All You Need to Know to Buy a “Boring” Business

What's up, everyone? This is Alex Lieberman, co-founder and executive chairman of Morning Brew. Welcome back to Founders Journal, where I give you, the business builder, the tools you need to think better in order to build better, whether that's building a business, a team, or a new product. We're doing something a little different this week. I recently sat down with my good friend, a fellow entrepreneur and an all-star investor, Cody Sanchez, and we tried out talking through 3 different topics that we thought would be exciting to the Founders Journal audience. Now, make sure you listen to the end of the episode because we want to know from you, the listener, which of the 3 episodes you liked best and why. This is going to inform the future of Founders Journal. Now, this is part 2 of the series that I'm talking about. If you haven't listened to part 1, go back and check it out where Codie and I talk through whether she should buy an oddly satisfying slime company. But today's episode is another conversation between me and Codie about me buying a boring business. And in this case, the boring business is mini golf. You guys are well aware of my plans to take over the world one mini golf course at a time. So I wanted to run the idea by Codie, who has built an 8-figure portfolio of small businesses. I wanted her to take my idea through the wringer, and she gave me some amazing advice and some things you should all think about before investing into a business of your own. Let's hop into it. Okay, let's talk about mini golf for a second. Because I actually do. If we weren't recording this, I'd be calling you asking for help. So let me give you the context.

Yes.

Basically, my friends— uh, I— okay, let me step back. Went to Michigan, have, you know, a close friend group of like 10 people. My first 2 apartments in New York City were 5 bedrooms, so I lived with 4 other friends from Michigan. 3 of those friends I lived with for the longest time, we've been talking about doing some sort of business together. And we've been talking about doing something in kind of the world of boring businesses, that or doing something in real estate. And what we said to ourselves, like, we kind of set a criteria for if we were to do something together, what would that look like? And we said we would want to own businesses that we could buy several of, potentially roll them up into something that we could sell to middle market private equity. That would be an option. But if we can't do that, it still is amazing just to have cash flow while we sleep. The second was us thinking about how do we choose between buying single-family homes to rent out, whether it's more of an Airbnb model or not an Airbnb model, or do we buy a boring business? Like, it's not either or, but for our first kind of purchase as a group together, we were thinking about what do we do? The third was if we buy a business, we wanted to buy something that generally was recession and time resistant that we think will have as much demand 5 to 10 years from now in an upmarket or a downmarket as it does today. And it has to be something that, like, we generally get excited about being involved with and, like, we feel good about being involved in the business, meaning there's a reason we aren't, like, buying smoke shops or buying liquor stores. Like, not that— I mean, I buy stuff from a liquor store all the time, but it's more just like we don't want to be in that business. And so we landed on mini golf for a few reasons. One is because we felt like it was a category of boring business where there are— it's super fragmented. There's thousands of them across the country. It does not feel like a space where private equity or like other, let's call it, buying groups have already saturated the market. Like in a lot of ways it feels like car washes or self-storage or laundromats really have been like front and center in kind of focus for private equity. So we're like, okay, what's a niche that we could carve out? And I think the second was like, the 4 of us are kind of like, we're golfers also. We felt like it is recession resistant because it's a cheap form of entertainment. So in a down market, families are still going to want entertainment and $10 to go play mini golf seems affordable relative to other options. And we also thought there was some opportunity to basically add value, to operationalize it, to improve marketing, to potentially wrap a brand around it. So I can answer some questions, but that was kind of the high level thesis, and we are in the thick right now of finding our first course to buy.

I love it. Well, first of all, I don't know anything about golf courses in a recession or mini golf courses in a recession, but I think the thesis stands. I think especially as long as like the real estate isn't so overpriced that you don't have like a huge volume play that you have to have. I mean, a lot of these boring businesses, what I've found is they're almost better in like secondary and tertiary markets that have some growth, but you're not paying like New York-level prices for them because then you have to really increase your prices because you can only like slam or cram so many mini golfers in at once. And so, I think location is just a huge component of this business in particular. But the part that I think is intriguing about it is anytime you can have a business like that where a lot of it is location plus marketing, you're going to have an unfair advantage. And I remember forever ago you told me like, hey, I'm going to do this deal, and I invested in the deal. And then, hopefully you don't yell at me for saying this in public, but I was like, what are the terms you're You got like better terms because they're like using your name all over the place. And you're like—

And I was like, nope.

Oh, no. I just did the deal. And I was like, Alex, what the literal bleep? And then you were like, well, I want to be good to the founder. And I was like, I get it. But like, we all have some form of unfair advantage, right? Like anybody listening to this, maybe you have time, maybe you have money, maybe you have expertise. And if you have money and expertise and like audience or a name, you should be getting unfair terms Every single time.

And so, and what does that look like?

