Host: When Manny Saxena boarded a plane to the US from his native India to attend business school, he didn't imagine that street sweeping would be his fate. But boy, has that fate been sweet. Manny only owned his businesses. He acquired three for 16 months, which meant his search was actually longer than his tenure as operator. But he used those 16 months well, making both tactical and big strategic decisions aggressively to to become the largest municipal street sweeping company in Northern California. As you may have already guessed, one of the appealing aspects of the street sweeping business is contracted revenue with customers that aren't going anywhere. Municipalities indeed. Manny says he could tell you today his revenue for let's say October 2025, his contracts were that sticky and predictable. But I hear you saying, yeah, but those big street sweeping machines, lots of capex, I don't like that. Well, listen for Manny's response. He thinks searchers are Capex phobic. Lastly, we spend a lot of time on what it's like to buy a blue collar business. Manny was an MBA parachuting into a completely different environment. I find this topic endlessly interesting because it seems to be so challenging for some while perfectly fine for others. I think it's important to tease out when and why it works. Okay, here is Manny Saxena, buyer of three street sweeping businesses. 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. You already know that business owners are making amazing use of virtual assistants, often based in the Philippines. And while virtual assistants are helpful, virtual professionals are transformative. More Staffing is a boutique agency that hires a players in the Philippines not for simple tasks but for deep competency work. Think operators, supply chain managers, controllers. Moor staffing de risks your engagement with a 12 month guarantee to you and they provide coaching for six months to their talent. When an engagement begins, that means your hire is coached in the background, no additional cost to you so that your working relationship flourishes and is as successful as it can be. Global staffing is increasingly the norm and building the muscle within your business to take advantage of it will be crucial in the years ahead. Speak with more staffing about the pool of capable affordable managers they can connect you with. Check out Morenow Co. That's Morenow Co. Manny Saxena welcome to Acquiring Minds.

[3:01] Guest: Thank you both. Good to be here Manny.

Host: We are going to hear about the wonderful world of street sweeping today and I say that without sarcasm. Street sweeping business is the type that many in the acquiring Minds audience will love to learn about it is a boring business quote unquote. It's recurring, it's enduring, it's essential and in your case, it was life changing. So let's get into it. Manny, can you start us off with some background on you, please?

Guest: Sure. For those of you who can see me, it wouldn't come as a surprise that I was born and brought up in India. My dad was an army officer back in the day and we traveled a lot. I changed schools 12 times growing up, which was really the building blocks of my personality going forward, but then went and did engineering like most Indians did back in the day without really thinking about what I wanted to do long term and realized pretty early on that I was going to be an average engineer. My mind worked more at the system level versus product level. I was more interested in business, so really started to gravitate towards just business topics and figured I needed to learn more, dig deep and where else to come but the Mecca of business for my business school education. The US came here in 2012, went to Kellogg, Northwestern and really for the first time kind of felt that I was at least on the professional front doing the right thing and what I wanted to do with it and really got lucky. While I was at Kellogg, I wanted to escape the Chicago winters, so decided to do a study abroad session in IEC Barcelona where I got, I didn't know I got into this class called Search Funds and this was probably the only class outside of HBS and Stanford back in the day which taught about search Funds and it was taught by none other than Peter Kelly from Stanford and really fell in love with the concept there and I just thought it was fascinating. I always knew I wanted to be an entrepreneur, but I figured this was another way to go about entrepreneurship, which for me catalyzed everything I loved about entrepreneurship, right. And but also had a realization that I was not prepared to do it right after business school because I was an engineer before this. I had never lived in the US period to try and pitch it to a US citizen to sell his business to me without the business background, without any background in the US Felt hard at that point, so thought I'd give it some time and get some more. I got the business education, but more kind of practical business education. So ended up joining, ended up looking for general management roles out of Kellogg. And the one that seemed the best fit for me to prepare myself for entrepreneurship or search fund in the future was the Turnaround team at Sears, which was a fascinating place for somebody like me. To go in because I was more of a internal consultant at Sears, jumping from one function to the other, and I wanted business education. I got baptized by fire, really, and learned a ton there and really got my confidence there in terms of that, hey, I could contribute to this society, and then I could stand on my own two legs and really be a force of change. And I started to feel comfortable. And then as I was thinking about search funds, after spending about three years at Sears, I randomly got an offer from one of our vendors at Sears, the series C hot startup AI startup based out of New York. And they said, manny, would you come do sales for us? And I was like, I'd never done sales. And I had a very different idea of who salespeople were in the US And I was like, are you sure you didn't want me for another role? And he was like, no, you've been a user of the product. This is a really consultative sales approach. You to sit and talk with CMOs and CEOs of, you know, 14,000 companies. So we want somebody who can talk the language. So ended up taking that on as a challenge. And I really felt like whatever I did in life, I would be better off if I had a sales experience. I went in a little bit cocky, you know, with all my successes at Sears, and really got humbled really fast. Understood that how difficult sales could be and, you know, how even getting one call was a game changer, you know, somebody to answer your call, I guess. But again, a great experience. We started from, you know, started from zero salespeople, and then we grew up to about 15 salespeople, and again, gave me a great building block for what was to come in the future.

[8:06] Host: Manny, why did they tap you to come do sales? I mean, you said yourself you were surprised that you were tapped. You mentioned something about being able to converse, you know, at the executive level. Was. Was that it? What did they see in you that you didn't even necessarily see in yourself?

Guest: Yeah, now, good question. So I think one was I was just a heavy user of that product at Sears. So they were a vendor of ours, and, and, and. And there were a lot of. Through the partnership we had had with them, there were a lot of back and forth with them where I actually tried to improve their products based off of my experience using that product. So I developed a close relationship with them. It was really, you know, it was really a product which was really hard to explain. So they basically did used AI to write marketing language for your brand. Right. And what would resonate with the customer. So it was a concept which was really difficult to explain in layman's language. Right. It was not A plus B, you'll save C. Right. It was more that, hey, if you did this, we would run 16 experiments to understand what worked best for your customer and then what emotions were triggered when people read some statements and whatnot. So it was a very. I felt like it was much more consultative than any other product where you could just say, hey, this is our product. This is what it does, and go. And then it was also a higher value, higher ticket size item. I remember it was at least between 500,000 to a million dollar product. Right, right. So it was a lot of a big ticket size item where you really. The sales cycle were long and you really had to understand the problems of the customer and then really suggest what part of the product can help them.

[9:46] Host: And so you go there, you build the sales team up to. I think you said 15 people.

Guest: Yeah, no, I was part of the sales team. And we went up from, you know, I was an individual contributor there, but we went up from zero salespeople to 15 salespeople and then really felt like I wanted to take the next step of either entrepreneurship or search funds and really started to look deep into search funds because I knew it had triggered something in me when I was at Kellogg. And as I explored different avenues of search, realized that there weren't an easy path for an immigrant. And I was, and I'm still am, on an H1B visa back in the day. And as part of the H1B visa, you got to have employer employee relationships, so you could not have your own search fund employ yourself. So there were a lot of challenges like that. So ended up working with a search fund accelerator called Broadtree Partners. And they were. I don't know if they were. If they underestimated the risk or they liked me enough or more than other candidates, but they decided to give me a shot in 2018.

Host: Manny, tell us a little bit about what Broadtree Partners looks like. So it's an accelerator. Is it cohort based, or do they just tap individuals and then they work with you as an individual? Give us a picture. Yeah.

Guest: So Broadtree Partners, at least back in the day, they were a cohort model. So they hired four to six people every year from mostly one to five years out of business school. And they brought all of these searchers or operating partners together. And they helped you train and be better at search. And they helped you with a lot of relationships. Obviously they paid you A small salary, they sponsored your Visa and, and then, and then when it came time, they had LPs who we went back to on a deal by deal basis to go raise money for a deal. So that's how it worked.

Host: And the economic model is similar to a traditional search fund, I would say

[12:04] Guest: so it's pretty close to a similar traditional search fund. And you also had small equity in everyone else's like every other member of the cohort's like deal. So that it gave us incentives, not that we needed that, we already had a great personal relationship, but it gave us that financial incentive to root for the success of our cohort mates as well.

Host: Oh, interesting. So each of you had a little bit of equity in the other's deal.

Guest: Yes.

Host: Do you think that you would have done this model if you hadn't had the Visa hurdle, or do you think you would have opted for self funded or you never even got that far to consider it because you basically already knew that you were going to need somebody to sponsor your Visa?

