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 if you're listening to this you're probably a professional a quote unquote white collar professional used to working at a desk with a computer if you're somebody like that and you're considering buying a business that is blue collar that is going to be a big shift for you so my guest today search investor shannon jones and i discuss the realities of acquiring a blue collar business shannon expresses these realities beautifully and with lots of interesting stories along the way this is one of my favorite interviews so far really an important and delicate topic with a guy who i think you'll agree has thought deeply about it and and seen it shannon shares some of his own scars from his experiences enjoy my conversation with shannon jones shannon jones thank you for joining me today on acquiring minds i am psyched to

Guest: be here i've been serial binging your show for the last month and much smarter for having done so so i'm excited to be on and really honored to be on i appreciate that well

Host: you are the founder of hallstatt legacy partners which which invests in acquisition entrepreneurs who are seeking to buy a business and you founded hallstatt legacy partners six years ago in partnership with the halstadt family office hallstatt is a big name in southwestern florida based out of naples i'm going to ask you to give a proper introduction of yourself here in a minute but just to set the stage for our conversation because i've been really eager to have this conversation we're going to talk about the sort of disconnection between the fact that many acquisition entrepreneurs searchers are for lack of a better phrase white collar they're professional types people listening to this podcast i include myself in that have probably never broken a sweat or a nail in their professional lives and many of the businesses that are talked about as acquisition targets in this world are blue collar businesses plumbing business a fencing business a landscaping company and so the people that work in those businesses not only the employees of those businesses but many times the founders themselves are also are just are blue collar and they have a different frankly a different perspective a different day to day than you the acquisition entrepreneur and so there's a lot of miscommunication that can happen in that in that cultural difference and this is something that people recognize but i don't feel like it's talked about directly a lot it interests me personally a lot so as i said i've been eager to talk

Guest: to you about this you have direct

[3:01] Host: experience with it you have indirect experience with it you've observed it many times so you're a great guy to talk about it and i've already heard you in other presentations talk about it so that's what we're here to talk about before i start peppering you with my questions please give me a minute or two on yourself sure happy to do

Guest: it so as you mentioned i founded halstead legacy partners in partnership with the halstadt family office six years ago it was really a marriage of two distinct interests hallstatt or the family behind hallstatt's interest in investing in the acquisition of businesses in what i would describe as the lower markets and my interest as i guess by some definitions an entrepreneur and now an investor in helping entrepreneurs achieve what is a really important and existential and really hard goal in their lives and so over the course of the last six years we've conducted seven searches we've acquired five businesses we have one partner currently searching and in the next call it well by the end of the year i'm hoping to invest in three or four self funded searches some of which would be relevant to this conversation but among the five companies we've acquired one is a concrete and asphalt paving business based in durham north carolina one is an acoustic ceilings and acoustic systems sound abatement installation business based in tampa and one is what's called a resurfacing business or a make ready business which is basically a painting and contracting company that specializes in serving the multi unit basically rental apartments industry so three kind of classically blue collar businesses and two more seconds on me i have a family history of entrepreneurship which is how i eventually came back to being an entrepreneur after starting out a career in finance and realizing that wasn't the right space for me my mother owned a marketing agency and my father owned a manufacturing business that did heating and cooling systems for injection molders largely in the auto supply chain and so i spent my summers learning how to weld not very well this is maybe why i followed ultimately a more bougie path and sweeping up the shop and doing stuff like that so yeah i'll stop there okay well that was a

Host: great intro shannon i found you actually i referred earlier to a presentation that i've seen you talk on this topic and so i found you at a presentation on search funder where the title was poets versus quants so how to approach acquiring a business as a poet versus as a quant so i think a lot of that presentation will be relevant to my questions so i want to ask you to give us a very abbreviated kind of four or five minute recap of that presentation and what it means to treat acquisition entrepreneurship as a poet rather than as a quant

[6:15] Guest: well in a nutshell my hope was to draw a distinction between the way some people see this exercise of entrepreneurship which is to say they think about it in terms of investments and irr and return of invested or multiples of invested capital and multiples and is it a three times or is it a five times and it's not that that is irrelevant but from the seller's perspective it's not as relevant as some of the more squishy and personal aspects of who you are as a potential buyer and how they're thinking about who they should choose to sell their baby to in a manner of speaking and so the point i was hoping to make or to sort of poke people was about about was how best to or the best ways to foster connection to build relationships and to achieve a degree of trust and understanding with a seller are through these squishier subjects and i think about those in terms of really four key concepts the first being self reflection and it is not unusual for me to interact with an aspiring searcher of all different forms who can't really tell me why they're doing what they're doing other than that they really want to own a business which leads me to wonder so one there's about what they're doing and really at the end of the day if you can be

