My $100M Mistake + 6 Company Exit F**k Ups To Avoid (#522)

Shaan Puri

Today, we are playing a drinking game on the podcast. We're playing "Never Will I Ever," a game where we talk about all the mistakes we made when we were selling our company. We say, "Never will we ever make this mistake again." If you ever want to sell a company or if you've sold a company, you're going to be able to relate to some of these mistakes, I'm sure. If you want to someday sell your company, it's good to listen to this so that you don't have to pay the same price we did for making these mistakes. So go ahead, grab a drink! We're playing "Never Will I Ever." Today, we are talking about how to sell a company, and in fact, we're discussing how not to sell a company. These are mistakes that we made while selling our company. Sam sold The Hustle to HubSpot, which was a big deal, and I've had two exits under my belt. I sold one to a big company, Amazon, and one to a small group of private buyers. Every time you sell your company, you learn a bunch of lessons. But we're going to make this fun! If you've ever played the drinking game "Never Have I Ever," we have a new drinking game for you—MFM style! This is "Never Will I Ever." "Never Will I Ever" is a game where we say, "Never will I ever do blank again," because we made so many mistakes. We made these mistakes so you don't have to. We died so you don't have to here. If you listen to this, you're going to be a lot smarter when it comes to selling your company. Sam, are you ready to play the game?

Sam Parr

what are you drinking what's your drink I

Shaan Puri

I mean, I only have a lot of people left here, but I got some greens in the morning. I'm looking a little athletic, and I got some greens. Not sponsored, but you know, send me a free box!

Sam Parr

Yeah, that'll save you $80 a month. Dude, I have a ton of it. I drink it once in a while. It's really hard to stomach for me. Do you like, you could just drink that plain?

Shaan Puri

I love it plain, and I love that it doesn't taste that great. Because to me, I don't want my healthy food tasting good. I don't like my hot people to be funny too. I don't like when things that are not supposed to go together, go together. Alright, like the guy Matt Wright, the comedian? No, I’m not watching that special, number 1 on Netflix. No, thank you.

Sam Parr

at all well you're pretty funny what does that make you

Shaan Puri

pretty ugly as the world should be

Sam Parr

Alright, what... how do we want to go about this? We have a bunch of points here. Which one do you want? Let's start with the most straightforward thing.

Shaan Puri

okay yep

Sam Parr

so never will I ever you both we both have this one ignore qsbs

Shaan Puri

I'll drink to that! Yes, now explain, when you say "ignore QSBS," what happened here?

Sam Parr

**QSBS** for those who don't know—I didn't know about it until like a year before I sold. My friend Jack Smith told me about it. **QSBS** stands for **Qualified Small Business Stock**. QSBS protects up to **10x** of your investment from long-term capital gains taxes of **$10,000,000** or **10x** your initial investment. What that means, and a lot of people only pay attention to the **$10,000,000** thing, is that with QSBS, how long do you have to hold it? Your stock is up for **5 years**. Yes, you hold a small business stock, so a privately held company that's a C Corp, and you have to hold it for **5 years**. The company must be valued originally, or the assets of the company, which is the value, has to be **$50,000,000** or less. You hold it for **5 years**, and you can save **$10,000,000** in capital gains tax.

Shaan Puri

$10,000,000 when you sell. So, let's say you sell for $10 [million], all $10 [million] would be tax-free at a federal level. Many states also honor QSBS (not California), but many states also do. So you could walk away paying $0 in taxes if you sold for $10,000,000, which is remarkable.

Sam Parr

Or, and now here's the "or" part that a lot of people forget: you can save up to **10 times your investment**, whichever is greater—the **10 times** or the **$10,000,000**. Now, what that means is, let's say that theoretically you start as an LLC or your company isn't valuable. Let's say you start as an LLC and you convert to a C Corp. When you convert, you value your company, and it usually has to be done by a third party, so it has to be reasonable. Let's say you're doing **$15,000,000** in revenue or **$20,000,000** in revenue, and you say, "Great, I think we're a **$40,000,000** company." You get a third party that does it, so you can save **10 times $40,000,000** in taxes.

Shaan Puri

$400,000,000 that's a $400,000,000 tax shield right there

Sam Parr

Yes, and I know friends that are doing this now. This law... a lot of people don't know about it. It's maybe, besides some real estate laws for tax savings in real estate, probably the greatest thing there is.

Shaan Puri

it it's better

Sam Parr

better you think it's better

Shaan Puri

It's better than real estate because in real estate you have, let's say, depreciation or the 10/31 exchange. These are great, but they're deferrals. Whereas this is not a deferral; this is simply an exclusion on 100% of your gains up to some number. So it is way better than deferrals, way better than real estate. I was talking to a real estate guy yesterday and I said, "I have the greatest tax thing that no real estate guy has." He goes, "What are you talking about? Real estate's the most tax-advantaged." I said, "Yes, but you don't have QSBS because real estate is not eligible for QSBS. There are only certain types of businesses that can do it." But, like Sam's saying, you could stack it. For example, some people have QSBS for themselves, but it's per tax return. So you could do it for yourself, you can create trusts for your kids, and give each of them equity. Then each trust gets a $10,000,000 exclusion in addition to your own. So you could have, you know, I was joking around with a QSBS guy, and he's like, "Yeah, if you have three kids, I can get you $40,000,000 to $50,000,000 in QSBS." I was like, "Oh, this kid I have, you know, this next kid, I'm gonna have... this is just a walking QSBS shield here! Like, this is awesome!" And it used to be that it wasn't on...

Sam Parr

The same page that your kid... when they're 18, have say in control over your business.

