Mastering Value-Driven Deals: Sam Oliver’s Journey From Startup to Exit

Sam Oliver, a Scottish entrepreneur, brings a wealth of practical experience to the table as he recounts his entrepreneurial journey of building and exiting a business. His story encompasses the challenges of market sizing, competition, and the complexities of structuring an earn out, offering valuable insights for business owners navigating similar paths. With a focus on sharing real-life lessons learned, Sam’s candid approach provides a compelling resource for those seeking to maximise their business’s value and achieve favorable exits.

Sam’s journey into entrepreneurship began during his university days when he joined the entrepreneurship and trading societies. Inspired by the burgeoning online business landscape and the challenges he faced while working in property lettings, Sam took a leap of faith. Together with a friend, he founded a company to streamline property advertising for landlords. Despite initial success and even securing investment from Richard Branson, the business faced fierce competition and eventually had to close its doors. However, this setback propelled Sam into the world of consulting, where he gained valuable insights but also discovered the limitations of trading time for money. These experiences fueled his determination to build a valuable and enduring business. Sam’s story is a testament to the resilience and adaptability required in the entrepreneurial journey, and his commitment to learning from past challenges has shaped his approach to building and exiting businesses.

• Master the art of business exit strategies by understanding key lessons from successful exits.
• Maximise your returns by structuring earn-out agreements for a win-win situation in business sales.
• Navigate the tech startup landscape by uncovering the secrets to building a profitable tech startup from scratch.
• Unlock the secrets of business sales with strategies for a successful and lucrative sales journey.
• Craft winning products by identifying market needs and trends for successful product development.

Importance of assertiveness in driving revenue:

Assertiveness plays a crucial role in driving revenue growth and operational excellence within a business setting. Sam Oliver’s emphasis on the importance of assertiveness in business interactions sheds light on the transformative impact of proactive communication, confident decision-making, and strategic negotiation tactics. By being assertive in pursuing revenue opportunities, entrepreneurs can position their businesses for sustainable growth, market expansion, and financial success. Sam’s perspective on assertiveness underscores the value of confident leadership, proactive engagement with clients and stakeholders, and decisive action in driving revenue generation. Through his experiences, Sam highlights the benefits of assertive communication in clarifying business objectives, setting ambitious revenue targets, and fostering a culture of accountability and results-driven performance. Entrepreneurs can leverage Sam’s insights to cultivate assertive behaviors within their organisations, empowering teams to pursue revenue-generating initiatives, capitalise on market opportunities, and drive strategic innovation. By embracing assertiveness as a guiding principle in business operations, companies can enhance their competitive position, foster a revenue-centric mindset, and achieve sustainable business growth in an ever-evolving marketplace.

Watch the episode here:

Are you the sort of person who likes to learn from others? In this episode I’m talking to Sam Oliver, a Scottish entrepreneur who shares the lessons he’s learned and there’s been a few of them along the way as he’s built and exited his business. He got some advice on how to structure an earn out when he business sold to a PE and they didn’t quite agree on valuations and he learned the hard way and a talks about how it cost him half a million pounds for not getting everything quite right. It’s really insightful and I really appreciate Sam being so open and sharing this episode with us.

Welcome to the podcast that’s dedicated to helping business owners to prepare for exit so you can maximise value and then exit on your terms. This is the Exit Insights podcast presented by succession plus. I’m Darryl Bates-Brownsword and today I’m joined by a very special entrepreneur, Sam. Thanks for joining me and welcome to the Exit Insights podcast.

Hi Darryl, great to be on. Thank you very much for having me.

Brilliant. Now, Sam, you’ve got a bit of a journey as an entrepreneur and had a couple of cracks at it like we often do, and have learned some stories and along the way, and I’ve asked you to share those stories just for the advantage of those who are, I guess, tailing in your wake a bit or a little bit behind you and starting to think about their first exit and learn from your mistakes and your learnings, really. So that’s what I’m hoping to tap into. So I guess if there’s any question I don’t ask, please feel free to jump in and just give us an answer anyway. But why don’t you start by just giving us a bit of a potted history, if you like, of your entrepreneurial journey.

Sure. At university I joined the entrepreneurship society and also the trading society at Edinburgh University. And this was a great place to sort of learn what other people were doing. We had brilliant speakers, success stories and it was super exciting. At the time I was studying chemistry and I was also working in property lettings, so advertising properties to rent to students.

And I was really inspired to start my own business. I couldn’t sort of see an exciting career in chemistry and I was much more drawn to businesses, particularly online companies. Facebook was really taking off at this time. The Internet was a very exciting place. This is about 15 years ago and one of the problems I felt was the difficulty of advertising properties online.

