Pete cavilla welcome to acquiring minds thank you happy to be here Pete you bought an HVAC business a pretty sizable business for a self-funded Searcher you've done very well with it uh and it's of course in an industry that is one of the hottest for Searchers to be looking at Searchers and all the way up into private Equity so we're going to spend time not only on your search but on your learnings from inside this white hot industry let's start with some background on you Pete if you would please yeah my name is Pete cavilla I grew up in Ferndale Michigan which is a suburb of Detroit uh after I graduated from prel high I went to University of Michigan I studied industrial and operations engineering as an undergrad there after I graduated my first job out of college was working for a company called Urban science I worked in their office in Frankfurt Germany as a database programmer for three years after I wrapped up there I moved back to the US and went and did my MBA also at the University of Michigan when I graduated from an NBA program I worked for KPMG for about five years as a Management Consultant the group I was in was predominantly focused on it work and some back office functions and shared services and what have you and then again about the five-year Mark I ended up leaving KPMG and I dove in full-time to do a search to find a small business to acquire and a little while later ended up finding and acquiring Sharon heating and air conditioning which is a HVAC contractor in the Metro Detroit area and we do predominantly well we have a mix of residential replacement and service work and then a portion of commercial construction work as well awesome great some follow-ups yes why did you pivot out of consulting or IT consulting and into uh HVAC business owner why did you choose to do a search so there was a handful of reasons I contributed to it one and I should preface this by saying it wasn't me trying to buy an hvat company specifically that's what I ended up landing on that was one of many industries that I looked at I was pretty agnostic and I can expound upon that a little bit more but I just wanted to own a small business I'd say there were a handful of things that were pushing me in this direction throughout the majority of my life one was that uh I had my parents were pretty big on it even though they themselves were not entrepreneurs especially my dad I remember him telling me growing up it's really important or he really strongly advised if you can To Be Your Own Boss I think as a very young kid it was kind of tough to conceptualize that but of course as you start working more and getting get into a little bit more into the the corporate world and whatnot you can start to see some of the advantages and weigh that out if it's a good path or not so that was in the back of my mind I had some family members I had a grandfather that owned a small business an uncle that owned a small business so I was exposed to some family members that uh were in that realm and then when I was growing up I was a golf caddy as well so I caded at a local Country Club for a number of years and and catting for a lot of the members and some mentors there that I spoke with they were a lot of small business owners themselves and just talking with them getting education from them interacting with them seeing some of the I think some of the benefits that went along with it and wasn't just the fact that they were playing golf at a country club but clearly they had some discretion over their free time some satisfaction and autonomy over the work they were doing all these things together were always in the back of my mind and then what kind of put it over the top was I I'd met a friend in the MBA school and uh my buddy Ron told me about search funds and when I was telling him about this interest in these kind of small unsexy type businesses that are important and people seem to be doing well with but aren't talked about as much and I had never had the type of passion or expertise or skill set to really feel comfortable betting on a startup and I was also impatient enough not to want to wait so long to climb the ladder uh within a operation so after I learned about traditional search funds and then Dove a little bit more into ETA and whatnot it it it clicked with me and was something that I was pretty adamant about pursuing it was just a matter of finding the time to do it I feel like the image of you caddying at a uh Country Club I feel like that's almost like a scene from a movie or something I I feel like the image of the young person you know with the golf clubs of the of the older you know guys who are all successful is like that germ of an idea moment I I feel like I like I know that image from somewhere like I've seen it in a movie or something yeah I should I should add with the cading thing it probably was even more heavily influential because so I went to undergrad and that's how I paid for my school was a caddy scholarship so it's something called the Evan scholarship which I know that sounds bizarre and unreal but it it exists and people can give it a Google it's it's a fantastic program if anyone's listening they have kids that want to get in catting or something like that but anyway it's it's a scholarship for golf caddies uh that meet certain criteria Financial need academics and whatnot and U I think it's might be the largest privately funded scholarship in the country I can double check that but uh either either way I lived in a house with a bunch of other caddies for four years uh obviously had a lot of involvement not just with them but other alumni and and people that donated to the program and whatnot once again you're just constantly brushing up with these mentors and people that helped you out on the academic side through this program and and you just can't help but meet a lot of small business owners and get that type of influence through it yeah and just to be clear Pete because I so clarify for me because I'll Circle back uh on this theme later your Consulting was was development you said database you were a database consultant database developer so are you you have programming skills yeah I did so my first three years the company I worked for I was pretty much a database programmer every single day with the Consulting aspect of that experience in those three years was mostly advising on how customers can and use the proprietary software that the company produced and some of the different reporting features and other tools and whatnot that were available to them it was semi- customizable software so it was unlike say a Microsoft Office or something that comes out of the box and it's Asis our our job was to they had a certain set of features that were there and then they would work with us to further manipulate the program to whatever interests or reporting or metrics and things that they needed so that's what I did so yeah I I spent most of my day programming SQL uh which as I say this you'll probably have some people that are actual programmers listening to this and they'll probably roll their eyes I think most hardcore programmers and computer folks don't consider SQL a real programming language or at least not like the the stuff that's really cool that they're doing out in Silicon Valley but it's needed it's necessary it's kind of dry um but yeah that's how I spent three years okay Pete so you decide this this is the path for you give us a sense of your criteria and then take us a little bit into your search story because there are a couple of interesting details there I want to hear so the criteria side of it was honestly I I went with more of a kind of a spray and prey approach and what I mean is that I I I looked I didn't have certain industries that I was limiting myself to what happened was I started looking at the traditional route of search funds and perhaps having somebody fund it and that sounded really inviting at first but as I thought a little bit about it more the two main reasons why I ended up doing it is the what people call the the self-funded rout is that one I at we were just at a time in my life personally where I I didn't want to put myself in a position where I could theoretically move anywhere in the country I wanted to have a much more tighter geographical Focus my wife and I were married we had one child at the time when I started my search we just didn't want to be miles or multiple states away from our families we're both originally from Michigan so what we did was we limited ourselves to the state of Michigan thinking being that you know even if we end up somewhere that's not near our parents are near our CORE family members it'll be within a couple hour drive it's going to be a lot easier to see them and continue on with our families than if we lived you know halfway across the country um so there was that aspect of it and then the other part too is I I just thought about a little bit more I I felt like that self-funded route was a little bit more inviting to me because I came really um eager on the whole notion of owning 51% and more of the company and having the true controlling interest in the acquisition so those two things together made me pursue that route within the search and then because I was relatively focused geographically even with the whole state of Michigan it's not a overly populous place and there's only going to be so many targets out there I felt like I had to be somewhat as agnostic in terms of Industry so and I I kind of went with the old Playbook of I just want it to be something that's a little bit um more old world so to speak something simple something I could understand something that wasn't overly technologically advanced and and but yet at the same time had enough structure and size that it wouldn't require me to come in and have an immense depth of Industry knowledge or something like that to be able to function well and succeed in the business great and so your you said I heard you say spray and prey but I also know that used used a bide advisor so how did you maybe tell us first about engaging the bide adviser your decision to do that what that looked like my view and my wife and I teamed up on this because even though I was doing the searching obviously it was going to affect both of us and our family so we wanted to make sure we on the same page and my thought was I wanted to give it a year and then we could re-evaluate but I wanted to put my foot on the gas as hard as I could for a year leave my job jump into it full-time and exhaust every Avenue possible so that we could get to close as quickly as possible and I think everyone thinks that way but we we just felt that it made sense to use every resource possible so I of course was doing my own propri search whenever I could I was working with Brokers whenever I could and then the third element we brought in several months in I think maybe five six months in or something like that was we engaged one of the more prominent brokerages in Michigan um and they have buy side Services uh so what what that is is they you can hire them for sort of a monthly retainer fee and then they'll also assist in looking for for deals on your behalf and then of course there's a fee at the time of close where depending on the Enterprise Value and I forget all the different parameters of structure you pay them a a success fee but the idea is that you basically have a whole another team working on your behalf bringing you deals and there's going to be ones that they're reaching out within their broker Network that they're going to find maybe listings that you just didn't find as a broker or it was a broker that didn't fall on your radar because they're out of state but they happen to have a listing that's in your particular geography and then they also just did a lot of cold calling and cold me emailing and everything on on your behalf and then brought you leads so again we wanted to exhaust every Avenue possible so we felt like it was worth throwing in a little bit of money at this as well just to bring us as many hits as we as we could get and the you want to give a shout out to who that was since they they connected us yes I do uh so they're called Calder Capital they're based out of Grand Rapids Michigan they are I mean I I'll plug them right now they're an excellent Brokerage in my opinion there's plenty of good Brokers out there and there's plenty of not so good Brokers out there just like any other business but I I thought they they definitely stood out and again I what had happened was I had spoken to someone who used their buy side services and then started engaging with them because I'd seen a number of their listings and offerings that they had and that was great but I hadn't really even known that that was an option it seems very obvious now but someone else turned me on to it I had some conversations with them and spoke to a number of referrals and success stories that they had so uh and and they did bring me a lot of good leads in the time period as it turned out the company I ended up purchasing was through my own proprietary search but um I'd say uh in the time span that I used them they were probably turning up a lot better um leads and opportunities than I was doing on my own uh when you said it seems obvious in retrospect that they would have a buy side uh advisor uh or search kind of a search retainer offering because they're a brokerage I'm surprised to hear you say that only because I think they actually are differentiated that way I think a lot of most brokerages don't have a bu side offering I I actually having for as long as I as many interviews as I've had it's rare that I I come across buy side advisor Searchers who've used bide advisors I think you see it a lot further up Market you go and certainly private Equity there's a lot of shops that cater to private Equity but not to Searchers not to individuals I I just don't come across it very much so I I don't assume that every brokerage has that has that service offer I think that's a really good point so I agree with you most broker just probably don't I think the reason I said that because well more broadly I just hadn't considered that there's going to be buy side advisory in general I see it all the time now because you it's going