Host: One type of business I bet you haven't considered buying a dental savings plan. Zach Smith bought a business that has paying members, the consumers on one side. On the other are the dentists who agree to service members at a discounted rate. Zach saw it as fundamentally a marketplace business, which he knew something about after having worked at Uber for seven years. Good business buyer fit. Zach also saw downside protection. The business is actually on the decline. So a turnaround. But listen for Zach's risk analysis where he concludes that even if he's unable to arrest the decline, he'll at the very least get his money back. A conclusion that gave him the comfort necessary to buy the 30 year old business. His analysis also showed that if he could get the business growing again, he even by a little, he stood to do quite well. How's it going? Listen to find out. Here's Zach Smith, owner of American Dental Care Partners. Welcome to Acquiring Minds, a podcast about buying businesses. My name is Will Smith. Acquiring an existing business is an awesome opportunity for many entrepreneurs and on this podcast I talk to the people who do it. August Felker is a two time successful searcher, first with a traditional search fund. The second time around he did a self funded search. Today August runs Oberle Risk Strategies, an insurance firm with a dedicated practice group for searchers and acquisition entrepreneurs like you. It's if you've got a business under Loi Oberle will provide complimentary due diligence on that business's insurance and benefits program. A great no risk way to get to know August and team. They love helping searchers. They've worked with hundreds. Oberly is a specialty insurance brokerage for searchers by a former searcher. Check out oberle-risk.com O B E R L E- risk.com link in the show notes Zach Smith welcome to Acquiring Minds.

Guest: Glad to be here. Thanks for having me.

Host: Will Zach, you're a former tech guy. You were at Uber during its some of its big surging years so we'll hear a little bit about that. But more recently you have gotten out of tech and bought a business. An interesting business, an unusual business. So we're going to spend time on that as well. Start us off Zach, with some background on you, please.

Guest: Sure. Happy to. So so yes, although I did a brief stint in public accounting at the very beginning of my career, I quickly, a couple years after graduation joined Uber in 2013. I was doing operations work locally in Washington D.C. at the time. That grew into I kind of grew up professionally alongside Uber. Over the next seven years and did a variety of strategy and product and operations related jobs there. All kind of jobs that didn't exist before I did them, which was a fun kind of experience. At each step of Uber's growth, there was some new opportunity for me and I had a great experience both professionally and a pretty good outcome from that experience. But I got laid off at the beginning of the pandemic when the rides business cratered and, and that set me down a little bit more of my own entrepreneurial path. I spent a couple years freelance consulting for mostly early stage tech companies, but was starting to feel kind of in late 2022, early 2023, that itch to be building something again in a way that freelance consulting was not really offering me the opportunity to build. And I'd had a friend who'd mentioned Walker Diple's buy, then build, got it over the holidays and read it early last year and that set me down a very different path that we'll get to discuss today.

[4:08] Host: Awesome. Well, when you say you weren't, you were consulting but you didn't feel like you were building anything, I think that's pretty clear. But just give us a couple more sentences on what that lacked. You were working for yourself. It was entrepreneurial, but it still lacked a certain something in the entrepreneurial journey that is this kind of sense of building. Why did you feel you weren't building?

Guest: I felt like I was making a very efficient trade of my time for money or occasionally equity and businesses that may or may not be worth something. But I didn't feel like I was building a business that could continue to generate value without all of my time, all of my professional time going into it. And certainly there are plenty of people who build a consulting, you know, go and go an agency model and build their own little consulting firm. And I, I kind of thought about that, but from the beginning of my time doing that, I didn't really feel like that was what I wanted to do. What I was really selling was my experience and expertise, largely from my time at Uber and trying to productize that or build that into something more generic that I could hire people and sell their time and, you know, like, it's a great model. I have plenty of people who do it effectively. I just wasn't excited about it. But I did want to be doing something and building something that I felt like could generate value and opportunity beyond just the time that I put into it. And certainly coming from my background, going into a, you know, founding a venture backed tech company was a, was a thing that I thought about but I also never felt like I had that kind of great idea. And I had seen I had a wonderful experience at Uber one of those just perfect product market fit at the right time products and opportunities and I saw what that rocket ship was like. But in my couple years of consulting I also saw plenty of pretty good ideas that just couldn't execute and get over the hump and were sort of in a frustrating find the right product market fit or get the right sales strategy just couldn't quite get off the ground the way they hoped to. And I wasn't super excited about that path either in a kind of going the venture backed route as a founder co founder early executive type role. And so as I learned about acquisition entrepreneurship and buying a longer running smaller cash flow positive business that had a lot of that started to tick a lot of the boxes in my, in my head about things that I wanted to have that I wasn't getting from my current roles or what I could have felt like I could have done within that kind of narrower tech path. Um and so yeah now, now I'm here.

[6:53] Host: Yeah it sounds like you were a soft target for buy then build a couple years of consulting and seeing some some how difficult or how much of a crapshoot 0 to 1 can be. And it was that was probably really good that you were disabused of the zero to one promise in those years because coming out of Uber maybe you were naive and thought they're all just like Uber.

Guest: It is certainly when that is your

Host: but you know, but when that's your

Guest: intro to tec it can feel like oh this is, this works. Just go build the great product and raise the money and it it goes goes crazy. I do think the last five years sort of you know say 2017 on and, and certainly 2020 on the Venture World has been a, a much more challenging place. The sort of all the free money of the early 2010s has not been there and a lot of companies have made have had to grow in different ways probably healthier ways I would suggest but so I, I don't think there are plenty of, I know plenty of great ex Uber folks building really interesting tech and who I'm sure many of will be very successful in their tech ventures and I'm rooting hard for them but I also think there are plenty who have found how hard that path can be and so it can go either way. And I, I wasn't feeling excited or optimistic about any particular specific opportunity that I wanted to bet my next 10 plus years on.

Host: Yeah, yeah. But you do know people from your, from your Uber days who have, who have gone out and are, are taking a stab at 0 to 1. Some who have not done well, some who appears that they've got some traction.

Guest: Absolutely.

Host: Okay, interesting. And you said that you did well at Uber financially, I guess because you were there during, you were there in relatively early days and then you were there for the ipo. So is that a material, a material financial event for you?

Guest: It was and I think that plays into sort of my thesis as I went into acquiring a small business. But yes, I, I had a, certainly a windfall, life changing exit from, from Uber and feel very fortunate and privileged to have had that experience and have gotten there when I did and have all that happen at the same time. It wasn't tens of millions of dollars never work again in my life, but it was, it kind of put me in an interesting spot where a lot of the sort of like I, I'm confident that my, I will be able to pay for my kids to go to college when, when they're that age. Right. That type of thing. I can sort of tick those boxes, which is wonderful. And also I want to keep growing and building and moving forward, but there's a little bit more to risk when you think about, you know, personal guaranteeing, a really big loan or that kind of thing. So there's an interesting sort of middle space that is a great problem to have. I don't, you know, I'm very, very aware of that, but was certainly part of my thought process as I was figuring out how do I want to go about this next step of the process.

[10:09] Host: Yeah. And can you tell us what the dollar number was?

Guest: Not specifically, but it's like a low seven figure type number.

Host: Yeah, it's, it's interesting. Money is infinitely interesting to me in our relationship to it. Yeah, it's, it's, it's enough that you got some of the biggest life concerns are no longer concerns, like you said, educating your kids. But it's not enough to stop working. That's right. But, but, but it's enough too where you have a nest egg that you actually want to protect and don't want to put, you know, want to risk or risk too much of. Yeah, very interesting. Okay. All right. So you get by then build in your hands. Does that do you immediately then do you have the light bulb moment that so many of my guests do?

