Transcript – Startup to Exit in 18 Months
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John Warrillow: How long do you think it takes to build a sellable company? How about nine months? My next guest, Drew Kraemer, spent just nine months building his company with his two partners, Marketplace Strategy, before they received their first inbound offer to buy it. I’ll let Drew explain what they did but lots of good things here to listen for. Listen to how they focused on doing one thing. We call it monopoly control at Value Builder but it’s really one thing that you’re going to do better than anybody else in the world, and listen to how he turned down other work and the opportunity cost associated with doing that.
John Warrillow: He also outlined his strategic scorecard the way he thought his company would be attractive to potential acquirers. Lots of things there that we look at in the Value Builder score as well. Listen to the way they did a normalization process to beef up their display EBITDA in advance of going to sale and also the definition of a BATNA and how Drew and his partners used a BATNA to get a good deal in getting acquired by SocialCode. Here to tell you the rest of the story is Drew Kraemer. Drew Kraemer, welcome to Built to Sell Radio.
Drew Kraemer: Thanks for having me.
John Warrillow: Good to have you on the show. Marketplace Strategy, you guys helped people who were selling on Amazon and I guess now Walmart Jet, promote their online stores on those marketplaces. Am I getting that generally right?
Drew Kraemer: That’s correct. We work with midsize to fortune 50 companies and really helping those brands transition into a digital commerce era led by Amazon.com certainly and helping them shape strategy and execute marketing plans to grow their sales and market share on Amazon.
John Warrillow: I’m going to date myself but I go back to the days when Amazon was a book retailer. They sold books and then they sold other stuff, in particular Prime, Amazon Prime stuff and when I search Amazon, I don’t know if this is similar to anybody else but I just look at Prime stuff because I want it the next day. There’s other retailers though that use that platform. For people that don’t get the Amazon ecosystem, maybe you can, in layman’s terms, explain how it works.
Drew Kraemer: Absolutely. You really have generally two ways that a seller can engage with Amazon platform. One is as a vendor and that’s using Amazon as a traditional retail outlet, where you’re wholesaling products into Amazon and you’re eligible for Prime and then Amazon is essentially selling your product. Then there’s Seller Central, which is a way that you essentially sell by consignment and this can be anywhere from a brand can do this but in that space, you mostly get retailers that buy and sell products and they’re using Amazon as a platform to reach more customers. Generally, there’s two ways you can sell on the platform.
John Warrillow: In your case, which did you help brands do?
Drew Kraemer: We really targeted, since we started Marketplace Strategy, brands and manufacturers selling as vendors. When we started, about 95 percent of our clients were selling as a vendor on Vendor Central. Since then, some of them have move to a hybrid approach where they’re doing a little bit of both. It’s down to about 65 percent but still primarily who we work with are brands and manufacturers. They’re often looking a Amazon as their way into really making a meaningful impact on their business with eCommerce to offset anything that’s happening offline.
John Warrillow: Got it. That’s helpful. How did you get into this space?
Drew Kraemer: The story starts with myself and two partners, we were at a full service digital agency, really helping brands and manufacturers develop their own eCommerce websites and also helping them create a one-to-one relationship through social media where they can connect with customers directly like never before.
Drew Kraemer: This was probably back in 2013/2014. We started to get a lot of questions on Amazon and we noticed two things. We noticed one was a lot of our clients were very interested in understanding, how can they leverage this platform and they were looking for expertise on the platform, they weren’t finding it anywhere. Nobody was in position to help these brands. The other thing that we noticed was Amazon was now showing up where we would essentially acquire customers, which at the time was primarily Google. We were essentially competing with our client against ourselves.
John Warrillow: Right because Amazon, isn’t it the world’s second largest search engine behind Google?
Drew Kraemer: It is and it’s actually the largest product search engine. Right now, 55 percent of all product searches on the Internet go through Amazon.
John Warrillow: That’s crazy. How’d you like to be the guys at Bing? How’d you like to be the guys at Bing? There’s Amazon not even in the space and they’re the second largest search.
