Episode 5 - Bruce Vann, CEO LuXout Products Incorporated

Nobody else in my bloodline got to do this and live this life and I'm doing this for them and I'm doing this for my project. That's really my why. That's what I want to get up to, try to do. I want to manage everything in excellence. And the byproduct of good management is making money.

So the big question is this. How are entrepreneurs who aren't scaling tech startups or building lifestyle businesses from scratch doing it? How do acquisition entrepreneurs find businesses by buy them and then create generational wealth while taking on less risk? Welcome to Search Funded, the Entrepreneurship through Acquisition podcast. I'm your host, Nick Law and today our guest is Bruce Van. Bruce is a self funded acquisition entrepreneur who has acquired three businesses just over the past few years. His first business that he acquired was Lux Out Products Incorporated, which is a stage curtain company. Prior to launching his search fund journey, he worked at ExxonMobil and had an MBA from the Darden School of Business at the University of Virginia. And, and I had a chance to speak with Bruce in an introductory call just a few weeks ago. And his story is exceptionally inspirational because we talk a lot about the financial benefits of surge and those are most definitely there in this case. But for some people it really just makes sense for who they are and what they want beyond the financial returns. So I think a great place for us to start, Bruce, would be if you could tell me where you were in life when you decided to first get involved in search fund entrepreneurship and what helped you make that decision, that this is what was right for you.

Yeah. So I lost my third job in four years and that was beating the bushes of my network. And I went and talked with a gentleman named Kevin Wilson, who was CEO of Buzz Franchise Brands in Virginia beach. Because by this point, by that time, I lost my third job. I had come back to the area that I grew up in, which is Tidewater, Virginia, and sitting in his office and we have a conversation and at the end of the conversation he says, bruce, you ever thought about doing a search fund? And I was thinking, oh, okay, well, no, because I just didn't think that that was something for me or something that was even possible for me. To me, that was just out of reach. But then I thought about it some more, like just from that conversation. And I had a dream about it. And once I had to dream about it, I was like, oh yeah, this is like, I knew in my gut this was for me. And then I pursued it. And that was January of 2019. And I bought Luxow Products Incorporated in February of 2020 20. So that's how that happened.

And you decided to do a self funded search. So what was the reasoning for that and how did that process go for you?

Yeah, so, I mean, when I first decided to go do a search fund, I talked with a bunch of people, like a whole lot of people, and I could kind of tell, and I'm not trying to be mean or judgmental when I say this, but I could kind of tell when I talk with folks that they were like, whoa, whoa, whoa, cool your jets. You haven't thought about this or you haven't done that. This, that did it. And this is not that kind of business. And by that point I was kind of just tired of that. The energy of anybody doubting what I could do, whether that was because of the way that I talk or because I'm black, whatever, I don't know, I was just tired of it. And I just said, well, all right, screw it. If I have enough of my own to figure this out, I'm going to figure this out on my own. And so that's what I did.

Sure, definitely. People say the benefit of entrepreneurship or having ownership over what you do is that you don't have to deal with that anymore. So let's. Yeah, awesome. That knew that and you were able to do that. But given that that was a self funded search, how did you. I guess people always say, like the benefit of the traditional is that you get the mentorship, you get the investors who have their resources in terms of helping you with proprietary search and all that. So how did you figure all that out on your own and how steep was the learning curve once you decided to start searching?

