Host: It's fair to say that a Twitter thread changed the course of Paavo Kosiki's life. It was a thread that laid out the economics of buying small businesses. Thinking it too good to be true, Paavo fired up bizbuysell to see if businesses in his native Toronto were really for sale at the low valuations described in the thread. Well, that started a journey that quickly took on a life of its own. Today, Paavo is the owner of a smart home and home theater installation business in Greater Toronto. It's a business that does over $2 million in sales in high six figures in SDE negative cash conversion cycles and it's stable and mature, but also ripe for new systems. Seems like a great business for an engineer like Paavo to sink his teeth into. His story reminds me of Tyler oconnors aired a few weeks ago. Tyler bought the Golf School. Tyler and Paavo both had heard that no one closes on their first loi, so both expected a red flag to appear that would kill their deals. And for both, the red flag never came. They trusted their sellers, they liked the businesses, and both did close on their very first Lois it's really fun to hear how Paavo approached his acquisition, educating himself in real time as the deal momentum carried him forward. It's also an inspiring example of how simply taking action can dramatically alter your life for the better in a relatively short amount of time. Six months in Paavo's case. Please enjoy the story of Paavo Kosiki and Oakville Sight and Sound. Welcome to Acquiring Minds, a podcast about buying businesses. My name is Will Smith. Acquiring an existing business is an awesome opportunity for many entrepreneurs and on this podcast I talk to the people who do it. August Felker is a two time successful searcher, first with a traditional search fund. The second time around he did a self funded search. Today August runs Oberle Risk Strategies, an insurance firm with a dedicated practice group for searchers and acquisition entrepreneurs like you. If you've got a business under loi, Oberle will provide complimentary due diligence on that business's insurance and benefits program. A great no risk way to get to know August and team. They love helping searchers. They've worked with hundreds. Oberly is a specialty insurance brokerage for searchers by a former searcher. Check out oberly-risk.com O B E R L E- risk.com link in the show Notes Paavo Kosiki welcome to Acquiring Minds. Thank you Will Paavo. You Acquired Oakville Sight and Sound, a home theater and smart home design and installation business outside Toronto. Yep. Your search start to finish was just six months. So we're going to hear that story today and learn something about the home theater and smart home installation business. But please start us off, Paavo, with some background on you.

[3:14] Guest: Yep. So coming out of high school, I had a pretty traditional background. Went to engineering school, worked as an engineer for a couple years, did an MBA after that. After the mba, worked as a consultant, corporate strategy, operations. From there transitioned into corporate roles in house corporate strategy, in house, operations, management. So running multiple factories, trying to improve individual plans, trying to figure out how to make operations in a large organization better.

Host: Okay, and so how, how, so how many years of that experience? How, how long was this corporate life of yours?

Guest: So it was two years as an engineer and then about five, six years of sort of the business operations, corporate strategy type stuff. Four years as a consultant and then another three, four years doing in house, the same role in house.

Host: Great. You discover the, the concept of buying a business. Where does that come from? And how old are you when that happens?

Guest: So I stumbled on it almost accidentally. So I stumbled on it when I was 38 years old. Read a few Twitter threads, sort of realized what the valuations are, how affordable it is, how except accessible it is by through Twitter, literally. And some of the Twitter threads, the valuations they gave, I didn't really believe that those would be the valuations that was even possible. So I thought I'd put it to the test and logged on to Biz Buy Sell to prove Twitter wrong. And I ended up proving Twitter right and myself wrong. Fortuitously.

Host: Do you remember if there was a thread in particular that. That inspired this skepticism but intrigue on your part?

Guest: Yeah. So there was a thread by Seva Kaczynski on July 31, specifically where he laid out the purchase of a company in the low, I think seven figures, low millions that he was able to put 5% down. It was a very well cash flowing business and that he'd make his money back within three months and then it was mailbox money after that. And that just seemed too good to be true. But I had some spare time so I thought I'd put it to the test by actually going through the search process. Log on to this by sell on August 1st and just seeing what can I do? Is this even possible? Is it feasible? And if it is phenomenal, if not, it was, would have been a fun sort of project.

Host: Yeah. And happening upon the CFA thread. So does that mean that you are generally following on Twitter or whatever you were reading about kind of entrepreneur, personal finance, personal improvement stuff? I mean, as a corporate guy, what was your own orientation towards entrepreneurship? Were you bound to be an entrepreneur or if you hadn't hit that Twitter thread, like, you'd still be working your W2. I know it's not called a W2

[6:21] Guest: in Canada, but yeah, it's close enough. I know the W2 from that sort of environment, so we can refer to AS W2 for most of your listeners. But um, yeah, so I probably would have been. But there's a thread of entrepreneurship in my family. So my father has been running a small land surveying company for 20 years now. So I've been helping him with that, doing his systems, doing his Internet marketing, sort of trying to improve operations as well as being in the business and just summer vacations working for him. So there's that entrepreneurship growing up and my wife about three years ago, right at the start of COVID started her own company as well. So she's been running that company as a side hustle in addition to her W2. So with those things it's sort of. I probably would have eventually gone somehow in that direction and not having realized that acquisitions were a thing, I probably would have done it from a side hustle perspective rather than acquiring company.

Host: Yeah. You don't happen to remember the valuation that that CFA's thread talked about? Was it just a typical kind of 3x, roughly 3x of cash flow?

Guest: I don't remember the valuation or the details. They just seemed. Yeah, that was the rough estimate, but it seemed too good to be true. So I figured it's worth, at least prove myself wrong.

Host: Yeah. Yeah. Well good, good for you. For, for doing that and being open minded enough to not only have your mind changed, but forge ahead on this path. We'll have to dig up that CFA thread and link to it in the show notes. Okay, so you're, you're on Biz by Sell and so Biz by Sell has some traction, some volume in the Canadian markets.

Guest: Yeah, it seems to, it seems just another sort of filter term of Toronto, Ontario, Canada, whatever. So there's quite a few businesses there. It seems to be up to date and quite good.

Host: Great. So you go to Biz by Sell and you search Toronto and so you actually, so you see that what CFO was talking about could be true. And then you also see a business, some businesses that you say to yourself, well, maybe I should buy this. So take us from here into Your actual search?

Guest: Yeah. So within the first few days of log on to biz, I sell, I reach out to listings, reach out to brokers, have a pretty good response rate. My understanding was that the response rate is typically not that great for companies listed on aggregators like that. But I think I got responses to 75% or more of inquiries I reached out to, even to the point of, sorry, the company's under loi, we're not accepting more bids. So even those kinds of responses I received. So it was a very positive experience of, yeah, this seems like a good platform. People are using it as I would expect marketplaces to be used. And so through that I set up conversations with few brokers. One of the early conversations I was working from home. My wife was there, she's sitting off to the side, arms crossed as I finish up. So are you going to tell me you're going to acquire business? Because I hadn't even talked to her about that. And I told her, don't worry about it, I'm just kicking the tires on this thing. It's not going to happen. It's absurd. You're going to have a kid in three months. So what am I doing trying to buy a business? I'm just playing around. Don't worry about it.

[9:53] Host: And where was your head at at that point? Were you a tire kicker?

Guest: Yeah, yeah.

