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- [00:00]
Will Smith
People often ask me what sorts of Acquiring Minds episodes are the most popular. You won't be surprised to hear that stories with big headline numbers get a lot of listens, but so too do stories at the other end of the spectrum, stories about buying small. Especially if buying small led to something bigger. Today's guest is a great example. Tim Leahy acquired a home technology company almost four years ago. The business did about $230,000 of SDE when he bought it. Definitely qualifying as buying small. In addition to unpacking the pros and cons of going that small, Tim and I also discuss buying a business that's dusty, not rusty. Using a buy side advisor to conduct the search for you. How identifying an industry that turned him on cracked open his search Working capital cash flow in that no matter how smart you are, you're likely to get it wrong at first. How Tim has doubled the business and of course the home technology industry and its potential. Tim is betting that it's the next H Vac. And if you're interested in another Acquiring Minds interview with a guest who bought in this industry, see episode 132 with Pawo Kosiki link in the notes. Okay, Please enjoy this conversation with Tim Leahy, owner of our home welcome to Acquiring Minds, a podcast about buying businesses. My name is Will Smith. Acquiring an existing business is an awesome opportunity for many entrepreneurs and on this podcast I talk to the people who do it. August Felker is a two time successful searcher, first with a traditional search fund. The second time around he did a self funded search. Today August runs Oberle Risk Strategies, an insurance firm with a dedicated practice group for searchers and acquisition entrepreneurs like you. If you've got a business under loi, Oberle will provide complimentary due diligence on that business's insurance and benefits program. A great no risk way to get to know August and team. They love helping searchers. They've worked with hundreds. Oberle is a specialty insurance brokerage for searchers by a former searcher. Check out oberle-risk.com o b e r l e-risk.com, link in the show notes Tim Leahy welcome to Acquiring Minds.
- [02:40]
Tim Leahy
Thank you. Thanks for having me.
- [02:41]
Will Smith
Tim, you're almost four years into your acquisition of a residential technology company. It was small when you bought it low sde. We're going to hear your thoughts on buying small, but you've since doubled the business and are aiming for 10 million in revenue by 2027. Let's get right into it. Tim, please start us off with some background on you.
- [03:03]
Tim Leahy
Yeah, well, it was a cold, Snowy Night in 1981.
- [03:08]
Will Smith
No, I'm just kidding. Sounds romantic.
- [03:12]
Tim Leahy
Yeah. Well, we'll give the listeners my life story. But, yeah, I think similar to a lot of, you know, ETA participants, the community, there's. There's just a through line of where we all looked at this. And for me, I had a great career going. For me, I. I had a career in finance, and I was lucky enough to join an institution called the Federal Home Loan bank during the housing boom in 06. So I was fortunate enough to ride a wave where that then led me to Wall street. And then I participated and lived the great financial collapse similar to the book of the Big Short. That was my job. I was buying and selling structured products. And so, um, I bring all this up because I think in a career in corporate, typically when I've talked to other individuals, there's this, like, constant backbeat of, is there something else out there? There's something else drawing me to something to do here. And I. For me, I couldn't put a pin on it. I came from some, you know, family tree of entrepreneurs. My grandfather on my mom's side, right. Ran a paper business, which I don't know if any of the viewers even know what that would be these days, but it was. It was a really successful paper business. And my dad's dad, who I knew more as a Marine, was also worked in kind of a small version of the oil business here in the Midwest. So, like, I don't know, maybe it's genetic, something in the soil, but I had this interest of doing something more with my life and my professional career, and. And the one thing I thought was unique to me is I always followed that ambition or that thought through sales. I think my dad recognized at an early age I was a persistent little guy and was like, you're gonna be a really good salesperson. And what I. What I think I realized was it was the agency of being able to control, like, your destiny and the. The stimulation and the. The feeling you get when you help someone out and close a deal and all those things. But I was following it through this, like, different, you know, weird forest of a financial career. And I got my MBA at night. Again, that kind of helped catalyze things. But the reason why I bring that up, and I think this is probably consistent with a lot of individuals that you listen to this podcast or I know guests that you've had on that I've heard a guy came to my class and his Name was. Was Doug Cook. And it was 2013, so this is probably, you know, Rick and Rice era. Not many eta. Not many people were talking about eta. I had no idea about it. And he was like, yeah, it was a great commercial real estate broker. And I left and I bought a window business. And in here, in the Midwest, in Chicago, you'll know it as Feldco, because the ads are everywhere. And he bought and built this really successful business, Felco. And I was enthralled with this story. I was, I was like, you did. You left your job and bought a business. And I feel like other guests have mentioned this too, but in that era, in 2013 or that ish vintage, it was startups, it was, do you have an idea? Do you have an idea that you can get funded? Can you get equity? And I worked mentally on that exercise all the time. Like, do I have a. Do I have. I was. Because I was studying entrepreneurship at Kellogg, so I was like, do I have a cool idea? Do I have an idea I can get funded?
- [07:01]
Will Smith
So the know that personally know the experience of that personally.
- [07:04]
Tim Leahy
Yeah. So when Doug said that and had the story, I was, I was mesmerized. And I left that thinking, okay, this is something to explore. I don't think at that time I was ready to make the leap. I had. It had felt like this really great book you put on the shelf and then you're like, every day you're looking at it and you're like, I gotta pick that book up again. But I was, I was working hard, I was recently married, we were trying to have kids. Like, I don't know, it didn't really. It was just, it. I don't know if it was the universe, but I wasn't ready. So a couple years later, I had reached a point in my career where I was really doing well. I was, I had, you know, all this potential to maybe get to a place would really be lifetime, you know, retired job at the home loan bank. But honestly, I don't know if it was the age I was getting up to my late 30s, I, for some reason that that quote unquote story of Doug really percolated and boiled over to the point where I didn't have his contact information, I didn't know where he lived, what he did, but, you know, I used my sleuthing skills and I found his email online and shot him a cold email and was just like, can I, you know, saw your class six years ago, Would you be willing to talk to me?
- [08:32]
Will Smith
And I have to say, though, Tim, that's a very flattering email to receive.
- [08:38]
Tim Leahy
Yeah.
- [08:38]
Will Smith
It might feel random, but it's like, wait. So I went and did just this little guest lecture one night and left such an impression that somebody in the audience six years later is reaching out to me.
- [08:47]
Tim Leahy
Yeah. And, you know, I won't ruin the ending of the story, but he's a very important mentor in my life at this point.
- [08:56]
Will Smith
Amazing.
- [08:57]
Tim Leahy
I call it my informal board seat. He has a very important role in that board seat because he looks at the world very differently than some of my other mentors. But, yeah, I mean, he emailed me that night and was like, I live in North Chicago. Like, I'm available Friday if you want to meet for coffee. And we met for coffee literally blocks from my house. And again, he gave me like, five hours of his time that day. And I. And he gave me the playbook. And he wasn't. This wasn't a glorification of the journey. This wasn't. Yeah, I mean, it's wealth and riches and everything. You w. At the end of the rainbow. He was just like, here's how you start and pull that thread. And I. You know, and I'm not trying to sound like this was the early age of eta, but to me, it just felt like it was still the business broker is approach, but biz by sell. And so I started that process of just talking to people. But you know what? I think I left that conversation was. I think my foot was out the door. I think I remember not even talking to my wife or anyone and just saying, like, holy smokes, I'm gonna follow this, and if there's a blinking red light, I'm gonna stop. And I think what I would encourage through any of this conversation is what I did that I would say is pretty necessary, is do not be afraid to talk to people, because that's all I did. I talked to business brokers, I talked to accountants, I talked to lawyers. All within the discovery of what is it like to buy a business? What is the risk? What is. And I love that. Now podcasts like this, some of the early podcasts too. Yeah, I mean, we're all. We're all beholden to Rick and Royce and that there was books, but there was, like, you still had to do this, like, hardcore kind of discovery work of what is it out there? And I know there's huge presence on X and, like, immediate. Like, there's all these amazing sources now. And at that point, at least when I started, I just felt like it was More of a hustle. And what I essentially put together was here's the risk. It's not going to be easy. You know, here's some guidance and you know, if you want it, you should go do it. That was it. Like, I wasn't.
