In this episode, Stephan Spencer details three strategies he pursued to withdraw from his business’s day-to-day operations. By 2010, he was able to take a six-month sabbatical which ultimately lead to a sale in 2010 with only a six-month earnout.
Stephan Spencer went to sell his consulting business in the late 1990s but buyers all wanted him to sign up for a long, painful, and risky earnout. Keen for a clean exit, Spencer took the business off the market and set out to make it less dependent on him personally. In the episode, he details the three unique strategies he pursued for withdrawing from the day-to-day operations of his business. By 2010, Spencer had the business running so independently that at one point he was able to take a six-month sabbatical. That’s when he knew he could sell without such a lengthy earnout. Ultimately, Spencer sold his business to Covario in 2010 for a combination of cash, stock and a six-month earnout—an earnout so short it’s almost unheard of for a marketing services business sale.
Spencer was able to make a clean break from his company because he had transitioned from being a “Hub & Spoke” manager to being what we call an “Apple Picker”. To find out where you sit on this continuum, get your Value Builder Score now. This will rate your business for its dependency on you, as well as the other seven drivers of company value.
About Stephan Spencer
Stephan is an internationally recognized SEO expert and bestselling author. He is the co-author of The Art of SEO and Social eCommerce, author of Google Power Search, and the inventor of the GravityStream SEO technology.
Stephan founded Netconcepts in 1995 and grew it into a multinational SEO agency before selling it to Covario in 2010. He now works as a much sought-after SEO and digital strategy consultant. His past clients include Zappos, Sony Store, Quiksilver, Bed Bath & Beyond, and Chanel.
Stephan has spoken at hundreds of marketing events, including SES, SMX, PubCon, Internet Retailer, and Shop.org, and he’s been a contributor to the Huffington Post, Multichannel Merchant, Practical Ecommerce, Search Engine Land, and DM News.
Stephan is the creator of Traffic Control, a three-day SEO seminar, and co-creator of the three-day professional development seminar Passions into Profits with Kris Jones. He hosts two podcasts, The Optimized Geek and Marketing Speak.
Some Highlights of the Show
2:45: Started Netconcepts in 1995
4:40: “Gravity Stream was essentially software as a service, running on our servers and fixing the inherent problems with our clients websites.”
6:05: “Charge per click on a performance basis, so it was a no brainer.”
6:30: “The majority of our revenue was driven through [Gravity Stream, the software], even though we hung out our shingle as an SEO consulting firm.”
8:00: The work around that lead to the first Gravity Stream customer.
9:55: “In the late 90s we had around 12 staff… but then I had this desire to move to New Zealand.”
10:30: “We moved in late 1999. All of our clients were U.S. based and they had no idea.”
11:26: “We actually maintained our clients in the U.S. but we were able to grow them pretty significantly because with the favourable exchange rate I was able to hire top, top talent.
12:20: Moving back to the states to prepare to sell the business in 2007.
12:30: “We were well over $5M a year in revenue.
13:08: The triggering event.
14:35: “I didn’t have a fire under my but to sell…if I didn’t get the right price I wasn’t going to sell.”
15:23: A six month sabbatical.
16:15: Back in the late 90s, when I was looking at selling… my personal name and my company name were too intermingled. If I didn’t go with the business, nobody was going to buy it.”
17:00: How Stephan Spencer made his business less dependent on him.
17:26: “I hired a CEO…. brought on a General Manager… not only did this free me up mentally and brought more joy back into my life… but also made it more scalable and sellable.
18:28: “Now, I was still the thought leader, so, that was an issue. You have to develop other thought leaders in the company. I encouraged key staff, various executives and top consultants within the company to speak and write articles… I introduced them to the editors.”
19:20: If you don’t actively develop your staff…at the same time your building your revenue base you are stymying your growth and making it harder to sell.”
19:50: “We added more governance, created a Board of Directors which ultimately lead to my disengagement with the business.”
20:15: “I lost control of my business which was a painful lesson.”
21:50: Becoming a minority share holder.
22:45: “It was great that we did have several potential buyers at the time competing with each other.”
22:54: “That’s another key thing. Don’t just have one potential buyer and be very subtle about how you let the other buyer no that there is another buyer also courting you.”
23:05: The earnout
23:50: “When the divorce happened… we [knew] it was definitely time to sell.”
24:31: The sales process and the interim CEO.
24:51: “We figured we needed someone who had experience dealing with the VC world.”
25:48: “We [negotiated with the buyers] directly. Which, in retrospect was not the smartest move. We didn’t get the best deal that we could have.”
26:26: An interim CEOs salary.
27:00: “I think it is really crass to try and pit two suitors against each other in an overall aggressive way. We were subtle about it and I think it worked very much to our favour.”
27:39: The acquirer
28:27: “I was not interested in having a job and those golden handcuffs for even a year, six to eight months was my max.”
28:58: Getting the earn out down to 8 months.
29:57: “This was another lesson. Have the two business entities [legal structure be] compatible with each other.”
30:11: “They were a corporation and we were an LLC and oh, what a mess! We got taxed to an extreme because of that discrepancy between the two business types.”
31:00: The acquirer gets acquired.
35:00: The Art of SEO | Social eCommerce | Google Power Search |
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