Host: One of my most straight shooting guests, John Hubbard, returns today for a fantastic conversation. John bought a trailer fabrication business in 2021. He's embraced a philosophy of chasing EBITDA, not revenue that has served the business well. It's closing in on 2 million in EBITDA, which is sort of a magic number, a threshold where you can enjoy significant multiple expansion because you're now large enough to interest private equity. And we talk about whether John should sell in the next couple of years. You'll hear how tempting it is. John spells out the math of what exactly he'd walk away with. It's a great peek into the psychology of a seller, like someone you might find yourself on the other side of the table from, or the analysis you yourself might eventually need to do if you buy and grow a desirable saleable business. Also listen for this theme of chasing EBITDA over revenue. It may seem obvious to do that, but I bet it's counterintuitive to do well because the temptation of many entrepreneurs is get as big as possible. Bigger is better, but that usually means more sales, not necessarily more profit. So if you choose to be a more profitable business, it might mean that you're also choosing to be a smaller business, at least by headcount unit sales influence. John gives a great illustration of this in the interview. There's another player in his space that sells four times more than his business and it's got more than six times the headcount. A much bigger business. Right? Well its EBITDA is the same as John's. Okay. Please enjoy this return appearance with John Hubbard, owner of Express Custom Trailers. And don't forget to listen to his first interview. For the full story of how he got here, link in the notes. 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. John Hubbard. Welcome back to Acquiring Minds.

[3:06] Guest: Thanks. Thanks for having me.

Host: John, you have the unique distinction of being my only guest drinking a beer during our first interview. So obvious question. Okay, you beat me to it. Couldn't even ask. There it is. So John, we spoke for our first interview about a year and a half ago. A year before that you had acquired a trailer fabrication business. And when we spoke things were going well and you were bullish about the year that we're now in 2023 and even as far out as 2024. So you were looking ahead two years and your projections were bright. So I wanted to have you on for an update before we get into the the now John, refresh our memory. Remind listeners who you are and what you acquired.

Guest: Yep. So I John Hubbard acquired a trailer manufacturing company in the Tampa Florida area in 2021. Prior to that, you know, working at backwards. I was in grad school. I got an MBA from SMU and was free. I actually got paid to attend school by Uncle Sam. So I figured why not. Prior to that I was running a small business for a rich old white guy in Texas. And before that building houses. Before that a cop for two years. And before that I spent 13 years in the military.

Host: Great. Well I remember one of the angles of our first interview was that you were a cop that had been a cop. Former cop buys business which was. Which was super interesting. Still is. So okay John, and then refresh our memory on express trailers or now Express custom trailers.

Guest: Yeah, it's a trailer manufacturer, small one location you want. Facility here in Clearwater, Florida. It's Clearwater address but we are over in an industrial area closer to St. Petersburg. So if you're picturing palm trees and I was out there making trailers with our shirts off, that's, that's not really what it is. But when I first bought the company it was just a normal trailer manufacturer. They built high volume of trailers, sell them to dealers across the state. They had around 15 full time dealers and then they had a sprinkling of these like commercial kind of one off vehicles they were doing for other businesses, government accounts and whatnot. That's what it was when we bought the company.

Host: Great. And remind people also your how the deal came together. Just real quick. We're not of course going to do the whole acquisition story but Sam's role. Search Funder's role.

Guest: Yeah. Search funder.com I decided one day I was going to kick the Search off. I was about to, you know, as my last semester of grad school. So I went on search funder and basically said, here's where I'm looking to buy a company. Here's how much money I need. If you're an investor and you want to invest, email me, because that's how foolish I was. And that's how I thought it worked. But people did email me. I got linked up with Sam Rosati from Pursuing Capital. He's here in the Tampa area. Flew down, met him over some wings and beers at the original Hooters in Clearwater, and we said, yeah, let's go find a company. And fell into our lap after about 90 days. Closed in 60 and that was it.

[6:19] Host: So I actually, I might have forgotten that from the first time around. So you and Sam got connected before this particular opportunity, before Express came along. You kind of. He helped you search and. And yeah, kind of worked with you. Gotcha. All right.

Guest: Yeah, absolutely.

Host: And then what. What did Express trailers look like? And give us some numbers around the business when you bought it in 2021. Specifically, revenue headcount.

Guest: Yeah. So they had 35 employees. They did just over five and a half million in revenue on that. They did 7:41, EBITDA. And then we were able to buy it for two and a half.

Host: Two and a half million.

Guest: Two and a half million. Yeah. Not multiple. Yeah, it was a pretty good deal. We did a. I don't know if you remember from the first one, but we did a stock purchase, which is pretty painful. But since these were the original owners of the C Cord, by doing a stock sale, they then got to avoid paying capital gains tax on it. So we got it for almost a 25 discount, if you will, because we were willing to do a stock purchase, which isn't normal on a business to this side, so.

Host: Yeah. And were you nervous about that?

Guest: No, you know, only because of where the company was. Sam kind of has a personal connections to the seller. Having a good deal team down here and having, you know, Sam as my partner on the deal, a former lawyer and accountant, if it snuck past him, then I definitely wasn't going to catch it. So. Great.

Host: John. Okay, so that was 2021 when you bought it. Here we are recording in September 2023. How are things going?

Guest: Good. Busy. We are in the stages of renovating and moving into a new facility, a much larger, nice new facility. You know, I say our facility is finally going to be on par with our product. It's kind of been the goal since day One, you know, our first big thing was the website, then uniforms and branding. Our product was premier and then everything else in relation to it was subpar. So we're finally getting everything around our product up to the same standard as our product. Gangbuster year for us. You know, we, we lost our biggest customer coming into this year. They were 25% of our revenue in 22, 150 units and decided that they just didn't want to order any trailers for 23. So that put a pretty big hole in our board. And like things have happened since we bought the company, people just started calling and we got a new customer from word of mouth, referral from someone else that uses our trailers. And their first order was 18 trailers for just under a million dollars. And that filled the board back up. And then, you know, other small deals kept coming in. And then we landed a really big client in Greenworks Tools that were going to be their manufacturer moving forward. So even when we take a hit, lose your biggest customer, we rebound. And now we're going to have a new biggest customer next year. Even if these guys come back, they'll no longer be our largest customer. So kind of took a ding to start with, but it solved the customer concentration problem we were looking to address anyways and we got a whole bunch of customers to fill their spots. So so far the one thing I've learned in the trailer industry is especially with what we do in kind of niche commercial manufacturing, if you lose the customer, it's pretty easy to replace them. Lead time is usually people's biggest problems, so gives you a lot of pricing power and negotiating power as a manufacturer in this space.

