Private Equity Is Coming for Home Services | C. Suite Unfiltered 116

Big news dropped this week that KKR is reportedly buying A1 Garage Doors from Tommy Mello and his partners.

Like, I really hope this doesn't turn into this typical private equity story, which is they come along, the founder gets mad because they do stuff weird or different or they don't like it. If Tommy bounces and they have to replace leadership there, oh man, I could see being a little ticked off because private equity does come into markets, does flood the market with money. They can undercut people. They do take the best talent. They do overspend on advertising. Almost all of them say they wake up the next day, nothing's changed, but they've lost their team. They've lost their mission. There's no dollar amount where like I'd walk away from this. Like the mission's not done. And that's where like getting bought out means is like nothing. Like not even a thought. It's not a thought to me. But like I would hate giving away control. I would never give away control, man. Not a chance.

Welcome back. Another episode, The C-Suite Unfiltered with Mike Andes. Good morning, sir.

How are we doing?

Good, good.

After I dashed your hopes of a great episode last week.

Yeah. So YouTube changed their algorithm. So anybody who clicked on this video, that's a view now.

So if you're watching by now, you are an engaged viewer already.

So yeah, perfect. We love that. No drop-off. We'll get straight into the content so we don't lose you today. You sent a very funny video to the leadership team just now, so I'm just gonna bring it up. I don't know if you're willing to let the team put it in, Because it was very, you know, behind the scenes Mike Andes moment. But it was basically you acting like a kid on Christmas looking at what I assume was an ad for an orange Homeworks orange Corvette.

Yes. So it was not an ad. It was a local car that's for sale.

Okay. Just doing a price check.

I was just doing a price check.

Kicking the tires.

Not even digitally.

Digitally kicking the tires. So that— I know we've talked about cars before on the pod. This isn't what I plan on talking about today. So that's like the car if you wanted to get one?

No, no, I'm not tied to any car. I'm not a car guy. I think the most— the wisest decision would be to get a Tesla that can do self-driving so I can work while I'm driving. But every Tesla looks the same.

Fair.

They're all the same. Even if you get the nicer versions of them. And so if I got a Tesla, I'd definitely get the cheapest one possible for $35 grand or whatever it is. Just so I can have self-driving, like cook me up that $99 a month subscription. Pump it in. Let's go. That would be the wisest decision. And then the other side, I'm like, I want a second car that I can like take Brianne out with.

Yeah.

You know, go roll around on Chucknut Drive. But that's probably a few years away.

So, dude, I instantly replied approved. Yes, do it. Like, go, go, go. That's all. Yeah. I will say. Sometimes I am the type of person, so don't yuck my yum, but I'm the type of person—

Don't yuck my yum.

I'm the type of person where I like to look at those lofty goals of like, it would be fun to X. And then there's also the, what do you call it? The, what's the word I'm looking for? Philanthropic side of me.

Oh yeah, yeah, yeah.

That's like, oh, I want to donate and do this and that. And then there's the selfish side of me that the other day Nick and I were looking at Lotus. You can, like, go to the factory in England and drive on their track, and then you can order your car. Oh, that's cool. So, I was looking at that. That's a great sales pitch. 'Cause Lotuses are basically a smaller version of a Corvette.

Yeah.

They're just like a zippier, smaller version.

Yeah.

Less top speed, but better, like, cornering and handling.

The original Roadster was built on that.

Yeah. I love Lotuses. And I'm not a car guy. I, like, wish I was, but I know enough to be like, I'd like a Lotus over, like, an Audi or something.

What's crazy about a Corvette— this is why I like a Corvette. I'll be honest, is because I don't feel bad about racking miles on it.

Fair.

It's cheap. It's relatively cheap. So a year old, you can get under $60 grand, $65.

Yeah.

And like a year old under 20,000 miles. Like, you're gonna— brand new, you need $80,000 to $90,000. But like, it's crazy, dude. And it's like one of the cheapest mid-engine cars.

Yeah, that's the thing. The mid-engine is nice. I'm gonna— we're getting into territory that now I can't say anything beyond that. So Let me just, let me just look. I'm gonna see if I can find it now that I have the computer. I brought the computer.

Did you put orange Corvette on Pop? Because there's one in Anacortes.

Corvette for sale. I found there's a red one. Anyways, yeah, $65,000. This is $65,000 for a 2023. Yeah. It's only 11,000 miles.

Yeah. 2025, even you can get it for $65,000, $70,000.

Okay. Well anyways, we got way off the rails there. So this, this is a business podcast. It's a variety show, mostly business. But we're going to get into some topics now. Big news dropped this week that KKR is reportedly buying A1 Garage Doors from Tommy Mello and his partners. And I know that you kind of personally know Tommy. He spoke at our conference. You've been on his podcast. So I wanted to just jump straight in that, get your take on it, talk about valuation, how they came up with that number, how Tommy got to that size, all the things. So do you view this like initial reaction? Do Do you view this as a positive signal for the home service industry, a negative signal, or basically kind of irrelevant for the average owner?

I think it depends on what lens you want to see it through.

I don't know.

I think for like myself who's trying to go big as well, it's a very good thing. I think for people who feel that private equity ruins the world, they probably aren't a huge fan. If I was in the garage door industry, I would probably see this differently. Like I could, I could see being a little ticked off because private equity does come into markets, does flood the market with money. They can undercut people. They do take the best talent. They do overspend on advertising. And 3 years ago, another firm had bought a big chunk of the business. And so they used that. It was a growth round, meaning that you take— I think it was $300 million. I forget. It was a lot of money and they just started buying people out. And so when that happens, that does increase everyone's valuation typically when there's buying pressure in the market. So maybe as a garage door person, I'd be happy if I was big enough to where I'd actually be trying to sell.

Mm-hmm.

When you have private equity move in, typically your valuation goes up because now everyone else is like, ooh, we have a, we have a multiple we can work with. And so when you set a precedent for a multiple, typically then other firms can start picking people off. And so good, bad, I'm indifferent. I think it's overall just shows that like home services is there's more attention moving towards and has for the past 5 years because it's less disruptive than less disruptible from AI. And so I think that we're seeing we're going to continue seeing a lot of money pour into it. So we've been talking about this for ages.

Yeah.