- [11:28]
Will Smith
Tim.
- [11:28]
Tim Leahy
Yeah.
- [11:28]
Will Smith
What. And, and the, the path that you were on in corporate, you said that you could see a path or a promotion that would set you up kind of for life or. I'm not sure what you meant. So add some color to that because I think it. Understanding the opportunity cost here would be good.
- [11:47]
Tim Leahy
Yeah. Oh, for sure. I mean, so I mentioned going to business school at night. I worked at an institution not many people know of. It's called the Federal Home Loan bank system. They treated me extremely well. I had a career where I was given opportunity. They supported me as I went to business school at night. You know, they gave me, they put me in positions where, you know, they were, you were, you were kind of. They knew that you didn't know what you were doing, but they wanted to see if you could grab it and you did. But I had reached a point there where even with all that, something else was calling to me as, as maybe existential as that sounds, I, I had just been wrestling. I was like, this is great. And I. Right as my career was kind of peaking, I was asked to join this group. It's kind of like a special forces group internally to help restructure the bank and help put the culture forward. Very process oriented. So Lean Six Sigma. And so I completed that and was like, okay, well this is, you know, my next step here is going to be part of the leadership team. And that prospect was right there in front of me. No one could ever give you a timeline on it, but even with all that, I just felt unsettled. And I think what it came down to, as as many of us do, you do that self reflection exercise, you go for those long walks, you try to figure out what's going on here. What it really came down to is like I wanted to control my destiny. I wanted the agency. I certainly didn't want to give up any financial benefit. I wanted to feel like if I could maximize the stimulation and the agency of growing something and achieve the same or more financial wins, that that's worth kind of the big swing right at the pitch.
- [13:50]
Will Smith
And, and being leadership at that company would have been just, just being mercenary here and thinking about numbers only.
- [13:57]
Tim Leahy
Yeah.
- [13:58]
Will Smith
Would have been high six figures into the seven figures annually, probably.
- [14:02]
Tim Leahy
Yeah, yeah.
- [14:03]
Will Smith
And so a million bucks a Year you were potentially very likely walking away from.
- [14:09]
Tim Leahy
Yeah, I mean, who knows what it is now eventually. But I think for me I would also be part of running an organization that gave so much to me back. So like there it was like all that for me. I still think it's one of the best places to work and can still be one of the best places to work. But I was, I was just clearly there was something calling out. Yeah.
- [14:35]
Will Smith
And so what did, what are the parameters of your. When you decided you were going to do this And I liked how you put it, you were just going to do it until there was a flashing red light. I've heard other people characterize that their, their search that way on a deal, like on a specific deal. Well, I'm just going to follow this deal and wait until something stops me and nothing ever stops me and then they find, you know, that they're signing on the dotted line and you kind of approach search itself that way. But what were some of the parameters of this search?
- [15:06]
Tim Leahy
Yeah, the parameters was I wasn't ready to really move. You know, I think geo, the geographical parameter for me was it had to be within an hour and a half, two hours driving distance of where I lived in the, in where I live in the north suburbs of Chicago. And you know, I make that point because I've met a ton of people who are like, yeah, I mean I'm going to, it's my wife and I, we don't need kids, we'll move to Anchorage if it's the right fit. That was the first parameter and then size was the second. You know, I was like, listen, I'm not going to. My dad would say this from a golf analogy. Like I didn't come here to lay up, like I'm going for it. And then from there it was, you know, and part of the story is important thing is like that was it from a parameter I had such an open mind to what kind of business I was going to buy that it led the search process to probably take longer than it should. And the, the biggest line that I'll steal and I probably should give royalties to Doug Cook for was like my guiding principle was, you know, dusty, not rusty. Like what, what business could I apply my energy to and accelerate it out of the gate versus something that was just like could not benefit from inertia and my energy. And if you apply that principle, you're not filtering a lot of business. I mean you're starting to filter pretty well. But I was really industry agnostic and you Know, I think what was helpful was, ironically, during the pandemic had just started, so we were all working from home, so I would work during the day and then spend nights, like in my, in my room or in my office, was a makeshift office at the point. But I was like researching these industries and you were able to kind of really move at a fast clip. Where I felt like traditional process that happened, especially with business brokers, that they would, they would, you know, let's drive around, let's look at this business. I was doing this pretty remotely. And so, you know, it, it led me. It was a very inefficient process to start. And I was working with a business broker. I was looking through biz by sell and I was like, well, this is an intellectual exercise, but I'm going nowhere from a career, next step. And it was at that point that I went to look for a company or a firm that could essentially partner with me and had the structure to kind of push me and keep going. And that was a middle market to kind of small middle market. M and a firm, Sun Acquisitions, here in North Chicago.
- [17:57]
Will Smith
An SBA loan broker, as opposed to a direct lender, doesn't work for a particular bank. Instead, the broker pairs you with the right SBA lender for your deal based on industry terms, risk thresholds, then helps you navigate the process better than many lenders themselves do. Matthias Smith of Pioneer Capital Advisory is just such a broker. Matthias worked at two of the country's top 10 SBA lenders. So he's been on the inside of the SBA process and knows well the pitfalls and hurdles and how to avoid them. He struck out on his own to laser focus on the ETA and search space. Our niche is his niche. You'll see Mathias at all the ETA conferences. He's closed over 30 search deals since starting Pioneer in May of 2022, including some acquiring minds, guests. To learn more and get in touch, go to PioneerCapitalAdvisory.com or click the link in the notes. Tim, why. What were your size criteria? I don't think you said.
- [19:05]
Tim Leahy
Yeah, you said that.
- [19:06]
Will Smith
That was one of them.
- [19:06]
Tim Leahy
I mean, I was, I had been. I went or I knew I already wanted to get pre qualified for the Max SBA, which I forget what it was in 2019, but I think it was like five or six million. Five million? Yeah. So I was like anywhere up to that. I was, I was game. We had been.
- [19:26]
Will Smith
Did you have a floor? Did you have something to be too small?
- [19:30]
Tim Leahy
Yeah, which I broke, but it was I didn't want to go under, I didn't want to go under half a million SD and really that that number. It's been a while since I picked up Rickab Royce. I think theirs was like a quarter of a million. You know, don't, don't touch or it's not worth it. But because similarly I had viewed the, the jarring impact of leaving a 400 person institution where I had an HR, I had a legal, I had all these resources to a company of four. I was like that's not good. I'm not built to be all those chief executives which I, you know, the we'll learn. I still did but that, that's why I had the floor as well as I was like I want structure in place. Like I, I'm only one person.
- [20:23]
Will Smith
Sure. And when you said that you weren't making any progress, that you, it was an intellectual, valuable intellectual exercise to be doing the search to the extent that it was a search but you weren't getting anywhere. Is that because you, your deal flow, it just. You'd run through the, the available deals and you got it?
- [20:41]
Tim Leahy
Yeah.
- [20:41]
Will Smith
Even searching part time, you were, you were exhausting the deal flow. Even in Chicago you got it. Interesting.
- [20:49]
Tim Leahy
Yeah.
- [20:49]
Will Smith
That's must have been pretty thin pickings.
