Jeremy Weisz 9:05
I have a question on this. And I don’t know if you’re allowed to say the answer, but I’ll ask anyways, which is, what was the toughest part of Hell Week?
Tom Shipley 9:14
Okay, this is a strange one. Okay. So as a kid, I hand coordination balls, it wasn’t my thing. And I wasn’t really that good at it. That’s why I chose to do running. And it goes back to the trauma of being I think, a 10 year old kid and a football league, and therefore I was maybe small, a little smaller than the average and then you have people there is there that were twice or three times the size. And the pain I felt being knocked down my ass enough times. It didn’t endear me to that type of sport. And I remember that during the fifth day, we hadn’t slept for days and they decided to put us into what they said an all rules American football game, but it basically was just get the ball no matter what, to the other side. And it’s like one of my nightmares as a kid, okay. But the person and therefore that was that second there, but then that shift of who I was at that moment. And that’s where when I said that I became this different person is, I never saw that level of athlete inside of me that had that strength and that power and that perseverance to do whatever it took to win in that game. And that’s just an advice agent. And so yes, were there interesting things from what we do are tested underwater in the field, in stretcher runs with a lot of weight on our backs and rotating where, but I look back at those moments with a smile on my face. And I don’t view those as tough now. And I’m going to say that I was in such a mental state in the zone that nothing can touch me.
Jeremy Weisz 10:48
What separated those 13 people that made it?
Tom Shipley 10:54
I think there was a little level of strength that they just didn’t give up and had the tenacity to always keep on going. And with each one of them, they had this level of insight calm, that didn’t panic. Some people are just hyping every now and again, all the guys there, they were funny, they were great, the high personality with most of them. But they were all really level and level headed, that they just barreled right through anything without getting plugged in. And I’m going to say that there’s one exercise that they did, they gave us there was in the we hadn’t slept for four days. And they let us think they were going to let us go down and attends and we went down the tents and half our later the firecrackers went off, they pulled us off and they had us line up at a long line. And we’re just barely standing out falling asleep. And they said, okay, when you get to the front, we want you to run out into the desert between the different cactus and for a Florida that’s out there, and we want you to go down after 100 yards, you’re gonna see a nightstick for us a nice stick, we want to get down to 200 push-ups and run back and we’re going to time. So as I went up there, and when sprinted, did my 100 I got up and I went to turn around said was that 99 or 100, I went down to one more wasn’t sure. So then I ran back, the next morning and they called 13 people out. And they call through to meet on face. And then they looked and they said you’re out. And they look like this. They said we have someone out there with night goggles looking at you and you never did that, you didn’t do the push-ups. If we cannot trust you, when we’re not watching how can we trust you in the field when lives depend on it. So that’s why, when it comes to trust, it’s one of the most important things in any environment. And where you can do extraordinary things. If you can trust the people around you be mind you, not only from a integrity, also from a capability and capacity. And everyone there and you say we’re smart, and we’re really good learners.
Jeremy Weisz 12:56
What’s another lesson Tom, you bring into obviously, that is a big lesson of trust that you bring into your company. What’s another lesson that you bring in from the special forces into how you run your companies?
Tom Shipley 13:08
There has to be why. And if what you do is driven by make me more money, or purely financial driven. If it’s driven by you get some really wonky behavior. That’s what happens. If it’s driven by only here’s what we do and how we do it, and not the core reason why. Because ultimately, as people as individuals, we want to believe in something we want to make sure that the years we have on Earth, even if it’s one year with the company is dedicated. So the why that was together in the unit. The why that I look whenever Tom I’m starting a company and being involved in anything has to be big enough to be able to warrant the time and spending away from my family. And the reason why I’m asking people to sacrifice for that, for the cause that we’re doing. So that why was another big lesson there.
Jeremy Weisz 14:06
I know you have certain criteria of how you think about focusing in on a business, what are some of the criteria that you have for what you focus on?
