Ep 283: Deal Structures When Acquiring & Exiting Online Businesses with M&A Advisor with Chris Guthrie

Jaryd Krause:

What split of cash down finance and earnout should you be using when structuring your online business acquisition?

Hi, I’m Jaryd Krause. I’m the host of the Buying Online Businesses Podcast. And today, I'm speaking with Chris Guthrie, who is a sales side online business M&A advisor for the broker Quiet Light, which I'm sure you'll know. He's bought and scaled his own online businesses including content sites, e-commerce businesses and SaaS businesses.

And in this podcast episode, Chris and I talk about why he started getting into online businesses, how he started a few of his own online businesses, how he's bought some of his online businesses, and also what types of online business models he likes. And if he were to acquire them again, which ones would he prefer to have and operate?

We also discuss some of the due diligence stories and mistakes that he made so that you can learn from them and avoid making the same mistakes. We talk about the advice he offers buyers on the buy side and also the advice he offers sellers when they're trying to exit a business.

We also go through some common deal structures, from financing, cash down, earnouts, holds, notes, and all those sorts of things, and what can come into play for a seller and a buyer when making those payments or deal structures, and how you need to consider both sides in the deal.

We also discuss the state of the market multiples and how other markets can change our market, and often do, having massive changes for us. We talk about maybe the best time to acquire businesses, and I think we're in a good period personally.

We also talk about what the most successful sellers have in common that Chris has noticed when he's been working with entrepreneurs exiting their businesses.

Now, we talk a lot about buying businesses and selling businesses. If you don't have my Due Diligence Framework, it takes the guesswork out of how to buy a business.

It's what I use, it's what my clients use, and it's helped me make millions of dollars and helped others save and make millions of dollars. You can get it at buyingonlinebusiness.com/freeresources, and there's a link to that in the description as well. Now, let's dive into the pod.

Do you have a website you might want to sell, either now or in the future? We have a hungry list of cashed up and trained up buyers that want to buy your content website.

If you have a site making over $300 per month and want to sell it, head to buyingonlinebusinesses.co/sellyourbusiness. Or email us at [email protected], because we will likely have a buyer. The details are in the description.

Chris, welcome to the podcast. Thanks for coming on.

Chris Guthrie:

Yeah, thanks for having me.

Jaryd Krause:

I look forward to chatting. Now, typically, I don't do a hero's journey story, but I do want to ask you, how and why did you get into the space of buying online businesses?

Chris Guthrie:

Yeah, I can go pretty far back, I suppose, if it's interesting. But I started initially by building from scratch because I literally had no money. And so I was writing everything myself—creating the content and updating the plugins.

There would be a few things, like WordPress themes, that I would try and contract out. But ultimately, I just had a website that was very niche focused on an obscure area in video games.

And I saw my first dollar or two in AdSense earnings, and I was like, “Oh, man, if I could just get more traffic, then I could make this like a full-time thing.” So just that first kind of dollar online is what allowed me to be like, “Okay, I can see there's like a path to go forward.”

And then, from there, I just built out some sites, which did well. And then, ultimately, I lost my day job, took the earnings from my full time site and was able to just do that moving forward.

And ever since then, it's been about 15 years or so just doing different types of things—content, e-commerce, SaaS. And I sold my last business and have been helping people advise on their sales.

Jaryd Krause:

Yeah. I want to dig into the sales advisory soon. What was the intention? What was your motivation to build something online outside of your day job?

Chris Guthrie:

Yeah. I mean, ultimately, I liked my job. It was okay, but I just really wanted to be my own boss.

That was the main kind of motivation—just having more freedom to do what I want to do during the day and being able to be compensated based on my results rather than what you might typically see in a day job. Although there are some jobs that can help compensate for that structure,.

But that was the main thing. I want to just have more freedom. And so that was kind of the path that I took to do it that way.

Jaryd Krause:

Yeah, cool. Cool. So I started 15 years ago. Now, do you own any businesses other than your sell side M&A advisory at the moment? And do you buy them anymore?

