Host: Trust, but verify the words that today's guest will live by Going forward Now, you're probably thinking they apply to the seller of the business that he bought, but this is a story where our protagonist's partner is the culprit. It was the 11th hour in Josh Key's acquisition of a small plumbing company and his SBA lender springs on him that they want to see a master plumber on the cap table. He's left scrambling, but he recalls meeting a plumber through his church. This plumber was in his early 60s, so years of experience and eager to be an entrepreneur himself. A perfect fit for what Josh needed, it would seem. Flash forward. The business has been run into the ground and Josh has had to file for Chapter seven and much of this fiasco he attributes to his now existing partner. To be sure there were missteps by Josh, he is open and self critical about those. Indeed, a lot of this interview is an autopsy of what he could have done better the woulda, shoulda, coulda decision points. And you'll hear that much of it boils down to those three words that we started with if you're partnering with someone you don't really know, you need to diligence that individual just as thoroughly as you diligence the business you're buying. As with other Acquiring Minds guests who share their stories of acquisition gone wrong, we thank Josh for his courage to come on stage here so that others might learn from his travails. Here he is Josh Key, former owner of a small plumbing business in Dallas Fort Worth. 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. An SBA loan broker, as opposed to a direct lender, doesn't work for a particular bank. Instead, the broker pairs you with the right SBA lender for your deal based on industry terms risk thresholds, then helps you navigate the process better than many lenders themselves do. Matthias Smith of Pioneer Capital Advisory is just such a broker. Matthias worked at two of the country's top 10 SBA lenders, so he's been on the inside of the SBA process and knows well the pitfalls and hurdles and how to avoid them. He struck out on his own to laser focus on the ETA and search space. Our niche is his niche. You'll see Mathias at all the ETA conferences. He's closed over 30 search deals since starting Pioneer in May of 2022, including some acquiring Minds guests. To learn more and get in touch. Go to PioneerCapitalAdvisory.com or click the link in the notes. Josh Key welcome to Acquiring Minds.

[3:10] Guest: Hey Will, longtime listener, glad to finally be on the pod with you. Although this is not how I intended it but as we talked about before, this is part part 1, part part A. The the beginning and so the the ending is still yet to be written and I'm optimistic about that.

Host: That's right. Well having talked to you on the pre call, I am too about your future. Josh, you bought a small plumbing business alongside a partner. Did not go well as you just teased. And that was due in large part to this partnership and the direction that it took. So we're going to hear this difficult story, this unhappy story of buying a business and of course I want to thank you for being willing to share it with the audience for their benefit. Josh, let's get into it. Let's start off with some background on you please sir.

Guest: Yeah, absolutely. Any way I can help this community. So the I guess background on me. So born and raised in Flint, Michigan. Used to be still is Buick City even though Buicks aren't manufactured there anymore. There's a annual 5k there the crim so it kind of runs through the downtown Flint. But born and raised in Flint, proud of that heritage. More of a basketball town back in the late 90s when the Michigan Michigan State made their championship run with most of the starting five being from Flint now more infamously known for the water situation which is still an issue. But born and raised there ended up going to graduating college from Northwood University small business focused entrepreneurial free enterprise driven school which planted the seeds to my entrepreneurial desires to this day and so graduated there ended up going and climbing. Started off in my career with a W2 job and started climbing my corporate career. Started off with ADP selling payroll and a sales role. Great experience there. Moved over to Grand Rapids Michigan shortly after that and then moved down to transferred with enterprise down to Arlington Texas to live with my uncle down there. This is around 20 years ago almost 20 years back this past April. Wanting to live in a warmer climate I was tired of scraping cars off with my credit card when you can't find the scraper. Most of my our friends in the north can agree with me there and understand what that feeling is like. So I was just tired of that ready for a change and so looked at Florida, California, settled on Texas, did very well with the enterprise, went through did various roles from there was recruited away to several different companies worked at A marketing and advertising agency on Gatorade and Honda. Quickly found out that sales was where at that moment, sales was where I wanted to be. Short of selling yachts and private jets, medical device and medical equipment was a good way to go. And so through the advice and guidance of some of my mentors and ultimately became my boss, got Some really strong B2B experience selling Japanese titanium frames throughout the kind of middle central part of the country and just kind of got on a milk run in my car from a 1099 basis and established a business that was pretty much on the coast in New York and la, and then established that central business there, and then was doing very well there, but was recruited away to a medical device company ultimately after growing that business up. And so that was with Stryker Instruments and spent three years there learning, cutting my teeth in the medical device space. And then true hardcore medical device sales. And from there, after three years, we was one of the downsides of being part of one of the greatest regions ever, I guess really exist within that division. At the time. There wasn't an opportunity to move up without a major geographical relocation. Minnesota, Boston. Started off with Stryker, single, was willing to do that. Three years down the road found my, the love of my life, my wife, and she's a Texas girl and she wasn't going anywhere.

[7:24] Host: So,

Guest: so stuck here, had to move on from Stryker on various medical device spots. Ended up with my mentor's company I spent the last 10 years with. And now up until this past couple of months ago, and so now in the, in between there, Covid happened. And so that gets us to our story here. Successful there I was with the company at the time that was requiring a lot of travel. So I have two young boys that, you know, and a wife that needed me. And so flying off in the, at the, at a moment's notice to go cover a case in Houston or New Orleans or Arkansas, it just wasn't feasible. So I started looking for other options in the middle of COVID So without having any access to any of the HRB or any of Walker Dibels, those resources or your podcast for that matter, it's like, hey, I need to get on the other side of the pay window. What does that look like? And so I found, you know, Google buying a business biz buy sell came up at the time. And so I started building what I at the time was a buy box, right. I need to replace my income or a little bit more than that. So started looking for companies that were throwing off, you know, at least 300k in EBITDA or.

Host: Josh, let me, let me jump in here. Sure. So sorry, rewind a little bit. How did the idea of buying a business come about? You've explained how you needed to make some sort of change in corporate. You were traveling too much. But there are a lot of paths and why the one of buying a business?

[9:00] Guest: Yeah, so I just felt like I was at a kind of a fork in the road. I knew I've kept always kind of viewed entrepreneurial endeavors. I have several friends that started companies, businesses, bars, different things like that and just were was envious of them and like that's where true wealth is made. And so as I alluded to earlier, I went to a school that was really strong and really was based on entrepreneurship and free enterprise. And so those seeds were planted there.

Host: You said you hadn't been exposed to what we call search or entrepreneurship through acquisition via the books or social media or something. This was something that you kind of arrived at on your own.

Guest: I did. And so, and initially my, my goal was to. So I found the plumbing coming like the numbers. It's like do I need to be a plumber to buy a plumbing company? Google that made a couple phone calls, talked to the broker that was representing the seller and said he didn't think about that. And so we looked into that and they're like no, you don't need to do that. So, so at that point my wife and I, we've had, you know, significant decent size savings built up in our 401ks and so okay, how can we finance this?

Host: And so well and, and Josh, what, what had your criteria been when you went to biz by sell looking

Guest: really just something that was make north of what I was making personally. So I was like, hey, if I'm going to reach for something, I want to do something that where I'm going to make take that next step and then grow it. And so at the think at the time I had just done 300,000 in earnings for the year. So I was looking for something above that.

Host: Okay.

Guest: And I really didn't do them before

Host: the SBA debt or after the SBA debt.

Guest: This was like you really would have

Host: wanted to be take home 300.

Guest: I wanted to take home 300. I knew that after the I ran the analysis into the debt and I was comfortable with, you know, 150 because after SBA they called 50 of that would go to service the debt. So I was comfortable with 150 knowing that I could. My plan was to the company I bought was in Fort Worth. So that's on the west side of the Metroplex. And so me living in Dallas, I was like, okay, I'm going to look for another smaller plumbing company to merge with or buy to kind of start to roll up at the time now I know that now, but roll up the a business or start a platform company and within that space and then add on the other mechanicals, electric and H Vac. And so that was my plan before having learned anything about entrepreneurship or search or ETA.

Host: Okay so 300000 of SDE was your floor with the idea being that you would that with the SBA loan you could go, you could see yourself going down to 150 in the short term because then you'd look for some sort of bolt on acquisition to quickly get revenue higher to where you wanted it to be and maybe closer to you.

Guest: So growing, so growing through acquisition and then organically bringing my skill set to the table through sales understanding, building out a sales op methodology, understanding the building a customer profile and then once you have that business plan fleshed out, attacking that and executing which I've done for the past, you know, 15 years. And so very comfortable applying that skill set to the plumbing company.

[12:23] Host: And were you looking for a trades business or what types of businesses were you looking for? Was it always going to be plumbing that you.

