james and palmer higgins brothers and two of the three partners of chedmark chen mark is a company that acquires small businesses around north america to hold for the long term so it's really one of the exemplars of what is now called permanent equity and an inspiration to many acquisition entrepreneurs who love the concept of not buying just a single company but a portfolio of small businesses isn't holding them for the duration of their careers so i'm really excited about this conversation i've listened to you both on other podcasts i'm thrilled that you have uh to now have you on mine so thanks for coming and welcome thank you thanks very much for having us let's start with a quick intro uh on each of you individually james if you go first give me a minute on your background yep sure so i started my career on wall street uh first on a currency trading desk and then i moved from there to a few different hedge funds on a variety of strategies from uh merger arbitrage to various credit uh credit strategies to macro investing um before starting chen mark and uh so with chen mark i focus on we've all had a few different roles over the years so things have rotated a bit right now i i run our search process so sourcing diligently and executing on on new acquisitions and and tucking deals for our existing companies and i also run our gvp program which we can get into in a little bit and and also our strategy services team uh here in our office in portland cool paul awesome uh i also also got my start on i say wall street but we were in midtown like most of the other financial companies at that time uh but i was doing buy side equity research at jpmorgan so fundamental analysis financial statement analysis basically model jockeying is what it was called back then i did that for a couple years and then went to join a digital textbook at e-learning startup did that for a couple years before linking back up with james and trish and starting chen mark about seven years ago and uh first iteration i'd say part one was we were all doing everything together uh part two i was uh leading up the search and deal side of things and part three for me was stepping in to run one of our operating companies which is a company called mainly grass a residentially focused lawn care company in northern england and so you're operating that now palmer how long have you been in the seat there uh three years february well in february february 2019 was my uh was my beginning so coming up on three years okay so let's do a quick history on chen mark itself for those in the audience who don't already know the you formed this this business around a thesis really and a vision so there's a real founding story here so if you guys would would articulate that what what led to the formation of chen mark and the path from now on uh sure so um i think there's uh there's a couple of different elements to it um to put it simply there's a sort of an investing math component to it and then there's also sort of a kind of personal philosophy component to it um on the investing math side uh it's really just sort of the simple kind of back of the cocktail napkin analysis of the return profile associated with acquiring a small consistently profitable highly cash generative small business for uh you know three to five times multiple um with a reasonable capital structure um and some fairly benign operating assumptions uh the the rough math there translates into a pretty attractive return um and that to us was very interesting especially in a world of relatively low interest rates relatively high equity valuations and so when comping when sitting in a seat an investing firm when you're comping kind of the return profile associated with owning and operating small businesses against sort of the return profile of on offer um in the public markets we found that compelling and worthy of further inquiry i think as we studied it more um you know it's pretty clear that there are nuances to owning and operating small businesses and we've learned that lesson um over and over again over our history but um i think to us rather than have that be a sort of cautionary thing to the contrary for us that actually seemed very exciting and um and there was this notion i think for all three of us that the world would be a more interesting place if we were not spending you know 12 hours a day behind a bloomberg terminal but instead we're applying a lot of what we had learned to the real economy uh and and to sort of you know in in into real businesses uh and so that that was really kind of that combination of factors sort of led us to start the firm and um and and sort of build a um build a company around around that idea um and there's some there's some you know some more detailed nuances around kind of deciding to look for multiple companies as opposed to just one that we can get into but um i think from a high level that's that's what we're looking at and when you had this insight about the the financial attractiveness and the multiple attractiveness of of small businesses um certainly you know that that that's you probably weren't the first to have that insight so why why is it what makes you all different that you took this plunge um there are many um hundreds and thousands of unhappy wall streeters uh and yet they they stay there so what what about your story is or your vision is different just the gumption to do it or there's something there because because um everybody knows that you know a small company is cheaper than a big company great point yeah i think i have a pretty good answer i've asked i've answered this question a few times and uh the way i answer it now is i think james trish and i like uh in a lot of respects i don't think we're all that special i know i'm not that special um james is incredibly smart but i know i'm not that smart but what the three of us have in common is a pretty unique and an extreme delayed gratification muscle uh and a and a fairly high willingness to bet on ourselves and the two of those in combination lend themselves to the chen mark model and one of our core values of playing the long game uh the way we have decided to approach small business equity necessitates a very long-term horizon and that's one that we're very comfortable playing in and one that is i think fairly unique and so it allowed us to do something that on the surface or to other people might seem crazy or ridiculous or irrational uh but to us felt right i i think um what very well said palmer i i think um for me uh i guess for us there's a um i i think when going into this i think there's at least for us there was a bit of a period of significant introspection um and and sort of uh investigation around kind of core values and i think i think for for us the appeal of owning a small business and and sort of the associated sort of tangibility and in particular autonomy that comes with it uh were were very interesting and and more compelling for us from a values perspective than say you know the number at the bottom of our w2 at least at least initially and so you know to palmer's point about delayed gratification you know the the tricky thing about trying to build a holding company that owns a lot of small businesses is the first thing you need to do is move to maine and buy a snow plowing business and run that for a while and make sure that goes well and then maybe if you're lucky you get an opportunity to buy another one and um i think there can be a lot of perceived opportunity costs associated with that depending on what your exposure is and what your previous experience is and so um having a very clear sense of what's important to you uh yeah and your family and you know who you know whoever else is involved um i think is a pretty important thing and and i think we were we were fortunate to have a lot of alignment between the three of us and a lot of those key key areas one more question on this before we get into chen mark itself just this this this introspection process that you went through before you started down this path the um the kind of wall street that you were moving away from the wall street life that you were moving away from the professional life one thing that it probably uh offered i i think i heard one of you say this was it it is intellectually um quite stimulating you're around a lot of high achievers smart people really at the top of their game uh and not to say that