[EP 278] The right way to grow and the right time to sell (Part 1)

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Intro [00:00:00]:
Ladies and gentlemen, good evening. Are you ready?

Intro [00:00:03]:
Okay, here we go. You’re listening to the Dealroom podcast. Join us as we bring you the inside scoop on business, sales, and acquisitions. Get across trends in the area and hear the industry’s best recount their real-life tips, traps, and experiences. Now here’s your host, Joanna Oakey.

Joanna Oakey [00:00:25]:
Hi, it’s Joanna Oakey here. And welcome back to the Dealroom podcast, a podcast proudly brought to you by our commercial legal practice, Aspect Legal. Now, in today’s conversation, we are joined by Kody Thompson, a remarkable entrepreneur whose journey is as inspiring as it is unique. Before building successful businesses, Kody was a youth pastor, would you believe it? Who worked closely with kids in his local community while pursuing his degree in graphic designing. In this episode, Kody shares with us the story of founding his company, Lightning Sites, on a modest budget of $250 and scaling it into a multimillion-dollar business with a multimillion-dollar sale. There is so much in this episode for you, whether or not you are embarking on a sale process right now, or an acquisition, or indeed, if you’re looking at an acquisition or an exit into the future. So, so many lessons learned here. Let’s get into our conversation with Kody.

Joanna Oakey [00:01:33]:
Kody, welcome along to the Dealroom podcast. It is such a pleasure to have you here today.

Kody Thompson [00:01:39]:
Thanks, Jo. Thanks for having me.

Joanna Oakey [00:01:41]:
Okay, look, you are just one of my very favorite clients. I love talking with you. And, you know, I guess we’ve done lots of different interesting things together. But before we talk about us and the stuff that we’ve done and building your business and selling it and all of that sort of stuff, let’s talk about right in the very beginning, because I’ve just found out some very interesting things that before you’re an entrepreneur, you were actually a youth pastor. Is that right? Tell me a bit about that.

Kody Thompson [00:02:13]:
Yes, yes. So when I finished school, I went into running youth programs in high schools. Unfortunately, during my school years, I had a number of people that I knew, friends of mine, that committed suicide. And so when I finished year twelve, I started volunteering in the school where I grew up. I went straight back in Bendigo where I grew up in year eleven and twelve. Everyone went to like, one big school, and the other high schools finished at year ten. And so when I finished school, I went back to the junior high that I went to and I started volunteering. I was running leadership programs for young people.

Kody Thompson [00:02:49]:
Basically, they would give me the riffraff kids that were on the verge of dropping out and I would go watch their basketball games. I would take them to the gym. I would hang out with them and just try to help them to make good decisions with their life and just be a support person for them. And then the church that I was part of saw what I was doing, and so they offered me a full-time job so I could spend more time, more time with young people. And so I did a degree in graphic design while I was working as a youth pastor. So that’s kind of my background before business.

Joanna Oakey [00:03:26]:
Fascinating. I love it. And what do you think? What do you think are the skills that, what are the transferable skills? What are the life learning things that you took from that beginning to ultimately, you know, like, you have been such a success in the business you’ve built and then exited and all the other things you’re doing right now. But I bet there’s been a lot of connection. So, you know, what, what did those beginnings, how did that connect? What were the tools that then served you so well in business?

Kody Thompson [00:04:01]:
I could talk about this for a long time because I think there’s a lot of things that, like, for a start, when you’re running things in churches, no one’s getting paid, so you got to figure out how to motivate people without money. You know, I had, at different times, 30 also volunteers running these programs. None of them were getting any money to run the programs. They’re doing it because they want to help people, want to help young people. And so you learn to motivate people without money. And that’s obviously very helpful when you’re building teams, figuring out what are people’s goals for their life, what’s important to them, what values do they have, and how do you tap into that? Not in a manipulative way, but how do you connect their vision with the vision of the organization and what you’re trying to achieve and show them how that together we can all achieve the goals that we have. So that’s definitely one skill. Another one would just be public speaking.