Chris Guthrie:

Yeah, mostly, I mean, I had a lot of different things. I've had e-commerce business, a SaaS business, and a portfolio of content websites. But ultimately, I sold everything off just because I wanted to focus solely on advising and also to kind of free up more time.

So every advisor kind of does different things. I like to fluctuate between periods of working a lot and periods of just taking time off. And like earlier today, I was at my son's field trip. And so that was kind of the approach, I guess.

But yeah, it's been a little while since I bought it, but of course, whenever I talk to people, I hear what they're doing, and it always interests me, and I always think maybe I should get back into operating at some point. But for now, I am still enjoying advising and am not looking to do that at this time.

Jaryd Krause:

Yeah, yeah, I definitely hear you. I went the same route as well. I bought three businesses in three years and thought I just needed to keep buying new businesses to add all these income streams to them, but I found that it just takes up so much capacity.

And being young, I thought I'd make it work and crush it with all of them. But you do just end up dropping the ball on some for sure. And it's like you're just not doing justice to each of the businesses when you could be serving at a better level.

I just think you can serve at scale through multiple businesses but if you just put all your capacity into one, it's far better for everybody involved.

Chris Guthrie:

Oh, yeah. I mean, I can definitely speak to that. My lived experiences are definitely in line with that as well. I mean, I find new things and start up a new business or I buy something and try to build it.

And what I found is that even when I hired a full-time employee and contractors to help out, it was still really hard for me to align the team around what to focus on.

Because it'd be like, “Okay, we've got this WordPress plugin. It's a premium WordPress plug in. We can work on that. And then we've got these content sites over here and then the SaaS business and then also this e-commerce business.”

And it really just became too much. That was my peak earning. And so there was an advantage to all that. But ultimately, what I found is that the businesses I didn't focus on slowly started to suffer and the ones I focused on most started to have better results.

And so, yeah, I think for me, and I know maybe everybody's different, but I do think just focusing on one thing is my preference. So if I were to get back into operating and I were to buy something, I would just buy one and just work on that. I think it's really hard to remove yourself fully. But I do see it from time to time when I talk to people, but it's less common.

Jaryd Krause:

Yeah. You've got some people who are just great managers and they're just built for that. It's a small percentage of the population, though, I believe, typically. So content, SaaS, e-comm, what was your favorite business model and why?

Chris Guthrie:

Yeah. I mean, I could say I have multiple reasons for why I like each thing. I mean, I think that for an e-commerce business, it's fun to create something like real world and physical and tangible, that you work with a supplier to create something that people like, and that you listen to feedback to improve and iterate.

And it's something that actually exists out in the world and that's fun. But then you deal with Amazon and other types of marketplaces, and that can be kind of a pain sometimes.

But again, it kind of goes back to that focus. I don't think I'd be able to do e-commerce and then content. Because you've got to focus on the changes on Amazon, for example, or Shopify, or paid advertising channels. And then, on the content side, you've got to focus on SEO and everything else as well.

So I do think that content was probably what I enjoyed the most, but SaaS is a close second.

The downside of SaaS is that for me, I'm not technical. So it's like a path where you pretty much have to have people you hire or a business partner, which, depending on how your results go, can be good or bad. Or you give up a little bit less control, right?

But with content, it's like you're creating content, you're hiring writers and you're working on trying to serve your niche best. And so that's something that I could do fully without anyone else being involved and so that's something that is pretty nice as well.

So it's kind of a tough toss-up. I'd say content or SaaS; if I were to go back to operating, it'd be one of those two.

Jaryd Krause:

So one of those two. If you just bought one and it was just to be, say, your dream business, it would be one or the other—content or SaaS.

Chris Guthrie:

Yeah. I mean, and then, of course, there's pros and cons to the operation, right? So with content, you're more at the whims of Google.

With SaaS, again, you've got to focus on competitors and be able to make sure you are continuously releasing new features. And so you're managing that side of things and you're working with customers and doing that as well.

And there's more sales content. Whereas with content, it's not like that, right? It's more passive in that regard, I guess, in terms of how you actually run the business.

Jaryd Krause:

Totally agree. I totally agree. And it's a slower business to run with content or media than a SaaS business, I guess.

