A (3:27)

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B (3:55)

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B (4:08)

Notes Catherine Butler Dines Rahul Desai welcome to Acquiring Minds.

C (4:15)

Thank you for having us.

B (4:16)

Catherine Rahul, you are partners in life and in the business that you acquired a travel business. Your journey involved experiencing a flavor of buying and operating businesses that you didn't love to arrive at the model that you are now in that you prefer. We're going to unpack all of that.

A (4:37)

Let's start off with some background on you both. Catherine, you first please.

B (4:40)

Then Rahul, we'll go to you.

D (4:42)

Perfect. I'm very excited to be here today. My background started in college where I had zero interest in business. I actually studied international relations and Arabic. Thought I was going to be a diplomat or spy. I moved to Morocco by chance in order to sort of pursue that path and practice my Arabic in real life. But I ended up working for a startup there that was in the travel space and fell in love with small business and entrepreneurship and business much more than I actually liked bureaucracy. So after Covid hit and obviously the travel industry came to a screeching halt, I returned to the us. I worked in consulting for a year and then went into my MBA at Duke. And I had always known about search funds and eta. But at Duke I really dove further into those topics. Thought I would do a traditional search. Ended up getting a private equity offer from Alpine investors to run one of their portfolio companies and did that for a year and then discovered which I'm sure we'll dive more into that I don't love operating a business for other people. I really did want the ownership experience so that led me to do a self funded search with Rahul and now we run and own Women Travel abroad.

B (5:57)

Great. So thank you for that was perfect. Catherine Rahul yeah, went to Georgetown University.

C (6:04)

Tried To find found a machine learning company while in undergrad did it but yet failed miserably because couldn't actually sell the product I built. No one cared about AI more than 10 years ago. Ended up having a crisis of confidence like most people who were adrift. Ended up in consulting where I got to work for a ride share company you may know and a search engine company you may know that I'm not allowed to name legally through those contracts. Realized hey, my clients in tech are earning double and working half and I'm sick of sleeping on the couch in the office. Maybe I should go do this tech thing that everyone's talking about. Ended up moving to Silicon Valley from Manhattan. Joined a Y Combinator backed startup as strategy and business operations hire number two. I was with them through a 4x increase in valuation from 100 million to 400 million. They've now since 10x from that from there joined a competitor, did that for a few years as chief of staff to the CEO. These were both in the insurtech space. Became somewhat jaded by venture backed startups because after a few times if your lottery ticket is not getting punched, you start wondering what am I doing here? And then tried to found another business. Ran that for 45 days. Was acqua. Hired by a private equity fund where I was friends with a couple of the partners and have been working for them since. So that has been my full time job. And then I supported Catherine through the sort of search and acquisition process nights and weekends.

B (7:43)

Great, thank you Rahul. And just say a little bit more about the lottery ticket venture life and why you became disillusioned.

C (7:51)

Yeah. So typically in venture backed startups what tends to happen is the founders have a ton of equity and then their investors have a fair amount of equity and then typically 10 to 20% of the company is divided up amongst all of the employees. So as you grow a there's dilution because more equity capital is coming in and that small incentive pool is getting divided up more ways. So even as an early employee you're typically owning max. Like if you're in the first 10 employees at a startup, you're probably owning 1% maximum. If you're coming in as employee hundred or later, you're owning some small fraction of a percent right basis points in a company. And so for that company to make you quite wealthy, let's say even a million dollar exit for yourself individually, the company would have to sell for north of a billion. It turns out not that many companies can sell for a billion dollars. So I Have a friend who was part of a very large exit, like multi billion dollar exit, and had been at the company for a long time and still didn't even clear a million dollars despite being fairly senior, being tenured at the company, being part of a multi billion dollar exit, even then the lottery ticket didn't get punched. So I think what Catherine and I agree on is we'd rather own more of a smaller outcome than a very tiny fraction of a big outcome.

B (9:16)

Great, thank you. Okay, so Catherine, you're back at business school. That's where you discover search.

D (9:22)

I benefited from the fact that two founders of the startup I worked for in Morocco had gone to hbs and they had gone there right when search funds were really taking off. So they took like Rick and Royce's original class and they had always been very big mentors to me and encouraged me to look at search as an option. I'd never expressed any interest in founding a business. I don't have like great billion dollar ideas that I want to sell to people. And so they said, hey, you know, go to business school and make sure if there's a class on search funds and eta, take it. And so when I was at Duke, they actually were piloting the first round of an ETA class that they'd ever offered and they were supposed to only offer it to second years. But I emailed Ben Thomason and David Robinson at Duke and said, hey, I've heard about this search fund thing. I've read, you know, the, the books you're supposed to read. The HBR Guide to Buying a Small Business. I'm really interested, can you let me in? And they were nice enough to let me in. And I think I very quickly realized that that was again the space I wanted because I wanted to be in a small business. I really don't like bureaucracy. I frankly don't love businesses. I've never worked in a business that has more than 30 or 40 employees. I did my one summer internship at a growth equity fund where I was one of thousands of people and again quickly realized that I was like, I don't like large enterprises. I like small business. I like where there's a lot more direct impact that you can have and you get to know your whole team better. And so ETA felt like a much better fit for me than, you know, a venture backed tech firm or even going into the investing side where again, you're advising people but you're not actually able to make a direct impact in a business. And I, and so I tested out the consulting before business school I tested out the investing side while in business school and just kept coming back to search funds and ETA while I was at Duke as the path that I wanted to be on.

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B (12:36)

Great. So Katherine, you take the class at Duke. You raise your hand to be able to let in even though you're a first year classes for second years you end up founding the or co founding the ETA club. You then proceed to search what happens next.

D (12:53)

So I as a second year sort of obviously as most second year MBAs do, they want to hedge their bets. So I was working on my private placement memo for traditional search as well as applying to private equity backed operations roles and there are a couple programs with larger private equity funds, maybe I think three or four when I was there I applied to all of them and I ended up getting an offer from a platform within Alpine Investors. So Alpine Investors is the large fund, they have different vertical platforms. One that is focused on the IT and MSP space, one that's focused on landscaping, one that's focused on pet care, one that's focused on a variety of different verticals. And so I got an offer within Evergreen Services Group which is their B2B services, mostly focused on IT firms as well as like ERP reselling companies and took that offer mostly because at the time I didn't feel like I was completely ready to search. Writing my PPM was a very good exercise in realizing that I was not as enthusiastic about traditional search, about starting this search and the unknown of it straight out of my mba. And I also was realizing in conversations with investors that I was, I wasn't, I didn't have 100 conviction and it felt like if you're going to search straight out of business school you need to have 100 conviction to succeed.

B (14:32)

And Catherine, you were. So by ppm that means a traditional search, which I think you've already said. So you chose traditional search. And I, the my impression is that for many people coming out of the business school programs where search is taught and popular, that it's a traditional search fund is the default model. Of course that's changing. It used to be all traditional search. It's less so now, but perhaps still the default. What was your decision process on traditional versus some other model, namely self funded?

