Ups and Downs of Buying Small (and Keeping a Job)

Tony conanova thank you for joining me today on acquiring minds thanks for having me Tony we met at a Meetup in San Francisco last year at the time I believe you were nursing the wounds of an acquisition that you had attempted but that the deal had fallen apart we'll get a brief version of that story but fast forward and you now have successfully acquired a different business it's a service business for people who want to self-publish a book so really interesting business and we're going to learn all about that but you were at Google when you decided to start looking to buy a business so tell us how somebody doing well for herself in Silicon Valley decides to go out and buy a business uh yeah uh uh I've been at Google for nine years um and uh only the last five years were in California so I basically when I just came to California I worked at Google's incubator area 120 that was um that basically like a y combinator inside Google at least it was positioned that way that time and where employees work on their own ideas uh and basically when I was there I worked on a very high tech machine learning project that was my idea but I myself am not very technical uh and I I think so basically that product that I worked on in the incubator later joined another area of Google that was more chilled and it kind of became became an internal Tool uh but that was kind of my first glance into the startup world so into the real uh Bay Area mentality and I I felt like I I'm actually quite interested in that like yeah they're doing a startup you're never Your Own Boss actually it wasn't even a real startup but yeah I felt like when you have investors and uh basically like whatever you work on like you're never Your Own Boss but like you're you're still uh probably at a at an interesting place when when you're the only investor so that that's probably how I initially got interested in the idea and then uh at that point I already read uh Walker die both book Biden build and I I was interested in the in this comparison of like outsmarting the startup game even though I I don't really agree that like you can compare a High-Tech high growth startup was like something that's more of a lifestyle business but I it was interesting to see that you can actually acquire a company and have this medium risk medium reward uh thing uh for yourself it it's very anti-silic and well I think yeah well but it sounds like um you actually are but you like are you are you saying that you like the Silicon Valley culture or that you reject and don't like the Silicon Valley culture or you like it but you also like an alternative so you like it all yeah I like it all okay uh it also sounds like you you one of the things I mean you like the idea of a high growth high risk rocket ship startup um but one of the features of that that you don't like is that you are not your own boss so classically entrepreneurship means being your own boss means autonomy means freedom um and in fact in Silicon Valley startups um it that's often not really the case be it your investors or whomever there are many many stakeholders in these really high risk these high risk Ventures so in the kind of the buy then build model you really you really could be you know your own king or queen and that it was something that was important to you and appeal to you yes I I think the freedom part is is the important word here um so there is never real freedom but I think freedom is my key value okay now you said that this was all you this decision of yours was after you read Biden build but how did you were you introduced to buy then build the book uh initially I was following one Russian blogger uh who writes about investing in startups Etc and yeah and yeah surprisingly I I first so some Facebook post from that Russian blogger and then I saw another Russian entrepreneur also writing a review of that uh and yeah and I I don't maybe that was when I read the book already but at that point the book was really cheap on Kindle now and yeah and I I just I think it was something like one dollar or two dollar book on Kindle and yeah I just went and yeah bought it and read it and these Russian bloggers are talking about the Biven build model and buy them build the book are they Russians based in the US or Russians based in Russia I mean is this is search something that's happening in Russia as well uh so you cannot really do the SBA loan in Russia obviously sure but uh it was just like one of the many posts and it was a Russian blogger based in Russia yes okay and so is there do you have any more visibility I'm just curious any more visibility into whether buying small businesses is this a trend in Russia as well like very different here you can buy leverage uh someone else's capital or and then you can also sell I think in Russia it would be uh like Russia is not a place where lawyers have as much power as here yeah you can just I I would I would be very much afraid to buy something in Russia okay yeah okay all right so you you um are have read the book you like the idea you like you're drawn to Freedom uh yeah it's like the idea that much I I thought like oh this is just about those uh boring businesses that are offline businesses like some factories or retail like I I wouldn't really do that stuff and and then I I kind of forgot about the book for a year or two yeah and then what happened what happened a year or two later uh and then the pandemic started so he started spending more time online uh and I saw that there was a lot of reminders so I think I signed up for some email lists and there were all these reminders that I didn't finish some course I was buying didn't build or something like that and um yeah and then I saw that they were recruiting for the acquisition lab and yeah I I think I'm just uh perceptive to marketing and I think yeah in this marketing just influenced me and I I signed up for the acquisition lab so you went through Walker dibel's acquisition lab yes and during that process did quote unquote boring businesses or traditional businesses become more interesting to you because in fact the two businesses that you looked at that we'll talk about neither of those were traditional quote-unquote boring businesses they were both online kind of digital businesses so yes tell me tell me about your thinking did it do you still find the the manufacturing and that stuff less appealing or did it eventually become