Podcast: Biggest Lessons Learned From Selling My Business
Cory Janssen, co-founder of Investopedia and Divestopedia, shares his nuggets of wisdom learned from selling Investopedia to Forbes.
In this podcast, Cory Janssen, co-founder of Investopedia and Divestopedia, talks about:
- Lessons learned from building and selling Investopedia.com;
- Things business owners should consider when selecting and managing a deal team;
- Life after selling his business and working for the acquirer under a transition agreement;
- How small businesses can compete and win against larger competitors; and
- The mission of building Divestopedia as a resource to help entrepreneurs sell their business on their terms.
About the Guest
Cory Janssen co-founded Investopedia.com in 1999 and helped grow it into one of the Web's largest financial sites devoted to investor education. In April 2007, the company was sold to Forbes Media.
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Read the Full Transcript Here:
Noah Rosenfarb: Hey, it’s Noah Rosenfarb. We’ve got a great guest today. Once again, another business owner, entrepreneur, and actually the owner of Divestopedia. We have Cory Janssen. He’s the President of Galt Capital, which is a private investor firm and co-founder of Janalta Interactive, which is an online media company. Cory’s going to share his story of being a co-founder of Investopedia and eventually selling that business to Forbes Media, so I’m really excited to have you on the show today, Cory. Thanks for coming on.
Cory Janssen: Hey, I’m excited as well. Thanks for having me, Noah.
Noah Rosenfarb: Yes. Why don’t you start by telling our listeners about your experience in Investopedia, what that site was and became, and the process of selling it to Forbes.
Cory Janssen: I’ll try to condense it down for you a little bit. Investopedia is an educational content and tools aimed at helping individual investors. I started the company, co-founded it along with another partner back in 1999. We boot-strapped it through the years and bit by bit by bit grew it and by the time we sold it was a top ten property in the financial space in terms of unique visitors and you know, it’s a great ride the whole way through taking it from literally two guys in a 450-sq foot office to selling out to an amazing organization like Forbes.
Noah Rosenfarb: How did you get that idea? Ninety-nine, that’s right before it all kind of came crashing down and you survived. What was that experience like?
Cory Janssen: Well, I don’t think we could have picked the worst time to start a finance company. To be clear, we weren’t really in the financial industry in terms of lending per se but rather it was the publishing and we generate revenue from the advertising to mostly the big U.S. brokerages - the Charles Schwab and ETrades of the world were our core clients, but yes, the peak of the NASDAQ for those who remember a little bit of their financial history was March 2000. We had started the company. We were a bunch of stock geeks and said, "Hey, let’s try to build something." It started in the summer of 1999 and formally incorporated in February of 2000. We basically picked the top of the bubble.
The thing is we - in hindsight it’s fortunate because we really then couldn’t raise any external capital. We had to bootstrap it. We had to do it ourselves and so from early on that taught us about the importance of cash and the importance of those kind of old-fashioned small business fundamentals in terms of building that business and getting, you know, working for your first few clients, getting money in the door and try to make the go of it.
Noah Rosenfarb: Eventually, by the time you were exiting, how many people were involved in that company?
Cory Janssen: We had around 30 full-time staff and then the network of contributors that we had to contribute content was somewhere in the neighborhood of 200 professionals across the country that would be putting in content. It’s a very virtual organization and you also had your external contractors for code over in the Ukraine and so forth, so it was a relatively small business employee size but I think because of just the nature of how the internet changes things we’re able to do some pretty big things at a month to month basis we had attracted three and a half million unique visitors to the site. When you think about what the Internet allows you to do and that reach that it allows you to have and the way you can build different organizations we really were able to take advantage of that just because of the nature of technology.
Noah Rosenfarb: Yes. It’s really impressive how not only that the internet changes our ability to communicate but that someone like you could bootstrap an organization that has that great of a reach around the world.