- [20:52]
Tim Leahy
It felt thin pickings. You know, there's only so many pizza restaurants you, you know that are up for sale. You're going to look at, in, in west suburbs of Chicago or you know, a chemical manufacturing plant that was, you know, just outside of your geographical range. Like it, it, it tests. What I was looking for was who was up for sale, who had made, who had raised their hand and said I'm ready. And what I was kept thinking about from a deal flow perspective essentially I had friends in VC and private equity and maybe this was some of my education cog like there's still a deal flow to tap into that are folks that maybe haven't raised their hand but are thinking about raising their hand. But I had no clue how to approach them. You know, I was what, what I know now and what I love seeing individuals doing is, is the, you know what I my first job out of college was cold calling, ironically selling technology to school districts. But that hustle like calling cold calling letters, that's how you get I think a quality lead, a deal flow. Because if they're raising their hand and they're putting themselves out to market to public market, there's some questions that you want answered of why and if you get the timid owner who's thinking about it? Maybe it's a year from retirement. You know, that's that to me at that time and I still feel this way. That's a high quality, you know, high potential deal flow you wanted to tap into. So I started to do a little bit of cold emailing and approach, but I was like, what, what I, I had interviewed with, with Dom, who runs Sun Acquisitions, and they had a buy side team and they were like, listen, part of our approach is we'll do that work for you. We'll put out letters, we'll work with you to figure out the industry. You know, you, we're not going to help you do the, the intellectual exercise, but when you say this industry, we'll start attacking it. Cold calling and emails. And that was really attractive to me. I could afford it. I could afford to pay that investment, which I felt was if this, if this reaches a blinking red light, I'll have paid, you know, X amount of dollars. And I said, well listen, maybe that will tame the beast and I can return back to work and, you know, kick butt at the home loan bank.
- [23:16]
Will Smith
Can you share what the, what those costs were, roughly?
- [23:19]
Tim Leahy
Yeah, I think it was about $20,000 up front to get started, which is not including obviously the success fees that a broker or a MA firm will, will do as well.
- [23:32]
Will Smith
But I mean, 20,000 that can be applied to the success fees probably.
- [23:36]
Tim Leahy
Exactly, exactly.
- [23:38]
Will Smith
So, and how much did that 20k give you? Was that, was it 20k then xk a month or was that 20k for a six month engagement?
- [23:47]
Tim Leahy
Year? Engagement. It was a year engagement, yeah. And I think what, what helped is that, you know, again, this isn't, this is at a time of incredible global uncertainty. So this is a pandemic was starting to really take hold. And so I think I was fortunate as a potential buyer because no one was really thinking about buying a business when Covid was starting. And so not that anyone was desperate, but I think I, I had the advantage of working with the team at Sun Acquisitions were like, well, you're one of the few that are out there looking, so we're happy to help. Which I don't know if I was just a lunatic at the time, it seems a little crazy recounting that story, but yeah, it was. So I signed on with them and what we did was essentially that the only problem I still had was I was industry agnostic. And so I was looking at fence repair companies, garage door repair companies. I looked at event. There was, there was this idea that probably was still good that some of these event companies were now going to become live streaming companies. And I remember kicking the tires on two of them in Wisconsin. I would drive up to Wisconsin and met with the owners and I was all over the place. It wasn't because I was confused. I just had this really broad thesis of dusty, not rusty. Sure. And you're like, well, why couldn't it be an event space company like this? This if I applied my energy. So finally, Larry Sanderman, who works for dom, I remember this conversation very clearly. It was like an early morning. He's like, tim, we have to start kind of going towards one industry. And the thing you need to ask yourself is like, are you going to wake up every day and kind of get out of bed and be excited that, you know, you're fixing garage doors, or are you going to be excited about a company in home technology? And the reason why he brought home technology is because when we were doing our industry conversation, it was like, last on the list. I had. They had never even heard of the industry. And I had brought it up because I was like, well, you know, I'm familiar with technology. I'm a little bit of a. Of a home nerd. You know, I was. I was the. I was the kid in fourth grade that was like, in computer science. Like, I was kind of that nerd. And. But I also loved home technology. I had experience with what is classically known as the AV industry. And I was like, it's kind of an interesting business. So he's like, well, why. Why have we not looked at these companies? And I think what was holding me back was I didn't. I think it was, in my mind is like, this would be cool, but is it. Is it the right investment? You know, what it. What is the. What is the potential for the AV industry? And literally, like the next week or two, you started hearing about corporations going fully remote. And I'm like, wait a second here. People are going to be spending a ton of time at home. They definitely don't have adequate WI fi. They're definitely going to look around at their TVs, they're definitely going to look around. There's going to be a need here. And what people don't realize is, like, you can use Amazon for home technology, you can use Best Buy, but who is the companies, the industry that really advises you on what you need is this industry that was called AV at the time.
- [27:27]
Will Smith
Tim, let me pause you there, because I want to dive more into the industry and the opportunity you saw, which by the way. Perfect timing. Good. Good for you. Just what Dom, or was it Sam who came to you and said so. So they were basically expressing to you this search that we're doing on your behalf needs to be a little bit more directed. I'm actually surprised that they said narrow your aperture, not widen it because typically when a search is not come. Is not. Is not delivering much. It's because somebody is too, too specific in what they want.
- [28:05]
Tim Leahy
Yeah.
- [28:06]
Will Smith
So let's, let's loosen some of your criteria. No, they said let's tighten up your criteria. Well, I just explain that to me. Why, why was that?
- [28:15]
Tim Leahy
I think because my aperture was so wide that and I mean I had gotten, you know, it wasn't like I was doing theoretical exercises. I was, I was, I drove to Milwaukee to interview an event company. I, I went. Would take, I would interview garage door openers. I mean I, I've looked back at my notes from some of these calls like I was pulling that thread. But it got to a point where each time I got close I would kind of say to myself, yeah, I just, I don't, I don't know if it's for me. And I think they were. Might have playing almost like business therapist at the time and saying like Tim, you're never going to get off the fin. You're never going to get off the starting line unless you start answering those questions that can tighten your aperture. I mean.
- [28:59]
Will Smith
Gotcha.
- [29:00]
Tim Leahy
I think when they perceived that you.
- [29:02]
Will Smith
Were not able to pull the trigger, perhaps because you couldn't find the passion in these businesses.
- [29:07]
Tim Leahy
Yeah.
- [29:07]
Will Smith
So they were delivering you good leads.
- [29:10]
Tim Leahy
Yeah.
- [29:10]
Will Smith
And you just couldn't act on them or you couldn't close.
- [29:13]
Tim Leahy
Yeah.
- [29:14]
Will Smith
And they perceive that.
- [29:15]
Tim Leahy
And I don't, I mean when I've, when I've talked to others, I don't think it's a needed criteria to be passionate. I think you can as an entrepreneur. That's. That's the thing. The thing is, the thing is the core of that, you know, and I know myself, I would have loved running a garage door company. What. But if you think of where Zero started, which it's, it's Tim who has this great career. He's a wife and kids. You know, I was still somewhat risk averse and unsure of this journey and I think what they recognized was like, if you're going to get comfortable doing this, we need to kind of understand your level. Like what's going to get. Is a passionate thing like technology going to be the thing that gets your butt off the seat and Go. And kudos to them. It was, and it was a good industry thesis. It wasn't like, Tim, you've always talked about car washes. Why aren't we doing car washes? I think, I think what we both realized was like, Tim, Tim the career home loan banker, you know, father of three, you know, career guy. He's only going to really do this unless he finds that little spark. And I think, I don't think we were out of ideas. I think they were just saying, let's, let's take that idea and see if that gets you going. And as soon as we did that, we were, we were off. It was, it was a very different search process for me, for sure.
