← Owned and Operated - A Plumbing, Electrical, and HVAC Business Growth Podcast
Owned and Operated - A Plumbing, Electrical, and HVAC Business Growth Podcast
#201 Turf Takeover and the Rise of Tier Two Business Acquisitions
00:53:33
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- [00:00]
Jack
Talk to me real quick about your first acquisition. Why plumbing was a lender on the.
- [00:05]
Peter D. Baptist
Other side of the table making loans from like 1 to 15 million. I heard it was a thing to.
- [00:10]
Jack
Go buy a business and then you said toilets.
- [00:15]
Peter D. Baptist
Hearing that you could buy a business where like you work eight to four and that's it. I just like didn't even realize that that was a decision I was making by buying a plumbing business instead of a marine upholstery business.
- [00:28]
Jack
If you got the opportunity tomorrow for $1.5 million. Oh God. Turf business. To add onto your plumbing company and they were selling it to you at a 3x multiple of 600. Are you in?
- [00:43]
Peter D. Baptist
I am so not into that.
- [00:52]
Jack
Welcome back to Jack, the one and only place where you get your acquisition information. Sorry guys, I'm just messing around with the intro, but today I have an awesome episode lined up. We have Teeter Peter D. Baptist. Did I butcher that?
- [01:11]
Peter D. Baptist
That was pretty close. Most people get the first name right at least.
- [01:16]
Jack
Yeah, I did the old switcheroo here. Peter is the owner and recent acquirer a few years back of Joe Cole Plumbing down in Florida. How are you doing today, Peter?
- [01:27]
Peter D. Baptist
Doing good, man. Excited to be here with a legend of scrappy acquisitions.
- [01:34]
Service Scalers Representative
We just are finishing the best April we've ever had. 55% year over year organic growth. Really just a huge thanks to service scalers for being our marketing partner in that A ton of that growth came from both paid and organic packages SEO efforts. We did a ton of work on our SEO with service scalers really strategizing and working on that about a year and a half ago and the results have been creeping up over the past about year really started to go crazy over the last few months as we're starting to see multiple six figures of revenue attributed to our website and that's from their work on our SEO. On top of that, the management of paid has just been absolutely huge year to date we're up 30 something percent. April alone was 55. And we're just super grateful for service scalers and that partnership. So if you want to learn more about how they helped us, make sure you check out servicescalers.com.
- [02:25]
Jack
You called me a few weeks ago and that, that's why I was like, I have to get him on the podcast because we were talking about you and your plans in the near future to acquire another business. Why. Why do you like pain so much?
- [02:41]
Peter D. Baptist
It's just fun. It's. It's like the ultimate challenge coming into, coming into an industry, you know, Nothing about and figuring it out. It's just, I don't know, it's pretty, it's pretty awesome. It's a, it's a big challenge and there's obviously like the financial opportunity behind it, but I just, I just also kind of like doing it.
- [03:01]
Jack
I was going to say like there, there is a financial aspect there of owning a secondary vertical. Right. And so when we were discussing it, you were saying, hey, I'm in plumbing, I'm doing well in plumbing. But you know, I see this H Vac over here and it looks juicy. Why the, the why are you looking currently to purchase an H VAC business?
- [03:21]
Peter D. Baptist
Well, I've been looking so I bought the business coming up on three years ago. I've kind of been looking since I started, but a little bit more aggressively now that we're. I feel like we're kind of well equipped to, to add another business in, you know, in terms of our office running well. But in my eyes like I'd be happy to find another plumbing company. But in my eyes like kind of the perfect acquisition is to bring on another trade and I don't want to start from scratch if I don't have to. So you know, go find a, an H vac shop that's got, you know, six trucks on the road and enough spin where, you know, the phones ring every day and you don't have to go and chase that from, from scratch and hire, you know, if you started, started from ground zero, you got one guy on the road and he's doing everything and you're trying to make sure he gets his hours and trying to make sure you're drumming up business. So I, I like the idea of buying something existing and put them together and that be the way that we branch into a new trade. But I'm also looking at, you know, I'd love, you know, another plumbing company as well. We got plenty of, plenty of Runway left in plumbing.
- [04:32]
Jack
Yeah, no, that, that's definitely. So we had a very unique experience is that we started like from ground up and then we ran that for three months and then we bought a, a large plumbing company to tuck in because you're right, it would, it takes a really unique individual who can kind of self manage but also while they're doing that, they have to help build price book and the startup game. When you're trying to start up a brand new vertical can be super difficult. And then once you purchase a company you realize, oh, this is also super difficult. But you're right, the phones are ringing day One you're bringing in revenue at high rates and, or hopefully at higher rates. And it kind of is a launching pad to really get you moving. So talk to me real quick about your first acquisition. Why plumbing? Were you tied to this geographical region? Like just how did it come about?
- [05:31]
Peter D. Baptist
So I grew up in South Florida. I lived down here. I bounced around a little bit during my college years. But you know, this is, this is home. I got a family now and I knew I wanted to be in South Florida. And the whole buying a business thing kind of came about. I don't know, a couple years before I actually did it. I had a childhood friend move back from California and he said, hey, I'm going to do this thing called the surge fund. I've been, you know, meeting all these people. I'm going to go, I'm going to go raise capital from a bunch of investors and they're going to pay me a salary to be a one man private equity shop. I was like, that sounds insane. And then I kind of got the download on it and it really fit my background. So I started my career in banking. I was, I did four years as a, as like a lower middle market lender at a bank. So basically like once you get beyond the sba, that was my world. I was a lender on the other side of the table making loans from like 1 to 15 million. And then I worked at a company called Delivery Dudes, ended up running it as president. I was there for six or seven years. So really got, you know, we grew the business from like 25 employees to 125. We had a thousand independent contractor drivers, like Uber drivers. So really went from like small business to medium business during that time and really just kind of had my, you know, felt good about the, or at least good enough about understanding the finance side of it and good enough about being able to manage people. So I, you know, I heard it was, I heard it was a thing to go buy a business and. And then I ended up doing it.