small business isn't filled through and through with a lot of smart people but smart in a different way certainly not the kind of like academic you know just trying to squeeze out an edge experience of wall street type thinkers so i'm just curious about how you thought about that um coming from uh coming from a really probably traditionally intellectually stimulating environment to one where you're going to be using your hands a lot more uh or maybe your you know your in your people skills and management eq different different part of the brain did you consider that and what have you um any whether or not you did what have you found on that question i probably have two different answers yeah i'll take a stab but we probably probably different answers so um i would say that and i you know with the benefit of hindsight um i think one of the interesting things about where we are now and sort of operating a bunch of small businesses um i think it's kind of i think your question gets at this sort of uh juxtaposition between breadth and depth so um no we do have the same answer man uh so you know i think in in in any sort of high-performing kind of professional sphere so you know banking consulting sort of you know private market investing any that kind of stuff um you of course have extremely smart people all tackling i think highly specific problems with a with a level of rigor that just frankly isn't matched in the small business space um right and so that is 100 true and you do um you do sacrifice some of that i think what you pick up is um an incredible diversity of experiences across the full spectrum of business operations so you know i can sit on a bond trading desk and have and and you know be a complete expert at reading the reading credit agreements understanding kind of covenant structures or whatever it happens to be um but i may never have the opportunity to have to fire someone have to hire someone have to you know build out a marketing program um acquire another company you know negotiate a price with a customer any of these types of things and and you know oftentimes in our lived experience running chen mark you know we're doing most of those things each day to one degree or another and so i think i forget which one of us said that but i think we said it fairly early on in our in our kind of trajectory so to speak and you know it's certainly true i wouldn't take it back per se but i would i think one of the things that we've learned is that there is absolutely intellectual stimulation just like the format of that is a little bit different than you would encounter um at a you know bulge bracket investment bank so it turns out we did have the same answer i was going to say breath versus death uh i would say like i've i've been more intellectually stimulated via chen mark than than previously and i really enjoyed my time at jpmorgan um i think a way to frame that is something i actually heard james say a number of years back i don't know if i've actually told you that i like still remember this day when james is talking about his experience he's like yeah i've had four years of experience but i've had four one year experiences had four experi four years of the same year experience and it's like the learning curve is steep but then it gets quite repetitive quite quickly especially for smart people um and seven years has felt like seven years of experience at chen mark because of the range the range of things that you are that you have to and can do great well let's get into what the business looks like today how many businesses does chen mark own as of january 2022 uh seven at the moment um working on it working on a couple of more uh so hopefully we'll be a little bit a little bit higher um in maybe a few weeks and list the list the seven for me sure so um we own uh three different companies in the landscaping space uh we own a lawn care business we own a food manufacturing company that manufactures frozen dough uh we own a tourism company that's in the boat tour space does whale watching and puppin tours here in maine um paint oh and most recently we acquired a paint retailer in western canada great and we're going to get into that one in just a second and how many employees in total uh do these seven businesses and then chen mar the chen mark mothership represent uh so they're um it varies a bit because a number of businesses are fairly seasonal but sort of rough rough math um about 450 or so total across the organization and um at in portland it that's also in the moving target influx a little bit moving target um i'd say yeah seven yeah seven or eight something like that okay so seven or eight are at chen mark proper and then the rest of the 400 440-ish are spread across the seven businesses yep okay well obviously i'm sure each of those seven businesses is a story unto itself we don't have that time but let's just hear about your most recent acquisition um also because uh it it strikes me as the most um unlikely but i'm sure you'll you'll disabuse me of that so benjamin moore uh in kelowna uh british columbia so for for those uh the americans in the audience who don't know where or what kelowna is uh it's it's a medium-sized uh 100-ish thousand people uh size town city in british columbia i think no direct flights you got to fly through vancouver or seattle to get there am i right about that that is true i mean sometimes you have to fly through two different places to get there yeah it depends on where you're coming from third biggest city in british columbia i mean you got to give it some credit right right well i actually spent a few months in in vancouver so i feel like i know what kelowna is but i think i didn't know before i got to vancouver um hard place to reach especially if you're in in portland maine i would imagine or i'll just say there are many easier places to reach so i'm curious uh tell us about you know to tell us the quick story on this acquisition and how how it's justified buying buying because i imagine you guys have deal flow at this point your name is out there um so why this business that's that's so far away sure so um i guess to us it doesn't seem uh i mean sort of geographically it's far away but i think to us it doesn't seem as far away and so we'll give a bit of the chen mark history here so uh my wife trish our third partner is from british columbia originally and actually has family that whole area of kind of like central bc is called the okanagan valley um and there's a number of different sort of cities along um like okanagan which sort of runs north south sort of throughout the valley um and uh so trish has a bunch of family that uh retired to the air either lived in the area or retired to the area um and uh and so we have kind of roots i guess there and uh one of the first deals we ever did which was this frozen dome manufacturing business actually happens to be located in in the okanagan valley um so we've had routes both familial routes and business routes in the area for a number of years um and so you know there's a connection it didn't just come out come up out of the blue i think okay um in terms of how this deal came up one of the things that we've observed uh you know we certainly see plenty of deal flow from traditional sources so you know we look at our fair share of brokered transactions but when we're doing um our own kind of proprietary outreach um we tend to focus a lot on sort of building up proprietary networks in either industries or geographies which we already participate um so we spend a lot of time in the okanagan and and and trying to interact with other business people intermediaries to business people um other business owners etc and so this opportunity popped up by virtue of that effort and um and i would say uh and you know and we did our diligence and and found it a kind of an attractive opportunity which of course we can get into but from uh from a high level that's the that's the connection to the the geography and how the deal sort of popped on our radar gotcha okay well so here we are this is january 2022 your first acquisition was in early 2020 2015. so really seven years that you've been full throttle at this in the seat and much of my audience is going to be people who are considering acquisition entrepreneurship they've already decided to do it and they're searching or maybe they've already acquired their first or even second business but