Host: Nine figures. Today's guest doesn't think it's crazy that his business could get to $100 million in revenue over the next seven or eight years. In fact, he thinks it's pretty realistic. And Matt Jackson bought the business just two years ago when it was doing about 5 million in sales. It's a roofing business in Florida and what Matt is finding is that good service goes a long way. Matter of fact, after we stopped recording, Matt made more clear to me just how flooded with business and referrals he is. And he's in a crowded market. Lots of roofing companies in Florida and you are going to learn all about the roofing business, an industry I haven't yet done a deep dive on, and one which Matt thinks is just now starting to get interest from private equity. In addition to roofing and Matt's story, a few topics to listen how Matt satisfied his licensing requirement, Matt's use of robs, and why he does not intend to buy the ownership interest back out of his 401 and what to do when you feel like you need to let someone go but are worried about filling the gap that they'll leave. Okay, Please enjoy this conversation with Matt Jackson, owner of USI Roofing. Welcome to Acquiring Minds, a podcast about buying businesses. My name is Will Smith. Acquiring an existing business is an awesome opportunity for many entrepreneurs and on this podcast I talk to the people who do it. August Felker is a two time successful searcher, first with a traditional search fund. The second time around he did a self funded search. Today August runs Oberle Risk Strategies, an insurance firm with a dedicated practice group for searchers and acquisition entrepreneurs like you. If you've got a business under loi, Oberle will provide complimentary due diligence on that business's insurance and benefits program. A great no risk way to get to know August and team. They love helping searchers. They've worked with hundreds. Oberle is a specialty insurance brokerage for searchers by a former searcher. Check out oberly-risk.com O B E R L E- risk.com link in the show notes Matt Jackson welcome to Acquiring Minds.

Guest: Thank you for having me on the show. Will appreciate it.

Host: Matt, you bought a roofing business. Roofing is a big trade, but one that hasn't gotten much attention on acquiring mines. So big trade in a big state for the big trade. Florida. Roofing is big in Florida so we're going to hear all about that. Start us off though. Matt with some background on you please.

[3:00] Guest: Yeah sure. Happy to and again, thanks Will for having me on the pod. I'm still a frequent listener and it was pretty helpful as I went through my transition. So thank you for all you do for the community. Yeah. So starting on my background, you know, I am a typical middle class guy. Grew up in a very, you know, middle class family in the Midwest. You know, time came to go to college, I decided to initially start school to become a professional pilot. And you know, going through that I just realized that I didn't like the macro backdrop that really indicates, you know, it's really, that decides really how busy pilots are. Right. I mean it's kind of a feast or famine and you know, sometimes pilots are, you know, not working and they're getting laid off. So I transferred out of that and decided to go to school for business. You know, I wasn't quite sure what I wanted to do in business. Took a finance course, really fell in love with finance. I thought the accounting was really practical but quite boring. But economics seemed too theoretical. So finance kind of seemed to be the perfect marriage between the two disciplines. Graduated right in the midst of the Great Recession in 2009. So it was really hard to get a job. It's like, yeah, I got a degree and I can't find a job perfect. So I took a job as a mortgage banker. Did pretty well, did that for about four years. Decided that that wasn't, you know, the end for me. Moved out to Florida.

Host: Let me, let me, let me jump in with a couple of quick questions. You told me in the pre call that your family, the culture of your family growing up was maybe anti business is strong but you know, skeptical of business people.

Guest: Yeah, that's, that's hard to overcome. Right. When you're studying business, you're going to tell your parents, hey, I'm going to go in the business. But yeah, so growing up about all I knew about business was, you know, business is all about greed. Business people are greedy. You know, that's, that was it. So I didn't have a lot of exposure to business in general. Right. And then, you know, going back to that comment on the pre call, I think what really made me fall in love with business was I had one professor, I took an intro to business course and through that course I really started to learn about all the different disciplines, you know, marketing, sales and you know, advertising and finance and accounting and know how it all has to come together to really have successful business. So to me there's so many moving parts and I kind of fell in love with it. Very quickly, what do you think?

Host: What do you think your family, I don't want to say got wrong because I'm not. Maybe, maybe they see something I don't. But when, when, when you're at home at Thanksgiving now and you're trying to explain them to them, hey guys, business isn't all bad. How do you try to convince them of that?

Guest: Yeah, you know, I think, you know, my parents always worked for big companies, right. So with big companies they were always kind of a, you know, a cost of good right in the machine. Right. So what they're seeing is oh, you know, benefits are this much less, etc, Right. And you know, in sitting around the table, I think the way I handle that with them, number one is they have a different perspective now. Right. Because I did study business and tried to explain to them that, you know, not all businesses are or greedy and bad. You know. Yes, there's a lot of examples of certain businesses that are certainly greedy. But you know, business can also be used to really make change in people's lives. Right. And that's something that I think they respect quite a bit.

[6:30] Host: All right, carry on. Four years of and the mortgage business, then what?

Guest: So I did my mba. I also worked full time for an insurance carrier as an intern while I was getting my MBA and I was really looking, I was really a product analyst helping the product managers understand different risks within their book of business. And then that transitioned into a full time offer there, you know, after about 18 months I was overseeing all of the financial planning for this company. It was family owned conglomerate basically. So they had about 10 different operating companies under their parent company. So I oversaw all the budgeting, forecasting, got involved in operations quite a bit and just to help them try to understand the decisions and know the impact on the financials. So did that for about 18 months and then was went into actual, one of that, one of the companies under that umbrella under the warranty division, helped with overseeing all the account management and business development for the warranty piece. So, so yeah, it was a, it was a good ride. I think, you know, that was one of those, it's a great company. But I realized that, you know, the hack to doing well in the corporate life, to me it seemed very simple. It was work harder than anyone else, take on every project and you know, do a good job. So that took me into my next career move which was going into financial advising at Morgan Stanley. So another great company. I get into Morgan Stanley as I go into their trainee division, their training program and started to I really wanted to prospect insurance companies, Right. And so I teamed up with a, a team, a gravestone team out of Chicago and actually ended up moving to Chicago to join them full time, really helping them service their book of existing clients and know prospecting for, for new business.

Host: Okay. And how does keep going?

Guest: Yeah. So I'm there for five years, did pretty well, brought on some new clients and, you know, came to a point to where it's still, you know, when you're working for a large corporation, especially a large bank, that's, you know, subjected to SEC regulation, FDIC regulation, you know, the list of, you know, exchanges and all the regulation goes on and on. They kind of, the way they kind of manage the. Really any sort of process is they, they put it into a box, right. So I say I want to do this marketing campaign and they're saying, oh, well, that doesn't fit into this box. Right. So it felt like to me that there was, you know, I was lacking that creative drive. Right. That I wasn't lacking the creativity, but I was lacking the ability to output the creative, the outlet to be creative.

[9:28] Host: Yeah.

Guest: So. And I think the other fascinating thing, which I'm again, a great experience, great company, but through that process, I really started to understand the different asset classes that are available for investors. One of those being private equity. And in speaking with private equity, I, I started to understand that there's really private equity isn't targeting these small businesses. Right. So when I started, when I decided I was going to buy a business, I didn't even really know ETA was a thing. Right. Like, I, I just kind of realized through, through speaking to private equity investors that there's not a lot of these larger funds targeting these smaller companies. So to me, that kind of had my, you know, that was kind of a, A, a headlight moment. Right. Or a where the light bulb turned on, rather.

Host: Yeah.

Guest: And I was like, oh, you know, I could actually do an LBO using the SBA and create my own, you know, be pretty much fully invested in private equity, but I actually own all the equity. Like, how awesome is that? Right? And yeah, since that was really the, the realization I had at Morgan Stanley that then, you know, really started to lead me down the path of trying to buy a business.

Host: What do the following acquiring minds guests all have in common? Doug Johns, Morley Desai, Tim Erickson, Chirag Shah, Shane Ursam. They all went through the acquisition lab, the accelerator in community for people serious about buying a business. But they represent just a sliver of the lab's Success stories. The number of deals across the lab's cohorts now stands at over 120, with over $300 million in aggregate transaction value. The Acquisition Lab was founded by Walker Deibel, author of Buy Then Build, the book that introduced so many of you to the very idea of buying a business. The lab offers a month long, intensive, almost daily Q and A sessions with advisors, live deal reviews with Walker, Deal team introductions. And in an active community of serious searchers, check out acquisition lab.com link in the notes or email the lab's co founder, Chelsea Wood. Chelsea Buy, then build dot com. Okay, so you figure out you can do an LBO and then I assume you start, you turn to Google and then this quote unquote world, you know, eta. You learn what ETA is and the whole kind of thing is cracked open for you. The books, the business schools teaching this to tell, tell us what happens.

