Host: Consultant Alan Lockridge was mid career trying to figure out what was next when a friend recommended he buy a business. Today, Alan owns a hardscaping business in Charlotte, North Carolina that does patios, outdoor fireplaces, pool decks, pergolas. Now you may be thinking a residential construction business. Project based revenue in high ticket the average job is $70,000. But like Monday's interview with Dantagliatella who bought a driveway ceiling business, Alan explains why his business is a strong one, reinforcing once again that there is much more to understanding a business than whether it's recurring or project revenue. Alan's business has a negative cash conversion cycle, meaning he receives payment before delivering service. Alan's day sales outstanding DSO is very low, meaning he collects from customers quickly. Alan's services are delivered by subcontractors, meaning his business runs lean and he avoids getting squeezed when work slows down. All of this adds up to a business that does a great job of generating cash and with 18% margins on $6.5 million in revenue, a significant amount of it. Please enjoy my interview with Alan Lockridge, owner of the Stone Man. Quick Announcement this coming Tuesday is the fourth installation in our webinar series with Sam Rossotti. The fourth and final. least for now, this one on a topic that can badly trip up first time operators. They can mean the difference between a successful transition and and a nail biting one that can mean the difference between life and death of the business. And that is working capital. It's a topic whose subtleties are easily underestimated, which is why it often ends up being a problem. So Sam is going to do a primer on the topic how you should approach working capital while negotiating your deal. Then how you should think about it once you become owner. The webinar is this coming Tuesday, March 26th at noon Eastern. The registration link is in the show notes right at the top where it says Register for the webinar. And if you can't make it Tuesday for the live webinar, register anyway to get emailed a link later to the recording about the presenter Sam Rosati. He's an SMB owner, investor, independent sponsor and educator and he's also the co founder of SMBash, the conference for small business buyers, operators and investors. SM Bash is happening next month, April 18th through 20th in Salt Lake City. I'll be there, as will many names familiar to acquiring Minds listeners. Okay, come learn how to approach working capital in your deal and beyond. Tuesday, March 26th noon Eastern. That's this coming Tuesday registration link at the Top of the Notes. Welcome to Acquiring Minds, a podcast about buying businesses. My name is Will Smith. Acquiring an existing business is an awesome opportunity for many entrepreneurs and on this podcast I talk to the people who do it. What do the following Acquiring Minds guests all have in common? Doug Johns, Morley Desai, Tim Erickson, Chirag Shah, Shane Ursum. They all went through the Acquisition Lab, the accelerator in community for people serious about buying a business. But they represent just a sliver of the Lab's success stories. The number of deals across the Lab's cohorts now stands at over 120, with over $300 million in aggregate transaction value. The Acquisition Lab was founded by Walker Deibel, author of Buy Then Build, the book that introduced so many of you to the very idea of buying a business. The Lab offers a month long, intensive, almost daily Q and A sessions with advisors, live deal reviews with Walker, Deal team introductions and an active community of serious searchers. Check out acquisitionlab.com, link in the notes or email the Lab's co founder, Chelsea wood, chelsea@buythenbuild.com Alan Lockridge welcome to Acquiring Minds.

[4:42] Guest: Thanks Will appreciate you having me and certainly appreciate what you do for the community about both the acquisition and running the business after the acquisition, which sometimes is the harder part.

Host: Yep, for sure. Well, I appreciate that Alan. And we're going to get into both those topics. You bought a business in a category that doesn't get a lot of attention from searchers. It doesn't check the boxes, let's say no recurring revenue, consumer big tickets, discretionary. I'm talking about residential construction, a niche within residential construction. And yet here you are. Your business is healthy, steady, no big swings as yet growing. So we're going to learn what it's like to buy such a business and why searchers should maybe be a little bit more open minded about residential construction, residential contracting businesses. But start us off Alan, please, with some background on you.

Guest: Sure. Thanks Will. I spent about 20 years of my career in professional services consulting services and that was really a kind of a project based business, which is kind of how we led here today. But along the way I worked for, you know, mainly three small consulting firms and over the course of my career all of those consulting firms were either acquired and or had an IPO activity during that time. And as we grew bigger, I fell less and less enamored with the organization. And so in 2015 when my last company that I was with was acquired, joined a big international firm as part of that and really didn't feel that I fit in anymore and wanted to get into that. So something smaller. My original intent was probably to go back to a smaller consulting firm. And so I took a package to leave that firm just to get out. It wasn't really a good fit for me anymore. I was kind of taking some time to think about it and that's when a friend of mine suggested I should look into. Into buying a business. And so after 20 years of leading consulting teams, some at pretty significant scale, about 30 million a year and 300 so individuals on contracts at any given time kind of decided it was time to look for something different.

[7:12] Host: And Alan, this friend of yours who recommended buying a business. So I take that to mean you were telling him that you weren't that excited about going back to consulting. Why did he volunteer this idea of all ideas, which is pretty off the beaten track for your own career?

Guest: Yeah, I think we had discussed in a pre call. I am a member of a men's workout group called F3 and this was a guy I was running with in the morning and sometimes we do workouts early in the morning and those guys get to be good friends and get to know a lot more about you and sometimes put a ramire up that you don't even see to what's going on in life. And he kind of knew I wanted something different. And frankly, at the time I had never even heard about buying a business. Right. So my intention was to go back and to just be part of a small company. I didn't, I wasn't really a. I don't feel like I'm a startup guy, but certainly can come in and operate and grow and, and so he kind of threw it out there and that's just kind of got the bug going and took it from there.

Host: Had he done it? Just curious.

Guest: He. Well, he was a. A small banker and so he'd been on the other side doing lending for these companies. So he had seen the entrepreneurs from that perspective.

Host: Great. And did. And so it immediately resonated with you. You didn't find it too left field because probably that's the re. That's the default reaction for a lot of people buy a business. What are you talking about?

Guest: You know, I, I'd have to go back and think. I mean it was just, you know, I, I was, I was kind of in this period when I. It was kind of towards the end of calendar year, so I wasn't really actively looking for a job. I was kind of going to wait until the new year started. So I had Some time kind of started to get into the reading. I met with a local broker here, which circle back three years later is the broker I actually bought through but. And they had a pretty good presentation for new buyers and just kind of, you know, just kind of it was intriguing and realized the opportunity was really there that I had never really known about before.

[9:12] Host: Well, yeah, you and you and so many others.

Guest: And that was about 2017.

Host: 2017, yeah. Great. Okay. So the holidays, he. He plants this seed, you start going down the rabbit hole.

Guest: Yeah.

Host: Like the idea and, and what is the final kind of step to make this real and decide that this is what you're going to go do?

Guest: You know, I don't know if there was any individual piece. I just started kind of digging into it further. I did. I started going on a couple of visits to meet with business owners on particular businesses. None of those early ones really led to an loi, but it was just. Just a bit of a teaser into what I might get myself into really. You know, I think I caught the bug pretty quick at that point thinking that this could be possible. You know, certainly I can make the numbers work out. I was always interested in a self funded search. You know, I had some, some capital set aside. Didn't really part of the, the going off of my own was having that autonomy and, and didn't feel the need to. To bring in investors at that point. Had a fairly good network otherwise that I could reach out to if I needed help otherwise, but wanted to do it on my own. Great.

Host: And so you were imagining an SBA style. Yeah, that's correct.

Guest: Yeah, I was, I was always going to take out a loan for it.

Host: Okay, well tell us more parameters around your search, what size of business, geography, etc.

Guest: Yeah, so I was heavily focused on the Charlotte, North Carolina market where I live. I had, you know, at the, at the time. Well, currently have a daughter in college and in high school. At the time they're in middle school and high school. Really wasn't a need to move. Extended family, brothers and family, parents are here too. So I didn't really want to move. And at the same time the Charlotte market is a very growing market. So I always felt that we were in a place that new and potential customers were going to continue to be attracted to. So you almost have to stand here and you're going to get a greater growth rate than average in America, which would be more challenging if you were in a, a different market where people were leaving and you're always trying to kind of Regain that traction. So that definitely narrowed my search pretty tight on the market. So I was pretty broad on the types of work, but most of it was always going to be manufacturing or services based just because that was my background.

