Host: 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. Today's episode is with Scott Witt, who was a management consultant and acquired a clinical trials company. The reason I love this story is because it ultimately really goes the way this is supposed to. He identified a business that was, frankly, amateurly run, and he was a management consultant. So the opportunity there was to come in and professionalize an amateur business and really take it to the next level, which is exactly what happened. It wasn't without risk, it wasn't without heartache. But he now is sitting on a $3 million business, up from 800k in revenues when he acquired it. Without further ado, here's Scott. So, Scott Witt, thank you for being here with me today. You are based in North Carolina, in Chapel Hill or Chapel Hill area, is that right?

Guest: Correct. Yeah, our clinic's in Greensboro, about an hour away, but we live in Chapel Hill.

Host: Okay. Greensboro, N.C. and you acquired Triad clinical trials in 2016 and have grown revenue significantly. I think you've tripled it since then. So those are the broad strokes. I want to hear that story from how you acquired the business, what the search process was like, and the actual terms of the deal to the extent that you can talk about those. And then what's happened in the intervening five years that has resulted in this 3x revenue growth. Sound good?

Guest: Sure.

Host: Why don't we start then with your relevant background? You don't need to go back to the very beginning, but the background that's relevant to this story and what led you to look to acquire a business?

Guest: Probably 30 plus years in healthcare, mostly on the administration side, working in first operations and then technology and then management consulting. I kind of moved around as my attention wandered. I've got adhd, as many folks who end up in this place have, and it was a fantastic career. I came out of a, you know, a mid level state school, mid level students, and ended up as a partner to Light Consulting. And that's, that's a very rare sort of, sort of occurrence. When I got to Deloitte, I thought I had really reached the pinnacle of my career. Was going to write out my time there and be a prince of that, that particular realm. But it became clear that, you know, partnership in consulting entity has its rewards and its values, but it won't really take you to the place where I thought I could go. Unless, of course, you end up running the Entire group, very rarefied level of a very rarefied level of people who make partner, whoever make it, you know, a final, final go. That's kind of the dirty truth with that. But had they gave us a lot of financial counseling as part of the partnership onboarding process, because you do take a pretty substantial jump in income. Suddenly you have a lot of cash coming in, but you've got a lot of responsibilities because you also own part of the business. So it put me in that space of thinking about business as an owner, not just as an employee. Even though technically I got a paycheck every, every week and great benefits and that kind of stuff. When I moved on from there, I ended up with a company called Quintiles. They're the largest CRO on the planet. They invented the business, effectively, that's a clinical research organization. So they work with pharmaceutical companies and biotechs. They take over the clinical trial process. So if you're a mad scientist with $2 million in venture capital funding and there's lots of those guys out there right now, you go to a Quintile or somebody like that, say, hey, go run our clinical trials. So I spent time working in their strategy shop and they're working for the CEO at the time looking to turn that war into a consulting entity, which is why I ended up there. I spent time learning a little bit about how clinical trials worked and what it's like to actually do them from a local side, actually run them. And in the back of my mind, when I really figured out that Deloitte was not going to be in my long term plan, which was personally disappointing, I started thinking about what would be next and where would I go. And that's probably 2012, 2011. I started in earnest looking for a business to acquire. The first thing they taught, they said to us when we hit the ground at partner inductions is don't buy a boat. That's the worst thing you could possibly do, is take all this new money and go get a second house or a boat or second wife. That stuff's just going to ruin your life. It seems like a good idea at first and then everybody ends up regretting it. So my wife and I sat down and we just started banking the extra cash, banking the bonuses. We had cash to play with, always had a very good credit rating. So we had a good place to start. And I probably looked at the buy biz sale, there's five or six other sites like that, looked at a bunch of stuff. I probably sat down with seven or eight brokers over those couple of years and probably seven or eight business owners looking to sell. And just like when you're making a big step, you don't. It's very easy to sit and look at a deal or an opportunity or a person you're going to marry and say, here's all the things I like, here's the stuff that could work, here's what could be amazing.

[6:02] Host: Yeah.

Guest: And I took a very negative, negative but anti positive approach like why will this not work?

Host: Yeah.

Guest: What's going to go wrong here that's going to make me regret leaving my cushy job and putting my, my savings into it? There was always one or two major factors in each one of those businesses. And I had actually accepted a role at Accenture Deloitte competitor, fairly high level job when this business came on, came available. And I kept looking for reasons to walk away from it and I couldn't come up with a good one other than I wanted the prestige of being a managing director at Accenture. And that's not, you know, nobody really cares about that at the end of the day. So we contacted the broker or we've been in discussions with the broker. I sat down with the business owner and really talked through her business model, what, what she did, how she did it. She built a very strong brand, a handful of key staff, but everything else was a train wreck, quite frankly. But it was a train wreck that generated 70% margins. And I thought with 70% I got some time to figure things out and make some mistakes. And I had to, and I certainly did. But the big thing was is that knowing the market, knowing health care, health care is not going away. You follow health care. But When I started 30 years ago, it was 8% of GDP. Now it's 14% of GDP. When you get to my age, it's going to be 22 or 23% of GDP. It may be the only business left in the long run, so demand is strong. I know the market for clinical trials and I know they're complex and they're hard, but I'm a consultant complex and hard is what I do.

Host: The owner had, when you say it was a train wreck, that whatever falls under the umbrella of that train wreck wasn't enough to scare you off. Whereas these previous deals you'd look at you had gotten scared off.

