Jeremy Weisz 17:56
So what was, if you look back, I know you’ve done a lot of deals over time, maybe a learning or a mistake that you’re like, okay, I’m not going to do that again. I’ll bring that into the next I mean, from that one, you’re like, okay, we need to really evaluate the factors involved. And I know you had a whole business around that. What was another, maybe learning that you took into a future deal?
Chris Yates 18:25
Another learning that I took into a future deal, specific to that deal, or just in general?
Jeremy Weisz 18:30
In general.
Chris Yates 18:31
Yeah. I mean, I guess, like a big thing for me is that there’s two things. One is you want to buy deals where your downside is relatively limited, and your upside is unlimited. So in other words, like, try not to buy a business where, it’s at its peak. So this one had really strong rankings already, so it was kind of like at the peak, right? And so the only way it could have gone, at least in the short term, was down. And so we didn’t leave ourselves a lot of room for some of that upside potential. So that’s one big one, and another one would be to actually, don’t treat these things as like an asset that just is like a hack that makes money. Treat it more like, hey, I’m actually buying a real business. I want a relationship with my customers. I want my hands on the levers of the outcomes of my business. So in this case, Google had the biggest lever right.
And while we can maybe influence that at the end of the day, Google can flip that lever and screw us right, whereas what I ended up doing with that business was totally changing the model to being built around paid traffic and building like an actual email list and all those kinds of things. So I learned a lot about finding better ways to monetize the same traffic that exists and remembering that there are ways to monetize a business that don’t just require you to throw ads up on a website, like you can actually have a business that fits your lifestyle, which for me, was really important, and in this case, I was able to build a true relationship with customers have advertising that I could measure my customer acquisition costs down to the keyword level or ad level, etc. And my hands were now on the lay the levers of my business and the outcomes not kind of building on rented land, as the saying is.
Jeremy Weisz 20:31
When you were acquiring businesses, I know it probably changed, but what were the criteria that you were looking at to see, okay, this would be something we would even consider, and then something we’ll move forward with.
Chris Yates 20:47
Yeah, there were a few things. So one is, well, we can get into, like, the due diligence side of things, but if we talk about we have these things. So we have this, like, checklist we built, and we call them X factors. X factors were like, hey, X means this is a deal killer, like, we’re not even gonna go pursue this deal. Some of the things on the X Factor list were, is this a trendy or heavily seasonal market that we’re going into? So we wanted things that were, you know, kind of evergreen, meaning that they’re around now, and they’re gonna be around in 10 years.
So that would be like an example of one of the X factors. Another one would be we would look at the valuation of the business. So sometimes you can get an asking price. We did do a lot of off market deal sourcing, where we would just contact people to see if they want to sell, but at the end of the day, like if their expectations on valuation doesn’t fit the model of what we need our returns to be and to leave us some upside potential. Then we wouldn’t even pursue that one. So those were two off the top of my head,
Jeremy Weisz 21:54
I feel like there should be a book Chris called X factors. Were there any other deal killers that you remember? So there’s, obviously, it’s trendy, seasonal. It’s not evergreen. The valuation expectation is just way out of whack. So you can’t get your return. I remember talking to someone, and they wanted, it wasn’t a SaaS company, by the way. They wanted 33 times, or something, 38 times. I’m like, that’s more than Google, like, times annual. Yeah, wow, no, yeah, yeah, exactly. Time’s annual. And I’m like, that’s more than Google, I think so that’s kind of crazy, but so the way out of whack. Any other deal killers for you that stick out, that people should look out for when they’re kind of vetting this deals?
Chris Yates 22:41
Yeah, other deal killers. So, gosh, I just had one, and then I lost it for a second. So give me, give me a minute to think, can we edit this out?
Jeremy Weisz 22:49
Yeah, no. I mean, whatever. We keep talking and you’ll think about it the you know, because I know that was it a type of company that you were looking for? Because I know was it SaaS or E commerce or content? What was the criteria from, from that end, right? Because I know, when we were, I was talking to Sujan, and he’s spoken at your conferences, he’s looking for specific SaaS companies in a certain range, right? And so I imagine you may have been looking at certain types of companies as well.
