Jeremy Weisz 18:44
You can build backlinks really quickly.
David Tile 18:47
Yeah, exactly. And it was spammy, right? Like, it was just link spam. And every other project that we would launch would be DOA, Google would say no, like, you’re out of the Google Sandbox, and we’re not going to rank you for anything. But the other 50% wouldn’t turn into two $300,000 a year projects. He had a portfolio of two 300 Money sites at the end of the line. Here’s where this gets tricky, obviously. The at a point in time, I think it was like 2016 maybe some or something like that his whole private blog network that 12,000 up in smoke, completely gone that the juice that he was able to produce from that flight private blog network was just terminated that Google just threw it out and said this is a joke, because it was a joke, right? Like, that’s not real. It’s manufactured. It’s fake. And so obviously Google’s it’s to Google’s interest to produce the best, the best quality search results, not the most gamed search results, right? And so, in that way, he was unfortunate, right? Because, you know, this was 5, 6, 7 $100,000 a year in revenues for me at the time, right. So he just had a second girl at the time, few years making 20 million top.
Jeremy Weisz 20:15
Yeah, hopefully he saved some of that money.
David Tile 20:18
Exactly. And he just called me said, “listen, like we’re going to sunset production here. A few things. Number one, this is becoming harder and harder. And I don’t want to play cat and mouse with Google forever. But also, I don’t want to tell my girls what I do for a lot simpler. How do I make money?” Right. So, you know, he built I think, I think what he did in Montreal, is he built up a portfolio of, of condominiums that he now rents out, and that’s fine. Tyler. Yeah, exactly. Fine. I’m making I suppose, is all of that was bullshit, right? Like all of that was, I mean, it was a great money-making scheme for the time, but it wasn’t real. It was fake. It was a fake game that we were playing with Google. And I knew that and he knew that and so. But it was a fake game that we were playing. And that is that doesn’t exist anymore. I mean, maybe a little bit, you go to blackhatworld.com, you check out the forums, I’m sure there’s lots of people that’ll sell you some snake oil there, but it doesn’t really exist anymore. So you have to like so, to tie this back to I think that ties back to your question are Google’s interest when you’re drafting copy, when you’re producing when you’re seeking to produce a marketing outcome from SEO, from SEO, content marketing, Google’s interest is really all about what is the best? What’s the best piece of content? What is the best user experience for this specific query? Right. And there are acronyms that and like the E acronym, or whatever, and all the rest, but the bottom line is you have to, when you’re considering, as a website owner, as somebody who is looking to content marketing, as a means to build your business, you have to consider what is the use? What’s is the user thinking, when he or she is searching for, you know, for X or Y query? And how does my piece of content stack up against the competition. So it’s not just okay, they wrote 2000 words, I’m going to write 2001 words, it’s way, way more complicated. And so, like, that’s how we have to hire right is we look to, we have clients, across, in banking, in FinTech, we have clients in AI, etc, where they’re the quality of the immersion, and the quality of the expertise, that we bring to the table as a service agency matters tremendously, right? If we’re bringing folks who can, at least through some degree of expertise, some degree of immersion, but also through some, you know, journalistic and some journalistic tactics and some research et cetera, can at least come to the table with a hardcore, excellent piece of copy, we’re missing the mark, right, we won’t be able to produce the desired outcome. And it’s even a little bit more complicated. It’s so it’s not just about desired outcome. But we also take and you mentioned our PR routines, as well, we take the interplay between SEO and personal branding really seriously because the truth is, when you’re publishing a blog on your website, it should be rooted in a really strong SEO hypothesis. But it should also be something that plays really nicely into personal brand. It should be something that you should be thrilled to and excited to share on LinkedIn and on social media. But then also it should be something that can through personal brand that can propel you into a place like we have a lot of clients now doing regular features in Newsweek and Forbes magazine and Inc. and entrepreneur where we’ve taken them at the we’ve grounded them through self-published content marketing work in a degree of momentum and by the way, podcasting is the same truth, right? You ground somebody into degree of self-published work, and then you can start to go out to places like Inc. or entrepreneur or this podcast, right? And you can sort of that interplay, that interplay between self-published and personal brand. And then by the way, third-party contribution, it matters tremendously right it matters. And by the way it matters not just for business development and for the intangibles of like gravitas when you walk into the CEO’s room pitching a big contract. But it also matters for SEO, right? Because you get that little extra backlink to stats from your, you know, editorial contribution.
Jeremy Weisz 25:40
Talk about an example. Because your PR strategy, like you said, it builds a really solid foundation. Before he sometimes you even go to a Newsweek or an Inc. So talk about I don’t know, if there was an example that sticks out of, you know, really you built this foundation and then went out, or someone gets a speaking engagement because you’ve built this foundation of content for this thought leader.
