We Turned $5M Into $419M Buying Cashflow Businesses ft. Jeremy Giffon

0:00All right. I've been chasing this guest today for six months, begging him to come on the podcast because I heard him on a podcast last year. And as much as this breaks my heart to say it, that was my favorite business podcast of the year. And it wasn't even our own. But he was so good that I asked him to come on. His name is Jeremy Giffon. He was the first employee at Tiny, which if you've ever listened to the podcast, we've had Andrew Wilkinson on many, many times. They basically turned$5 million of starting money into about$500 million of equity just by buying businesses that cash flow. So they bought small businesses that cash flowed, kept recycling, recycling, recycling, over 10 years, turned into 500 million.

0:36So I wanted to ask him, what was it like in the early days? What were those first deals like? He was there before they even had a name, before they were even called Tiny. So we asked him about his best deals, his worst deals, the weirdest deals he's ever done, negotiating tactics he learned. This episode is amazing. It's a 10 out of 10 for me. Enjoy this episode with Jeremy.

1:03I put my all in it like no days off on the road. Let's travel never looking back.

1:33Tiny is. They had a services business, an agency, and then they had excess profits. And I think you can correct me if I'm wrong, but I think the numbers are something like they took $5 or$6 million of initial equity and they put that into Tiny and we're like, okay, we're going to go try to buy a business with this. And they've ended up turning$5 or$6 million of initial startup capital into roughly a$500,$600 million public company where Tiny owns maybe a portfolio of 30 businesses or something like that over roughly 10-ish years. Yeah, eight-year period. So kind of amazing. And eight years turned$5 million into$500 million.

2:11Like, okay, I'm doing round math here, fuzzy numbers. But first of all, is that the right math? Is that roughly the right story? And then walk us through the beginning days of that because you were there at the very beginning at 19, 20 years old, employee number one there. Walk us through that. yeah so i i knew andrew because when he was starting metalab and i was working on another startup um we shared the same studio apartment our office was in a studio apartment and uh he was in like the bedroom area and we were in the kitchen and we would keep a keep a blow-up mattress in case the fire guy came around and we would just say oh you know andrew lives here but just have a lot of friends over uh you know working on stuff um and yeah i mean effectively like metal lab the store the short version is metal lab you know was throwing off a fair amount of free cash flow i think it was in that range of you know low millions a year and the idea was just to go use that free cash flow to buy buy a business and you know um that's the thing with agencies right like there's not a lot of reinvestment so you got to do something with the cash and if you're not going to put in the s &p like that's too boring or whatever then you got to figure out something to do with it um and so that's that's kind of what we did it's funny like people a lot of people hold codes and stuff are really popular now.

3:26And a lot of people ask, how do I build Tiny effectively? And the first step is like, well, bootstrap a business that makes millions of dollars of free cash flow and then get back to me. The rest is pretty easy. And that's the first start. And you said it took 8 years. In reality, I think MetaLab, the agency, that was already 8 years older. I don't know what it was. Yeah, that's right. MetaLab is probably 15, 16 years old now. So it was a long slog. I mean, Andrew just started really young. It was also one thing that's really helpful is Andrew and Chris and myself. I mean, we were all big users and fans of Dribbble.

4:02And Andrew really had that company in mind for a long time, which I think is another really nice thing to have. It's very good to start with a deal, even when you're fundraising or whatever, to actually have a concrete thing that you want to go do and use that as the jumping off point for building whatever it is. I think it's always so much better to have that than to kind of be like abstractly, oh, well, I'm going to start a funder. I'm going to start a holding company or whatever. And so it was like, Dribbble is really cool. We would love to... We would be the right owners for that. Andrew knew the co-founder is there.

4:32And maybe we could buy that. And that would be a starting off point. And it's all very real and concrete versus the, we're going to build a holding company of technology businesses or something like that. Now, you're three guys who've never bought a business before. Take me back to... You're sitting in the kitchen or whatever of your apartment slash office slash hangout lounge. Are you guys like, hey, can we buy buying businesses for dummies? How did you even figure out how to do it and also if this was a good idea? Because it's a big risk, right? I think probably 4 or 5 million bucks of equity went into that deal.

