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

All right. I've been chasing this guest today for 6 months, begging him to come on the podcast because I heard him on a podcast last year. And as much as this breaks my heart to say it, that was my favorite business podcast of the year, and it wasn't even our own. But he was so good that I asked him to come on. His name is Jeremy Giffon. He is— he was the first employee at Tiny, which, if you've ever listened to the podcast, we've had Andrew Wilkinson on many, many times. They basically turned $5 million of starting money into about $500 million of equity just by buying businesses that cash flow. So they bought, you know, small businesses that cash flowed, kept recycling, recycling, recycling over 10 years, turned into $500 million. So I wanted to ask him, what was it like in the early days? What were those first deals like? He was there before they even had a name, before they were even called Tiny. So we asked him about his best deals, his worst deals, the weirdest deals he's ever done, negotiating tactics he learned. This episode is is amazing. It's a 10 out of 10 for me. Enjoy this episode with Jeremy.

Yeah, so I knew Andrew because when he was starting Meta Lab and I was working on another startup, we shared the same studio apartment. Our office was in a studio apartment. And he was in like the bedroom area and we were in the kitchen and we would keep a blow-up mattress in case the fire guy came around and we would just say, oh, you know, Andrew lives here, but just have a lot of friends over, you know, working on stuff. And yeah, I mean, effectively, like Meta Lab, the short version is Meta Lab, you know, was throwing off a fair amount of free cash flow. I think it was in that range of, you know, low millions a year. And the idea was just to go use that free cash flow to buy a business. And, you know, that's the thing with agencies, right? Like, there's not a lot of reinvestment, so you got to do something with the cash. And if you're not going to put in the S&P, like, that's too boring or whatever, then you got to figure out something to do with it. And so that's kind of what we did. It's funny, like, people, a lot of people, holdcos and stuff are really popular now. And people, you know, a lot of people ask, how do I build Tiny effectively? And the first step is like, well, you know, bootstrap a business that makes millions of dollars of free cash flow and then like get back to me. The rest is like pretty easy. And that's the first start.

Yeah, that's right. MetaLab is probably 15, 16 years old now. So it was a long slog. I mean, Andrew just started really young. It was also one thing that's really helpful is Andrew and Chris and myself, I mean, we were all big users and fans of Dribbble, um, and, uh, and we— Andrew really had that company in mind for a long time, which I think is another really nice thing to have. Like, it's very good to start with a deal even when, like, even when you're fundraising or whatever, to actually have a concrete thing that you want to go do and use that as the jumping off point for, you know, building whatever it is. I think it's always so much better to have that than to kind of be like abstractly, oh, I'm going to start a fund, or I'm going to start a holding company, or whatever. And so it was like, Dribbble is really cool. We would love to— we would be the right owners for that. Andrew knew the co-founders there, and maybe we could buy that. And that would be a starting off point. And it's all very, like, real and concrete versus the, we're going to build a holding company of technology businesses or something like that.

Yeah, I mean, it was, you know, like anything, there's generally one way that you can categorize sellers. It's people who care about what happens to the business after they sell it and people who don't. And certainly for people who care, it's a lot about— it's this huge trust exercise of, you know, are you going to screw up my baby? Like, in their case, they've been working on it for a really long time. Their names are very attached to it. There's a big community. Community businesses are really difficult. You know, the community can really turn on you fast. And so, yeah, there's that whole piece. And then mechanically, Yeah, it was literally like, I don't think we even had a book. We just looked it up online. Like I would literally go on Legal Depot and like get an LOI off there and edit it. And you know, for the first few deals, like, you know, I was 19, 20 and Andrew would be like, can you go get an LOI for this? And I didn't know what that was. We just go download one and write it up. And it's interesting because one thing that we didn't, like, this is an example of just the benefit of not having a lot of experience. Typically when you do an LOI, It's pretty far along in the process. And we would just fire them out because we read them. And in an LOI, the only thing that's binding usually is the exclusivity and nothing else, not the price or anything else. And so we thought, okay, like this is a totally non-binding thing, so let's just like chuck it out there. It's nice to have something on a piece of paper. It's kind of like a term sheet. Although even term sheets, like socially, are more binding. And we didn't realize that, oh, in private equity, an LOI is like a pretty sturdy commitment or whatever. And you know, that was for better and for worse. On one hand, it let us move really fast. On the On the other hand, we learned quite quickly that, okay, you're not supposed to go back on like what you changed in an LOI and that kind of stuff. And we're— and so there's all those little things where just not being familiar with the process really kind of let us move fast. It let us be friendlier. And that was the whole point. Like we had both had these kind of bad experiences with buyers. And we thought, you know, there's gotta be like a better service to be done there, basically.

