Damon Clarkson welcome back to acquiring minds thanks will glad to be here Damon we spoke a little over a year ago you'd been looking for a business that was B2B that could be run remotely and a lot of opportunity for scale and you found one that fit the bill in Pacific insulation Supply which is an online wholesaler of insulation so it looked pretty optimistic when we spoke in it was December 2021 but last year 2022 did get Rocky at times so I think it'll be really good for the audience to hear a story that isn't all you know rainbows and unicorns before we dive into it Damon give us a quick refresher for those who didn't hear episode one on the search why you chose this path and then on the business you bought specifically um yeah so I had kind of been wanting to buy a business for many years most people that I know are business owners growing up so it just kind of fit what I wanted to do so I had been reaching out and looking at tons of deals probably 40 or 50 working with Brokers and I never actually did my own proprietary search because I didn't really know that search was really a thing and uh I think if I had known I would have done things a lot differently but um luckily through a broker relationship this business kind of fell into my lap and uh yeah it was a good fit it was B2B it was something that you could do remotely as well as uh uh very low yeah capex so you know we only sell insulation through other uh warehouses so National suppliers and stuff that you kind of have to have an account to use and so because of that I'm mostly just a paper pusher I advertise I get an order and then I push that paper to the supplier who then it fulfills it so um it ended up being a really good fit in that regard but yeah you're right there's definitely some rocky moments in 2022. okay well um let I guess let's start by hearing um how reality met with your expectations so these criteria that we keep talking about um low cap like low carrying no inventory essentially um uh basically just kind of very low overhead business um scalability possibility potential for scale were those all things that ended up being accurate in your assessment or less so yeah I would say they're accurate um I I definitely underestimated how difficult it is to scale a business um I think what I kind of envisioned was um you know here are different product lines I could sell all right you're buying installation let's sell drywall I thought that would be a lot easier than it was um I also thought like oh I'll just throw more money or I'll grow in another region that we're not really digging and it's just not that simple to do um it took a lot of work to figure out exactly where to hone in the strategy and uh I'd say now um knowing what I know I could have saved myself a lot of advertising dollars and so that is something that we touched on a lot in your in your first interview which was like you noticed and if you were basically a month and a half into into owning the business when we talked and you'd notice that a lot of your customers were roofers and so you know why not sell additional supplies to this Roofing cohort um that like roofer like Roofing specific supplies stuff that Rovers would need um why did that end up not being as easy as kind of flipping a switch to an existing customer base um the difficult thing about that is a lot of them had roofing suppliers um we are actually still selling Roofing insulation I haven't advertised it as much it's usually just kind of on a as needed basis for recurring customers um So the plan is to really grow in that because I I do believe that we can grow there because we have existing supplier relationships um what we did try to do was drywall um I ran this experiment for three to four months and we never got a single drywall order uh because of some of the difficulties to starting a new account with these big suppliers um I had no volume discounts right so with installation I'm doing you know millions of dollars worth of insulation sales with these different suppliers um and so they give me pretty good discounts which helps me close the gap between some of the big box stores that people might be going to because like I mentioned my customer is the contractor who has you know two to three crews maybe even less and so he's picking up stuff at Home Depot with a contractor's discount and then we kind of swoop in and steer them our way and we're a lot easier to work with so uh selling drywall to them was difficult starting from scratch because we couldn't we couldn't really compete price wise and so I abandoned that um mid-December decided that wasn't the route we were going to go but what we were going to do was double down on installation we're going to sell more insulation um Nationwide but most importantly we're going to really spend our advertising money into states that we know we can succeed in which are California Colorado and Texas and Washington um One Challenge actually that came up right after our interview was one of my suppliers in Washington state dropped us and so now I had only one person one company that could fulfill orders there and they had very tight Supply and so Washington was a big state for us and that completely withered up for about seven months and then the summer because your supply was cut off not because demand wasn't