← Owned and Operated - A Plumbing, Electrical, and HVAC Business Growth Podcast
Owned and Operated - A Plumbing, Electrical, and HVAC Business Growth Podcast
#152 - Advice for Selling a Home Service Business with Leap Partners
00:44:38
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- [00:00]
John Cerulo
You don't learn from other folks, mistake you're probably going to make. I don't want someone who's good at taking orders or good at doing what they're told. That is not a good leader of an organization. But I really want folks with that kind of drive that want to build it themselves, are so committed to that that they want to learn everything they can from anybody.
- [00:25]
Justin
Recently we've been buying off Supply House, and we were able to get plumbing, H VAC and electrical stuff off there. And my biggest concern was timeliness. Like, hey, if I need this thing pretty quick, can I get it? And you for sure can. So that was awesome. So deliveries are fast, they ship coast to coast, and you can call them and you can get expert support with real people, which is awesome. So check out supplyhouse.com for buying the stuff you need.
- [00:53]
Jack
Welcome back to owned and operated. We have John Cerulo, so not. Not John Wilson. We have Cerulea today. He is with Leap Partners. And Justin, who is also with Leap Partners here today. Welcome, guys. How's it going?
- [01:09]
Alex
Wonderful.
- [01:11]
John Cerulo
Awesome. Jack, good to see you, bud.
- [01:12]
Jack
Yeah, good to see you as well. So a little history. John. John and I talked a really long time ago, right when I started up the business, just in terms of meeting people and going out, you know, and talking with industry folks. And so it's really kind of coming full circle, having him back on the podcast months and months later. So really happy to have you. John, can you tell us a little bit about Leap Partners? What it is, who you guys are, the story.
- [01:41]
John Cerulo
Sure. Happy to do it. And yeah, it is interesting. You. You were one of the first guys I met. I'm. I'm new to the industry. When I started Leap Partners, it's now been three years, so Elite partners. We are a team that is building a Southeast regional H VAC and plumbing business by acquiring really strong, exceptional companies, small companies across the Southeast. So we launched this business right about three years ago when we first chatted as I was trying to meet as many people as I could and learn as much as I could about the space. My background is in doing this kind of thing, but in different industries. So we launched about three years ago. And the core part of the team is a group that I've worked with before that we've been very successful in this kind of a venture. So we started out. Our first acquisition was a company in Alabama. We've done 17 additional ones after that first, and we have what will be our 19th acquisition closing actually tomorrow.
- [02:47]
Alex
So.
- [02:48]
John Cerulo
So you'll see an announcement on that for you now.
- [02:49]
Jack
Congrats. That's huge. I mean that, that is extremely. I don't want to say fast, but it is very fast paced for this industry. What do you, what do you think is part of that success? What is, what's helping you guys drive that success at Leap Partnership?
- [03:07]
John Cerulo
A couple of things. One is that the core team that I have, and that includes Justin, have done a lot of this before. So the leadership team is very well versed in a rapid pace of identifying good companies that are fit with us, working through deals, integrating them into the business and then moving on to the next one. So that's usually the hard part. It's not hard to buy companies. The real work starts after you buy them and you gotta a bunch of companies together. And I think a lot more companies fail at that than the ability to just go out and spend money and buy companies. So one of the elements of success is we just have a team that's done this many, many times and is very practiced at the whole process of identifying companies, negotiating deals, closing deals, and then integrating businesses. But I think the bigger the, that's kind of the mechanical part of why we're successful. I think the real part of why we're successful is the energy, the spirit, maybe you call it the culture that we've developed. Jack, you've had a little chance to see a little bit of that as we've grown. Justin, in fact, was an owner of a company we acquired a little over a year ago. All of our businesses continue to be run by the owners of the companies that we acquired. So that's part of our model, is we partner with owners who are excited about the opportunity to take some money off the table when they sell for sure, but keep some of it invested in Leap Partners. So all of our partners, former owners of these companies, are shareholders and lead partners and share in the success that we're having. And we just built a great culture that encourages best practice, sharing, very transparent about information, and just has a commitment to driving excellence across the organization. And when you do that and do it well, it not only generates enthusiasm and excitement and energy and confidence among our existing team, but it helps us to attract great owners. Because I think if we can get an opportunity to share with them what we're doing and give them an opportunity to get some visibility to it, I think for the right kind of people that we're looking for, it's a pretty exciting thing to think about joining an organization where you continue to basically run Your business with an awesome team around you, lots of help, lots of support, and just a winning organization to be a part of.
