Host: George Vallone is my guest today. He acquired a cleaning business in Nashville. In addition to being a great story about a committed acquisition entrepreneur, George drops a lot of knowledge in this episode. Specifically, I really wanted to learn the mechanics of doing cold outreach to business owners. So we get into exactly how George built his list, how he reached out, what he said to the owners to get them interested in talking to him. Very valuable stuff. Also, George found himself in a cash flow crunch shortly after closing on the business, which was a serious situation, kind of scary. So we talk about how you can avoid that in your acquisition. Here is the packed episode with George Vallone. 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. Have you signed up for the Acquiring Minds newsletter? I send it out alongside every interview and it contains a summary of the episode that you can quickly read in case you missed it or just don't have time to listen. Sign up at the website acquiringminds co. You'll see a big box to enter your email. Again, acquiringminds co. George Vallone, thank you for joining me today on Acquiring Minds.

Guest: Thanks for having me. Well, excited to be here.

Host: Last January, almost exactly a year ago, you acquired Nuvelti's Cleaning Services of Nashville. You were in New York City when you did your search and actually moved to to Nashville to take ownership of Nouvelles. So we're going to hear that story today and how things have gone in this year since you bought the business. Start us off, George, by telling us about yourself and what led you to want to go out and buy a business.

Guest: Yeah, sure. So, you know, I spent the last probably 10 years since graduating college in the software industry. So tech startups in a variety of different sales roles. And I remember in 2008 that during the financial crisis, I was in college, I was a sophomore in college. And I remember seeing that there were a lot of people, lost a lot of money, lost everything. You know, my heart goes out to them, but I remember hearing these isolated incidents of people that made a ton of money during that downturn. And so I kind of just put a mental, you know, bookmark in my mind that, you know, something like this could happen again. And if it does happen again, I want to be on the winning side of this, you know, drastic shift that happens. And, you know, Fast forward to 2020 during the pandemic. I kind of started to think that this might be an opportunity to take advantage of Another dramatic shift that was happening in our society. So I started poking around, peeking around, and I had heard from a couple other entrepreneurs about, you know, Buy Then Build, which is the book that you actually recommended to me last time we spoke. And, you know, I decided to look into that and take that very seriously. So I started a search, put together a strategy, a framework for how I was going to approach it, and then was off to the races.

[3:37] Host: And really interesting that you had kind of had this bookmark in your mind since 2008. So were you kind of biding your time and waiting for some sort of disruption in the world to occur, at which point you would kind of pounce? Were you kind of really paying close attention? Or was it just like when Covid came along? You were like, oh, yeah, I remember how I felt in 2008. This is that time when I should act upon that inkling that I had back then.

Guest: Yeah, I think it was, you know, in, in the software startup world, it's. I kind of absorbed the mentality that, you know, anything is possible. And it's, you know, a great time period for founders to create new technologies. And so I always had sort of an eye towards starting something and, you know, starting something, especially in tech, you're competing with a lot of very, very smart people. So I was always sort of coming up with ideas for startups. And then I'm sure you and many other entrepreneurs can, can, can relate to this, but it was like, well, that that idea already exists. There are too many competitors in the market, or, you know, there's, you know, some other smart guy at MIT just, you know, started a fund to, to do that, that business. So it was kind of a combination of me being feeling like I was ready in my career to start something and do something big. And then when the pandemic hit, I started to think, you know, they're probably going to be a decent amount of struggling small businesses. Why don't I scoop one of those up?

Host: Okay, so you had kind of already decided you probably weren't going to do a tech startup. You were looking for some other way to become an entrepreneur.

Guest: Yeah, I think that's correct. I mean, I wouldn't say never, but certainly this felt like a more feasible option for me than starting something from scratch.

Host: So you read Buy, then build, and you get really structured about a search. So tell me about. I was really impressed with how you did that. So tell us about this infrastructure, this personal infrastructure you put in place and how you conducted your search.

Guest: Well, coming from B2B software sales. I really, I fell in love with the B2B recurring revenue SaaS model like that. I think that's a great way to build a business. I think it's one of the reasons why the valuations on B2B SaaS companies are so high. Because you get a customer, you keep that customer for years, and then you just keep kind of stacking those customers and building a really predictable revenue stream. So when I first started the search, I was like, okay, my criteria were basically B2B recurring revenue models that were simple, didn't have to be sexy, and, you know, preference by simple I mean not really necessarily like technology based. Something that was like a services business, like back to the basics type thing. Nothing too fancy. So I started exploring different industries. So, you know, I think the first thing that I did was, okay, what sector matches those criteria for me? So I looked at roofing, I looked at a couple other things. I looked at powder coating, like a bunch of different sectors. And I was sort of analyzing them through that framework, that lens. And you know, a friend of mine who was investing in properties upstate, you know, I was talking to him and up, sorry, upstate New York, I'm from New Jersey, so upstate means upstate New York to me. He was investing in properties up there. And you know, I said, well, maybe I should start getting into real estate. Should I look at that? And he said, you know, what would actually be great would be all of these new airbnb properties that are being built and renovated upstate. They're all going to need cleaning services. And so that was sort of my aha moment that cleaning services kind of match my criteria. So I started looking at the cleaning sector. It was also sort of topical because we were going through this pandemic and I was sort of thinking, well, germs and things like, you know, that's going to be important and top of mind to people these days, so that might be important. It didn't turn out to be quite as compelling of a concept as I had thought at the time.

[7:58] Host: But, but, but Airbnb usage spiked, didn't it, as people fled the cities and went to the wherever their Airbnbs and in the hinterlands, Right?

Guest: Certainly, yeah, definitely. There are definitely a ton of just, yeah, changes like that that were happening because of the pandemic. So. So I decided on cleaning, started looking into cleaning, and then I built a list of about 400 companies that were cleaning businesses. I used a virtual assistant to help me build just basically an Excel spreadsheet of cleaning businesses. I also wanted to focus on Southern markets. I was reading a lot about people leaving major cities in the Northeast.

