Episode 138: Will Hawthorne


questions: “What’s the Halo Effect of your primary service?”

Great point: “CodeAdvisors doesn’t have a flashy website.” They’re known by what they’ve done, not by what they say they’re going to do. They’re chosen for many of the largest deals in history because of their reputation for success, not their marketing. Here’s their site. “People come and find us, and it resonates with the founders here.” Will only works with the top, and that means 20-24 companies at his door on a monthly basis. Out of those, he takes one.

“Public speaking is harder than negotiating,” he said, right after describing a $5B deal he worked on for Motorola.

“It’s almost never about the numbers, and always about emotion.” Truer words may never have been spoken about the buying and selling of gyms. He’s talking about Apple and Google purchases, but almost every CrossFit gym that’s ever been purchased yielded a higher price than its actual value. In many cases, the purchaser realizes too late that they’ve overpaid. Sometimes they realize they’re overpaying, because they’re buying the opportunity. And sometimes … they just love CrossFit.

“We raised $800 million for Twitter before they went public. We’ve raised over $500 million for Spotify.” He’s mostly working on AI deals right now. I include this note because the CrossFit industry has always been good at adopting new technologies ahead of other entrepreneurs, and we’re only going to have to get better.

“Most entrepreneurs are great at product, but not good at business. To build the product and sell it is a whole different skillset. The good ones realize they need a good operator next to them.” In the service industry, we commonly refer to the “owner-operator” model because there’s one founder, and that founder has to do both things. It’s the person who runs a great service but can’t run their business that really suffers.

“The people who don’t know their business COLD aren’t living their business every day. They’re not reviewing the metrics that matter.” he said. “If a CEO doesn’t know their numbers, that makes me very nervous.”
He gave the example of the CEO of JP Morgan reviewing 50 metrics every day. We think it’s important to know the big numbers really well instead of reviewing a lot of metrics every day. In the Founder Phase, we have entrepreneurs track five numbers. In Farmer Phase, we expand to eight metrics. But we want you to know them extremely well, instead of trying to track 21 things with far less meaning really poorly.

“For gym owners, the most important metric is retention.”

“If you find someone that’s running a business they don’t like, or they aren’t excited about it, it’s not going to work out.”

“They have to be passionate about it. They have to be learning about their business.”

“When TJ teaches a class, there’s like 30 people there. There’s a huge difference because TJ loves his business.” He’s talking about TJ Belger of TJsgym.com. Will does CrossFit every day with TJ at 5:15am.

“If you’re desperate, people smell that.” If you’re running nonstop ads for cheap six-week challenges, or offering discounts or free trials, or pumping 30 new people in every month…what message is your audience receiving about the solidity of your business?

Will gave some very interesting ideas about earn-outs (where the management team and staff are paid 50% up front, and then the rest of the payment is made against retention and long-term sales). I’ve seen this work well with one gym purchase in the Boston area in the past.

The second interesting idea was a client survey as part of the due diligence process. If the founder is really willing to sell, and the buyer is fully committed, then the last step should be to call the clients and gauge their commitment.

The first round of funding for any business should be a “friends and family round”—basically, the founder has to have some emotional attachment to success, or “skin in the game.” The bigger the founder’s commitment, the more likely the business is to be successful. This could be another reason why gyms that start in garages often have much greater success long-term.