Guest: I think it was, yeah, it was the latter. I think it's really hard for me to go back and put myself in those shoes right now because I know a lot more about search and deals and whatnot. But I would say this, I would prefer the search accelerator model over a traditional model because for a very few points that you give away, you get a lot more in the long term. And the way I kind of think about that is really it's not just about the deal and how much equity you get at start, right. It's about if you think about Manny as an asset, right. If you wanted to maximize the lifetime value of Manny, the most important thing is finding the deal, finding the deal fast, finding a good deal, being able to run and grow that business, being able to exit from that business and then world is your oyster, right? And then you could basically, you know, basically trajectory wise could be very different. If you had a great first deal versus like you end up buying a shitty business or average business went on for seven, eight years and then, you know, didn't get a great exit for you or your investors, you kind of, you know, in the same place, in my opinion.

Host: Right.

Guest: So I figured that every, each of those things that I said has a probability, right? And if there's being with an accelerator increase that probability only fractionally, I would still take that bet, right. Because again, it's all about the lifetime value.

Host: And what do you think the value that was provided was specifically that enabled you to. That was worth an extra Couple of points. And it sets you up to have, you know, just a much stronger first search experience.

Guest: Yeah, there are a few. So one was you just get five people who are. You have a different relationship with. Right. It's a, you know this and your audience knows this, that searches can be a lonely journey. And it has its own ups and downs. Having five people go through the same experience exactly at the same start date as you. There's just some, something magical in that. Right. It's almost like you went to the war zone together in the bond you have, you know, that, that, that, that is really hard to replicate in like a loosely formed friendship. People like two friends who are doing search, I think. And then you have a relationship with these people for the rest of your life. Five other CEOs, right. That's a good thing to have as well. Speaking of relationship. Right. Like in my case, a lot of we were raising money deal by deal, right. So I was speaking with a lot of LPs myself, going out pitching with, with Bradri GPS, which made helped me form a bond with all these investors in the future when I needed more money, I was able to bank on those relationships to go back to them and pitch them because they knew me. The other thing was just like basic, like, you know, I'd never done, done a deal before for Bradley. Right. So it just gives you the confidence of working with somebody who has done that before, you know, being able, like bring you or pull you away from pitfalls, you know, basic structuring things. Like there's a lot of things you can waste a lot of time on that they could help you sway away from. So there's a handful of things like that. And obviously you get a small salary that's, you know, that's, you know, at least sustains you. Although I live in San Francisco, so I would not call that sustaining, but besides the point. And yeah, and then obviously it's the post acquisition, you know, support system is already there. You have that relationship with that GPU who's going to be on your board. So there's a friend in the board at all times. Right. Which there's a lot of uncomfortable conversations that you don't want to have with the board. But there's always that GP and there's just somebody, you know, interests are aligned for the most part. And you're always, you know, you can always confide in people who you've had this relationship for the past two years. So I figured that was definitely worth the few points, you know, that you would Shave, self funded or not, I think is a different conversation. And you know, you need to start with how much money you have in the first place. I did not have a ton. I had student debt back in the day. So that was a little bit, you know, outside of the visa situation. It was a little bit of a hard thing to think about at that point.

[17:11] Host: Yeah, sure, yeah. Well, a lot of people do choose the traditional search fund route. Aside from all these pros and cons that people discuss simply because they have to, they don't have the money to self fund their search. So they need the kind of stipend or salary that a traditional search fund provides. And Manny, just curious, so your, your cohort, your comrades, did they all go on to buy businesses? What, what did, what did your cohort in the aggregate look like in terms of success?

Guest: Yeah, out of the six people, five of us bought businesses so it was a good percentage there. The sixth person got really unlucky with one deal, you know, which took a lot of lot of his time. But after subsequent leaving Bradford, he was able to find his own business as well. So technically all six of us got businesses and ran them.

[18:07] 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, Oberle will provide complimentary due diligence on that business's insurance and benefits program. A great no risk way to get to know August and team. They love helping searchers. They've worked with hundreds. Oberly is a specialty insurance brokerage for searchers by a former searcher. Check out oberly-risk.com O B E R L E Risk link in the show notes. And before we get into a little bit about your search and the business that you did find and acquire, going back to the beginning, you mentioned how ETA entrepreneurship through acquisition back in that business school class in Barcelona just really resonated with you. I can't remember how you put it, but it was pretty strong. Like it just really lit you up. What can you elaborate on that? We. We meaning me in the audience could probably guess because since we're all similarly drawn to it, but articulate it for us.

Guest: Yeah, so I think so. I was always like I need to do a startup because I love the accountability, I love the independence, I love the impact you could make. But when I was doing that class, what I realized was what I loved about entrepreneurship was really working with people, getting a team, getting them excited about our vision, working with them on a day in and day out basis to work towards that vision more so than like building a product or, you know, product market fit or raising money. Those were kind of like, for me, it was like, I'd have to do that. I'll do that if I have to do that, but I don't really love doing that. Right. And this one basically gave you a jumpstart, like search fund gave you a jumpstart to really get to that stage directly and then grow on from there on out. So that was like, for me, it was like, wait, you don't have to pay any money and you can be a CEO of a business you have ownership with, and, and you can get to lead people and without that risk of ever needing to start a business or raise money and all that. How's that even possible? So for my mind was like, what's the catch? Right? And then as you learn more, as I talk to more searchers, I was like, there was no catch, except you just have to bust your ass to get through all those stages, which I was totally fine with.

Host: Okay, Manny, so take us to your search and anything you think is relevant to the search piece of your story before you find your street sweeping businesses.

Guest: Yeah, so I went in and I had to kiss a lot of toads to find my princess, if I might say that. So I got like six or seven Lois through my two year period. But every time something happened, right? And I was like, maybe I'm just cursed, you know, and you know, one of these deals where, you know, you would go up. Like, I went to like two deals. I went after Kov Legal. It started and just fell apart at the altar. But then, you know, in the hindsight 20 20, and I've, I'm happy those deals failed because I ended up, you know, I think buying a really cool business, which you can get into in a minute. One advice I have always given searchers, which is, I also got that advice, but it's really hard to take. And you kind of, you know, just, you just. Most searches slip on that is once you get a deal, you kind of stop your pipeline, right? You start to like romanticize the idea of working in that company, being a CEO, you know, all that. And in the, and you kind of also get into zone of like, hey, I don't want to do other deals because it feels like cheating or, you know, it doesn't feel right to Be pitching to somebody else. As you're like talking to this one person, it's kind of like, you know, you kind of correlate that with like almost dating in some ways. Right. But I thought that was, that's the, that's a rookie mistake that people, people make. And you know, it's, it's, it's, it's about a process. It's about being committed to the process where you are going to be aggressive, you're going to be disciplined, you're going to be, you know, rinse, repeat until you find a deal. Right. So you got to go at it with, from that mindset and look at your funnel every day. Right. Even though you might have two Lois, you still don't have the most important step, which is to buy that company, close that company. So until you have that, you have to keep the whole funnel kind of going, for lack of better word. So that's a rookie mistake. And I did it like multiple times because I had multiple Lois. Uh, and I, and I wish I wouldn't have done that. Um, but. And also like I came from the sales world, so that was shame on me to do that because, you know, I understood the process. So that's one advice I would give to give to searchers. It's really hard and you know, a lot of people listening to this would be like, yeah, I wouldn't do that when I search. But trust me, you'll be, if you don't do it, you'd be really compelled to do like, at least think so. But that's one advice I would definitely give new searchers.

[23:27] Host: So even though you, you did six or seven, Lois, and once you got under loi, you, you weren't great at continuing to fill your pipeline. I'm surprised that you're, you know, you're doing things so sequentially. You're doing so many, Lois, and you still are able to complete your search in less than two years. The less than two years that Broadtree gives you because, you know, one deal under LOI can suck up months. So were you toward kind of the end of your two year mark when you finally found the street sweeping businesses?

Guest: I was. So just to clarify on that, so the first three, otherwise I wasted about two, three months in each of those three, four months in each of those deals. And then I remember early part of 2020, I was, I had a oh shit moment where I was like, oh shit. You know, all these other ways have gone away. I have no pipeline and Covid is kind of coming, coming in. It's my. I've been with the company, with Bradshaw for a year and a half. What am I going to do? And then I was just like, I don't care about anything else. I'm just going to make the most of these six to eight months that they have and just go after it like there's no tomorrow. Right. And I just, you know, I increase the volume, the number of calls. I did. I did like five, six calls every day for the next four or five months. You know, pushed every deal that I thought had a chance of us closing. And within three months, and it was also, like, I got lucky. And it was also the COVID times. So people were kind of nervous about what was going to happen. I got three Lois. So in like June, May or June of like 2020, I had three Lois. And I was just like, with Brad Tree, I was like, we got to do QE in all three, because I'm not leaving here without. Without a deal. And they were like, we can't spend money on three QEs. So, you know, it came to that point and eventually it became really clear the business that I bought would be the most sustainable business through Covid. And I had the biggest interest amongst, you know, the preliminary conversations I had with the investors. So it was easy for me to shed that. But I remember until the close of the deal, I was still pushing for those two other two deals and my pipeline, and I was able to pass those two deals to other searchers in my cohort, one to another cohort in Broadtree. Those deals didn't close because of a variety of reasons, but I was able to do that. Right. So that's the other thing. Right. Like, you don't have it until you have it, and you can be complacent, and there's some luck involved, but there's a lot of process. There's a lot of repetition. There's a lot of work, hard work that goes into it. As many people have gone through the process. No.

