Scott Hutchison is the founder of Strikeman, a laser training system that allows firearm owners to practice their shooting skills safely at home. Strikeman makes a cartridge that’s the same size as a bullet, and it puts a laser on the back of it. When shooting the cartridge, a laser will track it to a target – and everything is captured by the Strikeman app. It’s a brilliant idea, and like most entrepreneurs, Scott has plenty of them – but most of them don’t work out.
Today, find out more about Scott’s entrepreneurial journey, his testing philosophy when he realized his ideas weren’t all the best, and how Strikeman was build and sold.
Today’s episode of Deal Closers is hosted by Izach Porter, brought to you by WebsiteClosers.com, and is produced by Earfluence.
Scott Hutchison: it was kind of a no-brainer, right? It’s like, okay, we, we have, we have like all this inventory. It’s stuck on a boat. We have no inventory left in our warehouse. We have to wait a month and a half a month till this comes, do we just turn everything off and run outta cash and, and not make payroll?
Izach Porter: You’re listening to Deal Closers, brought to you by WebsiteClosers.com, a show about how to build your ecommerce business to be profitable, scalable, and one day, even sellable.
I’m Izach Porter, and on the show today, Website Closers Nate Lind and I talk to Scott Hutchison, founder of Strikeman, a laser training system that allows firearm owners to practice their shooting skills safely at home.
Scott founded the company in 2019, and it’s truly remarkable. They made a cartridge that’s the same size as a bullet, and they put a laser on the back of it. When you shoot your gun with the cartridge, it shoots a laser for a split second that will hit a target – and everything is tracked by the Strikeman app.
You know most entrepreneurs I talk to have ideas – sometimes crazy ideas, sometimes amazing ideas – pretty much every single day. And while some of Scott’s ideas have worked out – like Strikeman and another ecommerce company called Paw.com, some of them haven’t been so great
Scott: To be honest, every idea that I’ve thought was gonna work didn’t. So I, I don’t trust myself anymore. You know, if something hits me or I have an idea for it, I’ll write it down and I’ll do my market testing, but like nine times outta 10 my ideas, they just don’t seem to pass the test.
So like we, we launched a company last year called No Soil, and it was an inside out planter, so it was made out of terracotta and you put seeds on the outside and then you fill it with water, and then the water goes through the, the terracotta and then you have this, this plant that grows on the outside. It was basically like, like an adult chia pet. We sank about a hundred K into that and ordered a bunch of inventory and, and then launched marketing. And like our initial marketing test, all, everything looked good, but it was, I think it was a trendy idea that was, that was trendy maybe a year or two ago. And then when we launched it, we were, we were way past that and it, and it, and it just flopped.
Izach: Even before that, Scott had a business that definitely wasn’t a flop. It was a jewelry company called Ash Bridget that was doing 13 million plus
Scott: And we were like ready to get to that next to the 20 million mark. I negotiated a deal with the NBA, NHL, NFL, NCAA to make jewelry for every single team. And then we are gonna use Facebook ads to target every single team’s female fan base and like.
Izach: Wait, wait, hold on a second. So you negotiated one deal with, with all the professional sports leagues?
Scott: Yeah, so there, there, there was one guy who had the jewelry license for, for all of the big leagues, this guy who was out at Pittsburgh. So we got him to produce the jewelry for us at like a really good cost. And you know, for this to work we had to buy hundreds and hundreds of thousands of dollars of inventory up front.
I did the market testing, but it wasn’t rigorous enough and we had all this inventory. We thought it was gonna be a slam dunk and get us to that 20 million mark and, and it, it flopped and we had too much inventory and not enough cash and we went belly up cuz of that.
So that was about eight years ago. Since then I’ve been like a lot more careful with, I don’t know, like running a small, like an e-commerce company. Like you have to be very careful with your spending and, and, and make sure that the cash flow is healthy. So any big decision you make when it comes to inventory or marketing, when it comes to bigger spends, you have to,
You have to be rigorous with your testing, and you have to figure out a way to test. otherwise you’ll just, you’ll go outta business quickly
Izach: gotcha. Okay. So getting back to Strikeman in developing the app, you were able to get some intellectual property and file for some patents. So how did you kind of determine that what you had built was unique enough to go down that road?