Guest: No, I was looking in construction. So I guess that's how I looked at plumbing. I wanted, I wanted to find, I knew at the. I knew enough that I wanted to find something that had assets that were, that we could go into it a lender I could be loaned against. And so looking for construction like excavation companies, dirt removal, demolition. I got kind of, I was really wasn't. Didn't have clear direction there. My main driver there was my kid, my oldest son loved Tonka trucks and all the excavators. And so I was like all right, this is something I could buy this, step in, buy it and then hand it off to my, my, my oldest son and something that he's interested in. And so he at to this day like so that was short lived. And so he. We have all of his stuff in containers out there and we need to hand off to another kid. But so that's what got me started down the road found the, started with construction. I was like hey, let's look in construction. I like that space. I have friends, I have a network that's in that space already from, from real estate to development within the area. So I could, you know, whatever that looked like masonry. I knew there was different subcategories that I could plug into and so found the plumbing company didn't thought that I needed to be a plumber. I was like so I never asked the question so let's ask the question, do I need to be a plumber? And so looked at the numbers the financials like this is legit and this was before the cost of goods sold skyrocketed post Covid. So all of the gross margins and then the EBITDA SD margins are great. And so like this is before we even add on any additional acquisitions or really beef up the sales efforts.

Host: 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, Oberly 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 oberly-risk.com o b e r l e-risk.com link in the show notes.

Guest: So the last three years that he was trending up into the right went from 700 and call it to a million to 1.1.21 1.25 in revenue. In revenue and so then he ended up with doing around 35% profit margins each one of those years. So business was primarily commercial new builds de novo work project based with some, some service tied to it which was an area for oppo opportunity to expand and grow the business too start you know, recruit and, and recruit new plumbers to bring on board, bring on new trucks and start advertising and capturing some of that share.

[15:41] Host: Yeah. So and how old was the business and how many employees?

Guest: So the business was started in 2011. They had five employees, two of which were master plumbers. So you know, in hindsight I could have given both of them equity to continue on in that operation and but like most sellers do, they decided he wanted them keep the, the sale of the company confidential just so which totally made sense.

Host: But so five employees plus the, plus the seller or he was.

Guest: Yeah, so five employees plus the seller. Great great group of guys that you know to this day that you know I would, I'd go on to battle with any at any in, at any Juncture. So it was unfortunate the way things happen the way they did, but didn't need a plumber to buy the company. Ran that through the banks at the time. And so we were going down a convention. I was pre. Let me back up. So I was. Before I even found the company. I did the. I did a pre qualification. I got a pre qualification letter from the SBA and was looking for s for. For opportunities. That was part of my buy box too. So something that I could buy with SBA funding and then I could leverage my 401k. And this was before I knew was aware of what robs were. So it didn't even utilize robs. We just took a straight withdrawal from our 401ks to fund the business.

Host: And what is the penalty to do that, do you know?

Guest: Offhand I think it was a 10%. You get taxed 10% if you don't repay it. So. Okay, so we were willing to take that hit.

Host: Yeah. Okay. So 35% margins on 1.25 million is. Is what 380 ish thousand of SD the final. The most recent year.

Guest: Great.

Host: With five employees. Skipping ahead a little bit. I've already teased this to say that the partnership ended up being the big problem here, a partner that we're about to hear about. But it sounds like the business small but solid. And in fact you found that, that you found that to be true even once you became owner. I mean you still look back fondly at the team.

Guest: Absolutely. Even the seller too he stayed on for. So we haven't gotten to the terms of the deal but yeah, even the seller we clicked as well from a. From a rapport standpoint right out the gate and then everyone that had been. Which made sense that I got along so well with the other other guys because you know, they'd been with him since the beginning. Yeah. So yeah.

[18:20] Host: Okay. And. And so tell us about the terms of the deal and why was the seller selling?

Guest: He was moving. The seller was moving to Florida. He was relocating, trying to sell it. So so need to take those funds and he's going to start a plumbing business and other. He's going to start even general contracting in the Florida kind of the 30A area. So that's the reason why he was selling the business. We. He was asking 1.1.8 for it. We ended up negotiating down. He did a three year average. I got him down to 1.4. And after the line of credit and 100,000 in working capital, the total deal was 1.6.

Host: Okay. So 1.6 on a little less than 400 of SDE in the most recent year. Not, not the blended three year average. It would be quite a bit lower. Correct. But if we take the most recent year, so is a little bit over north of a 4x a little bit too.

Guest: And so and I felt comfortable doing that knowing that I could, you know, with the expansion plan that we, that I had that I kind of laid out, I felt comfortable with that with the multiple. And this is without even knowing what that a 3-4x multiple was kind of a landing space to be. And so he had, he had other offers from private equity at the time too to go for for a lot larger dollar amount. But he cared a lot about the guys and wanted to sell to the right individual that would keep, you know, maintain his legacy and keep his team in place.

Host: And so you, what was your pitch to him about that? Why did he like you versus PE for example?

Guest: Yeah, so just talk, talk to me about myself and my background that I was an ex college athlete and was competitive. He. He played baseball. So we connected there. And so we both applied our competitive nature to, to business. Mine as a W2 employee, him, his as a tent, as a, as a business owner. Yeah, he was also an employee, just a, a plumber starting out just running service and he stepped out on his own as an entrepreneur. So we just connected there and I, you know, admired his courage and to step out and do that. And so I outlined my plan for the business to, to kind of grow across the the metroplex, starting using his business as the platform and then we would expand into the north, north, south and east of Dallas and eventually roll up. So talking to him, you know, through those relationship expanding just on plumbing alone, but then layering in like we talked to electric, electrical and then H vac. So yeah, so 1.6.

[21:04] Host: And so you took out at what, 160. 150. 60 from your, from your 401k?

Guest: Yeah, roughly, yeah, 165. And I actually took out one. Took out 180 total from the. From our 401k just to have some. To cover some of our I guess the search costs and then some of our initial startup costs as well. So but ended up doing 10% down which was 160. And then he carried a 10% seller note as well.

Host: Okay. So very conventional SB 1010 SBA sort of situation. Great. And then you, despite the fact that you didn't need to be a plumber to buy a plumbing business, how did you feel about the fact that this is still a very technical business and you didn't have any of that knowledge and, and, and, and by the way, what did the seller say to you about that fact? He of course was a, was a plumber. Was a master plumber.

Guest: Yeah. No, he admitted that there's going to be a learning curve where that was concerned. But then he also went back to the fact that he would still be around and I could call him if I had any questions. His day to day, he had stepped back from being, from day to day just actually kind of doing the, the work, strictly going out and bidding the projects. And so he's like, within six months, you watching me do this, you'll be able to go out and bid these projects. And so that's that learning curve. He's like, I'm confident you'll be able to do that. So. And then for better or worse, I just always feel like whatever the situation is, I can step into and I'll be able to navigate the learning curve. I've done it in my professional career to that point, learning Japanese eyewear manufacturing and yeah, having never been in healthcare and medical device sales and feeling comfortable going in and talking to neurosurgeons about their procedures and utilizing our equipment and talking about the features and benefits and then ultimately just using my intangibles and being able to build, foster and grow relationships with other, as it relates to this business with gcs, other remodelers and you know, quite frankly others other small plumbing operations where they weren't able to get the work done and they would kind of refer business back and forth to each other. So I just felt comfortable stepping into really any situation. And then I like the fact that this was a, you know, as plumbing and a lot of the mechanicals are, it's kind of a necessity. And as we learned through Covid, it was a. Yeah, it was a. I forget the term. At the time we called it essential. Essential service. As essential services. Yep.

Host: So what were you, how is this going to play with your W2? Were you going to quit your W? I mean you said you were going to quit your W2, that's why you needed the replacement money, but you never actually did. So how are you thinking about that?

Guest: Yeah, at the time the plan was to keep my W2 and so, and so I'm not having to tap into the funds executing the, the growth strategy. Within the first six months we would add on additional units to the, to the fleet and hire on additional plumbers in our pre sale and Conversations leading up to the. To the. To closing. He had several plumbers in the pipeline that were looking for work and that he said could willingly add on. He was turning down a lot of business as it relates to service. And so we could easily add on one truck and one service plumber to grow our revenue base.

[24:40] Host: And so

Guest: that was just step one is from a growth stand, organically growing the business. And so, yeah, from there.

Host: But your. Your. Your approach had shifted because initially you did think you'd quit your job. Or did I misunderstand?

Guest: No, I was going to keep my job as long as I could, and then once the business was big enough to support me, yeah, then I would transition over full time and then fully lean into it. And so. But, you know, the situation came, and I was like, all right, so I found my partner. We can dive into that in a little bit. Yeah, I felt comfortable with that strategy. The SBA at the time was not requiring that I have a plumber on the business. And so the business was stable enough on my own back with my business experience and expertise. At the. At the. At that time, they were ready to move forward. And so I really don't understand what happened at the sba. Maybe it was a new person that came in that was looking over the paperwork, but in the, you know, in the final moments leading up to closing, they were like, hey, we would feel a little bit more comfortable if there were someone on the capital stack that had a master plumbing license. So massive curveball. And they told us so. We found the business in late June, early July. We were ready to close. We would have closed in a couple of months. We're ready to close towards the end of August. And that's when they threw that kind of curveball at us.

Host: And so. And this is 2020. This is peak.

