Transcript – How To Avoid The Idiot Tax
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John Warrillow: Kenan Hopkins started Valet Gourmet, which was acquired by Takeout Central in 2016. He wrote a blog post about the impact it had on him emotionally, and I think it’s definitely a worthwhile read. You can find that at medium.com, and just search for Kenan Hopkins.
John Warrillow: You’re going to find a lot of really interesting nuggets in this interview, but I love some of the things that Kenan talked around, around the idiot tax, I’ll let him describe what that means.
John Warrillow: He talks about introducing core values into his company, in particular in his hiring process, and I think that was an interesting component. You’ll hear him describe how his brand made a huge difference to the growth rate of his company. Some of the tips that he has around selling a business, in particular using a deal attorney, which is not usually the same lawyer who set up your business and incorporated it.
John Warrillow: And he’ll also talk candidly about the downside of a seven figure exit. Here to tell you the rest of the story is Kenan Hopkins.
John Warrillow: Kenan Hopkins, welcome to Built to Sell radio.
Kenan Hopkins: Hey, thanks for having me John.
John Warrillow: So I got your story from Medium. You wrote an amazing article, I can’t remember the name of it, hold on let me get it. It says, “In 2016, I sold my startup for seven figures. Here’s the brutally honest truth that no one talks about when running and selling a business.”
John Warrillow: What an awesome title, I’m so glad to have you on the show, thank you for joining us.
Kenan Hopkins: Thanks for having me, I really appreciate it. Thanks for calling that piece amazing.
John Warrillow: If you haven’t read it, just google Kenan’s name, plus Medium, and it will pop right up, and it’s definitely worth the read for any entrepreneur. Let’s get into the story. You had a company called Valet Gourmet. Give us a sense of what this company did.
Kenan Hopkins: We were in the on demand food delivery space, which now we have UberEats, and DoorDash, and crazy big VC funded companies like that. At the time, when I sold … UberEats was just kind of starting, and all that. It was a thriving industry, it just wasn’t as famous as it is now, if you will.
Kenan Hopkins: We did the same thing; we delivered food from restaurants to people, we did corporate catering events, occasional weddings and stuff like that, but it was mostly residential food delivery, so you order, just like UberEats is now, you order online, and then we show up at your doorstep 45 minutes later.
Kenan Hopkins: People called it magic at the time, which I thought was kind of cool, but it was extraordinarily complex behind the scenes.
John Warrillow: I should imagine, yeah. How did the technology work? You would order on a website, or on a mobile device?
Kenan Hopkins: You can do both towards the end. And in the beginning when I opened in 2003, it was pretty much just website, but yeah, you order on website, or through your app. People that acquire this have a great app, and then you pick your stuff, and you add your pizza toppings or whatever you want, and here … I live in Asheville, North Carolina.
Kenan Hopkins: We were licensed to sell beer and wine, because we were rated Beer City USA for like five years in a row or something, so we were like, “Oh, we’ve got to get into this game.” So yeah, we carried local beer, microbrewery type stuff, and wine.
Kenan Hopkins: I think when I sold, we had about 125 different strategic restaurant partners that we worked with. It was a lot of offerings.
John Warrillow: How much of your business was based in Asheville? Was it 100% Asheville?
Kenan Hopkins: No, so we had two markets. We had acquired … I can’t remember what year, but it was maybe two years before I sold, so maybe 2013, 2014, we acquired a company in Knoxville, Tennessee, so we had two different geographic markets there.
John Warrillow: That’s interesting. What was the company you acquired?
Kenan Hopkins: At the time they were called 622-EATS, which was their phone number, and that’s kind of … the industry used to do that back in the day. It’s so funny now to think back, but yeah, they were called 622-EATS, and just a guy over there in Knoxville ran the business.
Kenan Hopkins: They were smaller than us, but they were a great business, and we purchased it, and that acquisition certainly was not without its challenges, which I’m happy to get into if that’s a thing that you’d like to discuss.
John Warrillow: I would definitely love to discuss that. Before we go there though, just tell me the business model. How did you guys make money?
Kenan Hopkins: We take a commission from everything we sold from the restaurant, right? So the industry standard commission is about 30%, and restaurant owners used to balk at that, but I think they kind of understand more now, with all the players in the business.
Kenan Hopkins: But essentially, it’s the concept of incremental revenue, and so if you have a restaurant kitchen that you own, it’s very rare that your kitchen’s at 100%, unless you have a very successful restaurant, and so all we did was bring extra orders to the restaurant.
Kenan Hopkins: You’ve already got your overhead covered, and so really, the only cost that applies to those additional takeout orders are food cost, and any small packaging costs you might incur, which … this is so funny. I haven’t done this in probably four or five years, pitched a restaurant.
Kenan Hopkins: It’s kind of ingrained in me, or something. It’s just coming right back, that’s really funny.
John Warrillow: So did you guys have sales reps that would call on the doors of all these local restaurants saying, “Hey, you should take valuable-“
Kenan Hopkins: We did. We had kind of a main sales rep who was in charge of building these partnerships, and also kind of selling these corporate catering orders, and then we had local market managers, both in Knoxville, Tennessee, and here in Asheville, that would also handle that kind of stuff.
Kenan Hopkins: And I believe the people who acquired me now have a similar structure too, I believe.
John Warrillow: How big had you gotten the business by the time you were starting to look at 622-EATS. 2013, kind of roughly, what was your revenue, how many employees, that kind of stuff?
Kenan Hopkins: Great question. I’m going to go with probably $2 million in revenue-ish, give or take 10, 20% of that. It would’ve been over $2 million actually, now that I think. It would’ve been between 2, and 2 and a half, somewhere in there, I believe.
