Transcript – Negotiation Secrets From Three Exits
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This is Built to Sell Radio with your host, John Warrillow. This episode of Built to Sell Radio is brought to you by the Value Builder System. You’re an entrepreneur and you’ve got somewhere between a million and ten million in annual revenue, and you’re trying to figure out what’s next. Maybe you want to scale up, maybe you want to sell, maybe you want to bring in a manager and delegate some of the day to day stuff, bring in the next generation of leaders, maybe you want to pass it down to your family. All of those options, the one prerequisite is that it’s built to sell, that it’s actually something that you could pass on to another generation without you, and that’s really what we try to evaluate using the value builder score. It takes about 15 minutes to complete the questionnaire, and then you’re going to get a readout of how your business would be viewed by an acquire across eight unique dimensions that acquires care about. It takes only about 15 minutes. You can do it free it valuebuilder.com.
John Warrillow: Well, I think you get to like this next interview with Dan Martell. So Dan has started five companies, exited three of them and learned the hard way some of the key lessons in really selling a company for a premium valuation. What I loved about this interview with all of the insight Dan brings to negotiation strategy, the gamesmanship, the entire dance associated with selling your company, I think he does an amazing job of showing you how not to leave money on the table. I think you’re going to like this interview. Here’s Dan Martell.
John Warrillow: Dan Martell, welcome to the Built to Sell Radio.
Dan Martell: Thank you so much for having me, John. It’s a pleasure.
John Warrillow: Yeah. So like you sold a gajillion businesses. How many actually businesses have you actually exited?
Dan Martell: I’ve had three formal exit started. I always joke about projects I’ve started, but I started five companies. So people are always like, “Oh, you seem to know what you’re doing,” but they forget the first two were they were complete failures. Five corporate companies, three exits, two venture backed, and probably 27 domains bought for ideas.
John Warrillow: There you go. Awesome. So you’re a true entrepreneur. I love it.
Dan Martell: I just, I love to create, yeah.
John Warrillow: Before we hit record, we were talking a little bit about Spheric and how that might be the most relevant story for our listeners. Tell me about this business. What kind of company was it?
Dan Martell: Yeah, so we were an enterprise consulting company. I started when I was 24 years old. I pretty much saved, I think I saved about 70 grand consulting. It was funny. I was 21 years old making 150 grand a year. I didn’t understand it. My dad definitely didn’t understand it. But luckily I just had a really smart accountant that said, “You know what? You only need about 38k a year to, to live. Why don’t you put the rest away?” That plus a great six month trip to Australia, after all that I decided to start this company, and decided day one, I’m going to sell to fortune 500 companies. There was no rhyme or reason. My first and only job I ever had, that was the customer we worked with. That’s where I learned the skill set that we specialized in. I said, “All right, let’s start this.” I made every mistake possible, almost went bankrupt a couple times.
John Warrillow: What kind of consulting were you offering these enterprise customers?
Dan Martell: Yeah, so portal software. So back in the day, this was 2004 when I started the company, it was right around the kind of consumerization of the enterprise, so things like Yahoo Portal and kind of these homepages were starting to make their way into big companies. Today, you would talk like SharePoint and WebSphere, IBM, like everybody’s got a portal software cause it’s kind of like the front end to their back end information systems, but back then the number one player in the market was a company called Plum Tree. It was the software I was trained and certified on it at my first and only job, and I decided to create a Plum Tree consulting business. The customers buying, spending the millions of dollars for the software were Procter and Gamble, Dole Foods, Johnson and Johnson.
John Warrillow: Got it, Plum Ware or sort of Plum Tree was a software that these giant companies would buy, and then they’d look to companies like yours to help them actually make it work.
Dan Martell: 100%. Big companies buy ERP software like SAP, they buy financial packages. This was just a portal solution to help integrate all these different systems into one interface for their employees.
John Warrillow: And did your reseller agreement with Plum Tree have any stipulations around how and if you could exit, what would happen to your reseller status if he chose to transfer ownership of the company?
