Host: What's the one category of business you've heard guest after guest say they wouldn't touch, that their search to buy a business was broad. They'd look at anything but that. Well, today's guest, Jared Burke was no different when he told a local accountant, bring me deals but no restaurants. Well, let Jarrett's story be but the latest example that you should set aside your prejudices when looking at businesses to buy. When Jarrett did that, who himself had to be convinced to even take a look, what he saw was a great business. We spend a lot of time today on what Jarrett saw that made Lose a Main street institution in a New England college town so appealing, so differentiated in a sea of restaurants. Some of these features are specific to the restaurant business. Lou's had multiple lines of business, including a bakery and catering, family friendly hours for the employees, employees with families as opposed to young singles, and it served no booze. But some of the positive features are generalizable criteria that demonstrate value in any business. You might encounter above average margins for its category, longevity, brand and valuable real estate. Six years later and Jarrett's analysis is holding firm. Things are going very well indeed at Lou's, including having survived Covid. See what you can incorporate from Jarrett's analysis into your own search. And remember not to judge a business by its category. Please enjoy this conversation with Jarrett Burke, owner of Lou's in Hanover, New Hampshire. 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. August Felker is a two time successful searcher, first with a traditional search fund. The second time around he did a self funded search. Today August runs Oberle Risk Strategies, an insurance firm with a dedicated practice group for searchers and acquisition entrepreneurs like you. If you've got a business under loi, Oberle will provide complimentary due diligence on that business's insurance and benefits program. A great no risk way to get to know August and team. They love helping searchers. They've worked with hundreds. Oberly is a specialty insurance brokerage for searchers by a former searcher. Check out oberle-risk.com O B E R L E- risk.com, link in the show notes Jarrett Burke welcome to Acquiring Minds.

[3:02] Guest: Thanks. Great to be here.

Host: Jarrett, you bought a restaurant. Gasp. You had even told intermediaries during your search no restaurants. Here you sit. So let's get right into it. Jared, how about some some background on you first Please.

Guest: Yeah, yeah, sure. And if you look closely at my shirt, you may see like little specks of pancake mix and stuff like that, because I was at it this morning. Not usually like that, but it's been, it's been quite the morning with a little snowstorm here and some employees that couldn't make it to work and, you know, running a small business.

Host: And, and for those who are not watching the video, you are what, in the back room or the, the downstairs room of the rest?

Guest: Yeah, we got a little, little office in the basement. Certainly not very glamorous in here, but you know, I'm going to put my money into the, into the kitchen, dining room, not into my office. So that's just how it is.

Host: Yeah, no, nobody's expecting glamour. These are small businesses.

Guest: Exactly.

Host: We're good on that.

Guest: Exactly. Yeah. So. So my background grew up in New Rochelle, New York, just outside New York City. I guess pretty typical kind of middle class upbringing, you know, played hockey and lacrosse and went to public school and graduated from New Rochelle High School. And you know, growing up, I would say I was, I was pretty well exposed to entrepreneurship. My grandfather emigrated to the US from, from Poland in the 1930s to escape the Holocaust essentially, and did. And you know, much of my, my extended family unfortunately perished in the Holocaust. But he grew up with a single mom and three siblings and really, you know, again, had had this kind of a tough go at it growing up in the New York area as immigrants. And so he started when he was young, when he was still, you know, a teenager, working with his uncle and selling garments out of the back of a, of a car or the trunk of a car, joined the army and my other grandfather joined the Navy, so they fought in World War II. And then on my dad's side, when, when he came back, he started a business in the garment industry in New York. So pretty typical for, for like, you know, Eastern European Jews in the New York area. And so he built this pretty, pretty great manufacturing business. They actually did women's undergarments off brand, so like a Walmart brand, Walmart, Kmart, things like that. And you know, put whatever label was, was required on it. And my dad worked for him, one of my uncles worked for him. My second uncle, I also have an aunt, was in the restaurant industry. So he opened and ran several bars and restaurants in New York City. My father was one of his partners and one of his investors. And so again, I was kind of exposed to entrepreneurship from a, from a young age, you know, again, in and around the New York City area saw what restaurants were all about and was fairly put off by it. You know, I don't want to, I don't want to put it down too much, but it's, it's hard work. Right. Restaurants are tough and, and many of the restaurants that my uncle opened and my dad was a part of failed and, you know, and closed. Some of them were great and are still in operation today. But it's a tough business. It really is. You know, there's, there's, there's a lot that open and close. I don't think it's too much different from many other startups. I, I think that's a bit of a misnomer that restaurants are, you know, have a higher failure rate than other startups. Most, most startups fail in the first five years, about 90% of them. Right. And restaurants are probably right in that same. Right in that same. Interesting. Yeah. I mean, and that's the thing. It's like restaurants are very visible, right? You feel it. You go to that restaurant, you sit there. It's like part of your community. And so when it closes, it feels like, you know, terrible. But the reality is that most, most startups fail and, and.

[6:59] Host: Interesting. I never, I'd never heard that said. That's a, that's a really interesting point. Probably also restaurants get a bad rep because they are so hard. They're, they're. I mean, all business is hard, particularly small business. But restaurants seem like hard business on hard mode.

Guest: Definitely. Yeah. Hard to scale. Yeah. Not, not a whole lot of growth in most businesses, in most restaurants. And yeah, they are tough. Growing up at some point in my, like, high school years, I, I became somewhat enamored with the service academies. So, you know, Annapolis, the Naval Academy, West Point, Colorado Springs, Air Force. So I went to Annapolis. And yeah, I mean, I distinctly remember, like, you know, walking up the stairs of Alumni hall and on induction day and kind of looking, you know, turning back, waving to my parents and, and having this like, oh, crap moment where I'm like, what. What am I getting myself into? So graduated in 2004 with a. An aviation contract and a commission in the Marine Corps and did about six months of kind of basic officer training and then flight school. And so, you know, the thing that I was always attracted to as I was going through flight school and everything else was, was really the leadership aspect. And so the way the Marine Corps works in aviation is, you know, you do this time in the fleet and then you go to, you do something else and then you go Back usually as like a major and then you go do something else and then you go back as like a lieutenant colonel. So I was a captain now. Did my first tour. It's time for me to go do something else. I kind of felt like I was really on the fence, to be honest. And, you know, I felt like I peaked in a way. Like they call it the iron captain. Right. I was really on the fence about going and doing something else and coming back as a major and being a staff officer. And, you know, being a staff officer

Host: means kind of desk. Desk ridden.

Guest: Yeah, exactly. Yeah. A lot more political, you know, writing orders and, you know, working for some, you know, general or colonel or something again and kind of doing these, like, really functional things. Right. Being the operations person again and not getting to fly and do a lot of that stuff that I really enjoy doing. Certainly a lot of leadership potential, but different. Right. It was, yeah, it was not as much, you know, hanging out with the Marines. It was, it was a lot more kind of higher level leadership and I didn't know if I wanted to do that. Right. I, so. So I was on the fence for a while and then ended up kind of making the decision that I was going to go do something else. Not sure what I wanted to do. I took a job as a. In the acquisitions workforce. So these are the people that kind of buy and sell and do the lifecycle management of aircraft and systems and things like that. And decided I was going to put in my resignation, go to business school. So I did that, went up to, to Tuck, to Dartmouth. That was, you know, an awesome experience. I'd asked a friend who had gone through Tuck and was also. He was in the, in my company at the Naval Academy. So he'd kind of been through all this. I'm like, hey, you know what can I read? How can I get ahead? And he recommended this book, the 10 Day MBA. And, and I remember reading it and I'm like, I'm like, okay. Revenue is like money that comes in and then profit is like what you get after. Like, I, I literally, you know, I could have told you all the pieces to a Russian surface air missile, but like, the difference between profit and revenue, it was like lost on me. So. So it was very much an intro into, into business.

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Guest: I fortunately I stayed in the Marine Corps long enough that I was eligible for the full GI Bill. And then Dartmouth does this thing called the yellow ribbon and they max it out. So I went to Dartmouth for free. So I have never paid a dime for like any of my education. And, and that, that also helped me in terms of, you know, this savings, saving money for an acquisition of a business too, because I was able to squirrel some money away through this whole thing. And, you know, I wasn't in a bunch of debt when I graduated, you know, I, through the course of my time in the Marine Corps, bought a house. My dad passed away and so he left me a little bit, not a lot of money, you know, just, just a little bit to again, you know, kind of down payment on a house roughly in North Carolina, which isn't very much. And, and that gave me a head start in terms of my ability to go out and, and acquire business. I ended up doing an internship at New Balance, which great company, really cool. They're Boston based. You know, they're small for an apparel company. They do, I think maybe 4 or 5 billion now, but, you know, competing against Nike and, but still making a great product and great culture. So I did an internship there and while I was there, I realized that I didn't want to work in a big business. Right. You know, I remember coming into work one morning and I'm like working on this PowerPoint for some data analytics project that I'm working on. And it was a cool project and it was really interesting, but I just had this realization like I don't want to make PowerPoints for some other person to make a decision on. I want to lead. I really want to be in charge again. And I missed that, right? I missed having that leadership being in charge. In our pre call, I talked about this book by Daniel Pink called Drive. And I read that at some Point. And Daniel Pink talks about three things for fulfillment. He talks about autonomy, which is, you know, making. Making decisions, being able to make those decisions, not report to, you know, somebody and have them do it right. You have. You have the autonomy to make decisions. He talks about mastery, which is knowing your craft, becoming a master in your craft, you know, knowing everything, or having a path to becoming a pro. And then he talks about purpose. So autonomy, mastery, and purpose. And purpose is not necessarily, you know, working for a nonprofit or, you know, the military or something like that. It's whatever purpose is for you. You know, what makes you want to go to work in the morning, what makes you tick and. And. And makes you get out of bed when you don't feel like it, and it's rainy and cold and snowy outside. And for me, I just realized that going to work at a big company, going to be a consultant or a banker, I was not going to have any of those things. I was not going to have autonomy, I was not going to have mastery, and I wasn't going to have purpose. And so coming back into my second year at Tuck, I said, I want to lead a company. And this was kind of before or early, early search fund, right? Search fund. Like, I had never even heard of it up to that point. I didn't even hear about it until probably halfway through my second year when somebody mentioned it to me and said, hey, there's this thing called a search fund. You should look into it. But I kind of set on this path going into my second year of, like, I'm going to find a business to buy, and I'm going to buy it. And I don't know how many.

