[00:00:00 - 00:06:03]

Will Smith: Today's guest is a search investor, a thoughtful observer of ETA and SMB acquisitions, and himself a successful exited self funded searcher. Andy Rougeot bought a blue collar business, gate service and maintenance for self storage facilities. Andy's initial plan was to grow his business horizontally by offering similar services in adjacent markets. When he saw that wouldn't work, he looked to geographic expansion as the answer and he figured out a way to stand up remote territories of his business across four other states. His formula for doing so is one of the key takeaways of this interview and Andy believes it's applicable to other blue collar businesses.

It's a playbook that enabled him to grow from $2.5 million in revenue to $9 million in revenue, at which point he exited to a private equity backed strategic so that he could run for mayor of Denver. He came in 4th of 17. I mentioned that Andy's an investor and he also generously brought data from his 26 primarily self funded search investments and he shares his takeaways from that portfolio. It's a fascinating cross section of search investing. We actually review his spreadsheet live.

So if you're listening to this, consider watching the interview on YouTube where you'll be able to see the spreadsheet as.

We talk about it.

It's a clean 26 rows showing performance of each individual company in the portfolio. We appreciate the transparency Andy brought to his story of buying, growing and exiting a blue collar business and to his.

Track record as an investor.

For more Andy, watch his webinar from September entitled Liquidity Options for Search Investors.

You'll find that at acquiringminds.co webinars.

Okay, here he is, Andy Rougeot, former owner of RG Maintenance and current GP at Search Fund Secondaries Group. Are you drawn to the opportunity of small business acquisition but don't seek to acquire a business yourself? Well, tomorrow, Tuesday, Nicholas James, my partner in Mind's Capital, is hosting a webinar about investing in not leading small business acquisitions.

You'll hear the occasional guests on Acquiring Minds talk about investing in search deals. Well, tomorrow's webinar is your primer on how to begin doing that yourself, how to build a strategy around SMB investing, how to generate deal flow, how to diligence and what it looks like post closing with board seats, reporting taxes, etc. The webinar is how to Invest in SMBs Without Buying One Yourself. It's tomorrow, Tuesday, December 9, noon Eastern. Link to register for the webinar is right at the top of this episode's show.

Notes or or on the Acquiring Minds homepage. Acquiringminds Co. Last month Tim Erickson of Shareholder Ventures and Acquisition Lab presented a primer on the financial anatomy of a self funded SBA search deal with investor equity. Lots of definitions and theory was covered including pref rate, step up waterfall and much, much more. Well, this Thursday, December 11th, Tim returns for part two of this popular session to walk through a financial model row by row.

You'll learn how pref rate, interest rate, step up debt and equity all work together. You'll learn how to import your own deal into the model, how to create a base case, bear case and bull case sensitivity analysis. What happens to your acquisition if revenue.

Declines 20%, for example?

The webinar is how to model an investor backed search acquisition and it's this Thursday, December 11th noon Eastern.

Link to register for the webinar is right at the top of this episode's show Notes or on the Acquiring Minds homepage.

Acquiringminds Co Foreign.

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 Looking to secure an SBA loan to buy a business? Meet Pioneer Capital Advisory your Go to Partner for sophisticated buyers who want deals closed quickly and on the best possible terms. The Pioneer team has closed more than 100 SBA loans, averaging timelines well below industry standards.

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Andy Rougeot welcome to Acquiring Minds.

[00:06:03 - 00:06:06]

Andy Rougeot: Thanks for having me.

[00:06:06 - 00:06:32]

Will Smith: Andy, I met you first related to your investing activity. You invest in search secondaries.

We're going to hear more about that later.

But only more recently did I hear.

Your own story of buying, growing and.

Exiting a business that you bought with an SBA loan.

And the story is a perfect one for our audience here on Acquiring Minds. Please start us off Andy, with some background on you.

[00:06:33 - 00:07:27]

Andy Rougeot: Sure. So I started my career as an army officer. I commissioned through ocs, which is Officer Candidate School. So that meant that I had a normal college experience and didn't have to go through the academy like so many of my fellow officers. I was an intelligence officer initially stationed down in Fort Carson in Colorado Springs.

Spent some time overseas with the Rangers. We're protecting Kabul, the capital, from large suicide bombing attacks and came back to the United States and then ran a drone platoon for a little bit of time. That experience was good enough to get me into hbs, to Harvard to go get my mba. While at Harvard, I thought I was going to be a consultant like many sort of veterans coming into to Harvard. Spent my summer at McKenzie.

Really didn't like it. Didn't like the work, I didn't like the culture. And heard about ETA in the beginning of my first year at HBS and then really dove into it in the second year.

[00:07:27 - 00:07:32]

Will Smith: What didn't you like about the McKinsey culture? I'm not going to leave that dangling out there.

[00:07:32 - 00:08:46]

Andy Rougeot: So I thought that there a really strong focus among McKinsey consultants or how good McKinsey consultants are. In a lot of ways, it's how good they are compared to the people that they are supporting. Supposed to be developing. So we had a horrible incident on a cell visit I was on with my spouse where the bus driver handed his resume to the recruiter in front of one of the partners of the firm and said, hey, I don't really know what you guys do, but I'd really love to be part of this team. And then after the bus driver stepped out of the bus, the recruiter stood up and mocked this bus driver for how dare he think he is good enough to join McKinsey in these hollow halls.

That really put a sick feeling in my stomach. I think aligned with a lot of the issues I saw with the firm more broadly in terms of how they treated their customers and treated people who they thought they were better than. And I think the cool thing about search is you really get to build a culture inside the company you buy. So if you're buying a blue collar business like I eventually did, you can have a really big impact on those people's lives to you have higher wages, you know, introducing benefits and just being a good boss. And it gives you a chance to really, you know, grow the same, you know, employee base that I had in the army where I had a bunch of blue collar soldiers.

And running a blue collar business is a lot like that.

[00:08:46 - 00:08:51]

Will Smith: Did you set out to buy a blue collar business specifically? I'm jumping ahead a little bit, yeah.

[00:08:51 - 00:09:55]

Andy Rougeot: So after graduating from hbs, I did a geographically focused search. So I knew I wanted to live in the Denver metro area because my wife worked in the ski industry and that was sort of one of the few metro areas you could have that job.

So when you're doing a geographically focused search, you have to be pretty industry agnostic. So something where I did look at white collar and blue collar firms. I strongly believe military veterans are just more adept at stepping into blue collar roles because we are very used to sort of day one, when you take over your platoon, you are a 22 year old, 23 year old with no experience at all. And you have to stand in front of that group of 20 to 30 mostly men, and say, hey, here's why I'm in charge. And I could potentially order you to charge a machine gun nest.

And they have to follow that order. And it teaches you a lot about how you first have legal authority in that case, same thing as a business owner, the ability to fire. But then you have to actually grow and earn that moral authority to make that order and to be an effective leader. I think that's a experience that every junior officer has of being someone who is inexperienced, but it's in charge. And that translates really well to the search world.

[00:09:57 - 00:11:04]

Will Smith: You know, that point on the legal authority is actually an interesting one because obviously people who don't have that military experience can't. Without getting it, they can't get it. So that one's, that one's lost. But we hear about this a lot in search where veterans are particularly well suited to it because of the leadership that they gain, the leadership skills that they gain in the military, and that those who don't come from military backgrounds don't have that. And often.

Despite the fact that they are the owners of the business and have the legal authority to hire and fire, don't necessarily feel that. And, and I've, and I've, you know, I've heard it said that while you do gain a lot of leadership experience in the military, let's not forget that when you're in the military context, you also have the full force of the military apparatus kind of supporting you. So there's this entire culture and infrastructure of hierarchy in command. So it is about you, but it's also about a system that you're stepping into that supports you as leader.

[00:11:05 - 00:12:46]

Andy Rougeot: I think that really depends on the units you're in.

So like I was lucky enough to be in sort of alone and afraid units where I was given very large leeway without significant reporting structure. And I think that's true in certain communities in the military where you really, you are Put in situations where you're given task, purpose, standard and very little oversight. And I think that probably is more helpful versus you have some military careers that are much more nestled in a big organization the entire time. I think less so. The teaching how to lead, it's more, it's teaching culturally how you should be a leader.

And that's the servant leadership aspect that's saying, hey, whatever is the dirtiest, ugliest, most painful job, I should be out there doing that. And I think that's very correlated with searcher success, especially early on. And like the canonical example is you should be plunging the toilets if they get clogged. Sure. It's, you know, my business was going out and mixing concrete, being the guy who's unloading the toilet, 25 bags of 60 pound bags of concrete off the truck into the wheelbarrows to the location on the job site.

And I think veterans just have that gut instinct of like, if I don't know what to do, find the dirtiest, sweatiest job and go do that. And that's something where I think sometimes more financially focused searchers can say, if I don't know what to do, I should model more, I should just plan. And there's a great Eisenhower quote which is plans are worthless, but planning is essential. I think sometimes people get too sucked into doing that when they have a decision they need to make. While military leaders are more likely, if I have a decision I need to make, commit to action of doing whatever those dirtiest thing to do is.

And that's not always the most value creating, but is always the most sort of culture slash, you know, morale building. And I think that helps in the protection on downside scenarios in these deals.

[00:12:46 - 00:12:51]

Will Smith: Interesting. So if you don't know what else to do, find a dirty, thankless job and go do that.

[00:12:51 - 00:13:09]

Andy Rougeot: Yeah, because at least you're building credibility from your employee base.

And that building credibility from the employee base is when you make another stupid decision, which I made money running the business, they give you a little bit more grace on that if they know that, you know, you're covered in grease and you're out there on the sweatiest day versus you were in the air conditioned office and you were, you know, sending orders by phone. Sure.

[00:13:10 - 00:14:00]

Will Smith: Well, one thing you said though, that, that I also want to tease out is about feeling the sense of authority. And then in fact there is legal, you do have legal power as the new owner of a business. And on the one hand there are cautionary tales of people who allow that to go to their head immediately and they come in and start barking orders and they just got there.