- [07:23]
Jack
And then you said toilets? Yeah, going home services. Like why? Why toilets?
- [07:30]
Peter D. Baptist
So I was looking in South Florida, so I, it was a small geography so I had to be, you know, wide on industry.
- [07:37]
Jack
But was it always home service though, at least?
- [07:40]
Peter D. Baptist
No, it started off as like really wide. It was basically like everything but like everything but restaurants, you know, was kind of like how you start. And then, you know, I gravitated towards, towards home services or more broadly like guys and trucks businesses. I got pretty close to buying a mulch blowing company so they basically operated like, a small fleet of. They're like the size of garbage trucks, and they blast in, like, commercial quantities of mulch for, like, golf courses and HOAs. And they have a bunch of municipal contracts. A really, really interesting business, and it'd be a great lifestyle business. So I got pretty close on that one. And then I just, you know, I looked at a handful, like fencing, roofing, plumbing, H vac, electrical, all. All sort of, like, trades businesses. And so I wasn't targeting plumbing, but I'm glad I found it. I really love it. It's a lot of fun. I learn something new every day, and it's just kind of a cool. It's a cool space to be in.
- [08:45]
Jack
So the irony is everyone in H Vac and Pl. H vac, now that I've done H vac, plumbing and electrical, we do a little bit electrical. Not. Not that much. But point being is all the electricians and the H vac guys are like, hey, we'll do anything you want, Jack, except plumbing. Because there's a huge stigma right there. It's like, hey, I'm not going to touch a sewer drain. Like, it's just not that they're below it, just like, hey, there's a different breed of plumbers. I love plumbers, but it is. It is a different breed. And I've had to run some of those calls. And yeah, it's as bad sometimes as they say it is.
- [09:19]
Peter D. Baptist
There is a great tangent, but there's a big, like, plumbing community on Instagram. Like, Boston Plumbing Monsters is this guy, and he started this whole debate last year of, like, drain cleaning is not plumbing. And the whole, like, plumbing influencer community was, like, fighting about is, does drain cleaning count as plumbing? Like, are you a plumber if you clean sewers?
- [09:43]
Jack
Yeah. Right. Even the plumbers don't want it. Too funny. So let me ask you a question. Now that you've been in the business of buying businesses, you've seen a ton of businesses. How long was that search? Just real quick.
- [09:57]
Peter D. Baptist
I did it, I think, about as fast as you could do it. Mine was nine months, start to finish.
- [10:03]
Jack
No, that's not. I mean, that. That's a. That's a good, healthy search in my. In my mind, because that's around where mine was. I started, and it was about seven or eight months later we closed as well. Or we found the business and then two months later we closed. So probably, yeah, almost a year total. But you've. You've got to see the gambit of everything from I'M I'm bet, knowing you, that you looked at a CIM on a restaurant, just at least one. Oh, yeah, yeah.
- [10:34]
Peter D. Baptist
Of course. I was like, so you the chain?
- [10:36]
Jack
Yeah, yeah. Mine was a breakfast joint, and it was back in Napa where I lived, and I was like, I look so good. I mean, we were looking at things from breakfast places to lumber brokers to know the whole thing. I almost bought an appliance repair business. That was beautiful. I still love it. Still talk to the old owner today. But that being said, now that you've seen so much, how, like, what is your dream business?
- [11:07]
Peter D. Baptist
I mean, I like my business, but when I talk to people who are getting in and, you know, starting to look for businesses, I like my big push. There's a couple factors that people don't talk about as much and that I certainly didn't, like, give enough points to. And so, like, my overall, like, I love pushing people to what I would call, like, the tier 2 or tier 3 home services. Businesses like fencing and roofing were at one point, like, in that bucket, but now they're getting gobbled up by private equity. So all of a sudden, like, fencing, which started off as a not very hot industry, is now kind of a hot industry. But, like, you know, an example that, you know, that I gave to somebody is, like, I got Astroturf put into my lawn, and it was so unsophisticated, getting quotes and getting people to answer the phone and getting them. Like, people showed up and, like, then spent an hour and a half with me and then never sent me a quote, even when I followed up. So, like, the competition, the bar is still really low. You're not dealing with sophisticated people. And, like, I got my turf done. And, like, who isn't happy after getting, like, Astroturf like, looks perfect every time it's finished. It looks flawless. Like, every customer ends up happy. So, like, that dynamic was one that I didn't really think about, was like, are you dealing with upset people all day, or are you dealing with happy people? Right. It's like, dentists are, like, the number one suicide profession because everybody's miserable going to the dentist. And, like, you know, it's like, you're dealing with, like, people are sad to see you. So it's like, kind of, you know, and in plumbing, it's all emergencies.
- [12:53]
Jack
No one catch 22.
- [12:54]
Peter D. Baptist
Because at the end of the day, like, unless you're, like, upgrading somebody's, you know, upgrading somebody's system, for the most part, you're just taking their money to make their house work the way it did 24 hours ago.
