Host: James Bloom bought small the commercial H Vac business he acquired in 2019 was generating less than $400,000 of SDE and had only eight employees. It also had heavy customer concentration, with two clients representing a significant share of revenue. But James saw both of these features, the small size and the two big clients and as opportunities, not deal breakers. Being a quite small business meant that there was likely more Runway for growth, growth that James would be rewarded for. And the two clients were household names, which suggested that the company he was buying had the capacity to satisfy demanding customers. It was a signal that there was a really strong team at the business. Well, four years later and James Insights have delivered revenue has grown eight times to a projected $25 million by the end of 2023. And a large part of that growth was enabled by the high competence of the core team that James inherited. So this is a $25 million business that James acquired for just $785,000 just four years ago. Today's conversation is a deep dive into how he's done it. Enjoy this interview with James Bloom, owner of Excel Mechanical Contractors. 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. If you've ever been to an ETA conference at one of the business schools, you noticed it was mostly focused on traditional search funds. Well, the Self Funded Search association wants to address that bias this fall they are launching the first annual conference devoted to Self funded search the weekend of September 30th in Dallas. This is a not for profit event, meaning tickets are a very accessible 395 and that all proceeds are going just to cover expenses. The first day of the two day event will consist of panels with industry experts and successful searchers. I'll be moderating a couple of those. Day two will be filled with tactical sessions on everything from sourcing to raising capital, be it SBA or investors. And speaking of the sba, one of the keynote speakers is the president of Live Oak bank, the largest SBA lender in the country and and the largest lender to self funded searchers. For more information go to self fundedsearchconference.com self fundedsearchconference.com no hyphens or click the link in the notes. James Bloom welcome to Acquiring Minds. Thank you James. This is going to be a great story. You took a small, Quite small commercial H vac and plumbing business bought in 2019, really got rolling in 2020. So in about four years you've grown that small business into one on track to do north of 20 million in revenue, maybe 25 million in by the end of this year. 2023. We're going to hear basically how you have spent these last four years so effectively. Let's start with some background on you, please, James.

[3:41] Guest: Sure. So I spent most of my career in the corporate world. I started out out of college working for Lockheed Martin, went through their finance leadership development program, transitioned to a company in Pennsylvania called Air Products and Chemicals, where I spent time as essentially the finance lead for several different divisions within their chemical business. When Air Products split off their chemicals division, I ended up going with the electronics materials division, which became its own company called Versum Materials, moving out to Arizona to head up and run one of the, one of the three main divisions there. So I was running a $500 million specialty chemicals business, both from the finance side, really looking at what investments we would be making, what plant expansions we would be pursuing, what M and A activities we would be going after, and then also eventually moved into more of the business management side of that. So overseeing our operations in the US in Europe and then also in Taiwan and Korea.

Host: All this sounds like great experience to have to go off and now do what you've done. Is that, is that right?

Guest: I think it was. It's been very helpful. I mean, I was running, doing what I'm doing now. But for corporations, I think the big difference there is when you're doing it yourself, you're not playing with house money. Right. There's no unlimited bank account that a corporation might have. And also, you know, I'm doing a broader role where I'm having to manage the HR side of things, recruiting people. Before there were hundreds of people doing those things for me, where now there's a very small team or even myself, you know, directly involved in those things. So I would say, although I had very in depth business experience and certainly the M and A side of things that I was looking at before helped with the initial acquisition. Being in a small business really requires you to focus on many, many things that may have been done by other functions in a corporation.

[6:00] Host: Okay, okay, great. Well that's great. That's great clarification. I'm sure this will be a theme as we go along, but please pick up where you were. I think you're now in Arizona.

Guest: Yes. So after being in Arizona for a couple years, really more family changes, mainly being my second son coming along kind of drove us to want to come back to the east coast at that time, you know, it always, it had always been my goal and my dream to own my own company, run my own business. And so at that time, you know, I had the conversation with my wife that if we come back, I don't want to come back working for someone else. I want to go and try to do something on my own. And that's when I really started looking for business to acquire.

Host: Great. And so you had had an entrepreneurial instinct, but had never really capitalized on it, and you decided to now. And why in the form of buying a business and not starting one from scratch? Because typically when we think of entrepreneurs these days, we think of people starting businesses from scratch. But you appear to understand that you could go buy one, which is not something that a lot of people realize.

Guest: I think the biggest driver there was having a young family and having a steady paycheck right In a business environment. I didn't have the financial ability to just say, okay, well I'm going to go and start something where I potentially might not be paying myself a salary for several years. So going out and finding an existing business that had cash flow, you know, coming in, had existing customers, was very attractive to me because I was able to go out and do my own thing, but also still, you know, be able to pay myself a salary. So that way my family was still able to continue living kind of the lifestyle that they were used to. And I was able to support, you know, a family that at that time was a wife and, and two kids. Now we have a third. So just going to a situation where it was potentially, you know, zero income for some period of time wasn't something that I thought I could handle.

Host: And you had M and A experience, deep M and A experience, it sounds like. So you knew that, of course you knew that businesses were bought and sold, but you understood that individuals also, that kind of first time entrepreneurs could go out there and buy a business. You just kind of instinctively knew that or you'd, you'd heard about that.

Guest: I don't think I've ever heard of that. I didn't really know anyone else who had gone down this path. It was something that I started doing research on, you know, through some of the websites that are out there. BizBuySell is actually where I ended up finding this business. But doing a lot of research on those types of sites to see what was out there, understanding the SBA support that's out there for first time business buyers or someone like myself in that position, and then you know, found out that it was possible that there were businesses out there for sale that were established. And then at that point it was really just trying to find the right one.

[9:15] Host: Well, I love that, James, because a lot of my listeners, probably almost all, I guess all of my listeners by definition, are consuming content around buying a business. And there are a lot of sources of that content these days, like this podcast and others, like a couple, a handful of books, a couple in particular that people cite over and over as having kind of opened their eyes and expose them to this world. And so you were, you're really kind of self taught. I mean, we're all self taught to a degree. We don't go to school for this necessarily unless we have an mba. But, but you really were kind of just cruising website to figure this out. I mean, I don't, I don't mean to diminish it, but you, you know, you, you weren't right reading a book, you weren't listening to other people's stories. That's, that's unusual. It's unusual today, probably in the past. That's probably how everybody did it. But I digress. Okay, so you guys are going to move back to Pennsylvania. You want to be an entrepreneur. This is the moment. You want to not start something from scratch because you need to support a young family and have kind of income from day one. So you, you're googling around, you hit upon biz, buy, sell, and you are looking for, do you have kind of parameters for what you, what you want to buy on biz by sell? What are your filters look like or you. Or is it more geographic? It's like anywhere. Yeah. Tell us what your criteria were.

Guest: So the big things were geographic, a certain cash flow that I was looking for and a business that I viewed at least as something that is not going to go away anytime soon. Right. So everyone has air conditioning, everyone has plumbing. I was looking at service type businesses like that that are going to be somewhat recession proof and, you know, nothing is without risk, but not as risky as something that may be a trend or a fad that would be, you know, a very good business for a short period of time and then in a year or two, gone. Right. Yeah, I was looking for businesses that have been around for a long time that showed a certain track record of performance and also in an industry that I at least viewed as, as, you know, sustainable.

Host: Those sound like, those are all very familiar to me and to this audience. What was your geographical constraint? Where were you guys going to move?

Guest: So our Family is all in Allentown, Pennsylvania, so we wanted to be within some reasonable drive of there. And we settled just north of Baltimore.

Host: And what kind of cash flow did it need to have?

Guest: I wanted to at least be able to pay myself 100,000 and then, you know, with. With a cash flow that could support the business on top of that. So I was looking in the 200 to 300,000 range of cash flow.

[12:12] Host: Okay, so 2 to 300,000 in SDE so that you could then, after paying debt service, having money to reinvest in the business, pay yourself 100,000 minimum, and somewhere in the geography, like reachable distance to Allentown, Pennsylvania, and enduringly profitable. So what did you find?

