How do you buy back the company you sold?

Jason Kirby (00:02.465) All right, welcome back, everyone. Totally butchered the intro there, sorry. Welcome back to Fundraising Demystified. Today we have David Radnicki with us, former CEO and founder of 3Q Digital. Welcome to the show. David Rodnitzky (00:06.522) Yeah. David Rodnitzky (00:22.394) Jason, thanks for having me. Jason Kirby (00:24.449) No, David, I'm really excited to have you. You have a really unique background and story of how you built a company, you sold that company, saw an opportunity to buy back that company, and then later sold that company. And so you kind of have this unique transaction history. You managed a ton of money. It was a marketing agency. You managed billions of dollars in ad spend. I've done hundreds of millions of dollars in transactions. I think you're going to have a fascinating story to share, but I'll stop talking and let you. Kind of just speak to, you know, what, what is your story and kind of how did you end up to where you are today? David Rodnitzky (00:58.746) Yeah, I'll try to give you the two minute elevator pitch. I started out, I was a graduate from law school back in 1999 from University of Iowa, from Iowa originally. Moved to the Bay Area, San Francisco Bay Area, because I didn't want to be a lawyer and I didn't want to be somewhere without mountains. And I happened to have a best friend who was living in the Bay Area. So came out to the Bay Area. It was 1999. It was the first dot com boom. They were people, companies were hiring warm bodies. And there was a company called rentals .com that hired me to be manager of strategy, which meant absolutely nothing. And, I just kind of did a lot of market research for them, you know, competitive strategy. And at some point about six months into the gig, the director of marketing quit and there was no other new marketing. And the company had a $25 ,000 a month retainer with a brand agency and a $25 ,000 a month retainer with a PR agency. and I said, I can do this. I had no idea what I was doing, but I took over. And I got pretty frustrated with both agencies because I didn't see any real ROI from what they were doing. And then I discovered a little company in Pasadena, California called Goto .net, which was the first company to do pay -per -click advertising when you only get charged if someone clicks on your ad. And I basically took all that budget from the $50 ,000 a month from these agencies and threw it into this Goto .net. And I went from getting no measurable traffic to getting hundreds of thousands of clicks for like three or four cents a click. I just was hooked. I was like, this is really going to be the future of marketing. So the next seven or eight years, I just doubled down on learning everything I could about this world of go of pay -per -click marketing. Also search engine marketing. Obviously Google then came along. Google adopted this as their standard for how they bought people, bought ads on Google. And around 2008, I had been working for a client side seven years and I was just, kind of tired of having to be involved in politics and working with other people's businesses as an employee. And I was traveling to India once a quarter for this one company and my wife was pregnant. It's not a good idea to be in India when your wife's pregnant, I guess, unless you live in India. And so I just quit and I didn't know what I wanted to do, but I knew I didn't want to work for another company. And I started an agency, basically. Jason Kirby (03:11.201) Yeah. David Rodnitzky (03:21.946) Initially, it was a consulting firm, but people kept asking me for help and I realized I could hire some folks and started out as a Google advertising agency and then gradually expanded it into a much larger agency than that as I realized that I was getting clients who are saying, we want one throat to choke. We want multiple services with one company, not just being really good at Google advertising. I can keep going there or we can... pause, what's the best way to continue, Jason? Jason Kirby (03:53.665) Well, no, so we kind of hear the story of, you know, the concept of building 3Q, but when did it start to really take off and to what scale did it reach? And when did you decide, I think you sold it in 2015, you know, walk us through that journey, getting to that point of selling it and kind of what the decision process was at that time. David Rodnitzky (04:17.306) Yeah, I mean, it took a while to scale. You know, 2008, the first year I was in business, I probably did $100 ,000 of revenue. It was really just me and a coffee shop. You know, 2009, we probably did $500 ,000 of revenue. And I think I had one or two employees and I moved from a coffee shop to like a WeWork. And then 2010, you know, we're up to about a million dollars of revenue. And I got a 600 square foot office and a lot of remote workers. So it was growing very sort of organically, I guess, but not super fast. At some point around 2011, 2012, I started to see some sort of breakthrough velocity, started to get much bigger clients. We had a lot of success actually with venture capital firms starting to send us business because we started to build a good reputation in Silicon Valley. And so we had three or four venture firms who basically almost as a matter of course, when they took on a client in a certain vertical that they immediately sent them to us. And we started to really see a lot of traction there. We started to double down on our marketing in the Bay Area. So one of my adages that I really love in marketing is if you can't be number one in a category, create a category, you can be number one in. And so for me, I realized I'm not going to be the number one agency in the world, but maybe I can be the number one something. And what I decided was, I think I can be the number one performance marketing agency serving venture -backed clients in the Bay Area. And so we really sort of started to build that