Adam Boris welcome to acquiring minds thanks man good to be here I'm excited for our conversation Adam you own a sizable business that you acquired via a self-funded search and that story alone is impressive inspirational it's fair to say but you also have experience as an investor in search deals mostly traditional search funds so you bring the perspective of a successful self-funded Searcher but a traditional search fund investor so lots to tease out there if you'd start us off please with some background on you Adam sure again will thanks for having me um so I uh from Maryland went to the Naval Academy spent um my early days as a submarine officer um did a a couple deployments in the early 2000 period transitioned in '08 to a uh publicly Trad Energy company based in Bethesda kind of tangential to the energy industry we were selling enriched uranium nuclear fuel to commercial nuclear power plants great landing place for me out of the military but knew I kind of wanted to be um in a little bit of a you know maybe smaller business faster growth um opportunity so I networked um with some people in Annapolis ended up working um for a fundless sponsor in uh in the the Annapolis anona County area um he had previously worked at a middle market fund doing turnarounds of small businesses and assembled a team to originally acquire one business we ultimately acquired um about seven or eight um had a small investment fund and I kind of you know cut my teeth in you know sourcing Deals structuring Deals doing diligence um interfacing with lenders and then ultimately working in three of the portfolio companies as an operating partner um he hired me right out of Kellogg I was doing an Executive MBA program which is on the tail end of that Energy company he hired me about three months prior to graduation because that's when we bought our first business um the business had a pretty sizable outcome 18 months later was kind of catapulted into the investment fund that we we ran um and then I did that until you know 2018 um my father has owned and operated a small business in the digital marketing space since the late 7s and always felt very entrepreneurial you know I don't think you know we were the wealthiest people but we did fine we had great vacations and tons of family time together you know always home for dinner you know some late nights for my dad commuting into DC but it it was just a great way to grow up as a kid and I kind of as I built my professional repertoire and got older I was like how do I become an owner operator um the guy I worked for uh in Annapolis was Tom Ripley and Tom built a team around him to to basically acquire these distress businesses and and as I mentioned before that's where I kind of learned how to operate how to look at deals how to read balance sheets and then I was like look I I I like this but I'd like to buy a profitable business I'd like to be a CEO I'd like to be my own boss and that kind of catapulted me into a search ironically kind of a fun part place to start I learned about search from annappa um one of the oldest most reputable traditional search funds out there and um Mike maray was a great mentor of mine as I was transitioning out of Tom's team um had some really meaningful discussions with him and Jeff Jeff Stevens and I was like wow this is a great model and I asked them I said what if I search for a business but I don't take any investor capital and said well that's a self-funded search I was like there you go so that was actually the first time it was probably 2017 early 18 when I when I heard the term and then by the end of 18 I had resigned from my firm launched my search in January of 19 I ultimately sourced a deal through an existing intermediate relationship that I had that I built while I was working for Tom because I I spent my first three years sourcing deals doing diligence evaluating businesses and I spent the last two and a half years running companies so I had a pretty expansive network of medaries which ultimately gets me to the acceleration of my search search in January got the business under under Loi in April and I closed in June that's a having be exposed to a lot of sell fund searches in the last five years that's a pretty quick timeline but I feel like I had the right capabilities to search um and I was good with I was good with transactions like I was good at putting together paperwork for banks I could build financial statements I knew how to articulate things about a business to get people more comfortable with them um I ultimately landed with a a 7A loan Adam can I pause you because I want to I want to tease out some of this stuff and but I also want before we get too far away from your background I want to ask some follow-ups um first of all um your dad digital marketing going back to the 70s what does digital marketing in in the context of the 70s and 80s mean just curious so it doesn't mean anything that's what this today it was an advertising agency with print Billboards newspapers and over the last 20 years it's transformed into a digital marketing firm so Ad Agency old they're basically Madison Avenue in DC in the 70s is it is it a firm that's still around because I know some of the ad agencies in DC would I've heard of it yeah uh well it's in Anapolis um it used it used to be called um Bor Dixon my dad's business partner is Jay Dixon um but because my dad is um retiring this year actually they rebranded it several years ago to ads intelligence they're based in Annapolis uh primary focus is residential real estate I feel like I've worked with them in another life which I can talk to you about offline that's so funny interesting the world continues to get smaller yeah uh okay and when you say that you worked for a fundless sponsor of course that term is evolved to you usually hear independent sponsor these days but it's their uh same thing first of all why do you think that you you got hired if you had no experience obviously you're coming out of Kellogg so that might be the answer in the Naval Academy well yeah it it it it really came down to um the principle assembling a team of people who um had all the same values as him who were high integrity hardworking people who he could give a guard rail left and right and just say go and execute and there's three naval academy people on the team a an fpna um audit or accountant type that he hired and the four of us worked with him to to to go off and and and execute he actually said to me I actually it doesn't matter to me that you've never done a deal I know how to do deals but I know that if I give you a task you'll executed 120% and there's also tons of OJT on the job training that you ultimately you know stumbled into and and it was a really it was a really interesting team I'm actually the only person on the team that's not still there oh yeah yeah so it says a lot about about him and that team and they've done a lot of really impressive things over the last 10 years and for somebody who has worked for an independent sponsor at in an independent sponsor just give us a little bit of a picture of of what that means what that looks like uh that's a term that comes up a lot but I but I also think unless you're heavy into the independent sponsor space there's a bit of a Mystique um and not fully people this audience might not fully understand what it is so give us a picture yeah I think it it manifests itself in a couple different ways I think predominantly you see independent sponsors who have transaction backgrounds they have acquired businesses likely with other larger teams and then they decide that they're going to go do it on their own they then do research and figure out an industry where they feel like there's opportunity to potentially buy a business a platform and then and then do a buy and build so the independent sponsors that I previously been involved with and invested in would pick a specific sector they'd buy a platform business and they would raise Capital to go out and acquire those businesses assemble a team they sit on the board they kind of operate as like you know chairman executive chairman of those businesses and they try to they try to grow them through acquisition as well as organically we were doing it a little bit differently because we were we were requiring distress businesses so it was not a specific sector thesis it was a distress thesis so it was opportunistically looking for lower Middle Market bus businesses that um had good businesses with good customers and a good product or service to sell but something had happened in the business to cause them to you know Fall From Grace um whether that was like a CO event although this was before that um they very frequently had um some sort of personal issues going on whether it was fraud or embezzlement um they were very frequently in foreclosure with their senior lenders the lenders put the businesses into workout groups and they try to sell assets at a discount to get them off their books and that's what we did and so sourcing these turnaround opportunities there are some pretty clear places where you would go fishing you talk to lender you develop a network among lenders and lenders have assets trying to get off their books correct and and and the the most recent deals the three that I did before I left one was sourced through um an investment bank that just happens to sell lower Middle Market distress businesses um one of them was sourced through a um a Commercial Bank at MNT local local relationship and then the other one was sourced through um a network of of my former employers who um a lawyer who was involved in helping this business deal with some of their real estate issues said hey like this business is going to is going to transact you guys should come and take a look at it um so it it if I connected that to search you know search is all about finding Pro profitable companies um the intermediate network is pretty vast inclusive of business brokers lower Middle Market investment bankers but you do kind of take the no no no stone unturned approach you're talking to lawyers you're talking to private wealth people you're talking to commercial owners there's opportunities kind of everywhere and whether you're Source a profitable business or or distressed business that that it's not that different and and sourcing aside give us more of what the difference actually is between independent sponsorship and search because a lot of what you you said