Why does he do CrossFit?
“If I don’t do CrossFit, I’m a totally different person.”
Jay: 00:00 – All right. Our guest today is a partner in Code Advisors, an investment bank focused on financial advising and mergers and acquisitions. Prior to that he led digital mergers and acquisitions for JP Morgan and ran the seasonal sports division for Direct TV. He’s negotiated and mediated over a hundred deals with some of the biggest tech companies in the world. Welcome, Will Hawthorne.
Will: 00:20 – Thank you.
Jay: 00:25 – Thanks for joining us. So just looking through your bio, you started kind of with accounting, and so I’m just curious, is what you’re doing now what you had always planned on doing?
Will: 00:37 – No. I thought—after undergrad I always thought I’d do something in finance. But I didn’t know it was going to be M and A. I think the great part about accounting is understanding the three financial statements is important to every business, any kind of business owner or anything you ever do in life. Understanding how assets relate to cashflow, relate to the income statement are really important. That’s kind of held through all of my businesses.
Jay: 01:05 – Did you, when you were studying in undergraduate, like, OK, I’m just going to be an accountant or were you like—.
Will: 01:10 – I knew I was going to start in accounting because I knew it gave you the best foundation for understanding financial statements and I knew I could do a lot of things from there. I never thought I was going to be an accountant forever and I only lasted two years and that was it.
Jay: 01:23 – Right. What appealed to you? Was it just a general background? Was there anything specific that appealed to you, were you always good with numbers?
Will: 01:31 – I was always good at math and numbers. Yeah, it’s still kind of my core strength today.
Jay: 01:36 – Was there a single experience at that point where you were like, yeah, I’m all in on this?
Will: 01:43 – I think, you know, it actually came at Direct TV, so I was at PricewaterhouseCoopers for two years. And then I left to do Direct TV, which was a start-up and started working with the CFO and our biggest contract was the NFL and it was a $450 million commitment we were making. And we only had a million subs at the time, so it was really early. So we had to work with the NFL to negotiate a contract in the NFL.
Will: 02:11 – We were going to get it or somebody else was going to get it. And working on that team and negotiating that contract and understanding the numbers side of it and how it would affect Direct TV, the entire business, whether people were buying the NFL or not, kind of was the aha moment for me. And after that I was kind of hooked on deal-making and understanding how to get things done with a really powerful organization like the NFL.
Jay: 02:34 – You started with as a start-up. How many people were there at Direct TV when you?
Will: 02:37 – When I started there was probably about a hundred people, but we were inside of GM, which then owned Hughes, which then owner Direct TV before they spun it out.
Jay: 02:51 – How did you, I mean, that made the company, that NFL contract, right? I mean that was the Direct Ticket or whatever.
Will: 03:00 – Direct Ticket definitely made Direct TV. The idea was that you could buy the NFL Direct Ticket package, but a lot of people didn’t buy that, but they bought Direct TV because we had that package and they had that option. Right. So that’s the part that the math to get to 450 million when you’re a start-up, to pay that over a course of three years, the math was what’s the halo effect for the rest of the business? And the NFL picking us made us better than Prime Star and all the other competitors in the satellite business at the time. And so it led to great success. It wasn’t that that package by itself was that profitable for us.
Jay: 03:36 – Yeah. Yeah. What was your role? Were you sitting across the table from Goodell or whoever the guy was saying like, hey, this is what we want.
Will: 03:45 – Yeah, no Goodell wasn’t the guy at the time, but it was the NFL telling us what number we had to be at. Right. Because it’s a monopoly and there’s no other pro football. And so telling us you need to be at this number. My job was to prove to our team that we could pay that number and it would be successful. There’s other things you negotiate in the contract, but you know, the biggest thing was how do we prove mathematically that this is the right deal for us, that we can spend that kind of money.
Jay: 04:15 – So you were kind of supporting in terms of digging in and figuring out what the numbers were and sort of telling a story with those numbers.
Will: 04:22 – That’s right.
Jay: 04:22 – Is that what you did at PWC as well?
Will: 04:26 – PWC, you know, auditing, you learn a lot about companies, but at the end of the day I was on Arco, which is our biggest account. You actually tell them what their numbers are after they already know what their numbers are. You’re basically there just as a check for the financial system so that people that are trading the stock or investing in the company feel good that no one’s cheating you on the financials. But then you had things like Enron where Arthur Anderson was in charge and things like that that sunk Arthur Andersen. So it really is a check for the financial system. So it’s fun in that you’re going to different companies, you’re learning about different companies, but it’s not very exciting, but it’s a good kind of foundational background.
Jay: 05:04 – Right, right. So, once that deal was done, you started negotiating other deals?
Will: 05:10 – Then we did NBA, Major League Baseball, NHL, the NFL was the big one.
Jay: 05:15 – And you played the same role?
Will: 05:16 – Same role.
Jay: 05:16 – Yeah. OK. It seems like a leap. You’re sorta like, OK, I’m doing some accounting now I’m negotiating deals with the NFL. Was there some sort of step that I’m missing in between there?
Will: 05:31 – No, I mean I deal with start-ups every day now with investing, what happens at a start-up is you get hired and you just fill a role and as much as you can do you get, which is the great part about start-ups you, it doesn’t matter where you were brought in, you know, everybody needs to be doing something and more than they can do otherwise with start-up will never get there.
Jay: 05:50 – Right, right. OK, so, so you were in that sort of sports station for a while and then you moved on to JP Morgan?
Will: 05:58 – I then went back to school. So I went back and got my masters at Kellogg, at Northwestern. The big thing there was during the negotiation of those contracts, the CFO said to me, you’re actually pretty good at deal-making and you can make a lot more money as an investment banker than inside of Direct TV. At Direct TV, I was making probably 50, $60,000 a year and investment bankers make, you know, two, three, $4 million a year once they become partners. So I quit. I went and spent about $250,000 on graduate school. A lot of that was debt, came out of school with a lot of debt. And then I went into JP Morgan.
Jay: 06:37 – Right. And what was your role there?
