Brian Lee Shields welcome to acquiring minds hey yo glad to be here Brian you acquired and exited two and a half years later a property management business in San Francisco property management is an industry with some seemingly intriguing opportunities we're going to get into how um accurate those are but definitely appealing characteristics like recurring Revenue B2B low churn ET ET so so it's an industry that a lot of Searchers consider think about uh and I am no exception so I'm eager uh to learn what this experience was like for you you also had uh some burnout that you've suffered more recently and it's a theme that uh is something that you now talk about and and help people with so we're going to spend some time on that as well toward the end let's start off with some background on you please Brian absolutely so thanks for again for having me will um just for background so I started my career out fairly traditionally I started at a small place you might have heard of called Leman Brothers in the investment banking department for financial sponsors which is the private Equity coverage group and then went from there to a private Equity Firm called Welsh Carson Anderson and stow and while I was there it was just at the peak of the financial crisis and so what that means is that there were no deals getting done and in my first few years there I think we did maybe two or three Deals in the firm and I did all of them so the the the gift of that was that I got a lot of Hands-On training both in mergers in traditional leverage buyouts and in a buy and Bill platform which I then kind of spent my a big part of my chunk of time with um we acquired three diagnostic Labs put them together I did a rotation through our internal like mckeny which works with all the portfolio companies and then worked in HR inventory sales Etc then went to go launch a division at that company uh so I moved down to North Carolina for a year and got it off the ground and that all kind of gave me tactile experience with what it actually means to run a business and from there I was like I think I should do this um and I took a little bit of a winding path to get there I stopped through the bay area to run growth at a few venture-backed companies uh candidly my thinking was oh this is entrepreneurship so let me go do that but eventually I I saw the the light and decided I should really just go buy a business and and take my shot at really running a business firsthand and applying all those lessons I learned that I mentioned into it so that's what brings us here today that's great Brian and when you said when you got some operational experience uh I guess it was in North Carolina and you said to yourself I think I should do this what about it did you like what what about it made you feel like oh this is what I should be doing as the principal not as an employee you you okay so first of all uh when I got down there I I just had a lot of fun and one of the things I realized before getting down to the business on the ground was I just didn't know how ebitda happened right and speaking to all you folks who I know there are a lot of you that listen that are private Equity folks or banking folks or even Consulting folks you know how to do the math like that's not new but how the ibida actually happens how you organize people in ways and processes and systems to deliver the eida it takes a different skill set than the Excel macros require and so like I don't say that to meaningly I say it's like valuable to get out and go try it and when I did it I really found that I enjoyed the people leadership process right the uh collaboration process and the accountability process right so one I don't know if you can see but one of the books on my desk here is um traction which talks about the entrepreneurship operating system and like any flavor of that I love like high output management by Andy Grove is one of my like core personal belief system Bibles and I just believe you manage what you can measure right and and I developed that by working with this team who were really good at what they did but needed to kind of like get a little more organized to go to the next level to see metrics and go to the next level to make decisions from those metrics Etc to go to the next level and so by doing that I was like oh this is a ton of fun and I I mean I did everything well I I I worked with the team to get through a bunch of Regulation and file paperwork I created the marketing materials for this new service I became the expert this was a Diagnostic lab sorry let me be clear so we were launching a pain management test so I I did not mention anywhere in my background that I'm like Premed or healthcare related except for the industries I used to focus on so I was doing all this from like scratch and becoming an overnight expert and and like I taught myself the talking points I sat with a bunch of clients for customer development then I did the sales training and WR rode along with different sales reps in seven different states to make sure that they understood how to sell it and we got that business to about $3 million of Revenue run rate before I left which is great um but but I I just found that that experience of like taking an idea from conception to execution as very fun um and as I matriculated in my career and learned a little bit more about risk and how hard it is to start something completely from scratch the buy and grow from their option uh really looked more attractive and uh so I I thought that that would be a good application of my learnings and kind of like feeling of what worked uh going forward well let me let me press you on that because it sounds like in North Carolina you were starting from scratch even though you had you had kind of all this Machinery behind you I guess financing it funding it so so it wasn't truly just Brian out there in the ocean alone figuring out how to swim but but still it was a pretty start from scratch effort so so it sounds and and and you really thrived in that situation so so I'm I'm actually so so so you do seem kind of like you have a zero to1 orientation well in that scenario yes but I I think the key differentiator and and why that worked candidly was I had a great team uh who surrounded me with expertise beyond that what I had right like I was like okay I'm going to I have Infinite Energy I'm going to run really hard at doing this thing and you know wherever I need to be I'll be there physically and I'll like read all the documents and get it all together like that was cool but I didn't know the regulation very well I asked a lot of basic questions I didn't know uh like what the specific nuances of this industry were especially when you're trying to sell which is different than making an investment decision right and like when you have to look someone in the eye and explain to them the value why they need to make a decision of switching from product a to product B Etc that takes a little like a different level of um EQ and understanding of the on the ground experience to make that transition and so I got a lot of that education from the existing platform okay in addition I wasn't like just marketing like brand new product in the sense that like we were selling into an existing customer base so so our ramp up time was cut down dramatically by the fact that it was uh Hey and also by this conversation so it helps dramatically yeah yeah good good clarification okay yeah well then okay and then I I want to make sure just on the zero to one point so then you go to Silicon Valley and you say while you're working in growth in Silicon Valley you characterized your in experience is seeing the light that buying and build and building versus starting from scratch was the way go what did you mean there now now with the context being a Silicon Valley startups as opposed to what you're doing in North Carolina yeah and and candidly the the mindset that you kind of brought will in terms of thinking about it as a zero to1 experience that was kind of where my head was at at that transition point I was like oh I could do the startup thing this is cool look what I just did and so I went to a larger startup uh when I joined a company called funding Circle we were at we had just raised a series C so fairly established but still startup right and uh you know my job was to find new Partnerships and Business Development opportunities for distribution and so I had a little bit of a Tailwind in infrastructure but it was like kind of cart blanch we had like one good partnership and then it was like Brian get out there talk to people figure it out and so I was doing that and then similarly when I went to a company called Mind Property Management which will be relevant to the business I bought uh we were at series a and so like we had half a million dollars of Revenue we were kind of just figuring it out and and then the question was like what do you do where do you go and and in that environment of startup land where any decision can be possible but you're really operating off of intuition in a lot of cases and a lot of experiments um I found that the the the momentum building was very difficult right you didn't have an existing product Market fit to then say Okay based on what I'm seeing in the trend here I can maybe pivot this way into a higher margin opportunity it was like I'm going to place a bet here and maybe I have enough Capital to place another bet and then that's it you get two bets that's like kind of it so so as I was going through that process with the team and figuring out different sales configurations different marketing strategy configurations and growth strategies um I just found that what ended up working for us particularly at mind was we should buy these companies in the landscape by other property management businesses and then build on top of those uh revenue streams so it would give us an entree into a market and then we would layer on additional Services additional fees Etc so so we surfed the wave of an existing brand in the market and a distribution very similar to that company that I mentioned earlier and then grew from there and so what that told me was when I ended up defaulting back to like a method and a motion that I had done in the past I realized oh you know I think that having the existing platform matters a lot it matters a ton in terms of reducing your uh likelihood of failure and increasing the opportunity to just like grow really quickly in any given market and especially for someone like me who I have been in 15 different Industries you know people aren't going to say Brian is the healthc care guy or the software guy or whatever he's going to say they're going to they typically say like oh he knows how to buy businesses or grow businesses efficiently and so being that that's a function and not necessarily an industry I just need to find ways to enter Industries and kind of dovetail off the back of the the Tailwind really quickly well I love the that encapsulation of kind of your your your personal value prop and how powerful I mean I think where what the way you just described yourself is is how how one would like to be basically a generalist from an industry perspective but knows how to grow and knows knows how to buy a business and grow it irrespective of Industry I'm exaggerating and and and being overly broad but let's go with me versus just being like super deep um industry expertise where you get you know unless you really really really love that industry which you know some people happily will do and stay their entire careers in an industry you can get pigeon hold into an industry and you're you know you're the healthcare guy and then good luck getting out of healthcare um so would love to have you know your skill set over kind of deep industry expertise um not they're not not much more powerful in expertise to have in business than being able to buy businesses and being able to grow said businesses I will say that the one of the keys of success for hilling company the the coffee mug that I'm drinking out of is uh was was having some familiarity with the industry and I know we can get into it later but like going forward one of the things that I find is going to be really important for Success going like with me is going to be finding someone who understands the industry to have some level of um investment and involvement with the business right because being able to set a base level of acquisition price is really valuable right like doing a margin of safety in the acquisition is key and like picking the right business is key but then there you run into these situations where it's like hey things are moving really quickly I don't know like let's say a global pandemic how do you adjust the value propos the service delivery Etc in a way that still gets the customer what they want but keeps the operations efficient and profitable and to a certain extent that requires some intuition about how like customers think in the industry behaves and and like I think they are a very good pairing um and it's like a marriage that you got to have so you got to look for both halves it's a great it's a great