of 2014 and were profitable every quarter from that second quarter in business through bootstrapping.

Wow. And as you're growing between 2013 and 2019, are you able to pull out dividends or are you just pushing it all back in the company? We didn't really pay ourselves very well in the beginning. It was very minimal. And that first year was a lot of reinvestment. We started to hire some staff. So originally 1099 contract resources came.

Hired our first two full-time employees in September of 2014 and started to grow the business. Then we probably had, I think, about seven or eight customers at that point in time. So it was getting a little more difficult to kind of keep the plate spinning just on our own. And really, I mean, my whole philosophy, I didn't know what I wanted to do on the other side. So I didn't know. It wasn't a business...

that I knew I was going to be in forever, but it also, I didn't have an exit plan. I didn't think like, okay, let me just get it to this revenue number and then I'm going to sell, or then I'm going to do something. It was kind of, let me just meet the needs I need to right now. And let me go from there. And, you know, we started the business. We got embroiled in a lawsuit with the former company that we worked at, which lasted three years, which was, you know, interesting.

I was building a house with my new wife and we were just married at that time. We had a baby on the way and a lot going on. And I'm like, let me just see if I can cover the bills right now for where we're going. And then we'll worry about everything on the other side. What was the nature of the lawsuit? Because they stopped paying us, we left.

essentially citing a breach of contract and we sue them for back pay that we believe they owed us. They countersued saying, uh, we sued, we basically, uh, took their customers, took their product, you know, everything under the sun. Um, you know, these things are interesting because they're very emotional. And I had a federal judge that literally sat across from me and she said, well, if you're in front of me in front of me right now, you've lost already.

So it's a matter of like degrees of loss on all sides, which was an interesting life lesson. But these things all come out in the wash for nothing. You know, the lawyers... What did the federal judge mean by that? Kind of a, you know...

It's almost like I'm going to exact my toll on you kind of both sides here, right? Because there's some degree of rightness and there's some degree of, you know, I won't say wrongness, but gray area. And it's like, okay, maybe you shouldn't have gone and done something in a competitive space right away. But in the same regards, they should have paid you. And so it's like, well, what's the, what does this equal? Like, you know, how does this divide out on the other side?

The lawyers get paid and then at the end, everyone just kind of went home. And so it never went to trial and it just was a lot, it was emotional.

and took some revenue. My wife laughs because she said she worked to pay the lawyers in the beginning of the business and we kept growing the business on the other side. And I appreciate her for that. But we were just trying to get through kind of the other side, but the partner part was interesting because about six months in, the business is growing, we're making money. And I think both my partner at the time and I just realized it was not a good marriage in work and kind of in a different. So

You and your partner. We both kind of said, hey, this is not working out well, but we were joined at the hip through the lawsuit and the business was doing well. So we kept kicking that can down the road to really have the reasonable conversation of, hey, this isn't really working out, but what's the alternative? And so, you know, we had a little bit of contention in growing the business, but we kept growing and things kept going, you know, kind of faster and bigger.

Gosh, that's got to be stressful. I've got a couple of questions there. Just go back to the lawsuit. Did you extract from your former employer release saying that you did in fact own whatever it is you were developing? Yes. Was that part of the settlement? We were clean and clear on that, yes.

Okay. Okay. But you're having some issues with your business partner. And what's, you know, everybody has issues, even married couples have issues. What is the nature of the issues? And why did you think it was sort of more irreconcilable?

than just natural, you know, tension among partners. A lot of conversations with business coaches and I laugh, which were very helpful as I went through the years. I highly recommend my experience with a business coach. I've had great experiences with the right person at the right time. And, yeah,

We started growing the business. I'm based outside of Philadelphia. My business partner, former partner was in Virginia and started growing the business. We started getting customers and the business got bigger than the two of us could take on. And so I leveraged my network to bring in 1099s and then bring in full-time employees. And this was 2014. So there was a very much prevalent in-office culture

And so all of a sudden you start hiring two people, you need to train them. And so there's not really a work from home aspect there. So what do you do? You need a space to go sit down with them and build. And so I rented, had a Regis office membership that we would go in and use the Regis office till the point where it was a one person membership. And the office manager was so nice to let me bring two other friends in. Eventually she's like, Hey, I got, you got to either upgrade your license or you got to

rent a bigger office. And so we found dedicated office space. It literally was a tree house. It was the second story of a building outside of a tree over a garage, kind of the typical West Coast startup that you see. We called it the tree house lovingly.

about a thousand square feet. And we started to build the team there. And so, you know, we would add as we added contract revenue, we would add staff for what we needed to support it. And my goal was if I signed a contract for three years and it was $100,000 a year contract, I brought someone in for 60 to $80,000. I knew I could pay for them for the next three years and hopefully they could work on five customers or 10 customers.

And so we did this. And at one point, I had a conversation with my partner and he goes, "Well, you're building a team around you up in Philadelphia, and I don't have anyone down here. It's me in my garage."

And I said, well, let's go build. What do you need? Let's go build a team. And so we differentiate as we went forward and he was more focused on sales and I was more focused on kind of product. But then you start to hire employees. And so someone's got to do payroll and someone's got to do quick books in the bookkeeping and someone's got to do all the compliance aspects of it. And so that was me. So I had the people around me. So I started doing that.

And eventually I had a team built around me and he's like, well, I kind of resent this. And I said, well then, okay, well, what's the end result? It just got very contentious because essentially I said, well, let's go fund a role to work with you. Never went anywhere. Never, you know, didn't basically, it was like, well, go find me a person to go work for me. And I'm like, well, okay. Like, I'm not going to do that.

And probably it was bad. The staff got caught. Our team got caught in the middle of it, unfortunately, because I remember we were building just amazing product in VC in the cloud and what we were delivering and customers are really happy with it. And number one, Trippie came up to our office outside of Philadelphia and basically just called our product garbage in front of our development team.

And it was just unfair. It was more of a testament of kind of, I guess, his his tension or our tension, our relationship than it was the actual product. And that was that started the kind of the conversation to say, like, hey, this isn't really working. And so, like, you know, I don't don't do that to our team. Like, let's have the conversation outside of that. Yeah.

I had the business valued and I offered to buy him out. He didn't appreciate the number and had kind of a pie in the sky expectations on what the business might be worth. And, but it started the conversation. It started that kind of, Hey, this isn't going to work. You know, here's what I think it's worth. Where are you at that point in terms of revenue? We first started having that conversation. We're probably maybe like four or 5 million a year in AR and

And ARR being annual recurring revenue. So, sort of SaaS revenue. We talked about 810, 820, 910, something like that. Exactly. Okay. Okay. And so, what valuation did they put on the business at that stage?

Early on, so originally I had it done about three. They kind of looked at it and said, well, you're kind of below five. You have some, you know, the services mix is about 10% here. You know, looking at it, maybe like a $10 million number, maybe like a 12, somewhere in that range, which, you know, he at that point was like, it's $100 million business.

go pay me 50 million, which is interesting because again, remember we bootstrapped the business, I'm pouring everything back into the business. So, I lived well, but in the same regard, there weren't reserves there, John. So, I'm looking at it, it's like, okay, I'm covering monthly for what we need, but there's nothing really extra here.

And so, yeah, this has got to be daunting because, and I'm sure there are a lot of my listeners who probably had, you know, partner disputes, but you've clearly got a relationship with your partner that's not working. He's like, all right, well, buy me out. And even at 10 or 12 million, which may have been a relatively modest valuation for a SaaS company, you're still having to write a check for five or six million bucks. I had no idea where I was going to get that from, right? Like I knew, like I love our team. I love the business. I loved our customers. And-

It was hard not to think that more of the business was around me because it really was like the physical part of the business was definitely around me, even though we were a SaaS business. And so I didn't want to walk away from it. And I also didn't appreciate the relationship he had with the rest of the team. And so that was really hard because I'm like, well, what would I what if I if I left, let's say so I flipped it around at one point and I said, well, why don't you make me an offer that?

