50:02
SUMMARY KEYWORDS
business, people, owner, years, happen, malcolm, create, conversations, talking, part, buy, scale, founder, sitting, building, implement, business owners, employees, transaction, org chart
SPEAKERS
Damon Pistulka, Malcolm Peace
Damon Pistulka 00:00
All right, everyone, welcome once again, the faces of business. I’m your host, Damon Pistulka. And I am excited today because I am talking to Malcolm piece from to Sarah. Partners, I believe they have to Sara partners, I got the first part, right. And I got so excited Growth Partners to serve our growth partners. And and we’re going to be talking today about buying and building blue collar businesses. Welcome, Malcolm. Hey, Damon,
Malcolm Peace 00:27
thanks so much for having me. It’s an honor. Yeah, it’s
Damon Pistulka 00:30
gonna be fun. Because, you know, these are my kind of businesses to talk about, man, these are the people that are out there making things happen every day, you know, keeping us being able to do what we want to do that, you know, driving on the streets, turning on the lights, the lights actually turned on, you know, whatever. It’s all good stuff. So I
Malcolm Peace 00:51
was you so funny. I was in Cleveland, a couple of months back. And I went to work out at Cleveland state’s workout facility early in the morning. And before anybody else was there, there was guys working and building lockers and doing stuff all in there all with their power tools. And I was like, I took a little snapshot like this is this is it? This is a lovely, I mean, I get excited about it, seeing it. So this is great.
Damon Pistulka 01:12
No doubt, no doubt. I mean, when you see when you see and you just realize, even like you said, even in a gym down the street from you, there are maintenance people working on that thing. There are people keeping the HVAC gone, there’s people that are rebuilding the insides of them when they need to be rebuilt. There’s so many things that are happening around us, we don’t even realize it’s right outside of our homes, man. So good stuff. So let’s talk a little bit, Malcolm about your background, and how you really, you know, how you decide to do Sarah partners and do what you’re doing and just this, how you got into this?
Malcolm Peace 01:50
Yeah, I would great question. I would say we’re kind of in the walking phase right now. You know, we’re ramping up, I’ve got some fun things that we’re rolling out for 2024. I think we’ll get into the Running Phase kind of after that. But candidly, it was an evolutionary process of where do I fit into the ecosystem of small business and kind of scaling businesses in that nature. So I started doing private equity stuff coming out of my MBA program, many years back and started doing cybersecurity in defense contracting type companies. And I’ll never forget sitting in Las Vegas during a convention and realize I am a total fish out of water. What am I doing here, this doesn’t make any sense. And this is like early, you know, web 3.0 currency, all this kind of stuff was on the rise. And I’m like, I have no idea what these guys are talking about. Nor did I really have a genuine interest. I mean, I liked the deal structure. I liked putting deals together. I liked evaluating business fundamentals. I liked all that. But like the pure essence of kind of, you know, all that was going on in that convention. I was like, Yeah, I’m totally out of this. And, and so all that to be said, I pivoted from there, I started doing hospitality and food and beverage type deals with a group here in Austin. And we one of the thesis is that we had as we were buying kind of existing bed and breakfasts and adding additional facilities to them, and they’re all b2c type businesses. So ality wedding venue, corporate events, all this kind of stuff is what we were running and selling and developing. And when you do that, you know, by way of just a small firm, you start interacting with a lot of blue collar guys, the septic installer designer, you know, the landscape designer and installer, even the roll off dumpster and porta Potti guy. And so there was one afternoon in particular, I had been brought onto that team to kind of help us do some sourcing process and systems and scale. And I started interacting with this porta potty and roll off dumpster guy, we needed to be able to, based on fire code, and all this kind of stuff, have the right, you know, space to be able to have all the trucks come through. And I was interacting with him and kind of planning this all out. And I just got the gumption as we were previously looking at businesses to buy that were in food and beverage hospitality type businesses. I said to him, Hey, I know this is totally unrelated. But would you ever sell your business? Like, is this something that you’d consider doing? I love the story. And after hearing his story a little bit, I just loved hearing what he was doing. And he said, it’s so funny, because in a few months, we’re going to transition the business actually to my business partner who reminded me a ton of you, as we’ve had these conversations over the last few months, and he’s you know, young guy came out of his MBA program, we’re taking it over, he’s got these bright ideas, and he’s gonna go kind of put the energy behind it. And it really opened up like this idea to me that we could go do this in, you know, in this kind of space and add significant value. I love sitting back on a tractor and holding a bunch of things around cutting down trees and all this kind of stuff outside, but I also like professionalizing businesses and so when mixing those two, I think that you know, I’ve got this unique gifting where I can take kind of the professionalization of business and distill it down to just about anybody in the types of businesses to understand and I think that’s really key that can cause me to be a an operator a little longer than I maybe should be at times. But it definitely is a, you know, I think a little secret sauce that I am capable of doing and I’m grateful for those. Those skill sets.
Damon Pistulka 05:17
Yeah, very cool. Very cool. Yeah, you don’t you don’t really think about those businesses like a porta Potti business. You don’t think about that as you can have a significant porta Potti business that’s making really good money. Yep. You just don’t think about you guy. Oh man. You see him service and porta potties or porta potties sitting everywhere. You don’t realize a the explosion of the use of porta potties. Yep. Now that they’re ingrained in every place now the changes in OSHA make them almost, Yeah, gotta have them everywhere. And, and they all need service, it’s not like you, it’s a choice, they need service, they get service, regular dislike a car or anything else, and they have to be serviced. Often, then these are very good businesses. And very good, especially if you can take them and what you’re doing and professionalize and bring different systems in and make it a little bit easier to run.