um kind of refinement of what I said because I certainly don't want to suggest that just being a generalist without industry expertise you can just blow into any industry buy a business and grow it absolutely industry expertise is is really valuable but if you're going to have a deep skill set uh great great the skill set that you have and then find people within those Industries to to to work alongside um and and another thing I just want to highlight that you um said about buy like having a platform business business or basically buying entrepreneurship through acquisition uh versus 0 to1 that is an obvious value but not one that we say very often the institutional knowledge baked into the business that you're buying we often talk about the value of it buying an existing business as you know the website that already has traffic the phone that Rings the brand that exists the all that stuff kind of kind of the Topline value that there's money coming in which is probably that probably is value number one but not very far down the list is there's institutional knowledge there there's people within the organization who can take you newcomer and and educate you pretty quickly uh and kind of act as guard rails before you come in and and do something crazy I mean it's a shortcut it's not a only a shortcut to revenue it's also a shortcut into an industry yeah no I was just going to agree with you on that will because I think that um you know one of the things that we were able to do and and I would hope that this happens for more people than less is we found found people within the organization when we took over that could be leadership track right and uh created Pathways for them the previous ownership kind of you know they're traditional like they had started the business kind of grew it for 30 years and so they operated in what made rational sense in the decisions in the moment but one of the benefits of coming at it from an outsider perspective is you then have had an opportunity to be exposed to all these different types of businesses and business models Etc so they didn't have leadership tracks or promotion tracks and we were able to do that and so the quit Pro quot right is hey you person you might be an accounting leader a product leader a sales leader or whatever in in waiting we're new so if you educate us and make sure we're all making the best decisions there is a lot of upside for you here and they love that they're really excited about that it it B bodess well for their career and obviously as the owner and acquirer it like bodess well for your bottom line so it's a win-win Brian before we um move on with the plot I want to um two follow-ups something that you said now few minutes ago about get operational experience and how that gave you some um kind of more granularity around what iua really is or how it's earned and how maybe you know kind of people private Equity types or people pushing numbers around on a spreadsheet don't really in their bones understand it what did you mean so I I get phone calls from people that are thinking about buying businesses you know like once a week or so and in a lot of cases they'll be like folks like me who are private Equity folks and are just like I I I I know this industry I know there's opportunity you know I can buy it for this I can sell it for that and and a lot of it's about the spreadsheet and the transactions which is a big part of the equation to your earlier point but in between those times of like entering and exiting the investment right there's somebody's got to run the business and make decisions about the business and capitalize the business and ensure that you keep capital in the business and um you know to my earlier point I benefited from having some direct industry experience into to the business that I acquired being from a venture back property management company to a traditional property management company and that helped me with hiring with quick decision making with uh access to Insider information in the industry networks for a follow-on acquisition that I did and things like that and I think that it's really valuable because I had to make a decision at some point that I was willing to live in this industry with these kinds of people and the kinds of problems that come with this specific industry at some point right and and furthermore even just like a level up I just had to decide that I wanted to be in the in industry in general right and and just to kind of like encapsulate this in a kind of cheeky analogy or like story my my uh one of my mentors at the fund pulled me aside when I was leaving to go work at the company and he said hey Brian really excited for you to go join this company think you're going to do great there I want to give you one piece of advice when you get there things are going to be a little different you are used to working with people who will stay up till 2: in the morning working on something just to make sure it's right they'll dot their eyes and cross their tees and you know the standard of Excellence is really high and when you go work at this company right and this company was $300 million Revenue business so it wasn't a small business and he was like look the the most important thing that these people are going some of these people are going to be thinking about is going home to paint their their house and I was like all right cool I hear you but that's crazy whatever and the first week I was like talking to somebody who worked down the hall for me and we were like oh man it's Friday that's great how's your first week I was like oh that's great and she said man I cannot wait to get home I'm leaving early today to paint my bathroom and I was just like oh okay and the decision making the the teamwork the responsibility even the way you communicate with people in a business is very different than in these high functioning high-intensity Finance organizations and so I think to the spirit of the point getting a little bit of operational exposure just helps with the transition right um and and like that is just invaluable both in making sure you can lead a team effectively if you're going to be the CEO and uh if you're going to live in that industry for you know five to seven years so what you would tell kind of private Equity um type people or people who see this more as an intellectual exercise uh or only have kind of been kind of only um contemplated it intellectually and haven't gotten their hands dir it yet is first try to understand the nature the culture of the industry because every industry has a culture and has its own whatever idiosyncrasies first second um the kind of classic you know people this this it's likely to be very management very people intensive and people aren't going to care as about their work as much as you're used to if you're coming from like a high functioning Finance background absolutely I had one buddy who uh was thinking about getting into industry but he was a a hedge fun guy and he told me you know what I really want man is to just get on my private plane show up to the business make some decisions and then get back on the private plane and go like back to New York and I was like bro that's not going to work that's just not how this works right and and candidly like I If if you're listening to this pod you're probably not in that bucket but I only make that point to say that there is there are some there are some people who are just in that head space and they just got to be real about it right and and for this right you you you are getting your hands dirty if you take over a restaurant business you know you got to be comfortable with the dynamic of turnover in the employees and staff and the kind of culture that some restaurant businesses have if you're taking over a manufacturing business there's just a different vibe and a different way you show up to work than you're used to and I think that deserves some attention in investment and preparing for the transition I'm getting a little bit ahead here but since we're on topic did you find it hard to adjust I mean you were surprised by that that that your uh your former manager totally called out the thing that the the future employee would be interested in doing painting one of the rooms of her house but just in terms of truly like adapting to the new environment was it difficult for you or did were you were you fine you know if you had known Brian 10 years ago I would have been much more direct and confrontational in my conversation and like management style right I was very much like why didn't you do this you said you were going to do x x isn't done what you know WTF and I have found over that 10year period that Nuance has to be introduced because at the end of the day right especially in a business that is not even $300 million but like you definitely not hundreds and hundreds of people you are you're dealing with dynamics of people on a day-to-day basis where something might be going on with them they may have different personality Styles in you I'm an extrovert some people are introverted and I had to find as the person who ultimately found myself best used as a leader of people I had to find ways to get the most out of those people and be effective and still hold my standard of Excellence and so that isn't that didn't take just like a hammer like I used to be so now I have like a whole toolkit and I say that to say that um even taking over a healing company I would find myself not realizing and taking for granted that folks would know even some of the things I thought were basic but they didn't know them right if it was hey this is how a sales pitch should go or this is how you should communicate back to a client when you've completed something Etc and granted we bought a fairly like a relatively smaller business in terms of people and um overhead by Design um but those still those things still persist right like I have a buddy who bought a business a $20 million business and he's educating some of the finance staff on some of the financial reports that he thinks are kind of standard and routine but their fpna team maybe hasn't thought of before in terms of working Capital Management stuff like that so I think that there's like going to be a gap in terms of sophistication and how you navigate that Gap will impact how much productivity you get out of the team and being right always isn't the right way to pursue getting them to do their best work right like you can't always be just like well I'm right and you're wrong there has to be some education there has to be some coaching and nuance and you know that takes some patience right like my my partner and I had an explicit conversation before we acquired the company of like which one of us were going to be that person right and and that was me by Design and so even though you're the former Hammer yeah and I mean frankly you're the soft one wait you're the soft one I am the uh I am the Swiss army knife now okay okay but I mean but candidly will to the spirit of that point like I just found that it didn't work right I found out by uh my own lived experiences even trying to like run little side businesses um that that approach wasn't the best in being effective trying to get people to do things that I needed them to do and so I had to evolve my approach to say hey we still need to do X but instead of just being like I don't know like this is might be my experience on Wall Street but it's just like hey I need to do X here's an example here are the numbers go figure it out right and expecting the person to figure it out I had to give them context you know tell them why we're doing X so they can understand the bigger picture in some instances depending on person I had to maybe tell them in private or tell them in a group setting they maybe needed some uh prior examples maybe some check-ins more frequently and it was very Case by case even with the leadership team that we ultimately had run the dayto day and so once I got them trained it trickled down and that was where why it's important to have that that that toolkit is because you know like you might have people that are really capable and you just need to make sure you're coaching them and and training them in the right way so that when they're good you can step back and then do high level things but if you only apply that hammer they'll never like be able to grow to the level you need them to so you can focus on higher level things Brian one other thing that you I heard you say about yourself is that you have Infinite Energy did I hear that correctly yes well at that time I did when it was uh man was there was it North Carolina I think in 20 see 201 12 yeah so like 11 years ago I had Infinite Energy then I have like renewable energy now all right well just to just to give people a sense of who who they're they're listening to you're a high energy person would you say you're a high energy person even among in high functioning environments are you one of the more energetic or are you just high energy like a lot of high functioning people are if you followed my question I think I I like to think of myself as like top 10 to 