Guest: I wouldn't say it was immediate light bulb. You know, I was still, I was still doing. I had multiple consulting clients for my business and I was working. One of the things that happened when I left Uber was early pandemic. And I had two young kids. And I almost felt like I was given a gift of getting shoved off of the corporate ladder that I was on and an opportunity to rebuild my life the way I want, with the priorities that I wanted to have, which largely in that moment, meant family in a lot of ways. I've got now an 8 year old and a 5 year old. They were certainly younger then. And so the consulting practice that I built was really built around. I want to. It started because my daughter was in virtual school and I needed to be able to help proctor some of that because my wife works full time as well. So I was sort of taking some of those more primary duties. And then even as she went back to school, I loved being able to drop them off and pick, pick them up and do those kinds of things. And so I built that consulting practice around sort of the lifestyle that I wanted to be living, which was a really great opportunity. And as I read Buy, then Build, I had that. I was starting to feel that itch to maybe prioritize my professional work a little bit more, but also not wanting to go 100% all the way in the other direction. And so I would say it was a little bit of a slower process. I still had consulting work that I was doing, but it kept lingering in the back of my mind. And the real catalyst to kind of go full in, or not quite full in, but more full in on a, on a search was that I had a, one of my contracts that was ending and I had some more time in my schedule. And basically instead of focusing on immediately backfilling that with the next client, I decided to treat searching for a business to buy as my, my new client. And so it took, you know, that chunk of, of my week to start working on talking to brokers and building, you know, reading sims and putting together models and all the things that we do as searchers. And so that was kind of how I got into it. It was maybe a little bit slower, but I, I had that idea of this is a good opportunity and a good project to work on. And I think I want to put some time towards. And when the, when the moment was right to do that, I started doing it.

[13:22] Host: Okay, all right. So not love at first sight as it is for so many of my guests. Intriguing, but the kind of timing had to align for you to kind of get serious about it.

Guest: That's Right.

Host: And you're doing this from D.C. no. Good.

Guest: Good point. We moved from D.C. to Houston, Texas in 2022. Both my wife and I. Both my wife and I grew up here. Our parents live here. And so that opportunity to get young kids closer to their grandparents was, was a big selling point for us. And over the course of the pandemic, neither of our professional work at that point required us to be in person in D.C. anymore and we realized we didn't need to be there. So let's we loved dc. It was a tough place to leave in a lot of ways, but the opportunity to come be close to family was too much to pass up.

Host: Yep, I know that. I know that. Trade off. Where in D.C. did you live by the way? Where exactly we lived?

Guest: Yeah, we lived on Capitol Hill or, or Hill east for locals over by RFK Stadium. Loved was a great, great neighborhood, great part of town. We love D.C. it was a great city. It's a great city.

Host: All right, Zach, great. So you turn your attention to your search. You've moved to Houston. Is your search geographically constrained and basically give us a picture of your search, give us a sense of criteria.

Guest: Yes, geographically constrained search. I wanted to be in the Houston area. I was reasonably industry agnostic, so I had kind of the geographic constraint but less of the industry constraint. I had a couple of, you know, I don't want to go into restaurants or you know, there are some things that I didn't want to do but certainly thought about H Vac and lawn care and some of those classic ETA type type spaces. But also given my background particularly in tech and kind of more software and products, things that were more, you know, less in person service delivery and more tech enabled type products were also of interest to me which is sort of more where I landed. But I was open to all of those things and was was trying to enable.

[15:43] Host: Do you mean that you were also open to e commerce or SaaS? Micro SaaS? I mean were you also checking out quiet light and acquire.com or do you not really mean that?

Guest: No, I did. I was. Yes, I was looking@acquire.com I was looking at, you know I am not an engineer, I'm not a coder by by trade and so I sort of know just enough of the language to be dangerous but would need significant help to actually be building software. And so starting those would have been tricky without a technical co founder. But some of the more established micro SaaS type products if there was an existing product there and maybe an engineer who wanted to stay involved. I could see how those could have worked and made sense. So yes, I was looking at those kinds of things. I was also looking at a lot of E commerce would certainly count or products that are leveraging software to deliver something to deliver a service or product to people. There was a background check company that I looked at that was using someone else's software to help run background checks, but they were providing a background check service that didn't require much of an in person type service delivery. And so that kind of opportunity potentially was interesting to me as well.

Host: What do the following Acquiring Minds guests all have in common? Doug Johns, Morley Desai, Tim Erickson, Chirag Shah, Shane Ursam. They all went through the Acquisition Lab, the accelerator in community for people serious about buying a business. But they represent just a sliver of the Lab's success stories. The number of deals across the Lab's cohorts now stands at over 120 with over $300 million in aggregate transaction value. The Acquisition Lab was founded by Walker Deibel, author of Buy Then Build, the book that introduced so many of you to the very idea of buying a business. The Lab offers a month long, intensive, almost daily Q and A sessions with advisors, live deal reviews with Walker, Deal team introductions and in an active community of serious searchers. Check out acquisition lab.com link in the notes or email the Lab's co founder, Chelsea wood. Chelsea buy then build.com what about ste or size? How much, how much of this nest egg were you thinking you would put to put to work?

[18:08] Guest: So I started thinking I was looking for something in the half a million to a million dollars of SDE type space on on kind of a premise that one I was open. I was open to an SBA backed loan for the right business, the right opportunity that I felt fully convinced of my ability to execute. I had a reasonable level of confidence that for the right opportunity I could have raised equity either in like a friends and family type route or through some of the various avenues of people who like to invest in in people's small business ventures. And I had my own nest egg that I was willing to to put on the line as well for the right opportunity. So I was looking in that kind of half a million to a million as trying to be kind of that sweet spot of smaller than huge search fund and PE type stuff, but big enough that there's a little bit of meat on the bone obviously. Well not obviously because we haven't gotten there yet. But I ended up even on the smaller side of that which we can discuss next. But I ended up on the smaller side of that. In a business that I think has the potential to get to that half a million to a million of SDE space relatively quickly.

Host: Well, it can be quite obviously higher risk when you buy a smaller business, but the economics are quite compelling. To buy a business that's doing less than that range half a million, 2 million of SDE and then you get it there within a year or so, that becomes even more economically interesting than just buying one of those businesses outright. Needless to say, growth is where wealth is built, after all. So tell us then, any more to say about the criteria of the search and if not, what are the mechanics of it look like? What are you doing here?

Guest: Yeah, so this was kind of late spring, early summer of 2023 that I started to really know make this a project that I was committing to, to putting 15, 20 hours a week into. I started reaching out mostly to brokers. I used things like Biz by Sell as a way mostly to find brokers. So if I saw an interesting business with a good that that seemed to be represented by a professional broker, I would usually try to go to that broker's website or more of their own channels, reach out to them there, express interest in whatever business I had seen, but also try to kind of get a sense of the types of business they were representing and what other opportunities might be available. And pretty quickly that happened to lead me to the opportunity to look at American Dental Care, which was another listing that a broker that I reached out to about a different business happened to have in her portfolio as well. And I probably would have skipped over it on first glance, given the dental component. I'm not a dentist. I'm not. Didn't have any seemingly relevant experience for something like that. But she mentioned it as an interesting opportunity. I said, sure, send me the sim. And as I looked at it, what I saw was a business that wasn't really providing dental care. There were no dentists that were part of the team. And it isn't an insurer. They're not processing claims. It is essentially a marketplace business that's connecting dental practices with patients. And so it is legion for dentists. And it is a discount for cash paying customers. And I take a membership fee from those customers and funnel them to the dentists. And the dentists get new patients, which they're happy about, and the patients get care at a lower cost, which they're happy about. And I make a little money in the middle and it's kind of A classic two sided marketplace business, which I had really relevant experience doing. And so as soon as I kind of read those couple pages about it, my wheel started turning as, okay, this is the type of business that my experience lends itself pretty directly to and which maybe there's an opportunity to do something with

[22:09] Host: for you and for me. Also my, my tech roots. We know what marketplace businesses are, but it's actually not a term you hear much in our world, in the world of eta. So just indulge me and define explicitly here what a marketplace business is and speak specifically to the power of them, but also the cold start problem.