they're you know not nearly as far along as as you two are so i really want to extract as much value from your seven hard-won years of experience as i can for a more beginner audience um so first question on this is going back to your your vision for the business your thesis seven years later how's the thesis holding up i think stronger than before it's hard to think back seven years and it's possible your your listenership might not have known about search seven years ago certainly when we started chen mark we didn't know about search um fish went to hbs but didn't actually take any of the search fund classes and i think that kind of ignorance was helpful because had we we probably would have been talked out of our model because at the time the whole co structure wasn't a thing that wasn't search uh it was there was the traditional funded model there was a self-funded model and that was it there was no entrepreneur in residence there was no accelerators there was no nothing and so the idea that three people which was again not a thing two was the max in terms of search partnerships so three people were going to go and buy multiple small businesses that weren't a roll up in a varied geography and in varied industries that wasn't search and it certainly wasn't private equity because we were going into the expectation that we were gonna own these companies indefinitely um and so uh i think flash forward seven years it's kind of uh cool to see that now the the hold co structure is a is a thing and people are talking about it as a eta model um so i think in that sense yeah i think i think the the thesis holds every bit as much if not more now than it did then and then there's some irony there right i think the from the beginning we were pretty um explicit about our desire to build a kind of diversified collection of small businesses uh diversified respect to industry with respect to geography really the idea was if you can build a um pool of cash flows with where the individual sources of that cash flow were relatively uncorrelated with one another um that just becomes a very attractive and very steady stream of earnings um and sort of reinvestment capital um the the sort of irony of course is that um you know to get that going you need to buy one company so there's nothing about owning a single entity that resembles a holding company and then order classification and then from the beginning or uncorrelated right right and then from the beginning we've tried to be again we've um a lot of our sourcing efforts have been focused on industries or geographies and which were which were sort of currently involved and so functionally that's meant that in the early days a lot of our acquisition activity after the first one um was also focused on the landscaping space so you know year one we don't look like a holding company you're two or three um you know we're holding company insofar as we own different ass different businesses but uh we still um are look more like a roll up than we do like a diversified holding company and so you know ironically enough now um the diversity of our holdings today uh and and sort of the diversity of our opportunity set today looking ahead um is much more of you know conglomerate-esque or diversified than it has been to date and um and so i would say the division actually is more real now than it has been in chen mark's history right but not because the the the vision has changed or hit no roadblocks simply just takes time to to do those positions absolutely and i want to get into diversification i know you have addressed this a lot i know you have strong thoughts on it and i just but i think it um for people who haven't heard that i want to um spend some time on it but not just yet first um i wanted to um ask uh so so palmer is you just put it like five seven years ago to the extent that people were doing this out of the fancy business schools it was just traditional search funds the idea of search or uh self-funded search or holdco was nascent to non-existent on the other hand like outside of the kind of eta bubble or or you know upper echelon mba program bubble there are obviously people um entrepreneurs acquisition entrepreneurs call them what you want local investors who buy small businesses um that's who business brokers have traditionally served they you know they get a deal and they call their their local network of uh people who buy this buy local small businesses what differentiates chen mark from those anonymous unknown folks who um who have been doing this forever and it's basically it's basically who business brokers have always picked up the phone and called um so i think one those people generally are more ad hoc they're going to be more geographically driven so i think we're we're chen mark is by nature more professional because it is our business it's not just hey i'm going to call the guy who founded this business has done really well and so with some of his spare cash he buys some other businesses on the side but they're not his main focus you know acquiring operating businesses and operating them is our focus so it's like it is our professional focus so i think that's a big difference um well i don't know if it would necessarily be all that different from the cohort you're talking about but uh us being family and talking to small businesses which are either formerly or informally almost by nature also family uh makes us just different so being able to talk to an owner and with their spouse in the room whether they're on payroll or not and explain that we are also a family business uh and be able to relate to them in that in that way i think is is powerful anything good yeah i mean i just i think there's um i think they're going to be elements of what chen mark offers that are analogous to sort of the kind of tried and true sort of long-term approach so um to palmer's point a lot of a lot of those interactions with the traditional sort of business broker world a lot of those are going to be very relationship based and largely geographically centered um and that you know resembles a lot about how we approach the deal process uh i think what we would hope to do is um when we're comped against say sort of formal private equity we appear a lot more like sort of the business owner next door who a traditional business owner a business broker might have called and when we're comped against uh you know the traditional small business owner um you know we we resemble a more uh sort of professionalized organization that is um that is going to be focused not just on um operating the company but also professionalizing and scaling it over time um and so i think ideally if we do our job right and you know there's a lot that goes into that but if we do it right then we're sort of blending a few different options for a small business owner in a way that that ideally is pretty attractive the the professionalism uh that private equity can bring with the with the um the the family uh aspect that that is the the intimacy of small human touch right yeah thank you better better put um okay back to 2015 and the seven years that you've been at this so um what were some of your rookie errors and uh or or a rookie error that you can share with the audience that they so they can learn again from your from your mistakes um and break that in break that apart into me from searching a searching rookie error and a an operating rookie error and uh just to interject also it's it's interesting to me because you guys had all of this uh wall street experience i mean you you really had um in a certain sense you were really prepared at least from the financial aspect um to go into this much more than many other acquisition entrepreneurs on the other hand i love the fact that you basically when you decided to go down this path you you googled how to how to buy a small business so in some sense you were you were you were starting from the same blank slate that many of my listeners are so um you didn't really know what you were doing and you must have made some mistakes what were they on the search side and on the operating side sure so i got one all right um i i honestly it it blends between search and operating but i'd say like when you take the traditional financial background that we had and you apply sort of the more traditional private equity playbook of well equity is going to align incentives that's just how it works you