I Sold 45% Of My Company To Patrick Coddou. Here Are All The Details. transcript

Patrick Kadoo is my business partner at AJF Growth. At least that's what I've been telling people for a while and it's not true. At least it's not officially true yet. It won't be true until the first of the year at 12:01 a.m. Assuming everything goes according to plan when Patrick and I officially finalize the paperwork for him to become the business partner, uh, my COO, he already is the COO, but my my actual true business partner at AJF Growth as we build an agency together.

And so today on the show, Patrick is back for his monthly visit to the podcast to talk about exactly how we built the structure of this partnership. We think that this is one of those things that will be helpful to a lot of people building businesses because there's all kinds of considerations when somebody's getting getting equity in your business. How much should you give them? How much like should they have versus how much you have and how does that affect the control of the business going forward?

Who makes decisions and how much should it cost and all of that stuff. We're going to get into all of it with as much specificity as we possibly can in this episode. So, let's get into it right now with Patrick Kadoo, my soon to be business partner. >> Hi, Patrick. >> Howdy. [laughter] >> We got to get you with a cowboy hat on these. I think that's probably probably >> I'll just bring you next time. >> I'll go I'll go I guess being in Torrance, I'll just go like I guess surf surf clothes.

Is that And the Beach Boys are from here. So, I guess that would be like the stereotypical thing. >> Yeah, cuz you're a big surfer and everything. >> Yeah, I know. [laughter] my Dodger hats as far as it's going to get. >> Um, yeah, I've surfed four times in my life. So, yeah. Um, I'd like to get into surfing though. That's probably We'll do that for another episode. Um, okay. So, you are uh you're you're already a COO.

You But you're joining the business for real. >> Welcome. >> For real. For real. Yeah. Currently, I'm a I'm actually a contractor. I'm not even an employee. [laughter] Let's tell the people really what's going on. >> Yeah. Yeah. It's true. Okay. When did we start talking about this? A year ago, >> like, >> oh gosh. I mean, we've been talking since I sold supply. You know, how are we going to work together? And by talking, just kind of shooting text messages at each other.

Um, >> but, you know, probably early this year, we started getting serious about getting interested in the idea of like, what if I joined AJF? Because previously, we had talked about like we should start a brand together. And we had never really until this year talked about Patrick joining AJF. Probably because I had no interest in anything agency related. And you probably at the time didn't have interest in bringing on a partner or growing AJF.

You you started to get interested in growing AJF when early this year maybe. >> Yeah. Something like that. I I think part of the calculation for me, this actually is a good leadup to the conversation here. Part of that calculation for me was that like I couldn't grow AJF seriously, you know, and it's reflected in the name like like the idea was that it was like an extension of my freelancing where I was really hands-on with the work and those kinds of things, but like I just didn't see a pathway.

I I'm I'm too aware of my operational weaknesses to think that I could like go do this. I don't even remember how we just started to think like well what if you just came into this as part of it and joined up. And so let's talk about the discovery process. So here's where the I mean so where we're trying to get to here is sort of like the actual equity split and some of that which we can talk about in a minute. But in coming into AF Growth like what did you think about your role was going to need to be for it to make sense for you >> and what were your concerns about that? >> So in the spring we started talking about let's just kind of figure out let's just start working together and see what happens.

And I remember our very first convers not our very first but our our initial like strong conversations were around what are you even good at Patrick because I was wondering myself like what am I good at in this next phase of my life? What am I passionate about? What do I want to do? You know what are you going to bring to the table? And I remember we were the way we originally started talking about it was like being in in the like creative side of the business more as like I don't know not a CMO but like a creative you know guy and because that's what I did a lot of at supply like I I basically wrote and filmed most of our ads you know that I was really in the weeds so we thought that maybe we would bring me in there but the more we thought about it and then we started to experiment in April you April was when I started to build kind of the first very initial iterations of Prometheus, which is our AI co-riting tool that we did a podcast on about a month ago.

Go listen to it. It's great. When I started to work on that, I started to realize, oh, this is really fun for me. And I'm far more interested in the operations of the business and the tooling of the business than I am like getting in the weeds on creative. But it ended up being actually a perfect fit because I bring the knowledge of direct response advertising and making creative which is what >> absolutely >> the the large amount of our operations is.

When I say that, I mean our our team is significantly more creative operations than it is growth marketing, right? We have one growth strategist that just does amazing work and I don't really have to have much oversight over him from an operations perspective, but all of the work I do touches the creative side of the business >> and much more of my oversight is actually with that work where it's like, okay, >> ecom strategy.

So if I if I sort of play the other side of that my actual skill set like I think >> I have some very strong opinions about what direct response ads what makes direct response ads work at the level of strategy and like words and writing and then like sort of media buying is another area where that's the case and then to some degree I have strong opinions on forecasting but although >> that is a little bit more of just sort of like a a downstream of you know anyway there's I do have strong opinions about that but there that's the kind of areas of it.

So, it's like ecom growth strategy with some financial thoughtfulness mixed with the media buying mixed with like ideas about creative and that's it's all very living in the idea and concept world. And so suddenly there's this picture where it's like >> wait a minute we're two sides of the same coin. And this gets to something that I think is important in this conversation for me which is like this notion of sort of real overlap in a lot of things in terms of values and vision for what we want for the company which I think we could talk about more but also like real differences in what we're good at.

And I remember Taylor Holidayiday made some joke to me at one point and he's going to come up a few times in this conversation. I'm sure Taylor has been a super big help to both of us in sort of sorting out how to think about an equity split in the business. But, you know, he said like you and Patrick are cosplaying like as if you guys have these different skill sets or whatever, you know, and he was just totally wrong about that.