Guest: I found a lot of different businesses. So I probably looked at, I would say, 20 different businesses along the way, you know, varying service businesses. I did want to lean towards mechanical from some of my experience working on plant expansions in more of the industrial capacity. So I did like that particular business. But I was looking at just about anything that I saw that looked like on paper it had the right cash flow and the right, you know, the right number of years of ongoing business. The biggest challenge I had, looking at businesses, I think, you know, you're always asking for tax returns and financials. Often those things look very, very different. Especially with the sba, you need those two things to align fairly close, which this business did have, you know, tax returns that were at least supported by their internal financials. So I pushed the owners of any business that I was seriously looking at to provide me with their internal financials. And ultimately with this business, once we had an alloy in place, you know, really getting hold of their. Their QuickBooks access and being able to dig through and do my own analysis to make sure that things were actually what, you know, what they looked like on paper. But that was. That was a challenge going through with several of the other businesses that I came across. You know, the tax returns looked awful, the internal financials looked fantastic, and it was hard to get a great story on why there was such a gap. And especially with the sba, that's something they're going to look into as well. And they, you know, they want to feel comfortable that what is showing up in the internal financials, if that's what the valuation is based on, which it typically is, you know, that. That the numbers hold together. So I think with my M and A background, that was one thing that I was able to dig through and validate myself. That was really important early on.

Host: Yeah. And so for these businesses where you just couldn't close that discrepancy. Do you think that the business owners had been a little bit shady or that they just couldn't. I don't know that there was some other explanation. It was just messy books and something,

[15:01] Guest: I think messy books to some extent. And a lot of people were trying to sell a valuation based on one year, not so much on a trend. I wanted to see something that was, you know, three years on average supporting what the selling price was. A lot of them would have, you know, one great year, one terrible year and then another okay year and they would want to try to base all the valuation on that one really good year. Sure that that was a challenge with several of them.

Host: It sounds like you're doing your own due diligence then. Did you, did you work with any third party diligence providers or was it just all you?

Guest: This was just all me. There was a valuation that was required by the SBA as well. So in theory someone else was also looking at the financials and at least coming up with what they thought the valuation of the business should be. So that gave a little bit of extra comfort. But that had been one of my roles for several years in the business world is looking at know large multinational companies and doing essentially the same thing I was doing on a much smaller scale.

Host: I want to share an update on the Acquisition Lab. As you know, the Lab is a highly vetted cohort based accelerator and community for people serious about buying a business. After going through the Lab's month long intensive, you have ongoing access to almost daily Q and A sessions with advisors, regular live deal reviews with Walker Deibel, author of Buy, Then Build Potential Deal team introductions and a very active Slack group with other searchers on the path. Well, the update is that the Lab recently passed 60 businesses acquired and for well over $100 million in aggregate transaction value. Also, all members now enjoy lifetime access to the Lab because when you buy a business, it's often just the first of many and the Lab wants to support you in every deal, not just your first. Lastly, check out my recent interview with Shane Ursum, episode 105. Shane acquired a business with over $1 million in EBITDA in just six months. And he attributes a lot of his deal success to what he learned in the lab. Check out acquisitionlab.com or email the lab's director, Chelsea Wood chelseieveenbuild.com and just give people a picture. It's not something I've asked before. What does it look like to Just pour through the quickbooks of a business. I mean, is that essentially what it is? I mean, you're just going line by line by line for the past 36 months? Is that kind of what it looks like?

Guest: Mainly. So what I did was I looked at the sales by customer to understand, you know, how many customers do they have? Where is the revenue coming from? Is it all, you know, are all the eggs in one basket? Is there some diversification, some protection there, especially coming in to a new business and taking over those relationships from, from an existing owner. One of my concerns was losing large accounts just because of the relationship was with the owner. So that was one thing I wanted to vet early on also, really just trying to look at the expenses, trying to understand on those things that are being added back for the sde, you know, how, how realistic are they? Are they really owner expenses, or are they other expenses that are, you know, that they're trying to classify as owner expenses? I think that's something I spent a lot of time really trying to make sure that, that those add backs were valid.

[18:38] Host: All right, James, well, so tell us about the business that you found, liked, and acquired.

Guest: So I ended up finding Excel Mechanical Contractors. The company had been around for almost 10 years. At the point when I was coming in, I had noticed a trend that the business had started out small as, as they do about four years in. They brought on some nice accounts and grew the business, you know, up to about just shy of 3 million. But at that point, they had stayed pretty much at that level for four or five years. And really there was no growth after that. So that was something that early on, I, I tried to understand why that was the case. After talking with the owner a little bit more, you know, I understood that that was really his strategy was to grow the business to a level that he, he liked, he was comfortable with, and his goal was to keep it there and ultimately exit the business and go into retirement. So I, I liked that the business had established some really credible customers, some, some very good accounts, and had showed success over, you know, four or five years with those accounts, keeping them and growing those accounts, but also seeing that if they were able to do that with those types of accounts, there's likely growth potential, you know, to continue to add on accounts like that, or they had just not really been pursuing that. So I saw the company had a strong track record in a attractive industry, and there was definitely growth there that was possible, but really hadn't been tapped into.

Host: Yeah, you know, if I'm the seller of a business that's not growing. And I wish it would grow, but it's not. You know, what I might tell my prospective buyer is, oh, I just haven't pursued growth. You know, how do you, how do you trust that, that reason? How, how did you, you know, punch through any skepticism you might have had about his answer that there, that there wasn't growth?

Guest: So I think it was really seeing the types of customers. So they were able to bring on a regional account with JCPenney. They were able to bring on a regional account with Walgreens. Those are, those are pretty major accounts. Those are customers that are not easy to satisfy. And you have to have a level of performance to be able to satisfy that type of account. So being able to see that they were able to bring those types of customers on and maintain those didn't necessarily give me comfort that they weren't trying to grow and couldn't, but that there was enough performance there and enough customer service there to satisfy those types of accounts. And I didn't see it as a far stretch to be able to bring on additional accounts like that if they were able to perform on the accounts that they had.

[21:48] Host: Well, one thing that you said when about your own due diligence process was that what you, one of the things you were trying to sniff out was whether or not there was essentially customer concentration, like customers that were, that represented a lot of the sales. And sure enough, there are two Walgreens and J.C. penney. So on the one hand, what you just said, it's very positive that this business was able to land and keep satisfied and even grow the, the, the, the revenue sales from these customers. But on the other hand, they represented a pretty good chunk of the business's entire sales. Right. So.

Guest: Yes.

Host: How did you. So you were just, were you just willing to overlook it, figuring you'd grow out of that customer concentration?

Guest: Yeah, to some. To some extent. So that was the one thing coming into this particular business that made me less comfortable and one of the things I knew I needed to address as soon as possible coming in. So they did have other customers that were strong customers and had a fair percentage of the revenue coming from those other customers, but they were concentrated in those two large accounts, which I, I did view as, as a risk going in. Um, so again, for me, it was more the, the demonstration that they were able to operate at that level with those types of customers that made me comfortable. And also along with some of those customers, they were branching out into other customers that, that were essentially related to Them. So they started breaking into work with the Smithsonian, and I was seeing that continue to grow. And there were some other customers that they had developed relationships with through those two accounts, and those were starting to grow as well. So although it was highly concentrated, I did see a path that they were on to starting to branch out to some other customers. But, yes, going into this, that was by far the largest risk.

[24:04] Host: And did you. Well, I'll get to that in a second. I'm going to ask if you. How. How you tried to mitigate that risk, if, if at all formally, in, in the structure of the deal. On the structure of the deal, can you, can you give us some. Some numbers? Again, you said the business was at about $3 million in revenue. Can you tell us what your deal looked like? Numbers.

Guest: So the purchase price was 785,000, which I mainly financed through the SBA. The prior owner held 10% in a note for 10 years. That was something that I wanted. And also the SBA was requiring. And then along with that deal, I also secured a $125,000 line of credit with the SBA just to have some of that working capital in the business. It was an equity sale, but it was structured similar to an asset sale. The prior owner, basically, we snapped a line on the sale date, and any work in progress, ar and prior was the owners. Anything that was generated after was, was mine. So he took basically the arap. That was before the sale. Anything else that booked after that fact was, was staying with the company. So there was cash flow generating from day one, but we also had that line of credit there to cover the gap, basically, as we started ramping up our cash inflow.

