[00:00:00 - 00:04:40]

Will Smith: Today's guest loves the paving business, which is saying a lot given his previous life as a member of Seal Team 6. When Eric Donahue retired from his career as a Navy seal, it was recommended by other vets that he buy a business. Flash forward and Eric acquired a $4.1 million revenue 25 year old paving business in Hampton Roads in his first year as owner. He grew the revenue to just shy of 6 million 40% in his first year. We unpack how he's done that, including getting clever around filling his guy's schedules, subbing related work rather than referring it out, and bringing in new tech tablets and old tech whiteboards.

Culture change was also key to his year one growth, as was some good old fashioned luck Other segments to listen for Eric bought the business not with SBA debt, but a conventional loan. Now before you get too excited, yes there was still a personal guarantee, but there's a good tip here about getting a loan from the same bank where your acquisition does business. The bankers there are likely to want to keep you as a customer. Also scaling to deliver a paving job, you need trucks, three pieces of heavy machinery and about eight guys. So when Eric hits capacity, will he have to make eight hires and a very large capex spend all at once to grow?

Not quite. Listen for how he spreads out that spend. Okay, here he is, former member of SEAL Team 6, now owner of Peninsula Paving. Eric Donahue A lot of your success buying a business depends on assessments you make before you become its owner. When you're asking yourself essentially, is this a good deal?

Well, the team at forensic accounting firm LCS has performed due diligence for over a thousand transactions in the small business market and this Thursday they'll be hosting an office hours webinar to share the patterns they look for that suggest a good deal. They'll go deep on factors like low entry, multiple business buyer fit, quality of revenue, seller alignment, and industry tailwinds. Now, regular listeners of Acquiring Minds know what these terms mean, but the LCS team will go deep on really understanding why they are such important characteristics. The webinar is what actually makes a good deal. Patterns from Over a Thousand Transactions it's this Thursday, March 26, noon Eastern.

Link to register is right at the top of this episode's show notes or

on the Acquiring Minds homepage.

Acquiringminds Co.

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. What do the following Acquiring Minds guests

all have in common.

Doug Johns, Morley Desai, Tim Erickson, Chirag

Shah Shah, Shane Ursum.

They all went through the Acquisition Lab, the accelerator in community for people serious

about buying a business.

But they represent just a sliver of

the Lab's success stories.

The number of deals across the Lab's cohorts now stands at over 120, with over $300 million in aggregate transaction value.

The Acquisition Lab was founded by Walker Deibel, author of Buy Then Build, the

book that introduced so many of you to the very idea of buying a business.

The Lab offers a month long, intensive, almost daily Q and A sessions with advisors, live deal reviews with Walker, Deal team introductions, and an active community of serious searchers. Check out acquisitionlab.com, link in the notes or email the Lab's co founder, Chelsea wood.

Chelsea@buythenbuild.com Eric Donahue, welcome to Acquiring Minds.

[00:04:40 - 00:04:46]

Eric Donahue: Thanks, Will. It's good to be here.

Been a long time listener and this, this show's been a long time coming.

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Will Smith: Well, love to hear it. You retired from a successful career in the Service in late 2024 and confronted the challenge that many veterans do. What now? You chose the path of buying and owning a business.

We're going to hear that story today, but let's begin with some background on you, please, Eric.

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Eric Donahue: Yeah, like you mentioned, you know, had a really fulfilling career in the military. Everything I ever wanted to be lived up to and some. But it was a big sacrifice. Right.

A lot of family time away, a lot of training trips, a lot of deployments. And you know, towards the end of my career, I, you know, kind of decided that it was time for a new chapter and I was going to have to go out and get a real job.

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Will Smith: Tell us what you were doing in the service and then what it is that, that for people who haven't gone through that experience that makes the transition to civilian life so difficult.

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Eric Donahue: Yeah. So I was in the SEAL teams in the Navy.

So I joined in 2004, went right into that program, spent my entire career there.

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Will Smith: And as a Navy seal.

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Eric Donahue: That's correct, yes.

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Will Smith: Okay.

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Eric Donahue: And you know, it's, it's fulfilling in that you get the, you know, the privilege to solve some of these amazingly complex problems, you know, some of the toughest problems our military faces, you get to be involved in solving, which is, you know, super fulfilling, super rewarding.

You're working with other people that are highly self motivated. You know, no one's there for the money, obviously. Everyone's there because they're passionate about the work and it's just a, it's a great environment to be in. It's a, it's a very, very high functioning organization. And at the team level, you know, we're, you know, functioning very well, very efficiently.

There's not a lot of, you know, wasted time. So, yeah, it's, it's very daunting to go from something like that to figuring out how maybe you could get that same feeling outside the military. And it took me the better part of a year, year and a half to really figure out what I wanted to do. Went through a whole gamut of different options, but, you know, had some really good mentors in my life, some close friends that advised me and was able to finally land on the, the ETA concept, which I, you know, didn't even know of prior to that. Um, every time I thought or heard of entrepreneurship, I always thought, you know, what's this idea I'm gonna come up with that no one else has done before and then, you know, bring it to market.

Right. That's, that's all I thought it was. So, yeah, the, the whole ETA concept was completely new to me. Yeah.

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Will Smith: And so you were a Navy SEAL for, for years and years.

And even within the seals, there are, there's a, there's even more elite strata, right? Yeah, that's correct, as I, and you, and you were kind of top of that heap, Seal Team 6, right.

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Eric Donahue: Yeah. So I, yeah, I spent my, the better part of my career, the last 13 years at Naval Special Warfare Development Group, you know, which you just mentioned. And yeah, that's, you know, what I was referencing when I talked about, you know, these are an organization that functions at a very, very high level.

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Will Smith: Yeah.

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Eric Donahue: And it's just, you know, I was, timing wise, I really hit my career at a great time where I was able to be involved in all the major conflicts our country was involved in. I got to participate in all the, you know, different, you know, wars we were in. So timing wise, I hit it really well and that's fortunate. Some of the younger guys today, you know, it's, it's hit or miss, it's, it's a little harder.

But I feel very grateful that I, you know, got to have all those experiences.

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Will Smith: Well, thank you for your service.

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Eric Donahue: Yeah, I appreciate it.

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Will Smith: So what about ETA or buying and owning and growing a small business was analogous to. Well, maybe it's not analogous to being on Seal Team 6, but was felt, you felt that there was sort of enough overlap there or, or, or transferability of Your what?

You. All those skills that you developed. Why, why this path? What was it?

[00:09:11 - 00:09:56]

Eric Donahue: I. Yeah, there's actually quite a bit, you know, the more I looked into it, the more I saw, you know, some direct correlation to the things that, you know, the reason why these elite special operations groups are really successful.

It really comes down to doing simple things at a really high level. And when you think about, you know, special operations groups, people always think about technology and all these crazy stuff. And that's true, it's a factor. But, but what it really comes down to is performing, you know, the basics at a really high level, which is really hard to do in warfare. Right.

That's why there are not many people that, that do it at that level. And I think, you know, in, in blue collar specifically, you know, if you do basic things at a high level, you're going to put yourself at, you know, close to the top of the industry.

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Will Smith: So, you know, Eric, say more about that. Like if there, if it's basic, why is it not therefore easy? And why is it hard to do something basic at a high level?

[00:10:07 - 00:10:07]

Eric Donahue: Get.

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Will Smith: Or maybe an example.

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Eric Donahue: Are you talking about military wise or business wise?

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Will Smith: Well, probably business wise. If you think that there's an analogy in the seals businesswise, I would say,

[00:10:19 - 00:10:56]

Eric Donahue: you know, we do basic things well. Right. We respond quickly to our customers. We're, you know, calling them back, we're getting in front of our schedule, letting them know where we are, checking in with them, where they are. We are prepping the job site before we get there.

And then, you know, we're going to do what we said we're going to do. And then if something's wrong, we're going to come back and fix it. Right. Hopefully it's not, but sometimes it is. And along the way there's so many companies that for whatever reason just they stumble somewhere or you know, we've all heard the term where the owners working in the business, not on the business.

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Will Smith: Yeah.

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Eric Donahue: And I repeatedly run into guys that are over tasked. They're the owner of the company, but they're also out there on the job site every day. They're also the one doing the scheduling, the phone calls. So you know, when you're able to delegate those things out and you know, really define people's responsibilities, you can, you can execute those things at a high level.

Yeah, yeah.

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Will Smith: So it's, it's one of those simple but not easy.

[00:11:21 - 00:11:21]

Eric Donahue: Yeah.

[00:11:21 - 00:11:22]

Will Smith: Things.

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Eric Donahue: That's true.

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Will Smith: So, so all the stuff that you described, sure. We can all wrap our heads around it. Just get back to your customers, prep the job site correctly, customer service, etc. Show up on time, but actually doing that day in, day out, very, very consistently is simple but not easy to pull off. Yeah, okay.

Okay, great. That was helpful. Before we get more into your actual acquisition of a business, you had dabbled in starting a small local services business. Starting one because. Well, why don't you tell that story and how you decided ultimately against it?

[00:11:57 - 00:13:17]

Eric Donahue: Yeah, so, you know, I was doing some tree work on the side and this is like maybe the last five or so years of my career, you know, help my wife and I raise a little bit extra money to send, send our kids to school. I enjoyed it. You know, it was kind of a hobby that became a little bit more serious as I got more work. And it was, it was good. But when I thought about it long term, I was pretty sure that, you know, if I wanted to scale it from the ground up, I was going to be the guy in the tree every day, which I didn't want to do.

Nor, you know, as a second chapter of life, my body wasn't going to handle, you know, another however many years of that. 2. It's, you know, the equipment investment is, is quite high. You know, similar to paving almost. If, if you really want to be a full service, full scale tree service.

And ultimately, you know, after reading, you know, buy them, build all the other stuff, I decided, you know what, I understand that it's going to be hard to get this from zero to a million. Right. It's going to be slightly riskier because I'd have to take out a loan. But I'm much more leaning towards the buying something already established path than scaling something from the ground up.

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Will Smith: Did any of that experience translate into the small business that you acquired?

[00:13:26 - 00:13:58]

Eric Donahue: Yeah, it did. Dealing with customers, having conversations about pricing, um, having conversations about changing things. The very, very light accounting I did helped out. So yeah, it was a little bit, but more so just the understanding of the effort and time it would have taken to really get that thing up and moving and start creating, you know, revenue in the, in the million dollar plus range.