Right. Because we know we can't work together. Why don't you make me an offer? And, you know, the offer, I don't know. I don't even know what it would be like. I don't, you know, I don't even know what we would do. Like there was no offer on the other side and it was just kind of a kind of stumbling, um, stumbling around. And, you know, I didn't know what to do at that point, but, um, I got some, uh, we'll say better, bad or good, uh, legal advice, which was interesting. Um,

And, you know, you feel stuck sometimes because you're like, I've built something really successful here. And I thought to myself, I just feel stuck. Like, how do I unstick this? And we had just wrapped up the lawsuit with our former employer. And I was in a car riding down from Newark, New Jersey, which is about a two hour ride. And I'm in the car with my attorney. And I said, hey, this isn't really working with my former partner and I need to get out.

I need to figure out something. I'm trying to buy him out." And probably the right thing that attorney should have said was, "I'll set you up with somebody to have a conversation." They did, but it was inside of the same law firm that represented us in the former matter. And so, it was essentially a recommendation of, "Well, just fire him. Just fire him and name yourself president and you'll have a conversation about a buyout then."

Okay, so that's interesting legal advice. So you're 50-50 shareholders in this company and you are by title...

What? Chief product officer? Are you CEO of the company? We really resisted titles. It's, you know, we knew kind of to be in a small business, you have to be all things to all people. And so it's really hard if you, you know, in my, we kind of thought about this. If I named myself CEO or president and I was in doing the implementation for a customer, that doesn't make you look like the right size company when we're primarily working for Fortune 500 companies, right? Yeah.

So we both took relatively benign titles, even if you will, of essentially I think the title that we took for the first couple of years was like client sales and sales and client services, essentially. Right. And both of us had that same title. And so there was no president. There was no CEO. But, you know, how would you have fired him? Exactly. Well, exactly. Right. So it was basically name yourself president and go fire him.

This makes no sense to me. Exactly. And so I'm like, well, hey, we're deadlocked here. So what's going to happen? It's like, well, you know, here's what you should do because you're going to force him. Basically, you're going to force his hand to do something, which was super interesting and super not good advice. And so anyone would not recommend this based on my experience. But you know what? It got him to come back. And essentially, then we were in a lawsuit where he's suing me for. So, Frank, just to be clear, you did that. You did end up firing. I did.

One of the tensest moments of my life, John. Oh my God. What was that like? Awful. Awful. Like, uh, just, and I, I, I speak a lot. I'm very comfortable like on, on TV or in front of an audience or whatever it is. And I think I was so nervous. Um,

it didn't feel right. I trust my gut a lot. And this was something that didn't feel right, but I just felt backed into a corner. And so in doing it, I'm like, okay, you know, and we shut down his services, his email, all of that. And I'm just like, okay, what's going to happen next? And now I'm in, you know, another, another lawsuit in the business, which. And to be clear, had you settled the previous one? Yes. So that's at least,

sort of done. Okay. So now you've got a new one with this former partner. Oh my Lord. So, okay. So just to be clear, did you have a shotgun clause in your partnership agreement with your partner? No. So in the beginning in bootstrapping, we did everything very frugally. And so, you know, a legal zoom template in 2013 that just kind of had some plugin values was essentially what we did. Um,

I don't think being 50 50 was the smartest move. I don't think, you know, not having kind of some deadlock, uh, resolution in there was not the smartest move in hindsight. And so, you know, this episode not brought to you by legal. No offense. It wasn't anything to do with legal zoom. It was us just kind of plugging in the template. It could have been anything. Um, but yeah, it's, it's interesting. Like you try, you want to be, um,

smart about every penny you spend. So I think about how do I put a penny in and make sure that I get essentially 10 cents out or a dollar out or whatever I can get. And sometimes you make foolish decisions in the beginning like I have. And you're like, "Okay, I'm going to pay for that down the road." So it's kind of pay for it now or pay for it later. And that was my pay for it later. So we're in a lawsuit.

having just gotten out of a lawsuit with our former employer about a year prior and it did force his hand. So, you know, we wrapped it up relatively quickly within a year. Um, we went to 14 hours of mediation, um, to, to resolve it and kind of back and forth and, uh, God bless the, the mediator. She was amazing, but, um,

She found him very difficult to work with. She might have said the same thing to him about me, but it's fine. And we ended up in this agreement to essentially buy him out for not as little as what I mentioned before, but definitely not anywhere near what he was asking for. And I brought in somebody who was a CPA and an attorney who was helping me at the time. And he helped structure a deal where essentially we made interest payments for a year, but had a year to pay him off.

I thought this is amazing. The number I can help and who would turn to be my COO, the CPA and attorney.

Basically said, I can help fundraise for this. I've done it before. He grew $200 million businesses before. I can help you. This is not a problem. I'm like, okay, I've never taken external capital. We'll figure out how to do this. I feel confident. That was September of 2019. And so, you know, we kind of, he's like, you need a breather. Let's just take a little time off. We'll start to prepare a raise deck, kind of the tale of this year.

February of 2020, we got invited to a banking meeting in New York City. And essentially, it was a pitch session. And so if anyone's ever done these, you're in a hotel room and you have speed dating. So every 30 minutes, you sit in the same room and there's just a table in the room. There's no bed or anything. But investors come by and they meet with you for 30 minutes and they move to the next room and it's speed dating for two days.

We get through the first day and I did not feel good. And so I went to my hotel room that night. I brought like a BLT in and shivering so cold 80, you know, the room temperature went up to 82. I think I had it pumped up that high.

um i had coveted in february of 2020. you're like patient zero i felt like it right because nobody even knew what it was and so my wife had it she's homesick um awful trying to get back from new york because i basically did i drove to the train station and then took an uber and decided to reverse all that and i just remember every stop just

sitting and nobody had masks at that point. Nobody thought anything of it. And so we started, we recovered from that, started to do the raise process. And a lot of investors at that point said, well, we can't invest in you because we have to physically visit your office before we'll invest. We have a mandate that says that. And because we can't travel because of COVID restrictions, we were not doing any investments at this time.

really tough. And so we did a lot of pitch sessions. And so essentially in July, almost the 11th hour, we met through an investor team in Canada. We met Foundry Capital, which was two Harvard Business School friends that they graduated together. They did about a deal a year and someone else made the introduction out of Canada back to us and said,

Hey, these guys would be really interested in your business. And they came through and literally kind of the week before the deadline for the payment to my former partner was due, came through on an investment in an A round. How did they structure the investment?

essentially they bought his equity out. And because we had kind of that year difference, this, my COO was very helpful in this because we had a year difference of growth in the business, essentially from where we went down, they ended up with slightly less than half of the business. So he ended up essentially buying originally it was like 43% of the business. Got it. So they wrote a check. I think. Yeah. So yeah,

I think the valuation you had proposed was 10 to 12. They wrote a check for something north of that. And in return, they got almost half the business. Exactly. And put a little money on the balance sheet. But like we didn't really, we were looking at it. We're like, well, we don't really need money because we're actually, we've been profitable. Like we don't need extra money, extra investment here. Right. We've been profitable up to this date. Put a little money on the balance sheet, a little over a million dollars extra, you

in the business, but we crafted, we stayed as an LLC, we stayed as an LLC. So, you know, my experience, you don't always have to go to a corporation worked out for us to stay as an LLC. Everyone's different in their situation. So we issued member interest units under an LLC, which is essentially how you give stock or equity under that structure.