Will: 06:39 – JP Morgan, I started as an associate in the tech group here in San Francisco in 2000. So I got here right before the crash. Perfect timing
Jay: 06:48 – Before the first crash. So, were you starting to kind of work on deals and then everything started to fall through?
Will: 07:01 – I started to work on deals, and then we had at the time, so right when I started, literally the day we showed up, Chase bought JP Morgan. Chase had also bought H and Q, which was the biggest investment bank out here in San Francisco. So we had 53 people in M and A alone. And over the course of three years and probably like 10 layoffs, we went down to six people.
Jay: 07:24 – So how’d you get through that? Like how did you survive?
Will: 07:28 – A little bit of luck. The guy that I started working with right away survived and I was his main guy so I survived. Because there was just as good of people. They were all from good schools, but you know, kind of a not-so-funny story, but there’s a glass conference room. We all sat in this big bullpen. We knew the day layoffs were coming, so they went down there in a glass conference room and they would just dial people, and so you just sat there all day hoping that your phone wouldn’t ring and you’d see people get dialed, they pick up the phone, they’d walk down to the conference room, they’d get their paperwork and they were gone.
Jay: 07:55 – Oh God.
Will: 07:56 – It was tough.
Jay: 07:57 – Yeah, I mean, having worked for a bank, that’s pretty common, I guess. It’s like every 18 months they’re doing that.
Will: 08:03 – They’re not the friendliest group.
Jay: 08:04 – So like tell me a little bit about some—so as you kind of got through that, you’re one of the six. Now you’re at a position where you can really buy low for a lot of stuff, right. Were you just sort of prospecting—
Will: 08:21 – Well, remember at JP Morgan I wasn’t an investor at that time, so we were just an advisor to people that wanted to either buy a company or sell a company. That’s basically what we were doing. So, there was a lot of distressed assets. I had to sell—Motorola had spent, you know, two and a half billion dollars building a big semiconductor plant in China called Mos 17. So I was shipped out there to sell that to a Chinese private company. And we were only taking stock cause no one else would buy it. So we were taking stock in a private Chinese company. So that was my first big deal. But because we were taking stock, had to value the Chinese company. So they gave us some numbers, their set of financials, and we went in a room for two days and we worked out the math and we said, OK, we need this much of your company based on your financials.
Will: 09:07 – So they went into their room, they came back like two hours later and they said, here’s our financials. Totally different numbers, but much higher. So we went through that for, it took about six months to kind of get them to understand that we need that actual financials we could count on. But anyway, we sold it for 300 million of stock and then that company went public in China and was ended up being worth like $5 billion. So it was a good deal for Motorola in the end.
Will: 09:31 – Just gotta pause here cause like you talk about this stuff so confidently, like it’s no big deal sitting across and talking about millions and millions of dollars. Like do you ever walk into these rooms like nervous? Like, you know, I’m not sure if I’m the right person to be in here?
Will: 09:46 – Public speaking is harder than negotiating, so this is more nerve-wracking than actually doing a deal, I think for the deal, as long as you’re prepared, you know, the biggest thing about a deal is when you go into it, whoever you’re representing, you need to have another option, right? So you can’t build a company and expect just to sell the company, right? You have to build the company to be a standalone company and that you can own for a long time whether M and A comes or not. So when you go in, you need to know what your other alternative is and that’s how you kind of develop your strategy. In some cases there isn’t. I deal with a lot of internet companies that are going to be out of money in three months and so I have to get a deal done, but I have to make the buyer believe that, you know, I don’t have to get the deal done. So it’s a lot of that kind of back and forth, which is why it’s a lot of fun.
Jay: 10:37 – So it’s really more about knowing the numbers and being really prepared and kind of, that’s what kind of gives you the confidence in those—.
Will: 10:44 – At this level now, it has almost nothing to do with the numbers. It’s all emotion. So how do I set up a process with Facebook to think Facebook has to own this company, or Google has to own this company, right? Google and Amazon both have trillion-dollar—and Apple are about trillion-dollar market-cap companies. I sell companies in the hundred to 500 hundred million range, right? So there’s almost nothing I can bring to Google and say, you have to have this. It’s not going to sink the company. But I want them to believe that Amazon’s going to buy it if they don’t buy it. And you can’t lie either. I’ve been in this business for 18 years, same people I’m selling the same companies to. So you have to tell the truth, but you also have to set it up in a way that they feel competition. Right?
Jay: 11:23 – Right. So, you were at JPM for 11 years. And what kind of made you say I’m done there?
Jay: 11:32 – So you know, JP Morgan’s is great. Jamie Dimon I think runs the best financial institution in the country. When I told my parents I was going to go to another start-up, they kind of freaked out. Code Advisors had been around for nine months. It was seven people. They hadn’t done any deals. But they were looking for someone that had done a bunch of M and A. They were both operators. They had been at CBS and Yahoo, but they had also done a little bit of banking, but they didn’t really know how to do M and A or weren’t as familiar with it.
Will: 12:02 – But they had amazing relationships. So I was kind of bored with JP Morgan. It was great pay. There was great young people in the company. It was fun to do it. But as you rise up in a bank, you deal with less and less interesting people. Most of the people that survive in big banks are very political and very good at, you know, working their selves through multiple layoffs. And I wanted to do something new. I was working with start-up companies, so I wanted to do a start-up, but I don’t know anything about operations. Right. I’m more of a finance deal guy. And so the great thing about code is I could do M and A, but also be at a start-up.That was what was interesting.
Jay: 12:43 – So, tell me kind of what is the scope of things that Code Advisor does?
Will: 12:48 – So we do three things. We’re on our third seed fund, so we’ll like invest 250,000 in start-up company when it’s just two people and an idea. So really early investing. We raise money for companies. So if somebody wants to raise 50 million or more we’ll do that. If they want to raise below 50 million or more, we don’t think an advisor should be involved. If you want to go to Andreessen Horowitz and raise 20 million, we’ll introduce you, but we won’t take a fee and formally advise you.
