Host: Today's guest came to Entrepreneurship through Acquisition by way of 0 to 1 entrepreneurship for seven years, Fred Magill built an online real estate brokerage from scratch. He was also a real estate investor on the side, and this immersion in real estate meant that he'd worked with many tradespeople as his vendors. So when he set his sights on buying a business, the trades were an easy choice. You'll hear how he zeroed in on electrical services, developing a thesis on an industry often overshadowed by its cousins H Vac and plumbing. We also go deep on two of the big challenges confronting any would be buyer of a trades business, licensing and hiring, and how Fred has tackled them both. So today's conversation is a pretty good model for buying a home services trades business yourself. Here is Fred Magill, owner of Bray Electrical Services Announcements Chelsea Wood has run the Acquisition Lab for five years and in that time has witnessed the searches of hundreds of aspiring buyers and had calls with thousands of them. So Chelsea knows what separates those who succeed in closing a deal from those who don't. And today, Thursday, December 12, she's hosting a webinar with Acquiring Minds to share her observations with us. In this one hour session, Chelsea will dive into the key mistakes she sees searchers make and how to avoid them to ensure a successful close and ownership period. This is part two of Chelsea's presentation last month on the same topic. There was so much to say we split it into a two parter and it's not just a presentation, it's a live office hours with time for Q and A. So bring your questions and take a

Guest: big step forward in your acquisition journey.

Host: Come learn from Chelsea's expertise and avoid the missteps that trip up many first time buyers. It is today, Thursday, December 12, 11am Eastern. That's 11am an hour earlier than our usual noontime. The link to register is in today'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, 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 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. Chelseaivethenbuild.com Fred Magill welcome to Acquiring Minds.

[3:51] Guest: Thank you for having me. Pleasure to be here.

Host: Fred, you came from a long slog as a zero to one entrepreneur to most recently buy a trades business, electrical specifically. You'd actually developed a thesis around that industry. So let's get right into it. Fred, start us off with some background on you, please.

Guest: Absolutely, yes. And thanks for having me. As I mentioned the pre call listened to a bunch of these episodes, a lot of stuff related to home services. So certainly drew a lot of inspiration from some of the other guests you've had.

Host: Well, great.

Guest: But yeah, stoked to be here. And yes, we a co founder of mine and I started actually a former roommate of mine started a company called Simple Showing. It's a real estate brokerage based in Atlanta which is where I'm at. That was about almost seven years ago. So we raised capital, started from scratch, you know, had literally had no product, you know, no app, nothing and grew that company to expand into three states and basically was a it. And it still is, it's. The company still exists but it is a tech oriented real estate brokerage based in Atlanta, operates in Texas and Florida as well. And so I had that experience right, of going from, you know, that as you call it, zero to one. And it was in my opinion a bit of a slog and we finally got it over the hump. But about a year ago from growing that company I had installed a general manager and and really had an opportunity to sort of step back from the business. You know, I'm still involved, still on the board and that sort of thing and still love the real estate space but you know, began thinking through like hey, what's the next step, right. And one of the cool things about being in this real estate company is I had the opportunity to interface with just a lot of these home services companies, whether it be plumbing businesses, H vac businesses, electrical contractors, you know, that sort of thing and gained a good appreciation for what they do and also through a bit of research discovered that there's a lot of, you know, upside in some of these companies. And certainly there's opportunity to, you know, to introduce technology and digital marketing and things like that and, and have a good front.

[6:19] Host: Can I. Let me stop you there. This, this. Your research into the trades and learning that there's upside to these businesses putting in digital technology, among many other levers to pull. Was that part of your introduction to eta or was this a separate. Was this kind of a separate rabbit hole, a separate realization?

Guest: I think I would, I would probably, yeah, say that it was a lot to do with, with research into ETA and research into.

Host: So

Guest: I didn't have the kind of formal entrepreneurship through acquisition style of intro like a lot of these business school folks have had, Even though I did go to business school, but it was several years ago and that was not as on trend as it is today. But I think it's probably. It was related to all the sexy things you see online on Twitter and Instagram and things like that, you know, talking about people buying these trades, businesses. So I hate to say that that did play a role in, in kind of drawing me in, but I think having. Pairing that with some of my actual direct experience certainly helped a lot. So, yeah, I think that that would probably be how I would describe the research part of it for sure. Yeah. Okay.

Host: And I don't know if you were gonna get to it, forgive me if so, but I just want to make sure you share with us your introduction to eta, why it appealed and so on.

Guest: Yeah, you know, I think the big thing, I would say the big headline for the past business anyway versus this one is that I think I mentioned this to you a bit on the pre call is that, you know, starting a startup, and I know there's a lot of people that listeners that have probably done both or have considered both. And for me, and I know everyone's experience is totally unique and different, but our startup experience was, I mean, a very difficult and arduous process from the perspective of just starting from scratch and building something from scratch, raising capital, which we did primarily through crowdfunding and angel investors and just building that team from absolutely nothing and understanding how to get your unit economics in line in terms of digital marketing and hiring and all those things. Almost none of it unfortunately came easy. But like I said, you know, we, we got this, the business into a spot where it had sort of, I would say evolved into more of a lifestyle business. Not this sort of big, you know, monster exit opportunity that a lot of startup founders, I think within the tech space, certainly if you're building a SaaS app or a, you know, AI app or some sort of, you know, blockchain type startup. You're looking for this huge exit. And we really never experienced that, unfortunately, but we did get to where the business became profitable. So just the thought of the research was sort of the backdrop of that research was just knowing that I've gone through all of this arduous path of the startup land and realizing like, do I really want to do that again? Do I really want to create a website and then create a brand new product from scratch and try to bring it to where it's introduce a product to market and bring it to profitability? Or do I want to just buy something that's already profitable and that already has an established brand that already has a team in place? And so that has become for me anyway, a much deeper contrast because and I think certainly for someone who created a startup or multiple startups and had really easy exits, they probably would want to go ahead and do that again, I'm sure. But so for me, you know, well,

[10:03] Host: it also helps that people like that have, if they've had exits, they're probably multimillionaires. So they also have more Runway than the average human. I digress. Totally.

Guest: Yeah, yeah, exactly. Yeah. And unfortunately we did not have, you know, that size, sizable type of exit where I had, you know, this massive amount of cash sitting on the sidelines. But yeah, so yeah, so that was, that was the, I think the big contrast between just the startup world and wanting to just buy something that is working already. Right. And that's already has that established track record.

Host: Fred, the business your give us the name of your business, your real estate business.

Guest: Simple showing. Yeah, simple showing. Yep, simple showing.

Host: You got it to profitability. Can you share with us how profitable can you, can you give us the numbers that it's we share here?

Guest: I would say, you know, it's low single digits in terms of net profit, but we.

Host: Low single digits meaning low like in the hundreds of thousands or low millions.

Guest: Yeah, okay. Yeah, yeah, low hundreds of thousands. I mean basically the, the business does and the irony is is that company to date actually generates less revenue than the company that I just acquired. So. Or have, you know, we'll get to that, but have been working for about eight, nine months now. But yeah, the business at its kind of height grew to about $3 million in approaching $3 million in top line revenue. And we monetize through primarily through real estate commissions. Right. So buying and selling homes, there's some other, you know, sort of side Revenue that is connected that through things like mortgage and title insurance and, and content and SEO and things like that and partnerships. But by and large the company behaved from a revenue perspective just like an ordinary real estate company would. And, but yes, it's, it's a, still a very, you know, small team about, about 10 individuals. But we hire and employ agents that are 1099, you know, realtors and, and yeah, so I mean if you're looking to buy or sell a house and save money on commissions and somewhere in Texas, Florida or Georgia hit us up. So. But, but yeah, that's kind of how

[12:24] Host: it's not enough for you to live on.

Guest: No, actually, actually did I think have a pretty, you know, a decent living, you know, from the standpoint of, you know, what would be an attractive lifestyle from a compensation standpoint to me. But it just never reached that height where it was not going to deliver, you know, let's call it, you know, $500. You know, a lot of searchers are looking, you know, at least $500,000 of, of EBITDA, let's say right now or of SDE. And it never really got to that spot where it could deliver to me personally a half a million dollars of, of sde. So that kind of, you know, creates a, A, a window in terms of the size of the company. But it was a decent lifestyle and I still have a great love for the real estate space and it, it, and it really complements what the business that I bought as well of course. But so still really love the space and still I'm involved a little bit in the way I've even got into that. Not to go too far, far off track, but I was doing rental properties and investment properties, home flips things of that nature. And this is back a dozen almost 15 years ago before starting this simple showing company. So that's what got me into the space, into starting simple showing. But then it's also the origin story in terms of my first interaction with home services businesses all the way back, you know, more than 10 years ago.