Tom Shipley 14:18
That’s a great question. Yeah, it’s interesting a lot of times in life is we look at opportunities because of what is natural, logical and just right in front of us. And it’s interesting when you have a point in life that you basically you could if you chose have a clean slate and start again. And therefore my criteria has changed over time. And I’m going to say that when I left Foundry Brands, and we hired a CEO and I left Foundry Brands and for the first time I actually took off. I said I was going to take off 90 days I was 30 very successful in that route without a clear path to creating the next business before I started my current one, and I had an executive coach who said to me, Tom, I know you’re taking two weeks off to go in Italy, what I want you to encourage you to do is I want you to lay down in a big field, look up, look down right and left and understand how vast that horizon is. Tom, just because you define yourself in a certain way. And that’s who you are doesn’t mean here’s what you should be doing. So this way is, I’m a great product entrepreneur, all my businesses over the years have been related to products and not services, because I love the merchandising piece. I love the development process. I love how we can package and we can market that whether it’s to b2b or b2c, and consumers, and it’s just what I spent so many, two decades doing. With that shift was is okay, let me look at what I really enjoy doing and not what, and therefore, let me look beyond the opportunities that are right in front of me for what I want to do next. And so that’s where I started redefining my criteria, about what it is, and I said, okay, what is it? Let me start with this is, it has to have an impact, I have too many short years on this earth, even if I’m working for 60 of it. And shit, life’s too short for you not be passionate about what you do with it. So first of all, when the chips ice, which is kind of related to that is, I only want to be surrounded with people that are generative, that give me energy, it’s a very simple criteria. So if you do give me energy or not, if you don’t give me energy, for whatever reason doesn’t make you bad, it means that I’m going to make room in my life for people who give me energy, because the more people that give me energy, the more I can give, and the bigger impact I can have in the world. Ultimately, when it’s all said and done. And whenever that last day on earth, and I look back at my life, it is not going to be measured with how success my business were or high was or how many dollars I have in the bank. It’s how much impact did I have on the world, how many people’s lives they impact and the impact I had on my family? So therefore, I want to measure what businesses I get into when I get involved with what is the level of impact, am I creating something that is transformational, that can have a bigger impact on people’s lives. I always look for purple ocean opportunities. And defining purple ocean opportunities is we know what many people have read blue ocean strategies we talk about the red ocean or bloody it is commodities it is basically it’s all about lower price or getting more volume for what you’re good and really gimmicky offers to get people to buy again, because it’s so competitive. Blue Ocean opportunities are those where there’s no one out there and you’re creating something that’s truly unique. And you’re educating people learn how to use it, you can certain ways call Uber, a blue ocean opportunity when creating that model. But a purple ocean opportunity is one where you see the marketplace and there’s a strong market in that red ocean, but they’re unsatisfied and they don’t have a vehicle to in which they can be attracted to. That’s been the goal. So we’re going to create a new vehicle, and a new approach that meets their what they’re doing. And it’s a new business niche and the way we do it different from anyone else, and therefore there is no competition. We did that with Keranique over a decade ago, we identified that a woman’s hair growth was a great category, strong demand, all the attention all the dollars are going for men’s hair growth, regrowth. Well, most women, one of every three women is suffering from hair loss. The older they get, the higher probability they’re going to have hair loss. The older they get the more discretionary income, and they don’t want to buy a men’s brand that has a female product. So we came up with the first clinically proven FDA approved system for women’s hair regrowth and boom, homerun it’s sold over a decade later, Keranique is still the category leader. And I don’t own it, sold it off to private equity, but you’ll find it in CVS, Rite Aid, Alta Norris Drums, and majority of businesses still direct response. So again, that is example. So I look for opportunities where the wind can be on my back. And where there’s a strong marketplace, and I do have some type of first mover advantage. But it’s a proven marketplace. And I can see it’s not a massive shift and doing that. We are fortunate when we launched Foundry. When I launched Foundry, I was looking for to buy one and Foundry for context is an aggregator. It’s a roller platform that buys Amazon e-commerce brand. When we were starting it, there are only five players in the marketplace and only one of that was well funded a substance that we got in. Therefore, when that first company got significant funding, the door opened up and they became the what I used to call Netscape but to the search engine market basic creating and creating the door and the opportunity for Google. It created access to significant capital in the