Scott: Yeah, so I, I’m definitely not a patent expert but like what originally was Strikeman, like, there was a few other players in the space that they essentially had the target, the laser cartridge, the phone mount, and then their app. And like what, what would happen with their apps is you would shoot at the target or the lasers would hit the target. You’d have maybe 20 shots, your session would be done, and then you’d get a screenshot of where all your shots hit.
So it was very bare bones and basic. So, you know, we, we talked to some, firearm instructors, couple SWAT guys outta Miami, who gave us, gave us some ideas and said, listen, like you need a shot timer to get some graphs so you can over time, see, see how, how, your, your, your average accuracy scores are improving. it would be fun to have, have a section that would allow you to compete with your friends or family. so it was things like that we, that we just piled on top of what was already existing.
And then once we did that, we, we filed patent pendings for that. And then with the Strike and Pro system, the physical product, for Strike and Pro was unique enough to do a patent pending as well. so, you know, the way I approached it was like, let’s just make this thing better than everybody else and, and make it as addictive and fun as possible. And then give all the information to a patent lawyer and just see what he can do with it.
So that was kind of our process, and we were able to get patent pendings. they’re still pending, so we’ll see what happens with it. But, yeah, like my, my approach is like, I, I’m not an inventor. I, I, I like to find something that’s existing in the market that is, you know, that has a proven customer base and, and proven model and then just come in there and make, make it way, way, way better.
But it’s challenging, right? Because if, if, if there’s already something that exists, you have to obviously be wary of existing patents. It’s challenging for you to pat patent what you do as well, right? Like the, the holy grail is to invent something, patent it, have the IP, build out the marketing, but it, in my experience, it’s like I was saying before, how like nine outta 10 of my ideas don’t work, or even my, my inventive ideas, like it’s, it’s a lot trickier to just, you know, come up with a great idea and, and for it to just like be a slam dunk and for all your marketing to just work super easily. So.
Nate: Scott, what was the development process like? How did you bid out the, the app and vet who you were going to use and manage them and communicate the requirements of it all? Like that sounds kind of daunting. Tell us about that.
Scott: Yeah. Well, so we, we worked with, we ended up working with three different, different development teams. Development team one was very inexpensive. They were out of India. and we, like, our budget was low. Like really, I would say like under 20,000 to build the entire app, which is like insane.
Development team one, like the whole idea was okay, like we shot recognition we need that to be at least 80%. But our main focus was, you know, proving the model. So we, we didn’t want to put too much money into it, but we needed it to work well, well enough. That was phase one. and then we, you know, in phase one, it was about six months after launching the product.
Like we, we, we, we saw a lot of opportunity with, with marketing and, and realize, okay, it’s, it’s definitely worth it to put more money into development. so phase two Was a, a development team outta Toronto, Canada, where I live. They got shot recognition from 80% to maybe 85%, and then improved the UI, UX.
So it was, it was a bit easier to use, less crashes, that kind of thing. but the app was still like, not where we needed it, needed it to be. That was about a year after launch, but at the, at the year point, we really saw a lot of growth and we realized, okay, like let’s do a deep dive into this.
Let’s do like, let’s talk to our customers. Let’s talk to firearm instructors. Let’s, let’s get as much information as we can, figure out exactly what needs, what, what’s missing in the app in terms of features. so we ended up adding 35 new features to the app, completely redid the UI, UX, added a competition element.
All this other stuff. And that was, we did that with the third development team that they, they were, a company called das that was working outta California. These guys, unlike the first two, specialize in augmented reality. And so they had a lot of experience, and they were expensive.
I, we, we, we spent a lot of money, but it, it got us to a really competitive level where we could finally say like, our product is, is the best in the market. You know, up until this point now we just continue to just record app issues and, and, and fix stuff, and things break, and then we fix it again.