Shaan Puri

when they're 18 I mean you've you know exited by them by then right like but they're gonna have but

Sam Parr

maybe not

Shaan Puri

But they're going to have just a small equity stake. They're gonna get the majority, right? Like you're just giving them enough so that they have a shield. They have, you know, less tax, and while they're minors, you control the estate. You can always... you know. Sure, I don't know, but I don't think what a lot of people are having is like little kids that 18 years later are like *Succession*-style hostile takeovers of the company as they band together. I don't think that's the thing to worry about.

Sam Parr

And we'll wrap this one up with... There's a big asterisk here, which is this: I don't like calling it a loophole. First of all, I hate that word "loophole" because loopholes are good. Loopholes are legal. Like when someone says "a loophole," I'm like, "Okay, but you're trying to spin this negative, but you're just following the law."

Shaan Puri

try tying a shoe without a loophole

Sam Parr

Yeah, it's essential. When people say "shortcuts," they're like, "That's a shortcut." I'm like, well, I love shortcuts! If I can arrive at the same destination just as safely and faster than a long cut, let me take the shortcut. But there's an asterisk here. I think two years ago, it was up for vote if they were going to axe it. The idea was they might make it only 50% or so; they might reduce it by half. I don't know if this is going to be in play for how much longer. This is not like real estate where it's going to last forever.

Shaan Puri

Right, right. Yeah, it is, but it's been out for a while and it's amazing, especially in the tech industry. I can't find this client info. Have you?

Hubspot

Have you heard of HubSpot? HubSpot is a CRM platform that shares its data across every application. This means every team can stay aligned - no out-of-sync spreadsheets or dueling databases. With HubSpot, you can grow better.

Shaan Puri

Alright, so my turn. Never will I ever just shut down a company without trying to sell it. So, have a drink for that! Before I sold, before my first exit, I had built many companies and many products. They all reached some version of an outcome. Some really had no momentum, while some had a bit of momentum but didn't break out. It either wasn't worth our time or we weren't able to get funding, or whatever. I specifically remember one app that we made. If you remember Bitmoji, we had basically created an app that was way better than Bitmoji. It just...

Sam Parr

and bitmoji was giving you an like a a personal avatar

Shaan Puri

Character for yourself that would be in these, and then it would give you like, kind of like these stickers that were in funny positions or phrases. We had made an app that was even better.

Sam Parr

making the world a better place one emoji at a time

Shaan Puri

exactly emojis are emojis are one of the greatest products ever right self expression there so you we had made an app that created a character of you and then you could and then you could type any word you could just type hashtag whatever boogie down and it would make your character boogie down and we had every like whatever you could think of like you could put you could say hashtag single ladies and it would dress your character up like beyonce right away doing the single ladies dance like whatever you could think of we would we had because we would just every day we would rank the top tagged terms and our artists would create like 100 of these per day so very quickly we had tens of thousands of combinations it was really fun because you could just type something in just to see does it do it or not and people did this we got half a 1000000 people to download the app in the 1st month they were just pounding like tons of these little stickers it didn't have great longevity but it had this like amazing novelty factor and we were trying to do it as its own messaging app which was too hard like people wanted whatsapp they wanted facebook messenger they wanted all these things and I wrote this blog post called my $100,000,000 mistake because we took that and we said well this is not really sticky as a messenger it's not big enough where you're gonna get all your friends to switch and and start texting you here people love the character they love these stickers we don't wanna build a sticker company so I guess we'll just crumble it all up and just kobe and just throw it away and that was so dumb in retrospect what we should have done is taken that little app to all of the existing messaging companies and be like hey this feature is unbelievable building this is not easy we've already built it we've proven that people really like to do this look how many like the average person is doing 60 of these you know just buy this and put this into your keyboard and shortly after bitmoji sold for a $100,000,000 to snapchat doing exactly that because they they couldn't make it as a standalone app either and I have no idea why our instinct was just to like just pivot just turn it off and pivot versus like take 30 days and have like 5 conversations even if it doesn't go through like you owe it to yourself after you know 9 months of hard work or a year of hard work and creativity on something so never will I ever just shut it down

Sam Parr

You said we got 100... or sorry, we got 500,000 downloads in 60 days and had a brief moment at number 1 on the charts before falling into mediocrity. How much could you have sold this for?

Shaan Puri

easily tens of 1,000,000 easily like you know you think so

Sam Parr

and he

Shaan Puri

Either we weren't going to sell at all because there were only about 8 buyers for this. There were like 8 messaging apps that were major at the time, such as Line, Kik, WhatsApp, Facebook Messenger, and Snapchat. Those were the 8 players that could benefit from something like this. It just wasn't going to sell at all, but that's actually unlikely. There's a kind of price for every buyer. The hard part would have been that our team wouldn't have wanted to go with the acquisition. So we would have had to either try to just sell the tech, which is really hard, or sell the whole company including the team, and then disband for a year before coming back together. But we didn't even really get to that. We should have gone and seen what our options were. In poker, if you've already paid the blind, well, just see the flop. Maybe something good will come out of it, and we didn't do that.

Sam Parr

By the way, if you Google "$100,000,000 mistake Sean Perry," you'll find a Medium blog. You've got a lot of good posts there, so if you're listening, go check it out. Did you not sell because your main investor didn't give a shit? This might bring me to my point...