there so you just couldn't service orders yep couldn't service the orders and so what I did I waited seven months um there was a kind of a Slowdown in building as interest rates came to a head and reached back out that supplier and they were like we'd be more than happy to take your orders again and uh we're Plumbing away nicely with them now so okay well um Damon I got us into the weeds really quickly there but let's step back out and give people a big picture of the last year start us with what was the size of the business what was Pacific insulation doing Revenue wise and cash flow wise when you bought it and then kind of give us just like two sentences on what's happened over the course of this year absolutely so um I bought it mostly off of 2018 to 2020 Revenue which was anywhere between 1.8 and 2.2 million dollars and a net of around 350 to 400 000. uh 2021 there was a huge boom because of building and whatever else and a huge customer uh that made it uh three and a half 3.3 million dollar business in terms of sales and the net on that was just a shade below 600 000. so I bought it for 1.1 million about 3x of normal revenue and about 2x of that boosted Revenue so um and that boosted Revenue that was from one really big customer that even the seller at the time told you like enjoy this while you got it but I'm not I'm I recognize that this could dry up at any moment so I'm not even gonna include it in in the cash flow that we base the multiple on absolutely yep and so he was very I've run about that so that was good uh there were more difficulties they came up with that specific customer um but we can definitely dive into it would be interesting I learned a lot about transitioning a business I would say this for six months but that's kind of the overview and then ever since then we kind of had a huge quarter one and then Q2 uh what we noticed was interest rates started to rise gas prices fuel prices went up so our delivery costs went up material cost went up and we had a very very dry June through um September which is usually the months that we sell the most uh during that time I got really spooked and decided I wanted to go back to work so that I could put all the cash in the business and to pay for the loan I did it I got an SBA loan on it at about 85 LTV so um wanted to make sure I could keep making that payment and so I went back to work back to work meeting got a job got a W-2 got a W-2 yeah and uh what I found was I actually uh managed the business more effectively um doing that because I had more structure in my day so that's kind of the year at a glance Q4 we had a really good Q4 things started to tick up again and um right now business is actually booming uh like pre-interest rate um stuff so I'm very happy wow okay and so all like taking into account a very dry Q3 and then a booming Q4 and I guess a strong q1 and Q2 when you blend all that together how did 2022 come out overall yeah so we did still manage to pull in about 1.7 million in sales um I would say we're still kind of adjusting everything but anywhere between 250 to 275k in uh net so that's cover the loan help cover my living expenses we did we did okay in that regard um uh there are a lot of random little costs that came up uh and a lot of advertising dollars that I threw down the toilet so um that number could be much bigger I think if I had been smarter which it will be much bigger this year okay uh well and then just again before we dive back into the weeds how do you feel just you know yeah answer this how very open-ended how do you feel about this path that you've chosen buying a business given The Good The Bad and The Ugly um I regret it every day and I'm grateful for it every day um it's it's the most hot and cold thing I've ever experienced there are moments where I think man I have mortgage to my kid's future for owning a business and all of the stress and then there are moments where I'm like look at all those QuickBooks payments coming in this is amazing and so um kind of my overarching lesson on this is it's never going to be what you think uh but that's not necessarily a reason to not dive in I would say it's definitely brought myself um brought into um a little more peace with uh work in general help me come to peace with a W-2 and I'm very happy working at W-2 um in a different way that I hadn't been before yeah because you had been a little bit itchy at your W-2s before and so now going back to a W-2 having experienced the travails of being a business owner you feel like you you you value W-2 in a way that you didn't before is that what you're saying yeah absolutely so I think I got to the point where uh I realize that structure and the camaraderie you kind of get with a team is really important I work for a very small startup that's that's growing and um that's been really valuable to me um but also yeah it's that that it just is gone there's like an extra Clarity for work and also it's a little bit different when you want to be there versus have to be there so uh I you know I could Focus all my time on this business I could try to acquire more businesses um through this I've I've had a lot of really good conversations with investors and private Equity groups who want to roll up um yeah installation businesses so uh in that regard there's other options but I'm pretty