Episode 75: The Family Side of A Startup Acquisition: Part 1

Rob and Sherry talk about acquisition of Rob's company Drip, being acquired by LeadPages, and the struggles they had to face during the process of the acquisition.  Rob shares insights of the negotiation timeline and how it personally affected him, the stresses he had to deal with, and how it therefore affected the family. Sherry gives her side of the story and what she did to prepare for a possible move while not being able to make the news public.

Episode Transcript

Sherry : Alright, where do you want to start this story? Well, we should start with the ending. I'm sure most of our listeners know that you have just recently sold your company Drip to Lead Pages in Minneapolis. So, that's the end of the story. Rob : They, they acquired the whole team: us, the technology. It's exciting. There's so much to talk about, but I think the summary is that it was a long process and parts of it were quite hard, but now that we're here, it is super exciting. And there's cool stuff going on already, even the past to weeks since we finalized the deal. Sherry : My memory of the beginning of the story was in around 2013, which was shortly after you and Derrick completed building and launching Drip. Is that right? Is my timing right? Rob : Yep. Sherry : We were on a road trip and we were having just sort of these big dreaming conversations, like "We should live in Europe for a year and we should do this. And why don't we do that? And blah blah blah." And I asked, "Would you ever sell Drip?" And you had some financial goals. You were like, "I either want to make X amount a year with Drip, or I'd like to sell the company for X million dollars." And I wrote that down in 2013 because that's the kind of thing I do. So I have a simple note document with kind of a list of all of these random things, but one of the things that was listed there was sell Drip or another company for X million dollars or make a certain amount of money each year. And that number is the number that you sold Drip for. Which, I sort of love that piece of the story. Oh, and the other piece of it was that these goals were to be accomplished by 2020. So, by 2020, live in Europe for a year, maybe sell the company, make a certain amount of money with the company, et cetera, et cetera Rob : Yeah, and we had had conversations like that before. And I think that I probably had even mentioned, even before Drip was Drip and it was kind of like "my next company," you know, whatever the next thing is that I do. That's the thing, some people will say, "I would never sell my company" or "I would never raise funding" or "I would never do this, or I would never do that." And I don't like that dogmatic way of thinking, so I tend to ask myself, "Boy, I really am not going into this with the goal of selling, or with the goal of raising funding. Right, I'm not setting out to do it. But we all have a price, or we all have a point at which it makes more sense to do it than to not. And phrasing the question as "Under what circumstances would you or should you do this? Under what circumstances would you be foolish not to?" Framing it like that, and that's where were headed with that. Sherry : So, that wasn't the beginning of the selling process. But at least it was in my memory as your wife, like the earliest beginning of the story. Where the number was kinda identified and your sense of "Hey, maybe this is a potential exit strategy. Either I'm going to grow it really big, and successful and awesome, or there might be a scenario in which I would sell it." Rob : Right. And to be honest, we did that, you put it in some simple note doc, and then I completely forgot about it. And I didn't refer back to it. I didn't look at it. I didn't think "Boy, every month, I gotta achieve one of these goals." I just kinda disappeared and I genuinely focused on growing the business. Sherry : It wasn't a goal so much as a thought that I jotted down on a road trip. Rob : Right. At some random moment of the conversation with Tom Petty playing in the background. Sherry : "American Girls," man. Rob : I think it's singular. Sherry : Okay. Fine. You are so irritating. Rob : That was awesome. I think "American Girls" is the collection of dolls. And "American Girl" is the Tom Petty song. We were not playing with dolls on the road trip, just to clarify. Sherry : Okay, let's get back to this story. So it was about a year ago that you had early conversations with LeadPages. Rob : Yeah. Clay Collins emailed me in June of 2015. The cool part is that he took a snapshot of that email and put it kind of the announcement blog post for LeadPages, which was neat. And I had remembered it being in, like July, but it turns out it was like early June. So that's about 13 months ago. Sherry : Yeah, and I remember you telling me about it and me being like "Huh, okay, kind of interesting. Would you consider that?" And you were like, "Hmm, I don't know." Not really that excited about it. Rob : Yeah, and my initial response- cause his initial question was kinda one sentence. It was like "Hey we really like Drip. Would you be interested in selling it?" And I had to think about it a lot. Like, "What do I reply here?" And I replied, if I recall, I mean I could search it up, but it was basically like, "You know, we're profitable. We're growing. It just doesn't really make sense. It would really need to make sense to move forward. I don't think it'll work ou-" You know, I was just like, genuinely had some trepidation about even broaching the subject, which, in retrospect, I probably should have just started having the conversation. But I kinda said, "Nah, I don't think so, and I think it's at the point where that makes sense." And we did wind up having some back and forth emails, but it really just lasted a couple