appealing uh so when I went through the acquisition lab my target statement was still uh the location independent businesses and it mostly means online but also I saw that yeah there were other people looking for online businesses so uh yeah yeah I think it's also about Freedom that like it I would not want like go somewhere in Texas to just buy some Factory because then I would need to spend the next five or ten years in at that factory and maybe uh okay and okay so actually it's great that you went through the lab and had your target statement because you can tell me with some real specificity what that Target statement looked like what what how did you describe yourself and the type of business that you were looking for um uh but the target statement was basically a location uh Independent Business eligible for an SBA loan that was it and that's already prettier did you have a some price or valuation constraints around that ebitda it will be profitable and basic basically for like for it to be a little before the SBA loan it needs to be profitable for the last three years at least and ideally having a growth like moderate growth trajectory so I was kind of relying on on SBA to like kind of protect me from taking too many risks sure but in terms of size I mean profitable there's a wide range there that could be you know earning a dollar a year earning a million dollars a year how did you how did you filter that down more narrow that down yeah I think you should I was looking for something with a profit uh uh like around 400 to 800k so but then but considering that like half of it will go into paying out the SBA loan and then when I started looking around uh basically I thought that it like the actual profit number is not as important it like um yeah I think like in the end I started looking for even like 50k profits because I I realized that I don't have to be on it full time if it is a smaller deal and there is also less stress if there is less like loans less availability which is basically well okay so help me understand because buying a business that's generating fifty thousand dollars a year is very different than buying one that's generating 800 um both in terms of I mean on in a variety of ways it's very different um and then also full-time or not so so what was your vision did you imagine buying this business and becoming an owner operator like a like a Searcher would or was it more like a side thing you were going to do it on the side or and keep your day job in Silicon Valley or did it just depend it depended on the type of business that you bought and that would kind of dictate what you what you did so paint a picture for me what did you envision ah yeah I think I was kind of leaning towards these smaller businesses because they still could have a significant growth potential and uh yeah I think tldr is that it would depend on the business I I never thought that like oh that will really be my career to like buy a business and then like spend 10 years doing just this one business I really like the idea that you can roll up some smaller businesses Etc and yeah I guess I I just I I'm I became an optimist while I uh like while living in Silicon Valley so I just thought like okay I'll just get something to like to kind of learn how it works and then I'll maybe I'll buy another business or LC but like if it is profitable then probably it wouldn't go like completely to ashes okay okay so so this is helpful So you you're imagining buying maybe not too risky maybe not too big a business something that um you know if it's profitable it's probably not going to go to zero um but it's not which turned out to be not true okay we'll get into that yeah um but something that was probably going to be something on the side maybe you dipped in and out of it maybe you gave it full time for a month here or there but it was really not going to be your main main thing you're still going to basically stick to your Silicon Valley Career working for at the time Google maybe startups later maybe other big tech companies um and it was almost like an experiment um it wasn't it wasn't it wasn't a huge career pivot it was more of kind of like a financial experiment is that a fair characterization yes and there was also an option of taking something that's like non-very techy and maybe turn it into a startup later as like as a person book uh and I think there is still this option but I yeah I just wanted to get something that wouldn't limit me too much that like that still has this option of doing it on the side or turning it into a big thing and just see how it goes okay optionality Freedom it's all about so it's all about huh okay so you you start looking um and so tell us about this um this B2B software business that you you got close on but ultimately didn't get tell us a quick version of that story Yeah so basically right after I graduated from the acquisition lab I just did some search through Brokers uh on on the popular websites uh and um I found like a business that fit my initial Target criteria pretty fast in maybe like four weeks after I've graduated from the acquisition lab and it uh it was a a software company uh based in on on the East Coast um the owner was retiring um and they were growing somewhere like 20 to 30 percent a year for the last few years uh the company was in existence for 15 years um and uh yeah the the there were some things that that could be improved so it wasn't fully remote but with the pandemic it actually became kind of eligible for the uh like being remote only and I even uh flew to the east coast and met the owner and uh basically I had the letter of intent it was accepted made most of the due diligence uh and um then after that visit like maybe a week later the owner sent me an email that I decided not to sell my company to you and then I tried to call him the broker uh calls him the principal of the broker company calls him and he just doesn't pick up the phone and doesn't answer emails and wow yeah total ghosted well he didn't ghost you because he sent you a note but then after that he wouldn't he was totally unresponsive that must have been incredibly frustrating how were you like really emotionally invested were you getting pretty excited about this no maybe like actually way less comfortable with the industry than with my current business it was so like when I actually met the guy and like had a tour of the office Etc I already understood that it like it would be