D (15:03)

So I looked at all three. I think I a felt that I wanted more community and support. I actually looked at accelerators extensively as well because of that support model and having community, I knew that I wanted to be a solo searcher. I didn't feel like I'd met anybody in business school who I was wanting to co search with or where the people who I might have wanted to, you know, search alongside were not on the same timeline as me. And so I knew I was going to be, you know, a solo searcher. I wanted some form of community and structure to help me through the search process and then to have a community to be operators with. And it felt like in speaking with the traditional search funds, they were providing me the most flexibility in terms of the types and sizes of businesses as well as the support and cohort models that I was looking for. Self funded felt a little bit too amorphous at the time and I think it was even more intimidating than a traditional search felt. At least a traditional search. It felt like I would have advisors right there with me every step of the way because you have an, you know, a group of investors who are bought into helping you acquire a business. And I just wasn't sure that I had the skills, let alone the tenacity at the time to go and do a self funded search. And also Rahul was not, you know, he was planning to keep his private equity job and just do his normal day job at the time. Right. So I think we didn't, I didn't have that, oh, I have a buddy or I have a person that I'm going to be searching with. When I was still in my second.

B (16:46)

Year of business school, our mutual connection, Ling Tran tried to talk you out of traditional search. Yeah, what he eventually he, he won the argument, but not at this point in the story. But what was he saying at the time?

D (17:01)

I think Ling had always come to ceta. He was one of the advisors for the ETA class that I took. And I think in hearing him talk about Self funded search. He obviously has had an incredible success story in terms of keeping pretty much entirely his own ownership of these businesses, growing them and having that autonomy. It felt a little bit too good to be true. I was like this, this feels like the best possible outcome, but there are also probably most people who don't have that outcome in self funded search. And I would still stand by that, that like there's he is on the scale of the best types of outcomes you can have in self funded search. I also think that at the time I, I was just more cautious about believing that that was something that I could have or that I even wanted. I think that I really at the time felt that I wanted the structure more than I wanted the autonomy or the ownership. And I obviously that fundamentally changed once I graduated and worked in private equity. But because I Also, I wasn't 100% sure about traditional search. I definitely was not 100% sure about a self funded search. That lack of conviction is what ultimately led me to not search directly out of business school.

B (18:17)

So. Well, want to hear now about this experience at Alpine, which is really what showed you to yourself as we're about to hear.

D (18:26)

I knew there was a Duke alum who had worked for Alpine. He actually, he exited, he had one of Alpine's very successful exits about 18 months ago. And he had introduced me to some folks at Alpine and they had said, hey, you know, we're not going to be doing the traditional on campus recruiting, but let's put you in the pipeline of things. And I actually convinced them to come on campus and recruit because I was so determined that I felt that Duke was a school that had really quality candidates. And through my role as, you know, ETA chair, I was able to get specifically Evergreen Services Group, their IT platform, to come on campus and do recruiting. But in general they are extremely highly sort of coveted roles. I think that rightly so. It's one of the fastest ways to become CEO. And these are very prestigious jobs.

B (19:18)

Tell us what you learn there about what it is to be the CEO in a private equity company and what you learn about yourself.

D (19:26)

Yeah. So the way it works, right, you don't get to choose where you go. So they said you're moving to Cincinnati. And Rahul was nice enough to move to Cincinnati with me. And we show up and it's a business that's been, you know, chugging along successfully but not really growing. It's very profitable, but it, it hasn't had a lot of growth. And so I had a background in more marketing Growth and sales. And so that was why they put me in that specific business. They felt like I could help turn on the growth engine for this IT firm. And I quickly realized that actually a lot of the issues that business had were personnel issues, were process issues, were finance and accounting issues. We'd gone through prior to my being there, four accountants in a matter of 18 months. So they had acquired the business. There had been a general manager of the business who had been part of the company before the acquisition and had stayed on with the business. And he was much more technical in his expertise, so also was struggling with the sales piece, which is why they brought me in. And so he continued to run the technical side side of the business while I focused on the growth as well as the sort of management piece of finance, accounting, personnel. And I think the best example I can give of something that I learned about myself, but also learned about why private equity and being just an operator was not for me, was that there is a budget process. And each year they say, hey, these are the metrics that you need to hit for your business. The that all rolls up, right? One portfolio company has to grow 30% because the portfolio as a whole needs to grow a certain percentage so that, you know, they can be able to pay not only their debt, but also be able to get a return to the LPs in this fund. And so you're just one cog in a very large wheel. And I had a accountant who told me she was going to quit if she wasn't able to find a way to support her mother who was going through cancer treatment. And it was going to cost us a thousand dollars more a month. My accountant was offshore in the Philippines. And again, she had been the longest term accountant we'd had in the two years that Evergreen had owned this portfolio company. And was incredible. And I said, I can't lose you done. We're going to give you a higher salary so that you can pay for help to take care of your family and so that you can keep doing your job for my business. And she said, great. I really, truly appreciate it. I went to my board, at my monthly board meeting and I said, by the way, you know, we're going to have an increase in our accounting costs this month and that's going to, you know, impact the margin about half a percent for the entire year of growth. And I came saying, you know, that means, yeah, we need to sell one or two more contracts or clients in order to make up that and stay on budget. But I, I don't haven't won those sales yet, but I'm confident that we will win the, win those sales. And I got a lot of pushback in terms of why, why did you spend the money to keep this one person? Is she really that essential? Is it really worth this half a point loss in your, you know, EBITDA growth for the year? And I was a little struck by the fact that instead of realizing that this was a human being who not only was invaluable to the business, but had true life circumstances going on, it was only a conversation about profits. And I, it didn't sit very well with me that I was having to make a decision between treating an employee as a person who had things going on in their life and we had the opportunity to do something to make her life a little bit easier while long term benefiting the business. And yes, there might be some short term pain to the company, but it wasn't such a huge trade off to me that I felt like it demanded the level of scrutiny that the decision got. And so I think that really made me realize that I have a very specific value set that I want to run a business and an organization in, and that the only way to truly be able to have my value set mesh with the way that I run a business is by owning at least 51% of that business. Right. I was an employee. I made a decision. And ultimately, you know, while I had the ability to make that decision, I had the right within Evergreen to make that decision. I could also be told, no, we disagree with that decision and you're going to have to do it our way. They didn't, you know, they didn't fire her. They didn't make us take the, the raise back. But it was a very, I'd say, crucial point. I came home to Rahul and I was like, this is not where I want to be long term. This is not gonna work for me. I need to be in a place where I own the business and I own the majority of it and I can decide to run the business however I want.

B (24:32)

Katherine, was that the only instance of something like that or was that just the most illustrative example?

D (24:36)

I think it was probably the, the biggest, pivotal moment where it was like there was a crisis and I, I can come home and I can say, hey, this is the day we need to change. That was probably about maybe six months into running the business at the end of 2023. And by 2024, you know, Rahul and I had kicked off our self funded search. We Kept our day jobs. But we had already known that we started the search. I think that that was. There were other sort of incidents that layered onto that, but I definitely think that might have been the straw that broke the camel's back.

B (25:11)

For a metaphor, Katherine, you said that you emerged from that experience understanding that you needed to, whatever you did, you needed to own more than 50% of it. So that led you to do what, what were the next steps?

