Doug Johns welcome back to acquiring minds thanks will I'm excited to be a repeat guest I have been looking forward to having you back on Doug we have talked we've exchanged emails since your original appearance in September 22 and you always bring great perspective on on our path on this path of buying a business so we have a whole lot to cover today let's get right into it uh but Doug for those who didn't hear your first interview please please introduce yourself and your story absolutely we'll start from the where I am sitting now so I'm nine quarters into owning a Mr River Plumbing franchise in Portland Oregon and Vancouver Washington just one big territory that crosses a river and I'm I'm happy to be on this show I suppose we'll call and share because so often we hear about people who've just bought but nine quarters in I think I'm getting a feeling for it so how' I get into this seat the highspeed version I I grew up as a military kid moving around the nation actually the world and then I joined the Air Force myself uh that was in the '90s the world was a quiet place and so my wife and I decided to get out and join the civilian world I went through a program that puts Junior Military Officers into Fortune 500 companies and found myself at Campbell Soup as a brand manager for n years they generously put me through the word business school while I was there and then I landed at a US manufacturer of fitness equipment called Precor and I was there for 13 years doing a variety of primarily go to market roles sales and marketing and product management customer service uh thought I might retire there I loved the organization but we went through a a sale process and I chose not to join the acquirers and while we were going through that process I I don't want to climb the ladder again I mean I I do like big organizations but wow I've kind of been in the executive team for over a decade I don't want to start over and U my wife and I just had Loosely talked about buying a business over the course of the last few decades um but we typed into Google how do you buy a business and thanks to the power of a search engine you I was introduced to Walker Dial's book in the Harvard Business review guide which bizarrely you know that two years Wen business school I'd never heard about this you know and how you actually buy a small business even though I'd done m&a a couple of times in big businesses and fast forward we had a about a 9mon process between the official start of our search and closing on the business and bought this beautiful plumbing company uh which at uh at the time had been in operation since 1995 had 43 people on the day that we bought it um with was doing about 1.8 million in ebit dah and we purchased that from the retiring owner and wife who had been running it for the last 20 years and slid into you know their roles here and um joined this team fantastic thank you for that refresher Doug so couple things to to highlight from your story which we spent a lot of time on in your first interview which will'll be linked to in the notes and which I actually which I actually re-aired uh last week the holiday week um in in preparation for this because I wanted people to hear your episode as close your first episode as close to this one as possible two things were sizable business for self-funded Searcher $1.8 million IA that is people not Revenue um so that that is uh worthy of mention so two was the fact that it's a franchise uh or franchise resale so that was something that I when when you first came on dog I hadn't given much attention to sub Sint to your interview I've talked to a lot of people who have applied ETA the ETA model to franchising but yours was one of the first and and you really went through the progression that so many people will will now find familiar which is kind of anti franchise or not interested and then eventually uh when when an opportunity presented itself really kind of stress testing it and looking at it and and trying to poke holes in it and being unable to and and concluding hey this is great business um anything to add to that what I'll add is that you nine quarters in I'm still very pleased to be part of this franchise and our franchise or is the neighborly company I think it's different than a lot of franchises in that this is a large organization they have I think 29 Brands 5,000 franchises and so it's it's a significant organization with good processes and and a good understanding um I found an interesting niche in all that large company experience that I've got uh I enjoy navigating the leadership of the franchise or and you know working with the brand people there working with the finance people there uh to assist my business but also to coach and assist with other franchisees so it's not something that's part of the I guess Roi of the investment but from a personal satisfaction standpoint I get to dabble in a a big organization still second thing that I maybe didn't mention the first time about the franchise that I've really come to appreciate though is the peer groups so I've become close with four other Mr rear owners of size and every month we send in our our good Market numbers you know how many jobs we did close rates all this as well as our p&l information and we consolidate that into a single benchmarking sheet and each month we go through each each other's numbers uh compare discuss what can we do and we have a list of projects that we're you know working on side by side or someone else is running a project that I'm kind of interested in and I watch how that's going to happen before I decide to implement amazing amount of value to have that openness in that peer group that I don't think I'd have outside of a franchise yeah that said yeah you know I love this one but if the right business had come along that wasn't a franchise I would have been pleased to do that too so I think both approaches are valid yeah and just to emphasize your point there about the kind of um information transmission that exists within a franchise Network and how valuable that is that's that's not only something that that people listening can benefit from if they buy a franchise and become uh a franchisee but also on the outside looking in through the FDD and other documentation there's just a lot of information that you can learn about a franchise business or a larger franchise Network before you before you get serious about it so so it makes a lot of the research uh and kind of understanding of what the business looks like from a financial perspective uh way more accessible than in the rest of small business land where everything is pretty opaque that's a really fair point uh when I was going through the financials to do this acquisition there had been a a pretty rapid increase in the gross margin percentage over a three or foure period and the lenders were somewhat nervous about this and I was able to through the FDD and some networking with franchises find out that that was at the high end of performance but was replicated by others in this system and so I could believe in that number as something that I could repeat and when we get to how it has gone financially in fact nine quarters later my gross margin's point2 higher percentage wise than the previous owns we were been able to maintain it um but I got that confidence because of the accessibility of information during the acquisition well thank you for the segue there Doug let's let's start uh with the with the with the dollar signs this adventure how does it look financially nine quarters in it looks really well you know this model works and I I feel like I should be starting talking about the team and the customers but the reality is you know for this audience we are here for economic gain and I think it's important to hit right up front does this model work and in in my case we're basically following the textbook so I will I'll share some some stats mostly percentages because I think the absolute dollars are less relevant um so again nine quarters in and everything I'll quote is you know thankfully we're recording this on the 2nd of January so I've got a full 2023 uh which is which is really nice so when we purchased the business the trailing 12 months of Revenue had been 8.8 million and our 2023 we finished at 10.5 million so that's a combined annual growth rate of 8% not enormous but it hasn't gone backwards and it's certainly healthy and it's a sustainable growth rate and I think that's the first if the hypocritic oath applies to buying a business first Do no harm I'm quite pleased that in 2 years we've actually grown the Top Line you know 8% uh combin no growth rate gross margin which is my personal most important metric in a business if if you're able to maintain that know that individual transaction margin then you've got money to play with if you're losing profitability at that individual sale level you know you're going to get squeezed and I've I've been on both sides of this in my business career so it's it's the one that I focus on the most and our gross margin is you know 0.2 percentage point points higher than uh the gross margin when we bought it so we've been able to maintain that which I'm excited about and I I will use this as a pitch for Home Services you know material inflation over the last nine quarters has been absurd you know our parts costs have gone I mean during 2022 I raised prices six times and also something I learned in previous stops in my career if input costs go up you just have to raise price you you can't worry about it you got to drive to this gross margin percentage well here we are um the consumers have accepted our price increase every time the percentage of calls that we close or sell is the exact same today as it was for the 12 months before I bought the business even though we've raised price probably eight times over the course of the last nine quarters and Doug can I stop you there and ask you why you think that is because surely some of your competitors