5:05That's a big deal. That's not like a couple hundred grand at that stage. So what were those conversations like at the beginning as best as you can remember? Yeah. I mean, it was like anything. there's generally one way that you can categorize sellers it's people who care about what happens to the business after they sell it and people who don't and um certainly for people who care it's a lot about it's this huge trust exercise of you know are you going to screw up my baby like in their case they've been working on it for a really long time their names are very attached to it there's a big community community businesses are really difficult you know the community can really turn on you fast um and so yeah there's that whole piece and then mechanically yeah it It was literally like, I don't think we even had a book.

5:49We just looked it up online. Like I would literally go on Legal Depot and like get a LOI off there and edit it. And, you know, for the first few deals, like, you know, I was 19, 20 and Andrew would be like, can you go get a LOI for this? And I didn't know what that was. We just go download one and write it up. It's interesting because one thing that we didn't, like this is an example of just the benefit of not having a lot of experience. typically when you do an LOI it's pretty far along in the process and we would just fire them out because we read them and in an LOI the only thing that's binding usually is the exclusivity and nothing else not the price or anything else and so we thought okay like this is a totally non-binding thing so let's just like chuck it out there it's nice to have something on a piece of paper it's kind of like a term sheet although even term sheets like socially are more binding and we didn't realize that oh and private equity and LOI is like a pretty sturdy commitment or whatever.

6:44And that was for better and for worse. On one hand, it let us move really fast. On the other hand, we learned quite quickly that, okay, you're not supposed to go back on what you changed in an LOI and that kind of stuff. And so there's all those little things where just not being familiar with the process really let us move fast. It let us be friendlier. And that was the whole point. We had both had these bad experiences with buyers. And we thought there's got to be a better service to be done there, basically. I had a handyman come over yesterday and he comes to my front door. And he's like, show me what you need done, whatever.

7:15And I said, great, that's what I need done. And he goes here before we start, I need you to do something. And he pulls out a notebook and he writes, my rate is$50 per one hour. And he hands it to me, he goes, sign this for me. And I just go, okay, cool. I'm aware. That's awesome. He's like, spits in his hand, shakes it. He's like, this is no official. And I was like, I appreciate your style. And that was like the tiny Any LOI. Yeah, at least it's understandable. So at the time, was Dribbble an obviously good business? Because it turned out to be an amazing investment. Probably like a... I don't know.

7:54What is it? Like a 50x on your money there, right? Yeah, more than that. More than a 50x. Amazing. Did you guys try to underwrite the deal? Were you in Excel dragging some 10 % growth, dragging it over 20 columns? How did you guys... What did the deal look like? And what did you expect? Again, it was pretty obvious that it was a great business. And I think Andrew's told this story before, but there was some immediate day one levers around like a big part of the business was advertising and we could find better advertising providers and things like that. So there was levers you could pull on day one that were going to improve the business.

8:29But yeah, it just felt like this big opportunity. It was a top 1000 website. It had millions of active users. It was very important. When it launched, I think I bought my Dribbble invite on eBay or something like that. It was really hot for a while. And it was just this kind of like cool thing that didn't really exist. You know, there's not a lot of independent social networks that have millions of users. And, you know, we negotiated a pretty fair deal. I think like, you know, the other Buffett line is price is my due diligence. And that helps a lot. But no, we never thought any of the deals could be, you know, 50 plus Xs.

9:04We're always just like, Like, you know, can we make 20 or 30 % cash per year from this business? And that would be great. And anything after that is just kind of upside. You know, I think... And yeah, regarding models, you know, Andrew used to make me do discounted cash flows because it was kind of like the thing that you felt investors ought to do. And then at some point, I was like, here's your spreadsheet, but I'm just making up all the assumptions in the spreadsheet. And I think it was like, so many of these things are just like comfort blankets or whatever. You just like, it makes you, it's a big scary thing that you're doing and it makes you feel better that you have it so you can look at it and be like, yeah, like we've modeled this out, you know, but it's like, it's bullshit.