David Tile 26:10
Totally. There’s a case study on our website for a gentleman named Ian who ran a firm called Unbanked, with Unbanked, we published several 100 blog articles to their website, we then took e in and this is it’s a, it’s a bit of a ladder up strategy, right, we took e into sort of smaller and medium tier publications that we knew we could, in his industry where we knew we could feature him and we knew we could feature his brand, but that weren’t Newsweek, right, that weren’t Forbes that weren’t places where there’s a significant bar from a personal brand in order to get like they don’t just take anybody, right. And so by creating almost a groundswell by creating a volume and a momentum for him and his personal brand, we were able to get him eventually into Newsweek, and he became a regular contributor. I think he recently actually shuttered unbanked, for some macros, some sort of some macro forces, unfortunately, so it’s not the greatest case study anymore, I suppose. But say c’est la vie. We through that point is through that groundswell through that momentum, we were able to get him into a fairly significant place, as a regular contributor to Newsweek. And by the way, in that process, he raised it, he built his business up to $20 million a year and he raised us $3 million rent right. And now really hard to perfectly say we raised that $3 million for him because we didn’t, right, he raised the money, but it’s not zero as in if you’re the founder of a company that is getting a nod from places like Newsweek as a thought leader in your in crypto, whatever in your industry, then that little intangible gravitas, mad it matters, right and maybe if you just maybe the exercises if you just thought about it like in a vacuum if you had all of the other variables, but this one which is that this individual is a thought leader and this individual never does any press work. Where would you place your money? Right and the I think the intangible there is that you would likely look to somebody that has weighed in the marketplace as a thought leader.
Jeremy Weisz 28:47
David there is a book — Ryan Holiday’s book. I don’t know if you’ve heard it, Trust Me I’m Lying, which talks about the very similar strategy and it works right. You get into smaller ones and then the bigger ones just pick up the smaller ones and he lays out an amazing plan there. I mean, you have more kind of foundational content that’s put in place before that, but you know what I’m talking about with Ryan Holiday.
David Tile 29:12
It’s a foundational book I like. I like the and by the way recommended to me by Thomas, my friend, the Super Affiliate out in Montreal, specifically. I read that book when I was whatever 25 years old and it change my life. Yeah, well, yeah, exactly. Something like that. Anyway, I think he was doing a bit more dark horse stuff with Tucker, Max, etc.
Jeremy Weisz 29:39
Well, his tagline is Confessions of a Media Manipulator. So exactly. Yeah, exactly. But he’s got great books in general. So talking about Tiki Barber for a second and what you did.
David Tile 29:51
Oh, sure. Yeah, we ran into him a number of years…
Jeremy Weisz 29:58
For people who don’t know who Tiki Barber is maybe just…
David Tile 30:00
Yeah, sure, sure. I’ll get that. We ran into him he was a former NFL superstar All Star etc. And he was retired and he was starting up with a partner starting up a crypt, not a crypto a cannabis investment firm. Okay, so we had put together and $15-20 million to invest in a variety of cannabis startups. Obviously, this was during that the, whatever it was five years ago when there was a gold rush into cannabis. So he put together a little fund. And he said, hey, I need deal flow, right? How can we leverage PR? How can we leverage my personal brand to go out and get deal flow? And the answer was actually really, really simple. Anybody, whether you’re The Wall Street Journal, or The New York Times the headline writes itself. And a former NFL stoop superstar starting cannabis venture firm, done, we got him, like, I think hundreds of media hits in places like The Wall Street Journal, CNN Money, The New York Times, et cetera, where that was the pitch, we’re representing an F former NFL superstar. He’s starting up a firm and that kind of, for a little, like, our subscription pricing then was like, I think it was paying us 1,400 bucks a month, like he’s like, really like nothing in the grand scheme. And we ran the campaign for a year. And the net for him was for sure, millions of dollars. I mean, however, whatever vanity metric you want to pull out of thin air there, there was for millions of dollars of net exposure. He pulled in thousands of prospective like prospectuses, right, he pulled in it just from top of funnel a tremendous volume of, let’s call them investment opportunities. And was that right? He deployed all his money and rock and rock and roll, right. So it’s, it was like, as far as I see it. Now, a lot of folks in PR communications, they wax a bit more poetic. And they talk about a lot more vanity metrics, and they charge a lot more through but for me, it was just like, okay, we’re like, simple enough, this headline writes itself, we can reproduce this story over and over and over again, journalists are going to that, like the idea of working with an NFL superstar for a piece is compelling enough. There’s a story here, let’s just pitch them. And it was like, literally, the product that he was on is just a pitch factory like that was it right? And it worked it over and over and over again for a year, we got tons and tons and tons of press coverage.
Jeremy Weisz 32:55
Thanks for sharing that. I want to talk about growth, through acquisition and why you went on this journey to grow through acquisition and what made you start on that journey? And we’ll talk about, the beginning, like, how did you actually decide the types of companies to buy? Because I could see people take a couple strategies, right, by something similar, but you’ve kind of expanded. Yeah, just to talk about lots.