And the way that the operating agreement was written for the new LLC were essentially I had majority control regardless of equity ownership. And so even if I fell below 50%, I still had control of the business and the operating agreement, which was an interesting way they agreed to this. They weren't really interested in running the business, but they kind of said, hey, we might see future investments. Do you want to do acquisitions? Kind of what do you want to do in the future? So we'll leave it open.

So we can come back and put some more money on the balance sheet here if you want to do something. And what was their, I appreciate they're not here to speak for themselves, but maybe they, did they ever share with you what their investment thesis was? They're buying a minority stake for a lot of money, eight figures in a business they don't control. It's probably roughly two or so times ARR. Did they give you a sense of what their investment thesis was?

It's funny. Their LPs were a lot of family office money, a lot of kind of ex-Bain Capital, Northeast, Boston-based individuals.

And, you know, they essentially said, we don't want to run businesses. We want to be helpful. And so, you know, we want to provide the capital and we want to be able to kind of hook you up with those that could be helpful. So can we introduce customers? Do you need to redo your go-to-market strategy? Can we introduce somebody that can help you with that, with your sales strategy? The small team, right? What were they trying to get out of that? I mean, I'm assuming they're trying to grow businesses.

the value of six to eight X. Yeah. Sorry. If we're getting to a number of six to eight X, um, which was interesting because, you know, we'll talk about, um, where we got to, but they started to see the business doing really well. And so they wanted to ride it to a 10 X return, which, you know, we didn't quite get there for them, but, um, they, they saw it as being just a huge business as we, if we carried it forward. And so they were hoping to get six to eight times their money. So they were investing, uh,

whatever, 10, 12, 15, something million dollars. And they wanted to make that worth six to eight times more. Yes. Is that right? Yes.

we were growing at that point double digits 20 30 you know some years 47 um year over year and uh really we were small compared to the kind of the bigger player in the space so there's a lot of people okay but presumably another approach would have been in september of 2019 to sell the company you had a significant amount of arr

It was growing. Did you consider selling it? We did. So during the raise process, essentially the mandate in the mediation was if you don't basically pay the note off to your former partner,

we're going to go to a joint sale process together, which you can imagine, you know, it's hard enough to sell a business, but even harder when you have a contentious relationship between the two founders going to market. So that's going to get devalued or marked down. For sure. We could have sold the business. We actually had an offer. There was an offer from a strategic rollup that had a huge earn out in it. And, and,

So if you think about the structure of what we're looking at, I had a number that I had to pay my former partner. And so whatever they've, whatever an acquirer value the business at, I got essentially the Delta between the number they were going to acquire for and my former partner, none of the offers came in at a point, uh,

At that point, because they saw that there was some stress in the business, none of the numbers came in to the point where I was going to get equal to what my former partner got or greater. And so it would have been I would have had to kind of work through the earn out. And so looking at it, I kind of had a decision of do I go work for someone else or do I work for myself for a couple more years and see what we can do here?

But I got to be honest, John, having told you earlier, I was just trying to cover the bills. I never thought about what the business was really worth until I started to get it valued externally and started to think about what it's worth. And then you look at it and you're like, well, I really like this a lot. I like running the business. I like my day-to-day. But wow, someone's going to write me potentially a check for something this large? Yeah.

it's an interesting number. And so you look at it and you're like, well, how would it be different? And it's like the flip side of it is, but I lose everything that I have day to day. And so I think of the Warren Buffett line of, today I have the money and you have your business. And when we complete the transaction, I'm going to have your business and you're going to have the money. Are you okay with that? And I wasn't at that time. You were not. Loved my team. We had a strategy of

Hiring really good people, taking care of them. They brought on customers that we took a lot of care about and essentially like a concierge or like a hyper care sort of support model around our customers really built community. I had a head of marketing that was with me from the beginning. Amazing at building community. We had our own user group conferences. We take our customers out to dinner. We just would really wine and dine people to the point where like they knew our team really well.

And they refer to other customers in. And so we actually relatively in the earlier spent very little on marketing, but spent a lot on community building and it paid out. We had 97% retention at the sale of the business and our net dollar churn, which is essentially if you return the same money from every customer every year, it's 100%. We were basically 107 to 111%. So customers would spend 7 to 11% on average more with us every year. And so

And that I didn't want to walk away from. I really liked the team. I liked the customers. I liked the community we had built and just really wanted to keep kind of running that out to see where we could go with it. In that 15-hour mediation, did the specter of basically the shoe going on the other foot happen? Did they bring up the idea of, well, hold on, maybe, Frank, you need to go and you need to take the money. Yes. Did you guys go down that route? We did.

We did. The number never, ironically, from the flip side of thinking, never got to the same number on the other side. It was, it's worth a dollar if you have it, but if I have it, it's worth 10 kind of perspective. And it's like, okay. I did think about that. That was one of the rounds of mediation. I thought about it. And yeah,

It's my former COO actually said that that was one of the one points of him knowing me over six years that I got. He saw me get very emotional because I thought about what the team would be like if it was in the hands of my former co-founder. And he said, you got very emotional because you didn't think the team would be treated well. And it was true because I think there was some line at one point that was, well, I'll just go fire them all. I can do this all on my own.

And it just pushed a button in me that I just wasn't ready to respond to. I'm usually pretty, pretty guarded about emotions, but went a little far. So this foundry group invests the money and effectively what they're doing is writing a check to your former partner for his shares, which was for a lot of money. Yeah.

At any point, were you resentful that he got to ride off into the sunset and you got a handful of employees who all wanted vacation pay and childcare and someone to hold their hand when they're sick? Do you know what I'm asking? He got to just ride off into the sunset and you get the bag of toys that is running a company. So you say running a company is not all fun? Yeah.

I don't think I was resentful. I think I looked at it and said, "I can have this too, but I also can have the team that I've built around me and the enjoyment that I get from the customers and the team and where we're going." And look, there's hard times running every business. You have a customer reach out to you directly and says, "We need to talk." And it's a big company, right? It's...

Amazon's calling and they want to talk and you're like, okay, well, I'm sure of course I'm going to pick up the phone when they call. Okay, what's going on? And so you resolve that. But I always looked at the hard times with whether it was employees or customers as a time to deepen the relationship and really kind of prove the trust point and build trust and

That sounds like a PR answer, Fred. Are you really telling me you didn't feel resentful? Ironically, if you knew me, John, it's really not, right? Because even like the worst times are times to kind of build trust. Like I love Charles Green's trust equation. And, you know, if you look at that, what the denominator is self-orientation. And so, you know, when I look at how to build trust, it's all the aspects of, you know, do I do, am I trustworthy? Do I build trust?

Do I do what I say I'm going to do? Am I reliable? Do I have authenticity? Do I have intimacy? Or do I actually sound like I'm authentic? It's all relevant. And so, you know, I looked at it and I said, okay, I can get there. He's out. And now I can actually do things that I haven't been able to do that he's blocked me on, which is I can grant equity to key stakeholders and key employees in the business because he would never let me do that when he was involved in the business. And, you know, I looked at it and I said, well, now we can look at, we actually did a retreat after he exited and

And we knew when we were hiring team members that some fit the team and some didn't. And so we did a three-day offsite retreat. We spent four hours trying to figure out the values of the company. And at that point, you know, we're six years into the business and it's like, okay, what makes us us? And we build our values and they spelled Gator, grit,

Agility, trust, one team and respect. And we started hiring and awarding people bonuses around those values, which was kind of a really transformative perspective, but it never could have happened with my former founder in the business. It just wasn't the way that he was willing to kind of run the business or appreciate. How did you stick handle it with your wife? Because your wife...

whether she was serious or not was, you know, I feel like I'm financing this legal dispute, right? So she's just gone through, you're not pulling a lot of money out of the business and she's kind of financing this long drawn out legal dispute. Here you are at a point where now maybe there's some liquidity on the table and you're not taking it, you're giving it to, how did your wife react to that?