Malcolm Peace 06:17
That’s where I think that one of the unique things is there is a need in the market for a lot of these services, a lot of these widgets and these products for extended periods of time people need this stuff, what what is lost in the process is there is usually someone that is, you know, an industry expert or capable person in that space. And they know how to build a business with a couple, you know, people or alongside them kind of helpers or whatever you want to call it. But they don’t know how to build a business at scale. And so what we have done is we’ve distilled down our thesis. And what we practically do now over the last couple of years, is we buy these businesses that are three to 12 million type businesses in revenue. And it’s specific, because those are the space where they’ve kind of gotten to a point where they’ve proven out their market value, they usually have some reputational components to them that is highly, you know, sought after and then in the in the community or wherever they’re, you’re facilitating with their customers. And we can take it now and bring scale to it, because there usually is enough market to be able to go do that. And so all that to be said, I think the skill set, taking a business from zero to seven figures, or low seven figures is in a totally different skill set than what we do. And I have immense respect for those that are capable of starting from zero, I certainly started the firm from zero, but I made a huge leap frog kind of thing when we buy these businesses versus generating zero to a million in revenue is a lot harder. But it is a different skill set. So we usually take over the business in that process to help implement that kind of game plan.
Damon Pistulka 07:45
Yeah, that’s, that’s really cool. And you you identified a key point there is that these these people are these founders are out there. And they’re building that business up to that 1 million, 3 million, 5 million 10 million. And you can see him go, like you said, you guys are working in three to $12 million business, you can go a long ways as a founder before you run out of that. Well, what do I do next to go to the next level. And I honestly saw one in the in the oil fields back in, in 2010 15 or 13, you know, over $50 million. Yeah, but they were they were booming so much that it was really, it was special to see. But also the side of things. When you look at where’s the next level for any of these size businesses, it it really that’s where they stall out, there’s always a natural stall out spot from
Malcolm Peace 08:36
there will be and that’s, you know, what we like to call a business that’s centered around the owner, a centralized business versus a decentralized business has to take place at some point, every business has gone through the process, every business has created the systems that have that have long lasted, you know, decades and years to come. They’ve created those systems. And there are people that are capable of doing that and people aren’t. And it’s a different skill set and not you know, one’s not better than the other. It’s just a matter of figuring out what you’re good at. And I love coming up with ideas. But I love coming up ideas when there’s already revenue in the door. And so that’s just what I had to figure out. Creating revenue from nothing is incredibly hard. I’ve done it in many other circumstances. And it’s hard. And so I have a ton of respect for those folks. It’s just what we wanted to focus on is implementation of a game plan professionalizing this businesses that have a long legacy within their community or within the state or vice versa around the world. Well, and
Damon Pistulka 09:33
you can really focus on those specific needs of that business in that size that already has cash flow that already has customers that that needs a different as you said that different kinds of work that’s going to take it to the next level where as you’re trying to figure out how to get customers and cashflow and all that other thing. So you’re really able to do put the things in to allow them to scale faster, which is super cool. Yeah, yeah, absolutely. So As you guys are doing this, and you You’re what, what has really been exciting for you getting into this now you’ve been doing this few years? And really, what’s what’s exciting for you in this?
Malcolm Peace 10:18
Yeah, um, we have gotten better and better at the playbook. Let’s let’s be candid, I think that at the beginning, it was like, like I said, we were kind of in the process of crawling and trying to figure it out. Yeah, I’ve had, you know, in the process, I’ve had moments where we’ve implemented something, it didn’t go well. And I got that feedback. I mean, I think that’s the exciting part for me is like it call it an r&d kind of permanent test at all times. What goes well, wasn’t going well. And I use r&d specifically, because our thesis is, is that these businesses are built around the owner. And we need to change that. And so one of the things that we have is we have a family meeting, I usually go to Texas Roadhouse or something like that, and we get some steaks and we sit down, we got a lot of guys that get pretty messy, and we get their hands washed, and we sit down, have a nice steak lunch, and we have a conversation about what the org chart is going to look like moving forward. And I’m not on the org chart. And that’s usually a shock, because they’ve built kind of the other muscles where the owners involved the owner, answer all the questions, the owners all around, you know, answering everything and solving everything, or they control everything. And so as a result, the business is only scaled to that owners capacity and vision. I do believe, you know, President CEO, whatever title you use, they must have a vision of where they’re going. And you need to continue to communicate that vision through quarterly conversations with your employees and your teammates, to be able to do that. So recently, we closed a quarterly meeting back in October. In that time I expressed here was the org chart a year ago. Here’s the org chart. Now, this is what it’s going to look like, we would like to implement the following things you guys can now select by the end of this year, and going into we do a lot of promotions, and increases and all that kind of stuff, first quarter of the next year. So as we go into that season, you need to be communicating ahead of time, here’s the pathway I’d like to see happen for me. And we had some guys starting to shift around guys that were previously in different roles, I’ve taken on more senior roles, guys that were, you know, prepared to kind of move into more of a management role, less individual contribution kind of role. This is where they’re going now. And so they were able to make that decision, because I presented an org chart that looked very different than it did previously a year ago. And it’s a setting a vision of where that’s gonna go, now it’s part of the, you know, be a part of this pathway. And candidly, maybe there’s other people doing it, the business owners that we have taken business owners, the ownership from, or those that have gone through a ton of due diligence or interacted with, they’re not doing this. They’re not they are giving arbitrary titles, and nobody really knows what they’re mean, particularly they don’t know what the KPIs are related to those titles at that space. And so we start creating that process for them to see a vision to be a part of it, and also set a vision of hey, this is where we’re going. And I don’t think it can be built around just me it has to be built around autonomy and accountability within those roles. And that’s where the KPIs come into play.