weeks and then there was just, kind of radio silence. I mean, the conversation just trailed off, is really what happened. Sherry : There are many reasons to not sell Drip. One is that it's been growing. It's been doing well; it's been profitable. It's been sort of this happy little baby, and you don't want to mess with it. And I know that you also have so much invested in your customers. Many of your customers are your friends, they're people you've known over the years who've been people who listen to your podcasts and who've come to MicroConf. You know, who you have relationships with. So, I think at least my memory of the early conversation around the possibility of selling it was like "No. I want to maintain the ability to take care of your people. And to make sure that the quality of your service and the quality of what people are getting when they are working with Rob is really stellar. And you weren't really eager to sell your customers, essentially. Rob : Right. That wasn't even discussed at this point from their side. And to put this into perspective. I was approached by many potential acquirers who had an interest in acquiring Drip, so this was something that was a reality and something I really had to think about. What are the deal breakers, right? It's like what are the things that I absolutely will not do if I were to even move forward with a conversation about this? And that was one of the big concerns was for the employees and the customers, because we didn't want people to lose their jobs, and didn't want the customers to get any type of anything other than what they're used to from me. From my apps, and my conference, and my book - the stuff that I put out, I have a reputation, a brand if you will. It just wouldn't be worth doing that simply to sell a company, to have people come out of it with a bad taste in their mouth. And so that was something that I figured out early out and I wrote it down in my notebook of like "Here are things that I absolutely wouldn't do." And one of them was sell it and have all the employees get fired, or sell it and have the company get shut down. Luckily, that was very much in line with what LeadPages wanted to do. They wanted to keep it and keep all the employees. They wanted the team to run the company and they wanted to continue growing. That meaning that we're going to keep building it and investing in it. And that's kind of right in line with the vision of what I wanted to do. Sherry : I think it's helpful that you had thought about it, even as a remote possibility. So you even jotted down some things in your notebook. And I think especially after this initial conversation with Clay a year ago, to think about "Okay, what would I want it to look like, if this were to ever happy." And so, as the process has moved forward and unfolded over the course of this year, you've had some clarity about pretty important points that you kind of went into the process knowing they were non-negotiable for you, which I think was helpful. I think that eliminated a lot of having to rethink and rehash and try to make decisions when some of those decisions your mind were already made. Rob : Yeah, that's right. And it made it easy in like really early conversations to say "Hey"- cause at the early stages, you're just exploring, right? It's like the guy on the other side of the table says, "So, you know, kinda here's what I'm thinking. What do you think? How do you want this to look?" And that was it. I mean, it really was just, Clay came down for coffee, literally, down to Fresno, and we sat at a coffee shop and it was a very causal conversation. There wasn't negotiation. I mean, this was pre- talking about price or anything. It's just like, "Do our visions fit? Because if they don't, then we really shouldn't even proceed." And just having sat and thought about what are the deal breakers, what are things we're really excited about, what are the positives of this? There's the ability to have more resources, and grow faster. There's a lot of elements of it. And having that in mind, I was able to communicate that in just a conversational manner right up front. By the time that ended, I knew, "Boy this thing really could have legs. If we can agree on terms, this is actually better for my whole team, including me, and it's better for our customers in the long run. I truly believe that, and I wouldn't have gone forward with it had I not. Sherry : Alright, so let's move forward a little bit in the timeline. From my memory, you're next significant conversation with Clay from LeadPages was after you guys launched Workflows. Was that January? January, February? Rob : Yeah, although, there was some conversation in, I think it was November ... September, November ... where we kind of went back and forth. And it was more- there was someone else on his team who I was talking to, and we were kinda just having conversations and continuing to feel things out. I think we did start talking a number at that point and other terms. Because, you do have to get down to the nitty-gritty at some point, right? And start talking about things. Then around the holidays, I think things kind of faded, and I think we hit an impasse on a certain point and just kinda, again, the conversation faded. And late January we launched Workflow. It was a really, really cool step for Drip. It made it on par with the best marketing automation tools out there. And it kicked our growth into even higher gear, and so there was more momentum, and a lot of people talking about us. We then started revising that conversation in, I think it was late January or early February. Sherry : But this became much more intense this Spring. Late March, April, moving into May. Rob : Yeah, I mean, pretty much for my memory is February it starting ramping up to where it was taking up