Lunch & Learn - Session 29

Well, hello everyone. It is time for Lunch and Learn. Of course, I'm on the East Coast today, so it is 3 o'clock. Doesn't seem like it's lunch, but I just grabbed my pizza. And joining me today, we've got Candace Powell coming to us from the library. And I love your back studio there, Candace. And Candace is one of our founders and has been working in the founders Founder's Office and our predecessor companies. Gosh, about 20 years now, Candice, I think coming up on. Is that right? Yeah. That's crazy. And also joining us is Jackie Kuiper. Jackie's our general counsel and also one of our co-founders at the Founder's Office. And combined, we've done a tremendous amount of business together and we love bringing these to talk about raising capital and all things business, including the last couple of shows we've been talking about AI. I've got to tell you, today, uh, I just have a great pleasure of having a good friend and a person who has just grown so much over the roughly 15 years that I've known him. Uh, and in that period of time, we backed one of his first companies that he was doing as a venture. I don't even know if Casey remembers that, but it actually got sold up to a public company, which was great. Uh, and so Casey has got an opportunity that he told us about, I think, roughly 6 years ago. And essentially, he's the managing partner, and that's the business title of The Equity Launchpad. But it's really about acquiring and operating companies in the $2 to $15 million EBITDA range. Now, he funded and exited Energy Funders, as we talked about. And what Casey brings is how he thinks. He quickly makes sense of complex, fragmented industries. He was the president of our oil and gas segment for one of our companies. And because of that, we trust him incredibly. And on top of all of that, he's just a good friend. Casey, tell us about what M&A is really doing in today's world.

First off, this is the group I love to hang out with. So thank you all very much for having me. You know, enjoyed working with every one of y'all, you know, in the last venture. We had a lot of fun. But yeah, you know, Tom, you know, we talked years ago and, you know, we had mentioned that, you know, there's this shift and in the economy, which you, and you hear it, it's, I'm not the only one talking about it, but you know, you've got the baby boomer population that is moving on. They're ready to retire and believe it or not, their kids do not want to take over their business. They watched mom and dad struggle. They are like, not no, but hell no, we are not going to take this over. And so they're in, and I'm having a lot of conversations with sellers that are like, I really thought they wanted it, but they did not. So what is my plan? I don't have a plan. Have I prepared my company?

Right?

Am I, am I sellable? And so those are the places where I find value because I'm, I'm, I, I can operate in the mess as long as people been ethical, they file their returns and, you know, banks, all that good stuff. But we can typically deal with the mess. And one of the cool things that y'all been talking about AI is You know, one of the amazing things that helps you rapidly get through a lot of things now is being able to use AI to help us, you know, due diligence and evaluate and run scenarios that would have taken tons of time and a lot of money. You can do it a lot quicker now.

And optional businesses that maybe, because I know I run into them, there's businesses that have been operating for a long time and they're like, well, if it ain't broken, don't fix it. And there's room for optimization to add in, coming in with those fresh set of eyes and maybe having, you know, some meaningful multiples on a business that maybe you can— yeah.

So yeah, so that's what Equity Launchpad focuses on. We're looking to have conversations. We're primarily in Texas, um, doesn't mean we're limited here, uh, but we're, you know, we're looking for people that are, are don't really have an exit plan but want to exit. And that's really where we fit in really well.

So we have come up with a title for a piece that we name a lot of things because, you know, once I got the doctorate, I have to name everything because it's part of the job titles. You have to make names for stuff. And it's called the Founder's Isolation Paradox. And what the Founder's Isolation Paradox is about, as the companies grow, you know, when it starts off, it's just the founder. And of course, they're isolated. And it's not just about being alone. That everything surrounds that founder. But as they grow and they actually start getting into that size, and it really becomes apparent at about $10 to $20 million and upwards of $200 million, that everything is still surrounded by that founder. And what you guys do, or what we do at the Founder's Office, is we try and work through extracting that founder from their business so there's actually a value in the business. What I hear, and when you and I have talked, a lot of times the founders are still, even though they've got their management team, they're still intricately involved in those businesses. Businesses. Um, are you seeing that, or have they really started to work through where they're not there, it's really a passive business now, and you're simply buying the company? Or is it across the board?

It's definitely across the board. Obviously, as the business gets bigger, right, the owner has delegated. Um, but when you're starting to look in this 2 to 10 EBITDA, surprisingly, you know, you're still going to find an owner that's involved heavily. At some level. And, you know, they're still founder-led, you know, and they care, they love their people. And that's usually what you hear that's common, right? Is, man, I get a call from the Wall Street guys. I can't deal with them because, you know, I know what they're going to do. They're going to, they're going to, they're going to clean out my— they're going to clean my company out. They're going to hurt my people. And where we do a great job of is where, you know, we're not trying to change the name of the brand, the legacy, none of that we want to do. We'd like to get our arms in there. We would love that seller to even stay on during the transition. That would be ideal. And we're not trying to change the name, change the family. We don't even mind putting the family picture up in the lobby, right? We want to take advantage of what they've built because that 30 years of DNA, which these companies have, that's the value. That's the significance.

