Johannes Hack, welcome to Acquiring Minds. Thank you very much. Excited to be here. Johannes, we got a lot of ground to cover today. In addition to having bought a business, DFW Turf Solutions, that has grown dramatically in the two years since you acquired it, you also think deeply and write about our world of buying small businesses. So, in addition to your story, there will be lots of themes for us to dive into today. Start us off, Johannes, with some background on you, please. Yeah, happy to So, I have a pretty traditional background, but in a somewhat uncommon path. So, grew up in Germany, made my way to the US via track scholarship. I was on the track team for the University of Texas. Made my way into finance. Started my career in banking and eventually got into private equity. So, that's where you know, the background becomes more common to a lot of searchers. The one nuance that's probably interesting for this discussion is that the niche that I was focused on was non-control deals. So, that would cover anything from distressed debt all the way to buying, you know, 49% of a business. And so, we worked a a lot with, you know, family-founder owned businesses. Kind of be the first institutional capital that they saw. So, a lot of times it would be a transaction where, you know, someone had built up a company. They started to look at buying competitors and and needed some capital for that or maybe they wanted to buy out a competitor or maybe they just got to a size where they needed some more institutional help to eventually become, you know, a corporation to sell really large. And so, the interesting experience that I got was I would find myself regularly sitting across the table from folks that had, you know, started a plumbing company five or 10 years ago or that started a junk removal business in college and now we're eight years later and after you send, you know, the second or third tens of millions dollar wire across the table, you start to wonder if you're sitting on the wrong side of the table. And so, you know, this was kind of a year and a half in or so of of my associate stint. For those that are familiar with, you know, kind of the private equity world, about two years after you start, you typically either go to business school or you kind of settle in for the long haul depending on what fund you're at. And so, you know, across the associate class, I had a lot of conversations about, you know, what we were going to do. And I kind of thought about what if instead of going the MBA route, I just take those two years, try and see if I can buy one of those businesses that I, you know, want to go all in on, work really hard for three to five years and and hopefully hit it big enough to where I don't have to work for someone else ever again. So, that was kind of where the the thought of, you know, what I would later learn is search was planted. And um luckily had a fellow associate at at that fund that thought very similarly. And so, after, you know, doing a lot of research on, you know, the search space, how likely we were to find a company to buy, you know, who tended to be successful in search and whatnot, we decided to do a self-funded search. And so, then, you know, when the when our two years were up at our associate stint, we quit our jobs and started a self-funded search. So, that was summer of 2021 and then in, you know, kind of took two months off. Started really Labor Day 2021 and then October, I think 18th, we signed the LOI for for the business that we're currently running. Wow, six whole weeks into searching. We're going to get to that here, Johannes, but you know, it's funny to hear that pattern of a private equity associate or somebody in their private equity career, young in the earlier in their career, and seeing the family-owned businesses, the founders who come in and have built these often blue-collar businesses and wondering if you're on the wrong side of the table. That is something now that I've probably heard three or four other guests say. And it starts to feel like everybody in private equity kind of has this has this epiphany and and then goes off to buy a business. Of course, there's there's a lot of bias here because I'm just getting the people who actually did that. And it sounds like it was it wasn't everybody in your firm who was running off to buy a business. What do you think separates you guys and the opportunity you saw from other people who decided to go back and get their MBA or stay the course in private equity or whatever? Just a little bit more entrepreneurial or what? I don't I don't actually think so. I think oddly enough, I think most people that know me would describe me as fairly risk-averse. So, this is by far the the riskiest thing we've we've ever done. I think it it really depends on, you know, kind of what's the why and what you want to do long-term. And that's that's one of the things that I talk to other searchers about that are kind of early on it or or thinking about searching. So, for me it's always been this this idea of there's there's a lot of things, you know, I come from a track and field background. There's, you know, nobody pays for track and field. It's always, you know, you have to find sponsors, you have to raise money, whatever you want to do. And so, I've always kind of had this this thought of like I have a number in mind that I want to hit and then there's a lot of things I want to do that that won't make money. So, I need to kind of get to my nest egg first and then I can, you know, kind of spend more time on on things that I'm passionate about in that way. And so, I think for a lot of people that have or take more enjoyment in just the the the prestige and you know, kind of more in-depth intellectual work of of private equity and just, you know, frankly, your you know, the stability, it is a very attractive pathway in the long run. And but I think for for people that have, you know, maybe want to get to the other side quicker. I mean, it was really for us, it was the swing for the fences, right? I I kind of said it's now or never. Especially, you know, we'll we'll probably talk about the experience of writing a personal guarantee and and, you know, the possibility of bankruptcy. And and it was one of those things where I was like the the further up you go the chain, the the bigger the golden handcuffs become. And so, you know, I didn't want the the two years of travel and vacation that that most MBAs are for for people that are in finance and want to go back into finance. And so, I just thought it's it's the right time to, you know, hopefully shortcut 15 years of working and and get to the same outcome in obviously in a in a positive outcome. So, you think that the the potential here is equivalent to somebody who a private equity person who is successful in their career and does it for 15 years? Because my impression of somebody who's in private equity for 15 long, grueling years, that they'll be they'll be earning a lot of money at the end of those 15 years. So, you think the opportunity in search is the financial potential is similar there between 15 years in private equity and five or five years in a search business. I know we're generalizing extremely widely, but indulge me. It's more so that the the the right tail is is fatter in search, right? Like you can truly hit it big. The odds that as a, you know, 27, 30, like 32-year-old guy working in private equity, wherever you're at on the ladder, like there is pretty much no way you're going to get like a five, 10, 20 million dollar payday. Right? Now, I'm not saying that's a a typical outcome in search, but it's at least one that's possible, right? And so, I I think nowadays, obviously, private equity has become pretty saturated. So, the typical timeline is you're going to do 10 years at your fund that you're kind of working up the ladder and, you know, you're you're making good money by all traditional standards, obviously, but you're not making retire at 35 money. And so, then you establish yourself for 10 years. Then you have to do your own deals for 10 years, at which point you're probably, you know, you're you're making two million a year, whatever you're making with carry and everything. And then after those 10 years, now you get to run your own fund and now you make, you know, kind of the stupid money that people know about private equity. So, if you're starting at, you know, 25 into the into private equity, we're talking about 45 until you get into your, you know, peak earning years, right? Yeah. And so, my thinking is like of course over the you know, over a lifetime, you'll probably make more money in in private equity, but what I'm saying is in I don't need to I don't need to make 50 million bucks, right? Like what I'm saying is like I can get to the number I want to get to faster in search if it works out. Again, if it works out, than going through the regular private equity ladder. Well, you have now referred to your quote number twice. Can you tell us what it is? It it it moves a lot kind of between between 10 and 20, but that's that's kind of the ballpark. All right, we're going to we're going to use 15 as Johannes's number here. Fair enough. I appreciate I appreciate you sharing that with us. That's great. So, as if it's not already clear, you are not a kind of permanent equity, permanent capital, hold forever, build a hold co searcher, acquisition entrepreneur. You are somebody who's trying to buy, grow, and exit a business. So, it's it's really I I just emphasize that because every searcher should know very clearly what what they want because it will dictate a lot of how you how you search, what kind of search you do, what, you know, so many decisions follow from that. So, now that we have that clear, let's continue with your story. Yeah, happy to. So, yeah, I think the, you know, the search process we ran obviously did a lot of legwork early on, talked to you know, 20-30 searchers before we even started our search. Um the way that we approached it was the second the clock starts ticking, which for us was you know, Labor Day '21, I want to start talking to brokers day one. I want to start looking at deals day one. And so, uh we did all the kind of legwork, the setting up a website, setting up a CRM, like uh you know, pulling lists of brokers, pulling lists of companies. All that was still kind of in you know, kind of mid-2021. Um and I think the um the biggest thing that we did differently was uh what was probably two or three things. One was um the first conversation that I had with um one of my former professors who's very involved in the small business world was I came in with the probably standard criteria that everyone has, right? Recurring revenue, around for a long time, profitable, no concentration, you know, all that kind of stuff. Yeah. And uh uh that was my first conversation. He was like, "Yeah, good luck finding that unicorn. You're you're not going to find that." And so, uh that we know, we got that slap in the face before we looked at the you know, the first uh listing or anything, which I think was very helpful because that's you know, something I see a lot in people. Looking for their perfect deal, um and then a year in they start to widen the criteria. And that's draining when you know, you just kind of lose out, lose out of your luck, and you know, nothing that you see matches, and it's just a really frustrating process. So, that was the first realization. Um and then the second realization uh was in talking to the people that you know, had bought or or hadn't bought, which frankly, you know, people that haven't bought are kind of a little harder to find. Um but at least the difference between people that had bought quickly and people that um you know, were searching for a long time, the the biggest difference was just that there was a certain attitude at people that you know, bought quickly to just get in the saddle, like not everything is going to be perfect. At the end of the day, you have to just pick your horse and get on it and and figure it out. And so, um those two with those two things in mind, we had um a relatively broad um spectrum of companies we looked at. Um so, our target was Texas. Uh we probably had five, six