Kody Thompson [00:04:56]:
I mean, by the time I started my business, I was speaking in a lot of churches internationally and in Australia. And so, like, I’d spoken in front of audiences of 2000 plus people when I was 23, 24 years old. So by the time I started my business, I’d preached thousands of sermons in front of thousands of people. So that was another skill. I don’t know if there’s anywhere else that you can develop a skill like that at that age. I can’t think of any other way that you could do that other than through church gave me that opportunity. I think faith is a great strength for you in business because, like, when bad things inevitably happen in your business, it’s useful if you have a belief that there’s good things planned for your future. Because if there are bad things that are happening now and you’ve got some faith that you know, that you know, that God is on your side and that good things will come, it helps you to bounce back from things that are not going well in your business.

Kody Thompson [00:06:00]:
So, I mean, there are a few advantages, but I mean, I could. Like I said, I feel like I could talk about that for a long time. Cause I feel like there are lots of things that volunteer work helped me that I couldn’t. I don’t think I could have got any other way.

Joanna Oakey [00:06:14]:
Fascinating. I’m always intrigued when I talk to people who’ve built brilliant businesses about their very different starting points. Generally, there’s no such thing as an overnight success in business. Building a business to ultimately exit is not a quick game. It’s about how all these elements in your history come together to shape your approach to business and then enhance your ability to turn it into something valuable at exit, something people want to buy. Many business owners, thinking about an exit at some point in their career, tend to focus on the day-to-day rather than the bigger picture—where am I going, and what impact are my decisions today having on that ultimate end game?

Kody Thompson [00:07:27]:
Absolutely, I’ll definitely talk more about our sale at the end of last year with the web development company we sold. And thank you for your help with that, by the way. Going through that process, you view your business differently. If you’ve done an exit before, you’ll build your next business differently because you understand the things you perhaps didn’t value before, and you see what a buyer values. One of the lessons I learned when negotiating this recent deal last year was that I didn’t fully appreciate the culture and the team we’d built. I appreciated them personally and what they did for the business, but I didn’t appreciate the value that the buyer would put on that. So, we had actually finished negotiating the price for the sale, and then they came to the Philippines to meet our offshore team. We were having our nine-year anniversary for the Filipino company, and they were just blown away by the event. They were amazed that I wasn’t doing anything.

Kody Thompson [00:08:33]:
Everybody else was running the event. Everyone else was doing the speaking, and the talent we had and the culture we had were things you can’t measure easily. But then, when somebody from outside your organization comes in and they’re like, “Oh, my goodness, this is really special,” I think you don’t realize how special your own culture is because you’re in it every day. And so, to your point, all of your background values and everything you’ve learned along the way somehow get transferred to the people around you. If you build that type of culture, it’s special, and it means something when you go to sell your business. I think probably if I had negotiated the price after taking them to those events, I just had a note to myself for next time.

Kody Thompson [00:09:24]:
Like, next time I sell a business, I’m going to bring them to these events. And then the next day, we’re going to talk about how much we’re going to sell the business for because I think there’s probably value there that I didn’t fully appreciate until I saw the way they reacted to the culture. And I was like, “Wow, we really had built something more special than I thought.”

Joanna Oakey [00:09:45]:
Yeah. And part of that wholesale process is understanding what that unique value is to ensure that you can allow the buyer to see it. But of course, the first step is self-identifying what it is. It sounds like you didn’t even know exactly, which I love. And before, I really want to get into that, you know, the sale process, and then this great statement you made before that. Well, now you’re going through it once, you do it very differently the next time. I want to get into that very soon.

Joanna Oakey [00:10:18]:
But before we do, let’s go back to that story. So you were a pastor, studying graphic design. You set up your business. Is that when you set up Lightning Sites? Just take us quickly through how you set up. What did that look like?

