Host: Today's Holdco journey started modestly enough. Chandra Rao bought a little SaaS business off a friend, paying him $60,000 using zero interest credit card debt. That investment generated a nice little profit for Chandra, but more importantly, it opened his eyes. Buying businesses with the leveraged buyout model we all know and love would be his path to creating wealth. Flash forward 10 years and today Chandra and his partner Colin have completed five acquisitions and their aggregate Holdco revenue is $12 million, with EBITDA of three now. It has been a bumpy ride. Two of their sellers turned out to be brazenly dishonest. The stories will shock you, and the first year of their first acquisition saw them liquidate their remaining personal financial assets to make payroll. But what really helped during these low points was their partnership having each other to lean on. And this made me realize that some of the worst Fetal transitions you've heard on Acquiring Minds Reg Zeller, who gave us the phrase fetal position moment Tato Corcoran, who cried every day for four months Philip Blackett, who took a second job as manager of a Chick Fil A. These entrepreneurs were all solo business buyers. I'm reminded of the Winston Churchillism if you're going through hell, keep going. Maybe in ETA land it's if you're going through hell, have a partner see what you think. Also see what you think about Chandra and Collins bias for action, often at the expense of diligence. Where do you fall on that spectrum? Okay, please enjoy this conversation with Chandra Rao, co owner of Miller Companies. 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. An SBA loan broker, as opposed to a direct lender, doesn't work for a particular bank. Instead, the broker pairs you with the right SBA lender for your deal based on industry terms risk thresholds, then helps you navigate the process better than many lenders themselves do. Matthias Smith of Pioneer Capital Advisory is just such a broker. Matthias worked at two of the country's top 10 SBA lenders, so he's been on the inside of the SBA process and knows well the pitfalls and hurdles and how to avoid them. He struck out on his own to laser focus on the ETA in search space. Our niche is his niche. You'll see Matthias at all the ETA conferences. He's closed over 30 search deals since starting Pioneer in May of 2022, including some acquiring Minds guests. To learn more and get in Touch. Go to pioneer capitaladvisory.com or click the link in the notes.

[3:23] Guest: Chandra Rao.

Host: Welcome to Acquiring Minds. Will.

Guest: Thank you for having me.

Host: Chandra, you and your business partner are building a Holdco. Not at least initially, with some grand strategy. In your case, one acquisition led to another. But here you sit, multiple acquisitions later, with what is essentially a Holdco. So before we get into your background, Chandra, let's just give people a picture of what the Holdco looks like today. So current. And then we'll. And then we'll work. We'll go all the way back to the beginning and work forwards.

Guest: Yeah. So today, within our organization, we. We describe them as divisions. So we have three main divisions. Our electric construction company, or electric construction division. Then we have underground construction, which does construction of fiber networks. And then we have fiber splicing, which is very synergistic to that business. And it just splices fiber together once it's in the ground. So basically passing light through, making sure the data can pass things along those lines. So a little bit more of a technical skill set. Okay, so we've got those three divisions. They're made up of multiple acquisitions.

Host: How many acquisitions today?

Guest: So we have done. So what is in that Holdco is four total acquisitions. We've done five, actually. No, five. In that Holdco, we've done six. We spun one business off.

Host: And can you give us a picture of revenue and projected EBITDA for the year?

Guest: Yeah, so we should hit on the low end. $12 million. Somewhere around the $3 million of EBITDA.

Host: Okay, now let's rewind. Start us wherever you think is relevant to how this adventure started unfolding.

Guest: Yeah, so, you know, I. I'll start back. I went to B school. I graduated in 2012 before I knew what ETA was. I actually didn't know this space at all. Went to go work for a big tech company. Worked for Oracle. And then a friend of mine was building a small SaaS business. He was my fraternity brother. Well, I don't think I'll get any return on this investment. But he's asked me for some investment to get his thing off the ground. We'll just go. Comes to about a year in, he can't live off these dollars. He's asked for a buyout, and his buyout is pretty nominal. It was just the amount of credit card debt that he had. So I said, all right, well, there's enough cash flow from this business. I'll just do some 0% APR credit card transfers. I'll take over your debt and then I'll just service the debt with cash flow from the business. And there it is. Exactly. And this was 2014. And. Yeah.

[6:25] Host: How big was this business? Or how. I should say, how small was this business?

Guest: It was. I want to say we reached about 150k in revenue.

Host: And here's a year or in total per year.

Guest: And here's the thing. If I had known then what I know now, I think I'd be retired because that SaaS business had so much potential. I just didn't know what I was doing.

Host: What was it? What was.

Guest: What was it? So it was inventory management, a company called Intracker. And we plugged into platforms like Square, and we would say, hey, here's an add on to your point of sale system so you can track inventory. We had a lot of coffee shops who say, okay, I need to track my cups lids. You know, what are the beans that go into this? Et cetera. And I think the platform itself was. It was really solid. And I look at some of the inventory applications that are available today, I was like, this is not as good as what we had in 2014.

Host: Really?

Guest: And they're charging a crazy amount. So we were charging users somewhere between ten and a hundred dollars a month when we should have been much higher on the scale. And like I said, if I had more cloud background at that point, I think that I'd be retired.

Host: You said you worked at Oracle, Chandra. Were you technical at all, or was that in a business capacity?

Guest: No, I was more on the sales consulting side. So I'd go into a customer or a prospective customer, look at their business challenges and say, hey, here's how some of the software can solve these challenges. It was perfect because I got to see a lot of the business challenges, present a solution, but had very little to do with implementation. So I was like, here's the solution. All right, good. Good luck.

Host: Set every sales guy ever.

Guest: Exactly.

Host: Just make the sale and move on. It's everybody else's problem to figure. Figure out.

Guest: Yeah, yeah. And then so from there, I just let Intracker chug along. It paid off its debt. It paid me well. And I looked at this and I thought, well, I don't really want to manage tickets. I'm just gonna. I'm just gonna let this thing go. I think I sold the customer list for a few pennies here and there, and that was it.

Host: And Chandra, it was making 150 grand a year with almost all of that was profit. If you weren't reinvesting any of it

Guest: or really Yeah, I was, I was just.

Host: You wanted to let go of that?

Guest: Yeah, I was, I was foolish.

[9:02] Host: Well, there wasn't also acquire.com at the time where you could have, where there was an active marketplace, people who would have.

Guest: And I didn't know what I had.

Host: Right.

Guest: I just thought it was like, you know what I paid for a bunch of vacations. I had a great time and I outperformed the S and P 500. This is easy. This is what I've got to do. I just have to buy businesses. And that was the. How the thought process got going and

Host: was it really like okay, so if I can buy this little one man SaaS business, I can probably buy a 10 person, you know, traditional business. Was that kind of the. Yeah, I quickly connect those dots sort of thing?

Guest: I think so. And I kept it as open as possible. It was more just I want to buy cash flow. I just want to buy, you know, SDE at that, at that time. Right.

Host: Yeah.

Guest: And that was, that was the approach. And the other reason why I let it shut down is I started at a startup myself. So I started working on the consulting side at a startup, Koopa Software. It took a lot more of my time in the early days and I was like, you know, I don't want to balance both. I just started a relationship with my wife and I was like, you know, traveling a lot more. I think I should try to have some balance in my life. So that was the other reason.

Host: Yeah, well, cognitive load. Yeah, you know, I get it.

Guest: And there was some, there was some overlapping product functionality and I was feeling a little bit of guilty about, well, I've got this other thing on the side does something that Koopa is also trying to develop. Granted it's a very small niche of inventory management. It just didn't feel right to do both at the same time.

Host: And so what year is this now?

Guest: This was 2015.

Host: Okay, 2015 and Koopa. I actually didn't know Coupa but it was a screaming success and is a big company. Tell people what Koopa is who are ignorant like me.

Guest: Yeah. So Koopa is business spend management. So basically what Salesforce did for CRM, Coupa did for spend management. So think about your non payroll dollars as a business. They would come in and say hey, use this platform. Because of such high adoption rates, we're able to save just a ton of money. So customers were saving somewhere in that 6 to 9% of their spend because historically they were unmanaged dollars. Now they're going against contract getting on a PO etc. So it was, the ROI for this product was really quick and, and this

Host: was a full startup startup, VC style startup.

Guest: Yeah, I think when I joined I was, I mean not the super early stages, but in the 200 of employee counter, under 200. And when I left, we were at 3,000.

[12:05] Host: Yeah. And it had gone public. Right. So you were there for an ipo.

Guest: Yep. So I left Oracle, went to, went to Koopa and a lot of my comp was just the shares and I'm super lucky and thankful that that that was the case.

Host: So that was. You did. This was a story of working in a startup that goes public. You have equity, you do well, this is a meaningful, this is a meaningful financial event for you.