to be further up Market of course and typically companies that not would not have been in the size range that I was looking but there's plenty of advisers out there in the m& world world that are doing buy side advisory just not something I was thinking about it then made sense that why wouldn't that populate a little bit farther Downstream but you know to your point I I they're the only one that I came across that I knew of but I also Al felt like they stood out in a number of ways compared to some other brokerages but you know as I say this I'd be curious if I started searching around Andross other brokerages and other geographer at least one that specialized in other areas if if they have the same type of setup but um so yeah maybe at the area that I was looking not as common and maybe that's why it felt so valuable and useful to me was I again I was happy to take any any support I could get and I felt like relatively speaking if it resulted in me buying a quality business their fees were in the long term going to be a relatively small cost for what you could get out of it another interesting point on that Pete is the other two guests that I've had who've used cder both coincidentally recently um were were kept their W2s and so they could justify the cost because it's a few grand a month they have a couple of tiers I don't know don't quote me but I think that the lowest tier I think forgive me cder if I'm getting this wrong is around two grand um maybe they have a slightly more affordable option anyway point is that's $24,000 a year whatever so so you that's a lot of cost now you can apply that all of that retainer fee to your success fee when when you complete a deal when you transact a deal that they fought found for you but still you know for Searchers self-funded Searchers um that's not insignificant at all and so it's it's been guests who have retain their W2 decided that the opportunity cost of doing their own search was not worth it so they make more money keeping their W2 paying Calder to do the search for them and then when they find a deal then they quit their W2 and jump into the business you didn't have that you were doing your own proprietary search and using Calder um so that was extra expensive for you um and and and also you know didn't you think that you might step on each other's Toes that they you know the proprietary you were doing was going to bump up against the proprietary they were doing as it happens it didn't you found your own deal they didn't and and were they not bothered by that were they were they not like hey let's let let us do the searching for you and you don't do any so that's a good question and I had I know this is an interesting point you make here because I think I recall having this conversation with my wife had I known about their buy side services and I've told other people that I've spoken with since I bought my company and they're asking questions about the process or advice or anything I may well have just stayed at my job had them do this on the side for me and done exactly what you're talking about right keep your salary job let them search in the meantime they're bringing you leads and then even if it takes a little bit longer and it takes a couple years if you're able to maintain your salary and you feel like this is an expense and you can cut some other cost or something like that that you can afford and you can roll that that those fees back into your success fee then yeah it's it's to me I think it's a really compelling offering for people that don't want to dump everything and and take quite as big of a risk financially into going down the search path so yeah it certainly had I known at the time and I had I not found out about it six months or five months after I had already dove in then I might have considered it um it just the way it worked out I I started working with them talking to them a little bit and then ended up finding out about a little bit later but I feel like that's part of that was a lot of things when I was going through my search was I man I wish I had known some of this stuff a few months earlier and even though I had like so many other people I called as many people as I could and reached out the alumni networks and friends and friends of friends and whatnot and anyone that had gone down this path it still is interesting and how much you end up learning the hard way and I just think some of that is it's just not a substitute for experience incidentally I also didn't know about your podcast prior to me starting to search that would have been helpful as well because there's always a few things I'm learning on there that again post closing I go man that really would have been helpful well I I appreciate that Pete but but for me what year was this that you're searching have you said so it was 2021 I started in uh I left in May of 2021 well I wasn't yet podcasting so you didn't you didn't miss out on it all right I'll sleep a little more soundly now so that's good all right so the other detail I wanted to say about your search is that you lived where while doing it I my wife daughter and myself moved in with my folks and they live in the west side of Michigan in a city called Rockford which which is just outside of Grand Rapids so that was tied to everything like we were talking about before after we had our first child my wife transitioned a full-time mom and I was still working of course so when we did the search we flip-flo she went back to working she was able to find a remote job at the time which I think we were still in some of the latter stages of the pandemic so they were probably a lot more available then so she went back became the primary bread winner for us and got us a paycheck and help floats with Healthcare and everything like that so we could keep going I spent my days mixed between full-time searching and then being full-time caregiver for our daughter and then as I said we moved in with my parents and it's interesting when I tell people that I it's kind of there's some mixed of feelings on it and I think most people go oh my gosh was that really tough how was it moving back in with your parents you haven't lived at home since you're 18 how did your wife take it living with her in-laws and everything and you know for the most part for me it was you know my wife and I talk about a fair amount it was it was a great time for us just because we were new parents we only had one child at the time it was honestly helpful to have some inhome care with my folks there um to pass off my daughter when I needed to if I had to go to a meeting or jump on a call or something like that there was a little bit of background support um just being able to have the luxury of moving in with them and cut down on costs and everything was really really helpful because again like you're talking about it's it there is opportunity cost here and it made it a lot less stressful and felt aot lot less um dire by by doing that because that just it took a little bit of the pressure off so I felt like I could think a little bit more soundly about the approach I was going through so and then just the other part too is that I'm we're fortunate that we have a relationship with my parents where we could do that where we could move in it wasn't an issue my wife still gets along with her in-law as well so I mean we we made it through to the other side of it so it's kind of one of those things where if you can go through that year together and everyone's still happy and content and everything then again a lot of people don't have that option whether it's just not having relatives or friends that they could move in with and do something like that or being able to to get along in that way so not not the original plan and and all things being equal yeah it would be be nice to live on our own sure but relatively speaking a fairly small price to pay um to yeah for the result no I think I I I I I love that you did that and you know this is how Family Life used to be um premodern society that we live in everyone is completely atomized and families live far apart um so I don't nothing at all to apologize about and it's kind of interesting because on the one hand um it allows you to be more conservative because you're you're saving money and and so on the whole reason for doing it so on the one hand it's kind of a conservative option or or it's a prudent option to save money but on the other hand there is kind of a burning the boats uh element to it too in the sense that if you let go of wherever you were Liv living and then install yourselves into that your parents house like there's definitely like okay we're doing this as a family we're going all we're re we reconfiguring our whole where we live uh while I do this search it does put pressure on you Pete to make sure you find something and actually do it yeah right as opposed to somebody maybe doing a part-time search you know so so often in our world there's a lot of search Curious search flirtation part-time search and and you know the LA and and not really hardcore committing to it this was a hardcore commitment to it you quit your job moved it moved your whole family into your parents house you were gonna do it do this like right that is that what have represented in your own mind or am I over it's 100% right we were fairly committed to it I I mean we made even before this we made some lifestyle choices that allowed us to get some flexibility like we purposely never bought a home prior to this because we didn't want to have have the anchor of a home and a marriage or having to sell it or something like that to be able to do something like this we were renting a house and we put in our I think at the time we were even month-to month and we just kind of gave notice and shipped out and did it and it it's not that you can't do it of course by by buying a home or making some other more permanent decisions or settling down so to speak but it just to your point it it didn't feel like even though we're kind of burning the ships as you're saying it didn't feel that drastic because we just were a little bit less anchored and a little bit less settled so it also made us eager to to get through the process and get it done right because we did want to buy a home we did want to settle in we did want to put our Roots down we were having more kids it's it's you don't want to be in limbo forever but yeah it it certainly I I felt like it allowed us to really fully commit dive in give it a an honest go of it for a little while and if it didn't work out after a bit that's fine I could go back I can get another job it was the difference between retiring at 65 and 66 was going to make me lose too much sleep and it's not like you couldn't try again in the future as circumstances change so well that's great thank you for that let's hear about I want to get into how you structured the deal investor size of the deal so so let's let's jump to the end of your search calr didn't end up finding you to business you found it with your own proprietary Outreach tell tell us tell us how you like the the little story of finding the business and then I want to get into the nuts and bolts of putting your deal together yeah like most people I was doing a cold email campaign so I was going through my list of companies and verifying them and cross Googling so to speak and and finding contact information I ended up reaching out to Sharon who of course was the owner and founder of Sharon's heating and air conditioning and sent her an email and got a response back from her son who reached out to me and said hey we love to have a conversation well they saw the website he said nice website would want to have a conversation and sat down and started going back and forth support there but yeah it was it was purely through cold Outreach and it was just good timing she was at an age where she was looking to retire was ready to move on and was starting to vet buyers and I know this because of course I'm sure she checked out other people beside myself but even we were going through the back and forth and and I was submitting an Loi they were waiting on a couple other offers to come in before ultimately signing my Loi and then moving towards an acquisition and going through due diligence there but it just was fortuitous timing and again from a number standpoint you send out enough of these you get enough people that some are kind of thinking about it some just sold some are already in discussions with someone but eventually I think you're given enough time and enough cracks at it you're bound to find someone who was in the stage so that's when I caught her and it was it was a a good opportunity when I met her and got to know them a little bit better in person little bit of an exception again here Pete that a lot of my the guests who are self-funded searchers who tried proprietary reflect back and think it wasn't a good use of their time often they'll do they will have done proprietary Outreach and blasted out emails and then found their deal on bis byell anyway so it's like and here you and here you were uh you you were even paying for a buy side advisor and even with that proprietary Outreach worked in your case and as we're going to hear found you a pretty big business so so you probably are a proponent of proprietary Outreach yeah I'm I'm actually really interested to hear you say that because whenever I talk to someone someone and they're thinking about going the self-funded route I tell them that really my only regret from my search was not spinning up and diving into my proprietary search immediately because I felt like all the best leads I had for the most part was through proprietary search or through the ones that I got with uh Calder helping on on the buy side it's not that there weren't some good broker deals out there but when you've restricted yourself to a fairly small geographic region and I feel like most of the people I talk to that are looking at the self-funded route that's one of their main motivations is I want to stay in the Chicago area I don't feel like leaving the West Coast or something like that well that would be kind of big but the point is is that they're they're searching in a a smaller area they they need to have a as big a volume as