#155 - Merging Cultures: Challenges In Home Service Acquisitions

Summary

Owned and Operated - Episode #155: Merging Cultures – Challenges In Home Service Acquisitions

Release Date: December 10, 2024

In episode #155 of the "Owned and Operated" podcast, hosts John Wilson and Jack Carr welcome Nathan from Bart's Heating and Air to discuss the complexities and strategic considerations involved in growing a home service business through acquisitions. This detailed conversation provides valuable insights into the challenges of merging different company cultures, balancing acquired and organic growth, and establishing robust operational frameworks to support rapid expansion.

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1. Introduction to Bart's Growth Journey

Nathan begins by outlining Bart's Heating and Air's ambitious growth trajectory through strategic acquisitions. Starting in late November 2021, Bart's acquired its first HVAC company in the DFW area, increasing its revenue from $1 million to $1.7 million in the first year—a 70% growth rate.

Nathan (00:29): "We're at like a 65, 70% kind of acquisition percentage and then the other 30% plus organic growth."

This momentum continued with a second acquisition in January 2023, adding another $1.2 million in revenue and bringing the total to $3.6 million. By 2024, Bart's completed a third acquisition, pushing revenues to approximately $5.8 million and setting sights on a $10.5 million run rate.

John (02:10): "That's 70% growth."

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2. Strategic Rebranding Decisions

A significant point of discussion is the strategic decision to rebrand acquired companies. Initially, Bart's assimilated all acquisitions under the Bart's brand. However, the latest acquisition, Christmas Air, presents a different scenario due to its larger size and strong market presence.

Nathan (03:13): "We're going towards the Christmas Air name."

John supports this move, emphasizing the importance of maintaining brand integrity and leveraging the established reputation of Christmas Air.

John (03:13): "It is the right move... it's the right decision."

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3. Integration Challenges: Culture and Operations

Integrating new companies often brings cultural clashes and operational hurdles. Nathan highlights that while the first two acquisitions were smooth, the third posed unique challenges, particularly around differing compensation structures and entrenched operational practices.

Nathan (07:40): "We have been empowering the GM with a lot of time and decision making ability."

Jack Carr shares his own experiences, noting that his company lost almost an entire plumbing business due to cultural misalignment.

Jack (22:35): "We lost almost the entire plumbing company we bought because of this issue right out the gate."

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4. Balancing Acquired and Organic Growth

John reflects on his company's shift from a 70% acquired and 30% organic revenue ratio to the opposite, contrasting it with Bart's consistent acquisition-driven growth. Nathan expresses a desire to eventually increase the proportion of organic growth as the company scales.

John (05:32): "We are now the opposite of what you guys are. We're 70% organic and 30% acquired."

Nathan (29:44): "We're trying to figure out that lead gen machine and really build that at the same time we can flip that script a little bit."

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5. Financial Strategies and Banking Insights

As Bart's Heating and Air grows, financial strategies must adapt. Nathan discusses how reaching $5 million in EBITDA opens doors to conventional debt, complicating credit terms and vendor relationships. He shares his experiences with renegotiating vendor contracts to leverage increased buying power.

John (31:09): "At 5 million, that's the easiest way to think about it."

Nathan (34:43): "The goal is 100 million plus over the next seven years."

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6. Future Plans and Long-term Goals

Looking ahead, Bart's Heating and Air aims to reach $100 million in revenue within ten years by expanding geographically and adding new services beyond HVAC. Nathan emphasizes the importance of building a robust foundation to support scalable growth.

Nathan (34:43): "The goal is 100 million plus over the next seven years."

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7. Tips for Successful Acquisitions

Nathan offers practical advice for other business owners considering acquisitions:

• Establish Credibility: Successfully closing initial deals builds trust and attracts further opportunities.
• Maintain Transparent Communication: Clearly communicate intentions and changes to both employees and customers.
• Leverage Supplier Relationships: Suppliers can be a key source for off-market deals and credible introductions.
• Honor Legacy Brands When Beneficial: Respecting the established brand can ease integration and maintain customer loyalty.

Nathan (46:35): "Our pitch is four things: fair terms, taking care of people, customers, and honoring legacy."

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8. Leveraging Supplier Relationships for Acquisitions

Both Nathan and Jack emphasize the importance of supplier relationships in sourcing acquisition opportunities. Suppliers often have insider knowledge of businesses looking to sell and can provide invaluable leads that are not publicly listed.

John (50:48): "That's where we get most of ours as well."

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9. Conclusion and Key Takeaways

The episode wraps up with reflections on the future of acquisitions for Bart's Heating and Air and how they plan to navigate ongoing integration challenges while striving for continued growth. The hosts encourage listeners to utilize their networks and maintain a clear strategic vision when considering acquisitions.

John (51:34): "Find out soon. If people want to connect with you and hear more, how can they find you?"

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Notable Quotes with Timestamps

• Nathan (00:29): "We're at like a 65, 70% kind of acquisition percentage and then the other 30% plus organic growth."
• John (03:13): "It is the right move... it's the right decision."
• John (05:32): "We are now the opposite of what you guys are. We're 70% organic and 30% acquired."
• Nathan (07:40): "We have been empowering the GM with a lot of time and decision making ability."
• Nathan (46:35): "Our pitch is four things: fair terms, taking care of people, customers, and honoring legacy."
• John (31:09): "At 5 million, that's the easiest way to think about it."

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Key Takeaways for Listeners

• Strategic Acquisitions: Focus on acquiring companies that align with your strategic vision and consider rebranding when beneficial.
• Cultural Integration: Prioritize cultural alignment and clear communication to ensure smooth mergers.
• Balanced Growth: Maintain a healthy balance between acquired and organic growth to ensure sustainable expansion.
• Financial Adaptation: As your business grows, adapt financial strategies to leverage better funding options and manage vendor relationships effectively.
• Supplier Networks: Utilize existing supplier relationships as a primary source for acquisition leads and credible introductions.

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For more insights and resources on growing your home service business, visit www.ownedandoperated.com.

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Thank you for tuning into "Owned and Operated" with John Wilson and Jack Carr. If you found this episode helpful, subscribe and leave a review to help others discover our podcast.