don't realize that people value equity very differently and so equity incentives don't actually work the way you might think they work when you have different parties who value it differently and and specifically value the liquidity piece of equity very differently uh i know we've definitely learned that and i remember trying to explain uh options to a seller once and realize that this is this is not going to go well and we need to we need to pivot and this is this is not one of the things that's going to translate well from our finance background to small business um i would say uh that that that's definitely true i would say on the operating side um i think there's a healthy debate in the eta space and in in all business really um kind of this this sort of argument about whether it's the jockey or the horse so if you pick the right industry doesn't matter who the operator is um or you know can a good operator run a successful business regardless i would say um in our experience uh the operator is extreme extremely important and to the extent we've had we've made mistakes it's been um i would say a lack of um sort of appropriate scrutiny on on kind of who we're bringing on board or or trying to make decisions about sort of important key personnel on a tight timeline without sort of the appropriate time to sort of build a relationship and ensure there's good ensure there's good um both skill set and character alignment um so that that part of it's it's is incredibly important um on the search side i think um transitioning from bigger particularly public companies to smaller private ones um and you know let's not mistake there's a pretty substantial size size gap um i think you go into the go into it with an assumption that um there's an ability to obtain if not perfect at least like um comprehensive uh information on whichever target it is that you're look you're evaluating from a diligence perspective and i think the one thing we've learned is that even if you get kind of financials or even if you get fairly detailed operational data there's just gonna be um this sort of extra component of unknown information that is very very hard to uncover in diligence uh and so to us anyway there's not really a way to risk mitigate that other than building in an appropriate margin of safety around deal structure and and setting appropriate expectations for what can be accomplished in the first 90 you know 180 360 days um operationally while you're kind of learning what you don't know um and and that's been a consistent element pretty much of every deal we've done um and so you know i think i think that's that's a big lesson learned is just understanding that you're getting into a world of imperfect information so you need to do the best you can it doesn't doesn't absolve you from doing the work but even if you do all the work perfectly there's still going to be a gap and you need to make sure you accommodate for that in your planning what another way to um to frame that be that the first six months maybe 12 months of ownership after you've acquired a business you you just your list of the 200 things that you're going to do that's going to have to be shelved like sure you make the list absolutely trish tells us it has tells the story of your first acquisition i think it was where she had a powerpoint of all the things all the tech stuff she was going to do on day one and come to find like like email wasn't being downloaded from the server so you know just totally different than she thought and in fact that's a theme that comes up over and over with my guests the the very same thing um i mean you're just you're just chomping at the bit to improve this asset this business that you just acquired so your you know one's eagerness can't be uh you can't blame you for the eagerness but uh it's just never once you're in the seat it never looks like what you think it's going to and it just can take a lot longer to get your arms around the business than you think yeah that's absolutely true and i think what i'd add is you know in a sense what we look to do is you know a little bit arrogant to be honest with you so you know typically we're buying a company in almost every case for us we're buying a business from someone who's run it for multiple decades um and so the the benefit that any of the the real asset that each of those owners has developed over time is um just a very powerful kind of instinctual understanding for how the business works um and and what that and basically allows them to do is to operate the business without um a uh you know really well-defined sort of transferable set of operating procedures and and nor do they need that because look they've gone to the school of hard knocks for three decades so you know they've earned the right to um kind of fly by instinct and we're coming in and saying hey guess what we can figure out how to do all of that you know almost overnight um by implementing sort of process sort of data analysis procedure kind of in you know business intel business intelligence et cetera and you know it's a it's a pretty arrogant thing and so you kind of it takes a while to replicate that um structurally and i think just making sure to you know build and build in time for that to take place uh is important i can imagine that i'll phrase it succinctly the first the first 90 days are figuring out what that list of 200 items is going to be yeah yeah i imagine in some ways it's it's a little bit more relaxed when you buy a new business now it's like okay we bought the new business and we're gonna be observers taking notes here for a while rather than breathlessly trying to fix everything yeah i mean i think it it's different for different people in our organization so um you know one of the things i you know we spoke about the the importance of the operator and and and sort of the importance of um you know ensuring cultural alignment and one of the ways that we've worked on solving that problem uh is by building essentially what amounts to a leadership development team in-house here uh and and so the the folks that come on board and sort of work with us in that program um you know have their eye on stepping into a ceo role at some point um and i think for anyone who steps into a new ceo seat even if they've heard of the experiences from the other ceos who you know work at chen mart companies there's just a newness to that that um is is uh overwhelming at times um yeah and so that you know that's a feature of of kind of our you know our onboarding a new company is you know someone typically is stepping into that role for the first time and and is kind of learning how to navigate um as a new ceo i think for palmer trish and i with the benefit of having seen a number of acquisitions happen um you know surprises still come up for sure and uh you know things things to learn from but there is a little bit more of a playbook now where um you can kind of implement this you can kind of go through the same procedural elements uh and to make that process a little bit more predictable and and and the cycle rate a little bit faster to go from zero to hey we feel comfortable kind of pushing this business forward now well that's gotta be exciting to to kind of be able to develop a playbook and and see some scalability with with your model talk to me about this program that you've now mentioned a couple times so you're developing a bench of talent so that when a new acquisition comes along you have people lined up and ready to hop into the to the chair um yeah tell me about it yeah so typically we work with um not all the time but most of the time we work with with business owners who are looking to retire and and so that creates a void um in in the org chart and um palmer trish and i don't uh don't scale particularly well um and so sometimes what we found is uh we'll buy a business from a retiring owner and there's a number a number two person already at the business who um is a great fit for that ceo role and um you know to the extent we can promote that person to the to the top seat um you know that that's always that's a great been a great outcome for us in other situations that isn't um that person isn't there and so um you know we need to supply our own management in those situations uh as i mentioned we've we've tried try we in the early days we tried that a few times um on a tight timeline by uh you know posting it out on