Host: Well, it's interesting because so many people who get into home service buy home services or trades businesses. So many people like that guests on acquiring minds and elsewhere are coming from white collar environments. So, so always that there's always that tension or, or cultural gap between people coming from an office environment and then work in a trades environment and in you, even though you were kind of behind the screen entrepreneur, you know, white collar if you will, because it was the real estate industry, you actually had a lot of familiarity and comfort with the trades businesses. You dealt with a lot of tradespeople. So even though you weren't a trades guy, you were at home in a trades environment. Yeah, I'm putting words in your mouth. Is that fair?

Guest: Yeah, I think that's fair. You know, I had before starting simple, showing the business I had actually worked for three different Fortune 500 companies primarily in sales and marketing. So one of the more probably ones that someone actually would have heard of here would be salesforce.com I work for them for four years and very corporate environment obviously you know, software style business. This is many, many years ago. But, but I, I, I, I wouldn't say that that's why I'm probably kind of weird because I did work for company big corporations but then also worked around construction and, and houses and my, my father was a general contractor back at, way back in the day before going you know, into retirement whenever the housing Crisis hit in 2008. But so that's, that's the, the kind of weird thing and also I would say is, is a good point of encouragement for anyone considering the home services space is I think you can certainly have a lot of success if you're a white collar, let's say you're a consultant or whatever, a banker and you want to go and buy a roofing company. I still think there's a lot of tremendous amount of opportunity. I know that's what you know, people on your show have, have experienced that. But I also think at the same time you, you know, and I know this is, this is common, common knowledge but you really should buy something that you have a deep interest in or maybe not like you, you know, really, really, really, really love and want to do yourself. Obviously I'm not doing electrical work myself, but I still really fascinated by the trades and always really have been and am comfortable around a job site and, and, but there is a shift in terms of managing blue collar folks versus white collar. I mean no doubt about that for sure but, but that has not been super I think difficult in terms of that transition just because I had had the opportunity to interface with these folks for such a long time. So anyway it's, it did somewhat become second nature I think. But, but probably one thing you'll hear is that hiring has been a bit of a chore. So yeah, yeah, yeah, get to that.

[16:51] Host: Which is, which is certainly a problem or something to confront in the trades but, but a different problem than the one of just kind of it being an unfamiliar environment to so many would be Acquisition entrepreneurs. An SBA loan broker, as opposed to a direct lender, doesn't work for a particular bank. Instead, the broker pairs you with the right SBA lender for your deal based on industry terms, risk, risk thresholds, then helps you navigate the process better than many lenders themselves do. Matthias Smith of Pioneer Capital Advisory is just such a broker. Matthias worked at two of the country's top 10 SBA lenders. So he's been on the inside of the SBA process and knows well the pitfalls and hurdles and how to avoid them. He struck out on his own to laser focus on the ETA and search space. Our niche is his niche. You'll see Matthias at all the ETA conferences. He's closed over 30 search deals since starting Pioneer in May of 2022, including some acquiring minds guests. To learn more and get in touch, go to PioneerCapitalAdvisory.com or click the link in the notes.

[18:08] Guest: Back to your story.

Host: Fred, you don't want to go and do 0 to 1. Again, you hear about ETA, like it. For all the reasons so many of us like it. How does your search develop?

Guest: Yeah, I think and one thing to, to pair onto that is that being from coming from the real estate space and having for example, bought rental properties, right. The interesting thing, as I was beginning to research more about the financing of a business acquisition, the thing that I thought was really interesting is if you buy, let's say for example, a $500,000 rental property, generally you're going to be putting down, your down payment is going to be 20% or maybe 25% depending on who the lender is. And that, that could be a hundred thousand dollars, right. Or or more just on a $500,000 house. And, and you know, I'm sure there's people that have rental properties are significantly less expensive than that in certain markets. But, but the point is you're putting down on a percentage basis, the down payment on a rental property is going to be 20, 25% versus as I'm sure you, you know, you guys have discussed many, many times on this podcast. You know, you can oftentimes acquire a small business for, you know, certainly 10% from an SBA loan, but sometimes potentially 5% or potentially even less, but generally, you know, maybe that 5 to 10% range. So on a percentage basis that's an attractive proposition. And then I think also when you think about the cash flow to be expected on a rental property, let's say, or even an apartment building, right. I think when you start to think about it that way you really, the thought of buying a business becomes really attractive. Right. Because let's say you have a rental property and it's cash flowing, you know, 700 bucks a month. Right. Which would be a pretty good rental property. You know, you're still not even hitting, you're still not even reaching $10,000 a year. Now granted that that property is being paid off. You know, so there's some, there's some debt retirement that's, that's attractive. But, but when I began really starting to think about that, like man, this buying a small business with a 10%, you know, down payment in terms of a cash on cash return, that's, this is a really good situation. Right. Given that you're using an SBA note. So that was the, I think the impetus behind it is understanding the financing and how really doable it was because when you're starting to look at some of these prices of these businesses, $1 million, $2 million, whatever, even, even you know, $3 million or upwards of that cap on the SBA loan, it becomes doable for a lot of people. And so that was the same spot that I was in.

Host: Well Fred, let's do some quick, some quick napkin math for people on buying a million dollar multi unit versus a million dollar business.

[21:01] Guest: Yeah.

Host: Shall we? So, so a million dollar, you do the real estate one and I'll do the business one. Okay, sure. So, so a million dollar business, which would be a small business. Let's, let's say it does 20% margin. So it's a $200,000 SDE business and you buy it for 10 down. Let's say we're being super napkin here. So that's a hundred thousand dollars. A hundred thousand dollars and then it's for 200 of SD. Let's do it unlevered to make it super simple unlevered. So forget debt. Buy it a million dollars in cash and it generates, and it generates $200,000 a year. That's 20% cash on cash return.

Guest: Unlevered.

Host: What would be, what would be the equivalent for if I wanted to buy a million dollar multi family?

Guest: That's the thing I think in terms of a parallel you would really have to buy a close to a $10 million property potentially. Right. Because which is, which is insane because it is, it is pretty difficult to get let's say $100,000 of. And I won't even. It's going to be more measured in cap rates probably if you're buying a rental property. Right. That's probably going to be more common. But let's just talk about cash flow. Like if you're going to try to get what would be, I guess that's 80, 80$300 per month to get to 100k. Right? I think that's right.

Host: But I said 200k actually.

Guest: Oh, 200.

Host: We're doing 200k. There's really not $17,000. $17,000 a month?

Guest: Yeah. No, no, no. Yeah. I mean, I think the 100k would be much more realistic from a comparison standpoint. And that would be even extremely difficult unless you're really just buying the property with cash, which certainly there are a lot of investors out there. They're buying single family residences for, you know, let's say a 300k property, $400,000 property with cash. That does happen all the time, certainly in our market. But I mean, in that situation, the rental, the, the rent rates, for example, in our market, and a $350,000 home is only going to be 2400 bucks. Right. So you're, I mean, it's just not even in the stratosphere in terms of comparison. So you really would need to buy, you know, a pretty big apartment building, multifamily apartment building, you know, call it a, you know, 20 unit type building. And now you're looking at a, you know, eight to $12 million purchase price probably and putting us a huge amount of money down. So, you know, to get to the

Host: same $200,000 in cash.

Guest: Yeah, yeah. I mean, I would say it would be very difficult. And usually lately I think what you've seen become more popular or, you know, a lot of the real estate, you know, kind of gurus out there that do a lot of these rental properties do cobble together portfolios where they have, you know, 50 doors or 40 doors and, and then yet does become pretty, I won't say easy, but it would become pretty common for people to have, you know, 200k in cash flow at that stage. Because you've got 40 doors, maybe you got a dozen duplexes or whatever. Right. And, but that is just, that's a bear because even if you buy as an individual, you're, you're generally going to be capped from a conventional lender's perspective at five rental properties. That's when they usually start to, you have to get a portfolio loan and you have to go to bridge lenders or, you know, so it becomes very

[24:32] Host: difficult and it also takes you years to get there. Likely this is somebody who's building a portfolio for years as Opposed to in one fell swoop, buying a business that does it.

Guest: Yeah.

Host: Now the thing we're leaving out, of course, is that a business requires you to. Not all cases, caveat, caveat, caveat. But basically requires you to quit and run it. So that's the difference. Whereas people who are assembling a real estate portfolio can do it on the side.

Guest: Yeah, yeah.

Host: Is that a fair generalization or.