Damon Pistulka 13:15
Yeah, the KPIs are so care critical in this, you mentioned a couple of things here. And, and it’s, and it’s one of the things that that we see in a lot of these businesses in this size that we’re dealing with, it’s like, you haven’t taken the time cuz founders, honestly, they’re good at what they did, you know, they’re the, they’re the CNC person. They’re the HVAC, personal electrician, the plumber that that decided I can go out and do it better because I can make more money and have more freedom, right. And what they don’t understand is they don’t understand like you’re talking about now is that at a certain point, you need to define the roles and responsibilities or the roles that are needed in the business. Yeah, and then people have to get into those seats and we always talk about you got to get the right people in right seats on the bus right and, and then that even those steps are hard enough to go through. And then the final step that you talked about that is truly one of the the cornerstones, I believe, of scalability is having KPI so that you me whoever it is on that team understands how am I doing, compared to what I have for my part that is going to, you know, scale this business over the long term. Yeah. And it’s awesome that you’re able to do that. So as as you’re doing this now, this is a question. I mean, does for most people does a light bulb come on and go okay, I kind of understand what we’re doing and then it becomes more normal to them or how much you know, how much resistance do you get this?
Malcolm Peace 14:50
It goes in waves. We have the first wave of folks that say you know, I’ve been doing it with Bob Sally for so long. I don’t want to continue on I’m ready to transmit Now, my hope. And I always tell us owners My hope is that number is super minimal. Yeah, right. But it’s a reality. And it’s delayed. It’s a delayed circumstance that was inevitable to happen. And so when you have when you have that you can’t take it personally, I had a buddy just close on a another, he does landscaping here in the central Texas area, he closed on a business two weeks ago, and he had three guys quit on that first day of introduction. So I haven’t had that before. But I’ve had, you know, soon after, and so yeah, it happens. And so you can’t take that personally, you’ve got to understand that you’re building a business with a vision in mind. And so you can’t take that personally. But one of the things that’s critical, so we have two prong approach, we try to drive sales really, really fast through systems and automation. And we can touch on that on another time. But what we also do, and this is, again, going from, you know, walking or crawling to walking, and hopefully running here soon, is that there’s a there’s an unbalanced leverage that’s happening with employees and the owner. So here’s what I mean by that the owner is involved, everything goes through their head, the reason they control it is because they create a system that is dependent on them, so that they can maintain the leverage control in that circumstance. But if you were to really pull back the onion and kind of open up the veil and sees what’s really happening, the employees are actually the ones that have the control in that circumstance. And so what ends up happening is the owner becomes dependent on them. And they don’t even realize it. And so subsequent subconsciously, they’re trying to control everything, or maybe they do realize it, and they are constantly trying to control everything. And so once I tell the employees, here’s your autonomy, here’s what’s going on, we employ three to four VAs that start documenting every single thing that they do, really kind of in a tough situation. And I think that’s the overwhelming point where all of a sudden, everything that wasn’t cloud based has to become cloud based, because we’re not local with the VAs. And so everything kind of gets brought to the surface, you had folders that are no longer utilized, and they’re sitting in a document set up somewhere. And it’s confusing to, you know, the third party that’s coming in to understand what’s going on, we’ve got, you know, no, you know, this is something that is recent, we had literally no technical information on certain things that we manufacture, a customer asked for it wanted to get clarity on something, come to find out, we don’t even have it. And so that had to be generated. And we had to get tools to measure certain things and all that kind of stuff. And so, anyways, what ends up happening is that leverage point changes, we’re in employee start saying, Oh, my gosh, I’m replaceable, and that that can cause two things to happen, it causes one person to say, I’m ready to step out, I don’t want to be in this circumstance, or it causes the other person to see buy in and say, okay, Malcolm has a bigger vision. And it’s important in the role that I’m in, and also those that we bring in to help in the operations process, to be able to identify what’s going on in the room in that dynamic, because that’s the critical point of stabilization, after post transaction as being able to understand who’s the person that’s really bought into the vision, or really, they’re just bought into, like, their personal vision. And hopefully this stays alongside with that, or is it hey, this person recognizes, like, there’s a bigger, broader vision for them personally within the org that we’re creating. So when I tell my office manager who used to be a different title, and I changed her title, and be like, this is more defined of what you’re doing. And I say, in two years time, or in one year’s time, I expect you to have the following people reporting to you, your title will change. So I’m building your skill set to get there, because that’s what the company needs into your time. Does that make sense? Yeah,
Damon Pistulka 18:40
does go well, you’re showing these people a route or a path for them into the future. And that’s something that a lot of founders don’t take the time to a think about and be communicate. And, and quite honestly, in those situations, sometimes the people that you are having your business are not the people you want, because you a the founder probably naturally wants them to go that way. But we are oftentimes stuck with Pete, we’re not stuck to the bad word. We’re let we have people in our organization that are perfectly happy being exactly where they’re at and not growing with the business.
