Plumbing Acquisition Gone Wrong | Josh Key Interview
The one thing to remember
A rushed partner can be more dangerous than a bad business—diligence the person, lawyer up early, and write the breakup plan before you close.
What happened
Josh Key bought a small Fort Worth plumbing company in December 2020 with a partner who held the master plumbing license the SBA wanted in the deal. The target itself appeared solid, but Josh says he did little diligence on the partner, accepted a 50/50 structure, and used a weak operating agreement. The relationship broke down quickly under operational pressure, the partner took over, employees and contractors left, debt service stopped, and the company was wound down. Josh ultimately filed Chapter 7 bankruptcy and says he lost roughly his 401(k) investment plus major legal fees.
Who's telling it: Josh Key, the buyer and first-time acquirer This is mainly Josh Key’s buyer-side account; the partner, seller, lender, employees, and customers are not heard directly.
Timeline
- Thesis
Josh wanted to replace or exceed his W2 income by buying a construction or trades business and growing it through sales and add-ons.
- Sourcing
He found a Fort Worth plumbing company on BizBuySell with about five employees, commercial project work, and recent revenue growth.
- LOI
The seller asked about $1.8 million, and Josh negotiated a total deal of about $1.6 million including working capital and a line of credit.
- Financing
Josh used SBA financing, a 10% seller note, and about $180,000 withdrawn from his 401(k) rather than a ROBS structure.
- Due diligence
Josh reviewed the target’s financials with CPA friends, but he did not deeply diligence the partner who was added late for his master plumbing license.
- Closing
The acquisition closed around December 19, 2020, with Josh and the partner in a 50/50 ownership structure and a thin operating agreement.
- Integration
In early 2021, transition confusion, a winter freeze, and disagreement over dispatch and phones triggered serious conflict between the partners.
- Operations
Josh stepped back, the partner and his wife ran the business, employees and contractors left, and Josh says the partner did not properly service the debt.
- Exit
The company defaulted, operations wound down, and Josh filed Chapter 7 bankruptcy to protect his personal assets.
stage where a mistake was made
What went wrong 7 issues
Partner was not diligenced
The SBA asked late in the process for someone with a master plumbing license, so Josh brought in a church acquaintance as a 50/50 partner. Josh says a basic background check would have surfaced legal and behavioral red flags before closing.
Mistake made at Due diligence → showed up at Integration
“should have done a background check on him”
Warning signs
- The partner demanded 50/50 ownership despite joining late and contributing mainly a license and experience.
- Josh later said the partner had been unable to scale his own plumbing company.
- Josh relied on a church relationship as social proof instead of verifying the partner’s history.
How to prevent it
- Before accepting a new partner, Josh or his attorney should have run a background check, litigation search, license verification, and reference calls.
- The buyer should have paused closing when the SBA required a master plumber and treated the new partner like a new acquisition target, not a workaround.
- The lender and buyer should have discussed license-holder requirements earlier in underwriting so the partner scramble did not happen at the finish line.
No real partner divorce plan
The operating agreement did not give Josh a practical way to remove the partner or resolve deadlock. When the relationship broke down, the company was stuck in a costly business divorce instead of a controlled buyout or removal.
Mistake made at Closing → showed up at Operations
“we just didn't have a solid operating agreement”
Warning signs
- Josh used a thin online-template agreement rather than a robust deal document.
- The partner rejected even a 51/49 split, making deadlock predictable.
- Neither side worked through what would happen if the relationship failed.
How to prevent it
- Before closing, an independent business attorney should have drafted a full operating agreement with deadlock, buy-sell, removal-for-cause, and exit provisions.
- Josh should have refused a true 50/50 structure unless there was a clear tie-breaker or forced buyout mechanism.
- The agreement should have allowed the company to remove or replace the license-holder if there was misconduct, threats, abandonment, or failure to perform.
Partner cracked under pressure
During a freeze shortly after closing, the business needed calm dispatch and field coordination. Instead, Josh says the partner became threatening, abusive, and unsafe, leading Josh to step away from daily operations.
Mistake made at Due diligence → showed up at Operations
“you don't give me that phone I'm threatening to sue you”
Warning signs
- The first operational stress test was a winter freeze with phones ringing and many emergency jobs.
- The partner resisted Josh handling phone intake even though Josh could not perform plumbing work in the field.
- Josh says the partner verbally abused him and later brought a gun into the workplace.
How to prevent it
- Before closing, Josh should have conducted stress-focused reference calls with the partner’s former employers, customers, and coworkers.
- The partners should have agreed in writing who controlled dispatch, phones, customer intake, estimating, and field operations during emergencies.
- The company should have adopted a workplace safety policy banning weapons and threats at company facilities.
Wrong legal help
Josh says he used the partner’s attorney and a thin online operating agreement to save money and move quickly. Later he learned the attorney was not licensed in Texas, and the weak documents made the dispute harder and more expensive.
Mistake made at Closing → showed up at Operations
“he ended up not being licensed in the state of Texas”
Warning signs
- Josh relied on the partner’s attorney, who had a long-standing relationship with the partner.
- The operating agreement was based on an online template and reviewed through that attorney.
- Josh later paid far more to a business-divorce attorney than he likely would have paid for proper front-end counsel.
How to prevent it
- Before signing legal documents, Josh should have verified every lawyer’s state bar license and engagement terms.
- Each partner should have had separate counsel, with a neutral company attorney drafting the operating agreement.
- Josh should have budgeted legal fees as part of the deal cost rather than trying to save a few thousand dollars at closing.
Partner kept side business
Josh says the partner kept operating his own plumbing company after joining the acquired business. He says employees and materials were used in ways that did not benefit the acquired company, creating conflict, confusion, and possible misuse of company resources.
Mistake made at Closing → showed up at Operations
“he hasn't shut down his company”
Warning signs
- The partner vaguely said he had a few things to do before shutting down his old business.
- Josh did not inspect the partner’s company financials, open jobs, or obligations before closing.
- There was no written shutdown plan for the partner’s prior company.
How to prevent it
- Before closing, the operating agreement should have required the partner to wind down his prior company by a specific date.
- The company should have prohibited owners from using company employees, vendor accounts, or customer opportunities for outside businesses.
- The bookkeeper or controller should have reconciled all vendor accounts and required dual approval for purchases above a set amount.
Fragile customer relationships
The business depended heavily on key contractor relationships and the seller’s reputation. Josh believed he could transition those relationships, but the partner’s conduct damaged customer confidence and made the concentration risk worse.
Mistake made at Due diligence → showed up at Operations
“key customer concentration issues in addition to the key man RIS”
Warning signs
- The seller’s name carried much of the reputation of the business.
- The team and customers still looked to the seller for direction after closing.
- Josh says contractors later became unwilling to work with his partner.
How to prevent it
- During diligence, the buyer should have listed the top customers and contractors, their revenue share, and who owned each relationship.
- Before closing, the seller should have personally introduced Josh and the technical lead to each key contractor and documented the transition plan.
- The buyer should have retained or promoted one of the existing master plumbers to protect technical credibility with customers.
Debt left no escape
The SBA loan magnified the consequences of the operational and partner failure. Once the company stopped servicing debt, Josh says Chapter 7 became the way to protect his home and other assets.