Host: Services was your background. Manufacturing is actually one that's often avoided by searchers. So why did that, why were you open to that?

Guest: I was looking at things that were a little bit smaller. I was open to it. I was an engineer in college, so some of the tech technical pieces never really scared me off too much. Do I think I was going to buy, you know, a sizeable manufacturer with a ton of equipment?

[12:01] Host: No.

Guest: I mean, but when you're, when you have to keep the aperture wide, you start digging around at all kinds of stuff. And some of the manufacturers I looked at were kind of small sign companies, things like that that were doing custom work but. But on a small scale.

Host: Sure. The sign company, that's one that you see on Biz by Sell.

Guest: I found one that was pretty unique though that I, that I did have an LOI on but Covid kind of killed and they, they did some more custom banners, large scale and I think stadium sizes and so forth. So they were, they were kind of in a niche in the local market.

Host: And had you quit your W2 and you were going all in full time on this or what did it look like kind of your day to day?

Guest: Yeah, why? Had already, I had already left. I took that buyout package and left the company I was with. So I was, I was full time into it and spent full time into it for about a year and ended up going back. I had a hire colleague who had an opportunity just to go back and do some work. So I did go back and work in a bank for a little bit. Look at the end of the day you start wondering how long this process is going to take and the cash starts to drain away. So you just think what can I do to keep me stable until then? So it did that for a couple years but honestly that really helped out because during COVID the market sort of dried up pretty tight. So it's definitely a lot harder to find potential leads.

Host: And so. And were you'd said you talked to a broker, were you doing just brokered search or were you, were you trying to look under every rock?

Guest: I did brokered search, I did a little bit of outreach and I did hire a buy side broker that I worked with for a while and he, he did a good job. Yeah. So it was a company they work across the country based out of Tennessee. But they are continuously doing a search, and they're kind of compiling all their potential targets. And then when somebody comes in, there was a small upfront fee. They start to kind of reinvigorate some of those targets and bring them up to you. That might be a good fit. And they kind of support through the acquisition process for a couple of reasons. None of those worked out. I would have paid them on a. At purchase, a percentage of the purchase price. So I wasn't paying an ongoing monthly fee, but would have paid them a percentage of the sale price at the end and.

Host: But you did also pay an initiation fee?

Guest: Yeah, it was pretty small. A couple thousand bucks, I think.

Host: Okay, and how was that experience? Did you find that they were providing good deal flow even? It sounds like you didn't end up closing with a business that they brought to you.

Guest: Yeah, I did. I mean, I. I think we found good deal flow. I had two under loi. Both were good. I think one. One fell apart kind of at the last minute, like some of these things do. Just kind of final negotiations between the seller and I just didn't work out. That was in a disaster restoration business. And then the other one was that banner company that was going along pretty well, but took a 40% hit on revenue in Covid, and that kind of slowed things down, and that deal kind of fizzled at that point.

[15:09] Host: So. So they actually. It was a positive experience working with. Yeah, it was a positive experience because each of the deals had its own reasons for failing. But they brought you quality deal flow.

Guest: Yeah, they did. And there was a couple others in there that were reasonable. Some other. Some other lines that I think I would have been attracted to either I was in the middle of another LOI and didn't have the capacity to kind of take on both. But, yeah, I would. I would. I would recommend it as a way to do it, especially for somebody who's, you know, doesn't have the capacity to spend, you know, 100% of the time on cold outreach and really trying to drive it that way or narrow market search.

Host: So you would recommend it, you thought. Even though, again, didn't work out exactly in your case, you thought it was a valuable service and you could see it working out and being worth the money.

Guest: Yes, Yeah, I could. And the reason it didn't work out weren't really relevant to the broker per se, just they die. Like all deals have an opportunity to die.

Host: Can you say what the. What the price would have been, the commission would have been if you had actually closed Five.

Guest: Yeah.

Host: Okay. Okay, great. Thank you, Alan. All right, sure. So you, so you got two businesses under LOI, and then the third was the business you ultimately bought.

Guest: That's right, yeah.

Host: And so tell us about that business, how you found it and then the bullet points of the business.

Guest: Sure. So the business popped up on a local brokerage here that I had followed. And I actually had a lot of respect for one of the first ones that I had met with. They do a pretty good job in the, in the market here. It kind of popped up. It just highlighted some things that I was interested in and more. As I read the sim, I thought, man, I really feel like I know this business. And so I reached out to the broker with interest and we spent about an hour together. And at the time, you know, he wasn't necessarily sharing the name of the firm. You know, he's just trying to gauge legitimate interest and capacity to buy and so forth. And we get about 45 minutes in the conversation and I said, is this the Stoneman? And he was surprised that I knew. And so it turns out that the company that I bought I actually personally used four years prior to build a pool and grill island and things in my backyard.

Host: How funny.

Guest: And the reason I use them is because the owner, the prior owner was also in the F3 men's workout group. And I had spent time with him and knew him, you know, reasonably well. I would say that we weren't, we weren't best friends that were hanging out every day, but, you know, our circles would, would certainly run into each other here. And again, so, you know, had a, had a, had a good knowledge of the owner, certainly a thorough understanding of the product and how they offer it. And so it just kind of really fell into place in that sense.

Host: Well, obviously one technique for searchers to diligence a consumer business is to shop the business themselves. But your, the tickets, the cost for the service that the Stoneman delivers is not one that you can shop because we're talking five figure purchases. If you hadn't already, you would never be able to do that. So what a happy coincidence. And obviously you had been pleased with the service, otherwise you wouldn't have continued with the conversation with that broker.

[18:26] Guest: That's right.

Host: Most business buyers acquire their target company using an asset purchase, which means that you've got a brand new legal entity that needs to be ready on day one to properly employ your new team. Payroll, HR documents, tax accounts, workers comp, benefit plans like medical and 401k. You need to make sure all of that is transferred or set up on day one. Aspen HR understands this challenge and the delicate timing that searchers have to juggle. Led by a successful former searcher, Mark Sinatra, Aspen HR can assist searchers to ensure a seamless transition for the employees. If you are structuring an asset purchase, contact Aspen HR for a free consultation. They'll walk you through their proprietary checklist for asset purchases that assesses your readiness for HR payroll and benefits. Check out aspenhr.com or contact Mark directly@markspenhr.com and just timeline here. Alan. So how long have you been at this? This is the broker that you had reached out to way back when? Yeah. The first colleague of yours recommended you buy business.

Guest: So it was, I think the first reach out to them was in 2018 and then I, I met with them about this opportunity in 2021. So kind of on the tail end of COVID which was a real boon for the Stone man because it was construction based. You had a lot of people who were now staying at home and wanted to spend the money and upgrade whatever home based entertainment they had. And so it was construction business. So it wasn't limited or shut down because of COVID I think they shut down for at the time, maybe two weeks until they opened back up as an essential business and really just kept

Host: rolling and kept rolling and then some and growing faster.

Guest: Yeah, yeah.

Host: Well, I want to, I want to hear a little bit more about that. But first, just so we have a full picture of your search. So 2018 to 2021, some, you know, searching pretty intensely, but also taking, going back and taking some consulting work.

Guest: Yeah.

Host: And using a buy side broker.

Guest: So.

Host: But would you characterize your search as a three year search, two to three year search where you're devoting a lot of that time and energy during those two or three years to the search?