happy with where I'm at and so it's it's brought me a lot of peace and so do you are you thinking two and five years out if you can get pacific insulation supplied to a certain sde then you'll stop the W-2 and go back to it full time or not not necessarily and you're going to continue having it kind of as a side thing indefinitely no matter how much it grows I think it's going to be a side thing for me indefinitely um so I don't know necessarily where my career is going to bring me but I'm pretty happy where I'm at um and so I kind of think what I'm going to do is uh keep it on the side potentially sell it in three to five years and then use that money to maybe do something a little more passive um this is fairly passive but something very passive maybe more like in the real estate realm and just investing and not necessarily doing deals okay and yeah let's talk about how passive you've you've managed to make it so how many hours a week are you devoting to it and yeah first answer that please uh less than five less than five wow and when you acquired it would that have been possible or have you been putting systems in place you know in preparation for for your W going back to your W-2 it would not have been possible um partly because the lead flow but also partly because the prior owner didn't really necessarily trust the sales people to sell to the level he could and there's some truth to that but I've tested them and they've done really well the other thing that kind of was a challenge was just the way that the quoting system was in place and the way that we were invoicing made doing an order really arduous and I simplified that by uploading all of our products into QuickBooks you could quote and get payments out of the same system and so it might sound dumb but when you're working on four or five orders in a day that's easier to do when you're you know building the invoice in a minute and a half as opposed to five minutes and then following up and stuff so um yeah I got to the point now where uh it's about five hours a week uh those systems are in place I have somebody who manages certain leads who manages certain phone calls uh coming from different lead sources and I Silo them out so I can see what's working what's not working whereas before there was no silos all just coming to one main line and uh um kind of just putting those systems in place has shown me you know where the money's being well spent where it's not who's performing who's not what they need and so I can look at that information really easily I just keep our dialer up in an open window and I just kind of watch it throughout the day so if there's a lead that comes in that's not being touched um I see it I get a little notification and I just send it to the salesperson to close out so um the first real test of this system was in June um I was going on a five-day camping trip to Zion's National Park and uh had to put my face in my sales people and they did good so and your sales people are all in the Philippines yep everyone's in the cellophane's i i toyed with bringing that uh into the us but ultimately I just decided to keep them there and um don't have any regrets about that decision one of the things that I had seen you say in a Twitter thread at some point this year was the importance of you know ramping up your team on sales which just sounds like you ultimately did and did really well and so and also just tying into um the question about Outsourcing to the Philippines sales is not a function that I'm super familiar with people doing that because sales is so kind of nuanced and cultural um and it sounds like you're a seller maybe felt the same way or he didn't have the confidence in that his sales people could sell as well as him I don't know if it's because they were in the Philippines or what but just address that like that um folks in the Philippines are able to you're you were able to train them on selling effectively um yeah their communication skills are excellent and so that makes the first barrier um easier to clear yep uh really what I implemented with them was just steps here's what you do you get an order here are the steps you take right you give them a price and you kind of negotiate off that price and then closing they had never really done closing before they would just kind of send a price that they wanted it they'd send the invoice but I kind of taught them how to close um how to add a little bit of urgency hey we're running low on this material if you want it I probably need to get the order in this day or if you need this material by Thursday we need that payment in by this day um so then kind of using those two things together how to close how to follow up um how to build urgency has helped them be a little bit more efficient and so I'm less worried about them just sending out invoices and them just sitting there and nobody pays them so that's phenomenal and you know Damon I'm really struck because even though you had a really hard Q3 it drove you back to getting a W-2 you it sounds like you now have this incredibly well-oiled machine you went through The Crucible of year one and had really hard quarter and yet here you are now working five hours a week on the business and it's generating you know two three maybe four hundred thousand in sde this year and yet you don't