Kevin Wagstaff’s Strategic Journey with Spectora

Kevin Wagstaff, the co-founder of Spectora, faced one of the toughest challenges of his career when his company received an $80 million acquisition offer. This story highlights the complex process of negotiating a sale, the importance of understanding the value of your company, and making decisions that align with your long-term vision. Let’s dive into the key lessons and insights from his experience.

The High-Stakes Negotiation

The negotiation process for Spectora’s acquisition was filled with ups and downs. Kevin and his brother received multiple offers, with amounts fluctuating between $60 million and $80 million. However, the terms of the offers were not always ideal. For example, one offer included a $25 million seller’s note and a $10 million earn-out, which Kevin and his brother found unappealing.

Despite these challenges, they remained transparent with their leadership team. They kept their team in the loop, ensuring that everyone knew what was happening and how it might affect their equity in the company. Kevin emphasized, "We felt an obligation and duty to them. Say, hey, like, you guys have to know what's going on with us."

This open communication was important in maintaining trust and morale within the team during such a stressful process.

Understanding Valuation and Holding Out for Better Terms

When they started negotiations, Spectora was valued at $60 million based on its annual revenue of $3 to $4 million. To many, this seemed like a lot for a company of that size. But Kevin and his brother believed in Spectora’s potential for further growth, so they rejected offers that didn’t align with their vision for the future.

They strategically decided to aim for a higher valuation of $90 million, with terms that suited their long-term goals. Kevin explains, “We thought, man, this sounds great, like, but we didn't want to sell the majority. We thought we had a lot of runway left on growth.” Their patience paid off, as they were able to negotiate better terms, proving that knowing your company’s worth and sticking to your vision can lead to better results.

Rejecting Offers to Stay True to Their Vision

One of the main reasons Kevin and his brother turned down some offers was their commitment to Spectora’s long-term vision. They didn’t want to sell the company to just anyone, especially not to private equity firms that didn’t share their values. Kevin shared, “We would not partner with someone who didn't share the same vision, didn't have morals, ethics.”

They chose to partner with people who understood and respected their vision for Spectora’s future. This decision allowed them to maintain control of the company and ensured that their team’s values were preserved in the future of the business.

Customer Acquisition: The Power of SEO and Word of Mouth

When Spectora first launched, Kevin and his brother used their backgrounds in SEO to drive growth. They invested just $2,500 each to start the company, focusing on building an online presence through SEO and content creation. Kevin, who had experience in SEO from his time at Home Advisor and Angie's List, created YouTube videos and blog articles related to the home inspection industry.

Their approach also involved offering free SEO audits to home inspectors, which helped attract their initial customers. As Kevin notes, "Once a couple users that were really tapped into the industry, they started telling everyone in Facebook groups and forums." This word-of-mouth marketing proved to be a powerful tool, and it helped Spectora build a strong reputation within the home inspection community.

Transitioning to a SaaS Company

Spectora’s business model evolved from providing services like website hosting and SEO to focusing on their core SaaS (Software as a Service) offering. While hosting services remained a stable revenue stream, they started to shift away from the SEO agency business to concentrate on their SaaS product, which included more advanced features for home inspectors.

This transition helped them scale the company and attract more customers. As Kevin shared, “We weaned off the SEO agency business after the first year or two because I was managing about two dozen full, full bore SEO.”

Navigating Market Pressures

Spectora’s negotiation process wasn’t just complicated by the offers they received but also by the larger economic pressures of the time. With high interest rates and capital constraints, potential buyers were cautious about investing. Despite receiving a high $80 million offer, the terms changed last minute, which Kevin found disappointing. The offer included an earn-out and a seller’s note, along with an option for the buyer to purchase more shares if the company succeeded. Kevin felt these terms were unfair.

As Kevin shared, “They were saying part of this is now going to be an earn out and there's the seller's note. Oh, and we want the option to buy more in case you guys succeed.” In the end, Kevin and his brother chose to walk away from the deal, preferring to focus on growing the business instead of accepting unfavorable terms.

A Leadership Change for Future Growth

As Spectora grew, Kevin and his brother realized they needed a professional CEO to take the company to the next level. While they had the industry knowledge and experience, they acknowledged that the company needed someone with a fresh perspective and the skills to lead it through its next phase of growth.

Kevin explained, “We genuinely think there's a better person that can lead this company. We will still be around, we will still contribute.” This decision to bring in new leadership involved selling more equity to allow the new CEO to take control. It was a tough decision but one that was necessary to ensure the company’s future success.

Conclusion

Kevin Wagstaff’s journey with Spectora shows the importance of making strategic decisions, especially when it comes to selling a company or navigating major negotiations. His story highlights the need to stay true to your vision, understand your company’s value, and prioritize the long-term success of the business over short-term gains. By being transparent with his team, rejecting offers that didn’t align with their values, and ultimately making tough decisions about leadership, Kevin and his brother ensured that Spectora would be on a path to continued growth and success.

Ready to Break the Mould in Your Business?

At Breaking the Mould Consulting Ltd, we help entrepreneurs like you navigate challenging business decisions, from acquisitions and negotiations to leadership transitions and growth strategies. If you’re looking to make smarter, more strategic decisions for your business, Contact us today and start your journey to success.