Host: And so 785, that's kind of the top line number, purchase price. So what, what multiple did that represent? Another way of asking what. What was the ste of this business?

Guest: It was about. About it between a 2 and a 2, 5 multiple.

Host: Oh.

Guest: And so I jumped on this pretty quickly because I thought that valuation was fair, if not undervalued. The SBA's appraiser came back at about 1, 3, 5. So they, you know, kind of helped me get more comfortable with my assessment that the business was undervalued. And so coming into it, there was, you know, there was equity in the business, at least from their perspective from day one, because of the selling price

Host: and that $1.35 million value valuation. The seller sees that, too.

Guest: He does not see that.

Host: The seller does not see that.

Guest: Okay, yeah, he did not see that. He. We did Talk about it after the fact. And he, he said, I left some money on the table, I guess, but, I mean, we had a pretty close relationship. We spent a lot of time together over, I guess it was about a year of, you know, from when we started talking to when we closed, that got excited, extended by about three months, because right when we were about to close and the SBA was essentially ready to sign the paperwork, that was when the government shut down for several months. So I had quit my job in Arizona, came back to the east in November, and the deal didn't close until February because that's how long it took for the government to open back up. But so, I mean, that was uncomfortable at that time, but it was also good because I got a lot of time to spend talking with the prior owner and getting to meet the vice president, getting to meet the head of the service division, and really starting to better understand the business and really understand the capabilities of the company, which was, that was really a good thing in hindsight.

[27:55] Host: But even though he, Going back to the valuation and purchase price, even though he eventually learned that, sorry, it was the SBA did their own valuation for their own sense of comfort, and they came back with 1.35. And so, and I, I, I should know this. I guess that is part of the SBA's process. So all buyers will, when working with the SBA, the SBA will do evaluation. The buyer will be made aware of what that number came back at, but the seller is not correct.

Guest: Okay, yes, that's my understanding that they always want to have that valuation just for their own sake, to make sure that, you know, what, what they're funding is actually worth what, what you're paying for it.

Host: Yeah, right, sure, of course. And so, but he was still his multiple. Even at 785, the number that you bought it at was still two, two, two and a half of ste. So that's a still, you know, if we use kind of three as a, as a very rough rule of thumb, average, that's still pretty low. Even what he was choosing to sell at.

Guest: Right? Yeah. I think he had been given some advice from a broker that he had always thought was probably too low, but ultimately he followed that broker's advice, and I think he, he wished later on that he had set it for a higher price, but he followed along with their advice, and I certainly think it was undervalued, and the SBA did as well.

Host: So at 2.2.5, then. So the SDE was somewhere in the 300s. Is that math, right?

Guest: Yep, that's right.

Host: Okay, so back to the customer concentration, risk. Did you put anything in the contract in your terms to help mitigate that risk? Or, or did you, especially now that you had those, those three months of downtime after, you know, after. When the government shut down, did you, like, demand or request a formal introduction to Walgreens and JCPenney? How did, did you deal with that before you took ownership of the business in any way?

[30:08] Guest: Yeah, so the main way was just making sure that the contracts were in place, that there were no restrictions on ownership transfer. Once I found out that there were contracts in place that would carry us through at least until the transition happened, that gave me a level of comfort that the customers would have the ability to see the, that although ownership was changing, the company was remaining the same and be able to build that level of comfort with the customers before contractually they could have ended things, gave me a level of comfort. I was confident knowing that the team had been in place, the owner really had kind of stepped back and was allowing the two people I had mentioned before to really run the day to day operations. So the relationship was really more with the company and with those people than it was with the owner. And that was my biggest concern, that, you know, I didn't want to step into something where, you know, this was the owner's cousin or something working, you know, for the customer. And that's the whole reason they had the contract. I was, I was confident that if we had enough Runway on the contracts that they would be able to see, okay, well, nothing has changed. Right. The service level that we're receiving is the same. The people that we're receiving it from are the same. The only thing that's different is the person who, you know, is running things is different. Right. And coming in, I think, you know, right away we set up meetings with these customers to go to them face to face and explain what was happening, assure them that things were not going to change. And if anything, I would be more actively involved in what was going on with their accounts than the prior owner had been. And I think they really liked that. And ultimately, you know, they liked the transition and there were no issues there. We did end up losing the Walgreens account later on, but it had nothing to do with the transition of ownership or anything like that. It was more a corporate decision on how they were going to manage contracts nationally versus regionally.

Host: We'll probably want to revisit that when we get to that point in the story before we proceed. James. So Give us a picture. So Mechanical H Vac and Plumbing, two big customers you've named Walgreens and JCPenney. So just paint a picture for us of exactly what the work, the service that you're delivering is. Is it basically doing the H vac and plumbing for a new Walgreens and a new J.C. penney or an existing J.C. penney? Because I don't think they're opening new ones.

[33:03] Guest: Yeah, so please. It was all existing work. So we didn't do any new construction at all right when I first came in. So basically what, what we were doing was contracts to maintain the equipment that that was in each of the stores and then any troubleshooting or repair work that came, you know that anything that happened, if something broke or if they were having an issue with any piece of equipment there on site, you know, they would call us directly, we would go out, troubleshoot, make recommendations and repair any of the equipment that was there. So that was primarily what we were doing for those accounts. If there were, we weren't getting involved in new work per se. But on the Walgreens accounts, they had had some stores that were new, they had other contractors do the installs and they were not done properly. So they did then contract Excel to come out and make the repairs or make the corrections to the installs on any of the new stores. So we weren't installing the equipment first time, but we were going back and fixing anything that was done incorrectly or if there were system issues.

Host: Well, and that raises a question in my mind initially, how was your seller able to get these accounts in in the first place? Because I would imagine that when the JCPenney location was built, the Walgreens locations were built. They there's a construction H Vac and plumbing contractor, and that H Vac and plumbing contractor hopes and expects that they'll also then service those locations and it will become a recurring service based relationship, not just the one off construction. And in fact, that's a pretty common playbook for, for businesses who go after construction revenue hoping, hoping and expecting that they'll also parlay that into recurring service revenue. So how, how was Excel, your former owner, how was he able to get these contracts out of the hands of the original construction H Vac and plumbing businesses that did the work in the first place.

Guest: So the J.C. penney account CBRE manages all of their facilities entirely and Excel was in a building working on something else. They had a, a big problem that the original contractor either couldn't fix, couldn't figure out what was going on or they weren't able to respond in time. And they just actually came to Excel when they were in the same building and said, hey, can you guys help us with this? Our team was able to look at that and fix those issues that the other contractor was not able to fix. From there, they continued to use Excel because they saw that we had the capabilities to troubleshoot and fix system issues that some of the other contractors were not able to do. And that person then helped them actually grow into the Walgreens account as well, because they had worked there before as a regional manager. And they said, hey, we have this company that is really, really good. You know, they are able to fix issues that people have been working on for a long time and could not fix. So that was. It was mainly word of mouth that then spread Excel from Walgreens to JCPenney and then into some other accounts as well. Once you get that good reputation going, it's interesting to see how that permeates the market and people start to find out about you, even when you're not really advertising, which this company never really was.

[36:56] Host: Well, I know that that's also a theme that we are going to get to, about how much. How you've grown since you've taken ownership. And I want to circle back. Well, actually, before we get off of this, what the services that you. That Excel provides. Forgive such a basic question. So does mechanical H Vac and plumbing. Is that essentially the same thing as commercial hv H Vac and plumbing?

Guest: So mechanical and H Vac are typically interchangeable. And there's residential levels of H Vac, there's residential levels of plumbing. Really, the distinction that we make is, you know, is it going to one single individual's home and doing the work, or are you working with a business? So our customers, we focus on business to business. We don't go out to someone's home in their residence and do any work there. And part of that is that's just the market we focused on. And part of that is also the fact that we're a union, so our rates tend to be higher. We have more overhead than a residential company, which may have. It may just be one person in a vehicle, it may be three people driving around in vehicles. Their overhead is extremely low. Their rates tend to be much lower because there's no requirement on what they have to pay, like we have being in union. But so commercial is just anything that if you're working with a company, if you're working with the federal government, you know, we may call that commercial or institutional, but those are the markets that we focus on specifically because that's where we, we see that we're able to compete on price.