Guest: 100%, yes. So a marketplace business is designed to bring customers together with suppliers in a single place and to take some kind of cut or fee or build a business and revenue off of the ability to bring those, those two sides together, or sometimes more sides. Uber Eats was a three sided marketplace. You had restaurants and the delivery people and the customers who wanted the food. So there can be multi sided marketplaces. Ebay is probably the classic first big tech marketplace. They built a platform that brought people who wanted to sell things together with people who wanted to buy things. And by bringing more of those people together in the same place, you create more liquidity and more opportunity. And it's a win, win, win for the people selling the stuff, the people buying the stuff, and the marketplace in the middle. Uber, certainly a great example of this a little bit more recently, and I saw that opportunity in this business as well. The tricky thing is a marketplace, to operate effectively, does need liquidity in the marketplace. It needs enough supply and enough demand in one place to actually give extra value to both sides of everyone who's involved in that marketplace. And so if Uber was in a city with only four cars, that's not a very useful marketplace to the people in that city, because they probably can't get a car when they need it. And even for the four people who have the cars, it's not that useful because they may have to drive 30 minutes across town to make a pickup because there are only four cars. But if you put 400 cars in that same city online at the same time, suddenly most people probably have a car within a few minutes of them. And those cars don't have to go very far to pick someone up. And suddenly you have a very useful and valuable marketplace for both the driver and the rider in that case. And so I see my business in a similar way. I need enough dentists that most people in a city, when they look at my available dentists have a good dentist, you know, within 15 minutes of where they work or live. And if I can't get that density, then it's hard for me to get people to sign up. And I need people to sign up so that I can send leads to the dentist so that they want to be part of my, my network. So yeah, that's, that's kind of how a marketplace business works. And the tricky thing about it can be. Sorry, yeah. The tricky thing can be if you don't have that density or to get it started can be tricky because if you don't have the demand to start, then how. Then why are the suppliers going to sign up to be a part of it? If you don't have suppliers, the, the customers, the demand is maybe not going to sign up and use your product. And so buying an existing marketplace that already has some of this going was also particularly attractive about this opportunity. I wasn't building it completely from scratch.

[25:21] Host: That was awesome, Zach. Really. You clearly are a guy who's come from the world of marketplaces. Excellent explanation. I just want to emphasize a couple elements of that. I've always loved marketplace businesses. They're just so elegant, as many people in tech will tell you A few other. But one point to emphasize this point of liquidity which really gets to the point of both why it's hard to start these businesses and then why they seem like great businesses but they do take quite a bit of babysitting, need quite a bit of babysitting. This liquidity is so that if you're. Let's, let's use one of my favorite marketplaces, upwork. So if I you need liquidity is if I'm the buyer and I want to put up a job post. I need somebody to redesign acquiring minds.the acquiring minds website. I need to know that if I put it up, put up this project, I'll get bids quickly and a lot of them. So that's liquidity from the buyer side and on the, on the supplier side, the people who are the web designers who are providing this service, they need to know that there's enough volume of buy a potential prospective prospects. They're putting projects to actually deliver, deliver clients to them. So liquidity is, is basically that in short order both sides of the marketplace can get their needs met. Either buy the thing that they want or sell the thing that they're selling. And so yeah, so, so getting that going is really hard because you're basically trying to get two business that you need to sell. Most businesses just need to Sell one constituency, their direct customer. But in a marketplace, you need to sell two constituencies at the same time. You need to bring buyers in and they're val. They're going to say, well, it's only valuable to use your thing if there's actual sellers there and vice versa. So it's, it's quite difficult. And then even when you got it going, you, you gotta, you gotta kind of keep it calibrated so that there's not too much on one side or too much, too much buy demand or too much, excuse me, too much demand or too much supply. And that was actually one of the geniuses of Uber, the surge pricing concept. So they algorithmically built this way to solve the problem in real time. So if there was too much demand for people, passengers, then they'd raise the prices, drawing in supply in real time. So all these Uber drivers would jump in their cars to go out into their neighborhoods and serve these customers. Just really brilliant. Despite its controversy, just from a kind of economics perspective, just totally brilliant. Maybe, maybe there was a precedent for that copied from somewhere. But first I'd ever seen of it. And of course, surge pricing we now see, we now see all over the economy.

[27:58] Guest: It was probably the most explicit version of it ever, ever done. Okay, okay. I would, you know, I mean, airline pricing, right, is, is surge driven in a lot of ways, but in a much less transparent way. Uber did it in a pretty Transparent, hey, you're paying 2x right now. Which was a little bit controversial, but like you said, pretty effective.

Host: Yeah, yeah. The, the only other thing to say about marketplaces, and then I want to say, and then we can move on, is the reason they're such powerful businesses is, is because they're hard to unseat. So if I have a highly high liquidity, high volume marketplace, if a competitor, a would be competitor wants to come in, they're going to have to go to all my buyers and say, hey, buyers, come use my thing. And they're basically going to have to pull both sides of the marketplace away from my thing, into their thing all at once. Because all of the value is very, it's self reinforcing and self perpetuating. So it's. So this is also where you'll hear tech people talk about winner take all markets. Like if you can, if you can. They're classic winner take all. If you can be the marketplace for a category, it's very hard to unseat you. Now. I think it's. These businesses are not quite as modi as we thought. I mean, eBay is not as relevant as it was 10 years ago and it appears to lose relevance every year. The social networks are all marketplaces and we would have thought that, you know, MySpace would be around forever. It wasn't. Facebook is no longer cool. So in fact they're, they're not permanent businesses. They're not quite as, as strong as they might seem, but they're still pretty dang strong, clearly. I like, I like marketplace businesses. Okay.

Guest: I like to you sir, that's great. No, no, this is wonderful.

Host: Now let's hear more about the business you, you kind of talked about, about American dental care. You talked about it in brief, but give us more detail, please. So, so tell us who the customer is and what they get from American dental care, then we'll flip to the other side.

[30:01] Guest: Sure. So the, the customers, the members of American dental care are typically people who either because of their age, their retirees or their work situation, they don't have a dental insurance or other dental benefit from their own, from an outside source. And so they're looking for a way to make their dental care more affordable as an individual uninsured cash payer. And so the customer tends to be, you know, leans a little bit more blue collar, leans a little bit older. Certainly the more problems they have with their teeth, the more likely they are to be involved. And so that's, that's kind of the typical member for us currently. I think there's a opportunity, a growth opportunity and selling into businesses as an alternative to offering a dental insurance benefit, you could offer a dental plan benefit. And that is a part of the business that I am hoping to build. But that's the typical.

Host: Zach, let me interject with a couple of questions there. The why would one of your. First of all, why would a customer use you instead of dental insurance?

Guest: Oh, you're gonna maybe get me on a little bit of a soapbox there. They would. So please, I would say step right up. Great, wonderful. I would say the dental insurance isn't generally, is generally not a very good product, is not a, does not actually deliver very much value to very many people who have typically has relatively low limits in terms of how much it will pay out in a, in a higher cost of care situation. And when you think about the premium that you pay for that insurance, plus whatever fees you're going to pay on, on the care that you get, plus the limits that exist on it, there's a really narrow window of how much dental care you would need to use to really get meaningful value out of out of the care. I would say in most cases dental insurance is prepaying for most of the dental care that you would get in a particular year. And if you end up getting all your teeth knocked out and needing $5,000 of work, your dental insurance is probably not going to pay for all of that anyway. So unlike health insurance where like there's almost in most cases there's no upper limit, in the catastrophic situation it is going to cover you. You don't really have that in dental, in dental insurance. And so there's less of that worst case scenario protection. And so I don't think there's actually for many consumers a lot of actual value that they get out of, out of their dental insurance. Now for many people they're getting dental insurance through an employer or in some other way where as they may feel like they're getting value out of it. But I would argue that an employer in general would be better off either just reimbursing dental expenses up to a certain amount similar to the premiums they pay for for a employee, or, and, or using something like my dental plan to help make that care a bit more affordable for their, for their folks without the full insurance package. That's my soapbox.

[33:16] Host: Yeah, no, that was great. And so, and so the, the pitch to a customer of yours to the end, to the patient, to the end user is pay X dollars a month. And the, the dental care that you receive is discounted by Y percent. So actually let's put some hard numbers around that. Can you tell us like what one of your packages is and what the associated discount is? Sure.