Like this is not new news and like it happened 3 and a half years ago. When Tommy came to conference, he was going through his first round and going to PE. And so we talked a little bit about like what that valuation was, etc. And so they obviously took all that money and then they just went on an absolute buying tear. So like if I had to guess, most of his day is just acquiring companies.

And so, so he's buying out independent, independently owned and operated garage door businesses and then just converting them to A1.

I believe they're doing a two-pronged approach. I haven't talked to him in the past couple of years, so I don't want to speak too much to it. But like, I believe it's both approaches, like grow heavily in new markets, but also buy out markets. Like they tried to go into Portland and it happened, did not go well. And so I think they've really reverted to the acquisition, go into a market, make sure you immediately have some sort of a footprint and then expand. And they dump money, like it's expensive.

So it's got, if they're expanding in a new market, it's hub and spoke?

I don't know how they do it when they go into a new market, 'cause I know they still fly out all their technicians to Phoenix, Training, but typically I think they move more towards you buy out a big guy in the local area and then they keep growing versus just start with A1 from day one. Oh man, that's not actually that's yeah, it's not good.

Yeah, but that's kind of catchy though. Well, it is.

That's what they say. That's what they say.

Oh okay.

That is a thing. Sorry.

Okay.

I didn't mean to use their slogan.

Yeah.

A1 from day one is their their deal. But all that to say. I think overall it's a good thing. It just depends on whether you're in the industry, if you think private equity is bad, et cetera. And KKR, I don't know if I like them based on their track record, but we'll see.

Yeah. And KKR is the major shareholder equity owner of Neighborly Brands, correct?

Yeah. Yeah.

Okay. So anyways, now you had already mentioned, and I don't want to—

But Tommy's staying.

Right.

And so from what I can see, he's staying and he's fully engaged, which can usually keep private equity at bay. It'll be interesting to see how long he can put up with them because he's not going to want to put up with a lot and he's a minority.

Yeah. So yeah, so I do want to get into that, the founder piece, but I want to take a quick pivot to something you said. And I'm not asking you to disclose any information if you had private conversations with Tommy or texts or whatever. But we did know that, yeah, 3 and a half years ago, private equity had already invested into A1. Does he get to a $2 billion valuation in that same timeline without private equity? Oh, I think that first round.

Oh, no, no, no. He would definitely— I don't think he would ever claim that private equity comes in. They don't just use their money. They take their money and then they leverage it a bunch. So there's a ton of debt. And but when you can go from $300 million to $2 billion in a few years, It's okay. Yeah, they're okay.

Yeah. I mean, I follow Tommy on socials. I love the fact he's got his custom-built home in Sandpoint, Idaho, which is just beautiful.

His boat.

Yeah, custom boat. That thing's sick. So shout out Tommy. This isn't me. This is me not yucking his yum. I want successful business owners to make money. I think you put in the blood, sweat, tears, the whole nine, the rags to riches story, whatever you want to call it. This isn't me knocking Tommy. This is me looking at the actual analytics of it. So from your perspective, what do you think A1 built that made it so attractive to KKR?

Oh, well, based upon what we're seeing, it's about 23 to 25% EBITDA. Now that is EBITDA is like they have huge debt service, et cetera. But like the business as itself is pretty profitable, like very profitable. Um, this— it's growing extremely fast because the way that they're buying people out, and they've proven that that works over the past 3 years. And so once you have a, a model that is like, hey, if you dump more money in this, it can double or triple again, that's what makes it really like valuable. Like your multiple— so they got basically a 20x multiple, so about a 7x on revenue and a 20x on profit. And so Definitely, I'll be using that in our valuation this year.

Yeah.

When I go to the evaluators, because it's like, okay, you know, they do home service, but they're tech-enabled, you know? Yeah, like the valuation came down to the fact that they're growing extremely fast and they're profitable. If you have those 2 things, like you're very valuable. And so most home service businesses might get a, you know, 2 to 5 multiple, but as you grow in size, just size alone, but then also showing that you're still profitable at a larger size, you just get great multiples. Mostly because that money otherwise in the past would've always gone to software. And now like software's so disrupted and it's gonna just get harder and harder to differentiate versus home services where it's like, until we get robots, even then, something like as custom as repairing your garage door, it's a long ways away.

Mm-hmm. One thing that I thought was interesting, and I'd love to know your perspective, and this could be pure speculation, so I'll just put the asterisk there up front, is I thought it was interesting because A1 isn't necessarily recurring based. It, it, they do, from what I understand, they, they work with a lot of contractors for new builds, which is great. So that's kind of almost an, an element of recurring if it's like, hey, this contractor's building a, a, you know, a, a 40-home, um, expansion, suburban expansion. So you just locked in 40 garage doors, right? If you have a relationship with them. But that's not recurring. That's like the 40 garage doors. And so I thought that was interesting, though. It's more one-time services where you're heavily focused on recurring. And we see a lot of massive valuations or multiples when there is that locked-in element of recurring. So what are your thoughts on how they did that so well? Is it the relationships they built? Is it the fact that a garage door is just an ideal ticket size? Like, what are your thoughts on that?

I think they know their customer acquisition costs very well. And so if you know your customer acquisition costs, it's basically recurring because every time you put that much money in, you get a customer. And so the nice thing about garage doors is you have your spring, summer of people wanting to do home improvements, but you also have winter when things break. And so, because it gets cold.

Mm-hmm.

And if your garage door is not working, you're going to get it fixed. It's kind of like HVAC to a certain degree of you're not going to let your house go cold or get 105 degrees inside. You're going to get it fixed. So there's a level of urgency there, I think, that is different than something like, oh, like, yeah, no, I need pressure washing. Yeah, but I could also do it next week or the week after that or in 3 months from now. Pressure washing is one of those things that typically it's like, it's discretionary to some degree, or I can push it off. Whereas you're not pushing off your garage door getting fixed.

Mm-hmm.

So they know their customer acquisition cost, there's urgency around the fix, and then the other thing is, what happens to that though, when a recession happens. I think the repairs will continue to go. They can do both. They're doing repairs and they're doing installation. And so I see repairs as basically maintenance.

Mm-hmm.