have not been as comfortable as you raising prices that's why businesses get squeezed in an inflationary environment because their inputs go up but they don't have the confidence to raise prices then on the consumer so I assume your comp some of your competitors are not raising prices on consumer on the consumers leaving you more expensive Visa them and yet you you still none your demand hasn't suffered why do you think that is well I'm going to express the difference between demand and margin so demand has suffered maybe we'll get into that a little bit later but Home Services in 2023 the amount of work has declined there was a massive bubble post pandemic so yeah uh this year we actually did 5% fewer jobs than we did in the previous year even though you know our Revenue went up and we held margin but why are consumers willing to accept that price this uh theoretical statement but I I believe in any industry if your company is good enough and you're presenting value and you know who your consumer is that you're able to raise price and it's the number one fear that business people have is Raising price and those who fail to do it um lose in particular if you don't raise price during times where the entire media is suggesting prices should be going up an inflationary period when somebody's going to a restaurant and they see that their hamburger just went up 20% that's the time to be raising your prices a great you have you have cover from the media and I mean it's and it's real I mean it's not it's real trying to milk somebody here right but ultimately a business needs to maintain a gross margin percentage that is the right healthy level and you just got to go for it um I will add that this particular industry of Home Services and Service Plumbing in in specifically has more insulation because the jobs that we get called out to do somebody's going to have to do it it's not optional right yeah and we'll get into that uh perhaps of the consumer emotions of knowing they have a job that somebody has to do and their fear that they might be taking advantage of but this is not a luxury purchase this is a necessity which is one of the reasons I personally gravitated towards home services and pushed my life saving across the table to join the industry it's it is insulated well we're going to we are going to spend quite a bit of time on what's going in Home Services cuz yes insulated but also hurting as you've already touched on so we'll we'll spend some time there but Doug did you say everything you wanted to about the numbers and I think no let me uh I went off on a a tangent there so gross margin we've held and then this one I think is an interesting point net income um so you take sales Minus cost of goods minus all the expenses including depreciation and amortization which is my favorite expense as an acquisition entrepreneur you know in the last 2 years we've only made 2% net income is 2% of Revenue so my taxes are really low because my taxable income is small relative to the sales and that's a full 14 percentage points lower than the previous owner so on paper that looks pretty miserable but this is the way the model works right I've got six or seven percentage points there that's just depreciation amorz it's a non-cash expense from the asset purchase style and that's insulating the business and helping us build up cash because we're not having to pay taxes on you know on that part and then of course I've got four points of uh interest expense from my SBA loan and and seller note um so it looks percentage wiiz like we're doing miserable but then if you roll to ebit dah uh which I think is the more relevant the seller had hit his all-time high in the 12 months uh before we bought it and he was at 19% and this year we were at 15% and if you what's the difference in that well Investments that we've made in the business you know bringing on more headcount kind of this classic J curve that every Searcher talks about putting investments in so that we can zoom ahead but 15% IIT da on you know a business after nine quarters that's super stable super healthy and so the you know the model the model works but the last piece of the model is ultimately cash onh returns and that's that's what we're all here for and we have generated cash and I'm defining that as taking all the money that my wife and I have taken out of the business in compensation um plus just super simple the change in the checking account balances of the business from day one until uh December 31st and that total cash created is 188% of the cash that we put in so 1.8 and if you annualize that it's an 80% annual return cash on cash Harvard Business Review red guide Walker book that's what they say well yep it can work but before everybody goes and runs out and does this it still feels to me like it's paper earnings you know like you came and looked outside my window here my wife's still driving on a 2007 Honda Odyssey right and I've got a I've got a 2004 Chevy Silverado and we're living in a two-bedroom townhouse right the on paper were the 1% but the the fact is that on top of all that cash generated you look at my balance sheet I'm carrying $6.5 million of liabilities you know between all the debts and the additional Vehicles I've had to buy for the you know the business so I'm you know completely satisfied with these results you know I but I I've got to warn folks that's not money in your pocket yet it's a long-term play but the cash generated is is profit that you could take out of the business that is correct because the the B the businesses monthly ongoing profits will cover all of the expenses that are coming up monthly so you could take you could take out a million dollars but you choose not to out of prudence is the is the deal yes yeah I want a strong balance sheet and uh we might cover this later I admittedly have taken it's not a not ashamed of it we have taken money out of the business uh the biggest trunch of that is buying back the shares we purchased this through a Rob's rollover for business startups approach and the C corporation bought back the shares from my 401k and so a you know round number 600 Grand went back into my 401k to buy that out and so that's basically like right in my that is right in myself a very large check okay and um and when do you think that there I don't know if there this is is a qualitative question or a quantitative question but when do you think there's a Tipping Point where all of a sudden those paper gains feel like real gains and you don't feel like yeah for me that would be when I feel like I could sell the business and walk away with some Financial gains some significant financial gains and right now if I you know since the iida has um has dropped about $100,000 in real dollar terms from when I bought it if I found a buyer who was willing to pay the exact same multiple I did for the current Eid dah and then I paid the transaction fees to a broker and then I paid a little bit to the franchise or I would still need to put a million dollars back in to cover all the liabilities on the balance sheet and you know there's things on there that most Searchers don't think about but after you know after owning the business for this while I've got a huge amount of paid time off that I would owe people if I sold the business you know it's a couple hundred grand in there because of how many employees we have so if I sold the business today for the same multiple I'd have to write a million dollar check to walk away free and clear so emotionally I think I'll feel like this is stable when I could run the numbers and say yeah I could sell the business and that sale would cover it and I'd walk away with some money I believe that's at least five years um it's really going to look good of course at the end of the SBA term at the 10e point um this is a longplay game and for us so far it's working really well and I have confidence it'll continue to work well but you cannot buy one of these businesses and unless you're one of the lucky Searchers who buys something small and has a brilliant IDE and is able to you know multiply the business to 3x but you know here at the 8% respectable level it's going to take us at least a half a decade before I think we could exit comfortably I'm happy with that but we are all in for a long time yeah well there's so much there Doug one thing I just top of mind is you know you the size of your business is enviable when you bought it 1.8 million in IA 1.8 million in IA okay everybody so we always talk about kind of 2 million and Below being like where private Equity doesn't go that's a very um imprecise threshold but that's whatever the number you hear bandied about so you were bumping bumping right up against that very few of my guests have bought a business with so much so that was Cash flowing so much or so so profitable um and that's so that's wonderful uh at first blush but there is there is I guess a wrinkle to that which is that it's probably going to be harder to grow it's probably going to be slower growing if you buy that 300,000 SD business fragile like we know all the flaws to doing that and or you know all the all the dangers of doing that but it's much easier to double that SD than to double your SD SD um so any anything want to respond to with that I think that's a fair observation and yeah I'm still still in the camp of buy the largest business that you can uh I've I've modified that a little bit from the books though buy the largest business that you can purchase and responsibly operate um you know I I would not you know if I had had investors and money and whatever but I was my 30-year-old self I would not have been ready to run this or organization uh to lead it to get the results that we've gotten so far or even have the uh the time to do it there's you know my wife and I are we've got a 20-year-old and a 23-year old um so we can be all in on this if I had even been 10 years ago and I was trying to participate in Youth Sports and you know be there