Host: 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. Plumbing is exciting in the world of small business acquisition. Some of the big names on Twitter have acquired plumbing companies and so too has my guest today, Charles Barr. So I was excited to talk to Charles, to finally learn what is so magical about buying a plumbing business. This was one of those interviews where I immediately went on Biz Buy Sell afterward and started looking at plumbing businesses for sale. It's really cool to hear how excited Charles is to be the new owner of DiMartino Plumbing of South Florida. See for yourself. Here he is, Charles Barr. Charles Barr, thank you for joining me today on Acquiring Minds.

Guest: Well, thanks for having me, Will. Excited to talk with you about business and have it not be just my friends and family who get to hear me talk about plumbing all the time.

Host: Yeah, you're going to find in me somebody more interested in hearing about your plumbing business than probably anybody else that you've talked to in your network. So you have just recently acquired DiMartino Plumbing. It's about an 11 year old plumbing business in West Palm Beach, Florida. You're the first plumbing acquisition entrepreneur that I've had on the podcast and plumbing is kind of a has a lot of appeal for acquisition entrepreneurs, at least that's what I read on Twitter. So I'm going to be eager to have you tell us what it is that's special about plumbing. But why don't we start with two minutes on you? Tell us, give us your quick professional bio, taking us up to the point where you decided that you wanted to go out and buy a business.

Guest: Sure. So I went to college in Boston and studied economics, political science at mit, was exposed to all tech stuff and decided I kind of after college wanted to go to do tech things and do the startup world and all that and learned how to code, did a bunch of SQL and Python coding, did a startup incubator, even worked on a couple little startups myself in that period. Decided to go to business school after a few years of working in industry and was exposed to search funds shortly before business school. And once I left I moved down to Florida to be closer to my family, South Florida, Miami. And I was still thinking about this search fund, the traditional search fund model. And after working at another company, doing another startup after business school, I decided, hey, I really want to own my own business. And that was about a year and a half ago when I Decided I was going to do that. And about a year into my search I was doing kind of a whole self funded search and started looking at little companies that I could buy outright. I discovered plumbing on Twitter and H Vac and the license trades. Learned that the license wasn't as big of a deal as I thought it was, at least in Florida, because I could have a qualifier so the owner could stay on. I could get my license in a year. And within about three to four months after looking at plumbing, I found DiMartino and ultimately closed the transaction. And I'm really excited about plumbing. I think it's a really interesting trade. Very important. Amazon's not going to kill you. The economics are good, it's technical. So there are a lot of reasons to go for a plumbing company.

[3:36] Host: Well, I want to dive into those, but let's rewind for just a sec. So you said that you had always wanted to own your own company and you'd also said that it sounds like when you were exposed to search funds that that was kind of what planted the seed. Even though you're being exposed presumably in the tech world to all these other entrepreneurs, kind of tech entrepreneurs. As somebody who wanted to own his own business and kind of saw that in your own future, what? Why wasn't being a tech entrepreneur something that you envisioned for yourself? Or why didn't you go that path? Or why not start a plumbing company rather than acquire one? So two separate questions.

Guest: Yeah, both good questions. I'll start with the first one. So I tried the tech entrepreneur thing. So I worked on a startup trying to build a portable low cost mri, worked on a startup around virtual assistants and trying to use machine learning techniques, AI stuff in that, and played around with dozens of other little projects. And I like that. But I ultimately decided that in a lot of those fields, for one, you have to be really, really good at raising money and you have to be okay with a business that might not be making money in the near term. I didn't love that. Two, I didn't want to be competing against people who are really, really smart, right? Like I don't want to be competing against the guy from Stanford with a PhD who was in the military and you know, on the side rescues babies from cardiac arrest, right? So I'm like, okay, well, you know, I feel like I'm a relatively smart guy, but why do the hard thing? And I was also exposed to Warren Buffett and Charlie Munger and I'm a huge fan of those two guys. I read everything that I possibly can about them. And they were pretty successful and boring. What arguably might be called boring businesses. They're interesting to me. So that's kind of what started pushing me on the path towards these businesses that most people don't think about because they're not in the news, they're not sexy, they're not raising millions of funds. But I thought that's perfect because then that means the, the price won't be insane. Right? Because if you're a value investing person, price is what you pay, value is what you get. And it's also I just like working in kind of unusual fields for somebody like me. I love telling people like I'm up in a plumbing business because I was like, what in the world? Like, you know, somebody's like an attorney. They're like, what, you own a plumbing business? And your second question, repeat the same question one more time.

[6:10] Host: Why not start a plumbing business from scratch?

Guest: I think that that's actually a really good idea. Compared to the amount of money you might spend just buying a plumbing business.

Host: I don't think what am I actually getting if I buy a plumbing business

Guest: versus you're usually not getting a bunch of assets. The reason why you buy it is that there's some system set up. Even if it's rudimentary, you have customers, you have a reputation. You're paying a lot of money for that, but you're buying that. When you buy the plumbing business, you could start one, right? If you want to start one, you need to find first off somebody to qualify the business. You could go probably to plumbingzone.com or one of those sites and I see people saying like, hey, I want to somebody qualify my business in Florida and I'll pay you $7,000. And then you gotta get techs and you have to pay them and you know, truck and equipment and. And you have to pay them. Maybe why you don't have customers immediately. Right? I suppose you could do like an Uber, like model. I've heard this in cleaning companies where you start from very little and that's fine. That's probably more. Honestly, if you can pull it off, I would just do that. I just don't think that I'm the person who's brilliant at starting companies, but I might be the person who's good at growing them and making them high quality customer service and great places to work.