So what's your business plan? Are you doing this, then you do a roll-up and you guys exit, or it's about helping somebody come in? And so we've got a number of people that are younger. They don't necessarily want to go start something from scratch. This is a way that a young group could come in and actually be in business for themselves, get financing, talk through the whole process. You've got SBA financing, you've got all sorts of different parts. Give us, give us the deal.

So think about this. I approached you years ago about investing in a startup called Energy Funders, right? You're a venture capital guy. You get that trade. You know that there's high risk. Okay. For 15, 17, 18 years of my life, literally starting things from zero and working my butt to get them to that first million and then trying to get them to their first $5 million. Right. Well, that takes, I mean, you can only do so many of those, right? And unless you're, and we are sold that everybody's going to be the next Mark Zuckerberg, right? That is all like everybody thinks they're going to hit it and it's just not the facts, right? And what I've learned is that it's really those people that have made a fortune have been doing it for 30 years, right? And they look like overnight success. And so now being an older person that, you know, that's, you know, no, like, oh, I'm going to build this company and sell it. You know, it's more of like, wow. The money is made in that longevity, that, that building business principles and customers and great relationships. And so for somebody that's going to be entering the market and they're thinking about being an entrepreneur, they're going to have to be committed for a long period of time to build those relationships. And so using the SBA financing and buying a company to be the CEO is actually a much lower risk trade than starting your own business. Because a business that's been around for over 10 years automatically puts it in its own category. And if that business can do over $10 million in revenue, it's now in a whole nother category. And so as you start to look at these different tranches, the SBA defaults and those things come from, you know, startups or companies that have only been around for 3 to 5 years. But 10 years really gives you a different level. So if you can find that business that's 10 years old, that's got great customer relationships and, you know, in that world, it's actually a safer trade for that person to go get an SBA loan and buy the business than start a business from scratch. And so that trade, because you're one, you can pay yourself a salary, which most startup founders don't get to do, and you could— and you usually get that seller to be there to help you and coach you along the way of success. Now, it sounds easy, but it's not. You know, after making, you know, 3 acquisitions now, one was a solo acquisition. I can tell you it's a lot more difficult than it sounds. But if people do the due diligence on the front end and they spend the money to do the due diligence, you know, and not be cheap, you'll find a good deal.

We've had founders, Casey, that have never thought about exit. You know what I mean? Like, it can be— and I've had founders say it's harder to get out of business than it is to get in. And I think though, for those that have been in business 10 years, 20, there is maybe no, um, that there's no thought given to exit options. There's kind of an assumption like, well, at some point I'll pass this off to the family, or at some point I'll sell, right? But we know that like 80% of businesses don't actually sell. So this is a fantastic, um, option for some of those that haven't really started thinking about it. When do you recommend, for any founder, when do you recommend they start thinking about exit options?

I think it's a great conversation because what we find is, is that most of these business owners are using the business as their bank account, right? And there's only— I mean, and look, fair, I get it. You know, I mean, it makes total sense. But when you're going to sell, right, you're only going to get so many add-backs, meaning like when you go, hey, my company only ran at, you know, $2 million EBITDA. but we really did 3, but, but we took a million because, you know, all the kids have a salary, you know, we have all these things, you know, that's, that's when it, you know, a seller has to kind of really think about, well, hold on, am I running my business as a, as an actual investment vehicle, or am I running this business as a lifestyle? And, and that's, that business owner has to make the decision. Really 2 years, Jackie, like. A business owner could make the decision 2 years before selling and they could start doing the things they need to do, like review your financials. You don't have to go out and do an audit, but, but get in a review basics. So we at least know some standards on accounting, you know, maybe hire one of these AI gurus to come in and help you put in some AI systems and build a dashboard and those things like, right? Like all of those things start to add value, but at the end of the day, a lot of the businesses in what we call the smaller lower middle market, they're really going to trade on seller discretionary earnings. And that is really EBITDA with some seller add-backs. And so they're not going to get this extra value play because they've added a new ERP, right? That's not going to kick their multiple up. It's really going to— it still trades there. Now, as you get up further in the food chain, right, a lot of those value adds can start adding more value to the business. But in this smaller market where, you know, someone would say, hey, I could buy an SBA loan, it's a good-sized company, those little value kickers aren't going to be there. But it sure does make the new buyer, make it very attractive for them.

