I was talking with David C. Baker yesterday about the high amount of webshops that are for sale right now. I’ve been in the digital services space for over 20 years and there has never been anything like this in our industry. He’s seeing the same surge and we dug into some of the challenges owners are facing. Should they sell? How do they determine their value? What are the first steps in the process? This level of interest with a lack of experience in selling a business means many of us have to be careful.
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Carl: I'm worked up. I'm fiery.
Gene: You're fiery?
Carl: I'm fiery. I'm feisty.
Gene: Let's get into it.
Carl: Change that R to an S. Now are we going to keep that or that video thing? No, we'll get it out. Folks, I'm talking to you today. And you know what? I appreciate your patience with me. I do.
Gene: Oh, wow.
Carl: We've had that two minute intro for so long before you get to hear anything and I hear, "I love the podcast. I just have to hit fast forward 15 seconds, eight times. And then bam."
Gene: People say that?
Carl: No, I just made that up because I got tired of it. I don't even listen to the podcast and I'm sick of forwarding. So there you go.
Gene: That's how it works.
Carl: See, the challenge becomes, how do we then thank our sponsors?
Gene: I think you just say thank you.
Carl: Like Parallax.
Gene: Yeah.
Carl: You know Parallax, right?
Gene: I love them.
Carl: You do? Do you use them?
Gene: Nope. They're good people.
Carl: Do you notice the awkward silence?
Gene: Yes, I did.
Carl: It was just a couple of seconds, but for me, that's like two hours. Parallax is awesome. You need them. Just go hire them.
Gene: Okay.
Carl: They're friends of mine. I don't get a kickback. Well, okay. Maybe a small one. It's got a kickback. It's an upfront payment. That's not the point.
Gene: It's not the point.
Carl: Your stuff is good. It's going to help you run your operations. Gene, there's some stuff going on in the world of web services. Did you know that?
Gene: I hope so.
Carl: People are selling their shops.
Gene: Really?
Carl: They're trying to.
Gene: How do you do that?
Carl: Well, I'm here to tell you it's not as easy as some people will tell you it is.
Gene: No, I imagine not.
Carl: I'm here to tell you some people tell you... I wish I could speak as well as I write. I need an editor in my brain as the words come out.
Gene: Some of us do.
Carl: Here's the thing, Gene. You may have heard that it's been kind of hard to run a shop over the past couple of years.
Gene: I've heard that from a few people.
Carl: I mean, you've had to supplement your income with this podcast and that's going really well.
Gene: It is man. Thanks to Parallax.
Carl: You might just shut down period three because-
Gene: A professional bureau podcaster.
Carl: You have got it. You are rocking it. No. I mean, look back at the episodes that we've had read, read the issues of the newsletter. Wow. We got so much work, but we can't hire anybody. Oh my God. We're losing our core team. How are we going to get this work done? It's such a struggle and a few things I want to share today. One is around the idea of using brokers to sell your shop. And I think if you get a reputable broker, it can be great. But I think like anything like coaches, brokers, consultants, there are a handful of really good ones and a shit ton of charlatans.
Gene: I think that would probably be an area where it would be more the latter.
Carl: And I looked up the word charlatans and I am using it properly.
Gene: That's a first.
Carl: I just want you to know that [crosstalk 00:03:51].
Carl: Snake oil salesperson I think is unfair to the snakes. I don't want to do that. So, I had this conversation with David Baker. If you don't know who David is, 2Bobs podcast, amazing. He's got a book, The Business of Expertise, which is stellar. I've read it a couple of times now. He's not sponsoring by the way, but buy his book, because damn it, the man deserves more people to buy his book. I'm pretty sure I borrowed a copy. Okay. Whatever. No, but there's more opportunity right now than ever for a broker to get in and talk with owners who are kind of on the ropes. They have been trying to get their shops going. I think based on what I'm seeing, and I have a different perspective than a lot of people, because I watch conversations with hundreds of shops and I talk to dozens each month, I think we are kind of starting to get out of this.
