A Product Market Fit Show | Startup Podcast for Founders
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.
00:36:41 · Nazim Ahmed
[00:36:41] S1: Oh man, Pablo, we're talking at that time 17 years, and then, during the entire time, we sold over $100 million worth of art over the course of all those years, right? We built something great, but it was a long haul. It was a long haul. You can never sell something on the way down. The only time you're going to get an offer for anything is it – it's when things are flying up into the right. When I was on my deathbed after PopKey, I actually tried to – I started looking for acquirers when growth was flat, and I was getting one to $2 million offers for the whole effing business. I'm sitting there like, wow, after all those years. Then I just cover the debt, and then I got another million to distribute. This is brutal. When you take that off the table and you start cleaning up the thing that you have and then we started turning the business around, by 2021, it was flying, high margin, super profitable, all this innovation coming out, new products, growth is going up direction. Then that's the time where you either got to raise money and keep going the next level, or you have options, optionality. I remember speaking to the CEO of our manufacturing company, Circle Graphics, and we just used to jam every few months. I told him, “Hey, we have this innovation team internally. We came up with some really interesting technology, and I think I can have some really interesting products using this tech. I'm thinking of maybe doubling down on that part of the business and creating some new purely digital products.” Then he said, “Well, you could just focus on that and sell CanvasPop.” I didn't even know that was – it wasn't even part of the conversation. As soon as he said that, I was like, huh, interesting. It's like, well, let's explore that. It was very natural and organic, and by that time, we were friendly, right? Then we did a mutual NDA. Then we started sharing some financials. One part is they knew what the volume was or growth volume on their end, but they didn't know what our financials were because we could be blowing all the money on marketing and being very unprofitable. When they looked at the financials at first glance, they were like, okay, these are looking very, very good because we focused on innovation. It wasn't a race to the bottom. We are highly profitable.
00:39:11 · Nazim Ahmed, Pablo Srugo
They had all the metrics of all these other companies out there, so they knew that they found a diamond the way we were building products. Then it went from there, and they put in some initial numbers together. Then they went through that first term sheet, but then you got to go through due diligence. That due diligence was we tried to get it done in six weeks, but it ended up taking two months. It was actually a really positive experience. At that point, everything was so clean and so perfect that we blew through the process. Now, that last call, when all the lawyers are on the call and then they all approve the acquisition, it's just really interesting process, and it was during COVID. I never shook hands with Andrew. I never went down, and he said, “This is a – one of the unique times.” I'm doing this all through Zoom, and then he had a few words to say. Then I had a few words to say, and at that moment, you hang up. Then the money all gets wired to everyone. [00:40:14] S0: Incredible.