Guest: No, absolutely. And I would say that once, you know, you see people, and I have several friends in fact, my co founder of the Simple Showing company has nine doors and you know, so, so it's not to the point where he, you know, it's not a full time job. But I do think when you start, when you start to approach a dozen or so doors, then it probably does, you know, become more of a very active management situation because you know, one lease comes up to expire, one of them you've got to go renovate, you know, you know, that kind of thing. But. And you're going to be probably doing, potentially doing dispositions along the way or refinances along the way. But so I guess my point is yeah, it could, it could lead to that over time. But, but there's a lot of small mom and pop. In fact like 60 of the rental properties in the US are owned by, everyone thinks that they're owned by hedge funds, which of course many of them are hundreds of thousand homes. But, but somewhere, somewhere around 2/3 or a little less than 2/3 of the houses in America that are rental properties, single family, are owned just by mom and pop, you know, Joe Blow, who just has two rental properties or one rental property. So I'm still a huge fan, huge advocate of rental income and having that home appreciate over time and having a tenant pay it off and, and building wealth that way and, and do it myself. But I still think that you know, it, it's just you cannot match in terms of the cash flow of a handful of rental properties like you can in a small business. Yeah, great.

Host: Okay, Fred, so. So take us back to your story then your search.

Guest: I had, had had a few looked through biz by sale, primarily connected with a couple brokers here and I'm in the Atlanta market and connect with a few brokers here that do a little bit more deal flow in the trades, plumbing, H Vac, roofing, et cetera. And I probably inter. Or had, excuse me, had calls on interviews, but had calls with probably like seven, maybe seven or eight different sellers and a couple of them were H Vac, a couple of them were electrical contractors. Did one that was in the, you know, kitchen and bath renovation space cloud. It didn't go that route, but, but that same kind of the, the theme there was certainly within the home services and the one that I landed on, which I ended up acquiring In February of 2024, was it just kind of hit the sweet spot in terms of the. For me anyway, in terms of the acquisition price, in terms of the team, the size of the team, the size of the revenue, the style of work that they did as well. And then also I think that I could more clearly see a path to doubling, excuse me, doubling the business at least for, for the. In terms of top line revenue. I had a very, I think, clear path in terms of how to double that and all those things kind of lined up and it was a good, I think it was a good fit in terms of the relationship of getting to know the seller and it.

[28:12] Host: Well, Fred, before we get too much into the business that you bought and why you liked it so much because I'm going to want to hear even more detail there, I wanted you to share with us how you kind of developed a thesis around electrical. So you liked the trades, but you, when you, but you got narrower there and really developed a belief in electrical and went after electrical, as I recall. So. So tell us that bit.

Guest: Yeah, I, I think that was the. Probably tip of the spear that was a leading style, I think, whenever, you know, across all of the trades that I was looking at. And the reason why, I think was a maybe a little bit of a contrarian perspective against H Vac because that seems to always be. That style of company, seems to be very popular among searchers, which I, I totally get it because I know the average ticket sale, the average, you know, you know, actual job is typically higher. Right. There's a lot of, you know, there could be opportunity for memberships or sort of recurring revenue through. Through memberships, which is, which is also, I think very attractive for searchers. So I don't want to discount that space because I think that that vertical because it could be really good. But for me, I, you know, in my market specifically, you know, it seems very crowded. It seems very competitive. There's a lot of big players. I think if I was in a. So I'm in the southeastern U. S. If I was in, let's say, maybe Greenville, South Carolina, smaller market, there was a really nice looking H Vac business, you know, that would probably, I would probably have a different tack in terms of maybe I would pursue that but being in Atlanta, there's a lot of really big multi trade. So people that do, you know, H Vac, electrical, plumbing, they do it all, right. There's a lot of really big businesses like that. And then I feel like the multiples were a little bit higher on H Vac businesses as well. And so obviously there's a lot of inventory considerations because you're buying air handlers and furnaces and condensers and things like that. So that was why that one kind of, I steered away from that a little bit. But the electrical specifically to answer your question is I like the, the first of all the regulatory tailwinds I think on a federal and also state basis. So whether you, you know, believe in or are going to vote for the Green New Deal, right. Or you know, however the politicians, you know, however, whatever direction that goes, eventually things that are of that ilk or those that flavor politically, I think, you know, regulatory wise, I think will continue to be advanced. Right. Whether it's now under this administration next administrat, whatever it's going to, it's going to keep going that direction. So that tends to result in I think federal funding for evs, EV chargers, residential, commercial, solar, both residential and commercial could be rebates related to that. It could be just federal funding that's provided for certain projects. So I like that a lot. I also think that there's a, this, this advent of like the smart home. You know, people began putting ring doorbells in and nest thermostats. And the same thing I think is happening with things like LED lights, you know, conversion of LED lights and also installation of smart panels, smart electrical panels as well. And so it's introduce all of these kind of like side pockets of revenue on top of the install base or traditional work which would be like break and repair, you know, fix and repair stuff like my outlets broken or, or installing fixtures which is like I want a new chandelier that's always going to be there.

[31:59] Host: But there's really demand, a lot of,

Guest: a lot of net new demand and a lot of, you know, even, you know, I think that on a more global scale, I don't know how this will take a while to trickle down, right. But like if you think about these big companies that are, that are producing AI through using their, their, they're creating these deals with basically local municipalities that are able to do either, you know, some have, have very high output of, of energy. Like actually here in Georgia, the local utility provider, which is Southern company just introduced or rolled out the new the newest nuclear power plant which is in the southern part of the state. This is about six months ago and it's the first nuclear plant in like a decade or something like that. And there's belief around there's going to be, you know, upgrades to the power grid and, and use of nuclear and things like that to kind of to, to feed these, these big data, big data farms which in here in Atlanta we have, you know, Facebook data farms, aws, Amazon, all those. And so they just keep building them. So we've, we've actually bid on one project which we didn't get. But, but there's, there's, there's tailwinds with that and then I think there's, there's state funding that's going to trickle down to both homeowners and businesses as well. Even to the extent where I think you may even see people that you know to, to put in a new McDonald's or a Starbucks or a store or whatever, they're going to say you, they may be like in order to get your cert, you know, your co or a permit, you need have one, you know, EV per every five parking spaces or whatever. Right. So you're even seeing that happening in multi family buildings and apartment buildings. So there's this new, you know, new work that, that has sort of just you know, blossomed out of nowhere I'd say the last five years. And I think that's going to continue. So that's kind of the, the, I guess the thesis around electrical and why I like it so much.

[34:00] Host: Fred, what I, I'm hearing there too is that always with the, these trades businesses is it's, the question is is it residential focused or commercial or a blend? A lot of what you just identified there was actually commercial. So did that mean that you were looking for a electrical contractor with blended offerings or one or the other or you take, you'd look at all of them.

Guest: Well, the interesting thing is the biz buy sell listing for this company and I think it is true and the broker had had sort of positioned this as they do it all. This company does it all which is kind of could be good and bad.

Host: Exactly. Bad because I like that.

Guest: Yeah, yeah, could be good and bad. But they, but the, the point that I liked about it was there's some versatility in the revenue and there's also some versatility in the staff. So in other words, so we have 16 techs, electrical techs and a couple subs. But, but there's people that I have a couple of guys that have done solar work for big solar installation and service companies. The bulk of the people that we have working with us are doing residential service work and remodeling. And then I have a couple of guys that have come from a commercial electrical background. So, so there's sort of the ability to potentially do anything if an opportunity presents or if there's, if we're flat in another, you know, spot. So I like that. The ability to, if we needed to pivot and have more allocation of revenue within commercial we could, or more around solar, we could. But currently the, the revenue mix is about 80% residential, 20% commercial. So we are primarily doing residential.

Host: Okay, all right. But it doesn't sound like that was a strict criteria criterion for you.

[36:01] Guest: Okay.

Host: Anything more to say about the thesis? That was, that was pretty compelling. And by the way, I'll say as a side point, I feel like I'm seeing this more and more searchers and sponsors who have some thesis rooted in this enormous macro tailwind of electric demand for electrical. So I, I'm. There's a few my deals in mines capital we're looking at that are have kind of a thesis that sort of thesis at root. Nick Hashka in California rolling up generator companies, same kind of thing. That one is kind of more based on the, the grid being older and aged and, and they're just going to increasingly fail. So we're going to need more as the demand for electrical grows. But the grid in the grid won't be able to keep up. We're going to, there's going to be a need for more kind of alternative or hyperlocalized solutions, namely generators attached to your building or home. Anyway, so this, this. Yeah this seems like a, a pretty, pretty big trend shift to electrical that, that shows up in a lot of searcher stories. Okay, great. So now return to this business please and tell us more about what you liked about it. Maybe maybe start with some numbers around this business if you would.