Host: Yeah. Okay, so commercial, mechanical, government, these are all kind of interchangeable. Well, government means, means something specific, but they're mechanical and commercial kind of interchangeable. And to contrast with not residential, not the consumer.

Guest: Great, Right, correct.

Host: One, One point I want to circle back to as well. What you did when you came in as owner and went and had a meeting with Walgreens and, you know, demonstrated that you were going to be, frankly, more active in the business and more aggressive with the business than the previous owner had been. We saw on this podcast so often the concern is with the buyer is about, okay, I'm going to buy this business. It's going to be very disruptive. I'm going to come in on day one and the employees are all going to freak out because, you know, there's a new owner in town and all the change and nobody likes change. And that is not that that's a real thing. That is a pattern that happens over and over and over. So I'm not, I'm not sure that you can change the, the day one jitters that employees feel when you come in as a new buyer. But, you know, if you have a seller who's not aggressive about their business because they're approaching retirement, whatever, they're just not that growth oriented and they're a little bit rest on their laurels. You know, there's a strong argument that you, as new, young buyer can come in and say, hey, I'm here to make things better. I'm here to, you know, infuse some new energy into this place. Of course, you have to be super delicate. You can't criticize the seller, but. And maybe you're not criticizing the seller. It's just going to be a different. It's just going to feel different at the business. Different doesn't necessarily mean better. I just think that we have as, as buyers, people listening to this podcast, we have this notion that, like, oh, you know, me coming in as new owner is going to be treated as bad news. And let's just, let's just like, remind ourselves that we're coming in with new energy, new ideas, and that's an opportunity to get people really excited about new leadership. And so I think you maybe saw that from your customers from Walgreens. I'll stop there, but maybe you want to react to that.

[40:53] Guest: James, I tried to make changes gradually. When I came in, my message to the employees. On day one, we pulled everyone together was, I am purchasing this company not because I want to change it, but because I saw it as a good company, high performing company. I don't, I think that you guys are doing great things and I'm not here to change that. I'm here to help that continue to grow. I made it very clear that the people that were there, the processes they had in place, I thought they were very, you know, they were very effective and clearly they had demonstrated a track record that, that showed that was the case. I, I said the same things to the customers. You know, I'm here. I, I believe that this company is doing really, really good things. I don't want to change that. I want to make improvements upon that. But what made us successful in the past is not going to change. You know, we're going to give you the same level of service, if not better. And employee wise, we're going to treat you the way you've enjoyed being treated by the previous ownership, if not better. I want to build on the base that you've created, not destroy that. It doesn't, it doesn't help me, it doesn't help anyone to destroy all the good things you've been doing that have made this company successful. We need to just add on to those things and continue to build on that so we can grow and do something more. I think that was something that really made a lot of people more comfortable seeing that I wasn't there to slash all of our overhead or all of the people that we had, you know, those are the things that made the company what they, what they had become. I don't want to start from scratch. I want to take what's there, what's good, and continue to build on that, you know, make improvements along the way. So I think, you know, showing everyone that I liked what they were doing and I wanted to keep it that way and getting very involved, whether it be, you know, just telling everyone, hey, if you need to talk to somebody, you know, if you are a first year apprentice or the most senior person here, you can, you can come to me and talk to me. I will try to help make this thing better. Same thing with the customers, showing them when they're responding to emails, if there's an issue, encouraging them to come to me, that if I see something that is not going well, I want to address it, I want to make it better and I want to be extremely responsive to your needs. That really went, that went a long way early on to show them that, hey, this guy's serious about keeping our relationship strong and making it even better going forward. And I think those things were critical coming into basic to both make the employees and the customers very comfortable that things were going to at least continue to go as well as they had before, if not get better.

[44:09] Host: And what was your sense of how receptive people were to that? I'm sure you had to prove out you were making a promise and you had to prove it out. And after months of proving it out, people were embraced you with open arms. But for the audience thinking about their day one speech, do you feel like people left the room, as it were, wherever you, Wherever you delivered this message, however you delivered this message, do you think it landed well?

Guest: I think so. I had a lot of people, you know, come up afterwards and say, oh, you know, I'm really, really happy.

Host: You.

Guest: You made us a lot more comfortable knowing that you like what's going on here and that things really aren't going to change a lot. They did appreciate that. It made them a lot more comfortable. And doing it in person with them, I think was. Was really critical, you know, spending time afterwards, talking with them, getting to know them, you know, on a person, more personal level, rather than just being, hey, here's the new guy coming in. We don't know anything about him. You know, just showing them, hey, I'm. I'm a. I'm a person too, you know, I just want to come in here and. And be a team player and work with you guys and make this thing, you know, as best as it can be. I think they really appreciated that

[45:25] Host: awesome chips. You had touched on the fact that, you know, part of the reason that your seller wasn't super active in the business is because he actually had two kind of a man, a thin management layer of two. Two people. Right? So just give us a quick picture of that.

Guest: So at that time, it was. It was just a service business. I think there was only maybe about eight people. We had Dave, who was the, really, the technical side of things. He was overseeing the service work that was being done, making sure it was being done correctly, making sure that the right people were on the right jobs. And then you had Debbie, who is the operations manager on the service side, making sure that customers were taken care of, that their concerns were being addressed, that we were having people scheduled properly. You know, they're showing up when they're supposed to show up. The work that's being done is understood by the tech who's going there. And then the work that was completed, was understood by us and communicated back to the customer properly. So really those people had the service side of the business under control. The customer relationships were very strong with them. They trusted that what Dave said was an issue and needed to be addressed, was addressed and was addressed properly. And that when we said we were going to have people on site taking care of their needs, they were going to be there and they were going to get it done and we were going to communicate back to the customer what exactly had been done and ultimately what they're paying for.

Host: You know, James, the, your criteria going back to that was you said you wanted, what did you say? 2 to 300,000 in ste. And happily you got something with north of 300,000 ste. Did you think, when you were about your criteria, did you think about whether or not you wanted any kind of management layer? Because that's, that's a happy. A happy. Surprised to find that there are actually, you know, there is some level of management there because otherwise you get in there and you are doing, I mean, it all falls on you. So did, did you think about that in advance or were you just kind of pleased to find it once you found this business?

Guest: So that was, that was a consideration? Definitely. I was looking for an owner who had either removed himself entirely or had stepped back and had people in place to make sure that the business was running properly. Especially coming into a business where I, I didn't really have experience in mechanical. I mean, I had project managed some plan expansions and things like that, but I wasn't familiar with how to do the work per se. Right. Or how to run a service, a mechanical and plumbing service business. So having those people in place that knew the technical side of the business and had those customer relationships again that weren't directly tied to the owner and that the owner was the only one that had these relationships was something that I looked for early on. I didn't want to walk into something where everyone was going to come to me and ask me how to do their job technically in the field because I certainly would not have known how to guide them in that way. And I did not want a business where the owner was the one talking to the customer every single day that when that person was gone, that customer was going to feel very uncomfortable that they no longer had someone to go to with their needs and with their technical questions. So knowing that those people were in place early on was something that really drew me to this business. And then as I progressed through the due diligence, really understanding what those People did and just how good it. What they were doing, they were really, you know, added to my level of comfort.

[49:26] Host: One of the things that we talk about a lot on this podcast is size of business to. To buy. And if there is a. If there is a right answer to that, a best practice. And many will strenuously argue that you should buy as big as possible and not buy, quote, unquote, small, not buy small. And 300,000 or 2 to 300,000 SDE would be considered small. You, again, you were, you were just, you were over 300, but you also had kind of a management layer. So, so one of the things to consider is not strictly look at the STE number, but look at the STE number and then, and then say, are there managers there? Because a $300,000 business where there's no managers and everything is on the owner is very different than a $300,000 business where there are actually two managers in place. Which is, which was your case. Did you think about. We already know that you wanted $100,000 salary for yourself and the business needed to afford that, but did you think any. Any other thoughts around the size of business? I mean, would you have sprung if you had found it for $1 million business, for example?