possible because simply going to Brokers or or looking at bis byell isn't going to offer enough and I always tell them that when I when I first started I had got put on a potential deal through a connection of a former colleague at KPMG didn't work out but I probably spent a couple months at the beginning continuing to vet this deal and checking it out and it slowed down the the initial startup of my own proprietary Outreach and then again once I got that going that's when I felt like I started having the most conversations getting the the most responses from owners starting to get the most IIs and Loi sent out there and again I just felt like that's where the the the greatest volume of the good opportunities for me came from not that I didn't like having a well polished broker deal put in front of me and having someone that could help facilitate the whole process but from a number standpoint I thought the proprietary thing was really good and yeah that's interestingly enough one of the first things I always tell self-funded Searchers and now I'm very surprised to hear someone like yourself who talks to so many of them say that they didn't get much success on that yeah yeah that is that is interesting I I I feel like I I mostly say um if if pressed I I I I I think one should explore all options because it's hard to find a good business but if press I say go with broker um so I'm not hardcore about no proprietary Outreach but I've just heard enough times that people felt like it it didn't it was a lot of effort for very very little in the way of of results so good good good contrast here for people to hear between your experience in mine or what I yeah um okay tell us about Sharon's please what what had Sharon herself built in this business so Sharon's was or is HVAC company at the time I bought it it was about 50% Residential Services 50% commercial construction the company at the time again when I purchased it had 60 something odd employees it was maybe 65 66 something like that employees total and was doing about I think it was a little under 12 million in Revenue per year so 11 and a half million or something like that Revenue per year so in the HVAC world it's a relatively big company as HVAC companies go only because it's such a fragmented industry and there's so many companies that that the vast majority of them are are just very very small basically what what I think a lot of people in our industry would say like two guys in a truck or something like that so you know someone that's essentially working for themselves is an independent contractor more or less uh so when you go on say Google Maps and you look for HVAC contractor mechanical contractor something you're going to see a bunch of companies pop up and um there' probably be a number of good ones but a lot of them are going to have you know under 20 people or even under 10 people or something like that so it's it just is an industry that lends itself to a lot of smaller businesses so you know I'd say once you get north of 30 40 people you're starting to get into a a a fairly large scale and then once you get into these larger companies or groups of companies where you have 100 plus people you know you're really in the the big leagues so to speak of in terms of size as it relates to HVAC um again just for how small and fragmented the industry is well and Pete I mean I think um for any self-funded Searcher industry aside 11 million almost 12 million in Revenue 65 employees that's a big business I I have to assume that SD on that is going to be over easily over a million assuming margins are going to be north of 10% uh can you share what margins and therefore SD were yeah so the well I I guess I put in terms of evida it was just over a million it was like 1.06 so if you factor in a let's just it was probably about 1.1 million in SD um just over a million in iida and uh which which is decent margins given the fact that we had this split between residential and Commercial work and as you might assume the commercial construction side is going to have bigger projects smaller margins and as opposed to the residential side much uh much higher profit margins but you know smaller ticket size well fantastic now I want to well we're going to dive deep into the kind of HVAC and this residential versus commercial mix and and how what you've done with that and uh the profitability of those and so on but how did you structure this deal so how how much Equity did you have to bring well sorry having done a proprietary search but this but Sharon was already had the business on the market you said so she had a she had a selling price no she didn't so this is we had to come up with it on our own or I came up in my own offer she hadn't engaged a broker or anything it wasn't officially on the market she was just starting to actually seriously look at the offers that were coming her way and and the Outreach that was coming her way I think if I remember correctly when I saw when her son replied back to my email what happened was I emailed Sharon she forwarded the email to her son and I you know so I was able to see the chain uh of of their responses and it was only a couple of them but I I think I specifically remember Sharon's words and emails was wow another one so clearly she had been getting a number of offers and people starting Outreach having interest in in buying her company and and then I spoke with them but it wasn't actively broker she didn't have a set price or anything like that I I came up I reviewed her numbers got as much information as I could and came up with my own offer price and how did you come up with that offer price give give us the quick and dirty on that and and then how you presented it to her did you just give her a number or did you explain Sharon this is how I'm arriving at this number I didn't give too much of an explanation and my thought process there was that I want wanted to present an offer of course that I thought was fair and reasonable and was going to allow me to have success with the business but also make sure that she was getting compensated for the company that she had established my reasoning for not wanting to have any type of justification or explanation as to why was simply because I felt like then from a negotiation standpoint if I'm telling them what the different factors are that would that went into it that they might try to counter off or a point certain things and say well actually this is even better here than You' think or this is on growth on some type of growth pattern so that's why so I just I didn't feel it was I didn't need to was the can of worms well I wasna use a Consulting cliche I didn't need to S them how show them how the sausage is made right I just wanted to say here we go here's the offer and and and have it just be that so the way I come up with it or I came up with it was that I I model it out like so many other people I had some some my spreadsheet laid out I had my modeling and I just I went through and kind of came up with an offer price that I felt like was going to given some scenarios that I laid out with very very modest growth targets and and what the the spread of my debt and equity and everything was going to look like was going to be a return that I felt like I could bring this to whatever investors I was going to need to close this deal would be enough of a return that they would be happy with how it projected and thought it was reasonable and allowed me to come up with a price from there so I kind of backed into it saying that if I'm looking for a certain amount of return for myself and for my investors and I'm planning on a couple different growth scenarios and just to kind of hedge my bets how can I back into an offer price based off of today's current iida amount and that's that's how I got to it and and what was the return for investors that number that you were trying to hit I was targeting like right around 30% irr I I felt like that's what just reading and sort of the interest of the market and everything it sort of come up with you know as I say this and I'm saying it out loud like it's part of it is just me talking to as many people as I could reading different Publications going on websites like search fund.com and and looking at different posts and everything else and getting a sense of all right what for me to be able to gather the capital needed what am I going to be able to what type of return or structure am I going to have to present in order to to attract that and be able to close this deal and then of course the other side of it too was was plugging in with some of the spreadsheets that I had from the lender that I worked with which was Live Oak bank to make sure that I was putting together a purchase price that was going to have a very healthy debt or debt cover debt service coverage ratio so that you know if things did go a little bit sideways or we took a step backwards or something like that that me uh the company decreasing 5% in in profitability or something wasn't going to be the the death blow for me so I wanted to make sure there was a Marchin of safety I apologize but that was the other part of it too was that all right do I have some comfort that we can slide a little bit if it comes to that and we'll be okay and and that third component so first component number one was figuring out what you you know what your multip multiple would be based on the irr you wanted to deliver to your thirdparty investors number two was maintaining a comfortable dscr uh debt service coverage ratio uh with your lender and number three was your own return on Equity how much equity were you going to bring to this myself personally or for the deal as a whole no no yourself personally um very little to none so I ended up putting in a pretty small amount of my own personal cash of the equity that was brought to the table I brought less than 5% of it um most of my Equity came from signing the personal guarantee on the loan running the business and and bringing the deal to the investors but um so in essence I'm not I'm not really getting paid much in terms of like preferred returns or anything right now the Lion Share My Equity is going to come uh after our our debt or our our notes and the um investor Equity is returned to them and then once we our our deal uh flips to that point then I'll have a a much more significant kind of preferred return uh setup yeah that's not different than most self-funded Searchers that the the the big pop is going to be after they pay off their loan after they pay back investors and and then if they and then they can you know being whatever they are 60 70 80% owners um if they don't want to reinvest that Capital into the business they can start taking a lot of that that SD and pocket pocketing it and then of course if they choose to sell the business and they've got no debt to pay down then there's a huge liquidity event for them um but not that we Advocate no money down offers or any of that silliness on this podcast but let's be clear you did buy a almost $12 million Business Without much money into the deal yourself yes as a firsttimer that's pretty amazing um you want to respond it it is I think it's probably more of a credit to the the institutions that are out there because I use the SBA 7A program like so many self-funded Searchers do so that of course was a Avenue to a loan that know I would have been nearly impossible to get otherwise so that was a big help um and the way our our structure worked was it was 85% it what you're about to hear is I I did heavily leverage this whole thing so it was 85% SBA 7A loan 10% of it was a kind of a standard seller note 5% of it was a seller standby note and then the remaining 5% of the purchase price came from Equity uh from some from cash at close so the 5% standby note is relevant because I don't know if some of the structure rules have changed since since I did my purchase but at the time that if you did an SBA loan the the max that you could have was 90% of the purchase price or I think it was Max $5 million and 90% of the purchase price whatever was higher and that said if you needed to bring 10% cash at close they would allow 5% of that to be in the form of a seller standby note and for those that listening that don't know a seller standby note is a seller note where you cannot make any payments on it interest or principle until the senior debt obligation been fully fulfilled so I have a seller standby note with Sharon for 5% of the value it's acre interest until I've paid off my primary loan to live o bank but I'm not actually paying any cash on it right now uh on a monthly basis or annual basis so um what it does is it just doesn't H hamper cash flow or it doesn't hamper cash flow and the bank allows you to use that is uh up to 5% at least at the time of the of the equity couple things to say there you'll you'll hear sometimes people refer to that standby note as oh it's it's essentially equity and I always found that confusing because it's not Equity it's it's definitely debt but what people mean by that is they're just kind of shanding that it can count towards your Equity so that 5% debt when that additional 5% chunk of debt that's Stand By and that you're not going to have to pay on for however long you agree to um can count as 5% of the full 10% Equity that you need to bring leaving you with 5% of the total deal amount in cash that you need to bring one more point on the standby um I'm used to hearing Pete that the standby are twoyear standby threee standby fiveyear standby that it's more just tied to a calendar period of time as opposed to when you pay down your SBA loan because that means means that the seller ain't going to see that for 10 years potentially since the SBA loan advertises over 10 years right two things one I hope the seller sees that money before 10 years because that's certainly my goal I'm not trying to uh stretch out the SBA payments the full 10 years but yes theoretically um in the way I kind of floated that was I originally had um a 20% I the deal I originally floated to sharan was a 75% bank loan 20% seller note and then I would have had the 5% Equity yeah then the 5% Equity the end and or no I think it was 70210 and then and then I said once I found out about the standby note