Malcolm Peace 19:23
Yep. So we had three instances this year that I’ll speak to Ospital. So one of the things we implemented in a company that we just recently purchased is uniforms. And I know that sounds crazy to people, but there was no buy in and we had a bunch of safety issues that were going on because of IT guys showing up with shirts that have holes in them and they’re cutting metal and doing a whole bunch of welding and all sorts of stuff. Huge liability risk. If anybody walks through the door. They weren’t wearing protective eyewear, all that kind of stuff. So we started with protective eyewear and issued shirts so they can wear Monday through Friday or sorry, Monday through Thursday. And Fridays, were free Fridays where they can wear whatever they want. And so that allowed some buy in. But what it also did is it created some hierarchy within the shirts of what color they were and what roles they were in the responsibility related to that. And they and I didn’t mention that it started organically coming out in conversation like, Hey, why did so? And so and I said, Hey, well, did you see him on the org chart, his name is different. That’s why it fit that. And so allow them to kind of organically understand like, there was dynamics that were being created here that were intentional to see who wanted to compete, who wanted to grow, who wanted to create onto that those pathways. So I could start self, I could start the process of people self identifying what they wanted from this. Yeah, because if we’re building a long term business, and we’re documenting things that are going on, you know, what they control from an SOP perspective, I need to create that urgency of where are these people going? What are they doing? Otherwise, I don’t really know who’s bought in. And that, again, these are my frameworks, we’re in the walking phase, there’s probably somebody listening that may disagree with my approach, but that’s what we’d have found in the space. And then simultaneously, the business needed certain things. And so I needed somebody to transition out from an individual contributor to a more of a management role, because they had the ability to do that. But they weren’t able to do the management side and come to find out, you know, after 567 conversations, hey, I need you to do the following thing, I need you to be able to do this in order for you to move up here, he chose to self select out where we sat down. And before I can even have a conversation, he said, Hey, I’ve kind of noticed the writing on the wall, I think I need to leave, I think I’ve spent my most time here. And it was disappointing, because I saw his potential, but he couldn’t get past some professional weaknesses that he had. And that and then the third point, I, you know, I can be the Energizer Bunny, I like pushing things along, I have a lot of passion, pushing things through and seeing them to completion. And so people will want to drag me into the thing. So we had a recent situation, one of our manufacturing companies were trying to cost save. And so we might offshore to Mexico some of the things that we do, and that the little more custom and things that a customer might want in certain circumstances, but not all the time. So it doesn’t make sense for us to staff up for that particular skill set. And so we’ve looked at Monterrey Mexico to bring something over. And basically the team was like, alright, so you’re gonna go fly there and talk to these vendors. And I said, No, the following people will be going and doing that I will not be going. And that was a bit of a like, wait, what? And so yeah, they were so used to the owner just being involved, when the owner has passionate about something, they see that the owner should just see it through. And I’m like, No, this is a, this is this person’s responsibility. up into this point, I’ve helped to get it to this point, now it’s ready for him to take it. And so that’s where I see my kind of day to day, as we kind of build these businesses is more like special project related kind of stuff.
Damon Pistulka 22:47
Well, and you made a really good a couple couple good points, I wrote some things down in here too, and and what you guys are in what you’re putting in, when you talk about the documentation and processes and making SOPs and things like that, you’re really allowing the business to be scalable, because the next people up that have to do that. The only way for the people there to to move up in the company and do more is to be able to backfill behind them. So those people can can begin to take on more of the role that maybe the owner was doing. Like he said, In that instance, the owner was going to go to Mexico, but now you you might have a whole person, that’s their job, they are they whatever outsource person, and they’re gonna go do that. But they’ve never had to do it before. So you’re getting them ready to go and do that and backfilling behind them. But from that person that’s out there doing that now. Yes, there’s a little bit of apprehension, maybe. But also, you’re giving them this other level that wasn’t available to them before, which I think is really exciting for those, those people that are there after you come in. Yeah,
Malcolm Peace 23:58
I completely agree. I genuinely and there’s always variants on a bell curve of this situation, I genuinely believe high capacity, people are wanting to find opportunities to learn, they want opportunities to develop. And so you got to create that. And it may be uncomfortable to create that. But you’ve got to find a way to create that. And most owners at this size, don’t do that. And people tend to leave or they stick around and they’re just kind of doing it because the lifestyle works for their families. But yeah, eventually you have to create that if you’re trying to, you know, have the ambitions that we have with these companies. Yeah,
Damon Pistulka 24:32
yeah. So when when you’re buying these businesses what I mean, do you guys have specific goals that you’re trying to move them how much or anything like that. What are you guys trying to do with these businesses? Yeah,
Malcolm Peace 24:47
we like to double revenue in two years.