Guest: It was pretty considerable probably. You know, I think during COVID it got a lot less, I just saw a lot less deal flow. I wasn't actively pursuing primarily because I was on comfortable with being able to even get clean financials with the bounces and ups and downs that Covid brought. So it just was going to bring more challenge. You know, I had a tight market fit being in Charlotte and I was, I was trying to be pretty particular. Right. I wanted something that, that I thought was going to be a bit of a niche that was going to be a little bit of an opportunity to kind of stretch some boundaries that you know, some, some basic things weren't going to do. I have, I Have good friends that. That owns home services business. Right. The H vac guys and all that stuff. And. And while they look pretty on paper, you know the challenge on there, they've got their own challenges. Right. The market's difficult. Your. Your paid advertising is expensive, your technicians are hard to find. So it's. Sure it's not as glamorous as the book makes it.

[21:44] Host: Yeah. Yeah. Okay, great. Well, you decide you like the Stoneman, or you decide to at least proceed with it. But tell us a little bit more about the business, please. Size, employees, revenue. Give us more of a picture of what this business is all about.

Guest: Sure. In the preceding years, before I bought it in, in between 18 and 2020, they grew from about 4 million to about 5 and a half million in revenue. They. Internally, it's a small team of 12 and. But we have a lot of external subcontractors that we use. We've got half a dozen masonry teams, which is our primary. And while they are subcontractors and they're their own independent entities, we work with them every day of the year for the most part. So we're really close to those teams and what they can accomplish and being able to support them along the way. So, yeah, about 5.5 million at the end of 2020. The SDE had really jumped in 2020. They were kind of average in mid teens, but kind of jumped up to low 20% SDE on that year. I think a lot of it driven by just pretty much running hard during COVID and a lot of growth coming in due to folks calling in. And so some of the back office wasn't really supporting that level of growth now. So you knew it was going to even out a bit as we got farther down the road.

Host: And so was it priced off of those generous 2020 numbers or was probably

Guest: blended over the 2020 numbers, though it was a two and a half multiple off the 2020 numbers.

Host: Oh, good.

Guest: So, you know, I mean, if you. If you. If you averaged out the last three years, it was closer to a three multiple, but. Yeah, but really kind of balanced out for the fact that it wasn't a growth mode and not. Not steady at that. That rate.

Host: Yep. Great. And so it does hardscaping. So give us what is the service delivered and what are kind of average tickets.

Guest: Sure. We do 95% residential hardscapes in and around the Charlotte Market. That includes outdoor patios, grill islands, fireplaces, fire pits. We also do covered structures, pavilions. They might be attached to the home, they might be detached. We do pergolas. We do a lot of pool surrounds. We don't do the pool digging per se, but we do the, the surrounds and so forth. Specialize in a lot of natural stone. So while we can do some manufactured pavers and things like that, we also do a lot of just natural stone stacked in veneer, which is, which is really kind of the niche that we can kind of, we can play and help, you know, drive a premium in that. Our average ticket over the course of years, about 70,000. So. And that ranges from 15,000 to 300 plus.

[24:47] Host: And it's really. Despite the fact that you said you'll do pergolas and covered. Covered spaces and so on. It's called the stone man. You said your differentiator is natural stone.

Guest: Sure.

Host: And that in these, you got these crews of masons that you work with. So it's really. That's really where the majority of your work is, is in laying stones.

Guest: Yeah, that's, that's, that's probably how we go in with the basis of it. And the rest of it just sort of grows on as the, as the projects get bigger and the needs get, get wider. And you know, oftentimes folks want a fireplace, but if, and we can do that, a lovely fireplace, but you know, they want it inside a little building so they can hang out in the wintertime and have the fireplace on and be covered from the elements.

Host: Okay. And so just to wrap up the deal, can you. Well, first of all. So this is 2021.

Guest: Yeah.

Host: You're recognizing that there's a Covid bump that's occurred by that time. It's well documented in the news and you can probably seeing it in the numbers. Maybe the seller's telling you. But were you not spooked just by covet in general, just the uncertainty of making such a big move in your life when this thing is going on all around us at that point?

Guest: Not really. You know, we had been going on for about a year of this. And you know, I saw the market continue to grow. I saw folks continue to buy. I know there's still a lot of huge market in Charlotte. Having been in, you know, Charlotte's big for banks and having been in that space, what I do know is that for banking banks like Charlotte, because the market's cheap for labor relative to New York City or Chicago or places like San Francisco. And so there will continue to be a draw to bring in some, some well compensated talent into this market because it's beneficial for the industry. And so I just, I just Kind of was bullish. More on the Charlotte market. And I knew Covid was going to go away.

Host: Yep. Yep. Great. Okay. And so wrapping up the. The. The deal. Can you share the terms? You. You told us what the multiple was, but can you share any more about it?

Guest: Yeah. So seller was pretty adamant about not taking a seller note, so just went in a pretty straightforward 10% cash on my side. I used a Robs 401k rollover for that and 90% SBA loan. I think at the time it might have been easier to drive that through the banks because the CARES act had increased how much the SBA was backing to the banks. I think it's typically 75, but they moved it to 90 during the CARES act time. So the banks were probably a little more flexible about not taking that seller note in this case. Yeah, that was a risk on my end to not really tie anything to the seller. But again, we had a relationship prior to me buying the business. We have quite a few mutual friends. There really wasn't. There was a more social impact to both of us to try to make it work and treat each other fairly, which, uh. Not that that was needed. I think we had a really great relationship and still do, but that was the backstop in that case.

[27:57] Host: Yeah, yeah, sure, sure. That's. I think that's valuable. Hard to measure how much that mitigates the risk, but it certainly does.

Guest: Yeah.

Host: The. And why was the seller. Was the seller at retirement age? Why was the. What was the reason?

Guest: We were actually pretty close to the same age. And he was. He was really looking for a change. He built this from scratch soon after he graduated from college and was just looking for a change. And, you know, I joke with people who are talking about buying businesses and what it's like to meet with owners and they say, what's the common theme for people, even? And I said, for me, the common theme was, well, I've been doing this about 20 years, and I really feel that there's this entrepreneurial path where people spend five, eight, ten years building, and then they get to a level where they're comfortable and they float that with some comfort. And then he hit about 20. And like, a lot of the owners I met with, they just didn't have the energy or the desire to really push on new boundaries or increase scale or things like that. And so he just was kind of looking for a change. And his 20 years was just happened to be younger than most because he started.

Host: So he wasn't necessarily looking to retire, period, but retire from this business?

Guest: Yeah, yeah. And he was looking for a location change, wanted to move to the mountains, wanted to live a different life for a little while. So that's what he did.

Host: Great. Okay, Alan, and tell us a little bit about Robs. You define it for those in the audience who aren't familiar and then why you used it, what the process was like.

Guest: Sure. I know you've had a couple of entrepreneurs on recently who used it. So Robs is a format where you can use money out of your IRA or 401k to effectively acquire stock in the company you're going to buy. So just like your ira, you can buy stock in Apple or Microsoft, you can buy stock in your own individual entity. There's a lot of IRS rules around it. There's a couple of vendors out there who do the support. You pay them a fee, and they kind of help fill out all the paperwork and all that stuff for it. So for me, it just worked. I had some capacity in my 401k to spend there, and it was easy. And then once you have that open that I could have funded more dollars in if I needed to. If I started to hit, you know, needed more cash in, I could have reinvested through the 401k. I did not need that. And actually, in the long run, I didn't want my 401k, my IRA to be the owner of the business, which is effectively how the Robs works. So at about 18 months into the business, I actually had the business valued and repurchased the shares. So I basically bought the stock back from the 401k and closed that account down. So now it is no longer known of the company. It's just me.

[30:49] Host: My recent guest or update guest, Doug Johns, did the same thing, used Robs and then bought out his IRA so that ownership returned to he and his wife. And so I thought that that was an unusual thing that Doug did. I just recently had a conversation with somebody who said, no, that's actually what a lot of people try to do. You did that?

Guest: Yeah.

Host: So tell us a little bit more about that. Because one of the things that people won't like about Rob's at first blush is that it's like, oh, wait, my IRA owns the business. I don't. Or owns a material part of the business. I don't. Which is true initially, but it's also common that you circle back, that the acquisition entrepreneur circles back around to buy out the Robs. Tell us a little bit more about that process.