Cory Janssen: Yeah. As you know, as the media business was changing you didn’t need to hire dozens of journalists and have them sit in an expensive office space. Really, that was part of what allowed us to succeed and to a certain extent at really a lower cost model than the traditional media, the traditional publishers just because the old media wasn’t really quick to adapt to how the world was changing.
Noah Rosenfarb: Yeah. So what prompted you and your partner to decide to get out of that business? How did it come about?
Cory Janssen: We didn’t build the company to sell but we were very careful about not building it around our personalities so that we knew that one day maybe that was an option. It was getting pretty frothy in those days, the market, in our industry, and you could really tell when you’re getting, you know, you have these 19 or 20-year-old kids from all the investment banks and the VC firms and thePE firms calling up and you could just tell they’re kind of dialing for dollars trying to see if you’d be interested in selling - what’s your revenues, what’s this - and you can get sucked into these calls because you can see they’re just fishing and trying to generate leads for their firm. After a while you talk to them and then you say, "Okay, we either need to just cut this off or we need to run a formal process."
Because we saw this in the market, because it seemed like some comparables are coming at really good multiples, we actually went and then starting interviewing investment bankers and eventually narrowed it down to one firm down in Silicon Valley who had done some similar deals that we respected and started a formal process with them.
Noah Rosenfarb: How long was that process between making that decision - we’re going to hire someone - hiring someone and then eventually getting Forbes to give you money?
Cory Janssen: It was the summer of 2006, we were talking about it, started talking to a lot of the different - it’s not like Goldman Sachs or something like that but more of the small boutique investment banks. We had three or four that we were talking to in the summer and I think it was August or so that we actually signed on. As we went through, they would kind of build the book over the last couple of months. We had some initial calls. They put it out to 40 to 50 organizations at that point so November and December we started having initial calls, request for information. After Christmas, it then turned into January, February. We were actually located in Canada so we had about ten different firms we’d narrowed it down so they came up and visited us at the offices in Canada.
From that point, we narrowed it down and asked for some LOIs. The banker did it in a great way where he just kind of put them all in very, very loose LOIs, you know, "Put it whatever you think," and we narrowed it down to three. Then at that point, we went and visited each of those three firms in their respective locations and finally closed with Forbes in April of 2000. So pretty much a nine-month window from start to finish, from hiring the banker, go on initially with your book, lots and lots of phone calls, narrowing it down, and then finally going through that final closing process.
Noah Rosenfarb: That’s found to be pretty efficient actually. What was the biggest lesson you learned in terms of process for hiring a banker, presenting your company, selecting who the buyer’s going to be? What would you say is the biggest lesson you learned there?
Cory Janssen: Man, that’s such a great question. I probably had 20 or 30 hours with other entrepreneurs talking about this. I swear you could write a book on it, even though I’ve only really done that one deal. I think the biggest lesson that I didn’t realize beforehand is how you have to manage your team differently at different stages of the process. Early on, your investment banker is your best friend because he or she is so incented to get your idea, get in front of the right people. They’re working very hard. At that point, your lawyer is your worst enemy because he’s just racking up your bill.
As you go throughout the process, it kind of flips and there is a certain point there where once the banker or the broker has figured he can get as much as you can get, all of a sudden - as much as he’s cheering for you and everything he’s trying to make a buck as well. So at that point, your lawyer’s your best friend because your banker doesn’t care about the reps and warranties or all your indemnifications and everything you’re doing in the actual legal agreement.
All of a sudden then you have to manage the transition between these different elements of the team and, of course, you have your tax planners that come in and if your tax planner’s the same as your accountant previously, if you have other exit planners that were involved beforehand, I think you could just take any one of these professionals and put in to the process. That key idea, though, of, you know, they’re all on your team, they’re all for you, but you have to treat them differently and manage them differently based on where you are through the stage in the deal.
Noah Rosenfarb: That’s great advice. I think as a corollary, I always tell clients to be very conscious of how people get paid. That’ll tell you a lot about their advice, and the same is true for me. I always tell a client, "Look, this is something I think you should do. Here’s how I’m going to get paid. I don’t think I’m bias but you should weigh that in your decision."