Guest: Well, train wrecks, an exaggeration. I do a lot of selling, so I like Hyperbola. But the woman who started it was nurse practitioner. I'm sorry, a physician's assistant knew nothing about business Learned it all the hard way. Made the bare minimum investment in everything, including very nice clinic building, which we bought. But everything else, like third hand computers, not up to date, not safe third and fourth hand office equipment, unreliable at all. Broke. Hired medical, sort of first level medical staff right out of community college. Clueless, useless, but cheap. So there was all. She had ongoing quality issues. She had huge scalability problems because she had to do everything herself, literally. She showed me how she did payroll. That was a big blue checkbook, calculator, and she would download the withholding tables from the IRS and state and she'd get a pencil and a calculator and calculate payroll. There was no website. Why would you. Website's unimportant. We know who our clients are and the people we recruit come find us. And she spent a lot of her time actually seeing patients doing data entry and that businesses got better and better and better. She didn't know how to hire, delegate or to automate. You know, we invested a lot in systems that were pretty expensive up front, but now it's paying dividends because we're just much more efficient and effective. And that was not her mindset. And so I looked at all that in totality and I had seen many big clients in healthcare have a very similar mentality. This all worked when we were $200 billion a year, but now we're $1 billion a year. We don't understand why it's not working. So I fixed a lot of those things as a consultant and again, I knew the pipeline and the demand for clinical research is strong and it's only gotten stronger since we get here. I know Covid has been a super accelerator of that, but that was happening before and it's happening once that all goes away, it's still going to be. The demand is strong and growing for reasons, if you want to get into it, can. But I felt like it was there with those margins in the name, I could make a bunch of stupid mistakes and probably not lose my house. So that's what we pulled the trigger on it. And from a personal side, I had been traveling daily for years. Barely knew my kids. I was exhausted on the weekends, I'm told. I thought it was fine. My wife, who had stayed home for 10, you know, 12 years raising, raising our boys, was looking for something and we thought this would be an opportunity. And she's, you know, she's twice as smart as me. She's a former State Department diplomat, sworn officer, multiple, you know, multiple languages. Her peers are ambassadors now, you know, their name in the news. So she's, you know, way more qualified to run a business than I've ever been. So it was a pretty good partnership. It was rocky, you know, getting all of it done. We financed it with personal savings, personal guarantees and an SBA loan.

[11:15] Host: Well, actually, Scott, before we get into that, I want to. Because that will be one of my questions, but let me back up a little bit. When you were deciding that you wanted to buy a business because you've made partner or you gotten to a certain level at Deloitte and you had this, you're banking all this cash, why did you decide to buy business? I'm sure, I'm sure Deloitte was, that was probably not the thing they were recommending to all the partners to invest their money. And right after the second home and the boat and the second wife, because that's just gonna, that's just gonna mean attrition for them, right? You're just gonna leave your job at Deloitte if you do that. So why was that your, why was that your, why was that where you wanted to put your money rather than whatever other options they were they were suggesting?

Guest: Well, again, the partnership model and consulting and even the ones that are publicly traded like that model is just kind of. There's two pyramids in those organizations. There's the employee pyramid. You come in bright, shiny MBA, work you 90 hours a week plus travel. If you're too stupid to quit, then we promote you. You work your way through it. Then you get to managing director or partner. They all have different terms. So basically you become a, an owner of that company at some level, that organization, and now you have a hand in running it and it really becomes lucrative, hugely lucrative and scalable. If you've got 10 years to go, you've done 12 years getting through that first pyramid. You probably need another 20 years to get through that second one to get to that point where you're consistently making seven figures. You got a solid retirement account built up. So when you cash out, you know, the golden, you get, you get the golden keys and you go, so if you're a mid level partner, mid level executive there, and I was 49.50 when that, that happened. I just, I just laid it out that this just isn't, there just isn't enough Runway to, to get me where, where anywhere I want to go, where I think I can go. And then as I looked around to go back into industry or go back into technology, you know, I was more of the same. There's going to be a layer of people that make it into Forbes and Fortune that is super rich and super wealthy. But then there's a huge strata of people underneath that, that do well, I mean, certainly 1%. I would, you know, I was the first in my family to go to college. Most of my cousins and relatives didn't go to college. And fabulously well to do financially relative to where I came from. But not, not going to hit the stratosphere and we won't here. But this gives me more control. I can really focus in on things that I love and what I want to do. And I haven't been on an airplane two years and I was.

[14:04] Host: Well, none of us have, in fairness. Yeah.

Guest: Well, even. But even that I, when I left or when I left my left service five years ago, Chairman's preferred on American Double Platinum Secret diamond on Delta. I mean, you know, I was, I had my own ambassador at Starwood. I mean, I lived on the road. Yeah. And so this is those two, those two things. And some of it was just also. What is that? Right. Opportunity. What's going to make me happy? What's going to be. Obviously brothership. Drink whiskey and play tennis. That's what makes me happy. But I got to be able to feed my family and have some meaningful work. So that was, that was part of it too. And again, there's, there's a, there's an elite crust of people in all these organizations that have amazing jobs and wonderful opportunities, surrounded by amazing teams. You know that they're in the news because that's, those are freaks. That's not how a lot of the corporate world works. It's a lot of. And you know, again, except for a handful of people, you're, you're a commodity in these organizations. Like, if you're useful to us now, that's fantastic. But if we change our mind or our model changes or you got a little too much gray hair, off you go. Yeah, and these are way too dramatic. But that's, you know, that's, that's kind of the sense there. So this insulates me from, from all of that. We've got nothing but upside until we decide to cash out of the business.