Guest: So, so an individual can sign up for our plan for $12 a month. A family can have their plan for $29 a month. And we have a fee schedule. There are fixed, you know, a, an adult dental cleaning is $59 if you go get, if you'll get a cleaning as a member of the plan. And there's a whole list of fees for kind of your typical fillings. It depends upon how many fillings in which part of the mouth. But those are going to be $140 instead of $250 or something like that. And if the, if they're, if you're getting a service that is not specifically listed on the fee schedule, then a general dentist will discount their normal fee by 30%. A specialist like an orthodontist will discount by 25%. And so you have those sort of as your floor discounts for services that don't have a listed price. But the listed Prices range from 30 to 75% off of what you might typically see as a cash paying price.

Host: So really the calculus, if you will, of the patient is the same as dental insurance. It's like what I spend over the course of a year in this membership. Am I going to the savings that I'm going to get from that? Is it larger and if so, green light?

Guest: Exactly. And I think we have it priced in such a way where if, if you pay, you know, a year's worth of, of the membership fee for my plan and get two cleanings and a full set of X rays, you know, if you just do like the basic bare minimum, you actually might, honestly, if that's all you're going to do, you may or may not need the plan, but it's a, it's going to be a round of break even. But if you tip past that towards I need to get a couple fillings or I've gotta have a root canal or kind of anything beyond that, you will have saved money with the plan, even including the membership price plus, plus the care that you get, that total will be less than if you had nothing and just paid cash at whatever the kind of normal going rate would be for those for that dental care.

Host: Great. Okay. And so now flipping to the other side, the value prop to the dentist. Explain this. I heard you say that you're essentially lead gen, but lead gen discounted. So what does that look like?

Guest: Yeah, yeah, really fair question. So the, for dentists, many of them have availability in their, they, they have, they have slack in their schedules, they could serve more patients. And so even a discounted patient, and we'll talk about the discounts themselves in a second. Even a discounted patient patient, as long as they're above sort of their marginal cost of delivering the service in general, they would want to have that patient come in, in the chair. And in our case they don't pay to be a part, they don't pay us anything to be in the plan. They just agree to provide the discounted rates. And so when we can send them a new patient that is, you know, free lead gen, free is not, I mean they're going to pay for it with the discount, but that's a new, a new patient in their chair that they, they didn't spend anything to get there, which, which is useful for them. And then, you know, the challenge I think in a lot of the medical space is how opaque pricing can be. And I find that frustration even in my seat right now trying to figure these things out. But my sense is that the pricing that we offer through our fee schedule is comparable to maybe a little bit less, but relatively comparable to what they might get reimbursed from an insurer or from Medicaid for folks who are on those types of plans. And so they're not, they're getting less than they would get from a full price cash paying customer, but not that much less than they would get from, from a patient who is in and using an insurance plan. And so it's, it's comparable in that regard for them. And so the discount is not wildly out of line for them. At least now it had gotten a little bit out of line under the, the previous owner and we can talk about that too. But that's kind of the value prop is they're getting a similar amount of money for the service and they're getting patients in the door that they might not have otherwise had.

[37:46] Host: And Zach, my sense is that the reimbursement rates for insurance companies to health care providers, be they health, health care, straight up health care, dental, is based on millions of data points and the, you know, the, the, the armies of, what's the word for somebody who runs the numbers in an insurance company? Typically actuaries. Yes, but I think that just relates to death. But maybe it's all similar service. Yes, yeah, the actuarial tables or whatever. And, and so, you know, they're arriving at these, the price that they're going to give to their healthcare providers, the insurance companies are arriving at these prices very mathematically, scientifically based on, based on huge stores of data which you don't have. So how are you figuring out what, what numbers to, you know, to tell your dentists who participate in this what they need to be able to offer to your members?

Guest: This is, this is the process we went through kind of in my first couple months of owning the business was how do we, how do we figure out what our fee schedule ought to be? And in our case, there are, there is both the, we have to thread the needle of both what works for the dentist, what they can make work for their business model and what offers a compelling enough discount to, to the patient, to my customer to make them want to sign up the plan, sign up for the plan and, and take it and you know, go use it in the first place. We did that by surveying competitors in the dental discount plan space and by surveying dentists who are already in our network and saying we're going through this process to figure out what our pricing should be. Help us understand what would work for your business? And combining the data that we got back from dentists with our own market research and our own sense of what customers would be willing and able to pay, we arrived at a fee schedule for 2024 that we hoped and so far seems to be effectively threading that needle of getting a dentist excited to be our network and to take our plan. And it keeps customers satisfied with the pricing that they're getting when they go get dental care.

[39:59] Host: Well, we're not done talking about the business, but let's return more kind of to the plot here. So you're looking at this business as a buyer, as a potential buyer. You don't know anything about dental, but you do know marketplaces and you realize you've got a marketplace business on, on, on your hands here. What were some of the numbers around it and the history around this business?

Guest: Yeah, so this, this business was over 30 years old, had been around for a very long time, same owner through that entire process and had had, if you go back 10 or so years, had had a top line of 1.5 million, maybe even a bit more at one point for the business, but had been shrinking fairly steadily for at least five years. Covid was not friendly to this type of business. People did not want to go get dental care if they didn't have to. And so that was tricky. And there are more insurance alternatives for folks who don't have employer provided insurance in a kind of post Obamacare world. So there's just more options out there for folks over the last decade, which I think is not necessarily a bad thing, but made it a little bit tougher environment for this business. So this is a business that's been shrinking from for a while. And my sense of why that was was some of those external factors certainly, but was also an owner who was getting towards retirement age and who was, had had built a business in an era of TV advertising and newspaper advertising and call this phone number and we'll mail you a brochure and had not really evolved effectively into a more Internet driven, e commerce driven sales process. And so I saw an opportunity to certainly yes, you know, there was, there was a big opportunity to get to people looking for this type of plan on the Internet that was completely untapped. And so there was some web marketing, they were running Facebook lead ads that basically tried to get people to give them a phone number so that they could just call them. And you know, there was some effectiveness in that, but not enough. And so I saw a significant opportunity to improve the way the product was sold for the current environment. And I learned this even more once I bought the business and was inside it. But as, as the owner had neared retirement, he had really focused more just on continuing to keep his members and collect cash flow from those members and had really not invested on the dentist side of the business in a number of years. And so the fee schedule was a bit dated and was not suitable for attracting new dentists into the plan. He hadn't kept up as much as I think he could have or should have with his existing dentists. And so that flywheel that we talked about that requires investing on both the demand side and the supply side of the business had really probably wasn't investing effectively on either side and was almost completely neglecting the supply side, the dentist side of the business. And so I saw that opportunity as well.

[43:11] Host: Zach, so clear that it sounds like the previous owner wasn't doing enough to continue to kindle this, this business. But the kind of external effects that you touched on. First of all, let me understand, is this a business model that is, I guess if it's a 30 year old business, it's not a new business model, it's an old business model. Is it one that still exists in the same strength it did in say the 80s and 90s? Or is the business model itself. Where does the business model itself stand in terms of headwinds, tailwinds?

Guest: I think the business model itself has faced more headwinds than tailwinds over the last decade, 15 years maybe through some of the stuff we talked about in terms of more insurance options through state marketplaces and things like that. So there have been headwinds. I also think though that the, the consumer has just gotten a lot more discerning about understanding what a product offers. I think like I can't imagine myself as a 36 year old man in 2024 seeing a brochure and sending a check and signing up for something. You know, just because I saw a TV commercial and got a brochure, I would be looking at the website to read more about it and looking at reviews that I could find places and trying to understand a bit more about the product. And frankly, for this product there's a bit of a, kind of an education curve. It is not insurance. It is a little bit outside the most common path for, for making care more affordable. And so there is a, there really is an education process and a curve to get up for a potential consumer to say, okay, I understand what this is, I understand how it is going to Benefit me and I am ready to sign up and pay for it. And, and to some extent, not only am I ready to sign up and pay for it, but I also have the money that I need to go see the dentist and pay them for the services that I need, which is probably going to be several hundred more dollars in many cases. And so all of that means it's got a little bit of a lengthier sales cycle that I think is even longer today than it was probably 15 years ago. And I understand that much more now, six months into owning the business than I did a year ago when I was just learning about the business. Year ago I didn't even know the business existed. But so yes, I think there are some headwinds there, but I don't think that's because the model can't work. I just think that it needs to

[45:44] Host: be

Guest: sold and positioned in a more effective way than it had been.

