The Wise Exit

The Cashing Out Mergers & Acquisitions (M&A) Podcast | E32 | AJ Lawrence

00:00:00:00 - 00:00:26:06
AJ Lawrence
There will be a gazillion stories about the person who puts a piece of code up and then the next day is offered $1,000,000,000. God bless them. I hope the best for them. For the vast majority, 99.9, 99% of us. The only real path to any type of success is putting in the work over a long period of time and staying focused directionally on the opportunity.

00:00:27:01 - 00:00:48:12
Todd Sullivan
Welcome to the Cashing Out podcast, where our fellow founders share real stories and offer honest advice around selling their companies to some of the top acquirers in the world. My name is Todd Sullivan, CEO of Exitwise, where we help business owners create the exits they deserve. Today, my guest is AJ Lawrence, a self-proclaimed journeyman entrepreneur with multiple exits under his belt.

00:00:49:03 - 00:01:11:08
Todd Sullivan
AJ sold his first web development business to an ad agency a few years out of college. He then moved into I.T. hardware and sold his wi fi router business to his main hardware supplier. AJ capped it off in 2021 by building and selling a multi-million dollar digital ad agency which made the INC500 twice. Today, AJ is a student of the entrepreneurial mindset.

00:01:11:17 - 00:01:43:06
Todd Sullivan
Given his success, he is intent on better understanding what makes founders succeed and fail. To this end, AJ acquired the Beyond Eight Figures podcast to explore and share what makes entrepreneurs tick and how we can all improve our skill sets through the experiences of our fellow founders. In today's discussion, AJ and I discuss how his companies were valued by strategic acquirers, his understanding of why terms are more important than price in an M&A transaction, and the value of family support when building and selling a business.

00:01:43:19 - 00:02:03:21
Todd Sullivan
I hope you enjoyed my conversation with AJ Lawrence. Hey everyone. Before we get started, I want to tell you about another podcast I've been listening to lately. It's called Startup Savant, and it's put together by some friends of mine over at TRUIC. Now, similar to our podcast, Startup Savannah set out to better educate and support fellow founders in their startup journeys.

00:02:04:06 - 00:02:27:02
Todd Sullivan
But they do it by highlighting the day to day struggles and triumphs of current day entrepreneurs, and then they offer useful tools and topics to help level up business owners in any phase of their journey. Now, I've listened to tons of these episodes, but personally I recommend episode 53 with Adam Nash. Adam is a super interesting guy. He shares stories about his time at LinkedIn with Reid Hoffman.

00:02:27:08 - 00:03:05:04
Todd Sullivan
He has great experience working in venture capital and he talks about his new mission to enable more generous giving at his new company, Daffy. It's really a great episode. Once you finish listening to us, check out Startup Savant. We'll put the link in the show notes. AJ thank you so much for being here today. I was actually thinking about it over the weekend and really excited to have this conversation because I honestly, I feel a certain kinship to you not even knowing you based on your background of selling multiple companies and just kind of finding your way through this entrepreneurial path.

00:03:05:13 - 00:03:30:08
Todd Sullivan
And when you found a level of success, you know, it seems like you're really a student of the entrepreneurial game and want to give back to your fellow founders now through a podcast, right, which we're doing a lot of as well. So yeah, yeah. So I'm thankful, really thankful that you're here today. And, you know, just so you know, Mark Cuban had this spot, but when you took it, I was like, I had no problem bumping him.

00:03:30:12 - 00:03:32:04
Todd Sullivan
So thank you for being here.

00:03:32:12 - 00:04:00:06
AJ Lawrence
Yeah, but it's just that. Yeah, that guy. Thank you so much. I really. I like listening to your show just from the more concrete around the exit, I have jokingly said everything I've attempted to do as an entrepreneur I’ve failed at. But because of him, however you want to define it. And I'm still I actually succeeded at doing it.

00:04:00:06 - 00:04:27:12
AJ Lawrence
So when I got reach out and I was like, I know this show and I was like, Oh, I don't know if I'm that good because all my exits have also been failures. Like just the one I always joke is I was 23 when I started an Internet research firm back in the early nineties. Literally before the web was the common type of interface for the internet.

00:04:27:23 - 00:04:58:12
AJ Lawrence
And when HTML kind of hit, I had taught myself HTML. I couldn't get any clients for this research I was doing. And someone said, How did you get a web page? This website? It's like, Oh, I built it. Literally. That person told like a gazillion other people that I built websites and we had a million dollar business right off the bat, but I had no idea what I was doing in any shape or form other than how to build websites.

00:04:59:07 - 00:05:25:02
AJ Lawrence
And one of our largest clients that was basically taking our work and doubling out to their larger corporate clients offered to buy us. I knew nothing. I just loved this idea that they said they were going to give me $1,000,000 of their stock. No clue. Did no due diligence. They even encouraged me, Oh, work with our lawyer - that way we'll save you some money.

00:05:25:11 - 00:06:00:10
AJ Lawrence
Don't tell anyone because you want to keep this a secret. Yeah, red flags. But long story. Literally, the moment after I signed and they took my working capital, they declared bankruptcy within, like, a month. So I lost a couple of hundred thousand dollars. Yeah, well, I think I've been in everything. So it's like, yeah, my first exit at 25 was special, so I've done slightly better each time, but that's directionally my exits have been these things.