Host: Sure.

Guest: And going down. Since everybody can work from home, why not go live in a. In a state that has no income tax? So that was like a. A thing that was happening. So I was like, okay, if there's going to be a flock from these northern cities to southern states or states without income tax, that would be good for a cleaning business because, you know, more people, more. More things to clean. I focused my list. I had a virtual assistant build a list of cleaning businesses and contact information and a couple of key cities that I was interested in with no income tax in. In the south and Southeast, primarily. Um, and then, yeah, I just went to work. I used my skills that I had acquired from being in sales. Cold calling, drip campaigns with emails, you know, just getting on the phone and having an open conversation, open, transparent, honest conversation with these business owners. And so I built this funnel. Started out with 400, had probably, you know, 75 good. 75 to 100 good conversations over the course of a few months. Whittled that down to maybe 20, 20 serious conversations. Whittled that down to, you know, 10 companies that were open to selling. Got the financials, whittled that down after seeing the financials to about 5, and made an offer on 3, and wound up buying this business here in Nashville, Tennessee.

[10:09] Host: Man, perfect. Like what? I love that. Just numbers game funnel thinking that you had developed as a B2B sales guy. I want to drill into this search. This is so interesting. So let's go rewind a minute. So you targeted particular cities, how many cities? And can you rattle them off if you don't remember them? Exactly. But give us a sense. So Nashville and what else?

Guest: Yeah, I was looking at Nashville, I was looking at Austin, I was looking at Raleigh, I was looking at Tampa, Miami. And I'm trying to think if there are any. Those were the primary ones that I was focused on.

Host: Okay. And you were doing all of this from New York City or Jersey? Where are you doing this from?

Guest: Yep, I was in Jersey City, just across the Hudson river from Manhattan.

Host: And so what about just the personal decision to move to one of these places? Did that ever give you hesitation? Or did you think it would be an adventure? Or you were just willing. Just. You were just willing to do it because you had this business thesis that you were going to pursue no matter what?

Guest: Well, first of all, I was in sort of a privilege, privilege situation that I realized that not a lot of. Not all of your listeners are going to be in this type of situation. But I was single at the time, you know, no kids. So I, I wasn't anchored to any particular city. And I love traveling, I love adventures, I love new cities. And I think, you know, it enabled me to find the right company for me that I was able to, you know, and willing to relocate. So if I was only able to look in a 500 mile radius of where I wanted to live, that really limits the opportunities that I was able to find. But if it was more of a, you know, national search or semi national search, I was like, that would enable me to really locate a perfect business to buy. So I think it just widened the parameters of my search and for that I was willing to pick up and leave and go on this crazy adventure down here in honky tonk town.

[12:23] Host: It's really cool. In traditional search funds where you're actually, you raise the money and then you actually have compensation or salary while you do your search, there is the expectation from your investors that it's going to be a nationwide search and you're just going to basically have to go pretty much anywhere where the opportunity presents itself. Maybe not anywhere, but similar philosophy to what you just described. To find the best opportunities, you have to take out the variable of location and just be willing to go anywhere. But one of the other things that traditional searches typically have is a team of interns doing this outreach and doing this industry research. You did it all on your own with the help of this upwork contractor. So that's, that's, that's pretty cool that you were able to, to, you know, basically not have to build out a team of interns to do this for you. And it speaks to your ability to build a funnel. So the, this list of 400. Let's, let's just get into that a little bit because this is kind of. Yeah, I mean it's, you've basically bootstrapped, you know, what would otherwise often be like an intern search. You, how long did it take your intern, your, excuse me, your contractor to put Together list of 400 and tell us like a little bit more about the instructions that you gave this contractor. You, you gave them the cities, obviously. How did you tell that? Did you say just go scrape yelp for the, you know, the cleaning companies that had good reviews or what? Talk, talk me through that a little bit.

Guest: You know, I didn't tell them how to do their job. I just told them what I was looking for. And I worked with probably two or three virtual assistants before I found One that I felt was doing a good job for me. And by the way, that that list of 400, it wasn't a complete list of 400. The first time I hired a virtual assistant, it was like I said, two or three virtual assistants putting together a list of 50 to 100.

Host: Okay.

Guest: So I essentially just gave them the criteria that I was looking for, and I told them that I was looking for contact information of the owner or the manager or the president, what have you. And I was actually. I was pretty impressed. I think. I think the way that they do it is they have access to a bunch of databases. And so, you know, they. They'll pull things from the databases. I think they also use web scraping. There are a couple instances where they said, hey, this looks like the right type of company for you, but we don't have contact information, but here's the main office phone number. So for a decent amount of the 400, I was just cold calling the main line and trying to go through is, you know, and that's something that I did in my job, you know, out of college. I was, you know, smiling, dialing for about a year. So. So I was comfortable doing that. But, you know, I was, I was actually, I was really pleased with the work that they did, and it was super affordable. I think the whole kind of list building exercise costing you maybe 150 bucks. 200. Wow.

[15:38] Host: And how quickly did they turn it around? I mean, how quickly did you go from zero to a list of 400?

Guest: I think within a matter of weeks. It was two to three weeks I had that list.

Host: And so you really just give them their. Give them your criteria, and they are, they're the, the, the experts at list building. And so you just, however they do it, you just, you don't tell them how to do it. They know how to do it. You just give them the criteria.

Guest: Pretty much, yeah. I mean, this is a, you know, a plug for Upwork, but I used Upwork.com. yeah. Yeah. And Upwork's really good at matching you with the right people with the right skill set that you're looking for. And then, you know, people are pretty hungry on there. Like, they'll, They'll. They really want your business. So people were willing to, you know, do whatever it takes to earn your business. And if you know how to kind of massage that process a little bit, you can wind up with some really good virtual assistants.

Host: And your criteria, was it just any cleaning company or were you more specific than that? I mean, you had, as you had said earlier your friend turned you onto this opportunity of kind of Airbnb cleaning companies. Was it just that, that you were looking for or any, any sort of cleaning company? Residential, Airbnb office. Tell us, tell us what you were, what you told your contractors to look for.