[14:49] Host: So totally, totally your. Your own idea.

Guest: You.

Host: Later, a few months later, you heard about that there was a search fund thing, but that. That didn't plant the seed. This was your own seed.

Guest: Totally. Yeah. And the. And the only. The only other thing that I would say had an impact was I had a buddy who was a year ahead of me at Tuck. I played hockey with his wife at AT Tuck. And he bought a company while he was at Tuck. It was. The guy's name is Jay Bourne. He bought this company called Lock and Loop and Lock and Lube, sold grease couplings. So it was like, literally the thing on the tractor that, like, attaches your grease gun to the bearing, and it was like the best grease coupling out there. It was manufactured in South Africa. He bought this company that somehow ended up having the rights to sell these things, and he bought it from a farmer and this farmer was like literally getting letters in the mail of other farmers, like, hey, I saw this thing, can you send me one? Here is a check for $30 or whatever. And this guy's like running this business off his kitchen table. My friend Jay goes in and like helps him kind of establish the business and then he ends up buying the business from him. And so Jay had done this, right? He similar type of story, small business, you know, I don't know what they did in revenue, but it wasn't much. Maybe a couple hundred thousand in revenue. And he was like building this company up. He created a website. It was like making an E commerce presence, starting to sell on Amazon and. And so he had kind of walked this path and I'm like, that's what I want to do. This is, this is really cool. And so yeah, I started, I started searching. So I started looking at business brokers. Quickly found. So this is my second year, you know, I knew I had to get a job. So I ended up like towards the end of my second year, I got a job at a local company. It was a software company. I was kind of running marketing and sales. I had met the owner, the CEO through. He was, he was a guest speaker one of my classes, you know, approached him afterwards and said, hey, you know, I'm looking to stay in the area. Do you have any openings? And kind of explained my background. And he said, yeah, actually, you know, my sales guy just left. Would you be willing to do marketing, sales? Sure, I'll figure it out. So I went to, went to work for him. It was actually kind of an acquisition target too, to be totally honest. You know, it was a smaller company, about 19 people, couple million in revenue. I'm like, maybe I could roll in here and take this over. I ended up deciding against that once I, once I started working for the company. But I got a job and I did. I guess what, what now is called a self funded search, you know, kept my eyes open, was talking to business brokers. I got a, I got kind of a lucky break when I was at a. It was a tuck event actually. It was like something on campus where a bunch of alumni just hanging out. And my friend Jay was there who I mentioned that bought this grease coupling company. And we were talking to another friend who about our age, this guy was an accountant. And I was saying like, yeah, I'm looking for businesses, I'd really like to buy something. And this friend that's an accountant says, you know, are you talking to any accountants? And I'm like, Talking to accountants, like, I don't, I don't have any money. Like I, I do my own taxes. Why would I talk to an accountant? And he's like, no, no, no, like, like accountants know what's going on. You know, they, they like know every business. Like there's only really two kind of small, medium business accounting firms in our region here. You should talk to somebody at my firm. And I was like, man, that's freaking brilliant. So he set me up with a meeting with one of the partners, met with this guy named Mark and gave my resume, said, hey, I'm looking for a small business in the area. If possible, I'm willing to move, but I'd really like to stay around here. And you know, these are the criteria I'm looking for. It was like, you know, I want something that's, you know, a strong business, not a key man type of business. Something that I could come into and take over and, you know, the business will keep on going. Recurring revenue, good history, things like that. He's like, oh yeah, you know, I've heard this pitch before. So yeah, he comes back to me like, I don't know, a week or two later and says, hey, you know, why don't you come down to my office and I got a couple ideas and we'll sit down and talk. So went and met with him. He had like a couple businesses actually in mind and he said, you know, one of them was like a snow plowing business, pretty small, kind of key man. Like, that's not really what I'm looking for. I can't remember. A lot of them were kind of small service businesses but, but really small, you know, a couple hundred thousand in revenue and, and you know, I explained, hey listen, I got to, I need something a little bigger. And he's like, okay, well, you know, I know you said no restaurants, but there's one that I want you to take a look at. And so he's like, I'm not going to tell you the name. I'm not going to tell you what it is, but here's a P. L And I'm going to tell you that they don't serve alcohol and they close at 3:00pm every day. And I'm like, okay, you know, the two worst things about restaurants is booze and nights, right? Being there, you know, missing all of your kids, everything. Because you go to work in the afternoon and you get home at 1 in the morning. And so you're sleeping when they go to school and then you're, you're at work when they come home, and I'm like, all right, like, this is kind of interesting.

[19:51] Host: And the booze, why is that a bad thing?

Guest: It's a pain in the butt, man. It's just.

Host: It's just the trouble. The trouble that booze causes, generally.

Guest: Yeah, well, I shouldn't say categorically booze is bad in restaurants because actually we're. We're starting to do mimosas and things like that here. But bar type of restaurants, especially some of the ones that my uncle ran, it just brings a ton of headaches. You know, people drinking too much, or your servers, you know, your bartenders over serving, which can come back to you. It's a huge liability. You know, people get into fights, people fall down the stairs. Like, people do stupid things when they're drunk. And when it's in your business, that's bad. Tons of great money, great margins on. On alcohol and. And there's certainly a reason why a lot of people do it, but it's. Yeah, it's. It's one of the harder things I think about running a business is just dealing with that, you know, employees taking stuff and so tough.

Host: And I was going to sit to your other point. I was going to say that I thought that's where all the profit was in. In restaurants.

Guest: It's. It is a very profitable side of the business. Yeah. Yeah. And. And that's. That's true. So I'm. I'm losing that. But again, the. The downsides of it, I think, outweigh the. The money.

[21:05] Host: Yeah.

Guest: So cool. Yeah. So, okay, so look at this P L, you know, revenue is like super solid, right. Goes up 2 or 3% every year. Profitability, really good. Like, super profitable for a restaurant, especially like a breakfast and lunch place. You know, the. Typically, if you look at a restaurant P L, they all kind of look very similar, right? So for every dollar that comes in, about $0.30 is paying for the food, about $0.30 is Paying for the people. About $0.30 is paying for everything else. Insurance, occupancy, you know, repairs and maintenance, things like that. And then 10% is left for profit. Right? And that's like, very standard.

Host: Okay.

Guest: Poor, poorly performing restaurants, you're going to be closer to zero percent or maybe negative percent in terms of profit. Really good restaurants, you're going to be in the high teens, maybe Even the low 20s in terms of profitability. And it's all about being able to move those levers. Right. Where are you saving money? Do you have. You know, pizza is a great business in Terms of food costs, right? Pizza is dough. People make their own dough. It's super cheap. Cheese is expensive. That's the expensive thing on a piece of pizza or pepperoni. But usually in a pizza business, your food cost is like 20%, right? Low 20s, finer dining, you're going to have a much higher food cost and a lower labor cost. So again, you know, dancing around this, 30, 30, 30 is pretty typical. The thing that really stood out to me here was they were all in the kind of mid to high 20s. So food cost was in that mid to high 20s, labor cost was in the mid to high 20s, and fixed costs was also in mid high 20s. So this business was kicking off, you know, 17, 19% profit margin year over year over year. And when I asked about the owners, what they did, because, because I didn't want this to be something where the owners are like slaving every day. I'd found out that, you know, one of the owners had had an illness a couple of years back and was kind of still recovering from this and really wasn't involved in the business at all. It was a husband and wife, obviously. The other owner was an engineer by, by training, but loved baking. And he spent most of his time in the bakery and he literally just baked like he was just a baker and you know, he obviously oversaw everything. But it had, the business had a general manager, it had an office manager that did all the, you know, back office stuff. Pastry chef in the bakery that was running, running the bakery. And so this business was just kind of going and it was still really profitable.

Host: Bakeries also really difficult businesses. I mean, yes, you don't the, the typical restaurant where you have to have a night owl lifestyle, bakeries have in the opposite direction. You're up at 1 or 2am or whatever. Or at least the person in the bakery doing the baking is.