Transcript

[Nathan]

After our first year where we lost money, essentially. And so we'll be at over 10 million now and just pretty much H vac number one. It's all about people, right? Like, get in and make sure you don't break the number one rule in small business, and that's messing with people's money. Hey, guys, just don't worry about any other services. Just get the 5 million in one service first, and then you might know what you're doing. Acquisitions are sexy.

[John]

Recently, we've been buying off supply houses, house.com and we've been 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. Welcome back to Owned and Operated. Today we've got my friend Nathan from Bart's Heating and Air on the show. Welcome in, Nathan.

[Nathan]

What's up, guys?

[Jack]

Hey, Nathan. For those of you tuning in, you should probably watch it. This is going to be episode of two handsome bald men ganging up on John and making fun of him the entire episode. So we're very excited today.

[John]

Yeah, it's. It's gonna be, you know, my long, luscious locks will be challenging to mock. I'll just. I'll be doing a lot of hair flip. That's going to be good. Well, the topic of the conversation today is going to be growth through acquisition, and I'm really excited to talk about that. And I think you're just a great person to talk about it with because you are actively growing through acquisitions. So could you give us a little bit of, like, how did you get to where you are today? And what does Barts look like now?

[Nathan]

Yeah. So bought our first H Vac company and DFW in late 2021, November, doing literally like a million in revenue. So we took it from a million to 1.7 million in our first year, which doesn't sound like that big a number, but, man, we sure messed up some 70% growth.

[John]

That's 70% growth.

[Nathan]

I know the percentage sounds sexy, but it didn't feel sexy. So 1.7, first year, and then January of 2023, we end up acquiring our second one, just a little bit bigger. 1.2 million in revenue, and ended that year 3.6 altogether. So we're at like a 65, 70% kind of acquisition percentage and then the other 30% plus organic growth. And then we just completed our third acquisition here in 2024 and that one's doing about 5.8 million. So we're on pace for 10 and a half million ish going forward on run rate and trying to get that up higher. So still on that kind of 70% revenue has come through acquisition and the other 30% through organic. And we're starting to look to flip that a little bit, but we'll see how it goes.

[Jack]

And are those all going into the Bart's brand? Are you rebranding all three of those to be Barts?

[Nathan]

This last one, I don't think so. It's bigger than Barts. We're going to end up around four and a half million this year for just Barts. And then with, with the new ones called Christmas Air, all the numbers say we should rebrand to Christmas Eric because it's bigger, you know, better SEO, better volume on, on website traffic and, and they just have a cult following. So it's, it's a TBD a little bit. But most likely we're gonna, we'll go towards the, the Christmas Air name.

[John]

That is like, that's the right move. I, I, when you first, when you first brought this up like two months ago, or I don't even remember when it was, and we started, like, looking into it, I was like, he's got to reverse brand this thing because the, but it's such a weird decision to like, take on the acquired brand. But it is the right one. In this, like, very rare case, this is the right decision.

[Nathan]

I, I can't, I can't disagree with you on that. It's, it's hard. You put your heart and soul into a brand, you're like, oh, this is it. But I think for a thousand reasons, you're right.

[John]

Yeah. Yeah, that's. Well, I mean, I'm just glad you guys got there because, like, that, that's a decision that you're gonna be thankful for for the next decade. Like, that's the right decision.

[Nathan]

Yeah.

[John]

Yeah, that's awesome.

[Nathan]

Got lots to figure out still on the culture, compensation and culture and then combining everything still. But we're working through it. Yeah. Lots to come for sure.

[John]

I was talking with a couple friends of mine earlier in, in the week, I think it was Monday, and we were talking about growth through acquisition and then sort of the acquired growth percentage. And obviously it changes over time a lot. I, I'd never done the Math until Monday on what my percentage of revenue was bought versus organic. We are now the opposite of what you guys are. We're 70% organic and 30% acquired. But if you would have asked me in 20, 22, two years ago, it would have been like exactly what you're describing. 70, 30 acquired versus organic. And even I feel like that's going to be a really challenging number to change as we grow. Unless you buy like massive companies because, you know, we're looking at a couple deals now and it's, it's like I'll still be 70% when I'm done. It'll be like 71%.

[Nathan]

Wow. Yeah. I mean, same idea. We, I think we're a little behind you on that cycle, but we're trying to figure out that lead gen machine and really build that at the. We need to. So we can flip that script a little bit because, you know, we have some ambitious goals.

[Jack]

I think it's so cool though, because I mean, realistically, our stories are very similar, but we are a year behind you. And so like we bought a year after you. We bought our second one a year after you. Numbers are all similar within like a couple hundred thousand. And we just. I'm excited. If I, if I have a little 5 million, 5.8 million come, come through the, the trench, I'd be very happy right about now. But that's interesting. It's very interesting. And with that, I mean, what, what has been some of the, the hardest parts of integration for you as you're taking on kind of these bigger companies? I know one of them was out of your service area, correct? Out of your typical service area.

[Nathan]

Yeah, yeah, it was about 90, almost 90 minutes away from the current one, still in DFW. So that's good. We basically cover the northwest quadrant of dfw and we don't really have a desire yet to go across it because people don't realize that service area is essentially the state of Connecticut. And so just trying to get that level of scale and I'd rather have service route density than saying I'm everywhere in dfw. So as far as integration, I mean, honestly, the first two acquisitions, no people came with it except technicians. So integration is super easy because they basically all got paid better coming over and in some ways treated better. So I think culturally we know who we are and people are really excited from day one to come over. And then this last one has been outside the admin bull crap of getting software and billing and all that stuff switched over. Dude, the people have been incredible. It's our first team that has actually come over and they've been unreal. So it's everything we thought it was and more.

[John]

That's awesome. What's the team size?

[Nathan]

Yeah, so it's about, I think, 17 people. 18 people right around there.

[Jack]

All H vac too, across the board. No plumbing, no electoral, just H Vac.

[Nathan]

Only on the Bart's brand. We did introduce plumbing in the last 90 days or so.

[Jack]

Okay.