[9:57] Host: That's awesome. John, I want to ask two follow ups there. First, I was going to call out the customer concentration. Yeah, it sounds like maybe it was a blessing in disguise. You lose a customer that's 25% of your revenue. Which of course is why we don't like customer concentration, because it's scary. One internal decision at your biggest customer means it's 25% drop in your revenue. So we try to avoid that. And then so that happened to you, but you refilled that quickly. Those lost sales quickly. And so it would seem like, well, maybe if you refill it with multiple customers rather than just one, then that 25% is now chopped up into smaller percentages and you basically smooth out your customer concentration, which is awesome. However, what I heard you just say is one of the customers that refilled that hole is actually going to be bigger than the one you lost. So are you or are you not going to have more customer concentration going forward?

Guest: Yeah, no, so that's a good point to clarify. So coming into the first year of owning the business, they were probably 12, 13 of our revenue. The second year they jumped to 25. You know, they went from ordering, they, you know, ordered three times what they normally ordered in one year period, which was great for us because it was the year, you know, if you go back and read or watch episode one, it was the year we fired all the dealers. So to have them come in and order 100 extra trailers, replaced basically everything we lost through the dealers at a much better margin. So, yeah, 25% going into this year, they went from 25% to zero, which hurt. We've replaced it with six new business accounts. And one of those Greenworks will probably end up still being around 12 to 15% of revenue as it sits today. Yeah, but that's not as worrisome as Brightview, a landscaping company. What Greenworks is going to be doing is selling EV trailers to end users, municipalities and stuff. So they have a long term plan, like a five year production contract they're looking at. So a little less scary than I just see how many trailers this landscape company orders every year.

[12:03] Host: Yeah, yeah, totally. Because they're, they kind of represent a little bit of a channel for you. And also, 12 or 13% is way better than 25% in terms of customer concentration. Yeah, yeah. Although I expect you, I expect you're, you are hoping to grow that account. So maybe it does become more than 12 and 13 over time. Greenworks.

Guest: Yeah. And you know, the way we look at some of these new big accounts is with what our margins have gone to and what we've been able to do with EBITDA. You know, I'll, I'll take a swing on five years of one customer being 20% of my revenue, knowing that if I lose 20% of that revenue, the business is still doing okay. You know, it's almost like an icing on the cake thing. We can lose that customer and be just fine revenue wise because our operating costs aren't really moving, but our profitability has skyrocketed. So it gives you a lot of wiggle room to kind of swing for the fences on some of these deals.

Host: Cool. Well, we're going to return to that. Your. How you, How EBITDA has changed, but revenue, how EBITDA and revenue kind of as percentages of each other have changed because, because that's a big part of the story. I Think since we last talked. But before we do, I want to hear more just about the trailer business. So you had said a few things here in the last couple minutes. You fired your dealers. You are doing more custom work. So I guess let me preface all this by saying a few weeks ago, I spoke with Shane Ursum, who was another previous guest who came back on for an update episode. Shane bought North Texas trailers, which is 3. A business of three trailer dealerships in North Texas. And so he's. He's a dealership business, basically. And we talk about what it's like to be a dealership business and the trailer business. And so one thing that he said is that the trailer business is actually hurting a little bit. It was. It was a Covid. It was a little bit of a delayed Covid bump, but it definitely benefited from COVID And now, like many Covid bump businesses, it's also kind of coming down pretty hard now that the COVID demand has gone away. So give us what's your experience kind of in the trailer kind of the macro look at the trailer industry demand for.

Guest: Yeah, I mean, it's. I can see what he's saying. As far as the dealer network and retail channels go, it makes me glad every day when I come in and look at our production board that there's no longer dealer trailers on it because we're completely insulated from that. You know, what you had was prices for materials went up a ton in like 19 and 20. Steel, aluminum, wood. Everyone raised their prices. Customers still needed the trailers, and they were buying them because interest rates were damn near zero on some of these financing things. A couple years back, prices for raw materials went back down, but most manufacturers kept their prices the same that they were because people were still buying it. So they had huge profitability because now they're, you know, their gross margin has gone up by 15 points. And people were still buying them because everyone was financing them when rates were historically low, and now that's over. So the guy that's looking to go pay 14% now through Sheffield financing to get a landscape trailer is incentivized to just keep that trailer and get some work done on it, keep it running for a couple more years, you know, because when it was, you know, it wasn't a little bump. When the trailer industry went crazy, you know, lead times were almost a year. People were selling their used trailers for more than a news trailer just because of the availability. So there was no incentive for people to keep their trailers. So they. People were ordering like crazy. Yeah. Luckily Our customers are commercial accounts, and they usually take our product at their accoutrements to it, and then they sell it to an end user. So. And most of these end users deal in like pipe repair, construction, you know, municipal electronics and energy repair. So their customers are buying trailers regardless of what the economy's doing. But it was good to be a trailer dealer for the last two years. And I think they're finally coming back down to realistic margins and stuff. And I'm just afraid that guys came in and bought them off of a big bubble and now, you know, future revenue for dealers isn't going to support their debt service.

[16:32] Host: Yeah, you said about people just basically holding on to their trailers now that things are more interest rate. Financing has gotten so expensive, and so they're just servicing them. That's actually. I don't want to steal Shane's thunder, but that's one of the ways that he's actually done well. So revenue's gone up for him because his sales have dropped. He's. He's really done a good job of service and parts and so on and really kind of juicing that side of his business. We're seeing demand on that side of his business. Okay, well, this thing, John, this big strategic decision that you made to cut out dealers and kind of go direct, give us more on that. Why did you make that decision and how is that shaken out?