Host: brutally

Guest: self reflective defining your why why are you doing this not just like i want to own a business but why for you and your family and the people in your lives is this important and why would you forsake other career opportunities to do this what are your values what are your objectives what are you afraid of what are you not good at what are you really good at all those things can be woven into a story that helps people understand who you are and helps them kind of latch on to the components of that story that they find interesting they might identify with and fosters eventual connection it's really at the end of the day the point of all of this is connection between you and the seller is what's going to be the difference between you getting a deal done and you not the second point is vulnerability right so i think a lot of us are habituated to talking about ourselves in terms of like linkedin profiles these are my professional achievements these are all the metrics that in a conventional realm should suggest to you that i am smart accomplished capable et cetera really more important in building a connection with someone is you being vulnerable and taking the risk of revealing who you really are through telling that story it's taking that vulnerability that will one allow somebody else to understand you and two elicit a form of reciprocity coming back they'll start to reveal things about themselves to you and again that kind of give and take of information that i would argue you should take the risk to start is what will continue fostering this relationship and connection between you and the seller the third thing is curiosity i'm a huge fan of a fairly recent malcolm gladwell book talking to strangers and the overarching takeaway for me from that book is look we're all much dumber about other people than we think we are i think this is particularly true for smart educated people we have a sense that hey i'm intellectually capable and i know what's going on in your head the reality is you really don't and the only way to know is to ask good questions and be humble and listen but the real value behind being curious the real value behind curiosity is and this is a concept i've stolen from jim sharp and if you're not reading jim sharp's blog religiously you should jim stein sharp i'll link to it in the notes yeah it's understanding the seller's why is essential because that's what will handicap for you whether or not you have any chance of doing this deal that you're talking about understanding their motivations their fears their objectives and determining whether or not you are in a unique position to give those to them or to help them avoid the fear will determine whether or not a deal is likely to be yours to have and the last one is empathy do you have the ability to recognize and understand the feelings of someone else if you've gone through the first three you've created connections and you've been asking good questions you can use your understanding of that other party in order to and use the empathy related thereto to work through the inevitable difficulties in the deal process i've never heard of a deal that didn't die a couple times before it ended up happening and it's having empathy and an understanding of the person across the table and thus a way to sort of reinterpret some of the things that we might in a very visceral and immediate sense have a negative reaction to but at least having an appreciation for where those might come from why the seller is afraid that you're going to screw up their business or you don't really have the money to get the deal done or that the employees aren't going to like you or i'm giving you this big note but i don't know if the customer is going to like you and what happens if all these things if you have empathy for the other party when the inevitable hiccups come up you can get through them so that's in a nutshell what i talk about or what i talked about in that presentation and it's what i try to remind our partners of when they're interacting with really anybody but in particular in this kind of buyer seller relationship because it helps them refocus on the relationship aspects of deal making which i think determine whether or not a deal gets done and focus less on the dcf the lbo and the multiples which everybody likes to talk about because they're easy but that's

[12:13] Host: not why the deal gets done shannon in working with searchers do you find that of those four things that one is particularly difficult for your average searcher

Guest: to perform well i think the self reflection is i'll answer that two ways one is more difficult and one is like least done self reflection is least done and i think that's for a couple of reasons and at various points in my career i'm an example of this i considered doing a search back in two thousand nine twenty ten and i was so shocked like many people when they first become acquainted with the concept of search entrepreneurship that there was such a thing that i stopped looking i had a meeting with coley andrew from pacific lake and i was like oh my god i could raise money they will pay me to do this i go find the deal they give me the money to buy the deal i own a lot of the deal this is the greatest thing i've ever