Yeah. Number one, she's been an amazing supporter all the way through and probably... PR answer. How did she really answer? I'm just a therapist. Look, I have a great, great communication with my wife. And so, you know, I think for both of us, like our marriage works really well because we're always...

telling each other good, bad or indifferent what's going on. And so like I take my lumps early and often and so it's fine. Um, but the reality of it was, you know, she stepped back during COVID from her role. You know, we got the A round. It was harder for her to work from home. We had two young girls at the time. We still, you know, they're eight and 11 today. Um, and, uh,

I have to tell a story and she's going to cringe when she hears this, but she was on a call for a large, she worked for a large pharmaceutical and she was on a call with the CIO one time and my youngest daughter walked in the room while they're on video. And this is still like after the BBC anchor had the child walk in, it was scandalous, right? Like we've all had this happen at this point today, but it was scandalous. And so not far after that, she's on a WebEx meeting and

And my youngest daughter comes in and says, Mommy, can you wipe my butt? Right. And she's presenting to like the C-suite at this company. And she's like, I just I don't think I don't think we can both do this anymore. Like I'm fundraising. I'm on calls all day. And this happens. And so, you know, we had a really good conversation about, you know, like who who's got the trajectory here that we should invest in and kind of what makes sense. And we outlined everything. And, you know, she said, I'm going to step back.

and I'll get behind you and do what you need to do. And it was really helpful. And I felt guilty at the time. I'm like, well, now I really got to go. Now I really got to prove where we're going here. But she's been so supportive. And every year we have the same conversation on that anniversary to say, well, do you want to go back to work or do you not? And it's, you know, I like being home with our girls, whether the age they're at, this is great. I never thought I'd have the opportunity to do that.

But she did shoulder us through a lot of the tough times. I got to give her credit for that. And when we did the A round, my COO convinced me to take some money off the table at the time, which I never paid myself a bonus. I never took anything extra. I took essentially a set salary, which was modest and took some money off. And the first thing we did, my wife and I, is we put it in a 529 college account for both of our kids.

We actually funded them both to the max because we said, well, if everything goes sideways, what are the things we're most worried about?

And it was college for the kids. And then it was our mortgage on our house. And so we looked at it and we said, which would we rather kind of pay off or fund today? And we funded the kids college tuitions because we just said, you know what, this is going to make us feel better. That was the first thing we did. And we did some investments around the house, some improvements and renovations. But that was my payback of thank you for supporting me in all these years. Let's go take some stress off the table now. Yeah.

Yeah, smart. That may be a little confusing for some of our listeners who've never raised growth equity. So you put a value on the business, they buy your partner's shares at what they determined to be the value.

And then in addition, they buy some of your shares in what I think is referred to as a secondary. Is that right? Yes, they talk a lot about primary and secondary. So primary is typically what we're trying to finance in that round. And secondary, it's exactly what we called secondary to go some cash out to me. But I'm selling a little more of the business than we needed to sell.

Got it. Okay. So you're selling some of your shares, but maintain the majority of them in order to continue. Yes. That's helpful. Okay. And that's referred to as a secondary. Yes. And it was weird at the time. I'd never taken any chips off the table, right? We just parlayed and reinvested and went back in. And I'm glad he convinced me to do that because I think it was the right time to do that. It had been seven years in at that point by the time that came off and

And not to get too far into your kitchen, but we're talking hundreds of thousands of dollars here. Yeah, not a huge, huge amount now. Right. Got it. Okay. But that's helpful for our listeners. That might be an opportunity for them at that stage if they are able to attract this kind of growth equity round. Okay. That's super helpful. Where does it go from there? So you've got the partner and all their connections and a bit of cash on the balance sheet. Yeah.

Tell me the rest of the story. Yeah, really interesting. So I'm wired to be a product guy, to be honest with you. So I spent a lot of my career as a product manager. And I'm always... A product manager in a SaaS company is almost like a mini CEO around the products. You're dealing with some of the marketing, the customer piece, the backlog, or what are we going to develop next?

And that's great training for CEOs. Highly recommend. I love the product manager role. And I looked at the product that we had in market at that date and I said, well, we should do something different here. We should evolve kind of our thinking. We came to market with something revolutionary in the way that we released it.

What can we do next and what does that look like? And we did an acquisition kind of right after this deal closed. We built our product originally and the reason I was able to bootstrap it on a low-code platform that was built by two guys on the West Coast in another garage, in a garage.

When we started doing really well, they sold their business to a company called Progress Software, which is based in the Northeast, publicly traded organization. And as we started to do better and better, Progress kind of started to put this product on the back shelf here and kind of said, well, it's not core to what we do. We acquired that low-code business out. And so that business closed in early, really, 2010.

2021. So not far after this. And

That brought a development team in India, in Hyderabad, India. Some customers that were not our core customers, but were using the platform to build their own software products in. Maybe about 40 customers there. So I ended up going to India not far after that to figure out how do I set up an entity in India? And what does this look like? So there's a lot of learning in that. Love the team there. They were just an amazing dedicated team. And a lot of them stayed with us all the way through the exit.

How did you fund the acquisition, Frank?

That was done. We essentially, Progress didn't want to do anything with it. So essentially they were willing to finance it on behalf of the business. It's really, it's an interesting story. Progress wanted it off their books. And so they were willing to finance it for us through a couple rounds of negotiation. They ultimately, the business was dealing about, that business about a million dollars a year in revenue. We were about 250,000 of it. So, you know, if you take it off,

about 750 on top of what we were giving them. And they sold it to us for a million dollars and they financed it. And so essentially we just had to make quarterly payments and then we paid it off within the following year ultimately. When we exited the business, that business alone, because we kept it as a separate line item, was actually doing about $1.6 million a year in revenue. So it paid for itself over the life of when we had it, which was great.

That's awesome. And so we did that. We did another small acquisition of a company called Group Duelist that was in the crisis management space, more in the response. So when something happens, how do you notify people and mobilize them? And it was a small team that it was their second product or second company they were coming to market with. They had an industry leader that was in mass notification. And so they decided to

essentially build a second product. It wasn't doing very well, but the team was great. And so we did kind of an acqui-hire there. About that time, I was convinced internally and externally, "Hey, you're at the point now of growing the business. You should have a more prominent executive team in your business here. And so go hire seasoned executives and they'll help you scale the business for where it needs to go." And

That seemed like a good idea. For better or worse, we attracted talent that had built larger businesses and was used to kind of running at a much larger scale. And so, you know, we're probably at this point

maybe kind of in the early teens of revenue. And the people we brought in were used to running, you know, either a hundred million, $300 million, billion dollar businesses, um, and just couldn't bridge like where we're at today to where we need to get to. And so for me, the bootstrapping, uh, mentality was always there. It's always like, okay, like how do we basically like, we're going to spend where we need to spend, but we're not going to just throw money out the window. We're not going to spend, you know, um,

in a ridiculous fashion. And so like, what's the, what's the compromise here? So I hired an executive team. We built up a huge sales team. We built up a large development team. And then I actually, we hired a third party PR firm to put me on the speaking circuit because at this point they said, well,

If everything's running fine back in the office, we should get you out more. We need to get you out. Prove thought leadership. We were getting ready to release another product in the market that was a revolutionary next step for resilience. And so we could take real-time threat intelligence and correlate it with where companies' locations and people were and create a plan automatically on the other side for them. So it was a lot more automated.