[15:31] Host: And why did you choose to go about looking for a business to acquire rather than starting something from scratch? Cause that would be the other. Oh, you're going to be an entrepreneur, obviously. Speaking of the news and the media, those are the stories we hear about in the media. Acquiring a business is far less common. What led you to that? Rather than starting something from scratch so

Guest: I've worked with a ton of startups, are familiar with a ton of startups and really the world I know is healthcare. I understand that there are other industries out there because I buy things from them. But I don't know diddly squat about cell phones or automotive or you know, entertainment, that kind of stuff. But I watched a lot of my peers in healthcare say, well I'm smart, I got a network, I got a million dollars from my mother in law and my house, I'm going to go start my own business. And most of them failed and they failed slowly and painfully inexpensively. It's really difficult in this industry to start from scratch and get to critical mass. Most people run out of cash way before that happens. And I wasn't going to put myself through that. I mean I hired back three or four people who I used to work for in the consulting world who went out on their own and it just didn't work out. And they're, you know, they were, they loved it at first but it drained all of their financial resources or most of them and they grudgingly went back to consulting or back into, you know, the commercial side of the business, you know, with having not as much experience at maybe the level they left sometimes below. It wasn't an uplifting experience. And what it comes down to in healthcare, it's so regulated, it's so conservative and it takes five to seven years to really make it. And most companies don't have that kind of focus and most VCs don't have that kind of focus. I worked as an advisor to the Aetna's and Cignas and United of the World and Blue Cross Blue Shield plants who would see an interesting new technology like this is great. We're going to become their vendor and maybe we'll invest in them. It'll be great. And most of all of them just evaporated at some point because it takes so long to get traction. It's so hard to be compliant in this business that just startup unless something amazing happened or I fell in with a VC or a PI guy or team who really got care. I just didn't see, I saw the chances of success is 1 in 10.

[18:02] Host: Yeah. And yet this, this nurse practitioner who founded Triad. Sorry, not nurse practitioner. She was a, what was her position?

Guest: A pa.

Host: The pa. She, she, she was able to do it. Even being not sounds like not super business oriented.

Guest: Well, she, she flew under the radar in the business. Did 150, $200,000 a year for the first four or five years.

Host: Yeah.

Guest: And then as she got more comfortable and aware, she got her name out there. Year six and seven, she started getting more business, started hiring people and that, that got hard and I think she just wasn't ready. She knew what it took to maintain kind of at that. I think her last, the year we bought it, they topped her revenues at about 850. And you know, she could not manage that, not the way she did it. Not without systems, not without infrastructure, not without high quality people you can delegate it to. I saw the trajectory. I had a pretty good sense of where that business could go. We walked into a great brand name. You know the name still. I got a call today from a biotech in California, in Sausalito, who's starting to bring some drugs in from China and wants to put them through clinical trials here, said, yeah, I worked with you guys seven or eight years ago. You're amazing. I really want you to start looking at these trials with us. And you know, she's long gone, but the brand name is really good.

Host: That's fine.

Guest: So we bought that. We had two physicians that came with the business and they're beyond fabulous. And Scott, let me back up real quick.

Host: So you, when you, you and your wife decided you were going to buy a business, what were your criteria? It sounds like health. I assume everything was in healthcare. It had to be in the healthcare industry. Correct me if I'm wrong. What were some of the other criteria, including what you wanted to spend or whatever criteria there were? And what did that search look like? Did you reach out to local business brokers or what? Walk us through that?

Guest: It was pretty haphazard, honestly. Maybe if I'd done a structured search, something would have come along sooner. So I signed up for most of the websites. When I would see a business. I'll talk about the criteria in a minute. The buy thought was a good fit. I talked to the broker. If the broker seemed like they know what they were doing and was honest enough front, then we'd go to the next step and we'd have a conversation, phone conversation with the business owner if they seemed legit and if they had an exit plan. I walked away from a couple businesses because I talked to one guy who ran a pretty profitable insurance brokerage. He goes, yeah, I just want to go ski. And you know, he was probably going to pay two or three million dollars for the business, but, you know, he would have burned through that in two or three years. And he was younger than I was at the time. Like you're going to come back and start up a new business and come get your clients, and I can sue you for that, but I've already lost when that's happened. So the criteria was healthcare, something that generated at least a 50% margin over cost, because you need that. Compliance is hard. I was going to have to have debt service. I needed to pay myself probably more than some other entrepreneurs do, because we did manage our lifestyle. But I had kids going to college. I had a BMW fetish at the time. All that stuff's expensive. That's gone now, by the way. So we, you know, that had to fit. All those had to be stable.

[21:37] Host: And you needed some margin of safety. I mean, you needed to be able to have room to make space.

Guest: Yeah, exactly. So you start with the margin. You start with the owner, you start with the broker. The broker is a huge, huge. And even great ones are going to fuck you over. Sorry for the language. They just are. It is. You know, that's very trepidatious because I'm actually on the market now looking. I'm looking at a couple different things. I'll tell you where we are now and what's driving me up. But that's. I am as concerned about that broker going into it as I was about the owner the first time around. So I did learn the hard way.

Host: Okay, and what, like, what price range were you looking at? I assume that was one of the big criteria.

Guest: So probably minimum would have been what we bought, because I know I could buy that easily on our own. Could I have found an ongoing business at $5 million or $10 million that fit all of those criteria and gotten a larger SBA loan? Probably could have found some path of investors to take us to that next level. And sometimes I look back and think, maybe I should have done that, because scaling to 10 million from 5 million, way easier than scaling from 1 million to 10 million.

Host: Yeah.

Guest: But this one just happened to fit all of that at the time. And had I taken that role at Accenture, I'd have been another five years wrapped up in that stuff, and I would have loved it. But I've been five years older and it just seemed you're never going to get everything you want, just check enough of it to just seem like it was a good idea to pull the trigger.

Host: And so she was doing about the business, was doing about 850 in revenue.

