Why We Started Bought the Biz

Welcome to Bought the Biz. Christi and I are so excited to share about this podcast with you. It is all about the tactical insights of what it's like to actually be the operator for a small business after your search deal is done and closed. While so much time and thought is put on how to do a search, this is going to be all about what happens after your deal closes. Christi and I are teeing up why we are so excited to talk to everyone about this and share our stories. In this intro podcast, we uncovered some crazy differences in how we went about this. Like, things from where I didn't immediately communicate to my customers, she immediately did. She lost 50% of her customers in the first 4 months. And, you know, I had a massive client concentration risk that, you know, started to come out. So stay tuned to the end, you're not going to want to miss it, and we can't wait to share all of these stories with you. Buying a business is the best opportunity you can take and the greatest bet you can make on yourself. You get to step into something that already has customers, cash flow, and a team, and now it's yours to grow. It's exciting. It is completely life-changing, and it's a crash course in all the things you never thought you'd have to do, the things you never even knew about. An MBA does not teach this. I'm Garth Fossano. I'm an ETA entrepreneur. I acquired my business 2.5 years ago, and now I'm the co-founder at Rainmaker, an AI sales platform helping small businesses manage everything from lead to cash autonomously. And I am so excited to be joined by Christi and talk to everyone about what happens after the deal closes. Christi, so excited to be jumping into this project together. Tell me a little bit about yourself and why you are also excited about this topic.

Yes. Thanks. I'm excited to be here too. So a little bit about myself. Truth be told, I kind of married into this whole search space. I was not familiar with it until I met my now husband. He came from a traditional search fund, didn't end up acquiring through that back in like 2018 to 2020. We started searching together. After that kind of timeline ran out while we were working W-2 jobs. And as you know, the entrepreneurship world is fraught with heartbreaks. And we had a few of those around more like industrial businesses that we got really close to acquiring. You know, we got into due diligence and found that SDE was actually only 50% of what was represented and things of that nature. So after a few, I won't call them failures, but Long winding roads. I ended up saying, okay, I know what I'm good at. I know my background in tech, software, marketing, sales, lead generation, demand generation. I've, you know, lived and breathed that for the last 10 years. So I'm going to just go try and find a business that is tailored to my skillset and my strengths and see if that gets us closer to the finish line, as opposed to trying to like chase these deals that are interesting and great businesses, but not necessarily something that either my husband or I have done in the past. So, um, we ended up acquiring in 2023 based on that, a lead generation agency. So, you know, sales nerds here in the house for sure.

Well, hang on, you've made the search sound tough, all these failed deals, and there's so much content about that. So why are we doing this today about like what happens afterwards? You know, because I think that that's where, to be honest, the real hard part starts.

So did it get the real hard way?

Yeah, tell me about that.

Yeah, I think— yes, well, good point. I did gloss over a few other, uh, bumps in the road. So we, on the business we did end up acquiring, um, which was this lead generation agency, uh, doing primarily cold email outreach for B2B clients, um, about a million in, in revenue. A week before close, despite our best efforts to keep our SBA lender informed and up to date and knowledgeable on all of the financials of the deal, our SBA lender backed out for kind of no reason, just no explanation, just like, hey, no.

So it's just always heartbreak.

And it's always like, yeah. So That was the, I mean, that was the real, like the first real hurdle, I would say. And at that point, we had come so far on due diligence and, and whatnot that it was, it only made sense at the time to keep going. So we did have a private lender that we were kind of keeping warm, just in case something like this happened, which I think is kind of smart for people to have not all their eggs in one basket. But we ended up taking that loan, which is going to be a hurdle post-acquisition here too, with an interest rate of 19%.

That's crazy.

With the hopes and dreams that we could refinance it through the SBA, like, on day 2.

19% is massive. And I have a feeling that was at a time when interest rates were a little bit more normal too.

Yeah.

Yeah.

Yes. So we knew we were taking a risk there, but at that point it was just like, you're so close to the finish line.

On day one, you started out in the business with already a massive project that's like a full-time job to effectively refinance the business.

Yes, refinance the business. And then on top of that, right, this kind of goes into like the transition to the things you're not ready for. When we were looking at the business again, I still like maintain this is a fabulous business from like on paper. What happened next, no one could have predicted, but we lost 40%, 50% of our clients in the first 4 months. So now I've walked into a business with a 19% interest rate and I'm down 50% on revenue, more or less.

I think this is why we, we found each other and, and wanted to tell these stories. And I think you did say one important thing that we got to make sure is front and center too, is We are not trying to scare people off from this. Like, this has been the best thing I've ever done. It's been the most transformational for me in my career and in my life. But I think what we want to do is just get real about some of these kinds of challenges that are going to come up and you're going to have no way to predict them.