reputation. We attended every conference we could and marketing in the Bay Area, we spoke on it. We did billboards on Highway 101, which is a through fair of Silicon Valley. We did ads on NPR's marketplace. We held a client conference at the Giants Stadium and invited potential clients. And basically got to the point where we really sort of became the de facto choice for companies that were particularly in S &P, SaaS, direct to consumer, and then companies that were doing anything on social media. We were getting all that business. And so in 2014, we acquired a smaller competitor, which I can talk about. It was an all equity transaction, but there was a local agency that was similar to us, but a little bit smaller, that we brought it under the fold for all equity. And then in 2015, we started getting a lot of interest from David Rodnitzky (06:37.594) potential acquirers at that point, we were probably about 15 million top line and maybe not a lot of bottom line. We really optimizing for growth. So we're probably doing about $2 million of bottom line at that point. And, you know, we had just people calling us all the time saying, Hey, we were looking to fill this need for performance agency. We weren't really serious about selling, I guess, but we We were serious enough that we hired an investment banker and we basically said, let's just, you know, you, you take all these calls. I shouldn't be spending my time, you know, talking to companies, you know, you take the calls and, he took all the calls and at some point he said, look, there's enough people who are calling that I think you should at least hear them out. And so, we decided to run what I describe as a mini process. So rather than running a full process where you send out, you know, a 60 or 70 inquiries to people who have maybe not even reached out to you, but you just think are good fits. we really only just reached out to the six or seven companies that were already banging on our door. And one of my adages is great companies are bought and not sold. So I felt like we had some leverage by saying to all these companies, look, we're not for sale, but if you really want to buy us, give us an offer that we can't refuse. And so we did the mini process in 2015. Want me to continue or where should we go, Jason? Jason Kirby (08:01.857) Yeah. So like, you know, who ended up, who ended up buying you in that, and like, what was that process like? So you kind of see, you had some, you're flattered, got some inbound interest, get the, you know, the, iBanker involved. And at this point, you know, did you start seeing like tons of offers? Was it difficult to actually get LOIs on the table or term sheets on the table? Kind of, what was that kind of, that interim process before you actually ended up selling? David Rodnitzky (08:31.034) Yeah, so we reached out to the seven folks that had expressed interest and we ended up getting three IOIs or LOIs. I mean, I guess you'd say they're IOIs really, maybe is a way to describe them. And they were pretty different offers. There was like one that was, I think, a publicly traded agency. There was one that was a privately held agency and there was a third that was a strategic that was publicly traded. And I guess one of the things that was sort of very interesting about this transaction was that, you know, I've always like thought about like the world of real estate where, you know, if you put your company up for, if you put your house up for sale, and it's raining out and there's six other houses for sale on your block that, that week, you might get a very bad offer, but if it happens to be super sunny and there's no other houses for sale in 20 miles, you might get an outsized deal. And so I think that often happens with, with transactions and and A. And in our case, we got really lucky because one of the companies that was bidding for us, it's a publicly traded company, and they had announced to the street they were going to make an acquisition, I think, in Q4 of 2014 in the performance agency space. And Q4 of 2014 came and went and they had a prospect, I think they were trying to close, didn't close. So now they're a quarter behind what they had promised the street and they're starting to feel pressure from investors. So we were their next. Target and they basically came in and they did really aggressively to win the business. You know, it's publicly traded publicly available information. So I'll share that like, you know, we were at about, again, we were like maybe $2 million to be with that. And, you know, with with adjusted even that maybe we got up to like $3 million or something like that. But these guys ended up bidding $65 million for the business. And and I would say that the standard for like a $3 million adjusted EBITDA business at that time would probably have been in the 35 to 40 million range. And in fact, the other bids pretty much came into that range, but it just so happened, it's better to be lucky than good sometimes that we had someone who just needed to make a deal for a variety of strategic and market reasons. And it was kind of a no brainer for us to accept the terms of that deal. Now there were some aspects of that deal that turned out to be Jason Kirby (10:53.409) Yeah. David Rodnitzky (10:55.45) a little bit precarious for us, which I can talk about, but from a top line number, it was hard to say no to a deal that was literally 50 % greater than any other bid that we had. Jason Kirby (11:06.721) Yeah, that's tough to say no to for sure. And, you know, obviously an exciting moment when you kind of get that opportunity. But, you know, when it comes down to negotiating, you know, just for our audience, just to have that kind of insight of like, what does it look like when, all right, sure. You get that $65 offer and everyone usually is kind of wow and dazzled by the top line number. But as you kind of alluded to, it sounded like there might've been some strings attached. So it'll walk us through kind of