Kenan Hopkins: I don’t think we were tremendously popular, but we were doing okay, and we probably had … this is a total stab on my part, but maybe 50 or so total people working with us at the time?
John Warrillow: Got it, got it. So I’m assuming quite a few of those would be delivery people that are working?
Kenan Hopkins: Yeah, a vast majority were delivery people, for sure.
John Warrillow: And how did that work? So you got 30%, but I’m assuming the delivery guys or gals get a cut as well?
Kenan Hopkins: They didn’t really get a cut. It’s kind of a two-fold, so the 30% commission, and I say that as an industry standard. Some people work on less, some people work on more, that’s very important to note there, I don’t want to get anybody in trouble in that industry. Especially now, with competitors, maybe that condition’s been driven down some, I’m not really sure.
Kenan Hopkins: And in addition, there’s a delivery fee charge, and so the delivery fee passes straight through to the delivery driver.
John Warrillow: Got it.
Kenan Hopkins: And then we live in kind of a gratuity based society, for better or worse, and so they got the delivery fee, plus the gratuity.
John Warrillow: So by the time the guy who orders the In-N-Out Burger gets his burger, it’s probably jacked up by, would it be 50%, by the time they pay the 30%, plus the delivery charge, plus the commission, it must add a lot to the bill?
Kenan Hopkins: No, so the customer is not paying that 30%, by the way.
John Warrillow: Oh they’re not, oh, okay.
Kenan Hopkins: No, the restaurant is paying that 30%. Yeah, sorry for the confusion there.
John Warrillow: That’s interesting.
Kenan Hopkins: The only thing the customer is paying, and again, this varies as much as anything you can imagine, but generally speaking in the industry, having been on the board of that industry and stuff, generally speaking the mark-up is very minimal, if any on a food item.
Kenan Hopkins: So you’re going to pay the same menu price, most likely, plus a delivery fee, and then an optional gratuity, I guess, but it’s pretty expected.
John Warrillow: That’s super helpful. So I think I understand the business model. In 2013, you’re generating two, $2.5 million in revenue. Tell me about this 622-EATS business. What was their economics? What did you think it was worth?
Kenan Hopkins: Oh gosh, I can’t remember what they were doing at the time, and I didn’t get permission to say, even if I did, because I haven’t talked to that guy in a long time. But they were much smaller than us, I will tell you that.
Kenan Hopkins: I was basically just … I thought we were hitting our peak here in Asheville, it’s a small town, we have about 100,000 people, but we get, I think a million tourists a year, or something crazy.
Kenan Hopkins: We were at kind of what I thought was our peak, and I was totally wrong about that, interestingly. But I started thinking about expanding, and in my mind, I was thinking we’ll just kind of start from scratch, but it’s such a long process in that industry, to start from scratch, and build up your customer base.
Kenan Hopkins: And so like many industries, it’s much easier to grow through M&A, and I just heard through the grapevine that this guy was for sale, and maybe some other people were thinking about buying him, so I reached out.
Kenan Hopkins: I had never really met him, but I had talked to him before, and I reached out, and we basically struck a deal. I remember we went back and forth a few times. I sent an LOI, and maybe it was too low, and then came back with something else, and something else, and so we went back and forth in negotiation, and then we finally settled on a price, and we each had our attorneys, and they went back and forth for a while, and then we closed.
John Warrillow: How are one of these companies valued? What were you valuing the business based on?
Kenan Hopkins: At that time, it was generally three to five times earnings, just kind of like most businesses, and then there was a brief period of time where it went up, which is when I actually exited the business, so I kind of got lucky in that regard.
Kenan Hopkins: And then since, I don’t know that it’s stabilized, but it’s kind of hit or miss ever since then, I don’t really pay attention as much any more. But yeah, I kind of balled on the low side, I think. I don’t know, I think it was fair for the business, and then I kind of sold on the high side, which I still think was fair for the business, I hope.
Kenan Hopkins: And then since then, I think the M&A activity has been a little bit more sporadic, as far as valuations go.
John Warrillow: Because around the time of UberEats, things were getting crazy in the valuation in this space. I had a friend in this space, so I was sort of tangentially aware of some of the numbers that people were chasing, but UberEats had certainly jacked up valuations.
Kenan Hopkins: Oh man, yeah, and what really did it was GrubHub. They acquired the two largest industry players, so kudos to them, they just reached out and acquired the big guys. One on the East Coast, one on the West Coast, and they did pretty well, and there was rumors flying about, kind of what they sold for at the time.
Kenan Hopkins: It was huge news in the industry, I mean the ripple effects were insane, and my jaw just hit the floor, I was like, “I can’t believe both these guys sold to GrubHub at the same time, that’s just crazy. I know these guys really well, that’s just nuts, I just can’t believe it.”
John Warrillow: What were the rumors around multiples that GrubHub paid?
Kenan Hopkins: It was like one times revenue, which is … I don’t know how true that was. I think it was pretty accurate, actually. But yeah, 1x revenue in that industry was pretty huge, because profit margins are slim. You’re looking at 10% profit margins, best case scenario for most of these guys.
Kenan Hopkins: And again, this is at the time, so things have changed now, but if you’re looking at 10% profit margin, most of these businesses are selling for 3-5x. Best case scenario, you’re going to expect about half, 50% revenue valuation.
Kenan Hopkins: Well, these guys are getting like 100% revenue valuation, and it’s like, “Wait a minute, you sell for 1x revenue, that’s pretty huge.” So all of a sudden, everybody’s interested in selling their business because the valuation went up, so okay cool, yeah, that’s neat.
John Warrillow: Did you know any of this stuff when you started? How did you get into this business?