15% high energy people amongst high energy people um you know I think I told you previously the way I think about myself right is when I started my career out I I was on Wall Street I worked 100 hour weeks regularly uh and there was one Summer from April to September that I didn't see the Sun at all like I came into the office when it was dark and I left when it was dark and I saw the sun Through the Windows but not really and so I'm no stranger to hard work and intensity and high output and uh and also like I'll go to events with these folks and people will be like there's no way you can keep up this energy level that you have right now all day at this conference and like just watch me wow good for you man good for you I I I used to think that um talents were were the greatest asset to have and I've evolved that to thinking that energy uh is a more valuable asset than just kind of raw talent um is that because energy allows you the time and force to get skills and talent yeah maybe maybe and um yeah that's that's a great point it's like if if you have a deficit of one or the like somebody with a lot of talent but no energy energ is going to go nowhere somebody with a lot of energy but low Talent can can probably get further and compensate for the lack of Talent with their abundance of energy and also you can Channel energy in other ways I mean everybody the world wants hard workers wants committed people wants passionate people even if their raw talents aren't aren't exceptional um maybe I just perceive high energy is um as scarce all right Brian so where are we in the story you so you're in you're in the Silicon Valley you're at mind which is a give us give us um a description of exactly what mind was which was the the last startup you worked at in the property management space what exactly was mind doing and that's mind with an A Y my and D correct so uh when I got to Silicon Valley I had made this broader bet on how technology would enable and create more efficiencies in existing Industries so funding Circle the first company I was at was a lending company and used technology that we built in-house to make the lending process more efficient and so on that thesis I went to mind Property Management which uh is a venture-backed property management company that builds its own technology to make the experience and operations of property management more seamless and just like easier to digest and so what that looked like in the early years was we had some like we had to build a foundational system that plugged together a bunch of disperate tasks that in the existing ecosystem weren't easily integrated so you know like dealing with with your repair and maintenance person the person who's going to go in and out to fix holes in the walls and stuff and like connecting other vendors and their work into an accounting system and then also having that be available to the customer service reps who talk to the tenants or talk to the property owners and then making all of that seamless so that you can expose information even to the property owners or tenants and reduce the amount of phone calls and questions you're getting internally all serve to create efficiency and like have fewer keystrokes and steps for the people internally and so in a perfect world at scale the margin profile would be like double the industry average because of all this software that was brought in and automation that was enabled so that there were fewer keystrokes and and that was really great like that thesis has been bearing itself out for the most part within that organization um we would acquire businesses you know existing property management businesses bring them in transition them over to our software plug some people into the capacity we had today and then just kind of like scale from there so we would see it kind of bear out after about a year or so um owning the businesses and and remind us why mind got into the business of direct Property Management by acquiring these Property Management firms yeah so um for so so when I when I was talking to the company initially we were having this conversation about how to grow how do we get really big really quickly and when I think about like growth in general the first question I ask is how does a client make a decision about this product right and for property management I mean I'm in I have a few investment properties I think you have some too in a lot of cases you are you decide on it when you inherit or take over or buy an asset like I just got a rental property so now I need a property manager and when something goes wrong like I really hate this property manager now I need to switch and so uh so I make that point to say that the switching costs are very high and the frequency is very low so in sit in scenarios like that in Industries like that you you have to say to yourself okay I can either find some offer or Market in such a way such that like I make this I make the person make a decision that is atypical to what they their usual behavior is so free property management for three years or whatever something that maybe financially doesn't make sense but it's eye-catching uh or you try to find a way to just like string together existing books of Revenue and find ways to grow that from there and so that's ultimately what we decided to do was enter into these new markets at the time when I started there we were only in Northern California and then when I left we had 16 markets that we had opened meaning States and uh we got into those through Acquisitions in each one of them so we would buy an existing Property Management business over time Rebrand it and then use that existing platform to grow through new clients and new services offered um and and it worked out for the most part and they've since expanded into working with um uh existing funds as well to create scale M MH okay great so and you were involved in some of these Acquisitions buying buying a presence in the market so you basically had gotten your hand diry doing Acquisitions of property management firms yep yep like I I had seen it from Soup To Nuts uh and you know we can get into this but like I ended up going back to like oh I should buy a property management business for myself but that's not where I started when I started looking for businesses um so obvious in in hindsight it should have been obvious that I should just like go from a to a but I did not go from a to a initially okay well well let's hear the progression from A to Z and back to a but but but before you start that give us the context of your decision to search were you were you somebody that was always going to didn't had known about search Forever and was a matter of time or did it hit you like a bolt of lightning like it does with some of my guests and you decide very quickly that you're going to go do it or what I think it's a little column A a little column B so so I have some good friends that went to Stanford Business School and through them I learned about search funds as a concept this was back in 2010 and so I had had this thought of oh there is a world where you can buy your own business and that's your pathway to at the time I was thinking creating a fund right I was at a private Equity Fund I was like okay well this seems like a cool thing to do how do I do it but like on my own without having to raise $3 billion and so search funds entered my life and I read the search fund Bible and I was like this is great we should do this so I've been looking at buying businesses for a long time and I put it down for a period of time because the at the at that time you know like more than 10 years ago the ecosystem of financing for it was much smaller and much different than it is now right the founder economics were fairly challenging uh the E the number of people to go to to raise Capital to acquire these businesses was much much smaller than it is now and much less formalized and so I just didn't see myself having a differentiated angle into getting into and then raising the capital for from this network of people so I kind of put a pause on it and then I circled back to it it hit me like a like a light bulb um actually I remember going to this conference in Denver at which the founder of humans of New York was speaking and he showed this picture of the very first photo that he took which was of this like really scraggly leafless tree it was like probably some New York tree you see in like January and the lighting was bad and everything and then he showed a picture of President Obama and he said the time between these two was two years I started here but then I got to this and it requires you to start so if you have an entrepreneurial itch or something that you want to do you have got to start because if you don't start you will never get to the point where you can take pictures of the president and so it just hit me and I was just like oh you know I think that the underlying thing within me was I always wanted to be an entrepreneur and I was like I need to take a on myself at some point M Brandon's right I should take this I should take I should start like I don't know if where I start will be where I end but I'm going to start and so um I I committed this was in I think like June of 2019 so I just decided to commit and started looking for businesses to buy more formally in a more structured Manner and so just to kind of like continue on the the follow question you had um so I started and like whenever I started like new asset classes or something I like to tell myself I'm going to look at 100 deals just so I can get a feel of my risk profile what's out there what I'm focused on Etc so I applied the same thinking with this and uh I I started with like Biz byell and you know all the usual like really easy suspects to just find Opportunities and I found one really good opportunity um there are two deals that I like really liked one of which I wish I did the other one I'm glad I didn't do so the first one was a photo booth business it's a really cool business like you know you go to parties and have the photo booth with like the mustache and the glasses and stuff those things throw off a ton of cash like this guy was this is a professional uh snowboarder he had built this business up from scratch over like three or four years and he only ran it like half of the year he cleared like a quarter m in cash flow and basically worked from like July to January at holiday parties and stuff and then skied the rest of the time or snowboarded the rest of the time and so I was like oh this is really interesting I feel like I need to figure out how to do this deal yeah cuz if I could just like double it and uh use my network advantage of being in the middle of all these startups and having run a few events with different corporates locally I could expand the revenue base pretty quickly and it's clear that you can get leverage based on the way this guy's running it so I don't have to be in it every day um and it didn't work out because I realized that the bulk of the revenue was going to be made during the holidays and I had a 2 and a half-year-old daughter at the time and I was like I can't I can't find a pathway to have someone cover the some of these events and be present during the holidays and I'm not willing to trade off like my family time for that in that way MH so it was like almost there but didn't really fit my like personal life thesis the other business was a dental lab and so I mentioned before I had done a buy and build with Welsh Carson in diagnostic labs they also had acquired a dental lab business that was very similar to the one I was looking at and it was perfect it was like in the Bay Area it was a short bike ride away from me so I was like cool I can just ride my bike to work every day that'd be cool I met with the sellers they were fairly reasonable until we really started getting in the nitty-gritty evaluation and I was like this is cool I talked to all of my old contacts at the firm I said hey look like are you guys still buying companies what kind of things you need to look for I got the checklist from them and diligence running through that with the with this seller and I I hit this moment in diligence where I was asking myself all right what could go wrong here right and in diligence I had un I had found that the owner and founder had been recruiting a lot of dental techs from where he was from in Korea was great cuz he would get them visas have them come over he could pay them under market so that they could get training and eventually they would graduate on to somewhere else but it was a great platform to almost provide community service to the people where he was from and obviously like create a business that had Leverage and I asked myself if I stepped in as this young not Korean dude on day one and half of the staff quits because they just don't trust it what would I do and I did not have an answer for that will and I looked at like recruiting firms and all the stuff and I just recognized that the that risk of transition and change management was really really high to a key component for why this business was generating such a high profit