← Owned and Operated - A Plumbing, Electrical, and HVAC Business Growth Podcast
Owned and Operated - A Plumbing, Electrical, and HVAC Business Growth Podcast
#161 - Private Equity vs. Co-Investment: Strategies for Scaling Small Businesses
00:41:12
Loading summary
Transcript117 lines
- [00:00]
A
The most important part is like who do you partner with? Is really hard to trust people when you don't have control. What if we just partnered in a way that made sense?
- [00:16]
B
You know I'm just going to throw this out here John. There's only four cities in between us.
- [00:25]
A
Earlier this year we started an outbounding campaign and we really didn't know where to begin. So we were using dialing on the phones, we were sending text messages, we were trying emails, tried a couple different softwares and ultimately we ended up with Hatch. Hatch has been an awesome partner for us. We started with them about five or six months ago and we've just continued to ramp. Every month we add three or four more automations and my personal favorite thing about working with Hatch is Hatch comes out of the box ready to go. With Hatch you get automated multi touch outreach across text, voicemail, drop email and a ton more. So every single lead that you have gets worked. Every invoice that you leave gets retouched and rehashed and it's freaking awesome. Check out use hatchapp.com OAO welcome back.
- [01:11]
B
To owned and operated. What's going on? Welcome back.
- [01:15]
A
Welcome back. Dude, it's cold. Love that. For us November finished okay. Missed budget but it was also 80 degree in November.
- [01:26]
B
Yeah definitely weird year. And then we, we went from record highs in November which I mean November record highs are yeah 80s high 70s to now record lows in November or December. So yeah, yeah, kind of weird. I'm not mad about it though. We had a real big cold snap and for plumbing and H vac we have been overbooked which has been really nice. We just hired a bunch of techs who are we really believe in. We have a new division manager or not division manager I guess it would be service manager. That's onboarding. So we're really excited about that in, in H Vac but yeah man, really. Weather's good, weather's good.
- [02:10]
A
It always helps. Yeah, I think we sold 62000 yesterday. H vac feeling pretty okay?
- [02:15]
B
Yeah, boom. I mean that, that's halfway to your. Well now your, your goal's more but the 100k a day. I'm, I'm excited for ours.
- [02:23]
A
Yeah, we, we aim for about 122 a day.
- [02:26]
B
Yeah, we're still trying to. We. I have my meeting this Friday with our accounting team. We're, we're getting closer to having that number and I, you don't know how excited I am to have a number where I'm like this is Actually like how I need to make decisions based off this because a lot of times it's just, oh, I'm making decisions because I'm making decisions, not because I have an actual in stone goal for a reason. That's coming through. Yeah. So John, we talked.
- [02:54]
A
Yeah.
- [02:54]
B
Offline, we have a situation which I'm not going to go into too much discussion on this podcast, but we are in need of a, not a huge amount of cash. It's really just enough that would hurt to pull out a cash flow. Like we have it technically in the reserve or in our working capital, but I mean it would really put us in a rough spot going into January, February. And so we were just, just discussing options. Hey, line of credits with big banks. I mean you could probably get that on the line of credit pretty easily, whatever the case may be. And you brought up a really, really interesting idea which we've been kicking around. I mean we've been actually k this around for a long time. But this was another angle at it of some sort of, not necessarily divesting but like essentially selling off a small portion of the company but not for a reason of just picking up some extra cash flow, but more so from a. There's enough high level players in the space that you could get some additional benefits, almost like a best practices playbook from these individuals. Can you, can you talk more about that? Where the ID came from and what, how you envision it?