And of course anybody who listens to this, to this podcast, should know that that's not the right way to do it, even though apparently that happens. So surprise always surprises me. But I think for most people who listen, the, the, they're going to tend more toward the other end of that spectrum where they don't have enough confidence and they, and they come in. Without kind of, you know, without recognizing that in fact they do have a considerable amount of power from day one that they might not have earned yet. And that maybe there's, maybe there, maybe.

[00:14:00 - 00:14:02]

Andy Rougeot: It could be helpful to searchers to.

[00:14:02 - 00:14:06]

Will Smith: Feel more authority right out of the gate than they might otherwise. Does that resonate?

[00:14:07 - 00:14:51]

Andy Rougeot: It's, it's two sides of the same psychological coin. So it's both.

Both people in those situations are dealing with the psychological issue of I'm stepping into a situation where I have very little knowledge and background, but I'm in charge. And like one response is either I overcompensate and I give orders and I act like I already know everything's doing. And the other, you know, extreme is then I'm passive and I, you know, sort of subordinate myself to the employee base. And it's always in these things, it's finding the middle path. But you have to know yourself and know, know sort of.

How do you respond to situations where you step into a highly uncertain, highly fluid situation? And is your tendency to be too directive, assertive? Is your tendency to be too passive? You probably want to steer a little bit the opposite direction when you're stepping in your business.

[00:14:52 - 00:14:59]

Will Smith: Great, great tip.

Excellent, Andy. Okay, pick us back up on the plot.

So what year is this now when.

You decide to search?

[00:15:00 - 00:15:04]

Andy Rougeot: This was.

I graduated HBS in 2017. So spring of 2017.

[00:15:05 - 00:15:18]

Will Smith: So early ish days of self funded search. So that I feel like at the time you would have been hearing mostly about traditional search funds at hbs. How did you choose to go on this lesser trod path?

[00:15:19 - 00:16:07]

Andy Rougeot: So HBS is sort of known as the more self fundy type of the two and Stanford is more the traditional funded. So we were there during, I'd say the beginning of the explosion of self funded searchers leaving HBS where I'd say 2012. And then I think just Jim Sharp has the best information on this. There's probably three to five people doing a self funded search at a graduating class. While my year in my section, which is sort of like the homeroom for an HBS class.

We eventually had seven self funded searchers out of 90 people over a couple of years. So not everybody immediately after school. But it's something where I think is, you know, was in the stage or is becoming much more popular to where obviously it's more popular even now, but something where it was not so culturally iconoclastic to say, hey, I'd like to go do a self funded search. And when you're doing a geographically focused search, you're sort of forced in that bucket anyway.

[00:16:07 - 00:16:08]

Will Smith: Yeah.

[00:16:08 - 00:16:10]

Andy Rougeot: So you don't have much of a choice. Yeah. Great.

[00:16:10 - 00:16:17]

Will Smith: Okay, thank you. So you're in Denver looking for businesses to buy.

Tell us about the search process, please.

[00:16:17 - 00:17:12]

Andy Rougeot: Yeah, so in 2017 you could still do sort of blind emailing, proprietary outreach and have decent hit rates. So I had a, you know, group of interns working out of Denver Public Library. We'd meet every day and send out mass emails to every business owner using the Secretary of state database list and doing that combined with a brokered search. Luckily there's only so many businesses in a given metro area.

So you can actually in my mind do a self funded search. It's geographically focused within a four month period if you have a decent term, you know, team of interns and maybe now AI augmented ability to do that. So something where I very quickly ran into the business I bought which is RG maintenance, when within about two months of starting my search in Denver, RG maintenance I reached out to initially through proprietary outreach, which point time triggered the seller to hire a broker and then we essentially transitioned to a broker process for the acquisition.

[00:17:14 - 00:17:22]

Will Smith: Say more. Your email triggered a broker.

Oh, people are interested in buying my business. Let me engage counsel, essentially professional help.

[00:17:22 - 00:17:42]

Andy Rougeot: Yeah. So something where, you know, it's nice because I think you get a initial foot in the door of saying, hey, this is the person who talked to it. But there is some advantage of still the process is brokered and you have some of the dynamics there of, you know, a cleaner set of, of books.

You're working from some knowledge of this is what market is versus something that's a pure proprietary outreach.

[00:17:43 - 00:17:50]

Will Smith: Of course though, that that broker is then going to shop the deal as far and wide as possible. So you're introducing competition by that happening.

[00:17:50 - 00:20:10]

Andy Rougeot: That's true. So it's always the trade off of what you're looking at.

To give some background on RG maintenance, it was a business that fixed gates for self storage facilities and fixed access control as well for these facilities. So the big 20 foot sliding gates that would get Hit by trucks for people who have never rented a Penske in their life and don't really understand the turning radius and clip that and then the keypads that controlled access into it. So it was a dominant player in Colorado. So about 95% market share in this very niche self storage market. That was about two and a half million dollars in revenue and made about 725k in EBITDA on that two and a half million dollars in revenue.

It was a business that had grown pretty significantly over the past couple years, somewhat in line with the growth of the self storage industry, but also sort of eating market share and was a seller, a guy who founded the business in 1999 if I remember correctly, after working as a a repairman on ski ski lifts in the Colorado mountain towns and decided to move to the Front Range after a family issue and then fixed the gate for a friend of his, said hey, this could be a business. Was good at fixing himself. Had this sort of traditional growth of these blue collars businesses where you've got a good initial tech. He is the owner. He brings a guy to sit in the right seat with him.

Eventually the guy in the right seat gets his own truck and you sort of blob out till you hit the point where the owner reaches his management capacity. And it sort of depends on their leadership style. But in the case of Rick, great tech, but really wanted to be involved in the sort of day to day actual decisions on the ground of how to fix a given item. So his phone was ringing off the hook with questions not only from customers because he was the sole salesperson as well, but also sort of questions from Tax, which in retrospect were decisions that Tax already understood but sort of wanted to clear with the owner of the business prior to making. But he created sort of a hub and spoke leadership model where essentially he was getting calls all day on how should I sort of approach this technical issue of fixing this gate or this keypad or this issue at a self storage facility which sort of limited his overall size because he had a certain amount of time in his day.

So he grew to 12 employees by the time he sold the business. So something where 11 of those employees was a tech and one of those employees was sort of a receptionist slash order taker sitting in the office.

[00:20:12 - 00:20:16]

Will Smith: And presumably he was looking to retire not yeah, he was looking to retire.

[00:20:16 - 00:20:21]

Andy Rougeot: To Arizona with his wife. So something where sort of made sense for him to transition at that point in time.

[00:20:23 - 00:21:46]

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And going back to this point of your email triggering him to engage a broker. Did it end up being a competitive process?

[00:21:47 - 00:24:51]

Andy Rougeot: So they definitely did shop the deal. I've met people who said they looked at the deal in retrospect, but it's hard to know. But it was a deal with lots of issues that, you know, the owner was heavily involved in the business, which you know, for one crosses off a lot of potential potential buyers.

It was a deal where there were significant customer concentrations. So the biggest customer for RG maintenance was Public Storage, which is a big publicly traded national REIT real estate investment trust that owned at the time roughly 48 self storage facilities in the state of Colorado. So something where that was, you know, a big issue for any potential buyer. There's some cyclicality in the business. So about 25% of the business when I bought it was tied to the construction of new self storage facilities.

So putting in gates and keypads. But what I really liked about the business was a highly recurring revenue outside of that construction side of the business where you wouldn't know which gate in the given day was going to get hit by truck. But a relatively large percentage of these gates were hit by a given truck in a given day. So sort of actuarially like an insurance company recurring revenue, they were high margin deals based off of the physical gate themselves being a relatively high dollar item but relatively cheap for us to fabricate ourselves. We actually made it in house out of raw steel in the shop and then brought it to the site and installed.

The payer was typically an insurance company versus public storage and it was a really high pain point item. So for the storage facilities, having a broken gate really Hurt their value proposition of saying this is a secure place to store your goods. So it was a major complaint from customers. If the gate was down, it was at risk in terms of having increased number of break ins in the facility. So it was a really, hey, we need to solve this issue very quickly in terms of fixing this and we're not the people who are paying so we really less price sensitive and more time and quality sensitive.

So for those were all aspects I liked about the business and then we were able to negotiate a very good deal where I bought the business for roughly three and a quarter times ebitda. So that combination of good price with recurring revenues and good margins offset in my mind some of the hair on the deal with higher customer concentration and some cyclicality. I think that's true when I'm advising searchers is saying sort of understanding what type of issues you're comfortable with in the business because it's always a spectrum of price itself being an issue because low price is a quality of its own. So if you're thinking about that trade off of saying the more good aspects I have the business, the more I'm paying for this business and that trade off on it. So you can have a searcher who's really okay with cyclicality because they are building a cap structure that makes sense and can handle the business that has ups and downs.

Or you can have a searcher who's like seasonality is perfectly fine with me. I'm okay with working like a dog for six months and having slow six months and understand the cash management. Same thing on customer concentration. But you sort of identify you as a person what you're comfortable with as you're looking at deal after deal and you'll sort of say hey, there's no way I would buy that business. And you have someone who's the exact same situation as you, but it's much more comfortable with that saying yeah, I buy that one.

You need to figure that out earlier in your search process rather than later. Later.

[00:24:51 - 00:25:14]

Will Smith: Yeah. Well, I take your point on, on that. I will say that I feel like there are some flags or some negatives to a business that should basically be seen as universal.

Customer concentration being one. Now you might say, you know, people have more risk appetite so they're just willing to tolerate 30% customer concentration, whereas I'm only willing to to tolerate 10% customer concentration.

[00:25:14 - 00:25:15]

Andy Rougeot: That's always tied to.

[00:25:15 - 00:25:15]

Will Smith: But in general.