Host: And actually. And yeah, take us from the kind of the pivot in your own mind from this intellectual exercise to like, wow, I might really be doing this.

Guest: So the pivot actually came later. So I'm having conversations, still signing NDAs and I'm still in the tire kicker phase. I eventually, sort of, three weeks later, reach out to a broker who happened to be for Oakville site and sound. He says, I don't want to meet you by phone. The seller doesn't want to meet by phone. Come by to our office. Let's have a conversation in person. So I didn't know much about the company. It just high end home theater systems, which I don't have a background in. I have a friend who does have a background in that and so I call her up, hey, Rita, I'm looking to maybe buy a company meeting with this guy. You want to come along? Probably nothing's going to happen to it come of it, but it's a fun experience. So she came along to that meeting. As we were walking in, other people walking out. So he had a production line of here's how I'm going to sell the company. I'm going to have People come in, meet with them, pick the best one. So it was a previous potential buyer who was walking out as we were walking in, met with the seller, turned out he was 44 years old. He, this was the fifth or sixth company that he was selling and he was looking to move on, to develop, build other companies. But with that in mind, it was his fifth company. He had been running Oakville Sight and sound for 20 years and those other companies were his side hustles that he spun up and spun out very quickly. Unrelated. So this was really his baby, his biggest project of his adult life.

Host: And. And so the time frame here, Paavo, is you. The CFA thread was in July. This is July of last year. So this is quite recent.

[12:02] Guest: Yeah.

Host: And then. And where are you now that you've actually gone to see Oakville Sight and Sound? What month are we in?

Guest: So July 31st was the thread. August 1st was me first logging onto his buy sell. August 16th is when the seller posted it on biz by sell. August 18th is when I reached out to him. And the first in person meeting was August 25th.

Host: Okay. All right. So we're 25 days into this journey and you're meeting with the seller.

Guest: Yes.

Host: Now, okay, you come out of this meeting with the seller, you and you have brought along your friend who's in this business already, who's in the business industry already.

Guest: So she's not in the industry, she's just an audio file, knowledgeable about the industry, knowledgeable about high end speaker systems. And her background is also mba, electrical engineer, very smart person and so a good person to have involved in this process.

Host: Okay, so the two of you leave the meeting with the seller, leave this conversation. Maybe there's some other buyer coming in behind you that you walk past, just like the previous, the previous buyers had done for you.

Guest: So in that case, no, our meeting was set up for 45 minutes. It went to an hour and a half, so more than doubled. A lot of times we kicked it off really well with seller. We were very different people, but I came out with tremendous respect for him out of that meeting. And I think he was also impressed by how we were approaching things, questions we were asking. So that connection was forged right in that first meeting. It ran so much longer because we were so well connected.

Host: Yeah, well, this is a common pattern. And an important point that people often, often emphasize is that rapport can make, make or break the deal. It sounds like you had it instantly, which is fortunate. The what? How could you have impressed him, Paavo, given that you are completely novice to this whole process. How could you have been asking good questions?

Guest: I think because I was so novice to both the process and the industry and I'm generally curious. So just by not having any kind of ego asking all the questions, I could be being genuinely curious digging in deep into the answers he was giving. I think it was just that curiosity, respect that really impressed him. And he's a really smart guy in a completely different way than I am, so. And he also doesn't have an ego. So through my questions he could see my curiosity and respect for his intelligence and his questions of me. He quickly teased out my type of intelligence, which you recognize being different from him and complimentary to his and what

Host: and how would you characterize his.

[15:02] Guest: So he's a very social, interpersonal, leadership type intelligence. As I mentioned, he started up five businesses so he can recognize market needs, he can muster support behind them. And I'm very much analytical. So engineer background, mba, that kind of structured thinking. And it ended up being down the line that the reason he's looking to sell is he's taking the company as far as it can go using his leadership type. Now shoot from the hip type style. And he didn't have access to the structured thinking, systematization analysis within the company and within his tight network to be able to sort of build the company in that direction.

Host: Very interesting. Okay, so you leave this meeting and do you go home and tell your wife, okay, wife, now, now you are right. I am going to buy this business. What are the next things that happen?

Guest: So Haritha, my friend and I are driving back, talking and sort of discussing how impressed we are with him, how forthright he was that it's worth continuing to pursue that we might as well put together an LOI at this point. And I get home, I tell my wife, hey, I'm going to put together an LOI in the business. Now it's going to involve some of my time to go through, put it together, do due diligence, but it's still a big jump. I tell her it's the first loi. All the advice I've gotten was don't fall in love with the first seal. Sign that loi. Go through the process, figure out what's wrong with the business, how to improve it, figure out, figure out what you don't know, put together a system and then the second or third loi is when you would typically buy. So don't worry about, I'm just putting an ally together. But nonetheless, I'll eventually ask you to meet with the seller. My wife is obviously intelligent so I prep her that I'll eventually ask her to do some due diligence as well. Personal due diligence.

Host: I want to share an update on the Acquisition Lab. 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 acquire 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. Chelseieveenbuild.com and so in your mind, you're characterizing this as kind of like you're going through an exercise here. You're getting, you know, you're going through the motions to learn the process, but also you're getting that notoriously likely to fail first loi kind of out of the way just exactly to get to your second and third deal. In your, in the back of your mind, are you like, well, maybe this is the one?

[18:49] Guest: Yeah. So I definitely had my mind open for the whole process and the company seemed interesting. The guy, sorry, the seller, Jamie, was a really good person, came off really genuine and honest. So everything felt good about it. But as you mentioned, the first failure, you have to go through a few failures to get a success. So I was expecting to fail, but keeping my mind open for a successful closure.

Host: And your knowledge of, you know, loi is the next step, your due diligence? I mean, you're talking about all the steps as if you are somebody who has been listening to the podcast or maybe even this before and you hadn't. So what were you where, where were you getting all this knowledge to be forging ahead after, you know, we're still within, you know, a month of having read that CFA threat.

Guest: I was really making it up as I went along. So I, after that meeting, sort of that weekend, I read what is an LY was communicated in it. And so I tell the seller, hey, I'm going to put together an loi. Give me until. It was, I think, Tuesday. I responded to him on Thursday or Friday saying, we're putting together an loi. We'll have it to you for Monday. Tuesday, he responded, that's great. The other seller is also putting together an loi, so if you can make things quick, that'd be great. So that weekend I spent drafting an loi. And it was a good, heartfelt, nice letter that I sent him on Monday to which he responds, thank you for the loi. It's very beautiful. Have your broker put a formal standard loi together so I can easily compare the standard. Lois, instead of having your nice little two page letter.

Host: Wait, so this, this quote unquote loi that you put together, Paavo, was really just a letter with an offer number in it, but all the other kind of typical stuff of an loi it did not have.

[21:01] Guest: So it had as much as I thought it should have, but it was a very. On the surface it was a letter expressing my intent to purchase the business, but it wasn't a formal document that would be classified as an loi. Interesting.

Host: And did you realize that you were doing something unconventional and do so intentionally, or was this your own naivete?

