Host: You may recall me mentioning a panel I'd be moderating last month in San Jose for the Silicon Valley chapter of eo. The panel was devoted to buying small businesses. We had a great turnout. It was a ton of fun. There were three panelists, each of whom has been a guest on Acquiring Minds. Now, as much as I love the one on one interviews with my guests,

Guest 2: I also love a good panel.

Host: The variety of perspectives and experiences all on stage at once packs a punch. Thank you to George Goats, to Corey Viverka, and to Nick Haschka for speaking on the panel. Links to each of their Acquiring Minds

Guest 3: interviews are in the show notes.

Host: And thank you to Sia, Bonnie and the team at EO Silicon Valley for organizing the event at Club Sportiva in San Jose. Please enjoy this rebroadcast of that panel from October 5. 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

Guest 3: podcast I talk to the people who do it.

Guest 4: I want to share an update on the Acquisition Lab.

Host: As you know, the Lab is a highly vetted cohort based accelerator and community for people serious about buying a business. After going through the Lab's month long intensive, you have ongoing access to almost daily Q and A sessions with advisors, regular live deal reviews with Walker Deibel, author of Buy, Then Build, Potential Deal team introductions, and a very active Slack group with other searchers on the path. Well, the update is that the Lab recently passed 60 businesses acquired and for well over $100 million in aggregate transaction value. Also, all members now enjoy lifetime access to the Lab because when you buy a business, it's often just the first of many and the Lab wants to support you in every deal, not just your first. Lastly, check out my recent interview with Shane Ursum, episode 105. Shane acquired a business with over $1 million in EBITDA in just six months and he attributes a lot of his deal success to what he learned in the lab. Check out acquisitionlab.com or email the lab's director, Chelsea Wood. Chelseythenbuild.com

Guest 5: so without further ado, Will Smith from Acquiring Minds.

Guest 6: Thank you Siya.

Guest 2: Welcome everyone. It's great to see such a turnout for a topic that's near and dear to my heart.

Guest 4: As CS said, my name is Will

Guest 2: Smith and I host Acquiring Minds interviewing entrepreneurs who buy businesses. And when I say entrepreneurs, I do mean an entrepreneur. So this is not private equity funds or already wealthy people that we're talking about. This is many times A loan individual or a pair of partners who start from a standstill to buy a business, they often walk away from whatever track they're on. They go all in, take a big loan, usually an SBA loan, personally guaranteed oftentimes, and search for months, sometimes longer, to find a good business to buy,

[3:29] Guest 3: buy the business and become owner, operator,

Guest 2: leader of that business. I'll give you a few examples. Johannes Haak bought an artificial turf installation business in 2021. It was doing $5 million a year. Two years later this year it's on track to do $15 million.

Guest 3: So he's tripled sales in two years.

Guest 2: And this was somebody who didn't have

Guest 3: a business and decided that he wanted to buy 1.

Guest 2: In 2020, Brandon Adams in Philadelphia bought an ice delivery business that was cash flowing, $800,000 a year when he bought it. It was a bit of a rocky transition when he got in there, but he stabilized it and has since put

Guest 3: in an operator so that he can

Guest 2: go out search for another second business to buy. And actually when I talked to him recently, he has one now under loi. So he is on his way to building a holding company of small businesses. Sean Moore in Denver was a corporate guy for 20, 25 years, his whole career, basically an amateur art collector and decided he wanted to buy a business in Denver. Looked around Denver, looked at a lot of businesses and saw an art gallery that was doing $4 million a year. It's like a sizable art gallery, $4 million a year of art and cash

Guest 3: flowing, $1 million a year.

Guest 2: So not only a big gallery but a great business. He is now owner operator of this gallery in Denver. And here in the Bay Area there's Manny Saxena who bought three street sweeping businesses and in doing so became the largest street sweeping business in Northern California and was himself acquired by a private equity roll up. So these examples are just a sampling of Acquiring Minds guests. From the last two months alone, I've talked to over 150 people who bought

Guest 3: businesses as their path to becoming an entrepreneur.

Guest 2: So this is something that there's a lot of interest in. More and more people are doing. People have bought businesses since forever, but there's something happening now which we might get into tonight that kind of makes

Guest 3: this a unique moment in time.

Guest 2: Three other examples of people who bought businesses are of course, the three gentlemen

Guest 3: that we have here, Nick Haschka, Corey Viverka, George Goetz.

Guest 2: So we're going to spend the next hour or so hearing their stories, their perspectives from the front lines of doing this and really try to unpack what this whole entrepreneurship through acquisition, or ETA, as it's called, what this whole ETA thing is all about, how it works, why it's appealing, why now, and what the opportunity might be for you all as prospective business buyers or if you're EO members, as maybe sellers into this, into this ecosystem of people looking to buy businesses. So we will start with a quick round of intros and then we'll circle

[6:27] Guest 4: back around and do each of your

Guest 3: story in some depth.

Guest 4: Nick Ashka, you want to start us off? Tell us who you are, where you're

Guest 2: based and what your business is.

Guest 5: Sounds good. Hi, everybody.

Guest 7: Thanks for having me today. Well, thanks for inviting me.

Guest 5: Yeah. My name is Nick Hoschka.

Guest 7: I live in Moscatos. And

Guest 5: the business that I run day to day is an investment business, CUB Investments.

Guest 7: But our main business that we run

Guest 5: is called the Right Gardener.

Guest 7: It's an office plant business based in San Francisco that we bought in 2017 from the retiring owner who ran it successfully for 35 years. And since then, we've diversified into kind

Guest 5: of a broader range of different businesses

Guest 7: and invested in a number of searcher led buyout acquisitions, following a lot of the same patterns that we followed for our own office plant business.

Guest 8: Great.

Guest 7: And since then, we've acquired a bunch of local competitors and continue to run that business and grow and look for other opportunities.

Guest 2: So you can see from Nick's story,

Guest 3: which we're going to hear in full,

Guest 4: how this isn't just necessarily buy one

Guest 3: business and that's the end of it. It really opens up all kinds of interesting avenues.

Guest 4: Corey, you want to go ahead?

Guest 9: Yeah.

Guest 7: Corey Virka.

Guest 10: I live in Alameda. I'm an EO San Francisco member. My business is, we work. It's total validation services. We work in the pharmaceutical biotech world, making sure that new manufacturing facilities meet regulatory requirements. My story is a little different in that I bought the business from the previous owner that I worked for. So this is an employee transition for my story.

Guest 6: Great.

Guest 8: George.

Guest 6: My name is George Goates. I was a member of EOS Silicon Valley for a number of years. My family's part of the COVID exodus to Utah. I own a company called RTW Management. We operate municipal transit, so fixed route, city busing, we do airports, some paratransit, micro transit.

Guest 8: Okay, great.

Guest 4: All right, so, Nick, the Right Gardener

Guest 7: was your first business.

Guest 3: Indoor, indoor plant business.

Guest 2: You, you were in tech.

Guest 3: You were a tech guy before that.

Guest 2: So give us more detail on your whole story.

Guest 4: Why did you pivot from tech to

Guest 3: buying these strange small businesses.

Guest 5: So yeah, my partner and I were at a startup, a venture funded startup

Guest 7: that abruptly and suddenly ran out of money. As these things happen.

Guest 5: Ill conceived in retrospect, beautiful idea at the time. Nevertheless, we were unemployed.

Guest 7: I had a one year old, a pregnant wife and thought, man, I need some risk in my life.

[9:05] Guest 5: So we, no, my partner and I, we decided, man, there's got to be an easier way to make money. That was the hardest thing we've ever done.

Guest 7: Let's do something easier.

Guest 5: So we were looking for a business

Guest 7: that was not pre product market fit, business that was around for a really

Guest 5: long time, run by somebody who is

Guest 7: solid but not exceptional in the sense that like a business that anybody could run and you can learn your way into relatively quickly, a business that was going to be durable, that we felt like we could transition easily and we

Guest 5: ran a very short search.

Guest 7: I'd say, I think I saw it within probably a few weeks of us really deciding that this is what we were going to do. And we put an offer in and we had other deals that we were working on, but decided this was the

Guest 5: one, got an SBA loan and closed

Guest 7: a couple of months later.

Guest 4: And was this something that you had heard that other people were doing? Like it's still it. You make it sound very natural and rational, but it was, it's still really off the beaten path for a tech guy like you.

Guest 7: We knew people in private equity, we knew people in the lower middle market. And I had a friend from high school who was an independent sponsor who had run a two year search and had warned me of how long it takes. And we kind of went through and he kind of gave me some pointers on where might I find an opportunity that would be faster, easier to execute, wouldn't be so complicated as what he had tried to do. And so that moved us kind of down market. So we bought a business that was very doable for even one individual. And there were at the time, actually there were three of us and we knew that it wasn't going to be enough to support three people. But what it would do is get us on the right track toward something that could. And so we didn't all work in the business. I went and worked on the business and the other two were there kind of on standby to help if you know, things went sideways or it didn't go as expected. They were also kind of a glide path if it really was going badly, like I wasn't going to lose everything. I had some People who could step up and help me financially. So there was a lot of reasons that we shifted down and went smaller.

Guest 4: And when you say go smaller, give the audience a sense of what buying small looks like.

Guest 5: And there's a lot of businesses fall

Guest 7: into this, but I call it, you're kind of buying a job, but it's a little better than a job. It's like in the. Call it 300k to a million in earnings for the seller.

Guest 9: Okay.

Guest 7: And the private equity market won't touch those. And so they tend to trade for lower prices. You can usually get something like that for between two and four times, depending on the desirability of the business, how well it's set up, how much the owner does, what exactly the owner does. If they're sweating and operating a shovel every day, that's a different job that you're buying than an owner who occasionally shows up to see how everybody is doing.

[12:03] Guest 4: And just one thing to be clear

Guest 2: for the audience, typically we're going to get into a little bit more of

Guest 3: the anatomy of what a deal like this looks like.

Guest 4: But when you hear these earnings numbers,

Guest 3: that's what the seller was earning.

Guest 4: But typically the acquisition entrepreneur is going

Guest 3: to see half of those earnings are

Guest 11: going to go to the loan.

Guest 3: If they do it with an SBA loan, that's kind of the napkin math. So when you hear somebody, you know, the art gallery buying a million dollars, that. That doesn't mean he's getting a million million dollars. He's starting with 500, because the other 500 is going to the SBA loan and crude oversimplification. But just it's an important thing to keep in mind.

Guest 4: And another thing, just to piggyback on what Nick was saying, you heard him

Guest 3: mention private equity a few times. And so that is a theme in

Guest 2: this world, because in some sense what

Guest 3: this is is individuals doing private equity.

Guest 4: And so you'll see a lot of people who formerly did private private equity,

Guest 3: George Goates is one of them, decide to kind of go off and do it on their own. But there are parallels here. And sometimes, as Nick said, you, as the acquisition entrepreneur, might bump up against formal private equity funds who are competing for deals that you are.