Cory Janssen: And you want to align your interest as much as possible. One of the best things I did with my partners before selling was we sat down and we wrote down on paper, physically writing down pen to paper I think is important because there’s just something different about a goal that’s, you know, literally you can look at and touch and feel what we would sell for, what our parameters of the deal were, and that became really helpful afterwards to be able to then take that. As you’re in that rollercoaster ride of emotions at the end of it where things are going back and forth and you just can’t even keep your head straight, it grounded us. We actually physically brought out that paper and said, "Hey, listen. Here’s what was our number. This was our goal. What else has changed in the last six months? Let’s stay focused on this main mission here."
Because we did that, we could also say to our banker - we actually gave them an above-market fee over a certain dollar so you hear what standard scales are and we just said, "Hey, if we get X amount we know we’re going to be happy with that, so anything over that let’s just do whatever we can to incent that guy." Alignment of interest works for whether you’re trying to hire a sales person or whether you’re trying to actually sell a business, right. Understanding what people’s motivations are, I couldn’t agree more. It’s so important. It almost sounds like it’s too simple. We know this when we’re running our business but sometimes I think business owners forget about it as you’re going through something that you’ve never done before like selling a business.
Noah Rosenfarb: Yeah, and you only get one chance to do it right, at least the first time you sell. One of the things you told me is that you learned that you should really run your business as if you’re going to sell it. What do you think would have been different for Investopedia had you adopted that mindset and how would it maybe change the way you’re running Janalta Interactive?
Cory Janssen: In the years beforehand, I think we thought that we were, you know, we thought ourselves more as cowboys, more as just you’re standard entrepreneur where you go, "Hey, whatever. We just go month to month and we know what we’re doing. We’re going to run by gut feel." To a certain extent, there are always decisions that are going to be made that are, you know, that entrepreneurial gut is good. However, looking back on the process afterwards, we could have made the deal be so much smoother and eliminate a lot of our grief by having a better exit plan. I wouldn’t even have known what the term exit planning meant at that point, to be completely honest.
If we were sitting with someone before I’m going to say, Okay, listen. They’re going to be really looking at your EBITDA, how do you clean up your financial statements, so that when someone asks me for this data you don’t have pull it all night until 4 AM to try to get it in that right state. To give a tangible example of this, when we first sat down with the investment banker, we said, "Okay, we’ll give us your budgets and your performas for the next bit and he said, "Well, we’ve got the next few months but we don’t have a three-year budget. We don’t have a three-year plan." I said, "Well, you have to have that. Everybody’s going to want that," and he said, "No, we’re not going to …" and we tried to push back and said, "We can’t, this internet."
But the fact of the matter is that even if the projections are just your best guess, even if they’re not even completely accurate, the fact of the matter is everybody wanted them. Everybody want to see that you had a vision for the business, so unless you want to take a haircut on your multiple you need to play the game and you need to understand that you need to be able to convey what might be your gut feeling, what might be that kind of entrepreneurial sense you have. You still need to be able to communicate that vision in a language that the guys on Wall Street or the financial guys can understand.
Noah Rosenfarb: Yeah. What we try and encourage clients to do is develop those three-year projections far in advance of when they’re going to exit and in that way they could get better at it, for one, and for second they also have a track record of how they have done, "Hey, this is what I thought we’d do, this is how we actually have done. A lot of times what I found I negotiating is that if you have a good track record of projecting and hitting those projections, it can influence the EBITDA multiple because there’s more certainty for the future.
Cory Janssen: Completely, and we were lucky that we had a good banker so we’re having a conversation with them and not necessarily with the prospective acquirer.