Host: done and then i become ceo and

Guest: i'm ceo which everybody knows i should be so this is the most amazing thing ever yeah now i ultimately elected not to do a search i met my wife at kellogg she is by far the better half in our partnership she was kicking butt in her career and i couldn't commit to and we wouldn't commit to going just anywhere her career was happening in san francisco and we weren't leaving san francisco yep i did not you know if i had really been thoughtful about what i was trying to do i probably i might have ended up doing a search but i was so focused on the one aspect of it that i found interesting i failed to really evaluate more broadly like why is this interesting to me and what are we really trying to do as a family and a partnership and a couple and all this stuff and so i punted and went in a different direction ultimately i'm happy with where i ended up but i didn't really spend the time after being exposed to the initial shock that there was such a thing as search entrepreneurship to really be thoughtful about what i was trying to do the other thing that i think is hardest is vulnerability and i just think that it's really hard to admit you don't know it's really hard to admit you've made mistakes it's really hard to admit that you're afraid nobody likes doing that but the reality is and i think we may end up getting into this a little bit more later but the reality is i think it's better for you to just address those things up front because the seller is thinking them about you anyway the seller's thinking gosh this person is really young or gosh i don't know if this person has the money or gosh this person has never broken a fingernail or had a callus in their life you may as well acknowledge their concerns and maybe to some extent that you actually share them because that's a way of fostering connection what i find a lot of entrepreneurs do is they try to do these data dumps immediately upon meeting let me convince you that i'm really smart and i know a lot about your industry i would argue that's ultimately kind of self defeating because the person that you're speaking to in the case of a couple of the companies we've acquired with our partners they've been in the industry longer than the person who's now the ceo has been alive you cannot convince them that you know their industry and that you're really smart about it you're just by definition not you might be a smart person but you're ignorant about the industry i think there are natural reasons why people are very hesitant to be vulnerable but we've seen time and again the benefits

[15:46] Host: well i suspect what do you think of this that not to belittle these companies or their industries but what a lot of people say is that these are simple businesses fundamentally pretty simple businesses and maybe therefore the industries too are pretty simple so where the challenge is is not in noodling out all of the industry dynamics the challenge is in the managing of the people and in doing the work and so if you come in swagger into the interview with the seller showing how book smart you are in their industry not only are you looking like foolish because they have thirty years experience and you have two weeks of reading about it but you're also just kind of optimizing for the wrong thing they don't really care as much about your book learning on their industry as they do they're looking at probably as you are you a capable leader are you somebody that my team is going to feel comfortable working under

Guest: will the team feel comfortable and will my customers feel comfortable and customers of course yeah great well let's get into

Host: these questions shannon so thank you for that rundown that was great and i will link to the original presentation in the show notes and i encourage everybody to go watch it it's on youtube via search funder so the first question is simply it goes to this quant versus poet thing people i think are attracted to blue collar businesses because they see these low multiples it's very kind of a quantified analysis it's like oh i can buy a company that's generating half a million dollars one million dollars in earnings for multiple but the actual day to day of running a plumbing company is a different beast than sitting behind excel how can i answer the question of if this is something i really want to do putting aside how good it looks on paper yeah that's

Guest: a great question i think the most underrated i actually heard steve ressler say something about this again his recent visit to your show but i think the best way to do it if you have not been in the context is to put yourself in the context and the best way that i can think of is to try to shadow somebody who's in that context so if you're considering buying a plumbing business i don't think you should employ people to do work that you either haven't done or you're not willing to do yourself and so this is the universal solution i think to things you don't know about searchers who say they're aspiring to search i ask them have you put yourself in the position to understand what it feels like to search or have you worked in a small business if you want to buy a plumbing company i would argue figure out a way to shadow a plumber figure out is this a context in which you want to be spending the vast majority of your waking life are these conversations that you want to be having or constantly thinking about as an entrepreneur because you are constantly thinking about your company and the people in it and the best way that i can think of is to take it from a hypothetical into an actual experience and the best way to do that is to be doing it or with somebody who's doing it and experiencing that the second thing i would say is ask yourself related to that concept of i don't think you should employ people to do things you wouldn't or haven't done is ask yourself what are you really willing to do anecdotally i'm partnered with a person who i don't think anybody on his team knows this about him but he has a harvard mba and he runs a concrete and asphalt paving business and he knows how to operate a milling machine because his milling machine operator had a heart attack they had only one milling machine operator and he realized pretty damn quick oh i need people skilled in this and you know what if we're going to have people learning i may as well do it too so a milling machine is this massive thing that chews up parking lots and roads and it's this humongous thing and my partner john the harvard mba can stand on top of one of those things and chew up a parking lot if he needs to or my partner in the resurfacing business of his own accord shortly after buying the business went out and got trained on how to be a resurfacing technician because he wanted to understand what his employees were experiencing and what was easy and hard and annoying about the job and yeah he could ask them and he does but he also wanted to experience it for himself so the question is these are good jobs providing good lives for real people but i think if you think of yourself as like i'm the president i'm the white collar president of a blue collar business you're going to have a problem and if you don't find yourself enjoying or being intrigued by the context in which you're soon to be team is existing on a day to day basis i don't think you should buy the company