- [13:05]
Jack
I think of us, Peter, first off, how dare you. Second off, I think of us as heroes. Heroes to people's houses. So maybe that's why I'm always so happy, is because we come in. You've been sitting in the heat for 24 hours. Yeah, you have to pay some money, but we come in back up and running, happy, happy, happy. But, yes, you are. You're right. We're. We're like the grim reapers of household appliances or household fixtures. Is you. You only call us when you're. You know, your sewers are overflowing, your toilet isn't working, or. Or your house is too hot or too cold. Yeah, and I definitely get that. But let's. Let's talk more about this tier 2, tier 3, some. Some examples of this, because it's an interesting perspective that I know I didn't think about when I was first getting into it. I went right for where private equity was going because I figured, hey, that's where the. The tailwinds will be. But you're saying, hey, now that I'm in one of these spaces, you're looking more at these kind of increased fragmentation. There's maybe some less sophistication, less tools. And so what. What. What are some great examples? You said turf business, which is like, I would say tier one would be just commercial and residential landscaping. Right. And tier two is specifically. All you do is turf.
- [14:23]
Peter D. Baptist
Yeah. And specifically the, you know, the guys that I was interacting with only do turf for residential homeowners, like, not new construction projects. Right. And so another, like, I'll give you an example. And this is like, an even bigger factor that I really underappreciated. So I had a. Like, my friend who introduced me to this space. He bought a home health care business a year before I did. And, like, you know, his phone rings on the weekend, like, hey, your nurse didn't show up. Like, my grandma needs help. His business is 24 7. Plumbing is 24 7. Like, I've got a lot of people, so thankfully, I'm a little bit less 247 than I was when I started. But, like, it is all emergencies all the time. And then a year after me, a third friend of ours bought a marine canvas business. So he makes, like, T tops and reupholsters. Cushions for boats.
- [15:22]
Jack
Yeah.
- [15:23]
Peter D. Baptist
And that. It was a really small one. It was like, you know, people talk about buying a job. Like, he was buying a job. It had, like, one and a half employees. But after a Little while. I was like talking to him and I was like, oh, hey, so like what do you do? You know, what do you do for after hours stuff? And he's like, what are you talking about? Like, well, what? Like, he's like, my day ends at 4:00. He's like, There is no problem that anyone has desire to have handled after hours. He's like, I go in and I leave and no one's complaining if their thing is delayed by a day. Like. And it just blew me away because I was like in the business for so long, working so many hours and I was like, what do you mean your phone doesn't ring at 8pm on Friday night? And he's just like, yeah, it's just a low stress business. Everybody's chill.
- [16:15]
Jack
Yeah.
- [16:15]
Peter D. Baptist
And it blew me away. Like, what do you mean? There are no emergencies. So I think like that is one that definitely isn't. Everybody says like, you know, shadow the owner for a day, like get to know. And like I knew that the guys I was buying from worked a lot, but man, I just like hearing that you could buy a business where like you work eight to four and that's it. I just like didn't even realize that that that was a decision I was making by buying a plumbing business instead of a marine upholstery business.
- [16:48]
Jack
I think that that actually, right, that's an entire industry that I think fits your, your theory of this Tier two, tier three businesses really, really well is when you go and you look at canvas businesses, right, where homeowners are putting up shade structures or playgrounds or putting up shade structures. It's this really niche market. Even businesses, right, Restaurants, they want the shade on the front or the shade on their back patio. I could see that there's a, would maybe be a small emergency service component, but it's nowhere near what you would see in kind of a home service business. I remember looking at a few of those. The numbers are great as well as I, I also looked at a marine canvassing business in the Gulf a long, long time ago, but they focused more on sale repair. So they would, they would do sales and repair on sales. And I always just imagine you rip a sale, you buy a new one, but obviously they're so expensive that they go through and they stitch them up and make them look nice and everything. So really interesting businesses. And I think that those transcend outside of those kind of quirky ones too because like I, I, I view that and we've been trying to do something like that in Our business from a startup perspective. We tried to buy a tier 2 recently, but the guy wanted way too much. But, but I look at that, we have one locally called the Hot Water Heater Pros. And you might love that because there's no such thing as a hot water heater. It's just a water heater. The hot is a unnecessary word, but from an SEO perspective, the guy knew what he was doing.
- [18:24]
Peter D. Baptist
That's all hilarious because everybody's like, that guy doesn't know his stuff and he's over there just like, who cares?
- [18:33]
Jack
Yeah, but From a Tier 2 perspective, all he does is water heater. Low margin, high volume. They focused all on marketing and it's all brand marketing because like you need a hot, a hot water heater. You go to the hot water heater pros, you don't call a plumber, you call them. And they do decently well in our area and they don't have to spend very much money at all on marketing, which is extremely nice. And from a water heater perspective, I've seen that more often than not is people. I heard an ad from Southern California the other day on my Pandora, which was the re Pipe boys or something like that. All they do is that like, it feels like the industry, these tier twos are like they're segmenting out basements or hot water heaters or now I'm gonna say it and get in trouble or re pipes or just like this single industry or single skew if you will, and turning it into like their only business. And it's only the, the high value tickets.
- [19:36]
Peter D. Baptist
Yeah, there's a guy by us who does pretty much exclusively tunneling, like sewer replacement by tunneling and he, he does it himself. There's like a plumbing company, but a lot of what he does is like subbed out from other, other plumbing shops to the point where he like got rid of the name plumbing on all of his trucks and now it just says tunneling. Yeah, like Bob's tunneling. I don't know if I, if I would love to be in that business, but, but it kind of follows that same thing. Like yeah, you find your little thing and you're not in like, you know, a multi billion dollar total addressable market. But talk about, you know, having your lifestyle business and there's a lot of, lot of weird ways to get there.
