Episode 65: Non-Traditional Tactics for Deal-Driven Growth, with Andrew MacKinnon

I worked every day in my business from Tabo, 52 weeks a year for 10 years straight, yes, and I realized that I'd made more money in my buying home, exactly, and doing the secure road property, just two things, and I borrowed 100% of the funds, and I enjoyed having them on the books than I did working all of those days, 3,900 days of working, and I made more money just doing property deals.

Corey, it is awesome to be here. I'm so excited right now. My office would normally be bustling with lots and lots of people, but right now due to this COVID-19 situation, it's really just me sitting in a room talking to you in California.

I couldn't agree more. And the last two weeks it's been scary from a business point of view, it's been terrifying, just dealing with the blows as they come one by one. But then it sort of gets to a point where I start to pop my head up and go, okay, what's the situation here? What's the landscape and where's the opportunity? And I reckon there's two opportunities. One is an immediate opportunity with the situation we have around the world. Everyone has new needs, everyone is looking for businesses and brands that take some leadership, we're looking for some entertainment and humor, and we've got new practical needs around how we're living our life. So that's new immediate opportunities. And then the long-term opportunity is all these sort of, dare I say it, sadly, whether it's distressed assets and businesses that need propping up, property, talent, that sort of comes off on the back end. And I've got one experience I'll share with you about that maybe later.

I'm going to tell you something interesting. I didn't know what I wanted to be. I wanted to be a tennis player. I had two coaches and I would go and play pennant and tournaments. I was a good tennis player back then. So I was a little sporty kid, but in the classroom I loved creative subjects. I was not that good at writing and reading, sort of a slow starter in that regard. School was like the academic component was like a pill I had to swallow, so I just had to keep swallowing and chewing.

My first real business? Well, as per the bio, I took a trip over to London. I'd done a year and a half of studying marketing at university, which I just got into on the skin of my teeth. Halfway through the degree I go to London. I can't get a job in any of the banks for some reason. I thought I was meant to be in finance because the people I was hanging around with were all in finance. I get a job selling these hair salon day spa and gymnasium coupons on the street and I become a hustler. It was a slow start, I wasn't good at the beginning, and I realized if I could get someone to like me within the first two minutes of meeting them and stopping them on the street, I could actually get a sale done. So for the 12 months I was in London, I was meant to be traveling around, I didn't travel around at all. I stayed in London, I wasn't excited about coming home. But when I got back, I was like, hey, maybe I should start this business. So at the age of 20, Tabo was born. And I went off with my mate who worked with me in London, her name was Sess Landy, and I said, do you want to sign the paperwork here for 50% of the business? She said, no, no, no, you sign this one. I was like, okay, well, I'm going at it alone. So I had no idea what I was doing. On the 1st of December in the year 2000, I was on the streets of Chapel Street, one of our fashion strips, with a bunch of people all on commission, and I was too afraid to stop anyone for the first six hours. I just stared at people walking past. I eventually plucked up my courage and we started to make sales, and that's how Tabo started. Tabo is actually 19 years later still my baby.

Well, thank you, Cory. The thing that we did differently back then, again it wasn't my model, I stole the model, but what it was about was getting people to go in and experience a particular product or service whereby that product or service was so good that it would try to promote word-of-mouth and repeat visitation by that person. So we started to evolve into street marketing. It was in an era when traditional advertising was so expensive, everyone was in print, on billboards, television, and there was no gap between that level and that expense and something more practical. And there was no social media, the internet only just had come out. If you asked small businesses how do you win customers, they would all say the same thing: word of mouth. So I used to say, okay, if I can get a thousand customers into your business, it's not going to cost you anything other than you've got to show them what you do for free. Do you reckon you can get them to come back? And they would say yes. So we went into guerrilla marketing very quickly. We were labeled one of Australia's first guerrilla marketing agencies. We had a bunch of young cool boys and girls across Melbourne and Sydney and occasionally up in Queensland. We were approached by a whole lot of record labels, movie film houses. We were launching albums, DVDs, MP3 players. Virgin approached us to launch their new credit card. So the clients just stepped up and people started to like this attitude, which was just: we've got to come at this differently, we've got to try and get them to experience something and we've got to try and get them to talk. So if we fast forward to today, our principles are very, very similar. What I guess I could stop and put a little hold on that and go back to the start of time: I've got a brother called James. I've actually got three brothers, but my next down James, who's just a tiny bit younger than me, he didn't go on starting his own business. He went and worked for the big agencies: George Patterson, Bates, Clemenger, which are all part of international conglomerates. Then he moved to New York and worked with StrawberryFrog as the strategy director. We had this dream that maybe we could start the business together where he would sort of come from this global big agency top-down approach and I was sort of this grass-roots, started on the streets, working my way up. And he came over and six years ago we joined forces and that was really where a lot of magic took place because he didn't know anything about having a business and I didn't know anything about what marketing at the top end of town was like. So we called this the East meets West philosophy and that blew up into us going on this mission of hiring the best possible people from the biggest agencies and mixing it all together into this new belief. The two core beliefs: what a brand does is more important than what a brand says, so more about getting businesses and brands to take action and do something interesting, and people are a brand's most powerful medium. We've just got to get people to love, to adopt, to share, because it's more important what another person says about your brand or you as a person than it is you talking about yourself.