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Will Smith: Well, everybody who's listening to this will probably already be sold, or at least is open to being sold on, on the value of buying an existing business rather rather than starting one from scratch. But we have such a bias for that on this podcast. It is sometimes good to ask ourselves, honestly, well, maybe there are business, you know, maybe in a certain case it's better to start something from scratch, in fact, than buy something. So Your conclusion here was that it was in fact better to buy. So.

So that does reinforce the whole point of eta. But it's just a good. It's good that you got to experience that firsthand. You got a taste of what it would take to, To. To build a small business, local services, up from nothing.

And you could have done it. It's just a lot of time. It just would have. It would have taken years. And, and through eta, you get to shortcut those years.

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Eric Donahue: Yeah, yeah, I think, you know, if it was me in my mid-20s, early-30s, sure, you know, I. I might have chose that path. It might have been a better choice for me at that time. But, you know, the chapter of life I'm in now, that that wasn't the right way to go, I don't think. Right.

[00:15:08 - 00:15:11]

Will Smith: Tell us quickly about how you found the business.

Pen. Pen Pave.

[00:15:11 - 00:17:04]

Eric Donahue: Yeah, Peninsula Paving. So, yeah, I mean, I did it all old school. So, you know, I was familiar with biz by selling, you know, SMB, deal, hunter, whatever.

And the best advice I got from a good friend of mine, her name is, is Kim. She's. She works for a great nonprofit that helps guys like me transition out of the military. And she said, hey, I know this is maybe not your personality, but you're going to meet, you know, these couple of people I know, and you're going to have a conversation with them. You're going to have coffee, you're going to have breakfast, whatever, and whoever they tell you they want you to meet, you're going to go meet with them, right?

And yeah, you know, that's really how it started, you know, and I had a couple of buddies in the area that either owned or operated small businesses, and they knew people that were in, you know, complimentary service, blue collar industries, and, you know, same thing. I'd meet up, have a conversation, you know, do you have an exit strategy? You know, what's your experience with small business? A lot of it was me just information gathering, right. I was meeting with people that sometimes had no intention of selling their business or had already sold their business.

But it was still a great way for me to understand, you know, different industries and, you know, some of the struggles they faced throughout their careers that eventually led to a meeting with a gentleman who had sold a dumpster porta potty business. I was interested in learning about it. I said, hey, do you think I should start one? The overhead in that was relatively low. And he said, now I think our area is a little bit saturated.

So I said, all right. Well, who do you know that that is looking to sell a similar business? And he said, you know what? I have a good friend that's looking to sell her paving company. And, you know, that's really how we got introduced and, you know, made it work, you know, with a lot of.

A lot of work, rather. But we were able to get to the closing table on that one.

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Will Smith: Great. Well, we'll hear that in just a second, Eric. But this thing about essentially networking your way through the small business owner community, and you're in the Peninsula, so where are you exactly?

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Eric Donahue: So the. The office is here in Hampton, which is in the Peninsula, but, you know, I live in Virginia beach, so it's all considered the Hampton Roads area. But yeah, so most of the people I was meeting with were Virginia Beach, Norfolk.

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Will Smith: Great. And so they were receptive to just a lunch and you would say kind of the pick your brain pitch or, or what.

And, and, and what I'm driving at is that business owners are busy and they don't necessarily even offering them kind of a free lunch. And let me hear you about your business. May not, they may not be receptive to that. Although I will say there are a number of guests who have used exactly that approach and it seems to work well. But, but say more about why you think you were able to get time from these busy people.

[00:18:02 - 00:18:31]

Eric Donahue: Yeah, I think the. The biggest thing was probably my background because I was usually introduced through an intermediary. And I'm pretty sure that conversation went something like, hey, a good friend of mine, career military, you know, told them about what I did, and I'm pretty sure, you know, I was like batting a thousand. Like, I never, I never had anyone say, no, I can't do it. I'm busy most of the time.

People would take me out and want to pick up, you know, the checked at breakfast or whatever. So. Wow. Yeah.

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Will Smith: It was that sort of gratitude for your service.

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Eric Donahue: Yeah, exactly.

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Will Smith: And the elite. The eliteness of your career as well.

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Eric Donahue: Yeah, yeah. And, you know, this area's got a lot of military, a lot of patriotic people, so it was, it was nice.

But. Yeah, there was never a time I can remember where someone, you know, either didn't get back to me or didn't want to meet up or anything like that. So. Yeah, great. It was, it was, it was successful.

Yeah.

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Will Smith: Yeah. Tell us about the business that you're introduced to and the owner, the woman.

[00:19:00 - 00:19:40]

Eric Donahue: Yes. So her name is Andy.

She's amazing woman. She has been in, you know, construction or paving pretty much her whole Career post college. And she started this business 25 years ago with a, with another partner and grew it to what it was when I purchased it. And she mainly managed the, you know, the office side bids, the estimating the client relationship books, payroll, all that type of stuff. And by the time I bought the business she had a different partner who was operating mostly in the field.

[00:19:42 - 00:20:50]

Will Smith: If you ask owners in the ETA and search community, which insurance broker provides highest quality work, great outcomes and has a practice dedicated to searchers and acquisition entrepreneurs, one name comes up again and again. Oberle. Oberle Risk Strategies has worked with hundreds of searchers over nearly a decade and is in fact led by a two time successful searcher, August Felker. Which makes Oberle a specialty insurance brokerage for searchers by a former searcher. And if you've got a business under Loi, Oberle will provide complimentary due diligence on that business's insurance and benefits program.

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notes and when you said grown it to what it is today.

Give us a picture, give us some numbers around the size of this.

[00:20:50 - 00:20:57]

Eric Donahue: So when we were evaluating it, the three year average revenue was right about 4.1 million.

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Will Smith: 4.1 million. Okay. And how, how many employees does that translate to?

[00:21:04 - 00:21:06]

Eric Donahue: Full time employees? That was 16.

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Will Smith: And margins in paving I have always understood to be not very high because I'm actually, I'm not sure why that is. Maybe because it's less differentiated work. But I really, I'm speaking out of turn here.

I don't know. So what, what did margins in this business look like?

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Eric Donahue: Yeah, margins are in our type of paving are a little bit higher because we're doing more kind of odd jobs. It is all commercial but you know, we're doing patching parking lots, stuff that really big paving crews are not going to do. You know, they're going to want to do city work schedules, highways, you know, stuff where they just sit down and go.

Right. Massive quantities. They'll, they'll do in the thousands and thousands of tons. Right. And the margin of that smaller but they can make up for it in the quantity.

So our margins are actually a little bit better. When we evaluated the business, we got to basically an average margin of right around 17 and a half percent. So that's kind of what we did the rest of our analysis off of. Great.

[00:22:11 - 00:22:26]

Will Smith: So 17% of 4.1 million is.

Oh, what is that? 700 ish. 7 high? 600. 700, yeah.

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Eric Donahue: Yeah. So we were right there for SD and then my, my two buddies who helped me with this are great guys. They own a, a commercial janitorial service in the area called On Point Building Services. And, you know, I literally had all the financials. And we, we sat down in their office one day, Blake and Corey, and we just put it all on a dry erase board and up on the computer we said, all right, let's figure out average sde.

Let's, you know, all this stuff. And then we were able to come up with an ebitda, which we took the SD and we subtracted out what we thought it would take for someone to run the company. You know, the full compensation package. We got to right around 500 for EBITDA. And then, you know, we came up with a window.

We said, hey, let's look at what's a fair price for this business. You know, we'll probably land hopefully somewhere between three and three and a half. Right.

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Will Smith: Which is super helpful because of multiple.

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Eric Donahue: Yes, that's correct.

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Will Smith: Yeah.

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Eric Donahue: So, you know, when I went into, you know, kind of make an offer to them, it felt good knowing, like, all right, if we land in this window, we're good. You know, I know it's worth it. You know, if we're, you know, above it, then, you know, it's not a good deal for me. If we're below it, it's not a good deal for them.

So that was comforting, having that confidence

[00:23:45 - 00:23:52]

Will Smith: going into it and, and just to understand this process that you guys did at the, at the whiteboard.

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Eric Donahue: Yeah.

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Will Smith: You took the financials and you said the SDE earnings, or call it, call it 700.

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Eric Donahue: Yeah.

[00:23:58 - 00:24:14]

Will Smith: Right. Is that accurate or close enough? And, but what is this business to, to pay somebody to run this business, be the president of this business, would be another 200 roughly. So, so705. 200 from 700 is 500.

And so that's your sort of adjusted EBITDA number.

[00:24:14 - 00:24:14]

Eric Donahue: Sure.

[00:24:14 - 00:24:32]

Will Smith: And then you base your multiple against that. So your, so your offer was going to be in the one and a half to one. Yeah, 1.75 exactly range.

Okay. Okay, great. And, and by the way, so she hadn't engaged a broker. She wasn't going to run a process.

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Eric Donahue: Actually, they had tried a year prior.

They had engaged a broker and thank goodness he did a horrible job because they went the whole year without getting an offer. And they, you know, the agreement they had with them was for 12 months. And I said, hey, we're done with you, we're going to move on. So I actually saw the evaluation he did and it, it didn't make any sense to me to be honest. But I was thankful that it didn't work out because the opportunity wouldn't have come up.

They weren't actively with a broker or actively trying to sell the business when I got connected with them.

[00:25:06 - 00:25:32]

Will Smith: And your, your sense of the sort of psychology of the negotiation would be if you presented a fair. Well, you really, it was just you were going to present what you considered A and you had a good dialed in sense at that point of what fair was and hopefully it would be accepted but if not, you know, you just wouldn't. So it was, it was kind of, I'm just trying to tease out because you went into with your offer pretty confident, I feel like.

[00:25:33 - 00:25:50]

Eric Donahue: Yeah, I mean, I guess it's, in a way I was confident that if we were in the window it was just going to be a yes.

You know, that's, that's why the way I felt about it. So if it's, we were somewhere outside of that window, you know, it's, it was a learning experience but you know, move on to the next one.

[00:25:50 - 00:25:58]

Will Smith: Yeah, yeah. No good discipline on your part. Yeah, but that previous broker hadn't anchored her expectations too high.

[00:25:58 - 00:26:23]

Eric Donahue: Yeah, I think he did a, a poor job of his evaluation was higher but his EBITDA was like half of what we, what we came up. It was really bad mean. He did a horrible job. And it was. Once I saw the, you know, the breakdown of what he did, I wasn't surprised that they didn't get any offers because it, it didn't, it didn't make sense.