and also leaving aside that there your thesis or your your approach was going after distress businesses Searchers don't do that we look for healthy businesses but but everything else you said about what independent sponsors do sounded like Searchers so so so remind the audience what the the the real difference is here size of business size of Target business is a big one what else yeah I think the the thing that that jumps to the head of the list is all Searchers run the businesses that they buy the model is predicated upon it being a Searcher operator model self-funded Searchers uh take on SBA Loans they personally guarantee them they run the companies the reason why their economics are so good is because they have a lot of risk and they're candly the person doing all the work s similar to that traditional Searchers also run the businesses every single time their economics are very different because they don't have the same personal risk profile as self-funded Searchers they don't take on bank loans they don't take on personal guarantees they don't they they very very infrequently put their own money into deals but they again are also running the companies independent sponsors do not necessarily become the day-to-day president um I will tell you coming out of the the fundless sponsor independent sponsor distress world is that you end up taking a little bit more of a of a a hard lean in on the running of the business if you're the person because they require a lot of a lot of Hands-On leadership so an independent sponsor that raises Capital to buy a platform to buy business 2 business three they may not be the person writing the checks they're sitting at the board if you buy a distressed business as an independent sponsor somebody at that sponsor group is writing checks looking at all the cash coming in in and out every day hiring and firing doing all the blocking and tackling I would say that my perception is that the the the independent sponsors that buyer that buy profitable businesses are doing a lot of blocking and tackling but not nearly as much as you do when you're buying a distressed business yeah because I mean I think I think makes sense yeah I mean it sounds like the whole opportunity is to basically write the ship uh correct but somebody's got to do that writing uh writing of the ship and it's not going to be somebody who's already at the business otherwise the ship wouldn't be sinking so it's going to be you guys yeah and and and so so you have this great experience you learn a lot from Tom Ripley was the the sponsor's name the founder yeah Tom Tom was my my uh my employer my mentor um and you know pretty much learned almost everything I know about running and evaluating businesses from him in in in that uh that five and a half years yeah well it does sound like amazing experience to go off and do your own search because as you just said you learned I mean not only how to buy business how to Source businesses how to look at deals but then you were also looking at really challenged business you got all kinds of operational experience so you learned how to operate not only a business but a business that needed to be you know was that was in crisis so you know really thrown into the deep end to to to fix businesses so once you got your hands on a healthy business it must have just seemed easy peasy um yeah but but here here's the question why did you so you you you why did you not when you set out on your own choose to be an independent sponsor why did you want to be a Searcher I'm not sure you know God that was seven years ago um I'm not sure I fully appreciated every single different structure um but if I were to use my knowledge today and then kind of walk it back to 2017 2018 I still feel like self-funded has the most autonomy and gives you the most control now did I know that when I did it I mean I kind of knew that but and and let me give you one specific detail you can be a funless sponsor and buy distressed businesses and have a permanent Capital vehicle no investment fund no investors and you can do whatever you want whenever you want to whatever business you want that's very unique most most fundless sponsors are buying profitable businesses and they need investors once you take on investor you have a boss it may not feel like you're an employee but you have a boss traditional search funds have investors a lot of smart people putting very specific guard rails around that traditional search fund to make sure that he or she does the right thing yes it's super independent yes it's super entrepreneurial but you have a boss self-funded you don't have a boss I don't care what governance you put in place and again some self-funded structures have boards most don't it is the most flexible structure where you can do whatever you want whenever you want to whatever business you want and that was very appealing to me again I don't think I had as much knowledge as I have today about all the different structures but the independence in autonomy about an unfunded search was the most attractive thing to me about that model and so when you were turned on to search as a concept at the tail end of your time at the fund list independent sponsor um and you you me mentioned some names an aappa and and what Mike Moray was that the name Mike Mar yeah he's a a 20-year senior to me Naval Academy submarine officer met Jeff at Stanford Business School and and he's had just such a great impact on my uh you know my professional life um advised me on all the different things I could be doing and then he's like hey like this is this is what I do you should you should come and talk to us about it so it was a really it was a fortuitous conversation cuz I think that going off and buying my own business was going to happen anyway I didn't really know that people were calling at a search until they told me yeah and but but in fact you you you you hear them out you're really excited but then you say but by the way how do I do this without raising money uh and back to the control Independence thing back to and and that was what is that was what prompted your question to them was like well I'd still have a boss if I go with this traditional search fund model thing how do I do this without a boss that was kind of yeah and and I would say even having that specific conversation with Mike I'm not even sure I knew that the economics would actually be much better potentially as far as an ownership doing a self funded like at that I didn't know that I was going to use an SBA loan when I was in that office I didn't know that it was 25% ownership versus 80% or 100 I just knew that if you invest it felt similar to my previous role where I didn't have an investor but I had a managing partner kind of telling me what to do it just it felt like I wanted to I wanted to be farther away from that and all the while candidly like I was interviewing at Middle Market private Equity Funds to be an operating partner to help run run businesses for them um one in particular in the area and I got very far with them and maybe buying Delta was the shortest distance between two points um to employ myself as a CEO and that just happened to happen first so again like is is it really is it skill or is it luck well you know Tom you uses that Thomas Jefferson quote like the harder I work the luckier I get like I think there was a reason why I bought the business reason why I did it quicker than employing myself at another fund the net result is is independent and and that's what I've always valued as a Searcher great and but just so we understand on this point that self-funded equals the most independence of all and that you don't have a boss you did mention in your kind of the your your brief glossing over the economics that like self-funded Searcher you might have 80% of the business well um if you take no investors you have 100% of the business if you take investors as doing yourself on search you might be left with 80% of the business um just to to be absolutely clear with the audience why do those investors not represent bosses because they don't have the same they don't have the they don't have the same rights as investors in a traditional search fund do can you elaborate so traditional search yes traditional search fund investors um have very specific things that they can do the most important thing that they can do is they can fire the traditional search fund CEO there's no structure that I've seen where an investor invests in a self-funded deal and can fire that Searcher and the reason why they can't fire that Searcher is because they have a personal guarantee for a government-backed loan period end of story so that's not the only difference the that's the most like legal difference in my opinion other like maybe less tangible more intangible things is the whole model for traditional search is predicated upon having a lot of smart people more experienced than the Searcher help them find acquire operate and exit a very you know a profitable business I think the outcome is the same in a self-funded search but that person who did a self-funded search chooses that track that route they may need an investor because they have a $500,000 Equity gap or a bigger business and they have a $2 million Equity Gap but again in my experience most of those self-funded searches who need outside investors only want the money they don't want support and I think that's a very very very specific distinction well we're going to we're going to spend we're going to return to to this because this is really getting I think to the essence of um your kind of understanding both sides of the table um that I touched on at the outset here uh but for now let's return to the plot so you were about to tell us uh you're you were well positioned to you kind of you were already integrated in into deal flow um so you found Delta pretty quickly take us back to how how the deal starts coming together and tell and tell us about the business yeah um couple things fell into my favor um one was I had a I had an existing relationship with the intermediary um that's the first point the second point is when I re re-engaged that group that business um Delta was under LA with a different buyer so I actually spent the winter of 19 looking for other businesses besides Delta I actually worked for a different independent sponsor for two months trying to help him acquire a sizable manufacturing business in Virginia in April