D (25:24)

So Rahul and I, yeah, we decided to do a self funded search. We decided not to quit our day jobs. We decided to work nights and weekends. We didn't have a family. We, we were in the middle of planning our wedding at the same time, which was a little stressful. But at the end of the day we decided to, you know, use our nights and weekends to run a self funded search and see if we could find something. We didn't want to lose our primary sources of income if it didn't work out, if we didn't find the right business to buy. And so we, you know, did all the things that you do. We started a Delaware C Corp and you know, did all of the paperwork necessary to create the legal entities. And then we, we really dove into initially looking at businesses in the greater Cincinnati region, where we were located with sort of a B2B world type business. Right. We wanted the standard things that you want in an ETA business, like strong recurring revenue, high margins, all of those things. And we're very flexible about the type of business, but we're focused on Cincinnati. And I'll let Rahul fill in more of the story about the actual search process.

B (26:39)

Get in here, Rahul.

C (26:40)

Yeah, so we started the search process in January of 24 and as Catherine mentioned, both of us worked on it nights and weekends. So we did our full time jobs at least 40 hours a week and then probably did another 40 plus hours a week of running the fund and trying to search. And so the advice that we got from Ling is just see businesses, right? Just evaluate as many businesses as humanly possible and get reps in. So we would be going around on like biz by sell, Quiet, Light, Kumo, all the different marketplaces and inquiring about businesses we didn't even like, just to see like can we build the muscle of evaluating a deal? Because neither of us were really deal team people in our private equity lives, right? We were operators on behalf of the funds, but we weren't the one really controlling those investment dollars and figuring out who to buy. So that was a skill that we had to Develop. And so Ling's advice early on was just look at deals. So in the entire process of January to eventually closing in September, we looked at probably 80 Sims and a more cursory glance at over 100 deals. So that was generally the broad strokes of the process. The first deal we got really close on, we got referred by a friend who had previously worked for the company. One of Catherine's MBA classmates dates someone who came to our wedding and we're still very close to but he had worked there. He said, hey, I know the founders, I love them. They're like family to me. They're looking to retire. Do you guys want an intro? And Catherine had heard about this business in passing previously. And so we started going down the process with those people. We really, really liked them. The business was very interesting. It was effectively tech enabled services for large scale conference planning. So an indicative example, this is not one of their clients for risk of violating the NDA, but if you think about Dreamforce, right, the large Salesforce conferences, that's the sort of scope and scale of conferences that these people were working at. So we actually flew to Vegas, we pretended to be their interns, we helped out, looked good in front of their clientele, you know, did whatever it took. And that was our general approach to search, right? Do whatever it takes. There is nothing but the search. We were, we got to the end of that deal right about to sign on the line. And then the sellers had to pull out due to personal life circumstances where their home actually had burned. And they're like, we actually need the cash flow from this business right now to sustain ourselves and figure out what we're going to do with our lives. Like the expense and the headache and the stress of going through with a sale is not going to work given this personal tragedy that we've suffered. And so, you know, obviously we understood that it is horrifying to have something like that happen to you. We have heard from our friend since that they're back on their feet and that they did end up selling to someone else. We're generally very happy for them. But from that process a we learned that we probably spent way too much money on lawyers and outside diligence.

A (30:05)

What do the following acquiring minds guests all have in common? Doug Johns, Morley Desai, Tim Erickson, Chirag Shah, Shane Ursam. They all went through the acquisition lab, the accelerator in community for people serious.

B (30:22)

About buying a business.

A (30:24)

But they represent just a sliver of.

B (30:25)

The lab success stories.

A (30:27)

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. Chelseaivethenbuild.com and then at that point I.

C (31:13)

Had started breaking spiritually and psychologically through this process. I think happens to many people. I decided to focus more of my efforts back on my day job because again, like we were doing private equity operating partner roles full time while searching. So generally what is considered a very taxing day job. So I'm like, okay, Catherine, if you're going to keep doing this, you keep doing it. I'm going to go back and do my job.

B (31:40)

Katherine, were you at any point spiritually broken?

D (31:43)

No, I think my motivation was I needed out from Evergreen and from running this portfolio company. And I, I was very determined that buying a business was my best option out of that.

B (31:59)

Okay, Katherine, so let's hear about the business that you did go on to buy.

D (32:06)

So Rahul sort of tapped out. I said, hey, let's look at travel. I personally, you know, had worked in the industry. I love traveling. I was like, we're just going to put in travel businesses into biz by sell and see what happens. And actually there were three businesses on the market at that time. I got the sims for all three of them and we actually ended up putting in Lois for all three of them. And they were each different flavors of small group niche tour operators. So in the travel world, there's all sorts of different types of businesses. I knew specifically that I did not want to own like a traditional travel agency where what you're doing is by booking airfare and cruises and holiday packages for individual clients. I also knew that I didn't want to be running a very specific operator in a specific destination. Right. There were businesses for sale that were like a tour bus company in Asheville, North Carolina, or you could buy a, you know, company that was focused specifically on walking tours in Croatia or something like that. I didn't want either of those. What I wanted was what is called a tour operator, which is basically a person who creates custom itineraries for typically groups or, you know, larger individual families. So it's not necessarily A honeymoon. It's more of a, you know, maybe you have an extended family or you have a corporate client who wants to put together a trip or in the case of the business that I bought, you know, women's retreats. So small groups of women who don't know each other before the trip, but they all come on your pre organized tour and you run it with local partners in the country that you're visiting. But ultimately it's a very proprietary trip and all of the things that you've done for it are things that you've custom designed for the group.

B (34:02)

And why did you like that model instead of a tour bus or something that's tied to a particular location?

D (34:09)

A. I think they're. Because if you tie yourself to a specific location. Right. There's a lot more volatility if something happens in that location. You haven't diversified away any of that risk. If a country, you know, we have, we've had to cancel trips to certain destinations because of security risks there, it's okay because we have trips still running to 20 other places. So from the destination specific, it felt like a concentration of risk. I did not want from the travel agency more, you know, fit is what they're called family and individual traveler packages. The margins are very low on that. Typically you're capped by the tour operators themselves. Like the cruise line will say hey, you can have 10 or 12% commission on this cruise or an airline says you can have 2% commission. And so that's your gross margin right there. Right. Is capped at somewhere between 10 and 15%. And so that makes for a very challenging business to scale because all of a sudden you need to have tens of millions of dollars of top line in order to make that a particularly interesting business in the bottom line. Unless you're like a solopreneur. Tour operators have the benefit that because we make proprietary custom trips and typically activities that are unique and things that you couldn't accomplish as just an individual traveler flying to Spain. We open doors to things that are premium. People are willing to pay a premium for that and we have pricing power, which means that the businesses I was looking at had gross margins in the range of 25 to 40% depending on the trip. And so that as you flow that down to your bottom line becomes a much more sustainable, robust and scalable business.

B (35:57)

Well, and you're also just adding more value. You're really creating something which I assume also has a knock on effect of maybe being able to build a brand, being able to build a following, having More reoccurring revenue. This is going to be not a recurring business because you've, you know, there's a real kind of white glove. There's a, there's a white glove branding around what you do makes, makes a lot of sense. Now of course, we all know that travel is an undesirable category to be in. It is notoriously cyclical, it is consumer, it is not recurring, it's legit operationally and logistically. I mean that is what the business is, is dealing with all of the logistics. You know, know all of us know from our personal lives that travel is a logistical, one of the most logistically involved things you can do. So why did you, despite the fact that you like travel? And maybe that's the answer. Are there other attributes or misconceptions around the travel category that drew you to it? Just from a strictly a business perspective.