And they said, "Well, get out there, start doing the thought leadership, start chipping away at the market to show them that they need what we're going to be releasing." So I stepped back. I was CEO entitled, but I really stepped back and let my COO run the business for about 18 months. And the interesting part, I started taking the family. We would rent a house in Maine outside of Bar Harbor for about a month. And so I started this cadence

And I would do a week working remotely from there, two weeks off and then a week working remotely before I came back. And then we would do our all hands and bring everyone in after that. And in 2022,

The first week, I talked to my COO and we were raising money, continuing to raise at the time to pay for the new product. We didn't raise what we needed to, but we had this agreement. We're going to cut expenses to basically meet the shortfall of where the raise was rather than go raise more money. And so I thought we were in lockstep. I'm on the speaking circuit. I go and I do the first week up in Maine. We go through the numbers. Everything's great.

And then he says, enjoy your vacation. And then two weeks later, we get on our status call and he goes, we're out of cash. We're out of cash. And I said, well, three weeks ago, we were great. Everything's fine. Yep. Well, we closed the quarter. Second quarter didn't do as well as we thought. We're out of cash. We got to go raise more money. And I'm like, okay, let's solve this problem. And then we're going to solve the how do we get here problem second.

And so, you know, we had a really amazing primary debt holder that

was able to give us some more money there up the debt a little bit for what he was providing. We raised some more money through Foundry. And then we raised some money outside of that to get to where we need to get to. And I remember coming back and just having a conversation and being like, "I can't do this anymore. This is the shock of... I'm used to early on, I have to make payroll. How am I going to make payroll?" And we've never not made payroll. I'm very proud of that in the history of the business because I've worked for other businesses that

they've missed payroll. And so you get to like, you're at this point, you're, you're ninth, you're eighth and ninth year in business. And you're like, how am I out of cash? And I can make two more payrolls, but not. And the difference is in the beginning, you're like, well, my payroll is $6,000. And now you're looking at it and you're going, well, now my payroll is $700,000 twice a month. Like, what is this? What is this? And yeah,

it was troubling. So I came back and took over again. And I just said, I gotta step back into the business. Like this is not aligned where we need to. And so our executive team, we either found other roles for them or help them find roles externally.

And I took my director level in the organization and promoted the right people up to vice presidents. And we rebuilt the leadership team in the company. And it was a lot of people that had been with me early on or really kind of got where the business was and where we were going.

and was relatively transformative for us to be able to go really fast and go really far. And so that journey was interesting because I feel like I lost some time in there, but I just got to the end of it, John. And I said to my CEO, I don't want to feel like this anymore. I don't think I love the business anymore. I'm bored as a product person because we're just doing more of the same and we're in scaling mode right now.

And I don't know what to do. I don't want to. I don't want to. When you're I believe when you're a founder, CEO, your job is almost to increase risk or take risks on behalf of your business. When you're a scaling and scaling mode or you're kind of a hired gun CEO, your job is to reduce risk. And so.

I couldn't get out of my head and not be bored to not want to take more risks in the business and kind of grow new regions or grow new products. And that's why I said, I think it's time. I think it's time to go see what this is worth in the market and go shop it around.

I want to get to that before I do. A lot of our listeners would be in the process of building a leadership team. Maybe they've got one or two people in place, but they need to fill it out. Or maybe they've got some people that have come up with them through the business that have more senior roles, but they're

not C-level talent. So they're trying to figure out who do I recruit? What do I need? Do I stay with the one who's brought me to the dance or do I go out and bring in? What's your reflection having done both at the homegrown version and the kind of more, shall we say, senior executives? What's, as you reflect back on it, like what mistakes did you make? What would you do differently if you had it all over to do again? It's a great question. I think I learned that the people that

you work with early on, early on, aren't always the people that can get you, um, to the next level as you start to grow and evolve the business. And so it's really tough because you're in the trenches with people, you build really deep relationships really quickly. And, um, it's hard to look at someone and say, I don't, I don't know that you can do the role that I need you to do now. And so you, you really, you know, in, in my regard, um,

you should kind of make those decisions early on and figure out what role you need people to play. I'm a big fan, I guess, as the business evolves, I started to think about things differently. And I started to think about almost like a sports team or a baseball team. And so instead of thinking, here's my bench, what position do I have people play? I thought more about what positions do I need? And then can my team fit those positions? And it's a little different way of looking at it. But

If you think of it that way, sometimes you're going to find there's roles that no one in your organization can do. And sometimes you're going to find someone that you would never think of for a role that may be able to evolve. And so you say to them, "Hey, there's something I need you to do. Are you up for the challenge?" And sometimes it works and sometimes it doesn't. But as far as hiring experienced executives, it can be super helpful to help get you where you need to get to because they're going to be able to see around corners in a way that you might not be able to. It's almost like I have to touch the hot

burner before I realized it's hot the first time. And then after that, I'm never going to touch it again. But I found it to be really helpful to have people that understand where the business is at today and where we want to go with it. And so I started really translating strategic goals down to the entire organization quite often, probably more than I would before, because I wanted everyone to know where we're going and to make sure they were all on board to get there. It's really tough when people...

they think your business is in a different spot than it is. And so they're trying to, you know, navigate from a different direction. Help me parse what I'm hearing as a contradiction. I'm sure it's not just my interpretation of it, but you shared earlier that, um,

you know, bringing in the senior leadership team ended up being a bit of a mistake at the CEO. We ran out of cash. So my perception was that bringing in the senior leaders was a mistake. But when I asked you your biggest, you said, you know, a lot of people can't kind of get there that you hired in the early days. So help me,

reconcile the apparent contradiction. So are you recommending that people do hire externally, build a leadership team of C-level talent that have been there, done that? Or are you saying stick with the ones who brought you? I'm not clear. I think the people that got you to where you're at today, you have to assess, can they get you to the next waypoint of where you're trying to get to? And so I think that's an important point that I'd make independent of kind of the external aspects

executive team or not external, but the executive team. So can they, they got me where I got to today. You know, it's, it's this do I owe them anything? And then where are they going to, can they take me to where I need to go? And sometimes the answer is yes. And sometimes they can evolve. And when you're early on, especially in a bootstrap startup,

in SaaS, everyone's a generalist. And so everyone does every role. And then in my experience, when I got to about 25 people, I start hiring very specific roles that people can do. And it's great because now I can spend money and get someone that just does databases. They're not a general developer or they're just in outbound marketing. They're not just marketing, right? So you differentiate a little better. I think hiring or utilizing external executives can be super helpful if they know what

and have worked in a business that's where your business is at today from a growth perspective. It could be maturity of the business, it could be where you're at from a product market fit perspective or from a revenue perspective. But when you get misalignments of people that have maybe only worked in a larger business and you try to scale that rule down to something that maybe doesn't have it figured out yet,

Sometimes you got to do a little bit, you got to, you got to plan. You can't just get right from A to Z. You got to go through every other letter before you get there. And sometimes you get people that just want to start at P or Q and go to the end. So, you know, you got to find the right experience, the right growth stage.

Okay. So you exit some of the senior level talent. You've got the leaders, the director level, you promote some of those. And a lot of people would say, okay, that would have revitalized you. But you got to the point where soon after that, you were like, I'm not enjoying it anymore. Is that right? Yeah.

I did. I did. Cause, cause it's funny. Cause we very, we got very good and specific at what we could grow. And we, we had a couple of kind of pet projects on the side that we, um, I have to say to give a shout out, I have a head, a head of product management that I brought in that, um,

The irony of her role was she came in and she killed off most of our products because she said, well, these aren't doing well. And, you know, they're kind of pet projects on the side. And so I'll never forget. She came back and she goes, we sell to we had probably eight products in market. And she came back on a planning session. She goes, we sell two things. Here's the two things we sell.

And it really like sharpened the pencil for us and caused us to focus on what we did and what we did well, which is great to scale. And then when you're just like a tinkerer builder mentality like me becomes kind of boring because you're like, okay, what do I focus on now?