industries, you know, uh home services was a big one. Um but healthcare, consumer products, light manufacturing. And um we really looked at just moving quickly. So, in that time period of the you know, kind of 6 to 12 weeks that we really searched because we continued you know, searching after we we signed the first LOI, we probably wrote you know, 40-50 IOIs, we probably wrote 15 LOIs, and we actually signed three LOIs. So, our numbers probably don't look much different than any other search. Um it just was compressed in a in a much shorter time frame. Johannes, the slap in the face that you got from the professor, good luck finding a unicorn that that checks all the boxes. So, what were some of the criteria that you were that you relaxed, that you were willing to relax? Or or was it not like that? It was just like you were just lowered your standards a little bit, and you looked at more listings than you otherwise would have. Or were there particular um criteria that you relaxed? This is a leading question because you've written an article entitled something to the effect of recurring revenue is overrated. Yep. No, that was that was exactly the the the first one to go. Um I I I think there were some that were uh less flexible. I think we were more focused on location, um somewhat more focused on uh on industry. Um but yeah, recurring revenue was the first one to go. Um and I think what's um what's interesting there is you know, if if you think about the universe of companies, uh a the the universe of truly recurring revenue businesses is is fairly small, and especially in in smaller businesses, there is almost always some level of on the positive side reoccurring, but just a lot of project-based, right? Yeah. Um and so, we were trying to figure out and then that this is you know, kind of coming from the the private equity background of where can we find value that other people can't by just doing better diligence, by you know, learning more about a certain industry. Um and and obviously you know, the company that we ended up buying is a is a very interesting um uh example of that uh in terms of finding an industry that has such tailwinds in a company that's so well positioned within that industry that even though uh you know, everyone say it's a it's a project-based revenue business, I feel a lot safer about the the certainty of revenue there than even in a you know, reoccurring or recurring revenue business. Well, one of the things uh um I'm I'm jumping ahead a little bit, but you just touched on it, so let's dive in. One of the things that you said in our pre-call uh uh that you think is isn't doesn't get enough attention from searchers and kind of the criteria is buying a business in an industry with strong tailwinds. Now, that might sound to listeners like, "Well, no, that is that's well-known. That's obvious. Of course, you want a growth industry." But really, it's low on the list, and a lot of people buy businesses in in rather sleep sleepy industries. Um and it and it's a you know, it's a it's a balance. It's it's threading the needle a little bit because we also I'm I don't think you're going to advocate buying, you know, this isn't this isn't tech where you're buying into some explosively growthy industry. Um but strong tailwinds have been a big part of your story. So, uh and I I feel like maybe you didn't realize at the time, but in retrospect, you'd say that criteria should be much higher on people's list. Uh while for example, recurring revenue should maybe be lower. Is that a fair uh encapsulation of how you feel in 2023? Yeah, completely agree. I think um you know, where where this all starts with to begin, right, is is looking in in Texas and specifically focused on Austin and Dallas, where you have such a demographic tailwind from people moving here. And I I think it can't be understated how true it is that a rising tide lifts all boats uh when it comes to small businesses. Now, that still means you can mess things up, obviously. That's not the question, but um you know, we've seen in in my early career um what one of the absolute death knells of companies that were in financial distress was if the the you know, restructuring office said, "Oh, we just need a little more revenue." We need a little more revenue means that there's no way that's that's going to get saved because most of the time, what that means is that uh the market is the overall industry is declining, everyone's fighting tooth and nails to to stay alive, and it's just it's almost impossible to to get out of that situation. Whereas on the flip side, if you have a market that's growing uh you know, 10-20%, and and we'll go into you know, turf here in a second and and um how we kind of put together what what we think that should end up. Uh you have room for error. Um and yeah, maybe your uh conversion rates go down a little bit here or there and whatnot, but if you just have an industry that's growing you know, 20% plus, uh there's just room for error because your competitor can also grow 20%, and you can grow 20%, and nobody has taken any share, right? And so, uh instead of um battling it out for um every single customer, you're in a scenario where you can't even serve all the customers, which is a fundamentally better problem to have than the overall pie of customers shrinking or just kind of being flat. Um and so, you know, I think for us when when we first started looking at this business, um it was we knew the Texas market, you know, especially we're we're located in North Dallas. Um you know, I've seen single-family homes go up left and right to where I know, you know, our install base overall is growing 10-something plus percent a year. Um obviously, the the big big driver here is is adoption of turf. It's a relatively new product. Um when you look at you know, the the West Coast where uh the the kind of residential artificial turf trend started, um you're at way, way higher penetration rates. You know, we're we're talking 20x, 30x the amount of homes have turf there than they do here in in very similar climates. And so, you you put those two together, and then the third part of of the trend that we saw is just uh you know, millennials are finally buying home, and we like to spend our Saturdays at a brewery instead of mowing our our you know, our lawn. And so, you you combine the three together, and you have real, real tailwinds and real, real reasons for the overall industry to grow dramatically. And obviously, you know, it had been you know, the the financials were uh the the a true hockey stick. Um and so, we had real reason to believe that was going to continue. And you know, again, with with an industry that's growing that quickly, you just get um room for error um because there is there's for every customer you lose, there's three more that uh you can do better on the next time. Yeah. Well, we're going to uh revisit this, but I before we get too far away from the kind of your philosophical approach to your search, let me ask a couple follow-up questions there. You said uh a few minutes ago that you really just appreciated the speed to get in the seat. Uh and you really listened closely to the searchers you talked to that bought quickly. Elaborate on why that was so important to you because what you so often hear is that a search can take a year or two, and oh by the way, there's nothing wrong with that. You seem to you seemed to feel that no, there is something wrong with that. I don't want to spend that time that amount of time just searching. Yeah, I mean, I think it's a little bit about knowing yourself, right? There I think there's certain uh characters that um are fine with kind of sitting in in that discomfort and and are very optimistic people and they're a year and a half in and they have the optimism and you know, you know, say, "Oh, I think the best one's come going to come around in month, you know, 21." Um I know that for me that wasn't the case. Um I know for me is like for every, you know, every month that ticked by and every month that your bank bank account starts taking lower, um I would get that that that would have like a psychological toll on me and that would bother me. And so I thought that my uh best decision-making and our best decision-making was going to be in the first 6 months for sure when you, you know, still have all the optimism and you're still early on and you know, you can be more it's easier to be more critical. So I thought that having a high volume of deal flow and a high volume of deals that you look at early on is is very crucial. I kind of compare it to a little bit to, you know, if you if you have a night out in the on the bar, it's it's very similar where, you know, you probably make your best decisions in the first hour of the night not in the in the last hour of the night. Um and so I I I think that's one side and then I think the other part, too, is um it is really hard on on these very small businesses with very limited data to like be a better investor in terms of the business you you buy. There's just so many external factors that even if you're 100% on your underwrite in with the data that you have, um most likely if you if we looked at 100 small businesses that searchers bought, um the outcome would probably not be or the what determines the outcome is probably not something that people looked at during underwriting. It's that, you know, all of a sudden there's a new law in your in your town and you just didn't know about and that's why the business went bankrupt. I mean, you've you've had uh big wins and big failures, uh you know, on on uh or not failures, but you know, where where things went wrong. And I think most of the time it's not something that people had on the radar and as much as I'm like, "Hey, you know, when I when we buy the business, I want to be able to give you the postmortem of what went wrong if it does go wrong." The reality is just in small businesses you're not going to have all the information. And so I thought the the importance of getting in the seat early and not getting to the point where you've had a failed dealer or two, now you really want to, you know, you don't want to be the guy who didn't buy, so now you're at months 22 and now you all of a sudden, you know, instead of just compromising on one criteria, you're compromising on three. And then you that's how you get to really hot water. So I just think psychologically search is is draining, especially, you know, you see people around you buying and what not. And and a lot of it has to do with, you know, luck and timing and what not. Um but that that's the part of why I think getting a high volume of deal flow early, getting a lot of looks, submitting a lot of IOIs, and and just you know, being ready to go. That's the other thing, just like willingness to pull the trigger helps a lot psychologically and and I think ends up in a in a better decision because you you know, you still have time and you're not too worried about, "Oh, I'm not going to buy something." Well, it's interesting hearing hearing your approach here, Johannes, because uh I guess at its core this was a risk mitigation strategy. You didn't want to find yourself in month 22 making bad decisions, so you were trying to eliminate that risk. At the same time, it feels like somebody who's has a much higher appetite for risk than he's he's giving himself credit for cuz cuz you're just you just really want to clearly wanted to go go go and that doesn't sound like somebody who is risk-averse as you as you kind of self-described. Um the one of the other things on this on on kind of how you thought about small business acquisition uh that you mentioned to me in our pre-call was about the price that you pay and the multiples. You said a couple things that that um entry multiples don't matter as much as everybody thinks. There's a pretty tight band. So and then there's another point you made that I'll ask second. So please uh the the multiples um range and and how you think about that. Elaborate on that for the audience, please. Yeah, well, happy to. I think uh uh I started my career in in valuations and uh I've done the uh the game of, you know, building models with 100 and something tabs and and thinking that as long