Guest: Yeah, it was really, you know, not like a genius financial decision or some like, crazy insight. I had. Like, I woke up in the middle of the night and like, started writing on a dry erase board with a marker. I just looked at the margins for the commercial trailers we were making, which were, you know, 30, 35% minimum versus dealers trailers, which actually averaged like negative 6% a trailer to a dealer. So not only were they not making money off of it, the commercial trailers were literally the only thing making the company profitable. And I did what any smart person that buys a business that's currently running well enough for you to sign your life away to buy it is. I let the people that were running the business do what they wanted finally. And the number one request was get rid of dealers. It's a headache. It's a nightmare. We're a custom trailer manufacturer that doesn't lend itself to mass producing trailers. So, yeah, that was fire the dealers and we'd be happy. So with that, I then got to go in and look at the numbers and say, okay, there's. They're not just complaining about dealers. There's more work. You know, they might not realize what's going on here, but something they realize isn't right. So just looked into that and the numbers backed it up and just made the decision. Yeah, to take our Tommy boy tour. Me and my VP and we drove around Florida and fired all the dealers in person. Some of them, I showed them math, brought a spreadsheet when we printed out and I said, you know, would you keep doing business at a loss? Because I didn't honor any of the orders that were on the board. I said, we're, we're taking them all off. I'm not going to, to keep the old owner's word. I'm not going to lose money for the next eight months just to keep you guys happy. When I knew they were making almost 50% markup on every trailer they sold from us.

[18:59] Host: Listeners of Acquiring Minds know that for almost any business you acquire, its success comes down to the people and how you develop and manage them as their new leader. Thing is, in addition to management, there is also a lot of process and bureaucratic work when it comes to your new employees. Payroll, compliance, HR, technology, hiring, to name but a few. These processes are crucial to get right, but at the same time distract from where you want to be putting your energy in leadership. So Aspen HR is an HR firm and PEO that takes this work off your plate and handles it with the care it demands. Aspen is owned and run by Mark Sinatra, himself, a successful former searcher. So Aspen's own leadership understands the HR challenges that searchers have. Post acquisition, the firm is offering Acquiring Minds listeners a complimentary pre acquisition HR and PEO review for your target business. Check out aspenhr.com or contact Mark directly at mark aspenhr.com so in those conversations were you also kind of giving them an opening to be like, we'll pay you more, like we can renegotiate this agreement we have. And if you pay us more for these trailers you've ordered, we'll fulfill, but otherwise we're out.

Guest: No, what they would have had to go to, to make it to go from a negative 6 to like a 30, like we would want, margin wise would have just been, I mean, unrealistic. They would have had to almost pay twice as much for the trailer. One guy asked us what the price would be and I told him and he just said okay, yeah, that's, I, I couldn't make any money off that. And then two is just, you know, going back to my, you know, do less work and make more money. If I could make ten highly customized trailers versus making A hundred kind of stock boring. Just send to a dealer and try to hit 10 margin on them trailers. I'm going to take the super custom stuff too. You know, another thing with dealerships is if you're just selling a stock trailer, if someone else can just stop making a stock trailer, almost as good, but for cheaper, they're going to win. When I have a customer in a commercial custom trailer that spends, you know, six months working with us designing their trailer, and then we've been making it for the last five years that that company is not going to stop and go spend another six months R& D with another manufacturer just because we raised the price, you know, 3%.

[21:34] Host: Yeah, no, absolutely. It really creates a sticky relationship. That's great. Now there's. There's got to be some counter argument to this. And I know from our conversations offline that choosing to be a custom. And, and so you changed Express Trailers to Express Custom Trailers. So you put custom in the name. Now this is really strategic positioning for you going forward.

Guest: And the caveat. Yeah, I just want to. Before I forget, side note, I regretted it almost eight months later. And in hindsight, I wish I would have named it Express Commercial Trailers. But I'm not going to go through another name change again in three years. That would just make me look like an idiot.

Host: So we're stuck with what's so much better about commercial than custom.

Guest: Commercial kind of conveys what we do, like fleet management, fleet production. You order in bulk and we give them to you throughout the year. Heavy duty, you know, commercial grade. With the custom, you still get, you know, rich dudes calling you, wanting you to build them a car hauler for the Ferrari or like a barbecue company, want you to build them a custom barbecue trailer or something. So yeah, what we do is customized, but it's more commercially customized. So.

Host: Yeah.

Guest: And I think Express Custom Commercial Trailers, you start getting ridiculous. So we're Express Custom, but in hindsight, there's a mistake. I wish I had done it. When you buy a company, want to change the name, write it down and then think about it for 90 days and then see if you still want to change it.

Host: Well, you could just kind of start calling yourself in passing, ect. And then everyone starts knowing you as ect. And then, you know, sometime later you sneak in a change for what that C actually means.

Guest: Yeah. And delete all. Delete all blueprints of it on the Internet so people will think, you know, what's that Mandela effect? I swear it used to be Express Custom Trailers.

Host: Yeah, yeah, so the, the potential downside here is that presumably when you're doing kind of mass market products, mass market fabrication of trailers, in this case, it's a bigger market. And so if you wanted to get really big, that's the game you would play. Even if margins are slimmer, elbows are sharper, it's more, it's a more competitive game. And if you're going to be in the commercial customization space, it's, you know, the, the tam, the, the ceiling on how big you can get is a little, is lower. Is that a. Did I hear you right when you kind of had explained that to me earlier? And, and was that basically a trade you were willing to accept?

[24:02] Guest: Yeah, you know, for probably the first 18 months, that was the logic I used just, I think, to make myself feel smart for doing what I did. But now that I've actually seen trailer deals and trailer manufacturers for sale, that kind of come across my inbox from some broker. You know, we will probably do 6 million this year in revenue, but on that will bump up against 2 million in EBITDA for the first time ever, you know, in the company's history. And you know, there's a trailer manufacturer for sale somewhere in the US right now that has hundreds of dealers, two manufacturing facilities in two different states, 200 employees, and they're doing 2 million EBITDA on 25 million in revenue and thousands of units a year versus our 300. So, so, I mean, that's a lot of work. I just think about managing two facilities, paying taxes and telephone bills and ADT security alerts for two facilities and 200 workers, and all the issues in HR that now is multiplied times 200 and the logistics, the dealer networks and sales guys on the road all the time. And for us at the end of the day to make the same amount of money, I am completely okay with that.