linkedin or whatever it is and it turns out that when you hire for a ceo on linkedin in two months um you tend to get what we call kind of more i guess mercenary type ceos rather than sort of missionary type ceos and so our solution to that has been to be very deliberate in building a uh kind of an internal leadership development program and and so there are kind of three stages to it uh first folks come on board to and work at chen mark hq here in portland and basically they split their time between um what i would sort of financial and providing financial and operational support for our existing companies and and then helping to source and diligence new acquisition opportunities uh from there folks kind of graduate to an operating role at one of our existing companies so thinks on a c level but not ceo so uh head of finance head of sales maybe branch manager something like that um and then that cohort of kind of senior operating company leadership uh becomes the the natural they become the natural candidates uh to step into ceo roles when they become available as we acquire new companies um and so we hired our at a different company at a new order correct yeah so for example we talked about the benjamin moore acquisition uh earlier in the discussion so um uh duane lucetta who was uh one of our first we call the program this uh gvp program it stands for generalist vice president um so duane was one of our first hires into the program he graduated from working in portland to being actually palmer cfo at mainly grass uh and then from there um stepped into the ceo role at uh at benjamin moore out in kelowna and what type of person uh is is good for the gbp program like what are they looking to do with their careers and what are you looking from looking for from them sure um we're about to interview a bunch of them so we'll see if they listen to this uh i'd say no number one for me is is humility uh and and true interest and understanding of what small business is uh and a desire to get to get into that world um it's it's very tangible but uh you're definitely in the action so the way i phrase it is there's no such thing as a boardroom ceo in in the world of small business um but what you pick up is range and so if that's appealing to you then that's that could be a great fit uh another way i phrase it is um it is you have you get a ton of autonomy and you have a very direct uh feedback loop to your impact on a company uh and the price of that is a fairly healthy dose of responsibility and accountability and for people who like that trade-off i think it's a it's a phenomenal position uh one i'm living currently uh but it is a it is a pretty unique thing so i think people really need to understand what is a small business ceo and and do i want that and why would somebody um differentiate this opportunity from just me being somebody who wants to run my own small business being an acquisition entrepreneur and buying buying a business and and having all the equity or some much larger percentage and and being a ceo and still having all the experiences that you just talked about sure i mean that that isn't that is an awesome opportunity and so if that's you i think you should go do that i think that the difference is what you're going to pick up in chen mark is you're going to be a part of a network of other operators and with a support infrastructure around you at chenmar we have a whole team called the shared services team that are subject matter experts in sort of the business infrastructure of small business to help our operating companies be as good as they can be and we have a growing team of ceos who get on a call every single month and formally talk about the challenges we're facing the opportunities we're facing but also you can pick up the phone and call them at any time as can your team you know head of sales can call other head of sales different company so what you pick up is this network of support sounding board of sort of lessons learned to help you sort of along your along your journey because search can be quite lonely uh what you're going to give up is the fact that it's just just you so if if the if you are all about being the sole equity owner and being alone and you love that independence then yeah chen mark's probably not right for you uh but if you are interested in small business operations but maybe search feels a little lonely or feels a little bit isolating or feels a little bit scary because there are there is not a lot of support then i think check mark is an awesome opportunity because you know it is it's going to be very operationally heavy but with a with a ton of infrastructure around it i think you know there's lots of different flavors of search and so um the it i think it requires anyone who wants to be in the first i think the first sort of the first decision anyone needs to make is is uh and it needs it has to be around kind of do you actually want to be in the seat so um and and that and and that's like not a really a deal thing not really like a like a capital allocation thing like do you want to run the running business and be accountable to the outcomes of that business um and if you can answer that then it becomes a question of um you know sort of trade-offs about different different options so if you really want to be the 100 equity owner um you know and and you want to do a kind of a self-funded sort of bootstrap sort of uh you know acquisition then um then yeah like you should go out and do that yourself um if you know you're you're comping kind of a chen mark gvp program against sort of a traditional search where you're raising a fund and have a bunch of investors um you know i i don't know that the economics there would be that different uh it's just sort of a different profile in terms of you know who you're interacting with on a on a day-to-day basis palmer you went from working sourcing deals and working on at chenmar capital hq right to being the ceo and operator of mainly grass what why did you make that decision and and um anything that you can share from that experience sure so the why is uh really because i we had we had to um we bought we bought the company uh it put a person in place on one of those sort of tight timelines and in relatively short order realized that it wasn't a good fit uh and needed to needed to make a change uh and james trish and i were in it wasn't this conference room but it was one not too far away from where where we are right now and didn't didn't know anyone within the company that we thought could could elevate to the ceo level this was 35-ish days before the season was about to start it's highly seasonal business uh and didn't have anyone you know at quote-unquote hq that could step in uh hq was a lot smaller back then so looked around the table and realized it was going to be one of us and had a conversation and six days later i was introducing myself as the ceo of mainly grass well three years later something must have gone right because uh you probably could have have found another replacement ceo in that time but you you're still there they all keep becoming ceos i i had one in the making and then he went and wanted to start to sell paint in canada okay uh so you were james you and trish were on patrick o'shaughnessy's podcast invest invest like the best uh back in almost five years ago in 2017. uh and there were a few things that observations that either you or trish made during that uh during that conversation that i wanted to just revisit um and now that we're basically a half decade later one was about the competition so this is i think part of your of of the thesis of chen mark is that you're this small business acquisition is this kind of um great opportunity and not a lot of people doing it so you know that that part of the part of returns being high is because there aren't a lot of people doing it so five years later is do you still find that to be the case obviously podcasts like mine exist now and they're more people there's more attention on search um but still you know the ratio of actual searchers to businesses to be acquired might still be totally out of whack anyway what are your thoughts five years later on that on the question of competition among searchers yeah um it's a great question i i would say i think in the um in in the publicly available areas there's absolutely more competition so for instance if there's a high quality