00:06:00:15 - 00:06:30:22
AJ Lawrence
So after I sold my last company, which was sort of under duress, but I got very lucky because it ended up being a mid seven figure exit. Even if I did do seller financing. I realized I hadn't learned anything as I was starting to hear other people's stories. So I started researching and talking with people about how to create systems, how to learn from it.

00:06:30:22 - 00:06:55:09
AJ Lawrence
And then during COVID, I literally bought a podcast because I never knew if we were going to be able to travel again. I was like, okay. So I bought a podcast beyond eight figures for a Bitcoin that the previous host was sort of winding down, and I was like, I like this topic. I love talking to insurers, but I want to go a little differently.

00:06:55:09 - 00:07:10:10
AJ Lawrence
And I've used that to learn like, Tal, I'm going to have you come on the show and we'll we'll talk about how to prepare for exits instead of just listening to my mistakes around my exits. Well, I appreciate that.

00:07:10:10 - 00:07:29:18
Todd Sullivan
I would I would love to do it. I think, you know, as as I started. Right. I think we have a lot in common in that, you know, you're describing failure, but you went through that entrepreneurial journey. You founded something, you created it, you built value in it enough where someone else said, Hey, we would like to acquire that.

00:07:30:01 - 00:08:00:22
Todd Sullivan
And yeah, maybe mistakes are made along the way. Maybe it's not the right buyer, the wrong price or structure. But you know, those things are possible. And so many of our fellow founders have been in your shoes. In my shoes that I what I like about your show is you're digging into all different types of entrepreneurs trying to kind of upscale every founder's knowledge about the pieces of entrepreneurship, to see failures, to see successes, to hopefully create a better path forward for us.

00:08:01:02 - 00:08:25:13
Todd Sullivan
We really focus on this one area where we think it just happens to be the big black box, right? Of of how do you actually sell a business? So you packed in a lot in that beginning. And I’d love to jump back just to, you know, your first exit. You built websites. You go to one of your resellers, it sounds like decided, hey, let's buy this.

00:08:26:02 - 00:08:35:05
Todd Sullivan
Can you tell me how did they approach you and how did you come to that? And a price and structure that maybe wasn't ideal, but how did you figure that out?

00:08:35:05 - 00:09:16:08
AJ Lawrence
What had been happening was we had a we had a bunch of our own clients, but this 1it services firm, this was yeah, by this point it was mid nineties. So before some of the craziness that happened in the late nineties with the weblog, but in the space of early internet it was getting really it was hot. It was one of the first hot waves of the internet except yeah, in hindsight it was teeny comparison but they were selling huge amounts of work to large companies and they were turning around and pretty much having us do the work for it.

00:09:16:08 - 00:09:46:19
AJ Lawrence
They had a very thin layer between us. What had happened is they came to the realization that, oh, they didn't know how to hire the strange group of people. I had pretty much taken off the street and trained in how to do that, and I literally had three bartenders, two baristas. I had a cell phone salesperson was my head designer, and we talk about just building a crazy team.

00:09:46:19 - 00:10:13:10
AJ Lawrence
And we were good because no one knew at that point. But they realized that, oh, if we had this team and just paid them salaries, it would be cheaper than the per hour because we were working under an hour weeks and they thought they could save money. What I didn't realize is they were so they had other issues which as I kind of said, came into the fore really quickly after this.

00:10:13:17 - 00:10:33:23
AJ Lawrence
So they started saying, Well, what are your plans for this and all this? They said they wanted to help me. And literally the first time I said, sure, that'd be interesting. So they started saying, Well, we could invest in you. We could do and the moment I said, that could be interesting, it all came about them buying me.

00:10:34:14 - 00:11:00:08
AJ Lawrence
Hindsight is a little hard, but I kind of feel that I was a mark right from the beginning because I had no idea. And so these guys have been around for a while. They were growing too fast. They had a good business and, you know, in hindsight you look like, okay, they had been running a couple of million dollar I.T. services firm for about 15 years through the early LAN networks and all that.

00:11:01:02 - 00:11:23:12
AJ Lawrence
And I’m just dating myself, you know, crazily. But all of a sudden in this Web, they were growing incredibly much and all too much of the work that my team was able to do for them, they went past their structures. They went through all this. So they made me an offer for they were like, Well, what are you looking for?

00:11:23:13 - 00:11:50:12
AJ Lawrence
I'm like, Well, I hope to make $1,000,000 off this. You know, I was 24 at the time, almost 25. $1,000,000. Yeah. The Mike Myers scene. Yeah, where it is. That's exactly how I felt. I was like, what's the biggest number I could think that should ever be? And yeah, they offered it to me. They also said a bunch of things about how we'll help.

00:11:50:12 - 00:12:14:02
AJ Lawrence
You will take care of it. Let's keep this. Yeah. We don't want anyone to know. Clients could get upset, you know, whatever it was, the reason they had some strange stories, and I believe I've no clue. Yeah, and that was a fun experience, realizing I had, you know, and they blew up, too. So it wasn't like they were running off to the beaches on my money.

00:12:14:13 - 00:12:30:15
AJ Lawrence
But it was an interesting experience, you know, just try to say I learned from it. But it really was ten plus years later that those experiences came into the fore again as I had a new company.