Guest 4: Corey, let's hear your story, please.

Guest 2: Sure.

Guest 10: So I was a mechanical engineer out of college, joined a big multinational engineering company, met my wife at work. We got married a couple years after that and had the opportunity to move from pure engineering into the testing side of things on a pharmaceutical project, which also got us the opportunity to move from New Jersey to San Francisco. So started learning the pharmaceutical validation side of things into a niche business, built up a little bit of a reputation and a smaller company, the owner of which we had actually partnered with, recruited me away after actually a tragic accident with his number two that he was grooming to take over. He was looking for a new number two. So I was that guy that was tapped to potentially take on a leadership role at the company with the possibility of taking on some level of ownership. It took a good 13 years, but we did finally make that happen. I can get into the details of the story of that. I was relatively young. I was maybe 28, 29 years old when I joined TBS as a project manager leader. But it took a while to get mature enough and learn the business well enough that I was comfortable in leading that company. It's highly technical. There's a, there's a very small customer base. So building up the reputation within the industry was, was a key part of that for, for my niche business. So once I kind of got all of that a little bit under, under my belt, then I started feeling a little bit more comfortable. And the owner also felt comfortable in transitioning that. So it was maybe 10 years into the, into the journey where it was like, okay, this, this could actually, we could actually do something here. And so the sticking point for us was, was financing. He was relatively, he didn't understand the market for how to get financing. So we struggled on how to finance that deal. I didn't have money. I also had a business partner that was, that I was hoping to bring along as well. He didn't have money. We just didn't have enough money to capitalize it. And I heard a radio ad and for an SBA for Comerica bank that we do SBA loans for owner financed acquisitions. I'm like, oh, wow. So I scribbled down the note, called him up and kind of told them the rough numbers. And at that point I think we were doing about $4 million top line and like 27% or so EBITDA. So we, you know, very strong business.

[16:14] Guest 7: And the.

Guest 10: When I told the, the bank that we had a management team ready to take over, who knew the business, they started to become comfortable because it was most services businesses, they're kind of weary of doing that type of, of that, that loan. So it became real that we could actually make the deal work from a financial standpoint. And so then just having, so then it took two years of negotiation with the seller to work out the deal. The structure of the deal he wanted to be 100% out. He didn't want to hold any, there's no seller notes, nothing. He didn't 100% out. So that was also a little bit of a sticking point. But we worked through all the numbers on that. And at the end of the day when I think when I had the confidence to be able to run the company, my wife Tanya was also working in the business as well. And so I had that going for me as well. So the confidence, the experience, the knowing all the clients in our business lowered that risk threshold for us to be able to make that move.

Guest 4: Fantastic.

Guest 10: Thank you.

Host: Listeners of Acquiring Minds know that for almost any business you acquire, its success comes down to the people and how you develop and manage them as their new leader. Thing is, in addition to management there is also a lot of process and bureaucratic work when it comes to your new employees, payroll, compliance, hr, technology, hiring,

[18:01] Guest 4: to name but a few.

Guest 2: These processes are crucial to get right

Host: but at the same time distract from where you want to be putting your energy in leadership. So Aspen HR is an HR firm and PEO that takes this work off your plate and handles it with the care it demands. Aspen is owned and run by Mark Sinatra, himself a successful former searcher. So Aspen's own leadership understands the HR challenges that searchers have. Post acquisition, the firm is offering Acquiring Minds listeners a complimentary pre acquisition HR and PEO review for your target business. Check out aspenhr.com or contact Mark directly@markspenhr.com

Guest 4: George let's hear your story.

Guest 6: Great. Let's see. I'll go way back. So I'm four years old. My, my dad's a physician. We live on a big house on the hill. I don't remember, I was just for. But he started this business called Magic Mini Makers and they, they made like these, it's probably Carson Janek, I don't know, they probably can't sell them in California but they're these plastic sheets that have little characters on them, right? And you cut them out, you punch a hole in it and then you put them in the oven and they shrink up in these little charms, bomb bracelets and necklaces and stuff. So it was kind of a side business. He's doing pretty well and he gets this big order like, I mean, I don't know what the numbers are, you know, million dollar order. And so he's, you know, this is back In, I don't know, 70s, early 80s. So he's, he, he borrows money from the bank, his friends and you Know, puts together this giant order for this large department store and they call later and cancel the order. And you know, they didn't. We have Internet back then. You can't just liquidate this stuff. So I'm the youngest of eight kids. We packed up, we moved to eight kids to a four bedroom house. And that's kind of probably one of my first recollections is sharing a bedroom with two siblings. So despite this experience, my dad continued his entrepreneurial pursuits. None of them went well, so we kind of lived a middle class lifestyle. But he always talked about it. He never talked about his work as a physician unless he was complaining about it. But he talked about business. And I think maybe I wanted to kind of do what he wasn't able to do and heard from time to time about these people called entrepreneurs and how they made the economy go and stuff like that. So with that in my mind I go to college and major in finance because it seems like major finance you make money. So I did that and it worked. And if you're in finance and you want to go do investment banking, so went into investment banking. I took a job with bear Stearns in 07 and I was super excited about it. It's just what everyone wants to do. And then in 08 this guy bear Stearns kind of precipitated the financial crisis. So I found myself without a job in 2008 and the financial services industry was a bad industry to be in at that time. So I was fortunate enough to get a job just evaluation shopping and doing accounting work and stuff. And ultimately as the economy improved, got into private equity and did that for a number of years and just loved it. I really liked buying businesses and figuring out what made them tick and doing on someone else's nickel. So I made the mistakes on their account, not mine. But over time learned what I was looking for, what I liked and what worked and what didn't. And eventually tried to start a subprime auto finance company which we had a guy who was leaving his current company and we had an investor. And about six months in he, he goes to, to quit and the owner tells him like, hey, I'll give you equity, don't quit, I'll pay you more. So he, he backs out and I'm six months without a job, like no, you know, no, no alternatives. And so no, no plan B. So I'd been looking and working in private equity. I always kind of wanted to buy a business. I kind of had this entrepreneur thing in my mind. But really when I Didn't have a choice.

[22:05] Guest 2: Right.

Guest 6: I've got savings are dwindling. I've been living on savings for the last six months that I really got serious about it and I found a bus company. So they have contracts with, at this time they had contracts with the federal government. So via hospitals and stuff like that, they did shuttle work to the different campuses or whatever. And they had long term contracts. They only had three. One contract was 80% of revenue. So looking back, it probably wasn't a great idea. But the long term contract at least meant, you know, I had the biggest contract, had a couple years left on. So okay, I got a couple years to figure this out. So made an offer. We, you know, there's a lot of back and forth, you know, took a while to close that's had to do some creative financing, but ultimately closed the deal after probably four or five months, which was like gut wrenching because I was still living on savings. But that's, that's kind of how I came across that business and finally pulled the trigger.

Guest 4: And what does the business look like today, George?

Guest 6: So we're, we now do. So we branched out of just federal shuttle service. It's a pretty limited market. So now we do municipal transit. So we do cities. A lot of cities outsource their busing. So if you, you go to Scottsdale and you see Scottsdale transit, it's our employees that are driving the buses. You know, we do airports, which is really, you know, you see the, the big transit buses at San Jose. I was actually just at the San Jose airport before I came out and met with them. So if you know anyone from San Jose airport, give me a shout out trying to get into that one. It's a great, it's a great segment of our market. So we're, when we, when I bought it, we were at about two and a half million dollars in revenue. We're over 10 now and then probably be significantly over that by end of the year.

Guest 4: You started at two and a half,

Guest 3: you're at 10 now and you'll probably

Guest 4: be significantly over that by the end of the year.

Guest 9: Great.

Guest 4: So I think George, and both you and Nick mentioned ventures that you were involved in where you started something and it didn't pan out.

[24:02] Guest 9: Okay.

Guest 4: And this is kind of what we think of, right?

Guest 3: This is traditional entrepreneurship. Here we are in Silicon Valley.

Guest 4: Like this is, you know, this is the model that we're told is entrepreneurship. So if it's not already obvious, let's talk a little bit about why this model, entrepreneurship through Acquisition is so appealing

Guest 3: versus starting from absolute scratch.

Guest 4: Nick, why don't you go?

Guest 5: Yeah, I think the most of the

Guest 7: risk in this business is management risk.

Guest 5: Can you manage this business? And so that's what you got to ask yourself when you're looking at it. Can I replace this owner and at least not destroy it?

Guest 7: Because you're using a lot of debt to execute these transactions. Generally you don't have to, but that's typically the way it happens. So that's really what you're underwriting against, is your own ability to step in and manage at least as good as that person, the person that came before you.

Guest 5: And I think fundamentally that's like one of the key risks.

Guest 7: There's, of course, what happens to the business, what happens to the market. And that needs to factor into your calculus, too. You don't probably don't want to go into something that could be completely blindsided and be eliminated overnight. So you want to look for markets, geographies, niches that are promising and are going to be around for a while. But I think, you know, usually in most things, most small businesses that have been around for a long time, they've

Guest 5: been tested in so many ways. The real test is, can you manage

Guest 7: that business really above everything else?

Guest 3: You guys want to add anything to that or is that good?

Guest 7: Well, that's how I got into my

Guest 10: business, is knowing how the business was run. So that absolutely de risked my decision on doing that. I came to a tipping point in my journey of deciding whether to buy the business or start my own. And for me, it was much lower risk to take the loan out and run the business, as in with the brand name behind me, with the history, and not have to recreate and compete against the company that used to work for.

Guest 6: Yeah, I'm a huge fan of me. If you just look at the economics, the three founders, it took them from 1999 to 2016 to get to two and a half million. And then we got from two and a half million to ten and half that time or less than half the time. So it just made a lot more sense to me. And it's de risk in the fact that we. I knew there was a customer. Right. Whereas if you're starting your own business, you don't know if you're going to have custom. So I guess the third thing was the founders that I bought it from were completely unsophisticated. So you're fine. Like, I know I can do better than they can. So that was kind of all those things I Think really made it attractive.

Guest 8: Great.

Guest 9: Yeah.

Guest 2: So I just want to, because I hear this over and over and over

[27:00] Guest 3: again on the podcast. So I just want to crystallize when

Guest 4: we just heard one of the.

Guest 3: Yeah, it's a shortcut.

Guest 8: Right.

Guest 2: So, so I was talking to Dave

Guest 3: today at lunch who talked about the

Guest 2: first three, four, five years of his

Guest 3: business basically having little to no revenue, just an absolute, I mean, just struggling for every dollar of revenue.

Guest 4: And this, in this case, George walked

Guest 3: into two and a half million dollars of revenue.

Guest 2: So it's, it's a completely different, like

Guest 3: the product market fit that you hear so much about in tech. These businesses already have it.