Again, it was, it was pretty obvious that it was a great business. And I think Andrew's told the story before, but there was some immediate day one levers around like a big part of the business was advertising and we could find better advertising providers and things like that. So there was levers you could pull on day one that were gonna improve the business. But yeah, it just felt like this big opportunity. It was a top 1,000 website, it had millions of active users, it was very important. When it launched, I think I bought my Dribbble invite on eBay or something like that. It was really hot for a while. And it was just this kind of like cool thing that didn't really exist. There's not a lot of independent social networks that have millions of users. And, you know, we negotiated a pretty fair deal. I think like, you know, the other Buffett line is price is my due diligence, and that helps a lot. But no, we never thought any of the deals could be, you know, 50+ Xs. We're always just like, you know, can we make 20 or 30% cash per year from this business? And that would be great. And anything after that is just kind of upside. I think regarding models, Andrew used to make me do discounted cash flows because it was kind of like the thing that you felt investors ought to do. And then at some point I was like, here's your spreadsheet, but I'm just making up all the assumptions in the spreadsheet. And I think it was like so many of these things are just like comfort blankets or whatever. You just like, it makes you, it's a big scary thing that you're doing and it makes you feel better that you have it so you can look at it and be like, yeah, We've modeled this out, you know, but it's like, it's bullshit. You're just, you're just making it up.

Yeah, my, my favorite anecdote here is in the Facebook IPO, Barclays put out this research report where, you know, they say what they think the business is going to be worth, and The way they do that is through a discounted cash flow. And a part of that calculation is like, what is the terminal growth? What is this thing going to grow at forever? And they put it at 3%, which is what most companies are. And so that got them to a $200 billion valuation. Now, the next 10 years, it grew 30% a year and it's a $2 trillion company. And it's just an example of like, you know, you do all this modeling and this research report and you're just so off, like you're an order of magnitude off. And so like, what was the point of doing any of that? It would have been better to think really hard about how actually, how much can Facebook grow? Like just kind of this first principle stuff, right? Of what percentage of the planet could use this? Like a lot more basic. Um, and yeah, that's a lot of the quantitative stuff. Also a lot of the quantum stuff is totally commodified, right? So people like know how to do this. You can learn how to do this in school and therefore maybe it's like a useful table stakes thing. But you're not going to get any edge that way because everyone can do it. And where the edge is in quantitative stuff is, you know, in the two sigmas and Jane Streets and the MIT PhDs, and you're not going to be doing that either. And so you're not going to like do a better model on a company than the next guy and somehow get some edge there.

Yeah, it's pretty basic, right? It's like, okay, let's make up numbers. It's doing $5 million a year of revenue, $1 million of earnings. And you think, okay, on day one, I could raise the prices by 30%. I could I could reduce headcount, I could launch this new product, whatever. Would you pay, you know, would you pay $1 million for that? Yeah, of course. Would you pay $3 million? Yeah, probably. And then you can just kind of go. And I think where modeling gets important is when you're like at the very edge of that, you're like, would you pay $10 million for that? And then it's like, well, a lot of things would have to go right, maybe, or whatever. But there's some number there where it's like, yeah, you know, I'd pay $3 million for a business making $1 million. And so then the trick becomes, okay, can you get the business for $3 million? And that's where it's like, you know, Tiny was in a lot of bids with other folks, and I don't think we were ever the highest actual price, but we often won deals because we could offer other things. So that comes back to like, why you on the deal? You know, it's because like the very common thing that would happen is we'd get pretty far with the seller and then they'd say, hey, you know, we like you guys, but we've got this offer for 25% more, so we're going to go take it. And, you know, very often be like, great, like go explore that and then it turns out that offer was not as real as you thought, or it was 6 months of whatever, there's more debt, or they didn't have the financing. And then you actually figure out that, oh, there is like other things in the deal that are important, like the ability to get it done, the ability to be honest, to be trustworthy, to do things fast, like all those other soft things. And so it's more like, are you able to get a price that's really a no-brainer? At least that's how I look at it, versus I really think I'm smarter than everyone else, I can pay slightly more. I mean, that works for people, people do do that, but it's just like a totally different game.