Guest: This is 2020 peak. Covid. Yep. So I'm getting updated financials. Business is still as an essential business. Business was remaining kind of solid. And actually he had a couple of new jobs come in, so the business was looking good despite, you know, all the things that were going on in Covid. So. So we get that curveball, and so we start looking. He has friends. He's like, hey. He started recommending people outside of the. The company that I could potentially bring on and partner with. And so I started having those conversations,

Host: and,

Guest: you know, I remembered we had since moved from Carrollton to Rockwall. DFW listeners will understand that. So just moved about 30 minutes east. New church. But I remember going to church and through a marriage program with a plumber. And so, you know, we kind of hit it off and had a decent rapport. I knew he was kind of, he was up there in age. He was in his late 60s and probably looking at retirement. So at the time I think he was working for Roto Rooter. And then when I contacted him, he had started his own plumbing company and was trying to build what. This is his own words. He was trying to build what the, the seller had already established at the time. He just wasn't able to break into that commercial plumbing space. And so some ox successful, one man in the truck kind of teetered up and down between one and two. He had two trucks that he brought in with the deal but just never could get to that space. It wasn't even a huge leap, but it was 3x of whatever he was doing at the time. And so

[27:42] Host: he wants what you got and you need his license and timing is right. I mean, well, he, you, you probably. He's not going to be in it for the super long term because he's already a little bit up in age. But it seems like it's what he wants right now, at least for a number of years. And you know him through your church, which, which kind of gives him some social validation. You'd think so.

Guest: You think right. So again, yeah, he was on, you know, his went. His horizon was kind of on the end. He's like, step in here. Next five years, next to five to ten years. We grow. The scale of the business plan was always pay down the debt early and, and move on. And so, and then, so he, he would step back and then have an equity piece in, in the company. And so from that platform company, he would always. That would be part of it and as an investment for him and it would be part of his retirement plan.

Host: Got you.

Guest: And at the time, so I'm looking at the fight relooking at the financials. I'm like, all right, we can support with me not taking the salary, we can afford to pay him full time to come on. And so that's what we did. I was planning to be there once a week because I had some bandwidth with my W2 job to help manage things. And so there wasn't a huge need to go out and get new business. We just needed to maintain what was there really for the next. Even if we didn't add on his trucks or bring on anybody else, the business could. Would have supported if, if everything remained flat, it would have supported him and supported servicing the debt. So everything Looked good from that standpoint. The one thing we. But he. He was adamant about. I offered. I was like, listen, this is. I found this opportunity. How do you feel about a 60, 40 split? He's like, he's like, anything that's not 50, 50 I'm out on. Wow. So I was like, okay, I have to think about it. Yeah.

Host: Did that strike you as bolt, as greedy or whatever, the word aggressive?

Guest: No. At the time I was just thinking, you know, I was looking at the. The silver like the. I was not looking at the downside. I was always looking at the upside. I was like, all right, fine, 50. 50. He's also. So adding this part of the story, too. He's also licensed H Vac technician here in Texas as well. So instantly able to add on, in my mind, the H Vac piece. He's got two trucks. We just staff up plumbers and H Vac. And so now we're adding in those two revenue streams. Additional revenue streams. And so he's going to shut down his business and says, okay, I got a couple things I need to do. And I, I was. I didn't drill him on that. What? That looked like I should have. In hindsight, I should have looked at his financials, should have done a background check on him. It's a key lesson I learned today, was reiterated today in my men's group. But it's trust but verify that. That it can feel super great about the situation and the, you know, the prospects. But, hey, let's. Let's do our due diligence. And I guess I really didn't understand what due diligence was at the moment. I. Look, Just look at the financials, make sure that the, The P and L matched up with the bank accounts, which it did. Ran it through. I have two friends of mine, really good CPAs that looked at the. The financials and everything looked good to them, too. Ran them through my. For the. The financial modeling, and it made sense. Um, it. It almost was like, too good to be true. And, And I know this now. It's like, okay, what. What could the downside be? What if this goes south? What does that look like? And we never. To my, you know, to my detriment, I never did that. We never sat back. All right, what does this look like if things don't work out?

[31:10] Host: If you.

Guest: Of all the contingencies, if something happened, if either one of us get hit by a bus, what does our extra strategy look like on the negative side and on the positive side? And so eventually I would Take over the company on the positive side. And then, you know, he'd ride off into this, I'd cash him out and he'd ride off into the sunset. That was my plan. But never got there.

Host: Yeah. Okay. And. And so his insistence on 5050 was just. It just is what it is. That's just what he was negotiating.

Guest: And yeah, he's like, hey, you need a master plumber. I bring all my, you know, 20, 30 years of experience with me. He's like, I'm not taking anything less than 50%. And so, yeah, at the time I didn't think of it and I didn't consult with or ask about other. I also went back to him a couple of different times like, all right, what if we did 5149 was our distribution would still be 50%. 50. 50. And he was absolutely not his wife. She's pretty savvy ex at&t employee. She the equity. What was, was what was important to them and then having a say in the decision making process. And so we just didn't have a solid operating agreement on when we would class or have disagreements on how to run the business. And so.

Host: So you did you. Did you have an operating agreement prepared? It just was a thin one or did you skip that?

Guest: It was extremely thin. I found it on rocket law or what maybe legal zoom went through and we, and this is one of the other, you know, learnings that I should have stuck with one of my attorneys, even though I didn't have a relationship with them. We went with his attorney, which he had a long standing relationship with, which should have been another flag, red flag because he had an attorney that he's utilized on multiple fronts for his business and for personal reasons. So I should have dug into that a lot more too. But I found out about a lot of those cases and pending cases after we closed. So again, things I would have found it out, found out during diligence or just a simple background check that would have given me pause and you know, you know, we could have maintained our friendship at the time and like, you know, I'm just going to move in a different direction and completely walked away from the deal, which is what I could probably should have done at that time because I did not have any other sources for a master plumber. The ones that were referred to me by the seller, we couldn't get that he need. He wanted the same things he 20% equity, even 30% equity wasn't palatable for him. So

[33:40] Host: who sorry.

Guest: And I honestly, I didn't feel good giving someone more than that to someone I didn't know it was someone, someone the seller knew. I just didn't understand. I couldn't get my arms and wrap my head around giving him somewhat just an unknown entity. Even though I, in hindsight I didn't know my eventual partner that well either. But I just couldn't get my wrap my head around giving someone I didn't know that much equity.

Host: Yeah.

Guest: So

Host: well. And if this had, this was all happening in 2020, if this had happened in 2023, you might have been able to structure a part the SBA rules changed in 20, partial ownership. You might have been able to work with the seller to have him retain some small percentage of the business and he in, in the light his license stays in the business. Now if he's moving states, maybe that wouldn't have worked anyway and maybe he wouldn't have wanted it. He wouldn't have wanted any sort of tail to the business. But that, that structure comes up a lot now these days, three years later.

Guest: Yeah. Listen to several of your previous guests that have done that. And so, yeah, that would have been very beneficial.

Host: Would that have worked in your case?

Guest: 1,000%. Yeah. He already was willing to put up 10% of his own, you know, or carry 10% of the notice as well. So we could have easily negotiated, you know, a retained equity situation where he's, you know, 20, 25% ownership and then so, and then shortly after the fact too, he had family issues that were requiring him to stay put here. And so he was doing other odd jobs he'd already had. He had a million dollar check from the sale of his business, so he's fine. So. But it delayed his move to Florida. So and yeah, had we done that, he, you know, had I known that he was going to stay there, we could have easily partnered. I could have stepped in from a business development standpoint, started learning the trade essentially too. And this is kind of. I was going to get my, my plumber's license. I guess technically I'm still a, a plumber's apprentice. I haven't kept it up, but my goal was to, I wanted to learn the trade too. So if something came back, why not? I'm on the job with, with my guys with the team, I can learn this business. I'm clocking hours. I can get my plumber's license too. And so I think in, in hindsight, I think that was one of the selling points too for my partner at the time too. He's older, guy Just kind of sideways with his family back east. And I think at some point he saw me as some kind of a son and was wanted to hand down his trade to someone else that he could, you know, pass that on to in kind of weird twisted way. And so, and we were friends, right? So I was like, yeah, teach me how, teach me how to plow. Teach me the trade. So something I could do on my back. But well, so quickly into it. We closed that December of 2020 and we should have in hindsight too should have waited until January to do a. Just a clean from a tax standpoint, just a clean start. But also probably would have cleared up a lot of AR issues too. And so close 2020, I think December 19th was, was the day of 2020. Go through the holidays celebrating our closing that business, feeling really good and optimistic about things and transitioning things over. We did a, a stock sale. So we kept the, the name of the business which was named after the seller which I was my unintended on changing Eventually I wasn't going to do that within the first six months. I, I knew enough. I don't know where I got it from but not to do any major changes in the first six months. And so I wasn't going to change the name. His name carried a ton of weight and social capital in the, in the space and so eventually once I became a known entity, I could have transitioned to a different name that didn't. Wasn't tied to an individual because even then my goal was to buy and hold and scale. But at the end I always left the possibility open to flip the business as well. And that's one of the selling points I told my partner was like listen, if we don't do anything and we grow this business, if we stay flat, we're on a. It's on a high note if you stay flat in the next five years we'll be able to have an arbor, a liquidity event and have it, you know, have arbitrage of 2 2x here if we don't do anything. So that was in the. The bank knew that it was always on the back table, on the back burner to do that as well. But again, we weren't able to keep it flat.