Dan Martell: No. The interesting part is I never became a reseller. We became an integration partner, and because there was no kind of like a alignment with their resources to ours, we could do freely what we needed to do in the business. They would bring us in for certain deals. They needed the consulting horsepower on where they were selling software. They couldn’t really sell services as much, and honestly they just didn’t have the expertise because they were growing so fast. It was very rare to have somebody with our kinds of background and hence why the opportunity was so interesting.
John Warrillow: When you’re doing this consulting, is it on a project basis? Is there any recurring revenue, or are you kind of making every project up as it comes?
Dan Martell: I would say that would have been the biggest mistake I made from day one and didn’t really correct it until two years in where initially it was a time for money. We were essentially selling hours at different billable rates, and towards the end of the business we transitioned into kind of ongoing contracts plus maintenance contracts and doing custom solutions.
John Warrillow: Why do you say that’s the biggest mistake you made?
Dan Martell: Valuation wise. I mean again, lucky, literally two years, two things happen. One, we almost ran out of money because we were growing so fast, which sounds hilarious. Like, you would never think, we’re being successful customers want, we’re hiring people, and I can’t even make payroll. That was cashflow. Again, I was 26 at that point, so a lot of lessons learned quickly. It was really just my one of my advisors saying like, “You need to get customers to prepay. You need to sell solutions, not time, and you need to to sell the service contracts because they’re used to paying it.” We were not offering something that the market was used to paying for, and it changed the economics of the business, and turned out was one of the big valuation multipliers when it came to exit.
John Warrillow: So I want to get to exit. What size of company did you get to in terms of like top line revenue, number of employees? Like, just give me a sense of how big the company was when you decided to exit.
Dan Martell: Yeah, we were about 32 employees when we exited. Most of those were people working with customers in the field. Our billable rates were anywhere from 150 to 250 an hour, so people can figure out the utilization. It’s not really something I’ve ever discussed, but anybody that understands that market knows kind of utilization rates, and you can do the math. But multimillion dollar business. We were growing 150% year over year, and it was really profitable. The reason why is I just found people in Eastern Canada that were willing to work for a lot less than most people in major cities, and all of our customers were in the US major cities, so the economics actually worked really well.
John Warrillow: Did you get involved in the currency arbitrage if you will, where you had the Canadian dollar lower than the US?
Dan Martell: Yeah, that did happen, but luckily I brought in a really great kind of CPA because a lot of businesses actually build their model around that. I think it’s the dumbest, and no judgment, but it’s not real revenue. I don’t control the exchange rate. It’s a bonus. It’s kind of like I put it as other revenue in kind of my revenue stream, but we wanted to make the economics of the business stand on their own for the work we’re doing in our costs. We kind of normalized things. But yeah, it did happen, but I still remember there’s a point where it was like 25% bonus, and it went down to like 8%, and companies that essentially their whole business depended on that folded. Luckily my CPA was smart enough to report my numbers differently.
John Warrillow: Interesting. This thing is growing like wildfire. 32 employees, really, really profitable. The obvious question would be kind of why sell it?
Dan Martell: What happens, and I think in the service business, we were a tech. We were building software, right? I think we always think the grass is greener, and arguably since then I’ve built two software companies, so I would say the grass is greener. The ability to build something, build a tool, a modern day, rock, fire, stick, leverage point, whatever, is really attractive and building reoccurring revenue and building a new feature that gets deployed to all your customers using software as a service or cloud was something we always thought about. We actually tried three times within our business to build and productize some of these integrations we were building for our customers, right? Because like there’s services, but then it’s like you’re writing code for them.
Dan Martell: One of the deals we did with Procter and Gamble was we built this platform called InSoar, and we negotiated that they would essentially get a discount on the project, but we would own the IP and allow us to then go and resell the software. The management structure, and this is why I teach a lot of founders today that are in that boat, that have an agency that want to build software, is you really need to build it as a separate entity. Because if not, you’re always pulling on your resources because we have a guaranteed billable project, and you have this kind of skunk works thing. You just never give it the attention that it needs to really have a fighting chance.
John Warrillow: Is that one of the big learnings that you derive from trying to launch products within a service company?
