Scott Walton, welcome to Acquiring Minds. Thank you for having me. Scott, you bought two businesses, quite small businesses, but you doubled the revenue of the portfolio and are aiming to double it again this year, 2024. So, hopefully going into 2025, you have a $10 million revenue business that will serve as a platform for further growth in acquisitions, I assume. Yes. Let's hear how you're doing it. Start us off, Scott, with some background on you, please. Sure, great. So, I live in Saint John, New Brunswick. It's an eastern province in Canada that borders with Maine. Uh was born raised here, lived throughout North America growing up and ended back here for university. Once I finished school, it was '08, '09, not a lot of people were hiring, so I ended up starting a material science company. We raised about 7 million in uh angel investment, venture capital, and other types of funding. We had trouble scaling the technology, so we ended up winding that down about three or four years into it. After that, I did some consulting for some other tech companies helping them raise money, do commercialization planning, etc. And then eventually co-founded a digital twin company with three other people. And we grew that, uh also raised some VC funding for it as well, and then ended up with uh eight-figure exit to our largest customer, which was a mix of cash and stock, and um everyone was happy with how that went. Uh we sold to one of the fastest-growing companies uh in the world, uh so Juul Labs, who does the um the vape hardware. Mhm. Um so, we sold to them because there was a lot of value in us being able to simulate their device before they actually built them. So, we sped up their product development process uh quite significantly. Mhm. Yeah. And the exit for you guys, eight figures, sounds like a lot. You said it was in stock. So, is this life-changing? Are you Can you retire? I mean I mean Tell me the number if you can, and if you can't give a give us at least a directional sense of how this changed your network. Sure. Yeah, I mean um all the founders, like we we became millionaires, so for all of us it was definitely life-changing. Um I would say it wasn't the pinnacle exit we were all hoping for, uh and it would have been had the company not gone through some regulatory hurdles that impacted their their share price, but um it definitely changed all of our lives in a very positive way, so very grateful for that. Well, congratulations. Thank you. Um I know where my questions are going to be heading. Uh how how how how did we get into plumbing from from here? But keep going. Yeah, maybe you'll answer for me. Sure. So, I'm a big believer in learning from others, and I've been part of business owner groups and entrepreneur forums for the past 14 years, and in one of the forums, uh one of my forum mates and I had always talked about doing business together, and we uh after our exit and we were doing our earnout, um we just had more conversations about that vision and what that would look like, and then we said, "Okay, let's start looking at if uh if there's some businesses out there for sale, let's start searching properly and and see if we can buy one." And so, um we were able to find uh two small trades companies here in Saint John that were for sale uh privately, and we went through that process, we purchased them, and then we put them together and launched a a new singular brand. Okay. Well, you just skipped about 45 minutes uh into our interview here, Scott, so I'm slowing you down. I missed the part where you decide to buy a business. What was the the the exposure to this I think it was EO, you told me in the pre-call. What was the pitch? Why did it resonate with you? Especially somebody who basically had pretty good success in in tech and exit. Mhm. And it sounds like your whole career had been in tech. So, what did this friend, colleague of yours um say that was so convincing about buying small businesses? I think we both recognized a few things. Um one, startups are very difficult, and it it it takes many years before you can even start to become profitable or even generate revenue in some cases. Um the second is that we're just coming out of COVID, and it really changed our perspective on what a a critical business was, because there was a big jump in SaaS um user base, but then there's a big drop after COVID, and then there's a lot of other businesses that just didn't survive or barely survived, but the one that stuck out to us was the trades, and we figured if we're going to start anywhere, we might as well pick a recession uh virus-proof type business to to go with, and and something that's going to be around for a very long time, and get our feet wet there, and then see where it takes us. And then the third piece is is really just recognizing the the silver wave of retirees coming, and and that the next generation it seems less apt to kind of take the reins of of those businesses. They they seem a bit more risk-averse, and so um you know, that coupled with the Walker Deibel kind of um buy-then-build philosophy, it it just resonated with both of us. Great. Okay. All right. So, how does your What is your search So, sorry, first of all, are you partnering with this person, or is this was just the person who introduced you to the idea and you ran with it yourself? Uh we're 50/50 partners. So, this person, EO, who exposed you to the concept, then became your partner you're 50/50 with. Yes. Great. Okay, so tell me what your search your and this partner's search looked like uh once you decided to set out. Yeah, we really went through a lot of connectors, so um owners of finance brokerages, mortgage brokerages, insurance brokerages. Uh we talked to owners of accounting firms, law firms, uh people that would do business valuations and fundraising for businesses. Basically anyone that was connected to owners of companies. Uh we really found a lot of good leads through wealth managers, because they're typically touching base with business owners every quarter to get a pulse on like, "Where's your head at when it comes to succession? Is there any major changes coming in your life?" And so, they usually have a heads-up on when someone is eventually going to sell. And that person will share that information with you? I would assume that wealth managers would be tightly guarded with those contacts. The way I like to approach it is first you need to sell them on yourself, because they're again, like they're not going to risk their credibility with their clients over some yahoo that uh wants to buy a business but isn't actually ready to. Um so, you need to sell them on what your vision is, what you're looking for, define what the criteria is, and um you need to paint that picture a little bit, and just say, "Look, like if you're comfortable, if you think any of your clients fit this criteria, if you don't mind, have a conversation with them, and then if they're open to it, we'd love to sit down and just have a coffee and get to know them." Yeah. Yeah, and I guess also there is a an incentive for the wealth manager, because if their client then has an exit to you, there's that much more wealth to manage. The And so, you that bore fruit? Yep. Yep. Is that where you found the two businesses? Yes. Yep. Ah, okay. Yeah, well, can you can you you just kind of told us in the abstract what it could look like, but tell us the exact conversation with a wealth manager that then led to conversations with these owners. Yeah, we we've done this um we've done this a few times, so essentially I would sit down and say, "Look, um here's our background, you know, we both have experience with um exits, and uh and he had bought businesses before, so he had some experience there. And we'd say, 'You know, we're really interested in the trades as an example. Um we want to look at to start off companies that are between 100 and 500,000 in EBITDA. Um ideally companies that have a solid team and um an an ability to grow. And so, then we'd say uh some of the things that we want to shy away from is any company that may have a uh a customer concentration risk, so if they have like one major client that's 50% of revenue, um or it's a super low-margin type of trade, so general construction as an example. We we said we're not really interested in those, we're more interested in um companies that either uh have a strong value add in the market because of the team that they have or some angle, uh or have the potential to to adopt that." But so, you found a wealth manager, this wealth manager heard you out, and then what? Circled back around and said, "I got somebody," or or immediately in that first in that first conversation with them said, "I got somebody." Um it's So, in in any of these conversations, it's almost always, "Let me take this away for a week and and kind of think about it." There are there is the odd time where someone will say, "Oh, yeah, I got you know, someone for you right away." Um there's also certain wealth managers at some banks, they have a a weekly deal meeting every Friday. So, they sit down and they say, "Okay, we've got these clients, they're putting their hands up to sell, who do we think could be good suitors to to purchase them, or how can we help them out?" So, um yeah, we that's why we like to just talk to everyone, cuz it sometimes they have private deal things like that. Mhm. Interesting. I mean, you'll hear talk to local accountants, talk to local attorneys. Then Rozo and I had a conversation about that a few episodes ago, and it really worked for him. I'm I'm not sure that I've heard what I may have heard it once or once before or to talk to wealth managers. But yeah, that seems it seems like another great service provider, local service provider to to get in with. Local, I said. So, were these all local service providers? Were you What was your geographic criteria? Yeah, they're all local service providers. The The challenge I find with lawyers or accountants is they're they're very utilitarian when it comes to them. So, they're only coming to them when they're looking to execute something. It's not like they're going to sit down and say at least I haven't found that that that they're going to go to them very early in the in the personal mindset like of I'm thinking about selling. Whereas with the wealth managers, they seem to to to be a little bit I think it's the wealth managers they do a good job of just asking those deeper questions. Like, what are you thinking about? Any deals coming up? Any changes happening in your life that I need to be aware of and we need to start planning for? So. That's a great point. That's a great point. Yeah, attorneys and and accountants serve