David Tile 33:24
Yeah, the narrative is as follows. The last 18 months for article writing company have been a tremendous challenge. Okay. And they’re sort of two factors. One, we don’t need to belabor macroeconomic headwinds, of course, I think everybody’s been feeling that over the last two years, whatever. The second unique is a unique challenge to firms doing content writing, essentially, right? Now, our business over the last, let’s say, seven, six or seven years, has slowly but surely been pivoting away from the old style of just a call, like call it a content mill, right, a content factory. So we’ve been moving away from that and into full-stack SEO, content, marketing, PR work. But we had a number of projects with really where we were plugged into SEO agencies as just a provider of the raw material, right? We’re talking maybe in some, let’s call it a million dollars a year in annual revenues, whatever that is, right? That all went up in smoke over the last 18 months. And I’m sure you understand why. They all just every single one of them said hey, we’re no longer going to use human writing talent. We’re going AI by and of course for them like I understand. Well, I saw ChatGPT I saw Jasper, we started using it, right? Like we’re, but they’re, of course for them marginal cost to produce a piece of copy goes to zero. And then they need an editor to, you know, make it look and feel human for whatever, a couple bucks. And so that business really the bottom fell out, just got and for a long time I was like ashamed and embarrassed to vote but you know the business like fundamentally failing, right? I did recently come to learn that this was not a unique story with article writing company, a lot of firms that focused on content and SEO content specifically have been, like the bottom fell out the market that essentially whatever you want to say 60-80% of that marketplace is just gone. Okay. And so, with those two factors in mind, now, I’ll give you a little appeal is back a little bit, and then I’ll come to my strategy in a second. My father, the agency that he started, was actually part of a marketing a conglomerate of marketing agencies called MDC, a gentleman by the name of Miles named Dale started this, it was an old school friend of my father’s. There’s this the story goes, my dad was the president of a much larger consumer insights firm here in Toronto, that was acquired, okay, so a massive German conglomerate purchased. Goldfarb consultants, this is, whatever 40 years ago, okay. And through that acquisition, the German conglomerate made a number of promises to my father, and to the senior leadership of that firm like through and post-acquisition, they didn’t meet any one of the like any of those promises after acquisition. And so my father left and he took the entire senior leadership team to miles night to Ella and VC partners, and they started Northstar Research Partners. Okay. And that was, you know, they had a they had a nice 15 years and then, and then 2008 happened and my dad left and it was a bit of a shitshow. Right. But the point I’m making is, I’ve always sort of been obsessed with the Moto with the miles made del model and with Miles Nidal himself. So I saw the writing on the wall for article writing company and the way that it was built, especially like, just feeling the pain, just feeling the pain of losing client after client after client and with so it’s like, we’re losing all this, we’re losing all this revenue. And because of macroeconomic headwinds, we’re having a really, really hard time in our traditional way of getting new projects in the door. And so the pain was real, we were shrinking, we were, you know, laying off staff, all the rest. And I just started sniffing around with M&A the growth through acquisition strategy, obviously, you know, long tail with miles de del, but also like, there’s a lot of really smart people now talking about it like Cody Sanchez, etc. And I just sort of started, like, futzing around on micro acquire and all these different marketplaces, Barney, whatever. And it just started taking some phone calls. Now, I suppose this is a personality quirk, I just did it, right. Like at the time. I wasn’t so directional. I just sort of started having conversations. I’m sure some of the early ones were really bad, right? I just started having conversations, I started meeting people like, why are you selling business? Like, what are you staying around? Are you leaving? And as I was, in the market, as I’m just acting right, as I’m just moving, I started to find it, right. I started to say, oh, there’s something here that I can work. Right. And so I probably met with 500 different agencies over a 12, 18 month period. I came to terms on it with maybe a half a dozen agencies, most prominently about a year ago now I met an agency down in Florida. I can’t really talk too much about this. Unfortunately, I will probably still under an NDA, I don’t know. But we ended up having to walk away from that deal after $40,000 and legals we walked away at the one-yard line that they were losing a big client. It was unfortunate. So we you know, we had a couple stories like that. And then two months ago I did execute on two deals in this week. They were small deals, they were deals that I could capture myself.
Jeremy Weisz 40:19
Growth through acquisitions. Why you decided on that a little bit, but we’ll get into how you voted the deals and your first deals?