broker deal out there you know every searcher is going to be all over it and whoever is representing that company is probably going to have you know 10 or 15 lois uh in in fairly short order at probably fairly aggressive evaluations and so into that in that in that sense um you know there's there's certainly competition and and i think prices for what i would say are um kind of bread and butter search type companies or eta type companies um have definitely gone up uh so i think that puts more of a premium on um proprietary searching uh and and developing um developing kind of sort of unique or or or sort of under um under-researched uh industries or geographies or just sort of doing the work of building proprietary relationships with people who can represent sources of deal flow so um on that i i think there's actually quite a bit of room for a number of people to be successful in that area right you know to your point a lot more businesses available than there are searchers or eta firms or permanent equity vehicles or whatever it is um you know i think it's it's what you're seeing is um what's publicly available represents a fairly small percentage of the overall market and so i think the easy thing to do when you're getting up and running doing your search is to um you know is to scour all the sort of publicly available sources of information so you end up having a kind of a hurting effect um which is 100 true i just i don't know that represents kind of competition broadly speaking to the point where you know it's not an attractive um you know opportunity set any longer one of the things that is debated in the search world is how big to buy and traditional search funds folks of course by quite large when comparing different types of acquisition entrepreneurs but many of my guests have bought businesses that are a million dollars million and a half dollars in revenue uh and you know two to five six seven hundred thousand dollars in ebitda which would be considered buying small any any thoughts on that um not for chedmark but just general generalized wisdom for the loan acquisition entrepreneur out there oh i definitely do i get this question a lot um and it's sort of influenced by i guess like our entry quote unquote to the the search space when it was sort of what we were doing wasn't considered search and it was it was wrong and i thought it was just kind of funny that search even back then was this like small thing and to then have you know the perception that there was there were right ways of doing it there was wrong ways of doing it seemed odd and what i tell everyone is whatever you want to call it every where people are looking to try and get access to small business equity one way or another and whatever the approach whether it's a method that you've heard about or a method you want to design on your own i say go for it and that is entirely dependent on you where you are in your life your risk appetite your family situation your career ambition and a whole host of other things and so i don't think there's a right way or a wrong way at all and so i don't think there's too big or too small i think it's highly individualistic so you want to go buy a 200k dot company have at it and don't let anyone tell you that that's the wrong way to do it great one of the other things that came up in that in that patrick o'shaughnessy interview was earning the right to take risk i think trish said this citing one of her previous bosses from her wall street days uh and you've now seven years later five years from that from that podcast have you earned that right uh to take risk are you still is is kind of the profile of investment company that you look to buy um essentially as kind of um you're mitigating as much risk now as you did back then you're trying to at least so yeah i would say it's interesting to kind of think about the to make a distinction between the the macro and the micro so um i would say um we tend to think um fairly incrementally um in just how we up how we operate how we operate each business and how we operate in the in the aggregate um so uh and so on that score i think we're very much still in the earning the right to take risk mindset so you know the you know our our you know you ask what's our plan for 2022 well it's to make sure that the next deal we do is well structured and and you know gets onboarded onboarded well and that we operate it um sort of consistently with how it's been operated in the past and and you know how to be successful i think um our goal is not to build up a big cushion and take a huge sort of company-wide swing it's to kind of do little things right consistently um over time in a sort of habitual way and um and so you know and that you know i think actually in doing that it makes the defensibility of the overall holding company it makes us sort of kind of more insulated over time is we do as we add well-structured deals in kind of a serial way so you know i think i think if anything we're we're just as committed to that mindset now um as we were in the beginning if we just think about it more in terms of you know individual company operations and individual deal by individual deal we don't really think about it as sort of building up capacity at kind of from a top down holding company level and sort of earning the right then to sort of take a big swing on something yeah i'd phrase it uh in a different way too like in the traditional investing game risk is sort of a unit of measure if you will that you have no agency over in the world of small business you have agency over a lot and so the way i view it is earning the right to take risk is like you're actively de-risking things so like things that were risky for us five years ago are less risky for us now because we have more capabilities we're more sophisticated we have a bigger team you know we have you know we're able to do things now that we couldn't do that or were able to acquire businesses now that maybe we wouldn't have we wouldn't have been in a position to acquire five years ago so i actually view it as agency over risk de-risking it so we're doing things that maybe would have considered would have been considered more risky five years ago but now it's not like we're taking to james's point bigger swings on on that point on risk and in diversification palmer so having agency over so i i don't have the same um training finance training that you all did in portfolio theory and etc um but i understand the concept of diversification it's not super useful in small business operations just so you know i can't i can't remember the last time i talked about the efficient market hypothesis to field technicians well and yet and yet portfolio theory of diversification i think does play a key role in how you approach your acquisition your own portfolio um and and so i just want to work through that a little bit because i understand diversity wanting to diversify all the business that you're acquiring to diversify diversify away some risk on the other hand you are like you just said palmer you're gaining in small business like you have agency over a lot of these risk factors and there's so much to be said for um learning in industry and then presumably you're so much smarter for that second third fourth and fifth acquisition and so while you might be going you know you're not diversifying by doing a roll-up of lawn care or landscaping companies you're you know all your bets are in one a single industry on the other hand i feel like that could be offset by all of these other things all these other advantages that you're gaining by this really deep expertise and really just knowing this industry inside and out and having better deals be presented to you because you are the people that buy in this industry et cetera you know you know the argument for the roll-up essentially um so it just it just feels it feels that feels more natural to me and i think it does to most people which is why roll ups are more common than chen marks um so if you would just just just defend that again i know you do a lot but do it for my audience please sure yeah uh no problem actually so three things one is um no one ever said we didn't buy companies within the industries we already operate uh so when you ask the question how many companies you own we call those platform acquisitions right so we've there's seven of those uh we don't really count it but um trish