Host: And to what extent is there competition? I mean, is there an industry here of, of dental benefits organizations? Is that what we call the industry? Dental benefits organization?

Guest: Yeah, dental membership organization, the, the health savings plans, sometimes. What is probably the, the umbrella category that they fall into? Okay, yes, there is, there is an industry there. There, there are competitors. There are a few bigger, more national players. My, my business operates primarily in Texas and Florida has a little bit of business outside of that and really primarily in the Houston metro and the Miami metro. And we've got great coverage there, but not as much nationwide. And so again, another growth opportunity. Right. I see a potential to build a model that can grow geographically into more areas. There are already some bigger, more established players in those, in those areas where I'll hope to be able to differentiate myself by being smaller with better customer service and not this big national brand. But as we talked about, that is challenging in a, in a marketplace where there can be benefits of scale. I think the difference being a little bit that ultimately what, you're not going to go see 50 different dentists, you're going to go see one or two or maybe a specialist. And so as long as we've got good care and good pricing in your micro geography as, as the customer, I think we can attract you to this business and, and make you a customer. And that's, that's kind of what I'm banking on.

Host: I heard blue collar earlier. I hear big in Houston, big in Miami. So is this also a largely Spanish speaking clientele?

Guest: Yes, a decent trying to think of. It's probably a third of our, our customers who tell us that Spanish is their first or preferred language. We have a bilingual sales and customer support staff. A decent percentage of customers are from that demographic.

Host: Zach, you'd also said in the pre call that the industry had suffered a little bit of reputational bruising at times. Tell us a little bit about that.

[48:02] Guest: Yeah, I think I certainly wasn't aware of it at the time because I was in high school and college and not thinking about it too much. But I think in the early. I'm going to say it was probably the early 2000s, kind of 2000 to 2010, there were definitely. There was a. Probably as reaching consumers was easier kind of for the first time on the Internet. There were. My understanding is there were a decent number of companies that sprung up offering these plans, but having either not very many dentists or poor fee schedules or essentially just kind of advertising, hey, sign up for this card, we'll mail it to you and you can go get free care. And then they would just kind of disappear. And so it was sort of that like, middle ground of you could just mail a card. It said, here's your discount card. You got it, you paid for it, go use it. But then kind of disappear and not, not be there. And so I think there was a stretch where there were some players in this industry who were less reputable than you would hope. And that combined with some of what I talked about about it not being an insurance product, which is what people more intuitively understand, led to there being some reputational harm in the industry. I don't get a sense today I'm not hearing from people, all dental plans are a scam, you know, get out of here. But I do know that that 2005-2010 stage was when some states, Texas and Florida among them, chose to start regulating discount plans. I think in response to some complaints that they were hearing about less reputable folks in the market. And so we've held those licenses for, you know, 15 plus years now. I'm not worried about that for our business, but I think there are consumers in those markets who, who maybe have some wariness around, around these types of products.

Host: Thank you, Zach. Okay, you had mentioned $500,000 in revenue at its height, maybe a million and a half. So it's in terms of paying members, it's a. Or aggregate revenue. It's a third of what it was. What do, what does profitability look like, what does SDE look like and how many employees?

Guest: So when I was first looking at the business, when I was buying the business, the, the 2022 top line was 450, 460, I think. And the SDE that was marketed was 180, 200 right in there. So, you know, 40% ish margins there and you know, but, but was shrinking. Right. And so there's, there's that part of it to, to figure out as well. And so I bought the business for $450,000, which was a kind of 2.7-ish multiple on that SDE number and which, you know, multiple wise is pretty good, but it's a very small business and so. And it's shrinking, so there's a lot of risk there. But was enough for me to get comfortable that this was an opportunity worth. Worth proceeding with.

[51:10] Host: Well, I imagine those juicy 40% margins was also an enticing feature of this business.

Guest: Not, not a bad, not a bad situation on that.

Host: No, not, not at all. Did you say how many employees there are? Sorry? Oh, sorry.

Guest: There were four employees when I, when I took over the business, plus the owner and is now me. And two of those employees, you know, that I talked about. The old sales process was largely collect phone numbers and then call these leads over and over as many times as necessary to get them on the phone and try to sell them the plan. And it was pretty clear to me that that sales process was not efficient or effective enough to get the business growing the way that I felt like it could grow. And so after a month of running the business that way, to make sure that I was confident that that was the right move, I let two of those folks go from those sales roles, just frankly, because I didn't think it was a role that the business needed to support at that point.

Host: And sorry, when was that that you let them go and what have they.

Guest: That was a month into my. That was a month into owning it. So. So there were four. The day that I started, after continuing to run that old sales process for that first month, that was when I made the decision that, no, this is not the way I want to go. I'm going to let most of the sales team go.

Host: And how long ago was that? How many months have you been.

Guest: Yes, I've owned the business for six months. So that was. I bought the business at the end of September of 2023. I let them go at the end of October and it is today the beginning of April. So it's been another five months since. Since then.

Host: And did you feel an effect on sales having completely kind of yanked out the sales process, or were your instincts correct?

Guest: Well, yes, there was some effect we are probably. We needed to sort of start fresh in terms of building a new website, building a new sales funnel that could convert either online or get people up that education curve online before they called us or we called them to, to sell to them. And so for, for a couple months, I was, we really didn't try to sell too much. If people came to us, we certainly were happy to sign them up. And, and we did sign some folks up. But I, we talk, you talk about kind of the J curve involved in,

Host: in

Guest: buying a business and getting it going the way the way you want it to go. I sort of intentionally, I guess, accepted that there would be at least a few more kind of down months while build the process that we wanted to have going forward. The costs were lower to a certain extent as we did that because we had two less heads on the payroll. But, but I, I think there's more. There was rebuilding to be done on the sales side. And like I, I mentioned before, the fee schedule that existed for dentists was not going to be sustainable or effective. And so we needed to go through that process of making a new fee schedule that we launched at the beginning of this year. And so, you know, that flywheel that we talk about for a marketplace business, in a lot of ways, it was pretty stagnant on both sides. And it takes a bit of significant effort to get it spinning again with pushing on kind of both sides of it to get it to go. That's what we're working on doing. And I'm starting to see signs of early movement. But the business is, you know, monthly revenue is down now from where I, I bought it, you know, from that first month in October. I'm okay with that. That's part of the model that I built. That's part of what I expected to have in this business. I will admit that when you model a J curve that then shows it going up again, like that model looks great, you're like, sure, I know that I need to accept six months of down, and then it will go up. When you're sitting at what you hope is the bottom of that curve, but you can't yet see it going up. It feels the emotional feeling of being at the bottom of that J curb, hopefully is a little bit more stressful than maybe your Excel model that got you there is going to show you. So I've been learning some of those kind of classic small business entrepreneur lessons as I go through this process, but I still believe in the approach that we're taking that is more Internet first, less phone driven, take better care of the dentists, and have a good fair fee schedule for everyone on both sides. I think that's still going to get us going in the direction that we want to go. Starting to see some of the early evidence of that and excited to kind of prove that out over the rest of 2024.

[55:36] Host: Well, Excel spreadsheets, making contact with reality is always an uncomfortable. An uncomfortable moment of truth, isn't it?

Guest: No doubt. No doubt. Yes. And you can tell yourself that that will be the case, but you really can't quite predict how it will feel the moment that reality shows up.

Host: Yeah, yeah. And I recall you telling me, Zach, that the seller you. Well, you've already told us in this interview that the seller had been neglecting the supply side of the marketplace, meaning the dentists. And I recall in the, in our pre call, you saying he literally hadn't had a conversation with a dentist.

Guest: Right.

Host: For like years. Wasn't that.