And it's like, well, let me focus on culture. Right. And so let me focus on kind of the values of the business and what we do. And I love doing that piece. And then there becomes a time of, well, why don't we just build a product that does this? And so now I have a product management team that can come back and tell me why it's a good or bad idea. And they're like, nope, we will lose focus. You know, where are we going to get funding for this? And it's like, okay. And so then you look at it and you're like, well, what else can I do? How can I provide value here? Um,

I don't know. It just wasn't. I like the messy beginning phases of companies. Yeah. I really do. I don't like the scaling. And I have friends that are CEOs that are amazing scalers and hired guns. And I have total respect for what they do. They can ratchet the business up. They tighten down the expenses or they know when to spend more to get more back. I'm like that Idea Labs guy where I'm like, how can I build something cool?

I think that's great. I think that self-reflection is good. And my experience is, although we could all point to the Elon Musk and Jeff Bezos and Bill Gates, who obviously have both skills, the startup and the skill, but in my experience, it's very rare to have the same two skill sets among the same individual. So I think being able to recognize that makes a ton of sense. When Foundry came in to buy your company,

And this is germane to the next part of the conversation, which is the exit. Did they have preferred shares? Or were they just buying effectively common shares? Or did they negotiate for preferred shares when they came in? Essentially, there was a preference on their investment, but essentially they had common shares, but essentially a preference on the return.

Meaning, did they negotiate for a 2x liquidity preference or something like that? Essentially a 12% return. Okay. Per year? Yes. I see. So they were guaranteed a 12% return per year for the life of their investment before you as a common shareholder were entitled to anything. Yeah. Sorry. 12% over their investment. Sorry. Oh, okay. Not for you. 12%. Yeah, just 12%. Okay. Got it. Okay.

Got it. And then when you went at this 700 grand payroll and all of a sudden you're running out of money, did you get the same terms or did you have to give up a liquidity preference when you kind of were raising under duress, so to speak? It is interesting. That ended up an interesting conversation because we started the year, if you remember what I said, we started the year saying we need, at that point it was like 6 million and we raised about 3.6 million.

And so they they agreed and signed off everyone. You know, they had board seats and we all signed off on the six million dollar raise. And so it was almost a well, you we all knew we didn't get to this number. And so, you know, we said this is not we're going to shoot for. So, you know, I thought a little bit of why did you not fund this? Are you did you want me to be in this?

duress here? What are we trying to do? Because if you remember, at this point, by the money we raise, I'm under 50% of ownership of the company, as you can imagine. And so we've sold off more of the company to raise more capital. But I still have control. And so now what's interesting is it's like, well,

What are you trying to do? And so we had some kind of tense conversations around that. I believe they were well-intentioned and where we got to, it's just kind of the state of the ability to raise capital and kind of the way the market fluctuated the last couple of years. It's not as easy today as it was obviously five years ago, six years ago. And it got a little tense. And so...

Help me understand. I don't know why it would get tense. So you signed off on the $6 million raise. Foundry would be like, yeah, let's go raise $6 million. What was the valuation inherent in that? So valuation was upped at that point. So increased from where they originally raised. So we kind of kept the round open, but they raised it a higher value. We essentially raised it three different kind of increasing valuations. So we're up $6 million.

Trying to think about this point, we're probably about two and a half, three times what we what they originally came in at. And the tension for me was, OK, we needed another, you know.

we essentially needed another $2.4 million in the business here. And so we agreed we're going to go get it. You primarily said you're going to fund this. You weren't able to fund it. And so now, essentially, we don't have cash because we didn't raise what we need to raise. I see. Right? You thought they were going to pay you. Because it's like, "Okay, we all agree this is what we're going to do. We did cut expenses down, but we still have a shortfall here." It was just a little under $2 million, essentially, after we cut about half a million of expenses out. And what do we need to do? And

I could feel the conversation never went here, but it was almost a, well, if we keep putting money in, we're going to have to take control. Right. And so it was almost there, but it wasn't necessarily there. And that was also part of my my kind of push to say, like, OK, like, I think it's time to get out. Like, I'm kind of getting squeezed here.

I've had a really good run. It's been really great. And but, you know, it comes back to the do I want to it goes back to John. I went to literally this this entrepreneur conference in 2012. And I remember someone standing up on stage and it was all entrepreneurs in the audience. And they said, raise your hand if you're starting a business to go work for someone else. And of course, no one raised their hand. And they said, well, when you take outside capital, that's often what you're doing.

And that just stuck with me for so long. And I'm like, I don't know that I'm wired to go work for someone else. And because I care so much about the culture and I care about how we treat our employees and I really care about how we treat our customers. And is someone going to do it the same way? And if I don't have control over it, I have maybe they won't.

And I just really started to worry about that. I said, you know what, this isn't stress worth having. Like maybe it's time to go do something else. And by the way, I really love the messy beginning pieces. So when we were starting to get in the sale process, I started mentoring a couple of startups and did a program called Mentor Connect in the Philadelphia area here. And I really like that beginning part of helping people kind of find product market fit and scale and build things.

So what'd you do? You bought in a banker to help you sell it or where'd you go from there? We brought in a banker who had experience in the space. Did you first approach Foundry and say, hey, why don't you buy me out? Yes, we had through a board. Well, no, I didn't say buy me out. We actually had a clause in our agreement, sorry, where I could force a sale if we were over a certain hurdle. And we were over the hurdle of essentially valuation of the business.

And so how did you determine the valuation of business? We had, we actually had a third party do evaluation for us to look at it and kind of look at the market. And they said, yeah, you're, you're very likely going to be over this hurdle, which was an interesting perspective. We hired a banker. So we had that board meeting, convinced them. That was the conversation that I referenced earlier where they were kind of like, Hey, we're basically at like a, you know,

seven times return here. We really think this could be a 10X business. Why don't we all stay in it a little longer?" And I was just like, "No, guys, I'm done. I'm off the ride. I'm dizzy from being on this ride. I just need something." It was like, "Well, just take some time off and come back." And I'm like, "No, no. I think I'm just kind of done."

And so, you know, we, they kind of begrudgingly allowed us to interview bankers and we hired someone who was in the B2B SaaS space that sold a couple of players. Hold on. I got to pause. You just got them a 7X return. So like how many years did it take you to get them a 7X return? They were in four, five years, roughly just a little under five years. So they could have put their money in the stock market and...

And maybe you got different phases, John. So this is that early tranche, right? This is that early round, right? I get it. I get it.

But were you a little bit like, how dare you question my decision to get out? I've got you a seven X return. Part of you would be like, are you kidding me? I just got you a seven X return on your money and you want me to do more for you? It's like, take a hike. They thought, they thought, and they probably weren't wrong. If we kept going, we were going and we kind of hit our numbers. It could have been a billion dollar valuation business, right? Given the way the market was, but they wanted to go for the full ride. And, uh,

Yeah. You got him a lot of money. I know. You made him a lot of money. You know, you start as a founder too. You start thinking to yourself, um, how much is enough and like, when do I want to get off and what does it mean to not do this anymore? And, um,

I reached out, Alex Bean, that was on your podcast for Divi back in the fall, reached out and connected with him because what he said really, really resonated with me, which is the like, what's my purpose on the other side of this? And so what am I going to do? And, you know, I had a great conversation with Alex, but yeah, what am I going to do? And so how much is enough? And at some point you're like, well, if I'm not happy, that's probably when it's enough. You know, I don't know. How did you answer that question? How much is enough?

I knew I wasn't done. And so, I'm not

I haven't started another business yet. I'm 43. I didn't want to be out, but I also knew I wanted to take some time off and I probably wanted to start my next business by taking little external capital as I could to kind of start. And then once we had kind of fit product market fit and wanted to kind of go farther out, then kind of look at taking external capital, which is basically the way I ran Infinite Blue in the first business.