Guest: Yep. It was great. It was definitely great.

Host: Okay, I, I may have skipped ahead a little bit because it's while you're at Koopa that Colin comes along. Catch us back up.

Guest: Oh, yeah. So Colin is my business partner. Colin and I have known each other for, you know, since, I'll say, the 2007, 2008 time frame. That's when we met. We actually met through Muay Thai. So both of us were training Muay Thai at the time. And I always like to say that the bonds of friendship are formed when you hit each other in the head a little bit. And so we have that solid friendship, we have the solid trust. And so we just started kicking things around, hey, maybe we should invest in a startup. Maybe we should buy a small business together. And we've had these conversations going on for years. At that time, Colin was in a pretty successful family business. So they were doing low voltage work for hospital networks, things like that. So that family business was doing just under $30 million of revenue a year. And so it was, it was pretty successful. I mean, I think there were some, some family politics and things like that that he wanted to step away from. So he and I got together and said, well, let's just, let's look for something on Biz Buy Sell. Let's look for something that has really good return for what we buy it for. And that's where we came across our first electrical contractor.

Host: And so Collins notion of buying a business, that was your influence because you had had this kind of SaaS adventure. So you started, you shared your enthusiasm with this wealth building approach with him. He was into it. He'd come from small business, kind of a big small business. Cool. Okay. All right. So you turn your attention to Biz Buy Sell and find what this is

Guest: a company gopher Electrical, construction and based out of Minnesota. At the time I was living in Chicago, Colin was based in Minnesota and it just made sense for him to take over operations if we were able to close the deal. So we went through this process of, and I'm doing air quotes here for the people listening, due diligence. Because we didn't do any due diligence. We didn't know we looked at a QuickBooks file and that was, that was our due diligence. So, you know, I kind of joke about stumbling forward and this is one of the things we made a ton of mistakes in our acquisitions. But you know, we.

[15:08] Host: Well, our job here today, Chandra, is to share with everybody all the mistakes you've made so that they can stumble a little less clumsily forward.

Guest: Exactly. Because we didn't, we didn't know about the community that exists today. We didn't have any of these other resources. We were just guessing and what year

Host: are we in now?

Guest: So we completed that acquisition in January of 2018.

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Guest: so we go through this process. It's a small electrical contracting shop. It's got seven employees, eight employees. The seller said that he was really sick of dealing with hr, sick of dealing with people. He was one of the guys who just did everything himself and was kind of a, a grumpy person. He wanted to squeeze everything he could out of the business. It was just his, his, you know, his life source. So he sold the business to us for $500,000. It, you know, on the P. Ls it was showing, you know, pretty wide ranges across years. But on average it was somewhere in that 350 of SDE. So we thought this is not gonna be a bad return. We'll just do this all seller debt. So we came to the table with about $180,000 as a down payment. And the remaining was seller financing. And the terms I believe were it was a five year term. A five year term on ten year amount.

Host: Now That's a great deal.

Guest: Yeah, we thought so too.

Host: So, but just to be clear, if in, if in fact it was 350sde, we're gonna hear how accurate that number was. But if it was averaging 350sde and you bought it for 500.

Guest: Yeah.

Host: Paid, what is that, one. 1.1 and a half times. Yeah. And. Or less. And heavy seller financing.

[18:00] Guest: Yeah.

Host: So. So what is that? Yeah, basically 50% seller financing.

Guest: Yeah, it was, it was great.

Host: What could go wrong?

Guest: What could go wrong? So our first year, I mean, leading up to this, we thought it was going to be a screaming success. Our first year, we posted a loss of $300,000. 300. Yeah. And I think, I think one of the things we learned is one, this is different than, you know, the service businesses that, you know, a lot of people talk about. This was electrical construction. So this is hotel builds, it's new multifamily construction, things along those lines. So there's not only, you know, different points of the project that we've got to notice when we enter and buy the business, but also there's a heavy float. There is a lot of working capital that is required in this, in this business. Because, yeah, our contracts might say net 30 days or net 60 days, but really it is, hey, when your contractor gets paid, wait 10 days, then you get paid. So you're doing the work for 30 days, you submit billing once, then from there the contractor, the gc, is gonna submit for billing. Once they get paid, which is usually 30 to 60 days later, then they'll pay you. So you're looking at really like net 90 is your, is your payment term. So we were not only posting a loss because of where we took projects over, but also our working capital requirements were, were significantly higher than what we thought they were going to be.

Host: And so what did you do wrong? What, what for the audience should everything. If they see a deal like this, how should they. Did you basically need $300,000 in working capital just to be sitting in this, sitting in the bank account or what? How would you approach it differently today?

Guest: So, so I think there, there are a couple of things. There is a, there is a. It's really easy to get stuck in the analysis phase. Right. And just not make a decision. So both to a fault, both Colin and myself, we will just jump in heads first. We'll just say, you know what, we will figure it out. We'll just buy this and we're going to make some changes. Now that got us to where we are today. But we have the lumps to kind of show for it. So I would say we would still, I think we would still go in and buy this business. We'd still go in and try to do as much as we can. But we were given an education on well, what is the difference in working capital from service work versus construction? What does it really mean for payment terms? And when you're looking at, you know, is it your working capital? Is it just your receivables minus your, your payables or you know, whatever calculation that you want to use? No, it's, it's going to be a little bit more of a in depth look at things. So today I think we're at a foundation where we can go in and we can buy different businesses and not have so much strain on us from a working capital standpoint just because we've got the other businesses chugging along. But I do think that oftentimes it is a topic we just say hey, we've got this, we've got our analysis from the balance sheet and income statement. Let's move on. I think it takes a little bit more care. So if it's the first one, pay a little bit more attention to it.

[21:32] Host: Well, I actually just Tuesday did a webinar on working capital with Sam Rosati. And so it was, I mean the whole thing was about this very topic. So understanding. I understand, you know, that basically you guys kind of under diligence the business and, and, or air quotes diligence the business and where you really got burned was lack of working capital. And then today you just have much more working capital flowing through the entire hold co. So you have a lot of buffer. There's, but what I'm curious is like if you can distill in, into one or two tips what you did wrong specifically in that case. So if I found that business today on, on Biz Buy Sell and I don't have the benefit of a big Holdco or whatever holds co behind me. What, what, what would I, how would I buy this basically $300,000 larger enterprise value so that there's that, that amount of working capital in the business.

Guest: Yeah. Or I mean it's working capital and also where the projects are that you're taking over. We made a foolish assumption that you know, a lot of these projects are basically linear. So hey, you're doing the work, you're getting paid, you know, the profit that you get in each stage of the Prof. In, in the process is going to be similar. Not, not correct at all. Right. So A lot of the profit for a project in electrical construction is done in the first 50%. It's called rough in the. The part that actually is either a cost or you break even, maybe a smidge of profit is the finishing side. We took over larger scale projects at that finishing side. So what we learned was we've got to really pay attention to the ongoing projects, where they are, what they build for. So in this game you can also forward bill, which is what we learned about too. So the seller had forward, build, collect, collected a lot of income from work that, you know, as we were taking over, as we were learning about the business, doing work basically for free. So we came to learn that after the fact.

Host: Chandra, this actually, for such a small business, the working capital problems that you were experiencing feels like it could have and should have been fatal. Really.

Guest: It was close. It was.

Host: Now you're still, you're still working at your W2, so you don't need to take anything out of the business. Colin is operating the business. And are you expecting to pay Colin?

[24:07] Guest: Yeah. So Colin was taking a nominal salary. I think he was taking something like 75k a year. I was also taking a small salary. I think I was taking 25k a year just to, you know, for time. Because we were always on the phone, we were kind of brainstorming things like that. But there were times when we were calling each other. Are we going to be able to make payroll? Are we going to be able to do this? The concerns were very real. And because I'm, I'm putting myself back in that mindset, it seems years ago, but. Or very long time ago, because it was years ago was one of those fetal moments that you've talked about.

Host: Right?

Guest: We were, we were really scared about it.

Host: You were so. Okay. And I guess the fetal position moments are eased a little bit when you're working with a partner. Yes.

Guest: Sharing the stress load is, is huge. So what we had done is we had. Because, you know, I was still working at Koopa, you know, the, like I said, the shares that I had were great, but it was still imaginary dollars. They were vesting or the share price wasn't very high. You know, I just got lucky in 2021, but the, the access to capital was still limited. So what we did is we went to lending club and took out some personal loans for working capital. And then we met a banker who said, well, why don't you take an express loan out for the SBA? And so instead of using $80,000 of working capital, we used $350,000 of working capital. And even then as we were taking on bigger projects, trying to grow, we still had working capital constraints.

Host: So you did need to then inject money or working capital into the business. You did it with an SBA Express loan. 350. The 80 that you mentioned that would have. That was what you were looking at from Lending Club.