Guest: I think it was the naivete. I had some inclination that I was being naive, but I didn't have a broker, I didn't have any systems behind me, so I was making do with the tools I had. But having said that, I put a lot of time and effort into the loi. So it was heartfelt and it had, I think it forged the connection, it strengthened the connection between me and seller, even though it wasn't what he was expecting and what would be standard. And that might have actually worked to my advantage.

Host: And so he seemed to react well to the letter, but he said, look, I need a formal LOI here. And he directed you to whom? To his broker.

Guest: He said, yeah, so he was working with a brokerage firm. And at the first meeting with him, I met with a broker that wasn't the broker who was representing the seller, but was working for the same firm. So I ended up using the gentleman who introduced us as my broker, who was in the same firm as the seller's broker, but they were different people.

Host: So you were. And okay. And so you give your letter to this person, you, and take him to represent you at Least for the LOI process. Does he represent you for the remainder of the transaction?

Guest: Yes.

Host: Oh, so you were represented as a buyer. That's. That's unusual.

Guest: I don't know.

Host: So.

Guest: So here in Canada, actually bring maybe potentially a Canadian spin to it.

Host: Yeah.

Guest: The business brokers are licensed, accredited as real estate brokers. They have the same forms. The letter of representation was the exact same as a real estate letter representation. So it might be more typical to have representation of two sides here

Host: and. Okay, great. So you see, you get your letter repackaged as a proper loi and. And then. Then what? Take us from there.

Guest: Yep. So sorry. Before getting to the extra the LOI stage, the seller and I had talked about sort of the terms that would go in it. So pricing obviously being one of them. I wanted to understand how he arrived at his pricing and whether it was a fair price for the business. So what he did, he was very forthright and open and did 2 1/2 x of last 36 months of sce. So. Sorry, let me explain that a bit more clearly. So the average SDE for the last three years times two and a half was the price he arrived at. But he also added back a few things, so his own salary, his partner salary, and a couple other components. So with that, the price was very fair, I felt, and so on. The LOI just gave him the exact price that he wanted. And then the other aspects of the agreement, sort of sell or take back financing, various other loans. He said he's not interested in any of that. He just wants a clean cash deal. So he.

[24:50] Host: Seller financing?

Guest: No, seller financing. So he presented a very fair price in order to get the terms he wanted. And he essentially said, take it or leave it. And so the LOI was for the exact price that he was asking for.

Host: And you said the average from the last three years. Previous three years, yeah.

Guest: And the business was growing extremely fast. So it was very low three years ago and the SE was very low three years ago and quite good in the previous year. So with that, he didn't take that trend into account, which I think he should have. So I think I got a very, very good deal. And the seller could have gotten more money for the business.

Host: Interesting. You. So you think because he. He was averaging the last three years and three years ago, so 2020 was much lower than 2022. Bringing that average number down further than it maybe than you think thought was fair to your benefit, Correct?

Guest: Yep, exactly.

Host: But Paavo, this feels like, I mean, it's, it's you know, people investing in their homes. It feels like very much a kind of a Covid bump business. What did that? Am I A, am I right? And B, did that not give you pause?

Guest: So that did give me pause. And I was wondering, was it a Covid bump? But the COVID bump would have been reflected in the top line? The top line was quite steady. It was operating expenses that really came down in the last year. And that was because he had brought on a lady to really manage operations for him previously. It was being done willy nilly, sort of. It was a good business, it was making money, but it wasn't being managed to the bottom line as much as to the top line. And by bringing this lady on, she cut expenses, she really improved, improved operations and improve the business.

Host: Great. Well that, that's great to see that the growth in the bottom line is just coming from operational efficiencies and that the top line is more steady because it's really the top line that, you know, obviously indicates demand for the services and for the business. The this partner that he added back the salary for, is that was that partner active in the business or was it kind of just effectively like a dividend? Oh really? So you were going to have to rehire, you're going have to replace the seller and hire some second person to be active in the business.

[27:25] Guest: So actually a good backstory sort of on the structure. So there was the seller, the person referred to as a seller. He owned 80% of the business and the partner whose salary he added back owned 20% of the business. Now the main seller was the general manager and working 15, 20 hours a week in the business. And the junior partner was the head salesperson working full time in the business, generating quotes and really the key man risk in the whole transaction.

Host: Okay. And was that partner going to stay in the business upon a sale?

Guest: Yeah. So his intention was to stay in the business. He sort of was also starting a family. He wanted to de risk his family life. So he wanted to sell his stake. But he led the business. He had been with it for eight years. He's also quite young, so wanted to keep working just as an employee rather than an owner.

Host: Well, it doesn't seem like a very fair add back then. I mean that's headcount that you're going to have to just retain. It's going to be another expense for you, just like it is for the undercurrent ownership.

Guest: Yep. So I took that into account and weighed it against the growth in the business and the fact that he had used the previous three fiscal years and the previous six months, the business kept on growing. So it should have been a trailing 36 months to use his sort of formula rather than something that was really getting quite stale and working to my advantage. So by me being comfortable with the numbers, I ignored the add back and still came to a very similar number that he had listed the business for. So I said, okay, I'm going to have to keep the junior partner's salary, but given how he evaluated the business, I don't care about that. It's still a good price.

Host: Yeah, yeah. His, his. The way he came to his valuation gave you enough kind of room that you could absorb a couple of whatever add backs that were not in your favor and still come out with a favorable valuation that you were comfortable with.

Guest: Yep, exactly.

Host: Yeah, really interesting. Okay, so you proceed. You put in this loi, this formal loi, and take us from there.

[30:01] Guest: Yeah, so I put in the formal loi. Another so big part of the LOI is the due diligence process, the financing process. So my understanding was that 45 to 60 days is typical for those, and then financing starts after the due diligence process. I presented him the 45 days for due diligence and then financing after. He responds, no, 21 days for due diligence. That should be more than enough. And financing to run concurrently with that. So at this point, I said, it's my first deal. There's absolutely no way I can get due diligence done in that little amount of time. But we have good rapport. I'm going to go through the process, learn from it, but I don't expect to be able to sign off on due diligence in that little amount of time. So this was kind of the first place where I thought that the deal would die because of the terms that I had to sign in the LOI.

Host: So you agreed to the 21 days of due diligence, but thought that it would just not kind of day 21 would come and go and you. And you would be like, man, I'm just not even anywhere close to feeling comfortable with this yet. I haven't completed My. The DD I need to do exactly. But let me guess, 21 days was enough.

Guest: So as I mentioned, the seller had done this many times. So as soon as we had the LOI signed off on both sides, he says, Here is my QuickBooks login. Here is my CRM login. Here's a list of the last three years, my bank statements. Here are my vehicle Leases. Here is my building lease. Let me know if there's anything else you need. So I had access to his QuickBooks, I had access to the CRM, I had access to his bank statements. And really there was nothing else that could be needed from a company perspective. So went through, matched up the QuickBooks transactions with the CRM transactions with bank statements. They matched up quite well. And then the other part of due diligence was I had a very good opinion of the seller, good impression and am I making mistake on the seller? Am I not seeing something about him as a person is there that became the biggest risk. So most of the due diligence was spent on him now digging into his previous companies, digging into the previous buyers of his other companies. He had done some podcast interviews. So listening through to those, he was pretty involved in the community, so doing sort of understanding how he's perceived in the community. And there was tremendous consistency across all those things. The buyers of his companies, the podcast interviews, his community involvement, all had the exact same sort of impression that I was getting from him.