[26:09] Host: Well, I guess nothing like panic to. To make you start really motivated and start working harder, huh? Yeah. Okay. Hitting that. It's got. I mean, going back to sales, it's kind of like you weren't hitting your quota. You see it looming there in front of you, getting ever closer, and then you get scared and you start doing everything you can to hit that quota. So. Yeah, very cool. Okay, Manny. Well, then, so you're. You're doing. You've got these three businesses under LOI within two months or three months of COVID hitting you Must be the only person on the planet still trying to close a big deal that soon in the wake of COVID because there was still so much uncertainty that probably. That probably helped you. Less competition, maybe, maybe got a stronger multiple. I don't know. So tell us about the business that you. That you did close on.

[27:03] Guest: Yeah. So I was clear that it was not going to be a normal, quote, unquote, normal fundraising deal environment. Right. Banks were kind of nervous. This was before the. I think this was around the time or before, I don't recall 100%, but before the stimulus went in. And people were nervous what the world would look like in a couple months. Right. There was panic everywhere.

Host: Right.

Guest: So the business that was best suited to kind of withstand all of that was the business that I bought, which was a street sweeping business. So, you know, it was an essential service. It didn't. The street sweeping is not only required for you to. For you, for you to. For your city streets to look pretty, they literally have a health benefit. Like if you don't sweep your streets regularly, the stormwater runoffs can go into the drainage and can actually impact the water table. So cities had a responsibility to sweep the streets on a regular basis. In fact, they had to mandatorily, they had to sweep the streets to keep their NPDS permit, which is a permit they need to have to keep the city kind of disease free. The money that came for street sweeping also came from special funds within municipalities and cities. So it's like people are like, oh, what if, like municipality cities start going bankrupt? Right. But the money is actually they're part of the enterprise fund or a special revenue fund, which is not part of the general fund, wherein, you know, they always have money for that. Right. It's like part of the. In many cities, it's part of the, you know, the refuse fund, where, you know, where you pay money for your garbage collection. It's part of that, that goes into street sweeping. So almost like a business center for the city and municipality. So they've never, like, they would never run. They would not. They would always have the money and they're mandated by law to spend it on these specific activities.

Host: And every municipality has, has this, I'm sorry, what was it called? The restricted fund. They all have. This is a typical structure you see across all municipalities.

Guest: Yeah, there's like, they call it differently, but there are three types of funds, right. There's a general fund which is like, you know, they invest in everything. They want to invest in the libraries, the parks, or whatnot there is, there is an enterprise fund which is basically almost like a business unit. They make money from the residents on collection of garbage and whatnot. They use that part of. And that money can be only used for like street sweeping garbage or like face collection, those kinds of efforts. So that's the business, you know that they always have money for that because they're getting paid for the customers. And if they don't have the money, they'll just raise the rates for that. Right. And then there's a special revenue fund wherein they're earmarked for special activities that you can only. It's called like a refuse fund, it's like a disposal fund. They call it differently in different cities. You can only use that for certain. Like if you wanted to build a new library, you could not use those funds. Right. For example. Right. So, so that was really good to know and like, in fact we went back and saw that in 2012 City of Stockton went bankrupt. And city of Stockton was a customer of ours. But the sweeping went on regularly. It didn't miss beat because that was not part of the fund that had gone bankrupt. So it was essential service. It was very like from a funding source, it was stable funding source, as stable as it gets in those times. It was recurring revenue because you had these three, five, ten year contracts with, with city, with, with cities and it was literally running trucks on time was the only thing you had to do. Right. You know, you, I could tell you what my revenue was going to be four years from today or let's say, you know, two years from today on random October, like today. Because I knew I was charging them exactly the same thing. These were the three routes for this city. These were the two routes for that city. So there was a lot of things to, things to like in that business. The owners were great, you know, and had a good relationship with them. The industry in general was very fragmented. Right. At least back in the day. Now not so much, but back in the day it was, you know, 80% of the industry was probably less than 10 pieces of equipment and we had a hundred trucks. Right. So we were one of the larger companies when we bought it, bought the company and yeah, and I felt like it was kind of like a, you know, as you said earlier, it's kind of like a boring industry where people are not gone in and done a lot of value added improvements, you know, tech and whatnot, which I felt I could go in and do a lot of those things to get meaningful, meaningful value add pretty quickly. And then Acquisition was always on the cards because you're buying contracts really when you're buying companies more than anything else. And that was one of the two companies we bought, by the way. We bought two companies right out the gate, both from the same owners. This was the municipality sweeping company. And then there was a construction street sweeping company which had a little bit different dynamics. It was hourly to general contractors, but mostly to general contractors that build roads and highways. So again, federal funding coming in, you know, and it was regulatorily mandated for you to have a sweeper on site while you did the road construction because again, they didn't want the runoff to go into the gutter and drainage. So the entire production can, the entire road construction could shut down if you didn't have a sweeper on site. Right. So. And then it was a very small share of wallet for the general contractor. Right. 250, $200 an hour versus tens of thousands of dollars they're paying for everything else, their crew and whatnot. They didn't care about like they just wanted good service. They don't really care about price as much. They were less price conscious sensitive because again, they're spending tens of thousands of dollars an hour. So that was also a niche, very nice business. Even though they were in the sweeping space, you know, there were some similarities there with essential nature of the service, but they were different in many regards because that was hourly. Somebody called you a week in advance, you booked the trucks. It's almost like a taxi calling service. Whereas municipality sweeping was a lot more like Steady Eddie. You know, you had these five, 10 year contracts. Another thing that was pretty interesting, might be interesting to your viewers, could be this construction sweeping company was a union company. So we had two unions. There was, well, teamsters and operating engineers.

[33:48] Host: Manny, let me pause you because I do want to spend a little bit time on the union. So we'll get there. But let me jump in with some questions. Yeah, so it's interesting to, it's interesting that, I mean, we hear about this, this dichotomy between construction revenue versus kind of maintenance revenue. You hear about that in landscaping, among many other industries, or project revenue versus contract recurring revenue. And so interesting that even in street sweeping that, that turns out to be a thing. So that all sounds wonderful, like a very appealing business, particularly the, the business, the municipal side of the business more than the construction, since it's recurring revenue. But let's talk about two of the quote, weaknesses perhaps to this, to this business. Let's, let's nitpick a little Bit these machines, the, these, the street, street sweepers I know from our pre call cost half a million bucks. So heavy capex and that the answer may simply be well yeah, you, but you just factor, you just factor that into the cost structure and that's that. But, but answer that for us. But then also customer concentration. So I imagine, I would imagine that, you know, one or two municipalities could represent a size. I mean how many customers did you have is the question. And what was your largest customer as a percentage of revenue? So, so capex and customer concentration, please.

Guest: Yeah, the second one I'll tackle first because it's a quick answer. So we did not have customer concentration. In fact we were the largest player in the municipality player in second largest in California. Largest in northern California. So we had a really high concentration of customers. We had about 45 to 50 customers and none of the customer were over 10% of our revenue. So there was very less customer concentration in fact which is really good on the first piece. So I, the capex piece, you know, I don't want to say I have a bone to pick with people who say, you know, these are the parameters. These are the parameters you want to go after when you're doing search. I do want to say that you should look everything with some context.

Host: Sure.