At that point, we had to go re-tool our whole accounting system to try to be able to put it in a format that we wanted to do for the book. We could have saved a lot of that grief. I think it can be some of the best where the way I view business now and the way I view exit planning now is, you should be running your business or I will run all my businesses with an exit plan in mind, not just because everyone will sell but because it’s actually a better way to run the business. It actually makes you more disciplined because you need to keep this plan, because you need to be thinking about this type of stuff.
Thinking about the business or looking at the business how an outsider would, is in many ways very powerful is in many ways very powerful because it forces you to stick to the goals and it forces you to stay more disciplined.
Noah Rosenfarb: Yeah, I totally agree. So one of the things that you did is obviously you went to go work for the buyer. I know from talking with you that it’s an eye-opening experience, so tell me some of the things you learned and found out about being an owner, operator and then an employee.
Cory Janssen: I guess, first of all, we have nothing but positive things to say the Forbes family. Forbes Media was and still is a private organization so it was a little bit different than working for - I mean, everybody knows the name but they’re not publicly traded - so it was really maybe a unique situation in that sense because they’re large but still have the flexibility in some ways that the private companies have over public companies. The Forbes family was great.
I think, though, that over time I learned that I just couldn’t work in an environment for someone else and not a knock on themselves with their business or any other people that I work with while I was part of. It’s just once you get used to making the right decisions and having that flexibility, it’s hard to go back. We had a lot of freedom right after we sold it. It didn’t change anything and then the financial crisis hit and I think every business really tightened up a little bit - or a lot - and so when that happened all of a sudden you felt a little bit stifled because you used to have all this flexibility and that wasn’t there anymore. It’s something that you don’t realize how much you valued it until it’s gone.
Noah Rosenfarb: Was there a wakeup call one day where you said goodbye or did you have an agreement where there was a fixed date that you were intending to leave?
Cory Janssen: We did have a two-year contract so we had to stick around for that. I guess the one moment that I can think of is getting into my car and driving to work and not wanting to go. I actually like my commute in the morning. It’s not too long but it’s that time when you’re just by yourself in your car and for myself it’s almost you’re focused on what you’re going to do that day and usually I can’t wait to get to my desk. I’m pumped and excited, I’m ready to go, and that’s how my entire professional career has always, you know, that car ride is kind of, "Okay, I’m ready to go here," then when all of a sudden it wasn’t that. I said, "Oh, man. How much longer? Give me a rest day." When I go into the office, I knew that all of a sudden that maybe after that two-year mark I needed to make a change.
Noah Rosenfarb: When you decided to make a change, what were some of the things you’ve been doing and how might they have been shaped by the experiences that you had in founding Investopedia, selling Investopedia, recognizing the importance of running a business like you’re going to sell it?
Cory Janssen: I guess two things. First, more of maybe a little bit more fluffy, but I didn’t really think about motivation beforehand. I just thought if you’re an entrepreneur you’re motivated and it’s just inherent in who you are. Afterwards, as I went and spent a lot of my time investing in more on the passive side, I began to realize that what I really like to do was build things. I really like the process of building a company and I got a lot out of that. My father has a great saying - Business is a game and money is points.
Money does matter. Money isn’t everything but it does matter and it especially matters in business, right? Take anybody who’s had trouble making payroll and you realize that cash is king and it does matter. However, it doesn’t necessarily equate into happiness in business, in terms of happiness, in terms of how you’re working on a day to day. So what I realized is that I really wanted to get back and build something again and that process of working with people that you like and respect. That’s fun. Everyday I go to work and I want to go and I can’t wait to get there. When it’s 5:30 or 6:00 pm rolls around I wish I had more time. So figuring out what my motivation there was, it actually took me a couple of years to actually figure out that that’s what I wanted.
The second thing that I took out I think that probably changed me after I sold was that I think we had a bit of an inferiority complex about we were a small company and so the big businesses must have a better way of doing something, and I think we underestimated ourselves. Your systems aren’t poor just because you’re small. Again, small is relative. I’m talking small in being like a sub-hundred million company, like the middle market to the lower end of the middle market.