But I wanted to be able to put more money down in the beginning and be able to do that. And so I started to think about what that might look like. And it's interesting. I think you had someone else on that was talking about living off of assets. And so you start to think about what's the difference of living off the interest of my assets versus how long can I live? And so you optimize things to say, maybe I never have to work again. But then the flip side of it is,

I will get into trouble, John, if I don't work again. I got to do something. So it's like, well, how do I basically make sure that I have enough money to go invest in other things? And there's charitable things that we've done and we continue to do. And there are direct business things that we look at that I'm looking to do. But right now, just starting to work with some early fees, pre-seed startups. And that was really important to be able to have the freedom to do that. Because what does it get you, John? It gets you freedom, right? The sale gets you freedom, which is the interesting piece.

Absolutely. And thank you for going there with me, but I want to go back. So the investor who is begrudgingly letting you take the business to market after getting them a 7X return has agreed to let you interview bankers. What next? You hired an M&A firm and they shopped it? Yes. Yep. We hired an M&A firm. They prepared a deck for us, which, you know, is the PowerPoint highlighting the company and they, you know, do...

really creative graphics and designs and everything that you wish you. And like, oh, I wish I'd hired them to do our sales decks earlier. Can I buy that business? It looks so good. They're amazing at doing these information documents. And so we go out, they send it out to market. They had just sold a business that was kind of in our space a year earlier. And they're like, well, we know all the players. We know who lost the last kind of round of this semi-competitor. And so we're going to go to them.

um probably the worst two weeks of my life we basically uh went out to san fran to boston to new york and then did a couple meetings in philly over two weeks and i did 32 90 minute pitches of the the same data over two weeks which was great that we got the meetings but then by the end i kind of started to feel like okay maybe we could have narrowed this down a little bit and maybe like you know um

reduce the filter, the strain down a little bit so that there weren't so many we went to. But their strategy was, let's go to market and pitch this because valuations were reducing. And so let's see what we can get as a result from where we got. Where are you in terms of revenue at this point? At that point, we're just about 20. So you're 20 million in ARR, 20% of which is services and 80% SaaS. And so...

Got it. I'm just doing the math here. And you've got like 107% net revenue retention, meaning all your revenue is being kind of retained in Mensum, which sounds like a very, very attractive business. What was the reaction like to the market? They love the growth path. And so, you know, we also had 97% logo retention and the customers that we lost, I think we lost two to a competitor company.

And we're talking, I mean, overall, we had about 300 customers, primarily fortune, thousand companies, financial organizations, retail,

And the logo retention was really great. They were really shocked because I'm just building a business and I never really knew what retention should be in a SaaS business. And so, mid-80s is your benchmark. And we're at... I think when we first started talking to them, we're 98% retention. They're like, this is unheard of. But it all depends on the volume of your business. And we had customers that were through 3 or 4 renewal cycles. And so, it had been tested because they're always looking to say,

that's great. You have a great retention, but maybe they only signed the first agreement. They didn't actually renew with you. So really, what does the number mean? I think people were generally impressed in the business. And we were one of the last

in our business continuity realm, last organizations that hadn't sold to a strategic roll-up or private equity. And so there was some scarcity in what we did when we went to market as well. So really good reception. But the multiples just got killed in SaaS when we tried to go out to market. And so money got more expensive to borrow. We had a partner. So we did 32 pitches

11 offers on the business. And then we took the best 3 to the end. There was a company... It's so funny when you go through a sale process. There was a company I really wanted to sell to. We partnered with them. They were an amazing organization. Our cultures fit. I got to be really good friends with the CEO. And they were owned by Private Equity. And

the private equity that owned them basically wanted to finance the deal through debt and can only put so much debt on their balance sheets. And so they came in and they were like 30% lower from like the highest grouping of everyone else. And I just remember having this conversation being like,

I really wanted to work with you guys. Like, you know, what's going on? I was like, but you know, this is like too much of a hit given like what I, with our investor pool and kind of what we're looking to return here. Like we just, I can't justify it. What were the offers like, like low ball, low, like low and high multiple of revenue, like ballpark where what's the low end, what's the high end? Some of the low ends, you know, four, five times and then upper end, you know, kind of eight, nine,

eight-ish, you know, if you think about it. And we're continuing to grow the business as we went through, you know, for going out to market, but eight, nine, you know, it depends. Cause we had a, we had a different, we had a, because we'd done three acquisitions, essentially the revenue streams were valued differently in kind of the offers that were coming back. And so services revenue typically is valued less from a multiple perspective. They look at, you know, you basically, when you go to market, you know,

You pay an external firm to do a quality of earnings report and they essentially come back with some findings on kind of how good are your numbers? How sticky is your revenue? Did you account for it properly? It's essentially an exhaustive audit on the business. And so, you know, when they get that, they look at it and they say, okay, well this, we've completed an acquisition in March of the year that we wanted to sell in 24. And the banker said, oh, you'll get a hundred percent valuation, like credit for this business.

And then someone looks at it and they go, "Yeah, you're not going to get the full kind of 8x on this. We're going to give you 6.2." And they have some calculation of how they got to that number. How do they value the services versus the SaaS revenue? Services were probably, as I'm thinking through, like a 20% discount on the SaaS revenue for us.

Were those services annual contracts? Some were. Some were annual contracts. So we would have advisory services that someone would do a partial to a full advisory piece. We had some customers that paid us annual contracts to implement kind of or do changes in their instance of our product. And then some were just kind of one time, you know, we would sell a customer and they would pay us $10,000, $20,000 maybe to set up their software instance. And then that was over after that.

Got it. And then so you took of the 11, you took the three, you shortlisted three and then did a bit of a beauty contest among the three. We did. And the three were kind of an interesting mix. So one was pure private equity and would want my COO and I to stay on and run the business for at least 18 months to like hire a transition team.

One was pure strategic. So they were acquiring other companies and they said, well, we'll just kind of glob you on to what we do here. And, you know, we're good at this. Don't worry. And then the company that actually acquired us was a private equity firm who bought the business, who was pairing us with a strategic and.

It was interesting. So we actually ended up the private equity firm was Tomo Bravo. They were the ones originally kind of doing the bidding and did the negotiation.

And they're who we ended up going with. And they were taking a company called Everbridge, who was ultimately who we got paired up with, from being publicly traded to private. And we signed the deal to sell the business in June of 24, but we couldn't say anything until after the kind of take private deal closed for Everbridge because they were going to announce it under the Everbridge name.

So really interesting. I got kind of some loosely veiled SEC violation threats thrown at me about, you know, you can't say anything. This is, you know, until this is announced and it's great. But probably the most interesting point is we negotiated with Tomo Bravo. Great team there. Ryan and Steph, we talked with there. They were great. And.

We sign everything. And I had talked to the CEO of Everbridge infrequently, really not that much. And so we sign everything. And so this thing's sitting on a shelf until everything clears. It was about 3 weeks inside on the shelf. And I get on the phone with the CEO to really actually meet him the next week. And his first thing he goes, "Well, I don't want to make any assumptions, but I assume we have you locked up for the next 12 to 18 months to transition, right?" And I said, "No." And

the day we signed, I'm done at 5:00 that day. The bankers thought I was nuts when I asked for a walkaway deal with no earn out. And I got it, which is crazy. And he's like, "Well, that seems like an oversight."

And they have a really, really great executive team at Everbridge that this is like the team's fifth time kind of coming into a business and scaling it and doing great things with it. And so the very seasoned team and he's kind of very casual. That seems like an oversight. And I said, look, I don't want to just mic drop here. Like, I'm happy to help you transition. So like, how can I be helpful?

And so I stayed on for about 10 weeks, did a final speaking engagement, helped them transition some aspects of the business. And then, you know, so we announced in July and then by kind of mid-September, I was I was done. And it was weird. It was really weird. You know, I put my kids on the bus for the first day of school and I had no job anymore. What'd you do?