[20:53] Host: the old e myth i think it comes from that book working on the business rather than in the business i suspect a lot of people just see themselves any entrepreneur has been told that again and again and again and so this is actually counter advice to that you're not suggesting i realize that they should become one of the plumbers in the business but do get in the business more than you might otherwise be inclined to do just at least at the outset to understand it and sure you can have a vision to work on the business a little bit longer term but if you can't imagine working in the business you should stay away

[21:32] Guest: is that fair yeah to me and again if we want to bring it back to this concept of curiosity empathy developing an understanding i think this broader conversation is revolving around the idea that if you're someone who i'll generalize and someone like me my dad owned a business that was my dad grew up in youngstown ohio he did not have a lot of money bootstrapped his way through school bootstrapped his way into business ownership he owned this business that did blue collar things but that's not me i lived in a big house both my parents were educated i never wanted for anything i appreciate blue collar but i'm really not a blue collar guy what i'm trying to help articulate here is that there can be these cultural and experiential differences between a white collar acquirer and a blue collar workforce and the reason i'm advocating in the business not on the business from the outset is because with curiosity and empathy if you do these experiential things i think you can bridge that cultural and experiential gap but if you're not willing to try then i don't think you should own the blue collar business because what i've seen in either advising other entrepreneurs and in some cases in my own career if you don't bridge that gap it creates like massive cultural implications that you don't want and ultimately revenue implications and it's not great so that's why i'm advocating for the white collar buyer of a blue collar business that you maybe break these on the business versus in the business rules because you have to understand your team yeah that's great

Host: jenin on communicating with a blue collar seller so in many cases the seller of the business him or herself is going to be somebody who is also blue collar and maybe they started at the very bottom and just grew a crew around them and thirty years later they're sitting atop a business of fifty people or ten people so while they might be a little bit more senior than their crews they are still fundamentally more close culturally to the blue collar folks than to you so give us talk through that a little bit and bring in your your four points again

[24:04] Guest: sure so i'm going to talking a lot about paving today and john stronkowski my partner in paving but i think a lot of this is relevant because it's just like the contrasts are stark right harvard mba concrete asphalt paving john strankowski and fred satterfield so fred satterfield was the owner and founder of satterfield paving fred when we met him was seventy eight years old vietnam veteran to my knowledge he certainly didn't ever attend college he might not have graduated from high school and kind of the american dream came back from vietnam got onto a paving crew realized that the guy in the truck was making more money than the guys with the shovels saved his money till he could buy a truck kept saving kept buying and years and years later he had this business generating north of ten million dollars of revenue and millions of dollars in ebitda and was employing close to fifty people and owned more money or owned more land in north carolina than he ever had dreamed of and the guy is just phenomenal phenomenal it's like the american dream really and so okay the guy's seventy eight i was forty three when we bought the company i want to say john was thirty five i went to northwestern for undergrad and have an mba from there john went to university of north carolina for undergrad and as a harvard mba john had prior to searching done kind of an accelerated rotations program in pharmaceutical sales and marketing for jj and started a biotech company for god's sakes nothing to do with paper but here's what john did very well john is humble john is curious and john takes great pains to understand what's going on around him and so john never shied away from the fact that i mean he certainly never i don't think he ever discussed with the satterfields that he has an mba from harvard because it's really frankly not relevant and probably would have been unattractive to them yeah but what he never shied away from is look his story is i'm a guy from north carolina i've been all over the place i've done some interesting things but i realized at the end of the day i want to live here and i want to do real work with real people and i don't know everything there is to know about paving in fact by most measures i don't know anything but i'm a good person i'm humble i'm smart i work hard i ask a lot of questions i treat people well and if you would do me the honor of selling me your business i think i could continue the legacy really well that's it he basically addressed any concern that the satterfields would have about him upfront these are the things you're probably worried about me some of them i'm kind of worried about them too but let's talk about them because i'm not going to pretend they don't exist the second thing is john he sounds more like a local north carolina guy than he sounds like a harvard mba and that's not an act that's just who john is he can if he talks to the hallstatt board for instance he can sound like a harvard mba but in his heart of hearts john is a normal guy who happens to be very smart and happens to have a great degree but he enjoys working with interacting with being teammates with selling to and providing value to good old fashioned on normal people he doesn't speak in terms of ebitda and irr we talk about gross margin but i'm pretty sure he doesn't talk about that with his customers he is out having these salt of the earth conversations that i would imagine a lot of his cohort from hbs would not recognize that's how he spoke to the satterfields a funny example of of the dichotomy here between john and me is i actually almost cratered that deal unintentionally because at a certain point the cratered cratered destroyed screwed up irrevocably damaged the deal and it happened because the satterfields wanted to meet me because one of their concerns was do you have the money to do this deal it's not insignificant right and and so i flew up there to meet with them and we had lunch and over the course of an hour lunch they decided that i was a yankee carpetbagger and not to be trusted wow because at a lone star steakhouse and i'm an idiot i ordered a filet mignon and steamed broccoli because i'm kind of you know finicky about what i eat and they ordered like cheesy steak sandwiches and tater tots and and because i you know spoke in a way that they weren't comfortable with and i just like they just did not i did