As we got into seeing how large our organization worked, we realized that there were certain things we were doing that actually were great, especially when it comes to areas like, say, product development and how we actually innovated and built new things and tried stuff out. In many ways, I’d argue that we did more than a larger organization could just because we’re someone nimble. That lesson has given me more confidence now in the next businesses to say even though you might be in a market that’s up against some big bad 800-pound gorilla there’s always a way to be faster and more nimble around them, and there’s always the opportunity despite the fact that you might have the same capital or brand or whatever advantage that larger organization has.
Noah Rosenfarb: When did you start getting into the repeat "opeida" type of businesses?
Cory Janssen: Yeah, I would joke to everybody that I’m just really bad at thinking of new names, so with Divestopedia after … first and foremost, I’m an entrepreneur and second, I’m an investor and a finance guy and I think it’s more powerful because it’s kind of focused on both, but that entrepreneurial history I think, it’s hard to explain unless you know other people that run businesses. I think most entrepreneurs can identify with this. As an entrepreneur, you’re kind of on your own. You’re kind of screwed, right? Your employees want more money, your customers are trying to nail you down, your suppliers are always pushing you out and extending you out. I really believe that as entrepreneurs we need to stick together.
After going through that process of the rollercoaster of selling a business and being completely outmatched by all these guys that have done way more deals and learning as you go along, when I was approached by current partners with Divestopedia they said, "We want to create a site basically like Investopedia but helping the entrepreneurs, helping business owners maximize value, doing a deal on their terms. The idea just resonated with me. So we’ve got model of a publishing content and - not to get into too much on the business model to bore the audience there - but creating educational content and tools to help people do something better and to help entrepreneurs better maximize value, it just seemed like the perfect fit, and so we’re having a lot of fun doing it right now.
Noah Rosenfarb: That’s cool. Where do you get ideas for the other sites and other information that you publish?
Cory Janssen: We have three or four different main sites. Techopedia’s another one and then we have half a dozen irons in the fire. It takes a long time to build up some of these sites, to gain traffic, to gain that initial base of users. You need to have a little bit of patience, but when we look at any market and try to identify whether there’s an uncertain need there in terms of people are trying make better generally business decisions, usually kind of B2B sites, can we create compelling content that someone else out there is not creating and can we match them up, is there an advertising base that wants to target that particular demographic.
We’ve got a larger checklist that we look through when it comes to approaching any different vertical but essentially it’s been a matter of partnering with industry experts, people who know a lot about that particular vertical and providing them the IT, the technology and the media experience in the back end to try to create a JV that makes sense to take on any specific area.
Noah Rosenfarb: Let’s talk about Divestopedia because we’re on the Divestopedia exit strategy podcast - I think that will make sense - we have a nice group of listeners, and thank you to all of you for listening to use. Again, if you could share your feedback on iTunes we’d greatly appreciate it. Our audience is broken out between owners and advisors to owners. How can they participate in the site? I know a lot of people would like to contribute, so why don’t you maybe discuss that for a moment?
Cory Janssen: One of our main focuses on the content side over the next while is going to be around sharing success stories. You turn on the evening news and it’s wars and, you know, the economy’s bad. It’s always negative, right? But there’s so many positive stories that you hear when you talk to advisors and intermediaries or business owners. We think there’s a lot of power in being able to share those stories.
It could be an entrepreneur who sold a business and the lessons that he or she has learned from that. It could be more of the advisor who has had a difficult problem that they worked through somehow. We’re always on the lookout for any of these success stories and we want to be able to be that platform that they can get that story and share it, so that others can learn from it.
When we edit this and put it up on the site we’ll put the direct link to contact information on there. I would highly encourage anybody who’s listening that might have that story, that might want to share their experience, to give the shout.
Noah Rosenfarb: Yeah, that would be great. Before we wrap our interview, why don’t you talk a little bit more about what you think our audience should hear based on not only your experience being an owner and a seller, but also your experience running a content site related to owners that want to be sellers? What are some of the things that you think they should know if they have to come through all the content that you’ve accumulated?