really hard for me to like do exactly what he does uh and that like and it's just like also a very very complex technical space so the owner was not technical that that's why I like the business initially but it it it's it I I didn't have a Clear Vision on how to grow it other than like oh it was growing before and uh like it would be growing further and like maybe I could cut some cost because the sales uh uh operation is very inefficient Etc uh so actually it was a similar type opportunity with the business that I actually acquired now but at that point I I think I I was just kind of trying to get it closed and I I was lucky that he also got concerns I I don't know what his concerns were but yeah I think like if I acquired that business I I would probably be in more trouble now than I am then you are which yeah and you are in trouble okay we're still gonna get there what was it what industry was this this SAS business in and and what size was it in terms of Revenue in ebitda yeah so it was the the price uh uh that I offered them that he accepted was about 800k I think the uh the seller discretionary earnings were somewhere uh below 200k somewhere like 800 180 or something yeah okay okay and what was the industry just curious uh it I I think there are very few companies in that space it so it would but yeah it was basically a very unsexy software B2B software okay okay so you don't you don't feel comfortable saying because it might it might give away the identity of the company yes but it was basically it was a growing Market but a very technical and uh yeah it was kind of a niche market okay okay so that doesn't work out um then how do you feel are you you're still committed to the project of buying a business or are you just kind of yeah where is your head space after he sends you that email and says no thank you of I kind of like yeah I didn't expect that but I already heard that many Searchers usually go through like two or three Deals that fell apart so I I just kept looking but this time it I was kind of slow so I didn't find anything that was meeting my criteria for a few months uh and I was also kind of negligent because I still had my full-time job at Google um so uh yeah I just kept uh looking through websites and like modifying my criteria um and yeah and and then basically I think like the current opportunity uh I it also kind of came through my inbox I requested the um information and then I I didn't even respond on on like on on the um like last email or on the request for ND and then the broker called me and yeah and and then I kind of uh paid attention to it and thought okay but I I think I only had like maybe two or three calls with like some other companies between uh between uh like the end of the previous deal and like before I made the letter of intent to this company so some yeah that was maybe like three three months when I only did like three uh calls and didn't even extend the letter of intent and just curious what sites what websites did you use uh so the usual ones so they miss myself the uh flipper micro choir uh uh the um a quite light website and I also signed up for some of the broker websites who like who were always publishing on this main website so tell us about this business that you that we know that you ended up acquiring but but take us back to that moment where you've you've asked for the information but you're not even that interested you're not really paying attention the broker follows up with you you start paying attention and so what do you find what what is this business and what do you like about it yeah so um actually when I looked through the information memorandum the business was positioned as a publishing house and I thought okay how come like everybody knows that the publishing industry is dying but why is this business growing by like 30 40 a year for again like it grows uh and uh yeah so basically then I scheduled the call with the owner uh and learned that it is actually more of an agency that helps uh authors to edit their book get the cover design uh publish on Amazon Apple Books Etc um and it if you look at their website you would really wonder how is it possible that this business makes money at all because they yeah so like I mean now the website looks a little bit different but at that point I could see that like okay the website like it's absolutely like invisible on mobile there are just some like pictures that are illegible um it like the design was really like something for like made in like 20 years ago or something but it made sense when I learned that like most of the audience are or the customers these are older people who write Memoirs and they are not really familiar with how to publish on Amazon or uh do things like that and that's why they actually need a website where like you call the owner the owner signs you up and sends you an invoice and or takes your credit card and then you actually have someone to help you write your Memoirs um so there was a number of yeah yeah so let me just jump into to be very clear about what it what it does essentially it's the its key demographic is older people who want to write them their own personal Memoir but not famous people just kind of anybody any consumer and it is sort of an agency in that they'll provide all of the service of allowing you to self-publish this on the major platforms namely Amazon do they also do does your now business does it also do ghost writing yes so basically is it two main lines of business were editing and ghost writing and basically the whole publishing part was kind of secondary so yeah it like the It initially started as an editing company and uh the website was right my wrongs editing.com so it was like 100 editing initially and the owner was also an author he wrote some fiction and basically there was a Founder story like in startups that he couldn't find an editor uh who would like really uh like know what what to do with their book and then he found one and then they uh then he actually founded the company that uh like provided editing services with like a proper customer service proper attention to detail and quality Etc but it was interesting that it was all about Memoirs and fiction not really like people who want to like write an Amazon bestseller for uh like or like low content books Etc that's how you normally make money on Amazon uh yeah sorry you normally make money on Amazon doing what kinds of books non-fiction non-fiction okay so