this intermediary came back to me and said hey Adam the deal the buyer with Delta fell apart it was candidly a nightmare they you know had no experience in running businesses they didn't want to do a purchase and sale agreement it just seemed a little odd to us and the sellers basically you know once the exclusivity of the LOI ran out they said let's go find a new person I was his first call within one week I met with the sellers and had the business under Loi for directionally the same purchase price so they you know they had what we call as buyers they had um they had fatigue because they had spent 3 months dealing with somebody and it was not only time it was also frustrating time let's just say I don't know for a fact let's just say they got to actually the same price they got a a local buyer not only local living but local like grew up in the county served in the military by the way the sellers of Delta were military veterans and I had had Direct experience in small businesses they're like seems like a good fit let's meet them met them businesses under Loi in in in two days so basically from the the time the broker reached back out to me it was less than a week that I had it under Loi then the 60-day process of diligence getting the live o bank loan started which is you know in April that that put me at a close the middle of June um it was I mean I hate to say it was fairly painless but I had very very high integrity Sellers as I mentioned um two of them were veterans the the three most senior people running the company not the not the owners but the Senior Management were also military veterans um and then and then there was just just things that were Luck first piece of luck was the landlord happen to have a personal relationship with the landlord that was coincidence the business was in my backyard 12 miles from my house that was luck the the CFO who owned part of the business came in years after the existing owners bought the business because they wanted to sell the business whenever was at retirement age was basically then mid-60s for them he was a super high integrity person the books were super clean there weren't a lot of addb backs if you want to get real tactical well it was a C Corp so these guys basically took all their money out via W2 cuz they didn't want to pay corporate tax there weren't any ADB backs you know a couple here and there it was really easy to understand that this was a it was in like the low 900,000 EIT of business um wow I don't recall how I met lioke but they became the primary um lender I don't even think I shop the deal just knowing met them and like what do you guys do is like well we have with a large SBA lender in the country and I was like why I want an SBA loan and they're like okay we're good and then they you know they do their they do their process they do their underwriting and um dealing with banks is always frustrating I had again another piece of luck I had like one of the most skilled closing agents at a Commercial Bank I've ever seen and I literally however fast you could close on a loan I did it and it was because of that person that woman um closed on the 19th of June 2019 and then spent the next six months just kind of like sitting in listening meeting the team I had the three sellers in the office a couple days a week to kind of help me navigate but honestly once we got to 90 days I asked them not to come in anymore because I kind of wanted people to see me as a CEO I took a lot of um Adam Adam before we get too much into the transition let me stop you and tell us what the business is we haven't we haven't even oh yeah right so the business is one of the oldest commercial Furniture installation companies so um said differently we put together office furniture and the term that the industry uses we put together primarily systems Furniture systems or cubes yeah systems Furniture just cubes so think about a a cube in an office that has three walls that are vertical that are made out of metal and they've got um you know typically fabric on both sides and then there's and then there's a work surface your actual desk part and then there's a lot of times there's a metal pedestal that sits underneath that has drawers and sometimes there's an overhead metal thing that gets bolted on the wall and then you they open up flip doors you put stuff in there and then there's a chair and why is this something where you know classic search where it's like wow there there's a whole business around that and it sounds like a sizable one why are assembling why why is there a whole business just to assemble those cubicles which it sounds like whoever like whoever else is in that value chain either maybe the the client what like why do you need specialized workers or a third party firm your firm to do the assembling of these cubicles which is you know I assume it's you know easier than putting together Ikea furniture yeah I mean if the best way to answer it is to just just run through the supply chain so the supply chain is the I'll start on the left the person that makes the furniture most commercial furniture that goes into federal government big government contractors big big commercial banks that spend a lot of money on their facilities to have nice offices for the employees buy furniture that's made in the USA most Furniture that's made in the USA is made in Michigan the three primary manufacturers I know you've heard of at least one of them are Hayworth null and um Herman Miller Herman Miller recently merged with null so it's now called Miller null so there's two primarily large commercial furniture brands they work with licensed dealerships who represent those furniture brands to basically space plan commercial offices for their customers so let's use the federal government the federal government works with the dealership they want to buy Herman Miller product they give them a blueprint they space out how many desks how many chairs how many common areas how many conference rooms that dealership has it's all college educated people it's a lot of master's degrees it's Architects it's a white collar Workforce we are the contractor to that dealership to put the stuff together so the reason why we exist is because the people who buy the furniture and then sell the furniture to the end user typically don't want to have the workforce that we have which is actually the workforce that I really like which is more Blue Collar we're a labor company um we receive unassembled product into our warehouse we then send it out with our people on our trucks to be assembled we're not electricians but we're also at somewhat of a skill labor yes it's not it's not like putting an Ikea dust together but it is a lot more complicated than you think and it takes years decades honestly to be as good as a delta or another competitor of ours to to do what we do um so that that's proverbially like the mo that's the competitive Advantage is like we know how to put together all the primary furniture brands we also have the warehouse to support the product coming in and we have we have the labor force to to be able to support the large project large projects I mean multi7 figure multi-month sometimes multi-year and so there really is specialized knowledge uh or an experience in assembling in these systems these these rows of cubicles essentially okay yeah 100% and and and speaking of Mo I assume a lot of you know for you the kind of Lynch pin of the business is the relationships with these dealerships so you know your your business kind of Rises and Falls based on that so do you consider those emote those relationships and and how you know how how tightly do you need to hold on to them how how many competitors does a delta have yeah I mean it has there's less than 10 but in the markets that we compete in it's really us and three others MH and absolutely those dealership relationships are are essential um but the reality is is when our business in the 80s and other competitors started like our business started at NSA H and the the the the the people who own this business the buy the people I bought the business from were enlisted Air Force linguist at NSA and as NSA started to have like these massive overhauls of furniture they figured out very quickly like well like we could we could take this furniture apart we could get new furniture and how do they exactly like build a relationship with the dealership at the time I I I don't know but it naturally there there was a demand for the service they were already cleared active duty military and they started to install furniture at night H then they basically bought this business from the founder a couple years later and they owned it for 30 years so back to your question yes the dealerships are are the key um they they have very competitive rfqs with the federal government and it's kind of like a you know like anything else lowest price technically acceptable but someone has to put the furniture together and there's only so many of us out there to do it and you can't just snap your fingers get 100,000 foot Warehouse get a 50 person installation team who knows what they're doing and execute it on a certain time so it it's basically 30 plus years of successful execution having the labor force having the warehouse and having those key custo um those key dealership relationships which which Delta has fascinating and and just going back to the the fact that the business had transacted before but it was so long ago 30 years ago this is not a case where you can say to yourself oh the business transacted be before in recent years therefore we know it can survive another transaction because this was ancient history different time different place different business at that point and smaller basically basically what happened was the business was started in the mid 80s but the guy who started it had a Furniture dealership he's like if I have a dealership I've have have an installation company well once the you know you got to 1988 the year before the 89 recession his dealership business didn't survive so he sold the installation business to the people I bought the business from so yes there was technically one transaction but it was 30 years ago so and then the question is like well like how did I know that you could buy a business and there would be no transaction for the answer is you never know like there are no riskless transactions but the thing that got me most comfortable was I went met