Drew Kraemer: Yeah, it would be tough. I mean Amazon has done such a good job and I think when you look at their Prime program, you mentioned what they’ve done with customer loyalty, of those 55 percent product searches, 92 percent lead to a purchase. You’re talking about a significant consumer segment that is going to Amazon to buy anything they need.
John Warrillow: I’m working on a new book and I was just doing some research about Jeff Bezos. He started the thing in 1994. He’s now worth, as I record this, something like $165 billion. I was kind of doing the math. Of course, he’s going to be worth like $80 billion after he gets divorced. How does that work?
Drew Kraemer: Yeah, he’s certainly done well for himself, that’s for sure.
John Warrillow: Let’s get back to Marketplace Strategy. You guys see this niche, you’re at a digital agency and the three of you guys decide to start a company that would do just this, not be a general full service digital agency but just help brands with Amazon. Is that right?
Drew Kraemer: That’s right. I mean our business strategy from the beginning has been, we felt like the industry was moving and when we talked to CMOs and potential clients, they want true experts and the knock against a lot of agencies, they’ll take on a lot of different work. At the time, we were doing full service, we were working across search and email and social and what we set out to do is say, we want to build an organization that has deep expertise in one thing. We want to be the best in the world at it and that’s what we’re going to focus on.
John Warrillow: Drew, commendable for sure and something that is so inline with what we talk about at Value Builder. We talk about this thing called monopoly control, which is doing one thing better than anybody else. The pushback we sometimes get, in particular from service companies, is, “Yeah, but I’ve got clients coming to me for other stuff.” Did you guys ever experience there? When you want to put your shingle on … and said, “Look, we can help you with Amazon,” did you get people coming to you saying, “Yeah, I get the Amazon thing but can you help me with SEM or SEO?” Or other digital type services?
Drew Kraemer: This does happen all the time. Our clients come to us and they say, “Well, can you help us with eCommerce? At either my own website or on social.” What we tell them is, and we’ve been very disciplined in not taking on that work. For us, it was just to evaluate what the opportunity costs are with taking that on. Yes, it would be great to take on all that work in the short term but did we think there was a big enough opportunity with what we were focused on? Certainly with Amazon and the growth that they’re experiencing, we always felt like it was worth turning that business down.
Drew Kraemer: Now, I think the other thing that I hear sometimes is, “What if your client goes to another organization that does what you do?” What we tried to do is set up a little network of trusted agencies that we can then bring in in those situations. We knew our client was going to get good work done but we also minimized the risk for us and I’m going off to a full service shop.
John Warrillow: Did you get rebates back or referral fees when you sent work out to one of those partners?
Drew Kraemer: No, we really didn’t. Our whole approach to that was really to keep it having a high degree of integrity. Our discussions were around, how can you reciprocate some referrals back to us to help our business? We left it at that.
John Warrillow: Makes sense. The three of you guys start this business, I’d be curious to know how you divvied up the equity. Was it all for one, one for all, a third, a third, a third? Did some guys put more in? How did you decided who would own what part of the business?
Drew Kraemer: It’s really interesting. I have two wonderful, wonderful partners and we couldn’t have done this without each other. I think when we started the company, we went all in equally on the company. What we did was, it was more about, we thought we could go faster and take advantage of what we felt was a huge tailwind in the industry and a huge skill gap in the marketplace by really talking about, what were the roles and responsibilities and expectations of each other? We’ve felt that if we can get that right, we would be successful and we would be able to move very quickly and we have a high degree of trust.
John Warrillow: When did you guys open for business?
Drew Kraemer: We opened for business January of 2017.
John Warrillow: Wow. Literally, two years. We’re recording this in February 2019. Literally two years. I mean, when you started this business, what was your aspiration? Were you trying to create the new Omnicom, the next Ogilvy and Mather or what was your vision?
Drew Kraemer: What we really wanted to do was we wanted to build a special place for people. One of the things that sticks out to us has always been he data that comes from [inaudible 00:12:09] where it talks about 87 percent of employees in this country are disengaged. To us, we wanted to build an organization where culture came first and it was a great place to work and we create opportunity for people. Secondly was the deep expertise. We felt like that was a good strategy to grow.
