← Acquiring Minds
Acquiring Minds
Anatomy of a Search: 40 Interns, 25 Months, 20 Offers
00:51:03
Jessica Markowitz used a traditional search fund to search for & ultimately buy a great business. But the road was long.
Loading summary
Transcript144 lines
- [00:11]
A
Welcome to Acquiring Minds, a podcast about buying businesses. My name is Will Smith. Acquiring an existing business is an awesome opportunity for many entrepreneurs. And on this podcast, I talk to the people who do it. Today's guest, Jessica Markowitz, is my first interview with an acquisition entrepreneur who did a traditional search fund. Which surprised me that it took me 30 episodes to put a traditional search funder in the hot seat. But worth the wait. This interview with Jessica really opened my eyes to what a traditional search looks like. If you're unfamiliar with what a traditional search fund is, it often entails a much longer search process because among other reasons, you're looking for a larger business to buy, and there are just fewer of those. Across the two years it took Jessica and her partner to find the company they bought. They worked with 40 interns to help them conduct the search. We get into those details and many more about Jessica's journey to find and acquire and then grow Paragon Legal. Here's the story of Jessica Markowitz buying Paragon Legal. Jessica Markowitz, thank you for joining me today on Acquiring Minds.
- [01:21]
B
I'm glad to be here. Thanks for having me.
- [01:23]
A
You're the president and COO of Paragon Legal alongside your business partner, Trista Engel, who's the CEO. The two of you acquired Paragon Legal as the target of a search fund. And this was a few years ago now and we're going to hear that story today. But before we do, why don't you just quickly tell people what Paragon Legal does and then how things, you know, just high level, how things have gone since you made the acquisition.
- [01:51]
B
Yeah. So in a simple sentence, Paragon Legal does corporate counsel on demand. So we work with large in house legal departments, helping them fill interim engagements with highly qualified attorneys. So our, the median experience of an attorney on our team is about 18 years. So highly experienced can go in and be experts for special projects, overflow work or backfills for maternity, paternity or leaves of absence.
- [02:24]
A
Great. And how are things going since it was August 2018 that you did that you acquired? Right. So it's coming up on just over three years then?
- [02:34]
B
Yeah, no, things are going great. We're building, you know, continuing to build out the business foundations to really have exponential growth that we can really build upon. We, we've grown the business quite significantly in the past three years and are excited to see that really start to accelerate.
- [02:53]
A
Excellent. Thank you. So let's, let's go back now quickly to the beginning. You and Trista decided to partner on a search fund. Why don't you give me a quick backgr on the two of you and why you decided to partner in the first place?
- [03:06]
B
Yeah. So, I mean, this feels like we're going back a while now, but, you know, started my career on a trading desk, as did Trista. We didn't know each other back. Way back when, and, you know, very transactional. I worked in the distressed world, distressed credit world. And I thought it was really interesting learning about how these companies got turned around, but wanted to get my hands dirty and get into it. Yeah. So I went to University of Chicago, Booth. That's where Tristan and I met. And I didn't know what a search fund was. I didn't know that I could eventually go and acquire business what. The programming that Booth and a lot of business schools have today just wasn't there. So I went on my merry way and went into turnaround consulting so I could do what I saw other people doing when I was sitting on the trading desk. Did that for about four years. And during that, the last kind of. In my latter half of that, I learned what a search fund was because one of my classmates had pursued it. And I remember looking at his LinkedIn and it said CEO. And I, like, pinged him. I'm like, like, change that. And jumped on the phone and he explained to me what it was, and it just immediately clicked like, this is what I want to do, and I need to figure out how to get there. Tristan took a similar path. You know, finance. She did some sales and marketing and then went to Booth. She went in traditional management consulting and worked for Bain. And she had. She learned about a search similar time as me, and had the same reaction. You know, this is what I want to do. We both kind of, you know, we've been friends for a while now, and. And we. We were discussing, as we learned about search funds, whether it was something we wanted to do together during business school. We would meet up and grab our laptops and say, we're going to come up with the next best business idea and do. But we never came up with anything. So we've always had that entrepreneurial bug. And. And when we both learned about the search fund, we. Because we had been talking all of these years about doing something, it made sense for us to explore whether we wanted to do this together. And we spent about six months meeting pretty much every weekend, figuring out if we were the right partners, if we were going to be better together than apart. We did partnership books, wrote a partnership charter, did scenario planning. We shared work reviews. We did Working style exercises. We put a lot of work to figure out if we were going to remain friends after we embarked on this journey. And about six months in, we decided we both want to do this, we both want to work with one another. We're going to be a better team together. So then we did it and.