- [05:54]
Jack
Yeah, I mean, that's an awesome key to bring up, because I know that through our networking groups, through our Facebook page, through our workshops, there's like this one key that keeps kind of floating throughout all of the ownership team in every. Every kind of group we've ever been in. And it seems to be that. That being an owner in this industry is kind of lonely. There's. There's very little support. There's very little team that kind of works with you. It's just you at, you know, at the ownership level and trying to figure everything out. And it seems like LEAP can provide a little bit of that on the back end. Not that I'm selling LEAP or anything like that. I just want to say to all the listeners out there, John. John is being very humble here. He has a great team who I. Who I talk to decently, regularly. I'll talk. Send Alex a text message. He lives right down the street from me, one of their marketing guys. So very, very good group of people that has been able to keep that anti. I don't want to call it the anti PE feel, but it is a bit like that. Right? You're not coming in and changing everything up. You're coming in and supporting. It feels like. Yeah.
- [07:03]
John Cerulo
And it's been through that. He can probably speak a little.
- [07:06]
Jack
I was just gonna say, Justin, do you feel like that that's kind of been the case, or. Well, how has your experience been with this whole process?
- [07:11]
Alex
Well, so what's interesting is with. With the acquisition with Leap, this wasn't the first time I've sold a plumbing business. So I've. I've been on both sides of it where it's not gone well, and then with leap, it's really gone well. And I think the biggest thing about being able to grow the way leap's been able to grow is they're literally in a support role, not a come in and wreck things role. So, Jack, you know quite a bit of the owners, you've been to some of the events, but, you know, across all the different branches, no one's losing people when we're acquiring. And I think that's the big kind of indicator that leaps onto something really good because they're not losing people. And that's typically what happens is when you. When you have an acquisition or you roll into a larger community, which is really what this is, you end up losing people. And none of us have lost any team members because of it.
- [08:07]
Jack
Yeah, I mean you hear the horror stories on the back end of private equity rolling up somewhere in, you know, Chicago or New York. Then all of a sudden their 40 man team is now a two man team. So has that, has that ever happened to you there, John? I mean, I don't know if you'll admit it on air, but you know.
- [08:23]
John Cerulo
So, so no, thankfully it hasn't. I've been involved in a lot of deals in, in previous operations that we've had. But you know, you have an opportunity, you have a chance over time when you do this to see a lot of mistakes other people made and you know, if you don't learn from other folks mistake, you're probably going to make them. So yeah, that and it always confounded me because some of these guys spend a lot of money buying companies and yeah. Seem to, don't seem to be that thoughtful about what it takes to, to build the culture that folks want to stay with. I mean when you buy one of these businesses, what you're buying is people. I mean the brand name has some value for sure, but the big part of what you're buying is, is the people in the team. And that's where the focus has to be to support them, to give them an environment where they can be happy and successful, enjoy what they're doing, inspired to do better, opportunities to grow their careers. And we spent a lot of time thinking about those kind of things.
- [09:24]
Jack
Yeah, of course. And so with that, I mean this is always such an exciting conversation for me because we deal more so with either new owners or people who are searching to buy businesses. We very rarely talk about, you know, the exit side of this business, which is, is kind of for a lot of people getting into it is, is the end all, be all goal. But that, that being said, so you, you buy these businesses, you keep a lot of the ownership team or all the ownership team in place with incentives. How do you maintain standard standardization across the portfolio companies while still allowing them to retain their original identities?
- [10:04]
John Cerulo
Yeah, so that's a challenge. I'll share some thoughts and I know Justin probably has some things he'd like to add too. So that is the big challenge. Now what you have to remember is we are always, we're always acquiring companies. 19 companies in a little less than three years. You know, it's every few months there's a new company joining. So you always have companies that are at one stage or another of that process. Right. So on month one, you know, the challenge is Making sure payroll and benefits and, you know, bills are going out. You know, this kind of the blocking and tackling stuff, you're not spending a whole lot of time on, you know, on some of the more challenging parts of, of the operations. But then as you get into the six month point or the one year point or the 18 month point, you get further down that curve. And, and we have a lot of efforts to. Not so much, I don't like the word standardize, to educate all of our owners, our partners, on tactics and strategies they can use. And you know, in a lot of cases, there's some of those that work in some environments and don't work at others. You might be in a smaller market, you might be plumbing versus H vac, you might have a little different mix of business. So it's not about like taking our template and saying, here it is, you gotta do it this way. It's about, hey, let's get together, let's talk about it. Let's see who's doing really well, what can we learn, how can we all get better?