- [30:52]
Will Smith
Fascinating, really. They're perceptive on your psychology there. Okay, so. So back to this industry you, you mentioned in passing. It used to be called the AV industry. Audio, video. It's old school. You call it home technology or residential technology. What exactly is this industry? And you refer to Amazon and Best Buy. So it's not buying your own tv, it's. What is it?
- [31:18]
Tim Leahy
Yeah, so it's not retail.
- [31:20]
Will Smith
Right.
- [31:20]
Tim Leahy
But essentially you're like a, a home consultant for what those needs are. And I'd say predominantly this occurs in the construction, new construction, construction, renovation phase where somebody is thinking about their home, they're building it, renovating it, and they want to take advantage of that process to actually make their home. Let's call it a smart home. Not a huge fan of that label either. But essentially, I'll boil it down to this. You know, homes need an infrastructure to support today's technology needs and the technologies 10, 20 years from now. That really gets down to the cabling, the wiring and the design. And from there you can do anything you want, but you can't go to Best Buy when you're building a home and say, can you wire, can you, can you help design and wire my home to optimize the WI fi to get audio distribution, to do that. And, you know, in the 80s and 90s, what AV really was was, I want a big TV, which probably weighed 100, you know, 100 tons. I want, I want more than two speakers and I want a receiver. I, I was fortunate enough to get some early experience with this. My dad, who was. I probably got this for my dad. He was kind of a tech guy too, at least whatever that meant in the 80s and 90s. And I'll never forget he played the video cassette from the first Top Gun and he was sat. My. I think it was my brother and I and if my sister's listening, I apologize if, if I forget she wasn't there. But he would turn up this stereo system to like 11 a little spinal tab but. And you'd hear the. That first scene where the air. Where the plane takes off and that. That experience was. Was delivered by that AV company. I forget the name. It was so what the AV industry has basically ridden the wave of as has been the trusted advisor for the home needs of technology in 1980 and 1990. It was, it was stereo, it was plasma TVs. But I mean if you think about 2024, one of our largest revenue streams in our growing business is motorized shades. Is, is intelligent lighting through lutron, you know, like that. Those are two of the largest chunks compared to installing a tv. And those needs are going to continue to expand because there's a benefit and a convenience and a joy of having these things work intelligently. They don't have to.
- [34:15]
Will Smith
Tim, how have I not heard you mention Nest and all the traditional smart. Smart home. You don't like that, that term, smart home technologies. I would have thought that would be the key driver.
- [34:28]
Tim Leahy
Here it is, I think what those play out a Nest, an ero, the DIY version of home technology. That market is great, it's strong, it's wonderful. And I think what it allows you to do is not have to, you know, have someone come in your home and, and do it. What I, and, and frankly, part of my thesis was in terms of our diversification of offerings. We'll do that for you. What you quickly realized is these products are not designed to last super long. The average consumer is becoming less familiar with how to do this stuff. Their understanding of how technology works in my personal view is actually becoming less. And so the DIY market share is great. And I'm never going to say to someone, don't do an S thermostat. What I will say is that will work. And if it, and if it doesn't work in another year, if it doesn't work the year after that, you might want to consider asking for help from us because we can probably apply a different solution that's going to last longer. There are rumors and thoughts that this industry is the next nut to crack from Google's and Apple's and Amazon's standpoint. And there's, there's huge approaches like matter and things like that where I think they're circling the wagons. But what you realize is you need to have boots on the ground expertise. And I will make the argument in our industry, the talent we have in our team is your secret asset. They're the individuals that understand this stuff from soup to nuts, and that's your key asset. And Apple and Google and Amazon, they can't really deploy that at scale. They can make the hardware and the software makes it so, so extremely easy to do, but it's really hard. I mean Sonos is a great example. Probably they've had the most success allowing any individual to plug it in and get going. But they have a large portion of their business that is through the professional install industry, which is what they call our industry. We're the one of the largest providers of Sonos in Chicago. So they play both.
- [36:46]
Will Smith
So it's one of these where the consumer products are fine to a point. One size fits all. Simple, simple configurations that a consumer can do. But once you kind of want a little bit more complexity or a little bit more integration or multiple rooms like just that next level in complexity, you're, you either need to be a hobbyist and really want to take on a big home project or you farm it out to two experts. And so, and that presumably also means that you're serving people who are consumers, who are high income, obviously. Higher income.
- [37:22]
Tim Leahy
Yeah, yeah, yeah. And I, you know, the, the biggest then kind of next iterative thinking on this, which is when I wrote down, because this is what you do when you're a business school grad, you write down your thesis. My thesis of buying into this industry was all service. Because if you, if you play out all these things, regardless if it's a nest thermostat or a Sonos amplifier or some sort of high grade, high end design, at the end of the day it's going to break electronics. You know, Moore's Law, all these things make electronics. The half life is like six months. Who are they going to call to fix it? There's no 800 number at Apple. You know, you can go to the Genius bar. You can't call Google to fix it. So who are you going to call? And so my initial thesis was we were going to be, and we're going to be the next home service platform that is aligned with H Vac, that is aligned with plumbing, that is aligned with high voltage. The challenge with that, and I still hold on to that thesis, I think it's evolved and morphed into something else. But you need the talent to do that. You need to train or hire or have the people that can walk into Will's home and say, hey, let me figure, let me fix your WI fi for you. And let me fix your TV for you. And great. And now you're this trusted person.
- [38:51]
Will Smith
So that really interesting thesis though there Tim. So, so we got electrical, H Vac and plumbing and in the future we'll have home tech.
- [39:01]
Tim Leahy
You got it.
- [39:02]
Will Smith
Home tech will be the fourth in that basket of kind of big trades serving home services consumers. Fascinating. And so give us a picture of what the industry looks like from a P, you know, from a, from a. How big is it, how many players are there, etc, how, how, how you were going to attack this market.
- [39:22]
Tim Leahy
Yeah. So the, the appealing numbers to me there's, there's the two things that was really nice when you, when you look at an industry and there's good trade magazines, there's good trade publications, there's good. What you can see is like a good foundation to supporting the industry. I, I recognize that Cedia, Cedia and CE Pro are these like two things I could tap into, learn a lot about it. And at the time I think their numbers were like it's a, it's a 20 billion market. Today it's easily 30 plus. And it's just great. I mean I just think it's, it continues to grow because since I've been in this industry, the supporting wins to grow is, you know, you can just stick your hand out and you're going to get the next project because people have those, those needs. But it's serviced by many, many, many, many, many companies. There are no barriers of entry, there's no certification. So if we're going to compare kind of our sister industry, in high voltage you have, there's regulations that embedded in federal and state and here in Chicago, like local laws of what you can and can't do. There's a trade school apparatus. So you know, an interested individual can go to a trade school, become a certified electrician and enter the trades or enter the unions like they have here. We don't.
- [40:52]
Will Smith
Unions. To your point, there are unions. I mean established decades old unions.
- [40:58]
Tim Leahy
Yeah. Not in low voltage, but in high voltage. Yeah. So. Right.
- [41:02]
Will Smith
And when you say high voltage, that's industry speak for electricians.
- [41:06]
Tim Leahy
You got it. Yeah.
- [41:08]
Will Smith
And low voltage is your, is.