Guest 4: Another theme that you guys just mentioned,

Guest 2: one pattern you see a lot here

Guest 3: is that, that acquisition entrepreneurs will buy from retiring owners. Because those are make sense, right? A boomer who wants to retire, that's who. Somebody who's kind of wants to get rid of their business. Otherwise if you have a good business, you probably want to hold on to it.

Guest 2: And in many cases, if somebody's held on to a business for years and

Guest 3: founded and been in a business for years and years and years, and if

Guest 2: they're maybe a little bit older and

Guest 3: you know, they didn't grow up with TikTok or whatever, they may have been

Guest 2: resting on their laurels a little bit. And so there's, there's a lot of untapped potential.

Guest 3: So the theory goes, this doesn't always

Guest 4: pan out, but so the theory goes,

Guest 3: there's a lot of untapped potential. Sometimes it's just putting in technology, you

Guest 2: can get some quick wins, but maybe

Guest 3: it's just new energy, maybe it's marketing and sales.

Guest 2: A lot of 65 and 70 year

Guest 3: old retiring owners just haven't been hungry for a while.

Guest 4: And just you coming in hungry, new

Guest 2: eyes on the business, a lot of

Guest 3: energy, a little bit more tech forward. You can, you can get some quick wins.

Guest 2: So that's, that's another one of the

Guest 3: kind of patterns that you see a lot.

Guest 2: Has anybody here bought their business, bought a business or the business that they now own?

Host: Hands high.

Guest 2: How many, how many do we have?

Guest 3: Oh, we have 1, 2, 3, 4, 5.

Guest 2: About 8, 9.

Guest 9: Ish.

Guest 8: Great.

Guest 2: Awesome.

Guest 4: Okay, we've also touched on this a little bit already. But let's hear. Nick, if you would give us the, the kind of the napkin math of what an SBA loan style small business acquisition looks like.

Guest 9: Yeah.

Guest 5: So if you look at kind of a, for us, what we would consider

Guest 7: kind of a down the middle SBA

Guest 5: deal would be 500k of sellers discretionary earnings.

Guest 7: That would mean you take their net

Guest 5: profit line, add back what they're spending

Guest 7: on interest, because that's a financing expense.

Guest 5: Add back anything they're paying themselves because that is, that's discretionary.

Guest 7: They get to set with their salary,

Guest 5: they get to set their benefits, they get to set how much cash, you know, how much they put, personal gas

Guest 7: money they put on their business, all that stuff.

Guest 5: So you kind of back out of

Guest 7: all the, all the benefits that they are paying themselves in different ways.

Guest 5: And you want to get to what

Guest 7: is the discretionary number that they are essentially earning off of that business.

Guest 5: And a typical. And then you usually kind of slap

[30:02] Guest 7: a multiple on that. Often that's going to be in the

Guest 5: 2 to 4 range. At that level, as the earnings goes up, you think of it, you've got

Guest 7: a more, that's a more desirable level of earnings. Multiple tends to go up.

Guest 5: With the obvious exception, if the business is fundamentally unstable, fundamentally declining, the owner's

Guest 7: doing work that nobody in their right mind would ever or could ever do.

Guest 5: You do see situations like that.

Guest 7: Multiple goes down in situations like that.

Guest 5: But for the most part, call it two to four times.

Guest 7: So if you get one at four

Guest 5: times now, you're probably paying for something

Guest 7: that's pretty good, probably a pretty desirable

Guest 5: job that earns 500k. You're going to pay 2 million bucks for it. You can go get a loan for, call it 70 to 90% of that, usually 10% to 20% will be the seller writing a loan to you.

Guest 7: That's often required by the bank because

Guest 5: they want to see skin in the

Guest 7: game for the seller.

Guest 5: They don't want the seller to be

Guest 7: able to walk away knowing that they have just handed you this thing that's about to explode. So their skin in the game is they'll write a loan to the, to the borrower, to the buyer, and then the rest of it can be done with an SBA loan. The rest of the debt can be

Guest 5: done with an SBA loan. And usually you need to come up

Guest 7: with between 10 to 20% in cash.

Guest 5: And that can be done either yourself or, or you can turn to the equity market and go find private investors

Guest 7: who will put up cash for your acquisition. Usually they will want to see you

Guest 5: put in the borrower, the person who's

Guest 7: going to step in and run the

Guest 5: business, put in some meaningful amount of equity, even if it's not the whole thing.

Guest 7: But there's no substitute for writing a check into the deal. In terms of aligning interests, putting skin in the game, making sure that the person is committed.

Guest 5: And it just needs to be meaningful

Guest 7: from their point of view, as in relative to their net worth, relative to their available liquidity. Then it's ultimately up to the equity and the debt investors to kind of make that determination. So yeah, you'll probably never get in at putting zero cash in, but you can get in putting not a lot of cash in, and then you'll have to pay back your debt.

Guest 5: Like you said before, a lot depends

Guest 7: on interest rate and what kind of terms you're able to get. Deals that have real estate can usually go longer and so you have more of a cash cushion.

Guest 5: So there's a lot of nuance too.

Guest 7: But the most common loan type is the Small Business Administration 7A loan program.

Guest 5: And the earnings of the business first

Guest 7: go to support the debt, then usually

Guest 5: the SBA debt from the bank. Then they go to the seller to pay back the seller note.

Guest 7: And what's left over is left for you to pay yourself and make any reinvestments you want.

Guest 8: Great.

Guest 6: Thank you for that.

Guest 2: So just to be clear, so if you hear about somebody buying a $2

[33:01] Guest 3: million business or $4 million business, they're bringing usually anywhere from 10 to 20% of that.

Guest 2: So let's say they buy a $3 million business. 10% of that is $300,000, $300,000 plus,

Guest 3: because there's going to be some cost in the transaction. So three, $400,000, let's say.

Guest 2: Well, you might be saying to yourself,

Guest 3: well, first of all, $300,000 $400,000 to own a $3 million business sounds pretty good. It's pretty good.

Guest 4: But you know, not a lot of

Guest 3: people are walking around with 303, $400,000 liquid that they can put into this.

Guest 4: And so as Nick said, there is,

Guest 3: there as this is, there's kind of growing interest in this ecosystem there. Investors have emerged to invest in deals like this.

Guest 2: So you can raise, if you don't

Guest 3: have $300,000 liquid, you can raise 200 of it.

Guest 9: Yeah, I mean you can.

Guest 4: Maybe the whole, like Nick said, Maybe

Guest 3: the whole 300 investors would like you to see put, to see you put some money in.

Guest 4: But there are a lot of very,

Guest 2: in fact, and the investors are really quite eager.

Guest 3: There's, you might argue that there's more supply of investment investor capital than there is, than there is demand for that capital. One thing you'll often hear in our space is that you can definitely find

Guest 2: invest if you have A good business

Guest 4: or if you have a good deal,

Guest 2: as they'll say, if you have a

Guest 3: good deal, you can easily find capital to help you finance that deal.

Guest 2: So pretty sweet.

Guest 4: Another thing to emphasize about this is even if you don't grow the business like George has grown his or any

Guest 3: of the examples that I gave, as

Guest 2: long as you just don't screw it

Guest 3: up and you're basically flat, or you're keeping up growth along with inflation or along with GDP, whatever that business was,

Guest 2: 3 million, $5 million business, that's your,

Guest 3: you own that outright at the end of 10 years. And in the meantime, you've been paying

Guest 2: yourself a really good salary.

Guest 4: You've been an entrepreneur, you've been your own boss, you've been really engaged.

Guest 2: So even without a lot of growth, as long as you don't run the thing into the ground, even without growth, it's pretty sweet.

Guest 9: Moving on.

Guest 4: So as I said, finding the deal, if you can find a good deal, there's going to be investors to help you buy it. But finding a good business to buy

Guest 3: is actually quite difficult. The search process, in fact, if you

Guest 4: get into this space, you start hearing

Guest 3: people refer to it as search. So sometimes this set of ETA or entrepreneurship through acquisition, people will just call it search.

Guest 4: And somebody who's out there looking to

Guest 3: buy a business is a searcher.

Guest 4: So that just demonstrates how much kind

Guest 3: of a part of this that step is, because it is hard to find a really good business to buy.

Guest 4: So, guys, why don't you please tell us about what your, your search look like.

Guest 3: Let's start with you, George.

Guest 6: What my search look like. You know, I'd been searching for years. I looked through whatever, you know, talk to accountants, lawyers, you know, I thought I was serious about my search, but really I don't think I was until I had to be. I thought, I mean, I thought, hey, you know, through my network, through people I knew or friends with friends, I'd find something, you know, find some great deal. And it just didn't happen. So I think that those things do happen, but it just takes time and I didn't have that. So I went on Biz Buy Sell. It's like, it's like a thrift store, right? It's just got a bunch of crap. But if you look hard, I mean, hair salons and gas stations and stuff like that, but if you look hard enough, there's, there's, you can find stuff. And so I was, I was serious and probably found in a short amount of time that I was Looking earnestly, probably found two or three things that I thought would be good businesses. It probably would have been. And that's how I found it. It was represented by a broker who provided no value other than connecting me with the buyer or me with the seller. He was pretty bad. Review everything he did and he's almost a hindrance. But I guess there's a place for those guys. So it was Biz by sell, represent by broker.

[36:53] Guest 8: Great.

Guest 2: Bizbysell.com, so you can go there right now, put in San Jose and see all these businesses that are for sale

Guest 3: right now in this geographic area.

Guest 4: It's pretty neat for a lot of people. It's their first kind of the gateway drug to this whole world.

Guest 2: It's like, oh, that's cool, I can

Guest 4: buy that hair salon down the street or not. Nick, what did your search look like?

Guest 5: Very similar. Biz Buy Sell. Hit the Buy now button, wired the funds and yeah, new owner. No, but yeah, I was scrolling Biz by Sell. I replaced Zillow on my phone with Biz by Sell. And that was my new shopping habit. And it didn't take that long. We saw it. Once I saw it, I was like, this is the one. And it was honestly a pretty straight.

Guest 7: We had a very good broker, which is immensely helpful.

Guest 5: A committed seller. It was one of the only competitive

Guest 7: deals we've ever bought though.

Guest 5: And we've done probably 12 acquisitions, most

Guest 7: of them non competitive, most of them just us. But that one was actually competitive. So we had to negotiate it a bit. But yeah, Biz Buy sell.

Guest 4: So let's hear more about that. Why have these other acquisitions not been competitive?

Guest 7: They weren't on Biz by Sell some

Guest 5: were not on Biz by Sell some. Once you own a business, your credibility and ability to buy, I think really

Guest 7: goes up and what we're interested in changes.