David Tile 40:26
Yeah, yeah, totally. Thanks for having back that forgive me. I know, it was two days ago, but I don’t exactly recall where we just left off. So if I’m restating a few things, your audience, I hope you’ll forgive me that the last, the narrative goes that the last 12, 18 months with AWC with Article-Writing Co. have been intensely challenging. In probably seven years ago, now, we pivoted away from the high-volume content business. So we stopped, we really just stopped selling, in the marketplace for high volume, cheap and cheerful content. And we really, we really did look to pivot into, you know, quality over quantity, higher dollar figure campaigns, long tail SEO success, but also with a knack and a lien against PR and against thought leadership for our clientele. So it was a long time ago, when we did make that conscious, it was slow, but sure conscious decision to really pivot away from, but we had a lot of projects that were grandfathered. And I mean, probably a half a dozen projects that were, maybe close to a million dollars a year in revenues that over the last, let’s say, over the last 18 months, obviously, with macroeconomic headwinds, but more importantly, with AI coming in and eating the content writing business, like eating that whole industry alive. It was tremendous each week, but I would argue we lost maybe like seven $800,000 in annual revenues on behalf of like, from ChatGPT, basically, right, like they came in and just like, slowly, but surely, we had an SEO agency out in Colorado that was paying us at, you know, their best months were 30 plus $1,000 in revenue. So like a really healthy client, who just called one day and says, yo, we’re out, we’re moving to AI. And just like, again, slowly but surely, like that was really challenging, obviously. Right. And so I I guess I just sort of read the tea leaves in whatever way but also just like, I had no choice I had to move on. I mean, I’m out in the field taking, dozens, if not hundreds of sales calls, on our normal routines with content marketing, and with PR and I’m not having the same success. And we’re watching our annual revenues really decline in a significant way, because AI is eating our lunch, right? And so I just on a whim, and like, it was probably 12, maybe 12, 13, 14 months ago, now, I just started taking phone calls for companies that were listed. Okay, so these were companies that were listed, whether through a brokerage, or on micro acquire now acquired.com or Best Buy, Sell or whatever, I just started taking phone calls. Right. And I think that now that I mentioned that I do, I do think I mentioned this in part one, but you know, I started taking phone calls, I was like, okay, like, let me see what I can let me see what I can do here. I have no I have no idea what I’m doing. Right but let me just let’s just start feeling it out. Right. On the back end, it did also start taking some calls with some potential partners that might want to invest I might want to participate. And I was getting some good traction and early on we ran into I’m going to have to tread really lightly here because there was an NDA and the deal fell through but early on we ran into a really compelling deal for a firm down in Florida a bunch of government contracts it was rocking and it happened to be a perfect talking to one of the partners that I’d already started having a conversation with and so like I met with the guy actually my family’s got a place down in Florida so I went I met with them that their office was like 20 minutes down away from my family’s placed down there in Miami and so I met with them and then like literally that afternoon I called my partner I’m like we got to act here right because this is me Ross, this isn’t the exact detail. But you know, I’ve got a million-dollar acquisition on a firm doing $3 million a year, they’re mismanaged. But they’re not terribly profitable, but they’ve got 10s of millions of dollars a year through their clients as a marketing agency, through their clients in media spent, okay. And my partner here in Toronto, is a media agency. Okay. And so we I kind of optimize it, totally. But there’s a massive economy of scale there, that agency was using other media agencies on behalf of their clients. So we could literally walk into that agency for a million dollars, let’s say, again, this is rough, because I don’t want to cross NDA whatever. For we could walk in there for a million bucks. And we can unlock two $3 million in annual net new annual fees, which because of just to give you a bit further context, because of the nature of my partner’s business, that the net enterprise value, there would have been 10s of millions of dollars in net new enterprise value, so not just unlocking the net new fees, but the enterprise value because they’re obviously a pretty successful firm, the net enterprise value with that media going over, there was tremendous, just a huge, huge opportunity. So we worked with that one for three or four months, I was back and forth to Florida a whole bunch to get that closed, we probably spent 45 grand on 40, 45 grand not on legals. And at the one-yard line, the seller calls me says, “hey, we’re losing our biggest client.”
Jeremy Weisz 46:58
So you would have to change the terms and the value based on that, and both parties didn’t want to, not, they want to.
David Tile 47:08
Not even, I actually did negotiate the terms down to, again, roughly nothing. But the problem was that they had just signed a massive lease, as in they had one, let’s say one to $2 million in go for reliability there, you’d have to document better. And we were not prepared to assume that that liability so unfortunately, the deal was no longer on terra firma. So just it didn’t it didn’t work out, unfortunately. But we learned a lot and, you know, luckily two and a half months ago now I did complete smart to smaller deals that sort of play really nicely against article writing companies. So, we’re starting now to integrate, to seek some version of integration on a client-to-client basis. And it’s it’s turning on in a really fun way, which is lovely. Obviously, December’s a bit we’re it’s December, I’m sure this episode will air in a few months. But December is a bit tricky with marketing agencies, and you know, one at one of them is a lead generation agency and essentially the modality there is such that we do cold email, we do cold outreach on LinkedIn. And so there’s a nice little purgatory there in December where corporate America just completely checks out. But we got a ton…
Jeremy Weisz 48:41
Was that the first one I know, Nerdy Joe and Cascade Virtual other two companies, which was the first one that you did?
David Tile 48:50
Well, Nerdy Joe was done on Monday. And then Cascade was on a Tuesday. Really? See your twin flame time? Yeah, that’s right. They’re twins. They just are. One was born first, I guess.