Drew Kraemer: Did we want to sell? Did we know that could be an endgame? Absolutely. Was that the sole intention when we set out? It was not. It was to build a great organization to create opportunity for people and really to help clients move and transform their view of their business from maybe traditional and retail to eCommerce.
John Warrillow: Got it, although I have to tell you, I feel a slight degree of skepticism around the great place for people stuff. I don’t know why.
Drew Kraemer: Certainly anybody listening can feel that way. In my experience, having engaged employees and having a great culture leads to business results and typically the people I talk to or the folks that I mentor and talk with, when we can make that connection, and we always felt that we are building an organization where we’re not making widgets. What we provide, the service we provide are our people and our approach and our strategy and creating a good culture attracts great people and we empower great people and that creates a great organization.
John Warrillow: Sorry Drew, did you find it difficult to find people? Because expertise in helping a brand with a juggernaut like Amazon or Walmart Jet, that’s a very specific expertise that you could really hang out your shingle as a freelancer, throw your resume up on Upwork and get lots of business without the safety of an employment arrangement with Marketplace Strategy. Did you find it was difficult to recruit people? How did you do it?
Drew Kraemer: Talent acquisition is still very much a priority for us. What we did when we started MPS is we really created a strategy and an approach to how we’re going to go in. These were based on templates and these were based on extensive study of algorithm … The algorithm for Amazon’s called the A9 algorithm. Extensive study on that to understand where to start, what leverage to pull based on where the client was, how to invest their media dollars and advertising dollars. We actually put together an approach that we used and our first client, I’ve got to tell you, John, the first client we had, we rolled out our full frontal approach and they were doing about 35,000 in monthly sales on the platform and in seven months, they were up over 500 a month. We said, “We’ve got something here. We think this can work, this can scale.”
Drew Kraemer: What we started to do in terms of how that rolls into acquiring great people is we were looking for people that had a lot of experience in digital marketing and eCommerce. Then they were coming with fundamentals that then we can teach our approach and our system to. It became an effort in training and development but what we tried to do is shorten the window of when they would come in to when they were delivering value to the client. We created a lot of those systems and approach together where we can then scale through folks with fundamental digital competencies.
John Warrillow: Before we hit record, we were just riffing a little bit in our conversation and you said one of the key learnings for you was how important it was to start a business with the end in mind. Maybe explore that a little bit. When you started in 2017, did you have a sense of who you would likely get acquired by?
Drew Kraemer: Yeah. One of the things that we felt was a good approach was to look and say, how would a strategic really evaluate us as an organization? We developed a scorecard based on that. It isn’t just for acquisition purposes. It’s also minimizing risk in your business, whether you continue to own it or you sell it.
John Warrillow: What was on your scorecard?
Drew Kraemer: Things like certainly looking at revenue growth. Year over year revenue growth, month over month revenue growth we have to keep track of. EBITDA margins, the normal couple of metrics you would look at. Things like management experience, looking at, what was the experience of the people that were really driving the organization forward? One metric we keep track of on a monthly basis is client concentration. When an acquirer looks at a company, we always felt that when they look at us, if we had 50 to 60 percent of our revenue coming from a single client, that would indicate tremendous risk for a potential acquirer. We wanted to make sure that we always kept that 15 percent or lower as basically the largest we have, what percentage of our revenue comes from that largest client?
Drew Kraemer: Things like billing structure. Are we putting together programs for our clients to engage with us on a project by project basi, where we have to resell our service. Or is it a monthly recurring revenue model where we’re able to execute marketing and advertising programs on an ongoing basis? Building technology, having a proprietary technology to empower our service and help us deliver better service to our correct is something that would be considered proprietary to us and a differentiator in the market. Then finally, the scorecard had the client roster. Understanding what clients could benefit from our service and when you’re looking at what a potential acquirer would look for, it may vary. If you have more small businesses, more mid-sized businesses or enterprise-level clients, an acquirer may look at that differently in understanding what clients you’re going after from a new business perspective, from day one, could ultimately determine who would be in the market to acquire you.
John Warrillow: What triggered the acquisition conversation for you because you guys had just started in January 2017. It must’ve been less than two years in that you started to have conversations with SocialCode. What was the trigger?