Guest: I asked them to filter out residential cleaning. So I was looking for commercial cleaning specifically. And that was something that I had talked to somebody who had been in the cleaning industry as I was going through this brainstorming process, and they recommended that I stay away from residential, which I totally agree with now that I've been in the industry for about a year. But residential cleaning can be pretty meticulous and it's people's personal property and they can have lots of different issues come up. I just told them commercial cleaning. I also told them I was looking for this one. Might be a little bit hard, I think, for them to have access to, but I threw it out there just in case. But I told them under 5 million in revenue between. I was looking for between 1 and 5 million in revenue. And if they had access to EBITDA, which I'm sure they didn't, I was looking for at least 250k in EBITDA.

Host: And you said you don't think they had access to the data, the EBITDA data? Almost certainly not like you said. But did they have access to the revenue data or did you also mean that they probably didn't have access to that either?

[18:02] Guest: I think it's less. I don't think. I don't think it's very likely that they had access to revenue data, but I think some of their databases can estimate revenue for some small businesses, but, you know, not. Obviously they can't get exact numbers, but I think they have some way of estimating that.

Host: You. So you have this list of 400 and you actually get on the phone with, I think you said 75 to 100 people. People, is that right? Or you got responses. Remind me what that number was.

Guest: Yeah, I probably got responses from about 75 to 100, and I had maybe 50 good conversations.

Host: And were these people who tell me about the nature of those conversations, were they surprised to get this cold email of somebody interested in buying their business? Do they get emails like this a lot? How did you find, like, you know, there's. There's the argument that you're at a bit of a disadvantage when you approach somebody looking, asking to buy their business or expressing interest in buying their business versus going on a biz buy, sell or brokered, brokered listings. Where the seller has already decided that they want to sell. So just kind of give me, give me a flavor of these conversations.

Guest: So, yeah, this might be useful for anybody who's going through this process right now, but the messaging that I used effectively was I'm an investor looking to purchase small businesses. Have you considered the valuation of your business and are you open to a conversation around that valuation? And I would say, you know, the vast majority of people that responded to me seemed like, you know, they didn't even know that their business was worth anything or could be bought. Like, they didn't know this was a thing. Keep in mind, these are mainly, you know, blue collar people that have built this business from the ground up. A lot of them were cleaners themselves for their entire career and kind of just brought in friends and family and people, you know, to, to quote, unquote, scale their business a little bit. For the most part they were not. And I mean this with all due respect, this is more so a kind of subjective thing. But they didn't seem to be very sophisticated about the process.

Host: Sure.

Guest: And so some of the reactions were like, whoa, I didn't even know I could sell my business. What's evaluation? Like, let's talk, you know, and then I get on the phone or talking them through how the process works. I tried to be very honest and transparent, like it's not my intention to screw anyone over. But a lot of people, including some of the ones that I got to the final stages with, were, were very excited that somebody was interested in buying a business. Another thing that I found amongst a lot of the business owners was, you know, this was, this was their baby that they put blood, sweat and tears into. And if they were thinking about retiring, they wanted to make sure that somebody was there to take care of their baby and honor the legacy that they had built with that business. So I tried to ensure them and reassure them that, you know, I was the right guy and I had the skill set to not drive their, their precious business into the ground afterwards.

[21:24] Host: The people that you had no idea that their businesses were even saleable. And you kind of walk them through the process and I assume you explain what a multiple is and what a standard multiple is of, you know, call it three. Were they surprised at what they, what the business might be worth according to, you know, three times cash flow? Or, you know, were people disappointed or, or pleasantly surprised at what they might be able to sell their business for?

Guest: I don't know if I could tell you that there was a consensus or, or A trend on that question. I remember having conversations at both ends of the spectrum. I think once I had the valuation conversation, like that initial conversation with a lot of the people that I talked to, I think they started to, you know, talk to brokers or consultants and, you know, not paid consultants, but other people that they, you know, respected and they started to see dollar signs. But I don't recall anybody being overly greedy about, you know, I want way more than a 3 or 4x valuation on this business. It seemed to be like, my God, I would love to be handled, handed a pile of cash to not have to go to the office every single day and, you know, maybe buy some property and, you know, drink martinis somewhere.

Host: Mm. And just. Let's hear it again. George, your. Your line that you settled on, that seemed to be really effective. I'm. I'm a. I'm an investor in small businesses. I'm a buyer investor of small businesses. Have you considered what the valuation of yours might be? Was. Was that what it is?

Guest: Yep. Yeah, that's pretty much it. That was my sort of opening, opening line. Um, and you know, I, I like that because it's not like, hey, I want to buy your business. It's like have a conversation about how much your business is worth and so let's have that conversation and then I'll decide if I want to buy it or not. So it's not like, it's not very predatory. I think it's. And they're also getting some value out of that conversation as well. So, you know, I'm. I'm an investor. Let's talk about your valuation. If I don't like it, at least now you know sort of what your valuation is from somebody who could buy your business and maybe why I'm walking away or, or why I want to move forward.

Host: Totally. And did you have to iterate, I assume, a number of times on your messaging before you arrived at that? Like that is pretty good. Did you just come up with that or did you have to get there over a bunch of conversations that didn't happen because your messaging was less good?

[24:07] Guest: I used the email automation software that I was able to do some a B testing with for my Drip campaign. So I was ab testing some subject lines and opening lines and things like that. And that one had a slightly higher conversion rate. But I did get that. I got that concept of that messaging from a course that I took with a guy named moran po bear@acquisitions.com and that was a couple of week course for few thousand dollars and he laid out some of the things that him and his students have found to be helpful and useful in the past in acquiring small businesses. And that was one of the takeaways that I got from that course. Was that messaging? Cool.

Host: Yeah, that seems really valuable. Okay, so you have these. Oh, and then one more question. So you're emailing primarily or calling. I know you're emailing. You just talked about your trip sequences. But what was the split between a call and an email? Did you call and email everybody or what did your, your sequence look like?