[Nathan]

Yeah. So not. Not moved over to Christmas yet, but maybe one day.

[John]

So the. The whole company is 18 people. Like, oh, oh, no office.

[Nathan]

Sorry. The new acquisition, Christmas day are about 18. So we're probably right around 38.

[John]

All in a lot breaks at 30 employees. And I'm sure you guys are starting to feel that. Where do you. Where do you feel like the gaps are starting to show up?

[Nathan]

I think it's just really, I mean, trying to nail down expectations in between any kind of management layers and really get information to cascade down this, you know, like one of the things I say, like, you have to say something seven times before it's in anyone's brains. And you got to say it the same way over and over and over and over again. And so trying to get the, like the repetitions in at every level to really send the messaging that you want, and it just means you can't send a lot of messages. You got to send very few messages. And they have to be very simple and they have to be very, very, very, very consistent. And so trying to do that across when you have multiple locations. I know you've consolidated, John, where you had multiple locations. It's painful when they're not in the same location. Right. And so we've consolidated the Bart's brands into one location. And then it's our aspiration in the next 12, 18 months to really be in a much larger location with all the brands. So I'd say it's that communication really nailing it down and then just consistency and knowing who you are. So knowing who you are as a company, how you compensate at every single level, and then what do you do when no one else is around? How do you make decisions? How's that guided? Is that values? Is that the mission of the company and all those things? So I think it's a lot of soft stuff and then just trying to get reporting and financials straight so that everyone has a number and they know if they're doing good or not with regardless of whether the boss is in the room.

[John]

Have you introduced HR recruitment yet? I guess that's, I want to walk through like the, the infrastructure.

[Nathan]

Sure.

[John]

So. Because I think that's what's going to break if I'm going to basically double the team size, double the revenue. Like is accounting there, is marketing there, is HR there. So like how have you gotten the teams there in this state of rapid growth?

[Nathan]

Yeah, so right now of the owners, there's. There's four owners, we're all partners. Two are in the business full time. One of those guys is like very much operations, GM type role, he's running everything. The other one is a financial accounting, he's been a CFO type role. So he's really pushing hard on the administrative side with the cash management and money management systems. So that's the level up there. And then next level you essentially have the GMs, one for Bart's, one for Christmas Air and then you have some shared services behind the scenes. But you got, we do have an HR person recruiter. We do have, let's see, we got four or five with after hours and overseas like six people taking calls and doing outbound and all that stuff. And then you have, I think we're at like 20, around 20 techs and installers, et cetera in there. And then you have a couple of warehouse guys and then a few salespeople. So I think that's it. And then marketing is outsourced.

[John]

There's been a couple times in my life where we doubled in acquisitions. And Jack, I think you just did too.

[Jack]

Yeah, we just went through this process.

[John]

It breaks everything.

[Jack]

It breaks everything.

[John]

Just absolutely everything.

[Nathan]

Yeah, I'd say we do have like me and this exact leadership team. Like we've built a company and sold it before. We all worked at WeWork as well where our P and L went from you know, 4 million in revenue to 220 in less than three years. So like we've gotten to see growth and what that looks like. So we over indexed on kind of the, some of the infrastructure in the beginning and we have like we're over like that's why I'm not in the business day to day right now. We're not ready yet for like that burden on the P and L. But it's a huge piece of kind of making sure it doesn't break so far that it's actually holding us back.

[John]

I think we probably flirted with that line when we were growing. We in 2021 we tripled in headcount and that was a real challenge. And it took the next like two years because we went from one location to four, and we. I wouldn't. I wouldn't even say knew how to run one location very. Like, if I'm looking back at myself, I don't think I really knew what I was doing with one, let alone four. And, yeah, it is kind of funny because I've. I've gone back and forth on, like, do acquisitions help and, like, when to use them and how to think about them. Because I think now my team is, like, very cautious about acquisitions where we used to just, you know, kick down the door, let's freaking go. But now there is so much focus every day undoing the thing. And it would. Like, we have a few right now that we're talking to, and all of our conversations are, how much is this going to disrupt the organization? And can we do this without interrupting our service managers who are driving results every day? And can we do this without interrupting accounting that we need them to do their job every day? And how much of a burden is this going to be on hr? It's just a totally different experience than what it was a couple of years ago when we were just, like, you know, yeeting through Windows to do deals.

[Nathan]

I feel the same way, if I'm honest with you. Like, acquisitions are sexy. Like, it moves the needle for a lot of people. And for us, it was all about getting that base. And I think you were. You and Rich were probably one of the first ones to tell me, hey, guys, just don't worry about any other services. Just get the 5 million in one service first, and then you might know what you're doing. And I push back pretty hard on that. But I think there's a lot of wisdom in that, because for us, it's just, are you doing this well enough? And how much can you move the needle with that? And so we'll be at over 10 million now and just pretty much H vac plumbing's really small piece of that so far, and going to the next level is not as exciting. Or a bunch of acquisitions aren't necessarily the most important thing. Now we have a base that we can work with, but for us, it's either adding geography or adding a new service that's like, the two biggest drivers behind if we did additional acquisitions. Because I don't just necessarily need a whole bunch more H Vac revenue.

[John]

Yeah. And I think what starts to happen and you're at the size now where it happens is, like, you can at 10 million, you have enough to, like, organic growth becomes meaningful where you couldn't organically grow $5 million last year, but like next year you could, like, you literally could just organically add $5 million, 100%.

[Jack]

We also have the ability to start like actually building a brand too. Right. Because you're at 4 million. You're really just focusing on your marketing is all towards leads, leads, leads. And now it's towards branding. And who are we in this bigger picture? Which is really nice, it seems like, but also, I mean, I think the difference changes, John, for you, right, is where, when you acquire, when you're small, you're able to buy through those large step changes. So theoretically, right, you're buying through the five and you're even buying through the 10 in this case, which is a really nice.

[John]

Right.

[Jack]

Ability to have that then incoming cash flow to be able to pay for the headcounts, to fix those systems versus trying to organically grow through it is so hard because the cash isn't. It's just not there for the bloat.

[John]

Yeah, yeah, I agree.