want to devote your full energy to it it so I guess I just want to like distill all of what we've been talking about sounds like you just um didn't like the lifestyle as much so even though you've you've kind of you've seen you were successful at it despite a very hard quarter Q3 you just don't like it as much as other other ways to spend your career yeah I um I think if I had bought a business that had a lot more customer facing like in-person contact with employees and customers or whomever uh it would be a lot easier for me to do but I realized working from home just from home I was driving my my wife absolutely insane I was very idle um I found that I did it way less I got less done because I had nothing to do and so um yeah I just realized this is kind of a better lifestyle for everybody yeah kind of going back to the traditional like I'm at work I come home I'm at home and uh it's been uh really beneficial for our family for me personally my own mental health um and so yeah the lifestyle I don't really love the solopreneur lifestyle like I thought I would yeah um but kind of going back to your question about not voting the full time I realized pretty early on growing this thing to 5 million which was what my plan was I figured 5 million would probably get us to around a million in sde yep I realized that was going to be way more difficult than I realized and I kind of sat back and thought to myself what's more valuable to me devoting all my energy to this business try to get it to 5 million when some parts of it I don't know are scalable to that point anyway or build a well-oiled machine that does between two to two and a half million a year maybe three to four hundred thousand in sde but you don't ever have to work on it and I thought that is probably more valuable to me personally and when I go to sell I might have a wider range of audiences who are interested because the price point will be lower but it'll be a home run for whoever takes it over so that's kind of the system I'm building and I do think we can grow to three to four million um and that's that's kind of the next phase after we get out of what I consider this pre-recession time uh one of the things that you'd mentioned in in Twitter over the course of the year is like if you were to do it again buy a business again one of the things that you wouldn't want to buy as a business that only differentiates on price which I assume is what is what you're doing with what you have to do with specific insulation Supply elaborate on that like how how have you found that and um what what would you do to grow now if it sounds like it's really just a commoditized kind of good that you're selling how do you grow another million or two in sales yeah um there's it's not very sticky if you're just working on price it's not very sticky you're gonna need a lot of people who are interested but aren't going to buy because they found a better price elsewhere and we rented that all the time in certain regions um but the way I plan on growing now is we are doing an extra emphasis on um recurring business so we're giving a little more favorable paying term payment terms to some of our recurring clients and I spiff my sales people on orders that are recurring so those are our lowest hanging fruit in my opinion is this book of 5 000 contractors who have bought insulation from us before um and additionally I'm I'm still in the early phases of doing this but I am going to be hiring a cold caller who will uh be kind of responsible for lead generation uh by making contact with as many contractors and um our big States as possible so uh that's the plan to grow another million or so I think it's there for the picking um I recently installed the live chat which has increased our conversion we've done 25 000 in sales on it in the last six days so uh that this very um promising and you think those are sales that you might have otherwise lost uh potentially yeah potentially um I think sometimes I mean yeah it's hard to tell but uh the volume on the other you know on the actual web business is not changing and that is a new a new thing so hard to say but I feel really good about that in terms of improving our conversion and so the way the the kind of flow for one of your customers is they just search for installation in Google and click your ad and then are basically taken through a an order funnel so it's either you're basically kind of it's kind of an e-commerce a one-off e-commerce flow yeah yeah we call it manual e-commerce look at it so it's not as uh as easy and so we are in the middle of a website redesigned so that form to get your quote will be a lot faster um but yeah the other thing that we're really looking for is people to just call us so there's a bunch of call us places you click a link it sends us a text all that stuff so that's another really good way um so I have a specific number that's just from the website and then we run ads on various different um like classifieds listings which we make a lot of money from um but I have a specific number just for that website that it goes to and so then at the end of the week I look and see how many web leads we got versus how many clicks we got how much money we put in and try to determine our return on ads done that way great um Damon when our in our first conversation