sort of technical needs. Whereas the wealth manager's kind of the strategic, supposed to be. Supposedly, they're they would say their value prop is as kind of a strategic confident. Great great insight there. Now, 100 to 500 in EBITDA, ultimately that is the range where you bought. But that But you know, my guess when they buy that small, it's often because that's you know, they kind of it's all they could find or a deal they stumbled upon a deal that they liked despite the fact that it had really low EBITDA or SDE. But they rarely go out looking for something that low. 100 to 500. So, what was your thinking there? Again, like we just we wanted to kind of dip our toe in the water a little bit and and go with something again like I I view those transactions as very risky personally. If one person leaves, that can potentially be like 10% of your of your business in some cases. Yeah, try try 33% of your business. I mean, a business that small, yeah. But yeah. So, yeah. So, I I I don't advocate it for everyone. But for us, we knew that the trades was um a relatively safe space. We'd We'd done some asking around about the brands and we knew that a lot of the other trades had a lot of respect for these two brands in particular. So, and I and I had a a best friend who worked for one of them early in his career. So, we we had some like confidence in in each of those on the on the brand side. But we certainly knew that there'd be risks stepping into those. Right. Well, but you're now talking about the business that you found, which we're going to hear about in just a second. But I'm I'm just curious that even before you saw this particular business, you were willing to buy a business of 100,000 of SDE. Yep. And that's basically because you were willing to you were willing to absorb that risk because basically you're new at this, you're you're trying this, your personal balance sheet basically you can tolerate more risk than maybe a lot of my listeners probably. Um so, was was that it? Like a business with a $100,000 of SDE is that's so small that's almost that's almost like the next year I mean, yeah, like from one year to the next there be there might be no profit. Right. Yeah, I I think the other aspect was our our general vision. We saw an opportunity very early on to develop a one-stop shop for mechanical services. So, we would we knew we'd be purchasing multiple brands and that there'd be some scale there. So, that gave us comfort as well. Okay. Okay. So, you grow out of it. The idea was that you you know, this would just just a toe a toehold that you'd quickly grow out of, which in fact you have done. Okay. All right, Scott. So, let's hear about more about these acquisitions then. You keep referring to them collectively. Were they the same owner? Did they just come in rapid succession or what? Different owners, but the process overlapped. So, one was a company called Easy Gas. It was a heating server it is a heating services business. It was a small team, like four five people, classic owner-operator business. And then the other one very similar, but a little bit bigger. It's called George Freeze Plumbing, and it was about eight to 10 people depending on the the time of the year. And yeah, they're both founded about 30 years ago here in Saint John. Both 30-year-old companies, great. What is heating services exactly? So, it would be working on boilers, furnaces, air handler units, like any type of heating equipment other than oil. They don't deal with oil, but natural gas, propane. And that doesn't but it different from HVAC. Yes. Yeah. And and and why would they just be clear here about the niche? Why don't you compete with HVAC providers? We eventually built an HVAC team just last year. But you need refrigeration techs on staff to be able to do that. And and they had tried in the past to recruit some, but they they weren't successful. So, they just didn't have anyone on staff that could work with refrigeration. And by refrigeration, you mean air conditioning. Yep. And please forgive the obnoxious American Canada is cold joke. But is the idea idea that in Canada you can get away with just the H of HVAC business? Like you I mean, I assume HVAC businesses evolve the way they did because they to to be seasonal. So, you got business in the winter, you got business in the summer. But maybe Canada's cold enough you can just provide the H of HVAC and get away with it. Is that Yeah, it's it's not Florida here. So, we definitely have more pronounced seasons. But it is HVAC has taken off a lot in the past 5 years because of federal mandates around energy efficiency and sustainability. So, because these the heat pumps now can go down to minus 30° a lot of people are starting to to displace a lot of their main heating equipment with heat pumps. So, acquisition number one was the heating services business. Tell us the if you would the the revenue, the SDE, and then let's get into the deal. So, what was the revenue? Sure. So, revenue on average was a million dollars. The SDE was 150,000, and the purchase price was 450,000. Great. Okay. 150. There you go. Just above your threshold there. So, 450, so a 3x a 3x multiple. I would think that you might be able to drive a little bit lower price for such a small business. Yes. Yeah. Knowing what we know now and and negotiating more deals, yes. Be because 150,000 of SDE and I'm I'm sorry to hammer on this, Scott, but it's just it's so it's so counter to what we're taught on this on this podcast and elsewhere. Um good. So, then we'll we'll really talk about buying small in the abstract here in a little bit. But um it you know, it that's so small that it's almost like that owner might have just shut the business down when he was time to retire, sort of thing. Yep. You're nodding. So, so in retrospect, you feel like you could have you could have driven a much more harder bargain. Yeah, like knowing what I know now and but I mean, now I understand how to recruit in this space, how to attract top talent. I would go out and just build a team and start a new brand. However, like back then, it would have been very difficult to build that team not knowing what I know now. Yeah. So, it wouldn't have been as straightforward as I'll just put up some job ads for some gas technicians and we're off to the races. It's a it's a pretty competitive market here. So. Well, and you had said that that you were also buying goodwill or reputation, and that this business had that. So, that's something that takes years to build and is hard to quantify, but valuable. Yeah, and and one other angle that they had in the market is that they're the only certified gas technician service provider for the utility in our city. So, all their service calls come to us first. So, that's a certainly an advantage that we really liked. That's a great channel that you got. A great relationship. Okay. And what are the term What are the terms of a deal like this look like? I want to spend some time here because no SBA in Canada. So, always interesting to hear how people without do it without the SBA. Yeah, so we did half bank financing and half vendor take-back or seller financing as you might call it. Yeah. And we did a 5-year amortization on both with a 10% down payment and 2 and 1/2% interest on the seller note. Vendor take-back, everyone. As Scott said, that's Canadian for seller note seller financing. The 50% bank, 50% seller. Yep. Wow. So, the whole thing was financed. But then what was the 10% down? It just came off of that total. So, sorry, I should have said 90% of it was financed 50/50 between the bank and the the seller. Right. So, 45 Yeah, 45% bank, 45% seller, 10% you guys. That's great. Is that common in Canada? I should say I just aired my episode yesterday with Andrew Storter in Calgary who bought a who bought a furniture manufacturing business. And we also spent time on the terms of his deal where how where and how he raised capital and financing. And he got great terms from Canadian banks a number of them. It wasn't he didn't just get lucky with a single Bank. So and I and I basically say like I'm wondering if the SBA for us Americans is is is as advantageous as we think or if it in fact it's it's maybe disadvantageous cuz we're not thinking open we're not we don't have as kind of the as as open-minded an approach to this and really we should just be approaching banks without an SBA without assuming we're going to do the SBA and see what we can get because it sure seems like in Canada where search you know young guys and gals going out and buying blue collar businesses is probably less mature than here. I would assume it's an assumption and yet still you're getting you're you're getting great terms and receptivity from the banks. So what do you what do you say? I mean the the first point goes back to what I was saying earlier like you need to sell everyone. So you got to sell the connectors. You got to sell the seller. You got to sell the banks. So for us we developed a very strong relationships with the banks as many as we could the finance brokers and anytime we have a deal that we're looking at we go to all of them. Even though there's one that is the clear winner and in every single situation we we still go to all of them because we don't know you know which Bank likes this vertical this size of deal like they all shift their interest levels in in different sectors and different sizes pretty frequently especially after covid with everything going crazy with interest rates and inflation. So we found at the tail end of covid Banks became very aggressive to get money out because they're having a hard time getting lending out at least in this area. So we found them great to work with. The first deal that heating services deal. That's the only time we've ever not been offered 100% financing. And we we we negotiated three deals after these two. We walked from them but we had discussion papers from the banks for 100% financing in all of those cases as well. So I think it's a mix of like you got you kind of got to paint the vision for where you want to go with this that you can actually you know add value to this business and grow it and and that it's a it's a safe bet for them. Sure. Well actually okay. So here I am talking about what what great terms these are and then you proceed to say that in fact they were the worst terms that you got across across the other deals that you've done or almost did and you also kind of just neutralize the thing that I was going to follow up by saying which is same with the same thing with Andrew Storter's deal which is a lot of seller financing which is which is effectively kind of equity from their perspective. So if you got 50% or 