Chris Yates 23:21
Yeah, thank you. You just sparked my memory there. So one, one of the big things for us was, what does it require to run this business? Is the current owner, like some kind of technical expert that if we try to run it, it would be impossible for us to really understand that, or hire somebody to do it, or some of those kinds of things. And one of my goals at the time was to, I’ve been reading the Tim Ferriss books, and wanted to achieve the four hour work week where I had location and time, independence and all those kinds of things. So I was shying more away from really labor heavy businesses, just because I had also come out of an agency previously, and then I also didn’t really love the idea of dealing with, for instance, inventory, because there’s a lot of people that do but it is a cash eating machine, especially if you’re growing these businesses.
So we weren’t really doing too much on any kind of heavily inventory businesses. So, it’d be more like digital products, info products, little bit of light, SaaS businesses, those kinds of things, software businesses, they would be more conducive to sort of those lifestyle and our ability to sort of understand and operate them. And then, how much time is the owner using in the business? So you can’t get to the four hour work week, if you immediately step into a business and have to work 80 hours a week to even keep it where it’s going, right? So those were also really important for us to take a look at.
Jeremy Weisz 24:49
Another, Chris, I see and you could disagree with me, transition Point is where you were buying up businesses, you had a portfolio, and then you. Yeah, but Centurica and it seemed like you focused then more time and energy, as opposed to growing the portfolio just on that one business. So I’m wondering your thought process there.
Chris Yates 25:13
Yeah. I mean, I can give you the full story. It’s a little bit emotional. Do you want to go there? Let’s do it. Okay, so I was running Rhodium and operating the portfolio of businesses, right? We got to the point with that portfolio where I was essentially, I felt like I was just kind of turning the wheel, like we weren’t doing a lot of new acquisitions. It was really just operating something that was already happening around about that time my mom passed, and so, like, it was, like, all these things, and it kind of came together. And I was just like, really unhappy with doing the work that I was doing and so sort of lost the passion a little bit for it, and I realized about myself that, like, man, I love starting and creating and having new things coming, right?
And so started to learn more and more about myself and was also struggling with, as I mentioned earlier on, man, it’s like I wanted to be this guy behind the scenes, and now I’m sort of involved in this community, and, like, more and more, needing to have my face be part of it. So struggling with really taking on the identity of somebody who can do that. And so I went through some like, personal coaching programs and stuff like that, and was able to get through that. And really came to the realization that man Rhodium is actually really well set up for my wiring, because I get to start, essentially, a new business every year by doing an event. I get to talk to interesting new people all the time, like, I’m making an impact. I care about the work I’m doing. And so I started selling off some of that portfolio and winding some of those deals down, and really starting to double down more and more on Rhodium. And then had a member of Rhodium who wanted, who was the original founder of Centurica, which is this company that you’re mentioning, does due diligence for acquisition. So obviously, I had this community that was known for M&A and all this kind of stuff.
And he had a service business that was obviously very, to use the lame term of synergistic to that community. And he said, I want to go do something else. I want to build this SaaS business that can become a billion dollar company. And there’s two people in the world that I would sell Centurica to Chris, and you’re one of them, you want to do a deal. And it was kind of a no brainer deal for me. So once I and so I ended up doing that deal. And that was really where the two businesses actually aligned really, really well. Because the better I did with Rhodium, the more word of mouth I got for Centurica, potentially more clients, referrals, all those kinds of things. And the fact that I was known, I was becoming more and more known in the industry.
People had trust that Centurica would do a good job, which I believe it did, but that credibility of that agency also was really strong with me at the head of that company. So those two businesses really supported one another really well, so I felt like I could kind of dial into this business that I love, plus have something with a lot more upside potential with the agency.
Jeremy Weisz 28:16
Yeah, it’s interesting, and I don’t oversimplify it, but it does seem to match perfectly, because you have this community of digital entrepreneurs and SaaS e-commerce, et cetera, and then you have this due diligence tool that helps people evaluate deals. And so talk about Centurica for a second, and growing Centurica and some of the things you did to grow Centurica. Obviously, you have a community which naturally grows it. I don’t remember if Centurica, because there was also a product market watch that was under Centurica. I don’t know if that was there or that’s something that stemmed out of your, when you took it over, the idea there, but that seemed to be a very cool kind of product within Centurica as well.