- [04:11]
A
Yeah, it was, it was kind of funny because like the moment we, I said it and I started like rattling off the benefits, I was like, this actually makes a ton of sense, but it's also like pretty dang close to the benefits of pe. I think the difference is it's like operations focused and like real partnership. Yeah, the, the idea, the idea is, and I, I shot this over to a couple friends because I was just like, hey, like what do you think of this? Because I, I think it makes sense. So as Wilson, we're getting ready within the next, you know, 12 to 14 months to launch another location. And let's say in the first year of that new location I launched wherever it is, I'm going to invest a million dollars into that location. That could be marketing or you know, opex, whatever. So a million bucks. And the, the idea here is like Jack needs some cash. And I'm like, okay, well what if we just partnered in a way that made sense. So like what if we co invested? Because I think, I think what's really when I think of the advantages that we have that Smaller companies don't. It's kind of outrageous. Just like a company that's four or five times my size has insane advantages over me too. So I think it all makes sense. It all stacks. But basically the idea is, look, if I buy my H VAC equipment for half of what you spend, if my service titan is half of what you spend, if my benefits cost half of what your benefits cost, if, if my entire cost structure is better, if I have a more developed call center, more developed accounting, more developed hr, a co investment starts to make a ton of sense. And again, this is just like growing into a market with like PE so that it's not complicated. It's just we're not pe. So if we said, hey, you want a million dollars, we're going to invest every penny of that million dollars further into your business. Maybe, you know, we, depending on the current value of your business, that's going to get us something. And then we bring our entire cost structure instead of resources to bear. So that way, even though you own less of the business, you would end up making a ton more money because your H VAC equipment would get cut in half. Suddenly you'd have vmi, which you don't have VMI right now. Suddenly you would get a full HR department, you'd get better accounting. And again, it's this. I think it's the same value prop that PE comes in with. So if PE was talking to me, there'd be the same thing like, hey, we buy better, we have better, better. You know, it's all the same stuff. It's just moving downstream.
- [07:01]
B
Yeah. The interesting part though is I don't know if that's true in terms of like, yes, they, they, they, PE is very good at throwing money around. Right. They're very good at getting cheaper purchasing and getting good deals. And they have people in their office that can go. But where they lack and where, you know, you seem to have a lot of issues on the PE side, at least from what I've seen, and, and operators who I've talked to is they don't understand the operation side. Right. So yeah, that's that. I think there's a huge value kind of in, in those two differentiating items is a. You still get some of the buying power, right. As you mentioned, like just in a hypothetical world where you went, you, Wilson Co went and did this. Yeah, right. We as rapid wouldn't get as great of buying power as we would have if we went pe. So you get like what, 70, 80% of that. But what we get is a person on our team for best practices who understands operations, who understands back office and how you structure payroll and everything that's been vetted and true and tested. That's where I think is interesting is, is you actually get this best practices side which, you know, I think on the PE side actually gets a tarnished name because they do that. You know, private equity in general, not anybody in particular is known for, you know, strip mining the business out of. Whereas I think a best practices group would actually elevate the business versus trying to, to leverage everything out of it.
- [08:35]
A
Yeah, I mean, I think, I think it ends up being kind of a win win because like, you know, I started unpacking this and then again I texted some other people. I was like, hey, would you be, would open to something like this? Like if I wanted to put a million dollars into your market, I will go further if I have a platform to build it in. Like, and if you're doing 4 or 5 million bucks, another million dollars, like you'll do 10 million that year or like, you know, it'll explode the business.
- [09:01]
B
And it doesn't necessarily.
- [09:03]
A
If I just put a million dollars in and started from zero, I might only end the year at 2 or 3 million dollars. So like the, it's a huge win for me. But then on the, on the other person's side, like, yeah, they would own less of the company, but a lot of the expenses would go away or they would just be reduced just because we have a better cost structure. So you'd basically get. Yeah. Built into the cost structure. Again. It, this really is pretty similar to a private equity playbook. I, I don't think I'm inventing anything here. It's just I haven't actually thought about sort of this like co investment partnership before. And then we started talking to people and it was like, holy crap. Actually this, this could be really effective. I understand. The win for me gets me into a new market and it makes it way easier to get to scale in that market. Like I could get to scale in like two or three years and then the win for them is they could still own a decent portion. Their business becomes way worth way more and then they probably make a lot more money just general take home because the portion of the like profits that they have, the profits would like double or triple.
- [10:07]
B
Yeah. And I mean, interestingly enough. Right. I don't think at any point in time, at least for me. Right. If you, it doesn't necessarily either have to be right. You dump a million dollars directly into the market. You could do some kind of subscription model too where you know, it's 60 grand or 100 grand for the next eight quarters. And I mean even that would just insanely drive the amount of, of revenue we were able to produce. And then on the flip side, right, the person putting in the money would get to see it actually, you know, rather than, than putting in a million and hoping it works. Right. You know, they actually get to see and have an, have an exit clause if it, if it doesn't or some sort of thing. I'm sure there's more on the legal side that I have zero idea of. So everybody listening? Yeah, we neither John or I are lawyers in this space, although we do talk to private equity and see this. I mean we are just spitballing here kind of off the cuff. That's super interesting.