Guest: I would have, but I was really looking for something that I could grow and something that. It looked like the overhead structure was there, the administrative structure was there to support growth, at least in the short term. So some, you know, one of my goals was always to find something a little bit smaller that could grow into something bigger and ultimately add more value that way. Um, I think, you know, if you buy a big business, yes, you're going to have that nice ste value coming in. You're also going to pay a higher price. And is the growth really possible there? Or has that company already grown into whatever their niche is and, you know, they're already at the top end. I was looking for something that, that I could expand the size and, and ultimately the profit of the business. So to, to gain more value throughout the years as opposed to just maintaining that, you know, million dollar sde. I wanted to grow up to something, you know, along those lines or greater.

[51:42] Host: Yeah. Yeah. Well, that, that's great, James. And that, that is an argument many have said about buying on the smaller side. There's probably a lot more room to grow there, a lot, a lot higher ceiling there. And you know, looking strictly at numbers with, if you can indeed grow it and you get in at a much lower entry price, then in terms of your own kind of return on, on cash invested can look that much more interesting, which is certainly the case in your, certainly the case here. James, actually remind tell folks how much cash you have in the business in total

Guest: so far I've probably put in about 300, 350,000.

Host: And how does that break down?

Guest: So it was about 100,000 for the initial when I purchased the business, that's how much I actually put in and I used the SBA loan for the rest. And then since then I've put more. I've put about 250 in as we just continued to grow.

Host: And so you've come out of pocket to fuel fund growth at times, correct?

Guest: Yeah, early on, I mean when we went from, you know, under three to four to eight, you know, 13 or 14 last year and now up to 25, I've funded some of that myself, which was fine because I've really hadn't put much in up to that point. Everything had been through the SBA and through the line of credit that we secured with the sba and I had put, you know, relatively small amount in upfront.

Host: Yeah, but I am still, I am curious why come out of pocket for those additional infusions and not, you know, if the business is, I mean, and not secure financing elsewhere from your bank, for example, a larger line of credit, a new line of credit.

Guest: So we are doing that now. I think there's challenges in buying a business at first. Banks want to see a certain number of years of you managing the business, of you being self employed before they're really willing to entertain much in the way of lines of credit or other funding. I probably would have look to get a bigger line of credit from the SBA initially. Had I known that we were going to be able to grow like we have, We've certainly gone above my expectations when we broke into the construction market and things have really taken off there. So I didn't really want to bring additional debt in per se. And you know, there were some challenges up front just talking to banks on, hey, you know, I've owned this business for a year and a half. Let's, can we, can we talk about a line of credit? They're like, ah, let's, you know, let's give it another year or so, let's see the financials. And then with the ups and downs of COVID that we ran into not long after buying the business, a lot of banks were less willing, I think, to, to put money out there. I think they wanted to see how things were going to play out Going through Covid a lot as well.

[55:11] Host: Yeah, for sure. Yeah. Another recent guest talked about exactly that, that it was hard for him to get a line of credit after he took over the business, and the growth opportunities were. Were more than he anticipated. And so he went to banks looking for credit to. To enjoy that growth. And. And they said, well, you've.

Guest: You're.

Host: He had done an asset deal, so the entity was too young. And maybe also they were just judging his kind of his own tenures is too short to give them comfort. So a reminder that getting. Getting access to credit as a new buyer recently in the business can be difficult. James, I want to. I want to get to all the growth that you've done, but I still have just a couple questions that I think people will be interested in before we do the. You. I. One big thing I heard you say that I needed to circle back on was not an asset deal. This was not an asset purchase.

Guest: That's correct. Yeah. It was an equity purchase. And mainly that was to ensure that the contracts that were in place, you know, nothing happened there. We didn't want to have to change legal entities or do anything like that. That may rock the boat on some of those larger contracts.

Host: And so obviously, the calculation there was that the risk of an equity deal, meaning that there could be some liability that surfaces that bites you in the butt. The risk of that was less than the risk of losing these very important customers.

Guest: That was my opinion at the time. Yeah. I think had we lost those large contracts, you know, right out of the gate because of something like that, the business really wouldn't have been worth anything or, you know, very, very little less, certainly less than what I ended up paying for it. Where doing the equity deal, maintaining the entity track record, the, you know, the same entity that those contracts were already in place with. We didn't need to reopen anything that could potentially cause us to lose those contracts. And for me, that was something. Knowing that some of those contracts were such a large portion of the revenue, that was a risk that I didn't really feel like I could take. If they went away, I wasn't confident that we would be able to instantly go back out and replace that. Mm. Mm.

[57:38] Host: And has it been fine to have done an equity deal, or has there been anything that came back to bite you?

Guest: There really hasn't been anything that's been an issue with that. The company, I mean, we did. I did our. My research on any filings, and certainly that was part of all the disclosure schedules that we had in the contract. I think having a, having a good lawyer on your side when you're structuring the contract, when you're structuring the deal is really important. So that way you're covered in any instances where there is something that's not disclosed. But we, we had not run into any issues with that.

Host: Two personal questions for you, James. First. So two kids, now three. I, I don't ask this question. I shouldn't.

Guest: More.

Host: What was the conversation like with your partner, your wife, about what this, this new life, this new professional life of yours was going to look like? Because I imagine that you were anticipating spending many, many hours in the business during the transition, that you were maybe going to be home less. You'll tell, you'll correct me if I'm wrong. And so, you know, she's signing up for something here too. Maybe, you know, maybe less James at home. So just talk us through that because that's a, that's a huge piece of this. I need to, I need to be asking this more.

Guest: So she, she was pretty understanding. I think a lot of that came from the fact that I was already working about as many hours as a human can in my, in my previous roles. So from, from that aspect, how many

Host: hours is that, That a human can. How many is that?

Guest: Over 100 a week, for sure. I mean. Oh, you're kidding.

Host: You were working 100 hours a week?

Guest: Yeah, I would say not, not every week, but often. So I was running. I had employees in the US in Europe and in Asia. So, you know, I would work, I'd go to work very early, I would go to leave and I'd start getting phone calls from Europe. I would get home and, you know, I'm trying to go to sleep at night or have family time and I'm getting phone calls from Asia or I'm on Conference calls at 11 o' clock at night, 12 o' clock at night, 4 o' clock in the morning. So I think if anything, my work life balance has stayed about the same. Maybe it's actually improved slightly. I don't know that that will be the case for everyone. I certainly work a lot of hours now and very much so in the beginning. But for us, that wasn't anything new. She was supportive of. It was something I wanted to do and she knew that I was making a compromise moving back for her personally. So I think, you know, there was some compromise there. It was, it was a little bit of give and take. It's been, you know, there's been stressful times. It's very different when you, it's when the business and your personal is very much tied together and the success of you personally is very much tied to the success of the business. Where if you're in a, you know, you're working for somebody else, that's not necessarily the case. Right. You can, you know, if things go poorly, you go somewhere else and get another job. If things go poorly in your business, you know that that could mean a lot of very bad things for, for yourself, personal. Personally, I think that's been probably the biggest, you know, the biggest thing to get accustomed to and, and for her to get accustomed to that, hey, you know, this business is us, right? Although it's a separate entity, our assets are tied to this business, our financial health is tied to this business and everyone else can leave, but I can't. Right? I am this business, we are this business. So I think having her start to understand that a little bit more

[1:01:46] Host: then

Guest: she understands why, you know, I may have to put in some extra hours here or there to make sure things are, are going well or that we're, you know, we're overseeing things properly.

Host: How many hours a week would you say you're working on average now?

Guest: Probably 60 or so. Okay.

Host: And you've already started to answer the next question I wanted to ask you maybe. So I don't know if there's more to say. You had successful corporate run in corporate, got a lot of responsibility there, resulting in 100 hour weeks. Thank you for your service. How did it feel to become an entrepreneur? You had said you kind of had the bug for a long time and now here you are as an entrepreneur. How does it feel different?