for all these events um I don't think I could be doing what I'm doing right now this is a full on life consuming job even with managers you know we got 50 as of three new people started day got 53 team members they're amazing I'm putting in 60 hours a week and it's not in minutia right I'm not out turning wrenches I'm you know I'm doing things that are very strategic uh I'm working on pricing I'm I won't run the list but I'm I'm doing things that are high up the management pyramid I'm putting in 60 hours a week yeah and I love it I absolutely love it it is the best time I've had in my entire career and it's been great for our family and my wife's enjoying it and for us as empty nesters to be doing this together and have something to work on and take care of the team that's here I mean this is the best thing that I have ever done professionally but don't follow my path flly well uh I I'm going to ask you to elaborate on your enthusiasm there uh Doug but before we do I just want to make sure I don't lose my questions uh to what we were talking about before the you're Shoring up your balance sheet uh which is why you haven't taken more money out of the business which you probably could have why are you are you just is there a tactical reason that you're keeping uh big dollar amounts in the bank account versus paying down your loan faster how how does one decide that yeah I've debated that every couple of months for sure um because with right now my SBA Loans around 11% so that'd be you know it started out at six um so when by the way when the banks tell you you need a debt service coverage ratio of you know almost two some of them say they're I've certainly lived the importance of that we're fine we got plenty of cash to pay our loan everything is great but you know that uh going from 6% to 11% is a a pretty good shock to the system yeah you back to Why haven't I paid down that loan uh I'd say two things three things one is I just I do like the security of having the cash there if something bad happens you know I can drop a couple hundred grand on the problem um number two leverage does work uh it's you know it's how we buy these businesses but it's also for example I've got a fleet of over 40 vehicles um I've got to buy in the last year I've bought seven Vehicles I've put them all on financing I could have bought them with cash but ultimately you want to spread that cash flow out and the payments on seven Vehicles is you know probably about the same as purchasing one vehicle outright and then those vehicles are generating cash so you know I believe in leverage and so I'm using it and then the third one maybe a bit of ambition here but I could imagine making additional Acquisitions and so I need to build up cash to be able to do that great thank you Doug and then back to my question about when do you think the the um the Tipping Point will be in terms of actually having real cash coming out of the business comfortably Etc do you have a sense of when that will happen you said of course at the end of 10 years at the end of your loan when you're when you paid off your whole loan that's that's a big giant huge obvious threshold for anybody who buys a business with an SBA loan but but I suspect it'll it'll happen sooner than that do do you have a sense of of of like will year four year seven be the a magical year where there's this Tipping Point yeah my wife going to be upset that you ask that question because now I'm going to go spend three hours in a spreadsheet trying to figure out when that point is going to be okay so I'm going to start with one important caveat uh I suppose for that listener out there look I do recognize that what we're talking about here is a guy sitting on top of a business that generates over a million dollars a year and like will I feel comfortable like look I'm I happen to be born in the greatest nation of free people in the world at the right time in human history with the SBA program like I am sitting in such a fortunate spot so I don't want to make it sound like I'm nervous or uh ungrateful you know when I've got all this cash floating around but mathematically I think after about 5 years if we can continue this uh stable growth and maintain our margins then we're going to be in a position where uh the amount of cash that the business is generating relative to all the liabilities um is going to feel more comfortable and I'll have that psychological piece of knowing I could sell this business right now if I needed to had to wanted to and I could walk away with you know some uh some comfort great thank you douc and I just want to before we kind of move on um from the kind of the financial piece or the the very um kind of quantitative uh aspect of all this just a great quote you emailed me um which I think distills a lot of this from your words we love business ownership and we sleep fine but we also strongly advise the Curious that this Highwire Act is not suited for the diletant or the weak of heart for those who are capable committed Business Leaders and fully comprehend the model however ETA is the ultimate life hack that grants access to what feels like a secret career and lifestyle hiding in plain sight I think Doug I will make that the motto of acquiring minds that was so concise well put all right well maybe I stumbled into some wisdom there okay all right well let's let's hear then more about the qualitative aspect so you have said that you you love this it's the it's the the the most fulfilling part of your career to date uh tell tell us more what does life look like for you these days how is it changed H in in so many ways uh both in our personal lives and and at work so just in no particular order I'll rattle off a few things we're really enjoying um one just for me as a leader in a business person is autonomy and control and anyone who's listening to this podcast has got to have some level of uh ego and think hey I can do things I can get things done and probably has had that career experience like no this idea is brilliant you know you may not have appreciated the 25 PowerPoint slides that you force me to create to try and convince you of that but we should really be doing this you know that's not my life anymore and by the way I had great organizations uh so if any of my former team members are listening that was academic statement but here my managers and I and we get together we sit around this beautiful $150 Craigslist conference table that I bought we discuss what needs to happen and yes we're going to go buy a new excavator okay next week we own a new excavator right there's no it's so the the speed the control the autonomy uh is invigorating and it's fun it's also High Stak you know you might make the wrong call but you know who doesn't want to have their Destiny uh you know their hands on the wheel so I'm loving that part of it yep the other piece an additional piece that I really enjoy is being close to the team and and I've appreciated that in my previous leadership roles all the way from the you know my Military Days up up through my executive times I don't know it's just a little bit different when I'm the owner and I can be with this team and kind of know that the direct efforts that we're making are impacting these folks lives and we have the you know the summer picnic and they bring their kids and we're playing cornhole you know it's kind of simple stuff but you know I had uh just yesterday I was in on New Year's Day uh doing some work and we don't close so one of the technicians came in between jobs and I was chatting him up and he just kind opened up about how much he enjoys this kind of work and he had this is one of the secrets Blue Collar doesn't mean uneducated um you know this fellow has a four-year college degree he'd gone to school with the thought he was going to be a nurse really a you know someone who wants to contribute and help others and he got down that path and realized that kind know the administration of hospitals and the work life of the doctors and nurses was unattractive to him and so he didn't choose that path and he ended up doing something else and eventually landed at us and here we are he's talking just about how he loves going into people's homes and solving their problems and taking care of him but then at the end of the day being done finished with his work he doesn't have any duties and going home and enjoying his family and he went on with some really generous specifics about the leaders here not me but his super visor and how they take care of him and that is the ultimate warm you know leadership piece and like wow I'm I'm working with these folks and doing my best to provide an environment where people enjoy being part of the team and and love what they're doing and collectively we're doing work that matters and helps people that's the biggest win great thank you for that Doug and and what about two two parts to this question but be becoming part of the community that's something that you and I spoke about a few weeks ago that um it it it that's kind of one of the very um key differences between a corporate career and a small business career small business you're uh you know you're on Main Street that's kind of another another colloquialism for this path talk to me about that very much are and I suppose it's all maybe vary by industry or or business type but what I'm finding is that there's not a lot of separation between me and the business in any aspect including out in public and okay I could wear different clothes but I pretty much wear my branded jacket you know and shirt everywhere we go and for those listening to the Pod and not watching it on YouTube Doug is in his Mr rder shirt as he was back in September 2022 so I don't I get the feeling this shirt doesn't come off no why not I'm a simple guy I've got three shirts now and two pairs of jeans and that's all I need um you the tech guys wear their black brooding t-shirts I've got this you know red branded one but um yeah so our our office