Guest: Yeah, we did that initially. We thought that's all we're going to need. We're just going to need about $80,000. We're very wrong.

Host: And then. So you get 80 plus 350. Yep. And okay, so. So then what happens? What happens from there? I mean did that do the trick and you caught of it?

Guest: No, we were still on the downward slope. So I remember. So I got married at the end of 2018 and we had eaten through a lot of that capital already and we were still waiting for gcs to pay us. I think they were on. We had one that was over 120 days and that was a big check that we were waiting for. We can't make payroll this week. So both of us liquidated what we could, threw some money in the business so we can make payroll for the next week. So this was September of 2018, the Friday that I'm going to fly out to Virginia to go get married. Because that was where I was, where we were getting married. Deposited money into the account, thought well pay the wedding vendors a little bit late. Hopefully we'll get paid paid back and, and go from there. So it was. When I say it's held together by duct tape and shoestring, that's, that's kind of what it was.

[27:36] Host: And when you say liquidated, you and Colin liquidated what, your savings?

Guest: We had savings. Any, any stock that we could sell. So I didn't have a ton of money at that time. It was, I think I had, I threw in $25,000. He threw in an additional. I think it was $15,000. Kind of worried that this thing was going to collapse.

Host: Wow. And so you guys really put, I mean you had some paper money. Paper wealth.

Guest: Yeah.

Host: From your Koopa stock. So you weren't really facing. It was financial insolvency, personal financial insolvency. But every piece of every dollar you kind of had immediate access to. You. You put in at this point.

Guest: Correct.

Host: And Colin as well.

Guest: Yep.

Host: Wow. Okay. And having already done the eighty thousand dollar line of credit with lending tree lending club and 350sp. Okay. So.

Guest: All right. You know, I, I get married, nervous back and open the Mailbox. And there was. There was a. There was a check there. And I think we. We breathed a sigh of relief. So we took the money we. We put in back, we paid down our SBA line a little bit, and then that's when we started to gain some traction and, and start moving forward. That's when the dollar started to come in. But, yeah, it was. It was definitely a scary, scary time

Host: to.

Guest: To say the least. And I kind of gloss over it sometimes because, like I said, it feels so long ago, but talking about it now, it's. Man, the anxiety that we felt was, was I'd say something we hadn't felt before. Something I hadn't felt before. The.

Host: Tell us what happened. Year two. So. So once you kind of. Things start gaining a little bit of momentum, so year they improve rapidly or what?

Guest: Yes. So year. Year one, we had, like I said, a net loss of about $300,000. Year two, starting new projects, carry things forward. I think we had a profit of just about $400,000. So we're net total in the black, which was fantastic. And as we closed out year two, we thought, well, let's do this again. Let's buy another electrical contractor. We're getting momentum. So In January of 2020, we found Miller Electric, which was for sale, and we went through and we purchased Miller Electric and we rebranded basically our Gopher Electric brand and everything under one Miller Electrical Company.

[30:19] Host: Before we get into the Miller acquisition, let me just close out the uncomfortable chapter here. Oh, yeah, two questions. First. So you said you were net profit of $400,000 year two. So did that mean you paid down all of your. You paid yourselves back and then paid down all of your lines of credit or those lines of credit just, you know, you are fluctuating to this day.

Guest: So we paid ourselves back. But I think when I talk about profit, I talk about it from an accrual standpoint. Yeah, but this is. I think in construction, it's just so heavy on. I mean, we call it the float, but just so heavy on working capital that it takes a very long time to. To just operate on your profits.

Host: So help me then understand when the. Ostensibly the enterprise value is $500,000 when you bought this business, but given the, the, the working capital, lines of credit infusions that you had to put in your own money, but then you paid yourselves back, what does that do to the actual enterprise value? Is it, you know, I'm getting a little lost in the numbers. Was it still basically 500? You just needed to get some Temporary debt to get you through, or was it. No, it's really more like it was an $800,000 acquisition.

Guest: You know, I'd say we, we, we pumped a lot into that, into that business. So I'd say our, our actual buy prices, you're right. Probably closer to 880 when we think about total dollars that we committed either via debt or personal loans or, you know, what have you, so. Absolutely.

Host: Okay. Okay. 880. Kind of real enterprise value or acquisition price. Yeah.

Guest: And that enterprise value is probably a lot lower. It was just our, our fantastic ability to buy. Buy high.

Host: Right.

Guest: I think that's what they tell you to do, right? Just buy high.

Host: Yeah, there you go. And then that SDE number, the 350 average SDE number, did that shake out to be about right? I mean, you had 400 year two, you had negative 300 year one. So my math is that's 50,000 SD average of SDE a year.

Guest: Yeah, we always joke that, hey, mistakes were made. But I think that as we learn and the theme I think of this is going to be we are not good at due diligence. But I think the SD numbers were. There was a lot of fluff.

[33:03] Host: Okay.

Guest: And we just, we took it at face value.

Host: Okay. Anything to say about the fact the, the relationship between you and Colin? Not sure the relationship, but I really, what I really mean is it's always a very interesting topic to people about how there can be an operator in the business if the buyer is maybe not the operator. You guys are slightly different because Colin's your partner, so it's not like he's a hired operator.

Guest: Right.

Host: But anything to talk about in that time that you're basically working full time and Colin's doing this is in the business. Yeah. Anything more to say about that those first two years on that point?

Guest: I think the, the benefit is that we have differing skill sets. So Colin, having had that experience in his family business, he had a lot more construction background than I did. I mean, I, I kind of joke that I don't know which end of the hammer to use. I was a, you know, a software guy. So he had the skill set. He kind of knew this area. And, you know, I kind of had a little bit of the, the finance side, a little bit more sales background. So it really was a good combination for both of us. And because we'd known each other for so long, there is an inherent trust along with, you know, just the ability to share stress. I think if either one of us had gone in it Alone, we either would have aged much worse than we did or we, we wouldn't have been able to, to, to stand the pressure. So it was very helpful.

Host: Great. And are you guys 50? 50. Can you share what you are there? 50, 50. Okay. Okay. And, and by the way, so is the plan at this point that you're going to, that you, Chandra, are eventually going to come join at the time, Gopher or no.

Guest: Yes. So the, the long term vision was that it would be both of us running these, these companies. It was just the initial start of, hey, this can support one person. It's a smaller acquisition. You first. Right? Colin first, because he's got, like I said, the background.

Host: Yeah.

Guest: He also wanted to exit the family business a little bit quicker, so it just made a lot of sense.

Host: Yeah. And so, so then already you're thinking Holdco, maybe you didn't use that word, but you are thinking that this is going to be something that you both devote your entire time to. You're not going to have other jobs and you're going to buy more. You've already come to that conclusion early on, even though it was more eventually the first year. Right.

Guest: And I, I kind of think about it like, well, was there a strategy or did we just stumble forward? I think, I think that we were both really excited about working together and we just didn't have an idea of when it would be that, hey, the businesses we acquire can, can support both of us. But that was part of the plan.

[36:14] Host: Okay. Okay. The other thing I want to call out, Chandra, as you said, kind of a theme here is. Well, I think maybe you said the theme is that you guys don't do due diligence. Well, but it's the, it's the same theme. It's a related theme to you. Kind of dive in.

Guest: Yes.

Host: And I'm, I'm reminded of my interview with Mike o', Kravi, who bought a, an epoxy like garage floor ceiling coating business. Right. And a towing business kind of in rapid succession without doing exhaustive due diligence himself. And his point was like, my philosophy is I, I jump in head first. I just air on the side of action. And that serves me pretty well. But it also means that there's going to be costs along the way. I'm going to get a, I'm going to get burned more than somebody else doing this who's more careful. And that's just, that's. That cost benefit is, is one I'm willing to go with. I'm willing to get burned Sometimes in the interest of moving much faster and not suffering analysis paralysis, which I thought was a pretty intriguing philosophy. It sounds like yours is exactly the same thing.

Guest: Absolutely. And I know as we go through this, we'll talk more about mistakes were made. Right. Or the lumps that we took from jumping in headfirst. But it, like I said, it got us to where we are today. And there are so many reasons not to do a deal. You can come up with any number of them. No deal is perfect, so it's easy to get stuck in that. Well, I don't want to take this risk. I don't want to expose myself to the potential downside. We just jump in head first, then you don't.

Host: Then you never buy anything. Right. Okay, thank you. Tell us about acquisition number two, Miller, which has become the namesake of the company. So this one, it is our.

Guest: It is our Berkshire Hathaway. So the big red M. Yeah, I see it.

Host: Nice.