I see that as recurring to some degree, whether that's every few years. They can sell subscriptions. They get them back in the house to do the warranties and they're trying to sell them more stuff. So that's very strong. That's like basically recurring revenue. And then the repair side or sorry, the replacement side, like the high-ticket stuff, would that get hurt in a recession? Yeah, it probably would. But as long as you know your customer acquisition costs and you know that that's dependable, you'll have resiliency.

Yeah. And I think there's enough of a technical element as well. So even if you are in a recession or there is economic downturn, like the average homeowner doesn't know how to replace their garage slash they don't have the manpower to do it. Like it's a 2-person job.

It becomes though, it becomes though, like, do you spend the money in a recession on your garage door? That's That's the question, not whether or not you can do it. It's like, do most people need to replace their garage door? No, it's a remodel. And one of the things he always said that's such a good line is like, the garage door is the smile to your house. And it's like, it's the first thing you see. It's such a big part. It's like relatively cheap compared to like doing the whole facade of your front of your house. Like the garage door, you do see it right away and it's big. And so like if you're doing a remodel, it's a great place to start. Like if you're changing out from like a cheap one to like one with the glass in it or something like that. The question becomes, do you do that when you have less discretionary funds during a recession? Probably not. But I know they focus a lot also on repairs and maintenance and warranties and things like that.

Yeah, I, I had a garage door spring snap on me. Oh, you did? Yeah.

Yeah.

Let's go. And, and so I went to a local, local place, a hardware store that does garage doors out in Linden. And I was like, yeah, can I just like order the springs? They're like, you realize how much torque is loaded in those springs? I was like, Yeah, I know there's a lot. They were like, you shouldn't do it yourself. And like, they instantly sold me. They were like, you could break your arm if you don't do it right. I was like, all right, you guys can do it. I was like, I don't care. That's a great sales pitch. Like, I was like, I don't need to save the like $150 on labor. I'll just pay you guys to do it. And they fixed it in like an hour, which was great. But anyways, that's besides the point. So yeah, I, I would use that service if A1 was here. If a smaller operator was trying to say copy A1, In any home service, like, what would you say, like, they did this right, like, follow that playbook?

I don't think copying anyone is a wise move at that level. It's like saying, I want to become like LeBron James. It's like, okay, well, first off, I would be disqualified. Like, there are certain elements that are like, you're trying to copy someone, you can use elements of what they have done, certain playbooks, for example, to use what you just said. I think trying to copy someone is very dangerous though. because you don't have all the ingredients they have. And it's not to say that you can't acquire the skills, but like Tommy's a special person. And I, and also like there's so many things that go right for some, that kind of outcome to happen. And it's like the top 0.1, like 0.001%. And so to think that you're gonna have that, I just, the reason I say this, 'cause people have set the expectation, I'm gonna build a $2 billion business and then they build a million dollar business. I feel like they're a loser.

Yeah.

Or like they somehow are less than, or they don't have the skills, Or whatever. And I just wanna make sure, like, not everyone needs to build a $2 billion business because it can hurt people psychologically and mentally and all these other things. I think in terms of playbooks, the, some of the things that he has done, he has not, he's, uh, he's not been afraid to swing very big and take huge risks. And so when you take private equity on for a growth round, like everyone always talks about the second dip. And Jonathan talked about this recently on the podcast, which is like you get private equity, you go really fast with them and you sell again. And then your second dip is basically more than your first dip, even though you only own a small chunk of the business. But because they 10x the multiple, even though you own half of it, you got to fight like you can make more money in the second dip. And that's what he did. The reason is, though, because he took a huge risk, which is you get the growth money, growth money from that round, and then you just double down. Like most people do not have the intestinal fortitude that he has had over the past 3 years to do all these acquisitions, just be moving at such a high rate that it feels very risky. And he pulled it off really well. And so I think I would say most people will not swing as big or think as big or take as big of risk as he has.

Yeah, it reminds me of a slide that you show at new owner training for Augusta, and I won't get into the numbers, But you say, hey, if you reinvested 60% of your profits into marketing—

40.

Or 40.

Is it 40 or 60? Is it 40 or 60? It might be 60. You might be right.

40 or 60, either way, clearly we know what we're doing. I think it's 60. You're like, if you invested 60% of your profit back into marketing, and there's a lot of assumptions, but I'm just trying to use it as an example. You get to this one specific slide and you go, and this is when people stop investing in their business. And if you just did this one thing, assuming all these other variables, and we're not saying best case scenario, You like get this huge multiple, like you effectively double the business at that point. But most people don't do it because they're like, oh, I got a little bit of profit, I need to stack that cash. And it's not a bad thing. That's what we talk about with our owners at Augusta is like sometimes you need to pause and stack cash and like pay down.

Buy that Corvette.

Or they go buy that Corvette. And so to your point, what you're saying is like Tommy did that example you give at new owner training, which is like this is the point where you can double down or not. If you double down, this is what's on the other side. It's going to be a lot of pain. It's going to be a lot of work. But you can get to that other side. If you don't double down, that's fine. It's just going to take longer. And you're saying like Tommy had that just tenacity to just like double down and like when he had the money, it wasn't a— it wasn't a payday. It was almost like he treated it as if it wasn't a payday, which I think is important. Yeah.

Which will be interesting to see if he can do that again. I hope he can. It's just he's going to have a very small part of the business. And he's up with KKR, which is a very different beast than the other partners he was with. So I really hope they can work well together, but it'll be interesting in 3 to 5 years. Like, I really hope this doesn't turn into this typical private equity story, which is they come along, the founder gets mad because they do stuff weird or different or they don't like it. If Tommy bounces and they have to replace leadership there, I don't know, man. Yeah, it could be a really bad story in 3 to 5 years. I hope that doesn't happen. I hope Tommy can Like, he has worked with— the good thing about this is it's his second round. He has worked with private equity before, so I feel like he has the stomach for it. He knows what to expect. He's not going to be surprised and he knows the playbook. So I'm really hoping— and it's based on everything I've seen, that's what— where it will go. I just hope and pray it doesn't go the way of Neighborly, which is like everyone left. It's a shell of what it used to be before. No one's happy now. The brand is like, it'll be fine because it's making tens of millions of dollars. And so like it has so much momentum, it'll continue carrying on for 10, 20 years. But, uh, it's a shell of what it used to be.

Does he have a pretty established leadership team? Do you know?