- [11:32]
Jack
Yeah, I mean, that's a great point because you can definitely have best practices that reverberate through all those companies. Justin, how was that process for you guys? Right. So LEAP came along when you guys were a certain size. I don't know if you feel comfortable talking about that. You, you kind of joined them and then were there a lot of changes? How did that change management feel from. I know your boss is not. Your new boss is kind of sitting next to you here on the camera. So only say nice things. But like, in all honesty, how was that process going from the way you ran it to now getting some best practices from leap?
- [12:07]
Alex
Well, a big part of it was again, they, they slid into the support role. Like that was really where, where they hung out the most was the support. What do you need from us? How can we help you? And I think from the best practice standpoint, what's nice is that as a group, we all know how each other's doing. Like, it's one thing to be in a best practice group and you're like, yeah, look at my numbers. And it's another thing when you're exposed. Like, there's no hiding from what you got going on.
- [12:33]
Jack
Yeah.
- [12:34]
Alex
So for, for us as a community, because that's really what it is. As we look across the different branches and we see how other people, where they're winning, where they're losing, where they're struggling, what ends up happening is from a leadership standpoint, Leaders end up asking, oh man, I see your booking rate is way higher than mine. What are you doing? And we kind of, that's really how we're trading a lot of best practices. So it's not a, hey, do this this way in order to win. It's more of a, from a leadership standpoint, going to other leaders saying, how do we, how do we win in that? And then going, hey, here's what I've done, here's what, here's what's worked, here's what's not worked, and letting them go and implement it.
- [13:11]
Jack
Yeah, that's awesome. I mean, I think that's one of the big keys that is, it's what attracted me to Leap Partners. And being close to y'all is really, at the end of the day, it's the support system behind. Right. I think that we don't have that support. So it's very nice. It's a very attractive trait to be able to have that and then have a community around, which is what, you know, I think I do a decent job at networking and building that just naturally. But I know a lot of owners have trouble in that sense. And so there's kind of this micro ecosystem that's grown up around H Vac masterminds and H vac workshops to really help people grab that. And it sounds like you guys have just naturally built that in, which is, which is really neat. So, so, John, so you've, you're at 19 companies. What, what's the goal? Because generally, right. Private equity is on a five to seven year. They're rolling up all these companies, then they exit and to a bigger private equity. What's the plan for you guys?
- [14:12]
John Cerulo
Yeah, so we are incredibly fortunate to have a great partner as our majority investor. It's essentially a wealthy family. You might hear referred to as a family desk. They're out of Chicago. And unlike what people I think generally conceive, when they think about a private equity company, their approach is much different. And a good example is that exit question. And you're right, a lot of private equity companies, they raise a fund. You get bought somewhere during that seven year fund cycle. You've got to cycle out at some point so they can return money to their investors. And the timing to sell is kind of in many cases forced on you. The beauty of our relationship with our investor, Concentric Equity Partners, is they're, they're very patient. Their approach is when the management team decides it's the right time to exit, that's when it's time to exit and they really are a partner with us in that respect. So, so our original, you know, when we got together, of course we put together a business plan. Our original business plan had a five year horizon just because, you know, know it's a little hard to look out, you know, a whole lot further than five years. So it wasn't that we were building to sell in five years. It was, hey, here's a plan where we'd like to be in five years. We're actually, we're three years in and we're, we're well ahead of that original plan. We think there's a lot of Runway for us. We think our, our model has, has in a sense been proven out. We love the culture we're building. We think, you know, it was a little bit hard when we first started because no one really knew us. But now that we've done so many deals and we're getting a little bit of a reputation as being a good partner. So we expect the momentum to pick up as that continues. So there's going to be an exit at some point. It's going to be when, when we decide it's the right time and we get to the right size, it'll be at least double the size that we are now, maybe, maybe somewhat bigger than that. But there'll be a right time when it's time to exit and. But it's going to be a decision made based on the facts of our company and the industry. Not something that gets thrust on us because some of the timing.