[12:07] Guest: Yeah, so not exactly. So I, you know, I was, I was in, I was laying in bed when I looking at, you know, just doing the mindless scrolling in Facebook and I saw an ad from Acquirer which is, I, I don't really know how we would classify them, but you know, they are essentially helping people that want to buy a small business. They, there's like a two week preparation course and, and then they also have some lending on the backside and they're really trying to help people that are interested in, you know, small business acquisition, then provide them funding and resources and then it's helped them understand the modeling behind it, et cetera. So I went in through that course, I completed that two weeks or a month and just absolutely, it really reaffirmed the idea that this is the next career path for me. Right. I just, I loved doing the modeling, I love the practice, practice exercises, the group work, et cetera. So that was in December of 21 is when I took that, that acquirer training. And you know, it's like right in the middle of that I called one of my friends that I used to work with at Morgan Stanley and I was like, hey, you know, I'm kind of tired of the whole Wall street thing. I think I'm gonna buy a business. And you know, here's, here's the, here's the types of businesses I'm looking at. It was in home services and it was either going to be plumbing, electrical, H vac or roofing. Quite frankly, those were the four types of businesses I was looking at and just explained to him the whole investment thesis and how we can do an LBO using the SBA and how we don't necessarily have to have a ton of capital to put into it, but on the back side there's opportunities to generate, you know, multiple arbitrage, etc. Etc. Just running him through the whole thesis and he was like, yeah, I'm in, right? So that kind of, he's like, yeah, sure, let's do it. So the more, the more I started looking at the different types of businesses to buy, right? Plumbing, H vac, electrical contractors, they all kind of seemed at that point in time to already have quite a bit of private equity interest, you know, trying to find these types of businesses. So what does that do, right? More demand for these types of businesses. Well, push the multiple up, right? So just from a math perspective, right, if I'm buying at a 5, 6x multiple, right, that's giving me what, a 20%, you know, earnings multiple if I'm buying a 5x versus if I can buy something at two and a half to three, you know, now I'm closer to, you know, 35, 33%. So from a math perspective, I liked roofing and I know it's like, it's like the total opposite industry that acquisition entrepreneurs are trying to look at because it's project based, there's not a lot of recurring revenue, you know, but I like the, I liked roofing because number one, it was less expensive and number two, I think because there were less people trying to get into roofing, I saw more of an opportunity to, to get a head start and really buy a smaller business, professionalize it and then, you know, hoping at some point in time private equity will find this industry and start trying to buy stuff, buy companies in roofing and then that'll help push my multiple up even further down the road if we decide.

[15:26] Host: So less, it's less competitive currently from a multiple, what you pay for the business perspective and less competitive from the operators, the operators that are getting in. Before we get too far away from Acquirer, Matt, tell us a little bit more. I, I, I, of course I have had guests who've done Acquirer and so you hear about it in the market and they've got kind of an interesting model, maybe, maybe just educate people a little bit more on it. And, and also specifically at my understanding is that they really try to focus their cohorts on home service businesses as opposed to any type of business. What can you tell us?

Guest: Yeah, I think that's correct. So the, you know, I met with the president of Acquirer. He was a very successful, you know, aggregator of small home service businesses. So that is what they try to push, push people towards. They don't from my understanding, look at a lot of deals outside of home services. Now again, this was, you know, two years ago, so I don't want to speak too much out of context for what they're currently doing, but I found a lot of value in the cohort of just going through the practices of, you know, understanding, you know, modeling. Right. You know, this is all stuff I'd done already, modeling, but just putting it to practice in the context of buying a small business. Right. There's Mark, they, they, there's some material on marketing. Right. And you know, how to identify a business that isn't using, you know, Google correctly or Angie's Lists, you know, all the different lead aggregators correctly and how you can, you know, really pretty quickly just by registering your company, not even buying stuff from them, but just by registering your company through all these lead aggregators, how you can actually drive traffic, you know, fairly quickly. You know, and then they are, when I was going through the cohort, they were just really starting to take actually make investments with their, with members that had went through their training. But no, I, I, I had a great experience with acquirer and you know, I just, I just did the cohort though and I didn't really need a lot of, I didn't really need capital. You know, I don't, there wasn't a lot of needs that I had with them after that cohort. So I decided to, to, to do my own thing afterwards.

Host: Did not, not partner with acquire ownership, which was an option and is something that's kind of part of their model. But you opted out correct. Of doing that. And but to be clear, you know, they're very home services based. So do you feel like it would have been valuable if you weren't, what if you just weren't interested in doing a home services business, would it have had the same value or is this really for just people who can imagine themselves in one of these trades businesses?

[18:23] Guest: Yeah, look, I think there's, there's so many different, you know, ETA resources out there now. Right. I would say before you pick one. Right. Just shop. You know, if you're not looking at home services, then there's probably, you know, better options out there for.

Host: Okay.

Guest: For acquisition entrepreneurs.

Host: Okay. Okay. And then just one other thing you said there. Well, context is that I'm hearing from recent guests, Doug Johns, who bought a plumbing business, John Wilson, who bought and has grown a very big home services business. That home Service is extremely competitive right now and that digital marketing is actually quite sophisticated. It's not this kind of greenfield fax machine industry at all. That that window has long since shut and yet it is, it is kind of the reputation is still that, that, that it's old fashioned and you can come in and you know, do a few things online and you're, and you're generating way more traffic than, than your competition. And you, and you just said that. Yeah, that is kind of still true. Do you know, flip a few things, do a few things right and you can start driving traffic pretty quickly which is counter to what I've heard from Doug Johnson, John Wilson. So can you help me understand that?

Guest: Yeah, I think what you think, you know, that again that was going back to my understanding back in 2021. Right. So I'm sure that's changed. We, the business that we have and my experience with that is still pretty new. So I'm not buying Google AdWords, I'm not advertising on Facebook, I'm not doing any of those online marketing plays currently. And the reason for that is because we have so much influx of business coming in just because of the reputation that the previous owner built of Urethane Systems, which was the company we acquired. So that is definitely on the, you know, on the plan to, to really get involved there. I think the, the other important context there is roofing is, can be categorized into a home services business. But we don't actually do a lot of residential work. Right. So we are doing mostly commercial roofing. As I say, 90 of our business is in commercial. So you know, the, if, if we're working on a commercial project. Right. A lot of those buyers aren't necessarily, from my experience, aren't necessarily going to Google and saying hey, you know, find a roofer to you know, reroof my five, you know, my five structure, you know, 100,000 square feet project. Right. So, so I think that's, and that's another reason why I haven't really dove into that yet. It's, it's, I think you know, in roofing in general, residential versus commercial, two very different businesses.

[21:15] Host: Yeah.

Guest: You know, and, and, and it's funny because I talk to other roofers, some roofers that focus on residential and they do it very, very well and they have either no interest in getting, getting into commercial or they have the interest to get into commercial, but they just can't. Right. You know, initially my thought process was well, it would, might be easier to get into residential than commercial. Right. Because there's Less overhead, less capital constraints, you know, etc. It's more of, you know, driving the traffic and then building a sales process around that residential consumer, you know, to be determined. You know, it's, there's, there's different companies that do both very, there's very few that do both residential and commercial very well. But there's a lot to do commercial very well. There's a lot to do residential very well. So.

Host: Okay, well, we're going to circle back, Matt, to the types of roofing businesses because I want to, I want to do a deep dive into roofing generally and get a layer of the land from you. So we're going to, we're going to spend time there. Let's return to your story first. Okay. So you, you decide you like roofing for the reasons that you've, you've explained. Tell us about what the search to find a roofing company looks like.

Guest: Yeah, so I did zero proprietary outreach. I, I learned about it and thought about it, you know, and, but I was just pretty lucky because I found two, you know, searching. So here, here's, here's kind of my search parameters. Right at this point in time, we're still living in Chicago. We knew we wanted to move back down to Florida. And so I was pretty, you know, I was open to Florida. I was looking, we were looking at pretty much all of Florida for, for, for businesses. Right. With the thought that if we buy something big enough in Florida, then we can put a journal manager in place. I can go two to three times a week, you know, and, and be back home three or four days out of the week. Right where we live. It's, it's, you know, I, I looked at about, through that process. So like in the state of Florida has this kind of like an MLS for business listings, which is really helpful. So you can go to just about every business broker's website has a link to where you can do a specific search in the state of Florida for business that. Businesses that are for sale. So I looked at probably about 30 different Sims, you know, and was just really, I had about, you know, six or seven different conversations, you know, and just the, I was fascinated with how just different. Some of the operators that were selling really treat their customer right. Like I spoke to some operators that they were doing nice businesses, you know, two, $3 million revenue, you know, five to 700 in, in EBITDA. And their whole model was we don't really service our roofs after we're done, we just put the roof on. And if they have an issue. Then, you know, we, they just, they didn't have service crews, right, in service teams, but yet they were still, you know, still able to generate $500,000 a year in Ebitda, right? And I was like, holy. I was like, oh my gosh, this is, this is incredible. Right? They, they don't even have a great service team. They don't really care about their customer and yet they're still, you know, doing really, really, really well. And so yeah, it's looked about 30 different Sims, had about five or six different conversations and I was actually just getting ready to go to LOI on another business.