- [11:02]
A
Yeah, I think it'd be interesting. I think the only like the biggest hurdle and maybe you can think of another way to handle this. But like if we think about the biggest benefits to like, the benefits to me would be fairly straightforward. Like we get additional revenue, we'll get to open a new market and it's easier to start from 3 million than it is from zero.
- [11:25]
B
Yeah.
- [11:26]
A
So like pretty straightforward for the partner. The benefits like have to outweigh the cost of not having 100% of the company anymore. So.
- [11:41]
B
Yeah, but I mean that makes sense.
- [11:43]
A
They, you, you sort of have to step into. And the thing that I'm struggling with is I think you have to step into a minority position at that point because in order to bring all the. And you know, because I was like, at first when I started I was like, oh, it starts at 20 or 30%. But then I was like, ah, but at 20 or 30%, the partner actually doesn't win in, in that scenario because I'm not able to bring my full cost structure to bear. I can't give all my resources, I can't share all my pricing. I can share a little bit of it, but like I can't add my call center for 20% of the equity. And, and if there was an Exeter, if like the business actually wouldn't be valued differently if we owned a minority share. Whereas like again, the, one of the benefits of PE is the step up in value. So if you sell it, if you sell it a three times, but you carry 30% of the business, that 30% of the business now becomes worth a 10 or a 12 times or whatever the platform is valued. Yeah, so I think it, I think it gets Kind of interesting, but it takes majority to make it all like the whole thing be of the most value to everyone.
- [12:49]
B
Yeah, really interesting. And that's the other. The other interesting part is I don't know many private equity companies that would actually come in and let you. I mean, you would end up rolling in a percentage into the firm, but I don't know how many that would actually. Are you saying that you would be able to keep the current entity or, or that was. That's part of it is it would essentially become Wilson companies. But you own equal value stake.
- [13:13]
A
Well, you would, you would want, like anybody would. Again, this is just p. In general, you would want your, your shares to go up to the parent company.
- [13:22]
B
Exactly.
- [13:24]
A
Because that's like where all the value is. So if someone's value just stayed inside their location, they would not be winning in that scenario. And some PE companies do try to get you to do that. You're not winning if you keep the value in yours. Like, the value is in the big thing.
- [13:39]
B
Okay, that. That's where I was. That's where I guess that my biggest divergence from, like private equity would have been if you kept it in the small thing and you really ran it as a minority stake investment. But it sounds like it would need to be majority. And then you really are pushing for the private equity playbook of, hey, I'm. I'm selling to this bigger entity later down the line when everything sells now. My initial, you know, investment of my 30 or my worth is now worth 3x or 6x of what it would have been if I would have just sold it straight out at that time. Yeah, I mean, that makes sense.
- [14:15]
A
Yeah, I, I think it would be fun if there was a way to figure out the minority thing. I just don't know how it works because the. I think on one hand it honestly probably. And I, I remember it's. It's funny to be on this side of it because I remember like three or four years ago, people were explaining this to me and, And I was like, no, I only want to sell minority. And they're like, yeah, but you don't get all the benefits. Now. I was stubborn or whatever, but like, now I'm like, oh, no, you actually don't get all the benefits. Like, you actually don't. And like, you like someone stubbornly being like, oh, I need to have 51, or I have to have majority. It's like, well, that actually hurts you because your value doesn't step up. You don't get all the resources. You don't get it all. Which again, you know, four years ago I was like, that's, that doesn't make any sense. But on the other side I'm like, oh, I, I actually can't give you all this without control because you just, you just don't get the value step up if, you know, if you're not a wholly owned sub. Yeah, kind of. It's, it's funny to look at it from the other side, but yeah, I think, I think it's interesting. I think I get it. You know, it was sort of funny. We, we, you, you and I started messaging about this and then suddenly I'm like, holy. I get private equity and I think I get it from like all sides.
- [15:34]
B
Yeah.
- [15:34]
A
Where I'm like, oh, that makes sense. Like that makes sense. If your business is valued at three or four times right now, like it's valued at a 10 times the moment you do a deal like that makes sense. Like your net worth jumps. And then as a percentage, like if somebody owned 40 of the company remaining and they still got profit share, they would probably take home more money because their H vac equipment would get cut in half, their service titan would get cut in half. Some of their opex would literally go away. It's, it's kind of. Yeah, the bottom line, kind of a ridiculous advantage. Oh, the bottom line doubles or like triples or quadruples I think is the real answer. I, I remember talking to people and this is just like us doing napkin math. But like I remember talking to people a couple years ago and they were like, yeah, dude, when we sold, it was like 2 million of EBITDA and they're going to do 12 million of EBITDA this year. And I'm like that, like what are you talking about? And then the more I unpack it, I'm like, no, that, that tracks.