Yeah, that was a really tricky one, Cory, because we both wanted it to take place, but after 14 years of me doing it, it's very difficult just to go, 'Oh, because you're my brother, I'm just going to give you 25% of the business.' I just couldn't do that because that's just crazy. But at the same time, I didn't want to try and overinflate the price. So what was interesting was that I was trying to do a deal with him and the creative director of StrawberryFrog in New York at the same time. So James said this guy called Ant was going to come out to Australia. Those two guys who were working together in previous agencies were a real force. James had to resign first from his time. Okay, so hang on, let me go back to the deal. We engaged a third party which was an independent person that we both respected and we put a valuation on the business which had been inflated due to the previous year of sales because the previous year of sales was a record breaker for Tabo and it was based on one client spending a lot of money with us, so that pushed up the valuation of Tabo and that made everyone really excited, all those guys really excited about coming on board and making money. Now with James, because he was my brother, I said his evaluation, by all means get another person to validate that price, which he did, and which Ant did as well. And what I said to James behind the scenes, I said, 'James, okay, now you don't have to pay me yet, you can pay me out of future profits because I understand this is hundreds of thousands of dollars, and the other guy he's going to have to pay straight away.' So for three years we finessed this conversation. Now down to the day of signing, by this stage James had flown over, he was working in the business, negotiating things like salaries and bonuses and the share price was all difficult. But on the day of Ant signing, I can be honest and say that the business, probably due to my distractions, had lost its profitability, so the valuation in his eyes was all sort of a bit gray. He called me up on the day of signing after three years of work and said, 'Hey, I'm really sorry but I've just been offered a huge job at another agency.' And so there, this whole idea that we were working on for three years just blew up in our face. So it was just James and I. For James, I just said okay. He said, 'Look, I might need to change the price, the valuation, because this is now a risk.' And so we actually recut the deal where I put a ceiling on the value of the business and no bottom on it, and I said, 'Whatever we do in the next 12 months, times this multiple, will become the value that I'll sell you your 25% out. If the business makes zero profit, you're going to get in here for nothing.' And so we actually hit the top, we went above the top bracket together, which was capped, and then he was only delighted to say, 'Okay, cool, yeah, I owe you that money.' So now that money still remains in credit and we haven't discussed it often, but we know it's there.

Yeah, absolutely. It's really interesting. I've always been the majority in this business and I've never ruled with an iron fist. I pretty much don't want to go ahead and make a call against the support of my team and my partnership. I'd rather sit in the boardroom and thrash it out, and I will quite happily pick my battles. I'll say, 'Okay, this isn't my stance, I'm going to put this forward, but I can see you're more passionate about this particular situation than I am, and I've also had more years in business, so I'm just going to go, you know what, you have this one, and let's just see how it goes.' Because we've both come from different parts of town, he's got more experience in some areas and I've got more experience in other areas. So picking the battle is just a gut feeling, a bit of navigation at the 11th hour, and go, 'Okay, fine, I'm not going to attach myself to always being right.' That's one thing that's helped this partnership very much in the last five years is me letting go of thinking that I know everything and trusting that my brother and some of our amazing employees that we've managed to bring on, letting them have a go at making a decision and then backing them in. And then if it doesn't work, I say, 'Okay, look, that's fine, we learn from it.' And they go, 'Yeah, we learned from that, let's try it this way next time.' So we've learned so much from trial and error. Failure is a huge part of how this business has grown.