D (37:07)

I think that for most people I would agree that, that it's probably not the right category. And certainly for traditional searchers or for people who don't have experience in the travel industry, it's not necessarily an industry I would recommend for all of the reasons you just named. I think that what made it particularly interesting to us was a. I knew how to sell in the space, I knew how to market it. I had worked in the industry. So that gave me a leg up compared to most buyers in the industry where I was coming in, knowing how to run. Having seen, you know, a business, a travel business scale and also having done a lot of that sales and marketing for the business in Morocco, I felt like I had the skillset and the experience in that specific industry to very quickly make an impact on the business. And then I think on the operations and logistics piece, I also benefited knowing that I had Rahul. I knew Rahul has the technical experience to be able to help me take what is typically a very human capital heavy business and transform it into something that is much more automation driven. And so his experience doing that for multiple businesses gave me a lot of confidence that I. Most travel businesses, as they grow their revenue, they also have to grow their headcount in order to keep up typical service business. Right. I was confident in our ability to automate such that we could run at higher net income margins than the typical travel company because I had free labor. And I think if I didn't have free labor and I didn't have raw holes technical expertise, I may not have considered the businesses as strongly as I did because I would have either been layering on headcount to Grow or I would have been having to buy off the shelf technology that is very expensive. It does exist. There are multiple. There's actually a search fund or a traditional searcher bought a travel software business that tour operators like myself buy.

C (39:24)

But I would just name it. It's called Soft Trip.

D (39:27)

It's a very interesting business.

C (39:28)

It's a great case. The woman who ran the search fund was on Rick and Royce's pod.

D (39:33)

Yeah.

C (39:33)

So it's out there. Right. We're not sharing anything.

A (39:36)

Oh, I know her.

B (39:37)

I think I've seen.

C (39:38)

She's very around, we've spoken to her. She's very cool.

D (39:41)

But that.

B (39:42)

And so. And so you thought that Rahul was basically going to build a custom soft trip.

D (39:48)

Yes, like halfway. Honestly, he functionally has. And you know, to put numbers on it. Right. Most of these, the soft trips, the we travels, the other like travel software of the world, they're going to. On top of just the credit card fees that you can't get away from. Right. Like stripe charges you 2.7, 2.9%. You're not going to get away from that. Those travel software companies charge you an additional 1 to 3% on top of that. And so on a business that's doing a million dollars that's, you know, 30k a year in margin that you're losing out on. And by being able to build that in house for free without having to pay him for his labor hours, not only are we able to save on the money we'd have to pay someone to install or to improve and manage that software, we're also saving, you know, on the order of $30,000 a year in margin costs. And so I think that was something where I again, I was confident that we had the right skill set to run and scale these businesses very cost consciously versus, I think most people, the biggest challenge and the number one reason actually that I as we're looking at a second acquisition that I see sellers struggling with is exactly that their headcount costs are ballooning. The business is doing great. The top line looks phenomenal, but all of a sudden their bottom line is 7%, 10%. Right. And that's really hard to run a business, let alone sell a business and take on debt service when your margins are that thin. And so I think that is like one of the larger issues in the industry is just that it is very headcount heavy currently and there are not a lot of people who are able to think through how do I automate and take headcount out of these businesses. To run them more cost efficiently. I feel like that was our, our secret sauce in buying these companies.

B (41:50)

Interesting that these businesses are sort of tech laggards. It sounds like massive because they're probably most of them virtual the tour operators.

D (42:00)

Yes.

B (42:01)

And so in some ways they would be you know, tech forward because they, they'd be you know, deal communicating with each other over zoom and slack all day anyway. But whatever. Maybe not I think, I mean if.

D (42:15)

You look at the average age of the travel industry in terms of the people who own these businesses, it's typical. Right. To most boomer businesses businesses but it's people in their 50s, 60s, 70s who you know, have been running it well and they're typically, I think the other thing is they are lifestyle businesses and so as long as they're cash flowing and giving them a few hundred thousand dollars a year like these owners are typically quite satisfied, there's not a huge incentive to have to grow margins because they don't have outside investors. They're you know, just running the business because they're, they love it and they're passionate about it. And so we were taking a much as most searchers would. Right. A much more. How do I grow this either for an exit or how do I grow this to you know, increase the margins and be able to improve my investors lives as well. And I think that's where travel businesses are tricky is like they're. You're turning a lifestyle business into a growth business.

B (43:15)

Yeah. Rahul, were you going to have this software built? Are you actually writing the code?

C (43:23)

So we thought about, we got some quotes. We. So let me step back a bit. We say self funded search. We do own the majority of the company but we did take on some capital from other people. So one of the sources of capital were an aunt and uncle of mine who hit it pretty big in Silicon Valley. Like they're, they successfully got the lottery ticket punched.

B (43:47)

Um, good on them.

C (43:49)

Super, super technical people very familiar with the tools we wanted to use in house. So initially we had them take a look and they were going to do the work and then had some personal life things come up that made them not able to do the work. We then went and quoted it out and we're unhappy with the quotes that came back. Right. If, if we were going to pay 10k off the shelf for a tool between 10 and 30 depending on and quotes came back in that same range kind of was awash. So from there I decided okay, like how can I just do it myself? And we ended up using mostly no code orchestration tools like think Zapier. Not necessarily Zapier, but tools like that and a bunch of AI telling me, hey this is a bug, why don't you debug it by doing these behaviors? And so a month of me in a cave with AI eventually built actually like some of the major functionality of We Travel and Soft trip that we're now deploying to production. So yeah, we'll save about 10 to 30k of top line. That would have been haircutted by like a We Travel.

B (44:56)

Good for you guys.

A (44:57)

And so when you did you look.

B (45:00)

Under the hood at name of the.

A (45:03)

Business again, Catherine, Women Travel abroad, did.

B (45:06)

You look under the hood at Women Travel Abroad and prescribe what the tech enablement that you were going to do was going to be? Or did you just sort of have a broad tech enablement thesis that these cat this category of businesses is desperate for technology. So whatever business we buy is very likely to need something built and then we'll build that and increase margin that way. I guess. And I guess what I'm trying to do is tease out whether or not there's a lesson here because tech enablement in these businesses is, is kind of a, an assumed lever to pull for many searchers in many categories. Were you just playing that game or were you specifically looking at women Travel abroad and saying oh, like we can build something to do X, Y and Z in this specific business that I know will add margin here?

D (45:55)

I think initially we, we had the thesis right for the industry. I don't think we knew exactly what it was going to be, but I knew through having worked for Experience Morocco and seen the fact that there is a step, right? Revenue increases $500,000, you have to add two people headcount. Like it was just, it kept stair climbing up. I knew that I did not want that when I grew Women Travel Abroad and so we thought through a lot. We did a certain level of technical diligence, understanding what tools they were using, which were terrible and not specific for the travel industry. I think where we got into specifically what we've built was both women Travel abroad, but also some conversations actually with other similarly sized tour operators where I reached out to other women owned travel businesses to just connect. As I owned this business, I wanted to hear what was working for them, what wasn't working for them. Some of them were search owned businesses, some of them were not. And I kept hearing the same things of there are a lot of issues with, you know, the back end operations of communicating with vendors, making sure that we're paying vendors on time, making sure that we're collecting traveler payments on time, invoicing issues. And there was just a lot of really detailed work that goes into orchestrating both the collection of money as well as the sending money to vendors, which every business I was talking to was either struggling with and had to hire a lot of people to manage or was using technology but not satisfied with the technology that they were using. And so I think that was actually more of the thing. We talked to people who were using the tools that we thought we would want. The we travels the soft trips of the world and heard that there was actually not the exact solution we needed. And that's when I turned to Rahul and said, okay, well nothing off the shelf is going to do exactly what I want it to do. We're going to have to build that. And that's what he has built is something that is very custom to women travel abroad, but ideally is scalable as we buy more businesses. It is a back office for tour operators such that we can plug in any brand, but the functionality of the back office continues to work across much larger amounts of revenue.