Kenan Hopkins: Oh god, in prep for this I kind of wrote this down, and I was listening to some of your podcasts, and just really enjoying them, and trying to figure out how I could give some take aways to your listeners, and I hope that I’ll do a good job here as we progress.
Kenan Hopkins: By the way, I really enjoyed … gosh, what was it? I subsequently read his book. Rand-
John Warrillow: Oh yeah, Rand Fishkin, yeah, great story. Unbelievable.
Kenan Hopkins: Fantastic story. I feel like I was going to say if there was a Tinder for weird entrepreneurs who have been on your podcast, I would match with him, because I think I got [inaudible 00:14:04].
John Warrillow: That’s a business idea right there.
Kenan Hopkins: Rand, if you’re listening to this, please reach out to me, because I think we could be friends.
John Warrillow: A Tinder for weird entrepreneurs. Perfect. Yeah, for those of you who haven’t listened to that episode, it’s with Rand Fishkin, which is a great handle. I feel like he should be like a rockstar, or DJ, or something like that.
Kenan Hopkins: He looks the part too. I googled him.
John Warrillow: Great episode, he’s written the book Lost and Founder, which is an amazing book, a real sobering take on the venture capital market, so great book.
John Warrillow: We’re talking about you now.
Kenan Hopkins: Just kind of plug for that.
Kenan Hopkins: In the beginning, I was preparing for this. I’m like, “Okay Ben, I still kind of can’t believe I sold this business. I had every reason not to succeed,” so when I started, I was fresh out of college, I spent better part of a year in New Zealand right out of college, and then moved back to the States.
Kenan Hopkins: When I was in college, for about two years I had worked as a delivery driver for a similar concept, and that’s it. That’s barely any industry experience. I had a business degree, but that only teaches you how to be a good employee of a big company, like a mid-market manager type thing, or something.
Kenan Hopkins: And I had been treated horribly by several bosses in a row. I worked at a ski resort, I had a horrible boss, and the guy that ran the delivery service I worked at, I liked him, but his management style left a lot to be desired.
Kenan Hopkins: I didn’t know anything. I was under capitalized, I spent $10,000 in personal credit card debt to open the business, which is just insane, looking back on that. So no real management skills, no idea how to run a business, personal credit card debt, and the worst branding ever.
Kenan Hopkins: So we actually didn’t start as Valet Gourmet, we started as Blue Ridge To Go, which is kind of an homage, if you will, to the Blue Ridge Mountains, here in North Carolina. So terrible name, terrible brand, terrible everything, didn’t know how to do any of this stuff, and as I kind of mentioned earlier, it’s actually a very complex business behind the scenes, but it’s deceptively simple on the outside.
Kenan Hopkins: It’s like, “I just started these restaurants to be part of the system, and I’ll launch,” and this and that. So I spent about seven years just kind of paying this idiot tax, and then-
John Warrillow: The idiot tax.
Kenan Hopkins: Yeah, just being a horrible boss, and a horrible person, just not knowing what I was doing, and regretful things and whatever, and now I’m much more empathetic than I’ve ever been.
Kenan Hopkins: Seven years of that, and then I made this awesome transformation, so it was about 2009, we started working on the rebrand process, which is we worked with a local branding firm, we went through all this naming and stuff, and then I learned the power of a true, proper brand, and we switched to Valet Gourmet.
Kenan Hopkins: We finally had a great logo, and a brand, and colors, and fonts, and all that jazz, and then at the same time, I had discovered Zappos Insight, which was Tony Hsieh had started with Zappos to teach other companies how to implement a company culture, core values, all that.
Kenan Hopkins: And so I think we were one of the first companies to embrace that, and flew out to Vegas, did a boot camp, some other stuff, and really embraced the company culture spirit. I had a great second-in-charge person at the time that was really creative, and helped me launch that.
Kenan Hopkins: So yeah, we launched these core values, re-tooled our hiring process, did a bunch of stuff, made sure people were aligned with the values and the mission, and the vision and all that, and yeah, really turned it around. It was crazy that the combination of the two was just magic.
Kenan Hopkins: It took us so long to get to $1 million in revenue, and then it’s like the next $1 million came really fast, and the next one after that came really fast, and then I don’t know. All that stuff really helped, and especially the hiring. I got really, really good at hiring.
Kenan Hopkins: We had just an incredible workforce. We had the lowest delivery driver turnover in the entire industry, which in that industry, is a huge, gigantic, glaring problem. We would go to these industry conferences, and they would spend full days talking about delivery driver turnover, and I would go there and speak.
Kenan Hopkins: This topic, I loved this topic because we had the lowest turnover, and I would just tell people what we did, how we did it, and just see their reactions. It was like, “I don’t know how I can implement that in my own business,” and then some of them I would help implement that in their businesses, and it was just really rewarding.
John Warrillow: So what did you look for in drivers? What was the secret sauce?
Kenan Hopkins: That’s a great question. Interestingly, we went back and forth many times over, but what we ultimately decided, is we just wanted to look for good people. People who were really good, and shared our core values, and so during the recession we had a lot of people who were like real estate agents, and I remember there was a guy who was a writing professional.
Kenan Hopkins: A creative writing copywriter, and some other people like that who weren’t getting enough work all of a sudden, and they needed something to supplement their income, and so we were getting these interviews from people like that, and I realized, “Wait a minute. These people are coming in, it doesn’t cost us much to on-board them, it’s pretty easy, so even if we only have them for three weeks,” which we didn’t, we had them for a lot longer than that generally, but even if we did only have them for three weeks, we had a fantastic individual for three weeks to promote our service.