Guest: Yeah, I called and emailed everybody. So if I heard back from them over email, then obviously, you know, set up a phone call at that point or remove them from my list if it was a negative response. But everybody got a phone call. I was spacing the emails out, I think one a week for like a month and a half. And I was calling a couple times a week to try to get in touch with somebody.

Host: So the books and financials that you're getting back from these folks, especially the ones who are a little less sophisticated, are they a mess or, or what? You know, that's one of the, one of the supposed value adds of a broker is that they, you know, they put together a package so that's more digestible to you, the buyer. What were you getting from these folks?

Guest: I think I only got financials from five or five or so companies. But in the other conversations I would just ask very top line questions. Revenue, what'd you pay yourself? And I could kind of piece it together, you know, what was your cost of goods sold? Things like that. So I could start to put a mental model and qualify or disqualify them from just those few high level questions. And then if I liked what I heard from that, then it would be like, okay, send over some financials. So I was getting things from, you know, tax returns. Very few of them use QuickBooks, honestly, I was getting a lot of Excel spreadsheets and I would have to be doing some kind of forensics to figure things out. But it was a really nice exercise. And I think that exercise actually, and the whole buying exercise really has, you know, it prepared me to run this business. So, you know, I could see, you know, what the cost of goods sold was across a couple of different companies that I, that I looked at. So now I have a good sense of maybe what my cost of goods sold should be for this business. Yeah. And so that process was really helpful.

[27:06] Host: Cool. Okay. So you get more and more serious, fewer and fewer companies, and then eventually you buy nouvelles. So tell us about Nouvelles. What did you like about it? Yeah, let's start there and then we'll get into some of the numbers.

Guest: So nouveldis, funny enough, even after all of the efforts with the funnel that I built, it's funny to say this, but new values came from a broker. So what it is, you know, it came from a broker. So new valleys had, you know, because they were working with a broker, they had all, you know, they're very organized with their financials and everything like that. What I liked about them was first of all, I really liked the owners. They were really good people. They built a company from the ground up. I'm very friendly, very open, transparent. And I said that these would be good people to transition this business with. So in any acquisition the owner usually stays on for a set period of time. That's all negotiable. And I said I think that they would be great partners to do the handoff. So that was the first thing that I liked about them. The second thing I liked about them was that they were in Nashville. Nashville was putting up some great numbers in terms of people moving here and population growth. And also the growth before the pandemic was, was huge. They were investing $10 billion on average a year for the past 10 years and new construction in the city. So Nashville has been on an incredible growth trajectory. So I really liked the city itself and then I liked the numbers. They were looking for a reasonable price. I understood the reasoning for wanting to leave the business they want. They were exhausted after they found they were founded in 2008. So they've been doing it for a minute and they wanted to retire and go do real estate. It was a husband and wife. They were the owners and they were owner operators. So the husband was, you know, in the, on the properties every single day doing some of the work and the, the wife was doing a lot of the kind of back end stuff, the invoicing and customer service and stuff like that. And they were sort of just at their wits end. And now this pandemic came and they were like, well, we didn't really know where to go from here. We kind of maxed out how far we think we can take this scaling wise before the pandemic and now this pandemic is here and it's kind of scary. We don't know what to do. We don't know if it's going to destroy our business or not. So let's wash our hands clean, take the money and go and get into real estate. And so I said, okay, did they.

Host: Did they say that only after they closed on the business with you, or were they transparent up like, you know, when. When having pre closed conversations with you? Yeah, Covid might destroy this business?

[30:02] Guest: That was, I think, inferred a little bit. I think I just picked up on that. I don't think they directly told me that. But yeah, A great question to ask when you're acquiring a business and going through the negotiations is you have to understand why the seller wants to sell. And that goes really far in terms of helping your negotiating position, because now you understand what they want. If it's just a cash play, then that's one thing. But if it's a lifestyle change, well, that's. There's a little bit more. I don't want to say desperation, but there's a little bit more motivation to get through the transaction. And so I think that was all sort of inferred. But they were. I could tell that they were, you know, kind of done with it. And, you know, they were betting that the pandemic was going to negatively affect their business. And I was. I was not only betting that it was going to positively affect their business, but I was also betting that there was going to actually be a spike in business. Because my theory at the time, which was validated afterwards, after I took over the business, was the pandemic had caused a lot of people to stay in place. Nobody's really moving, if they can, to a new apartment or a new house during the pandemic. And I said, well, if there's this huge backlog of people that need to move, then once the pandemic is over or we open up a little bit, then there's gonna be a huge surge in people moving. And when people move into new apartments, that's good for my business. So that was sort of my mentality when I was going through the negotiation process with them.

Host: And this is the appropriate moment to tell people exactly what Nouveldis did.

Guest: Right, Right. So Nougeldi's is a cleaning service that focuses on apartment complexes. So before I took over, they primarily did cleaning, a little bit of painting. And when I got there, I quickly realized that there was an opportunity to rebrand the company as a turnover service. So a turnover, an apartment turnover, is when one tenant moves out of the unit and the property needs to get it turned over and ready for the next tenant to move in. And it's an incredibly important part of the life cycle of a property because a, it's your first impression for your new quote, unquote customer? Right. So if the apartment's a mess and they're not happy when they get in there, that's going to affect your renewal rates when it comes time to renew your lease. And then two, if, if that turnover period is delayed. Well, that's every day that it's delayed is another day that the property is not monetizing that unit or collecting rent. So they're all about doing, you know, really making a really great first impression on their tenants and, and getting that unit turned over and ready as quickly as possible so that they can start collecting rent on that unit. So I rebranded and restructured it into an apartment turnover service, which means that we're not just a cleaning company. We're now offering cleaning, painting, carpet cleaning, which is just steam. We have an industrial steam cleaning machine that does the carpets and also punchless services, which is essentially a trained kind of handyman or technician, goes into the unit and checks the light fixtures, checks the faucets, the plumbing, the appliances and all of that stuff, and tells the property manager what needs to be repaired before the next tenant moves in.