Carl: People are starting to see things settle down. People are taking jobs. Some roles are harder to fill. Some roles are being filled with less seasoned people, but they will get there. And there are some folks who are just like, "You know what? There's never been a better opportunity to sell." I hear people are getting 10 to 12 times the worth, and depending on how you evaluate it, with EBITDA or whatever you're looking at there, most people are really getting four to seven times. Which is still great, but there are people out there saying it's 10 to 12. You got to be careful.
Gene: How does that work, man? Like how do you-
Carl: Are you going to ask me about math?
Gene: How do you get 10 times? What are you talking about?
Carl: Okay. So, when you get your shop evaluated, there are all these different metrics that happen, right? It's like how much recurring revenue do you have? How much turnover is there and that, how much of your businesses is single projects, all those types of stuff. If you have a lot of recurring revenue, then you'll get a higher multiple on the value, as if you-
Carl: Yeah. What? If you're going to interrupt me, fucking say something.
Gene: I figured it out.
Carl: That was so aggressive. Oh my God. Did you see that? That was amazing. Hey, if y'all listening on audio, put that on YouTube because I just now punched this guy through the screen while he is drinking his damn latte.
Gene: Oh, you can try.
Carl: Oh, I could punch you.
Gene: Maybe.
Carl: And I can run. Not that fast, but for a long way. You will have a tough time catching me.
Gene: Bro, I will never catch you. I'm trying.
Carl: So anyway, just I guess the thing I'm trying to get to is it's a feeding frenzy right now for brokers and other people who are going to get a piece of selling your organization. And I think there are some good brokers out there. I think that there are a lot who are riding this wave and then they're going to shift. I was supposed to have a call with somebody who had founded one of the more popular ones. And you know, I have to acknowledge that that call got canceled about five minutes before it was supposed to happen. And it never got rescheduled. There was no reason why there was nothing. And yeah, it annoyed me. So I'm taking on the whole industry.
Carl: Here's the thing. I know some people who've gone through brokers, ones that I like and ones that I'm questioning, and they got through the other side. But what happens is you get in there and you're promised the stars and the moon, right? And then, "Oh, well we weren't aware of this." We're going to have to scale back a little and where a lot of shops are selling in like three months to six months, there's also a fee that you pay to be taken on.
Gene: Of course.
Carl: That fee two or three years ago was around 500 bucks to a thousand bucks a month. Now it's up to 5,000 bucks a month. I'm sure it's different. I know it's different across different people that are helping out. But I guess the thing that's getting me is a lot of times people were just getting worn down and you enter that process, people are going to know. So now you kind of hit this point of no return. Because your team knows, or other people in the industry may know, and so you get there and you just get exhausted and you you let them just beat you down. And I guess that's the thing I wanted to do today.
Carl: This whole episode's a hot take to just say, take a breath. You don't necessarily have to sell. And if you do want to sell, you don't have to go through a broker. You probably do need a consultant, you need a good lawyer, you need a good CPA. You need somebody who understands valuation. But also, it's a buyer's market right now. So it's just like the housing market, right? Well, that's a seller's market. I got that wrong, Gene. It's the exact opposite of the housing market. I'm on the wrong side of both.
Gene: Mm you're screwed.
Carl: I am done, but I guess that's it. And I know I'm coming in here all guns blaring, but I just want people to realize, enter with caution, any relationship where somebody is going to make money off of you selling something.
Gene: Well, take a second. So if you buy commercial property or you buy a house, you go through a broker and they're licensed. There's a governing board of people. They have to take a test. They have to go to classes. They have to get all this stuff. Is that the same in the business? Is it basically just a lawyer calling themselves a broker? How does that machination work?
Carl: I could be totally wrong, but I don't think there's any licensing mechanism for selling somebody else's business.
Gene: I don't see how there could be. That's why I asked that question. So, I could just call myself a broker.
Carl: Yeah you could. And you'll probably get a few calls this afternoon.