Like we actually do have extremely different skill sets, I think. Yeah. Uh with just with just general competence overlap about how these things end up getting directed and all that, but like in terms of where we want to go spend our time, we end up doing really really different things. So anyway, so that was the conver kind of conversation point and on my side I would say I was concerned in the initial stage that like you were going to come into this and it was going to be like so like one of them is like we're friends and so I didn't want to like >> break break that. >> I think that's always a concern with a lot of with equity partnerships.

So we had to factor in like is this like a threat to that in some way. >> Easily my biggest concern. >> Yep. And then you have already exited built and exited an e-commerce company. Yeah. So the question also is like are you sure you really want to to have ownership and executive level involvement in this thing? On the one hand probably it's not interesting to you to be an employee somewhere in classic sense but on the other hand >> you know and I'll let you speak to us however much you want.

It's not clear to me also that you are like I must turn this into a bajillion dollar outcome. You know like that's not like >> you know you've you're already comfortable you've built like again you were on record on my podcast saying this that you didn't necessarily need to work in the future >> financially because your supply exit was really good and all that stuff. You know let's just tell everybody you didn't make $50 million from that exit.

It wasn't that. But it was still enough to like to to do that. So I I think like that was like a consideration for me is like are you I haven't had that. Are you sure you really want to participate at the level of that and do I want somebody who isn't necessarily going to have the same level of motivation for an exit? So anyway, let me pause there and see what you think about that. >> Yeah, I think one of the or maybe the biggest fear for me was assuming accountability and responsibility that I didn't have to assume, right? like I don't have to go buy a big piece of this business and try to grow it alongside of you.

And I I don't I don't like and when I say have to just like financially like it's it's not like I'm I'm required to come in and log on every day to to feed my family. And so why why it's funny um when I I guess we'll bring up again Taylor multiple times. When I when I kind of announced on Twitter X that I was doing this, you know, he said, "Congratulations. you've traded complete freedom for being at the whims and mercies of all of your clients constantly all the time.

Some something along that lines. And I was like, you're right. Why on why on earth would I do that? And I I think the you really helped me come to a good a really helpful and meaningful conclusion here, which is that you can probably say it better than me, but I'll kind of tee it up, but like that assuming accountability and responsibility for things makes us better humans. And it provides kind of a I'm here to grow as a person.

Like that's my need in my life now. I don't need more money. I need to continue to become the man that I want to become. >> And I was telling a friend that this literally this morning on a phone call. He said, "Tell me about your partner." And I said, "Well, that's the number one reason I'm in this business is because I get to work alongside Andrew and I become more like the man I want to be by interacting with him." And it's a simple concept, you know, it's a biblical concept.

As iron sharpens iron, so one man sharpens another. We sharpen each other in the work we do. And that sharpening process is painful sometimes. And it's not like all, you know, it's not like every day I wake up and I'm like, you know, rolling out of bed, popping open my laptop, you know, going, you know, I'm excited to hop into Notion and start cranking on some ad concepts. That's not the thing that motivates me. Although I do enjoy that a lot.

What motivates me is the realization that if I'm not sharpening myself in some way, then you know it's it's we always talk about businesses either you're growing or you're dying. The same is true of ourselves as humans. And that that's the thing that got me over this like, oh, I don't want to commit. I don't want to be responsible. I don't want to be accountable. It's still my fear. Like, you know, if I'm going, do I really want to sign that contract?

You know, it's like that's probably the fear. uh why would I sign up for for that sort of accountability? But that's overridden by everything else I just said. And maybe you can speak to it in in a little bit of a different way because you kind of helped form my thoughts on that. >> I'm just not aiming to not work and I don't disagree with anything you're saying partly because I've watched my friends like you not work and have a pretty bad time. um like you didn't like it that much it turned out and uh and it's it's because I I think that just like broadly this this was a cons a parallel consideration for me you know like a lot of my narrative was always like I don't want to grow this so I don't so I have a little more freedom so I can sort of like take on you know even the idea of I have 100% of the company right now I can do whatever I want with it so why would I take on the constraint of somebody owning part of the business >> that's the word you always used >> yeah yeah yeah and and why would I do that well it turns out that like it's maybe not actually best for me to own 100% of the business and to have all the freedom that I want.

Like >> what if I what if it's actually better for me? In fact, it produces more joy in my life, which is the thing I'm always after. I want to optimize for joy if I can actually have constraint in different ways that actually might produce more of that. And I always give these examples, but like marriage, parenting, yeah, fitness, all of these things are similar things. It's I this is rehashing some conversation I had with Olivia Corey.

You haven't even heard this yet, Patrick, but I just had her on the podcast a couple days ago. I don't know what what the order of the release is of this one versus that one. But we were talking about a lot of these same things. She was saying like if I didn't need to work again, I would still work because I like work and and just like I don't want to just float around and do nothing, you know? Um and and so then but there's like another layer of it for me, which is this thing of like maybe the thing I tell myself about like not wanting to grow the business is actually just my resistance to providing the most excellent work possible because I'm afraid of the accountability.

And that's actually not good for me. That's not being the kind of person I want to be. And so anyway, so then we have this shared vision and shared alignment here that we're describing. And I think I think what what that also reflects is like another big factor for me was like in in my view with equity, one of the ways I've seen equity go really badly and partnership go really badly, like really badly actually, is when partners have very different ideas of the outcomes they're trying to produce.

Um, and so like I watched I watched this happen. I've watched this happen in multiple places where people go, one partner is like, I really want, you know, this thing to be a hund00 million in uh in valuation, another partner is like, I want it to be 20 million and sell it and and you know, whatever. Or I want to cash flow it versus not, you know. Um and then also like lifestyle considerations like what if one partner's like, >> hey, this is my whole life.