Cool, so I started Tabo at 19 or 20. For the first 10 years I failed on a whole lot of smaller businesses. There was a lot of savings going on, I have to be honest. By the age of 27 when the GFC came about, I had no money in the bank. And I heard of a really impressive property tycoon who was pulling together a group of investors, a group of people to buy a medium-rise building on one of our biggest commercial strips here called St Kilda Road. This was the state police headquarters, a 21-story building. We could see that the building had been valued previously at $66 million before going to the GFC. In the GFC, because the building was owned by one of the major banks and the banks needed to be liquid because a lot of people were pulling their cash out of the smaller banks and putting them into the bigger banks because everyone was terrified the banks were going to go under. So for anybody who doesn't know the acronym, GFC stands for Global Financial Crisis, one of the toughest times I've ever been in business. Meanwhile, Taboo's revenue had gone to zero for three months. Not one client spent a dollar with us for three months. But on the other hand, this property deal just looked so good. The value had gone from $66 million down to $44 million, and the tenants were government tenants, the police headquarters, paying $5 million in rent. So if you do the math, it's returning something like 14%, and they were stable clients, not going to go bankrupt. So in support of Ian Robertson, who was the property tycoon, we all had to go off and find ourselves seven figures each. I'd never done this before and I had no security, so I went to the bank and said, 'Can I borrow a million dollars?' And they were like, 'Yeah, sure.' I was like, 'Great, this is amazing.' I started filling out all the forms and finally they said, 'Okay, what security have you got?' I was like, 'What do you mean security?' I had to learn that you need something just in case this doesn't work out. So I called Mom and said, 'Mom, I need to mortgage your house.' And Mom, being Mom, who's just awesome, she was like, 'Uh, right, okay darling, sounds good.' Before we knew it, Mom and I were, she was backing me in to buy a piece of this medium-rise building. They didn't settle on the day, I missed settlement, I prolonged it by a few days, finally the money came through, and we got across the line. Each month I was able to give Mom a bunch of cash from the rental money coming in at that 14% return. Within four years we sold it for what it was previously valued at, about $68 million. So I was able to give Mom and say thank you.

And a like-minded entrepreneur in terms of my mother, she took a risk as well. She backed us in and backed in the project. I put all the facts on the table and she was able to share on the upside, which I was so proud at the end to give her a check and say, 'Thanks for backing in your son.' And that was the first break that really helped.

Yeah, this building here. I just love property, absolutely love it. If I fast forward my life, I reckon I'm going to be in property. I like creating spaces and I like owning things, and bricks are good to own. So this property here, I was looking at renting a property for Taboo for the new headquarters because we were sick of the old one, been there for 10 years. I was about to sign a lease for five years and the lease terms were terrible. They said, 'In five years' time we're going to kick you out and all your fit-out is going to be scrap heap, the building is going to be demolished and we're going to put up something on top.' I was like, 'That's just not good investing.' So I said to my dad, 'Hey, I've got half a million bucks in cash, do you want to put half a million bucks in and we can go and buy a $5 million building?' At that stage I didn't know what the loan-to-value ratio was or how much cash I needed to put in, I was probably likening it to a home loan. Dad's like, 'Okay, cool, all right, let's do this, let's do a deal together.' So we found a property which was way more, do you want numbers? Sure, sure, sure. So all of a sudden we go to bid at an auction because this area is hot property. It's the intersection of where all the high-rises are, it's an industrial area with huge footprint blocks on the side of the city, and if you draw a straight line across the other side, it's all turning into high-rise. So everything's pointing to this pocket becoming the next high-rise zone. Within this area we've got Tesla, Facebook, Uber, all these cool agencies, all the tech startups, everyone's moving into these converted warehouses, and this has become a really cool and edgy place to work. But it means it's a hot spot, the desire to be here is very high. So with our very undercooked deposit, this property came up. We went to bid, missed an auction, got tapped on the shoulder, said, 'How about looking at this one?' This was an old mechanic shed, terrible, run down, dilapidated, pictures of naked women up on the walls, crap everywhere, and the guy illegally lived up here. He said, 'I want $7.5 million for this.' I was like, 'This is going to cost a fortune to fix.' He stuck by his figure, didn't budge. I said, 'Dad, we can't afford to do this together, we've got a million bucks.' We actually brought in a comedian, a famous Australian comedian by the name of Andy Lee. He's a cool dude, a wheeler and dealer. He walked through in 15 minutes, looked at me and said, 'I'll do this deal with you, I'll buy it.' I said, 'Great, I'm rubbing my hands together, I think if you put in half a million we get there.' How wrong I was. We bought it for $7.5 million plus tax, that was $8 million. Then I realized we've got to convert this from an industrial warehouse into a commercial building, that was going to cost $3 million. So I've now mortgaged my home, ripped all the equity out of that, everyone's thrown in, so we've all chipped in, leveraged to the eyeballs, and put in $6 million in cash, not $1.5 million but $6 million in cash. Then we opened up the doors and within about a month we had 150 employees, not all of mine but tenants downstairs and other businesses, and we've created this hot spot. We've gone down the road of looking at what development would look like with this project. We're in the process now, we've just agreed on a figure but we've sold 50% of the building to the best developers within this area, another EO, him and his father have bought 50%, and we've done an open table transaction. It's been very much we're not getting an external valuation, we're going to tell you the price and we're going to tell you why the price, and part of the reason is because we're putting in a little bit of a kicker for us. So we've signed the heads of agreement and we've agreed on the price, and we're going into business with this EO father and son called Cold. In three years' time when these leases are up, we will be putting in a permit to go to 10 stories, and it will be hopefully building back three years.