- [41:10]
Tim Leahy
You guys, I'm already, you know my, my genetic code has already changed being doing this for four years. But yeah, I mean, so there's all this. You compare that versus us in this industry. Will, can. Or let a listener can hear this podcast tomorrow and sign up to be a local dealer at a local distribution electronics store that they have in any city and start selling TVs there's no, there's, there's just no certification. So I mean think about that from a really high, high, high altitude, it's heavily fragmented just naturally. Additionally, I have been extremely lucky to now know be close friends with some very experienced individuals in this industry who I'm fortunate to call my peers. These are individuals that started just like that. They were, they were a hobbyist, they worked at Circuit City or Tweeter which were old electronic stores or they worked at Car Audio and got really good, really smart and built their business. And so the typical and common owner is someone who's emphatic about this industry, loves it, loves doing it, knows everything about it. The clients usually love that individual. Right. There's, I haven't seen a lot of examples where it's the company brand that's getting the recognition and the referral, it's the individual, it's, it's Will, it's Tim. And so that's the common, you know, picture. And I think what the term I hear a lot is like it's a pretty, it's a lifestyle business. You can cap it at a certain level where you're doing really interesting things, you're making good money, you've developed a, A, a career, let's say in something you love. And, and that's there, there's, there's some pride and joy in just reaching that top. And then once you blow back that through that ceiling then you start to have 10, 15, 20 million revenue businesses that start to attack regional and multi regional strategies. So I'm going to be in Chicago, I'm going to be in Naples, Florida, I'm going to be in Aspen. And then now you're deploying almost a franchise ish type approach where you have boots in the ground locally and that's like really the spread of who's in this industry we are seeing and I'm thinking it's coming even more a lot of private equity and even venture capital I've seen, I'm not sure why the venture capital side but there's interest in rolling this world up as well because I think similar to my thesis but also they see you know, the benefit of having multistate, multi local level AV companies, residential technology companies and the, the macroeconomics of it are, it's just not going to stop for a while because of the growth and need what do.
- [44:31]
Will Smith
The following acquiring minds guests all have in common. Doug Johns, Morley Desai, Tim Erickson, Chirag Shah, Shane Ursam, they all went through the acquisition lab, the accelerator in community for people serious about buying a business. But they represent just a sliver of the Lab's success stories. The number of deals across the Lab's cohorts now stands at over 120, with over $300 million in aggregate transaction value. The Acquisition Lab was founded by Walker Deibel, author of Buy Then Build, the book that introduced so many of you to the very idea of buying a business. The Lab offers a month long, intensive, almost daily Q and A sessions with advisors, live deal reviews with Walker, Deal team introductions and an active community of serious searchers. Check out acquisitionlab.com link in the notes or email the Lab's co founder, Chelsea Wood. Chelsea buy then build.com and so when you thought as a searcher going into this market about this spectrum that you just described for us, which sounds kind of barbellish where you have lots of chucks and trucks, not to disparage really little guys, really little guys and key person risk. No brand, no real companies. And then on the other side you have quite big organizations. What, what was your, how are you? How did you approach that? What was the opportunity for you to get in?
- [46:05]
Tim Leahy
Yeah, I was in here in Chicago, there's some really, really great incumbents, incumbents who have been doing it for 30 years. You know, super reputable, great names. And that's where I was like, all right, let's, let's see if they're interested in. Because they had stakes in the ground, they had embedded relationships with builders and specifiers that you could extract. And you know, as we kind of sent word and was looking, there was just not a lot of interest. I think looking back, the I talk about advantages of this time, there was a lot of disadvantages. You know, the foam wasn't being picked up because frankly, you know, individuals were thinking about their livelihood, their teams. You know, we were. This industry was an essential business at the time. And for me, it's a little hard to remember what it was like in 2021, but remember, at least here in Chicago there was some industries that were deemed essential, that were, that were allowed and to, to function. So despite that though, it doesn't mean that Will was going to allow you into your home. Doesn't mean that Tim was really psyched you were going to come in their home. What you, what we essentially realized was, was you were the, the AV industry. What we, what we are was one of the few industries they want in their home because their wi fi was getting super taxed because their kids were work, were at school, kids were taking school at home. You know, they were doing all these things at home that were really showing the weaknesses and whatever technology strategy they had. But I, as an incumbent, I think they were all looking at that like, this is a problem I need to solve. I'm not going to pick up a call from a potential buyer right now. And so, you know, it gave me pause. So I started looking in, in surrounding states, seeing if there was any interest there. And as we went down in size, we started to see that there was potential for more interest in doing it. I can't really explain why maybe those individuals were just being tapped out in general, but I had to kind of sit back and say to myself, all right, the floor is starting to get close, so what does that look like? And I said to myself, well, I'm a first time entrepreneur, at least through acquisition. I'm a first time, you know, I'm, I have a family. Maybe it makes my risk, you know, appetite. Maybe my risk profile is less if I'm buying small and maybe I buy a couple, which, you know, I'll, I can laugh at today. I think we all can. When you're on the other side of the, when you reflect on what your understanding of what this journey would look like before, it's gonna, it's gonna obviously be very different than what it, what it was. But I, I think, you know, I had some overconfidence because I was like, listen, I got this. I know what I'm doing. I think I know what I'm doing. And if I do two or three and roll them up together now, I'm really assembling kind of my target. And so that was, that's, that's the thesis that I pulled on. And when I did that. Yeah, go ahead.
- [49:28]
Will Smith
Well, Tim, so you did the $1 million or half a million dollar to $1 million SDE businesses did exist.
- [49:36]
Tim Leahy
Yeah.
- [49:37]
Will Smith
They just weren't picking up the phone.
- [49:38]
Tim Leahy
Yeah.
- [49:39]
Will Smith
Okay.
- [49:40]
Tim Leahy
All right.
- [49:40]
Will Smith
No, I just wanted to clarify that because, because I had, I recall from our pre call that there was this dynamic where there weren't good entry points for private equity. So while private equity likes this space, there are all of the tiny little guys and then there's the quite big guys. But, you know, but a good platform opportunity for a private equity shop doesn't really exist. Meaning a 2 or 3 million EBITDA business or 4 or 5 million EBITDA business.
- [50:09]
Tim Leahy
Yeah.
- [50:10]
Will Smith
And so the, so one of the opportunities you perceive was in building that.
- [50:14]
Tim Leahy
Yeah, yeah, exactly.
- [50:16]
Will Smith
But there were one, there were one million dollar Half a million to one million dollar ste businesses. Okay. But they didn't get much bigger than that.
- [50:22]
Tim Leahy
But yeah, I mean, if you think about the coastal cities like Miami or New York or San Francisco, cost of living is a lot higher. There's $50 million homes, $70 million homes. And then you, you kind of, let's say your, your middle, your middle income is a lot bigger than maybe the upper income here in the Midwest. Those, those, it's a little more common, have maybe a 15 to $20 million revenue business with, you know, call it a one and a half to $2 million SD company because a lot of those players then follow their clients to vacation homes in Montana and like, it's an, it's a nice jumping off point. I'm a Midwesterner, love Midwest. But there's just a different Persona here where those large projects that would fill a pipeline, call it a handful, I call them whale hunters. It was just less obvious. And so the ones that were playing here that had made, let's call it a million dollar SD business were playing in the big jobs, but also the mediums and had just really like, they'd been at it for a long time and developed all those relationships. They just weren't picking up the phone.
- [51:37]
Will Smith
Yep, gotcha. Okay. So you had to lower, lower the, the floor and then you started getting a little bit more traction.
- [51:44]
Tim Leahy
Yeah, a ton. A ton. And I think, you know, I know from other folks that went into this in the journey at a lower sde, I think what you find is individuals that are probably fitting the mold. I had always said to myself, which is dusty, not rusty. They had just, they had, they had tired out, they had, they had, you know, their, their, they're tapping out. And I would argue that a plateau on a small level allows you to extract and add value immediately. I mean like day one, that's what I was thinking. And I, and I think I proved that right. So it's also, that's very tempting.
- [52:30]
Will Smith
I want to hear about that. So let, let's get in, let's hear what you bought. And then I, and then I want your reflections on.