The learning curve wasn't steep. And the way that I just figured it out was I had to look at what I had in my hand. So when I was at Darden, I took a class in entrepreneurship entrepreneurial thinking. And. And there's two camps of thought, or at least there was back when I was there, there of starting something from scratch. And then there's entrepreneurial thinking of how you buy something of your own. I was only exposed to the one starting stuff from scratch. But one of the principles is the bird in the hand principle. You start with what you have right there in your hand and you figure it out from there. It's not rocket science. It's nothing like that was just out of necessity. I said, okay, well, I'm probably not going to be able to go to a bunch of investors and say, hey, look I need you to invest a total of 350 to $400,000 in me to live for two years based off to get the option to buy something later on. I just wasn't in the place to be able to do that. And I didn't have a best alternative to negotiated agreement. So I tried at that time to get on board with one of these accelerators because even back then I was thinking, all right, it made sense to me to try to have one or fewer conversations for investors because just getting the bank on board, getting the seller on board, if you have a broker, getting that broker on board, if you're using SBA funding, getting the SBA on board, coordinating all of that is like herding cats. And to do that and compound it with, let's say you have 10 investors, that's challenging. That's really, really challenging and time consuming. And it can be very frustrating. It can make a very challenging and frustrating transaction that much more challenging and frustrating. And I'm a simple guy. So when I looked at it through that lens and nobody accepted me into their accelerator programs, I said, okay, well, I just have to scrape together my own capital and figure this, this thing out. And that's what I did. And as far as, I'm sorry to your other point about the mentorship and all of that, I mean, I can see that depends on the business and the industry that you're in. But for businesses that I wanted to go after, I like stuff that's simple, that's been around a long time, that, that I'm not going to try to change and revamp or anything like that. I don't like complicated businesses that require a lot of, well, you have to do this this way and you have to do that that way. No, I want it very, very structured and I like the systems to already be in place and maybe I can tweak it and add a little bit of value. But even if I don't add value, I'm still going to come out ahead just because of investing over time, time in the market of owning a business, basically. Does that make sense?

Yeah. Yeah, it does. I guess the follow up to that would be, it seems like you knew the sort of business that you were interested in. I was wondering when you were searching for a business if there were any parameters other than just one that fit the attributes that you just mentioned. And then also it was like about a year before you closed on Luxat. I was wondering how many businesses were ones that looked like good options before you found Luxat. And why was Lex out? The one that.

Yeah, okay, so your first question is what my search parameters were. If I'm hearing you correctly, I was looking at businesses, let's say less than $2 million for their asking price. Early on I would try to go in and look at businesses that I like and then lowball them. Not that I was trying to lowball them, but I was just like, all right, I'm trying to protect my multiples so that in case something goes really wrong, I'm still covered. Right. Well, what I found was you waste your time and you frustrate yourself and the seller and the broker if you do that. So toward the end, what I was doing was only looking for businesses that had an asking price to an SDE ratio. Really I need not even so much sde. But SDE is what you have to go off of if you're looking at brokers. But using SDE as a proxy to guess ebitda, really trying to get down to EBITDA as it relates to asking price to pay. What I felt like was an acceptable multiple from the business. So then I went and looked at just businesses that met that criteria. And it took the cool down from like thousands of businesses to. To maybe like five or ten. Right. And then once I have those five or ten, go and meet with the brokers and the sellers, if I have chemistry and this business still looks good and everything like that, I'm putting an LOI in immediately of not wasting any time. That's how it was toward the end. So I was industry agnostic, but I wanted to make sure that I was very careful about what sort of fixed costs, especially debt service fixed cost. I was taking on with these businesses. That was really it. I was going to something. I mean, I want to search as far away as Kansas. Literally went to Kansas, spent some time out there trying to close on a business that was out there. And there were other ones. There was like a landscaping business that I was looking at. There were, there was a hot tub dealership that I was looking at. So there's all kinds of companies that I was looking at now. Didn't really care about the industry. I really just cared about those things.

Yeah, sure, yeah. And you were mostly just looking, using brokers.

I started out in the proprietary search, but then I realized in the proprietary search, everybody thinks their baby is way more valuable than it is. The benefit of a broker is that the seller has already had the come to Jesus moment where they're like, okay, you're not going to get seven and a half times. Even though on your business that has no growth over the last four or five years, nobody's going to come along and save you and write you a big check off of your business. Maybe if you had grown it at 20, 25% a year, maybe somebody would consider doing that. So that's the benefit of a broker in a proprietary search. Everybody thinks, oh, yeah, my business is worth a whole lot. In reality, the market humbles everybody.

Yeah, that's. That's really interesting because I think sometimes people say that the proprietary search gives.

You access to deals that other people.

Wouldn'T see, and thus they don't get bid up higher.

And so maybe you can. I wasn't able to crack it. Maybe somebody else has the skill set to deal with. And that's not to say that people shouldn't do the proprietary. I've heard of some really great proprietary outcomes for purchases. I just didn't have any luck with it.

Sure. And then for Lux out or the other business you were considering buying, how did you go about building the relationship with the seller and how much of a role did that play in the acquisition?