[33:47] Host: But when you were looking at buying this business, apartment turnovers was part of, was a big part of the business, but they weren't doing as. They weren't like solely devoted to that. Am I, am I right about that?

Guest: Yeah, that's, that's correct. So they were doing, they were doing residential and, and a few other types of cleanings, like Airbnb cleanings, for example. And when I took over the business, I politely fired any non apartment complex customers and said, let's just focus on our niche here. This is our niche. It's apartment complexes. And let's be the best in the business at doing these turnovers.

Host: That was a big strategic decision on your part. Walk me through it a little bit. So lay out exactly the different customer sets that you had and why you didn't like each one and why you did like apartment turnovers and why you doubled down and expanded that.

Guest: So when I took over the business, they had a few residential customers. Um, maybe 5% of the business was residential. I would say 10 or 15% were Airbnb. And then the rest was various apartment complexes across Davidson county, which is where Nashville is. The residential customers, like I said earlier on, it's a huge, it's a huge pain because it's, it's their house. Right? It's. So, yeah, they're, you know, we were getting accused of stealing things and nothing's Ever good enough. So it was just like the amount of kind of callbacks was what we call the industry. The amount of callbacks that we were getting is just, it made them not really profitable. And you know, my, my, my workers weren't happy. They're, they're never happy to have to go back because that's gas, that's time. And so that was extremely problematic and quite obvious to me that that wasn't a really great customer segment to go after.

Host: Well, it sounds like even before you bought the business, you already had a bias against doing residential, so you were already pretty much like decided you want, you wanted out of that business.

Guest: Exactly. It's also, you know, it's also a luxury service for the most part, which I don't think is very like recession proof. So if we were going to go through a crazy recession because of the pandemic, less people are going to use, use cleaning for the residencies, whereas apartments, you know, that's, apartments are going to always do great, especially in a pandemic. Less people are going to be buying houses, more people are going to be living in apartments. So that was another thing that was quite obvious to me at the time. Airbnbs, they're usually run by management companies and they're very specific about how they want the apartment to, to look and be set up. So we were not just being asked to clean, we were being asked to stack the silverware in a certain manner, put the cups in the cabinets in a certain manner, arrange the pillows on the bed in a certain manner. It was just too, too many details to, to be able to manage versus a vacant apartment, which is you go in and you clean it, it's pretty straightforward. Or you go and you paint it. You don't have to worry about, you know, if you're painting, you have to worry about getting paint on the furniture or putting a drop cloth over the couch or anything like that. So I was like, the, the vacant apartment units are the easiest and they're the recession proof and we get, we don't get as many callbacks for those. So let's just, let's just cut the difficult customer segments and focus on a niche that's profitable and less cumbersome.

[37:33] Host: Great. Now, what about the fact on the Airbnb ones that your whole initial kind of, what piqued your interest about cleaning was that friend of yours who said, look at Airbnbs. And so that was your kind of entree into this whole world of cleaning. But what you found is that it's actually not that great or at least turns doing apartments is even better.

Guest: Yeah, yeah, that's right. And I think I also want to make it easier for my workers to do a good job. Like I think that's one of, one of my jobs as the leader of this business is to do as many things as I can to make it easier for my contract my workers to do a good job with their jobs. So Airbnbs, if you think about them, they're, they're not going to be the same, they're not going to be consistent across.

Host: It's non standard. Everyone is different.

Guest: It's not standardized exactly. But with apartment complexes we know that every unit is generally going to be the same. We know the property manager there and the workers really get to know what's expected and what the standards are for that property and you know, what the layout of the units are and things like that. So that was another reason why airbnb is just didn't seem feasible to me.

Host: Yeah, what do gross margins look like in the apartment turnover business? So, so what, what can, what do you typically charge for say a one bedroom unit? And then what are your costs?

[39:05] Guest: Yeah, I heard on a podcast at some point that the general ratio should be about 50% cost of goods sold, 30% overhead and 20% profit. So that's generally the framework that I try to use. It's not always perfect, but on average that's what I try to look at in aggregate for, to come up with my pricing and how much I charge, I pay my, my workers. So like a one bedroom unit, for example, if we were to clean that I would charge somewhere around $125. I'm paying my cleaners about $60.

Host: Great.

Guest: And then I tried. Sorry to interrupt. I tried to keep that pretty consistent as well with, with the painters. But some, some of my services, for example, like if I was going to do an amenity painting, like I was going to paint hallways and things like that, I can't do 50% because that would jack the price through the roof. So, so that's going to be, that's going to throw my ratio off a little bit. So I try to add in like for the 125 that I. One bedroom unit, that $5, you know that that'll add up over time and hopefully rebalance me more towards the 50%. So I always try to go a little bit higher than 50% cost of goods sold when it's, when it comes to pricing. Okay.

Host: And so what does growth for your business look like? Obviously it's Great to be in a town where there's new development because there's, you know, the pie is expanding, there's new apartment buildings to service. Is this a niche that other competitors of yours have also put a stake in the ground to be the apartment turnover services in Nashville? Tell me what your plan is to grow sales.