You know what's funny about this? Because Casey, we're, you know, as, as one of our ventures, we've tried to take this founder's isolation paradox that we haven't tried. We're actually in, in doing it a number of different places, but Our goal is to get the founders to get active 3, 3.5 years before they start selling. And then what we're, what we're doing with that is it's almost a juxtaposition. They can come with us and we can get them a higher multiple for a true exit where they don't have to stay in. They don't have to do any of that. It's probably going to be a roll-up possibly, or it could be— what it is all about is the design of the exit. So the exit could be you've got a niche where the people want to keep their name on the door possibly, and they want to keep the family picture like, and they want to keep all the same employees. We've got other people that want just literally maximize the exit. They don't really care what that is and everything in between. Some of them want to leave it to their family. So, but you're good if someone is, is actually improving the business over the 2 years before you actually acquire them because you're still going to get a company that has a lot of value. You're going to fairly pay for that value. Did I hear that correctly?

Absolutely. And, you know, and I've learned here different than like maybe what you want to trade in a real estate deal. One of the hardest things to do here is to go in there and lowball somebody on their business. Okay. It's, it's one, this is their lifeblood. This is their family. This is, this isn't their piece of real estate that they've owned that's been cashflow, right? This is like, hey, so you've got to really make it a technical evaluation. Like that's why we do a quality of earnings. Right? And whatever that EBITDA number comes out, we have to trade what market multiples are. And there's things we can offset and we can be very creative in this space on structures. But at the end of the day, it's pretty straightforward at, you know, in regards to what my company's worth. And that's the hard part is when somebody hasn't been focused on free cash flow, maybe they've been doing a lot of capital expenditures or maybe that's just one of the things they always do. They, at the end of the year, they like to buy a bunch of equipment to depreciate so they don't have to pay taxes. Well, you might have to pay taxes for a few years. Okay. Yeah, but, but you're not going to get that boat.

That boat that you take the employees out on is not really a business expense. Right. We, we had one that was— it wasn't that long ago. We had a friend client come in and he got a $15 million offer for his company and was just over the moon because he thought it was, you know, basically a lifestyle company. And he's 68 years old. We start going through the numbers with him and I'm like, you know, okay, here's what happens at 68 years old. First of all, you haven't done any tax planning. You're going to, you're going to lose a third of it, if not more, to taxes right away. I said, second is they're going to keep you on. And so you're going to be an indentured servant for a period of time. And third, you think you take $400,000 out in salary because that's what you pay taxes on, but you really take $2 million out because you're running all these other businesses. You know, that trip to Europe, That was— that's additional salary, right? So we're going to add all these various pieces back in to your company. And the great thing is, is over less than a 2-year period, the exit was at $45 million, paid almost no taxes, retained his real estate holdings within that thing. And there was— there was a pathway. But you're one of these pathways for people, which is fantastic. I love it. And you're also the pathway because we don't— a lot of times we're not working with the buyers. You've got the buyers that are in this group that you've got, this M&A Launchpad, is that right?

Yeah, absolutely.

Yeah, they're fellow people that are looking to acquire these businesses, which is just a meetup market. It's like you're speed dating.

I want to highlight too, Casey, so you and I've known each other for a very long time. You were one of the first people I heard talking about this buying opportunity. I hadn't heard that before you. That was one of the early things you and I talked about, um, again, like almost 15 years ago, versus I'd say in the last 5 years I've been seeing this really heavy push of boomers are needing to exit their business. I'm seeing it more. I'm seeing a lot more content around that. And you were planning this ahead of time, like you were putting this the power behind this in advance. Um, and so this is like the classic preparedness meets opportunity. You've been preparing for this opportunity to come about, but what I really want to hone in on is I think a lot of us are inundated with the buzziness of the idea of this opportunity, and you actually built a whole business with system and process and team and then network of other people, buyers and sellers, to actually act on this. Can you demystify some of this for me? Can you take the, like, Instagram versus reality approach on this?

Yeah. No, I'm telling you. And if somebody wants to challenge me, feel free. You can reach out to me all day. But all this stuff is hard. There is no easy, like, snap your fingers, you know, on how to do this.

Hold up. The bro that says he works 3 hours a week but has 10 boring businesses and is like on a yacht with his family, it's not real on Instagram.

He didn't tell you about his family trust fund. That's the part he didn't tell you about.

Yeah, I like, I see it and I do understand. We obviously have a pretty in-depth understanding of this, but like, I really love that you've built the structure around it because there is huge opportunity here for sure. But it takes a lot. It takes work and know-how and grit.

Well, and I'll even add on that.

Go ahead.