Dan Martell: That was everything to me. What I teach people today to do is kind of figure out what level of profit you want to invest in this new product. Where are the people gonna come from, and ideally they’re not on your team. Then what’s the 90 day product roadmap that you want to put together that you can commit to? Because what happens when you have a successful and profitable business is you start pillaging your P and L right? You’ve probably had clients that have had successful businesses and just even want to open up a new division or they want to do a little side thing, and it’s all of a sudden this profitable business becomes break even at best if not starts losing money because you don’t have the same fiscal discipline that you would have had when you started the business.
Dan Martell: That’s the funny part is you stop acting the way you acted when you started the original business because you get more comfortable. You think you want to move faster, people are paying attention, so it’s got to be done at a higher quality level, all these things that are not true. It was at the point where we had an opportunity from one of our partners to exit. That brought the opportunity even to my awareness. I never built the company to sell. I got lucky. I actually read your book and was like, “Man, I really wish this was around back when I started this company,” but we just got to a point where it’s like, I really want to see if my crazy software ideas would hold water. After I exited my business, I actually moved to San Francisco to give it a shot.
John Warrillow: Interesting. So let’s talk about the exit itself. It’s a 30 employee company. You mentioned you got approached by a partner. Maybe talk a little bit about how you actually took it to market.
Dan Martell: Yeah. What happened is we had four or five integration partners, so these are bigger companies like IBM global services and Tata Consulting. They’re multinational kind of, they have the relationship with the customer and they bring us in for this specialty, which is if one of their customers buy this Plum Tree software, we’re the number one plum tree experts in the world.
John Warrillow: Got it.
Dan Martell: They’re seeing the growth of the market, and they’re in other tangential markets. It’s really about we want to be in this new growth market. Here’s this company that has the team in the specialty and the brand awareness. We can either buy versus bill, and I think that that’s what happened. One of our partners said “Have you guys, have you guys thought much about like remaining independent or potentially joining forces,” and I’m like, “Well, what would that potentially look like?” They kind of throw out some numbers and I was like, I reached out to some mentors and they were like, “If this is a real thing, you should do some due diligence and kind of look at the other people and your other partners.” That’s what kicked it off. That’s why I ran my own process because it was initiated through one of our partners. We had enough other partners for me to kind of get more market validation and create a competitive process, and at the end of the day the numbers felt right for me to kind of pursue what I always felt was my kind of destiny, and that was to build product.
John Warrillow: Let’s talk about approaching the partners for a second. You had four or five integration partners that you went to and you sort of got this inbound sort of conversation started with one of them and then you went to the other four and said, “Is this something that you’d be interested in as well?” Is that that generally how it played out?
Dan Martell: Yeah. The language that I used, it’s funny because I’ve used this in every other company I’ve built since then was, “Hey, we recently got a inbound requests from a partner that’s made us think twice about remaining independent, and we just wanted to reach out to see if this is a conversation we should have before things get too far along.”
John Warrillow: Nice. I think I can hear some rewind button.
Dan Martell: Yeah.
John Warrillow: People are gonna listen to that over and over again because that’s a beautiful way of characterizing.
Dan Martell: It’s not saying I want to sell. It’s not saying I’m going to sell. It’s just saying, “Hey, we’re having conversations with one of our partners that are making us think twice about remaining independent, and we just thought we’d reach out to see if it’s a conversation we should have before things get too far along.” I’ve used that email since then, that structure to reach out cold. Here’s 15 potential acquirers, we’ve got six that are warm. How do I get those other ones that are cold a ramped up? You can literally, I mean if you don’t have time, it’s like you could use that email to some CEO of another company that you’ve never met. It still works.
John Warrillow: Beautiful, and it hits all the right buttons. It doesn’t say you want to sell, doesn’t say you’re desperate to sell, but it certainly says that they’re going to miss out on an opportunity if they don’t take action. How many of the five integration partners eventually sort of responded and showed some genuine interest?
Dan Martell: Well, really two and a third that kind of wanted, but they didn’t have the ability to kind of pay what was going to be required. But that was fairly quick, like within five days of just quick conversations about our business, where we were at, where we thought the opportunity, our leadership team, all that fun stuff. Then through some mentors and other people I knew in the industry, we kind of talked to I think seven other companies that were similar, and then kind of got three you know competitive term sheets, and then went with the one that we felt was the most appropriate.