00:12:31:12 - 00:13:04:01
Todd Sullivan
Let me jump back let me jump back a second, AJ, because, you know, your first story is not uncommon because a lot of founders, they'll find success in a strategic partnership, right? It helps them grow that business. They get to know that partner really well over this period of time. And so a lot of times it makes sense for that strategic partner, particularly if they're much bigger to say, Hey, instead of building out this division, which clearly an IT services or web development is becoming an increasingly important component to that to their client base.

00:13:04:07 - 00:13:21:21
Todd Sullivan
So why not go out and buy the the company that they know and they work so well with? So all of that makes a ton of sense. And I think, you know, our fellow founders are going to find themselves in that position. And I love inbound interest coming from strategic partnerships. So, you know, they ask you, what do you think it's worth?

00:13:22:01 - 00:13:40:19
Todd Sullivan
And yes, the entrepreneurs coming out of the gates, they've got this kind of fixed number. But with that $1 million, when that buyer said, yeah, we can make that work. Okay, So everything's good to that point, but what do you think you could have done to say, all right, how do I secure that this is the right buyer?

00:13:40:19 - 00:13:49:19
Todd Sullivan
This amount of money is actually going to hit my pocket because it sounds like they took over the operation and you were going to be paid over time, is that correct?

00:13:49:20 - 00:14:16:12
AJ Lawrence
Yeah. And I've recently I've been about a year and a half now pursuing my own acquisitions podcast, some smaller things and now looking for a larger company. One of the best phrases I've heard that now makes so much sense, and I'm going to keep saying the word hindsight because almost a lot of my learning is hindsight. Here is your number, our terms.

00:14:16:12 - 00:14:55:04
AJ Lawrence
And I think the concept is so much around the focus of the number when selling, you know, as a seller. The number the number number when the reality is the deal terms are so much more important. It's just it's not what we talk about as entrepreneurs in general. When you talk about access, you talk about the number, you talk about, you know, the cash or maybe equity or, you know, the types of things, but you don't talk about really what the specifics of the terms are.

00:14:55:20 - 00:15:43:06
AJ Lawrence
So I know definitely there it's everything from getting real advice to even really what was I really hoping to get out of selling, other than I knew I had grown too fast. I knew I didn't have an infrastructure. I was driving myself crazy, chasing my team to do more hours for a client. But if I had a better understanding of what I was trying to do and then a better understanding of what it meant to be bought, I think that learning of what is possible and what has so changed and then we are talking scarily enough, I was about to say 20 plus years, it's almost 30 years.

00:15:44:00 - 00:15:45:19
AJ Lawrence
I am so dating myself here.

00:15:46:08 - 00:16:11:03
Todd Sullivan
We're in the same boat. We're in the same boat, right? We are right now. We have the luxury of looking back and frankly, really appreciate you willing to share that, you know, quote unquote, failure, because I think a lot of us can can relate to that, you know, price versus versus terms. And frankly, if you've never done this before, inbound interest can be feel incredibly complementary and empowering.

00:16:11:08 - 00:16:35:00
Todd Sullivan
But if you don't have the right people around you, those terms are really going to come back to bite you every time. So, you know, let's jump to the second one, because what I what I understand about that one is, you know, you're looking for product market fit and that business maybe doesn't quite find it, but you've built technology that your one of your vendors is finding, whoa, this is this is really valuable.

00:16:35:08 - 00:16:45:13
Todd Sullivan
And so how does that one come about? Are you guys getting ready to throw in the towel? And the vendor says, Hey, this is really interesting. What do you want for it? So describe that one.

00:16:45:17 - 00:17:13:08
AJ Lawrence
Yeah. So long story short, yeah, My friend had this concept and he went away and I created the roadshow. We were going to raise money, but we didn't quite. But what we did do was this one vendor was going to give us huge line of credit on early Wi-Fi connection and because we were all stuff that's pretty common now.

00:17:13:08 - 00:17:36:12
AJ Lawrence
But we were doing some things that just was like a year or so early. We had developed some ways using some software and some other things to use consumer Wi-Fi and create sort of a mesh mesh like it wasn't mesh those mesh-like before. Once again, stuff that makes no sense now because it just does. But at the time was magic.

00:17:37:04 - 00:17:58:06
AJ Lawrence
We thought everyone would want to be able to go sit in the local cafe and be able to pay X dollars per month because Wi-Fi didn't have network, you know, Wi-Fi except for like two in the halls. New York City at the time didn't have that, so we thought it would be so cool if we just blanketed neighborhoods with this.

00:17:58:13 - 00:18:23:18
AJ Lawrence
And even at home you could just log in. Well, we learned literally within a month that landlords were not going to give us anything except for super expensive real estate for putting our TV boxes. We thought, oh, we had these boxes that just needed a plug. We thought, oh, we could get it for a fraction of the cell tower antennas they had on their face.

00:18:24:15 - 00:18:50:18
AJ Lawrence
And we could have everyone wanted the same exact thing because they were making so much money from them. So we were like, All right, we try this. It's going to blow up this vendor, though we had shown them the software they had been playing with it. We'd even let them set up their own network using our software and their stuff, and they were like, you know, yeah, there may be something there.

00:18:52:09 - 00:19:15:00
AJ Lawrence
So that come that literally came because we said we were going to shut down and they were like, you know, we like this. How about we can we take this? Can we use it? Can we? And it was then my friend, my friend basically said, well, you know, he knew other developers who had given away access to software.