Yeah. Oh yeah.

Yeah.

Very.

Like people that have been with him for a long time.

And that typically the founder leaves though, they all leave. That's what happened with, yeah, it happens with a lot of private equity.

Yeah. Yeah. So that, that was gonna be one of my questions because you said in quote, like, Tommy's a special guy, which I agree with my very brief interaction I got to have with him at your conference. In a deal like this, do you think— and not specifically KKR, but just like a private equity firm in general— do you think they want the founder to stay deeply involved? Do you think they want them to transition out, or do they want them to just become more of like a figurehead?

Just depends on the private equity. Every private equity firm is different. And so I've looked heavily at KKR because they have Neighborly. And so I've looked at all their profile, their portfolio, all the different deals I've looked at. where their founders come in when they exit. It is a mixed bag. So I'm hoping it's— we fall on the positive side.

See? Yeah. Perfect. Well, let's pivot from that specifically to more private equity.

Okay.

Because last week, at the time of recording here—

Oh, sorry. I have to say one thing.

You're good.

There's a— so I haven't done the mastermind yet today, but I opened up the day to see how many questions were in the first one. There was— there it was like, dude, just take private equity, just make the money and leave. That's what it was.

He's like—

I was like, oh my goodness. I just don't think I could take it. Like, this is where I respect Tommy a lot. He's able— he's threaded the needle with private equity where he's able to work with them. Most founders can't, and I don't blame them because they have a different playbook. And so I could never handle it. And I would venture to believe that if I left, you'd probably leave too.

I'd stick around. I think it depends on the conditions under which you left. Yeah, I think I would stick around if it were If there was a way for us to control the culture that we currently have, and it wasn't specifically, all right, we are maximizing profit and we're gonna squeeze it out of the owners. Yeah, flat rate fee gone, command center fees tripled.

Yeah, like if I left because of those things, like all the leadership was like, we're out.

Yeah, yeah, no, I agree with you.

So that's where I would— that's my concern and my hope that does not happen. I have hope though because they have done a previous round. Real quick, if you are watching this episode and you have a million plus dollar home service business, I'd love to invite you to join Home Service Boardroom. These sort of topics that I'm talking about with Lee when it comes to private equity all hinges on enterprise value. And the reason that Tommy was able to build a $2 billion business is because of the systems, the procedures, the people that he put in place. And that's the exact topics that we discuss inside Home Service Boardroom. In fact, course number 3 that you do in the third month actually talks about how to come up with your enterprise value and then work on both your earnings and your multiple to ensure that you also are building an actual business that's worth something. So go check it out. Link is down in the description.

I'd stick around if they gave me your job. Just kidding.

Just kidding.

Don't quote that. I don't want it.

Leave me. I would be a great private equity CEO.

Heavy lays the crown. Heavy lays the crown. Don't want it. Never been there. The owners in Augusta are freaking out. They're like, please no. No. A lot of thoughts there. Okay. So I don't know. I guess maybe I almost want to zoom in on that instead of pivoting to what I had prepared. That's why I had the computer. Is like, what is there a number for Mike Andes? Or is it like the goal is so clear that the path to the IPO is there? Like, I don't need private equity. I can hold my breath.

Everyone goes for this IPO or like goes for like the big number, but they like everyone you talk to that has done this before, almost all of them say they wake up the next day, nothing's changed, but they've lost their team. They've lost their mission. They know what to do. They just have to go find where to put the money they just got in the bank account. Like, how unfun is that?

Yeah.

Like, there's nothing— no, there's no dollar amount where, like, I would walk away from this, right? And like, it just— like, the mission's not done.

Yeah.

So I just— I think it's hilarious. I think there's such a small group of people that have actually done a successful exit with, like, a big number like Tommy. There's such a small number of people. However, you talk to them and 90% of them say like it didn't change anything about the way they spent money. It didn't change anything about their lifestyle. They just woke up the next day and were like, okay, so now what? I don't have the team that I've been working on for— with, with for decades. They all have to stay with the other company. In fact, I have to make sure they stay with the other company. So I have to like incentivize them. I have to tell them everything's going to be okay. Like, and then I, I don't have this mission that I've been driving for for so long. And to go restart something from something else, like, oh, go start something else. Okay, great. You've now gotta spend all the energy to get up to the same level of momentum that your current business has. And so 5 years, 10 years go by to get back up to that spot. What if you would just stay with the existing business? And so I will be thinking about this a lot in 5 years or so. And that is like, how can I make this where I can The business can serve me enough to where I don't feel like there's any monetary change that happens if I was a sellout.

Mm-hmm.

Because usually, if you're gonna have a— like, Tommy's lifestyle's not gonna change from last week to next week. Like, it's the same. And so there's a certain level of money, unless you're trying to live very lavishly, that you don't need extra money to have the lifestyle you want. And so my goal is to eventually get there. That's why, you know, the Corvette would be, you know, I'm just saying.

So the day you pull up in the Corvette, it's like, all right, we're good.

It's a way to lock in. Like, I've thought about this a lot.

Taking half days on Fridays, not coming into the office.

No, like, that's the opposite. I want to be here so bad. So I think it's like, how can I create the lifestyle where I never want to— there's the temptation to sell out is never there. And I think where some people, they starve themselves too long. And then it's like, okay, I've just got to like, I've just got to cash. I'm just so done. I need liquidity. And so I've thought a lot about like, how much money do I need to make sure that I can keep my head in the game forever? And I never have that desire of like, I'm just so beat up and so wore out and it's not worth the squeeze and I just need to sell because that gets tempting when you're getting calls from private equity.

Yeah. So you said, okay, there is a dollar amount. The money I need is what you said. that the money I need is there, that it is a non-factor, essentially. Have you reached that point? Like, do you have enough in— and I don't want to get like too personal.

Yeah, you don't have the Corvette.

But what I'm saying is like, do you have enough in like personal savings, stocks, investment accounts? Like, we don't have to go super far down that road, but just generally speaking, because I think too, like, you know, the Iced Coffee Hour, they talk about that. Like Grant, Graham Stephan, he always says like, I think if you can put away $5 million, you're good. I think that was actually a decent Cadence impression there.

I think if you can put away $5 million, you're good.

