Lessons from 24 Acquisition Nightmares

Summary

Acquiring Minds Podcast: Episode Summary – "Lessons from 24 Acquisition Nightmares"

Podcast Information:

• Title: Acquiring Minds
• Host: Will Smith
• Episode: Lessons from 24 Acquisition Nightmares
• Release Date: March 20, 2025
• Description: Exploring the perilous paths of acquisition entrepreneurship through real-life stories, insights, and valuable advice from those who've navigated the challenges of buying and operating businesses.

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1. Episode Introduction

Will Smith introduces today's episode by highlighting the complexities and risks involved in acquiring businesses. He emphasizes that while buying a business can be a lucrative path for entrepreneurs, it is fraught with potential pitfalls that can lead to significant financial and personal setbacks.

2. Guest Introduction: Jed Morris

Jed Morris, a seasoned acquisition entrepreneur, shares his harrowing experience of purchasing a landscaping business. Initially, Jed's approach seemed flawless—interning for six months before buying to de-risk the acquisition. This strategy led to a surge of opportunities, aligning him on a path to $10 million in revenue by acquiring multiple businesses. However, within a year, the ambitious project collapsed, resulting in a loss of $750,000, forcing Jed and his family to relocate and sell their home.

Notable Quote:

Will Smith [00:53]: "You will be struck by his posture in the face of such a setback. Leaning forward, I'm continually inspired by the resolve, humility, wisdom of Acquiring Minds guests."

3. Shift to Chelsea Wood's Story

The conversation transitions to Chelsea Wood, another acquisition entrepreneur who experienced a similar downfall after acquiring a landscaping business. Chelsea discusses her journey from discovering entrepreneurship through acquisition (ETA) during her MBA to pivoting unexpectedly into the landscaping industry.

Notable Quote:

Chelsea Wood [06:02]: "This was part one of the interview."

4. The Acquisition Process: From Search to Purchase

Both Jed and Chelsea delve into the meticulous process of searching for and acquiring a business. Chelsea outlines her "buy box" criteria, emphasizing the importance of industry alignment, regional specificity, and flexibility in certain aspects like revenue models.

Notable Quote:

Chelsea Wood [10:07]: "My buy box was... in defense tech or defense IT enabled services. That was the industry I was going to go after because I felt like I had a unique skill set in that area..."

5. Operational Challenges and Setbacks

Chelsea recounts her experience post-acquisition, detailing the operational hurdles that emerged. Despite initial successes in implementing technology updates and marketing strategies, unforeseen challenges like increased insurance premiums and inefficient cash conversion cycles strained the business's finances.

Notable Quote:

Chelsea Wood [55:03]: "You know, I have learned so much. I have learned a lot about what it looks like, not just operating the business, what right looks like, things I would do differently."

6. Misalignment with Sellers

A significant insight from Chelsea's interviews is that 65% of business failures stemmed from misalignment with the seller. This includes scenarios where sellers either unintentionally provided a false representation of the business or actively engaged in fraudulent activities post-acquisition.

Notable Quote:

Chelsea Wood [79:34]: "the number one reason for failure is a misalignment with the seller... dishonesty was materially impactful to the business."

7. Cash Conversion Cycle and Financial Management

Another critical factor leading to business failures is the cash conversion cycle. Chelsea emphasizes how poor understanding and management of cash flows can quickly deplete working capital, especially when transitioning from unhealthy to debt-burdened operations.

Notable Quote:

Chelsea Wood [87:31]: "the number one reason why a small business goes out of business because you run out of cash."

8. Risk Assessment and Personal Impact

Chelsea reflects on the personal toll of business failure, highlighting the emotional and financial strain it places on entrepreneurs and their families. She underscores the necessity of honest conversations with stakeholders and thorough legal understanding to navigate insolvency and bankruptcy processes.

Notable Quote:

Chelsea Wood [101:14]: "The first and most important thing you should be doing is having a very, very deep heart to heart conversation with your spouse."

9. Lessons Learned and Takeaways

Drawing from her experiences and the stories of 24 entrepreneurs who've faced acquisition nightmares, Chelsea outlines key lessons:

• Understand Seller Alignment: Ensure transparency and alignment with the seller to avoid misrepresentations.
• Master Cash Flow Management: Grasp the intricacies of the cash conversion cycle to maintain liquidity.
• Thorough Due Diligence: Conduct comprehensive due diligence beyond financials to uncover operational risks.
• Prepare for Worst-Case Scenarios: Mentally and legally prepare for potential failures to mitigate personal and financial fallout.

Notable Quote:

Chelsea Wood [114:27]: "Make your deal as successful as possible... understand the risk involved."

10. Conclusion and Resources

Chelsea reveals her forthcoming book, "Buyer Beware: Lessons from Failed Business Buyers," aimed at consolidating real-world failure stories to educate and prepare future acquisition entrepreneurs. She also mentions upcoming live Q&A sessions to engage with listeners seeking advice on navigating acquisition pitfalls.

Notable Quote:

Chelsea Wood [113:37]: "Buyer Beware Lessons from Failed Business Buyers."

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Key Takeaways:

• Due Diligence is Paramount: Beyond financial assessments, understanding operational nuances is crucial.
• Seller Alignment Matters: Misalignment or dishonesty from sellers is a leading cause of acquisition failures.
• Manage Cash Flow Effectively: A deep understanding of the cash conversion cycle can prevent liquidity crises.
• Prepare Personally and Legally: Addressing potential personal impacts and understanding legal implications safeguards against devastating outcomes.
• Learn from Failures: Real-world stories of business acquisition failures can provide invaluable lessons for aspiring entrepreneurs.

Additional Resources:

• YouTube Channel: Acquiring Minds on YouTube
• Episode Summaries Sign-Up: acquiringminds.co
• Live Q&A/Webinars: Register for upcoming live sessions on the Acquiring Minds homepage
• Smith List Opportunities: Explore entrepreneurial opportunities at smithlist.com
• Chelsea Wood's Book Preorder: Available for preorder with more details forthcoming.

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This episode serves as a sobering reminder that while acquisition entrepreneurship holds significant promise, it requires meticulous planning, honest assessments, and readiness to confront unforeseen challenges. By learning from the missteps of others, aspiring business buyers can better navigate the complex landscape of buying and operating businesses.

Transcript

[Will Smith]

Today's guest did so many things right.

[Jed Morris]

When he bought a landscaping business.

[Will Smith]

In particular, Jed Morris interned at the business for six months before proceeding to buy it. A fantastic way to de risk an acquisition if you can swing it. Then when Jed got into the seat as owner, all these other local owners approached him to buy their businesses. A pattern regular listeners will recognize and one we generally welcome. All of a sudden, after months and months of starving for leads on a business to buy, Jed is swimming in them. He has a line of sight on buying his way to $10 million in revenue. He moves forward on a second acquisition with a vision and sound strategy, and within a year, the whole project collapses. Jed, with a wife and two young.

[Jed Morris]

Boys, has to sell the house and.

[Will Smith]

Move his family in with his brother who lives on the other side of the country. All in, he's lost $750,000 and that excludes the six figures he still owes. You will be struck by his posture in the face of such a setback. Leaning forward, I'm continually inspired by the resolve, humility, wisdom of Acquiring Minds guests.

[Jed Morris]

Who go through a failure.

[Will Smith]

Jed is no exception.

[Jed Morris]

Now that's part one of the interview.

[Will Smith]

We're not done yet. After this experience, Jed starts connecting with other searchers who've gone through their own business acquisition traumas, a couple dozen of them. And he organized the patterns that emerged into key data points that he shares with us today. What percentage of deals fail for X reason? What percentage for why it's such valuable work. And I hope we collectively make his upcoming book required reading for the new searcher, right alongside Walker's book in the HBR Guide. Here he is, Jed Morris, buyer of two landscaping businesses and soon to be published author of Buyer Lessons from Real Business Failure Announcements, a webinar next Wednesday. Searchers are rightfully focused on financial due diligence, but the numbers can sometimes overshadow operational risks that create chaos post close. So come learn best practices in operational due diligence to de risk your deal and reduce those post close surprises. Chelsea Wood of Acquisition Lab will host this is also an Office hours, so come with questions for Chelsea. It's next Wednesday, March 26th at noon Eastern. Register at the link in today's show notes or on the Acquiring Minds homepage. Acquiringminds Co. Also, if you haven't checked out Smith List for a while, there are some great opportunities posted, including a 120-year-old manufacturing business recently acquired by a HoldCo is is looking for a president. A $6 million commercial roofing business is also looking for a president and an owner and investor is looking for an entrepreneurial Director of Operations to build and operate five clinics in a weight loss franchise system. Head to smithlist.com to check out these new roles for entrepreneurial operators. And while you're there, sign up for the alerts so that you're notified as we post yet more opportunities from the SMB and ETA ecosystem. Smithlist.com Smithlist.com welcome to acquiring Minds, a podcast about buying businesses. My name is Will Smith. Acquiring an existing business is an awesome.

[Jed Morris]

Opportunity for many entrepreneurs, and on this podcast I talk to the people who do it.

[Will Smith]

You know that one of the most common levers to pull in a target acquisition is technology updating the systems of a business that may still be running off a spreadsheet or even pen and paper. But tech is complicated with tons of solutions out there. So choosing the right cloud platform, CRM, telephony, compliance and cybersecurity, not to mention implementing all that, is a job in itself. Acquiring Minds Guest Nick Akers knows this firsthand. As a former searcher who now owns Inzo Technologies, Nick has seen the tech challenges searchers face when acquiring businesses. His team at Inzo regularly works with searchers and their acquisitions, offering a complimentary IT audit of the target company. Nick takes a personal interest in all their searcher clients, drawing from his own experience in the search phase. Enzo dates back to 1989, so this is a company that has managed the tech for hundreds of small businesses over decades. And one last thing, no long term contracts with Enzo, a big differentiator. Check out enzotechnologies.com inzo or email Nick directly at nick zotechnologies.com and don't forget to tell him you're a searcher.

[Jed Morris]

Jed Morris welcome to Acquiring Minds.

[Chelsea Wood]

Will. Thanks for having me.

[Jed Morris]

Jed thank you for agreeing to do this. Your story is one of an acquisition gone wrong. These days you are out there rightfully warning buyers of the perils of this path. And so today we're going to hear the story of your own walk down this path. How does the story begin? Jed? How did you decide to buy business?

[Chelsea Wood]

It begins in business school. You know I'm a 10 year Air Force veteran. I did financial management and acquisition when I was in the Air Force and when I got out, you know, I wasn't really sure what the next step was going to be. So I went into business school and right on the tail end of that is where I happened to stumble across entrepreneurship through acquisition and total accident. And you know, like a lot of people. I, I found myself reading the HBR guide. I attended the Harvard Business School conference in the fall of 2021, which led to attending the Chicago conference the following that the following year, and did a lot of my own, you know, due diligence at the time. This is 2021, not that long ago, but the ETA space has grown so much since then. You know, back then, you know, this wasn't something that people talked about a lot online, you know. Yeah, it was very much reserved for that, those like higher level MBA circles. And so I was reaching out to searchers who had, who had done the process, who had acquired businesses, learning from their successes. Unfortunately, there were no failures that I could find. And to be honest, I don't know if I would have had the wherewithal to really look for them at the time and just doing everything I could to really learn about the process. And it really clicked. And I was like, wow, this is a really interesting path and one I want to pursue.

[Jed Morris]

And so did you immediately pursue it?

[Chelsea Wood]

No, I did not. I kept doing my, my research. But while I was in the MBA program, I got recruited at Microsoft and I was like, this is a fantastic opportunity. I have to take it. I had no computer science background, so at the time, Microsoft just needed people with top secret clearances, which I had one. And so the whole idea was they recruited me in this class and, and they're like, we're going to teach you how to code, we're going to teach you how to build the cloud, and you're going to come do that for us. And I was like, sign me up, you know what, you know, one of the top companies in the world. Yeah, I'll do that. And it was a, a fantastic opportunity. And at the same time, I stumbled across ETA in my final class of my MBA school. I was taking an entrepreneurial finance class at NYU Stern, which is not an ETA school and definitely was not then. And there was a chapter in there on small business M and A multiples. And it just kind of clicked a little bit. And I was like, wait a second, people are buying these things. How does that work? Which led to the HBR guide, which led to the conferences. And so as I was wrapping up the mba, I was then just now really diving into what does this space look like? And that helped drive the next question, which drove the next question, which, you know, and the big question for me was, you know, what is my, what does my optimal outcome look like? And you know, I talk with a lot of searchers now And a lot of times when I ask them, hey, what's your buy box? It's the same thing. It's the, you know, chapter three from the HBR Guide. You know, it's, I'm looking for recurring revenue and all this, you know, all the numbers. But, you know, we all know that, like, a good deal for you is not a good deal for me. And for me, it was. Okay, well, it has to be regionally specific. It has to be within this type of, you know, profitability for frame. It has to have these types of characteristics that were specific to what I was going to look for. And obviously that meant that I was going to have to let go of a few things that other people would think that were necessary and required. And so really taking the time to really determine what my buy box was and then start searching on my own terms. My big tech career allowed me to do that. I didn't feel rushed. Like, I have to make a deal.