[24:41] Host: The 30 companies, the, the MLS style listings in the state of Florida. How, how is that, what is that and how is that different than Biz Buy Sell?

Guest: I, I, so I think it's, it's like, you know, like real estate agents have the MLS listings, right? So in order to get access to that, like they have to send you this link and it's this really old looking website that isn't really user friendly. Well, I think a lot of that data is also fed the biz by sell, but not all of the data is fed the biz by sell according to some of the brokers I've spoken with here.

Host: So, but, but there's some other centralized repository that, yeah, I can say, yeah,

Guest: I'll send you a link to it or I'll send you the link to the one I use for the Florida, for, for the state of Florida.

Host: And is this repository, this database maintained by like the Florida Brokers association or something?

Guest: I mean, I believe so, yeah. So I believe it's, it's similar to like a real estate agent, right, with the MLS where they upload, you know, the listing details into this repository and then it's available for the public to go see.

Host: H. Interesting. Okay. Never heard of that in Florida or elsewhere. So good to know. And then there, there are 30 roofing businesses for sale in the state of

Guest: Florida at that time. There were quite a few, you know, and, and there were, you know, look to some of them were businesses we would not have at all purchased because they were just too small. Some of them were just too big. Right. But I looked at all of them just to try to really understand the industry and the different types of businesses in the roofing space. Yeah, there's, there were quite a few for sale, I think now there's probably, it seems like, and I'm always looking, right, so it seems like at any given time there's about 10 to 20 for sale in Florida.

Host: Well, I mean, I don't know how much to read into that. Florida is a big state. And, and as we said, roofing is big in Florida. But my first reflex might have been like, huh, is there a lot of churn? And I mean, is this, is this a, a red ocean of an industry? Because they're just. There's so many of these businesses for sale.

Guest: Well, I think that there's, number one, it's, it's a big industry. You know, I think that's. I, I read somewhere, I think it's currently about 25 and a half billion dollar industry nationwide. You know, 6.7 is the kegr on it. And so it's expected to be somewhere in the. I think it's like $45 billion by 2033 in Florida. I've also read that Florida in total is like 8 or 9 billion dollars of that, which I find hard to believe because that seems just too much like, seems like it's too much of a percentage of the total US Roofing industry to be in one state. But, but there's other things in roofing specific to Florida that makes me think, yeah, that's actually somewhat plausible. Right? So, yeah, it's, I mean it is,

[27:23] Host: it is the hurricane state.

Guest: Right, right. And then there's insurance requirements. We can get into all that stuff later. But yeah, yeah, so, so my search process was really, I would say, pretty unrefined. You know, it was like, okay, I'll go look at roofing companies for sale that are already listed in Florida. And like I said, I was, we were about to go to LOI on another company. We just, it was just too, you know, too, too, too small for us at the end of the day. And I had actually reached out to the broker that was representing Urethane Systems and throughout that process, he said, oh no, it's already under contract. Right? Well, literally, as we're getting ready to go to LOI on the smaller, smaller company, but you know, still a pretty good company. We, the broker reached out to me that day, right. It was just very serendipitous of. He's like, you know, that day we're getting ready to, to, to try to put another one under loi. He's like, oh, hey, the deal fell through. Are you still interested? And I was like, well, yeah, sure. You know, let's set up a call. So we set up a time to meet with the owner of the company and just really started to understand their business. And we were kind of like, yeah, let's go with it and went through the LOI process which took a long time. And the reason why it took so long is because the previous owner, since he'd already had a deal fall through, he wanted to kind of make sure that everything was outlined in this loi. Right. So the LOI and the APA look very similar, which I know it's not traditional, but that's what he wanted to do. So we accommodated him and you know, really drafted a pretty, you know, I think our LOI was about nine pages. So it was pretty. Yeah, it was really long.

Host: Yeah. And that is, that is just to reiterate what you said, that that is very uncommon because especially more experienced people, educators in the space, like a Sam Rosadi would say, you know, get an LOI out as quickly as possible. So don't make writing the LOI this overwrought process. That's because it's going to slow you down and you really want. Part of buying a business is like a numbers game and you really want to basically look for reasons to be disqualifying businesses.

Guest: Right.

Host: And if you, if you overdo the, the LOI process, that can just slow you down. So very different than what you guys did, but sounds like you were basically forced to by what the seller wanted. Great. Well, and so, so tell us more about, about the business. What? Tell us, give us the bullet points on it.

Guest: Sure. So, you know, Urethane Systems been around since 1998, founded by Guy named Jeff, who's still here. He's been a really great partner. They really built their business specializing in a very kind of niche segment of roofing, so which is spray foam roofing and roof coatings. So the spray foam industry, a lot of people are familiar with that when they see insulation, right. They see guys in suits and they're spraying, you know, studs between the house and the new construction house. And that's an insulation product. Well, they also make a type of foam that's specific for roofing. So it's a little bit heavier and it, it's a great system. It's monolithic, meaning there's no seams. You know, everything's sprayed all in all in one, one section. So, you know, there's not separate tie ins. It's a really great system if it's installed properly and then there's coding. So basically you, you know, you, you build the roof deck how, you know, there's different ways that you can build up the substrate to what you're going to apply to. Sometimes you can go straight to the roof deck. Sometimes they want you to put, you know, a piece of dense deck, which is basically a cover board over it and you can spray to that. But, you know, when I really. What really attracted me to it was on the foam side. There's not a lot of foam roofers in Florida. I think there's. I know of two other ones that are doing foam in my direct community. I know of one in Orlando and I know of about. Of a handful throughout the rest of the state. So to me, that seemed like a really great moat to really act as a ballast for the business, knowing that our goal was to grow it and that if we have the foam side and there's not a lot of competition, so we have some pricing power and we have a constant flow of demand that will enable us to really build out the other, other side of, of the different roofing systems that we could, that we can, that we can apply. So.

[32:04] Host: And the other side meaning conventional roofing.

Guest: Correct. So TPO modified basements, shingles, metal tile, etc. Right. So those are the conventional roofing systems. And it is just fascinating to me because we have a great team. Right. So we have a lot of people that are certified to install these different systems. We just. He just never really marketed it. Right. He just never really went after that business. But he was very content with the business and the size and, you know, he was making a nice paycheck and he could control everything. And that was his business model. You know, he just didn't. He just didn't really want to grow it. You know, in which we can talk about that too, and how that's kind of makes for some fun conversations in the day to day now, since he's still here. But, you know, you know, like I said to me, it was, it was a very interesting business because of the lack of competition in the foam encodings.

[33:01] Host: I get it. And that, and that, that does sound enticing. But when you're thinking about the risk of being kind of a spray foam shop, this is kind of an alternative style of roofing. I don't know. I don't know. What percentage of the market, do you know offhand what percentage of the market?

Guest: I know it's. I know it's small.

Host: Smaller, single digits, probably.

Guest: Yeah, probably.

Host: Yeah. Yeah. So. So one might get a little bit wary of kind of this, this kind of specialized technology that may or may not grow. Did that bother you or have you already answered it? Basically, this was always just a toehold so that you could actually grow the Convent.

Guest: It didn't bother me one bit because, you know, understanding the size of the roofing industry and in Florida and the demands on roofing contractors in Florida, it, it didn't scare me one bit because, you know, again, the goal is here over the next five years is to have that to really be the smallest piece of our business. Right. And so my thought process was, well, you know, it's not going to change overnight, right? So, you know, maybe three to five years, that continues to dwindle, but we should have plenty of Runway, you know, for us to execute on our other plans to really diversify the business into more conventional systems.

Host: And when you say that the spray foam side of the business might dwindle ever so slowly, is that to say that as a technology it is a little bit not growing, going in the other direction if slowly it.