[Jack]

So, I mean, if you had a $50 million company come along, was like, hey, you know, let's do it. And then it pushed you through, you know, the next two, you know, changes. I think it's a different conversation for you. But a $2 million little H vac shop just isn't going to get you through that. That $50,000 or $50 million mark.

[John]

We have a, we have one that we're looking at that's a five and a half million. And I would have to add literally zero overhead, individuals to take on five and a half million dollars of revenue because we were already going to grow 9 million organically next year. So like, 5 million is just like. Okay, it's kind of wild. It's, it's really like wild. Yeah. I assume it change. I'm sure it changes later on, but like, it's crazy.

[Jack]

That's cool.

[John]

Crazy. Okay. All right. So when, when did your deal close, Nathan?

[Nathan]

August 28th. So we're about 45%.

[John]

All right. Yeah, so we're pretty far in. Everyone's on service titan. Like you said, integration is going well. Can you walk us through the steps? Yeah.

[Nathan]

So, I mean, honestly, some of the integration that would be the most painful usually is, I'd say, kind of on hold while we're still working through the reverse merger and branding and making sure that we're all on the same page there, because change management's hard. And so we're in there just trying to build trust. The biggest things, you know, we shared kind of our plan with the sellers and the previous owners. And it's number one, it's all about people, right? Like, get in and make sure you don't break the number one rule in small business, and that's messing with people's money. So trying to get payroll straight, make sure there's no errors. And we still had some small hiccups, but, you know, trying to get that straight, make sure, you know, the people, spend time with the people, build trust. You know, they have access to you and you're visible, and then behind the scenes, you're doing all the, you know, the painful things. Like we, I think, spent about eight and a half hours on the phone the second day just trying to get Verizon to switch over, you know, phone numbers to us so we have control. That's one of the hardest ones. And then, you know, just wrestling through, trying to get all the, you know, all the pings on my credit because we had changed all the accounts over and they got to run credit again and make sure that we're legit and all this stuff. So, you know, at the end of the day, it's just, you know, you just got a huge checklist. I think we have 150 items or something that we're just running through, making sure that we have everything we need to be successful going forward. But it's been so easy going on. This has been the easiest one for us so far because we've done it twice before. Now we actually have a team that's helping us with things that had access. They have an incredible GM who's running the business and running the show. The seller had kind of not been around a whole lot, and he really empowered his gm, so. Yeah, so it's been super smooth so far.

[John]

Yeah. When do you think you start? If I think about doubling in H vac, there's the initial list of things you have to do, and then there's the value optimizing stuff. So renegotiating with vendors. Hey, my volume just doubled. Nailing down marketing. When do you think you get to the value add stuff?

[Nathan]

We're already deep in it, so we've already renegotiated with vendors. To be fair, that's how we actually got this deal. It was through our account manager for our suppliers. Sheer supply. They'd been unbelievable. And they introduced us to them, so we actually had the same vendor. They had a vested interest to give it to another American Standard dealer like us. And so we closed the deal, showed that credibility and renegotiated prices along the way. So we already had new pricing in place basically day one. And then we started pushing more of like, hey, how do we get that next level? You know, let's, you know, how do we do better here? And so we're renegotiating for like the next, next fiscal year as well. But yeah, I mean, it's, it's crazy how different the pricing has been on equipment for us and you know, just trying to push that down. We're not into multifamily new construction levels yet, but you know, trying to get there, you know. Yeah, soon.

[John]

Right.

[Nathan]

So it's, that's been really powerful renegotiating. So Service Titan, we want to go over there. They're on Housecall Pro currently, so we'll move over. We're in the middle of negotiating that right now, trying to figure out what it is. So certainly be anchoring on some of my friends numbers that they have to make sure we're good there. So Service Titan will be one of the big moves hopefully here at some point. If we combine obviously, and then marketing going deep there. So they are kicking our butt. We kind of had the same SEO journey. We had some issues with a new website. Both our SEO kind of tanked and so they came up with a new provider, we came up with a new provider and they're kind of kicking our butts on the SEO side. And so we've been going deep on why that is, how do we mimic that and maybe we just put more horsepower behind that brand. So working through that and figuring out where else you want to spend, because like a lot of these acquisitions, they don't really spend much of any money in advertising or on the marketing side.

[Jack]

Yeah, yeah, that makes sense. So one of our biggest issues we had with acquisitions was the cultural shift after. Right. We do things a very specific way. And when you're buying small, a lot of employees chose small because either, hey, they didn't want to work for a big company, they didn't want to focus on revenue, whatever the case may be. How has that changed, Ben? Or was the company like enough in size and culture that it was pretty smooth?

[Nathan]

I'd say culture has been relatively smooth. The first one was easier because we didn't know. We just didn't know enough. And so we kind of said, hey, whatever the previous owner has kind of made promises on or done, we're going to stick with that for a while until we figure out who we truly are. And I'd say after our first year where we, you know, we Lost money essentially, you know, barely. We were right around break even, but then you still had to pay debt, so was not breakeven and we had to put more money in. You get real serious about what a company needs to look like. And so we ended up joining CertainPath later that next year and revamping the whole deal. And so it really helped us establish who we were, how do we compensate, how do we run calls, how do we do business? And I think that's created just a little bit more rigidity around. This is who we, this is how Bartch does it. Right. And, and I realize not everyone's going to be attracted to that, and that's okay. You know, we, we will be your biggest cheerleader if you want to go somewhere else. But this is who we are and this is who we're attracting. And if that means there's gonna be some turnover, then I would, I would classify that as healthy turnover, and I'm okay with that.

[Jack]

And so when you, when you bought Christmas now, right, that's, that's the, the real question, right, is, is their whole team. You don't want 17 people turning over, but at the same time you still want them to do the Barts way and the Nathan way, essentially the certain pathway. So how has that transition been? Because, I mean, if I'm, if I'm going to be blunt and vulnerable on this podcast right now, we lost almost the entire plumbing company we bought because of this issue right out the gate. And it's because they, they were not the, the rapid way, which is very similar to your all way, I'm sure. But they were, they were just a different, they were different culture, different people. And so how has that transition been? And how are you managing that?