[Jed Morris]

Now, and I want to actually hear specifically about what your buy box was and what you let go of. But first, just on the chronology of this, so if you say you discovered search in 2021 and then went to work for Microsoft instead, or as a, as a intermediate step for three years, so you bought the business in 24, and here we are in 25.

[Chelsea Wood]

Yeah, it was a short.

[Jed Morris]

Right at the end of 23. So it was a very short experience.

[Chelsea Wood]

Yeah, it was. It really was.

[Jed Morris]

All right, just to set this, set the table there, back to your buy box. So tell us what it was. If you could give us specifics and those things that you had to let go of, how did you choose? What were they? And how did you choose that those were the things that you could be flexible on?

[Chelsea Wood]

Sure. My buy box was. I was looking for something that was in defense tech or defense IT enabled services. That was the industry I was going to go after because I felt like I had a unique skill set in that area because of my decade of experience working in, in the, in the Air Force, working directly with defense contractors, and now obviously being in tech. So I felt pretty comfortable in that space. And then the next piece was it has to be regional. So for me, that meant the southwest United States, California was optimal, but it had to be the southwest United States. And because I'd spent a decade in the Air Force on active duty and not controlling where I was going to live, and so this was something that was not flexible for me. I was like, I've spent a long time going where I had to go. For work. And I'm done doing that. I'm picking my location. And so picking the location was super important. And then beyond that, you know, the other things I was a little bit more flexible on. You know, I wasn't as hardcore about recurring revenue as a lot of people are. I felt like project based revenue is totally fine to me as long as there was, you know, diversified customer base, consistent cash flow, you know, things like that that I could build on. And then the final thing was I had this epiphany moment. I was sitting on the couch talking to my wife about this and I realized I'm like, look, everybody's looking, everyone's looking for Cinderella, right? Everyone's looking for that perfect business. We all know those don't exist. And if they do, then they've already sold for 14 times somewhere else. You're not going to find it. Especially as a self funded search, I'm like, I understand the capital constraint I'm on. And so with that in mind, I was like, all right, well if I'm not looking for Cinderella, I'm looking for one step below that. What does that look like? And for me, I wrote down the whole list of items from the HBR guide of what I should be looking for. And I was like, which one of these things is the one that I can just cross out? Which one is, can I cross out? And by that I mean which one did I feel like if that wasn't a strength of the business, would I be uniquely qualified to help solve? For me, it was owner, it was the owner risk part. I wasn't really scared away with a business where the owner was intimately involved in the business for a couple of reasons. One, because I knew going into it that whatever business I bought, I was going to be that guy. I was going to be intimately involved in the business. And that was an okay trade for me. The second reason, because I also understood that I, the goal was to build myself out of that, build management around me. And I also knew that a lot of the businesses I was going to be interacting with because I'd been searching for a little while at this time, they're going to be, they're going to need that digital transformation, that tech enablement. It's going to require me to roll my sleeves and really be in it because I was going to be the person implementing a lot of that work. And so I felt like that was the key that I was going to kind of really hone in on.

[Jed Morris]

What about size?

[Chelsea Wood]

So size. I also felt like I could Take a step back now. This is a big debate. A lot. Some people say you should buy small because that's a good way to get learning. Some people say buy as big as you can because that's going to help protect you because there's, there's, there's more room for error, so to speak. I'm definitely on that second track. I felt like for me, if I was going to sign an SBA loan that was 5 million, that's no different than signing one for one. Like, if I'm signing the personal guarantee, then I'm in no matter what. So I might as well find the biggest, best business I can find. And so for me, I was going to try to target towards the top end of that spectrum as much as possible. And I even built out relationships with mezzanine lenders. And knowing that, like, look, if things really hit the fan and I find a fantastic opportunity, then there are opportunities for mezzanine debt or bringing in additional equity partners. And I felt like if that happened, then I could go as high as 8 or even 10 if I found the right deal. But I definitely was looking towards the higher end.

[Will Smith]

The team at Aspen HR recently published a short white paper targeted at searchers Entitled A New CEO's Guide to Human Resources. It lays out the key items you should be thinking about as you transition into CEO and owner of the business you bought. The link to download it is in the show notes. Aspen is a professional employer organization or peo, run by a searcher for searchers. Search fund veteran Mark Sinatra runs the company which provides HR compliance, flawless payroll, Fortune 500 caliber benefits, and HR due diligence support for your acquisition, all for a fraction of the cost. Go to aspenhr.com or contact Mark [e-mail].

[Jed Morris]

So what was your floor? How small were you willing to look?

[Chelsea Wood]

The smallest was 500 of SDE. I felt like if I could do that, then I knew that based on the numbers, if there was 500 of SDE, then 45% of that would automatically go out the door for debt payment. That left me with $250,000 to help move forward the business. Depending on the capital requirements of the business, that could work. But obviously each deal is deal by deal specific.

[Jed Morris]

And. And what were you expecting to pay yourself?

[Chelsea Wood]

So I was expecting to pay myself $125,000 a year.

[Jed Morris]

For how long?

[Chelsea Wood]

For as long as it took. For as long as it took. And this was a, a personal realization for me because at this point I was making much, much more than that working in tech. But the realization I had was that my, I realized that my tech salary wasn't going to provide what I was looking for. And it's kind of a, a mental growth activity for me. But I was constantly chasing the higher salary and I got up to, you know, 120, I was like, wow, I've made it. And I got to 180 and wow, I made it. By the time I walked away from tech completely, I was pulling in just over four. And what I had realized was that it didn't really matter how high the salary went because half of it went to taxes and you know, you weren't really building anything substantial. And although I was doing all the right things, I was putting my money in 401ks, I was maximizing my HSA. There are plenty of things I could have done better, but I was still doing the right things. But the thing that really hung over my head was that I was well aware of the fact that I was working in the private sector and at any given point I could lose my job. And I was like, man, that's a risk. That's a huge risk that I just did not, I was not comfortable with. I was just not comfortable with the fact of putting my entire financial future in someone else's hands and saying, hey, trust me, things will be fine for the next 30, 40 years. And even if I had built out the skills and I thought I had, that would make me employable for the long term. Well, what happens if a Black Swan event impacts. What if car accidents, personal tragedies, all these kinds of things that could happen and, and most likely will happen at some point in life. And so I wanted to have a little bit more control, a little bit more. It was a risk analysis for me, you know, and, and that's not the right answer for everybody, but for me it was. I was like, I'm, I'm totally fine scaling back my personal day like salary income if it means building out something that is going to be a better long term asset for me and my family.

[Jed Morris]

Even though this long term asset of small business of course is going to be subject to Black Swan events as well. But the difference being that in a business, when you're W2, it's thinking of yourself as a, as a one person business. Yeah, it's 100 customer concentration in a single decision can drop your revenue to zero because your salary goes away. Whereas in a small business you felt like it wouldn't be. It's just not quite so fragile because there's going to be, not going to be 100% customer concentration.

[Chelsea Wood]

Sure. And you know, I went through, I went through this moment where I watched this, I watched this YouTube video of Tim Ferriss back in like 2008 and he's talking about fear setting and it was a risk analysis exercise. And he was like, you know, when you step away from whatever you're afraid of and you just write down all the craziest things that could happen and then imagine if all those things came true, how would it actually impact your decision? And for me I was like, all right, well if I bought a business, if I left my high paying job and I buy this business and let's assume that the business fails and I lose all my money and I sign a personal guarantee and I lose, and I lose on that too and I'm bankrupt. Let's assume that happens. I did not think that was going to happen, but I did this exercise at the time and it reminded me hypothetical. It ended up not being hypothetical, but at the time it was. And I remember thinking, well, I have a few unique strengths. I was like, one, I have a top secret clearance. And so I felt reasonably confident that if everything went to hell, then I could get a job working for a defense contractor. And sure, I probably wouldn't like it. It's not what I want to do, but I could pay the bills. I had an MBA from a top institution. I was like, all right, great. I've got a great credential there. I've got a network, so that's helpful. I learned how to code, I learned how to build the cloud. It's the fastest growing industry in America. And I felt very confident in those skills. And so my thought process was if all of this fails, I have all these, I have these unique advantages for me, specifically where I feel like it, I would be able to recover relatively quickly because I'm like, look, there could be second or third order effects of going through like a personal bankruptcy, but at least I'm getting paid, I could get a job. And in my mind I may have lose, I may lose the money I have today, but I will have basically just come full circle. And so that's kind of.

[Jed Morris]

And Jed, was that risk analysis accurate?

[Chelsea Wood]

Correct? Yes and no.

[Jed Morris]

What, what did you, what were you too optimistic on?

[Chelsea Wood]

I was too optimistic on the market. I'll just say that the, at the time I was getting an offer every week to go, to go work somewhere, you know, and after my business failed, you know, the tech market has turned dramatically since then. I Had I put resumes out there. It's been, it's been eight months and I still haven't gotten an offer. I've gotten to the final round at Google. I've gotten to the final round at a couple of different places. No offer, even with my clearance. And so the truth is, is that it's not as I was right in the sense that like I do have a few unique advantages now is wrong in the sense that the market has changed a lot since 2022 to 2025 and it's not a, it's not a employee hiring hot market anymore. And yeah, that, that hasn't helped as much as I thought it might.

[Jed Morris]

Let's get into the actual search itself. There was, I know there was one business that you didn't buy. Do you want to share anything about that business or should we jump straight to the subject business here?

[Chelsea Wood]

What I will say is maybe not sure about that specific business, but just kind of how I pivoted. I told you I was, I was looking in defense. I was looking in it enabled services. I felt like that was something that I could jump into and had a lot of experience in. One business that I considered buying was one that they were a prime candidate to be a defense contractor, but they hadn't taken that route. And I've, and the owner at the time said, I just don't want to sit in those meetings, you know, And I was thinking, I spent a decade sitting in those meetings. I can do that. That's not a problem, you know.

[Jed Morris]

Yeah.

[Chelsea Wood]

And so especially for experimental aircraft or something like that, I could do that. That works. But ultimately I just didn't find a business that was the right fit and ended up pivoting into landscaping on almost on accident. I found a couple owners who were in the space. I got to know them and that pivoted my mindset to thinking, wow, okay, well, this looks like a highly fragmented industry. I've know people who now who are in this industry and then I started searching in that one and that's how I pivoted from an industry that I had a little bit more subject matter expertise in to an industry that was completely different. And right now one of the big questions for searchers is should I buy an industry that I know already or should I, you know, buy my first business in an industry that's completely new? And I while I would say that like you absolutely can buy in a new industry and that can work for you, and we see success of that happening all the time, but I would Ask searchers to be just more aware of the fact that you're adding in a whole nother layer of risk. Because when you dive in as the operator, well, now it's going to be a lot harder for me to roll up my sleeves and really get into the work on day one, as opposed to something else where I've got a little bit more expertise.

[Jed Morris]

And so you pivoted out because you had such great business buyer fit, and that is something that we really celebrate in and promote. You had such great business buyer fit looking for a defense business. In defense, you just found that the pickings were too slim, so you were kind of forced to pivot out of it and look elsewhere. Okay.

[Chelsea Wood]

Yeah, exactly. And the ones that I did find were much bigger than what I was looking for.

[Jed Morris]

And to what you're pointing out, to your point about landscaping, I'm sure this will come up later, but in fact, that you didn't know the industry, you felt, is that part of your story? Is that, is that part of the hardship of the story that you were an outsider to the landscaping business?

[Chelsea Wood]

You know, it's not specific to my story. And I will say, like, like I was brand new to the industry. I was lucky in the sense though, because when I ended up acquiring my first business, I met the owner nine months before I actually bought the business. And I used that time because I wasn't planning on buying that business. I just met the owner. We built up a relationship. And so it became a situation where I was like, hey, how about I just come help you do some of your stuff?

[Jed Morris]

Well, Jed, so is that I really want to spend some time on your quote unquote internship because this is. It is. It is such a unique setup and a promising one, it would seem. Why don't you just back up a sec, though? And so how did, when you pivoted into landscaping, anything more to say about that before the business that you were about to tell us about comes across your desk, or do we just jump in there?

[Chelsea Wood]

Well, what I will say is when I pivot into landscaping, I found an industry that was highly fragmented, definitely on the smaller side because there seemed to be a lot of big players and small players. And that's because it's really hard to be a middle sized player in that space because if you're a small player, as long as you're licensed, if you're on the project construction side, you need a license and a small team, you can get to work and you can do relatively well. You can get above 1 to 2 million dollars in annual revenue. You can do. Okay. And now on the commercial side, though, you don't need the license, but it's much harder to turn a profit on the commercial side. You're competing with the big companies and those companies can, can afford to under underprice your, your competition. And so it's very, very tough. So you end up finding a lot of mom and pop shops and then a lot of large players and very few in the middle. And so what I realized was like, this is a good, A good market where there was a lot of this like, unique owner fit where perhaps I could scale, I could step in and then end up scaling that way.

[Jed Morris]

Wait, and so by targeting some of the mom and pops. So that's the part of the market you would. So you, you'd go after a mom and pop business which is very fragmented, and build something in, to larger into maybe that middle tier and beyond.

[Chelsea Wood]

Right. Because I thought, you know, I'm building in, in the smaller businesses, I can probably do a little bit better than the owner who's already in that space. And if that's the case, then I also have maybe potentially an exit strategy because now I'm building something smaller into that middle space where now I might become a strategic target. So yeah, I was like, maybe that could be an exit strategy, but we'll see.