Guest: So Miller Electric, I think, was just a fantastic acquisition in that it came with a lot more systems and infrastructure, so still doing electrical construction, but also had some service component. So we, you know, we were able to steady some of the working capital requirements, which was fantastic. Payment terms of, you know, five days or less versus, you know, net 90s. And we did get additional support staff who are with us today. So that was a fantastic acquisition. But like anything, we did make some mistakes. And one of the challenges or one of the mistakes that we made was we said, well, the seller from the first business, he was working for us, he was the master electrician. We thought, let's partner with him, let's lock up that master electrician's license, and we'll all be 33% ownership, and we'll make him put the down payment or a portion of the down payment in for this Miller acquisition, and I will say 33%.

[39:28] Host: So you were that. I mean, he was becoming a co. Equal partner with you.

Guest: Yes. Mistakes were made. And I joke about it. We'll talk a little bit more about some of the challenges that that brought up. But at the time, we were thinking, well, these master electricians licenses are somewhat difficult to have. Let's lock it up and make sure that we can focus on growth and keep moving forward. But I think vetting partners is just so hugely important, not only just from who they are, but if they're a cultural fit for how you want to manage the business.

Host: Well, I would have thought, though, but at this point, you. He was a known entity. You'd already gone through a transaction with him. Been on the other side of the negotiating table from him then been on the same side of the table as he continued working for you in acquisition number one. So you'd think that you would have it kind of implicitly diligence to this point. Yeah, but. But there were surprises.

Guest: Yeah. I think that some of the things that we saw is, you know, maybe quirks just working with, with people. You know, it's the. We put it off as, hey, he's just an old school construction guy. These are, this is how they were. They were, they were made back then.

Host: Right.

Guest: And unfortunately, these small little quirks were. Were more character flaws than we, we realized at the time.

Host: And are these flaws around integrity?

Guest: Yes. So we, we came to find this out, you know, years later. But, Chandra, actually, let's.

Host: Let me pause you on that because we're going to spend some time there. But just before we get there, can you tell us some numbers about the Miller acquisition, how big the business was then, what the acquisition looked like?

Guest: Yeah, so very similar to Gopher. So that was a $600,000 buy price. It was just under 300,000 in SDE. And then at that time, we were looking at, well, there are some things that we wouldn't count as add backs, things like that. So I think we settled at 250 was the real SDE number. But what we really liked about the business was the structure and the support staff.

Host: It seems like you're getting a good deal.

Guest: Yes. And I was.

Host: And that was a good deal.

Guest: Yes.

[42:00] Host: Okay. And it was a good deal where the first one wasn't, because it was actually a much healthier, sturdier business without these horrible working capital constraints and concerns.

Guest: Sure. Yep. And there were some. There were still some working capital constraints, but not nearly what we faced in acquisition number one.

Host: These are small businesses that you bought. Both acquisition number one and two, Chandro. So. So the first one, you know, 3ish SD. This one, 3ish STE. Maybe 250 after you.

Guest: Yep.

Host: Consider the ad backs. So those are much smaller than the conventional wisdom would tell you to buy. And for two, the two of you. So the, the s DE numbers are kind of half if you kind of consider what you both need to take from the business. Right. The. What was your thinking about size there? It sounds like despite the fetal moment of Gopher. The fetal moments of Gopher. You chuck that up to working capital not being too small a business, because when you went back out, you bought a similarly sized business. So what were you thinking?

Guest: Size wise so our, our initial thought was, well, we've got Gopher kind of rolling, so we're not going to face that immediate or the, the as steep a J curve with this one because we've got the, the Gopher receivables, we've got, you know, a lot of this base formed. So we thought we were not going to feel the same kind of pain with Miller as we felt with the first acquisition. And that was the thought process of, hey, we'll go after another small business. We see that it's got some really long term employees. All of the employees at that time, with the exception of one who are, who were field staff, were journeymen, which at that time, and still to this day journeymen are like, they're like unicorns. They're really hard to, hard to find.

Host: What's a journeyman, Chandra?

Guest: So a journeyman electrician is somebody who's gone through the, the, I think it's a four year apprenticeship. They can actually run electrical construction jobs. They can, there's, there's specific ratios that you have to have of journeymen to apprentices on a job site, things along those lines. So it's, it's the experience and the ability to pass a pretty extensive state exam to, to be certified to be a journeyman. So it's, it's a difficult process and I think the pass rate in Minnesota is actually lower than the bar.

Host: So you were saying, so you just saw, a lot of, you were saying that the value that you saw in Miller, despite the fact that the STE number and overall revenue number was quite low.

Guest: Yes. And we thought, you know, we've got, we've got a good sales funnel. What we can do is we can start to bring down the, the actual cost on jobs by pairing these journeymen with some experienced apprentices. So the apprentices are going to make a little bit less money. So we can start to average down the cost. We could ultimately make this slightly more profitable. That was at least the thought process.

[45:16] Host: So how does that go? So tell us a little bit about the transition and how it goes in year one and two and then of course return us to what happens with seller of business number one, the gopher seller.

Guest: Yeah. So, you know, the first few months as we brought in this new partner, you know, things are going along, the transition is going all right, but within, I'll say within six or seven months, we lost three key team members from Miller. So we lost three journeymen.

Host: And, and how, how many had you had, how many employees had Miller had?

Guest: So we had Seven field staff and then one. One office support. Wow.

Host: So you lost three, and those seven were journeymen and apprentices.

Guest: Uh, yeah, well, they were all journeymen, so that was. That was the attractive. Attractiveness of the. The business.

Host: Oh, sorry, I didn't. I missed that. They were all journeymen.

Guest: Okay.

Host: So you lose half of. Effectively half of them.

Guest: 3. And, you know, it was that the. The person we brought on to be a unequal partner, he was butting heads with a lot of the. A lot of the guys. Just like I said, from a cultural standpoint, he just wasn't. Wasn't there. You know, if. If I can. If I can curse. I mean, I think nobody really wants to work for an. Right.

Host: Yeah.

Guest: And especially in a. In a trade where the demand is so high to go somewhere else and be treated the right way, which is, you know, what Colin and I really want to do. We. We want to build an organization that is culture first. We want people to really enjoy where they work. And this. This person was just kind of the. The antithesis to that.

Host: Yeah.

Guest: And we. We saw that pop up more and more, which was disappointing.

Host: Now that you basically have bought two businesses, two electrical contractors, you have. You can compare and contrast them, including culturally. Yep. So he had been the founder, owner, and seller of business number one, Gopher. So did you then see that. That the culture at Gopher was not great? Because as you looked at Miller and you saw his influence on Miller, it was kind of starting to bring the culture down.

Guest: Yeah, it was. It was pretty clear, I think, that we wanted to take him away from any HR type of. Type of role or any type of management of team members. The problem is he also had the master electrician's license, so he had to go out on job sites. He had to interact with field staff, so it was hard to keep him siloed. What he was good at was the sales side, and he was good at, you know, some administrative tasks, or at least that's what we thought.

[48:12] Host: Well, as you start to see cracks here, are you also concerned about the equity that you've given to him? He has not only operational power within the business, but he's actually got. He's on the cap table.

Guest: Yeah, yeah. So it. It was a concern. We were hoping that. And this is. This is hope. Hope isn't a strategy. Right. But we're hoping that we can bring him along and start to start to change his behavior. Behavior or how he was interacting with team members or at least silo him. We were not successful. Add on top of that. So this. We completed that acquisition in January of 2020. In May of 2020, we completed two additional acquisitions, which were underground construction and fiber splicing. And those are the two businesses that I started running. So it was not only that he was interacting with the staff, and we're getting more complaints. We're also overloaded with work from, hey, we've got to transition, fully transition the electrical company. We've got to fully transition the underground construction and fiber splicing businesses as well. So it was. It was a lot. At the same time,

Host: he's no longer at the business. So how did you extricate yourself from this?

Guest: So, you know, Colin and I, we were looking at, hey, maybe we should buy businesses outside of this partnership. So we were looking at, you know, a manufacturing company, and this is early 2022. And at the same time, he comes and says, look, I. I'd like a buyout. We thought, hey, the stars are aligning. This is fantastic. And we, we go through, we negotiate a buy price. We say, all right, there's a lot of debt on these businesses. We're. We're going to, we're going to offer you. I think we offered him $650,000 is what we settled on, to get his third of the, the businesses that we had acquired and just have him leave. That's, you know, at the time, we're thinking, this is a. This is a great deal. We're getting a lot. But what we didn't know is all the things that he was doing in the background, stealing from the businesses, so on and so forth.

Host: Okay, well, I want to hear about that. But when you say you're getting a great deal, so. And you paid him $650,000 for 33% of the business. So you basically valued your businesses at this point at $2 million.

Guest: Yep. Equity.

Host: Equity value. And you thought that that was a good deal for you. Yes, because we basically an undervalue it.