- [06:17]
A
Yeah, well, yeah, I'll ask some follow ups on what came next in the process. But just going back to the six months that you, you guys put into kind of mutual evaluation and figuring out if you wanted to partner, that's so counter to what so many people do, even if they decide to partner. I mean, the joke is that, like, people who decide to partner are so uncomfortable with considering what would happen and you know, if the partnership goes south, that they don't want to address those issues upfront. You know, that kind of a prenuptial agreement would be, would, would be the analog there in a marriage. But it sounds like you guys just dove right in. Like, what, what, what is this going to look like if we don't like each other? If push comes to shove, I imagine so what was it about the two of you that just made you comfortable going through what is typically very uncomfortable for people?
- [07:04]
B
Yeah, we were really good. I say we, I say were. We were really good friends and we didn't want to jeopardize that. We still are really good friends five years into doing the search fund and operating. So yeah, we did. That was more important to us. So we had to be honest with one another. It takes a. It is. There is no one in my life that I spend more time with. Trista can say the same thing, even if she's married and has two kids. And you are signing up for your lives to revolve around one another in a way that is very unique. So you have to have these conversations because a search bond is lonely. It's hard even with a partner. And things are going to go right and things are going to go wrong. I just, I can't imagine another way to do it, to not be able to do it.
- [08:03]
A
You can't imagine doing it solo.
- [08:05]
B
Oh, I cannot imagine doing it solo. It was, it's been. Yeah, it is lonely as a searcher. It's lonely as an operator with a partner. But it's personality. I never wanted to do this by myself. I like collaborating. I like having a partner to be in it with the highs and the lows. Some people get that and they get it in a different way. But for me, that was, that's what.
- [08:32]
A
I would choose Going back again just to your learning what a search fund was by seeing that the CEO title on your friend, I guess your schoolmate.
- [08:44]
B
Yeah.
- [08:44]
A
On his LinkedIn. So is that what made you want to do a search fund to short path to the CEO? What attracted you so much to search fund?
- [08:54]
B
No, it wasn't that. I just, I had always thought about running my own business and I didn't even know that this path existed. I loved my job in consulting, but it was missing really being a part of the team, being there for the long haul, being held financially and, you know, actually accountable for the decisions being made. And so it was missing something for me. And when I learned about the search fund, it kind of married those pieces that, you know, problem solving, leading teams, value creation with the long term perspective, really being held accountable for every decision made and being part of the value created. So yeah, and it was entrepreneurial, which.
- [09:42]
A
Is you'd be looking for that.
- [09:43]
B
All of those things made it, made it a no brainer. It wasn't about fast tracking to a C level job. It was more of those, those other attributes that I was, I was really searching for.
- [10:01]
A
If you didn't, I just want to ask about the traditional search fund versus self funded. So if you hadn't learned about this at Booth, like typically when I talk to people who have done a traditional search, it's because they went through one of the prestigious MBA programs as you did, and learned about it there. And the ecosystem just sets them up to do the traditional search fund. But in fact, you didn't hear about it that way, even though you had gone to Booth. So you and Trista might have decided not to do a traditional search fund, but just to do a self funded search and buy something smaller. And maybe we'll tell people real quick the difference between those two things. Did you consider that or, or what?
- [10:39]
B
No, we always considered the traditional. We wanted to buy a couple reasons. The first is, for the most part, and this is anecdotal, self funded. You know, self funded deals tend to be smaller, right. And there were two of us, we wanted to, we didn't want to be 100% of the EBITDA. So we wanted to find a business that could support both of us. The second thing is we wanted to buy a business that was big enough where we could actually be strategic as opposed to tactical. Granted, anyone's first six months of anything that they, big or small, you're going to be tactical because you need to learn. But we wanted to be able to focus on working on the Business and not working in the business, if that makes sense. So it's just a different type of job. And then lastly, we wanted the support of people who had done it before. We acknowledge there's a lot of things that we're really good at, but having people that can be experts that support us on a board was really attractive to us.
- [11:46]
A
And so just to be clear, in the traditional search fund model you have investors who are typically very experienced and have worked with a lot of other searchers. And so not only do you raise capital from them, but they're just, it's real smart money and people that can really help and serve on your board. If you're out there doing a self funded model, it might just be your own money. You might not have a board and you don't really have this, this bench of people that you can look to for counsel.
- [12:11]
B
Yeah. And their networks get connected to has been really helpful.
- [12:18]
A
Great. Okay, so what kind of like give us a sense of what your target criteria were? I mean, you just touched on it a little bit by saying you're explaining your decision to go traditional search. But can you be more specific about what your target criteria were and then, you know, just more about the search process?