Guest: I think it's very rewarding. Especially so, you know, in the day to day. It's challenging. Very, very challenging. There's a lot to think about. Like I said before, you know, there are, in a corporation there's many functions and each of those functions are done by specific teams. In a small business there's one team or maybe one person doing many of those functions. You know, from HR to staffing to anything. Right. Financials, you are really touching everything and it can become very overwhelming at times. So it's definitely the most challenging thing I've ever done, but I would say it's definitely the most rewarding as well. When I have conversations with new customers or new employees or just think back over what has been accomplished over the last four years, it's incredibly rewarding to see what, you know, what we've been able to do here going From a very small core team to building a much larger team, a much larger business. And I can honestly say I've Learned more in 4 years than probably all of the years before that. Very challenging, but very rewarding and extremely educational.

[1:04:01] Host: On the point about education and personal growth, what muscle would you say you've built during these four years and what muscle that you had before coming out of your corporate years has atrophied?

Guest: Looking at it from a financial acumen standpoint, I would say cash flow management has been something that I never really had to focus on or deal with. In the large corporations, when your company's essentially printing money, no one thinks about the balance sheet, no one thinks about collection. That is something that in a small business is absolutely essential. It's the lifeblood of your company. And so I think I've really learned a lot about that. I've learned a lot about leadership and relationships with people in this role, much more than I had in the past. If anything is atrophied, I guess it would just be, you know, working in a, in a corporate setting where you're working across the matrix organization and interacting with different functions that don't necessarily have, have the big picture in sight. And some of the politics that go along with the corporation that is much more diminished. In a small business where everyone is kind of looking at the same thing, working towards the same goals, there's much less of that that you deal with. And so I guess if anything it would be just dealing with a corporate culture setting and some of the politics that go along with that.

Host: Well, that's a, that's a muscle. You were probably happy to see atrophy. I don't see anybody ever celebrating their ability to navigate bureaucratic politics.

Guest: Yes, I agree 100%. It is a real skill though in the corporate world.

[1:06:01] Host: Yeah, yeah, yeah, for sure. All right, James. Well, let's, we're taking our time here, but we can't leave without giving the audience what they came for, which is these, these eye popping growth numbers. So let's get into that. Yeah, we're not going to be able to go through all four years, but give us a sense of you come into the business and what's the plan? What's the growth plan?

Guest: So coming into the business, the growth plan was to grow the service business, acquire new customers in that space, and then ultimately work towards also developing a construction division. I think you had mentioned earlier a common theme in this industry is opening construction divisions so that you can also then grow your service business. You can continue on with those contracts after you do the initial install. And. And that was really the thought process in going that direction. Some of the things that happened to us, not necessarily what we did ourselves, force us to kind of pivot and change a little bit. So when Covid happened, we were just starting to open our construction division and really starting to develop some capabilities and teams for the construction division. But when Covid happened, it almost shut down our service division entirely. So, you know, those customers that we talked about were no longer letting people in their sites. They were no longer doing maintenance on their equipment because their sites were essentially shut down. And JCPenney actually went bankrupt during COVID as well. So it really forced us to pivot even harder into construction. Those. Those types of projects were still going on. And fortunately, we had made that pivot at a very good time and picked up our first large construction project at the National Institute of Health. And so we started pivoting into construction, did a couple projects early on that went very well. We established ourselves as. As a good quality contractor, started building those relationships with some of the GCs that were local and also creating more of a buzz about ourselves from a word of mouth standpoint, that we were doing things well, that we were proactive in identifying issues with design and helping to solve those issues on the projects that we were doing. And that we took the same level of customer service and responsiveness from our service business and transition that into our construction business. And I think that really set us apart and allowed us to continue to grow, developing really strong relationships with GCs where we're getting repeat business, almost exclusive business with some of those contractors now. And that's really, I always call it, it's a snowball, right? A snowball rolling down a hill. Continues to build and build and build. That's really what's happened here. You know, we did the right things at first, showing that we know what we're doing and that we're responsive and that we do good work and that really gets out there. Other people see that other people want to be part of that. So both from, you know, employee recruitment and retention and also customer acquisition, just doing those right things has allowed us to continue building and building as we go

[1:09:52] Host: and does that. I would imagine that mechanical or commercial H vac and plumbing is competitive, that there are a lot of providers out there, and I'm hearing you say, well, we really just provided great service and, and let word of mouth do the rest. So in this, what I assume is a very competitive market, there aren't other Folks out there providing great service. I mean, I would just think that in any competitive market, the service, because it's so competitive, service quality is pretty high because that's one way that competitors differentiate themselves.

Guest: So it's very competitive. I think what we found out on our first project, and we were doing a project that was almost identical to a project that was going on at the same time, and one of the largest mechanical contractors in the area was doing that project. We did the other one. We demonstrated a level of knowledge and a level of caring about what the customer was getting that was significantly higher than what they did. And we identified flaws in the design process for the systems and gave them solutions on how we could change the design to allow the system to actually function the way it was supposed to function, where they installed it exactly per the plans, never brought up any concerns. You know, and their system that they started six months before us ended up commissioning after ours because we took that extra time and that extra care to show, you know, we're not just here to install what you tell us to, we're here to actually help you get the result you're looking for. We want to understand the design intent and make sure that the system that we put in actually functions the way it's supposed to. And I think we came in with the assumption that these large companies were doing all the things you said, the high quality work, the customer care where I think what we found out is that in reality a lot of them have grown very comfortable and maybe too large to the fact to the point where they're not really focused on every job and focused on what the results are going to be. And so they're not taking that extra step to identify things that are an issue and to work with the customer to actually help them get what they're, you know, what they're trying to achieve. Where we showed that we are willing to do that and, and ultimately, you know, that that not only gives a better result, but it creates the relationships and the trust that I think a lot of people do not have for some other types of businesses that are out there. You know, a lot of people almost assume, it seems like that they're going to be taken advantage of by a contractor, whether that be, you know, someone building your house, you know, or a commercial contractor where we try very, very hard to do the right thing to build the long term relationships. We're not focused on how are we going to make a dollar today. We're focused on how are we going to have a customer for the next 10 years. And I really think that's set us apart. And our employees appreciate that approach and appreciate that they're going out to do good work and give the customer something that's going to make them happy. And certainly the customers appreciate that as well.

[1:13:41] Host: Just going back to this, this theme that we've talked on, starting the construction side of the business, it sounds like. Did I hear you say that you started it with the idea that that would be an in to develop service relationships or versus did you think that the construction side of your business, just the purely construction work for its own sake, would become, you know, a growth engine or, you know, basically the core of the core of the business, which is where I think it is today.

Guest: So initially it was to find another outlet to grow our service business. Initially I thought, like you had said, the construction market would be overly competitive. You know, we hadn't really proven ourselves. We didn't even know what our capabilities were necessarily. We knew we had very knowledgeable people, good people, and we had the union support as well to acquire additional, additional good people. But I didn't necessarily see that as something that we would be able to grow significantly. I saw it as more, hey, we would be able to get into these buildings and then add on service contracts later. I would say it's almost worked in the opposite direction. The, the construction business has grown rapidly. We have many GCs now that almost demand that we're bidding their work because they want us to have it. Service business has not grown like I would have liked it to. That is the one thing that I, and really that has mainly been because the construction business has grown so much that a lot of my focus and attention has gone towards that. And this year I actually want to try to pull myself out of the construction world a little bit more. You know, we have good project managers in place now. We have good estimating teams in place. My goal is to kind of step back away from that now that we've established what we need in the office to run that business well and kind of go back to focusing on the service business and working to grow that again. But yeah, that, that wasn't necessarily what we were expecting to happen. But again, you know, we, we found that if you do the right things, that snowball starts rolling and it just keeps building.

[1:16:09] Host: Yeah, well, I, I will say I am reminded of something that people sometimes say about buying blue collar businesses, usually consumer facing blue collar businesses, which is not your business. But they'll say, you know, so many of these businesses that tend, you Know, home services businesses for the consumer just don't call you back, miss appointments. They're just not providing a high level of quality service to the end customer, to the consumer. And so if you could just do that, you know, you'll, you'll be, you'll have more business than you know what to do with. And now there are detractors to that. And, you know, maybe it's not so simple. So. But, but you do see this as something that is said and it sounds like in your case, that was the case. You deliver better service and it has worked like a charm.