Guest 5: Because what we needed for the first purchase was a business that was good enough on a standalone basis as a going concern where the job of the

Guest 7: owner that we were buying was imminently replaceable. Something that we could do with all

Guest 5: the follow ons we already had, all

Guest 7: the infrastructure, we had the business. It almost didn't matter as much. We just had to make the numbers

Guest 5: work and everything else could be figured

Guest 7: out because we were kind of, we were already in the business. What we were buying was less, it was less of like kind of the aggregate sum total of that business. We were kind of just getting what we need, what we wanted and what we needed and what it made. What it made Sense and almost everything else was much, much smaller.

[39:05] Guest 5: And as I said before, the smaller

Guest 7: you go, the less expensive, the less desirable it is. Like not that many people are going to want a job that pays $30,000 a year. You could go to McDonald's and get that. So a business that is only doing 30,000 a year, like there aren't really any buyers for other than somebody who's already in that business and would and could just add that cash flow to the bottom line.

Guest 9: Yeah, yeah.

Guest 2: Well, Biz Buy Sell has this kind

Guest 3: of bad reputation because you do see it's kind of thrift storage. You do see a lot of very undesirable tiny businesses that you're buying worse than a job. You're buying a really terrible job.

Guest 2: And so it gets a bad reputation.

Guest 4: But it's actually a surprising number of

Guest 3: my guests on the POD have actually

Guest 2: found their businesses on Biz by Sell.

Guest 3: So it should absolutely be a staple of any search. And there are, there are definitely gems in there.

Guest 2: But if you don't find, you're not

Guest 4: lucky enough to find your businesses on

Guest 3: Biz Buy Sell as these guys did.

Guest 4: One of the other things that the

Guest 3: kind of the two other ways that you'll hear talked about are developing relationships with broker. So a brokerage search, you reach out to the business brokers in your local area, you cultivate a relationship with them,

Guest 4: you tell them what you're looking for

Guest 3: and hopefully they send you deals. That takes time. So again it's a months long process.

Guest 4: And then the other people can get

Guest 2: pretty extreme or fancy on this one

Guest 3: is direct outreach to business owners.

Guest 2: So some of my guests have done very elaborate sophisticated systems where they scraped

Guest 3: databases and you know, looked for just the, just the NAICS codes they were interested in at the size they were

Guest 4: interested in the zip code and kind

Guest 3: of triangulated revenue and employee and headcount

Guest 4: and so on and these very elaborate

Guest 2: models and then email, cold email and then try to find the email addresses

Guest 3: of the owners which are not listed. So they're guessing at the email addresses

Guest 4: and then doing this at scale.

Guest 3: So hundreds and thousands of, of, of

Guest 4: outreach like this and, and then basically

Guest 2: spamming,

Guest 4: spamming business owners saying hey, I'm

Guest 2: interested in buying a business and becoming the owner operator of your business. Would you be interested in having a conversation?

Guest 3: And as you can imagine, those emails

Guest 2: generally are not responded to.

Guest 3: But some people swear by this method. And there are plenty of stories of people who bought businesses this way and that's called proprietary outreach. I don't Know why it has such a fancy name?

Guest 4: Corey, a big part of your story

Guest 2: was that you didn't have to do

Guest 4: a search because you bought the business

Guest 3: that you worked in.

Guest 4: One of the big aspects of your

Guest 3: story about the actual acquisition process is

Guest 4: that as you said, you hear the radio ad that Comerica bank will offers

Guest 3: SBA loans to help you buy a business.

Guest 2: Your seller and you neither of you

Guest 4: realized that this was possible, that you

[42:00] Host: could buy the business.

Guest 4: So I think that's another thing that when people learn about this space, that blows their mind.

Guest 3: It's like, oh, I can buy a $5 million business.

Guest 4: So talk more about that. And your sellers realization that you might

Guest 3: be a guy, you weren't a millionaire yet.

Guest 2: So, so how did. So. And he's like, all of a sudden it's like, oh, you could buy my business because of this SBA thing.

Guest 3: So tell us about that aspect.

Guest 10: Yeah, so just rough numbers to give, give some context. He was looking for around. He had valued the business at about 5.5x of EBITDA. And so we were doing about a million at that time. So he was looking for about five. We negotiated it down to about four from the goodwill and then we bought a million dollars in accounts receivables so that we had our operating cash to move forward.

Guest 7: Right.

Guest 10: So that was pushing the edge of the SBA limit.

Guest 9: Right.

Guest 10: So just taking a step back from that, interesting point of this is that he, as a previous owner went to his bank, it was with Wells, and he had asked, would you finance this deal? And they said no. Like he got shut down with his banker. And so that actually set us back probably three, four years because he didn't think it was financeable and he wanted 100% out. Like he didn't want to hold a note. He didn't want to have any skin in the game. So it was that, it was that SBA loan that when, when they ran the numbers that it became feasible. So for us at the time it was 10% down. So we had just enough money to scrape by with savings to make that happen on the 10% side for the cash infusion. But it was 90% SBA loan that was, that was financing it.

Guest 2: So. Yeah, so I touched on it earlier. But if there are business owners in here who are ever thinking about selling

Guest 3: or, excuse me, already thinking about selling, you know, and, and maybe you have

Guest 2: somebody within your organization that you think

Guest 3: could be a good candidate to buy your business, they might not realize that they can buy your business. They might not realize that this SBA loan product exists for people to do this, and maybe you didn't either.

Guest 2: So, again, like, the person who buys

Guest 3: a business doesn't already have to be wealthy.

Guest 2: There's a.

Guest 3: There's a loan product that is backed by the US Government to. To enable this.

Guest 4: Okay, so we talk in this. In this world on my podcast, a lot about finding a good business to buy.

Guest 3: And we've kind of been talking.

Guest 4: Talking about that so far.

Guest 2: But, like, that's just step one, right?

Guest 3: Then you got to actually operate this business and become the entrepreneur that the

Guest 4: employees in this business are loyal to and follow. So let's, let's spend some time talking about that. That is really where a lot of

[45:04] Guest 2: my guests struggle, particularly in the transition.

Guest 3: Those first six months, when you're the new owner and the employees, you know, all of a sudden some, you know, you kind of parachute into this business and you're the new owner. It can be pretty jarring for all involved.

Guest 2: So, George, what was.

Guest 4: What was that like? What was your transition like?

Guest 6: It was exciting. I mean, I. I was excited about everything. I got to know every employee and every bus driver, and I took every interview, and it was great. It was. It was fun. And, you know, I was excited to learn the industry. And the, the sellers were actually pretty good about, about training for the first few months and kind of getting me up to speed. So it was all new. And yeah, we had, you know, the, The. The employees were excited because, you know, these, these owners are kind of, like you said, it kind of got nostalgy and. And weren't doing a great job. So I'd say it was. Everything was novel, you know, kind of like a little kid. Like, it's all. All interesting.

Guest 2: So.

Guest 3: So they kind of recognized that you were going to bring new energy, and they were, they were invigorated by this.

Guest 6: And I did. I was super excited, like, wow, I got this, you know, finally close this deal, and they ready to hit the ground running and sat down.

Guest 8: Great.

Guest 3: Corey, you are already working at the business. Everybody already knew you, so yours is a little different.

Guest 4: How did that go?

Guest 10: Pretty smooth. I think when we made the announcement, it was like, oh, okay, it's about time. And I think a lot of just in our industry, I think some people even thought that I already was an owner. So that made things very simple from that standpoint. But it's a different.

Guest 7: When you put that hat on as

Guest 10: an owner, things feel very different than when you're maybe in a leadership position. So the weight of that definitely Changed perspective on the responsibilities for making things happen.

Guest 4: And did your day to day change at all or were you basically already doing the job of seeing.

Guest 10: Mostly for the first few years, it just stayed pretty much the same thing the same way. I was doing most of the sales work and was kind of given the strategic vision side of things. So that didn't change too much. And we were smaller then too. We were at, I think when we bought, we were at 18 employees. Last year we topped out at 32. And in terms of top line revenue, we were doing four. When we bought it last year we did nine. So things definitely changed along the way and roles have changed. Built leadership, team. Yeah, a lot of changing of hats along the way.

Guest 4: Nick, when you bought the right gardener, how did the staff react?

Guest 5: It was chaos. We had the operations manager threw his keys at the owner and said, I quit.

Guest 7: So we lost the operations manager, the

[48:01] Guest 5: guy in the office. Well, part of it was because two of the management, I think, believed and had been told at an earlier time

Guest 7: that they were likely to inherit the business when the owner had gone through a cancer scare. It was maybe five to ten years before that. And I think they had set and they treated it like their own for that reason. And I think there was probably some rightful animosity toward the owner for making the choice to, without telling them, sell it out from underneath them.

Guest 5: So we definitely had our issues there. We lost the operations manager, so he let us know. We had like a few weeks to

Guest 7: figure out what we were going to do about that and we did what else we had.

Guest 5: The main sales guy had a heart condition, heart issue. He was gone.

Guest 7: So that basically was like me, the one guy in the office who thought

Guest 5: he was, who was informed that he was not inheriting the business, who was

Guest 7: running the office and a kind of deputy assistant operations manager who was kind of thrust into, in charge of everything, running the transition and takeover.

Guest 5: I became the plant sales guy

Guest 6: and

Guest 5: it was tough for a little while,

Guest 7: but within a couple of months we got things organized and we got the

Guest 5: team kind of things sorted out and

Guest 7: got on a new track and I

Guest 5: think got people energized about the future. All the rest of the employees other than the management team, the transition went super well. The communication was well done. The clients all understood the.

Guest 7: Yeah, the communication, planning and all of that was pretty, I think, well done, thoughtfully executed and went smoothly. But that initial, the people at the top, that was, that was tough.

Guest 4: Yeah, well, one of the things that

Guest 3: you do during your search, you find a business Is of course your due diligence. Right? Any deal requires due diligence. And in this world,

Guest 4: it's often said that you can, you can't do diligence

Guest 3: away all the risk. I mean, these businesses are often too small.

Guest 2: Sellers are often withholding about information.

Guest 3: They often don't want you to meet their employees for obvious reasons. Reasons they don't want to spook the employees.

Guest 2: So it, it, it, it's a very

Guest 4: inhospitable environment to do really good due diligence.

Guest 2: And at some point, the saying goes,

Guest 3: you just kind of have to step off the ledge.

Guest 2: Like you, and, and finding the sweet

Guest 4: spot of just how much due diligence

Guest 3: to do versus overdoing it and angering your, your seller or underdoing it and taking on too much risk is kind of part of the art of, of

Guest 4: doing deals in this, in this world. So, Nick, it sounds like, like, do you, do you feel like in retrospect you could have diligence kind of some of the relationships with the employees or, or like, would you have done it differently now with your experience?

Guest 5: I mean, I guess I know which

Guest 7: question I would have asked, but, but

Guest 5: yeah, I don't know even.

Guest 7: No, I mean, yeah, we ask that stuff. Now we do get into how is so and so going to respond when they're told, what might they be thinking.