- [12:38]
B
Yeah. So the target criteria were pretty straight down the fairway for what a traditional search was. So B2B services is pretty, pretty typical. We wanted a fast growing industry where we could, you know, all tides rise all ships or.
- [12:54]
A
Yeah, rising tide raises all boats, I think.
- [12:57]
B
Yeah.
- [12:57]
A
Did I get that right?
- [12:58]
B
Yeah, yeah. We wanted over 2 million in EBITDA. We wanted, you know, over 15% margins, healthy gross margins. So those were some of the, the initial criteria. There was some aspect of recurring or highly repeat revenue that was really important to us as well. Those are some of the big factors that we looked for.
- [13:28]
A
And how long was your search? Tell us a little bit about that search process.
- [13:32]
B
It was 25 months, but felt like 25 years.
- [13:36]
A
Yeah, well, 25 months is. Even if it just felt like 25 months, that's a long time to be just searching. Although it's not atypical for a traditional search.
- [13:45]
B
Yeah, that's about on target. Yeah. So we took the traditional industry focused approach. And.
- [13:55]
A
And what is that, please?
- [13:57]
B
Yeah, so we would, we, we laid out our industry criteria. We, we went and found niche, you know, did research on niche industries that fit those criteria and then we reached out to companies within those niche industries and that's kind of how we organized ourselves throughout our search. So we had a, an army of interns throughout our entire search, I think we had something like 40 plus. Not all at the same time, but throughout. Yeah, throughout the 22 plus years. That would help us kind of organize our proprietary and then also brokered outreach. So all in all, I think we reached out to something crazy like 9,000 individual companies and 8,000 brokers put in or visited something, you know, had 500 or so phone calls, visited, I think 60. And I'm a little bit dated. I think that sounds right. And we put in 20 offers, half from proprietary and half from our intermediaries. And we bought the. The business we bought was through our proprietary outreach.
- [15:03]
A
So you said that. What did you say you did? A thousand. Roughly a thousand proprietary outreaches and 8000 brokerage.
- [15:10]
B
9000.
- [15:13]
A
Oh, I thought you said it was 1000 proprietary, 8000 brokered. Did I get that wrong?
- [15:17]
B
9000 proprietary, 8000 brokered.
- [15:20]
A
Ah, okay. And so that was about 50, 50. And in fact, the offers that you put out were also about 50, 50.
- [15:27]
B
So yeah, I would say it's about 95% of the work was proprietary and 5% because it's so much faster and easier to get a deal on the intermediary side.
- [15:40]
A
But so in fact, though, the intermediate talking to brokers in terms of the companies that you made offers on was more fruitful because it took a lot less time and you made as many offers, although the company that you ended up buying was from the proprietary effort.
- [15:55]
B
Yeah, we made offers, but we're one of many. So it may not have been as real than the ones we made on the proprietary side.
- [16:06]
A
And these 40 interns over 25 months, how many interns would be working for you in any given moment?
- [16:12]
B
The most we had was nine. That was too much. And then, you know, average three to four for about 10 weeks. So we were in Chicago, and I'll do a shout out to Northwestern's Chicago Field Studies program where you could get interns. And this was their class for the year or for the quarter. So they would work for us for a quarter for school credit. They had a class, they got a grade. So it was great because we could get new interns every quarter through this program. They were learning a ton and they had to go share what they learned at their class. So kind of was a good, really great program. Very thankful for it.
- [16:55]
A
Sure, that that's great. I mean, this is great, Jessica. Although as somebody who, you know, somebody listening to this who wasn't plugged into Northwestern, doesn't have 25 months, it's very intimidating. It's like wow, I can't do all of that now. Your bar was high. You guys were doing a pretty ambitious search. So there is that. But still make me feel better if I'm somebody who's just looking at biz Buy sell. Looking to buy a million dollar landscaping company.
- [17:23]
B
Yeah, I think it's a lot easier once you get smaller on the EBITDA side. And easier is not the right word. There are it is. The smaller the business, probably the faster you can find a deal. Also, if you don't have criteria around B2B and you're more industry agnostic, you can take on some. We have low capex requirements. If you can find a business that doesn't have those and you can fund those, I think there's more opportunities out there. Once you get kind of sub 500,000, I would imagine it's even faster to find a target. There's just more of them and you're not competing against the. The private equity. The other traditional search funds, you know, private equity add ons go down. You know we were competing against them in the brokerage space.
- [18:21]
A
Yeah. On the other hand, while that might all be true, if I'm somebody looking for that home services business on Biz by sell, I'm probably not willing to move anywhere in the country. So my geography is quite limited where I assume you and Tristo were willing to go anywhere. So that cracks open the entire country for you to look at.
