Key Points From the Interview
hile remote work has taken off throughout the pandemic, prior to that world-changing crisis few acquisition entrepreneurs would take on running a business from another state.
But Chris Munn believed he could do it.
Chris worked in finance, but he always knew he wasn’t long for that world. One of his first forays into working for himself came with an attempt to invest in real estate. After his grandmother passed away, he offered to purchase her Detroit home from his family — but a relative blocked the sale.
Committed to proving the family member wrong, Chris found a deal on a multifamily apartment building. That property was also in Detroit; Chris lived in Florida. But having grown up in Detroit helped Chris feel comfortable in that market.
Chris considered making real estate his full-time profession, especially after a second, larger apartment building in Detroit came across his desk. He acquired it, increasing his property portfolio to 30 units.
But he ultimately decided against real estate, choosing to pursue small business acquisition as his path.
After nine months of seriously searching for a small business to buy, Chris closed a deal on a Tampa Bay-based commercial cleaning company.
The business appealed to him because it had revenue that was both recurring and reoccurring, and it was fairly recession-proof. Like the real estate investments, this business was also not located anywhere near Los Angeles, California, his current state of residence.
Despite happily living on the West Coast, Chris didn’t think California was business friendly. And while running a company that was on the other side of the country wasn’t something he took lightly, Chris was open to — and then intent on — buying and operating a business he could run remotely. Also, it was a prospect he had become comfortable with ever since acquiring and managing real estate investments across state lines.
In this episode of Acquiring Minds, Chris discusses how he fell into the trap of buying too small his first time out. He also talks about how due diligence doesn’t rule out the risk of clashing with key employees, and how gaining confidence has led to him being firm when dealing with banks. Finally, Chris shares how he gained 30k Twitter followers in six months.
✳️ About Chris Munn
✳️ Top takeaways from the episode
✳️ Episode highlights with timestamps
Acquisition Entrepreneur: Chris Munn
💵 What he acquired: Since middle school, Chris Munn planned to work for himself. After graduating, he landed a job in finance knowing he could make good money while also gaining experience in various positions in the finance world. But he knew that plan was going to be a brief detour. Chris soon invested in a couple multifamily apartment buildings before deciding to acquire a business, a Tampa Bay-based commercial cleaning company. (As of publication, he’s under LOI on a second business.)
💡 Key quote: “I'm a lot more confident when I talk to the banks about what I'm willing to share and what I'm not willing to share, how I'll answer questions, how I won't answer questions. But the first time you're going through it, you don't know what to expect with banks. And the banks can be brutal. They can ask a ton of questions. They can ask them 10 different ways to make sure they're getting a consistent story. But this time, I'm like, we're gonna move at the pace that I want to move. If a bank wants to work with that, great. If they don't want to work with that, that's fine as well. But you know, that comes along with having credibility and doing a deal.”
Acquisition Tips From the Episode
Top takeaways from this conversation
💪🏾 Deal reps are key to building confidence.
When Chris started looking for a business to acquire, he would browse listings and find businesses that looked interesting. He then modeled out potential acquisitions to see what would work and what he liked about them. He’d think about the questions he would ask in due diligence.
This practice helped him in several ways. It made Chris more prepared, which increased his confidence when the time came to write a letter of intent (LOI) to acquire the business. It also helped him spot better deals and feel less fearful when it came time to sign on the dotted line.
“Anybody who has acquired a business has been scared to take the jump, but the reps lower the fear and you start to know what to look for,” Chris says.
“There’s always going to be unknowns, but it helps to build your confidence on, yeah, this deal looks good. I think I can do this. I think I can do it because I've looked at 15 others just like this and this is why this one sticks out. So the confidence, more than anything, was important for me.”
🙋 Buying a remote business will strengthen your ability to delegate.
Chris began looking to acquire a business when he was living in LA. His wife’s work had brought him there, but he knew he wanted to acquire a company in another state. He felt that California wasn’t business friendly, so from the start he knew he would be running the business remotely.
It wasn’t a decision he made lightly, but Chris’s experience buying multifamily apartment buildings in another state gave him the confidence that he would be able to make it work. It also forced him to learn to delegate from day one.
“It just creates a better business environment. And it helps me to delegate, to be honest,” Chris says. “If I was there, I know I would micromanage and I would be all over stuff, and I can't do that. At the end of the day, I shouldn't do that. So that's my natural kind of forcing function. It forces me.”