[51:07] Guest 5: And the other thing we do is,

Guest 7: and I don't think anybody in our deal had any doubt about their job because one of the things we always watch out for when we do an acquisition is what is the time between the knowledge that the owner, previous owner is leaving and the new owner is coming. The knowledge of what that, like leaving a gap.

Guest 5: There is, is people go to very dark places. They think their job is gone.

Guest 7: Like it's all over. I better go look for a job. Like, I don't know what this new owner is going to be like.

Guest 5: If you can minimize that gap and

Guest 7: get in there and let them meet

Guest 5: you, shake their hand and tell them we're buying this business because we like

Guest 7: it and you're part of what we like, that does a huge, huge favor for kind of stepping in and getting people onto the right plane of, or train of thought about what it's going to be like versus owners.

Guest 5: I was talking to a guy yesterday

Guest 7: that we're working on the transition with, and he's like, oh, maybe I'll tell him on Friday and you can come on Monday. I'm like, no, no, no, no.

Guest 5: If you tell them on Friday, I will be there. At Friday plus one minute. Because I don't want them to have

Guest 7: the weekend to think about this.

Guest 4: It's interesting, though, because there's the initial fear that the employees have, but once that fear settles, then they recognize that

Guest 3: they actually have some leverage now with the new owner.

Guest 4: So the other thing you hear is that now the employees all come to the new owner saying, give me a raise or I'm out. What's been your experience with that?

Guest 5: Yeah, I think that is where managerial professionalism is paramount. Because if you've managed people before, you're used to people coming into your office

Guest 7: on a regular basis telling you that they don't make enough and want more. And that's a finesse game. And I think it takes reps, takes practice.

Guest 5: You need to think about it ahead of time.

Guest 7: You need to know the truth. It's important to know the truth. And that's part of your due diligence. Is the person underpaid?

Guest 5: Like, what would it cost if the people are underpaid?

Guest 7: You're going to. You should plan to fix that. And I hope you figured that out in your financial model when you put the. When you put the valuation in.

Guest 5: And if you didn't, you're going to

Guest 7: be up for a painful surprise because you're going to have to pay what they should have been paying all along but weren't because nobody bothered to ask. Nobody realized that they had maybe more leverage than they thought or, you know, they hadn't been thinking about it.

Guest 4: So Nick is touching on something that

Guest 3: they call the J curve in acquisitions,

Host: where

Guest 3: if you imagine like an XY

Guest 4: axis and the J curve is going. It's the direction of your revenue over time.

Guest 3: And the point is it goes down before it starts going up again.

Guest 4: So you buy a business that supposedly

Guest 3: generates $500,000 a year cash flow, and when you get into it, you expect the same.

Guest 4: But there's. There is likely to be a lot

Guest 3: new, new expenses that the previous owner wasn't spending on because they knew that they were preparing to sell the business. So they were being stingy with their own spend. And now all that falls on you. Giving everybody, having everybody be properly compensated or compensated at the appropriate levels is a classic example of that. Or underinvesting in X, Y, Z, A, B, C, there can be all these things.

[54:16] Guest 4: So you get in there and all

Guest 3: of a sudden find that the business isn't as profitable as you thought because

Guest 4: you need to put in all this

Guest 3: new capital, getting things just kind of level setting, if you will.

Guest 4: Corey did you have people come knock on your door day one when you

Guest 10: announced, we knew a few pain points of where people were maybe under, undercompensated, the seller had done a pretty good job of keeping, keeping people kind of there. But there was a little bit of a reputation of we're underpaying people. But on the flip side, I think the reputation that I had that Tanya

Guest 7: had that Arnold, my business partner had,

Guest 10: we actually attracted some key people that were sitting on the bench not wanting to join TBS because of the previous owner and his reputation. We with new blood then had that, okay, these guys are a little more trustworthy.

Guest 3: We're going to come work for you.

Guest 10: So we attracted some talent in a very talent driven business real quickly. So that was a positive for us.

Guest 4: George, what did your due diligence look like? Well, how much do you think you did a good job of? Due diligence?

Guest 10: Let's put it that way.

Guest 6: No, not at all. Which is funny because that's what I did for a living, for tears prior to that. But I think I was so excited and I was like, I'm buying this business no matter what because it's, you know, it's, it's my kind of, my last resort. I think the big thing was just contracts, right? So they had three contracts and I probably should have read through them more because, you know, one of them, you know, they, they had some clauses that I may or may not have been comfortable with. But at the end of the day, had I known everything, maybe it would have made a difference. But you, if you know everything, you're going to find something, right? Something's going to be, it's going to have some hair on it and it doesn't. There's no perfect business. So. So you've got to, you've got to figure out what you're comfortable with. I think at the end of the day, it's a risk no matter what. So, yeah, I probably glossed over some things. I was in a hurry, but, you know, I was able to make up for it. So I think if, you know, I think it matters less what the previous owner has done than what you can do. So, yeah, know, they've got customers, they've got a system, there's a market out there and we can address that market. And that's, I think, what mattered more than, you know, what they've done in the past.

Guest 4: And remind me, did it have its own fleet?

Guest 3: Did your business have its own fleet at the time?

Guest 6: Yeah, each contract had its own fleet of vehicles.

Guest 4: And so the vehicles would be something that you in theory diligence, right, where you, you check the, the age and the future lifespan of the vehicles.

Guest 6: So sure, yeah, I had a list. I mean I look at the vehicles, the themselves but you saw a list

Guest 3: of what they had?

[57:00] Guest 9: Yeah, yeah.

Guest 4: Well, let's move on to operating. So that was the transition. Nick coming from Techland and now operating kind of a, you know, much a tiny business relatively and the business doing

Guest 3: something very different, something very manual, blue collar if you will.

Guest 4: What, what, what, what was your new life like? Like, how did you slot into this new existence?

Guest 5: Yeah, so the, I'd say there's two facets to that. There's the personnel and people management side and then there's the systems process technology side.

Guest 7: For me, much more comfortable over here doing systems process technology, automation. Built software for the business.

Guest 5: Done tons of automation, tons of process

Guest 7: fixing organization around how we did all sorts of things, error proofing systems.

Guest 5: So that part really, really well.

Guest 7: We still use the software that I built to run that business and it still works. And that has been a huge source of both pride among the team that we are the most tech enabled plant company out there and just competitive advantage. We have such a great visibility into everything that happens every day. Our management has amazing information, at the ready, visibility into everything.

Guest 5: So that part really, really strong. A lot I'd say for me the

Guest 7: development area or what I struggled with most was on the, was just on the like people side. You know, I had never managed a blue collar, more of a blue collar workforce before and you know, I had been in the team room at McKinsey doing board decks and things like that or in the boardroom at startups doing strategy.

Guest 5: And that's just a really different management

Guest 7: skill set than you know, the, the employee stuff, you know, memo writing and like communications.

Guest 5: I felt like I was, you know,

Guest 7: that that part was comfortable for me because I was used to ghost writing speeches and stuff like that.

Guest 5: So.

Guest 7: But yeah, the, the, the performance management of, of individuals and management team, that part definitely was a, there was a real learning curve to that.

Guest 4: And, and how long do you feel like it took you to at least get comfortable and yeah, I don't know yet.

Guest 7: We're seven years in.

Guest 2: Well, this is something, you know, it's, it's kind of obvious.

Guest 4: It's like you come from a very

Guest 3: kind of white collar corporate environment. Not necessarily, but many people who try

Guest 2: this and then yeah, operating a blue collar business.

Guest 3: It's, it's, it's, it's such a different

Guest 4: environment and some people it's totally fine. And for some people, they kind of

Guest 2: know it's going to be very different and difficult and really have a hard time adjusting.

Guest 3: It's really not what they thought it would be. And so you just really need to be prepared for that. It's a theme that comes up again and again.

Guest 4: It sounds like, Nick, it was hard for you, but you survived. But others are really, they kind of can't manage that. They kind of really wish they were

[1:00:04] Guest 3: back in white collar land.

Guest 5: Yeah, I feel like I did.

Guest 7: The landscaping industry was kind of my

Guest 5: second act and my Spanish was not

Guest 7: real grit, but most of those guys spoke Spanish.

Guest 5: But the management side went so much

Guest 7: easier the second time around. And I don't know if it was.

Guest 5: The workforce was different, the personalities were different. But definitely going through it the second

Guest 7: time I was definitely better.

Guest 5: So I think some of it is.

Guest 7: It takes reps, just takes practice. Yeah, that feels more comfortable.

Guest 4: George, former private equity guy buying a bus business. How did you, how did you adjust

Guest 3: to the, to your new work?

Guest 6: I don't know. Maybe I'm just more blue collar at heart. I, I like, like we, we got our first big contract in Scottsdale and so I met all these bus drivers, right. And just, it was exciting and energizing to just hear their problems and kind of what they were, you know, just saying hello to them and shaking their hands and listening to them for a minute. I mean it's, it's kind of impractical to do that every day or for, you know, for the majority of your time. But for that first time it was really cool. It was cool to see them see, you know, what, what they thought about the company, what, what their perspective was because you don't really see that. And they were super excited. They were excited to have someone listen and then that meant more to them than a few extra bucks, you know, and they they got really enthusiastic about just being heard.

Guest 9: Yeah.

Guest 4: And just one thing to be clear,

Guest 2: like there is a lot of acquisition

Guest 3: of blue collar style services businesses in ETA and acquisition through entrepreneurship.

Guest 4: But it's not exclusively that. Corey, Corey, Corey bought what is essentially a consulting business.

Guest 2: People buy e commerce businesses, I mean all manner of businesses.

Guest 3: So don't get me wrong, it's not always a blue collar business that's being acquired.

Guest 4: Caroline Chapdelaine here bought a room full of scientists.

Guest 3: So very different type businesses. But a blue collar service business is a common one. So these are themes that come up a lot.

Guest 4: So we all kind of look alike up here on stage. And you will notice if you check out my podcast that there's kind of

Guest 3: that vibe on my podcast as well.

Guest 4: So if you don't look like us or you don't come from a corporate background or whatever, who's, who's doing this? This is a question for you, Nick, because you're an investor. So you see a lot of deals, you see a lot of people who are out there searching for a business

Guest 3: to buy and looking to raise capital.

Guest 4: Is there a type?

Guest 5: There's a lot of, Honestly there are

Guest 7: a lot of people that are like

Guest 5: me or were in my situation, wife

Guest 7: funded searchers we call them.

Guest 5: One person with one partner has a

Guest 7: steady income and the other partner is swinging for the fences or trying to

Guest 5: create a own a business that provides

Guest 7: more flexible day to day flexibility

[1:03:00] Guest 5: by

Guest 7: being in the ownership seat and having a little bit more ability to craft the role and craft the demands on your ownership role.

Guest 9: Yeah,

Guest 7: a lot of fresh MBAs. A lot of fresh MBAs. It's being taught at almost every business school nowadays. And so there's been a lot of interest among the MBA group. What else?