Guest: Sure. So the company at the time of acquisition is doing about, or was doing about three, a little over $3 million in top line revenue. The team is at the time was 14 techs, most of which were service techs. When I say service I'm talking about going into homes, you know, just residential properties to do service work. And we operate, it was. We're based in Atlanta or east Atlanta specifically in a town called Decatur. But we service most all the northern part of Atlanta of the city. So the also I think important for a lot of trades businesses. A lot of times people like to measure, you know, how many trucks or how many vans and we currently have 10. When I bought the company, we had seven. So that's I think a typical metric to look at because occasionally people will look at revenue per van, which is a little dicey, a little tricky to get to around us because we have apprentices and helpers which you know, kind of can throw the number off a little bit versus a lot of other companies have just one human operating one van. It gets a lot cleaner to measure revenue per, you know, per truck. And then in terms of the business itself, the history it had been around for 19 years. The prior owner, who was a master electrician, primarily grew it through relationships with home builders. So people that were primarily doing remodel jobs. So in the in town market in Atlanta we have, there's, there's some very affordable housing in the Atlanta suburbs. You know, you can still get it entry level home for 350 to $400,000, but in the in town market's a little bit more expensive. And so you're seeing a lot of these old homes that are, you know, built in the 20s, 30s, 40s and they're you know, call it million dollar properties. And the homeowner is now doing, you know, a pretty large, large scale renovation or remodel. And that's, that's represents probably almost 50% of what we do. So big, big properties, we go in and do, you know, rewire the house, rewire portion of the house and then also upgrade the electrical panel, the service, all the fixtures. Right. All the, you know, all the breakers in the panel and also all the, you know, receptacles and things like that. So that's, that's how the, the previous owner built the business was those relationships with builders where the previous owner was not as successful was around growing the service side of the business, which again is you're directly doing work with homeowners, not with a builder. So it's the B2C versus B2B almost is I think a better way of thinking about it. And that's sort of where I know I spoke a lot about the commercial aspect, which is certainly good and we may delve into. But the initial view into the company was hey, I think that my hypothesis was I think I can grow the company by primarily focusing on this service work or the homeowner style work. And that's mostly where I've been putting my efforts. The first, you know, nine months of owning, owning the company.

[40:34] Host: Can you tell us how profitable the business was? What the earnings looked like. And the margins are in a business like this.

Guest: Yeah, the business was doing a little over 10%, about 12%, I think it was $380,000 of SD whenever I bought it. We should finish this year at around $4 million in, in revenue. And I would say probably something kind of comparable in terms of a, on a percentage basis lower, but on a raw number sda, probably something kind of similar. I have made some efforts around spending some of our earnings to go towards digital marketing and buying vans, hiring, things like that. But the goal really is to. I would love. It's a bit of a big goal, but for next year, have a $5 million in top line is my goal for 2025. We'll see if we get there. But. But we're on the precipice of being able to hit 4 million for this year.

Host: Well, Fred, I mean, if you get to 4 million this year, going from 3 to 4 is a bigger jump than from 4 to 5. So this year will be more of an accomplishment. 33% growth and growing 25% next year.

Guest: And to be fair, you know, I think the actual number that in terms of the tax return for 2023 was like $3.2 million. So. But yeah, still, I mean, I think that the fear was first year. There's just so much, you know, transition, difficulty in understanding how the company operates, you know, the unit economics in terms of how do we acquire leads, you know, which jobs we profitable on. And I think, you know, honestly I was kind of going in like if we could just squeak out, you know, 5 or 10% growth in the first year, I'd probably be happy with that. You know, consistent with what everyone says around, like having this J curve, right, like kind of was prepared for that. But it, you know, luckily we've been a. Had a little bit better success than, than that. 5 to 10% growth this year.

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Guest: So I actually talked to three and this was the, you know, this actually, was this the middle one in terms of revenue and, and really align more in terms of, I mean there's always, I think the personal limitation of what you're, what you can stomach in terms of, you know, your personal guarantee and what you can come up with in terms of cash. Right. I mean obviously you have to be realistic when people are like I'm only going to go after $1 million net, you know, SD I mean, yeah, I'd love that too. But you know, I, I think that, you know, when you have those discussions, my wife is great and she lived through the startup years. So you know, when prompted with like, hey, we need this amount of money, I'm going to have to like, you know, extract for working capital and for the down payment. So I did look at a company that was a little bit larger but you know, had a little bit of heartburn over coming up with that amount of cash. And and then also on the other side, I had a talk with a business that was very heavily reliant on the. So a lot of I think key man risk with, with respect to the, the owner being really the face of the business and, and the wife was like the bookkeeper and office manager and answered the phones. And so I'm thinking like now I'm gonna have to like solve for both of those. I don't know. And it was, it was you know, probably about half the size of this business. So I think it was doing like $1.8 million or something like that. But it was a very attractive price that they were asking and, and I probably had maybe four calls with them and it just did not, you know, we, I didn't even end up making a, I was considering an LOI and just did not end up pursuing it. But so yeah, I think this was just the sweet spot. Even though I did talk to other ones and I think that realistically talking to the other ones was really helpful because they reveal things that you probably would have never known about electrical contracting businesses unless you worked for one. So it was really cool to be able to ask a bunch of questions and have them describe their, the nature of their business and then take that back to the company I ultimately bought. So, so it was helpful. And all this while, you know, I mean I still had a, you know, quote unquote full time job because I was still running my other startup even though I had, you know, had some, some people in place. But it was still, I would say a 20 to 30 hour a week job that I was, you know, doing on top of this. Gotcha.

[46:45] Host: And okay, so the one Bray Electrical that you bought is, was kind of the Goldilocks in terms of the one was too small, one was too big among other, among other things you didn't like about them. But it also sounds like you felt there was a, you saw an opportunity and also to grow this one on in its residential business, which I think is what you've done because of you and you felt that because of your own experience in doing online marketing in the very competitive real estate category. Why did you feel you could that that was particularly a particularly juicy thing to bite into for you in particular.

Guest: Well, first of all, I think that's spot on and I think that the first thing is I, you know, upon looking at the, the P and L and then looking at, you know, how they operated their business, which I think was a good thing, which is that most of the business was derived from repeat customers and just in terms of builders and then also just generally people that are right in the backyard of where the, the company was located. In other words, they found them on Google but it's just because you look them up and the proxy was there and that's how gmb, that's how Google typically will reward the company is, is distance and as long as you have decent reviews. Right. So, so I like the fact that, that the previous owner had not spent, let's say, you know, a quarter million dollars a year in marketing, you know, and was still able to maintain that pace and have decent year over year growth and it did sort of present like an opportunity to me and having that experience within the real estate space, it is hyper competitive. You know, we. We had spent a lot of money. There was periods of times in my last startup where, and keep in mind, we had raised capital so that, you know, we wouldn't have done this every month otherwise. But there were periods of time where we spent, you know, $20,000 a month on Facebook ads. Right. And so I kind of knew that space in terms of digital marketing and understanding customer acquisition cost and how to measure the cost per click and measure the cost per acquisition, the cost per lead, and just track the marketing funnel. Right. So that was where I saw the opportunity. And. And we've obviously implemented a lot of that in terms of paid ads. And we've also leveraged some of the normal stuff that people use too, like lsa, which is local service ads through Google. We do that as well. But so, yeah, so that. That's kind of where I saw the opportunity was like, hey, let's grow the service business. Let's market to consumers and not have this heavy reliance on. On builders.

[49:29] Host: Great. Well, I want to return to how you've grown it. Maybe you just gave us the answer, but I suspect there's some other things you've done too. But that still is on the other side of your transaction, which I want to hear about. So please tell us what the business was selling for and how you structured the deal.

Guest: Yeah, so the business was originally selling for, in terms of the biz buy sell listing for 1.5 million, ended up buying it for 1.3 million at the time the SBA had recently introduced. So this would have been, you know, about almost probably a year and a half ago in terms of when they made this change. But they provided this guidance or their SOP change around partial change of ownership. And I think, you know, in the past, the SBA was resistant to doing any sort of partial buyout and not to. I'm sure that the lenders can give much more insight into why, but I won't spend time on that. But opening up that aperture in terms of being able to give creative, you know, financing solutions, especially for a. Needing a qualifier. Right. And so we obviously need a qualifier and an actual state license.

Host: What do you mean by that? What's a qualifier?

Guest: So for electrical and electrical plumbing H vac, you need a, you know, a master electrician or a master plumber or someone who's certified H Vac at the state level. And I know each state is a little bit different but for us, you know, it's. One human can qualify, one entity or one LLC or corporation within the state, and otherwise, you know, I couldn't go out and just start a electrical company from scratch unless I had someone who was a qualifier and would. Would get that state license. So, so that was quite.