[33:12] Host: And the people, the previous buyers of some of his other businesses. Did you actually speak with them?

Guest: Yeah.

Host: Oh, wow. God, that's, that's great kind of character diligence for you.

Guest: Yeah, exactly.

Host: And the involvement in the community. I think you mentioned like a Facebook group.

Guest: Yeah. So he runs sort of pretty big 5,000 person Facebook group. So I looked at his posts, saw the type of people. So it's a Facebook group for fathers to help each other, help the community and just build a real community on the base of that Facebook group. And they had some really interesting impact of donating money to charities, really making lives better within the community. And he had founded that as well. So his personal ambitions and desire to help people lined up with his desire to be very transparent and forthright in his business dealings.

Host: That's great. I love this papa. I mean, because it's so. It's like you, you know, you diligence the person and that, that can really serve as kind of a stand in for, for meticulously diligencing all the other infinite details that you can. Because if you can really trust the, the seller, what they're telling you, then kind of the rest falls into place. I don't mean to oversimplify or say you shouldn't do other diligence, but it kind of, it's kind of a good way to 80:20 a diligence is to, is to diligence the character of the seller. The. But, but having said that, going back now to the diligence you were doing on the financials, like when you were comparing the, you know, the QuickBooks to his bank statements, to his CRM. I mean, how. I'm just curious, how meticulous did you in fact get doing that?

Guest: So in retrospect, I. And if I was to do it again, I'd probably be more meticulous than I was. But I started off by looking at the top line of QuickBooks with the top line of the CRM and the cash flows within the bank statements. And they matched up on that level to within 5%, so they were consistent. And then I dug into a couple of projects to audit them. So this job number, here's the bottom line value of the job. Is there a corresponding transaction in the QuickBooks and are there corresponding deposits in the bank? And then from. So the top line I audited in that way. The bottom line was much more difficult to audit. And I don't think I did a very good job there because I couldn't match up the expenses of jobs into auditing either QuickBooks or the bank statements because the number of jobs that they do, they were all washed together. So that was. I couldn't audit that. And I said that's okay because everything else matched up so well. So that was something that I took on faith that the expenses were as they were presented.

[36:31] Host: Yeah, the. And so in looking at the jobs and. And auditing individual jobs and, you know, some. A job shows up in the CRM and then you trace it into the. The bank account to see if money was actually received for that job at that amount. You did that in kind of a random sample way. Kind of. You. You looked at five or 50 of these and you kind of did it that way.

Guest: Yeah. So I took the. A few of the biggest jobs and then a few random jobs of the. Not the biggest.

Host: The. Now, are you at all tempted to do a quality of earnings, pay a third party to do a quality of earnings for you? I mean, this is getting realer and realer, Paavo.

Guest: Yeah. No, So I didn't really even know what a Q of you was at that point. And I didn't think I needed it. I assumed it would delay the process. So it didn't really even cross my mind to do that.

Host: Well, to the point about delaying the process, I will say the one. If I'm. If I'm you putting myself in your shoes at this point, the one not red flag, but cautionary flag, is that he seems so eager to get the deal done. And a little impatient to get it done. That would strike me, you know, that would give me a little bit of pause. Did it at all to you?

Guest: Yeah, so it did. And so in the LOI, we were targeting January 1st close. As I mentioned, there were other interested buyers. And he had mentioned that one of the other buyers was targeting November 1st close. So he asked if I could accelerate the close on my loi, which at this point I was still tired kicking, trying to learn. I didn't see a problem accelerating it because I didn't expect the deal to actually go through.

Host: Yeah.

Guest: So, yeah, it did give me pause, but I had the due diligence still to sign off on and the financing still to sign off on. So the way the financing was, it was almost a get out of jail free card.

Host: Yeah.

Guest: If I could get financing on my terms, I could say, no, I want a 0% interest rate over 20 years. I couldn't get that. So therefore, no. So I still had that as a get out of jail free card.

Host: Yeah. Yeah. Interesting. So tell us about the financing piece of this now, since for Canadians and non Americans who don't have an sba, it's always a little bit less straightforward. Share all the detail that you can, if you would.

[39:08] Guest: Yeah. So with the buyer side broker, I asked him, hey, I need financing. Do you know any people who could provide financing? So he said that it would be difficult to get financing. It would take some time, but it's feasible. So he introduced me to a couple people. One was the closest equivalent to the SBA that we have, which is a crown corporation company owned by the government, which helps fund businesses. But they're more focused on funding capital asset purchases rather than business acquisitions. They do some acquisitions, they, they help with that. But their ability to fund the goodwill portion of the balance sheet is extremely small. So they would fund the capital asset purchase and then partner with a bank to do the. The goodwill purchase. So that was one direction I was taking. And the other one was with a tier one bank in Canada. We have five big banks and they do 90, 95% of the banking market in the country. So he introduced me to someone out in one of those banks and with the bdc, the Crown Corporation lender. Now, the term, the interest rate was quite high that he was quoting me. He was saying that it would take a long time to get done and that it probably wouldn't be feasible. So I told that gentleman, thank you for your help. Thank you for being honest. I'm speaking with this bank, so I'm Going to pursue that direction.

Host: The Tier one bank?

Guest: Yeah, the Tier one bank. And so things seem to be going well. Got the documentation for the bank, got everything ready for them and then, sorry, backing up a little bit because before we got to. As we're doing the banking conversation, I did end up signing off on the due diligence portion after the 21 days that we agreed on. And I told him, hey, I'm having a little bit more delay with banking. It's going to take a bit more than expected because of these conversations that we're having. He said, that's fine. The seller and I were having almost daily conversations anyway, so we had good rapport. So we and said, I see you're working with banks. Go ahead and take the time you need. So he was understanding on that regard. And so I'm talking to one of the. To the Tier one bank. And this is where the biggest snag started to happen. Now, because they were not as responsive as I would like them to have been. They knew we were on a tight timeline, that we were trying to get the deal done, but the process seemed to have ground to a halt and there was not much I could do to move it forward.

[42:13] Host: And so how many weeks into this are you.

Guest: So we signed off on the due diligence towards the end of September, September 28th, I think. And so now we're halfway into October and I still don't have a firm commitment letter. I just have a rough term sheet. And they said that we'll get you the commitment letter in two weeks. Two weeks. Come by. Still don't have commitment letter. So we're now getting into November and the seller is getting antsy because he wanted to close quite a bit before then. He knows I'm working to get the financing, but nothing's moving forward.

Host: Yeah. And how are you feeling? You're like, well, I didn't expect this deal to happen anyway, so.

Guest: No, no. So by this point, I've fallen in love with company. The seller is phenomenal. When I signed off on a due diligence, I really was signing off on due diligence and was making a personal commitment. Yes, I'm signing off on due diligence. I really do want to buy this company now, but if something comes up, I can still back out. But after the due diligence sign off, I really was signing off on.

Host: And this whole time you're still in your W2.

Guest: Yes.

Host: So this is all. But were you working from home?

Guest: I was working from home.