Guest: Yeah.

Host: 70% margins. And then. Can you say what you acquired it for?

Guest: I think all in. We were at about 2, just under 2 million for the business. And about half a million for the

Host: building equipment, 2 million for the business, and half a million for the building and equipment. And how did you finance. I'm sorry.

Guest: Pretty modest. It's fairly complex. We worked with. We got a. An SBA lender that the broker knew, and, you know, he's a great sales guy. It all look rosy and picturesque. They. They work with an entity down in Texas. Guy's name is Monty Walker. Maybe somebody you want to know or somebody you want to interview for this endeavor. He's fantastic, but he's Monty Walker. Yeah, Walker advisory. Okay, well, what he does is help you structure C Corp, that you roll your personal cash into, you roll your IRAs into, and then you use that cash to acquire the business. And it's done in a legally, very upfront, legally defensible way that banks will sign up for. The SBA has signed off, and there are a number of entities out there that. That claim to do IRA business acquisition. And my understanding, I'm not expert. Is that they're very much on legally shaky ground when they do that. Monty runs a very tight, tight ship, and our compliance burden is very high. If we don't do what he says, I get a nasty call. Very polite, nasty call from him. So it's a combination of cash, ira, SBA loan with guarantee. You know, we put a lien on the equity in our house, put a lien on probably a million dollars worth of investments I have elsewhere, you know, pretty secure. But, you know, I knew within that range, you know, even if things went south, we crashed, cratered for a year, which never came close to happening. You know, we'd be able to pull this out and keep.

[25:34] Host: Keep the.

Guest: Keep the ship.

Host: And you knew that just because the business was so profitable, why did you have that certainty? Like, how did. How did you convince yourself that it might like that? It. That it would just. Would never go to zero? You know, worst case scenario couldn't happen.

Guest: So, having worked in health care, knowing something about drug development for quintiles, there is a site out there that's run by the National Institute of Health. NIH is called ClinicalTrials.gov. so if you go out there, every clinical trial, any drug, anywhere in the world that anybody would ever want to sell in the United States, which is every drug, every study gets listed out there, and you can slice and dice it. I downloaded all that data. You know, it's public domain, it's free to use. And I looked at, you know, for the 80,000 clinical trials that have run anywhere in the World last. Over the last 10 years. 20,000 of them are open now or were open then. Another 10,000 were in the process of getting ready to open and start recruiting. Most of those clinical trials never make their recruiting goals. You know, that ability to run a clinical trial, find subjects, get into the trial, stay in the trial, pay it out, is very valuable. It's very rare. It's getting harder all the time. And I knew from looking at the financials, looking at how the business model worked, that this woman had figured all that out. Didn't scale well. Could have been done. Couldn't have been done much more efficiently because she didn't spend money on anything at all. But I had enough room to make investments to be much more efficient about it and be much more structured should circumstances come to pass that there would be no demand for clinical trials. We're in such an economic depression or there's been such a revolution and the financing of health care that I'm hosed anyway. Yeah, so we never say never. But, you know, apart from doing a Walter White and making crack in a. In a. In a mobile home, in an rv, this is as secure as a business that would come.

[27:46] Host: You just dated yourself by referring to crack. I think it was meth. Crack is very 1980s.

Guest: All right. Biker met. Biker met. Yeah, that's right.

Host: Okay. And so this deal. And so Triad was her brand, because I noticed on your LinkedIn now it's triamed, is kind of the parent organization, but I should refer to it as Triad.

Guest: Triad's fine. Yeah. Nobody knows who Triad is. It's for legal purposes.

Host: Okay, Triad. So where was this particular deal? Where did it come from? Did it come from a local broker? Did it come from one of the websites?

Guest: So I think it was on Buy Biz Sell. Yeah, that makes sense. I lost track of. There's three or four I was signed up with. I filled out the form and the broker called me and we walked through it. He was looking at. I think he had. He brought four buyers to the table, and I was able to get their bid packages because that belonged to the business. Now that belongs to me. And I went through it. You know, I think we made the most compelling case for. To remit to understand the business and remain successful. And I think she. She wanted to be sure that. I mean, since her legacy source wanted to be sure the business would be in good hands and, And. And not. Not be, you know, not go broke or run afoul the regulatory agencies and that kind of stuff. But that was. I'm Sure I filled out that. Yeah, I can remember now sitting in a airport lounge talking to Ron the broker initially and then setting up a time to come meet the owner. But, yeah, I think I definitely found it through the website.

Host: Okay, and so she liked your offer, not strictly for financial reasons, but because she thought the business would be in the most competent hands with you.

Guest: Right. You know, I think what I did, which was both foolish and smart, was I went with the SBA lender that the broker had a relationship with had prevented the business. I think I know because I was approached by other SBA lenders with more attractive financing. But we would have lost two or three months in the due diligence process. So I may have had a better financial offer from my standpoint, but I think we would have lost the business to a better prepared buyer. So we slightly overpaid for speed and smoothness. Now, do I regret doing that? Is. I regret doing that. But I think in the sense of expediency, that's what won the day. Like, we. We were the first to have a check in their hand on the earnest deposit. Yeah, we had solid financing ready to go, you know, so I, you know, always nervous. It's like going to a car dealer and signing up for everything they put in front of you. It's. It's never a wise mistake, but it gets you out on the road much more quickly.

[30:39] Host: Yeah.