[37:57] Host: What do the following Acquiring Minds guests all have in common? Doug Johns, Morley Desai, Tim Erickson, Chirag Shah, Shane Ursam. They all went through the acquisition lab, the accelerator in community for people serious about buying a business. But they represent just a sliver of the lab's success stories. The number of Deals across the lab's cohorts now stands at over 120, with over $300 million in aggregate transaction value. The acquisition Lab was founded by Walker Deibel, author of Buy Then Build, the book that introduced so many of you to the very idea of buying a business. The lab offers a month long, intensive, almost daily Q and A sessions with advisors, live deal reviews with Walker, deal team introductions, and an active community of serious searchers. Check out acquisitionlab.com, link in the notes or email the lab's co founder, Chelsea Wood Chelseie. Then build.com a couple minutes ago you were talking about due diligence and the diligence that you did on the business, which was light, but it wasn't nothing. You, you, you looked at the numbers yourself and you had a couple of CPA friends looking at it. And as we know, the. What went wrong here was not that the business was a lemon, it was a solid business. It was the, it was your partnership, which we're just about to get to. So. But you didn't diligence your partner is what I thought you were going to say and correct me if I'm wrong and. But you definitely didn't do it do much diligence. So, so reflecting back, what should you. How could you have diligence, Tim? Better for people who are contemplating bringing on a partner that they frankly don't know.

[39:48] Guest: Well, yeah, I've got a really good friend of mine that's in Austin that does. I should have just done a simple background check on him and just look at it. Yeah. And then I could have asked him. Maybe he could have explained some of the things that came up on his background checks. We helped him ultimately did, you know, post close because we quickly got into a legal situation. So a lot of those red flags I could have asked him about and quickly walked away. And you know, it's like, hey, you know, I just don't think this is the right fit.

Host: And the background check would have revealed whatever that would have revealed would have been red flags. I mean, can you tell us what they are or not?

Guest: Yeah, there was one situation where, I mean, and he actually told me about it post clothes. Like, I didn't want to bring this up and kind of scare you off. And so there was a situation where there was an assault, an assault accusation and it was legal.

Host: There's legal.

Guest: There's a legal trail for it. And so, you know, we live in America. You're innocent until proven guilty. And so the case was end up, I think it got thrown out on a technicality, but it just. It lends. It. It lends himself to the. To the behavior that he exhibited. You know, after. You know, shortly after we close, I'm like, all right, this is consistent with who he is.

Host: Yeah.

Guest: So.

Host: And if you had seen that, you would have walked in advance.

Guest: I think so. Yeah, it would. And then just the. The job, the. The inability for him to scale an operation on his own, that should have been a red flag to you, like, why. Why weren't you able to do this on your own? And so it was a red flag that was willing. I'm like, okay, maybe that's not his skill set. He's the. He's the technician. He's. He can turn the wrench. He's not good at building relationships, clearly. And that's where I could step in. And so.

Host: But, well, that wasn't. I don't think that was crazy, Josh. That's something, for example, you see a lot in tech land, startup land, where the product genius, the engineer, isn't good at the business side of things or the people side of things. And so you bring in the business guy, and you pair that with a technical person, and it's a great pairing. And so it sounds like that was kind of your vision here. You were going to be the front of the house, the sales guy, the leader, the people person, the business visionary, and he was going to be the technical guy. So that doesn't strike me as. That seems like a good match.

[42:09] Guest: No, no, no. You're something. You're spot on in theory. Theoretically. Right. That was the vision.

Host: And, Josh, what about. What about the. What you took as positive signals, namely that he was in your social network, kind of, sort of, because he was part of your church. In retrospect, you think that that did signal anything, or did that. Does that really not signal anything? So. So for the listener who might be thinking about partnering with somebody from their church or some other connection they have or just their social network, did that end up being worth anything really? Or was that a. A false. A false positive?

Guest: I think no to this. I mean, I think. I don't think I would have done anything differently there. I was using church as a kind of. As a point, a checkpoint. Yeah. Because, listen, we've all sinned and fallen short, you know, of the glory, and we all have our flaws. And so, honestly, even his ability, even though he did it after the fact is, hey, I've had these missteps. Like, you know what? We're all. We're all imperfect individuals. And so like, all right, let's, let's turn the page on that and move forward. Whatever reason it was that you weren't able to grow your enterprise to the point, okay, let's, let's put those on the table and address it and move forward. I think, I guess if I'm a listener looking out, yeah, I would just trust but verify. Like, yeah, I have a great relationship with someone from a small group from church. Let's just, all right, let's talk, let's walk through this. Okay, this, we think this could work, but what if it doesn't? Let's maintain our relationship. Let's maintain our friendship. Let's figure out, let's just say the mark. It's nothing that anything happens here. The market turns and so how do we exit this together? And yeah, and so coming outlining that strategy was like, hey, I want to move in a different direction. You know it happens all the time with partners. Like something happens. Divorce, illness, shiny object syndrome. And so what in that situation, hey, I want to focus now on my E commerce business. Now what does that look like? And so how do we exit here? And so figuring out those points and like, okay, and so, and then going. Even if it gets to the legal standpoint, we can, we can quickly hammer those things out and like, all right, this is how we're going to transition out of the business. Either, either partner. So just outlining those things. Absolutely. I wouldn't, I would do business with someone from church. Again, absolutely. I would just make sure that, you know, you do your due diligence, make sure that those red flags aren't there and then have a, just have a clear operating agreement that outlines what the exit strategy looks like.

Host: Yeah, well, and I'll just, I'll just double down on a few of those things. So obviously strength of operating agreement between a part between partners is hugely important. A good attorney will press you partners to have that uncomfortable conversation like you need, there's always that moment where you need to have an uncomfortable conversation with, with a new partner of like if this fails, go sideways, whatever, or if we just want to dissolve the partnership for whatever reason, if we just want to go our separate ways, how are we going to do that? And there are some best practices there, there's some standards. There's the so called the buy sell agreement or I think it's also called a shootout, something so people can Google that. But, but fundamentally your attorney can make themselves the. A good attorney will press you to do this process and will kind of, you know, be the awkward one to bring it up. Be the one to bring it up because neither of you, you know, when you're starting a new partnership, everyone wants to be positive and happy about the future and the prospects. And. And. And neither party wants to say, well, let's talk about what this looks like in the worst possible case. Let's talk about the divorce. What does a divorce here look like? So a good attorney will press you to do it and bring it up.

[45:55] Guest: They'll.

Host: They'll step in to. To prompt that conversation. So. Yeah.

Guest: Anyway, speaking of. Speaking of attorneys, well, if I could jump in here real quick.

Host: Yeah.

Guest: As far as not. I didn't diligence. Diligence his attorney either. And so he ended up not being licensed in the state of Texas.

Host: So. Okay.

Guest: Yeah, it was problematic, too. And so licensed in Maryland, operating in Texas. Yeah, it was. It was a lot. So he ended up being. Causing more problems. And so he was part of the. He. I mean, we ran the operating agreement through him, and so he wasn't. Having a good attorney is key. Absolutely. Because with the good attorney, with my, My business. Divorce attorney. He's a good friend of mine. Yeah, he was like, next time, use. These are the guys you need to look, talk to. They can absolutely put together a solid operating agreement. And we'll lead you down the road to your point to like, hey, let's talk about this uncomfortable outcome. We have to keep. Be open to each side. Like, yep, we want unmitigated success and then unmitigated failure. And so what does that look like? And how do we exit that?

Host: So.

Guest: Right.

Host: Well. And of course, everybody doing this, depending on what their own balance sheet looks like, resources are a concern. But I mean, there might be as many as three lawyers involved. Either both parties, both partners should maybe have their own counsel. And then there's. And then there is the attorney representing, you know, who writes the operating agreement, who is neutral and presents the operating agreement to you guys. And then you each have your own attorneys to review and help help you think through that operating agreement, which, you know, each person's got their own attorney. And then. And then collectively you're paying the business attorney. It's a lot. But, you know, that would probably be the. The absolute safest way to approach it.

Guest: So definitely, you had a lot of trust.

Host: You had a lot of trust, Josh. You had a tr. You had a lot of trust in him. You had a lot of trust in. I guess. I guess mostly in him. It seems like you. You didn't have as much trust in the business. You did your, you tried to diligence that, but in him, you had a lot of trust in, in his attorney or his selection or use of his attorney.

[48:03] Guest: I did. And I think part of that too was I was trying. We were get towards the end, we were at the end. And this could have happened with quality of earnings too, but just not wanting to put the cap like we, this is just one less expense we have to pay for. If I pay for my attorney, which I should have just paid for my attorney. Yeah, I was trying to manage my cost there. We were already at the finish line. In retrospect, I should have just paid the, whatever it was, you know, three, two, five grand for, for somebody that was representing my interest to make sure that we were legally covered no matter which way, whichever way the pendulum swung during the course of the business operation. So.