Gene: That's what I'm saying. So, I think that's important to keep in mind that it's like, who are you talking to?
Carl: Yeah. Well, I mean-
Gene: Are they even a lawyer? Are they even an accountant? Like who is this person?
Carl: What is their a history, right? So if you look at somebody who say, has been in the digital services space for a long time and they really understand it, maybe they had a shop and they sold it and they did well. And then they've decided that they want to help others do that. Okay, that's one path into it. Sure. And that's probably a good path. You've got the experience, you know what it feels like. You want to help others. Then there are people who were a coach, who like tagged on broker, because they saw an opportunity. And it's not always just a coach, sometimes it could have been a broker in another industry. It could have been-
Gene: Oh yeah. Yeah, yeah.
Carl: But what I'm being exposed to now that I've been to some of these broker sites and I've signed up for some of these newsletters, is it is a nonstop just flow of sending metrics out of shop.
Gene: Yeah, that seems like a good giveaway.
Carl: They're this big, they have this much recurring. This is the space they're in, this type of thing. But it's so many that it's exhausting. And I think the reason it's so many is it's like any level. I mean, it's a numbers game for them. More people they can get signed up, the more monthlys they're going to have, right? The more that they can sell. Some are taking up to 10% of the purchase price too. And all of this is stuff that gets negotiated after you start. I've talked to almost 15 shop owners right now, some who pulled the plug and didn't end up selling, some who went all the way through the process. It's like we need a public service announcement, that it's seller beware.
Gene: Yeah.
Carl: There's a lot of stories out there now.
Gene: There's a lot there, man. Have you ever sold anything that you've created?
Carl: Nothing in my whole life. I've never sold a thing, except you. I sold you on doing this podcast and editing it. So thank you for that.
Gene: I got screwed.
Carl: You did, multiple times.
Gene: No, I meant like anything you've created in terms of business.
Carl: Yeah, I did try and you know this story and I'm not going to share names, but I was at a point where I was out of love with nGen. I was exhausted. I had people I was trying to take care of and something showed up that was too good to be true. And I just ignored all my senses and made a choice to move forward with it. And in the end, I ended up upside down a couple hundred thousand bucks because I trusted somebody and that's on me. That person didn't necessarily deserve my trust. I was in a vulnerable moment. And that's what I'm saying. You just nailed it. That's part of why this is so emotional for me is because I know there are other owners out there right now who are in that emotional moment. And yeah, you got to take a breath. If you are going to go with a broker, shop multiple brokers.
Gene: And get you a battle buddy. Yeah, call Carl. His number is four, seven... No, just get you a battle buddy too. Like get somebody to stay up late and talk to you or something. Get somebody that's going to look out for you, that's going to have your back. I know that's easier said than done sometimes, but if you're getting something that sounds too good to be true, you need a sounding board in a person to just be like, "What does this feel like to you?" And that person, if they're a good person, they'll say like, "Sounds like horse shit." You know? They'll tell you that.
Carl: Yeah, and a lot of the stories that I'm hearing are very much a, "You need them. You are not going to be able to make this happen without them. That they're going to get you the best. They're going to take care of everything for you." And that's the way that it starts. And then, like I mentioned, over time, you get whittled down until you just give up and say, "I just want it to be over with."
Gene: That makes sense.
Carl: And and it's painful. It's like a long, drawn out, beat down sales process. But that said, there are some people... I was just watching somebody say that they were closing their shop today.
Gene: I saw that too.
Carl: Yeah. And it's one of those where you see it, and you're like, "You know what? Okay." I don't know the individual's situation. I don't know like financial or family or whatever. I don't know any of that stuff, but I know that it felt like the right decision for that person. And as much as it was just a really quick post, and some other people gathering around... I mean, that's one of the things that's beautiful about the bureau, especially even in the slack, is where somebody's having a bad day and people jump in to help. But I don't know that this was a bad day. I think even the way that it was stated, it was like, "I'm so ready to get to the other side." I think that's a big part of it. But anyway, I think there are a lot of legitimate reasons for selling.