So I decided to take a year out of university, defer my studies for a year, and with a friend from university, a computer programmer from the informatics department. We decided to start a company together and our objective was to build a landlord property management software, starting with making it really easy to advertise properties online. The problem was, if you were a private landlord and you wanted to advertise on the big UK marketplaces, right, move Zoopla Gumtree. Right within Zoopla, you could only advertise through an agency, and it was very expensive, there was no direct opportunity for landlords to advertise. So we registered as an online letting agency and then we built a really cool piece of software that a landlord could use their iPhone, take photos, upload the property, advert to us, pay us 50 pounds, and we would then syndicate that advert across all the platforms, post it all for them, and we would take all of the viewing inquiries, the phone calls and the emails and automatically route them back to that landlord.

And that business went really well. We actually were supported by Richard Branson, so he put money in through Virgin Media pioneers and we won the pitch award, which was a 50,000 pounds award, and we bootstrapped that business. We were based in Scotland, and there wasn’t at that time, a very strong tech ecosystem in Scotland. What ended up happening with that company, Washington, we had a competitor in London, a company called Rentify, and they raised 12 million pounds VC funding from Boulderton Capital. And they took our exact proposition of these adverts for landlords and they just gave them away for free.

And we were like a bootstrapped company. We had a very little amount of funding and we couldn’t compete with this sort of massive free marketing spend. So we ended up shutting down that company after three years, which was a blessing in disguise, because one of the issues that I learned from that company was the market sizing was very small. So the number of landlords in the UK that are actually hands on, it’s about 2 million landlords in the UK, of which 90% only own one property. So it’s a tiny market of which the million more active landlords, most of them are using letting agencies, most of them are 50 to 60 years old.

So our potential market for people who wanted to use the service is actually very, very, very small. So it was hard to build, like, a big profitable business there. So that was my first company from start to closure.

So before you take that further, Sam, let me just tap in, if you like. There’s a couple of things I’d just like to.

Firstly, I’m super impressed that the entrepreneurship training at university was on the money and actually inspired you. I did some a long time ago and it was just straight over. It was all very corporate and sort of missed the mark. But the thing that I really want to ask about is after three years you took the decision to close down the business. Like how hard was that to do? Like you mentioned it almost in passing, but at the time, to actually close down a business, you’re getting a lot of competition. But how hard was that to actually make that decision?

It’s really hard because we put so much love and energy into that. The product that we built was like, it was beautiful, it worked really well, it was really well engineered, it was cutting edge and it was a real vhs and betamax lesson of it doesn’t really, in business, it doesn’t really matter if you’ve got a beautiful product. All that really matters is the commercials and the ability to sell and the market.

And it was a hard lesson. Like, I kind of wish we’d maybe not persevered for three years and we’d shut it sooner. But it also, that experience then led me into consulting. So some of the people I’d met through the entrepreneurial events, like CEO’s of large companies, sort of said, do you know what, we love the innovation that you have. We want you to come into.

So for example, I worked at Yale, Yellow Pages, which at the time I think was 7000 people, and I worked with the C suite on their digital innovation plan. So it gave me this leapfrog of that. Three hard years of experience got me into consulting. And I learned in my early twenties that you can make a good amount of money in consulting, but really core to the exits. Podcast is the problem with consulting is you’re not building any equity.

You’re limited by your time and there is a limit to what people will pay you per hour on retainer. And that’s difficult to scale up. So I kind of learned another lesson quickly, which was a really interesting lesson to learn of. And it massively boosted my self confidence of, wow, I can make like 15,000 pounds a month income consulting and age 24 making that much money. It was like, wow, this is incredible. This is awesome. My own company doing this consulting, but then the minute you stop working, it disappears and you’re not really building anything.

And I guess like the book, Think and Grow Rich and the Richest Man in Babylon, they really got me thinking, I’m rich dad, poor dad. They really got me thinking about assets and wanting to be able to build technology and software that while I’m fast, asleep is still out working and delivering value. And that was kind of what inspired me to get back into running a company with the real objective of building something that is valuable, that is helping people, and learning from the lessons of the last company, of going, actually, rather than selling to landlords, which was really A B to C market, very hard to find these landlords.

Let’s do a b, two b product. So let’s sell to letting agents, because you can find an entire list of them on Rightmove. And what we did in London, because I’d moved to London at that point, was we literally knocked on the doors and went in to pitch them and speak to them. So it pivoted me to B. Two B.

Yeah. Well, look, to learn those lessons so young is gold. Selling a product, selling a solution, rather than time, because time is a definite commodity. You only have so much. And as much as consultants are out there trying to sell and position value based pricing, you can duck and weave and have all the best stories, and you absolutely nailed it.

I’ve seen this myself, that clients will only pay so much, and as much as you try, they’ll still come and back. But you only spent this amount of time. Yes. It took 20 years to learn that and all that experience to know how to do it in 20 minutes. Yes, but it took 20 minutes.

I don’t want to pay for that. So your wisdom is shining through there, Sam, and what you learned and exited. When you exited the company and I absolutely get, and that’s why I asked the question, the pain you went through to actually making the decision because of how much you had emotionally invested in it, did you even. Well, it sounds critical, but did you have a crack at trying to sell your beautiful product to the competitor that was doing so well?