Drew Kraemer: We started to get some interest in late 2017, early 2018 and we had been in business for a year. When we-
John Warrillow: What was your reaction to that, out of interest? You’re a year in. The ink hasn’t even dried in the business cards yet and you’re getting acquisition offers.
Drew Kraemer: It was quick. It was a little surprising to us and then over the next couple of months early in 2018, the interest started to escalate. We started to get who are major players in our space interested in what we were doing. We kind of knew-
John Warrillow: How did you know they were interested, Drew? What sorts of things did they say or do that led you to believe they were interested in acquiring you?
Drew Kraemer: Some would reach out directly and be very blunt. They’re looking for an acquisition in the space and, “We’d like to talk to you about MPS.” Others would more, kick the tires and reach out and talk. They’d want to jump on a call or meet and just talk overview of what we’re doing. They all take a little bit of a different approach.
Drew Kraemer: The thing for us that we learned very quickly was the types of companies that were reaching out were really who ultimately, we would be excited about potentially partnering with. That kind of led us down a path to say, “Listen …” We weren’t sure we wanted to sell at the time but we knew that we would, as interest really escalated, we want to learn. We wanted to really learn and get out there and learn to hear about what an acquisition could potentially look like and what the potential partners’ view is of the landscape and what their vision is. Then ultimately, also trying to learn valuation and saying, is the value I receive from the company, do I think it’s fair? What does the market say?
Drew Kraemer: Those are the types of things that we set off for when we started the process, not necessarily committing to, yes we’re ready to sell the company.
John Warrillow: In those early conversations, what were you hearing around the way companies like yours were being valued in the marketplace?
Drew Kraemer: It was kind of all over the place. One of the things that worked against us was just the track record. We’re talking 12 to 18 months at the time. We couldn’t go back and look five years. That inherently brings some risk in the conversation. What we would generally hear is, there’s a value of multiple of EBITDA, there would be a structure where it would look at whether it’s an earn out or structured payments or something to that nature. Overall, it was varied widely depending on who we were talking to.
John Warrillow: What sorts of multiples of EBITDA are we talking? The broad range that you would’ve heard during those conversations?
Drew Kraemer: We heard anywhere from, just in terms of our own research and I can’t get into specifics in terms of our deal unfortunately but just in terms of when we went out there and we talked to a lot of our advisors who did a lot of valuation work for us, the industry was seeing anywhere from 7 to 12 multiple, depending on a lot of different factors.
John Warrillow: Of that, again, I know you can’t speak specifically about the SocialCode deal but just in your conversations with your advisors and the inbound acquisition conversations you were having, what sorts of proportions did you hear would be in the earn out versus paid upfront? They were talking 7 to 12 times earnings all in but I’m assuming a portion of that was at risk, if you will, in earn out. What sorts of proportions did you hear?
Drew Kraemer: Yeah, I think there was two things that we heard in terms of structure of how these deals are done. One is an earn out of anywhere from 25 percent, upwards of 60 percent. Then the other part was some of our potential acquirers had models where there would be equity retained and there was a more model of retained equity and then a structured payout over a few years. We get the sense that everyone has their own model that they’re a little bit more comfortable with but in general that’s the range of, in our evaluation, what we saw historical deals get done at.
John Warrillow: That’s helpful. Where did it go from there?
Drew Kraemer: What we did was we had lots of conversations, lots of meetings and really what our approach was to learn but we also felt, for us, what we really wanted to do was say, how do we evaluate potential partners and what’s the criteria that we should be looking at when we sit down with these organizations? It came really down to three things for us. We thought, number one, we have to have a mutual alignment in terms of vision and where we want to go, and we know that this is going to be a relationship we’re going to continue. That was important. Number two is, is this good for our people.
Drew Kraemer: We talked about people earlier. I think what our view is, we have folks that came on board with us when we were in a small, little closet of a sized room that we had to convince we were a real organization and we were doing big things and we wanted to make sure that they were taken care of and number three, we felt like a partner really needed to add value to what we were trying to do.