- [20:22]
Jack
What's the downside of buying a tier two though? I mean, I have something in mind, but I'm curious what you think the downside would be.
- [20:29]
Peter D. Baptist
I think the, the downside is scale. You can only get so big. And the downside is exit opportunities. Because if you don't have scale, who wants to buy it? For a crazy multiple H vac is enormous. It's fragmented. It has like recurring revenue components. All this stuff. It checks a lot of boxes. So like, yeah, people are going to go and pay double digit EBITDA multiples for it. And because you can grow it so big and you can grow it through, you know, crazy acquisition strategies, if you go find like the mulch blowing company or the marine upholstery company or whatever, like, yeah, you can, you can turn one of those into a $10 million business, but like not a hundred.
- [21:13]
Jack
Yeah, definitely. Scale is an issue, especially for single sku. Right. Like American leak detectors actually is a great example of this. They had one of those fragmented tier 2 and that was their thing. They would do leak detection for plumbing companies. And it went super well. Right. They grew a huge brand, national brand, and then they got, they had to scale. And so what did they do? They went and said, hey, not only are we going to do leak detection, but now we're going to do plumbing too. And so what happened to them is a very interesting case study is they got wiped out. Like we were talking to one of the, their main sales reps the other day and he was saying, yeah, it's got really bad at some point because as they tried to scale this Tier 2 into a Tier 1 again by doing Tier 1 items, they lost their entire customer base. Right. Because I'm not as a plumber, I'm not going to give them my work. They're going to undercut me. Right. They're going to find the leak. They're already there. They're just going to sell the fix. Like I'm not going to call them anymore. And so you find that I think scale is a huge one. The other one that I, that I have in mind that becomes an issue really early on is you can get crushed, absolutely crushed by large competitors. Like the tier one large competitors. They have the resources because they're, they have scale. So they have, you know, their marketing dollars could equal your top line revenue. And so. Right. If you, the mulch blowing business, for example, if you had a tier one ginormous landscaping company that owned South Florida, theoretically they could go and say, hey, we're doing mulch blowing now and we're going to dump a ton of resources into this couple hundred thousand and now we are going to steal those contracts away from you and we are going to be the new HOA owners. So it's an interesting dichotomy of, of it's good. But if it, if I feel like if, if it gets too popular. Right. Someone's going to come in and try to sweep it out from under, you know?
- [23:15]
Peter D. Baptist
Yeah.
- [23:15]
Jack
Same with turf blowing.
- [23:16]
Peter D. Baptist
If you succeed, you start attracting more eyeballs to.
- [23:20]
Jack
Right.
- [23:20]
Peter D. Baptist
Yeah.
- [23:21]
Jack
It's like you just want to fly under the radar as a lifestyle business for years and years.
- [23:25]
Peter D. Baptist
Yeah. I mean, but the reality is like, look, look around. Like, I don't know, most of these guys have been doing it for decades.
- [23:33]
Jack
Yeah.
- [23:33]
Peter D. Baptist
And don't seem to be going anywhere.
- [23:36]
Jack
Yeah, I say that, but I went.
- [23:38]
Peter D. Baptist
That exact thing at, you know, at delivery dudes. We were a competitor with Uber Eats and doordash and like, you know, we were, you know, out competed by people a thousand times our size. So that was fun. I wouldn't want to do that again.
- [23:54]
Jack
Yeah, exactly.
- [23:55]
Peter D. Baptist
That was one of my fears about plumbing was like, hey, the, you know, there's like this big, there's this big wave in the industry and like, are we on the, you know, which, which part of the wave are we on? Are we about to be on the good part of the wave or are we about to be on the bad part of the wave? Because at my last business we missed the wave and we were on the bad part of the wave and it was super not fun for a while.
- [24:19]
Jack
Yeah, I mean I, I think the waves are different though when it comes to home service industries. Right. Yeah, they, they had like the same boom in the 1990s where PE came in. They grew big and crashed and like. And it took 20 years for the valuations to go ridiculous again. But all that being said, I mean in that same time period we had multiple hundred million dollar businesses being formed and like this giant influx into the industry because it's not going anywhere. I don't, I don't view this as an Uberable. I think you were talking about that. I was speaking with you offline about it. Just it's so hard. And Uber barely made it. Right.
- [24:57]
Peter D. Baptist
That, that was somebody else. But that was a very, that was a great comment.
- [25:02]
Jack
Oh, was that Uzi?
- [25:04]
Peter D. Baptist
Yeah. He was like, okay, I'm somebody. Being the Uber of X is like Uber was the Uber of Uber and they barely made it.
- [25:13]
Jack
They barely made it. Not to mention. Yeah, not high skilled labor. One of the most common and expensive mistakes that I see in acquisitions in the home service space is not getting serious about accounting. Whether you're buying a business or you're already running one. You need the right financial partner to save you time, money and headaches. That's why we partnered with Apple Tree Business Services. They are a one stop shop that'll help you get through the due diligence process but then they'll partner with you after after to help you out with payroll and bookkeeping and taxes. They know home services. They're fluent in tools like Service Titan and housecall Pro. If you're tired of the surprise tax bills or an accountant who ghosts you when you really need them, Apple Tree is the upgrade you deserve. Listeners of the show can get a free tax and financial review and if you're buying a business, they'll give you 10 off quality of earnings. Just head on over to AppleTree business.com Talk to Patrick, click the link, let them know Jack sends you and they will take care of you. Well, I have actually an old CIM speaking of being on the market and looking at CIMs for a long time that I'm out of my NDA on and I can talk about so turf businesses, man, I'm excited to actually look at one in real time.