Kenan Hopkins: So once we started taking that approach, and our interview process was very much based around our core values, we did group interviews. Generally in the industry, it’s like, “Do you have a pulse, or can you use this app? Okay, come on in.”
Kenan Hopkins: But for us, the first round of interview was a group based interview, then we did two different rounds of individual interviews to bring people in, so we kind of inadvertently created this club of amazing people that all shared values, and to be frank, I still keep in touch with a lot of them today, and consider them friends.
Kenan Hopkins: I’ll go out and have a beer with some of them, it’s great.
John Warrillow: That’s awesome. Tell me about the core values themselves. What were the values?
Kenan Hopkins: Oh man, putting me on the spot with that one. It’s been a while, How about I tell you the favorite two?
John Warrillow: Sure, sounds good.
Kenan Hopkins: The rest of them can kind of live in infamy there. So my favorite, oh gosh, let’s see, my favorite was number one, which was … let me see if I can phrase this correctly. Exceed expectations through service, and the reason it was my favorite was because it didn’t say customer service, it just said service.
Kenan Hopkins: And so we were looking for people who were kind to everyone. The cashier at the grocery store, or the lady at the airline counter, or whatever, kill them with kindness people, so that’s what we were looking for.
Kenan Hopkins: I just loved that so much, it was my favorite, and then everybody else’s favorite, which we put on a t-shirt, and was great, and I think I’ve still got, was resist drama. It was a great one. It didn’t say no drama, it just said resist drama, and then we would go through periods where that wasn’t necessarily happening, and so I had to kind of define different types of drama.
Kenan Hopkins: “Gossiping is really not cool, but constructive criticism is definitely cool, so let’s break this down into different categories.”
Kenan Hopkins: There was that, and all kinds of other- oh, there was one called no cheap excuses, and that was number six, so we’d be round the office, and it would be like, “Let’s do this with that,” and then someone would say, “Oh no, we can’t because …”
Kenan Hopkins: And it was very common to yell out, “Number 6, number 6.” You know? That just meant, “Hey, no cheap excuses. Quit giving us these excuses, just make it happen.”
John Warrillow: Got it, that’s super helpful. Tell me about the impact of rebranding to Valet Gourmet. You mentioned it had a big impact. Why did it impact you guys so positively?
Kenan Hopkins: It was crazy. I think … that’s a great question. I really don’t know other than the fact that good brands are amazing in general, and they just get people excited. If you think of your favorite brands, whatever they may be, like Tesla, right, is a great example of one that gets people just excited.
Kenan Hopkins: They see the logo, and they’re excited, and I think we went from this know nothing garbage brand to this cool logo, and this cool name that rhymes, and it just got people excited, and it’s a local business, but the drivers that we worked with would put these car topper roof signs on top of their cars, and so if you drive around our little small city, you would see them everywhere.
Kenan Hopkins: And so all of a sudden, there’s this cool, hip brand with this cool logo, and a plate that has wings, and these colors, these bright, vibrant colors, saying, “Hey, here we are.”
Kenan Hopkins: Then all of a sudden at the same time, you go on our website, and there’s just these 10 core values front and center. Here’s who we are. Or you get our marketing material, there’s core values everywhere, this is who we are, this is what we stand for, here’s our colors, it’s all bright, and cool, and vibrant.
Kenan Hopkins: And I think it just got people excited. It got me excited.
John Warrillow: You must’ve been like the mayor of Asheville. Here you are employing all the unemployed real estate brokers and copywriters, you’ve got these awesome vans going all over a 100,000 person town, which is a relatively small town, right? And you’re delivering beer and food.
Kenan Hopkins: That’s pretty funny, actually.
John Warrillow: You’re like a mayor, I’m sure.
Kenan Hopkins: I keep joking with my wife that I want to run for my life, actually.
John Warrillow: I think you should.
Kenan Hopkins: That would never happen, but thank you.
John Warrillow: Take us up to 2016, when you sold the company. What was the size of the company at that time? I’d love to know what triggered your decision to sell.
Kenan Hopkins: This is good, yeah. This is a good story actually, so I hope your listeners enjoy this one. I hope we get more into why it’s great to sell to an industry peer, because it’s easy, but I went back, and I dug through my text messages, because my negotiations started with a text message to an industry friend.
Kenan Hopkins: Interestingly, I was driving through Raleigh, North Carolina, which is the capital of North Carolina, where he operates, still operates to this day, and I sent him a text, and I actually took a screenshot of this text and sent it to him before we started this podcast, because I thought it was so awesome.
Kenan Hopkins: But it says, “Would you buy Valet Gourmet for 50% next 12 months estimated revenue? The terms of the deal could be worked out,” and then I said, “Random question, I know, I’ve been dealing with so much stress recently, I need to figure out how to relax.”
Kenan Hopkins: And he said, “Is that a trick question, smiley face, yes of course, I’m honestly honored that you think enough of us to propose that. Let’s talk soon.” So there you go, that was the start of the negotiation process, and that was May of 2015.
John Warrillow: Read the text one more time. 50% of next-
Kenan Hopkins: Exit at 0.5, so basically, “Would you buy Valet Gourmet for half next 12 months estimated revenue?” So one of the things that I was proud of is I was really good at forecasting, super good at forecasting in the industry, and so I was forecasting expenses and revenue down really well.
Kenan Hopkins: So I looked at it, and said we were going to do X amount, I can’t remember now, but I think it was close to $4 million, let’s say, and so I sent him that text, said, “Hey. I’m stressed out, I want to get out of this thing.” You had asked what the trigger was to sell the business, well here’s what I was dealing with at the time.