Host: That's, that's dramatic. So just, just so, so people heard that they're doing 20, 25 million in revenue to get to 2 million in EBITDA with 200 employees, you're doing, you're projecting doing 6 million, so 25 of their revenue to get to the same EBITDA with how many employees today we

Guest: have 30, including myself.

Host: 30? That, that really is 28.

Guest: 28 including myself. Sorry. And I would not count me as an employee. I'm pretty useless there. Okay, now, you know, that being said, and I don't think it's going to apply to anybody listening to this podcast, but you know the game, you know, if you want to be like the trailer king of America, you know, and do 150 million, 200 million a year in revenue. Now those guys are making some pretty serious money. These are publicly traded companies, whatnot. But 25 million is still considered a small trailer manufacturer. So I definitely have no designs to have like a corporate headquarters and be like a big text or a, you know, utility trailer. But I see how much larger revenue wise I could grow Express and what that margin would be. And that just doesn't seem like a path I want to take. Like, I don't chase revenue, we chase ebitda.

Host: Don't chase revenue. Chase ebitda. Words to live by. And so John, this raises the question then of what, what you think that Express custom trailers can get to revenue wise, I guess, period or within five years if you're not gunning to be one of the like large volume manufacturers.

[27:02] Guest: Yeah, so we are kind of peaked this year in our current setup. You know, we did all the easy stuff. Revenue was here, call it five and a half, six million. But EBITDA was down here. So we did all the easy stuff. Just swapping customers out and raising prices to pretty much max out. Like we're not going to make more than 2 million EBITDA on 6 million revenue. We're at top line of customers now. Everything is as efficient and as profitable as it's going to be. So the next step is what we're doing this year, a new facility, a big, you know, 40,000 square foot facility. And we also are leasing another space across the street for excess storage. Big, you know, new state of the art paint booth, break rooms for the guys, air conditioned spaces, offices, conference rooms so we can host, you know, when these clients are coming to design this $80,000 trailer, you know, we're not sitting on the shop floor sweating our ass off. And then going to a second shift would be our, you know, we looked at the cost effectiveness of going out to the country and building 60,000 square feet to pump more through or staying where we are now, which is in a pretty urban area and staying pretty modest with our footprint. But going to a second shift and the second shift just makes way more sense for us because we can turn it on and turn it off. If a customer is currently ordering 60 trailers a year. And then the next year says, guys, this product is moving, can we get 200? We can now say, well, give us a 90 day ramp up and we can hire 10 more guys and go to a second shift and in the same square footage still pump out, you Know, probably twice as much a year. Not to mention, you know, from the first episode. We're currently in two facilities and the production line stops in the middle of production. And we have to hook the trailer up just as a skeleton, like a frame of a trailer, and take it a couple miles around the corner, sitting at three red lights and one U turn on a six lane road to take it back to our other facility and unhook it. So now those guys can finish the process. So just by being in one long contiguous space, we're gonna probably increase our, you know, unit count a year. We could do by 20 trailers just by cutting out the red lights and U turns in a new space. With second shift, I think we could probably get to 12, 13 million revenue. And then past that, you know, someone smarter than me would have to come and take over because now you're really having to go dig and fight for these custom commercial accounts that right now we're just calling trailer manufacturers, trying to find someone that'll go through the hassle of designing a custom trailer for six months and then shipping becomes an issue. The single biggest option you can add to a trailer is to be delivered. You know, we had a customer in the Pacific Northwest who ordered a trailer that came out to like 18 grand a trailer. But to deliver it was $3,000 extra to every trailer. So you can imagine how at scale that doesn't work for. And you can't put these things on a flatbed or a train. You know, they can only be pulled one at a time behind a pickup truck. So some of that logistics, supply chain stuff limits how much this can grow, but it's not meant to. It's niche custom manufacturing, which is why you can charge so much for it.

[30:26] Host: And with the changes that you've made and now with this new facility, this contiguous facility, so you're not going to have to have these two stages of the fabrication process miles apart. Do you think you can still hold on to those 33% margins that you're getting now? 2 million profit on 6 million in revenue at 12 and 13 million.

Guest: Yeah. I mean, so far everything is, you know, we're putting a, A, a good chunk of change into this.

Host: Yeah.

Guest: To do it right from the beginning. You know, we're probably dropping a quarter million bucks on rehab in this place. But, you know, after that, I, I can't see, you know, why it wouldn't. Everything we start looking at, we think we're going to add cost because there's more square footage and stuff now. But now we're also don't have to pay for dumpsters at two locations. We don't have to pay for security systems in two locations. We don't have to pay for, you know, utilities at two locations. The building we moved into is much newer and nicer and it's 100% concrete. So now our property insurance and everything drops. It's a nice new, safer space. So our workers comp on it. It's going to drop because of some of the new safety features in the building. Sprinkler systems. Why not all that? So we're only raising our rent basically because we couldn't find a place to buy where we are. It's way too populated. But we're also cutting out a ton of like ancillary secondary costs you don't think about until you start adding them line by line at the P and L. Yeah. So yeah, if anything, I think it's going to increase our margins just slightly. Probably not enough to be significant, but it's better than going down.

Host: That's fantastic, John. Well, it seems like things are going really, really well. You mentioned that at 12 or 13 million, you know, you're kind of hoping, gunning to get there that somebody else might have to step in to take it from, from there to the next level. So do you, is that, are you showing your hand there that you see, you don't see yourself doing this forever and ever. What's your. Forgive the question, but what's your five and ten year plan?

Guest: Yeah, yeah. No, you know, it's funny is it's only been what now? Not even three years yet. And I feel like I have mentally probably about six months ago, transitioned across the Rubicon, if you will, from being a new buyer to now a seller potentially. So that's a really weird dynamic to, you know, think about. Like even the first year and a half, you're still like the new, making all the changes. You're still in buyer mode and now to kind of mentally transition to, well, things are going really well. So now I'm approaching things more as a seller. And so I think about not necessarily what can eat me out more money now in year three as a buyer. But okay, what do I need to do now that might cost me something that's going to make this more attractive to the next buyer, like what systems and processes can I put in place? What facility improvements can I put in place to make this thing, you know, more valuable as an asset, to sell more? So every decision is how can I get the P and L expenses Down. That being said, obviously, yeah, I'm definitely thinking about what this looks like in two or three years, exit wise. And then, you know, it's the big huge question is do you go absentee and trust someone to run it or do you just take your money and bail out while it gets good and go buy a farm in New Hampshire?