Guest: So it was, and this is, this is actually what's pretty fascinating. So, you know, in the state of Florida we have this insurance pool, it's called Citizens, right? So it's basically the insurer of last resort for Florida, Florida insurance, property, property liability insurance. And what we, what we were seeing really over the past 18 months has been Citizens would come out and say, hey, you have a foam roof, you have to tear it off, right? So there was no guidance on what you could do and still be insured by Citizens. We've recently just got a letter from Citizens basically saying you can have a foam roof that just has to meet these different guidelines, right. So what was happening on the foam side? And this is really before a pre call too. We didn't have this letter when we last spoke, but you had a roofing contractor come in and you had insurance come in and they're telling this condo association, hey, you have to tear off the foam roof. Citizens doesn't want the foam roofs. And the fact is that that's not true. Right. And I don't think it was ever true, but there was just never any clarity with Citizens on what exactly they're looking for. So I was at a convention, a trade show convention, just, just last week and I was explaining to some of these insurance agents what you can do with foam roofs because they're, they're more prevalent on, you know, multi story condo buildings, commercial buildings, and one of the insurance agents was like, oh my gosh, I wish I would have met you three months ago because we just tore off four of these foam roofs and it sounds like we could have probably kept them and you know, de scoped the whole project because we can actually reuse that existing foam. As long as it meets the wind uplift requirements and a moisture survey, we can actually reuse the existing foam. Take about an inch off. It's called scarifying it. Basically we take a machine that looks like a lawnmower, it's got about 15 blades on it, it just goes around and spins and it, it takes that first inch of foam off, we respray it and now they have a new roof. Right. According to citizens. So and it's fascinating to me because after, after that one trade show, now I have insurance agents, you know, calling me saying, hey, can we have a lunch? Can we do a lunch and learn? Can we have, you know, can you come look at this roof? Can you look at that roof? So, you know, if you would have asked me literally about three weeks ago, I would have said yes, that that thesis is probably true, that foam is dwindling just because of a lack of education and you know, not a lot of roofing contractors applying it. So they're incentivized to then rip everything off and put a different roofing system in. You know, now I think it'll at least, you know, stay steady to where it has been.

[37:09] Host: Well, interesting position where you are in the market because you could kind of, you could kind of benefit either way. I mean, your head, you want, you

Guest: want to grow that non foam side of the business.

Host: It's amazing.

Guest: Yeah, it's, it's awesome. And it's been a very exciting past, past few weeks for us. So it's. No, it's, it's great. It's a really great place to be in. Right. And I think, you know, can other contractors install foam roofs? Yes, but good luck getting the certifications, good luck finding the, you know, the staffing to do it. And you know, and as far as roofing, you know, you can be a shingle installer with literally a truck, an air compressor or a couple nail guns, you know, some tear off shovels and a dump trailer. Right. You can successfully install a traditional roof with that little equipment on the foam side. You're talking $150,000 minimum investment just to get all the equipment that's needed to, to actually install these. And then by the way, you have to go get certified with all the film manufacturers, which isn't exactly an easy process either. Right. So they're, it's not that they're protective, but it's just when, you know, when they are putting NDL warranties, which is no dollar limit warranties, it's basically, you know, we, the manufacturer will back our product from any separation, you know, from the roof that, you know, we, the manufacturer will step in if USI ever goes out of business and you have a problem with your foam roof, and they will come in and then pay to fix it. Right. They're very stringent with their requirements and experience with actually being approved to apply it. And citizens actually says one of their requirements is you have to be, you know, a, a certified applicator through, through the system that's going on. So we have a lot of moes around that on the foam side. Yeah, yeah. Which is just, it's pretty amazing. We're actually positioned really, really, really well right now. So it's, it's very exciting.

[39:02] Host: Yeah, it sounds like kind of a version of regulatory capture. You're not, it's not actually regulated, but you're, you're, the vendors through getting licensed with them is kind of a form of regulation where you, where you've gotten your, where you, you know, you've gotten your certificate and it's hard for everybody else to do so. Very interesting. So tell us more about the business. 1998 spray foam got that much. How big? Terms of revenue, employees, et cetera.

Guest: Yeah, and, and I just want to be clear. It's not. We also do a lot of metal, we also do a lot of tpo, we also do a lot of, you know, a lot of other types of roofing systems. It just wasn't, you know, it wasn't a focus. So when we purchased it, it was right at 5 million in top line revenue, you know, running right at a 10%, you know, EBITDA profit margin net, you know, so you can back in the numbers on that, you know, and, you know, we, we bought it right at about 2.75 times, which is pretty close to the industry average. And it was really cool. The, the old, the seller, you know, he was asking a price for it for the business. We're like, yeah, we don't really want to pay that much. He goes, well, how about I just take, you know, $300,000 off that price and I'll just come work with you, you know, as a consultant or whatever. You know, I'll come sell roofs and I'll walk roofs with you and, you know, make sure you guys, you know, don't mess it up for lack of better terms. For three years, you just pay me a hundred thousand per year. We're like, perfect, right? And wow. You know, that created other problems getting into the sba, so we had to, you know, renegotiate certain things. So, so there was basically, you know, a form of seller financing. You know, that was really, that, that was really an employment contract then we couldn't execute on. So then we had to, you know, renegotiate a bunch of things with, with that to get it through the sba. But, but yeah, it was.

Host: Well, is there anything on that, Matt, that the audience can benefit from? Like if you really. Because, you know, I could imagine this being a situation that other, that listeners encounter where the seller wants to stay on longer. And we all know that that basically really doesn't like that.

Guest: Basically what we did is we, what did we do? We took, we, we reduced the contract term to one year and then we basically made the non compete void if we didn't renew the contract up to three years. And the SBA was okay with that. So basically his, his, his, his point was, okay, well if I'm not working for you and you're not going to pay me, right for the, my, my seller financing, right then I'm going to go start another business, right, Or I can go start another business and I can take all the old clients. So it was just a horse trade basically, right. Like, okay, we'll give you the non compete if, you know, if we don't, you know, renew your employment contract. So it was kind of a way to get around that. But you know, the SBA ended up being okay with that.

[42:05] Host: So in other words, at the end of year one, you'll rehire him.

Guest: Correct.

Host: You'll rehire him for year two and year three or however long I guess at that point you want to and the leverage he has over you to ensure that in fact you do that is he's got no non compete. So he could go start a business on day, day 366 basically.

Guest: Right, exactly. And I don't like, I don't think it's going to happen. We have a really great relationship. Like Jeff's awesome. You know, we, the way we think about business is quite different. But he's, you know, when we have, we butt heads sometimes, right. When it comes to what we're not going to do it that way because you know, that's not that doing it that way doesn't actually help us get to our goals, right. Of growth, you know. So, you know, but he's like, I'm very, he knows quite a bit. He's got a lot of, a lot of industry experience and has just been a very important part of making our transition so far a success.

Host: How many employees.

Guest: So we are running about 25 employees. Between, you know, I have two people in the office full time. We have three salespeople. The rest is superintendents, foreman and laborers. So we have about 20 people out in the field and five people in the office.

Host: Okay. You've touched on it here and there, including just a minute ago about growth and how you and Jeff see that differently and the opportunity that you also saw. I know from the pre call. So I'm teeing you up to say something you said in the pre call that was less about diversifying beyond spray foam, but more about also being proactive with respect to the. The property managers. Do you know where I'm going with this? Tell us about that.

Guest: Yeah, so that's the other. Yeah, there's so many. There were so many other factors that really wanted. That really made this business, you know, a really good candidate for us. So. So I asked him, you know, through a due diligence process, like, how many, you know, how many relationships with property managers, you know, do you have? And it's like, oh, about a dozen. Right. Well, I just did a quick look up, I think, on zoom info and realized that there's about 1800 property managers in Florida. Right. And I think there was 1200 in the Tampa Bay region or something like that. Right. And the bottom line is, is there are a ton of property managers that, you know, are. Are that we are able to grow relationships with to then get referred into these roofing projects. And you know, I just asked him, I was like, well, why. Why don't you have more? And you know, why. Why haven't you really tried to grow that? And, and again, the answer is always the same. Well, I'm just was kind of comfortable with. With where we are. And so that was one. When we're looking at our different. At different avenues of growth. Right. And this changes like this seems like this is always changing. It's kind of a moving, you know, moving target. But number one is relationships with. With property managers. Right. And then more recently, it's relationships with property managers and insurance agents. And now it's becoming relationships with property managers, insurance agents, and general contractors that are doing government work. Right. For, for, for the federal government. So there, there's just so much business to be had and, and to go around that, you know, the thought process originally was, well, if we're doing. If we're working with about a dozen property managers, now if I can just get another dozen property managers, theoretically, that should almost double our business. Right. So it seems like. And there's okay. And there's 1800 I can go after. Right. So if I can get 1% of those property managers to build a relationship with them, then, you know, we should very easily 10x the business. Yeah. Right. And so it's like there were just so many different avenues to growth. Right. And that's quite frankly being a new business owner is one of the things I struggle with. Right. It's, it's like where do I focus my time today? You know, because yes, there's property managers are great referral source, but so are insurance agents. Right. And Then so are GCs. You know, there's just a lot of avenues to go get the work. And, and what's fascinating in this industry is that if you have a decent portfolio of big jobs, you can leverage that. And if you act professional, you know, to, to your end clients and to your referral partners, like they will give you work. They're, they are, there's a lot of people starving for really good roofing contractors that aren't going to, you know, lie to the client or try to, you know, create a bigger job out of what could be a smaller job. Right. Just because they either are ignorant because they don't know what, you know, the underwriting guidelines of citizens are or because they're being greedy. Right. I mean, I think there's probably, it's probably half and half. Right. So it's, we've have recently, within the last month really had just a ton of success in, in working with these referral partners and educating them on what can actually be done with a roofing system. And, and so that's, that's something we're definitely continuing to, to build out.

