Startup Acquisition Stories w/ Derek Homann – Co-founder of Workshop

Derek is a serial entrepreneur who sold his startup, Median, for about $250k on Acquire. Hear about how he and his founders decided to sell on Acquire and his experience dealing with buyers.

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Transcription-

Andrew Gazdecki:
All right. I am live with Derek Homann, CEO of Workshop, right?

Derek Homann:
I’m co-founder and chief customer officer at Workshop.

Andrew Gazdecki:
Workshop. Nice. And so you sold a company on Acquire for what? Quarter million?

Derek Homann:
Yeah, a little more than that. Just under 300k.

Andrew Gazdecki:
Nicely done.

Derek Homann:
Thank you.

Andrew Gazdecki:
Did you buy a Ferrari? Lamborghini? Did you do anything cool?

Derek Homann:
I actually, I bought this watch. I was like, I’m a cheapskate. And so I was like, I got to have one thing to commemorate it and so I bought a nice ish watch, but nothing crazy. And I was like, got to have something to commemorate it. And literally the moment the money hit the bank, I went out, bought it, like five minutes after the money hit the bank, bought it, and then immediately went to transition the business over to the new buyer. So, for me, I was like, before the money hits the bank, I need to actually… Or like, once I see it hit the bank, I don’t want to spend it on other stuff. And so if I just kind of wrapped it into that transaction, it just felt like I wasn’t just being stupid with money. So if the new watch just came out of the sale price, then it was like, it looked like I just got a free watch among kind of the other parts of the deal.

Andrew Gazdecki:
That’s awesome. Well, tell me about the deal. How was your experience on Acquire? How’d you find the buyer? Maybe just give me kind of a five minute run through of posting, talking with a buyer. We can kind of just go from there.

Derek Homann:
Yeah. So, okay. Had kind of been a unique experience. So my previous company was Median, it was a two person bootstrap company, myself and my co-founder Ben. I was kind of on the sales and marketing side, Ben was building up the entire product and we’d been running the company for a couple years. We went for a while without paying ourselves. It was just kind of a niche product. It’s a piece of software called Cobrowsing and we integrated with a bunch of live chat providers, like LiveChat, Intercom, Zendesk, and those sorts of things. And along the journey, we had kind of done two different things when it came to building the company, one of which was selling it as a $50 a month subscription as an add on to your existing Intercom account or whatever.
And then we also white labeled the product. So we powered Cobrowsing under the hood for a number of chat providers like Olark and then a couple other ones that were based out of Europe. And so we had kind of these two revenue streams, one of which people were like, knew they were buying Median. And the other of which were like Olark was essentially selling Cobrowsing as a power up. And it just looked like Olark, Cobrowsing, they didn’t know that Median even existed. And so we had these kind of two channels there. And then along the way, kind of later in the history of Median, we ended up doing something unique, which I don’t think a lot of people knew about. And I didn’t even realize it was something we could do, as we got approached by two different companies in a short period of time.
They were kind of large, now both publicly traded, companies that were interested in doing kind of a white label version of Cobrowsing. And through a series of events, we ended up doing this kind of non exclusive perpetual licensing deal with them rather than doing a monthly subscription. And because we were a bootstrap company, we had the freedom to just take one really big cheque and then basically hand over a copy of our code base, knowing that it wasn’t going to a competitor, knowing that we could still sell it to other customers and that sort of thing. So we did two of these really big perpetual licensing deals that were essentially an exit in and of themselves for us. And then myself and my partner, Ben, were kind of interested in moving on to the next and we had a bunch of money in the bank account and we were kind of like, all right, well, we still actually own the business.
All of our customers, all of our contracts, what do we want to do next? And that’s where we actually, we found Acquire. I don’t know where I found it, on Twitter or something. You’re a beast on Twitter. [inaudible 00:04:15].

Andrew Gazdecki:
The internet.