as you have enough inputs and and enough dials to push up and down, eventually you'll get the exact right answer and uh obviously that's that's not really the case. And so when we approached this, my my thinking was, "Okay, what what's really like the realistic range that you can bid here?" And the the range that we came up with and, you know, obviously that kind of moves a little bit with uh where where rates are, but effectively I was like, "On the low end, if you give someone three times um a lot of sellers are just I'll just like run it for another 3 years and I can make the same amount of money." And so I thought bidding significantly below three times um just isn't probably particularly interesting to sellers. Like you know, not going to happen. So so don't expect that you're going to get a deal for Exactly, exactly. And then and then on the high end, um you know, you have to get if you're doing self-funded, you have to get it through uh an SBA loan. Um so you have to get it through an appraisal. Uh the people that do the appraisals, they pull the the regular market comps. Like you're probably not going to get uh away with paying over five times. They're just not going to praise it and you're going to have to put more equity in and that, you know, uh ruins kind of the the uh uh investor um returns. And then realistically if you look at, you know, what the debt service uh covenants are that most banks have and everything, you're you're really looking at at about four and a half times, right? And so Mhm. I I was thinking this this was going in. I was like, "Well, uh realistically you can pay between three and four and a half times." Um and so we just came up with, "Okay, if it's a deal that's just barely good enough to where I would do it uh and I can see myself running it for several years, but there's not, you know, maybe the industry isn't growing particularly quickly, the company needs a lot of internal work, there's no general manager, so you're going to spend all the time running the business. But it's an overall sizable decent business. So like we for example, we had like a a 1 million EBITDA landscaping company in Dallas that we looked at, but it was, you know, very antiquated, very um you know, no reason to believe that that was going to grow quickly. That's a three times bid. And then on the flip side, I was thinking, "Okay, if I have something that I really really like, you know, um you know, maybe already has a general manager or or some level of management in place where we can spend most of our time on growing the business, better industry, um you know, uh all the other criteria a better match, um maybe a little bit larger, then you're kind of pushing towards the the four and a half." And so when we were going through companies and and evaluate of them evaluating them, it was literally like get the get the materials, talk to the broker 30 minutes the same day they would get an an IOI from me. And it was literally just kind of like barely doing it three, kind of okay three and a half, I like it, four, I really want to do this four and a half, right? And then boom. Like we were usually some of the first to get them an IOI. It was like on a, you know, on a normal temp- template. It looked legit. We had a call with them. And so that's how we were able to move um really quickly. So IOIs are less used and less well understood compared to LOIs, which are every deal has an LOI. Not all deals have IOIs. Explain what an indication of interest is and you know, what where it falls in the sequence and what happens if you if you send an IOI, what you know, paint a picture here. So an indication of interest in in the, you know, the small business buying process is effectively just where you tell the seller your the number that you would that you would bid for. And then there's a a bunch more text on the page, but in reality it's just like, "Hey, I'm willing to pay 4 million. Is this even something we should talk about?" That's really what it is. And usually what we would do is have a little bit of a range. So maybe the range would be from like 3.75 to four times EBITDA. Uh and so, you know, maybe it's saying, "Hey, we'll do 3.75 million to 4 million in that range." And you know, you put the EBITDA there with it. And so very quickly you either get to the point where the broker or the seller says, "Okay, this make you know, this is in the realm. Let's talk about it." And at that point you go into more details around um you know, how the deal is going to be funded, uh things like working capital and and other parts of the deal structure. Um but it's a good way of very quickly saying, "Is this worth pursuing or not?" Because we're even talking about the same kind of price level. So really the the technique here is that you are bolstering your own um the perception that the seller has of you as a real buyer. Because it's not it's as I said, it's not actually that common to use IOIs. So so typically, you know, this kind of in the way the the buyer indicates interest is just kind of asking for more information and and there's back and forth with the broker and maybe a call with the seller, but there's no formal like indication of interest. I'm I'm now being circular here. So so an IOI, an identification of interest is like you are raising your hand and kind of formally saying, "Here, we we think we like this business. Here's what we think we'd pay." And that just kind of makes you seem more serious. Really? Is that's kind of like Yeah, that's what benefit does it serve to you to do this? It makes I'm gathering that it makes you seem more serious to the seller. Yeah, so so I think as a searcher, anything you can do to look more professional and more serious is is obviously a benefit. And um you know, we can we can talk through that part. What it helps us most of all is uh a lot of times you don't know what the, you know, what the expectations are of the seller. You know, sometimes sometimes they list a price, sometimes they want more, sometimes they want less. You also don't really know necessarily where the deal is and in what process it's in. And so once you've made a formal offer like that, you can then follow up the next day and say, you know, what do they think about the offer, where are they at, and then you'll relatively quickly get answers from brokers around in the in the ballpark, too low, oh, we have three other offers, you know, you you start moving to the next stage of like seriously talking about putting together a deal. Um versus if you, you know, you don't want to have three calls with the broker and ask for more information and ask for more information because all that broker is going to read from that is uh they're difficult to deal with, this might be a cumbersome process, they don't seem very committed, right? Because like you'll see sometimes when, you know, competitors buy each other in small businesses, that deal is drawn up on a napkin. The the broker says, "Hey, I have a deal, come out with me." It's like, "Give me Give me the revenue number and like we'll go." Right? And so Yeah. Uh I'm not saying that's what you typically compete with. I think most of your competition is probably other searchers. Um but I think you know, we I think we got at one deal out of everything we looked at where the broker just wouldn't give us the materials. And I think a lot of that was hey, you know, the initial message we sent to them was just, you know, this is who we are, this is why we're interested in the space, would love to take a look at the materials. They would send us the materials, we'd go through materials and say, "Hey, can we have a, you know, quick 30-minute call talk about it?" And we'd have our initial kind of gauging questions of is this even a deal that we want to do, right? Mhm. Um and then after that deal it was, "Okay, I'll, you know, I'll send you an offer later today." And then it was effectively, you know, in reality it's just a number, right? But it was a well-written out email, this is why we're excited about the deal, this is why we're the right people for the deal, and then you have an actual PDF document that's attached that says, you know, indication of interest and here's like the number. And so I think it it just has to be like clear here, Johannes, when you say offer in the in the context you just used it, you mean IOI, you do not mean LOI. Yeah. Yeah. All right, we're still talking IOI. Okay, just clear. Cuz sometimes people use the word offer and LOI interchangeably. You're using IOI. Okay. Okay. So so you you you see the listing, you ask for uh materials, you maybe have a 30-minute call with the broker just to kind of like get some high-level apply some high-level filters. If it passes those filters, you send an email to the broker in the body of the email with a PDF attachment. The PDF attachment is a kind of a one-pager, which is the formal IOI, and you also kind of bullet point what those are in the body of the email. And that can all happen in 24 to 48 hours. Correct. Yeah, and and I think the the overall point here is, right? What I wanted to start with is, let me look at businesses that I can buy at a price that I would buy them at. And then let me figure out if I like them. If I really like them. Right? Like it it's you don't want to waste time and just like submit IOIs or whatnot on on companies you'd never buy. But anything that's in the realm, let's make sure we're at a at a price point where it makes sense for us to have a conversation. Cuz the the the worst way to waste time as a searcher is you start getting into the weeds of a business, you really really really like it, you get to like week eight, and then they're like, "Oh yeah, we want 15 times. Like I mean I I'd never sell for anything lower." And it's like, "Well great, now you're an industry expert in like some random industry, but that's not very helpful to what you're trying to accomplish." Yeah. Yeah. And so these businesses that you're these listings that you're seeing are not just on BizBuySell, obviously, cuz most businesses on BizBuySell do already have a price listed. So where where your other so where where are your sources of deal flow? Yeah, so we started with the, you know, regular brokered brokerage sites. I think, you know, in the last 2 years there's there's been a lot of deal aggregators that have made that easier. At at the point we were searching, there were still probably 20, 30 websites that that we were checking. Um but what I would say is I don't care what the price is on BizBuySell. I'll tell you what I'm willing to offer, and you tell me if we should have a conversation or not. And so we we'd go through and say, sometimes we'd bid over, sometimes we'd bid under. It's it's the the price that you want for the business has, you know, nothing to do with what I'm willing to pay for the business. And so we just go through, say is this business itself interesting? Here's what I'm willing to pay for it. Should we have a conversation or not? And then plenty of times they say, "No, we shouldn't have a conversation." Okay, good. Good to know, move on to the next one. Got you. Got you. Oh wow, okay. So so the listed price is something that you kind of really didn't didn't factor in too much at all. Um I assume if the listed price was so egregious, that would just be you could filter out that listing without even spending any time on it. Yeah, well but but you got to remember there's there's good brokers and there's bad brokers out there. And one of the worst qualities in bad brokers is that they just won't tell a seller that they're delusional. So the seller comes in and says, "I want 20 million for this business," and it's worth five. And then he lists it for 20 million, it sits on BizBuySell for 90 days, and and nobody has inquired about it. Or the people that have inquired about it do some diligence, try to figure out a way they can make the 20 work, and then just walk away from it. And so then if you come in and you're the first person to say, "Hey, I'll I'll buy it, it's going to be for five, but if you want to have a conversation at five, let me know." And then probably in the first go-round they're going to tell you, "Yeah, no, it's worth way more." And then 6 months later