I would echo that sentiment entirely. Are you sitting here today? I would not be who I am, where I am, um, have learned as much. And be as strong as I am, I would say, if I did not go through this process. So while it sounds very painful and it was, I mean, many tears were shed, let me be clear, but I wouldn't change anything.

Yeah, me too.

It's cheesy, but it's true.

I completely true.

Yeah.

I mean, I would, I think that search and buying a business, whatever you want to call it, ETA search, stuff that people have been doing forever. Like, this is, this is not new. It's a massive asymmetric bet on yourself. When you have an SBA 7(a) loan, you are betting a lot and it is super high risk. And I think especially given the current rate environment, people need to be really thoughtful about how they jump into that. But it is also the best thing you can do to turbocharge your career. Like, you are in the game now. Like, where we both are, I could never have imagined where I am now This was never my objective either when I got into this, but this is just sort of how life will start to unfold once you're in the game. So there is— you do it, but I want people to be eyes wide open and hopefully we can help some people and, you know, maybe avoid some of the pitfalls that we've stumbled into, or at least help people be more prepared for what's coming so that they can, you know, maybe act a little bit earlier than, than we did.

Yeah, I think it's just the foresight that I want to help people develop. Yeah, because everyone's so focused on the search, right? And everything, like, it's so— you can like be a geeky analyst about the deal on paper during the search, but then like when you actually step into it, like you want to have the foresight of like, where do I— where am I going to need to like spend my time, spend my energy? Not mess it up and take it to new heights. Like, it's, it's hard to find that when you're in the depths of due diligence.

Yep. In my opinion, I felt like my due diligence was, was pretty poor at best because I was just trying to get the loan closed. Like, that was all I was doing during due diligence period. There's so many things going on. So again, like another opportunity for searchers to get out ahead of that. Like, if you're submitting an LOI, like, you better have a due diligence framework for that business, because if it gets accepted, it's like you are off to the races. And maybe there are people that do this with more of a team and maybe a partner search, maybe with interns, and have a little bit more prepped. And that's also another really good thing to consider. I wish, I wish I had. Luckily it all worked out, but that would have been helpful too.

Yeah, I think if I could just add on, like, I think the biggest thing too is you know, in terms of why I think this is such an important topic to talk about is the skillset that is required for the actual search itself is so vastly different than— not, not in a bad way, like, and I guess the skills are applied at once you're an operator, but you're so deep in the weeds on one, sales. You are selling yourself to business owners and convincing them that they should give their business to you. And then from there you go straight into legal and financial, for me, hell, because I don't like numbers, to be honest with you. And then the second you buy it, you know, you like, you buy the business, you ink the deal, and now all of a sudden you're operator. You are, you are those same things that you just were, but you are like also 10 different other roles with completely different skill sets. And that was like whiplash for me to have to like flip so fast into that mode.

And we will get into this, but I sort of did mine incognito. Like I almost, I mean, I told our team, but like I didn't really have my announcement to customers really formally for another like 4 months.

Really? So you just slid in there.

And that was a crazy debate that we had. Like, should we announce it? Should we not announce it? Like, why does it matter? Like, the business is the same. Do we need to? Do we not need to? And ultimately we did take a little bit of time, but we did announce it. And honestly, I still have customers 2 years later who have gotten the announcements, gotten the emails, gotten invited to the webinars about it, and still email asking, like, being like, where is prior owner's name? Like, is she still involved? And I was like, where you been?

This?

I don't know. Um, yeah, so I think like that example is something I spent a bunch of time on thinking through what is the right approach. I actually had a plan and totally switched it. Um, and so I would just want to share these kinds of stories. Like, I wrote all of the customer intros and things, and but by the way, on my original schedule on when I was going to send those out, I think it was like 15 days after I joined. I thought that was pretty reasonable to try and get my feet underneath me. If I had sent it out then, I was so clueless clueless about like some of the needs of our customers, I think it actually would have been more damaging at that point. Um, and so I think in some ways it's good I took my time.

And maybe that's why I lost 50% of my customers, because I, I just— boom, new owner in the house.

Yeah, so we did it completely differently. Oh, this is gonna, this is gonna be so fun because like that is one of the things we're gonna get to is like, you know, we will do an entire episode on, you know, what should your first 90 days look like. I mean, we could do an episode on what first day should look like probably too. And the amount of time and brain damage that we both probably spent trying to think through these types of decisions is exactly what we want to share and bring others on to share these kinds of stories so you can all learn from them. Any, any like other horror stories that you think you want to— I mean, actually, it already feels pretty scary what you've described so far. Losing 40%, 50% of your customers, 19 debt financing. Like, can it get any worse?

Well, then I got pregnant.

So life doesn't stop either. Pregnant. That sounds like a great thing.