[51:03] Guest: It was. I, I think. I think if we looked at what the growth rate was for, you know, the company that. Companies that we had just bought, the underground construction company and the fiber splicing company, I think we purchased those. Well, and we had a lot of work in pipeline. I think if those were all taken into account, we'd say, yeah, there was, There was a discount, but because he wanted to move fast, we also wanted to move fast. But this, this made a ton of sense.

Host: And, and so sorry, the, the fiber laying business, the. Or the underground construction business, as you called it, acquisition 3. And then the fiber splicing business acquisition. Four, by the way, where do they come as a pair of. Together.

Guest: They were the same seller, they had different cap tables and they were structured a little bit differently, but yeah, they were the same.

Host: We're going to get to those in just a sec. But you bought those as part of the partnership with, with the Gopher seller?

Guest: Yes.

Host: Okay. Yes.

Guest: Mistakes.

Host: So you had all this. So you really wanted to get him out before those things started taking off or whatever was going to happen there. So. But just to be clear on the $650,000 that you paid him, you had given him the 33% of the business just in exchange for continuing on and having the master license. He hadn't had to buy in any equity.

Guest: So he, he put the, he put a portion of the down payment down for. To buy Miller Electric, so.

Host: Oh, that's right.

Guest: So the structure of that deal was it was, you know, I think it was $600,000. We did that through. I think it was 20% down. And then traditional bank debt. And then during that process of the Miller acquisition, Miller Electric acquisition, we also refinanced his seller note to say, okay, well, we'll just have the businesses pay the bank. So we didn't have a seller note with him anymore. He got paid out, which in retrospect was also foolish.

Host: So he, so he turned what into 650. So.

Guest: So we had paid him out all of the seller debt that we had from Gopher Electric at the close of the Miller acquisition and also made him a 33% partner to lock up his electrical license. And he came to the table, I think, with $90,000. So.

Host: Wow. Yeah. Okay. Well, to add insult to injury, tell us what you then learned also about his misbegotten gains as he had been running things.

Guest: And I think one of, I'll say this. So Colin and I are trusting to a fault, right? We're, I think, still. Still.

Host: Okay.

Guest: I don't want to look at the world. Neither one of us wants to look at the world with so much cynicism and, you know, so much doubt with people that, that we become the, the, the grumpy people or the, the folks that never trust anyone. I know I'm going to get burned. I know this is going to be a, a fact of life, but I choose to live life thinking that, hey, the people I interact with are going to be genuine. I know it's not true, but I'd rather make the assumption first and be proven wrong. So with, with this gentleman, he what would he was doing was he was basically building things for himself and hiding those construction costs in project costs that that Gopher and Miller were. Were completing. So an example, he built himself a pool. And when he build himself a pool, there's cement costs, there's construction costs. Well, he hid that cement cost under a mill, under a Miller Electric job that had cement cost. Using the same vendor. Right. Using the same pos. So when we're doing job costing, we're like, oh, this came in a lot higher. You know, and then his explanation is, oh, well, we. We needed more. More cement or we needed more of this. So.

[55:24] Host: Wow.

Guest: He was just.

Host: Yeah, embezzle. I mean, this is embezzlement, basically.

Guest: Yep. He built himself a barn. You know, this is, you know, or a man cave or whatever it is, and everything from lumber. And this is, you know, we started looking back at the transactions. This is when all building materials are super expensive and just pulling. Just pulling funds out of the business, which was disappointing.

Host: When I hear stories like this, I'm doubly aghast. I'm aghast at the moral failing of this individual, but I'm also aghast at the. At their chutzpah to think that they're not gonna get caught.

Guest: Yeah.

Host: Like, this isn't, you know, a giant business where $50,000 here or there is a rounding error. Like, you, you know, these are the. The. These additional costs.

Guest: You.

Host: You immediately notice. You, Chandra, immediately notice. Like, why is cement so much more expensive this time?

Guest: Just.

Host: And you're, you know, you're basically intimately partnered with him. It just blows my mind. Anything. He'd get away with it, basically.

Guest: Yeah. And I think the benefit here is that we didn't do $650,000 upfront. We did. We did do a large portion, so we did $450,000 financed by our bank, and then we did a seller note for $200,000. And we had that seller note kick in, I want to say, eight months later. So we had a standby period, and that standby period when he was out of the business allowed us to. To dig in and see what was actually going on here. And that's when we discovered this. So we held back the seller note, and we're not. We're not going to pay on that. But we've. We, you know, we're given this idea by our bank and our attorney say, look, you don't have to pay them after you found the fraud, because we're still finding fraud here and there.

[57:28] Host: So it's still now 2024, end of 23.

Guest: So as we closed out the, the 23 books, went back and had our accounting FIRM Looking at 22 as part of, you know, as we're going through an acquisition process that, that didn't happen. That should have happened this, this week, but we found some, some additional transactions there as well.

Host: Chandra, you had said on our pre call how much this really bothers you, this guy. The emotions of being kind of robbed blind by your business partner, no less. Right. So this is a different type of unpleasant emotion than a fetal position where you're worried about making payroll. This is the emotion, the negative emotion that can happen in small business where there's just more theft that occurs, I think.

Guest: Right.

Host: I think it's fair to say. I think John Wilson, who I, who I recently had on the podcast, who has a plumbing business in the Akron, Ohio and Cleveland area, Big one. We were talking about the path of buying a small business. And he, and he says this is one of the things that people considering this path should also consider is like, are you prepared to be stolen from? Like, I'm stolen from every day. And now I didn't get him to elaborate on that. I don't know if he meant by customers or employees or what, but you just have the impression that there's, that there's a lot of, there's, there's a lot more theft here than there would be in corporate America. So take, respond to all of that, please.

Guest: Yeah, So I, I would say that the first few months after we found the theft, I was, I was really emotional about, I was really, really upset. And, you know, talking with our, our corporate attorney, talking with, well, we had to get a new corporate attorney because there were some conflicts of interest. So we couldn't, couldn't use the same same group. So we, we have another corporate counsel that we're using and wanting to, to say, hey, let's, let's go after him with everything. Let's, let's use, you know, we know that he, we, we also found out he cheats on his taxes. Like, all right, well, let's, let's make the tips to the irs. Let's, you know, just a lot of anger because there was, there was just trust there. Right. And when you trust somebody and they betray that trust, you're going to have a very significant emotional response.

[1:00:02] Host: Yeah.

Guest: And what I found is that emotional response was only a net negative to me. And it was, you know, a negative, A negative to, to people around me. Nobody lives in a vacuum, right? As you. You. You kind of wear this stuff on your sleeve. Other people see it, other people know that, hey, this is something you're struggling with, but it also is in every interaction that you have. So I'm growing.

Host: So this was permeating your mood?

Guest: Oh, absolutely.

Host: You. This anger was following you around like a cloud over a rainy cloud over your head everywhere for weeks and months.

Guest: Yeah, I'd like to think I can compartmentalize, but I can't. And so, I mean, my wife would. Would be like, you know, hey, you're. You're pretty grumpy all the time. What's. What's going on? You're. You know, I was more frustrated with, you know, even hanging out with my. My son, who was, you know, a toddler, who's a toddler now. And, you know, all those things just. Just make for a negative experience. So I. I had to. To reflect back and think, is hanging on to this worth it? Is it? And it's. It's just not. So that was the. A little bit of the wisdom I. I came to.

Host: Well, easier said than done, though, Chandra. I mean, I feel like I've heard that it's like, what is it the. Yeah. Anger or resentment? Like, it's basically what you said. It's really the cost is to you not the person who's the subject of your anger, resentment. So just kind of put down the burden, but, like, the. Easier said than done and I imagine.

Guest: Right.

Host: So. So I'm not sure the wisdom is so much that. Which we all already know. The wisdom is how. How did you let it go?

Guest: I think you have to look at the impacts to people around you. And if I am making, you know, an impact, that is to the negative on the people I love most because I'm grumpy all the time or because I'm carrying this additional anger for somebody who doesn't matter. They just don't matter in. In my life then, you know, I've. I've got to do the work internally to say, hey, let it go.

Host: Yeah, let it go. Well, good for you, Chandra. For. For letting.

Guest: I still struggle with it. Don't. Don't get me wrong.

Host: Yeah.

Guest: I'm not fully Zen yet, but it's a. It. It's progress.

Host: Well, I bet it's. It's something of a muscle. You know, you gotta. You gotta kind of exercise that muscle to keep it. Keep it strong. Right. Keep the. The anger at bay sort of thing. And also good on you for. In your partner, for kind of philosophically committing yourselves to not being, becoming, losing, you know, misanthropic, losing faith in all, all humanity and just being distrustful in all directions that you really have kind of a commitment, philosophical commitment to continuing to, you know, give people the benefit of the doubt. Trusting first. Trust but verify. I assume. I assume you've probably come gotten a little bit tighter around verification, but that you don't want to just become this jaded grump. Right? Right.