[29:41] Host: not resonate with them this is like a scene from a movie shannon i

Guest: mean i swear the suit i totally was the suit yeah even even though

Host: even though you they recognized i mean you were positioned to be the money guy they're not necessarily expecting a a guy in a plaid shirt and work boots to roll in you're the money guy but it still was off putting

[30:00] Guest: to them it's an example of well it's example of two things i was off putting to them and john recovered i never spoke to them again john was able to recover because of the strength of his relationship and because of their shared understanding of what they were trying to do together and i think they probably regarded me as and by extension hallstatt is sort of the necessary evil because this was not an insignificant deal and it would require a lot of money and he needed to get it somewhere but my point is i'm aware of these things it didn't just occur to me that you should be focused on these things i was aware of them then and i still screwed

Host: it up and you still yeah and

Guest: part of the reason i screwed it up is exactly what i'm talking about i'm i am aware that i am not john and you know so i wouldn't advocate that you go and try to put on some charade and you know but i was trying and i

Host: screwed it up yeah that's where my mind is going though shannon it's like you could you could see somebody taking your advice too far overcompensating and coming off as as a as false you know they're trying to project that they are like they're like the seller and overdoing it and seeming phony so there's this well you got to find the

Guest: sweet spot the good news for the buyer who tries to do that is first of all most of us are not that good at improv anyway so not likely to be very convincing and then they're going to ding you so you can't end up buying the bad company anyway because you wouldn't get the shot but yeah i'm absolutely not advocating that i'm advocating you be true to and through self reflection be true to yourself and be be candid with yourself about what are the contexts in which you're likely to be happy and successful and so you shouldn't have to act

Host: when you're talking about what your partner john what his why was in the search bringing that back to the self reflection being the number one thing that you advise when people are thinking about being more poetic and less less quantity have there been what are the wrong reasons for somebody to do a search like when you hear people's why

Guest: well it's interesting i will answer that but i want to be careful because i guess what i'll say is these are the wrong reasons for me and the reason they're wrong for me or for us and why there might be a distinction in some respects is because there are a number of different flavors of search and the sets of objectives associated with those different flavors are different so i tend to focus on the day to day leadership realities an entrepreneur who becomes the ceo will face because we have a much longer perspective on our acquisitions i also tend to be very focused on not just this deal specific objectives and we can certainly have a different conversation in a different episode about like how smart it is to be focused this way but we are also focused on the broader context of i don't want to be i'm not interested in screwing up someone's life i don't want to screw up their family i don't want to screw up their marriage i want balance and harmony and things to work right so look my partners and the people that we invest with on self funded look everyone has a profit motive here but i would argue more broadly in search if your reason for doing this is because it means you can be ceo fast or you can make a lot of money fast that's not a compelling enough reason such that when the times get tough and even in a growthy thing that's working really well it's tough that you're going to gut it out and worst case when things don't go well it's not enough of a reason for you to gut it out it's probably a reason that you won't cut it out the things that i think are more powerful are there is this broader and well defined objective that is shared it's not only yours but it is shared by the stakeholders in your life who will be influenced by it and thereby those stakeholders have agreed to and taken steps to organize their life to support this shared objective my partner michael dames just bought a business three and a half weeks ago mike's a west point grad several tours of duty in afghanistan booth mba his why has to do with he has two sons and a wife and his wife prior to their sons being born endured this fairly typical spouse of a veteran experience whereby they moved all over the place sometimes to places that were not terribly desirable mike was serving a bigger cause but it was a bigger cause that was actually requiring a ton of sacrifice from his family and that he felt like was giving him emotional and kind of it was giving him meaning but it was coming with more of a cost to his family than not and his why had to do with a couple of things on a very personal level it's that he learned some really really compelling and valuable leadership lessons in the military that he was not getting to use as a middle manager in a large corporate borg he just wasn't getting to use those things he was used to making decisions and impacting people's lives and he couldn't do it and the second thing was he wanted viscerally to be able to acquire something in a place that he and his family could know would be their home and would allow them to build a position in the community and contribute to the community in a way that his boys as they grew up could be proud of and could sort of identify with and so when he would go out to talk to people that's his visceral why i have served my country i have done these great things and had these great experiences and i want to put those skills to use in a way that helps my family achieve this degree of community stability et cetera yes there's also a profit motive there i mean these are investments so some of that stability hopefully for him will mean wealth but that's his visceral thing and if you want to drill down to it i mean he's sort of he doesn't lead with these things but mike did some pretty amazing things you want to talk about like making even the bluest collar of the blue collar feel bougie talk to a vet who's served overseas they make decisions and circumstances that i can't even fathom so anyway so i guess going back to the you know i think if you're doing it because of profit motive you're doing it because of self aggrandizement you know you're doing it because you've recognized to some level to some extent that you are like incapable of conforming to the social context that most people have to in professional life you know like those are not the reasons to acquire a business i think most people who acquire have this really interesting visceral existential need to do it and it has some broader impact on the life that they want to lead and the life that they want to create and when you talk to another entrepreneur about that they recognize themselves in it that's why fred satterfield started satterfield paving because he realized i want what this person has and i see what it can do for me and my family and i don't want to be holding the shovel and so i'm going to take the risk and do something it's like the why is why are you taking this risk why are you doing this thing why it's about something big and meaningful and kind of squishy and that people can resonate with or will