Host: Well, you're not the first, Josh, to try to save money in a transaction and end up being exposed in ways that you later wish you weren't. It's a very strong temptation because legal fees, quality of earnings fees are steep and people want to avoid doing them, but want to avoid spending them, especially because they're, you know, typically in a search, you've already been spending money. If you've been doing a full time search, you've been foregoing your income because you've quit to go search for a business. So the temptation is quite strong, but it's. You'd be wise to resist that temptation. Listener. All right, back to the story. January, you. You're now partnering. You're now partnered. How, how, what happens next?

Guest: Yeah, so it's January, it's winter, I guess it's winter everywhere, but winter in Dallas. And most people in the northeast or up north don't think it gets cold here, it gets cold in Dallas. And so we operated through January, just a lot of transition things. And so we get to the beginning of February and we get a freeze. And so the more common now and with the freeze, you know, the roads freeze over. I love my, I've been in here in 20 years. But when it rains hard in Texas, track traffic becomes unbearable. So snow and ice makes it even worse. So people staying home, pipes are people, they're just not used to living in cold climates. And so when it drops below freezing, you know, pipes burst, which creates an opportunity. And you don't. There are a lot of smaller plumbing companies out there that were taking advantage of customers. We did pay, we did charge an emergency fee, but it was reasonable. When it in line with everyone else's. And so it was a lot for a small, you know, at the time, five, seven man plumbing operation, including everybody to. To manage, especially for someone we're trying to transition a new business. And so the old seller is there too. And so he's there every day. So the old team still looking to him for guidance and direction, and still trying to look to my partner and me for directs, you know, like, all right, who do we listen to here? And so at that point, I'm like, hey, let's just listen to the seller. Like, this is who. We're gonna follow your lead here. Let's maximize the situation, help as many customers as we can. But at the same time, we have to take care of our. Our bread and butter, which was one of the other red flags of this business too, is just keep customer concentration issues in addition to the key man risk things that I, you know, again, we've talked about it too, but I think I would have. Would have felt comfortable going into because we were similar personalities. And I felt the transition, with his help would. I would have been able to transition those relationships. And after closing, that would have absolutely been the case. Having talked to each and every one of them, they just. They told me that, listen, if you. If it's just you, you find a new partner or find a new someone else to handle the plumbing side, he's like, we'll continue to do business with you. And there's a new. These are new contractors too, that were coming on board. They just got sideways with my partner on different issues that related to plumbing. And so, yeah, it's. So sorry, Josh.

[51:52] Host: So. So during the freeze, but the seller still around helping you guys in your approaches to. Is to help. Is to get out there and service customers. And then. And sorry, then what happens with your new partner?

Guest: Yeah, so, I mean, so that's. It's kind of a crazy time. The phone's ringing off the hook. The phone. It wasn't like somebody sitting there. Think of Betty or Ben, you know, whoever. Somebody's sitting there answering calls all day. It was a cell phone. He ran the business from a cell phone, which we transitioned that number to a new. To a new phone. And so, you know, we're. We're all scrambling. I'm the only one that can't really go out and help anybody in a pinch. So I'm. It's like, hey, let me take the calls. And there's just be intake and triage all the calls. Well, that was a point of contention with Him. He's like, well, you understand what they're calling and talking about? I'm like, well, I can, like, understand what the problem is and have them call one of the five. You know, really? We had journeyman plumbers there, too, and any one of you to kind of figure this out. But I can take all the calls back and we can call them back. Yeah, so.

Host: But he wanted to say was that the first inkling that he was not going to be that it was going to be so much friction with him.

Guest: It was before that, I think, like, we ran January. We were like. It was a slow January, so we ended up running at a loss for, like, two grand, which was not a lot. And we look at, you know, our monthly churn, and so, like, all right, yep, we could fix this here, here, and here. Printed out the P. L. To him. And I guess it was like looking at Chinese, and he was like, oh, it's like he kind of fell back in his chair. Is like, oh, it's like. Like a red fox. Like, oh, this is. I can't believe it's the big one. I need. He's like, I need my wife here to run all this. I'm like, like, we don't need her here. I'm like, this is what the problem is. Like, we cut costs here. We, like, all of a sudden, our cost, for whatever reason, got out of control here. Let's start monitoring that a little bit closer. Let's get these jobs executed in time so we can get paid on them, and we'll be fine. But I'm like, okay. At the time, I'm like, all right, fine. You need to talk to your wife. I'm fine. Let her. Give her her opinion. And so she sent out an email. So, like, great, let's bring her on. The first email was like, a long laundry list of things like, are we doing this? Doing this? And this is like, listen, I'm not. I'm not a kindergartner when it relates to business. I don't need, like, it's. Your input is respected. But I. I didn't need it. It just became too much. And so. But she's in it. She's involved. She's managing his email. So it wasn't like, she's at home. Like, I would get emails from him. It was from her. And so it just became a lot. And so. So during the freeze, we're missing out on opportunities. I have the phone. We. We really don't agree on that. I'm like, listen, it doesn't make sense for you to take phones when you, like, take calls when you're out in the field helping customers. So that became the first point of contention, like, the serious point.

[54:39] Host: He wanted to take all the calls.

Guest: He called me. He's like, threatening, is like, listen, you don't give me that phone, I'm threatening to sue you. He's like, you don't know me. Like, cussing me. Like, I'm keeping it PG here, but it's like, laying into me verbally. Like, laying into me, like something. And this is when he swept. I'm like, wow. Like, all right, this is who you are. I'm like, this is how you're going to handle stress. Like, I really did not. Like, now I see why you weren't able to build a team around you, because nobody wants to be around that. And so, like, we can't. Like, this. This is a lot. This is a stressful situation, but we're going to get through it. And you need somebody at the helm that's not cracking up at the first sign of, you know, discomfort running a business. And so.

Host: And Josh, when he starts revealing his character to you, does your stomach drop? Are you like, oh, no, what have I done? Yeah.

Guest: I'm like, how did I get into this? I'm like, and this is untenable. I'm like, this is not. I'm like, I'm talking to the attorney, like, his attorney. I'm like, this is. I'm like, I've recorded. Recording some of the phone calls. I'm like, listen to. This is not normal. Like, I'm not going to put up with this. And so at this point, I'm like, this is. We're looking at the calendar now. February. Like, it's just more and more there. So he brings a gun to work, and then, you know, it's Texas. It's Texas. So people, you know, people have handguns. I have mine, too. I had. In the glove box. I brought it in. We were talking. It's like, part of the conversation, right? Well, I take my gun and go home with it. He leaves his on the desk. And so we get into it. And so I'm like, it to the point of contention. Like, he. He. I'll tell you, he got into. Almost got into blows. I did get into blows with one of the plumbers that we had. I'd since left the business to let him run it. But at that time, I felt like his verbal threats and with him having a gun on the desk, like, I don't need to be There. So I'm like, you run the situation. Like we're. We're not getting along here. And I'm not going to put myself in a situation to where you fly off the handle and there's a gun laying on your desk.

Host: So, my gosh,

Guest: it was. It was. I just couldn't believe.

Host: That's crazy.

Guest: It was nuts. And I was like, I can't believe this is the situation I'm in. I've emptied out my 401k. I'm like, I sat and talked with the. This. We had a morning. We had our Monday morning meetings. I'm like, this is not working. Like, I want to give you an opportunity to get out. You can go ahead and leave. We'll figure out some kind of stuff, but you being here is not healthy. It's toxic for the business. I'll let you. You can go run your old company. The seller says, yeah, we're not. We're sat down there with him, like, listen, I can help him through this. You don't necessarily need to be here. You're a reason why a lot of the contractors that we're working with don't want to work with you anymore. It's better for the business if you can just hand things off to Josh and I'll help him with the plant, the plumbing part. Nope, I'm not going anywhere. And so I. I don't know what. I don't know what to do. So I sent. I called my friend who's a lawyer who does business breakups all the time. And so he's like, send me all your documentation. So I'm sending them our. The closing documents. I send them our operating agreement, which he quickly tells me, like, this is a. He's like, who did this for you? I was like. I raised my hand. I was like, I did Rocket law typed in. He's like, this. Yeah. He's like, this is bad. So he's like, this. We could have avoided a lot if you were just 51% ownership. We could have. You ejected him from the company and brought in someone else on the loan at a lower equity. Equity rate and equity percentage. And so. But anyway, with hindsight, we were stuck. Bad operating agreement. We're in this. And so I'm like, all right, I just want my initial capital back. He can have the company. And so we go back and forth. He's like. He got. He had this notion that the seller gave me the. The money up front to pay for the company, in which I was like, what? Like, no, this is My money, here's my statements. This is the withdrawals, here's statements from the bank. The dollar amounts match up. These are my bank accounts. These are the 401k statements. These are our funds. This is pretty black and white. Nope. The seller gave you the money. He was not hearing any other explanation. So, like it. So I just couldn't reason with him on the simplest of things. I was like, you can have the company. I just want my money back. And I probably fought too long trying to get my funds back. In hindsight, I should have walked away from the 180,000, just called $200,000 and just started, went back to, you know, the drawing board. But why do you feel that way?