But the crazy thing is that I, I have no experience in IT, so, It was just us just shooting ideas at these, at these developers at different stages and then them putting it together. You know, this, my experience of all this is that like, it just works. We were just so focused on, on building this out that like, when, when we needed enough cash, the cash came, you know, it, the timing of it all just seemed to work out. And,
Nate: How did your marketing change from the beginning when the app was like, not even in existence to then at the end having a badass app? Like did you change your marketing to consumers based on the evolution of that?
Scott: Yeah, absolutely. Our marketing at the beginning was, like we, we, we started growing during covid. the majority of our firearm audience is, is right wing. So we catered to our audience and, and in our messaging and talking about the pandemic and some of our stuff was a little controversial at the beginning.
But the truth is it sold. And like, you know, right wing people in America were just eating up our messaging and stuff like that. So, We basically just said, well, the, the me the message in, in 2020 and 2021 was basically like, save money on ammo. Ammo is super expensive. Our system solves your problem and lets you practice at home and you get like 2000 shot shots out of every laser.
So it, that was a no-brainer, but that, that was our main message. It was just essentially, be an American, keep, keep shooting and save, save all your, your ammo so you can stockpile it for some, who knows why they, they do that? I’m Canadian, still confused about it, but um,
Izach: Man, we’re ready down here. I’m we’re, I’m loving my Strikeman. When, this is no joke, when, like, when, when you and I first met and you know, I, you told me about the product and I went on, I went on the website and checked it out and, you know, Nate had introduced us and, I was like, this is so cool. I didn’t know anything like that was on the market and I, I bought a Strikeman immediately and, you know, just started using it in, in my basement and I was like, this product is, is just really cool. It would, it, you know, I like to target shoot, but I don’t really ever go to a range and it is really expensive to shoot live ammunition. So this is a way that, you know, I could practice. I mean, you gamified target practice
Nate: And you made it affordable, like as, as compared to a couple of bucks a bullet sometimes,
Izach: Yeah, it’s, it’s two boxes. Yeah. For less than two boxes of ammo you can buy a Strikeman, and, and shoot, you know, 4,000 times you can shoot infinitely. You know, you just have to replace the little batteries every, I don’t know, every once in a while. But I wanted to give some gross statistics about, about the business, and then just kind of ask you for your viewpoint on the business at these different points in time.
So you started in 2019, that was a startup year. Between 2019 and 2020, the net income of your business grew 36000%. Right? That was your first year where it really hit, so like that year, 2020, you know, when did you realize like, okay, we’ve got a winner here and we’re gonna scale this up. Like was there, was there a day that you remember thinking like, this is gonna work?
Scott: Yeah, it was actually in 2019, cause we launched in September, but we had like, I think we only had like 80 grand worth of inventory. Right. And we sold it out immediately. We sold it like we just, we just turned on some ads and did bare bone stuff and the, the inventory was gone in a month and, you know, the cost per acquisitions were really, really low and cheap. That, that was when I was like, okay, we’re all in on this immediately.
Izach: Okay, so essentially you knew as soon as you launched, you’re like, this is fire.
Scott: Yeah. Yeah.
Izach: I’m, I’m doubling down.
Scott: Yeah, for sure. Like, and, and, you know, you’re spending maybe 2000, 3000 a day on ads, on Facebook ads and some other stuff. And then your cost per acquisition. Like, you know, like it was, it was really low.
And, and, and then you look at the market size of, okay, who’s gonna buy this company or this, this product. I think like one third of the US owns a firearm. It’s probably more than that. I think the numbers are like a hundred thou, a hundred million people in the us. So you, you know, that’s, that’s a pretty good chunk of people.
And then, and then you see, oh, we’ve only sold to, I don’t know, 3000 people and we’ve sold it all of our products. So you, and, and it was so cheap. So you, you get, you kind of get an idea like, okay. For, to me, what that, that’s just a huge sign that there’s gonna be a lot of potential and, and you can, and with growth and all that.
So, so that was 2019. 2020 was like, like we were capped at marketing spend because our inventory levels were, were low, right? So every inventory cycle we were, we were trying to build out our inventory levels by, you know, add another 20 or 30% of inventory every cycle. And we had about six cycles a year, right.
