Selling Your Agency? Why Most Founders Get Burned on the Earnout (Lessons From a Billion-Dollar Exit)

Jordan Ross (0:00)

Welcome to How to Build an 8 Figure ABC. My name is Jordan Ross, and I'm your host. And over the course of this journey, we're going to be interviewing 8 Figure Agency owners and going through the systems that I've seen work and we've implemented into our clients' businesses that have helped our clients add a half a billion dollars in annual recurring revenue over the last handful of years. I myself have already hit the 8 Figures in annual recurring revenue, and when I got there, I wasn't happy. I was stressed, I was dissatisfied, I didn't like the people I was working with. So I clicked the restart button and went from 12 million in annual portfolio revenue back down to the mid 7 figure level to a climb back again. And on this journey, I'm going to be documenting my process on how I'm getting back to 8 Figures and bringing you expert industry leaders who will tell you everything they did to get there as well. Thanks for tuning in and enjoy the episode. I got to sit down with a billion dollar ad agency owner last week at my live event, 8 Figure Exit Live. John Bond, this guy built and sold a billion dollar ad agency. And this guy was insane, like truly fucking awesome. And I want to give you the top three insights I got not only from his keynote, but we also had an excellent speaker, John Augenblick, on M&A. And entire theme was M&A, like how do you build your business to sell? And the biggest insight before I even get to what the billion dollar ad agency owner told me was, everyone, literally everyone gets. This was crazy.

So we had a bunch of people come to the event. We had like about 100 agency owners, all the speakers, 8 figures to this billion dollar ad agency owner. And I think about a third of the room has already built and sold an agency. So we had probably over a couple of billion dollars in transactions, because one guy had represented a bunch of people who have sold. And the expression that John Augenblick used was NNA is a combat sport, which I knew, like the data that I had going into the event was about 80% of founders don't get their full exit. What I didn't know is that everyone, especially in the agency's base, is getting destroyed, like truly fucked. So like, you want to listen to this part of the dialogue if you ever want to sell. And you definitely want to meet John because he offers free consultations. And actually he works for free, complimentary work on MNA strategy. But what John was telling me was, MNA is a combat sport. So if you hit the tier of $2 million in EBITDA, you're going to sell to a legitimate buyer. A legitimate buyer, you know, they'll give you five, eight mil maybe up front or even 10 mil depending on your multiple. They're going to pay a lot up front because you've earned it. That's what your business is worth. But they are going to absolutely work you to the fucking bone until you want to give up, which is really sucks. So the enterprise buyers, the holding companies, the PE firms, the guys who are doing roll ups, the ones that are serious or maybe you're one of the first five acquisitions that this company is doing, they are going to have professional M&A attorneys, professional M&A team. And their objective is to get the best price. And the best price means that they need to work the living fuck out of you. And a lot of that means they want to put a lot of contingencies on an earn out. And the way that they are strategic and the way they do this is they will structure the earn out in a way that you could get. And the language that these speakers were talking about, how they structure these deals, it's really crafty. And in the room, we had about 30 something people that have sold their agency. Most people have gotten fucked. I was getting told stories on the side of how they got screwed over, how this guy got screwed over, how this guy didn't know what was going on. So he got taken for a drive. I had one guy pulled me over and said, I will literally never sell my business ever again. I sold for 4 million and got 1 million.

And it wasn't even his fault, but because of the way the legal structuring of the document, when they sold, he couldn't do shit about it. And one of the attorneys, we had an M&A attorney in the room, this shit's crazy, who was saying, if this happens to you, an M&A attorney is probably not going to tell you to pursue lawsuit because what he was saying was, if we pursue lawsuit, it's gonna cost you a million dollars and you might not even get anything. Jeff Bezos didn't build Amazon by being the smartest guy in the room. He built it by building systems. In his own words, good intentions don't work, mechanisms do. And that's the whole game. Most angelans are stuck at 7 figures because they're running their business on poor, ineffective or non-existent systems. There's no repeatable way to analyze data, to root cause constraints, to build the correct strategic plans, to source hire onboard training, retain, develop, manage talent and clients. Everything is dependent on the founder showing up every single day and willing their business to success. If you want to hit 8 figures in annual revenue, you need my 13 systems.