with the biggest dealership customer um veteran sellers I trusted them I didn't fully appreciate how much of a Moe and how how sticky this business really was when I bought it but I since have learned that that it is and you know it's not it's not perfect it's not great all the time but most of the time there's a high demand for this service even even through covid we've seen we've seen meaningful demand um and again that's that's probably the last piece of luck is like I didn't realize how the the resilience to macroeconomic conditions only manifested itself in the fact that the business buiness has been around so long and literally the year I bought it if you looked at the trailing five-year financials they had not skipped a beat now those five years didn't encapsulate a covid or an 0809 financial crisis but they navigated all those crisises pretty well we navigated the covid crisis pretty well and it's a testament to that that competitive advantage that a business like this has well that that you may have just answered this question which is the obvious thing that you when you're evaluating this business you poke at which is that it sounds very projecty uh so you're there there's actually no recurring uh nature nothing recurring about this business so so um is the is the way that you got over that in your own mind what you just said that you just looked at the Historical performance and it was consistent and strong yeah and and like you think you know when you talk to Searchers you hear you hear recurring Revenue um you hear contract Revenue and then you hear things like repeat Revenue while I was in the lad bucket of repeat revenue and and and candidly live o it was challenging because they're basically not only buying a business with no recurr in uh lending into a business with no recurring Revenue they also were lending into a business that had high customer concentration so the way that I got comfortable with it and got them comfortable with it was to do what you just said it's like hey I know it doesn't like technically like contract I know technically there's higher than desirable concentration but look at the financials like this business has not skipped a beat with all those negatives and it wasn't that easy but it was it was pretty simple to explain to them that this was a key customer relationship it had been around for 30 years I didn't intend on changing anything and as long as I didn't you know aggressively change prices or change a bunch of people in the workforce like there theoretically shouldn't be any problem and and there wasn't yeah well the the the other thing that would jump out at me at a business like this is that it's very much tied to the types of projects that you get are either net new hiring so a business is opening some business is opening a new Branch or needs new bodies or correct or just replacing old systems so I assume there's you know there's refreshing in office uh or or there's the latest and greatest in in office Furnitures or 20 years or 15 years there's new office but but both of those are very much tied to the local economy uh and so as kind of employment I assume this is basically tracks with the employment of the local economy and you might say well so does every service business so that's that that's neither a strength or a weakness that's just it's everybody yeah um but here too you know probably a lot of your your projects are with the government so if you're thinking about you know the government just basically since 911 has expanded tremendously the DC area has just surged over the last 20 odd years but there are kind of projections or there's chatter that that's going to Res that that's going to pull back um so anyway did did you think about any of that macro stuff no really no I didn't honestly I mean I'm not going to like sugarcoat that I didn't I just didn't think about I I looked at the financials and I got comfortable with the the brand and you know the largest customer and even even without a CO you know you you kind of think like like how long can a business like this continue to run the biggest risk mitigator for this business is not only are the customers a large part of the customers government government contractors they're also in cleared facilities so I don't care what happens during covid or a financial crisis people are going into that top secret office yeah we go in and we put new furniture in and take old furniture out or go into new buildings put new furniture in there that it's a blessing and a curse it's a curse because although our customers not the government our customers the dealership the end user is the government the government the general contractors they're challenging to deal with payment payment terms can linger um projects get delayed it makes managing an efficient labor force very difficult but the good news is they're always putting butts in seats they're always replacing Furniture um without getting into details you you can summize what you want a lot of our government end users are in the intelligence community so it it is a constant flow of facility work has has the facility the macro facility real estate market postco changed some of our other commercial relationships negatively absolutely some of the banks we deal with are not in person so like some of their large projects got got put on hold or got cancelled yeah um one of our one of our newer customers is Amazon so if you think about who are the three largest employers in the DC Metro Area it's Amazon the federal government in north of Grumman those are three of my largest customers yeah so this business is not predicated upon like the 20 person Law Firm our business is predicated upon large government large Fortune 100 businesses who spend hundreds of millions of dollars a year on facility we candidly get the crumbs at the end as the installer but those crumbs are worth a lot of money so having just now poked all these holes in this business uh it is as you said we talked about here 30 years old so that now I'm I'm switching sides here that that says that says a whole lot about a business that's just we love history um and it's doing $900,000 in SD so it's also uh you know right at that kind of it's a great size for a self-funded Searcher um I guess was there anything else that you liked about it that we haven't already touched on um I would say for a for a Services business like a blue car services business it had um I would say not excellent but fairly sizable EA margins um the gross profit margins um I think you see it like even like my father's company are much higher but we drop a lot to eida after gross profit the big expense after gross profit is basically facility so I mean the business was make sure I'm talking correctly so we were doing 900 on 85 it was running at just over 10% so double digit even a margin which for this type of business is pretty decent I basically assumed and this is one of the very most exciting thing about the business after just what we just talked about getting comfortable with the risks was how does this business grow and the conversations I had with the three sellers always boil down to one thing there's more business out there to do but we can't find people to execute it we can't go to the labor force we can get more facility space who can't go to the labor force and I said to them what are you doing now and they said well our CFO who is this 65-year-old you know white male um he's he's basically interviewing people and figuring out who can come in and and join the team and I'm like what what does our Workforce look like oh our aage average employees like you know late 20s African-American Latino and I'm like okay okay so if I if there's if there's Revenue out there and I and I could hire more people can I generate can I grow the business and they said absolutely but I I don't I don't think you're going to be able to do that you know it's just a really hard labor market I'm like cool okay so we transact and then I think when I bought the business unest I need to give the numbers of of people but I know what the number was and within 12 months we had almost doubled the workforce and that was the key to unlocking literally Revenue that was out there but we were saying no to jobs because we quote couldn't hire people we put a young um late 20s uh female we made her the HR manager we opened up an indeed account and she went to work we then pulled a 20 plus year installer who just happened to be X army we made him the administrative supervisor between the two of them they'd screen candidates via indeed he would personally interview every single person and he' personally train every single person and within 12 months we had doubled the workforce we didn't double Revenue but we doubled profitability because I obviously got for every dollar above break even gross profit is net income ebit margin so we we basically created all this operating leverage because we took directionally the same facility with twice as many people and that's how I doubled the business candidly two and a half times the business because we were able to figure out how to hire which the the previous owners were I part of it was fear they're at the end of their career I don't want to take on more people more risk more liability insurance more worker comp it really wasn't that hard it was just asking how we're doing it now and how do we do it differently and once we figured out how to do it trust me well it's completely imperfect like we have a ridiculously high turnover in that lower 20% of our business but we figured out how a way to get people in put the right people in front of them to screen them bring them in train them and grow the labor force and Adam just forgive me if I'm being culturally dense here but the mismatch between the on his way to retiring CFO and the labor force that he was hiring or not as the case may be was it that that the the the prospective employees didn't like him or that he didn't like the prospective employees yes okay okay it was just I mean talking past each other yeah it's just one of those things it's like you you have this person who cidly doesn't really want to grow the business because they see it as risk they want out and you see a person coming in you're like why am I talking to this person first of all the person I'm talking to has never never installed a piece of furniture so we put people in front of the pro prospective employees who had been there