Jeremy Weisz 49:03
Was that hard, because a lot of the businesses I’ve interviewed who acquire there’s like an integration time period. And that can take a little while. And now you have to, like you said, twins. Having one kid is hard enough. And then you have to and you’re changing to diapers with one hands like, how did that go? Would you do that again?
David Tile 49:28
Here’s how I thought about it and why I thought it was a reasonable hypothesis going into the double dip in one week. You’re right. Classically, it’s insane. But these are small acquisitions. So we weren’t talking about, you know, multimillion-dollar acquisitions here. These were smaller firms. Nerdy Joe was essentially a one-man boutique. Okay. So they had three guys but like, essentially, it was a one-man boutique. And so they’re, you know, they weren’t old. They were an eight-month-old company. Okay. The founder was — he was risky. Oh, it’s incredibly, it’s incredibly risky. But that’s why I was able to do it myself with no partners and no backing. And not to get into the terms of the deals necessarily, but the nature of that transaction was reasonably risk averse. Okay. So the broad hypothesis was Nerdy Joe was a young company, and the founder was really struggling to build the foundations, he thought selling he’s selling, he’s, you know, he’s struggling. He’s got clients that are great. He’s got clients that are not so great, right? All of that normally. And like young agency stuff, right? So I looked at it, and I really liked this founder. I like the bulk of business that he has. But also, the really, really compelling piece of the puzzle was that through SEO, and as somebody who spent 13 years in SEO, I knew this very specifically, through SEO, they’re generating 50-60 new business meetings every single month, right? So essentially, I looked at this as like, okay, he’s got something here, he’s got a small book of business, he’s got significant SEO success. So I know that we can propel the business forward, but they have no real firm, there is nothing but a one-man boutique, who’s running the whole firm on a notepad, right. And I’ll give you a bit of a peel this onion back for you a little bit further, in cold email, okay, every single one of their routines, they have to acquire domains. So what you do when you’re doing cold email for your clients, is you acquire lookalike domains. So you’re not sending cold emails…
Jeremy Weisz 49:28
You don’t want to blacklist your main domain? Exactly. If you send from your mail telling to someone the other day, they have it on like, they’re like, yeah, I think we’re using cold email, Mike, you’re gonna blacklist your whole company because of your own domain.
David Tile 52:13
That’s exactly right. That’s exactly right. So on behalf of clients, they’ll buy 22, like, they’ll buy 10 to 20 domains on a campaign, a campaign basis, sometimes more. And so that’s the start. And then, for every domain, you’ll buy three inboxes. Okay. And so you can imagine, if you’ve got 20, you’ve got 30 clients, and every single one of them has 20 domains, that’s almost any of 400 domains. And then if you’ve got three inboxes, for every domain, that’s 1,200 inboxes. Right. None of that was organized, they had clients that had come and gone. And so they like, so they had all these, like, old domains, and all the boxes that they were still paying for, right. And so like, just like, on day one, I walked in, and like whoa, like, Holy hell, like, day two, I hired somebody, specifically, I’m like, I need somebody who, whose whole job is to manage a spreadsheet, listing out all of our domains, listing all of our active inboxes and attaching them into specific projects, we’ve got 1,200 inboxes, that we’re paying for, and half of them we’re not using, it’s great, it was completely insane. So the whole foundation of the firm was built on the back of a napkin, and this, he’s a bright young kid. And so it’s like…
Jeremy Weisz 53:49
He’s impressive to build that in eight months. Really impressive.
David Tile 53:53
Very, very impressive.
Jeremy Weisz 53:57
How do you evaluate that and you don’t have to get a numbers, but like, you know, are you doing a, you know, a multiple of EBITA, how are you deciding on ultimately what you’re going to offer?
David Tile 54:10
Yeah, the way that I frame our offering generally is as follows and especially with younger agencies, where there’s a bunch of risk factors, we will have a variety of net value coming to the founder, first is cache close, right. So, whatever that makes sense. The second is a revenue-based earn-out so you can imagine like, after eight months, where the revenue only picked up in last two months, right, that in this case, the cash at close would have to be quite low, and the revenue earned out would have to be compelling enough where he says, okay with you and with the project here and with the cap, like with our like, with the agencies, etc, that we can actually build a company and actually build SOPs and like hire the right people to do the right jobs, etc, etc, if we can do all of that, then I will properly capture that revenue earned out. And the same is true for an equity-based or now, right. So you have evaluation, generally speaking, a good agency should trade in the two to 4x EBITA range. But like, throw that out the window, if the company is eight months old, it doesn’t matter, right? You have to, you have to. I’m a gut instinct, I’m gonna just gut guy, I really liked the guy, I wanted to work with him. And that was the, I liked the book of business, I liked the marketing power, right, but I’ll add, I really, really wanted a lead generation agency to be the first acquisition. And the reason is, if I can get that right, every next acquisition becomes 1,000 times easier, by can fire it. And now every conversation I’m having, I’m like, I can fire 100 new business meetings your way on a month-to-month basis? Like, what do you
Jeremy Weisz 56:24
You use it for all your other companies?