- [16:32]
B
You know we talked about it before when you were talking about buying, you know, smaller companies as tuck ins a few episodes ago and it's like, oh, your call center goes away. So even though their net 10%, their Eid is 10%, well, they don't have a call center anymore because it's your call center. So now all the, the head count and everything in call center disappears overnight. So that. Oh yeah, that's crazy.
- [16:53]
A
So I mean, well, I, I have friends that run, I have friends that run pbacked companies and they're running in the 30% nets. Well, and like that's in, that's inclusive. Oh yeah, it's, it gets like. And that's what I'm talking about. Like, it gets. It gets ridiculous. So they're running in the 30% nets, and that's inclusive of, like, some shared services exposure. So, like, without that, they. They might be like 35. And it's because they're so lean, because there's nothing there anymore.
- [17:20]
B
Yeah, I mean, it was also. I mean, that's along the same lines of Peterman, Right. Peterman was saying when he opens up a new location, it was a warehouse guy and like, one other guy I'm sitting over going, what? Like, you're opening up new locations with just two people? Like, that's incredible. But it makes sense because everything else is. Is home.
- [17:40]
A
What else would you need?
- [17:41]
B
You don't need.
- [17:41]
A
Yeah, what else would you need? Yeah. And then, like, each additional location. And again, this is me just, like, from the other side. I'm like, I totally get PE now. Like, each additional location is just more distribution. So, like, if I brought on another $5 million of revenue, that means I get to negotiate better purchasing for all my stuff. I get to add better rebates, I get to drop my service. Titan users even get to, like, spread more cost across more revenue. And it just. Yeah, it just really makes a lot of sense.
- [18:19]
B
Yeah. And so let's. Let's juxtapose this, right? So now on the other side, right? So somebody who needs a little bit of cash, they go out and they raise, let's say, not that not a million, but they. Depending on the size, I guess that could be a small amount. They raise a couple hundred thousand dollars or give away 10, 15 of their business. What's. What's the benefit versus the model that you just explained? And what's the. The con? Right, so the benefit, right, is you keep more of your business with still.
- [18:54]
A
Which may or may not be a benefit. I think it's arguable. But like, yes, you keep. You keep control. So that's probably. That's probably the biggest one. And I think that that's the one that gets people caught the most is, like, they get to retain control. I know that, like, years ago, that was where my head would have been.
- [19:18]
B
Well, you don't get to your size and. And still contain the same amount of ownership. All right, that's the idea is nobody's running a small business to. And trying to grow it and taking on investors to stay small. They're doing so because they want to say, hey, I'm 5 million. I'm. This amount of money is going to get me to 10 or 15 or 20. And I still retain 85 ownership versus selling the whole thing now, getting a better multiple, but I don't get any of the benefits.
- [19:47]
A
I think the issue cost is you don't get the benefits or, or cost or experience. So like, and obviously I don't think I know it all. Like, we're, we're only in the mid-20s, but like Chris Hoffman's a great example. Like they're buying companies and Chris went from 10, 150 million or whatever. And like he's, they're bringing in the expertise and the team that went from 10 to 150 million. So like they will, they will walk alongside you for that. And that makes a lot of sense to me that that becomes the option because I think like, yes, there's cost savings, yes, there's all these different things, but somebody that just knows the path too. And like, instead of like, I, I think, I think my point here is retaining control is good and bad.
- [20:34]
B
Yeah.
- [20:35]
A
Because for most people, like, yeah, if you want 100 of a tiny thing, it doesn't really matter. And like if you're the one steering the ship, but you still own 85, but you have no idea what direction you're taking that ship. Like, it doesn't, it doesn't, you don't win in that scenario.
- [20:51]
B
I was also going to say the risk profile. Right. So, you know, we had this really weird thing happen to us this year which stops my heart when I think about it occasionally. So we went from a point this year where it was like last year or early this year last year, whatever. The amount of risk on the business itself didn't matter. Like I could cover it if it went belly up. And then, yeah, my nets, you know, my personal finances are gone. I have to start at zero. But no bankruptcy, no complete destruction of, you know, I don't lose my house.