you had talked about your history with you have mild bipolar uh my mild bipolar situation how did you handle that given the the roller coaster that was this past year did it affect things or do you have it under control or what oh man no it was an absolute roller coaster um but uh here's kind of this what happened so I ended up doing um but the love to do a plug for some alternative medicine here but okay go for it I have I have tried lots of medications um and I ended up doing transcranial magnetic stimulation therapy which uh is essentially using a magnet to awake a certain part of the brain and form a new neural pathway so when you have anxiety or depression which um my symptoms kind of Swing between those two things um depending on the mood and what triggers there are and so when you have anxiety depression your brain has a response that it runs through that neural pathway even if it's not necessarily a chemical thing you're dealing with so um I did transcranial magnet TMS is what it's called we'll call it TMS okay TMS uh I did TMS for seven weeks every single day I went they Zapped my brain with a magnet or 20 minutes straight and uh it essentially cured any depressive symptoms that I had ever experienced I haven't had any depression since then I still have had highs and lows and those kind of Swing more between like being really happy to being very anxious um but uh this because of the business and the anxiety that kind of came from it it got me to do talk therapy for the first time consistently and that's been very beneficial to work on my self-talk and um it helped me kind of realize how important uh taking care of my mental health is in terms of being successful professionally so it's been ups and downs for sure but I would say the last three to four months especially have been very smooth and so a little plug if you have tried a lot of different medications for depression or anxiety or OCD or PTSD TMS is uh is a great option if you can get your insurance to pay for it so I'm a big fan great I I wasn't I wasn't familiar with it and then when you say talk therapy you mean kind of traditional talking to a therapist yeah yeah talking to a therapist um looking at the things in my mind that are self-defeating uh and we're kind of blocking the path for me effectively running my life in business so um yeah I think I think uh I want to be as big of a mental health Advocate as I possibly can in this little corner of the uh SMB world yeah that's awesome man well I I mean just looking at it as an outsider objectively I mean you have a lot to be proud of I mean you bought a business and now you're working on it uh five hours a week you put in all these systems you've made all these improvements you you suffered through but survived a extremely dry quarter um and you've got the business so smoothly running that you're only giving it five hours a week while you have an entire W-2 I mean from where I'm sitting it's not that it's not the path that maybe you were inspired by when you said when you set out to buy a business um and it's not the traditional one that one who buys a business goes down but it seems very successful and it seems like exactly what you want because you could quit that W-2 and go back to to running your business uh and you just choose not to simply because it's at your discretion and you're happy with where you're at so you you wanted a lot of optionality and you and you have it in space yeah yeah it's really nice and like I said you know wanting to be at work and knowing that you're there choosing to be there um and to work with the team makes a big difference for me um not feeling like I have to be there um my mentality is different and then um another thing that's going on in our lives my wife is uh becoming like an electrologist so um kind of like laser hair removal but with electricity and with thermal heat um show she's starting a program and should be finished up by the end of the summer and so my job now is to provide some stability uh which SMB doesn't really allow for so I'm going to be providing the stability and kind of be a cheerleader while she gets that off the ground so um yeah that's the that's the plan we're still going to be in small business I guess as a family but I'm excited for my wife to get her her turn to see what she can do and for anybody any Searcher who's listening might they reach out to you to buy your business are you in a position where you'd sell the business today or you want do want to hold on to it and get to three or four million and maybe in five years um I would say right now I'm not in the market to sell um I thought I've thought about it I even had conversations with a couple people who wanted to buy who had lost out on it the year before oh um but uh I decided ultimately it was a down year I think this is going to be a good year and I think we can get it to a higher multiple and I guess higher sde to get a better multiple and potentially more money left over and so whatever I can walk away with would be a great cash on cash return if I can sell if I can sell it for even what I bought it for in five years that would be a good cash on cash return to walk away with but um ultimately uh I think I think the uh the time is not now to sell okay okay just a couple more questions for you uh before we close out