Guest: It's a high main, high capex business. Does that mean I automatically reject that or I dig a little bit deeper? So if you dig a little bit deeper, what you find out is there is what they call a maintenance capex. Right. Which is like you just need to buy the X number of machines to keep the same number of trucks. Right. Which is a maintenance capex. So the way I looked at this was not on an EBITDA basis which was depreciation is a real expense. Right. In these high capex business. So what I did was EBITDA minus maintenance capex as my free cash flow metric. And it still made sense from a multiple standpoint in terms of what we were paying for that company. That's one second one was capex is a bad thing but can also be a friend. The friend part is not everyone in a really fragmented industry can afford. Back in the day the trucks were 300,000, $350,000 could afford those type of trucks. And many cities because of California being California mandated use of new equipment. So there were very few people who were able to bid for those municipalities. Hence you could, there was less like competition because of those very equipment that you had. Right. There was also regulations coming in called carb a California Air research board where you could not have trucks older than a certain period, which drove away a lot of people who didn't want to invest more in the business. So then you're again, you know, you're the only. I remember, you know, we, we were the dominant player in northern California. Like we always bid for cities and there were like two, two or three other competition, like local regional competition in northern California. But we were able to use that to our, to a quote unquote advantage because not everyone had that, you know, not just, not just from what I inherited from the business, but also I went in anticipating that capex so I had an equipment line of credit. I was able to explain to the banks what I was looking for in the next six, 12, 18 months in terms of capex investment. Also, it was smart capex in that you didn't have to buy the trucks until you won the contract in many ways, right? So you're able to, if you win a contract of $500,000 for five years, you can invest in one truck, right? You can take it to the bank. And then the other thing was the capex was very, the truck market was very liquid. It's almost like, you know, if you didn't want the truck, you bought a secondhand truck. Let's say you didn't want the truck, you sold it a week later, you'd probably get the same price, right? So it's not like you're stuck with this. Like, you know, there's cap. There are different types of capex, right? If you buy a capex, if you put capex in a. Building a manufacturing plant, yeah, you're stuck because you build that manufacturing plant, you can't undo that. But if you bought a truck and you're like, oh shit, I don't have ways to use this truck. You can hypothetically sell that truck the next day. So there's all kinds of like. That's why I feel like when people have those guardrails around what they should buy and not buy, they kind of tend to forget. And a lot of times that's why it becomes like an opportunity for you because people like small private equity funds or other investors who are just looking at it at a surface level tend to disregard some of those businesses. But sometimes it could be like a diamond in the rough, which is what I found street sweeping capex to be in my mind.

[39:19] Host: Yeah, well, that's a great point that it, it probably makes it a less competitive business to acquire. But also a great point that you made that assuming you're not a tiny little guy. You're a business of some size that capex can be a moat or a competitive advantage against, against other your competitors once you're in the business. So very, very interesting. Okay, so. All right, so here we are. And you're doing all this out of the Bay Area. You're living in the Bay Area at this point?

Guest: Yep, yep, I lived in Fremont and our offices had, were in Milpitas, Fremont and Stockton. Three offices in a couple of satellite yards

Host: and they. So you bought two businesses from the same owners and the one business was municipal revenue. The other business was construction. Pick us up from there.

Guest: Yeah, so bought that business. Obviously, you know, it was a, it was not your typical business that you would expect as you kind of glorify being a CEO. Like before you start search, street sweeping is not the, like I didn't board that flight from India thinking one day I'll be a street sweeping company owner or whatnot. Or even similar. Remotely similar. No. But you find yourself in a blue collared environment. Right. Which is very different from what you've done and especially in the US Because I'd only worked at professional services, big large companies, business school before that. So I had a very different exposure to a very different type of, you know, Persona or people. And so I was a little bit nervous going in, but actually when I went in I just, I felt, I felt like, you know, I had a breath of fresh air for whatever reason. One, I felt like the role that I had, like I could sense from day one that I was doing the right thing with my life. And I don't know how else to describe that. 80% of my time was spent on doing things that I love to do, which was to work with people, get them excited about a vision, you know, work towards analytically solving for issues that people typically don't spend a lot of time on, you know, those kinds of things. I obviously had a credibility, you know, I had to establish credibility really soon because again, people like me don't run street sweeping businesses in the Bay Area especially. And so I had to establish that really quickly. And I did find that it was hard in the beginning, but I felt like people gave me space and then I was able to learn and develop a personal relationship with each of the people that I met. And just by virtue of me being side by side with them in the trenches over time I sensed that I could gain their respect as well. But there was a lot of lower hanging fruits that I could attack. Right. Day one. Right. Well, they not day one, but you know, the quarter one.

[42:28] Host: Let me, let me stop you. I want to get to the low hanging fruit, but I have a bunch of questions about this transition period. You said a number of fascinating things there. So a lot of the, a lot of the caution that we hear about in our space is going buying a blue collar business. Because first of all, there can be a culture gap like you experienced where you're, you know, people who buy businesses often come from white collar backgrounds, sometimes very great, some of the world's best business schools. So very high, kind of highfalutin, highfalutin environments to blue collar environments. So there's a culture gap there. Also just the nature of the work is something that I hear repeatedly, like the, you know, the MBAs underestimate or don't fully understand what it means to, to parachute into a blue collar business and what your day to day looks like and how you can get in there on day one or day eight and be like, oh dear, this is actually not for me. And then, and then you're stuck. So you for, I think you just said from day one you felt like it was just right. So contrast your feeling of rightness to some of the people who would be listening to this and wondering if they should buy a blue collar business and, and those who already have and think that they've made a mistake. What's different about Nanny Manny's experience and those experiences?

Guest: Yeah, part of it is my background also. Right. So I grew up in India, you know, and my dad was in the army, so we've kept going around a lot. So I was, I was like really comfortable with change and like, I was pretty flexible. But like what I needed to sustain myself, you know, and I was able to quickly make friends because I changed every year, like school every year. So I kind of had a lot of practice around that. But also like when I was an engineer, I actually worked in India at a power equipment manufacturing company where I was on the shop floor of manufacturing like day one, right out of undergrad for a couple years. Right. And I didn't know then, but it definitely set, it set the stage for honing in on my interpersonal skills. Right. With people, especially blue collar people. That was also union labor, by the way. And I just, I just, you know, I just, you know, I don't, you know, I don't know how to say this, but I'll say it. The way it's kind of coming in my head is I just felt like those were real people when you talk to them, you know, and it's, you know, I feel like as MBA folks you tend to start to get entitled a little bit, you know, oh, I only doing this much or my salary should be that much. Just having that real nature. Somebody who can, for 80 grand salary can work their heart out and still want to still love their job and love the company as if it's their own. Going above and beyond, not really asking, like having the service attitude of giving versus trying to take was just a breath of fresh air to me. I just felt like that's, you know, I felt independent. I just felt like this is like the real America. This is the, you know, these are the people that, not saying that anything specific specifically wrong with what highly motivated, ambitious people think through, but it was just great to just be with like folks who were just like, love their job and you know, love coming in every day and saving money for the company. And so I just felt, I just have had a personal connection with them that, you know, that I, that I loved from, from, from day one. I also feel like the, the good thing about. And again, this is a learning for anyone who's, who's hearing this. A lot of times you're focused on EBITDA of the business, right? Hey, 3x million dollar EBITDA, I want to go buy that business. But they're not focused as heavily on the team, right, and what kind of like middle management you have as a team and this business. And I didn't really appreciate it when I bought the business because again, I was also looking at ebitda. But they had general managers, they had supervisors, they had foreman, they had all those middle management layer that didn't make me feel like I needed to get a hold of everything right at day one. And I had the flexibility or timing to take it at my own pace. That helped me a lot because I knew the business was getting taken care of on a day in, day out basis. I literally just met personally with every employee of the company, right from the driver to general managers, and really was able to strike a personal relationship, at least to some extent with all of them, which helped me tremendously, you know, as I understood their business, understood their lives, understood what their ambitions are, understood what their incentives could be, understood what their challenges were. All that, you know, upfront time that was spent with them was, I think, well spent and helped me a lot throughout the time we held the business

[47:46] Host: and how many people were at the business? How many employees were there?

Guest: So across both businesses, there were over 100 people about 125 people. And again, as I said, there were two unions part of the business and there was a whole non Indian arm as well. So two different companies completely separate from each other.

[48:04] Host: I want to ask two more questions on buying a blue collar business. I don't want to beat this to death, but I know people wonder about it. First, being an immigrant yourself, you've already touched on a little bit about how that informed your experience. But I, I know because I, I've gotten emails to this effect that people who are not from the real America, maybe they're people of color, maybe they're immigrants, maybe they're sons and daughters of immigrants. Wonder if there could, if it could be difficult for them to buy a business from maybe a retiring blue collar owner and then to preside over blue collar business. It's just something that enters their mind naturally. What would you say to them?