Host: Okay. So that made phone Conversations and stuff. Easy. Like you didn't have to go into the stairwell to be harang the bank or whatever. Okay, so the bank goes dark on you. This tier one bank that I assume you don't want to name.

Guest: It doesn't matter.

Host: I'll name the good bank for the Canadians out there. Please say the name.

Guest: Yeah. So BMO was the bank that was

Host: difficult to work with bmo, but.

Guest: Yeah, bank of Montreal. But I'm wondering if it. How much of it has to do with the bank itself and how much the representative working on my case.

Host: Yeah, yeah.

Guest: Because when I get to the end of the story, I'll have the same thing. Was it the bank that ended up giving me the loan, or was it the person I was working with who really went to bat and made it happen?

Host: Yeah, yeah. Well, but the people are, you know, all the businesses is comprised of people, as we hear time and again in our world of small businesses. So, I mean, it should reflect on BMO that they have a guy there who's wasn't doing a good job for you. So you.

Guest: You.

Host: You're getting. Things are getting. The pressure is building. BMO has gone dark on you. And so you say to yourself, I got to. I got to start from scratch with another bank. I got to get something else going, because this doesn't look like BMO is going to follow through.

[45:03] Guest: Yep. And so part of the reason why I was just single sourcing it, I was in conversation with the seller. He had done this before. He had closed transactions before, and he had had good experiences with bmo. So he was saying they really are the best bank. Don't bother reaching out to the other ones because they've gone financing on a couple of my deals, and they were really good with it. So the seller was kind of guiding it as well, saying that this really is the direction you should go.

Host: Ah, interesting. Well, and. And that is a good, important point to make to people that. That there have been entrepreneurs that you, namely your seller, that you have heard really good things about BMO from. So also to. To be. To give a balanced perspective. Important to mention that. Great.

Guest: Sorry. Taking a bit of a bigger picture rather than digging down here. I think the big lesson here is to not put your eggs into one basket in terms of any aspect of the deal. And the financing is so critical that if it's possible, sort of diversify the risk and pursue multiple options in case one does fall through.

Host: Yeah, yeah. No, for sure. Okay, so tell us about what happens with the second bank.

Guest: Yeah. So eventually, we give up. The deal is not going to happen with bmo. The interest rate hike happened. It made it more difficult to get financing. They're not being responsive. We just called eventually resign ourselves to BMOs not going to do it. So we reach out to another bank, rbc, and get introduced through connections to one of their account representatives. This was early December at this point, and RBC is the bank through which the company has their accounts. It's also bank through which I have my personal accounts. So there was good relationships with them, but they're not. My impression was that they weren't a good commercial lender or small business lender. Nonetheless, I reach out to an account rep or get connected with an account rep. She is extremely responsive. Now it's. Here's the checklist of things that you need. I know you're on a tight timeline. I know you want to get it done before Christmas. As I said, it's early December. So I sent her all the documentation within a few days. She responds, okay, I got my risk team on it. They had a few questions, jump on calls, get a term sheet quickly, get a letter, within, I think, three weeks of my first contact with her. So that process went so smoothly. We got the commitment before Christmas and okay, I guess I got the money. I got the. I'm comfortable with the deal. I had a lawyer engaged earlier on, but had the sale agreement drafted even at risk, sort of before I had fine and signed off just to keep the seller engaged and show him that, yes, I really want to get the deal done. Even though financing is not coming through, I'm putting more money out to get the legal documents drafted to actually be able to close as soon as we get financing in whatever form it is.

[48:26] Host: Well, and it sounds like you've also learned your lesson that you should be doing things in parallel anyway just to keep all kind of all channels moving forward.

Guest: Yeah, exactly. So we had our share purchase agreement, got that updated mid December towards Christmas, and had everyone sign off, I think the week before Christmas, before all his employees, everyone was starting to go away on vacation. We got it signed off and it's actually happening.

Host: Great Christmas. Christmas gift. Circling back a few minutes ago, you said that the bro, the broker, your buyer, your representative said, I think it's going to be hard to finance this acquisition, but obviously you're. You're making it happen. What can you give us the terms of your loan? And. And given that there's no sba, like what. What would you tell other business buyers? I mean, you're despite your bad experience with, with bmo, it sounds like in fact if you had just, you know, called RBC first, it kind of would have been easy or pretty straightforward. Do you think it could be for other Canadians or were you bringing a lot of your own money to the table? So kind of flesh all that out for us?

Guest: Yeah. So actually a bit of the structure of the deal would help in order to explain sort of the financing aspect of it. So the deal was structured at a purchase price for the company plus working capital adjustments. So there was a target working capital of zero. Anything above that I would fund on top of the agreed upon purchase price. And so what the bank saw was the purchase price didn't see any of the working capital. And their policy was funding up to 76% of the company purchase price. So it's a reasonable amount. The rest I funded through myself, through family. And my friend Harithu came on that initial conversation. I brought her in as a partner as well.

Host: And so you have also now done the research, figured out what fair, like what a fair piece of equity is for your friends and family, contributions to the, to the, to the, the equity.

Guest: So we just did it pro rata. Whatever capital you put in, that's how much equity you get. Now my benefit would be having a good fun, interesting job. And I did put in most of the equity for the purchase. Now friends and family, so they put in some and they were more sort of board and advisory seats with an equity injection. So we just did a pro rata. I didn't do any research of 2 and 20 or whatever might be fair. It's just keep it honest and simple. Equal. Yeah.

[51:33] Host: And I don't think that we've talked about the s. The numbers of this business, the size of the business. Can you give us a sense of revenue and of ste.

Guest: Yeah. So revenue is lower mid seven figures. SDE was lower seven figures.

Host: Was lower seven figures. It was above seven figures, yeah. And fantastic.

Guest: EBITDA was upper six figures. Mid upper six figures. And so the purchase price valuation, the way we arrived at it was based on sde. But for my financial modeling and debt service I was using ebitda. And really that net income because there was no depreciation, no noteworthy depreciation. So it was based off of taxable open income rather than sd, which was more nebulous and I didn't feel comfortable with some aspects of it, but sort of doing the modeling on the true net income, the deal penciled out.

Host: And so if EBITDA is high Six in the high six range. And he wanted two and a half times for it. So this acquisition was somewhere between two and three million.

Guest: Yeah. Great.

Host: And so you and your wife had saved a good chunk of change to be able to bring a sizable part of the equity to the, to the deal were you give us. Now just speaking personally, give us a sense of how much risk you're taking here in terms of, of, of putting your nest egg into this.

Guest: So my wife had a huge windfall. Her company, that was a privately owned company, sold itself for a very generous amount and the owners of that company were very generous to the employees. So we had lucked in to a significant amount of money because of that transaction that she was heavily involved in. She was quite senior in the company. She had been with it a long time. So we got this injection of money that we weren't expecting that we didn't know what to do with. So the biggest conversation was, hey, wife, I know you got this big bonus recently. Can I use it to buy a company?

[54:01] Host: It was, hey, by the way, wife, I'm, I'm thinking about buying a business. Oh, and by the way wife, can you, can you stroke the check for me? Yeah.

Guest: Oh, and thank you also for giving me a child in this whole process.

Host: Yeah, right, you, you glossed over that before. When was the due date?