So we’re, we’re by, hopefully by the end of the year we’ve doubled or tripled our inventory. So the first two years was essentially just us ramping up inventory levels and using our, our income from sales to our, from the profit to build out inventory levels. And by the time we got to, I think 2021 and we had a great year in 2021. Really good growth compared to 2020 and the year before that, and then
Izach: You were up 159% in 2021, over 2020 in, in revenue, and you know, similarly in net income. So how did you, how hard was it to keep up with that inventory?
Scott: I mean, it’s, you know, it, it’s pretty simple. It’s, it’s, it’s just a matter of, of turning down ad budgets, right? Like if you’re selling out then you gotta slow down ads. but the, the demand was so high in 2021 that we were went on pre-order and a lot of companies were doing it at the time.
Just like there’s all the crazy supply chain issues that were going. So we ended up just going on pre-order and, and we’re really open about giving, you know, we, we just let people know like, this isn’t gonna ship for a month, but you can pre-order it.
And that, that didn’t slow down sales one bit, which was like so surprising to me. I think, everything was so expensive, like with the inflation and the cost of ammo and supply shortages. People wanted so badly to be able to shoot without wasting ammo that they were willing to pre-order at the time.
so that, that kept, that kept their growth strong, even though we were having all the supply chain and craziness going on.
Izach: so I wanna just, I wanna just dig into the pre-order thing cause I think it’s something that you did that was, was really smart for your business, you know Nate and I have seen all kinds of companies in particular in 2021, that had major logistics issues. You had those issues, right? You were experiencing those issues. But when you look at the financial statements of the business, you guys crushed it in 21 because of this pre-order concept.
Izach: and so pre-order meant that you didn’t have inventory, but you were able to keep generating sales. Like how did, how did you even think to do that?
Scott: Well, it was just, it was like, it was kind of a no-brainer, right? It’s like, okay, we, we have, we have like all this inventory. It’s stuck on a boat. We have no inventory left in our warehouse. We have to wait a month and a half a month till this comes, do we just turn everything off and run outta cash and, and not make payroll?
Or do we, like, what’s, what’s, what’s the solution to this pre-order? Right. And it, you know, it, we, we have a Shopify store, so there’s plenty of Shopify apps where you, you simply just download the app, put in like the, the delay and like it’s, you’re up and running and you have a pre-order button instead of an add to cart button. So that’s, that’s what we did.
Usually this would not work, but I think everyone was Oh, very aware of all this, all this, it was hard to get stuff at the time. So I think they’re just willing to wait. We got lucky though. Like it could have gone the other way really quick. Like if, if people weren’t willing to wait and they just said no, like, and then, then our marketing broke. We would’ve been in a really different situation for sure.
Nate: Yeah, people couldn’t get toilet paper or bullets back then, but they could order their, their, Strikeman.
Scott: Yeah. Yeah. Yeah.
Izach: Yeah. Pre-ordering toilet paper isn’t as effective.
Scott: Hundred percent. And the other thing too was that, that we were, you know, there’s a lot of lockdowns right at the time, so some people couldn’t go to the range, right. And like people were just spinning at home, having enough, like they just wanted something to do or like, they wanted something to be excited about.
So, you know, buying a hundred dollars targeting, Strikeman system, it was just, I don’t know, it was just a dopamine hit for people, I would say, when they needed it. Yeah.
Nate: It’s a smart move, cause I could say there’s a number of clients I had going through that same period of time that didn’t, that didn’t do those pre-orders and you exited. They did not. Another one I could think of in specific, they were doing pre-orders as well. Same thing using Shopify, you know, how a pre-order setup, it’s kind of like that, that Kickstarter mentality where people will buy stuff before it’s, you know, ready and then they’ll just wait for it.
Um, so that, that one decision may have been the game changer between getting sold and, and limping around for a while.
Scott: Yeah, I, I didn’t think it was gonna work. I, I was like, I, I knew, like, I was like, oh man, it’s gonna be at least a year of, of this maybe longer, of just not being able to get your product into the ports and on, on a, on a truck. Right. So we were, but when we, when we saw like, oh my God, like people are willing to buy it and wait That was phenomenal.