what that... was like, given what were some of those strings that were attached. David Rodnitzky (11:37.754) Yeah, so the biggest string that was attached really was that about 55 % of the value was an in -earnout and that earn out was a three year lump sum earn out. So we had to work really hard for three years and then try to get to the end of that and get the full amount. In the negotiation period, we had a lot of, as you always do, a lot of contentious back and forths and We were lucky, I think, to have a CEO on the other side who really wanted to get the deal done and was a really fair -minded person. That said, and I really connected with their CEO, that said there were a couple of times in the deal where he was like, look, David, I'm on your side. Trust me, I will make sure that you're treated well on the other side of the transaction. And I said to him, sort of a... As a joke, I said, as my rabbi has often told me, trust in Allah, but watch your camels, which I think is kind of a good rule of transactions, which is, I look, and I said to him, I said, look, I trust you, but you might be gone in six months. And the new person's gonna come in and say, well, I don't know what conversation you had with the old guy. And in fact, that's actually what happened. He was under a lot of pressure to turn this business around. And about three months after they closed the deal with us, he got fired and a new person came in. My biggest lesson from a negotiation perspective is what I already said, which is don't leave anything to trust. If it's not in the old document, don't do it. But the other issue, the big sticking point in that negotiation was this earn out that was based on three years of performance on our part. And that turned out to be a very consequential term. because we got towards the end of the three year term for the deal and we got approached by the management team of the company that bought us that said, listen, we would love to renegotiate this, this earn out. Cause we were at a hundred percent of the earn out. We hit, we had a hundred percent. We essentially had to double the business in three years, which we did. Jason Kirby (13:48.993) You David Rodnitzky (13:56.426) I should also say one of the other points that I made to the acquirer was I said, look, if we're going to have a three year lump sum earn out, that's the majority of our, of our compensation on this deal. We need to have full control until you pay us earn out. So I said, we're not merging our accounting teams. We're not merging sales. We're going to keep our name. We're going to keep our offices. We have hiring and firing rights for our people. We can, we can, we can choose it to, you know, negotiate whatever contractual deals we want with our clients. The moment that you pass that three year earn out. You can do whatever you want. You can change your name. You can fire me, et cetera. So we got to the end of the earn out and the acquirer said, listen, let's, can we renegotiate this? Can we have like a one year extension to pay you what we owe you? And I wasn't super happy about that, but I was like, you know, we negotiated a good interest rate on it. And I said, sure, you know, we'll help you guys out. And then about six months after that, they said, Hey, can we have another one year extension? And at that point I said, you know, I think I think we'd rather just have our money and move on. And so we started to get into some more challenging conversations where they were really putting some pressure on us to consider changing the earn out. And at the end of the day, we couldn't come to an agreement. I said, no, I'm not giving you another extension. And they said, if you don't get another extension, it could have significantly negative financial consequences for the business, which could hurt you. because we were essentially unsecured creditors, which is another topic we could talk about, about being a secured versus unsecured and whether it even matters. Cause sometimes you can call yourself a secured creditor, but like a bankruptcy court would declare you an unsecured creditor. So anyways, we ended up, the only way we ended up solving this was deciding to say, listen, you have to put us up for sale. You know, then if you put us up for sale, we'll get the proceeds of that, we'll go to pay our earn out and you can be absolved of your obligations. So, Jason Kirby (15:33.601) Yeah. David Rodnitzky (15:48.89) So that's what we did. Jason Kirby (15:51.713) That's unfair deal making. You know, kind of given the fact that like, clearly there's something going on, you know, maybe the, they're not able to get the money to pay you guys, which needs to happen. You guys have feeling that out. So it sounds like you handled that negotiation. I granted, you're probably glazing over the immense amount of intensity of those negotiations and the back and forth and the lawyers and all that, you know, the, the true chaos that happens in some of these deals. but you know, manage the outcome, put it up for sale. And then actually. Is it true that you were the one that ends up buying you back? Is that how that worked out? David Rodnitzky (16:26.138) Yeah, that was not my intention. I actually flew around the country to my biggest competitors and I presented them and I said, listen, this is a deal, great deal. You buy, I know exactly how much you have to buy us for. And the value of the company would be worth two X in less than a year because we're turning the, turning the ship around in terms of EBITDA and things are looking really strong. And I couldn't get anyone to offer what I thought was a very, very good deal for the acquirer to buy the company. So at the end of the day, I went back to parent company and I said, listen, we will make an offer to do a management buyout. So we went and we raised $10 million from a local bank and we sort of pledged our own debt that they owed us as part of the purchase price and we were able to buy the company back. It