marketplace. So when I launched Foundry and I met with seven private equity firms for a startup I did not a venture firm, we got six term sheets from seven meetings and was able to raise $100 million to launch the company, everything and all the attention, all the opportunities were in our favor. And that’s why I call a market shift that create an opportunity to win was at our back. So criteria is, purplish an opportunity where there’s the economic factors that are giving you a strategic advantage where you are right now. And the other is that I find is that the more zeros you add on to the idea, the easier it is to implement. And people are gonna say, wait, how’s that possible? Look this way, if I go out and say, hey, I have an idea, I’m going to create a reading glass company, because I have a way that is more comfortable than any reading glasses in the marketplace. And guess what, we’re going to scale this to a million dollars in revenue. The amount of people that I can recruit on my team that will be excited about that, to get some million dollars, the amount of investors I can get, it’s tough if I do that. When you say, here’s my clear pathway, and here’s the clear plan to get to a billion dollars, The level of talent and the people you recruit, especially if it is that transformational movement that will impact lives, actually getting on the train for this and investors coming in and fundraising is a totally different level and is easier from that perspective. Again, I’m not saying be unrealistic, but it can be easier. So you say what is my criteria? is purple ocean opportunities winded are back from a timing perspective, big enough that I can add enough zeros on that when we have an outcome, this could impact a number of people’s lives and give me resource to be even more impact. And ultimately, it’s about impact. So those are some of the criterias.
Jeremy Weisz 21:55
Tom, when I look at your journey, I want to hear more about why AVA, why Agency Ventures Aggregator because like you said, you’re a products person. If you look at you know, what you did with Atlantic Brands, what you did with Foundry, then if I were to predict I would not have predicted AVA. So I don’t know what you did in the field in Italy. But how’d you come to AVA?
Tom Shipley 22:30
So it’s a great question. So let me start with this is that what I cut that, you have to look at yourself and do your own self-assessment, when it comes down to it is, I’m a Business architect, that’s what I do is I build platforms that can scale. It’s agnostic, what business or what niche it is. I know how to do that I know how to drive demand, I know how to create the team, I know how to create the passionate environment, where people are fanatical and what they’re doing, and how that works with systems and processes and structures and reporting to make complex as easy as possible. I get that from my industrial engineering background, make complex, takes complexity and make it simple. So I know how to create those architectures. I know how to create the financial models as well as the operational models to make that happen. And then bring in funding and I can do that. What I found is that when you start a business is most of the energy is put getting that is like a rocket ship getting most of fuel is expended getting the rocket off the ground. Most of the resources are spent when you launch a company and getting it off the ground and getting some level and most that’s the risk is that first level is, is there traction? Is there good customer base is a repeatable, what are the core metrics? Everything is perfect or horrible or basically unfounded when you have an idea for a business. So by buying an existing business, you take that same amount of energy is your ROI is going to be significantly more than that. Not only that. And so that’s the foundation of why I like to buy businesses. But then if you can create a platform, which is what I learned at Foundry, to buy multiple businesses and put them into a platform where there’s I hate to use the word synergy, but where’s that synergy and everything is aligned, you can have a bigger impact. The thing I want on my soft on is I only wanted to buy midsize and large businesses because of the ROI and how it is the staff and the infrastructure has in place and the stability. The however on that is it is easier to double the EBITDA of a very small company than it is a very large company. And so how can you get the most and from an acquisition perspective and it’s while of acquisition as you have multiple arbitrage. There’s less competition at companies with lower level of EBITDA and profitability. There’s large so if you can buy companies that are three to 5x, and you can sell them for a six and a half to 10x. Again, you have that and if you have the right infrastructure in place, you can double the EBITDA on it. So again, that’s why I love the aggregation play, the question is why agencies, of all things why agencies? And then also what we sell foreign Weisz and you say Tom transformation and aggregator just sounds like it’s a numbers, financing arbitrage business you’re in. So, why agencies is I knew I want to do aggregation. I was looking at some great boring industries like HVAC, there’s mass service providers, a lot of really good businesses out there that don’t have a lot of sex appeal to them, but they’re leaning easier for an aggregation play on how you can build a very large business from doing aggregation. On the other hand, two years ago, when I was two and a half years ago, live in northern Bergen County, New Jersey, before we move to Austin, Texas, I joined an online m&a