Damon Pistulka 24:49
Double revenue in two years. Yeah. Nice. So
Malcolm Peace 24:53
so obviously, that informs our decision making skills I believe, you know, with all the college foot Ball and stuff going on and everything going on I use football analogies often. Yeah. But when you when you’ve got an endzone or a goalpost that you’re going for you make different decisions based on what yard line you’re in. So, you know, based on where we start structurally, with the business and the transaction side, structurally, with the key employees and who are there, and reputational ly what we’re able to do, and then the type of business all plays into that depends on what kind of plays you can make. But we our goal is to double revenue. And so that means we focus on certain things. And I can’t tell you the countless conversations with businesses we bought I’ve engaged with, or we’ve gone to due diligence with or whatever the case may be. I asked him a simple question. I always say, if you had a crystal ball and you had 510 more years to run this business, what would you focus on? And I think nine times out of 10, maybe that’s a slight exaggeration, but not much. They say sales. And because they know it’s it’s the heart of the business. And I think they’re either too caught up in other things, and they can’t focus on it, or they don’t have a pathway of what sales would look like, for this business without a ton of energy and resources needing to be put into it. Whether that be new products, diversifying products, or stabilizing revenue, one of the businesses we own right now, we just needed to stabilize the revenue. And so we’ve had to work through challenges with that and figure out creative ways to do that. And there’s people in our industry, that we’re doing it by implementing some software management to the machines that they develop. And we’re about to roll that out for 2024. So I’m excited about that. But yeah, there was there’s a need, and there’s a reason we focus on sales and SOPs is, is basically those two things are critical, crucial, crucial for us to be able to get past this.
Damon Pistulka 26:36
Yeah, yeah, I mean, because you’re trying to you’re trying to grow value. And this is one of the things that we we work, we’re coaching and working with our owner founder clients, building the value of their business, we’re like, Listen, you need to do get your business set up. So the next person can see themselves growing the value, you can’t, you can’t do something and then ride out that growth curve to the end and then expect to have an excited buyer come in to have to start that process all over again. I mean, we specifically as we’re doing it, we say we’re going to implement a growth, some sort of growth initiative. And when we get about 50% of the way through it maybe even earlier, that’s the time that we start engaging potential buyers because they can come in, and they can continue that and develop their next next phase of growth while they’re doing it. And we also try to have that because it’s just, it’s counterintuitive. And I can’t tell you how many times over the years that my partner, and I have talked to business owners, and it says, Oh, how’s it going? It’s going great. And you go, Well, you sure that you don’t want to get out? No, it’s going to Well, I don’t want to and that same personal call back when when you know the housing crisis hits, or, or you just pick any anything and COVID hits, whatever it’s like, oh, I want to sell now I’m losing money. It’s like, well, what do you think you’re gonna get for that?
Malcolm Peace 28:05
Yeah, I was having a conversation with somebody the other day, they were asking about kind of multiples we expect to pay for the businesses in our industry, we buy exclusively blue collar industrial type businesses in Texas that are b2b focused. And so all that to be said, you know, we often see kind of two and a half to four and a half kind of in the range that we’re in on on earnings multiple, obviously, we use other indicators and multiple to get the deal done. But that on average, that’s kind of what we see. And so you know, you can imagine if someone’s doing 15% net margin, which is really kind of what we like, like to see historically in the business allows us to have enough cash flow to work with and kind of our growth and all that kind of stuff. You know, if they’re doing a 10 million bucks, and they’re walking away with a million and a half every single year before taxes, you know, essentially, if they’re getting paid for X on that they can walk away with 6 million bucks. And then an owner often says, Well, why don’t I just do this for four more years? And I often say, that’s fine, we can play a longer game than you can I hope life doesn’t happen. Because life tends to happen when unexpected things, you know, what have you. And so you want to call me in four years, that’s totally fine. You’ll still end up with a 6x Multiple, if the business is consistent till that point. Yeah, you know, historically, businesses don’t stay perfectly flat. Things happen, things occur and unexpected things happen like they did a few years ago. And so, you know, we’ve seen businesses that have called back later and said, you know, you never believe it, Malcolm we’ve done X amount more, and we’re doing great and all this kind of stuff. And I’m like, Yeah, awesome. Let’s, if you’re ready to sell now, that’s great. We’ll set up some kind of earn out structure you can participate in part of that. But nine times out of 10 we get a phone call where people say things have not gone as well that one key customer we had actually pulled out and you know, I now I have to sell or now I can’t balance you know, everything going on. And so, you know, we hope that doesn’t happen for the owners that we engage with, because we never want to be in a situation where we’re buying things kind As a last resort for them, we’d rather be a part of a business that, you know, is in a good, stable place. So we can just kind of focus on driving that. Yeah,
Damon Pistulka 30:08