- [26:27]
Peter D. Baptist
So I've never looked at one. I just liked the experience of getting my turf in and I was like, all right, this will be.
- [26:38]
Jack
I don't know if you've ever heard of some of my, my older podcast, but dude, I like my, my version of of turf is I just wanted to drill wells. Like I was a well driller because I was in California at the height of 08 when it was like the biggest drought and there was wells going in all over California. Like and it was just this giant gold rush. And I and me and my buddy were going to buy a rig and just start drilling wells and we never did. He ended up getting his master's degree and then went and drilled wells and I went off and did some facilities maintenance and worked in wineries. So much better choice on my end. But still like that's my, that's my turf. And that's always like like asking people.
- [27:19]
Peter D. Baptist
Was there a boom and bust in the well business.
- [27:21]
Jack
Huge. Huge. Because the minute that the, the minute that it rained in California again, which was like circle around like 2010, 2011 I think it was, was when it finally got a huge, huge storm that filled up all the aquifers and, and everything like that. But California has some really interesting agricultural laws around well drilling where they, they really don't have a huge permitting process and the depths that you find water are extremely deep. So it's Very, very lucrative. Especially in the Central valley where they're drilling like freaking, you know, 24 inch diameter wells. And it's like ridiculous amounts per foot and you have to go down a thousand feet. Whereas like Tennessee now if I wanted to drill a well, I can go like over here, it's like 12ft. Like the water table's not very. Maybe 100, I don't know, but not very low comparatively.
- [28:14]
Peter D. Baptist
That's. That's like some serious blue collar work.
- [28:18]
Jack
Yeah.
- [28:18]
Peter D. Baptist
Like what is each back is like the white collar of blue collar.
- [28:21]
Jack
Is it?
- [28:22]
Peter D. Baptist
Yeah, that sounds like the blue collar of blue collar.
- [28:24]
Jack
Yeah, it definitely was. But you know, as like a 20 year old, right, that it was me and my buddy and we were hard workers and like, we do always went to the gym together. Like, yeah, let's just go put some pipe in the ground and like, we'll do all the welding ourselves. And so, I mean, it was exciting stuff at the time. And we ra. We raised. Well, we had. We didn't raise it because it didn't hit the account, but we had people who were willing to move forward with it if we were going to. But he backed out last minute, went and got his MBA because he was worried about being a blue collar boy.
- [29:01]
Peter D. Baptist
All right, so like, that is just. To me, that's like the number one statement I have of this whole thing is like, you can just do whatever you want. Like.
- [29:12]
Jack
And.
- [29:12]
Peter D. Baptist
Oh yeah, that's the thing that, like, didn't really, you know, like, took a minute to click. Like after I bought the business, I like kind of went and rewinded in my head and I was like, what just happened? Like, how did I just buy a business? I think when I closed, we had like 32 employees. I'm like, I know nothing about plump and I did not put in much of my own money. And like somebody was willing, like the grownups at a bank were willing to like, let me do this. Like, it felt like I should have been asking somebody permission, but instead it was just like I decided I was gonna do it and I did it. And that's just like exactly what you're talking about with the well. Like, you were just, you were just gonna do it? Like.
- [29:57]
Jack
Yeah.
- [29:57]
Peter D. Baptist
You ever drilled a well before?
- [29:59]
Jack
Nope. Beautiful. But yeah, you know, that's what it is, man. That's. That's the fun part about life, right, is you can just go out and do things and sometimes it works and sometimes it doesn't. But awesome. So this. I'm not gonna say names. I'M pretty sure it's probably already closed already. But this turf business, artificial turf business out of Florida, I picked one out of Florida for my boy Peter here. So that if you want to go close on this later, you can. Except this priority closed. 60% residential, which, you know, that's what your experience was. But of course, with turf and with almost all home service businesses, there can be a commercial aspect to it, right? Sometimes even an industrial aspect. You look at roofs, you could do, you know, you could do residential roofs, but you could also do commercial roofs. Vastly different companies. Same with H Vac. You could do residential H Vac, you can do commercial or industrial H Vac, Vastly different products. And so this is interesting. They do 60% residential and then they did 15% commercial, which looks like office complexes, public areas and rooftop gardens. So rooftop gardens was, was pretty interesting to me. I didn't realize that was such a market. But it kind of makes sense if you were closer to, you know, the Miami area or you know, where all the condominiums are, that, that would be a thing. Especially for dogs, right? If you live in a condo, have a dog, you know. And then the last 25% was stadiums, golf courses and schools, which is cool. So really, really big mix of commercial, kind of sports oriented and then residential.
- [31:47]
Peter D. Baptist
That's interesting that it's such a small piece because I would guess the dollar amounts on that are huge. Like if you're doing like a, a football field or whatever, you know, I'm guessing that's like if you're doing a school or a stadium, like that's going to be like huge dollar amount, huge dollar margin.
- [32:05]
Jack
My guess though is like how many houses are there in comparison to schools that are putting in turf, Right? So you might get one or two a year, maybe five, well, five or ten a year. But you're doing at the same time hundreds of houses. So Even though it's 25 of the market, I bet it's a really small, like actual customer concentration. It's probably the, you know, three or four customers are probably GCs that, that you're building schools with them. Right? So super interesting. I found that that kind of beyond just the residential push, I found that to be really interesting. They were, let me see, I want to say 800 in top line revenue.
- [32:54]
Peter D. Baptist
Oh, geez. That's a real. Yeah, that's a real.