group met a gentleman who was rolling up at a small agency and developed a programmatic m&a strategy to do roll ups of an advertising agency. And he acquired three over the past 30 or 90 days when I met him, and had one a month for the next three months schedule. And I looked at his platform, what do you do, and we just became friends and I moved to Austin, we started biking and running with each other. And then when I sold Foundry during our bike rides, where it was supposed to be taking time off, it was, what is stopping you from implementing the strategy? And what I did at Foundry, why aren’t you shooting for? It’s an aggregation. It’s a numbers play to get to a billion dollars, what are the challenges? And what operating assumptions do you have to change in order to make that possible? And the question Jeremy I was asked is, what has to be true to make that possible? And then if you can make those things true to make whatever outcome, you’re at possible, you have a new business and a way of looking at business. So in this case is what has to be true for you to get to a billion dollars. And that was our conversation. And over time it went from you to us. What are we doing and because in his pipeline, at that point, he had talked to interview three and agency owners that wanted to buy their business. So he had a significant pipeline. And he was interviewing again, his team was interviewing somewhere about three agencies a day that want to be purchased. So a proprietary pipeline was not an issue. Then there is the question of is that we can do old school onboarding, basically due diligence and integration. But how do you run, do that level of an audience by one two businesses a month? Because how do you get $2 billion, you buy a million a half an EBITDA. Every month, you double the EBITDA over two years, and then growing each other’s agency by 20%. A year after that, again, the math gets you to a billion dollars, however, and the big, however, is how do you solve that onboarding problem? Because this is a human focus business and your legs, and I have an answer for that. I’ve been talking with one of the leading digital strategists in the world digital agency, strategist, Felix Velarde out of London. And he figured this out, he developed after he built six agencies successfully. Sold three, over the years, he was the chairman of 14 different agencies, and then he also was the head of a roll up group. And then seven years ago, he decided at Burning Man, to be able to create his methodology and work with agencies under $10 million. The first 32 agencies he worked with either doubled or tripled their profit within two years. So he said, hey, I have a good name for this program, we’re gonna call it 2Y3X and two years three extra business. So that was the name of the book he created. Shed is the publisher, and you can find it online. If you have to buy it. It’s a great book. And so but his methodology is different. It’s very people centric, it says, everything’s about your succession team. So build your succession team is a methodology that he built. Basically, he builds a three year roadmap with the succession team and not necessarily driven by the owner. And then after that, it’s called the growth lab team. And then the growth lab team is trained over a two year period of time on how to think strategically how to run the business, but the numbers and they take over responsibility for the business because as we started from the very beginning, the reason why most businesses cap out at one, three, five or 100 million, is because it’s something with the honor capsid out there. If you can unleash that with the team and create the vision and train them, you’ll get to unprecedented level of growth. So Peter said, we have that what if we don’t really integrate, we do line integration, takeover, accounting, finance, legal and HR, we give them these consulting there and we buy agencies that are healthy, that are growing, that are passionate that want to grow, and we create a financial structure that keeps them engaged in the business with a large return on investment. Therefore, we can implement the 2y3x process will bring a managing director over every three to five years agencies that we require. And that person is there from a mentor and a guidance perspective. And we don’t have to micromanage them, all we have to do is give them the resources and give them the guardrails and let the process do the work. And that’s the paradigm shift is it doesn’t have to just, did you know, Jeremy, that 200 of the largest advertising agencies in the role are all roll ups. And of those 200, when they do an acquisition 80% of time, the founders do not stay for their own ops. And when they leave the succession to lease now, because the agency doesn’t have to pay the earn out. And because the multiple arbitrage financially, it’s a win for them, even with losing some clients. But to me, this destruction of enterprise value and destruction or people value, or you can call it human capital get it is so if we have a better model to do acquisitions, and we’re proving this in the agency space, but this new model for aggregation can be applied for any industry. And so we’re developing this every 90 days, we run a program where we actually people fly in throughout the company, we teach it because we can’t have a big enough impact to the advertising industry or other service industries, by us by the 20, or 30 agencies we buy a year, and we’re going to impact is by teaching what we do and have other people implement that along with our programmatic m&a process, which is really just using Scrum and Agile methodologies.