- [18:41]
B
Yeah. I think there's benefits to being geographically focused. You can get in a car and visit anyone on a minute's notice. Yeah, well maybe not a minute, but pretty quick.
- [18:51]
A
Yeah.
- [18:52]
B
Yeah. We were based in Chicago. We look, you know, we were geographically agnostic. We went down to kind of middle of nowhere Texas and we kind of looked around and was like can we really live here? And you know, at the end of the day that that wasn't a first pass criteria. We wanted to buy a great company, but it was something we couldn't ignore. You know, can is it sustainable for us to live happy lives? And for some of the locations we visited it wasn't. Or and it was also hard to attract talent. So you either have to move the business which is complicated. So although we were geographically agnostic, it did come into play whether we wanted to it to or not.
- [19:32]
A
So you narrow down actually just want to circle back to the, to the interns. I'm just. Because I'm just imagining this like flurry of intern activity in your office. Although they maybe, maybe they were remote but still it's A good image back.
- [19:45]
B
In the in person days.
- [19:46]
A
Back in the in person days. So were they just. We don't have to spend too much time on this, but break down for me, your interns like the pie chart of what they worked on. Was it like 100% cold outreach or was it, you know, 50% cold outreach, 25% industry research, 25% XYZ. Like tell me what that was.
- [20:07]
B
Yeah, I would say it's about 75% list building for. So we tried to give our interns kind of ownership. So we would brainstorm industry ideas every week if we liked one and an intern would own it. They would be responsible for building the list of appropriate target companies and, and kind of figuring out which ones were really the right fit. And then they would, we would be responsible for the like physical outreach. But they would join on calls. They would be responsible for, you know, first pass on the financials. They would be responsible for helping to kind of build initial models, things like that. So we kind of had some ownership that it came self fulfilling. The harder you work, the more opportunity you got and that. So in that kind of the whole spectrum, you know, I would say about 75% of that kind of list building, you know, you have to build that top of the funnel.
- [21:08]
A
But you and Trista would actually send out those emails.
- [21:11]
B
Yeah. Through what? Through, through mass emails. Yeah. But we would personalize it and we make sure that we knew which companies were on the list. So there's a lot of. Our job was a lot of probably felt like at sometimes like 75% reviewing each company that we wanted to reach out to. And then when we had our nine interns while we were under diligence, that was really just project management and we gave those interns a ton. So we had someone own market sizing, we had someone own the gross margin analysis. We had someone own contract review. We put them in like three teams at three and just kept rotating just different areas. And it was extremely helpful just to have an extra set of hands because that was just a chaotic time.
- [22:04]
A
This is incredible. I mean now part of this might be, I don't think I've actually interviewed yet somebody who did a traditional search fund. You may be my first. So maybe this is, maybe this is the norm for a traditional search. But it sounds like a very sophisticated operation. Although I assume there's a playbook for this. And it's basically what like private equity shops do. And you were just kind of like modeling that. But I'm listening to this and I'm like you guys built a business around this search. Not a business, but a machine.
- [22:32]
B
There weren't many. The funny thing about traditional searches, and I think it's changing now, but there's a little bit of like, okay, from our investors, go do it, see what you can do. And not a lot of guidance, almost a little bit like a test. So we didn't, you know, we built the playbook, we built the intern onboarding and we built it all. I think a lot of search funds that are successful end up with something similar, but it is a lot of reinventing the wheel every time you start. So those first six months really were testing everything out. Like I feel a little bit bad for first intern because we didn't know which way was up until about six months in and then we really started cranking.
- [23:21]
A
And do you feel you touched on this earlier saying that it was kind of a win win for everybody involved. You feel like your interns, maybe not that first one, but subsequent ones got something out of it. You think it was good industry experience for them?
- [23:32]
B
Yeah, I still am in touch with them three plus years later. I'm a reference for a few for their jobs as they're apply to jobs out of college. I've caught up with a few out of out, you know, in the past couple years over coffee and saying how they changed their career path and all these things.
- [23:50]
A
Did it inspire any of them to do search themselves when they got to that point?
- [23:54]
B
I think it inspired them to, you know, broaden their horizons because a lot of them were interested in investment banking and those traditional career paths. But yeah, got it. That got them excited about potentially, you know, working for a smaller business and learning about organizations and really just open their eyes to different opportunities. One thing we also did every Friday, if everyone kind of hit their goals, we set, we set up goals that everyone had to hit for a number of companies evaluated or industries. We would take a half day on Friday and do a training. So we help, you know, a modeling, a financial modeling training or accounting training. A lot of some of them wanted to go into consulting, so we do a consulting case prep. So just things to make sure that they were getting really tangible things out of the experience. And I think that's awesome for some of them. Really rewarding, but again, self fulfilling. The harder you work, the more you got out of it.