Host: So you have these individuals who are licensed, but you yourself have decided to go out and get licensed. What was that decision about? Is that just to know your business better or to diversify this key man risk that you have in the previous seller. All of the above. Tell me about that.

Guest: All the above. Plus, I just like collecting certifications, right. I got my CAM radio certification. I got my emt. I'm not, you know, it's expired. I got my EMT certification. And, you know, all these other things. Scuba. It's fun to do. Yeah. But, yeah, eliminate some of the key man risk by getting my own license. Understand the code a little better. A lot of the plumbing exam is really about code. Like, I could get my license, and then do I really know that much about plumbing without working in it for five years? Pipe wrenching? No, probably not. But it's good, I think, just to go through the actual code and understand that really well. Read isometric drawings, right? These, like. These drawings that you have for, like, engineering type drawings so you understand how to install stuff. I think it's all useful.

Host: You had mentioned that plumbing. There are other trades that are similarly appealing. H Vac, H vac, electrical. Were you also looking at those companies or was plumbing. Were you solo looking at plumbing?

Guest: I was looking at those companies as well. So I took a look at electrical especially because it seemed like there were a bunch for sale. One of the reasons, by the way, why I went and looked at the trades to begin with was because I thought this industry is highly fragmented. If I'm okay buying at the lower end of the market, like, the lower total price, I could probably find something to buy in relatively short order. But I looked at H Vac a lot. Those were very popular. So most of the best businesses, at least based on the teasers I saw, were already under contract in electrical. I poked around that quite a bit, but I found that it's almost all construction in electrical and that. And, like, not a ton of service. At least what I saw. Stuff like electronics for pools or installing lights in, like, you know, shopping centers and the parking lot, that kind of thing. It has some service component, and I guess it's just because it's solid state. Right. Like in plumbing and H vac, you're talking about fluids moving through pipes and machinery and pumps and all that kind of stuff, and that fails. And I think the electrical stuff is maybe less prone to failure and also much more dangerous compared to the plumbing, where there's danger in plumbing, but often it's more you flood something than electrocute yourself.

[10:18] Host: So H vac was also on the table. You just couldn't find. It was just too competitive as a buyer.

Guest: Yeah. And plumbing. Plumbing and H vac, I think were the two prime ones that I thought were most interesting. And one reason was like, you're talking about all the people on Twitter who are into plumbing. I saw a few other people in H vac and in plumbing who had been successful buying similarly sized businesses or claimed to be successful. And I said, well, maybe I shouldn't take a risk by doing something that nobody else has done, especially for a first acquisition. So that's why I ended up focusing on those two and these people.

Host: John Wilson comes to mind who acquired a plumbing company big on Twitter. Rich Jordan acquired a plumbing company that's not even. Apparently he lives some hours away from the business he acquired. Are there any other names that the audience would be interested in following?

Guest: I think Nikoska was pretty. I always forget exactly everyone's particular business. But like, I know Nick Hashka. I liked a lot of his stuff on some of the other podcasts he's done. I mean, there are a bunch. I don't want to plug any other podcasts, but there are other podcasts out there too. That's interview the same kind of folks you do. And I would go through the entire list of episodes and just listen to every single one so that I kind of. And I, I would take notes like it would take my. I'd go to the gym and a workout that would take like 45 minutes would turn to a two and a half hour workout because I'd be pausing and reversing and writing stuff down into my notes.

Host: And this was all this research that you were doing was to decide on what industry or just the. Everything. Just everything from the transition to financing it to everything.

[12:07] Guest: Industry understanding, I think was the thing I cared a lot about because my search. And I wasn't doing a search fund because I was ultimately just buying a business myself. And I was like, well, maybe I bring outside investors, but I could fund the search myself, might just buy the business because I was geographically restricted because I knew I wanted to be in South Florida. My theory was I have to be industry agnostic, which for that first 12 months of the search was really tough because I couldn't really evaluate a lot of businesses because I didn't have anything to go off of to compare them to, right? To kind of figure out if they were good or bad or understand what I should be looking for in the seller or in the financials. I've heard folks, one mini private equity group told me that industry does not matter because they've bought companies that they've had no experience in and they did Great. And I think it's fine. But if you're switching between home health care and plastic packaging manufacturing, it can give you a whiplash. One of the big reasons I listen to these podcasts and did all this research was to really understand industry dynamics and be able to evaluate a company in that industry.

Host: So you whittled it down from all of the available buffet of industries in the small business SMB world and arrived at plumbing and H Vac. And once you, once you narrowed it down to those two, you kind of educated yourself even more deeply on those industries and looked at a lot of deals and specifically those industries to really understand what a good plumbing business, for example, looks like.

Guest: Exactly right. Like it was, it was a lot like the, you know, the secretary, they call it sometimes the secretary problem or the marriage problem. I think that they might even change the name again because it's a. Perceived to be politically incorrect. But it's this mathematics problem. And I think the answer is like E over 1, N over E, I think something like that. So look it up. And the idea is that if you have, if you're looking for an administrative assistant or a secretary or a wife even, and every time you go, you interview somebody for that position or I suppose go on a date, you can accept or reject them, but once you reject them, you can't go back to them.