Jeremy Weisz 31:26
So I want to talk about an ideal company. What does the ideal company look like, from an acquisition standpoint for you?
Tom Shipley 31:36
Very good question. So there are exceptions, but the minimum is typically $500,000. And we’re looking for revenue between 1 million and $10 million. We’re looking for agencies that have a full time staff of over 10 people, we’re looking for businesses that are healthy, and that are growing, and who’s values align with ours. Because values are something that’s very important the way we’re very people centric. And so the organization has to be the same way. So if we look at minimum criteria, that’s the minimum criteria, we’re buying thing that we’re buying agencies across all different spectrum from we’re buying everything from SEO performance based agencies, a lot of creative agencies. Agencies that focus on b2b, b2g, b2c, it doesn’t matter. We put like agencies into groups, but we’re buying across data. So right now we are looking at some data science and marketing analytics agency, a couple more tech agencies. So it could be really across the board from what type we are. And ultimately, we’re putting agencies in like groups in which they have a common language, and they can scale within the group.
Jeremy Weisz 32:55
Walk me through Tom, how you achieved and what you did with the first acquisition.
Tom Shipley 33:02
It’s an amazing agency out of Atlanta, Georgia, and with a relay team that was ready to move to the new level. And so the results are right now as based on the sign contracts they have in place, we acquired them just last June, to sign contracts that they have in place without getting any new businesses, they will increase their EBITDA up by 60% next year. 6 million high dollar agency doing highly profitable. And so that’s really the foundation of it. And they’re scaling by the existing clients doing more business with them and getting new, more clients in. What we did is the team is we measure success by the happiness of the team and the happiness to clients. And that by implementing this 2Y3X process has been extremely successful. Plus, they turn to us and say, okay, and we use your resources. And can you show it built a sales enablement process? And so we do that, can you help us win more business and teach us how to give us the formats and the infrastructure for that? And that’s what we’ve done. And we need some help in different technology. Great. So what do you need specifically, they ask us. Any agency we buyers, they can choose to use our resources, they can choose to do learn to do it on their own, they could choose to do use outside resources, we don’t care, we just want to make it available. And if they want to compress time, we want to be there to help them do that. So that is a example of and so since businesses are traded on multiple EBITDA, primarily in the agency space, obviously we know we did the enterprise value and also a different threshold you also increase the multiple that you can be acquired for.
Jeremy Weisz 34:50
What do you think from that first acquisition, what was a learning maybe that you’re like, oh, we have to make sure we do this again, or this stuck out that maybe can tweak this in the next one that we acquire and onboard.