Mistake made at Financing → showed up at Exit
“he hadn't been servicing the debt”
Warning signs
- The deal used SBA financing with a 10% buyer injection and seller note, leaving a large fixed debt burden.
- Josh expected the business to cover debt while he initially kept his W2 income and the partner ran operations.
- When the partner took over, Josh says debt service stopped and the SBA guarantee put his personal assets at risk.
How to prevent it
- Before closing, the buyer should have stress-tested debt service against lower revenue, delayed collections, and partner conflict.
- The company should have maintained lender visibility and required both partners to receive monthly loan-payment confirmations.
- The operating agreement should have treated missed debt payments or unauthorized new borrowing as default events triggering removal or buyout rights.
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LOI
Due diligence
Financing
Closing
Integration
Transcript 2327 lines · 17472 words · auto-generated captions
Josh key welcome to acquiring minds hey
Will long time listener um glad to
finally be on the Pod with you although
this is uh not how I intended it um but
as we talked about before this is uh
part part one part part A the the
beginning and so the uh the ending is
still yet to be written and um I'm
optimistic about that that's right well
having talked to you in the preall I am
too about your future Josh um you bought
a small Plumbing business alongside a
partner did not go well as you just uh
teased and that was due in large part to
this partnership and the direction that
it took so we're going to hear this
difficult story this unhappy story of
buying a business uh and of course I
want to thank you for being willing to
share it with the audience for their
benefit Josh let's get into it let's
start off with some background on you
please
sir yeah absolutely um any way I can
help this community um so the I guess
background of me so born and raised in
Flint Michigan um used to be still is
Buick City even though Buicks aren't
manufactured there anymore um there's a
annual 5K there uh the Crim so it kind
of runs through the downtown Flint but U
born and raised in Flint proud of that
Heritage um more of a basketball town
back in the the late 90s when the
Michigan State made their Championship
run with most of the starting five being
from Flint um now more um infamously
known for the water situation which is
still an issue but
um born and raised there um end up going
to at graduating college from Northwood
University Small um business focused
entrepreneurial free enterprise driven
school um which planted the seeds to you
know my entrepreneurial desires to this
day and so um graduated there ended up
going and climbing started off in my
career with a W2 job and started
climbing my corporate career started off
with ADP selling payroll and a sales
rooll um uh great experience there moved
over to Grand Rapids Mich
Michigan um shortly after that and
then moved down to transferred with
Enterprise down to Arlington Texas to
live with my uncle down there this is
around 20 20 years ago almost 20 years
back this past April um wanting to live
in a warmer climate was tired of
scraping cars off with my credit card
when you can't find the scraper
most of my our friends in the north uh
can um can agree with me there and
understand what that feeling is like so
I was just tired of that ready for a
change and so looked at Florida
California settled on Texas um did very
well with Enterprise went through
various roles from there was recruited
away to several different companies
worked at a marketing and advertising
agency on Gatorade and Honda um quickly
found out that sales was where um um at
that moment sales was where I wanted to
be short of selling yacht
and private jets medical device and
medical equipment was a good way to go
and so um through the advice and
guidance of some of my mentors and
ultimately became my boss um got some
really strong B2B experience selling um
Japanese titanium frames throughout the
kind of middle central part of the
country and just kind of got on a milk
run um in my car from a 1099 basis and
bu um established a bu a business that
was on pretty much on the coast in New
York and LA and then established that
Central Business there and then um was
doing very well there but was recruited
away to a medical device company um
ultimately after growing that business
up and so that was with Striker um
instruments and spent three years there
uh learning cutting my teeth in the
medical device space and then um true
hardcore medical device sales and um
from there after three years um we was
one of the downsides of being part of
one of the the greatest regions ever
um I guess really exist within that
division at the time there wasn't an
opportunity to move up without a major
geographical relocation Minnesota Boston
I started off with Striker single was
willing to do that three years down the
road found my love of my life my wife
and she's a Texas girl and she wasn't
going anywhere so
um so stuck here had to move on from
Striker on various medical device spots
um ended up with my um mentors company I
spent the last 10 years with and know up
until this past uh couple of months ago
and so now um in in between there covid
happened um and so that gets us to our
story here um successful there I was
with the uh company at the time that was
requiring um a lot of travel um so I
have two young boys that you know and a
wife that needed me and so flying off in
the at the at a moment's notice to go
cover a case in Houston or New Orleans
or Arkansas um it just wasn't feas so I
started looking for other options in the
middle of Co um so without having any
access to any of the hrb or any of
Walker dbls those resources or your
podcast for that matter um um it's like
hey I need to get on the other side of
the pay window what does that look like
and so I found you know Googled buying a
business Biz byell came up at the time
and start started building what I at the
time was a buy box right I need to
replace my income or a little bit more
than that so I started looking for
companies that were throwing off um um
you know at least
300K um in EA or let me let me jump in
here so sorry rewind a little bit how
did the idea of buying a business come
about you you've explained how you
needed to make some sort of change in
corporate you were traveling too much
but there are a lot of paths and why the
one of buying a business yeah so um I
just felt like I was at a kind of a fork
in the road I knew was kind of viewed
entrepreneurial um Endeavors I have
several friends that started companies
businesses bars different things like
that and just were was envious of them
and like like that's where true wealth
is made and so as I alluded to earlier
um I went to a school that U was really
strong and um really was based on um
entrepreneurship and free enterprise and
so those sces were planted there you
said you hadn't been exposed to what we
call search or entrepreneurship through
acquisition via the books or social
media or something this was something
that you kind of arrived at on your own
I did and so and then initially my um my
goal was to so found the plumbing
company like the numbers it's like do I
need to be a plumber to buy a plumbing
company Googled that made a couple phone
calls talked to the broker that um was
representing the seller um said he
didn't think about that and so we looked
into that and they're like no you don't
need to do that so so at that point um
my wife and I we've had you know
significant decent savings built up in
our 401ks and so okay how can we Finance
this and so um well and and Josh what
what had your criteria been when you
went to bis by sell
looking um really just the something
that was Mak north of what I was making
personally so I was like hey if I'm
going to reach for something I want to
make do something that where I'm going
to make take that next step and then
grow it and so at the think at the time
um I had just done 300,000 in um
earnings for the year so I was looking
for something above that um okay and I
really didn't do them before the SBA
debt or after the SBA debt This was um
like you would have wanted to be take
home 300 I wanted to say come 300 um I
knew that after the I ran the analysis
into the dead and I was comfortable with
you know 150 because after SBA day 50%
of that would go to service the debt so
I was comfortable with 150 knowing that
I could my plan was to the company I
bought was in Fort Worth so that's on
the west side of the Metroplex and so me
living in Dallas I was like okay I'm
going to look for another smaller
plumbing company either merge with or
buy to kind of start to roll up at the
time now I know that now but roll up the
uh a business or start a platform
company in within that space and then
add on the other
Mechanicals um electric and HVAC and
so that was my plan before Having
learned anything about um
entrepreneurship or um search um or ETA
okay so 300 000 of SD was your floor
with the idea being that you would that
with the SBA loan you could go you could
see yourself going down to 150 in the
short term because then you'd look for
some sort of bolt-on acquisition to
quickly get Revenue higher to where you
wanted it to be and maybe closer to you
closer Geographic so growing so growing
through acquisition and then organically
um bringing my skill set to the table um