Jay: 13:14 – So when you say raise money for companies, like these are companies that are kind of a little more established?
Will: 13:18 – Most of the time. They’re growth companies. Right. And so you’ve got to go get somebody to put 50, 75 or 100 million in them for them to get through the next couple of years and continue to grow, or we sell companies.
Jay: 13:31 – And you’re mostly on the sell side?
Will: 13:34 – Yes. We’re probably 95% sell sides.
Jay: 13:37 – So many questions. So give me an idea of the size and scope of the companies that you’ve worked with Code Advisors.
Will: 13:50 – Yeah, so a couple of big ones that you guys have probably heard of it. So Twitter, we raised 800 million for Twitter before they went public, about two years before they went public. We sold those shares to Rizvi Traverse and Larry at JP Morgan. Spotify. We’ve raised over 500 million for Spotify over the course of three or four deals before they went public. And then the rest, those are kind of the big bellwethers. The rest, I’m not sure you’ve heard of most of them, they’re AI companies. We’re doing a lot of AI deals right now. I heard you had an AI company in here yesterday. A lot of kind of consumer branded plays, those kinds of things.
Jay: 14:29 – Yeah. Yeah. And how—when I went to go find out about you, there’s just like nothing online. How do people find out who you are?
Will: 14:38 – So it’s actually, I don’t know what the strategy was there in the beginning. There’s nothing on our website. The idea now is we’ve kind of morphed it I think a little bit and taking credit for it is people come find us. We’re the quiet investment bank. You won’t see any press on us when we do a deal. We don’t send any of the newsletters out. Every other bank when they do a deal, they send you a letter like, hey look how great we are. We don’t do any of that. And it seems to resonate with the founders here. So then people come looking for us, which is a much different way to pitch business, right?
Will: 15:09 – So somebody comes to my door and says, I want you to represent me and I probably get, or we, I should say we probably get 20 to 25 companies that come to us on a monthly basis and we’ll maybe take one of those or two of those.
Jay: 15:21 – What criteria do you use to choose?
Will: 15:23 – Well it’s team, is number one. So no matter what happens out there, they’re going to go through problems, right? They’re going to have issues. And so if the team is not the right team to solve those problems, that’s the number one thing.
Jay: 15:35 – So you meet with like all of the sort of founders—.
Will: 15:38 – You meet with usually the two or three top people and you can kind of tell who to bet on and who not to.
Jay: 15:42 – So is it just a gut feeling or are there like criteria that you look for?
Will: 15:49 – It’s more of a gut feeling on them. I mean, of course after the team, after you’re fine with the team, then you dig into the product, you dig into the execution and then you look at the financials and say, OK, a lot of people come to us and they have a month of runway. We know they’ve already shopped the company cause we know everybody out there. We know they’ve already tried to raise money and so there’s nothing you can do. And so you just tell him, I just can’t help you. So, the people that you really want to work for other people that there is no transaction yet, they’re still building the company. They just want to build a relationship and then you start to build a relationship. You introduce them to the right people, you get to know each other before you dive into a deal.
Jay: 16:26 – So I really want to dig into this, like what are some of the characteristics of folks that you would say, yeah, I’m all in on you?
Will: 16:32 – Yeah. The number one for founders, because there’s a lot of really energetic young people out here that are doing great things. The number one thing is that they will actually listen to you or they have someone on their team they’ll listen to and that they’ll hand over some of the operations to, right? So most of the guys out here are great at product, not great at execution, and those are two totally different things. They have a really big vision on what product they want to build, they’re good engineers, but to actually build, scale the organization and actually sell that product to somebody is a whole different skill set. And so if you look at Steve Jobs, he had Tim Cook, right?
Will: 17:13 – You look at Mark Zuckerberg, he brought in Cheryl Sandberg. So the really good ones realize that they need a really good operator next to them. And then there’s ones that don’t. And those guys are hard to bet on because it’s hard for someone to be good at everything.
Jay: 17:27 – Right. And so you’re kind of helping them pair up with other people that are going to help them with marketing. I mean, you’re doing like essentially mentoring at the beginning.
Will: 17:38 – You do do a lot of mentoring at least now for the ones that will listen. They’re young, so some guys will come to my office, they’ve run their own companies since they were 19, you know, they dropped out of high school or whatever. And so all they know is that they’ve been successful and they’re successful because, they believe, just because of the way they do it. And so getting them to understand there’s different ways. And M and A is totally different than building a company as well.
Jay: 18:04 – Right, right. And so, once you say, OK, this person is great. You kind of check out their product.
Will: 18:11 – You do a lot of due diligence.
Jay: 18:12 – And then what are you looking for in terms of like financials or that kind of thing?
Will: 18:16 – I mean, on the financial side, you’re looking for the momentum in the business. And it just depends on the type of business. But if it’s a subscription business, you want to know how much it’s costing to acquire somebody, right? How quickly those people are churning off, right. What their lifetime value is. Those are kind of the big ones. Like you’re just looking at if you’re paying 100 bucks to acquire a customer and they’re churning off so fast that they’re only worth 25 bucks, even though you’re growing, that’s a bad business. So you have to dig into the economics to see that it actually does work. On a unit economic basis.
Will: 18:51 – So one of these, the one of the 20 companies, you’ll basically say, OK, great. We love you, we love your team, finances work, you know, here’s some money to get you to whatever the next thing is?
Will: 19:04 – We won’t usually. Those guys that we’re selling or raising large dollars for, we don’t usually take investments in. They need to have money when they come to us. What I start to do then is form, OK, if you want to sell your company over the course of let’s say the next year, let’s create a management presentation that describes your business. Let’s create a financial model that supports the price you want to get because it’s all forward-looking.