00:19:15:00 - 00:19:31:01
AJ Lawrence
And so he wanted some rights or he wanted to be paid for the overall rights or the software usage. Thank God, he had friends. So they and we thought it was amazing. We're like, All right, we'll give you $1,000,000 cash. And we were like.

00:19:32:11 - 00:19:37:01
Todd Sullivan
That's quite a negotiation, AJ.

00:19:38:18 - 00:20:12:10
AJ Lawrence
Literally, it's like in I yeah, what we found was they were in talks to be bought for about 20 million. They were a few million dollar hardware vendor. They had started pitching their software. That vendor turned around that bought them, built it up, put a money in, made it more enterprise and they turned around to 3Com that then turned around and eventually that was one of the campus enterprise software for access is a big deal.

00:20:12:16 - 00:20:28:12
AJ Lawrence
It just didn't exist. It literally was my friend thinking how cool it would be to be able to control multiple Wi-Fi points from that. And if people were thinking that it could be done, he just did it first.

00:20:28:12 - 00:20:50:02
Todd Sullivan
All right. So. So, all right. So these guys, you let them know that you're essentially shutting down because the business side isn't isn't working. And they throw out a number of one million dollars. Does that strike you, as, you know, a little strange, like, wait, do we have, you know, a piece of gold under this pile of mud? Like, do they see something we don't?

00:20:50:07 - 00:20:59:20
Todd Sullivan
What did you think about it? Do you think about shopping it or getting advice of how to negotiate that contract? Or were you saying, don't lift it, don't look a gift horse in the mouth and just take the money?

00:21:00:10 - 00:21:32:23
AJ Lawrence
Yeah. And I had worked with my friend in agencies previously and we had been very detailed and very structured and all this. But at the time we were just like, Oh my God, someone's going to give us money. And we had come out of the dotcom. Both of us had been paper millionaires on working for agencies, you know, all this stuff.

00:21:32:23 - 00:22:14:19
AJ Lawrence
And neither one of us had been able to exit our positions in any way when the crunch came so quickly. Just suicide day one. We have $3.5 million in options. Day five, $0.25 that period, that weird spring of 2000. And that was even before 911. Then came the next year and just completely decimated the industry. So when that happened, when they came to us, both of us were literally looking for exits out of tech like we were doing tech and digital marketing and digital stuff pretty much because it was what little way we thought we could get money.

00:22:14:19 - 00:22:44:05
AJ Lawrence
And he was going to become a professor. I was looking at not for profits. It was like, This is just a way out. Hindsight, that lovely word. Yes, someone had this excitement. This was something that if we had put any effort into understanding that what we were selling, we would have seen that there was a lot of, even at the time, open source discussion around this type of stuff.

00:22:44:05 - 00:23:16:09
AJ Lawrence
There was, you know what, you know, online discussions were very, very different. You know, even in 2001, 2002 compared to even ten years ago. But there was enough chatter around this type of effort that if we had put the thought process in but we had looked at this as we were trying to do a paid Wi-Fi network, and we even had these crazy grandiose Amtrak partnership discussions already going on all this stuff.

00:23:16:23 - 00:23:29:14
AJ Lawrence
And we thought we had failed at the business we were doing and we hadn't given ourselves that opportunity to pivot and reevaluate the values we had created.

00:23:30:07 - 00:23:52:16
Todd Sullivan
You can look back right, and try to reevaluate it, and that maybe that's not particularly fair, right? You were given an opportunity to have it sounds like a real professional outcome for your friend as well, not just a financial outcome. Yeah, positive financial outcome for the two of you. So yeah, congratulations on getting that done. It just it reminds me of one of my exits.

00:23:52:16 - 00:24:28:22
Todd Sullivan
It was our first one where we were approached and, you know, the product was actually very successful and the acquirer was the main licensor of the technology. And for us, if we had just known that they were about to sell an enormous division of a multibillion dollar company, it would have allowed us to hold out. Right. And so it sounds similar in that once you guys were acquired, they now had the little wrapper around the software that drove value for them, and they were able to package that and sell it.

00:24:29:09 - 00:24:46:09
Todd Sullivan
And so it's maybe it's not that the million dollar number could have gone up, but maybe if if you knew some of that information, you might say, Oh, wow, I want to be part of that ride. And maybe there's that kind of second bite of the apple. And again, I really I'm not picking on what could have been done better.

00:24:46:09 - 00:25:05:04
Todd Sullivan
It's just for our fellow founders. You know, you really do need to step back and evaluate what is a value here, why are they offering this on a company that we seemingly think is a failure? So it's an incredible story right now. Your partner works at Cisco, right? So they have taken that career step by step by step.

00:25:05:13 - 00:25:29:18
AJ Lawrence
Well, he kind of came back after having gone to other consulting and then literally becoming a professor. Now working and leading up a good portion of the security structure behind that. So it is really funny just, yeah, how it went, But I think, you know, and I know this jumps the gun a little bit because you wanted me to say what is the biggest thing I've learned?

00:25:29:18 - 00:25:52:03
AJ Lawrence
And this is the hardest thing because the way a lot of conversation around how to define your “why” I think most interesting or not all and this is why I get so fascinated by having so many, but I know like myself, many entrepreneurs do this because we're trying to figure out a way to make a living or to do something or not to work for the man.