[Jed Morris]

Well, given how much there is a lot of PE activity in landscaping, so the idea that you look at it and it's a very large industry. I heard you say that it was small, but it did. I misunderstand you because I think we.

[Chelsea Wood]

It's a huge industry. A lot of the, the actual, you know, businesses are relatively small, anywhere from 2 to 10 million in total revenue on some pretty tight margins too. But the industry is massive.

[Jed Morris]

So. But the idea that there could, that there would be a, a likely buyer if you're able to fulfill your plan to, to, to build something, to professionalize something and build something and maybe both inorganic and organic growth seemed like a sound. A sound kind of North Star for this whole venture.

[Chelsea Wood]

Yeah. And as soon as I started looking at it too, you know, I, I had pitched it to a couple friends of mine who had been through business school before. And it turned out that one of them was a. He was a certified accountant who had actually worked on the M and a deal that took Brightview public. And so when I told him what I was doing, he's like, oh, yeah, that makes a lot of sense. You know that. Yeah. And it wasn't so much that, oh, we're going to go do a roll up. But it was, it was in the sense that, like, yeah, there is a space here and there's precedent for taking smaller businesses like this and growing them, you know, even organically into the point to where you can become a target strategically. Because a lot of times, you know, especially on the commercial side, landscape customer customers are incredibly sticky. And so it's hard to grow organically. And what you find is that one of the best ways for a larger company to, you know, end up growing is simply to acquire.

[Jed Morris]

Sure. And for the audience, Bright View is probably the biggest name in commercial landscaping. A huge roll up that has. That has since gone public, I guess. Okay, great. So what'd you find? What kind of, what kind of deals were you looking at?

[Chelsea Wood]

I was looking at deals that were anywhere between 2 and 10 million revenue. Most of them were commercial landscaping, most of them servicing HOAs. Not a lot of, you know, businesses, but a lot of homeowners associations. That was kind of like the bread and butter of what most people did. What I ended up finding, though, which led to the internship that we referred to earlier, was I found a project construction company. And so not commercial maintenance, not recurring revenue. But this particular gentleman had been running his business for 40 years and he had a license, he had a broad license to do a lot of construction, and he had a small team that he'd been working with for a long time, and they did phenomenal work, mostly residential work, but they did a lot of landscape construction work. There wasn't really an area in that space that they didn't have experience in. And so they had a lot of experience in that space. They had a fantastic reputation. And I met them almost on accident and built up a relationship with the owner.

[Jed Morris]

And what happened with that, with that relationship?

[Chelsea Wood]

Well, what I found was the owner was a wonderful individual, and I found a business that was really great on the front end and needed some work on the back end. You can imagine, you know, the books weren't great. There was no CRM, there was no advertising. They got all their leads, you know, through, you know, Yelp and Houzz and things like that. And so there was a lot of space that I felt. I was like, all right, well, there's a lot of space for improvement. But it was not the kind of business I was looking for. I was not looking to buy this business. And so you said you, you said.

[Jed Morris]

You weren't scared of project based revenue.

[Chelsea Wood]

I wasn't scared of the project based. I was. It was a small business, and there were things about it that, you know, like, for instance, you know, the books weren't great. And so if the. There was no real way to see what the SDE was because they didn't have consistent bookkeeping, there were things like that that made me feel like this wasn't the right business to buy. But at the same time, I started talking to the owner. I knew that he was older, he was ready to. Ready to get out, met him, met his wife, and they were great people. And so we kind of struck up a deal where I was like, look, I am looking to buy. I'm not sure yours is the right business to buy. But that said, I'm still new to this industry and how. What would it look like for me to come in and kind of help out a little bit? You know, while I'm searching, I'll help out. You know what I get out of it, I get to test out a few ideas that I have about strategy. Because I've never ran a business before. I get to learn a little bit more about the industry. And then at this. And if I don't end up buying this business, then hopefully this helps you out a little bit. You know, helps build out some. Some different systems in place. It helps you as well. And so we agreed to that.

[Jed Morris]

And at that point, had you quit Microsoft?

[Chelsea Wood]

So at that point, I'd moved from Microsoft to Hewitt Packard. So.

[Jed Morris]

Okay.

[Chelsea Wood]

And so I was still working at Hewitt Packard during that time. And one of the things that made it possible was that my job at Hewitt Packer was not very intensive. I mean, it was just. I kind of got into a corporate role to where there wasn't a whole lot needed of me. So I was able to fully, you know, fulfill my work there while also, you know, working on some of the stuff for this other guy while doing my search. And that helped because now that I was actually, you know, helping out in his business a little bit, I got to see, like, how he thought about his invoicing, how he thought about, you know, different projects that he was doing, which made me better talking to owners later on.

[Jed Morris]

And so you. When you talk about this internship, it doesn't necessarily mean at his shop or at his location. It means remotely and doing marketing and bookkeeping and back office stuff.

[Chelsea Wood]

Yeah, exactly. So we. We weren't. We were geographically relatively close. And so I did get to go see his facilities. I. I got to meet the team. I kind of got to see what was happening. But almost all the work I was doing was remotely because a lot of the work that needed to be done was digital and tech work.

[Jed Morris]

Okay, well, Jed, this is the idea of interning for the business, for a small business, and particularly the, the one that you are going to consider buying. Although you at this point didn't think that you'd buy this one, but maybe, but you were focused on this industry. I mean, this is, this is kind of the gold standard of, of, you know, de risking the decision in terms of, you know, do I actually like this industry? Do I actually understand what it means to be in a small business and own a small business? Do I? And if you are interested in this particular business, you get to see, you know, you know, a bit of a taste of the business before you actually sign on the dotted line. So very few people are in a position to be able to do that, which is why you don't hear about it more often. But certainly I think anyone would love to, at least in theory, be able to try before they buy the business, the industry, small business in general. So, so you were getting that opportunity and yet still things didn't go your way. But not in this business. We'll get there. So you, you, you in turn tell us, is there more to say about that? How does that go? How long does that last? And how does that lead to a conversation about, okay, actually maybe I am the buyer of this business?

[Chelsea Wood]

Yeah, well, it started off with an agreement. So we, we signed an agreement that said, hey, this is what we agreed the value of the business was. And I was like, look, I don't know how this is going to turn out, but we're going to do some stuff. Let's assume that if I come in, I create value. I don't want to then pay for the value I created. So let's agree ahead of time that if I decide to buy within the next 12 months, this is the purchase price and generally speaking, these are the terms. So we kind of selled like it was almost like we signed an option for the sale. Right. And so with that in place, I went in the business and started doing a couple of basic things. Set up a CRM, you know, put, started doing some digital ads, turned on Google local service ads for the first time. And I saw success. You know, I saw like our individual sales calls would go up 34%. And when you're, when your average like project is 4 to $5,000 of revenue, you don't care about, you know, $125 of, you know, per sale call from Google, you know, that that makes sense, right?

[Jed Morris]

Yeah.

[Chelsea Wood]

And so I was like, wow, that really helps. I, I was really.

[Jed Morris]

Yeah. 34%.

[Chelsea Wood]

Yeah. I mean one of the big questions I had was like, look, if I've got a business that, especially if it's project based and it's heavily dependent on leads from Yelp and Houzz, which I do not want, like can I convert that into something where I can be in charge of the leads? Can I successfully run ads and bring in my own leads? Can I build out word of mouth and bring in my own leads? And so that's what I was really trying to test. And so starting off, you know, started with Google local service ads, saw success, there's. And then I put in a CRM and hired a contractor to come in and like this guy went through all the digital records for the last 36 months and it was just, it's just paper invoices that they had scanned to like Microsoft OneDrive. Right. And so they had all these invoices that were either Word or PDF. And I was like, look, just go through each one of these invoices for every job we've ever done, get the name, address, email, phone number, whatever contact information you can get for that customer and put them in the CRM. We were using HubSpot. Just build out HubSpot and then it took them a few weeks and at the end of it I just emailed Everybody on the HubSpot. I was like, hey, you know, you know, this is our company and thanks for being a customer. We're having a sale if you're interested in having some more projects done. We're running 10% off for the rest of the month. Got seven sales right off the bat. Just like that.

[Jed Morris]

Amazing.

[Chelsea Wood]

And I was like, wow, so this does work. I was like, the low hanging fruit is available. And at the same time I'm using what I had learned while doing this to again have better discussions while in my conversations with other owners as I'm still searching. And so, you know, you touched on it really well. But you know, a lot of people don't get the opportunity to work in a business or do an internship. And that makes sense especially for self funded searchers. And I didn't expect this to happen. But what I do tell everybody now, if you are planning on buying a company, especially in an industry that you don't know, like definitely take the time, whether it's a weekend, two weekends, whatever you can do to put boots on the ground and walk hand in hand with that owner, especially if it's an ETA acquisition owner and find out what their day to day is like because that will really inform you into the industry that you're looking at. And it's a small thing that you can do to help mitigate, you know, the millions of dollars of risk that you may be willing to take on. Just take some time and, and really figure out what that day to day is like. And luckily I was able to do that.

[Jed Morris]

Although Jed, let me press you on that because it sounds. The image I have is of you working at your other job, you know, doing the QuickBooks or the, you know, the managing the upwork guy to put everything into the CRM. So not actually managing the crews or doing any of the. The front line or even seeing, having exposure to any of that frontline. True nitty gritty. This is what running a landscaping business is like. Am I wrong? I feel like you were doing, you were doing, right?

[Chelsea Wood]

So I did get out there. I did spend some time with the crews. I got to meet them. I went to a couple work sites, I got to see what kinds of things that they were doing. And you know, they'd be like, we put down turf this way. We have to use this type of mesh because of XYZ or, you know, we get a lot of jobs in this area doing these types of retaining wall construction. And I got to see what that looked like. But no, I was not managing the crew, I was not managing the team. And there were definitely a lot of things I could have done during that time to get a better hands on feel for what ownership would feel like, especially when it came to managing the teams of a very much in the trenches kind of industry. And I didn't do that. And I should have taken advantage of it.

[Jed Morris]

Like what?

[Chelsea Wood]

Like running a team, like, so I did do a couple things. I went on a couple sales calls. Like, I followed up on a couple of those. You know, there was a point where the owner went on vacation for a few days and, and normally he just kind of turns off the phone for a while. But since I was there, I was like, I'll do it. So I got to follow up with some customers, do some sales calls. But I never actually got out there and was like, all right, well, you know, managing the team, what does that look like? You know, we've got a foreman, we've got a team of a few people, like, what kind of projects are we scheduling? I never stopped by the supply shop to see like, you know, how do we buy our supplies? You know, how long do we have to get them before we actually need them for a project. What does that turnaround look like? It wasn't until I was in the business where I was like, all right, well, this is the actual day to day of running a large project based construction business. And so I wish, you know, in hindsight, I wish I had spent a lot more time doing that.

[Jed Morris]

And to be clear, then when you shook hands to do this, this quasi internship, you there was a conversation or the possibility that you would in fact buy the business. It wasn't like, I'm not going to buy this business, but I'll be your intern. It was like, yeah, it doesn't feel like this business is right for me, but maybe. And so let's agree now as to, you know, kind of a handshake on what the acquisition price would be.

[Chelsea Wood]

That's exactly.

[Jed Morris]

And, and I love the option that you put in there that if you. That let's agree now to what the business is today. Because if I'm going to be pouring all this value into the business now, I'd like that to be. I'd like to capture that value rather than have it go to you.

[Chelsea Wood]

Yeah. And there was. I wasn't even certain that that was going to work. I was like, yeah, because I felt like I had never done this before. I never run a business, you know, in theory. I was like, yeah, I know how to build a CRM. I know how to do. I knew how to do digital ads. I knew how to, you know, I rebuilt the website. I knew I do things like that. But I had no guarantee that those are going to work and actually turn into leads.

[Jed Morris]

I'd never draw a customer before Jet on digital marketing. Marketing, you said you wanted to get away from relying on Yelp and Houzz. Why? Because you were paying Google. So it was just from one platform to another. Give us 30 seconds on how to think about leads from the various digital channels.

[Chelsea Wood]

Yeah, and this is something that a lot of contractors run into. I am staunchly against focusing on lead aggregators such as Yelp or Houzz for your leads. I don't think there's anything wrong with getting leads from there. But if I'm going to pay for leads, I'm going to pay for leads that are direct to me. So if I'm using a company like Yelp to generate my leads, especially if it's a bulk of my leads, I'm not getting those leads exclusively. Those leads are being farmed out to other contractors as well, and it falls on me. To not just out compete those other contractors, but get that lead. And I'm still paying. So I'd rather again, back to like, I want ownership of the business. I want something to where if Yelp turns off our leads, we're not dead in the water. I've got Facebook ads running, I've got Google Ads running, I've got word of mouth growing. I've got a lot of other areas where I can start bringing in those leads as opposed to just having a single source of failure.

[Jed Morris]

Yeah, yeah. And so for the audience who's never maybe used Yelp or Houzz, the idea is you as consumer, you know, I need, I need some landscaping work done and then you can basically put in a kind of a request for quote, if you will, that is sent out to three or five local landscapers via Yelp's platform and then they come back at you with bids. And so you basically wanted to avoid these little. That auction process.