done that walked and talked like them and could sell them into why this is a skilled labor we we augmented our benefit structure we started giving signing bonuses we increased the amount that the employer was paying for health insurance and we incre and then and then this is I would say this happened less organic it really happened because of Co we started to increase the rates at which we'd pay employees so we were always well above minimum wage and again if you could find the right people who could show up to work and be trained and could last 90 days they could be Furniture installers and did you see this opportunity uh I mean you knew you knew that you could there was there was strong demand so you knew you didn't have to side that solve that side of the equation it was the labor side but this particular kind of how you were going to solve the what they thought was an inability to hire more people did did you had how much did you thought that through or was only once you got inside the business did you see what you know how to kind of start solving it I didn't tactically know how we were going to solve the problem I just listened to the problem which was well you can't grow the business any bigger because we can't hire more people and I said so if I hire more people can I grow the business and they said yes and I was basically like I'm good I don't need to talk to you again about it and I and I and I never did great okay and and the reality and the reality is the underlying theme of self-funded deals is this business did not need to grow to be a great investment for me to be a great opportunity the growing part was a nice to have it now it's turned out to be a really nice to have but that's the beauty of a deal where you don't have investors who have a fund you don't have like a boss like run the business with the leverage profile from the SBA don't grow it you have plenty of of room with your debt service orow grow it and and and be be better off I was you know at the time I'm 39 years old I'm aggressive coming out of a you know an independent sponsor group who was buying D I was hungry like that was the other part that I you know we didn't really touch like I was hungry to take a good business I didn't really change anything except give the team a perspective about how to be bigger and guess what when you started putting money more money in people's pockets because we were bigger everybody got on board the point that you just made about how like growth is gravy uh in specifically in self-funded deals is such a is such a uh a valuable one uh because including me we're all just so focused on growth uh I am guilty of that as well but the this model is so compelling the self-funded SBA model with the you know 80 to 90% leverage y it the economics are so compelling the model is so compelling that you really don't need to actually grow something uh very much maybe along with GDP to have a great outcome and the and the outcome is essentially paying yourself really well for the duration of the SBA loan and then having once you paid off your SBA a loan the full Enterprise value of that business be your now kind of all belong to you exactly and and and the the the wealth creation over that year Z to 10 can get accelerated if you grow the business which is why I think you perfectly put it well it's gravy um in 10 years seems like a long time but the reality is is like I'm now on the right side of my loan and even when we had we've had really lean years where candidly we generated iida but no free cash because all the eida went to pay down the loan I still had great income as an owner wrote 12 principal checks to pay down the loan and increase the equity in the business and like you have those lean years as well but over like a 10-year period I I I think that that's it continues to be one of the most powerful dynamics of of the SBA you know self-funded structures I can't wait till we talk about traditional search funds Adam we're still a few minutes away two follow-up questions to stuff you just said Adam when you say the right side of your loan uh what does that mean just the back half of the back half of the five year the second half second five years years 6 through 10 and if you think about a um a 30-year mortgage and and I don't remember what year year it happens but in a 10-year Amor amortized SBA loan the first couple years you're actually paying disproportional amount of Interest right just like a mortgage I'm on the right side where every month my principal payment goes up my interest payment goes down so differently I'm paying down the loan faster and I'm increasing My Equity faster I'm I'm in that part of the loan which again is is a good place to be yeah exactly great thank you and when you solve this problem of hiring and you doubled the workforce and that took you that you more than doubled the Ia you kind of quickly powered through like how H how the economics of that uh flowed through walk me through that again slowly please right so for every um just use a million dollars if you have a million dollar business that has 50% gross profit margin so so a million drops 500,000 to gross profit 500,000 of cost of goods sold and let's make the math easy and say that it's a 10% ibida business so the business is going to have $400,000 of operating expenses overhead less than 500 of gross profit GP drops 100,000 okay is that track y okay so now that I'm making money at $100,000 the next million that I drop in the same month generates the same gross profit another $500,000 but the $400,000 of overhead has already been quote absorbed so how much of that 500,000 gross profit drops to iida all of it said differently gross profit equals iida so once you're above break even and all your overhead gets absorbed every incremental dollar of Revenue you generate the grow gr profit margin drops and it's the exact same ebit margin so said differently I didn't need to double the business Revenue I only needed to pull a couple more levers on the labor force capture that low hanging Revenue fruit and that's what allowed the business to go from basically call out about a million to about you know close to two and a half million that extra million and a half of iida was because I was so far to the right of my overhead absorption perfect but and why was the business like what does your overhead look like such that you don't that your overhead doesn't need to scale with your labor force because what we're always told about service businesses is that basically everything it there isn't it isn't scalable because what you're basically what you just articulated is called scale and what we're we're always told is that these things don't scale so as your labor ex grows as your Revenue grows so too will not only your cost of goods sold but your overhead as well yeah and and like to be very not not to oversimplify it for my business I'll say it like this if my labor force Grows by 100% my facility does not need to grow at 100% to support that new business it only has to grow at 15% or 20% yeah again that's maybe bucket seven of luck I didn't know that but I figured it out really quickly that I could add I only added I added like 12 10 12% more facility with twice as many people to generate that million and half dollars got it and when you keep saying uh facility Adam you mean like the warehouse where you store as an intermediate step all of this furniture pre-installation okay yes yes and it's it's a it's a massive facility that has racks and we stack furniture and and then that's like kind of the other thing that I learned in working with Tom is you know you're you buy these distress businesses when you go to buy a good business you're like okay like somebody has been doing at least 70 to 80% correct for the entire time this business has been run but I was like what if we make the warehouse more efficient we can generate more Revenue without changing our overhead that was the other level that kind of got pulled in parallel with the labor force the reason why we're able to only add 10 to 15% of our space is because we became more efficient with the existing space said differently more iida everything is always about iida free cash but you know what I mean but why but I feel like you're saying something profound there but to my ear sounds obvious it's all about profit of course but what I feel like maybe you're saying something subtle that I'm not yeah what I'm what I'm trying to say is like people who run businesses are always trying to do things that they think are adding value and the reality is unless you specifically do something that affects gross profit margin or affects evida it doesn't really matter so the person who comes out of a world who's controlling everything and is like hiring and firing and like dealing with a lot of problems I had to take so I forgot I was trying to mention this earlier when I was talking about the the transition I was trying to take the advice of one of my Kell professors who actually passed away he wrote a book uh Keith Mahan wrote a book called do nothing and it was like the CE CEO's guide to when you go into a new business it wasn't specifically if you acquired a business but one of the um pieces of advice I give to to to minted CEOs traditional and self-funded is it's really hard to do nothing because you want to do a lot but by doing nothing it allows you to listen learn and let the employees Empower themselves to come affect change themselves so let me answer your question the only things that I did and I still do today if they don't affect our gross profit or operating margin or even a margin I don't get involved with it because it doesn't matter let's return to that just a minute um but on the do nothing philosophy uh you and you'd said this in our preall but but give us a little bit more on the transition and how it played so you really came in and you were you were pretty uh dogmatic about tying your own hands and just listening how did that what did that look like how did that unfold yeah it was mostly um you know you're in the office every day um I I went out to job sites with the seller the one seller was um very involved in specific projects with specific customers but he was he was one of the guys who had been stalling furniture at NSA so he was like a a you know boot uh boots on the ground roll up his sleeves owner and and even to the day he so the business he was still out driving trucks so I went out to