[00:25:16 - 00:26:50]

Andy Rougeot: So like me.

Well, I think fair enough. I think you're, I think you're right of saying it Five times. You know, you can't tolerate customer concentration of X versus Y. But there is, the spectrum is if I'm getting a significantly lower price, then I think you should be willing to take that. And I think customer concentration is interesting because the, you know, customer concentration comes in flavors.

So you have one risk, which is payer risk, which is saying if this company just blows up like Lehman Brothers did, will any of my invoices get paid? And you have to sort of think about your, if there's high customer concentration, say what's that risk? But it's also decision maker risk. So that's saying if I do a bad job on a job site and I piss off one decision maker, how much of my business do I lose? So in the case of public storage, which customer concentration, in terms of just checks we were getting in the mail was over 50%.

The reality is the decision makers were pretty dispersed because decision makers for this maintenance were these district managers who managed between eight and 10 properties and then a construction manager and a capex manager. So when you looked at it, there's actually seven different people who are deciding do I use RG maintenance or not? And as long as I am not doing something unethical, but I'm just providing poor, say work quality, the worst I could do is I could lose one of those seven people. And then how painful is that on revenue? And if you break that out, you're saying, well, my customer concentration is actually these seven different decision makers which represents 11 or 12 or 15% of the revenue.

And it's not as bad as 52%. That 52% is more tied to the payer risk of saying, hey, this company blows up or has a major just corporate level issue, what happens to my business?

[00:26:50 - 00:27:24]

Will Smith: Yeah, yeah, you know, it's, it's such a good point. And I've seen it time and again where at first blush it looks like heavy customer concentration because there's a single corporate name associated with some large percentage of revenue. But.

Or it's the government maybe, or even, or even a department of the government. But you interrogate that at all and you see to your point that there's actually a dispersion, a diffusion of decision makers involved in that. So really we should probably call it decision maker concentration because that's how many decisions can control. Whether or not this revenue keeps flowing is really is really the question.

[00:27:24 - 00:28:29]

Andy Rougeot: And you can actually the opposite where you have separate customers, but they're all actually the same as customer in terms of their interaction.

So I think something I didn't understand is how you know, interest rate sensitive REITs are, which happened after I sold the business. But the reality is every single one of these, the corporate decision making for all these publicly traded businesses was very highly tied to interest rates in a way that I didn't understand. That's something where that is a outsize effect that I have no control over and a rise in interest rates to combat inflation in 2022 that triggered simultaneously across all these corporate REITs because they got their financing in the same way, the exact same decision making to cut down on non mandatory maintenance spending. So I think that's something sort of interesting is that that's you know, an industry trend or industry tailwind, but it causes all these different customers you think would sort of make their own decisions independently of each other to correlate. So I think that's something else you should be thinking about as a searcher saying even though I have all these eight different customers, are they all in the same industry or going to think the same way if this one negative tailwind hits them?

[00:28:30 - 00:29:48]

Will Smith: Yeah, excellent point. And, and, and I'll actually give you another example of where it looks like you don't have customer concentration, but do actually. So a couple episodes before this, Dave Gilbert will have aired and Dave bought a business where a fractional CFO business where it looked like he had, you know, call it 10, 10 client. The business had 10 clients as it turned out, one family office brought all 10 of those clients. And actually it happened a second time in the business where there was a, there looked like they had call it 10 clients but it was, they all rolled up into a single private equity fund.

So in fact those two buckets of 10 clients really were controlled by two decision makers, one of the family office, one of the private equity fund. And in fact it did bite him. So you have to look not only at customer concentration where it might not be as bad as it seems to the points we're saying the reverse can also be true. Make sure that While you see 10 names on the client roster, is it possible that th those 10 names roll up into a single decision maker? So very interesting stuff.

You know your, your low purchase price of 3.3.25x on 725 of SDE. I think today that would be considered a good price. Quite a good price. Was it, was it that low of a price back then?

[00:29:49 - 00:30:26]

Andy Rougeot: It's really hard to say in terms of just the quality of information.

Tracking I think has gotten better in the past couple years of sort of deal pricing. Averages. It's something where, when I brought it to investors, there was not a, hey, you've got this deal at a great price. It was something where this is an acceptable price based off the issues this business is facing. So I had, you know, I had one investor say this business only would make sense if you were buying it for two and a quarter times based off that customer concentration.

So I, I think I, I am less, less a believer that there's been major changes in multiples in this space over the past couple years versus it really being idiosyncratic to the businesses themselves on what they trade at.

[00:30:27 - 00:30:43]

Will Smith: Okay. And Andy, going back to the other hair on the deal that so much of it was on the shoulders of your seller, of the founder of the business, Rick, how did you, how did you get comfortable with that or how are you gonna address, mitigate that when you got in there? Just take it all on your shoulders.

[00:30:43 - 00:32:31]

Andy Rougeot: Yeah, so that's, that's what I get.

A good, a good thing for a searcher who's looking at a business is to actually try to map out what they think the day to day of the seller is. So the one way to do that is you ask the seller to actually keep a journal. Which I like is say, hey, can you keep a journal for three days and just write down everything you did today? And that's a really useful sense of saying, how is this person spending their time? Other thing is when you're with them, see how many phone calls or how many times they look at their phone.

So if you can find like a three hour chunk of a middle of a workday and the guy is constantly glancing at his phone or silencing calls or like, hey, sorry, I have to take this. That tells you a lot versus someone who can literally not look at the phone for three hours and not think the building's on fire. Because every, I think a lot of sellers will say, hey, I'm absentee or I'm semi absentee. And then really anything you can sort of do to pull out how actually involved they are. And I knew stepping in the business, he was heavily involved.

So it wasn't something where Rick was trying to say, you know, I show up and I leave, right, right away. But you have to say, can I step into those shoes? Something that, you know, I knew I'd have to step into immediately was estimating. So he was doing all the quoting for customers and pricing, which at the time I knew nothing about how to quote any of those things. So it's saying, hey, how Comfortable do I feel taking on that sales role not only in the interaction with customers, but also quickly becoming a subject matter expertise.

So that's why I negotiated, you know, six month, six month owner transition period where Rick stayed along and he was able to do a sort of left seat, right seat type transition which was very helpful. And then understanding do I physically feel capable of doing the work in the field? So getting understanding of the work that he was doing in the field, helping out and understanding do I think I could take this on both again as a technical expert, but also physically. So something where you're spending a lot of time out digging post holes and mixing concrete. And I felt comfortable doing that as a 27 year old guy taking into the business.

[00:32:32 - 00:32:47]

Will Smith: Okay, great. So, so your answer was in fact that you could get over this particular hair because you were just willing to absorb it yourself until you were in the business for long enough to hopefully grow into managers that you could put in place under, under you.

[00:32:47 - 00:33:26]

Andy Rougeot: And sort of selfishly I also enjoy that stuff a lot. So again that's, I think a lot of ex veterans sort of miss the being in the field with the guys type feel. And so something where it is a lot of fun to spend the day out, you know, digging holes and coming back home sweaty.

And then the downside is you have to work like crazy in the morning beforehand in the evening to sort of catch up on all the computer sales ish work. But if you could spend, you know, a day working with the crew, come home feeling accomplished and I would always love chatting with my fellow HBS classmates who were doing much more Excel type stuff. And, and you know, talking about how, you know, I was the type of person who has to shower when he got home to the person who showers before he goes to work.

[00:33:28 - 00:34:14]

Will Smith: Yeah. Well, there are two points there whether you'll enjoy the work and noted that you, you were somebody who was going to enjoy the work. But also the point is that it, it says something about the fragility of the business that sometimes the, the very owner of the business has to get in there and do the delivery of the service. In general, when we're trying to build robust businesses, we don't like this. And if you're in there, you know, as a new owner and in your curve, isn't there that nagging sensation that every time you, you know, you stick the shovel on the ground, it's a time that you could be working on the business rather than in the business, isn't there?

And, and you just said that you Got to get up early in the morning to do the Excel stuff and, and, and then late at night. So it, it, it's almost like evidence of, you know, two times the work is going to be there waiting for you. The working on and then the working in.

[00:34:14 - 00:34:50]

Andy Rougeot: Yeah. And it's also again, understanding like what you like to do.

So I, I over bias in terms of time in the field because I enjoyed it. If I'd been someone who is on, you know, more of an Excel jockey, I would have overbiased on trying to work on the business instead of in the business. And I think knowing the type of person you are and skewing the opposite direction. So if I could go back in time and give myself advice, it would be, you know, two years after being in the business to be more okay with adding SG&A and focusing on working on the business instead of in the business. But, you know, that was something that was psychologically enjoyable for me and fun and it would have been hard for me to, to agree to do at the time.

[00:34:50 - 00:35:03]

Will Smith: Wow. The, the rare searcher Andy, who actually, you know, wants to be out there, you know, working in the business. You know, we're, we're all, we're all over here trying to figure out how to work on, not in. We couldn't pull you out of the business.

[00:35:03 - 00:35:11]

Andy Rougeot: Now I'm, you know, a guy who exited and doesn't have to do it anymore.

So they could always be romantic when you're looking back. Right? Yeah. The day when you're dealing with it a little less.

[00:35:11 - 00:35:19]

Will Smith: So, yeah, yeah.

This right seat training, this phrase that.

You use, Is this a military phrase?

[00:35:19 - 00:36:47]

Andy Rougeot: I, I believe so, but it's just. What. So left seat, right seat training is saying, you know, the old sell, the seller of the business is driving a car and you're sitting in the passenger seat watching how he drives the car.

For the first third of the transition, the second third of the transition, you are driving the car while the seller is, is watching you drive in the last third of it, you're by yourself in the car and the seller is available by phone. And it's just a chance then to sort of understand how the seller is doing the job. Currently. The seller to watch and critique you doing the job and the chance for you, because it's also important to do the job while you still have the remote support of the seller because that's when you sort of realize the thing that you were relying on the seller physically being there to do. So like for me, I was sitting in a, a Meeting with a GC where they're saying, okay, and they're talking through the project and I'd sounded smart to date, and the guy turns and says, hey, what size pipe do you need for your, your wire to run in?