[38:23] Host: resonate with people well shannon i want to ask now about we've talked about connecting with the seller of a blue collar business but let's talk more about the employees and you've now acquired the business and it's day one you mister bougie roll in and you're looking at a room full of people who have different life circumstances than you that's just on its face going to be a challenge for many searchers so no need to state the obvious there but what are maybe some of the biggest pitfalls that you see them make other than other than you know ordering the filet mignon and steamed broccoli that's pretty minor man not to make you feel self conscious that seems like i was like

[39:11] Guest: wait you ordered steak you ordered filet

Host: mignon in a steak restaurant what's wrong

Guest: with that but so in durham north carolina for lunch yeah i mean that's a whole other story ok all right i think i might have ordered a sparkling water too there was a big misstep yeah i mean yeah it's needless to say i have not done that again look i think there are a few things to keep in mind and look some of these actually would be true in any context i just think they're more important to remember in this particular context one is one big pitfall is to make decisions based on your own intellectual process rather than trying to create some sort of shared understanding of the problem and thereby creating a kind of a collaborative attempt to make a solution okay so i think what often happens is smart thoughtful self assured people see a problem and a lot of entrepreneurs in general who have sort of a bias toward action and feel like they have the kind of okay i understand generally speaking what's going on i see the solution let's go the problem is that to the person sitting across the table from you who's been working at the business for thirty years and has been doing what they've been doing the way they've been doing it for thirty years you making a decision like that will feel to them as though you have essentially said i who have been in this business for weeks or months know better how to do this than you do you have been doing it wrong and here's how you should do it and that may not be your intention and you may have the best of intentions to maybe create a better situation for them make their life easier their work easier whatever what have you but if they don't recognize the problem that you're solving you have just created this opportunity for a schism for a disconnect and i've seen that happen i've done it not good the second thing is discounting the knowledge on the team around you based on your perception of their informality their education et cetera when you walk into this company there will be decades and decades of experience around you at your own peril you've taken your success in your own hands if you ignore that you don't actively seek it and or you dismiss it we've seen in some of these small businesses that a ton of tribal knowledge exists in one or two heads if you can understand those people and help create a shared objective with those people you can scale that knowledge you can expand it beyond those one or two heads and you can really build a kind of a transcendent process and a transcendent business to the extent that you disregard it you can alienate them they can leave and it can have very direct revenue cost quality impacts immediately shannon

[42:52] Host: just to be clear this is coming in and just assuming that you have a ton to learn and seeking out the knowledge being really humble somebody who's maybe been an overachiever in some conventional sense and gotten good grades their whole life as it were now needs to come in and assume assume they don't know anything and really seek that knowledge out this is what we're talking about

Guest: yep that's what i'm talking about you've much more succinctly said it than i did