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Will Smith: Okay, you make the offer and is it accepted?

[00:26:27 - 00:27:02]

Eric Donahue: It was a, let's think about it. I had come up with a, a roughly split where I asked them to sell or finance a third of it. I was going to come up with the bank for the rest. So they basically, you know, said hey, we'll think about it.

Right. And then I think a day or the next day she called me back and she countered with an additional hundred thousand on top of what I offered. So we were right in the 1.6 range. And I said, yeah, that was within the window. I said let's, let's do it.

[00:27:02 - 00:27:40]

Will Smith: Well, and so you offered 3x, you offered 1.5 and she came back 1.6. Now I will say, Eric, your seller note piece, that was aggressive, 33% is it's not unheard of, but it's, it's larger than the kind of 10 to 20% we typically hear about in, at least in an SBA style acquisition. Spoiler, you did not use an SBA loan. We'll get there. But the, the, the profile of this business kind of slots neatly into exactly an SBA style deal.

So anyway, curious where you came up with that, that 33% number for the seller piece. Seller note piece.

[00:27:41 - 00:28:17]

Eric Donahue: Yeah. There wasn't much more reasoning behind it than I definitely wanted the seller to have buy in. So I, I probably wouldn't have done a deal where the seller said, hey, I'm not going to finance any of it because that's a huge red flag.

And what I said to them is, hey, if I'm going to pay someone interest, I'd rather pay you than pay the bank.

And that's really what it came down to. We were able to, you know, come up with some nice even numbers and then they, I think, were attracted a little bit to getting paid off over time versus taking the big hit on their taxes. If they just got everything up front, you know, the bigger portion. Yeah.

[00:28:18 - 00:28:23]

Will Smith: Okay.

So there, there was no pushback on that 33% seller note at all, it sounds like.

[00:28:24 - 00:28:36]

Eric Donahue: No, we actually increased it because I, I ended up buying another 150 of cash off them. So I had, I had working capital start with. So the total value of the deal was, you know, right around 33% for them.

[00:28:36 - 00:28:41]

Will Smith: Ah, okay.

Say more about buying another $150,000 of cash. What do you mean?

[00:28:42 - 00:29:32]

Eric Donahue: Yeah, so it's a, you know, overhead intensive industry. Right. So you need, you need money coming in.

It's project based, so we're not getting paid right away. Typically it's 30 plus days. So you're, you know, you're covering all your costs, labor, asphalt, equipment, repairs, whatever, before you're ever getting paid for those jobs. So for that reason, you know, you really need money in the bank day one or, or a huge line of credit. I had both, you know, and ended up using the line of credit, but not very long.

But you, you know, you just have to cover yourself and make sure that, you know, there's no way you're ever going to come close to missing payroll. Right. Because you can only do that once and then you're going to be done. So I just wanted to make sure there was just a big enough buffer there where we weren't going to have to worry about that.

[00:29:33 - 00:29:37]

Will Smith: So you added $150,000 effectively to the Purchase price.

[00:29:37 - 00:29:38]

Eric Donahue: Correct.

[00:29:38 - 00:29:57]

Will Smith: Which is, which is that would drop just, that would just go right into your coffers for all the working capital for all the reasons you just described. And effectively, your seller, with a 33% seller note, was financing 50 of that 150, basically. I mean, for what? For whatever it's worth.

A third of the 150.

[00:29:57 - 00:29:58]

Eric Donahue: No, they, they gave the whole thing.

[00:29:59 - 00:30:04]

Will Smith: Right. But I mean when you look at the, when you look at the whole project cost, that went from 1 6.

[00:30:04 - 00:30:05]

Eric Donahue: Yeah.

[00:30:05 - 00:30:06]

Will Smith: To 1.75.

[00:30:06 - 00:30:07]

Eric Donahue: Correct.

[00:30:07 - 00:30:09]

Will Smith: And they're, they're financing a third of that.

[00:30:09 - 00:30:09]

Eric Donahue: Yeah.

[00:30:09 - 00:30:11]

Will Smith: And the bank is financing 2/3 of that.

[00:30:11 - 00:30:12]

Eric Donahue: Yeah, yeah.

[00:30:12 - 00:31:04]

Will Smith: Just before we get into not having used the SBA in where, where the 66% of this purchase price came from. Eric, you mentioned that this is a const business and construction businesses are notorious. You already, it sounds like you already understood that working capital is challenging in these businesses. The quality of revenue is considered lower because it's often project.

Almost always project based. I guess construction revenue by definition is project based. Cyclical, all sorts of. Of things that make them more challenging businesses or I should say. Well, yes, that.

But also the revenue quality lower than, you know, your buddy's janitorial business where they've got these long standing B2B contracts, which is sort of the gold standard. Did you understand all of that going in? Do you understand it now? How do you react to that characterization of your business?

[00:31:04 - 00:32:11]

Eric Donahue: Yeah, I think it's actually somewhere in the middle.

It of course is project based, but we're in the commercial space where we work mainly for GCs. So, you know, 85% of our business is probably with, you know, 10 to 12 different clients. Right. We're doing multiple jobs for these people and some of the relationships are good enough where we know when they need something quick or, you know, a specific type of job. They're only going to reach out to us.

Right. They're not even shopping, shopping that bid to anyone else. So in that way it is sometimes reoccurring and additionally, you know, cyclical. Yes. But a lot of it, you know, if you look at property managers, right, they've got liability if there's something wrong with their parking lot.

So, you know, they've, if there's something happens in the lot and you know, woman sprains her ankle because she, you know, tripped on a crack, you know, they're more worried about getting sued for that. They'd rather have it, you know, that whole area patched or whatever. So that doesn't Happen. So you do a lot of business like that, too?

[00:32:12 - 00:32:53]

Will Smith: Well, that's an excellent, excellent point, because when I was characterizing construction business, maybe I should have been more specific to say new construction business.

And. And that. That's also, you know, particularly if it's kind of related to new construction, real estate. That one can be devilishly cyclical. But what I'm just hearing you talk about is you're doing a lot of maintenance work, right?

So. So you're not. And that stuff is not cyclical. That is just wear and tear on asphalt, and that stuff is just happening through the normal course, and there's just kind of going to be a persistent, constant, regular, steady stream of such jobs. Right?

[00:32:53 - 00:33:10]

Eric Donahue: Exactly, exactly. I mean, that's why the real big companies go after the schedule work, right? Because, you know, you know, on the schedule, whatever year, whatever roads are going to get milled and overlaid. Right. It's.

It's already set in stone, so the maintenance is a big piece of it.

[00:33:10 - 00:33:18]

Will Smith: Yeah.

Okay. You didn't use sba. Why did you try and then choose a different tack, talk us through that whole piece?

[00:33:18 - 00:35:02]

Eric Donahue: Yeah, so I got really, really fortunate in that there's an. An outstanding bank here in Eastern Virginia, Town Bank. And my. My banker, Lisa, was actually the banker for the business. Right.

So the current business used Town Bank. And as we started talking, I said, hey, you know, do you mind if I contact your banker? I'm curious if they'd ever be interested in. In financing this. At the same time, I'm also talking to SBA people because, you know, I don't know what.

I don't know. So I'm, you know, trying to get, you know, two channels going in case one of them falls through. And she was. She was outstanding. You know, she was familiar with the business.

They had been in the bank a long time, and, you know, long story short is she said, yeah, I'm pretty sure we can do this. You know, it was. It was asset heavy, physical asset heavy. So, you know, they could back the loan up a little bit on that. And then as separate transaction, I purchased the land that the business is on, too.

So they were able to use that as well to back the loan. But the advantages over SBA were, you know, they were all across the board. It was a better rate. It was lower fees. The amortization was still very reasonable.

It was seven years. So it was, in my mind, you know, the best way to go, I always tell when I talk to people now is, you know, if you end up getting serious in serious talks with a, with a company you want to buy, see if the bank that they currently bank with is, is interested, you know, because it's a great way to get to the finish line, not have to use sba.

[00:35:03 - 00:36:09]

Will Smith: And so is that the punchline here that you. Because my understanding through all these hundreds of episodes is that for businesses of this size, sort of SBA loan size, self funded, searcher size, there just isn't, there aren't alternatives to the sba. And part of the reason the SBA loan exists is to, is to patch that hole.

Although you could argue that it's, it's the reverse, that there aren't competitors, there aren't other products here because the SBA is a subsidized product that keeps competitors out. So chicken and egg. But, but point is that you can't get, you just can't get in the market conventional lending on for an acquisition loan. For such a small business, you are really, I'm sure there's probably been a couple of examples I'm forgetting, but they are few and far between. And so that's kind of the context here is, it is, is your point that the only reason that it happened was because you got the loan from the same bank where the business was already banking?

[00:36:10 - 00:36:43]

Eric Donahue: Yes, I do believe that's the case. But you know, I asked them about this specifically and they said, hey, we look at, we look at every deal that comes to our, our table. The fact that they were familiar with the business was a major factor. Right? Because, you know, that's a big variable that can kind of be removed because they've seen the track record of the business as success over the years.

So they know, you know, the revenue it's generating. The only real, you know, question mark is all right, is this guy the right one to step in there and run it? So yeah, having the same bank was, was a huge advantage.

[00:36:43 - 00:37:17]

Will Smith: And Eric, I actually, so when we talked about this on the pre call, I was so curious about the fact that you pulled this off without an SBA loan that I actually asked if you would go back to Lisa the banker and, and basically say everything that I just said about how I was under the impression this guy, that this podcaster guy who talks about this stuff all day long, was under the impression that these sorts of loans weren't possible for these businesses. And, and so, you know, and see how she reacted.

And so.

And you did. And so what did she say to you?

[00:37:17 - 00:37:41]

Eric Donahue: Yeah, I mean, I think, well, she said, in, in, in short, she said, hey, we look at every deal, and, you know, in yours specifically, we were very familiar with the business. It had physical assets to.

To justify the loan, and. And we wanted to keep it in the bank. We had to keep the business with us. So that was. Those were two of the bigger contributing factors to why they were interested in doing the loan.

[00:37:41 - 00:37:57]

Will Smith: So interesting and so logical.

I'm surprised this hasn't come up in

other episodes where it's like, you know, just, you know, so the takeaway would be at least open a conversation at the same bank where the business is already banked.

[00:37:57 - 00:37:57]

Eric Donahue: Yeah.

[00:37:57 - 00:38:07]

Will Smith: I mean, a conversation with the lenders there and just see what happens.