We sat, we had, we built this porch when we did the A round on the back of the house. And my wife said, let's go put them on the bus and let's go sit and have a cup of coffee and sit in the back here. And we sat down, we had our coffee and we're sitting outside on the, on the porch and 20 minutes in, I finished my coffee.

And she looked at me and she said, you look bored, go do something. And I did. And so I came in and I had an office space that I just wanted to, I started ordering furniture for the office space, just like a stand, sit, stand desk and like a couch and started getting into trouble from there. I made the mistake of buying a third and I'm looking at it now. It's an 86 inch TV. That was a touchscreen on the wall. So I could do pitch sessions for got an amazing deal for like a thousand dollars for brand new TV.

get close trouble. It weighed like 200 pounds. And so it was impossible to mount on the wall. There's funny things that when I'm bored, I get into trouble on stuff, which I know to now spot. But I kept mentoring startups and took a consulting fractional CTO role for the last couple months. Just exited that. And I'm trying to see what comes next. Any regrets?

I try not to have regrets in life. I think I, I think I, if I had a do over or I could do something different, which maybe I'll nuance from a regret, I probably wouldn't have stepped away from the business for that 18 months that I did to do the thought leadership piece. And I probably would have kept running the business the way that I knew to run the business.

I think it set us, it didn't set us back, but it, we kind of spun out sideways during that time period a little bit. And so the growth wasn't there and the expenses ratcheted up. And so, you know, you talk in business kind of about a flat spin, which, you know, if you're in a plane, that's kind of, that's a, that's kind of a death sentence. Really. It's really hard to get out of. We weren't in that, but we weren't not in that. And so, you know, when I came back in, I'm like, no, we're going to, we're going to come back to our roots and kind of reorient this. So I just feel like I lost time in that.

And maybe being 50-50 with my founding partner. I think that was in any future venture, I will not be 50-50 with someone. We'll make sure or at least have some resolution in our operating agreement if we can't go forward what it looks like. Yeah, yeah, for sure. Are you up for a quick lightning round of questions before I let you go? Sure.

What was the slimiest trick that an acquirer tried to play on you? You got 11 offers. I'm assuming there's some slimy stuff in one of them. What, what, what'd you see? I think, um, the strategic that tried to acquire us of the last three pure strategic, um, I don't know how serious they were, but they got a whole lot of data out of us about how we operated and what we did. And so, um,

That didn't feel good. I always trust my gut. That one didn't feel good on the other side. And then essentially completely withdrew their bid. Like we got to the final round. It's not like we even told them like, hey, we're not going with you. They withdrew their bid. Yeah, that sounds a little cagey. Emotional high of selling. We had Walmart as a customer and I'll never forget when we signed them. Yeah.

called us to tell us and it was early it was like the third year in business and i'll never forget the call where the the head business contact reached out and he said um do you want a fortune one as a customer and i was like well yeah and he goes well you have one he's like congratulations um and we just developed an amazing relationship with them and uh

That was just such a high because we worked hard to get there and then just to be able to get it. And it never got easier, but they held us to such a high standard that I just, I appreciate all the work we did with them. I would imagine. If you focus on the selling period, so from kind of getting the 11 offers through to the sitting on the porch, having a coffee with your wife, what was the emotional low? Interesting. Um,

And ironically, I listened to one of your podcasts, so I'd be prepared for these questions. And this is the one that I was thinking about probably the most. I announced to the company, we did it in all hands. We brought those that were in the office and we did a video conference the day we announced. And that was my last day. So it was Tuesday in July. And it was hard not to get emotional in that. Like it was a little...

A little bit like this has been my identity for 11 years. And so I realized that like, as I, when I walk out of this building, even though I'm still a contractor, like I'm not in the same role. And that was, that was, it was, it was emotional. It was probably a little bit of a low. Cause what was my purpose on the other side of that? And what was I going to do? And I had no, I had no plan. I was basically almost like someone who went for retirement and didn't have a plan. And so I,

Um, that was tough. That took me, that took me a bit to come out of and kind of figure out like what, what was next. It sounds like your M&A professional did a great job in shopping your business. Did, did you go out and learn on your own accord anything? Could you point our listeners to a book, uh, a speech, uh, a Reddit forum, anything that people can learn from the process of selling a business, any resources you could point our listeners to?

My bankers were definitely experienced in the space. And so they knew kind of it's really interesting. If you hire a good banker, they really know kind of, you know, who pulls, who, who pulls the fast ones, who's honest what kind of people like and what they don't like and kind of when you might fit into a portfolio or not. I think just listening to them, like, I think they really were a great resource. And it really is interesting to feedback people will give you because they

It's not speed dating when you're doing 90 minute meetings over two weeks, but you get to know people really well and it's really tough. You don't want to get emotional. You don't want to like anybody more than anyone else. Like kind of when I told you the one partner we had when they kind of came in with a lower offer and I was like disappointed and I'm like, what am I going to do now? Yeah. In addition to the TV, did you buy yourself a trophy to commemorate the win?

So we were renting a house in Maine every year and we bought a house on the coast in Maine in Bar Harbor end of last year. And so for us, it was kind of a place to say, "Well, okay, maybe we can extend our summer a little farther with the family here." And something modest, but something that we can kind of leave a toothbrush there when we leave and be able to come back to it. Nice. Nice. Nice. And a great

Reflection on the wind as every time you enjoy it in the summertime. I really appreciate you telling this story and sharing so much. You've got a new venture that's just about to launch. Tell people where they can learn about that. What inspired, I think I know what inspired it given your precluded kind of tinkering, but tell me about the new venture and where people can learn more. Definitely. So I love the messy beginnings of startups. And so I want to help others through that and to kind of

either start or to kind of get through that process and so um starting a uh kind of a combination of a venture studio and an accelerator primarily focused in the northeast of the united states we're based out of philadelphia called united effects ventures and so ue.ventures is the website and

And me and a co-founder are just trying to figure out who we can come in and really kind of roll our sleeves up and help both with experience and work and capital to get them where they need to get to. And how can we kind of short circuit the product market fit process to help them understand, is there a good idea here? What's the audience look like and kind of how big can this get and get them hopefully to an A round. Awesome. Awesome. And we'll put...

the

link to your site in the show notes. And if people wanted to reach out on social, is LinkedIn the best way to do that? Or are you more of a X guy or what's your preference? Definitely LinkedIn. So feel free to look me up at Frank Schultz on LinkedIn, the UE Venture site as well. Happy to take any comments there. And look, I love, I love conversations with those that are either starting up a business or have a question in the business to take that and pay it forward and help anybody out any way I can.

That's awesome. Very generous offer. So we will put your LinkedIn profile, the site to the new venture, link to the new venture on the show notes at Built to Sell. Frank, thanks for doing this. Thanks so much, John. I appreciate it.

And there you have it for today's episode between John and Frank. If you enjoyed today's podcast, be sure to hit that subscribe button wherever you're listening to today's show. And if you haven't already, check out our YouTube channel at Built to Sell. There you're going to find the video podcast of all the interviews you're listening to here today. For

For show notes, including links to everything referenced in today's podcast with Frank, you can visit his episode page, which you can be able to find over at builttosell.com. Also, as a reminder, if you know of someone who'd be a great fit to be a guest right here on the podcast, you can nominate them. You can head over to builttosell.com slash nominate, where there you're going to have a chance to nominate yourself or someone else to be a guest right here on the show with John.

Special thanks to Dennis Labataglia for handling today's audio engineering. And thank you to our community of certified value builders who help us bring our message to you. Our advisors are experts in helping you build the value of your company. To get in touch with an advisor or learn how to become one yourself, head over to valuebuilder.com. I'm Colin Morgan, and I look forward to talking to you again next week.