[Chelsea Wood]

Absolutely. And not just because it's an auction process, but because, yes, I'm competing with other contractors to get those jobs, but now I have no pricing power at all and it doesn't reflect on me as the business. So one of the things that I really liked about the business from the beginning was that it had over a hundred five star reviews on Google Maps. That was phenomenal. I couldn't believe that he had actually been able to put that together because it wasn't something I was focused on. It's just a organic development from doing quality work for a long time. And so I saw that, I was like, let's leverage this. Let's really, let's put this out there. If I can create a powerful ad campaign that's both digital ads and paper ads and getting our name out there, all I need to do is make sure that when someone Googles us or clicks on us, they see a professional website, they see our Google Master views, and then it's on us to get this customer. And I was like, I was firmly in that boat. I don't want to be reliant on somebody else to hand us our customers. I want to go out there and get them ourselves.

[Will Smith]

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[Jed Morris]

Of being too academic about marketing funnels, but isn't Google effectively the same thing? Because if I search Landscaper near me, I'm going to see you plus a bunch of competitors and I'm likely to likely, I guess the consumer would probably reach out to a few. So isn't it effectively the same experience? And while you might not be in a formal auction process, you are de facto competing with all these other people that are coming up when I Google Landscaper near me on price?

[Chelsea Wood]

Yes and no. So, you know, how do people mostly find people they're going to buy from? They're going to go on Google Maps and they're usually going to search for something in their local area. If it's an H vac contractor, a plumber or a landscaper, that's mostly how you do it. And then you start looking for star reviews. So what I want to do is I want to make sure that my leads are not coming from someone who's aggravating just toward the top of a Google search, either going to find my name or you're going to find Yelp's name. So I want to make sure that my name is high, as high, as high as possible. So the big difference there is that yes, if I move away from Yelp, yes, I'm avoiding the auction, but I'm still competing on reputation and search volume. So that's where the Google comes in. Now if I just simply transferred everything from Yelp to Google, then yeah, I've avoided, I've avoided the auction, but I haven't fixed the whole single source of failure. But that's where Facebook comes in and then that's where, you know, physical ads come in. That's where I can start expanding more from, from there. I don't ever want to have one, but I definitely don't want to be beholden to an auction, that's for sure.

[Jed Morris]

Yeah. So you are, I guess encouraged by how much you know all this low hanging fruit that you've successfully plucked from the tree. When do you decide that, okay, maybe this is the business I buy?

[Chelsea Wood]

Yeah, by towards the end of that year, I had seen success there, and I was like, wow, this is a. You know, my theories and of how this could actually develop were in place. Like, the website was there, the leads were coming in. Then the biggest thing with project, just making sure you've got the calendar filled. And so the calendar was filling in, and I was like, wow, this is. This is actually working. We're building a CRM. This is actually working. And so it was a smaller business, but then I started thinking about it. Like, look, I've got a great relationship with the seller. I've tested some theories here. This makes sense. Why not move forward here? This makes sense. I can actually. I can make this deal work. And like, all the things we talked about, like, I'd already been. Already been in the business. I knew that there were no skeletons in the closet. I'd seen the books, I'd been in the bank. Like, the owner had given me access to the bank account. Like, I'd seen all the numbers. And so there was a high level of trust, there was a high level of diligence there. You know, like, I was in the business. Like, there was. There was. There were no secrets. Yeah, right, right, right.

[Jed Morris]

And so in that sense, it's. It's kind of. It. It's working out. It's why you would try to intern at a potential target. It's because you. You. You've mitigated or you're in the business. You've. Yeah, yeah. So. So you then proceed with a number that you guys had.

[Will Smith]

Had shook on.

[Chelsea Wood]

Yep.

[Jed Morris]

Months before. Yep.

[Chelsea Wood]

Proceeded.

[Jed Morris]

Can you tell us what that number? Well, can, can you give us some numbers around the business itself? And then the terms of this acquisition.

[Chelsea Wood]

Yeah, the business was. We kind of highlighted what we thought SDE was, and then we did a two and a half times that. So the total cost was just over 400,000. So it was relatively small, doing just over around 1.2 million, top line. And so because of the size of the deal, I came into this from the beginning thinking I was going to do SBA maybe, and especially if it was at the top, I was going to do mezzanine debt and bring in equity investors. I didn't do any of that. So we came to a deal where it was 1/3 cash, 2/3, seller note. And then, you know, we decided on the. On the length of that seller note, and that was. Was pretty straightforward.

[Jed Morris]

And one third cash two thirds seller note. Acquisition price of 400, you said?

[Chelsea Wood]

Yep.

[Jed Morris]

400K.

[Chelsea Wood]

Yep.

[Jed Morris]

And two and a half times. So that puts SDE at. What is that, 1 7, something like that?

[Chelsea Wood]

Yeah.

[Jed Morris]

One hundred and seventy. Excuse me.

[Chelsea Wood]

Yeah. That was the best assessment I could get at the time. I felt like it was going to be better because I'd been in. At the time, I'd been in the books. And, you know, there's a lot of basics we weren't doing properly. You know, we're not properly tracking costs. We're not properly. Properly looking at pricing. One of the big things with small businesses is we haven't updated the pricing in, like, eight years. And so, you know, our margins were unnecessarily small. And so there were a lot of things there. I was like, look, there's a lot of room to run. And so I felt pretty confident with that. And. And then, you know, I was able to raise some cash from friends and family, people I'd served in the Air Force with, a couple of people I'd gone to business school with. And so I felt good about it.

[Jed Morris]

Yeah. Yeah. And so the money that you would have needed to raise would have been. What is that, 80. No, excuse me. 1:30. Ish.

[Chelsea Wood]

Yeah.

[Jed Morris]

Yeah, exactly.

[Chelsea Wood]

Okay.

[Jed Morris]

And this is small. This is a. This is a quite small sd. As. As elusive as it was to pin down because of. Of the books, let's say it was 150 to 200. That's very small. So you also had to get comfortable with that. I guess working at the business was one more way that actually seeing inside the business helped you get comfortable with that.

[Chelsea Wood]

That's exactly.

[Jed Morris]

Yes. It's tiny, but I. I see what it is, and I'm. I can do it.

[Chelsea Wood]

It was a big journey. Like, I thought I was going to go big with a defense contractor, and then by the time I actually signed a first agreement, it's very small with a landscaping firm. But like you said, that just comes from just getting really comfortable with the opportunity. And I feel like this is a business. I know this is. I'm in it. I know the owner. This makes a lot of sense to me. I have the cash available. Let's do this.

[Jed Morris]

The two thirds, seller notes. The other 270, that came from the seller note. Personally guaranteed.

[Chelsea Wood]

Personally guaranteed.

[Jed Morris]

And this is where and how long was it?

[Chelsea Wood]

It was five years. So we amortized it over 10, but then we put a balloon on month 61.

[Jed Morris]

Okay.

[Chelsea Wood]

And, you know, obviously, the big question is, like, well, how does. How does a seller, like, trust you with a seller's note like that, even though it's not a large transaction? But for them, it is, you know.

[Jed Morris]

Yeah.

[Chelsea Wood]

And so it was the personal guarantee, and I had planned on using the SBA from the beginning. So the idea of signing a personal guarantee on the note was always part of the cards. And I also didn't think it was fair otherwise, because otherwise, how am I bringing any real impact to the business? I'm bringing the cash, but I need to be able to prove that I'm on the hook to make sure this is going to be successful. So that really helped build trust, especially on the transaction part of it.

[Jed Morris]

Well, as much as we hate personal guarantees, and as onerous as they can feel, and as truly terrifying as they are if it comes to that, there's a logic to them. And, you know, I. Some, some people who are, who are, what would you say? Hawkish or dovish? Hawkish. On, on personal guarantees. You know, I, I remember an early guest saying, listen, everybody, you're buying a business for millions of dollars. Yeah. In an industry you probably don't know, you're young and inexperienced, count your blessings that there's a system that allows you to do that. Of course, at the very least, you know, at the very least, you can give the bank a personal guarantee anyway.

[Chelsea Wood]

I always tell somebody.

[Jed Morris]

But it does seem like you see.

[Chelsea Wood]

That logic, even though it's deep conversation. Yeah, it's a big conversation. And I tell searchers all the time, look, I understand not wanting to sign a personal guarantee because there is a huge risk involved. But I also want you to understand that there is no program in America that will allow you to borrow $5 million for little more than a signature and some decent credit. And in order to have access to that type of leverage, you need to be willing to at least sign on the dotted line that says, you know, I am personally on the hook for this, and maybe that's not the right tool later in your career, but on your first acquisition with no experience in an industry you don't have, you're probably not fluent in, I feel like in a lot of cases that's the least you can do. And so as the buyer, instead of, you know, moaning about the personal guarantee, go find a business that's worth signing a personal guarantee for. Stop trying to find mediocre businesses, you know, and, and then bemoaning the guarantee, find something that's worth signing the deal for. Then everyone can be a winner.

[Jed Morris]

Well put, Jet. Tell us about now taking over and becoming operator and owner of this business.

[Chelsea Wood]

Yeah, I tell people it's, you know, it's kind of Like a startup, there's that J curve effect where it's like you have to expect things to kind of slump, and then they're kind of going to pick up as you keep going. And, you know, when you. There's the J curve of being an owner, then there's the J curve of being in a new industry, the new industry experience. That was tough. That was really tough in the sense, because you have a lot to learn really quickly. And you're downloading. I was downloading experience from someone who'd been in the industry for decades and had always done something in a very specific way and had been and been successful. It's hard, you know, it's hard to tell somebody, you know, in 40 years you've been doing it a certain way and that's. That's really working, but now we need to do it in a different way. And so I didn't do that. And instead I'm like, all right, well, how do I. How do I really figure out what our. What our costs are? How do I really dive into, you know, working with suppliers and working with. Building all the relationships that this person already had in place? And so that takes time. The other part is the ownership part. When you're finally in the seat, I tell, you know, I tell searchers now, I'm like, it's kind of like joining the military. I can tell you what it's like to put on a uniform. I can tell you what it's like to go on deployments, but until you've done it, you have no idea what I'm talking about. No clue. And it's same thing's true for business ownership. And until you're the one responsible for the debt, until you're the one responsible for payroll, until you're the one making those decisions about profitability, you just don't understand. And so that's a learning curve.

[Jed Morris]

Well, Jed, indulge me and try to put this. This very hard to experience. Experience into words.

[Chelsea Wood]

Yeah. So how do you know when to take the advice of people who have been in the industry for a long time? And when do you know to trust your gut? That's a big one. And not just for me, but for a lot of people I talk with. You know, one of the things we see is that, you know, as a bonus, when you, when you buy a business, is there one or two key employees who have been there for a long time that can really help? And that can be a big boon to your business because you're like, all right, well, I'M new to this industry. This person's been there for a long time. I have assurances that they're gonna stay then. And I'm counting that person to be a foreman, a gm, a manager of some kind to help keep these crews moving while I, as the new buyer, learn not just the ownership piece, but the new industry piece. But that also comes back the other way too, because what happens if that person or people, you know, they've, they've been doing something a specific way for a long time. What happens when they tell you, hey, this is what I would do, but for you, it just, just doesn't set right, you know? And so you're constantly walking this fine line of like, I just bought this business. I, I don't know what I don't know, and I definitely know what I do, what I don't know. So how do I follow what I believe is the best advice? You know, per the HBR Guide and other searchers, just don't break anything for, for the first 12 months. How do I follow that advice while also doing what I think is best for the business? And so a lot of times it means deferring to the knowledge and experience of people who are already there.

[Jed Morris]

And why is that such a hard decision, Jed? Because why isn't the answer? Simply, even if these, even if these seasoned people have been doing it a dumb way for all this time, and I can see that with my new eyes, and they just can't see it, the business has made it this far doing it the dumb way, it can survive another six months doing it the dumb way. Let me just. And yet, and yet the risk of me implementing what I think is better based on my naive judgment has the risk of alienating everybody and has the risk of being wrong. And all of these unintended consequences that we hear about when people are like, when searchers buy business and they're like, let's change this, and then, you know, there's all these second and third order effects, so why can't you just bite your tongue for six months? The dumb way that it's being done can't be that dumb if the business gotten that far.

[Chelsea Wood]

That's a great question. And I would start off by saying it's usually not a dumb way, it's just an old way. There's a one really key reason, and usually it's because before you buy a business, it's running debt free. And now that you've bought the business, there's debt. And so in the past, if business was Slow or profitability waned, the team could just stay home. The team could just, you know, not come in today. If we don't have a project, it's not a big deal. We're just, we're not getting paid. You're not getting paid. Everybody understands, you know, the business itself is not going into any dire straits. But now that you've got debt on the business, well, now that changes everything. And we know that, you know, conceptually through an LBO or through a leverage buyout, but when it's in practice, okay, well now it means that all those customers of mine that were paying by cash and check, well now I need to speed them into a digital payment structure because now my cash conversion cycle has really expanded and if, if that. And so that's one aspect of it now. If I'm not taking payment upfront or at least some sort of payment upfront now I'm, I'm basically floating that payroll. And until I can get to a point where I can collect the cash. So the accounts receivable are really weighing on me or my team. This is like my team has been running on weekly payroll cycles now, now I know that I need to move to bi weekly payroll cycles to make this cash conversion, like to make the cash actually work. So that's an interpersonal relationship issue. It's not. People don't like when you mess with their personal money.

[Jed Morris]

Yeah, sure.