- [32:57]
Jack
It's a job. Yeah. Oh, no, sorry. 1.5, 1.5 in top line. 40% gross margin, which also surprised me. And about 10 to 15, 10 to 14% in EBITDA. So gross margin surprised me. EBITDA is kind of in line with any home service industry. So that one actually didn't.
- [33:23]
Peter D. Baptist
That's interesting, because if you're making 40% gross margin, I wonder if that. If that's after labor, like, what are your other expenses other than yourself?
- [33:33]
Jack
My guess is a big portion of it's still marketing. They do a lot of Facebook marketing. That's. That was what I was told when I was working with them, is like, Facebook was the key driver, more so than Google, more than lsa. And I found that to be really surprising. But it makes sense because it's such a visual product. Right. Like you said, you don't. You. You walk out and you're like, oh, I'm really happy because it's so clean and nice, and it always stays clean and nice. But that's a. You know what I mean? It's like a visual aspect to something that.
- [34:07]
Peter D. Baptist
Yeah, you want.
- [34:08]
Jack
Yeah.
- [34:08]
Peter D. Baptist
You see the pretty picture of it and you're like, that's. Yeah, you can't. I mean, yeah, if you're. If you're searching for it, you're searching for it. But, yeah, I'm sure there's a little bit of the. Like. I'm sure there's a marketing term for, like, building the desire, but, yeah, I mean, that's. 1.5 million is, you know, scary territory. I don't think you're gonna find too many that are. That are bigger than that at the same time.
- [34:36]
Jack
Well, that's exactly what I was just gonna say is I went before we did this episode, and I. So to ruin the fourth wall. And to everybody who's listening's idea of what we do on this show. We knew we were gonna talk about a turf company prior, but I went on Biz by Sell and I looked at a few of these too, and yeah, there were. There weren't. There was, like, one that was bigger than this one, and it was Dallas, 4.5 million still for sale, but the rest were all, like, a million. And that seems to be for these, like, tier two, tier three businesses, really, where they kind of cap out. So. Interesting. Let me see. The other thing I found interesting in this is. I mean, in terms of, like, labor and just the entirety, it's all the same as H Vac. So it's. It's so confusing to me that how similar it can be in terms of, like. Right. Top line at 1.5, labor is the same percentage. I think they get hit pretty hard on their cogs. With material, though. Yeah. Because every job is a heavy material load. And then I'm sure there's some excavation and drains and. And quite a bit there too.
- [35:54]
Peter D. Baptist
Yeah, there's definitely. Yeah, all.
- [35:58]
Jack
Let me ask you.
- [35:59]
Peter D. Baptist
All these businesses fall into these same, like size buckets. There's just a ton of them. Like this million and a half size is one size bucket. They'll like, can't break. 3 million is the other bucket. And then sometimes you get a little bit bigger than that. But I feel like those are the big thresholds because you can run the $1.5 million business with you kind of being the only person. You're the center of the universe at that size. You can still do the books, you can quote every job you can manage, every know call gone wrong, all that stuff. The difference with the. The turf kind of thing is you're probably not dealing with at one and a half million. I don't know. We got to do some math here. But like, I'm guessing that's probably like you're running like two crews or something. Like you're probably doing like two installs a day. So it's not like you're dealing with a field of service techs. And each one's hitting all these different jobs. I'm guessing your day's like, kind of steady and predictable. Like you wake up, you set up job number one, you got a lead guy on job number two, and you're quoting three jobs in between. And then you go check in in the afternoon and make sure the customer's happy.
- [37:22]
Jack
Exactly. That's what I was going to ask you. How long did yours take and how big was it?
- [37:26]
Peter D. Baptist
Was it.
- [37:27]
Jack
How long did your. Your specific job take? Can you talk a little bit about the one that you got in for your house? How many people were there? Did they show up in branded trucks? Like, that's what I'm curious about. Because I bet much like, you know how like roofing, most roofing companies, they don't have their own installers. Like anyone who's installing your roof not doesn't work for the company. It is a different subcontracted crew and they usually have a project manager who stands on site and manages. So I'm curious. I bet they would. I mean, I could see something running similar in this industry. But then if it was like landscaping, I could also see them just being W2 employees. So I'm not 100%.
- [38:07]
Peter D. Baptist
My project was.
- [38:08]
Jack
What was your experience?
- [38:09]
Peter D. Baptist
We did like a little. We did like half of our backyard. I'm trying to think of the square footage but like it was small. It was like I think it was less than a thousand square feet. And I don't think they had branded trucks. Like you know it was a decent brand, you know like professional looking stuff. I think that, I don't think it came through on like a house call Pro or any, any type of software. But it was like you know, professional looking business cars and stuff. I don't think anybody had remotely sophisticated apps or anything like that. No.
- [38:50]
Jack
Did they turn around an iPad and say hey or here's your options.
- [38:54]
Peter D. Baptist
But I did a fence job. I'll tell you about that was that went like that. But the turf thing, I don't think they had branded trucks or anything like that. And it was just like six dudes one day like just full for like six dudes working like 11 hours. Hammered it out. It was you know, it was pretty impressive.
- [39:16]
Jack
That is, that's a lot. I was expecting more of like a two man crew to knock that out. But 10 I guess have to rip out all the grass. Do they have to drive an excavator or some kind of mini backhoe or something like that to, to. No, I don't clear the ground enough.
- [39:31]
Peter D. Baptist
And the grass is already removed.
- [39:33]
Jack
Okay.
- [39:36]
Peter D. Baptist
But now, yeah, now I'm wondering are we going to do some unit economics on this?