said on a podcast recently we've done like 30 deals right so the balance of those are going to be small tuck-in acquisitions uh and so that's you know mainly grass bought three small lawn care companies the winter of 2019. right so that does happen uh i would and so like and that is now that that can be an attractive way to grow i'd caution you that say say hey that you know the deep industry expertise is true you know better questions to ask you know better diligence to go through to understand i'd say you still fall you can still fall into the trap of any tuck-in looks great in an excel model because what an excel model cannot capture is the human element and combining two organizations the the people element the culture element of that is something that gets tremendously overlooked i was just i was in the car a lot this morning just listening to a podcast uh in the trenches actually steve devicus who's in the search world got a guest um and he mentioned you know yeah talk talking about um like some of some recent studies that say like 70 to 90 percent of acquisitions actually are horrible horrible allocations of capital and asking why and you know the why is almost always like it's because people fail to recognize the human element of merchant companies uh and so i think that is overlooked when you think just roll up yeah just buy a bunch of companies and smash them all together you know no big deal looks awesome on excel and the third part is i think in small business the the challenges that that small businesses face and that ceos and operators face in small businesses are very similar almost regardless of geography or industry i know that because every month all seven of us get on a call and we talk about what's going on and we all have the same problems and so you know bruce's problem uh at the frozen dough company and and my problems at mainly grass despite there being 4 000 miles between us and one's a manufacturer of frozen dough and another is a residential lawn care service provider there's actually a remarkable overlap and so i think the skill of being a small business operator is is one of of range and flexibility uh and not so much of of deep industry expertise i think i mean palmer's absolutely right the two things that i'd add that are a little bit unique to chen mark um have to do with time horizon and um organizational design so on the time horizon piece um i think there's no question that if you want to kind of get there faster um buying a single and buying a single company focusing on it on that industry and sort of doing the sort of roll-up thing um is going to be a more efficient exercise because it um you can kind of uh iterate faster and and get up to speed and implement those learnings more effectively um for us uh the the time frame over which we earn a return is just is is not um as important as it might be for a state investment fund that had um you know outside investors that required you know their money back on a certain time frame or were being or measuring things based on an irr um and so i think for us we're perfectly comfortable stepping into a new industry and understanding that hey it may take us a little bit of time to get up a learning curve here um but you know those learnings compound over a long period of time and and so if that means that we can now have capital deployed into a few different industries um you know if we're looking at doing this for 50 plus years um you know what happens in year three is is not quite as important and so i think we have a tolerance for tolerance for an interest in kind of deeply engaging in the work of getting up the learning curve in new industries um that's a little bit differentiated from kind of other other buyers also similarly um we sort of have the benefit because we've kind of bootstrapped this to a large degree of um the operating function and the capital allocation function are are integrated in a way that um that isn't really a feature of a lot of other companies so what i mean by that is um you know you go raise capital for traditional for traditional search or you know you're a publicly traded company in you know x industry um generally speaking your shareholders are going to want to make kind of capital allocation decisions that are sort of quote outside your lane so you know you're successful running a sas business um and you generate excess cash uh you know unless you're going to redeploy it back into your sas business your investors probably just going to want their money back so they can figure out what to do with it um in our model you know we have um pretty complete integration between those two things and and so um to us you know having a robust and very diverse set of reinvestment opportunities for kind of the free cash flow that our businesses generate is actually a huge competitive differentiator because it means we can redeploy capital very effectively at similarly high rates of return um and so if we can um and we have and we have the ability to do that because um you know the business is majority owned by palmetrician i um so that's a little bit unique but um for us you know we're pretty excited by the opportunity to say hey you know here's here's an asset in a different industry that has a lot of the same characteristics as maybe an asset that we already own or one that we feel like we can understand um you know we're not really buying particularly complicated businesses in most cases um and so at the extent we can find something even if it's in a different different industry or geography that that sort of checks a lot of our diligence boxes and represents a compelling place to deploy capital um you know we actually think that's a feature not a bug well i think it's powerful that if you kind of have a small business taste like chicken approach and you and you're just developing the skill of operating small business that is uh that is just a very strong competitive advantage that um that you can just again if you're industry agnostic small business industry agnostic you can just deploy whenever whenever you see a good opportunity regardless of the regardless of the industry i mean i think it's it's important to highlight that i mean i don't want to be cavalier about it right so you know it it um don't you know make no mistake like you know again kind of coming back to this sort of arrogance point like you know we we understand that we are getting into areas that we that we don't where we don't have perfect knowledge and we don't know everything and there's a huge burden on our whole team particularly the person stepping into the ceo seat to kind of go to school for whatever in whatever sort of space it is that they're getting and getting involved in and so you know it kind of comes back to our recruiting but um you know we want to make sure that we're identifying people who are up for that in the same way that sort of palmer trick and i were up for it as when we you know bought our first company yeah it's it's simple but not easy i think the last thing i say on just you know buying different types of businesses is it allows us to be open to types of businesses that i think would normally not pass even initial quote unquote search fund screens because uh and i'm not a i'm not a search funder funded or self-funded but uh certainly a funded side my understanding is there's there's pretty steep irr hurdles in order to unlock economics for operators and so what that means is you have to buy a business that either can tolerate just a very aggressive capital structure or that that is going to grow quite a bit otherwise you're not going to be able to hit the irrs that you need to hit especially in any kind of medium term and definitely not a long-term time frame for chenmar having that sort of escape valve of reinvestment opportunity outside of the business in that industry means that we can look at the bait and tackle shops that we've written about a ton in weekly thoughts you know that don't have a ton of reinvestment opportunities but earn tremendous returns on capital they just don't have a ton of ability to redeploy additional capital and that works great in our model uh and and that works great for our operators too two of the things that you've said make denmark unique are that you're a family and you're your your collective delayed gratification muscle among the three of you um with with holdco's being trendy today uh