margin and that was a risk I tried to price into the deal I was like all right cool like you know this is a big risk and a couple other things are big risks so let's value it a little bit lower and uh they weren't willing to meet me on that for obvious reasons uh and so you know that had to be a broken deal and I feel proud about walking away from that deal because I didn't make a decision like overconfidently um it it was a good lesson in recognizing like what you do and don't bring to the table mhm and so that experience then pivoted Ed me back to Property Management because I thought to myself if I wanted to get a deal done that has the highest like I can contribute on day one the highest likelihood and levers to success what would that be in and it was in the industry I was just coming from where I could hire I could understand the industry I could price really quickly and do all the stuff that's necessary and create leverage and training within the staff underneath me very quickly to ensure that the business was running well yeah why do you think that you didn't immediately start looking for property management businesses it was it just because you were just kind of your aperture was wide and you were like I'm going to go buy a business and just started looking at stuff or had you decided against property management in some way before you found your way back that's a fair question you know candidly I I I applied the standard search fund approach which was you know every time you apply some variable that you filter deals out with your opportunity set gets smaller so I was trying to keep it as wide as possible so I had Property Management as like a sliver but then I basically said hey I am looking looking for businesses that have high recurring Revenue that have a certain amount of Revenue that are kind of in the West coast/ California area that um have a certain profit margin that are not heavy manufacturing businesses and like function closer to Service as businesses so that like that brought in a lot of different kinds of deals and as and to my earlier point I did the 100 deal I think I got up to 60 before I really committed to just like looking at property management and Real Estate Services broadly before and that and that allowed me to test theories with some of these and I I would always ask myself cool what's the 100 day plan what's the three-year plan and can I look myself in the mirror and say you can execute this with the team that you have today which is like myself and a couple other people that might have invested and whenever I would come up with like a no in that scenario then I'd have to ask myself okay what have I learned from this no and then how can I kind of pivot myself and my strategy a little bit to get closer to as much of a yes as possible and what I could do to create success and so ultimately that wide aperture got Whitted down and and one of the other key drivers of it will was um you know like you have that wide aperture in order to increase the likelihood of getting a deal and at some point I had to say to myself look like the best deals come from your network right in a perfect world you through some set of relationships know somebody who's willing to like be open with you provide you a reasonable deal like every deal dies like three or four times before it closes and so somebody can get over those humps and hurdles and work with you like a lot of those come from the network right and I said hey where where what would my network be able to get me right now and it was obviously Property Management opportunities so I tried to carve out things that wouldn't conflict with my current company at the time and then I found an HOA management business it had some Rental Management but it was primarily an HOA management business and and then you know the story unfolded from there and this is Hillen Co that is Hillen company yep and and just just quickly before we hear about Hill and Co what did working your network look like I'm just curious did you just send out some emails or did you already know are there brokers who specialize in Property Management what what was this quote unquote search although I know in your case it was kind of more networking than anything absolutely yeah and and I think that this is good to understand in any industry so what I ended up what what when we were buying property management businesses for mind we found that the you know you could search given databases in the local state real estate directory for licensed property management businesses so in California for example you can only manage properties yeah if you are a licensed broker and so then you can go on the department of real estate's website and basically search for licensed Brokers and property management companies and then that can be the basis of which you can start calling or doing mail or Etc so in doing that for mind we came to discover that a lot of times uh select real estate brokerage owners just like know the different property managers in a in an area so because if they're selling rental properties like I'm selling a 10-unit building they usually want to make a referral to somebody that they trust so that the deal will have a higher likelihood of going through so we then so then I would just like talk to those people I started talking to all the brokerage folks that I knew in Northern California that I had met through this experience and said hey I'm looking for an HOA management business or a commercial or office management business who do you know and they would start making introductions for me so going back to my earlier point about having some industry context like that helped accelerate and then similarly there were Brokers that like exclusively focus on property management transactions they didn't Market themselves as Brokers so if you like Googled Property Management brokerage sale couldn't find them they were actually media folks that had like blogs or podcasts and stuff in the space um but I just happened to meet them because we had been meeting all the people in the ecosystem so that was actually the source from which I found the first and then the second deal um was kind of having a conversation with them and then have you know them being like Oh yeah I remember you and then it flipped into talk to this person and then you know I have a mug now that says the company name a mug and some scars and and a Fuller bank account so it's not all it's not all bad yeah it's not all bad great well tell us okay so tell us about uh tell us about Hillen Co yeah yeah so um so as I mentioned I got introduced to Hill and Company through this uh brokerage relationship or the broker relationship and it was a company that had been basically family built and run for about 30 years they were a broker and a management firm meaning that they used to sell rental properties and HOA condos and then manage some of them on behalf of the clients and so they had recently sold the brokerage business to Compass and were trying to wind down their real estate holding operations in general so they had the property management business they were trying to find a buyer for they had found a kind of a buyer the year PRI but the deal didn't really work out and there were some personality clashes between the seller and the buyer which in hindsight was great for me but I I don't really totally understand it so that opened the door for me to come in and it was a really interesting opportunity because it was about a $3 million Revenue business um which as I mentioned earlier fairly small but great because myself and my partner were looking to self-fund the acquisition and you know we got like a lot of money so we like how do we find a really good opportunity and this was great because it was incredibly undermanaged you know we had there was 170k of SD at the time of acquisition and in our infinite due diligence wisdom we saw a path to Growing that really quickly and a lot of it was just operational mismanagement overstaffing we had a a oh man we had an office that was I'm going to say it was 20,000 Square ft in Prime heart of San Francisco so it was really expensive and uh there was just a lot of opportunities to be a little bit more rational about how the business was set up to make it more uh sustainable and so we had some conversations with the sellers we thought that there were some alignments in how our skill sets fit with what they wanted to see for the business in the go forward period I also thought that there were some really quick wins in terms of taking a business that took five different people and two manila folders in order to pay a bill for a vendor and turning it into a more modern business that worked more efficiently for everybody um so we found a lot of value there and then said hey let's let's do this so we ended up acquiring the business with uh a portion seller notes Bridge financing and then Equity uh for about the total purchase price was 600k for that business the 170k S now now understanding that you have see all of these places where you can juice that really quickly but that's that's pretty low that's pretty tight so if your if your thesis doesn't work out uh or your plans don't work out uh that's not going to support you one person let alone two actually this would be a good moment so answer that but in do in so doing please also introduce your partner here and what what that relation ship was about yeah so um so I mentioned that I had a a partner in this he's a buddy of mine that we had been looking at real estate deals and a couple Acquisitions informally for like a couple of years and he had a similar background to mine he was a private Equity guy he left that to go start a company which was super successful um it was bootstrapped and you know like they got a liquidity event and bootstrap companies get liquidity events and put it straight in their pocket so it was great and more importantly he had done this once before right and I was effectively a first-time CEO and so the partnership was valuable in that we had very complimentary personalities as I mentioned earlier I was in charge of people stuff he was in charge of like finance and strategy stuff and also being out of the day-to-day of the business so that one of us had a level head in case I lost my mind and in addition to that we had seniority compliment meaning that he had done this once before and so whenever I would run into something that I wasn't clear on or maybe didn't have a framework to think about or I was stressed and needed to reframe something I could talk to him and be like hey man how did y'all handle this at your other business this leadership issue or this change management challenge or whatever and he would have a repository of stories that could help me think through the situation on the ground which is great I also brought the industry experience whereas he had the transaction uh and capitalization to make this work so we just found a lot of great Synergy in working together um and and so to the spirit of the point like the the opportunity was thin or the cash flow was thin which is accurate um couple of things that were playing into that number one uh the the way that the financial feel bad for saying this the way the financials were presented they didn't account for a few things that probably should have counted towards SD the existing general manager salary who was going to leave was one of them so on day one we actually had like about 100K increase to that so we had we had some incre recent cushion so obviously that bought down the multiple but again due diligence super important um and I knew that we were able to think about transacting the business at a certain multiple of Revenue so in my mind I was like look if we have to sell this because we could not figure it out in the first like 6 to 12 months there's some intrinsic value to the business that as long as we keep the revenue at a certain level like we can at least get our money back and so that was like our downside case planning and again like from my Network I could call on at least like five potential acquirers just out of my cell phone so we we entered it knowing that this wasn't the ideal cash flow level and there was going to be some turnaround and operational Improvement required to get to where we wanted to go um but we had some downside protection based on who we were and so we decided to take that risk and as part of our strategy we wanted to do add-ons as well to you know just use the standard terms right like have Synergy in location extract some value one of the things that we saw or I saw with mind was the value of having density in a local market was really valuable because you have one office you have higher capacity utilization of the existing managers less drive time for any of your your staff that need to go like do work at properties so the profit margins will be higher with the higher amount of density you have so our first thought process was like cool we know that these things are possible and there seem to be a lot of property management businesses for for sale in the area let's get in stake a claim have some upside with