[33:54] Host: I thought it was North Carolina that you had your eyes.

Guest: You know what, this is a huge, this is a huge update. North Carolina was my, I guess you say middle ground. It was my to North Carolina. Yeah. And then started talking New Hampshire, which New England was kind of one of my dreams. And then out of nowhere my wife came around and was like, yeah, that sounds awesome actually, let's go do that. Let's go buy a farm in New Hampshire. So that's probably the biggest update since the first podcast, guys, is I've now been, you know, given quasi permission to start looking for farms in New Hampshire. So

Host: where are you from, John?

Guest: Nowhere. Everywhere. I was in the military for 13 years and then I was in military and FBI brat growing up. So I went to 13 schools in 12 grades, so. And my wife was also a coast guard brat. So we really, wherever we point to a map and go is where we're from at that point.

Host: Wild, wild way to grow up. Well, I, I want to make sure we're, we're crystal clear about what you might be saying on the, on the business, John. You're not saying that what's good for a seller is what's good for the perspective of selling. This business is basically just building enterprise value. So I'm trying to build enterprise value to one sell. You know, you're actually talking more nearer term like you are thinking about how to package this business for sale.

Guest: Yeah, absolutely. Well, you know, I think, you know, a year and a half ago when we talked, it was more the plan for the business was just putting off decent cash cash flow. It, it's got a management team in place. If I can run this thing, you know, semi absentee from across the street in Florida, then take home a couple hundred grand a year, it's not a bad life, right. And we knew making some of the changes, the profitability was going to go up. But how much the demand increased and how much of profitability went up even surprised me. You know, quality product price was one of the last things to enter the conversation. And a lot of these companies calling for is just one, can you make us what we need? Two, how soon can we get it? And then eventually, oh yeah, just So I can fill out the P.O. like, what's, what's this going to cost me? So it went from being a kind of cash flow thing to, well, man, we're really juicing this thing now. You know, the investors, I got the investors paid off quick. You know, they're all paid off. So I'm in the money now, if you will. And it's just seeing other trailer dealers for sale plays a big part in it and knowing what multiples are. So if you're around 2 million, then you're probably going to be able to command a 5x in trailer manufacturing right now. So you start looking at, okay, we bought it for two and a half million. I've already paid the investors back. I could own this thing for three years, potentially sell it for $10 million, and, you know, I own 70% of the company is how our cap table looks. So then I start thinking, Well, I put $0 into this deal in 2021, and potentially in 2025, I could sell it and walk away with $7 million.

[37:10] Host: Yeah, that's pretty amazing, John.

Guest: That is. And I'm sure somewhere, if Sam finds time to listen to podcasts, he's cringing because I'm a very open, transparent book. And he's probably worried some future buyers hearing this and taking down notes. And, you know, you said back in September that you would be willing to take a 5x multiple on this thing. Yeah, but the numbers help. You know, the numbers help give reality to it. And the thing that infuriates me, most people come on and stay so vague in the details. And I know as a searcher, that didn't help me at all. Like, I want to know, like, year day one, what can I pay myself if I run a company? Questions like that. So this is, this is how it looks when you buy a company, and after three years, you're thinking about selling it for 10 million bucks. I just want to try to be as transparent and candid about it. And I feel like that probably helped people the most listening to these podcasts and these stories is putting some numbers to the, to the pipe dream.

Host: Well, that. I really appreciate that, John, because you are dead right, you know, from your own experience, and I hear from listeners all the time how much they value the transparency, which I'm, which I'm always pushing for and can't always get. So I really love that you have just shared all this with us. It's, it's, it's really cool to kind of. Here are the calculation real time of somebody who bought a business? Business is booming and what does the net equity proceed potential look like to use you know, fancy pe. PE Language like the money that you could actually put in your pocket after all this is said and done and if you sell in 2025. But John, one thing I was going to say about Sam Rosati is he's also probably cringing because often investors, when they're, they've invested in a business, a search business, and it's going great and with no end in sight, they want that operator to keep, keep growing the thing. And so to, to go back to something that you touched on the operator question. If this thing is cash flowing, $2 million. And I mean you can, you can buy an army of operators for that amount of money and still be taking home good money and have the operators grow it. So why not? Why not that especially because, you know, you're a young guy, you've got, you could hold this for 30 years.

[39:24] Guest: Yeah, it's true. I, you know, the short term is, you know, the other thing I think is important people think about is we bought this company doing 750 and EBITDA, which means you basically have no cash. You know, you, you do a deal flow calculator trying to hit that 1.5 debt service for the bank. And you quickly realize a company doing a million in EBITDA means you're going to have 200 grand left at the end of every year to actually spend on the business. After investors debt service, your management fee to run the company for yourself. So you get to 2 million and now you might actually end up having a million dollars that year because you're still paying down all your debt service and whatnot. Now that's easily solvable in our problem because we could get really aggressive and probably pay off all the debt service next year. And then that makes it a much more difficult decision for me because right now, if tomorrow someone came in and said I give you 10 million, I say cool, I knock off, call it 2 million to pay off all the debt and seller note and everything. So now I'm only at 8, but I still get 70% of that. So it's, it's almost like at this point the like trading in a car you owe on. It's like, well, I'm gonna have a payment either way, so I might as well just take whatever they're gonna offer me on my trade in. At this point, I think mentally I'm thinking, well, a cell wipes away all this debt too. That's also hanging over My head and this pg, I'm signed up for my house and my cars and everything.

Host: Yeah.

Guest: Now once you get to be completely debt free and it's all true free cash flow, that'd be very hard to walk away from. You know, thinking about it, if you truly are just making 2 million straight cash, homie.

Host: Yeah.

Guest: With nothing to do with it versus reinvesting in the company or take distributions on it. So if we get there in the next 18 months and all debt service is paid off and it's just cash in the bank, ching every month, then I think mentally I would kind of flip the switch and say, okay, let me just bring in some. Someone to run this. And even if it only lasts for three more years, fully absentee, that's still kind of a break even on what I would have got, proceeds wise.