David Tile 56:27
Exactly, exactly. So to me, it was like if I can nail that marketing methodology through a company that I own, and actually turn on real new business success, every next acquisition is just 1000 times easier. So just to go back to the hypothesis, Nerdy Joe was a crazy young boutique agency built on the back of a napkin, and Cascade was the opposite. Okay, so as a virtual assistants agency, they had way too many staff hanging around for how much revenue they were doing. And they’ve got a tremendous group of virtual assistants that are hyper-organized, that are hyper diligent, and be like…
Jeremy Weisz 57:15
I need a company to manage all those domains from Nerdy Joe.
David Tile 57:18
In my head, I’m like, okay, these guys are operating on the back of a napkin, these guys have air table and spreadsheets, and they’re like, I like McKenzie, who’s the CEO at Cascade is a killer building SOPs, because every single one of their clients has to have concentrated, hyper-specific SOPs. If you have a virtual assistant, and they quit or whatever else, you need a new one to come in, right. And they need to, they need to learn this system right away. So it really felt as if the marriage there from a team perspective made a lot of sense. And so, both deals were like, again, we’re not talking multimillion-dollar acquisitions, where there’s like a complex two-year integration plan. So the deals were structured in such a way where it was reasonable from a risk perspective for me, right. But also, I knew I had to change the game, right? Like, I knew I had no choice but to you know, really, really blow up my day-to-day and what we know what I was out in the field working on and honestly, like, so far, so far, it’s been banging. It’s been great.
Jeremy Weisz 57:39
What have been some of the challenges? I know, there were maybe some hiccups with Nerdy Joe.
David Tile 58:51
Yeah. Yeah. So far, it’s been great. But we, and this was fat, like fascinating. And I will never, I don’t think I’ll ever really fully understand this. Ernest, the CEO of Nerdy Joe resigned. So about six weeks into our relationship, he wrote me a little message, he says, I don’t want to get into the personal stuff here, but it like he had to go. And to me, it was terribly unfortunate and as follows. I benefit, obviously by letter of the agreement, and I do have a fiduciary I have a responsibility to my partners and to McKenzie at Cascade and everybody else to behave in the best way for the firm. So I said for me, for the partners, etc. We benefit tremendously. bilateral agreement, you will forfeit everything, right, you’ll forfeit all of your equity, all of your earn-out. Everything. This is a huge mistake, we benefit from it. Right. So, like, I’m not going to beg you forever, but just from a moral and an ethical standpoint, I think you’re making a massive, massive decision and a massive mistake that you will come to regret over the coming years. My view and there was some personal stuff here, etc. My view is you should take like, this was a Monday, I think it was my Sunday, and like, take the week off, sleep on it. And let’s talk next Sunday, right? I need you to have a real, like a real, like minute to make this decision. And not just her yourself out of the firm. Because and this was crazy for him, right? We bought the company early October, October and into November, we sold a ton of new clients, right. And so we’re into 30 were into 40 active campaigns all of a sudden for his business. And it was built on a house of cards, right? And he was having to buy, you know, with all as we were upgrading every single of the core systems with new people, new SOPs, etc. He’s having to like, do this whole new thing for him, which I don’t think he really acknowledged in the way that he was thinking about the acquisition and the partnership and the future of the firm. And not only did all of a sudden he’s managing 10 people write as the president of this company. And all of a sudden, he’s managing 40 clients and the that volume for him just became aware, like the volume of daily pings on Slack and daily emails and phone calls and sales calls, it was amazing, right? Because we were selling and we were grabbing a lot of really, really healthy new chunks of business. So out of the gate, we it was rocking, but then it for me the challenge was oh, okay. Now this guy’s this guy’s out. What the hell do we do now? Right? So it’s been, it’s been a few. It’s like, literally, I’m in the thick of it right now. It’s been a few weeks since he like properly resigned. He did. Like he took that week. He was like, No, David, I am out. I need a year off like I am. You know, the again, I’m not gonna I don’t want to go too deep into the personal stuff. But he’s like, I need six months. I need 12 months. Like I got to go. It’s not a money thing. It’s not an equity thing. Like, I’m sorry, but this is my final decision. Okay, I’m not, I’m not gonna beg you. It’s over. I’ll take over. It’s fine. I called all of our clients. I called everybody. I’m like, okay, this is what’s happening. Like, there’s like, Let’s rock. Like, generally speaking. No, no major hiccups internally, there was obviously a little bit of trepidation in some of them are employees, etc. But like, funny enough, we had reached a position in the build of the company in the build of all of the core buckets, all the core systems, all the core teams, etc, where his resignation didn’t really affect anything. And now okay, like, now I have to take half a dozen or more sales calls every week. So what, I’ve been doing that for 13 years, and I’m a silver tongue devil, right? So it’s, so it’s like, okay, great. I like and by the way, I could probably be in a better position to identify great opportunities, but also identify great opportunities that play to all three agencies. Right? So it’s sort of worked out nicely in that way and okay, like, I’m sad because I really liked working with him and I liked him and I respect him and I wanted the best for him and I believe he made a huge mistake, but I wasn’t gonna beg him forever, right. So it was a like a pretty significant challenge like a like a whopper of a challenge and something that like honestly, my M&A hypothesis is founder centric and I lead with that in a lot of my conversations like I want to work with great founders and for him to resign in six weeks was the opposite of my intent. I wanted to get rich with him through this company and unfortunately he’s gonna walk away. He walks away from some pretty significant burnouts and equity position in a you know, in a group of agencies that are all growing right like it’s like it’s a sad dynamic for him. But c’est la vie.