John Warrillow: Got it. In terms of the leadership team, where they shareholders option holders, phantom equity? Like how did you incentivize the leadership team?
Dan Martell: Yeah. The way I thought about it, and I’m not sure I would replicate this today. Well, I know I wouldn’t, because I’ve done it since. I needed a kind of a manager or an owner per kind of part of the business. At the time of exit, where we had like kind of three, we started with the portal software that was 60%, 70% of the business, but we were starting to build these other divisions. I just figured I’m 7% was about fair. So 21% was to them, and then the balance was to me. That’s how it flowed.
Dan Martell: I’ve read your book. You have way better, smarter incentive programs, I think. Now with my two venture back companies, we use pretty traditional kind of Silicon Valley vesting and one year cliff and monthly vests and four year kind of structure. Back then was almost like I knew them long enough, trusted them, felt they were super important, so 7% felt good. That’s what everybody got.
John Warrillow: Was that 7%, were they making a market rate salary, or were they being paid under market and being sort of definitely under market?
Dan Martell: Definitely under market, and the reason why is my team was Canadian, right? I just decided to hire people from small towns strategic. Sometimes I feel like I was so cheap back then, but it was just made- I came from a small town of 100,000 people. I thought, you know what, there’s really great talent. I just need to find these talents in those other cities and then build a training program to bring them on board, ramp them up in deploying the customers. I would say based on what I billing them out for 100000% under market, so like they were probably 60% of market, but fairly on par for where they live.
John Warrillow: Got it. I want to go back to the three integration partners that expressed an interest. In fact, all five that you’d reached out to. I think if I’m putting myself in the shoes of listeners right now, I’m thinking that a lot of people are asking, okay, how did you have those conversations without fully committing to selling your company? I mean, did you feel like you could back away from those conversations and put the lid back on this idea of selling, and continue to run and continue to think of them as your kind of key essentially sales channel in the marketplace? How did you think through that? Did you feel you were risking those relationships by letting them in?
Dan Martell: No, I think there was an element of it’s almost like dating, and all of them know that you’re dating. I made sure that I never got things too far, that if I said no, that they would be insulted. It was always like a conversation with the CEO. I really forced them to a position of if this worked out, kind of how would you see things? I think what happens is a lot of times when you’re going through a process, it’s the expectations-reality gap at a point in the future too far along, right? So if you can do that early, and that’s all I do is I just push them to get to real numbers sooner, then what I’ve seen some companies do is they say, “Well, we’re not sure. Our range is this.” The range is ridiculously big, and we’d have to do due diligence to really understand things. I went in and said, “Look, here’s our business. Here’s my vision for the company. Here’s the economics, here’s our numbers. We’re having a discussion, we’re not sure where it’s going to go, but if you’re interested in discussing it, let us know.”
Dan Martell: I would just push them in that next meeting to kind of talk about how that might look from their perspective, and if I didn’t feel they were directionally on the same plate, then I didn’t pursue it further because I didn’t want to get further along and then find out that we were so far apart that that would potentially cause friction in our relationship.
John Warrillow: Got it. For the three offers that you got, did you get a range? Like we’d pay between x and y under certain circumstances, or did they give you an actual number?
Dan Martell: It was very detailed number, because our business was very traditional. Most enterprise consulting, in this industry, the numbers are pretty straight forward. If you can do a strategic, that was great and we definitely got a kind of an increase in the valuation based on that argument, but it wasn’t dramatically different.
John Warrillow: Got it. What was the difference between the lowest offer and the and the highest offer of the three?
Dan Martell: I believe it was about 40%.
John Warrillow: 40%. Okay. Again I’m asking this because an entrepreneur getting a term sheet letter of intent for the first time, I’m sure it just goes right to the number, right? Like what’s the number?
Dan Martell: Yeah. I think that’s what you’re alluding to, that number. I always say in negotiation, it’s like your price, my terms, or your terms, my price. Right? Essentially what I was trying to do this might help your listeners, is in the negotiation, I was trying to get to their number, and then I would negotiate my terms, but as soon as I got them nailed on the number, then I could start thinking about what’s important to me. For example, I didn’t want a long earn out. Traditionally, agency earn outs can be two, three, four years. I negotiated six months. You argue all these other points, escrow, how much do you think should we put into escrow?