Guest 5: I mean it's, I don't see that many, I don't, I wish I saw more deals that were where people that already worked at the business but they, and knew they wanted to buy it.

Guest 7: Yeah, that one would make me way less nervous as an investor.

Guest 2: Well, let me say something here because

Guest 4: I don't want to. I think that there are a lot of people that they're, to the extent

Guest 3: that there's a type of, know, former

Guest 4: private equity, you know, white guy in 30s, 40s. I, I think it's because that's kind

Guest 2: of where it starts. For for example, the, the preponderance of MBAs who do this because the NBA

Guest 3: schools are teaching this.

Guest 2: So naturally you're going to see MBAs

Guest 3: overrepresented in the people who go do it.

Guest 2: But this, there, there are actually plenty

Guest 4: of people who have been a guest on the pod who do not fit

Guest 3: that stereotype at all. So I, I, I don't let me leave you with a wrong impression.

Guest 2: I think that this is a path that is actually a much more open

Guest 4: path to all manner of people than

Guest 3: many other ways to build wealth in America.

Guest 4: So I definitely have had people who

Guest 3: are older, who are from underrepresented backgrounds,

Guest 4: who are younger, who are women.

Guest 2: And I'm not just saying this because

Guest 3: you have to say it in 2023. I genuinely believe this. And so It's a really powerful path for all. So don't let the fact that there are a lot of kind of white MBA types doing this, think that make you think that that's who does this. And if I'm not that, I can't do that.

Guest 4: Okay, let's talk about how kind of graduating from. You've done one acquisition and you have a business and you've successfully transitioned it, operated it, hopefully grown it. And what about buying another one then? I mean, one of the, one of the great advantages that searchers have is

Guest 2: that they've learned this skill to buy a business.

Guest 4: And this is a skill and it's hard won.

Guest 2: Like, to search for and buy a

Guest 4: business is a really hard process. And so it's kind of like once you've developed this skill, you want to use it, right?

Guest 3: You don't want it to atrophy.

Guest 4: Nick, you guys put it to use very quickly.

Guest 2: So talk to us a little bit about that.

Guest 5: Yeah, we bought our first add on or tuck in six months later. We were not ready, but we had to be ready. So we got ready and it was in an adjacent geography, not overlapping. Since then, we've done all overlapping, but it was I think about 40%, maybe 50 or close to 50% of the

Guest 7: size of the original business. So it was a pretty significant step up in helping us get to a scale. We were able to use cash from

[1:06:02] Guest 5: the balance sheet and a seller note to do the whole thing.

Guest 7: The one nice thing, once you're in

Guest 5: a business, if you're buying more and you're working on SBA, you can get

Guest 7: 100% SBA financing for the add on. So you don't, which, so your cash requirement is pretty minimal, subject to limits. But I think the SBA limit goes up if you do that. We didn't do that. We were able to do it, finance it internally, but it's definitely value for us.

Guest 5: It was like the first go at it and we built the systems and processes for how to do diligence, how to find them, how to research them, how to due diligence them, how to close on them, how you do the transition, how you integrate and how you

Guest 7: basically how you take over.

Guest 5: And that served us tremendously because we kept doing, each time we would do

Guest 7: it, we'd just get better at it. And so getting on that curve of getting better at it each time, you know, the biggest jump up was the first one.

Guest 4: And so it's kind of like your strategy or your approach evolves from let's just do Our first deal to see if we can make this thing go to. All of a sudden now you're kind of rolling up, or you're rolling up

Guest 3: a services business within a local market.

Guest 8: Right.

Guest 4: And so that just kind of evolved naturally. Like once you got better at it,

Guest 3: you just kept kind of kept going.

Guest 4: Did it become a. A well defined strategy at some point?

Guest 5: Oh, yeah, yeah, it definitely became. After the second one, it became like,

Guest 7: well, how many of these are there? And every time I'd search, I'd find more. And how old are these folks that own these?

Guest 12: Oh, they're old.

Guest 5: And then you do the outreach and then you find out eventually or people

Guest 7: tell you about it. You make it known.

Guest 5: We went to our suppliers and like, hey, we bought this one and then we bought this one.

Guest 7: We're really interested in expanding and continuing to buy more. If you know anybody who's looking to

Guest 5: exit, send them our way.

Guest 7: So we just kind of projected that and made it known that we wanted to be a buyer of these things. And then at a minimum, you'll get a look, you'll get a chance to know what's possible. And I think at this point now, we've done it so many times, people know us. I can give them references.

Guest 5: Hey, I think I'm great, but you

Guest 7: don't have to take my word for it. You can call these three people and they'll tell you everything they didn't like about dealing with me, if you ask them. And that goes a long way toward getting people to decide to sell. Because deciding to sell is a really big mental commitment for owners.

Guest 10: Yeah, I'm meeting with somebody next week to somebody who's 65 years old, got a smallish business, but complimentary to what we're doing, and we can just roll them right in. And he has some confidence in me as a buyer because got a well established, well running business. So he feels like it could potentially take. He could take care of his employees and that's his motivation. So.

Guest 4: And Corey, is this kind of like a let's do this once, see how it goes. And then if it goes well, like, why not? This could be an interesting second chapter of this business sort of thing. And do it like, do it proactively?

[1:09:10] Guest 10: Yeah, absolutely. There's, there's plenty of. In our world, there's. There's plenty of smaller mom and pop shops kind of thing that they're getting a little older and they're ready to retire. And there's, there's probably quite a few of those that, that are out there for us to potentially fold in.

Guest 4: George, how do you think about acquisition opportunities?

Guest 3: Bolt ons?

Guest 6: Sure. Well, if there's anything I learned from the first acquisition is that it's hard. And so, so I, I think if something came my way, you know, something in the industry, I, I'd look at it, but for the amount of time and energy and effort that it takes to, to acquire and get a business interested down the path and actually seal the deal, that that time's a lot better spent in the business. Try that. I can grow the business and create a lot more value doing that. So that's where I'm focused. If, you know, if I know someone who got a relationship and something comes across, I've looked at a couple things, but generally, unless it's a really good fit, I've passed on it.

Guest 8: Cool.

Guest 4: Well, so two perspectives there I think

Guest 3: are kind of in contrast, but interesting.

Guest 4: So you heard Nick say it's hard

Guest 3: to do your first deal, get credibility

Guest 4: with the seller, get in there, learn

Guest 2: the business like you're starting from, you're

Guest 4: blind, you don't know anything, you have no credibility. So, and you get it done anyway. So imagine how much easier it is and it feels to then do a

Guest 3: second and third deal. Once you're a known entity, you're in there, you've proven to yourself and to your employees and to the industry that you know what you're doing.

Guest 4: So, and like Nick said, sometimes, you

Guest 2: know, word gets out that so and

Guest 3: so sold his business to this guy. So I guess, you know, and so

Guest 4: other people in the industry who are,

Guest 2: who are competing with so and so

Guest 3: or knew so and so reach out

Guest 2: to the guy and say, hey, hey, buy my business.

Guest 3: So, so you actually can get inbound deal flow, which is such a, such a contrast to when you were doing your original search and you're kind of

Guest 4: fighting, fighting to find any good deal that seems worth buying. So it could be this great shift. And a lot of people on the

Guest 3: podcast say that they didn't necessarily expect to buy their second and third and fourth business so soon, but the opportunities just found them once they got into that first business.

Guest 2: So it could be, it could be

Guest 4: pretty, it could move pretty quickly and in surprising ways.

Guest 2: And this is called, and buying through

Guest 3: acquisition is called inorganic growth.

Guest 4: So you're buying versus organic growth, which is when you just grow your business

Guest 3: the old fashioned way, grow sales, grow revenue.

Guest 9: Right.

Guest 4: And George just finished saying that inorganic

Guest 3: growth, future acquisition, subsequent acquisitions don't work

Guest 4: that he can, feels like he can

Guest 3: Add more value just by growing organically,

Guest 4: just through more sales.

Guest 2: And so this is kind of like,

Guest 4: I wouldn't say a debate in this world, but it's every business.

Guest 2: It's a decision you have to make.

Guest 3: Should I go inorganic or organic or some combination of both?

Guest 4: And the real incredible stories in this

[1:12:01] Guest 3: space that you hear are where there's kind of a roll up opportunity and an organic.

Guest 2: So you buy all of these businesses

Guest 4: like Nick started doing here, and then each of those individually, you're also growing

Guest 3: organically because then there's this incredible kind of exponential effect. And those are the crazy stories that you hear about.

Guest 2: One other thing I would just say to this crowd of business owners that

Guest 4: I think that is exciting about ETA

Guest 6: too is,

Guest 4: you know, probably some of you have been, have felt at times that you might be a little stuck in your business. Like maybe you have grown it to where you think it can grow without

Guest 2: doing some crazy thing or some totally

Guest 4: new strategy or partnering with growth equity or something. It's going to be really hard to

Guest 3: grow it much further. You're kind of a little tapped out

Guest 2: and so you say to yourself, well, it's either just continue on or start

Guest 3: something else from scratch. But I just spent 10 years building this, so I'm not going to do that again for the next 10 years

Guest 2: or sell, but I don't want to sell. And I think what's really interesting about ETA is that if you can figure

Guest 3: out an operator to take over your

Guest 2: management of the business, you can go buy another business. And it doesn't necessarily have to be a related business.

Guest 4: I'm not talking about doing a roll up or growing it organically.

Guest 2: I'm talking about something completely separate. So you have now two small businesses. And so it's a way where I feel like entrepreneurs who've built businesses that

Guest 3: they eventually kind of feel stuck in, it's now a new path that they can take.

Guest 4: Their career if big, if they can

Guest 3: figure out a way to step out of that first business and find that operator, which is topic for another day. That's a hard thing to do.

Guest 4: Okay, we're starting to get toward the end here. Just a few more questions. But Nick, I wanted to ask you. So you have graduated now from not only buying these businesses and operating them to being an investor in the world of small business acquisition.

Guest 3: I've already touched on that a number of times.

Guest 4: So what does that give us a picture of?

Guest 2: Kind of what that looks like and what deals look like.

Guest 4: And just share with us what that's all about.

Guest 5: Usually it starts with somebody emailing me, often a cold inbound saying hey, I'm looking to do a search. We'll do an introductory call, talk about their search, what they're interested in and kind of where they're headed. Then often a long silence, sometimes occasional check ins. And then.

Guest 4: Because they're searching.

Guest 5: Yeah, because they're searching.

Guest 4: They're out there looking for business.

Guest 5: Occasionally somebody will come back and they say I found this business. Looks interesting. What do you think?

Guest 7: Have you looked at one of these before?

Guest 5: And I'll share with them. We'll have a discussion about what is attractive about it, what might be challenging about it. If I know anybody who's done it,

Guest 7: whatever and do kind of the networking thing.