[Chelsea Wood]

And then there's plenty of things that, you know, I didn't think about before I bought the business. So for one, when I was doing my financial assessment, I was looking at the, I did, I did the add backs, I did all kinds of, you know, all the things we normally do, but insurance was one I missed. And so I, I took the insurance that the business was already paying because, you know, we're bonded, we're licensed, there's liability insurance, there's auto insurance, there's all kinds of different types of workman comp insurances. And so with all those insurances going forward, I took what we were paying. I was like, oh well, that's what we're going to pay. That's not true because the insurance company had decades of experience with the previous owner. I'm brand new, so I've got a much larger insurance liability. So my insurance went up 30% the moment I bought the business.

[Jed Morris]

Wow.

[Chelsea Wood]

I didn't think about that. Yeah, and there's, these are kind of, but this is expected. These are the kind of things that, you know, as a first time buyer and operator, you don't know about them, so you don't think about them. And these are the lessons that you learn. And these lessons aren't fatal, but they are things that like, you want to start changing a little bit and you want to start kind of, you know, making the cash work a little bit better for you as opposed to, you know, getting so low to where you're like, man, are we really, like, running, running low to payroll next week? Like, how do I actually maximize this cash flow a little bit? And so that, that's one example of, of how the previous way it was done wasn't bad. It's just not conducive to how you're doing business going forward.

[Jed Morris]

Yeah, it's such a great point, Jed. And I'm surprised at how little it's been made on this podcast that the business that you buy is, is different before and after you buy it, for the obvious reason that you're you, you are a different donor. But the very quantitative reason that it is now burdened under a debt payment. And so the entire financial structure of the business can feel and, and in fact be different now that there's this, this, you know, SBA payment that's got to go out every month, not to mention maybe increased insurance premiums. Such a, such an important reminder.

[Chelsea Wood]

And I knew that I just, I knew the debt part of it. I expected that. I just didn't expect the smaller things. And again, these weren't fatal, but those are the things that you don't think about when you're a first time buyer and you expect to mess up. You don't know, you expect to not, you know, make that adjustment for insurance. You expect to, you know, maybe you didn't walk through the full cash conversion cycle from the moment you make a sale to the moment that, that, that money goes out of the business. Maybe you didn't go step by step through it, so now you're kind of catching up on that. But yeah, that's part of the learning experience. And yeah, you need to know how those things are going to impact your cash.

[Jed Morris]

Yeah. So how does it go once you find yourself in this J curve?

[Chelsea Wood]

Yeah, so honestly, it goes pretty well. Like right from the beginning, one thing I didn't expect was after acquiring the business, you're perceived completely differently once you buy a business. I'd spent the better part of two years searching, you know, like calling brokers and calling business owners directly. And, you know, I'm pretty good on the phone, so most brokers, you know, they, they would listen to me and they. They knew that, like, I was serious and I had capital behind me and I was ready to. To make a deal happen. Um, so they, they. The vast majority of the time, they didn't think I was a tire kicker, so that was helpful. But there was also the fact that I'd never bought a business. And so, you know, there's a different level of seriousness involved. Yep, man, the moment I bought a business, the seriousness went right through the roof. I got contacted by brokers and all kinds of people, like, wow, this is a person who actually closed. And so your reputation completely changes. And not just that when you. When you buy in an industry, you learn very quickly that the. The industries are much smaller than you realize, especially when they're local. You know, if you own an H Vac company in your local city, you probably know a lot of the other owners of H Vac companies in your city. You've seen their trucks, you've, you know, their crews, your employees know their employees. So what I discovered very quickly was that, you know, the other landscaping owners in the area, they all knew each other because of course, they would. Several of them went to high school together in the 70s. The employees all knew each other. They'd all been, you're working on projects next to each other for a long time and not just knew each other, they knew, oh, well, that company. They got that, you know, HOA contract back in, like, 83, and they've had it since then. We compete, competed on it, but we didn't win it. Hopefully we'll get it. Blah, blah, blah. There are all this. All this, you know, stuff, and. And they all use the same suppliers. And so they all knew each other. And so I say that. To say that once I bought. Once I bought a business, you know, the heads perked up and they're like, oh, who's this new guy buying this landscaping business? And so, you know, I found out very quickly through the grapevine that there were other owners who were interested in having an exit as well. And I started getting reach out from those owners directly and some of their senior employees, like, hey, I think we're interested in a sale. Are you interested in buying? And so I was surprised at. At how fast that happened.

[Jed Morris]

Well, it's a dynamic that we've heard a lot on this podcast to varying degrees. Sometimes it seems to happen a lot. Other times people never mention it, but it is. It can be a really happy outcome if you are. If you are acquisitive and you're kind of want to start building the Business so quickly in your case seemed good, you acted on, ended up maybe not being so good. Should we jump to that part of the story?

[Chelsea Wood]

Yeah, it seemed good. I immediately had identified four additional owners who were all in the area within a 50 mile radius with varying leveling sizes of companies. But I did the math real fast. I was like, look, if we find a way to combine all these companies into one, that's a $12 to $15 million top line business and now we're competitive. And so I tell people, I'm like, it became an accidental roll of strategy because I was not anticipating that whatsoever. But here I am, I'm like. And they're reaching out to me. And I'm like, wow, if we were to pull this off, then that would be pretty incredible. And so that's kind of where I went with it. And immediately had three or four Lois out the door and just started having conversations with some of these other owners about what an exit would look like, and then started thinking from a high level how these businesses might fit together and compliment each other.

[Jed Morris]

And how long into your ownership did you, let's say, put out that first loi. Of. Of. Of an add on?

[Chelsea Wood]

Three weeks after buying? Yeah, actually.

[Jed Morris]

Wow.

[Chelsea Wood]

I bought the second business five weeks after the first one. And I know how that sounds, and that sounds silly saying it. It's crazy. It's one of the very first lessons. Like I tell people, I'm like, look, when I look back, there are plenty of things I did wrong, and there were plenty of things I did right. But one of the key things I did wrong was I moved way too quickly. When I realized the situation I was in, I was like. And other people were interested, I immediately went into deal making mode. I was like, okay, well, they're interested, I'm interested. Let's move forward. And what I should have done was just take a huge pause. I should have just taken a huge pause and say, all right, well, you know, business number one is successful. All of these businesses, all these other ones have all. They're all successful. They've been successful for a long time. The more important thing would be for me to really establish business number one, really get my arms around that, and at the same time building out those same types of relationships with owners of 2, 3, 4 and 5, just like I did with the first one, I. If I had really just repeated what I'd done with the first business on the others and spread that timeline out over 12 to 24 months, then we could have had potentially a different outcome. That Would have made a lot more sense.

[Jed Morris]

In other words, Jed, you felt like there was, you felt urgency when there really wasn't urgency.

[Chelsea Wood]

Yeah, it was manufactured. I felt like the urgency was there because in a, like it was, it was. I made it up almost because I had been searching for so long that I was like, they're all available now. The owners are all reaching out to me now. If I don't move quickly, this may not be an opportunity six months from now or 12 months from now.

[Jed Morris]

Well, and it's so frustrating. It must have been so frustrating because search, the process of search teaches you to move fast, move fast, move fast. This is a competitive market. There's other searches if you, you know, you need to demonstrate seriousness. You do, you know, only tire kickers don't get back to people after, you know, quick turns on their emails. So, so you are trained in moving very quickly and decisively on a business that you want. And so you were just, you know, you built that muscle and also. Yeah, it's just like you go from feeling like any starving, like a starving man to now, you know, an abundance of leads. And so it's like you just want to feast. Part of you just kind of wants to sink your teeth in.

[Chelsea Wood]

Yeah. And I didn't fully respect the fact that by moving forward with additional add on businesses I was changing my fundamental business model because up until then it was all about acquiring a business. It was all about buying one business and assuring that that business was going to be successful. But the moment you pivot into acquisitions, especially if they're going to be quick and you move into that roll up type model, that's a completely different acquisition model. You would the things that make that successful. A, you need a lot more capital because you have to assume that these things are going to go bad or that there's going to be unintended consequences. And so you need a lot more capital to fall back on.

[Jed Morris]

Yes.

[Chelsea Wood]

Which I was not prepared for. And then the second piece is that, which I think is honestly the most important piece is that the M and A involved. Like it's, it's not just buying the different businesses and like, oh, now we've got a big one. It's integrating those teams, integrating those management teams, it's integrating the working teams and there's culture is a huge issue from all.

[Jed Morris]

Jed, let me interrupt you because we're going to. I want to hear about what you found and why the integration was so hard. Anything to say about these four Lois, that went out, you closed on One, Anything in there to say about the negotiation with all these other owners or should we jump right to the acquisition?

[Chelsea Wood]

Nothing really to add. They were all very similar to the first deal.

[Jed Morris]

Okay, okay. And why did you choose the one you did and not any of the others?

[Chelsea Wood]

Expediency. I actually met them first. Not a great answer, but it's true. I met them first. Conversations went fast. You know, they opened up their books. I got to look at those. I felt pretty confident in the space already. I was already there and I was like, look, this makes sense. And they were ready to leave. And I was like, all right, cool. Well then let's just move.

[Jed Morris]

I'm a deal maker now, says Jet. So the, in the size of that.

[Chelsea Wood]

Business, it was similar to size of business number one. The only real difference is that business number one was project construction and business number two was almost entirely commercial HOA maintenance. And so for me, I was, I saw that as a, as a big positive because then, you know, the downside with project business is that it's not recurring. The downside with commercial maintenance is that the margins are tiny. So now I had an opportunity to basically buy my customers and do project maintenance on a commercial maintenance property. And so it allows both teams to feed off each other and the same customer. So that ended up being true. And so I thought that was going to be a good complimentary business.

[Jed Morris]

So the first business you bought was about 1.2 in revenue. This one was about the same size. So now you buy this second business just a few weeks into ownership and you're now a two and a half million dollar business. You've made this strategic move where you've diversified revenue. So now you're, you've half a bit revenues. Project half is this nice recurring. Yep. You're envisioning all this wonderful cross selling you're going to be able to do. The clients of each are going to feed the other. It all sounds good. Interesting to hear that it actually did work out that way. But so, so why don't you take us there? Tell us. Because there are, there were wins to this. This wasn't a crazy strategy, as it turns out, other than moving too quickly. The, the strategy was pretty sound, it seemed. So tell us the how it went. Well, first.

[Chelsea Wood]

Yeah, so my original thesis on this ended up being true. It was true that the commercial clients, you know, our revenue was, our profitability was very small. The margins were small. We're talking below 10%, typically around 5. And that's just kind of the business. It was a Small commercial maintenance business. And they're pd, they're competing directly with the big guys. And the big guys are always, you know, under bidding on new projects. And so it had taken, you know, decades for this company to build up to the point to where they were at that when I found them. And so my thought was, all right, so they're, they've built up to this point, but the profitability is bad. But on the bright side, you know, business number one, high profit margins, which is great because it's project construction. But the downside is that typically in the winters, in the slow season, you know, things do slow down. And so we get the bulk of our business, you know, between April and November really. And so why, why can we not, you know, be basically be able to use both, project both customer bases and feed ourselves. And so the HOA side on commercial maintenance, it's almost always just cut and blow. It's very basic, you know, and, but there's a lot of add ons that a lot of times get subcontracted out such as, you know, irrigation repair or tree trimming or concrete laying or especially if there's any kind of construction type of work, all of that work can be done by business number one, because that's what they did. And so, you know, especially for, and we're looking in, you know, those slower winter months. Well now all my project crews can do the work for the commercial maintenance properties and vice versa, that helps. And then vice versa, we can also still take residential work from the project crews and that allows us to be more profitable. And that was true. You know, we basically got to, you know, use the customer base from the commercial side to feed the project side.

[Jed Morris]

And on business number one, project based business, I heard you, they a grab bag of services. So give us examples. You said tree trimming, irrigation services. So they did sprinklers and trees. And what else did you say?

[Chelsea Wood]

Sprinklers, trees, turfing the bread and butter was the true construction work. Like imagine you've got like a brand new residential house that's been built out and like it's just a blank slate on the back or somebody who really wants to completely renovate everything. That's where the, that's where these teams could really work. They can put in, you know, retaining walls, they can dig for pool areas, they can, they can do everything, bring in trees, all kinds of stuff. And so with that kind of skill set, you know, they were used to using artificial turfing or regular turfing. They could sod, they could mesh, they could do fencing, they could do walls, they could do all of it. And so when it came to the commercial side, you know, it's like you need someone to do tree trimming. We can do that. You need someone to put in turf, we can do that. You need someone to replace all of your concrete driveway, we can do that. So it really brought a level of in house work that we no longer had to sub out.

[Jed Morris]

Yeah, I don't want to divert us too much, but I have to ask Jed, just thinking about, I'm interested in your business, number one, the project based business, the variety of services. Because we think of tree trimming as a type of business and that's all they do. We think of irrigation in sprinklers as a type of business and that's all they do was the positioning of this, of your business number one at all week because you guys did offer to grab bag. You were, you weren't specialized in anything. Just give me a minute on, on that.