you probably get a call and say, "Hey, are you guys still interested in this?" So um that Yeah, that's why I'm not saying ignore the listing price entirely, but in general it's like your your valuation is what matters, right? You're the one who's who's paying the money. So it it should definitely start with this is what I'm willing to pay. Is that something that you guys are interested in? The other follow-up question I had was another thing that you said on our pre-call was that going back to multiples and what you pay for a business, we've established that, you know, there's kind of a tight band of basically three to four and a half that you're going to pay within. And you also, in terms of moving quickly and getting in the seat early, you also have this this view that paying a little bit more now, i.e. a higher multiple, is like paying less later. And and you just wanted to get going sooner. What what did you mean by that? Elaborate on that comment. Yeah, so so the idea is, you know, if you think about larger businesses, pretty much all of the outcome that you're going to have at the end is the multiple that you're going to get, right? Like you're going to grow EBITDA by a little bit, but if in that time, you know, maybe you bought at 12 times, you sell it for 20 times, like whether you grew it 10 or 20% doesn't matter, it's all about the multiple. And so that's why people are very very focused about buying cheap on the front end. There's also plenty of research that, you know, looking at the private equity asset class, that will tell you the number one predictor of of returns and outcomes is is buying cheap. Now, where this is a little bit different for really small businesses that the multiples are so low that one year's worth of cash flow is a meaningful portion of the overall enterprise value, right? So if I buy at four times today and I get the cash flow from a full year, I'm effectively sitting at three times uh of that value one year later. Like it's ignoring taxes, but let's just like for simplicity think about it that way. And so what I was thinking about is, you know, a business that I buy today, like I think a lot of people get hung up on you know, like a a quarter turn of, you know, or like uh $200,000 on you know, that that you fight back and forth on on a business that does a million of EBITDA. And you know, the reality is like in the in the two months that you just argued about this, the business generated $200,000, right? And so the idea is that if I let a business go for, you know, when we're close early on, I have to find something better at a at a significantly lower price later on, right? And so you think about if you're, you know, two months into search and you can buy something for, let's say, four and a quarter times or, you know, you're two years into search and you can buy something for three times, you as a searcher would still have made more money buying that same business for four and a quarter times two years ago. Uh now, that's a little bit different for for investors cuz obviously they, the the cash flows get distributed very unevenly in in self-funded deals. Uh so you don't want to just go haywire with your with your multiples, but what I'm saying is like when in doubt, I think it's a reasonable strategy to pay a quarter turn more to get a business that you really like early on um because of the dynamic that these businesses generate real real cash flow. Yeah. Well, it's a fascinating and I think very strong point. And it also, you know, part of your analysis there I think is also useful for people to think about is we think about these multiples, 3x, 3 and 1/2, 4, and you're like, "Oh, well, 3 and 1/2 is so much more than three." Well, if you map what those turns, what the number before the X, represents to number of months, they all they all of a sudden seem a lot smaller. So half a turn or.5x, that's 6 months. Like 6 months goes by like that. So so it's like So just when you're if you're negotiating tooth and nail with a with a seller between three and three and a half X, he wants three and a half, you you only want to give three, you know, realize that it's just you're basically just offering another 6 months of working in the business if you just give him his his three and a half versus your three. So I think, you know, yeah, mapping multiples to months can be can be helpful to realize that we're we're oftentimes kind of bickering over tiny tiny blocks of time, really. Tiny blocks of time. That's a That's a great way to put it. Johannes, okay. So, this is fantastic. I know we're we're spending a lot of time just on the search itself. We got a long way to go here, but this is this is great stuff. So, your Okay, we have an IOU we have established your IOI technique and you also then sent out a flurry of LOIs. So, talk about how you guys were just like sending out lots of IOIs and LOIs. It was just like an expression I heard from from a guest the other day, violence of action. The violence of action. Yep. No, that's that's right. So, I think you know, we talked about for most IOIs it was probably a two-to-three-day turnaround from finding the listing to to giving them an IOI. Then a lot of times you'd have about a week or so of them figuring out if it's worth to look at or not worth to look at. And assuming they said, "Hey, this is in the ballpark. Let's move forward." We usually have one big call with the buyer or probably you know, an hour or two or something like that. Where we kind of checked off all that you know, we've already had the first half an hour call with the broker. Now it's kind of a little bit more in-depth. And at that point we would convert the IOI where we kind of had the number to an LOI. And what what was important there is Well, let's say we have a little bit more concentration that we like or there's you know, some things that we don't like as much. So, maybe we'd structure it with a bigger seller note. Or maybe we'd bid at the lower end of the range that we had put in the IOI or something like that. And so, but again, being easy to work with, giving people real numbers quickly. So, you know, from the seller side they would have to spend 1 hour with us and then they would get an LOI. And so, in the LOI at this point you're the the the LOI just lines out all the deal terms. I think you know, people that that listen to your broadcast are obviously familiar with that. And the big points for us were you know, obviously the price, the structure, and you know, including the seller note. And then you know, we already did working capital. That's that's one thing that you know, I think kind of depends on the deal if you want that this early or not. Um But what we do there is is relatively quickly give the seller something to respond to. Um and then a lot of times you know, they would ask for a little bit more money or they would ask for a little bit smaller seller note. And the way we resolve that was usually I would give people two options. I would say, "Hey, I'll give you a smaller seller note, but it's 100% forgivable. Or I'll give you the bigger seller note and you know, maybe it is like has a ladder of forgivableness or maybe half is forgivable, half isn't." And so, what you do that way is you kind of make them put their money where their mouth is and you just have two options that you really like. So, maybe you do a million seller note, but not all of it is forgivable or you do half a million and and all of it is forgivable, right? And so, that way instead of arguing about, "Hey, but this is what it's worth, this is what it's not worth." That's never helpful. You give them two options to pick and say, "If you want to do this, you know, let's let's pick one of the options." And so, we we did pretty well with that that kind of approach and you know, probably converted well, we signed three three or four LOIs. It's been a minute now, but um at one point we had two we had two signed at the same time. The nice part of it about being partnered searches we we probably would have just done both if if both would have gone through. I don't recommend just blindly signing LOIs and then walking back on on deals. I don't think that's good form. Um but I do think that you know, just because you have something under LOI doesn't mean that you stop searching because you know, we all know there's there's a decent failure rate there. And then we also had even after that with IOIs that we had submitted earlier that that would have gone to the the LOI stage. So, I think overall it's just been it was just an approach of being easy to work with, being very actionable and like not getting into the well, you know, I got my MBA and the working capital needs to be the just like let's let's figure out a deal that I would want to do, that you would want to do and let's keep move keep moving forward. Yeah, so it was it was not being overly kind of onerous in trying to kind of perfect every little aspect of the deals. That was part of it. And then the other part of it was the quantity, the kind of flurry of IOIs and LOIs that you guys were sending. That was That was kind of the two-pronged you think strategic uh advantage that led you to basically getting something your LOI out signed in in 6 weeks. Yeah, and I I mean look, I'm I'm not going to say there wasn't also you know, luck involved. Like I'm I'm the last person to say you know, it's you can do this robotically. But I have seen seen people buy on similar timelines using similar approaches. I think that the part that that we do have to add to your to your analysis is like probably bidding a tad bit higher. Like I think we probably were on average a quarter turn or so higher. And so, that just gives you if you're fast, pretty high and easy to work with, that's a lot of reasons for a broker to to talk to you. Um Yeah. And and you can move through through things fairly quickly. And what were some of your criteria in terms of size of business, by the way? Uh so, we said the absolute minimum would be 750k of EBITDA. Really looking for for a million plus. And that is one point that we got really lucky on, but that I think is is way more important than than I even thought. I think there is a fundamental difference if you have a business where you are the main manager. So, where you are the general manager, the you know, like you are running the day-to-day operations versus where you have one level of management. So, I think a big reason why we've been able to grow this business as fast as it has is because we had a really good general manager in place. And so, we spend 80 plus percent of our time working on the business and not in the business. And it's also a fundamentally different role that you're that you're playing. And I think especially for people that come from banking, consulting, private equity, like corporate you know, Fortune 500, where you're used to kind of very intellectually or generally intellectually intellectually simulating work and and difficult like intellectual problems rather than just like you have an upset customer and you just have to deal with it. Um I think that's something that that we're very grateful for that I get to figure out how to get in the depth of SEO and marketing channels and run all that and then figure out what the best software system is and it's just kind of like almost project-based consulting work on making the business better. Rather than you know, every day there's you know, there's always someone who's upset and some fire to be put out. And those are just very different roles and you got to remember that if you're searching you're going to do this even if you if you're going to sell your business for for 3-5 years. And being eyes wide open of what your day-to-day actually looks like I think is is pretty important especially when you go through the search and it gets very appealing to like look at the 500k of EBITDA and the 400k of EBITDA. And I think it's very dangerous to buy small because if you have if you're really small you probably have very few employees and that means inherently you have concentration risk. If you have four employees you have 25% employee concentration. And it's you know, the you're one irrational decision away from having to you know, figure out