No, I was just going to say, so you are the epitome of an entrepreneur. We've seen you through a number of iterations yourself, and now you are here helping people that have been this entrepreneurial piece. Right. And I think to Candice's point, it brings the legitimacy of it is hard work and you're rewarding these exit people for their hard work, but also understanding that just because you're coming in there, it's not easy work because the thing's already running.

Yeah, because you have people and you have processes and you have change. I mean, I'm going to tell you right now, I think, I think, I think business is only going to get harder. I don't think things are going to get easier. Right? I mean, cost of capital is getting more difficult. Employee labor costs are going up. Yes, I'm bullish on America. Don't get me wrong, but things are expensive. And it's been like that for a decade now. Like everybody talks about, they're going to fix it, you know? So I'm more of the Machiavellian kind of individual, you know? I'm like, you know, just show me the rule book. I'm going to learn how to play it, you know? And, you know, this acquisition side for me was really because I could not go do another startup. Even though, sadly, my wife will tell you all that I did do another startup.

You know, you found a way to do a startup based off this idea of not doing a startup. Yes.

I love it.

She's like, when are you going to not do startups? I'm like, okay, we're close, babe. You know, she was like, I thought when you bought a company that then you ran the company. I'm like, yeah, but I'm not good at running companies. You know, I'm good at finding other people that can run companies. You know, and Tom, you and I've had this conversation, and you know, it's Who Not How. And it was a book that you— when I was working with you, and you said get it. It made total sense for me, right? Can I run a business? Yes. Am I great at running a business? No. You know, just like accounting. Do I understand accounting? Can I do finance? Can I do these things? You know, am I good at getting the financing for them? Absolutely, that is a great skill set. Am I good at going in and running the books and being the CFO? No, but can I talk to one? Yes. You know, it's like, so over the years I've eliminated, and it's crazy how many things I used to think I was really good at. And over the years, I have just slowly gotten to where I'm like, man, I'm only good at like one or two things. This is so sad.

Well, and also just because you can doesn't mean you should.

Yeah.

There's, there's a really great question in the chat, um, from the audience. What do you think of public benefit companies or companies with a the 501(c)(4) mission lock value down the road? Does it hinder future acquisition?

You know what, that one is above my pay grade. I do not know that answer. But I do think all those, if you can figure out those businesses, I think those are really good. I just don't know how it plays out. It's almost like—

how could you? How? Well, you'd have to still be buying into it in the mission-centric, right? Because when you tie up that board, because it is a for-profit company, it's It just is very specific that it stays within a certain lane, and that becomes a challenge, right? What if that lane changes?

So, I guess—

Well, that would make your buyer pool, your potential buyer pool very, very small.

Yeah. Every time you have a buyer pool and you diminish it, which goes back to, I think, Jackie, you'd said the 80% don't exit, and we know there's more boomers that are coming in. It's something like $13 trillion in companies that need to change hands. It's some massive, massive number. Don't quote me on that, but $13 trillion that needs to change hands. And if you thought about that as you walk down the street, if every house on the street has a for sale sign in it, if you're the buyer, that's awesome. But if you're the seller, that's a horrible scenario, right? So, you know, Casey, what you are in the position of is being able to be the buyer side and help people go through that. I think that's super cool.

And I'll tell you, with what you guys are doing, you know, here's, here's a thought, you know, the best type of buyer is a strategic buyer.

Absolutely.

You know, so part of your value, part of what you're probably doing is to say, hey, who are those strategics out there that would need something you do? Because I'm not a strategic buyer, right? You know, in our chrome plating facility, in our chrome business, you know, we just had a recent meeting on an acquisition. And I guess I was kind of considered a strategic buyer because there's tremendous synergies in doing that. But I'm not going to buy it like a strategic, right? Where I'm, you know, it's a different kind of conversation. but those strategic buyers, and for those that are listening that don't know, it's, you think about somebody like, I'll tell you an acquisition we were chasing. Um, it's in the, it's HVOF, which is the tungsten carbide. It's, it's, it's coatings. Okay. So it's corrosive repair coatings. And this is for big stuff, big parts. And we were looking at a company 2 years ago. Uh, I got to, I put in the offer. I knew the seller and, uh, I made a mistake. I did not bid high enough and I knew I should have bid high enough. I knew what that was worth. And if I would have bid what it was worth, it would have been mine. No question. Because there was no other bidders. I listened to one of the— somebody else that said, oh, don't go in, don't go in high, go in low. And I'm like, well, it's worth this. Long story short, the Strategic that came in and bought it, they wanted to— they were one of their bigger customers. And they wanted to bring it all in-house. And so they paid 5.5 times. They took over the rent. They did all the things that really— it took me out of the game. But if I'm selling my company today, I want to go out there and do an analysis. I want to figure out, like, who are the strategic buyers of what I do? Absolutely. That's the exercise that's one, is just as hard as when we sit up and we go, what companies do we want to go buy? Right? Hmm, I don't want to buy something that's going to be disrupted. You know, I don't want to do this. But the same thing for a seller, man. What are the strategics? Who are my customers? Spending that analysis is— that would be huge.