yeah. And that’s, that’s the thing, I think that that owners need to realize. And this is another coaching point for us. And anybody who we’re working with is, is really start to adopt the buyers perspective, as you get to the end. And in football analogies, we use redzone thinking, I mean, when we talk with our owners that are in the last in our clients, usually in the 40s, and 50s. I mean, we’re trying to build value, they’ve got other things they want to do, they’re not necessarily going to take it all the way, but they want to get it. So it’s a nice business for the next buyer. Right. And, and that redzone thinking affects things so much about everything from like, you were saying earlier, we double revenues, our, our, our decisions are different. And the same thing that you have these people that are in these kinds of businesses, especially these these blue collar businesses, you know, you’ll see, one just take plumbing HVAC is across the board construction, you’ll see one company that has brand new equipment, every single year, they’ve got new trucks, they’ve got new, yellow iron, whatever it is, yeah. And while we coach, as we say, Listen, you know, if you sell that business, all the debt you’ve got in your iron in your trucks, and everything else gets paid off yourself, this all nets out, you got to consider this. So if you have good equipment, it doesn’t have to be this year’s model it just because you like the way it looks, you’re going to spend a lot of money, especially in your fear in that red zone, and we’re preparing your business to sale, you’re going to spend a lot of extra money, and on your way coming in. It’s a great deal for you, because you’re getting that and so there’s so many things that if if owners prepare just a little bit, and not to the point of where you guys are, but just to make some of these different decisions. And my point is, how many times are you seeing that being the just a thing that stops the deal flat? So you’re gonna go in this business, it looks really good. And then you look at a balance sheet item, and they’ve got, they’ve got all this debt, and they just they figure this out, and they go, we just don’t make enough. Yeah,
Malcolm Peace 32:23
no, definitely is the case. And happens often we, you know, I think the one thing so the name sits Eric Growth Partners comes from my great grandfather, he owns about 70,000 acres 50, or 70,000 acres or so, at the base of Mount Serra in southern Africa, he was a entrepreneurial guy story for another day. But he owned this big farm that did cattle and dairy producing, and all sorts of employed hundreds of people, you know, family lived on the farm, all that kind of stuff. It was a big family business. And so the point of that is, is that they were thinking, you know, how do I grow this to basically employ lots of people in the area, provide a great resource, all that kind of stuff. And the reason that I bring that up is I try to embody what my great grandfather did, where he tried to just take care of people authentically. And so when we go into the due diligence, or we’re engaging with an owner, I try to do the same thing. I obviously am trying to get, you know, first look at things and I’m trying to engage with them in an early basis and have conversations that are authentic. But a lot of the time, they don’t have a board of directors, quote unquote, or people around them to be able to make informed decisions. And so what I present to them and say here is for people in your local area that I have vetted, I have no financial interest, I get no kickbacks sincerely, it’s just people that I think are high quality, you shouldn’t make the four phone calls, maybe you go with a fifth person, I don’t even know. But you should make the four phone calls about the implications. Because when I hear about all this stuff going on with, oh, we just bought the latest stuff, I think about all the tax implications that are going to happen with that. And a lot of the time the owners not informed about all of that stuff taking place. And so what ends up happening for us, and this is the selfish side of it, is we get under due diligence, this stuff starts coming up, these conversations start happening. And then the deal has a potential to be you know, it goes dead or it falls apart. And I don’t want that I want to be able to say, here’s an honest offer. Here’s an honest structure we’re trying to create with you. You know, let’s get it done. And let’s not engage in too many conversations about, you know, why this shouldn’t work or issues that we didn’t see or that you know, whatever, because there’s going to be enough of those authentically, that just happened because we’re learning through this process together. But at the same while, we tried to bring in people around them that they may not have kind of in their board of directors.
Damon Pistulka 34:35
Yeah, that’s a good point in and the other thing that I’ve seen happen in that situation is at someone like yourself coming in making reasonable offers in and then the the sellers, the owners that are these founders. They really don’t have that. They don’t have a trusted advisor. So they’re talking to their friends Steve, who Who Steve heard from somebody else somewhere else, or read a Wall Street Journal article that Steve has no idea that a public company is valued at about double what a private company is. And it comes back to John, who is the founder and says, you know, you’re just getting hosed. You’re getting half the money you’re supposed to, you know, so these the it’s a shame these business owners are, there’s not more information for them to make really good informed decisions. And I’m glad you’re doing it because it’s, it’s so sorely needed for them, because that’s their biggest fear, right? This is they’ve spent their life creating this thing. They want to maximize their their way out. And I there is a real blend between what you’re looking for someone coming into the business and then coming out in those honest conversations. It’s like someone told me the AI a couple days ago, I was talking to this, this lady that does lots of m&a stuff, and lawyer and all that. So she says, Every m&a transaction is no one’s really, I think she said, No one’s really happy. But they’re both satisfied.