Host: Right.

Guest: So how do you know when to choose somebody? If you go with the first one, you think this one's great. Is that optimal to just choose from the beginning? And generally in this contrived mathematics kind of problem, it's not. You have to interview a certain number of people and then choose the next one that's above the mean. I think of that in terms of quality. So, yes, I went through a bunch of these companies, especially brokered listings. So there's just a lot available. Try to kind of get a glance. I was going to reject probably the first few I saw regardless because I didn't know enough to make a decision. And then once I felt like I had a little handle on it, I picked the next one that looked really good.

[15:17] Host: And so what looked good about DiMartino?

Guest: I like the sellers, for one. I think that was a pretty important element. Right. The sellers, I think were. I think they liked me. They've said they've liked me and I seem to get along with them. The price was fair, which I think is pretty important. I've seen some businesses where making $150,000 and they wanted five and a half times the cash flow for the Business. It had a servicing component that was something you don't see that often because so many of the deals that had servicing components were already under contract or acquired. Right. Because everyone. Service and I bought this.

Host: Can you, can you elaborate on what you mean by that?

Guest: In terms of what, like, what it means to have like, service versus construction or. Oh, yeah.

Host: So are those the two things that a plumbing company would offer, either new construction or service? Is that, what is that essentially?

Guest: Basically, yeah. I mean, and you can categorize, you can put in different quadrants where you might have four categories. You know, residential service, residential construction, commercial service, commercial construction. But I really want to focus on the residential and I want to focus on service. And when I looked at DiMartino, they had a very strong service component. They had a pretty. A very significant construction component as well. And my thinking was, okay, this has a little nibble of servicing that I could grow that even if I'm buying just the servicing element, I can take that and optimize it and grow it. Even if construction goes down the tubes tomorrow, we're still doing construction stuff. Right. The only thing I'm searching around is trying to wrap up the projects that are ongoing, the bigger projects, and move towards smaller, like remodels, which I kind of categorize as construction. Where you're not. You don't have to have these long drawn out projects where so much can go wrong and you have a resource allocation problem because, you know, you have to might have to send for, you know, four teams to the site for five days, then wait three weeks for somebody else to do a bunch of work, then come back again on these construction jobs. So the fact there was a little service was, I think, the big, the big deal to me. I mean, it's not little. It's like 50 or 60% of the company. But I think that might be one of the reasons why I was able to get this particular deal.

Host: And why did you want residential instead of commercial?

Guest: I think it has to do with how confident I am in my ability to deal with customers. If I worked in property management or I did something related to commercial maintenance or real estate, I would be more comfortable in doing that. But there's some complexities with commercial work that I don't want to embark on, like, or just dealing with property managers. Right. Some property managers are rewarded based on, as I understand it, you know, how much money they save. So you might be in a race to the bottom with some property managers. You might have a lot more complexity if you're Servicing like a restaurant's plumbing or building a restaurant's plumbing. With residential, you can have a broader customer base, you have lower customer concentration and you're dealing with people who might want their hand held a little bit versus people who are potentially more sophisticated than you. That said, you know, sure, if you, if you have a bunch of little commercial customers and they're not, you know, plumbing intensive businesses, it might be very similar to working with residential. But I did not really want to go for like the we service a whole shopping mall or have three property managers we work with, or we have two apartment buildings that we do all the work for. That was something that I'm like, I don't know if I could really handle that given my lack of experience.

[19:10] Host: When you said that you were looking for brokered businesses, does that mean that you were, what did your search look like? Were you just on Does Buy Sell every night? Were you reaching out to local brokers? All of the above.

Guest: All the above. I mean, I looked at it, all the different brokerage sites, BizQuest, BizBuysell, individual, I think BB MLS. There's like a Business Brokers of Florida MLS. It seemed like no deal was only on one site that the brokers would put on all these sites. And I spoke to brokers as well and tried to develop relationships with them and I developed relationships with a couple of them that were pretty good. But that's really what came down to just aggressively monitoring the sites, asking for sims for the confidential information memorandums, evaluating it, and it was just a lot of doing that. I had done a proprietary search early in my search, but the problem with that is you're talking to a lot of people who are not interested in selling at all. So my time, I believe, was better spent looking at businesses that were definitely for sale and at the smaller end of the spectrum because I don't think that there'd be quite the same auction risk as you have with bigger deals. Which is why I think a traditional search fund, if you're buying a business for $5 million, you have to do proprietary because anyone listing on a site is going to get bit up because there are more. The buyers for that will compete with each other for the business.

Host: And a proprietary search, just for people who haven't heard the phrase yet, just means you're not looking at businesses that are for sale publicly. You're reaching out to owners and saying, hey, I might be interested in buying your business. Do you want to have a conversation and generating your own deal flow so it can Be where you find amazing deals. But as you can imagine, you know, for every 100 emails that you send out to business owners as just some random guy, say, hey, can we talk? Saying, hey, can I talk about buying your business? You might only get one response. And then a smaller percentage of that actually lead to real conversations. What actually leads to a sale? So it's very laborious and a classic case of numbers games. But if you can do it, it's often where there's a lot of money to be made.