Guest: The child was born on October 2nd.

Host: October 2nd coming. Well, congratulations, man. And how's that going?

Guest: Good, fine. It's number three. So. Yeah.

Host: Well, let's all applaud your wife here because yeah, she's. Yeah, this, this came fast and fast at her. Yeah.

Guest: So sorry, going back to how much we put in, so we put a significant amount of our personal net worth, liquid net worth into this.

Host: Yeah.

Guest: But given the numbers, given that were still relatively young now we still have Runway to sort of build up our retirement if things go poorly.

Host: Yeah.

Guest: And the other aspect, in Canada we have pretty generous maternity leave policy, social services, Matley policies. So.

Host: Yep.

Guest: She's currently on maternity leave from her business, from her company running her side hustle as a full time job. I talked to my boss eventually and sort of my intent was since we have a child, I'm also entitled to a year and a half leave unpaid, not without any benefits. But my W2 is secure in case this goes south. So I knew that I could go on paternity leave, run this business and have if something really goes bad, a way of going back to my W2 as a backup plan.

Host: So are you're still formally, you're still formally employed.

Guest: I'm still formally employed. My boss now knows that I've acquired a company and knows I probably won't be coming back, but I have the fallback plan of if something really bad happens, I'm formally employed and can go back.

Host: Yeah, interesting, Paavo. I mean, you've addressed the risk in many different ways. Yeah, but still, I'm struck that, you know, by your own admission, you are, by your own self description, you are an analytical engineering kind of thinker. And yet this story is one of, of a lot taking a really, a big risk. And I mean, not only just the capital involved, but how quickly it all just happened. Like you went from a W2 guy to like this, on this accelerated path to like buying a business and changing your entire career trajectory in a matter of months. You're, you're self teaching all the time. You're, you're not winging it, but you're moving really quick. So anyway, I'm just. It feels like there's a bit of a contradiction in there somewhere.

Guest: So. There is, but I don't think there necessarily is. So a good quote I like is taking risks where if you're right, you come off really well, you become wealthy. If you're wrong, you don't go to zero. And I think we had that go to zero portion addressed through sort of the backup plan of having the W2 in case the company goes to zero. We still have revenue. My wife still has her W2 that she can go back to after mat leave. So the go to zero was addressed with a really interesting upside, both from a personal just lifestyle of being able to run a business, being your own boss, working with really cool people. And then the wealth side also, there's a really good potential to make good money running a company. So both those upsides far out and the likelihood of achieving the upside far outweighed the downside. An unlikely situation of us hitting the downside. So it was cool. Well, go ahead. No, no, please, no. So that kind of risk weighted analysis I think I was comfortable with and the stats I think are something like 5 or 10% or fewer SBA loans go into default or have trouble being paid back. I imagined it would be similar here. And especially given the numbers and the commitment of the seller and the junior partner to the company would decrease the likelihood of failure because of how vested those two individuals are, were how I perceive them to be, and how they continue to be vested in the success of the company.

[58:53] Host: The only other kind of screaming detail here in terms of Protecting your downside, which I failed to ask earlier in the terms of the loan, is, of course, the personal guarantee. Personal guarantees in the states are attached to every SBA loan or SBA 7 when you're buying a business. Pretty much. So. So if you. If the business were to just go through some horrible calamitous event, you'd still be on the hook for the 76% of the two and a half million or whatever it was that you. That you borrowed to to buy the business. Correct. That could, you know, completely break you financially. So that. That still seems like a pretty high risk.

Guest: Yeah. So there was a financial net worth go to zero risk, but my earning potential and my wife's earning potential would still be there. So in the absolute worst case, it would be declare bankruptcy and start our life anew. But the risk of that happening, I think is so low that we were willing to absorb it. There's some risk that we have to absorb. And we said the likelihood is so low and we won't die. We'll still be able to raise our kids, still be able to live a good life, even if we have to declare bankruptcy.

[1:00:11] Host: Yeah. And indeed have jobs. You have a job waiting for you.

Guest: Yeah, exactly.

Host: Actually. Cool. That's really. That's really interesting, Paavo. Good, good deal. Literally a good deal. Okay, so let's just wrap the story of buying the business. So it's around Christmas time, and it all comes together. Call comes together. Finish that out for us. And then I just want to learn a little bit about the business itself. So finish out the story of the transaction. Yeah.

Guest: So we signed this share purchase agreement right before Christmas. We spend Christmas going over working capital adjustments because I mentioned it's purchase price plus any working capital. So inventory counts, project status updates. At this point, we've told the key employees that this is happening, the office employees whose help we need to do the working capital adjustments. So we spent. We spent Christmas break going through that in detail. How much inventory is there? What's the actual purchase price going to be? And we had a target number in mind. The surprise there was it actually came out to a little bit higher than we were expecting. So I had budgeted for the purchase of the business itself plus some number of working capital. And I talked to the seller, hey, I might not have the budget to buy all this working capital. What can we do? So we had a side agreement for a loan from the seller. He said he didn't want a loan, but for this, he said, okay, I'll loan you money. For the working capital, if needed in order to be able to close the deal. Eventually, we didn't need it. We were just under what we could afford, so got that done. So started going through lawyers, getting the final documentation to lawyers, to banks, and the seller had a vacation booked for January 6th. We're going to close on January 3rd. And there were a few delays which pushed the closing into January 9th. So he went on vacation two days

Host: before closing, and so he closed. He closed from vacation.

Guest: Yeah. It's one of the big risks that I hear is the seller disappears right after deal close, and then how do you run a business that you're just starting to get into?

Host: Exactly.

Guest: In this case, it was phenomenal. I went in, I sat, I observed, and the business just kept honoring itself without the seller there. So. Great.

Host: Yeah.

Guest: And that was the deal.

Host: Great. Okay, well, that's really exciting. And that's really just. Here we are on February. We're recording on February 27th. So this is just a month and three weeks ago, correct? About. Yep, yep. Okay. So how. How's it going? Yeah, let's. Let's start there. How has the transition been? Has it continued running itself, or is it a little bit? You know, there can be a honeymoon period on transitions. How. How are things here at day. Whatever this is 50 or 60, so

[1:03:17] Guest: things are going extremely well. And you mentioned the honeymoon period. And I'm wondering, is it a honeymoon period or are things actually, is this a steady state? Are things going to be moving this slow? And I can really focus on improving the business, working on the business instead of in the business. And I think given how we're structured, I'll be able to be working on the business because throughout the process, the seller realized that he's been working on this for 20 years. The reason he's selling is he couldn't take the business further because he doesn't have the systems thinking. He is good at leading people and generating business, but building the systems that enable revenue growth. He's not interested in that and not good at that. He saw that I am good at that. So he is now an employee of the company. He is my general manager and works for me.

Host: Yeah. So let's get into that. That. That comes with its own risks. So much of it is very case by case, depending on the personality of the seller, the rapport you have with the seller, how capable emotionally the seller is to. In. In terms of letting go of the reins and really seeing that they're no longer the owner, boss, you know, the new guy. Is you. So. So how's. I know it's early days, but how's that feeling? And how did you assess the. The risk of too many cooks in the kitchen?