[Chelsea Wood]

Yes, absolutely. So we, I did have, you know, thoughts later on where it's like, all right, what would it look like to spin off like a completely different, a completely separate, you know, just irrigation business? Because the margins are high and we have got a couple of techs who are really good at that. The specialty of the current business was in that residential, you know, full construction model. And so it's hard to really, especially when you're going to start doing advertising, it's hard to really narrow in on like what we do. And I really wanted us to narrow in on, you know, our ideal customer is the high end residential customer when it comes to full construction pieces. And so I was like, that should be the primary piece of the business. And, and then all the extra stuff that we could do would be for our commercial businesses. So then, then the question becomes, all right, well you know, are we going to do, you know, random irrigation jobs for non commercial customers? In the beginning the answer is yes, just because we were taking whatever business we could get. But then as we were growing, the idea was to completely cut that out and so we would no longer be doing irrigation calls for customers that were not ours or tree trimming for customers that were not ours. We just do it for our customers. And. And then the specialty piece of the would be the residential construction piece. And so yeah, that was the thought because it became difficult to really narrow on and say, all right, well who's the primary customer? And then. Cause you have to know that if you're going to advertise to them.

[Jed Morris]

Yeah, yeah, yeah, yeah, Gotcha. Great. Thank you. What doesn't go well?

[Chelsea Wood]

Yeah, so this is the part where I. And this is the whole reason we're talking. When businesses don't go well, especially when you buy as they collapse, you get into a place where there's a lot of stakeholders involved. There's you as the buyer, there's typically the seller, there's the lender, there's investors, there's other people who have debts against the business. And as a result, when you move into insolvency, everyone's got a claim and litigation is expensive. And so a lot of times what happens is you move into a settlement. And so what happens is when you move into a settlement, there's almost always a non disparagement, non disclosure agreement. And that's where I'm at. And I did not know this because I'd never been through it. But it wasn't until a few months after I'd gone through my settlement agreement where I started getting back on LinkedIn and started connecting with other business owners who had been in the same situation I had been in and started to realize how common my situation was. And that's why I started really getting out and talking about these things more broadly. And I say all that just to say that, that there's a lot more business failure out there than you realize. It's just those owners aren't. They're not allowed to talk about it. They can't tell you what happened because they have legally signed away those rights. And so the whole point of the book I'm writing is to take those stories, anonymize them, take the lessons learned, and get those into print so that current and future searchers can see what does happen when those things go wrong, while also protecting the identity of those owners. And so as we go forward from here, there were a lot of things that I did wrong. There were some things that happened outside of my control, and I can't dive into the details. But what I can do and what I will do is that since my business has failed, I've talked to 24 different people at this point who have bought a business. And then that business has failed in the last five years. And there are trends, and from those stories, I'm putting those stories together to put into a book. But at the same time, I'm trying to pull as much data as possible from those stories to get some lessons learned. And what I'm finding is, you know, some of the things I experienced were unique to me, but most of it Wasn't. Most of the experiences are. There's a pretty good line that goes right through the middle of them. And that's what I'll be speaking to going forward because, you know, there are three big things that I've identified that were true about my story, as well as the stories of the people I've talked to that led to 75% of these business failures.

[Jed Morris]

Okay, great, Jed. Well, we're going to get into it, but tell us the name of the book. Have you named it yet?

[Chelsea Wood]

Right now, I've called it Buyer Beware Lessons of Real Business Failure. I think it'll probably stay that as the title. I've got the presale out, but I really, like I said, I really just want to capture these stories and make sure that people get a really good look at what happens when things don't go according to plan.

[Jed Morris]

Yeah, going to be such a powerful document, Jed. Really, really a great concept. You know, one of the things that I say here is that it's that the audience really appreciates, really values stories like yours. And so I'm always looking for them. But it's hard to find. They're hard to find. And we assume they're hard to find because people like you don't really. It's not very pleasant to go up on stage and talk about your business failure, which is true. But also, according to what you just said, it sounds like there's good legal reasons that people don't go out and talk about it, because they're basically. Is that what we call a gag order, or is that something else?

[Chelsea Wood]

Essentially, yes, essentially. Because what you don't realize is that when you move into litigation, there's only two ways that that's going to end. Either you're going to go into court and there's going to be a winner or a loser, or you're going to have a settlement. And nine times out of 10, there's a settlement in place because litigation is expensive and the outcomes are not guaranteed. And so what we do is all the parties involved, we say, all right, well, you know, regardless of how we got here, what assets are at play with those assets, how can we find a place to where we can all walk away and avoid a costly litigation? And so that's how we get there. And as a result, no party is, you know, we're all there because we believe we're right, but no party is going to admit, you know, any kind of fault. And so we walk away. We say, all right, well, we've. We fix this We've divided up the assets, we've divided up the liabilities, and now we're not going to go after each other, you know, for any kind of civil damages that we may feel are warranted or not. We're just going to put a bow on this and we're not going to talk about it. We're going to walk away. And, you know, we say that a lot, you know, and I've talked to, you know, the people I've talked to have been both self funded and traditional. And sometimes there's other reasons for that. I mean, in a traditional search, it's very common to bring on LPs and investors. And a lot of times, you know, you know, there's reputation involved. You know, a lot of us are going to move forward. Like, imagine if you bought a business and that business failed. Like, you don't want that hanging over your head as a negative. You know, you want to be able to move forward. Same thing with an investor, same thing with a large debt holder. And so there's a lot of reasons why people, you know, they want to come to a solution, but at the same time they're not going to admit failure publicly. And we're all just really looking forward to moving forward and putting this behind us.

[Jed Morris]

Sure. Although I will say, Jed, totally take that point. I've never been through it myself, so I'm, I'm speaking out of turn a little bit here, but it's top of mind because I'm, I was preparing with the panel for MIT's ETA conferences coming up in a couple weeks. I'm going to be moderating a panel about this very topic, what it looks like when it goes wrong. And one of the topics that we all agree that we should talk about is how to manage, how to manage the implosion. And then in fact, for some searchers, business buyers, if they had investors managing that process well, crash landing that plane well and respectfully actually grew their reputation in their investor's eyes.

[Chelsea Wood]

Absolutely.

[Jed Morris]

Not to say that they're going to be out there talking about their business failure, but in some backwards way it has served their reputations well as opposed to being something that they'd rather hide, frankly, from their resume.

[Chelsea Wood]

You're exactly right, Will. I mean, Joe O'Dell's story is a great example of that. You know, someone who took on a traditional search ultimately led into a failure, but was very honest with his investors and his board to the point to where they were ready to give him more money. And he said, no, this is not the right move. We need to close. And that has developed into. It builds trust. It builds trust, people. And now he's doing quite well for himself, you know, as a consultant for go to market, you know, PE backed businesses, because he was able to build that trust. And I think that is the right move. You know, again, you know, we're a country that understands that like failure happens, but it's how you work through that failure that determines whether or not you can be trusted and be successful going forward.

[Jed Morris]

Yeah, yeah. And Jed, you're able to talk about it where people, other people aren't because you didn't have such a tight settlement or because you aren't talking about sensitive things. Why are you out here and the other 23 people aren't?

[Chelsea Wood]

I'm out here because at this point of the conversation, I still signed an NDA. I still signed a non disparagement. And so I'm not going to talk about the things that, that led to the failure. What I am going to do is I'm going to talk about my. The things that went wrong for me as well as the things that went wrong for other people in an aggregate sense. And so you're exactly right. The number one reason people don't talk about it is because it sucks. No one gets on LinkedIn and says, I'm pleased to announce that my business failed. You know, like, that is not fun. It's a story you bring up a decade from now when you're actually successful. And you can talk about that one time when your business failed, but not in the moment. So that's probably the thing that's made me different from the other 23 people. But the second thing is that that legal piece, I'm no different from them. And so that's exactly why, you know, I'm not gonna sit here and tell you exactly what happened in my business. But what I have found is that a lot of the things I experienced were pretty, pretty close to the things that other people experienced. And those takeaway lessons are absolutely valuable.

[Jed Morris]

Great. Well, we're so eager to hear them. Let's dive in.

[Chelsea Wood]

All right, so again, I've spoken with 24 people at this point who have lost a business or that business has failed at that point across those 24, in 65% of those cases or more, the number one reason for failure is a misalignment with the seller. That's the number one reason for failure. It's not always because there was a outright fraud or there was like some sort of misrepresentation but sometimes it's because maybe the seller had agreed to stay on and do a transition and then didn't do that. So misalignment with the seller, or maybe the seller had said that they were expecting revenue to grow because XYZ customer was coming online or XYZ customer was not going to leave. And, and then that did in fact happen. And so they weren't actively misleading you, they just gave you a false impression of the business. However, in the majority of the cases there is outright misinformation. And I'm not going to say, well, I can't say that it's fraud because I'm not a lawyer and I'm certainly not in a position to say what is and is not fraud. But when someone tells you that a business operates in a certain way and then it turns out that it's fundamentally different, I don't know if there's a better word for it. And so for instance, I spoke with a business owner who bought a, bought a business and it turned out that the actual product that was being sold was not the case. Like the margin simply was not there. The owner had told them that they were selling a certain product to a certain customer and then collecting the margin when in reality they were selling an inferior product, saying it was the product and then selling it to the customer. So it was outright fraud. And so the new buyer discovered that. I've talked to two people at this point who signed non compete, not compete agreements. In the first case, the seller set up a shop within a week of selling the business directly competing with the first business and stole 40% of the customers. In the second situation, the seller set up a competing shop three years after they bought when there was a five year non compete and that also led to a material collapse of the first business.

[Jed Morris]

It's funny because I feel like I'm always a little doubtful that a seller will go off and compete with you just because it's like they, they. I just feel like, you know, they, most sellers just probably want to get out of there. Now of course it does happen and there have been stories on here where there's been some of that. I feel like the more common threat is that the number two, the foreman, some key person within the business you bought, goes out and competes with you because they're not subject to the non compete generally. And, and that feels like a much more realistic, a much more common threat or, or, or risk than your actual seller just getting right back in the game. Yeah, but it sounds like in fact it's more common than my instincts would say.

[Chelsea Wood]

Yeah, I would say in theory that makes more sense because you know, the number two employee knows how to do the business and the number two employee is not bound by the non compete. But in reality, and again I have to caveat the fact that my data is not scientific. I've talked to 24 people who've shared their story, a few more than that who have come forward and I can't tell you how big the environment is. And so it's not scientific, it's anecdotal. But in those stories and in my own personal experience, what I found is that a lot of times the number two employee, if they were going to start a business, they would have done it by now. They would have gone out there and got that lead generation, they would have set up shop. The fact that they haven't done it already says they're probably not going to do it again, not to say that they won't, but it's more about the behavioral finance portion. And I tell people, I'm like, look, if everyone acted in their own financial self interest, then your purchase agreement and your representations and warranties and your non compete clauses, those would be great. But the truth is, is that people act against their own financial outcomes all the time. And sometimes they do it out of pride, sometimes they do it out of arrogance and sometimes they do it because they sell a business. And even though they've gotten that financial windfall that they were expecting, they realize now that the monthly cash flow they used to have is not what they have now. And they're like, well I only know how to do one thing, I'm going to go do that thing.

[Jed Morris]

Yeah.

[Chelsea Wood]

And this comes back to the point I keep telling people, brand new searchers is that you know, a purchase agreement is important. You need to have strong legal agreements on your side. You need to make sure that non competes are there. You need to make sure that you protect yourself through seller notes or earn outs or whatever you think is appropriate. And you should absolutely do those things. But you also need to keep in mind that the only recourse for you is litigation. That's it. So all of those, you know, legal protections, all they provide is a foundation for you to sue. You still have to sue. And so a lot sometimes sellers take that as an opportunity to take advantage of you. Because if that's the case, then litigation is expensive and it's long, it takes months. And if they are, if the seller has impacted the business in a material way, you're still on the hook for the business. You still put the money in. You're still on the hook for the debt. And so. And you're also pursuing litigation against the seller or against someone else. And at. While that's happening, you're kind of in over your head. And so there's no guarantee that you'll win that. I mean, you had Justin Wilness on your pod not. Not too long ago.

[Jed Morris]

Right.

[Chelsea Wood]

And he had an ironclad case and lost.

[Jed Morris]

Right.

[Chelsea Wood]

So, you know, we have to remember that the only recourse is litigation and recourse and litigation is not a guarantee. And it's very expensive, and it takes a long time. Right before I got on this call with you, I was talking with somebody who is currently in litigation. They own the business that they bought. They believe that they acquired that business and the business was fraudulent. They're in litigation with the seller. And right now they've been. They're eight months into litigation. They've gone through four different legal teams because their legal teams just weren't pulling the weight and just found out that their key employee is going to leave because of all the instability. And so while they're trying to keep this business afloat, while the business is barely pulling in any money and they're going in litigation with the seller. So the most important thing you can do while putting all those protections in place, the most important thing you can do is make sure you're doing business and doing deals with people that you can trust.

[Jed Morris]

Yeah.

[Chelsea Wood]

And I don't know the right way to know if it's someone you can trust, but if the hair stands on your arms, if there's one too many yellow flags, if something just doesn't feel right, then trust your gut and walk away.

[Jed Morris]

One more time on the numbers, 65% of these 24 stories was due to misalignment with the sellers.

[Chelsea Wood]

Yes.

[Jed Morris]

And then more than half of that, 65%. So that's what, 33% or more of the total. Of the total, 24 was outright call it dishonesty of some kind.

[Chelsea Wood]

Exactly.

[Jed Morris]

Seller.