Chris Yates 29:07
Yeah. So, so Centurica, the core of the business. When I bought it, was helping people who were buying, let’s say, a $50,000 website or something like that, right? And they’re paying. It was, it was intended when I bought it to be like this productized thing where, you know, almost like a CARFAX, where you click a couple buttons and you get this report on the risks of a business. Right over time, I realized that actually was devaluing, really what people wanted. So what happened was, we started with deals of that size, and as the industry evolved. I evolved. Centurica got more well-known. We started getting more and more people who were coming into this space doing larger deals, seven-figure and up deals, and when they saw a price point of like, $500 like, man, this can’t be good. Like, this can’t be thorough. It can’t be complete. So what I realized, especially.
Like around that time, lending became much more prevalent in the digital acquisition space, and so we had a lot of these people, kind of coming out of corporate or coming out of other businesses who are taking on these SBA loans at very low rates to buy businesses. And these digital businesses, and they’re starting to become more and more banks who are willing to do it. So that trend started, and these were the people who were giving me this feedback, like, 500 bucks is way too cheap, and people in the community were giving me the same feedback. And so at some point, I’m just like, Screw it. I’m gonna throw everything but the kitchen sink into this, and I’m gonna 10x the price and have a second option for people. When I did that, the business over about a period of five months grew by 500%. So just packaging a premium offering. Worst case, all that will happen is more people will buy your lower priced one, because it seems cheaper.
Best case is in what happened in our case is everybody will start buying it. Then you got to figure out how to make it to be scalable, which was the other challenge that eventually became an issue for me. So and then, in terms of MarketWatch, you mentioned, yeah, that was started. The seeds of it were already there. And one thing about the business of Centurica is very time dependent when you can actually sell that customer. So they have to be like, at the point where maybe they got an accepted offer on a deal, or they’re very close to having that happen before they even really need to talk to Centurica. So we needed a way to stay connected to those people consistently. So we created this tool which aggregated all the broker listings in one place and let people set up email alerts and stuff. So every day in their inbox, they’re seeing Centurica. So when it comes time for due diligence, or do you think they’re going to think of right?
Jeremy Weisz 31:40
Genius. I think it’s genius. Like, if you go to Centurica now, there is a market watch, and you could literally just subscribe, and you pulled in. Not only that, but I think you could correct me if I’m wrong, but like, partnerships come with some of those companies that are getting pulled in. I mean, we’re talking about Quiet Light, and you work with Quiet Light throughout the years as well. They’re in the community. Once you pull them, you’re aggregating all those in there too.
Chris Yates 32:09
Yeah. And I mean, so I do have to say, when I own the business, there was no financial arrangement for companies to be in that market. Watch, like companies, like Quiet Light and others who we aggregated was really just like we tried to put the better brokers who actually had decent deals in there, and that had a good relationship with Centurica, because if you imagine, like, if you’re selling a house and somebody hires a property inspector who has a reputation of being, overly aggressive, or something like that, you may not want that property inspector.
So that happened a few times over the years with certain brokerages, but with great brokerages like Quiet Light, they would actually send people to us, because they would have buy, they represent the seller. They would have buyers who were looking for due diligence. So they would send business to us. And obviously, if they’re in the MarketWatch and we’re attracting buyers who would end up going to them, it was a good kind of win, win sort of scenario, and yeah, like that, I think so. But yeah, great, great points there.
Jeremy Weisz 33:08
I know you ended up selling Centurica, and we won’t go through all the details. You did a really good interview, and I encourage people to check it out with Ryan Tansom, and where you kind of, you went deep and vulnerable, even on one that didn’t work, actually, and all the things that happened there, so we don’t have to rehash it. And then finally, one that did work. And so I encourage people to check that out of just some of the red flags you saw. I still kind of shiver when you say the word clawback in that interview, like you got paid the money, and then they could actually take it back, even after they paid it, retrading, like all those things you talk through, it’s really, really interesting.