- [16:32]
Jack
That's nice because I know that that's a big. We were, we were joking about it the other day with some other owners about how if you sell towards the end of the year it's always a better deal because in the beginning of the year they've low PE firms have located a certain amount of companies and they need to close out a certain amount by the end of the year. And so the, the price goes up as, as companies, they get closer to that, that close, close time. That's really interesting. So I mean from your level, right, you're working with really large family offices. You have, you've been in the industry three years now. You're surrounded by owners. What kind of trends are you seeing in the H VAC plumbing industry that either a made you move into it out of, I don't think we mentioned it here, but you were in home security before. So what made you go into H Vac and plumbing? And are there any trends right now that you see that others Might be overlooking.
- [17:29]
John Cerulo
Yeah. So as you mentioned, my background is in home services. I, along with a bunch of folks on my team, led a home security company that also had a southeast footprint. We did 45 acquisitions over 10 or 12 years. And when we exited that business, basically what we did is we looked around at all the different home service companies. For some, I think, good reasons, we decided getting back into home security wasn't the right path. So we looked at every home service business you could imagine, from gutters to windows to roofs to landscape and the pest control. I mean, just everything. Talked to a lot of smart people who had been, had had some experience in those spaces and decided H Vac and plumbing was the right place for us for a couple of reasons. One is it's our model is to buy what many companies doing. What we're doing would consider very small companies, right? So we're buying companies that have in some cases, 10 or 20 or 30 or 40 employees. Right. So we're not buying big businesses. Some are a little bit bigger than that, but our range is much smaller than kind of the sweet spot for most of the other buyers that requires to be successful an industry that is heavily fragmented. And H Vac and plumbing certainly met that. We wanted an industry that was, at least describe it as you can, but recession resistant. Nothing's recession proof. Right. But something that was a, a necessity, not a kind of a discretionary spend. And some of those home services are more discretionary than others. So another reason that we really like H Vac and plumbing and, and, and the, the. We're a southeast focused business. We really like the Southeast just because of the demographics of what's going on in the Southeast. We think it's a great place to be. And we think that also argued for an effort kind of in this direction with H Vac and plumbing. And so after all that research, we came to that conclusion and then quickly got to work trying to identify companies that would be a good fit for us.
- [19:52]
Justin
A few months ago, we got our call center on Evoca. And Evoca is a AI call center solution for home service companies just like me and probably just like you. They have a couple different products, but the one that we like the most is their coach product, which listens to every single phone call and runs it through a rubric to help our call takers improve. And this is a really big deal because we take hundreds, sometimes thousands of phone calls every single day. And it's just too much for our trainers and managers and leads to keep up with and effectively Train. So it lets us do ride alongs on almost every single call every day. Click on the link below to go to Avoca and make sure you use the promo code owned for a special discount.
- [20:29]
Jack
Yeah, I mean, I think it's a, it's a fairly straightforward thesis, right? That's, that's what a lot of people kind of have come rushing in in the past few years is, is they've seen this res. Recession resistant business model mixed with the high fragmentation and they said, hey, let's, let's start, start working on. I know that was one of mine as well because if, if it's between cleaning your pool and getting your AC on in the middle of summer, I'm getting my AC on, there's no question about it. The pool goes green, the grass grows high and I sit inside nice and cool. So that, that's amazing. I mean I, I think that, that we're all, are all aligned there. Justin, how did you originally get into plumbing? Were you born in the trades?
- [21:14]
Alex
I was not.
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Jack
When. What's your backstory? A little bit.