Guest: Sure. So if you if you choose not to buy the process, if you choose not to buy out the robs, which a lot of people do, eventually you would, you would pay off your SBA loan. The business would have a valuation hopefully greater than when you started. And if you ended up selling that business, the entire proceeds of that business would be, would go back into your IRA or your 401k and effectively no tax payment at that time. Right. They would be taxed upon when you, when you take the money out as you retire, the opportunity to buy it out earlier because the business is still sitting on a sizable loan, the total valuation of the business is a lot smaller. So it's a cheaper option to buy it out earlier in the process than waiting to the end and effectively having to completely rebuy the business. So that's kind of why I opted to do it quickly. I would say my provider, it sounded like they weren't doing it very often. Most of the, most of the time they closed out the robs was upon sale.

Host: But, well, I, and I think that Doug John said the same thing. And that's why I was under the impression that it wasn't common to buy out, buy the IRA back out because it seemed like Doug really had to kind of struggle to figure that out hand in hand with his provider.

Guest: I would say the same, you know.

Host: Really?

Guest: Yeah.

Host: So, yeah, interesting, because I, it makes sense. But as I said, I had this side conversation this week with somebody said, no, it's quite common to do that. But let's also just drill down on your point there, Alan, about the. If you wait to do this right, the valuation of the business goes up and you get stuck. Because to buy out your ira, you need a lot of, a lot of money to effectively, you know, because the evaluation of the business has gone up. So both you and Doug did it relatively, in relatively short order after becoming owners of the business. But then the question is, well, if you could do it 18 months later, how did you have the money to do it 18 months later if you just didn't, if you didn't have the money to just buy the business without your IRA 18 months prior, when you initially bought the business, this is proceeds.

[33:38] Guest: I rebought it. I basically bought the shares out with the business proceeds over that 18 months. So I took the gains from the business over that 18 months and essentially bought out the shares with those gains.

Host: So the business is doing well enough and profitable enough that what it's generating you can take and just put back through and buy out your ira.

Guest: That's exactly what happened. Yeah. And so it's also kind of a nice feeling. So the valuation was higher than I bought it. So the IRA got back more money than it took out. And personally, I feel at this point I don't really have any investment in the business. It's all been paid back. So all of my initial capital has been paid back with returns. Now the only thing I have is I have the SBA loan. But that initial capital has all been as if it was an outside investor. Is if I had an outside shareholder that I paid back but still maintain 100% of the.

Host: But. But that's irrespective of Rob's. That just happens to be your case. Like the equity that you brought to the table.

Guest: Yeah, that's just me. I mean, could I have. Could I have gone in and not use the Rob's account? Yeah. I mean, there were some other options on the table that just seemed like the most beneficial at the time. And Robs has its pros and cons. I totally get that. And there existed a possibility where in 18 months I didn't have the capital to repay it. Right. I mean, if I had not had that early success or if I chose to reinvest the money elsewhere, then I would have been holding on to the Rob still.

Host: And so were you really trying to. This was. This was your plan that you wanted to buy out the Robs, the IRA as quickly as possible. Okay, great. And just to emphasize the point that you made a minute and a half ago, that the equity that you brought to the table has all been. Has all been paid back. Whatever you put in. Yeah. Is all. Is all come back out. Has. You've been made whole. So at this point, it's all gravy. But let's not forget the loan. SBA loan. But if you're looking purely like if you're spread, you know, if you're modeling out what your return on investment has been, your investment is already paid back, correct?

Guest: Yeah.

Host: Yeah. So that's. That's pretty powerful. Great. It's great. On. So maybe now would be the time to ask about the fact, the nature of this business.

Guest: Okay.

Host: That it is residential construction. You all. You were already seeing that it was. Had swings. In your case, you were seeing it on. On the upswing because of COVID But you know, any big upswing in a business or an industry suggests that swings occur periods. Therefore down downswings as well. You probably already recognize that knew that it's consumer. It's discretionary, not recurring. You've been searching long enough. You were, you know, you're a career consultant that you, you know, you understood the, the attributes of a solid, predictable business and residential construction doesn't have those.

[36:36] Guest: Right.

Host: So why did you, and if you were reading, you know, I don't know how immersed you were in search, reading the literature in your communities, but people, you know, talk about, talk about, you know, good business, bad business and residential construction, you know, is one that people are, you know, has kind of red flags around. So talk us through how you got comfortable about this business, about this industry.

Guest: Sure. Well, I think a benefit I had from the earlier acquisition opportunity on a disaster restoration is that I had, I had needed a general contractor's license and so I had acquired that. So that enabled me to kind of jump right in. That was a, that's, that's a big hurdle for a lot of folks who don't already have the GC license to be able to come in and operate the business. So that, that was one benefit that I had going for me to kind of jump in on the technicality side as far as residential home building and things like that. If I, I don't, I don't think I would have jumped in if it was sort of a pure traditional home builder, you know, a small home builder in the market, I don't think that would be a good fit. I think the competition is too steep for that. I think what we do is a niche, it is discretionary spend, certainly. But you know, we've got over 20 year brand reputation, solid Google reviews in the market. You know, we do get a lot of referral calls. I mean, so there was some, there was, there was opportunity for me that I saw to really boost the marketing and how we went to market and kind of grow in that respect. And so it just kind of created some opportunities to show that again. And I said earlier I was kind of betting on the Charlotte market. I, I see all of the business leaders come in, I see major corporations shifting headquarters to Charlotte. And so, you know, every time they say, oh, so and so is going to shift to headquarters to the market. Well, I think, well, that's, that's 100 or a thousand or 2,000 executives that are going to come here and they are our target market. Yeah, yeah. And so, you know, is it, does it have its risks if the market takes a downside course? But I think everything does. I think everything does. And one thing that I've listened to a ton of your podcasts and I certainly appreciate all of them, but the differentiator with me, maybe to some of the folks, is that being in my 40s when I started this process as, versus being in my 20s, is that I see through myself and through my friends the risk of a W2 employee, especially as you get older in your career, 40, 50 years old. And many of them are in and out of jobs, they're expensive, they, they're easy to cut when markets get to, when, when times get tough in individual big business. So I wouldn't go into this thinking that a W2 is a risk free proposition versus going into a business. And so, you know, I, I have a lot of friends, a lot of colleagues that, that are, are in a cycle of looking for jobs and being out of work for six months and trying to find the next thing and, and they're going to be doing that until they're 65 years old or, or when they choose to retire. And so when I balance the two of them together, there's a risk over here of the market shifting. There's a risk over here of being a W2 as you get older in your career because it's not, it's not a risk free proposition.

[39:41] Host: And so you're, you're. Another way of, what you're saying is because you're in your, you're in your 40s and you got friends in their 40s and 50s and watching them in their careers, you know, a young person might think, oh, you know, when you're that age, you're established, you're more established, you've got more experience, you're safer. You know, I'm in my 20s, I don't know anything. I, you know, I feel really exposed in my, in my job and I'm just trying to do the best I can to prove myself and climb the ladder. It must be nice to be higher on the ladder because that's where security is.

Guest: And you're saying I don't, not in my personal experience. And you know, the colleagues and friends that I have, there's always a struggle and, and you know, I think when you're 20, it's a lot easier to hop out because usually you're, your income base is a lot smaller. They can kind of drive a lot out of you, but as you get older that, that dynamic shifts a bit.

Host: Yeah, yeah.

Guest: So that's how, that's how I reconciled it with a Stoneman. Is there risk in it? Yeah, there's risk, but there's risk in everything. And so what, what was, what was best suited for me and what I could manage and my whole consulting career was project based and you know, the revenue and.

Host: Say more about that, Alan. I wanted to draw you out on that because that, that, I mean, you had a career where project based work was the norm. So it didn't seem like this, you know, kryptonite to you. Say more about that.