We had to, we had to like get more support staff cuz I, you know, 80% of people, they would see the pre-order now button with like the estimated shipping date and they would understand that. But some people would just think it was an add to cart button. I would say 20% of them. So a lot of emails and phone calls of just, explaining to customers that were on pre-order.
But like, you know, even during that whole pre-order phase, like our refund rate was still really, really low.
Izach: Yeah, I, I pre-ordered actually, A Strikeman for, for my dad and for my business partner. For, for, I guess it would’ve been Christmas of 21. And, you know, one of the things I thought that you did that was really good is the communication was good. Like it was, I ordered it knowing they weren’t gonna get it for Christmas.
Like it was clear like, this isn’t gonna come for Christmas. And then, and then I got text messages periodically saying like, Hey, this is your estimated delivery day. This is your estimated delivery. So I never was concerned that like I wasn’t gonna get it, and I always felt like I knew when I was gonna get it, which I think that that would be like a, like a best practice for anybody who’s in a, in a, in an inventory shortage situation is thinking about this pre-order is like really that clear communication.
Cuz you know, I never, I never had to, I never called, I was, you know, maybe I put my phone number in, maybe. I’m sure some people didn’t put their phone number in when they ordered or whatever. So you maybe didn’t have ’em for SMS. but you know, so like on Christmas morning I was like, Hey, I got you this.
And I showed my dad the, the picture and then, you know, it was like, I dunno, a couple weeks later it came, but it was like no big deal because I knew what to expect.
Izach: so at, at what point did you decide that you wanted to sell the business and kind of what was involved in your thought process about getting to that decision?
Scott: My model is that I, I, I build companies out for three, two or three years and then I sell it. I’ve been in companies in the past where we’ve gone past 10 million and, and, and there’s a lot of employees, and for me, that’s too much of a headache and it’s too stressful.
And I, I, I like, I, I like being in a startup like in the first couple years when you’re, when you’re essentially just building the product out and making it better. That’s what, that’s what gets me excited. And, yeah, so like from, from day one, obviously, I sold a weighted blanket business before this, and before that, sold, sold, like a cap log, selling cap products.
So like, you know, my, my, my model is, is, you know, find, find something like Strikeman and then build it out, build out the marketing, build it, like, get that EBITDA as high as you can and, and then sell it at three or four years. I don’t have the stomach past 10 million in revenue. Like once we get past that, I’m usually burnt out at that point.
Like I, I’m, I basically have this cycle of like, go hard for three years, sell it, burn out for about like, well it would just recover, like, just take it easy, go, go skiing and, and blah, blah, blah. And then after two or three months I get recharge and do it again. But yeah, like I, it’s, it’s interesting but like as I, I’m getting, as I’m getting older, like you learn so many, so many new ways to do this and.
A lot of times the way you’re doing things isn’t actually, there’s a better way to do it. Right. So I, I’ve, I’ve learned a lot with this exit. And this exit was particularly difficult because we, we had to hit, we had to hit numbers, and, and in 2022, our app, our app broke and we weren’t hitting our, those, those projections for a couple months.
And that was, The stress levels were super high. And then we, we figured it out and got the app working again, and our app reviews got better again. And then we actually just crushed it at a level we had, hadn’t, hadn’t done before. But my intent is always to sell.
It’s just, I’ve, I’ve also had companies that we’ve tried to sell, but it was like, we hit a peak and then, and then things started going down and, marketing stopped working and we stopped launching cool products and, and we couldn’t sell it even though it was doing like, it was Ashley Bridget, we were doing about 11 million a year, but we couldn’t sell it cause we were on this downward trend, not on the upward trend.
So, so timing is very important and my train of thought is when I don’t want to sell it, that’s definitely when I should be selling it. That’s the time.
Izach: Yeah. that’s super smart. yeah, so like one of the things that Nate and I talk about a lot is that the, the highest valuation that the company will ever receive is before they hit their peak. You know, cuz you want, you want that high growth rate with the projection for on ongoing growth. Once, once you peak and then, and then dip, you know, you either have to kind of work through that or your valuation can get hammered by the market.