- [24:58]
A
Very interesting. Okay, we haven't even gotten into Paragon yet. Okay, so you identified some industries that you liked that met your criteria. I mean what would you even, how would you even label Paragon's industry.
- [25:11]
B
Yeah, we are an alternative legal service provider. We did not.
- [25:17]
A
Okay, okay. So how did you find Paragon if it wasn't one of your target industries?
- [25:22]
B
Yeah, we were interested in legal services. We didn't know what Paragon did or that it existed or that it was an industry. And to be perfectly frank, there's probably eight companies in the United States that do what we do as a sole, you know, pure play. And we were. So we were interested in legal services. We thought we were interested in e Discovery. Quickly learned we were not. But we were in Chicago. We got connected to a large competitor of Paragons. At the time, Paragon had only operated in the Bay Area. And one of the people we met with spoke about Paragon and said, they're a real competitor or something to the effect of, that's a real great company in this industry, but they're only in the Bay Area. We learned more about it. You know, they had been on the Inc 5000 list a few times, and we reached out to the owner.
- [26:27]
A
And given that they were in the Bay Area, you could probably have surmised that they were doing well, serving, you know, just riding the tide of big tech. And you're hearing about them as this big competitor in the business, in the industry, and they've been on the Inc 5000, so growing quickly. Why did you think that they were a good target? I mean, especially, like, you know, this isn't a typical silver business with a retiring owner.
- [26:51]
B
Yeah.
- [26:53]
A
Excuse me. Why did you think that the owner would even be interested in moving on?
- [26:57]
B
Yeah, we learned that the owner moved to Taiwan, and so we thought, how do you run this business from Taiwan?
- [27:07]
A
So was that key. That key detail that kind of made your ears perk up?
- [27:12]
B
Yeah.
- [27:13]
A
Okay.
- [27:13]
B
We would have reached out regardless of that fact, but we reached out, and the owners, we got on. You know, Tristas had the first initial call, and great call. She, the owner, she had absolutely zero interest in selling. This was January of 2017, so we were about five months into our search.
- [27:35]
A
But it was a great call. Are you being sarcastic?
- [27:37]
B
No, no, no.
- [27:38]
A
It was a great call, but she was totally not interested.
- [27:40]
B
Yeah, she was like, love what you guys are doing. Best of luck, but stay connected. About a year later, so December of that year, December 2017, she actually reached back out and said, okay, are you guys still around? I want. I'm ready, and I want to sell to you.
- [28:01]
A
Wow.
- [28:02]
B
So, yeah, we just. I mean, we didn't have to reach out. We could have just waited that there was 12 months, but that's just, you know, how the search is. So much luck.
- [28:13]
A
Do you think that your initial outreach planted a seed that took 12 months to, what's the word? Whatever. Germinate.
- [28:24]
B
Yeah, I think we stayed in touch, but not in a way that trying, you know, I firmly believe if someone does not want to sell their business, you are not going to convince them or at least a search fund because, you know, give me a price I can't refuse is not a tough thing to do in the search fun world. So. Yeah, but we just stayed connected and you know, maybe two or three times throughout the year just touched base. I think the main factor was just the time difference and running a business. She has three kids who are now kind of junior high and high school. So at the time, whatever, three years younger is from that. And it just became just really hard to manage on a 15 hour time difference when she was still really running the day to day operations.
- [29:16]
A
But when you first reached out to her, there was no indication from her that being in Taipei running this high growth legal services company was a struggle. But a year later, lo and behold, it was.
- [29:28]
B
Yeah, there was nothing like, wow, let's stay really close to her for that reason. It was like, that was a great call. She's gonna, she's, you know, let's stay connected because it's. You just never know who anyone knows. And that was, you know, we really, you know, our message resonated. We shared a lot of the same values. That was kind of our thinking. Had you asked me in kind of August of 2017 if Paragon was going to come back, I would have said no, not at all. Yeah, Jerry told us she doesn't want to sell and you know, maybe in a couple years, but. But not in the lifetime of our search.
- [30:07]
A
Yeah. Amazing how that happens. I mean, I guess, I guess the takeaway, even though it feels random, the takeaway is that like just constantly be increasing your surface area in your outreach and. Because you just, you just never know. And all it takes is one, one little something to snag on your efforts.
- [30:25]
B
Yeah.
- [30:25]
A
And to hook them in and reel them in.
- [30:27]
B
Yeah, for sure. And of the 10 offers that we put in on the proprietary side, I think three of them came from referrals through people we had talked to that weren't interested. But we stayed connected and they connected to someone in the industry that they're friends with that wanted to sell. So you just never know.