45% seller financing that's going to give a lot of comfort to banks and and and so so I don't mean to act like it's that that's very different than down here where we can just bring 10% the SBA enables us to just bring 10% 10% equity in a deal. Here there's a lot more cuz of these big seller notes same with thing in Andrew's case there was I think a 35% seller note. That's what I was going to say. However, you just proceeded to tell me that in fact there weren't seller notes in these in these other deals that you negotiated and you still got incredible offers of financing by the banks. it wasn't that there wasn't seller notes. It was that I had the option for no seller note. So I I should distinguish um between what is a good deal and isn't a good deal. Like a good deal to me is I have the option to do the full thing in cash to the seller so I can drive the purchase price down meaning and and ideally the full amount in cash not my cash but the bank's cash. Um a like the best deal to me is where all the terms are on the seller where it's a seller finance deal or even there's profit share built in there like all the risk is is tied to them because typically I can get much better terms that way. So I just want to distinguish between those two. You could get much much better terms from your lender. If the risk is on the seller. From the seller. Yeah. Yeah. Like I can always structure their their like if if we're doing seller financing I can typically get much better terms with the seller than I could with the bank in terms of the interest rate interest only periods amortization clawbacks things like that. That I guess that's counterintuitive I think because if you can get a seller to agree to a lot of seller financing at all again American perspective. If you can get them to agree to a lot of seller financing at all it seems like they'd be then hesitant to give you even more even better terms or lower interest rate or whatever it might be cuz they've already given a lot which is seller financing piece. Yeah it's it's all about how you frame it in the beginning I find typically I'll sit down with the seller and the first thing I'll ask everyone is do you have a structure in mind? Like have you contemplated how you want to do this because if they've already got something in their head that a evaluator said or a broker said you should do this and don't accept anything else. Well, it's going to be very hard to move them off that number or that structure. So I like to start there and then the second step is is really just feeling out like where are their sensitivities? What do they actually care about? So I'll usually ask very early as soon as I feel like I have trust with them. I'll say what do you want to do with this money? And usually catches them off guard but I'm like no no like okay. We close the deal. I've cut you a check for 450 Grand. Like what are you doing tomorrow? Like are you vacationing? Are you buying a couple snowmobiles? Are you buying a house? Like what's going on here? And and then I'll like based on what they say I'll start to kind of feel out where the sensitivities are around purchase price and the structure because if they tell me well, I'm going to take this and stick 90% of it into you know an index fund or whatever and I'm just going to set it and forget it and you know my wife and I are going to travel maybe one more trip a year. Then it's like I can probably push them to give them more over time than up front versus if someone's like well, I need to get out of debt because I I put shareholder notes or I lent money into the company to float the operations. It's like okay. They have a serious cash need and and that's probably the bar I need to meet in terms of cash down on that business. So I like to figure out the sensitivities of all the levers very early in the process and then develop a little bit of a Sandbox that helps me understand like if I'm going after seller financing like I'm probably only going to get to this percentage of the deal and the same thing with cash and whatnot. And then the last piece is I'll usually offer more money for for seller financing or profit share than I will for cash down at day one. So give them a higher multiple. Okay. Well and then that addresses my confusion of a minute ago where I said I'm surprised you can get usually if you get seller a lot of seller financing you have to give them better terms and in fact you in some ways you you do give them better terms if if you higher multiple basically higher price. Tell us the little that example of one of your sellers who wanted to start a nonprofit. Yeah sure. So we had discussions with a company last year that um he wanted a an oversized valuation in in our minds but you know he put a lot of work into the business and and and he did evaluation with his accountant and it worked out to be maybe six or seven times EBITDA and to us that was a a very large valuation for for the other um aspects of the business like they they had some challenges there. So we asked him you know what do you want to do with the money and he said well, I really want to start up this nonprofit. That's where my heart is. I want to bring people into the country and train them a new skill set and that's what I really want to do. And so we said okay, you want this oversized purchase price. We can do that and we think we can do that in a way that gets you the full value you're looking for but not necessarily in cash right down on the day of close. So we said you know how about you consider taking a corporate sponsorship from us and because we've done these tech startups before we know all the people at the economic development agencies. We can help you leverage every dollar for three or four more dollars and you know all that put together we can get you to the level of I can get you even beyond the purchase price that you're looking for. So it was a way for him to access more money in a way more tax efficient manner and for us to improve the income statement and drive down our taxes cuz the corporate sponsorship would be on the expense line. So that was just a really good example of it probably would have been a deadlock with nine out of 10 buyers out there cuz it's like oh they're up to lunch. They want this six seven times EBITDA. Doesn't make sense. They might try around with a couple different levers and then walk away but it was a case where you really had to approach it from a very creative angle. Yeah. Yeah. Well Scott I I really applaud that. That is that is quite that is some creative deal making there. I will say so did that happen? No not yet. Um we're just we're sort of monitoring the company and and cuz we we need some financial aspects of it to improve a bit but Okay. we're staying in touch. Yeah. Okay. Okay. Because it's one of those where it's if I'm if I'm that you know, it's one of those sounds good in theory, but thanks. I just like to have the cash. You know what I mean? Yeah. So, but you know, the other observation here I want to make Scott is that you you've talked earlier you've kind of glanced off the fact that selling is a big part of what you do. You're you're not a you're not your your conventional sales guy big outspoken gregarious, but I hear it in your strategy you you're cultivating relationships. You're selling people on the vision be at the lenders be at the wealth managers or be at the sellers and what you just described where you try to get the seller to explain exactly what they what they really want what you know, what's what what do they want? What's behind the number that they're giving you? What do they actually want and then oh, I have a solution for what you want. That's you know, classic you know, more more sophisticated but classic sales techniques there. So, you're a killer Scott. Thank you. Yeah, I I mean part of it the other underlying tone is we my partner I have this vision where like it in the example of these trades businesses. We want to impact the teams lives in a very profound way. We want to help them do things that they didn't think were possible. We want to help them build equity and wealth over time and and for us like business is all people. It's all personal and so we that goes a long way in the discussions with sellers because it's a very personal thing in their life like 90 some I don't know what the stats are, but it's probably 95% of people selling their business have only ever are only ever doing it once and it's their only business that they started and ran for their for their life and so it's a very major event in in the grand scheme of things. So, we we we really empathize with that and and we try and treat the process so that it factors that into it and that's why you know, we try and make it as as human to human as possible throughout the discussions. Yeah, that's great Scott. It's another good point because that's that's that personalness of this is something that a lot of searches need to be taught or reminded of because it's it's too easy to come in talking multiples and talking about the business as an asset sort of thing and then we and then of course we hear no this is extremely personal for the seller. But but it in fact still a lot of searches I think kind of like oh okay, yeah, I have to do this this I have to remind myself that it's personal. Basically, you guys just lean into that. You embrace that wholeheartedly that this is you make it almost personal for yourselves as well. So, it's not this it's not this thing that you kind of try to dance around. You you fully Yeah, it it you leaning into it. I guess would be the way to put it. Yeah. Yeah, it's it's it's central to to our approach because I think most sellers would take a 10 or 20% haircut if they if they were guaranteed that their team would be taken care of. So, for a lot of these owners it's very important that the team you know, their their legacy isn't just burned down overnight and that it continues. So, So, just to round out the the deal on acquisition number one, how much did you ultimately have to bring to the table? How much of your cash? Uh 45,000. 45,000. Right. So, that's the 10% of the four of the 450. Great. Um Okay. Now, acquisition number two George Freeze Plumbing. Um what let's let's go through the numbers revenue and SDE first, please. Sure. Revenue was in just north of 2 million and the SDE uh was on paper 350, but realistically was more like 250. So, we were basing our valuation off 350. And so what was the valuation? What what did you pay for it? 1.3. 