wasn't my intention initially, but that was the best alternative to a lot of bad alternatives. We did end up buying the company back for about 65 cents in the dollar for what we sold it for three years later. So we already knew we had a good deal and, and the business had doubled from a top line perspective. And then by the time we were done buying the company back, the EBITDA had probably doubled as well. Jason Kirby (17:34.305) So, you know, masterclass and deal making, albeit maybe not the underlining original strategy going into the boardroom, but still a good outcome and net positive for you. Their mistake for maybe doing a deal is bigger than they could take a bite out of or chew. And then, you know, you guys get to kind of rescue the company. And from there, so that's a several year journey. over the midst of this, you built this great business, but how are you feeling towards post -acquisition? Because you had another transaction where you brought in some other investors and then eventually you sold it again. So kind of give us the cliff notes of that. David Rodnitzky (18:14.074) Yeah, I mean, we were, when we took the company back, we really were excited to be independent again. And we actually made t -shirts up for all the staff that said three Q and independent agency. Very excited that we were running the company again. We had a lot of success immediately juicing the EBITDA and winning some big clients. And then the same thing happened to us as before, which was we got all this inbound inquiries from companies that, you know, you're back on the market and you're two times as big. We'd like to talk to you. And so we ran a. a mini process, we didn't really include companies that were just, we didn't send out 60 SIMs, we sent, you know, seven or eight to people who had talked to us already had an investment banker. And we ended up getting a really good offer from a combination of two family offices in Chicago that, you know, wanted to want to buy the business and also wanted to, you know, sort of add some capital and expertise that they thought could help scale the business. And so we were only private again for about a year. And then we accepted the terms to become part of a, you call it private equity or family office led business. And then at that point, about six months into that journey, the company was already at about 500 people doing high eight figures, eight figures of revenue, if I get my figures right, and in the tens of millions of dollars of revenue. And I started getting a little bit tired. I've been doing it for, I guess, 11 years. And I also really honestly felt that the business was getting a little too big for me. I felt like I was more of a early stage or mid stage founder as opposed to an enterprise founder. So I'd found a guy to become a CEO and then very quickly promoted him to CEO. And then I became a board member and strategic advisor to the CEO until 2022 when, and that guy did a fantastic job. He literally, I think, tripled the EBITDA in probably two and a half years. And we sold it to a private equity backed holding company called Dept in Holland. And at that point, as soon as we sold it to Dept, I became sort of an advisor, but basically not. And subsequently I've left entirely. So I have an equity stake in the company, but I'm no longer involved in any sense in the daily basis. Jason Kirby (20:42.721) So I know that was quite the story and journey that you shared with us, but I think it's so unique and just kind of a testament of just the deal -making journey as a founder. You want to build a business, but you have these kind of core major milestones of selling, reselling, buying back, selling. As an experience is I find to be particularly fascinating, but I want to kind of change gears here because... You're an expert in the marketing world. You built a very sizable company in this space. When it comes to like a marketing agency, you wrote a book on how to sell them, how to sell marketing agency, why to sell marketing agency. I guess kind of what makes a business in this case, sellable. Like what makes it attractive? And if a founder is running a business in this case, maybe a bootstrapped agency of some kind, what makes it attractive to be potentially bought? David Rodnitzky (21:38.394) Yeah, I mean, I think there's hard factors and soft factors. The hard factors are things like EBITDA. EBITDA, the past 12 months of EBITDA is the number one factor people look at when determining the value of a business. There's also your company or growth rate, both of EBITDA and revenue. There's things like revenue concentration, which can be, generally is not good, but you know, that sort of thing, recurring revenue versus project revenue, recurring is preferred. The strength of the management team, the strength of clients, the degree to which you're a leader in the industries that you're targeting. At the end of the day, it all comes down to, does the acquirer feel like this is a business that's going to continue to scale and has the opportunity to scale even faster than scaling now and and drive significant profit. And a lot of times there are agencies that get excited about it. I have this big client. Apple's my client. OK, that's nice, nice. But if your EBITDA is $200 ,000 a year and Apple's your client, you're not going to get a $100 million exit. You're going to get an exit on EBITDA. And the same thing is true for agencies sometimes say, I built proprietary technology. So I want to be valued like a software company and not an agency. And I always say to these agencies, like, look, if people are buying you for your services, it doesn't matter what your technology is, you're going to be valued as services agency. So there are a lot, there's some qualitative things about like, do they believe in the management team? Do you have? a diverse stream of clients, but at the end of the day, it's how much profit do you have and how fast is that profit growing that really drives