But then I got real tired. Yeah. I mean, I would like we and we can even dive, you know, this is like the technicalities of some of these businesses too, right? Like we ended up with major headwinds in the actual industry too over the next year. Um, and so that was, that was really hard to all of a sudden hit this wall when it comes to the work that we're doing because of email service providers, basically, uh, cracking down on the type of work we were doing. Like, you know, we, we, we got really squeezed technically in addition to being squeezed financially. And, um, I think we did a, uh, truthfully, like I do think we did a good job of, I grew back the revenue, added more. Um, but it's really hard to outpace a 19% interest rate, especially when all of a sudden you hit major headwinds in the space and your cold emails suddenly get blocked and blocked and blocked. When a week ago they were going through and you were, you know, crushing it for your clients. So it's, it was just kind of became an uphill climb the second we got into the business. And I don't, I mean, what was that?

Did the seller like know that and expect that and was just trying to get out or, and like maybe because you were newer to the space, you know, you didn't, that, that, that wasn't known.

So I think, first of all, I think the seller timed his exit perfectly to his credit. Like he absolutely navigated it well and he sold when he should have sold. Absolutely. Like I hope I can have that same insight, foresight, whatever you want to call it, when I eventually go to sell a business. I do think that there was part, part of the problem was relationships. He did have relationships with the clients and while they stayed for maybe another month or two, eventually that drops off because you know, the former owner is just not the same as me. So there's natural transition there. I don't think he could have predicted the, you know, technical challenges that we had. Microsoft and Google kind of come out of nowhere sometimes and just decide to crack the whip. Um, it's not, you don't really know what's going to happen. So I think he knew the challenges of, of what it takes to send cold email. And he had done a really good job of setting that up for the time and place that he was running it, but then things just changed so dramatically and I wasn't prepared for that change and I don't think he even would've known what to come. So, um, short answer, no.

Yeah. I mean the, yeah, so things change. That's, that's the reality.

Um, but here's a question for you. Okay. Do you think that more often than not, is it an uphill climb? When you step into a business? Is it a flat? Is it a downhill? Like, I feel like there's a lot of expectations around what it means to buy a business and operate it. I think people think that it's like smooth sailing.

So there's no such thing.

Seller discretionary income though, Garth. I can just pocket my SDE and like go on vacation to Tahiti. My GM's going to take care of it. We're good. Like, what's your take? How does it normally go in your opinion?

I just really don't believe in that. I think, you know, I've spent a lot of time thinking if I were to like give advice to myself during my search, would I have bought the business that I did buy? And the answer is unquestionably yes. And we should both, before we wrap this up, say a little bit about where we are today, because I think that will help explain people like why this is an important topic to us, but why we are we're so passionate about it. But I think that there are very clearly some types of models that lend themselves more to a traditional GM and some that don't. And, you know, I think of models that lend themselves to a GM as like very established businesses with core processes. And I think of like franchising is potentially a great spot for that, where you can install a GM and, you know, once you have enough territories in franchising or you're at the right size, the economics work.

Work.

But, you know, most searchers probably aren't immediately buying in at that size. And the searchers that I know that have bought into franchising generally are operating their businesses. And although some of them have worked out more like 3/4 days or partial year based on seasonal businesses, but like, I think that they're still heavily involved in their business and they're spending a lot of their brainpower thinking about how to make it better, even with sort of a GM time involved, um, and, and it takes time to get to that sort of scale. I think if you're buying something that is a little, and a little bit more unstructured, like a, like an independent business, like, I think it can be a lot harder to install a GM. Hopefully a searcher is buying a business that has the kind of structures in place for other people to execute. But like you said, things change constantly. Like, you know, our recruiting process changed constantly. And so even if I had put in a manager to run that, like they would have had to actually evolve the process versus executing. And that requires a different type of person and they typically cost more. And so then you're stressing what you talked about, oh, this glorious SDE that just comes straight to you. Yeah, that's if only.

Right, right. Yeah. And I think I fell into that. I won't say trap, but you know, you just hear so much about it. Like Ebitda, SDE. And it's not that I thought it was going to be passive income, but I certainly was expecting a lot more in my pocket faster than, you know, it actually happened. And I didn't expect— and maybe this is just naive, but like, I didn't expect it to be that hard. That's the simplicity of it.