And I was like, I've never thought of that question before in my eye. And I was like, well, thinking off the top of my head, I think, well, six inches is probably, you know, enough. It was like six inch pipe. And reality is we need about like an inch pipe. So when you go to that job site, there ends up being this massive pipe for this one single tiny wire.

And then the juicy would laugh about it forever, like, why do we have this massive? So it's things like that that you realize when the seller isn't standing next to you, where he would have jumped in if he'd been there and said, hey, it's, you know, we need an inch and a half, two inch, two inch pipe. And then you realize when you're by yourself of, oh, that's something I need to learn and figure out pretty quickly.

[00:36:47 - 00:36:54]

Will Smith: Yeah, yeah, yeah. Well, Andy, you sound like a guy who probably fit right in.

Did the team take to you?

[00:36:54 - 00:37:33]

Andy Rougeot: So I think the funny thing about being a leader is you are, and I think this is probably tied to the military, is you should never be friends with your employees. I think you should always be someone who's supportive, who's a great boss, who cares about them deeply. But it's really hard if you show favoritism towards an employee and they're going to laugh at your jokes and they're going to be nicer to you to the face than they are behind your back. But it's something where I really think you have to treat them as if they were people you care very deeply about as employees, as people, as embodied souls in this world.

And, but it's not something where I think you should try to get your friend base from your, your company if you're the boss.

[00:37:34 - 00:37:36]

Will Smith: Well, fair enough. Do you think that they took you as a leader then?

[00:37:37 - 00:38:09]

Andy Rougeot: I, I, I'd hope so, but you'd have to talk to those guys. That would be a fun inquiring minds segment where you did five minute interviews with employees and then, you know, we had turnover like I think every business does.

So we had two employees who were, you know, had a serious drug issue when I took over the business and they were hiding in a storage facility and, and using drugs instead of going to the job sites and sending, you know, charging fake invoices. Just something we had to deal with very quickly. And I think that's every one of your, you know, new owners has a story or two of some crazy employee situation they had to deal with.

[00:38:09 - 00:38:11]

Will Smith: How did you discover that, by the way?

[00:38:12 - 00:38:59]

Andy Rougeot: Well, we had.

We had a customer saying, why am I getting this invoice for work that wasn't performed? And then, you know, I did a surprise visit down to the. This was for our only remote team, which was in Colorado Springs, and then found drug paraphernalia in the truck that was the work truck. And then had so fired the two employees, then had one of the employees insist that most of the company equipment was his equipment. So I had to actually help him essentially steal but load all of my company equipment.

But we had no inventory, so I couldn't for sure say it was mine. Into his own personal truck, do multiple trips to his house to drop off, you know, all his various random gear at his, you know, at his house in Colorado Springs and empty out the storage unit. That was all my, you know, my equipment I just paid for.

[00:39:00 - 00:39:04]

Will Smith: Wait, I'm sorry, you gave it. I don't.

I didn't follow. I lost. You gave it to him.

[00:39:04 - 00:39:36]

Andy Rougeot: You have, you know, you have a loaded out truck that's got a bunch of tools in it. And at the time, the tools were a mix of company owned and personally owned tools.

And there was no inventory of what was personally owned and what was company owned. So something we changed is we eventually became all company owned tools. Nobody brought personal stuff. So anything that was in the truck was owned by the business. When I took it over, that wasn't true.

And because there was no inventory saying, hey, for sure, this, you know, this demo saw is the company is not his. He just said, hey, essentially all this stuff is mine.

[00:39:36 - 00:39:38]

Will Smith: And you couldn't defend against it?

[00:39:38 - 00:39:55]

Andy Rougeot: Oh, yeah, couldn't defend against it. I could have, you know, I could have said, no, I think this is mine.

And sort of tried to try to fight about it. But when you have somebody who's dealing with a serious drug issue, and as a, you know, as an employee, I thought the easiest thing was to say, hey, we're going to write off a couple thousand dollars in equipment and let this guy try to pawn it, you know, wherever he ended up pawning it.

[00:39:56 - 00:40:51]

Will Smith: Gotcha. Gotcha.

Okay, Andy, before we turn our attention to, you know, getting through your J curve, if there was one, and then how you grew the business, can we just also point out that this, like so many other acquiring minds episodes, is about a business you wouldn't even guess existed. I think a lot of people understand that storage as a category of real estate has surged in the last 10 and 15 years. It certainly has among entrepreneurs, entrepreneurial real estate types. There's a lot of talk about that Nick Huber made his name on, on being a storage guy, but still I wouldn't have guessed that there are service providers, that there are picks and shovels to the public storage space in a single market or in you know, Denver and in I guess Colorado Springs. So two, you know, one and a half markets that there could be a two and a half million dollar business there.

Anything to say there other than. Well, yeah, there was.

[00:40:51 - 00:42:12]

Andy Rougeot: Yeah. I'd say that more as investors you see these great amazing niche businesses and you see. And like if you were a VC investor you'd see the SaaS vertical that only serves storage, which there's several SaaS verticals that only serve storage like auctioning your stuff off, marketing, the managing of pricing.

So every, every business has all these ancillary little interesting things tied to it. But Storj was the strongest performing real estate asset class until about 2021 and now it's actually been one of the strongest underperforming asset classes since 2022. So something where again in terms of role luck plays I think in these acquisitions is that was already booming when I took it over but I was lucky enough to continue to operate the business through, through a big tailwind for the storage industry. And then I sold for idiosyncratic regions not tied to my guess on the future of the business right as that was about to turn or right as it was turning. So I think something we underappreciate is how much of our entrepreneurial stories are just we got lucky and the risk that could have happened.

So like the seller of my business was a great person, he had high integrity. And I think so many of the horror stories you tell is tied to a situation where that's not true. And I think that's incredibly hard to diligence from the outside. So something where we're really lucky for us operators who bought a business where the seller wasn't lying to us and we didn't get hit in the face by some, you know, risk coming from outside world.

[00:42:13 - 00:42:56]

Will Smith: Totally, totally.

But. But I will press on your point about. I think you put the fact that there was a lot of construction revenue that in your business was tied. You call that, you call that cyclicality. But forgive me, you know, maybe being overly semantic but I, I would have characterized that not as Cyclical necessarily, but as a kind of a surge, a tailwind that was likely to taper off and not come back again.

In later years there was this big explosion of, of of storage building. But I don't think it's unlike housing for example, which is more cyclical. I felt like storage was probably, you know, that was a decade long story and then it plateaus for.

[00:42:56 - 00:44:23]

Andy Rougeot: It's much more like housing because it's really tightly correlated with population growth so. And major life events.

So it's. If you have death, divorce, those sort of things are big triggers of storage use. So it's much more like there's the typical overbuilding of which you know, there is high, high rent rates, so high per square foot pricing for the storage facility. High utilization leads to overbuilding which leads to depressed rates, depressed utilization which leads to no building, which then leads to high rates, high utilization as population growth. So it is much more the up and down.

So like for example, self storage construction peaked in our market in 2019 in Denver and 2019 and then actually led to a ton of acquisition which was interesting work for us. Where there was the big national players were buying, smaller players or individual players were buying, they own three facilities, they're buying a fourth facility. And that was a big wave in 21 through 23. And then the killer with interest rates going up is that sort of decreased those acquisitions but also made building more expensive. And that still hadn't sort of fought through all that excess build in each regional market.

And it is still a super local market of where you have some markets that drastically overbuilt, some that didn't and there's really big swings. We eventually grew, which we can talk about to a bunch of different states which sort of iron that out a little bit. And we also moved very heavily away from construction. So we turned into almost a pure play maintenance business which was I think great for the exit and also great.

[00:44:23 - 00:44:29]

Will Smith: For operating and, and for the obvious reason that it's higher quality revenue and it insulates against this very cyclicality we're talking about.

[00:44:29 - 00:44:36]

Andy Rougeot: And much easier to manage as well because then you're managing again a crew of technicians versus it's sort of more construction type installers.

[00:44:38 - 00:45:59]

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So you get into the business, you're having a good time, coming home sweaty. Is there a J curve? Is it the business you thought you bought?

[00:46:00 - 00:46:00]

Andy Rougeot: Where does.

[00:46:00 - 00:46:02]

Will Smith: Where are the key plot points from here?

[00:46:02 - 00:46:19]

Andy Rougeot: So my initial thesis when I bought the business is that we would grow to servicing gates and access control for non self storage facilities. Because the sort of obvious thing saying, well we already have a bunch of techs, why can't I fix at an industrial site and apartment complex anywhere else? There are gates. There are gates.

[00:46:19 - 00:46:20]

Will Smith: Exactly.

[00:46:20 - 00:48:27]

Andy Rougeot: And they should all be the same. And the reality is they're actually different, which is sort of an interesting nuance, which is the keypads are very unique for storage versus for an average facility. And then for the gate demands are also very different. So the types of gates, but also sort of how they want the gates to look sound operate is different for a sort of like an HOA than it is for a storage facility. So that meant that we were actually not very good competitors in that space, which was a much more saturated space with gate competitors, access control competitors.

So after spending about a year into this, I bought the business in September of 2017. So spending most of 2018 trying to grow into these other verticals in Colorado. I said, hey, this doesn't make a ton of sense. I've been hearing from my existing customer base one how high quality of a provider we were and then also how poor of providers there were in different parts of the state states. So to me that was a trigger of saying, well, can we grow geographically instead?

So I went to our biggest customer, public Storage, and said, where's your worst provider in the country? And they said, oregon, we hate the guy in Portland. And I said, well, if I provide the exact same service, same quality, same pricing as we do in Colorado, will we get the business in Oregon? They said of course. So then hired a military recruiting firm to go and find a potential general manager for that market.