You know, if you’re, if, if the business is actually on a declining trend, I mean, there’s, any business is gonna have peaks and dips along the way, but if the business actually starts to decline, then it’s really hard to sell. And so, you know, I’ve, I’ve seen so many situations where somebody waited too long.
And, you know, a 30 million business becomes a 5 million business or a 5 million business becomes a $500,000 business. And, and it, it, it’s amazing how quickly it can flip, especially in this space because there’s, there are, there’s, in, in the e-commerce space, there’s so many challenges that can come up with, you know, changes to the different platforms.
If you’re advertising on Facebook and they change the, you know, iOS changes the privacy rules and, you know, all the, all the advertising metrics change. And so, you know, people, like, one of the things I think you did really well throughout this entire transaction is you just kept, anytime there’s an obstacle, you’re like, how do I fix it?
Overcome it. And you kept, and you kept, you know, kind of fighting and clawing your way through every problem that came up and getting to like a new higher level in, in the business. But those, but those problems are always gonna continue to come up and. You know, I think your thought process of like, when things seem to be going the best, that’s also when they’re gonna look the best to a buyer.
And, but it’s also a really hard decision to make, to make for a seller to be like, am I, you know, nobody wants to leave money on the table. Nobody wants to sell too low but there’s also a chance of selling, of waiting too long and, and leaving a lot of money on the table that way too. So there’s, there’s dual risk.
Scott: Absolutely. Yeah. And it was funny cuz I know like, like we were a Canadian company that was selling to an American, right? So that cross-border transaction added a lot of complexity with the deal. There was a lot of due diligence and accounting work and you guys, you guys like, there was days where I was just flipping, flipping out, like it was just, and you were able to be that calm, collected presence through the whole, it, it’s, it was the most up and down thing I’ve ever gone through cuz there was a lot of diligence and there, and, and them buying a Canadian company, they, they had to do a reorg and all this other stuff to get the company back to the US and, and in that whole process of diligence, we, it was very volatile. We had good months, bad months,
and there, there was definitely weeks where I was like, I don’t know if we’re gonna be able to sell this. But then we, we, we came out of it. and then the, the final six months until we finally closed, we had this enormous growth. And we were on a trajectory to, to really, like, I, there, there was many points in that last six months where I was like, I don’t wanna sell this. Like and like, even the, even all the employees here were like, you’re crazy to sell this. But like, having had gone through the pain of trying to sell a company when no one will buy it, that memory for me was just like, it, I think it served me cuz even if we stuck around and, and, and grew it, the, I don’t know, there, there could have been a million things that could have brought us down again and we’d have to start from scratch and, and try to get back up.
So, for me it was just the discipline of like, okay, you made the decision from day one when I reached out to, Izach and Nate, like, when I reached out to you guys to, to sell this, like, I made the decision then, so we’re sticking to it, and we’re, yeah. It was, it was just being disciplined and not, not getting, not making like, emotional decisions.
Right. And Izach, you’re, you’re the king at that. Like so many phone calls where I was freaking out and you’re just like, no, everything’s all good. Just it’s like you were, you were, you were more of like a therapist in some ways. Like, I don’t know, like I’ve been freaking out about all this stuff and you just
Izach: That’s why, that’s why I’ve got the couch in my office back here.
Scott: yeah. No, cause it’s, it’s, it’s stressful and like, this was the biggest exit I’ve ever had. And, and it, and it was a life-changing exit. And I haven’t even kind of figured out what I want to do with all the capital yet. I’ve just been taking it easy and, put it into like a high interest savings account and not making any moves just yet.
But like, I know, like for me it was, it, it was so important to get this done and, and it, and it happened. And like any exit after that, like, like I don’t have to worry as much cause I know I’m okay financially, like,
Izach: you had, you had like a bunch of life decisions that were converging all on like the week that we closed, right? You bought a, you bought a house. I think you had just gotten engaged. You got, you got my dream car and you sold your business, right? Am I right?
Izach: like a week or two?