Guest: Yeah. Part of the rebranding and restructuring process to become a turnover service rather than a cleaning service was because I knew that was something that would be extremely valuable to the property managers who are my primary decision makers and customers. The reason for that is because if they were to, in order to turn a unit over, you usually need cleaning, painting, if you have carpets, carpet cleaning, and sometimes punch lists. And without offering all of those services, the property manager would have to go to a different company for each of those services, which means that they're managing three or four different vendors, they're managing scheduling if one of they have to happen in a certain sequence too. So if one of the vendors cancels or reschedules now, that affects the other vendors. And so they're playing all of this crazy communication across those vendors. So I think it's an extreme value add that they have kind of one throat to choke, which is what we said in software. They have one vendor to call for for the entire process. And so no one else in Nashville is doing that right now. And, and I've been told that, I've been told that we're the only one doing that. So, so that, that's, to me, that's, that's great for our business, great for our branding, and it's actually spread through word of mouth. That's been my, my main source of inbound leads is word of mouth. The property management industry is a small, little, tight knit community in Nashville and they're always talking to each other and recommending different solutions and different vendors for different things. So as far as my growth is concerned, I'm actually not quite. I'm not really focused too much on marketing. I'm really focused on quality, on doing a good job to maintain that inbound stream of referrals. I think that that's sort of how I look at growth. If we're doing a really good job and delivering high quality services to our customers, then word is going to spread. Especially it's a small town and we're the only game in town that's really offering all four of these services. So I joined a greater Nashville apartment association. I show up to the meetings there. It's honestly, from a sales guy perspective, I don't want to sound, you know, crass or anything like that, but my mouth waters every single time I go there because it's just a concentrated group of property managers in a room and I show up with my novelties shirt on, my nouvelties hat on, and I'm giving out business cards. And each time I go to one of those, you know, meetups, I'll get one or two new customers. And you know, of course they, they validate I, that we do a good job by talking to some of my other customers. And so my, my marketing strategy is to do a really good job for my customers so that when they get that phone call from a new prospective customer that I get positive reviews and they bring me on board. And so far that's been working.

[43:57] Host: And is apartment turnovers currently a pain point for many of them? Or I guess one of the pain points you did identify is that for many of them there is no all in one solution like yours. So they're having to project, manage the turnover and you come in and you say, I'll do it all for you. You don't have to think about it. So I guess there's that. But is there anything else? Like is this something where it's really hard for them to find good people to help them turn over a unit? And so everybody's kind of thirsty for a really professionalized solution?

Guest: It seems to be, it seems to be that a lot of my competitors across those different services are, they're, they're mom and pop shops that reliability and quality seem to be the pain points of customers that are looking to replace their current vendor. So reliability meaning do they pick up the phone when we call them? Do they get us on the schedule immediately or are they not showing up sometimes? Things like that. Quality, are they doing a good job? Does the apartment look great? Is it sparkling after going there? And so I try to deliver on both of those, on both of those things, reliability, you know, I'm spending a good amount of my overhead on. I have two great full time employees. One of them is in charge of scheduling and customer service. And in the next few weeks I'm actually bringing on a virtual assistant to help her with scheduling because we're getting so busy. So I'm going to have a whole kind of new way of scheduling that's going to really relieve her so that she can focus on the customers a little bit more and deliver even better customer service. But she picks up the phone, she'll get right back to you. She's doing a Great job. And then the, on the quality side of things, I'm investing heavily in that as well. I have a full time quality assurance manager. We just hired an assistant for him and their whole gig is that they go in behind the workers and do an inspection of the job that they just did. And if it's something trivial, they'll fix it on the spot. If it's something a little bit more involved, they'll actually call the contractor, go to, go back, and then I've kind of managed him to provide training for the workers on what the common mistakes are that necessitate him to fix those issues or call them back. So we're constantly trying to learn from mistakes and improve the quality of work.

[46:31] Host: Yeah, I would say, George, that all sounds well and good, but that it's expensive to hire a full time quality assurance person. So I guess since you've done it, the business can afford it. But my question is, you know, can, can the business afford it? Like, you know, I'm sure your competition would also like to have a quality assurance person. So there's enough meat on the bone here that you can have a full time quality assurance person. And then that's keeping track of that's going in behind every cleaning and then it's noting where the problem areas are and retraining, retraining your crews to improve the next time. I mean that, that all sounds awesome, but expensive.

Guest: Yeah. Well, you know, just like I talked about in the beginning, about selecting an industry with recurring revenue, recurring revenue customers, that's pinnacle to my business model is making sure that once I win a customer, they stick with us. So that's my insurance policy to make sure that once I win a customer, they're going to be a customer for life or for years and years. And so it, it also enables me to focus on what I do best, which is sales and getting new customers. And so I am paying for the insurance of being able to win a customer and keep it and then also to be able to win a customer, throw it into our business machine and not really have to worry about that afterwards. So you're right, that does cut into my margins. But the market is so big here, there's so many apartment complexes that could, could use us that I would rather just buy that assurance and focus on winning new customers. Like it's, it's a volume for me, so it's a volume game. Right. So I just need to, even though my margins are a little bit smaller because I am paying for the quality assurance, I am focused on Making up for that by adding more and more customers and being confident that we can actually service those customers in a quality manner.

[48:34] Host: Well, it's like you said, I mean, if you're, if your marketing strategy is essentially word of mouth and word of mouth is going to be driven by quality, it's almost like that quality assurance cost center in your business is almost like kind of, you could see it as a marketing cost also. This is going to kind of like SaaS models. But you know, if it increases your LTV, you know, the lifetime value of these customers, like more than the cost, the additional cost of the quality assurance manager, then it, then it's actually ROI positive. If you keep a customer for, you know, four years instead of two years, then it, you know, it, it's not even a cost center. It's actually ROI positive to do it. So. Very interesting. We actually, we haven't gotten into the numbers, George, the juiciest part. So tell us what you, you know, tell us what the business looked like size wise when you bought it. You know, multiples, what you bought it for. Anything that you can share would be great.

Guest: Sure, yeah. And as you know, I was a little hesitant to offer these numbers, but you know, just because I like to keep things close to vest in general. But I figured this would be really helpful information to have for your listeners and I certainly wish that I heard more of this when I was going through the process, so totally appreciate that. Yeah. So I bought the business for $590,000 and that was $350,000 worth of a SBA loan. And the remaining 240,000 was a was seller financed over seven years with the first year deferred. And anybody that is doing seller financing as a component of their acquisition, I would highly, highly recommend negotiating, deferring the first year's payments. What that will do is give you just a little bit of breathing room to not have to make those payments every month. And it really helped me with my cash flow because cash flow was probably the biggest challenge that I faced when I took over the business.

Host: George, in our pre call, you had mentioned to me that when you, in your first month or two or three in the business, you actually suffered a cash flow crunch because there was something that you kind of had overlooked or not fully understood. And you wanted to make a point that, you know, others learn from your, your momentary pain there. So walk me through that.

