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Episode Summary
You sold the company. You took the check. Eighteen months later your dad asks what you do for work and you don’t have a clean answer. That’s the part nobody warned you about. John Rood and I got into the full arc on this one: how he and his wife built Next Step Test Prep from a two-person tutoring shop on Craigslist into one of the biggest MCAT prep businesses in the country, why he pushed the company from services into content once he understood services trade at 1-2x revenue and content lifts the multiple, why he took private equity over an ESOP or strategic, and what he wishes he’d done before the LOI hit his desk. He’s now sitting on the buyer side running a search fund, so we got into the mechanics: how PE, funded searchers, and self-funded searchers actually structure deals, who has committed capital and who has to syndicate after LOI, and what that means for closing risk if you’re the seller. The line that stuck with me, and the one most owners I work with refuse to hear: pay yourself a real CEO salary and separate your labor from your equity, or no buyer can put a number on the seat you sit in.
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## Top 10 Takeaways- Service businesses cap at 1-2x revenue. Content lifts the multiple. SaaS lifts it more. Your business model decides your exit math.
- Pay yourself a real CEO salary. If you don’t, no buyer can value the seat you sit in.
- Every hat you wear has someone better in the market. The entrepreneur is not replaceable. The roles are.
- Your cash flow cycle decides whether you can shift business models without sharpened pencils.
- Plan what you want your career to look like at 60 before you sign the LOI, not after.
- Search fund buyers want to run the business. PE doesn’t. Match the buyer to the transition you actually want.
- PE has committed capital. A funded searcher syndicates after LOI. The closing risk is not the same.
- An out-of-the-blue offer is not a bad offer. Just don’t jam it through with only an attorney.
- Conflating annual income with long-term value is what keeps owners stuck. Separate them on purpose.
- Once the money is handled, two questions remain: who do you want to work with, and what problem do you want to solve.
Sound Bites
“I might not be replaceable as the entrepreneur, but every role, every hat that I wear, there’s someone better out there.” (@TBD) — John Rood
“I don’t know that I ever sat down with like a piece of paper and was like, what do I want my life, my work life to be for the next like 30 years or however long it would be.” (@TBD) — John Rood
“You have to pay yourself like your actual cost of labor, because if you don’t, it’s unclear how much money you make.” (@TBD) — John Rood
“If private equity wants to buy your business, they don’t want to go run it. Like they don’t want to get off the private jet and like go scrub the toilets at your business.” (@TBD) — John Rood
About This Episode
John Rood co-founded Next Step Test Preparation, growing it from a two-person tutoring company advertised on Craigslist into one of the largest MCAT test prep businesses in the country, before selling to private equity in 2018. He stayed on for about eighteen months, then stepped away and spent a year working through what to do next, including time on small-company boards, coaching student entrepreneur teams at Michigan State, and ultimately starting a search fund focused on K-12 supplemental education and senior care. He’s a useful guest because he’s now lived both seats: the founder selling to PE, and the searcher trying to buy the next business. The conversation moves between both perspectives.
Resources Mentioned
- Traction by Gino Wickman — John credits the EOS frameworks for the 2013 turning point that aligned his team around mission and vision.
- Finish Big by Bo Burlingham — Ryan references this as the book that shaped his thinking about post-sale identity.
- Buy Then Build by Walker Deibel — Referenced as the foundational text on acquisition entrepreneurship.
- Searchfunder.com — The online community John uses to source deals and connect with other searchers.
- Entrepreneurs Organization (EO) — John’s forum, where he learned the Be / Do / Have visioning exercise.
- Next Step Test Preparation — John’s former company, sold to PE in 2018.
Connections
Phase + Module:
- Module 9 — Operator Transition — The seat John actually transitioned out of, eighteen months post-close
- Module 5 — Predictable Revenue — The services-to-content-to-SaaS continuum that determines the multiple
- Module 6 — Transferable Margins — The margin profile that funds the model shift in the first place
Milestones inside Operator Transition:
- Milestone 25 — Operator Transition Plan — What John didn’t have on paper before the LOI hit
- Milestone 5 — Market Value — Why services businesses get a different multiple than content businesses
- Milestone 6 — Transaction Value — PE offer vs strategic vs ESOP, and how John vetted the spread
Concepts referenced:
- The Owner-Operator Trap™ — The identity collapse John lived through on the other side of the sale
- Three Lenses of Value — Why services, content, and SaaS get priced on different planes
- Capital Allocator — Separating labor from equity so the seat itself is valuable
- Owner’s Roadmap™ — The career-at-60 question John wishes he’d answered before the LOI
- The Four Value Levers — The levers John pulled to move from one-on-one tutoring to content and scale