through sales um understanding building
out a sales op um methodology
understanding the building a customer
profile and then um once you have that
business plan fleshed out attacking that
and executing which I've done for the
past you know 15 years and so very
comfortable applying that skill set to
the plumbing company um and were you
looking for a trades business or what
types of businesses were you looking for
was it always going to be Plumbing that
you no I was looking in construction so
I guess that's how I looked at Plumbing
I wanted I wanted to find I knew at the
I knew enough that I wanted to find
something that had assets that were that
we could going to it A lender I could be
loaned against and so um looking for
construction like excavation companies
um dirt dirt removal um
demolition um I kind of really wasn't
didn't have clear Direction there um my
main driver there was my kid my oldest
son loved Tonka trucks and all the
excavators and so I was like all right
this is something I could buy this step
in buy it and then hand it off to my my
my my oldest son and something that he's
interested in and so he to this day like
so that was shortlived and so he we have
all of this stuff and containers out
there and we need to hand off to another
kid but um so that's what got me started
down the
road found the uh started with
construction I was like hey let's look
in construction I like that space I have
friends I have a network that's in that
space already from from Real Estate to
um development um within the area so I
could you know whatever that looked like
like masonry I knew there's different um
subcategories that I could plug into and
so found the plumbing company didn't
thought that i' needed to be a plumber I
was like so never asked a question so
let's ask the question do I need to be a
plumber and so looked at the numbers the
financial like this is legit and this
was before the cost of good sold
skyrocketed postco so all of the the
gross margins and then the E SD margins
are great and so like this is before we
even add on any additional um
Acquisitions or um
really beef up the the sales efforts so
the last three years he was trending up
and to the right um went from 700 and
called it to a million to one point 1.2
1.25 um in Revenue in revenue and so he
ended up with doing around 35% um profit
margins um each one of those years um so
business was primarily um commercial new
builds um
denovo work um Project based with some
service tied to it um which was an area
for OPP opportunity to expand and grow
the business too start you know recruit
and Recruit new plumbers to bring on
board um bring on new trucks and started
advertising and capturing some of that
share yeah so um and how old was the
business and how many employees um so
the business was started in 2011 um they
had five um employees um two of which
were master plumbers so um you know in
hindsight I could have given both of
them Equity to continue on in that
operation and but um like most sellers
do they decided he wanted to keep the
the sale of the company confidential um
just okay so which totally made sense
but um so five employees plus the plus
the seller or he was yeah plus the
seller so five employees plus the seller
um great great group of guys that you
know to this day that you know I would
I'd go into battle with any at any at
any juncture so um I was unfortunate the
way things happened the way they did but
um didn't need a plumber to to buy the
company um ran that through the banks at
the time and so we were going down a
convention uh I was pre let me back up
so I was before I even found the company
I did the I did a pre-qualification I
got a prequalification letter from the
SBA and um was looking for s for
opportunities that was part of my buy
box too so something that I could buy
with SBA funding yeah um and I could
leverage my 401k and this was before I
KN was aware of what robs were um so it
didn't even utilize R we just took a
straight um withdrawal from our 401ks to
uh fund the business and what is the
penalty to do that do do you know off
hand uh I think it was a 10% you get tax
10% if you don't repay it so um okay so
we're willing to take that hit yeah okay
so 35% margins on 1 25 million is is
what 380
is, of SD the final the the most recent
Year great with five employees skipping
ahead a little bit I've already teased
this to say that the partnership ended
up being the big problem here partner
that we're about to hear about um but it
sounds like the business small but solid
and in fact you found that that you
found that to be true even once you
became owner I mean you still look back
fondly at the team
absolutely even the seller too he stayed
on for um so we haven't got into the the
terms of the deal but yeah even the
seller we we clicked as well um from a
from a report standpoint right out the
gate and then everyone that had been
which made sense that I got along so
well with the other with other guys
because you know they had been with him
since the beginning yeah um so yeah okay
and and so tell us about the terms of
the deal and why was the seller
selling um he was moving the seller was
moving to Florida um he was relocating
um trying to sell it so so need to take
those funds and he's going to start a
plumbing business and other he's going
to start even General Contracting in the
Florida kind of the 30A area um so
that's reason why he was selling um the
business we he was asking one point 1.8
for it we ended up um negotiating down
we did a threeyear average um I got him
down to 1.4
and um after the line of credit and
100,000 in working capital the the total
deal was
1.6 okay so 1.6 on a little less than
400 of SD in the most recent year not
not the Blended three-year average it
would be quite a bit lowerre but if we
take the most recent year so is a little
bit over north of a
4X a little bit too and so and I felt
comfortable doing that knowing that I
could you know with the expansion plan
that we that I had that I kind of laid
out I felt comfortable with that with
the multiple um and and this is without
even knowing with that a 3 to fourx
multiple was kind of the landing space
to be and so um he had he had other
offers from private Equity at the time
too to go for um for a lot larger dollar
amount but he cared a lot about the guys
and wanted to sell to the right
individual that would keep you know
maintain his legacy and keep the his
team in place and and so you what was
your pitch to him about that why did he
like you versus PE for
example yeah so just talk talk about
myself and my background that I was an
ex College athlete and was competitive
he he played baseball so we connected
there um and so we both applied our
competitive nature to to business um
mine as a W2 employee and his as a t as
a as a business owner yeah um he was
also an employee um just a uh as a
plumber starting out just running
service and he stepped out on his own as
an entrepreneur so uh we just connected
there and I you know admired his um
courage and um to step out and do that
um and so I outline my plan for the
business to to kind of grow across the
the Metroplex um starting with using his
business as the platform and then we
would expand into the north north south
and east of uh Dallas and eventually
roll up so talking to him you know
through those relationship expanding
just on Plumbing alone but then layering
in like we talked to Electric electrical
and then HVAC
mhm um so yeah so 1.6 um and so you took
out at what 160 150 60 from your from
your 401k yeah roughly yeah 165 and I
actually took out one um took out 180
total um from the from our 401K um just
to have some to cover some of our um I
guess the search cost and then some of
our initial startup costs as well so but
ended up
um doing 10% down which was 160 and then
he um carried a 10% seller note as well
okay so very conventional 1010 SBA sort
of
situation um great and then
you despite the fact that you didn't
need to be a plumber to buy a plumbing
business how did you feel about the fact
that this is still a very technical
business and you didn't have any of that
knowledge and and and and by the way
what did the seller
say to you about that fact he of course
was a was a plumber was a master
plumber yeah no he admitted um that
there going to be a learning curve where
that was concerned but then he also um
went back to the fact that he would
still be around and I could call him if
I had any questions um his dayto day he
had stepped back from being from day
today just actually kind of doing the
the work um strictly going out and
bidding the projects and so um like
within 6 months you watching me do this
she'll be able to go out and bid these
projects and so that's that learning
curve he's like I'm confident she'll be
able to do that so um and
then for better or worse I just always
feel like whatever the situation is I
can step into and I'll be able to
navigate the learning curve um and I've
done it in my professional career to
that point learning um Japanese eyewear
manufacturing and yeah having never been
in healthcare in medical device sales
and feeling comfortable going in and
talking to neurosurgeons about their
their procedures and using utilizing our
equipment and talking about the features
and benefits and then ultimately just
using my intangibles and um being able
to build Foster and grow relationships
um with
other as it relates to this business
with gc's um other