I think it played a bigger role than I like to say, but I don't know whether I did a good job of anything. The only thing I could see that I did was I was honest and I was principled, and if I said I was going to do something, I did it and I tried to do it quickly. And sellers really appreciate that. The other thing that really, I think, set me a bit apart was, and I didn't understand this at the time, but I think being geographically close to the business puts sellers more at ease. So you may be, as a buyer, just to say, like, hey, look, I'll go and move to Kansas. I'm okay with that, this, that, the other. But if you are from that part of the country or you're already living in the part of the country where the business is, they're going to believe you're more likely to close and engage you more than they would somebody that lives 300 miles away. So I think that helped. Plus, I just also had a great. I just had a really great seller. I can't say that enough, but he was great. He and I are built from the same cloth in some sense, because we're very much like, all right, if I say, I'm going to go do this, this is what it is. I'm going to go do this. I'm not going to hem at home. I'm not going to try to Complicate anything because business and operating the business is complicated enough in dealing with people and their challenges. All that is complicated enough. I'm not going to complicate this, this transaction. And if you have motivated seller that has that sort of attitude and you can get the business under terms that are acceptable to you, it's probably a pretty good idea.

That's great that you found someone who was so aligned with you in terms of the way that you guys get things done. At the very least, I was wondering if the seller helped out at all with the takeover process and if there were any big surprises or challenges for you coming from industry to becoming a small business owner for the first time.

Yeah, that process was great. So I bought the company on February 14, 2020, right before the pandemic hit. And he had a cross training period of 30 days with me. So the middle of March, he cross trained me and I was like, okay, I got this figured out. I kind of understand not to the sense that I knew all the nuances and nuts and bolts. Still don't really know all the nuances and nuts and bolts of the business, but I know how to manage it. I know how to make decisions that move things forward in the company. The biggest challenge and surprise was absolutely the pandemic. And this is fundamentally a stage curtain company that I bought right before nobody was on stages for a good 15, 16 months, something like that. So that was scary and challenging. Fortunately, like I said, I bought an old boring business that had been around for such a long time and has such a long sales cycle that I was okay in the midst of all of that. But that was definitely the biggest challenge. The second biggest challenge or surprise, excuse me, was I'd say a labor shortage. They're given that this is a blue collar business, moving curtains and track for curtains is just heavy. Installing it is heavy. It's. I've done it myself. You really go out there, you earn your paychecks. When you do that, it is not for the week, I'll put it that way. And not everybody is going to be willing to do that. And so when the pandemic came and there was this shortage of blue collar labor and this shortage of particularly of men who would go out and do the hard work that needs to be done in society, the heavy lifting, literally and figuratively, that kind of makes our society go, that was very, very challenging to deal with. Very challenging. But we got through it. The grace of God, definitely one of.

The hardest periods to take over business. Grace of memory. I'm sure. So, yeah, it's great that things are so strong now after having to deal with that. I'm not sure if this is too personal, but you mentioned that you used some of your own money to close on the business. Was the rest through bank debt or seller financing or how did you do the acquisition?

Yeah, that's not too personal. So I had some savings because after you get fired the third time, you're like, I'm not spending money on anything just in case these new folks act brand new and don't like my black ass. So by that third time I had some savings. So I just put. Did like basically a roughly 10% down. I think I did closer to about 11 or 12% for my down payment and the rest was financed through an SBA note. I did no seller financing, which I think was also attractive to my seller. And I think a lot of people in search, like, there's certain cookie cutter things you want that people want. They're like, okay, I have to have a business with recurring revenue and I have to have seller financing and all of that. I don't think you would necessarily have to have either one of those two. I think it's great to have recurring revenue. And I think if I could have immediate equity in the business instead of seller financing, I'll take the immediate equity any day so I can get it at an attractive multiple. But different people have different things and ways that they make this decision. And every deal is like a fingerprint. It's its own mix of inputs that bring out the output of exactly what that particular deal looks like, even for that person. Like, even all three of my deals are different. So yeah, sure.

And maybe talk a little bit about the subsequent two deals that you did after.

Sure.

First one, was the approach any different those times? And were there any learnings from the first one that you applied to the second two?