Kenan Hopkins: Driver in Knoxville, which is like two hours drive away from me, driver in Knoxville gets into an accident with a pedestrian. Pedestrian from what I understand has a broken leg as a result of this accident, and has to go to the emergency room.
Kenan Hopkins: Almost simultaneously, here in Asheville, and I’m being intentionally vague here, because I don’t even know how these things worked out, so here in Asheville, a driver and another person got into an accident, and I’ll leave it vague at that, but it was a very stressful accident, and then the crème-de-la-creme, if you will, a driver got stabbed outside of our office on a Friday night, and that was the worst.
Kenan Hopkins: He was a friend of mine, he’s totally fine, but he got stabbed with a rusty screwdriver outside of our office, which is insane, and I remember, kind of funny, the day before that happened, it was a Thursday, we were having a staff meeting, I said, “Look guys, I really like you guys but I’ve been this business a long time, and I’m just really sick of getting these 10PM phone calls asking me mundane stuff that can be figured out the next day. So check it out. I’m happy if you need to call me, it’s totally fine I will help you, but I really like to relax in the evenings after my day is over, and you’re still working but I’m not, and I need my downtime, so if you could, please don’t call me unless there’s like an actual emergency.”
Kenan Hopkins: So this is on Thursday, so Friday night, I’m watching television or something, I can’t even remember, and my phone rings, and I look, and it’s the office, and I’m like, “Oh my god, we just had this conversation yesterday, what am I telling you guys?” So I picked it up and it’s like, “Yeah, he’s been stabbed and he’s going to the emergency room.”
Kenan Hopkins: I’m like, “Holy cow. That’s crazy.”
John Warrillow: Wow.
Kenan Hopkins: Called the market manager, booked it to the ER, and he was totally fine. Like I said, I see him pretty regularly actually, but yeah he was totally fine. The stress the following weekend, because he had been stabbed, the area of town where our office was in is this kind of gentrified … you know how it goes with gentrification, right?
Kenan Hopkins: The type of people who live in those neighborhoods. Yeah, little bit gentrified neighborhood, and they have a Facebook group with kind of a crime watch Facebook group, if you will. Well this thing is blowing up, off the rails, “This guy got stabbed, it’s huge news in the neighborhood” and whatever, and this is again on top of these accidents that have just happened, and I’m like my god, so that’s happening, every single driver is all of a sudden like, “Oh my god am I going to get stabbed? I’m carrying around cash, this is crazy, what am I doing?”
Kenan Hopkins: And then our office staff is like, “Oh my god, a driver got stabbed outside of the office, we have to take care of this, I’m terrified now,” and so all of a sudden, everyone in the entire company is just looking at me, and so that’s when it’s like, “Oh my gosh, this is crazy, this is lonely,” this is when it starts to get real lonely at the top right now, because everybody’s looking at you and your reaction.
Kenan Hopkins: And probably when I think back to lessons learned, and things that I could’ve done better, that is probably the top of it, because there was so much pressure and so much stress on me, I didn’t know what to do, and I kind of lost it a little bit.
Kenan Hopkins: I’m just like, “Oh my god, I have no idea,” I was just pulling my hair out, and just so stressed, and not thinking clearly, and just saying things I didn’t mean, and it was really tough, period. But then to my credit, what I did, because the neighborhood was so terrified by this incident that happened at the time, I organized a community meeting at our office.
Kenan Hopkins: I brought in a bunch of pizzas, I invited anybody literally who wanted to come to this meeting, and the entire community can come, even though our office was fairly small. We had a lot of people show up. We were packed in there, and we were eating pizza, I got in touch with the police, and they sent out a resource officer, like a Barney Fife type guy that came.
Kenan Hopkins: He did talk like Barney Fife, but yeah, he came out and moderated this meeting between a police officer and concerned community citizens, and you know, it was in the newspaper.
John Warrillow: To be clear Kenan, were they blaming Valet Gourmet for this incident?
Kenan Hopkins: Oh no, not at all. It’s just these random acts of violence that happen in every city, and what’s really scary is when it happens in your neighborhood that you think is safe, and so that’s what was happening.
Kenan Hopkins: Previously, I think a few years before that, a lady was walking home after some beers through the same neighborhood, and somebody came up behind her and hit her with a baseball bat, it was really sad and terrible. She survived, and I think she’s recovered. It was kind of a continuation on that.
Kenan Hopkins: People were already like, “Okay, well every now and then these random acts happen, and it’s scary, and our neighborhood we think is safe,” so nobody’s blaming us at all, but they’re scared. Everybody’s scared, they have kids and everything.
John Warrillow: What was your exposure from an insurance perspective to your drivers? Did you have some sort of protection that the drivers, both the one who got stabbed as well as the two that got in the accidents, how were you guys as a company protected, or not, vulnerable to these incidents?
Kenan Hopkins: I’m glad you asked that, because now I can give a shout out to one of my very best friends who helped me through that time, Aaron Hageman, I’m going to have to tell him about this for sure. He runs a fantastic company called DDI, Delivery Drivers Inc. and they have really exploded recently.
Kenan Hopkins: I know they’re working with Walmart to do grocery delivery and stuff now, but he’s based out of Orange County, California, and anyway, so they manage driver programs for restaurant delivery companies like Valet Gourmet, and so because they had that, they had insurance in place, they had all that, so generally speaking if that insurance, or the driver’s personal insurance didn’t cover it, then we had an umbrella policy behind the scenes.
Kenan Hopkins: To be frank, I don’t remember exactly what happened there, but I think that the injury supplemental whatever insurance the delivery drivers had covered all that stuff, so we didn’t have to worry too much about it.
John Warrillow: Got it, so let’s get back into the deal. You’re obviously stressed beyond imagination.