He compares it to other managers who run worksites in different parts of the country.
“It may not be the main business, but they may have a plant somewhere or a distributor somewhere, and that's how they have to do it. So I treated it like that,” he says.
🌱 Buy bigger than you think you should so you’ll have room to invest in the business.
There’s a principle many aspiring acquisition entrepreneurs hear when they begin researching, and that’s to buy a little bit bigger than you think you can handle. That’s because smaller businesses typically don’t have the margin that’s necessary to re-invest in growth.
Chris knew this principle but he ended up buying on the smaller side anyway. Within three months of owning his company, he was already saying, “I should have bought a bigger business.”
“To have a true management layer, to have the true scale that you need to get yourself completely out, you do need more revenue, and you do need more cash flow,” Chris says.
The COVID pandemic hit around the time that Chris acquired the business, so he had to focus on stabilizing it rather than immediately finding a second business to acquire. Later, when things settled down, Chris started looking to acquire a much larger business that enabled him to take the next step.
😤 The risk of personality clashes with central employees.
There was a general manager in place at the business before Chris acquired it. The previous owner wasn’t working on a day-to-day basis, so Chris was aware that the GM was central to the operation. And while there’s a certain amount of diligence that you can do before an acquisition, one thing that’s hard to determine is how you’re going to work together with other key employees.
“There's some things you can just assume: they know the business, they know how to run it, they're doing a good job because they've been there over a decade. But will I get along with this person? Will they fit into my plan? That's the stuff that you really don't know until you take over,” Chris says.
He thinks integrating a team is a significant component following small business acquisitions. It’s also something that’s often overlooked. But new teams and employees may operate differently or have different values than your own. That can create clashes that may have the potential to derail an acquisition.
“Especially losing people at the size that we buy, these key people – losing them can be a death knell. You might not be able to replace them, or you might not be able to replace them in a month. It may take three, four months to find someone,” Chris says.
“You really have to vet who is running this business. What are they incentivized by? What do they value? And try to match that.”
🐢 Acquisition growth is fast, but messy. Organic growth is slower, but clean.
There’s a lot to be said for the speed at which growth from acquisition can occur, and it can make it seem more desirable than organic growth. But organic growth has a lot going for it and could be the right focus for a business.
While it’s much slower than acquisition growth, organic growth is “clean,” Chris says. Put another way, “If we could grow organically as fast as we could acquisition, I would rather do it organically.”
With organic growth, part of what slows it down is recurring revenue. In order to achieve growth that way, you have to get customers off of their existing contracts with other companies, and that’s not an everyday occurrence.
For example, “You may be able to sell somebody a new kind of hand soap tomorrow because they don’t love their hand soap. But, whoever cuts your lawn, if somebody else wants to cut it, they’re gonna have to be either displeased with who cuts their lawn now or some event has to happen,” Chris says.
“That's why I think for our business, organic growth is a little slower, but we focus on both because the organic growth is clean, and we go after the customers that we want. And that's important to me.”
Inflection points from the show
[2:27] Working in finance and corporate M&A was his first peek into the world of acquisitions.
[6:30] Knowing he was only in finance for the short term.
[7:58] Investing in real estate by mistake.
[12:06] Deciding against making real estate a full-time entrepreneurial venture.
[16:25] Modeling out different businesses and getting the reps in.
[20:03] Why acquiring a commercial cleaning business appealed to him.
[21:59] Chris explains why he didn’t want to buy a business in California even though he lived there.
[22:26] What gave him the confidence to acquire a business outside of his home state and run it remotely.
[27:51] Growing the business to support a management layer.
[30:08] Buying too small, but earning the credibility required to buy bigger.
[32:05] As an African-American, overcoming pattern matching by the banks.
[34:32] Working harder than a white man to get the same results.
[35:52] Bringing the confidence that comes with experience when dealing with banks.
[39:24] What being a remote owner looks like for Chris and the benefits of asynchronous communication.
[40:46] Doing due diligence on key employees, like the general manager. And the importance of integrating the business.
[44:37] Organic growth vs. acquisition growth.
[47:29] What Chris bought the business for and where the margins come from.
[51:28] Gaining 30k Twitter followers in six months.
[54:16] His three-tier funnel strategy with Twitter.
[56:32] Introducing people to the world of acquisition entrepreneurship who otherwise aren’t exposed to it.