and how that could work I said to Sharon I'll I'll swap out do an extra 5% on the the bank loan so that she's basically getting an extra 5% cash at close and then swap the other 5% to the standby note which she was comfortable with saying all right I'll I'll kind of taking out of one pocket and putting the other so I I'll take a little bit more money up front if it means that you're going to have this note that's going to carry on a little bit longer um and that was the way that live oak had it structured as well at least that was their agreement and how the seller standby note was going to have to work again I got lucky and that Sharon was okay with that structure and we were able to work it out um but yeah it it certainly made a lot of years to close on a deal like this because it's not that I don't know I probably could have found a way to raise the full 10% Equity that I needed it just would have tracked a little bit longer it's that many more conversations that you have to have um and from a fundraising standpoint know less is less if you don't have to get as much money together you don't have to have as many checks cut it just moves a little bit faster sure for sure and so okay so um back to the calculation of the multiple so what did you propose to Sharon so it was basically a almost exactly four times earnings um that I that I bought the business for so okay a little bit over 4 million bucks mhm yeah I think the final purchase price was 4.3 million so it's and again that was just a number that I've reading all the literature out there knowing what the typical range of purchases of businesses is and me feeling like it was once trying to work out this balance of I want to make sure I'm offering the maximum kind of value and fair price to share them at the same time making sure that I'm putting myself in a position where I'm able to get a return to investors and and make sure that the business is covering its its obligations and everything and of course lioke and any other bank is not really going to approve you for anything if they don't feel like that those ratios are healthy or whatever so there's a vetting process there and now 2021 HVAC was not white hot like it is now but it was probably starting to get some attention and she had said oh wow another one to her son when she forwarded your email on to him so she was obviously seeing demand for her business why did she choose you oh I asked her this one time actually a couple years ago or maybe a year or two ago and her there was a couple things one well this is what she told me and then I'll and then I'll tell you what I read between the lines so what she told me was that she just liked that it was an individual buying it she as we had some conversations and spoke a little more she felt comfortable with my background what I was trying to do and that as cliched as it sounds that I would be you know a good Steward for the business and kind of carried on and and and and carry on her name she had said she'd received offers from even some competitors in the area some larger companies and whatnot and there was she'd been doing it for a long time she founded the company in 1981 she was an HVAC prior to that and it's a relatively tight-knit World once you're once you're in it a lot of the people know each other's names and know the other companies and even the technicians at the companies know the reputation of different businesses across the landscape and in your locality and you know she had said that she just had offer some other company and she said I'm not putting my name on know that business or I don't want to work with him or something like that so know she had she had some opinions about it and and I can understand it right it's it's it's it's called Sharon it's got her name on it and she and she'd been there for a long time there were people at the company I think she wanted to make sure they were taken care of it's not someone like me comes in it's not a guarantee by any means but in any event she felt comfortable as it happened I also happened to look a lot like her grandson which I think I don't think that was the the reason she sold it to me but it was like the first thing her son her daughter and her all said like they saw my picture on my website and then I showed up in person I walked in and Shar said wow he looks a lot like Adam so um and I guess he was a a golfer uh as well in in high school and college and stuff so I I I think the cading story on there uh made it even even uh even closer to home so there was that part of it but no it it was just that she she liked the idea of I think selling to an individual and and having some comfort that it was kind of kind of carry on in a somewhat similar manner but that was the part that she told me I think the other part was that um there was of course like any of these there was a little bit of hair on it and I think there were just some some situations with it that maybe some larger institutions might not have been comfortable with um one is that it was actually a carve out so to speak so they had just opened a second location um in fville which is about an hour away from from Westland which is where um where I'm where our business is located and they had opened another one and really the reason they open it was her grandson was was going to start running a business running the business and and I think it was sort of their Exit Plan so to speak and I could see how some other purchasers might have a concern about well even if she's an hour away and and in my opinion if you're in especially residentially focused HVAC there's no reason for anyone at your company be driving an hour to take on business but regardless um I I think some larger ERS a private Equity or something might have some stronger feelings or be less flexible with having the former founder of the business still be in or near the industry or have her family people that used to be working at the company I bought now working an hour away in in a different locality um so I think that was probably something that I I don't know how much they explored it but probably could have driven some people off um and yeah and if I had to guess that was probably one of the main reasons that they I don't know if they were for forced to sell to an individual like myself but certainly had to consider it as opposed to going to some larger institutions well circling back up to the to the other reason about what you look like Pete and your in your caddying story um one thing we also often hear we admonish Searchers is to not overthink their website should it look like private Equity should it not should you know should you even have your own personal website or whatever and I think I think the consensus is like certainly don't spend a lot that much time on it don't try to overthink it you know you're going to encounter some some owners that want to sell to private Equity so if you can project his private Equity that's a good thing you're going to find other owners who don't want to sell to private equity and so those people aren't going to like a private Equity look so you can't get in the mind of all of these owners so just be yourself ultimately um but anyway it sounds like your website really served you well the little personal details there uh really traveled into into her head I think it helped I I I agree with everything you said there I think however whatever path you're going down whether you are traditionally funded whether you're an individual Searcher whether you're a part of a larger private Equity Group or something like that I think you just want to play to your differentiators play to your strengths whatever you want to call it and yeah I mean I when I spun up my search or whatever and came up with a name I I purposely didn't call it capital or Partners or or anything like that because I didn't have any capital I didn't have any Partners I I I just wanted to make sure it was was uh I didn't I didn't have Equity so I like I I didn't have any of those things so I wanted to just try to in so far as possible send out this message that I'm kind of a you know Average Joe so to speak and I want to go buy business but also having to balance that and demonstrate that I can actually close a transaction I have some level of expertise and knowledge and business background and that I'm not just um completely making up the whole scenario even though you're kind of winging it along the way um so so that's what I did and then you know I I like you said I kept it simple I put my picture up there or picture of myself my wife and my daughter at the time so I figured if there was ever a an opportunity to exploit my child for profit this was going to be it so um I took advantage of that as well okay uh I want to hear about your the just the investor piece here um there's a an investor well I want to hear just a little bit about the structure to make that super clear to people and then just to to tease where I'm going with this there's an investor that we both know who you showed the deal and passed on it so I want to understand kind of why um you may have already given us that answer but to be clear reme a reminder everybody 80% SBA 10% seller note 5% standby so you got to raise 5% of cash yeah uh of call it 4.3 million so that is 215 yeah I think yeah I think it with some of the fees and everything whatever might have been a little more like 260,000 or something but yeah called a quarter million approximately yeah a quarter million and and go circling back up to how much you brought to the deal didn't you say you brought about 5% of the equity that needed so 5% of the 5% yeah it it was like sorry it was a little closer to 10% so close to 10% of the 10% but I specifically it was just using some cash that we had in the bank account we didn't empty our 401k or anything we didn't get into um emptying out any long-term Investments or anything like that we use just to and and the only reason we did that was just my thought was we're already buying this thing we're pretty much putting our life behind it for the foreseeable future if we have some extra cash why not get a little bit more Equity because clearly we believe in it so this is going to be the best return I'm going to get probably on this money or the worst and at that point it's not going to matter so um so that was the thought there okay okay and so what you you the equity that you raised you did friends and family but you also tried some professional to raise some professional people in the search ecosystem how did that go tell us that about that I did a very poor job of this and whenever I have conversations with people and especially the self-funded folks because it's probably not as much of an issue with the I would imagine with the people that get investor backing up front you know the traditional Searchers so to speak or the accelerators because they already have that built in but the reason I say I did a poor job of it was I I kind of waited to the end to start having these conversations and again I it seems so obvious and clear to me now but at the time my thought was well I don't need to worry about talking to investors prior to having a deal because how can I explain how can I have a conversation with them about investing in a company that I don't have you know and it was so was this chicken and egg thing I never really figured out which was I I need investors to have a deal but I can't get a deal unless I have investors and and I need to if I don't have a deal how can I talk to investors about it and so on so forth and in hindsight it's knowing what I know now you can absolutely there's an Eco there's a market for people that are comfortable investing in self-funded deals you can reach out and find them I happen to find most of them via search fund.com and and just other personal connections and you know you can just talk to them in hypotheticals and get a general idea of what they're looking for from an investment standpoint right and just you can probably create your own list of what's important to them but the you know main attributes that you would expect to to have on your list of hypothetical investors what what type of check size are they willing to write what types of returns they looking for are there certain structures that they're looking for within within their their Equity piece or how the deal is structured uh are there certain industries that they're very interested in or certain industries that are a no-o and and just even having that would have made it a lot easier because I probably could have cobbled together I don't know 40 50 people or something like that and then just those criteria you can start to filter down when you have something on the line and reach out and and gather this Equity I I waited the last minute I had a deal I realized I was getting a lot closer to closing and this was real and then I had to start raising or having these initial conversations presenting this company uh and also introducing myself for the first time so it just it made it a little bit tighter of a squeeze and more difficult than it had to be okay and the uh and then you you were passed on by one well-known self self-funded Searcher why didn't he like your deal yeah I I would say I was I was passed on by more than one um welln one that we both know who a prolific investor so yes and I think the reason was it had to do with the probably the transition and and how that was set up or rather not set up and I think this ties back into again why when they sold to me in addition to that being a little bit of a carve out and I could see some institutional B having an issue with that with the purchase the Sharon the seller was very admin about she didn't want to tell this to employees and start having these conversations until we basically ined it right so it makes it difficult to you know truly vet out your team I mean there's some faith and trust when you start looking through financials and going through everything else and the company history that everything's going to work well but you're essentially ripping off the bandaid on day one you don't know how the company's going to react and most importantly if you don't have a a guaranteed plan or a set structure for your upper management then there's