A Product Market Fit Show | Startup Podcast for Founders
00:20:13 · Pablo Srugo, Rand Fishkin
[00:20:13] S0: I see. So we, [00:20:14] S1: You know , I had done, I had done, over the years, I had done a , an intentional sort of, you know, tough negotiating job of retaining a tremendous amount of my shares in the company. So I think at the, at the end of the company's life, I still own , you know, Geraldine and I had 18% of the company, 17%, something like that, which is very, very high for a f for a founder, especially a founder who's no longer at the business. But , uh, when the company sold a ton of people's shares were underwater, they, they lost money working at the company, which me off so badly. I wanna say every swear that there is , right? [00:20:47] S0: Because they had what options that were worthless or RSUs that they bought into or something. Okay. [00:20:52] S1: Exactly. Which you have to pay taxes on those options when you execute them. And then if the money is not worth anything, like, you technically get the credit, I guess, towards future tax payments. Sure. The [00:21:02] S0: Tax laws have <laugh> .
00:21:04 · Rand Fishkin
[00:21:04] S1: Yeah, great. Like, wow, I, I prepaid 40 grand worth of taxes. Like, I'm so glad I worked at that company. You know, insane. And, and the reason that it's structured that way is to benefit investors, right? Because most people don't execute their RSUs , which goes back into the pot, which means investors and, and preferred shareholders get a bigger stake, you know, at the end of the company's life. And so, you know, our investors, I, I don't think our later stage investors even made two x on their money, may maybe just barely, which of course is not, you know, that doesn't , uh, beat the market rate of returns at all. Right? And, you know, for Geraldine and I, like we got, we got a giant check, but it, it was certainly a less giant check than the offers we had received for the company four years before and five years before and six years before and, and all that kind of stuff, right? So it was an outstanding life-changing amount of money outcome, but certainly lower than what we could have done years earlier. Sure. Um, which really sucks. And, you know, we ended up writing dozens of personal checks to people who'd been screwed , uh, at the company. I say that not to brag, but because I think any founder who does well out of their business should make sure that all of their employees are taken care of. And if I can shame you into feeling terrible about taking your $10 million and being like, well, it's all mine <laugh>, like Yeah. Legally, and technically it is all yours. And if you didn't write some checks to cover people who, you know, contributed to that success and, and made you all that money , uh, you're a bad person and you should feel bad. The gift has limit Pablo is, is, is high. Like Geraldine and I were able to, under the gift tax limit, write checks of 30, 32, 30 $6,000 to a ton of people.
00:22:46 · Pablo Srugo, Rand Fishkin
[00:22:46] S0: Huh. Okay, well, let's get to know founders, like exited founders that are listening. <laugh>, [00:22:51] S1: Go take care of the people who made you rich. That's [00:22:53] S0: Right. But, you know, the other thing that comes outta that to me is like, maybe, I don't know how many , a month or two ago, I did a podcast with, with another founder friend of mine, and he had this like talking about the venture, non venture kind of , uh, debate, right? He made 10 million off his startup . It was a $30 million exit. It was ba it was bootstrap. I mean, at one point he raised 2 million, but it was like way later. Um, and, and I don't know that enough people realize like just where you actually need to get a venture backed startup to, and I'm, I'm on the VC side, that's the only people I can work with, right? But like, just understand like where you really need to get to. You talked about this in your book, in order for you to be able to make say, 10 million in actual cash versus, like, if you own 50% of a $20 million business, to be clear, it's not easy, but you can bootstrap over a decade, let's say, to something that gets you there. You might be better off, or at least as well off with a lot less stress. Right?
00:23:46 · Rand Fishkin, Pablo Srugo
[00:23:46] S1: I'm gonna say this, the venture environment is a little bit less so right now because of the, the sort of end of cheap money era. But yes, you know, for the, for the 17 years that I was in it, it was growth at all costs. And, and all costs means a lot of costs, right? It means personal health and happiness. It means relationships. Uh, it means sacrificing sort of profitability and, and a safety net , uh, for growth. It means taking low probability bets like, Hey, SEO isn't big enough. We should go expand to a bunch of other marketing channels. You know, that the strategy that, that Moz pursued rather than, Hey, we have this great business. Let's see if we can keep growing that, or if that field keeps growing and double down on this thing that , um, is clearly workable. Uh, and it also means a lot of uncomfortable, very challenging personal and professional growth. So I, you know, I had 200 plus employees at the end of my tenure and I hated it. Hated it. I don't enjoy politics and challenges that come from running a large team. I don't enjoy, I don't get value or joy from sort of resolving interpersonal issues or intra team issues or inter-team challenges. That's true [00:24:58] S0: For most founders. Most founders actually don't want to be managers, which is what you have to be like , you cross a certain amount of people and you're more of a manager, and you're dealing with the problems you're mentioning you're not building. Right. Which is what most founders like to
00:25:09 · Rand Fishkin
[00:25:09] S1: Do, you know? So , um, at the two companies I run now, so SparkToro has three people, myself, Casey , our CTO, and Amanda, our VP marketing. And, you know, it's small. It's under $2 million , uh, a RR, but it's also very profitable. Extremely profitable. Very a beautiful business. And we have, we have tons of fun . You know, Pablo last night we did like our , we launched our like new version of SparkToro that we've been working on for a year. It's been, you know, relatively stressful process. And , and, but also during that time , uh, Amanda had her second kid and took like, you know, six months off and , uh, of parental leave, which is, which is, you know, that's like one third of all of our labor are gone. Right? Casey and I , uh, regularly still try and work 30 hour weeks, 32 hour weeks. Um, we take lots of vacations and time off for other things. I obviously run another company, right? So I'm busy doing that at, at snack bar , uh, snack Bar Studio. There's five of us, all founders. We , uh, all sort of work independently all over the globe. I probably spend only 10 hours a week on that business. Uh, and it is just an absolute joy. The team got together , um, at a farmhouse in, in on the border between Lazio and Umbria in , in Italy, Hmm . Uh , last month and had an outstanding time and ate at a bunch of fancy restaurants and, you know, cooked for each other. And <laugh> found out our game designer is like a pianist. And yeah, just, you know, a awesome stuff. And the quality of life that you can have with these kinds of businesses is so much better. And you, you know what, what's really beautiful to me is you are , um, doing work that I think really, really is about what you wanna do, who you wanna help, where you wanna direct your efforts.
00:27:03 · Pablo Srugo, Rand Fishkin
[00:27:03] S0: I gotta ask some questions on, 'cause I think that's, that's super interesting. First of all, like how much was like the whole base scan , 37 signals, like was that an inspiration for the way you're, you're kind of setting things up now, let's say it sparked Toro . [00:27:15] S1: Oh, interesting. You know, there was a time when I was sort of had a, had a very high opinion of those guys, I think like in the, the mid two thousands, [00:27:24] S0: Because I remember they put out a book called Rework. Yeah . I don't remember when I read it, but it was like this anti VC and anti like, really, which was like just, Hey, the debate is all over here. Like, here's this other thing we're doing, by the way. And it was working <laugh>. And so that was , uh, refreshing. I [00:27:38] S1: Would say for me it was a different one. There's a book called Small Giants. Okay. Um, and I read that book. It has a bunch of different , um, examples. I'd, I'd urge folks to check it out. I think it's a , a great sort of community. And, and it's, it's called, I think the subtitle is Companies That Choose Choose to Be Great instead of Big.