Kenan Hopkins: Super stressed.
John Warrillow: You text your industry peer and friend, and his response is, “Yeah, let’s talk.”
Kenan Hopkins: He’s like, “Yeah, thanks I’m honored.” Like cool man, alright.
John Warrillow: Where does it go from there?
Kenan Hopkins: From there, oh man, it’s a little fuzzy because it’s been a few years, but I remember we met, we met down in Chapel Hill, North Carolina where his base of operations is, and then he came up here to Asheville, and we met some more, he brought his business partner along.
Kenan Hopkins: There wasn’t a whole lot of negotiation. It was, “Hey, would you be interested in this .5?” And then we came up with the price. It was a $2 million valuation, is what we ended up with. I ended up with about a quarter of that in stock that I still have, and then another quarter of that was under a buyout program, which I’m still under, and then the remaining 50% was paid in the beginning few months.
Kenan Hopkins: I think honestly, we didn’t really have to negotiate the purchase price, because we were both somewhat satisfied with it, and we really negotiated the terms more than anything, and because we were already friends, there wasn’t even really a negotiation, it was just a chat.
John Warrillow: To be clear, the $4 million was projected next 12 months revenue, is that correct?
Kenan Hopkins: Yes, that’s correct.
John Warrillow: Okay.
Kenan Hopkins: I think trailing 12 months was around 3.4, 3.5 or something.
John Warrillow: How did you get him comfortable, the Takeout Central guys comfortable on your accuracy with the reporting? Because they had to, it seems like, be pretty confident that your $4 million projection was solid.
Kenan Hopkins: Yeah, they weren’t new to the M&A game at all. They had acquired some other businesses in the industry too, so they were ready to go, but I think what’s important is I think they were around the same size as us, maybe a little larger, so they were almost doubling their revenue with this acquisition.
Kenan Hopkins: And so it was a big opportunity for them, very strategic opportunity for them. So I think when they did their due diligence, it became clear, “Hey these guys are growing pretty substantially year over year, and there’s no reason for us to believe that they’re not going to grow another 20% this year,” or something.
Kenan Hopkins: And so that was pretty easy honestly, they just looked at our track record.
John Warrillow: Got it, okay. In terms of the stock, you’re getting stock in Takeout Central?
Kenan Hopkins: Yeah, that’s correct.
John Warrillow: What are your liquidity options on that? Could you sell it, or are you waiting for them to sell their company? How do you monetize that investment?
Kenan Hopkins: I don’t actually know. I just hold onto it for now. If they sell one day then that’s great, if they don’t, I think there hasn’t been a ton of profit distributions or anything like that. But you know I’m happy to hang onto it, that was part of the deal that I made, and so it’s not a big deal.
Kenan Hopkins: At the time, I was thinking/hoping that maybe they would sell in a few years, but since then the market has cooled a little bit, different environment, and so I’m not entirely sure what their plans are, but yeah, just for now I’m just hanging onto it, and it’s just an asset that I have.
John Warrillow: And you mentioned there was a quarter of it in a buyback program, or buyout program. What does that mean?
Kenan Hopkins: Essentially I had to wait … gosh, what did I wait, three, two years? Two and a half years? And then I’m getting paid monthly, or for the next five years, I think.
John Warrillow: Got it, and if they were to … not suggesting this would happen, but just so I understand the legal construct here, if they were to default on those payments, what would your recourse be?
Kenan Hopkins: I would have to look at the agreement, but I believe it’s secured by additional equity in the business. If they default, I could probably jump back into the business if I wanted to, and run it.
Kenan Hopkins: I’m guessing, I don’t actually know that. Plus I’m so far removed now, it would be really weird, but yeah, everything’s great, so I’m trying not to think about that scenario to be honest.
John Warrillow: Have you started to receive your payments on that buyout program?
Kenan Hopkins: Yeah, I think they started last August, or something like that.
Kenan Hopkins: Actually this might be good for your listeners, and I hope they don’t mind me telling this, but we actually did do a small re-negotiation that was contingent on them getting additional capital raised, which they haven’t got yet, and I think is still in progress, but if they do get this capital raised that they’re looking for, then I will actually be completely bought out of the business.
Kenan Hopkins: I came back and renegotiated with them, they wanted to, it was kind of their … they reached out to me and said, “Hey, we’re looking to restructure, would you be interested in a full buyout?” And I said yes, and so we renegotiated that, so if they do this capital raise, then I will be out completely, but I’m not expecting that to happen, I’m just kind of cautiously optimistic, I guess, if you will.
John Warrillow: It sounds like a really friendly takeover between friends. If there was one thing you might do differently, if you could kind of press rewind and do it all again, what might you do differently?
Kenan Hopkins: Sure, I took some notes on this one because I figured this was going to come up. A, I would’ve hired a much better attorney. I’ve had a few friends sell their businesses recently, and I’ve seen what they’ve dealt with, with their businesses, and really kind of seen it from the outside looking in.
Kenan Hopkins: But with some details, we’re kind of in these entrepreneur groups together, and so with their attorneys, they paid a lot more money to their attorneys, but their deals were a lot more solid. So you’re asking me these questions, like are you able to sell your equity, or what happens in this scenario?
Kenan Hopkins: I actually don’t know, and I don’t know that it’s spelled out in there or not, and so you live in a small city, you get small city attorneys sometimes, and that’s kind of what happened to me, so I think whoever’s listening to this and thinking about selling their business, I would encourage them, very much so, to make sure they get an attorney who’s very familiar with M&A stuff, for sure. Mine was not, and I’m not sure she had done many deals like that.