- [21:27]
A
Yeah.
- [21:28]
B
And this year we, we bypass that for the first time. We're at a point now where it's like, if the business goes under, I go under. Like I'm PG to a point where, you know that the half a million dollar line of credit I have with Ford, you know, if that, if that goes under now, now I'm in trouble. So it's really interesting and I think about that when somebody gets to your size and owns their entire business, like the amount of stress that that becomes, maybe it changes just because it's like, like it was so long ago that you passed that point. But you know, I know that from, for me, the moment that I passed that I Went, oh, this actually feels a little. Feels. Makes me feel away that I don't. I don't think I like. And so, yeah, you're right. So not selling or not by keeping majority ownership and now having other people's money to worry about. I could imagine that.
- [22:22]
A
Well, and. And the problem with. Recently we've been experimenting with lead aggregators. And one of the ones I'm most excited about is a company called Modernize. So what Modernize does is they do direct inbound calls for home improvement. So it's a direct phone call booking, which is way easier to book and has a much higher book rate than an Angie's List or something like that, where you have to sort of recontact them and try to find that customer. Modernize has a direct connection to our call center. So that's been a huge win. It also has some of the services that we really struggled to get good leads for water heater replacements, H vac units, and water damage restoration and water quality. Those ones have been challenging for us to get leads. And Modernize has been a really great partner for us. So make sure you check out modernize.com the problem with minority contracts. And I got into this a few years ago because I looked at doing this, so this was like four or five years ago. I was like, okay, I want to sell 20% and I want to bring on some money and I want to use it to scale. And I stubbornly believed that, like, I could figure it out, which, like, obviously we did. But I messed up a ton. And I would have probably preferred a guiding hand there. But the problem with minority contracts is they are not written in the favor. So, like, if you sold 10 to me tomorrow or 20 to me tomorrow, I have to protect my 20. Like, I have to protect my capital infusion. And it is some dirty clauses. Like, there are some. There's some. We. We actually had a. We had one happen around here because somebody used it as a reference for me. So I googled it, and I think it was Jenny's Ice Cream, which was something that started in Columbus. And it became, like, really popular. And she didn't. She went to go raise money to grow and. And she sold off minority share. And a lot of these minority share contracts, it's a different type of PE group or it's a different type of partner that's going to be willing to take on minority because. Because it honestly exposes them to significantly more risk because they don't have control and they can't bring all their resources to bear so they have a bunch of clauses where they can essentially just take the company away from you, which is what ended up happening with Jenny's. So she, she thought she was winning by retaining majority, but she ended up losing majority for free.
- [24:45]
B
Yeah.
- [24:46]
A
Like they took the company because of some decisions that she made and she missed her cash flow covenants. I, I don't know all the different steps that it took to escalate it, but she lost. She sold minority and she lost majority, which like that was probably the most expensive mistake of her life and she should have just sold majority.
- [25:05]
B
Right. Yeah. And that, that's super interesting. Yeah, it's, it's a weird world once you start getting into, into these contracts and like I said, legal agreements and everything like that, because they, they can go in the opposite direction. Like nobody envisions, like Jenny didn't envision losing her company. She envisioned it would go smoothly and that this cash, you know, injection would help her out and make her sky to the moon. But what happens if it doesn't? And yeah, that's another interesting.
- [25:37]
A
Well with, with majorities like you just walk away with the cash and it just doesn't matter like they fire you.
- [25:41]
B
Exactly.
- [25:42]
A
But with minority, like you lose control, you lose the company.
- [25:45]
B
Yeah.
- [25:46]
A
And so she lost. Yeah, she lost the company. It was kind of, it's kind of a crazy story.
- [25:49]
B
I think the other part too is, is it puts you on a timeline. Right. So nobody's investing in your company just for shits and gigs, for fun because they just want to own a small portion of a small H Vac company. They're investing in your company because return in, in a few years. And so it starts this ticking clicker or time clicker, whatever, and you have to return to them through some kind of liquidity event. And so that, that's also my other question though, with the other way. I mean in private equity they have those, those timers. Right? Right. It's a five to seven year horizon and they need to get their money back to the investment bankers. But in terms of, you know, an operator, that's where it gets interesting is like that it's going to really depend who the large operator is that's doing this.
- [26:38]
A
Yeah. Who's the partner?