But that's like his, that's like his number. Yeah. That's what he tells people. He is like, if you could just put that away and just put it into your stocks, your bonds, your REITs, whatever. He's like, you're good as long as you don't need to live lavishly. But then Jack, who's like, no, I want at least $10, $15 million. And then Dave Ramsey's like $1.5 to $2 if you stay, if you keep a full-time job, like you full-time job plus $1.5 to $2. And this is me generalizing a lot of financial advice right now, but that's what I've seen is like anywhere between like $2 million to like $10 million. Most gurus say if you can have that invested, you're good. So not trying to get into like your personal finances, but do you feel like there's a number where, plus a Corvette, a number plus a Corvette where you're like, okay, like now I'm bulletproof. Like I have put enough into safe savings and stocks and bonds that like, I'm good.

I think like psychologically I've passed the point where like, If I lost everything, I know I could come back from it. I feel like I have enough skills. So like I've crossed that point of like, oh, I could lose it all. I don't really have that anymore because I'm very confident. Like if it was all taken away tomorrow and something crazy happened, I feel like I could still provide for my family.

But you, let me just interject there. You have a mortgage and you have a wife now.

So I don't have a wife.

Oh, you, you, I didn't know that.

Nice.

So that's an asset that you could immediately liquidate almost immediately.

If I had to, yeah.

If you had— I'm just saying, like, if all the chips were down, like, if it all blew up tomorrow, hypothetically.

Yeah, like, there's— yeah, you always make sure there's guarding. And I'm very conservative financially.

Did you just come in with a cash offer?

Yeah.

Nice, dude. I didn't know that. Well, you know, when someone buys a home, you're not like, so work me through the details. That's tight. Yeah, dude.

I was— and then they were trying to, like, negotiate up. I'm like, no, this is a cash offer. And I know your other offer isn't cash. And I know you just got burned by someone else leaving because they didn't get financing. So take it early.

That's awesome. So, so you're saying there isn't specifically a number because you know you have the skill set to like go do it again?

You know, and it's all comparative. Like, I don't come— like, I came from always looking for every penny and not eating out very much. Like, I came from not a lot. And like, um, Brianna too. Like, neither of our families had a lot of money or have a lot of money. And so we are both like, Thrilled out of our mind with our current status of living. Thrilled out of our mind. So like, if I just kept my current payroll, I'd be— we'd both be like thrilled out of our mind. So once you've hit that level, it's like, okay, would I be— how much more happy would I be with a Corvette? Meh, like once a week when I drive it, I'd be like marginally happy, but it doesn't move the needle.

Yeah.

Like we are so much happier now financially than like we've ever been in our life. And so, like, I've, I've, for example, getting the cold plunge, that was like a huge, like for me spending $3,000 is crazy. Like I'm very conservative on that, but like I get a lot of joy outta that thing.

Yeah.

I use it every day. I'm so happy with it. And so trying to find those things is like very valuable to me right now. It's like, where can I get $2,000 or $3,000 and get like this huge unlock of just happiness?

Mm-hmm.

Um, and there's not a lot of places like that. Like, the next thing is a sauna.

Yeah.

I'm looking forward to it, dude. I need 10 grand to do a little, like, concrete thing in the back of the house. I want to build a fence because it's not super private, and I want to get a really nice sauna from Costco.

Nice.

Yeah, it's gonna—

Like the red light sauna or like a sauna sauna?

No, just a hot sauna. Yeah, like a real one. I had the cheap one. It was $900. Yeah, the one-person thing in the corner. It took like 30 minutes to warm up. It only got to 135 degrees. I want to go, like, real.

Yeah.

Like that would be an unlock of happiness. I think, you know, when you actually start thinking about it, I can think of like 1 or 2 things. The next thing is like a mattress. I would like to get the cold thing, like the Eight Mattress thing. That's probably 3 or 4 grand. I don't know, 2 grand. I don't know. Like that would be another, like I could really enjoy that. But there's not a lot of things like that in life for me personally. Like when you eat better food. No, we have whatever food we want.

Yeah.

So like you don't have so much steak.

Yeah. You can only buy so many cows. Yeah.

So like we have already hit that point. And like realistically, I could afford the thing, 2 things I just mentioned pretty easily.

Right.

So like, it's not like it's a big deal. I don't think me having $2 billion tomorrow would change my life in any meaningful way from a happiness perspective. And so I get a lot more joy derived from seeing you, Nick, Lee, sorry, Liz, those are all Ls now. So, and then other leadership team, other members of the team growing, members of Augusta Nation growing their business, that I get way more joy from that than getting a Corvette.

And so, yeah, I think it's interesting. I guess let's maybe talk about the psyche of it because your net worth and what you take home versus mine is not even comparable. But I have—

Our take home is relatively the same.

Okay, fair. Fair.

Now you're doing math in your head.

I am doing math in my head. But what I was going to say is your thing, I could buy that $10,000 sauna tomorrow. I could buy that— what was the other thing you said? The $3,000—

Oh, the mattress.

The mattress. Yeah, the mattress.

You could buy this tomorrow.

I could— this is gonna be a horrible comparison, but I've been like mentally like, I'm gonna buy myself a new pair of Oakley sunglasses.

Yeah.

Like I could go buy that, like $200, $300.

It wouldn't— it's—

I don't know, I could say it's a drop in the bucket, but it's not a major purchase I have to consider and budget for at this point. But I haven't bought them for like 2 years. Like I just keep buying like cheap Amazon and Target glasses. And I think there's like this weird balance of like, it won't, it won't satisfy me.

Yeah.

Like, it would be cool to have Oakleys because I always, like, idealized them. They're a cool brand. Like, I do believe, like, the actual technology of the sunglasses is really good. If you actually do the research.

I'm sure you have. If you do the research.

But it just doesn't, like, scratch the itch. So I think what I'm trying to get at from a psychological perspective is not necessarily the, like, let's get into, like, the feel-good, love the work, but how do you keep yourself motivated? Because there are times where I'm like, I don't have that next thing that I'm like super motivated for. It's like I just want to be like a good husband, a good father. And even using like financial or, you know, purchases as rewards don't really do it for me anymore. Does that make sense? It's like, how do you stay motivated? Is it just like falling in love with the game, the repetition, the impact that it's going to have on others? Like, what are your thoughts on that?