Kenan Hopkins: Secondly, I would love to … I would assume they’re going to listen to this at some point, but if I could do this over again, I would love to still be involved in the business as a board member, absolutely love to be involved in that business. I think that I have some strengths that I could bring to the table with Takeout Central that would be helpful, I guess, maybe. They’re very smart people, so I don’t know, this is not a dig at them by any means, but I think that it would be really cool to stay involved.
Kenan Hopkins: And also, kind of more selfishly protect my equity just a little bit better, because right now there’s no protection in place, and so you asked me what happens if they default or whatever, I’m entitled to see financials if I want, but I have to request them, and I don’t get around to that very often, because they’re just doing their thing and I don’t want to get in their way.
Kenan Hopkins: They just do their thing, and that’s it. They pay, and everything’s cool. But I would love to be more involved, I really would. Could I reach out to them and see if there was an opportunity? Yes, absolutely, but it seems at this point it’s kind of too far gone to do that.
Kenan Hopkins: And then kind of lastly looking back, or maybe this is something else we’re going to get to in a minute, I’m not sure. I didn’t know what it was like to kind of all of a sudden have this pile of money with no purpose in life, and that was very, very challenging to deal with.
Kenan Hopkins: And I’ve since learned that it is a very challenging thing for a lot of people, not just me.
John Warrillow: Well let’s get into that now, because that was the basis of the Medium article, and I was just fascinated by some of the things, like truth number two for example, money changed me for the worst. One quote that I’ll just read, and these are your words, I’d love you to just kind of react to them, “The friends that I have made in the last few years do not understand, and that’s 100% my fault. They see a spoiled, tone-deaf asshole who they can’t identify with. Success is intimidating to others. When you roll up to someone’s house in a Tesla, how can they help but assume that you’re just a judgmental asshole?” That’s pretty strong language.
Kenan Hopkins: Right, and it was true. Funny side note, my parents, very southern US parents, “Did you have to use that language?”
John Warrillow: Love it.
Kenan Hopkins: When they saw that yeah, put it on Facebook.
Kenan Hopkins: Anyway, so yeah, it’s interesting, so here’s kind of looking back on it the way that I see what happened, and I’ve since adjusted course, and I’m not as bad as I used to be, I think about this kind of stuff, but I’m in this EO network, which you’re probably familiar with, and I’m sure some of your listeners are in, I guess.
John Warrillow: EO stands for Entrepreneurs Organization. Yeah, definitely.
Kenan Hopkins: Yeah, fantastic organization, it’s great. I was even in a higher up thing called EMP through EO, which is the Entrepreneur Masters Program up in Boston, and so I knew a lot of people, I had traveled all over the world, and so I’m hanging out with these entrepreneurs, and I’m making friends with these guys and gals that are very successful, and they’re all driving Maserati’s and whatever, and they’re staying at nice hotels, and I was too, and it just became a part of life.
Kenan Hopkins: And you don’t think about it. You don’t think about the guy who is having trouble paying his bills, or that other stuff, because you kind of get into this myopic world view a little bit sometimes, and all of a sudden it’s like, “Oh I can buy this nice pair of jeans, or I can …” I think an article ad said these countertops, these concrete countertops are expensive, but that’s not a problem for me, or I can go off to wherever in the world I want to go, and stay at nice hotels, and that’s not a problem, and you don’t really think about it.
Kenan Hopkins: You’re grateful, you’re like, “Yeah, this is great,” but you don’t think, “Hey this is cool, I’m driving a nice car, this guy’s driving a nice car, we’re hanging out, we’ve been successful as entrepreneurs, we’ve got money,” and so then what happens is, in my case anyway, and I think in a lot of cases.
Kenan Hopkins: I’ve heard from other people all the time, by the way, with this Medium- I think about taking it down, but I get unsolicited messages, just one or two a week easy, still two years later, with people going through this exact same scenario, but it’s just so hard to relate after you’ve been through that, and you are going through that.
Kenan Hopkins: You’ll just be talking about something that’s totally normal to you, whatever it may be, something nice, and you’re talking about that to somebody who has trouble paying their bills, or maybe is struggling to make ends meet, and that’s why you sound like a tone-deaf asshole, and it’s tough, and I didn’t realize it at the time, and now I’m a totally different person.
Kenan Hopkins: I’ve kind of come full circle on this, but at the time, it was tough. I was playing in this … I’m a violinist, and so I jumped into playing music full-time, and I’m playing in this band, and musicians by nature are just kind of nomadic, don’t really try to make a ton of money, and just kind of par for the course there, so I’m hanging out with all these musicians, and it’s great, and I’m loving it, I’m having a blast, and I’m just talking about whatever.
Kenan Hopkins: I might text a picture to somebody of my Tesla beside my buddy’s Maserati, or something, and I don’t think anything of it, but yet it really upset them, and then a month later they’re mad at me about something else, and they’ll bring that up, and that literally happened, and that was kind of what caused me to write this whole blog post, which actually had the adverse reaction to some of my friends at the time.
John Warrillow: In what way?
Kenan Hopkins: They read it and thought it was specifically about them, and so it made matters even worse, and that sucks, kind of still miss some of those cats. It really wasn’t about them, it was about life after exit, and all of a sudden, holy crap I’ve been successful, I came from nothing.
Kenan Hopkins: I was growing up in eastern North Carolina, where it’ll be 100 degrees with 100% humidity, and my parents couldn’t afford to have air conditioning. I didn’t grow up with money, and all of a sudden I have this. It’s been a few years now, and I’m not thinking much of it, so I’m blabbing my mouth to these people who don’t have all this stuff.