Carl: I think being burned out is a perfectly good one. There are people in the community. Like if you look at Mark O'Brien over at Newfangled, he bought Newfangled. He was an employee, the owner wanted out. Actually David Baker was the one who facilitated that whole thing. And so I think there are ways that you can continue the company without it getting kind of taken to a chop shop, and let somebody inside take over. And the buyout might take a little bit longer, but I think there ways to do it like that... Or another great story that I heard recently, it's an individual shop. It's one person, but they've got kind of like an umbrella where they've got different freelancers that are hiring to come in. It's a model that a lot of people do. And they happen to be good friends with somebody who's running an advertising agency that didn't have a very strong digital presence. And they added a lot of value for that buy.
Gene: Right. Right.
Carl: A lot of people would look at them and say, "Your numbers are great, but it's just you and you can't guarantee anything." And I bet a broker would've walked away from that right away. But, that person is getting a really high multiple, and you know why? Because they found the person who needed to buy what they had built. And I think that's getting lost. Nobody is looking. Okay, I'm making a broad generalization here, but I firmly believe it. I don't think when you end up in these big, like buffets, which is what it feels like, right? It's like suddenly there's a Zillow for buying a web shop to see all of these shops out there. You have no idea the kind of the DNA. You have no idea what went into them. You just know numbers. And most shops when they're acquired, at the end of three years I've heard, and five years I've heard. But after that timeframe, none of the original people are still there.
Gene: Makes sense.
Carl: Yeah. You got acquired into another culture and you're tired. But, everybody listening, I know I'm kind of all over the place here. And Gene is just looking at me like, "Should I call the police? Are you okay?" Just take a breath.
Gene: That's good advice.
Carl: Really think about this, if you spend five years, 10 years, 20 years building this, don't decide in one week that you're going to listen to somebody else who doesn't know you at all, and really is just looking to load up their portfolio so that they have a better chance of making some bank.
Gene: That makes sense, man.
Carl: Either that, or we should just start a brokerage [crosstalk 00:18:26] and we'll give 10% back.
Gene: Wait-
Carl: And keep 90.
Gene: 90?
Carl: Yeah, baby. That's how that floats.
Gene: What kind of brokerage are you running?
Carl: A broker-ridge. I'm going to make you broker.
Gene: Oh, that's really good. That's in there.
Carl: You like that?
Gene: Be careful. Be careful.
Carl: I didn't come up with that.
Gene: Have you ever-
Carl: But I did think it was kind of funny.
Gene: Put yourself on the other side though, have you ever acquired any other company or anything?
Carl: No.
Gene: No. What about the bureau?
Carl: Okay, yes.
Gene: I was trying to set you up. That softball hit you right in the face.
Carl: I don't even know. I'm like one of those dogs on TikTok, the ball just hits them and they're like, "Why did you throw that at me?"
Gene: "What day is it?"
Carl: That's great. OK. Yes, I did. I acquired the bureau and you know what? That was a totally different situation. So, Greg Hoy wanted to reboot Happy Cog and he knew he couldn't do both. He couldn't do booth.
Gene: Booth?
Carl: Suddenly like a weird English, Canadian.
Gene: "He couldn't do booth."
Carl: "He couldn't do booth." And so we were going through something with my family, and I knew that I had to either reboot engine or make the bureau really where I could live, and so take care of everybody. And so it was a very gracious and... yeah, so I acquired it, but there was no valuation. We looked at what the actual assets of the organization were. We looked at-
Gene: You did your own valuation.
Carl: Pretty much. He said, "What about this?" And I said, "Sounds good." And that was kind of the whole deal. There was a piece of paper. I found it the other day. And the other thing was the terms were so great. I bought it from Greg over the course of a year or maybe two years. So it was like super chill.