[Nathan]

Yeah, it's a great question. And it's actually the reason why the two companies aren't more integrated so far because there's a completely different culture of compensation and there's some deeply embedded things that they were challenging on the Christmas side especially. So, like, they don't do any kind of commissions. I'm like, okay, well, why help me understand this? And so we are spending a lot of time going in there, and it's easy to just smash two companies together when they can't stand on their own. But Christmas can stand on its own, as can Bart's. That is also an option that many private equity other companies do. We're not private equity, but they do that. They just run both brands. I won't say that that's not an option. And that's how we're running it right now with some of the back office has been combined and we're working through that. But we have been empowering the GM with a lot of time and decision making ability and time to show what he wants to do and where he wants to go. And we are showing him how that fits into our overall picture. And so we can talk as much as we want about like, yeah, we're just going to smash them together. But that is the main reason that they are not the same brand already is because, well, I still love the Bart's brand. What are we going to do with that damn thing that we just put all this money into for the last couple of years? And part of us says, okay, we'll just go make that a commercial arm and we'll go after that. And then others says that's just a distraction, let's just go Christmas all in. And so there is no, I would say, true decision made. We have a timeline established, we have all the decisions that have to be made within that timeline and then we have a commitment from all leaders to move forward based on that. And so right now we're just doing the, we're still dating, we're still trying to figure out what this marriage looks like and we haven't lost anyone yet, Jack. But that's certainly a risk. It's absolutely a risk. And we've been asking questions, hey, how would you feel about if we change compensation like this? But it should never be a negative to them as far as like I'm going to make you make less money. That's not what we're trying to do. We're trying to show you upside for.

[John]

Going on two years. I've partnered with service scalers to do our Google Ads, PPC and SEO and the results have been huge. It's been really exciting to watch as our website consistently jumps up rank as we're using more technology and we're moving faster than our peers who are all using legacy home service marketing companies. We use service scalers for ppc, our local SEO, our on page website SEO and our lsa. So give them a call if you're looking for leads.

[Jack]

I mean and normally switching to like a heavy. And I know a lot of this conversation revolves around the type like you keep saying who we are and, and I don't think it was something that I understand when people said that about their company prior to owning my own company and when, when they say who we are, at least for us it's, it's a lot about Its culture, but it's also like business model. Well, how do we present ourselves to customers? What are the customers that we go after? Who are our customers? And so, you know, it's just a, it's an interesting dynamic when you, when you smash these two companies together or, or don't in trying to figure out, hey, you know, some business models don't work without certain compensation structures. And if that's not correct, then how does that all feed into each other? But interesting. And so what can you. Are you able to share that timeline? So like our timeline was six months on, on our last deal it was six months merge and we just come came out of that and it's been like not so wonderful. And then now we're finally starting to J curve and actually make money. Which is extremely fun from a P L standpoint.

[John]

Six months doesn't seem bad. No, six months is like. It's almost always like the first year is a show and then it starts to get good at like month 18.

[Jack]

Yeah.

[John]

So six months.

[Jack]

I'm like six months. But we also still Hoffman employees. So like they already knew what to do right out the gate. So we had people because they're like.

[John]

Dude, it sounds like you've got a strategy. It sounds like you've got a strategy.

[Jack]

We just take Hoffman's guys and then we run them.

[John]

I don't see what the issue is here. I think this, I think you're doing fine.

[Jack]

I didn't tell Hoffman that when we interviewed him though. So.

[John]

Yeah, no, yeah, you didn't tell him.

[Jack]

That I was actively stealing his employees as a head hunting.

[John]

I'm like, I distinctly remember that.

[Jack]

But I mean so, so that. What's, what's the timeline that you're looking at, Nathan?

[Nathan]

Yeah, so a decision by December and we, we have like a more firm kind of.

[Jack]

Is it, is it a decision by Christmas?

[Nathan]

It's actually like the 10th of December or like the first, first week or so. Why, why do you ask that way?

[Jack]

Decision on Christmas by Christmas.

[Nathan]

Oh yeah. That would have been way better, honestly.

[John]

That would have been way better honestly. I feel like you feel like you.

[Jack]

Timeline a little bit.

[John]

You sort of missed huge miss there.

[Nathan]

Yeah, huge miss there. But like I think you know, there's a lot that goes into it and that's. That's we're thinking about. So like Bart says, an example who we are, you know, we have a mission, we have values, you know, change lives to the trade, create smiles, do it every day. That's our mission, you know, our values. Are simple. There's only four of them. You know, be an owner, keep promises, have fun, serve others, you know, and so. And then we have a compensation philosophy like we want to be in that 75th percentile, paying on the higher end for people. We want the best talent. I'd rather have higher quality, but fewer people than the other way around. And so that's who we are as Barts. And so trying to make sure that if we do the same thing for Christmas, are we going to transfer over those things we still want buy in from that company? So we'll have conversations with them. We'll go through Build Out. They just went through all their quarterly rocks and the cascading of those. And how everyone, from my perspective, everyone should have at least one number that they own personally and they should know the overall number that they're kind of contribute to. And actually, I'll ask any person in the company at any time what that number is, and they should be able to talk me through it. And so we're trying to build that rigor. But I'd say decision by December or Christmas. By Christmas. And then I'd say before busy season. So by end of Q1, you know, we are, we are running together.

[John]

How are you thinking about continuing to use acquisitions after this?

[Nathan]

Well, it's, we have some, some real, real constraints. You know, balance sheet is only so big at this time. Availability of debt is only, you know, like, we've maxed our, our SBA at the moment because of how we're structured and all that stuff. So it's not like we have four guys who have four independent, you know, $5 million or whatever. So. Because that's not. Despite that would have been awesome. That's not how we decided to do it. So we have some real constraints there figuring out. So I think it's going to slow down a little bit and we'll just go to the most fortunate opportunities. I think anything we'd be open to stuff outside of dfw. And I'm willing to do capital partners out there. But, Jack, when you said, hey, John, if you had a $50 million business you could buy right now, that'd be a real needle mover for you right now. I'm like, yeah, if John wants to give up some control or a lot of control, that may be the case.

[John]

But a lot of control.