I mean, Chris's superpower is just being able to— Andrew is so high-paced and so high-energy that Chris is just able to modulate that and kind of be the sober second thought, you know, we're not going to do this, or that's way too much, or whatever. You know, a very interesting piece of the Tiny partnership, at least at the beginning, that I thought was really quite unique and interesting is that, you know, Chris and Andrew had Tiny as this vehicle that they would share together, but then they could also do things on their own, you know, investments, businesses. And that actually, like, I don't even know if it was intentional, but that provides this great release valve of, okay, like, all the time, you know, Andrew would come up with some cochamane emotion about some restaurant or whatever, and he would just say, okay, I'm going to go do that on my own. And Chris could have the same thing. Like, Chris was great at investing in public equities and he could go do that on his own. And I, um, I know that doesn't directly answer about Chris's superpower, but it is this like interesting structure. I think one thing that can really go wrong in partnerships is if it's like you're dedicating your whole life to this thing and everything you do is going to be through it, it can really turn into this prison if you don't share the same taste as your co-founder. And so having this like release valve And being aware of that is really nice.

Yeah, more than that. And actually, what's even rarer is, at least I always have this fear that they're just gonna lose it, you know, like, how dare you. And that almost never happens. It happens sometimes, but it almost never happens. And another nice dynamic there is you can always say, well, hey, like, I'm on your side. Like, I, you know, it's the old car salesman gamut of like, my manager's killing me. It's the same exact setup. Right. And that's super helpful. And, you know, Chris shared all kinds of tricks with me. Like, one great one is it's always best to just kind of, when you float an offer, to just not say anything else. People will immediately start negotiating against themselves. And so One trick that you can use if you're on, I guess it probably doesn't work on Zoom, but if you're on just a call is you can like say your offer and then hit mute and then you can like be like, you can start saying, oh, you know, whatever, but they'll just hear the silence. And that's a big thing as well because oftentimes you just need to let it float and sit out there, but it's like too uncomfortable for you to actually do that.

Yeah, totally. I mean, one, one very cynical way of looking at negotiation, um, is that it's just who can bear to be uncomfortable longer. Um, and, and like, that's certainly true. You can do that in a retail setting, you know.

The way that I like to frame it, the more kind of mature, the way that you can really do, I think, for your entire life and not kind of get, you know, be known as this like bastard who's just relentless and negotiate against. It's kind of— I love this idea of in a traditional negotiation, you're sitting across the table from one another. And the way that I really like to reframe it is you're both sitting on the same side, and what's on the other side of the table is the problem. And the problem can be you want $50 million for the business, I want to pay $20, but it's still this like, okay, this is a problem. Let's work together to figure this out. And it's this very subtle thing, but it makes a huge difference. And that's, I think that's how you start to unearth, okay, maybe like it's actually not cash, it's cash and something else that's more important for you. Or why do you want $50? What is it that's $50 that's so important? And why can I feel like I only can pay $20 or whatever? And that works really well. I use that every day. You can use it in like relationship problems and everything of kind of like making the problem other and then putting it out there and being like, let's work together on solving this thing. And there's just something so much better about that than the kind of like, I'm going to hit mute and stare at you and like break you.

My favorite question is what would need to be true? So it's like, okay, you want to sell your business for $100 million. What would need to be true for me to pay $100 million for it? And you can just lay it out, like, like, what would make this a no-brainer? And you can do that in any situation. And, you know, sometimes it's impossible, but oftentimes it's far more possible than you think when everyone actually lays that out. Because usually there's some sticking point that you don't realize, or, or, you know, it's something that is kind of outside of the scope of things you've already talked about. And I'm always amazed by how much that works. That works, like, as I've been fundraising, it works there. Like, what would need to be true for you to be like, oh, it's easy for you to give you money, or, um, you know, uh, for, for a trip, like, what would need to be true for everyone to be excited about going on this trip? Like, it's just such a good question, and it really sets that up as like, let's collaborate on this.