Our general managers were very player coaches. So they started off essentially as technicians, managing other technicians, and then grew from there into more and more of a leadership role as the businesses grew up. So something where in that case, that first hire was great hire a former crew chief Marine. So a guy who was responsible for fixing a helicopter in flight if it took fire and for potentially being the medic for anybody who got shot on that flight. So someone who had a high degree of adaptability, especially as marines, of fixing things with not enough resources and a sort of high mechanical aptitude and then leadership ability, he had sort of worked his way up the ranks on the non commissioned officer side in the Marines.

So we launched in Oregon in the beginning of 2018 with him and then another future tech in the right hand seat. So with two guys and a truck.

[00:48:27 - 00:48:32]

Will Smith: So relatively low Andy. But how, how did he get trained on the technical stuff?

[00:48:32 - 00:50:35]

Andy Rougeot: So we brought the future general manager to Colorado and had him right seat with our technicians for I think a month and a half.

But reality is he was only a mediocre tech by the time he went to Oregon. He wasn't a good tech yet because that learning curve was about four months to get from knowing nothing but mechanically inclined to being effective in the field. So it's something where when we launched in Oregon, we had to be very generous with our invoicing. So something where it took him three hours to fix a job that we knew should take an hour and a half. We charge an hour and a half on it.

So the Oregon market, lunch with him and then another employee in the right seat grew over the first year to five employees. And then that was essentially you trained enough of one of the guys for him to go buy another truck and stick him in. It's relatively low capex to grow because you essentially bought a couple trucks, you bought some materials, you prepaid some wages for training, and then by the end of the year we got into I think about like a $300,000 revenue business. We with almost no EBITDA contribution. It was like a 15k EBITDA contribution in the first year that been business though over 2020.

And there's some Covid interruption obviously during that time, 2021, 2022 grew to where it was essentially the same size as the Colorado business because the Portland metro market is the same as the Colorado market. So it got to nine employees, was contributing, I think 600k in EBITDA contribution and roughly the same margins as the Colorado business where we blobbed out from servicing everything public storage did to then adding extra space and cube smart who are two of the other big national REITs. And then providing the same great service we did in Oregon. We sort of proved that worked in Oregon to our customers. So then we said, what's the next worst market where you guys have?

And they said Bay Area. So we launched in the Bay Area in end of 2019 into 2020, then Washington in 2021 and then Arizona in 2022. So we just kept on sort of marching our way around the West coast, adding GMs, adding techs, and then expanding.

[00:50:35 - 00:50:41]

Will Smith: The business and always being led by this existing customer telling you where they want you to go.

[00:50:41 - 00:51:00]

Andy Rougeot: Exactly.

So that's how when actually at the end of 2022, when I sold the business in the middle, then public storage was the exact same customer concentration as when I bought the business. Funnily enough though, in the Colorado market, we'd shrank them a lot to where they were about 20% of the business. But in these new markets they would represent like and when we launched they'd be 100% of our business.

[00:51:01 - 00:51:01]

Will Smith: Yeah.

[00:51:01 - 00:51:13]

Andy Rougeot: And in Oregon they were like 55% of the business.

So you sort of saw we'd get a beachhead with public storage and then grow out to the other storage providers. Yeah, well, that's taking, that's taking advantage of that customer concentration.

[00:51:13 - 00:51:13]

Will Smith: I was going to say.

[00:51:14 - 00:51:52]

Andy Rougeot: Yeah, where you have a warm lead essentially because the head of Colorado talks to the head of Oregon and he can send an email to say, hey, these guys are great. Give them a chance.

And as long as we keep the quality high. And again, this is a small dollar item for them where it's mostly a pain point. That's an easy then ability to suddenly grow into total number of facilities they have in the location where we never really, we never really tried was trying to fight, trying to get into a knife fight in a good. Against a good vendor. So we never were like, hey, the guy in, you know, Wilmington is awesome.

We love that contractor. And me saying, hey, I want to be in Wilmington. Anyway, and trying to enter a knife fight. It was always pretty easy to gain ground when we went to a new market.

[00:51:54 - 00:52:34]

Will Smith: Well, it, it's a, it's a fascinating point that this customer concentration or having this or if it wasn't, you know, as we've talked about, it might not have been a single customer, but a single corporate entity that has all of this, this enormous footprint and you can, you can work that to stand up new markets and as you said, have a warm, a very warm lead there really a fascinating model and Clever as well.

You're standing up the, the new market with the argument that you're going to be better than this vendor that they're unhappy with. It's crappy. But you then stand it up with, you know, a tech who's really green and is taking twice as long as he should on the jobs. Isn't. Isn't there.

Shouldn't you have sent your best guy.

Out there to stand up these new markets?

[00:52:34 - 00:53:33]

Andy Rougeot: So for blue collar workers, it's hard to be like, I'm just going to move you around the country to, to go to a different market every year. So I think that part's tough. I think, you know, again, what, why the existing vendor sucked for the customer was not that, hey, he's on the job site for two hours instead of one hour, it's that it takes him three days to get out here.

And then he says the issue is some other part of it. So typically the person who came out to fix a keypad could only fix the keypad. They couldn't fix any electrical tied to it. They couldn't fix the gate itself. Our technicians could fix any component there.

So for most of the other time, the gate wouldn't work. The, you know, say in Oregon in 2018, the manager would say, hey, let's call the gate vendor. The gate vendor comes out and says the issue is the keypad. They call the keypad vendor and the guy says, hey, the issue is the gate. And they both come out together at the same time and say the issue is electric.

And then for us, we could send one guy out there, maybe spent, should have spent an hour and a half to fix it, but he spends three. Manager doesn't know what the right amount of time is. It's, he's.

[00:53:33 - 00:53:34]

Will Smith: Because you're still invoicing for the hour and a half, right?

[00:53:34 - 00:54:08]

Andy Rougeot: Yeah, we're invoicing for the hour and a half and he's fiddling around with parts and he looks like he's doing things.

Maybe he's spending a little bit more time with tech support than he needs to. But like, and then they learn pretty quickly because, like, I can, you know, I learned how to fix all these things as someone who is not mechanically gifted in a relatively short period of time. So you get to the point where you're competent and much more competent than a, a vendor who very rarely touches this very specific type of keypad. And this is the, you know, the, their seventh largest vertical for a customer who is, you know, sort of thought of as a pain point versus for us where like we only serve storage and you know, we're experts at serving their particular problem set.

[00:54:09 - 00:54:18]

Will Smith: Ah, right.

So in all, in all these other markets, there were, there weren't pure play vendors like you self storage gate fixers like you guys?

[00:54:18 - 00:54:45]

Andy Rougeot: Yeah, they were much more pure play, either access control or gate, but they did it for everybody. So that meant they need to be sort of jack of all trades on a bunch of different types of systems versus a specialist at this type of system. And we were more jack of all trades on everything that could break at a facility tied to the gates and specialist the system. And that was a more useful solution set for the customer than somebody who's really good at fixing a bunch of different types of keypads, but not this particular type of keypad.

[00:54:45 - 00:55:04]

Will Smith: So Andy, given that you were your, that focus that you just described was pretty differentiated in the market. Is there an even proper industry for what you guys were doing? Is there an industry event or are you just kind of this weird hybrid that happens to be a full solution that the storage provide that the storage guys need?

[00:55:05 - 00:55:13]

Andy Rougeot: We would go to the self storage industry events, but we were there as a vendor. So I'd have a booth and talk about, you know, us fixing, fixing gates at those booths.

[00:55:14 - 00:55:18]

Will Smith: Right, so. So really your industry was the self storage industry?

[00:55:18 - 00:57:07]

Andy Rougeot: Yeah, there, there was a, there was a customer industry. There was not a, a subset industry for us like and they, we would have, you know, notice of how much we bought from our vendors so that they were specialized keypad providers. So I got a pretty good idea of my size relative to anybody else in the country.

And we were the largest buyer of a certain type of keypad when I was running the business. So there was a very fragmented market of people buying not a ton of these things, which was again, fun to be a big player in a small pond. But now, again, now that I've had my investor hat on for several years, you look back and you say, should Andy, if I was giving him advice from the future, have done differently? There was obviously a much faster pace we could have grown if I'd been willing to accept more SG and a. So I was still trying to run the business very lean, where I was still doing all the sales function until 2022.

I would fly out to each of these markets every single month to spend some time with the gm. We didn't have, we didn't hire a recruiter full time, which we definitely should have done. And that meant that we grew at a slower pace to sort of Minimize risk because the capex wasn't high. But there was still, I think, sort of reputational risk of launching in a new market. If I was looking at this now, I would have advised my past self to say, say, hey, maybe we get a little bit more capital, we grow much more rapidly.

And this isn't a business that grows five markets. This is a business that grows 20 to 30 markets. Because there would have been a big value to our customer set to actually having a national provider. Same thing for vertically integrating the two. Our two biggest, you know, our sources of cost were keypads.

These guys were sort of transitioning over to a SaaS business and for them, it would have been great for them to have acquired us and have a built in installation, installation house or for the other way around. So there's stuff that you, you get too stuck in the weeds and you're sort of executing on your playbook. And then now when I look back at it, I'm like, oh, those are things I could have done that would have, you know, sort of changed the direction of the size and the impact.

[00:57:08 - 00:57:12]

Will Smith: And, and then you didn't see it because you were just trying to run lean and mean.

[00:57:13 - 00:57:42]

Andy Rougeot: Yeah.

And you were saying if we grow one market a year, that's going to be pretty awesome. But also every, you know, operation, everything operationally is, is sort of tearing, tearing itself at the seams every single year. Just saying do to make that sort of sort of big step up in terms of growth, you have to accept more risk and you know, again, when you pg the debt like you know, all your SBA 7A listeners do your sort of risk appetite, especially after you've run the business for a couple years, you actually have something that's worth some value is a little different.