Guest: I mean, I. I don't know. I don't know if I said that that might be true. I. I don't know if that's true or not. What was clear to me was that he had not been trying to build relationships with new dentists or work to get useful information from existing dentists to. To grow the business, you know, to grow the. The engagement and involvement in the number of dentists in the plan. I think, I think for the last several years, probably at least from COVID on, he had been. He had kids a little bit later in his life and has kids at home too. I think he had just been in a, like, I'm gonna coast on the cash flow that this business produces and not worry about it too much type space. I think he did worry about it to a certain extent, but not enough to try to take significant steps to change the direction of the business. And so it was just kind of continuing its downward trend to where we are today. And I'm not gonna. I mean, one, it created an opportunity for me to step in and hopefully do that. And so I'm excited for that. And he'd been doing it for a long time and at one point had been making good money on the business and was maybe at a point in his life where that was the right. I said, I got into this business because I wanted to find an opportunity to keep the lifestyle that allowed me more time to focus on family and all that and also do something interesting with my professional time. And I think in some ways he was doing a version of that himself and maybe In a way that was more detrimental to the business than he would have hoped or that any business owner might hope. But I hope that he doesn't regret the way he's spent his time in the last few years and that he's enjoying the opportunity now to focus even more on his time now that he's out of the business. And I'm here.

[58:10] Host: Well, Zach, as you, as you, as you kind of single handedly get this flywheel going again, you know this. I, I have like a visual of you like pushing like a millstone around.

Guest: It feels like it some days.

Host: Are you. So, so you've already told us how you're trying to solve one side of the marketplace, the buy side, the demand side, getting customers engaged again on the supply side, talking to dentists. So have you now had any conversations with existing or new prospective dentists? And I, and I wonder how do they react to the value proposition here? Maybe dentists know what this is. They're like, oh you're, you're a, sorry, what is it? A dental plan?

Guest: Like a discount plan? Yep.

Host: Like they know what it is, so it's not a long conversation or maybe they don't. So how is it, how have they reacted to your pitching? Basically?

Guest: Yeah, we, we are, you know, well, I would say two things. One is we're not probably the, the perfect partner and product for every dentist. So if you think about, you know, there are dentists who are in expensive real estate with really nice interiors that are focusing very much, you know, kind of that five star dentist experience. We are not the right partner for them because our pricing is not set to support that. And some of those insurers work. Some of those dentists I think do work with insurers and I don't totally know how they make that, that model work, but it makes sense to me that my product is not designed for that, you know, high end five star dentist to, to kind of use that language for that. Like three to four star dentist is kind of our sweet spot. Right where the pricing makes, makes sense for their business. They're in more of a volume business. They want to keep their seats full and bring people in and they, you know, just the economics of having customers from our plan works for the economics of their, of their business. So there is definitely some self selection that happens. I mean some of those five star dentists I think aren't even taking insurance these days. That's just like a, we don't need it. We, we've got our price. The people who want what we offer will come, pay us for it. And that's great. You know, I like that there are different levels of sort of businesses out there. I think that works well for everyone in the long run. But I, so I think dentists sort of self select a bit in knowing whether this works for them. And sometimes you'll call a dentist and they'll say, nope, not interested. And that's, that's fine. And other times you'll call them and they say, oh yeah, we work with dental plans. We'd be, we'd be happy to talk to you. Send us over your fee schedule. They want to see that fee schedule. Right. And so they need to make sure that it does work for their, for their business model and for the most part for the types of dentists that are interested in having this type of plan. You know, having customers from this type of plan. When we send them that fee schedule, we get a pretty positive response from them. So I am, I am optimistic that we are very much headed in the right direction. With dentists, the tricky thing sometimes can be getting the right person from that dental office on the phone. Sometimes it's the office manager, sometimes it's the dentist themselves. And so what we're trying to figure out is the, can we just call the front desk and get to the right person? Do we need to be scraping the actual dentist emails and make contact with them? Do we need to send someone in person in an American dental care polo to the front desk and say, hey, will you give this to your office manager and your dentist and have them let us know we're starting to work on that piece of it right now. I talked about how we kind of had neglected some of the dentist relationships. We launched the new fee schedule at the beginning of the year. We've spent most of the last couple months focused on making sure all of our existing dentists are aware of the new fee schedule and are using it and are happy with the direction of the business and where. I would say over the last month and moving forward are starting to get more into that expansion talk to new dentist phase and are seeing promising early signs of engagement from them. But it's a little bit early to say exactly what that strategy looks like and how quickly we'll be able to add add dentists to the network.

[1:02:14] Host: We still haven't gotten to the actual terms of your acquisition, which is a big part too of the way you kind of. Your overall thesis was the cost of the business and the terms that you got and your how you kind of downside Protected yourself here. So, so what were the terms of, of the deal? You remind us. You paid 2.7x for a business doing call a 200ste. What was the acquisition price?

Guest: $450,000 was the acquisition price.

Host: Great. 450. And what were the terms?

Guest: Yeah, so the seller gave me a note for $200,000 over three years and I brought my own cash for the other $250,000. You know, I thought about getting some outside equity but ultimately felt like on a business that's this size, one, I had the ability to buy the whole thing outright and two, I that allowed me to maximize my upside. I was basically comfortable with the amount of money I was risking and I would have, you know, 100% ownership of this business and 100% of the, of the growth value as it hopefully grows. And so I was comfortable. It's just my cash plus this plus the seller note in the business. And then in terms of how I thought about that overall, you know, my basic thesis on it was as I've modeled out sort of that three year payback period to, to the seller, if the business continues to shrink at about the rate that it has been shrinking in the previous three or so years and I'm just not able to get any traction and turn this thing around, then at the end of three years I expect to have completely paid off the seller note and have paid myself roughly the $250,000 that I, that I put into the business, you know, more as salary and stuff at that point. But I will have paid myself back and I will be three years down the road with the business still producing some level of cash flow that's 100% mine and that I've basically broken even on. And you know, is there like a worst, worst case scenario that could be worse than that? Yes, I suppose there is. But I think my like most likely bad case is, is that on the flip side if I, you know, if I just get it growing a little bit, if after this first year of being roughly flat I can get it to grow 10 to 20%, it's a top line, you know, half a million plus business. And that's great. It's not my preferred amazing outcome, but it's enough that I'm paying myself a reasonable salary and I own 100% of the business and I've got kind of a, you know, very classic, very small business type type outcome. And on the really good side, if I'm right, that I can use better sales techniques and better supply acquisition techniques to really grow this business to acquire customers more efficiently, to grow into new geographies with new dentists. I can really see a world where, where the business can 2 to 3x in, in 3 years and, and maybe 2 to 5x over, over 5 or 10 years. And I've got a really home run outcome. And so as I looked at that range of outcomes, I was comfortable enough that if my kind of worst case scenario is I get three years of experience owning and operating a business and learning a lot of probably in some cases painful but good lessons along the way, that will have been worthwhile. And if any of those more positive outcomes happen, I will be somewhere between happy and ecstatic with those outcomes. And, and it will have been a really great experience. And although I only searched for a handful of months to end up in that spot, the idea of being able to kind of get right into the game of owning and operating a business in that range of potential outcomes was, was very attractive to, to me. And so, you know, to now be less than a year from when I started my search and to have six months of actual owning, an operating experience under my belt, I feel really good about being in that spot and not being in the spot that I know a lot of people end up in where they're still searching a year in or even longer. And so I'm really.

[1:06:25] Host: The get in the game argument.

Guest: Get in the game. That's right. I was, I was in the get in the game camp and I'm, I'm happy to be in the game despite the ups and downs that go into the day to day and week to week of running a business.

Host: Yeah. Yeah, Zach, that was a great breakdown of your analysis and just a couple follow ups to be clear. So your base case or your. Or you're not even base case, I guess I'd call it your, your negative case, your downside case is continued decline at the current rate. So not an acceleration of decline, but indeed decline. And even if it just declined, if it declined linearly at the same rate, you would break even. You penciled out basically a break even scenario. Great. And. And we should also highlight. You just said it in passing, but I didn't do a good job of surfacing it. Your search was very short.

Guest: It was.