Derek Homann:
Yeah. Found it on the internet. And it was interesting because we were like, well, we can keep this thing and keep cash flowing in the background while we start the next business. Or it’d be interesting to test the waters and see if there’s any interest for acquiring the company because it’s still valuable. It’s still a cool product. There’s still revenue. There’s still customers. There’s all this other stuff. But we were just ready to move on and so we came across Acquire. And because I had looked at other potential brokers and we were a small company, kind of not in the mindset of like, we’re going to go hire a broker and give them 15% of the fee or whatever the heck it is. I don’t even know.
And Acquire was interesting because I was like, oh, I can list this, publish kind of our stuff anonymously. You validate our financials and then people can basically see if they’re interested. And I just didn’t know what I was going to do, all I knew is I didn’t have to… I didn’t even know I wanted to sell the company, but I knew that I might want to, if we had the right offer. And so I was like, oh, I showed it to my partner. I was like, this is really interesting. Looks like you can set up a profile super fast and then they just validate it on the back end and see if there’s interest and that’s what we did.
And then holy shit, I don’t know if I can cuss on this, but holy shit. I just got a whole bunch of people reach out super fast and had interest. And I was like, well, I guess we’re doing this now. This is like, there’s a lot of interest, which was the interesting thing for me too. It’s just like, how do we even connect with people that would potentially be interested in acquiring your business in a scalable way? And I just kind of looked into and finding Acquire early on and then was interested in testing the waters and I was super surprised with the results in a positive way, so…

Andrew Gazdecki:
How long did it… So I assume you talked to multiple buyers. Okay. You found the one. Okay.

Derek Homann:
Yep.

Andrew Gazdecki:
The one that, maybe you’re at LOI. How long did it take you to get to that point?

Derek Homann:
Yeah. So I think the timeline was, we listed and then got a couple of responses right away. And then I think you sent out the email newsletter two days later and then we got probably 15 buyers within the first three days that had messaged me and were interested. And then over the course of the next week, I think we ended up having another 20 or 30. So I ended up with like 40 people who reached out. It has been about a year now. And then I had probably… And they asked for like, let me, can I see some more financials? We had a [inaudible 00:06:53] we put together, so I gave that to them. And then of those probably 40 total, I had a Zoom call with probably about 10 of them. Within, and I was trying to move fast because I was like, we either need to figure out if we’re going to sell this or keep running it and I want to move on quickly.
And so we had Zoom calls with about 10, within the week, all of those happened within a week of us listing, and then of those, about three of them, four actually, gave some sort of verbal offer or like, hey, I’d be interested in this. I would like to figure out a way to make you an offer or at least put some sort of LOI in place. And so I ran a pretty tight process there and within a week and a half, we had an LOI in hand and then we looked at it, and we optimized actually not for top price. We optimized for getting the business transition out quickly. We had already started Workshop, our new company, and we had some commitments there and that sort of thing. So we kind of optimized for like, what’s a good price, a good home for it? Who do we think is actually going to take care of this?
And then also, what’s going to allow us to kind of clear our minds of anything Median related and move on? And so, from there on I think we did, due diligence was probably three or four weeks. And then we signed an LOI, went back, did a month of due diligence and then a month later, first cheque was in the bank and then we had a 60 day transition. And then the second cheque, which was the final cheque, was in the bank after 60 days.

Andrew Gazdecki:
Nice. I really like how you focused on terms and the relationship, make sure, because if you sell your company to someone that you just don’t mesh with or something like that, you could probably have a lot of problems. So just, I like your approach of not optimizing for top dollar. I did that with business apps. I optimized for terms rather than bigger and out and stuff like that. So I’m totally on the same page with you on that. If you had any advice for… Other entrepreneurs are going to be watching this and they’re going to be thinking, I want to sell my startup, maybe on Acquire, if you had any tips, like if you go back, what are some things you’d recommend potential entrepreneurs prepare for or know about to successfully get Acquired?

Derek Homann:
Yeah. I think for us, it was just knowing what you want. So for us, we were… I think at first we were just like, we didn’t know if we wanted to sell the company or if we wanted to keep it cash flowing in the background while we were there or not. And so, we were just kind of on the fence of what we wanted to do and the interest is what kind of led us to go down that path. And I’m glad we did, but it probably would’ve been a little bit better for us if we were just like, oh, this is what we want. We would prefer something in this offer range, we would prefer to get out in 60 days. We kind of actually had to have these discussions along the way, between Ben and I, to be like, how long do we even want to be a part of this business as part of the transition? What’s all this stuff?
And I think if we would’ve kind of known that stuff between the two of us ahead of time, it would’ve been a little bit easier for us, but I’d say that. And then just making sure our finances and stuff were up to date. We were pretty good about it and had our accounting and all that stuff up to date but I mean, that’s the stuff that people poke around with. We had some kind of company overview decks and like what our partnerships were and our contracts all there, because those two perpetual licensing deals that we did before required us to do just a crap ton of due diligence. So we had this data room of all of our financials, all of our contracts and all that stuff, luckily already ready. So when somebody was like, hey, we want to sign an LOI and go through due diligence, we were like, sweet. We actually just did this.
So for us, we had the due diligence stuff kind of buttoned up and ready to go already. I think most people probably wouldn’t, but I would recommend that. And then too it’s just making sure that you know what you want, because once you know what you want, then it becomes really easy to say, hey, thanks for the offer but that doesn’t kind of meet what I like. Or it’s like, hey, that sounds a great, you seem like a great home for the business that I spent the last few years on. And it also meets the financial needs that I need from this, it also meets the transition time and that sort of thing. And some people want to stay in the business a little bit, have some ownership and that sort of thing. And just knowing that stuff up ahead of time, like realistically what you are actually okay with. I think it’s super important to know upfront rather than kind of figuring out as you go.