But one thing that stuck out that I want to talk about is due diligence around clients. Because what are your recommendations of best practices? Because I know they’ll come to a point where they may want to talk to certain clients, and so if a company’s listening, whether they’re buying or they’re selling. What are some of the recommendations of best practices when it does come to that point on wanting to do due diligence around for the clients and even maybe wanting to talk to them?
Chris Yates 34:32
Yeah. So first thing I will say, if we kind of zoom out the process of due diligence, it kind of starts when once you have, I mean, it does start once you have an accepted offer, and it doesn’t really end until the deal is done, right? So many cases, that’s a multiple-month process, and it can be extended longer than that, if there’s weird financing involved or things like that. So. So the benefit to that is that you have time to sequence things based on sensitivity, so you can start with the least sensitive stuff, first in terms of your client data, and go to the most sensitive stuff closer to closing. The important thing is that both the buyer and seller are setting expectations early in the process that, hey, this is something I’m going to ask for at some point. What do you want to see? And this is the buyer saying this, what? Like, what do you want to make sure before you’re comfortable sharing this?
You know what needs to happen before we can do that kind of thing. Like, okay, well, I need, money in escrow before I can really have you talking to my clients as an example, or something like that, right? So basically, think about it like that, as this gradation scale of like, start with least sensitive, maybe nonspecific data, and then work your way to the point where somebody might be having a conversation with your top client, right? So an example of a best practice thing to do, let’s say, from the buy side, I would ask for an order export by client with no personally identifying information. So it would have the date of the order, maybe the item purchased, the dollar amount of that order, whether or not was refunded, or any of those kinds of things. So now you have got this order export, and you’ve got the unique client ID, so you can see how many times did this client order?
How often are they ordering? Are there certain clients that you know are in that 80/20 meaning that, like, there’s this one key client that makes up 80% of revenue. That’s, we call that customer concentration. You can take that spreadsheet and then just really drill into the details of what’s happening with their clients, and the seller can be comfortable with that, because you’re not revealing any personally identifying information about your clients. So that would be like a first step as a best practice, in my opinion.
Jeremy Weisz 36:59
So talk about, then when you get to more sensitive, I know one of the things I believe you did at the time was you put it a non-compete and non-solicit in there. So go ahead.
Chris Yates 37:14
I will speak to this. So some of this is getting into the legal areas, and we just have to be careful that neither Jeremy or I are attorneys. We’re just speaking from our own experience. Definitely one of the big things you will need, if you’re especially with an agency business, is you’ll need a good attorney on both sides. But typically, when you enter a letter of intent, which is essentially, hey, I’m intending as a buyer, I’m intending to buy your business, and as a seller, like I’m intending to work with you to have this deal happen, you’ll also have both parties sign, number one, a non-disclosure, meaning that if you’re revealing information that’s private about your business, then I’m not going to go publish it on the internet and some of those kinds of things.
So definitely, definitely need that. That is typically going to be binding in that letter of intent. Again, talk to your attorney, whether or not that’s the wording says that. And then two is a non-solicit. What that means if somewhere along the way, the buyer were to discover who one of your clients are, they can’t just, like, cancel the deal and go solicit them for business. And it’s important too for employees. You don’t want them going after your employees or contractors or some of those kinds of things. So, yeah, that’s definitely a best practice that you should get in place pretty, pretty quickly, pretty quickly. That helps to some degree, from a protection perspective, that your private information isn’t going out there and then this person isn’t just sort of hunting for your client list and then going to go after them. Not to say that can’t happen, but at least you have legal recourse if that were to happen.
Jeremy Weisz 38:39
Yeah, no. Thanks for sharing that. It was a great episode you guys did. So I want to encourage people to check it out. I want to talk on the Rhodium front, okay, because I know there’s a community, and then there’s events, so I want to talk about the events for a second. And you have them at certain cadences. But there was two that stick out past speakers because you’ve had some amazing past speakers. One is Yuri Pap, and he talked about one of the events, how he went from working in 40-plus hours a week to four hours a week. And again, there’s always a disclaimer. There’s lots of situations there, but what were some of the takeaways that you remember when he shared speaking at Rhodium from that talk?