[1:03:25] Guest: Yeah, sort of thing. And it's. I mean, that was not the last time we've been burned. And you know, even though I think back to the most recent times we've been burned, I know it's not going to be the last. But like I said, you could either look at the world as, hey, a lot of people are out to get you. You've got to protect everything you have and, you know, go at it with that type of cynicism, or you cannot. And yeah, I choose to look at a much more positive view of the world.

Host: Just before we close out this chapter of your story, just watching the time, but what do you think is the takeaway from this terrible experience with seller of business? Number one? Was it that you didn't verify? You should have been tighter there, or. I think we've already covered that. Maybe you were a little too generous in bringing him into the partnership. You offered him too much for too little. The master license, basically. What. What would you have done differently? What did you learn other than to put down your anger from this experience?

Guest: Well, I think. I think I learned the value of a seller note at, you know, initially when going through these acquisitions. You know, the. I would say, well, the seller note just acts as. It's almost like equity for the bank. So we'll. We'll just keep a seller note on. So we had a seller note with our underground construction company. We had a seller note with the fiber splicing company along with the, The Miller Electric acquisition. We had a small seller note there, which I just, I just didn't really put much towards the. The phrase have skin in the game. But seeing how this paid off, of having a holdback, having that seller note to say, hey, look, you thought you were getting all this. You're not. You already got paid. Fine. We're going to separate is a huge lesson. And we were able to use that tool in another scenario as well.

Host: So the value of a seller note as not giving too much of too much cash away so that there's some uncomfortable position you can. It's not in that money doesn't have to be clawed back. It's in your hands before being given over and you just don't give it over. Right.

Guest: Trying, trying to get back what you've already given is so much harder.

Host: Looking at our time and still got a few important things to get to. So you've done, as you said, a total of five acquisitions. We're not going to have time to do all of them.

[1:06:03] Guest: Sure.

Host: But I, I do want to hear about, I want to hear briefly about, very briefly about all of them, actually. But we're not going to deep dive into all of them. But before we move away from your first two, the electrical contractors Gopher and Miller Miller, which is now again the, the brand of the Holdco. Tell us a little bit about the electrical business. We hear a lot about H Vac, we hear a lot about plumbing. A lot of plumbing businesses offer H Vac and vice versa. Electrical is enormous, but it's somehow a little bit to the side from those, those two other giant trades. What can you educate people about this industry business, what to look for?

Guest: So I would say this. It's a little bit different because we are so heavy in construction versus service work. So we are trying to pivot into a little bit more of electrical service, working with property management companies, working with, you know, maybe hoas, things along those lines to where we get, you know, a normal volume of calls to have an electrician go out and take a look at some, some simple problems. Maybe it's an outlet or what have you, or smaller jobs. That being said, I think, I think this space, very similar to H Vac, very similar to plumbing, is going to get the same kind of attention in the next couple of years, but once again with a focus on service rather than construction.

Host: But any notion as to why it hasn't happened yet?

Guest: I think the licensing requirements, at least in the state of Minnesota, are really, really high. So to, to be a journeyman, to have that service work component, you have to send a journeyman out to, to do the work. Right. So if I have an outlet out at my house and I've got to get a, you know, I've got to call electrical service company to do it. It's a journeyman coming out to, to fix it. And the cost for, know that journeyman, you know, call it $125 an hour plus your travel time, I mean, the margins just aren't as high as with H Vac or plumbing. Things along those lines. That's my guess.

Host: But wait, wait.

Guest: Sorry.

Host: So for you, the owner, the margins on Your labor are lower, thinner because they're so much more expensive. And you, you don't feel that you can pass on that cost to the consumer.

Guest: Right.

Host: To, to maintain margin, like say you wanted 20, 25% margin. You don't feel like, interesting.

Guest: And I mean, like I said, I think this is a new world for us as an organization too. So there, there are likely other electric service companies that have figured this out. So we're, we're really dipping our toe into the water from these big, you know, two, $3 million builds that last a year or eight months to, hey, I got my neighbor who's got a GFI or you know, somebody needs a new panel, something like that. So it's maybe just my experience versus industry as a whole.

[1:09:22] Host: By the way, I meant to mention this earlier. The. One of the reasons that we like service instead of construction, one of the, I think the most commonly held reason that service is better than construction is because the revenue collection, the revenue generation is smoother. It's not as cyclical, it's not as subject to economic trends. So construction surges when the economy is good, construction gets hammered when the economy pulls back. So very cyclical. But also this working capital thing.

Guest: Yes.

Host: I'm surprised it's taken this long for it to crystallize for me that the way construction jobs are paid is terrible. The terms are basically terrible. It's 60 and 90 days before you get paid for work. So we don't like that either. Mental note or note for the audience and myself. Great. Okay, thank you for that. So let's quickly hear about the underground construction, fiber laying and fiber. Fiber splicing. This pair of businesses. What are these all about?

Guest: Yeah, so we, we bought this in, we closed May of 2020. So right as the world has shut down from, from COVID we bought this underground construction company. We thought, well, we'll just continue to branch out from electrical. Our electrical service construction company essentially had some underground component. And we thought, well, we'll go out and just buy this. And the multiple seemed fantastic. That I think the total purchase price for both businesses was $2.1 million.

Host: And on what give us a picture of revenue, STE employees, et cetera.

Guest: So revenue at the time was say 1.3, $1.4 million. And for the underground construction side, about 2 to $300,000 for fiber splicing. And the SDE total for each was about $400,000.

Host: So that's a 5x multiple.

Guest: But it was all asset based. So we ended up buying, I think it was about $1.8 million of equipment. So we looked at this and said, well, this is. First, the seller was selling because they had recently had a heart attack and could not continue to operate the business. So they had one year where they were basically saying, all right, I'm going to operate this from my couch. Normally they're out in the field doing every single thing. So the numbers had taken a little bit of a downturn. I think historically they were looking at close to a million dollars of sde. Granted, that's got a lot of fluff, but the year that we bought it, the previous year, rather right around that 400,000. So we were taking a risk, seeing, well, the company is on a downward trajectory, but think we could fix it.

[1:12:41] Host: And a lot of hard assets that came along a lot.

Guest: Correct. So we saw the risk as fairly minimal because if this thing didn't work and we were doing conventional debt with a 10% seller note and some, some down payment from us, we thought, well, we could just sell all the equipment and take off the existing debt and yeah, we'd be out our equity. Great.

Host: And has that proven to be a pretty good thesis?

Guest: Yeah, I mean, that, that business.

Host: Well, the business is doing great.

Guest: Right.

Host: But just. Was your analysis pretty on point there? Yeah, of. Okay.

Guest: Yep.

Host: We're going to hear about how the business is done too, because that's been a lot of the, the growth of the overall hold co has come from, from the, from the laying the underground construction. Right. Yeah, so we'll get to that in just a sec. But conventional debt. So this is. I meant to ask earlier when I heard you say that, so it sounds like you're using. Have you used SBA at all?

Guest: No, sba, not, not outside of that initial express line. And we ended up refinancing that to a conventional line after our acquisition of Miller Electric. So everything we have is conventional debt.

Host: So what's the deal there? Why not sba?

Guest: So we were looking at it from the terms, the kind of ease to operate. So when you're operating an asset heavy business with the sba, it can sometimes be a challenge. So looking at all of the things that you've got to go through from, hey, I've got a. Maybe I've got to sell a truck. Well, that means you've got to go get permission to sell the truck or you want to buy a new asset, you've got to go through the process of getting permission. And there are significantly more hoops to jump through to get the SBA loan. You know, when I. When I went through the process of doing conventional, yeah, it was still arduous, it was still a challenge, but I would liken the SBA process as more of a financial rectal exam than anything else. So, okay, like anyone, I avoided it.

[1:15:00] Host: What do you mean you have to get permission to buy another truck?

Guest: So the way our banker explained it to us is before we could buy additional assets or sell existing assets, we'd have to submit in writing our use case and get approval.

Host: I haven't heard that.

Guest: Oh, all right. Well, maybe that was just one particular bank. Okay.

Host: But so had you taken an SBA loan to buy a business, one of your businesses, to buy or sell a significant. Like a capital expenditure you were going to have to get approval for to do that.

Guest: Right. And this is only. These are things that I've learned somewhat recently. So we were looking at the SBA to complete an acquisition that was, you know, that ultimately fell apart. It was supposed to close this week, but we were looking to utilize the SBA for. For this acquisition just as part of an expansion loan. But these were some of the terms that we were talking through. And thinking back, I'm like, man, I'm really happy we didn't do that for our initial acquisitions.

Host: Yeah, I'll have to look around and see if that is indeed.

Guest: Yeah, it could be that these are requirements maybe not from the sba, but rather from the bank that we are looking at. Yep.