B (48:15)

And Rahul, you and ChatGPT built this in a month in a cave.

C (48:19)

Yep. Yeah, while maintaining my day job and being a dilettante on a bunch of other random nonsense projects I've been doing.

B (48:25)

Okay.

C (48:26)

I would say actually the underlying thesis of our business is that all group travel is alike. The, the front facing brands are different, whether it's a corporate off site or a women's trip or university alumni travel or whatever. But actually the back office is all the same right to plan a group trip no matter what incarnation it's in. If you figure out sort of the holy grail of the, the perfect platonic ideal of the back office, you get those sorts of super linear returns to scale that Katherine's been talking about without having to ramp up your like massive amounts of headcount cost. So that's generally like the operating thesis of our business is can we build the travel back office in a box and then deploy it to every company we buy?

B (49:10)

Yeah, well let, let's turn now to the numbers of the business in here, what the plan is to, to grow. But before we do that, I should also just say about travel businesses, returning to that theme and why they have a negative reputation, a bad reputation, but in fact there's a lot to like about them. The other thing to like about them is that is the working capital. So people pay for these tours up front and so you sit on their. The money that they paid you for months, sometimes people book a year in advance. So. So you have this incredible float 1.1 and then.2 is that there are. If it's a, if it's a tour business going back to the reoccurring revenue and you can really build brand loyalty and deliver a good experience. They're actually in certain types of travel businesses, namely guided tours. You can build some nice reoccurring revenue.

D (50:08)

Yes.

B (50:09)

And then finally there's no capex. I mean the services businesses. So as we keep saying, you need to increase headcount as you grow revenue, but there's no capex. All of that by the way, is from Greg Geronimus, who also bought a travel business, who I'll be interviewing later this week and talked about why he bought a travel business and what is often overlooked about them and what there is to like about them. So great points by chime in here.

C (50:36)

There is some somewhat interesting thing we can go to on the negative cash conversion because I think that is probably the most attractive thing about this business is that you could collect cash at least 90 days before you have to pay it out and do some really interesting things with the float. There is a converse problem to that though, which is that most operators in the industry run cash books, not accrual books. And so you can get into a very dangerous place where you spend the cash you brought in thinking, hey, this is like my revenue, I can go spend it all. And it turns out you actually should have held most of that in trust to be able to spend later for those expenses. And so we do hear cases like that where because the revenue and the expenses are so offset and most people are not thinking about it from a revenue recognition standpoint, you can get into some pretty serious danger. So I think the other thing that made us right for travel, which may not make everyone right for travel, is that Catherine loves accounting. Like she's one of the rare freaks where accounting was her favorite class in mba. And so I think like we have a very tight grasp on our books and we're extremely financial in how we operate the business. Like we have automated rules in our bank that sends money from checking to savings to treasury to the point that our treasury balance pays off our seller note every month.

B (51:58)

Oh wow. Most people from the interest that it generates.

D (52:00)

Yeah, the interest it generates is enough to. To pay the seller note, which is, you know, kind of great.

B (52:06)

Yeah, that's amazing. Yeah. Well, as we know the, the kind of most famous story of float is Warren Buffett and Berkshire Hathaway and collecting all those insurance premiums before he had to pay them out. And what is he going to do with all that capital and starts investing it and the rest is history. Okay, so let's hear about the number, the. The numbers of the business Women travel abroad. What can you tell us?

D (52:29)

So it was doing about 800,000 in revenue, and it was doing just under 300,000 in SDE when we purchased was cash accounting. And there's some lessons learned that I can share there. But we again, you know, it had very strong, strong margins, and it also had very high recurring revenue and or reoccurring, as I like put the dash, like to say, where about 30 to 35% of travelers each year repeat and take a trip the next year. And some of our best travelers take an average of three trips a year. And so that loyalty made me also feel incredibly confident in the brand. She was doing something really well and had been for a long time. The business, she'd founded it in 2014, and it hadn't really taken off until 2022, when the travel industry obviously had a huge boom after Covid. But she had a lot of loyalty. She also had a very interesting model where the people who were hosting these trips were not her. So a lot of things you times you see in the the guided tour space is that the person who leads the trips is the face of the business. And everyone books travel because they want to travel with that individual. And in this case, she was only going on one to two trips a year, and she had a roster of 10, 99 contractors who had typically started as a traveler, loved women travel abroad, loved the trip so much, wanted to travel more. Most of them are retired. And they said, hey, what if I hosted a trip for you? And they get, you know, a free trip and a free travel experience out of it and they get to be the host, sort of the person making sure that everyone feels included, making sure that the dinners are going well. They're not responsible for the guided tour aspect of the trip, but they're just responsible for making sure that the everyone is happy and content on the trip and, you know, being that person that can report back to the back office as well and say, hey, you know, we had an issue with this vendor today, or I have a question about the itinerary tomorrow. So there are on the ground liaison. And because she had a roster of 12 of those women who were doing great jobs and were really trusted and very invested in the brand, I also felt Very confident about the, the business being able to transfer away from the owner and not losing a whole bunch of clients because they were sad that Caramel wasn't there anymore. More.

B (55:05)

Yeah. Yep. The size of the business, talk to me about that. That's. It's a small business. Yeah, Great margins, but it's quite on the, it's quite on the small side.

D (55:16)

So we actually, like I said, we had three deals under LOI and we had raised enough capital to be able to acquire all three of them. And one of them we said no to after the LOI pretty quickly because their, their books were a mess. And I just, we couldn't get comfortable with the numbers. But we got to the APA stage with two deals and we actually had enough equity that we'd raised both personal equity as well as some outside investors. We own 60, a little over 65% of the business and then outside investors own 35% and we raised enough to be able to do two all equity deals. We weren't going to be raising any debt and so that made us very comfortable with the smaller business size. I think that if you had to layer on an SBA or you had to layer on a lot of debt, I might have been a little bit more concerned. But also we thought we were going to be buying two and combining them and having, you know, a $400,000 business instead of a, you know, 280,000 SD business when we bought it. So that was part of the thinking as well, was that, oh, hey, we're buying two businesses immediately. We ended up only buying Women Travel Abroad largely because the other deal I had some red flags with the seller and their willingness to actually step away from the business. They still wanted to be in the travel industry, albeit in a slightly different way. But I was a little worried about them actually following through with the non compete and with all of the things that are very important obviously when you're buying all of their ip. So I ended up passing on that deal before we signed the APA and we only purchased Women Travel Abroad but now have a bunch of capital on the balance sheet to do a second deal. And again there's the organic growth piece which we've succeeded at, but there's also inorganic growth which will help us more quickly grow this business to be a size that's more typical for a search business.

B (57:19)

And the using all equity in no debt, no SBA loan over equitization.