- [30:55]
A
Yeah, yeah. So it's just really because you never know. It's Just like you're going to increase your chances by increasing your frequency of velocity of output. Just.
- [31:04]
B
Yeah. I think I can't take credit for this quote, but someone said to me, you know, the search is about getting lucky, and then when you get lucky, be really prepared. And that really resonates. I believe that.
- [31:20]
A
Yeah. So neither you nor Trista are lawyers. Attorneys. So did that intimidate you? Talk to me about the fact that you acquired a company that's all about providing lawyers to. And not only kind of just any old lawyers, but like, there's a lot of. I mean, these are prestigious companies and prestigious lawyers that want to work at Paragon or work with Paragon. So talk to me about that.
- [31:47]
B
Yeah, great question. And the seller, and she was an attorney, so she was not. She was.
- [31:56]
A
She was. Okay.
- [31:57]
B
Yeah. Paragon itself doesn't provide legal service. We organize people. And so the skill set of the owner at the time wasn't doing legal work. It was, how do we get recruiting and business development and marketing and finance and accounting. And that's what we can do. So it didn't. The problems that Paragon had. Or maybe not. Sorry, not the right word problems. The opportunities that Paragon had were not those that needed to be solved by a lawyer. They needed to be solved that someone who can build out a really scalable recruiting function, who can build out sales and marketing, who can build out scalable systems and processes across the organization. That's what we. You know, we're building these business blocks. When we joined, we had spreadsheet. That was kind of how the business was run on a spreadsheet and. Or actually five spreadsheets. And you'd have to kind of flow through all of them to figure out what was going on. No sales, no marketing, no outbound recruiting. Really just an amazing brand name that created this flywheel effect of a lot of inbound on the client side and inbound on the attorney side. So, yeah, we felt really confident, still feel really confident that we were the right people to solve those problems. We obviously have attorneys on the team. We have on the corporate team who manages our attorney team. I think we're about 50. 50 attorneys, non attorneys. So we're not saying there's no place for an attorney on a team. We think it's very important, but we didn't think that was. That didn't intimidate us.
- [33:59]
A
You know, I wonder if this is the difference between acquiring a larger business, as you did with Paragon as part of. In a traditional search, and doing a self Funded because if I, for example, people that I've talked to acquire a plumbing company, for example, and they're not plumbers and they, their intention is also to work on the business rather than in the business, at least to grow into that point. But in the meantime, as you said, for those first six months at least, especially if it's a smaller company, they're going to need to be working in the business and they're going to. And my sense is that most people feel that they're going to need to be able to at least talk the talk of the people that they're managing. So you'll hear the person acquire the plumbing company goes out and gets his plumbing license or certification. I'm probably not even using the right word there, but you understand what I'm saying. But maybe if the company is large enough, as in your case, there was like a layer of management where you really that, that really prevented you from having to be able to speak any kind of of the attorney's language. Maybe that's a key difference in size of company that one acquires.
- [35:08]
B
Well, I think one thing that helped Tristan, I think you have to be able to speak the language. One thing that helped Tristan myself is just the consulting backgrounds. What you do as a consultant is learn things and learn things fast. So we were able to get up to speed and being able to talk the talk with both our clients and the attorneys team. I can imagine we said things that didn't make sense at first but at least we were kind of somewhere in the range of reason of what was a reasonable thing to say.
- [35:36]
A
Okay.
- [35:37]
B
But yeah, we, you know no one on our corporate team today, except for our actual in house attorney does legal work. You know, we have a handful of recruiters, we have hr, we have finance, we have operations, we have clients, account management, we have business development. So none of those people, even if they are former attorneys or non active attorneys, are doing legal work.
- [36:06]
A
Yeah, yeah, okay.
- [36:08]
B
But yeah, we had to put in the effort and I think the diligence process was helpful in being able just to speak intelligently with clients. I think there was when we joined all of the bounce back emails that came that are accidentally sent to a paragon legal email address come to like a got forwarded to Trista. There was someone that said something to the factor. Who are these 12 year old non attorneys and good question. I'm glad, I'm so flattered that they thought I was 12. But yeah, I think we had to overcome prove ourselves.
- [36:49]
A
Well that's the other thing Is that like even if you know that you don't need to know, don't need to be a lawyer. There's just, there's the perception thing. And so maybe, maybe your clients, they might be wrong about this, but they might feel. No, this company I want to work with needs to be led by former attorneys.
- [37:06]
B
You know, I mean we had, although a terrifying at the time transition because you just never know what ends up. We didn't lose any clients and we didn't lose any attorneys.