Guest: Yeah. And so in our consulting services, you know, we were working with, you know, different industries and you know, most of the time if you, if you had a good contract, it would last a year, but most of that they wouldn't sign. Generally more than that, oftentimes a lot less. And so you had to go out there, you had to perform, you had to try to grow the work, you had to try to re up the contract. And so it was, it was pretty regular. When you were sitting, especially towards the end of the calendar year, you're sitting in October and you're trying to project revenue for February and it just wasn't there. And you had to kind of trust the process. I've got the right people, I've got the right systems. I'm doing the good work. It will come. And that's really what we have here. We've got a good brand reputation. We really focus hard on maintaining those client relationships that we work with today, the homeowners, and doing good work for them and getting solid reviews and referrals. And if we keep doing what we can do and do that well, that outside stuff just tends to work itself out.

Host: Yeah. Yep. And one of the reasons we like recurring revenue is it gives us visibility into future revenue.

[42:04] Guest: Sure.

Host: And project based doesn't have that depending their degrees, but give us a sense of like in your case, because, because you've told me offline, like, what is, what is your visibility into. Into 2024.

Guest: Yeah. Our target really is on our sales is about 75 to 90 days out.

Host: 75 to 90 days, yeah.

Guest: And so what happens is if we end up having good times and we're selling beyond 90 days, I will actually try to do perform more with the work faster because we tend to get homeowners who will go somewhere else because they want it done faster. And so you don't want to lose the project because you're not going to get there for 120 or six months. So you want to take that opportunity when you have it. But at the same time, there's a lot of planning process and whether it's permitting or engineering or architecting different designs, it takes us 45 or 60 days to get out there. So we needed at Least that much time, but not too much time.

Host: Okay, Alan, so when did you close? When was the final. When did it become yours?

Guest: So it was April of 21. So from the day I found it to the day we closed with 60 days flat. So pretty, pretty rapid time.

Host: Well, it was. It was slow, slow, slow, slow, slow, fast. Right. Like so many things in life.

Guest: That was. That was pretty much. Pretty much it.

Host: Great, great. Okay.

Guest: And this April will be three years.

Host: This April will be three years.

Guest: Okay, Right.

Host: Well, so once you got in there, what did you find? Give us a. Give us a sense of what the transition was like with an eye toward what you saw as opportunities.

Guest: Sure.

Host: To improve, grow the business. Yeah. So

Guest: when I first got here, I had about. I think we probably had about a 60 day transition planned. Prior owner would have stayed on more if I needed him. The unique thing about our business is that because we do project based work, really within 30 or 45 days, not all on the same project, but I saw the beginning, the middle, the end of everything.

Host: Right.

Guest: So I'd kind of seen some version of soup to nuts of it all. So, you know, really got engrossed quickly. I think, for what I saw as the opportunities. One, our project management team was stretched pretty thin at the time. And what that does is it just leads to inefficiencies in the field. Right. That they're not able to check up on projects. Projects start to make mistakes, we have to do rework, and that slows things down. So we brought in an additional project manager, really focused on operational efficiency. I will say last year's revenue was pretty close to on par with 20, 23 was pretty close to on par with 21. And we did it with five teams instead of six. So we were able. And that was just, you know, reducing the rework, reducing the wait time, you know, kind of the operational challenges that we had also.

Host: Wait, sorry, sorry. Alan, you. You suggested that you guys, your team had been stretched thin.

[45:04] Guest: Yeah.

Host: But now you're saying that two years later you have a smaller team but the same revenue, which sounds like an even more thinly stretched team. Well, what am I missing?

Guest: The challenge was I used to have two project managers each running a total of six teams, and they were stretched out between all of those. And so I brought in three project managers, brought an additional one, and now they collectively run five teams.

Host: Gotcha.

Guest: And so they are able to spend more time at the project to make sure that the folks on site have the material they need, are more efficient. What was happening before is Material was delayed, so crews are waiting around or we were just rushing between jobs so we missed something and instead of taking a left, we went a right and then we had to go redo the work. And so you just kind of had some of those mistakes that would come up by having our management team stretched then.

Host: Gotcha. Gotcha. So more management layer enabled, less crew layer.

Guest: Yeah, yeah. We're able to kind of achieve, you know, similar, similar revenue with, with and you know, ultimately the homeowner's happier. Right. We get in and out faster. We have less mistakes on the job which you know, we never admit to being perfect. Everything we do is custom, everything. And so there's always going to be issues and mistakes and things we have to correct and we work through that. But the less we can do overall would be. Is nice.

Host: You had told me that digital marketing was not something that had been embraced under the previous tenure. Owner's tenure.

Guest: That's right. Yeah. They were running off of some home built websites and actually the website was not really much of an issue. But there was no search engine optimization. There was a couple of really weak Google Ads that were out there that I had no idea how to drive lead flow. I would just say spend more money on Google and hope more leads come in. So I ultimately outsourced all that to a third party. So they, they build our website, they do regular updates, they handle social media, they do search engine optimization and, and, and, and ultimately we're at one point hosting their CRM tool, which we didn't even have when I first got here. The CRM tool was a stack of paper and with each customer on it and the stack of paper would get shifted out between sales teams and they had a notebook and I had no idea how many leads they had or who they were calling on or if they had forgotten somebody. And I really had no insight into what was going on. So been kind of pulling all that tight together and have been really satisfied. And I think you had the COVID rush and that has probably leveled out. And I talked to our vendors and so forth and they're slower than they were. We've stayed steady and I really attribute that a lot to really focused on driving that marketing, making sure that we're the number one or number two on the search engine, that our Google Ads are functioning, that our meta ads are functioning, that kind of stuff.

Host: So Your revenue in 2023, the, the year just ended is about the same as 2021.

Guest: Yeah.

Host: Which superficially suggests no growth, but really the industry has probably Seen a decline and you've held steady.

[48:05] Guest: Yeah.

Host: And as you said, you've become more efficient. So you, you're doing the same amount of work with five instead of six teams. So. So.

Guest: And we did grow that first year, so we're already up. We're averaging about 6, 4, 6 5,

Host: 6, 4, 6, 5. And it was, and what was it when you took over? Did you say 5.5? Yeah, five and a half. Great.

Guest: So we kind of had a big stick growth and now it's leveled off a bit. But yeah, I would expect, I would, yeah.

Host: I mean, if you can, if you can, you know, be in a, in a, in an industry with a business that was a direct beneficiary of COVID Like, like doing home stuff at home. Building out home. Building out home projects.

Guest: Yeah.

Host: And then maintain that, you know, that's the new normal for you as opposed to a decline like an E commerce business, which. See that. Which saw these incredible spikes and now these incredible valleys. Yeah, that's a, that's a big win. So you're psyched.

Guest: Oh, yeah, I'm happy. I mean, you always have, you know, dreams and goals of doing more, but I also, again, 20 years of consulting businesses, I've, I've seen these small companies, the revenue never goes straight in that angle you want. It goes up probably faster than you want and then flat lines and then up faster than you want. And as long as you can keep the flat periods short and reduce any down periods, you know, have to wait for the really good years to boost it to the next level.

Host: And your margins, you said somewhere. I didn't write it down as you were talking, but it was teensy, but, but all maybe. But north of it got to north of 20, what do your margins look like?

Guest: Around 18 and you know which is, which is better. You know, if you, when you talk about home building, things like that, that's, that's far better than a home builder would get. And so that's why the niche market kind of is a, is a, a bit of a benefit there.

Host: Yeah. And you know, 18% of six and a half million. Nothing to sneeze at there. It's pretty great.

Guest: Yeah.

Host: Is six and a half million or five million when you bought? Five and a half million when you bought it. Is that a pretty big, this niche market? You'd said that you're kind of one, two and in terms of brand. Yeah, in terms of size.