Host: Yeah. So, Chandra, so you bought Miller, the electrical company, January 2020. Five months later, you buy five, four months later, you buy on the two undergrad, the fiber splicing and the fiber laying businesses. Acquisitions three and four.

Guest: Right.

Host: So that's a busy year for you. This is 2020. Covid the now, what is your participation in the businesses? Have you gone full time yet, Uchandra, or is it colin doing the 100% him operationally at this point?

Guest: So it was. At this time, it was Colin and then the business partner that we'd brought in, they were managing the electrical side. I still had my W2, but I had taken over management of the underground construction company and the fiber splicing business. So I would be driving to job sites, understanding the business, and then hopping back in the truck to do a consulting call for my. For my corporate job. So it was. It was a little bit of a challenge just putting in a lot of time, a lot of effort to go through that. And I think it's not that I had to do it. There was a little bit of greed. From my perspective, I Still had shares that were vesting. And since, you know, this was Covid era and I was in consulting, everything was a zoom call, so I didn't have to hop on a flight to go anywhere. It just made it a lot easier to juggle both. And if any of my colleagues from, from Cooper listen to this, I was still killing it. I was still focused on that job, but at the same time learning and trying to, to better understand underground construction and fiber splicing.

[1:18:04] Host: And on the geography point, because Koopa, you've been in Chicago.

Guest: Yep.

Host: These two businesses, underground construction, fiber splicing, are in Minnesota.

Guest: Yes. So I, I had moved back to Minnesota after I got married in the end of 2018.

Host: Oh, at the end of 2018. So you've been working remotely for coupa. Anyway. Yeah, Pre Covid.

Guest: Yep. Pre Covid though I was, I was traveling a lot. I was living there.

Host: You were back and forth from Chicago a lot.

Guest: I was living that consultant lifestyle of flying to a different city and, you know, having a couple of flights a week at the minimum.

Host: Okay, and so give us a little bit about these, the business of underground construction and fiber splicing. What can we learn about these businesses? Are they attractive businesses for listeners to go look for?

Guest: I would think so. Just don't do it in the state of Minnesota because I'm really on the hunt for more. But so essentially what we're seeing is a massive investment from the federal level, from the state level, and the local level to increase broadband access for different communities. This business was focused on rural fiber development. We've gone to expand to building out full tier 2, tier 3 cities so that all of those residents have access to high speed Internet. So we're working with local and rural ISPs to build out their network. I'd like to say it was very strategic that we did this, but it was a lot of luck because in 2020, these companies were still making these investments. And then in 2022, you know, the, the infrastructure bill passed and the. I think it was in 21, there was the American Rescue Bill. There were a number of different bills that were passed that just poured gasoline on this, this infrastructure build play. So we're seeing a lot of that flow through today.

Host: And so what has. So this you bought again May 2020, underground construction. And by the way, the underground construction and the fiber splicing, I assume there's a lot of overlap there, that those two businesses feed each other. So should I talk about them collectively or should I talk about.

Guest: We could talk about Them collectively, I'd say underground construction feeds the splicing side. So once the fibers in the ground, we then send a technician who is, you know, got that side of the contract to go in, splice the fiber together, test it, make sure light data can pass through, and then ultimately have the ability to have customers sign up and have that connectivity.

[1:21:02] Host: And the reason this isn't a single business and a single service where you, where you dig and then lay the pipe and then have the technician come and make sure the data is passing through correctly is because those are just two very different skill sets. So digging and laying pipe is construction, as you keep referring to it, whereas fiber, Fiber splicing is very kind of technical.

Guest: Yes. Yeah.

Host: Okay.

Guest: And that's how they were structured when we acquired it and we kept it kind of the same. And we see that in industry a lot as well, that usually they're, they're separate entities. Usually not.

Host: And the construction is so much bigger because, because it does, it does non fiber construct underground construction as well. Why wouldn't. Or it's just more the, the job size is a lot. The.

Guest: It's the latter.

Host: Ticket size basically is.

Guest: Yeah.

Host: Bigger. It's.

Guest: It's the latter. And you know, I was focused on building, you know, I, I really focused energy on growing the underground construction side. Now I'm, I'm really focused on growing the, the splicing side as well to match. So it's kind of the prioritization.

Host: Okay. Huh. And so what are revenue. What does revenue look like for that pair of businesses today, almost four years later?

Guest: Sure. So this year we'll be just shy of $7 million in revenue on construction and about one and a quarter million for fiber splicing. The benefit here is that the EBITDA impact for fiber splicing is actually really huge. So we're going to see close to 40% EBITDA on that, you know, one and a quarter million.

Host: Oh, fantastic. So a business that was doing, you said 1.3 plus plus call it 2, 250. So about a million and a half bucks when you bought it. These, these pair of businesses, a million and a half bucks are now going to be doing north of 8. 8 million. And the SDE, you said 40% on 1.25 is 24. About $500,000. Pl. And then how are your margins on the underground construction?

Guest: The underground construction side is, is more really good as well, especially because what we're doing is, we're doing city builds that are really close to our headquarters. So we don't have to have the additional costs that other construction companies have to have, like hotel costs for team members, per diem, things along those lines, excessive fuel costs. So our margins are a little bit better right now, but I, I believe we're going to probably be just shy of, of $2 million of, of EBITDA on our underground construction side.

Host: Wow. So collectively together the pair is about two and a half million dollars, earning about two and a half million dollars up from, call it 400 SD. So that's six times six, six X growth in four years. Awesome.

[1:24:09] Guest: Yeah.

Host: Well, congratulations. Thank you.

Guest: I, I'm, I'm really happy with that team. They, they've done an absolute, absolutely fantastic

Host: job and this, this build out. So in the 49 states that are not Minnesota, there you think that similar projects are happening and similar kind of infrastructure dollars are flowing.

Guest: Yes.

Host: And, and, and, but you had said that the businesses was focused on rural build out, but then you now just said that in fact you're doing a lot of municipal projects. Oh, I guess you said it was, it was rural but also second and third tier cities as well. So.

Guest: Yep. Initially when we bought the business, they were focused primarily just on the, the rural side. We've, we've taken it and had not just the rural side, but expanded into more full city builds which has, you know, slightly different components. We have to have our team members trained a little bit more because they're interacting with homeowners a lot more. So if you've got a team out in the rural areas and they're putting in a ton of fiber, but they're along, you know, just a highway or a county road and there's farmland to the other side. They're really not interacting with a ton of folks. But on the city side there's just a, an up level or an upskill in terms of professionalism, in terms of appearance, things along those lines to give homeowners a little bit more comfort.

Host: Okay. And so you're still working at Cooper?

Guest: I am not.

Host: Okay. So when did you go full time?

Guest: So I left in May of 2021. So my first son was born in March of 2021. And you know, I, I thought, you know, I'll just carry on as much as I can. And I found myself, while doing both, missing out on some of the important things for his development for him just, you know, the enjoyable parts about being a dad for the first time. So I decided to leave Coupa and focus on this full time and just be more present with my family.

Host: Good for you. And has that as your family felt the benefits of that?

Guest: I'd like to think so. I hope they'd say the same. My now 3 year old is very rambunctious and I've got a 7 month old now as well. So if we do a follow up call in a few months or a year or so, you'll look at me and tell me I've aged like a wartime president.

Host: Coming out with a lot more gray than you went in. We're going to have to wrap up here, Chandra.

Guest: Sure.

Host: But there was another acquisition. Why don't you just give us a couple minutes on that?

Guest: Sure.

Host: Because you acquired and then divested yourself of it, but give us the very abbreviated version of that just so we can get a sense of what it looks like when a holds co buys a business that it ultimately decides it doesn't actually want to devote itself to.