Host: and is this something i mean forgive me but that just that seems like obvious like i don't know anything about plumbing i'm going to go in there and ask people to teach me to teach me but but i guess this is something that people have a hard time doing because they're not used to being so vulnerable to use one of your other words and humble and maybe i'm underestimating how challenging it is because i imagine there's a tension where you also want to project like i'm your new leader so you do want to project strength and competence because you want these people to believe in you um so you're you're torn between you know being like hey strangers trust me i'm your new leader i can do this and also being like i don't really know anything so and i and i recognize that and i'm going to ask you to teach me it's it's a it's a fine line yeah look

Guest: and again it's this is not easy to do but if all this stuff was easy to do you know we'd all own businesses that you know there's a reason why very few people do this it's not easy and look i'm not i'm not saying play dumb i mean like i think one of the things that a lot of people fail to appreciate like they go into buying a business of any kind and they think i'm not going to change anything i'm just going to i'm going to like it's it's working i'm going to keep it doing what it's doing i'm not going to disrupt anything and the fallacy in that is just by virtue of you being there and the previous owner not you've changed things in a material way and particularly in this context because you speak in a different way you think in a different way you pay attention to different details you ask questions that the other owner never asked it's just like you change things what i'm saying is like you may not know and you likely won't know a hell of a lot about the specific trade that the company is employing the difference is if it's nothing more it might be nothing more than this it's how you even ask questions there's a way to ask a question that is essentially accusatory like i don't understand why you do it this way which is implying there's a problem here and you're screwing up i like to ask dumb questions you know or we you know can you help me understand this yeah how do you do this why do you do this you know what's the hardest thing not to screw up about this what's you know like just dumb open ended questions so that people can tell you because there's art in what they're doing it doesn't seem very artful a lot of the times but there's art in what they're doing and if you understand the art you can understand the business i'm not saying act dumb i mean like if you know if you're the typical search funded mba searcher you're going to come in and you're going to for yourself probably you're going to have your spreadsheets and you're going to have your gantt charts and you're going to have your ops charts and you'll be thinking about this for yourself and you're going to just by virtue of being you they're going to know you're smart but the other point i'd make is trust is something that's earned leadership is something that's earned you don't show up and say hey i own the company now i mean you can dictate by edict i own the company you work for me you do what i say but really trust and team esprit de corps and leadership that's something that you earn from people over time yeah so you can try to come in and act tough but like that's not going to make you a leader and it's not going to make them feel comfortable working with you yeah i

[47:20] Host: think it's a great point about the fact that the folks who say to themselves i'm not going to touch anything i'm not going to change anything your very presence is an enormous change so just being super aware of that even if you don't touch a thing the people that work for you are experiencing a lot of change whether you like it or not and so when how do you how does one kind of feel out when it's time to and this is probably so case by case it's hard to make a rule around it but when as a new owner can i start making changes you know i've been there for six months i've listened i've been humble i've learned a ton of can i make changes now shannon

[48:07] Guest: i don't know can you yeah it's a great question and i wish i had kind of the silver bullet to say okay six months in a day or if you have achieved these very specific methods now you can start changing everything but for me or the way we think about it i think with our partners and the way i've learned to think about it in cases where i've kind of either had to make a change in an operation that was moving one direction or what i've kind of parachuted into leadership i think that there is a misnomer that change is sort of like intellectual leader driven i see the process the process doesn't work i devise a solution the process will work if we implement the solution now all i need to do is just convince everybody that the solution is the way to go and we're good to go really i think material change implementation is about relationships it's about trust it's about shared understanding and it's about a lot of relationship work to get there so you're ready to make changes when you have a strong enough relationship with the important people around you at the company such that you can have the candid conversations with them about the thing that is a problem and you achieve shared recognition of that thing as a problem and you are aware enough of their methods and their feelings about it that you can create a shared solution so that this is not an edict or dictatorial change management situation it's a shared company wide process adjustment situation so i'm not sure if i'm totally dodging the question there but the idea i think of as is big changes that are going to materially impact the day to day experience of your team you shouldn't be making unilaterally as the president you should be involving them in that i was just going to say one example of something that i was a part of with one of our companies that ultimately turned out in a way that i regretted and didn't anticipate is we bought a company that was not paying benefits to its employees and we just thought well shoot it sort of stands to reason they would love benefits right why wouldn't you i mean you're hedging i mean here's a very nba way to think about it you're hedging bankruptcy risk associated with the catastrophic health care so we roll out benefits and it lands like the proverbial lead balloon with the field workforce like well why we're spending this additional money to give you this great additional value your family could be taken care of you're not going to have any of these problems this is great for you and the reaction was i'd rather have dollar three more an hour and we'd say oh but we're spending almost dollar eight an hour more to get this for you yeah right okay well then another five dollars more an hour because that's actually i understand what you're saying but five dollars more an hour would mean a lot to me right now and it was just a fundamental disconnect between a lack of understanding of the day to day experience that those teammates had and what they valued and what they