[21:30] Guest: Yeah. And you got to be clever about it. I was trying to write out letters or I'd hand write the address and I sign it and highlight it manually to kind of make it not look so much like a form letter to businesses. I even had a line that was totally customized to the business and that work. But the amount of labor you put into it was substantial. And you could have a traditional search fund. If they're doing this proprietary search, they will hire a bunch of interns. They usually didn't pay them. At least in the past. There have been some changes in the rules for unpaid interns from the U.S. government. And they would have them cold call, they would have them write letters or just not wrap the letters, fold the letters and they would handle a lot of that. And in return, those interns would get private equity type mentorship. The searcher would write a recommendation if they want to work somewhere or go to graduate school or whatever. And they're covering a large area in general. They're covering maybe the whole eastern seaboard of the United States. There's a guy by the way, Scottish American Capital, I think was his company. Yeah, Scottish American Capital. And he wrote up his process which included putting Scottish candy in the letters, hand franking them. So he had to bring it to the actual post office to send them as like kind of a reminder the business owners. And he'd have a letter that he'd follow up with. So it was a whole, just like an email marketing, there was a whole flow. And when he called, he said that I think it was like, you know, very few people got back to him from just him saying the letters. But when he called after he sent the letters, you know, a good proportion, I think at least 20% he said, remembered him when he was doing his search. And he's got a whole write up on a guy. Jim Stein Sharp's blog. I think he's a Harvard Business School professor and it's really good. So I was kind of influenced by that, but I didn't know of any candy. I couldn't send like an empanada from Miami to people. And I suppose I was only searching in Miami, so it was a little different.

Host: Why did you just choose not to do a search fund? Sounds like you started down that path and then reoriented. So why, why did you do that? And, and what can, what can other people out there learn from that decision?

Guest: Sure. I think search funds, traditional search funds are great. I don't think there's anything wrong with it.

[24:01] Host: And Charles, define a traditional search fund really concisely, if you can versus just doing, going out there and searching by yourself.

Guest: Sure. A traditional search fund is a specific model invented by a Stanford professor in like the mid-80s that involves a recent MBA raising some money from investors. Typically $250,000 for a one person search fund. And they'll spend the next two years up to the next two years looking for a business to own and operate. If they find one, they go back to their investors and they say, hey, I found this business. You want to put some more money in? They get some debt, they usually get a seller note and they'll buy the business and usually they'll sell it within five to seven years. And that's really all there is to the traditional search fund. It's more or less you're funding, the search itself is funded by investors. So the investors take on the risk of maybe you not finding a business. And that's kind of the main first, like a self funded search, all that means is you fund the search itself. You pay the legal bills. If you travel, you pay that travel, you pay your own salary. And once you find a business, everything else is very similar versus a traditional search fund.

Host: Although I think with self funded, often they're maybe going to do an, they're going to finance the acquisition maybe differently, maybe use more financing, less investors. Search funds, typically they're going to finance it from this pool of investors that have already put up the 250,000. And one common result of that too is that the search funder ends up looking for a much larger business. And that's part of the reason why the search takes a longer time, because there's fewer businesses out there selling that are doing 3 to 5 million dollars in cash flow than there are businesses doing half a million to a million dollars in cash flow. So the search, finding that ideal business takes that much longer.

Guest: And that's. You asked about kind of how I came to this, why I came to do a self funded search kind of thing, and how I ended up on this path and why I decided not to do a traditional search fund. So when I graduated from business school a couple years ago, I was thinking about it, but at the time, it seemed like private equity was going lower and lower on the price spectrum and they were buying higher and higher prices relative to intrinsic value. So my thinking at that time was that if I do a traditional search fund, two things I don't like. One, I just might not find a business, or I might feel pressured to buy a business at a price where it does not make sense to do, or it's a very risky proposition. Two, I have to. If I'm doing a traditional search fund and raising money for investors, maybe it's possible, but everyone I've talked to is not interested, I think rightly so, in investing in somebody who just wants to have a very narrow geographic area. And like you said, where you have to buy a business of a certain scale because you have investors, you can't have raise $250,000 from investors and then from 10 people and then go buy a business that costs $500,000. It just won't make what makes sense. So I wanted to kind of have some confidence I'd be able to buy a business, be able to get a fair price, and be able to stay in a particular geographic region. And that's why I ended up doing like self funded. I mean, even if I wanted to do a search and say, because I thought about this in business school, probably naively, I'm like, oh, I'd be okay with living in Boston or New York or D.C. or Miami or any of these major cities, or Chicago, but that probably would not work either because there are a lot of people who want to do that and it's just too restrictive.

[28:00] Host: So you went the self funded route. Then where did you get the money? How did you finance the acquisition? Tell us about the deal structure.

Guest: The deal structure is pretty simple. I paid cash.

Host: I think you're my first guest to have done that.

Guest: Yeah, people were asking, yeah, I just paid out my own cash. I had some savings, I sold a small amount of equity. I don't really like to sell stocks at all, but I topped it out with a little bit of that. But I just bought it myself in cash. And people were saying, well, your returns would be better if you bought it with debt. For one, the SBA 7 loan was not accessible to me at a lower price point, I'd have to buy a more expensive business to get an SBA 7A loan.

Host: What is the threshold? Can you Tell me more specifics around that.