- [39:41]
Jack
Well, that's what I'm trying to figure out.
- [39:42]
Peter D. Baptist
They didn't have. It wasn't six guys there the whole time but it was there in the beginning. Like they were getting it like cleared out. Maybe some of them went to do something else after.
- [39:51]
Jack
Well like you said, I wouldn't be surprised if they're running two crews and then just like in H vac or just like in plumbing you do have like a crew is not consistent of all equal people. Some of them are better at you know, tear out demo rough in finish work. And so I'm wondering like I need to dig into this more. I'm wondering if the, the turf business has a rough in, a tear out and a finish crew that comes in and really keeps it nice. I have to talk to a supplier.
- [40:25]
Peter D. Baptist
No, they might, I'm sure because like the demo work you know is probably, you know you're probably demoing and grading with a machine especially like again my, my project was small but my project so it was about 1000 square feet and I think it was about 6000 bucks. And so I just did 60 hours of labor at 20 bucks an hour and that's 1200 bucks. That's exactly 20% labor cost. And then your material cost is probably another what, 30%. And that gets you to a 50% residential margin. That's. That's probably what they're doing.
- [40:56]
Jack
Right?
- [40:57]
Peter D. Baptist
You're probably doing like a 50, maybe 55% residential margin. And then the commercial stuff is probably, you know, 40.
- [41:05]
Jack
Yeah. And probably equally pulls you down 35 to 38. And pulls you down because it's a high ticket on a blended. Yeah, super interesting. So the big question, if you got the opportunity tomorrow for $1.5 million.
- [41:23]
Peter D. Baptist
Oh, God.
- [41:24]
Jack
Turf business to add onto your plumbing company that did 40% margins at 14% EBITDA, so 210k and they were selling it to you at a 3x multiple of 600. Are you in?
- [41:42]
Peter D. Baptist
I am so not into that. I think like it's.
- [41:49]
Jack
But someone is.
- [41:49]
Peter D. Baptist
This is like a good exercise though, because, like, I'm a little bit of a hypocrite here because I also preach big time, like, buy lots of revenue. Like, sure, EBITDA is great, but like buy lots of revenue. And I think it's one of those things where like, if you have 1.5 million of revenue, like you just have no wiggle room to do anything. But I say that at the exact same time as I encourage people to like look at oddball small stuff where you could come in and just work really hard. And it's almost like a blend of a startup. Like if you go buy this business for, you know, 500 grand or something, that's not life ruining money. If something goes wrong, you're buying at a low multiple. So you can just throw your energy at it and a little bit of bootstrap, a startup energy and you could turn this one and a half million into something serious. So I don't know, I kind of wear both hats on that.
- [42:51]
Jack
Yeah. My problem is for 1.5 million, though, it had. The EBITDA margin is too low for me. So at 14%, like that's a lot of top. Or that's a lot of expenses that are hitting the bottom line, which I'm having trouble accounting for because at a 1.5 evaluation. Right. Or 1.5 in top line, like realistically your, your EIDA or your SDE should be a little bit higher unless you, you really did have all the systems in place and you know, you're paying, quote unquote for the service titan of turf and you know what I mean? So there's not much room with 240 and EBITDA to if something goes wrong or a downturn, or if you want to replace your yourself with an operator or you want to do any of these growth activities, like it really is scrappy.
- [43:39]
Peter D. Baptist
Yeah, but that's why like you, you can't pay 3x for that. You got to pay like 1 1/2 to 2.
- [43:46]
Jack
Unless you own a landscaping business and it's a tuck in, then go for it.
- [43:50]
Peter D. Baptist
There you go.
- [43:52]
Jack
All right. The question I used to ask John when we used to do these that I loved, it's one of my favorite questions, is on a one to ten scale, one being a super easy business to operate and ten being plumbing. No, I'm just kidding. Ten, ten being like a really difficult business. How hard do you think it would be for somebody, like if you bought this business before you bought the plumbing business? How hard do you, do you think this business would be to run successfully?
- [44:18]
Peter D. Baptist
I, I don't know if it's like a grass is always greener thing, but I think like this and this, like this falls into like this category. Like there's not that much going on in Astroturf compared to H Vac and plumbing. Right. Like there's no engineering happening. Like, you know, so I gotta imagine like if plumbing and H vac is like a 7 out of 10, this has got to be like a 3 or 4. Because I think you can. And here's why I say that I think landscaping is probably pretty hard because the labor pool is brutal. I think with this because it's project based and it's higher ticket, I think you can get away with paying people more. Or if you do like a, you know, like performance pay model for installers that a lot of people are doing in our industry. Like I think that's my hunch is you can get like good talent and pay them well because you're doing high ticket sales versus landscaping. You're doing like mow and blow, bottom barrel pricing. That's all your recurring stuff. So you got to hire guys for like minimum wage. I think you can get like decent talent is my hunch. And I think like your day to day is just kind of like you set up a job, you quote another job, you wrap up the job. Now I think your day to day might be more than an eight hour day every day. That part might be different than the canvas business. I'm guessing you're working like 6:30 to 5:30 every day. Right. You're always going to be starting before your cruise, you're always going to be finishing after they wrap up. But I Don't. It just doesn't seem like there's that much complexity to it.