So let's tell the story about how it is so hard. But we wouldn't be doing this if we weren't sort of in a pretty fun spot in our own careers and businesses right now. So I think we should give everybody a quick taste of that, and then we'll tell people a little bit about where we're planning on taking the next couple episodes and this podcast. Um, so, you know, I'll jump in and then I'll ask you the sort of questions on it. But, um, the business I acquired was called Top Dog. It was a very traditional call center and was built on and owned a impressive technology stack that executed the sales model on behalf of our clients and their customers. About now, a year ago, we pivoted the company into an AI sales automation company. We have released our first product. It's— we sort of haven't really announced it too much because it's a really baby product is the way I would describe it. And we're going to have more of a— our first product release in Q4 and then And, you know, I'm really excited for what's coming early next year. And this is just a way for small business operators to automate everything from lead to cash. And think of like where you get web leads or you get leads off of a website or an inbound phone call. This is going to be an AI workflow to autonomously help you convert leads into cash and improve that cycle. That is obviously a crazy pivot from the original business model. And so this, you know, I talked about an asymmetric bet that search is, and this is just another asymmetric bet that I'm making on Rainmaker. And, and we did raise a $5 million seed round. So if you can think about how the valuations of this business is changing, it is totally transformational and it's a, it's a very fun ride. And I'm so excited about what AI and a company like Rainmaker can do to really help small businesses. I think also working on something that is involved in AI, like, this is our sort of generation's moment to change the world. And so I'm, I'm, I'm, I couldn't be happier and I wouldn't be doing anything else. So I'll ask you the same thing. Like, where are you? Because I think I don't even know if I fully understand the web, but now you have a handful of things going.

Yes. So, and we can even, all of the details will, maybe not all of the details, but some of the details will come out in future episodes. But we actually Ended up pivoting out of Revenue Accelerator and evolved into what we are today, which is a, still a B2B pipeline generation agency, but not doing cold email and really focusing, like you said, Garth, on that AI component where we are starting with intent data. So trying to find the actual people who are in market. So not just like kind of targeting a big broad market, but like who is actually, you know, the 20% that's actively looking for your solution, then applying really cool AI research to that person and that company, then automating the heck out of messaging, LinkedIn outreach, because I think LinkedIn is just more humanized approach. And with that layering in this human component, which we call GoToNetwork, to say, okay, how can we not only find the right people who are actively looking, but how can we match that up with a network to see, do we have a warm introduction to the company or the person? Because that's always going to be a better route in, as opposed to any sort of cold outreach. So we're doing this really cool thing of, overlaid human connection on top of all of this AI work. And I think, you know, you're in AI too. As AI continues to like evolve and things do become so much more automated and completed by the robots, I actually— this is my personal opinion— I think that people are going to end up craving more and more of that human touch because so much is out of our hands now. So I think that that network component is really important. So all that to say, that's what we're doing now from a pipeline generation. But what ended up happening too is, you know, I saw this need in the search space for people who wanted to get in front of small business owners for proprietary off-market deal flow, as opposed to the biz buy sells and the marketplaces where you're like the 70th person in the door and competing against everybody and their mom for a business. We are now helping the ETA community run that proprietary off-market deal flow and reach out to small business owners for the purpose of having a conversation around their transition, like what's next for you? What's your next chapter? Are you thinking about selling? Are you currently, you know, looking for a buyer? And so we're, we're we now have two companies out of a single initial starting point.

I think the other thing that you mentioned that we have to touch on a little bit at some point is that we were two searchers that got into businesses, probably not thinking a ton about AI, and now both of our business models are, that is effectively core to them. And so I think that this is also going to be a theme for searchers and operators now as well as like, how are you bringing in these types of tools into your business? And that's going to be really important, but we'll have to save that for later. So a couple of things about where we're headed and the stories that we want to tell is, but, um, it would be, you know, your first 90 days. So this is going to be an episode coming up about, you know, what is it like to actually step into this business? How do you think through those decisions? Decisions. And clearly Christi and I took very different approaches to some of these things. So we want to talk about all of that, give you the lessons that we learned. Other topics that we'll be bringing up is, you know, you're going to come in and you have to win over a team that you didn't hire. Now you have to work shoulder and shoulder with these folks. And, you know, and many searchers buy blue-collar businesses, and that can be, you know, maybe a little bit tricky. Like, how, you know, clearly you came in with a bunch of money or took a bunch of debt and seem like the well-heeled folks coming into these businesses. Like, how does that actually work? How did you do that? I had a virtual team. I think you did too, Christi Loucks. And so like, that was wild coming into a virtual team and doing a transition and not even know them. So I can't wait to tell you all about that. And I think another one is the cash flow reality check. So we'll be doing a little bit of a talk about cash flow and working capital. And, you know, the next thing is like How much to change and when they're broken systems. Do you change them? How do you do that without breaking the business? What does that look like? What is the right speed for you to sort of make your mark on the business? All fantastic questions that we can't wait to talk to you about. Yeah. Anything else you want to add, Christi, before we wrap up?

No, just really excited to be doing this. And I think it'll be amazing to see what topics we come up with because I feel like the more we dive in, even just on the this general intro episode, it's like, oh, we could talk about this and talk about this and oh, what did you do here? And like, it's just a never-ending, yeah, abyss of topics that we have to cover for everyone.

I can't wait. I can't wait to share this with folks. I'm so excited that we're doing this and I can't wait for the next one.

Yeah.

So let's do it. Talk soon.

Awesome.