Andrew Gazdecki:
Yeah. I would completely agree with that. And buyers appreciate that too, because they’re wondering that exact same question, what do you want? And so being able to articulate, even just kind of a range like, hey, 300 to 500. We’re open to this amount of transition. We’re open to staying in the business, like really kind of being upfront like we’re looking to sell the business. It just makes it much easier on a buyer so they don’t have to kind of guess that.

Derek Homann:
Yeah. I think there’s your negotiables and non-negotiables because they’re like, hey, this is not negotiable. We need to get out in 60 days, if that’s what you need, because we’re working on this new business. But what we are able to work on is a consulting agreement, beyond that or whatever else. I think that’s super helpful to know what your negotiables and non-negotiables are.

Andrew Gazdecki:
Nice. What would you say the hardest part of due diligence was? What’s one part, as a founder like, hey, get ready for this part because it’s going to take a ton of time, so prepare in advance?

Derek Homann:
Yeah. So we had some contracts that we had to deal with. And so we had to kind of go through each of those and basically explain what our commitments were, where, because some of… We had a two year contract with one of them and we were like, here’s what we’re actually obligated to do. If you take over the business, here’s what you are now obligated to do. Here are things you’re potentially not obligated to do. And I’ll be completely honest, we didn’t know all of those off the top of our head, just because we had been with some of those customers for a while, and if you know the new person who’s coming in to run the business wanted to increase prices on them, could they because they’re the new owner of the business? Versus, is the contract part of the whole deal? Or that sort of thing.
So we just didn’t know some of that stuff. And I think it would’ve been helpful to know that a little bit better, like when you’re actually putting together your due diligence stuff. But again, we were a little bit lucky because we put together a lot of the due diligence for some of those perpetual licensing deals that we did. But man, it can be a little bit of a beast if you don’t have that stuff up and running. So if you use QuickBooks and you have all your account taken care of, or you’re using Stripe or Baremetrics or whatever, and you can just kind of hand that stuff over, a lot of the due diligence can get done super quick. So if you’re kind of using stuff like that, I would recommend using this much kind of tooling as you can to kind of just be able to hand that stuff over.
But we had some contracts and stuff that we needed to kind of make… We had to check with our lawyers like, what did we actually sign here two years ago? What is the implications for the buyer? And then their lawyer has to look it over and that sort of thing. So, that’s the biggest thing, had to kind of [inaudible 00:14:28] those sorts of things. But I mean, if you’re using Stripe or Baremetrics or ChartMogul or whatever, it’s really helpful to hand that stuff over. And the due diligence on financial stuff can get done really quickly if you have that in place, which luckily we did.

Andrew Gazdecki:
Yeah. I’ve noticed we have data around startups that connect Stripe or Baremetrics or any sort of analytics within Acquire, they get like 500% more buyer requests because it really cuts down on the due diligence of the buyer.

Derek Homann:
It’s pretty hard to fudge those numbers when it’s just being automatically piped in.

Andrew Gazdecki:
Yeah. And so what I love about your story though is, so you had a company, you sold it for three quarter million dollars, man. That’s awesome. I’m super stoked on that, but I think it’s, the better half of this is now you’re working on a new company that I assume you’re more excited about and maybe you believe has more upside. Do you want to maybe talk about your new company and what it does? And-

Derek Homann:
Sure.

Andrew Gazdecki:
What you’re doing with that?