Kody Thompson [00:10:37]:
Yeah. So I was working, running those leadership programs. I ended up becoming the national youth director for the Apostolic Church Australia. Essentially, my role was looking after all the other youth pastors who were managing their programs in the churches. I was traveling a lot, speaking in their churches, and basically just trying to care for the people who were caring for other people because often they don’t self-care as well as they should. So that was my role.

Kody Thompson [00:11:06]:
And then we took on a position in one of the national leaders’ churches. There was one on the Gold Coast that had no money but needed help. I just knew that I needed to take that job even though they couldn’t pay me. So my wife and I decided to take that on, and I needed to start making some money. So I started freelancing as a graphic designer, and the business just took off. I anticipated doing it for twelve months until I could grow the program on the ground there and be able to get paid fairly quickly. So my thought was to do this just to get by.

Kody Thompson [00:11:56]:
But then it just went nuts. I think we made 110k in the first twelve months. I was just run off my feet with work. And then I got a business coach, Dale Beaumont, who helped me scale or learn a lot of basic skills about how to run my business effectively, proper task management, systems, building procedures in the business, all that type of stuff. And so then over the next three or four years, we basically doubled every year. Started out as a graphic designer, just doing whatever people would give me money for, posters, logos, websites, or whatever.

Kody Thompson [00:12:34]:
And then as I started to grow the business, I realized that it’s very hard to scale creativity, and selling graphic design is not an easy business to scale. So I decided to streamline and just offer websites. And then I further decided to streamline by not offering websites for everybody but offering more templated websites and selling them on a subscription. So I was getting recurring revenue, and that was the game changer. We went from $110,000 turnover to about 3 million in about six or seven years, growing that business. And yeah, that’s basically the story. And then last year, at the end of last year, with your help, we set up a deal and I exited it out so I could focus on Workpod, which is what I’m working on nowadays.

Joanna Oakey [00:13:21]:
Yeah, fantastic. And so why sell? So obviously, you’re talking about Workpod and maybe just give us a quick overview of what Workpod is, obviously your new business baby. Now, tell us what Workpod is. And then, why sell? Where did this idea come from?

Kody Thompson [00:13:38]:
Yeah, so along the way, as I was building the web development company, a big part of growing that business was hiring staff overseas. So we ended up with about 80 staff in the Philippines. And that allowed us to sell our product at a high value, like, sell it fairly cheaply and give, like, insane value to our customers. And so that allowed us to scale that business. And then I did that by creating my own company in the Philippines, getting my own building, hiring all my own team. And so over the years, I had so many of my clients, like, ‘How did you do that? Like, how did you, like, where did you find the staff? How did you set the company up?’ And so we ended up building our own building in the Philippines, and I had spare desks. So I went back to all those people that had been asking me how I did, and I said, ‘Hey, I’ve got 50 spare desks in my office if you want. My theory was I was just, if I could sell these 50 desks, I get my building for free.’

Kody Thompson [00:14:31]:
So that’s what I was thinking. So I went back to my friends and I helped them hire about 50 staff in the space of six months put in my office, and now I was getting my office for free. But the problem was then all my friends were like, ‘This is great. I want to hire five more.’ Now my building is full. So I was like, ‘Okay.’ So then we built another facility for 400 desks. And then within like, twelve months, we filled it, and that became Workpod.

Kody Thompson [00:14:59]:
We got to, like, we were, you know, doing like one and a half million dollars of revenue. And we had a website with like one, two pages on it, like a homepage and a sales form, you know, and it was doing like one and a half million dollars in revenue. We just, like, it just exploded. And I was running both companies at the same time, Lightning Sites and Workpod. And, you know, the growth at Lightning Sites just, you know, started to slow up because all of the growth that was happening at Workpod and, you know, I feel like if you’re the CEO of a company, you have a responsibility to the clients, to all of the staff to ensure the performance of that company. And in my opinion, I was no longer capable of giving it my full attention. And I just feel like I’m not doing the right thing by the employees, by the clients, by the other stakeholders, shareholders of that business. If I can’t give it my all, then we should have someone in the company who can.