- [52:36]
Tim Leahy
Yeah.
- [52:37]
Will Smith
Having bought small.
- [52:38]
Tim Leahy
So what.
- [52:38]
Will Smith
Tell us about Home Run Technology.
- [52:40]
Tim Leahy
Yeah, so Home Run Technology had been in business for about 15 years. There was two owners, really steady revenue for the 10 years up until when I bought it. And they were, they had, what I was also looking for was good relationships, good referral relationships. And they had that, you know, unfortunately with this process, like the thing you want to do is just sit there and Talk to employees while you're prospectively acquiring. I didn't, I don't know of a way you can do that today, but I, that's what I couldn't do because you really want to get the nitty gritty. But fundamentals all look strong. The, the economics looked strong. They were fine. They weren't. It was. You go to the used car lot and you're like this, this is a good car. It does, has some miles on it and I'm sure it'll be fine. And, and to me, in my head, I was like, okay again. I knew I was taking a risky part of my life in general, but I was like, this makes me feel, my stomach's less churning at this. That if this fails, I won't be wiping out my net worth. I won't be wiping out the, the equity you've grown just from a net worth standpoint. Like, it'll be a, it'll be, it'll be worth it. I'll have learned a tremendous. But I won't be on the street, Mike. You know, I won't be on the street with, with my wife and kids. So I just said, let's, let's go for it. And you know, kudos to them. At the time, the sellers were, were really open and we had a lot of good conversations. I know there's a lot of people in the UT community always talk about the deal and the structure. This is very clean. It was, you know, seller note. It was just very kind of typical safe SBA deal.
- [54:34]
Will Smith
Can you share with the. What the revenue and SDE and yeah, terms and everything were.
- [54:40]
Tim Leahy
So I think at 2021's at 2020's year end it was about 1.6 with like 2:30 in SDE, it was a really clean P L and balance sheets. There wasn't a lot of backouts. There wasn't a lot of like, what's this? And they, you know, the hardest part I think about this analysis was a project based business has a lot of work in progress.
- [55:12]
Will Smith
Right.
- [55:12]
Tim Leahy
So how do you. And if you think, let's call it 3/4 or now it's called a quarter of the annual revenues actually in progress. How do you divvy that up? How do you, how do you understand that? And at a small company, and this was true of Home Run, there wasn't really a mechanism to understand what was in progress. So that was the dicey part. That was the hairy thing. From both the, you know, under the LOI to then post acquisition of being like, okay, what, what do we got going on?
- [55:44]
Will Smith
Right. And, and of course, just that that's an enormous working capital question because if you've got a project that's halfway done but you've received, you know, 100% of the payment for it, you, that cash, half of that cash still is, still needs to be spent because you've only completed half the project. So you could get in there, find yourself needing to service all of these projects underway and not having the cash to do it. So it's, it's both just complex in terms of understanding what the cash position is, but it's very, it's very, there's a, you can get bitten really badly on a cash flow crunch if you don't understand how much of the cash you've already received needs to be deployed in terms of service.
- [56:27]
Tim Leahy
And we did. Absolutely. And we did. Like, I got bit real bad because we were they, it was like a rubber band and snapped. When I bought the business, we had not only work in progress that I needed to understand, but our demand was like out of the gate. And part of you is like, you know, you're, you're just in jubilation. You're like, this is great. And guess what? You know, no shot at my lovely brethren at Kellogg or what I learned at the Home Loan Bank. No one teaches you that. And I didn't have a private equity background. I didn't have like, I, I, I was, I was this newly minted entrepreneur and thought I was. Yeah, I understand. Come on. Like Excel, I dream in Excel. Like I got this and you don't. And I, and I, and I think that that was really hard for me, you know, and I'm being very frank with you and the listeners. That was a really, really tough moment to be like, I don't know what's going on here. And that's exactly what happened. Well, was we sat, we had a great working capital line. I think it was, if I remember right, 150 grand and flew through it. Flew through it. And in the first year alone I put probably equal to what our working capital line in additionally, because we were growing. The other really tough part of that story was the mechanisms. You know, the key base, the key focus for project based business is what is your margin per project. And again, buying a small, buying a smaller target allows you to add value on day one, but you don't have those tools and mechanisms on day one. So when you're writing jobs, when you're selling projects and you're not entirely sure what the Estimated margin is. But more importantly the actual margin is that revenue is great, but if you're writing it underneath your kind of floor gross margin, you're actually hurting the company. And so not only that, but you're also like, how are we measuring actual labor? You know, we, the tools you needed needed to be there on day one. And I knew that, so I'll give myself a pat on the back. I knew I needed those tools, but you can't install them quick enough because you are selling every day. And so we were growing, but we were writing jobs at a revenue at a margin that was sub what we needed. And so it's almost like this engine, this car is just driving so fast that the, the, you know, the, the gas, the fuel is showing that it's full, but it's really empty. And you're like, great, we have a thousand miles left. You don't.
- [59:15]
Will Smith
And did you have any fetal position moments?
- [59:19]
Tim Leahy
You know, and I think everyone I don't like, I have a hard time wanting to glorify this journey. Cause I think it's really important for any individual to just like say to themselves, like, this has gotta be something you want because the fetal position moment will happen. And it was a test of my mettle, it was a test of my grit. Again, this is also during COVID I was going through a lot of. My dad was really sick at the time. I was going through all this stuff and it tests you. And I'm not saying, you know, it needs to be boot camp and that you need to like toughen up, but I think individuals who look at this path and think it's about the excel sheet and cash flowing business and operating is great. And look at the freedom. Yes. But also be prepared for the fetal moment, the position moment. And I think when you do it and then you, let's say rise out of it, which I think we're where I am today. What I got out of that is what I always thought I would, I would get, which is this is, this is the journey that has taught me more in four years than anything I would have done in four years because of coming out of that first year.
- [60:35]
Will Smith
To be clear, your field position, moment or moments had to do with working capital and paying everybody. I mean just keeping the, the, the, the, the company above water. And that includes paying everybody.
- [60:49]
Tim Leahy
Yeah. So you get that we're also in that high net worth, ultra high net worth clientele. So at the time service was coming just directly into the office or through text messages to employees. We had no Apparatus like we do now, or someone calls a support line. So I would get an email or a text on a Friday night. And I mean, listen, I, I love my shows. I love to watch tv. The emotional feeling someone has after a long work week of not being able to watch their Netflix on a Friday and just relax is emotional. It's, it is an emotional thing. I, I, you know, that's why I love this industry, is we're here to help. But then you had that coming in too, and you're like, what is going on? Clients aren't happy. We're running out of cash. Do I have the right people here? And we're growing. And you're like, so I would say, for sure. Well, number one was cash working capital, and number two is like, are we not. You know, I had been trained at the home loan bank early from Amazon, had come up with this. They were starting to share their framework of like, customer centric and working backwards from the customer journey. And, and I was a disciple of that. And so I was like, I'm going to use that when I'm building the business. When that KPI, we'll call it our metric, is flashing yellow because people can't watch their Netflix and you're running out of cash, you're like, what is going on here? And I felt that. And I think, I think any owner should understand what it's like to have a disgruntled client working in sales. The advantage was, is I had, I had the skin, I had the, I had the, the thick skin to handle it. But as an owner, you're, you're very insecure about, like, this is year one. How are, are we not making these experiences awesome and how are we running out of cash? And we're growing. It was soup. So, so that was contributing to the, the, the fetal position moment.
- [62:54]
Will Smith
It, it was a feeling of not really understanding the drivers in your business in lo. And not being in control for sure.