Guest: Absolutely. That's really been the main thing that set us apart and the main thing that has allowed us to grow like we have. We're not doing anything overly different. Right. Everyone's putting in the same kind of systems and doing the same kind of work. But it's more that customer, you know, that customer care. Right. That's, that's really set us apart. And to me, it's, it's table stakes. You have to do those things to have a good business.

Host: But, yeah, that's how I see it. Exactly. It's like, why is this such a differentiator? But go ahead.

Guest: Yeah, I hadn't anticipated that being the case, but it really has been.

Host: Yeah.

Guest: And it's been a pleasant surprise for us because we're like, oh, this is just the way we think we should. And just, I think that all these companies probably start out that way. The key is, as you grow, to get the right people in place and maintain the right policies and the right decision makers to make sure that you keep doing that and you don't just become another company that has so much work now that all they're doing is focusing on getting it done as fast as possible without necessarily considering what the customer outcome is.

[1:18:16] Host: Okay, well, that raises the question. You have many more employees. I'm going to ask you exactly how many in a second. You have many more employees than you did four years ago. You've grown a ton. You're no longer tiny, tiny. Do you see a future where it's going to be hard to maintain the level of quality? Like, are you starting to see, oh, this is why it's hard. This is why the big guys provide bad service.

Guest: I don't think we've gotten there yet. We're very selective. We spent probably a year and a half looking for a project manager because we want to make sure that we have the right people in place to make sure that we do continue that same level of quality. I think that being part of the unions does help with that as well. We know we're getting a trained labor force and a highly experienced labor force typically, as well. And I think that one of the things that's worked well for us, not only treating our customers well, but treating our employees well. Our best way of attracting talent and getting good talent to ensure we maintain that level of quality is building good core teams that we keep. And they will bring us the people that they know. They've all worked for the biggest and best companies around, and they're able to say, hey, Excel is a really great place to work. We really like the things that are happening here. You should come work here. So, you know, being able to have those good people that will then also bring good quality people to us, I think, has been really key. And I think we should be able to continue doing that for quite a while still. We went from about eight people to around 80 by the end of the year. We'll probably be, you know, somewhere around 90. And it's, it's really been the key of having good relationships with the union and also having good relationships with our own people that are willing to bring the good people that they know that they worked with, you know, the all stars that are out there to our company because they feel comfortable that we're going to take care of those people, you know, as good as they have been in the past or better.

Host: Eight to 80 people, 90 by the end of the year, revenues, 3 million to. You're. You're. You're expecting 25 million by the end of the year.

Guest: Yeah, and we have a backlog of about 40 million right now.

Host: So. So what is that? What does that mean for 2024? If I, if I pushed you to

Guest: make a prediction, we'll be over 30. I don't want to grow. I'm trying to hold that growth a little bit. I would like to spend a year, you know, developing our processes and procedures a little bit better, building up a nice buffer of cash flow. Growing that fast is great, but it also has its challenges. So my goal is for next year to be, you know, 20% bigger, 25%, not 100 or 200% like we've seen in the past, and then, you know, continue on that trajectory from there. We've. We started our electrical division last year. That will do close to 5 million this year. I would like to probably keep that around the same, maybe grow a little bit, but that part of our business can grow exponentially. We have a really, really good leadership team. There and all of the customers that like us on the mechanical side are now desperately trying to give us their electrical work as well. So that, that will be a strong growth engine in the future. But I think it's something that we want to do the same thing we did on the mechanical side. Develop the processes, the people, the tools, make sure we have everything in place before we go growing too fast.

[1:22:13] Host: And give us a breakdown of the 25 million, James. So you just said 5 million from, from electrical, which is a totally new business line. Break it down for us.

Guest: So It'll be about 5 million from electrical, about 16 from mechanical construction, and then around 4 from the service side.

Host: Two more questions for you, James. One, I've heard you mention working with the unions. Now, now I know very little about this, but certainly in blue collar environments, obviously unions are a thing. Can you give us two or three minutes on, you know, kind of a primer on what, what people considering buying a blue collar business should think about if they encounter a listing that is a union shop?

Guest: Sure. And I think it's different in different parts of the country. The strength of the unions in the northeast are much different than the further south you go in this area, the union is not as strong as it is in Philadelphia or New York. So I think both us and non union contractors don't have to deal with quite as much on them pushing regulations and things like that. To us it's more a collaborative approach here. I've really viewed them as a, as a business partner. So they will, you know, we try to create good relationships with them. They're essentially trying to make sure that we're giving our employees a certain standard of wage safety and you know, they're not being worked to the bone for. For nothing. Right. For, for us that's the way I think that our employees should be treated anyway. So I don't really find myself running into any regulations that they have that I disagree with. It does maybe limit our pool of where we would compete slightly more because we are paying our people a higher wage, although I don't think it's wildly out of the market. But we're not going to compete in residential, we're not going to compete in small construction where it's, you know, a single, a single store, a small, you know, small store, a subway or something like that. Right. We're not going to be competitive there. But especially in this area, in the federal market, a lot of the work is wage scale work anyway. So they're. Even the non union contractors have to Pay their people relatively the same wage that we have to pay and relatively the same benefits that we have to pay. So it doesn't really affect us there. Our target market is mostly the federal and commercial work anyway. So for us, I think it's more of a benefit than anything. We know we're going to have a labor pool, we're going to have qualified people. So I don't need to put an ad out and hope I get someone good that applies for the ad. I will make a phone call to the union and say, hey, I need this type of person. I need a welder for a job. And either I want to keep them forever or I may want to keep them for a month or two and they will go out and actively help me find that person, whether they are working somewhere and they're unhappy at that place, or whether they are unemployed currently. It allows us to get a job and staff a job much quicker than we would if we had to go out to the street and just, you know, put out an ad for help wanted or something like that. They also help us identify opportunities that may work for us. You know, they'll, they'll find jobs that are out there that we may not even know about and send them to us and say, hey, this is something that we would like you guys to look at. Or hey, this is something that seems like it's up your alley. Let us know how we can help. You know, they, they may help with funds for, for bidding to help us be more competitive, or, you know, they may just be able to help us make sure that we have the right staffing if we win the job. So to me, it's more of a partnership. It's almost like a temp agency that has a lot more benefits to it as well. They want to help us.

[1:26:51] Host: Yeah. Yeah. Well, one thing I don't understand, and by the way, now that I've heard you explain how that's a great source of talent, I realize I failed to ask you, like how you grew from 8 to 80, 90, aside from generating sales, you know, which is the demand side, but serving it with your own supply. Because all we hear about is how difficult it is hiring people, how difficult it is, and particularly blue collar, particularly skilled blue collar, like H Vac technicians and plumbers. So you've answered it. But I would still say with the union, like, okay, so you have this go to resource that has access to lots of technicians. But I would still say in a constrained, labor constrained environment, like the union's probably fielding lots of Calls from the James Blooms of the world saying, hey, I need a guy, I need five guys. So I would still think that you, even though the union is there as like a phone call away, that you're still going to be bumping up against, you know, supply demand dynamics that are just affecting the entire world of like blue collar labor.

[1:28:03] Guest: No, you can, at times, it really depends on what kind of work is going on. When there's large projects where hundreds of people are going to work, you may run into that. I think for us anymore, it's a lot less of us calling them and saying, hey, we need somebody who's on the, who's on the bench. You know, send us whoever you have. And more us going to our own people internally and saying, hey, we need to hire X amount of people who do, you know, that's good. And then they will go and make those phone calls at a more personal level. And those people may be working somewhere else, but because our people are able to tell them, hey, these guys, you know, they're, they're doing the right things, they're treating us well. The company's growing, it's, it's exciting over here. We've been able to get people without really having to go to the union. The other good thing about the union is all of these guys know each other. They've all worked together before. They know who's, who's awesome, who's okay and who's not great. Right?

Host: Yeah.