this uh manager transition that they didn't price in and then run really hard at trying to execute some of the cost-saving measures and potentially get another acquisition in the first year some of which we achieved some of which we didn't I think the spirit of your question is like did we think about bringing software in and the answer is definitely yes right so what I learned when I was at my previous company was the value of having systems that allow a high amount of collaboration and a high amount of transparency to this customer base in particular so for those of you who have investment properties I suspect your experience with your property manager if you have one might be hey like I got my rent check but then there are all these bills or I don't know what's going on with my property I'm going to send them a message or call and then maybe I'll hear back from them in the next couple of days or maybe I got to follow up with them five times to figure out what's going on that I'm I'm I'm not making this up this is my experience and this is also the feedback that we got from the client base at Hill when when we first took over you know I did a listening tour with all the clients which I would recommend for anybody um just to hear like hey I I'd introduce myself try to build some confidence in me as the new president and then also listen to what was going poorly in their mind and what was working so we could do more of what was working and try to fix or show some progress on what wasn't very quickly and for context we took over and we had a negative 50 NPS so very bad the industry average is seven so we had our work cut out for us and a big part of what was holding us back was just like communication and transparency on what was going on with things so we brought in uh we used we transitioned to a very basic like Google sheet to start with of like hey who's working on what right and my intention here wasn't that I didn't know what system to bring in but I wanted to get the team used to doing this right and so to my earlier points about like not being a hammer I recognized that our staff was very technologically behind in terms of like what systems exist so they like didn't even like using a cloud tool that everybody could collaborate in and enter data at the same time was mindblowing right this is a company that still had servers on site to run file storage and emails there was no redundancy will so every time the lights flickered in the office I'd kind of freak out I just like oh we're GNA lose everything so um so I I'd use that as a first step to just start getting them used to collaborating and having some kind of accountability around what they're working on we then Gra uated from that to Asana and once we got on aana I opened that up to the clients to have full exposure to and even when we had the Google sheet I would have the team screenshot or summarize their week from the spreadsheet into an email to the clients at the end of the week so very quickly after we took over people went from I have no idea what's going on with these projects some of which are multi-million um that they're operating on behalf of their HOA to oh now I understand like we scheduled these things we had a couple of incidents at the property okay cool and they could cut down on the number of calls that they would send in trying to figure out what was going on and either send in an approval that was needed or just like leave the manager alone for the week which is great and then we just escalated the value provided by having you know a SAA which some people downloaded onto their phones and you know would just check on their properties from their phones which was really really valuable uh but it took a lot like I just gave you a little bit of the behind the scenes of like getting them from A to B with that because internally we had some wood to chop in getting people comfortable using a system like that well that's a really uh good little tutorial Brian because um your technique of of not hitting them over the head with some new SAS tool but like having having an intermediate step of using a tracking stuff in a Google sheet which is kind of crude if you're already used to like Cloud tools but you know but also accessible so people could just like fill out a few rows of of a Google sheet and then that kind of softens them to getting using the cloud so I I love that I'm not sure I've heard that technique I think people generally either go you know go hard go all at once maybe they'll wait maybe they'll be patient maybe they'll give it six months or whatever but they still kind of like roll out the software in one Fell Swoop when they decide the timing's right but I like this kind of incrementalist approach um anything else well two two questions now about your time as operator Brian anything else you want to share about how you improve the business um actually one thing I I want you to share which you mentioned to me in the in the uh in the preall was Outsourcing some of kind of the human resources changes that you made yeah so that's thanks for that actually will because that that'll um uncover something that's probably worth mentioning as well so in this process right going from a company that had paper Stacks so high like people had to stand up over the cubicles to see and like just bananas um to a company that was effectively remote First Technology enabled had high amount of visibility in in the day-to-day um you know change of management was a big challenge so to the spirit of the point you're getting at about some people rolling things out kind of like as binary and just like we're now using this I just recognize the staff wasn't ready for that I would wa I watched them for a week or two and just saw like people using notepads and uh like using email as text and just like like things that you would see at Old School businesses and so it was incumbent upon me to find the way to get them there quickly but effectively but one of the things that was important to me was knowing have people done the things that they were supposed to do right in a Services business like Property Management it's very easy to handwave and then not actually say did you or did you not finish the thing and that was one of the complaints I heard in The NPS conversations that I was having hey things aren't getting completed and so my father-in-law's Air Force he likes to say takeoffs need to equal Landings and so I introduced that concept to the team and I said we need to know if somebody asked you to do 10 things in the beginning of of the week did you finish those 10 things at the end of the week and more important than it is for the client to know which that's Paramount like you all are super busy and I know that like you just lose track of these things it's easy I can see it happen you know you have a scrap of paper here another one there let's get organized right and not to say that like this company was the Pinnacle of organization like obviously there are solutions for this but they just didn't have it which was my opportunity so I implemented that but then some people didn't like it felt like um big brothering to them and it it's funny well because I was I just set the basic standard of just complete 70% of your things in a week and some people who would complain about this big brothering were completing like 50% so I was like what do you want me to do man like you didn't finish half of your work like does that sound like valuable work to you like should I pay you for that and so we had turnover right when we started having turnover in some positions because either people were really underperforming or because they felt like it they they weren't used to being held accountable in this way in this new world which you know in either case was fine but going back to my previous uh business that I walked away from right my concern was if people quit because they didn't like the new Direction how could I solve that and backfill for it so in this industry I was able to do that right like I had friends and people who trusted me from previous companies that came to join um actually like one of my wife's best friends had a lot of experience in HOA management in particular so we brought her on to be an operational leader and um we really started focusing on creating a new culture that was centered around uh like that high output management mindset of you manage what you measure and if you are measuring completion rate let's get increased completion rate so because we also had staff leaving we had the opportunity to rethink how our staff was allocated right and going back to to how do customers consume this product right especially in HOA and property management for rentals they they like see people on site but then everything else happens behind closed doors right and if you think about any property managers you guys have worked with uh you probably have like met them at the property when you were first considering working with them you maybe expect some pictures of them popping by the property once in a while but then if you have an accounting question or you know you like want to get a document you just email them and then the information comes back right so so if that's the core of the experience do you care where the person is no you care about them being responsive about being thorough and accurate so we ended up finding opportunities to relocate accounting positions some of the property assistant positions and things like that to other places right we had some folks in Florida and West Virginia in Texas in in San Diego Southern California and like you know outsourced that but we also have people in the Philippines and in Argentina supporting the company so we went from a company that like you could never get somebody on the phone because frankly like we were getting a ton of call volume and people were tied up on site or running down paperwork or whatever to if you didn't get if the person didn't get the phone picked up when they first called they would get a call back within the next 20 minutes because our uh assistant in the Philippines that was like her job she was just like answer the phones take notes and then put tasks in everybody's Assa to make sure to get back to people or execute the thing that they're supposed to so from the minute somebody reaches out to us as a client to full completion we could see the completion rate and the progress of the workflow which is really valuable in addition it obviously lowered our uh cost basis for Staffing and um that's really important because in a state like California where we're operating it can be very very expensive to operate not only from the additional taxes and benefits that you have to cover and the salary basis that you have to have because this is an expensive State uh but you know like it's a litigious State too so like there's some back in expenses there that we just had to plan for um and and this it started working right as we started building this culture around transparency around completion rate and just kind of like a remote first but connected culture we started getting a lot of positive feedback uh the most valuable of which was existing clients would start referring their friends to us which translated to our net promoter score we went from 50 to zero in about 6 months once we started doing these things and like I said the average industry was seven so we got pretty close in a short amount of time and I'm thankful for that um but the the other thing was like we started getting onto like property manager of the Year lists and stuff like that which helped with Elevate our profile and created some open doors for you know our future transaction MH future transaction little teaser there we're going to get there well let's now since we're kind of getting into the weeds of how you improved Hill and Co let's talk directly about property management so I I teased it at the very very beginning and said and said that there it's kind of intriguing well it it's got It's got characteristics that kind of fit the check the boxes for traditional conventional search um friendly type Industries recurring Revenue B2B enduringly profitable not going anywhere and the but the Intriguing bit about it is that there you have this sense first of all if you have any interest in uh real estate or maybe already have a real estate portfolio or aspire to have a real estate portfolio you are in the business of you know the the the managing property and and and having any sort of real estate portfolio requires having Property Management so you would just feel like you know this is the eyes and ears of um of your building is kind of the property management uh business so you would just think that somehow maybe there would be some way that it would kind of help you get into into real estate or or accelerate if you're already in real estate and then the other thing is it touches so many vendors because a lot of what property management is is project management of getting vendors to and from properties of getting the plumber to the building or the the contractor you know to the house or whatever it is so you think that