1.3. So, 350 so that's over a 3x. What is that? 3.2-ish? 3. Yeah, it's in the threes. Yeah. Yeah. Um Okay. And now this business do you you know, I'm I'm now now I'm anchored to your first business which was so small. I'm like oh, this is a much bigger business. But no, 250,000 of SDE is still very very very small. Yeah. Uh do you also reflect back on it that like knowing now what you know if you knew then what you knew now if you knew how to do then what you know how to do now, would you would this also have been a build from scratch rather than buy opportunity? No, I I think this one the the equity it had in the market was the brand like it was small company, but it's the biggest plumbing team in in the city believe it or not. We're small population, but I think in that deal you know, redoing things I probably would have went for some seller financing just for a a de-risking perspective like we we try and factor that into almost every deal that we look at now unless there's a significant purchase price reduction by going all cash. Okay. But that one we did 100% bank financing with a 15% holdback for 2 years. So, 15% of the transaction went into an escrow meaning if some old lawsuit popped up or AR certain AR wasn't collectible inventory was aged out then that could be deducted from that portion. It's it's always easier to to not give cash out than go chase it back from the seller. So, Exactly. And then 8-year amortization. And so then what how much cash did you bring to that deal? So, that one another thing I learned or we learned through the process was the beauty of networking capital. So, there was an adjustment at close of 200,000. So, my partner and I each put in 100,000. And correcting that from that point on we would only ever do a close with a normalized level of working capital which we calculate during the due diligence. Okay. Let's that was something that was a big part of the story a big one of your big learnings and I wanted to spend some time on it. So, let's do that now. So, what did you what did you get wrong and then how give me more detail on what you just said. What did you get wrong first of all? So, we calculated the average networking capital which is your current assets minus your current liabilities. So, we wrote we calculated that and then we wrote it into the LOI um but we we specified what the number was um as opposed to saying let's calculate it in more real time and and look like dive deeper into this year um because there's big swings when it comes to networking capital and so at close they had a big jump in receivables which drove up their networking capital which gets added to the purchase price. So, in that case um to prevent that in the future I would negotiate a normalized level of working capital. So, what we do now is we'll sign an LOI. We'll get access to their QuickBooks and we'll have our accountant estimate what the normalized level of working capital is so that we have a very small probability of there being an adjustment at close and then the second thing that you can do is have the banks say that they'll finance that portion so that there's not a a cash call at close. Interesting. Your own language kind of bit you on this on the second deal where you guys had the networking capital. No? It was just standard like It's standard. Yeah, it's pretty it's standard to either write the number in or to the LOI or say we'll close with a nil level of working capital. So, zero. So, anything above zero adding to the purchase price below subtracts from it. And so that cost you that was basically a $200,000 Yeah. mistake for lack of a better word learning let's say. Yes, yeah, learning. Okay. And the so was that the only kind of working capital lesson you had that kind of how to treat it during due diligence? What in other words once you got into these businesses, did you find that working capital was was sufficient or did you suffer some working capital asphyxiation at any at any point? Um I would say you know, other things we learned once we got into these and one general thing is is um you have people leave. You fire people cuz they don't fit with your culture. So, there's natural attrition that happens there. So, your revenue can drop. You have customers that leave and you know, it's like oh, the owner left like I only ever dealt with him. So, that can happen. So, there there's natural dips that happen. It didn't really happen in either case for us, but I've certainly seen it happen with with other friends of mine that have purchased businesses. So, that risk is there. The second thing in terms of cash needs is is big projects. So, when you do a major like plumbing project, there's a really big holdback like 10 15% of every invoice that goes out. So, you on a 1.5 million dollar project, you could accumulate a 150,000 or 200,000 dollar cash shortfall in that period. So, if that's not factored into your projections, uh, then you're going to be surprised that cash flow isn't going according to plan. So, that one, like we learned, um, fortunately we had a fractional CFO that we like to work with and he came in and and sort of helped us with projections based on major projects. And on the on that cash collection thing that you just explained dynamic that you just explained with uh, projects, mhm, your your client is holding back 100 150,000 of the 1.5 million Yeah. so that you guys perform and do everything that you're supposed to do, right? Yeah. Um, yeah, that 150 that's 10% of the project value. I mean, that's that could be, you know, that's half your profit right there. It's 10% of the it's 50% of the profit. Exactly. You mentioned your CFO. That was also something you'd said to me in the in the pre-call. I don't think you said it earlier about part of your selling process to when when going around and talking to banks, you demonstrate that you have you have real financial heft on your team in the form of the CFO. Say more about that. Yeah. Yeah, um, fractional CFO goes a long ways. Like he it's hard to afford a full-time controller CFO at a company that's of this size and so we access a fractional one. Um, he has a ton of clients in the trade space, so he's got domain expertise. He understands job costing and work-in-progress calculations very well. So, that brought a lot of um, confidence to the banks and then the other aspect is uh, my partner, he's incredible in sales. He built a lead gen company and sold it. Um, myself, I always led sales and marketing for um, the companies that I had and so we brought them the confidence that we'd be able to to really drive up revenue by uh, by bringing more leads and and uh, and contracts to the business. So, yeah, we those types of experience shares and and um, and anything to do with like back office access definitely gives them confidence, too. I don't think I got from you whether what the split is between commercial and residential and project and service. Can you break those down for us on both businesses? Sure. So, it was very similar in terms of commercial versus res split. So, it was about 80/20 in in both businesses. The project versus service for the heating services company was about 20% project and 80% service and then on the plumbing company, it was about an even split between projects and service. Great. So, so 80% commercial. So, mostly these are commercial businesses. Yep. And then, um, and then happily on the heating 80% uh, service and then on the on the plumbing one actually fit fully 50% half and half between service and project. Yes. Okay. Um, and so, yes, to your point that your your partner had lead gen experience that's probably more important in a home services pure home services if you're going residential. I mean, that that's the name of the game these days in home services is basically how good you are at driving leads from Google. But probably it's probably still quite relevant in commercial, as well. Oh, big time. Yeah. And we wanted to grow residential side, as well. Um, residential's great from a cash flow perspective. Like they're expected to pay either as soon as the job is done or within 7 days. Um, commercial, what we learned from an AR perspective can be very challenging because you're dealing with a lot of, you know, they might own a McDonald's or KFC or a dry cleaner and they don't have access to a credit card, so they can't give you that before the booking, which is what we do in in residential. We won't roll a truck unless we have a credit card. So, AR is is more challenging in commercial, especially small commercial. And that goes back to your your cash constraint question earlier. That's another thing we learned once we got into it. Interesting. So, at this point, do you consider residential revenue higher quality than commercial revenue? It's higher quality in certain ways. It's uh, you know, you can again, like you can collect Yeah, you can collect faster, but then on the commercial side, there's more opportunity for for growth within each account. So, there's pros and cons. Okay. Well, let's hear then about you, you know, you you guys actually this you feel almost like the cliche kind of you know, buying 30-year-old businesses from retiring boomers who probably maybe weren't so tech forward, so digital marketing forward. Here you guys come, you know, you're obviously tech startup experience, successful experience. Your partner built a lead gen built and sold a lead lead gen business. I mean, you guys are going to you know, you know, just crank that digital marketing dial. Um, so, is that what happened? Tell us what happens. Yeah, um, the first dial we cranked and that's my my partner's other major skill set, major major skill set is people and and operations. He's he's incredible at understanding people, understanding culture, understanding values and so the first 9 months of this experience was all people because the only thing we heard was um, there's no issue with demand. Our phones ring all the time. Classic example, we don't market, but the phones ring all the time. Um, we need people. We can't get people. Okay, let's solve that problem. So, we spent about 9 months just figuring out like how are people paid in line with market. Um, what are their benefits? What are the best people in North America doing from a comp perspective and benefits perspective? What are our values? What is our culture? Uh, what does that look like in in spent a lot of time on that and thinking about variable comp and layering that in and so we around the 9-month mark is when it really started to tick. Um, in the beginning, like day one, it was we're like, "Oh, we can just offer a referral bonus and people refer employees and we'll hire a bunch people." And no one took us up on that. And and we said, you know, it's a I think it was 500 bucks or 1,000 bucks and and we said, "If you bring someone, we'll give you some money and then if they stay as for 6 months, we'll