the multiple -hundred agency. Jason Kirby (23:33.153) And what do you typically see as far as a range of multiples? Because you're currently advising and helping agency owners and business owners sell their businesses. So what kind of multiples are you seeing as far as a range in this market? David Rodnitzky (23:47.386) I mean, it varies substantially. I think one of the biggest factors in determining the multiples is how big the agency already is. So an agency that's doing, let's say a million dollars a year EBITDA probably is going to get a valuation of something in the range of two to four years of last 12 months EBITDA. So two to $4 million. An agency doing $10 million EBITDA because it has more enterprise scale already could easily do, call it eight to 12 times EBITDA. So you could be looking at a $120 million transaction on a $10 million business versus a $2 million transaction on a $1 million business. And then if you get to the point where you're at $15, $20 million EBITDA, you could get into the sort of 15 to 20 times EBITDA range. It's about sort of predictability. And the bigger you are, the more likely it is that you have figured some things out to drive scale and you don't have the founder hit by a bus problem that the founder leaves and the business completely disappears. the agency is bigger than the founder. So it really does depend, but growing your EBITDA quickly is the number one way to get the highest multiple. Jason Kirby (24:59.777) It's easier said than done, but a clear target that founders should be focused on. When it comes to saying, all right, I'm a founder, I'm ready to sell, whether I'm at the 1 million EBITDA or the 10 million EBITDA, how are these deals getting structured? You mentioned your earn out, you got the way bigger top line number, but you had the earn out, which created a lot of complexity and ultimately caused what happened. What do you typically see in structures and how do you typically advise founders to, what structures do you typically recommend they pursue? David Rodnitzky (25:34.33) I mean, the two most common structures in the agency space are either cash plus an earn out or cash plus a rollover. And so in the case of a rollover, you know, when you're reinvesting your stock back into the business, I would say typically you're looking at anywhere from call it 25 % to 40 % of your of the deal value being rolled back into the business in stock and the rest given out in cash at closing. In the case of an earn out, there's usually no equity component. You're given cash upfront and you're given an incentive over some period of years to hit financial metrics, which usually are EBITDA growth, and then you get paid the earn out. I would say that people sort of generally say that earn outs have a higher chance of litigation for a variety of reasons. I mean, we talked about my situation where the acquirer literally couldn't pay the earn out. So that's an opportunity for litigation. But probably the bigger one is that it's kind of the Hollywood points deal. You know how like a movie gets made and they tell some producer you're going to get 2 % of the profits, but then they never make any profits because they're throwing, they're doing a shell game where they're moving money from one movie to the next movie. And that can happen in an earn out too, where they say, yeah, we're going to give you a, if you double your EBITDA, we'll give you a hundred million dollars. But then. As soon as you close the deal, the bigger agency says, all right, well, I need you to work on this account for free because we really need to win it. Well, I can't do that. I need to hit my EBITDA. Well, sorry. We're not making EBITDA on this deal. It's a strategic deal. So that really can happen quite frequently. I mean, what an acquirer will say is they often like the rollover because it incentivizes the team that you're buying to be aligned with what the acquirer wants to do. you know, again, from the perspective of the person being acquired, if you are, if you have a rollover and someone else is a majority owner, you know, they may have different objectives than you. And so if you have a huge percentage of your net worth now in equity in a company that you don't control, that can be very nerve wracking. So there's pros and cons to both. I have done both. So, you know, I, I probably, I probably prefer the rollover just because I think of all the sort of Hollywood points issues with earnouts and the fact that I was burned once, but it's, it, there's no one right answer. Jason Kirby (27:58.273) That's some really good advice for founders as they think about what might come on the table. Because again, so many people can count up on just the top line number, but the intricacies of how the majority of it actually ends up getting paid out. It's super common because as an acquirer, you don't really know what you're truly buying. At the end of the day, the business could shut down. Anything can happen, so they want to de -risk it as much as possible. So it's kind of a give and take. Unless you just have an absolutely killer business and it's bought for all cash, these deals can get usually you know, messy at some point and I'm very much like top line. I think it's an easy thing to kind of agree to and, kind of an earn out, but like evident. Probability. There's just so many ways that the parent company can. throw things onto your, you're like, well, we need to share all the accounting expenses. we need to share all the legal expenses with you. And you're like, I'm not using those. That's not associated to us. And they can just eat away at your evidence. Like, you missed it. Sorry. No money. And you're like, what have I been doing for the last three years? Yeah. And so your experience in particular is marketing agencies, but marketing agencies, you know, a David Rodnitzky (28:44.698) Yeah. David Rodnitzky (28:57.05) Yep, exactly right. Jason Kirby (29:09.761) target audience, a certain type of service, but