Guest: I would say there's some truth to that. Right. Like it's, it's and it's not. I'm not going to jump to the R word directly, but it's just about exploring commonalities between, you know, whoever you're talking to and being able to establish a relationship. Right. You're better, you're more likely to establish a relationship with someone who you have some common grounds with. Right. Especially when it's the question of selling, you know, selling your company, which is, you know, your proverbial baby, and give it away to somebody who you can trust, you know, with the employees. You've had a relationship for the, for all your life. So I, there is some of that, but I, and I sense in many, and there were some owners who, I could just sense that right away when I was talking to them through my search process. There were other owners who were skeptical as they got into it in the conversation. But for the most part I felt like these people were street smart people. Right? These people, not stupid people. They've built businesses from ground up by hustle, brute force, and they know what to look for in people. They've interviewed people, they've had teams before. So these are like intelligent folks in my opinion. So it didn't take them long to understand that you were also a person. Like you were a smart person. You had done your research, you were asking good questions, you were giving them suggestions early on in the process, free of cost. As you discussed more about the business, sometimes you were sending them, I remember through Covid, I send them every good, like legal article that I got to two owners of the business in terms of what they should do and what policies they could have. So you're just adding them, adding value to what they were doing. You were taking that extra. You're doing, putting that extra effort to go and see them. A lot of times people like, okay, I just call somebody or get on a zoom call more so now than then. But I just felt like for both you and them, it's a thousand times better to be in front of those people and talking to them one on one, both from a standpoint of for you to learn the business and love the business, but also find ways where. Find reasons where you're like, ah, this is not a good fit for me. Right. So again, there's a whole, like, balance between, you know, how much time you got to spend, you know, driving out there, flying out there. But I've been a big proponent of doing that, like, just going out there physically. And that helped me a lot as well. So I think, you know, the short answer to your question is yes, initially, it is tough and hard and, you know, you have an accent and people like, what are you doing? And in the Bay Area, especially, have people have a different connotation of who, like, what brown people do in the Bay Area. But I think it takes them. Takes. Takes an hour or two of, like, good research, you know, questions and, you know, relationship building that you could do with them. And there's always common grounds with regards to what you want to do in life. A lot of times it might not. Might not be about the past, but it could be about the future. What you could do with their company, to grow their company, how you can make them more money through, like, cash at close or old equity or whatnot. So there's always those kinds of discussions that you can have with people and those things fall away. And to be honest, that was a lot of that I attribute to going to Kellogg, which is the business school I went to where I was able to practice those skills, right? Like, in the first year, it was pretty hard for me to come in. A lot of times I didn't remember, I didn't even understand if people were talking about music, sports, or, you know, something else. Like, it was. I literally would be sitting in the. Standing in those circles, and I'm like, I don't know what they're talking about. Like, even the topic I don't understand. And then, like, spending enough time with people, you know, forced Kellogg as a school, forces you to be in teams a lot more. So just developing those deep relationships or the skill sets to develop those deep Relationships was again, I had the training ground at Kellogg, which was super helpful. And then just, I think one of the things that a lot of immigrants unfortunately have is inhibitions or lack of confidence. Right. I did too. And I still do to some extent. Right. But it's about like, you know, jumping with both feet in and, you know, and realizing that what's the worst that can happen? You could look stupid. You know, and a lot of times you do look stupid when you're stammering or, you know, you're, you wanted to say something, you can't think of a word because you're still thinking in a different language, you know, And a lot of times I did look stupid, but the frequency of me looking stupid, I think went down over the years. And that's been super helpful because a lot of times it's easier for immigrants to be like, okay, I'm going to stick with the Indian population, or if I'm Asian, I'm going to stick with the Asian population. Right. And it just robs you of the chance to have a global mindset or have a learning opportunity, which in my opinion is the biggest thing, why you pay $200,000 to go to a business school is to be able to do that. So I think, you know, I've said a lot of disparate points, but hopefully, hopefully that, you know, it answers your question. But that's, that was my experience.

[54:13] Host: Yeah, that was awesome, Manny, thank you for that. And my last question on the, on the blue collar business is one thing I've heard you say now a couple of times is that you really, really get charged up by motivating a team and getting them signed on to your, your vision and marching forward to a glorious future. Now, I, I, this is delicate because I don't, so I'll just say it. I have heard from a number of people who buy blue collar businesses that, that folks in blue collar businesses don't have the same kind of motivations. They're differently motivated. It's not that they're unmotivated, but they're differently motivated than your average Kellogg grad, you know, who, who's, who's kind of frankly often defined by their personal ambitions. And, and blue collar people just are often just oriented a little, a little bit differently. Not necessarily better or worse, but different. And so, so they'll get into a blue collar business, this, you know, this enterprising MBA or somebody coming out of corporate who wants to now own their own business with all these ideas and all these plans and all this energy and find that it just goes over like a lead balloon to the, to the staff that they've inherited who doesn't necessarily want a lot of disruption or racing or energy in their existing lives. They just, yeah, they just find it kind of disruptive and they're not similarly motivated because they didn't buy the business. You know, they're still. Maybe they get a little raise from you, but it's not like there's some gold at the end of the day, the rainbow for them. So all of that said, how do you respond to all of that? It sounds like you were able to. To motivate folks in an environment like that. How so how do you respond to all that?

Guest: Yeah, no, I think there's definite truth in that. First of all, you know, when you buy a business, you rarely have a team that you would otherwise have put together yourself if you had started that business. You rarely have that. And you know, I'd be. If they had that team, they probably wouldn't sell it to you and they definitely wouldn't sell it to you at a multiple. You want to buy the business in the search fund world. Right. So there's those challenges for sure. Right. But I think what I've realized over the years of running multiple companies, teams and whatnot, two things. One is it's all about the attitude, I think, right. It's less about the potential, it's less about the caliber of that person at day one. It's all about the attitude. And give you an example, like a lot of times we would have some issues street sweeping on a street, in a street, and then when you found the. You could have somebody out there for years and you would have complaints and then you would send somebody in who's less experienced that person, and zip, no complaints. It's all about, I figured, at least in that job and many other jobs, it's about how do you. Even if. Even if you're doing an hourly job and supposedly you're doing a street sweeping job which might not be looked on from the society a certain way, you take pride in your work. And those are skill sets, soft skill sets that I felt like I was always looking out for. Who's somebody who went above and beyond, Somebody who didn't just do my 9 to 5, get my OT and out. So we heavily rewarded people who just like we got one example was somebody had dropped their wallet and the sweeper had sucked the wallet up and drove away. And they had called that driver through the city and the driver went with that resident to the place that dumped the debris and looked for it for the wallet and found it. Right. And that's just like, blowed me away.

[58:04] Host: Wow.

Guest: You know?

Host: Yeah, it's amazing.

Guest: It just. It's just, you know, just hard to find. And I. And the other thing that I said two things in the beginning. So the. The other thing I found was even though they might not be incentivized by the same thing as you, which could be like, oh, I want to build this empire as a Kellogg grad or, you know, revenue, ebitda. But there's. They always have. They have a lot of, you know, aspirations for, like, let's say their families, right? Or what their business work, like, should look like. And, you know, so if you put the right people in right place, you know, you were able to draw out, you know, performance from people who were, you know, who were able to not give their best in their roles they were assigned to. And the third time was like, yeah, of course there were people who. You were like, these people, this is. This is destroying my culture. And this is not the right fit. And you gotta move on those people fast because, you know, it's the, you know, it's. It's. They do more harm than good in the culture form and they bring more people down. It's just a dark cloud hanging over. You could sense that a lot of times that's our first instinct is, right? And then you test that, you ask people around and you know that that's the right thing to do, and you just gotta act on that fast and, you know, and then you gotta look for structural things too, right? In our case, we looked at people who had two jobs, weren't doing as good a job with street sweeping as people who just use this as their sole job. And it's bare and it's expensive. So people sometimes needed two jobs to sustain their families, which was obviously sad to hear, even though we were paying really well. But then what I said was, let's just reduce the workforce. Give people full eight hours and give them overtime if need be, instead of hiring that one person for four hours, you know, every. Every other day, right? So then they know that all that money, like, they're getting a good salary from the company. You know, they're getting good ot, they don't have to look outside. They're getting a fixed schedule of work. They know the same day, every day, they sweep the same city. You know, that improved their work life balance or quality of life significantly because they knew their schedule for the entire year. I could Give their schedule today for the entire year and they just had to do a good job. That was their sole purpose. They had the same truck. They had didn't, you know, two people didn't use that same truck. They were responsible for that truck. Those kinds of small adjustments that you do on operational front resulted in huge increases, in my opinion, the morale and motivation to do well. And that was the reason why we were able to sustain a 90% plus, like you know, resign or rebid rate even sometimes when we were not the lowest bid, we were able to win because of our quality of service, you know. And so yeah, so that, that those were kind of, you know, my. Again, my disparate thoughts on your question. Hopefully that answers that.

[1:01:10] Host: It does. Thank you. Let's now turn to. Since we're talking about the people so much, let's turn to the fact that the union, which you've touched on already. So assume a low level of knowledge about unions here because I have a low level knowledge about unions, maybe other. I'm sure a lot of listeners will know more than I and just kind of tell us what we should know and understand about buying a business that has a big union presence.