remodelers um and you know quite frankly
others other small Plumbing operations
where they weren't able able to get the
work done that they kind of referred
business back and forth to each other so
I just felt comfortable stepping into
really any situation and I like the fact
that this was a you know as plumbing and
a lot of the Mechanicals are it's a kind
of a necessity and as we learned through
Co it was a um uh yeah it was a I forget
the term at at the time we called it but
essential essential it was essential
Services yep so and what were you how is
this going to play with your W2 were you
going to quit your w i mean you said you
were going to quit your W2 that's why
you needed the replacement money but you
you never actually did so how are you
thinking about that yeah at the time the
plan was to um keep my W2 um and so so
I'm not having to tap into the funds um
executing the the growth
strategy um within the first six months
we would add on additional um units to
the to the fleet and hire on additional
plumbers in our pre-sale and
conversations leading up to the to the
to closing he had several plumbers in
the pipeline that were looking for work
and that we he would he said could
willingly add on um he was turning down
a lot of business from as it relates to
service and so we could easily add on
one truck and one service plumber to to
grow a revenue based and so
um that was just step one is from a from
a growth St organically growing the
business and so um yeah from there but
your your your approach had shifted cuz
initially you did think you'd quit your
job or did I misunderstand no I was
going to keep my job as long as I could
and then once the business was big
enough to support me yeah then I would
transition over full time and then fully
lean into it um and so um but you know
the situation came and it's like all
right so I found my partner we can dive
into that in a little bit um yeah I felt
comfortable with that strategy um the
SBA at the time was not requiring that I
have a plumber on the business and so um
the business was stable enough on my own
back with my business experience
expertise at the at the at that time
they were ready to move
forward um and so I really don't
understand what happened at the SBA
maybe was a new person that came in that
was looking over the paperwork but in
the you know in the final moments um
leading up to closing they were like hey
we would feel a little bit more
comfortable if there were um someone on
the capital stack that had a master
plumbing license so massive curveball
um and they told us so with found the
business in late June early July we
ready to close we would have closed in a
couple of months we're ready to close
towards the end of August and that's
when they threw that kind of curveball
at us and so and this is 2020 this is
the This Is 2020 Peak Co yep I'm getting
updated financials business is still as
it's an essential business business was
remaining um kind of solid and actually
he had a couple of um new jobs come in
so the business was looking good um
despite you know all the things that
were going on in Co so um so we get that
curveball and so we started looking he
has friends he's like hey he started
recommending people outside of the the
company that I could potentially bring
on and partner with and so I started
having those conversations and um you
know I remembered we had since moved
from Carolton to Rockall DFW listeners
will understand that so just moved about
30 minutes east new church but I
remembered going to church and through a
u marriage program with a plumber and so
you know we kind of hit it off and had a
decent rapport
um I knew he was kind of he was up there
in age he was in his late 60s and
probably looking at retirement so um at
the time I think he was working for Roto
rer and then when I contacted him he had
started his own plumbing company and was
trying to build what this is his own
words he was trying to build what um the
the seller wood had already established
at the time he just wasn't able to break
into that commercial plumbing space and
so um some successful one man in a truck
um kind of teetered up and down between
one and two he had two trucks um that he
brought him with the deal um but just
never could get to that space to it
wasn't even a huge leap but uh you was
3x of whatever he was doing um at the
time and
so seemed like opportunity he he wants
what you got and you need his license
and timing is right I well he you you
probably he's not going to be in it for
the super long term because he's already
a little bit up in age but um it seems
like it's what he wants right now at
least for a number of years and you know
him through your church which which kind
of gives him some social validation
you'd
think so you think right so yeah um yeah
he was on you know his his Horizon was
kind of on in like step in here next
five years next to five to 10 years we
grow the scale the business plan was to
always pay down the debt early and um
and move on and so and then so he he
would step back and then have an equity
piece in in the company and so from that
platform company he would always that be
part of it and there an investment for
him and it would be part of his
retirement plan gotta um and at the time
so I'm looking at thei re looking at the
financials and like all right we can
support with me not taking the salary we
can afford to pay
him um full time to come on and so
that's what we did I was planning to be
there once a week because I had some ban
with with my W2 job to help manage
things and so there wasn't a huge need
to go out and get new business um we
just needed to maintain what was there
really for the next even if we didn't
add on his trucks or bring on anybody
else the business could would have
supported um if if everything remained
flat it would have supported him and
supported um servicing the debt um so
everything looked good from that
standpoint um the one thing we but he he
was adamant about I offered I was like
listen this is I found this opportunity
um how do you feel about a 6040 split
he's like um he's like anything that's
not 50/50 I'm out on wow I like okay um
I'm have to think about it yeah um did
that strike you as bold as greedy or
whatever the word aggressive no at the
time I I was just thinking you know I
was looking at the the silver like the I
was not looking at the downside I was
always looking at the upside I like all
right fine 5050 um he's he's also so add
in this part of the story too he's also
licensed
HVAC technician here in Texas as well so
instantly able to add on in my mind the
HVAC piece he's got two trucks we just
staff up um plumbers and HVAC and so now
we're adding in those two revenue
streams additional revenue streams and
so um he's going to shut down his
business and so he's like yeah I got a
couple things I need to do um and I I
was I didn't drill him on that what that
looked like I should have in hindsight I
should have looked at his financials um
should have done a background check on
him uh it's a key lesson I learned today
was reiterated today in my men's group
but it's trust but verify um it can feel
super great about the situation and the
you know the prospects but hey let's
let's do our due diligence um and I
guess I really didn't understand what
due diligence was um at the moment I
look just look at the financials make
sure that the the p&l matched up with
the bank accounts which it did ran it
through I have two friends of mine
really good um CPAs that looked at the
the financials and everything looked
good to them too um ran through my for
the the financial modeling and it made
sense um it almost was like too good to
be true and and I know this now it's
like okay what what could the downside
be what if this goes south what does
that look like we never um to my you
know to my detriment I never did that we
never sat back all right what does this
look like if things don't work out if
you of all the contingencies if
something happen either one of us get
hit by a bus what does our extra
strategy look like on the negative side
and on the positive side and So
eventually I would take over the company
on the positive side and then you know
he'd ride off into I'd cash him out and
he'd ride off into the sunset that was
my
plan um but never got there yeah okay um
and and so his insistence on 50/50 was
just it just is what it is that's just
what he was negotiating and yeah he he's
like hey you you need a master plumber
um up I bring all my you know 20 30
years of experience with me he's like
I'm not taking anything less than 50%
and
so yeah at the time I didn't think of it
and I didn't consult with or asked about
other i al went back to him a couple
different times like all right what if
we did 5 5149 was our our distribution
would still be 50% 50/50 and he was
absolutely not his wife she's pretty
Savvy ex AT&T employee she the equity
what was was what was important to them
and then having a say in the
decision-making process and so um we
just didn't have a solid operating
agreement on when we would class or have
disagreements on how to run the business
and so uh um so you did you did you have
an operating agreement prepared it just
was a thin one or did you skip that all
together it was extremely thin I found
it on Rocket law or what maybe uh Legal
Zoom um went through and we um and this
is one of the other you know learnings
that um I should have stuck with one of