[1:27:11] Guest: Yeah. So we were, we were thinking that we were this mini private equity firm and we could utilize the resources of the existing businesses to buy and diversify into other areas. And so we bought a manufacturing company. This manufacturing company was one that manufactured trailers, equipment trailers. And because we're in the construction space, because we saw there was a shortage of these that, hey, this makes a ton of sense. We found one that was about two hours away, the location from our existing businesses. So it was a separate location. The, the purchase price was $1.85 million included $1 million of real estate, $850,000 was the operating entity. We did this mostly with a conventional loan and a seller note. I think we put down 10% equity from ourselves. I believe the total thinking the total seller Note was about $250,000. So we, we were operating this business for a total of 18 months. We were really sold on this because the owner said, hey, you know, I've had a lot of success with this business in a very short amount of time. I have lung cancer, I'm dying. I want to spend more time with my family. And being the bleeding hearts that we are, we thought, well, this is a good business. Yeah, this guy's a micromanager. He's kind of a jerk to work for. But we could fix it. You know, it's our own hubris. Well, we could fix anything. And so we bought this business, came to find out that the numbers that he provided were not correct. Because we sped through this in terms of due diligence, we thought this guy was dying in very short order. So we come to find out that all the financials were Incorrect. He was looking at showing deposits as actual recognized revenue. So there were no costs against this. This is a business showing 30% EBITDA, which we thought was, hey, this is great, we still have enough room to put in a manager. We'll, we'll be fine. So the business immediately is losing, losing a ton of money. We're spending parts of our time there while still spending time at our construction business, which is doing well. And because this is the same time where we bought out our existing partner, there are some things that he did on that side that were presenting some challenges with the electrical business. So it seemed like there were just a lot of things going on at the same time. And the way we put it is we basically completed two acquisitions at the same time, both of which were a little bit on fire. So we spent a lot of time fixing the manufacturing company. So we cleaned up the real estate, made sure this was a, you know, basically a healthy place to, to work. And we came to the conclusion of, look, we have so much growth opportunity on the construction side. We have these huge city built contracts coming up on the underground construction side, on the fiber side, getting electrical back on its feet. It just does not make sense to try and continue to manage something that is 2 to $300,000 of ste fixed it. The real estate appreciated. We sold that, sold that business in September of 23. And because we had a seller note, we renegotiated that seller note down because of some of the fraud that that seller had and ultimately saved about $150,000 on that, on that seller note.

[1:31:06] Host: And so there was fraud, financial fraud, and he'd never had cancer to begin with, correct?

Guest: He did not have cancer.

Host: Wow.

Guest: Yeah.

Host: What bad luck you have with sellers. Although, Chandra, I'm also just wondering if you're, you know, your aforementioned philosophy of just diving in and knowing that you'll get burned sometimes is maybe a little, a little too loose.

Guest: Yeah, no, I, I, I do think that in this, in this world of eta, you're, you're going to get kicked in the teeth. Yes, I could have, I think we could have done a better job avoiding some of those kicks. But I still don't want to approach the world with that level of cynicism. If somebody says, hey, look, I've got hardship, if it's a team member, an employee, I've got a lot of hardship coming up. Can you help me? The answer from us as an ownership team, as an executive team, is almost always going to be, yes, we will help you. That's just who, who we are and are we going to get burned? Yes. I, I think I had a team member from that manufacturing company. He approached us. He was very upset. His truck had been, been repossessed. Can, can you help me? I, I don't know what to do. So, yeah, we, we paid to get his truck out of the, the tow yard and, and all these things. He said, yes, I'm going to pay you back, I promise. I, I don't think we've seen a dime of that yet. I think that was $3,500. But it, it's just something that we, we're going to continue to do because I, I, I think that's just who we are. But yeah, don't buy businesses from guys who fake cancer. That's a, that's a good lesson. And also have a, have a really good seller note.

Host: Right, right. Okay, Chandra, the, so ultimately you sold that business. It sounds like mostly kind of as a capital allocation decision or in an energy and attention allocation decision.

[1:33:09] Guest: Yeah, energy and energy decision is probably the best way to phrase it.

Host: Yeah. Okay. And then, so when you and I talked in January, you were looking at this sixth acquisition that was really going to be a needle mover. You've already teased that. Unhappily last week, it fell apart.

Guest: Yep.

Host: I hate to roll around in your pain here, Chandra, but broken deals is such a part of this world.

Guest: Yes.

Host: It may benefit the audience to hear from somebody who is very fresh in a very disappointing broken dealing with a very disappointing broken deal. What can you tell us?

Guest: So this business was another underground construction company doing the same work that we do today. So putting fiber in, in the ground, there was zero customer overlap. They were larger in terms of revenue, in terms of assets, but their EBITDA was a lot lower because of how they bid projects. We thought there was an immediate opportunity to have some, some gain just because they were, they were working with customers who would pay the lowest, but had very little admin burden. They just made billing easy. Well, we have a team member that could just take on billing. That'd be great. So we'd been working on this for the last six months. Because of how the last acquisitions have gone, we were a little bit more thorough. And this would have been our largest acquisition to date. Just in terms of revenue. The company was doing about $10 million revenue. They also shared our same accounting partner. So we use BWK up here in, in Minnesota. So very reputable accounting firm. And we were going through all the right steps, used, you know, a deal attorney that Was that's known to get deals done more than anything else. And getting closer to the finish line. The weather is starting to improve here in Minnesota. I think that the, the greed glands turned on and they thought what a lot of blue collar owners think which is well I could just work more. I could just continue to work. And so they called the deal off about a week and a half before the. The close which was disappointing.

Host: And your. So to be clear your senses they call the deal off simply because hey, I'd rather just keep this business because they're starting to see money come in for. Because it's high season is about to hit.

Guest: Yes.

Host: And what did you say their greed glands turned on? Yeah, I've not heard that one.

Guest: Yeah.

Host: And you know, so, so do you think is this the sort of thing where it'll circle back around if you, if you hang around the hoop this deal will come back to you in the winter when, when their greed glands are. Are deactivated again?

[1:36:05] Guest: I think so. I, I have no doubt that they. Because they really wanted to close in December and for us it doesn't really make sense to buy a seasonal business in December and carry three months of you know, there's some support staff still on there is equipment maintenance that needs to be done etc. It just it for us the perfect time to close is April, May when things are really going for them. It's 1231 and they kept pushing for that. I have no doubt they'll come back to us in October and say hey, do you want to, do you want to keep going on this deal? We'll see if I'm still as emotional as I am today because my response today probably is a flat out no. But I know that I'm still emotional about it.

Host: Chandra, put down your anger man.

Guest: I'll try. Yeah, it's worth to live by.

Host: Well we're, we're rooting for you. That would be a big needle mover in the business. Let's. And so by the way we, we. It's been a minute since we talked about the electrical businesses. How are they doing now? Five and four and six years later respectively? I think of the two.

Guest: Yeah, they're doing well. I think this year we're slotted to see a little bit of growth again because of what the other owner had done. It took a little bit to get it right back on the right path. So what is this? Almost two years later, it's now on the right path. We're going to start seeing growth again. So that part is Doing well. I'm happy where we are there.

Host: I guess let's close out with just big picture here. First I'll ask what is your plan for the Next. Call it 10 years. What has the vision evolved or become more maybe concrete about. About a number goal or some other kind of quantifiable goal? How do you guys think about that these days?

Guest: Yeah, so we're actually going through an EOS implementation and we just, we just had a kind of do a deep dive and answer some of these questions. But our, I would say our BHAG, our, our audacious goal is $100 million in revenue. It's, you know, nine times where we are today, which is, is a big goal. Right. So that goal is going to be accomplished by both acquisition as well as growth internally or organically.

Host: And do you think it'll come from rolling up. Is the strategy now to roll up underground construction or is it to look at that plus adjacent things to that further build out Miller Electric with other electrical contractors or what?

Guest: Yeah, so the strategy for acquisition is both. It's looking at fiber splicing companies because the margin is so good. Same thing with underground construction. Just because we, we have a good path for growth in those businesses and we understand them really well. And then if we can find an electric, electric service company for sale, then we'd, we'd want to go after that. So that's the, those are the three areas where we really want to try and acquire, not necessarily electrical construction.

[1:39:31] Host: Fantastic. And as you reflect back on what you've built and maybe listening to people out, maybe talking now to people out there who kind of aspire to build what you built. Anything that we haven't already talked about that you would advise them. We've talked about the importance of seller notes about this spectrum of diligence and action and where each person's kind of, kind of got to find their own place on that spectrum, yours tends to be more toward action than diligence. So we've been hitting on a lot of these themes. Any other themes that, that we should, that you want to be communicating to

Guest: folks, I think, I think sharing the, sharing the stress load is, is a very big, big thing, very big component. So whether it's a partner or if you have an operations manager or even, you know, just people around you who will help you share that load is going to be really important. You know, I had Colin, we, you know, we're now basically neighbors, so we talk every day, whether it's at the office, the drive to the office, the drive home from the office, you know, things, things along those lines. So just having additional support to deal with the stress that comes along with business ownership is huge.

Host: Yeah, great point to end on, Chandra. If people want to reach out, what is your preferred method?

Guest: Yeah, so shoot me an email chandraillermn.com or send me a message on LinkedIn. I've got a number of folks that I try to help out and share the lessons that I've painfully had to learn and just taking some advisory roles with other groups in the ETA space. Oh, great. Okay.

Host: Also, I've been calling you Chandra this whole time and you just called yourself Chandra. Yeah,

Guest: either way, I go by both. And also, I've got a little bit of a cold, so hopefully sinners aren't too annoyed with my nasally voice.

Host: All right, Chandra, great story. Great. Congratulations on what you and what you and Colin have built. And yeah, we look forward to hearing an update from you in the years ahead.

Guest: Well, cheers, my friend. Thank you for everything you do.