these are these are kind of mostly vanity projects I mean they're people writing their kind of life history and and ghost writing so how much of the business is gross writing because I imagine that's a much heavier lift than editing I mean that's a lot more work to be doing the writing than the editing so is that is that where the majority of Revenue comes uh no previously last year it was uh less than 30 percent of the revenue and is that because most of the people who come to the site already have a book written um at that point yes it was like okay okay but when you do do a ghost writing you're when right my wrongs your business does ghost writing a book that's a that's a a large expense I imagine I mean paying a Ghostwriter to write a memoir I imagine that's a pretty expensive I mean how much does something like that cost yeah so it starts with about 15K for a ghost writing project yes and and the editing projects are more like 3K 5K on average and so how many um Memoirs are being ghost written by right my wrongs every year like how many of those ghost writing gigs do you guys sell I'm curious so it's it's very unstable so I don't remember how many were there last year in terms of the numbers but like this like when I acquired the companies there were only four uh ghost writing projects uh in progress and some of them are still not finished even though they were ordered in 2021 mm-hmm okay okay so returning to your discovery of this business so tell us more about so what you liked about it was it was growing it was um even though the website was terrible there was a method to the madness it was targeting a demographic that you know wants to make a big order like this over the phone anyway but you saw that as an opportunity to I guess my you know a business that could be modernized what else did you like about it uh that it wasn't just growing but also the its Market was growing so like the publishing industry is not growing but self-publishing inside publishing is still growing so I like that it was growing and that the market was growing and these were the two main factors that attracted me to this and like the previous opportunity um uh and I also liked the that like there was a clear area for improvement uh not only in terms of modernizing the websites uh but also they only did Google ads as an acquisition channel so like if you just add SEO that like that that would be already like a a huge uh thing um and then also I like that the owner did sales uh and when I started in Google I uh worked in sales and I knew how to basically scale sales operations so I thought okay yeah uh like I I was like a good sales coach so I could actually train a new salesperson um even if like even like if not everything could be uh replicated but I I like my main bet was that like sales is not magic and even if the owner was a great person uh and a great salesperson like yeah maybe the conversion will go down but he could be replaced and then then and then it will it can become a passive business so it kind of opens more options sure and the um founder owner doing sales was that primarily what he was doing or was there other stuff that he was doing that also would need to be outsourced uh so initially it was presented as he did sales about 20 hours per week but in fact there was also his wife who did all the accounting uh and uh he also he didn't just do proactive sales but he was also doing invoice collection and things like that that I I didn't like fully kind of quantify when when I did the due diligence but yeah he was actually like doing kind of sales and account management and give us some numbers behind the business how how how big was it and you know in terms of Revenue ebitda and so on so last year the 600k uh in revenue and um about 200k in uh seller discretionary earnings uh the year before that it was 400k in revenue and somewhere like 125 maybe on uh in seller discretionary so basically it was growing in like profit and revenues every year for the last five years and it was like significant growth well if it last year did 200 and the year before that it did 125 in cash flow and that's year four of the The Five-Year trajectory like it must have what year three two and one must have been low pretty low rep pretty low profit numbers so one thing is being do the uh no it's now year five I think or maybe so actually when SBA did their own evaluations like this average revenue that they used for the evaluation was somewhere like 150k profit per year and so and so that would have been approximately like the average of the profit for the last three years yes so then the valuation was what what was the acquisition price um so the uh that uh offer came with no price uh so like basically it was kind of bidding uh I offered 500k and that's what was accepted okay so you paid a little bit over 3x according to an sde of of out of the previous three years yeah it is being did the evaluation after after the offer but I I actually just did my own on the last year profit uh and also kind of pre-qualified it for SBA but uh yeah it just for me it was like more like 2.5 on 200k or other than uh three plus on 150 but considering the growth of the business that that was still a good deal yeah yeah I mean 2.5 x is is a you know generally a low multiple did you were you surprised to have it be accepted no because as I said the the owner was a great salesperson and I knew that like I should divide everything he says a way too so yeah yeah okay so um and and I'm just curious like this is a this is a pretty small deal for an SBA loan did you have a hard time uh financing it or finding a lender no uh and for me it helped that I already went through uh like one deal uh with first Business Bank the one that failed but uh they already did some underwriting on me at that point and they said okay you you have a stable job outside of this uh like really clear financials it's a really good profile so if you want to reach out again uh uh like we'll help you to fund your next acquisition and yeah and basically next time I I just went to them again and yeah and basically it was part of the narrative that I have a job at Google and um I don't need a business to like be that profitable and basically needs to pay back the loan but like I don't need to make an allowance for my own salary Etc so that's really interesting so in other words they were kind of expecting you at least for the purposes of underwriting this loan expecting that