A Product Market Fit Show | Startup Podcast for Founders
00:29:15 · Pablo Srugo
[00:29:15] S0: It’s funny you mentioned it, right? Lee and I did the exact same thing at the beginning. We were actually formally co-CEO, and it was amazing until it was terrible. That's really the best way to describe. At the beginning, it's both of us. We're talking through everything. There's no staff. There's no employees or maybe there's one. Maybe there's two. The number of decisions, the velocity of decisions, how many people are impacted by decisions, all that stuff is more manageable, and it just makes sense to just debate things, hash things out, and agree on something. Then things start to grow up, and you have, in our case, 30, 35 different, employees, a bunch of different things going on. Literally, it's just impossible to agree on everything, and so now what you have is a bad system for decision-making, exactly as you point out, where every decision gets way over debated. It takes way too long to make decisions. You're in a world of unknown, so even if you debate something, it doesn't mean you're actually that much closer to the right answer. At some point, you're spinning in circles, and then everybody else doesn't know who's the ultimate decision-maker. You have a cultural problem and an actual decision-making problem, so there's a reason why, I don't know, 99% of companies have just one CEO. Some things some things are just best to copy rather than try and reinvent the wheel.
00:30:33 · Nazim Ahmed, Pablo Srugo
[00:30:33] S1: Yeah, absolutely. Then it formalizes the relationship, especially if, your co-founder, you have a long friendship history with them, so it formalizes it. Then I think it was 2018, and then Adrian realized that it was time for him to move on from the company. That also created a lot of clarity where I firmly had the CEO role. He was like, okay, it's ready for me to exit myself and let me bring it to the next level. It was very a formal process, and it was able to be done in a way where there was a framework. It was not too emotionally charged, right? The governance and the clarity is very important [00:31:17] S0: As we get closer and closer to this exit, just going back to the storyline, you refocus. You rebalance. You press reset, and then you start putting things into place that should drive growth. My guess is, correct me if I'm wrong, that it wasn't one big thing but a bunch of little things. To the extent that's true, do you remember some of the more meaningful things that impacted your return to growth and got you from ultimately, I guess, 8 to 15 million, right, which is a pretty big jump?
00:31:46 · Nazim Ahmed
[00:31:46] S1: Focus, that was the first step. Second was, okay, we've got the governance piece. We got the discipline. We've got quarterly targets. We put in OKRs, so now the company understands the execution plan. We have the right metrics in place to see if we're on track or off track, so we've got that process really, really tight. We started seeing the core business, existing business started to grow again just by discipline and execution, and then we brought in capital so that we could have a little bit of freedom to start the innovation process. Once you stabilize the core business, we're like, okay, now we need to innovate again. Then we created a small, little innovation team within the business, but this time it wasn't, hey, let's come up with a different app, like a GIF app and go totally off direction. It was let's create unique technologies that could fuel CanvasPop to have unique products in the marketplace. It was my co-founder now for my new startup, Mike Montgomery, led design. Paul Spencer, my CTO of my new startup, he led engineering and then Zak James, who was dealing with all the AI stuff. They made a small, little Navy SEAL team, and they started developing all these amazing technologies that were implementing our new products in CanvasPop. That ended up opening up all these new revenue streams, gave us new SEO terms to start racking for – ranking for, and then it really started elevating sales and creating new channels and everything. That discipline and the team inside were executing in military fashion, and it was all those series of things over the course of years put into play that got us from 8 million to 15 million. By the time the – our number one competitor, a half million-dollar company owned by H.I.G Capital, were doing all of our printing. They saw our volume go up consistently year after year, and then they started knocking on the door because they wanted to buy a consumer application to put on top of their infrastructure under printing infrastructure. They opened up our financials in they’re…
00:33:45 · Pablo Srugo, Nazim Ahmed
[00:33:45] S0: Just to back up there, they were handling your printing? Is that what you said? [00:33:47] S1: Yeah. [00:33:47] S0: Okay, got it. That’s how they came – that's how the partnership started. [00:33:53] S1: Yeah. When they shut down all the facilities in 2018, we put all of our – they took care of all fulfillment printing, but they were owned by a private equity firm. They also owned our number one competitor, so it was really weird. The funny thing is, in 2018, when I was looking for partners, I ended up getting in contact with the CEO of that company, Andrew Cousin. There's a lesson to be told to reach out to your competition that are much bigger for you because my competition ended up purchasing us at the end. We built a relationship and built the trust over several year, and then, finally, it just made sense. They saw our volume. They saw our numbers. They're like, okay, if we just buy you for X dollars, then we'll increase profit by this much because we're taking care of all the manufacturing. We'll take your profit, so it just is – was math at the end of the day at how much we are worth. Building relationships in the industry, even if they are your competitors, is actually a good thing, and I didn't realize that in my younger years. [00:34:49] S0: Was that by design? You did mention, when you raised this round, you did start thinking about maybe at some point you want to exit. Did you think, okay, these are – this is one potential acquirer, or was that much later in the journey that they just came knocking and you were surprised by it?
00:34:49 · Pablo Srugo, Nazim Ahmed
[00:34:49] S0: Was that by design? You did mention, when you raised this round, you did start thinking about maybe at some point you want to exit. Did you think, okay, these are – this is one potential acquirer, or was that much later in the journey that they just came knocking and you were surprised by it? [00:35:02] S1: Yeah. I thought at the time that they were a potential acquirer, and they started rolling up several of the companies in our space. Then, the fact that they were owned by H.I.G Capital, they had several competitors that were not as well funded. I had something to offer, which is our volume, so they could drive their revenues. I really focused on the player that was owned by the large private equity firm because I – and were doing rollups and acquisitions. I said let's align myself with this group because eventually this could end up turning into something more. I made that relationship about a year before pushing all the volume over to them, and that conversation, the CEO at the time gave me something to focus on. He said, “If you have a company growing 20% top line in our space and then leaving 20% net profit after everything, then you've got something special.” I actually focused all of our metrics to get those two goals, and then part of that process was outsourcing our manufacturing, increasing our gross margin to keep getting to those metrics. Then it was obvious that I was going to call Andrew and the guys at Circle Graphics to be our partner.
00:36:18 · Pablo Srugo
[00:36:18] S0: What did that feel like? First of all, just negotiating the price, getting to something super interesting, $30 million all cash for a company that wasn't fully bootstrapped but you still owned a serious amount – it's not like you own 5%. Then getting that across the line and getting the wire coming in, walk me through all that. I mean, that just must be such a – stressful but then, ultimately, magical moment.