Guest: So I've been told. I think there are two tests. I think one of them is the net liquidity, personal liquidity test. Whereas if you have enough stocks and cash, for example, that you could cover the acquisition with that, you pretty much can't get an SBA loan for that amount. Which makes sense when you think that the wealthy government is only trying to back these loans and effectively subsidize them because they want to encourage people who would not otherwise be able to buy these businesses to buy those businesses. So if you want to buy a business that was like, if you had a million dollars in cash, you want to buy a million dollar business, you can't get SBA loan. You have to either lend against your wealth or your stocks, which is expensive, or real estate, if you have it, or you have to go find a business where you can take out $5 million SBA loan or $2 million SBA loan.

Host: Okay, and so give us a sense of the size of DiMartino revenues, profit margins, anything you can share.

Guest: Yeah, sure. I mean, about a million and a half in revenue, right. So, you know, goes up and down. But between million And a half, 2 million makes about 300,000. Call it in cash flow, SD or EBITDA. I bought it for about 3 times cash flow. So, you know, this is not a massive business, but it is one that's steadily profitable. And I think I got it at a very, very fair price.

[30:27] Host: Excellent. And your due diligence give us two or three things that you're really looking for. Or some would be plumbing, business, buyer out there. What are kind of the top two or three things to look for?

Guest: Well, I think the first thing to look for is make sure that the PPP loan that they got is not counted as revenue. And if they argue with you on it, walk away. That's a big one.

Host: You saw that?

Guest: Oh, yeah, I've seen that. Right, I've seen that. You know, more sometimes just like not deliberately, and they're, they're like, okay, we'll remove that. But sometimes they, they insist that it's revenue and it's, you know, it's a mess because that's pure profit if you book it as revenue. So the, I look for businesses that had a servicing component that was like the first big thing. Right. Is there a servicing component? The second thing is, do they have a reasonably good reputation? And there weren't a ton of businesses that had like, you know, three reviews on Google and they're all one star. But I Want to see some evidence that it had a reasonably good reputation? I mean, I didn't get the opportunity to due diligence a bunch of different plumbing companies. I entered due diligence on this one acquisition. That's the one I ultimately bought. Because for everything else I was looking at, there were other reasons why the deal went through before we even entered the due diligence phase.

Host: So is that to say that just like you were saying about H Vac that it was just too competitive, that plumbing was. I mean, you were successful. So ultimately it wasn't too competitive. But it was competitive.

Guest: Yeah, it was competitive enough. And you also had sellers who did all sorts of stuff. One seller had a business outside of the state of Florida and they were trying to sell. They had. They bought a plumbing business a couple of years ago and they decided that, you know, one of their. One brother decided he didn't want to go to Florida, so they had to get. Because he was going to live in Florida. That's why they bought this other plumbing business. And then they reneged on that. So the broker dropped them after we had kind of negotiated a bunch. And you have some brokers. I don't know if it's the broker, I don't know if it's the seller. Have unrealistic views of what their financials are. So they just don't want to. I don't even know if they have any other buyers. Right. But they just will refuse your offer if it doesn't match up to whatever idea they have of what their business should be worth.

Host: So you're now. You bought it on you closed on July 13th. So less than a month and a half into ownership and from other people that I've spoken to in your shoes, or even a few months more, months into their acquisition, as new owners talk about just how difficult the transition is. How's it been going?

[33:18] Guest: We're still here. All my staff, everyone's here. So that's good. We still have customers. The construction jobs are still going. We're still getting service calls. So, you know, considering all that, I think we're in pretty good shape. But it's still been hectic for me. I think a lot of the staff, you know, I think it was. It's shocking to hear that the company's being sold, especially in a small business. And I think that was tough, especially initially, until they really knew me. And as they're getting to know me, I think that's calming down. But asset sales are a pain. That's the typical thing you do in acquisitions of this size. But there is so much stuff that you have to do, little tiny things that are not related to operations in any way or customers that can take forever. And I think you and I were talking about this earlier, the phone thing, like just transferring the phone number. We're five weeks in and it's still ongoing. And that's a dependency for me to say if I want to hire any virtual assistants to help handle calls. Right. Can't do that. If I want to integrate with software we're onboarding with Service Titan, I can't do that until that's complete. Cars, right? You have to retitle everything. You know, just you have issues where licenses could get suspended for the cars because the state doesn't have everything updated yet. And you're still waiting on, you know, a title to come back because you have to. You paid off the lien on the car. So that's been, you know, a huge, huge issue for me and it's been hard to kind of get out from under so I can go focus on obviously fires within the business, but also setting up the systems and hiring the people to prevent those fires.

Host: And so on that point, the value that you envisioned adding to this business, what is it? Is it scale, is it just hiring more people and growing it? Or are there particular systems that you saw that you knew you could immediately come in there as low hanging fruit and just improve the value. Talk to me about what's on your list of to do items.