Chris Yates 39:29
Yeah, well, it’s funny, because I’m kind of in this position where I’m trying to run the show, that’s gotten better over the years. So I don’t always get to sit at all the round tables and things that happen, but I do tend to get the recordings afterward and try to listen to as many of them as I can. But I think what I remember, and the cool thing is, I actually have, like, I don’t know if you call it a personal but at least a business relationship with all the people are in the community. So I’ve been talking to Yuri over the years, and I’ve been able to follow his journey.
Me and see, you know, kind of what he’s done, but he’s in the e-commerce space, and he’s in the and so he’s got a business where he’s been able to put some more people in place to help take off some of the load from him. So I mean, it’s hard for me to not get into the specifics of his business to really explain, some of the things, but a lot of it is, I think, what I think are relatively obvious things. Like you just audit your time, and you look for the things that you could hire somebody for $10 an hour for that you’re probably doing yourself, couple things like that, putting systems in place, documenting them, hiring an executive assistant. Those are a few of the common things that I’ll hear people like Yuri talking about.
Jeremy Weisz 40:48
Do you remember a key role, and maybe it was an executive assistant for him, or maybe for another member of what helped you know, like when think of 80/20 greatly reduces the time. What was a key role or two that you remember someone talking about?
Chris Yates 41:05
Yeah, so it changes over time. So very early stage, it might be something as simple as an offshore executive assistant who essentially, they’re gonna help you just do the grind stuff that you have to do, commonly, a bookkeeper would be an early, early hire. As we go a little bit further then a chief of staff is commonly a role that people look for. Sometimes they actually will go right for more of a CEO. Or, if you’re familiar with the entrepreneur operating system, it might be an integrator. And then eventually, I’ve actually had people like, there’s a guy named Paul in the community who has somebody doing his laundry, mowing his lawn, really, almost like a house manager type person.
And then he has that same thing within his business with executive assistants, and he leaves every meeting saying there could be no to-do lists on my plate at the end of this meeting. And so he literally has got himself pulled entirely out as the visionary of the business. In order to do that, he needed to find the right fit for that COO integrator, somebody whose job is to just be in the weeds and operating and pushing the team. What he gets to do is work on big ideas, big deals, and be the true visionary of the future of that business. So I’ve seen the entire spectrum and the different hires at different times and all that kind of stuff.
Jeremy Weisz 42:30
I want to talk about the community for a second, but thanks for sharing that, because it’s a reminder. I do have that on my list because I remember talking to another friend, entrepreneur, who has a house manager. I’m like, that seems very luxurious, but it doesn’t have to be full-time either. It could just be part time. And this person had the person come in in the mornings to do their dishes like from the previous day. I’m like, that sounds like heaven to me. And then prepare, doing meal prep. So maybe they were only there two hours a day, or something like that, so it wasn’t like a full-time staff. So thank you for that reminder I need to make my marriage better, too, if I find someone for these things.
Chris Yates 43:15
Yeah, and I’ve learned some lessons on the marriage side. My wife is amazing, but there, it can be sometimes very difficult, especially for the female role, to let some of those things go off of their plate as well-intentioned as you are and offering it. There’s, there’s social constructs that have implications with when that type of thing happens, but there are, like, essentially Uber for laundry that you can do, where you just set your bag of laundry outside of the house, and people will come pick it up, do it and do it the way you want it, and bring it back and nice and folded and all that kind of stuff. So you can always start small, just testing something like that without going with a full hire.
Jeremy Weisz 43:54
I love it. Community, it started off the first iteration of Rhodium was events, and talk about integrating the ongoing community into the Rhodium Network.
Chris Yates 44:10
Yeah, I mean, the feedback I got after doing the first, well, I was probably the second event where I really started getting this more was like, hey, these people are awesome. How can we stay connected between events. And at the time, 2013-ish, Facebook groups were the easiest platform to be on for that. So I ended up using Facebook group to put people in there. And then I actually got to the point where I realized, man, if I can get people engaged, almost like, the parallel would be the market watch tool for Centurica, like, I will provide an amazing experience for people for a week in October, and then I never talked to him again until the next year. Right?
