ho would have thought the septic business was so good?
Acquiring Minds interviewed Dan Spracklin about Gray Brothers, a septic pumping company he and his wife acquired from her retiring father.
Gray Brothers was an 80-year-old business when Dan acquired it in 2013.
Under the ownership of Dan’s father-in-law, it was doing about $1m in revenue annually.
Dan had no experience in septic pumping. His wife had worked the back office of Gray Brothers in high school, but she didn’t really know the industry either.
In 2 short years after acquiring the business, Dan grew Gray Brothers to $3m in annual revenue and expanded margins from 10-15% to over 30%.
It’s a great win that makes us want to go out and buy a septic pumping company.
We asked Dan all about the possibilities. Here are the 4 key things we learned.
How to 3x Revenue and Margins
Gray Brothers did only septic pumping when Dan acquired it, which means they came to your house and emptied your septic tank by pumping out the sewage and hauling it away.
Or as Dan puts it, “We're Uber for poop.”
But there were adjacent septic services that it could easily upsell to its existing customer base of 22,000.
Which is exactly what Dan did.
To complement pumping, he added tank inspection, maintenance, and construction.
Previously, if a Gray Brothers’ customer needed their septic tank inspected, they might call Gray Brothers for that service. But since the company didn’t do inspection, they referred the business away.
With the expanded offerings under Dan and his wife, now they kept that business.
Same with septic tank maintenance and construction.
“Now we become a one-stop shop for that customer,” says Dan.
In addition to offering new services, Dan raised prices.
“They hadn’t raised rates in 8 years when we bought the company.”
Whereas before Gray Brothers had been the low-cost option for septic pumping, Dan repositioned the company at the middle to higher end of the market.
And finally, he improved operations.
They reconfigured driver routes, tightened up scheduling, and added GPS to the trucks to dynamically assign jobs during customer emergencies.
“We were able to with 3 trucks what [the previous owner] was doing with 5.”
Don’t Start a Septic Business — Buy One
As successful as Dan has been with Gray Brothers, he cautions against starting a septic pumping company from scratch.
“It’s a very asset heavy business,” explains Dan.
“That’s the barrier to entry. You gotta go and buy this $200,000 vehicle. Or you get a used one and you buy it for $75,000, but now you’re putting $25-30k into it in repairs.”
Then there’s the competition.
“You don’t have the customers. It’s very difficult. You gotta acquire the customers.”
And most incumbents are doing really well, so there isn’t much turnover or customer churn.
“It’s a good lifestyle business. If you want to make $200k a year, you can do it in this business. And you can do it for the next 40 years.”
So the opportunity is to buy out one of those owners — if you can find them.
There are around 3,500 septic companies in the U.S., according to Dan. They vary in size, but the vast majority are mom-and-pops doing between $1 and $2 million.
Despite this fragmentation, because it’s an attractive business there aren’t many active sellers out there.
“Why would you sell at 55? Why not keep it for another few years until you’re 65 and sell it. If you have it operating nicely, why not hold on to it until you’re 80 years old.”
Mom-and-pop septic companies do come on the market from time to time, and when they do they typically transact for your typical 3x SDE.
“If you’re a young couple coming in, replacing this mom and pop, and saying ‘we want to carry your name and legacy forward,’ that’s how you can get them to sell.”
You Don’t Need Septic Experience
“First time I ever saw a septic tank was the day I started with the company as the new owner,” says Dan.
So the lack of industry experience didn’t hold him back.
That said, a trucking or logistics background would give an acquirer transferable skills. After all, a septic pumping company is essentially a niche trucking company.
Still, says Dan, “If you don’t know that, nothing’s going to fall apart on day one, especially if it’s a mature business. So you can learn on the job.”
“But it does take at least some fundamental understanding of how businesses operate.”
Pros & Cons of the Septic Business
There’s a lot to like about the septic business.
Let’s start with that, then we’ll look at the negatives.
- Owners earn well. We already covered this above, but just to reiterate: as the owner of a septic pumping company, you can earn a very healthy six figures.
- High customer retention. “In the septic industry, we’re very sticky.” Even when a customer sells their house, the new owner often asks the seller whom they use for septic, so the septic company keeps that home as a customer.
- High barriers to entry keep out upstarts. Again, already mentioned: septic pumping trucks cost a lot, which acts as a nice moat for incumbents.
- Not seasonal. “People poop. And they continue to poop no matter what.”
- Recession proof. “I don’t care if you’re worried about making your car payment. If there’s shit flowing out on your lawn, you’re gonna pay to get that shit taken off your lawn.”
- Dealing with poop. Let’s start with the obvious. But Dan notes that, as the owner, he’s not doing the pumping himself. His is mostly an office job. Still, the core service offered by this business will scare some people off. (More opportunity for those who don’t mind!)
- Day to day, it’s unpredictable and reactive. A lot of the business is dealing with customer emergencies related to a septic tank malfunctioning and the nasty stuff overflowing in a basement or yard. So you’re responding to panicked customer calls all the time, making it hard to predict each day. “Every day is slightly different, no matter how well you plans things out.”
- Hard to find drivers. “Right now there’s a shortage of something like 600,000 jobs in trucking,” Dan explains. “So as you drive around Philadelphia, everywhere that does any sort of hauling or trucking has a sign out: Hiring.”
- There’s a ceiling to organic growth. As impressive as Dan’s rapid growth of Gray Brothers is, he has reached the limit to what he can do internally. “If we wanted to expand even further, we would be required to do acquisitions and basically buy more customers and buy out competition.”
How to Reach Dan
Dan Spracklin is on Twitter at @DanSpracklin.