They may be so eager to keep you there that they're willing to, you know, offer something that might not be available more broadly in the market.

[00:38:07 - 00:38:15]

Eric Donahue: Yeah, I think that's one of the advantages of going with, you know, a local bank to your market. I'm not sure you'd have the same success with. With a really big national bank.

[00:38:15 - 00:38:16]

Will Smith: Sure.

[00:38:16 - 00:38:16]

Eric Donahue: You know?

[00:38:16 - 00:38:16]

Will Smith: Sure.

[00:38:17 - 00:38:20]

Eric Donahue: But they certainly were. Were very interested and did a great job.

[00:38:21 - 00:38:48]

Will Smith: Yeah.

Fascinating. Okay, and so just to hear again, on the terms, the rate was better than what you would have gotten in a comparable SBA loan. The fees were lower, considerably lower. And then the only way that it was inferior to the SBA was the amortization schedule was. Was shorter, but not a ton shorter.

It was seven instead of 10. Right.

[00:38:48 - 00:39:00]

Eric Donahue: It was seven instead of 10. But, you know, I also had a. A good buddy tell me, hey, if it takes you 10 years to pay the business off, then it's not the right business, which.

Which I agreed with, you know, so I was certainly fine with the. With the seven.

[00:39:03 - 00:39:12]

Will Smith: Interesting insight by your buddy. Anything more to say, Eric, about the process of closing on this business before we hear about how you've grown this thing 40%.

[00:39:14 - 00:39:35]

Eric Donahue: Yeah, I'll. I'd like to just give a quick shout out to my buddy Hunter here at Hangar Law. They.

They helped me throughout the whole thing, and he's a great entrepreneur himself. He's just interested in learning about different industries. He actually helped me through a lot of the stuff, just, you know, on his own time, just being a good friend, so I just want to mention him. Great.

[00:39:35 - 00:39:41]

Will Smith: Cool.

Okay, Eric. So Peninsula Pave paving or pavement Paving?

[00:39:41 - 00:39:43]

Eric Donahue: Peninsula Paving. Yes.

[00:39:43 - 00:39:53]

Will Smith: Peninsula paving.

Penpave.com. i love the domain. It rolls off the tongue.

How did the transition go?

[00:39:54 - 00:40:11]

Eric Donahue: So I think, you know, once we closed, it was so much work to get there that it was almost like, my gosh, are we really Just going to reset and start over, which is what you have to do, but, you know, you get to the table.

[00:40:11 - 00:40:11]

Will Smith: What do you mean, start over?

[00:40:11 - 00:40:23]

Eric Donahue: Yeah, because you've, you've accomplished, you know, buying the business, which you've put so much effort into, into already. And it's like you're now resetting back to.

All right, we're starting over with a

[00:40:23 - 00:40:25]

Will Smith: new goal project, new work.

[00:40:25 - 00:41:01]

Eric Donahue: Yeah. Which is learning this thing. Right.

So it was interesting the way my wife and I kind of looked at it was, it was. We were going to consider almost like a deployment. Right. So I was spending a lot of hours up here, but I had to. Right.

Because I had to learn. Learn the business for the time that the former owners were staying on. And that was for a period of about four and a half months. Is, Is how long? Closer to five.

So in that time, you know, I had to maximize how many hours I was spending here just so I could gain all that knowledge.

[00:41:01 - 00:41:02]

Will Smith: Yeah.

[00:41:02 - 00:41:20]

Eric Donahue: And, you know, I also learned that, you know, buying a paving business is probably not a good idea in the middle of the winter, but that's the way it worked out for us. So we made, we made it happen. But ideally you'd be in a more busier part of the season and actually

[00:41:20 - 00:41:24]

Will Smith: it's, it's not immediately obvious to me that you wouldn't work in the winter.

[00:41:24 - 00:41:55]

Eric Donahue: Yes. Okay. So. So asphalt is a hot product.

It comes out hot when it gets into the truck. Right. So the whole time it's going from the plant to the job site, it's losing heat and, and setting up. So in the winter. Right.

You're just limited by temperatures. You know, if it's below 40 degrees, the plant's probably not going to make asphalt. But depending on that drive time, if you can't get it there in a, you know, a reasonable amount of time, then you can't put it down. Well, you don't get a good finish. All the stuff that you need to have a, you know, successful job.

[00:41:57 - 00:43:12]

Will Smith: The team at Aspen HR recently published a short white paper targeted at searchers Entitled A New CEO's Guide to Human Resources. It lays out the key items you should be thinking about as you transition into CEO and owner of the business you bought. The link to download that is in the show notes, Aspen HR is a professional employer organization or PEO, which provides HR compliance, flawless payroll, robust HR technology and Fortune 500 caliber benefits, all for a fraction of the cost compared to using multiple vendors. Reach out to Aspen HR for your complimentary HR diligence. Checklist and benchmarking analysis.

Go to aspenhr.com or contact Jenny Thier directly at jenny aspenhr.com the four, four

and a half months you said that the seller had agreed to stay on. That strikes me as on the longer side. Did you end up wanting her to stay for that duration?

[00:43:13 - 00:44:03]

Eric Donahue: Yeah, it, it was, ended up being, I think it was perfect for us.

And what happened was I actually spent the first majority of the first couple months just working in the field with the guys. I actually just was like part of the crew, like had a shovel, you know, and I didn't mind that at all. Yeah, yeah, I mean I was happy to help out because I, I just wanted to learn what was going on out there so I could speak about it intelligently to our clients and also so I could understand, you know, where we could add efficiency. Those are the two biggest things. And then after I had done that for a little while, I transitioned to doing more, you know, office client relationship, understanding the bid estimating process and, and OB accounting.

That was kind of just learned it as, as we went.

[00:44:05 - 00:44:08]

Will Smith: Did you earn credibility with your crew that you did that?

[00:44:08 - 00:44:27]

Eric Donahue: Yeah, I think. Well, my background obviously gave me a decent amount of credibility to start with. And yeah, they for sure noticed, you know, that I wasn't afraid to, you know, get in there and you know, shovel asphalt for a day. And I don't mind, you know, that that wasn't an issue for me at all.

So it definitely helped out quite a bit.

[00:44:28 - 00:44:43]

Will Smith: It's not unheard of that buyers of businesses would go into particularly like a blue collar, kind of labor intensive business. People would go into the field to get it, get a flavor of it, get a taste of it, learn it. Yeah, but it's, it's, it's less common rather than more for sure.

[00:44:43 - 00:44:44]

Eric Donahue: Right.

[00:44:44 - 00:44:50]

Will Smith: Do you recommend, do you feel like it, it did what you wanted it to do and we just mentioned the credibility. But what about the learnings?

[00:44:51 - 00:45:32]

Eric Donahue: Yeah, yeah, there's no way I could have learned all that stuff like the intricacies of paving with, without seeing it and you know, actually doing it. You know, if someone had explained it to me, you know, I would have said, oh yeah, sure. But you don't, you're not going to understand it unless you are out there actually doing the measurements and actually doing the quantities and seeing, you know, how long it takes the truck really, you know, to go to the plant and back rather than when you put the map in, you know, you put it in on Google and it says however many minutes you know, that's not how long it's going to take a truck full asphalt to do that round trip.

You know, just small stuff like that that you, you learn from being out there, that you're not, you know, you're not going to see if you're in the office the whole time.

[00:45:33 - 00:45:44]

Will Smith: Okay, Eric, as I said, you have grown this quickly. Let's go through how that happened and, and, and start with the headline number. How, how long have you been in the business and how much you've grown. Have you grown it?

[00:45:44 - 00:46:04]

Eric Donahue: Yeah. So what are we. We're in February now. So I've been here just over 13 months and we ended up doing 5.97 last year, which was my first year here, which was right about. Right at 40% for revenue growth.

[00:46:05 - 00:46:09]

Will Smith: Yeah. So it started at 4ish. And it's. And it's at pushing 6.

[00:46:09 - 00:46:09]

Eric Donahue: Right.

[00:46:10 - 00:46:21]

Will Smith: Which starts to sound even almost close to 50%. But I like that you're being conservative. So for. So 40%. Yeah, 40% growth.

Walk us through all the ways that that happened.

[00:46:21 - 00:47:44]

Eric Donahue: Okay. Well, the big one was, you know, just a market dynamic that we had no control over. So one of our biggest competitors was bought by a really big company in the area. And that company does, you know, highway work.

They don't compete with us on the same type of projects we do because it's way too small for them. And they basically decided, hey, we're not going to compete on any of these projects anymore. It's just, they weren't interested. So the market really opened up in that there was a whole bunch of projects that needed to get done that there was one less large competitor in the area to service. Right.

So we ended up getting a fair amount of that work. That was a big factor. And then another thing we did that the company wasn't doing before was a decent amount of subcontracting and specifically like complimentary services that we don't offer. So we don't, you know, sealcoat and line stripe. We don't do small concrete work, stuff like that.

So consciously I sought out some avenues to do work like that where we weren't involved at all other than managing a sub. And we were able to grow revenue significantly by that, just by providing the management. And then I would say, sorry, Eric,

[00:47:45 - 00:48:12]

Will Smith: your previous owner, in moments like that or jobs like that, would have just referred, referred out the business. And so instead of referring it out, you subbed it out.

But it means you're the collector of the revenue and you can mark up the subs revenue and earn 10% on that. Okay. Okay. Any reason why that seems so obvious? Any reason why people in construction choose to refer versus sub?

[00:48:13 - 00:48:51]

Eric Donahue: I think they're, they don't want to deal with it. They don't want to deal with it. Right. They don't want to provide the management. And I would say even on the jobs that we did, I would pick and choose.

Mostly these were jobs that were somehow restricted. So they were either most of them were on a military base. Right. So because they're on, you know, some type of restricted access area, the markup is higher. Right.

Because it's just more of a pain to, to deal with those places. So we were really looking for the ones where we could make a significant markup. Not just your, your standard 10%. If we were going to sub out something complimentary.

[00:48:51 - 00:49:23]

Will Smith: Great.

That, that was helpful. That. So. So in a non base environment, non base work, the 10% that you earn subbing out just may not be worth the juice. May not be worth the squeeze in a lot of cases because that 10 isn't free.

You've got to manage it. And so there's, there's work there. Okay, great. That was clear. But back to this base work that is actually a big feature too.

I think maybe you're about to get there. So I don't mean to steal your thunder but, but I haven't heard you mention it yet and I recall it being a big deal overall. Yeah.