Tom Shipley 35:05
So, you learn things with your business model, the initial business model we laid out there is we’re going to do to be very efficient, we’re going to buy four to five agencies every quarter and have it done simultaneously and put red hat form a group. The first lesson that we learned is that you want to be able to spend focus time with each agency, and therefore we’re pacing it out to one to two agencies a month versus all simultaneously at the same time. It relieves a lot of pressure from your HR organization, your accounting, as well as a managing director that’s over there as well as 2Y3X consultants, we can pace things and stagger it. Yeah, it’s funny because it’s really gone. Well, the team is on fire and I can’t say we oh, shit, we did something other than our processor a lot more efficient.
Jeremy Weisz 35:57
Yeah. Where can people learn more? You said there’s some trainings people can learn out there in person or, or only in person or online? Where should people go to learn more about that?
Tom Shipley 36:09
Okay, so the easiest way to do that, if they email me at [email protected], I’ll connect them with, let me know if you’re interested in some of our trainings, or our programs are interested in getting into our acquisition pipeline, just email me, I’ll connect you with the right person again, it’s [email protected]. We have five people in our m&a team, we have a media company. Scout T Speed Media is the name of it, Scout for that all they’re doing is their whole purpose in life is to take the information in our content, and figure out ways to distribute it to give it out and create programs. And one things they started doing is running events every 90 days and Austin. Next one coming up on I think it’s February 20th. And then it’s May 3.
Jeremy Weisz 36:59
Thank you. Yeah, one last question, Tom, first of all, thank you. And I want to encourage people to check out avaacquisitions.com to learn more about what they’re doing. And my last question, Tom is, we were talking before we hit record about economic downturns, and sometimes the greatest opportunities are in economic downturns. How do you think when you see this downturn, some people are thinking, scarcity and other things, and you think differently when there’s an economic downturn?
Tom Shipley 37:37
I think, in abundance is what opportunities are out there. And then what structures can I put in place to take advantage of what’s out there and minimize my risk at the same point. So right now, the one of the greatest opportunities is out there is in acquiring businesses, I can say reward realistic, the easiest you’d say is, hey, I’m gonna grow my EBITDA by 10%, or stay flat or grow by 30%. You can increase your EBITDA by 33% by do an acquisition, if you do an acquisition, it doesn’t mean that you need to have the cash to pay on it for 100% of business. There are a number of ways to fund that business. Quick story is when we started Atlantic Brands, we ran through everything, we had to generate those first $330,000 of sales and had nothing left. We brought on a consulting client to pay a little bit of our bills and our overhead. We love their business in Hoboken, New Jersey, we made an offer to buy them for two and a half times EBITDA. Even though we know that our business as a slight money loser that first year, we couldn’t borrow the money based on it, and we didn’t have the money to buy that business. We went out met with three mezzanine lenders, one loved it or two loved it, they gave us an offer. They gave us the money to buy that business, we bought 85% of that business. And two years later, they made more money from the 15% than they did the 85%. And then that platform which gave us products, team infrastructure allowed us to grow from 338,000 two and a half years later to $125 million in revenue. And so again, it’s thinking about things different is because of COVID that gave me time to think and the change in the economic environment that created the opportunity to create Foundry to go out and to start rolling up. And the other thing in 2008, when the market had this massive downturn and things dried up, we said we fire half the staff and just hunker down, or to look for opportunities. And in that marketplace is we started calling media competence, saying I know that the big brands are no longer buying media, let’s negotiate rates and guaranteed on a cost per order basis. So we’ve minimized our downside. We went big in the month of October, it was the most powerful month we’ve ever had. And then that’s how we were able to scale between the infrastructure for the acquisition a year later having this economic downturn and us to be able to buy media so cheaply, and there wasn’t a lot of competition out there. So there’s always opportunities out there just taking a step back and looking around and sometimes it’s just one or two degrees to the right. The opportunities are out there and just sometimes just ask.
Jeremy Weisz 40:12
I love it. Tom, thank you. Everyone, check out avaacquisitions.com check out more episodes of inspiredinsider.com and thanks everyone. Thanks Tom.
Tom Shipley 40:22
Thanks Jeremy.