something that or like you have no transition with an employee and it all falls on you and and all of a sudden you know, you're spinning your wheels. Let me ask you though about the GM and its correlation to size of business cuz I feel like that correlation I I used to kind of tightly couple and now in my own mind I've kind of decoupled it because sometimes you know, a business might have a lower SDE 3, 4, 500 precisely because the existing seller has invested in putting in a GM. So, it's a four or five hundred dollar SDE thousand dollar SDE business, but it has you know, a middle layer of management. Otherwise it would be you know, closer to six or seven. And so, and and vice versa. So, if it's a 750 or 800 thousand dollar SDE business, it might only be so rich because you know, the sellers the seller's doing all the operations him or herself and they haven't invested in the GM. So, I do feel like you have to take those you have to take those two characteristics of the business separately. Yeah, 100%. I just think it's fairly rare for for business of that size to have the GM. If they do, fantastic. Yeah, like I think 100% like it's not a pure size metric. But it tends to correlate pretty heavily. I think there is like if you think about there is a real real sweet spot in kind of the the American ecosystem running your own business, having like five or so employees, making 7-800 grand a year and you've got it figured out and you know, it takes you 40 hours. If you can get to that point, not a lot of people let go of that, right? And so, and then you're also you get the validation of you know, you're the you're the head guy, you're important, you're you know, you have standing and and that kind of thing. So, I personally have never seen you know, a business that has a GM that does you know, 400k of of true EBITDA. Not saying they're not out there, but yes, if if you find one of those, totally applies to the GM category. I I just haven't seen a lot of them. Okay. Okay, fair enough. And then Johannes, you know, you you pretty much said everything I think that there is to say about buying a business with a GM and how that completely changes what you and your partner have been able to work on day-to-day, but it's so important. Let's dwell on it for a second. So, one follow-up question would be what one of the kind of um arguments for buying a business that doesn't have a GM, and so you come in as the operator uh for a year or two is kind of what the vision would be, and then you hire a GM. And the value there is that you really really learn the business, and then that that that have will have that investment on your part will have some long-term value to how you can then strategically run the business when you hire that GM and step up and start working um on the business rather than in it. You guys haven't You You guys aren't haven't been operators at all. Um do you Do you see any validity to that argument, or are you like, "No, you don't really need to operate the business. Try If you can get it, just find a business with a GM." 100% if you can find one with a GM, find one with a GM. Because the answer is like, Yeah, I mean the the real answer is like, "You'll come into the business, and you'll learn everything about the business, but pretty quickly, right? Good operators execute the very similar thing day after day after day after day." And so, I think by the time we were 6 months in, I could have told you how you run a turf business. Um and we could have run a turf business. Doesn't say it mean I want that role, right? And like I can tell you from we we opened uh a new location in Austin um earlier in the spring where we effectively played that role, and that location is doing just fine, but it's not what I want to do, and it's not what I Okay. Uh what I think the best use of of our time is. Um and so, I think when you first come in, uh even if you have a GM, you're still going to go through the same processes, right? Like you're going to go through what is everyone doing? How exactly how are we doing every piece of the business? You're still going to learn all the same processes. Um the The only difference is then instead of you learning it and then having to execute it day-to-day to day-to-day, and then having to figure out in your downtime or in the evenings how to improve processes and make it bigger, um you get to spend the majority of your day on that. Um So, I I I think, you know, if you when you buy a business and you sign a personal guarantee, and you know it's make or break on this, you have plenty of incentive to figure out how to run that business successfully even if you're not answering every customer call, and you're not dealing with every heat case, and uh you know, the the those aspects of it. And returning now to the the the question of criteria for a business to buy, and how as we talked about, your professor slapped in the face, so you relaxed some of your criteria like recurring revenue, uh and and then now looking back, you kind of think that having having nice industry tailwinds is is a criteria that a searcher should really prioritize. Is this one also a a criterion that that searcher you think searcher should really prioritize? Look for a business with a GM in it, or or or maybe it's at least ask yourself like, you know, really envision yourself in the business and ask yourself what you want to be doing day-to-day. Don't kind of not a address that question directly, and if you decide that you really don't want to be an operator, then yes, one of your criteria needs to be buy a business with a GM in place. Did I just answer the question? Yep. No, I I think it's very similar. I think the the tough part is it's it's a little bit of a luxury at the end of the day. I think uh if you look at the landscape of businesses that fit the criteria that searchers are looking for, I I bet that uh you know, maybe 20% of them have a GM, may maybe less. Mm. And so, I I think it's uh if you can get it, highly recommend doing that. Um I don't think you should start a search and say I I'm only going to do that because uh there's a decent chance you're going to you're going to pass on good businesses um where you're just going to have to get your hands dirty initially. Like we had a small business round table with like 10 other guys that bought around the same time, and I think we were the only ones who had a true GM like that in place. Um What one of them was, you know, kind of down the road further on, you know, four five years in, so he was in a similar spot, but I think for most people or most searchers that buy, you're probably replacing the owner, and you're going to have to get in the trenches for a year or two. What I'm just saying is be cognizant of what that actually looks like, and if you can, you know, I would probably pay up for a business that has a GM that is that's going to stay in his long-term incentivized um because I think that depends on what role you like. If you want to be an operator, then obviously, you know, be the operator, but I think for most people uh the the typical background that searchers have would enjoy the working on the business than in the business a lot more. Yeah. Yeah. But you guys, to be clear, you guys would have You were prepared to and would have been willing to be the operators for a year or two. Buy a business where you were going to be the operator for a year or two. Yes. Okay. All right. Let's uh let's get into the business that you bought, uh Johannes, cuz there's there's um fun aspects to to that whole story. So, how do you find DFW Turf Solutions? Where where where What was the source of this particular listing? L- Listed on BizBuySell. So, uh right down right down Main Street. Um I think the the reason we ended up getting it was because it was growing so quickly that um it was way tricky to make that deal work with an SBA loan, and we kind of had to get on that side. Um but uh so, DFW Turf Solutions is an artificial turf install business. Um our bread and butter is uh backyards in suburbia. So, uh you know, we're based in Dallas, obviously, so you have a lot of people that can't grow grass in their backyards, there's shade, or they just, you know, don't want to pay attention to it. And so, uh you know, you just moved out to the suburbs, you bought, you know, spent a pretty penny in in five or six hundred grand to finally get the house, and now the dogs are muddy, and the the kids are scratched up, and you're like, "Hey, uh I I want this to be a usable space." And uh that's that's where we come into play. And uh so, we do lawn turf, pet turf, uh we do putting greens. Um and uh that's about, you know, that's the majority of what we do, and then uh we do some light commercial jobs, so, you know, apartment complexes, restaurants, dog parks, uh things like that. Um we don't really do the big sports fields. Um that's that's a very different industry. Um but that's yeah, that's the core of the business. You had said that it had been it was a growthy business. It had grown a lot in the years prior to your acquiring it, which made financing difficult. So, elaborate on that whole aspect of this. Uh yeah, so so uh you know, we're we're talking about late 2021. They wanted to sell off of year-end 2021 numbers. Um the business had grown, I think, LTM we were sitting at like 60% growth or something like that. For year-end, it was going to be close to 70. And so, if you think about most banks finance based on, you know, last year or last 3 years, um and uh you know, a certain debt service coverage ratio there. And so, the the standard or the at that point typical kind of like 80 80 10 10, 80 SBA loan, 10 seller note, 10 10 equity um was uh was going to be really tricky. Um and so, we ended up finding a bank that was willing to start underwriting uh based on a QOV, like an LCM QOV, and then uh say, "Hey, let's wait for the Let's close with the 2021 tax return." And so, that way we were able to offer them what you know, a real price on on the current size of the business because obviously it looked very very different in in 2021 than it did in 2020 because it was growing so quickly. Um and so, one was uh you know, structuring something that made the numbers work. Um and then the other part was uh obviously one understanding and assessing ourselves if this was just a fad and a and a one-time. Obviously, we're still coming out of COVID, and everyone's talking about COVID pops. Um and then once we we got comfortable with believing that it is a long-term trend, um convincing that the banks that it was as well. So, um there there was a lot of uh I I think the financing piece was was the most difficult piece of the deal because the the diligence itself um both financial, operationally, everything else came back, you know, kind of squeaky clean as as good as you can. Um didn't have the typical sellers are running a ton of personal expenses through the business, none of that was happening. So, the other sides of the deal were were pretty easy, but the the financing piece was tough, and then um had to kind of, you know, uh nurse nurse the it ended up taking 5 months to close uh because we had to nurse it uh to the finish line. And so, how how do you value a business that is growing 60% year over year? What was What was your kind of multiple going back to that, or your valuation? How did you How did you calculate that? Yeah, so so it was same thing as before, right? Uh go going back to the three to four and a half. We, you know, liked the business uh a lot, you know, it had the GM, it had the industry tailwind, so it was towards the the upper end of that range. Um and you know, quite frankly, it's one of those where I wouldn't have been surprised if they didn't end up selling it because it was growing so quickly, and you could easily make the case that um you know, if we wait another year, and we get the same multiple, then, you know, we'll we'll sell sell for way more. So, we we stuck to the the same process we walked through earlier. Um in in their case, the sellers were selling because um they wanted to use the money for real estate development. They had gotten in real estate development already. Um I think that's a big uh piece when you have a business that's growing