Guest: Yeah, I hope anybody who's listening takes this very seriously because it was certainly a scary couple of months, but essentially when I was, you Know, modeling out the finances of this business. Meaning what are my projected, what's my projected income and what are my projected expenses month by month for the future. I had not taken into account certain things that would be affecting my cash flow. So for example, what's required in this industry to be paid is you have to go through an insurance credentialing process with the property, you have to register your EEIN and tax ID with with the property and several other things. And until you do those things, the customer will not pay you. So when I took over the business, like I said, I had 16 properties. I didn't know any of that. So I thought, oh beautiful, I'll immediately start receiving payments. And that's going to work right into my model, which predicted that I would immediately start receiving payments. Well, that wasn't the case. Then. I had to go through about a four to six week process with those 16 properties to get my insurance and everything to a place where they could start paying me, which is four to six weeks where I'm not collecting any money. And then I didn't take into account that a, some businesses don't pay, that some businesses take really long to pay. And so I had to cope with both of those things, which really put me in a cash flow pinch in the beginning few months of taking over the business. So I obviously figured it out. I got the insurance registered and went through compliance. And then another thing that I had to do was instead of waiting to be paid by mail by these customers, which usually takes 30 to 60 days, I switched a lot of them over to ACH payments, which takes about two weeks. And so after a little while it started to alleviate. But I was, that was scary for the first couple months there. So I just hope that anybody listening when you take over a new business really understand how the cash is going to flow into your business. Don't do your projections on an accrual basis, do them on a cash flow basis because you really need to understand when that cash is actually going to hit your bank account.

[53:17] Host: And is that something that you overlooked in due diligence? Like that information was there for you to discover in their financial materials or in asking the sellers? Like, I guess, yeah. Is there, is there some sort of standardized way that people can get this, get this addressed for themselves when they're doing their diligence?

Guest: Yeah, I mean, I think I did overlook it, unfortunately. I think the question to ask is Mr. Or Mrs. Seller, can you walk me through exactly, step by step, all of the things that need to take place in order for that cash to hit my bank account, you know, are there, are there licenses, are there credentialing processes? You know, how do your, how do your customers pay you? Typically by mail, by check, by credit card, by ach. How long does that take? That's a big one. How long does each of those methodologies take? What are your current process? How. How are your current customers paying you today? Are if. Are they all paying by credit card? Are they all paying by achieving. And that, that way you can start to model out exactly when that cash is going to hit your bank account. So we bought it for 590,000. The business obviously struggled in 2020, but in 2019, the revenue was 927,000, with about 327 of that being EBITDA for the business. So I bought it for just under a 2x multiple. And that was, you know, that was great. Especially because in the cleaning industry, usually you see 3x4x5x multiples.

[55:00] Host: Well, and so how were you able to negotiate that? Was it. Did it just come down to you happened to catch this couple who were tired and just really wanted to get out, essentially?

Guest: I think so. I think it was also because we were in a pandemic. So the revenue numbers that I just said were 2019 numbers, which was the best year that they'd ever had in their business. But the 2020 numbers, when I was going through the negotiation, they took March, April, May, and a little bit of June entirely off. So they wound up only doing about 600,000 at the end of the year in 2020. So if, like I said, they were betting that that was going to be life as usual from then on, and I was betting that it wouldn't be. So that's how I was able to get such a heavy discount on the business.

Host: But you were betting, I mean, you were making a pretty big bet that things were going to come back.

Guest: Yep.

Host: Yeah. Good. Good for you for not only making a gamble, but being right. It's the important part.

Guest: Yep, exactly.

Host: Okay, and so how have. What do the numbers look like now, a year later?

Guest: Yeah, so we just had our one year anniversary, January 11th, and happy to report that we did 1.1 million in revenue and 286 adjusted EBITDA after one year of business.

Host: Congratulations. And so that's 1.1 up from what, what had it been in 2019, which was the more representative year?

Guest: 9 27.

Host: 9 27. Awesome. So. And any sense of how 2022 will shape up?

Guest: I am. It's funny because I was just going over my 2022 plan with one of my mentors and I showed her my, my goals for the year and she was initially shocked and skeptical about it. But I'm going to try to double the business this year. And that does sound outrageous. But if you think about it, it's only, and if you look at the math, it's only adding two new properties that meet a certain criteria per month throughout the entire year, which is totally doable. For example, last year I started with about 16 customers in January and I ended up with 49 customers. So this year I'm going to try to get from about 49 customer properties to 71 properties. And that should put me about the $2.1 million revenue number. And if my spreadsheet isn't lying to me, that would put me around the 487EBITDA range.

[57:42] Host: And that number is that after paying you?

Guest: Yes.

Host: Yep, after paying. So you're taking a salary of some, I assume, six figure low six figure salary. Great. Well, congratulations. And so you had said that the market for your services is so large in Nashville alone, so you've got a lot of hunting to do there in your home market. Is this something that you could see taking to other cities? I know that that would mean all sorts of different infrastructure, but how do you envision this long term?

Guest: Yeah, well, you know, the beautiful thing about acquisitions is your second one. If you're doing a roll up, your second one is always going to be way more profitable than the first one because you're essentially cutting the fat off of the second one. And there's a huge overlap in how you run your business. For example, like, I wouldn't need to hire another office manager who does the scheduling. My current office manager could do the scheduling for both this existing business as well as the new business. So that's an expense that you would remove from the balance sheet of the, of the, of the new business. So it's totally in my one to two year plan to acquire another business and roll it up into this one. Whether that's going to be in Nashville or a different city, it's tbd. It's going to depend on what opportunities I find. I probably will start actively looking fairly soon. But in Nashville, you know, the market, the market is, is here for me and I can grow organically and be just fine and not do any acquisitions. And so that's certainly my main focus. But it also is a small, it's a small industry. Like I said, I don't have too Many serious competitors. So there aren't really too many companies for me to buy in Nashville. Yeah. But I'm sure there are a few hidden gems that if I come across them, I'm certainly going to try to make them an offer. But I am looking at Huntsville, Alabama. I'm planning on going down there in the next couple of months. That's a booming market. That's within like a two hour driving distance of me and a couple other cities that I'm interested in. Just because I'm interested in those cities, they seem like they would be fun cities. So I'll probably explore those as well. But you know, in terms of making an acquisition in another city, I would definitely have to be boots on the ground there for a little while to get things set up and be face to face with my customers and my workers and things like that. So it's a much bigger consideration to go to another city rather than to just buy a business that's already in Nashville.