[00:57:42 - 00:58:22]

Will Smith: Yeah, sure. Well I take your point on that Andy.

But I'm also hearing a story of a guy who is just turning on new markets, new remote markets and standing them up and getting them to you know, mid six figures in a year or two. It's pretty impressive and it's pretty counterintuitive, especially in kind of a blue, not kind of in a blue collar business. It's hard enough to just get in and successfully buy and run a blue collar business, let alone stand up a new market that's a plain flight away. Do you think that the model that you did there could be replicated in other blue collar industries that are common among searchers?

[00:58:22 - 00:58:56]

Andy Rougeot: Yeah, of course.

And I think the, the question always is, is can you get a GM that you trust in that market. So for me, you know, using military veterans I thought was a big help because those were people who were used to operating with relatively light guidance and I could trust to sort of focus on being servant leaders. But like we had turnover in our California market where I made the wrong hire for the first guy and then needed to transition him because it got to the point where I couldn't trust the reports I was getting in terms of progress and you know, customer value prop. So it's something where you have to get to the point where you can trust the GMs you're putting in. And if you do, I think you can grow that way.

[00:58:58 - 00:59:16]

Will Smith: Although I think one other happy feature of your business is that the, the time to learn the trade is short. It's a few months. I mean somebody can be, you said operable and what did you say? A month and a half of right seating for four months of right seating. And they can, they're dangerous, basically.

[00:59:16 - 00:59:23]

Andy Rougeot: Well, they're, they're dangerous. Well before then, like a month and a half, they're pretty dangerous. Four months they were someone. You could send any of the job sites and they could fix whatever the issue was.

[00:59:24 - 00:59:28]

Will Smith: Right.

So that doesn't translate to plumbing and H vac, which are serious trades.

[00:59:29 - 01:00:35]

Andy Rougeot: The difference there though is you can hire yourself much easier. So plumbing. If you're like, I need to hire a journeyman plumber. There is a pool of journeyman plumbers in every market.

Well, there is not a pool of qualified specialized gate ax control techs. So there's no way for us to hire anybody who had the experience already. We always, we had to grow new techs. Yeah, I do think the advantage then is it gets, you're more likely then to get young and hungry versus sort of old and crotchety in terms of their style. And I would, you know, it's much.

I think it's more fun to manage a growing business where it's a bunch of 25 to, you know, to, or like in this case, 20 to 30 year olds who are super excited, willing to work hard and this is the path for them for changing their trajectory in their life to earning a really great living wage. If there's someone who's making, you know, $35 an hour living in a moderate cost area where they can get overtime of 10 to 15 hours a week, that's something where you can really change the life trajectory and you can have people who are super excited about that. If you have someone who they've done the same trade for 20 years and you're the eighth boss they've had, and they seem to be recycling jobs every year and a half. I think that's a little bit more of a, you know, pain point in some of the trades.

[01:00:35 - 01:00:37]

Will Smith: Great.

But you do like your model.

[01:00:37 - 01:00:37]

Andy Rougeot: You.

[01:00:37 - 01:00:41]

Will Smith: You do see potential for your model in search broadly, of course.

[01:00:41 - 01:01:03]

Andy Rougeot: Yeah, I think, I think both inorganic and organic acquisition work. And that's something where also knowing yourself and saying, am I someone who feels more comfortable with the risk involved of launching that new market organically, which is typically is much lower cost than inorganic, but has much more knife fighting in terms of figuring out the operations, the customer base, the employee base, and then that trade off.

[01:01:03 - 01:01:10]

Will Smith: Okay, andy, so it's 2022. Give us a snapshot of the business as the chapter of exiting begins.

[01:01:11 - 01:01:37]

Andy Rougeot: Yeah, so by 2022, we're in five markets, we're at up to 1.7 million in EBITDA on about $9 million in revenue, and we're 40ish employees. We've got a path for future growth of just repeating what we're doing. So something where, you know, when I take it to market, I can say, hey, here's what you got, the playbook.

You got to run for another five years and now you're a three and a half, four million epitaph business. However, I decided I wanted to run for mayor of Denver. So something.

[01:01:37 - 01:01:39]

Will Smith: Wanted to run for mayor of Denver.

[01:01:39 - 01:01:40]

Andy Rougeot: Denver, yes.

[01:01:42 - 01:01:42]

Will Smith: Say more.

[01:01:43 - 01:03:03]

Andy Rougeot: So something like a random choice. Yeah. So I had a beautiful park right by my house where I took my, you know, then 2 year old, my now 5 year old, and I had her in my arms. And there was a homeless man using his restroom with his pants around his ankles.

And it was something where that combined with rising crime in affordability of housing in the city of Denver, really made me feel like I could have an impact. So I was called to run for Denver, run for mayor. At that point in time, it's hard to do if you're running a business full time. So I decided that's a trigger for me to exit. So decided that in early 2022, so decided to start the process of selling the business.

I started that process first by reaching out to who I thought the obvious strategic acquirers would have been, which is some of these keypad companies, some of the big storage providers who weren't the actual storage facilities themselves. Had some initial discussions, but didn't really go that far. Then I listed my business online myself, had no interest at all, which is sort of interesting. Where I had designed Zero searchers the entire time owning the business ever reach out to me and I had no one reach out about or almost no one reach out about me listing my business online, which again like 1.7 million EITA business in Denver with some significant growth and some great stuff. So to me always speaks to hey, there's, there's more opportunities than you think in this stuff.

[01:03:03 - 01:03:13]

Will Smith: I, I, I feel like I've interviewed people, searchers who bought their business in Denver in 2022 and would have been like, like seeing your listing. Why do you think it didn't have get any traction at all?

[01:03:13 - 01:03:48]

Andy Rougeot: I have, I mean we had to anonymize enough, maybe that was the issue, but just, you know, absolutely, absolutely no traction, which is interesting. However, I had a, I had a talk with a searcher who was looking at a business similar to mine that fell through. And then about a month later he reached out to me and said hey, you know, the buyer of this business is a big private equity firm.

I think they're trying to do a roll up to want to be introduced. So then we got introduced to the eventual buyer. It's a private equity firm out of la. We had a very short process and we were able to exit for all cash for $9 million, which was a great return for, you know, me and my investor base.

[01:03:49 - 01:03:55]

Will Smith: Wow, Andy.

So nine million, that is, what's the math on that? Six, Five and a half x.

[01:03:55 - 01:04:02]

Andy Rougeot: A little, little bit over five. So it was five. And then assuming some debt and then assuming, assuming some, you know, vehicle and truck payments.

[01:04:05 - 01:04:11]

Will Smith: Amazing. And they didn't. A private equity firm is typically going to want you to roll or want some sort of tail.

[01:04:12 - 01:04:23]

Andy Rougeot: So actually I wanted to roll, surprisingly. So I said hey, I'd love to take some equity because I think this is, you're going to be a great outcome.

They were not at all interested. So they said no, that can't be part of the deal. So yeah, it was all cash because.

[01:04:23 - 01:04:26]

Will Smith: They also thought it was going to be a great outcome and they wanted it all for themselves, I guess.

[01:04:26 - 01:04:27]

Andy Rougeot: Yeah, exactly.

[01:04:27 - 01:04:28]

Will Smith: Okay.

[01:04:28 - 01:04:58]

Andy Rougeot: And then sold in July of, of 2022 and then had my second daughter almost immediately afterwards. So I had the experience of having my first daughter in March 31st of 2020 and then you know, having a business that was at the time shut down for about a two week period and being in the hospital saying what the heck is going to happen to my family? And then I had the experience having just sold, you know, sold my business, having a second daughter. Uh, so it was a, a fun, fun bookend of two different ways to have paternity leave as a surgeon operator.

[01:04:58 - 01:04:59]

Will Smith: Absolutely.

[01:04:59 - 01:05:00]

Andy Rougeot: Wow.

[01:05:01 - 01:05:02]

Will Smith: And did you become mayor of Denver?

[01:05:02 - 01:05:11]

Andy Rougeot: I did not. I, I, I wouldn't have time for this podcast if I had.

I came in, came in fourth of 17. So I got roughly 11 and a half percent of the vote.

[01:05:12 - 01:05:19]

Will Smith: That sounds like a great showing for a first time guy who kind of isn't a political operative and just feels called to do this.

[01:05:19 - 01:05:22]

Andy Rougeot: Is that, is it that I'm, I much more would rather have won so, you know.

[01:05:22 - 01:05:23]

Will Smith: Well, yeah.

[01:05:23 - 01:05:34]

Andy Rougeot: Downs, the downside to coming in fourth place versus second place or third place is you just didn't come in first and you don't have the ability to have the impact in the city. But you know, hopefully we're able to keep on making that impact in different ways.

[01:05:35 - 01:05:36]

Will Smith: And do you think you'll run again?

[01:05:36 - 01:05:57]

Andy Rougeot: It's something where I deeply enjoyed it. I really liked talking to people, hearing about the issues they're facing, sort of understanding the problem set more deeply and seeing how we could have maybe an impact on the conversation.

I no longer live in Denver. I now live in the mountains west of Denver. So it's something where I will not run for mayor of Denver again, but something where I hope to have an impact at some point in time.

[01:05:57 - 01:06:13]

Will Smith: You're an unusual specimen here, Andy. You like getting your hands dirty.

You like, what's the expression for local politics where it's kind of like keeping the roads paved and you know, all the nitty gritty of municipal politics which most people don't like. You are drawn to.

[01:06:13 - 01:06:53]

Andy Rougeot: Well, one of the, one of my unsuccessful marketing tactics as a mayor is I went out and I shoveled people's driveways whenever it snowed in Denver when I was running for mayor. So I got up leadership, I got up at 4 in the morning and I shoveled. Just I pick a neighborhood and I'd shovel as many driveways as I could for four hours and then just leave a little note saying, hey, you know, vote for mayor.