a lot of uncertainty there and there's risk right so I had to lay out and go through and talk to Sharon and and uh her son and daughter about who's going to be taking over what roles and I I basically made like a a sort of a transition chart where I knew who was what what they were all doing on the day-to-day what their main responsibilities was and how this was going to shift and some of the stuff was going to go to me and then some of the stuff was going to go to some people that they had earmarked at the company but unfortunately they were people I had never met right and so I think for a lot of investors looking at that and not seeing that one I was going to be able to talk to them prior to getting in and and two just not having a knowing that this transition plan had not been talked to them even if they were super excited about and want it it just it made it more difficult and it it presented an element of risk that is fair right I I I I think the way I would describe it is that had I been given the opportunity to now to invest in my own deal I probably would not have invested in it for this very reason yes because it's it's critical right like it's an industry where I'm not not going to have the technical knowhow to be in charge of service technicians and answer questions on the phone or installers and answer questions on the phone right you're going to need some time to understand that business now Sharon and her children were absolutely on board for helping with the transition period And the reason that I was comfortable with it besides the fact that it was going to be me there and I'm you know betting on myself and um and all that you know that's typical for any one of these deals is that you know I I felt comfortable that Sharon and her son and daughter would stay on as long as needed to help make sure that the transition was complete and that we were in a good space but the the question is is that going to be a couple months or is that going to be a couple years I mean I don't think they're going to stay that long so well how fast can you get this done and can you make sure that you've you're recreating whatever managerial structure was in place to at least kind of keep the status quo going and hopefully find ways to improve and and and then how did that element of the transition go so Sharon stayed on board for about 2 and A2 months before transitioning out her daughter stayed on board for about 3 and A2 months before transitioning out and her son actually stayed on for about a year and a half before transitioning out and so it went it went pretty well um the most difficult part for me and this was one of the biggest heartburn for me early on with the the whole purchase and and transition was that I had to so I was taking over a combination of some of Sharon and her daughter duties that would just be what I would call sort of basic General management type functions things that didn't require you to know the industry very well at all is just sort of the accounting and and general what have you of running a business working with insurance brokers and all the paperwork and and all the fun stuff right that that's that has to happen and then Sharon was also the one that was leading up our our residential installation Crews and I had to work with and transition a guy that they had identified at the company sort of a young and up incomer who ended up taking that over but work with him in in the sense of both do you want the role putting together an offer that was going to be something that he was okay with that given the level of responsibility I was going to give him and then having him sort of transition and having Sharon sort of train him to take over that job so again elements of complexity and ended up working out he's still my install manager today does a great job um and then I think the biggest benefit or or surprising Boon that came out of it was that her son stayed on as long as he did because he was helping to run our commercial construction Department running our service department wealth of knowledge was a really good guy um provided all types of of valuable insights and and was just kind of like a general glue guy that helped with um sort of advocating with a lot of the the remaining employees and you know again it's tough to put a price on that but it was really really helpful and I think helped um smooth out the whole transition process we're going to start getting into what operations has been like here and I'm keeping my eye on the time Pete but um so at the end of the deal structure how much of the business do you own the end of all that 91.26 per. it's good to be a self-funded Searcher now now now Pete speaking of uh the category of self-funded search the most everybody listening regular listeners will know that sde the bigger the better typically um The Sweet Spot we consider 750 to a million s hard to find those businesses though so so so many of my guests so many self funded Searchers end up relaxing that requirement um and go down to six and five and four even and even lower in SD you found one and and not only did you find one you found one in a in an industry that ended up being the industry um it wasn't yet in 2021 but but lucky you and we'll get into whether or not private Equity is knocking on your door every day at this point and if you're going to go sell tomorrow how do you think about size now now that you've gone through the experience did it feel like wow this is awesome if if the business were you know half this size it would have been a lot harder or maybe the the business actually felt really big and scary what what would you say to people um as somebody who's bought a business that was over a million dollars in SE with 60 employees 65 employees $12 million almost in Revenue so I think if I had my brothers I would have actually had a little bit smaller of a company in my mind's eye I when I thought about before I ever started searching and everything I had this thing in my head of oh yeah I can see myself running a company with I don't know 15 20 30 people at it or something like that I think just the size of it is it it's intimidating but it's also just more to manage you know and and it's just more people more more issues and Personnel things that are going to go along with it for the most part I've been pretty fortunate with all of it and I'm also lucky to have an actual know middle management structure so that that helps it but it's um I guess I'll never have that comparison point at least not for the foreseeable future in terms of what it'd be like to be a little something a little bit smaller but the reason I was okay with it was me betting and hoping that all right if it's bigger it's going to be a little bit more robust and my thought process was well yeah I I it felt like it was going to be easier to connect and just sort of manage more tightly and and become comfortable with the company that say had 20 people at it but my other thought there was well if two employees leave within a month that's 10% of your Workforce is just walked off right so it it there's going to be some turnover in HVAC and we that's one of the main battles is making sure that you find and retain Talent I'm sure it's that way in every industry of course but we just know that somewhat in the skilled trades there's a labor shortage and um the revenue generators within the company given that it's service based and um it it feels a little bit less dire than when if you have a employee or two walk or something like that in a given month or get posted or something it's all right that's it's stay so you got to find people to replace them but it's not um quite as damaging as you know having a quarter of your staff walk out and the quarter of your staff is four people or something like that so um it is big and intimidating at first but it feels somewhat consistent now and the other part I'll add is that with us having a decent chunk of commercial construction there is that many people but between that and the guys that on the residential side there's only about 15 people in in the office at any given time most of the people are out in the field working so it's not like I'm standing in front of an audience every day that that part's pretty rare so but Pete the fact that yes it was intimidating but you're used to it now you know and what you just said it's not like you're addressing 65 people every morning getting through that uh initial intimidation it sounds like it's only good more complex but big things are more complex that doesn't necessarily seem like that much of a con so it sounds like it's only good that that you would say the bigger is that is better all things being equal yeah I'd probably say bigger is better because you're more robust you're making more money you hopefully have it more resources to then set yourself up to scale the ifs of course that go along with it are are are you big for a good reason like have you has the company grown to that size sustainably has it does it have the right foundation in place do you feel like you can keep scaling as you would expect like there's been work that's had to gone in even since I've got there about how do we arrange the 65 employees we have because we we've grown our bottom line has grown since I started which is great the number of employees we have is pretty much Flatline since I've been there but how they're allocated across different departments and who we have in place and whatnot has also changed a little bit and some of that's just been out of necessity in terms of understanding how we have a structure that supports everything but yeah I I think you know if you can keep growing and get bigger then there's a reason that you know very large publicly company publicly traded companies trade at incredibly High multiples compared to what I purchase right like there's there's some comfort in that size and knowing that they can take a few bumps and and maintain usually well it and this is this question is going to be a perfect segue to getting into HVAC and what you've done with the business but you just talked about uh kind of the quality of Revenue or how sustainably the business has been built does it have the right foundation um you've come in and made some changes there where I'm going with this is is this because the business was big enough is this one of these where you were able to work on the business rather rather than in the business much quickly much more quickly so in other words this adventure for you has been a lot of strategy as opposed to a lot of blocking and tackling and most people think that the strategy stuff is the fun stuff not only the fun stuff but also the stuff where you get the most leverage from your time I would agree with that so that's another yeah you're 100% right that's another Advantage generally speaking of if you have a bigger company and you have some support structure in place the hope is that you can operate on a as more of a quote unquote CEO right uh and and truly think in a strategic Manner and try to think about some of the the big ticket items or areas for improvement right um if you have to out of necessity spend the bulk of your day doing tactical activities ities I understand they're important and and you can probably find time to chip away at some of these things but it's if you only have a limited amount of time to do it it's just going to make it more difficult right and and that's been a a process even for me and myself because early on I felt like I was doing a lot of that but some of it was almost out of by choice because you want to see how everything operates how everything runs understand what everyone's doing to a degree and within reason right like I'm really good technicians take years to develop their skill in this trade and I'm not gonna at any given point become a a good HVAC technician like I'm the last person in the world you probably want repairing your furnace right even though I own an HVAC company um but I at least want to understand how do our customers find us what's interacting with the customers like what does it what does it look like for the technicians when they're talking to the customers how are they handling the the workout in the field even writing up their tickets and charging them all these little minor things so I think it was good to kind of be involved with that early on and and necessary um but yeah every day that goes by I'm always looking for opportunity to pull myself away from it one just to like you said hopefully get hopefully find the time to spend on some of these things that I think will be uh more important and provide better return for the time that I'm putting in and then two just as a self-preservation thing right where if I'm involved in stuff all the time um one if I take time off then things are coming to a halt and I don't want that to be the case and then two just inherently the business is less valuable if one person is is that much more important than everyone else right the hope is that it's not there yet but the hope is that if I'm struck by a bolt of lightning tomorrow everything just carries on right um so that's that's the ultimate goal great thank you Pete now let let's get into a little bit of HVAC uh HVAC strategic thinking so um a big a big a big kind of um strategic question about your business about Sharon's um in really any H fact business I guess is the mix of residential versus commercial um let's talk let's talk about that because that that's really where you I feel like you've you've made a big shift in the business so yeah when I bought the business we were split about 50% residential to commercial construction work and we're now this year we're probably going to be somewhere depends how the last couple months the year go but it'll be somewhere around 65% residential to 35% commercial construction and I'd say what's happened there is our revenues have gone down a little bit in commercial construction but it's more been as a result of the growth of our residential side and we kind of had this thesis when I was working on this with my investors prior to buying the company the Sharon's had a really strong growth rate year-over-year on its residential revenue and my view is if we can keep going and I as I really dove