Guest: So I'm still trying to figure out how it's gonna go so far. It's going quite well. He is acting like an owner in the good sense of the word, and recognizing that he's not. So he's making decisions with the best interest in the company in mind, being extremely meticulous in what he does. So he's very much involved and still acting like an owner, but recognizing that I am and deferring to me with decisions. And this goes back to his character as an individual and being mature and recognizing that he's no longer the owner. I want him to act like an owner, but also accept that he's not, which he's doing a phenomenal job of.

Host: Great. Well, that's very optimistic. And what about the other employees? Are they kind of like, who do I. Who do I report to? Who do I, you know, how do I. You know, who? He's no longer my boss, but he's still here, and he's still kind of above me on the org chart.

Guest: Yep. So that's something that's on me and him more on me to really lay out and make clear. Clear. Because he's been running the company for 20 years, the employees still see him as the general manager, and it's more, who am I, this new guy coming in. And I have the right to change things. The legal right to do what I want, but not the moral right to do so. So how do I lead the employees in order to have them see me as a good owner and boss while respecting him? So this is one of the struggles I'm playing around with right now.

[1:06:37] Host: Yeah. Yeah. Well, that. That'll be really interesting to check in with you in six and nine months to see how that's unfolded. The. You have. You. You've said now a couple of times about your complementary leadership abilities. His as kind of sales and kind of social. Social intelligence, for lack of a better term, and yours, but lacking systems thinking. And you as an engineer, probably very much a systems thinker. So do you see any obvious systems that you can build right now, day 55 in this business that can take it to the next level? What.

Guest: What are.

Host: That you could share with us? Yeah.

Guest: Yeah. So the biggest one is a way of seeing what the company position is going to be three, six months into the future. Most of our projects are, or many of our projects are three, six months long. So we should know what we're going to be doing in three or six months. But we don't, we don't have a way of seeing what our technician utilization is going to be into the future, what our inventory needs are going to be. We're playing it by gut feel of do we need to hire another technician, do we have insufficient work and do we need to sort of drive revenue more aggressively? But we don't have a way of saying we're really going to be slow in the summer, we really need to start working on it. So I think that's the biggest system that needs to be put in place on relfu short order.

Host: Yeah, for sure. That makes, that makes sense. And I suspect you'll be able to unlock quite a bit of value by, by layering that in there. Pavel, I want to close with again here kind of hearing about the business. So we've been so in the weeds of the deal. So a reminder, this is a, this is a home theater and smart home installation design and installation business. So you know, wealthier customers who are spending a good amount of money on you know, putting in a home theater or a smart and, or a smart home. I think you told me in our pre call that you know, a $20,000 sale is not uncommon and you'll have even six figure sales at times. Correct so far?

[1:09:04] Guest: Yeah. Yeah.

Host: And so tell us about. So, so a couple of questions first of all. So does that, does this qualify as a retail business because you have a showroom or like a retail location but it's not retail in the sense that like it's, these are very high ticket sales and it's also, and so kind of address that but also the, it's a very much a project based business and in the world of search project based businesses are notoriously hard to finance and you know, not as, not as predictable and and so let's start there. Address that stuff for me.

Guest: Yeah, so I'm still trying to classify really what type of business it is. In my mind most of our revenue comes from product sales. So TVs, speakers, controllers for smart homes. But we sell those products through the services side. So what enables us to sell is projects where we go into a customer's home and actually install the TVs, the speakers, the whole home automation. So it's this really interesting blend of retail margins driven by skilled trades. And the other interesting aspect of the business is the flow of a project. So we make a sale, customer needs three TVs. This many speakers, a controller for the whole thing and only then do we purchase product. So we're a retail business with very minimal inventory because so custom. So from that perspective it's interesting. And then from the technician side, our technicians are a very eclectic mix of skills because we have to be able to do construction, do pre wiring, do some drywalling, we have to be able to mount TVs, we have to be able to wire it all up. So some electrician type skills. We have to be able to program the systems to control everything. So networking, programming, this eclectic mix of skills is a very unique. I think to find individuals and one of the biggest limiting factors for us to be able to grow, we need to find the technicians who are able to install the products with these skills that they would need to get.

Host: Yeah, yeah.

Guest: And you touched on the financing part of it, the project based versus recurring revenue. So most of our business is project based. It's big projects and to me the bank didn't appreciate that it's a project based business rather than a rep recurring revenue based business. So they didn't give me a hard time about that at all, even though I could have expected them to. So they didn't ask any questions around that.

[1:12:01] Host: Oh well. But even in your own mind, in terms of, you know, choosing a business to buy, were you at all bothered, nervous about the fact that it's project based on especially let me add in the obvious detail that this is a consumer discretionary spend, a big discretionary spend by consumers. And as we, you know, peer into 2023 and 2024, with everybody talking recession, you worry that this is exactly the sort of thing that, that a consumer would decide, I'll do that, I'll do that next year rather than now.

Guest: Yep. So there are a few ways where I mitigated that risk that you just described or sort of that discomfort. One is that the customers are, even though it's project based, it's recurring customers, we have good relationships with each of our customers. We know their systems. When they buy a tv, it breaks in eight years, they come back to us rather than going to Best Buy to buy the replacement tv. If they need their system updated, they come to us. So it's a project with sort of an 8, 10 year recurrence cycle. And that was visible in the due diligence in sort of the projects, the CRM. So that was one thing I looked at. The other thing is we do have some recurring revenue and we're trying to build out. So many of our customers are on service plan. So they pay us a fixed monthly fee and they get next day service, they get accelerated service, they get in depth monitoring of their systems to make sure that everything's working correctly. So there's a bit of a recurring revenue portion there. And then we're also building out security. So we install the cameras, the access, the glass break sensors and then we monitor the customer's home security. So that's also a recurring revenue and once again ties the customers more deeply with us because now we're servicing their system, we're monitoring. It's very much a close relationship with customers. So those aspects mitigate the project based style of work that we do.

Host: You know, as I hear you talk, this may be fanciful, but it starts to feel like as homes become more computerized with these various systems that in the same way that you know, plumbing and H vac and electrical are just three buckets of needs that every home has, you could imagine a future where there's this new fourth bucket of kind of the home network, the home electronics, the home security system. And you're we're going to all need firms to manage or, or at least technicians to help us when there's problems or hopefully to manage. Hopefully for you to actually manage it on a recurring basis.

Guest: Yeah, exactly. And that's the other aspect of the business that sort of I spent effort diligence out early on is what does the industry look like the company is doing? Well, the seller has huge integrity and what's the direction of the industry? And as you mentioned, it's growing. Right now we're in very high end homes, custom builds now really wealthy individuals, eventually that's going to move down market. Most people, most homes are going to be automated in this way. So there's this huge pool of untapped potential market that can eventually be addressed which decreases the risk of the transaction since the market is growing so quickly and makes it more interesting for me as an operator to how do we help these customers? How do we accelerate adoption into sort of the main middle class market customers?

[1:15:54] Host: And in terms of the split, if there is, if there even is a split, maybe it's all very blended between home theater and smart home. Do you see those as kind of two different business lines first of all, and if so, which of the two is the larger?