this would not be your full-time thing that you would continue to have a very full salary coming from a tech company from Google and um they were really kind of factoring that income stream into their overall assessment of your deal uh so you and so the way you positioned yourself to them is no this would be this is a business acquisition that's going to be on the side it's not going to be something that I give myself full time to or that I quit my job to pursue yeah okay and they even told me that like I will get more that they could still underwrite it if I quit my job and Do It full time but then I will have to make larger down payment and basically the terms would be less favorable and so what were the terms that you got can you break it down for us uh 10 down uh they gave me like maybe 30k for the working capital um and like the interest rate it was kind of this the standard for SBA at that time and was there any seller financing no so basically one of the parts of the story was that the owner was so so very serious health issues uh so initially they asked they they were going to ask for seller financing but I said um probably it's not a good idea because he has this house issues and that's why he's selling and then they said okay like maybe you just uh like you already gave us your uh house as a collateral on the loan Etc so yeah then they just waived that requirement of the seller node okay okay um and returning uh Tony to what you what Drew you to this business so you said in that B2B SAS deal like when you went and visited the business you you really felt like hmm this would be really this doesn't feel like the most natural fit for me to come in and buy and run this business um what about this business this writing agency ghost writing editing agency um that that is kind of a skill set that you felt comfortable with you felt you felt like you were qualified to run kind of a um a writing agency yes because uh basically my first degree was in linguistics and literature just in Russia but yeah I even worked as an editor before well in a traditional publishing house and I worked as a translator so I I was very much familiar with the space and that was the space I I loved just as a lifestyle um oh well that's a key Point that's a really important point I didn't realize that about you that you know this was this was yeah something that you had already actually worked in yourself years ago yeah it was very different it wasn't about self-publishing it's Etc but at least I understood the type of people that are there and um that yes there is a lot of so the owner told me on one of the first calls that yeah you just you just have to deal with these authors who all think that they are the next John Rowling uh and and yeah and I think that was one of the key insights into the market that yeah that like that yeah like there are different names for this business model which I wouldn't probably name right now but I think this business model when they author actually funds the whole um publishing process makes sense for for this type of author uh because they kind of absorb the risks and the rewards and we like the the company actually probably published or edited books for some people who wrote Amazon bestsellers uh but of course like most people didn't really um end up becoming uh John Rowling so uh what is this phrase that the guy used that that you you're uh shy about saying no it uh he didn't use it but basically there is a bad Vibe about the uh term vanity press uh but vanity press yes okay so that that is a term I didn't even realize that okay yeah and and then like some people consider it so Divinity press was a term even like in the 70s when you actually had this like print uh companies who actually take money from the authors to publish their books but now when with the rise of self-publishing on Amazon Etc you could not really say like something is a vanity press because you know what you're buying uh but I guess yeah but there was a lot of discussion with the uh like people who worked for the company in the recent two months about like how we want to position ourselves and like nobody wanted to end up on on this list of companies that are considered vanity process so that that's why I was afraid to say the word out loud but yeah I think it describes the model pretty well okay and are you personally um do you see the business as that or are you did you I mean when you were first evaluating the business did you see it is that or are you also resisting that characterization well I think you when you take money from the author uh and as opposed to uh as opposed to like uh buying the copyright uh and then like trying to Market it uh it can always be called vanity press you can uh uh but the thing is that uh is it unfair to the author or is there anything um sketchy about it I uh if you're just position yourself as a self-publishing company uh that there is it's it's it like it's a different narrative because uh it is the same as like sometimes you have Venture funds but you also have people who just do services for uh startups for example so in in this case it's it's kind of similar and you actually provide services that actually uh brings value it's not just that you you take money for like marketing and then like you don't uh Market um it I I think it's it's more in this Peaks and travels uh space where like there is a growing industry and you provide services to the Creator economy I love how you you take everything back to Silicon Valley uh model models of thinking um so okay so now I'm understanding that the vanity press had a bad reputation or has a bad reputation because it is perceived to Prey Upon its clients that they take money from from these people who want to have a book and then really it doesn't kind of project doesn't do much or go anywhere does that sound right okay yes um one other observation that I meant to say earlier when we were talking numbers is it sounds like the margins are pretty good so um if it's doing 600 000 a year and 200 000 or roughly 200 000 sde those are you know nice thirty percent thirty plus percent margins that must have been attractive yeah I was actually like not really like a I I still think that like when there is uh when the margins are already high then the probably the company is already lean and there isn't much to improve so it wasn't really an attraction to me but uh there was yeah one more good thing about it that the cash flow cycle