Guest: Yeah, I mean unions and it's a very polarizing topic. Right. As I'm sure you know, I think it has its pluses and minuses. You know, it's like anything, if it works well, it works really well. If it doesn't, it can get really ugly. Like those kinds of scenarios. In our case, it worked pretty well in that for a lot of our customers who were general contractors, they were all union too. So they had to, they had to go out to the market looking for union companies only. So there was already at least in the construction street tripping war. Right. So there was a lot of competition that went away because they were not union. Right. The other thing that was really great was it was level playing field. For every competition, all the competition they were paying. Exactly. A collective bargaining agreement defined union wages. So it was to the penny you're paying the drivers the same as your competition. So then at that point it all boiled down to how efficient you were, how tech savvy you are, how customer service oriented you were and you can win on those things versus like just hey, I'll just father and a son duo, you know, I'll just pay whatever to myself or my son and then start competing with you. That was not the case. Right. You had to be paying the workers the same as the rest of the competition. The other thing was they were Pretty well compensated. Right. So sometimes drivers would make like you know, 70, 80 bucks an hour. Right. Which was a good compensation. You know, couple drivers made like eighty hundred grand as well in, you know, driving trucks, which is, which is good money. So there was less retention issues. So everyone wanted that job that paid you so well. Right. So we didn't have like that much churn in our labor which saved on like various hassles of training people and less liability, more dependability, most customer service orientation. So that was again a win for me because that's a huge problem in the blue collar world is to attract the right kind of talent. Right. The negative downsides are obviously like, you know, kind of obvious. It's pretty expensive to run the business. You know, there's all these fringe benefits that you gotta spend on which is, you know, makes your labor costs high. If you don't have a good relationship with the unions, that can get pretty ugly. I heard horror stories. We thankfully had good relationship with the union. We did everything by the book, you know, made sure that the unions got their check on time. We had a good relationship with the union rep. If we had some personal issues, we were able to collaboratively solve for those. And you know, to be honest, we were small. Like we were part of the two unions, which are massive unions. So we were like small like we were not the Tesla plant in Fremont that they were like, you know, trying to whatever unionize and you know, fight for. We were like, you know, 40, 50 drivers. That was in the grander scheme of things. As long as we kept our head down and did the right thing, we were, you know, we were kind of left alone, so to say. So I think for us it was a net positive. And you know, that's why I think the owners in the previous, like previous owners had actually created this union company to go after that market. And I think it was a. Yeah, I would say though from about selling point when you sell your business, like when you buy the business, there's a lot more questions on the union than, than a regular company. So it does become a little bit harder to convince buyer to buy a company which is union. So that's, there's some, you know. Well, there's some downside to that because there's a lot of like pension liability. How are the unions doing? Can you withdraw away from withdrawal liability? There's all kinds of liabilities that unions come with. But you know, it's all about communication. If you explain it properly and if you've been on the right side of the books, you can do it.

[1:05:59] Host: The recent guest, James Bloom, Mechanical H Vac, worked with his local union here in the D.C. area or Baltimore area and had a, and it was great for his business and he had great relationship with the union and one of the benefits he said was that it was a great source of, of labor. So, so in a world where hiring plumbers is, is really difficult, he could, I said, you know, more or less pick up the phone and, and be kind of have a great plumber recommended to him and, and come work for him thanks to his union contacts. Is that, did that play the same way for you?

[1:06:38] Guest: Yeah, it did. I mean it kind of boils down to if you're getting paid significantly more than the non union shop somewhere else, you attract more people and you attract better people. Right. So it just, I think it's a function of that and having somebody like an infrastructure of the union that has a scalable way to bring those pool of labor in and then send it to you, that is obviously a benefit. But in our case we had very little churn because I think we were just good with our employees and the potential was high. So we had very little churn. So we didn't have that problem too much. And every time we did we always were able to find somebody on our own accord without even going to the union. So. Yes, but we didn't have that issue or we didn't have that even that positive impact directly from the unions. We just had it because we were paying a lot more.

Host: Okay, good distinction, Manny. We're, we're bumping up on time but we still got a few topics to hit here. So let's keep going and go quickly. The, the, we talked about long term contracts, you know, that you could, you know, you could see into your revenue years ahead so you could tell me what your revenue will be in June 2025 sort of thing. 2026. From our pre call. You did also acknowledge though that one of the bad things about recurring contracts in an inflationary environment is that you know now, now what you're getting paid every month is, is anchored to what you agreed to when things were a lot cheaper and now prices are, are going up on you and you have to do what. How do you manage in an inflationary environment? How do you manage these long.

Guest: Yeah, first you panic and you have a bullshit moment and you start looking at a P and L and your fuel's got. Yeah, fuel is almost double of what you paid. Fuel was a big chunk of our expenses and parts were 150% more. Trucks were harder to get by. Labor wanted more, otherwise they were moving away from California. And this is like the peak of if in talking about inflation, the period of 20, 21, 22 is probably the worst time to have a fixed price contract with the municipalities. So we had that moment and you were just like, oh, what do we do? On the union side it was good because you were able to raise prices every year, right? So it didn't matter. Or I guess it mattered less on the union sides, which is good because that was half our business. So half of our business didn't get impacted too much on the municipality side we were like cautious. What do we do? And I was like, we should just go back to the municipalities and see if they would do an amendment, an ad hoc amendment, because guess what, they lived in the same world as we did. And they also had employees. They were facing the same issues like we did. And when I went in, I thought between the 50 contracts, let's say if I went to 50 of them, I would get like five people or 10 people to give me something. I was actually surprised we were able to get an increase, some sort of increase out of turn. Increase from like 25, 30 contracts out of the 50, which was one. We were diligent about it. We went to the list, we wrote a big letter about what's going on, gave them actual price specs of different parts in 20, 20, 2022 or 2021. And then fuel prices, everyone knew about the fuel prices. It's like seven, six and a half dollars a gallon from like a year before. It was $3 a gallon. So most, most municipalities, because they looked at us as partners again, they didn't have a street sweeping. Most part they were outsourced street sweeping service. Right. So they didn't have a street sweeper. So if we went out of business, then they would be stranded too. And they would have to like magically get a $400,000 street sweeper and then train somebody and a mechanic to work the streets. And street sweeping is one of those things which is, you know, nobody notices until everyone notices. Right. So you get calls to the mayor, calls to the council. You know, there's all kinds of like political, like city, county relationships that get entangled in the street sweeping world if it's not happening. Well, so I think so we banked on that a little bit. And you know, it took a lot of like going to the cities, explaining to them, pitching to them. And for the most part they were like appreciative of the things we were going through. And we were not asking for the world, we were not trying to take advantage of the situation. We just wanted to get back to our quote unquote, normal margin dollars that we were making. And showing them that Excel calculation, being transparent, being upfront with them helped and we were able to keep, by and large, there was a dip in margin, but then we were able to get back to our usual margin within like six months or so. So that was. But, you know, it's just one of those things which is like, you know, you, you wouldn't know until you try. And you know, there's, you would, you would miss, you know, what was that Michael Jordan saying? You miss 100% of the shots you don't take. And that was my philosophy kind of going in and it worked out.

[1:11:49] Host: In so doing, you uncovered another kind of strength of your business, which, yes, you, you realized going into street sweeping that it was a quote, essential service. But like, I think you uncovered just how essential it was or just how badly your, your customers want to see you survive and prosper. Reminds me of my interview with Caroline Chapdelaine. Very different business manufacturing a widget for, for in the defense industry. But this was a very strategic, important widget. And, and her customers were desperate for that widget to keep coming off the production line. And so if her business hit hard times, it was almost like her customers were going to help her survive. So if you can perceive that when you're, when you're evaluating businesses that you are just like that, your customers are desperate for you to continue to survive. That's a, that's just a, a mark of real strategic value in, in the business. So, Manny, now we've kind of gotten into the weeds of the business. You as operator, let's step back out now to you as deal guy. You were, you looked at the landscaping, the landscaping, the landscape of street sweeping across the country saw a very fragmented industry, which we all know what that means, what the opportunity there is. But you also saw that there was starting to be some PE activity, as I recall. And take it from there.