Guest: So the there, there are I think a lot of low hanging fruit, lowish hanging fruit. It's not like super easy to do. That can improve the business. That can improve the business. You know, stuff like online scheduling, having great coverage, even just 24 hour coverage for phone calls, even if you don't actually have 24 hour service. Being able to integrate Service Titan I think is huge, like especially for the customer experience and collecting sometimes and having a bunch of data for what happened on prior calls, for showing customers photos of, you know, different options they might have. Rewrapping vans, organizing vans, having an inventory system with barcoding, hiring somebody to manage the shop. So they sign out stuff because right now stuff runs out, you might lose, you know, some pipe fitting, somebody might grab the whole bag. And Yesterday you had 32 of the elbows of copper, 3/4 inch elbows and today you have 2. And then they have to run to the supply house all the time to do that. So there's a lot of low hanging fruit that the inventory is I think a larger project Integrating Service Titan is a larger project, but there's a lot that could be done that would ultimately improve profitability, make customers happier, make our techs happier. And fundamentally, that's why, besides just being interested in plumbing and liking the economics, that's why I decided to go into this industry, is that I have a whole list of things that we could be doing to improve the business.

[37:09] Host: These things all sound like things that you've observed as you've been the new owner, or did you observe them from the outside?

Guest: A little bit of both. Right. Like, I mean, I, I. The inventory thing I didn't really know about until I got here. And I had, you know, techs become upset when they showed up one day and they're like, well, why don't we have, you know, these pipes? And why don't we have these parts? Like, you know, I. And I, I didn't know how to order, you know, some of these parts. Like, you know, a Mickey to me sounds like, I think it is the name for a drug, but it's like a, you know, a pipe suspension clip. So, you know, I got this list. I didn't even know how to order it. And I was taking me hours to figure it out, and eventually I kind of did. So a lot of it was, was being in the business was for solving those kind of operational problems. The stuff like you're just wrapping a truck or revamping a website website, or doing online scheduling or having automated text messages when technicians are on their way 30 minutes or an hour before that. I all knew from kind of research before, from following these great guys on Twitter and listening to these podcasts, I'm like, okay, that's obvious. You see a van that's beat up versus a van that's wrapped. I think you wrap the vans, you're going to do pretty well. And this could be true for any kind of a planning business you buy unless their vans are clean and wrapped already.

Host: There's this excitement around buying small businesses, just as you've done on paper. It looks really good. The multiples are low, meaning they're basically more affordable than a digital business and other places that you might spend a significant amount of money. And then there are the detractors, people actually who are doing it, practitioners of this, people who've done it multiple times and are seeing all this excited chatter on Twitter about buying a small business and are saying, hey, wait a second. You have no idea how difficult this is. This is so, so, so you're less than 45 days into this, but That's a lot more days into it than most people will ever get to. What's your thoughts so far on that debate?

[39:19] Guest: I think both are true. I think that it is a good way, at least in the current world, where asset prices of all sorts are very expensive. I think, you know, buying a small business is a good way to build wealth, but I think it's also incredibly difficult. It can be, you know, it's a slog. I drive 70 miles. It takes me about an hour, 20 minutes without traffic to get to the office. So, you know, and why do I do that? Why? I love this business, and this is the one I could find. And, okay, it's not the end of the world to do it. So it's a slogan, right? And you're dealing with. With, you know, personal problems of employees and people. You know, all sorts of stuff happening with them and their concerns and their worries. You're trying to not run out of money. You're trying to make sure your customers are happy. And, you know, the 8020 rule applies there, where you're spending 80% of your time on, you know, these 20, you know, probably like 5% of customers who are, you know, just really, you can't please them, and they want, you know, everything for free. Well, and they. And some, in a lot of cases, you know, you tell them one thing and then they. And they're like, oh, yeah, go ahead and do it. And you say, it's gonna break, it breaks. And then they're very angry at you and write you letters and threaten. Threaten you with negative reviews. So it's very, extremely, extremely difficult. I think, you know, I think a lot of people appreciate the difficulty. I mean, maybe you don't know until you actually, you know, are in the business just how difficult it is. But I think a lot of people rationally, who are interested in buying small business, but haven't they understand the difficulty? I think that the risk is maybe less appreciated, especially with levering up a bit. I think that there could be some risk there, but there's no reason why it can't be both simultaneously difficult and painful and have a. A high probability of success. If you are frank with yourself about what your capabilities are and you choose a business that's, you know, it's got warts, but it'll work.

Host: And so talking to these people out there who are considering buying a business, any advice for them, or advice to yourself of yourself, of three months or six or 12 months ago, anything you did wrong, do you think, or wasted

Guest: time on or Well, I think I waste a lot of time worrying and I still do that. But I think that's more of a personality trait than anything else. I'm always working pretty relaxed, Charles, I

Host: gotta say, for a guy who just

Guest: bought a business, all a facade, well, you try to look relaxed and then you'll feel, maybe feel more relaxed, but maybe worry a little bit less about like what happens if I don't find a business? Is that going to be a big deal? No. Find something else to do. I wish I. And this I guess is not necessarily something that's great for every single person who's interested in buying a business. But I wish I had actually started interviewing people early on. Like, you know, times like right now. I kind of wish I had a partner. And if you ask my parents, you know, my dad had been in business for many years and he's always like, no, never. He's got a partner who's great, by the way. Like is my dad's success. And as part of success, a lot of it has to do with finding a partner. My dad's always like, don't get a partner. I've had so many partners. It's all been bad. And I've had partners and I've had good partners. I've had the experience of not so good partners. But I wish I just had somebody else there in addition to kind of the office manager that came with business, just handle a bunch of other stuff that no one person or two people can handle. So I wish I maybe pre hired, which I've heard of some people doing. Like, I wish I took some of the capital I used to buy the business and especially maybe, you know, as soon as it was clear that due diligence was going to begin. I wish I did two things. I wish I maybe extended the closing period, right. Or had like a special kind of contract that lets me set up some stuff as we close so it's not all at once, right. Like set up systems or transition some stuff over. And I wish I had maybe hired somebody to be like operations focused and just kind of be. Not a sidekick, but like somebody who could. I could be like, okay, hey, I need you to do all this stuff with setting up a bank account or something like that.