[47:21] Host: So it sounds like, Matt, this is the, the commercial version of, or the B2B version of what you often hear in home services where it's like, you know, just call people back, just answer your phone, just, you know, and, and you can get business. There's that much demand out there now people will say that's, it's more nuanced than that and it's not, not so straightforward. But you do often hear basically this theme that if you provide, just provide good service, you're ahead of the pack. And it sounds like in the commercial, on the commercial side of things, there's, there's an element of truth to that as well.

Guest: Yeah, I would agree with that. No, 100%. I think, you know, going back to the team we have here, I have, we have two full time office people, right. So they are always available to, to answer the Phone. Right. If my cell phone number is listed on our emergency contact number. Right. So there is never someone that. There's always someone that's going to answer. Answer a call. Right. For our clients. And that goes such a long way. And then we also have our service department that is also out doing repairs for these communities. And a lot of times we can Dispatch them within 24 to 48 hours. So someone has a leaking roof, we can get there as soon as possible. Right. That puts us a step ahead of a lot of our competition.

[48:39] Host: And so the business had grown. Just. No, no marketing, just word of mouth. How do you. But the salespeople, did you hire those or did he actually have. I guess you just. You have salespeople because you need people to close the business, but they might not be super outbound. Yeah, yeah. So.

Guest: And. And by those three salespeople, Jeff is technically now an estimator. Right. He has a little bit bigger role than. Than just sales. But, you know, so we had one. One. It was really just Jeff and one other guy doing the sales. We've recently brought in another person to. To help with that. So it's helped grow. But yeah, that's. That's definitely another focus of ours too, is, you know, how do we. Yeah, it's interesting because in roofing, there's kind of two different skill sets, right. With. With sales, one is actually estimating the project, right. Going to the roof, doing the drawings, doing the material takeoffs, right. Understanding the labor side of it. And the other side is, okay, now you have to do this really technical thing. Now you have to go sell, right. So I'm kind of throwing around the idea of, does it make sense to have an assistant estimator come in and really take over all that paperwork for them so they can actually focus on the client relationship and actually, you know, getting to that sale. So it's something that we're.

Host: So in other words, the estimators currently kind of have. Have to have two skill sets which are very different. The doing good estimate estimates, which is very technical. And then also being good at sales, which is.

Guest: That's. That's correct.

Host: And so decoupling that maybe.

Guest: Right?

Host: Yeah. Great. And I don't think you said commercial versus residential. So there is. You have both. This business as both.

Guest: We do. We do both. You know, the residential for us is mostly, you know, someone sees a truck, it's a friend of a friend, or it's one of our property managers that has a friend. You know, it's all, you know, it's very, it's all word of mouth, referral driven. So it's like I said, it's not something we focus on because, you know, from my experience and I've heard different, different ways. I think it was Austin Spokes, if that, who was on your show. He was saying, he was saying all about how residential is much higher margin business. And you know, it seems like from my experience, either we don't know how to sell residential or it's not a higher margin business. Right. It's just seems like it's, it's a bit of a race to the bottom on, on the price of shingles. Right. So. So yeah, and, and, but again, if there are a lot of really good companies that specialize in that residential space and then they do very well. Right. It's just, I just don't think we have the intellectual capital to be able to do that quite yet. But it is an option for us. So.

[51:15] Host: Okay, Matt, great. This is great. We, we still have. There's some big themes in your story that I want to hit. But before we do hit those, anything to say about the transition or for six months or operations? I mean, I guess do give us two or three minutes on, you know, you were, you were a guy who is from, from white collar land, from mortgages to insurance to asset management, and now you're running a small business, a roofing business. How's life?

Guest: Yeah, the transitions actually got, we can, I can spend hours on that, but I'll try to keep it brief. You know, it was there, there were a lot of, you know, my whole thing was I don't want to change too much in the first six months. Right. Because you know, you have a new operator if something does go wrong, you know, there's kind of like there's only one, there's only one variable that's been added into that company. Right. And that's, that's you as the new operator. So I've been very careful working with our staff to help them understand, you know, the goals. Right. Of look, we need to put a CRM in place. Right. We need to do that because, you know, like, like literally one of the problems that our office staff was having was finding pictures of previous repairs that we've done. Right. Because they're either in emails or they're, you know, on one of the repair tech's phones or those pictures don't get here. So there's a lot of little operational, you know, headaches that are caused just by not having a good CRM in place. And so I've spent a lot of time working with them not only to be very transparent with. With what Sierra with. With why we need a CRM, but also help letting them pick what CRM do we think is best. Right. So they've been involved in a lot of these decisions, you know, and, you know, my. It's funny. I think, I think with transitioning a business and especially growth, everything looks very, very simple on a spreadsheet, you know, until you actually get into the business. Right. So. So yeah, it's, it's. We had one key employee that is no longer with us. He just wasn't fitting into the culture. That was a really hard decision to make because this person had 30 years of technical expertise and really knows a lot about roofing. And, you know, I think the one advice I would give to other acquisition entrepreneurs that are facing this decision of we have a key employee. I know they're not the right fit for the long term, but how do I survive without this person? Just interview other people. Just start interviewing people. Right. So then now you have your pool of candidates that are lined up. So if you do decide that you need to, you know, get rid of this person, now you have another. You have another pool of people that you can just pick from and say, hey, here's your offer. Right. And. And I think especially not being a roofer, right. Not being that familiar with the industry, he was, it felt to me, he was kind of holding my decision making process a little bit hostage. Right. Of. Of how do I. How do I actually do this? And that was just very helpful for me. It was just interviewing people knowing that, look, there are other people with these technical skill sets out there. He's not the only person that, that can do what he's doing. So that was made the decision quite easy after that.

[54:26] Host: Great tip, Matt. And just to be clear, in contrast to probably what most people do, which is they torture themselves over the. Over the decision to let somebody go, they ultimately let somebody go, and only then do they start to refill that position. You're talking about flipping that order.

Guest: Right.

Host: You mentioned your partner and how either he really liked this idea or you were really convincing in selling it. But it was a brief conversation to get him on board. But what more can you tell people about doing this with a partner?

Guest: Yeah, I think, you know, you have to have very clear and transparent goals. Right. And you have to be aligned. So, you know, the partner I have is, he's based out of Miami. So part of our whole growth plan. Right. Is opening up an office in Miami. So. So the goal is, at a certain point in the near future, we'll open an office in Miami, and then he will then run that office, you know, and I think it's worked out really well for us. Right. He. You know, in my professional career, I've never considered myself the best sales closer. Right. So he is, and I think one of the best sales closers. And so what he's really helpful with is. Is really helping understand, you know, what is our sales process, how do we help close this, and then also, you know, helping our salespeople actually drive the conversion rates higher. You know, it's gone really well. I think what's. What's really interesting, though, when speaking of partnerships, we also technically have a third partner. So roofing in Florida, you have to have a license. Well, I'm not a licensed roofer, and my partner is not a licensed roofer. So we, in speaking with our lender, we're trying to figure out, okay, how do we actually get the SBA comfortable with us purchasing a roofing company without being licensed? So he actually came up with this process. We actually had a. We brought in a 5% limited guarantor. So we found another roofing contractor that was actually a friend of the seller who wasn't using his roofing license. He actually came on board. He owns 5% of the. The company, and he is on the hook for 5% of their principal if we ever default on the loan at any point in time. So he was. That was a really interesting thing, and I haven't actually heard a lot of people talk about that, but apparently you can actually have a limited guarantor to help, you know, a transaction for. For the sba.

[57:05] Host: Yeah. This is something that I. I need to be asking more about, and I've. I've gotten a little better at it after 200 episodes, so I'm glad we're talking about it. It was on the. When you buy limited guarantor, it means he's just PG'd for his percent of the principal, meaning 5%. That's the lit with the limited means.

Guest: That's absolutely correct. So if you're borrowing a million dollars, you default. You default on a million dollars. He's on the hook for 50,000. You know, if you are in business for five years, you pay that balance down to 500,000. They're on the hook for 25,000.

Host: Yeah. Did he bring any equity to this, or did he kind of get 5% of the business?