Guest: Yeah, it kind of depends. So wholesale bakery, very slim margins. Right? They wholesale bakeries work on volume. So, you know, they're only making a couple percent in, in margin, but they're, they're pushing a ton of product. Right. The nighttime piece is definitely a factor. We do more suites. So the only thing that we do that requires that nighttime stuff is we make donuts. And we want those donuts to be fresh in the morning. So we have somebody that comes in. Usually he comes in at four or five o' clock in the afternoon and then he works till about one in the morning. But we don't have anybody there between about 1:00am and about 5, 6:00am so. Okay. Yeah. And and again, because of those hours, because we start at, you know, five, six, seven o' clock in the morning, most, most of our employees come in around that time. We tend to attract like adults, like more people that are more mature. Yeah, yeah. You know, a lot of restaurants, you have people who really like that night lifestyle, right. They, they come into work at 5 o', clock, they work, they make a bunch of money, everyone goes to the bar, they party and then, you know, they're, they're kind of up all night and that's a different lifestyle. Most of our people like the fact that they leave at 3pm right, because they have kids and they get to be home. And all the same reasons why I like this business were things that were attractive, that are attractive to our employees and, and it's a, it's a real benefit for us and a, you know, competitive advantage when it comes to employment because we're able to attract people who are a little more mature and appreciate that kind of lifestyle.

[25:22] Host: Yeah. And what was the. So tell us, I know there's more to say about this business. I, I, I believe like the history, the location. Tell us more about, you know, all of these surprise features that actually started to paint a really rosy picture of business you'd want to own.

Guest: Sure. Yeah. So, so right off the bat, you know, I, I said, after I saw this piano, I said, hey, I'd really like to meet the owners. I met the owners at this office, the, the accountant's office, and immediately felt comfortable. Right. They, the, the gentleman totally reminded me of one of my uncles who lived right next door to me growing up. They just had the same mannerisms and immediately trustworthy. I remember we were planning on an hour meeting. We ended up staying there for like two and a half hours just talking about all kinds of stuff. And, and the woman, the, the, the wife, she, she like when we got done, you know, she gave me a big hug and like, it was just like a great, it like felt really good. So immediately I, I trusted them because I didn't feel like they were trying to, you know, put a big valuation on this business and like hide things. It, they, they just seem like great people, you know, raised kids in the community, were part of the community and, and that felt great. The business itself, when I bought it, it was 73 years old. So it was opened in 1947 by a former Marine, a guy named Lou Brissette, who, who went, fought in World War II, valiantly was, was decorated, came back to Hanover and with a little bit of startup Capital that he, that he borrowed. He was able to open up this breakfast place right on Main street in Hanover. And he ran it for 37 years. He was a, you know, a key person in the community. He helped start this, you know, improvement society that kind of helps with a lot of stuff down downtown. He helped start a bank which is right next door, which happens to be our bank, which happens to be the SBA lender that lent me the money to, to take over this business. And it's just one of these places that if you go to Dartmouth or if you've been to Hanover, it's just where people go. We do most of our stuff from scratch. It's not right off the Cisco truck and into the fryer. We make a lot of our stuff from scratch. There's some stuff we bring in, but the vast majority of what we do here, great food. The bakery is awesome. Know, people rave about our cakes and pies and things like that. Again, you know, all that stuff is scratch made. And

[27:53] Host: so it's just, it's just called lose for.

Guest: Yeah, it's called lose Y.

Host: And so anybody who's passed through Hanover, or certainly anybody who's been to Dartmouth, but maybe who spent at all any time in Hanover, probably will have come across it, heard about it, maybe even eaten there. So it's kind of the Main Street. What's the name of the main drag in Hanover?

Guest: Main Street.

Host: Main Street. Okay. So it's, it's kind of an anchor on Main Street. A neighborhood institution.

Guest: Totally. Yeah. Yeah. And then in terms of some of the nuts and bolts, you know, one of the things that makes this a really strong business is the restaurant only accounts for about 60% of our total revenue. So it's 60 restaurant, about 30% bakery and about 10% catering. And those numbers shift throughout the year and year to year. But that's one of the things that makes this place really successful, is if we were only a restaurant, you know, only doing 60% of the revenue that we do, it would be significantly less profitable. Right. Because my fixed costs are fixed. They would stay the same and they would eat up a greater percentage of our profitability. But the fact that we have these kind of add on businesses that are really successful and stable makes it. Makes it really interesting and makes it really fun and again, you know, a much better business than, than your typical restaurant.

Host: So other than the food costs, which are variable.

Guest: Yep.

Host: That the other costs of doing business that go into the catering and into the bakery would be there anyway.

Guest: Right.

Host: So you're Just, you're just basically getting more productivity out of these assets.

Guest: Exactly.

Host: By having those two lines of business, Right?

Guest: Yep, precisely.

Host: I wonder why more restaurants haven't keyed into that possibility.

Guest: Yeah, I don't know. I mean, it takes a lot, right? It's. And, and that's the thing is like this stuff didn't just happen, right. This is, I take credit for none of it. Right. I bought this business. It was, it had evolved over decades and decades to be what it is today. And again, I just stumbled upon it and I got super lucky. But, you know, my goal from the start was just keep, keep on doing what it's doing. Right. Growth is not an objective here. Sure, I'd love to.

Host: We're going to, we're going to get to that because I want to spend a minute on that. But. Ok. Another feature of the, the profitability of the business, another way of capturing that, measuring that was revenue per square foot. You've talked about margins and how it compares to margins in the restaurant industry. Basically double the average or almost double the average. Talk to us about revenue per square foot. What is that metric all about?

[30:21] Guest: So, so another metric that, that a lot of restaurant actually in retail that's, that's used a lot more than in, than in restaurants. But, but restaurants too, you know, it's. I, I couldn't tell you what the number is. I could probably do the math on it. But again, just, just the fact that our fixed costs and, and actually we, we did expand. When I bought the business, the bakery was in the kitchen. The kitchen was super tight. It was incredibly tight. You were always bumping into people. You know, we had stuff stored in every possible place you could store it. I was, I was lucky. About a year ago, one of the tenants next door moved out. It's a basement space. Not a great space for anything other than essentially manufacturing. I took over that space, got it really, really cheap. I was able to move the bakery down there. So now my revenue per square foot isn't as great as when I took it over, but it's really cheap space. So it, it works out really well. But, but yeah, I mean, again, to the previous point of the fact that it's more than a restaurant, we've got these other lines of business. That's the thing that makes it a great, great little business.

Host: Great. So you, once you basically looked at this kind of objectively, you were, you said, this is a great business. I'm not going to think I'm going to, I'm going to put aside My anti restaurant bias. And just look at the, kind of analyze this objectively as a business and this is a great business.

Guest: Absolutely. Yeah.

Host: Yeah. Okay. You were about to tell us about the plan or the kind of thesis as in maybe growth is not, is not the plan. How did you now tell us kind of what the approach was?

Guest: Sure. So. So again, you know, when I looked at the business, it was pretty clear that growth was, you know, they're sure I can grow catering. I really wasn't interested and I'm still, I'm not interested in opening other locations. I think they would do fine, but I just don't think I would, I would get anywhere near the profitability, you know, the level of profitability that I have here in terms of percentage of revenue and things like that. And plus opening up multiple locations is a bit of a death zone for restaurants. Like, you see this a lot. That space between, between one and like I'll say 10. There's a lot of small chains that don't make it right. Because now you don't. You're not quite big enough to have this full management team and yeah. And the scale. So you as the owner are like all over the place. You're running yourself ragged. And the reality is a lot of times, you know, you open up that third, maybe fourth restaurant, it doesn't do well. It can bring down the whole enterprise. And again, you see this a lot in restaurants. And I just didn't want to have anything to do with it. I still don't. I think this is a great spot. People love it. I don't want to screw it up. And so, you know, growing it, I'm not going to do that. I'm not going to dump a bunch of money into a new location. I'm just going to, just going to let this thing, cash flow, pay off my debt. I guess we'll get to the debt and stuff here in a little bit, but, you know, pay off all my loans and just, and just let this thing, let this thing roll. You know, there certainly are opportunities in catering. Right. Catering is one of those businesses that you can grow. It's not going to take a lot of investment. You know, really no increase in fixed costs or anything like that. And we are trying to grow that, but it's slow and, and it's one of those things that I don't have to do. There's, there's not a lot of like pressure on me to do that. It's just something that I would love to, to take more of a. You Know, a share of the pie of. And the bakery side. You know, we're looking at doing some stuff in. In retail, being able to sell some of our mixes and things like that and grocery stores and stuff like that. But again, this is something I'm not in a huge rush to do. It's something that I would like to do eventually.

[34:02] Host: Great. And the. Now let's circle back to what we talked about. Your military experience of your experiences, going from. What was it, squadron to squadron, where you're the new guy, but also their leader and having the humility. You know, having humility, but also commanding respect. That. That needle that all searchers and all business buyers need to thread. What did you. Perhaps you could. You could frame this in terms of what did your day one speech look like?

Guest: Yeah, so I. I didn't make a day one speech. I, you know, they introduced me. They said, hey, this is a new owner. And I said, hey, I'm, you know, basically, hey, I'm really excited to be here. I'm really excited to work with you guys. I look forward to working with you hand in hand. But I felt like it was not appropriate for me to get up there and give my philosophy on anything because I was new to the business, I was new to the industry. Um, and, you know, I. I wanted. I. I didn't want to be that guy. Um, and I've. I've seen that in changes, changes of command, where the new commander gets up and gives his whole philosophy. It's like, shut up, dude. Like. Like, this is not your time. You know, put your head down. Learn. Be, you know, be observant, be a sponge and. And learn the place first, and then you can talk about what your philosophy is going to be. But you got to. You got to figure it out first. And.