- [46:00]
Jack
Yeah, I put it at medium competition, right? Not very hard competition. But I don't say, I don't think it's the easiest of competition. I think that there is some competition from hardscape companies or landscape companies that do this. Like there is competition. It's not the pe, you know, top tier marking every keyword up to $600 to pay for each keyword. Difficult, but it's definitely something. So medium on competition, medium on labor pool because like you said they are a step above in skilled labor than just somebody who's doing blow and go. So that in, in itself makes it harder to find. But I don't think it is. Hey, these guys are doing like really large excavation jobs or even hardscaping jobs where they're moving rocks around and planting trees and doing irrigation and doing lighting. Like this is just turf. So I think that's somewhere in the middle too. And then I love that it has a high price, high ticket which can, you know, you can do a lot with a high ticket point. Especially for all jobs. I'm sure there's a smaller service aspect where you go back and repair some, you know, fix, put new media down inside the grasses or inside the fake grass. So that's definitely part of it. But yeah, I'm going somewhere in the middle like 4.5 to 5 on this one as well. I think that, that it's, it's not going to be the easiest in the world, but it's, it's not the hardest either. Good lifestyle business, if you're young especially and you want to hustle and build something, I think that that's right up the alley. Like you said, 500000 is not going to end your life if it goes under. Especially if you have a bunch of trucks and stuff. I mean they'll liquidate and it'll suck. But yeah, that, that's where I'm sitting.
- [47:51]
Peter D. Baptist
And I think if you come into it and you're, you just copy the like home services playbook in terms of advertising, in terms of answering the phone, in terms of outbounding, in terms of giving options in front of the customer and pricing live. Because I went through the same thing with like I had a little fence project and I had the, the full experience. You call four people, three of them show up, two of them give you quotes, even though you follow up non stop with the third one never gives you a quote.
- [48:22]
Jack
But the one guy who gave me.
- [48:23]
Peter D. Baptist
A quote, like, did it on the iPad, priced it live, gave me three options with financing and pictures of what I was getting. And it was like the same price as everybody else. And like the other guy lit. Like, the guy came to my house, spent an hour and a half with me, and then I followed up with him three times over the course of 10 days. He never sent me a quote. Like, I don't know how that guy's in business, but like, if you take that mentality and you put that on turf, like, you're gonna close more than everybody else and you're gonna be able to spend more on leads than everybody else. And I think that's like the secret sauce. Like there is a playbook already for this. You just need to. Yeah, you need to.
- [49:03]
Jack
And that's for most tier 2 businesses. Like you said, fencing has become tier 1. Roofing has become tier 1. They're all taking the same playbook and they're all starting to run with it. Very interesting. Awesome.
- [49:13]
Peter D. Baptist
So today, what is, what business have you found that's like I said, a 3. 3 is not fair. It's probably a 5. What business is actually like a 3 or lower?
- [49:27]
Jack
I think the 3 or lower businesses tend to be. They're generally not in home services, but I think somewhere along the lines of if you were a very, very personable person and you were to get into something like lumber brokers. Being a lumber broker, that is a very simple business. Right. It's based on relationships and it's based on your middleman who you're sourcing, you know, specific types of lumber and specific pre cut material. And then you're, you're matching it up with builders and that's who you're selling it to. And so if you have both of these relationships or you can buy both of these relationships and you're very, very friendly, outgoing, networky type, I think you can do really, really well there. And it's not overly difficult. The guy who I was interviewing for, he went into work at, he said between nine or 10. He had an assistant who did mostly everything for him. He had these relationships over 30 year period. So he didn't, he wasn't going out looking for more business. He was just ensuring that, you know, the yellow pine that he bought got to the builder that wanted it at the time. And like he had a really interesting niche market where he would sell pre cut this like the stair steps. I don't even know what that's called, but what, where the, the stairs go on? Yeah.
- [50:56]
Peter D. Baptist
Oh, stringers.
- [50:57]
Jack
And so he, yeah, he sold a lot of those pre cut and he sold them to manufacture from manufacturer to home, home builders. And so we had a huge Rolodex of these people. He had them calling him to get the wood and then he would just call out as a middleman to the, the, the, the suppliers, give them that and he'd leave at 1, go to the gym and then go home every day. So he was like 9, 10am to 1 every day and there was no overhead. That's what I was like, this is wild. Like the overhead was his phone and his car.
- [51:33]
Peter D. Baptist
Yeah.
- [51:34]
Jack
It's like the weirdest ad backs his gym membership.
- [51:36]
Peter D. Baptist
Probably every other person in that industry is so stressed, right? Like the manufacturer is stressed, the lumber producer is stressed, the builder is stressed and then this guy's in the middle just like, I don't have any inventory, I don't have any contracts, I don't have any. Right.
- [51:54]
Jack
Yeah. It's like, sorry, there's no, there's no wood right now. Like it's not my fault.
- [51:59]
Peter D. Baptist
Yeah, yeah. That's why.
- [52:02]
Jack
Yeah. And because I was talking to him too close to after 2020 where like there was that big housing boom as well and all like the material from China was scarce and all the material in, was scarce just in general housing material. So I mean maybe a time and a place. But also I think being a middleman in like the right business at the right time in the right place makes for a really relaxed, easy business.
- [52:31]
Peter D. Baptist
Yeah. It also sounds like there were a lot of ones and zeros that were government service providers that we're learning about now. Sounds like that was the secret of that right. Few years ago.
- [52:46]
Jack
Well, thank you Peter for coming on today. I really appreciate it. It's super interesting learning your perspective on, you know, tier two, tier three businesses and why you think that they are optimal for buyers and have a lot of opportunity moving into the future and awesome breakdown of a turf business. I, I agree with you. I think that it would be a great business for either a tuck in or somebody who's willing to hustle and figure out how to implement the home service playbook into it. If you like what you heard today, leave us a five star review wherever you listen and head on over to owned and operated.com to get some more information. Appreciate it guys.