Guest: Grotesque. No, he brought zero equity. He got 5% just for being a limited guarantor. It's a great deal for him. Yeah, it's a great deal for us too. Right. It's funny because a lot of, when I talk to other people, they're talking about buying businesses. You know, I, I often get the question, well, that's a really expensive, you know, piece of financing. You know, they're 5% of businesses for using their license. And you know, what, if you sell the business for $20 million, it's going to cost you a million dollars. And, you know, my whole thing is, you know, I'm not a greedy person. Right. So it's like, okay, I, I hope he makes $2 million. Right. Like, you know, it wouldn't, we wouldn't have been able to get the transaction done without him.

Host: Right.

Guest: You know, and, and he, and he did put, you know, some liability up on the line. So, you know, I, I hope he does really, really well.

Host: And is there, are there any strings like, how do you, what if he, what if he severed his relationship with you tomorrow? How does that, how do you keep him involved for the duration?

Guest: Yeah, I mean, we, you know, we never really came up. They never really asked. So, you know, I don't know. I mean, we don't, it's not like we have any sort of operating agreements with him that basically says, you know, you can sell for, you know, X multiple of, you know, last three years earnings or anything like that. So, you know, he's, he's older, retired, and he's just not really that concerned about it. He really did it mostly as a favor to our seller to get the transaction completed.

Host: And really the only requirement you have of him is that he keep his license active. And that would be a pretty stringent requirement because I assume these, I assume a license needs to be renewed, refreshed, continuing education sort of thing.

Guest: Right. Well, I'm actually working on getting my license now, so I will be able to be licensed in June. So it's really not that this not a big concern of ours, really. He just really needs to have it active for the next, you know, a couple months. Then we can move the license into my name.

Host: Ah, okay.

Guest: And here's the other thing, too. It's kind of crazy. Like the, the SBA didn't even require us to have his license attached to our business before they let us close. So in his, in a fashion.

Host: So what did they require?

Guest: So is they just wanted him to know that he was a part of, of the, you know, equity structure in the deal. And they just needed a copy of his license. So they funded us without even showing that the. That the business is in. License in his name. And in fact, it never has been licensed in his name. It's still licensed in Jeff's name, who was the old seller.

[1:00:12] Host: Interesting.

Guest: Which is fascinating to me, but it's like you have this requirement, but they don't. Just, like, they didn't make us, you know, actually prove that we were, you know, that. That he was. He was licensing our business.

Host: Gotcha. So, so, so the SBA didn't need to see or didn't check that the business license is in this gentleman's name. What they wanted to see is simply that he was on the cap table. That was it.

Guest: Yeah.

Host: Huh. Huh. And do you think that that was fine with them or that that might have just been an over. An oversight?

Guest: I. I don't know. You know, it's kind of like they. They told us, you know, give me this information, give me that. I mean, I'm not an expert on SBA underwriting guidelines. It could have been an oversight, you know, but, hey, we got the deal done regardless. So if he would have done that, you know, if, if we would have asked him to, but there was just never a need to.

Host: Yeah, right. And so, Matt, when you get licensed and you no longer need his, do you expect to try to. To try to understanding that there is no. There's no triggers, there's actually. There's no written contract between you and him, but do you expect to try to buy him out? Because, you know, his 5% equity is cheaper today than it's going to be tomorrow? One would think and one would hope.

Guest: Right?

Host: And as the business grows, you know, and I.

Guest: And I think about that quite often, and then I always remember that we all signed a piece of paper with the SBA saying that we will not change the ownership structure until the SBA loan is paid off. Right. So if we have some. Some, you know, crazy growth and, you know, the company starts throwing off a couple million dollars here in ebitda, and, you know, we're able to. We decide that a good use of those funds would be to prepay the RSBA loan, then, you know, then that's presumably something we can do. You know, what, what I've just. What I've discussed with him is, you know, if we ever want to buy it back, we'll give you 50 grand. And he was okay with that. Right. So we just aren't able to do that until we pay off the SBA loan. So again, we kind of have like some verbal understandings, but there's just nothing, you know, nothing in writing. So probably a little more loosely, you know, it's probably structured a little more loosely than a lot of other, know, acquisition entrepreneurs would, would be comfortable with. But you know, it's. I guess the way I look at business in general is if you're doing well, you know, you're treating your people well and you're not being greedy and you know, you're growing, then there's plenty of money to go around.

Host: So robs, you used robs. Tell, tell people. Give people a minute or two on how that looked in your case and, and remind people what robs is, please.

Guest: Yeah, so robs, it's a rollover for business. What's, I forget the exact name. Rollover for business succession. Is that right? Or.

Host: Oh, is that what it is? Okay, I can't, I can't, I don't know.

Guest: I can't define the actual acronym acronym, but Basically all the robs is, is, you know, the, the IRS allows someone to take money that's either in an IRA or a 401K and then use those funds to purchase a small business. So we went through a company called Guidance Financial. They helped us set all that up. I think the, for me, we didn't need to do it from a capital perspective, but understanding just on the backside if we were to ever sell the company, you know, the, the tax efficiency with using a robs is just, it's, it's something that I think every, every acquisition entrepreneur should, should look into. So, and what else you can do? So I transferred money from my 401k, use that as part of my equity injection into the business. So, you know, my 401k owns 22 and a half percent of the equity of the business, and then I personally own another 22 and a half percent and then my partner owns, you know, 45% outright and then our other limited guarantor owns the other 5%. You know, the other really cool thing about doing a robs and having it in a 401k plan is you can actually do a Roth conversion on your cost basis. So you can actually, you know, in certain situations, if you do a Roth conversion, you get a huge capital gain down the road. You know, you're not, you're not taxed on that at the time of withdrawal. So from a tax efficiency perspective, it makes a lot of sense to at least look into it.

[1:04:28] Host: Very interesting. Okay, so I still feel like I have a lot to Learn here about robs because more recently I've had guests who did robs and then they basically, I guess because they, they really did want to tap the equity that was in their 401k and they then wanted to buy their. So, so then they, they buy the business. Their 401k owns a significant chunk of the business and they then scramble to buy out their 401k as quickly as possible so that the ownership transfers back out of their 401k and they hold all of it and it's not in the 401k anymore. So they weren't doing it for any kind of tax advantage reasons. But you are in. So, so to, to benefit from that tax advantage, you have to leave the 22 and a half percent in your 401k indefinitely or, and until, excuse me, until retirement.

Guest: Right, until retirement. But you know, you can take, you know, but again, it's like it all depends. It's really a lifestyle choice. Right. I mean if you need to spend all of the money that the business is making to support a lifestyle, then it did not. That's obviously not going to work. Right. But I guess my thought, I'm taking more of a longer term view, right. Is that, you know, if everything goes really well, we have a very successful exit and you know, five, seven, ten years, however long that is, I can always, I can not pay a capital gain on my exit, but I can always reinvest that money through another robs into another small business. You know, and, and I think that's, that's another, you know, again, it all, it all depends on the person. Right. But, but for me, especially with the Roth Roth conversion of your initial 401k funds into that robs, I mean it makes a lot of sense for people that don't need to access that liquidity in a short time frame.

[1:06:18] Host: Great. And, and so just going to repeat it in my own words. So yeah, if you, if you don't need the cash yourself, if you don't want to have your hands on that cash to do whatever you want with and you, you keep the ownership in the robs, you just keep the kind of, it's shielded from capital gains taxes and oh by the way, you, you can, you can use that cash for equity in another business acquisition. So if you're growing your, if you don't, if you don't want to actually use that money to spend on yourself and on your life, but instead just kind of reinvesting and building the empire and kind of compounding the rob having it, your 401k continue its ownership will enable that, will allow that. And so that's fine and great even.

Guest: Right. I think, and I think anyone that wants to read about this and the potential power of this, I think it was Peter Thiel that has something like $4 billion in a Roth IRA, which is just insane. Right. If you think about what the Roth IRA was initially structured to do, and it doesn't seem like that's possible, but it is so exact.

Host: Exactly. Now, audience, don't quote me, but as I understand it, I think that his Facebook investment, so that was how that was like his first big win.

Guest: I think there were a few and I think there were quite a few and it was just something that's been built, you know, over time and he

Host: just does it all out of his,

Guest: out of his Roth ira. Like he's making, you know, hundreds of millions of dollars of dollars in tax. Yeah, I'll throw a half a billion on it. Let me just pull out of my retirement account. Right. It's pretty impressive what he's been able to build through that structure.

Host: Great. Okay, that, that was great. Matt, two more big questions for you. The first is your plans and building. What, what are you building here? What do, what do you, I just heard you say five to seven years, maybe buy another business. So let's get into that. And then, and then I want to do a deep dive on the roofing business more than we have. I want to directly hear kind of a total breakdown of the whole industry. So first, on your, your plans. What, what are those?