give you some more money." No luck. At the end of the 9 months, people completely forgot about that bonus, but they were bringing us leads every week and and we started hiring a new plumber, a new gas tech uh, every couple weeks or or once a month and we were able to like now we're able to very predictably hire when we need to. Um, but that really set the foundation for everything else. Um, no one knew why they did what they did in their roles. They were just doing what they were told to do and so we had to you know, implement EOS and and a lot of basic functions of planning and and management. Wait, so it was implementing EOS and kind of tightening up operations that had that was the culture change? That was the culture change, the culture improvement? No, well, I mean, that was part of it. Like, yeah, empowering everyone and and just like explaining why you do what you do to people and and and like the techs, like why do you park this way when you pull up to a customer? Why do you go through these steps of service? A lot of them um, they just weren't used to being explained like how it actually ties back to benefit them and the same thing with the estimator and the service manager, etc. So, that was one part of it, but the big foundation setting was was really just everything to do with the people. So, how we comp them, how we motivate them, how we plan with them, all that stuff. And then like during that 9 months in parallel is when we're implementing EOS, as well. But so I'm clear, people started recruit referring employees to the business after 9 months totally disinterested in your in your financial incentive, the bonus incentive. They were just doing it organically, if you will, because you just made it a better place to work. They just became enthusiastic about the company. Exactly. They um, you know, and they it was genuine. You could tell. Um, just the way that they were to refer people and the the applicant would come in and and they'd say, "Yeah, like, you know, Joe said this and that and and like said it's one of the best companies he's ever worked for." And so, those types of things started to percolate and then we'd hear it like at the supplier's desk. It's like the hair salon of the trades industry. Like everyone complains and and you know, airs out their dirty laundry at the supplier desk. And then we started get feedback from the suppliers that it's like, "Geez, like, you know, what you whatever you guys are doing, it's working cuz your team is super pumped and positive at our counters when the other contractors, like it's it's more negative." And did you ever encounter any friction? Like like initially did you encounter friction? A couple of tech bros coming into this blue buying this blue collar business and trying to change stuff? Seriously. We we expected that. Like we we expected resistance around everything and and we told the team, we're like, "Look, like, we're going to make every single person extremely uncomfortable for a while. Like it's probably going to take you a year maybe a year and a half to for everything that we're doing to kind of for you to believe what we're saying." And so, we said to the team in every all hands every Tuesday morning, "Don't like you don't have to believe what we're telling you right now. Just watch what we do." And we just said that over and over and over and and we just had to make sure like if we were promising something, we had to do it. And so, we said to the team, like hold us accountable. Like if we tell you we're rolling out benefits in 3 weeks and we don't do it, like knock on our door, like harass us, like whatever you need to do, but you need to hold us accountable for what we're saying we're doing. Mhm. But it took time. I want to double-click on explaining like to the techs why they do what they do. Give us a an exact concrete example. Like the part what you said like they should park in this direction, not that direction. Walk me through that because this, you know, white-collar, blue-collar divide is is a theme of the podcast constantly. Right. And and so so I feel like there was a a moment of connection here that you made and and maybe I don't get it. So so what did they not understand that you did that you had to explain? So walk us through it, please. So customer experience is obvious to a lot of people why it's important, what it does to a business. But for a technician it, you know, the the connection's not always there. And so I'm a big fan of Tommy Mello. I don't know if you listen to him, but he's a A1 Garage Doors, phenomenal podcast. And and he's just kind of leading the industry. He's a big inspiration around this, but um stepping into the home, um you know, the the technician will approach it and will say to them, you know, knock on the door and this is taken from Tommy, but he says knock on the door like friends and family knock, they don't ring the doorbell, strangers ring doorbells. So little nuances like that, but we're like, you know, step into the home, um confirm what you're there to do, ask them if there's anything else you want them to do while you're there that day, do the work, show them that you did the work, walk them through it, ask them if they have any other questions or they don't understand what was done. Um and then, you know, treat it like they're your grandmother. Like is there anything else I can do? Like can I move a box that's too high up on a shelf? Can I fix some other random things? Screw in a light bulb, change a light bulb, whatever. Um and and then at the very end it's about asking, uh is there anything We have this line that's like, is there anything I I didn't do today that could have given me a five-star review? And and that's really to give them one more opportunity. It's like, well, you know, you you didn't quite explain this this way. And so why does that matter to the techs? It's like, well, if you treat customers like that and consistently like that, they're going to give us a five-star review. They're going to call your name out personally. We're going to give you We pay everyone 25 bucks for every five-star review, so you're going to get a bit more money for you and your family. Um that's going to lead to more repeat business, which means we're going to be able to invest again in more training, newer trucks, newer tools for you. We'll be able to raise our compensation because we'll have more of the market share in the market. So we kind of tie it all back to them in in one way or another, but there's there's usually some level of impact there for them, no matter what the the action is. Cuz at the end of the day we're trying to drive a better Like we want we want a really strong business so that we have better margins so that we can pay our people as much as possible. Phenomenal, Scott. That was great. What was the podcast that you liked? A1? Uh so it's the Home Services Expert podcast. What's his gentleman's name? Tommy Mello. Yeah. Tommy Mello. And Tommy Mello is a big deal in home services businesses, not just garage doors. And he's Yeah, he he grew like this he's sharing. Yeah, he grew from zero to a hundred million in revenue. He just had a massive investment from a private equity group and uh he invites all the best of the best onto his podcast to kind of talk about various aspects of business, but yeah. And home services specifically? Yep. Mhm. Well, should know this person. Turning back to your marketing prowess in lead gen, how did how did that play out? That one, um so we we spent a lot of time trying to understand what was needed in this space. And and so we we started with all the low-hanging fruit. Like what can we do there? So one, we needed a new brand. Like George F. Heath Plumbing, it was a a knight on a uh horse. Like people Some people thought we made saddles. Like they're It's very confusing. So we launched um and we waited to launch new brand brand, but we launched Matrix Mechanical. And I'm a big fan of the movie The Matrix, but the the the theme of the movie really tied back to our vision, which was um questioning reality. And so reality in the trade space a lot of cases is people retire broke with broken bodies. And um and we wanted to change that. Like that's reality for a lot of people, but we don't think like we think there's a better situation than that. And so that's really where the Matrix name came about. That's cool. And then uh and and the same thing with the customer. Like reality is I call the plumbers, I can't access them. So is there a better reality? Um but anyway, so established the brand, some of the messaging around that, uh and then just started basics. Like, okay, if we're going to be a new brand in the market, we got to get consistent branding. So uniforms, we started with truck wraps, and then um heavy into Google. So Google LSA, GMB, PPC, all that. Like any type of advertising that we could do through Google. And then uh a lot of internal stuff as well. So um it customer campaigns, reminders, things like that. And then uh in the home or in the business things. So that's the steps of service. Um That is adopting like our service management tool, ServiceTitan, to make the experience easier for the customers. So we kind of hit it from those three angles. Mhm. So this is all the kind of this is layering that the kind of in the most the best practice modern stuff. Nothing not to take away from from the work that you're you guys are doing, but nothing ingenious necessarily, just kind of best practices in 2024 for home services. Fair to say? Yeah, exactly. Like we'll get there too. You know, there's tools now that um it it's an app on the tech's phone that'll record their conversation, like the actual customer experience, and then I'll make suggestions as to how they should should tweak their messaging to drive higher sales and upsells and whatnot. So we'll get there, but it's again, it's all about foundation building. So starting with making sure we know for every dollar spent on wraps, uniforms, PPC, etc. Like what is our ROI for each of those things? Well, but you know, the old the old uh line about marketing, I don't you know, I know I know I waste half of it. I know I waste half my advertising spend, I just don't know which half. Beauty about PPC is you can track that all the way through. Wraps on the other hand, how how are you how are you measuring the ROI of wraps? We Some some of this branding stuff is is kind of squishy. Some of them are estimated for sure. Um ServiceTitan does a really good job at uh at lead attribution. So Yeah. it automatically generates random phone numbers. Like if you go on our website, you'll get a new number each time. And that's because it's kind of attributing that