You know, in raising the capital, we talked about this. We're going to switch to this raising capital. So I'm coming down. You've got an event in 2 weeks, right? A little less than 2 weeks. Yeah. May 2nd, coming down to Houston. And Angela will pop it up on the board here. You're actually giving some of our people a discount if they want to come on down. I think it was, or— We have a code here. It'll pop up here in a second. So I'm gonna be one of the speakers down there, and specifically I'm talking to your members, your group, about how to raise capital. And since that's in our space and have the Six Secrets of Raising Capital, which has now transitioned into the Six C's and the Investment Probability Framework and all these various pieces that they have that we've built over our times. It's about a little more than $3 billion we calculated out, a little more than 500 founders. That piece of seeing what the other side is first so that you can identify it is critical in raising the capital. So we talk about you need to be able to tell what the problem that you solve. And in the United States, everybody says, what do you do? And really what we need to be in the mode of is what problem do we solve? Such as, you know, we help solve the founder's isolation paradox for founders, right? Well, now we have to explain it. So we have to actually get better at even discussing what that is. But in your case, case, it would be finding the founders or finding the investors who have already identified that they want to buy that type of business, and then you are able to bring that business to them, or vice versa, right? How do you build that business to be able to identify the right type of buyer that you want for that business so that you become attractive, right? I mean, that's really what it comes down to, man, is, is— and, and so, so much of the storytelling is the same model that goes back to, you know, 2000+ years ago where you've got the Odyssey adventure and you've got a bad guy and a good guy and a happy ending. And all the way through you're having the storytelling. And that's what this is about.

Absolutely. And just to add as well, you know, we also have people that go, hey, man, I would love to buy one of those companies, but I don't necessarily want to do all that work. So, uh, do you have an— can I put in some money alongside yours? And, and, and because it's a good business, and, and that's, that's part of the, the thing. It's either A, hey, is there a company for us to buy? And two, we also have to put money together to buy these companies, right?

So we don't go—

we syndicate private equity money, um, and, and that's how we buy the companies.

Yeah, we go in and help companies get better management teams. We don't go in, unless God help us, that we have to become the managers of those companies, right? We like being the money in the company, and then we like being able to help the management team get developed and have the founder team build on that. But that said, we could back a good founder that you have or a new good buyer that's coming in, do that and be participating in there. So this is a way for founders that have exited their businesses and they're looking for opportunities, This is a great way to have a little bit maybe safer, more secure, at least well-thought-out investment portfolio. I like that idea.

Yeah, no, and I like it because, you know, you remember when the, when the whole, uh, Angels List popped up and, you know, the people that were backing a lot of the startups were people that were, had exited or had an exit, right? They were feeding back into their market. And it's the same thing, you know, there's just so many business owners out there that have, uh, you know that have had some exits. They've retired, they've moved on, but they still want to participate in the lower middle market. They believe in the— they believe because small and medium-sized businesses, they run the country. That is our economy. And we got to feed those and we got to keep them moving. That's why this transition is so critical. Is, you know, part of my mission is like, hey, I'm an entrepreneur. And part of my role is to transition these businesses and to be around in the long term. And our, our thesis is critical infrastructure. So we're looking for things that are going to be, you know, blue collar, that are going to be here for a very long time. And so our, our plating business that we bought, you know, chrome plating is not going anywhere. They've tried to replace it for forever. And, you know, when you start dealing with repair parts for construction, for oil and gas, for refineries, I mean, almost anything that has friction, requires a coating, and that coating, the strongest and the most durable, is chrome. And so when we did our valuation and bought that business, it was heavily moated, very expensive to replace. And it is a, it is a very strong recurring business model. You know, the business, it recurs. And, and it's also through a lot of the change agent that we've had. It's been resilient because it was a 50-year-old company. And it has its DNA and the resilience is amazing. So from a, from an investment standpoint, you know, instead of if I have risk capital to invest, right, you know, I could put money into a venture capital, which I know, hey, I've got to bet into 10 of those, or I might have to put 2 or 3 into some of these lower middle markets. And if I'm getting a pref, I at least know that the business is going to be worth something at the end of the day, unless these guys are just total bozos and they can't run a business. And goes to zero, but I can at least get my capital out first before the partners get it out because of the way we structure those deals. So the market is really interesting in the sense that, man, we believe that, you know, AI is going to absolutely disrupt the country. I'm a firm believer that white-collar jobs, I think it's going to be strongly impactful. I don't have all the answers. I just, you know, my belief system is like this is going to be more impactful than we could have ever believed. But there's still somebody that's going to have to go and clean the house. There's somebody that still has to go and fix the valve that gets stuck. You know, the blue-collar labor, these areas, I think, will continue to support our economy and where we're at. So that's really my thesis is finding those companies that are only going to benefit from AI and robotics. Because if you take a look at our plating business, you put one of those Tesla robots on one of those machines, they'll work 24/7. I mean, it is a, it is a, and it's coming. I think it's coming sooner than it's coming.