Jeremy Weisz 1:05:02
So, what’s the next step for that company? As far as what are you looking for to hire? Do you want to hire kind of like a CEO of that company? So you don’t have to run it? Are you guys gonna hire salespeople? What’s the next step for hiring for that? So you can, obviously, you say, oh, it’s not as big of a deal, like six to 10 calls a week, but for you super busy. That is kind of a big deal. I mean, that’s a lot of time.
David Tile 1:05:27
Yeah, I like taking sales calls. So I think, by the way, I think they’re important, I think it’s important to stay in touch with the market. The future plans are a little complicated, because I’m actually on the one yard like, literally on the one-yard line, where we have an APA in place right now, etc, etc, with a firm that does exactly this is such intense serendipity, you could write this story, right? That serendipity is that we have a another firm, stronger position, similar size, but in a much stronger position, there were the, five years old, etc, etc. Exact same business model, exact similar products right. They’re in lead generation, we got another firm on the one-yard line that we’re about to close on. And so it’s like, kind of awesome, right? Like, we’re gonna…
Jeremy Weisz 1:06:29
You have some, like, crossover and some redundancy, where they can kind of help take over some of these functions.
David Tile 1:06:38
Yeah, there’s a leadership vacuum there that will presumably be replaced. They have a sales team, they’ve got a bunch of engineering towel. And there’s, there’s gonna be a bunch of economies of scale. And, like, if I can just plug that right in, it just feels like a perfect potential marriage. Right. And, you know, we’ll more than double our marketing power together now, except, like, it’s a coup, if it plays, right. And so I got to get it over into the end zone, right. But be I got, you know, there’s, there’s a hard integration, there’ll be six, 12 weeks of hard work there to make it work. But I believe it’s too good to be true. It’s crazy.
Jeremy Weisz 1:07:30
It’s funny, there is an episode with Jason Swenk, where they’ve been buying up agencies. And he talked about the exact structure, he’s like, we give whatever, 2X EBITA, you get X amount at close percentage, you get x amount of equity. And then I had, speaking of cold email, the founder of Mailshake. On, they’ve been also acquiring SaaS companies. He’s the opposite. He’s like, I think he was talking about if the founder wants to stay, we don’t want to, we want to take over the company. And those two were complete opposites like we wanted it. So I’m curious, from your standpoint, and I’m gonna make up numbers for a second. But let’s say the top line of the company’s a million dollars or doing $200,000 in EBITA, and let’s say you offer two times, so it’s $400,000. And there’s probably some nuances there. But like, what are you thinking of percentage of that $400,000 cash at close to revenue earn-out to and then they’re actually getting equity in that company, specifically, or the larger entity that you’re building?
David Tile 1:08:44
Got to be the larger entity. And here’s why. They’re in a small agency, there’s just going to be so much crossover, there’s gonna be so much integration. And so if you start if we had a mother brand, like a mother Holdco, that had a variety of corporations, like separate corps that owned each one of our assets, the interplay there is insane. Right? As in, too perfect to properly integrate, we’re talking small teams, we’re talking small agencies, there’s going to be a lot of crossover, right? Like, hopefully. So if you want to integrate that without all of the founders saying, hey, man, why did you take 20 hours from my account manager, I’m paying him but they’re getting the benefit, right? If you don’t want that if you want real integration, if you don’t want like intensely complicated management agreements, and then settlements at the end of every month, like if you don’t want a brutal bookkeeping routine. My view is they need to all be part of the mother brand. So That’s how we’re that’s how we’re playing. But also they get, as that starts to play, they get the equity position in the mother brand is of significance, right. So that’s about it, we’re after I understand other people are in a different modality, to touch on your, the dissonance there between the SaaS and the agency. My hypothesis is all about the founder, right? And in agencies, founder dynamism, founder energy is, it’s kind of like nine-tenths of the law, right? Like in a SaaS company, it’s way less mission critical to have a dynamic energetic founder, that you can, just from a marketing stance, right, you can have that in the market, where they’ve got a podcast, they’re out, they’re out on Twitter, they’re, you know, they’re building a personal brand. And that can be a great means for customer acquisition. But it doesn’t have to be that way, you can have a great SAS company where the founder is just in the back room, and nobody knows who he is. And so if that’s true, if they’re not a part of the critical infrastructure, they’re not talking to clients, they’re not talking to, they’re not talking to the marketplace in any marketing capacity, then they’re expendable, right? And so that by the way, that plays into valuation that plays into the terms that you might offer. My view is the opposite that in agencies that founders are night, they’re nine-tenths of the law, right? So unfortunately, because a founder leaves, and this was obviously going through my mind whenever this left, the founder leaves, clients start to get shaky, people start to get shaky, right. And it like, all of a sudden, the whole thing can go up in smoke, if you’re not really, really careful. And if you’re not holding from a place of strength, you can blow a massive acquisition a massive asset because the founder doesn’t want to participate anymore. And by the way, it happens, right? And so there’s a valuation question there. And there’s a terms question, which is, and this is why we drafted our letter, and this is why we drafted our purchase agreement in that way. This is why we drafted our terms in that way. It’s like, we aren’t prepared to assume that risk in a massive way. Like if you want to, if you want to participate, if you want to come in, if you want to sell us your agency, the like, there’s going to have to be a long tail where that’s the majority of the gravy. And that’s the only way it’s going to work for us. Because the founder’s too important.