So we did. We actually met the competitor in London a year before, and the chap was a very confident, welcome guy. And he turned around and he said, you know, when your business fails, contact me and I’ll give you jobs. What am I going to say? So when we realised that it was going to be very impossible to compete, we contacted him and we said, look, this is our customer base. Do you want to buy it?

We reached out to a couple of other competitors, but realistically, we were just too small. We were far too small. And I thought, maybe, maybe we’ll go and work for them that sort of come and work for me. I even would have taken a job, and there was no job. So there wasn’t even an Accu hire there.

The reality, I think, was that they had their own commercial struggles. That issue that we felt as a bootstrapped company of the market isn’t really big enough and there’s not demand. The pressure of having VC money and expected VC growth, they felt that 10x more there wasn’t actually the market there to build a 100 million pound business.

Okay, so lesson one, you’ve learned, you’ve identified the market, you’ve identified the sort of proposition you want to take to market. In hindsight, like it was a bitter pill, really hard to exit, but you’ve moved on now and you’ve gone, hey, in hindsight, that was the best thing that happened for us. Went out, did some consulting, learned a bit more. Where did that lead you to?

I would just add in, I think those lessons, like competition is important and it’s very easy. I see a lot of startups pitching for funding and founders tend to say there’s not really any competition or we’re better than the competition. It really taught me that like competition is pretty serious and understanding barriers to entry or competitive advantage or stickiness and having that be part of your plan is really valuable and it’s also valuable for exiting your business.

So if you’re selling your company, the acquirer is probably going to want to know, will you still have revenue in a company in six months, a year, two years, five years time? Like, what is the competitive landscape? I also think that we learned that market sizing is important. And really the product that we built solved a problem that I had with my job. And that’s not necessarily the correct way to build a product.

You need to understand it more for the market. So with my co-founder, we started a company together again, still in the letting space, this time working with letting agents. And we tried to solve another problem. And retrospectively we kind of made one of those mistakes again. So we thought, let’s not build a problem for ourselves.

Let’s not build a solution for a problem we have ourselves. Let’s try and pick a bigger problem. And the problem that we identified was if you go onto Rightmove and you inquire to view a property that’s available to let you send in your email, and half the time you never get a reply at all. So we thought, gosh, this is a terrible consumer experience. You’re inquiring to view this property and they’re just never getting back to you.

Let’s build a tool that replies to the email with a calendar availability. So like Calendly for letting agents and make it really easy for them to book in the viewings. So we raised angel funding. We pitched the idea, raised angel funding. We built a version, one of the product, which took a long time and a lot of money, and then we went to try and sell it and we learned that there’s a difference between a problem and a problem.

So yes, this was annoying for a consumer, but the consumer’s not the one that we were trying to get to pay for the solution. We were trying to get the letting agent to pay for a solution. And it was a problem they didn’t really feel because the letting agent gets paid by the landlord to let the property. If they have ten people that wants to rent the property and they only respond to five, the other five don’t matter. It’s not going to make them any more or less money if they respond to all five.

So that business, we had to pivot. We spent the investor money and we built the product, and we had four or five customers, tiny customers, and we made that same mistake again of not really understanding the problem. And we kind of got lucky here in that we pitched to a bigger company and they really bought into the idea at a C suite level. And they sent us off to one of their busiest offices to meet the branch manager. And this is where we hit gold in terms of product market fit.

The branch manager was like, Sam, I don’t care about lettings inquiries and I don’t care about booking viewings online. But if you could email everyone that wants to buy one of my properties and ask them if they have a house to sell and help me find more people that want to sell their houses, that is wildly valuable to me because for them, that’s new business. And someone selling a house could make them 5.10 thousand pounds in fees. So if I could provide a service that helped them win new business, they were interested. So we pivoted the entire company to doing exactly that.

We moved from lettings, which was where I had experience, to sales where I had no experience. And we focused on not trying to help the consumer book in a viewing, but asking the consumer, okay, you want to view this property that’s for sale with Knight Frank, but do you have a property to sell? And if you have a property to sell, where is it? And then we took that new business opportunity and we emailed it to the Knight Frank office that covered that area. And they started to make a lot of money from those leads. So that’s kind of where we ended up with the new company. Raoul.

That’s really interesting. And I’ve just taken a note there as you’re talking and just going right at the very beginning. It’s the classic, isn’t it? Just because there’s a market in the hole in the market doesn’t mean there’s a market in the hole. And then you went and did some research and good luck and good fortune and good management all tied into one. The harder you work, the luckier you get type of thing. You got to the point where someone on the ground with the problem said, hey, Sam, this is the real problem. Like, yeah, that’s a problem over there, but no one wants to solve that problem.

No one’s prepared to spend any money on it. But this is a real problem for us. And here’s the value to us. If that problem is solved and you’re going gold, so. But yeah, you only get that when you sniff around and you wear out some shoe leather and ask the right questions.