was really good that because the author could pay now uh like in the contractors who do the uh actual editing or ghost writing only get paid after the full project is delivered to the customer so that was the so it was in a way bad for me because like I also like acquired some of the outstanding payments to contractors but uh for for some projects that were fully paid in 2021 but uh overall like the yeah it is very very good cash flow yeah phenomenal yeah big big order value and it all comes in up front and then you you pay it down to the contractors only after after delivering that's great and so how many full-time so give me help me understand the um the people involved in the in the business so all the writers and editors are on contract right and yes the owner and the owner was obviously an employee and then his wife was a kind of a book anyway tell us what it how it works yeah so uh the owner was the only employee and it was an LLC so yeah he was the CEO and like the only person officially in the business and then there were 45 contractors who were paid mostly commissions on the uh on the work um so his wife I think she didn't have a salary she was just helping him as a family member oh great so yeah a new expense that's not doesn't even show up in the books that you're gonna have to pay yeah but I I asked how many hours she spends per week and I think she said four he said like oh no you only spent one hour a week but like it was part of the first conversations so now that we know the costs and and the revenue how did you envision like what change or growth or whatever how did you envision changing the way that that cash is flowing through the business and out of the business um once you took over because you're you're gonna if if nothing else you're gonna lose your primary salesman in in the uh in the founder yes so I think the approach was like Napoleon said we just start and then we'll see uh so Napoleon is allowed to say that the rest of us maybe have to have a little bit of a plan but go ahead yeah well I um SBI requires cash flow projections but they do not really check every assumption so I I kind of had an optimistic plan that I already knew like probably wouldn't be true the realistic plan and the pessimistic plan so I presented the optimistic scenario to the SBA then I didn't even fully calculate the realistic scenario but I just kind of had a high level projection that like okay the the business is profitable I I will give out less than half of it for the SBA loan um and like if there is any profit so there should be 50 profit after that at least so like if it did 200k and it was always growing then like probably I will still have uh maybe 100K left for the um for myself it would not justify living in Silicon Valley but it it seems like low risk enough uh and using that money I can also pay a new sales person Etc so as if I can hire another salesperson and still have it profitable uh that's already a good deal that's that's how I thought about it great so you had that you were basically in your mind you were you had a hundred thousand dollars to to play with to to use to allocate in a certain way and you were going to put that toward a salesperson yes okay so in so tell us what what has happened since acquisition so uh one thing was that and that was also part of this high level understanding but um it was uh still it still gave me some stress when it actually happened one thing was that uh uh we did a calculation of accounts receivable minus accounts payable uh before the deal and considering that most customers pay in advance he uh like basically it was part of the contract that the owner would give me the difference so they gave me additional 30k but that was under the understanding that like most of the accounts receivable will be paid and with not much effort because that's already on in this outstanding invoices so what happened was that uh actually this invoice outstanding invoice sales to customers required a lot of chasing so it actually yeah it turned out that the owner actually spent a lot of time just chasing invoices from the existing customers and it also made sense because basically people who go after a company was uh like this like weird website uh usually uh these are people who have some issues getting published uh again like I'm talking about our current customers so like yeah I wouldn't say these are all the people but like yeah there was a certain percentage of invoices where the oh where the author actually was in prison or uh was going to get in prison soon or they just were so old that actually uh for example they they couldn't get access to their own money or they just had issues paying online or they they just so all kinds of issues like that and and that that's why he was spending a lot of time on the phone with existing customers um but but Tony I have to interject what about the the beautiful cash cycle where the cash all comes in yeah before the work is done yes but for this you need to actually get new sales in without the founder so yeah so that the first part of the problem was that the actual invoices that were supposed to cover all of the outstanding payments to contractors that they didn't fit in time like when I need to pay the contractors so for example I need to pay uh 10K this month but the like 10K in invoice upcoming uh invoices are only coming somewhere in January so like so I I had some reserve for that but it was still kind of stressful and it was hard to explain uh to uh like to the previous owner when like we debated about certain details Etc um the other thing that happened was it was also part of the realistic plan that the new salesperson um was could not convert at the same rate as the previous owner so yes there were some sales in the first months the first month was profitable but partially because there were still all these previous sales still getting paid um second month uh uh uh she she pretty much could not close much and considering she was on a commission basis it didn't make sense for her so she in the end she just like found another job uh so I had to repeat the experiment and who is this this she Yeah so basically uh yeah it was also one of the things that kind of got discovered a little bit late that uh when we made the deal uh I already let the owner know that I will probably find another person without the Russian accent who will do the sales um and he suggested I uh given you responsibilities to one of