Guest: Yeah, it would be. We would. We're definitely near the top. I think that it gets a little Blurred when you include some companies. Our industry do a lot of maintenance, a lot of landscape maintenance and landscape installation, which we don't do. And so there's some companies out there that are certainly driving a lot more revenue. But there's a big arm of it that would be either commercial or residential landscape maintenance. And so that would kind of be a differentiator or folks that are doing larger commercial jobs. But the margins wouldn't be there for that. I mean, I, I've bid on a couple of commercial jobs, more just to dabble in it. And it's, it's a, it's just not worth it, frankly for us to do really. Yeah, yeah.

Host: Well. And what about services? Some sort of recurring. I, I recognize that you'd have to spin up an entirely new division of kind of landscape services. That's a, frankly a different business. But you're, you know, you're touching a lot of your end customer already. You could see, you could see that as a way to go. And, and I feel like guests that I've had who have bought businesses that are project based, you know, their grand strategy of buying the businesses is to then diversify away from project and into more services to build a recurring component into the business. Doesn't sound like that entices you at all.

[51:28] Guest: Well, I would say that there is an enticement to have a recurring revenue business, but I haven't figured it out. And it's not residential maintenance. Again, that's a hard place to compete with. Margins are really thin and for us to do it in a material way that would have an impact on the balance sheet of the company over the long run, it would be taking the eye off the ball. I'd rather focus on some areas that we can grow in that we don't currently service in our space to really round out our offerings and that would be more project based. And you know, we don't really do a lot of installation of the full landscape. So we'll outsource some of that. We, you know, so if we brought that in house, we could, we could still continue to drive good revenue off of that and decent margins and not be stuck with the maintenance. And I don't, I don't find too many folks and I don't think there's too many on your podcast either. Most of them are doing commercial maintenance versus residential. That's a. Residential is a tough business.

Host: Any. You know, I'm getting the sense, Alan, that this has been a pretty comfortable. I don't want to, I don't Want to downplay hard work and your hard work, but a pretty comfortable transition in your, in your career to small business owner, business buyer. Were there any down moments that I, I. That were really tough? Any fetal position moments?

Guest: I don't know if we were full fetal position. I think there was, there was some stress at the, at the beginning. You know, I had, I had gotten some really bad advice on, on managing the QuickBooks transition. And this is a company that lives 100% on QuickBooks. All of our estimates are in QuickBooks. All of our invoicing is on QuickBooks. I mean, it is, it is the lifeblood of it. And we got to a point about two months in, probably less than that. When I realized it, I had to shut QuickBooks down. I had to pay a third party to essentially rebuild it. And we were on pen and paper for three weeks. Had a couple of, for a variety of reasons, not necessarily new ownership, but had a couple of drivers leave. One project manager quit, and then my office manager, who's helping with the QuickBooks transition, her husband took a job in Florida. And so all of a sudden I'm kind of offline on my accounting system. My bookkeeper needs to leave. I got driver's leaving. So that was pretty stressful for a little while. Thankfully, I was able to keep on our bookkeeper. She's still with us. She does everything remote now, which is a big change from the prior owner. The prior owner had not been in a big corporate environment where people were working remote and probably wouldn't have been okay with that. In fact, he said he wouldn't have been okay with that. But. But it's worked out for us. And, and she's, she's been great. And so being flexible on some of those situations. I joke. It's flexibility. At the time, I don't think I had a choice, but we made it through. We made it through.

[54:27] Host: Do you think that there weren't any bad surprises or fetal position moments because it was just a quality, a quality business? I mean, it seems like there was plenty of stuff to improve, but there was, you know, you got good crews that you like and nothing that, you know, hit you upside the head when you got in there as a surprise. The seller was, you know, in your community. I mean, do you think that that's why it kind of was as smooth? Granted, not fully sure, totally easy and smooth, but as smooth as. As it was because it can certainly be choppy.

Guest: I mean, I think that's a big factor. I think a big factor, too, is that Our, you know, my personal motivations and mission aligned with the company before I got here. So, you know, what are those? Well, so we kind of. We, and we go through this every Monday that, you know, we're here to be the best outdoor living company in Charlotte by improving the lives of our, our team, our community and our customers every day. And we talk about core values of extreme ownership and listening care. That family is a blessing. So my team has never worked a weekend since I've been here. They get time with their family and do the right thing. And we meet every Monday and we go over those values and we talk about ways we met those values the prior week and we talk about ways that we didn't meet those values and how we can improve. And so it's a, it's that constant repetition of how we can learn from our mistakes and do better and, and be open and honest with each other when we do have mistakes. So there's really. Nobody's really hiding anything. And, and I think that really helps kind of keep things moving along. And I think the fact that the prior owner and mine values aligned in that it just kind of flowed right through. And I, they, they were printed on the wall when I got here and they remain, and they'll remain forever, as far as I know.

Host: Yeah, well, but it sounds like you, you are. But you've got this Monday kind of ritual where you're reinforcing and being really repetitive. And you know, one of the, the jokes about being a good leader is at least in a corporate context or business context is, you know, if you're not repeating your, the, the mantra, whatever it is, the values or the mission to the point where people are kind of rolling their eyes or making fun of you, you're not doing it enough sort of thing. But it sounds like, I mean, repetitive was your word. So it sounds like you really, you really embrace that approach to leadership and then it's, it's working.

Guest: Yeah, I totally believe so. And you know, a lot of that was the prior owner and that was the value of the business, you know, beyond the, the pnl. Right. That really kind of shown through a

[57:08] Host: few more minutes here. Alan, let's hear like the day to day what it's like to actually be in a business. So, you know, we've picked at the health or the, the, you know, why a business like this is appealing or not.

Guest: Yeah.

Host: And we've heard your perspective on that. But what about just the kind of the day to day. So paint a picture for people so they can Help you know, imagine what it would be like to, to actually buy and run one of these businesses. And let's start with the licensing. So you had gotten your. Tell us all about what the requirements are for a gc, getting a general contractor's license and why you need it and then how much, you know, actual expertise you're bringing to bear in your job, in your ownership today.

Guest: Sure. The general contractor's license, the qualifications vary by state. So I can't speak to, you know, folks everywhere. Generally requires some form of exam that you take at one of the testing centers that you know, you see all over the country, whether you're taking real estate brokerage license or, or general contractor's license. So you pass that exam.

Host: And Alan, it's, and it's all about basically being handy building stuff. I mean I'm really ignorant about this.

Guest: I mean it's so, it seems like

Host: so technically questions about drywall and it's

Guest: an open book test, but you take, you take 15 books in there. So you got to know where this stuff is. And they've got blueprints and they'll ask questions about the blueprints and how much material takeoff you need and what are, what are co specific code requirements and things like that. So it takes a lot of prep work up front to kind of understand where everything is. Nobody memorizes all of it up front. I will say that the real premise and why the states look to a general contractor is not so much that you know everything about everything about code, but you know where to find it and you can follow it because you know, you'll have inspectors come in and they're checking behind you so you don't, you can't get too far off the track. But ultimately it's that are the general contractors capitalized in such a way that it's unlikely you're going to get halfway through a project and run out of money and leave a constituent really of the state stranded with a half done project and no money. And so that's a lot of what they look for. Not so much whether you had prior knowledge or skill, but do you have the skills to run the business? And there's a lot of business questions in there. You know, how to operate, how to pay employees, how to pay your taxes, et cetera. And can you, can you functionally run this business in a way that you know, should properly be able to satisfy the obligation to the homeowner that they paid for? So do I have a ton of direct knowledge? No. I mean I certainly relied on the team as I came in, you know, there's certain projects that are going to require engineering. So we get, you know, full stamped engineering drawings to build to. So it's not as if we're coming up with it on our own. Following the code book and the experience of the team here, is there a lot to pick up? Yeah, but I think any business that you're going to buy is a lot to pick up. So for me, most of my day is, you know, I've got an operations team and I've got a sales team. I spend a lot of time with the sales team. I ultimately approve all this. The final estimates that go out the door to make sure we're making proper margin and so forth. But this, we've got a project director who's been with the company for a decade, who's fantastic and he works with that team on a day to day basis in the field, making sure that they can deliver on what we're, we're building out there.