- [63:02]
Tim Leahy
Yeah, yeah, yeah, you are. You know, the, the analogy I used to use is your, the plane is increasing in altitude, you're rebuilding it, and the plane and the wings are coming off while you're doing it. And, you know, I don't think anyone, I love hearing about those of us in the ETA community that buy and, and accelerate out of the gate and like, just, that plane is steady altitude and slowly growing. And like, I'm envious of that. I look back at this first year is, it was a really important step for where I am today because it, it accelerated my understanding of this And I'm appreciative of that because we wouldn't have grown the business the way we did unless, I mean, trial by fire is the. Is at least the way I could put. At least the way I could put it.
- [63:57]
Will Smith
And you bought in. When did you buy? Exactly.
- [64:00]
Tim Leahy
So we closed in February of 2021. It was really hard, actually. I had to say goodbye to a lot of my, A lot of my peers at the Home Loan bank in January over video because we were all in lockdown and, you know, it just switched over. And February of 2021, literally the first was the start and that's when we closed.
- [64:23]
Will Smith
And so. So now, Tim, having. You've given us the context of how challenging it was that first year. And I had. You had started to tell us about buying small. So now connect those two.
- [64:38]
Tim Leahy
Yeah.
- [64:38]
Will Smith
Vectors of thought.
- [64:39]
Tim Leahy
Yeah. You know, what I quickly realized was buying smaller challenges. And I think what you realize is you have this weird relationship between. You can extract value on day one. Right. And I think I've said to you before, like anything I did in year one, any one of your listeners would have done, it wasn't rocket science. You know, buying more vans, buying uniforms. We rebranded. Out of the gate is our home. I wanted to start a new path on that. We got the right people in the right seats. Not to steal from eos, but like, we just, it just was like, you know, got it.
- [65:24]
Will Smith
This is, this is the dusting part of the dusty.
- [65:27]
Tim Leahy
Dusting.
- [65:27]
Will Smith
Dusty, not rusty business. You're just dusting it off.
- [65:30]
Tim Leahy
Yeah. And I, I think it's easy.
- [65:32]
Will Smith
Okay.
- [65:32]
Tim Leahy
If you take the working capital challenges out of it. It was a really good year to reposition the company. The company. You know, the other thing about buying small is your assessment analysis of that target is going to be off, and it's going to be off by a decent factor, meaning that car on the lot is likely more of a lemon than you think. And that is not at a shot at the sellers or the history of home run. But the way I wanted the company to be. It required more work than it than you originally thought. And guess who has to do that work? It's you. It's. It's. It's you who have to roll up your sleeves and you have to accept that the only way this thing is going to get the value you want on day one is if you're there and you're there on the weekends and you're trying to push the ball forward. So I think the, the beauty of it is where we are today. I think what I realized for sure is my understanding and appetite to buy two more companies within the first year was not going to happen. And I think that's a good thing. I think I would have overpaid. I think the culture clash of smashing three small targets together in year one without a leadership team would have been disastrous. And I gotta give kudos to a lot of those people that I originally networked with when I was searching who ultimately are now, you know, mentors. The, the advice that I got was like, you're over your skis, thinking you're gonna smash three companies together in your first year. And I was like, yeah, I mean, that, that, that played out. Now I also think the, this idea of buying small, if you want to get a master's in that industry, buying small allows you to do that. It allows you to really. I mean, if my sleeves are rolled up, I'm going with guys to help install technology. I'm learning how network topography works. I'm literally in the weeds. I am becoming a quick, you know, not as, not as well trained as my peers who've been doing 30 years, but I'm quickly ramping up. I think if I had bar, if I bought a large AV company, I would literally sit in my office and I would apply the frameworks and things I learned from business school or my corporate life, and I would be definitely a high at altitude playing strategic moves and eos world. You call it like the true visionary role. But I don't think I would have learned and understood what makes this industry tick and which also then feeds into the vision and strategy for how this industry can be different. We're a very.
- [68:35]
Will Smith
Tim, Let me, let me stop you, Let me stop you there. I think what you were about to say plays into where I want to conclude our conversation, which we'll do in a minute here. But before we get too far away from the terms of the deal, I just want to, I always like to give numbers here. So the business was doing. You said 2, 20 ish, 2, 30 ish SDE. It was a very standard acquisition. So what was, what did you pay for it, if you don't mind?
- [68:59]
Tim Leahy
It was, I think 2.3 times SDE. There was a 10% seller note. Okay, so even for SBA, smaller side of the SBA parameters, or at least what it was in, in 2020 and 2021. And then I got a working capital line from the lender as well. So, I mean, like, pretty vanilla, I would think.
- [69:26]
Will Smith
Yeah, but your point about you felt like if so to call it to say, about a half a million bucks you paid for the business. And so you felt going back to that calculation of downside, if you lost this business altogether, if you just. Things ran into the ground, you'd be on the hook for half a million bucks. This wouldn't ruin you forever. You could absorb that. Yeah. All right. I just wanted to understand. Exactly.
- [69:53]
Tim Leahy
And I mean, whereas if you bought.
- [69:54]
Will Smith
A five million dollar business and run it into the ground, you could not have absorbed that.
- [69:59]
Tim Leahy
Well, the beauty of the SBA program as it stands today was, and I came from a banking background, an underwriting background is the SBA does a thorough search of you and understands what you can and can't absorb. So we, you know, I could absorb the max limit through the sba. You know, we, they weren't, they're not going to write you that loan unless they've shown you the assets, you have the collateral to support that downside risk, you know, versus a search fund. I think the economics are different. Like when you're, when you're borrowing, they are going to say, Tim Leahy, you, you need to be able, this is a government sponsored program. We have government in the secondary market of SBA loans. They're, they're government backed. You better be able to have the collateral and assets to do it. So I was, I was approved for the full range. Do I want to lose, do you want to lose almost everything on the higher end of the loan? No. Are you willing to lose a smaller part? Because you, you went, you know, you shot your shot and you go back to the bank hat, hat in hand and hopefully they're going to hire you back or you're going to work for a similar type of institution. That felt to me a little bit okay, like I can do that, you know. Yeah, yeah.
- [71:19]
Will Smith
But Tip, just what something you're saying about the SBA looking at a borrower and saying, can they absorb the full balance of this loan? So wait, are you saying that if I, that anybody takes a $5 million loan, has the assets to pay, has $5 million in assets to pay it off if things go sideways.
- [71:37]
Tim Leahy
No, and I don't. Wasn't implying. It's a one for one collateral. Okay, yeah. I mean, yeah, you, but you have to like, to your point, there's a stack of collateral between the business and personal assets that has to feel comfort to the lender, that will make them whole in case this doesn't work and that you can't have nothing. You, you don't necessarily need to have a one for one $6 million net worth of liquid funds at home. But they're not going to let someone who has, I don't know what the number is, but like you get a full, any SBA lender at least. And again, four years is a long time. The program could be more open or not. But at the time it was a full on cavity search of me and my net worth and what we had to present, we being me and my family, my wife and kids to present as collateral. And that wasn't an easy process. It wasn't. I mean, again, I hope, I think it's good to do a full cavity search for any lender, but it was a thorough process because they want to make sure that you are not going to fall short on the loan between you and the business. But if I was implying it was a one to one relationship, you know, no, that, that's, I don't, I, you know, I didn't have $6 million in cash to give them if the business foreclosed.
- [72:59]
Will Smith
Okay, okay. Okay, good. You had said also that something that I've heard many variations on, which is the business you buy isn't the business you think you bought. And so there were things you got in that you had not seen from the outside. Even though you had a pretty sophisticated understanding of what this would be. What were some of the things that, that did surprise you despite thinking that you kind of really had thought deeply about what this business would be? You remember any?