[00:49:23 - 00:50:06]

Eric Donahue: So, you know, obviously we're in an area of the country where there's, there's bases all over the place and you know, they need asphalt just like anyone else. So we're fortunate that we, we don't typically perform work as the prime for any of them, but through our relationships with GCs, we end up working on almost all of them.

So typically the GC will have a start to finish project and you know, when it comes time to do the asphalt, you know, a lot of times we're were part of that. So I would seek out the subcontracting opportunities for the complimentary industries when it was like base restricted, you know, because we could. But our normal paving, we were already involved in that. Okay. Those operations were already taking place on base before I was here.

[00:50:07 - 00:50:17]

Will Smith: And the fact that you are a veteran and there's this base work and there's restricted access as you mentioned. Did that give you any advantage or since the business was already in there, didn't.

[00:50:18 - 00:50:18]

Eric Donahue: Yeah.

[00:50:19 - 00:50:20]

Will Smith: Veteran didn't really matter.

[00:50:20 - 00:50:56]

Eric Donahue: No, I mean it wasn't like a veteran set aside or anything like that.

But right. Strictly the convenience of it made it, made it a, a lot better because typically, you know, someone has to say, hey, when do you, when can you be here? Okay, I've got to put in a visitor's request, fill out this form. Okay, I'll meet you at the badge office. Because I'm a veteran, I can just say, all right, you tell me when you want to meet on whatever lot it is, and I'll just be there because I have access via, you know, my veteran status.

So just the convenience of it for the contractor in my mind was huge because they didn't have to go through that process to get someone else in there just to take a look at it.

[00:50:56 - 00:50:59]

Will Smith: What next did you do to grow?

[00:51:00 - 00:52:15]

Eric Donahue: So the other thing that we, we weren't doing as well as I, as we ended up doing was splitting up. Right. So typically our whole, we have one crew and they would all go to the same job same day.

And you know, it's blue collar construction stuff. So I do have a handful of guys that can't access the base. Right. For whatever reason. So in the past, a lot of times those guys would have the, the day off or they wouldn't get the hours.

Right. And what we started doing was looking at smaller jobs, mainly patching stuff that doesn't involve the actual paver. Right. Because that's a, that's a big operation. And, you know, identified a guy that had what I thought was, you know, some good leadership skills and said, all right, you're going to be the crew leader for this small crew and you guys are going to go do, you know, XYZ patch or whatever.

And we ended up getting a lot of work to the point where, you know, it actually served two purposes. One, we obviously increased revenue because we had two jobs going at once. Two was it really helped out those guys and they appreciate it because typically they wouldn't be working, you know, so they were getting more hours than they were used to, which they liked. And we were, you know, knocking out two jobs at once.

[00:52:15 - 00:52:50]

Will Smith: And they couldn't access the base because of like, stuff on record.

The record and stuff like that. Okay, okay, exactly. Okay, great. And so you, you basically added to your calendar slotted them into stuff that was non base work on base days for your other, other crew. Great.

And this person that you promoted to kind of lead those days, is there anything, any management lesson there or anything to say about that or you just, it was just a case of you identified a guy who would be good to lead These things, because otherwise you probably wouldn't have been able to do this. Because you need now two leaders to run two crews.

[00:52:51 - 00:53:35]

Eric Donahue: Well, they were lower risk jobs. Right. Because they didn't involve the paver.

So that's one, and then two was, you know, this is probably like the military experience, but I would just be very, very clear on the expectations of the job. You know, like this is exactly what you're supposed to do, you know, in a printout, you know, and if you have questions, call someone. Me, call the superintendent, call the other foreman. Just let them know that you're not expecting to send them off on their own and expect perfection. Right.

That. That wouldn't be reasonable. You know, you got to make sure that they understand that they have the ability to, you know, make a mistake or ask, you know, rather than just trying to get through it and maybe

[00:53:35 - 00:53:39]

Will Smith: doing it wrong and say more about these super clear instructions.

[00:53:40 - 00:54:31]

Eric Donahue: Yeah.

So in the past we would get contracts, and a lot of times we'll get contracts like, you know, six months out, which is great because it really helps you get a handle of your backlog, you know, and what amount of work you have coming up. But they were getting contracts and then printing out a form that kind of gave the crew the scope of work. Tons, you know, dimensions, whatever. Well, as you can imagine, you know, a lot of times the job will change within that six months. The scope will change, whatever.

So these guys would show up to job and sometimes have inaccurate. A lot of times they have inaccurate information that was old. So it's something as simple as getting, you know, tablets, where as we update stuff in our system, they see it in the field made a big difference because now they can go job to job, pull up the job, and they know they have the most recent information rather than something that's out of date, piece of paper.

[00:54:32 - 00:54:36]

Will Smith: Did you do other digitization stuff?

[00:54:37 - 00:55:31]

Eric Donahue: That was the big one for the guys in the field, which, which made a really.

It actually made a really big difference. Our four minute superintendent, after they started using it, they were like, oh, this is awesome. And it actually went the same way. It went from the field back to the office. So as we started looking at jobs in the field, you know, I made a little system that they could evaluate it, whether it was ready for us to come.

You know, is the grading complete? You know, does it need to be saw cut? Do we need traffic control? Do we need a porta potty, like listing all these things out before we get there so there's no surprises? You know, the day of that was something that was a little bit gapped with the prior group where the gentleman that ran the field was spending a lot of time with the crew and we weren't getting out in front of our jobs very well to make sure that they were prepped for exactly the scope of work that we were hired to do.

[00:55:32 - 00:55:43]

Will Smith: So you would show up in the previous regime to a job site and there was just things that needed to happen. It just wasn't ready. You weren't ready to start work. So you guys would lose time, stuff would get pushed.

[00:55:44 - 00:56:25]

Eric Donahue: Yeah.

Minor inefficiencies. Right. So, you know, anything from, hey, you know, we don't have a spot to park the trailer now the truck driver's got to drive all the way back to the yard to drop the trailer. Right. You know, that's something we could have figured out beforehand.

Right. We don't need to figure out. The day of a big one is the grade. Right. When you're paving, if the grade is not accurate and you're assigned, you're, you know, assigned to do the asphalt.

You know, you might have to put an extra, I don't know, half inch inch, but over a large area, that adds up to a lot of extra tonnage. Right. So just verifying that those things are correct lets us, you know, do our job and not overrun is what we would call it is when you, you'll go way over what your estimate is for the job.

[00:56:25 - 00:56:35]

Will Smith: You'd mentioned your superintendent and foreman, Right. Wasn't that also something that you put into place the.

A clearer division of labor?

[00:56:35 - 00:57:30]

Eric Donahue: Yeah, roles. So I, you know, you know, these, these guys are both great, very talented, you know, construction guys. But, you know, I sat them down and I, you know, had a printout, you know, just a side by side. Hey, you know, this is roles and responsibilities, you know, for each one.

And it really came down to, you know, the foreman is in charge of the daily job site safety and making sure that job gets, you know, paved the way we were signed up to do it. The superintendent, his job is to answer all those logistical questions before we ever get to the job site. Right. So we want to take care of all those things I mentioned, you know, Porta Potty, whatever, traffic control. So we don't have any surprises the day of and that we, we saw some big increases in efficiency with our, our margins actually on these jobs were noticeably better when we, when we started doing that.

[00:57:30 - 00:57:45]

Will Smith: I see a whiteboard behind you. Yeah. And I, and I remember you, you said, I, I love whiteboards, especially the magnetic ones. I just, it's not something I'd expect a Navy SEAL to say. Maybe that's my naivete.

Maybe SEALs love whiteboarding everything.

[00:57:45 - 00:57:48]

Eric Donahue: I don't know, I mean, it's the same way, I think of it as

[00:57:48 - 00:57:50]

Will Smith: like office office jockeys, like whiteboards.

[00:57:50 - 00:58:06]

Eric Donahue: I mean it's literally the same way that I would, you know, brief or plan, you know, missions in my past career. You know, you got the guy's name and he's on this helicopter and you know, this is a building and this is where these people are going to be.

It's the same thing. It's, it's not really any different.

[00:58:08 - 00:58:26]

Will Smith: No.

Of course doing extraction missions is no different than putting down pavement.

Okay, Great. So this 40% just to, to condense all of that, one big one was the dumb luck of this big competitor pulling out of your market.

[00:58:26 - 00:58:26]

Eric Donahue: Yes.

[00:58:27 - 00:58:37]

Will Smith: The others were the, this clever. Filling your calendar on days when there was base work, putting the other guys onto other jobs.

Non base work.

[00:58:37 - 00:58:38]

Eric Donahue: Right.

[00:58:38 - 00:58:48]

Will Smith: So keeping everybody working and, and increasing revenue and having two kind of simultaneous crews. The, and then a lot of efficiencies.

[00:58:48 - 00:58:48]

Eric Donahue: Right.

[00:58:49 - 00:59:16]

Will Smith: Tablets in the field. You didn't mention it here but you did on our pre call slack going to the site before the, all the, the crews get there to make sure everything is, is where it needs to be. Confirming the prepping, etc. Yeah. This, this trajectory, this 40% growth in the first year, do you think that that continues into 2026?

No. Or is this all sort of one, one, one off, low hanging fruit?

[00:59:16 - 00:59:50]

Eric Donahue: I mean we're certainly getting solicited for just as much work as we ever have. That, that hasn't dried up at all. I would say with the amount of personnel we have, we're, we're as far as the surf work that we can self perform, we're pretty maxed out.

We're at the, the point where we probably have to go to two full paving crews if we want to continue on that trajectory. That's really the only way. I mean we've used the people we have and the hours we have in the year. We max that out, you know, so if we were going to.

[00:59:50 - 00:59:54]

Will Smith: You're at capacity.

You're totally at capacity. Yeah, close to.

[00:59:54 - 01:00:14]

Eric Donahue: Yeah, yeah, we have, but we, you know, I've been slowly piecing on, you know, equipment and people. We're a little heavy right now, especially since this is our slow season where we are, we are prepped to this year and that's one of our goals to have two simultaneous paving crews. Um, and that would be specifically running, operating the paver in two different sites at the same time.

[01:00:15 - 01:00:29]

Will Smith: So actually, let's just, let's just walk through that, talk through that. First of all, when you say the paver, you mean that big machine that we've all seen that is basically with like a, a big drum that's rolling down, that's like compressing the asphalt, Right?

[01:00:29 - 01:00:30]

Eric Donahue: That's the roller.