our main office is in we're outside of Portland in a town of about 10,000 people um our office is in a building that was constructed in 1862 it's been the plumbing shop for the last 20 years we go to the same restaurant every Monday night at about the same time we're seeing seems like about a third of the people in the restaurant that night are the same every week and I mean I've had people come up to me true stories in the restaurant and ask me about their Plumbing which is a little awkward because I'm not a plumber um but I can I have no idea guy but I know a guy I really know a guy yeah yeah um we we had a woman write in one of the Google reviews about meeting me in a restaurant oh you know so and then you know the local triling team from the high school is going to come by when you're a small business and say hey will you please you know sponsor our trip to the state capital for the Championships and the local you know baseball team's going to want you to put your name on a banner on the Outfield fence and um you know the guy across the street who runs the auto shop that works on all of our trucks like I I walk over there every Monday and personally hand him the check for last week's you know jobs and we hang out for 20 minutes and talk about the weather uh or transmissions and it's just a and uh one one more a bit of this kind of small town Nirvana I guess is we've chosen uh to rebuild a house that's 100 yards from our business and I'm putting together the ultimate work from home lifestyle so we're we're putting some money into the place and and turn it's a 75y old house so we're we're redoing a lot of it but when it's done I'm going to wake up in the morning walk over to the shop see the technicians before they dispatch for the day walk around have a presence Pat some guys on the back congratulate him on things fire them up then go home and have breakfast uh and work out so it's a total lifestyle integration I don't think everyone would want to go that path but it's cool and our neighbors you know previously I lived in Seattle and every one of my neighbors was like Microsoft Amazon you know million dooll homes kind of deal in my new neighborhood uh the guy next door runs a CNC machine in a factory uh the one across the street she cuts hair for a living in her garage the guy across my back fence is an owner operator trucker um wonderful people honestly I know more of their names than I knew the names of my neighbors in my million-dollar house neighborhood and uh they all just see us as plumber it's hope I'm not posing as what I'm not but it's it's a really enjoyable kind of thing I feel like a different part of society has opened up I I get a lot more like friendly looks and support walking around with the shirt on as a plumbing company on Earth than I did as an executive that's for sure well this is I find this just so fascinating um from your kind of personal story perspective but also I just feel like that you're tapping into kind of a profound truth about America that kind of two Americas that we all uh hear so much about not necessarily red and blue but Blue Collar White Collar Coastal not and I I know you have you're still Liv whatever living in the west coast so but but you know however want to frame the two Americas you seem to have jumped from one to the other and and and a lot of the you know in the former America where there's maybe more money and and um it's more corporate it's also more alienated at least your experience was you don't know your neighbors names now you do um and it also feels it also feels a little bit like you know mayber esque which is euphemism for old fashioned and I don't mean oldfashioned in in a derogative way derogatory way I just mean like I'm it just it's not a picture of America that you hear so much about anymore that might be my own bias or my own ignorance that I'm not in those communities and they're everywhere uh I'm you know I'm you know I'm in DC suburb San Francisco so that just might be my own bias but anyway I I I love it and and I love that you're able to now speak to both of it and how much you're enjoying kind of this discovery for of a better word of of another side of America anything to add to that I'll add two things one is there there is it is pretty humorous because many of you know my my peer group from my previous employment and the people that I was spending a lot of time with um you know we all went home during the pandemic and started learning how to use Microsoft teams and you know doing these things my peer group now is like yeah all those you know we never stopped working you know we we were going into people's houses after the first week cuz their stuff still needed to be fixed right and it's like hey it's great if you guys want to work from home but this is where the real work happens there's it's like a a real and it's a positive thing I'm not telling you that there is a divide between like my blue collar team members and their white collar neighbors I I don't hear any Us and Them commentary but there is some chuckling like oh really it must be really hard to work from home you know like right try turnning a wrench you know it's okay come out you're you're all right take the mask on and join off and join the world but the second piece that I'll add is make no mistake there's money out here right and that's that's the core of this whole ETA I mean ETA are all they may not buy trades business but ETA is definitely buying small business and this is the secret good America hack this is where the money is you know it's in business ownership um I was a pretty senior executive flying around the world eating at nice restaurants and you know doing glamorous looking things even though I haven't cashed it out I'm making more money now than I did then and the guy down the street um I'm not going to name him but who owns an independent HVAC shop that I've become friends with that guy's owned that business for 25 years he's got three houses you know and uh goes to work in jeans every day and drives a pickup truck he's now I am admittedly when I talk about these other business owners that is the if you will the the the elite of blue collar right this is totally different than the guy that's 10 houses down for me that is a one-off plumber that is going in there isn't pricing his things right is getting no benefits he's got the feeling of freedom of being an individual owner operator but um he's not going to have anything when he's stops working or if he tapes a vacation he's not going to paycheck so anybody who's listening to this phone call or this this call it's we are still talking about being in a rarified strata even in the blue color world tell me a little bit about how some of these other SMB owners that you've met locally become friends with uh get get the get the inbound from people wanting to buy their businesses and how they react yeah that is that is funny I um so I've become a member of the Plumbing Heating and Cooling contractors Association uh with which is as you would imagine a bunch of owners of these small businesses and I like the concept of weighing into an industry I'm also learning from it uh last year they had a an event and six of us went out to dinner at a I'll generously call it a steakhouse but this is a place you know that has a plywood door and uh one step above sawest on the floor so we go in there and we're getting these you know bone in ribe eyes and the other five guys all came up in the trades and I I have to add I have been at least you know by the larger owners that I've met I've been very well accepted um no one has said oh you know now I don't walk in and say let me tell you about my wart in MBA right you know I don't lead with any of that I'm driving an old truck and wearing this shirt and jeans but nonetheless um they ultimately know my background and I've been very accepted because the the trades people that I'm getting to know that they appreciate my business background um and they'll say wow I wish I had some of those skills to take my business to the next level right so it's it's been a nice thing anyway we're sitting in there and uh we got around to the topic what we were talking about in that sawest on the floor steak restaurant was ebit Da multiples and private Equity like anybody who owns a trades business that makes makes more than $500,000 in eaer knows the game they're getting emails all the time uh they had heard the phrases like we were sitting around laughing about uh you know youngsters coming in and talking about multiple Arbitrage and dry powder and all these phrases that you know kind of get used in the PE World they know all this stuff they they're like the this maybe a but they're like the prettiest girl to dance she knows it right and so um they generally don't even respond I get emails all the time ridiculous chat GPT written driil that comes into me probably once a month from somebody looking to buy businesses obviously I don't reply but they do accept you and which is a a second a side point to to what I wanted to the point that you just made but um just let's double click on that they do accept you even though you're not one of them you didn't come up in the trades they might not know that you have the Wharton pedigree and stuff like that but they do see you as somebody who came from corporate probably they know that much about you and yet they still accept you and why do you think that is why why when they're kind of laughing at these these inbound from these people who want to buy their business uh you are at least at least superficially that Persona so so and yet they you're sitting there J joking with them about that that very phenomenon so so why do they accept you well maybe I just have really low EQ and I don't realize they're making fun of me behind my back but I think the reason that I feel accepted is um one the people I'm interacting with are the ones that have solid businesses um you know I'm I'm not hanging out at the uh part store talking