When you've got big pockets of other companies that are competitors, they can come in and just swallow the business or just acquire that market share pretty fast. So being on top of that is very important.

Now, so you started some content businesses. The e-comm and the SaaS—did you start those, or did you acquire those?

Chris Guthrie:

Most of what I've done has started from scratch, but I have bought content in particular. Content is probably what I bought the most of. But for e-commerce, I started that from scratch and then SaaS was also a start from scratch. I'm happy to talk about either one.

Content, in particular, once you've run it, it seems like it's easier to find avenues to grow. So I bought a site in the military space for a quarter million with a friend of mine.

We worked on really just the main thing was just swapping out ad code, switching it from AdSense to AdThrive and getting an immediate lift. I think it was about 30% or 40%.

We ran it for a while and it was like, “Eh, this is too small for us to both focus on. And maybe it could be much bigger business if one of us really dove into it.” But we ended up selling that later to someone that just had an inbound inquiry that was ex-military and they wanted to buy that site.

Jaryd Krause:

Cool. Cool. Congrats on the sale. So I'd love to know what sort of tough lessons you've learned through the acquisition side of these content sites? Do you have a horror story or something that our listeners can learn from, I guess?

Chris Guthrie:

Yeah. I mean, one of the first content sites I bought was in the gardening space. And it's kind of 2015 or 2016 or something. It was a long time ago. It was one of the earlier buys that I did, and I started with smaller sites to begin with. That site I bought for, I think it was $10,000 or $12,000 or something like that.

And when I bought that site, I had negotiated a structure where the expert, the one that had been running the site, was going to finish creating some content for me.

But it was to occur after the sale and after I had already paid him. And so I was an amateur at the time, and you might see where this direction is going, but essentially, he never delivered on the content that was created.

So the mistake was don't try and assign additional work for someone to do post-sale unless there's some sort of structure that holds them to it. Or whether it's a holdback, earnout or something like that, that can be attached to the work being completed. Or for it to be big enough for legal action to be a path that makes sense.

With a sale like this, it makes no sense for it to go and try and pursue an attorney to try and go after it. It was more like, “Oh, yeah, I should have said, ‘Hey, I'll give you another thousand bucks if you do this, or 2000 afterwards.” and I didn't do that. So that was one of the early mistakes I made.

I also can give you others too. I had a site that I bought for; I think it was $2,000 in merchandise by Amazon Space. And I bought that because I thought about building a software tool for merch sellers, and I thought, ‘Okay, this would be a channel of traffic to drive people to.’

But ultimately, I started spending more research on going down that path, and I thought, ‘Ultimately, this doesn't feel like the right niche for me.’ And the problem with this site was that, worst case scenario, I could keep running it, but the issue was that it was very heavy on private advertisers.

And so with private advertisers, oftentimes there is a relationship component. And when you take over a site as a new buyer, sometimes it's hard for those relationships to transfer.

And so I didn't keep up those relationships again because it was kind of a smaller site at the time for me. And so then some of that private ad money started to go away. And so that ended up being a zero.

But, yeah, so those are a couple examples, but I'm sure there's plenty more I could come up with.

Jaryd Krause:

Yeah, that's great. Thanks. Yeah, it's always good to have a good structure in place to hold the seller accountable if there are deliverables that you're waiting for and that you need.

It's just nice to have an earnout or a seller note that shows the seller has still invested in communication and support throughout the deal.

You talk to a lot of buyers and a lot of sellers. What's the most typical structure that you would see, I guess, for maybe two different price ranges?

Chris Guthrie:

Yeah. Well, most of what I'm seeing now for the businesses that we sell is larger, usually six figures and up. And the structures definitely vary a lot once you get into the larger sales.

With something that's around six figures oftentimes, since I'm trying to advise the seller and I'm trying to represent their interests, I'm trying to push for all cash at close and make it simple for them. But some buyers can kind of push back and they want to have certain types of milestones.

A more common scenario, though, is that I had a deal where it was a multi-seven figure deal. And in the case of that business, the buyer structured a deal to keep the original owner continuing to create content and working on the website.