It's coming. Um, gosh, I don't know. Okay, so let's take, let's take a case study. Who's the right group to come down to Houston? Is it someone that is like, I was just talking to an engineer and he wants to become an entrepreneur. I'm like, okay, this is the way. I don't think you necessarily, I mean, you can start a business. That doesn't mean you're going to always have that entrepreneur entrepreneurial instinct or lack of a common sense gene to go do that type of stuff. But who's your right customer to come down there to see this in Houston?

Yeah, if somebody's considering buying a company, they see like, hey, this is the opportunity for me to either, A, leave my corporate job. I've got capital, I've got savings, I can take the risk, you know, and I want to learn how to do it. We get into the nuts and bolts We, this, this conference is really good. The networking is outstanding. Um, every one of our panelists have either bought a company or they are currently in process of, of, of raising capital for a company. These are legitimate people that have bought businesses and you'll find that this network is so open to sharing everything. And I just want to warn everybody is they're going to tell the truth. They're going to say, hey, this was harder than I thought it was going to be. That is a common theme. At our conference.

I think it's also— so if you were thinking of selling or buying, it's a place to go because again, if you're thinking of selling and you're listening to what the other side is, if you can understand what the customer is going to be like or what you can do to help get that improved, I also think from that standpoint it's really critical. And to the point that you just also made, and Jackie and I found this a lot, is the people that go out, they make wealth. They— well, Candace too. I mean, that's who you— we've raised a ton of money from is people that have raised— they've sold their company, they've exited, and they just put it back into other people's companies. And so this is a way to put it back into other people's companies that are well run already, and it's helping somebody else, maybe a young entrepreneur, come up and build and grow that next company. So it's— it can be transitional, uh, transformational but it also can be just stability of stuff we need in manufacturing. Super cool.

Yeah. And the capital financing and the stuff that even the SBA is offering now is incredible for manufacturing. It's a good time, but manufacturing is hard. I'm in niche manufacturing and I'm telling you, it's brutal. It's very difficult, right? But it's a heck of a sticky customer business. And that's one of the beauties. That's what, you know, for your people that are considering selling and the people you talk to, I will tell you that going through this last acquisition that we worked on for about 9 months, the business just stalled. It had, it had a, it had a, it had a moment. It always seems like those moments happen like 90 days before you're trying to go to closing. But what we, what we learned was, is that if your business has a lot of project revenue, if you spend that next 3 years trying to turn that into some recurring revenue, some contracts and some agreements, it's going to go a tremendous long way on your valuation. There are a lot of businesses out there that are project revenue-based, right? And they're one-time sales or they're one-time clips. And I think if these founders just put some more time into thinking about how to get that to be more recurring, they're going to see the value 3 years later. When they sell the business.

There's a comment, Casey, from Don, one of the members of our audience, says these are super great examples on keeping it real and making sure you take an objective view of your own valuation. I think that's another example of a way that you can really kind of level set and look at increasing your own multiple. It's, it's important. He said a lot of us are biased and we would give our company an artificial premium because because you're the founder. Like, it's the baby. It's the baby I built, right? And, um, I think examples like what you just gave are, are part of this formula of like taking an honest look at the company and saying, okay, I know what I feel about the company, especially— I know blood, sweat, and tears that I've put into it. I know the heartaches, the hurdles, the challenges, and how much time I've invested. But really, what is— not my— what is this company worth? And What can I do to start moving the needle, you know, objectively?

100%. There's so many little tweaks that someone can make in a business. And I think, you know, working with a group like y'all to help them identify that. I know that we spend a lot of time taking advantage of, not taking advantage, but taking advantage of looking at the companies that have a lot of project-based revenue and and thinking about how can we make it recurring. I'll give you an example. So last year I acquired a service business down in Victoria, Texas that is in the wastewater. They service the municipalities. So think about like the handyman for municipalities because in these rural markets, these facilities break all the time, right? So something breaks. Well, the HOA that runs it or the city runs it, They didn't have an engineer on staff. And so they need to call somebody 24/7 because if my water is not going through my sink, right, I'm going to be really upset. And so we bought a business that services about 120 municipalities in the Victoria area.

Wow.