Will: 19:30 – It’s all momentum companies. And then let’s create a KPI deck that goes deep into the business. And then what we’re going to start doing is we’re going to start to introduce you to the right person at Amazon or Facebook or Google to start a relationship based on commercial. Not on M and A yet. And then eventually if you’re a good company, one of those big guys says, I want to buy you. That’s when we really go to work. Cause then I take that interest and I take it to the other buyers and then play them off each other.
Jay: 19:56 – Yeah. I read somewhere that you said companies aren’t sold, they’re bought.
Will: 20:01 – Correct.
Jay: 20:01 – And so essentially you’re finding something that is like a good candidate. And then getting them to where they are actually—
Will: 20:09 – That’s right. And then once I have that term sheet or that verbal interest then I can take it to other people and get a better deal.
Jay: 20:15 – Right. So, that part gets a little hairy, right? I mean, you’re basically like, OK, now you know, Amazon has shown an interest, but again, Amazon can just say, yeah, I don’t want this anymore. So how do you how do you kind of weather that with that company and then eventually get it sold?
Will: 20:32 – Well, that’s where all the judgment comes in, because there is no answer. Because Amazon is not giving you full information, neither as Google, neither Salesforce, so it’s all about just kind of reading the tea leaves. How they interact with you over the course of a few months gives you a big indication on where you can push them on price. Or by the way, this is a shaky deal. So let’s not go out to other people yet. You know, it’s all kind of instinct based on how they interact with you on a daily basis.
Jay: 21:00 – Right, right. Are there any deals that stand out to you? Like I can’t believe that deal actually happened?
Will: 21:05 – Well, there are a lot of deals where—we just did a deal, I’m not going to use the name, but we just sold a company to a Chinese buyer and that Chinese buyer was kind of probably 4x price what everybody else was. Now, they had better synergies. It was a better fit with them, but I really didn’t think that deal was going to go through at that valuation. But ultimately the deal has worked out. It’s been a good deal for them. But given where they were on price versus everyone else, I thought maybe they would drop out and we’d have to go back to the bidders at the much lower price.
Jay: 21:43 – OK. So I’m going to switch gears just a little bit here. So you’ve worked with a lot of CEOs and founders of really large companies. What are sort of the common things that you see among those people that you think makes them successful?
Will: 21:56 – The number one thing that gives me confidence in CEOs is people that really know their business. So if I was to sit down with one of you guys and start to ask you about financial questions about your business, and you told me, oh, I got to go check that, or I got to go look that up, the people that don’t know it cold aren’t living their business every day. And they’re not reviewing the metrics that matter. And so if I just sit with the CEO and I asked him a bunch of questions and they don’t know the answers, that makes me very nervous. So Jamie Dimon runs JP Morgan. Every Monday he gets, I don’t know how long the deck is, but let’s say it’s 30 pages of numbers.
Will: 22:29 – And each page is filled with, I don’t know how many numbers, but probably 50, 60 numbers on the bank’s performance. And within 10 minutes he can pick out anything that’s wrong with the company, right. Just by reviewing those financials, because he knows exactly where the metric should be and where the company should be going. So every CEO in here, everybody that’s running their business, you should know your business cold. If you, if you don’t, you’re missing a lot of opportunities to advance the business and you could be missing an opportunity that’s going to sink the business. So that’s the number one thing for me.
Jay: 23:02 – Right. So give me an example of what are some of the metrics that matter?
Will: 23:08 – Depends on type of business. For gym owners, you know, it’s about the customer retention, right? And how is that growing and how much is it costing and why are people churning off if they’re churning off? And then ultimately it’s down to are you producing cashflow? So there’s all these audit tricks. You can make a business look good like Enron did. But if anybody looked at Enron’s financial statements ever, even though it’s trading at billions of dollars, they were never producing cash. Never once. So if every month you have less cash than you had the month before, you generally have something wrong with your business. Right? So I think getting down to where the cash flow is really important. Right?
Jay: 23:51 – Cash and retention.
Will: 23:51 – Absolutely.
Jay: 23:53 – Write that down.
Will: 23:54 – It’s probably obvious to you guys.
Jay: 23:56 – Well, the obvious stuff is the stuff we miss. So other than knowing their business cold, are there any sort of personality traits or things that you notice?
Will: 24:06 – Somebody that likes their business, right? I do M and A and work with Internet companies cause I love it. So I’m excited to come to work every day. If you find someone that’s running a business that they don’t like and they’re not excited about it, I don’t care how good they are, it’s not going to work out. So they need to have a passion for what they’re doing. And if you have a passion for what you’re doing, then you’re investing the time to learn about your business and you’re investing the time like you guys are today on a Sunday, right? You’re obviously passionate about your business or you wouldn’t be sitting here trying to learn new things, right. To advance your business, advance how you guys think about things. So that’s probably the number two thing that’s most important to me.
Jay: 24:48 – So, then, on a more personal note, what are some things that you particularly do that you look around and you go, yeah, nobody else that I know does this, that you think make you successful?
Will: 25:00 – I think there’s a lot of good people in our business. I wouldn’t say it just makes me successful, but I definitely am excited to go to work every day. I’m usually the first person in the office. Cause I work better in the morning, but I’m also excited to get there. That’s number one. I have a lot of energy as you’re probably learning. It’s hard for me to sit down for a while like this, but I have a lot of energy and I put that into the business. And I like to be around and work with people. Almost every business, when you get down to it, it’s how you interact with people. Right. So I’ll pick on TJ cause he’s here. So when Tj teaches a class, there’s like 30 people there. When some of the other instructors teach that same class at that same time, there’s like five or six people there. There’s a huge difference because TJ loves his business. TJ’s motivated to be around people. He’s really good with people.
Jay: 25:52 – Let’s get a list of those other instructors so TJ can fire them.
Will: 25:56 – We’ve talked about those with him already. No, no, no. He has really good instructors. There’s just a difference, too, when it’s the owner, someone that takes pride in the business, their energy level is just different than it is. No one out there that you have working for you cares about your business as much as you do. They could be good, but they just don’t have the same energy. So I think I relate to people really easily and I can read people and that’s what my business is all about.