into their numbers it's anyone in the industry knows this but it's it's much more profitable the the typically speaking the residential work is going to be much more profitable than the commercial construction work so my thought was even if Sharon's was to maintain that know 11 a. half million in revenue for the next five years but that went from being 5050 to like a 8020 split there should be an immense enhancement in in the bottom line so my view was can we kind of slowly shift our Revenue split and and get to that and you know we it'll be three years this March and that's that's kind of happened we um have been slowly trending that way and it's mostly manifested itself it's it's worked out better um notable exception in my second year which I can talk about a little bit more but um in any event with that that split we like we pretty much have had that happen our revenue is basically our Top Line has remained stagnant for almost three years but our revenue or our bottom line has been growing by a pretty healthy margin and it's by shifting this business so um what's nice is that we have been able to kind of reallocate some resources so we've had some guys in commercial that we can move over to residential and then you know we just had the the structure and everything in place like we talked about before to be able to scale and continue to grow the residential side without having to really add much in the way of overhead congratulations on that so so so you're still at between 11 and 12 million in Revenue but uh but iida has grown to what uh we'll see how this year shakes out but my guesses we probably be somewhere around like 1.6 1.7 million in eida okay everybody listening so so uh put in whatever 20 30 40 50 Grand of his own money to now be to to be the 91% owner of a business doing 1.6 1.7 and Eva very very nice um this point about residential being so much more appealing or higher margin than commercial so higher margin yes but is it I have to believe that there are cons to residential I mean aren't you doesn't like going to be a I assume much higher marketing expense so that doesn't that eat a lot eat up a lot of that margin the commercial business is much longer so there's just less churn in the product in in the project so your your crews are going to the same projects for I don't know how you know I don't know anything about this world weeks months at a time and and so maybe just there's less what do they call it windshield time there's less windshield time in commercial projects than in residential project I just have to believe there's that there's something appealing to commercial despite the fact that it's lower margin yeah there is I so I really like having it and I've been it's basically saved my butt uh in the second year of of owning the company so I'm I'm grateful for it and it's it's I like having the mix I know that for you mentioned it before the the prospective buyers and the industry consolidators right now the PE companies and large strategic buyers they're pretty much only interested in the residential side and you know I can talk about why they view that but for me personally as the one that owns a business and or owns a l and share the business and runs it day-to-day it's been great having the commercial so like you said the the main difference is that the residential is going to be seasonal typically speaking in its demand have seasonal spikes and the commercial the commercial is going to be more cyclical right so at least at the time there's there's plenty of building going on there's work out there and what's nice is that the commercial stuff kind of Smooths out the the seasonality that you get so um during peak season pretty much anyone who can do the work can make money in HVAC there's so much demand no one can keep up you know we could double in size and not keep up with the calls and everything um but it's for these windows you know Peak summer Peak winter whatever then there's the the the in between seasons and it's really nice to have that commercial Revenue coming in knowing that we were having this call today I I looked back at how our revenues went and in our second year we had a really mild winter followed by a really mild summer and you know until I think you're a more sophisticated company that's really got some of its marketing strategies dialed in and you're leveraging the most out of your existing customer list we weren't at the time so our residential side suffered so in my second year we our residential Revenue dropped 26% from the prior year um but our commercial we had a great year commercially and our commercial Revenue was up 26% so long story short was we we grew um we still grew 11% in 2020 23 compared to 2022 as a company even having a a really lousy residential year um so that that balance in business really helped and and you know changed what would have been a really disappointing and and pretty awful year for for a company if we were just residential and then we know through hearsay that other companies in our geography had that those same issues that that we did and they might have been 100% residentially focused uh to flipping it to having a pretty strong year so I I I'm thankful for it it's helpful and I I view it as kind of a for me personally a bit of a differentiator even though you know a lot of other companies in our industry really focus on one or the other uh thank you for that Pete and now now let let's segue into private equity and its its role on this industry which we hear about constantly um it's and I'll just launch us into it by saying it is interesting how PE is so attuned to the revenue mixes in its Target businesses um as just one example Jordan Dubin whose episode will have aired by the time our our conversation now is airing he will have aired a couple weeks ago um is rolling up garage door businesses and their criteria and rolling up them up and then we'll sell to a larger private Equity company uh in their criteria because they they are assuming that their um their own buyers will have the same criteria is that the a garage door business has to have 10% install or less Revenue so 90% or more needs to just be garaged or servicing no installation okay so that I'm talking about in that case I'm talking about uh project versus service Revenue so that's a little different um than residential versus commercial but the point of it is that it's the same it comes down to quality of Revenue type of customer um you've just made a a really strong case for the value of having a mix there so so the revenue is a little bit the revenue line is a little bit smoother and and know the cyclicality helps with the seasonality and and so on but um but private Equity that maybe that's hurting you with private Equity um now I don't even know if you want to sell but um maybe speak to that and then let's just hear about what your you know you who got in in 2021 as this industry was heating up now it's so hot um what have you seen there so I did not realize at the time when I bought the company that this was a a very coveted industry for private Equity that was unknown to me I had heard inklings here and there but I didn't know it would be to the level it is right now where there's articles everywhere and you're getting Outreach all the time and everything and it's it's it is um it is hot I don't know for lack of a better term they they I do get a fair amount of Outreach I usually there's a few people reaching out to me at least I don't know this point it seems like there's a new person every week almost but you know several times a month I'm having some um either buyers rep or Investment Bank or something like that reach out and they want to know more and they want to have a conversation um so that was unexpected that was just kind of blind luck What drew me to the HVAC originally was mostly just knowing some people growing up in in hfac and you know people in the neighborhood and the hearsay of you my mom say oh so and so has been HVAC he makes a really nice living and works for himself blah blah blah and that type of thing we my my dad had a a his the son of of his colleagues was a private Equity guy that left and bought a small HVAC company up in northern Michigan and you know just hearing that story even a few years before I started searching I was like well that sounds nice I know it's a an essential industry and people always need it and that type of thing couldn't have predicted this with the private Equity roll up and whatnot but yeah what's interesting like you're talking about with the revenue mix is that hypothetically if I were to try and start marketing and selling my company tomorrow I think if you were to have my company and completely stripped out the commercial side and let's say took out dropped which let's just say drops our eida by 25% or something like that I think we would be significantly more valuable in the eyes of private Equity companies than if you had my same company with 25% larger bottom line right now um but still having the commercial side so literally not only not only is your are your earnings from commercial not worth any anything to the private private Equity buyer they're they're worth less than nothing they actually the valuation of the business would be penalized for the presence of that of that business of that business line that's the impression I get I've had I just have these cursy conversations because when I get some Outreach I I have a half hour drive home every day so it's a good time to have these chats and just get an understanding of what's out there and everything now I'm sure there's plenty of buyers that in the end will be flexible or or willing to sort of Overlook it or or might have some value in it like I think about shop long enough there'd be somebody that would um you know e either be willing to take it on or or assign some type of value to it but no I I yeah I think generally speaking I it seems like it's actually not only is it not helping it might even be hurting a little bit and what our valuation would be to um some of these larger private Equity buyers so I understand some of the reasoning what is fascinating to me is like in the anecdote I just gave you one in a year where you know the weather doesn't cooperate and we just have to be honest like you can Market all you want but this is not a um I know it's not a discretionary spend but at the same time it's also not a conspicuous spend right like nobody if they have a little extra change in their pocket volunteers to swap out their furnace usually right you don't you don't get a bonus and then say hey guys I'm check out this new condenser in my backyard for my AC you know it's just not it's a it's a necessity it's important but um you really don't call us until something's broken or um you need something repaired or you need it replaced right so I I don't kid myself about that and their mechanical devices they we do best when people are in pain so usually when it's really cold or really hot everybody makes more money in the meantime you can throw as much marketing dollars at it as you want but if People's if it's super mild um you're just not going to have the the same Revenue drivers and in an off year it's really nice to have that commercial and the other side of it too is that in those same off years and especially in those you get a spring that's a little bit milder and last longer same thing with a fall we never we don't have to do any either seasonal layoffs or or pseudo layoffs where guys are getting 15 20 hours a week because we don't have the business because we can send them to a commercial job site we have that work going on in the background they can do value added work still collect their paycheck and um you know we don't have to worry about them Jumping Ship somewhere or or you know developing a a bad employer relationship because we for all intents and purposes laid them off for two months so um again I feel like that at least when I first got there was a differentiator with our company um in terms of being able to offer that and uh like I said it's it's it's a mix I'm happy to have even if you know it's not quite seen that way from the what some of the more deeper pocketed buyers would would say and do you feel that their reason for being so insistent on a very you know very specific Revenue mix namely no commercial all residential or as much residential as possible is because similar to Jordan duban that that you know small private Equity shop is going to bundle a bunch of Sharon size HVAC businesses and then sell them to larger private Equity shop and larger private Equity shop is going to is going to also in you know insist on on it being all residential but but I guess that just begs the question like who fundamentally is driving this uh purity of Revenue if as you've so articulately and convincingly told us that there's a lot of value to having a kind of a there's a perfect mix here that that includes commercial to be clear that includes you know a certain percentage of commercial why why do they not see it the way the world the way you do the market the way you do so you're asking a question that I've kind of been asking and I I don't know where I'm going to get the answer there's some higher power is is making this decision right but there's what you're setting up is like some type of Russian doll situation right where you keep in theory selling these platforms to someone bigger who wants a similar looking platform um I don't know who's at the top of that food chain or if ultimately someone's goal is to roll up a whole bunch of these and go public or something like that I I could speculate but I you know in their defense I will say this when residentials working well it works really well and it's it's fantastic you get you you get paid immediately there's no extension of the cash flow cycle like you sometimes get in commercial construction um the profits margins are significantly higher um yeah you you can acquire a whole bunch of customers and keep them a little bit stickier so all that that stuff works really well and and it is somewhat predictable in the sense of yeah the weather can maybe not cooperate but you know pretty much every summer and every winter at least for us up north that have a winter um there's