their existing part-time contractors who previously was doing a lot of customer service and who basically had a role of a director of publishing and he wrote a number of things that she did in the company in the last year and I really and it seemed like a really good deal because she was also happy to work on commission um and I said yes and then it turned out that this person was his daughter uh from previous marriage but I I mean if I knew I I would probably still take the deal because it was like really good deal when you don't need to pay a salary to someone right but there is always this risk that like if it doesn't play out uh the the person can quit especially when they're when they don't have the same type of connection with me as with they had with their father obviously sure so so she goes for a month without really closing anything and then quits because she hasn't earned any money that month and no she should close she actually closed the uh a few deals it just wasn't enough to basically I I don't again like we don't know like what the truth is so she said she just said that like oh I found this uh like really good opportunity and she basically worked in in some uh log before so it it was more of an academic career uh and she did this thing on the side but the sales job cannot be done uh part-time you you have to be on the phone so um yeah so basically she just found a job that wasn't related to sales or publishing and that was what what fit her education so now you're left without a salesperson well uh that was kind of easy to fix because there was another person in the company who really wanted to do sales and yeah basically it was a smooth transition but uh it still takes like I knew that it would still take some ramping up time because the the new person would would know the product but but still she had she worked as an Chief editor before not not as a salesperson I'm surprised that an editor would want to work in sales I feel like those two types of people are not are not the same type of person so sales it's more like consultative sales and I think I have understanding of the profile here because uh I started in Google ads sales that were also not really sales but more like consultative sales and I think it's a different personality than when you actually go after big checks from Oracle or like I mean from these Enterprise customers when you do consumer sales it's it's very much like customer service okay and so does that take us up to the present is she is she your primary salesperson now yes and she has the title of the executive director so she's okay so she's also the general manager or the person running the the entire business well I I always knew like I needed like if previously it was the owner doing all the sales it was part of the uh value proposition as well it just doesn't scale so I knew if I have to replace him with someone then this person should have a fancy title at least okay uh so so how how long has she been doing the sales and being me what did you say the executive chairman executive director yes director um so uh she started on June uh no on July 1st so okay so five weeks yeah from now and and you're and you acquire the business in when was it was it may uh I acquired it on April 29th so basically like then there was a weekend so May 1st let's say yes okay okay and what with all of this kind of um sales situation happening what what is the what is it done to the numbers what does the business look like today five five weeks or I should say three months after you've acquired it uh uh so Cash Wise It's losing money but um that was expected because there were all these old payments to contractors so it has lost a lot of money Cash Wise um uh what's important is kind of the uh connect to LTV so basically the customer acquisition cost and how much money the customers are paying so in that respect it's uh like for the last month it was slightly positive uh meaning that I reduced the marketing spend a lot by optimizing their existing ads campaigns so now we have the same number and quality of leads two times cheaper um and the sales dropped as well but there are some sales I they are very unstable right now but basically it it where they barely cover the marketing spend for for the last months and is your is this the executive director is she improving week over week in terms of her scales sales acumen so are you trying are you training her because you you said earlier that you felt comfortable and that you indeed one of the things that you thought you saw yourself doing in this business is training sales people and that you would say that you'd scale the sales function over time basically so um I do not kind of coach her every day and that was one of the issues of the business as well that previously the company worked pretty much like a family even though it had all the contractors and I'm more data driven and like looking into systems Etc and I had a lot of disagreements with like basically people who were doing kind of some management work previously so there were kind of the old lieutenants uh with like the previous owner had so they were still um employed as contractors but they actually did a lot of coordination work and basically management so one of them left in the first months I took over the company uh then like the the head of sales his daughter left as well so I had three left and they all had some debates with me so as I said the this kind of industry it has very different people from those working in Tech and they are very emotional they do not really like numbers Etc so um yeah like we I think we we had like a lot of cultural issues but that are also preventing me from like actually buildings like system around some things but there is already a lot of automation that I introduced that enables like scaling if needed like we have at all three number we have like workspace account like I have all the call recordings so uh like there is a call routing Etc and like there is calendly to book the uh things and all of that didn't exist when the previous owner he was just like picking up the phone or just like calling someone after they submitted the form but yeah but but he did that and it worked you know everything he's like right but there is no money right but you're laying a foundation and it costs money to lay a foundation and and and um yeah this is the the J curve right where you you you lose money as you correct the unscaling aspects of