I'm going to grind 80 hours a week, etc. This is what I'm doing. That's what it requires and that's fine. And then the other partner is like, I got small kids and I'm want to be at their games and I'm I'm 35 to 40 hours a week. Like if you have misalignment in those things and values in the business, what you care about for your employees, like you're it's going to show up and it's going to be a real problem. And so a core thing for me as I sense walked through like the sort of prefoundational stages here starting building the foundation of a potential partnership was like our Patrick and I really aligned on what we're trying to accomplish.

But as you talk it's like >> I want to be a certain kind of person and and like we do have I think very good alignment on >> we actually want to build something that is an an agency that resists chaos which is very hard to do. Taylor's joke like you're at the whims and mercies of your clients all the time and whatever and you're chaining all this freedom. Well, like maybe there's a way to curb that a little and to make it so that like we just, you know, maybe we don't grow as fast or as big, but like we also have a certain kind of lifestyle that we can maintain.

Like I don't really want to work more than 40 hours a week. You know, if I can help it, maybe even a little less. Like and then, you know, like what about exit potential? Actually, like you you like I probably still do need to work, but like I make plenty of money. I don't really care if we have an exit in terms of like it's okay. I'm okay, you know? So, in terms of in terms of like having a a a crazy life-changing moment, that's what I don't care about.

Now, we've set a goal around like a potential exit timeline or like building the business for that or whatever. And it turns out like again, you and I like had a very easy time coming to a shared vision of how big we wanted to get, how fast within the constraints of the work hours we wanted to keep, and what we would want to exit for and all that. And it was like okay actually wait as we actually start to put pen to paper here between vision values where we're going what timeline how much you know what work culture we want to have what we think gets us there commitment to the Philippines as the way of doing this like all of these little things we both start to go like yep yep yep yep yep and suddenly there's like this extreme alignment around how all of this stuff works.

Shared faith I think is a really important part of the story like you and I are after the same things in life more broadly in that respect. So yeah, I to me that was like that just became kind of clearer and clearer the more that we talked and it became like all right let's let's do that. Is there anything you want to add there? >> No, I think you summarized that well. Yeah, and I think you mentioned like we're also just like very similar humans, you know, similar life stage, similar uh kid kid ages, number of kids, you know, parenting styles.

Some people on our team joke that we, you know, we kind of look we're the same person just, you know, >> I think some people joked the other day about one of our p our podcastes like I can't I can't even tell the difference between you two. You're both wearing hats, you know, you got it's like >> you know, tall you got a little twang. Not too much, but a little bit. >> Yeah. I I gotta work I got to catch up to you on the six-pack, but otherwise we're you know, we're very similar.

[laughter] >> I don't have a six-pack. Hopefully soon. Yeah, it is uh it is actually almost a stereotype in terms of uh two roughly 40-year-old white guys with a beard having a podcast and a business together. >> Y >> if you are building an e-commerce business, you need customer service support help desk software and you should do that with my friends at Rich Panel. Rich panel is used by multiple of my clients just as they are used across the e-commerce ecosystem from brands from like0 all the way through nine figure brands like Ridgewallet and others who are like very large brands growing very fast and who Rich Panel can easily support.

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They guarantee that as well. Go to richpanel.com to check it out for yourself today. I think it is important to lay all that out because uh >> I did not wear a hat today though. >> One of the things in all this consideration is is just that I've watched a lot of equity things go wrong. And so like that was another consideration for me in all this. It's a lot of I talked to Taylor about it as Taylor I know has seen them go.

I've been in when I was at 4x400. One of the big fundamental problems in that business was the cap table in in all kinds of crazy ways. It's actually ways, but it it did help solidify for me the notion that if you get that wrong, it can really screw things up in the business. >> And and I know I watched Taylor go through good and bad both with that. Like he I saw him do some some things that he would say was bad and was good.

And that's the business I've been closest to. That's been there. That's why that's why I called him so much in this process because I've just seen him wrestle with it. And also have seen how important it is in the business, you know, where it really matters to get this right because not only can it go really wrong, but like it's has real problems when it goes wrong. really it's a the incentive structure messes up and people's sort of rights in the business mess up and so it so pre-analyzing the sort of fit here was good.

It was really important to me and at some point though go ahead. What were you going to say? >> Well, I was going to ask you and feel free to take this wherever you want but we're we're going to talk about how we're designing it to make it hopefully go right. But you've mentioned you have a lot of good insights about how it's gone wrong. I've enjoyed hearing like specific examples. It's helpful to me because I don't have a lot of experience here. be curious if you like anything like comes to mind of like how it goes wrong and poorly and how that has affected how you want to move forward making sure we do it right. >> Sure.

A couple things. One of them is just the wrong person at the level of character. I've seen like people whose character I don't believe in have a large portion of a business and have a lot of sway >> in the business. And so like just that that baseline level uh is like is a problem. Another thing I've seen happen a number of times is one partner has a whole bunch of equity in something that they don't actually do the work in.

I think it's a really big problem. Taylor again has been critical in pointing this out. His comment is the equity is the lifeblood of the business. And so like essentially if you take somebody who has a large portion of the lifeblood and you take that blood out of the business basically, right, but they actually still have it then it's like a problem, right? So it's like somebody owns 30% of the company but they're not doing any of the work on the company. it like really messes messes up the behaviors in like this sort of sneaky way.

And so like that's that's a definitely an issue that I've seen happen. Another one is just like the wrong people having a lot of it in terms of their skill set. Like I've seen people who own a large portion of the business but who can't really actually deliver on the job. Even if they are in the business, they're just not good enough to pull their weight or maybe they're in the wrong seat or something like that. That's another another thing I've seen >> go very badly.