00:25:52:14 - 00:26:18:19
AJ Lawrence
If we're doing it in reaction, very, you know, even the most impressive companies, I think a lot of times start because they don't want to do X, so they try to find an a “why” to do. Now that's all nice and good, but when you don't have a deeper “why”, you are doing something beyond just not to do something.

00:26:19:19 - 00:27:01:06
AJ Lawrence
You end up being more reactive than a company that is built, or at least an entrepreneur who builds their their reason around the why. Now I get very frustrated, or definitely from my past and even to this day, so much of the conversation and around “why” and this is touchy feely. It's Oh, you do this, you sit there, you write a paragraph or you pay a consultant a bunch of money and then what I learned a lot to get to that way is, look, it's just a lot of directional, incremental work over a period of time.

00:27:01:23 - 00:27:36:22
AJ Lawrence
It doesn't matter where you start with the “why”, as long as you continuously refine and directionally move it, you will get a better result. And that's what so impressed me by talking with so many entrepreneurialism that to be able to get to a good exit, you really need to start with the “why” you're even doing this business and that puts you in the position to then understand, oh, maybe there's value, it gives you more flexibility situations, you know, like you were saying.

00:27:37:04 - 00:27:42:13
AJ Lawrence
So they were about to sell. Someone came and just made something that was way too good.

00:27:43:14 - 00:28:05:03
Todd Sullivan
Yeah, you know, I love that topic. I mean, we continue to a hit on it in that it it's is as entrepreneurs I like the the way you put it it's reactive instead of potentially being active if you have your “why” right, the purpose of what you're doing then you do get more active in what you are trying to do.

00:28:05:03 - 00:28:28:22
Todd Sullivan
And I think you constantly have to go back and say, you know what I mean? Am I being true to my vision. My, my. Why? Because I think a lot of times as founders, we can deviate because we start chasing money, right? Oh, wait, I can make a bunch of money over there and that lets let's me make payroll this month or you know, somebody else convinces you that a different division of the business could be much more lucrative.

00:28:29:05 - 00:28:53:00
Todd Sullivan
But I think we find success by following what is really true to our mission. And establishing that mission is really tough. But as an entrepreneur, I think some of us that have had previous successes have the luxury of starting from that “why” position as opposed to I need to make money today, right? Because I'm essentially unhirable I need to figure out how to make money.

00:28:53:05 - 00:29:17:00
Todd Sullivan
So it's a fascinating subject and I love your podcast for that reason, allowing others who have had successes and failures to chime in and say, How did they get there? What are the lessons that they learned to make progress? And when you can consolidate that, we can make entrepreneurs better. So if you don't mind, I don't want to overlook your last exit.

00:29:17:00 - 00:29:54:18
AJ Lawrence
Gonna just laugh as a quick aside to the why is make sure that you break off the concept of don't focus just on the business. Why but also your entrepreneurial “why” Because as I just was about to fall into it is too easy. And I did with the JAR Group my digital agency, we were focused on strategically developing acquisition channels for our clients, basically paid search media, social SEO stuff, customer acquisition, customer acquisition by very strategic and very data driven, very analytics.

00:29:54:18 - 00:30:23:03
AJ Lawrence
We were doing analytics early, but what I fell into the trap before I tell about the exit is it got to the point where my friends would laugh at me. They would ask me how I was doing and I say, Well, the company just did this or this or that. And I and they would be like, and, you know, I'm like, Oh, yeah, we had a good get, you know, I did not I and there was no differentiation in my head between the JAR and me.

00:30:23:16 - 00:31:18:23
AJ Lawrence
There was one word and there Yeah. Unpacking That is a lot of fun shrink time but it's is just the limiting of that because as things started happening with with the potential of exits of what I was hoping for and all that, everything that got co-mingled and ego and many other things came in. We had been growing so incredibly fast that we had one of our clients started, we had a regional agency and we became tract kind of and I hear it's called different thing, but one of a large hold at a smaller division of a large advertising holding company, basically asked to see our books in exchange for them giving us conflict clients.

00:31:18:23 - 00:31:43:03
AJ Lawrence
So we became a conflict agency. And that's just when a large agency has some big client and a competitor of their big client comes around. They want to take the work, but they can't. So they would hand it off to us and they would get a cut of it. But in also an exchange, they got to see our books and decide if they were going to buy us. Another fun lesson I learned after the fact.

00:31:43:03 - 00:32:04:06
AJ Lawrence
Oh, this is typical agency, this is how it works. And I'm like, okay, so you gave everything away. Just the things you don't have to do. In hindsight, I thought, you know, I have this goal, you know, pick a number. I knew some of the things I had learned. What's the great book?

00:32:04:06 - 00:32:28:08
AJ Lawrence
Unfortunately, I only read afterwards, which was Build to Sell. Some of that was around some of the comments and some of the learnings were kind of discussed, but they were usually focused on much larger business. We were in that million and and I did not realize the difference between SDE at the time. So we were probably a couple of million.

00:32:28:08 - 00:33:06:18
AJ Lawrence
SDE but we were being held around or were being discussed at that just below 1 million EBIDTA, You know, because of all the other expenses and ego and software and all those other fun things I was trying to build that same time. All was going well and I thought I was on that lovely eight figure exit path within some time of the discussions when I allowed the concentration of my client total to really increase to the point where my whale was a significant part of my business.

