Photo by Edi Kurniawan on Unsplash
Jay Richards had sold t-shirts and houses but had never built a serious business until he created Imagen, a market research firm. Seven years after founding the business, he decided it was time to sell and was five months into a deal before it fell apart. Then he had to figure out what to do next.
Imagen
Jay built a firm that could deliver qualitative responses for brands and companies. If they had created a TV show, for example, they could provide all the episodes in advance, and Jay’s community would offer feedback on what they liked about the plotlines and specific characters, and what might do well in show promotions.
Jay had built a community of 35,000 by paying participants every time they responded, and paying them more the longer they stayed in the community. He built that community early on by incentivizing referrals.
Note: while Jay did end up selling the business, one thing he wishes he had done differently was not insisting on owning only the qualitative research space. A lot of brands wanted quantitative and qualitative, which locked Jay out of some projects, as he had not really built the audience to deliver quantitative feedback.
Building and Scaling
Jay was so excited about Imagen’s early success that he gave out some unvested equity to a few employees. When an early investor came on and asked, “Who are these people?” he got a bit of a reality check. The investor also helped Jay see how much bigger the company could be than what Jay’s current vision was. That investor put in $300,000 for 15% of the company and provided strategic guidance to take the company to the next level.
However, it seemed as though brands were cutting down their budgets for this sort of research, and seven years into the journey, Jay and his cofounder thought it might be time to sell.
First Buyer
Another competitor in the space started asking Jay if he was open to selling, and he said he was. He got five months into the deal before he realized that the acquiring firm had more debt than had originally been intimated. Jay figured that this acquisition was more like a last-ditch effort to help the company succeed, and if it failed, his firm could be gone. He didn’t want to take that risk, not only for the earnout risk, but because he didn’t want to see something he had spent years building disappear.
He went back to the drawing board, asking himself where he saw himself over the next 6-12 months. He had a conversation with his co-founder. Both felt they could continue to grow the company incrementally, but were still inclined to exit if another option came along.
Disrupt
Someone at Disrupt, an influencer marketing company, reached out to Jay to have a meeting. Jay thought it would be a discussion about speaking and/or collaborating at conferences. It turned out to be a pitch for acquisition. Disrupt saw the data that Imagen had as a great fit for what they were doing: use the intelligence of the community to preview what influencers could do for brands and companies and tweak those campaigns for maximum effectiveness.
While Jay tried to play it cool, he really did want to sell, and in that first meeting, the executive threw out a 6X EBITDA multiple, which was in line with what companies in his space went for. He got half up front and half in the earnout, which he achieved in his new role for the combined company, where he was put out as the face of the brand, sharing success stories about what the company was doing.
FAQ
Three questions Jay’s story might prompt:
- How did Jay cope with the first deal falling through? Honestly, Jay was checked out. He had made holiday plans and was already mentally elsewhere. He had to snap back to reality (“yelled into a pillow a few times,” he said) and just get back to work. You cannot allow a major setback in the process of selling your business to derail you.
- Why did Jay give equity so early, and not even vest it? Jay admitted he really didn’t know what he was doing and was just so excited that he had a growing business that he wanted to “take everyone on the rocket ship.” Thankfully, an investor helped him become more mature in his decision-making.
- Did Jay make a mistake by niching too narrowly? Even though we agree with the general principle that it’s smart to own a niche, Jay had focused too narrowly, which made it more difficult for his company to grow and develop additional services to offer clients. Make sure you pursue a niche and also develop options that let you pivot when the market shifts.
Are you a first-time seller that could use helpful advice as you exit? That’s what we do.