Jay: 26:22 – You also do CrossFit first thing in the morning every day, right? The 5:30 with TJ. I’m going to actually open this up for the audience questions, I have a bunch more questions I can ask you, but I want to open it up cause I know a few of you have prepared some questions. So what do we got?
Will: 27:05 – Yeah, it’s a good question. One of the reasons why we don’t publicize ourselves is because it’s usually the company and the management team that’s running the company that are the key to the sell side. I can enhance a deal. I can get you more money for a deal, probably better terms, but I can’t sell you if the buyer doesn’t believe in you and your company. So the answer is you need to have most of that and I can enhance it, but I can’t dress it up and make it look better than you. Sorry, I can dress it up a little bit. But after two, three months of due diligence, they’ll dig in and realize whether you have it or not. S my job is to—I can’t sell bad companies, but I can enhance the deal value of good companies.
Will: 27:58 – Yes, that’s a good one. So, the reason why you guys are good founders and the people I work with on the internet side are good founders is because when you have a problem in your business, you just solve it. You just do stuff every day, any kind of problem you have, any kind of obstacle, you just get through it. And that’s why you’re good founders and good owners. M and A is totally different. You cannot force somebody to buy you. So you need to engage with people with the confidence that you have your own standalone plan and you need them to come to you. Your price will be, you know, 50% greater, 75% greater if they believe they’re chasing you. But if you’re like, please buy me, please buy me. Please buy me, calling them every day. They’re going to be like, if TJ wants to get out that badly, it must not be that good of a business. If I’m like, TJ, please interact with me and you call me like a month later, sure, I’ll take 30 minutes with you. Then I’m like, well maybe he doesn’t want to sell. Maybe he has something. So that’s where the patience comes in, which is the opposite of why you’re all good at your regular business.
Jay: 29:03 – And that applies somewhat to customer acquisition as well. I mean, if you’re desperate, then people smell that. Whereas if you know, you have just an amazing product, then you know, people come and find it.
Jay: 29:16 – Sorry, I’m going to repeat the question for the podcast. So the question is how would you forecast the deal?
Will: 29:38 – Yeah. So forecasting is the hardest thing. Outside of Direct TV, the hardest thing is when I represent internet businesses, right? Because you have no idea what’s going to happen over the next couple of years. So the key to that is to run different scenarios and just build confidence levels around those scenarios. So in the case of the NFL contract, we definitely ran a bunch of different scenarios, but we figured even in the downside with the branding, we could still make it work. And the other thing is, are you playing to win or are you playing to just kind of peter along? And so without the NFL, we could have still had a company, but we were never going to be the best satellite company. And so at some point you have to take a risk. And even though the numbers say, here’s our upside case, I got 20% in that, I’ve got 40% of my downside case and I got the rest of my middle case. You’re still gonna have to take a risk at some point to get to that next level. Forecasting with internet companies, it’s, um, it’s really hard, and you have to remember that most of the buyers aren’t going to believe the projections you put in front of them. So it’s more about credibility. It’s, can you support the assumptions you’ve made? No matter what numbers I put in front of Oracle on a high-growth business, they’re not going to believe me and they’re not going to pay me full value for those future years. But if my team comes in and credibly defends the numbers, then they go, at least the team’s thought about it, the team’s smart, I can bet on that team. But of course they’re not going to go from 50 million of revenue to 100 million next year. They’re going to go from 50 to 65 and that’s what we’ll pay you for. But because you presented it in the right way and your management team has been thoughtful, I have confidence in them.
Will: 31:37 – Yes. Because now when you say I want to sell, they’ve come to us and said, the business is going great, but I want to sell, here’s the thing for a lot of internet founders, they could own, you know, 30% of that business and if it’s worth $100 million, that’s the only business they have. And so they can get a $30 million check. That’s a life-changing event for them and their families. So there are times where people have to make individual financial decisions. The key is just not letting the other side know that your founders made that decision. But it’s perfectly reasonable that if you’ve built up a lot of value and all of your value, or a lot of it is in that business, that you want liquidity from it at some point. The key is just not rushing the process and not letting the other side know that. But it’s very reasonable. We have founders that have sold two or three companies right. Now what that means on the fourth company is they’ve already made some money so they’ll let more ride. But if everything’s wrapped up in this business and you need the liquidity, there are times where you’re gonna want to monetize at the right value.
Will: 32:58 – Well, you know, when you have someone doing that, the one reason why M and A’s fun is because every case is individual. Every owner-founder has their own set of circumstances they’re operating under, but you should be able to, through due diligence, you know enough time, you don’t have to rush into buying things. You don’t have to compete with a lot of other buyers, what you have to do is make sure when you go to extend yourself to buy another gym that you really understand what you’re buying. You’d be surprised no matter how much they tell you there’s other bidders there, almost every company I’ve ever sold, at the end of the day, there’s one or two bidders left in the process. There’s never five, there’s never six. So, just because of timing and circumstances, what the company’s building. So if you’re on the buy side, you need to be even more patient than if you’re on the sell side. You need to really understand what you’re buying. Do the due diligence. You can tell through enough interaction, whether there’s somebody else out there that’s going to kind of scoop it up or whether you have as much time as you want to do the due diligence.