Guest: Yeah. So, you know, we don't have any sort of, you know, five year time horizon. You know, we may own the company forever. You know, from a revenue perspective, Our goal is five offices, $10 million per office in the next five years. And you know, the more I'm under, the more I'm getting into it. I really think it's, it's possible that we could actually have five offices each generating $20 million per year in revenue, you know, over the next maybe seven, seven to nine years. You know, I think it's, it's just such a big industry and, and the more exposure we're getting into it and the more success we're, we're finding, you know, I, I, I keep like pushing those goals. What I think's possible, you know, even further than what I thought was, was prior to getting into the business, you know, and then what does that structure look like for us? Well, it's, we really want to have an office that Allows us to access every part of the Florida market except for the panhandle. And there's other reasons why we don't really see a lot of opportunity to panhandle. Mostly because labor comes in from other states that drives out prices. But you know, it's really looking at, you know, Orlando maybe Vero Beach, Cocoa beach, you know, somewhere on the northern east coast that allows us to really service Jacksonville, you know, down to Vero, Miami and then you know, probably Fort Myers and you know, and there's, there's other Port St. Lucie is another good location. There's just, there's so many different locations where we could have offices and we're still mapping out what exactly that looks like. But you know, the immediate goal for us is to open up Miami here in the very, very near future. A lot of people ask are just another follow up to that. A lot of people ask, well, why not just go buy other companies, right? Why not just go buy other businesses in these locations and do it more quickly? And I think the answer to that is because when you're buying a roofing company, my thought is if we can do well on the organic growth side here, we should be able to take that model and just copy and paste it into other places. So from a return profile, I don't know how much extra value you're getting by doing it through acquisition, but again, it's still an option on the table for us.

[1:10:44] Host: But Matt, I thought even though the seller hadn't been aggressive in marketing and sales, he had built a really strong brand reputation. And that's not something that you can flip a switch and have in. In Miami.

Guest: Right, but the thought is, is that, that, that's true, right? That's certainly true. But you know, the thought is if we have an office in might make like we still get request to go down to Miami. Right. He has a good reputation with his network. Right. But that's still relatively small. So the thought is, is if we can double for example in the just the one segment property managers, if we can double that here in the Tampa St. Pete market, then why wouldn't we be able to successfully implement that in other markets. Right. With those referral sources. So you know, maybe I'll take it on the chin with that thought process, but we'll maybe that'll be a conversation in a year from now. Right. To see how that's going.

Host: Well, yeah, so. So tbd and I don't mean to be skeptical, I just, I'm just trying to understand organic versus versus buying because versus inorganic acquisition. Because you're, you had planned, as I recall, to do inorganic acquisition, that this would be your platform purchase and then you would buy bolt ons and buy your way to growth, which of course is the playbook of many of my guests. Right, but now you're thinking organic is better.

[1:12:09] Guest: Yeah, yeah, I think it's probably a combination of two of both. Right. If we find a good target that's a good fit for our culture, that is a good fit for us, then we would certainly be willing to entertain, you know, entertain acquisitions. It's just, you know, we're, we're not, we haven't come across that yet and quite frankly we haven't been looking. Right. I mean I've had my hands full with, with running the business and you know, over the past six months, eight months now and really, you know, understanding what it is and where we're trying to grow it. So I've been, and it's interesting because I, you know, I speak to or I listen to your podcast and I hear a lot of your guests and just their phenomenal growth stories, you know, almost in 12 to 18 months. And when I was going through the process of buying a business, I was like, oh that's, that sounds so easy, right? I'm going to do that. And then you get into it and it's like, well, let's pump the brakes a little bit, right? Let's just focus on what we have now. Let's do that very well and then, you know, determine what that growth looks like, looks like down the future. So it's something we're still wrapping our hands, heads around.

Host: Quite frankly, regardless of what you find, a big takeaway that people should have, from what you said, from what your kind of goals are, is that this is such a big market and it's realistic to think that a 10 or even $20 million office could exist in these various GEOs around Florida. So doing, doing some quick arithmetic, that's a 50 million dollar business, 50 million revenue, dollar revenue business in five years May or you said maybe a 2100 million dollar business in seven or eight years. So big numbers are possible in terms of just when you're playing in a really big market.

Guest: Right. And it's not only, and it's not like a far fetched possibility either. Right. I mean I truly believe that if we didn't have certain capital constraints around certain things around bonding specifically, you know, I really truly believe we could hit that $20 million, you know, in just out of our office and you know 12 to 18 months. Right. Just through one segment of the business. I mean, it just really. Is that. That big?

Host: Wow. Pretty. Pretty enticing, Matt. Okay, well, perfect segue to my last question, which is let's just get a primer on the roofing business. We've already learned a lot, but maybe now let's kind of structure it. So break down for us the roofing business. Obviously you got residential and commercial, but give us more granularity than that.

Guest: Yeah. So, you know. Right. So is everything from kind of a roofing services, Right? It's really, you know, you've got repairs and then you've got new roofing projects. You know, inside of that you've got residential repairs. That could be, you know, something as simple as, you know, replacing a skylight, which that's actually not very simple, but it could be, you know, they have a couple of pop nails and you have to go, you know, hammer the nails back down and seal them up, you know, to. To large. But there's also a lot of large homes right, in Florida that, you know, that are looking at 2, 250, 000 roofing projects. On the residential side, you know, within the commercial side, you've got condos and HOAs. You know, you've got new construction, you've got flat roofs, you've got, you know, I mean, just, just drive down the road. I mean, this is something that I think people don't really put it in context, but I mean, literally, if you just drive down the road, every single building has a roof, right?

[1:15:46] Host: Every single building.

Guest: Every single building has a roof, right? And so on the commercial side, you know, there's another new. So there's new construction, which is a huge, huge business. Like, like we literally don't Even look at 10 bid requests that we get probably every day for new construction in Florida. And the reason why is because we don't have the flexibility in our production teams right now to be able to meet the those new construction demands. And the reason why is because projects get delayed, right. So you could be scheduled for. Okay, we're going to start roofing May 1st of 2024. Well, next thing you know, oh, we didn't pass this permit, right? We didn't pass this. We didn't get this. So now we're at ready till July. So the bottom line is, is in order to do that well and have a good end product for the customer, you have to have a lot of, you know, flexibility in your actual production schedule. Production schedule. So that, that's the new business Side you've got re roofing and new roofs, which really applies to every building. You know, I, I think in the commercial side too, what's really prevalent and something I think is really prevalent for this conversation is understanding the citizens guidelines, right? So again, citizens of Florida insurance pool, they require every flat roof to be either reroofed with or completely torn off every 15 years. Right. So they have predetermined, this is the life cycle of every single roof that we're going to insure. And so that drives a lot of demand in the state of Florida for new roofs, you know, and then you've got federal government work, you've got local government, municipality work, you've got, I mean just the, the list of commercial projects just keeps going on. You know, it's, it feels pretty endless as we're talking about it, right?

Host: Yeah.

Guest: You know, like I said, you got the condo and HOAs. You know, I, I think the, the difference really between roofing in the commercial space, right? It's, and this is something we're still really trying to understand is from a price perspective, right? There are other contractors that will do a million dollar commercial project and they will try to make, you know, a 15 to 20 gross margin right. On that million dollar product. Especially new construction. Right? New construction. Gcs, they are always trying to get the lowest price possible, you know, and most new construction, they only warranty their building for a year, right. So they don't necessarily, they don't have an incentive, right, to really, to provide a longer warranty or find really good contractors for them. It's like just, you know, get the roof on, get it signed off, pass the inspections and you know, we'll move on to the next building. So, so that's kind of the way the, the new construction space is set up. But going back to margins in, in the bigger the project. So the bigger the project in the more traditional conventional roofing systems, the lower the margin is going to be, right? From a, the gross profit margin is because, you know, you're thinking about it from, from when you're in my seat, it's like, okay, would we rather make $200,000 of gross profit on a million dollar roof? Right. And when that win that project and complete it, or would we not want to make that $200,000, right. So they're, they're on those. The bigger the project gets, the thinner the margins become. And we're still trying to work through, you know, where are we willing to price these larger projects. You know, on the foam side, you Know, we price everything at a certain profit margin and we don't, we don't, we don't have the, the need to, you know, really price it differently just because there's not a lot of competition in it.

[1:19:45] Host: So pricing power because you're one of the only games in town, always nice. And then on the, so that, so that's commercial. On the residential side, there are, as I understand it, kind of different types of shops, door to door shops, so called storm chasers where you know they'll blow into town when, you know, on the heels of a hurricane coming through. I also have the impression that, that some of these residential focus roofing companies sub everything out. So kind of at the top level they're just legion or kind of just aggressive sales and marketing operations. Break all that down for us.