Host: But, Jared, let me just interject, though, the. And maybe speeches sounds too lofty, but some sort of introduction like, hi, I'm. I'm Jared. This is my background. No, I mean that probably. We probably want to do that. Right, Right.

Guest: The previous owners did that for me. They introduced me. They told everybody who I was. They stayed in the business. Right? They. They. When I. When we did the deal, they had a contract to stay on for three months with an option to stay on for an additional three. So six months, and they were going to continue running the business. Additionally, we went a full day with me as the owner of the business before anybody knew about it. So we. We transacted on. I think it was on a Saturday night. Sunday went, and it was great. It was a good day. Everything was normal. I came in in the afternoon and, you know, it was like, hey. The. The owners gave a speech and said, you know, this is Jarrett and we've gotten to know him. And they gave my background and they actually. The. The. The owner, Toby, he actually made this big crawler, like a big donut, fried it. It was like massive, and painted it gold. And he like, you know, had this passing of the golden crawler to me. It was, it was.

[36:30] Host: It was pretty cool. Okay, so there was. There was some ceremony then.

Guest: Yeah, there was. There was, but the tongue in cheek ceremony? Yes. Yes, for sure.

Host: And Jared, the business was, what do you say, 73 years old, 1947, it was founded. These owners were. Were related to the original Lou, or they. They bought the business themselves.

Guest: They bought the business themselves. They had owned it for 27 years. So. So I was the fourth. I am the fourth owner. They were the third. So 37 for Lou, 10 for a guy, and a guy named Bob Watson, who was kind of in the middle there. And then. And then 27 for. For Toby and Patty.

Host: It's always nice too, that a business can demonstrate its ability to. To transition. Granted, they'd hold it. Held it for so long that whatever was true of the business when they bought it 27 years prior probably wasn't true when you bought it, but still.

Guest: Exactly.

Host: There's a little bit of robustness there.

Guest: Right?

Host: Suggests robustness. Go ahead.

Guest: Yeah. So then. So then I, you know, again, I said, hey, I'm, you know, I'm really excited to be here and I'm looking forward to learning from you guys. Didn't make a big speech. Showed up the next morning at 6am and bus stables.

Host: Oh, really? Yeah.

Guest: Yeah. So I spent the first month. I was here every single day for the first month, and I did every job. So I started busing. I did that for a couple days, and then I went into the dish spit and I did dishes for a couple days and I went into prep and I did prep. I baked at night. I did. I did everything. And I just got to know all the people and I got to. And basically, you know, when I approached them and said, hey, listen, I just want to learn from you. I just want to see how you do this and, you know, tell me everything. And so that's what I. That's how I spent my first month was, you know, I'm not going to change anything. I'm just here to learn the business and spend a ton of time with the owners, you know, Listening to stories and get in the background and all that kind of stuff. But, you know, really worked myself into the business slowly from the bottom up. And I felt like that was the best way for me to come in and show the people that, you know, I wasn't going to come in and change the menu on day one or, you know, open us up for dinner or do anything like that. I was like, I just want to learn about the business. I'm not going to change anything. Tell me about you. Tell me about your family, tell me about your job. You know, why do you like. That's awesome. You know, why'd you do it that way? That's. I never would have thought of that. And you know, everything I could just to make sure that the people in the business understood that I was humble and wanted to learn and I, I wanted to be a part of this thing, this organism that, that was, you know, that existed and, and you know, I wasn't there to, you know, come in and make a bunch of changes. And so, yeah, it was, it was, I would say it was like a slow transition where, you know, I kind of took over the business and you know, with the old owners still in the business, that was sometimes a little tricky. But I, I didn't, you know, I never like took offense to that when, when people would go to the old owner and ask questions and I just again, tried to be as humble as I could.

[39:30] Host: Took some time. Takes time for people to direct their energy toward you and see you as the, as the boss.

Guest: Totally, totally. Yeah. But really there, there was a g.

Host: There were GMs, right. Or a GM. I think that's an important thing that I skipped over. Yeah, when, when looking at any business really, but particularly a restaurant, if you're actually going to consider buying a restaurant, you say that this is really important. It is probably self evident, but give us more as to why.

Guest: So, you know, in terms of scale, this business is kind of special because it's big enough that we are able to afford to have a gm. A lot of restaurants are not. So we have, we, we have a gm, same person, a gentleman named Craig, who's awesome. He's great. He's been in the industry like, you know, his whole life. He was actually a regional manager for one of the big chains. A ton, ton of experience and you know, his kids live here and, and he wanted something that was a little kind of slower pace than the real corporate stuff. And so he came in as the GM about two years before I took over. And you Know, was pretty clear with the previous owners and with me that, you know, he's here to stay and he likes it here and he, he's not looking to do something else. And so that gave me a lot of confidence that he was here, you know, for the long term. I'm pretty sure right off the bat, you know, I gave him a bump in pay and, you know, we, we, we talked right away about compensation and like, you know, some sort of a bonus plan and things like that. Not to push him, but just to make sure that, you know, he knew that he was really valued and that I needed him to, to stick around. I still do. You know, I, I, I think in order for, for me to be able to do the things I do on a daily basis and just live the life I want to live, like, I need a person like that in this business, otherwise I would just drive myself nuts. I'd be here all the time. So, so yeah, it was really important for me to have him stick around. The chef too, the, the, you know, the kitchen manager. I made sure he knew that I was never going to come in and take over his role or try and push him out or anything like that. Like, he was an experienced guy. He was really creative. He ran a, you know, a tight ship in the kitchen and, and, you know, made him understand that I appreciated him and I, and his experience and his knowledge and, and I was gonna, I was gonna, you know, really looking forward to working with him. And, and really, you know, the, it was kind of this slow build up over the course of the first, I'll say, 18 months where, you know, I was more and more involved. I had more knowledge that mastery was, was building and building to where I could make decisions. And then, you know, I bought this business in the summer of 2018, and if you recall, in the winter of 19 and 20, we had a major event that really affected restaurants. So Covid, Covid happened about a year and a half after I took over. And you know, I like to say, and I really do feel this way, like the business never felt like it was mine until Covid. Like, I kind of felt like an imposter the entire time. You know, even though I'm looking at the books and I'm writing the checks and signing them and everything, and people call me boss. Um, I just never felt like I was the boss. I always felt like I was the new guy. And I always, again, had that kind of imposter syndrome. And then Covid happened and I really had to, like, step up and Lead, you know, in a, in a contingency. And fortunately I'd had some experience doing this type of stuff. Obviously never in a pandemic, but, you know, flying, flying aircraft, crisis, crisis response is, is, is what you get paid, paid for when it comes to being a pilot. Right. You know, when everything works, it's great, but then when, when things start going wrong, that's why you get, you make good money and, you know, that's what you get trained for and you spend a lot of time dealing with. And I really felt comfortable when Covid happened, as strange as that sounds. But, you know, there's all this pressure to like, holy crap, you know, we are in this unknown territory. I got to figure out a lot of stuff. I have 50 people on my staff, you know, not all full time, full time equivalents were probably in the, you know, 30 range. But all these people rely on this business for their livelihood. Labor's tough up here. You know, it is in a lot of places in the U.S. but in the Upper Valley, where I live in Hanover, it's really hard for a number of reasons, but it's tough to find good employees. And so I was worried about that too. Like, if I close, if I lay people off, am I ever going to get people back? And so, you know, I made a promise to the crew that I was going to do everything I can to keep everyone employed full time and, you know, keep the business going. And we're going to be agile and you gotta roll with it and, and stick with me because we're gonna try some stuff, but, but we're gonna do everything we can to, to keep this business going. And that's exactly what we did. We didn't close. We never closed for a day. Wow, our. Yeah, our servers close even right in

[44:15] Host: the, the month after the. It hit the fan.

Guest: Yeah. So, so fortunately we. The one major change I did make in that in those first 18 months is we changed our point of sale. So we have this really legacy point of sale. This is where people put their orders in and where you swipe your credit card. We changed our point of sale to a more modern point of sale called Toast. And I love, I see it everywhere. Yeah, you see it everywhere.

Host: You posted about toast on LinkedIn recently.

Guest: Yeah. Yeah. So I was on their customer advisory board for a while. I actually know a bunch of people at the company. So, you know, when I was making this decision, obviously I was looking at all the options, but I had a really good feeling about this company. Best move I could have made because we went from no online ordering, you know, really legacy system with a server, big ass server in the basement, to this cloud based system, online ordering, all this other stuff. Well, when Covid happened, doors closed. I went to my service, I said, hey guys, like, I, I need you to become delivery drivers. This is the only way we could do this. And they were like, all right, cool, we'll do it. And so all my servers became delivery drivers and we started doing delivery on day one. And we, we didn't do delivery in the past. I was, I, I hate the third party delivery companies, grubhub and Uber. And that's a whole nother story. But they're kind of predatory, especially towards small business, small independent restaurants like, like mine. So we started doing delivery and we started doing family style meals because people were stuck in their house. We're like, hey, why don't we make, you know, dinners for a family of five with salad and a dessert? You know, we're known for our desserts and package it up and, you know, make, make this really easy process for them to pick it up and not have to cook. And we were just like super entrepreneurial. And I say that, but I don't know, nothing was.

[45:58] Host: Sounds like it. Yeah.