Gene: But, I bring that up because you can acquire another business. You can acquire a company, you could sell your company, and it doesn't have to be so legally and complicated, you know? I mean, you pulled it off. When you think about what was Greg's alternative? To just stop? Or go through a process like that, where it's like all this shit and figuring stuff out with some stranger? You can do this stuff.
Carl: Yeah. So that's what it is, right? I guess this is the ultimate part of what rubs me wrong about this. Every owner I've ever met has put so much of their heart into the organization. And then if they decide they want to merge with another organization, like we call them bureau babies, and we've had a half dozen where a new organization comes out of two existing ones. And that didn't sound good.
Gene: That ain't no baby.
Carl: But it's two people who liked the way the others were operating. They saw where together they would be stronger and they made that decision. Or it may have been a small shop that knew they'd be able to do more stuff with the larger one. There's some great people in the community like Ande Graham, Dusty Gulleson, others who've done a lot of these acquisitions. And so maybe when we get some of them on the show to talk about it, somebody who's a little more experienced versus just a little upset.
Gene: I think it would be great to talk to Ande in particular. I know she's just recently acquired a couple businesses.
Carl: Yeah. And that, to me, I think the way that she looks at it is not just "Hey, we'll now have these tools in our toolbox," but it's, "we'll have this add to our culture." We'll have these other people and those things don't always work out. But yeah, if you're looking at it, I think there are a lot of options other than just selling as fast as you can, and that's it. I just don't think most of the brokers that I've seen, read about, or talked to, with a handful of exceptions, they don't really seem invested in the individual or the legacy. And maybe they can't because there's just too many numbers. There's just too many coming through.
Gene: That's probably something to look at too. This broker is reaching out to you. Do they sell gas stations? Do they sell dentist office? Or do they only work in this industry?
Carl: Or did they- [crosstalk 00:23:15] What's the history?
Gene: Yeah. Did they sell a car dealership to somebody else? And now they're like, "Hey, I can do a marketing agency or a web firm." I mean, what are we doing here?
Carl: Well, and the thing is it only takes doing it once or twice successfully, or being able to frame it successfully, for that to happen. But you know what, I'm looking up, we're 23 minutes in and I swear to God, I don't know a word I've said because it's been raw emotion today. Just like coming through it. But I think if you're out there and you're thinking, "Now is the best time for me to sell and I'm ready."
Carl: For example, I'm 54, right? So if you look at other people who are still running shops, that are in their sixties, that is a transition that's going to happen if you want it to or not. So there are times where you absolutely have to, but like anything... I'll say like getting a line of credit, right? You want to get a line of credit when you don't need it. That's the key. It's like, when you've got the money and the bank won't see the risk, that's when you do it. If you want to sell your shop, you need to do it when it's not urgent, when your shop is doing great. Like if you're thinking at some point in the future, in the next five years, I really want to go ahead and sell the shop, make sure it's on an up note.
Gene: Yeah.
Carl: It'll be better for you, better for the team, better for everybody.
Gene: That's a great point.
Carl: Yeah. Well then, if that was a great point, I don't know why we're still talking.
Gene: I'm not.
Carl: I think that was the first one. The newsletter this week was on this and it was a little more organized in thought than what I'm spewing out here right now, but we're going to have another issue or two on it. And really, not just the kind of seller beware part, but also what do you look for in a broker? I think that's what the next issue will be about. It's just like, how do you know that you've got a reputable broker? And the easiest way is that it's a referral from somebody you know and trust who had a good experience.
Gene: Solid.
Carl: Yeah.
Gene: Solid.
Carl: All right, so that issue's done. Gene, should we sell the podcast?
Gene: How much do I get?
Carl: I will give you a solid 50%.
Gene: Ooh, let's sell it.
Carl: No?
Gene: No. Let's start another one up.
Carl: Well, we might have a noncompete, you know we're pretty good at this. All right, Gene.
Gene: All right, man.
Carl: Let's call it for the day, everybody. Please support your local Parallax and we'll be back here next week.
Gene: Sounds good.
Carl: I won't be as angry. Maybe I will.
Gene: I have all faith.