Well, for a golf, like, to do a total buyout, they're not going to care. But like, they're gonna be like, yeah, your money is still this. And unless I get upside, I don't, I don't care how many—

I don't care about your freaking Twitter followers.

Yeah, exactly. But, but if you're doing— if you're investing in a deal as an angel investor, I think you should be leveraging the heck out of that. So I probably would have just put terms on top of it. Like, well, I just did a deal like this. They raised— they're raising for a company. It's called Postpilot. And it's like—

Oh, I thought I saw you message or tweet about this.

Yes. So I invested in this company called Postpilot, which is like these little, you know, you get in the mail postcards, basically like, hey, free gym membership class, or like, you had something left in your basket. And I basically— they didn't— they weren't offering pro rata rights. And I said, no, no, no, I want pro rata rights, basically meaning like I have the right to continue to have the percentage that I invested in this company as you raise more money. Right. Just in case anybody in the audience doesn't know that.

And that was not offered to you prior to you asking for it?

Right.

No, no, no.

Yeah. So I asked for that and I asked for some warrants and options if I was actually able to increase their audience size, because I think my audience size can increase theirs. And they said yes. So I would have done that same thing. And now some founders are going to tell you to pound sand if you have the next Robinhood. But if you have an up-and-comer, those first— you know this— the first 1,000 true fans, the first 10,000, that first 100,000 is so crucial. If you can scale them, like forget about it.

And also, by the way, I think there's always a ton of leverage from someone who basically says, look, you don't have to give me everything upfront. If I— if you let me earn into this, I will prove my value, right? So I've even talked about— I've talked to, you know, a few YouTubers who are big personal finance YouTubers where they have effectively earned into deals with fintech companies where they drove acquisition. And even, you know, this Brew investor who we had, He invented the Snuggie, but his whole business is— which again, that's a whole story in itself. But like his whole business is basically he goes to businesses that are doing well, but he thinks he can accelerate them because of his relationships with retailers. Like that's where his sweet spot is, is he has unbelievable relationships with Target, Walmart, etc. And he basically says, look, you don't have to give me anything upfront. I will actually front the cost to grow your inventory and to accelerate you, and I will earn into equity in the business as I get you into these retailers. And it's a no-brainer for these founders who are like, oh yeah, we did $5 million last year, but you're saying that we could do $50 million this year plugging into your system. It's almost like a riskless trade in a way versus, say, upfront working with hypothetically an influencer who just has upfront equity, and then you find that they can't drive their audience to take action, and then you're like, shit, what do I do now? Because they're a partner of mine.

Totally agree with that. And that's not good for either side. You know, you don't want to have like equity from resentment.

Not a good thing.

Exactly. And then the other founders will never tell other people to work with you again, which you also don't want. But back to golf courses, because that's what we're talking about today.

I'm not sure how we got here, but yeah, mini golf.

So mini golf. The cool part about this business, I think, is most of the small boring businesses that I talk to people about are like, people want to buy their first deal that's like $100,000 or a couple hundred thousand dollars. And mini golf courses, you're going to have land, Plus profits is how you value them, right? So you're going to be a little bit more upmarket than that. I would guess like your minimum deal is probably going to be right around $1 million. Like, I don't know if you're going to find smaller deals.

Well, I'll even just, just, just so you have context, like I will give you an example of a course that unfortunately, since I talked last, talked to the owner, they already sold.

But that's the one you showed me in Jersey.

No, this is in Arkansas. And here, let me—I'll give you the numbers. So basically, this business 2016 did $818,000 in revenue, $160,000 in EBITDA. 2017, $985,000 in revenue, $283,000 in EBITDA. What's really interesting again, just as a frame of reference, one data point about potentially mini golf and activities like this being recession resistant. In 2020, so thick of the pandemic with everything really closing down in March, I don't know what specific laws were in Arkansas. Revenue was $878,000. EBITDA was $242,000. And 2021, the most recent financials I saw were as of July of 2021, they'd already done $1 million in revenue, $450,000 in EBITDA. And I do know about this location also a few things. Not just mini golf. It's like an activity center, right? That has like bumper cars and arcade games and batting cages. So that's like an interesting consideration. I don't know if I like that or I don't. And then the other is they do own the land. So this person has 7 acres of land and they were open to selling the land. But I don't know what— like, that to me is a totally different calculus of like, how do you then— you're not just valuing a business now. You have to become like a land valuation person as well.

Yeah, that's interesting. I don't love that they have the other things on there just because you become— I like high margin, low people businesses if I'm going to buy a boring business that isn't my main thing that I'm obsessed with. And with a mini golf center, you can basically have a couple of employees, maybe some contractors. But if you're talking bumper cars and batting cages and people getting hit with balls and all that nonsense, that becomes— People getting hurt. a real business that you need a pretty substantial operator to manage. So I wouldn't love that. I don't actually hate if you buy the real estate because super easy to do that calculation. That's why there's so many real estate millionaires. Like, it's not rocket science. And then the nice part is rates where they're at, you could probably get a loan like on just your liquid assets incredibly cheap and use that loan to buy the land. And then you're, you know, beating the rate of inflation is probably not incredibly hard. Plus, if you If you could parcel it off. So I actually don't hate that deal, but I do hate how many employees I think you're going to have in that business.