Guest: I mean, we were just doing what we had to, right? We were like figuring out ways to make money and we did it. And it was just a slow rise back up. You know, revenue fell off. You know, on average we're doing eight, $10,000 a day in revenue. It went to like a thousand, you know, and then like we have this 21 day trailing average chart that we, that we, you know, keep an eye on. And it was like, it just kept going up and up and up slowly over time. And, you know, until we built the business back up, we did outdoor dining as soon as the weather got nice. And again, that was kind of a turning point for me in terms of being, you know, the, the boss because at that point, you know, I'm like making these decisions and bringing back all these entrepreneurship classes that I took at Tuck and figuring out ways to, you know, get the team on board and come up with minimum viable products and use a lean canvas for, for coming up different ideas. And, and we did that. You know, I like sat with my managers and said, all right, like, we broke out the lean canvas and we're like, you know, filling out all the boxes for the dinners to go and for just different, different things that we did. And, and it worked out so really

Host: lucky, you know that phrase, lean canvas, since my Tech days.

Guest: Sorry, I was just gonna say, of course we leaned on like every stimulus. Anything out there too. Like, the bank was awesome, super supportive. We were the first PPP loan that they wrote and potentially like one of the first PPP loans that went out in the US like they were right on top of it. As soon as it opened up, they were there. And I worked really closely with the bank to get that PPP loan, so. And of course that was forgiven. And there was other stimulus packages that we were able to take advantage of. Employee retention credits. I was all over that stuff. And, and that's. They were lifelines. They truly were.

Host: And, but Jarrett, revenue did decline markedly. And then you clawed your way back with these, with this innovation. But when revenue declined and yet you kept everybody employed, so did you kind of just personally absorb the lost profit there?

Guest: No, I mean, we had, we had a cushion, right? We, I was, you know, we don't, we don't run a super conservative balance sheet in terms of like our cash cushion, but we had plenty to last us a couple weeks, right? We were, we were going to be able to make payroll for a couple weeks and again our fixed costs went down. I went to the bank and said, hey, I'd like to stop making my, my payments on my SBA loan because that'll help me a lot and on my mortgage and all the other stuff because I, at that point I own the building and the bank was great. And they said, sure, we'll just pause payments. So I was able to take away some of those kind of recurring payments that, that end up, you know, building up and being really scary again. You know, a big part of our business was cost of goods and so we trimmed labor a little bit where we could, you know, the people that kind of use this as a part time gig and you know, students and things like that, like, sorry guys, you know, we just don't have the hours for you. But, but we didn't, we didn't lay off any full time people or anything like that. And we just kind of trimmed as much as we could. And I said, hey, when we get to this point, that's when we have to start laying people off or whatever. And fortunately we never got to that point. Right. We were able to just like create new lines of business. Again, that PPP loan coming in really timely was super important and, and we just were able to just kind of keep on trucking through. So it worked out well.

[49:13] Host: Well, I, I think your experience of only feeling like truly the owner on the other side of this experience. While many business buyers aren't going to go through a pandemic in their, in the business that they just bought a year and a half earlier, let's hope that the kind of only once the business has their fingerprints on it do they feel truly like the owner as opposed to just owner in name.

Guest: Yeah.

Host: So I think, I think that that kind of is a natural, a natural way kind of progression that you experience to just more accelerated. You probably would have eventually gotten there. But you know, after six months you got there because Covid kind of kind of forced you to really make some strategic decisions that affected everybody within the, within the organization.

Guest: Yeah, totally agree.

Host: Yeah. Well, congratulations on the way you manage that, Jared. Sounds like it's quite successful.

Guest: Thanks.

Host: Let's get into a little bit about what the, the deal actually your transaction

Guest: here actually looked like.

Host: And let's start with whatever you can share on the business. The, the numbers behind the business itself.

Guest: Yeah, sure. So as I mentioned, I do, I am still under an NDA so I can't get into too many details, but I'm happy to kind of give some big picture numbers. So you know, right now we're doing in terms of revenue or when I bought the business in the millions, so single digit millions but somewhere in the middle there in terms of profitability, again, high teens. So the owners had a good life. They were making in the hundreds of thousands, kind of mid hundreds of thousands in terms of sde. And the way we valued the business was we took. We did like an interest rate buildup method. So instead of it's. There's no comps for this type of business. Right. You know, if you look at McDonald's or something, a publicly traded company, they're trading at like 9x earnings. And this is not like that. So you know, we didn't really.

[51:14] Host: Before you get into this because I want to hear you break this down, Jared.

Guest: Yep.

Host: But why. Sure. You want to compare apples to apples. So industry business to industry versus restaurant to restaurant. However, on the other hand, there is kind of a pretty tight band in small businesses or businesses of a certain size that is call it two and a half to four and a half. That's you know, so why wouldn't you just anchor to kind of. To kind of that as opposed to a more. This more sophisticated method you're about to explain.

Guest: To be honest, I don't have a good, I don't have a good reason when the, the accountant that we were, this guy Mark, who is kind of the intermediary for this whole deal. When he presented the business to me, this was the method that he used. And I took that to a couple friends that I have who had worked in investment banking, private equity, and said, hey, does this make sense? And they said, yeah, absolutely. And they pointed to this book called Duff and Phelps, which is a valuation guide that a lot of kind of small, smaller business PE type of firms use in order to come up with a value of the business. And Duff and Phelps had essentially a formula and then kind of a guide for what the, the, the values of these different parts of the formula was. So, you know, the easy way to think about it is some multiple of earnings. The other, the opposite way is, you know, instead of multiplying is through division, right? So you take SDE or NOI or whatever, EBITDA or whatever you want to call it, and you divide it by some number, some risk premium. And so, you know, in real estate this is what we do with a cap rate, right? And so for a business you can do the same thing. And so the way we did it was, I think there were four different components. There is a risk free rate plus an equity risk premium, plus a size premium, plus a industry premium. I can't remember, I don't think I said that or no. Yeah, industry size and then company. So five different, five different parts of it. So you take the risk free rate, which at the time was, we'll say two and a half, 3%, you know, whatever the 10 year treasury is, you take the equity risk premium. So if you look at the S&P 500 over the course of the last however many years, you know, it's averaging, you know, the average returns are, we'll say 7, 8%. So you add that to your 3%. So now you're at 11. You have some kind of, you know, industry premium, we'll call that 5 to 10%. You have a size premium, maybe that's another 2 or 3%. And then you have a size because

Host: it's a small business, it deserves.

Guest: Yeah. So the small, take that into account, right. The smaller the business, the kind of more that percentage is going to be. And then a company risk premium that is kind of made up. Right. And so this, yeah, this is what you negotiate on. Like what is that number? If that number is bigger, right. You're dividing by a bigger number, then you get a smaller number for what the value of the company is. If that number, total number is smaller, you get, you know, you get a bigger number.

[54:14] Host: So, so this is almost like if, if we, you'll sometimes hear people refer to the multiple that we buy businesses based upon converting that to kind of a cap rate to think about things in real estate. That's basically what this convert. I mean you could just divide by 100 and flip it sort of.

Guest: Yeah, yeah, yeah, yeah.

Host: So, so you broke this down, these five. How you kind of add these five risk percentages up, you, you total them is pretty interesting. So this is well known. So private, private equity experience listeners will know what this is. I have never heard of this. I have some studying to do. I guess this is a well known method I guess among business brokers and, I don't know, bankers, valuation experts. Okay.

Guest: Yeah. And, and, and actually the, on kind of on my side, there was somebody at the bank who was kind of, you know, in, in my corner, he, he had done a similar type of valuation. So, you know, the sellers had had their valuation, we had ours. You know, of course their premium is like 17% or something. Right? So, so it'd be like a 5x multiple more than that. Five, five, you know, and I come in and I'm, mine's like 30 something percent, you know, so mine's like a 3x multiple. And then, you know, we said, okay, well why'd you use that number for the industry risk premium? Well, because, you know, restaurants, blah, blah, or this size. And again, Duffen Phelps has some kind of numbers for what those should be. So, you know, if a business is less than $5 million, then you should use this number if it's. And so we were like really on the micro side of this. And so a lot of this was really up for negotiation. We ended up in the vicinity of, you know, 3, 3.5, something like that, 3.7x multiple. So, so that number was, you know, up into the, up into the 30s and, or high 20s, low 30s and. And then there were a couple other levers that we had, right? So one was working with the bank and figuring out how much the bank is willing to lend. Two was the sellers and how much they were willing to take back and you know, as a, as a seller note and then how we were going to treat that in terms of escrow or anything like that. So and then, and then the last is like how much money I had, which wasn't a lot. And I ended up like basically clearing out whatever investments I had. And then I went to some family and said, hey, I just need a little bit to get me over the line. And I was able to borrow, you know, just again, a family type of loan in order to get me over the line there and then.

Host: Can you tell us what that, some cash was that you brought to this transaction?

Guest: It was 200 and something thousand total.

Host: It was 200 something thousand total. And you'd basically liquidated all of your assets, your financial assets, and done a little bit of friends and family money.

[57:04] Guest: Yeah.

Host: And you're in your mid-30s with a family with three children and a wife.

Guest: Yep. Super risky.

Host: It was super. Just. Just making sure that. Because you. Because now it looks. I mean, things are going well, so where. It's like, no big deal, but did it feel like you were going all in, like you were pushing all your chips on the table?