here Damon the um it is tied to construction essentially like a business like this is very tied to construction so it goes as the real estate development construction goes absolutely and home renovation so um that's why you saw I mean everybody was renovating in 2020 and 2021 so there was a huge boom and then uh you know because people got really scared about construction as those interest rates began hiking yep and we saw a lot of projects pushed a lot of projects canceled lead volume dipped by about 70 percent and now that's kind of peeking its way back up to pre-2021 levels um uh 2021 was insane they were getting 150 to 200 leads a day all right now we're getting yeah right now we're getting a more manageable 60 to 70 per day uh for a while it was 20 to 30. so um 60 to 70 is great uh they're also all Strike Zone because we're really drilled down on who we're trying to sell to so that's helpful um but yeah so I'm very optimistic about this coming year even though most people probably aren't in the economy um we've seen that construction is beginning to happen again as you know the FED is kind of leveled out at this it's a higher rate but at least it's predictable yeah yeah and any thoughts Damon on like the nature of the business so you said at the top that you kind of are a paper pusher like you take an order uh in one hand and then pass it through to you know give it to to your supplier so essentially I think a lot of distribution businesses are like that but with varying complexity and and probably a lot of Distributors also do carry inventory which you don't but the nature of that business any any comments on it we already know it's a solopreneur you don't like that aspect of it but any other thoughts on it um yeah it's uh if you can find a good vertical to sell to I think it's a good deal um installation is our little niche there's not a lot of people that are like oh I'm going to start Drop Shipping installation today but um essentially kind of knowing what you are right so I I thought we were an installation business for a long time and finally I realized we're not we're an advertising company um that's all we do yeah we run ads and we get orders that way um and so I think knowing what you are knowing what the business is as you're buying it so okay you're a Drop Shipping Company um try and figure out what that really means yeah so um are you an Amazon business are you not do you have a brand do you not uh for us luckily we have really good SEO and so we have that to lay back on so um yeah know what you are and then kind of drill down on it so I mean I thought about acquiring an installation contractor for a little bit there are a couple that wanted me to do them their franchises but then I realized we're not an installation business we're a wholesaler it would make more sense for me to to buy a wholesaling business than it would for me to buy a construction business I would fit in with our systems better so um yeah that's that's kind of all I have to say speak about that and then back to your team in the Philippines having having a whole team outsourced there including people that are doing sales for you any um advice or thoughts about working with a team in the Philippines that you've learned uh treat them well and they'll like love you forever um I give him a stipend for Tech um I give him a stipend for health insurance I give him uh sick days time off things that weren't in place when I got there and these are the most loyal people ever um they they love working for me or at least they're very good liars and uh I I love having them so um did you hire any of them or did they all come with the business I did hire one and then we had to let them go and Lead slowed down but I told him that you know please come pick that guy up I'd be more than happy to bring him back and I actually helped him get on with another um business that was needing a cold caller so um yeah maybe bring it back to these cold calling we'll see if he's interested in that but um yeah that's the uh that's that's my advice just treat him really well um yes they are a fraction of the cost of a US employee but their life is not a fraction worth less I guess yeah so yeah that's that's well put yeah important that's a great point Damon anything I haven't asked you that you want to communicate to the audience um yeah it's not all roses to buy a business um but it affords you some growth in some ways that you never would imagine you would grow but also what's really important is to have that connection I use Twitter to do it but to connect with other people who own businesses and buy businesses it's it's extremely valuable um I have some long-term goals that are kind of tied to having that connection and and knowing the right people so uh I would say use it as a business to make money but also use it as a way to build your own brand as much as I hate saying that okay great well Damon can people reach out to you on Twitter is that still the best way yeah yeah uh Damon underscore SMB um that's probably the best way to get me I try to I try to be pretty active on there and then um yeah just reach out if you have questions or want to talk deals I always love talking deals cool all right thanks a lot for coming back on dude yeah thanks will 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