I think a lesson there was when we started wearing out that shoe leather, we weren’t doing a good job of asking the right questions. We were going in quite arrogantly saying, or at least thinking, you’re really shit. The fact that you ignore half your customers emails, you are shit. And you have no idea about technology. We’re really smart. Let us give you this amazing technology. It’s going to be a game changer. So we went in pitching and selling hard, trying to convince them that, you know, convince the Eskimos that they needed to buy refrigerators and they didn’t need to.

And I think it was probably cold.

Yeah, exactly. And I think it was a case that if we had gone in with a more humble listening approach, we would have gotten to where we eventually got to through, like, banging our heads against the wall. Eventually we were like, maybe we should use the door. And then there’s a great book about that called the Mum test. I think it’s Rob Fitzpatrick, which is all about teaching you as a business founder how to ask the right questions and how to find the signal and noise and feedback to find that product market fit. But that was then what we went on to build a business around, was doing that one thing for UK estate agents very, very well.

And we kind of, that was our USP niche and we just sold, sold, sold that. Yeah.

Okay. So I really appreciate you stopping and pausing and actually extracting the learnings along the way, because if you haven’t done it before, I’m sure it’s helpful for yourself, but it’s gold for the audience. So what happened to that business, Sam? Like, you scaled it, you identified and what the real product market fit was. You got some. You did some research. I think you mentioned that the client sort of picked it up and ran with it and did really well. What happened to the actual business?

So with the actual business, we were in that difficult position of we’d kind of just found product market fit. We pretty much spent all of the first round of investment money. So we decided to raise another round of investment. And we got lucky once again, kind of when opportunity meets preparation, and we managed to get an angel investor who had been the commercial director of Zoopla to come into the business. And he got it.

He saw that we had product market fit, that we had revenue, that the product was working, and he just opened doors, like you were saying, 20 years career to add value. His value was that he knew absolutely everyone in the industry and he could get us in front of them to the extent of, you know, he got on a train with me, took me to the largest estate agent in the UK, got me into the boardroom with the CEO, and got me like an hour and a half to pitch to the CEO what we were doing. He also did a fantastic job of mentoring me. So that sort of arrogance of thinking we knew best was probably something I still had in the early days. And he really helped me sort of taper down some of my enthusiasm of being like, oh, my God, why is the client doing such a stupid thing?

And made me empathise with, like, the fact that they’re busy 1001 problems. What we’re selling isn’t their number one priority. And he really taught me how to sell. As a result, we scaled. We signed up Winkworth Belvoir plc, Knight Franc, LSL plc, Connell’s countrywide, and we just kept our heads down and really worked on sales. A lot of train trips around the country. This is pre Covid. And we got to a place where we were doing very well. We were profitable, which was such a relief. And then Covid hit and all the estate agents closed.

Our revenue completely dropped down to almost nothing. We had staff, and before furlough had come out, like a lot of companies, we were wondering, how long can we last? I had to remortgage my house to put money into the business, to keep it running. And that was like a super scary time. We were very fortunate in our industry that also we had really good investors, so they lent money to the company.

So I said, look, guys, you put money in as investors, I believe we can turn this around post Covid. But I’ve put money in myself, but can you lend us money? And a couple of our larger angels just lent money into the company very quickly and easily. So they really supported us. And we got lucky that the property market caught fire after Covid, everyone wanted to change their house and move, and estate agents did super well. They had massive marketing budgets and we just picked up where we left off, exceeded where we had been from a profitability standpoint. It was also an interesting time economically. Wherever borrowing money has been cheap for a long time. A lot of companies were growing.

They had cheap money and the way that they wanted to grow quickly was through mergers and acquisitions. So we had a competitor who, a Swedish based competitor, and they actually flew me out to Gothenburg to meet them to discuss an exit opportunity. And then we had a customer who was like a distributor customer, and they also made us an offer to buy the company. And we sort of played those two offers a little bit against each other. And the thinking for me was it was difficult, because on the one hand, the company was getting profitable and I could see that we could grow really well again and that we could make it a much bigger business.

Yep. I would caveat that there were limits there, so maybe we could have got four or five times bigger, but I didn’t think there was a ten or 100 x growth potential. And the challenge for that was, once again, we’d picked a small market, we picked UK estate agents. And yes, it was bigger than UK landlords, but it wasn’t a global market, which meant there was really limited growth potential for what we were doing. And either we could change vertical or change geography, but either is almost like starting a new business.

It’s going from scratch in terms of proof, a lot of integration with CRMs, a lot of product work. So I thought, how much more can I grow this company if I turn down exit at this stage, which was five years into the business, it could be another five years before I get to exit. And I had the fresh memory of almost going bust, like a year before in Covid. And I thought, do you know what? I am happy to cash in my chips, pay off my housing loan, take my money off the table, but it still has to be a good offer.