about Plumbing with a a one-off guy right and I probably couldn't pull that off I mean as hopefully as a decent human being I could do that but we wouldn't have something to connect on so they are business owners that's important yeah but then the second one is it's physically obvious that my wife and I are all in we've moved into our community we are at the business all the time I'm wearing my logo just like they wear their logos and I've invested like I I've read the plumbing code like I'm not a plumber I don't try and pull that off but I do know a lot about it now right I can I can have industry level discussions with anybody and so I think they can see that there's that commitment I have sponsored you know local things that's probably the difference if I were a capital allocator um and a hold co-master which hey great for people who want to take that path it's viable too but I don't think I'd have these one-on-one interactions that would be as positive Doug you characterized uh your integration in the community or kind of the this this picture you painted of how how integrated you are is nervana so you and you made it clear that you really enjoy it um but just you said it might not be for everybody you know there are you know there are the the random approaches at the the dinner table when you're out to out to a meal with your wife there's the local the the high school team wanting you to sponsor Stuff Etc um so I I I just imagine I'm getting a feel of kind of of kind of being exposed a little bit and and you know that's kind of the nature of small town life anyway uh a lot of people will say whether or not you're an SMB owner in the community um but just say a little bit more so it's not too romanticized because if it's if you didn't like it you might really not like it say say more about people who need to understand truly what this you know what they're get signing up for if they move into a small town and buy a local business yeah and and I don't want to take the small town piece too far you know I I've got two and half PE two half million people on my market right Portland Vancouver nuts where my particular shop is and where I'm spending my time is a small place yeah but good clarification yeah a couple of points to unpack there one is the like buying one of these businesses we already went through the numbers and it's probably going to take this is you know just short of a marriage in terms of the commitment you know you you take on a a job at a new company and you decide you don't like it you can be out of there in 2 weeks and got a new gig and two more and that's just not possible with one of these Acquisitions um without extreme pain particularly for somebody who's further along and has a bunch of assets right I the bank's got a right everything that my wife and I have accumulated over 50 years um we have to make this work and so there's a a level of pressure yes it's fun it's invigorating but there is this looming we must make this work it's there's no middle ground and I have met people in on the trades side um who've acquired businesses that haven't had the results that we are um I know one person who is a West Point graduate with a Harvard MBA and his business has floundered and he's not sure how to get out of it and his partner even moved to a different part of the country where they want to live but he feels like he can't leave um because the financial performance of the business has been so poor and know the industry overall is really resilient but individuals can fail and so there's you know just no coming into this that there's that weight there's also um an emotional weight of being maybe this is just my Approach but being so personally tied to something even as a executive where I had been there 13 years and I cared greatly about the company ultimately I could say well our results this year you know if that guy over in that division had done a better job right no it's all on the owner total ownership in this case and uh I'll give you an emotional example of this being in a customer facing business that gets Google reviews I at least I open up that review and I feel like it's being written about me even when even when your name isn't actually included in the review even when it's not in there and U you know I'll tell this story quickly it's uh about the trades but so many people are looking at it it's instructive so when we go into a home we have an interesting situation um we're selling something in Service Plumbing that the person needs but doesn't want nobody woke up that day and said oh I hope I can spend $1,000 to fix this leaky pipe right we are dealing with a customer who underestimates the scope of their issue like oh can't I just pour some Drano in here right or you know a snake they have no concept that there may be some clog 40 ft down the pipe that requires special tooling to remove they have no anchor price reference because they haven't purchased this service maybe ever uh and there's no published prices out there so they might think it's going to be $100 and it comes in at $600 um you're often dealing with uh emotions and uh usually it's from the man so many of the men when we show up at the house you're feeling emasculated because they can't fix this right yeah um they may and it's not uncommon that he actually tried my my uh director of operations as a sign in his office it says I'm here to repair what what your husband tried to fix right now we don't we don't say that to the customer obviously but you know this is emotionally charged um you're going into someone's house who wasn't expecting anyone to be there we see some really interesting things right so that person may feel exposed vulnerable embarrassed so all this is what we're walking into and then they're going to write a review about that experience um and two different people I I'll read you to this is the exact same job done by the uh two different technicians but for the same price it's clearing a drain and both of these you know they hit my phone as soon as the Google review was posted of course I look at it right away and so the you know the first one writes my kitchen sink backed up this morning I called Mr rder and they sent kobby out he was amazing he offered me the choices and I went with the power flush about 1 hour later all my drains were clean and functioning like new I highly recommend Mr Rutter and Colby this person spent $650 with us and we were there for an hour and they are delighted right mhm the next day same job different technician different home but same price same thing and the guy writes I really wish I was making this up my drain clo I called Mr rder according to my security cameras he was on site for 1 hour and 13 minutes in other words to clean my pipe Mr rer charged $629.99 an hour what can I say they got me Mr rer will say correctly that they told me the cost and I agreed to it but I was out of town my wife was alone it was a Saturday and I was rattled and anxious why would Mr ruer do this was it worth the loss of a customer for a one-time Prophet I was a chump my fault never again so Saturday night I'm out to dinner with my wife rudely looking at my phone because it shakes I read this I am a scoundrel oh my gosh am I taking advantage of this guy like that close $600 an hour this is absurd what what kind of raging capitalist have I become right you know this is right you're going to as a small business owner you're going to potentially if you're exposed to Consumers you just you know it's hard not to think about that now to finish that story out I always just go back to the numbers and I talk to my team about this every six months because they can get this kind of thing 99% of customers are really happy right we've got huge reviees they're all great but you get one of these guys and it hits you emotionally well you know last year our ebit DU percentage of sales was 15% over the last decade the ebit DU percent of the S&P 500 goes between 18 and 20 the Russell 2000 smaller stocks was between 12 and 13 so I all right I know I'm running a business reasonably and that person that we just went in to serve likely has their life savings put in the S&P 500 Index Fund like most Americans and they expect their retirement to be in companies that's making 18 to 20% ibid da we're making 15 so no this isn't unre reasonable no I'm I'm not a you know capitalist Overlord that's doing things wrong and then I calm down and I move on anyway long story but interesting emotional side of U of of this and and Doug that was actually a wonderful illustration just gold do you think though that you are developing a thicker skin have you seen that in yourself or is it still is two years still too soon I am I am developing a thicker skin and I'm trying to guard against that as well because one of the risks and I have seen this is when the business owner immediately jumps to now those customers are wrong you know so I'm trying to follow this balance you know I don't have a sign up in the shop says the customer is always right because that's a lie right yeah um but I I do believe you should go in with the old cvy uh begin with assume positive intent yeah and the fact is I can screw up my guys screw up we do 10,000 jobs a year some of those we're going to make a mistake um I might even have and I had one that we fired I had an employee who was you know prescribing solutions that were not required in order to get higher sales and thankfully we have such great data we're able to see these anomalies and then Coach them monitor them and ultimately fire them uh um so yeah sometimes often the customer is sometimes the customer is Right often the customer has a reasonable emotional reason for the way they respond I mean they're in a bad spot and then a few times you know you get people trying to take advantage of you I had uh last week we had someone try and fake an accident with one of my trucks for an insurance claim you know they pulled up behind our truck got out hollered at the guy