And I've actually seen it all the way to the point where like I already mentioned like these are all specific examples and I have examples in mind. I don't want to name any names but um >> but yeah another thing I've seen is like people with different vision which I mentioned before where like I've actually seen >> exit deals get held up foolishly because the party because the parties can't agree >> on on like that and so they they can't get enough shares voted to like have an exit even when an exit's sitting right there and that's like a real problem.

So, so yeah, a bunch of those. And then and then the other one is just like weird structures where like where like at 4x400 that was the problem or it was like we owned little bits of a bunch of different businesses, but then also the those businesses owners, those brands owners still own parts of them, but we owned all of 4x400 and like it was like a very bizarre setup and all of these incentives were all over the place.

Had investors with owning different part. It was it was just like that was just like complicated mess. All of those things I've seen happen and I wanted to sort of avoid as much as possible. was for me like the the the primary goal at the end of this was how do we create an equity structure that actually reflects the the contribution and commitment and value that we both can bring to the table so that it's reflective of what's true about the operations of the business.

That's actually my main concern. Um and and if that means that I get less of it because I actually bring less to the table than I thought, you know, that's okay with me. It should be essentially a reflection of what's true as opposed to me creating a truth. If that makes sense. That's the way that's the way I view it. >> Yeah. >> Yeah. That actually leads to one other thing which is like there's one with with your the negative examples that I was thinking about here which was like and I'm curious how you consider this like we're going to talk about legal mechanisms for solving problems if it goes badly because lots of people >> lots of people have great intentions in their partnerships when they start.

Um but um well actually let's let's actually save that. Let's let's let's say this part of it. Let's let's go into like how we structured this. So yeah. >> Um so how much of my business are you are are you buying? And then we'll talk about why you're buying it and why I'm not giving you portions of it or whatever and some of that stuff. So let's get into the into the weeds here. >> Yeah. So pretty simple. I'm buying upfront uh just complete clean transaction from you 45% of the business for $45 million.

Um >> that was a conservative valuation too. [laughter] Yeah, >> Taylor was like, "You got to get a 100 from him. You got to get 100." I was like, "That's all right, man. It's fine. 45's enough for me." >> We talked about different structures of like earning some of it versus buying a portion up front, but we just landed on let's just make it clean, simple. I'm just going to buy 45%, you'll obviously have 55%. And then, of course, we've talked about ways to um allow other employees to buy in over time in the future.

So, it had a little bit to do with the split that we decided, but I I don't know if I've ever actually verbalized this to you out loud, but I had a business law professor, I don't know why, this is the only thing I remember from his class like 20 years ago, but he made the statement that you should never be in a partnership where you're 50/50. Somebody should always have at least 1% more. So, like 5149. I don't know why that always stuck with me.

I always kind of viewed that as the gospel truth. So, that kind of always colored my thoughts with you is like you started it. I don't ever want to be in a position where I feel like, you know, I have more say than you. So that's kind of how we we talked about 33 and everything from 33 to 49 and we just landed on 45. It just kind of felt right. >> So let's talk about that a little more. So that's true. 45. So um so well let's actually talk about the mechanism.

So on the other hand, like part of it is that I wanted to give you some of it and as like essentially as like your compensation package as an employee because that's I think that would reflect what you would do if you're bringing an executive at your level, you know, the number two in the business, like you would there would be an equity plan as part of that. But for tax purposes, if I give you equity in the in the business as part of your compensation, that becomes a taxable event.

And so you have to pay taxes on the value of the equity at some valuation of the company, right? So that's annoying. like it's just silly. >> It's complicated. >> Yeah. And then also you just have to pay tax on that which sucks. So um so instead what we did was we said like let's curve the valuation that we can agree on towards the lower end of the spectrum that essentially bakes in uh the business because the truth is like AF growth is not a transactable business right now.

So like the any valuation we come up with is defensible within within basic reason, right? Like $100 million would not be defensible, but like you know the business had three US employees when you came into it and then a few more in the Philippines. So people can figure out themsel we're not going to give the actual dollar amounts on these things for a bunch of reasons, but people can figure out it wasn't that big of a business producing that much profit all told.

And um and uh and so but within that there's there was not there's no obvious book value way to do this where it's like oh quick easy like 3x ibita or something you know it's like well you could say that but you could also say 2x iba and it would be equally defensible. And so what we did was we said like what's a valuation that you and I basically agree is the sort of the true value of the business as best as we can tell.

Okay, we came up with a number. Boom. And then we just curb that number down enough to make it so that your money in buying your 45% went further than the initial valuation that we did because either one is is defensible. So it ended up being a convenient way to sort of solve this problem where now nobody's taxed. I mean I am I am taxed on the sale of the equity, but that was going to be true either way in some way. Yeah.

So that's the way we sort of determined how to how to price that equity. Anything you want to add? >> No. No. Uh just just to add that the the value we landed on is still a defensible value and there's nothing like >> Yeah. Yeah. Yeah. >> legally or you know financially wrong with with where we landed. >> Was it at all tricky to you to talk through how to value my business? Like did you feel like you had to soft pedal that at all or anything? >> Oh yeah, for sure.

I mean all of this has been tricky. not only the value of the business but also like what we'll get into like some of the you know some of the rights and the clauses and you know um the value was probably one of the easier parts because you know all the numbers that we've t the whole range of numbers we've talked about all make sense anything higher than the range we've been talking about you know maybe would have kind of been like I don't know about that but it it all makes sense what it came down to it's funny is is like just what felt right you you know, what felt uh we've talked about this, what like kind of felt meaningful enough to where it rewards you for what you've built and is, you know, slightly painful for me to write that big of a check.