maybe oh interesting I buy a property management business and then there then there might be opportunities to acquire or build adjacent businesses that are also all touching my customers so it seems interesting but then also it's notoriously difficult um I think you said this to me Brian so I'm G to I'm going to take steal your thunder here a little bit if some of these small businesses are operationally very difficult property management is another 20 to 40% more operationally difficult that was you yep it's a business where the very nature of the business is moving pieces and lots of them so with all of that please respond to first of all I guess the the way I characterize kind of it being an interesting opportunity for Searchers to think about re react to that first please yeah so I would agree with it on the surface that it is an interesting opportunity right like all of the things that you would have in your checklist or like that in the search fund Bible of like what you're looking for in a business great it's a highly fragmented industry uh you can be individually very profitable the revenue is pretty Rec ing if you do it right the churn level is low um and there are opportunities to vertically integrate to say the way that you you know the the add-on Services Point you're making you just end up quarterbacking a lot of spend on behalf of your clients in different ways right and so if you want to get into any of those it's great it's also potentially a really interesting back door way to get uh Insider information and potentially buy properties if you're doing you know uh investment and so like all like there there's a lot of boxes a check there now going back to something I said earlier it's very important that you get a you choose the devil that you keep or man what's the what's the phrasing right like you have to um uh choose the prison like choose the prison you're going to lock yourself in something like that ah I you know what I'm talking about there's a anyway so definitely there's there's a quote there somebody will tell you in your comments so um but but like you you have to recognize what you're getting into with this right and so just to paint the picture of any Property Management business but in particular residential of different flavors you sit in the middle of tenants of some type or homeowners for HOA who have one set of desires issues ETC and then you have the homeowners the people who are responsible for the asset right the property owners the HOA board Etc and so on the one hand you have somebody saying I want this thing done and I want it now can you make this better and then on the other you have I don't want to spend any money and so those things tend into Clash right and property managers sit in the middle trying to make sure both of them are happy and so when when we bought our company we bought it in December of 2019 March of 2020 everybody knows what happened Co exploded into the market things shut down especially in California so all like a lot of the things had to change very quickly one of the things that increased very dramatically for us was the number of inbound calls and complaints about neighbors because in the Bay Area in San Francisco we have a lot of highdensity housing you know small to mid to high level rise buildings so you know like if everybody's home all day now and they're taking calls like this all day they can hear each other or they can hear each other stomping or you know one of my favorites was we got man we got so many phone calls about people uh not cutting their boxes when they're putting them in the recycling shoots in their given buildings and they were like you need to like lock down this and like make sure everybody does it Etc and so I make that point to say that in times of high stress you are at the bottleneck of that stress and receive a lot of it so being aware of that is really important and and I'll tell you from my experience so so we bought that first company we bought a second company with the intent of increasing density and scale and um you know we can dive into the details about that but the point the reason I bring it up was uh it helped us have enough capacity to start putting in a m like a better middle level uh of management between myself and my partner and the rest of the team and the clients so we brought in a VP of operations we B brought in a controller to handle the two most important parts of the house which are like the day-to-day customer service and then the the finances of the properties and that gave us some headp space uh one of my other buddies who's doing a really large rollup of HOA businesses on the East Coast started with a smaller Property Management business similar to how we did and very quickly bought the second largest in the city because he ran into a situation where he was like I'm too close to to the day-to-day and I'm too subscale and even like with middle level management clients want to call the owner and talk to them and they want to feel that personal connection so he needed to put somebody in between him and them with scale and it's been working so far with him but my only point is that like he was a if I'm like a like a much more people and operations leaning acquirer with like a lot of finance and transaction skills he's like way ahead of me in terms of like the transaction skills part like he is the traditional private Equity guy in a lot of ways and so he very quickly had to supplement with like a lot of operational infrastructure underneath him and so it it's not like a don't enter it it's a go into it eyes wide open and be thoughtful about how you grow so that you can very quickly solve some of the Devils that you're going to face at that new level one of the things that always struck me about when people talk about how hard it is it's like I understand why kind of the moment to moment of property management can be hectic but like isn't if yeah if you have a business that's big enough isn't that what your employees are doing like you're you're you're paying them to do that so you would hope that you're not the personal throat being choked you're not the you know it's it's your employees that are responding to that I'll tell you man I it should be it should be will the there are a couple of things that play with that right um number one there's no real certification requirement to be a property management employee right so you get a lot you get a lot of people of different types and different sophistications so you have to manage them differently and with different levels of attention secondly and I think most importantly the way I thought about property management it's it's really like um like a Wealth Management Service but again it's like fairly unregulated to a certain extent and so for myself with my personal properties like I want to know that I can trust the person who is in charge of the business even if his sub like his you know employee is in charge of my property I want to make sure that the person in charge who's overseeing all these people is not going to mess my stuff up yeah and so irrespective of scale like that comes into play like with the with the startup that we were um growing you know we got to 10,000 doors under management pretty quickly and clients still wanted to talk to the CEO right let me just have a conversation with them let me have a conversation with the COO I just want to look them in the eyes right I just want to make I want to shake their hand like those that's the kind of language that was used specifically in this space and so you know that Dynamic will go away a little bit as the generations transition but even still like I mean I'm I don't know I'm 40 and I still like think that there's some like I flew to Texas to make sure that the person managing one of my properties was like a good guy good that's a good one of those idiosyncrasies industry idiosyncrasies that like only with your operational experience do you really taste and and understand and then what about this the Intriguing opportunities so as you put it much more concisely vertical integration so you you can as a property management business you can in theory acquire uh an HVAC Plumbing business or whatever to to then offer to your customers um does that is does that kind of angle that kind of scheme play out does that work it it does yes so um so I'll speak to the HOA management space so there's a company called First Service residential which is like the largest in the space uh don't ask me to quote how many units they have under management it's like in the hundreds of thousands and they the way they function is they are a vertically integrated service provider so they will manage your HOA and then they usually they have pool service Landscaping emergency services for after hours General Contracting and all these other lists of services that they can provide and so you select them because you know in theory they have it's a One-Stop shop for all the things you're really going to need and the the quality should be managed such that if I believe in the management all these other services should be at a high level as well so I don't have to worry about like suing somebody for not like pouring the concrete in my pool effectively so that's the theory and so that being said you know I God lord don't don't don't don't get mad at me if I'm wrong about this but I think they managed somewhere in the in like the hundreds of thousands to like maybe low millions of units but there's something like I think 10 million units or 20 million units of HOA I forget the number off top of my head of HOA units in the country right now and it's growing so I make that point to say it is a very fragmented industry right like there is not it's not like Facebook that has the entire social media Market or Etc right so if you were to apply the same strategy in the space it is very capable because at our business we had we managed I think $15 million or $20 million of spend on behalf of our clients and there were very clear chunks of uh spend that we could have tackled through an acquisition to be able to capture that money and and furthermore in some states right like having some of the licensing for some of these functions was very very hard to find so if you if you just bought them then you could have that in house and have differentiation and so do you think that's a viable strategy you're you gave us kind of the total outlier where it's a perfectly integrated very large operation but for the Searchers listening who haven't yet bought a property management business do you think it is something that they um can can contemplate doing eventually once they get their by their first business their first Property Management business that uh it's a a viable path for them and they don't have to be some enormous operation to get there that they could buy that HVAC Plumbing business couple years into their tenur as owner of a property management business like how mature and big do you have to be to to start vertically integrating yeah I mean I think if you want to treat this as a let me capture existing spend I would just keep an eye on how much spend you have and can control so I made the point about like we had 15 or $20 million of spend because then we went through the list and started looking at what do we have around a million dollars of spend that we're controlling now in a given category and we could maybe like redirect some of that right so I would say like that would be my metric to look at like set some minimum threshold of Revenue that you can direct if that's the strategy you want to do some people are okay growing like two businesses at once and you know that can have its own headache and I think as long as you're staffed and the infrastructure for that great I would suggest having some level of spend which doesn't mean you need to be like a$ hundred million business um you know I've seen businesses that are in the like three to7 million Revenue range have these inhouse and like property management businesses specifically have it inous and be very very profitable and and and depending on the market you're in the fee that you may be getting on the property management may be like at cost to a certain extent and so having these additional uh service lines will increase your uh individual client profitability pretty dramatically and pretty quickly so I think it's worth looking at even if it's just hiring a person who's a HVAC person or you know legal counselor whatever that category is that you're trying to tackle like you can just start building that out immediately tomorrow and and start making money well then I guess it is uh justifiably uh intriguing all right well we are uh we still got some big pieces of your story to go here um but we have let's first get to your second acquisition so yes please give us some some numbers around what and around the business itself and the deal itself if you could yeah um so it was a almost the exact same business that we first bought in terms of a property HOA and rental property management business we filtered based on like what can overlay our existing footprint pretty dramatically