- [26:40]
B
Partner. Because either a, there needs to be a long term vision where, hey, we are going to chug along to this, or there needs to be some sort of exit availability because if you own 20%, you sit around for five years building their business, like at what point do you say, hey, I'm done Yeah.
- [26:59]
A
I think Chris, you know, Chris has a mechanism in place and, and he, they're determined to not sell basically. And he essentially, hey, we're going to grow the business together and then I'll buy you out at a certain point. So there's a buyout clause with a pre. Agreed. Multiple.
- [27:15]
B
Determined multiple. Yeah, yeah, that, that makes sense that that's the way you'd have to do it. Just so. Yeah, you know, you always have that and it still incentivizes you to grow it. It still incentivizes them to help you and go from there. Interesting. It's, it's a super interesting space. I like it just because it, you know, I'm learning this, this area that I've never been in and it's extremely creative. The amount of deals that people are doing, how they're structuring them.
- [27:42]
A
Yeah.
- [27:42]
B
Is interesting.
- [27:43]
A
Yeah. And I think, I think from our perspective, because we're still in growth mode here, if we're going to launch a new location, like it is just easier to partner with somebody. And I think the hardest part is like, who are you partnering with? Because I think like the limiting factor is always going to be the guy running the business. Like it's always going to be the.
- [28:08]
B
Problem that was going to be. My next question is, is what, what do you look at that? Because I mean, I get this question from people who are searching for business and oh, we're under contract on a, on a, on a. Do you think I should buy this? What's the value of it? And I, I. One of the first questions I asked him is how long has that operator been running? And you know, more often than not we get answers. 30 years, 25 years. And I said, you know, they're only doing 2 million. And they ran through, you know, essentially the biggest run up of H vac in forever. Right. More $100 million businesses have been. More than 10 million dollar businesses have been made in the last 10 years than at any other time in the trade's history. Like, why did they miss it? And the, the answer is it's probably operator. There's an issue with the operator.
- [28:55]
A
Well, so it's always the, it's always like, it's always, it's always, it's literally always the operator. Yeah, it's always the guy in charge. Just like I'm gonna be the hold up one day. You know, I was talking with somebody, I was talking with somebody about this, this exact idea and he said he did it, his name's Anthony and he said he did it in a different space. And, like, it was always the operator, like, every time. And which, like, that makes sense that, like, you have to have somebody that, like, the idea behind this is, hey, I want to invest a million dollars, and you're going to make my life easier. Not, I'm going to invest a million dollars and you're going to make my life significantly harder because you suck at your job. And most business owners suck at their jobs. Like, they're not effective.
- [29:40]
B
No, I mean, that's definitely seen. And I think that is. I. I think that a lot of the large groups know that current pe. I mean, that's why Apex, Right. Is known to let go of the operator pretty early on in their process after they. They buy somebody out. It's just because the operator generally is the problem. It's interesting. I just. I laughed because I imagine that, like, old John, like, walking around with a cane, like, finally they're gonna be able to get rid of this guy. He's been sticking around the business for way too long, running it like it's 20, 25.
- [30:11]
A
Yeah. I don't know when. I don't know when. When I'll get fired, but one day.
- [30:16]
B
But that'll be a good day.
- [30:17]
A
Yeah, I think. Yeah. Yeah, it'll be a nice day. But, yeah, I think it. It's interesting. It. It was. It was really kind of funny being on the other side of this. And, like, I get it. And I get it. I feel like I get it from all sides. And I also. I mean, I'm really sitting here, like, as I talk about it, of, like, us buying out other people. I'm like, do I go partner with Chris? Like, because. Because it really. Like, I would probably make more money. Like, it's the same math. Like, it really. It really is of, like, you know, I was describing it to these other people, and I'm like, oh, my God. Like, this actually just makes sense. Like, I would make more money. Like, the business would be more profitable. Some of our cost structure would go away. We would buy stuff cheaper. Like, it makes sense. I think the most important part, which I consistently hear from people prepping to. To do something like this is like, who. Who do you partner with?
- [31:08]
B
That's the key.
- [31:10]
A
Yeah. Because, like, I think if. If someone's partnering with me, like, they have a good sense, I guess. Like, I'm kind of easy to understand what I'm about. But, like, I think that's where most of these companies get into trouble, is they don't know who they're Partnering with. And they don't understand, like, what's the expectation after, you know, when you initially.