Will: 34:12 – Yeah. There’s a lot of things. So first is AI, which was mentioned yesterday. I think the ability—the amount of data because of cell phones, that we’re collecting on individuals is crazy. Whether that’s anonymous or whether we know it’s you, you can’t believe the amount of data that’s out there. Taking that data that’s now available in the cloud and running machines against it to learn from that data is still really untapped, because to get things into a AI environment, you need to structure the data in the right way. And then you need to get ahold of the data, run it through your queries, the right queries, and then get an output. But if you think about what we can do on drug creation on the healthcare side, and just business in general on what we can do on the financial side once we know more about people and their habits, it’s amazing. And most of the tools are there and the data’s now there and the computing power’s there so we can get to some pretty unique answers. So that’s probably the most interesting. Now, what I would tell you whenever there’s the most interesting thing is every company you know attaches their name and says, I’m an AI company. And so I have a friend that runs Uber’s AI labs. So I bounce everything off him. He has multiple PhDs and he’ll tell me by reading the website, he’ll give me in five minutes whether that team can do what they say they that they can do. So you get a lot of people that say they’re AI companies that aren’t AI companies. But that’s exciting. I think, you know, transportation as a service is really exciting, right? So Uber and Lyft were the first wave of this. Then the scooter companies, which I’m sure you guys have seen around the city, although they got knocked out of the city for a while and now they’re coming back. Those are amazing businesses. And how we reshape transportation is going to be a huge opportunity. So I think that’s also Hyperloop. I went down to see the testing of the Hyperloop, that’s going to be, you know, an insane way to transport freight, and then people eventually.
Jay: 36:30 – I thought that was a joke. That’s real?
Will: 36:33 – That’s real. That’ll happen. So for a hyperloop, not to digress a little bit, but it is interesting. The hyperloop engine is just like 30 Tesla engines lined up in a row. It’s just magnetic coils. And so it’s proven technology and then you just got to build a vacuum tube so there’s no wind resistance. And then I can shoot you at 700 miles an hour. So, but it does work. No people have been in it yet, but it does work. And then there’s–and then what’s going crazy, if you guys have noticed, that there’s smart companies that are leasing rooftops in San Francisco and LA and New York, because we’re going to have air taxi soon. And so you’re not going to be driving on the street. You’re just going to be, you know, getting an air taxi, land on a roof, go down your elevator and be at work. So there’s those kinds of stuff. They’re a little futuristic, but that stuff’s common.
Jay: 37:27 – Other questions? No other questions? All right. TJ?
Jay: 37:36 – How to do due diligence.
Will: 38:19 – No, that’s a good question. So I’ll first give you an example of my role and then we’ll talk about your roles. So back in 2005, we were selling Internet companies to media companies, Newscorp and scripts and things like that. They’d buy the company. In the case of an LA company I sold, they wrote a $450 million check to the employees. The founder made 80 million bucks. The investors killed it. Two weeks later, all the people left the company and the company went in the tank, that they bought. And what people learned, the buyers learned over time is without that group that was focused on that product, without them running 24 seven because these founders do this, they work really hard, these young kids are amazing. Without those guys focused on the product, other competitors came into the market and created a better product. And so what happened was the companies got smart and realized without the people focused on that, that know everything about that product and business, it’s not worth that much. So now what happens is, let’s say that check was $500 million again, and the founder was going to get 80, Google says here’s $40 million and then the other 40 you’re going to earn in $10 million increments over the next four years. So here’s a good check. But here’s also a lot more to have you stick around for four years and run the business. So through financial engineering, it’s basically an earn out for that employee. So when you go to buy, one way to do this is to try to structure an earn out, sellers hate that, right? Because there’s performance metrics they have to meet and you can do any kind of performance metric. You could say, hey, if your gym’s doing $25,000 a month, you know, if it does that for the next two years, I’ll pay you the other half of the purchase price. That’s one way to do it. I think in terms of due diligence, you do all the financials. But the other thing to do is call as many members as you can. And you tell them, I’m going to call members because I want to know how they feel about the gym. I want to do a survey. Customer references are the second-biggest piece of due diligence after—sorry, once you’ve agreed on management team product, customer due diligence is the only way you get the truth. From people. And so if you’re going to buy a gym, you want to interact with the people you’re going to actually be coaching or getting payments from and see how they’ll react to these kinds of things. Now, usually that’s the last stage of due diligence because if I’m a seller, I don’t want you calling my customers until I know we’re pretty much done with everything else. So that should be your last piece of due diligence, and they should be open to that if you’re ready to close the deal.
Will: 41:14 – Well, yeah, I mean, if the founding gets hit by a bus, there’s not many things around that you can do except for the earn out, right? If you have some money on the back end that accounts for those kinds of things. Certainly in our world where a founder is really worth a lot, we take insurance on them and you can do those kinds of things. I don’t know if it’s worth it in your business and people will do that, but you can do that as well. Write an insurance policy against it. But some things were just bad luck, you know that could happen. You can’t structure a deal around every bad thing that can happen. At some point you have to take some risk with what you’re buying. And if you don’t take any risks, you’ll never really advance your business. So you can’t—I tell people all the time that there’s no way for me to create a legal document that takes all the risk out of buying a company. At some point you just have to trust your instinct that you’ve done enough of the due diligence. You feel good enough. And if there’s problems later, you understand how to fix those and work through them.