Yeah. So a few things there. One is, do you think you would keep the land or like— I actually heard this strategy from a friend who worked for 2 guys that were doing a roll-up of funeral homes. So again, not the business I personally would choose to get into, but they were doing this funeral home roll-up. And a big part of it was because all these funeral homes owned the land, didn't understand the value of their land. They were buying the places and then doing sale leasebacks on all of them. basically on day 1. Is that something that you would think about doing versus just owning the 7 acres of land outright after buying it?

I mean, it depends. I don't love this. I mean, the sale-leaseback is great if you need capital. We used to do that a ton in cannabis. Like, pretty much no cannabis company owns their land. They had to buy the land because nobody would lease to them. And then they do a sale-leaseback back to a third party that would do it. I mean, I don't hate the idea of splitting up the entities, like doing a sale-leaseback to yourself Yeah. In a different entity, but you own the golf course. That I think works. And then you could parcel off some of the land, but it just depends on what the lease terms are. I mean, I guess if you have a lease term of 12 years for the course and you don't have to put too much capital into the management of it, then you don't care if at the end, you know, your lease doesn't get extended. But if you have to do a bunch of, you know, improvements, there's no way that mini golf courses over the long term are going to be the best use of land. For most locations. And so eventually you're going to get your business sort of taken from you by your landlord, which is okay if it's a long term and you just get to kind of like cash flow it on in the meantime. But I would be thoughtful about that, I think.

Yeah, totally. One other point on this, and you spoke about it, which is like the amount of human capital costs associated with any business that isn't, let's just say, like stupid simple mini golf or like a laundromat with something That is more of like an activity complex. I was actually kind of blown away by how big of an expense payroll expense was for this company. So just to give you a sense, average sales on this business between 2016 and 2020, $900,000. Average payroll expense over the same period of time, $370,000. So it's 40% of revenue. Again, I don't have a reference point, but it feels like a lot in the context of I feel like I have a mini golf course. I need one person at all times sitting there basically manning the cash register and handing out clubs. I also think there's an interesting world to think about of like, is there a way to almost do an honor system or a system where people can pay and it dispenses, it unlocks the clubs and balls for you where you don't even need someone there at all times? Because also mini golf has like set holes where do you really need maintenance on it during the day?

Yeah, I agree with that. I think the reason why it's probably $300K does— I mean, I would assume that they have somebody that operates it. Like, you don't want to get the call when little Sally, like, whacks her ball across the, you know, whatever pond. And so that's gonna cost like $100K probably to have somebody who you can inherently trust who will handle everything. Like, do not call me. I am on your do not disturb list, except, you know, when we talk strategy.

Yeah.

And so usually that's like, $100K, $150K for like my businesses. Definitely you could get them for cheaper, but I kind of prefer good to super cheap on that. And then payroll is probably just things like plumbers and electricians and like these sort of one-off staff, like, you know, maintenance for the website, Google Ads, that kind of stuff.

Totally. Yeah. I can tell, by the way, that you've played mini golf a lot of times with little Sally whacking the ball over the river. I'm going to leave that there. As someone who loves golf, no judgment at all. One last thing on the mini golf point I didn't mention, you know, What is the thesis, right, with this, right? Like, we buy this, and I think it's really just a question of how active or passive do we want this to be? Because I think there's the, you know, step one is we go into this business and we say operationally, like, how can we just run a tighter ship here and then put in place a manager who can keep this going? And to be honest, like, of my few friends, a few of them work in private equity where I think they actually like could find kind of operational efficiencies pretty quickly. Then to me, step 2 is how do you drive more demand for the existing locations? And to me, that looks like everything from how do you set up leagues or tournaments for people to play in all the way to, you know, they spend— their average marketing spend is $45,000 a year that they spend to drive traffic, foot traffic to Their place in Arkansas, I would have to think that I could be more efficient with spending digital marketing dollars to get feet on the course playing mini golf. So that's the the second one, and then the third piece of this is retention. Like how do you get people more people coming over and over and staying there? And what I was thinking about, I don't know if they have a bar at this place, but I find it interesting the idea of putting a bar into a mini golf place. I wouldn't even f around with food. Put a bar in there. And then also think about what are cheap forms of entertainment for people who maybe don't want to just play mini golf, want to bring their family, things like cornhole, things like darts, things like Pop-A-Shot. So like, how do you actually make it into more of an experience but doesn't require a lot of maintenance? Like, I don't even know what the fuck goes into go-karting, but I would not add go-karting to my place. And then the final piece is you buy enough of these places, say you buy 12 of these mini golf courses up the East Coast. What is the value you get from slapping a brand on it and over time kind of modernizing the whole course experience? That's part of what I'm thinking about. And I think the question in my head is not what's right or wrong, but really the trade-off of what I just described takes exactly one shit ton of work versus what you described of like, hey, don't have little Sally calling me at night like your course is fucked up. Is do we just want this to be a place that someone's managing? We get a check or we get a bunch of cash in the mail every month and that's it.