[59:05] Host: Because, I mean that, that is, that was your retirement. So it does seem like that'd be worth fighting for. Was there, was there a cost to fighting for it?

Guest: Eventually, yeah, it was. So I didn't take out the full, full amount. There was still, I think I used 50% of it at the time. So I hadn't, you know, I, at that time, I'm 40, I'm just turned 40. So I'm like, I had, I didn't have the 401k that a lot of people had. And so like, you know what, that's fine. Like I can, I'm still, I'm at the peak earning positions now. I can go back and rebuild my 401k again.

Host: Yeah.

Guest: And that's. In hindsight I can walk away from that versus doing what I had to do, which was file Chapter seven to protect my house and all of our other assets. And so Chapter seven versus getting my, you know, or walking away from my capital injection. You know, it would have been, but,

Host: you know, but walking away, you still would have had to pay down the SBA loan.

[1:00:02] Guest: No, he, so we were, we negotiated like he was going to take on the loan. He would have, I would have walked away from the company. He was going to take over the debt service. Him and his wife were going to take it over. I was like, fine, you guys, you guys think you can run this better than I, than I can with me involved. Have at it. And so that decision was quickly made in March of that 20, 21. It's like you guys can run it. So they ran it, him and his wife, they ran it with the seller's help as best as he could. But I mean, he ran off employees, he ran off more contractors. He wasn't able to bring on any new business. So the company got ran into the ground. And so I find out towards the end of the year that he hadn't been servicing the debt.

Host: So.

Guest: Because the business was being run so poorly. And so at that point, I'm like, we haven't been able to close. I'm like, all right, he's not leaving. I'm. I was not. I was prepared to all like, if he's not going to leave, I'm going to leave my lawyers. We've got lawyers involved. That's why I said it's kind of a catch 22. Like, yeah, if you do lawyers on the front end, it could. It could elongate the closing process, but at the same time, you'd be covered. And so anyway, so I should have been. In retrospect, I should have done the lawyers up front, and then we would have been at a clear exit on the back end. So we.

Host: There's some cliche there where it's like, you're going to pay for lawyers one way or the other, and it's better to pay for them at the beginning than at the end. Something like that.

Guest: There is. I wish I could remember what it was. But, yeah. So anyway, ended up paying for them in the end. I ended up paying, you know, $50,000 to an attorney trying to get out of this situation. So if I would have even paid, you know, 10 of that up front, we could avoid it. Potentially avoided it. So.

Host: And what were you doing from March to December while he's busy running the business into the ground? And you've retained your job, so you're doing your job or. But how involved with. With. With the business are you, if at all?

Guest: Yeah. So quick. So we closed in the business. I kept my job. But I quickly realized in January I needed to be there full time. So I left my job full time with the intention of just going. I burned the bridge. Let's go all in here and make this work. Let's. Let's add on. You've got two. He was already bringing in two trucks because we didn't have to deploy capital to bring that. We just needed to hire new plumbers and. Or H vac guys to start doing some of the work that was already there with existing customers. So I'm like, let's just go. I'm like, I ripped the band aid off. I'm like. Took the golden handcuffs off. I'm like, let's go. And, you know, with a better operating agreement in place, we would have been fine. I could have moved on from him, installed one of the two master plumbers that they already had which are great guys, which a thousand percent deserve that opportunity to have equity and be in alignment with their efforts and personally with their efforts and personally and then having a stake in the exit or whatever that looks like or just the upside in the operation of the business in general. But that wasn't the case. And so we're there and within 45 days I'm like, that's when all of that happened. But with the gun, him cussing me

[1:03:03] Host: out,

Guest: just second guessing me, belittling me in front of the other employees. It was an awful situation. And so I'm like, you can have it, you run with it and that's where we're there. So during that time my old company, I'd already left and then my company kept like hey yeah, we still have your position here. So I was able to get, get back in full time with my, my old job and which I needed to support and pay for their lawyers and then keep food on the table. So with that I was able to do both of those and start to build back more 401k. Great.

Host: So from March to December you're, you're, you're basically working your shop and, and life has returned to normal, your professional life has returned to normal. Of course you have your ear to the ground as to what's going on in the business or no, at some point do you just kind of wipe your hands of it and, and aren't really thinking about it anymore.

Guest: I still had access to, you know, I was still paying a couple bills. I had access to QuickBooks and so I could, I was still do payroll, I was still sending. He didn't know how to do that, so his wife didn't want to get involved and do that. So I was still doing payroll. A couple of guys need a paper check so I'd drive out to Fort Worth, hang out with the guys, give them their paychecks, keep a post of what's going on and then just talk to me like man, like I don't know how much longer I can do this but you know, they were tied there too because this was how they were earning a living. And so yeah, one guy left, he went out and stepped out on his own a couple of really close there. And Gary, what's that?

Host: How, how did the seller react to all this situation? Because he remains active in the business because his, his move to Florida you said was suspended. So, so what is he, how's he reacting to this horrible person coming in and running the business that he built while he's still There he was having

Guest: a completely different experience with the. My partner at the time initially, he's like, I'm getting along with him great. He's not treating me like that. But he's like, the moment that he does, he's like, you know, he's like, I don't know that I could take what he's been. How he's been treating you. He's like, I would have been in jail already, so.

Host: But that maybe that charge from your. Your, your partner was actually somebody assaulting him. Yeah.

Guest: So he. Yeah, we. He's like, he's like, man, he's just. He's like, it's wild just the way he's like, he just does not get it. He doesn't understand. Older guy. He's. He's having the print offs. And so we're trying to. To kind of quote out these jobs. And like, so the seller and I were able to look at it on like on the screen here. He' to Kinkos or Staples and printing out these huge plans to quote jobs that we may not even get. Or the seller was like, hey, I can show you how to do this. This is what this looks like. Uses the formula. I'm like, oh, I've got this. I was like, I can do this part. Even though. And I may come to you for questions, but I can do this part.

Host: Yeah.

Guest: Without having to go and spend money to print out every single plan. And even his wife was like, you don't know what it's like at home. He's got all these plans spread out all over the house like he was in over his head.

Host: Yeah. Yeah.

Guest: Because it was commercial plumbing versus the residential service, which he was used to. So.

[1:06:03] Host: Well, not to defend his behavior, but that probably does help explain his. His terrible behavior is that he was panicking.

Guest: Yeah, I think so. And so. Yeah, pressure. You know, pressure bus pipes right. Diesel back on and plumbing for a plumbing company. And so he. I. I don't know how you diligence that is trying to figure out how he handles pressure other than talking to other people. Ex. Ex employers. So that's the diligence process I talked about. I was like, hey, like I'm going into business with this guy. Like just what was your experience with him? Just a simple question like that five minute phone call, you know, maybe could have uncovered a lot of that, but no. So we just got to that point where I'm at home, I'm working, he's running the business. There's. And he hasn't shut down his Company. So he's got his opera, his company that. He was like, yeah. He's like, I'll shut that down within the first month or two. I'm like, okay, well, we're fast forwarding towards the middle of 2021, and he's still running his company. They're still. And he's actually. He said there were mistakes where he ended up meant to put the. The water heaters and all these other fixtures on his account, but he ended up putting them up on. Putting them on our businesses account. And so, you know, maybe he did that, maybe he didn't, but I think based on his history that, I mean, he was. It looked like he was stealing from the company.

Host: I was like, oh, okay.

Guest: I was like. And you never mentioned it before? He said he told us about it up front, but you never mentioned it before. Like, hey, I'm gonna do. I'm taking. Like, if we'd have talked about it would have been fine. But he never talked about any of this stuff. I was like, yeah, we talked about that. So maybe he talked about. Thought it happened in his brain, but we never had those conversations. So he was trying. And he took employees from the company and were going doing jobs for his. His company, which we weren't experiencing the revenue on. I was like, I would have never agreed to that. He's like, yeah, we talked about that. I'm like, no, we did not. So we talked about hiring additional people for never hiring anyone for your company to satisfy whatever debts and ramp down that you had going on. So another thing that was not outlined in the operating agreement clearly, which. Which I should have done, it seems like, listen, you're going. Partnering with you, you're going to cease and run down your operations within the first 90 days or whatever terms are. But having clear line items on what that looks like and him exiting his business and being fully committed to this, which he had since I engaged him in August, he had plenty of time to ramp it down to December. This is why I'm like, okay, why would we even need to make that part of it? You should have ramped down by the time we got to close and he hadn't, so.

Host: Well, Josh, I mean, this is just such a nightmare. Take us now to the end of that year, and how does this nightmare start to end?

Guest: So.

Host: So you. You found that he isn't even paying down the SBA loan. Go ahead.