Shaan Puri

No, it literally just didn't come up. It's not like we had a conversation and one side said yes, one side said no, and we debated it. Then one side said, "No, I have the voting control." Hell, we didn't even think about it. We just moved on. We literally had lunch and then we just moved on. It was just... it's the worst types of mistakes. The worst types of mistakes are the ones where you didn't even really explore the possibilities. You didn't even ask yourself, "What could I do here?" You just sort of quickly glossed over it, didn't even give it the thought to make a decision. It was a non-decision decision.

Sam Parr

That's like your 3rd or 4th or 5th multi-million dollar mistake. The first one being not joining Stripe as employee 30 or 50 or something like that, and not selling this app. I think... I think you might have a dude.

Shaan Puri

I'm Shooter McGavin in "Happy Gilmore" when he says, "I eat pieces of [expletive] like you for breakfast," and then Happy Gilmore goes, "You eat pieces of [expletive] for breakfast?" That's me. I've made mistakes more expensive than your net worth. It's like, "You've made mistakes like this?" It's like, "Yeah, multiple... multiple."

Sam Parr

Alright, here I've got one: "Never will I ever act desperate." You have on here, you will only have one option. That is the way to not act desperate. That is one way. But when I was building my company, I wanted an exit so badly. Like, give...

Shaan Puri

me an analogy on the spot analogy you wanted an exit as bad as

Sam Parr

Like when I was 12 years old, a cute girl complimented my braces. I wanted to close this so badly. I was emotionally invested. If you don't like me, no one will like me, and I'm a piece of shit. I was so desperate. I had all of my personal net worth, my emotional net worth, tied into this exit, and I acted like a little bitch. One of the ways not to do this is to have multiple options. That's the easiest, most tactical one: to have lots of options. The second one is to act like a hot girl. You're like, "Look, I don't care. I'm going to be fine regardless." I remember there was one... Do you track your finances somewhere?

Shaan Puri

mhmm

Sam Parr

I have a spreadsheet, and I remember one day I just added like $10,000,000. You have an "Other" account so you can link all your accounts, and I just had "Other." I manually typed in $10,000,000 and stared at that for like six months. It actually helped me believe that I already had it, so I was a little bit less desperate. But I remember being desperate. When you are desperate, you have zero power, and when you have zero power, that is the worst part to be in when you negotiate. The best part when you can negotiate is to be able to walk away. To be able to walk away, you typically just don't care. You're passionate about whatever you're doing, and you don't need the money or you have other options. I remember being desperate, just like that 12-year-old girl who was into me, Erin. You know, they could sense it. They could smell the hormones on you. Any hot girl could tell what a desperate man is like, and I was not a confident man.

Shaan Puri

can you put your retainer back in

Sam Parr

it's the same thing right

Shaan Puri

Yeah, you've nailed it in that last bit, which is the rules... the rules of negotiating when you're trying to sell your company. **Number 1**, the most important rule is: *you must be okay if no deal happens*. Meaning not just like "I'll be alright," like a funeral has happened, but you... the option 1 should always be: > We do no deal and we're totally fine. I would love to keep going. ...whether that's true or [not].

Sam Parr

not there should be no grieving

Shaan Puri

You know, grieving... convince yourself that it's true. You don't want your options to just be offer number 1 or offer number 2. Because guess what? Offer number 1's gonna have some hair on it, and offer number 2 is gonna be a little shaky—maybe it will fall through. You're going to start to feel really desperate when offer 2 falls through and now it's only offer 1 on the table. You always need one option on the table that you can control, which is: "I will keep running my company. It will grow and just be bigger and better if I keep going." You have to convince yourself of that if you want to have a chance in these negotiations. The second rule is: in any negotiation, the side that cares the least wins. So you have to be the one who needs the deal less than the other party. Whether that's true or not, it's a mentality. You must mentally need it less than the other side. You must mentally care less than the other side that this deal goes through exactly as is. If you can do that, then you're in pretty good shape.

Sam Parr

And you know which deal is the best deal? The one that will actually close. That's another huge learning: not all deals are the same. The one that will close is a really big deal. To get an offer and go through due diligence, that's not nearly as big of a deal. You and I have both gone through situations where the offer was great, but the people buying were either disorganized or they were difficult to work with. They changed their opinion, right? So, you want to do the deal that will close. That is the best deal.

Shaan Puri

That is one of mine as well. I put, "Never will I ever go with the highest offer." Sounds confusing, right? It's like, what do you mean? Why would you not take the highest offer? You want to take the best offer, not just the highest offer. The best offer and the highest offer have a lot of differences. One of the differences is what you just said: the likelihood to actually close. Will they do what they say they will do? I'll give you a story from the Milk Road sale. We had a high offer and then we had a fair offer. At first, we were like, "Hell yeah! We got the high offer. This is great!"

Sam Parr

the but they they did a bunch of weird stuff though

Shaan Puri

There were some red flags, but hey dude, it's like... you know, like anything else. When something's really attractive, that red flag just starts to look... just like, "Is that maroon? Actually, maybe that's orange." You know? Like, it's *so* red, you start to overlook and talk yourself out of a bunch of things, right? So...

Sam Parr

what was one of those red flags can you say

Shaan Puri

They had a lawyer who would jump on the call but refused to ever turn his camera on. He had no LinkedIn profile and sent us a document that was like the term sheet. Our lawyer said, "There's no way a lawyer wrote this." We were like, "Okay, it's probably not good that their lawyer is not a lawyer." But we also don't understand why they would not have a lawyer. It's like this guy's friend claims he's a lawyer. It's so strange. It's not that they're scammers, but he said, "Can you just turn your camera on?" It was just a little bit weird. That was one thing.

