Key Points From the Interview
any aspiring entrepreneurs need a push to convince them to take the first step into a business career.
In Damon Chlarson’s case, he spent four years contemplating buying a business. It wasn’t until he was laid off from his job during the COVID-19 pandemic that he got serious.
Damon had already learned one valuable lesson from a previous business venture: You have to have some interest in the industry you enter. He’d previously tried to start a business laying garage floors, only to realize he hated doing that.
Having pivoted from founder to buyer, Damon initially set his budget at $700k. However, when a broker introduced him to Pacific Insulation Supply in Salt Lake City, he soon realized that the $1.1m price tag was worth the extra money. The financials were solid and looked to be improving year-on-year. And the infrastructure required to run the business day-to-day was already in place.
Another unexpected bonus of a business that size was its flexibility versus larger competitors. During the supply chain crisis, Damon was able to pivot and find source materials for his customers faster than big organizations. Customers who usually went to those large companies started coming to Pacific.
This was great for revenue in 2020 and 2021. However, demand has slowed and supply has picked back up, making 2022 less predictable. Damon is now focusing on identifying his most loyal customers and how he can serve them.
In this episode, he talks about why he chose to acquire a business instead of starting from scratch, why you need to be able to imagine yourself doing the job before you buy the business, and why he’ll be looking at businesses north of $1m in the future.
✳️ Episode highlights with timestamps
Acquisition Entrepreneur: Damon Chlarson
💵 What he acquired: Initially aiming to buy for less than $700k, Damon Chlarson ultimately bought the wholesale construction material business Pacific Insulation Supply for $1.1m. This figure seemed high — until he looked into the financials. Pacific’s potential and established reputation meant less risk than buying closer to his price range.
💡 Key quote: “When you buy a business, you buy a ringing phone — I stole [that] from someone on Twitter. I had a better chance of optimizing a business that ran than start[ing] from scratch.”
Acquisition Tips From the Episode
Top takeaways from this conversation
💰 A higher price tag might be worth it.
At $1.1m, Pacific Insulation Supply was significantly over Damon’s original budget of $700k. However, when his broker told him the business was on pace to do $600k earnings before interest, taxes, depreciation, and amortization (EBITDA), it became much more enticing.
Diving further into the financials, Damon found that 2020 revenue was $2.2m in sales and $380k in EBITDA. The company was on course to do much better than that in 2021, so with manageable debt service at $120k and a lot of money left over to reinvest, the numbers began to fall into place.
Initially intimidating, it was important for Damon that he could comfortably manage the acquisition. Even though the $1.1m figure seemed outlandish, it provided a solid foundation for future growth. He saw that it was doable, and took the plunge.
💭 Imagine yourself doing the job before anything else.
Before you buy a business, imagine yourself running it every day. If you can’t picture that — or you can and you don’t like what you see — it’s probably not a good fit.
Damon learned this when he started a garage flooring business and realized he hated doing garage floors. In contrast, Pacific fell into his lap and fit perfectly.
Buying a business is buying a job. Before you can implement all the ideas you have about fixing or changing the business, you have to get to grips with running it every day.
🍬 The company size sweet spot.
When it comes to the size of the company you’re acquiring, smaller isn’t always better. Smaller businesses can be less stable, it can be difficult to service debt, and you might be digging into your own pockets. In some cases, you may as well have started from scratch.
In contrast, if you look in the $1m price range, you have certain advantages over both smaller and larger competitors.
Compared to larger competitors, it’s easy to remain nimble, especially during a supply chain crisis. Damon has found that customers are walking away from big, established businesses who are dropping the ball, in favor of smaller players like Pacific. His current challenge is to turn these new faces into loyal customers.
Knowing what he knows now, he says he’ll be looking at spending more than $1m for future acquisitions. A big name, good brand reputation, and solid SEO are what Damon calls the “bones” of the business. Get these right, and even if you’re buying bigger, you’re onto a winner.
Inflection points from the show
[3:59] Damon talks about why he bought a business instead of building from scratch.
[5:38] The importance of imagining yourself doing the job as part of the acquisition criteria.
[7:34] E-commerce, the Twitter SMB community, and how Damon hit upon acquisition.
[12:11] Damon’s financial criteria for an acquisition.
[13:27] SBA brokers and the conversation that led to the acquisition.
[15:24] How much Pacific was acquired for and the financials.
[18:19] Damon’s business model.
[19:54] Pacific’s customers and why they are choosing Pacific over going directly to a distributor.
[22:03] Poaching disappointed clients from larger players in the industry.
[26:39] Damon talks about his day job in tech sales and why he resigned.
[28:38] Damon discusses operations and employees.
[36:28] Stepping back as an entrepreneur and letting a new acquisition run.
[37:27] Damon talks about mental health challenges and their effects on business.
[43:29] Damon’s goals, future plans, and overall strategy for Pacific in the coming months.
[46:50] Damon rounds off with some comments on his taste for larger acquisitions.