Malcolm Peace 36:07
Mm hmm. Yeah. Yeah, I learned. Yeah, I learned in my MBA program years ago, in the negotiations class, there’s this concept of a Nash equilibrium, essentially, two people starting from two different points. And they basically have to work through conversation to find kind of that point, that makes sense for everybody. And, you know, sometimes, sometimes you walk away, and you’re like, I feel like I left something on the table, sometimes you walk away, and you’re like, I feel like I don’t know all the answers of the things I needed to know. And you find those out after the fact. And there’s obviously you know, those that have not been through a transaction, there are ways to solve for that after the fact through reps and warranties and other structures. But, you know, our goal is like, we want to be, you know, taking care of this business, it’s thriving, and in five years time, you’re walking through the door excited, and you’re greeted with a warm welcome. I really mean it sincerely. Yeah, we’re building a business and what we’re building from and what you were able to get it to, is way harder than what I think we’re doing. And so as a result, I want you to be honored in that way. Not bashed. And so super important in the culture that we’re creating. That
Damon Pistulka 37:07
is so cool, man. Because it is it really is when you see a good transaction done, and and the next owners take it over. It’s so rewarding. If they just see it, continue on, and continue to build that legacy. But JP has a good comment here. The this the sellers, tax liability, that’s something that is really, really important. Because, yeah, it’s, it’s, it’s substantial. And especially even in when you get not even, but when you get into the larger size of business that you guys are working on, say someone’s going to buy a business for 10 $12 million transaction costs. I mean, the right work, five plus years ahead can save you hundreds of 1000s of dollars in taxes. And that’s something that I mean, that’s just a whole nother topic, GPM, glad you brought it up. But it is it is significant. And it’s something that, you know, education, again, will help these people make these, these current owners make more informed decisions, as they’re in that red zone. Right, that red zone that five years ahead of the sale. What am I doing to make sure that I’m really going to come out of this with the best results? So Malcolm, going into 2024, though, you guys have been in this now five years? You’re going in as you’re you’re walking now, as you said, yeah. What are some of the things that you really are getting excited about for 2024? Yeah,
Malcolm Peace 38:39
so one of the scale is always a thing that we do with in portfolio companies, but don’t do well in the firm, often, right, because you end up you end up getting busy with other things. And so one of the ways that we’re looking to do that is original thesis was I would come in as CEO, operator president for the first six months, and then transition out. Candidly, that was a bet on me a bet on my kind of what I consider kind of EQ and ability to interact with a lot of folks in different ways and distill down information to kind of get them all on the same page, I have found that there are other people that are very capable of doing that as well. You have to vet them? Well, you have to make sure that they have, you know, not just the hard skills, but kind of the EQ side of it and being able to interact with folks that have been used to a different system for a long time. You know, I was telling somebody, my kiddo had a little holiday party at school today. And I was explaining a little bit about what we do and how we focus on and he immediately had the idea of like, office space that consultants come in, and they’re going to change everything. Yeah, we don’t want to create that culture, that culture can be toxic. It is very classic private equity ways. And so we don’t want to create that we want to create long term stability. Our intention is to not ever sell these businesses, unless some weird unicorn situation happens. We have no intention of sell. That’s not what we think about when we go in. We think about how do we create great hassling businesses over a long period of time, and that means the business will have to pivot and change. And so the way that we’re evolving for that, and it’s not recreating the wheel, there’s other firms doing this across the country. But we’re going to roll out a program where we have somebody in house for nine months, six to nine months, basically getting trained and the way that we think about business, you knowing that they’ve come in with some of that acumen already, to be a part of that operating team immediately when we close in the transaction, or and during the the diligence process. And so we’ve been gearing up for that trying to get that training, right. And we’ve got now a bench of people that are interested. And so we’re, we’re buying exclusively in Texas businesses, we’ve, we look in first markets, you know, imagine the big metros of Texas. And then we also look in secondary and third, third markets, for businesses that, again, have been around longer than 10 years. And we want to bring in people that want to be a part of that, because it is not scalable for me to be the owner and operator of all these businesses all the time. And I disappoint more than anything else. A lot of employees when I’m not there or not able to, you know, be involved in all that. So, yeah, we’re changing the model. And again, it’s just part of our I think, you know, walking face to running phase that needed to happen. Yeah,
Damon Pistulka 41:10
yeah. Well, that’s cool. And then you’re applying the things that you’re doing in your portfolio companies as far as putting in systems to train your operators. So they can go out and implement and develop an implement the strategies that you’re currently doing at a smaller scale now, but you’re allowing it so you can put more people to go on a larger scale and go out. Yeah, so let’s, so looking at that, that’s very exciting. I mean, because you talking about you can double, triple, quadruple your, your the amount of portfolio companies.
Malcolm Peace 41:44
Yeah, you know, in theory, it was like, we could do one to two businesses a year if we do at the model where Malcolm was, and my hope is, once we kind of fine tune this a little bit, we’re doing, you know, basically double that maybe I don’t know, we’re not in any rush. And maybe the sizes of the business that we incorporate are slightly different. Maybe they look slightly different. But there will be some iterations that has to take place in order to a customer, you know, my hope is that that’s the way we scale where we bring, you know, bright men and women that want to be in businesses for a long period of time and just be there to develop. I think we’ve perfected some sort of game plan. You know, there’s there’s always this debate and kind of the Holdco space of sorts, you know, do you build a centralized business are a decentralized business? Do you let the portfolio companies kind of just run independently that you get some reporting? I haven’t gotten there yet. Maybe I have a bit of a control angle that I’m not ready to give up. But yeah, we have, we have a system we implement low code, no code software that allows us to scale quickly, we’ve got 100 day game plan that we give out to the general public, just showing exactly what we do. And that’s been refined over time. And we hope that, you know, we’ll get more and more people that want to be a part of what we’re calling our general vice president program. It’s no unique game other than this is a person that wants to be a part of what we’re doing and is looking to be a part of, you know, operating these businesses long term. Yeah.