Guest: And so we go to our people, whether it be our foreman on certain jobs or whether it be one of our superintendents who've worked for the union for 30 years, they know everybody who's out there and they're able to go and say, okay, hey, who's slow? Or, you know, this company, they'll know before us what our competitors are doing. Okay. This competitor is slow on work right now. They have people that are, are not really being utilized. Let's make a phone call to them and see if we can get some of those people. So there's a lot of market intelligence that you get from being part of that group as well and having people that really, they all know each other

Host: well. Well, I need to ask this more when people are working in environments where there's union, because, yeah, you've just made a strong, a strong case for it. And you know, I think the conventional story is that the business owners and in unions kind of work at cross purposes. So I wasn't expecting everything you just said.

[1:30:09] Guest: And again, I can only speak to my experience in Maryland, Virginia and D.C. and I think the unions in some of the northeastern areas, like New York and Philadelphia, are a little bit different. I think they are more pro worker and less pro company. But here, the unions in this area maybe have 10% of the market share. Their goal is to grow that market share, just like our goal is to grow our market share. And if they help us grow, that helps them. Right. So as long as you're willing to pay people what I think is a fair wage and treat them the way you would expect to treat any employee, I don't see a downside to it, really.

Host: Thank you for that, James. All right, let's wrap up with how you got on my radar was because I heard about you bringing on a partner, a capital partner to. For the next stage of growth. Can you talk at all about that? And. And who you worked with, who you worked with to make that happen?

Guest: So I worked with Dan Daniels, reached out to him.

Host: Dan Daniels is. Is who.

Guest: He was my business broker that I worked with.

Host: Oh, to acquire the business. He.

Guest: No, no, sorry, no, no, no. He. About. About a year ago, I saw the kind of. The trajectory. Trajectory of this company, saw the demand from our customers that we have. And at this point, I view growth not as something that we're pursuing, but something that's inevitable. We are. Once you are in with certain customers, they expect you to bid all of their work, and they're going to give you as much of it as they possibly can. And that list is continuing to grow for us. Every time we do a job. I don't think we've ever had a job where that customer isn't coming back and saying, we want you to do a majority, if not all of the work that we have. Let's figure out how we can make that happen. And you can only keep those relationships that way if you continue to support them and bid their work and do their work. So I see this growth, you know, as inevitable and something that we need to be able to support. So with. With the increased growth, with the fast growth, it's not something that I felt that I could handle all on my own. I wanted to bring in some additional resources and I wanted to see this company grow into what I know it can become. So I. I went looking for a capital partner. I reached out to Dan because he has a great network. He was able to put me in touch with many, many qualified people that, you know, could really help us continue to move in the way we want to move and continue to grow. Like we have ended up finding a really good partner in the area. He's involved in many businesses and has a lot of really strong contacts in Washington, D.C. and Virginia. And in January, he came on as a partner. So we're really, we're still kind of in the early phases of really building that partnership and continuing to grow. But our, our target is to take this business to at least 100 million over the next five years, which I, I think is very, very much achievable if we have the right resources in place. So he's really contributing some of those financial resources, some relationships that he has both on the banking side and the customer side. He has a very strong network in Washington, D.C. and is able to really give us access to some things that we really didn't have before and some relationships that we did not have before. So it's definitely starting to make some. Make some improvements here. You know, I talked a little bit about the struggles for funding and lines of credit and things like that. He's been able to really help us overcome those and, and weigh out, achieve much more in the way of those things than I think we would have, you know, if we were just trying to do it organically, if you will. So I think that's really been really been a good thing, a good change here. I'm still managing member and basically I'm the one continuing to run the business and run where the strategy is going. You know, we basically meet monthly and just kind of talk about where do we want things to go, where are they at now and what is needed to get there. Which I think not only helps the business, but also helps me personally with, you know, having having someone else with skin in the game. Right before I talked a little bit about this. The stress of being the only one responsible and tied to the success of the company. It's nice to have someone else to share some of that with and at least be able to talk to, you know, about. About what's going on and what we need to get to the next level. This is a business that requires a lot of. A lot of investment, a lot of assets. We've built our own fab shop, spent probably $200,000 on creating a fab shop that can allow us to break into new levels of work, do work more efficiently and more profitably. But with that, there's a lot of upfront capital investment that's required, and that's not something that I wanted to continue to have to fund all by myself. Right,

[1:36:01] Host: James, can you name this gentleman?

Guest: His name's Steve Khalifa, Steve Khalifa.

Host: And so he's effectively like a private equity partner here. But it sounds like it's, he's a, a one man band sort of thing.

Guest: So he, he owns two other mechanical contracting companies in Colorado and then also owned one in Washington D.C. as well. We've somewhat absorbed that company that was here in Washington D.C. but he's involved in, in a number of other businesses, I think. I don't probably like 40 some businesses entirely, whether he's sole owner or partner.

Host: And to close out. James, thank you for that by the way. To close out, you bought this business as we Talked about for seven. What was it? 785. 765.

Guest: 785, right, right.

Host: Yeah, it was 2, 2 1/2 x. So. So you've grown the business eight times. So you're looking at, let's call it, you know, you grew it from $3 million to call, let's call it $24 million for easy math. So 8X. So you're certainly going to enjoy some multiple expansion there. Could you take a guess at what the valuation of your business is at? $24 million in revenue.

Guest: So we had a SBA appraisal done a year ago and it was at 3.6 million. That was when we were at about 12 million in revenue. So we've have doubled that. So I would say it's, it's probably somewhere around 4 or 5 million now.

Host: Oh, why wouldn't, why wouldn't the valuation also have doubled to like 7 million?

Guest: It may. I'm just being conservative.

Host: James, is there anything that I didn't ask you that we, that you think the audience should hear about the experience of buying a commercial H vac and plumbing business and growing it like crazy over four years?

Guest: I think we touched on just about everything. Like I said, it's been exciting. It hasn't happened exactly the way we thought. Coming in, I wasn't expecting to lose one of our biggest customers, which happened early on, again, to no fault of our own. I wasn't expecting Covid. I wasn't expecting supply chain issues, but it's a good industry. And even though Covid happened, things like construction, they go on, right? Our target market of the federal government. We're seeing economic slowdowns in other sectors, but ours has remained pretty much the same. We're not seeing a slowdown in work being bid or awarded. So I think overall it's a great industry to be in. There's certainly challenges like every business. And when, when you have global issues like that it can become interesting in any business. But no, we're still here and continuing to grow through throughout all of that. So I think, you know, finding the right people, finding the right customers in the right market and doing the right things as far as the work you perform and how you take care of your customers is key. I think that's the, any business, but it's certainly been the reason we've been successful here.

[1:39:38] Host: Great, James. And kind of as an aside, you still check in on Biz, Buy, Sell, and now kind of because you're looking for a business for your wife to buy. Do, do I, do I have that right?

Guest: Yeah, I mean, it's, it's a hobby of mine anyway. Right. I, I love, I still have the M and A bug. I still love looking at different businesses and. Yeah, maybe one day we'll find something for my wife. She's, we're getting to the point where the kids are, you know, going to be in school here and then in the next couple years she'll have some time on her hands. And I, I honestly, even though she's never done it, I, I would wager that she's a better business person than I am. So I think, you know, with a little support from me, I think she would do great running a business and definitely be looking for something for her in the future. Cool.

Host: Well, what an endorsement for buying a business. Your own story. Plus the fact that you're trying to rope your, your wife into this crazy adventure. James Bloom. How should people get in touch with you if they, if they want to have questions? You're a hard guy to pin down. We worked on getting this interview on the calendar for a while. I'm so glad I did. But you are very busy. How do you prefer if people have questions that they, that they reach out to you?

Guest: I would say email is probably the best. The jbloom737mail.com I'd be happy. I love to talk about any businesses. I love to look at acquisitions and love to help other people that are potentially going down the same path. So I've even done some, some business sales myself for some family members. It just, I love, I love it, it's. I love analyzing businesses and I don't know, it's, it's something I enjoy.

Host: Thanks for so much of your time and for coming on and sharing with us. James, congratulations.

Guest: Thank you.