Sam Parr

I think they sent you money didn't they well did you were sent money

Shaan Puri

right we we went down the we took the offer and there was a time to close but the the again one of the stupid things they did they wrote the offer as when we signed the the term sheet which is not the deal is not closed when you sign the term sheet they wired us all the money they had to wire us all the money on day 1 which again was like are these guys idiots why are they doing that that's not how this is supposed to go but we were like well I guess we're getting money so like what what do you know and it was during that kind of closing. That we started to get a little sketched out and said look I don't think this is the right deal for us maybe we should just go back to options 1 we'll just keep running our company we don't have to do this deal so we wired back 1,000,000 of dollars voluntarily because we had made the mistake of going with the highest offer first and the best offer is a combination of it's likely to close I'll tell you a funny story about that the people involved are high quality and they're people you wanna be around because it's not a a sort of hit it and quit it you're never gonna see these people again like business even if your deal is kinda like you walk away clear like I don't know the business world is actually kinda small you run into people they now own your company your brand like you don't want it in the wrong hands you'd rather do business with great people who you might do more business with in the future which is what we ended up doing so the best offer is different now let me tell you a story about about likelihood to close so we get this high offer and we're comparing the high offer with the fair offer and I call balaji and people know balaji you know he's one of the smartest people on earth so I call balaji I said balaji what would you do if you were me and he's like well that's a higher offer but let me ask you a question have a of course like intelligent people can get to the heart of the issue right away like he just like a metal detector just new and he goes are you negotiating these on the same time scale and I was like I don't know what that means he's like who did you talk to first and how far how long have you been talking to them and how long have you been talking to the high offer I said well I talked to the fair offer way earlier we've negotiated it renegotiated it they've done diligence and the high offer is new blah blah blah he goes okay so this is not the real offer and he's like you need to apply a discount and I said well what do you mean he's like well you don't know if this deal is gonna close you don't know if this number is gonna stand you don't know if they're gonna change their mind this is this is all fresh and a fresh deal is not the real deal and so he's like you need to just mentally apply some discount factor for if this even is gonna be the final offer that gets sent to your bank account and so I was like okay so like 10% he's like tell me what you know about this person I told him everything I know he's like 50% and so we had to cut the offer by 50% mentally to to to you know compare apples to apples and that was some of the best advice we got was that one piece of advice so now I always in any deal I have to ask myself what's the discount factor here meaning how likely are they to close have they done all their diligence yet have we already had the deal have we already negotiated this to a stalemate where kind of both sides feel like they've gone as far as they're willing to go because that's when you can reduce the discount

Sam Parr

When we were selling to HubSpot, I remember, just like I said, my contact—the one I was speaking with—she sensed weakness. She sensed that I was in a tough place emotionally, and... I [was in a tough place] because I was constantly asking [questions].

Shaan Puri

because you were sobbing alright

Sam Parr

What else do you mean? How do we move this forward? Yeah, she could sense it. She was like, "Are you laying down when you're talking to me?" I was laying on the floor. The difference between what you did and what I did was two things. 1. I sold to a public company, which meant basically the decision maker was not the CEO or the owner of the company. It was the person who reported to the person who reported to the person who reported to the person. It was like four ladders down. The decision maker, the CEO, was probably just seeing it in their board meeting every once in a while, like quarterly, and they were like, "Okay, cool, whatever. Now can we talk about important stuff?" This woman, she was like, "Look, we don't care about you." She basically said, "Our company is worth like $20 or $30 billion, and this is a rounding error for us. Our reputation matters more than this little deal, and it would hurt our reputation more than the cost of this deal to dick you around. If we say we're going to do something, we're going to do something. Now shut up and relax." That's basically what she was saying to me, and I remember feeling that. I felt so much better. I think there's a difference between selling to a small business, to a sole proprietor, or to a private equity company, or to a really large strategic company. I think the way that you deal with those sellers or buyers is different.

Shaan Puri

I'll tie that in. I have, and never will I ever... Never will I ever assume the person I'm talking to is the person who's buying my company. So this is when we sold to Twitch, which is owned by Amazon. I'm talking to Corp Dev [Corporate Development]. It's very easy to think... I'm assuming you're talking about somebody in Corp Dev.

Sam Parr

yeah in corp dev she this lady was wonderful she was like my therapist for 3 months right

Shaan Puri

And Corp Dev is very helpful. They're the router, the project manager of any acquisition, but they are not the decision maker. Actually, the thing you described, I think, is not entirely true. I do believe there is a decision maker, and they are pretty high up. It's either the CEO, the VP, or the SVP who runs, you know, or someone from the C-suite who matters to sign off on a transaction, right? Of a multi-eight figure transaction, that's not it. The decision actually does ladder up, but by design, these companies structure it so you're never actually going to get to talk to that person. They need a good cop-bad cop dynamic. They need the person whose job it is to move the transaction along or find out information. That person can't actually be the one negotiating with you. They're going to say, "Cool, I'll go back and find out." Those layers of bureaucracy are actually a huge negotiating advantage that a startup typically doesn't have unless you're working with bankers and whatnot, where you do have an intermediary able to do that for you. So, one of the most important things you have to figure out is: Who's actually buying this company? It's not a company that buys a company; there is a person in a company who needs something for their job. You have to figure out who that person is and what is the fire under their ass. You know, what is the thing that, are they in trouble with their job and need to do something because the competitor is getting ahead? Or are they super strategic and had a dinner with somebody, had an epiphany, and now they're like Steve Jobs, a visionary trying to make that vision come true? You need to fit that story. You have to figure out who that person is in the company and what is the fire under their ass if you ever want to have a chance of selling a company. Because you're selling to that person, that champion alone, not to a multibillion-dollar corporation.