[1:13:20] Guest: I would start with walking you through another oh shit moment. So we bought this business in October of 2020 and we had modeled this business called Sweeping Corporation of America out on the east coast that had done a mini roll up. And my goal, if you went back to my sim, I had two pages of why one day s Sweeping Corporation of America would acquire us when they start looking out on the west Coast. And until then I would be Ever so efficient and pick up a bunch of companies and then put a pretty bow on them and give it to them at a pretty significant value appreciation. So that was the whole strategy, right? What's the Mike Tyson saying is like, everyone has a plan until you get hit or punched in the face. That's what kind of happened with me. So we bought the business in October 2020. Warbuck Pincus, the small, dingy $90 billion private equity fund, bought SCA in December. So two months after we bought our business. And then in January or like early part of the year, I don't recall the exact month, but they announced buying our biggest competitor in California. So we were suddenly three months we were competing with O Warburg Pincus Bat national company. And then I also had that oh, shit moment. Then they came to us to sell our business also. And we could have sold at that point also pretty early in the process. But I felt like we had a lot of strengths. That was hard, not from a financial scale perspective, but we had such high concentration of business in Northern California. It was hard even for a bigger competition, bigger competitor to come in and break that, right? Because one, you have contracts, so you have contracts. Second is it's such high concentration that the efficiency you derive from one truck was much higher than any competition would. So there were some inherent reasons why I felt like we could compete with them. So we started. We kind of went on the offensive and actually went down. Opened up an office in their area, but they were big in SoCal. So we opened up an office in SoCal. We actually won a few contracts from them. And, you know, not their. I presume, not their favorite, like, discussion. I wasn't a favorite person in the board meetings or in their leadership meetings during those days. And then they wanted to buy a business in NorCal to start competing with us. But we were able to convince that person, that company to sell to us. And this was another big player in Sacramento. So we were going head to head. And then we were able to convince them to come with us. So then we further strengthened our Northern California presence. We literally have the three largest companies in Northern California, and it would take them like 10 years to organically etch away at that business without spending a ton of money. So we bought that business. And that's when I got a call from War with Pincus. And then we kind of discussed something, and then they kept coming back with a better price. And it just came to a point where I went back to the board. I was like, look, this is literally a 90% or close to 90% of what our upside case in five years was. And we were like, year one into the business, right? Year one, wow. 13 months into the business. So I was like, we can be stubborn and keep competing with them. I think, you know, we'll survive. But I think just mathematically speaking, I did the whole math. It'd be better to sell this company at this crazy multiple because no one else would give you that multiple and then give that money back to investors and you would be better off as investor to put in an s and P500 and still make the same money versus us holding for five years. So we sat at that board meeting and even though it was never my plan to sell these businesses so fast, we sold that business in February of 2022 to WarBook Pincus backed SCS Sweeping Corporation of America.

[1:17:27] Host: So that's an 18 month run, or actually less 16 months. October 2020. Yeah, 16 months. Yeah, 16 months. And just, just to recap, you acquired two businesses at once, but from the same owners. So two different businesses, but kind of a single business, really, sort of. And then you bought another large player in Sacramento during this arms race with the Warburg Pincus acquired business. And so then you have three businesses and then they, then they came to you and made an offer and you negotiated back and forth, got that offer up and sold. Amazing. And just one detail. So did I hear you correctly, Manny, that they had come to you earlier, they'd come to you earlier interested in buying you when they bought one of your competitors and you didn't want to sell then, so because you would have been what, five, five, seven months in the business at that point?

[1:18:26] Guest: Well, actually, four months into the business.

Host: Yeah, four months.

Guest: And yeah, I mean, it was one. We were going to pay short term, gain taxes. So I was like, you should at least run the business for a year. But more importantly, I just, you know, I just felt like. I just felt like we were, you know, one, you know, that like we had it in us to compete with them, at least for the short term. And there were some things we were doing outside of the inorganic play. Right. We were bidding at a lot of stuff outside of geography. We were talking to a couple competitors. We brought on, we didn't talk about much today, but we brought on a lot of tech to the company which was improving our margins significantly. What a fleet management system. We bought an AR collect software. Where AR went from, I don't know, 3, 4 million to 1 million. So there was a lot of value being added Pretty early on in the process I was like, I owe it to the company, to myself to see some of these initiatives through which is going to greatly improve the vat. If nothing, it's going to, even if I stick on for a year, it's going to greatly improve the value of the business because margins would be much better and we'd be much more integratable for this company that would one day buy us a new. So I just, yeah, I figured that was not the right time to sell. Plus like I thought they were like not giving us the value that we could have gotten, which ended up being the right thing because of our dominant space in Northern California.

Host: Some of these, these, these improvements to the business that you make, these are the low hanging fruit that you had started to, to talk about a little while ago. Okay. Yep. And just, and quickly because, because we gotta watch the clock here. Many just run through three or four of those again.

Guest: So we got tech involved, right. So we got like fleet management software wherein you put this fleet management software, this widget in every truck so you would know at all times where all these trucks are. So give you example, some old lady, obviously there were a lot of old ladies calling municipalities saying that the street sweeper never showed up on time or didn't show up at all or was growing at going at really fast pace. Earlier they used to just call us and say hey, you got to go back because you didn't sweep. And we were like, no, the driver promises that he went there. What are you talking about? And then they would be like you said, I said kind of conversation. Then we had a gps. So then they would be like, oh, the driver didn't show up. You just send them a screenshot of the GPS. Oh, driver was in your yard at 10:48am he was driving at five miles an hour. And his, you could literally track whether his brooms were running or not, whether the water was going or not. You just then send them that snapshot and the municipality of city would send that snapshot over to the customer. Right. So it eliminated a lot of customer service issues. Second thing we were not doing well was maintenance. Like we were doing maintenance more ad hoc, which was, you know, they were not preventive maintenance schedules. They were just, hey, if something broke, we would do it. So what we used the software for was creating that preventive maintenance schedule wherein I think over the course of six months or so we just did oil change checks at like certain number of miles we changed, you know, like we just had a whole schedule on that software which would ping the driver and the mechanic that you got to do this at certain period of time versus in their head or you know, or writing it on a piece of paper or someplace. Customer service improved because we could just have them sign on a digital paper on like hey, this truck was here from this time to this time. On the construction sweeping side, billing issues reduced because everything was digital, right? And this truck went from this place this hour to this hour. Payroll improved because you could tell how many hours a driver spent on a certain site. So there was a lot of improvements like that. On the fleet management software side, we got what I said, a software called AR Collect where they were automatically paying customers to pay invoices. And construction industry is notorious for paying late. So you would just set those automatic reminders going and then you'd start collecting a lot fast. And then suddenly our working capital, which was huge, went down significantly. Another thing we did was we changed our capex strategy. So owners being owners will worried more about how much cash goes in their pocket. They would look at running the trucks longer and just like duct taping the trucks and making sure ran as long as possible. We changed that to we would buy newer trucks faster and just get rid of the older trucks. So what ended up happening was the maintenance and parts expense would go down, right? But yet the depreciation. But when you bought the trucks, your depreciation would go up. But if whoever bought your company were looking at an EBITDA basis, which a lot of buyers were still doing, your EBITDA would be much higher because maintenance and parts expense have gone down, depreciation has gone up, but that's an add back, right? So EBITDA would go up, right? And then not to say the quality of the driver would love that because he didn't have to call the mechanic every time his truck broke down. The customer would love it because you're just sweeping, you're doing a good job, better job at sweeping. So that piece also changed the morale of the mechanics and whatnot. And so that also changed, that was a big change in how we approached business was like we'd find spending more money because it was better in the long term. And we had the equipment, line of credit and all that kind of squared away at the beginning. So that helped out a lot. We did a lot of leadership changes. Just thinking of what I need right now, what I need in the future, who's the right fit for what person. We kind of alluded to some of that early on in our discussion. Spent A lot of time with my team, opened up an office in SoCal, which was a big competition that the owners always stayed away from because it was a CNG. In SoCal, you used a CNG truck versus a diesel truck and they were not really comfortable with that. They're more expensive. But we felt like that wasn't a big differentiation and we had to be in SoCal, did that, obviously acquired a big business that helped a lot. So those are some of the things that we did. Obviously didn't have a lot of time to do those things in the 16 months or so that we had the business for. But I thought they were packed with like, packed with like stuff that we just kept doing every day, every week, every month. It felt like I was running the business for five years.

[1:25:05] Host: And Manny, so circling back to the, to the PE acquisition. So ultimately you kind of called your shot in the slide or two in your deck saying this is who's going to acquire us. And ultimately it was them who. Now that business had been purchased in the intervening year by another larger giant private equity fund. But still it was the same business that you thought would acquire you, Acquired you. Yeah, yeah.

Guest: I would have hoped they would have given me at least a couple of years to buy more businesses in California. But you can't always pick your battles. And I'm still thankful for what we got. But yeah, I knew they were going to come because west was the only place they could go to because they were doing all kinds of activity on the east Coast.

Host: And I didn't ask you at the outset, Manny, for any of the deal terms. I know you can't say a lot, but maybe can you give a picture of some kind of high level picture of what your initial acquisition was for and then what your exit was for?

Guest: Yeah, I mean, so I, I have to be vague because of confidentiality reasons. You know, we bought the business at sub five times EBITDA and you know, we are, you know, we were. I, I think we got. I. If you looked at it from an IRR perspective, you know, in 16 months we were like top 5, 5 percentile of all search funds from our perspective, partly because it was less time, but partly because it was good result. And then I would say top 80, 70% in like MOIC ratio in terms of like search funds as far as like search funds are concerned. So it was a pretty good, you know, pretty good outcome. I don't know if I can say more.

Host: I had characterized it as life changing for you. Is that accurate?

Guest: Yes, yes. In many Ways. Right. Not just financially, but I felt like it does give you a lot more one. It happened so quickly. So, you know, I still feel like even though I have all this gray hair, I still feel young to do what, you know, something else with the money I have and with the learnings I've had, the connections I have and the background I have. But obviously, you know, life changing in so many different ways.