John Warrillow: By the way, for folks listening escrow would be a percentage of the overall consideration you’re getting for your business. Basically put an account that a lawyer manages for a period of time, six months, a year, to basically guarantee that some of the representations and warranties that you’ve made in the process of the negotiation are not fraudulent. You haven’t lied. There’s nothing majorly different between what you said was
Dan Martell: Lawsuits and case notes pop up. A ton of stuff. Most people that go through it the first time, they’re like, “What, how much? You’re putting that? Okay. It’s kind of like it’s always about how much is it upfront, how much if there was an equity component. In that business, it was a cash deal. In my two other other companies, it was a variation of them because they were venture backed. Yeah, the numbers were about 40% apart, but the terms, I would say, were pretty close because I used that once, I got their number to kind of negotiate against each other, kind of level set those.
John Warrillow: So let me get this straight. In this negotiation, you wanted to look flexible, so you kind of got agreement on the number but then you sort of you employed your negotiation tactics around the terms?
Dan Martell: Yeah, so then if they wanted a term that I didn’t like, I’d put the price up.
John Warrillow: Got it. Okay.
Dan Martell: See most people don’t do that, and then it’s hard to negotiate because it’s like apples and oranges.
John Warrillow: Right. You’d be like, “Yeah, we can meet you on your price, but you’ve got to do a three year run earn out.” And you say, “Well, if you want me to do a three year earn out, the price just doubled.”
Dan Martell: Doubled for sure. I call it the value creation. What’s my yearly value creation worth, and it’s a lot more than whatever that number. It’s kind of like use stuff like that. It’s like look at, I don’t know, I’ve done this a couple of times and have worked with a lot of tech founders. It is what it is, and at the end of the day, it’s all about optionality and it’s running a process and creating a competitive process. I just think I got lucky in the first one that we had those relationships to even quickly circle back to show the initial person that we weren’t going to not shop it. I think that’s a big thing that people do is they get one offer from one company and they’re like, “Wow, that’s amazing,” and they just keep moving forward on that one. I’m all about if I’ve got one, I’ve got 10. I’ve just got to find out where those 10 are and get them ramped up as quick as possible.
John Warrillow: Yeah, no, for sure. What do you mean by optionality?
Dan Martell: I mean optionality, it’s like I want to have the option. If you get to a number and then you find out it’s all equity and you don’t have good competitive process, you can’t negotiate for a cash deal, right? So it’s like just having enough demand in the market for your deal to be able to give you leverage to negotiate to me is optionality, right? Of what do I really want? I remember, so one of the most amazing things in my last exit was the CEO of the acquiring company calls me out of the blue real quick. There’s three other companies in the race, and he says to me, he goes, “Dan, I just want you to know that I don’t expect you to stay more than a day.” I almost did like a golf clap. I was like, “Well done.” Like, do you ever know founder’s, like … He goes, “Look, man. At the end of day, you built a great product,” and he started giving me all the reasons. His number was lower than the other ones. I’m not going to say by how much, but. I just feel-
John Warrillow: Did you end up going with that guy?
Dan Martell: I did. I did. I’m not ashamed to say it at all. Like I said, we know what our time’s worth. At the end of the day, not only that, they weren’t going to integrate and close the product. A lot of other companies, this is another thing about optionality. How do you want your team to be treated? Well, if you only have one or two suitors and you find out they’re both bad actors when it comes to like the way they treat their employees, well then you don’t have any other options. This is the thing I find is when people get into an exit process, it’s almost like they start checking out of the business. They can’t build an exit at the same time, and once they go down that path, it’s almost like they’re already spending their money in their head, and it’s really tough for them to come back. The buyer has them by the jewels.
John Warrillow: How do you guard against that, having more players?