my attorneys even though I didn't have a
relationship with them we went with his
attorney which he had a long-standing
relationship with which should have been
another flag red flag because he had an
attorney that he's utilized on multiple
fronts for his business and for personal
reasons so um I should have dug into
that a lot more too uh but I found out
about a lot of those cases and pending
cases after we closed so again things I
would have found out found out during
diligence or just a simple background
check that would have given me pause and
you know you know we could have
maintained our friendship at the time
and like you know I'm just going to move
in a different direction um and
completely walked away from the deal
which is um what I could probably should
have done at that time because I did not
have any other
um sources for a master plumber the ones
that were referred to me by the seller
um we couldn't get the he need he wanted
the same things he 20% Equity um even
30% Equity wasn't palatable for him
so um who sorry for who honestly I
didn't feel good giving someone more
than that to someone I didn't know it
was someone someone the seller knew I
just didn't I couldn't get my arms and
WRA my head around giving him somewhat
just an unknown entity even though in
hindsight I didn't know my eventual
partner that well either but I just
couldn't get my wrap my head around
giving someone I didn't know that much
Equity yeah
so um well and and if this had this was
all happening in 2020 if this had
happened in 2023 you might have been
able to structure a part the SBA rules
changed in 20123 into partial ownership
you might have been able to work with
the seller to have him retain some small
percentage of the business and he and
and the his license stays in the
business now if he's moving States maybe
that wouldn't have worked anyway and
maybe he wouldn't have wanted it he
wouldn't have wanted any sort of tale to
the business but um that that structure
comes up a lot now these days three
years later yeah I've listened to se
several of your previous guests that
have done that and so yeah that would
have that would have would that have
worked in your case a th% yeah he
already was willing to put up 10% of his
own um you or carry 10% of the no as
well so we could have easily
negotiated um you know retained Equity
situ sitation where he's you know 20 25%
ownership and then so and then shortly
after the fact too he had family issues
that were requiring him to stay put here
and so he was doing other odd jobs well
he he' already had he had a million
dollar check from the sale of his
business so he's fine um so but it
delayed his mov to Florida so
um and yeah had we done that he you know
had I known that he was going to stay
there we could have easily partnered um
I could have stepped in from a business
development standpoint started learning
the trade essentially too and this is
kind of I was going to get my PL my
plumbers license I I guess technically
I'm still a um a plumbers
Apprentice I haven't kept it up but my
goal is too I wanted to learn the trade
too so if something came back why not
I'm I'm on the job with with my guys
with the team I can learn this business
I'm clocking hours I can get my plumbers
license too and so I think in in
hindsight I think that was one of the
selling points too for my um partner at
the time too he's older guy um he's kind
of sideways with his family back east
and I think at some point he saw me as
some kind of a son and was hand down his
trade to someone else that he could you
know pass that on to kind of weird
Twisted way and so um and we were
friends right so I was like yeah teach
me how teach me how to PL teach me to
trade so something I could do in my back
but well so quickly into it um we closed
that December of 2020 um we should have
in hindsight to should have waited until
January to do a just a clean from a tax
standpoint just a clean start but also
probably would have cleared up a lot of
AR issues too and
so Clos 2020 um I think December 19th
was was was the day of 2020 um go
through the holiday celebrating our
closing that business feeling really
good and optimistic about things and
transitioning things over um we did a a
stock sell so we kept the the name of
the business which was named after the
the seller which I was my un intended on
changing eventually I wasn't going to do
that within the first six months I knew
enough I don't know where I got it from
but not to do any major changes in the
first six months um and so I wasn't
going to change the name um his name
carried a ton of weight and social
capital in the in the space And So
eventually once I became a known entity
I could have transitioned to a different
name that didn't wasn't tied to an
individual um because even then my my
goal was to buy and hold and scale but
at then I always left the the
possibility to um flip the business as
well and that's one of the selling
points I told my partners like listen if
we don't do anything and we grow this
business if we stay flat we're on a it's
on a high note if we stay flat in the
next five years we'll be able to have an
arbit um a liquidity event and have a
you know have Arbitrage of two twox here
um if we don't do anything so that was
the bank knew that um was it was always
on the back table um you know on the
back burner to do that as well but um
again we W able to keep it um flat
couple minutes ago you were talking
about due diligence and the diligence
that you did on the business which was
light but it wasn't nothing you you you
looked at the numbers yourself and you
had a couple of CPA friends looking at
it um and as we know the what went wrong
here was not that the business was a
lemon it was a solid business it was the
it was your partnership which we're just
about to get
to uh so but you didn't diligence your
partner is is what I thought you were
going to say uh and correct me if I'm
wrong and but you you definitely didn't
do it do much diligence so so reflecting
back what should you how could you have
diligen him better for people who are
contemplating to Bringing on a partner
that they frankly don't know
well yeah I've got a really good friend
of mine that's in Austin that does um I
should have just done a simple
background check on him and just looked
at it yeah and then then I could have
asked him maybe he could have explained
some of the things that came up on his
background checks we ultim ultimately
did you know post closed because we
quickly got into a a legal
situation um so a lot of those red flags
I could have asked him about and quickly
walked away and you was like you know I
just don't think this is the right fit
um and the background check would have
revealed whatever that would have
revealed would have been red flags I
mean can you tell us what they are or
not yeah there was one situation where I
mean he actually told me about it post
close he's like I didn't want to bring
this up and kind of scare you off and so
there was a situation where there was
assault ACC an assault accusation and it
was legal there's legal there's a legal
Trail for it and so um you know we live
in America you're innocent until proven
guilty um and so the case was end up I
think it got thrown out on a
technicality but it just it lends it it
lends himself to the to the behavior
that he exhibited you know after you
know shortly after we close and like all
right this is consistent with who he is
um so and if you had seen that you would
would have walked in advance I think so
yeah it would a big red flag then just
the the job the the inability for him to
to scale an operation on his own that
should have been a red flag too like why
why weren't you able to do this on your
own and so it was a red flag I was
willing I'm like okay maybe that's not
his skill set he's the he's the
technician he's he can turn the wrench
he is not good at building relationships
clearly and um that's where I could step
in and so but well that wasn't I don't
think that was crazy Josh I that's
something for example you you see a lot
in Tech land startup land where the
product genius the the the the engineer
isn't good at you know the business side
of things or the people side of things
and so you bring in the business guy and
you pair that with a technical person
and it's a great pairing and so it
sounds like that was kind of your vision
here you were going to be the front of
the house the sales guy the leader the
people person um the the business
Visionary and he was going to be the
technical guy so that doesn't strike me
as that seems like a good match um no no
no you're something think you're spot on
in theory theoretically right that was
the vision um and Josh what about what
about the what you took as positive
signals namely that he was in your
social network kind of sort of because
he was part of your church in retrospect
you think that that did signal anything
or did that does that really not signal
anything so so for the listener who
might be thinking about partnering with
somebody from their church or some other
connection they have or just their
social network did that end up being
worth anything really or was that a a
false a false
positive I think no to this I mean I
think I don't think I would have done
anything differently there is using
church as a kind of uh as a point a
checkpoint yeah um because listen we've
all sanded and fallen short you know of
the glory and we all have our flaws and