Host: Yes, it was. So it was Juneish to. You said you closed in September, so

Guest: yeah, at the beginning of August and closed at the end of September.

Host: Had you gone in, by the way, had you gone into your search being like, I just want to get in the game or was it Once this opportunity presented itself, that was one of your justifications to go after it.

Guest: I think I know myself well enough to know that if the search had really dragged on, I would have gotten bored or distracted by some other opportunity. And so, like, I wasn't going to, I wasn't going to search exclusively for two years and, and not do other things. And so I would have picked up more consulting work or I would have. One of those consulting jobs would have turned into an offer to come on board. And I think I would have said, the search isn't going anywhere. Let me, let me kind of do that. And so my timeframe that I gave myself in in June when I kind of committed to making this a project was, let's see what we can make happen by the end of 2023. And if that had been, you know, under LOI in December, it's not that I would have given up on it. Right. But I was, I was not on a I must buy business and I will do search for as long as it takes to find something timeline. I was on a let's see if there's really something here for me type timeline. And so, yes, a little bit more of the get in the game type mindset from the beginning.

Host: Great. The, again, your kind of analysis here of, of evaluating the various, the various cases from not great to great. You chose not to do an SBA loan. You talked about equity. You decided against bringing in investors. You did not do an SBA loan and in fact came out of pocket. We're talking lesser sums here, not huge amounts of money. Of course, it depends on one's own balance sheet. If $250,000, how much money that is. We already know that you had a nice nest egg from your uber years. So for you, this probably wasn't all. We know this wasn't all of your money, but not nothing. It's $250,000 is not nothing to anybody. Why not just buy a $450,000 for $45,000, meaning the 10%, you know, that roughly that the SBA would, would, would enable. It sounds like this seller probably would have accepted a pretty aggressive. I mean, he gave you 50 seller note, so he probably would have accepted that. I mean, you. And, and then your downside is really minimized. I mean, your downside at that point is. Well, I mean, sorry, your downside is basically the same because you're gonna have to personally guarantee the, the whole cost of the business, but your cash out of pocket is, is quite nominal at that point.

[1:09:58] Guest: Sure. Yeah. Fair question. I think the way I thought about it was there were a few factors in this. One was, frankly, as fast as it happened, I wasn't particularly. Like, I hadn't really been talking to bankers. I hadn't really gotten to that. That phase of. Of things. So I didn't have. I didn't have a lot of. I hadn't made a lot of progress there. And I knew one of the most important things to the seller was to close as quickly as possible. And so not in a, Like, I don't want you to do your due diligence, but in a. Like, I am ready to be out of this business. I was ready six months ago. I should have sold it two years ago, but I'm here. I want to get out of this. And so a. A fast close was. Was important to him and was something that I could accommodate. And then I think. I think the other piece of it was. I don't actually know. And again, I didn't have the conversation, so it's hard to say. This business has very few physical assets, right? We've. We don't sell. There's no inventory, there's no building. There's no. I think it would have been a little bit of a tough. Maybe it's small enough that it would have been okay, but it doesn't. From my understanding of SBA underwriting processes, I'm not sure it ticks kind of their typical boxes. And so I wasn't sure how smooth that process would actually be. And ultimately, for my. My personal situation, like making a $250,000 bet on myself was a comfortable enough, acceptable enough bet and risk to take, and so it just kind of decreased the complexity of getting the deal closed, and I was comfortable doing that.

Host: Yeah. Again, a bit of a get in the game sort of argument.

Guest: Yeah, I think so. You know, I thought about. I. I could. I could have, like, taken a home equity line of credit to do it, and that might have been a little bit faster. But. But then, like, the interest rate environment last year kind of sucked. Like, I wasn't particularly excited about the, you know, 10 to 12% interest rates that would have been tied to any of these things. I, you know, I guess the market has done really well since then, so the. The $250,000 left in index funds or Uber stock actually might have done even better, but I tend to try not to second guess those things too much. I made the decision that felt best for me and my family in the moment, with the information that I had, and still feel Good about that.

[1:12:16] Host: Awesome, awesome. And, but let me ask, what interest rate did you get from your seller? Just curious.

Guest: On the note, 8%.

Host: It was a stock sale, not an asset sale. Tell the audience what you think that they should know about that.

Guest: Oh, yeah, Fair question. So in our case, because we had contracts with dentists to take the plan that weren't assignable and we had licenses in a couple of states that the process of applying for new licenses under a new corporate entity would have been more onerous, we decided to go with the stock sale. And so the agreement has all of the, you know, indemnifications and things that you would probably want to beef up in that case. But ultimately was one of those things where I got comfortable with that being the right way to go in order for the business to be able to continue to operate. It was sort of a, that was one of the moments in the kind of sale closing process. We hadn't, we had started with an ally that was going to be an asset sale. And as we started looking at the contracts and understanding the process, it became pretty clear that that wasn't an option. And so it was either we agreed to go a stock sale direction or it was walk away. And obviously we continued forward. In some ways there are some nice things about it. I didn't have to go set up an entity and open new bank accounts and do all of those sort of day one rehire employees. I didn't have to do all of those day one things, which was kind of nice. On the flip side of that, you kind of get to year end and you're working with an accountant to put together tax forms and license renewals and things from a business for nine months of a business that you didn't actually operate and are kind of piecing together from the records available and the memory of the seller and all those things. I mean, it's not that he left me high and dry on it, but it was a little bit more challenging in some ways than just the clean start that you get, I think, in an asset sale. So I don't come away from it feeling like I would never do a stock sale again or like it's the way to go. I think it was what made sense for the transaction and that's what dictated where we are. And it has pluses and minuses, but made sense for our situation.

Host: Yeah, yeah. It seems like in a few cases where a guest of mine has done a stock sales, it's basically because, well, similar to your case, they're trying to inherit Some, some of the agreements or licensure or whatever it is from, from the previous owner. So that carries with the business, with the entity. So, so that they're kind of compelled to do it that way. Not that they necessarily wanted to. It's. It was kind of like had to with that. Yeah. Sort of thing.

Guest: Yep. Yeah. I think, I think probably practically speaking, if you don't have to do it for a business of this size, it's probably a little bit easier to do what most people do and do an asset sale.

[1:15:05] Host: Yeah.

Guest: But also if you find, I guess in my, my experience of it is it is not a reason that I would walk away from a deal in and of itself, if that's what makes sense for the business to be able to continue the way that you want it to.

Host: Just in terms of growth, how many or in terms of kind of a picture of your marketplace here, how many dentists are in your network and how many member paying members do you have?

Guest: There are about 250 dentists and specialists. You start. There's some optical vision providers in there as well.

Host: And

Guest: 2000 to 2500 members. Yeah, those are the numbers on both of those.

Host: When I hear 2000 to 2500 and you know, I feel like if you can get 2,000 to 2,500 consumers, I mean, this is a market, there are a lot of people in your target market, I mean, kind of middle class, lower middle class, middle class people who go to the dentist. That is a huge market. So if you can get, if the business already has 2000, 2500 using very old, outdated, unsophisticated sales and marketing, you should be able to get another 500,000. I mean, I mean, if you have 2,000, you should be in these big city markets, you should be able to get 20,000. I mean, there just should be another 18,000 of those folks out there and that would represent 10xing the business. So, you know, it's just interesting when you think about consumer numbers, 2000 is just not that many consumers. And so moving the needle there shouldn't be that hard. I think