[01:00:30 - 01:00:31]

Will Smith: The roller.

[01:00:31 - 01:01:08]

Eric Donahue: The paver is.

You'll see the dump trucks dump all the asphalt into the front of the paver, called the hopper. And then it goes through the machine. And then, you know, on the ground behind it, there's a nice smooth layer of asphalt, you know, at a certain depth. Right. It typically takes three people just to operate the machine.

Right. And then you've got, you know, guys with rakes, shovels, supplementing whatever else is going on there. So, you know, at a minimum, and then you mentioned it, rollers you need, you know, rough, at least two guys running rollers. So you're looking at a minimum of, you know, eight guys, you know, per crew. And that's not including your, you know, your truck drivers and stuff like that.

[01:01:10 - 01:02:20]

Will Smith: So this is, this is interesting because we, I've, I've said it recently, as recently as a couple weeks ago. We think about services businesses often as. You can sort of grow linearly with people. So you can grow, you grow your revenue by adding on another guy or two versus, say the reason this has come up is because I've talked to number of people who acquired manufacturing businesses. And this is so in contrast, in manufacturing, it's a capacity thing.

You hit capacity and then to expand your capacity and to grow further, there's a big stair step where you need to reinvest in all of this new, you know, new equipment or new real estate to place the equipment or whatever if this feel. And so, and so maybe actually that dynamic is, Is more common in services businesses than I kind of, than I was generalizing them to be. Because in your case, it sounds like to expand capacity, you need to buy a bunch of machines, the paver, and a couple rollers and another truck or two and a bunch of guys. You need, you can't go just one guy needs. You need to hire eight guys all at once.

Is that true? Right.

[01:02:20 - 01:02:54]

Eric Donahue: Well, you can, you don't have to go that extreme. And I purposely did this throughout the end of last year was I added a lot of the stuff you just said. So with the, you know, the profits we made from last year, you know, fortunately with Cash.

I was able to buy, you know, a couple crew trucks, two rollers, bought a new trailer, you know, a whole bunch of stuff. So that when we are ready and have the demand, we're only going to have to add probably a couple of people to be able to accomplish that. So.

[01:02:55 - 01:03:04]

Will Smith: Yeah, but that's from where you are now. Yeah, but you've already.

But you. But because a lot of the investment you've already made. But it was a big investment. All the stuff that you said you just bought.

[01:03:04 - 01:03:05]

Eric Donahue: Yes, yeah, yeah.

[01:03:05 - 01:03:12]

Will Smith: And is that stuff mostly sitting idle until you have the two additional people to deploy it all into the field and generate money from it?

[01:03:12 - 01:03:50]

Eric Donahue: Not all of it. A lot of it is backup equipment. So, you know, as you can imagine, these, these pieces of equipment break, you know, somewhat often. Right.

They're used roughly. They do, they do, you know, a lot of work. So we have backups for everything. So what it would mean would be our backup stuff would get used more often. And then after a little bit, we would rotate another piece of equipment in to be the backup for both of them.

So we'd be, we'd be light on extra equipment for a little bit would be the next step. And then as we progressed in that two crew dynamic, we would add more backup equipment to backfill both of them.

[01:03:51 - 01:03:58]

Will Smith: I see, I see. So you see this equipment that you've already invested in as sort of like necessary anyway because you just got to have some stuff on backup.

[01:03:58 - 01:03:59]

Eric Donahue: Yeah, exactly.

[01:04:00 - 01:04:05]

Will Smith: And then as you grow your backup equipment, you actually use as prime equipment.

[01:04:05 - 01:04:05]

Eric Donahue: Right.

[01:04:05 - 01:04:13]

Will Smith: And then you backfill it and get more backup equipment. So you always have. And ideally you kind of fluctuate between having some back backup equipment that's sitting idle.

[01:04:13 - 01:04:14]

Eric Donahue: Right.

[01:04:14 - 01:04:16]

Will Smith: And then actually using that when you're growing.

[01:04:16 - 01:04:16]

Eric Donahue: Yeah.

[01:04:17 - 01:04:19]

Will Smith: And then backfilling again with yet new, yet more new equipment.

[01:04:19 - 01:04:34]

Eric Donahue: Interesting.

It also can help with like an efficiency if, if there's a day you're wanting to do two jobs at once or you know, go from one job to the other, you could pre stage a set of equipment. Right. And have it all warmed up when the guys get there so they can go right into work and not have to wait, move equipment, whatnot.

[01:04:34 - 01:04:49]

Will Smith: It sounds like you were able to buy, you said you bought this, a lot of this equipment in cash. So then is pushing beyond this capacity constraint you have now actually going to be a challenge or, or can you basically comfortably grow to meet whatever demand you can generate?

[01:04:50 - 01:05:30]

Eric Donahue: Yeah, we can, we can comfortably grow. The, the equipment piece is easier than the personnel piece, finding skilled people in this trade is, is really tough. There's just, there's just not that many. So the real limitation is, is the people and we've been trying to promote from within, you know, so the guys that have shown like the most reliability over last year, I'm trying to get them more taught up on how to operate the paver, you know, if they were on a shovel or rake for the last couple years. So we're trying to do that as well so we have the people in the right places when we do split up.

[01:05:30 - 01:05:40]

Will Smith: Anything more to say about the hiring and finding people? Because it's a challenge that we hear about a, in a lot of these businesses. It sounds like it's pretty acute in your, in your industry.

[01:05:40 - 01:05:57]

Eric Donahue: Yeah, it's just, it's by far the biggest obstacle, you know, since I've owned the own the company is it's just the people. Right.

Finding good people is very hard. You know, dealing with people, sometimes your employees can be very hard.

[01:05:59 - 01:06:00]

Will Smith: What kind of stuff have you dealt with?

[01:06:01 - 01:06:51]

Eric Donahue: You know, I think I mentioned this pre on the pre call, but one of the, the biggest, you know, culture shocks to me being outside of, you know, the, the command I used to work at was just people's kind of nonchalant way that they'll be dishonest. You know, I can count on one hand the amount of times I was lied to in my, my former job. And I'm pretty sure each one of those times, you know, someone got kicked out of, of the command we worked at because it's such a big deal, you know, nowadays it's almost like, you know, it goes in one year and out the other and you know, it's not a truth but you know, you just, you know, kind of rub it off and, and continue on. But you know, that was just something that I'm not going to solve.

You know, it's just something I learn how to manage, you know, or deal with.

[01:06:53 - 01:06:59]

Will Smith: I recall that a buddy of yours, I guess a fellow vet who, who found himself at Microsoft.

[01:06:59 - 01:06:59]

Eric Donahue: Right.

[01:06:59 - 01:07:04]

Will Smith: Said. Said the same thing.

So this isn't necessarily just a feature of like a blue collar environment.

[01:07:04 - 01:07:04]

Eric Donahue: Right.

[01:07:04 - 01:07:12]

Will Smith: He was shocked to find that people at Microsoft. Yeah. Lied comfortably in a way that he never saw while he was in the seals.

[01:07:12 - 01:07:13]

Eric Donahue: Right. Yeah.

[01:07:13 - 01:07:20]

Will Smith: Yeah. Interesting. You had some turnover.

Speaking of difficult people and people issues overall, what did that look like?

[01:07:21 - 01:08:48]

Eric Donahue: Yeah, so when I, you know, met the guys and bought the company beginning January of 2025, you know, I said hey. I said hey guys. For the six first six months, I'm not making any changes, right? So I wanted them to know that, you know, there wasn't going to be some, you know, big change in the way things were done.

But I also figured that they were all going to ask for raises like right away. So I said very, very firmly, hey, I'm not making any changes for the first six months. What ended up happening was, you know, as we, you know, became a little bit more efficient, a little bit more accountability, you know, a little bit more structure, the guys that didn't like that kind of found their way out on their own. And the guys that did like that were more engaged and more, you know, happy to be here. So it ended up working out well overall.

But there were definitely times partway through the year I was like, oh my gosh, if we lose one or two more people, we're going to be really, really stretched thin. It's just a timing piece. You got to give it time. And eventually we're at a spot now where we actually have people, employees referring people to us. And I've got a little bit of a backlog of employees I keep track of or non employees, potential candidates.

I should say that, you know, once we get busier, I can call and, you know, hire them if I need to.

[01:08:49 - 01:10:10]

Will Smith: So often in our world, people are really scared to lose employees. Well, when you first hear about this, you think, you know, that employees are all scared to lose their jobs. And so you as business buyer go in on day one and reassure everybody. And there is some sense of that that's not, that's not inaccurate.

But after people have been reading about, listening about listening to stories about ETA for a while, they, they realize how the business buyer, the power dynamic is in the other direction. Really. The employees have, have kind of more power in collectively over the business buyer than, than vice versa over the searcher. Because obviously the search has just gone all in on this project and it's, they're almost always people based businesses and if the people walk out the door, so too does the revenue. Okay, so it can be very, it can be very daunting for the searcher, the business buyer, to the prospect of losing people, losing anybody.

Obviously there's key men, key women who are worse to lose than others, but still any loss, you start to worry, you start to really get worried that you're not going to be able to generate revenue or meet demand of your customers. Sounds like you started getting there. Yep. Because there was enough turnover where you started to bite your nails a Little bit.

[01:10:10 - 01:10:10]

Eric Donahue: Right.

[01:10:11 - 01:10:25]

Will Smith: But just overall, did you ever feel

this fear of people walking out the door? You, you seem like you're, you're pretty, you're pretty relaxed about it, except for that moment where it, it started to feel a little tight. But in general, it didn't seem to scare you that somebody might walk out?

[01:10:26 - 01:11:53]

Eric Donahue: No.

None of the people that ended up leaving, I was, you know, worried about retaining, I should say, you know, on, on that topic, actually, not on the field side, but in the office side. We have one key employee. You know, he's kind of like my right hand man, Dave, and he was here from when the old owner owned the business and he is still here now. He was a key employee that, you know, before I bought the business, I sat down with him, I said, hey, are you, are you wanting to do this? Like, he knew the company was up for sale, he knew the former owner was leaving, and he was really kind of the conduit that kept everything together through the transition because he knew all the clients, he's great in dealing with the clients, and he knew all the estimating and he'd even worked in the field for a little bit.

So he really understood what goes on there. So he was a key component in the whole thing being successful to the point where once Andy left and you know, we saw that we had so much demand that Dave was going to be overwhelmed. We ended up hiring another estimator from actually the company that was bought by, you know, our competitor that was bought. So she came over and really kind of was able to help share the load on the estimating side. And that was another thing that contributed to efficiency because we, we would have been swamped just trying to get proposals out the door if we didn't have some extra help in that area.