Guest: So the home theater is quite small. We don't do that many home theater projects. We do maybe 10 or 15 per year. It's really the home automation, the whole home integration, smart home aspect that is much bigger and the split there is more between new build. So you're building a brand new custom home, you want it completely automated versus a retrofit. And retrofit can be anything from just putting a single room home entertainment system all the way to rerunning cable through existing drywall and renovating that existing house for smart homes.

Host: And so what's, what's, where is the larger business in and what did you call it, the retrofits versus the new builds?

Guest: It's quite evenly split. 50. 50. It's pretty close to 50.

Host: 50. Okay. So really the, the growth of this business, the, the potential here is in home automation, the, the home theater stuff is part of it, but maybe a diminishing percentage wise, a diminishing piece of it over time.

Guest: Yeah, because the home theater, you need a dedicated room of a set footprint. And the number of people who are able to afford that isn't going to grow very quickly. Just from the square footage perspective. The whole automation is going to become eventually cheaper. Consumers are going to be able to afford it more, more people are going to see the value of it. So that part is definitely the part that's growing and going to grow.

Host: And on the home automation stuff, are the systems that you're putting in, are they all the consumer brands that we've heard of, the, you know, Googles and Alexas and Rings, are they diff. Are they at a different level? And brand names that I didn't just name?

[1:18:08] Guest: No. So we don't do any of that unless a customer specifically asks for one of those pieces to be added onto an existing system. But the brands we work with are Crestron and Control 4, which are on the cusp between consumer or commercial. So they can also run boardrooms for offices, automate office buildings and sort of the homes we play in are sort of on the cusp of that.

Host: And so yeah, Paavo, what I'm hearing is that you have very, you have very fancy customers. I mean, yeah, these people have pretty, are asking for pretty sophisticated systems and what I assume are pretty fancy places.

Guest: Yeah. So not all of our customers, all the biggest projects, obviously if you're spending a hundred thousand dollars on automating your home, you have to have some sort of money. But they're customers who just want a nice home entertainment system. So a surround sound with a tv, nicely hidden wires. So the quality of the work that they want in a nice discreet room. We also have those customers. So more typical Main street customers also make up a good portion of our client base.

Host: Pavel, going back to Expansion. So you, you do, so you do have a showroom where people come in and test all the various equipment. Is one, in terms of geography, is that an expansion possibility? So you have this one showroom, by the way, actually tell people I had to Google Maps where. Oak.

Guest: Oakville.

Host: Yeah. Thank you. Oakville is. So it looks like it's about 40 minutes south of Toronto. So is that, I assume that's still considered the kind of the Toronto metropolitan area? Yeah, yeah. So if you were to put, you know, another, a second location on the north side of Toronto, is that, is that a way to expand the business or is this. Not really? Because it's kind of this kind of design, installation, retail, quasi retail, hybrid business. Is the, are the actual retail footprints not important or are they important?

Guest: I think the retail is not that important. In our Showroom we have three TVs on display, we have a few speakers and we have a home theater mock up. But the reason for the home theater mockup isn't so much for customers, it's for us to practice home theaters on how to build, how to troubleshoot, how to make them better. So it's really an internal facing showroom workshop. And I have not seen a single customer walk into our home theater since I've been working there. So it's really not about the retail presence, it's about a concerted effort to sell into Toronto. Most of our business is in Oakville, sort of west south of Toronto, but that's by choice. We just, that's where our employees live, that's where our existing sales efforts have focused on. I myself live in Toronto proper. So I've been telling the team, everyone that I eventually want to pull more business toward Toronto because that's where the people live, that's where there's significant amount of wealth and potential customers. So the geographic expansion is there, but it won't entail a footprint expansion. And on the growth, the other interesting aspect is so we do a lot of electrical work, we run cable. For an external observer, we look like electricians in a lot of what we do, but we don't have an electrician license, so we'll often be running cable alongside another tradesman who's also running cable. So that's a no brainer expansion to how do we get an electrician license, be able to do everything electrical in a home instead of just automation part of it.

[1:22:17] Host: Excellent. Paavo, what would you say to other Canadian searchers? Anything that I know a lot of the differences are just going to be about finance, financing, between my typical guest and a Canadian guest. But is there anything else that you might tell the Canadian audience?

Guest: So I think with the financing, it's a little bit more difficult here, but that's reflected in the transaction prices. I think the prices here in general are a little bit lower than they are in the States. So that's sort of to encourage people to really consider buying because it's more difficult, but you're compensated for that difficulty through a lower price that you pay, and I'll take that trade.

Host: That's an excellent point.

Guest: But in terms of other idiosyncrasies, I don't think there really are that many. The markets, the cultures, everything is similar enough that it's going to be more about the person you're interacting with than about where you're doing that interaction.

Host: What about just the kind of culture where, you know, I mean, even here in the States, like, most people don't know about buying a business. So a lot of my. A lot of my guests and the listeners will be the only person they know embarking on this path. So probably even maybe more so in Canada. Although it sounds like you surrounded yourself with a lot of people who didn't think this was weird. Oh, they all thought just.

Guest: They all thought it was weird. They all thought I was crazy.

Host: Oh, they did?

Guest: Yeah.

Host: Okay.

Guest: Okay. They just humored me and humored my. Sort of.

Host: Until it was too late.

Guest: Yeah, until it was too late. Okay. All right.

Host: Anything I just. Canadian themed or otherwise, that I failed to ask.

[1:24:04] Guest: No, but in terms of encouraging people, you had a guest on your show a few months ago, Fraser Volley. And yeah, after that podcast episode aired, I messaged him, I've had coffee with him. His acquisition is going well. Things are going well with him. So I want to sort of pay that forward. And if any of your listeners want to reach out to me, more than happy to jump on a call, discuss either industry, process, financing, having a child through the process, which Fraserville also did. So we had that connection. So more than happy to sort of pay that forward and help in any way I can.

Host: Yeah, I appreciate that, Paavo, thank you. And. And just to add on to that, I. I keep circling back to the Canadian aspect here, but for non Canadians, don't think that if you know that Paavo's, you know, only worth talking to if you're. If you're another. A Canadian. I mean, so. So much of this is actually, as you just said, Paavo, similar between the states and Canada. So. So reach out to. To Paavo. Americans. What's the best?

Guest: Yeah. And.

Host: Yeah.

Guest: Yep. So just to really encourage people, I believe I got extremely lucky in my search. It was quick. The people I dealt with were phenomenal. So I don't want to hog all that luck. I want to sort of share and sort of somehow make up for having been so lucky. And by having conversations with potential searchers, with anyone else, that's how I feel. I can sort of pay my luck forward and give it a broader reach.

Host: Lovely, lovely. How do you prefer people reach out, Paavo? LinkedIn, email?

Guest: LinkedIn or email would be the best. Okay, so I'll give you those to put in the show notes.

Host: Exactly.

Guest: That'll work.

Host: Well, sir, this has been great. Congratulations. I love how your story unfolded. Not only the. How quickly it moved, but I just. It's. It's just amusing how it was all kind of an intellectual exercise until it wasn't. And here you are, the owner of the business.

Guest: Yeah. Thank you.

Host: Very good, sir.

Guest: Thanks. Well, thanks for having me.

Host: All right, until next time.

Guest: Thank you.