So the Swedish guys gave us a good offer, but the majority of the deal was in equity. And when we dug into it, it turned out that they had valued us at like 3x revenue and then they had valued themselves at 100x revenue. So the value of the equity that we were getting for the majority of the deal, like it just didn’t make any sense with the other offer that we had. It was from the CEO of one of our customers. And they were majority, they were majority owner of that business was a hedge fund.

So I said to the CEO, I’m interested in this offer, but can I speak to the actual hedge fund owners? So he introduced me to them and I went for a meeting with them in London, and I basically said, look, we’re growing really profitably. We have all these PLC customers. I don’t want to sell the company. I came here to tell you in person that I’m really grateful for the offer, but it’s like a no, thank you.

And that was partly a sales tactic, partly true. You know, like any negotiation, the person who cares less has the leverage. And I was very happy running the company. I was enjoying my time. Like, I worked very hard, but I was doing exactly what I wanted to do, operating a business creatively, solving problems, building good software.

And predictably, somewhat, the hedge fund guys came back and said, well, what’s your number like? What would you sell this business at? And I had thought about that before the meeting. So I gave them a number and they said, okay, let us come back to you and see if we can do a deal. And they basically came back with a deal which said, we don’t think the company is worth that much, but you do.

So if you want to do an earn out and you hit the growth that you think, here’s a deal that will get you to that number. And for me, I was pretty confident in the company and their I, the first part of their offer, which was a cash and equity offer, day one, was also still a good offer. Like on its own, it was a good offer. So I decided to take that trade sale opportunity. Yeah. And that was five years in, and it was pretty satisfying to get that offer and decide emotionally I’m ready to get rid of my child and take it.

Working on product development and invested a huge amount of resource into building the product suite that wouldn’t even come online for a year.

So RNA specifically was tied to revenue growth within twelve months. So it was totally dumb to do this work that wasn’t going to benefit.

They were grateful.

They’re delighted, very happy for me to keep focusing on that. The other thing that we did, which was terrible, Washington, they had a hundred day plan, which was, okay, we bought the business the next hundred days, we want to integrate you into the company. And on the face of it, it sounded really good.

Like, you’ll have access to more sales resource, you’ll have access to our accounting team. You can focus on sales and growth. The reality was, I’m not going to swear, but very terrible. So I think that I wish we had just stayed focused on sales and growth and said, look, the hundred day plan and the integration work will only start post earnout. So what we had done was when the earnout started, we integrated their customer support team, which meant training tons of people on customer support who then ultimately didn’t do a very good job. And we ended up taking it back in house. We end up moving to their CRM, which took a ton of time to move all this data over to de dupe and merge the data mutual clients, and it gave us absolutely no value. The CRM that we were using was fine, a ton of time. We also moved accounting over to them, and this was the biggest mess up of all. So what happened was we were using Xero, which is fantastic for accounting, really good for small businesses.

And their accounting department were doing things with annual journal entries. So Xero, like, automated absolutely everything. So when it came to payroll, payroll was automated. People would get paid, get logged on the chart of accounts. We’ve been running it like that for years, no problem.

They came in and took over to free up our time, and they didn’t know what they were doing. They didn’t realise that it was automated. So they manually put journal entries into the accounts for everyone’s salary. And what ended up happening was they double counted everyone’s salary. So it looked like we were starting to lose a ton of money, but we weren’t.

We were growing profitably. And what that meant from a business standpoint was I thought we were losing money when we were actually making money, and that meant that we didn’t reinvest the profits in hiring a bigger sales team. So that was like an absolute nightmare. We also had a really good board. And when we sold the company, we stopped having board meetings and we basically had board meetings with the new owners.

But realistically, they hadn’t actually taken ownership of the company yet because they hadn’t paid for it yet. And part of what I negotiated in the contract was that I was staying as CEO with full autonomy of the company for the twelve months and that they couldn’t fire me in those twelve months and I should have retained my existing board. So almost four or five months into the earn out, I called up my friend, the former CEO of Yale.com, and said, look, you’re super experienced, what’s your advice here? And he said, Sam, you’re doing all that. I said, there’s all this product work that I think we should do and it’ll future proof the business for the next ten years. And he’s like, Sam, all the hedge fund guys are going to care about is the numbers. All you have to do is hit your revenue numbers. You shouldn’t do anything else.

So then I stopped going to any product meetings and had I been really ruthless, I could have fired our very expensive software development team and put that money into sales resources and it would have been way better for our shareholders. When we were negotiating the earn out contract, one of our investors had the exact experience you mentioned of an earn out going horribly wrong.

So he said, do two things. Put the IP in escrow until the payment’s made, and also put in a clause that the earnout will be calculated at the end of every month as if it was the final month. And that way, by the time you get to the end of the year, you’ll have done the process of calculating the earn out twelve times. You’ll have got over any disagreements and you’ll know exactly what’s what. So his first piece of advice I didn’t take because I was impatient to get the contract over the line and I didn’t want to put this escrow piece in place.