[01:11:54 - 01:11:55]

Will Smith: Yeah.

[01:11:55 - 01:12:14]

Eric Donahue: So, yeah, I think, I mean, you asked about the field side and there was no one. There were guys I was worried about leaving, but they also were the guys that enjoyed it more with the structure and accountability that had been elevated a little bit from the prior owner. So, yeah, those, the people you were

[01:12:14 - 01:12:25]

Will Smith: worried about leaving were the people who actually also happily embraced your new culture, which was a tight, a tighter, more organized, more, dare I say, militaristic culture, you know.

[01:12:26 - 01:12:35]

Eric Donahue: Yeah, I'm sure, I'm sure a little bit of that, you know, is obviously coming into play. But yeah, the guys that are my best employees were the ones that enjoyed that.

[01:12:36 - 01:14:01]

Will Smith: Yeah, it's a, it's a good point. It's, it's probably a very common pattern. I'M not sure it's been so distilled as you did for me in a pre call.

But this idea that like you had said that some of some employees, as you I guess later heard, were worried about the new regime like as any employee is going to be. I mean it's just uncertainty and oh, it's a former Navy Seal Seal Team 6 guy. Is he going to come in here and kick ass? And, and, and so there was, there was concern there and what you found is that you probably, you did go in there and tighten things up. I don't think you, I don't think you would say that you're, you're an ass kicker, right.

But you tighten things up and, and what happened was that created its own filter where you know, or maybe this is the get on the bus, off the bus thing. I don't remember what book that's from one of the business, big business nonfiction books. But the people who didn't like the new regime, the new culture, right. Help themselves off the bus or be escorted off the bus and those that,

but then there would be those who,

who liked the new culture and perform at a higher caliber for you, their new leader under this kind of, this new culture. And so yeah, you lose some people but it, but that's kind of inevitable in any culture change and the people who stick around are going to step up. So you're going to get better performance out of those who stick around.

[01:14:01 - 01:14:22]

Eric Donahue: Yeah, we definitely saw that. You know, the guys that were there there for the full year, you know, since I bought the company, were all performing at a, a very high, a higher level, I should say.

And they, you know, the feedback I would get from them when I would, you know, have a one on one evaluation was positive, you know, which I was, you know, good to hear.

[01:14:22 - 01:14:32]

Will Smith: Great. That line about I'm not changing anything for six months. Did, do you feel, do. Would you prescribe that to listeners, to other searchers?

Is that a good approach?

[01:14:34 - 01:14:46]

Eric Donahue: It's just tough to say. I mean it's, it's case by case. I say, you know, not changing anything for six months. I didn't change anything, anything major.

But there were small things, you know, that we did to, to start it and trying to increase efficiency.

[01:14:48 - 01:14:57]

Will Smith: Can you, can you narrow it down? The comment to say no pay changes

for six months or does that start

to be, do they start to sound like two?

[01:14:58 - 01:15:05]

Eric Donahue: Yeah, I don't, if I was employed, I don't think I'd to hear that.

Even if it's the truth. I Don't think stating it like that would be great to hear, but.

[01:15:06 - 01:15:06]

Will Smith: Okay.

[01:15:06 - 01:15:59]

Eric Donahue: I mean, the. The company was already doing well.

Right. Like, I would say this. The former owner who built this thing from nothing to what it was in 25 years was on cruise control. Right. So she was, you know, she worked, I would say, average two to three days a week, you know, debt free, you know, no.

No debt on the business whatsoever. And, you know, it was still making money. Right. Even though they were kind of on cruise control. So in that situation, you should go into it knowing that, like, in theory, right.

Everything should kind of continue as normal without, with minimal change. If it was a situation where, you know, the thing wasn't making money or some type of turnaround. Yeah. Like, you know, you're going to have to go in there and make changes. But that's also a different type of acquisition, you know, if you're looking for something like that.

[01:15:59 - 01:16:05]

Will Smith: Great. Eric, we're wrapping up a couple more questions for you. Is this a business that requires licensing?

[01:16:05 - 01:17:48]

Eric Donahue: It is, yeah. That was.

That was actually a key part of getting the financing. So it requires a class A contractor's license. And in paving in the state of Virginia, there is a specific license for class A license for paving, which obviously I didn't qualify for because I had never, you know, paved a day in my life before buying this business. So, you know, I was kind of stuck on that. You know, I was talking to different, you know, industry people, you know, figuring out how we can.

How we can solve this. Ended up meeting with a guy who said, hey, you know, I have a. I pave, but I also do utility work. The whole. The whole nine yards. He does.

He has a big contracting company in the area. So he said, I have a license called heavy highway, and it encompasses paving and a handful of other trades. But with my heavy highway license, I'm already qualified to pave. I don't need to get a separate one. I was like, well, I've never constructed a highway either, so I probably don't qualify for this.

But anyway, I looked it up and I was reading all the prerequisites, the experience forms, and it was, you know, all this stuff I haven't done, right? Build bridges. It was highways, you know, a whole slew of things. And then, you know, right towards the bottom, there was like one or two sentences and it said something like, and specialize in the demolition of. And like, my eyes just keyed right in on that word demolition.

And then it proceeded to list, you know, concrete reinforced structures, steel, you Name it. In my mind, I was like, all right, well, I've certainly done a lot

[01:17:48 - 01:17:52]

Will Smith: of that, you know, a lot of destroying such structures.

[01:17:52 - 01:18:37]

Eric Donahue: Exactly. Exactly.

Right. So. And they didn't say it had to be, you know, mechanical versus whatever, but, you know, I said, all right, well, this. This could be an answer. So I got with a guy who's the head of our, you know, breaching department, and we wrote up a document that was completely factual, you know, listing all the, you know, experience I had in that field and sent it off to the, you know, the depot here in Virginia.

And you have to get permission to take the test. Right. You can't just go and take it and pass it and get the license. They want to verify your experience. So it took them about a month, but they, you know, contacted me, I think, by email and said, all right, you know, you're good to go.

[01:18:37 - 01:18:38]

Will Smith: You can.

[01:18:38 - 01:18:56]

Eric Donahue: You can go take the test. So that was, you know, without that, I don't think the bank would have wanted to. To finance a deal, you know, because, you know, you'll hear people say, oh, well, you could put it in someone else's name. True.

You could keep the former owner on as a part owner.

[01:18:56 - 01:18:57]

Will Smith: True.

[01:18:57 - 01:19:25]

Eric Donahue: But you know how bankers think. They're like, well, what if she gets in a car accident? You know, what if she gets cancer?

What if, you know, you put it in another employee's name and then he wants to leave. So, you know, when I talk to people now and they're looking, you know, to do something in blue collar, I say, hey, you know, think about it. But how. Who's going to hold the license? And if it's not you, how's it going to work?

Because it's just an extra complexity that, you know, it's not ideal. You know, if you're the owner, you want to hold the license, Right?

[01:19:25 - 01:19:43]

Will Smith: Yeah. No. And it's only become much more complicated since the SBA rule changes of last summer.

We've done webinars about that people can find on the website, but it is a. It is a very big question. And, Eric, just to be clear, the. So you now have a heavy highway license.

[01:19:43 - 01:19:44]

Eric Donahue: That's correct.

[01:19:45 - 01:20:00]

Will Smith: And so the point was, you still haven't built bridges, but the point was, what you needed is the regulator to allow you to take the test. And. And what. What the experience you did have from deployments, we assume.

[01:20:01 - 01:20:01]

Eric Donahue: Yeah.

[01:20:02 - 01:20:04]

Will Smith: In training. Yeah. Was demolition.

[01:20:04 - 01:20:05]

Eric Donahue: Yeah.

[01:20:05 - 01:20:06]

Will Smith: Blowing.

Blowing stuff up.

[01:20:06 - 01:20:07]

Eric Donahue: Yeah.

[01:20:07 - 01:20:08]

Will Smith: Okay. And so. And so with.

[01:20:08 - 01:20:10]

Eric Donahue: Safely, with that.

[01:20:10 - 01:20:27]

Will Smith: Okay, okay. And so with that experience, you were able to make an argument that I, you know, I have some of the, I have some of the experience that are sort of the prerequisites to take the exam. Right, interesting. But then, but you still have to take the exam and so isn't the exam asking you how to build bridges and you don't know how.

[01:20:28 - 01:20:33]

Eric Donahue: I took a, one of those prep courses for the exam and.

[01:20:34 - 01:20:36]

Will Smith: And it told you what you needed to know.

[01:20:36 - 01:20:38]

Eric Donahue: Exactly. Yeah.

[01:20:38 - 01:20:57]

Will Smith: And by the way, I don't think we going way back now.

Sorry to have forgotten this in the moment. Did we discuss on your conventional loan, your non. SBA loan, whether there's a personal guarantee? Because that is a, as anyone who knows, a huge con of SBA loans.

[01:20:57 - 01:20:58]

Eric Donahue: Right.

[01:20:58 - 01:21:02]

Will Smith: That you are personally on the hook for the loan value also in your case.

[01:21:02 - 01:21:05]

Eric Donahue: Yes. And I didn't have a problem with that. I, you know.

[01:21:05 - 01:21:05]

Will Smith: Okay.

[01:21:05 - 01:21:13]

Eric Donahue: I was a, you know, if you're going to borrow a million plus dollars from someone, I think you should have to pay it back. So I didn't mind signing for it.

[01:21:14 - 01:21:33]

Will Smith: Okay. Okay. Because I will say like that one of the reasons that people are so eager to see if there's alternatives in the market, loan product alternatives in the market to the sba, is behind that is often the motivation to find a loan product that doesn't require a personal guarantee.

[01:21:33 - 01:21:33]

Eric Donahue: Right.

[01:21:33 - 01:21:52]

Will Smith: And so if this, your conventional loan still require the personal guarantee, there's not necessarily, it doesn't necessarily grab me that it's, you know, so much better in it, you know, necessarily than have just having gotten an SBA loan. You know, did, am I, am I seeing this correctly?

[01:21:52 - 01:21:53]

Eric Donahue: Yeah, yeah, I think so.

[01:21:53 - 01:21:54]

Will Smith: Yeah.

Okay.

[01:21:54 - 01:21:55]

Eric Donahue: Yeah.

[01:21:55 - 01:22:00]

Will Smith: Just to be clear, because people will really perk up at the idea that you were able to buy like a business like this.