Sam Parr

And so, the buyer really matters. They are seeing what motivates them. A lot of times, the people in corporate development just want to keep their jobs and they want to look good. As the seller, you have to sell a company and make them look great. You have to make it easy for them to look wonderful.

Shaan Puri

You have such different incentives. They are just trying to not fumble the bag, while you are trying to get your first bag. You are going to behave totally differently and value different things. If they ever said to me something like, "Oh, this is kind of a rounding error," or "This is huge, this is not a big deal," I would be like, "Cool, round up the price. It just went up $10,000,000 then." If this money doesn't matter to you, it matters. Hell, every dollar of this matters to me. So maybe we have the price wrong. Actually, let's get the price right before we continue. By the way, you saw this—we just renegotiated our deal with HubSpot. Without going into the guts of it, everything mattered. You saw how I approached that. You and I have very different approaches to negotiation. What did you see? Describe that.

Sam Parr

So, this is like a Midwestern value steak. If I order a steak and you send me out a pizza, I'm just gonna shut up and eat it. I ain't gonna complain. The way that you did, the steak tastes different. Yeah, I love my steak with mozzarella and pasta sauce. This is exactly how I like it. You handled it differently, and frankly, that was one of the examples when I learned from you. I think you said something great: "Whoever can be most uncomfortable will win." You needled these guys for everything, and in my head, I was like, "What? Why? Who gives a shit?" And you're like, "This word needs to be that." I'm like, "What are you doing?" And you were like, "It all matters. It all is really important." Frankly, you got your way, at least for the big important stuff, and when you got your way, I got my way too.

Shaan Puri

To get the negotiation done, both sides have to get their way. However, you have to figure out what really matters to them and what really matters to us. Those two things are not going to line up. You need, like, Sam Altman. You know, he's all in the news right now, and he said something great about negotiation. He goes, "I am not interested in binary negotiations. There's nothing interesting there where it's just a number, and you want it to be lower while I want it to be higher. That's just a tug of war. That's not interesting; that's not a sport." It's like slap fighting versus MMA. The slap league is literally just one guy standing there with no defense, and one guy's going to slap him as hard as he can. It's kind of interesting to see, but it doesn't have the same satisfaction for the sophisticated barbarian like us who prefers UFC instead. So, the sophisticated barbarian cares about a non-zero-sum negotiation. It's like, how do I give them what they want?

Sam Parr

french word what is that what is that alright am I saying that right

Shaan Puri

There's an art to it, and so you have to figure out what are the things they really care about that I only kind of care about. What are the things I really care about that they only kind of care about? How do we all get what we want in order for this to work? But you're right that I was willing to be more uncomfortable than you or maybe most people, just because I don't know... this is our baby, and this is like one line item for them. But this is like the basis of what we do, and it has the potential to be such an awesome part of our lives. You know, I have to get this right. This is my kid. It's like, you know, my kid versus how a teacher's going to treat my kid. They care, but not the same way I do about my baby, right? It's different. There are levels to that. So, yeah, you know, the party that's willing to be more uncomfortable generally will win. Or, the way my dad taught me, the more stubborn person wins in any negotiation. Can I tell you a dad negotiation story? Yeah, so I worked with my dad for about nine months, I think, in my life, and I'm really happy to...

Sam Parr

your dad does everything right he's like uh-huh like he does projects

Shaan Puri

he started as an engineer a lowly engineer and he is like you know he is like office space or like a dunder mifflin or something like he was sitting in his cubicle and he kept getting patents so his wall had like 22 patents on the wall but his salary stayed the same and he's like how come like you know this like the guy who dresses up nice he works for me for 6 months I get this patent he gets promoted I stay here like wait am I in the wrong job so it took him 10 years to figure that out he's like maybe I should move to the business side he works at a he works at bp for like 30 40 years and he finally like leaves and he does then he started doing more entrepreneurial things one of which was we both worked together in this company in australia and when we were working there I got to see my dad in action and like it's so funny like you see your dad at home and dads at home are just like these like totally different creatures when they're like done with work for the day I had to see him like interacting with other people especially for an immigrant dad it's like it's like oh you have this level of polish why at home do you turn into just like a caveman and so I just got to see him just act totally differently and one of the things that happened was they we were negotiating with this other party the other party was this slick talking australian guy who literally looked like leonardo dicaprio this guy's on like the australian cnbc every week and he's super polished just an amazing talker and I just think oh my god my dad's I'm gonna have to get watch my dad get beat up in this negotiation this guy's like mister mister charisma mister smooth everybody already loves him the decision maker loves him and they want one thing we want another my dad's you know this you know this indian guy who can barely you know he forgets to add the connecting words and sentences he's just gonna get walked all over this this thing and then they walk in and this guy's got like binders of like you know spreadsheets presentation like he's got everything prepared my dad has nothing doesn't even have like a pen on him and the guy that guy makes his case first he kinda passes it around he's like here's what I think we should do and I wanna run the project to give me the funding and here's what we're gonna do with it it's gonna be great everybody's like this is super well put together thank you so much blah blah blah and it's my dad's turn and my dad basically kinda like refuses to speak and then he starts to speak and I'm like where's the logical argument he's not like using any logic he's just saying no I'm not doing that I wanna do this and I'm not doing it if we're doing it that way and then they're like you know but raj we have like you know this plan it makes sense look I know you're not getting the exact equity you want you're not getting to run it but like this guy will run it but you'll this makes sense right and my dad's just like put on the table he's like I'm just telling you right now it's not happening never not happening and I'm like what are you doing like you're not even backing up your words you're just saying no and you're just refusing you look like such a stubborn idiot and he just acted the fool for like an hour and they were like this is going nowhere and they walked out and I was like dude you blew it and he was like no that went perfectly and I was like what do you mean and he's like