to just like uh that instance of a of a session. So yeah, there's certain ones we just have to thumb in the air a little bit. Exactly. Great. And okay, so Scott, you What year did you buy these? What Uh just under 2 years ago. Yeah. Okay, so we're so it was what? Summer 2022? Late spring 2022? Yeah, like winter 2022. Yeah. Winter 2022. So your revenue collectively when you bought them was about 2 and 1/2 million. Yep. Yep. Yeah. And And then And the first bit like it it was more like stabilization and then that's when we like around the six-month mark-ish is when we started to ramp. Yep. Okay. And so what did the end of year one look like, understanding that you really only started applying growth techniques 6 months in? Yeah, like like 6 months in, um which would have been like fall-ish of of 2022, everything was was kind of going as is. And then um from that point on for the next year is when is when we doubled our our revenue and and uh EBITDA. So so maybe by the end of kind of 18 months of ownership, Yeah. you doubled you doubled revenue from 2 and 1/2 to 5. Correct. And did your EBITDA double commensurately or did it do better or worse than that? Okay, so you're now you're up to 800 800 in EBITDA. Yep. Yep. By last fall, fall 2023. Yep. Okay. And you are How realistic do you think it is that you do you think it is that you get to 10 million by the end of 2024? And I I I think it's a it's definitely a uh aspirational target. Like it's it's going to be tough to hit that, but our new So we we brought in a a president about 6 months ago. And he comes from the world of um his background is in business development in medical gas sales and then in plumbing as well. And and he had a big focus on contracts, like big projects. So I think him and the team will uh they'll land a lot of growth through that. Uh he's already driven our estimate funnel through the roof, and and that's all going according to plan. And then on the service side, I think we'll see some pretty significant growth there, too, just through what we're doing on the customer experience side. So. And you haven't found that you dislike project. You're actually perfectly happy to lean into project. Sounds like that's where your president is spending his time. Project revenue. Yeah, I don't think I would have said that early on. But now, knowing what we know about like the full We actually got to experience a full project cycle for the a 95-unit building for an entire plumbing system. And so, now that we get what the cash needs are and how to time everything and how to invoice properly and make sure you're always overbuild, not underbuild. And know how to track and execute and find efficiencies, now we're a lot more comfortable with projects. But we think that it's healthy to have a mix of service and projects from a cash flow standpoint. So, this doubling, have we hit on why and how you did it? Have we have we basically answered the question? You you solved the culture, you fixed the culture. Mhm. You uh and in in so doing fixed recruiting. So, you had you were had more people were willing to work for you than you know what to do with. You also then uh improved your marketing, so you you grew demand as well. And so, those are the two sides of a home services of a services business and go ahead. And some some on pricing, too. So, we we definitely looked at our markups and our hourly rates. We had to we had to modernize those. They're they're a little bit dated and and so, that helped with some of the that drove some of the growth as well. And then again, just implementing like the EO EOS process and the L10 meetings, like that just really lifted up every person on the office side. Like now, they're thinking more about like what's my quarterly rock, like how do I contribute more to sales and and they're thinking about like why their role mattered and how to get the group to the goal. Uh one thing Scott you said in the pre-call that I don't think you've said here is that you're actually you shifted your Google spend from consumer to recruiting. Talk about that. Yes. Yeah. Um So, one thing that happened during COVID and has continued to happen since is that because of the housing the cost of living across Canada, people living in Toronto, Calgary, Ottawa, Montreal, Vancouver, it's crazy expensive to live there. And the quality of life dropped significantly for those people during COVID. And so, what we saw in our province is a massive migration of of people from other provinces. And so, we actually because again, like the phone never stopped ringing in the beginning, we allocated Google like traditional marketing spend to spending money on advertising our recruitment positions or our open job ads. And then we started getting half of our applicants were from other cities in Canada of people saying like, "Hey, I'm a plumber from Vancouver. I'm moving to St. John in 2 months. Like I'm just wondering if you've got a an open position." We found some amazing people from across Canada. So, you were marketing open positions in far-flung cities. Yep. So, you would mark you'd have an ad running in Vancouver for plumbing openings on the other side of the country. And by the way, that's that's east to west there is further than it is even is from Virginia to California. I mean, that's a that's Oh, yeah. It gets even wider as you go north. Yep. It's uh it's a far ways away. I mean, we had applicants from like Nunavut, which is way way up north. Uh but yeah, we we basically set the geography for our Google ads to focus on those bigger cities. Wow. That's that's incredible. And so, those were high quality I mean, people were willing to move. They were I got I guess they were probably only if they were thinking about wanting to move to St. John Is it St. John or St. John's? Forgive me. St. John. St. John. Okay. Um But isn't St. John's is a city, though? In Newfoundland. Different province, but yes. Okay. So, St. John's St. John's is Newfoundland and St. And you're a St. John province. St. John in New Brunswick. New Brunswick's the province. Ah. So, there's St. But they're both major cities. Yep. Yeah. Luggage gets lost often. Okay. Okay. So, I'm not so embarrassed by my lack of geographical knowledge here. Uh although still embarrassed. Um Uh Scott, so so these were folks you that were probably planning to move to St. John anyway. Some of them, yeah. Like I'd say most of them, probably two out of every three had already had plans to move here. And then the other third were like kind of feeling it out. Hm. Yeah. But it's Yeah. if that's a technique that that is just really specific to your case. I guess one question would be was St. John a particularly hot destination for people fleeing the big cities? It was one of them. I I think that people have moved out to like we call ourselves like a secondary market. Like I think people did this all across Canada, but we like us particularly, it's a great size city, 100,000 people. It's right on the ocean. There's lots of stuff to do here. So, that the housing prices are reasonable. So, yeah. Lot of lot of good aspects of it. So, just a little bit more on kind of the trajectory here. You So, one thing to remind people is that you were plowing all the SDE back into the businesses. So, you've done very well, which is amazing. But a lot of listeners aren't going to have the luxury of such a full of their own personal balance sheet that they can't not take money out of the business. Um so, just it just deserves being called out. Do you want to say anything more on that? Yeah, I mean, we I would say one of us could have stepped in and taken a salary and um instead, we uh we built up our back office with that and and reinvested in some of these initiatives in the business. So, I think you would have sacrificed maybe some of the growth, but I think you would have been able to live with a reasonable salary running um this new venture. Okay. And and here would be the spot, too, where we where we re-evaluate buying so small. So, we've already we've already touched on it a lot. We've already talked like now you're an expert in your in your industry, so you could probably spin up the size of you've said you could probably spin up the size of business that you bought relatively quickly, build it versus buy it. Yes. But talk to my listeners who are wanting to buy a business and were like you 3 years ago, don't know the industry necessarily that they're going to buy into. How do you think about buying super small uh now? Very risky. Yeah, I mean, like yeah, the number of challenges we had in the first year, unbelievable that we we got through it. It's just uh again, like us some examples, Scott. I haven't I haven't asked I guess because those are important details. Give us an example or two. It's it's back to Yeah. Okay. So, so one thing during due diligence um for one of the businesses, uh we said, "Is everyone happy with their their comp?" It's like, "Yep. We talked to all of them individually. Everyone's happy." Day after close, half the team wanted a raise and said they'd been promised a raise for a while. So, so like right off the hop there, boom, everyone's salaries go up. Um then it's like, "Okay, this one key person that you absolutely can't lose and the business will fall apart if you lose this." 3 weeks in, um both Wayne and I are traveling. He's climbing base camp in Everest. I'm somewhere in the states. And it's like, "Oh, this person said they're going to quit." And I'm like, "Oh, man." And we don't know like anything about this space yet and if we can actually recruit and replace them. Um But then we outgrew that. Like by six or nine months, it's like if someone says if someone's threatening to quit, like show them where the door is and thank them for their time and service and if we can be a reference, but like we're not going to be hostage to anyone anymore. Um but in the beginning, like you're highly highly sensitive to that and you are afraid, legitimately afraid of losing like a key person or two. So, all that to say um I like looking back and knowing what I know now, I think the hesitation for a lot of people is um like one, financially, they don't think they can afford a bigger transaction and I think that's false. Um it's uh it it in our experience, again, it goes back to being able to sell yourself to the bank and and really represent a vision that you think is attainable. So, um I I think that's a bit of a of a myth. And then the the second piece is just like I was saying around cash flow, customer revenue risk. Like you lose one major account, like one or two significant key players in the business, your dispatcher, like your it's going to be a really rough road. So, yeah, we