very quickly. Um There's not a lot of incentive to sell that at any given time, especially if you're talking about, you know, 30% plus growth. And so, I think the reason for selling becomes all the way more important because the seller knows way more about the business than you do. And if you're in a if it turns out to be a fad, they have a lot of reason to sell, you know, whenever they think it's peaking. Um so, we we know, we actually looked more into that, looked at what projects they had developed, asked them about how much money they had made there, and it turned out that they actually were likely to make more money on the real estate deals than this business. So, that's when we, you know, took it as a good enough reason to sell the business. Everything else is like, "Oh, it's, you know, it's a lot of work. It's like you have a GM that's running the business. It's growing quickly. Like, what why would you sell this?" Um Yeah. But you got comfortable that they really wanted the capital. Exactly. They had specific deals lined up. They were starting a a 50-unit townhouse development, and this was going to be the equity. So, it's going to go out of, you know, out of the bank account, like in the bank account, and right back out of the bank account. So, Yeah. Um Yeah. There there was a reason there. And then, For a fast-growing business, the multiple of SDE or EBITDA, the EBITDA number that you use is just last year's or is it like a blended from the last 36 months? Uh it wouldn't have worked as as anything blended. Like, I think the the what we had to get comfortable with was that the size that the business was at this current point in time. So, essentially, last 12 months was going to be the size that the business is going to be going forward or or bigger, right? And so, a lot of it for us was, you know, do we believe these tailwinds? Do we believe this is a fad or do we believe this is this is long-term sustainable, right? Yeah. And so, you know, if you look at like part of how we got comfortable with that was, you know, we've done a lot of deals in home services. We know what reviews typically look like. And the reviews across the whole industry are insane. Like, if you're a 4.7-rated turf company, you are terrible. You are absolutely And so, you have you can see that, you know, consumers love the product because it's not like the turf industry is just so much better at at, you know, customer service and everything else. It means that even a mediocre performance must satisfy most customers, otherwise you'd have, you know, way more bad reviews. So, that was one where we're like, "Okay, the product is really hitting with the customers that you have." The second piece is we looked at, you know, where did this where did this trend come from? And the reality is that um it had there turf companies in in Texas only started about like 2010, '12-ish were like the first ones. So, for most people, the pitch is still like people don't even know about the product. Like, almost everyone we talk to is like, "Hey, I just want a solution to my dogs being dirty all the time. Like, does this work?" Um and so, when we looked at where did it come from, like, it was a lot of the distributors, like, residential artificial turf only started about 20 years ago on the West Coast. And then, it's usually the distributors started first, and then you get the installers coming after. And so, you had two of the bigger distributors come to Dallas in like 2010, and then one in 2015. And then, you see kind of with a lag after that that the adoption really picks up, right? And so, you have the you have the reviews to prove to you that the customers love the product. And obviously, we talked to other customers as well. Second piece was the share of the business that came from referrals was really high, which tells you that, you know, once people get the product, they talk to their friends, and you have a real mode of like getting the word out without having to pay for every lead and and those kind of things. Um so, people love the product, people get the word out, and then you look to the West Coast and where that trend has already played out. And, you know, I think when we bought, my best guess was that one in a hundred homes in in Dallas had turf. And if you go to like Southern California, Arizona, it's, you know, one in five or more. And so, Wow. you're you're sitting there saying, "Okay, it's And at the end of the day, right? the future, basically, by looking at previous markets. And And so, that's that's really what we said. At the end of the day, look, that that was the analysis, and we obviously we did more than that. But when it comes to buying a small business, at the end of the day, you're you're taking a bet. And my bet was that North Texas is going to keep growing, and I think turf is the turf adoption trend is going to keep growing. And that's what we're going to hang our hat on. Yeah. So, you were as we joked in the pre-call, you were long turf and long Texas. Exactly. Johan, so you referred to size. How big was the business at the end of 2021? Uh so, when we bid on it, it was doing just over five of revenue. And skipping to the end, what is it going to what what do you project it'll do by the end of 2023? So, we're we're more than three times the size. Um I'm I'm not going to say an exact number, but probably, you know, close to close to three and a half three and a half times of uh what we were when we bought it. Okay. So, conservatively, you've tripled the business, and you will have tripled the business in 2 years. Pretty spectacular. And how many employees was it when you acquired it? So, I think we had seven or eight. Um it's grown a lot, so I'm I'm kind of drawing a blank. We're we're sitting at 22 today. Um so, it's been a lot of change. Yeah. Fantastic, Johan. So, okay. Well, it sounds great now, but as I recall, the first 2 weeks of ownership were terrifying. What what what did the tran- Tell us a little bit about the transition. Uh yeah, so I think, you know, one of the one of the things that we did in terms of just swinging for the fences was structured deal that was probably a little bit too tight on the on the liquidity front. I didn't want to raise a single extra dollar that I didn't need to raise and and give up equity because in, you know, in our mind, this was really swing for the fence, go big or go home. And I think that's a little bit of part of we can talk about you know, the the personal guarantee and and those kind of things, but really the way we approached it was like, I want to have a chance of, you know, hitting the number and and walking away. And so, you know, one of the things was we we started with almost no cash in the bank account because legal ended up being a little bit more expensive and a couple other things. And so, um we really needed cash to come in the door pretty quickly. And so, we took the business over. Hand-off went well, all those things went well, but then we had snow and ice for the first 2 weeks, which means we couldn't install at all, which also meant that no cash was coming in the door. And obviously, the day the clock on the first debt payment starts ticking. And that's that is definitely a memory that's that's burned into my mind, and that was not very pleasant having to think about potentially having to draw on the revolver for your first debt payment. Um luckily, the weather let up you know, late February, early early March were really good. So, we never never got into that trouble. Um but that was certainly one where, you know, you lost a night or two of sleep on. No doubt. And And was there anything I guess the answer was simply weather. There was nothing that you guys did to juice sales. Like, lead There were no leads, and then the sun came out, and there were leads again. No, no, the So, the the the problem is that there were plenty of leads, but we can't install. So, we had the jobs on the board to get installed. But as long as we don't install, customers don't pay until the job's installed. And so, it's literally like we were just waiting for the weather to be good enough to install. Um Got you. But, you know, But you Okay, so you did have the comfort of having a pretty deep pipeline. We had I wouldn't say deep. I mean, it was probably, you know, you know, 2, 3, 4 weeks or something like that. Um it was more, you know, it was fine. Like, it's not it's not one of those where like, "Oh, we have visibility for, you know, half a year or or like 9 months or something like that." As you as you do with, you know, a pool builder or something like that. Um but we had enough to kind of like get off the ground and running. And then, the big thing was obviously like spring is like when, you know, most people go outside and think about what they're going to do with the yard. So, we were that's another big thing that we focused on was when you have a seasonal business, closing at the right time. Cuz what you don't want to do is close and then go into slow season. That can be pretty brutal. Um but it was just so everything was lined up, and then it was just, you know, it doesn't freeze a lot in Texas. And so, it happened to be the first 2 weeks that we owned the business. And then, March came back, but then I think you said April was bad again. So, it wasn't it wasn't just one slow patch. It it got it went up, and then went down. I mean, it was a kind of roller coastery there. Yeah, so it was you know, it was like a scare to start with. Then, March went really well, like, you know, record month in in March all time, even though, you know, traditionally, that's that's one of the slower install months because the weather just isn't that good yet. And then, the the next big scare was kind of Memorial Day when the the phones just kind of dried up. And, you know, we'd obviously been watching rates starting to tick up, gas prices are ticking up. And at the end of the day, you know, if the difference is between putting food on the table and putting turf in your backyard, you're probably going to buy groceries. And so, we we were kind of, you know, the the thesis of like this trend is going to continue was getting a a real real challenge there. Um and it turned out that that that weekend was just because it was a holiday weekend, and people have better things to do than than call the turf company on a holiday weekend. But that's the thing when you're in the first year of operations, and the the prior owners didn't have a lot of data, you just don't know, right? And you're just you're flying blind until you kind of lap 1 year around. And now you've, you know, that's one of the big things you should do is like day one, start tracking. Because then, the sooner you start tracking, the sooner you lap one the sooner you lap one year and then you know it all gets put in perspective. Exactly. You can establish a baseline. Yeah, this was something that I recall I I wanted to make sure you mentioned. Thank you. From our pre-call where I particularly kind of people coming from corporate environments, there's a lot of historical data typically in an in an institution to refer back to and to compare whatever numbers you're seeing right now to. But in our world when you buy a business, you know, the the previous owner probably doesn't wasn't tracking that data or or took it with him or whatever. It's just it's way way more opaque. And so the sooner you can start tracking the data the better to establish your own baseline for next year and the next year and the next year. So you want to build your data set. I thought that was a really interesting insight you had. Yeah, no, I absolutely. I mean it's it's literally like you're you're flying blind initially. Like the I think the first day is kind of surreal when you own a business and there's work going on. You don't really know anything yet because you don't have any passwords. You don't have any you don't know if we're having a good day or bad day, right? You're not involved in any of the processes and you're there's a little bit of a surreal moment where you sit there and you're like I'm depending on these eight people doing their job or we're going bankrupt, right? Like there's like a there's like a surreal moment there and obviously you