Host: Exactly, exactly.

Guest: But if it doesn't and I bring someone in and take my off the ball and they run into the ground, then now I've gotten a third of what I could have got if I sold it. So it's just one of those, what is it, future value of money type deals.

Host: Yeah, yeah.

Guest: Well.

Host: And eliminating risk. If you sell, there's no more risk anymore.

Guest: Yeah. And, you know, we kind of talked about it off air, I think before the last interview. But, you know, and we're absentee owners now. I think about guys like me and Rich Jordan and you know, they're kind of absentee owners in the physical sense. But you're still very involved in the business, big picture wise, big decision wise. You know, you're still responding to emails. This is how we should play with this new customer and whatnot. So I feel like that would be hard to give up those day to day or week to week bigger decisions to a hired CEO that you don't really know. And I get. You could hire them, I guess, and then work with them for a year, but now that means I have to go to work for a year. And that's not the point. That's the whole point of being absentee. And what would I even show the guy? I'm not there every day now. So I would be a terrible person to transition with. And a lot of the bigger picture, like future business direction stuff and Rich probably tell you the same thing is almost a gut call. You know, it's. You can spreadsheet it out all day, but sometimes I think it comes from, you know, maybe the benefit of being in the military or being a cop is kind of reading a situation, reading a person knowing how much you can push how much to pull, you know, what buttons to press to get the guy to commit to buy, order 100 trailers. And there's kind of intangible things like that that I don't know how I would sniff that out. Hiring a CEO and then who do I hire? We're a very niche kind of company within the trailer industry. A CEO that runs a bunch of dealers wouldn't know what to do with our company. A CEO that's run a big trailer manufacturer before, pumping out dealer trailers wouldn't really know what to do with their company. So I don't, I don't even know where I would start looking for that person to replace me. Honestly, I'd probably default to just hiring a veteran. But the veteran I would hire, what I would probably see in them to want to replace me, they would probably have aspirations of owning their own company. So then I kind of lose that. So it's, it becomes tricky. That's when you're like, you know, I'll just sell it to PE firmament. They can worry about who runs it.

[44:07] Host: Well, I have never been in that position and never hired a CEO and I think it is really, really challenging to hire a great one. But let's not forget that there is absolute magic to be had when you can find the right person and then they can become your CEO. I mean, that's Warren Buffett's playbook. I mean, I, you know, I don't want to be somebody who's quoting Warren Buffett. I'll probably get it wrong, among other, for, among other reasons. But, but, you know, my sense is he sees his job as basically just CEO. Picking businesses to buy, of course, and then picking the leadership to run them. And if you can do that, well, it's, you know, it's worth, it's worth the pain of trying to figure out how, how to do that, learn to do that, probably make some bad picks along the way. But when, when it hits, it's, it's just such an incredible value. Unlock that. Yeah, for a lot of people it's worth the pain. So I, I would just, that's kind of my inexperienced reaction to everything you just said, which was fascinating. I also want, I want to ask a couple more follow ups on everything you just said. John, you basically just said this yourself, but I just want to push on you to do this. Before you make any decision about selling or not, please pay down that loan. Because the psychological effect of having a loan over your head, I think it can't be understated. So get free and clear. Get that loan off, you know, out of the way, gone forever. And. And then make a decision about what you're going to do, because I think it can cloud your. Cloud one's judgment. And then the other thing I want to push back on is you. You, you know, you always joke about how lazy you are and how you don't want to do anything. I got. I got to ask. Have you ever really not done anything? Like some people think they want to sit on the beach and do nothing or sit at the farm in New Hampshire, do nothing? I know farms are not. Are hard. You know, you have to manage a farm, so there's probably going to be some chopping wood or whatever, but, you know, then they discover, oh, wait, I actually kind of like, you know, going to work or having a business or whatever it is. So. So do you know that you're. You really want to do as. Not do nothing as much as you think you do?

[46:10] Guest: Yeah. So this is actually really interesting timing for this question because, you know, I was actually sitting out back last night in Florida, smoking a joint, perfectly legal here, talking about this farm in New Hampshire, and I realized, you know, I love working. I love work, but I detest having a job. So, like the days that I'm not working because I'm lazy and I don't want to have a job I have to go to every day. I am spreading 50 bags of mulch in our flower beds. I'm repainting our entire back porch. I'm installing fans. I'm. You know, I've. We've lived here for two years, and I'm almost running out of stuff I can do to the house now because I like physically working and, you know, earning your dinner and earning that cold beer at the end of the day. But I hate having a job in a place that I'm expected to report to, which is probably explains my jobs. I've never had a single job that was stationary. I was in the military, then I was a cop driving around a car. And then I was a home builder driving around in a truck on site. And then I was a GM for a restoration home remodeling company who worked out of his truck driving around DFW all day. So I would die if I had to work in an office. So love working hard. Manual labor. Do not like going to a job. If I had to go do construction every day for.

Host: You've already solved that problem, John.

Guest: Yeah, you've already solved that problem.

Host: You're a business owner.

Guest: If I had to go work on a framing crew building houses every day. I would hate my life. But my dream is to not have to work so I can build my own house. You know what I mean? It's just one of those. It's like a Tom Sawyer, you know, work is whatever boy is required to do.

Host: On that point, John, the, the other thing I'd say about, you know, just being really careful before you choose to sell, getting your loan out of the way before you think seriously about it, is also, you know, a lot of. A lot of people in search, you know, including you, have bought a single business. And so in life, it's really easy to extrapolate from your, you know, experience. But it's a data set of one. And so you may think to yourself, well, I'll sell this business. I'll kick back on my farm in New Hampshire. And then, you know, if I. If I don't like it, if I'm bored, I'll go buy another business. You know, I'll be that much more experienced, whatever. Well, what I would say is, like, just because you bought a business that's going gangbusters, they're not all like that. You got to do is. Is, you know, go through the archives of, of acquiring minds, and you'll hear that a lot of people have really hard times buying businesses. So I wouldn't underestimate your good fortune, and I'm not taking anything away from what you've done and, you know, the skill and your talents that you brought to this business. But of course, every good business story there involves some market dynamics and so on that are. That are luck, for lack of a better word. So I wouldn't underestimate your good fortune in your first search experience where you bought this business. That's absolutely kicking ass. Don't assume that if you choose, you know, choose to sell this, kick back on the farm, get bored on the farm, want to buy another business, that, that second buying of a business experience is going to be as awesome as this has been. This is really precious, what you got going on here.