And then additionally, they paid above the multiple that we were asking. So they could do some as an earnout. And so there were two different earnout payments—a seven-figure earnout payment for each one. So first year and then second year. And so ultimately, though, she received both those payments and was really happy with the outcome.

But oftentimes, with the sales that are in the lower six-figure range, usually just kind of all cash at close is what I try to push for the sellers.

Jaryd Krause:

Understandable. Definitely understandable. When you've got this deal with multiple seven figures and you had two earnout structures, what amount did they pay in cash? Or was it finance that they paid? And then what amount was the earnout and how long did that earnout last?

Chris Guthrie:

Yeah, it was roughly 70% or 60% cash at close. And then the earnouts were around 20% each for those. So it was pretty hefty on the backend. But the earnout was pretty achievable for the buyer. I can't remember the exact terms because it was a few years ago. But ultimately, those were both met.

I think the challenge is that if you're on the buy side and you're trying to protect your interests, then setting a structure that's based on top line revenue is usually what I recommend.

Because every buyer is going to want to run the business differently than another. And so some might want to be more profitable. Others might want to try and dump a bunch of money in and try and grow it as quickly as possible or reinvest heavily.

And so the best metric is to just go with something with top line revenue. And then make sure you give access to AdThrive, Raptive, Mediavine, or any other types of these platforms that are primary revenue channels. So that way, they can see, are they hitting those revenue numbers or not?

So that's kind of what I would say is the best way to structure the earnouts. But in terms of how much you might assign to an earnout, that really can vary by deal. That one was, I would say, more of an extreme example. More often, I see earnouts that are 10% to 20%. So that was quite a bit more.

Jaryd Krause:

Yeah, I agree. It's definitely dependent on so many things, not just the deal size, but the buyer and the seller, and the agreements as well. It's not just about the money, that's for sure.

Sticking with the theme of money in the deal, though, you say an earnout structure around the top line revenue. Are you talking about—with this instance, or as an example—ones that you've seen in the past—how much the top amount of revenue they have at an average payout once it hits that or a little bit less on the earnout if it is less or more if it's more? How do you normally see that play out?

Chris Guthrie:

Most often, it's like, okay, as long as the revenue meets this specific threshold, then you'll be paid out this amount. Sometimes the earnings can be more complex, where they'll have tiers.

So as long as you meet this amount, you get paid the full amount. If you meet some degree below that, then you can get 75% of that type of structure. But more often, it's just like a hurdle rate, where it's like, “This is the mark that needs to be hit. And as long as that's hit, then the payment is made.”

Something that sellers want to have sometimes is that they'd say, “Hey, look, can we have that money sitting in an escrow?” But buyers usually don't want to do that because the reason why they're doing that structure in the first place is because they're trying to reduce their cash at close.

They're trying to not only minimize the risk, but they also want their money to go further, because usually they're either making more acquisitions or they want that capital to be available for any of the other things. And so that's the more common scenario in which you're going to have to take a little risk there.

I usually tell sellers that in the worst case scenario, you’re just receiving what you receive as cash at close. And if you're okay with that, then you can proceed with the deal. But if it feels like it's too small or there's an issue there, then maybe you're going to need to push for more cash at close and a smaller earnout.

But, yeah, I mean, I'd say that sub 1 million earnouts are less common.

Jaryd Krause:

Absolutely.

Chris Guthrie:

Above 1 million, there's some sort of holdback, earnout, or structure that usually tends to work its way in, but it just depends.

Jaryd Krause:

Mid-seven figures and up—is it a different price range? When do you start to see that mostly it's just finance and not too much sort of skin in the game? Maybe it's 5% to 10% of cash from the buyer. What sort of price range do you see that happening?

Chris Guthrie:

I mean, the more common scenario when a buyer is putting down that little amount would be when they're doing an SBA loan. So if you're doing an SBA loan to acquire a business, then you can put as little down as 10%.

The business needs to be pre-qualified for SBA. And generally, it requires the business to be US-based with US tax returns. And then the buyer is also to be US-based.

Although, yeah, I don't think I've had an international buyer acquire, that's the most common scenario; you've got US-based business and US tax returns. The last three years of tax returns you provide to a lender.