Derek Homann:
Yeah. So I mean, but with the sale of Median, both with that, and then the licensing deals that we did kind of all combined, that ended up being close to 2 million bucks. The perpetual licensing deals were actually bigger than the acquisition price, which actually is kind of what lowered some of the recurring revenue we had, but also kind of showed a pathway for upside for a buyer who’s going to take it over. It’s like, hey, you could buy this company for 300k and we have evidence that there are at least some buyers out there who would pay a one time fee of 500k or 750k to actually have this technology, if they could just completely white label it.

Andrew Gazdecki:
Those are huge contracts.

Derek Homann:
Yeah.

Andrew Gazdecki:
Nicely done. Did you close those?

Derek Homann:
Oh yeah. Yeah, yeah. We closed those before we sold the company and so once we closed those deals was when we actually decided we want to sell the remaining assets of the company because we were like, oh, this is kind of like our mini exit already. So let’s see if we can kind of clear our minds completely of the company while we go to work on the new business. And so, once we had done that, because 300k is a great outcome, especially for a lot of people, but kind of cumulatively we kind of banked personally much more than that, which was great. And so that allowed us to start kind of figuring out what our next kind of swing at this thing was going to be, because we’re going to… We’re shitty employees so we have to start a new company and do it all over again.
And this time we wanted to swing bigger and so, kind of company number two is a venture backed company called Workshop. We focus on internal communications in particular. And so, myself and my other partner from Median, or two other partners, and then two of the folks that we worked with at a previous company called Flywheel, which exited for a large sum of money, all got back together. The four of us started the company and raised some money and this time instead of the bootstrap route, we’re going the venture capital route and kind of, we hit our single and we’re trying to swing for the fences on this one. And kind of, internal communications at companies is a big market and so it’s something that we actually did previously at our previous companies before Median. And so we’re really passionate about it and got a good crew of getting the band back together and kind of what you did at Acquire, getting the old team back together. That’s what we’re doing too, so it’s…

Andrew Gazdecki:
Ah.

Derek Homann:
And so it’s fun.

Andrew Gazdecki:
I’ll put a link to your new company in the notes below on this, but I love that path and it’s kind of a similar path to me too. I sold business apps and that was kind of a win. And then now Acquire has investors, I bootstrap business apps, investors with Acquire, but it allows me the freedom to kind of swing bigger because you have more experience, you’re more confident in being able to build a larger size company. So congrats to you, Derek. That’s freaking awesome, man. I guess final questions. Who’s your favorite entrepreneur? And you can’t say Elon Musk.

Derek Homann:
I don’t think Elon would be mine anyway.

Andrew Gazdecki:
I do that to everybody because I used to… Everyone would always say Elon, I’m like, no, no more Elon.

Derek Homann:
Oh man. That’s a tough one. I actually… There’s some, there’s… The entrepreneurs I like the most are actually folks that I get to see really closely and so, actually just in the offices that are kind of next to me are some companies that have kind of been grinding out for a while. They just raised some money from… One of the companies just raised from Greylock and one of the other companies just raised from like a larger FinTech company. I get to just sit and talk to those guys quite often and we’re in completely different industries, but I won’t show their names because they haven’t done their funding announcements yet and so I don’t want to steal any thunder from them.
But the two guys that are in the offices next to us, one runs a FinTech company, one runs a blockchain company, are the two people that I talk to all the time and you just see them and they’re exceptionally sharp people. They’re great at building teams. My current business partner, Dusty Davidson, or the CEO of Workshop and was previously the CEO of Flywheel, which had a great exit. So I get to work side by side with him every day as well. And so, those are the people that I like. Those are probably names… Those aren’t names that people probably think of as much, but I like it just because I get special access. I like Andrew Gazdecki too, that guy’s pretty legit.

Andrew Gazdecki:
Yeah. He’s all right. Well your story is one of my favorite and I just want to thank you for… Your deal was one of those moments for me because when your deal closed, it was just me running the company, entirely for free. And then you post… I remember when your company came in, I was like, this is a really badass company. And then when you told me someone was acquiring it, I was like, holy shit, this is… You were kind of like the Acquire moment of this really works. People, there’s buyers, people actually will buy a company for a quarter million dollars without a broker involved paying 15%. This is insane.

Derek Homann:
Well, that was my… After we got a bunch of reach out right away, it was like, that was, on my side, I was like, oh, this really works. So it was kind of funny that on both sides of that, we’re having kind of this moment of like, oh, this really works. Because our product was cool, it was a niche product. I still use our product every day at our new company. And so I’m like, this is cool, there is value here. Obviously we validated that through other people.