so um and honestly even his ability even
though he did it after the fact is hey
I've had these missteps um like you know
what we're all we're all imperfect
individuals and so like all right let's
let's turn the page on that and move
forward um whatever reason it was that
you weren't able to grow your Enterprise
to the point okay let's let's put those
on the table and address it and move
forward um I think I guess if I'm a
listener looking now yeah I would just
trust but verify like yeah I have a
great relationship with someone from a
small group from church let's just all
right let's talk let's walk through this
okay this we think this could work but
what if it doesn't let's maintain our
relationship let's maintain our
friendship let's figure out let's just
say the Mark it's nothing that anything
happens here the market turns and so how
do we exit this together and yeah and so
coming outlining that strategy was like
Hey I want to move in a different
direction you know it happens all the
time with Partners like something
happens divorce illness um shiny object
syndrome and so what in that situation
hey I want to focus now on my e-commerce
business now what does that look like
and so how do we exit here and so
figuring out those points and like okay
and so and then going even if it gets to
the legal standpoint we can we can
quickly Hammer those things out and like
all right this is how we're going to
transition out of the business either
either partner um so just outlining
those things absolutely I wouldn't I
would do business with someone from
church again absolutely I would just
make sure that you know you do your due
diligence make sure that those red flags
aren't there
and then have a just have a clear
operating agreement that outlines what
the exra strategy looks like yeah um
well and I'll just I'll just um double
down on a few of those things so
obviously strength of operating
agreement between a part between
partners is hugely important a good
attorney will um press you Partners to
have that UNC uncomfortable conversation
like you need there's always that moment
where you need to have an uncomfortable
conversation with a with a new partner
of like this fails go sideways whatever
or or if we just want to dissolve the
partnership for whatever reason if we
just want to go our separate ways how
are we going to do that um and there are
some best practices there there's some
standards there's the so-called the the
buy sell agreement or I think it's also
called a shootout um
something um so people can Google that
but but fundamentally your attorney can
make themselves the a good attorney will
press you to do this process and will
kind of um
you know be the awkward one to bring it
up be the one to bring it up because
neither of you you know when you're
starting a new partnership everyone
wants to be positive and happy about the
future and the prospects and and and
neither party wants to say well let's
talk about what this looks like in the
worst possible case let's talk about the
divorce what does a divorce here look
like um so a good attorney will press
you to do it and bring it up they'll
they'll step into to prompt that
conversation so yeah anyway speak speak
of attorne will if I could jump here
real quick yeah as far as not I didn't
Dil diligence his attorney either and so
he ended up not being licensed in the
state of Texas oh so okay um yeah it
problematic too and so licensed in
Maryland operating in Texas yeah it was
it was a lot um so he ended up being
causing more problems and so he was part
of the he I mean we ran the operating
agreement through him and so he wasn't
having a good attorney is key absolutely
because with the good attorney um who's
my my business divorce attorney he's a
good friend of mine yeah he's like next
time you these are the guys you need to
look talk to they can absolutely put
together a solid operating agreement and
will lead you down the road to your
point to like hey let's talk about this
uncomfortable outcome we have to right
keep be open to each side like y we want
a mitigated success and then a mitigated
failure and so what does that look like
and how do we exit that so right well
and of course everybody doing this
depending on what their own balance
sheet looks like resources are are a
concern but I mean there might be as
many as three lawyers involved either
both parties both Partners should maybe
have their own councel and then there's
and then there is the attorney
representing you know who writes the
operating agreement who is neutral uh
and presents the operating agreement to
you guys and then you each have your own
attorneys to review and help help you
think through that operating agreement
which you know each person's got their
own attorney and then and then
collectively you're paying the business
attorney it's a lot but um you know that
would probably be the the absolute
safest way to approach
it so definitely more time you had a lot
of TR you had a lot of trust Josh you
had a TR you had a lot of trust in him
you had a lot of trust in um I guess I
guess Mo mostly in him it seems like you
you didn't have as much trust in the
business you did your you tried to
diligence that but in him you had a lot
of trust in in his attorney or his
selection or use of hisy
I did and I think part of that too was I
was trying we were get towards the end
we were at the end um and this could
have happened with quality of earnings
too but just not wanting to put the cap
like we this is just one less expense we
have to pay for if I pay for my attorney
which I should have just paid for my
attorney yeah I I was trying to manage
my cost there we already at the Finish
Line um in retrospect I should have just
paid the whatever it was you know three
two five grand for for somebody that was
representing my interest um to make sure
that we were legally covered no matter
which way whichever way the pendulum
swung during the course of the business
operation so
um well you're not the first Josh to to
try to save money in a transaction um
and end up being exposed in ways that
you you later wish you weren't uh it's
it's a very strong Temptation because
legal fees quality of earnings fees are
steep people uh want to avoid doing them
want to avoid spending them especially
because they're you know typically in a
search you've already been spending
money if you've been doing a fulltime
search you've been forgoing your income
because you've quit to go search for a
business so the Temptation is quite
strong um but it's it you'd be wise to
resist that Temptation
listener uh all
right back to the
story January you you're now partnering
you're now partnered uh how how what
what happens next
yeah so it's January it's um it's winter
I guess it's winter everywhere but
winter in in Dallas and most people in
the northeast or up north don't think it
gets cold here it gets cold in Dallas
and so we operated through January just
a lot of transition things and so we get
to the beginning of February and we get
a freeze and so they're more common now
and with the freeze you know the roads
freeze over um I love my I've been in
here in 20 years but when it rains hard
in Texas track traffic becomes
unbearable so um snow and ice makes it
even worse so um people staying home
pipes are people they're just not used
to living in cold climates and so when
it drops below freezing you know pipes
burst which creates an opportunity and
you don't there are a lot of smaller
plumbing companies out there that were
taking advantage of customers we did pay
we did charge an emergency fee but it
was reasonable and it in line with
everyone else's and so it was a lot for
a small you know at the time five
seven man plumbing operation including
everybody to to manage especially for
someone we're trying to transition a new
business and so um the old seller's
there too and so he's there every day so
the old team still looking to him for
guidance and Direction and still trying
to look to my partner and me for direct
you know like all right who do we listen
to here and so at that point I'm like
hey let's just listen to the seller like
this is see we're going to follow your
lead here let's maximize the situation
help as many customers as we can um but
at the same time we have to take care of
our our bread and butter which was one
of the other red flags of this business
too was just key customer concentration
issues in addition to the key man
RIS um things that I you know again
we've talked about it too but I think I
would have would have felt comfortable
going into because we were similar
personalities and I felt the transition
with his help would I would have been
able to transition those relationships
and after closing that would have
absolutely been the case um hav talked
to each and every one of them they just
they told me that listen if you if it's
just you you find a new partner or find
a new someone else to handle the
plumbing side he like we'll continue to
do business with you and there's a new
these are new contractors too that were
coming on board they just got sideways
with my partner on different issues that
related to plumbing and so
um yeah it's so sorry Josh so so during
the
freeze but the seller still around
helping you guys and and and your
approach is to is to help is to get out
there and
customers and then and sorry then what
happens with your new partner yeah so I
mean so this it's kind of a crazy time
the phone's ringing off the hook the