D (57:25)

We had a seller note, but other than the seller note, there was no bank debt.

C (57:31)

That's not Strictly true.

D (57:32)

We did. We refinanced our mortgage in order to take some equity out of the house that we owned. But that's not, it's not actually debt debt in the sense the debt on.

C (57:43)

Our house became equity in the business. Yes. But it was significantly cheaper than SBA debt.

D (57:48)

Right.

C (57:48)

Like the mortgage rate that we got was 6% and the SBA at that time was trading at 11 and a half or 12. So significantly cheaper to lever the house than to.

B (57:59)

And so how much of your of the equity into the business came from that? And where I'm going with this is just as you thought about the structure of the deal and having no. Or having very little debt in the structure of the. Explicitly in the structure of the deal. Why not. Why not have more debt? You had said that partly is to. Just because you're buying it's a really small business and to sleep well at night. Was that the basically the single reason?

D (58:21)

Yeah, I think we didn't. We had enough committed capital plus personal capital and then I think we took out about 100,000, 125,000 in equity from the house to put into the deal that we, it didn't feel right signing a pg, especially at super high interest rates when you know, we felt like we'd rather give up a few extra points and have additional outside investors to not have to take the pg. I think as we think about doing, you know, second larger deals, we probably will have a PG involved. But at the time it just felt like I, My benchmark was 51%. Right. I wasn't willing to give up any more ownership than that. But as long as I had the vast majority of ownership, I felt okay. And so giving up, you know, the 35% of ownership to friendly people, family and friends, plus mentors of mine from experience Morocco, the business in Morocco, they're our single largest investor. They wrote a check. I felt like it was better to not lever the business and be able to do this with equity as much as possible and not have to worry every month about how am I going to pay my debt financing at the same time as you know, some of these trips have all of the invoices come due in the same 30 day period and I'm sending out a hundred thousand dollars in cash to pay for those tours. So it felt less risky to do equity in that sense. We did do. The seller Note was about 10% of the. It was exactly 10% of the purchase price.

B (60:04)

And what was the purchase price? We haven't heard.

D (60:06)

500,000, 500,000.

B (60:10)

And you said 280 was se, so under two x.

D (60:14)

Yes.

B (60:15)

Oh, well that, that's kind of nice.

C (60:18)

We'll pay it off next year.

B (60:20)

Yeah, yeah, great.

C (60:22)

I would say this, this is the other interesting thing perhaps about us is that because we don't have traditional searchers or traditional investors even, we can just have enormous amounts of capital discipline. If we don't like the look of a deal or a smell of a deal, we can pass. We don't have to spend that extra capital we're sitting on anytime soon because our investors don't actually care when we exit. Right. It doesn't have to be five years, doesn't have to be 10 years. We could sit on the business for the rest of our lives and I don't think anyone would actually care.

D (60:49)

And I think that also went into buying business. Right. It wasn't, I didn't have a search clock counting down saying, Catherine, your investors are, you know, your, your traditional search is going to expire at the end of two years if you don't do a deal. And so I was willing to pass on an loi. I was, you know, that we, or pass on an apa say no to that. We were able to really negotiate from a place of power, I would say with the seller of women travel abroad because the botna was walk away and go back to our well paying private equity jobs. Right. Like we didn't need to do the deal in a way that I think really benefited us from being able to negotiate a very, very positive deal terms that we might not have been able to do if I felt a lot of pressure, pressure either from my investors or you know, felt like, oh, the clock is counting down. If I don't do this deal then I guess I will have failed at searching.

C (61:46)

Yeah.

A (61:47)

Was it listed for 1.8 or 1.9x.

B (61:50)

Or whatever you bought it for?

D (61:52)

It was listed for closer, a little over 2. And yeah, we got it down to basically 1.9 plus a seller note which she was not initially interested in doing. But again, because we had a lot of cash, I was able to come in and say, look, if you want to get this deal done quickly, you know you're going to give us a seller note because I think that it's important aligning interests for the long term. But I'm going to give you a.

B (62:18)

Lot of cash up front now that you're in the. So this is again not to beat on this, but this is a quite a small business ste at just under 300 and of course we know the conventional wisdom, buy as big as you can or if you can get 750 to a million, please do that self funded searcher, traditional searchers even bigger. How now that you're on the inside of the business, do you, how do you reflect on that conventional wisdom?

D (62:45)

I definitely think right, there are benefits to owning a bigger business in terms of, for hiring purposes. You know, I can't pay people very much money in terms of salary. It wasn't a huge deal for us because we felt like a. There was one employee who we. She started with the business and came with us when the purchase happened. We kept her on as a contractor and she was very affordable. So I wasn't super concerned. And then we were able to layer on virtual assistants in the Philippines to help us keep the cost of headcount down and low. So it wasn't like, oh, I'm going to need to make this $100,000 higher. If I'd had to, I think the deal would have looked very different. But I knew we could keep head costs down. That was part of our model. I do think there are challenges, right. I worked in the business and operated it 60 hours a week. Sometimes more than that, I was replacing the seller and more in terms of being the salesperson, being the growth person. And so I don't think that buying a business this small for someone who just wanted to be the capital allocator would have been the right thing. If you wanted to be a CEO, you have to buy a big enough business that you can be the CEO and be the manager and the strategist rather than being an individual contributor. I am an individual contributor in like three different roles in my own business on top of also being the capital allocator and the strategy person. So it's a lot more hats to wear. I would say buying a business this small, small. It's also much more what I like to do. I like, if anything, I am too involved in my own business even at this point. Right. I like to have every detail go through me. And I think that it has been a very good learning even at this size of business to have to realize that like you do have to delegate. Even in, you know, a small business, it's important to figure out how you can delegate to your team members or how you can say no to things that and make them automated instead. And so I think I'm actually very glad that we bought this small of a business. For my first year owning a business, I felt like I've learned a lot and now as we think about buying a second business, it is, let's buy something bigger. Because everything that I've learned and honed and the technology that we've built is now ready to be deployed in a larger business. But we tested it all out in a very risk, in a less risky business because we didn't have a lot of debt to pay and because it was small and we knew that we could pay it off at the multiple that we purchased it at, you know, even if it didn't grow 10x.

B (65:29)

So that, that's often something that people say about a really small business is that it feels less risky, but because the business is small, it's more fragile and therefore more risky. But really you've, you've basically hit on the tension there. The size thing, the fragility of the business is probably true that that makes it less robust, more risky. On the other hand, because it's more affordable and particularly when you get at a low multiple, the financial risk is, that's true also that it is less. So you balance those two things. Rahul, you were going to say?

C (66:01)

Yeah, I would say that I think Catherine cares a lot about risk mitigation and I think the way we structured this deal and the size of the deal actually enables that in really good fashion. So if we return whatever capital we have left to our investors, we could buy them out, own 100% of the company. We live in Cincinnati. If you cash flow 300k a year in Cincinnati, you can live a splendid life. Right. So if the downside case is that we don't grow and the business stays stable and Catherine has proven that even with long term economic malaise, she can grow the business like we're going to do a million of top line this.

D (66:37)

Year, it'll have grown about at the.

C (66:39)

Same amount of margins and probably, probably predicting 1.2 to 1.5 next year at the same amount of margin. So if you return capital and own 100% of the company and you cash flow 30% on 1.5 million, it's a splendid life in the middle of the country.