- [21:16]
Alex
So I actually started a company in Atlanta about 22, 23 years ago, actually, still own it today. And we did appliance installs. That's all we did. We put in dishwashers, we put in microwaves, and we put in a bunch of them. And it was such a good industry for me to first get started into in the home service space because I was doing so much big box retail that I couldn't control pricing. So the only thing I could do is build efficiencies around how we were doing these things. So I finally got that business to a point where it didn't really need my attention or my focus. And I started to look for something that was similar. Plumbing obviously is very similar. We were having to outsource a lot of stuff to plumbing and I thought plumbing, that sounds like a pretty cool, pretty cool gig I could do. And so we, we started leaning in and doing a lot of work on the plumbing side. And then we had that for probably six or seven years and we ended up selling to a much larger competitor. And then we launched paradise home services. About 2019, we launched Paradise Home Services. And one of the big things we wanted to accomplish with paradise was that we wanted to also add H Vac and that's something that we hadn't done in the past. One of the stories with Leap that really attracted us to them is the business that I sold a number of years prior to start in Paradise. We went and got a lot of our team from. We call it 1.0 from 1.0, which is a lot like what John and the team did when they launched Leap. They went and said, hey, you know what? I've got people I like working with, I trust them, I like going to work with them, I like winning with them. Let's do that. So that's a lot of what we did. So that's kind of the Cliff Note version of getting into the trades. I definitely am not a trades person. I'm probably more on the heavier on the sales side than anything else. But it's always such a good, it's always such a good industry from. It's a need. Right? Customers. Customers need it and they're not going to go without certain things. They may not get the $8000 fancy toilet that, you know, does all the stuff, but if your drains are clogged, you're. You're going to do something about that or your AC is not working. That becomes a priority really quick.
- [23:32]
Jack
Exactly. And so at what point, I know this is a question that we get a lot. What, what point was the decision made that you guys wanted to exit? Did you shop it around? How did that look from kind of the 32,000 foot level of I'm running paradise. Leap reached out to me. We, we reached out to them via, you know, like putting together a CIM and shopping it through a broker. How did that process go for you?
- [24:01]
Alex
We weren't looking to sell. We ended up doing the deal quite a bit earlier than we originally anticipated. Just because with the different groups we talked to, we knew number wise where we had to be. It's funny because when we first sat down and met with Leap, there was just this really good connection. And it was kind of like, you know what, we like their story. They really like our story. There's a lot of similarities to it. And so we ended up making a deal pretty quick for, for my business partner and I, especially with, with my wife and I. Like, we're getting into that season of life where the kids are getting out of the house. My son's in the Marines. My daughter is about to go to college, which she just got accepted to her school this week, which is pretty awesome.
- [24:45]
Jack
That's awesome.
- [24:46]
Alex
And it was really about liability. We started having conversations around liability and next stages of life and so taking some chips off and really being a leverage, being able to leverage. As we grew, because we, we grew pretty quickly, it was nice to have a partner to be able to leverage some of that liability on versus it Being on my partner and I. Because at the end of the day when it was just us, it was us, like there was, there was nobody else.
- [25:13]
Jack
Yeah. And so with that, so you guys made the decision, they reached out to you, you met with them, talked it through and decided, hey, this was a great idea. Since then, what, what has growth look like? Because that's always a question that I have is right, if I could not worry about hr, not worry about marketing, not worry about, you know, all these things that the owner worries about that Leap ends up picking up or I mean, another group, we're just leaps here today. So. But as Leap ends up picking up, what did growth look like after that? Did you see the growth that you expected when you were able to focus down or what was the outcome?
- [25:53]
Alex
Yeah. So for us and really any of the other branches, I think one of the big advantages is that we can focus on leadership, we can focus on revenue generating and driving the businesses versus the insurance audits and oh my gosh, I need another truck. That's, that's now become a part time job where now we go, hey, we need another truck. And then it's somebody else is working on it. So I think really for, for us and the other branches, it's more about just being able to stay. I want to say really for a lot of us, the reason we got in this industry anyways, we didn't get in the business to deal with the taxes, insurance and the fighting with the audits and you know, like, what do you mean you don't cover that insurance company? Look at this bill I pay you every month. That's not covered. Right. So I think that was, I think that's been a big win for everybody. It's just being able to focus on that part of it.
- [26:42]
Jack
Yeah. So see, so in terms of actual numbers, organic growth, did you guys track that? Where do you, like, how is growth afterward? Do you feel like you actually have measurable? I don't know what the timeline horizon is either. If you're not able to speak, I get it.
- [26:58]
John Cerulo
Happy to touch on it. So our objective is to organically grow 10% a year.
- [27:05]
Jack
Okay.
- [27:06]
John Cerulo
Now again, think about the, about all the companies we have and where they are in this cycle. You know, they're. The first couple months after acquisition is, you know, a little bit of a distraction as we're getting some of the original integration done and then there's progress that comes after that. So we have companies that are, you know, at various stages of that, of that cycle now quite honestly, as I'm sure most of your listeners. No, the last two years have been pretty challenging in the space.
- [27:33]
Jack
Right.