job sites with him met the crew and just listened to people and I don't think a single change happened until we got into like closer to like five six months and I don't I don't necessarily remember what that change was but um I was in the office left the door open let the project managers the project coordinators the director of operations come into my office and give me information and then I would walk the warehouse I would walk the office and I'd walk the the job sites and I would talk to people and I would ask them questions and I would listen and I would receive information and again like a business that has very very very consistent profitability the reality is is like you shouldn't have to do much you basically just don't want to change anything you don't want the customers to feel like things have changed you don't want the quality of service to change you don't want the pricing to change once you get a little smarter about the customers the industry the operating profile you can start to to push people in different directions my first push was growth and I said to the guys and the girls how do we make the big the business bigger and you said well we got to hire more people and I said well how do we hire more people and so I I don't know so then we kind of collaborated and figure out this you know HR manager structure and D this administrative supervisor and although the re was out there we had to lean into some of those new customers and let them know that we were open for business because we had basically been telling them for years that we weren't big enough to help them um one of the largest Furniture dealerships in Maryland we were not doing business with and I thought that was crazy so I went in there with the the director of operations who I promoted to president he and I went with one of my lead project managers sat in their office told them who we were and they're like and this is literally what they said they this is a family-owned business they've been around for 50 years we haven't done business with them since since the '90s 20 years I said why aren't we doing business with you and they're like we didn't know Delta wanted to do business with us and I said so should we do business together and they said sure and then and and then and then and then literally 18 months later we're doing $2 million of Revenue with them so like this isn't like rocket science it's like all I had to do was let them know that we were like me new owner had a mentality of growth we were spending a lot of time and effort to grow the labor force we had a facility that was going to incrementally grow but not as as I mentioned doesn't need to grow as big we want to do we want to do business with you guys here's our track record here the customers and they knew us they just we just didn't do it it it was literally that easy Amazon that relationship started the year I bought the business and we've done a good job of fostering that but that that would probably be bucket eight of luck it was just luck in timing that they were building out Crystal City building out hq2 and and we got a we got to bite at that Apple fantastic Adam and so let's just I I just really really want to highlight here the numbers that you've shared with us it was a $900,000 SD business and you grew that eitaa to two and a half to two and a half million now that's and just to be clear everybody the AUD everybody in the AUD should know this but let's be crystal clear here um that 900,000 was SD the 2.5 million is EA so you're you know paying down your loan out of that money so that doesn't all drop into your pocket but correct um but still two and a half million even after a loan payment a lot of that is going to you to you and and to the employees we have a we have a very robust um you know bonus program and a lot a lot of um I would say above Market average as a percent of total goes into the employees Pockets through a profit sharing plan correct correct and and that's what you know not to use navy um Navy cliches but I think that the other the other thing that I did that I didn't think was that difficult but I didn't know any other way to do it was we set a budget for the year based on gross profit and then we tied the profit sharing to the gross profit so everybody knew how much the company made and then everybody got a piece of it based on what their target was it allowed people to have visibility one set of goal two talk about the goal on a regular basis and if you achieve it and three the better the company does the better you do individually or verbally gets people rowing in the same direction at the same speed and this is this is kind of out of Navy uh military Playbook well I mean it's out of it's out of Tom's Playbook um but the the the the reference to the rowing is is a Navy one but it it just it creates alignment you know like I basically took everybody's bonuses and and profit sharing is probably the wrong word but we took everyone's bonuses prior to me buying the business and I said if the business gets bigger you're going to get a bigger bonus and then we figured out what the pillars were to grow the business and as a business has gotten bigger everybody's bonus has gotten bigger and directionally the business is twice as big and everyone's gotten twice as much money that's a good thing how much Adam are you you I mean you just referenced Tom um we're gonna we're going to start pivoting into kind of your your new life as an investor or your new life at the time how you kind of chose to do that um and I think a good way to get there is to ask you how much of this success and what you're doing in this business do you think was because you had the experience with Tom in other words for somebody listening to this who's an who's a self-funded Searcher an aspiring searcher you know do you think that that anybody would have come in and kind of seen these opportunities and taken the same action as you or were you really leaning on this valuable experience you'd acred uh under Tom working for an independent sponsor we we touched on this in the preall and it's probably the maybe the most important thing to to to to emphasize I don't think the keeping the business going at the same level profitability I think I think anybody could do that I don't think that's necessarily the hard part I think the hard part for the inexperienced person who doesn't have the capability to run a small business is when we had to cut during covid and we had to manage cash and we had to figure out how to kind of you know build the arc before the rain proverbially you just don't snap your fingers and know how to do that I had that experience I was very comfortable being uncomfortable when business basically stopped and that's the part I think that gets overlooked and oversimplified with self-funding because everybody wants to tell everybody that it's rainbows and and kittens and the reality is it can be I mean it can be you know rotator cuff surgery from high-fiving your wife but it can also be calling pgs and bankruptcies and look like you know this like the Foreclosure rates on SBA Loans are very very low there single deser percentages but I I think that and and we we just touch on this before we start a recording I think the detail that gets overlooked is you could lose a key customer with the SBA leverage profile and basically run a break even business for the next 10 plus years of your life it doesn't go into forbearance it doesn't go into bankruptcy but it's not a life-changing event um the other the other like analogous thing I I'll talk about is and and again I think I think choosing structures and this is a good transition to traditional I think choosing structures comes down to um your risk profile your capabilities what you actually know how to do and economics and I don't think you get to economics unless you get past the first two anybody can say I have a risk profile to take on a PG because you could say it on this call it doesn't really mean anything what I think means a lot is bucket 2 and what I think made me a good self-funded Searcher when things went tough is because I spent five and a half years working for a person and working in businesses that constantly needed things Chang that constantly needed to you know make better in candidly very precarious Financial situations like that that experience is kind of what shaped me as running a profitable business operator and I'm saying that you only have to have a distress background to be a successful self-funded Searcher but like just saying I want to take on the risk I don't buy that reason to being a self-funded Searcher I think you actually have to know what you're doing especially when things go south well and and how do you think about so a lot of people listening to this are going to be self-funded Searchers aspiring self-funded Searchers as I said without having been small business owners business owners at all yet maybe they're they probably are sitting in a W2 um and and and many of my guests also fit that profile and now are on the other side of their transaction and owning and operating a business and um yes I there are the horror stories and I always try to find those surface those but the majority of my my guests are um seem to be doing okay if not great uh and and really I'm not trying to oversell this at all but I do feel like there there is a bit of a Divergence between what I see and and what I'm hearing you say which is that you really need a lot of experience you really should have a lot of experience in a lot of capability as an as an owner operator before you become a self-funded Searcher yeah I don't think you need to have worked in five businesses and done five business loans and you know invested your own money into a into a a small business before but I just going back to when I made the decision to do it if I didn't actually know what I would doing it would feel a little bit like desperation like you're hoping you can do it I didn't hope I knew I could do it because I I'd previously done it for a person and for a firm yeah so I guess like this is not intended to like dissuade people but I just I just think that a lot of the stories of people buying businesses and living in like Purgatory for the rest of your life I just don't think that there's a lot of people volunteering to talk about it yeah um I also the connection between like being an investor and selfed and and being a traditional like I've said