Yeah, I think it's funny. I've been saying this a lot more like publicly into groups and stuff and it's still like if everyone cold emailed, the ARB would go away. But I think it's just too scary or whatever that people don't do it. It's still a huge opportunity. I will say like The addendum to that advice is you gotta have the goods when you show up for the meeting or the call or whatever. I think, like, I think, I don't know, maybe it's just like anecdotally because I talk about this a lot. I get a lot of cold outreach. And you also, like, the second part is you gotta be really good when you show up. Um, but if you're good, uh, when you show up, like, it's just this incredible, incredible kind of hidden secret, which is There's always a scarcity of talent, like no matter who you are and, you know, how much money you're worth or whatever, there's a scarcity of really awesome people. And so everyone has an infinite appetite to meet people who are interesting, talented, have a unique view on things, whatever. And if you can present that, like, you will really kind of go a long way. And the downside, I can't even remember. I'm sure I've sent hundreds that have never been responded to. I've never got a bad response. It's usually just no response. I don't even remember the non-responses, but the ones that I've got responses from have been amazing, you know. And so I think, I definitely think more people should do it, especially if you're young or you're a student. That, that alone can be enough of a hook that like most people will meet with a student if they seem switched on and interested. And yeah, I'm still amazed that people, people don't do it, but I've started to see people do it and then they show up and like they don't have anything to say or they don't have questions for Barrett or whatever, and that can be really bad.

Yeah, it was, it was not this deal, but there was A friend of mine who buys similar types of companies did a deal where they flew in the founders to meet them in person, and the first night the founders wanted to know where they could get drugs. And, you know, that is like, in and of itself is not a strong signal, but in that context, in that situation, it's like, kind of, what more do you need to know? And it turned out that they were doing a bunch of stuff that they didn't disclose or whatever. It's always stuff like that. Like, someone who's really flashy is almost always a bad sign. All these little things. And, you know, even like in the case of this deal, I introduced the person to a bunch of different friends and, you know, experts, and they were all like, this guy is really something, you know, like, you, I don't really know why you're dealing with this person. And it's, it is funny how you just get the blinders on when something is so good. And I think we've all, all made that mistake. And so yeah, that one, it just turned out that there was a bunch of things that we didn't know about, and it went very badly and we lost all our money. It was a really small check. Fortunately, that was like the one upside, but that one was pretty rough.

But it was just this really awesome app and it was made by this really amazing technical guy who had just built this really great product. Like, I remember the moment that sold me is like, they, you know how the iPhone turns off when you put it close to your head? He realized that you could use that sensor if your hands are dirty while you're cooking, you could wave your hands over that sensor to like go to the next part of the recipe or stuff. All just these little things and they have these huge butterfly effects. Like, turns out when you do that, Apple thinks that's really cool and then they feature you in the App Store and like you, there's all these small details. Um, and we bought that business and it grew a lot. We got all of our money back in the first couple of years. And then this was the only business Tiny has, um, has sold to date. That, uh, we saw we made two major grocery retailers came along. And I guess like in a boardroom somewhere, they had just decided, you know, we need an app. Um, and so they both became interested. And it was kind of funny because, um, I, you know, the company that I was at before Tiny, we had sold the company to Workday, and it was a pretty difficult, um, uh, experience. And so I kind of viewed it as like my chance to get another go at selling a company to a public business and really kind of, it was going to be my turn to like get a good deal. And then we sold it, we sold it for, you know, a huge revenue multiple, made a lot of money, you know, excess of 25 times of our money. And it's still today, it's like, if you look it up, it's still used. It's this great thing. I think the original team is still there. They were very happy with the outcome. I just love that because it was like, It was this kind of perfect little situation and this great little, almost like, um, like craft app, like just someone who cared a lot about making a great product. And I love those.

It was basically this company, a big Fortune 500 tech company bought a business and the business had two business units and the big Fortune 500 only wanted one of those units. And, um, they basically had to divest of it very quickly. And so we were able to buy it for— it was doing $10 million of recurring revenue and it was shrinking. The business was shrinking because it was built on top of another platform that was becoming less popular over time. And, um, and we were basically able to buy it for so little that we borrowed all the money and then paid back the loan in like 3 or 4 months. And so we basically got it for free. We were able to— we bought this out of the Tiny Fund and we were— we could write this great update to our investors saying, hey, uh, you know, we didn't call any capital, but You now own this new business. We're going to do a distribution soon. And it was like small dollars, but it's cool to pay nothing for a business. And then the interesting part is like we also got a domain that's probably worth $1 million or $2 million depending on how fast we wanted to sell it. And so it was kind of this like fun little deal of like, can you actually do a business for— can you buy a company for no money down? And, you know, it won't be a business, it will not be a 20x and it's not going to grow for 10 years, but we'll make many multiples of our money on it. And it's fun, like in the actual fund statement that like KPMG does, they have to list the cost. And so the accountants listed as like a $36 cost basis, which is I guess like the actual money that went into the deal. And those are cool. Like you can be really, really creative. You don't have to put a lot of money down.