Sam Parr

he's

Shaan Puri

Like, "Oh, I could never compete with that guy. He's, you know, super charismatic and he has all the facts on his side." I was like, "So what's your plan?" He said, "Oh, I'm just gonna use the most powerful word in any negotiation." "No," he said, "I'm just gonna say no. I'm not doing it that way, and I don't need to explain why I'm not doing it. I'm actually offended that it's going this way. I'm pissed off, and I might blow this whole thing up." He said, "You know, I only have one piece of leverage, which is that they need me to play along in whatever we're gonna do here. It's gonna be hard for them to replace me in this thing, so I'm just gonna say no." I learned so much that day. He told me, "The more stubborn guy in the..."

Sam Parr

world come back yeah of course did they come back

Shaan Puri

They came back, and in fact, the exact opposite happened. By the end of the whole thing, we negotiated this deal. There was this kind of moment where we said, "Okay, let's take a break. We'll go get the..."

Sam Parr

were you doing

Shaan Puri

I was there I was

Sam Parr

where's the we

Shaan Puri

Of moral support, they leave the room to take a break or they're printing out the papers or whatever. My dad turns to the middleman guy and he goes, "So, what do you think?" He replies, "I think we're playing poker, but all the chips are on your side of the table now." Actually, my dad made a mistake. He negotiated way too hard and took all the value in the end. Then they realized it and said, "You know what? We let the stubborn idiot take the whole thing, the whole enchilada." They went back to "no," and we actually ended up more like at a 50/50 deal. If he had just given a little bit back... you always want to kind of give back at the end where they feel like they have something to lose. He took it so far that he won the negotiation so badly that they had nothing to lose in closing the deal. They were like, "Well, what do I have to gain by closing this deal? Nothing. All the value is going to him."

Shaan Puri

And so he had taken it a little too far, but I'll never forget that idea. You know, in any negotiation, it is not the side that has the better argument or more logic. It's whoever has more leverage, number one. And then within that, you have the substance and the style: 1. **Substance**: Who has more leverage 2. **Style**: Whoever's a little more stubborn, a little more crazy, a little more irrational That is to your advantage in a negotiation.

Sam Parr

We gotta have your mom and dad on the pod. I think we've heard a lot of stories about them. Alright, I'll do one or two more. Here's a really easy and simple one: **Never will I ever be disorganized.** I'll give you an example of that. We changed payrolls like three different times. It was like Gusto, then ADP, and then Zenefits, and then Rippling. Rippling can track your computers, like when you give out computers, or Gusto pays two days later so I can keep the cash for two. It was so stupid. And here's why it's so stupid. When you're selling a company for $30 million and $300 million, it's basically the same thing. A lot of times, when you sell a business, let's say, I don't know what that threshold is, it could be $10 or $15 million. But when you sell a company for $300 million and $15 million, they basically give you this Excel sheet. It has five pages, and each page has literally 50 bullet points. Each bullet is a big deal. For example, one bullet will be under the HR tab and it will say, "Show me the payroll for the last five years" or "Show me every contractor you've ever hired."

Shaan Puri

Yeah, add the contracting agreement you have with every single contractor, including the confidentiality. It's like we don't even have that. Yeah, like, yes.

Sam Parr

Yeah, and here's why it's a big deal when you switch pay. Here's a very specific example: if you just use one payroll, that's easy. You just click export, and that's easy. But I didn't do that. If it's been three years, you have to call Zenefits and say, "I don't have access to my account anymore. Do you guys even have these records?" I thought this was stupid. I remember telling Kip, the CMO of HubSpot, "Kip, I used Fiverr one time. I paid $150 out of my PayPal account. I even paid it personally." He said, "Well, you know, I can't hire bballer84 on Fiverr because that goes against Fiverr's terms of service. I have to make sure that everything is by the book because every little thing matters." That made a lot of sense to me. But I was a fool and disorganized. I would use PayPal for some stuff, and every once in a while, I would just Venmo someone. I'd be like, "Here's $500, thanks for the freelancer." I wouldn't track confidentiality agreements. It was a mess. I used Google Drive to store some stuff, Dropbox to store some other things. It was chaotic. I'm telling you, when you're selling a company for what I sold it for, and I only had 40 employees, you can't tell anyone that you're selling the company. It was basically me and Edie, this woman who worked with me, and we went through all of these documents to find everything. It literally took three months to find the documents. That was three months of working every day for 12 hours a day. It is so hard to get all the documents. It is so challenging. You don't want to give them anything that's messy; otherwise, you'll look unorganized. If you look unorganized, they'll say, "What else are you missing?" or "Are you lying about something?" You need to present things in a really nice, orderly fashion. So, starting to be organized from day one is really, really important. Don't be a maverick and think, "I'll just pay you $20 for this, I'll use PayPal for that." It's a mess.

Shaan Puri

Well, I got a drink to that because I made that same mistake. No surprise, I'm like the most disorganized guy on earth. You know, I made mistakes like I thought, "Hey, startup, you guys gotta move fast. Don't waste time incorporating and getting trademarks and doing all that." That could be the difference between long-term capital gains or short-term gains, or having to explain why the IP is over here but it should be over there. We made a mistake of, "Did you mail in your 83(b) one year?" I did, and then for one company, I just didn't do it. I was like, "Oh, I gotta go to the post office," and I just didn't do it. Now, luckily that company failed, and I didn't have to pay the price for that. But, you know, the 83(b) election, basically, for anybody who doesn't know, is like you can get shares in a company and you can tell the IRS, "Hey, tax me now this year on the gain of these shares because I'm gonna exercise them now." And it's...