B (66:55)

Yeah, absolutely. No, it's, and it's an important point because I feel like in search land because of the, the influence of private equity, people think about bigger numbers and MOIC and irr.

D (67:08)

Yeah.

B (67:08)

As opposed to frankly, lifestyle design. You know that that word has a bad reputation. But that is what we're talking about.

D (67:17)

And I think, you know, I, I would like to grow this business. I would like to have it, I'd like to not only Grow this business, but have a brand of businesses and have an umbrella, you know, of portfolio companies that we own and that we manage. But at the end of the day, I wanted ownership and I wanted to be able to dictate how I lived my life. I own a horse. Horseback riding, other than, you know, my husband is like my other major hobby in life. And I get to, you know, check out three days a week and I go horseback riding for three hours. And am I still hitting my numbers and I'm proud of the growth we've done? Absolutely. But like the things that were important to me was having a balance where I could do hobbies outside of my job, where I could travel more, which I now get to travel more. Owning a travel business, that's a huge perk and where we could set ourselves up for the long term of having a family and being able to be present and, you know, raise that family without sacrificing as much as many people, I think have to when they have a really intense day job and they, you know, have to be in an office 8am to 5pm every single day. And so it really was a lifestyle choice and I, I don't think it is right for everybody, but I do think that what I wanted was the flexibility and the autonomy and owning again, owning more of a smaller thing gave me that rather than owning less of a bigger thing.

B (68:43)

Excellent. Yeah, no, it's, it's such a great perspective to, to be getting from you guys. We don't get it enough. And, and, and I take responsibility for that because I, you know, I'm often wanting to talk about the numbers and the bigger the better and so on. But of course also recognizing that, um, it's very personal and bigger doesn't always mean better. And it just really depends on what you're, what you're going after, what you're going for. I should say getting back into the weeds. There was a, but a single employee at the business.

D (69:15)

Yeah. So it was the owner at the time she sold the business. She was working maybe 10 hours a week and then one employee who was working 30 to 40 hours a week. And so, you know, we contracted with that employee to keep her on just for the transition. But actually because the seller was working so little on the business, she consulted for a month and then she was out of the business. We had a, we have a year long. Actually just expired a year long consulting agreement with her. I use the 330 days and I didn't even need to pay her to consult any more hours because she just wasn't that involved in the day to day to begin with. And so other than taking on some meetings, I didn't really have to do anything else to take the business over from her. And we really benefited by having that employee be the, you know, continuity piece in terms of making sure the operations continued.

B (70:09)

Yeah. And so this operational person. And then as you explained earlier, the actual tour guides, although they're not formally guides but mediators whatever, are 1099 and you pay them on a per trip basis. Well, one other thing to say about this business, I don't think it's been said is that the margins are really great. And usually when we see great margins we assume it's because the business is running so lean, which this was running lean, but too lean. And that when new, new buyer owner comes in they're going to need to, those margins are going to compress because you're actually going to need to build out a layer. And you have done that some. Yeah, but she was, but, but, but in fact this was not a case where the seller was wearing three hats and working 50 hours a week.

D (70:51)

Correct.

B (70:52)

She was working. What did you say? 10 hours a week. Yeah, so, so that's those margins, assuming you didn't want to invest in the business and you just wanted to keep it where it was, were very sustainable. So there was, there wasn't necessarily going to be J curve, which is really unusual in these.

D (71:10)

Yes, I think there has definitely been a J curve in terms of. There were a lot of, there was no, it was all word of mouth marketing. And ultimately to grow this business because it is a D2C business, we've had to invest a lot in SEO, we've had to invest a lot in how do we stand up paid marketing, how do we create loyalty programs and referral bonuses. A lot of different marketing efforts which definitely, you know, when you look at the, the SGNA like the SG&A has been higher because of those marketing expenses. And I think I threw money at a lot of different experiments to figure out what was working. Our marketing budget is now $500 a month and I'm, you know, adding a thousand to fifteen hundred new prospects at the top of funnel for $500 a month. So I think that it's, I've figured out a way to very cost effectively, you know, increase our audience size with a limited marketing budget. But I definitely think that J curve is true and I think that again I've taken minimal salary as well because I've. We have other income to Supplement ourselves that, you know, next year. I think, again, the margins may look different when I start to pull more cash out of the business for my own salary. But in that first year, I wanted to spend as much money as possible growing the business and then improving the technology and getting that in the right place rather than spending money on headcount. And we've been able to keep the business very lean, and we will continue to be able to keep it lean because of the technology that Rahul has had. So that I think that even, you know, our margins will stay consistently at that. Call it 15 to 20% net income margins, even doing, you know, 1.5 million in projected revenue next year.

C (73:00)

I would also add that that's a constraint that we hold on the business. Like, we will not allow those margins to degrade. That is the number one thing to us. It's less interesting to grow top line and have the net income margins erode. We would rather have the. If we had to sacrifice revenue to have better margins, we'd almost rather do that to have a higher absolute profit number. But that constraint has done lots of interesting things. Right. If Catherine realizes, oh, I need to spend all this effort and money on marketing, how do I do that without actually having to spend all that money? And so what we've built is effectively an agentic AI system that will write all of the blogs for the brand and tells Katherine's virtual assistant exactly what actions to take to maintain all of the marketing. And it turns out that has generated how much more Traffic for you?

D (73:51)

5X Star website traffic in 6 months.

B (73:54)

By having an agent write SEO articles?

D (73:57)

Yes.

B (74:00)

Wow.

C (74:00)

Yeah.

D (74:01)

Yeah.

C (74:01)

I would say that's like this is the last bastion of interesting things in search. It's like no one still talks about AI. You go to cta, you go to these conferences, and it's unheard of. Whereas if you go to your average tech conference, actually speaking at a local one in Cincinnati tomorrow, AI is the thing, right? It's on everyone's mind. And so I think if we can get out in front and be the people who are bringing AI into search, there's probably some alpha there, right? There's probably some nice gains we can make off of that.

B (74:32)

Well, absolutely. Especially when you consider that just basic tech enablement is still alpha. Just, you know, the out with the fax machine, in with the CRM is still a playbook that you can run in many businesses. So just taking that much further and being ahead of the curve with AI, it does seem like an enormous opportunity that doesn't get a lot of attention in search land, including on the podcast, on this podcast. So I should be asking more about it. Let's close with hearing a vision of where you are taking this.

D (75:00)

Yeah, I think our goal in the next five years is to own, call it three to four different brands that are all using the same called back office operating system, but very specifically in the group travel tour space. So we've actually internally kind of created a corporate off site brand that I luckily had some connections and people who wanted help with corporate off sites and so that, you know, we'll have done about $60,000 in top line in 2025 and is on track to do a quarter of a million in top line next year. And so that's one brand. Right. We have the affinity travel off site brand that we've sort of spun up internally and again using the same resources that we use to run Women Travel abroad. We have Women Travel abroad and then the vision is how do we buy several other niche tour operators who have maybe, you know, similar could be in the women's space, but could also be photo tours, could be, you know, adventure biking tours, could be any number of different niches. And then ideally there's a flywheel where a person might travel on my women's trips, but they have a husband who also likes to go on, you know, biking tours. And so they could do a trip on our bike tour company as a couple later on. And then you know, maybe one of them is employed in a big company that needs corporate off sites and they can come to us for that. So ideally, you know, you're increasing the customer lifetime value by being able to have multiple different brands that people can pay into depending on their interests, as their interests and needs may evolve over time.