What if there was something to connect the dots between the events where people can engage continue to help each other, things like that and like, I didn’t necessarily do this strategically, but when you combine people meeting offline with an online community, the online community is substantially more valuable. Instead of it being a bunch of strangers, you’re actually in there feeling like, oh, that’s Joe. I know Joe, or whatever and their willingness to answer with details and all that kind of stuff, goes up pretty substantially. So I will say that I kind of fell into this idea that blending the offline and the online world makes both of them better. And so that was a big, I guess, takeaway or lesson from my perspective.
Jeremy Weisz 45:33
So right now, talk about a little bit of how it works. So someone could join. Can they join and it’s a monthly membership for just the community, and then the events are extra, or do they pay? And it’s all-encompassing. How does the logistics work, I guess, right now, of Rhodium Network.
Chris Yates 45:55
So how people engage, I have to add a little bit of context here so, when I exited Centurica, plus other things that I’ve done over the years to build wealth. I’m at a point where, like, I don’t have to do Rhodium just for the money, like, it’s not, like, it’s awesome and it helps pay the bills. But if I’m not making a ton of money, it’s not that big of a deal. And I’m not super interested in a big, major organization that scales to the moon, and I have to hire a bunch of people. So I treat Rhodium much more like a craft, like an indie if you’re familiar with the term indie for, like, indie films and stuff like that. I think of Rhodium more like an indie event and community, you know.
So I have to add that. And I’m not saying this is right for everybody in the decisions they make, but in terms of, like how I’ve done it is, number one is I interview everybody who’s interested. I do a Zoom call, typically around 30 minutes first, assuming they’re the right fit. And I look for people both demographics are good. Their business is at the right stage in size, but they’re also good humans. The next thing that they’ll typically do is they’ll join the Facebook group. I don’t charge for that. It’s kind of like this central water cooler for the community and an easy place for me to help people really get a vibe for Rhodium and say, hey, are these my people or not? So there’s very little risk for them. They have to invest some time in meeting me, but they do get to experience Rhodium.
They get to help others. They hopefully will get to be helped and meet some people, assuming they’re feeling at home, they’ll probably want to engage at the next level. So the in-person event would be the next one. I charge $2,000 for that typically run a three or four-day event. Include several meals. I do, like matchmaking and things like that as part of the meals. So it’s actually a pretty hands-on event, and then coming out of Covid, I realized, man, having a business where I only make money once a year from an in-person event is maybe not the smartest idea. So I started something called Rhodium Remote, which essentially puts people in peer groups and helps them establish what I call a membership charter. And that’s basically just helping them set up the mission, vision and values. Why does this group exist? What do we want to get out of it?
And I’ll put a facilitator in place to help them run their regular meetings via Zoom, typically about an hour, hour and a half a month. So that’s become, and I use Slack for that, so that each group can have their own private channel and things like that. That’s become like the next level of continuity, I guess, within the community where, okay, Facebook’s are great, but I’m not on Facebook very often or, like, I can’t really have a deep conversation. This gives them, like, a whole another way to engage regularly within the community with their peers, and makes it more scalable for me as well. So that’s kind of the makeup of the current system. I’m working on a lot of other things that I think are going to be really cool in the future. But, yeah, just chipping away at it.
Jeremy Weisz 48:45
I love it, Chris, and what you do, I want to encourage people to check out rhn.com to learn more, which is the Rhodium Network. I mean, super generous of you. I think, to have that group. And if you’re listening now, that may change, Chris be like, listen, I’m charging for the Facebook group now, so don’t take this whenever you’re listening to it, because I’m like, yeah, I mean, and we won’t get into it now, but it’s super generous of you. And then you could check out the events on the rhn.com and if you’re interested in any of the stuff Chris talked about, you can message them, and there’s an apply to join, and they vet everyone. So check that out. Chris, thank you so much. I appreciate it. Everyone check out rhn.com, more episodes of the podcast, and we’ll see everyone next time. Chris, thanks so much.
Chris Yates 49:34
Thank you. Jeremy, appreciate you having me on.