this before and we I'll say it now like as the owner of the self-funded deal this structure is amazing as an investor I think it will be very good but I don't think there's enough data out there to convince me that a structure without timelines for exits initiatives pushing people to grow um I'm not convinced and and and 20% of the allocation being for investors I'm not convinced that as an investor the self-funded structure will outperform traditional which is why I've basically consistently put more money my own money into traditional search funds where the owner the investors own 75% we have governance we can change CEOs and we put very specific tactical kpis in place for growth um that's why that model continues to in my opinion outperform self-funded I'm I'm hoping I'm wrong because I would love to continue to put personal Capital into both both models but I have recently host Delta put much more personal Capital into traditional search funds the what you just said about traditional search funds from the invest investor perspective that you have governance that you have more control that you can switch out the CEO and and that it's very growth oriented there's there's there's kind of B basically pressure on the operator on the Searcher to grow um let's leave aside that growth mandate and just talk about the governance one thing that you'll hear traditional search fund supporters uh Advocates say is that no but actually you know the traditional search fund um Searchers the CEOs the people who buy the businesses become CEOs they're they're it's so rare that they're actually ever fired so yes that's there but it's like it really kind of doesn't happen maybe at the margins um and or you'll hear sure the investors the traditional search fund investors technically formally have governance have a lot of control but really you know the the operator the CEO the Searcher uh is really calling the shots and they have a lot more autonomy than maybe it looks like on paper so which is it I would say it's probably something in between um maybe maybe think about like this when things are going well a board of a traditional search fund is going to have to do very little they're going to want to get updated financials they're going to want to Pat the CEO on the back for pulling all these growth levers and building these new customers they're going to get excited about talking about an exit and and everyone tie fiving each other the reality is is like nobody wants to talk about the 20 plus% of traditional search funds that actually don't don't get the original investment back partially or at all like that full or partial loss bucket in the Stanford study so do look at 10 Searchers seven acquire three don't and I'm I'm rounding I'm rounding up because it's technically closer to like 65 right three don't acquire of the seven that Acquire two of them they don't make any money only five of the original 10 people make money so do you think that the two people who don't make money those are the scenarios where having governance really makes a difference because the investors have a super majority to basically vote in anybody out anything make any decision they want and when things go bad they dig in and the reason why again the reason why the the the investors benefit from that is in a self-funded scenario where you can't change the person out and nobody else is helping to write the ship you just you're going to have more you're going to have more zeros or more more opportunities for self-funded deals to not make any money they're not in bankruptcy because you know it's only like 2% of SBA Loans are defaulting but you think I'm getting my $25,000 or $100,000 self-funded investment back probably not so I just think that it does get overlooked although it is the minority of the time I agree on a traditional deal not going well having that control and having the ability to help write the ship and candidly putting an exit timeline from the very beginning that's probably the last thing that helps drive that you know four five ex turn whereas a self funded investor is likely not going to have an investment uh exit timeline in order for them to get that higher 45x return they're likely going to have to hold on the investment longer because I don't believe and I hope I'm wrong I don't believe that your audience buys a deal like I did from someone who own the business for years and they're going to resell the business in 5 years and get everybody a 5x I just don't I don't buy that so how do I get to my 5x you just hold the business longer like I'm good with that I'm good with that long-term hold but I'm not convinced in the same investment period a self-funded investor is going to make more money than a traditional investor I I just I I I find it very unlikely and let's uh I I hope we're not spinning the heads of the audience here but let's jump back now into your psychology as a self-funded Searcher uh presiding over Delta um what you just said about how you know good Returns come with liquidity events with exits uh first of all did you have any investors in yourself at a deal we haven't covered that key question my father owns 10% of the business okay and that's friends and family money so he's going to be less I mean he's not he's gonna I assume kind of let you do what you want yeah P purely passive no uh no no legal rights whatsoever okay um hear that Dad yeah he's okay with it okay but for you you know it's still I mean so we can think about it from the point of the view of investors but also from the operator it's like your best return is also realized with a liquidity event so even if it's hard for self-funded Searchers to kind of grow quickly and exit after five or six years kind of have that Playbook that is that is the expectation in in traditional search funds um it still would be the path to the highest kind of ir the highest IR IR possible so why does basically Why does adom hold indefinitely and not sell or are you holding a definitely I didn't even I I presumed one one of the things that mitigates around um needing an exit at year five is growing the business which in my scenario has just conveniently happened so if you grow the business you can make more money faster then then you can you can do the math on what the business is worth today versus what it would be if you hold it for another x amount of years and because I personally have a long-term hold strategy there there's no scenario where selling the business makes sense that that's one person's opinion but again the nice thing about the self fund structure is I have full decision-making authority to do that now at some point in the future when I'm older will I want to be as involved day-to-day and and think about all the different levers that I need to pull to make sure the business operates successfully that's why you sell the business it's partly because of money it's partly because you just don't want to have the time and the the the you know the mental capacity to think about the business because at some point like you're always going to have risk but at some point I won't have a loan you know my house won't be collateralized as part of of of that loan so the risk goes down then it just becomes time and and in mental bandwidth but I'm 44 years old so I don't see that happening anytime soon so what I tell self-funded structures to my bucket three of Economics you can make more money if the average traditional search fun is exiting with somewhere between let's say5 and7 million if you buy a million doll EIT business and a sell fronted structure and grow it moderately and you hold it for 10 years without an exit you can make more money why do you think that self-funded the the E the terms for investors which now you being on the other side of the table uh being a traditional search fund investor have articulated like they're they're just not that that interesting why has the market allowed for that uh to occur that um that self we self-funded Searchers can can command such terms if investors basically you're telling me as a as a search investor you don't like those terms well I don't think we're telling them we don't like the terms I'm just saying that they're not as advantageous as they are in a traditional search fund the reason why we self-funded investors continue to do it is because even though the aggregate common Equity ownership is still typically 20% it's because the equity check going into the deal is disproportionally lower because of the 10-year amortization SBA loan you can still show me 35% irr so self fund investors are like I don't need governance you get me 35% I'm good right so let me say that again like a little slower The Leverage profile in traditional search funds is is a lot less than an SBA sell funded deal and it's a lot less because the term is Happ as long it's 5 years so nice round numbers you buy a business for 10 million bucks if it's 50% Equity it's a $5 million Equity check and it's $5 million of debt I then have to return the 5 million plus more to get to that 3 four 5x return that exact structure now that's probably slightly larger for for for a sell funded deal but let's just say that sell funded deal is 5 million in Enterprise Value My Equity check is not 2 and a half million it's $500,000 and I get a $4.5 million loan that's amortised twice as long because yes you're only getting 20% of the common because the equity check is so much lower you can get to the same return profile I just don't think I can get to the same return profile in the same time period as a traditional search fund great I know that's like a lot of details in math but like that's how I think about it that's great Adam when thinking about going to the investor side of the table now and thinking about traditional versus self-funded one of the things that you mentioned to me in the preall which is I think such an important point to highlight here is that you know even if I if I want to to to invest in traditional search fund traditional search funds over self-funded because I'm convinced that they're better which is basically your argument I can't just put if I have 50 or 100 or $200,000 the minimums that are required to be an individual investor in a in in a uh private Equity Fund that's investing in traditional search fund deals is much much higher right can you elaborate on that yeah I mean whether you have a $25 million fund or $150 million fund unless you're friends and family of