Scott: Literally all within the same week. Yeah. It like, yeah, it was, it was wild. Yeah. It all just happened and then, then it was Christmas, right? So,
Scott: Yeah. Yeah, it was that, it was wild. It just, it like, when it rains, it pours, I guess. Like it, everything was just happening at once and, and it was absolute chaos, but wouldn’t, wouldn’t have it any other way.
Like it was just, yeah, it, it like that, like 2022, like going through that massive growth, with the company and like the ups and downs of all of it. It was, it was, it was such a wild ride and it was really hard in a lot of ways, but, It was, it was, it was a ton of fun. Like it was just a, a lot of fun to do.
Nate: Did you have a sense of validation that someone paid you a whopper amount for something that you created? Like what was the sense of like confidence that was instilled in you or, or validation that you were able to exit at such a, such an exponential number from what you put into this in the beginning?
Scott: You know, as the years go by, you, you do build this, this kind of trust in yourself, right? To, to be able to get, get stuff done, no matter how hard the task is. I would, for me, it wasn’t so much as like someone giving me the cash. It was, it was.
You know, like what I, what I find is certain levels of, of, of money that you’re going after, like the, the, like, the higher you go the, the greater the challenge, right? There’s just more challenge that comes, comes with that greater amount of income or cash that you’re trying to get. So, the amount of trials we went through in that final year, where there, there was about six or seven big points where it was like sink or swim and we could easily have sank, but we didn’t because we just grinded, grinded through it. And, and you know, a lot of the, like everyone at the company was, was exhausted. Right. And, and, and, and it felt like a huge grind. But like, you know, we just one, one day at a time, we just got through it.
So more than anything I would just say like, like it’s like a, a self-assurance. It’s like it’s this, this deeper confidence to know that like no matter what the task is, no matter how crazy or challenging the task is, like I can, I can get it done.
Nate: Yeah, that’s that self-reliance,
Izach: There are some really interesting things about this transaction structurally. We touched on one of ’em. One was that this was a hybrid sale, so it was, it was part asset purchase and part stock purchase. And we worked with a lot of professionals to help us figure out the way to do that correctly.
And then the other thing I, I think was interest. Is part of the structure that, that you took was, you know, of course your, your cash payment, but then there was this convertible note, where you get a seller note, but then at any time during the next three years, you have the option to convert that to equity. You know, can, can you talk about that and kind of how that option came up or how it was presented to you?
Scott: Well, like, first of all, like we wanted as much cash up front. That’s, that’s kind of the goal with these deals. So we got, we got to a, a number that we were happy with. And then the, the rest that was owing was, as we were negotiating, we, we wanted, like, we wanted part the, at least half of the remaining amount guaranteed, and then we ended up getting to that point where it was a convertible note. And, that’s attractive because, you know, like I, I’ve sold companies in the past where, where the, the person who takes the, the operator who takes over has no experience and that’s, that’s not a good thing cause they can tank it.
On most deals, like, I don’t know, I wouldn’t say like the vast majority of deals, you’re getting paid out on performance at some level. Right, so like the buyer for Strikeman, he, he had a lot of success and, and, and knew what he was doing. And he had a really, really talented operator that was gonna come in and replace me as CEO so yeah, it, it was just like based on like the, the new operator’s track record.
I, I, I couldn’t see how they, they would fail and I, and I, I could under, it was funny. Yeah. He, the, the buyer basically, basically told us like generally what his plan was with the company. We got excited about it, so obviously we wanted be able to convert, that portion into equity if, if the growth continues and I, I strongly believe it’s gonna continue, so, yeah.
Izach: Yeah. Yeah. Yeah, and that’s a, that’s a fairly unique structure, because, you know, it gives you the, you have a guaranteed amount in the note, but then you can convert that note for a predetermined amount of equity in the new business. I, I think that was a really, a really great way to, You know, make sure you’re gonna get this base level payment, but then give you the potential for what could be quite a bit of upside.
You know, in the, in the future if, if the, if the buyer is, is as successful as we think and hope they will be.
Scott: For sure. And there’s also like you, you get attached to your company, right? And like you put, you put your heart and soul into the products. You just want to see it succeed. So like having that option to, to, to be able to go back into it and, and be a partner at some level is, is huge for me. Like, yeah, so I don’t know.