Guest: So that's. I think that was kind of what would help to. And, you know, having been an executive at Quintiles and Quintiles is one of our bigger clients right now, you know, she felt like I'd be able. I had. I have the network. If I needed to call the CEO at Quintiles, I could go talk to him. I never need to do that, and that would not be appropriate. But, you know, I can reach out and I'm comfortable. I've negotiated with these CEOs, CFO, CEOs of Fortune 100 companies. This doesn't. She was very, you know, she was a woman growing up in the rural. Semi. Rural South. You know, jerks like me in suits, big offices, intimidate her.

Host: Yeah.

Guest: You know, like, does not bother me at all. So she felt, again, I kind of competed. The other stuff she said, what the broker said after we signed the deal, I think that was what she wanted. There were some folks. There was one guy who was a physician who wanted to buy the business, and it sounds like he didn't really understand what he was doing. And then there was a. Another couple who owned five or six car washes that were pretty profitable, and they were just looking for something to diversify. And I, you know, that's her calls and what she liked about them or disliked about them. But, you know, I felt one of the reasons I wanted the business is I felt anything we need, I either know what to do, I know who to call, or I've got enough experience to figure it out.

Host: Yeah.

Guest: Before it turns into a crisis.

Host: Yeah. Yeah. That's huge. Obviously. I mean, for her, but also for you.

Guest: Sure.

Host: I mean. I mean, I have a lot more confidence acquiring this business as you versus as an owner of car washes.

Guest: Right, right.

Host: So what was day one? Look like? You acquire the business, and then you come in and greet the employees. Just, you know, kind of, what's your. Where's your headspace? What does that look like? It's got to be an intimidating moment.

Guest: Well, you know, this is probably neurological deficit of mine, but, you know, my role for years was always rainmaker, deal hunter. So when you close the deal that first day, it's just. That's like your. That's like your. Your wedding day and the day you lose your virginity on the same. You know, it's like this is. This is. You know. Did you share these comments? But it is just the best day. So I walk in there and, like, here, you know, I've worked for quintiles. I did this business. My wife and I are going to run it, and we're very excited. You know, we didn't buy this because it's a great building. We bought it because you guys have been doing great work for years. And this is true. I mean, I've lived and died by my team, so I can look back on my consulting successes that have been over the moon. That's because I had a great team. And when I struggled or occasionally failed, it's because I didn't have the right people.

[33:23] Host: Yeah.

Guest: So I made it very clear that, you know, we bought this for you, not the building or the name or the cash flow. That has very little value without you. So I spent time with the owner, spent time with the physician. We have a medical director who serves as principal investigators. Very, very important. Spent time with him, and he and I bonded very well. Such a. Such a good guy. My wife was kind of watching the room, and I think she just kind of saw the look of horror and panic in every other staff member's face. The more I spoke, the more uncomfortable they were at the situation. Well, so as I learned and pieced things together because we had 100% turnover those first three or four months, like, except for Dr. Montgomery, and 99.5%. Like, everybody left either one or two. We just had to fire. Like, you have no clue what you're doing and you're not even nice about it. You're not trying. I think that the previous owner had become so tense over the negotiations and all the work that had to be done because she didn't have computer files, she didn't have historical contracts, she didn't have accounts receivables documented. She was jitting all this up in the background while trying to run the business. And I think she was very stressed. And I think that stress was communicated to all the employees. Two had left or already had job offers in hand the day the deal closed. And looking back on their work, I think we would have had to fire them anyway because, again, the previous owner hired very inexperienced people at the lowest possible hourly rate and figured she could go back in and clean up their work afterwards, which we wouldn't do. We couldn't do. Never done that job. I'm not a physician or a nurse, and that's not how you get work done. You have to be able to delegate to people who do things. So that first day was just really understanding what. What looks solid and reliable and actionable based on, you know, their business plan and the marketing package versus the reality of what was there, what had to be done. So that was. Yeah, that's. That's a long. Feels like a century ago, but it wasn't that long ago.

Host: Well, I. So I assume. I want to ask about the challenges that you encountered when you first acquired the business. And it sounds like you've just answered that, which is turnover. But it also sounds like maybe you were. That wasn't quite. Wasn't maybe a challenge. It was maybe the people who left of their own volition that was welcome because you had avoided you having to let them go yourself, and you knew that they weren't going to. One of the things that you were going to change was the quality of the personnel there. So, anyway, what were the challenges or the biggest challenge that you found once you became owner in that first two or three months?

[36:14] Guest: So the biggest thing is that the. The backlog and pipeline were wildly overstated.

Host: Overstated.

Guest: Overstated such that I would. I did worry about the Via Leo business and I did engage a litigator to review everything. We had to potentially go back and get some money back from the previous owner. We decided against. We decided against doing that. He felt we had A very strong case. But he said, honestly, It'll take us two years. You may get half a million back, maybe 300,000 after my fees, but you need to spend that time and energy getting this thing turned around.

Host: Wow.

Guest: So. And there's a couple reasons for that. Number one, the business ran on a cash basis, and we still run on a cash basis.

Host: The.

Guest: The contracts are written per enrolled patient, and sometimes patients drop out, sometimes studies end early, and sometimes you may have a contract or 15 or 20 patients, but, you know, you're slow or for the reason you can only get five or six heads. Then it really looks like six months before the deal closed, the previous owner really took her foot off the gas. In terms of marketing and seeking out studies, new clinical trials. You know, there's a bunch that are open for very complex indications or very rare indications. I could, if I made three phone calls today, have five contracts in two weeks for studies. It'd be almost impossible to deliver. You really want to spend time finding things that are going to be in your sweet spot, things you can enroll. Well, she's really taken her foot off it, the guest there. So, you know, I basically put a lot of the investments and process change and some of the hiring on hold so I could strictly focus in on business development. You know, making new contacts, reaching out to old colleagues in the business, and just really building that pipeline back up. And it took me about six months to get that pipeline back into shape to where I thought the business was when we bought it.