said get away from my house was not a customer it was like a nextdoor neighbor and then uh he started to back up because it was parallel parking and she blared her horn and jumped out and said you just hit my truck well thankfully we've got cameras and it we can prove that no we didn't backage her car but you know yeah there's you just deal with some wild stuff when you're out in the public yeah I I always think of that as one of the um huge huge differentiators between B2B businesses and B Toc businesses you know we often times think about that in kind of financial terms b2c is going to tend to be you know higher volume Etc lower margin whatever um B2B is more likely to be recurring and so on so but but it's also like the quality of your customer if you're dealing with a business person is going to be so much higher than if you're dealing with the general public uh forgive me everybody listening who's part of the general public which is all of us but let's be honest a public public ain't pretty sometimes particularly when you're going to someone's home I had one of my top technicians got pushed on a flight of stairs last year by an by an angry husband wow he didn't like the price wow hope hope he's okay he was fine um shaken but you know he was he was physically fine and uh you know we we worked through that but again though 99% of the people we serve are just delighted that we're there and it's a wonderful experience it's just those stories you know the story of the lady walking down the street and bringing cookies to the customer service Representatives is is nice but it's not perhaps as entertaining as some of the wild wild negative ones well and one other just little small point to make here that I'm reminded of is if you're in a b Toc business um one other way to think about it is are you in a business where you're serving the consumer on your territory or you're going into their territory so if it's you know a retail store you can kind of control the environment to a degree which is great but then you have the public entering your space and and there can be issues there uh versus your business Doug where you're going into the consumer territory namely their homes and as we've just heard there can be issues there as well so pick your poison neither neither great okay Doug let's let's move on here there a couple um uh big big topics I still want to get to First is um just a little bit more on your lifestyle or maybe more than a little bit you've referred now to your wife a number of times she's involved with you in the business to what degree give us a picture of that in in your and kind of your your partnership and what all that looks like yeah and she's not eager to jump on camera or I would you know pull her pull her over here uh so we've been together since I was 19 and she was 20 and now we're you know early ' 50s so it's pretty hard for me to even remember a time before we were together she has a master's degree in civil engineering and is a super capable lady as we uh were looking at buying a business she made the generous commitment to go back to Community College and pick up an accounting certificate because we recognize that I've got strong Finance skills but I've never you know done accounting and we didn't know what size business we were going to get and just you know protecting and understanding the cash was so important so we just committed to do that together and she went back with a bunch of 20-year olds to Community College so now her role in the business um in the first two years that we owned it she worked maybe 20% you know of the time and we didn't repeat that story but we continued to own our home in Seattle for 2 years and commuted down here um I was physically on site for a little less than half the time and I measured that so I could maintain my Washington residency um but now that our kids are doing their things uh were we're here full-time anyway during those first two years she primarily did highlevel financials um and what about four months ago we lost our bookkeeper and there's no backup I mean there's one other Director of Business operations here that can do it but she's got duties so now Georgina's been full-time bookkeeper while we find the right perfect fit and what an amazing blessing to have her ability to step in and do that now on the flip side she already had her other duties plus that and so for the last four months you know she's been working probably 10hour days and we we've got great candidates here we going to get out of that soon but when you're even though 50 person is a big small company it's not big enough that when you lose a key role you got something to fill the Gap what about this this aspect of U how much how integrated this business has become in your identity and your day-to-day and moment to moment and now Georgina being much more involved only only serves to to you know capture you more poor choice of poor choice of words it it is true uh we're we're all in I mean when we go to dinner on Monday night at that tire restaurant I referen we pretty much talk about the business um we've got other fun and exciting things in our lives too but we we designate that Monday um as a business dinner and discussion um and when both of us are working full-time at something I mean it it's a lot of what we talk about um I know other in fact I know quite a few um husband wife combos in these trades businesses they they often start that way where you've got the technician and then the wife answers the phone and maybe the son becomes an apprentice right and the and the family is that way but even the bigger ones um I know quite a few married couples that are both in it doesn't have to be obviously I've got some friends where the wife is completely not involved um and maybe even does her own thing but it's it's pretty common we like it and maybe it's just U the life stage thing that now we're you know in our early empty nester years it gives us something mutually to to work on and for me it's a heck of a lot better than watching TV so you know that's my personality I'm a driven guy I want to build stuff I want to work on it and so it's invigorating but we let me not make it sound uh like it's all you know the grind said as as my son would say you know I've probably taken I I probably took seven weeks of full on vacation this year and because we do have a management layer in place um and I could work a lot less if I just wanted things to Coast I would not feel comfortable with that because there's so much at stake and I enjoy it but to be clear this 60 hours a week that you're putting in when you're not vacationing for seven weeks yeah is is working on the business in kind of growth forward oriented as opposed to keeping things together with your bare hands 100% yeah no one needs me on a daily basis yeah and so a lot of the things that I do on the business wouldn't have to physically be here either you know the first two years like I said I was physically present less than half the time yeah yeah and great we do have admittedly a in a longer term vision of a couple of years from now not putting in those kind of hours um and having you know doing a bit more traveling and uh and I see a path to that but we've got couple more uh management roles to fill and develop and train before that can happen is uh what I I this isn't a polished statement but it's what I've been using with my team this is currently a 50 person operation that runs like a 10 person shop and we need to start running like a 100 person business I it's a you know the previous owner did a great job with culture and with the financials and taking care of customers but he didn't even have a bookkeeper I he there was only you know we've promoted multiple leaders of people from within in the last two years and you can't see my whiteboard over here but there's a there's an org chart over here that we created 90 days in with a vision for what this orc chart should look like in 5 years and we're marching towards it and people are excited because they're getting career progression and roles but right now I'm in the midst of building and coaching all that well and it also sounds like you might actually want to acquire some growth as well which is correct you know starts the clock over because then you're on a new acquisition that you got to transition grow make sure everything is good yeah I love doing this so you know for people who love leadership and love business this is a great path great Doug two more big topics one bigger than the other let's do the little one first the robs so this isn't going to be um super relevant for a lot of people uh but it's going to be extremely relevant for those who are considering robs you you touched on it briefly but let's give just a couple minutes to your original Rob structure and then how you bought your Robs out because as I know from our exchanges over the last year and a half that was something so esoteric that even your your Rob's provider didn't quite know how to to to help you do that but in doing so it's allowed you to kind of surmount one of the reasons people don't like robs which is your 401k owns the business or owns a material part of the business and now that's no longer the case anyway I'm getting ahead please let let's give a few minutes to this for the people who who are robs curious oh very good okay so uh the way the robs structure works is the acquirer creates a C corporation that's an important component um that C corporation then has a 401K this is even before the asset purchase of the acquisition the entrepreneurship you know acquisition entrepreneur puts in personal cash onto the balance sheet and then sells shares to the 401K so more cash goes on the balance sheet and then that cash is used as the equity injection and the acquisition um the beauty of that is to be able to tap money that usually you can't we chose that path because I didn't want to liquidate every ounce of cash I had outside of my retirement fund I I