there's going to be huge spikes in in demand and you can really take advantage of that um you know if you go through a I'm sure the commercial construction side of HVAC was not a pleasant place to be from say 209 to 2013 or something like that right sure so I I I can understand how if people have lot of exposure in that that would be a concern and the other side of it too is that you're it's a little bit riskier in the sense of you sign some big contract and your profit margin a little bit thinner and then if something goes sideways you might be the one that eats it so I I know they don't like the exposure from a risk standpoint and you know Frankly Speaking there's just a lot of commercial construction that's probably not run very well so if you're already at a somewhat thin margin and you're bidding really low just to quite to get more and more business and then things are mismanaged yeah you could you could really impact profitability we've been lucky that our our our projects have gone well they're run well we we have good managers there I mean I I didn't share this part earlier but part of the other reason I really like our commercial construction side is that for how much of our Revenue it is it takes up very little of my time and effort I I I do some general management there I visit our sites every so often but our team is doing most of it and I'm just handling some paperwork and weighing in on bids and numbers and everything in the background so it's it's not free but it it feels so much more low Touch compared to the efforts that have been put in on the residential side well you you use some words in that in that explanation too that that also crystallized for me kind of how PE might think about it which is that rather than thinking well what you know this is all HVAC and you know it's either HVAC on a building or it's HVAC on a house well true but they're probably thinking about it in terms of one is the Home Services category and one is the construction category and and when you think about it that way it's very different kind of industry Dynamics quality of Revenue and and nobody likes construction or at least private Equity doesn't like construction um for the most part so um maybe that's the answer and you know it's all Project based Revenue um and whereas is residential I don't know what you'd call it because it's it's it's not recurring Revenue um but it's maybe maybe somehow more systematic because you can figure out how many lead and you know if you know what the average temperature one summer is going to be you can kind of you can kind of proor how many leads you're going to get a day and then refine your funnel and know how many calls you're going to be you know outbound calls you're actually going to make and so on I don't know maybe it becomes more formulaic than a Project based business on the constru than a construction based business yeah I'd say the residential is more predictable is the the word I would use like you can count on seasonality and then if you're if you're doing a good job too you can get some recurring Revenue out of it and and and preventative maintenance contracts and and annual maintenance that goes into it you're just not going to have that you're right commercial constructions 100% project base um you know one thing that is nice for us as well that we leverage it is that we try to as many of our commercial constructions projects as possible turn it over to our maintenance department afterwards so if we just built a 75 unit apartment building well it's got 75 units that need to need annual maintenance or should receive annual maintenance and the first thing we do once we pass our final inspections and they open up the building as we reach out to the building owner and put down a contract and say you just spent hundreds of thousands or millions of dollars on this building um here's a relatively small cost you could pay for us to come out every spring and summer or Every Spring and fall and do the preventative maintenance on your equipment and keep it going and you know in theory who knows it better than us the people that put in the equipment and built the whole you know HVAC system for your your new uh building so we've been able to leverage that and get some of that out of it as well but um you know the other thing that comes to mind with all the the people with the platform companies is that I don't think you're going to find as many ways to get these um synergies I was waiting to use that word this podcast um you you won't find a way to get these synergies I think across having multiple different commercial construction companies because I think there's just going to be a limit in how you can you know kind of utilize the same background functions like I know you could in theory have Consolidated HR and finance functions and everything but with the services the residential side you've got you know uh software that can be leveraged across all of it you can um probably get better take advantage of larger spending power for the equipment that you have and parts and materials and everything you can um share data really easily for how you're pricing different types of work and um the reporting and everything so I I I I understand the argument um I just what I don't understand is seeing virtually zero or negative value in a side of the business that is generating profit so and and Pete as an Insider to this industry the the ultimate IND Insider owner now do you understand why a why PC H do you understand why PE likes HVAC so much do yes why did it become of all Industries Why did it become the one that is just attracting so much Capital so yeah I I think a couple things come to mind one is that uh it's it's non-negotiable for the most part like I even if even yeah essential if you're if you're hard up on cash or even unemployed and your furnace breaks in Michigan and it's the winner you basically your options are death or get a furnace you know like there's there's not really anywhere that you're going to go um besides getting it repaired now maybe you'll shop around a little bit with companies and everything but um and most people feel this way or even stronger about AC frankly people do not like to be hot um so in any event like it's it's an essential industry so I could see that I think there's maybe I'm speculating here but a little bit of a vacuum um for bringing people in that have structure and um and and resources to do something that historically maybe people don't have the best experience with and do it well um and what I mean there is that I think probably most people that have had to deal with contractors in some capacity a lot of people have negative stories right whether it's HVAC or Plumbing or Roofing they it feels like it's one of those deals like when you find a good one people almost want to like go brag about it they want to tell someone and refer people like yeah I I had a you know an electrician came by and he didn't fleece me and he was really honest and did a good job or like you almost have to have an Insider track so if there's an opportunity to kind of bring some professionalism to an industry that sometimes doesn't have the best reputation but it's still essential like we said and profitable then I could see how they're drawn to that and then I don't know I think theoretically if you have access to other industries that you could maybe do some of the cross selling on then maybe there's value there know hypothetically if you had this HVAC platform and then you're bringing on Plumbing and Electric and you have these Home Services well can you tie in the garage door so that you're more of a One-Stop shop or at least have the the list of customers and leads that you can tie that into or the roofing or the window installation or the lawn care any of these things where you could say all right the same 10,000 people on this customer list that are going to be good candidates for AAC I can probably think of you know a dozen under Industries just regarding their home alone that might be you know that might be a good opportunity Pete let's start uh start wrapping up here what I want to oh oh actually one more operational question for you I I said I would Circle back to this the fact that you this your years as a database consultant uh writing SQL queries um one uh guest who's been on a few times nick haska uh does a good job in his businesses of using Google I think it's called app sheet which is basically like Google's the G sues no code tool and so he's built a lot of the workflows with some kind of no code or light code um that now kind of run his businesses have you applied any of your kind of programming skills into this business operationally or no those skills are not being there's no real use for them for the most part no I would say more of the skills tied to that it's just been General it knowledge like I'm the deao IT department at our skill or excuse me at our company um and that's just from me having that background and probably spent more time and I haven't really done much with the coding but I do a fair amount with like reporting and and and analyzing that data so I'd say more of having a you know several years being a spreadsheet jockey in general um have been helpful that's it's probably that way with a lot of small businesses the coding thing hasn't come up you know the software that we use for our company and a lot of companies use in our industry uh called service Titan that's sort of our um customer relationship management slash enterprise resource planning payment processor and integrates with our accounting software and everything um it it has a lot of custom reports built in or reports built in and then reports that you can customize and everything so hasn't come up on the coding side um unfortunately yet I I don't know if there's going to be a future where I'm adding value via SQL coding uh in HVAC but I I'll let you know if that day comes okay you bought a big business and you leveraged I mean you basically to you leveraged it as much as you could I find it an interesting conversation around I find the amount of debt used to be an interesting conversation especially now that I'm I'm via mind's Capital more and more exposed to Independent sponsor deals and more kind of private Equity style deals where there's a lot less leverage in general a lot more equity brought to the table for a deal um but self-funded Searchers SBA Searchers often um kind of do Max leverage and you did Max leverage and on aze an on a sizable deal is it fine answer the psychological question how that feels but also the free cash flow question the more debt the more Debt Service the less cash you have to reinvest in the business and so while it might let you it might a lot of Leverage might give you a lower entry point into a business because you have to bring less to the table so that's why we like it um maybe it doesn't let you grow as fast because you can't reinvest into the business nearly as much because you're prioriti because that money is going to Debt Service I all if I certainly if I had a choice I would not have liked to have used that much leverage that was more of a means to an end uh in this being my first deal not having very much cash on hand myself and then not having the not having this this stable of people that were going to be comfortable that where I felt like oh yeah I can just raise you know1 to2 million doar relatively quickly and get this done um there there were plenty especially in the first year or two there were plenty of days where I fantasized about what it must be like to have an all Equity deal or significant Equity because ah you know for all for all the reasons you talked about right just the free cash flow thing it's it it's a luxury to have that and um you know even if that meant putting up more money at up front I'm sure there are countless examples of people doing 100% Equity Equity deals and getting very healthy Returns on them and and you know I could see an argument where maybe you even get better returns because now you do have the the restrictor plate is off you don't have this um cash flow suck that is going to be the the interest payments and what have you that you know allows you to start making maybe wiser Investments or more aggressive moves or something like that so I know I felt like early on definitely for like the first year to year and a half I was hyper focused on cash flow it's it's stabilized a lot more since then and I think once you get to a certain point and you've kind of got your War chest built up it's not obviously I'm paying attention to my cash flow now but it's not something that keeps me up at night or anything um but I I will say uh the two things that I felt comfortable with going into was that one I assume that live o or any bank was not going to be willing to give me this loan if they didn't feel like there was a pretty healthy um coverage ratio there right so if they were comfortable with it and they were the ones handing off the loan um I felt like there would clearly was some vetting here so there there must be a margin of safety and I'm not just making this up in my head right if uh because there were other deals that I posed to my lender and other lenders and different companies and different Industries and they they didn't like it you know because they they just felt like it was it was too slam where they had concerns about it so they were pretty much on board with this I didn't get a lot of push back really at all from lenders so I felt like all right it's going to be okay um but yeah I you know I'm very interested and eager to pay down the debt as quickly as possible not just to you know realize the cash flow for me personally but yeah just to alleviate the business and find other ways to invest although I will say this in our industry it's not apparent to me even if I had no debt obligation right now where I'd be dumping all this money um for reinvestment because there's not that was one of the things I liked about it is that it's not a very Capital intensive business so you know we a big purchase for for me is going to be to buy like a new work van for a technician right even that if you use a very mild form of financing with a dealership or something like that or even if you