Guest: It did, but also I'm like, what do I have to lose? Like, I, you know, I. I had. I had this great education. It looked like a great business, and it turned out to be a great business. And, you know, if it didn't work out, then I'll go get a job. Right. Like, you know, I. I knew that I could get a job and, yeah, it would suck and, you know, maybe I'd have to go crawl back to somebody and ask for money, you know, a family member or something. And, hey, can you help me out here? But, yeah, it was super risky, and I realized that, and I know it. I knew it at the time, but this was what I wanted to do. I just didn't. I didn't want to be miserable in some job that I hated, and so I took the risk and it worked out. So. Yeah, well, I.

Host: And I interrupted you about. So where. So where did SBA debt arrive at? I think I.

Guest: You were going to finish. Yeah. SBA was almost 80%, just shy of 80%. The sellers were a couple hundred thousand. In terms of what they were able to lend me, that couple hundred thousand acted as escrow. So basically, we had this. It was a stock deal, too. This is another kind of interesting point, but we did a stock deal, and I can talk about that here in a minute. But we had this list of things that the escrow was going to kind of COVID So, you know, one of them was working capital. So we had a networking capital number that we had to be at, and I think it was plus 50,000. And obviously, you know, this list of things that are considered in working capital. So if that wasn't there, that was going to come out of this escrow and come out of this money that I was going to have to owe them if anything broke. Big, big things, you know, if the freezer breaks, if the, some, you know, we have some issue that was going to come out of the escrow and there were things when we looked at the building that were like, you know, freezer was super old, the dish area was like a mess, there was water leaking through the floor. So there were a couple of those items that I knew I might have to fix. And we had this money that was kind of this escrow that if any of those things came up within this time period, it was going to come out of that money that I owed to the sellers. What else do we have?

Host: That's a great protection by the way. I'm sure many of my guests have had that, but I, I don't, I'm not super so familiar with that technique that I ask about it. Does that have a name? I mean that's, that's kind of like a forgivable seller note. But it, but it's more like money allocated should something very specific covered, I assume in your, in your apa, it's a purchase agreement. Should one of these things occur, like you know, some asset worth over $1,000 breaks, then this money goes toward that. Great technique.

[1:00:02] Guest: Yeah, yeah, yeah. And that worked out really well. I can't remember who told me to do that, but somebody gave me that advice and it was sage advice, really, really good. The other thing is the real estate. So the sellers owned this, it's a condo association, this building. So they own the condo. And that was really, really important to me. Most, most restaurants are asset light

Host: and

Guest: that's one of the dangers, right? They don't own a lot of their stuff. So rent goes up every year and they are never able to kind of get over the hump. Whatever profit margin you make in the beginning is going to be the margin you make forever. Well, they own the building, which is awesome, right? 30 South Main street in Hanover. Great piece of real estate. And that was really important to me. So we were able to kind of allocate value to different things and basically, you know, we kind of were going back and forth on what the value of the restaurant was. And finally I said, hey listen, I will pay more for the real estate because I'm able to get cheaper debt for a longer term and it's, you know, secured. But I'll pay less for the restaurant because this is shorter debt, you know, more expensive, more risky. And that was the ultimate agreement we came to. So I bought an option to purchase the real estate. I had a three year option at a fixed price and then I had a right of first refusal that resorted to, you know, we basically said we would have it appraised by two appraisers and we would, you know, mix the two together and that's what I would pay for the building. So I was pretty lucky. And it happened to be right before COVID which kind of sucked, but also worked out fine. But there was some really, really cheap debt that came from the Federal Home Loan bank of Boston that my bank found. Led your bank. And it was zero percent interest for that. It was, it was the Jobs for America app. So as long as I was, you know, employing people and had any kind of growth aspiration, which, you know, of course I could, I could say I have, you know, lots of growth aspiration because I want to grow catering and you know, grow. Grow bakery. They. They were able to give this money at 0% to the bank. They put their carry on it, which was like 2%. But I got super cheap debt. 25 years on the building. I had some money that I had been saving up to buy this, this building, but then I went to one of the community development loan funds in, in New Hampshire and said, hey, I'm looking to borrow an additional 100,000 as mezzanine debt. And they were able to do that. And so I was able to buy the building about 18 months, 16 months after I bought the business. All SBA. So that's a SBA 504 because I own the business in the building. And then SBA 7 a 10 year term. 1010 on the, on the 7 a. To. To buy the business and then what else? That's pretty much.

Host: Jarrett, why did you not buy the real estate when you bought the business? Why did you just buy the option?

Guest: I didn't have. Just. I didn't have the money for it. As I said, I cleared out my, you know, basically cleared out my savings. So I was like, yeah, I just didn't have the cash.

[1:03:09] Host: Yep, yep. But that just worked out phenomenally so well. Before I kind of close out what, what you're sitting on today, I just want to revisit the multiple that you ultimately paid or. Excuse me, that we can call it either the multiple or we can call it the, the what. What was the, the language for the way you did it?

Guest: The. The ultimate risk premium.

Host: Yeah, the ultimate risk premium. But you said the multiple was in the mid threes, which, you know, feels like what we often hear on this podcast. How does that compare to other small businesses that you're aware of? I. If we do kind of force ourselves to do a Bit of an apples to apples.

Guest: Yeah.

Host: Is that where a business of this size typically falls anyway?

Guest: You know, I think so. I think for restaurants you're going to find it's going to be much lower, especially smaller ones. So much. You know, if I were to look at the pizza place down the street, like, I, I would probably expect to pay in, in the vicinity of like 1 to 2. But.

Host: So, so you paid a premium, but you also, I mean, you're buying a much more premium business.

Guest: Exactly. I mean, again, the profitability and the stability were the things that were. That really stood out. And then the fact that there's kind of all these other pieces to it. You know, it's this community asset, the real estate made it more valuable to me and I don't know, maybe I overpaid. I sometimes I think I did. But you can't.

Host: Things are going so well and we're gonna highlight exactly, exactly how and why here as we, as we start to wrap up. Okay, but, but also, Jared, one thing I should have asked you at the outset is when learning about lose, what's the vibe? So as a, as a, as I dine or I come in, is it this kind of big bustling place or is it. What's the vibe?

Guest: Small. Bustling.

Host: Small bustling place. Yeah.

Guest: Diner.

Host: Is it a diner?

Guest: It's diner. Ish. Lou was pretty specific that diners were like fast food and cheap. And so we're a restaurant, not a diner. Okay, but, but it has that, it has that 50s diner feel. You know, it's got like the checkerboard on the floor and you know, on the walls, the booths, a counter with like the boomerang pattern on the counter. So. So that's very 70s and bakery kind of counter in the front as well when you first walk in the door. But it's small, the booths are tight, it's packed. Most of the time, especially if you come here on the weekend, there's a line that goes down the wall for people waiting. We don't take reservations or anything. You just come and you. And you wait. The great menu, you know, we've got kind of a bigger menu, diner style, but, but a little bit more refined. We've got some, some stuff on there that's just, you know, not your typical diner fare. And, and it's a little. The menu, I would say, is cleaner too. Like, you know, we have a lot more greens and a lot less fried food. And sure there's heavy stuff, you know, and pancakes and things like that, but there's Also some options that are, that are lighter and cleaner and healthier and you know, with the, with the student population here, I think that's really appreciated. And we sell a ton.

[1:06:04] Host: Well, I was going to say, you know, being in a college town for an Ivy League university, something tells me that there's a little bit of that that's needed on a menu.

Guest: Totally the stock deal.

Host: So what did you want to say about that?

Guest: Just that was, that was a big conversation that I had with my attorney and with, with the, you know, with the sellers and a bunch of people that was, that was a touchy one. Super happy. I did a stock deal though, and, and this is why, you know, there's risk, right, when you do a stock deal. And as I mentioned, I did really trust the sellers and I didn't get this feeling like there was going to be something that was going to get uncovered. They'd been cheating on their taxes or whatever. But when I, you know, when I took over the business, first of all, we agreed on this working capital number. So there was money in the checking account. You know, payroll was going to happen on schedule a week after I took over. We pay every two weeks. Everything was set. The terms I had with my vendors was set, set. Most of the time when you open a new restaurant, especially a new new restaurant, it's cash on delivery. Like the, like Cisco comes and they want a check. So I had 30 day terms with most of my vendors. Nothing changed. And I think a lot of this rigamaroll, like I, I've, I've only listened to a handful of your shows, but I've heard of some of the people who didn't do stock deals, who did asset deals and like lost these big contracts. And you know, it was really upsetting for them, for their business. Not, you know, emotionally, but like it upset the business because, you know, their rent changed and all this other stuff. Well, none of that stuff happened. You know, I remember I got a health inspection pretty soon after I took over. And the health inspector looked at me, he's like, you're not Toby. And I'm like, no, I'm not. But you know, I took, I bought the business. It was a stock deal, so it's the same corporation. You know, I looked into this, I did research and made sure that we didn't need another health inspection, new one from the state or whatever. And he's like, that's not true. And I'm like, no, no, it's, it's true, trust me. Like, I, I checked into this and so did my attorney. And he's like, no, you know, you got to kick everybody out and shut the doors. I'm like, like, listen, sir, you know, respectfully, if you close my doors and kick everybody out and give me a bad name and you're wrong, I'm going to sue you. I'm going to sue the state for lost revenue and, you know, damage to our reputation, because I know I'm right. And he's like, hold on. So he goes, makes a couple phone calls, and he's like, you're right. Um, and so, you know, the inspection went fine. I was, again, super respectful and learned a lot and all this other stuff. But the fact that.