[1:00:34] Host: And you're not interacting directly with the homeowner. So all your various frontline people, be it sales or on one side or project on the other, are doing that.

Guest: I do pick up sales, although I'm trying to continue to push more of it away. So there is some of the projects that I'll sell, some of them are usually special case. Maybe I had a personal relationship or it's technically complex or something like that that I'll get called in to kind of work on it. There's a lot of homeowners that I don't meet. Certainly wish I could sometimes just the capacity to be able to be out there all the time and do that. So when I do meet them, you know, unfortunately, sometimes it's when things aren't going so well and they'll ask to meet and you know, we'll kind of meet and work through things and I'm always willing to do that and step up. And you know, I, I tell the homeowners, I'd say that, you know, ultimately the buck stops with me. So if it's not going well in the field, I'll make sure it gets taken care of.

Host: Well, you, you certainly seem relaxed about it, Alan. But, but you know, let's. What about those times where, you know, this is a very big spend for homeowners, it's in their home. So it's, as we all know, people are extremely sensitive about their homes, as I would be, as you probably are about your own home. So I imagine there's really, can be some Unpleasant moments where somebody's not happy with something that's going on in their home. It's cost of doing business. But anything like more to say? I mean, do you have a temperament, the temperament for that or is it, is that one of those, like, if you can't handle an unhappy homeowner every now and then, stay away from this business? You know, what are the most unpleasant kind of parts of running a business that's kind of basically construction, GC business?

Guest: Yeah. Well, you never want the homeowner to be unhappy. But the challenge is, is that when we're doing custom work, you know, we try to replicate kind of creative vision and then build that with the customer. The reality is, is that two people's visions are never exactly aligned. And so they sometimes will think it was going to be this way. We thought it was going to be this way. And sometimes we get a little bit sideways. You know, we do our best to figure that out. Most of the times we can get through it. And, you know, there, I would rather take on a little bit of expense to fix the problem and end up with a satisfied customer in the long run than deal with that. We, you know, we've always offered a five year warranty on our work, which is much longer than most of the industry would provide. And a lot of times it's just a year. And so we, I've got people on staff and we do that every week. We just go out and fix things and folks are surprised. I mean, and if we're, if we're doing pretty well, sometimes we're out there within days and they'll call, hey, I've got this minor problem. And sometimes it's the next day we're out there fixing it. And it's just, it's just a great customer experience to kind of drive that forward. And it really doesn't cost that much in the grand scheme of things. Yeah, yeah. So that helps. I would say that, you know, again, you know, in prior career, I don't, I don't imagine anyone's got a career out there today that they're not dealing with unhappy customers at some point in time. It was always a fear of mine, especially when I took over the business. You know, people are spending this amount of money in the back of their home and then the new guy comes in and you're trying to articulate like, wait, I'm spending $100,000 or more in my backyard and you were doing what last month? Yeah, so that was certainly a risk factor. But I worked hard to Overcome that. I tell the team I consider our Google reviews. It's that fortress, right that you continue to drive good Google reviews. And then if you do have a customer that's not working out and they decide to get online and say things, you know, whether they're true or not is irrelevant. It gets out there and you know, the more we can kind of build that five star review criteria, the, the more drowns out those customers who, who, you know, we just can't come to terms with for some reason. But yeah, thankfully it's been three years and still all five star reviews. So.

[1:04:28] Host: Congratulations Alan. That's great. A couple more kind of technical or financial aspects of the business that, that make it appealing and strong negative cash conversion cycle. Tell people what that is and why it's great and how you have it.

Guest: So you know, I told you we meet every Monday and, and part of that process is the way our business works is we take an upfront payment, a deposit on the project, about a third, generally about a week before we start. We've got some smaller deposits before that. And so we are collecting a third of the money up front. And then every week on that Monday meeting we meet and we go through billing, which is just a great practice to make sure are we billing, are we collecting? And that's a weekly ritual to make sure that cash is, the invoices are going out and the cash is coming in. And so we bill progressively along the way. The more work we do in a week, the higher the bill might be. So customers are going to get two, three or four bills depending on the size of the project along the way. Bigger projects might be more spaced out. So that makes sure that we are always collecting as we do the work. As I pay the crews, we're collecting that money in and then typically by the time we get to the end of the project It's a small 5% or so that remains, that really remains and is at risk, you know, of potentially not getting it at the same time. I've got, you know, net 30 terms or so on most of my vendors. And so you know, I'm buying material on credit, I'm collecting the money, I'm doing the work and then 30 days later I'm paying the vendor. So it's, it's a fairly flexible in that extent that you know, our average, our average invoices outstanding usually is about eight days worth of invoices on any given.

[1:06:15] Host: Well, that was the next metric I wanted to get to the dso, which was not an abbreviation. I'd heard before.

Guest: Yeah.

Host: Tell us what DSO is and elaborate. Yeah, what you were just about to

Guest: say, that was a metric we used in consulting days, statements outstanding. So how many days you know, can you calculate for your revenue outstanding? So if, if, for instance, you're doing $12 million a year in any given month, that's, that's a million dollars a month. So if you have a million dollars in accounts receivable outstanding, you would have, you would, you'd say I'm a 30 days DSO. If you were at half a million, you'd say I'm at 14 days. So at any given time, we've got about eight days of our annual revenue out and accounts receivable. Right. Whereas in a consulting field, it was pretty typical to be 30 or 60 days out. So you're sitting on cash waiting to come in for an average of 30 to 60 days, where we're sitting on an average of eight days. And it's not uncommon. We will speak in our Monday meeting and we'll send out invoices. And our office manager in Florida, she'll send out invoices as we sit there, and I'll get pinged before the end of the meeting. The payment's made.

Host: That's great.

Guest: So, yeah, so that's definitely helpful to kind of keep things going and doesn't get us too far in a pinch with a customer who may not want to pay or may hold us out until the end.

Host: I think the other thing to say about your business is that it's clear with the ticket price, $50,000. What did you say, the median of 65, $65,000. Job, medium price, 70,000. These are, these are well to do customers. So they're people who have money. And it's always nice to serve a market where there's money.

Guest: Yeah. And, you know, beyond the money part is that we get to go out and build these spaces. And I can't tell you how many of them are thrilled because now they spend time with their family and their friends. And, you know, we build spaces for families and community to come together ultimately, which is, which is kind of a nice feeling. So there's a lot of things, you know, H Vac might be fairly regular business, but, you know, there's nothing you still, at the end of the day, are having to fix somebody who's in dire circumstance because the heat's out or the AC is out and they're, they're spending money they didn't plan for, don't want to. But while there's risk in the discretionary spend. It is a nice feeling to be able to do something for folks and kind of create that environment that they can. They can enjoy with their friends and family and really, really enjoy. And they'll send us pictures afterwards of them sitting around the fireplace with their kids cooking s'. Mores. And at night, right up to Google reviews, baby.

Host: Yeah. Upload those photos.

Guest: Yeah, that's great.

Host: No, that is. No, of course that is great. That is great. And you know, I love sitting around the fire like everybody. So being the one to kind of create. Be able to create the environment for a family to be able to do that, I could totally imagine that being really gratifying. And, you know, a broader point about discretionary businesses that are providing a discretionary service versus a need to have service. Yes, we, when we're just looking coldly at the. The. How robust these businesses are. The need to have is, of course, where you want to play, but the need to have is often things that people don't want to be spending money on, they're compelled to spend money on it. So they're not necessarily happy about that. And the discretionary. On the discretionary end of the spectrum, it's things people want. And therefore, when you deliver the service, they're happy, they're excited. And so the whole kind of psychic vibe of the transaction is different.