- [73:34]
Tim Leahy
Yeah, I think, I mean there's, there's a lot, you know, culture.
- [73:43]
Will Smith
Yeah.
- [73:45]
Tim Leahy
I just think that at a micro level it amplifies its importance and. Yeah, and it is, it is a, it is a living, breathing organism that can change each day. And I don't know, when I came from a 400 person company, we talked about it in a large, it almost felt like a large aircraft carrier. It's, it slowly moved around and at the small level it can shift. If some, if one person of 10 is having a bad day, that can shift the morale. Somebody has a bad project go bad, it can shift bad. And you as the owner and at the time I didn't have a leadership team, I have one now, but almost standing there very open to this. Those are shifting things you need to handle, I believe. And on top of that you're handling all the other things. So that was definitely surprising. Naive to think it, but definitely surprising. And the amount of change individuals can handle, you know, change was all I wanted to do and I had a Like we've, we've talked how easy it is to do those low hanging fruits. Not a lot of individual individuals or team members or employees. That's a lot for people to handle. It's, it's like the fire hose times 100. And you, the steward of the business may see all the value in long term changes like that, but you have to understand the pace of it and you have to understand the right timing of it. And that surprised me because I was just go, go, go, we gotta do this, gotta, this gotta keep going. And we lost valuable team members because of that in the first years. Too much. And I get it. And I, I didn't expect that. You know, like you rally the troops, you're like let's do this. You guys are in part, you're on board for this vision. We have a list of 500 things we're going to do in the next month. And they're like, so those were two of a thousand I think caught me off guard.
- [76:00]
Will Smith
Yeah, that's great. That's great too. Okay, well I, so I want to wrap here with talking about where you are today, where you want to get to. But tee us off by this progression. Where year one was do. Was doing, you had said, doing a lot of the low hanging fruit. That's pretty straightforward. I mean despite how hard year one was in kind of getting your arms around the business, learning cash flow management, some of the dusting, some of the stuff off was straightforward. Wrapping trucks, etc, the cosmetics, if you will of the business or, or. And so now that you tell us where you are today and then tell us how the, how things were different today, the problems that you sol solve are different.
- [76:48]
Tim Leahy
Yeah. I think what you see is when you make those small changes that are, that have the trajectory of being long term impacts the, you know, in, in economics they used to refer to them as like green shoots. You know those green shoots, you look around and you're like oh, you know, this new software, this new way to do job costing these new vans, you don't see those changes right away. And after that year one, what we started to see was like, wow. We were actually getting calls in the office because people saw vans driving on the highway. We got two new employees because they saw our vans and wanted to jump ship the software, our job, our margins popped by significant amount. Just because we were measuring those things start to take root. And so you're like great, they're low hanging fruit. They weren't to optimize short term, they were optimized long Term. So you have that natural kind of push. And that really helped. I think the other thing I did was really focus on putting myself out there to build those relationships and putting yourself out there to really almost garner relationships for referrals and specific and specifiers. That was huge because we took the time to care and listen and see what they wanted in a relationship. So when they're building a home for a client that we're a good partner to bring it on. And I would go out to people's homes, understand what really they valued versus what not. So we changed our design philosophy. You know, we became, we're a very, I'll argue we're a very atypical type of residential technology company because we're not telling what you need. We are listening for what it is, those things and helping advise the things that fit. And that is different. And I, I'm very proud of that. I think that's the Trusted advisor. It's one wonderful book I had read like nine times in my career. It's that philosophy, you know, listen for what they need be that jungle guide. So we've doubled the business in revenue where I think 15%. Bottom line, at this point, the year is ending really strong. So we'll cross my fingers, I'll definitely support any institution and any person who's listening to this. The EOS is a great tool for me. It just solidified some of the many things I learned into one playbook. So we adopted that last year. I have a really amazing leadership team that I can rely on. So I'm not feeling every wave, every ripple in the ocean of running the business. And we've solidified the team. We know who we are. So hiring is much more vetted. I mean, I was hiring as quick as I could to support the demand. Well, now we're, we're more, we're more under resourced than we've ever been. But we are so deliberate in hiring because of the culture aspect. So I know that, I think what philosophically you understand at this point when you've double the small business is you know who you are and you know what decisions you need to make in order to continue that growth and you know, the landmines to look out for. And I'm not saying that tomorrow I'm going to get punched in the face or that we have an unexpected event happen, but you're ready to handle those moves and now you can think strategically for getting the 10 million. And so when you're playing that out to get to 10 million, I think what the past four years taught me was I'm a much more well vetted strategist now than if I just sat at a larger company and optimize the business. I think we'd be at a. At a similar revenue at a similar SD than we are now. That would be okay. Like, that's not awful. But part of this journey for me was to build the most reputable company I could build, was to really feel satisfied. At the end of the day. We built a strong entity, a strong company that provided value to clients. And by going in the weeds for those first four years, you know, I'm able to do that now.
- [81:03]
Will Smith
And so reflecting back, would you have chosen to buy small again? Really? I mean, it's kind of like, I mean, it was so painful. It's hard to advocate pain.
- [81:15]
Tim Leahy
It's so hard.
- [81:16]
Will Smith
But. Yeah, but. But when you reflect back on it, it was incredibly valuable time served in prison.
- [81:22]
Tim Leahy
Yeah, it was. You know, like I said, I, I'm. I'm open to share. Like, it was a really personal, trying moment. My. My dad passed away in the first year I bought the business and.
- [81:31]
Will Smith
Wow.
- [81:31]
Tim Leahy
And he was going through a really difficult fight with dementia. And like, you're going through Covid and you have kids at home. And if you wipe that aside and then the first journey of buying small, what. I don't want to go through those personal journeys again. I don't want to buy small again. But I also know that if I didn't go through all those things, we wouldn't be where we are today, and I wouldn't be who I was today. So I would. You know, I've. I've heard some of your participants who buy small. Every one of them is looking at it, I think, a lot more sharply than I did. They're understanding it's an iterative journey. And I think that if you're toeing with this idea of becoming an entrepreneur, just beware. Buying small doesn't mean it's easier at all. And I think if you're looking to do this, the questions you should ask yourself is, am I ready for the journey? Am I ready for the field position moments? And that should be agnostic of size. So, no, I wouldn't buy small again. But I am super grateful for the past four years of my life because, however you want to call it, those experiences have made me ready to do what I really set out to do. And I think if it was different, I wouldn't be in that. That spot.
- [82:49]
Will Smith
Perfect, Tim. Perfect. Perfect. Note to end on. I think if people, if people want to reach out to you, how, how do you like them to do that?
- [82:57]
Tim Leahy
Yeah, please do. It's Tim Leahy. T I M L A H e y our home tech.com r h e t c h.com I'm on LinkedIn too. Like I I the reason why I love your podcast and the reason why I love listening to it and this group is because the gratification I get about just talking to people in the same boat or who are looking at it. That's, that's, that's one of the most amazing things about it. Um, there's a lot of like minded people doing this. It's a hard journey but we're, we're somewhat cut from the same cloth so I'm happy to talk to, to anyone about it.
- [83:39]
Will Smith
Well, that's a very generous offer, Tim. You'll no doubt serve as listener. Some, some listener out there. Doug Cook, you are now that for somebody else. So it's, it should feel good. You've well deserved congratulations on doubling the business through a hard, very hard first year and probably we didn't really hear much about years 2, 3 and 4 but I gather that they were difficult to. Although maybe not quite as fetal.
- [84:03]
Tim Leahy
Yeah.
- [84:04]
Will Smith
So look forward, look forward to hearing you watching your journey as you get to 10 million.
- [84:09]
Tim Leahy
Tim, thanks. Thanks.
- [84:09]
Will Smith
Will.