9:42You're just making it up. You also had a great quote. You were like, you said something to me, you go, the more quantitative analysis, so the more numbers, numerical analysis you're doing about a business, the more you're commoditized in your analysis. What does that mean? Unpack that one. Yeah, my favorite anecdote here is in the Facebook IPO, Barclays put out this research report where they say what they think the business is going to be worth. And the way they do that is through a discounted cash flow. And a part of that calculation is like, what is the terminal growth? What is this thing going to grow at forever?

10:16And they put it at 3%, which is what most companies are. And so that got them to a$200 billion valuation. Now, the next 10 years, it grew 30 % a year, and it's a$2 trillion company. And it's just an example of like, you do all this modeling and this research report, and you're just so off like you're an order of magnitude off and so like what was the point of doing any of that it would have been better to think really hard about how actually how much can facebook grow like just kind of this first principle stuff right of what percentage of the planet could use this like a lot more basic um and yeah that's a lot of the quantitative stuff also a lot of the quantum stuff is totally commodified right so people like know how to do this you can learn how to do this in school and therefore maybe it's like a useful table stakes thing.

11:02But you're not going to get any edge that way because everyone can do it. And where the edge is in quantitative stuff is in the Two Sigmas and Jane Streets and the MIT PhDs. And you're not going to be doing that either. And so you're not going to do a better model on a company than the next guy and somehow get some edge there. So then when you're looking at a deal, when you're trying to... Like a small bootstrap business, a business doing anywhere from a million to 30 million in revenue, what are you looking at to spot the opportunity? If it's not the... I me, how much do the financials and the cash flow statements actually even factor into that?

11:36Or are you just thinking, I can make this bigger? I mean, what part of the numbers actually matter to you? Yeah, it's pretty basic, right? It's like, okay, let's make up numbers. It's doing$5 million a year of revenue,$1 million of earnings. And you think, okay, on day one, I could raise the prices is my 30%. I could reduce headcount. I could launch this new product, whatever. Would you pay, you know, would you pay a million dollars for that? Yeah, of course. Would you pay$3 million? Yeah, probably. And then you can just kind of go. And I think where modeling gets important is when you're like at the very edge of that, you're like, would you pay$10 million for that?

12:17And then it's like, well, a lot of things would have to go right, maybe or whatever. But there's some number there where it's like, yeah, I'd pay$3 million for business making$1 million. And so then the trick becomes, okay, can you get the business for$3 million? And that's where it's like, Tiny was in a lot of bids with other folks. And I don't think we were ever the highest actual price, but we often won deals because we could offer other things. So that comes back to why you on the deal. The very common thing that would happen is we'd get pretty far with the seller. and then they'd say, hey, we like you guys, but we've got this offer for 25 % more.

12:54So we're going to go take it. And very often be like, great, go explore that. And then turns out that offer was not as real as you thought or it was six months of whatever. There's more debt or they didn't have the financing. And then you actually figure out that, oh, there is other things in the deal that are important, like the ability to get it done, the ability to be honest, to be trustworthy, to do things fast, like all those other soft things. And so it's more like, are you able to get a price that's really a no-brainer? At least that's how I look at it versus I really think I'm smarter than everyone else and I can pay slightly more.

13:26I mean, that works for people. People do do that, but it's just a totally different game. I'm always fascinated by the people behind these businesses. What can I learn? Tiny is a great business, but it was created by people. It was created by Andrew, by Chris, by you. And I'm like, how do they think about things? What do they know about what they're doing? what worked for them what are their ultimately what are their superpowers and i asked you what's chris's superpower because forget andrew everybody knows andrew he's popular he's out there he talks he's got a big following almost nobody knows chris i had dinner with chris and i was like i fucking love this guy this guy's he's dynamic he's really engaging he asks great questions and so i've only known him for a couple hours of my life you've known him for a lot longer than that what is chris's superpower that that he brought to tiny i mean chris's superpower is just being able to...

14:15Andrew is so high-paced and so high-energy that Chris is just able to modulate that and kind of be the sober second thought, you know, we're not going to do this or that's way too much or whatever. You know, a very interesting piece of the Tiny partnership, at least at the beginning, that I thought was really quite unique and interesting is that, you know, Chris and Andrew had Tiny as this vehicle that they would share together, but then they could also do things on their own, you know, investments, businesses. And that actually, like, I don't even know if it was intentional, but that provides this great release valve of, oh, okay, like, all the time, you know, Andrew would come up with some, you know, cockamamie motion about some restaurant or whatever.