[51:34] Host: needed how could you have figured that out in advance i mean that's that's a profound difference between you and them

Guest: but also very very subtle well we could have asked just said yeah like

Host: would you prefer benefits or more salary

Guest: essentially yeah yeah it's pretty simple yeah yeah and we did that we corrected that mistake at subsequent companies and we have different solutions for different companies based on the needs of the workforce and what they want and we've created kind of hack solutions where we can they can opt in in a way you know so that they don't all have to it's not a unilateral thing but yeah i mean simply put we could have gotten out of the office gotten into the field and said hey i'm thinking about this as a problem is that a real problem for you yeah oh it's not okay what's the real problem oh three bucks more an hour is the problem okay yeah all right but we didn't do that with the

Host: question about change and when you can feel comfortable changing what you really want to be paying attention to is not it's not how long you've been at the business it's simply like the nature of the relationship that you have with the team and do you feel like you're at a place where it's collaborative or are you still getting to know each other so if you're paying really close attention to anything it's it's how you fit into the family that you've

Guest: inherited i agree yeah and recognizing that they probably think of them to some extent at least the office staff will probably think of themselves that way as a family and it's also recognizing that for a small business even working on the business requires working in the business because you have to if you're employing twenty people even one or two defections against strategy can have big consequences in terms of process implementation and performance and so even if you feel like you understand the business really well and you have a good understanding of the team and all this stuff your job is the leader of a business or your job as a leader of any group is to you know never take for granted your relationships with that group you're the key influencer of the group you're the you're the you're the divining divining strategy is one thing but implementing and persuading is that's the leadership that's making sure everybody understands their role in this process and has a shared you know has some meaningful you know way to participate in its outcome and that sort of thing i think that's what you're doing as the owner and leader of

[54:22] Host: a business shannon let's leave it there this has been a masterclass really really great thoughts on something that's very subtle but perhaps probably the thing if you're buying a business like this a blue collar business the thing that will make or break the acquisition just tell people are you looking to actively invest in searchers right now it sounds like you you are it sounds like you just did a deal and have a pipeline of deals so is that something that if people have a deal that they

Guest: should reach out to you what can you tell people yeah so we invest in search two ways one is through what some people know as our sole sponsored model where we have a it looks in some ways like a search fund but instead of there being many investors in support of the search there's just one it's us and we partner directly with the entrepreneur and we are very active in helping them in their search for the business and to get the deal done and operating on a go forward basis can i just interject

Host: it's different than a traditional search fund in that there's just a single investor but is the size of deal typically the same size as you'd find in

Guest: a traditional search fund deal it depends the deal sizes have varied between on the low end four million and on the high end fifteen before earn out fifteen million so i mean it's look some of the traditional search deals are getting bigger and bigger and bigger so by those standards may be smaller certainly bigger than the typical self funded deal and maybe comparable to some of the other incubator type investment groups out there okay and then we also lesser known is we're also interested in supporting self funded entrepreneurs so we'd be happy to talk to folks who either embarking on a search for self funded acquisition or who are searching and have things that they want to talk to us about or want us to consider investing in i think one of the nice things that we try to my partner matt littell and i both consider ourselves more entrepreneurs than we do investors and we try to err on the side of contributing to the community if you will and being responsive to people so i think a lot of people feel like they can't approach someone like me or someone like matt until they have something specific and actionable to talk about but we actually like getting to know people early in the process and trying to figure out if we can be helpful it's nice for both sides of the relationship to learn about each other that way so yeah so you know anybody can reach out to me at sjonesallstadt dot com linkedin search funder happy to talk i'm happy to offer assistance where we can on deal structuring negotiating strategy we've looked at thousands of deals over the last six years so i've seen all kinds of crazy stuff happy to talk about that stuff or talk about if you're operating a company talk about that whatever we can do to help

[57:37] Host: great great shannon jones thank you very much for this this conversation really a really a valuable one i look forward

Guest: to having you back look forward to it thanks