Dude, I think you nailed it. You need to figure out if you want a bond or a business, right? So a bond is the check in the mail and a business is something you gotta run. And so, yeah, for me, I like having a lot of bonds and only a few businesses because I'm operationally kind of a nightmare, you know, as evidenced by how many times I ask you how to even run like this media company. And so that's really not my strong suit. Like my strong suit is leverage and figuring out financing. And I'm good at marketing and I'm pretty good at hiring. So that's, I think you nailed it. Like, and I don't even know, I mean, I'd probably look at like the Topgolf model, like how profitable is that thing? And what did they like take it from to? Did they do a buy strategy and then like build on top of it? Because that would be probably something really, really similar. So if you had like one of your buddies that was former PE, that's like, Alex, give me the cash, let me bother you about stuff. I want to do some marketing on this too, but I'm going to run this business and we're going to turn it into like Topgolf for mini golf. That could be a home run. But, you know, I would buy the business just off of realities, not dreams, and then layer your dreams on top of it. But don't give them the valuation for those.

Totally. Yeah, I think that makes total sense. And I think a lot to think about in realizing mini golf world domination. But just to put a pin in this, where we're at now is we're reaching out to courses, which, by the way, I know you use business brokers sometimes, and me and my cheap friends are like, Fuck that. We're not using a broker, which I think is actually come to bite us in the ass because it'd probably be way faster to use a broker even if we're giving up a percent. So I've been cold calling many golf courses across the country. Next time we do this, I'm going to do like a live cold call because it'll be funny for one, you to hear the sales pitch and either give me shit about it or say it's good, but also hear what the person says. And the goal right now is call enough places or get in touch with enough owners to see basically enough financials. So we even know the right questions to ask about what does a good versus bad mini golf business look like.

Totally. And I mean, one way you could probably do that in like a really fast mechanism would be just reach out to like the biggest owner of mini golf courses you can find.

Yep.

And just talk, you know, like you're, you know this, like you could spend the— I think you actually like the hustle. Like you like talking about this stuff.

Oh, I enjoy it. Yeah.

I know, I can tell that little sparkle in your eye. But I think if, you know, if you wanted to do this quickly, I would just get on I would just get on LinkedIn and the internet and basically find out who has sold a bunch of these mini golf courses or who's been an owner before. And given, you know, who you are, but really if you're anybody, just ask them to let you know, can I take you out to lunch? Can I pay you a grand? I just want to talk about mini golf businesses and get their whole playbook. There's also like consultants for every industry or those business brokers. Like you could reach out to a few of them and just say, hey, do you guys have like industry specifics on this? This. Segment, I think they would. I always try to steal these 10,000 hours instead of earn them myself if I can on a new sector. Oh yeah.

Yeah. It's like the model in my head is like the hub and spoke model, which is if I want to get in front of a bunch of course owners or get financials on a bunch of courses, those are the spokes. What's the hub that basically creates leverage for me where if I get in front of the hub, it gives me access to all the spokes? So I'll give you the example. Like even what I was doing before this is there actually is a professional mini golf organization, which by the way is a whole nother interesting thing to me. How can I buy that and create way Better media around it. But anyway, yeah, you are a certified Series A1 professional of mini golf. But basically, I want to hit up the USPMGO and basically ask them, who are all your member courses and who's the contact at those courses? And basically just see if they would give me their CRM. This is why I was even thinking about originally, like, do I go upmarket and buy a mini golf supplies company? Just so I have the CRM to every mini golf course in the country and can more cheaply build courses moving forward. Okay, so that was part 2 of my conversation with Cody Sanchez. I'm still all in on mini golf. I want to be a king of the mini golf empire. But now I want to hear from you. If you had a choice to invest in any boring business, what would that business be? Shoot me an email to alex@morningbrew.com and maybe I'll have you on a future episode to discuss the pros and cons of your boring business with me and Cody. And also make sure to check out part 3 of my Cody conversation on Wednesday. We're doing a business autopsy of Fast, the very high-profile checkout startup that unfortunately announced it was shutting down. Lastly, we want to send out a survey to get more feedback from you all. So please subscribe to our show newsletter at foundersjournal.morningbrew.com and get your chance to weigh in on the future of the show. As always, thank you so much for listening and we'll catch you next episode.