Andrew Gazdecki:
It’s a good product. I looked at it and I was like, I could see this being used for sales teams, support teams. For those watching this, the way I kind of viewed it was like Zoom without having to install it, so if you have a customer support person or a customer come on your website, you can basically get into their browser and fix whatever issue.

Derek Homann:
Oh, yeah. You could be on a live chat with somebody, there’s a button that just says, [inaudible 00:21:48] screen. And then you just click that button and it opens a new tab and you’re just watching it. They don’t have to accept anything, although you can ask for consent and all that stuff, which I’d encourage a lot of people to do. But you can just watch it, they don’t need to do anything, no downloads, anything. You just watch it. And it’s kind of like magic the first time people see it. It was always hard to describe what Cobrowsing means to people because people didn’t know. And then I would show people and they’d be like, wow, this is crazy, you can do this? So it is a lot of fun to kind of show people what the magic of that stuff is.

Andrew Gazdecki:
Yeah. Another part I love about this acquisition story is the buyer. The buyer is super happy.

Derek Homann:
Oh yeah.

Andrew Gazdecki:
I won’t mention his name, but we did a podcast too, and he’s doing great. And it sounds like your baby’s in good hands, so…

Derek Homann:
Yeah, we keep in touch. Even though we’re well past the 60 day transition, but we keep in touch so it’s like, I want to see that… My hope is that I look, two, three, four or five years from now and Median is worth 10 times what it was when we were running it, because I’m like, that’d be pretty cool. Even though we don’t necessarily have the upside of that, but we, I mean, hey, we probably could have negotiated that in if we want to keep some small percentage ownership and that sort of thing. But I would love to see it continue to succeed. I mean, we’ve obviously put a couple years into that thing, but yeah, finding the buyer that also just kind of jives with what you hope your baby can be and just kind of takes it further than you were able to. I think it’s super important too.

Andrew Gazdecki:
That’s awesome. And when was that acquisition? It had to be like a year ago, right?

Derek Homann:
Yeah. Almost exactly a year ago.

Andrew Gazdecki:
Yeah. There’s been a lot since then.

Derek Homann:
Yep.

Andrew Gazdecki:
But I guess final question, any books you would recommend entrepreneurs reading?

Derek Homann:
Mm.

Andrew Gazdecki:
Podcast?

Derek Homann:
That’s a good…

Andrew Gazdecki:
Anything?

Derek Homann:
That’s a good question. I love My First Million podcast is my favorite because I’m just like, I love hearing the ideas. You were on there, you actually mentioned Median as your favorite acquisition all time.

Andrew Gazdecki:
Yeah, no, you guys are my favorite deal.

Derek Homann:
And I didn’t know that was coming and I listened… I don’t, you probably didn’t even know that I listened to the podcast so I was just listening, I’m like, what? That’s us.

Andrew Gazdecki:
Yeah.

Derek Homann:
So I love that. I read, I haven’t read as many books as I’ve wanted to in the last couple years, I got young kids at home, but I love podcasts. My First Million’s kind of like my business porn, people just riffing on ideas. Keeping the creative juices going, I love that. I do have some business books I like to read around. I’m trying to learn how to build sales processes and stuff now, as we’re a team of 10 and we have to build a real sales pipeline and all that sort of thing and so the book that HubSpot wrote on sales is really interesting.

Andrew Gazdecki:
Is it The Sales Acceleration Formula by-

Derek Homann:
Yeah. Yep. Mark. I can’t remember his last name, but…

Andrew Gazdecki:
It starts with R, but that is a great book.

Derek Homann:
Yep.

Andrew Gazdecki:
Another book I’d recommend is To Sell is Human and From Impossible to Inevitable by Jason Lemkin and Aaron Ross.

Derek Homann:
Oh, yeah. Yeah, yeah. I have a different… I think I have Predictable Revenue by Aaron Ross too, but I got to, I mean, I’m trying to digest as much as that stuff as possible. So I love when, if I read something in a book and then all of a sudden, you make a sale the next day because of it or whatever. I’m like, well, that seems pretty tangible still. I like that sort of thing too.

Andrew Gazdecki:
Right on. Thank you so much for making the time, sharing the story. Super happy for you on your acquisition and your new company and rooting for you to succeed on both sides.

Derek Homann:
Thanks, man. I appreciate it.

Andrew Gazdecki:
All right. See you Derek.

Derek Homann:
See you.