Drew Kraemer: There’s things like valuations that are kind of table stakes and anything like this, in our opinion, but those types of thing, we really set out to understand more of. Where went from there is, again, you’re doing calls, you’re doing in-person meetings, you’re trying to get to know these organizations, you’re trying to figure out what they’re all about, what their vision is and how you would fit into that vision. Then from there, we ended up meeting the folks from SocialCode and it was part of Graham Holdings and met with their leadership team and really hit it off in terms of alignment on values, alignment on how we look at the agency landscape and from there it was, we went all the way through and eventually got a deal done.
John Warrillow: At some point in these conversations, it sounds like they went from being kind of back burner, inbound inquiries that you entertained loosely, to where it sounds like the desire to sell for you and your partners kind of took on a life of its own. It sounds like, the way you’re characterizing it, that it created some momentum as you had more and more of these conversations, to the point where you really did more put it on the front burner. Am I correct in that sort of observation?
Drew Kraemer: Yeah, you are. Absolutely. As we went through the process, there were definitely some things that were happening. We were keeping an eye on the industry. There was some consolidation that had happened during our evaluation, where we saw some of our competitors, they were acquired. There seemed to be a lot of energy around the [inaudible 00:26:59] activity in the industry.
Drew Kraemer: But more importantly, we started to understand where this thing could potentially go and what resources were available to us. All those things combined, just led us down a path where we got really comfortable with the group. We were aligned on every facet of what we believed in and what we thought the plan could be, moving forward, what we thought the valuation was and how we were looking at the business. We did extensive analysis. It’s not an easy decision. At least for us, it was not going through this, being that the company was so new. There was extensive evaluation we were going through with our partners to understand if we didn’t sell, what would that look like? And if we did, what were the upside and downside of both?
Drew Kraemer: At the end of the day, you pair that with your comfort level with a certain partner and it became clear what the best path for MPS was moving forward.
John Warrillow: What did you see as the pros and cons to remaining independent?
Drew Kraemer: I think when you set out as an entrepreneur, at least in my opinion, there’s a freedom that comes with it. There’s the ability to, I think, be a little bit more flexible and more a little faster. For us, it was a question of, what do we need to take the next step in the company’s evolution? And is that something that a partner could help us do? Certainly the upside of not being acquired is continuing to build something and to stay independent and have the freedom that an entrepreneur has and I think that’s continuing to grind and continuing to do the things that … We would still consider ourselves a startup but being a true startup and going through the grind, that is exciting and it brought us to that point.
John Warrillow: That’s helpful for sure. At some point, these conversations with SocialCode became more serious. Can you describe that point? Did you guys sign a letter of intent? What was the trigger that made you go from evaluating lots of different offers to getting engaged to SocialCode?
Drew Kraemer: Once we started to get comfortable with their leadership team and what they really believed in, then it moved to more of discussions on, what could this look like? Understanding what really they wanted to get out of the relationship, what we wanted to get out of the relationship and then ultimately it leads to a formal letter of intent and then you start to go through due diligence, which is basically opening up the door and having them look at everything and validate all the numbers we were discussing and that sort of thing.
John Warrillow: How many employees are you at this point?
Drew Kraemer: We have 18 employee at this time that we’re going through this.
John Warrillow: Got it. Are those all full time? Or some of them come more on contract? What’s the core staff?
Drew Kraemer: They’re all full time. We hired 18 employees. We had 18 employees in about 17 months before we sold.
John Warrillow: That’s helpful. Here’s an interesting question, I think at least, you be the judge of that. With only 18 months running the business under your belt and all the costs associated with starting a business … I joked about the ink not being dry on the business cards but in the early days, you’ve got to create business cards, you’ve got to find an office, you’ve got to do all these things that cost money. For the first year or two, companies generally don’t make a whole lot of money. Did you go through an adjustment or normalization process through your P&L to try to scrub out some of those one-time expenses associated with you guys starting?
Drew Kraemer: We did. We went through a little bit of the. I think our approach from the beginning was to be a little bit more scrappy in terms of a startup. We felt that we could’ve went and raised money to start the company. When we really dove into what the cost was and what the benefit was, because essentially giving up in this situations what you would have to give up, was it worth it? We ended up bootstrapping the company. Again, we didn’t have a ton of expenses but to your point, there was some normalizing of the P&L just to back som of those out and really try to get to a run rate. In our experience, I will tell you that it was more looking at what was currently happening and what the future could look like over the next three to five years, just being that we were such a new company. The focus was more on looking at the future and what that looks like versus going back to month one where we’re buying computers, we’re getting office space and we’re doing all the things that a startup needs to do.