The seller was 81 years old. The— I honestly thought my dad was the hardest working human I'd ever met. I met this man. And there is no one that works harder than him. He's also just absolutely brilliant. And he and I, we got to know each other really well. I went down there. It's about a 3-hour drive from Houston. I drove down there once a week starting last— 2 Novembers ago, spend, you know, hours with him and really learned his business. And one of the things I uncovered was, you know, that, that he just— the business was running him. He was a smart engineer. The one thing that he had done very well was his customers loved him. Like, he over-delivered. I mean, that was 100%. That was his mantra. So we took control in May of last year. That company, we grew 30% before we closed end of year. Last year they bid out 35 projects. And these aren't like $2 million projects. I think half a million dollar projects. They bid out 35 last year and won them. We did, we bid 21 in Q1. Of this year.

Wow.

So the ability to get into a business to then really hold up value. He works 3 days a week. That was his deal with us. And he's incredible. Like, he is the hardest working human on earth. And they just don't make them that way anymore. Maybe they do. I don't know. I want to be more like that. I like vacations though. Well, AI actually lets you do, be honest with you, A lot of the stuff he does, you can automate nowadays, right? Which is, which is what's different. You know, he's not using all those tools. You know, he still uses the calculator and the little things he slides. No, I'm just kidding.

He doesn't do that. Hey, don't make fun of people like that.

But what we've been working on is all his revenue was project-based. Even though you're doing services, there's no contracts. So once we stabilized this last year, now the sales team that we brought on, they're all focused on contracts. How do we take all of our services and bundle them? And so we're going to spend the next few years to take those revenue and put it into contracts. Well, what does that mean? A business like that sold for 6x, a similar business down the road sold for 6x. Okay. So that was the trade on a project-based revenue business. But in the water business, if you take it to recurring, the multiples go to 10. So let's say if you take the same revenue that we currently have and we just get contracts and we spend the next 5 years and we don't invest in anything else except making those contracts, even if we dip in our revenue, but we can sell it, we make more money. And that's, that's what we do as really more of aggregators, right, is to look for that. The actual company right now that I'm under contract with, they actually build the wastewater treatments. they do full-on construction. It's a very difficult business because it's lumpy on cash flow. But what we're focused on that is, is we sat down with him and we said, hey, where, what's the recurring product you do? And he's like, all these lift stations, I rehab like 3 or 4 of them a year. I'm like, well, how many lift stations are here in, in, in, in the Rio Grande Valley? He's like, I don't know. So I go on Claude and I do an analysis and there are 400 lift stations. In the Rio Grande Valley, and they need to be repaired and, you know, basically rehabbed about every 5 years. Right. And so you're sitting there going like, oh my God, there's a recurring business right there. So this is the stuff we spend time doing. Now, the execution takes forever. I can come up with ideas really quick, right? But getting the execution is what takes the years and the years. So when you come to like exiting for us and our plan, Tom, we're just trying to take every bit of project-based revenue and trying to convert it to recurring sticky revenue. I love it. And that's what our plan is.

But that is, that is one of the keys. So Jackie and Candace, myself and a number of others have gone through this program called SEPA, which is, you know, this, this exit planning. And it's really about the reason we did it was because we wanted the formal structure that they used and overlay that with ours. We're usually on the startup and then the exit. Right. So we love that, how they build them to get to that exit. And it's critically important because all these skills actually end up playing the same. It's really important. It's about recurring revenue because if it's a one-time sale, it's only worth 1x, maybe a little bit more than that, but it's just a one-time sale. Right. But if you've got this recurring, that's— that this becomes instead of that project base, I think it's a big deal. Jackie, we've got another question. We're right at the end, but I think this is a big question because it even— it, it really pertains to you two in your knowledge base, Candace and Jackie.

Let's see. Okay, my husband and I are exploring the purchase of a coffee shop or laundromat in the DC area, with me operating the business full-time while he continues his legal career. What are the key risks, operational challenges, and financial red flags specific to these types of businesses, meaning coffee shop or laundromat, that we should evaluate before moving forward? Additionally, I'm cautious about the accuracy of the reported cash flow. What's the best way to independently verify the seller's financials and ensure their revenue and profit claims are legit? First of all, I love that you're asking the question. That's a green flag that you've already identified that and have this question on your radar. "As a prior coffee shop owner, I'll let Candice take the first one." But so, curious about the accuracy. You can have it independently verified. You can, if they're willing, if the seller is willing to open up their books to an independent, you know, valuation, I would certainly ask someone else to kind of do a deep dive and look at it. And you can do it under the guise of like, you're not being a bad guy. You're not throwing a suspicion. You're not, that, um, you're not questioning their credibility. You're basically saying, I'm diligencing this potential deal. I'm, I'm a, you know, it's a trust.

It's a trustful verify.

I need to see it.