[Nathan]

Yeah, I can tell.

[John]

I couldn't take it down.

[Nathan]

Yeah, I don't want to do that. So.

[Jack]

Yeah, yeah. With that, though, right? I mean, the first two of your deals were you know, smaller one million dollar size deals. John, with that does, does the bank open up different types of funding at that kind of. He's passing the $10 million mark. You know, he can now get a one million dollar line of credit essentially just on.

[John]

Yeah. So like conventional debt essentially opens up at 5 million of EBITDA.

[Jack]

Okay.

[John]

At 5 million, that's the easiest way to think about it. You get access to real banking. At 5 million of EBITDA you get access to real banking light at 2 1/2 million. And like just maybe. And that was like back in 2223. Economics realities are different two years later. So I, I think 5 million is probably the right guess here. And then the way that looks, it's different terms. So it's, you know, like you're putting 30 cash infusion. They're seven year ams, five year ams. It's a different type of debt. Like SBA is very, very friendly debt.

[Jack]

Yeah. Okay.

[John]

This is not bad. Yeah. So 5 million of EBITDA. And I think what, what starts to happen, bigger you get is, is. And we felt, I think I've even talked about it on this show. But the, the external pressures become significantly more real. So if, if I was going to go bankrupt and I was a $5 million operator, probably happens every day, I don't know. But like the external people looking at what you're doing, there's not as many. They just sort of like they put a lot of guardrails on you. If we go bankrupt now, we would cause a real issue and all of the vendors are obviously aware of that because the, the amount of credit extended just with a normal vendor might be nearly a million. And we have a number of those banking and credit and all. It gets more complicated the bigger you get. And we're still like figuring it out. Honestly, it's still an active, like we're trying to figure out what the rules are because when you start nearing and crossing a million dollars of extended credit on a short term line, they want much more visibility than you are used to giving.

[Nathan]

Yeah.

[John]

Which I would do. It does totally make sense. It's just like if you don't know it's coming, it's sort of like, whoa. Okay, what do you, what do you mean?

[Nathan]

The financial colonoscopy, if you will. But pretty much, yeah.

[John]

Like we're having to start to provide quarterlies and monthlies to just our vendors.

[Nathan]

Oh, wow.

[John]

In order to which That's a new thing for us. Yeah, that's a new thing.

[Nathan]

Yeah.

[John]

But Our rate of growth is just so significant and you're probably going to deal with the same thing, like your rate of growth in H Vac. Like our H Vac vendors will sit at 5 to 700 of credit extended and our H Vac department is roughly the size of yours. So your vendors are gonna have the same concerns because that's a lot of credit and your volume just doubled, you know, so like that's gonna become a whole thing.

[Nathan]

Yeah, I had a good conversation with our, you know, like, we got kind of upgraded on the banking at Chase recently and I was like, okay, the one number I want to know is at what point do you stop asking for a pg? For me, that's like, tell me the number. Like, show me the money here. And yeah, when they finally said it, they said 50 million in revenue. And which I think EBITDA matters way more. But it was fascinating. That's a big, big number.

[John]

Yeah. I mean, 5 million of EBITDA is a big number too. I mean, how many companies ever get to 5 million of EBITDA? Like, realistically, I don't even know. Okay, so you said you had big goals for what you guys are doing. Walk me through what this thing looks like in 10 years.

[Nathan]

Years in 10 years. So we're three years in. I mean, our first one was 50 million in five years, trying to get to 100 million in less than 10. And so I think it starts with DFW and then we're looking for other places to go. But we have to get to tri trade, at least with electrical and plumbing. We are pushing hard on, trying to add some tech layers on top of that to distinguish us a little bit. But Yeah, I mean, 100 million plus over the next seven years is the goal. And more importantly though, I think it's just building a great company we can be proud of that's profitable. And So I have four kids, they're all older, 22, 19, 17 and 13. And three of the four have worked in the business so far. One of them potentially wants to go long term. And it's like, that's really exciting to me to have that opportunity to do those things. But we're similar to. I won't say we've nailed it down like Hoffman or some of these other people who have this really wonderful long term vision long term hold, but we do intend to hold long term. We're not really interested in any kind of divesting or bringing in other partners. We like having the control and we like building, you know, what we want to build.

[John]

I'm looking forward to sort of seeing what happens in the next year or two years as you almost want to say are forced to focus on organic just because you, like you said you've run out of like available lending. Because that's sort of what happened with us. Like we still had capacity in sba, but we just didn't want to because we really like we had just grown a bunch. So we just sort of like, you know, went forward and it is amazing. You start figuring out all the stuff and the business just starts exploding.

[Nathan]

We're really excited. I mean literally before this, what I was doing was going through every single Google pay per click call that we were getting, which is a God awful channel. Good Lord, 131 calls last month. You know, like our vendor told us. Oh you're, you know, $85 a call is what you're averaging right now. I call bullshit on that. I'm like, I don't see 131 calls. So I'm literally going through every call right now and matching it to every call and service type to see if there's any revenue coming from it. Like I'm listening to the calls really quickly to get an idea and it's literally probably more like 160 to $200 a call because 40% of them aren't even being like it was never a call. Like there was no call received. There's no phone number, there's nothing associated with it. So it's fascinating because we're doing that on every channel to really kind of rebuild our marketing tracking and decision making on a. That's gonna be a muscle. That's on a daily basis, not a monthly or whatever else.

[John]

Yeah.

[Nathan]

After the fact. So we're, we know what good looks like and we're just, we're trying to get ourselves there.

[John]

I think the, the bigger you get and you start to be able to like add in these layers and I don't know why, but for some reason and I think maybe the why is like we're just moving outside of it and like being able to like look back and digest what we just went through. Which like you guys are still in the thick of it. So you can't digest it it. But in a year you will be able to. But like at starting at like a million a month to that 2 million a month. I think we've talked about this in our chat but like all of the infrastructure and all the stuff that gets to get added. But one of the exciting ones is you get to add, like, an internal marketing team at some point somewhat early in there. So.

[Jack]

Fun.

[Nathan]

Yeah.