[43:53] Host: But this isn't a partner, this isn't an equity partner. This is a right hand man, a salaried right hand man.

Guest: That, yeah, that would have been, I think, a great idea to spend. Yeah, you're risking that, you know, you have to pay this person's salary without Any revenue for a little while. But I think that that might have been very worthwhile. I don't think I say would want a partner because it's such a small business. I mean certainly for the right partner that would have been great. But that's just theoretical. But yes, having a, having pre hires, not just an ops manager but even somebody like to answer, you know, do customer service or something, you know, ready to go would be amazing. Or texts that we I'd want to add early on. Even making the contact and not hiring them immediately, that could be huge. And that's for the next acquisition I make, you know, down the line I'm almost certainly going to be pre hiring some people.

Host: Thank you for the segue. So you do see more of these in your future?

Guest: I do. I think I'm a, you know, I want to have a little mini conglomerate. Somebody on Twitter was making fun of calling stuff, you know, the Berkshire Hathaway of X and I responded, I'm like yeah, well I like, I love Berkshire Hathaway but I use like the Teledyne of X. But nobody knows Teledyne and Henry Singleton. But yeah, I see more acquisitions especially in the home services space. I want to grow this business and acquire others and I want to be a collector of these businesses and have my own little collection of businesses.

[45:24] Host: How are you deciding when number two acquisition will kick off or am I getting ahead of myself? And right now you're just figuring this one out and you'll know it when you feel like things have stabilized for a good number of months.

Guest: I think it's going to have to be things stabilizing for a good number of months before I, I do that. But you know, hey, I've heard people doing it 12 to 18 months in. I don't think that's entirely unrealistic to do. Especially if you kind of from the get go start about like start working on ways to make yourself non critical to the business. Right. Like try like right now all I'm trying to do is make it so that I have other people who can handle some of the tasks I would otherwise be doing. So that every time I do a task I do something, I'm doing something that's incremental to the business versus something that the business needs to have to operate. So you know, hopefully 12 to 18 months would be the next one. But I don't, I'm not on any timetable if this business is growing and going gangbusters and I have to be involved in that. Amazing if the everything's on fire, you know, well, not happy everything's on fire, but I gotta go put those fires out.

Host: And recognizing that this will probably be answered 12 or 18 months from now or more, do you envision it being another plumbing company so assembling a portfolio of plumbing companies specifically? Or it could be different in a different industry.

Guest: Yeah, it could be in a different industry. Another plumbing company would be fine. But stuff that's adjacent to plumbing or plumbing itself I think is ideal. Right? Like H Vac is an obvious one. And I always forget what the kind of suggested ratio is of plumbing techs to H Vac techs, but there's a lot of relationship between the two. Other home services could be a thing. I sometimes wonder if fire sprinkler work uses pipes, uses water, might be totally different. I looked at one company in that industry. That's something that I'm interested in. But there's a whole bunch of other little tiny things you don't even think about that much. I'm like, like, generator service is a huge problem, I think, for everyone here in Florida. And there are some companies, I won't name them, but they claim to kind of do everything with generators, and they don't. And there's homeowners just going back and forth between like, oh, plumbers hook up the gas for generators, right? The generator company will say, it's the plumber. The plumber goes, you know, it's the generator company. They need some electrician or some engine tech, I guess, to do it. So stuff like that is also interesting where I hear just like disappointment across the board with how homeowners are receiving service. So I think the home services space is where I'd stay within. But I guess commercial stuff to do with buildings, that kind of thing.

[48:23] Host: You mentioned Nick Haschka earlier, Nick Spin on the podcast and his. One of his sort of philosophical approaches to SMB acquisition is to start small. So the anti search fund. And so you can probably just. There are a variety of benefits to starting small, which people can go listen to that podcast. I recommend that they do. But one of the things just kind of like listening to you talk is you just get into the game faster.

Guest: And.

Host: And by being in the game, you see other opportunities like you're talking about. I mean, all these little problems in the world are revealing themselves to you as you are, as you're. As you're getting up to speed in your own new plumbing business. And so I think that, like, you know, there's this danger with a search fund of that you're looking for a lot of revenue in one fell swoop, but you can still get to that revenue incrementally by buying a smaller business, learning some of the problems, learning some of the, you know, the things that confront homeowners or business owners in your. In your geography, and maybe buying an adjacent business and still getting to that revenue number, but doing it incrementally and learning along the way and building your own skills as a manager, as an owner, as a business acquirer along the way, that seems much more appealing to me personally. Not making a universal assertion here, but I definitely see where he's coming from and it sounds like that's kind of the path that you're on.