I thought it might blow up the deal, but I didn’t ever bother to even ask the other side. So I should have pushed for it and seen if I could have got it because it would have got us a lot of leverage later on.

Yes.

The other piece was so good, but in the end it didn’t help us at all. So what happened was every month I sat down with the finance director. He calculated revenue growth and calculated the earn out. We recorded the call, we sent it to the group CEO for a sign off and he came back with this is the earn out amount. We did it on the penultimate month, and the numbers were looking fantastic. Even higher than I thought. Higher than they’d thought. And they signed to say, yes, this is the earn out amount.

You’ve got one more month of growth, but this is the current earn out. Our final month, we did one of our best months ever. We really pushed to close all of those customers that had been hanging around and kind of learned that sometimes being a little bit assertive in sales, of just saying, if you don’t buy this month, we’re not working with you, worked really well. So we had a bumper month, and then it came to calculate

And finally lose.

Exactly, exactly. So it came to the final months calculation, and we’d done three times the revenue growth that they’d expected in the year. We almost ten x revenue. Sorry, 5x. 5x. We had 5x revenue in the year, so it was really, really good. And we sent the final calculation. Following the same process, they came back with an offer which was less than half of the penultimate month. So they’d already agreed this amount in writing. We then had another month that was even better and added a ton more money into the earn out. And they came back with an offer which was absolutely tiny.

And I was like, what? I was like, yeah, you must be joking. So they then said, okay, the contract says we should go through this arbitration process where we try and resolve it. So their attempt at resolving it was, we had a meeting with me and the finance director, and I said, here’s the signed piece of paper where you’ve said that this is the calculation and this is you now saying it’s a totally different calculation. And he was like, yeah, well, that’s it is what it is.

So are you going to accept it or not? And I was like, of course I’m not going to accept it. And he was like, well, you’re really not trying to meet in the middle with us here. And I was like, of course I’m not. What are you talking about?

On what basis?

Yeah. So I basically said, no, you know, we’re not going to agree this at all. And they didn’t offer any compromise. It was their tiny offer or nothing.

So our earn out contract then had an arbitration clause where if we couldn’t agree, we would appoint an expert determinator, and the expert determinator had to be an accountant that was registered with the ACW, the Institute of Chartered Accountants for England and Wales. So I emailed, like, 60 accountants saying, can you quote us for doing this piece of work. I didn’t know any of them. There was no, like, conflict of interests. And the average fee quote for doing the work came back ten to 15 grand.

And I said to the other side, look, I’m happy with any of these accountants. You pick one and we’ll get them instructed. And they said, no, we’re not going to pick an accountant. And I was like, what do you mean you’re not going to pick an accountant? Will you suggest one?

And they didn’t suggest an accountant. So what the contract said is, after another month of waiting, if you can’t agree an accountant, then you have to pay the ICEW to select one for you. So they didn’t even ever try to pick an accountant. They were happy to just let the clock run down, hold onto the money for another month, and then we had to pay the Institute of Chartered Accountants to pick an expert accountant for us, which, incidentally cost 12,000 pounds to do, which cost more than getting the expert the experts had already quoted. The other thing was, the Institute of Chartered Accountants then have to run a process where they choose the accountant and they email all their members.

So this took like another two months. So finally we got assigned this accountant who was the one that had to do the work for us. We had no say. And obviously it’s fantastic for that accountant because they can charge whatever they like. So this accountant, first of all, they were triple the timeline of what they said they were going to be to do the determination.

And when they came back, having done the determination, their fee was almost 100,000 pounds of, for something that we could have got for 10 to 15. And it had now taken like eight months more time to run through the process. And obviously for the other side, this makes total sense for them. Like, they hold onto the money for longer or they have the cash in their balance sheet for longer, maybe they end up paying more than they would have, but actually it makes sense for them to just drag their heels and let everything go through the contracted steps. So what eventually happened was that expert determinator awarded us almost double their original offer.

So this was like a fantastic outcome for us. There was a slightly bitter pill there. So one of our customers was a huge company with about 8000 employees, and one of our shareholders worked at that company. Now, he worked in a totally different department. He wasn’t connected to the deal in any way, but there was a clause in the contract that said any revenue that comes from a customer that has a connected party shouldn’t be included in the earn out calculation.

And this was our biggest customer. So it ended up being that the value of the earn out from this one customer, it was actually two separate customers in total that we had this issue with, but it was over half a million pounds. So I wrote to the CEO of the company and I said, can you give a written testimony that this was run through a procurement process, that there was no connected party involvement, that this person had nothing to do with this deal, and it’s all above board because that connected party clause is to kind of stop your brother to start a company and pay you tons of money. Like it’s there to protect the buyer. So we got all of this documentation saying that there was no connection between the person, the investor, and the revenue.