The number thing was probably the easiest. You know, the harder thing was like what happens when so and so, you know, we had to like kind of think through all the worst case scenarios of what would happen with our partnership and as a result our friendship, our relationship, and then how do we create legal mechanisms that kind of cover us so to speak for for those kind of scenarios. >> Yeah. Let's let's let's uh talk about a couple other things with the structure of the deal.

First though, uh the valuation >> part the thing I want to I do want to point out about this is that >> if >> so first of all for me >> my position here is like I I was not trying to squeeze the highest valuation number I possibly could out. >> Yeah. >> To like get like oh can I get you to agree to 10% higher valuation then when it comes down I get more money from you or anything like >> like I really did want to come to a point where you felt really good about the number.

Um, and there's there's a number of reasons for that, but um, but one of the reasons for that is that it's going to not matter to me very much if we get where we're trying to go because there's going to be plenty of money. >> So, like ultimately, you are going to bring what I view you as somebody who's going to bring so much value >> to all the things that you said earlier to my life, to my growth, to all the things that, you know, I'm with you like those are things that are most important to me.

I found it to the business itself that it just is it it was like, okay, I'm going to I'm going to be fine here like if we get anywhere towards where we're trying to get to. Um because because Yeah. So I I don't need to try to squeeze out of squeeze all this out of you. But there's another reason for that which is this I think will come up again too which is like the biggest threat to our partnership for a number of reasons in my view or to this whole thing is that something breaks in our friendship. um that we that that we relationally have fracture.

I I really think people >> undervalue this in business partnership easily >> which is like >> like >> if it's the case that your e that your cap table matters a lot and that's like lack of shared vision, lack of shared values or just like interpersonal relationship stuff could get in the way. If that's true, then you need to think proactively about like well what is going to nurture the relationship? Because then that that creates a a core risk to the business outcome. like you just have to forget forget the friendship outcome like just just the pure business outcome is threatened by something going wrong there.

And so another part of this for me is like I didn't want to come for the number where you just kind of felt a you know a tinge of resentment like Andrew squeezed me on this or whatever. It's like ah that's bad. Like we let's get to a number instead where we say like everybody feels really good about where we're at and it sort of reflects that because one of the critical things to me here I mean obviously at the human level first but even aside from that is that we sort of maintain a relationship that is working um along the way.

Yeah, I think that's a really interesting point. Like uh and I I'll even say like [snorts] I I I hadn't articulated in my head as well as you just did, which is like the human aspect of the partnership is the most critical one. Like and none of this is in the contracts or any of the numbers we've we've agreed to, but if our relationship breaks down, the business breaks down. And I think that's an extremely good point.

I feel great about where we landed. I I didn't feel like you were trying to squeeze me. I felt the same way on my end. I wasn't trying to like go, you know, undervalue what you've built. You know, I wanted to come up with a fair, reasonable valuation. So, I felt the same way on my side. Can you look into the camera and say you weren't squeezed? That you're happy with where we landed? >> I I'm I'm 100% happy with where we landed.

Yeah. Yeah. 100%. I Yeah. And um I I do think that many people will not along to this comment, but that people then don't operationalize the response, you know, and it's a great business way of looking at it, but it's like you and I had this conversation the other day. It's like let's both think proactively like what >> makes you feel cared for and heard and see, you know, like it sounds sort of mushy or something like that, but it's like it's I just think it's really important and it's like do we need to make sure that we like >> uh I don't know go to Disneyland together when you're out in California next or something like what?

And because if we need to do that to generate to make the friendship like thrive or do we need to go like do something together that's not work you know what like I'm just making that up but like you know what I mean like what do we need to do >> to continue to do that without while recognizing like it's not like we have to be very best friends in the whole world or something like that either you know it's just that like you're not my wife but it's like the there's a real reality there in in fact in some ways like a marriage where there's a legal contract binding you together and if you split up it's really expensive. you know, so and and damaging.

So, it's like, yeah, you need to nurture it and you need to care about it. You know, >> what what helps this actually, you kind of undersold yourself a little bit before, but you have a great business and both of us there there's no question in either of our mind that we're going to build an amazing, very, very successful business. And so, like it just, you know, it just doesn't matter. you know, if at the end of the day, you know, >> I'm just making up numbers.

You know, you make $10 million as opposed to 12. You know, it just doesn't matter. >> I don't I literally that that marginal $2 million means zero to me. I do not care in that in that explanation. Yeah. >> Been awesome for me. >> There's this underlying assumption that we both know this is going to go great and even if it doesn't, you know, we we'll be better off for it. So, that [snorts] that makes those conversations easier.

I'm normally the optimist, but I feel like that was a high level of confidence and optimism. I mean, not that [laughter] you're not optimistic, but just in most conversations I'm in, I am. And I appreciated that confidence. Yeah. >> Yeah. Yeah. >> Um, okay. Let's talk about one more aspect of the actual deal structure that I think is really important, which is >> that a vote for almost anything major in the business >> requires an 80% 80% of shares uh voting the same way. >> The way we set it up, big deal.

Yeah. So, while it's technically true that we're not equal partners, we may as well be in terms of the power in the business because we can't change the name of the business without us both voting it. Critically, we can't transact the business without both of us voting our shares. And we will not get to a point >> where like we're going to invite enough other people, you know, dilute ourselves down to where you and I don't have it.

So, now you and I are going to control what happens in the business in the biggest most important ways. Distributing money, like all of those things, we will both be able to stop each other from doing this. So, like I'll just put it very frankly. Even though I'm only selling 45% of the business, I'm giving up material autonomy uh and material freedom in doing this. >> Yes. >> Absolutely. >> And uh I think that's interesting.