[1:00:25] Host: Yeah. Yeah. You just talked about your people and I meant to ask earlier, so how many people do you have?

Guest: I have two full time employees and I have about 30 contractors.

Host: And the 30 contractors are the cleaning crews and the carpet cleaning and et cetera.

Guest: Yep. And one of them is a quality assurance technician and that the quality assurance

Host: person is actually also a contractor. They're not W2.

Guest: Correct.

Host: And so you just kind of pay everybody on a per job basis except for your two employees.

Guest: Yeah. And the keyword per job, I think that's the way to go versus an hourly rate. It's like it incentivizes them to. To work quickly and do a lot of jobs in a day rather than take their time with one job and rack up the hours.

Host: Yeah. Yep. One of the things that I've had a couple of guests on recently that are doing holding companies and thinking about acquisition, their careers as acquisitions. And they acquire one company and then another that's not necessarily related to the firm first. And over 10 or 30 years they build a portfolio of businesses that they've acquired but as a holding company, not as a roll up. So they're not just buying the same company and expanding a single business via acquisition. Just curious. For somebody who's just a recent acquirer and things seem to be going well after year one, sounds like you're thinking about things from a roll up in a kind of a roll up way that this is going to be your industry for a while. Did you think about, have you thought about doing a Holdco instead where you have this Great business in Nashville, in Nouveldis. But then you buy a different company in a different industry and work on that one for a couple years and then do it again and hop from thing to thing but retain ownership in all of them.

Guest: Yeah, I think eventually for sure. I think that's more of a mid to long term plan. I'm not married to this industry by any means, but for the short term, I think that I have just learned so much about how to run a good business in this sector that I think it would be foolish to not apply that to growing this through acquisitions.

Host: Yep. Great. Two personal questions for you, George, as we wrap up here. First is, how do you like Nashville? I guess maybe you can't be honest about that one, because if you really don't like Nashville, you don't want that showing up on the pot. What do you think of Nashville?

Guest: Everybody moves here and rent apartments.

Host: Yeah, right.

[1:03:00] Guest: Nashville is. This is my first time living in the South. So there's definitely a little bit of culture. I don't want to say shock, but cultural differences here.

Host: Yep.

Guest: The. On the negative side, look, I mean, I'm sorry, but I come from the New York City area. The food just doesn't hold a candle to what I'm used to. And, you know, a lot of it's fried food and stuff like that. So it's. That part's tough. I mean, I haven't had a good bagel or slice of pizza in probably a year.

Host: Oh, my God. That was the most New Yorker thing ever to say.

Guest: Yeah, I'm sorry. It is what it is. But there is. There is some good Southern cuisine that I've actually started to like there. My buddy owns a really good gumbo shop called the Gumbo Bros, which is right downtown. So if anybody's visiting, make sure you hit that up. Shout out to Adam. And I was lucky enough to actually find two really good friends who are both entrepreneurs in Nashville. They're my neighbors here. One owns the gumbo shop. The other one runs a business called Flick Me, which is essentially an LED light that you put on your back windshield that can either wave or flick off the car behind you. The three of us are small business owners, and we live in the same building, so it's been great to be able to experience Nashville. They're new to Nashville too, so we're kind of getting to know Nashville together. The. It's a really fun city. There's a ton of live music on Broadway. There's probably, at any given time, you know, 80 to 100 live bands, playing some great bars, and everybody seems to be down for a really good time. So I'm having a good time.

Host: Great. Last question. So you are a guy with B2B tech sales. That was what your career was up to this point, and now you're doing something very different. How do you like, how do you feel about it personally? It's quite a change.

Guest: Yeah, it's quite a change. You know, there's positives and negatives. I would, I would say on the positive side, you know, I would say that I was. When I was in B2B software, I was surrounded by and competing against really, really intelligent people, you know, with. With impressive backgrounds. I think in the industry that I'm in right now, that's not so much the case, which is a little bit of a competitive advantage for me. Yeah, I do miss some of the, you know, just being around smart people. I really enjoy that. So I don't really quite get to do that in my sector, which is why it's great to have two friends that are also small business owners. We're constantly talking about business, which is awesome. But I think that it's been a fun transition. I think I will eventually get back to technology. I'm even thinking of and designing some software systems that might make sense in this industry. So that might be the next play for me now. But I think it's been a really. I think it's been an easy transition for me because of the transfer of skill set that I'm bringing to the table, which is sales. That selling. Whether you're selling tech or selling cleaning services, there's still some fundamental principles and also there's some fundamental joy that I derive from now as an athlete. So it's almost like there's a scoreboard. So it's like either sell them or you don't sell them. It's pretty binary and pretty competitive. I'm competitive with myself, and so that part has certainly transferred and I've been enjoying that.

[1:06:44] Host: And what about 2008 George, who wanted to be on the winning end of the next crisis? Do you feel like you are that now?

Guest: I think 2008 George would be proud.

Host: Nice. Cool. George, how can people reach you online? What's the best. What's the best way to reach out?

Guest: You can. If you want to follow along my adventures in Nashville, you can hit me up on Instagram, George H. Fillone. You can send me an email to georgevalone.com or you can give me a follow on LinkedIn.

Host: Cool. And that's Valone. V A L L O N E. Yep, that's right. This has been great, George. Thanks a lot for coming on and sharing your story and your numbers.

Guest: Anytime. Well, thanks for having.

Host: Sa.