And the expert accountant said, actually, because they work there, we think it’s a connected party, so you’re not getting the money. So we lost over half a million pounds. And the dumb, dumb, dumb thing here, which is so stupid, was in the earn out contract. Connected parties has a legal definition. So it’s defined in a corporation tax document from HMRC.

I think it’s 1997. So if connected parties had been a capital c for connected parties, it would have been a defined term. And the defined term by HMRC is that person has to have a controlling stake in the business for it to count as a connected party. If they’re just an employee and they don’t have any say or any power, they’re not a connected party. But because our contract didn’t have capital C, it meant that the expert accountant could choose whatever definition he wanted.

And even though we sent them HMRC’s definition of connected party, he said, I don’t want any risk that the other side are going to sue me for choosing HMRC’s definition, because they could say, that’s not how it’s defined in the contract. So it was a very painful lesson to lose half a million pounds on a capitalisation of a contract clause of a term of contract.

Wow. So what are we pulling out of this, Sam, is that you went to your best endeavor to protect and cover your butt by going, here’s the earn out agreement. And you mapped it, and you got their sign off month by month by month, and, you know, to the best intentions to go, here’s. We both have the same understanding of what will we do at the end of the period. I’ve done my best endeavor, and then right at the 12th hour, they’ve basically gone, yeah, nah, we’re just gonna. We’ve got this contractually, we can do this. And yeah, if we can get out of it in any way, we’ll do that. And they just made it really hard for you, by the sounds of it, really, really hard to get what was rightfully owed.

Yeah. So I think, I mean, it’s important to state technically they were right. Like, there was a contract and what was rightfully owed by the letter of the contract. A third party expert determined that they were right. For that half million, we still got double what they originally tried to pay us, but we didn’t get what we felt was fair.

I think it comes down to the spirit of a contract against the letter, and in particular, that revenue that was disqualified had every single month been agreed in writing from that customer. Which was another reason that I was surprised that the expert accountant had not included that revenue, because I showed them documentation of their financial director saying, yes, this revenue is included. So for me it was like, how can I have an email from the buyer saying the revenue is included? And then the expert accountant turns around and says, the revenue is not included? This kind of, I was like, did they like kidnap his daughter and threaten him? Like, how has it been so crazy? I think the learnings are once again.

So another part of the story that’s quite interesting is so in the contract, there was this time period where we could negotiate the earn out payment, and if we couldn’t reach by a certain date, the earn out payment, we then had to assign the expert accountant on the last day that we could reach it. I got noticed that my role was at risk of redundancy and that they were going to fire me on the last day, the exact same calendar day that the negotiation for the earnout ended. So another piece here that’s really interesting, and a good lesson is I ended up getting fired. And I had thought, they can’t run this business without me. I have all the customer relationships, I know all the software developers. I’m adding tons of value, like, oh, my gosh, 5x revenue in a year. I’m a rock star. They’re going to want to keep me on. I can make them tons more money.

I mean, bluntly, I still think that to chip half a million off the payment, they lost out. They would have made more money retaining me and keeping me growing the products in the customer base for another, for longer, which I was interested in doing because the hedge fund guys had bought five technology businesses. They were merging them with the view to list them on the stock exchange or have some kind of a liquidity event by doing a roll up. So I was like, pretty motivated to stay, be part of this, have a second liquidity event because I still own shares in them.

And it was, I was completely blindsided that I really was just a number. I was replaceable. And there was an accountant somewhere who said, if we can save like half a million pounds plus and just get rid of him, then let’s do it. So the lessons, definitely, you have to really think about conflicts of interests and who’s in it for what. And you have to not think of people as your friend, no matter how friendly they might be to you.

I got completely taken in by the thought that I was going to be there for another 5,10 years. I was going to be a C suite, part of the team. I bought into the vision and I was naive and I wasn’t assertive enough on making money. So, for example, that accounting issue that we had at the end of the year, we ended up, when the twelve months ran out, we actually had over 100,000 pounds of unspent marketing budget, which is crazy because I could have hired two really good salespeople for that increased sales. I could have done advertising campaigns.

I was nowhere near as assertive as I should have been on just really driving it. So there was a lot of learning lessons in just focus on revenue. And I think look at maintaining leverage. So that point about putting the IP in escrow, maybe they would have been more hesitant to try and chip us down on a price if there was a risk that the product gets turned off. Like maybe it would have been like, look, it’s just not worth it from a risk perspective.

Definitely. Had we pushed the 100 day plan back, they couldn’t have run the business without me for another three months. And it would have been much harder for them to go take our terrible offer, or we’re firing you. So I think maintaining that leverage, the biggest lesson I learned is never give a leverage away without something significant in return for that leverage.

There’s a key point there, and as you say, no one’s your friend. It is a commercial deal. No one’s going to look after you. You’ve got to look after yourself. You’ve got to be assertive. And it sounds like, Sam, you’ve been extracting the learnings and the advice all the way along, which has been really a fantastic way of doing this.