Kenan Hopkins: Some of them are comfortable, I’m not saying this is like super far fetched, but I wasn’t able to relate, and it was very challenging, very challenging for a long time, and-
John Warrillow: So they weren’t able to relate to you, it sounds like? Like you had changed, and now what you had, and things that you talked about, they didn’t relate. What about the other way? Did you struggle to relate to them in the same way?
Kenan Hopkins: I don’t think so, because I’ve always kind of been happy at the way that I can relate with people. I enjoy talking to people. My wife thinks I’m crazy, I’ll just go up to these whatever, where I don’t know anybody, and I’ll just talk to people, and get to know people, and I love it. It’s just something I do, and I think it’s great.
Kenan Hopkins: It doesn’t matter where I am in the whole world, I’ll just bring up conversations even though it’s kind of taboo to do so. So I think for me, I like relating to people, and I really enjoy pleasing people, and so I don’t feel like I had that necessarily, but I do feel like the other way around was true.
John Warrillow: So what advice would you have for a fellow EO forum mate? You’re in the forum, he’s got the offer in front of him, it’s a seven figure offer, it’s going to change his financial life. What advice would you share with that fellow forum mate on this topic?
Kenan Hopkins: I would say … it’s a tough one. I would just say there’s no reason to hide anything, but there’s all the reason in the world to be cautious about your words, I think. I think you never know who you’re talking to, you never know who you’re dealing with.
Kenan Hopkins: At these EO events, I’ve met people who are billionaires and are extremely humble, and you would never know, and I’ve met people who have sold their businesses for less than I sold mine, and are extremely arrogant.
Kenan Hopkins: It just kind of goes either way, but I would say you never know who you’re talking to, right? Everybody’s different, but relating to people post-exit is challenging. I would say it’s the most challenging thing, and I’m having trouble putting into words how I came out of that and went full circle, but I think what I did is just I grew a lot more empathy and appreciation for what I have, and empathy for other people in general.
Kenan Hopkins: And so I just did one of these strengths finder assessments, and empathy was my number one strength, and whether that’s actually a strength or not, I’d still go back and forth. I think being empathetic to other people is very, very important.
Kenan Hopkins: I think in business, and all around the general … that’s like the biggest thing I’ve learned in the past few years for sure. Just being nice, and try to put yourself in their shoes a little more, I think.
John Warrillow: Well it’s good wisdom for all of us, for sure. Kenan, I really appreciate you spending the time with me today, I am grateful for you writing the blog post, again, you can find that at Medium, just google Medium and Kenan Hopkins.
John Warrillow: Where can people find out more about what you’re up to these days, if they wanted to reach out and say hi, what’s the best way to do that?
Kenan Hopkins: I know that you had reached out to me on LinkedIn, and at the time I didn’t have my notifications set up, so I missed it, and it took like a month to get back to you, but now I’ve got notifications set up, so feel free to reach out to me at LinkedIn, or email@example.com. It’s K-E-N-A-N, last name Hopkins, @ gmail.com.
Kenan Hopkins: I do have some really cool stuff in the pipeline actually, coming up, and I don’t know if we’re out of time or not. If we are that’s cool, but if not I could hit on that briefly.
John Warrillow: Yeah, go ahead.
Kenan Hopkins: Okay. So this is great for people who have exited, or who are planning an exit, maybe. One of the things that I had mentioned earlier to John, was that it’s really hard to go from when you’re running a business, you’re running it like 200 miles an hour all the time, and then to just all of a sudden be at zero.
Kenan Hopkins: In my case, I didn’t work in the business after I sold it, and if you do that it might be slightly different. Essentially it’s very tough, and so I’ve recently become interested, and aware of this concept of founder opportunity fit, so I’ve been looking at these businesses for sale for over two years now, and I haven’t found anything.
Kenan Hopkins: I’m looking all over the United States just in case something falls in my lap. I’ve seen friends go out and buy these random businesses, it’s like, “You bought this yoga business, do you even do yoga?”
Kenan Hopkins: “No.”
Kenan Hopkins: “Okay.”
Kenan Hopkins: “I just thought it would be cool to get into the yoga business.”
Kenan Hopkins: “Okay, cool, that’s good, but that’s random.” So for me, I had looked at all these different industries, I’d looked at things from HVAC and excavation type businesses, I’ve done due diligence on several. So anyway, I came across this more systematic way to do founder opportunity fit, and so if you Google that, there are a lot of articles about founder opportunity fit.
Kenan Hopkins: And to be honest, I think it’s really fascinating, and some people believe that is going to be the next wave of these entrepreneurs that are growing businesses, and these serial entrepreneurs, the systematic approach to finding a new opportunity is going to be kind of the next big thing, and we’ll see what happens.
Kenan Hopkins: I’m using that now, and I just got … I can tell you about this, and I’m really excited. I just got accepted into this program called 10.10.10, and it’s in Denver, and they take 10 CEOs from all over the place, all over the country, and they put you together for 10 days, they have 10 what they call wicked problems, that are very complex, scary, societal based problems.
Kenan Hopkins: This one’s around healthcare, and so I’ll be going to that, I think a week from today, they’ll be announcing I’ll be there, and they’re doing what they call the big reveal, where they announce all the CEOs and the issues and everything, so I hope something comes out of that, and that will be my next opportunity, but that remains to be seen.
Kenan Hopkins: But that’s where I kind of found those founder opportunity fits, so pretty cool stuff.
John Warrillow: 10.10.10 Denver, and founder opportunity fit.
Kenan Hopkins: Yeah, very cool. Eye-opening stuff there, so yeah, if anybody’s in this position, check it out for sure.
John Warrillow: I really appreciate you spending the time with us Kenan, thanks for joining us.
Kenan Hopkins: Absolutely, thank you John.