I'm just trying to maximize for like how I feel, dude. And I feel better. I feel better. When I see other people winning because of the work I'm doing, I get more joy out of that than more material things. And I think everyone knows that because everyone says that, but yet everyone's actions don't align with that. And that's why, like, getting bought out means— is like nothing. Like, not even a thought. It's not a thought to me because I have seen enough people. I've heard enough people. I have seen it in my own life where I get something, I enjoy it, but like, not enough to like sacrifice all this other good in my life.

Yeah.

Like, my identity is wrapped in the businesses and that's where, like, I know Tommy's is. And so I'm seeing, I'm watching how he handles it. He, I think he will be able to navigate, you know, being a founder-led company, but also being owned with the majority of private equity. But like, I would hate giving away control. I would never give away control, man. Not a chance. Yeah. Fair.

All right. Well, I appreciate you letting us go down that rabbit trail. Wasn't planning that, but you know, that's what a good podcast host does is they pivot in real time. So we're going to pivot back. My goal is to die.

My, my goal My goal right now at least is to die with control of the business.

Yeah.

That's just—

Which you can do if you IPO and keep majority voting shares.

Yeah. Well, yeah, I'll have 100% of them.

You're going to throw like half a percent my way?

Not voting, bro.

I'm sorry. I love you, but not that much.

When I die, when I die, you get them.

Thank you.

You get my voting share.

I appreciate that. I'll take a little bit. Just some scraps from the table. Right. It's like, did you ever watch— have you ever watched or seen clips from the HBO show Succession. It's, it's, I love it. I'm like, oh, it's so good. I've watched it way too many times.

You've watched a video more than one time?

It's a, well, it's a, it's a series. 4 seasons, 8 to 10 episodes each. I watched it, dude.

You watched it more than one time?

I am the type of person where I could rewatch the same things. Like, that's crazy. I put like 10 things on rotation. Sarah hates it. What? Yeah.

You put like the same 10 shows on rotation?

Yeah, and movies. So like my number one rotate is just Lord of the Rings. That's so good. Hilarious, dude. The Lord of the Rings trilogy is amazing. It is like the storytelling, everything about it.

It's like that's something you know what's gonna happen.

Yeah, but it's so it's such a good story.

I can like with videos, I can like remember frames and words like really well.

So like I can literally like redictate word like oh no, but that's the thing is it's amazing. It's like revisiting some of the best lines. Like crazy. My brother-in-law Matt, who used to work for us back in the day. Dude, we we both like talk about tearing up at. one specific line in Lord of the Rings that if you're a Lord of the Rings fan, you know exactly which line it is. And it's in Return of the King where Aragorn says, my friends, you bow to no one. And it's just this perfect encapsulation of masculinity and service and humility. Anyways, it's a beautiful story. But anyways, in Succession, this is just going to be a one-off joke and not—

Wait, wait.

Down the road. In Succession, there's this There's a scene, uh, where Kendall, the, the eldest son of the, uh, mogul Logan Roy— do you even know the context of the show?

No, I do.

It's a multi-billion dollar empire and it's a dysfunctional family.

Okay.

That's really all it is. So Kendall's the oldest son and he's trying to basically take over from his dad. His dad won't give him the succession plan. His dad won't give him the business or let him be CEO. So it's all— they're just a massively dysfunctional family. They all need therapy. Well, they actually try it and it doesn't go well. And Kendall basically says to his right-hand man, he's like, you will not have a position of power. Basically, you won't get voting shares. He's like, you'll be my dog and you'll eat the scraps from my table, but the scraps will be millions. And I'm like, I love that. I was like, I will be that guy. So anyways, it's a little derogatory, but kind of funny. So we're going to pivot to one final thing here. And this is Lawn and Landscape magazine put out an article that relates to Tommy and his bio, and that is, is private— the private equity gold rush over for the landscaping businesses? So I thought this was interesting, figured I'd bring it up. And in this article, they basically say this gold rush is over. The winds of valuation have changed. That's like good language there. Do you agree that the winds of valuation are starting to change in lawn care and landscaping?

I don't think it's lawn landscaping. I think in general right now with interest rates going up so high, treasuries are going very high. So when treasuries are at 5+% risk-free money, you have to have a very good business now. And like the valuations of those businesses drop because the money moves more towards more secure assets. And in general, typically buying a business is less historically less or more risky than buying a Treasury. And so if risk-free money is getting 5%, if your business is going to only offer 10%, risk-adjusted returns would move money in a safer direction. And so I think it's just the economic climate right now is not great with interest rates being so high, energy costs being so high, inflation going back up. And so do I think more money as an aggregate will continue to move into the landscape industry? Yes, I do.

Do you think there was like a little bit of a valuation inflation kind of post-COVID when you look at it from the angle of like essential services and this now new concept of like, oh, it's AI-proof, like lawn care and landscaping is AI-proof. And I generally agree with that premise. But do you think that that made some companies look better than they actually are from a valuation perspective?

I think everything was in a bubble during COVID So if there was— if there has been any reset on multiples, I think that is a normal behavior after it going up so high. But in 2020 and 2021, COVID, AI wasn't even a word we were using. So I had— I think it has— I think it's decoupled from AI.

Mm-hmm.

I think that we will continue to see more money move in because of AI and the multiples on AI companies being absurd. And like most of them will never see actual money returned back to shareholders. And once that settles in, they'll be like, okay, where can we make sure we actually get a return on this money? because they have to spend money for their fund and get returns on their fund as a private equity firm. And they'll be like, okay, let's make sure you'll get like a garage door company because we know that's not going away. Let's make sure we get a landscaping company. The grass will keep growing and then we can go make some bigger bets on stuff that might go to $100 billion. That's my 2 cents.

Yeah. So the article lists top things that buyers care about, and this is kind of the list that I condensed from the article. They said recurring Commercial revenue, owner independence, clean books, CRM-based operations, route density, and fleet discipline. So kind of fleet standardization. If you had to pick the top 2, what would you say matters the most?

Recurring and owner independence.

No, they said commercial recurring, which I thought was interesting.

I don't believe that at all.

Why?

Because A1 is mostly residential. As I just like, because we're talking about them.

Yeah.