wanted some Safety and Security the downsides of that from my perspective were that as a C corporation we're in a different tax style and so if I take money out of the business um I was you know uh paying tax on that as well as the the earnings of the business also under the Rob structure the C corporation is not allowed to do business with related businesses so if I want to own real estate I can't own real estate in a separate LLC and lease it back and that's part of our our plan and then probably the biggest one is if you want to take money out of the business the percentage of the shares owned by the 401K all you know that percentage of the dividend has to go into the 401K so it kind of gets your cash locked up um we dou quick question how much of the business is owned by the 401K at acquisition so in my case we're very careful with this and it was 49% and I was advised by a person who does valuations for BuyBacks that going through the the buyback process you have to uh get an appraisal for the shares of the business and you're going to sell the shares back and if the shares are less than half of the total business then they are less valuable because they don't have control why an investor come in and buy 49% of a company uh and you know a private you know non-traded company um that would be a risky move so I was advised that when it came time for valuation those shares would be worth less than 49% of the total aggregate of the business which would make my the amount of cash I'd have to put in to buy the shares back lower and thankfully we had that advice and we were in a financial position we could do it I think most people who use a robs the pro prototypical is a guy who buys a Subway franchise and it's 95% funded by the robs and he just plans to that's the only way he can do it we were in a different spot so we did buy it out and the way that worked was uh in the first year of the business I really stockpiled cash we didn't buy vehicles we really scrimped by built up the balance sheet then we paid for a thirdparty valuation um of the ship as required by the IRS and we moved that amount of money into the 401K the shares were retired and then uh at that point Georgina was the 100% owner of our C corporation because she owned the 51% previously now she owned the whole thing and and we converted to an S corporation uh so now we're a pass through entity like most Searchers want to be and so it worked out amazingly well for us it was not nearly as simple as what it just sounded and there was a lot of work to it and now reflecting back to be clear the whole purpose of that exercise of using robs to begin with was to access Capital that was in your name but that you didn't really couldn't really access it's locked up in your 401k uh and because you didn't want to just deplete your liquid cache um so that's really that's really what the risk you were trying to mitigate so you go versus some of my other guests the the money in their 401K is the only they they need to go that route because that's the only Capital that they have to access to to that could afford the down payment on a business absolutely and I I have a friend who has owned a business for about eight years that he used robs to finance almost the entire thing and his business is uh about 8 million top line and similar margin percentage to mine he can't exit at this point because you know his 40K owns a high percentage and he's grown the business dramatically over eight years and so the amount of cash he'd have to generate to buy it out it just doesn't make sense right so it's it's definitely a viable approach if it's the own I mean I'd rather own a business than not so if someone has to use robs for a high percentage great we thankfully did not although I I'd say what we really did cuz that cash that I kept on hand I would have kept on hand anyway so using the robs let us buy a bigger business than if we had just used the cash that we had on the outside and as has been stated so many times I think a bigger business that you can responsibly run is a safer play okay to close us out Doug although this has probably be a few minutes let's hear about what's going on in Home Services to set the stage as you've already kind of said in passing a number of times Home Services is very appealing because at least uh at least reputationally it's it's um recession resistant kind of steady constant demand it was particularly hot in the last few years as kind of private equity and now Searchers have taken an interest benefited from covid um and so I guess I haven't been paying close enough attention because my conversation with you my conversation with John Wilson uh who's also very has a big business in this space everybody in Home Services is talking about how difficult it is now bloodbath is a is a word that's bandied bandied about in the in the Home Services world so and and and there are more reasons to Like Home Services they're fragmented at least seemingly so it's filled with very tiny operations where you can come in get rid of the fax machine throw in you know the whole kind of ETA Playbook uh is is um seems well applied to Home Services businesses which which can kind of feel amateurish and lots of room for tech tech adoption and so on so what's it actually look like from the inside sure and the John Wilson you references that from owned and operated yeah exactly yeah yeah he's tremendous I'd love to meet him someday I listen to all his stuff great so oh good well I'll introduce you guys he's going to come on the pot here in a few weeks yeah oh is he oh he is he's outstanding okay so what's going on in home services and then maybe we can talk about that um uh Home Services being ripe and kind of easy conversion there's some some fun details there yeah so first is a matter of context we're talking about an industry that if it has a year of decline line those who are in it say it's a bloodbath where I think many of us have had careers where we're in companies that might swing double digits on a regular basis right um right so there is a relative to it that said yeah Home Services isn't down um I'll give you some numbers but what has happened here in you there was such a pandemic boom you had not only were people staying at home and noticing things were wrong with their home that they wanted to take care of um you also had people staying at home and now had time to have someone come in you know that that toilet in the basement in in the wreck room that uh backed up occasionally well now because of Zoom the guy's home all day he's like I can have somebody come in and take care of it right so there was I think some backlog that got taken care of and then the government put a lot of money in a lot of people's pockets um and they weren't traveling so like HVAC in particular you know a lot of people put in new uh air conditioning systems they weren't taking a vacation that year so fast forward to now I that kind of backlog is behind us people are feeling a little more squeezed and what we see is in HVAC I I looked at numbers of shipments of new units by manufacturers um which I think is a good industry proxy and this year their shipments are down 15% mhm so that's that's a pretty big drop when companies had been seeing this you know kind of growth um another proxy you know my sales were up 8% this year that's my kager my sales are up a little over 5% this year I'm privy to numbers across the franchise and I'm a couple of points ahead of the average and that's 225 different plumbing companies right so that's kind of a Slowdown but then the uh the other proxy I look at is Home Depot is Home Depot represents the appetite for Home Improvement not only in DIY but many many many small contractors use Home Depot as their provider and Home Depot same store sales are down 4% year to date and it's the first decline in same store sales since 2009 so that's the the overall tone which of course was the Great Recession driven by a collapse of real estate absolutely so not a horrible year to be compared to so yes it has slowed down uh and another stat um lead cost for plumbing you know the cost of a Google click um I'm generally hearing is up 40 to 50% Across the Nation this year versus last year and that's consistent with what I'm seeing and so those who you know the smaller number of jobs and people fighting for those jobs are driving the cost of winning those jobs up it's still a beautiful industry with a great financial model but it is it has slowed down and that shakes out some people Doug one of the things we hear about Home Services though is you know just all you got to do is just call people back like there are so there basically in other words there are so many Home Services businesses that are ostensibly poorly run that if you just run yours you run a tighter ship you'll be able to out compete 80% of your local market first and second it it's indicative of like demand is just so strong for these services that that you know maybe the reason the the mom and pop isn't pick isn't returning your calls is because they don't have to they don't have time to because demand is so strong so are those uh are are those characterizations inaccurate then think those characterizations are accurate for a clever individual trades person who wants to build a business with about a million dollars in Top Line which is nobody who's listening to this podcast the industry there's probably multiple segments but I just I think of it as two major segments according to the ipis World Report there's 100,000 plumbing and HVAC companies in the United States of America 50% of those have five or fewer employees right so the the median the kind of the prototypical is that threers Mom's answering the phone dad and son are out in the truck and they're doing jobs yeah nobody on this podcast wants to be that guy that guy can step up and maybe get two or three more people and he's got no debt and he's going to make 150 200 Grand a year and that sounds amazing but that's not