Uh >> are you sure about that? [laughter] >> I Well, no, of course I'm not, you know, uh and I think that's just realistic. Like I I'm I'm sure I want to do it right now, but I'm not sure it will work out. I am I am as confident as I possibly can be that it will work out. But I think I think this is like a a significant thing. I think I think a lot of people think I'm kind of crazy for doing actually. >> Um but I actually feel like when our lawyer sort of sent us that I had suggested something like this in our conversation with him about what we were trying to get towards, but then it like kind of hit me as like a oh yeah, we're really doing that.

It's a big deal. Um I'm curious how important that is to you and was that something you would have fought for? like I don't want Andrew to be able to sell the business without my shares voted or whatever. You know, >> there's one thing I felt really strongly about as we as we talk through this and it was that I don't I have no interest in doing this business with anybody else. And so what I mean by that is like I have no interest in allowing Andrew to for example go, "Hey Patrick, I'm done.

I'm going to sell my shares and now you know Joe Schmo is your new partner." like that is extremely uninteresting to me. That's really the only thing I wanted to be able to control when it came to decisionm is that I don't want that situation to to to happen. Um other than that, like I don't feel like I have to have I I think it's good and healthy that we required both of us to be on the same page for major decisions.

And but if you came to me and you're like, I just don't feel good about that. I want to change it. you know, I want to carve out these sort of these category of things that I can make decisions on. I would be very open to that mostly because I trust your judgment and there's basically nothing we've meaningful that we've agreed on. Even like small stuff like we almost agree on everything. I'm sure I'm naive and there'll be something in the future that we >> and even when we disagree like it it almost you know doesn't matter because you know it's like >> one of us usually defers to the other you know in the thing that we're disagreeing on you know I just don't see a situation o other than like yeah I'm sure there are tons of situations where it could go poorly for us if I gave you full control and ability to make decisions but I don't have any problem with that um on the surface. >> Yeah.

For me, the calculation was what I said earlier, which is that I think the equity ought to reflect the truth of the reality of the business. And >> yeah, >> an agency, as I said a lot of times recently, is is at its core is operationalized knowledge. That's what that's what an agency sells. Yeah. >> And I can do knowledge uh pretty well. I think uh I can't operationalize it without you. And so I just think but that's actually it's it's as central to what an agency is as as the knowledge part.

It's why a lot of agencies are bad. A lot of agencies are bad on the knowledge side. A lot of them are bad on the operations side. It's sort of the classic thing of like, oh, I got I got the junior guy at the agency running my account and that's why it's bad. It's like, well, that's an operationalization problem. Like, maybe the founder is good, but you're junior. So, to me, that's like really critical and I can't I can't do that.

So, to so I think >> I think it reflects >> the truth. So, 40 both the 45% number and the 80% agreement, you know, number both reflect the truth of what the business actually is in a way that is just realistic. And so, to me, that's there. I also do think uh and this is probably where I'm both an idealist and really different than a lot of people. I am suspicious of single person authorities as a general rule. I think >> um I think it's really good for I think groups of leaders making decisions together who you trust is better for most organizations even if it makes them a little less dynamic probably especially if you're not trying to go extremely fast or big um which I'm not.

So if that's not a major value, then I think groups of decision makers do better on decision-m. So forcing some some consensus in that group is good. And then what you got to do is seriously gate who gets let into that group. U so if you're really careful about that, then you're then you're you're in good shape. So to me, >> uh that's yeah, that's another element of this that I think is important. I I actually want I don't want to be the only person with the authority.

I I think that's not necessarily good for the organization. And again, you know, I'm still the CEO. Like it's I have plenty of authority to do things and we're not sitting here standing over each other's shoulder and saying, "Are you sure you're doing that right?" It's not like that at all. But just for me, I think uh that's probably sort of a countercultural value I have. I think um that that I think is important in organizations uh for a bunch of reasons.

Again, a [clears throat] single leader is just a massive risk in a business. So there's risk on this side too, which is that we can't come to a consensus or whatever, but for for me that calculation mattered. >> Yeah. >> Yeah. Yeah. >> You want to talk about what what we built in in case something breaks, in case the partnership does go wrong, and what do we how do we protect ourselves in those things? >> Yeah. Yeah.

The big thing for me was I just, like I said before, I have no interest in doing this with somebody else or by myself. So, we built in some clauses that basically if one of us wants out for some reason, there's kind of a framework we follow. And you know, just to get into the weeds, it's like um there's like a write a first offer for any voluntary internal exit. So let's say you want out, you're like, "Hey, um I think this is what the roof is.

Um no, no, that's the buy sell trigger, right? A first offer is >> um you allow me." >> Yeah. We have to offer our shares to each other before we can offer them to anybody else, basically. >> Right. Right. Right. Right. Right. So, so if you want out, you have to offer to me first. And then if I say, "Nah, not interested in buying them." Then there's a buy, sell trigger, which is basically we haven't decided if it's appraisal based or shotgun.

Appraisal based or shotgun. But a shotgun buy, sell trigger would be that you come to me and you say, "Hey, I think the business is worth $100 million." You know, you [laughter] and then either I have to buy your portion at that amount or you have to buy me out at that amount. Is that correct? That's how it works. >> Yeah. Yeah. So, it's it's a it's it's a push pull. So, like I it's such a clever idea to me basically like if you get to an impass relationally and everything else and you can't figure out a way forward then you can we could initiate the pushpull and it is a shotgun clause like yeah so it's like essentially what it does and I didn't know this clause existed but it's so such a smart mechanism for this.

It's that one party gets to say a valuation and the other party gets to decide okay I will buy or sell at that valuation. So it sort of forces both people into being rational because >> if I say >> uh you know let's say we have 10 clients and I'm like $150 million valuation then you could be like great I'm selling at that and then I have to buy your shares at that valuation. Yeah. Um, but if I if I'm like if I'm trying to screw you and get your shares really cheap, I'm like, "Oh, it's only a $500,000 valuation." And you're like, "Great.