[51:10] Host: You. You say qualifier, but when people talk to people, generally, the. The word thrown around is the license, but it's one and the same problem. You need somebody at the organization who qualifies to hold the license. So that's what we're talking about here.

Guest: Yeah, totally. And, and so the, you know, the previous owner, you know, had a. An appetite, I guess, and a matter of words. Know, a lot of sellers will just want to, you know, cash your check and piece out, but this. This seller was able to have an agreement where we have 18 months worth of qualifying the business. You know, they get a certain, you know, monthly, you know, payment essentially to. To hold that license. And so they're kind of, you know, stuck to the business on. On. On one level, just from the perspective of licensure. But then the other aspect is through the seller note, which for us was around. It's between like 15 and 20%. I was trying to get the exact percentage, but, you know, so it was a decent chunk of money that the seller was able to finance. And in. That's the arrangement we have is the payments don't start until 24 months. So, you know, so I have kind of some time, you know, to ramp up for that. But the funny part is, quick aside, here is, you know, when I think whenever you're going through your. Your bank diligence, your. The number, in terms of the SBA payment, at least for me anyway, was just like, oh, my gosh, this is going to be, you know, like $10,000 a month SBA payment, and you're kind of really like, you know, it seems like a big number. And I think once I bought the business, I literally have not even thought about that number. I've thought about all the other things, right? Like payroll, which is a bigger number, or our. We use our supplier who we buy, you know, a lot of materials from every month. A much, much bigger number than $10,000. So I think it's interesting how you can really get hung up on, like, is your SBA payment going to be 10,000 or 11,500 or 9? You know, it's like, I really don't think that, you know, I wish I wouldn't have kind of spent so much time agonizing over that because once you're closed, I mean you just never look back.

Host: But interesting.

Guest: But yeah, it was structured in such a way where you know, obviously the bank was happy, the seller saw the seller note the seller still connected to the company from the perspective of licensure and then there's some lead time. And I neglected to mention that. One of the other attractive parts for me anyway was the setup in terms of the team. There was an office manager, still is an office manager who had been with the business for like seven years and so you know, didn't have to worry about answering the phone, didn't have to worry about managing some of the back office stuff that was attractive. And there was also a project manager that had been with the business for eight years. So two long standing employees, both that are still with us. One that handles some of the office, you know, type stuff administrative and one that handles more of the know, keeping the projects on track, initiating the projects, closing them out, stuff like that. And then the third thing that's, that's somewhat related to that, not so much personnel, but is the business had a software called Service Titan. And a lot of I think entrepreneurs that are looking at home service, they think, well I'm going to go in and as you guys say it like we're going to unplug the fax machine and you know, do all these wonderful things. And one of the things that a lot of home services people do is they implement Service Titan. Well, this seller, I think in preparation for selling the company had been advised that hey, you might want to implement this because people are going to want to look at this and get these reports and figure out what you're doing. And so about a year before I bought the company, the seller had gone through that legwork which is way better than me doing it as the brand new guy coming in like, hey, by the way, we're going to go ahead and change everything you're doing. We're about to start using Service Titan now. So that was kind of cool because you know, they had already gone through that, you know, that agony of, of having to adapt to that which is, you know, using the iPads to collect payment. You know, everything is dispatched through a software, it's GPS tracked, right. So like, so that had already been set up which was really cool as well.

[55:46] Host: Yeah, it's interesting because that is a common one that you'll hear buyers of trades businesses say is one of the first things they did was implement Service Titan. And it's, and it's a, yeah, it is a bear. It's not just like putting in a CRM. It really. It's tentacles reach all aspects of the business, which is why it's powerful. But it goes all the way into the field and, you know, all your techs have to use it, get on board, track information in it. So it's, it's a big. It is a big intrusion into the process of the business, but ultimately people swear by it. I mean, it just seems like it's a best and best practice, best in class sort of thing. Back to the deal. You've given us a lot of detail, but I still didn't hear, first of all, what was your down payment? That's question one. And then I have another follow up to 10%.

Guest: So was, you know, 130,000, which is 10% of the purchase price. Obviously, I started to contribute some working capital as well, so the actual number was higher than that. But.

Host: And then the seller. So when you said partial buyout, that those new SBA laws mean that the seller can retain a piece of the business, often for cases like this where there's some sort of licensure bottleneck. Is that what happened here? Did she also. She also retained a piece of the

[57:05] Guest: business, so the seller retained 10% of the company under the new LLC. But we have some provisions in the operating agreement where it's structured such that. Because you still have to, you know, I think pacify the bank. And so a lot of it largely was, of course, the lawyers drew it up, but they have to bless it. Right. And so the seller is unable to take any owner, draws any distributions from, from the standpoint of profit, but does get those monthly payments which are, you know, fair, reasonable payments. And then the, the buyout clause is such that I could basically buy out the seller for $1. So in effect, the. On paper, she owns 10% of the business, but in, in practice, in reality, I could sort of buy her out at any time. But basically the bank wants to keep her on paper from a state perspective, like, you're still an owner, that's why you're holding the license. So that's sort of how it works. I think eventually, you know, the intention would be eventually to, you know, buy out those shares and then install a new licensee. But really there's no rush in doing it right now. There's no reason to do it. But.

Host: And the monthly payment that she's getting for these 18 months is, is just sort of to. To keep her motivated with the license bit, and she's not doing any work or she's still remaining active in the business?

Guest: Nope, not really active and not really doing any work. However, any permit that gets pulled is really pulled under her license. Right. Which is pretty very often. Right. Like a couple times per week that we have to pull permits. And so that would be under the seller's name in terms of their license. So the license is really connected to, at least in Georgia. I don't know how it is in other states, but it's really connected to a human. It's not connected to a business necessarily. So. So that's kind of how it's. It's set up as we're still pulling permits, you know, every week really. But luckily I do have, and I think this is important to note for anyone considering something in the trades is we do act actually have one person that's on our team that is licensed at. In the state of Georgia. So if there were ever any issues, now granted, I would have to have a. The bank says we have to have an employment agreement with them if that ever comes to it. And I swap to that person. And then there's also, I think, creative things that people have done around renting licenses. I think you have to be cautious with that. But there are states that allow multiple. One human to, to basically qualify multiple businesses. I think in Florida it's like either two. I think it's three. Two or three in Florida. So. Okay, so that's one consideration too.

Host: Well, well, let me. Let. Let's distill how you did this just for those many people out there who are interested in buying a trades business and don't have the license themselves and need to solve that problem. So you, Fred, became interested in buying an electrical business. You find one. So this is how you've done it. The, the seller, previous owner, there are a few pieces, retains 10% of the business formally, which makes her a partial owner in the business. That helps satisfy the. That that's not been enabled. Been allowed by those. The change in SBA rules. So she's an owner in the business and the license is under her name still. So, so that satisfies the licensing requirement of the business. She technically owns 10%, but she's not entitled to any distributions or any of the profit of the business. You have the right after 18 months to buy her equity from her for a dollar. And so so basically the point there is those 18 months are about you finding some replacement for her as an, as a, as a permanent solution. So finding a permanent solution to the license holder. So she's really only holding this 10% equity to on paper be an owner, but not because of any economic value, because you're going to basically get it from her for a dollar. And in the meantime too, she's also getting a stipend or so, you know, a license fee of some kind, a monthly fee, compensation for 18 months, which you probably called a consulting agreement maybe. But that is just to incentivize her and to pay her for the. For this. Continue to be the license holder of the business. She's not active in the business at all.

[1:01:42] Guest: Yep, that's fair.

Host: Did I miss anything?

Guest: No, it's perfect.

Host: Okay, great. Well, that's. That sounds like a pretty good model. I'm not sure I'd heard that one. Yeah, yeah,

Guest: that's. Yeah, that's spot on.

Host: Okay. Okay, great. How's the transition go?