John Warrillow: What was the conversation between you and your partners when you reviewed the letter of intent? What sorts of things did you guys discuss?
Drew Kraemer: Well, it can be a tough conversation. We certainly spent a lot of time thinking about whether it was the right decision. Doing analysis, as I mentioned, on looking at the future. If we were to make a decision to partner with an organization or not. Ultimately, when we looked at each other and we were completely aligned at the end of the day that we thought this was the right thing to do given where the company was at the time, given what resources would be available and what we thought this partner in SocialCode could help us do and really carry out the vision that we’ve had from the beginning without sacrificing anything that we really cared about.
Drew Kraemer: That was the conversation but it was a lengthy conversation and happened over a couple weeks.
John Warrillow: What’s the stage of life that you and the two partners that were part of the founding team of Marketplace Strategy, what stage of life are you all at? Are you at similar stages or is one guy ready to retire, another just having kids?are you at similar life stages? Is my question.
Drew Kraemer: No, I’m 35 and I’m the old guy. My two partners are younger than I am. Curtis is about 30 and Sam’s a few years younger than that. I have a couple young kids and so we’re at different stages at life.
John Warrillow: How did that impact those conversations?
Drew Kraemer: It really didn’t come up, surprisingly. I think it would’ve been different looking back if we had someone who was ready to retire but we all love what we do and know that we want to do this for a long, long time. That really didn’t come up too much in the agreement. We always took the approach as partners as, our discussion should be framed around the facts and should be framed around honesty and transparency. Certainly you have disagreements and you have good, healthy debates and I think that’s a really healthy part of a partnership but at the end of the day, we’re remind ourselves that we’re all just trying to make the right decision. We may have different approaches on how we make that decision based on part experiences but at the end of the day, our intent was very much aligned.
John Warrillow: I can remember when I first had kids. I think I kicked into a provider neanderthal sort of head space where all of a sudden, I realized I had to provide for my family. That was what was expected of me. Maybe there’s some sort of deep-seated genetic coding on that. Did you have any of those feelings when you had young kids that here you are out on a limb with this business idea and here’s this big, billion-dollar company? SocialCode being backed by … that was making an offer that really could maybe take you a little off that risk/reward continuum but at least lock in some-
Drew Kraemer: Yeah, I think it certainly comes in the conversation. I think my approach and my thinking around it was, when you’re taking a risk on a business and it doesn’t work out, the risk isn’t on that business, the risk is on your ability to either start another business or work for somebody else. I think when we looked at going through this process, it really had less to do with that. I mean, there was some consolidation. Certainly it comes up in the conversation that if we were to continue to grow over the next couple of years, would there be buyers? I think that’s natural to come up in these conversations? We saw that in our space, in digital, with SEO companies in early 2000. We saw it with social media companies and you saw it with digital media and programmatic agencies. There’s a wave in content marketing, you go through a wave where there’s tremendous growth and then there’s industry consolidation. Certainly those risk factors come into that discussion but I would say in general, we felt like …
Drew Kraemer: An old professor of mine at Case Western had told me, it was a negotiating class and we talked about the best thing you could have is a best alternative negotiated agreement. We felt in this process that our second option was to not sell the company and we were comfortable with that. Actually I can imagine going through a situation where you have to sell, based on maybe an unfortunate event or something external, how it could be a very different experience than going through, saying, let’s look at the upside of going through and partnering with a great organization, and not be in a position where we have to act. That was a benefit for us, I think.
John Warrillow: Excellent. I want to go back to the SocialCode offer. You get this draft letter of intent from SocialCode. Did you shop the business to other potential partners? Did you play that offer and see if you could get a better offer from somebody else?
Drew Kraemer: Yeah, one of the things that we did not do was hire an investment banker. I actually ran the process and had four organizations to the offer stage around the same time. This took a few months of balancing and making sure I was having the right conversations. We had some great advisors in our legal firm, in our account and tax firm that helped along the way. We did get down to where four organizations were at that stage, which was fortunate for us as well.