Yeah, I wouldn't say that there were any major learnings that I applied. I guess. Maybe a little bit. Maybe so. So it was all vertical integration. So the first one was a stage, curtain and shades manufacturing company. The second one was a ribbon weight machine that was an input of ours. So basically we were sitting there just going about a normal course of business. And my plant manager said, hey, look, this supplier says that they're going to sell off this business that's in Georgia and they're trying to move to Costa Rica. And so they sold it to me. And that was great. We have that in our plant right now in Richmond, Virginia. And then the third one was I had a conversation. This is why I'm always willing to have these conversations with folks. But I had a conversation with a prospective searcher. He took me to get an Italian dinner in Richmond. This guy, brilliant Guy, works at McKinsey, real polished and he's doing great things even right now. But he or worked at McKinsey, I don't think he's working there anymore. But he was talking about going traditional versus self funded and weighing that decision with me. And we just sort of built a rapport. And so then a couple months later, he sent me an email. Hey, Bruce, you may want to check out this business that's for sale in Virginia beach, just about two hours away from Richmond, that's in your industry. And it has a fairly decent multiple. And I looked at it and it was perfect. Like, it was like it fit so well. It's a window treatment store, Watts and more. And the lady who founded it, her name's Teresa, she was great. She moved to Florida and even as she was trying to sell me the business because the process of selling it took longer than what she had hoped and expected. But like, by the time I bought it, she was already in Florida and the business was still doing well, basically doing what it's doing right now. So yeah, I wouldn't say that I had any major learnings from one versus the other, but it was good. So the first one I bought with SBA debt, the third one I bought with SBA debt. The second one I purchased in cash. I paid for the ripping weight machine in cash.

So yeah, definitely, yeah. And just based on that, it sounds like you're doing a lot better financially than you were when you started the search. Maybe talk a bit about how that's impacted your life compared to like.

Yes, it's impacted it in a lot of ways. So I'll tell you the story. When I first started the search, I had a Ford Focus. And when I lived in Houston, like. Cause I'm funny about this, I'm not like big about getting a flashy car, but I will ride a car until the wheels fall off and never have a car payment. I heard this statistic today that 85% of Americans have car payments. And I think that and getting these luxury apartments and carrying a credit card balance, all three of those things are the worst thing a person can do for themselves if they want to go the self funded route. They want to build wealth to be able to do this. So when I first started, I lost my second job in Houston and I had a car they Got in that accident and the whole under part of that car got gutted because this tire just gutted that Ford. And I had a white bumper. I got it fixed, but it took a bunch of my savings, even at that time for 2016. And I kept that white bumper on my car all throughout my search. And so then about to buy Lux out, and I'm like, well, I can't show up to work as president and owner of this company with the hoop ride. Let me go ahead. This bumper actually painted so it looks acceptable, like an acceptable car for somebody to drive. And so that right before I was going to start, that's when I did. Maybe like a week or two before I did, because I was that unconcerned with spending unnecessary money. So I didn't. I mean, I did that. I moved back in with my parents and rented a room from them, which is. I don't see any problem with doing that to cut your own expenses. But it was worth it when it was all said and done. And my net worth went from. I'll put it this way, my net worth, from what I can tell, went from below, if I did the math right, was right around 200,000 when I started searching. And now, and that's like I say, it's still by the grace of God, but now it's in the multiple millions. I won't say exactly what it is right now, but I mean, this is applying a four times EBITDA multiple on the valuation of my business, which it might be worth more than that, maybe worth less. I think four is fair. I think it's worth. So I try to think of these conservatively, but even conservatively, I'm in the multiple millions and the goal is to get to be. Well, we'll see. I don't really have a goal exactly, but that's pretty cool. What I will say is the downside of that is what you don't think about is the headaches that come with management and all the gray areas that you have to deal with as you build culture and as you lead people. That stuff and the stuff that they bring to work, the childhood issues that people bring to work in a small company that you don't necessarily think about, and the headaches and how that meshes with your own childhood issues and whatnot. That part is a lot. So the money's cool at first. You're like, oh, great, this is more money than I ever made. This is wonderful. This, that, the other. And then the stress of trying to hold all of that together very Quickly overshadows that in your own mind, at least for me. And I'm like, well, money is not the thing that makes me happy. It's cool that it's there, but then the problem is, okay, once you get pile of money, then you have to find a way to deploy it and make it work for you. And you have to also make sure you're managing your people the right way and optimizing the hand that you've been given. And that becomes the new problem and the new stressor after you've successfully acquired.