There's a bunch that I've worked with over the years. But they'll look through the tax returns, look at the P&L that's provided, and then look to see if that can be pre-qualified. And yeah, buyers can end up buying with 10% down.

I had a content site for $1.2 million and the buyer put down just 120 grand to buy it in the food space. So that's another path that can be happening, but I've not seen buyers where they're putting down that little, and then there isn't some sort of loan that's paying out the seller at the close, right?

Because with the SBA loans, the buyers are just putting 10% down. They've got a 10-year note; they're paying on that over time. But for the seller, they were getting all that cash at once. And so that's a more common scenario.

Jaryd Krause:

Absolutely. I mean, sometimes I presume that you need to educate some buyers, right? This is my biggest job and task—helping them become savvy buyers and making it easier for brokers to work with, right? Asking fewer questions, having good communication—all those sorts of things.

I will ask about the selling side as well as some education you provide them, but what are the top two to three things that you advise on or share that are advice to buyers that they just need to know about when they're coming into an acquisition?

Chris Guthrie:

Yeah. I mean, I think the main thing that I usually try to get my sellers to provide is directions for growth opportunities, that type of thing, so that a buyer can have some sort of playbook or a strategy to take the business once they go moving forward.

We represent sellers and so we're focused on their outcome, but I also recognize that you need the buyers to be able to get a transaction to go through. And the best case scenario is that everyone walks away happy with the deal.

And I've been doing this work now for five years. And so you have buyers that come back when they've got the business, and they want to sell it later. And so you can help them sell it the second time.

And so usually it's around, like, what would you do after you sell? What could someone else do to grow it? And that's usually why I try to get the sellers to focus on providing as much information about that as possible. And then, that way, the buyers will kind of know.

In terms of the rest of the stuff that they're educated on, I will get a lot of people that try to buy businesses that want to do a very small amount down, like 5% or 10%. And I have to kind of describe how that doesn't work as well for these deals.

But it's more common that you're trying to give them advice on what they can do to operate moving forward. And I'll share from my experiences as well, running and giving advice in that as well.

Jaryd Krause:

Yeah. I've definitely noticed that people have come in with these ideologies of “Let's buy a business with no money down” and have to explain that with the size of the acquisition that you want to go for, especially in the online business space, this is different from offline or brick-and-mortar.

The market just doesn't allow that. Because somebody is going to come in with cash in that price range and just purchase that business. So understanding the market and where it is is important.

Before we went on the call, you mentioned e-commerce businesses, multiples and stuff like that. Talking about the current state of the market, before we dive into things like education on the sell side, how have you seen multiples fluctuate in the last sort of two years in those three different, I guess, asset classes—media being blogs, content sites, membership, SAS businesses, and then e-comm?

Chris Guthrie:

Yeah. I'd say that multiples seem to be down slightly compared to 2021, which was a high watermark, primarily because there was the peak COVID money stimulus and zero interest rate environment and everyone was just kind of buying.

I had a $10 million deal for an all cash buyer, for example, which is just less common. And so, yeah, I mean, that was like a crazy sale that I realized later, which I don't think would have happened if it happened in 2022.

And then, yeah, 2022 is pretty soft because that was when interest rates started to rise. And of course, it makes sense in hindsight.

But I didn't realize just how much of an effect those interest rates from the Federal Reserve would have on even buyers who aren't using loans and are just paying with cash because the cash becomes more expensive, right? Because you have a hurdle rate, you've got to exceed it to get over what these new interest rates are.

But in terms of multiples, I'd say that they're a little bit softer than where they were, maybe 10% to 20% lower. And I can give you some examples.

So in e-commerce, there was a lot of money spent buying FBA brands from aggregators that raised hundreds of millions of dollars to buy brands. They didn't do as well as they had hoped they would after acquiring those brands.

And so when there was this buy pressure from these hundreds of millions of dollars that were raised, that was helping to push up multiples, improve close times and just kind of get sellers better deals. But then once that buy pressure is removed, of course, the multiples have to drop a bit.

And so that's kind of an example that I've seen in the e-commerce space. But there's also definitely fluctuation in how the business is running, right?