Guest 5: And then if they get to, sometimes we'll talk terms of like a, of

[1:15:01] Guest 7: a letter of intent with a seller. They're trying to think about how to price it or what the risks are

Guest 5: going to be or we'll talk through that stuff. And then a lot of times there will be an investment opportunity that will

Guest 7: come on the tail of that which

Guest 5: you know, is part of the motivation

Guest 7: for me to do it.

Guest 5: It's part of just kind of being

Guest 7: in the market and seeing more stuff because it expands, you know, as I'm

Guest 5: also always an active searcher so it expands my aperture of the different things that I can see. But yeah, if there's an investment opportunity

Guest 7: then we'll look, we'll look at it. And so yeah, we've made I think eight investments in acquisitions that looked very

Guest 5: similar to our acquisition or not, I

Guest 7: guess not too dissimilar. Most of them are retirement driven leverage

Guest 5: buyouts where we'll put in cash for

Guest 7: the part of the equity adhesion into that searcher's deal.

Guest 5: But they're coming in to be the

Guest 7: CEO, usually the majority owner and sometimes oftentimes there are other investors coming along as well.

Guest 4: And give us a sense of like numbers. Is this like you're putting in 50k or 500k or what?

Guest 7: Yeah, that's probably a typical range.

Guest 5: So yeah, I'd say typically not less

Guest 7: than like $25,000 would be kind of a minimum check. Sometimes you'll see people with minimum checks that are a little bit higher, like 100. If it's a bigger deal, minimum check sizes typically go up.

Guest 5: But yeah, I'd say common would be 25,000 to usually not more than like

Guest 7: 3, 4, 500,000 max. Occasionally you'll see somebody writing a check of a million, but that's where you start to get into more institutional family office type investors and sometimes one of those will lead and they'll negotiate the terms with the, with the CEO. And it's kind of nice to have that because there's a little more institutional rigor put on the deal, a little bit more checks and balances to ensure that the appropriate investor protections are there. Versus I'm raising $300,000 and you, you and you each write a $100,000 check. And I'm paying myself this amount, by the way, and the searcher setting all the terms and all of that. So.

Guest 5: But yeah, it varies. I've seen deals where we're one of three investors and I'm in some deals where we're one of 25 and relatively minimal or like insignificant.

Guest 4: And your expectations for these investments is this kind of like venture where one enormous success pays back all of your investments and the other goes. Others go to zero or the opposite

Guest 3: end of that spectrum where you're expecting a more modest return.

Guest 4: But all of them to kind of are most of them to return some money.

Guest 5: I'd say closer to expectation. I'd say closer to the latter. You kind of want to skew toward deals where you think, I mean, usually

Guest 7: a big outlier is going to be operator driven. Like this person just had it, they

Guest 5: wanted to come in and kick ass every day and for years. So you kind of want to invest

Guest 7: in those kinds of people, but that's not necessarily necessary to get like a pretty good return on equity you can get, I think, you know, we typically would say like you shouldn't underwrite to less than 30% as an equity investor

[1:18:11] Guest 5: in these because they're highly levered, things can go wrong. Like, and there should be some sort

Guest 7: of preference to that investment as well. So usually between 10 to 12% is kind of the preference floor for what kind of return you should expect. And then on top of that you get participation and in the ownership of the business, the common ownership of the business.

Guest 5: So all in.

Guest 7: But yeah, I think you'd expect most of them should do 20 plus and you'll probably get a couple of 40s, 50s, and if you're really lucky, maybe you'll get some 60, 70, 80% type returns or more in your portfolio.

Guest 4: And so to be clear, pretty consistent,

Guest 2: 30% IRR is just like phenomenal.

Guest 3: I mean it's like really, really, really strong. Which going back to why I noted earlier that there's more capital coming into

Guest 4: this space than there are deals. And is your expectation that these searchers will buy these businesses and grow them for seven years and sell them and return your capital, or are they, these searchers, holding your capital for 30 years

Guest 3: as they run it for their career?

Guest 5: We allocate with the expectation that we might never see it again. We don't want to never see it

Guest 7: again, but we operate with, it'd be fine if we, if this was just invested in perpetuity and that's their life's work and we participate in the compounding growth of that company, even if that slows down after a period.

Guest 5: Because often there's a lot of advantage to these Start small and a good

Guest 7: operator can make a small business pretty

Guest 5: big pretty quickly in terms of like,

Guest 7: organization order of magnitude.

Guest 5: And so you get a really good

Guest 7: return when that happens.

Guest 5: But you're probably not going to be able to. Are you quadrupling next year?

Guest 9: Maybe.

Guest 7: Hard to imagine continuing that pace for 15, 20, 30 years, but so cool.

Guest 4: Do you guys have any, have you made any search investments at all or plugged into that? George?

Guest 6: Yeah, I get calls from, you know, my wife's friend's husband or my brother's neighbor or whatever, and they want to

Guest 4: buy a business and I spend an

Guest 6: hour talking to them about it. Those ones are usually just like a favor, but I do it with kind of the same intent, right. Like, hey, if you're really serious, I'll invest and we'll, you know, if I believe in the person, you know, I've had a handful that have gotten further along that are, have come to me just through, I guess, the business associations and stuff. So I, I don't dedicate a ton of time to it, but it, you know, I believe in them all. I think that my, my biggest challenge, that people don't believe in themselves. You know, they're like, I'll put money into you. You're not putting money to yourself, you know. So I think that's the problem is the shortage of deals and just people not believing that they can do it right.

[1:21:08] Guest 4: Well, we have been spending all this time talking about how great this is and wonderful. So I would be remiss if I didn't ask a question about the dark moments. So would each of you share your scariest moment in this adventure?

Guest 3: Corey, you want to go first?

Guest 12: Sure.

Guest 10: So actually, probably pretty recently, with rising interest rates, about a year ago, the spigot turned off in terms of capital investment into the biotech world. And a lot of our projects, a

Guest 5: lot of the work that we had

Guest 10: lined up got either delayed or turned off. So we Had a pretty significant reduction and we didn't respond quick enough. We held on to employees much longer than we should have on the expect. We were hoping that those projects would come about right. And get people back to work.

Guest 13: So

Guest 10: we were losing money, and that was the first time we'd ever done that. And then the scary part, though, is the bank then calling, asking, hey, let's see your numbers. And then like, oh, you're not meeting your debt service ratios. And so, yeah, that's a little bit of a pucker.

Guest 9: Yeah.

Guest 4: George, what was your scariest moment?

Guest 6: So we had a lot of success coming out of the chute. We gained some new contracts and we. And we crushed it.

Guest 9: Right.

Guest 6: Like, generally if you win a contract, it's because the previous operator was doing a bad job. So it's kind of easy to come and just do a decent job and you look great. And this was the case with a handful of customers. And yeah, I kind of got a big head. And I think I played a little hardball with some of our customers. We lost a bunch. And then we had a big customer that. Our biggest customer that we lost just, just through the natural course of business. Contract ended. So we dropped down to two contracts, right. And I was worried, you know, you get ebbs and flows in your business. But when my controller came in, I saw the look on his face and I thought, oh, dear, this is a problem. So that was probably the scariest point is he comes in and says, look, we're have to cut people. This is how we're going to have to do stuff to survive. And I never even considered that, never even thought it was a possibility. It wouldn't be very profitable. So that was a different experience for us. And definitely a gut check about you, Nick.

Guest 5: Oh, okay.

Guest 7: That's a good one.

Guest 5: So I woke up one morning, it was about 5:45. This was in our landscaping company. So this is kind of my second go at roll up. And yeah, 5:45, I wake up, I walk downstairs, see my phone blinking. Five missed calls.

Guest 7: Oh, boy.

Guest 5: And it's from the manager. Trucks roll at 5am it was in the summer.

Guest 7: And I'm like, oh, boy, I don't even want to know if I want to know what this is.

Guest 5: But so I call her back. She's like, kind of pretty frantic and like, everybody quit today. And I was like, what do you mean everybody quit? It's like they, they, they quit. They walked home.

[1:24:12] Guest 7: They wanted me to fire this, the foreman.

Guest 5: And because they were mad at him about something and they Were all drinking

Guest 7: buddies, and they were drinking over the

Guest 5: weekend together, and they decided they're going to quit on Monday morning. And so it's like, well, who do we have left? Like, rattles off three names. Like, all right, so those guys are still here.

Guest 7: What are they doing?

Guest 5: Like, well, they're going to try to

Guest 7: cover all the work. We'd lost, like, eight guys of the 11 workers.

Guest 5: And like, oh, boy. You know, obviously, like, gut wrenching moment.

Guest 7: Manager had never been that stressed out in her life. And

Guest 5: we got through the day.

Guest 7: So I drive in there and talk to. And go around and talk to each of the guys and just hear what happened and all that.

Guest 5: And then the next day. And so we got through the day,

Guest 7: and we had a game plan for the next day and how we were

Guest 5: gonna recruit and hire and start filling

Guest 7: holes, but it was going to take a little bit. Fortunately, it's recurring maintenance, so actually the revenue doesn't really depend on those guys showing up.

Guest 5: But if you stop doing the landscaping,

Guest 7: people notice when they fire you.

Guest 5: So we didn't want that to happen for very long, and we started executing our plan. And the next day it rained, which means no work. Beautiful. No rain. Can't landscape in the rain. That gave us another day.

Guest 7: And we worked through. We hired a bunch more people.

Guest 5: We actually figured out what was our

Guest 7: biggest bottleneck at the time, which was how do you get landscapers hiring? It was just out of, like, that circumstance, and I think we ended up better for it. But, yeah, you're still your worst nightmare. Like, everybody quits. I don't have any employees.

Guest 5: Yeah, perfect.

Guest 3: Perfect example.

Guest 4: Guys, last question. So let's.

Guest 5: From.

Guest 4: From your scariest moment to your best, or one that immediately comes to mind,

Guest 3: is like, one of the great moments

Guest 4: in this adventure, not including when you actually signed on the dotted line to buy the business.

Guest 3: Want to go first, Nick?

Guest 5: I wouldn't say they're not like a moment. The one that's. Or the ones are one that sticks out for me is not like a moment of exuberance, but rather just like,

Guest 7: really satisfaction and pride you get from seeing somebody who you have helped, like, know that they can do it and, like, pull themselves up and that they

Guest 5: did it on their own accord.

Guest 7: They wanted it, they got that promotion, they got the raise, they earned it.

Guest 5: And I think that's the.

Guest 7: And somebody who put themselves in, like, a fundamentally better position.

Guest 5: I've got one person on our staff

Guest 7: in particular who, you know, I'm proud of every day that, like, she came in at the bottom of the totem pole mid career, struggling in every sense, kind of had been dealt a bad hand in a lot of ways. And she's probably making three and a half times what she was making when she came and has been promoted three times and is doing great. And we found, I think we found the perfect role for her to continue to grow and better herself, better her career. And so it's those sorts of things that I think make it worth it. Great, thanks.