- [27:33]
John Cerulo
That it hasn't been the kind of growth opportunities that we saw in 20 and 21 and 22. So we're shy of that 10%. We're growing, we think, appreciably faster than the market, but not quite as fast as we want. So that forces us to challenge ourselves to think about what else can we do to accelerate that growth, regardless of what the weather or the market conditions or whatever the market happens to be giving us. And that's been a challenge. It's challenged a lot of us here these last couple years. But we feel really good about where we are and especially about the foundation that we're building for this just steady, sustainable kind of organic growth that we're seeing.
- [28:23]
Jack
Yeah, I mean especially as you, you. Is that 10% like a cumulative total across all brands?
- [28:31]
John Cerulo
Yeah.
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Jack
So I mean at that size, that's not anything that we haven't heard of from other large, single, like singular size competitors. I think Hoffman talked about it pretty openly on here, is that their large 100 million dollar brand saw something very similar to that size or that amount of growth. But their Nashville location, their smaller, you know, Greenfield location was growing crazy like 50% which I think it's, it's a lot easier to get those numbers in the, the smaller stage and harder once you, you know. Yeah, go from 20 million to 40 million is a lot different than one to two.
- [29:05]
John Cerulo
Yeah. Hire one extra crew and you know.
- [29:08]
Jack
Yeah, exactly. That's three more leads a day for, you know, a whole year is not, not unachievable versus when you tap out LSA and you've used all your PPC and you're dumping 80 to 90k into to thumbtack. So yeah, no, I'm, I'm understanding of that. And. But so how, how are you managing though? I mean that you do have some. At least when I was at the, the leadership team dinner, there was a few guys there that were in that kind of smaller sub 10 category. How, how are you supporting them in, in kind of their hyper growth movements?
- [29:44]
John Cerulo
Yeah. So there are different needs from that support standpoint depending on a lot of factors. And size is a big one. Right. So when we acquire a company that has a dozen employees as opposed to one that has 50, what the smaller company needs to help them accelerate growth is often very different. It may be more recruiting. Maybe they were good at marketing and had trouble recruiting. Maybe they're good at recruiting, had trouble marketing Maybe they just didn't have the systems to support it. Yeah, so every case is a little bit different. And so, you know, what we try to do is tailor our efforts to the specific needs of that location, that team. It may be just leadership support. Right. They may need some leadership training along those lines. So we try to give them what they need to help put them in a position to grow.
- [30:41]
Jack
And so a lot of our listeners are, you know, sub, I'd say most of them are sub 10 million. A lot of them are sub 5 million, even, you know, smaller than that. With that, a lot of them are dealing, you know, they're four or five guys, six guys, they're going through lots of headaches day to day as they grow. It's my belief that putting in the systems in place for the end goal is extremely important so that when you get to the end goal, you're not switching over to service titan at, you know, 10, 15 million. It's much easier to switch over at 2 million. So with that being said, what. Are there any big items as you've purchased and well, you've done 45 in the security industry, you've done 19 in plumbing and H vac. Is there anything that you, any advice that you'd give to smaller companies to say, hey, start working on this now you're, you're the right size. This will help you once you, once you get ready for an exit.
- [31:41]
John Cerulo
Yeah, there's a, there's a whole host of things I'll mention a couple of. Justin probably has a few thoughts on that too. You know, the first is really understanding your business and understanding the financial performance of your business. That's. It's again, when you're running a business and you're in the middle of a day to day, sometimes it's hard to find the time to, to structure your financial metrics, your financial statements so that you really do understand how the business is doing, what your margins are. Make sure that you understand where your costs are. That that's often a big part of the problem because, because what companies then often will find out when they start looking at is holy cow, I have not been, been making any money in this area. Why don't I stop doing that and start doing more of what's really driving profit? And sometimes owners don't find that out until they decide to sell and then someone digs into their financials and explains that to them. So if I was going to say one thing, it would be that understand your business and in particular understand where you're Making your money and focus on that because you can really improve your financial performance. Performance if you sometimes shed unprofitable segments and just pour that energy and effort into areas where you're more profitable.