I will buy your shares at that valuation." And so now I have to sell to you at that price instead of buy. So one one partner gets to decide the valuation. The other partner gets to decide if they want to buy or sell at that valuation. It's a really clever way to make both people act rationally basically. So that is that is in there as sort of the the mechanism for solving a dispute if it came to it. That's the core one.

That's the core thing that comes in. Yeah. Yeah. Which shout out um I think it's Ido. I think I'm saying his name right. Big shout out from Barab and I'm so sorry we haven't talked for a while so I got your name wrong. I really apologize but he emailed me separately after listening to me talk with I think Taylor about some of these topics on a podcast and suggested this thing this clause as a way of handling this problem.

He just sort of went out of his way to say hey maybe this will help you. You should think about this. And I didn't even mention it to our lawyer. Our lawyer mentioned it to us separately from that. But it was such a kind thing for somebody to do. They listened to the podcast. They heard the thing that we're working through and they were like, "Here, maybe I can help you." And that's fantastic. So, thank you. You know, podcastfgrowth.com if you want to do that.

And while you're at it, subscribe wherever you're watching, listening, and leave a comment here for my engagement numbers. All right. Keep going, Patrick. [laughter] >> We added um a we we haven't added it yet, but we're working on adding like a dispute resolution process. So, if we do come to deadlock on something, there'll be some kind of mediation and, you know, binding arbitration process, you know, that we'll probably never hopefully have to use, but it's there if if we need to.

This was a funny one. We added uh divorce uh transfer buyout rights. Neither of us ever intend on getting divorced or anything happening to our marriages, >> but you know, at least I don't for me and you don't for you, but you you don't know about my relationship with Jennifer. that you do, you know, notionally and I don't know about yours, Brit. So, it's like >> the the thing was that like basically I don't want to be in business with Brit.

You don't want to be in business with Jennifer. Nothing against our wives, but like >> I really like Jennifer. I think she's great. >> Yeah. I love Brit. >> It's just not what I'm signing up for. Yeah. >> Exactly. So, like you can't, you know, and there was also like family transfer restrictions. So, you can't transfer, you know, the business to a family member or to a trust or anything without the other's consent. I think the phrase I used I think the phrase I used with uh Doug our lord was yes I would like to make this as ownorous on the on the divorced wife as possible [laughter] like it's not against has nothing to do with them and what I think about divorce but it is just >> I just that's just not what I'm trying to do. >> Yeah.

It's just we're not we're not here to be in business with anybody else. That's kind of the main point. >> Right. >> Death or disability kind of buyout rights. We're still working on the specifics there. But like that was a big concern of mine is like what if you know what if I get hit by a bus you know I don't want Andrew's you know business and you know you know him to suffer because I'm no longer because I'm incapacitated you I wanted there to be a mechanism for that and vice versa.

So there's some some kind of some verbiage around that. There was an indemnification issue. That was a funny one. That was like uh there was a thing where like essentially it was like an unlimited indemnification on the actual like purchase agreement. So yeah, >> this is just a funny idea just like basically like you could turn around and sue me in like 50 years because it was because it was unlimited in time when you're just like old and scenile and you and you just decide like >> like your brain is not working right anymore and you just and you're just like I'm pretty confident that Andrew screwed me out of that equity deal >> 50 years ago that would still be available.

So we so we put a time put a time limitation on the identification. Yeah. >> Yeah. there was like uh restrictions on capital calls and member loans. So, you can't, you know, call for capital without unanimous approval. You know, it's funny as I'm reading through all this, I'm like, does any of this really matter? Because it's like basically no decisions can be made without both of us agreeing, but then we're like going out and saying all the specific decisions that can't be made without both of us agreeing.

So, they're almost dup duplicative maybe, but you know, they're worth they're worth kind of calling out. Yeah, those are the big ones. Um, >> it's a good moment to just appreciate Doug and just to say like good lawyers who walk you through this process, great people, >> they're so valuable in businesses and I'm I'm grateful for them. I've I've come to appreciate good contracts over time. >> I'm such an idealist, but that's the case.

Having said >> Yeah. Yeah. Exactly. Um, and just situations you don't see common and stuff. Having said that, one of the things that I have continued to think about with this is like >> in a world where this goes badly. So much of this process is about trying to make sure that you sort of protect yourself in in a world that goes badly. >> And one of the things I just believe is like there's just a limit to how much I can do that.

Like even as I was sort of assessing and evaluating whether or not >> like okay, do I want to bring Patrick into my business? Like >> I mean now we know each other very well I think but in those days we didn't know each other that well. we hadn't spent that much time together realistically and so we're kind of figuring that out and I just >> I just at some point came to the conclusion like I don't know maybe maybe it will go badly you know like and >> and that's just there's just an inherent risk there and I'm never going to get to the end of that >> and it still could and maybe you totally screw me you know or maybe I totally screw you.

I don't think that's going to happen. I I've I think we've done all the right due diligence to try to stop ourselves from that happening. if you totally screw me, like one of the things I've I've really sort of accepted is like, well, then I'm totally screwed. >> And uh then that will be another part of life that I will walk through and try to sort out what that means for my pursuit of joy and character and all, you know, like I'm not going to probably ever go to the mattresses.

Is that the phrase? Go to the mats, go to war, whatever. Um trying to keep myself from getting screwed short of it affecting my family in a really negative way or something. I just think like there's just a thing where it's like I >> well then that would that would suck, you know. Um >> you mentioned that the other day and I really appreciated that. I like that's not us going willy-nilly into this partnership. Like we've we've talked through everything.