Host: Well, fortunately for you, rainmaking is your thing. Yeah.

Guest: If I didn't have those contacts or just the willingness to keep on the phone until people called me back, that could have been a moment.

Host: And I mean, you must have been. I mean, even though you were pretty confident, there was a lot of margin of safety in this deal. I mean, I think this is what scares off a lot of would be acquirers is the prospect that you face, that you in fact face, which is you buy the business and you find out this revenue that you're depending on is not going to materialize. So how are those conversations between you and your wife? Were you guys scared, or did you basically have confidence that you could pull it out? Scott, I lost your video.

[39:09] Guest: Yeah, no, sorry. Hey, there we go. A call came through about my iPhone. Those were. I think we upped our alcohol intake significantly at that point. Yeah, no, same thing we did during the pandemic. She. I mean, she. I don't think it was about 18 months later as she began to take on More responsibility in the business. She looked back and really understood how precarious that situation was. Yeah, you know, her, her degree is Russian studies. You know, she's multilingual. She used to manage the consular section, embassies, and then she stayed home and raised kids. She does it. She has an amazing business head down. She's fantastic partner in terms of business, but, you know, none of that background before. So I just said, hey, this is dicey. There was some money, residual cash flow in the business that the owner claimed by the contract, probably additional three or four hundred thousand dollars they anticipated would be handed over to them for lots of reasons. I just put my lawyer on making that stop. And so we had lots of ugly, unpleasant conversations with the owners. And, you know, we had the owners because we made some of those payments. And when I realized where we were, you know, I called them into the clinic, sit down and said, we're going to talk about this stuff. You know, we're going to be God of business if I give you this money. And it was pretty ugly, nasty, which I'm used to. I mean, I've been in lots of contentious negotiations, but my wife was a little stressed out about all that. And so we worked.

Host: So your lawyer advised against suing for to reclaim some of the purchase price, but in fact you did. You had a schedule of payments that you were going to pay the previous owner that you did arrest. You said, we're not going to pay.

Guest: Okay, Right.

Host: So ultimately she did not get her full price.

Guest: She did not. She did not. Probably two or three hundred thousand dollars less than she had anticipated. And so the other underlying thing is that we didn't really get. And where she was materially misleading was the cash collection cycle in healthcare. It's notoriously slow. And here even more so. You know, if you own a clinic, you know, people show up and if you're treating them, they show you their Blue Cross card, they give you their copay, and by state law, Blue Cross is gonna give you a check within 14 days. So they pay interest and penalties. Here we get paid per visit. Most of our income is per visit or a patient in the study. But once that business completed, all the data's got to be entered. They got to look at the data. Yeah, this is complete. It's good. It's a good visit. Now we'll put that in our payment process so it can be a month before they look at that data. And the contract can be. It's still very typical to have 90 day payment cycles in this business. So I don't take that anymore. Well, unless I can get a good private do that, but you have to cover my float and then some. So we were looking at, based on everything she told us in the financial information that she shared, which was not complete, you know, I estimated average of 45 days cash collection and it was closer. It was well over 120, maybe 140.

[42:35] Host: Wow.

Guest: And so it was just like, I know we're going to get this money, but we may not be around the cash to check. And so the lawyer pulled all that, said, yeah, you've got a great case here, you missed some things in due diligence that are going to be your fault. The judge is going to ding you for that. And I agreed. But you know, they were materially misleading in a lot of things.

Host: And so what had you missed in due diligence? I mean you've explained the situation. But what, what specifically could you have done or could you have asked or pressed her on during due diligence to have uncovered this?

Guest: Well, I think part of what made the business attractive was the lack of systems and structure and process. So when you say operated on a cash basis, truly a cash basis, didn't know week to week, month to month, quarter to quarter, what cash was going to arrive regardless of the underlying work activity. There was no system in place to adequately track that. So this was all a kind of literally had hand, not kidding, she had hand drawn spreadsheets with a ruler and a pencil saying, well, I've got this many patients, they've completed this many visits, they had this many outstanding. And get your calculator out. And here's the bottom line.

Host: Wow.

Guest: And she had missed a lot of things. Some of the studies ended early. So what was presented is, you know, we, I estimated from everything I had in front of me that there was probably a million and a half dollars of backlog on its backlog. That pipeline backlog like booked work. It ended up being about $500,000. So there was probably a million dollar mess, you know, apart from getting into the building and spending a week or two going through all the files and verifying with all the charges, which was never going to happen. She was not going to tolerate that. You know, I just, I was, I probably so a little myopic, probably wildly optimistic about what was really there because I wanted this business to happen when this deal to happen. Yeah, you know, I got my, my emotions got out ahead of my, my logic on that.

Host: So.

Guest: And I think that's a common problem in acquisitions like this, if you're buying a donut shop, you know, doesn't matter if you're on cash basis or accrual basis. Flour comes in, the fried donuts go out the door and it's all in the cash register. Dealing with services like that, I think it is very hard to nail down backlog if you're not on a accrual accounting basis with a reliable system underlying. And we're still not. We're still operating on cash. And I've got a much better understanding. I keep getting messages. That's what I'm doing that. Sorry. I have a much better understanding of where we are on an accrual basis, but I think we're probably two to three years from moving to an accrual basis for accounting. Okay, okay.

[45:33] Host: Well, I mean, it sounds like it's hard for you to advise like another business buyer in a situation like this because as you said, I mean, to really have uncovered. I mean, because it's a cash business and because the existing business owner wasn't going to let you come in and camp out in the business for two weeks to really see under the hood, at some point there was kind of nothing more you could have done. It sounds like that's what you're saying. I mean, I guess the question is what would you advise your past self to do or some other would be business buyer to do if they're buying a clinical trials business?