Kody Thompson [00:16:01]:
And so that was my thinking around exiting, obviously taking money off the table too, from a personal standpoint, paying off debts that, you know, that we have here for property projects and things like that was also part of my thinking as well.

Joanna Oakey [00:16:18]:
It’s an interesting point you make because of course we deal with a lot of sellers of businesses and buyers, but I’ve seen quite often there are some business owners that perhaps stay in the business longer than maybe is best for maximizing not just their own exit out of the business, but maximizing the opportunity of the business because businesses go through life cycles, so does the energy of the founders, you know, and I just think it’s very clever to be able to pick the right times. And I feel like it sounds like you really did pick the right time. There are two things that can happen in that space. You know, it’s either someone gets new enthusiasm as they work out the new direction to take it, or it just needs someone else at the helm to give it that, you know, that new freshness that can be really good in a business after it’s, you know, been there for a particular period of time.

Kody Thompson [00:17:26]:
Yeah, so that’s true. I feel like, I mean timing wasn’t bad, but I feel like probably a year earlier and again, these are the lessons that you learn, you know, for doing it next time that like the growth of the business had started to plateau. Whereas if I had sold it twelve months earlier when there was still like hockey stick growth, then people immediately will look at the finances and they draw the imaginary line and they just, whatever’s been happening in the past, I feel like buyers will just assume that that’s going to continue to happen. So our growth was like this and then it started to taper off and I sold it as it was tapering off. But if I had sold twelve months earlier when it was still experiencing like hyper growth, I probably would have got more money for it. And I did have low energy over that twelve months. As I was wrestling with this idea of letting go of that, of my baby, you know, and so, you know, I totally resonate, you know, with what you’re saying. I think we were lucky there was only twelve months.

Kody Thompson [00:18:31]:
I think to your point, people wait even longer until it’s starting to decline. And if it’s declining, like I said before, they, the buyer feels like it’s going to keep doing whatever it looks like it’s doing right now. So they’re drawing the imaginary declining line and they’re valuing it based off of that rather than, you know, the current performance. If it’s on the decline, they know that it’s going to take energy to turn it back around. So for sure, I agree with you there.

Joanna Oakey [00:18:57]:
It’s so true. So true. And it’s interesting. You talk about the emotion. Emotion and energy. Two things I think, you know, many business owners don’t think about as they’re going into a sale, but it helps if you’ve got a lot of energy because the process is often a little bit more involved and energy-sucking than one might realize. And, you know, there’s this emotion really important to understand. You’ll be battling this.

Joanna Oakey [00:19:25]:
For most of us that have started our own business up or even bought it, whatever, there is this, like, our business baby concept, you know, that emotion of parting with it can be surprising sometimes. I think you’re 100%, you know, you’re telling the story that I feel is that same story over and over again. But what if you had known that then? Let’s talk about some of our learnings. If you had known some of this stuff in the beginning. And, you know, let sort of a lot of our listeners are people who are thinking of, you know, at some stage putting their business on the market. Tell us, what are just, what are all of those learnings? What are the things that you would do differently or indeed you are doing differently now in your current business?

Kody Thompson [00:20:14]:
Well, I think one of the things that I didn’t realize how good a decision it was when I started selling websites on a subscription. That was a decision that I made at the time that was very confronting to make because I was selling websites for like, ten or 15 grand each. And then I moved to selling websites for $500. I was selling, like, templated websites to gyms and things like that. And people were saying that I was nuts, like, but we sold, like, 200 of those websites in the space of, like, 18 months or something to that nature. And they then all started paying us a subscription of a hundred dollars a month. So by the end of that 18-month period, we had built this huge recurring revenue app that allowed us to scale the business much more effectively. And we went the year I did $500,000 the year before that, and I broke a million dollars with that one decision.

Kody Thompson [00:21:11]:
And that was probably a big part of the valuation metric that we got later when we got the business up to around $3 million in revenue and we started exploring the possibility of exiting that’s a big part of the reason why the business was valued so high was because of that decision. So I realized some decisions that I had made that attributed to the success. And at the time when I made the decisions, I didn’t realize how important they were. So that’s something that I think we did really well.