and create increased density and it was perfectly fitting into our footprint uh we found it through the first broker that we had acquired the first business bus from and we had been like networking with other folks so we had a pipeline of other deals to do but this one came because they were very motivated uh the our our credibility with them was really high and because of the overlap of footprint we we thought we would stretch and rush to get this one done to increase the existing profitability of our combined business out of the gate and so we acquired um this property management business it was called Pacific Union and you know like we bought it for two 1.2 mil so we're all in about 18 and we actually did that almost exclusively through debt so when we bought the first business we had built a good enough track record and relationship with a bank that by the time the second deal came around we were able to refinance the whole capital structure with a bank loan um so the initial Equity check we wrote was good enough to basically do the second acquisition as well which great um and and that and like so we so we refinanced the bridge debt we refinanced the seller note we were left with a term term note that was a fiveyear term note first year was Io if I remember correctly and you know that's that's great um and uh and so our we had a great cost basis we had a great amount of Leverage given that we were in for a fairly small amount of the total purchase price in equity um and and then we had this business that added another 40-ish per of Revenue on top of us but like dramatically improved our our our cash flow because we shut down their office we only needed one uh Software System we ended up finding some augmented staff that we wanted to have um in certain Pockets but then some folks from their left and they were frankly like underperformers so we didn't need a backfill m um and so we ended up getting like a lot of increased cash flow from that which is great additionally uh we were then connected to a larger brokerage so that larger brok brokerage started referring us as their property management solution anytime they were selling an HOA or um a rental property and so we started getting some growth that way um so so it was like there were a lot of add-on benefits to that and we added on like more spend in categories to start looking at how to create relationships with so um so it actually ended up being a real win for us now we know that you exit the business do you want to is now the time to jump ahead and talk about that or um why why don't we okay so we know that you exit the business Brian but before we get to that piece of the story give us your intentions were you coming at this from kind of the private Equity perspective you have so much of kind of the private Equity culture and in your network is very much um from kind of PE culture so buy grow sell in five six seven eight years uh or hold indefinitely Or somewhere in the middle what what was your approach with this project yeah you know well we we came into this with the intention of holding it forever we wanted it to be kind of like a passive asset that we could just say like you know we have a general manager running it it's an asset in a portfolio and we're going to keep going right and we we ultimately wanted to start looking at vertically integrating and starting or buying businesses that would tackle some of those parts of the spend so we had set the business up to run that way part of the reason we wanted to have transparency and completion rate was so that we could manage it from wherever we were right um I started out in the Bay Area I moved to Southern California during this process so did my partner uh but we had great staff that could run the day-to-day and we had visibility so we set it up with that intention Brian let me interrupt really quickly so you you were able to stress test how Hands-On this business needed to be because you moved while you were still owner of the business you were five hours away in in Southern California correct and and and you know Co helped a lot with that right transitioning this to a remote first business kind of made that okay to a certain extent but we stress tested it by being away you know I would stay out of the office for a period of time to see if it would work and then we moved and I was like oh seems like the trains are still running all right we're good um and I won't say that didn't require me to come back once in a while but you know it wasn't like I had to be there every day okay so you've you've pretty much successfully completed a transition to a business that you can run remotely you've stress tested it you've moved to Southern California what changes I mean this is this is unfolding the way you wanted it to but we know that you sell so what changes yeah you know um we were having a discussion kind of similar to my uh lesson learned from my buddy who was like I bought the second largest HOA management company pretty quickly we were thinking hey you know just to really make this sustainably passive we probably need to be a little bit bigger so let's think about how we can finance a transaction for another business without raising outside money right like we wanted to just kind of control as much of the economics as possible since we did a self-funded search so we had the rental and the HOA business and we were willing to really make a bet on the HOA business so we were going to sell the rental business and it and in this conversation like I started talking to folks in the market I got unsolicitedly approached by two um strategics in the market who had raised capital and were looking to grow really quickly and so they wanted one of them wanted to just buy uh actually our HOA business and then they were going to take the rental business as like part of it and then the other wanted to buy our whole business and have us run the HOA Division and grow and so you know my my dean of pledges in college told me never pass up for show for S so I had this you can use that as your chapter title but the and and I talked to one of my mentors who sold a business to Apple at a very early stage of their development and you know his advice to me was like look acquirers don't come along every single day if what what makes them willing to strike now might not still be there in 2 or 3 years so unless you think that you're going to like like triple the business really quickly in a capital efficient way like you should take this seriously and so we had the benefit of having two bidding parties who were serious and like working against each other so we were able to have a a significant premium in our purchase price that was was great and like you know it made my wife very happy um you know she likes to say you can't spend balance sheet which is not wrong so but I think I think just kind of like going back to the original question we had to confront my partner and I had to confront our desire to keep this thing forever with the opportunity to create liquidity now right and you know like there there there were practical aspects of this right we had um personal guarantees from the debt that we had to consider whether or not we wanted to keep in place we had um you know like decisions around do we want to keep going this alone or do we want to do this in a team for a little while and frankly like we both have Desir of I guess like saying we could raise Capital because we have a track record and have been entrepreneurs that have had some success for a period of time and so having like exits is valuable and going you know my buddy who I worked with was like he had an exit that gave him credibility with me so we went to roll that forward so having an exit was an interesting opportunity so frankly we just had the conversation of are we trying to be property managers forever or do we want to think about ourselves as entrepreneurs and is this an opportunistic time to just create liquidity and ultimately that's what we did and Brian when you said you kind of hinted at what the next chapter might be and how this would set you up nicely so maybe raising your own fund and you can point to this really compelling irr that you got for yourself over the last project and so therefore that helps you make the argument to to raise other people's money for the next chapter is that is that kind of your designs are yeah I think that's right you know I think first and foremost I've been looking at like investments in you know know business Acquisitions and just like personal investment opportunities which is great right like there's there's something to be said about a certain amount of comfort you have with like the family being set right yeah and and so that's that's valuable and you know I come from Fairly bluecollar backgrounds like my neither of my parents really went to college so having the win was like in and of itself like a badge of honor and and like a stress reliever um but additionally right like I I'd like to be able to say Hey you know we did this with this business now we're looking to raise a fund to do it in a diverse way or or operate a hold Co that functions as a capital allocator to roll up uh a couple of services within an industry but either of those especially like from my lived experience is tightly associated with track records so like I called a bunch of buddies from the private Equity Firm that I used to work at just to say thanks for training me and once we started talking through the details of the deal very quickly they follow up with well hey if you're ready for your next check you let me know right and that opportunity set is uh very very important to where I'm trying to go next yeah that's that's fantastic um Insight I mean the question of selling or not you you can it's um there's so much quantitative and qualitative to that decision because you can really I think we talked on the preall about AJ wer Stein's case note about holding forever and the kind of the argument for holding a business forever and never selling and how there so much sort of bias and orientation towards selling and exiting because that's where the kind of sexy stories come from and you know the big windfalls occur uh and the headline grabbing numbers but in fact you can make a quantitative argument for holding on to a business indefinitely um but there are some very well- defined parameters of that analysis uh and and there's all kinds of qualitative stuff or personal subjective stuff that also needs to enter everybody's calculus differently like like what you just said kind of this setting you up strategically for something else you want to do in your career as as just one example so it's um yeah it's a it's a complicated decision but damn if it isn't a fun decision to have to make yeah I mean look like I I should be so lucky yeah exactly well congratulations um and so nett it out for us on numbers or whatever you can share so you were basically in for I think you said 1.8 your first acquisition was 600 the second one was 1.2 so 1.8 in total heavy on The Leverage um so uh so what can you share with us about the exit yeah um well we sold for a pretty hefty premium uh if you look at some other talks that I've talked you can figure out the premium I realize I've said it on other ones um but but broadly speaking you know we we were able to let let me put it this way the the most important thing to me in the financial component of this was making sure that my business partner got a return on his investment right um he took a risk on me he invested and helped capitalize a significant portion of the transaction and so I wanted to make sure that he got a meaningful return and you know we both were able to take pretty significant money home and like like I said like my wife is happy that I took this risk which is great um and and I would say to anybody out there like the math of having it in Pocket is no small part of that that uh calculation that you were referencing earlier and so you know like he was able to put some money in his pocket like I know it helped like fund an acquisition of a couple of investment properties that he's done now lately we both actually looked at uh buying a bunch of investment properties prior to the uh the interest rates taking a huge leap last year um so it was pretty meaningful in terms of our ability to like put money into college funds and like have a little bit of Play money to think about what to do next with so this is all sounding great Brian this is all sounding like a happy ending um but but but then what happens so we ended up going with the acquirer that we were going to run um the HOA division with right and you know things were great but this is the beginning of 2022 and if any of you are wondering if burnout is a realistic thing let me tell you about what it looks like and how realistic it is what does it look like in this so so in this year I started having um Performance challenges I it started out with me like just not being punctual anymore and as I've shared with you I'm super punctual like the college I went to likes to say that if you're not early you're late right so I was like