Guest: So, you know, I think I mentioned to you a little bit before that the having that experience within the startup world and kind of going through that, that slog a little bit, even though we, you know, came out on the other side. Okay. But you know, it's sort of like getting kicked in the balls every day. You know, when you're doing a startup, it's just, it's. It can be very challenging to, to, to find product market fit to create something from scratch, you know, to hire, to do marketing, all those things. And I think that that probably helped because you hear so many things about like, and even on your podcast, right. I've heard some of the cool, funny stories. Not funny, I shouldn't say that. But you know, entertaining stories of. Because they end up making it right. But like, you know, the office manager leaves on the first day or you know, someone, you know, steals money or whatever. Right. And, and luckily we didn't have any of that. I mean, there's some weird things like, you know, they wrecked a van like two weeks before we close and you know, we had to solve for stuff like that. But. And certainly there's a lot of surprise. I mean everyone was definitely stunned that the seller sold the company because to the appearance was that it was her identity and it's the name of the company is the person's who sold it to me. Right. And so I think they were very surprised. And also the seller wasn't really old, I mean the early 60s, but it's not like, you know, she was, I think 61, you know, when she sold it. But, but didn't, you know, suffer from any sort of health challenges. Was kind of in that spot that was. He was ready to retire. And so, so the, the common stuff was there in terms of, you know, just reassuring the team that we are going to continue the legacy of what had been created before and there would not be these wholesale changes. I mean, I can't tell you how many times the first week of me starting of people were like, are we going to change the name? Are we going to change this? Is this going to change? Is that going to change? And it's just, you know, it was just constant reassurance of like, you know, by and large there, you know, obviously we're going to optimize some things. Right. But like, you know, in terms of your, you know, you're not going to get fired, we're not going to change your pay drastically, we're not going to take this away from you. You know, so a lot of that,

[1:04:16] Host: they were all traumatized by the service titan experience of a year earlier

Guest: probably so. Yeah, no doubt. But, but several long term employees.

Host: Fear of change though. There it is. The fear of change that just most people have. Sorry, go ahead.

Guest: Yeah, you know, I think that's, that's spot on. And, and I also think that, you know, I have to play my best part in adapting and you know, and being, you know, welcoming and, and humble and, and align with other people's personalities and culture and stuff. Because you know, the previous, previous seller was a, was a woman. It's a very like, you know, kind of, you know, the, the, the area of town is of, of Atlanta is. I mean I come from like, I'm just like this, you know, white dude who got his MBA from Georgia Tech. And it's, that's not really like a good look when you're going in to buy an electrical company. I think primarily blue collar. Whereas the previous person was, you know, it's a woman much more, you know, probably of the liberal ilk. I love her. She's great. Been highly supportive. We talk all the time, but just very different personalities. Um, right. And, and so I think that in and of itself, you know, when you're trying to, I mean you, you, you can never be the seller. You can never. From a knowledge perspective, from a personality perspective, from a, you know, just everything. It's just you're going to have these shortcomings in almost every aspect. And so, you know, I think you have to really lean on what your strengths are and you know, bring on this new identity in terms of how you're going to push the company forward. And, and it just takes some time to kind of reassure everyone. So luckily there, there weren't any. I did have someone quit like after the fact, but it was like three months in but so I don't think related to the transition but you know, nothing really catastrophic like that. And the transition by and large has gone really well. I've been really pleased with the, the team, the performance, you know, and I think the only thing that I might have mentioned you on the pre call that was a little bit, you know, of a, of a bear is just probably miscalculating. I know people talk about miscalculating working capital. I think we actually got that right in terms of what we had allocated there and, and financed. But the, the AR aspect. So certainly I knew what the AR was coming in. But as I mentioned before, we have a service aspect of the business which is really pay on the man on demand. You know, you go to someone's house, you fix X, Y and Z or you let's install some fixtures. Then you swipe a card, you get paid and it hits your bank account the next day. Well, the other half of our company is more project oriented and so it may take, you know, you may take 10 days to do the job. And in those situations we typically will invoice net 30 to a builder. And so I think that was a little bit miscalculated and I would sort of, you know, caution people or at least not caution you, but you know, make sure to really look at that very closely because you know, at the time I'm looking at like okay, well I'm buying the business and there's you know, 150 to $200,000 of AR that's out there, right? Well when you close, you know, in my, and, and certainly I was aware of this well that AR is going to go to the seller. All the work was delivered while the seller on the business. Not when I own the business, but it was just that painful. You know, the checks come in or the ACH payments come in and, and you're, you're, you're just start the company. So you're wanting like let's get some revenue in, right? Let's get some, let's get some money in. And then boom, you get a $32,000 check. But then it's like oh wait, this, this goes to the seller and then you get a, you know, fifteen thousand dollar check and like oh wait, no, this one's for the seller. And certainly that's to be expected the first week or two. But the bummer was when you're, you've been in the driver's seat for a month or, you know, a month and a half or whatever. Even, even approaching two months and you're still getting these, you know, this revenue that's coming in and it's. And you have to just pass it across the fence to, you know, the seller. So that's the, that, you know, it is what it is. But I think, to be clear, Fred,

[1:08:36] Host: what we're talking about here, that's kind of a, a psychological cost that you're warning people against where you didn't miscalculate. You did a good job on the working capital calculation. This wasn't hurting the business, but it was hurting your hopes and dreams and expectations. Every time you went to the mailbox or you saw something come in on ACH would be tens of thousands of, of dollars. You'd be like, great here. Money that I can put into the business. And oh no, the check is written out to the previous owner sort of thing. Y And so it's just like that frustrating experience that you're telling people to be aware of if they, if they don't buy ar.

[1:09:10] Guest: Exactly. Yeah. And it almost made me rethink like, should I have bought the AR or a portion of it or, you know, but then I think there's also risk there too because like, what if that AR never comes in? Right. It's really bad debt. And so anyway, all that being said, yeah, that was a little bit of a bummer, but we finally got over the hump there and, and you know, no more checks. But that was no more checks of the seller. But so that was probably the only, you know, sort of difficult transition. And then other than that, it's just been the typical stuff like adapting to understanding how to hire for the trades. Right. Because it is very, I think, different than, you know, you make the contrast of white collar, you know, world. Right. And I've hired, you know, dozens of, and managed dozens of, you know, salespeople and business development reps and marketing people. And you know, it's, it's just a different. I think the mechanics are a little bit different in terms of how to find someone, you know, how to, how to, you know, figure out if they know what they're doing. Because it's very hands on and sometimes it's difficult to. They may look good on paper, but it's like you're going to be sent into a complex electrical, you know, some sort of troubleshooting or difficult, you know, installation and you can't really afford to hire someone that you're going to send them to this job and they really don't actually know how to do it. Yeah, because obviously there's some dangers just from a safety perspective. And then, you know, and you know, there, there can sometimes be big jobs. So you want them to be able to deliver the work and actually be able to do it. So I think that, you know, I would say, you know, as part of the transition, it took me a while to kind of understand how to identify talent because in the beginning I'm like, I don't know how to hire an electrician. I got to figure out, you know, this from scratch, you know, so that

Host: was, give us 60 seconds on how you do that. Because that is certainly something that a lot of people will be wondering when I get into this business, this trades business, how the heck am I supposed to figure out who to hire, who's good, who's not. So what did you learn?

Guest: Well, I think I was very tempted in the beginning to hire entry, more entry level or what we would call an apprentice or a helper and someone that has a little bit of electrical experience that I could, you know, have a, you know, kind of a low cost basis cost burden in terms of that person. And I think what I discovered is while there's definitely a need for that and we'll, we'll continue hiring those folks, I think it's maybe potentially better to the ones that I've paid more, sometimes significantly more, have actually delivered because they do have deep experience, they know what they're doing, they require less, you know, oversight. You're not worried about their production, you're not worried about if they're going to mess something up. And I think there's a lot of peace of mind that comes with that. And so I kind of shift perspectives on that a little bit and then started really looking for more senior people and then structured the narrative around the job requisite, you know, saying, you know, highly experienced person, senior tech needed, you know, 10 plus years. And I, you know, one example is in the first couple of interviews we did, and this is something they did before me, but they would make a person wire a three way switch and we have like a faux a. I mean it's actually a real wall, but it's like a fake three way switch and it's a studded up wall and with a receptacle and a junction box and another light. So like two light fixtures and a junction box in the middle. And you have to tell the guy like we spring it on them so we don't tell them they're going to do anything, you know, when they get there. And we. Tell me about your background. Okay, now we're going to do a hands on tool, you know, interview the tool portion. Like, oh, I didn't bring my tools, don't worry, we have them. You know, and so we've got all the typical, you know, wire cutters and we got your, you know, we have the actual materials that you would need to, you know, wire caps, you know, wire nuts, everything. And then like. Okay. And they would, some people would struggle with it and even I can tell

[1:12:58] Host: that's a pretty basic test, right?

Guest: Yeah, yeah. I mean, and, and there's some, some of it. They would, they would, sometimes they would actually be able to get it to work. In other words, you could flip this switch and turn on the light and then switch this other one in turn. Offset would work, a three way switch would work. But, but then you discover that of course I was not leading this, I was just supervising and watching.

Host: Right.