[49:23] Guest: Yeah. And, you know, to piggyback off that, I want to move that risk off of myself and that work and that stress off of myself moving forward to other people. Which is why one of the first things I did is start investing. So I own 10% of a H Vac company in Tennessee as well. That was the first company I bought into as an investor with a much more qualified owner operator than I am who has plans to continue buying H Vac companies. And kind of do a roll up of this whole geographic area and I am going to be a 10% minimum investor on every one of those opportunities that comes across my desk. So my goal is to you know, say, say it's a two year punch out and I just sell the company and I'm done. Well, I want to have at least 10% stake in five or six other companies by then, so. And then I think if I did get bored and wanted to get more involved back in the SMB space, it would be as a larger investor and a deal, a 20, 30% investor where I could kind of, you know, come in, help them start the company off or something. But I don't think I'll ever go back to just kicking around a biz by sell buying another company. No, I mean it's, it's no insult to hear it. I think I got extremely lucky with this one and I had a good deal team and Sam basically spoon fed me this deal. So. But that's my life is 39 years of falling face forward and a pots of gold everywhere I go. So it's, it's a strategy, it's the

[51:00] Host: one I'm using, it's working out. It's a good strategy.

Guest: I was going to say one thing, I talk about it, I go and talk at Sam's boot camp. But you know, one of the things that changed for me after year one to year two and year three is you know, I don't care what it takes. I want to own every piece of equity in this company if I can, as much money as I can put into it. I'll take a refine on my house. I want as much equity. You know, 60 is not good. I want 71. If I had the money to go back, I needed 300k for my deal. If I could go back and do it all over again with knowing what I know now, I still would have taken the investor money to own 70 of this business. And then I would have taken them my 300k and invested 100k in 3 other deals. And from the start of owning Express I would have owned my company and 10% of probably three other deals. Just because, I mean that's, everyone loves doing this because of the roi, so why not early as possible? The investors are who make all the money in the search fund world. You know, it's a reason that some of the biggest investors are the guys that teach search funding at the top business schools because there's no better way to make your money. So as early as Physically possible. Don't buy a bigger house, don't go buy a Navigator or something. Invest in other small companies. Surgery's coming up and in my case, it's easy. They're all smarter than me, so why would I not let them make money for me? But that's my one piece of unsolicited advice.

Host: That's great. Before I let you go, John, there was one other question I wanted to ask you about, which is leadership. So just to remind people you just touched on it. One of the things you do did when you were contemplating search. You talk about this in our first episode was you got it. You operated a small business in, in, in DFW in Texas. It was a home building business, right?

Guest: Yeah. They'd like window and door replacement company, right?

Host: It was the window and door replacement company. And you wanted to see, you know, is this for me? Can I do this? How hard is this? And after, I think it was six short months, you were like, I got this. I can totally do this. So that was kind of one of the, the things that really made you feel like I'm going to pursue this path now and then meanwhile, you've had this great run. You're having this great run. Okay, so that's kind of your, your one type of small business leader owner then. There are plenty of stories on acquiring minds of people who buy a small business and are really challenged by it, by leadership in particular by the culture of small business, how it's different than, you know, corporate world by any number of things. What do you think is so different? I don't know if it's about you or your perspective or them or what, but like that contrast, I know it's something you thought about. What would you tell people?

Guest: You know, probably three big takeaways is one, you know, the military style of leadership you learn, especially in the special operations community is you want that new leader that's kind of the corporate quiet, watches, waits and kind of learns the dynamics of the team and you know, not standoffish, but you know, it's coming in as a leader of a high functioning team, which is what you should be coming into. If you did four months of due diligence to buy this company, then just kind of observe what they're doing for at least, you know, a month before you start making wild changes and assumptions about who is or who isn't a good employee. You know, two is I feel like the benefit, you know, me and other veterans have coming from this is we don't really know anything about business. So the business is kind of an ancillary thing. We manage with help from smarter people, but we're really good at just managing the day to day. And I think a detriment to a lot of people coming from, you know, corporate America, if you will, especially from like consulting or something, is the desire to need, or maybe even the subconscious need to make a splash. Like, that's how you get promoted. You work on a big project. If you're a consultant, your whole job is to come in and spend 90 days and implement a plan to make improvements. Well, these aren't those situations. This business should be humming along because you're not getting an SBA loan for a rebuild. You know, the, it's, it's not easy for these companies to meet the debt service coverage ratio. So the ones you're buying are good, functioning companies, which is why you're having outbid people to get them. So don't change everything on day one because you think you know what's better for the company or who is a good fit or who isn't a good fit. You know, I came in and changed our whole customer base, but I didn't come in and tell the guys, this is how we're going to start doing invoicing. This is so dumb. Why are you doing it this way? This doesn't make sense because it obviously does because I just bought you. You know, it's, it would be akin to going, buying a brand new car, coming home and then tearing your car apart and complaining about how poor quality is. And it doesn't. Then why did you just buy this car? And then three, I think a lot of people don't seek out, I don't know what you call this, the psychology behind it, but you know, sounding board, echo chamber type things where I think people purposely avoid seeking out peers that will call them out and, you know, say, no, you're doing really bad at this. Like, I don't, I'm not gonna tell you, oh, this is hard. And small business people just don't understand, like, you're just doing really poorly at this. And here's. If you want me to tell you, here's the things I would say you should do better. And I have friends like that, and I have peers like that that own other businesses, traditional searchers, but much larger businesses, but seeking out critiques. And, you know, I want someone to talk about the company and tell me the things that could be done better. And I think a lot of people don't seek that out. It's not A very corporate America thing. They just come in and close the door and have someone sit down and say, we're not leaving until we figure this out. So long story short, the benefits of being poor and blue collar growing up, I guess you just know how to work with, you just know how to work with blue collar people. And I mean unless you find that unicorn, that's what you're buying. You're buying an employee list of blue collar, blue collar people. So that shouldn't scare you. They shouldn't feel like the help like you. Truly, this is what makes your company run. And I think some people just can't fake that funk because they have no basis in that as a background.