everyone wants to have a mini berkshire hathaway what type of person um you know my audience is considering buying businesses or maybe they bought their first what type of person should pursue what you guys have have done what you and the three of you have done um versus uh doing a roll-up uh or or or some other path i mean your yours is yours there's a very strong vision around yours and i'm just wondering like for those in the audience who um admire what you've built who is this right for yeah there's gonna be heavy overlapped terms of screening the answer to screening uh for you know potential chen mark ceos i'll take a stab and say you know if if you want to uh if you want to have a more tangible impact and in in what you do and you derive purpose and meaning in having that kind of an impact for me that's what i love about chen is i can it's it's intellectually stimulating on a lot of different levels um i've i have been able to have experienced the operator side of it i've experienced the deal side of it experienced a lot of the side all the sides of chen mark and for me it keeps coming back to the impact that i can have on people and a bigger number of people so at the beginning of this podcast you asked how many employees we have across chenmar i'm actually glad you asked that because it's not a question that most people ask us most people ask us how many businesses and then what do you do in revenue and james trition i couldn't care less what we do in revenue to be honest with you we hear a lot about free cash flow but uh but more than that we take a lot of pride in the number of people that work at chenmar and therefore the number of families that we're supporting uh and shoot i don't know how many years i've been out of college but like fresh out of college sitting in wall street that's a that's a mind frame that i would never have thought that i had and it's been incredibly rewarding sure yeah i think i think sort of the only thing i'd i'd add to that um and that's sort of by far the most important piece but um the only thing i'd add is that uh i i think it comes back to some of this in this sort of introspection piece where um i think it requires a pretty clear sense of what's important um and you know if you can have those discussions with yourself or with your family or whatever it is and and determine that autonomy is important um impact is important sort of tangibility is important and um and kind of an end result over a long period of time is important um then you know then i think it can end up being a great thing but it needs to be um i think there needs to be an understanding that it comes with um uh sort of the neces the term not maybe not necessary but but the sort of an associated opportunity a perceived opportunity cost um both in terms of current income especially in the early years and in terms of um potentially social capital depending on where you come from or what your experiences are what your exposures are um and so you know those trade-offs ultimately you're you know to your point a very a very personal thing um and um you know but if you can you know have that conversation and and and um and you know realize that a lot of that um you know a lot of those factor these sort of tangibility kind of um sort of long-term compounding factors are are valuable and sort of tip the scale in that favor then um you know i think it's a great path do your old wall street colleagues look at your success over the last seven years and are they starting to say huh you know eating they're eating their words or are they still like no i'm glad i'm glad i'm uh i'm spending all day in excel and on wall street thank you very much yeah i mean i think it's it's just it's different paths right so um i'd say there's i mean i don't i i think we still feel as though we're in the very early innings of what we're trying to build here so i think it's probably a little bit too early to say that we're quote successful um we've certainly learned a bunch over the last several years uh you know i think i think um i think there's still a degree of confusion around what we're doing so um and i and i think that probably won't become clear for even the number of years um in the into the future so i think a lot of people still think that we went off we went a little crazy and moved to maine and bought a snow plowing company and you know there's i think there's there's not a lot of um sort of understanding of of the kind of hold co capital compounding elements of that um but i think over time um you know over time that that might start to change we'll see i'd say um the the what i see well i guess there's definitely a cohort of people when we when we did what we did and we bought our first company the response was some form of i don't get it like you're going to cut my grass now for me in a very demeaning and derogatory way and i'm i don't talk to those people anymore so that actually was a great filtering mechanism um but for the for those that weren't in that category uh i think they're just stoked that we're doing what we want to do um and and they find inspiration that we took that leap and they want to do something similar or have done something similar um you know regardless of how successful they think we are or we are or whether that's sort of an external validation piece that i don't really spend a lot of time thinking about but i think for the most part it's like yeah good good on you for for doing something you wanted to do and and not getting caught in a trap where you're you know disenfranchising what you are doing but sort of a little bit paralyzed to make a change one observation i'll make about what i've heard you you say today and and other podcasts is this you know for a lot of acquisition entrepreneurs particularly if they're coming from corporate experiences private equity experiences they um you know the people element of buying a small business is is the thing that they have to get used to and many of them are recognized that that's going to be the biggest change to their lives um but it's usually it's usually positioned as kind of a flaw you know oh it's you know it's all people issues it's going to be hard so on um not it's something to overcome and and you all seem to have kind of run toward it or or at least embraced it um in fact in fact your choice of words impact i think um says all it needs to is that you see it as as a positive as an opportunity to have a have an impact on people's um on people's lives and and that strikes me as um a different um under underlying philosophy that you have than many of my guests do yeah i think people are the single greatest point of leverage that you can have as an individual um and so i i can appreciate that there are times when dealing with personnel problems is you know something you don't want to be doing and you're throwing your hands up in the air saying i can't believe i'm dealing with this it's such a ridiculous thing and i've had those experiences myself but there's a saying that i quite like is if you want to go fast go alone if you want to go far go together and nothing is accomplished by yourself nothing big at least so like if you view them as problems then you're probably not in the right business uh and if you view them as opportunities uh and on balance you realize that the the positives far away the negatives then then i think you're in a good spot well but great what is the best way for people to follow along with what chen mark is up to subscribe to weekly thoughts number one definitely do that uh we do have technically have a twitter account at chen holdco which i think only gets completely hot so you could get really thoughts there we should subscribe to weekly thoughts uh and not to not to deter any listeners uh from your podcast but um big time small business chen mark's podcast is gonna be making a comeback here uh now that i've i've shamelessly gotten other people at chen mark to help defray some of the time commitment to actually make that make that a reality so i will i'll be joining you on your side of the microphone here in due time come visit us in maine if you ever happen to be in this neck of the woods um every friday we have a team meeting and if you ever want to kind of see how the sausage is made so to speak more than well cool it's great invitation thank you james thank you palmer this was great really appreciate the time awesome thank you