We've we've got a great contract. We've got a great understanding, but at the at the end of the day, like it's a good reminder that as much control as we like to think we exert on our lives, we have almost none, you know? and [laughter] uh like it's good to just go I'm going to try my best to make sure this is set up for success and you know we'll see what happens. Um and as a as a engineer you know who loves to have control over all the minute details of everything in his life that's that's a refreshing kind of thought for me to have which is I'm going to give it my best and um you know it's all in the Lord's hands.

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So go to more staffing.co if you are building an e-commerce business and you want to think about how to reduce your opex, apply great talent to your business and fire your own family members if you need to do it. Go to more staffing.co/af and get a conversation started with more staffing today. Do you want to share where we're trying to get to uh at all? Like do I don't do you want to do a valuation number or a number of clients or anything like that?

Like >> well the way I just tell like people who ask me friends like you know our goal is to basically 10x the size of the business in four to 5 years and in some ways that's a very aggressive goals in other ways it's like actually not all that crazy to think about and that's one of the things I love about this business is it's very kind of it feels to me I'm sure we'll get along and be like oh I I definitely didn't view that right but it feels to me like very copypaste and what we've been doing together all this year is like really defining how we do things at a granular level so that we can then just go okay one more you know one more you know and so we we organize our company in pods and so growing 10x means making nine more pods in some ways that feels like a lot to me because it's a lot of people it's a lot of clients you know the people part kind of overwhelms me you know um a little bit you know thinking about how many employees that is how many clients that is just pure operations of it you know it's just it's kind of it's kind copy paste.

So >> yeah, I think that's a good way of framing it. I I think another way of framing it is like it's actually like in the next year it's like three or four more clients. >> So like we're talking about a pretty like realistic and steady growth pace. Goal is to keep making sure that we do a great job with maintaining a really high quality of service. >> We have enough money coming through the business while we're distributing along the way.

You know, uh it's wonderful thing about service businesses is they're they're not cash intensive. >> Yeah. They need they require very little working capital. So like you can distribute your cash constantly. This is something Taylor talks about a lot as well. And then as we do that we um I think the next year after that it's where you're trying to grow by two pods a year or something. And by the end you know that's even still that's only like eight clients a year or something like that depend assuming some attrition and all that stuff.

But I like that. I think it reflects like >> yeah that can be done without going super crazy super fast. And in fact, every time we add a pod and add clients and do this, we're going to get better at the process of doing that. And you know, we can maintain a really high standard for who we hire in the business because we're not trying to hire so many people so fast. Like all of those kinds of things, I think work toward work for allowing us to to pursue that on a reasonable timeline.

It by the time you get there, the sort of steady growth path, you end up with a really really good business that produces a whole bunch of cash that is very sellable, very transactable, and you can decide what you want to do in those in those times. you know, assuming it goes it goes well. Um, if you can actually accomplish that. And so I think um I think it's like a really good goal and and it reflects to me this thing that I just feel like I see all over the place right now and it's become this critical strategic point of view for me, which is attempting to grow steadily over time can produce a very good, very profitable, very valuable business.

And in fact, trying to like the rocket ship stories are fun and interesting and they're and they're really cool in their own ways, but they're actually distractions and and often are negative. Like having a steadier growth plan is often the thing that will actually produce a better business for the vast majority of us. I think there are probably some outlier >> CEO types who really can build a monster business really fast and venture scale and all those kinds of things, but most of us probably shouldn't try to do that.

I think it'll actually work against our methods. And so for me is like another thing where both in terms of what I want for my life and then even just at like the pure business strategy level like I think the way we're doing this is the way that I think is right >> and for the client experience the employee experience you know we we talk about ourselves building an anti- chaos agency that's that's for our clients for ourselves and for our employees.

You know we want people to love the work they do for us. We want our clients to love the work that we do. We want to love our work. It all goes back to what you said at the top of the podcast, which is we're we're optimizing for joy. And I think I think the plan we have really helps us kind of focus on that while still being aggressive and enough to do something that we're we're proud of and and excited about. >> All right, man.

Um, thanks for taking the time. I'm excited to to uh make this happen and lock these things up and go to 26 with an actual business partner. >> Love it. Let's do it. AJF Sloth. >> AFJ Sloth. New name. [laughter] Send us your new name ideas, by the way. That's another thing we can email you about. We need a new name because now it's not just my business anymore. So, >> yeah. >> Yeah. All right. Thanks, Patrick. [laughter] >> All right.

See you, bud. >> Are we idiots? Are we idealistic fools walking into this? So excited about the partnership right now in the honeymoon phase and it's all going to go wrong and we didn't protect ourselves enough that I give up too much control. Whatever you think, leave a comment. Let me know. I am all ears. I'm happy to happy to hear what you think. So, leave a comment, let me know, or email me podcastfgrowth.com. And of course, if you would like to be one of those three or four new clients that we add in the next year, you can go to ajfgrowth.com, fill in the intake form and tell me a little bit about your e-commerce brand and what you are looking for, how we can help, and we'll get a conversation going from there.

Big thanks to Rich Panel customer service software that bunch of my clients use and that you should be considering using as well. They're great. richpanel.com. [music] And also, more staffing, of course. More staffing is a huge help to AF Growth and to a lot of e-commerce brands that we service and that we have have seen and sent them to. Morstaffing.co/ [music] AF is the place to go get them started. As always, subscribe wherever you're watching or listening.

A whole bunch of great episodes coming soon. You're not going to want to miss those, including in the new year, Curtis Matskco from Portland Leathergoods talking about the absolute insane near $200 million monster that they are building and the growth they've had. He is going to be a really fun, really lively guest. So, don't miss that. Thanks so much for watching, listening. I'll talk to you soon.