[John]

And it really. Yeah. Well, it gets fun. And even if you, like, we still use some. We still use external vendors, but, like, it just makes it so there's other people driving the bus.

[Nathan]

Yeah.

[John]

On, like, how do we get the leads every day?

[Nathan]

100. Yeah. It'll be interesting. Yeah.

[Jack]

Yeah. I mean, because really, right. Until you get to that point where. Where you're kind of getting. Nathan, it's. It's you just like you're doing today. It really is. You know, it's me, it's you, it's the owner who's going through and making sure that marketing. The amount we're paying out, the absorbent amounts are paying out every day, every week, every month is being realized in actual leads. And I would love to have somebody to take that over because it is such a time sink, like, to actually have to go through and reconcile 100, what, 10 calls. Yeah. Just to make sure that you're actually like, hey, it is an 81. It's this. Now I need good data. Get it for me.

[Nathan]

More than anything, I want to be able to know how to hold them accountable. I think that's what I'm really trying to get at. It's not about I need to do this necessarily. It's about, I want to understand this because it doesn't matter if it's an outside vendor or in house. If you don't know how to, like, call the flag or hold them accountable or go deep where you need to, like, that's. I think that's the mark of any good owner or leader is like, that curiosity that Sherlock Holmes of, like, I can go. I can go investigate anything and get curious. So, you know, want to model that for other people on the team as well. Yeah.

[Jack]

I mean, it's also being a good steward of your money, too. Right. You have only so much cash flow, so you need. And everybody. I should say everybody. There's a lot of people, though, throughout the business that hold out their hand, and you have to make sure that they are being accountable at the end of the day.

[Nathan]

Yep, exactly.

[Jack]

Sure. Just keeps growing.

[Nathan]

Well, Christmas is running so much more efficient than Bart's. And so it helps ask a lot of questions for us to say, like, hey, what are we doing here? You know, like, do we really need to spend this here? And, you know, is it worth it? And we don't have the good enough answers, I'd say on that right now. So helping us challenge a lot of things.

[Jack]

That's cool. How does the customer list look comparatively? We talk a lot about the ability to outbound to internal customers, and a lot of that is from a internal customer list. What was your customer list at Bart's compared to Christmas?

[Nathan]

I think we're right around 10,000 for Bart's, and don't quote me on this, but I think right around 14,000 for Christmas. So, I mean, it's going to be a pretty meaningful list. And I think we're around 2,500 members between the two overall.

[John]

Yeah.

[Nathan]

That is building the base is. I mean, that's the part we're excited for, because if you know how to run that well, then our plumbing should be able to take off across both brands if you want to do electrical in the future or anything else. And so I think that's the excitement is trying to build organic. You already nailed it, John. I'm way more excited about organic and proving that we can go grow meaningfully in the future. And I think 30% is the number that. That's always on the back of our head. We want to beat that sometimes for sure. But how do we maintain 30% growth organically year over year? And if you want more than that, then there's other investments you have to do, whether that's acquisitions or headcount ahead.

[John]

Of time or whatever timeline. But I like to think that the best use case for growth through acquisition is either getting to a minimum to be able to grow meaningfully organically, which is, I think, where you're at now, or using it to cross a threshold and that. Or I guess my third, but it didn't come up here, is like entering a new trade. It's much easier to just acquire. But, yeah, I think, yeah, getting to that, like, minimum point, it's. It's almost like escape velocity.

[Nathan]

Yep.

[John]

Like, you've entered escape velocity where like, okay, now you can invest a million dollars if you chose to, and it wouldn't be unreasonable to invest that into marketing and you would be able to really drive.

[Nathan]

Yeah, I mean, we would have loved to have bought Christmas first. Right. Like, that's the size of company that we wanted in the first place. But we just, just. We couldn't. Yeah, we didn't have the credibility and we didn't know enough what we're doing and we're getting outbid. So we decided to be in the game. And I wouldn't. I'll be honest with you, I wouldn't wish the 1 million to 3 and a half, 4 million journey on anyone My God, it's hard. I'd rather start from scratch. I'd start from scratch, literally.

[John]

Yeah, yeah, I believe it's challenging.

[Jack]

I agree. Unfortunately, as someone right in the middle of it, I also agree.

[John]

Yeah, it's, it's, it's a lot. I like most of my career was there, so I feel like I still remember it, but it's, it's, yeah, it's a lot. I'm, I'm glad, I'm glad that's not the case anymore. So you're going to be integrating, you're going to be building. You've got a busy next 90 days ahead of you. You guys are aiming for 50 million first, then 100 million next. Those sound like good goals to me. What else do you guys would think would be helpful as a resource to people looking to grow through acquisition?

[Jack]

Yeah, I just mean, so a lot of, right. A lot of searchers, they come in here or people that are growing through acquisition and they see, yeah, oh, 3x I have to buy it at a 3x multiple and, or 4x or whatever the market is saying on Twitter or their M and A coach is saying and they absolutely get screwed. Including myself.

[John]

Well, there's ways to underbid and over. So like we have, I would say for most small companies on it, like if you're buying a million dollar company and paying three times, like you're, you're doing it wrong. But like if you like, we have a company we're talking to right now and I think we're at like a five. Might be like four and a half or five to them, but the moment you start merging, literally a million dollars of their overhead goes away. A million dollars and then probably another $500,000 of materials because we buy so much better. Because we're so much, we're like, we just have different buying power. So for them it's a five times, four and a half times, but for us it's like a two times or a two and a half. Like it's like we're adding. It's like 1.3 of EBITDA. It's kind of wild.

[Jack]

Yeah, that's cool.

[John]

Just straight, straight to the bottom because we don't need any overhead to add it. So I do think like, like multiples matter. But the, the math gets weird when you're just literally tucking that thing in.

[Nathan]

It's all about the definition. And that's what, like anytime anyone asks on that, like you just, you just name like, hey, what's the multiple for them versus what it is for me and the same thing for us. Like our. Is there multiple include ad backs, or is it exactly how they say they're running it and reporting to, you know, the irs? Because if that's what you're saying, then we're paying like a 6x on this thing, you know? But if it's anything reasonable that you get rid of and you show, like, what EBITDA was for people actually doing jobs and all that stuff, we're closer to like a little over a 4x. And that's for them. And that's before we see our efficiency. So really just depends. You can define it however you want to. To say the numbers.