Guest: But they would, my guys would show me that, oh well, you, you got it to work. But because there's like four or five ways you can actually do it. But the problem is there would be like three code violations. Right. So like even though it works, here's all the things you did wrong. And then we'd also have like a little test DM because we'd leave a broom like on the edge and just be like, let's see if they clean up at the end. You know. And you know, most of the time they wouldn't, that we'd always have to correct them. Like, hey, the most important, you know, the second most important tool you have is the broom. But you know, so I think one of the things I discovered from that is that you really do have to test with hands on type things. And also I structure my questions a lot differently. So in the beginning I would be like, how many, I would say can you do a panel swap or panel changes? Basically just you're taking out the old electrical panel, putting in a brand new one, you know, let's say on a 50 year old home with new breakers and everything. And of course naturally everyone's like, you know, if I ask you, can you do it? Have you ever done a panel swap? Are you capable of doing. They're going, yeah, of course I am. And then I started rephrasing my questions to how many panel swaps have you done? And if they tell me, oh, I've done, I mean I've done five or six, I probably 10, that's way different than when someone's like. I mean I have the. One of the more recent guys I'd hired, he was one of the more senior guys. I asked him the same question. He was like like ever? And I was like, yeah, like in total, your whole life's electrician. He's like like 300, something like that. Then you know, but you're, you're not lying if you told me you've done five or six. I'm like, this guy's probably done one and he had someone helping him.

Host: The old divide by three rule, whatever they, whatever they say, divided by.

Guest: Exactly. So, you know, stuff like that. You know, you can really. So I think that that's been a definite learning curve is trying to understand how to, how to hire and account for experience.

[1:15:04] Host: Well, Fred, that's all well and good to, to hire experience, but you pay up for it and there are fewer of those people out there. So your pipeline is thinner. Are you just kind of.

Guest: Yeah.

Host: Eating that. It's, it's a, it's an investment that's worth it to get better guys. Even if. Or gals. Even if you have to wait longer for them and pay more for them.

Guest: Early indication is that it seems like the move makes sense, you know, in terms of the payback and economics around a higher, let's say paying someone, for example, $35 an hour versus $20 an hour. Right. Seems pretty, I mean it is a pretty significant jump and those are realistic numbers too. But it appears, you know, the last few months that that is working. I will say that the reason why sometimes you can still find people is a lot of the big corporate type trades companies or multi trade companies that are doing HVC electric plumbing, these really big businesses that have, you know, 3, 400 employees. A lot of them are straight commission for these techs, whether it be H vac techs, plumbers, electricians, you wouldn't think that, but they, a lot of times they are. And they're really paid on truck revenue and, and that can be good. And I think there's definitely a, there's, there's some, there's something to that. But we have a bit of a hybrid pay scenario where they have a reliable base salary or you know, hourly rate that's going to get paid like no matter what. I mean, assuming they are working their hours. Right. But they're going to get that no matter what. And so I think that, you know, I've got a couple of guys that have come over from straight commission businesses because they had a couple Weeks here and there where they had some big weeks and months, but they had some that were like really light and then you really fill it in the paycheck. And so having that kind of linear, you know, more predictable comp plan I think for some people is, is attractive. But the, you know, you have to balance that with. You don't want to find someone who's lazy, you want to find someone who's still motivated. And a lot of those people who are in commission style roles are typically good communicators and are kind of hungry. So it's, it's definitely a balancing act and I, I think getting both type on the team is, is useful too because they can kind of bring the other guys up.

Host: Yeah, this is great, Fred. This is a, this is an education. But we're going to start rounding, rounding out. Now I did want to hear how you grew from 3 or 32 to a projected 4 million in revenue by the end of the year in year one. That is 30 or 33% growth in year one. Was it all about turning on digital marketing?

Guest: I think that was half of the equation, I would say. I think there's probably two or three things that I would sort of point to. I think the first is it's hard to sort of do marketing really well, digital marketing or I guess any marketing unless you get the brand dialed in. And I actually like that. So the brand before acquisition was a little dated. It was like, I don't know if you've seen this like brush script, some of these like really old school, like if you use Microsoft Word and you see these really like you know, 80s looking like fonts. That was like how the logo like God bless her because I love the previous seller and the seller, but the logo just looked really dated and the trucks looked really dated. Not only the age of the trucks but also just the branding on the truck in terms of the wrap, some of the email communication. Right. Website, things like that and, and then that gets multiplied across multiple channels or web assets because it's the website but then it's also nextdoor. Then it's also thumbtack or Angie or you know, Google my business. So all those things. Right. And when I bought the business there were 30, like I have a screenshot of somewhere but it was like 38 reviews on Google which is extremely low for a 19 year old business. Right. And it also kind of points to, well maybe they weren't doing a lot of service work because that's typically gonna obviously give you reviews as homeowners. Not builders. And so now we're at like 160 as of this morning and we're hopefully going to end the year at 200. But, but like, I guess my point is I think getting the, the brand dialed in. So we had to rewrap all the trucks, which there's of course a big cost to that wrapping, you know, 10 trucks, you know, redid the branding in terms of the logo and, and, and clean up the website a little bit. There's still some to be left to be done. Introduce it, introduce online booking on the website, stuff like that. And then once we did that, then I turned on some of the digital ads which would primarily be Google, a little bit of social, you know, Facebook ads and stuff like that for remarketing, for retargeting people that have been to the website and then, and then creating campaigns around specific things. So it's one thing to create a campaign around Electrician near me, which is super broad, right? Super you know, precise search or you know, electrician and then name the city which, you know, Electrician Atlanta is an extremely expensive click. So you know, we really focus more on long tail keywords and, and, and more specific channel campaigns like EV installation, Decatur which is the city we're in. And so that seems to be uh, and, and, and it's consistent with what I did in, in my last business. When you're doing real estate marketing, you're not going to do real estate agent Atlanta. That would be insane. You, you'd get demolished on that. But you may do real estate agent and then plug in the, you know, small county or market or whatever at the end. Right. So a lot of that, a lot of those sort of like, you know, more custom campaigns and, and then, and then, and then using some of those other legion channels to fill the schedule because of any trades business, one of the biggest things, you know, hiring is certainly one of the most important things that you'll do and you'll learn how to do well hopefully. And then making the phone ring is, I mean that's literally like 70% of what you do in a home services businesses is hire good techs and make the phone ring. And then the other operational things, certainly there's more things that are important, but I think that's two thirds the equation. And so we've been able to make the inbound calls, you know, ramp up and a lot of those calls are paid, you know, calls. Some of them are SEO generated. But, but that's where we've we focused is, is on those, you know, Long tail keywords and more specific campaigns. Not just doing electrician near me, where we're going to get clobbered by some of the big guys.

[1:22:06] Host: Well, I have to say, Fred, that's, that's impressive. Dangerously. Dangerously. It's seductive because you know, some, some of the, the, the what you hear about in, in buying a trades business or buying really any, any business from a retiring owner. This whole category of ETA is that, you know, do some digital marketing and you know, sprinkle on a little digital marketing and it's to the moon. And we always caution about how it's so much more than that and there isn't a single lever to pull or whatever. And it seems like that one lever. Now you also talked about your hiring improvement, but that, that one lever has indeed in your case been tremendous. I mean, 330% revenue growth in a year is really a lot.

Guest: Well, I wouldn't say that it's been that easy because you really do. And we certainly have as well. We've had to test channels because, and there's been times where we've, we've dialed back and cranked up and, or pause. And I think that's common, you know, to do that where you may run a, you may run like for example, like I even ran a LinkedIn hiring campaign and discovered like, you know, that didn't work. And I, I ran a certain Facebook campaign that I was curious, I thought would work by targeting a certain demo on Facebook and it, it worked, but the clicks were so expensive that it just didn't make sense in terms of, you know, what that you know, end customer would deliver in terms of, you know, the, the actual job. So you really do have to test those channels and, and constantly monitor Google Ads or local service ads. And I, I've heard of a lot of people. I'm actually in like a, I had to join a electricians like mastermind business owners group just to kind of, just to help learn more about the trade. Right. And I've heard from other business owners that, that they had historically relied very heavily on lsa, which is these. You, you'll see like if you just Google in your area, let's say you're in D.C. and you're say, you know, you know, H vac company Falls Church, Virginia. And then it's like Google guaranteed job lows H vac. Well, they're paying for that obviously, but it's not a, it's not a PPC ad. It's a local service ad. And so you have to, you have to go through this process to get approved for it. And so we did all that. And there are periods where it's like you can, you can allocate a budget of like $5,000 a month and it only spent like 500 and you're thinking like, is this thing working? So it's sometimes not as easy as just putting a budget together and thinking that you're going to, you know, Google is going to use all that spin to give you phone calls because there's so many other factors like Google reviews, proximity to your shop to, you know, to your address, the style of search, you know, your, your, the style of your service. So I, I, I definitely would caution people that it is not as easy as, and it's also not easy to farm it out. And I, I actually do it myself. That's one of the main things I do. So I may eventually farm it out to a. There's a lot of trades agencies and all they do is SEO and pay per click and they manage it for you typically charge you a percent of spend, 10 to 20% of your monthly spend. So I, I would caution doing that because if you're just farming out and you have no idea how it works, that's probably not good. Like you need to deeply understand how to do digital marketing if, if your business is going to rely heavily on it. And I think home services, it's almost impossible to succeed or to, to grow. Sorry. Without some degree of digital marketing as part of your marketing mix.