00:33:06:18 - 00:33:31:11
AJ Lawrence
But even more importantly, they were funding the capabilities of a lot of my other clients. So like the higher end services as I was trying to become more strategic and higher up, there was this hierarchy of agency capabilities and I was on this growth path in my head to become a super strategic agency. That's a technical term, super strategic.

00:33:32:00 - 00:34:11:09
AJ Lawrence
But I lost the well, lost a significant amount of business, had to restructure the company and got rid of a lot of high end people, lost a lot of the almost immediately the strategic interest restructured a much more tactical capability focus and sort of slowly regrew but lost my passion completely. I was burnt. I was this and it was just that we had had one very, very profitable business unit that was over profitable right from the beginning.

00:34:11:22 - 00:34:36:10
AJ Lawrence
And the team that was involved in it, I had been giving profit sharing and was going to get a piece of the exit. They got very frustrated when they felt I had lost track of the by then, like, you know, they had started having visions of their piece of the exit on the strategic capability. So they came to me with an offer to buy it.

00:34:36:10 - 00:35:03:05
AJ Lawrence
They had some one of the private equity folks that had been part of the other deal for a private overall private, one of the individuals was help with had started a conversation, friendship with them was going to help them. And I felt like I didn't have a choice at the time. It was either loses completely because they just walk and then try and sue them for it.

00:35:04:01 - 00:35:42:11
AJ Lawrence
I got very, very lucky in that because I was burnt and I was going to be willing to just toss in the keys because they were also not as sophisticated. They offered me what felt like a really bad, you know, a long term earnout, but with, you know, percentage of stuff. The great thing was because they were so dedicated to the capability, I ended up making so much more than really what like that one point they had made me an offer that I was going to accept that was just below seven years.

00:35:43:05 - 00:36:14:18
AJ Lawrence
But because I kind of hesitated and I didn't take what they felt, I'd been a really nice go, they their counter was what they thought was a worse. It was is earnout. And we kind of fell into that in negotiations. But because we the way it got structured, I just got lucky that they ended up making so much more money once they removed it from everything and it didn't, I just got like I said, I just got lucky in that.

00:36:15:02 - 00:36:28:12
AJ Lawrence
But it was not if it took a year for me to realize how lucky, because for the first year I just felt I had been knifed in the back. I can.

00:36:28:12 - 00:37:03:05
Todd Sullivan
Let's jump back because you mentioned SDE and EBITA, right? So. SD For our listeners, I'm sure many people know is “seller discretionary earnings”, right? And both of those terms, SDE and EBITA are really measures of cash flow in order to value a business. And the really the difference with the SD is that you are adding back the CEO or owners salary and you're presuming that those companies are bought by other single owners, right.

00:37:03:07 - 00:37:37:00
Todd Sullivan
Who are going to go and run that business so that free cash flow becomes potentially their salary. And whereas larger businesses, you don't necessarily add that that owner salary back there has to be a president or a manager of that business. They might right size that salary. But I think it's an important discussion and element to share with our founders because that common SDE and I didn't know what that was five years ago and people throw out these acronyms right and just so so those are the definitions and maybe we'll put something in the in the show notes that give you a little bit more.

00:37:37:05 - 00:38:11:14
Todd Sullivan
What's interesting on your cash versus earnout. Right. What I'm really hearing is you're doing a lot of this on your own. You're in your three companies. You have built value that a strategic partner has seen value in. And the struggle has been right. Like, okay, how do we come together on not just a purchase prices, but what a structure should look like for your for your for these acquisitions and so you're saying that you got lucky because you fell into an earnout as opposed to taking a low cash offer?

00:38:11:21 - 00:38:36:14
Todd Sullivan
And I would just encourage people, when you have the right representation, right, you have somebody in that investment banker seat or M&A advisor seat who knows your acquirer really, really well. They know that, oh, on your second exit, they're going to sell again, right? They're positioning to go to market. They've had inbound interest. We have this card to play that gets you the terms or the price that you want.

00:38:36:20 - 00:38:54:18
Todd Sullivan
You know, in your in your last one, there was clearly a division that was making a lot of money for you and it was valuable for somebody else. And you may have fallen into that earnout, but it's not just that you accept an earnout out those levers of value that are being created on the other side. You've got to have some control over.

00:38:54:18 - 00:39:15:00
Todd Sullivan
You can't just trust that they're going to drive that value without you. So whether you got lucky or not, I commend you for being able to put this all together yourself. I would just say, you know, it's it's it's not for the faint of heart. I wish you had somebody by your side that did this day in, day in and day out and knew the acquirers.

00:39:15:00 - 00:39:46:17
AJ Lawrence
And this is where. Yeah, we just use you as an example. You know exit was there was the beginning since this is about ten years ago there was the beginning of investment bankers coming down the niche, you know, in agencies and stuff but yeah, in multiple ones. But at the time there was still this sort of like we don't talk to companies not making 10 million, we don't talk to ones that are making a couple of million or, you know, the EBIDTA.