Yeah. And I would tell you this, Jackie, to just go on that side. If, if for some reason they're not going to have validated financials, then the discount that you're going to pay for it is tremendous. Basically, you're basically not paying for the business at all because you can't tell anything about what's going on. So you're going to be buying almost as though it's a startup and you're coming in with a little bit of activity, maybe some inventory, and you're going to have to not buy it by the value of the company unless you can validate it. That— I mean, that's a real piece in there. Candice, you owned a coffee shop.

I did.

You made money on the exit. You made— you made money on the exit, which was great.

Yeah, I bought and sold a coffee shop a long time ago. It was one of my first solo ventures. Um, I was— this was pre-kids and pre-family, but, uh, you know, one of the things that I think I learned through that was buying myself a full-time job was not something I was looking for in my next venture. So I did learn a lot in that. Um, I had a great time owning it. I did have a manager, and still I, I bought myself a full-time, very low-paid job. Very—

here was one— here was two major things that I remember from it, if you— and there were a lot more. One, uh, payroll tax. Yeah, you got stuck for the previous owner's payroll tax in an exit type scenario, right?

Yeah. Uh, so yeah, the, um, there is a— you, you'll want to take a look at that. So it goes even beyond just like their books, you'll want to look into their, their tax history. When I went in, you know, walking down to the tax office to pay my taxes, um, I was handed a really large bill for something I hadn't even, um, done. And, and, you know, this was a great experience of learning all the things not to do that now I advise clients on not to do.

Um, well, you just help somebody with a lease, a major lease. You help somebody with a million-dollar personal guarantee because of that.

Yeah, yeah. So the, the— when I purchased it, there were some challenges with the books, there were challenges with the payroll taxes, there were challenges, um, with the lease. And you know, all of those things just became problems I had to deal with during my time of owning it. But then also on my exit, the lease that I actually took over almost killed my sale. So I had always intended on flipping this business, but if you're not looking at it from the exit in mind when you're going into the acquisition, you're doing yourself a huge surface. So you need to look at it not just as I'm buying myself this business, it's going to be so fun, which is what I did. Look at it from when I go to sell this in 3 years, when I go to— when I want to get out of this, what is my plan? Because that's really how you need to be approaching this and looking out for— I mean, all of the things Casey's talking about now with AI, there's so many things I would do different in that business. There's so many automations I could put in. There's so many cool things to So it's a fun business to own. And, um, but it is, it's, it's one of those, you're buying yourself a, a job and it's a fun job to have. It was, it, I still think of it super fondly cuz it was actually a blast.

Yeah.

And a few, few family members got to work there for free, which was super fun too.

Yeah.

It's really helpful if you have, um, a dad who will come and pour wine at night and get his alcohol awareness card. It was no payroll tax on free labor.

It was an awful lot of fun. Well, but I mean, those really are— it's a fun thing. If you've never owned a business, the first business is just a great learning experience, as is the 10th or 12th or 30th anywhere along the line. We got to cut out. Angela, will you pop up one more time? Thank you for the questions. We've got a few more, but we'll get them out there. Angela, one more time. This is how you get a discount to the M&A Launchpad, which is going on May 2nd down in Houston. Casey and his friends have given us a nice little discount. I'll be one of the speakers down there. There will be a lot of other speakers. You've got a huge lineup, about 250 guests. Did you say 200 plus guests?

It'll be a packed house. We always have a great show and we're excited to hear you talk, Tom, about raising capital. It never gets old. I've learned a lot from you and so I'm excited to have you a part of this. So thank you very much for coming.

Yeah, I'm actually looking forward to it as well, Casey. It's so good to see you. It's so good to, you know, again, like two decades worth of friendship and business ventures and all the things we've been able to do. Uh, you're still handsome as ever, and I love your execution and grit. It is definitely, uh, tenacity that's the— I think the most important thing to get you through in this wild ride out there, and the ability to learn. Uh, thanks for coming on, Jackie. Candace, as always, thank you guys for being on the show with us and helping lead this in for running the show. We missed you last week. Angela was down with a number of our other team members in, I think, the Houston area, weren't they? I think they were in Austin or Houston learning about more AI implementation, which is just, Casey, as you just said, it's amazing what can be done with cloud. So thank you. We'll see you next week on Lunch and Learn. I will be absent. It is my birthday next Wednesday, right? So I think it's probably—

Me and Candace?

You and Candace are running the show.

Do you want to come on and have a Zoom birthday party?

I could. I guess I could. I plan on being in Sedona up on a red rock somewhere. Totally kidding. Nice. You know what? It's your aunt's 70th birthday the following week. So that's the crazy thing about all this. So not to give away ages out there, but whoop whoop. So, all right, Casey, thank you so much.

We appreciate you so much. Great to see everybody.

Take care. Have a good one.