transition quickly and you you learn everything and and that kind of thing. But um I I think that that having data as soon as possible is is very crucial to calm yourself down, get perspective um and and you know, just have longer term trends rather than just being like fantastic week. It was a terrible week. It was a fantastic week. It was a terrible week. This is probably a good opportunity to talk about person the personal guarantee uh where cuz you're experiencing these moments of terror when you're having these terrible weeks and you don't have any data to know whether or not, you know, what's going on really. Uh I think you just kind of wanted to speak to that. What what did you want to say about the personal guarantee? We all know that it's the most unhappy aspect of these of the way these deals are structured. Yeah, I mean I think it's you have to look at it in the broader context of you know, the SBA 7A loan which I think is the greatest vehicle of wealth generation in in the US like hands down, right? Like I think most people that listen to your broadcast probably saw that article in in in the Wall Street Journal or wherever it was where they looked at um all the millionaires in the US and how they made their money and it's like 70% of them are business owners, right? So it's like if you that's what you want to do and if that's what your aspirations are you should probably own a business in some way, shape, form, or fashion uh at some point. Um and then you know, coming from from Germany um you know, the there's no comparable uh uh instrument like the 7A loan where you're effectively getting incredibly cheap leverage um and you get to own you know, a a big percentage of a of a reasonably large company. Like it is the definition of making money with other people's money. Um and then obviously, you know, the drawdown is is the personal guarantee. But I think one way that that people don't think through as as much as like So for example, if you live in Texas and you think about because we obviously we went I wanted to know what the downside is, right? I know you know what the upside is. I was like okay, if if this goes south like what are we actually looking at? Well, your house is safe. Uh your retirement accounts are safe. Um there's like a a certain amount of personal property that's safe and you kind of go down the list and pretty quickly you're like okay, so you're telling me if if this goes south, it's going to be a shitty year in terms of uh having to go through bankruptcy court, having to go through the settlement, uh your credit score being ruined, and um I'm not 100% sure if you're allowed to work in uh the securities industry anymore. I don't I think you're not allowed to do that. So you can't go back to like finance. I think I'm not 100% sure. But other than that, it's like you're really not losing that much in a sense where I'm like from like what I had going into this, right? Which was effectively I took the money I had and I was like either you're going to go like for living while I was searching or like going into the deal or it's in like retirement accounts or like in in the in the car that I have. I was like the downside doesn't seem that bad. It's not what you want to do, right? And but but if I'm like if the answer is I have on the upside I get a chance to be done at 35 and worry well at 35. On the downside I start over at 32. Uh I still have my car, my house like, you know, the retirement accounts whatnot. And uh yeah, it it kind of it's it's sucks and you have that you know, uh scarlet letter to a certain degree on on your on your chest. But um you know, so what? I work You're not going to lose every last penny. Yeah, so what? I I work 5 years more from 50 to 55? Like what's the alternative? The alternative is I retire at at 50 and like the downside is I retire at 55. Um but I have a chance to be done at 35. I was like that that deal sounds pretty good to me. Um now that's that's for Texas. I don't know all the state laws um individually. I think there's some that don't uh protect the home as much and you know, people should look at that individually. But um now it's still scary, right? It doesn't it doesn't take away from the fact of like it's not a pleasant experience and and not one you ever want to experience. But I think it's important to go through all that before you get into search and really think about okay, this is my upside. This is my downside. Am I am I okay with the worst case scenario? What's my reason I'm doing this? Because whenever you get through the diff to the typical parts of like am I willing to pay up a little bit right now to get this done or am I, you know, am I willing to move on from an employee that doesn't work and is you know, threatening us but maybe is contributing really to the business. I think in those situations unless you have that foundation and you really done the the soul searching before going in that's when you waver and like maybe you don't close the deal and you're like ah I don't know if like this is really for me. So I think it's very important to do that ahead of time. So then when you get into the situation you're ready to to pull the trigger and make the decisions that need to be made. That's that's sage advice kind of knowing what your tolerances are before you get into the heat of a moment where you're much likely to be less rational, more emotional, more rash. Um kind of kind of set your own set your own um kind of borders of of your own behavior and and know what your tolerances are before you go into it. It's great. And just to just to re-emphasize what you said about Texas I don't know either. I'm not an expert on this, but I I have heard Texas mentioned multiple times as a place where your home is kind of protected in in a personal guarantee situation. So it Texas may well be really an outlier and not many other states do that. Do your homework people. Neither Johannes or I know, but don't but but um my sense is that that Texas is the exception not the rule on that kind of generous approach to the personal guarantee. Okay. Just move to Texas when you start searching. And definitely get some turf. All right, I got four or five more questions for you. These are um Okay, some are about your story your story and your deal and then some are just kind of uh broader. The let's return now just um to the growth here. Okay, so you are looking at as I as I said conservatively tripling this business after 2 years. And this we already talked about how kind of why Texas is high growth. You can see the future of turf adoption in looking at the markets in California and Arizona where turf arrived a decade earlier or more. Um but it but this but I don't think that you were projecting this incredible amount of growth. Were you? And and and and is there anything is there any genius in in you and your partners management of this that has contributed to the tripling of the business? Give us tell people more about how you've done this. Yeah, so I I think you know, obviously our our thesis was that uh there was consistent growth. I don't think you can underwrite especially with the amount of data we had which was very limited, right? Nobody tracks turf installs in Dallas or something like that. So you're you're talking about you're coming up with your own data the best you can, but you don't really have good data. So I think we were confident that we would have solid double digit growth probably you know, on the high end you know, 10 10 to 20% um like was like a conservative estimate that we thought was supported just purely based on the factors that were long established and kind of inevitable in terms of you know, the people moving to Texas um the millennial home buyer and you know, a certain level of adoption curve, right? So um now I think you know, we certainly didn't underwrite that level of growth and I think there's definitely a a good part of right place right time. Um uh but I think there's also a part of a like not as many people were willing to take that risk of buying a project based business with you know, a ton of leverage and just saying like I'm I'm putting my money where my mouth is and I think it it can be really big. But um at least I think it's going to be big. Uh I think the other part two was that we were willing really quickly to to jump on the growth and not just uh settle for growing 10 or 20% a year where we were saying we have the opportunity to go this big. And so let's buy we got you know, we were a month into the business and we drove to Arkansas to buy another truck because you couldn't find another truck in in in Texas. Then we got uh a vehicle equipment line and bought I think we bought six or seven trucks the first year that were nowhere in the CAPEX budget and just got a vehicle equipment line and we were we were just like we we see the growth is there. Let's get it. Let's actually capture it and let's not just you know, we could have easily printed a 10% up year and said, "Hey, great transition worked, you know, employees are happy and you know, we we had a good first year." But we really were like, "Let's let's chase every last percentage of growth that we can." I mean, obviously an important reason was that we had the time to you know, if you're running the business, you're not driving to Arkansas and buying a truck, right? Like you can't do some of those things. So so that was that was important. I I think another really important part was we picked our investors very carefully to be able to help us in different aspects of the business. And I think that's one of the one of the best decisions we've made was have people with different expertise on our cap table that would be able to help us with the different areas in the business that we thought were important. So we had a guy who has a ton of experience in SEO and those kind of aspects. And obviously we looked at the channels that the business had. And so that was one of the first things we looked at. Which I think in general the the first thing you should do when you buy a business is do whatever you can to have as many sales as possible. Just give yourself buffer. Everything else you can figure out later, but get revenue in the door. And so we figured out that you know, there was a lot of our service areas that in certain channels we were just invisible at. And so we fixed that really really early on. And then you know, we had other investors that were had Texas connections that could introduce us to you know, home builders or pool builders or or whatnot. And so I think there there was a lot of help in that regard as well in terms of hey, you know, we think here's an opportunity. Can you guys help us with this this and this? And so I think having um structuring your capital structure your cap structure and with the right people is is very important in in terms of optimizing your outcome. But yeah, look. I mean, I think it's not that we're outgrowing the industry by a ton. I think it's just the the market's hot and you know, we caught lightning in a bottle. I'm the last person to sit here and say that you know, we did this all by ourselves, but I think there is the best takeaway from the story is that if you get the opportunity and if the market is hot, like go for it and not and don't just print a nice year and and kind of be willing to take the risks and and put capital behind it to to capture the growth. One of the things that you'd mentioned to me a fee that you weren't expecting had to do with sales and commissions. Give give people that the warning that you learned the hard way. Yeah, this so this is more a margin question. So the general manager that we had was also selling a meaningful amount of the jobs we were doing. And so you know, we we look at our business very much on on a margin basis where we want to hold margins consistent and just install more and more and more turf. And so one of the costs that we just didn't think through as much going in was was the mix between you know, sales that was done by the general manager which were house deals and didn't have nearly as much commission attached to it than a regular sales person where that that was their whole job. And so as we've you know, grown the business by a ton, the GM is still