How would you pull it all together? Have you started a new business? Have you got something in mind that you’re doing differently this time and going, hey, look, I’ve learned all this over one or two businesses in the past. Here’s the wisdom that’s built up. What am I going to do different?

Am I going to fall into line and do it like them? Or am I going to protect myself so that I can stick to my preferred style and values, but somehow shelter and protect those so that they are sacred?

Good questions. So I think that. So, yes, I have started a new business. We’ve recently closed half a million pounds of angel funding to grow a conversational AI business. And our objective is to make it incredibly easy for companies to talk with their customers at scale, make it easy for their customers to buy from them, and really solving that same problem of there’s a lot of companies out there who don’t reply to customers. They make it hard for customers to actually buy from them. Their websites aren’t very engaging. It’s difficult to ask questions, pricing’s hidden away.

So looking at using conversational AI to make it really, really simple to sell, and our first product is a tool called sales talk AI. I think what I learned, particularly around selling your business, is there’s two components to selling your business. First of all, the acquirer has to have a reason to want to buy it. So maybe you have a trademark or a patent, or an innovative piece of technology, or a really rock star team, or you have special clients that they want, but there has to be some strategic impetus as to why they’re going to buy your business and do all that work to buy your business. The second core component, and to a certain extent, you can influence that like you can build your company on a tech stack that is very normal and that people can buy and integrate the technology. You can make sure that you’re not utilising open source code that would make your technology worthless. You can make sure that you’re building a lot of assets and processes, but to a certain extent, it’s up to the fate and whims of the market as to why they might want to buy your company. The second component is really the key lesson for me, which is when someone wants to buy your company, what they’re willing to pay for the company is going to come down to money. So it’s going to come down to the numbers that your business has.

What is your profit margin? What is your revenue? What is your growth? What is your market potential? What are the risks?

So I think that for anyone who’s interested in selling their business, yes, you can precipitate investment offers by courting people going out to the market. And once you’ve done that, or maybe before you even do that, you just have to make sure you’re building a really fast, high growth, profitable business that’s safe and reliable because the valuation multiple you’re going to receive is going to be based on that. And I’ve seen people who’ve invested a huge amount in technology, they’ve built amazing products, kind of like our first company, but no one wants to buy it because the revenue is not there. The revenue has to be there and ideally the profitability has to be there. So for our new company, we’re really, really, really focused on revenue.

Like revenue solves all problems. It solves your hiring problems, solves your marketing problems, and solves your growth problems. So just a clinical focus on bringing in revenue and growth. And actually, I think the reason that I’ve kind of unlocked this mindset was the earn out because it helped me have this hyper focus on sales and it made me realise that actually just focusing on sales really does solve everything else. You don’t have to go super deep into product.

I probably become an order of magnitude more commercial. And that I think is going to make this new business much more successful.

Wonderful. Sam, it’s great to sort of sit here and enjoy and for you to share and articulate the way you have and go. And as you’re telling the story, I’m sitting there going, okay, so here’s what I think he’s telling.

And then you stop and go, and here’s what I learned from it. And sharing all of the mistakes and learnings as you go, which has been wonderful. So I wonder if is there a summary that sort of says, look, I’ve been doing this for a number of years now and what’s the key? Is there a key message or learning that that you see is really valuable for business owners who are out there maybe going to sell to a PE type of arrangement and or aspiring to that if you got one consolidated advice or piece of wisdom to share?

It’s a good question. I think in general I would just really focus on the concept of value. If you get caught up in thinking, I’m so good, they’d never fire me, you maybe lose the value equation that someone else is making. If you think, I love cycling, I’m going to create my own brand of cycle jackets, you maybe lose track of the value, the unit economics, the choices, the costs. If you go into customers thinking this solution is so useful, you lose track of the value that they’re looking for. So I think it’s kind of around focusing on value and doing the very difficult work of empathising to your buyer.

And that’s the same as when you’re selling to a customer or if you’re selling your business to PE or any liquidity event. What is the perceived value that they’re wanting to see? So if you always have a laser, like, focused on the buyer’s value, I think that’ll solve a lot of problems or questions. So any decision that you had as a business person, I would go back to the very first principles and see, what value are we actually delivering to the buyer? And if you’re stuck on a decision, asking that will probably lead you in the right path.

That’s exceptional advice. And I guess, as you’re saying, I’m thinking, which buyer is he referring to? Maybe it’s both, because part of it could be your proposition to the client, and they’re the buyers, and think of it from their perspective. But the other proposition you were talking about is to the investors, they’re buying your business as well. And think of it from their perspective, and how do they see value, and how do you make sure you protect and deliver that to them?

Sam, I really appreciate you sharing your exit insights with us. And good luck with this new venture. I’m sure it’ll be absolutely incredible based on the learning and the wisdom and growth you’ve experienced so far.

Thank you so much, Darryl. A real pleasure.

About Sam Oliver