Guest: It's December, he's not. And he's barely getting by. He'd taken out. He didn't like the fact that because I opened up a lot of the checking accounts. So he went up, he went out and opened up checking accounts through a different bank which I did not have access to and was running things were there which was co mingling jobs and do like I had no. I lost visibility what was happening with the company. And in addition to opening new accounts, he went and took on new debt. And then so I was starting. So we're Fast forwarded through 2021. We're in 2022. The company is still running. We get to the of the end of the 2022 and he's like, I can't do this anymore. He's like, I don't want this company. He's like, he's already running into the ground. He's not servicing the debt. He's like, I don't even want it anymore. Like, okay, see, we're going back. And so that. So now he doesn't want the company. Where's the company? We're still on the hook for the SBA debt. So then what are my options here? And so I'm asking my attorney, like, what can I do here? It's like, really? You need to talk to a bankruptcy attorney at this point to protect your. Whatever assets you have. And at that time it was just my domicile in Texas that was protected, but with sba, that was still at risk. And so I needed to protect that. And the only way to do that was to file chapter 7. And you asked me about the difference between 7 and 11 on the pre call just for our listeners. 7 is complete discharging of the debt. 11 is reorganizing, restructuring the debt and continuing operations of the business, which at that I was not. I may have been willing to do that up front, but he was going to take the company and so I didn't even consider that. And then at that time he already. He was being sued by other. Thankfully my name was. It wasn't, but the business was on it. So the LLC's business name was already tarnished. And there's like, there's no point of even taking. He's like, you can have it, you can have the name. He's like, I don't even want one anymore. Like, well, it's. It's really nothing anymore at this point. So.

[1:10:49] Host: So he, he had had lawsuits, he had caused lawsuits against the company in his tenure, two years of running the business.

Guest: Correct. So what. So it's taking out loans and not paying them. And so they put liens on some of the, some of the outstanding work that was still coming in. He was waiting to get paid on a couple of deals that never came through. And it was always somebody else's fault. It was never his. Um. It's like, you never would let me look in the mirror, and I'm like, say this. I'm like, and even me, I was like, listen, what could I have done differently? This was the first time in my professional career that I really haven't been able to connect with another human being and work past our differences. It was just untenable, Like. And I was like, how could I have done. Handled this differently? And really, it's just going back to how I could have prevented it on the front end.

Host: Yeah.

Guest: And from a diligent standpoint. And so, yeah, we get through.

Host: He sounds like a person who's just kind of beyond. He's not somebody who's very reachable or. Or somebody that can. You can kind of resolve your differences. It sounds like he. He's just a combative person, and that's how he responds to everything. Not to mention other vices he has. So. Yeah.

[1:12:01] Guest: And then he mentioned to me, too, like, when he's like, I really want to make sure that this. Nothing happens to our friendship because he didn't have a lot of friends, which was another red flag. And he's like, he admitted this. I don't have a lot of friends. He's like, I'll make sure that we're good. Like, we're always good. I'm like, okay. Like, well, sounds good. Like, what could possibly break up. What happened to us that would, you know, break up this friendship? You know, that's just kind of really forming. I'm like, but clearly there were ways for him to do that. And so it was important to him. Like, he just wasn't able to do that. So I felt sad for him, too. I'm like, all right. I was one. I was a friend, potentially, you know, a son figure, where he used to be able to hand down his trade and watch, you know, watch the business. Like, he taught me how to plum and watch me grow a business. And he could step back in retirement and say, yep, that was his kind of capstone project on his career.

Host: So.

Guest: But that just didn't happen. And so I was like, I can't. Like, I can't work in this environment. Like, you've clearly. This is. It wasn't just one time. You've repeatedly verbally abused me. Like, if you can't talk to me like that as an adult, you can't talk to your customers like that, you definitely can't talk to employees like that. So. And if everybody tolerated as long as they could and left at various points of the operation. But I mean, I think he ended up shutting, doing like he's walked away. He walked away in April of March of 2022. And so we were winding down the company, wrapping up taxes. And I think this year of 2023. Sorry, 2023, he finished in 2022. We hadn't. Then we shut. We defaulted on the loan at the end of 2022. And then 2023, he just completely stopped operating and trying to run the business. And so this year we finally closed the books on, in the chapter on that LLC a couple of months ago, and I ended up footing the bill on the accounting fees and making sure we were closing out all of our tax returns. But.

Host: And so what, what is the result of Chapter seven for you?

Guest: So as it stands now, I, yeah, I've got a file bankruptcy. It's, it impacted my credit is going to be on my credit history for the next seven, seven years, 10 years, depending on what you're trying to use credit for. And so I'm now on the blacklist with the sba. So SBA financing, I'm, as you know, I'm still like alluded to earlier, this is only, you know, the beginning chapters of my story as it relates to eta, but I'm going to have to get creative with deal structure moving forward. And so the SBA financing is not on the table, but I do plan as a, you know, I love my country and I hate the fact that I wasn't, I was able, that I was short of the American people, you and rest of our listeners here. And I absolutely plan on paying back the SBA every cent plus interest. And that's why I'm really headstrong into diving into this next operation. I don't, I know what my enough bar is driving this business, driving this next operation to the point where, yeah, it's throwing off enough capital to where I can grow that enterprise, but then I can make myself whole with the SBA and the American people. But.

[1:15:08] Host: Well, that's a noble, a noble sense of responsibility, Josh. And I, I guess as a taxpayer, I, I thank you for that. And I, and I mean that it's also nice to hear that somebody who's gone through such a financial trauma is still thinking about other, other people. Usually we focus just on, on, on the trauma and on what the, what the principal has experienced. But you're you're also focused on, on making everybody whole. So that's a. As I said, it's a noble reaction. Josh, before we start getting to some wrap up questions, I did want to ask you about something you said early in the interview, which was your self confidence in figuring stuff out. So in your professional life you'd been plopped into a number of situations and figured it out and thrived. But a common pattern in ETA is buying a blue collar business, a technical blue collar business. H Vac is kind of the example, but shortly, not far behind is plumbing. Plumbing's extremely technical. Putting all this horrible stuff with a partner aside and the kind of the story of what happened here, but just the technical knowledge and the ability to learn to run a plumbing business. As a non plumber, were you overly confident or no? You could have figured that out too if all of that terrible partner stuff hadn't happened.

Guest: Yeah, I think I would have absolutely figured it out. And then the key with me is I was, I would have learned just enough to been dangerous, but then I would have been smart enough to hire someone else. I would have promoted any one of the two master plumbers there to, to that role and had the seller teach one of them, which ended up being his brother, teaching him how to actually accurately bid these projects and then, and then take that off of my plate. That's not my area of expertise. That means kind of work above the business, start talking to, socializing and networking with other business owners and look for the next acquisition opportunity.

Host: But so, so you would tell other searchers who, who might be looking at a pretty technical blue collar business like plumbing and they're a white collar searcher who have come from corporate or whatever, that it's doable that they shouldn't be, that this is absolutely something that can be done with zero plumbing knowledge.

Guest: No, absolutely, absolutely. You just have to make sure that you have the right, there's the right team in place. And so going back to like I bought small and there's a good team there too, but if you buy a little bit bigger, there's a management layer in place. And so you can absolutely step into a field where you don't have the technical know how or that you could, you could navigate that learning curve and absolutely still do that and apply your individual skill set to it. It's just like anything else. Like as you hire people are hiring VAs now, like hey, I don't like doing this or I'm not good at that, let me hire someone else. Or just delegate that out to someone else and just focus on the things that you're, that you're good at. But no, I'm still looking for a business. I'm actively looking. My buy box has changed. I'm now looking for the typical, you know, 750 to 2 million in EBITDA I'm open to. I like construction a lot. I just like the space. I think that we're, the where we're headed now as a country. I think manufacturing is a good spot to be in as well. Light manufacturing and industrial as well as healthcare. That's my background has been in healthcare, sales and management the past 15 years. But again, taking an addressable market, identifying what those customers are doing, the customer segmentation and then flushing out a true way forward. That's what I'm good at. I can do that within any space once I've, you know, get through it. And I say that I'm bragging on myself there, but I'm humbly stepping in like I don't know this get to know and understand that business and then they're all right. Now I feel like I've got traction here. I could step in and take in, take things to the next level or look for the right person if I don't already know who that is and plug them into that space. Even if I could do the job, like I need to hire a general manager or a salesperson to be out there to do that. So.

[1:19:11] Host: And Josh, but why not go right back to plumbing since you now have experience in that industry? You had a thesis around it. You got into a plumbing business. That thesis was not disproven. So you probably feel even more confidence in that initial thesis you had now that you've seen the industry, industry from the inside. There are plumbing companies everywhere. You know, it's, it's not a, it's, you know, it's a, and it's a giant tam. Why not go right back to the market and, and just kind of repeat, repeat the thesis just now with you know, older, wiser, with better partner selection or no partners.