I shoveled your driveway. I think that's the cool thing about municipal politics is you can have really big sort of just day to day quality of life impact that's not really tied to some of these crazy national political conversations we're having. And people are much more focused on like how are you going to make my community more livable and a better place for me to raise a family versus some of the more heated stuff at the national level.

[01:06:54 - 01:07:06]

Will Smith: Yeah, well, and it just seems Just perfectly analogous to small business. And what you said about adding value to, you know, creating impact in your employees lives actually.

Yeah, very clever marketing too by the way. Very.

[01:07:06 - 01:07:13]

Andy Rougeot: Never, never got anybody to cover it. I was hoping we get you know a news upon a time to come and just say here's this crazy guy shoveling driveways for votes.

[01:07:13 - 01:07:49]

Will Smith: But yeah, so I guess it wasn't because it was obviously a stunt for publicity which I guess you didn't get.

But sure, sure is something to create conversation in the, in the beneficiaries of your, your labor there. I'm sure they talked it up. Okay Andy. Well we only. I only have you for call it another 10 or 15 minutes and I want to.

You are now an investor. You're actually investing in secondaries which we're going to get to but before that you were investing in primaries. Is that the language?

[01:07:49 - 01:08:05]

Andy Rougeot: After I sold the business to stay involved in search and because I think it's a great asset class, I have heavily invested the outcome of my search into additional search deals. So I've done 26 mostly self funded search deal investments since selling the business in 2022.

[01:08:06 - 01:08:14]

Will Smith: 26 mostly self funded search investments since 2022. So that is. And, and directly, not through funds directly.

[01:08:14 - 01:08:17]

Andy Rougeot: This is just myself with my name on the investment. Right.

[01:08:17 - 01:08:20]

Will Smith: And, and so. And also you're not a fund. So personal investing.

[01:08:20 - 01:09:42]

Andy Rougeot: Personal investing, yeah. Then I since have raised a fund for buying secondaries.

But let's talk about the. My personal primary investing first because I think tied to the recent paper by AJ Wasserstein on sort of search investing outcomes which you know, your audience may not be familiar but he's a current Yale professor, former very successful funded searcher. He's been publishing some great I think analysis of the search community adding some sort of academic rigor to it. He had a recent paper suggesting that returns are much worse than the Stanford study publishes and he got that by getting anonymized results from some big funded searchers. I think that's triggered a lot of conversation around maybe the moics are closer to two and a half times instead of four and a half times as sort of an average return and also much more outlier driven.

So his analysis was saying this is looking more like VC sort of hit driven investing versus how we sort of think of the world. And that doesn't really agree with my results that I'm seeing in my personal track record which again 26 investments, some of the vintage which is more recent but I think is showing more and more the divide between the self funded and the funded funded world where self funded is sticking more to the traditional routes of buying relatively cheap businesses. Results are much more clustered around three times MOIC for investor base and I think the funded is stretching much more towards the VC ish type world, buying much more expensive, relying more on great outcomes.

[01:09:42 - 01:10:44]

Will Smith: Yeah, yeah. So just a reminder for the audience that the data in the Stanford search study is only about traditional search funds funded searches.

So it's very clean data but it does not at all include any of the self funded SBA style investments of course of which there are many, many, many now. So what we were going to do Andy is just, I'm actually going to share my screen you provided with me with a spreadsheet of your, your investments to date. Really, really interesting to look at. So if anybody is not is listening, they can see Andy's spreadsheet actually on YouTube if they want to go look at that. But it's not necessary to understand the conversation we're about to have.

Listener Andy is just going to share some of his results or, or his takeaways from this portfolio. So I'm just looking at, looking at it. I got it up here on screen. Andy, what, what are your kind. Yeah, what are your own takeaways from your own self funded search investing over these last 3ish years?

[01:10:44 - 01:12:59]

Andy Rougeot: Yeah. So you know, to orient the listeners who are only listening at home, we have a, you know, a large Excel sheet which has anonymized industry types but it has geography, initial invested capital put in current MOIC as I value it and then cash has actually been kicked out along with the entry multiples, entry revenue and then the last 12 months EBITDA and revenue as well. So this is something that I personally use as an investor. I think it's a lot more thorough than most of the investors, but I think most of the funds are probably looking at their results in something in a, a similarish way. So some things that I see when I'm looking at this one is I've had seven exits.

Two of those exits were zeros. So those were businesses where almost immediately after acquisition a major issue was identified with the business. Either fraud on the seller's part in one case or major industry tailwind that was going to be a problem the entire time. Of those other five investments, one was a 27X which was a sort of hit type business, sort of more of a VC outcome. Unusual.

You had two, four times and two, three times. Those are actively exited businesses. So ones that I put in the cash and they've already received the full cash out as the business is exited. Other deals that are currently active, which are the other 19 deals you see, I think pretty consistently cash is very rarely returned at all before two years after the acquisition. So I think a lot of prospective searchers model it as if their IRRs would be driven by returning initial capital very quickly instead of going towards debt pay down or.

Or towards other capital capital uses. I also see that my investing is pretty clustered geographically. So I live in Colorado. I'm much more heavily weighted towards Colorado than you would expect on average. I'm also weighted towards the coasts, so towards the west coast and east coast and spring, especially the Southeast and Texas.

Nothing at all though in the Midwest. So I think a it's sort of interesting that as a search investor your. Your investor network will probably weigh you pretty heavily towards your geography and then the geography of the type of people you invest in, which for me is much more focused around HBS grads and those people tend to move to the coast instead of moving to the Midwest. Some other things I find is that I find.

[01:13:00 - 01:13:05]

Will Smith: Let me jump in with this point about geography.

All these Colorado investments. Did you meet all of those searchers in person?

[01:13:07 - 01:13:37]

Andy Rougeot: Some of them. I've never met them in person, which is sort of funny for I've just had the same phone call. But once you are known as somebody in the area to have coffee with or have a call with, I think the hurdle is easier of having had that initial intro searcher call when they moved out to Denver and they said hey, I know you're a successful searcher who lives in the area.

Can you take 30 minutes for call? And they're more likely to do that with somebody who lives in the same geography and someone who lives in a different geography. And when they get to the point where they have a deal under Alli, then you're obviously on the list of someone for them to call as well for a investment.

[01:13:38 - 01:13:46]

Will Smith: And have you found deal flow to be what you want? Would you have liked to invest more actively than you did?

[01:13:47 - 01:14:06]

Andy Rougeot: Slightly. So like I end up, you know, putting to work somewhere between 500k and a million dollars a year, which is what I can, you know, know, personally put in every single year where, where I love is just intellectually I love seeing more deals. So I'm never unhappy to talk with a search or something under LOI and hopefully be able to provide some useful advice on if the business is interesting.

[01:14:06 - 01:14:11]

Will Smith: Or not and the total deployed capital. Here is what did you Tell us the total.

[01:14:12 - 01:14:14]

Andy Rougeot: I don't think so, but it's around $4 million.

[01:14:15 - 01:14:19]

Will Smith: Okay, thank you. Carry on with your observations.

[01:14:19 - 01:15:30]

Andy Rougeot: Some, you know, I think other interesting observation is that entry EBITDA multiples are always less than exit EBITDA multiples. So I've never invested in a deal where the exit hasn't seen MOI expansion.

It hasn't seen EBITDA multiple expansion. So I think we are very hesitant as investors to underwrite into expanded EBITDA multiples. But the reality is a searcher is probably choosing when they exit and they're probably choosing a time that's not driven by I'm 70 years old and I need to retire for a health reason like some of the buyers that we're buying from. But it's more we're picking a top of a market or we have a good strategic acquirers potentially buying the business. We've also probably improved the business significantly not only in the EBITDA level, but also in just the professionalization management layers.

So those are all things that should be driving a higher multiple. So it's something where I think for when investors are looking at these deals, they might not be including in their initial underwriting, but something that I think we should be assuming is that we're going to see MOIC expansion. I almost never see margin improvement. So anytime I see a, you know, a use case from a searcher that's driven by saying hey, we're going to drive down margin, that almost never happens. I very typically see revenue increasing and that leading to EBITDA increasing, however with compression of margin.

[01:15:30 - 01:15:48]

Will Smith: Yeah, a couple follow ups there, Andy. This is just fascinating. I really encourage listeners to pull this up on YouTube. The first of all, the multiple expansion, you don't have like totals here or averages, but do you have a sense of how many turns of EBITDA the expansion is? Roughly?

[01:15:48 - 01:15:51]

Andy Rougeot: I do not know. Something where just you're always seeing expansion.

[01:15:51 - 01:15:52]

Will Smith: I'm on it.

[01:15:52 - 01:16:07]

Andy Rougeot: Yeah. It depends a lot on how EBITDA has changed.

So it's something where you're seeing a lot of times step changes in ebitda. And as you know, you frequently discuss there's just a difference between a 500k and a million and a 2 million and a 5 million in terms of EBITDA where they just their valuation levels.

[01:16:08 - 01:16:17]

Will Smith: Yeah, yeah. And as an investor now, how do you react when you see a searcher putting multiple expansion in their own model?

[01:16:18 - 01:16:19]

Andy Rougeot: You just.

[01:16:19 - 01:16:20]

Will Smith: Should they not?

[01:16:20 - 01:17:12]

Andy Rougeot: I think they should not because my, you know, I would say they should conservatively underwrite every one of their deals. So if they're, you know, underwriting to a target mid-30s IRR, that should be driven by. Multiples being flat by margin, staying the same by growth being reasonable, not by saying hey, we're going to see this MOIC expansion. However, that does mean my investing is more biased towards cheaper deals.

Because if you sort of do the math and say, hey, I'm, I'm going to write a check for things where they're very conservative assumptions and we're still clearing the IRR hurdles, that means that I'm inherently underwriting to deals where people are buying it for less than five times. Because if you're buying something for seven times or more, you're just not going to get it to underwrite to 30 times MOIC if it's a self funded search deal, if they're mid 30s IRR, if it's a self funded search deal, if you're buying at that price point.