[Chelsea Wood]

Yeah. Okay.

[Jed Morris]

Unethical. Yeah. Nakedly unethical behavior.

[Chelsea Wood]

And to be clear, that dishonesty was materially impactful to the business. So it wasn't like they, you know, they told you they had a piece of equipment and they didn't have it, and it's like, oh, it cost me two grand. It was materially impacting the business in a very real way.

[Jed Morris]

Okay, okay, everybody. So a fully a third of bad business, bad business outcomes are due To a material lie, essentially.

[Chelsea Wood]

Yeah. And honestly, I did not expect it to be that high.

[Jed Morris]

No.

[Chelsea Wood]

But recently I came across the 2014 Stanford study where they were looking at, again, only traditional searches, but they found something similar, you know, in their, in their limited anecdotal evidence. But it was, it was something for them. It was something like 2/3 of deals went sour because of a misalignment with the seller. And so I was a little bit encouraged at the fact that like, okay, well, I'm not self selecting people who just had bad experiences with their seller. It just tends to be a trend.

[Jed Morris]

That was the 2014 Stanford cycle.

[Chelsea Wood]

I believe it's 2014. It's a, I'll get the actual link for you. It was a, it was a study for business school. Yeah.

[Jed Morris]

Yeah, okay, great. Finding number two.

[Chelsea Wood]

Finding number two is cash conversion cycle. And this should make all the sense. This is what I thought number one was going to be. It is the number one reason why a small business goes out of business because you run out of cash. And this one almost always falls on the buyer because you misunderstood the cash conversion of the business, you misunderstood the accounts receivable, how much money you were going to need to operate. And one thing that we're really good at, that we talk a lot about as searchers is working capital, but we're really bad about talking about cash conversion cycle. And those are different things. The working capital is the cash you need in the business to operate. The cash conversion cycle is how fast you can turn sales into cash and then hold onto that cash before you spend it. And very few searchers take the time to really walk step by step through that cash conversion cycle to understand exactly how much cash they need in the business, what that window looks like and how fast they can hold onto it.

[Jed Morris]

And Jed isn't the working capital, the working capital needs of the business. So if you do a good, proper, thorough working capital assessment of the business, you arrive at a peg with the seller. Shouldn't that, shouldn't the cash conversion cycle be baked into that number? Yes, so they're very tightly correlated. So you shouldn't get one. If you get working capital really dialed in and really right, it should be enough to cover the cash conversion cycle because it's the working capital that's been in the business dealing with such cash conversion cycle historically.

[Chelsea Wood]

Yes. And this is where I encourage searchers to step away from their spreadsheets and get in the business. Because in theory, yes, you're right. But in reality, when you do an asset purchase agreement, you're moving all of your accounts over. So imagine like right when you buy a business, you have the cash, you have your working capital, hopefully you've got SBA Express, lines of credit, all these extra things that you have as buffers, right? But in the meantime, you're switching your accounts, you're switching up your accounts receivable, you're putting in new processes, and maybe you find out that your accounts receivable don't liquidate as fast as you thought. One of the things I found was that cash moves a lot slower than you expect. You know, like, one of the things you see in a business is that if you see a business that's heavy, cash focused or heavy, you know, check focused, you think, wow, this is a great opportunity for digital transformation. But then you realize, well, if those customers have been paying by check for 20 years, telling them to pay by stripe or by QuickBooks invoice, they don't, for whatever reason, they just don't trust you. And it takes time to get them to do that. You know, they want to do things the way they've always done it. Another thing is, if you're bringing in physical checks, how long are those physical checks sitting in your bank account before your bank clears them? All of these things, if you don't take the time to really walk through what that cash conversion cycle looks like, they'll eat up all your working capital within the first quarter. And so you really need to see how fast you can actually convert that ar, why the previous owner has so much ar. They'll tell you, oh, this is coming with a certain amount of accounts receivable. But A, has the work already been done or are you buying work that hasn't been done? That's a key piece. And then B, how fast is that? Those accounts receivable, how fast are they really being liquidated? Is it simply because you're not following up on your invoices? Or is it more because, you know, maybe there's a, there's a process in place that isn't ideal, that you need to change. So one way or the other, one tool that can help really mitigate this is making sure you've got a 13 month rolling cash flow. You know, in, you know, in the business, knowing like where your cash is and how fast it's coming, that'll help offset unexpected expenses. Like, you know, like I mentioned how I didn't expect insurance to be more expensive than it was and then it turned out to be the case. That's not, that's not Material that's not something that's going to kill the business, but it will impact your cash flow. And so making sure you understand those and have, have an appreciation for that cash conversion cycle so that you can absorb those types of impacts is really important. And so you'd be surprised how many people, you know just, they just don't have a handle on what that that cycle looks like. And couldn't tell you how long it takes to turn AR into cash, how long they get to hold on to cash, how long until they pay it out in some form either to payroll or some sort of liability. If you don't know what those days are, then you're behind the ball.

[Jed Morris]

Well, one of the things that you just mentioned, Jed, and I know that from your story was, was something you had struggled with, was that this was a cashy business, a checky business. And so you saw opportunity there in digitizing that process, but it was harder than it seemed. Putting aside this question of the cash conversion cycle, like we, we like. Point taken. But in making that change to digital, is this one of these not as easy as it seems?

[Chelsea Wood]

Absolutely, absolutely. It's not as easy as it seems.

[Jed Morris]

Because the vendor, excuse me, your customers don't trust you to do that. I think you touched on that a second ago.

[Chelsea Wood]

It's everybody involved. It's everybody involved. So, you know, it begins with the customer. You have to start off by getting the customer to start paying you digitally as opposed to by cash or by check. Instead of putting a check in the mail and mailing it to me, can you do this digital invoice? I, you know, being a first time buyer, I thought that that would be a pretty easy sell. Like, hey, just, you know, pay by card, connect your bank account, you know, do something like that. And what I found was over half my customers, I had to get on phone call with them and really walk them through, like, hey, this is legit. This is not, this is not, you know, fake. This is actual invoicing and we can do this. And what I discovered was that some people don't want to do that. Some people, they don't want to change the way they've done business for a long time, especially if the payment is through an intermediary. If my customer is an HOA and they use a property management service, well then it comes to the property management service and they want to do it the way they want to do it. And so maybe that's not in line with the way you want to do it. So that's barrier number One barrier number two is, all right, well, instead of mailing out our invoices, now we're going to do them digitally. Well, old businesses come with people who've been doing things that way for a long time. So, you know, how do you get your employees who have always done things one way to do things a completely different way, especially if it means learning a new software system. Maybe they don't want to learn that. Maybe it feels hard, maybe it adds complexity that they don't want to do. That can be an issue. So all of these things start compounding. And so what feels like a very easy digital transformation ends up taking months and lots of effort and lots of work on your part, and you're not going to be 100% successful very quickly. And finally, number three, number three is simply the market. You'd be surprised at how many, how many times black swan event just happens. You know, I mentioned Joe O'Dell earlier. He bought a business where, you know, very quickly, 80% of his revenue just disappeared because his number one supplier changed their prices. And so that's difficult. That's a risk that you anticipate going into it that, you know, is a risk that you mitigate as much as possible, but you're aware of it. But then the market falls out under anyway, you know, that's a risk that you understand.

[Jed Morris]

And so of your 24, how many people have experienced six little, little black swans in there?

[Chelsea Wood]

Six.

[Jed Morris]

25?

[Chelsea Wood]

Yep. Six people. And if so that was your point.

[Jed Morris]

That it's more common than it seems?

[Chelsea Wood]

Yeah, it's more common than you think. And you know, and sometimes you're buying into an industry that you know it, it's not as long term as some others, you know, like H Vac. Industry is not changing over like a whole lot. That's one of the reasons people like it. But solar does. Solar changes quite a bit. You know, if you're buying into a manufacturing company that you know builds airplane parts, then, you know you've got. Typically you're taking the risk of having a single sole customer. Right. Maybe it's Boeing. There's only really two. So maybe that's your customer. But you understand that that's a risk that you're okay with because they've always bought for 30 years and now you're fine. But what happens when the regulations from the FAA change? Well, that may upend your whole business model. And so those types of things do happen. I think they're probably overrepresented in my data, but they absolutely do happen. And That's a risk that you kind of expect going into it, but you still need to mitigate as much as possible. One of them is a defense contractor. You know, if your number one customer is the government and they're buying 70% of your goods and services, well, what happens if they cancel your contract? You know, we see in the news right now the government working hard to cancel contracts. It used to be the case where, and I still think it kind of is, even if you're a government contractor, you can spread out your risk by, by having contracts with different agencies, maybe Department of State, maybe dod, maybe local, you know, local state agencies or, you know, local services. That does help, but, you know, it's still the risk.

[Jed Morris]

And why do you think your 6 are an overrepresentation of how often that happens?

[Chelsea Wood]

I really don't know. I really don't know. And that leads to the point of like, perhaps it's not. Perhaps it's not. Yeah, right. What I do know is that buying a business has become much more popular in the last five years than it has been in the last 20 due to its explosion online. And so it could just be that there's a lot more people searching for a lot more opportunities willing to make a deal on a deal that maybe wouldn't have been an ideal opportunity five or six years ago.

[Jed Morris]

Very powerful. Jed, anything more to say about the key takeaways from your 24 interviews? I want to make sure we get the end of your story. Kind of where things, the things I.

[Chelsea Wood]

Really drive home are. First and foremost, if you're a searcher and you're looking to buy a business, you really need to understand the risk involved. You need to understand what happens if you take out a personally guaranteed debt and you fail at that debt. And you need to understand what chapter 7 and chapter 11 mean for you personally, what it means for your family. Have that conversation with your spouse, have that conversation with your investors. Understand that. You know, one of the things we love about ETA is that it takes a lot of the risk away from a startup. You know, you got product market fit. We like the success metrics, but just because the success success metrics are higher doesn't mean that they're 100% and people do fail. And if you don't take the time to do a proper risk assessment, then I would argue that you're not making an investment, you're gambling. You need to know what your true downside is. And that's the first thing. And then the other. Beyond that, I would just tell People pay attention to the biggest red flags, pay attention to the biggest things that could have the biggest opportunity to mess up your deal, and then understand how to mitigate those appropriately. You know, whether it means doing a deal with somebody that you feel is untrustworthy. I tell people it's kind of like, you know, you know, we talk about impersonal relationships, but, you know, if someone cheated on their wife, they're probably going to cheat on you, too. If someone has a reputation for stiffing their suppliers, they probably were going to stiff you, too. If someone has a bad reputation with other people in the area, there's probably a reason for that. And even if not, if there's something in you that makes you feel like, I like the deal, but I don't like the owner and it's going to be okay because the owner is going to be gone and I'm going to take over and it's going to be totally fine. That's a red flag. That's a red flag. A business is the direct reflection of its owner. Every single time that person has built the business, they've hired the employees, they've built systems or not built systems, they have created an entity that is a reflection of themselves. And so the idea that the owner is simply going to step away and then you're going to step in and you're not going to be responsible for however they built that business is irresponsible. So understand that that is the, in my experience, the number one risk that you're going to run into. Beyond that, do everything you can to learn how the business actually functions as much as possible. And that means, you know, an internship, if you can. That means getting your hands dirty in a small business, because until you've been in the operator seat, there's just going to be too many variables that you're unaware of. I had a conversation with Nathan Lindley not too long ago. He's doing a fantastic job in Texas with H Vac companies. And he tells me about how, you know, he bought his first business, his first H Vac business, and hemorrhaged money for the first two years because the learning curve of being an owner is so steep. And we talk a lot about how, you know, you have to learn the industry, but you have to learn how to be an owner, too. You have to learn when is the right time to fire an employee, when's the right time to change a business model, when's the right time to really change systems. And until you get to a point to where you either out of necessity or out of insight, realize that you have to take full ownership of this business and you need to be the driver going forward. Until that point happens, you're not going to see a lot of success. And so sometimes that, that happens, you know, relatively quickly. In Nathan's case, he talks about how it took two years of him losing money before his entire staff finally quit. And then he's like, okay, I, I really need to stop trusting other people and just do things my way. And he's been successful since then. So it really is a steep learning curve of being an owner if you've always been an employee. And that's one of the things I like about veterans in the space because they have direct leadership experience, they've led teams, they understand how to dive into those types of unique experiences.

[Jed Morris]

Nathan is a veteran though.

[Chelsea Wood]

He is, yeah. And it's still a transition. It's an incredibly different thing. And that's why I tell people, until you've been in the seat, you just don't understand.

[Jed Morris]

Jed1 Just follow up to everything you just said, which was fantastic. The really playing out war gaming, the worst outcome, you know, educating yourself on chapter seven, chapter 11. Can you be more specific? What, what does a true war game look like? What should people do that they don't? Because everyone would say, well, I, I don't want the bad outcome. I'd lose my house and we'd have to figure out where to go and I'd go get a job. What more should they be doing?

[Chelsea Wood]

The first and most important thing you should be doing is having a very, very deep heart to heart conversation with your spouse. Because when things do go bad, the part that you're probably not talking about is how it's going to impact you and your family. When my business went under, I moved in with my brother. We lost our house. In the settlement, we lost all of our financial assets. I've got two little boys that are four and two and I've got a wife. And we had nowhere to go. And so it was just fortunate that my brother owns his own home and has space for us. And so we stayed with him that.