B (76:41)

And these businesses, well actually let's take your existing business, Women Travel Abroad. Leaving aside the, the, you know, the acquisition strategy, how big can it get? So it's a sub million dollar business. You are, you're, you're actually, you're, you're about to be at a million and get it to, to be on that. But how big can one of these by themselves be?

D (77:03)

So there's a really big gap. The largest competitors in the space who I honestly have tried to buy that are like privately owned are doing on the order of sort of I'd say 4 to 6 million in top line and then there's a huge gap and you get to the intrepids and the talk tours and the back roads and all of those like massive group tour Operators, I don't know, they're doing hundreds of millions of dollars. There's not really any companies that we've been able to find that are like more than 10 million in revenue. Pretty much most of these niche group travel companies are in that. The bigger ones are in that like 4 to 10 million top line. And then there's a lot in my space which is sub a million in top line. I would like women travel abroad to get to that, you know, four to five million dollars in top line of its own brand and then obviously be able to layer on additional brands that are each doing some multiple of low single digit millions.

B (78:08)

And despite the fact that you're eager to use this back office tech that, that you've been, that you've built and bolt in other acquisitions, why distract yourself with other acquisitions and not just spending all of your attention to get to 5 million in top line?

D (78:24)

So I think there is SEO and organic growth takes a really long time, especially in the D2C world. That's the number one learning I've taken from owning a D2C business. And so while we're seeing it increase how quickly we're growing every single month, it's not growing so fast that I see that in two years we would be at 5 million, right? Yeah, we're going to grow on a 10 to 30% every single year top line. Which means that we're 5, 7, 10 years away from having, you know, a 4 or $5 million top line business. And the great news is that I'm down from working 60 hours a week on women travel abroad to working more like 25 or 30 hours a week on women travel abroad. So with all that extra time, why not try to bolt on some other acquisitions to give us more, you know, profit also to invest, because I think that's the other thing is when we have more profits to invest, we can also start to do really interesting marketing and really interesting ad spend that right now, owning a single business, I don't necessarily have the budget to do, but I do think there's a world in which across the businesses you could hire a really high quality marketing manager who's doing, you know, the marketing for all of those businesses. There's not enough need for a marketing manager just for women travel abroad. That's 15 hours a week. I can do that myself. But if I own three businesses, then I have a marketing manager who's running all three of those portfolio companies. So it's because I'm not having to work as hard a year into Owning this business as I was the first six months, I'm much more interested in how can I move back into a capital allocation role away from an individual contributor.

C (80:10)

The other interesting thing here is that the companies Catherine's mentioning that are doing like 4, 6, even 10 million, somehow all of them seem to have extremely degraded margins. Mostly because they do rely on adding tons and tons of headcount to sustain the growth of their businesses. So our goal is let's get there. But we don't have that time constraint. So if we can get there slowly and keep our margins extraordinarily high, great. That makes the business a much more sellable asset whenever we do get there. And we can probably get some very nice multiple expansion given that we have that capital discipline to buy it like sub 2x. If we can get to 5x, it's a very tidy transaction. The other point I would make is you get some nice cross sell upsell by buying companies. Like if we buy another women's travel business, for example, that's in a slightly different niche, most of those women will probably have not heard about our existing business and vice versa. So if I can get the number of women who are taking trips to go like the average number of trips per woman to go up from 1 to 3 or something like that, that also makes the business much more attractive. Yeah. So I think that that's basically how we think about it.

B (81:28)

And on the point about your time horizon and this, you can grow this slowly and you're really captains of your own ship. Even though you did take friends and family capital. It sounds like mostly, is there anything to learn there about the long termism of your, of your investors? Because often, often, almost always investors want to see their money back, want to see at least a plan to return their money at some prescribed timeline. So how are you able to get this long term agreement from them? Maybe the answer is that it's friends and family capital.

C (82:02)

I think that that's the main thing. Right. The family investors, if we never return their capital, they would just take the tax break on the bankrupt company and that would make them very happy. The strategics that we took money from want the capital back and if they ever go to sell, they'll have to capital call from us. So that's the only real trigger that might happen.

D (82:24)

But I also. So I think the other benefit, right, is that those, the strategic investors own a business that runs, is a local partner to my business in all of these countries. So they own businesses in 13 different, 15 different markets around the world now. So when I want to run a business, run a trip in Morocco or Greece or Turkey or Bali or Bali or any of these countries around the world, I work with them primarily in that market to help me arrange tours and drivers and all of the little details that go into running a trip. So it serves them as well, right? They're getting demand for their businesses that they own from being my partner in the business. So they'll get a return in the short term by my demand going to their businesses. And then in the long term they will get a return when, if and when we choose to either recap this business or sell.

A (83:21)

Great.

B (83:23)

Anything that we didn't hit on that you wanted to?

D (83:27)

No, I would just say a lot of unearned revenue. Yeah, we have a lot of interesting things. I'll save it and tell your audience to reach out to me if if there are people who have businesses with negative cash flows, Negative cash conversion. Sorry, Negative cash conversion, not negative cash flows. Negative cash conversion. Talk to me. I learned a lot about how to structure a deal in this case, I think most deal structures are around the idea that accounts or thinking about accounts receivable and accounts receivable and cash free, debt free. And it's a little bit different when you have a negative cash conversion cycle and you do have to negotiate some things differently. And I think I made some mistakes, to be honest, in the first acquisition that I would be more than happy to share lessons learned and how to avoid that for other people. So that'd be the one thing is just I think cash conversion is actually an under appreciated aspect of deal structure. And really understanding your cash conversion cycle is something which I did not put enough emphasis on in my first acquisition and something that is make or break and like a term that I negotiate up front in terms of how are we going to discount the purchase price by the fact that you are taking cash out of the business that is still unearned revenue. And so that's something which I, I can go on and on about. But definitely if your listeners have questions about that, send me a LinkedIn message.

B (84:58)

Well, it goes, Rahul, to the point you made that in a negative cash conversion cycle business, you if the owner or whoever's managing the cash isn't diligent about not spending what they haven't earned, then they can spend it all. But they can also just have the psychology like maybe you're, I don't know, maybe your seller did that it's there that they have earned it and it's theirs and so when they come and they sell the business to you, they want to take all that cash with them. Not understanding like the, the accounting which is that, no, that cash is actually really just on hold and it's going to be dispersed over time and I need that to be able to disperse that cash to the vendors.

C (85:37)

Yes. It's hard to get people to understand that cash that has come in is in fact a short term liability. Like it breaks a lot of people's brains to think like that.

B (85:45)

Yeah, yeah.

C (85:46)

Which is probably one of the harder things in this industry, I would say.

B (85:50)

Yeah, yeah, exactly. You, you owe that money even though it's in your hand. Yeah. Great. Catherine Butler Dines and Rahul Desai, thank you very much for walking us through this acquisition. Really interesting on many levels. In particular, kind of, you know, your journey from considering traditional search to PE to actually working in one of the biggest names in as an operating executive in a PE company, back to self funded search and even on the small end of self funded search and building the lifestyle that you guys want. I love the, I love the entire journey. Thank you for sharing it. Hopefully you enjoyed that interview.

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