- [33:02]
Jack
I mean, I think that's a great piece of advice. We talk about it all the time is when, you know, we have a lot of people we work with who say hey, we really want to go into this trade, you know, the squirrel mentality, the shiny object syndrome. And now they're doing hey, we're plumbers, but now we're doing appliance repair and now we're doing this and now we're doing that. And by the end of it they're doing commercial new installs. Plumbing, plumbing, H vac, electrical, they're just touching everything and, and a lot of them are absolutely unprofitable and takes away from your core business. Right. To be able to grow. And I'm sure that there's an importance there, right, to be able to have those systems in place to say, hey, your core business is plumbing. We want you to grow plumbing. We don't want you, you know, I call it squirreling out. We don't want you getting over, off, off, sidetracked onto these, these one offs to, to make money. So definitely focusing on, on financials, understanding your books, maybe potentially having a good bookkeeper manage those books for pretty early on to make sure that everything's accurate and, or that you're able to go through and, and understand it. Justin, was there anything for you that you noticed through your exit that you said, hey, this was, I'm so glad we did this or I wish we did that.
- [34:20]
Alex
I think our situation was a little different because we really, really focused on the end result which was, you know, we started with the end in mind and that's how we built the business. I think unfortunately what happens a lot of times with business owners is they get to where something happens and they have to sell now and then they're not going to get a premium for it if they can even get anything for it. And basically they've spent, I mean you see some people, 40, 50 years they've spent building something and really it's a job versus a business that's a, that's a sellable asset. So I think really dial in on what the end result looks like. And even if it's not sell, even if it's, you know, passed down to generation or whatever it looks like, just have that in mind so that you're going towards that goal.
- [35:06]
Jack
Yeah, I think that that reverberates throughout the entire business too, is intent. Intent is extremely important. Intent in everything you do, in every system you place. What is the meaning of it and what's the goal by the end? Justin, were you on Service Titan already?
- [35:21]
Alex
We were, yeah, we were on service Gosh. We've been on Service Titan almost 10 years between 1.0 and now. So 1.0, we jumped on the Service Titan pretty quickly, which was obviously nice when we partnered with Leap because we had team members that had been in that software for so long. So that certainly was a helpful.
- [35:41]
Jack
Makes the transition easy, I'm sure. Yeah. Was there anything else like that, either a software tool or a system that you said, hey, you know, we went residential only and that was the intent because we wanted to build, to sell.
- [35:53]
Alex
At some point, you know, for us, residential services. Cod. And we like cod. We do a little bit of work with some of the boxes, but, you know, COD work really is the dream. So we didn't really get into commercial because we didn't want to get into the billing part of it. It's not to say that there's not some value in doing commercial work just for us. It wasn't a good. It wasn't a good avenue. It was be able to service as many customers as we could throughout the day and be able to get paid throughout the day because again, we were in the scaling mode. So we were trying to grow and scale probably a little faster than we should have, but that's okay. I'm ambitious.
- [36:34]
Jack
Yeah, that's the problem we all have is the cash flow cycle. On anything that you try to get a hundred percent year over year growth with becomes an absolute nightmare on cash flow. And so, I mean, with that, Justin, I mean, we're kind of in a unique situation here where we don't get to talk to people who exit a lot. I don't know what you can and can't say, but I mean, what. Do you have any advice for anybody who's building towards an exit or going towards an exit? Like what? What is something they should be thinking about or doing to start prepping for that?
- [37:02]
Alex
I'll kind of mirror what John said about know your numbers. That's really important because knowing your numbers is going to know is going to tell you what the business is worth and if it's a viable asset. And again, the other thing is just understand what's important to you. Right. Everybody's got non negotiables. Everybody. Everybody should have non negotiables on what they want. Out of a deal or life or anything. So be thinking about what, what is important to you if you exit. For us, one of our big things was our team and our, our core value. You know, our, our culture was very important because they had helped us grow and scale as fast as we did. So as we were talking to potential partners, that was really, really important to us is we have to make sure our people are taken care of and have opportunities moving forward.
- [37:48]
Jack
Like we said before, that's huge. That's the opposite of the PE playbook is you want to keep everybody, you want to keep everybody happy, you want to keep the culture there. And we find a lot of times it just doesn't happen with pe. No. That's extremely interesting. Like I said, we don't get to talk to people who exited very often and they're usually under pretty strict NDAs and non competes and all that. So, John, you've rolled up a home service company before. Now you're rolling up this other one. What is some of the biggest lessons that you've come that you've learned coming out of this with roll up strategy?