more of my mental cycles thinking about it. And them March was even more. I was trying to keep it to where it wasn't impacting the day to day for me, of like running the business or even just kind of operating, because you don't want it burning all your spare cycles. I was able to do that until probably late March or April to where it did become pretty much all encompassing. And it was kind of all I thought about, and all these deal points and discussions and such. Sherry : I may remember us having a conversation where I said to you, "This is your job right now. If you're in the midst of considering this kind acquisition. This is the core of what your job is." That was an important shift for you to realize, like, "Okay, I'm not running the company this week, I am working through the possibilities of this acquisition." Rob : Right. And I had a hard time with that because obviously I want to continue pushing things forward. I'm lucky that my team is so autonomous and they're really good. I continued to meet with them and get stuff down, but definitely there were weeks here and there where I was pretty sucked into the vortex of thinking about this stuff. Sherry : So, for my understanding as somebody who has been on the sidelines- I'm not obviously involved in the business, or the decisions in any kind of primary way, but to watch you go through this process, it seems like there was this first level of negotiation that was about coming to a set of terms that was reasonable and agreeable to both of you. And then once these terms were agreed to, there was this whole process of finalizing the finer points and ironing out the details of the deal. So it felt like there were two rounds of negotiation. Rob : Yeah, I mean, I would even say there were three rounds. You know, the first round was maybe not even negotiation. It was like the first six months of conversation where it's really just exploratory and you're trying to figure out if this is a fit from both sides. You're really not even talking about too many specifics yet, and it's more causal. Then, you're right, once you start talking about deal specifics ... and price is only one aspect. I mean, there's all other types of things, like "What happens with the team?" And "Do people have to move?" And "How long do you stay on for?" And ... I'm trying to think of what else... payment terms, because almost all acquisition, they're not just some big lump some paid up front. They tend to be paid over a certain amount of time. Or are there milestones involved where you have to hit the revenue or engineering stuff after. You know, there's on and on and on, and each of things, you want to get as much of this decided up front as you can. And that's that first round you're talking about, where it's the big, hard choices. You're committing to some big things. The standard procedure is you put that all into what you call a letter of intent (or an LOI), and that is a non-binding contract, in essence, which sounds kind of funny. But it's kinda like you both sign on the dotted line and that says, "Hey, we're going to start due diligence. Due diligence is where it gets pretty painful. Due diligence typically ranges, for like a company acquisition, I'd say between 45 and 90 days or 100 days. And it is where they dig into all the financials and all the stuff in the business. They try to verify everything you've told them. And that's where- you already have the high-level terms, but now you're getting into really nitty-gritty stuff. You get lawyers involved at that point, and all the contracts start getting written up. That's kind of the second round of- there is definitely still negotiation going on, because you're just trying to figure out, if they're a non-compete, as an example, "What's the definition of the business you can't compete with? How do we define that in a couple sentences?" That kind of stuff.

So those were the two rounds. Like I say, due diligence takes a couple months, typically. The part before that just to get to the letter of intent and start due diligence can definitely take months. I've heard it taking five-six months, in some cases.

Sherry : So one of the big discussion points early in the process, before due diligence began, was whether us moving was going to be on the table as a possibility and something that would be negotiable. From the beginning, you were a "no" on that. That was something that you didn't want to have to do and you, no paper, weren't that interested in moving to Minneapolis, but was something I was sort of interested in and excited about in a sort of theoretical level at least. It ended up actually being very, very difficult and hard for me to close my practice and make that transition. But that was something that shifted early on and I think that made a big difference in the grander scheme of the negotiation and the decision making is that once you indicated that it might be possible or you might be willing to consider relocating. I think that was really important to LeadPages, and it sounds like that was something that really solidified that this is a deal that could really be a partnership or something where the two companies can work together and mesh well.

Rob : Yeah, if you think about it, there's a lot of value to having me and any members of the team who want to move, having them at the same location, basically, cause LeadPages is in Minneapolis. I truly believe the deal could have been done either way; it could have been done without me moving, but the more I thought about it, and the more we all talked about it, it makes a lot of sense. I mean, if I was acquiring a team, I would want some leadership with me as well. Whether you think about it as transitioning stuff, of whether you think about it as just not trying to do everything remote, I think there's some value.