the of the pre under that existed under previous ownership lay the foundation to hopefully meet and then exceed what what the revenue was doing under under the previous owner very interesting well Tony I'm having a hard time um intuiting how you feel about things because you you your your tone to voice is is um sunny and uh smiling but it sounds like it's been really hard so tell me directly how do you feel about this project this acquisition I think I'm just kind of motivated by stress um okay all right yeah no I I think like I I was really stressed before but I also um I I guess it it is kind of part of the adventure to to have like all this uh troubles it just doesn't feel like it when you just have to see it and look into the numbers and then explain it and that part I didn't like but I think now it um yeah I feel like I I don't feel good about it but I feel better than the months ago okay and you are employed elsewhere although not at Google so you so so tell us tell us that situation and and how that you know obviously that you still have the security of a paycheck yes so initial initial Collision for the uh day loan I thought okay it's it's kind of a small uh and then uh if this thing's completely um flips down I can still pay out the loan out of my salary that was my initial Mantra um so yeah basically I did all the documentation for the SBA loan I was keeping my job but then once the deal closed I gave my notice at Google and the first month was still good money-wise so yeah I I just gave my notice and thought okay like I have some Runway to like try an experiment for at least a few months um and then uh but at the same time I I know that financially like when when I already know that the profit will be low and I still approach it more as a gross opportunity rather than something that like is stable and so there would be ups and downs uh I I was just interviewing with some startups very passively I think yeah like I it's just like going after all of it so I think career-wise I always wanted to try to be in a high growth startup for for a while um and yes so basically when the deal was closing I just randomly went to one of the interviews with a fully remote startup um and I kind of clicked with the hiring manager who also left since then and uh yeah um and yeah and it was kind of a good offer it also kind of fit my target statement in terms of what I wanted in a Tech Career for the next couple of years and yeah I basically I joined a seriously startup in California that was remote and that would still kind of keep me in the tech space so starting a new job and running a new business so how do how do your hours break down how many hours a week are you putting into right my wrongs the business you acquired and then how many hours are you giving your new your new job so the new job is 40 hours a week but I didn't start it there right away so I already had the offer uh like maybe a week after I left Google uh the final offer but um I negotiated that I would start there in uh three weeks and also have a week of vacation uh so the the the first months uh after the acquisition I was able to spend as much time as needed on on the business and it didn't feel great I I pretty much felt locked in there so actually when I so I I think I was still uh spending less than 40 hours a week because I because I'm generally lazy and unproductive so and that was also one of the reasons why I wanted to like do it on the side because I know that I'm never 100 focused on anything and like if I have eight hours on a day to work on something I will still spend one hour in the end of the day when I'm like feeling that I already need to go to sleep yeah yeah I think like most people in Tech are procrastinators and then yeah and then when I started I'm in a product management role so um it's not the same as like it's not the same as on one hand like being on the calls on the all the time when you just have to be on the calls to close sales and it's not like software engineering where like you you need a lot of uninterrupted time for like building things so I'm not sure but like how it goes but so far it's it's manageable and it was a good distraction from all this uh unfancy troubles in the business and how how much time are you giving the business now right my wrongs um so maybe the weekdays and then like the new things that I'm trying to do I usually do them on the weekend so I I would say and also I procrastinate a lot so I would say it's it's probably 10 hours per week or 12 hours per week okay okay and is this something that you're seeing other people in Silicon Valley do any of your colleagues or friends did you are they doing this were you influenced by them did you tell them that you're buying a business and did they get excited about it or understand it or think you were crazy or what the first time I met other acquisition entrepreneurs who was in the acquisition lab and there I think in Michael Hort I was the only person from the Bay Area um um so when I when I when I left Google in my um uh goodbye email I wrote that I I want to take a step at entrepreneurship or something like that and yeah some people were asking and I told them that I acquired the business uh and yeah I think they were kind of interested but it it wasn't a big deal uh yeah I think everybody thought that I I started a normal Tech startup and I didn't give too much details so yeah so there's there's nothing here where it's like this buy then build book is being read widely at Google or something you are an odd duck doing this uh among your cohort um no yeah just because uh the calculations that are provided in the Bison build is like okay you put 100K down you buy one million business then like uh then you grow it like to maybe 200k in profit Etc but like all of this is below the junior level salary at Google so it's it's just not interesting for like for like most decades yeah if somebody else wants to um maybe somebody from the tech industry or elsewhere uh wants to get your opinion or reach out what's the best way to do that they can reach out at Tony write my wrongs.com if they are interested in publishing a book for example uh and uh yeah that would and they could also check out the website that's that would be nice it's right my wrongs dots you write w-r-i-t-e I'll put a link in the show notes to that yes really interesting um undertaking by you Tony thanks a lot for coming on acquiring minds and sharing it with us thank you