Guest: Yeah, I think I'm open to it. I think a lot of the things that are on market now, the, the, the price tag is a little higher now than we versus buying now versus in 2020. I think private equity is entered into this space and then they've even dropped down into the, you know, below the 2 million dollar EBITDA range to kind of pick up some of those companies. And so the expectation, I think, you know, some of these sellers is like, oh, I can sell my, you know, sub million dollar EBITDA business for, you know, 5, 7x or something. And so if you can catch them off market and you can kind of walk through and they get to know you, that's not really about the multiple. It's about them selling to you. It's like anytime you're selling. I think maybe one of your previous guests mentioned this, but people buy from people and they buy from people that they like and so they get in, we can figure out the number. So even if you're paying a premium for it, if it's a solid business, you have a good relationship with the seller. They've got some skin in the game either through retained equity or a seller's note. Yeah, plumbing is definitely still on the, on the, on the table. I'm just, I guess I've expanded my box of talking to, I think was it Adam, the previous guest, where he's like, listen. He's like, people are. We're doing. You're trying to accelerate your search in two months. It's like, listen, anything that's making $2 million, I'm looking at. And so to take that approach. Yeah, plumbing's a part of that, but I'm looking at manufacturing. I have a box, but I'm keeping my eyes open for the right opportunity. There's a. I've submitted a couple of Lois right now and really it's just about coming back. We have those conversations. They like me. I'm like, all right, great. I've got a list on my whiteboard here of different capital sources we can go to and figure out how we can creatively structure the deal and get to close and transact on it.

[1:21:28] Host: And Josh, what about you being the operator for, for somebody else for a searcher or a sponsor and participating in the equity but not being the majority owner?

Guest: Yeah, I'm 1000% open to that too. Like I was kind of had blinders on, like, hey, I need to be the guy, I need to be the owner, operator and I need to have 100% equity. But as I've kind of revisited. So I guess I kind of rebooted everything last June and my search of, you know, I've narrowed my search down and I've kind of kissed a lot of frogs, so to speak. And I haven't, I've put a couple Lois in, but I haven't closed anything yet. And so if there's a situation, given my Chapter 7 status, I'm not going to be on. Be able to be on the loan documents. Initially, so I have to take a 19 and a half percent stake or some other stake or earn out where I'm not there initially. And so whatever capital partner kind of hitch my wagon to, they're going to have to kind of take on the brunt of the underwriting. And so and then we figure out a capital structure where eventually through time I earn back the majority equity stake and they're comfortable with that. And so in a three to five, maybe seven year span, this dynamic shifts from 60, 60, 40 to 40, 60 from their perspective. And I'm okay with having a 60% equity stake in, in my operation because yeah, they're buying in and investing in me, the holding company. And so I'll take 60% of a larger piece of pie. And so now with their expertise and their capital now we can continue to go on and roll up and expand the operation. And so I don't necessarily need to be the one diving in my 401k or rolling that, doing a Robson, but you know, leveraging other people's money that are out there. Just through search Funder the other day, they're like looking for, they're looking for operators. There's a ton of people that want to be LPs. I don't want anything to do with the day to day, but they're looking for someone that's capable and willing to, to run that. And you know, right. I raised my hand, I was like, absolutely. Let's talk, let's see if there's a fit here. If you like me, people talking to me, they see me on the YouTube, I listen to the podcast and I, I think one of the webinars, the first time I actually saw you. But if you see me, you like me, think that we might get along. Let's talk.

Host: Well, that's great Josh and I, and I think you, you could absolutely be an appealing candidate as somebody who for to be an operator in somebody's business. Josh, reflect for us a little bit just on I guess the life learning here. So, so we, we, we've heard a lot of the specific tactical learnings here. Operating agreement, better, proper operating agreement, better, proper neutral counsel. Much deeper diligence on a prospective partner not being 50 50, avoiding that, that 5050 split. I'm probably forgetting others. But what are there any other kind of deeper life lessons here? Trust but verify, I guess would be a big one just in everything. Trust but Trust but verify. You're a very trusting guy as we've talked about and you'll probably be a little bit sadly, probably lost a little bit of that, but maybe that's what wisdom is.

[1:24:38] Guest: Yeah. And like, I don't. That's not who I want to be. That's not who I want to be as a black, just cynical person where I'm looking at, looking around the corner, waiting for the other shoe to drop. I want to be optimistic and trust, you know, whoever I'm sitting across the table with or sitting next to you. And so until the point where you can't. And so, yeah, I don't think that I'll change that much. And so, but yeah, one, my eyes are definitely open and just need to take the steps to be dealt. Just take your time on the front end and just do the best that you can. Like there's just some things even get in the business you can't just, I mean, this case in point, you just can't see happening. And so just do the best that you can. Deeper life lesson is like, there's. I'm just a big. I'm a huge faith guy. And so like my. I know at the end of the day, I'm just a steward of all of this. And so God, he takes you through all of these ups and downs for a reason. And yeah, he's sitting here. I think I'm a better father. I think I'm gonna definitely be a better business partner moving forward. Business. I think my, my sense of awareness is improved. And so I think it's Mandela that coined the phrase, or maybe you gotta ascribe to him. But either win or you learn. Right? And so at any time, like I, I hate being an ex athlete. I hate, I hate losing. I hate losing. But anytime that it's inevitable that you were going to win lose, sometimes you want to win the majority of the times that you lose. And so those times that you do fall a little short, you got to make sure that you're, you're taking note and then you make the proper adjustments to. So you don't lose that way again. And so, you know, suffice it to say, I absolutely will not lose this way again. And then making sure that I like, I have strong people around me just having a more formal advisory board, which I already have people that are way Smarter than me, MBAs from Wharton, Duke, SMU that I can run every deal by, that I use as a sounding board. And it can kind of be, Kind of keep me on my straight and narrow and be my true north as we, as I move forward through operating whatever enterprise that is around the corner.

Host: Great. Well, Josh, you. You seem to me as somebody who. Not surprised to hear that you're grounded in faith because you seem to be. Calm wouldn't be the right word, but I don't know what the right word is, but you seem to have processed all of this rather philosophically. And you know, just to contrast you with your partner who, who was the. The busted pipe or whatever, the pipe under pressure and it busted or whatever, who clearly couldn't. His reaction to. To adversity in life was the polar opposite of yours, which is with humility and calm. I know we're. We're also talking to you now a good year plus later, so you've had time to process it, but you come off that way at least I guess the other part, you for that. Yeah.

[1:27:44] Guest: Well, thanks. Well, I appreciate that. I think the other thing too is I had to get to a point where I've had to forgive him for my own peace of mind. Like it was. Being in that situation was stressful enough, but then harboring any resentment. Yeah. At this point, it's just lessons learned and like forgiving him, like he's a human, he's a child of God. I had to forgive him so I could move, actually truly move forward and so I could go into this next stage of my life, this next chapter of my journey with clear eyes. And so forgiveness, I think, would be a huge part of this as well.

Host: Well, we could, we could spend a lot of time on that. That's also your. Again, your faith talking. I'm not sure I, I would have that. I have that particular muscle as well developed. I'm not sure I could. I could find my way to forgive this person.

Guest: I'll have my moments, but trust me, I'm human. Where I've used a lot of four letter words, but, you know. Yeah, again, ultimately, I know you just got to move forward and forgive him. And sometimes that forgiveness. I've probably forgiven him hundreds of times because tomorrow I'll be sitting here. It's gotten better, as you're alluding to over time. I've gotten to a point where I'm like, okay, yeah, this. It sucked at that happened. What can I learn from. Happened to him too. And so he has a perspective on it too. Like, we just disagree. We completely disagree, like a lot of people do in a political climate. Like, they have a different way forward. And so, yeah, his way forward hadn't proven successful to that point. And so he just wasn't able to see a different path or allow me space to do that.

Host: And

Guest: have we had the proper agreement in place? We could have moved both move forward with our lives and maybe still been friends to this day. But yeah, again, he's forgiven. Wishing the best for him and his next whatever endeavors he's wherever he's going on in life and I'll do the same here with me and my family.

Host: Beautiful perspective. Let's call it there. Josh, if people want to reach out to you, maybe if somebody else is struggling, maybe if they want to talk to you about an opportunity or something in between, how do you prefer they do that?

Guest: Yeah, I'm on LinkedIn. Josh Key, email is a great way to get a hold of me too. My email is joshcastle keyholdings.com maybe you can drop that in the show notes. But email or LinkedIn would be the best way and then from there we'll connect via phone. And I'm an open book. I'm talk to anybody. I'm willing to help anybody like I truly believe in. The reason why I wanted to do this kind of part A with you now is just to help anybody else that avoid any missteps that, that I made in their, in their journey to towards entrepreneurship. And yeah, I truly wish everyone the best. And again, thank you for this opportunity. That's been in a. Just the episodes that I listen to here has been in education and the connections and even how we got connected here through Adam. It's been phenomenal. So the future is bright for everyone in this space. You just gotta take the nice, the appropriate steps and you know, I think more often than not this will turn out better than it than it did for it did in my case. But story still unwritten. The rest of my story is still unwritten.

[1:30:48] Host: That's right. Josh Key, thank you very much again for doing this for the community. Very generous of you. We, we really appreciate this story. We really appreciate these. Anybody who's gone through a really challenging experience and is willing to share it up here on stage, it's really, really a selfless act of you. So thank you.

Guest: My pleasure. Sam.