Sam Parr

like a $100

Shaan Puri

I'm going to exercise these shares now. Tax me, you know? It's like the original strike price was 1¢, and then they're valued at 1.5¢, and so you're like, "Tax me today on that gain." So that I've exercised the shares at this price, so that when I sell, I don't have to pay this huge markup on the... [exercise of the options].

Sam Parr

You only have like 30 or 60 days to mail it in, and you basically literally have to write a letter. Is it 90 days? You have to write a letter and you want to postmark it, and then you want to... you write in a letter like: > "Send me a receipt of this." It's like a really manual process and you're like: > "Dear IRS, please send me proof that you received this." And you have to store that in your records in case you ever get audited.

Shaan Puri

And I think now there's some automation around this, but yeah, I was messy about that. You know, I had this great meeting when I wanted to sell my company. I didn't know how, and I went and met with five people who had sold multiple companies. I was like, "Okay, hey, I don't know what the heck I'm doing here. Can I explain to you what I'm currently doing, and then you tell me what I'm doing, which parts? Out the dumb parts. Okay, can you do that?" Yeah, because I was like, if I just ask you for your advice, who knows what to say? But if I draw you a picture of what I'm doing, you could point to the ugly parts. That'll help me. So, I had lunch with this guy, Fuad, and he's the CEO of a company called Array. Now, he had sold, I think, like five companies or something like that. He pointed out two mistakes that I was making. Number one, he goes, "Oh wow, you have an actual offer on the table." I was like, "Yeah, dude, it's been so hard. Such a long road." You know, even though it had only been like 40 days, I was like, "Dude, yeah, it's just been ups and downs, but finally we're here." I was talking like I arrived at some destination. He looked at me and said, "This is not over. Actually, you just reached the starting line. Now it's time to sprint." I repeated that advice to so many people: "Now it's time to sprint." Because so many times this happens. Let's say you're fundraising for a company, and you've spent, you know, three months trying to fundraise. You finally get money in the bank, and you're so happy. It's so, so satisfying. Your whole body just wants to relax. It's like, "Oh, welcome to the start of the race. Now it's time to run. You ready to run?"

Sam Parr

yeah and like the work starts

Shaan Puri

especially true when it comes to closing m and a it's like when you have the offer

Sam Parr

A lot of people don't realize that it takes time. From getting the offer to actually receiving the money, that can take six months. That could take...

Shaan Puri

exactly for for

Sam Parr

me it took they emailed me and they emailed me in september or october I got paid in february

Shaan Puri

Yeah, exactly. Three months to six months is very common. That's the time that's hardest. The second thing he said was, "Show me your data room." I was like, "Oh, we have a Google Drive, but it's kind of messy right now." He goes, "You're selling your company. Think of it like a product on Amazon. How does Amazon sell a product?" I'm like, "There's like a page and a one-click buy." He goes, "Exactly! You need to turn your entire company into a giant buy button." I was like, "What is that?" He's like, "You need to answer all the questions now, get it all organized now, and put it all in place now. So that when they look at this stuff, they are ready to one-click buy. The more questions they have to ask you, the more you have to go dig stuff up, and the more half or incomplete information you have to give them, the more reasons this deal could fall apart. Turn your company into a giant buy button." That's the other advice I've been given, which is: What are all the ducks I can line up here so that this just becomes an easy-to-understand, easy-to-consume process for them? And like, it was the one, you know, 30-day...

Shaan Puri

Of my life, I became Marie Kondo. I organized the shit out of my company. I took everything and was like, "Look, this thing needs to be bulletproof." I'm so glad that I did because it was extremely necessary.

Sam Parr

do you wanna do one last one

Shaan Puri

Yeah, oh, by the way, I have one: "Never will I ever run my company like a personal piggy bank." I made this mistake before, and I have a story of a friend of ours who made this mistake as well. What a lot of people do when they run their company is they start to make some money, and then they're like, "Oh, I have to pay taxes." Then they're like, "Fuck, taxes suck!" And you're like, "What can I do to reduce my..."

Sam Parr

spend it all

Shaan Puri

Although, I think smart people have tax strategies they use. So, what I'm going to do is start doing some tax planning. I was like, "Okay, what's the tax strategy?" And they're like, "Oh, we talked to a guy recently who said, 'I created my own captive insurance program and then I bought this property that we're using as an office.'" I'm like, "What are you doing? You're just trying to save like $200 on taxes, and what you're doing is actually ruining your books." When I looked at his business, it appeared to have no profit. He was so happy that he had this "shitty margin" and "shitty net profit margin" because that year it saved him on taxes. But the reality is, if you're building a company that you want to sell, you need to take some short-term pain by having clean, simple books where you pay legitimate taxes. This is necessary for you to have a big exit at the end because potential buyers will see a track record of multiple years of solid profits that you can sell on. Generally, that is a better approach. Of course, there are exceptions to both cases, but generally, this is the better way to go.

Sam Parr

And if you don't want to sell, there is a category on QuickBooks that you can put stuff into, but that is not ideal if you're trying to sell.