Host: Well handled. Jared, that was a.

Guest: That was a. Yeah, that was like

Host: Razor's Edge moment there.

Guest: It was. It was scary, but. But super risky too, right? If I just said, okay, sure, like, that would have been very damaging. But, yeah, it ended up working out really well. And I took a hit on depreciation. Right. There was goodwill that I can't depreciate because it's already fully depreciated. But, you know, worked out really well for the sellers because now they're paying long term capital gains tax instead of short term capital gains, so.

[1:09:03] Host: Which is why sellers typically want it.

Guest: Exactly right. So their tax rate on the deal, you know, if it was an asset sale, would have been into the what, 20, 30% range. But as a stock deal, long term capital gains, you know, much, much lower tax rate, and the price adjusted, too. So we lowered the price a little bit because the sellers were getting the advantage. I was taking the risk. But, you know, I think. I think there's a lot of people out there, especially attorneys, they'll tell you right off the bat, like, never do a stock deal. Right. And there's a lot of great reasons not to, but there's also a lot of reasons why it could work out. And again, I was lucky and I trusted the owners and. And it worked out really well for me. It could have gone different ways, but it was. It was the right decision. I'm glad I made that decision.

Host: Well, I feel like doing a stock deal is akin to buying a restaurant. The default is you don't do it. The default is the asset.

Guest: Asset purchase.

Host: But. But don't be so narrow minded that you don't consider the alternative.

Guest: I love.

Host: If it looks like it could make sense, go for it. So, Jarrett, you mentioned that you basically were able to buy the real estate a year and a half later.

Guest: Mm.

Host: You had been saving.

Guest: You.

Host: You didn't have the capital to do that at the moment of the. When you bought the business, but a year and a half later you did. So that tells me that things were going well. It was earning nice nicely enough that you had the, the, the deposit necessary to buy the building. Correct me if I'm wrong, but. And you've told us about COVID but give us a bigger picture now of, like, how has it gone? How are things going today?

Guest: I would say really, really well. I think, I think I've been super fortunate in a lot of ways. I found a great business. It's worked out the way I kind of expected it to. We're not as profitable as we were when the sellers sold it, but only by a little bit. And I'm okay with that because I'm reinvesting in the business. I'm reinvesting in the people. We're paying people more. There have been some economic changes, too. Again, labor's been tough. Food costs went way up during. COVID has come back down. But ultimately it's going really well. And you know, again, in terms of that profitability, I, I, the way I think about it is the first we'll say five or seven years, it's reinvesting in the business. It's paying down debt, it's getting rid of debt. It's, you know, I'm not looking to make a ton of money in the, in those first five to seven years. Once we get past that, then I'm going to start thinking about, like, okay, now we start kind of leaning things out, getting it, getting it on a more stable path. We just, you know, we did a big kitchen renovation, as I mentioned. We took over the space next door and we invested money to build out the bakery there. So it's been a lot of reinvestment again, a lot of paying down debt and not taking a ton out of the business. You know, we take a salary and we take distributions, but we're, we're putting a lot more back into the business than, than the sellers were. And then I don't know what my timeline is. I, I don't, you know, I think, I don't, I don't have any thoughts of selling the business anytime soon. But I think, you know, eventually I'll get to the point where I'm going to start to make the business look good again and on paper and, you know, not reinvest as much if I don't have to and be a little tighter on payroll and stuff like that and make the business look good. But yeah, it's been going great. You know, I love living here. It's an awesome place to live. There's tons of outdoor stuff, great schools, really good hospital system. I, I won. I, I feel like I'm, I am so fortunate and it worked out really well and, and yeah, I'm, I'm in a pretty good spot.

[1:12:40] Host: That's amazing, Jared. And how old are you?

Guest: I am 42. 42.

Host: So summer 2028, 2018, we're approaching summer 2024. So we're six years into a 10 year SBA note. So you're in the back half. That's when a lot of, you know, I mean, you're, you're really paying, generating a lot of equity for yourself every month. Yeah. And you paid off the seller note.

Guest: Yeah, quickly. Quickly, yeah. Because, because we did take a bunch out, out of that escrow, as it turned out, just the way that payroll fell because it was like towards the end of a pay period and inventory was a little less than they thought. And so actually that, that note, like a huge chunk of that note got taken away as soon as we figured out some of those network and capital calculations. And then there were some repairs and things that we took out of that. So that note shrunk a lot and then.

Host: Right, but. And sorry, that note was there at transaction. So this was not you, you brought that cash to the table and it was sitting in escrow. It wasn't.

Guest: No, no financing. Oh, it was, it was, it was,

Host: it was financing and you were reducing what you had to pay them in financing.

Guest: Exactly. Sorry. Yep, yep.

Host: And Jared, let me ask because you mentioned, you know, being a tuck prestigious business school, Goldman Sachs and McKinsey come recruit there. Surely some of your classmates went that path. Can I ask on your personal take home what that looks like compared to if you'd gone into industry?

Guest: Yeah, I mean, I think, I think cash. Right. Like, and cash is certainly less. Like, I, I look at what my friends are making and they're definitely making more money than me, but when it comes to equity, I think I'm doing a lot better because, you know, I'm building up the value of this business or, you know, paying down what the bank owed me. Same with the real estate. You know, the value of the real estate just keeps going up as it's more and more scarce and I'm making the business more profitable again as a percentage of revenue. Even though our, our take home number is, is about the same as, as the sellers or a little less. So. Yeah, I think you know, strictly on a cash basis, certainly less than what my. What my classmates are taking home. But from an equity standpoint, I think I'm probably in a better spot. But to. To be honest. Well, like, that's not why I did it. Sure. You know, the money's fine. Like. Like. But that's not. That's not the driver.

[1:15:09] Host: Quality of life standpoint.

Guest: I should. That's. That's what I should be asking. Honestly, way better. Like, I. Yeah, right. Are there times, like I told you this morning, you know, we had a snowstorm, a bunch of people called out, like, I was up there doing dishes. You know, that's just how it goes sometimes. And. But that's rare. You know, that does not happen a lot. And certainly there are times when it's a Sunday morning and something happens and I gotta wake up and come in and, you know, do dishes or whatever.

Host: And.

Guest: And that's fine. That's part of being a small business owner. But the reality is that, you know, we close at 3, which is great. Right? I. I'm. I'm always around for my kids. I go to their sporting events. I'm like. I'm really active in the community. I'm on the planning board. I'm like, you know, I do a lot of stuff with the town. I volunteer. I have hobbies. I fly still. I fly Cessnas and, you know, little. Little airplanes and. And do a little bit of instructing too. So, yeah, I think it's. I think it's working out really well. And, you know, again, that. The thing that I have that I was afraid that I wouldn't have is that autonomy, that mastery and that sense of purpose. And. And those are the things that are really important to me. And. And sure, the money is good, and I'm living very, you know, comfortable life, certainly nowhere, you know, not. Not near what some of my other classmates are making, you know, who went into private equity or whatever. But that's. That's not. That's not the driver for me. Yeah. And those that wouldn't make me happy.

Host: Yep.

Guest: Yep.

Host: And the business is. Actually has grown, even though growth wasn't something that you were going to pursue aggressively. In fact, it's. It's grown. By what percentage would you say in

Guest: the six years we're up probably 60%. So I don't know what that is. Compound annual growth rate. But. But, you know, we had some big years of big inflation. We. We had some headwinds as the. As a result of COVID We. Outdoor dining wasn't A thing. And we gained like 11 extra tables. We only have 16 tables inside, so we gained 11. Massive increase. This is why we did this big kitchen renovation, because I wanted to increase our ability to serve all those tables. We used to be really limited in capacity because the kitchen just wasn't big enough. We didn't have enough cook space, flat, you know, grill space and whatever. So we increased that and. And yeah, the business has definitely grown. And some of that is for me, but a lot of that is just, you know, Covid and kind of other things that have happened.

Host: The extra tables, it sounds like a lot of that is. So I guess in. In restaurants, all these tables on the curbside tables. Post Covid is really a boon to restaurants. I mean, that's just. That's just because that's the. That's the one thing where there's a ceiling is the number of tables you have. There's a tight ceiling on a restaurant. It's basically number of tables times whatever number of meals per day and. And that's it. Number of table turns, I guess. And so the only thing that you can really change there is the number of tables which. Which post covet a lot of restaurants were able to increase.

[1:18:06] Guest: Right, right. Yeah. I mean, you know, in terms of guest count, like, we. We were. We were pretty limited. We were limited to about 500 a day. 500 guests. And then that doesn't include the bakery and takeout and catering and stuff like that. But just sit down guests. We were, you know, if we hit 500, that was a great day. And now we're doing, you know, we'll do 650, 660. Pretty easy. And that was in the old kitchen. With the new kitchen, I'm hoping to hit 700 here pretty soon. So. Yeah, I mean, good, good outcome. Of course, during COVID that was like our only income, so we were significantly less than what we were able to do. But then once things open back up and people love it, you know, it's. Yeah, it sucks. It takes up some parking spaces, but the town is just so much more vibrant. You know, you walk around, there's people sitting there. It's. It's awesome.