14:58And he would just say, okay, I'm gonna go do that on my own. And Chris could have the same thing, like Chris was great at investing in public equities, and he could go do that on his own. And I know that doesn't directly answer about Chris's superpower, but it is this like interesting structure. I think one thing that can really go wrong in partnerships is if it's like you're dedicating your whole life to this thing and everything you do is going to be through it, it can really turn into this prison if you don't share the same tastes as your co-founder. And so having this like release valve and being aware of that is really nice.

15:27People normally pick partners who are like them, right? But Andrew and Chris are not like that. I guess, what did you learn from that? Yeah, I mean, I would also say like, Andrew is really good at sales and kind of creating this new vision. And then Chris is really good at being kind of the negotiator and actually like, getting a good deal and structuring it well and everything. You know, there's all kinds of things about about negotiation, like, one thing that would be like structurally, another interesting thing is, you know, I would, I would be kind of the front guy on a lot of deals, and would come back to them.

16:03and they would kind of be quarterbacking it. And what was nice is like, I would throw out an offer that I thought was really aggressive. And it was kind of the most that I could like emotionally stomach. Aggressively high, aggressively high, low, really low, really low. And so this is, I want to be clear, this was back like in the early days when we had no money and we were really trying to like be scrappy. Tiny is not really like this anymore, but, and then I would say, okay, like I've really got this down, you know, and then they would just look at me and because they never talk to the seller and just say, I think you can do like 25 % less.

16:35And like, sometimes I feel like I want to throw up, you know? Talk through that when you have to present a shit offer to someone. I imagine a lot of times, maybe not a lot, 10, 15 % of times, they're like, okay. Yeah, more than that. And actually, what's even rarer is, at least I, I always have this fear that they're just going to lose it, you know? So spit in your face. And that almost never happens. It happens sometimes, but it almost never happens. And another nice dynamic there is you can always say, well, hey, I'm on your side. It's the old car salesman gamut of my manager's killing me. It's the same exact setup, right?

17:13And that's super helpful. And Chris shared all kinds of tricks with me. One great one is it's always best to just kind of when you float an offer to just not say anything else, people will immediately start negotiating against themselves. And so one trick that you can use if you're on i guess it probably doesn't work on zoom but um if you're on just a call is you can like say your offer and then hit mute and then you can like be like you can start saying oh you know whatever but they'll just hear the science silence and um that's a big thing as well because oftentimes you just need to let it float and sit out there but it's like too uncomfortable for you to actually do that dude i've got this friend who works in the cia and i was talking to him uh and he has to negotiate with people you know basically his job is to convince people to become spies.

18:00So if he goes to the Middle East, he has to convince a guy who's loyal to some country in the Middle East to commit treason. And when he goes to these negotiations, his tactic is he said the same thing. He goes, I say what I want and what I want to happen, and then I shut up. And his other coworker was there, and he was like, who's not part of that? He's like, dude, they do this to me all the time, just at work. I'll notice they say something, and I just want to fill the silence and I want to keep talking because it makes me uncomfortable. And I end up just talking, talking, talking, and they sit back, not saying a thing, and they always get their way.

18:35Yeah, totally. I mean, one very cynical way of looking at negotiation is that it's just who can bear to be uncomfortable longer. And that's certainly true. You can do that in a retail setting. Sean does that all the time. Sean, I think when he negotiates... The king of the awkward silence. Yeah, he's very comfortable. I have a condo on Awkward Island. Yeah, he's the mayor of that area where he's just very comfortable being uncomfortable in a conversation. Jeremy, you told me something else that Chris taught you that is less about kind of the gamesmanship. I think when we think about negotiation, we often think about the gamesmanship.

19:16What do I say? And I think you already said one interesting thing, which is a lot of times is what you don't say. It's to stop talking and let them talk. But another piece you had mentioned to me was like, it's not you versus them. Can you explain that? Like how Chris taught you, it's not you versus them. The way that I like to frame it, the more kind of mature, the way that you can really do, I think for your entire life and not kind of get, you know, be known as this like bastard who's just relentless to negotiate against. It's kind of, I love this idea of in a traditional negotiation, you're sitting across the table from one another.