selling a good amount, but obviously his share of sales is is smaller than um you know, than it was. And so that there's essentially that that the additional jobs are a little bit lower margin because you have to pay sales reps on it. And so I think that the bigger takeaway there is be mindful when you have an owner or a general manager that is involved in the sales function and know that you're going to have to pay somebody somehow for that and factor that into you know, the SDE and and and whatnot. And it's not just hey, I need a you know, think about a salary for replacing the GM, but you're probably going to have to replace the the salary for a GM or yourself and then the commissions for a sales rep. Right. And those commissions could be significant cuz they're often tied to a percentage of the sales. So if all of your sales now have this kind of new tax, that's going to that's going to seriously you're going to seriously see that in a few points of margin, right? Yep. Yep. And we we corrected it. It was it was luckily there was enough meat on the bone in our industry where you can kind of make it back in other ways, but um yeah, important to know. Right. Two more questions for you, Johannes. Both related to kind of um having comrades. The first is you did a partner based search. We we've referred to your partner, but I want to hear you give thoughts about having done a partner based search. And the second is about the peer group that you put together. So first on the on the partner uh what would you tell people about doing a partner based search? How has it served you? For me personally, best choice I've ever made. I think you know, it it's important that obviously it aligns in terms of what you guys are looking for in you know, both in the search and the outcome and all of those. But I think a search in itself is is lonely. Two operating is lonely and is a really really long time, right? Like three to five years is not oh, you know, you can you can do anything for a couple months, but three to five years is a is a really long time period and and for some people even longer. And so for me personally and and I think that depends a little bit on how different people are wired. It's been very helpful to have someone else in the exact same seat going through the exact same ups and downs. And when you have to make important decisions or tough decisions, you can just kind of talk about it and and have the backup there. And then I think the other piece too of it is you buy a lot of flexibility with having a partner. So I think if you're running your own business and especially if you're the the GM and the main guy, um if you go on a vacation, like nothing gets done, right? Or if you have a wedding and there's an extra day that you would want want to leave town, like that's the day that no revenue comes in the door. And so having that that second person to kind of pick up the slack, I think is an important improvement in quality of life. And I talked to you know, one of my old bosses when we were going through the decision of like should we do partner or not? And he had walked me through some examples in in his life where people had done it either way and he he told me that you know, if you want to go fast, go alone. If you want to go far, partner up. And so I kind of used that as as a guideline for for why to partner up. Now the caveat that I would make is it's not just any partner, right? Obviously it needs to work on a personal level and it needs to work on what you guys are going for. But I think if if the only drawback is well, I'm going to have to split the equity, I think it's worth it. Okay. But that but that last point is is definitely there's a big cost to it, a financial cost. So so just people need to be very clear about it in their own mind. Roughly to get the same outcome, everything needs to be double versus doing doing doing your own search. So there is a serious financial cost to this. Not to at all undermine all of the the value that can be there and and with the right partner, I think it's almost always going to be worth that cost, but the cost is significant. Okay, last question for you. You'd mentioned it earlier. This peer group that you put together. I know I know it's not super active now or or the round table. But sounds like you were all kind of in a similar stage of small business ownership. Just talk talk to me about what you put together, how that went because peer groups are something that I just keep hearing talked about as invaluable. So what what what was your experience with it? Yeah, so where where it came from was kind of the idea that you know, one of the aspects that I did appreciate from the from prior equity life is like you typically have like a Monday morning meeting where you go through you know, where where is each company? What are we working on and in those aspects. And in the in a best case scenario, this is a situation where one, you have to hold yourself accountable to to other people, but also you get input that you might not have thought about. You just get more brains to to think about your problem. And so I wanted to have it as kind of a sounding board and and I just thought it would be helpful to have um you know, for there's so many problems or or issues that you face as an operator that everyone else faces too. And I think you don't have to reinvent the wheel on everything. Just like talk to someone who just went through that and and like take their results effectively. And so yeah, we had you know, probably eight to 10 people that bought around the same time. Some a little further, some a little newer. And the format was just once a month one hour for lunch. Everyone just go through how things are going, what they're working on and what the group can help with. And I think especially in the initial month, it was it was really helpful. And and whenever there was bigger economic changes, right? So like one of the most helpful questions I remember was when we were kind of getting towards fall of 2022, it was like, "Hey, how much how much cash you guys all holding? Like how how are we all thinking about the economy, right?" And it's one of those where like could could you all be wrong? Yeah, of course. But it's just like there's a little bit of safety in numbers, right? If If everyone's saying is like, "I'm not that worried about next year. Like my business looks pretty decent." It's like, "Yeah, it It's It's less and less likely that everyone's wrong, right?" Whereas like you by yourself, you could just get a hunch or, you know, it's like you have your individual experience and you make your decisions based on that. And so, we've had a lot of helpful advice in terms of, "Hey, what are you guys doing for bonuses? How are you guys structuring recruiting?" And so forth. A lot of things you could just use um uh you know, kind of the learnings that that other people had already had. Um and so, I thought that that that was that was super helpful. Um and then I think also just the fact of like it's still to the point of where like, you know, you're like, "Hey, I have a question around like is someone using direct mail marketing?" You know, you just throw it out there and you probably get two, three people that are like, "Yeah, I tried it. Worked, didn't work." And And you can kind of learn from other people's learnings and just like kind of accelerate your process. Um so, I think that's that that's really helpful and um uh you know, the I think especially in the first year, there's there's a couple things we got all got pretty busy and I haven't really had a chance to to put it exactly together this year, but um especially in the first year, it was it was super helpful. And And to be clear, you all were all very close in phase. So, some more recently bought, some less recently, but most everybody was within a year or two of their journey of small business ownership. And where did you find these folks? Across Twitter, Search Funder work, or introductions. Yeah, yeah, yeah. This was like my personal network that I had built through the search phase and and kind of just being in the in the ecosystem. And then I emailed all of them and was like, "Hey, would you guys be interested in this?" And yeah, then people signed up and and we kind of put it together that way. Cool. And it was in person for lunch and then you had all online. Oh, it was a cuz we had So, People all over the country. I mean, the all odds are that like you're not going to know people in your neighborhood. Like there's a couple people in Dallas, but we had anywhere from Seattle, East Coast, like all across the country, Colorado, like It's more important to find people that are at the same stage than in the same location. Well, yeah, I was going to say when you said lunch, I thought you meant we're meeting in person. So, I thought this meant you found 10 to 12 recently closed searchers all in DFW. Although, I mean, DFW is does seem to be one of the most active markets for search. So, I maybe I wouldn't have been surprised. Johannes, this has been quite a conversation. Really so much so much value here. Is there anything I didn't ask? Anything that you want to make sure listeners hear? Um I think the only thing I would point out we're we're starting to sit on the the other side of the table again where we've invested in a couple other searchers now. It's something that I really enjoy and that I'm really passionate about helping people kind of along that phase. Uh uh both in terms of, you know, looking at deals, structuring deals, and then and then investing at the end of the day. Um so, if people have you know, are in their self-funded stage, want advice on on a deal, or have a deal on the table that they're looking for investors for, please reach out to me. Um always happy to help if, you know, our background is something that's that's helpful there. Um and then other than that, we're we're expanding. If you come across an an artificial turf business that's listed for sale, we'll we'll definitely take a look at it. It should not slip our cracks because we're obviously looking, but in case it does, we had one recently that that a friend of me sent. Uh so, that would be great. Um But other than that, yeah, I'd say it's It's a very interesting time in search. I think this is going to be the decade of operators. If you're the person who's willing to get their hands dirty, there's more and more economics that are going to go your way. The capital is there. If you're worried about raising money to close your deal, that's that's going to be one of the least of your worries. It's all about finding the deal and then being willing to to to be the operator. So, if if you have that in your genes, it's it's a great opportunity right now. Great. I will put your LinkedIn in the notes, Johannes, if unless there's another way you prefer people get in touch. Uh LinkedIn's good, Twitter's good. And then if you if you're interested in how I think about search, I I do write a blog called Buy Small Sell High. Um it's I don't get to it as much as I like to, but but every now and then if I if I have thoughts, I I write some stuff there. And there's the first post is the self-funded search toolbox, which is every all the tools that we used in our search. So, uh if you're just getting started, that might be a a helpful resource. Yeah, there there's a number of essays in there that you've done, probably what, eight to 10? Uh in including the one about recurring revenue is overrated. You had another recent one that really explains kind of point by point about how step-ups work in structuring a deal. So, a lot of a lot of great content in there. It's a Substack and I'll I'll make sure to link to that as well. Johannes Hack, what a conversation. Thanks very much for coming on and congratulations to you on DFW's Turf Solutions. So, really eager to see that see how that growth goes in the next couple of years. We'll have you back. Awesome. Thank you very much for having me. I hope you enjoyed that interview. Make sure you subscribe to the Acquiring Minds channel below. We are now publishing twice a week. So, tons of new interviews and stories to come. Stories that will help you along your own path to acquiring a business.