Yeah. I think that commercial in general gets squeezed the hardest. It is the biggest opportunity to grow fast. And that's why private equity likes it. Because yes, you can go into a market and you can get 30 contracts and have a $20 million business. So like they do go commercial because of growth and revenue. But we are seeing, I believe, a higher multiple, like multiples are going to keep moving up on residential side. In my opinion.

Mm-hmm.

And as we are in a K-shaped economy where it's like the top 10% of the market of residential customers will drive all of the like commercial companies as we— if you ever saw a correction or like companies are having a harder time hitting numbers, doing dividends, returning money to shareholders, they're going to cut on their commercial maintenance. The top 10% of homeowners are going to be just fine. They're going to keep making money. And if you're serving that customer, you're going to do good. And that's who A1 serves. They're not cheap. They are premium to homeowners.

Yeah, I thought it was interesting what they said here. And I appreciate you kind of making that distinction of commercial. And I don't want to make that like the core of what we're talking about here. But I thought it was interesting when you look at like the list of what they said, this is what top buyers care about. It just feels like basic business principles.

Yeah, I know. I was going to say that, but I didn't want to like—

But no, and that's where like— And this is me summarizing an article.

It's well-written.

Much longer. I'm reducing it at the risk of making it sound less detailed than it was. But recurring revenue, owner independence, clean books. And I would say, you know, let's maybe define those. But like recurring revenue, owner independence, clean books, CRM-based operations, route density, fleet discipline. It's like 6 things. So I think that, you know, when we look at, you know, like Augusta, like those are just inherent to how we operate. Like it's a recurring revenue model. It's like we have systems to create owner independence. We have the 21 Stages of Success. We have specific systems that you and your team can follow to slowly remove the owner from the actual operations. Clean books. I mean, the way I would define that is like literally just have a bookkeeper. That's solved for Augusta owners. CRM-based operations. Shout out HomeWorks. Like, that seems second nature at this point. Route density. We preach that and talk about that even with our territory designation at Augusta. And then fleet discipline. I thought that that one was interesting for Augusta. I feel like we've become more disciplined with our fleets and like telling owners how to get set up and started. But is there anything you would add or like take away or like devalue from that?

So yeah, like this is course 3 of Home Service Boardroom. I talk about enterprise value and I create a metric for them to be able to value their business based upon all these things. And so you always have earnings and you have multiple. That's how you come up with enterprise value. And so like, how much did you make and what multiple are you giving it? The part that for most of us is blurry is what multiple do I give my business? And so we create a framework and a rubric in the course for you to actually figure out, oh, like this year I'm gonna make the same amount of earnings, but if my multiple go from a 2 to a 3, I unlock an extra $500,000 enterprise value, i.e., my net worth goes up by $500 grand that's tax-free. And that's valuable even though my earnings stayed the same. But the reason is because the quality of the earnings, i.e., the multiple increased. And that might be you shift more towards recurring revenue. That might be that you have reduced services so that you're less owner dependent. You do these other things in the business that don't show up on the P&L, but they increase the quality of the earnings, i.e., the multiple. And that's why Tommy gets a 20x on his, on profit. Like most home services will not get that cuz of size and because the quality of those earnings, that's why he'll get that 20x multiple. Hmm.

So what about a business owner that might be listening right now or just in general, they say, hey, I, I'm not planning to sell. Why should I care about enterprise value?

Because enterprise value is the one thing in our country that's still not taxed. And so every dollar you take out of the business, especially for an S corp, it's just pass-through. So every dollar of profit you're going to get taxed on. So as that number goes up, 20%, 30%, 40% of it's going to the government. And if I can protect that by saying, hey, I'm actually going to focus on growing the business, making it better and better, increasing the multiple. So maybe I take less profit, but now I have a, a leadership team in place that can run the operations without me being there. And that doubles or triples my enterprise value. Most people don't even think about enterprise value 'cause they never sell their business. And when they want to go to sell their business, they get a valuation and there's like 5 things and it's all revolving around what you just mentioned. Hey, cut the service out. Hey, you can't be there as much as you, like, you're too dependent. Like the ads are dependent on you, the operations are dependent on you. And they just get a list of the things that they have to change in order to double the valuation of the business. And so this was eye-opening to me and why inside of Home Service Boardroom I made this course is now when I get my annual valuation, 'cause we do the 409A evaluation, a third party for the holdco, 'cause now we have investors. And it has been eye-opening to me 'cause they always tell me, here's why you're getting deducted. And that's like basically the thing you gotta go do. And so when, You know, we look at when last year they're like, yeah, you are about 60 to 80% underpricing your software based on all of the comps we have made. I'm like, oh snap. So like we have to adjust that and that will unlock, you know how much it is, a huge chunk of net worth, i.e., enterprise value.

Mm-hmm.

And everyone thinks about that at the larger size businesses. But the, the question is, is it that they are large because they think that way, or is it, are they thinking that way because they are large? I happen to believe it's the former, which is the reason they have a big business is 'cause they think about enterprise value instead of just how much money do I take outta this business? And, um, for a smaller business owner, you'll build a better business if you think about enterprise value. And the likelihood of you having an outcome like Tommy is higher if you build a business that can run without you, has recurring revenue, and has all those other elements that you talked about.

Hmm.

And no one talks about that. And they think about, well, how much profit? Like anytime someone talks about revenue, how much profit do you make? I agree. Like, profit is sanity. I agree with you. If you're trying to go big and you want to have these kind of multiples, you need to think about enterprise value. Tommy did not get to a $2 billion outcome because he was really profitable. He got it because he has built a business that grows very fast, has a great leadership team, has great numbers, knows software. Like, that's why he gets a 20x multiple, not because he's really profitable. I got, I got really good margins. Like, I can guarantee you on paper they lost money. EBITDA, they're 20, 30, 25%, but they lost money 'cause they are growing like extremely fast and investing heavily into infrastructure.

So would you say to go like a layer deeper, are— is cash flow, i.e., we'll summarize cash flow as like profit, like at the end of the year or end of the quarter or whatever, are profit and enterprise value ever in conflict with each other?