We’ll, we’ll see how things go. Like I’ve been working with them now to, to continue the, the momentum of the company and they have all, you know, they’ve kind of revealed all of their ideas to me, after closing, and I’m super excited for them. And so I, I wouldn’t be surprised if that’s what ends up happening if I, if I hold on to some ownership and just help them out kind of thing.
Izach: You know, what were your biggest surprises going through this process, Scott?
Scott: There was a lot of them. Like in terms of lessons, like next, the next company I start is going to be, it’s gonna be a US Corp, not a Canadian Corp. What I’ve learned is that like, obviously the, the pool of buyers is in the us So as a Canadian, you don’t want to have a Canadian corporation.
It, it limits, it can limit your pool size, like the amount of buyers, and so for me it’s, it’s I didn’t realize how complicated it would make things for a US owner to then buy a Canadian business. It was, it was very complex and, and I needed, that’s why working with you, Izach, like I needed someone with a financial background who, who, who just understood how to get these deals done to like, navigate through all of that. So that was, that was a big surprise.
Izach: How about the, we went through a quality of earnings process that was pretty rigorous and, you know, ha have you ever been through a Q of E before? What were your general thoughts on that?
Scott: Yeah, that was also surprising. Like the last company I sold it was, it was a Canadian e-commerce company that we sold to another Canadian, so the Q of E process with that only took two weeks. And our, our, our accountants basically set them everything. They, they vetted it and it was, and it was done.
Uh, so that’s what I was expecting with this deal, but because this deal was a lot bigger and it was cross-border, and our, our accountants weren’t the, I, I like, they weren’t the best. Like they, we could have had better accounts. So there was, there was a lot, there was some issues with the numbers. And I’m not a numbers guy.
I don’t deal with the accounting. I just let the accountants deal with it. So that, that was a big surprise cuz we had to go through a few rounds of diligence. and each round took about a month and, and the buyer had a really sophisticated team behind him who really knew what they were doing.
So that was intimidating on my end because I, I there there’d be things that like would arise from our accounting that I, I couldn’t, I didn’t know how to remedy the situation. Cause I don’t have a financial background. I, I’m a marketing guy.
So that, yeah, the, the level of complexity that went into this deal I wasn’t ready for. But like, again, Izach, you were like, and the other thing too is that, my accountant. He, he isn’t, he wasn’t the best at explaining like, accounting issues and financial issues in layman terms. so I was even more confused.
And then Izach, you’d be able to come in and just like in plain English, just explain exactly what was going on and like, yeah. So that was, that was enormously helpful because a lot of times I just feel like I don’t, I, I’m dead in the water. I don’t, I don’t know how to solve this problem. I feel powerless.
I don’t know what to do. And then Izach, you’d always have this very clear solution where you’d say, oh, we just have to do X, Y, Z. That’s all that’s, that’s needed here and then it was just understanding what the solution was. It was really easy to just be like, okay, we’ll just action that. And you know that that happens so many times.
Nate: So have, so having a US based entity and then having a proficient accounting firm would be two things that you would do a little differently this next time.
Scott: Yeah, just being on top of the bookkeeping and having your books in order and, and having really competent accountants that are in the US. So when you go sell the company, everything’s American. And, you know, and the other thing too is all of our numbers that we were projecting were in, were in Canadian dollars, right. and all of our accounting was in Canadian. So there was, plenty of times where they were working USD and then they’re, they’d just be confusion where, sometimes things would look better than it actually was, cuz they, but they, you know, then later they’d be, oh, it’s Canadian, it’s not US, you know?
Izach: Thanks everyone for listening to this episode of the Deal Closers podcast, brought to you by websiteclosers.com. If you like the show, be sure to rate us write a review, press the follow button and share it with your network. And of course, if you’re looking for help selling your e-commerce business, be sure to visit websiteclosers.com. This episode was edited and produced by Earfluence. I’m Izach Porter. Follow me on LinkedIn, and we’ll see you next time on the Deal Closers Podcast.