Jeremy Weisz 1:12:54
And I’m not going to, you know, corner you into an answer with exact percentages or whatever. But just generally, when we talk about that example, and only a few minutes of it’s a million topline $200,000 EBITA, if you’re offering $400,000, or whatever, what is kind of the general what you’re considering from cash or close to revenue earn out, and then equity in the larger entity. And I’m sure in private equity, the later tuck ins if you’re going to sell, get less equity than if someone’s going to be in this for a longer period of time. So I’m just curious, your thoughts around those three Ps.
David Tile 1:13:35
Yeah, I think the intangibles here are as follows. And they would matter tremendously in the way that the offer, the LOI might be structured, right. First of all, who is the founder? How long have they been at this? How, what is their Slyke? What’s their stated intent? Are they looking to be out of the business in 12 months? Are they looking to be out of the business in 36 months? Are they just looking for a new partner? Right? So what’s their stated intent, and you have to settle that inside of, you know, some, some risk spectrum, right, because they’re gonna tell you things that are true, or that are half-truths. Or by the way they get on the other side of an acquisition and things don’t turn out the way they wanted to, and they are going to that things change, right? So you have to settle that inside of some expectations spectrum. So that’s, that’s a big intangible. It’s like, who’s the founder? What are they all about? What are they looking to do? Right? And then next is what is the nature of the business? And so there’s a number of pieces of the puzzle that I look at, specifically, obviously, how many clients do you have? What’s the average contract value? What are the average? What’s the lifetime value? Right? Is there a significant law Long Tail value in the majority of your contracts, or are you like churning and burning clients? And do you have like a retention problem? o you have a dozen government contracts that are five years long, right? Like, actively, what’s the future value of all of the contracts that you have A and B, how mature is your sales and marketing stack? Are you in a position where you’re growing? Are you in a position that at the very least where you’re replacing top-line revenues, that churn with new business? Right? So are you in a healthy and compelling position from both active contract value standpoint, and from a sales and marketing? So how are you growing, right? And the dissonance here is tremendous. I’ve met with companies that are doing 100 sales meetings every single month, where they’re doing a bit of churn and burn game. And I’ve met with companies who are doing five pitches a year, and they have a, you know, a half a dozen, three, four-year contracts with, massive maybe government contracts or whatever, whatever, right. So, the dissonance there is actually in intense in a, you know, in a marketing agency context. So the value naturally, if you’ve got a team, if you’ve got systems in place, if operations are reasonably, you know, marketing agencies are a little hectic, but if they’re reasonably normalized, and you’ve got all of the above right, long term contracts, and a reasonable approach to sales and marketing, then the valuation and the upfront cash and all of that shouldn’t be a lot healthier, because there’s a lot there that’s been de-risked. But if the company’s churning and burning, and you’re having a hard time with retention, if there’s an immature sales stack, etc, etc, then rest upon the energy and the dynamism of the founder, but have a hard conversation, I have the hard conversation, which is, I can’t, there’s way too much risk in all of these things. Here’s why. And here’s the best that we can do. And if that doesn’t meet your expectations, then thanks anyway.
Jeremy Weisz 1:13:54
David, I want to be respectful of your time. I know we’re out of time so I just want to thank you. Thanks for sharing your journey. Thanks for sharing the stories and being vulnerable. I really appreciate it I know everyone will appreciate it too. And everyone check out everything all David’s sites .
David Tile 1:17:43
Find me on Twitter it’s at David Tile.
Jeremy Weisz 1:17:47
Thanks, David.
David Tile 1:17:48
All right, rock and roll.