Guest: Yeah, so there's, you know, on the residential side, yes, there's a lot of, there's, there's retail insurance work. Right. So insurance work. That's the storm chasers that you were referring to. That's, there is a lot of that in really nationwide. Right. There's a lot of storm chasing and big hail markets. Colorado, Texas, you know, Florida's bigger hurricanes. We, we personally don't do any of that. And you know, the reason why is, is just because we, we haven't needed to. You know, that's something that we, I think about. But it, you know, at the end of the day it's, it's like we've got so much already on our plates, right. That we don't really need that business. And then it's also, you know, the culture at, at, at USI is people like being home. Right. People don't really want to travel necessarily. Like they will. Right. But it's like if you send me out on the road every week, know, I'm not, I'm going to go find another job. So we don't do a lot of storm chasing, but that's definitely a, a huge business in, in roofing, you know, on the retail side is, you know, basically my roof is at the end of life, right. And I need to find a roofer to replace my roof, you know. And I think it's, it's pretty fascinating. I think the, a lot of the retail channels, right. A lot of people are getting multiple bids from, you know, different roofers, right? They're calling, they're getting three bids. You know, they're going to Google what's the best roofer around me, you know, calling their friends who did your roof, et cetera in the storm side, it's kind of like if I can get you, if I can get on your roof and get you to sign a contract, it's. They're getting it closed that same day. Right. So I think it's, it's much less competitive. And I also think on the storm side, on the insurance work side, there's actually less pricing power because the insurance company has a program called Xactimate, and Xactimate is what they use to determine what's the total cost we're going to pay for this repair or reroof. Right. So there's not a lot of, you know, wiggle room for contractors to. At least from my knowledge. Right. You may talk to another roofer and says he has. Supplements are the best thing in the world. Right. We've got tons of wiggle room on price. I, I just, from my, from what I understand of that space, there's not a lot of wiggle room on what, what can be made for doing a roofing project on, on the insurance side.

[1:22:52] Host: Fantastic. And you touched earlier on the fact that private equity is very active in some of the other trades, namely H Vac, maybe plumbing and not here. Do you. Now that you're in. And that was just stop you real quick there.

Guest: Yeah, yeah, because I, I should say that was true in 2021.

Host: Right.

Guest: So now private equity is starting to come into the space pretty heavily. I actually just read an article, I forget who published it, but talking about private equity and, you know, wanting to buy these roofing companies, and now I'm getting reached out to probably, you know, once a week with different private equity firms saying, hey, would you like to, you know, have a call about selling your company? And I kind of just respond, well, I'm not. Probably not the size yet for you, but, you know, follow up in the year, you know, like, type things. So, yeah, it's, it's private equity.

Host: And that was part of your thesis. You, you thought that private equity, it wasn't active in roofing, but may well come. And sure enough, it sounds like it's coming, so.

Guest: Right.

Host: Good on you. Good prediction there.

Guest: Lucky. It's okay to be lucky.

Host: Yeah.

Guest: So, yeah, private equity is getting into the space. You know, there's, you know, which both is an opportunity and a threat. Right. I mean, if you get a ton of, you know, Harvard and MIT grads starting to really get into the space, then, you know, they will probably be able to figure out a lot of stuff to create competitive advantages very quickly. So, you know, which I think is great. For the industry and you know, it's going to force us all to get better. So, you know, a lot of people are anti private equity. And no, they, they don't honor their warranties. They don't, you know, they're not going to treat the customer well. They're going to treat their employees terribly. And you know, I think that's true in some cases, but in a lot of cases it's also not true. So, I mean, I welcome the private equity investment in the industry. I think it's needed, I think there's more capacity that's needed in the industry. So I mean, it's like, get your checkbooks open. It's a great industry.

[1:24:51] Host: And something that John Wilson said, one of who I mentioned earlier, who came on a couple weeks ago and did a breakdown of the trades, businesses, kind of the, the taxonomy of, of them and how they rank and what they're known for and so on. One of the things that he said about roofing, which was fascinating, is that to a person, every owner of a roofing business that he knows has had a gun or knife pulled on them by an employee. Which is to say that, you know, roofers can be a little, a little rough.

Guest: Yeah.

Host: Now that you're inside the industry, that is.

Guest: You know, I was interviewing this person for a repair tech and you know, spoke to him on the phone, sounded like he knew a lot about roofing, a lot about repairs, different systems. And then like I made him an offer and he just completely ghosted us for like three days. Right. And I was like, huh, that's weird. You know, so we had a good thing going. Like, I kind of thought he was come be a part of the team. Well, he shows up like four days later, just shows up at our office completely unannounced. And he was definitely on some sort of. He just looked like he'd been on like a three day bender, right. And just didn't look very healthy. And so, you know, what was he up?

Host: What did he show up wanting a job?

Guest: He's like, hey, I want to take you up on that offer you gave me. And I was like, I was like, dude, like, the first thing I need is for you to be reliable, right? Like, you can't just disappear for three days when we had all this great conversation, you know, and then just expect to come, like walk in on an ounce. Like, yeah, here's, here's your job. Here's a company truck, here's all the tools, right. Looking disheveled, like, yeah, you know, here's $75,000 worth of equipment and, well, sure, you could take the truck home because you're a repair tech. We may need, you know, there may be some nighttime calls for you, you know, like, that's just not going to happen. Right. So, yeah, I've had some pretty interesting, you know, I've heard. I've heard some of our guys that have been in the industry for 20, 25 years have just crazy stories about crews getting into fights and, you know, trying to push people off roofs. Like, just some crazy stuff. Like, we don't have that here. Like, our, our guys, they show up on time, they're sober, you know, they're. They're pretty dedicated to their, you know, to the profession, which is really awesome. I got lucky with most of that. You know, most of those people have been here through when we acquired the business. But, yeah, before you buy a roofing company, you may want to be prepared for dealing with, you know, a lot of HR issues that would not be prevalent in a lot of other industries, to say the least.

[1:27:33] Host: Okay, so verified then. And then, last question on roofing, Matt. We hear about Florida, we hear about Texas, we hear about Colorado. Is it. And if you're not in one of those states where there's just huge demand because of weather, is it still an interesting business with, I mean, obviously smaller tam, but still worth going after? Or what do you think if you weren't in one of the hot states for roofing?

Guest: Yeah, I think, Look, I think any business where you have a need could be a good business, right? Like with the roof, for example, no one ever wakes up in the morning. It's like, oh, I want to buy a new roof today. Right? Like, no one's ever said that and it will never happen. Right? But if their roof's leaking, the first thing they're going to do is, oh, my gosh, my roof's leaking. I'm not getting on my roof. I need to call someone. Yeah, right. As opposed to like a. If you're doing a kitchen remodeling company, for example, right. Or you're, you know, you're. You're remodeling kitchen, bathrooms, whatever. Well, a person can live in their home with an old kitchen, right? The insurance company says, hey, by the way, your roof's 20 years old. You have to have it replaced. You know, now they have to make a decision of, okay, do I want insurance on my house and an actual roof over my head, or do I want that new kitchen? Right? And I would, I would put money on it. That Every time they're going to say, okay, the roof's probably more important than, you know, our, our new kitchen. So, yes, it's not a recurring revenue business, but there is natural demands. I think that will keep the demand there for projects.

Host: Anything. I didn't ask you, Matt. Any topic we didn't hit.

Guest: No, I think we covered everything. I mean, I appreciate all your time and I appreciate everything that you do for the community. I think I will say, I know you advertise and you can decide to cut this, but, you know, I, I worked with August Felker, guys. He's awesome. His team's amazing. And if you haven't called August Felker and his team, if you're going through a, you know, an acquisition, you should definitely reach out to them. I've had nothing but a great experience with, with, with that group.

Host: All right, I appreciate you saying that, Matt. That's great. I, I will definitely leave this in. And, and yeah, and I, of course, I know August personally and he's been nothing but great for me to work with in a different capacity as, as a sponsor, but he's, he's really great guy. So that's awesome to hear and thank you for saying it. Matt, if people want to reach out to you, what do you like LinkedIn? Email?

[1:30:03] Guest: Yeah, just email is the best. It's just. Matt, two T's, M A T T, sir. Roofing dot com. Feel free to reach out. You know, I'm always here to tell people they, you know, if they want to understand the limited guarantee, how we did that. I'm not an expert on robs. I can kind of, you know, show them our models and, you know, of, of, of how it can make sense from a tax efficiency perspective. But, you know, if, if they have questions about Ralph specifically, and I would say call Guidant Financial. That's who we use, and another great, great provider. You know, if they want to talk about roofing, you know, always here to, to talk about that as well.

Host: Matt Jackson, thanks very much, sir.

Guest: Thanks. Will. Sa.