Yes, yes, yeah, it's going to pay off. The problem is it's a longer play. We're not going to get out quickly, and even when we build it, the mission is to rent out, to have tenants and to create a community of businesses. So home's a little bit lacking equity at the moment. Instead of doing a renovation, I've just painted it.

That's right. I heard this at a very young age: when you need money, loan it. And when you can't loan any more money, loan some more money. So just keep borrowing more and more money. That's been my sort of thing. Even just down to $100,000, I'll try and revalue something, remortgage it, find $100,000 and try and invest that into something that's going to turn into $200,000.

I worked every day in my business from Taboo, 52 weeks a year for 10 years straight, yes, and I realized that I'd made more money in my buying home, exactly, and doing the secure road property, just two things, and I borrowed 100% of the funds, and I enjoyed having them on the books than I did working all of those days, 3,900 days of working, and I made more money just doing property deals.

Exactly, exactly. So one of the pieces of advice I give to people is everyone should be in property. It's not a full-time job, it's a hustle. Even if the property is your home, in Australia the home is a tax-free investment. And if you buy well and you can add some value to it, you buy the worst house in the best street, you can make money on the home really quickly. So that was my introduction, actually, with the mortgaging of Mom's apartment and the building. But once I had a little bit of value, I remortgaged and ripped it out and did something else with it. That's the way up, up and away. The first one is the hardest, and then the next ones flow on.