00:39:46:17 - 00:40:34:23
AJ Lawrence
Yes. If there was any type of confusion. Now, I think I've had some interesting discussions around micro-PE. You know, there is a wealth of information and I believe there is a wealth of offer to unity on a business concept. So I think the idea that when you are building something now and you realize you may not be trying to get or you may not be going to your big picture, you be have, you can still look at your assets and look what you have and see if there are components that can be monetized, or valued at different pieces, and that gives you so much more flexibility about how you plan, you know, because you can

00:40:34:23 - 00:40:52:20
AJ Lawrence
talk to Exitwise and get a better understanding where back in the day, you know, they didn't want to talk to you unless, one, you were going to pay them a huge amount of money or two, you were so big they knew they can make a huge amount of money. That has changed so much in just ten years.

00:40:52:20 - 00:40:53:17
AJ Lawrence
Yeah.

00:40:53:17 - 00:41:23:18
Todd Sullivan
So I'm very encouraged with what's happening today, how the M&A market is evolved, because if you have a small business or frankly, a product that's going to sell for under a million bucks, there are great places now that you can post that and and hope that buyers will see and value. If you have a business where you're experiencing inbound interest, a strategic partner or whoever is interested in buying your business, there is now really a way to access great talent that can help you evaluate that opportunity.

00:41:24:01 - 00:41:52:17
Todd Sullivan
Right? I think that the business broker world and the M&A advisor world world has really kind of stepped up its game and the investment banking world with inbound interest, knowing that a buyer actually is there, they can bring that level of hundred million dollar expertise down below 10 million bucks to close deals. And frankly, we've done those and we've had these absolute homeruns, Grand slam home runs, particularly in the earnout situations that you described.

00:41:53:00 - 00:42:11:22
Todd Sullivan
And it's such a good feeling to to turn what could be, you know, a nice little win for a founder to generational wealth. So, yeah, I appreciate you sharing all of that. I'd love to jump to the decision for you. You sell that last business and now you're looking for maybe your next thing, you're not going to sit on the sidelines.

00:42:11:22 - 00:42:25:07
Todd Sullivan
You're still a young guy and you go out and buy a podcast that you are clearly excited about the content and you see it, that it's it's slowing down or shutting down and. You want a piece? Can you tell me why and then how you did that?

00:42:25:17 - 00:42:57:05
AJ Lawrence
Okay. So right around the time, right before COVID, I had been doing some factual CMO. So I'm on the board of a couple of companies advisor to a bunch more, and I was realize I had been falling into the trap of like, okay, I'm just selling my time. You know, it was fun. This I got to play. I had very little responsibility other than to sound intelligent every once in a while when I was like, All right, let's build something new.

00:42:57:05 - 00:43:33:23
AJ Lawrence
I wasn't going to build a new agency, but I was thinking, you know, products & services were getting hot all this. So one of the things we talked about doing to build up was to start a podcast. I started talking to one of my business groups. I'm in Dynamite Circle. They started talking with some of the people and one guy who was doing podcast production or early because he was still trying to figure it out himself, was saying, Well, you know, we had talked about the cost for about a year we realized was going to be about $20k, give or take.

00:43:34:01 - 00:43:57:20
AJ Lawrence
That was I heard, he said, but I did hear this guy is selling a podcast that already talks to because I said I wanted to target high six low seven figure entrepreneurs on their journey. Yeah. And he said, well, I do know this one guy who is selling and he pretty much talks to people who want to build businesses beyond figures.

00:43:58:06 - 00:44:19:04
AJ Lawrence
We had a couple of talks and just for the fun, the seller was like, you know, I always wanted to own some Bitcoin and I was like, Done, yeah, I like because it was like it was only 10K at the time. And then it like by the time we finished the deal was like 30K before dropping again.

00:44:19:09 - 00:44:49:21
AJ Lawrence
So it was like, okay, that was simple. There was some craziness in the transaction, not from him. Seller was great, but from our partner doing some of the things I knew from website, but like holding assets or not transferring assets or putting assets in their name during the transfer period. So it was like, okay, the stupid things you learn from that, they got a smaller, but it was more just to start building an audience during that period, an audience and sell a service during that period.

00:44:50:04 - 00:45:13:10
AJ Lawrence
I really got into Walker Deibel’s, “Buy Then Build” and it was like a book I had literally just been carrying around on various trips saying I was going to read on the trip for like a year and a half. And like I finally did one day, just I, I remember I was at one of those cross trainers and was like, okay, let me just out.

00:45:13:11 - 00:45:38:10
AJ Lawrence
And I was like, did not stop reading for about 4 hours. And it just made so much logical sense. I had actually hired a few smaller teams during the growth of jargon at the agency I had and had so much value from that during the time that it made logical sense. So I started figuring out if I was going to acquire and what it was going to be.

00:45:38:10 - 00:46:05:04
AJ Lawrence
It got into the whole, you know, took a while, but learned about the SBA loans and all of that. The ability to get government funding here in the US, not funding, but at least get backing on loans to acquire a company. Sure. And from there, so that all happened. It was like, okay, this is cool to buy. Oh my God, there's a whole world around this.

00:46:05:20 - 00:46:20:19
AJ Lawrence
And as I talked a little bit on the podcast, that world is so much bigger than what I understood it to be just ten years ago of buying and selling of assets, business assets.

00:46:20:19 - 00:46:48:07
Todd Sullivan
Yeah, yeah, yeah. It's incredible that kind of burgeoning entrepreneurial class via acquisition, right? That there's so many ways now and structures to go out and buy small businesses, the whole of search fund industry is is remarkable. Super competitive, really hard to find good businesses to buy. But yeah, something that we watch really, really closely because frankly we can sell to independent sponsors or we can help our founders sell.