[Jed Morris]

Will and you were, you had been in Southern California and you moved to North Carolina.

[Chelsea Wood]

Yeah.

[Jed Morris]

So you moved across the country to do this.

[Chelsea Wood]

Yep, exactly. And so.

[Jed Morris]

And that's where you're speaking to me now.

[Chelsea Wood]

I'm in North Carolina right now.

[Jed Morris]

At his house.

[Chelsea Wood]

Yep. And that will impact you. That will impact you and your family in ways that you've never experienced before. You know, what does that That's a completely different outcome, and it sucks. I'll just tell you straight up, it just sucks. So first and foremost, it's the business side, because let's be clear, if you lose everything financially, you haven't lost everything. You still have your family, you're gonna be okay. Like, you're gonna come back, you're gonna get a job, you're gonna be able to be successful. There's always more money to make. So the first thing you need to do is have a real honest conversation about what failure looks like for your family. That's the first thing. The second thing is getting a better understanding about what the process looks like legally. First, once you start moving into business, failure, you move into an area called insolvency. And it's kind of a gray area, but it's an area where as the owner of the business, when you start to realize that you may not be sustainable, you may not be making payroll, you may not be able to continue operations, that's insolvency. When you get to that point, your fiduciary duty of the business changes. Now you actually are a fiduciary for the debt and capital stack. And so you need to be start. You have to start making decisions that are in the best interest of the debt holders, not just you. So if, and that, and that's something you have to be able to argue in court if it comes to that. And so if you're moving into the point to where you as the owner believe that you're going to go out of business soon or you're going to be insolvent soon, the decisions you make after that, they have to be in line with the best interests of the business, not you. The best interests of your debt and your capital providers and not you. Otherwise that's going to come back to bite you when you go into bankruptcy. Because the judge and who or whoever is litigating is going to say, hey, at what point did you realize that things were going bad and you're under oath, you have to be able to answer those questions and you have to be able to talk about the fact that, like, if you say you're. You say you have SBA debt, like, if you know that you're not going to make payroll and you know that things aren't going to go well, then you better be ready to speak to every single expenditure you're making in your business. So you'd be able to be able to defend those things. In some states, like the state of California, payroll is paramount. You have to pay payroll. If someone is working, you have to pay them. And that is one thing that it doesn't matter if you go bankrupt, they can always come after you for that. And so that is paramount. The next things you need to think about is you and your personal assets. I tell people one of the silver linings since this has happened and since I've been public about my failure is that I've had so many conversations with people who. Not who have not just gone through failure, but people who are actively going through failure. I had somebody call me on Thanksgiving Day in 2024 and say, I'm filing for bankruptcy now. And business ownership is incredibly lonely. We know that it's ten times more lonely when you're going through bankruptcy and you're staring down the abyss of the unknown and you don't know what, how this is going to turn out. And a silver lining has been that I've talked to three people, four as of today, four people who are actively going through either litigation or bankruptcy, and being able to talk to them and say, hey, it's going to be okay, you know, you have to assume that you're going to lose everything. Go into it with that mindset. Go into it with the mindset that I'm going to lose my home, I'm going to lose my. All my cash, I'm going to lose all my assets, I'm going to start over. If you do that, then even if you don't lose everything, then at least it selfs you up mentally for that outcome and helps you understand that, like, all right, well, if that's the worst case, then I'm going to be okay. There is no debtors prison in America. There is going to be a resolution to this matter. As long as you don't break the law, you're not in any real, any real issues here, and so don't do that. And then on the other side of this, you're going to survive. And so just hearing those kind of words, they really do help people. So that said, some states have protections for Homestead. If you have a, if you have a house, sometimes you sign that away on a personal guarantee, depending on your equity. And we talk about that a lot. Some states have protections for, you know, protected retirement accounts, 401ks and things like that. And there's a difference between chapter 7 and chapter 11. There's also a difference when it comes to your SBA. If you have an SBA loan, the amount of requirement you have on that SBA loans are backed by the government between 70 and 75%. So depending on the amount of leverage you took out, you may not actually need to pay back the full amount. Maybe there's a delta there where, you know, the SBA is going to backstop your lender to that 70% and that leaves you with the 10% so you can find a settlement for that last 10%. You know, maybe you could find a way that way. So just going into it, understanding that like, you know, just like in deal making, there's a deal to be had on the backside, there is something there where no one's going to be happy, but we're going to be able to find a way to find a resolution to this matter. And so understand that those are the biggest takeaways.

[Jed Morris]

No, this is, this is gold. Can you share? Other than losing your house and moving to North Carolina, which is already a big share with us, can you share anything more about your final outcome? Any numbers?

[Chelsea Wood]

Yeah, I would, I would tell people that whatever you think the worst case scenario is, expect it to be a little worse. You know, I told you that, you know, I've got a great MBA and I've got a top secret clearance and I've got all this experience. I can code and I've led software teams, but I'm still unemployed and I've been putting out resumes for a while now. But sometimes the market changes and so assume that things could be worse. It's not as easy as just getting a job like you had before. And so I put too much faith on that. And so if that's you, I would caution you in that, in that respect. I would also say that, you know, you do have options. I have not declared personal bankruptcy. That does mean that I have several hundred thousand dollars of debt. But at this point, I could, we could declare bankruptcy in the future. We've elected not to do that. At this point, we're going to try to, you know, pull out of this. Working on a couple things of my own to try and generate some income. So what I will.

[Jed Morris]

Can you share how much money this whole thing cost you?

[Chelsea Wood]

Yeah, when you think about, man, I did the math before, it was right around $750,000 of cash out of my pocket. Whether that's, you know, selling our home, liquidating our assets, cash that I put in the business to try to keep it going when it should have been insolvent, you know. Yeah, about $750,000.

[Jed Morris]

And then the multi hundred thousand dollar liability that you still have hanging over your head.

[Chelsea Wood]

Yep, exactly. So all in all about a million. And so when you put that in and say, all right, well that's four times what I spent on my mba. But I will tell you, like, I have learned so much. I have learned a lot about what it looks like, not just operating the business, what right looks like, things I would do differently. And you know, one of the things that when you're on the other side of it, you're able to look back and kind of look at it from a objective perspective and say, these are the things I did wrong. And there were a lot of them, there were things that I did wrong. And I can say I shouldn't have made that change, I should have fired that person, I should have hired this person, I should not have moved that quickly. I alluded that already plenty of things I could have done better. But it's also important to look at the things that maybe that weren't your fault, that just happened. Sometimes bad luck happens, sometimes bad, there's risk for a reason. Sometimes that risk comes back to get you. And so understanding like, hey, these are the things that I did wrong and these are things that are outside my control. But the things I did wrong only amplified the bad things that were outside of my control. And so people ask me all the time, hey, would you buy another business? And the answer is yes, I spent a million dollars learning how to do it the, the wrong way and the right way. You know, it would be foolish to throw away all that knowledge. And so, you know, I, it, it has been an invaluable experience. It has been a painful experience.

[Jed Morris]

Well, Jed, to, to that point, as a final question, how do you reflect now on ETA broadly and yeah, yeah, the value proposition now that you've seen the worst possible outcome?

[Chelsea Wood]

I think that ETA is a fantastic opportunity for the right buyer and the right business. It's everything I thought it was when I started searching and we see those positive stories all the time and that's a wonderful thing. And it really is true that there's a lot of opportunity out there. There's a lot of sellers out there, a lot of good people looking for a good exit. And if you are willing to roll up your sleeves, especially in the self funded search space and be an owner operator, then you absolutely need you get, get out there and buy a business. But as you know, things have become saturated the last couple of years and not, not so much in saturated in deals, saturated in influence. Everywhere you look there's somebody telling you to go buy a business. It is the fast track to wealth. It Is, you know, no money down, 100% passive buy. Hire a GM to do the work for you. Like all the things you see online that just push and push people towards deals as if it's like, you know, the, the magical gateway that's going to solve all your financial problems and build that generational wealth that we hear so much about. And the biggest red flag is that there's a kernel of truth to it. There really is. But the problem is that in the fervor and excitement of buying a business, so many of us, whether we have fantastic fancy degrees or not, we get really, we put those rose colored glasses on and we forget to look at the risk, we forget to look at the downside, we forget to look at the diligence. And I tell people, I'm like, look, one thing that's really key in a lot of the situations, not just mine, but other people, is that you can do diligence all the right ways you can find. You can get quality of earnings checks, you can get legal reviews, you can get in there and you can figure things out, but there will always be things you don't know. And that is risk. That is the risk you take. And, and that's assuming you're doing the right due diligence to begin with. And so I would caution people to make sure that they're doing their appropriate due diligence. Make sure that they're really diving into their opportunities. Make sure that they understand that there's a level of risk that you can't mitigate away and be comfortable with that risk because it's real. And then also understand that the most important thing with your first deal is just being successful. That's it. You don't need to be a millionaire on deal one. In fact, I would, I would tell people now and this is some of the feedback I get from people now, which is don't over lever. There's no point in going 90% on your leverage on your first deal. Like there's just not raise more cash. Yeah, equity is more expensive, but you know what's more expensive? Failure. Like make sure that first deal. There's so much asymmetry of information for you as the buyer because you've never done it before. Put yourself in the best possible situation to be successful. You know, take less equity, take more cash, take a safer deal, you know, and, and I say like, don't lever up as much as you can. Don't skip Q of E. The people that I see who are willing to sign 3 and $4 million loans, but aren't willing to spend 40,000 on the quality of earnings. Your, your aspect of risk is flawed. It is wrong. And if your answer is, oh, I just don't have the cash for that, then I would argue that you're not ready to buy a business and so really understand the risk involved. Understand, you know, what the trade offs are, understand how much you don't know. Make your deal as successful as possible. That way when you've won on deal one, you've learned, you understand, you've had the experience of being the operator. Go kill it on deals 2, 3, 4, 5. Go 100% lever if you have to. Like it's. I get it, you know, there are expansive opportunities out there, you know, but not on deal one. There's just, there's so much you don't know. Make deal one a winner.

[Jed Morris]

Dad, remind us the name of the book.

[Chelsea Wood]

Buyer Beware Lessons from Failed Business Buyers.

[Jed Morris]

The working title may change.

[Chelsea Wood]

Working title. Yes, I've got it available for preorder. I'm expecting to have it out this fall. Trying to line it up right with some of the ETA conferences in the fall. So my hope is that, you know, this will help illuminate some of those stories of how things can go wrong. There's a million ways that things can go wrong, but by having a few of those stories out there that are case studies and then towards the end of each chapter, some real takeaway from the actual buyer themselves is saying if I knew then what I know now, here's the things I would think about.

[Jed Morris]

You know, it's going to be so.

[Chelsea Wood]

I want that to be a reference. I mean, I read Buy Them Build, I read the HBR Guide, they were invaluable. But I, I never met somebody who had a failed business.

[Jed Morris]

Yeah, yeah. Excellent, excellent project, Jed. And you are going to do a live Q A for listeners of this interview. So we will put that in the show notes. We'll in the intro to an outro to this episode, I will tell people when the exact date of that is, but it'll be within around two weeks of when this episode actually airs. So you'll be in a live zoom call probably with me and people who have just been listening to your interview for the last hour and a half will can come and ask their questions directly to you. So thank you for being willing to do that too, Chad. And if people can't wait for that or can't make that, what is another way to get in touch with you? How do you like people to do that.

[Chelsea Wood]

You can find me on LinkedIn. You shoot me a direct message. I try to reply to as many as possible. Sometimes if I don't reply it's because I just got so many that I missed you. So please just shoot me another message. Beyond that. I, I try to do one on one calls as much as possible, but I'm actually getting ready to start a Thursday live call. So if one on one is, you know, if that isn't a thing for you, you can join a group call and we'll try to, you know, walk through some of the things that, you know, I talk about just to help get more of that information out there. Because one of the things I've realized is that when you do one on one calls, you get overwhelmed very quickly.

[Jed Morris]

Well, and that's part of what the live Q&As are going to be about. A lot of my guests get a lot of inbound and requests for calls and generously take them, but it doesn't scale very well.

[Chelsea Wood]

So we're going to be.

[Jed Morris]

Yeah. Jed Morris, thank you for coming on. Thank you especially for this project. It's, it's such a great idea to distill 24 people's horrible experiences into some key learnings. You do that project well and it will be the third book in the canon behind Buy, Then Build and the HBR Guide. This is really has a lot of potential.

[Chelsea Wood]

I hope so will and thanks for having me. You know, Russell Brunson talks about turning your mess into the message and that's kind of what my mission is for this year.

[Jed Morris]

Great, great work Jed. Thanks very much.

[Chelsea Wood]

Thanks for having me.

[Will Smith]

Hope you enjoyed that interview. Don't forget to subscribe to the Acquiring Minds newsletter. We send an email for every episode.

[Jed Morris]

With an introduction to the interview, a.

[Will Smith]

Link to the video version on YouTube and soon key takeaways, number and more essentials from the interview. For those of you who don't have time to listen or watch it, subscribe at acquiringminds Co. You'll also find all.

[Jed Morris]

Our webinars there on the website, both.

[Will Smith]

Those we have coming up and recordings of past webinars. At this point There are over 30 webinar recordings, a wealth of information on all the technical nitty gritty of buying a business. Acquiringminds Co.