it's a very similar business model to a lot of other types of businesses. Do you see kind of the lessons that you learn and teach in the marketing space or the marketing agency space kind of overlap into like staffing agencies, law firms, or any other type of kind of agency service based business? David Rodnitzky (29:29.306) Absolutely. I mean, I think any almost any professional services business is going to be treated the same way as a marketing agency businesses. I mean, at the end of the day, when you're buying a professional services business, you're buying human capital. And so your success in growing that capital depends on keeping those people there. And, you know, I think the biggest fear that people have for any professional services firm is having a founder or set of founders who are intricately involved in the business, particularly when it comes to client satisfaction and sales, because the biggest fear is that you buy a company and then the founder says, you know what, I'm not really interested in doing this anymore. Thanks for the cash. I'm going to go sit on the beach. And all of a sudden, all the sales that you were expecting that founder to bring in through his or her networking and all the client relationships that this founder has built up for the last decade are now at risk. That is the case for any professional services business for sure. And that's also the other reason thing is that professional services businesses are valued on a multiples of EBITDA as opposed to multiples of revenue because there's no escape velocity, generally speaking, for professional services firms. You don't just apply a slightly better marketing campaign and go from 70 % gross margins and 90 % gross margins. But you do see that in the software world. In the software world, once you've built the product, once you've got the funnel going, that every new customer is pure profit. That's not the case in a professional services firm. The one thing I will say about professional services, which sort of stayed in the obvious, is that some professional services firms do have this unique layer of regulatory requirement. So like in the case of a law firm, a law firm can't be owned by a non -lawyer. I think the same is true for a physician's practice. So there are ways around that, but that adds an additional level of complexity. Not the case in marketing. There's no requirement that a marketing firm needs to be owned by a marketing person. Jason Kirby (31:30.401) No, I'm glad to share that. And then, you kind of mentioned how you financed the repurchase of your deal. So you basically said, I'll wipe out that IOU, the debt they owed you, plus you raised a little bit of debt yourself. When you see these deals getting done in the market now, how are you typically see these acquirers financing these deals and financing the initial purchase and then potentially financing the earn out? David Rodnitzky (31:57.21) Well, a lot of the deals that are being done in the marketing world today are private equity backed. So the private equity company at a baseline has raised money from limited partners and has the money to just put out and invest in these companies. But the private equity companies are also very often working with a bank to use leverage on the EBITDA that they're acquiring to make the transaction. depending on how aggressive the private equity firm is, they would look at anywhere from maybe just a one times leverage, all the way up to a three or four times leverage. And if you do the math, as long as your debt payments don't spiral out of control, it can be a lot more profitable to take out a loan and pay the interest on that than it is to give up 20 or 30 % of the company that you think is going to increase in value by 5X. Typically, that's what we have been seeing a lot of. At the end of the day, when you have good EBITDA in a business, it opens up a lot of opportunities. It opens opportunities for financing, for investing in the business, for building technology, et cetera. And that's what the best companies do. Jason Kirby (33:14.753) That's fair. And typically what I see is about that one to four X, you know, EBITDA in terms of financing and finding those banks and lenders is always something that's important to have those partnerships lined up before an acquisition. But also, you know, kind of leads me to my next question. Like, what have you seen blow up deals? Like what, when a deal looks like it's moving in the right direction and then abruptly blows up or, you know, has ended for any reason. David Rodnitzky (33:44.058) I mean, the two experiences I've had, one is if there's a hiccup in the business. So if the company is sort of signed an LOI with someone and they're in due diligence and some bad stuff starts happening to the business, you know, they lose a big client, they miss target, something like that. I mean, you know, acquirers can get spooked very quickly. And so... anything that's out of the ordinary. I think another thing people have said too is if the finances aren't well organized. I mean, if someone starts going into the financial documents and says, well, wait a minute, why is this here? And why didn't you tell us this earlier? I mean, that kind of stuff can spook an acquirer. I'd say another thing that I think can spook the acquirer is learning things about the acquirer that they don't like. So like, for example, in my case, I was about to sell to a large holding company that had a good reputation as a leader in the space. And I did due diligence outside of just asking their references for their opinion. I went to some people who had sold their business to that particular holding company that I knew personally. And one of the guys said, you know, These guys only care about revenue and anything that's not revenue producing, they don't support. So for example, they don't think that training of staff training is important because it doesn't drive revenue. That was a pretty crazy thing to