Dan Martell: You create a competitive process by trying to find other suitors and letting everybody- I would do weird, this wasn’t spirit because I wasn’t that smart. But my last company that I exited, Clarity, I met with the three CEOs in New York. There was a bunch of companies we’re talking to you, but three of them were in New York because there were all in the same kind of market. I created an event for other entrepreneurs in the city, and I invited those three CEOs to that event, so that they knew that I knew each of the other ones. That’s the kind of, and that’s why I said before we start recording, I said, I love like fundraising. I love BD. I love the psychology of it. I didn’t have to say anything, but I said everything.
John Warrillow: I love it. Beautiful, beautiful, beautiful. I remember my last company, we produced a large scale conference every year, and we did exactly the same thing. We brought all the suitors …
Dan Martell: Why not?
John Warrillow: … to be speakers at the event, and they saw each other and knew each other. It’s kind of interesting. Love it. Okay. So what would a company like Sphere, what would an enterprise consulting company typically sell for and your experience, like in terms of multiple of EBITDA?
Dan Martell: Yeah, so the industry norm, because I’ve helped a lot of my friends exit their agency businesses, between kind of south of 5 million. I think 5 million plus, you get kind of these micro PE companies if they’re doing a roll up, so it might kind of sway the economics differently. Usually 0.7 on gross revenue or kind of 3x on EBITDA is kind of the range for sub 5 million a year companies.
John Warrillow: And that would be the downstroke, what is available kind of cash up front, or would that be including the earn out?
Dan Martell: That would be the price, and you would keep everything, the cash in the business as well.
John Warrillow: Got it. So there’d be an earn out on top of the three times EBITDA?
Dan Martell: Yeah.
John Warrillow: Got it. Then in your case, what did you guys sell a Spheric for?
Dan Martell: Yeah, we’ve never disclosed that. I’d love to give your audience and exclusive, but I figured I’d just give people enough info to make their own math up in their head. It was an awesome outcome. I was 28, you know?
John Warrillow: Awesome.
Dan Martell: I think you never forget your first customer, your first dollar and your first exit. It was game changing. It was life changing in the sense that it allowed me to think about possibilities, and I think until you get to that point in your life, you’re always kind of just hustling and grinding and creating. To get to a point, especially, like, I came from a really tough childhood, and most entrepreneurs have, so it’s nothing new. But it was a pretty special moment.
John Warrillow: What was the biggest mistake you made after you exited?
Dan Martell: I’ll be honest with you, I haven’t shared a whole lot of this, but I think it’s something people need to understand. I actually went into a depression, and the reason why, like I had to go see a therapist, I got anxiety attacks. I mean, it was crazy. I’m like, I’m such a personal development, personal growth, positive dude, for my body to physically react and me not be able to control it just really threw me out of whack. The reason why was I had wrapped up my identity in this business, and it felt like losing a child. I didn’t have kids at that time. It was so crazy to me that something, I devoted my life, a hundred hours a week, there was no balance. Zero balance for four years had that much of an effect on me.
Dan Martell: I definitely took that lesson forward in every company I’ve built since then is my business is not me. My self worth is not tied up to the outcome of the business, and this was a positive outcome. It was crazy. I remember the first day I woke up and I didn’t have anybody that needed me to wake up, and I got depressed over that. It was so weird because here I was, the financial means to do anything I wanted to do in the world, and what I lacked was a sense of purpose or a sense of being needed. It was weird, and I don’t know if you’ve ever had listeners or your audience share that with you, John, but for me it was how am I sad for this outcome that on the outside everybody would want? Yet for me, I realize that was almost like it was who I was.
John Warrillow: How did you overcome it?
Dan Martell: Therapy. My therapist gave me something, said go buy a boat. Spending time on the water is great. I was like, “Okay.” My dad was like, “Why are you buying this boat?” I was like, “My therapist told me I needed a boat.” I literally bought a wakeboarding boat and spent a lot of time, pretty much three months. It was just through journaling, thinking about kind of the future, and switching from kind of this, I was very- it’s so funny. Two different worlds. I used to wear a suit and tie every day as a 24 year old. Now I haven’t wore a suit and probably six years, so like two different personalities, right? Like, the young person trying to punch above their weight to now I could care less kind of thing. It was just this process of discovering who I was and what was my purpose, and what’s the impact I want to have on the world outside of building a revenue business. That took a while. But I’ll be honest, I think spending time in the water was actually some really good advice.