[John]

I remember doing a deal and this was like three or four years ago, but it was like $2 million revenue. And I think. I think it was like a four times to them. And we ended up buying it. It was like maybe $900,000 or a million dollars. It was something like that. And we. We bought it and it really ended up being like almost a one times or like one and a half. It was just because I. I think as you start getting into this, like, everything on the P. L changes, which is kind of fun when you start merging them together. Because really all you're getting, like, all you're getting out of a merger is the phone calls. So if I'm looking at this, if I'm looking at a $5 million tuck in, then, like, their labor rate's going to change, their materials are going to change, their entire overhead structure goes away. It becomes part of mine, but it goes away. Like, and their revenue changes because we changed their price. So it's like, like nothing matters. It's the weirdest because you'll explain that to someone who's like, buying their first one and they're like, yeah, but what's like, gross margin? I'm like, I don't think you understand. It doesn't matter. Like, nothing matters. Like, how many times does the phone ring a day organically? And that is actually our leading metric for am I going to buy this thing?

[Nathan]

I love that. And it goes to explain why people like PE can come in and look like idiots based on the price they're paying. And it actually can make a ton of sense for them and so many. Because their math on back end is all that matters. It doesn't matter what it's doing here. It matters what it's going to do in the future. And the new piano. Yeah, I mean, I think you nailed it.

[John]

And how did you go about sourcing deals like, what was the big way you found these?

[Nathan]

Yeah. So number one, we just went straight traditional, right through a broker. We just talked to a ton of brokers in dfw, got our name out there, ended up taking down a small deal. Second one ended up being a hip pocket listing that was never listed again through a broker. And so we had a little bit of credibility from closing our first one. And then after that, like, we took a break for a little bit. And then I'd say this year. Yeah, probably this whole year, anybody that would listen, we were telling them what our criteria was and that we're buying businesses and to think of us and especially our suppliers. And so we moved over to a new supply house, a distributor, and they've been absolutely wonderful. And so they, as soon as we, we just kept peppering him, he's like, I just heard of this great one. And it was literally, it was a company that was kind of kicking our butt. And our, where our. We live in. Our two of our owners live in Flower Mound, Texas. So it's right up on the north side of Fort Worth, Dallas. And, and this company's from Flower Mound. And they're just, they are just cult following. Like if someone posts on Facebook or Nextdoor, 30, 30 referrals to them before anyone else shows up. And so we're like, we want, you know, we want to buy this company. This is who we want. And it turns out that was the company that was introduced to us. And, you know, so we hopped on that as fast as possible. No is off market. We dealt with the seller the whole way. He's him and his mom, super high character. And so I'd say just having the credibility of getting deals done and nailing that down. And now you have people who are actually listening. And I'd say we get, shoot, maybe two leads, two or three leads a week of mostly off market deals from suppliers and other people that may not be in our strike zone. And then the last thing I'll say really quickly, because you're talking about growth through acquisition. We have a really simple pitch to people and it's four things. Number one, we'll give you terms and a price that we know we can close on. Number two, we're going to take care of your people. Number three, we're going to take care of your customers. Number four, we'll honor your legacy if that's something that matters to you. So getting that really down and then just being likable. As soon as we can meet someone in person, listening, asking lots of Questions about their people. So not only should you be the person that people are sending leads to, you should be able to close them when they come.

[John]

Yeah, I actually don't really know that I've ever thought about supplier. That's a good one. I had a supplier send a cold lead to me maybe a month or two ago, but I couldn't do anything with it. I'm really disappointed because I found out an hour ago that a competitor of mine sold. And. And that's especially disappointing because one, I would have bought them. And there. It's probably very similar in DFW and in. And in Tennessee, but, like, there's nobody private anymore. There's only like three companies that I can think of private north of $10 million in my market. Like three. And this one was seven. And there's still not many of those. Yeah, I can only think of like, five or six. So this was one of the five or six companies that was private and they sold like, I don't even know. They didn't even go through a broker. It was like a fat. And I was like, dude, I would have closed. That sucks. And I obviously should have been, like, better at, like, proactive, like what you just did, doing outreach through vendors and suppliers and contacts, because I'm sure we would have found out. Somebody would have told me that.

[Nathan]

Yeah, I mean, even when we sit down with, like, the CEO of our suppliers or the presidents, like, we're like. Like when they asked how we could help, introduce us to opportunities. Introduce like every. Just over and over and over and over again. They were just training a new guy through our space. Hey, you told him if he talks to anyone that wants to sell, we're the first people we go to because now we're one of the bigger, you know, customers of the supplier. They know we're going to stick with American Standard, you know, for the time being. So, you know, like, there's a lot of incentive there. And that's been our most fruitful channel presently by far.

[Jack]

Yeah, agree.

[John]

That's.

[Jack]

That's where we get most of ours as well. 30 through is the supplier. I mean, they're out there, the sales guys out there talking to 50, 60 companies and, you know, they. They get to go out to lunch and have all the details and enjoy that time together. And then when they say, hey, I'm thinking about, yeah, moving on, they're some of the first people to hear about it.

[John]

Yeah, I think that that always blew my mind because people would say that. And I'm like, the literal last person I would ever tell is my supplier because I don't want them to get funky with my crutch. We talked about growth through acquisition. We talked about Bart's crazy growth story turning into Christmas now, potentially by Christmas. Find out soon. If people want to connect with you and hear more, how can they find you?

[Nathan]

Yeah, I'm pretty active on Twitter and LinkedIn. Ahan N and then the number eight because I've got lots of street cred and Lenahan L E N A H a n and then. Or you can check us [e-mail] that's our or Christmas air.com, you know, either one.

[Jack]

Hey, yo.

[Nathan]

Yeah, we are. We are. We serve the northwest quadrant of dfw.

[John]

That's awesome, man.

[Jack]

Awesome.

[John]

All right. Thanks for coming on today. If you liked what you heard, make sure you check out owned and operated dot com.