- [31:30]
B
Brought this up, because I didn't think you're going straight PE route. I guess the other, the other option. Right. Is what, what is preventing three or four business owners in the south, Tennessee, Kentucky, Pennsylvania, Florida, from just all sub 5 million all getting together and doing the same thing, other than there's no clear leadership team and then they don't have all the services just locked in right out the gate. But yeah, I mean, what do you think about that idea?
- [32:04]
A
I think.
- [32:05]
B
Talk about high risk.
- [32:07]
A
Yeah, I think, I think maybe, I think like someone has to be in charge.
- [32:12]
B
Yeah.
- [32:13]
A
I think, you know, every, every ship needs a captain. And I think what, what would be kind of interesting. I don't know, I don't know the way to pull this off. But like, how do you get better pricing? How do you get more rebates? How do you get all that stuff? And how do you buy as a group, but like really buy as a group? Because there's a lot of buying groups out there, but you're just like a member of it. You get a little bit of a discount. But I mean like, how do we leverage enough to buy like a billion dollar shop? And I think that if there's a way to like trade 5% equity and everybody gets into something like that and then you all truly like, okay, all of your service type and pricing is now X, all of your H Vac equipment pricing is now X. I think that's where the value gets unlocked. The problem with like, and this is just something that I don't really know how to handle and maybe somebody out there listening does. But like, if you take over a minority, like you really have to trust the person. Like, if I bought minority into someone's business. We looked at doing this project a couple of years ago and I was working with my friend Isaac and we had something called service starters or something. And it is really hard to trust people when you don't have control.
- [33:31]
B
Was, was that the one where you, you put it out there that you guys were gonna go buy somebody a septic truck and then let them start the business? Essentially, yeah, basically. Yeah, I think we talked about that. I applied.
- [33:43]
A
Yeah, I mean, it's an interesting idea. Yeah, I think it's an interesting idea because you get to it like gives you scale without the work. But then the danger is, like, you really have to trust people and like, I don't know, without control over the cash, I don't Know how to trust somebody with. I don't know how to. I don't know how to do that, I think, because I feel like. Yeah, I. I feel like it's just a big potential problem.
- [34:14]
B
It definitely is. Right. A lot of people use their businesses, I mean, just as piggy banks. If you. If you look enough cims and you see enough people's financials and you go through this whole search process, I can't tell you how many times I've. I've seen. Oh, there's a 40,000, $50,000 slush fund of y. This is actually.
- [34:36]
A
I remodeled my whole house. It was $300,000. Yeah, I've seen it, too. So I'm just like, imagine being a minority shareholder in something like that. I'd be pissed and trusting that. It'd be crazy. It would be insane. So, like, because you made a capital investment. So I. Yeah, I think. I think that's a part of why the minority thing, like, is sort of intimidating to me, is because you're really putting an insane amount of faith in somebody to, like, be honest when, like, as a category, small business owners in the trades do weird in their financials.
- [35:15]
B
Like, it's an.
- [35:16]
A
They do.
- [35:17]
B
Because it's an understatement. Like, it is really.
- [35:19]
A
Oh, my God, Everybody. And that doesn't make you a criminal. Like, my dad used to use the business as a slush fund, too. Everyone's company used to do it. But, like, at some point, you have to professionalize, and most just haven't. So imagine making, like, a minority investment in that, expecting a return, expecting good financials. But, oh, they don't even have a bookkeeper, like, expecting any level of clarity. And I just. I don't think it's possible without control. Like, I think you just need control, because then, like, you don't have to. You don't have to trust anybody. It's like, you have to trust them to run a good business. But with the money out of the equation, it gets easier to trust.
- [35:56]
B
Yeah, definitely. Yeah. I've always said, if they're gonna lie to the government, they'll lie to you. So, I mean, that. That's a big one because.
- [36:03]
A
Yeah.
- [36:04]
B
Risking jail time to a lot of the government.
- [36:06]
A
Yeah.
- [36:06]
B
Then you are, you know, small fraud.
- [36:09]
A
Yeah. Or, like, suit. Like, I've talked to so many people that are franchise owners, and, like, they'll openly share with you, like, how they defraud the franchise of royalties. They're like, oh, yeah, I started this other business over here. It does this one service Line. Because I don't want to give them this. And I'm like, this is wild, man.
- [36:25]
B
Yeah. Like, yeah, there's always. There's always ways around it. And, you know, as a minority, you have a huge risk that.
- [36:34]
A
Yeah.