19:45And the way that I really like to reframe it is you're both sitting on the same side and what's on the other side of the table is the problem. And the problem can be, you want 50 million for the business, I want to pay 20. But it's still this like, okay, this is a problem. Let's work together to figure this out. And it's this very subtle thing, but it makes a huge difference. And that's, I think that's how you start to unearth, okay, maybe like it's actually not, it's cash and something else that's more important for you. Why do you want 50? What is it that's 50 about so important? And why can I feel like I only can pay 20 or whatever.

20:18And that works really well. I use that every day. You can use it in like relationship problems and everything of kind of like making the problem other and then putting it out there and being like, let's work together on solving this thing. And there's just something so much better about that than the kind of like, I'm going to hit mute and stare at you and like break you. Like, well, see, Jeremy, the problem that we're trying to solve is I want the money in your bank account to be in my bank account. Yeah, exactly. I want that. I want that chase to say five zero. Yeah. No, it is true though. One of the things my dad taught me, one of the best things my dad ever taught me is like, when you go into a negotiation, it's not the same thing.

20:57It's not us versus them. He goes, make a table of your needs and your like, basically your needs and then your gives. So like, what do you have to offer? And then what do you need back? And then what do they have to offer? What do you need back? And they're never like perfectly symmetrical. It's not like... And so for example, some of the things they need are very easy for me to give, cost me nothing, or I'm totally comfortable giving that. And it's actually their fear or their big sticking point was something that's not so hard for me to give on. Or maybe I could go out of my way to give more even than they're expecting in that area.

21:29And in this other area, I need something and then they're happy to give it. And so that's usually the better way to do it. My favorite question is what would need to be true? So it's like, okay, you want to sell your business for$100 million. What would need to be true for me to pay$100 million for it? and you can just lay it out like like what would make this a no-brainer and you can do that in any situation and you know sometimes it's impossible but oftentimes it's far more possible than you think when everyone actually lays that out because usually there's some sticking point that you don't realize or or you know it's something that is kind of outside of the scope of things you've already talked about and i'm always amazed by how much that works that works like as i've been fundraising it works there like what would need to be true for you to be like oh it's easy for you to give you money or um you know uh for for a trip like what would need to be true for everyone to be excited about going on this trip like it's just such a good question and it really sets that up as like let's collaborate on this that was my pickup line what's a guy like me got to do to be with a girl like you and then she's like do you have a friend what's his name

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23:37You have this other thing on here where you talk about how, what do you say? A cold email is the most asymmetrical trade and that you've actually cold emailed a bunch of people. There's one guy in particular who you listed that I want to ask you about. But it sounds like the cold email has done well for you. Explain more. Yeah, I think it's funny. I've been saying this a lot more publicly into groups and stuff. and it's still like if everyone cold emailed the art would go away but i think it's just too scary or whatever that people don't do it it's still a huge opportunity i will say like the the addendum to that advice is you gotta have the goods when you show up for the meeting or the call or whatever i think like i think i don't know maybe it's just like anecdotally because i talk about this a lot i get a lot of cold outreach and you also like the second part is you got to be really good when you show up.

24:29But if you're good when you show up, like it's just this incredible, incredible kind of hidden secret, which is there's always a scarcity of talent. Like no matter who you are and, you know, how much money you're worth or whatever, there's a scarcity of really awesome people. And so, everyone has an infinite appetite to meet people who are interesting, talented, have a unique view on things, whatever. And if you can present that, like you will really kind of go a long way. And the downside, I can't even remember. I'm sure I've sent hundreds that have never been responded to. I've never got a bad response.

25:04It's usually just no response. And I don't even remember the non-responses. But the ones that I've got responses from have been amazing. And so, I definitely think more people should do it, especially if you're young or you're a student. That alone can be enough of a hook that most people will meet with a student if they seems switched on and interested. And yeah, I'm still amazed that people don't do it. But I've started to see people do it and then they show up and they don't have anything to say or they don't have questions prepared or whatever. And that can be really bad. We already know your first deal, but that was the first one.