So if the business is in decline, which I do see more of now as opposed to businesses that are flat or growing, whereas before I would almost always see just growth, that also has a negative impact on multiples.

So I'd say it's the multiples themselves that are probably more having to do with just the businesses and the owners that I talk to with their results not being as good. And maybe less, so to speak, with just the overall multiple being lower. I think it has more to do with the fact that the results aren't as good.

Jaryd Krause:

Yeah, thanks for that share. I've definitely noticed multiples being down since 2022. And I think a lot of people who don't understand how markets work or haven't yet sort of gotten their finger on the pulse with it, which is me back in the day, had no idea.

But when you've seen market fluctuations, you start to see how they work in terms of different interest rate environments that have nothing to do with, say, an online business or an offline business, it could just have everything to do with the cash rate, the interest rate at the bank and property or whatever it is.

And typically, most investors will come in when there's FOMO and when we see businesses that are stable and/or growing, and then just pour their money into it, which is what happened with the aggregator space and then things didn't do so well.

As interest rates increased and the environment changed, most people were probably thinking it was a bad time to buy. However, if you can get a business that has maybe slightly increased growth or is even stable, then more money comes into the market.

Not just on acquiring businesses, but people have more personal cash reserves across the globe, where you can have more people spending, being a bit more thrifty, and if you are in an e-commerce business or whatever it is, those markets can grow and bring your business along with it.

So, yeah, it's interesting how most people might feel it's a really tough time to purchase because interest rates are very, very high.

But for example, I just acquired a commercial real estate investment at a high interest rate, which I know is going to decrease as interest rates decrease, which is going to make my asset far more profitable without me having to do anything.

And it's the same with a business—that it can help that. I'm not saying it's going to absolutely happen for businesses. But, yeah, what are your thoughts on that, Chris?

Chris Guthrie:

Yeah. I mean, I think that's a good point. Because the money individual consumers have on hand can impact the rates advertisers are going to pay,.

Because if people are buying and spending more money on consumer goods, then advertisers are willing to spend more money on ads. And that affects the ad rates that you're going to see as a publisher on your website. And so there are definitely aspects of that that have an impact.

I mean, I've been wrong for a couple years now, expecting the interest rates to either stop going up or to decline. I kept thinking, ‘Surely they can't keep the interest rates here because the debt that's continuing to grow and the deficit spending that we see is going to be problems at some point.’

But it seems like now we might finally see an interest rate decline this year, but we'll see, I suppose. But I do think that, to your point, once those rates start to decline, it might help. If you've been buying in this tighter financial environment, you'll be better rewarded with some other things improving.

Now, this is, of course, if the interest rate cuts are bullish and the rest of the market responds well. But if maybe they're cut because something breaks, then maybe it won't be as good. So it's tough to say. I mean, I'm always kind of tough with the predictions.

Jaryd Krause:

Yeah, definitely. And just as a caveat, this real estate, as an example of an investment, I'm not purchasing it with the hopes—I mean, yes, it'd be great if the interest rate does go down, but I'm not going to be in a bad position if it goes up slightly as well. So covering all bases is super important when you're acquiring a business.

So back to the sell side, when people come to you and say, “I want to sell my business.” some people are probably ready; some people may not be ready. What are the top two to three things that you have to advise them to do to either get ready or have a sale go across the line?

Chris Guthrie:

Yeah, that's a good question. I’d say the most common thing is making sure you have your finances together.

It's much more common when I talk to content website owners for them not to have a formal P&L, whereas when I talk to e-commerce business owners, they always have them because there's just so much more work that's required with tracking the cost of goods and everything else.

Knowing the numbers is more important there than in a content site, where it's like, “Okay, maybe 90% of your revenue comes from an advertising network. All right. And then you have content writers, and that's another line item on your expense. You've got hosting, and that's about it, right?”

It's not that complex. But I would say that knowing your numbers and tracking them is really important. You'd be surprised. I've had scenarios where I talked to eight-figure business owners, and they think that the money they're making is a million dollars more than what it ends up being.