[01:17:12 - 01:17:24]

Will Smith: Yeah, yeah.

And why do you think it is.

That searchers aren't improving margins?

Because I thought all of this is about, you know, putting in the CRM.

[01:17:24 - 01:18:12]

Andy Rougeot: Yeah. So I never put in a CRM the entire time we're in the business. But I think the reason why is because you can be sort of two types of business. You can either be a premium product, premium price business with relatively high costs or you can be the Walmarts of the world and you could be value pricing lowcost businesses.

And searchers may think they want to be the low cost value, you know, so the value pricing low cost businesses, those businesses are tough to run. It's much easier to run. We're the premium product but we pay our employees really well. We have some extra SGA to make my life easier. We've got new trucks and those.

So I think just naturally we gravitate towards that. Which leads to margin compression versus the seller who may have been much more comfortable saying how, you know, bare bones going to make this thing when I buy it, you know, when I sell this business.

[01:18:15 - 01:18:20]

Will Smith: So wait, so, so searchers are drawn to, to value businesses but they shouldn't.

[01:18:20 - 01:18:43]

Andy Rougeot: Be drawn to be drawn to either. But when they buy it, they inherently would say I'd rather make my life easier. My employers happy, happier, charge customers more and have slightly worse margins. So it's something where I just think that just as a path you, when you step into the role, you quickly are like I'm giving out raises instead of dealing with employee churn or yes, yes, exactly.

That leads to Margin compression.

[01:18:44 - 01:18:46]

Will Smith: Yes. And exactly.

[01:18:46 - 01:18:47]

Andy Rougeot: By revenue growth.

[01:18:47 - 01:18:58]

Will Smith: Yeah, it's, it's a case of, it's the, the case that we, the pattern that we so often see where a seller has run things really, really lean because they're trying to, to extract as much of the profit out of the business for themselves.

[01:18:58 - 01:18:58]

Andy Rougeot: Yeah.

[01:18:58 - 01:19:14]

Will Smith: And then when we get in there as new owners, we're trying to build more robust businesses and, and really. And build something much more, less lean and less fragile. And that means investing permanently, spending more permanently on SGNA and other and other things which necessarily means less margin.

[01:19:14 - 01:19:15]

Andy Rougeot: Yep.

[01:19:17 - 01:19:18]

Will Smith: Anything else?

[01:19:19 - 01:20:05]

Andy Rougeot: The only other thing I would say is that I still think this is a great path. So I think sometimes there's more pessimism these days of hey, you know, this is too crowded, there's not good deals anymore, prices are going up and I still see, and you know, I've made, you know, put my money where my mouth is in 2025 in terms of additional investments. I think there is still a ton of great deals and very niche spaces that are a great fit for a searcher or self funded searcher. And there's I think a lot of room to run in the space.

So I think people who are, are more pessimistic, aren't, are doing it more based off of vibes than actual Data.

People in 2017 said the space was too crowded. So it's something where they're like oh, the good days were 2012 when there was only two self funded searchers coming at HBS instead of 20 of us. So it's something where I still think.

[01:20:05 - 01:20:24]

Will Smith: There'S room to run well and you made the point about multiples. Are reported to have increased a lot since 2017 when you bought and down in the small SBA size deal there's been some inching up but there really hasn't been that much multiple growth.

[01:20:24 - 01:21:01]

Andy Rougeot: That's right. And I think a lot of it's just a data question of saying how good is our data collection from what the multiples actually were in 2017 versus what the data and same thing it's like for outreach where I'm lucky enough to talk with the veterans group at HBS every single year and we talk about what the initial outreach looks like and the further and further I get away from actually having to search, the rougher and rougher my heads are is what my actual response rate was for my email outreach. So I just know I don't think the data is that clean and I think it's much more driven by just Every searcher thinks that, you know, the deal is crowded and there's multiple people on the other side of the deal. And there isn't always.

[01:21:02 - 01:21:06]

Will Smith: Is this spreadsheet one you'd be willing to share with people if they requested it from you personally?

[01:21:07 - 01:21:13]

Andy Rougeot: I would like I said, it's anonymized enough that, you know, no one should be able to tell what the business is based off of just this description.

[01:21:13 - 01:21:52]

Will Smith: Yeah. Great. Very generous of you. Thanks for sharing it with us today, Andy.

Okay, gotta let you go here in a few minutes, but tell us about search fund secondaries. Let me. Let me tee this up by saying you did a webinar a couple months ago, month and a half ago, with acquiring minds on search fund secondary. So it is a. I mean, in some sense, you're a vendor, a service provider, so people can get a really deep dive on what search fund secondaries is all about in that webinar.

It was a great webinar. Really helpful. It's a fascinating topic and angle you're taking on on investing. So give us the very, very condensed version here, please, Andy.

[01:21:52 - 01:22:32]

Andy Rougeot: Yeah, so outside of my personal investing, I also run a fund where we invest in secondaries of search deals.

So that's providing liquidity, so cash, in other words, to existing search investors. So search is incorrectly thought of as an incredibly illiquid asset. The reality is, if you are a search investor who has a family issue, a need for capital because you're sending your kids to college, because you've got a capital call you need to make somewhere else, you need to put the money down for a house, there is a way to sell your stake in a search deal that doesn't require the entire business exiting. So we raised a fund to provide that liquidity option both to search investors and to operators of these businesses.

[01:22:32 - 01:22:37]

Will Smith: Mm.

And from the investor perspective, why did you like this opportunity?

[01:22:38 - 01:23:48]

Andy Rougeot: So I like it because I think the biggest risk is the day you buy the business. Because if you look at a. You know, where the horror stories come from, which you hear a lot of those, I think a lot of them are driven by fraud or bad diligence. And within a year, those issues have been uncovered.

So if there's a business where there has been massive EBITDA inflation through hiding costs, there's a business where the seller knew the biggest customer was leaving, that is uncovered within a year. And if we're buying a secondary position, so we're buying a stake in an existing deal that's been at least a year owned by the current Operator, we have a pretty good idea that those risks don't exist. So even if the business is in the J curve, so EBITDA has dropped, say revenue has been flat or grown. I actually think that's a much safer investment than the day before close when the business looks as good as it's going to look from the outside and you haven't sort of uncovered what the skeletons are. So in my mind it leads to a return that's probably similar to the overall search return in terms of IRRs and MOIC, but a lot less volatile.

So cutting off the tail ends of the amazing outcomes because I think you miss those sadly if you're buying secondaries, but also cutting off the front end tails of the zeros that are driven by fraud.

[01:23:49 - 01:23:55]

Will Smith: There's two follow up questions there. Why are you cutting off the amazing outcomes? Because the business will be going so well that nobody wants to get out.

[01:23:55 - 01:24:29]

Andy Rougeot: Of it and you can't price it in a way that makes sense.

So if you have a deal like, you know, I was lucky enough to have one 27x deal, I actually had a chance to buy out another investor just personally who needed capital during that deal. I had no way to value in a way that made sense. Because if you're like I'm paying 10x what I initially put in and I'm seeing a path of 30x, that's a lot harder math to do. Versus this business was a million half EBITDA a year ago, now it's 1.4 million EBITDA. What do I think is worth sort of stuff that's, that's growing very aggressively, exponentially.

It's very hard to say is this going to continue to grow exponentially or flatten off and come up to a price that makes sense.

[01:24:30 - 01:25:17]

Will Smith: But isn't it actually harder? Your, your point about the first year? If you can get into, you know, day 366, you've probably gotten through the threat that there is a skeleton in the closet that's going to just completely implode the business by. And that was my second point by the way.

That's a fascinating insight that everybody, they take away nothing from this. I think that that insight is a, is a great one. That first year is going to expose the bad stuff. And if you can just get through that first year, you are likely, it's not scientific, you are likely to have gotten through the risk of there being some existential problem with the business that you didn't see on it when you were before you bought it. But anyway to the upside, Isn't it possible that you could have a really big winner and that has not actually been revealed in the first year or two?

[01:25:17 - 01:26:09]

Andy Rougeot: Yeah, we're hoping that it could be a big winner or more likely it's just going to be the typical double or triple. So it's going to be something like for my investors, they got just over four times moic and we're hoping that we're investing at a reasonable price point providing liquidity to the exiting LP and then we're able to enjoy that growth from one and a half times initial investment towards four times initial investment. And it's something where that's I think a pretty common path. I think it would be very interesting to look at data and say how often do you see exponential growth in years 4 or 5 after relatively flat growth in years 1, 2 and 3? My personal feeling always is more is like years.

There is a J curve but it's not a J. It's much more of like a shallow V and it's something where you do see a dip right afterwards and you see linearish type growth going, going forward. But you know, maybe a better investor than me will be able to only pick the ones that are J's instead of these. Okay.

[01:26:10 - 01:26:33]

Will Smith: Fascinating story Andy.

Fascinating observations from your own investing personal investing activity in this space and and then of course I was already familiar but I think the audience will find the search fund secondaries concept really interesting as well. Go watch Andy's webinar everybody. You can find it on the Acquiring Minds website under the webinars link. Andy Rougeot, where can people reach you? LinkedIn.

[01:26:33 - 01:26:58]

Andy Rougeot: Is that the best? LinkedIn is the best. I'd love to talk if you're either a searcher who's about to buy a deal, especially if you are a military veteran, hopefully I can provide some useful advice at a minimum and maybe write a check. And then if you're an investor who's looking for liquidity, we as a fund would love to be able to help. It's a great option.

If you're an operator and you've got a pain in the ass investor you want to get rid of. I can support sometimes be useful as well there as a resource. Perfect.

[01:26:59 - 01:27:01]

Will Smith: Andy Rocheau, thank you very much.

[01:27:01 - 01:27:01]

Andy Rougeot: Thank you.

[01:27:01 - 01:27:46]

Will Smith: Well, hope you enjoyed that interview.

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