[1:27:22] Guest 4: What about you, Corey?

Guest 10: So probably about 18 months ago or

Guest 9: so,

Guest 10: when interest rates were still low, we refinanced our 7A loan into a fixed loan with a private bank and took off, took our house out of the sba. So that was kind of that yes. Moment and probably one of the smarter business specific moves as well, given that we'd be paying two and a half times what we are now if we were still in the 7A. So, yeah, definitely that.

Guest 13: Great.

Guest 3: Congratulations.

Guest 9: Thank you.

Guest 4: What about you, George?

Guest 6: So we, when I bought the company, just did small, had a couple of small federal contracts. And so I'm, I'm like, hey, we're do this municipal thing we're about for cities, big cities, and we've got two and a half million dollars in revenue. So I put a bid in for the city of Scottsdale. It's a $2.7 million annual contract.

Guest 8: Right.

Guest 6: It's, it's double the size of our business. They put a lot of work into it, but kind of just my philosophy is I'm going to put out a bid and just forget about it. I'm not going to obsess about it or whatever. So, you know, a few weeks go by and I'm actually an EO and I get a text and someone's like, hey, can I come work for you? And I was like, oh, 208. What's that? I don't know this person. And then like, get it like. And so. Okay, I'm going to see what's going on. So it turns out like we won the contract and all these drivers knew about it and they were reaching out to us. So that's how we found out. We just doubled the size of our business and it was just pretty exhilarating. There is a market.

Guest 4: We can do it. Yeah, it's awesome.

Guest 8: Great.

Guest 4: Well, si. I think we'll open it up to questions now. We're right at time, so we want to make sure we give the audience a chance.

Guest 8: Great.

Guest 2: Looks like we got a bunch.

Guest 4: Should I just start calling on people?

Guest 2: Sir, Please.

Guest 13: Hello?

Guest 8: Okay. Cool.

Guest 13: Yeah. So my question is on due diligence itself. Right. So that seems to be the most overwhelming part of the process. Right. So, you know, it takes a while to find the right business, get a feel for the owner and for it to see if you can make work. But then you have to, like, you know, go beyond kicking the tires and opening the hood and basically making sure that, you know, the marketing is there, the manpower is there. Right. It's not, you know, losing. There's no notes outstanding and that type of thing. Right. So, you know, you've done this with the first time you've done this, this could probably be overwhelming. So I'd love to understand, you know, how you went through that process.

[1:30:00] Guest 6: I think as far as due diligence, if the business is making money and you can see that what you're doing, due diligence isn't really confirming what they've already told you. It's trying to figure out if they're lying to you and there's something they're not telling you. Right. If a business is making money, it's probably going to continue to make money unless there's some change coming down the pipe or something that, like, they're not saying they've got a big customer that's

Guest 3: going to leave those.

Guest 6: I would say that's really what due diligence is to me, is trying to see if there's a gotcha out there. That that's your biggest challenge. Right. I mean, the documents they provide to you, is there going to be fraud? Yeah, probably not. And that's, you know, you have a legal recourse. There is. So it's really just that kind of question. Why are they selling? Is there something that they know that I.

Guest 3: Don't

Guest 9: you want to say?

Guest 5: I'll just say one thing. If you're buying really small, like we typically do, tax returns, if they're incentive, if they're lying, they're not going to lie on their tax returns because they would be lying the other direction. And so that's a good check. You check the P and L check the tax return, and if they line up probably in pretty good shape, unless their accounting is flat out wrong.

Guest 7: And in the case that, like, they're

Guest 5: not doing it right, but then you check it against the bank account and usually between those three, if they're going to lie about their earnings on tax returns, they're going to want them low and on their P and L that they're giving you to show you how

Guest 7: much money they're making. They're going to want it high. And then ultimately the bank account, the cash has got to be there.

Guest 5: But, yeah, I think knowing what to ask for, knowing what really the killers are likely to be and making sure you check those out. And a lot of these sellers, they're fairly, at least those that we've dealt with, they're older. And you can't just bury them in the list you downloaded from your friend at Blackstone, because that list, they won't do that list. You need to make that list, like, 98% shorter.

Guest 6: Yeah.

Guest 2: If I could say a couple things on this. So first of all, you can also, you're not totally alone necessarily, so you

Guest 3: can engage some third parties to help you with this.

Guest 2: So one of the classic things is

Guest 3: so called quality of earnings, a Q of E, which is basically kind of forensic accounting to verify that what they're telling you about, where this, where the money is coming from did in fact

Guest 2: come where they said it came from.

Guest 3: So that's more than just you looking at their. What Nick said, which is a good kind of, you know, kind of way to do it. Homegrown, this, they'll do something much more exhaustive. You pay for that. So that can be, I don't know, 10, 15, $20,000, maybe not that much, but it's a. So it's an expense. You have to calculate whether or not it's worth it. Obviously, the bigger the deal is, the more likely you're willing to invest in something like that.

Guest 2: The other thing is that your SBA

Guest 3: lender can also serve as something of a backstop because if, if it, if it looks like a terrible investment, they're not going to underwrite it. So you, you do have kind of that now.

Guest 2: You shouldn't be outsourcing in your own mind.

[1:33:02] Guest 3: You shouldn't think that you're going to just outsource all of due diligence to whoever you can find.

Guest 4: Like a big part of this, doing

Guest 3: this well is you bringing your own ingenuity and, you know, thoughts about the future. And, you know, and you're the one with the relationship with the seller.

Guest 2: So you, you need to.

Guest 5: You do.

Guest 11: You're right.

Guest 3: It is overwhelming and you really need to invest yourself in that process.

Guest 2: But you don't necessarily.

Guest 3: You're not necessarily flying completely alone as you do it.

Guest 14: First of all, thank you all so much for being here and sharing your time and experience. The M and A market globally is down because of economic factors. Roughly 44% in the first couple quarters of this year from What I understand. Well, how do you see that adjusting, closing out the year and moving forward for 2024 and then if we happen to have a minute, I would love to have any experience that you all have with platform roll ups or building out platforms for acquisition. Thank you.

Guest 10: I'll talk real quick about platform just because I've been approached a few times about using TBS as a platform, my company now as a platform to acquire. So what's been offered to me is, was okay, you get to be a CEO of this new big company, but we're going to buy, you know, you'll be a minority shareholder. So I'd be giving up majority ownership in the platform, but then offer the opportunity to be CEO of a big company that would roll, then they would use their equity to go and acquire. So I'll just tell you my thoughts on that process. I was like, well, if I'm giving up all of my equity and somebody else is going to make money on it, I'm just going to go figure and self finance it myself. If those opportunities are there really to go and acquire, I'll go get more SBA money or other financing terms and do that myself as opposed to selling to a private equity that wants to use TBS as a platform.

Guest 2: Your question about the M and A market.

Guest 4: I suspect that this world of search

Guest 3: searchers, ETA is just a tiny, tiny sliver of that universe of M and A that you're talking about, that kind of macroeconomic M and A activity. So I'm not sure how much it bears.

Guest 2: But that said, you definitely are seeing

Guest 3: obviously interest rates affect how expensive it is for a searcher to buy a business because that SBA loan payment has gotten a lot more expensive. This is another parallel with the housing market.

Guest 4: And so one of the big conversation

Guest 3: points in this world is

Guest 2: the selling

Guest 3: price for a business needs to come down so that those loan payments become palatable to a searcher. And they haven't really. So there's this again, not unlike the housing market. Housing prices aren't coming down even though they kind of need to. The buyers and sellers kind of need to meet. And it's not happening yet. According to like, you know, the scuttlebutt and lenders and stuff, people who see a lot of deals.

[1:36:14] Guest 4: So there's probably been a little bit

Guest 2: in our little universe here of ETA and search, there probably has been a

Guest 3: little bit of a slowdown or yeah, the deals that are underwritable or look attractive to a searcher, there are probably fewer of them because the Criteria the

Guest 2: threshold they need to clear now because

Guest 3: of the SBA loans are more expensive on a monthly basis is higher.

Guest 5: Yeah, I think cost of equity is continuing to go down because there's so many investors that want to invest.

Guest 7: Cost of debt is continuing to go up. They're kind of meeting.

Guest 5: So like I'm working on a roll up platform, I'm working on a roll up platform right now that we're planning

Guest 7: to just do all equity to start off with just to, so you can

Guest 5: move faster and kind of go big

Guest 7: and go faster and go all equity and bring debt in later when you can get better terms and better pricing on the debt. Yeah. As far as the global M and A, I think it's probably irrelevant because most of it's distorted to the big deals. But in our business, like I've never been busier as far as like deal volume.

Guest 5: There's a lot of businesses that can

Guest 7: be sold today that couldn't be sold

Guest 5: a year ago because of the COVID look back.

Guest 7: There's just so much distortions in the

Guest 5: 2020 and 2021 years that people weren't comfortable buying them.

Guest 7: And now as that's kind of rolling

Guest 5: through, the banks are learning how to interpret that.

Guest 7: That said, the credit box is getting tough so the debt financing is a little tricky to come by with SBA as a, as a minor exception because the SBA lenders are still lending because they're guaranteed by the government and there's, there's a secondary market there so they can offload those loans. But for anything outside of sba, it's tough. The debt market is, is making it really, really hard to close just a

Guest 2: little bit quickly on your question about roll ups because that is something that invariably comes up in this world. So I was at a conference last

Guest 3: weekend and this was a topic of conversation.

Guest 2: So do you, as somebody who's interested in buying a business, should you have

Guest 3: some grand plan to roll up an industry?

Guest 2: And some people said yes, but some said no because it's more like what

Guest 3: happened with Nick, where for example, so

Guest 2: there was somebody at this conference who

Guest 3: he and his partner bought a home care business. So not healthcare, just home care.

Guest 2: And they weren't intending some big roll up but they get into this industry

Guest 3: and there starts to be other acquisition opportunities. And so they've acquired, I don't know, seven, eight, nine businesses and they're at over $10 million in EBITDA now. It's a really big business.

Guest 4: But the even that so wildly successful

Guest 2: as a rollup but even they said, like, we didn't set out to do a roll up.

Guest 4: We found one good company and happily, you know, all of a sudden, all

Guest 3: these other acquisition opportunities materialized.

Guest 4: But, but, but we recommend that you,

[1:39:00] Guest 3: searcher, you first time business buyer, just,

Guest 2: just do, just try to find one business.

Guest 3: Just, you know, do do your first deal and then we can talk about rollups.

Guest 2: And in many cases, it might, you might get these, these opportunities to buy more businesses anyway, happily.

Guest 4: But, like, it's getting a little ahead

Guest 3: of yourself to think you're going to execute some grand roll up strategy doing this for the first time.

Guest 15: All right, so can we get a round of applause for Will on the panel? Thank you, guys. It was great.