Today over at Brent Ozar Unlimited, we announced that the company is buying out Jeremiah and Kendra’s shares. What exactly does that mean, and what kind of work is involved?
Fifty Ways to Leave Your LLC
Decide who’s getting out, and when. We had an oddball situation: we shared the same vision for the company, we’d found good product/market fit, and any of us could have been successful executing on the vision. The company just didn’t need three partners at the top to do it, and the business had just accumulated enough value that it made sense for one or more of the partners to take money off the table and bow out. (There’s a tremendous amount of voluntary unpaid work involved in starting a company, and it’s nice to be able to get paid for that at some point.)
Decide what they’re taking with ’em. We built a lot of protection in the company’s operating agreement. The cofounders got a permanent, royalty-free license to any intellectual property they’d created while with the company. For example, Jeremiah could have kept the sp_BlitzCache® code, and Kendra could have kept sp_BlitzIndex®. This would have made it easier for an exiting cofounder to keep making a living doing something else – but it also reduced the value of the remaining company. In order to maximize the company’s worth (and therefore, the buyout price), Jeremiah & Kendra elected to let go of that license.
Decide what they’re not allowed to do after leaving. In an acquisition, it’s not uncommon for the bought-out parties to be prohibited from competing in the same industry, or pursuing the company’s clients, or hiring the company’s staff. All of that is negotiable, including timelines. (For example, with our agreement, Jeremiah & Kendra are allowed to go to work anywhere.)
Figuring Out the Value of the Company
Review what the company needs to succeed. In the next 12-24 months, does the company need a big cash injection? Does it need the resources of a specific kind of partner, like a software development shop or a large sales force? What additional resources would suddenly make the company more valuable? We looked at our partners, competitors, and clients, thinking about who could find the most value in us.
Decide how much of the company will be sold. We could have sold the entire company, a majority of it (since Jeremiah & Kendra owned 2/3 of it), or a minority of it. We could have sold for cash, merged, or had a stock swap with another company.
Guesstimate what the company’s worth. The above stuff all affects the company’s worth. Look at the assets and liabilities that the company has, how much revenue it’s bringing in, and its profitability. If it’s going to be acquired, consider what these assets will be worth to the newly formed/merged company. (Ideally, have a qualified valuation professional do this big review.)
We thought about a lot of different options and their payoffs during this exercise. We learned a lot about our business, our industry, and other businesses. After doing the homework, we believed even more in our vision of what we wanted to do with the company over the next 2-4 years. (This is why you’re not going to see a lot of changes in the way Brent Ozar Unlimited® works – it wasn’t like we had passionate disagreements about where the company was going or what it stood for.)
We came up with numbers and a payoff plan, and we breathed a sigh of relief because we thought the hard work was over. Nope!
The Legal Stuff
Get attorneys involved. In our case, the business was going to buy out Jeremiah & Kendra’s shares, which meant that for the first time, the business was going to assume debt. The company’s attorney (the super-awesome and highly-recommended Tom Cox of McCarthy Duffy LLP) wrote up the debt paperwork and drafted a set of changes to our operating agreement. However, that’s only one side – Jeremiah & Kendra had to get their own attorneys to represent their own interests.
Let the attorneys build a set of discussion points. Jeremiah & Kendra’s attorneys came up with a set of changes to the company’s paperwork. For example, if the company defaults on the loan, Jeremiah & Kendra come back into the business – but at what ownership share, and how does the company’s operating agreement look then?
The partners have the discussions. When Jeremiah, Kendra, and I talk, nobody’s getting billed by the hour. When the attorneys argue with each other, we’re lighting hundred dollar bills on fire, as Kendra says. We talked through the objections from each side, figured out what risks we wanted to mitigate, and which risks we were comfortable living with. Then we explained what we wanted to the attorneys, and they ironed out the details.
As I write this, the paperwork’s all inked, the champagne has been consumed, and the announcements are scheduled.
And the pressure is on.
See, now it feels like Jeremiah and Kendra are Mom & Dad. (Well, not in that order.) They’ve given me a set of responsibilities and a mission. They’ve trusted me with the company, and I don’t want to let them down. They’ve worked so hard to get the company to where it is today. I owe them success.
And I’m really, really excited! Let’s see what happens next.
Final step: find yourself missing your former business partner. But know you’ll get to see him soon, anyway.
Thanks for all the awesomeness, Brent! I know there’s more to come.