John Warrillow: At that stage, were you able to get any movement on any of the offers by letting them know there were three other offers at the table?
Drew Kraemer: Yeah, I mean we were pretty transparent that there were other parties involved. Whether internally that created some movement or not, I’m not sure but we were transparent that there was multiple organizations that were in discussions with us and that that was certainly a factor and we want to keep our options open to see who would be the best partner for us. I’m sure that created some movement.
John Warrillow: How transparent were you with your employees?
Drew Kraemer: Outside of myself and the two partners, the employees did not know this conversations were going on. I think part of going in, and our thought process, was that we didn’t want to create a distraction and we wanted to explore this opportunity in confidence and that’s the approach we took.
John Warrillow: How did they react when you told them?
Drew Kraemer: Surprised. I think it was the speed at which it happened. A lot of our employees are some of the smartest people I’ve ever worked with and they came over and they helped us grow the company. I think it was an initial shock and we spent a lot of time with the employees during the announcement and after, talking through what they were thinking individually and as a group and I think once we really discuss with them the benefits and the upside and what this provides the organization, in terms of stability, in terms of things like employee benefits, it really became more of an exciting time for the company but certainly when you hear the initial news, there’s that initial shock but quickly led to excitement and it’s continued through post-acquisition life.
John Warrillow: You gave them the real, personal nuggets that would benefit them, right? Being part of a bigger company, they’re going to get better benefits, more upward mobility, your chances to … Those sorts of things. You told them what’s in it for them right upfront?
Drew Kraemer: Yeah, I think that was our thought. We thought natural, someone would say, “What does this mean for me?” That’s a natural reaction to any news like this. We wanted to make sure that they had a comfort level that our people and our teams were in the discussion as far as what life after acquisition could look like. Once we focused on that, like I said, it did move to more excitement. We were transparent and honest with them about the process. Some of the things that we considered as far as what changes, if any, would be created by taking advantage of this opportunity.
John Warrillow: What advice would you give an entrepreneur who was considering a deal that had some sort of structured component to it? In other words, there was an earn out component or maybe they were being asked to retain some equity in the merged company. I captured your, make sure you have vision alignment, it’s good for your people and that the other company can add value. Got all that. I’m thinking much more tactically than that. Is there a deal term or an I to dot, a T to cross that you should make sure you get nailed before you sign up for an earn out?
Drew Kraemer: Yeah, the one piece of advice I would give, and again, depending on what the certain situation is to relationship evaluate how the risk is transferred in any deal. There’s always risk involved in any organization and these deals can sometimes transfer risk. Understand how that is transferred. What this could mean by way of example is, if you’re going into a structure where it is heavily majorly weighted on the future earnings of the company, that’s transferring risk back to the entrepreneur, versus making sure it’s a fair risk mix.
Drew Kraemer: These deals, at the end of the day, there’s always an organization that wants to structure it a certain way or evaluate a certain way or do something with the company and then there’s the entrepreneur or the group of entrepreneurs who want maybe something different. Coming to an agreement, that’s fair but one thing I would always just keep an eye out for is, evaluate that risk profile and how that shifts before and after. Make sure you’re really comfortable with that. If you’re comfortable with that, then I think you could come to something that works for both parties but you have to get comfortable with the risks you’re going to have after the acquisition goes through.
John Warrillow: Makes perfect sense. Drew, I appreciate you spending the time with us. Is there a place for people to reach out if they want to learn more about what you guys are doing at Marketplace Strategy/SocialCode or-
Drew Kraemer: Absolutely.
John Warrillow: What’s the best place to go?
Drew Kraemer: For sure, they can hit our website, Marketplacestrategy.com. They can also hit me on Twitter. It’s Dkraemer32. You can also email at Drew@marketplacestrategy.com. Happy to field questions or if I can help anybody individually with questions or just to talk through some things, if my experience can help anybody else, I’m more than happy to take the time to do that.
John Warrillow: Drew, you’re a good man. Thanks very much for taking the time.
Drew Kraemer: Appreciate it, thanks John.