phone wasn't like somebody sitting there
think of Betty or Ben you know whoever
somebody sitting there answering calls
all day it was a cell phone he ran the
business from the cell phone which we
transition that number to a new to a new
phone and
so you know we're we're all scrambling
I'm the only one that can't really go
out and help anybody in a pinch so I'm
it's like hey let me take the calls and
be intake and triage all the calls well
that was a point of contention with him
he's likew you don't understand what
they're calling and talking about I'm
like well I can like understand what the
problem is and have them call one of the
five you really we had journeyman
plumbers there too any one of you to
kind of figure this out but I can take
all the calls back and we can call them
back yeah so but he wanted to was that
the first inkling that he was not going
to be uh that it was going to be so much
friction with him it was before that I
think like we ran January we like it it
was a slow January so we ended up
running at a loss for like two grand
which was not a lot when you look at um
you know our monthly um turn and so like
all right yeah we could fix this here
here and here printed out the p&l to him
and I guess it was like looking at
Chinese and he was like oh it's like he
kind of fell back in his chair is like
oh it's like like a red fox like oh this
is I can't believe this the big one I
need to he's like I need my wife here to
run all this I'm like like we don't need
her here like this is what the problem
is like we cut cost here we like all of
a sudden our cost for what ever reason
got out of control here let's start
monitoring that a little bit closer
let's get these jobs executed in time so
we can get paid on them and we'll be
fine but I'm like okay at the time I'm
like all right fine you need to talk to
your wife I'm fine we let her give her
her opinion and so she sent out an email
so like great let's bring her on the
first email was like a long laundry list
of things like are we doing this doing
this and this like listen I'm not I'm
not a kindergartener when it relates to
business I don't need like it's your
input is respected but I didn't need it
it just became too much um and so but
she's in it she's
involved um she's managing his email so
it wasn't like she's at home like I
would get emails from him it was from
her and
so it just became a lot and so so during
the freeze we're missing out on
opportunities I have the phone we we
really don't agree on it I'm like listen
it doesn't make sense for you to take
phones when like take calls when you're
out in the field helping customers
so that became the first point of
contention um like the serious Point
oftion heed phone he called me he's like
threatening it's like listen you don't
give me that phone I'm threatening to
sue you he's like you don't know me like
cussing me like I'm keeping it PG here
but like laying into me verbally like
laying into me like something and this
is when he Swift I'm like wow like all
right this is who you are I'm like this
is how you're going to handle
stress like I really did not like now I
see why you weren't able to build a team
around you because wow nobody wants to
be around that and so like we can like
this this is a lot this is a stressful
situation but we're going to get through
it and you need somebody at the helm
that's not cracking up at the first sign
of you know
discomfort running a business and so and
Josh when he starts revealing his
character to you does your stomach drop
are you like oh no what have I done yeah
I'm like what did how did I get into
this I'm like and this is untenable I'm
like this is not like I'm talking to the
attorney like his attorney I'm like this
is I'm like I'm record I'm recording
some of the phone calls I'm like listen
this is not normal like I'm not going to
put up with this and so at this point
I'm like this is we're looking at the
calendar now February like it's just
more and more there so he brings his a
gun to work and then you know it's Texas
yeah it's Texas so people you know
people have handguns I have mine too I
had in the glove box I brought it in we
were talking it's like part of the
conversation right well I take my gun
and go home with it he leaves his on the
desk and so we get into it and so I'm
like it to the point of contention like
he he I'll tell you he got into almost
got into blows I did get into blows with
one of the plumbers that we had i' since
left the business to let him run it but
at that time I felt like his verbal
threats and with him having a gun on the
desk like I don't need to be there so
I'm like you run the situation like
we're we're not getting along
here and I'm not going to put myself in
a situation to where you fly off the
handle and there's a gun lay on your
desk so my
gosh it it was it was I just couldn't
believe that's crazy it was nuts and I
was like I can't believe this is the
situation I'm in I've I've emptied out
my 401k I'm like I sat and talked with
the the we had a a morning we had our
Monday morning meetings I'm like like
this is not working like I want to give
you an opportunity to get out you can go
ahead and
leave um we'll figure out some kind of
but you being here is not healthy it's
toxic for the business I'll let you you
can go run you're old company the seller
says yeah we're not uh we're sat down
there with him like listen I can help
him through this you don't necessarily
need to be here you're you're a reason
why a lot of the contractors that we're
working with don't want to work with you
anymore it's better for the business if
you can just hand things off to Josh and
I'll help him with the pl the plumbing
part nope I'm not going anywhere and so
I I don't know what I don't know what to
do so I sent I call my friend who's a
lawyer who does um business um breakups
all the time and so he's like send me
all your documentation so I send them
our the closing documents I send them
our operating agreement which he quickly
tells me like this is a he's like who
did this for you I was like I raised my
hand I was like I did rocket law typed
in he's like this yeah he's like this is
bad um um so he's like this we could
have voted a lot if you were just 51%
ownership we could have you ejected him
from the company and brought in someone
else on the loan at a lower
Equity um Equity rate and um equity
percentage and so but any hindsight we
were stuck bad operating agreement um
we're in this and so I'm like all right
I just want my initial Capital back he
can have the company and so we go back
and forth he's like he got he had this
notion that the seller gave me the the
money up front to pay for the company
and which I was like what I like no this
is my money here's my statements this is
the withdrawals here's statements from
the bank the the the dollar amount match
up these are my bank accounts these are
the 401K statements these are our funds
this is pretty black and white nope the
seller gave you the money he was not
hearing any other explanation so like so
I just couldn't reason with him on the
simplest of things I was like you can
have the company I just want my money
back and I probably fought too long
trying to get my funds back in hindsight
I should have walked away from the $1
180,000 just called $200,000 and just
started went back to you know the
drawing
board but um what why do you feel that
way cuz I mean that that is that was
your retirement so it does seem like
that'd be worth fighting for was there
was there a cost to fighting for it
eventually yeah it was so I didn't take
out the full full amount there was still
I think I used 50% of it at the time so
I hadn't you know I at that time I'm 40
I'm just turned 40 so I'm like I had I
didn't have the 401K that a lot of
people had and so like you know what
that's fine like I can I'm still I'm at
the Peak earning positions now I can go
back and rebuild my 401k again yeah um
and that's in hindsight of like I can
walk away from that um versus doing what
I had to do which was file Chapter 7 to
um protect my house and all of our other
assets so chapter 7
versus um getting my you know or walking
away from my Capital injection you know
it would have been but but but walking
away you still would have had to pay
down the SBA loan no he so we were we
negotiated that he was going to take on
the loan he would have I would have
walked away from the company he was
going to take over the debt service him
and his wife were going to take it over
I was like fine you guys you guys think
you can run this better than I than I
can with me involved have at it and so
that decision was quickly made in March
of that 2021 like you guys can run it so
they ran it him and his wife they ran it
with the sellers help as best as he
could but I mean he ran off employees he
ran off more contractors he wasn't able
to bring on any new
business um so the company got ran into
the ground and so I find out towards the
end of the year that he hadn't been
servicing the
debt so because the business was being
run so poorly and so at that point I'm
like we haven't been able to close I'm
like all right he's not leaving I'm I
was not I was prepared to all like if
he's not gonna leave I'm Gonna Leave My
lawyers we've got lawyers involved
that's why I said it's kind of a catch
22 like yeah if you do lawy on the front
end it could it could elongate the
closing process but at the same time
you'd be covered and so anyway so I