Guest: So I'm working with two guys down in Florida. They run a. A chain of wholesale coffee roasters and somebody's got an uncle who's a doctor and they're. So they're looking to buy clinical research sites. So they send me somebody a couple pounds of free coffee every month and I spend an hour or two on the phone with them kind of walking them through it. So I feel like I can, you know, you gotta. I think you've got to have some confidence and maybe an irrational confidence that even if this is as bad as it could be, it's still a workable deal.

Host: Yeah.

Guest: And I'm going to do it. And again, I think I did in the interest of expediency, wanting the opportunity for lots of reasons and knowing even if it's really awful, I can pull it out. I think that I gave myself some implicit permission to be a little bit sloppy.

Host: Yeah.

Guest: So I think that's part of the decision because part of this is getting the deal closed has a value in and of itself that figures into the price of the business. I've done acquisitions for healthcare Companies and due diligence is a very different process, you know, very different what we do here because it's so small. But what I tell these guys is like, you really, really understand that backlog. And here's how I would define backlog. Here are the things that make backlog that, you know, depreciate the value of backlog. Make sure you factor that in before you put a price on it. And pipeline is, you know, I can show you five versions of my pipeline that are. We're going to make $2 million next year. I could make $30 million next year based on all the potential deals out there. That pipeline is a work of erotic fiction in my mind. It's, you know, it's. Unless you really know these companies, you're going to get this. You feel like enroll at those studies. It's not really shouldn't into your. They really push the potential pipeline as part of this. So it's again, I think for any entrepreneur or business owner at this level, if you're going in to buy a $50 million company with private equity backing and you've got analysts and better information to work with, you do a very different structured due diligence. You come down without having. But that's not, that's not where we were.

[48:29] Host: No, no. And that's not who our audience is.

Guest: Okay.

Host: We're bumping up on time, so I just want to. But I want to make sure we touch on what has happened since. So you went through this very challenging, you know, once you took ownership of the business, but according to what I cited earlier, you've tripled revenue. So just tell me, kind of tell me what's happened in these, in these last three or four years and how close you've come to what you had hoped.

Guest: Well, we've gotten. We have a much better staff, just very experienced clinical research people who are emotionally and mentally committed to doing clinical trials. They've been nurses in physicians practices or CMAs. They love the research side of it. They're intrigued by the science, but they just love. So when you're a patient in a clinical research study, when you come into the clinic, you're here for sometimes at least an hour. Sometimes you're here for 12 hours.

Host: Yeah.

Guest: So you get a lot of time with our doctor, get a lot of time with the nurse. We need to know everything about you. You're the center of our world. You're the most important piece. You're the most important thing that's going to happen today. And people like that aspect of Health care. If you're in a practice right now you're seeing 30 patients a day. That's not health care by some definitions. Yeah, so we have people that get that, you know, we offer, we offer slightly lower compensation than some other companies in town, but we give them very flexible work life. Like it's spring break, I got three teenagers in there doing make work for six bucks an hour because their parents want them home playing video games all day. But you know, that's, you know, so we try to start, we want that work life balance. While for our employees that my wife and I were looking for, we found a handful of really great physicians to add on to Dr. Montgomery, our investigator. And they love the science and they, when the sponsors look at the resumes of the doctors I have, they just are so excited. We got our urologist, 25 years of experience, loves urology and it just comes through. So they know we're going to take great care of these patients. Yeah, I've outsourced a lot of our. I've hired a full time recruiter. I got one guy, he spends all day on the phone talking to people who've been in our studies before, answered our Facebook ads or Google Ads, whatever, and he interviews them, gets all the healthcare data into the system, screens them for studies. So full time patient recruitment. And we've gotten very good at figuring out which studies we do really well on. And the last 15 studies we've done, we've hit our enrollment goal quickly, relatively quickly. And I would say there are five studies in the last 18 months. We're the top enrolling site in the country like nobody else in the country. There could be two or 300 other sites. Sometimes it's less. Nobody enrolled more than we did.

[51:23] Host: Phenomenal.

Guest: So what happens is now suddenly my overhead charges go from 20% to 35%. You know, my hourly rate for the recruiter. I can burn so much more revenue on each study because when I go after a study, I tell them I'm going to do 20 people. You're looking for 10, I could do 20, give me some more advertising dollars and another, and let me hire another part time recruiter. I could potentially do 30, but it's going to cost this. And then I stop talking. And if they waver, said, we're not really into that, I said, well, okay, you know, we work with sponsors more engaged in their studies. So based on the quality of my staff, based on our results, I just negotiate much more aggressively and I walk away from studies that are clients who are not you know, it's pretty clear when they send you the budget, it's like, well, we're looking to do this quickly and inexpensively. And I said, yeah, go push your development costs on somebody else. You know, we're not here to see if we can do something good for you and maybe we'll get paid. And the big companies like Novartis, AstraZeneca, they love that mean there, if we can get. It can take five or six years for drugs to go through the development pipeline.

Host: Yeah.

Guest: And if I can be done a year ahead of some of the other sites, you know, they're there to market a year earlier. Yeah, that's. That could be hundreds of billions of dollars to that. So if you give me an extra $300,000, and they would have two years ago, because I can. I perform better, you know, that's a very sellable deal.

Host: Sure.

Guest: And that's. That's kind of where I was with Deloitte. You call Deloitte when things are really serious. You got it done. Yeah, I'd show up and my partner rate was 900 bucks an hour. And you paid that rate. Not to me, unfortunately, but into the partnership. But those are the things that have changed and really focused in on the right team, the right work, doing a great job, being able to verify that, then using that as your go to market message. And we just got very good with social media and our website getting people interested in clinical trials.