And so that's always an interesting conversation because I'm like, “Surely you know what you're making.” But you'd be surprised. So I'd say getting your finances in order is important.

And the other advice would be kind of back to, really, timing. So if you are looking to sell right away, then there's not as much that you can do to kind of get things improved prior to sale.

It's more about just conveying the story and sharing as much information as possible about what an owner could do to grow it and that type of thing. But when you reach out to an advisor and try to plan further ahead, then there's usually a lot more that you can do, right?

If it's an e-commerce business, maybe you're looking at exploring international expansion and doing that. If it's a content business and you think, okay, there's a path or direction that you can go with a new social media channel to drive new traffic, then that's something you can explore.

So, really, the advice almost always depends on the time horizon with which someone's looking to sell. Most of the time, if it's near-term and they're looking to sell right away, which I'd say is over half the time I talk to people,. Then it's more about, “Hey, let's try and make sure you can share the story and tell people what you think is the best path forward.”

When it's further ahead, then there are a lot more things you can talk about. I mean, there were people I was talking to who were concerned about when Google would remove third-party cookies and what that impact might have on advertising payouts.

It's like, “Okay, well, do you try to sell before that? Or do you not worry about it, because ultimately, these advertising networks want to make money for publishers, and they'll figure it out and you'll be fine even after there aren't third-party cookies?”

So there are a lot of those types of things that come up when you're looking much further along the line than when it's a more near-term path to sell and you're kind of locked in; it's more just telling the story.

Jaryd Krause:

Absolutely. Yeah, the cookie one's an interesting one. It hasn't really gotten much light lately with how Google has had to be forced to make changes based on other algorithms and things coming out. Also, attention, I should say, is coming out.

And I also like to think of it as that if they're going to remove cookies and most of their money comes from advertising, why would they not have something that's a bit more superior anyway before it comes out? And then, all these other ad networks are going to be out of business? I don't think it works like that, personally. I could be wrong.

So aside from cookies and before somebody's ready to sell, what are some of the things you need to advise and hand-hold with when they're managing offers, speaking to a bunch of buyers, and getting them emotionally across the line for a sale, whether it's something they expected or didn't expect in terms of sale price? How do you manage that?

Chris Guthrie:

Well, I'd say it's tough. Every personality is very different with a sale. And I'd say that, depending on the size of the sale, that also has an impact.

I've had scenarios where I sell a business to someone they've been running for 20 years. So when things don't go right, it's a concern because they're going to be recognizing millions of dollars at the time of closing. And so it's easy—if mistakes are made—for them to get kind of heated.

And so really, for the people I work with, I try to say, “Look, these are the things that we can control. These are the things we can control. And here's kind of where those lay out.”

And so, in the case of buyers, for example, we can't necessarily control whether they're going to buy or not, or we can't really control the path they're going to take.

We can at least say—and this is what I do when I talk to buyers and sellers—it's like, “Hey, here's the path that I think is the best for getting to a sale that's within the timeframe that you've outlined in your letter of intent.”

And so, it's like, “We're going to start with due diligence. You're going to work on the asset purchase agreement shortly after starting due diligence so that you're not waiting for that to the very end, because if it's an SBA deal, for example, that APA needs to be approved by a lender. And so that can add some back and forth as well. And depending, again, on the size of the deal, every party's attorney can be slow.”

I've had scenarios where a buyer gets an APA over and then the seller takes four to five days for the attorney to get back feedback on it. So there are all these different things and everyone can be different in terms of their timing.

And so I really just try to be regimented about, “Hey, here's the path we've got to go to get through the business as quickly as possible or the deal.” Because there's so many things that can go wrong. It's kind of tough to even key in on one because every deal is different and the personalities are different.

You can have scenarios where a month comes in and the month looks soft, and so a buyer's concerned because, “Oh, why is it soft?” And so there's very much a laser focus all the way through the numbers, all the way up until closing.

And so I always tell sellers, “Look, you got to keep running the business as if the big deal's not going to go through because there's a chance it won't.” And so, yeah, that's the advice I usually try and go with.