00:46:48:16 - 00:47:18:23
Todd Sullivan
So evaluating those guys, it's a it's own game and it's not an easy thing to do. Yeah, So A.J., this is this has been fantastic. Let let's try to finish up with maybe two things. One, what is the most important thing that you've learned not just through your entrepreneurial career, but the access that you have to our fellow founders through your podcast that you can share with our listeners that could be, you know, impactful as they're looking to build something that they could sell someday.

00:47:19:21 - 00:47:52:12
AJ Lawrence
One of the things I have learned so much is that a lot of successful entrepreneurs will talk about sort of, well, of course this happened or this or that, but when you truly sit and break down and there's no magic sauce other than a deliberate approach to an ongoing effort, that incremental progress to actually craft. It's the time you know, I've heard it called putting in the reps.

00:47:52:23 - 00:48:43:18
AJ Lawrence
Yeah. Or the overnight success it takes ten years in the making. Yeah it. Is that like there will be a gazillion stories about the person who puts a piece of code up and then the next day is offered $1,000,000,000. God bless them. I hope the best for them. For the vast majority, 99.999% of us. The only real path to any type of success is putting in the work over a long period of time and staying focused directionally on the opportunity That's I think that deliberateness is really the key because, yes, having a big “why”, having a mission, doing all these big things that people talk about is great in all of that, but none

00:48:43:18 - 00:49:16:22
AJ Lawrence
of us can do it from day one. It is incremental, it is iterative and is consistent. Finding the structures that work for you. There are EOS,there's Scaling Up, there's OKRs, there's a gazillion how to do things, but finding out whatever it is to make that work for you is the way to get the success. To then be able to have really good conversations with people like Todd and Exitwise.

00:49:17:00 - 00:49:50:01
AJ Lawrence
I said, Man, this isn't it's like, Thanks, I want to be in a position of strength or at least a position of comfort. When you do think to exit, because as I can, it's a very teeny violin I get to play. But it was not none of my experiences were positive in the experience. It was only positive in hindsight and time and the realization of what luck I did have in having them.

00:49:50:13 - 00:49:57:15
AJ Lawrence
But I would much prefer in future efforts to be in a position where I am controlling my destiny.

00:49:58:17 - 00:50:16:12
Todd Sullivan
A.J., I think that's great advice. Right, you can start with the why. So you have the passion and and really the ability to give that 110% every single day because it really moves you what you're doing. But you got to execute on a process day in and day out. And I love it. We hear it over and over and over.

00:50:16:12 - 00:50:38:07
Todd Sullivan
Yeah, we are an overnight success five years later, right? Because they executed and they stayed focused. That is awesome day in and day out. It's great, great advice. You know, listen, I love Beyond Eight Figures as a podcast. I think you're giving so much back probably more than you even know. And I really encourage people to go and listen to that.

00:50:38:14 - 00:50:47:18
Todd Sullivan
Can you just finish up with one last question? Is there anyone that you would like to thank that really contributed to your personal and professional success so far?

00:50:48:15 - 00:51:12:05
AJ Lawrence
Wow, this is so funny because I just saw this just the meme around the Snoop Dogg. It's the people around the people who've been around me. It's like my brother who has been part, part and parcel of so many different businesses. Yeah, my spouse, my children. It's then like the friends have had both for a long or just just over the years.

00:51:12:17 - 00:51:59:11
AJ Lawrence
So rather than one specific person, I do think it is the people around you. For me it is the amount of people who have heard me go, you know, and the amount of people that are okay, Your Honor is kind of not that or, you know, in the picture. It's a skill for me and being able to have people around you who whoever they are, who will listen to your situation and will be able to understand it, I think has made so much more of a difference as I've been able to move past the things I've done and try and do new things moving forward.

00:51:59:11 - 00:52:09:10
AJ Lawrence
So sorry if I sidestepped it without giving a specific person, but it's a perfect. It is exactly The people you are around you are so much important.

00:52:10:03 - 00:52:28:19
Todd Sullivan
AJ It's perfect, right? It's it's you're thinking your personal community and I think it is so valuable and necessary for founders who are going to go start a business to know that they have people to lean on, people that understand what they're doing, and even those that don't understand but are going to be there emotionally to support us.

00:52:29:08 - 00:52:51:19
Todd Sullivan
Starting that business, growing that business, the mountains we climb the valleys, you fall into it. Having that support system is incredible. And I even bring that to the exit, that exit process, it is never, ever easy. You're talking about six months to a year to sell a business. And so we really encourage our founders to have that support system around them.

00:52:51:19 - 00:53:10:07
Todd Sullivan
Some close family members, because it is a little bit more of a private process to sell a business, but you need that emotional support. So really, thank you. AJ This has been awesome. I've learned a ton and I will continue to learn from your podcast. Thank you so much for being here. Thanks again for listening to the Cashing Out podcast.

00:53:10:13 - 00:53:31:15
Todd Sullivan
For more Founder exits stories, please subscribe to the Cashing Out podcast on Apple, iTunes, Spotify, or wherever you listen to your favorite podcasts. And please remember to exit Whiskey and the Cashing Out podcast are for entertainment purposes only. This should not be relied upon as the basis for investment decisions.