John Warrillow: How have you found the balance between not getting your ego tied up in the business but still on the other side, having the drive to build two additional companies, because a lot of people I think can get over the fact that hey, your company’s not you. You can have a life independent, and you can go enjoy the fruits of your labor but then get soft and squishy in the middle because they’ve sort of lost the edge.
Dan Martell: Yeah. I felt like I had that opportunity, and many people that I talked to, it was weird first world problems. The hardest part you’re going to have now is keep yourself motivated that you don’t actually have to do anything. It’s like, “Really? Wow, that’s interesting.” What I’ve learned is I still drive like I’ve never been driven before, it’s just from the context of regardless of what happens, I’m valuable, my ideas are valuable, my experience is valuable, my lessons are valid. Those are me, not the business, right? I say this to parents all the time. My kids are four and five years old, but I see these mothers with like kids that are 17, 18, going to university, and their identity is tied up into their kids’ success.
Dan Martell: That’s the same thing, right? My self worth is not the profit of my business, and I think at the end of the day, the question I always ask myself is, “Did I make the best decision with the information I had at the time?” If the answer’s yes, then nobody could hold that against me. My investors can’t be mad at me, and I’ll never be so hard on myself. I don’t think that drive has to come from a place of service and value creation. It can’t be from a place of ego.I think that’s probably what it is now that I say that out loud. It was the difference of building Spheric for my ego versus building my last two companies to serve the world. I think that’s how you kind of work with that.
John Warrillow: It’s great advice. It’s great advice. I think you’re in a great position to offer it because you’ve done three of these now. As you look back on the last three companies, and you think about Spheric and the two more recent ones, what has been the biggest lesson that you’ve learned through the three exits that maybe you didn’t know when you started?
Dan Martell: I think day one, people who say like, do you build the cell? Never, but day one I reach out and try to understand the people that would buy, right? Regardless what business I’m in, literally, and I give this advice all the time now because I’ve been approached, is no matter what business somebody is in, find the potential acquirers and ask themselves what do you value, right? I just think it’s crazy if you don’t do that because then it’s really just luck, right? But at the end of the day, a really good friend of mine runs a home building company, and I was like, “What’s your strategy?” He says “Well, in 10 years I want to build it up and then sell it.” I go, “Well have you talked to companies that buy home building companies?” He goes, “No.” I’m not saying you have to, but I highly suggest it, because what if you like found out the thing that they value is not the amount of homes you build, but the way you build the houses or the customer segment you service or the contracts, the sales team you have?
Dan Martell: Wouldn’t that change your decisions on a quarterly strategic basis about how you create value? He’s like, “Oh, yeah.” I would say that’s the big one. I think most entrepreneurs don’t ever feel like they’ll get to a point to create things that are valuable to others. I don’t care what stage, $80,000 in revenue year one. I think it makes a lot of sense to understand, so that’s a big one. I would say partnering with companies that could acquire you is always a good strategy. I know that Microsoft was notorious for buying partners that they shared the customer base with, because that was a really great way for them to extend and then sell across across other markets quickly. I would say those are kind of the two things that in my next company, I’ll always, like I’m actually working on something right now, but I’ll do that right from the first for six months.
John Warrillow: So get to know the potential buyers very early, partner with them if you can but at least understand their motivations.
Dan Martell: Absolutely.
John Warrillow: Dan, this has been an amazing interview. Real pleasure to be with you. What’s the best way for people to reach out to you, learn more about you? Is there a site, or?
Dan Martell: Yeah. Dan Martell, two L’s, dot com. DanMartell.com, and I do a YouTube video every Monday where I share lessons learned about personal growth and business growth. Yeah, started from my two little boys, and it’s turned into I think 12,000 subscribers in the last 16 months.
John Warrillow: Fantastic.
Dan Martell: So I’d love to have your audience come over there and participate in the comments. My email is Dan@DanMartell, two L’s, dot com. If I can ever be of service, just reach out.
John Warrillow: Dan Martell, thanks for joining us.
Dan Martell: Thank you so much John. Appreciate it.