- [36:35]
B
You're the one getting defrauded.
- [36:37]
A
Yes. Yeah. Without control of the cash. Yep. So, yeah, I think. I think that's so in the thing where, like, four business owners get together and share 5%, like, to me, that's. That's all that happens, is, like, do we get the true benefits of scale? Who's actually in charge of this thing? And, like, who's defrauding who? Or are you all defrauding each other?
- [36:58]
B
Yeah.
- [36:59]
A
Which is probably everybody defrauding everybody.
- [37:01]
B
The only way you'd be able to do that is everybody have to go in with their pants down. Like, full books open with full access. And then you can see.
- [37:10]
A
And even one accountant.
- [37:11]
B
Yeah.
- [37:11]
A
Like, maybe even just, like, one. Because I think you do have to centralize in order to get clarity.
- [37:17]
B
Yeah. I mean, but even with that, it still makes me nervous.
- [37:19]
A
Funny. I know. I know. Like, it's kind of like now that I'm on this other side, I'm like, it. I find myself funny because, like, two or three years ago, I was just like, oh, yeah, it only can ever be minority. But I'm like, minority is kind of crazy. Like, I don't. I don't know how they could get comfortable with it. And the only way that they can get comfortable with it is putting, like, the most insane clauses where they can take your business for free inside that contract. And that's like, that's the only way they can de. Risk from all the stuff we just said because, like, yeah, as a category, they're likely to get taken. Yeah. When I first heard that Jenny's thing, I was like, that's the craziest thing I've ever heard. Now I'm like, no, I totally get it. Like, I would put the same thing in where, like, I would rip that. I would rip it.
- [38:07]
B
Yeah. Like, the material damage is if the bad decisions are made. Right. You don't want to lose your money. Nobody wants to lose their money. No one wants to go into it thinking it's a bad play. So I. I think it's for. For me, the strange part is, is looking like. As kids, I remember always seeing the, you know, like, the Wolf of Wall street and all these kind of. Oh, hostile takeover and all this kind of stuff. Like, as you start, I'm not saying I'm Anywhere close to Wall street banker status. But as like, I start slowly getting closer and dealing with more legalities of M and A and stuff like that. It is wild how much stuff that people try to throw into contracts and like, all this stuff. There was one on, on Twitter yesterday about a guy went to a seller of a piece of land and he put a clause in there that said, I'm going to be the only seller. If you sell to anyone within five years, I get 5% and I'm gonna bring you this buyer. But like, he blanketed that. And not to just this buyer, but to any buyer that you sell to, I get 5%. I'm going, wow, that is wild. And people just, they don't read. They don't read the contracts, they don't read the legal agreements, and they. They pencil whip them and off to the races. So it's wild out there.
- [39:19]
A
Wild. I don't know. If you're in Ohio and you want a partner, hit me up, I guess.
- [39:24]
B
John.
- [39:25]
A
Yeah, I mean, it's kind of interesting. We're thinking about it. Otherwise, I think, like, I think it started to become real because I think It's January of 26 for us that we want to launch a new location. So we're starting to look and I'm like, dude, it would be so much freaking easier if I took every dollar that I was about to greenfield a location and just pumped it into somebody else's business. Their business would explode. My life would be easier. Yeah, I'm just like, makes sense, you.
- [39:53]
B
Know, I'm just gonna throw this out here, John. There is along 71, Highway 71 and 65. There's only four cities in between us. Columbus, Cincinnati, Lewis, Louisville, Bowling Green, and then Nashville. So five cities, man. Just saying, man.
- [40:15]
A
I'm telling you.
- [40:16]
B
Coming to you. 20, 30.
- [40:19]
A
Bring it on. Well, thanks for. Thanks for tuning in. If you like what you heard, check out Owned and operated dot com. The website's continuing to develop, continuing to go through stuff. I think we just added a partners page. I think we're adding more to the blog on how to grow your home service company. So check it out. Owned and operated dot com.
- [40:40]
B
Yeah. And thank you to our 350. What do they call them? Super listeners. Yes, super listeners. 350. That was awesome. I saw that today. Listen to 10 times more than anyone else or something crazy like that.
- [40:55]
A
Yep.
- [40:56]
B
Ah, too cool. Too cool. Excited to grow, you guys.
- [41:00]
A
Yep.
- [41:00]
B
Awesome. Well, thank you, everybody.
- [41:02]
A
Thanks, everyone.