[01:22:00 - 01:22:01]

Eric Donahue: Yeah.

[01:22:01 - 01:22:32]

Will Smith: Without an SBA loan.

And then, and then if they, but, but they're so motivated because they want to avoid the pg, but if you still had a PG anyway, then that kind of undermines that motivation. Okay, let's turn two more segments. Quick segments here. Eric, for you.

Can you share your own kind of

cash money position, the money you're taking out, what you're paying yourself, basically, and, and, and, and other sources of income, which I know you have, and just what that picture looks like.

[01:22:32 - 01:23:26]

Eric Donahue: Yeah, it's, you know, one of the nice advantages, you know, about being retired is that I get that income that can supplement, you know, what I'm taking from the business. I really don't need to take much from the business. I take 75,000 a year, which makes me, I think, you know, not even one of the highest paid employees we have. But I get my military retirement as well as, you know, my medical benefits from the VA, which adds up to roughly like 80,000.

So, you know, between those two pieces of income, you know, I can afford to not take much from the business, which is great because it opens up all that money to do something else with, whether it's make an improvement, hire another employee, whatever. It just gives me more flexibility.

[01:23:27 - 01:23:38]

Will Smith: And you're basically reinvesting all that cash that you would have otherwise paid yourself into. Fantastic. And so you're basically taking home 150 ish, 75 for the business.

80 ish from your pension.

[01:23:38 - 01:23:39]

Eric Donahue: Yeah.

[01:23:39 - 01:23:41]

Will Smith: And then your wife also works.

[01:23:41 - 01:24:30]

Eric Donahue: Yeah, yeah, she's, she's a real estate agent. She's outstanding at her job.

It's, you know, it's funny because she was, she's known me my whole military career. You know, she's been on the other side of, you know, eight combat deployments. You know, we've got three kids at home, you know, 13, 10 and eight. And you know, I think, you know, when I was retiring from the military, she's like, all right, well, you know, now we're going to have like a normal life. And lo and behold, you know, I jumped right into something that, you know, required a decent amount of time but also, you know, a decent amount of stress.

Right. You know, so, yeah, she, she's been an absolute champ through the, through the whole process and you know, especially, you know, in my military, but even now, but just been very supportive, you know, of the, of the whole thing.

[01:24:30 - 01:24:38]

Will Smith: Yeah. Great. Great.

And so to be clear, so you're one hundred and fifty thousand dollars in her, her earnings as a real estate agent.

[01:24:38 - 01:24:39]

Eric Donahue: Yeah.

[01:24:39 - 01:24:44]

Will Smith: You can, you know, you're living a, a comfortable life with three kids. Even with three kids.

[01:24:44 - 01:24:49]

Eric Donahue: Yeah, yeah.

We didn't, you know, we didn't have to change our lifestyle when, you know, I bought the business and started working here.

[01:24:50 - 01:25:03]

Will Smith: Yep, Yep. And you're 75 that you pay yourself. What do you think the market rate is for what you're doing? I guess going into the acquisition, you'd said it was roughly kind of fully loaded.

200.

[01:25:03 - 01:25:08]

Eric Donahue: Yeah. I mean, you know, if you throw in the benefits. Company vehicle. Yeah.

You're going to be at 200.

[01:25:09 - 01:25:20]

Will Smith: And this stress that you just referred to that your wife. Yeah. She thought everything was going to go to normal. And then you buy a paving business.

Has it been stressful? You're a Pretty cool customer. Not surprising given your.

[01:25:21 - 01:26:03]

Eric Donahue: Yeah, you know what, it's funny. The former owner and, and, you know, my guy Dave.

I forget when at some point they're like, man, you know, we've got a lot going on here. And, and you just seem to, you know, kind of take it easy and don't get too stressed out. And I, I didn't remember this at the time, but I guess it really stuck with them. I go, yeah, you know, it's, it's not like, you know, if we make a bad decision, like someone's going to get killed, you know, you know, what's the worst case scenario? Maybe we lose like a little bit of money on a job.

Um, which is honestly the way I thought about it because, yeah, you know, obviously in an extreme circumstance, you could have a, you know, fatality in a construction site. But, you know, in my, you know, former job, that was actually true.

[01:26:03 - 01:26:05]

Will Smith: Like life or death.

[01:26:05 - 01:26:20]

Eric Donahue: Right, right. Those, those were some decisions.

Right. So, you know, if you compare to that. Yeah, it's, it's not a big deal. Like, we're talking about money here. Right.

It's, you know, you know, we're going to win a lot more than we lose, but, you know, if we lose one here and there's. Oh, well, yeah.

[01:26:21 - 01:26:54]

Will Smith: And finally, Eric, the. So paving in general, do you think that this is a business, an industry that searchers should look at? We've heard so much in this conversation about your background as an elite Navy Seal.

And so most people listening, I dare say 99.999% of them will not have had that experience. So you're speaking to them and not. Not other seals. Do you think that this is a business that people. An industry, business type that people should look at?

[01:26:55 - 01:27:22]

Eric Donahue: Yeah, I love it. I love pretty much everything about it. I, you know, the fact that asphalt is a product that degrades over time. Right. So it's going to have to get replaced at some point.

It's the most widely recycled product in the world. Most people don't know that more than water, paper, plastic, whatever. Asphalt, right. It gets picked up off the road, gets put in a pile, and then it gets added, you know, to the future. Asphalt that gets put down.

[01:27:22 - 01:27:23]

Will Smith: So

[01:27:25 - 01:28:23]

Eric Donahue: those are the things I really like about it. You know, it's, it's project based in that, you know, for the commercial side, we know in advance for, you know, how much work we have lined up, which I love. It's not, you know, hey, let's do this this week, next week, whatever. It's like we know, you know, three, four months, you know, what's, what's coming down the road, trying to think. Yeah it is, it's a great business.

You know, I'd say this, there's two different, really Asphalt falls into two different categories. You're either someone who owns the asphalt plant, right. And you're doing really big jobs or you're someone like us who's you know, freight on board, fob, asphalt carrier. So we buy the asphalt from the pant plant and then we go put it somewhere else. You know, if you've got the capital to buy the plant, go for it.

But that's going to be very, very high, high price. But the space that we're in, I, I do really enjoy and how we,

[01:28:23 - 01:28:40]

Will Smith: we talked about capacity, we talked about of course the 40% growth so far and, and what the prospects of further growth look like. Think bigger picture, like five, 10 years. Is this how, how I say how big could you get this?

But how big could you get this?

[01:28:40 - 01:29:44]

Eric Donahue: My initial goal when I bought the company was to, was to double it in five years. I think we're gonna, I think we're gonna beat that handedly.

What I'm thinking now is, you know, to really focus on or look at the company like two different arms. You know, we've got the self perform arm and we've got the GC arm and I think, you know, in the GC space there's a lot of potential to, to, to keep growing. And with the self perform, I think it's more like you mentioned that stair step model where you know, we're at the breaking point of one crew going to two. You know, we'd have to see what that looks like for a year or two and then you can add other sort like a milling, you know, which is a big part of paving. We don't self perform that.

We sub it all out. We've got a couple of great subs that we do that to. But that would be a big investment. But it would give us a lot of control over our schedule and obviously we'd be saving a little bit on our margin too. So yeah, there's a lot of potential, you know, to double from where we are right now easily.

[01:29:44 - 01:30:07]

Will Smith: And is this a pretty fragmented market from what you can tell? Maybe, maybe you don't have a sense of it nationwide. But what can you say about small, similar size businesses, the one you bought being targets for, acquire for, for people listening and then also for, for you. Inorganic growth. Buying, buying, buying up like businesses.

[01:30:07 - 01:30:47]

Eric Donahue: Yeah. I think a key question would be where geographically. Right. Because we're kind of right on that line of if it's warm, like we'll pave all year round. Right.

December, January, February, once you start going north, typically my understanding is those, those crews will get laid off or maybe they plow snow or something. You basically have to have a whole nother revenue stream to keep your employees or you're going to have to lay them off. That's something I'm not familiar with, but I would much prefer to buy something where, you know, climate wise, you're allowed to, to do year round paving. That would be a key, key factor. I would think of.

[01:30:47 - 01:31:10]

Will Smith: Great, Eric. And then I guess one final, final question. Talking to other folks who are them already veterans or, or approaching retirement from their military careers, what would you tell them about this path? It looks, I think it's fair to say it's working well for you. But is it, would you, would you recommend it to just everybody coming out or a certain type of person or what?

Like.

[01:31:11 - 01:31:11]

Eric Donahue: Yeah.

[01:31:12 - 01:31:13]

Will Smith: What would you say to them as a group?

[01:31:13 - 01:31:52]

Eric Donahue: I recommend it highly to the guys I used to work with. I can't really speak to, you know, outside that group, but I've had a lot of guys I used to work with, you know, come up to the office and shout at me for a day or two or, you know, we'll talk about how the whole process works.

What we're doing now, the skills just translate really well. You know, the leadership, the identifying inefficiencies. The military is great at implementing processes. You know, we're doing the same thing here. So, you know, to the, you know, the sect of guys that I used to work with, I think it's a great transition to your, you know, second chapter, second chapter of life, second career.

[01:31:53 - 01:31:53]

Will Smith: Right?

[01:31:54 - 01:31:54]

Eric Donahue: Yeah.

[01:31:55 - 01:32:04]

Will Smith: All right, Eric, we will link to your LinkedIn, we'll link to Pen Pave Peninsula Paving. Yeah, and we really appreciate you coming on and sharing your story with the Acquiring Minds audience.

[01:32:04 - 01:32:22]

Eric Donahue: No, man, it's been fun.

I was turned on your podcast long before I ever bought a company. And a couple of the guys I mentioned here, I told them, I said, hey, one day I'm going to be in the podcast and I'm not even going to tell you, you're just going to hear it. So I'm excited for them to hit me up one day when they, when they finally hear it because I still

[01:32:22 - 01:32:31]

Will Smith: haven't told them, oh man, mission accomplished. That's, that's great, Eric.

I love to hear that. Love to love that this podcast was part of your journey. Thanks for saying that. Appreciate it.

[01:32:31 - 01:32:32]

Eric Donahue: Absolutely.

[01:32:32 - 01:32:33]

Will Smith: All right, sir.

[01:32:33 - 01:32:33]

Eric Donahue: All right.

[01:32:33 - 01:33:18]

Will Smith: Well, hope you enjoyed that interview.

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