- [38:29]
John Cerulo
So a couple of thoughts. One of the things that was, I think if it was a surprise, but it was, it was really interesting to see the, the owners of businesses in, in H VAC and plumbing are very, very similar to the owners that we had dealt with in the security space. And it's always inspiring to me because these are all entrepreneurs in the true sense of the word. Started the business usually out of their garage or their truck, built a family business over, in some cases many years, in some cases generations. And for me, it gave me a profound respect for the opportunities we have in this country to do something special like that on your own and the kind of person that it attracts. Right. You don't get someone who's hesitant or tentative or not willing to take a risk. Right. You get folks who are willing to jump out and take a chance.
- [39:33]
Jack
I was going to ask about that. How do you manage that? Because in my mind there's two types of entrepreneurs. There's entrepreneurs that got into it because they, they like the game, they like to build for whatever masochistic reason. They just love, love the pain of not knowing where, you know whether they're going to make payroll or not. But the other set of owners, there's a, there's a decent group that I feel went into entrepreneurship because they don't like being told what to do. They don't like having a boss. How do you manage kind of across Those two or do you just avoid one group or the other?
- [40:08]
John Cerulo
Yeah, so I love working with folks that have that approach, that have the, the confidence and, and the drive to want to do things on their own. Now you can take that too far. If you get to the point where you have the attitude that I know everything and no one has anything they can teach me, then that's taken that too far and that person's obviously not a good fit for us because we learn from each other. But I really want folks with that kind of drive that want to build it themselves, but are so committed to that that they want to learn everything they can from anybody. I don't want someone who's good at taking orders or good at doing what they're told. That's not, that is not a good leader of an organization. It's way better to have folks who, who have that kind of mentality and, but yet understand that to do that really well, you've got to learn from everybody. And if you have that approach, as Justin does, and everybody that we brought on to our team, it's really magic when you get them together. We had, as you mentioned, the group together. We call a leadership meeting just, just a week ago and seeing all these guys in the room who, who are entrepreneurs, built their businesses, did it on their own, carry the load by themselves for many, many years, who are now in a room just inspired to help each other and learn from each other and asking lots of questions and taking lots of notes and diving into engagement that we're doing and, and, and team exercises. That's where the real magic happens. But it doesn't happen if you get a bunch of guys who just are ready to do what you tell them to do. It's got to be guys and gals that, that are self starters, that are very motivated and that, and that want to do it on their own.
- [42:01]
Jack
Yeah, you guys, you guys facilitate. Which I found really funny with everyone I talked to at the leadership meeting. Everyone had a healthy sense of competition against each other. Internal competition, whether it was golf or numbers or like the golf simulator. Every single one of them at all times was talking about competing and winning and, but all in a very, you know, in jest. They were having a great time. And so I think that that's a huge piece to the puzzle. Is, is as the leadership team, as leaping kind of the leadership overarching team, creating that culture among the owners to be able to compete healthily against each other, which I mean for any, any of the owners listening, we talk about Creating that same kind of culture and competition for our internal teams. Right. We want all of our H VAC guys competing for the highest ticket and the most flips and et cetera, et cetera. So I think it was an interesting kind of breakthrough for me seeing that was going, oh, it's the same, it's the same thing. You're just doing it to us so well, awesome guys. You know, I really appreciate you guys coming on today again. John, where can people find out more about lead partners? Maybe touch base with you? What's the best platform?
- [43:17]
John Cerulo
Yeah, so easiest way to do it is through our website, theleappartners.com of course anybody can reach out to me. My phone number is on the website. I love engaging with business owners even I enjoy even talking to owners that are not necessarily ready to sell but just have quite questions about it. It's a great way to make friends and learn new stuff. So I'm, I love the opportunity to chat with anybody that I have the opportunity to learn a little bit from and help out in any way that I can. So. And I really appreciate you doing this, Jack. It's been a, it's been great to get to know you. It was obvious from the start you had the, you know, before you even began that you had the, you had the energy and the drive and the enthusiasm and creativity to make something special happen. And it's been fun watching the success you've built.
- [44:02]
Jack
I appreciate it. I think the word that, that you were looking for is that masochistic. Again, that one trait, just enjoy the pain. But yeah, we, we appreciate you having you on and thank you Justin, for coming on, sharing your side. It's been wonderful. For those of you at home, if you like what you heard today, go ahead and leave us. Five stars on wherever you listen, comments, questions, anything like that, we can get you in touch and thank you all. Appreciate it.