[1:25:45] Host: That's interesting, Fred. That's actually a really, really strong point that you just made because most the conventional wisdom would be the danger here is the lack of knowledge around the trade itself. But you're saying that not knowing digital marketing should be more of a stopper for people and that's going to dissuade a lot of people listening because I was going to say before you took the words out of my mouth, you're really evidencing here how, how fluent you are in digital marketing. And most people know the concepts, but they don't know the various tools and they don't get in there and tinker and they don't have years of experience doing it like you did. I mean your hands really where it's clear where you're getting your hands dirty in this business is, is running those campaigns, doing the experimentation yourself. And if you're arguing that other buyers of trades businesses out there should expect to do the same, that that is going to give people pause. And so you just don't think that it's outsourceable. I mean, this is, this is the value proposition of digital agencies that they'll just, they're better at it. They do it all day long. They do it across a portfolio of clients. You don't believe that their, their value proposition is a good one?

Guest: No, I do think that it, it probably makes sense for a lot of people and I do think there, there is a lot of value. And I actually have spoken to a couple myself. I haven't, you know, took the plunge yet, but I may eventually, if I can find a, you know, call it boutique agency that there's a lot of really big agencies that have 300 home service customers, many in my backyard. And so they build your website for you and they manage your SEO and you know, and it's like seven, $8,000 a month. And that's excluding the actual spend. I mean, it's, some of, it's really extraordinarily high. But I would say, I would just say learn the space because I think everyone really, as I mentioned before, around like the SBA payment, right. Which I had a lot of heartburn over, like, oh my God, this, you know, whatever, $10,000 a month or whatever it was. Right. And realistically, and certainly you're gonna, you know, probably worry about making payroll and stuff like that, which, you know, we have not had that challenge luckily. But, but I think really what keeps you up at night, specifically in this space, if you're trying to grow the business, which of course, hopefully everyone is, it's making the phone ring. That is the actual. Sure. There's other, there's hiring, there's, you know, you know, all the things we discuss. Right. But I, I really think can you make the phone ring or can you implement or outsource a strategy that effectively, economically makes that happen on your behalf? Right. So, so yeah, I just think making the phone ring is so critical.

[1:28:23] Host: That's a great point. Yeah, yeah, you, you know, a good exercise to do when buying a business is to really track a dollar into the business, where does it originate, how does it originate, and then track it all the way through the, the business until you know that 15 cents drops out at the bottom into your pocket. Yeah, but, but it all starts with figuring out where does that dollar originate, how does a dollar come into the business? And it's actually not something we spend a lot of time on here. Maybe it's because it seems self evident while you do marketing, but you are definitely more, much more digital marketing forward than, than most of my guests that I've talked to, if not all. So that was, that was great to hear you on that, Fred. Last question. What is the plan? What's the vision?

Guest: Oh, gosh, you know, I, I think I may have mentioned that in terms of, I know a lot of people will try to build a Holdco or maybe buy multiple businesses and I don't necessarily know that, you know, I'm itching to buy like a second, you know, company anytime soon. I do think that it could be like you use the term seductive. It's, it's very appealing and sometimes tempting. Like I will pop on biz, buy, sell and be like, oh, I wonder if I can do a bolt on. Because as many listeners will probably know, once you've owned your business for one year then, and you haven't reached the cap, the $5 million cap, which you know, we have not, then you can actually buy the next company if it's in the same Nike's code and the same footprint of the market you serve and precludes you from putting that 10% or 20 or whatever you're putting down. So, so in effect you can finance the entire acquisition with, not without a lot of, and you use the working capital out of your current business. So of course they're still going to have to value your business and make sure it makes sense to do it. But so I've looked at some, there's

[1:30:20] Host: some other pretty good deal, right? I mean, we don't talk about that enough. It's a, it's a really compelling proposition.

Guest: I, I, I've looked and there was a low voltage which is another, you know, offshoot of electrical is, you know, low voltage type wiring, you know, and something we don't do a ton of but sometimes is profitable. And I've, I was tempted to like, oh, I should contact this broker and I resisted the urge but I was like, oh, this would be a perfect bolt on but, so that could be in the cards maybe in the future as a very small bolt on acquisition. Atlanta is a very big market in terms of being spread out and so if there was another one that was, you know, 30, 40 miles away from our shop and could pair well with us and already had a couple of, you know, good texts that could be really attractive. But I think eventually, yeah, you know, who, who knows, it could be, you know, 10 years from now if, if we get some crazy offer from a big private equity or some, some roll up business and it makes sense from a culture, you know, from a fit perspective maybe that, you know, could be the route to take. But, but really the goal in the, in the intermediate term is to improve profitability and make the business a little bit more passive over time so that I can extract myself a little bit. Because it's, it's currently certainly a 40 hour a week, you know, type scenario which has been great, but I'd love to get it to, you know, 20 hours a week. Right.

Host: Wouldn't we all, Fred?

Guest: Yeah, no doubt.

Host: Just the only other quick thing to say about kind of a bolt on or a second acquisition in the same geography, in the same naics. Good. One other thing people in your shoes will say is why those can be attractive is not just, oh, I want to build a holdco, it's a hire. It's a, it's basically a, it's a hire. An indirect way to hire to get higher. Yeah, it's kind of an acqui. Hire to use the word from Techland. You're basically buying another business, another electrical business for the, for the, for the talent alone. That's really the value to you in solving another way of solving the hiring problem which is so acute and in trades land.

Guest: Yeah.

Host: Anything we didn't get to Fred, that you wanted to share? This has been great.

Guest: Nope, it's been, yeah, it's been a great experience. So appreciate all the inspo we've gotten from your guests and all the stuff that you've been putting out there. Keep it, keep it coming. I'll keep listening too. But yeah, no, it's been great. And anyone that wants to connect if you're thinking about buying electrical, plumbing, H vac, roofing, etc. Definitely hit me up. I'd mentioned to you earlier a buddy and I started a group called Blue Collar Advisory. I didn't have as much. I know that a lot of your guests are like awesome because. And I think I might have even like tweeted somebody or LinkedIn someone like almost a year ago and they did respond back but I think I, I've hit up probably five or six people and just people are helpful, super helpful, but they're not going to be able to dig super deep with you. And I think that was, that's kind of a miss. I think a little bit of a mini gap in the market is like helping buyers who are really searching and they're serious, they have the capital they want to buy but need a tiny bit more handholding or a little. Just a sounding board really. So, so.

[1:33:34] Host: Yeah, so.

Guest: So hit me up at Fred at Blue Collar Advisory because that's something I'M passionate about is specific to the trades. Anybody in the home services category. And you know, so we want to try and help and we've done done this with a few people. This is brand new but you know, helping people with your loi or doing the call with the seller, talking to the lenders and structuring a deal and just seeing if the deal makes sense for you. So but if you can get that, also happy to like do a quick call for you for, you know, just for the hell of it. If you're just wanting to kick around some ideas too.

Host: Great. Well, and to be to be clear, the blue collar advisory is kind of a light coaching practice that you've launched for other people interested in buying a trades business.

Guest: Yeah, I would call it light consulting. I mean we're not selling a course course or selling any like actual coaching. It's just. Yeah. I call it lightweight advisory just to get you over the hump to actually buy the business, you know.

Host: Great. And you say the email again that

Guest: they should reach out to you fredlucollaradvisory.com okay, great.

Host: Yeah, we'll have that in the show.

Guest: Look me up on LinkedIn or Twitter. I'm all those as well.

Host: Okay. What are you on Twitter?

Guest: Freddy McGill, I think is me. Yeah. Freddie Miguel. Yeah. F R E D D Y. That's what my mom calls me anyway.

Host: Okay, we'll have all that in the show. Notes, Fred McGill, congratulations on the acquisition and especially on that great growth since. Since acquisition really impressive and been an education. Thank you, sir.

Guest: Thanks, Bill. Appreciate it, man.

Host: Sa.