[1:27:26] Host: Yeah. And now the, you know, boarding the, boarding the plane to America and not envisioning yourself, not envisioning that you get into the street sweeping business. Obviously younger Manny would be happy with this outcome.

Guest: I think so. I think so. But although younger Manny was pretty ambitious, so I don't know. But yeah, but, but no, I think he would be great.

Host: Okay, Manny, I wanted to leave just the last couple minutes because you are now you've. Subsequent to your sale and getting out of the street sweeping business, you have acquired another business and you're doing something of a roll up. So give us just a couple minutes on that. We don't have time for a story and maybe we'll have you back on to hear it in fuller detail in the months ahead. But just tell, tell people what you're working on now.

Guest: Yeah, it kind of goes back to our discussion on what you should look beyond the metrics of what's a good search fund acquisition. And I've continued to believe that. So I ended up buying a platform business which inherently is not the favorite industry for the search fund world. So we bought a business in the solar industry. So it's part of my private equity that we created called Mars Energy Partners, Mars Equity Partners. And within that I've created a holding company called Mars Energy wherein we are doing a roll up of renewable companies in the space. Renewable companies primarily starting with solar. We bought this company called NuGen Energy and that's a company that does end to end solar services for the agriculture community. So what's happening? California market electricity prices have gone up significantly due to droughts. Farmers need more and more bigger and bigger pumps, so need more electricity. And you know, solar has gotten cheaper and cheaper with, especially with the whole, you know, inflation reduction act. So it become suddenly solar has become really, really attractive. It was always attractive, but has become like I feel the next thing is just going to be even more lucrative in solar than it has been in the last 10 years. So about that first company and that's gone great and got a great team. I'm not the CEO of that business, I'm the executive chairman. So I spent all of my time with that business, 80, 90% of my time with that business. I'm working more on the business versus in the business. We have a great CEO. We ended up adding having our first add on acquisition also a few weeks ago in the solar space in California. They've also mandated every new construction so residential or commercial needs to have solar going forward. We bought a company that does serve that community, the general contractor for new construction community. And then we have another LOI that we hope to knock on would close in the next month or so. And then we have a lot of conversations going. The goal is to be mostly in the commercial space. That's the goal. And serve the 50 kilowatt to 20 megawatt market and hopefully one day be the largest small commercial player in the country.

[1:30:45] Host: And the reason that this is not doesn't check the boxes for a traditional search acquisition target is because it's high kind of project construction revenue and because solar. Solar is maybe not considered growthy enough or what? Even though it sounds like it is.

Guest: No, solar is definitely considered growth and that's why I feel like you got to look at it with all different parameters. So it has high growth, that's not a problem. It's high regulatory risk, it's stroke of the pen risk. What if subsidies go down significantly? And the project nature of this business, even though my entire strategy is to convert some of this project based nature into recurring revenue and we can talk more about that in the next podcast if you invite me again. But the goal is to convert this project based nature revenue into recurring revenue through various means by owning these plants versus selling these plants. And we can talk more about that also. That's why people don't want to buy that business. And it takes some effort to convert the revenue quality of that business. But I'm willing to make that effort because I feel like that's easier to do than to find, wait two, three years to find the next street sweeping business and then only grow by acquisitions. Whereas this company is growing at 40, 50% CAGR organically, let alone adding acquisitions. Right. So wow.

Host: And Manny, would you characterize what you're doing here? Your role is as independent sponsor or are you kind of a searcher again or you just don't really fit any of the buckets? You've just got this kind of plan and you've raised money and you're going out and you're doing it.

Guest: Yeah. So when I started to think about what I wanted to do after sweeping, I knew I didn't Want to be a pure play investor. So it was something either the operator role again or somewhere in between. I feel like I'm somewhere in between, between an operator like a CEO and an investor. So for if I wanted to put it in a box, I'd call this as a holding company in the solar space right now. So where we're growing both organically and inorganically in the solar space. And this holding company would buy multiple companies in different states and yet have certain things in common, almost like a blueprint or a playbook in common. Whereas all the other things could be brand could be different, all those things could be like employee leadership could be different, but the blueprint remains the same. And that's what I'd call that, for lack of a better word. And I'll leave you with one last line on this is I realized that the biggest value add that I had at sweeping was when I was working more on the business versus in the business. Right? Not to say in the business I'm not looking at. Operations did add value, but the biggest value add was making those strategic moves. And after the deal got done, I thought about that hard and I felt like I just had to maximize that number of times that I would do those. I'm able to do those strategic moves and minimize the time where I'm spending time on like stuff that's not going to add a ton of value to the overall organization. And the way I figured I would be able to do that would be my be as an executive chairman role, which is what I am these companies. So I spend all my time with the company. I spend in all the leadership meetings every week. But I'm not, I'm not at the ground level, you know, blocking and tackling because we have an amazing CEO. But I am talking to other companies we want to buy. I'm talking to a vendor in Vietnam to get the panels cheaper. I'm talking to all the key hires we are having interviewing them and I'm talking about the tech solution that can change the whole landscape of solar, in my opinion. So we're having those conversations and you know, and I feel like if I spend enough time doing that and somebody is able to take care of the business, which the CEO does, I think a growth could be much faster. So that's kind of, again, broad strokes to your question.

[1:34:53] Host: Well, the way I find myself reacting to that is that it echoes a model that I'm hearing more and more just because maybe I'm asking about it more where so not at necessarily the level you're playing at now. But even first time searchers buy a business and immediately put in an operator. And of course you know that that is often, people are often dissuaded from doing that because you need to understand the business because don't think that a small business is passive and all these quite valid reasons but, but the model isn't put in an operator and don't think about the business anymore and it's just going to, you know, mail you checks. The idea is put in an operator as you put it, so the blocking and tackling on a day to day basis is handled and you can go immediately be working on the business, sign in the business and working in partnership with your operator, with your CEO, your president, your general manager. First of all, it probably prevents you from doing the work you're maybe not that good at with the operations of a street sweeping business or not as good as somebody from the industry is. And it frees you to immediately just always be thinking strategically. And that sure sounds fun, you know, just buying a business and moving the chess pieces around. I don't know how realistic it is but there are increasingly, there are more and more stories that I hear on this very podcast from my guest of that model seeming to work. And here you are doing something like it again. You're probably, you probably got a little bit more money to play with than a lot of the folks listening. But still it's worth noting.

[1:36:25] Guest: I would say so, yes. But I would say that with one caveat. A lot of people when they're doing that, they're buying different businesses in different industries, which is very difficult. I feel like you need to be really deep into a business to be making right choices or decisions. Right. So I have immersed myself into solar. Right. So I don't need to go to the CEO to ask him whether this is a good business fit for us or not. At least I'm at that level. I'm asking the right questions. Yeah, I've been to this like I've been on like ride alongs with like solar installation teams. So I'm deep into that one domain, right. So it's easier for me to play that role. Strategic role versus like hey, I'm running an E commerce business on the side, I'm running a logistics business on this side. I'm trying to make these strategic moves. But strategy doesn't work unless you have the business or an understanding of the day to day. You need that understanding to be making efficient strategy moves. Otherwise you'll make a lot more mistakes. So I feel like that's a huge difference in what I'm seeing where people are like oh, I'm buying, I bought this other business and I'm just a God or CEO in there. And I'm like, well you better find out. Hopefully you found an amazing person CEO who can keep doing what you want him to do or her to do and mailing you the check. But oftentimes I agree is not the case because there's just so many things that can go wrong with the business, especially at the size we play at.

Host: Manny, I'd be remiss if I didn't mention the case. So. So going back to your street sweeping success, their Northwestern or Kellogg did a whole case study around your story there. So that will be linked in the notes. That's a great read for not only the drama but also for if you, if you're hungry for even more of a deep dive into the street sweeping industry. Man, if people want to get in touch with you, how do you prefer they do that?

Guest: LinkedIn is probably the best to reach out. But also my website, Mars Equity Partners, you can get a hold of me from there on out. But also my email is not hard to find. I'm pretty sure I'm usually in a lot of these conferences, conferences. So yeah, I look forward to interacting with as many people as I can. I got a lot of help when I was coming up and I want to give back, give back some of that to folks who are coming up and that selfishly get a chance to be connected to ambitious, motivated, you know, highly talented people who would love, I would love to have a relationship for the rest of my life and also get opportunities to invest alongside which I'm also doing on the side on search. So yeah, those will be the best way to reach me and you know always looking for, for like a, you know, really in a good conversation and meeting talented folks.

[1:39:17] Host: Great. Well I think the audience here meet the smart, ambitious, interesting characteristics that you're looking for. So audience take, take Manny up on his invitation to connect. Manny, thanks so much for sharing your story. What, what a fun and interesting story and yeah, let's, let's connect again about how, how your solar adventures are going and maybe maybe get you back in the seat here next year.

Guest: Thank you so much Will. This was a blast. Thanks for having me.