Damon Pistulka 43:02
So you know, if you got listeners out there, if we, if I got listeners out there, and you’re thinking about this, get get on such Sarah website, and take a look and see what they got going on or reach out to Malcolm here on on LinkedIn and do and connect with him. Because this is these are exciting opportunities for people to be able to come in and do that. Yeah, I lost my last train of thought there. I had I had boy the question of the century that was going to come out, but I lost it completely. Did it because it’s just cool. It’s cool what you guys are doing? Oh, I do I did I come back to the thing before we I mean, we’re getting close to time here, we usually try to try to go 4045 minutes. But I got a couple questions, because we might have some business owners listening here today. And I really want to ask you, when you’re coming in and seeing talking to these business owners, what are some of the things that really don’t allow you to they just stop you that you go, Okay, we if they would fix this, this thing, or if this wasn’t like that this are different, or they’re, you know, I just don’t want to put words in your mouth. But what are like the top one or two or three things that you you really find that don’t allow you to get as far you know, down to the end like you’d like to? Yeah,
Malcolm Peace 44:20
so we got started or really I got started, where I realized there was a pervasive issue of business owners that wanted a son, niece, nephew, daughter to take over their business. It just wasn’t there. People are often I think there was a phase of business and maybe it’s hopefully changing or maybe it’s still happening and I’m just trying to personally change it with my own family. There was a time where business was like the thing that took dad or mom away, right? Like it Yeah, constantly. It was constant tension within the house. People said I don’t want anything to be a part of this because it always was a negative thing. Dad always had to work a whole bunch. That is truly the sacrifice that happens a lot of the time getting started. If you have limited budget, people you can get it truly is. And so, you know, I often find that I am sitting in a room with an owner, sometimes at tears, because I’m solving that need for them. And then I have to have the conversation of now you will transition out. And that’s going to be incredibly emotionally hard for you to do because you have had that sacrifice, you know, what took place within your family, or the sacrifice you had to make personally in your life, to be able to make this happen. And now I’m going to just, I’m not going to disregard that. But we have a different we have a next phase of the business. And I want to honor you that by what you get paid through, and also your freedom to show up and, you know, say hi, you know, all those types of things. But you know, there is that transition. And so we have to have conversations of like, what is the business dependency look like, on you? And what can it actually do your response, you know, irrespective of you that that process is a tough conversation, and we try to have those early on. And it does bring a little bit of, you know, hairs on the back of my neck stand up, when I hear an owner say, here’s all the things that I solve to keep this engine running, I often have to think, Okay, is there somebody else on the team that should be solving it is? Do we have to hire for that immediately? What’s the downside risk in this transition, because there’s enough statistics that show that either families take over the business from each other and the business doesn’t transition well, or other private equity firms flip the company’s really fast because they leveraged to a teeth and they had to do that just to make the transaction work. And so we tell business owner like, hey, look, we may not be the highest price, but I assure you, we are going to honor what you’ve done here. And that’s our intention. And so we fit for a seller to right, we’re a buyer that has to fit for the seller, where they want to, you know, keep their employees intact, and they want to be in a situation where, you know, the business can maintain and continue thriving, moving forward with a different kind of Mo, but overarching ly protecting the brand and everything that’s around it. So yeah, yeah,
Damon Pistulka 46:59
no, that’s a great, that’s a great, great explanation there. And one of the things that you guys are doing that I really enjoy too, as you’re buying for the long hold. And and that that is really cool. It takes takes a different kind of work, like you guys are doing and your operational focus and doubling at revenue and really getting to where you want to be and doing those things. But it’s cool that you guys are doing so I
Malcolm Peace 47:22
would say just for the audience’s sake, that was intentional those making those decisions were intentional for us, or what decisions we make going forward. And you know, that when I’m when I made that analogy earlier about, you know, football field and things like that, like that’s something that I preach wave too much, probably my team probably gets sick of it. There’s a few things there. But yeah, you make different decisions based on the outcome or the area shooting for. And so when we say we’re gonna buy this and hold this for a long period of time, you make different decisions. You don’t certain risks, you don’t take certain risks. Yeah, all that stuff. And so yeah, it’s intentional. Yeah,
Damon Pistulka 47:59
that’s, that’s super cool. And I tell you, business owners that are concerned about their legacy, really need to think about that in the next owners of their business. I mean, that is a huge thing. And if that’s, if that’s a big deal to you, then it’s definitely a consideration. But, man, I tell you, what, Malcolm, it’s been awesome talking to you. And we’ll have to have you back too. Because there’s, there’s so many things I’ve got so many notes about that we can talk about later, because you guys are actively scaling these businesses, you’re doing those kinds of things. I think it’d be incredible for us to do that later. But thank you so much today, stopping by and talking about buying and building these blue collar businesses and what you guys are doing there in Texas and just sharing sharing your your story. Yeah, I
Malcolm Peace 48:47
appreciate you having me if anybody ever wants to reach out I’m on LinkedIn, Twitter and what have you, but you can find out more information on CIT sarah.com. Spelled t s e t s e r RA and happy to chat with anybody about either you know selling their business or looking to be a part of our generous vice president program be a part of operating side of things as well. Awesome.
Damon Pistulka 49:06
Awesome. Well, thanks a lot for being here today. Thanks everyone for being here. We had JP I had someone that made a nice comment at the beginning. And we don’t see it through the through the profile here and then Curtis Curtis Tompkins is on here today a friend of mine thanks so thanks so much for being here today. And all you listeners here if you did not if you’re a business owner that’s thinking about selling your business if you’re someone that’s that’s interested in being an operator for in businesses, go back and listen to what Malcolm was saying here. Maybe Sarah partners is for you. Maybe you need to be in Texas, if you’re not already run in some of their cool blue collar businesses and scale on like they are. But we appreciate you. I want to make sure that that you are getting the information you need. So reach out to Malcolm or stop by and we’ll get you some more information. Thanks, everyone. Thanks, Malcolm for being here today.