Jaryd Krause:

It's good advice. It's very wise advice. I mean, it's very important. I was talking about this on the podcast with another guest. It's very important that the seller doesn't end the race before they get to the finish line in terms of running the business and growing it.

Because if they don't sell after a couple of months and they've just thought they've put everything in the DD, you've got two big roles as the owner and operator, and then you've also got to do your DD, liaising with people and sharing information and stuff like that. There's a lot to really get through for the sale.

And if it doesn't pan out with one buyer and you've invested everything in that, then you have single-source dependency on a buyer, I guess, and then you're back to the drawing board, and you might need to reverse what may have happened with no growth or little growth in the business.

Chris Guthrie:

Yeah. No, I mean, that's the thing. I have had scenarios where the seller takes it for granted that the buyer is making sure they want the business to do well moving forward.

And I always tell people, “Look, you've got to run it as if the deal's not going to go through. You've got to keep trying to grow the business; keep doing everything you do to keep it going well.”

And I had a deal where, yeah, the buyer backed out. They were too concerned about the numbers and the trajectory that happened, and then the seller was like, “Oh shoot, what am I going to do? Because now the numbers are looking bad.”

It's like you almost have to go back and try and work on it again to grow it and get the trajectory to turn back around before we can take it back to market again.

Because every new buyer is going to see the same thing that that one buyer that was concerned saw, which was that decline that led to them backing out. So, yeah, it's definitely a key point to focus on.

Jaryd Krause:

So, Chris, do you know of one seller or one buyer that you've connected with that you've really seen that they've operated in a very wise way, and you've just sort of learned a lot from them?

Who were they? And why did they go through the process so well? What was a part of their character that really shone out for you when you worked with them?

Chris Guthrie:

Yeah, I mean, that's a good question. I'd say that the most common scenario with the sellers that do well is that they are usually the ones that have been running the business for a long period of time.

They've thought of a lot of things they can do to grow the business. They've implemented all those. They've built a large business. And then they're open to the feedback that I've given. Like, “Hey, look, this is what we need to do. These are the concerns that a buyer is going to have. Here's how you manage those concerns and do that.”

And so a lot of it comes back to, I think, just experience and also personality. I mean, that's the thing that's tough. You work with some sellers, and if things don't go well, then they get upset. I have had people get very upset at me and at the process.

And so expectation management is important, setting that ahead of time. But I think just trying to be comfortable with the process and be willing to move forward and try to get through is the right direction.

It's not to say any one specific thing; I just think that you've got to put yourself in the shoes of buyers. They want a business that's going to do well, so you've got to think of it from their perspective.

So as long as you can make sure you've shown that you've built something that's great, that they can take over and that they have a path to go forward with it, then it should be a good transaction.

When there's uncertainty, that's when you have deals that can have problems and potentially be renegotiated or fall apart.

Jaryd Krause:

Yeah. Tony Robbins says that expectation is the thief of joy. Not that it's supposed to be a fun, super joyful experience buying or selling a business, but having expectations really allows you to be let down.

And you have to, like you said, really put yourself in the shoes of the seller and the buyer and meet in the middle. Because if you can't meet in the middle, nothing's going to happen, right?

So, yeah, great, great wisdom from you. Thank you so much for coming on, Chris. I really appreciate the chat and the way you answered the questions. It's been very insightful for everybody, I'm sure. Where can we send people to link up with you and contact you if they need it?

Chris Guthrie:

Yeah. I think the best is probably just my email, just [email protected]. That's the best way to reach out. But, yeah, happy to be here and thanks for the invite.

Jaryd Krause:

Thanks. Everybody who is listening, thank you for listening. If you're thinking about acquiring or if you know anybody who's thinking about acquiring or selling a business, please do them a massive favor and share this podcast episode with them. There's so much value in it that I'm sure they're going to absolutely love it. Speak to you guys on the next one.

Chris Guthrie:

Thanks.

Jaryd Krause:

Hey, YouTube watchers, if you thought that video was good, you should check out this video here on the 2 Best Types of Websites Beginners Should Buy. Or check out my playlist on How I Made My First $100k Buying Websites and how to do due diligence. Check it out. It's an awesome playlist. You'll enjoy it.