- [37:19]
A
Yeah. So you prove them wrong.
- [37:22]
B
Yeah, I think, you know, we also bought the business from someone we really trust and admire. She, we, she supported us for a three month transition that was perfect. And she still remains an investor and a board advisor. So I think having her support and people, clients and attorneys really trusted her. We kind of got the benefit of the doubt from that from a lot of people.
- [37:53]
A
So it was a really graceful handoff on her part.
- [37:57]
B
Yeah, I mean, yes, it was great and just showed me how important it is to build trust and build a really, a real relationship with anyone you buy a business from.
- [38:10]
A
Yeah, you said something to me pre call that was interesting about. So Paragon has continued to grow very nicely. It turns out that you bought into a really hot industry and actually if you'd elaborate on the hotness of the industry in a minute. But why not? Since it's just about people and it's not about building tech or capex in this business. Could you have started looking back on things if you had seen the opportunity? Could you and Trista have started this from scratch?
- [38:46]
B
No. It's really actually even hard for incumbents in the legal services world to build out this service line today. When this business, When Paragon started 15 years ago, it was just a totally different landscape. No, because it's a dual sided market. Even, you know, the attorneys are our, our, our employees. But there, there's a dual sided market component and it is one thing that's unique about attorneys that maybe not in all professions, but, and I, I say this with such love, just, you know.
- [39:28]
A
Oh boy, here it comes.
- [39:29]
B
Yeah, the prestige factor matters.
- [39:32]
A
Yeah, yeah.
- [39:33]
B
The prestige of our clients, the prestige of the Paragon brand in the legal world. And we, so it's, it's hard to attract the best talent when you don't have the best clients and you can't track the best clients if you don't have the best talent. So it would be very, very hard to start from scratch.
- [39:54]
A
Yeah.
- [39:55]
B
And we see our, our strategic counterparts acknowledging that and trying to figure out how to get into the industry with that chicken and egg problem.
- [40:08]
A
And really that kind of boils down to the value of brand. So you had Paragon, had this very strong brand prestige and reputation and maybe somebody could do it now. Although it sounds like starting from scratch now would be really hard. But certainly, if nothing else, it would take years to build something like that.
- [40:29]
B
Yeah. Yeah, I think so. You know, I think we're in a really good, good. We're in a really good spot. We were able to hold those standards to bring in the best attorneys and keep, you know, make them as happy as possible and do great work and then the clients keep coming back.
- [40:50]
A
So give it, give us a minute. Give me a minute on, on this industry. What's going on in this industry.
- [40:55]
B
Yeah, a couple of things. Like the biggest thing is legal is changing. I think it's probably changing as fast as it ever has, which is still really slow, but as fast as it ever has. Yeah, there is a really big focus on budgets and running the legal departments of these large organizations more like a business as opposed to a hands off, you can't touch legal, which has been a lot of the approach because you're dealing with risk and you know, I need $20 million for this one thing and you're like, well, the risk is too high to say no. But there's a couple of reasons that the development of a function called legal operations that is taking a business minded approach to the legal departments and thinking about how do we spend, how do we staff, how do we manage most efficiently. The second trend that is positive is on, you know, silver lining of COVID is just a more attention to budgets and more, more adoption of technology that needs different. It's pushing work down and then also pushing work up. So needing our experience level people to help support that. I think the third thing is just a few of our competitors have done a great job of educating the market that this is an option on both the client side and the attorney side. So we're, I think we got something so far like close to 40 new clients this year, brand new. We don't have marketing, we don't have sales. We pry. You know, prior to this the Most maybe was 27 in an entire year. And that doesn't include our stable of, you know, our clients that we work with and have worked with for decades or from the beginning almost. So it's just interesting to see those kind of factors. We're running the legal department like a business requires people to look at their budgets and we are a Substitute to law firms. We're also a substitute. It's very hard for legal departments to get headcount. But the work is just growing astronomically. There's more regulations, there's more deals. Tech is growing crazy. There's privacy, there's compliance. Companies are going public. There's so many more employment issues. We have, you know, the remote. The remote work versus bringing people back to the office has created legal complexities. Anyways, long story longer. There's just a lot of trends, all of these things. More work, less budget, more focus on the budget. Law firms keep getting more and more expensive. And we are a great alternative.
- [44:07]
A
When you looked at Paragon and as a possible acquisition target, did you understand everything that you just articulated to me or have you only learned that once you. Once you've been in the seat?
- [44:19]
B
That was part of our thesis that the adoption would continue, there'd be legal operations had really formed. And I think there was a trade group of about 3,000 people that joined and came together maybe over 30 the three years prior. So we saw that those trends really developing and developing pretty quickly. I think a lot of that has been accelerated by Covid.