us right so then the other side of the industry though where most of the profitability and the volume is is taken so how does someone find a plumber they go to Google and they type plumber near me 70% of all Google clicks on the search engine results page go to the top three so if you can't get in the top three you're in the alsoo rans well take my market of Portland you know two and a half million people there's four or five home TR Trade Home Serv companies that are private Equity backed that are bigger than me and then there's a couple of Plumbing shops that are maybe in about my size so let's say between the 10 or 12 of us that are fighting for those top three do you think a guy that's got a 1 million doll business and doesn't have the the background to run sophisticated marketing techniques is going to be able to break in the answer is no so yes I think you can grow to a certain point but then it's it's an absolute dog fight the things that we're doing on or that the Best Home Services companies on Google or doing on Google are the equivalent of e-commerce businesses you know we're doing I won't try and teach a lesson on it but we're using Target return on Advertising spend bid strategies where we take conversion data from our CRM and feed that back into the Google AI you know just last week I was uploading my customer list to Google so that it can use the profile my previous customer customers to influence the bid strategy when people come in you know and bid in the future do you do you think of even a $3 million shop is going to be doing that stuff and it only takes a half a dozen in a market to be using these techniques to basically box out the you know the real uh awareness and volume so I'm not dissuading anyone from joining this industry but I will tell you that the sophistication and I previously worked you know with sap and Salesforce I have never had the quality of data or the sophistication that I've had I have right here this sounds like a kind of classic bar Belling where you've got one end of the market where there do a dog fight as you said with big players highly sophisticated lower end of the market where very fragmented lots of them maybe they can make a a good living but never grow Beyond three or five people and not not much in the middle um which is which is actually interesting for this audience the acquiring minds audience because it's in the Middle where Searchers are going to buy um they're not going to buy a a super big highly sophisticated Home Services business and they're not going to buy a two three four five person Plumbing business either Home Services business either it's be in the middle um and and you know I think I think maybe you said this to me Doug in one of our calls that when you think about these fragmented markets so this is applies to Home Services but maybe it's it's a good point to to abstract out and think about any industry when you think about I'll take home services think about home services and how fragmented it is and you say when I can do I can do better than you know 50% of the market are really unsophisticated shops I can do better than 50% I can be in the 70th percentile of performance without you know working very hard at it but really if all so much of the demand is based on the top three serps search results in Google those are who you're competing with it's those it's those really sophisticated players you shouldn't consider the market the small guys you should consider the market the big guys because that's where you're going to get want be wanting to get demand and so so if you just kind of in your own mind kind of right off or don't think about the the the long tail of all these fragmented players and you think about what's left in fact what you're doing is entering into a very Cutthroat sophisticated well-funded industry does and and does that sound like an industry that you Searcher want to play in there's a lot of accuracy to that I will perhaps tame it a little bit with if a Searcher can come in and buy a business that's got a long history and is you know you know maybe of $700,000 in EIT dah if it's been in that market you know for more than a decade existing then I don't think the person needs to come in and be afraid that their business is going to evaporate they just need to be aware that to double that is not so simple as sending out a couple of letters to unsuspecting other trades people and aggregating them into a rollup right I think that time is behind us now funny enough you know John Wilson that you're going to have on he's done a lot of Acquisitions he's got a he's and he's made a big beast uh of a company he's also not in a super major Metro Market so I think there's a there is a difference there too you're G to drop into La you're going to drop into Seattle you're going to drop into DC um that's different different um total adjustable Market but certainly a different level of competitive set yeah but it's a great space but and the whole buy then build ETA model is about getting something that is a going concern that's got scale scale doesn't have be quite as big as mine and then taking it from there and you I I guess I'll close the thought on that of you don't have to double these things in in a year I we're growing 8% a year maintaining gross margins loving the people that we're working with and we've had 180% return in nine quarters on the cash that we put in it it feels like cheating this is amazing right so not everyone has to become a master of the universe and host a hold conference excellent point um and and just close us out on well actually two two follow-ups you you keep saying that Home Services is a great industry and so just forgive me if I missed it but what is it that you like so much about it if in fact it's it's actually experiencing headwinds now is it just the kind of the nature of the work and and person enjoy the industry because I care about the work I think it's meaningful it's it's honest it's you know it's just good it's helping and so that's important to me from an academic standpoint though we're talking about headwinds that plumbers in aggregate or up low single digit percentage this year right that's a great headwind so you know I think just the numbers in Home Services work uh overall and it's amongst all the industries you could choose this is a resilient one and then lastly the whole separation as sophisticated as my local players are um none of us is afraid that some big National player is going to come swooping in or a website's going to take us out or AI is going to arguably change our business in the next 5 years like this is it is a beautiful fragmented space and the fragmentation that's doesn't get mentioned enough the fact that it's so fragmented means that there's information available and there's a Playbook there are so many people who know how to run an hbac company a plumbing company an electrical company a garage door company there's no secrets because there's hundreds of thousands of them in in aggregate so you can learn from others and follow a Playbook whereas in you know Big Industry where there's two or three national players you know totally different this is yeah the guy next door might not tell you what's happening but you could talk to a guy three states away all the Playbook yeah that's a great point and Doug on the shift from hiring being a bottleneck to demand being a bottleneck you've already touched on Demand Being A bottleneck but one of the things that those of us who are not in the industry understood was that finding plumbers to hire was what was so was so challenging about this business uh this this whole industry and you too thought that but it has turned out to be what we have been successful in hiring in fact I I got to make the phone ring a little bit more because I've hired enough guys and I want to make sure I keep them all you know fully uh gamefully employed um it's not easy but I I will say that uh you can invest in it so we invested in I personally use predictive index which is an assessment tool we have a hiring process that would look at home in any Fortune 500 company multiple rounds of interviews we've just really you know put an effort in cultural fit as part of our hiring process this is an an HR pod so you know I'll stop there but I suspect we have a um far more robust hiring process than most small businesses to include demand generation for candidates I'm spending thousands of dollars a month on indeed and other places to get candidate flow most small businesses don't spend a penny there and every time I turn those dollars on I get candidates so for a truly licensed trade person it is harder but we've got a bit of a fly wheel going and we've got enough reputation in town that we can make it happen okay sir I think we hit on everything that I wanted to uh at least given our time constraints anything that you wanted to make a make sure that you had a chance to say well congratulations to anyone who listened to me this long uh I appreciate your patience you get the Nugget at the end but just yeah I was happy to come on and do this I love the sharing in the ETA community and when I was going through the search process and talking to people who were a couple of steps ahead I I've never experienced so much openness and so much sharing and you know felt like it was worth coming on to give a report back but I am just a data point1 so uh listen to a lot of other voices too well I've loved having you back Doug I love our ongoing correspondence um you you're just so thoughtful in the way you approach things and draw on a lot of your own uh corporate experience and life experience just a great great guest thank you for coming back and I'll leave it there until next time thanks well I hope you enjoy that interview make sure you subscribe to the acquiring minds Channel below we are now publishing twice a week so tons of new interviews and stories to come stories that will help you along your own path to acquiring a business