Host: And so you acquired the business when it was 850 in revenue and what is it? And that was in 2015?

Guest: Yeah, yeah. Closed 2015.

Host: And what is it?

Guest: No, actually it rolled up. Yeah. So we're going to hit about probably right. At 3 million this year.

Host: Right at 3 million.

Guest: Yeah. It's phenomenal. And we're out of space. I mean, I just can't get more people in the building as it is. So we're looking at expansion plans for bigger building, different locations.

[54:02] Host: You said earlier that there's nothing but upside for this business. How big do you think you could grow it?

Guest: Well, I've got some personal parameters. I don't want to get on airplanes regularly for work anymore. One, I don't want to have to manage a bunch of obnoxious prima donnas like me. And that was the biggest pain in the job. My rear end, as I got more senior. I don't want that. So, you know, I think we could take this business to 6 or 7 million, kind of with the current management structure we have. And at that point we become more of A corporate entity that would require probably more infrastructure and more administrative than I would personally want to do. And at that point there's a group of VCs out there who are acquiring clinical research sites. Maybe eight or nine years, five or six years. I've talked to them. I talked to a couple of other folks on clinical trial sites around the country. We thought about a loose partnership.

Host: Yeah.

Guest: So shared equity, joint when. That way we can all have three or four different patient recruiters and ship resources around. Maybe something like that. I don't know. I love the autonomy. I just got an email from a broker who's got a couple of clinical research sites for sale in Austin, Texas. Yeah. That she'd like us to bid on. And you know, if I had to fly, I could fly to Austin, Texas. It would not be bad.

Host: There are worse places to go build a business.

Guest: There are worse places. My older son starting at UNT Asheville in the fall. So we're looking for businesses maybe in Asheville. You might want to retire there. I don't know what part of the country live in the nationals pretty nice up in the mountains.

Host: Yeah, sure.

Guest: So, you know, kind of my story now is that all I'm really doing is business development negotiations. I don't do any day to day stuff. I've got time on my hands so I'm looking forward. Hopefully this will help get my name out there a little bit. You know, I'm talking to a couple of fractional CEO CFO type headhunters putting people in small startups to, for a fee to help them, looking at other business opportunities. It's going to have to be that perfect confluence. I had a team of MBAs from a local university build a expansion plan for acquiring another building and building it out. And I'm in the process of flushing that out and starting to network for investors. So I don't know, I can't do all of those obviously. But over the next year something will, will rise to that level and get my attention and we'll move on. I don't know what that will do.

Host: Well, it sounds like you've got a lot of different opportunities, which is always a good place to be. And it sounds like it was the right decision to get off the consulting train out of that pyramid. And now you've got autonomy and time and resources and you don't have to get on planes unless you really want to.

Guest: Right.

Host: I mean, do you consider this a happy ending? You're not at the end of day the story, but where you are now I think so.

[57:04] Guest: I think so.

Host: It seems like a great, a great case study, a great success story.

Guest: Well, I mean, there are dark days, hard days, days you don't sleep with a very different level of stress. You know, if I lost a deal as a consultant, you know, I go find another one or the, you know, the practice will carry you for a year because everybody has good years and bad years. You know, there's nobody here to carry me. You know, there was a couple weeks in there, I just don't think I slept at all because I really felt like we were going to fall off a cliff because the pipeline was not. What? Because the backlog was so, so weak compared to what we thought. You know, I didn't build enough working capital into the business and the bank was not. You should have fucking figured that out before we wrote you the check, dude. There was not. And you know, I could. It was very, you know, a level of stress and fear that you don't really get when somebody else is cutting you a paycheck every two weeks. When.

Host: When what?

Guest: That's when somebody's cutting you a paycheck every two weeks. Right. You know. You know, so I would tell my family when they wanted to do something, well, we want to get this. I said, look, I've got to earn $5 for us to have a dollar to spend. And now with this business, I got to earn about $30 for us to have a dollar to spend. You know, that's a very different level commitment to your business. So it's had moments where if I had a weak heart or didn't have confidence in my abilities, I think you might have thrown the towel in that I never had working in the corporate sector. But yeah, this is definitely the right thing. My only real regret. That sounds, you know, camp and try it. But I wish I'd done this 15 years ago. I mean I really. For the mistakes I've made. I would have made those back then and figured stuff out, be further along. I mean I'm working with this guy who's a 20 year younger version of me who's bought three sites in the last five years. He's gonna be a multi millionaire well before he retires. Damn thought about doing it that doing it back then.

Host: And how old are you, Scott, if you don't mind?

Guest: 56.

Host: 56.

Guest: Okay. Yeah. So I got another good 10 years. Yep, yep.

Host: Great. Well, thank you very much for doing this and being so transparent about the ugly stuff. The numbers, all of it. It's a really interesting story, is there any, is there? You said you wanted to kind of maybe get your name out there. Is there any way, anywhere that you'd like our direct to direct our audience to, I don't know, find out more about you? I mean, your LinkedIn, obviously.

Guest: Yeah. So LinkedIn is a little out of date. I'm having somebody update that as I do the fractional executive search. But LinkedIn, you've got. Do you have my phone number? I can give you that or my email?

Host: Sure, why don't you give me both?

Guest: So it's Scott S c o t t witt w h I t t@outlook.com and the number is 919-537-5304.

[1:00:10] Host: Great, Scott. Well, don't hop off the phone, but I'll wrap up our recording here. Thank you very much for doing this. I learned a lot. I think our audience will too.

Guest: Cool. Happy to do it.

Host: Thanks.