the GPS you're very unlikely to come in at less than a million dollars that basically pushes 99.9% of us out of being able to invest in that asset class so the reason why self-funded search as an as an investment asset class has become so popular is you can invest single deals typically as low as $25,000 the few funds that are out there like the one that I'm in like you you could come in at 2550 100 Grand 250 it really doesn't matter but these larger institutional funds and again like these larger deals in the traditional search world there's more dollars to be invested it's just not advantageous or efficient for the GPS to have a bunch of $25,000 investors so that's what has also become so popular in the search investing world is you have access as a self-funded search investor is the return going to as good I don't think so but you can still get a great return and really believe in the person in the business that that that that person buys right and when you say you can still get a really good return let's just be super clear where what you and I have spent a lot of time talking about is the point of view of an investor investing in either traditional or self-funded but let's actually look at the universe of possible ways to deploy capital and when you take when you compare self funded search investing to many many many other ways that you might deploy your Capital might invest your Capital $25,000 $250,000 it's very very strong correct it's extremely strong I mean I always look at the the the P so take take fixed income out because that's not a it's not an apple to Apple comparison if you look at public Equity Market over the last 10 years is basically it's basically going to double you know you should be able to closely two times your money every 10 years now I know the last couple years are not representative of that per se but like that that that's that's the directional math so why do large institutional investors put their money into private Equity well the top cortile of private Equity Funds net returns are somewhere in the 2 and a half to 2.6 so they're crushing it compared to the public Equity markets which is why it's a large part of institutional investors portfolio allocation sir is in that same bucket of higher than the public Equity Market but it's even higher than that why well it's in the lower part of the market it's more inefficient they get better purchase prices there's a growth mentality you have these smart people helping it it's a lot of human to human deal making Hands-On leadership like you name it but we in traditional search could potentially for the Stanford study almost double nearly double what the middle and buls bracket private Equity do where does self-funded search fund it's somewhere higher than the two and a half and something lower than traditional search of my mind and that's unbelievably powerful for a person who wants to invest $100,000 because they can't invest a million dollars in traditional that's the S that's the sound bite Adam we got to start wrapping up um the we didn't we got so sidetracked we didn't kind of make clear your story so you grew Delta to we've talked about that it and it's basically 2 and a half million eitaa you fully own it or you own 90% dat the the remaining 10% um then but you're now became active in traditional search funds so so what was the transition there give us kind of the last couple of years of your life yeah what your day looks like today once I got into the um year two of operating and then in 2020 we had a very good year at Delta 2021 you know we kind of fell off a off a cliff with with covid but because of some of the um profitability I then wanted to invest um some of that money back into a space that I really like and know which is lower midal market and search was was was the necessary Target so back to an aappa Mike introduced me to Greg donmus at Footbridge and I was like look like I want to be a meaningful investor I you know I know you guys are both from HBS you both have done searches it sounds like a great model to put money into what does it look like they're like actually like we don't have an open fund like we're not fundraising I'm like I'm like damn so Greg introduced me to Riviera Alex Wang and Chris Jenkins and I became what I would consider like a meaningful LP and knowing that yes Alex had done a self-funded search but they were primarily traditional search fund investors um knowing very well what the model was that I chose not to do it but really liking the economics behind it I decided to invest um in traditional search via Via Riviera and and that's what I've done for the last couple years so and and still very very very excited about it I'd like to to distill uh you know kind of what we've been what we've been kicking around here and um let me take a stab at it and then you can refine it I think it's not it's not too subtle traditional search fund investors being from the investor side of the table traditional search funds offer basically a better uh return opportunity because there is better governance and because there's a growth mandate and in that in in in the kind of a shorter time frame you're more likely to see a better irr uh or better maybe better moik uh and and an exit and an exit mandate growth and and exit mandate thank you because remember the traditional search fund CEOs will not make a lot of money unless they sell the business that's just how that's just how it's set up so that's the other thing that kind of drives the timeline the growth the exit so so so they're they're very incentivized actually to sell as well because that's 100% And The they're just making salary basically in the interim and remember all of these traditional search fund structures have preferred returns built in so differently when the investors put their $5 million dollar in you're then paying now it it it picks it acrs you're then accruing a interest rate on top of that $5 million So the faster the CEO can get the business to paying that back and exiting the more money the Searcher makes again tons of alignment in that growth model tons of alignment in getting that high returns profile that's why it works great and then but from the self-funded Searcher side who's going to be a lot of the people listening to this the economics and the profile for you the Searcher probably are a little bit more or a lot more advantageous um advantageous as a Searcher but it is not to be uh understated that you are your you should really take seriously the your own experience and if you buy a great business that's healthy that never has a problem you you can do it it's really when you you you encounter turbulence that your experience or lack thereof um is called upon or is tested um and that shouldn't be you you shouldn't kind of Overlook that well the other the other detail is yes the failure rate of SBA Loans self-funded deals is low but what's the failure rate of self-funded searches buying a business is it higher or lower than 30% in the traditional search right I would argue that atire is that Quantified anywhere I haven't seen it but I would argue that a tire a person without 10 people helping them without hundreds of years of experience and by the way trying to find a smaller business with less sophisticated intermediaries broker to approach 100% I would venture to say that that's higher now as an investor I take on none of that risk because I don't write a check until there's a deal the other part just to dovetail the preferred return comment there are preferred returns in self funded deals but because it's only 20% ownership the self-funded Searcher is less incented to drive that because they already own 80% of the business now what counterbalances that argument is they're not going to take 80% of the profit of the company until they pay the investors back so you do get alignment there I think this is this is you know the joke with podcast is that people uh are are listening to us at 2x but this might be one where people listen to to it at0 5x to make sure they got everything there's a lot of uh a lot of details I think the math is it can be complicated complicating but it does help understand the different models and the structures and how you know one person thinks about you know the investor economics yeah no it's it's incredibly valuable Adam um this is this has been a great unpacking um Don gorley said that Don gorley was on was on the podcast uh about six months ago veterans you have on yeah yeah a lot of them and um and Don of course B Boston tree preservation said you got to get with Adam so I'm really glad he connected us and and I we finally got the chance to have you on this has been really great so uh thank you very much anything that we didn't get a chance to say that you really thought was important for the audience no I mean I think it's uh I have found that evaluating both models people typically very very quickly fall into one bucket um and I always think about the the risk the capabilities and the economics and you can usually use those three you know guiding principles to figure out if you're traditional or self-funded but again I think that people typically fall into one bucket pretty quickly um and I continue to talk to people on both sides of the aisle to better assist them with all the good things that can happen and the bad things that can happen to be a resource and selfishly to be an investor both sides of the aisle so are we uh are are we partisans here is that is that what the traditional versus self-funded looks like at this point maybe news is the good news is the outcome is the same back a smart person to buy one business and if Adam if people want to reach out to you what do you prefer what method of communication um I'll give you um the email address and uh I don't have my phone number on LinkedIn but I have two email addresses on LinkedIn and I'll uh I'll give you uh my cell phone people want to reach out and text me I mean I I feel like I'm talking to a lot of people in the industry already but 100% use the the podcast as a an opportunity to um to have Searchers connect with me great all right you you'll probably uh you'll probably get a lot of inbound from that Adam Boris thank you very much sir this has been just a fantastic education and congratulations on Delta what what a remarkable story there thanks for having me have a great uh great start to 2024 well 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