Yeah, 100%. Because if I'm trying to solve enterprise value, I have to— this is why every one of my businesses from the beginning of Gusta has lost money for the first 3 years. It's because you have to build it in a way that is different than if you're just seeking cash flow. And for most people that are wanting to build a $1 to $3 million business, they should just think about cash flow. But by doing so, you will build a business that usually handcuffs the owner to daily operations. You can't go away for a 2, you know, 2-month hiatus. You don't have a leadership team, you don't have mid-level management, but you're very profitable because the owner's still juggling a lot of things and is the operator. For a lot of people, that's actually what meets their goals. I'm talking to the very small percentage of people, they're like, I wanna grow a massive company, or I want an exit like Tommy. You have to think about the business very differently.

Mm-hmm.

And so, like, I was talking to Jordan a couple weeks ago, 'cause he has, his goal is to sell to private equity and build out a chain in, in, in over the next 10 years. And so he thinks very differently about cash flow for the next 6 to 7 years, but then try, he'll, he will squeeze He's switched the profit in the last couple years to show higher earnings, but in the next 6 to 8 years, he's only focused on revenue growth and those intangibles that increase his multiple to build the business in a way that when he turns on the profit mode and gets a multiple on a higher amount of earnings, it's meaningful.

Hmm.

And so it's just a very different way of thinking about business. I think it's only for the people that is trying to go big. I think, again, all my content almost talks about like being in profit mode Because most people should build a million-dollar business that does $200,000, $300,000 in net distributions to them. And that's a great business for them. That's still a hard business to sell for a lot of home service business owners.

Yeah, it's funny. I— somebody in the home service boardroom messaged me privately and had some questions about Augusta and things. And what you said is effectively how I responded to one of their questions. I said, keep in mind, the franchise didn't make a profit for the first 3+ years. The goal of Augusta is changing the level of professionalism in the industry. Mike's personal goal is to make home service business owners rich. We do both those things, the money will come.

Yeah.

And it's a, it's just a different game. It's a different way of looking at it. And so I think that's the switch that people have to make is, okay, am I optimizing for cash flow slash profit or am I optimizing for that long-term enterprise value? If so, there may be some regrets or some cuts that I have to make in the short term to make up for the long term. So I think it just goes back to like defining like your reason for being in business and your why. Really?

At the end of the day, I look forward to the day when we go public because like Tommy can't— this is one thing I was talking to Brianne, like one of the things I have learned about this whole acquisition with Tommy is he can't talk about it. Yeah, because it's all private equity stuff. I can't wait till we go public. I'm like, all right, I get to open up all the books. I get to see how deep in the red I was on every single one of these entities. I can't wait to do that.

Yeah.

I'll have controlling interest. I can do whatever I want. And when we go public, it's all going to be public anyways. It's not private. Yeah, right. So I can just— I can't wait to look. I so look forward to it. And then, yeah, I think it will give people a different perspective of like, oh, like the amount of investment is like millions and millions of dollars in the red for every one of the entities.

Yeah, that's my reaction. When you sent the article to the leadership team about Tommy getting bought out by KKR, I said, wild. Any chance you can reach out to Tommy for a private comment? Just wanted to see, you know, it'd be nice to look under the hood.

I'm not in tech. I'm not like a texty buddies with Tommy. Yeah. So we'll get there.

We'll get there.

We'll get there.

It'd be nice. You got to get invited to his house, dude, out in Idaho. All right. Well, I appreciate you going down many different rabbit trails. Private equity, Lord of the Rings, Corvettes. This is a wild episode.

Succession.

Is that what it's called? Succession.

Do I—

would I enjoy it? I think you would. It might be too drama for you.

Oh, man.

But it— but it's HBO. Like, if you ever watched any HBO shows before, They're very serious. So they brought in— I will say this about Succession. There you go. There's my not financial advice. Watch the pilot of Succession. Okay, great start to the show. But they brought in actual, like, private equity people, people from publicly traded companies, business consultants. They brought in, like, very high-level people.

Do they have business, like, roots? I might be interested.

I think you'd like it. I worry that if you don't like it, you're going to judge me for liking it so much because it's very much a dramatization of And there's some elements that are not so family-friendly. I will say that. So definitely it is rated M for mature, mostly due to language, which I think is unnecessary, obviously. But overall, it's like an awesome story, like an awesome story. So yeah, but I don't know where I was going with that.

That's your non-financial advice?

That's my non-financial advice. My real non-financial advice is practice a little Extreme Ownership, which I did before we started recording. And it was a throwaway, but it helps. It helps clear the mind. So you don't even remember it, which is great. My me practicing extreme ownership helped clear my mind to just continue moving forward. Yesterday you came to my desk, we talked about something.

Oh, that.

And there was a throwaway question that you gave me and I responded incorrectly. And it internally, like if I'm just being like really harsh, I was like, I basically lied to you, but it was just an incorrect response. And so this morning I just practiced ownership. I was like, hey, by the way, yesterday I know I said this. I actually, I dropped the ball. So I was just practicing extreme ownership. Cleared my conscience, I guess. Makes me feel better. So sorry. It's that fight or flight response that you have where it's like, I was like, no, I haven't even said that. Why did I say that? I literally thought about coming back to your office and being like, I don't know why I just said that. It was such a weird reaction.

Oh no, it was off the cuff. So you were just going.

Well, I was going to do it. I was going to.

It's on my to-do list.

It's right there.

It's basically done.

No, I had a couple things. Come up, you know, I, you know, let little fires burn.

AI will get to it.

Yeah. So my apologies. I wasn't intentionally lying, but I intentionally omitted. And that is me asking for forgiveness. And I will pay whatever penance you expect of me.

Just trying to get some voting shares. Non-financial advice. I guess it'd be look at a car you really like, It's orange for homeworks. I saw that. Yeah, you can give it. You can give the clip to the media team. If you made it this far, you can see the private clip of me looking at a Corvette in our kitchen and not knowing Brianna was videoing me.

Yeah.

Look at that sexiness and its homeworks colors.

So that's tonight financial advice is just look at Corvettes.

No, look at cars you might enjoy down the road. Just, and just ask yourself, like, how happy would you be if you actually had it?

Yeah.

You know, I would be happier, like, but how much?

Yeah.

I would be happier right now with a sauna or a mattress than a Corvette.

Fair.

Even though the values are way different.

Yeah.

So I'm still working towards that.

Yeah. All right.

One day we'll get there.

Perfect.

When I get a raise from Lee.

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