[1:09:50] Guest: Yeah, yeah. There's definitely a good feeling about it at the end of the day. And you know, like, we. We go through all projects and they all have their ups and downs, but ultimately, you know, we feel pretty confident just about every time. They. They're. They're much happier with the space than they used to be.

Host: Yeah, that's great. Just a couple more questions on your business and then I'll close this out. The. You had said that you're. You run pretty lean and you've got crews who are doing. Doing the work and. But these are subs.

Guest: Correct.

Host: So just kind of a light education for people on what a construction business might look like. That you have either internal crews or that you're. That you're subbing them out. What are the kind of pros and cons? How to think about that if somebody's looking at a sim for. For a business like this and they see, you know, a lot of sub to work or, you know, not all the team is all internal.

Guest: Right. You know, I think it depends on the relationships with your subcontractors. If. If you were a smaller business that couldn't support them full time and you're kind of going in and out of usage, and they're spread thin between or they're spread across multiple general contractors. It would be more difficult. The pro for us is that it helps manage cash flow. Right. If we don't have work, we're not spending money on employees at that point. The other pro is that that's why you do it.

Host: That's the key reason why you do it.

Guest: That's right.

Host: Why one would do it.

Guest: We also pay them a fixed rate, not hourly. So we pay the firm, the mason firm, a fixed rate to do the project. So they're incentivized to be as expeditious as possible to finish the job. Whereas if you had hourly employees, you would also have the challenge of how many hours you're going to bid on the project. Are the crews efficient and effective, and their motivation necessarily financially is to spend a lot of hours on it, not necessarily how fast they accomplish. And so it sort of aligns incentives on both sides to make sure that we're as efficient as possible. We do make them do the repairs so they don't. They don't get an advantage by rushing and making mistakes because they're going to have to go back and fix it. So there is a balance there. And that's why we have the project management team that's going to go out there and effectively manage them. You know, so it's, you know, most construction industries are going to run in that manner, but there's certainly some that have some of their teams or more teams in house versus external. I think it's going to depend on relationships. One of the ways that we're able to keep them is that I pay them for the week, every week. And so they, they know that that paycheck is going to be weekly and it's going to be steady. And that's something that they really need and appreciate, and that keeps them really steady and wanting to work for us versus holding them out for two weeks, three weeks or longer. They're having to pay their crews and they get tight on cash.

[1:12:38] Host: And what is the flip side? You've made it sound like, why wouldn't you just be using subs? There's got to be a con.

Guest: Oh, the con is ultimately you don't have full control over them. It's hard to kind of motivate from a career growth perspective. So there's that side of things that you can't necessarily do, but it is the trade off on the other side. These teams have no problem getting more employees if they need to grow I've never had a resource problem with them. They're always able to find and guys that are good masons that can help out. So the community is pretty robust in that sense, and that really helps us.

Host: And so the 12 employees that you have, 12 employees proper, are all back office or not back office, but. Excuse me, back office, plus sales and project managers, Correct?

Guest: Yeah.

Host: Yeah. Great. Okay. And then the weather. We. We touched on that before we hit record. Weather's a function when you got people working outside this. For some reason, I don't know that this has ever come up with any of my guests, but it's staring me in the face. So you are subject to the weather. So you can have a rainy week and lose money. Talk to us about that.

Guest: Yeah, we can have a rainy week and lose money. That's pretty much it. Yeah. So obviously, most of the time, we can't do a lot of work in the rain. There's certain tasks that. That. That are a little more functional. It is a blessing to be in the Charlotte market farther south. So we can work full year round. Yeah, some of these firms that would be in New England or in the farther north regions, they just shut down. I mean, they couldn't do work at all in the winter. So we can work year round when it does rain. Yeah, we pack it in. There's days that the guys aren't working. On the other side of having subcontractors is. I'm not footing a bill for a bunch of employees who aren't doing anything that day, which is helpful. We generally work five days a week, but the crews, especially if there's a rain day that week, will ask the homeowner if they can work on a weekend and try to make up that time. So there's a good amount of time we can make up in that fashion. Not always, but. But we can work that Saturday or Sunday to. To kind of make it up. I would say most homeowners are. Are more than willing to let us work extra days because, you know, at this point, we've torn up their yard and we make a bunch of noise and dust. And so if we can finish faster, they're perfectly fine with that.

[1:15:04] Host: Yeah, yeah, yeah.

Guest: So. But it is impactful. First quarter is usually the worst. On the other side, by August, it gets really hot and the crews just aren't as fast. But it's hard to be doing the work they're doing any day, much less when it's 95 degrees out.

Host: Yeah,

Guest: but. Yeah, well, there's a challenge. But it's kind of built into the model though. Right. Well, when I bought the business, weather was here. So I knew going into what the revenue and the margins would be weather, considering that has not clearly materially changed. You know, they're always going to be rain days. That's one thing for sure.

Host: Alan, anything about the nature of this business or being the owner of this business that you would want people to know that I, we didn't touch on.

Guest: I think we covered on. On quite a bit. I think, you know, ultimately what bought me into this is, and, and kind of going this path was, was the people, you know, found a great owner. Great. That I already knew, which is serendipity for sure. But, you know, luck favors are prepared as well. The team is great. You know, the support from my family, my wife is. Has to be there. Right. I mean, it's. This is. I think you had a guest on prior to this. This is not, this is not a W2 job where you can go in and maybe you don't like it and you can quit two weeks, you know, with two weeks notice. This is, you know, jumping all in with both feet and kind of everybody around you has to be committed and okay with that. And, and part of it and the fun part and the challenges, you know, that I think is frankly just going home at night because it gets really exciting. And I could probably stay here till midnight every night, enjoy the work I do. But I do try to make a hard stop and get home and spend time with the wife and have dinner with the family and make sure that stuff still happens because it's always here and it's endless and it's enjoyable.

Host: Sounds great, Alan. Sounds great. You know, I get, I get sick of hearing the phrase come out of my mouth and others. It's not all unicorns and rainbows, but sometimes, sometimes it works out really well.

Guest: Yeah.

Host: It sounds like a great thing that you've done for yourself and your family and your. And the business you bought.

Guest: Yeah. Again, great people, great fire ownership, kind of setting things up and, and being patient. Right. I mean, it's. I was never in a rush to buy a business in six months and if I had, I might have made different choices. It may not be happy. So it's just a, you know, waiting around. There's lots of businesses for sale, but there's not, there's not as many worth buying.

Host: Yeah, well, and particularly again in your category. Yeah, I mean, I can go on biz buy sell now and see a lot of remodeling. Type businesses, home construction type businesses, then that you really would. They really are dangerous businesses to get involved in. So even though you bought one of those, you found a really good one, a really sizable one, and one where you knew the owner. All the things we've touched on.

[1:18:02] Guest: So, yeah, great.

Host: And one with a great brand, you know, the Stone Man. So everybody. So have you fully, have you fully embraced the mantle of being the Stone man or do you still think of the other guy? The seller is the Stone Man.

Guest: I think I fully embraced the mantle. So the prior owner was, was Scottish and early. Well, early on a lot of the, the marketing in the advertising spend would be pictures of them in kilts

Host: and

Guest: it was very kitschy. But he will say, you know, it drove a lot of early on traffic because it was, you know, it was memorable. And even, even prior to me taking over, they started to get away from that because they wanted to kind of, you know, kind of increase the brand. But there is kind of that backdrop. I'll still find old pictures and things like that with guys in kilts and, and anytime my friends ask me to, you know, do I still have it, I just let them know. It's. It's at the dry cleaner. I haven't been able to find that one.

Host: Well, that's great. Let's end it there. Alan, if people want to reach out with any questions, what's the best way to do that?

Guest: Sure, they can reach out on LinkedIn. And the other option is, is at our corporate address, it's Allan A l a n@stonemanrocks.com Storm man rocks. That's great. Yeah.

Host: Alan Lockridge, thank you for the time. Thanks for sharing your story.

Guest: Really appreciate it. Thank you all. Thank you for allowing me to come do that.