Sure, yeah, okay. So I was consulting for one of the political parties here, and I very rarely put on a suit and went into Parliament House. They were trying to work out how to win the election, and they had me at this round table, talking about what I think is cool and what I think the city needs. This one politician came and tapped me on the shoulder, he said, 'Hey, I've got an island.' I was like, 'What do you mean you've got an island?' He said, 'I've got an island in Melbourne, do you want to come and have a look? I could get a liquor license for it and it could be yours, I'm looking to rent it out.' I said, 'Mate, I don't know if you know what I do, but I don't do hospitality, that's not what I'm good at, but thank you.' He came up to me again later that day and said, 'Would you just mind coming and having a look?' So sure enough, I went down there one morning. I didn't realize I had toothpaste all down the side of my cheek, forgot to look in the mirror. I walked around his island, trying to be very cool, not realizing there was toothpaste all down my cheek. But sure enough, it was this amazing little spot under the main bridge in an area that wasn't that cool 10 years ago, but surrounded by water, concrete base, 150m footprint. I said, 'So what do you want to do with this?' He said, 'I want to rent it out because I'm going to become a politician, I can't have a business with a liquor license.' He didn't actually have the liquor license at the time. So I said, 'Can I bring some people down?' I quickly called up my friend Jerome Borazio, who's a hospitality guru, really great at popping up bars very quickly and cheaply and making them really cool in that sort of laneway Melbourne style. Then my other best friend Grant Smiley, who was a DJ at the time and now a hospitality guru, I pulled the guys together, said, 'Quick, come down and check this place out.' We walked around it and they were like, 'Wow, this is interesting.' I said, 'You know what? I've been in business 10 years, this is a present to myself. How much do you want for the lease?' He said, 'I'll take $80,000 a year.' And it was quite interesting because he looked us in the eye and said, 'I pay $5,000 a year for this, and I'm going to charge you $80,000.' I was like, 'Right, that's nice, you're telling us how you're screwing us, basically just openly.' He was a very bizarre, peculiar businessman, this politician. He just used to tell us how he was making money out of us the whole time. So we did this deal, six months I put some money that I had saved up to buy my first home into this fit-out. We built this pop-up bar, got a liquor license in the name of the politician. On the day we went to open it, liquor licensing came down and said, 'You don't have a liquor license.' Because we'd done the deal to rent it for six months at $80,000 per year, so $40,000, but we'd spent $50,000 on building the bar. We went to open the bar and sure enough we didn't have a liquor license. I was like, 'Oh my god, I've just torn up all this money, this is a complete failure.' We couldn't get the liquor license out of the politician's name and into our name, that could take years. So the politician, being a politician, said, 'Okay, tell you what, take the venue for a year and a half, keep the rent the same, you guys open as a cafe, we'll do a deal here.' So I was like, 'All right, this is screwed.' I extended the lease, we agreed to the new policy, within a week he got this liquor license, and I was like, 'That just went very smoothly.' I went down there, we cracked three beers, the three owners, on a beautiful sunny Friday afternoon, summer setting, and people just started to gravitate. They watched us drinking beers down on the end of this little island in the city, and people started to come down the stairs. I went over to the bar and watched people pulling out $50 notes and paying for three or four beers. I thought, 'This is a brilliant business.' By the end of the night, more and more money just kept coming in. We had three great articles written up, and within a Friday a week later, there was a queue 100 meters down the road to try and get into the bar on the island. And the thing just worked, worked like crazy. So I looked to the guys and said, 'Let's extend this deal.' At the time, the politician said to us before we opened, 'Do you guys want to buy this off me for $300,000? The 20-year $5,000-a-year peppercorn rent, you want to buy this lease off me for $300k?' We said, 'Mate, no way, we'll see.' But all of a sudden this thing just worked, so we said, 'We'll buy six years.' So we sat down and negotiated. He wanted $100,000 for six years, and then at the end of the six years he says, 'I want the books and I'm going to sell the business, your business.' I said, 'No, no, no, no, you're not going to do that because I'm going to run the business into the ground, I'm not going to let you do that.' I said, 'I'll go, we got to a point where we negotiated 50-50% of the business he could sell our business for at the end of the six years, but it meant we had to leave after one year of doing that deal, and the bar was just pumping. We said, 'You know what, we've got to get rid of this guy.' So I called him up and said, 'Okay, I'm going to write your check for a million dollars to get rid of you.' He said, 'I want $2 million.' I was like, 'Mate, come on, this is to sign over the head lease where the head lease only pays $5,000 a year to have a 150m property in the middle of the river right in the heart of the city.' He said, 'I'm going to sell you 21 years of the rent in advance, let's just look at it that way.' So we had to do the negotiation of the total fear of us walking, or this is not worth anything without us. We had that tussle off, knowing that I said, 'I've got to check here with seven figures on it, and I know you want it, but if it's too high it's not going to happen, I'm just going to put this money into something else.' Sure enough, he came back to us and we agreed on a figure which was, call it in the middle appropriately. And 10 years later, the venue is one of the most iconic venues in Victoria. Most pictures if you Google Melbourne, you'll see our bridge with our venue. It's been published all over the world, and it's been a wonderful little business, great fun to go down there and sit and enjoy a beer and look back at all the deals we've done.

That's exactly right. The three of us, we call it an internet business actually. One of the partners lives in the country, one of the partners is in LA, and we just work with a great CEO, great venue manager, and we empower her, her name is Storm, to go and make magic down there. The business is just a hot spot. Sadly, it's closed at the moment due to the coronavirus, and we've packed up. It operates 365 days a year, so it's closed for the first time in 10 years.

Corey, this is the first time anyone's ever summarized it for me like that, but you're absolutely correct. I believe in organic growth because it's safe and secure and it feels natural. But at the same time, I wouldn't have got ahead without having to crunch, bust a few things, break bits, and move myself into particular areas where I could see more rapid value being created.

Taboo.com.au is our agency website, but by all means find me on LinkedIn. My name is Andrew McKinnon, M-A-C-K-I-N-N-O-N. I'd love to connect.

I've just learned from the very beginning that being a real human wins more points. It wins trust. When people trust you, they like you and they're willing to work with you. I believe in vulnerability with authenticity. So if authentic means I'm feeling on fire, feeling great, or authentic means I'm hurting a bit, sad, feeling flat, just being real and being present with people, always sticking with the policy of the truth, trying not to be tempted into exaggeration and being too slippery and salesy and pushy. Just keep it real and put it out there, and then you'll end up finding real people that are vulnerable, present, and kind, and then you end up building a great network of wonderful people that you end up doing business with and being friends with.

It's been awesome, Corey, thank you so much for having me.