Shaan Puri

Yeah, exactly. If you're trying to sell, you want to be able to show a track record of success. I had a friend who would go to the bank on December 30th and take out a bunch of cashier's checks that they were going to use to pay vendors. It was like prepaying vendors for the next year. Then the next year, they would say, "Ah, I want to quit this vendor," but they had already prepaid them. Or they would take two of the checks they never even paid and then put them back in the bank a month later, hoping nobody notices. It's like, dude, just don't do this stuff. Don't treat your company like a personal piggy bank if you want to sell it someday because nobody wants to buy your hot mess. And I think it's very important to note that you can't undo that. You can't really unwind it. These actions are in the history box. Every year that you're doing that, you are kind of adding a bunch of asterisks to your own books. You need a buyer who's willing to go in and do a bunch of ad backs and try to figure this out in order to feel confident that they should buy this business.

Sam Parr

When Dave Portnoy sold Barstool Sports, you know, he sold it a couple of times. But the first time he sold it, he was like, "I was an idiot." He's like, "I owned a racehorse that I bought through Barstool Sports." Barstool Sports owned like two racehorses, a trailer for the racehorse, and the house I was in. He said all the stuff that the business owned, and he's like, "We got docked."

Shaan Puri

so hard 3000 liters of gin that we acquired like

Sam Parr

Yeah, and that's what he said. He's like, "Churnin didn't want to buy like Skippy the racehorse, but the business owned it." It was really hard, you know? When he first sold that business, he sold the first portion of it. At the time, Barstow was a big deal. He only sold it at a $15,000,000 valuation.

Shaan Puri

crazy

Sam Parr

When it was worth way more than that, it's probably because he was just sloppy. A lot of it was sloppy. He was like, "I also made so much profit, and I didn't put any of the profit back into the company. I just would buy horses and stuff like that and gamble." He's like, "I gambled like crazy." Is that it?

Shaan Puri

I got one more never will I ever just sit just stay at home when there's a deal to be closed so this is the rule of just get on a plane go meet go meet people in person don't do zoom calls or if you're doing zoom calls add in the in person afterwards the in person meetings are so important you know I'll I'll tell one story which was just a deal we closed recently the yeah one deal that we didn't close that I got on a plane for and like you know for me I I my the running joke on the spot is I I don't leave my house and that's true I really don't leave my house I don't like to do that I got little kids and I don't know it's for our family life it's very disruptive to travel if I go if I leave the house for like 5 days or whatever but I did for this one deal it didn't the deal didn't go through but I could sleep easy at night because I'm like I did everything like I made multiple offers on this deal I got on the plane I met them in person like you know we did everything that we could we could do we did what was in our control with a deal that we just recently did the other party was like cool like after the initial conversation of interest they were like cool we'd love to just next chat we'd love to do it in person I'm happy to fly out to you wherever you are let me know which day works I'll fly in same day fly out same day it'll be easy and I was like I respect this person and I trust doing business with this person because they understand this principle of like you just gotta get on a plane and you gotta go meet somebody and you should be willing to do that when we sold the milk road I had a similar situation where we remember I told you about the high offer and the fair offer we had said no to the fair offer took the high offer then we readded it so we went back to the fair offer months later and we were like I was like you know what I wanna see what those guys are up to and see if there's a deal to be done here and I kind of called or emailed it was sort of like we just had like a quick I texted I think and it was like really really wasn't an opening but I was like hey I'm gonna be in the city tomorrow you know for my niece's soccer game so I was like I'll go see my niece's soccer game but I'm gonna I'm really doing this to meet you but I made it sound to him like I was going to the soccer game and I was like right you know we'd love to catch up he's like yeah great let's do it and so we drive into the city car breaks down on van ness and my car literally just shuts off in the middle of the road

Sam Parr

your car breaks down

Shaan Puri

The car literally just shuts off. I don't know what happens; the car stopped driving. The momentum let me just get to the side of the road, but I'm there with my... [incomplete thought].

Sam Parr

you have like a brand new escalade

Shaan Puri

This is the BMW before that. So, this is... yeah, I'm with my wife, my two kids are in the back in the car seats. The car's broken down, and I got this meeting in, you know, 10 minutes. I'm like, "Shit, I guess I gotta cancel this meeting." You know, whatever. Who knows if this meeting would have even come of anything anyway? But like, whatever, we'll wait for AAA. My wife is like, "No, you gotta go. You've been telling me all morning how this is an important meeting. You think that you have a feeling that you could be able to get this deal back on. You know, go!" I was like, "I'm just not gonna leave my wife and kids on Van Ness in the middle of San Francisco in a broken-down car." And she's like, "Just go, we'll be fine." I was like, "Okay, you know, sell me twice." So, I hop out and I literally run... I run down Van Ness, like, you know, a mile basically, get to the coffee shop, meet the guy. The deal comes back to life by the end of that coffee meeting, and we end up selling to them. I'm like, I think I'm actually like 100% sure if I hadn't gone to that coffee meeting, that deal doesn't happen. In that meeting, we were able to clear up some things that were not as exact transactional, but like, you know, kind of what his fears were and what our hesitations were. We really kind of sussed it out and got comfortable with each other in person. So, yeah, insane, insane that that happened. This...

Sam Parr

is like a this is like an anti ad for bmw

Shaan Puri

yeah don't trust them

Sam Parr

"Yeah, don't trust them. They'll ruin your deals." "Well, that's sick. Hopefully people dig this. We did a little Q&A for this episode, except on one topic." "I think we're gonna keep doing these every other Tuesday, right?" "Yeah, we're gonna try."

Shaan Puri

To come up with great topics that we can kind of shoot the shit on and then share maybe, you know, either our answers or stories that we've been through. So I think that was good. I think people will like this one, but let us know... Let us know in the YouTube comments what you think.

Sam Parr

alright well we'll end there and that's the pod