Guest: Well, I was. I was obviously strongly influenced by Nick Koschka. I think he had one interview where it was called starting small or something along those lines. So, no, that was. That was like a huge turning point for me in my quest to buy a small business. And, I mean, you know, if I ever. If I have any success at some point, like, you know, my parents obviously are a huge thing, but, you know, Warren Buffett and Charlie Munger, I have to throw a bone to you. But, like, it's like Nick Haschka and Rich Jordan and John Wilson and kind of the slew of other people who kind of gave their advice publicly that I'd have to say, you know, hey, that's. That changed my thing because I didn't come up with that on my own. But, yeah, I think starting small makes it possible that you can acquire a business at all at a fair price. Nothing wrong with traditional search, with the, you know, buying the kind of larger business, but it might be a lot harder today than it was 15 years ago, and that might change kind of the risk adjusted amount of money you'll make out of it, if any. So, yeah, I think small is a

[51:01] Host: good place and harder today because private equity has continued to look for smaller and smaller companies for opportunities. So you're competing with that much more other search funders. Search fund, the model itself has become more popular, but also private equity. At this point,

Guest: I haven't been in private equity. I don't know for a fact that private equity is going all the way down to level. Search funds are at, I know, private equity, or believe they have been trending downwards. The number of searchers are probably still more businesses. The number of searchers who are looking for businesses of a larger size might not really be affecting the prices. But I think that what's been happening in the economy over the past few years and just the rush of money into private equity in general, I think just kind of forces up some of the prices relative to really the fundamental value of a lot of these companies. And that's just kind of a broad sweeping statement. Right. I don't have any data to back that up really. But you see with stuff like the stock market where prices are very, very high relative to any measure of earnings or earnings power really same thing with real estate. You're lucky if you can get a 4% cap rate. So anything you do in real estate has to be value add because everyone just throwing their money at this thing because there's so much cash lying around. So I think starting small is kind of like where you're forced to be at right now. The tractors say it's buying a job, they say it's, you're in it, you're, you're paying a lot of money for a job and you get all this stress of being a business owner and all of the money of being a employee. So it's really not great. And you know, right now it feels that I am working in. I did buy myself a job right now, but that's not forever. If you can set up the systems and hire the folks to build your bench, to grow the business, then I think you can move it out of buying a job. But it's a difference between what it can be like a traditional search fund. Yes, you're trying to, to grow these larger businesses and you're going to sell it in the future, trying to improve it and all that, but you care a lot about what the business is today with these smaller businesses. It's fine if there are a lot more warts on it because you can make such huge changes because you're starting at a smaller base.

Host: I also think that even if you are buying a job and even if that job is stressful, I mean if you're buying a business with cash flow of 2, 3, $400,000 and you're able to take home a large percentage of that, so low, you know, a very healthy six figure salary that's doing a lot better than most of America. So strictly from that perspective, yeah, you could probably earn that if you're on a, in a corporate setting and you've been at it for a number of years and that's your career and probably with more security and it's probably cushier and so that's great. And that is in fact what most people, how most people would prefer to earn a quarter million dollars a Year. But a lot of people want to be self employed. They don't want a boss. They want to build something for themselves. So buying a job, it's not just a job. It's also they're an entrepreneur now and that's been their goal all along. Or that is, that has been a goal. And then when you add to that, so that's just kind of like scratching the entrepreneurial itch. It provides that value. But when you add to that all of the financial argument for it, that within three or four years, depending on how you finance it, you can own this business outright, this asset that you can then maybe sell yourself one day and have a big liquidity event for yourself. Then there's this whole other layer that kind of, you know, that might get a more financially oriented person excited. So there's, there's a. There. It's interesting and compelling on a number of different tracks, but certainly you got to expect to work in the business. This is not passive income or even really an investment. This is something where you're, you are buying yourself a job as an entrepreneur. But it's a great path for entrepreneurship if, if, if you don't have that idea that you want to go start but, you know, you want to be, you know, betting on yourself.

[55:48] Guest: Yeah. And I think that there's just a little bit less competition here.

Host: That too.

Guest: That, that's, I think, a big, A big deal. Like I was saying earlier with, hey, I want to compete with the guys who, you know, was a shuttle astronaut in this. At the smaller in the spectrum. Yes. There are tons of other plumbing companies. However, there's also a lot of business for plumbing and there are dynamics in the market that mean it's not easy for a plumber in Tampa to compete with me. There's a geographic limit to stuff a moat, rather, I'm trying to think of the word. What's the moat? The best moats, of course, are, I think, aggregates. Companies like concrete or that kind of stuff where they physically. It's so expensive to transport this stuff that if you plop one of these facilities somewhere for like 50 miles, you've got a monopoly because if anyone else enters, you both don't make any money. And so you're just. You just sit there and collect rent checks.

Host: Yeah.

Guest: Yeah.

Host: Well, Charles, this was great. Thank you for sharing your thoughts on all things plumbing. I'd been really curious. I've been following it on Twitter, but like I said, I hadn't had a conversation directly with somebody. Congratulations on your first five. Ish weeks. And how can people reach you if they want to ask you questions, Follow up.

[57:12] Guest: My Twitter is seems to be the thing everyone uses on their podcast. So Capitalist Chuck. I'm usually Chuck the Capitalist, but that's taken. So Capitalist Chuck is on Twitter. I have a LinkedIn Charles Barr. You can add me there, send me a message. Love to talk to folks. If I don't have time or I don't respond to you, it's not because I hate you, you. It's probably because I'm busy running around in my plumbing business.

Host: Fair enough. Charles. Thanks very much for coming on.

Guest: Thank you, Will. It's been a pleasure.