Funny, you and I look at things different ways. I tend to think things are going to go wrong and things are going to be harder than they will be. You tend to think things will be easier than they will be. That's how the move was. The whole concept of the move, I thought "Oh my Gosh. Like, moving. What a disaster, right? Sell the house. We gotta move states. We gotta find schools for the kids. We gotta find all this stuff that we've already. We have mechanics, we have doctors, and just all the time involved in that. And you have to shut a practice down, which is going to be a big deal." And I just see all the details floating out and it was just painful for me to think about. And you were like, "No, it'll be a fun adventure. Let's do it." To be honest, if you hadn't said that, I don't see that that would have even been on the table, because it's not something that I really wanted to do. Sherry : Let's put the moving conversation on hold for a second. I feel like I want to talk a little bit more about the negotiation phase. This was a really challenging part of this for me, is ... rightfully so, negotiation is really difficult, and you needing to be on guard, and on your game all the time, and weighing every word, and considering all of these points of negotiation, and really being so diligent and careful, and trying not to give up any ground. I know that that level of focus is very difficult, and it also requires you to not be the super, nice, generous guy that you normally are. And even though you are a super nice generous guy in our family and our personal life, and with our friends, that was not the Rob that was required to sort of handle this process for the business. And that was hard because I saw this side of you that I just don't like very much. And he was around for several months. And I heard you - mean Rob, cutthroat Rob. Rob : It went against so much of what I am, and yet, in retrospect, I believe it was the right choice. Sherry : Oh, no question. I do too. Rob : I'm very happy with what came out of that, but it was very challenging. Sherry : I think you did such a good job, it just sort of sucked. Rob : It's just, if you've ever been in this situation where what is required of you is pretty much the opposite of what you want to do. In fact, when I took the strengths finder test years ago, my strengths were like learning, maximizing, and harmony. And harmony means I like to find agreement and it means I'm really good at compromise. I'm really good at finding harmony between two people that are disagreeing, whether it's me and someone else, or two other people. That means that I don't tend to love being in discord with people. I don't enjoy telling people "no" and telling people "I can't do this" or "this doesn't make sense," and then having to defend that. It really puts me on edge even, again, when it's the right thing to do. I think it comes naturally to some people and not as much to others. Sherry : Yeah. And again, I fully appreciate that it was the right thing to do. I think you did so well by yourself, and by your team, and for your customers. So, this is how it has to be in these kinds of negotiations. But I think that's the toll that it took on us, on your family is the grumpiness and the anxiety, and your having to work really hard to switch back to your normal self when you got home in the evening. I think it's worth maybe talking a little about, the amount of anxiety you carried for months around this. I remember you not sleeping well and not focusing well, being really edgy and irritable, kind of about small things, which I know, a professional, as a very common sign of somebody who's anxious and who's carrying a lot of stress. Rob : Yeah, it was the most stressful thing I can remember doing in my life for that long of a period. I don't know that I have a good sense of how long the peak- I mean, there was a point where I remember I was like, "Boy, I'm at peak stress. This is it. If one more thing happens, I'm gonna lose it." And keep in mind, at this time, we were smack in the middle of escrow. We'd had our house on the market for seven months because we were going to move across town within Fresno. So, the timing was decent. We were smack within escrow, and that was going really poorly; we'd only had one offer, so we really wanted to sell the house. We were running into all that trouble with the septic tank that we talked about a couple weeks ago, where it was going to be $40,000 to fix. So, I'm out there digging holes with the water wand. I mean, all this was going on at that same time. What else going on? There was- Sherry : Well, I went to Guatemala in the middle of this. Rob : Oh, that's right! Sherry : And all I remember thinking is "I'm so glad to get on that plane to get away from you." Rob : You left for 10 days, yup. So, then I was driving the kids all over town to all their stuff and trying to keep the house sold. OH, and scheduling movers and packers because we're going to move out whether the deal went through, because we were going to move to the other side of town. So, it's like put a move, plus selling a house, and that escrow is not going well because of all the stuff you have to replace, plus negotiating the sale of a company - the potential sale of your company- and for a time there, taking care of the kids. There was a lot going on there, and I remember thinking , "Boy, I can't do any more things. Something has to give here." As things started to wrap themselves up, I remember there being kind of a big weight lifted each time. Sherry : So when I left for Guatemala, it was still unknown. The letter of intent wasn't signed yet. The deal wasn't really solidified, and that happened while I was gone. So, I arrived back from Guatemala, and four days later got on plane and flew to Minneapolis and immediately starting setting up life there: looked at a bunch of