Cory Janssen: Start now. The site is not just for people who are in doing a deal right now. If you think you might sell down the road or maybe if you’re not even ever sure, preparing your business for a sale, you’ll probably actually make more money and put it in your pocket even if you never do sell. But having that education, having that understanding of how a financial buyer or strategic buyer might view your business, understanding what systems are required, understanding how valuation is done or what things might affect the multiple in your business, for an entrepreneur to start way before they should will pay massive, massive returns in the long run. I wish I did more prior selling and as I have this experience moving forward, like I alluded to before, and that’s how I’m going to run any businesses that I’m involved in from here on in.
From the point of view of the advisor, I think it’s also being able to better communicate and talk through these subjects and understanding the needs of entrepreneurs and the needs of business owners, and maybe coaching through some of these elements and taking those baby steps, right? If you’re looking at it and you’re thinking about it way, way before you need to, then it’s just going to make the whole process that much easier when the time does come.
Noah Rosenfarb: Great advice. We have a resource on our website at freedomexit.com where owners can go and download 53 different ways to think about how to enhance the value of their company. I think it seeks to precisely what you’re talking about. You don’t have to do everything. You just have to find a few different ways that you might want to take a look at your business and start tweaking it over time, so that if you keep it, if you continue to be the owner you’ll reap all the benefits and if you choose to let someone else own it and sit in your chair, they’ll pay more to be in that spot.
Cory Janssen: Yeah, and that really is an amazing document. Remember when you first sent that over as you were working through it? My immediate thought was, "I wish I had this ten years ago." It only takes the planting of the seed, right. Even if you only take on one or two items per quarter, at least you’re aware of the other stuff and so it makes you think about it and go, "Okay, well …" it changes how you make decisions down the road because you have an awareness of going, "Okay, how’s an outside investor going to view this type of decision?" or, "Is this getting me further towards my long-term goals?" I’m a huge fan of checklist and I really, really would highly recommend that document.
Noah Rosenfarb: Great. I appreciate that. Cory, before we end the podcast, what else would you like to share?
Cory Janssen: Now you’re making it tough on me just leaving it wide open there. I’ve kind of hit on from the key points. I guess I find as I’m talking with entrepreneurs and they have specific issues in terms of their sales process, it’s crazy how many different elements of the deal came out, like everybody talks about the high level points but then guys who have been involved in a deal, you talk to them and they’d say, "Hey, what does your LOI look like?" or, "How do I negotiate this part of the sale agreement? How did you deal with negotiation? How did you hire an investment banker?How did you know your tax planner was right?
There are literally hundreds of different decisions the whole way through, just like if we’re interested in more people that want to share success stories, if you have other questions let’s put it out there because we have such a great network of contributors now with Divestopedia that there’s someone who has an experience or an answer to just about any question out there.
So I’d say don’t be afraid to give me a shout and I’d be happy to, you know, whether it’s talking privately or whether it’s putting something up on the site that’s kind of public that answers the question, that’s the core of what we’re doing. That’s the mission and that’s the gap that I think we see in terms of the online space right now. There really isn’t a great resource out here where entrepreneurs and their advisors can really work together to make everybody’s life a little bit better, to maximize value and get something done on their terms.
Noah Rosenfarb: Yeah. Thanks, Cory. I appreciate you coming on the show today. I’m proud to be a part of the Divestopedia team. For all of you listening, make sure to reach out to Cory. What’s the best way for them to get you - email, telephone, website?
Cory Janssen: We’ll throw a link on the website, but yes, [email protected]. They can also pop me an email and we’ll get in touch that way.
Noah Rosenfarb: Terrific. Well, Cory Janssen, the president of Galt Capital, the co-founder of Janalta Interactive, which is the owner of Divestopedia. Thanks for coming on and we hope for all you listeners, you join us again. Have a great day.