Awww, I miss you guys already too! We shall dine at Nodoguro this year though.
You said it in public, I’m holding you to it!
Hire me to fill in the gaps for you!
Just reminding you to eat your brussels sprouts.
Congrats, guys. I’ve been following your progress (individually, and as Brent Ozar PLF/Unlimited) for five years now and look forward to great things to come.
Congrats guys and gal!! Much love and luck to all of you!
Congrats. If Brent is or was 1/3 co-owner, why is the company called Brent Ozar Unlimited? It seems there’s too much Brent in the company. Was he like the founder and then brought in two cofounders later?
Was explained in a different post.
Tony – hahaha, great question. Yep, I started writing at BrentOzar.com back in 2000, and we started the consulting company in 2011. We worked with a marketing/branding consulting firm that helped us pick a company name. Originally we wanted a totally different name (think Accenture or SQLcorp) but the branding firm said, “Aren’t you getting all your work from BrentOzar.com’s contact form? Why not just stick with BrentOzar.com?”
I felt really odd about it at first because I was only a minority partner in the company we were forming, but the branding firm pointed out that Charles Schwab doesn’t personally own the entire trading company. Sometimes a person’s name works really well as a brand. So we ran with it.
Congratulations to all of you for making such a successful business! Thank you so much for always keeping the transparency of talking about things like this and always teaching. One of the great things about the company is you have always been willing to share and teach along the way and that helps everyone. While I may never start my own business/firm I really appreciate the time you put in to sharing your experience.
Good Luck to all of you!
Awww I’m sad. You guys make a great team. But I’m sure it’s all for the best as it’s got to work for everyone right? Keen to keep updated on all your activity!
Thanks for the clarification. Now an observation. I noticed in most of your photos even your icon, you’re either with a big smile or laughing. I am not sure if that’s just a coincidence, you’re always very happy or whenever someone takes a photo of you, you strike a pose. 🙂
Tony – hahaha, yeah, I’m a really happy guy. I do get really pissed off when I have to do desktop-grade tech support (like why-isn’t-my-printer-working), but luckily nobody’s around to take pictures when that happens.
sniffle,sniffle. A little goodbye, a little change.
It’s so cool how transparent you are with all of this – it’s a great learning experience for your readers!
And Brent, I loved reading some of your other stuff and learning you are a fellow Dave Ramsey follower, so I can imagine how painful it was for your company to take on it’s first debt. Good luck getting out of it asap!
Thanks for all the work everyone does over there and good luck to Jeremiah and Kendra!
Jason – thanks! Yeah, you nailed it with the Dave Ramsey thing. He’s one of the very few “celebrities” I follow on Twitter because he’s so inspiring to me, and I didn’t take the debt thing lightly. I know it’s the right thing to do long term for this particular situation, but…still!
I am proud to say I knew Brent way back when. And there was no doubt he would someday be a well known name “in something”. What an interesting piece, and yes, very transparent. And it speaks volumes about you and the people you surround yourself with. What a neat journey.
STIB! It’s so funny to see you comment here! Every time I’m in town, I end up driving past the tree farm and I wave. I miss you guys!
Thanks for the kind words. It’s been so weird how life has worked out.
Good luck to all three of you. Its a new an interesting path for all.
Oh and thanks for all the help and advice I’ve gotten from your website to daate.
Unknowingly or knowingly you taught us how the successful team works. This is a classic example of WIN WIN situation. People who are thinking of going into business but afraid to partner with somebody can learn from your exit strategies. Very Well informed blog. And you know me I follow you every where. Good Luck to Jeremiah and Kendra also. I will keep following news about them as well.
Awww, thanks ma’am! Yeah, that’s our goal is to make it as transparent as possible and help folks learn. And it’s really fulfilling!
Sorry to see the split. Where are the other two going? P
Patrick – they’re taking a few months off to decide what they want to do next. (As would I!)
Kendra, Jeremiah and Brent. I love your style!!! I think of you as an amoeba splitting, and open jocular sql talk is just going to spread. Jeremiah, you helped us iron out some pain points in our business. Kendra, you’re a woman to be admired – and fun too. I’m already on your mailing list. And Brent, I’m so glad you don’t plan to change the way you do the things you do.
[…] the company bought out Jeremiah & Kendra’s shares, it forced me to make go-or-no-go decisions about a few things, and one of them was whether we […]