Sure, I mean, I guess as always, there will always be new problems even after the money comes. But that is pretty amazing and awesome that you were able to have such a drastic financial return in just a short period of time of three or four years. When it comes to management, I was wondering if your approach has changed at all as you've grown. The business going from one small business to now owning three at a larger scale. If you've had to implement any new practices or if there been any new challenges or different ways of dealing with managing employees since you started, the only.

Thing that I would say that's changed is I am more quick to fire a person than I was in the beginning. If somebody does not fit culturally, they show signs of dishonesty or they don't do this right, or they don't. If you just don't fit, I am much more likely to just say, okay, well, this person doesn't fit. I need to find somebody else. And that's part of life. And let's keep it moving. In the beginning, I think because I had been fired three times, I was very slow to fire people. And I still am pretty slow, slower than most bosses. So don't get me wrong. I'm just saying I'm quicker now to say, okay, that's it, that's the line. I'm not dealing with this anymore. That's really the biggest thing. We have a quarterly bonus system that is structured based off of everybody's performance in the company. And if everybody hits their targets, they get a good chunk of the profit of the company. If they don't hit their targets, they don't get it. But what that does is it culturally keeps everybody very focused on exactly what they need to do to do the job in excellence. And we have four operating principles and they're very straightforward. We take care of the customer, we take care of the company, we take care of our employees. We do everything in excellence. And every decision that I make and that I hope my staff Makes operates around those four principles and by the system that we have going, it's a fourth principle, doing everything in excellence. It's a lot easier for us to attain it. So I think we outperform. Not even I think I am certain, I'm certain you can look at our reviews versus other stage curtain companies. We significantly outperform everybody else in the way that we operate. And I hope that long term that becomes a way for us to grow.

And giving the employees that form of ownership of getting the quarterly bonus that you've seen that that leads to better performance, at least them operating in excellence. As you've said, if somebody can make.

A long term decision, Right. The challenge is the goals are stretch goals. And most people, the thing that, I mean, I will say, I'll say this just with Lux out specifically, if a person can stick around for more than a year and they get the system, they get it in their balls, they're probably going to do pretty well. The challenge is getting them to stick around in that first year because their first thought is like, most people walk in the jobs and they think, okay, well it's not going to be that hard. It can't be that hard. And then they get in and they start to do it. They're like, oh my gosh, this is that hard. But if they stick with it, people get better and better and better at their jobs over time, especially as they get more experience and the rewards are there over the long term. So what I like to reward is long term performance. Not oh, you had a great month or you had a great quarter or something like that. You can get a little bit of benefit from that, but it's how the person performs over the long run that really matters.

Sure, makes sense. You said you don't really have an ultimate goal, but do you have a personal why or reason that brings you to work, makes you want to run these businesses, acquire more?

Yeah, man. My personal reason is, and I'll be real frank with my personal reason is my people came over to this country on slave ships as property they couldn't even own themselves and had to deal with years of oppression. And you got people like Dr. Martin Luther King Jr. I went to his grave and saw his grave and really soak in the reality that the freaking US government killed this man just because. And he wasn't even going to be violent. Like they sat here and killed this man. Like all of that is my why is like nobody else in my bloodline got to do this and live this life. And I'm doing this for them and I'm doing this for my project, for my kids. So then no other vans have to go. Work for somebody who doesn't see them as a full human being. And if anybody doesn't see people like, I try to treat everybody in my organization, I build that into the culture. You're a full human being and I'm going to try to treat you like a full human being. There aren't levels of value of people. You're just as valuable as I am. If you pack the stage curtains as I am, the president of the company doesn't mean our compensation is the same. But in terms of your intrinsic value as a human being, you're just as valuable. So that's my wise. I want to make the most out of the hand that I've been given. I don't want to die on my deathbed when I'm preferably an old man. I don't know if I'll make it to old age. I think I will, but I don't want to sit there and have regrets like, oh, I didn't go for this thing, or I didn't go for that. That would eat away at me and I would really be sad and depressed at the end of my life if I look back and I was like, oh, I could have done this and I didn't go for it, or I could have swung for the fences here, but I didn't go for it. So that's, that's really my why. That's what I want to get up to, try to do. I want to manage everything in excellence. And the byproduct of good management is making money like cash will multiply on itself. It's not the goal, but the byproduct is, I mean, of it is that. And so that's what, that's what keeps me going. I don't mean to ramble, but that's really my answer.

It's beautiful. I think that's an amazing place to end it. So thank you for sharing that problem.