Joanna Oakey [00:21:44]:
Can I just say, I just want to stop you there and just highlight that point because that point that you made, the decisions that I made along the way, I didn’t realize how impactful they’d be at the end. And the thing, what I believe is that business owners are making all of these decisions, micro decisions constantly in relation to their business. And they could go A or they could go B and who knows, they choose one or the other. But they make that choice on the basis of the gut feel right now, information relating to business right now, rather than how does this extrapolate to what will create a really saleable business in the future. And I think that’s the opportunity because so many people, I feel, think that exit is all about thinking about exit at exit. Don’t, you know, don’t. I’ve got too much to focus on right now growing my business.

Intro [00:22:40]:
But if only every decision had a thought process of ‘And then how does this connect to exit?’ I just feel like you’re not putting any more effort into your business than you would be because you still have to decide between A and B. It’s just you’ve got this guiding principle for those decisions. What are your thoughts on that?

Kody Thompson [00:22:58]:
I 100% agree. One of the things we’ve done now is I track business valuation. That’s like the main metric now that I track in my business. Obviously, I tracked profit before, but now what I do is I utilize that profit figure that we’re making and then alongside our asset registry to give us a valuation. So every month when we do our monthly financial, we do weekly financial, basic financial reporting. But monthly we do like a larger meeting with our finance team and we track our business valuation as part of what we do. And to your point, I just think everything that we’re doing in our business, every decision that we’re making in our business, like what a buyer would want, is actually what we should want as an owner.

Kody Thompson [00:23:51]:
Like we should want a business that’s profitable. We should want a business that can run without us. We should want a business that is reliable. We should want a business that has consistent sales, like all the things that a buyer wants as a business owner, we should want those things. So they’re not really, they’re not dissimilar. They’re exactly the same as what a good business operator should want. So we should be using those as a guiding principle to how we’re building our business now. Even if we don’t want to sell it, we should build it as if it’s saleable, because that’s what we should want as a business owner, because then we don’t have to sell it.

Joanna Oakey [00:24:23]:
We might just exit the day-to-day, have other people running it, and then we keep it as a revenue stream. So I guess going through the journey just made me realize that the things that a buyer wants are the things that I should want for my business. And so I should just focus on making sure that I’m building my business like that from the beginning. And then I’ve got options later. If I want to sell it, I can sell it. If I want to hold it, I can hold it, and I’ve got those options.

Joanna Oakey [00:24:50]:
Well, that’s it for this episode of the Dealroom podcast. We hope you’re now primed for your next deal with these pointers and have enjoyed these fascinating insights. Now, if you’d like more information about this topic, then head over to our website at thedealroompodcast.com, where you’ll be able to download a transcript of this episode, as well as access any contact details and any other additional information we referred to in today’s podcast. Now, if you’d like to get in contact with our guests today and the services they offer, you can go ahead and check out our show notes for a link right through to them and their details. You can also book in directly with our legal eagles at Aspect Legal. If you’d like to soundboard your next steps, discuss a legal question, or find out more about how we can assist, whether that’s with buying or selling a business, or perhaps somewhere in between. Now don’t forget to subscribe to the Dealroom podcast on your favorite podcast player to get notifications whenever a new episode is out. We’d also love to hear your feedback, so please leave us a review and rating if you’re already one of our subscribers, or even if you’re listening to this podcast for the very first time, every review helps our team produce valuable content for you.

Joanna Oakey [00:26:08]:
Well, thanks again for listening in. You’ve been listening to Joanna Oakey and the Deal Room podcast, a podcast proudly brought to you by our commercial legal practice, Aspect Legal. See you next time, ladies and gentlemen.

Intro [00:26:22]:
That will conclude this evening’s entertainment. Thanks for listening to the Dealroom podcast. To find out more about this episode and other episodes in the series, check out the show notes or head over to our website at thedealroompodcast.com.au.