[57:26] Host: Yeah, well, so that, that, that maybe is point number four that you, if you've come from, if it feels like familiar environment to you, you're probably going to just ease into it better than if it's a completely foreign environment to you. Which is part of the reason why I ask, you know, the white collar person buying a blue collar business question constantly. Because it's, it is just a big change that I don't think can be overstated. So. And I think we agree on that because you just kind of concluded by saying that that has big a big been a big advantage to you that this doesn't feel like a foreign environment to you.

Guest: Yeah, no. I mean a couple left when I went right in my life and I could be the guy welding making my failure right now. You know what I mean? So if I'm a lot more grounded in there and I could still be the guy making a trailer six months from now if the business goes bad and I gotta fire everybody, you know what I mean? So it's not. But you know, I've just, I'm not a very good, I don't make a very good rich guy. I don't think I ever make a very good wealthy guy. You know, I still bad people carrying my bags from the car on like an all inclusive vacation. So it's just, it's, it's not like I understand them truly. That is, that is who I am. I just happen to be on the top of the org chart in this one case.

Host: Great, John. Well, let's.

Guest: I also just realized. Apologies. Yeah, apologies to your viewers. They just had to watch me double fist espresso and craft beer. I just realized I've been doing that for the last hour.

Host: Yeah, so. So yeah, for those who are not watching, John is not only nursing a beer, he's nursing his coffee. So going back and forth. We're not going to tell you, we're not going to tell you audience what time of day day it is right now.

Guest: Yeah, it would be improper to tell you. It's 10 o' clock in the morning.

Host: John. Actually, last question for you because this is where I would say, John, how do you prefer people reach out to you? And you have had a lot of people reach out to you after your first episode here. You've been on other podcasts and sometimes that outreach maybe isn't as effective as it could be. What do you say? Please?

Guest: Yeah, you know, it's. I came to the realization, realization probably a year and owning the company that almost all the stress and like scheduling conflicts and me rushing around from place to place and just feeling like I always had a deadline was self imposed because I was just accepting everyone's. You got five minutes to chat. Can I jump on a zoom? Can I get 20 minutes of your time? Because you know, I was putting myself out there. Chat bluecore capital.com. here's my email address. Any questions? You know, I was still high on the oh my God, you can do this and make a living. And then it just become, you know, all encompassing of my tithe. And it got to the point where I was replying to everyone like, hey, I'm sorry, I wish I could, I just don't have the time. And then I realized I was still spending an hour a day just replying to emails declining. And then it got to the point where I just, you know, not to sound harsh, but realized I don't owe these like a, it's a cold call sales thing more or less. Like I don't owe you a response just because you happen to email me. And I mean, at the end of the day, I got three kids under the age of five. You know, my wife works, it's busy. And to be honest, half the calls I got on were people just talking at me for 30 minutes, telling me their life story and their grand plans for the future and never really asking me any questions. So it got to the point where I'm like, why am I taking these calls anymore? I don't. I could really care less about your life story and where you think you're going. And then I started tailoring it more to like specific questions about a particular deal. Then people started asking me to take a look at their deals somewhere on thought. And I am not the guy for that. So now it's. Unless something is pretty specific, industry related, hey, you know, we're looking at this company to buy. I know you have a trailer company or I'm looking at buying this. What would it cost me to replace my Entire fleet with 20 Gooseneck trailers? Specific kind of questions. Not to say that also benefit me, but I mean ultimately my business, this is my time. So that said, if you do reach out to me and I don't get back to you, it's truly not personal. I didn't read your email and say, you know, screw this one guy in particular. But I'm not a social media guy. I don't have any social media. I don't. You're not. So this is one of two podcasts now I will be on and really any questions they're gonna ask me I've probably answered in one of these two podcasts. So it's, it's not you guys, it's me. But that's just where I'm at. And occasionally I'll get on a run and respond to like 20 emails in a week. But I haven't been that lately. So don't feel bad if you reach out and I don't reply. But it gets pretty overwhelming with the amount of people that once a year time.

[1:02:11] Host: Yeah, well that's really good to hear, John. Or for the audience to hear because I always tee people the guest up to share how they can be outreached too and it's probably been a similar experience for many of them. So I think the takeaway for the audience is if you're going to ask a busy professional who's bought a business for their time, treat that time as the very scarce resource that it is and come with some specific questions that where you're really accessing the value that they can add. You don't need to tell them about you. So to distill that it's kind of like come with some specific questions that hopefully are specific to their knowledge set or the business they bought or the type of search that they did where they can really feel like they added value to you in your search.

[1:03:00] Guest: Yeah, I mean the ones that still get a reply to this day is an email I get that says, hey, short intro me. And so and so are partners. We both went to XY school. Here's where we work. We launched the search. Here's five questions I have for you. When you did this, what were you looking at? Do you think this is important? What would you say? And that's easy to sit there and reply to five specific questions and now you have it in writing. It's easy to reference. You're not missing the conversation because you're trying to take notes. And it's not someone just calling and saying, hey, just tell me about yourself and how you bought a company. And I'm like, I'm not. I'm not going to have this conversation again. Go find a podcast. Yeah. Short bullet point, Quick, concise questions is a good way to get a response and start a conversation.

Host: Cool. That's really valuable. All right, John Hubbard, this was a lot of fun. Very interesting. Thanks again for being so transparent about the psychology of now becoming a maybe seller. So really appreciate it. And, of course, your story is evolving quickly, so we'll have to see, what, maybe 2024, maybe 2025 having you back on again.

Guest: Yeah, we'll do a third episode.

Host: If you'll do it. If you'll do it.

Guest: We'll lay out the financials and do a poll and let the listeners decide if I should buy or sell it or keep cash flow.

Host: That sounds fun. I like that. I like the sound of that.

Guest: Sam is having a heart attack somewhere right now. Yeah.

Host: All right, John, thanks a lot, man.

Guest: Sam.