okay cool like I need to be on time for every single thing I do and I started slipping on that and it wasn't because I was over scheduled it wasn't because like I like my calendars are messed up I just like my brain wasn't remembering to do this thing and that started playing itself out in decision- making and and communication and just like synthesizing things right I I I think about myself as very quick to synthesize and understand new information and like new Industries I couldn't do it I would be in situations that would require a little bit of complex thinking and it would just like not click and so I started to worry about that and I mean even like I missed a series of calls with my business partner who I tend to prioritize over everything else and I just like literally forgot I would look at my calendar an hour before the call and be like oh I need to talk to him in an hour and then the call would the the call would come and I'd just be sitting on my thumbs and completely forgot about it m so I thought something was up and and then this like snowballed into physical symptoms like I I thought I had an ulcer for a period of the time over the summer my stomach was really upset and like I just I couldn't sleep very well I was having like stress dreams like crazy and and why should I be having stress dreams when I just sold a business intuitive timing here Brian massively and and like I started having hypertension issues when you know that runs on both Sid sides of my family which was a big concern for me in particular because during this time frame so we moved to a new a new city which you know I any time that I've almost broke up with my wife was around us moving so it's a high stress time for us uh my she got we got pregnant with our second child and it was a really hard pregnancy for her so I was on Deck with the house and with uh my daughter making sure like everybody was taken care of we were integrating with the the acquirer which had a lot of challenges um and really put a lot of stress on me and the team and then my dad passed away from a stroke tied to his high blood pressure issues so you can imagine when I realized I was having high blood pressure how much the stress level increased on me and I think all of that became the last straw where the cumulative output of prioritizing my team way ahead of me for the last 2 and a half years and ensuring that no matter matter when a phone call comes in for me I would answer it and if somebody needed a response I would give it to them and you know giving my team days off and uh fun things to do to recover and not burnout but not giving it to myself all came to a head and I like self- diagnosed that I had burnout and after talking to dozens of Executives who have taken time off for themselves because they burned out it's been pretty clear that there is consistency in this experience where your performance can't be willed forward right like you can't tell I'm just going to power through this uh you are just like at a point where your brain and your emotional state is so damaged that you actually have to take time off to heal and that's what I did I had to take a sabatical for a year to allow myself to recover and come back to myself and so you know now I feel like I sound back to my normal self if not better but if you had talked to me even six months ago will it would have been like questionable if I could string together sentences well wow and so so this kind of degradation in your in your functioning continued because because you you characterize it by you know you would just forget you'd flake on a meeting that was only an hour an hour before you remembered you had to be there and then you'd flake um and kind of physiological issues and and how bad did it get because those are when the kind of those initial signs how how what was the bottom like oh man the bottom was I went into the doctor's office to figure out like what like why I was having these stomach pains and you know I was like am I having an ulcer what going on with me and they took my blood pressure and I looked at it and my blood pressure was like 160 over 100 or something it was like super high right and that's like stroke level and I was sitting there thinking to myself like holding back tears worrying that I was going to like I've killed myself I've killed myself by doing this thing and so like pursuing money and pursu and like holding all this responsibility and and obligation to the team and to my investors and like myself and my family I've held it in such a way that it's actually killed me because like my dad had just passed away like a couple months prior and it was just like bu top of mind for me but that was the wakeup call man I was like I I I have to figure out what to do here and I tried I tried to take like a week off or like few days here go to this little Retreat go to the spa quiet quit for a little bit just to try like hand some things off to my partner so that he could run it so that I could take a step back I tried all the things you would normally think of with Stress Management and it was I was too far gone at that point and it came to a point where I had to have a conversation with the you know the new team we had just joined and said look like I'm I'm just not in a place where I can competently execute the plan that we wanted to execute here and I think it's responsible for me to step back so you can put somebody in place who can and and so when did your sabatical begin was it six months ago and so you're six months into it no it started in September of last year so I I ended it effectively on my son's first birthday so I started it when he was born and I ended it on his first birthday so now I'm like back from sabatical okay one thing to just kind try to understand I mean the timing of your burnout was post being an operator in the business that you acquired and you said that there were these other external stressors your father's unfortunate passing your uh wife's second pregnancy struggling pregnancy your move so none of those are about the business although the the integration with the acquir which isn't going badly so that's context one context too is you've you've told us about buying two property management businesses um and that you seem to crush it and it didn't seem like it was I'm I'm sure it was challenging but it didn't I haven't heard you say you had fetal position moments or that you were that you were that you were about to crack while while doing all of that stuff you almost made it sound easy actually Brian over the course of our of our interview and then yet there's this this this response albeit somewhat delayed so one of the things that I always try to to draw out is like how hard is this project of buying a small business and so should we connect these two things or not might might it have happened anyway no I mean I I would connect them and I I Ed the framing of like that sixish month period in 2022 where you know moved Dad passed Etc as the straw that broke the camels back but it was it was 100% an accumulation of things over the you know runtime of operating the company and I I will tell you it's funny use the fetal position point and that just really struck a cord with me because I was like oh yeah I definitely had those you did they're oh yeah for sure and and so I I if I made it sound like it was a cakewalk like I you know I apologize to the listeners that is just me speaking in hindsight but in the moment um you know you you have these dark moments right where you're thinking about payroll or you know the the debt Bal balance comes due or you're just trying to figure out like man we just lost this client how why and you take it personally right and I was not great in that run of creating the spaces and habits for myself to flush that stress out and to rec like reframe it I was very good at compartmentalizing right and and to my earlier background Point like hard work isn't an issue or new to me so like I could absorb all that the way I typically do it is compartmentalize it so I just like stuff it over here until it was time to deal with it but I never dealt with it will and so like I had this huge amount of like heavy baggage that I was just dragging around with me and it got heavier and heavier as I would encounter frustrations or challenges where we'd have another staff that left or you know we hired this one person and they made this big mistake or you know this client is calling me because they're mad about something that really isn't in our control but then they're just like trying to blame us and spreading that around and how do we manage these kind of fires that we have to put out um that that all added up and it took a toll but in the moment I felt such a high amount of responsibility and obligation to everybody involved that I didn't give I said to myself like I don't have time to let this stop me right I need to make sure that these 30-ish people are getting paid because irrespective of them showing up to work like they got to they got to live they got a they got a life that's my responsibility I got to make sure I'm making good decisions so that my can eat you know and my wife has a comfortable life you know it's not like we're living lavish like I just want us to be able to pay our bills yeah and all of that added up and so my like main takea away from that is like I just never opened the release valve and we we actually structured our culture for that we did that we'd have like Employee Appreciation days and like time off and ice cream socials so the staff would do it but I wasn't taking the medicine I was giving to the staff and I never like allowed the release valve to open yeah Brian last question again related to kind of this whole experience and contextualizing it so you're somebody who had Finance experience and some private equity and and then at a startup in Tech startup land uh in fact you buy your business in San Francisco so uh contrast the operational um being being a a small business owner an operator with all of those various paths for people who might be in Tech fantasizing about buying a small business or be in private Equity or Investment Banking fantasizing about small business what would you what's your message to them yeah yeah that's that's a good one you know I think the biggest difference in my experience when you're at a startup or in banking or even like you know GE or GM large established businesses there are processes there are routines there's also some general expectation of excellence and thoroughness that comes with being in those spaces right everybody's kind of there to perform even if they're like underperforming they're still performing when you go into a smaller business you are going to be uh not only exposed to but more sensitive to underperformers and that might just be because they are you know that's just like the the sum of their talent their capability they're not like capable of being like an investment banker right or they would have been an investment banker or they might be owning the business so it is you're going to experience that deficit in different ways in man management approaches right like your mid-level management might be deficient in some ways your line level people might be Etc and so it is incumbent upon you to figure out how to solve those problems and be willing and prepared to step into weird roles right you might have to be on the phone with uh you know the San Francisco tax Authority trying to figure out like some payroll tax that you know they never told you about but apparently you need to pay and your accountant didn't pick up or you might have to be on the phone with Comcast for like 2 hours because your internet just went out in the office and you got to get it turned back on to make sure you work like and sometimes like you know you might have your assistant do these things but there are going to be things that will really fall to you as the person in charge that you you know you just have to make sure happens and it will feel in some instances like why am I doing this I can't believe that I have to do this but you know to the person who wears the crown much as expected right so you're in charge you got to get these things done and you know hopefully build yourself to be in a place where the systems and processes and infrastructure and standard of Excellence are such that you know you're it's where you're used to but yeah it's it can be a change it can be a culture shock it can be a responsibility shock for sure what a great conversation thanks for coming on if people want to reach out to you what's the best way to do that sure uh I am Brian Lee Shields it's Brian with an i Le Shields at pretty much everything so Instagram LinkedIn threads like come find me Chill on threads yeah kind of I check it yeah i' keep it simple so just come find me and I'm happy to talk about anything we talked about today all right great we'll put all your links in the in the notes Brian thanks so much for coming on me what a great conversation really appreciate it thank you keep doing what you're doing will I'm a big fan 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