Host: Totally. I love it. I mean, as a citizen of a town with outdoor seating, it just gives it much more of that continental flavor. Right. Yeah. The going again on this point about growth and the fact that you had a general manager in place, you know, one of the reasons that we like having operators or general managers in place as business buyers is so that we can then work on the business, not in the business. And usually working on the business means sure, improving the business, but beyond that, strategic projects, I. E. Growth. And if you weren't super growth focused, what the heck are you doing all that? No, but actually, seriously, Jared, like, if you have a manager and you're not like, you know, how am I going to open location 2 and 3? What does your day to day look like?

Guest: Yeah, so one of the things we did early on was my office manager, you know, found another job. She gave us plenty of notice and said, hey, I just want to go do something else. I'm like, great. And we didn't hire somebody to take her place. I automated all that and I took over a lot of it. So I do the books. I'm the HR manager. I do a lot of that kind of back office stuff. And you know, one, I like doing it. I like looking at the numbers and kind of doing QuickBooks and stuff like that. It's just soothing, I guess. But also it's nice to not have somebody else that's dealing with your money in a small business. There's so many stories of people, you know, stealing from, you know, the bookkeeper stealing. And so I like that. So we've kind of reduced some payroll there. We Covid took a big chunk of my, my growth. And you know, the, the, the energy that I had for that. Right. Is like just figuring out how to keep things going. And you know, as I mentioned, we were able to do a lot of different things. Some of those things stuck. A lot of them we did during COVID and then we stopped doing at this point. Now the things I'm working, I'm focusing on. So as I mentioned, we moved the bakery. So that was kind of big. That's expanding capacity. We renovated the kitchen this year that was like, we actually did it in six weeks, but it was months and months of prep and planning and all that. So that was kind of, you know, this past six, eight months was, was really heavily focused on that. I did a lot of the work myself. Just, you know, being kind of the general contractor and chipping in and being here every day, literally with a hammer and helping the contractors do their stuff. At this point, I'm looking at a couple things. So as I mentioned, we, you know, we're looking at bringing in mimosas and things like that. So raising the check average, just another kind of benefit for customers. We had, we had a competitor move in across the street that's more fast, casual. They do like bagels and, you know, quick service. Type of stuff. So we're trying to move the business higher in the experience level. So instead of focusing on that quick stuff, you know, they're going to take. They have taken some of those customers. We felt it a little bit. We, you know, it, it hasn't had too much of an impact, but, you know, our strategy is to make the experience a little bit nicer. Catering is, again, something that we've, we've always tried to grow. And, and it's constantly up and down. You know, we, we'll grow it. I'll bring somebody in. We, we had a couple great employees that did a good job and then, you know, they left and things kind of fell. Fell off and then hired somebody new and it took them a little while to pull back up. So there's some opportunities there. And then lastly, I think we have a great brand that a lot of people know, especially Dartmouth people, and we have some great products. And so I'm looking at ways to expand outside of the store. So potentially in retail. Yeah, potentially in E commerce, you know, selling mixes and stuff like that.

[1:22:30] Host: Yeah.

Guest: So those are the things I'm going to be focused on this year.

Host: That could be a really interesting business. You know, it reminds me going back to, I'm going to, I'm going to riff here, and I may not know what I'm. I don't know what I'm talking about, but it reminds me of when you were talking about like, expanding locations and how, how perilous that can be for a restaurant. And I was just thinking, like, also there's something as a consumer, selfishly now as, as a diner, there's something special about there being but a single location for a place. Like, it's, it's like going to the one and only. It's that much more of an experience if there's just the one place where I can go have this meal. I, you know, I went to lose, not lose two or lose three or lose four, lose five. I went to the one and only lose. And I feel like if you leverage that brand into, like you said, mixes or something, the brand, that brand value is tighter, stronger, more special. If there, if there still is just a single location on Main street in small Hanover, New Hampshire.

Guest: Yeah, absolutely. And, you know, the back to your original question, Will, is like, you know, what do I do every day? There's something fun and like, really natural and human about hosting people and like serving people. And I enjoy that a lot. And I spend time doing that. Right. I spend a lot of time in the Dining room, talking to people and being present. And, you know, I remember. I remember somebody, you know, an officer that I served under, talking about leadership by walking around, and, you know, that, like, struck a chord to me. It's like, just be present, like, talk to people, walk around, you know, ask people how they're doing. It's so important, and it's so fun. It's. It's a. It really is a pleasure that I. That I have in this business of, like, standing at the counter and talking to people and serving people and, you know, asking people how their meal was and figuring out ways that we can constantly be improving. So. So I enjoy that and. And that. That brings me a lot of fulfillment.

[1:24:23] Host: Well, you took the last. My last question out of my mouth, Jared, is that, is that you also bought a what. What you characterized as a fun business. You know, sweaty, boring businesses are great in. In many ways, and. And people can have fun in them, but there is definitely a certain sex appeal, if you will, to. To, you know, having your own restaurant, being in a restaurant environment, your customers are basically there to have a good time and enjoy each other and enjoy a good meal. And, you know, you're giving them that experience and being kind of along for their ride or. Or talking to them as they check out. You also said that you like. Like shooting the. With us, with the staff. Say a little bit about that.

Guest: Yeah. I mean, it. You know, restaurant staff are. They are a fun group of people. There's, you know, definitely some. Some partying and some stories, and, you know, we've. We've got our fair share of people who've. Who've had trouble in the past. I don't shy away from that. I'm okay with it. Sometimes it bites me, but most of the time, not, you know, if you. If you treat people well and, and treat them with respect, you know, even if they've had a trouble, troubled history, they're gonna. They're gonna be grateful for it. And, And. And they're gonna appreciate you. And. And I appreciate them, you know, to. To. For. For coming in and. And. And giving it their all. And those hard days when I need them to show up or I, you know, I need a little extra out of them or I need them to put in, it all comes around. So. So, yeah, it's definitely an interesting crew. A lot like Marines, to be honest. Especially in the back of the house, especially in the. In the kitchen. You know, lots of dui.

Host: How is that.

Guest: How.

Host: How are. How are Marines?

Guest: Just. Oh, man. I mean, young Marines just do stupid stuff, you know, get in trouble and you know, buy, you know, you see a lance corporal young Marine pull into the parking lot with this like, you know, couple year old Mustang. You're like, dude, how'd you, how'd you afford that? Like, I know how much money you made? Oh, they gave me a great loan. Like, can I, Can I look at the loan? Like, oh, yeah, yeah. You know, it's like 19 interest and whatever. You're like, dude, do you know how much you're actually paying for this? So there's, there's some of that. But. But again, it's. They're great people and, and I think people who work in this industry, you know, it's. It's. It's a, It's a certain group of people, a certain special group of people who enjoy cooking and they enjoy serving people and they enjoy being part of that atmosphere. And the atmosphere in the kitchen is. It's fun and it's, you know, everyone's always joking around and having a good time. You have to. If you're gonna, if you're gonna survive it. So. Yeah.

Host: Did you watch the Bear?

Guest: Yeah, Yeah, I loved it.

Host: How close to your day to day is.

[1:27:01] Guest: Is that, is that show obviously dramatized, but, but, but they didn't make that stuff up. Like, like, they're. We've been in those sit like the, the. The episode where the tickets are coming in from Grubhub, I'm like, yeah, I have been there. Like, not from Grubhub Snack Bass and online ordering and like, holy. You know, dining room is full, there's people hanging out the door and all these orders are coming in and like, everyone's freaking out or, you know, things break all the time and figuring out how you're going to make it through the day, it's like they got a lot of stuff right in there. Again, it's a little bit dramatic at times, but pretty, pretty accurate. And maybe, maybe my history as a, as a pilot and, you know, having having served in combat and, you know, lends well to being able to handle stress, and I kind of, I kind of need some of that in order to make it through the day.

Host: Well, it's funny, Jarrett, you say that because I, I've had more than one guest that veteran say, you know, I've been shot at, I've seen combat, and running this business that I bought is still the hardest thing I've ever done. It sounds like maybe in your case, it. It's not. You probably had some, some deeper Crises in, on the battlefield.

Guest: But it's a, it's a different type of stress. You know, like, like a lot of times people talk about flying. It's like 99% boring and routine and that 1% of like sheer terror. You don't experience that as much here. Like, I, I feel like the stress is more of a slow burn. You know, we, the college goes home and before Thanksgiving, the students, you know, they do the quarter system. So all of December, there's no students here. And then January, February, March is like dreary and slow and you know, our business is way down. And then we have tax season in April and it's like a scary couple months. And even having done this for six years, it's like every year, January, February, I'm like, you know, waking up in the middle of the night, like, are we going to have enough money? And those are stresses. Those are different types of stresses. But yeah, it's tough. And I mean some of that planning. The scariest part about it is that, like, this is all on me. And I know I'm not super smart and super experienced or anything like that. And like, I could really screw this up bad. And that's a little terrifying. Fortunately, I haven't yet. Too bad. But it can happen.

Host: What a great story. What a neat business. If people want to reach out with questions, how do you like them to do that?

Guest: Sure. So I'm on LinkedIn. I did join Search Funder, but I'm not super active there, so LinkedIn. Jarrett Burke J A R E T T B E R K E if you want to email me, you can email me Jarrett J R e t t@loserestaurant.com yeah, reach out. Happy to talk.

Host: Okay, put that all in the show notes.

Guest: Cool.

Host: Jared Burke, thank you very much.

Guest: Thank you. Great talking to you.