paid upfront all cash it's a $440,000 vehicle or something like that I mean it's not nothing but at the same time in the grand scheme of the size of the business it you know that vehicle you throw a technician and it it's going to pay for itself in a I don't know a couple months you know so it it's we don't have to there's not anything for me where I go like oh I need to buy a million-- dollar piece of machinery or something like that or or need to make some huge R&D investment or something so that that is one nice thing I don't feel like there's a huge opportunity cost specific to my industry well now that you brought up the van example Pete I have to ask you why aren't you buying 10 vans if they pay for themselves in two months uh if it was just a van I would uh you got to put the people in them right so it's it's the difficulty in finding really good technicians and retaining them and also there is that concern right like I I don't want to overhire and then we don't have the demand to go along with it and then I've got guys that are going to either not be getting you know a healthy paycheck for a period of time or ever you know I don't want to develop a reputation as we're a company that hires people because I know there's other companies that do this we hire people in advance and busy months and then several months later say sorry we got nothing for you or yeah you know um I I can't keep you employed I mean I I do feel that obligation and part of it is because I you know do care about the people that are there and I want to see them work well but there's also just as much my own selfish motivations that I I want to make sure that as we are seen as an attractive employer employer in an industry that is H up on labor and these are the revenue generating employees I I want to make sure that we're doing just as good of a job for them so that people want to come work for us and we are getting referrals and things like that the you said uh it The Debt Service doesn't keep you up at night now um and and you and You' said to me in the preall that the personal guarantee a fixation of so many self-funded Searchers also is not something that you really think about I also heard you say earlier in the conversation that 2022 um could have been a really hard year this is where the that your commercial Revenue kind of saved you um but bringing all those together have you had any you haven't had any real scares despite being highly leveraged on a on a big business that is subject to cyclicality and seasonality no I haven't I think the closest I've come is in the first six months or something like that when we're just getting spun up and you have to make a couple payrolls here and there and they give the bank gives you a certain amount of working capital along with your business loan um I also had a line of credit as well and I had to pull briefly from the line of credit knowing that you know there were some larger checks coming in and projects finishing up and stuff and then that was quickly repaid and then I think you know maybe a year in something similar where again with these commercial construction projects they're another thing the private Equity buyers probably don't like about the industry is you have something called retainage um which typically it can vary from state to state but in Michigan it's typically 10% so that means you know at the end of the project you're going to get 10% of that project Revenue back in one lump sum once the project completes right so depending on your profit margins that might be like all of your profit or a significant part of it so you know you could have a 12-month project and you really don't yield all the profit till like month 13 or 14 something like that and it's a great windfall when it happens but that means for a little while you're floating it and um you know so again I'd say like in the first year year and a half there was a couple times that I had to pull on the the line of credit just being safe and not wanting to make sure I know missed a payroll something like that but it's been a yeah you know close to a year and a half I think since I've really had to to look at that so I've been fortunate just with the way it's worked out um and and how business has gone since I've been there um so I haven't had any major scaries yet but you know there's been a couple moments where I was like all right this is this is not going to be a fun month I'm going to have to you know take out this line of credit and I want to make sure I stay on top of things and and make sure that certain checks don't come in late or anything like that but um yeah to date it's not been it's not been bad I there's all the I think when I'm going through it I'm sure well actually I shouldn't say I'm sure I'm wondering if some other people uh who acquired these businesses are doing the same mental gymnastics that I am I kind of make up these little hurdles in my head that I'm going to get by and I'm like all right that's an indicator that things are going well probably like a lot of people was like all right can I get through the first hundred days you know and make sure that there's no Mass exod Exodus of employees or customers or something and then then in my mind I'm like all right well can I make it to the one year mark because that shows that I've made it through a full 365 and season and everything and I spoke at I was a panelist at the ETA conference that U of's business school had a couple years ago and the uh lady who helped me out from Live Oak uh Lisa forest was there speaking on this panel with me and she said that typically speaking and and the deals that she does and the 7A deals with self-funded surger she said that you know once companies get to like the two-year Mark postacquisition it's like well over 90% end up you know paying out their Loan in entirety don't default never have any issue or something like that so then in my mind now adding another one I was like all right if I can make it to the two-year Mark then you know I'm in the clear it's obviously not true and I still I'm not declaring Victory by any means yet but at least in my mind I'm going like all right that's another kind of mini hurdle that I've I've made up that I've cleared you know I'm at the two-year Mark I feel like it's gonna I've got a chance here well all that said Pete you did buy a 11 to 12 million business as I keep saying uh and very leveraged and firsttimer self-funded search and you haven't had fetal position moments you haven't had you you haven't had working working capital freakouts I mean you had a little bit you know but not nothing terrible you're you you're at the risk of making the audience think you've had you know that you're basically crushing it and and that this has gone the way it's supposed to and oh and by the way you've increased your your ebit $600,000 a year um so disabuse us that this is super easy for you yeah it's it's exceedingly difficult and I have had fetal position moments and there's been plenty of times where I've said I probably made a huge mistake or I regret this or this is not what it's correct up to be or whatever right um and you know to be fair I I think if you're throwing around the term like I'm going to be the CEO of a business that sounds nice in that title I think if you say I'm gonna be the owner of the largest HVAC company in the 13th most populous city and the 10th most populous state in the country um it's a little bit less sexy but the point is is that like there's it's it's exactly the lifestyle you might think it is when I put it that way um it's it's had a lot of upside like I'm I'm really happy and I feel very fortunate with how it's gone so far but there are plenty of moments that are difficult and almost you know every single week and many days like there's plenty of frustration and annoyance right I I don't think I've had quite the moments yet where it's been like I I'm bugging out because I don't think that's going to work or I I'm afraid this is thing isn't going to make it but I'd say it's been a lot more of like frustration and anger and woe is me like how I can't believe this isn't going better or I feel like I'm doing everything right and I'm running into these hurdles or or these challenges but I would imagine that's probably just every single business that anyone's tried to acquire and operate that that people are going through something similar um like I said I haven't had one of those um Soul crushing things happen to me yet but for me it's been more like death by a Thousand Cuts where I just at the end of a week I might be exhausted because I've dealt with you know so many personnel issues and I've had a few customers chirp at me and then something went wrong with a supplier and then a you know a a cash flow thing happened here and I'm waiting on a receivable that didn't come in and um yeah it's it it definitely has not been easy I think it's I'm glad you pointed this out because you're right I don't want to make it seem like it's been a cakewalk the whole time it's been quite the opposite and um it's probably worth mentioning too because it's not uh for those thinking about doing it it doesn't you know there there's plenty of challenge that goes along with it and it's um it's not a get-rich quick scheme by any means it it takes some time and um uh you know a fair amount of stress that goes along with it well last question for you Pete and speaking of getting rich so you're 1.6 or seven in ia uh you know you you can squint your eyes and see $2 million in IA which we always hear as as a very favorable threshold then you become interesting to a whole universe of private Equity companies um what do you have a plan here to exit the business uh are you going to hold it forever or keeping your options open I would say keeping my options open um it's tough not to think about the exit part when you get as much Outreach as you do right now and that's that's going to be most people in the HVAC industry it's probably not for all the reason we talked about before with our Revenue mix and everything I I think until I probably got to like maybe an 8020 mix or something at least between residential and Commercial it's not going to be as lucrative as um some might think just given what the buyers are looking for but I do know that even if it was at our current ratio let's just say 65 35 and we got big enough and that residential piece was big enough that there will be people that will probably be interested then just just to have that even if they wanted nothing to do with the commercial um but I don't have any I don't have a concrete timeline laid out or anything yet to exit it's probably something that is still you know at least a couple years down the road before exploring but it it it is interesting because I feel like I have to explore it to a degree because I also don't want to be the guy that missed the boat so to speak with yeah all the the action that's happening here and I not that it would be the end of the world but it would be pretty frustrating to say all right I'm not going to sell my business hold on for another five to 10 years and then find out based on the interest and valuations multiples that are happening say seven eight years from now that I'm effectively getting the same price for a business that's 40% larger or something that I would have gotten 5 years before that just because it's cooled off a little bit so I do think about that and you can't help but explore it a little bit but I don't have a a concrete timeline in place um but yeah I I try to have those calls just for that reason Pete anything you want to share that I didn't ask we covered a lot of ground here um no I I again I think maybe I would just reemphasize the last point there not the last point but what we spoke on earlier is just that it um you know these moments where I get to sit down and have a conversation like someone yourself and you just give this kind of lengthy overview um it does sound fairly simple and easy um I'm constantly making mistakes it's incredibly stressful it can be um you know difficult on not just yourself but the employees at the company the the people that interact with the business obviously on your family your spouse it's it's a lot of disruption things feel pretty steady now it'll be three years for me in in April so um you know so I feel like I'm at a pretty steady point now but um I think it's you know for those that are interested in it it can be a really fantastic root don't get me wrong I just um you have to be realistic about the part that um there's a lot of uh uh stress that goes into it and I I I I think it's just as important to emphasize that as it is the opportunity that that's there great well thank you you for for highlighting that well Pete if other would be haac buyers or or maybe uh people local to you or in somewhere in Michigan uh want to reach out um how can they do that or and and who who's a good candidate to reach out to you I don't have a strong criteria there I'm pretty much happy to have a conversation with anyone um you know I'd say broadly if they're interested in entrepreneurship through acquisition I'm I'm open to having phone calls I I think I said it before I have a commute home every day I got some windshield time to kill it's about a half hour it's usually a good amount of time to kind of give some whatever advice I can offer and Lessons Learned and mistakes I've made and everything so um happy to chat with pretty much anyone um whether it's HVAC or just buying a business in general I I think you can find me really easily on LinkedIn and I'll I'll give you my profile link will and if anyone just wants to reach out to me there and send a message I'm happy to respond and uh set up some time well Pete thanks for giving me so much of exactly that just now uh congratulations despite the fact that it's hard uh congratulations on buying such a big business uh transitioning Su getting Beyond you know day 100 day 365 year two and so on and and you know Shifting the revenue mix the way you wanted to and now being at six and 17 Eva it's it's really quite an accomplishment uh so thanks Pete cavilla thank you so much well I really enjoyed it appreciate it I hope you enjoyed enjoy 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