hear. And I just sort of could imagine my team, you know, being integrated into this company and getting frustrated very quickly and have, and us having huge attrition of our top talent. So I was on the sort of half yard line with that company and I pulled back and I said, we're not doing the deal because that's, that's just not. going to work for us being a company that's our reputation is based on having the smartest, most aggressive marketers in the space. So those are some of the things that I think can cause problems. Jason Kirby (35:43.073) It's just commendable for you to go and put that extra mile into doing that research and doing that reference check and caring about the outcome of your employees. It's not in their control of who they get sold to and having your eye out for them and looking out in their best interest. Hopefully they appreciated it. Yeah, so it's hard to tell sometimes, but at least you were on their mind. I've dealt with that and the acquisition side, when we sold the Walmart, I was just like, we had some key players we just cared so much about. And Walmart was like, nah, we don't need them. I was like, we won't do the deal if you don't take them. And so one of those things where it's like, we would still do the deal, but we really, really don't want to without them. And, you know, we just push hard enough to where we were able to kind of push the line just over the hump to where we got to keep every. And that was so helpful just because morale would be destroyed if we lost those people. And they're expecting us to ramp up like crazy. And so that's just an important thing to kind of, as founders, think about more than just money. Sure, you can get a big number, but it's a breathing organism, essentially, with all these different moving pieces. And you've got to make sure it's all taken care of. David Rodnitzky (36:59.706) To that point, Jason, timing is everything in negotiations. And in your example of the employees that you think are important to keep, prior to signing an LOI when you've got six different contenders, you have a lot of leverage as a seller. And so you can say to them, look, I'm going to put this in the LOI. These six people stay with the company. After the signing of the LOI and before the deal is signed, you still have some leverage. Now you're only doing it with one company. So they know that Like if this deal falls apart, it's going to look bad because it looks like you chose someone that didn't work out. But still they want to get the deal done and you're still negotiating the terms. So that's even, that's still a good time to sort of use some leverage. But after you close the deal and the deal is signed, your leverage is whatever the contract says. And so if they, if you didn't protect those employees and they say, well, yeah, we own the business now we're firing these six people. It's gone. So, I, I recommend to people frequently, like, especially in the LOI stage, make the LOI as comprehensive as possible. Any sort of hiccup. any concern that you have, put it in the LOI. Make the LOI five pages, 10 pages long. A lot of people sort of have these LOIs that are like a page and a half that are just kind of fluffy, like, we're gonna give you this much money and you're gonna have a three -year earn out and that's it. But that's when you have the most leverage, because you have other alternatives to that deal. Jason Kirby (38:15.745) Yeah, because once you kind of sign that you go exclusive, you can't just bring someone else back to the table. And so it's very smart to kind of get as much. David Rodnitzky (38:22.074) And it looks bad if you go exclusive and it doesn't hap - the old doesn't happen. Jason Kirby (38:26.657) Yeah. Then it sends a signal that like all those people that would have bought were like, Whoa, what are they? Did they pull out? Did you pull out? Yeah. Are you going to pull out if we're going? Yeah. So it's, it creates a lot of, ambiguity in the deal making and just, you know, there's a lot of deals on the table and you're no longer the hot, you know, deal that people want to pay attention to because you might have some, some baggage. It's great, great advice, which kind of leads me to my next question. what advice beyond what we shared today? David Rodnitzky (38:31.674) Yeah, exactly. David Rodnitzky (38:45.946) That's right. Jason Kirby (38:56.865) would you give to founders who are maybe thinking about selling or have the big dream one day that they'll sell when they get to whatever milestone? What would be your advice to them? David Rodnitzky (39:08.506) I think the biggest advice that I probably give people is, are you sure that you want to sell? And I think that when you are building a business and someone dangles a seven or eight figure offer in front of you, the first thing that you think about as a founder is the beach house in Jamaica or something and having to never worry about finances again and this being sort of a life. Affirming moment for you and that all that can happen and can be very positive But the more I've been on the post founders side post exit founders side if you will the more I've run into founders who have dealt dealt with a lot of anxiety and depression after selling the business and The way that I would sort of describe the root cause of this is that when you sell your business Sometimes you're selling your purpose and identity for cash And so if you think about it that way, if you think about like, I've spent the last 15 years building this business, I've got a great reputation in space. I love what I'm doing. I feel like I'm, this is a mission driven organization that I'm trying to, you know, shape the world or shape my industry. And suddenly you give all that up and someone gives you a pile of cash and says, okay, we got it. We don't, we don't need you anymore. That can be very challenging. It was challenging for me. and it's, and I've talked to, talked to founders who have made transactions in the billions of