had some big pain points along the way, but it again, I I learn a lot more from the struggles than than things that go swimmingly well. So. Yeah. Well, and I think the your balance sheet, sorry to probably make you feel uncomfortable that I keep talking about your net worth, but your your net worth here is also you just have a higher risk tolerance because if a listener buys a really small business and it doesn't go well, then they could lose everything. So, so the key person threatening to quit uh could mean the business collapses, could mean their whole their whole financial they're in basically financially ruined. You guys could probably absorb a be terrible, but you could probably absorb that better than somebody who is is really doesn't have a lot of money, basically. Yeah, I think like I mean most of the money from our exit like I put back into real estate. So I definitely had I definitely had assets to access like it's not overnight or anything, but I definitely had some security there. Now you're in these transactions like you're guaranteed up the wazoo cross guarantees and all that for for every penny. So you know, you're you're still between the two of you're you're just under 2 million of personally guaranteed money plus any line of credit that the company has access to and credit cards and supplier credit. So it's still we treat it very seriously and it's it's very nerve-wracking regardless of what you have as other collateral like to lose a couple million bucks is is yeah, that's certainly scary for Yeah, at least for us. Yeah. Yeah, the other thing about buying small of course is that you're working in the business not on the business longer. Um, but you guys talk to us about that that evolution because you you said you've hired a president and every time I've talked to you or I guess just this is this time in our pre-call you've been at home. So you're obviously you know, not at the shop. So you're working on the business now. Yep. Talk to us about that that evolution and how you thought about it and how you approached it and what you might yeah, etc. Yeah, that was that was probably another learning for us. Um I think we knew we had to roll up our sleeves and get involved in the business in the beginning, but I think we underestimated the extent of that. So it was a lot of heavy lifting in the beginning. Um, just like again you have certain assumptions about industries and you think like oh we implement a variable bonus program everyone's just going to work three more billable hours a day we're going to grow our revenue by 15 or 20% and then everyone's happy, but it's like tradespeople don't they're not used to variable programs. They think you're selling them snake oil and it's like somewhere that like you they think that you're taking something from them by giving this new thing. And so just all those little subtleties and nuances about even how to communicate things to people because they're used to the dollar like the dollar per hour. That's all they care about. So again like I I think we had certain assumptions coming into this that we needed to really learn about like how this space operates versus the tech world. So it it probably took us more hands-on than than we expected in the beginning, but as we implemented that EOS process and people started to get in the rhythm. They they understood what their defined role was what their kpis were then it was started shifting to more on the business and then eventually we brought on the president and that yeah, made life a lot easier. And so how are you spending your days now? Um, we're down at the office one or two days a week and then the way my partner and I like to get involved is we're we're involved in some other projects as well as we like to work on strategic projects. So we say we obviously have to keep the president accountable and make sure that he's keeping the office accountable, but we also say to him like you got to keep us accountable like again, I have a great background in in marketing like use me on a strategic project. And so I'm driving that one and I got to be accountable to him. So the accountability goes all different ways. So yeah. So yeah, so weekly check-in plus strategic projects. And are these strategic projects do they consume a lot of your time? I guess what I'm getting at and maybe this is the also the time to ask you about the grand plan here for that you know, kind of 5 10 year plan. What are you building here? Have you basically bought a small business that's that doesn't consume all your time and is generating nice cash flow for you or are you gunning for this to get as big as possible as quick as possible 100 million is your behag etc. Sort of picture. What what what's what's the plan? Yeah, we the plan is to become a 100 million dollar revenue company that's multi-trade multi-city. We think there's a really good opportunity to build a one-stop shop that treats people really well that they can rely and depend on. And so that is the the behag for us and then we have the the one two three year plan that gets us to that plan eventually in in I think it's nine or nine years out nine or 10 years out. you think nine or 10? Yeah. Yeah. So so back to your question. Um, it it comes in waves. It's it's kind of like okay, we work on these strategic projects and then the team needs to execute. And we kind of like it's it's kind of coasting for a bit and then it's like okay, we need to step in there's a couple key priorities. I think right now it's still there's always a strategic project each quarter. So we're we're still heavy lifting on a a couple aspects of the business cuz we're just not quite at that scale to have like a a full marketing agency or CMO kind of run that aspect of the business. We're not big enough to have a COO run all operations. So we're leaning in kind of helping the the team there. You're kind of learning the blue collar kind of how to basically how to communicate with blue collar folks. Mhm. Uh, sounds so elitist, but it is a different culture as I said it's a big theme of the podcast. So um was a big learning for you. Do you feel like you could now is that kind of like a skill that you could apply to bolt-ons to other trades businesses? Yeah, definitely and again um, there's the there's the trade nomenclature in general and then there's the nomenclature that's specific to that certain area. So I think at the end of the day like you need to earn people's respect and and and whatever we said I I don't know maybe that resonated with them maybe it didn't, but I think it was more so what we did and and demonstrated to them. It'll like we'll probably be met with resistance and if we go buy another trades business like I would expect to see the exact same thing, but what we like to do with people if if they are like hesitant or you know, they're like are they really telling the truth? We just say don't talk to us go talk to the team. Like go talk to our plumbers or gas techs or HVAC people. Like they will tell you whether they like it or not and you know, they got I mean yeah, they might worry that they're sugarcoating it, but they'll they'll usually open up and just say this is how it is. And and Scott, what about learning the industry? So just the the trade itself plumbing and heating services um, also obviously big theme of the podcast very technical. How much of that stuff did you guys were first of all how did you feel about not knowing anything about it and then once you got in there, how much have you felt like you needed to learn for your own comfort and then also for a sense of credibility among your team? I'm I don't know like I grew up my father was a cabinet maker and and my partner's father was a carpenter. And um I think just growing up like my dad had me involved in a lot of you know, whether it's fixing the tractor building the a ramp or this or that like he taught me a lot of different skill sets around that and the same with my partner. So we're we're not like complete idiots like totally when when it comes to talking about trades, but I don't think we took it any further than where we were at in terms of knowledge like again because we're so hyper focused on people like I don't need to know where to source the best pipe like our people can do that. I don't need to know the particulars of a of a plumbing design of plumbing stack like our people can do that. So we're one of my big core values is is just being in uncomfortable territory and not knowing what's going on or what the answers are like I I really love those types of environments and those situations. So I I crave for that stuff to to not have the answers to be learning about a new space and and how it operates. So we're both very comfortable there. Why do you like that environment? Because it means you're learning and you want to always be learning. So it's basically kind of the appetite for learning is what underpins that kind of desire to be in a situation where you don't know WTF is going on. Yeah, and I like um one of one of our approaches is again like we're not there's we don't think there's much new information is just new to us. So we'll usually go to the industry Titans and we'll ring them up and and talk to someone who's gone from zero to 50 million revenue and say how do you do it? And so those conversations are very rewarding. We just put together an advisory board that will be starting up sessions for soon and we just really enjoy people sharing those experiences and and kind of talking through their challenges and and their pathway. So it sounds like you'd be an advocate of other tech bros. Other people from tech land doing this. It sounds like this path has been not only financially rewarding, but also personally rewarding. You're stimulated, you're learning a ton. Yeah, it's talk to your your former colleagues in tech land. Yeah, it's um it's a real business. Like it's um not that tech companies aren't real businesses, but like you just get to understand people in your city on a totally different level. Mhm. Like people going through emergencies with floods, they have no heat, um a business that can't open because a gas pipe is corroded. Like you we we work with I think it's like 5,000 different customers, five or 6,000. And uh you get to understand the life cycles of buildings being built and new projects. And so it it just gives you a different pulse on everything happening around you and a different appreciation for how things work. And so that part has been incredibly rewarding, but it pulls you in to the day-to-day of understanding how business works where it's like okay, like we're letting our AR creep up. Like that's cash flow for payroll. And we have payroll