houses, rented a house, researched schools, visited schools. Sort of did all of the initial research of what's this potentially going to look like. I started to get really excited about Minneapolis, and excited about all of the theater, and the outdoor space and the activities, and the quality of the schools and the neighborhood we're living in, and the lake that's a block away, and our friends that live there, and cool restaurants. You know, I just got really excited about it, but then had to go another several months not knowing whether that was indeed going to be the next step for us. So the length of time of unknown- I came back from Guatemala, rented a house in Minneapolis, came back from Minneapolis, began telling my colleagues and patients, "Hey, it looks like I may be resigning in a month or two," so that they have ample time to plan for what needs to happen. But yet, none of this really being finalized, and none of it being public. So, upending our lives and trying to make plans without knowing for sure if it's going to happen and without really being able to talk about the details of why and what I'm doing and where I'm going. Rob : That was one of the hard parts. I'd say one of the- I mean, there were a lot of hard parts, but one of the harder parts was that we couldn't tell people. They certainly don't want the news to get out to spread to customers and even employees. I mean, I hadn't told employees, because this type of stuff, at any time, could just not go through. None of this is a sure thing, so you don't want to start talking about something like this. That was a challenge; we're making all these changes and making decisions, and trying to set stuff up, but we couldn't talk to our friends about it. And, frankly, we couldn't talk about it on this podcast, or podcasts, and so we'd sit down to try to think, "Alright, what are we going to talk about this week?" And it's like this is what's going on. This is consuming our lives, and yet we can't discuss that on the podcast. We have to now find something else that's not nearly as important, and talk about it. That was how it was with some of our friends as well, which was kind of a bummer. Sherry : And at one point you just cracked with friends who our kids go to school with. You all were talking about plans for school for next year and all the great things that are happening an you reached this point where you said, "Our kid's probably not going to be at this school next year." And didn't talk about the details, but sort of dropped this bomb on them of "Oh, we might not even be in this state." Rob : Yep, and they were like, "Why, why?" Sherry : So I think because we are people who have tried to be really connected, and I have lots of professional connections and friend connections, and so not being able to really let everyone in on this was kind of hard. It made it kind of a lonely process and I think it maybe made it a little more stressful between you and I because it was sort of all we were talking about together. We couldn't really talk to very many other people. So it was nice when you were finally able to talk with Derrick more openly and finally able to include your coworkers and then at least you had some other people to talk to. Rob : Yeah, that was good. Derrick was on board the whole time. He and I were talking about it. But it was letting the employees in on it that started making things feel a little better. But we didn't do that until close to the end because I wanted it to be much more of a sure thing. I think another part of this that I remember being a turn that made it a little harder was, once we went to Minneapolis, you were really excited about it. And you kinda can't let that become part of the negotiations. If you really want something and you're not willing to walk away, then suddenly you're on the weaker foot, so I had to separate your excitement from the realities of the conversation. Sherry : Yeah, which is a bummer because I think one of the things that's important about making move like this is being excited together. And I think this sort of new direction for our family and putting all the pieces in place, that's something, for me, sort of fun or has some pleasure when we're a team and working on it together. And that's happened more recently now that things are public and solidified. I felt like I had the sole responsibility of setting up our new life and you might pull the plug at any time. Rob : Yeah, that was a bummer. I mean, it really was a bummer. And it wasn't me pulling the plug was the problem. It's like- Sherry : I know! But that's how it felt! Rob : And, I mean, since everything moved forward, it feels so much better because now we collectively can be excited about it. That's been the funnest part for me is once it close, or once they knew- it was about a week or two before it closed where I was like, "This things gonna go through. We're just all on the same page, and we're just all trying to make it work now." And even though there were still some points we were discussing, it was just in my head, I was like, "This is gonna happen." At that point, then, I think I really started changing my conversation. When you and I would talk about it, I stopped using "if" and started using "when" in terms of the move and all that stuff. You know, when you say you rented a house in Minneapolis, you had signed a lease for August. You were looking ahead and noticed that leases were getting signed and the good houses were being taken off the market, and so if this didn't happen, we were going to have to break a lease, in essence. I'm glad you did that. Sherry : Yeah, I'm excited about our new little house. Rob : This episode was so epic and we got into such an in depth conversation that we've broken it up into two parts. And so this is the conclusion of Part One and we hope you'll join us next week for Part Two.