dollars. who have had the same challenge. So I'm not saying that this means you should never sell, but I think it does mean that you should really do a sort of a pros and cons analysis of what's important to you and what do you want to get out of the transaction before you just take cash because it's a lot of cash. Jason Kirby (40:56.993) I think that's incredible feedback and as you know, we're both a part of the post -exit founder group and there's a lot of dialogue of this. So now what? Yeah, maybe you go on the sabbatical, you take the break and but then you're like, like me, I was like idle hands, like I can't can't sit and do nothing. I got to like create. You know, bill at value. and it's, it's a great question to ask yourself of, you know, one is now the right time and two, should you sell and what happens after you sell and having that reflection, because you'll have a lot of people maybe pushing you to sell because their incentive is to get a big check. and they'll constantly be like, yeah, David, great idea. Definitely take the deal. And yeah, but they don't really care what happens after, cause they're going to get their check. And, I think it's so important to have. those conversations and just have the thought process, just go through the exercise of what happens next. And is it something that you envision is a net positive for you? Because you still have control, you still have the choice. That's the best time to leverage that. Well, David, it's been a phenomenal conversation with you, but I do want to call out the fact that you do have a book. Can you tell the audience a little bit about the book and what they can expect if they were to read it? David Rodnitzky (42:12.602) Yeah, thank you. The book is called Selling Your Marketing Agency. So very straightforward title. And yeah, the idea really is, you know, I feel like I learned a lot on my own dime during the three transactions. I sold the two transactions where I was part of buying it at the company. And I do feel like one of the crazy things about being an acquirer or a seller of a business is that Jason Kirby (42:18.113) specific. David Rodnitzky (42:39.546) For you, this is the most important financial transaction of your life, and it's your first and only time doing it. And for the other side, it's usually something that they've done many times and that this is their full -time profession to buy companies. And so you're at a really significant disadvantage for that reason. So I tried to write a book that would level the playing field and basically make it so that if you own a marketing agency and really a professional services business, you can read this book. And when you go in and you talk to investment bankers and the lawyers and the accountants and the corp -dev people at these acquiring companies, you are a little bit more of a level playing field and the chances are that you're not gonna make these same mistakes and you're gonna come out with a good outcome. So it was a labor of love and I think it's pretty valuable for anyone in a professional services business to check out and it's obviously available on Amazon. Jason Kirby (43:32.065) Sounds like a good read and I'll be adding that to my list. And then you are helping, it's beyond just the book, but you're also helping founders navigate this as kind of like now you're post -exited, you're kind of out of the business now. This is something that you do day in, day out, helping founders navigate this, correct? David Rodnitzky (43:52.346) Yeah, so I started a little consultancy. I just changed the name to DavidRognitsky .com because at the end of the day, it's never going to be a big agency. I don't want to have 20 people working for me. It's just me. And yeah, at the end of the day, my objective is either to help companies, agencies scale their business. So how do you sort of go break through some of these challenges to really become a big agency? Something like 90 % 94 % of agencies have less than 50 people working for them. So getting to that 50, 100, 200 range is challenging. And so I've done it so I can help with that. And then when a founder is ready to sell the business, I can provide consulting that sort of keeps the investment bankers honest and, you know, have my law degree, even though I can't say I practice law, but I can look at contracts and I can share my experiences as to which contractual terms are the ones that need to be massaged the most. So that's something that I'm always happy to do. If there's an agency founder that wants to figure out scale or sale, I can be helpful. Jason Kirby (44:55.937) I imagine you would be an amazing asset to have here at the table and those discussions with this experience that you've been kind of back and forth on. So David, it's been an absolute pleasure having you on the show. Where's the best way for someone to learn more? You mentioned your website, is there LinkedIn, Twitter, or X, I should say, that people can follow you or learn more? David Rodnitzky (45:17.69) Yeah, I mean, LinkedIn is the only real network that I'm active at. And I think so that's it. That's a good way. And then the website, if you can figure out how to spell my name, which it's a R O D N I T Z K Y not S so David rodnitsky .com. There's a contact us form there. I'm happy to talk to anyone who wants to, to talk about how they can sell or scale their business or just have some general questions. I'm happy to go back and forth and email. Jason Kirby (45:46.784) Fantastic. Well, we'll make sure to put those in the show notes. And thank you for being on the show. Thank you for sharing your story. And thank you for sharing such valuable insights that I know our founders will greatly appreciate. David Rodnitzky (45:57.914) Thanks Jason and thanks for doing this. I think this is a real valuable resource for the community. Jason Kirby (46:03.233) I appreciate it. Thank you for joining us. David Rodnitzky (46:05.722) Thanks. Jason Kirby (46:06.945) All right.