Guest: from your lips to God's ears, will I, I, I had a, I have a similar. Have had. I, I guess, yes, that, that is very much the thinking that I came into this with. I now have a little bit of experience enough to know that it's a little bit harder than maybe I thought it might be to at least get it started. I do think there's that flywheel and the momentum that will make it easier and easier as we go, as we start learning some things. But yes, I mean one of the things I really liked about it's hard to buy a half a million dollar business that doesn't have customer concentration. And I managed to do that. Right. Like if you think about most of the small businesses that are out there in that size, it's probably a couple of big contracts and maybe a couple smaller ones and like that's it. And you're looking at those businesses thinking there's real key customer risk here. I had 2,500 members where sure some of them might not like things that I changed and will leave or they'll be the normal churn factors and, and all of those things. But it's not like all of a sudden in one fell swoop, 25% of my business is just going to disappear because a contract ends. The flip side of that that's a little bit tricky on the growth side is that when you've got a large number of customers who are small ticket customers, it takes a lot of them to actually get growth. Right. It's not that the sales process to go get. And so that's part of why my thesis to some extent on getting those 20,000 customers is I want to go get the employers that have five to 50 employees and don't offer a dental benefit and get them to bring their, their employees on the plan. Yeah, I still think the individual consumer piece there, but when I think about a business that's five times bigger than the one that I run today, in five to 10 years, I, I kind of imagine that half or more of it is going to be small business customers with their roster of employees on, on the plan. That to me is actually going to be maybe a smoother path to growth than the individual consumer. The individual just has. I talked about it a little bit before but you know, if they need to go, if they've neglected their dental health and in many cases for our target consumer they have, then they may have 500 to 1500 dollars of dental work that needs to get done even with, even with my discount plan. And so not only do they need the, the $12 a month or the $150 a year to, to sign up for my plan, but they need enough cash to go to go pay for that care or they want to do it, but they know they need a few months so they're not going to sign up today. Like the sales cycle is sometimes someone hears about me, they call us, they talk to us and then we don't hear about them, hear from them for a couple of months and then suddenly they sign up. And I think in a lot of cases they were trying to figure out the steps of okay, I'm going to need the plan and then I'm going to need the money to go pay the dentist. And, and I've got to do a little bit of saving to get to that point. And now I'm there, I'm going to go back and sign up. And so there's just a longer cycle that's a little bit that in just six months of ownership I'm realizing the work that it takes to get people all the way through that, that cycle and that process to, to get them on board.

[1:19:58] Host: The other thing that you would ask yourself about the, the existing members is lifetime value. So on the one hand, and if you haven't already said it, I recall from the pre call the lifetime value is really long here, which is awesome. I mean you have, I think you said you have customers that have been there for years and decades. On the other hand, if the entire membership are our folks who, who signed up five years plus ago, then that's a little worrisome because you're clearly he was just kind of farming existing customers and not being able to generate new ones or at least not trying to. And so yeah, you, you worry that, that the, the, the existing membership base doesn't tell a story for what growth could be today in 2024. Net new growth, net new members would look like how hard it might be to get them.

Guest: Yeah, in a lot of ways I feel like what I, what I bought was an existing fairly stable but small base of cash flow. Some dental, some dentist relationships, although not a ton, but some dentist relationships and the licenses needed to operate in, in a couple of states that we operated in and that require them but that in terms of the actual like day to day business operations selling process, like the growth, anything around growth in the business, in a lot of ways I feel like we're building from scratch and in a marketplace business that requires getting that flywheel going with those heavy, hard, early slow moving efforts that hopefully compound over time. We're really kind of starting from little to no momentum on that flywheel and so I kind of feel like I bought a platform to build on top of that gives me some, some comfort and some protection but that in a lot of ways there are some startupy elements of like we're building, we're sort of re building product market fit and sales process and ideal customer profile and supplier acquisition channels. And like there's just a lot of stuff that is Maybe not like 0 to 1, but is, you know, point 1 to 1 type. Type feeling, if that makes sense. Not sure that's a real.

[1:22:14] Host: You mentioned, I think you'd said the phrase if I can turn this thing around. So, so do you see it as a Turnaround or a 0.1 to 1 business or, or what kind of. How do you give me what, the. What, what phrasing I should use in the title of this episode here?

Guest: Yeah, I know I, I very much see it as a turnaround project. I, I think, yeah, yeah, it's a turnaround. It is. It is a longtime business that has been shrinking for at least the last 25% of that long let that older business and that. I see, I see that path. I can, you know, I have the vision for what it looks like three and ten years from now for this business to be bigger. But that, that's not just doing what the. This is not one of those, you go buy a million dollar SDE business and just, you know, add another truck and get a few more customers and grow it 10% a year for the next 10 years. It's more of a, this thing's been shrinking and we need to really do some things in new ways and really change what we're doing to get it, to turn it around, to get that flywheel going. And if we can do it, I think the growth potential is even bigger. But there's a real risk in whether or not we can. We can get it there, so we'll see.

Host: And so how are you feeling? I detect upbeatness in your voice, but you're, but the things that you're saying make it seem like the risk you feel like the risk is the business has much more risk in it than you perceived at the outset.

Guest: I don't know that it's more risk than I perceived at the outset. I think it's, I think it is the risk that I perceived at the outset. But as we talked about a little bit earlier, the experience of navigating it is different than seeing it on the spreadsheet. And so it really probably depends on what week you catch me on. The last. Most of last month I was probably on, on more of the negative side of things, but that was not really because of how we were selling. It was. We were moving offices and going through our annual license renewal process and I was in kind of admin hell not getting to focus on the actual growth driving things that I want to be doing. I Mean, there are important things that need to be done that enable future growth, but I feel like that's what a lot of these first six months has been, has been kind of just cleaning up some of the baseline things that need to get done in order to grow in the future and not yet getting to do those growth things. And so the theories that I had six months ago about what it's going to take to grow this business, I haven't gotten to test as many of them as I would like to yet. It's been a little bit of a longer process to get here and I really do feel like I'm on the cusp of doing that and I'm excited for it and still optimistic about it at the same time. I have six months of experience that shows, I think some of these things may take a little bit longer than I might have initially hoped in my optimistic case they would take. And so I'm maybe even more aware of some of that risk and that downside while still maintaining that optimism for where we're going. Like I said this week is the more optimistic than not weak. But in a few more weeks, I don't know, I could be back on the other side of it thinking like, yeah, that downside case is looking pretty likely. So, you know, I, I'm enjoying the journey. It's a fun, it's a fun process. It's a, I'm learning about myself, I'm learning, you know, I, if I can kind of go on a little bit of a tangent, I grew up in business. I learned business in a 2010s VC backed tech world where money was cheap and free and like budgets didn't exist. It was growth at all costs. It was, if there's a way to get more customers and more drivers on the platform, whatever it takes, go do it. That was what I was doing. And I'm now in this different world where it's my money that's on the line and I don't want to be, you know, no one's going to just give me more and I, I want to figure out how to make this work in a sustainable way. But some of those, those things I kind of, the mindsets, the frameworks, the mental frameworks of how to operate a business and make it grow were built in an environment that I, that I'm not operating in today. And I'm having to sort of relearn some of that and realize some of that and I'm enjoying that experience. I think I value what I learned from Uber and Also really enjoying seeing things through a different lens where I'm the owner and it's smaller and it's my money and my risk. That's a fun experience. But it's, it's been educational. I've been learning a lot about business and about myself through the process.

[1:26:56] Host: Totally. Yeah. Going from the lighting money on fire culture, venture capital culture, to being highly resource constrained. It's. You're seeing kind of two ends of the spectrum here.

[1:27:09] Guest: Lighting money on fire can be fun, particularly when it's not your money. Uh, but, you know, that is, today, that idea is not particularly attractive. So I, you know, I'm trying to find a different way to do it. And, and it's. I'm. It's me and two employees now. Right. And there aren't that many of us, and we have to really, like, we can't do all of the things at once. I can't be going and knocking on doors at dentists and trying to talk to small business owners about signing up their employees for the plan and going through a move and a financial statement audit and the other stuff that we had to do last month, like, I can't, I can't be in three places at once. And yet I want all of those things to be happening at once. And I'm having to figure out the right way to navigate that or do I hire for that. Just kind of the, the stuff that small business owners have to do, I'm having to do it for the first time. And it's fun, but it's challenging.

Host: Zach, anything that I failed to ask you that you want to share with the audience?

Guest: No, this has been a fun experience. I appreciate you having me, Will.

Host: Great. Well, Zach, thanks very much for coming on. Thanks for your transparency. Really interesting business, 0.1 to 1 experience here. So we'll have to. We'll have to hear, hear from you in a year as to how things have gone. Thanks a lot.

Guest: I'll be happy to do it. Thanks, Will.

Host: Sa.