Will: 42:29 – Yeah. The best way to fund businesses early on are not to go to institutions at first. The best way to do it is make as much progress as you can on what most people call a friends and family round. Right? Which is hard. You got to go ask—if you really believe in the idea, then the people that trust you the most and know you the most should be able to put a little bit of money in it. And so that’s called skin in the game. And you should put some of your own money in, right? So I have one company I do deals with, he’s probably the most successful investor I’ve ever met personally, he’s probably worth two, $3 billion. Smartest guy I met. His number one question you bring a deal to them is what’s your net worth and how much are you putting in? OK. Cause if it’s such a great idea that you want him to put money in, you better have a lot of your own money in there. And he’ll ask that in front of, you know, 10 people, what’s your net worth? What are you putting in? And if he doesn’t get the right answer, he’s not putting money in. So long way of saying friends and family, you putting in money first is the first signal to me that you’re really committed to this. You make some progress and then you go for a seed investment. Seed investors understand there’s a lot of risk. You don’t have to be selling the product yet. Not for a seed investor. You could have a concept, a team, you’ve spent some money formulating it, you’ve probably scoped it out so that the economics around the product work. And so you should have that kind of data and then you can raise, you know, anywhere between 50 to 250,000 on a seed round. Then you make progress. Then you go for your A round, which is your first real institution. That’s when you go to the VCs. Yeah.
Jay: 44:10 – All right. One more question. Chris? Why do you do CrossFit.
Will: 44:18 – So it’s funny. If I don’t do CrossFit, I’m in a bad mood all day. If I do CrossFit, I feel great. It’s a sense of accomplishment in the morning that I know that I’ve accomplished something for the day, gives me a ton of energy for the rest of the day. If I don’t do it, I’m a totally different person.
Will: 44:46 – That’s a good question. So I did a lot of adventure racing before CrossFit. So I’d do these 12-hour races where you do kind of mountain biking, kayaking and running. And it was fun, but it was a lot of individual training. You know, you occasionally get some buddies. I think the best thing about CrossFit is you go to the gym at a certain time where you know all your friends are going to be there and even though your friends, you’re competing against them so they push you harder. I also used to work out in the gym by myself, but like you’re not going to do another rep. You’re not going to do, you know, you’re not going to do another rep faster. You’re not going to put more weight on when you’re solo. You’re always going to take the easy way out.
Will: 45:24 – When I’m with all the buddies at the gym, there’s no way to take the easy way out. They’re all seeing how much weight you’re putting on. They’re all seeing what your times are that you write on the board. And so it’s this kind of forcing function to make you work harder. And so I do. I feel like I’m in better shape now than I was when I was 20. I may not look like it, but I feel like it.
Jay: 45:46 – You’re not 20? I have three more questions. So first one is what is the best advice you’ve ever received?
Will: 45:54 – The best advice is some advice I gave here, which is to be patient. You can tell I’m not the most patient person. My two cofounders are very patient. When I started we were eight people. We’re now 30. I want our business to be like 10x that. They’re much more patient about building the business and making sure we have the resources before we dive into new stuff. I liked to dive into new stuff. I like to take more risks. I like to go faster, but there are times when you need to take a step back and say, OK, well this is our core business. If we’re going to add that on, do we have the right resources? Do we have the right team to implement that? By the way, Will, if you do that, then what happens to our core business over here? Those kinds of things. So being patient as you build something is important as well.
Jay: 46:44 – Right. Great. Do you have any books or resources you recommend to entrepreneurs looking to grow their business or improve their life?
Will: 46:50 – You know, I’m not a self-help-book person. I don’t read a lot of those types of books. I read a lot about history, which I think you can learn a lot about people making mistakes or doing things right. I read a lot of biographies. I don’t really believe in the self-help books, but I believe in talking to other people. So I went back to MBA school. The greatest thing about MBA school is they put you in a group of diverse people that have done something else different than you for the last four years. Like, you know, my roommate was a history major, right. And a history teacher, and I learned as much from him as I do probably or more in those groups that I did from another finance person. So the whole system of MBA school is to put you in a group of people that don’t think like you. And every project is a group project. You’re learning to work with people and learn from others. So I would say, I don’t know that you can learn that much from books, but I think you can learn a lot from interacting with people.
Jay: 47:50 – So find another group or other people that, yeah.
Will: 47:55 – And hopefully they’re not all like you and think like you because that’s the worst because they’re just going to reinforce whatever you’re doing.
Jay: 48:01 – Yeah. OK. And then the last question. So this weekend is really all about setting goals and looking towards the future and trying to grow. So what advice do you have on thinking bigger?
Will: 48:15 – I think you should always think bigger and I think you could always do more than you think you can. The one thing I would say is, as a financial person, as you think bigger, make sure you have those resources because when something goes the other way. Something will go the other way. We’ve been on it crazy bull run. Not to scare anybody, but the greatest bull run the stock market’s ever seen. We all lived through—in tech world, we lived through the 2001 crisis. And then in the financial world we lived through I lived through the 2008 crisis. That was almost the end of the world as we knew it from a financial standpoint. And we’re going to have another one of those, right?
Will: 49:01 – People are getting crazy with their mortgages again, and people are buying expensive homes again and levering up. And when the music stops, it stops fast. So you should keep growing. You should keep investing in the future, but know that there’s another, not to depress everybody, but there’s another down cycle coming. Now the great things about down cycles are if you have cash, that’s where you make real money. So if you have enough built up as you’re growing, and when that opportunity hits, that’s when people make real money. That’s when all the smart money investors make money. No one smart is making money in the stock market right now. It’s too hard. That’s why the hedge funds aren’t performing because everything’s priced to perfection. What you want is to be ready for that down cycle because then the gym owner next you that wasn’t ready for the down cycle, now you’re buying his gym or her gym at a much better price. So just know that there’s a time coming where we’re all gonna have to be more liquid, but that’s going to create opportunity for you guys.
Jay: 50:00 – Right. Awesome. Thank you so much for taking the time to chat with us today. Another round of applause for Will Hawthorne.

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