coming up and government remittances and this and that. And so it's just a it's a real hardcore business. And I think that that part's super fun. Scott, I need to ask you one thing before I let you go that I'm I'm out of order here. This should have come much earlier, but it's too important to let slip. And that is how you in your deal making, how you've come to think about LOIs. Mhm. And your philosophy now is that you're super detailed in your LOIs. Talk to us about that evolution. Why why what your philosophy is now and why it became that. So it goes back to the personal connection. Um you can take two paths to get to an LOI. You go super fast and get your exclusivity and you do a long close. Or you take your time, you get to an LOI and you're very confident you're going to close with that structure. So we like to take the latter where um we'll sit down with someone. Um again, we ask them like what what structure do you have in mind if you do have one? Then I like to slow down that process a bit and really like check in with them to make sure we're on the right page. So um I prefer to do things directly with the seller. Ideally only us in the room, like no other accountants, valuators, brokers, whatever. And and just have that human-to-human connection and and talk through, okay, let's go through normalizations. Like this is how I see it. How do you see it? And talk through it and then agree that okay, this is the normalized level of EBITDA and we're on the same page. Then valuation. Here's how I, you know, look at your business. Here's the pros, here's the cons on all the different aspects of it. Do you feel any differently? We go through that. Okay, for this industry, the valuation range is four to six. I think you're like 4.2, 4.3. Where do you think? We agree on that. Then I say, okay. For this I start to tease out like, you know, back to the structure thing, what what are you sensitive to? Like is it cash, like less cash now, more over time? Are certain things off the table like profit share or earnout? Like what can I play with here? And then I I like to sit down and and give them offers not options not ultimatums. So I I'll typically come to the table with a couple different structures, not just one and and we'll talk through the pros and cons, but I like to have a sheet open in front of them. Like I'm not hiding anything. We can tweak things in real time. And where I found that's been powerful is um like a lot of people don't understand what seller financing is or what profit share or earnouts are. And so because I've already normalized everything and I've talked through a little bit of the forecast and where that can go, now I can play around with the numbers and I can say, well, you know, if I give you a 10% profit share, it's going to do this. And they see their number like go way up and they're like, oh, well, maybe I will look at profit share. So I I kind of use that three-step process as opposed to there's I see a lot of people make the mistake of they they dream up the structure that they think is fair with some egregious purchase price. They they email it over to the person's accountant and then they get offended and it blows up the deal. Whereas if someone's going to disagree with you in in that LOI, it's on well, it's in four areas. It's one of the three that I mentioned or it's in one of the terms that I I put in that LOI. So I just like to make sure we're super clear and aligned on on the those three elements and then I usually present the additional terms in the LOI and and again sit down with them, go through it, make sure they understand it. A lot of times like again, it goes back to assumption making. People just have certain assumptions. Like in one deal, the guy thought seller financing was basically profit share. Like we could decide whether or not we gave it to him. It's like, no, it's a it's an actual debt instrument that um is tied to the business and that we're liable for. And there's yeah. So So yeah, so that that's probably the the biggest one is um is is just stepping through those. Uh and then the other piece I touched on earlier, which is I don't get too fussed up about the the purchase price. Like some people hyper focus on that and I'm it's like, okay, like I I'd rather we both walk away from this very happy and and the seller's usually quite focused on the purchase price, but I want the terms. And so I really like to focus because we can get creative in in deal structuring. I like to spend most of my time there. So I want to make sure they're like it's not out to lunch the purchase price, but I'm okay paying a premium for a really good business if I can structure it right. Scott, what you said the three elements of your of your walking the seller through your LOI and then kind of the fourth basket, the kind of fourth element, kind of the catch-all, minor minor items. Outline those for us just in brief again. So yeah, the first one is normalization. So that's making sure that, you know, we agree on the normalized level of SDE or or EBITDA. The second one is the valuation multiple. So um what is the, you know, the multiple of that EBITDA that's going to get us to the purchase price. And the third is is the structure. And then the fourth would be the the key terms that go into the LOI. Excellent. That was great. Great education. Thank you. Um yeah, and don't I guess one other tip is Yeah. just try not to emotionally get attached to the deal. Um we've walked from deals like one week before close, couple weeks before close. Um set your parameters, like your walk away parameters early, like before you even start negotiating. And um and just try and keep emotions out of it. Like deal making is very sexy and exciting and euphoric and there's, you know, you get visions in your head. You're like, ah, we're going to buy it, we're going to do this and it's going to grow. And and so just be sure to really uh keep it objective and and make sure you're not sacrificing something for uh an emotion. This this very topic just came up with my my guest Christie Laucks last week, my interview with her. And Christie bought a business with her husband, Canadian business actually. She's American. Um that was complicated, but they did it. And um and she talks about the the they have that they have the kind of classic stereotypical, he's rational objective and objective. She's more emotional and gets excited. Um but she made what was a really good point I thought about there is value to getting excited and to getting and having some emotional element to the deal because deals can be so hard that it might take a little extra umph to make it happen. If you're just especially because there's so many reasons I mean the reasons that a deal should and can die are so many more than the reasons a deal consummates. So so it's kind of like an X factor that can push you over the finish line. And I thought that was a really good point. Um that probably probably 99 deals out of 100 if you're just strictly rational should die. And you know, that's too many. Yeah. Any Any reaction to that? They take a lot of energy, a lot of energy because they they can stop all of a sudden. You can get discouraged. Then they can pick back up again in six months randomly. Um the seller, again, because it's personal, they could have an emotional change and say, ah, I'm going to run with this. I'm going to you know, they can completely change overnight. And so time is uh again, we like to go slow, but we always recognize time is is against us uh for sure. But yeah. Funny, my interview yesterday uh with Chandra Rao who who actually built similar to you, partnered uh number of acquisitions in um blue collar services, utilities and and electrical actually. Uh now at 12 million, so very so just a little bit ahead of where you're going to be at the end of this year anyway. Um was within a week of closing when when I interviewed him yesterday. And a week ago he was he was supposed to be closing basically like this week. And because the the business he was buying was seasonal and here we are in March, you know, you're starting to see that spring and summer revenue come in, the seller it was just the greed got the better of the seller. It was just like, ah, I don't want to sell anymore. Here come all this all these all this money's coming in. So nothing else changed. No terms of the deal changed, no new information. It was just a change in mood, in season. Um and seller walks at the at the 11th hour. Very frustrating. Yeah, it's it's tough. It's um I'm trying to focus more on the the major risks, like the top two or three risks of of the acquisition and and asking myself like if that risk pans out to be twice as bad as I think, then can I live with that? Like can the business survive? And that's been a an interesting test sometimes. Like, you know, if I think if if reasonably like three or four people are going to leave, but six to eight leave, like what does that do to uh the situation? I just had one random tip that popped in my head. Um Yeah. If uh if a seller, so sometimes we'll have a seller say, "Yeah, my accountant said it's um the company's worth this and it's some crazy valuation." We'll say, "Okay. Um can you and your accountant go get financing for that and we'll we'll take a look at it." And that sometimes will help with the the kind of expectation setting because if they go chat with the bank and the bank's like, "Uh actually, you know, this is like this is how we would finance it. Like this is what we could do for you." That that helps kind of level the uh the discussion field a little bit. And And sorry, what do you mean that they would go get financing? Like they just have a hypothetical conversation with a lender that's like, "If somebody wants to buy me, would you would you finance my business this give the financing to the my buyer at this level?" Yeah. Yeah, it's a good reality check tool. Yeah, that is a good a good tip. Great, Scott. Awesome. Scott, if if people want to reach out to you, what do you how do you prefer they do that? Yeah, they can email me at scott.walton@matrixmechanical.ca. Scott Walton, thanks for your sharing your story with us and so many of these tips and tricks that you've learned along the way. You're you've you've really um learned a lot this last couple of years and uh are really good teacher of it. So, we really appreciate your time. Thank you. Never stop learning. Thanks for having me. Thanks, Scott. I hope you enjoyed that interview. Make sure you subscribe to the Acquiring Minds channel below. We are now publishing twice a week, so tons of new interviews and stories to come. Stories that will help you along your own path to acquiring a business.