- [44:42]
A
Yeah.
- [44:43]
B
Where people need to, you know, there's more pressure on budgets, but way more work.
- [44:48]
A
Yeah.
- [44:49]
B
And fortunately, or fortunately, law firm prices are just, you know, can be outrageous.
- [44:58]
A
Just a couple more minutes here, Jessica. What were you and Trista nervous about risk wise, when you acquired Paragon? What did you perceive could go wrong and then what ended up being true about that or not? What was the biggest challenge once you got in the seat?
- [45:16]
B
Yeah, I mean our biggest fear was that the former owner was the business and if she wasn't in it, then there wasn't actually a business that there. There was also only four people beyond her on the corporate management team. So if someone left and someone left early, is this whole thing just, you know, is a house of cards and key woman risk? Yeah. Both of those things proved unfounded. This business was run, you know, the owner now had lived at this point, I think three or four years in Taiwan. So she wasn't, you know, out whining and dining clients. Everything was done over email. There's not a lot done over phone. And then our first week, one of the four people left, the person that all the and the clients went to. So. And we're here and we're doing great.
- [46:18]
A
Did that person leave because of the sale, because of the ownership transition?
- [46:22]
B
Well, sounds like there was already an offer in place whether, you know, I don't know exactly why probably, but feels like they had an offer far be, you know, before we got in the door, so. It is what it is. What I learned really quickly, and I'm so thankful, is that not one person makes a business.
- [46:49]
A
Yeah. It's interesting that there was so much key man, woman risk at the level of company size that you were looking. I mean, if it was throwing off $2 million a month. Excuse me, $2 million in EBITDA a year?
- [47:03]
B
Yeah, a month. That'd be nice.
- [47:06]
A
Well, $2 million a year is pretty good, too, that there would be more of a robust management lay to not have to worry. Is this a business that basically Is just the CEO?
- [47:19]
B
Yeah. Well, we have 15 people on the corporate team now. We built out those layers.
- [47:25]
A
Yep.
- [47:26]
B
But, yeah, I mean, just a. It was pretty impressive what they were able to do with such a lean team and the size of the business that we acquired.
- [47:36]
A
Yeah.
- [47:37]
B
So, yeah, there was a lot of work to do to put the infrastructure in that. But, you know, even there still feels. I mean, there's still a lot more work to do. But we're. We're at a point where, you know, I remember with my. We have our director of HR who's been with the company for 10 years, and she, you know, very early on or maybe like six months in, came and called me aside and was like, I'm so sorry. And I'm like, what happened? She's like, I'm just gonna. I'm gonna take vacation in August. And this was like, February. And I didn't know how to react, but there was just not enough people that taking vacation was really hard for someone to do. And I was like, oh, that's awesome. Take vacation. Yeah, do it. So, yeah, I think the small corporate team was scary, but we really believed that this business was not one person. We believed the brand name had a lot of value, and we also believed we could do the work that Paragon needed to be done pretty quickly if we needed to.
- [48:49]
A
And when you got in, got in there, was there a challenge that you hadn't foreseen that ended up being really difficult.
- [48:56]
B
We didn't force. Even though we thought it was a risk that someone could leave, we didn't think it was going to happen. The first. Yeah, yeah. I mean, also our second largest client and still to this day went bankrupt. So that was terrifying as well. Not in our, you know, in our first four months, I think so. But that was also a validating point because we had spoken to that client and it was a surprise bankruptcy, but, well, surprise to most people. Not to the people. Probably not to the people there. We had spoken to that client in diligence, and we had heard how important Paragon was. Their legal department, the attorneys had been there one 10 years, one 8 years, one going on 6 years, and they had done a riff of their legal vendors, and they excluded Paragon because they couldn't. Like, there was no way that Paragon should even be evaluated in that rif. And that proved out to be true during the. We got special treatment by the US Trustee and the bankruptcy to make sure that we could keep operating and make sure we could keep getting paid. So, although terrifying until you get that approval, but validating.
- [50:15]
A
Validating that the service you're offering is just. Your clients just want to hold on as tightly to it as they can.
- [50:22]
B
Yeah.
- [50:23]
A
That's great. Well, Jessica, this has been awesome. Thank you for taking the time and telling the story of Paragon. This sounds like a big success. I know you're still in it, so let's not jinx anything, but so far, so good. And, yeah, maybe I'll have you back in another year or two and see how things have gone in the interim. But thanks very much for coming on.
- [50:44]
B
Thanks. Thanks for having me. And talk to you soon.
- [50:48]
A
Talk to you later.
- [50:51]
B
Sam.