should have been in retrospective should
have done the lawyers up front and then
we would have had a clear exit on the
back end so we there's some cliche there
where it's like you're you're going to
pay for lawyers one way or the other and
it's better to pay for them at the
beginning than at the end something like
that there is I wish I could remember
what it was but um yeah so
anyway ended up paying for him in the
end I end paying you know $50,000 to an
attorney trying to get out of this
situation um so if I would have even
paid you know 10% of that up front we
could have avoid it potentially avoided
it so um and what were you doing from
March to December while he's busy
running the business into the ground and
you've retained your job so you're doing
your job or but how involved with with
with the business are you if at all yeah
so quick so we closing the business um I
kept my job but I quickly realized in
January I needed to be there full-time
so I left my job full time with the
intention of just going I burn the
bridge let's go all in here and make
this work let's add on you've got two he
was already bringing in two trucks which
we didn't have to deploy Capital to
bring that we just needed to hire new
plumbers and or HVAC guys to start doing
some of the work that was already there
with existing customers so I'm like
let's just go I'm like I ripped the
Band-Aid off like took the golden
handcuffs off and like let's go
and I you know with a better operating
agreement in place we would have fine I
could have moved on from him installed
one of the two master plumers that they
already had which are great guys which
th% deserve that opportunity to have
Equity um and be in alignment with their
efforts um and personally with their
efforts and personally and then have a
stake in the exit or whatever that looks
like or just the upside in the the
operation of the business in general um
but that wasn't the case and
so they're we're there and within you
know 45 days I'm like this that's when
all of that happen happened with the gun
him cussing me out
um just second guessing me belittling me
in front of the other um employees it
was just it was an awful situation and
so I'm like you can have it you run with
it and that's where we're there so
during that time my old company I'd
already left and then my company come
like there hey yeah we still have your
position here so I was able to get get
back in fulltime with my my old job and
which I needed to support and pay for
their lawyers and then keep food on the
table so with that I was able to do both
of those and start to build back more
401K great so from March to December
you're you're you're basically working
your shop and and life has returned to
normal your professional life has
returned to normal of course you have
your ear to the ground as to what's
going on in the business or no at some
point do you just kind of wipe your
hands of it and and aren't really
thinking about it anymore I still had
access to you I was still paying a
couple bills I had access to QuickBooks
and so I could I was still do payroll I
was still sending he didn't know to do
that so his wife didn't want to get
involved and do that so I was still
doing payroll um a couple of guys needed
papercheck so I drive out to Fort Worth
hang out with the guys give them their
paychecks keep a pulse of what's going
on and like just talking to me like man
like I don't know how much longer I can
do this but you know they were tied
there too because this was how they were
earning a living and so yeah one guy
left he went out on stepped out on his
own um a couple of really close there
and reacting Gary what's that how did
the seller react to all this situation
because he's Still Remains active in the
business because his his move to Florida
you said was suspended so so what do he
h how's he reacting to this horrible
person coming in and running the
business that he built while he's still
there he was having a completely
different experience with the um my
partner at the time initially like he's
like I'm getting along with him great
he's not treating me like that but he's
like the moment that he does he's like
he's like I don't know that I could take
what he's been how he's been treating
you he's like I would have been in jail
already
so um but that maybe that assault charge
from your uh your your partner was
actually somebody assaulting him yeah so
he yeah we he's like he's like man he's
just he's like it's wild just the way he
like he just does not get it he doesn't
understand older guy he's he's having
the print off and so we're trying to to
um kind of quote out these jobs and like
so the seller and I were able to look at
it on like on the screen here he's
actually going to Kinkos or Staples and
printing out these huge plans to quote
jobs that we may not even get where the
seller was like Hey I can show you how
to do this this is what this looks like
uses the formula I'm like oh I've got
this I like I can I can do this part
even though and I may come to you for
questions but I can do this part yeah
without having to go and spend money to
print out every single plan and even his
wife was like you don't know what it's
like at home he's got all these plans
spread out all over the house like he
was in over his head yeah yeah um
because it was commercial plumbing
versus the resident service which he was
used to um so well not to defend his
behavior but that probably does help
explain his his terrible behavior is
that he was
panicking yeah I I think so and so yeah
pressure you know pressure bus pipes
right to use a bad pun in plumbing for a
plumbing company and so he
I I don't know how you diligence that is
trying to figure out how he handles
pressure other than talking to other
people ex ex employers so that's the
diligence process I talked about like
hey like I'm going into business with
this guy like just what was your
experience with him a simple question
like that five minute phone call you
know maybe could have uncovered a lot of
that but um
no we just got to that point where I'm
at home I'm working he's running the
business there and he hasn't shut down
his company so he's got his operate his
company that he was like yeah he's like
I'll shut that down within the first
month or two I'm like okay well we're
fast forwarding towards the middle of
2021 and he's still running his company
they're still um then he's actually he
said there were mistakes where he ended
up meant to put the the water heaters
and all these other fixtures on his
account but he ended up putting them up
on putting them on our business's
account and so you know maybe he did
that maybe he didn't but I
think based on his history that I mean
he was it looked like he was stealing
from the company I was like oh okay I
was like and you never mentioned it
before he said he told us about it up
front but you never mentioned it before
like hey I'm going to do I'm takeing
like if we' have talked about it been
fine but he never talked about any of
this stuff I was like yeah we talked
about that so maybe he talked about
thought it happened in his brain but we
never had those conversations so he was
trying and he took employees from the
company and were going doing jobs for
his his company which we weren't
experiencing the revenue on I was like I
would have never agreed to that he's
like yeah we talked about that I'm like
no we did not so we talked about hiring
additional people for never hiring
anyone for your company to satisfy
whatever debts and ramp down that you
had going on so another thing that was
not outlined in the operating agreement
clearly which which I should have done
is she like listen you're going
partnering with you you're going to
cease and run down your operations
within the first 90 days or whatever
terms are but having
clear um line items on what that looks
like and him exiting his business and
being fully committed to this um which
he had since I engaged him in August he
had plenty of time to ramp it down to
December this just why I'm like okay why
would we even need to make that part of
it you should have ramped down by the
time we got to close and he hadn't so um
well Josh the I mean this is just such a
nightmare um T take us now to the end of
that year and how does this nightmare
start to end so you you found that he
isn't even paying down the SBA loan go
ahead it's de yeah he's not he's barely
getting by he' taken out he didn't like
the fact that cuz I opened up a lot of
the the checking accounts so he went up
he went out and opened up checking
accounts through a different bank which
I did not have access to and was running
things through there which coing
co-mingling jobs and do like I had no I
lost disability what was happening with
the company and in addition to open a
new accounts he went took on new debt
and then so I started so we're fast
forward through 2021 we're in 2022 the
company is still running we get to the
um of the end of 2022 and he's like I
can't do this anymore he's like I don't
want this company he's like he's already
running into the ground he's not
servicing the debt he's like I don't
even want it anymore like okay so we're
going back and so that so now he doesn't
want the company we're the company we're
still on the hook for the SBA de debt so
then what are my options here so I'm
asking my attorney like what what can I
do here like really you need to talk to
a bankruptcy attorney at this point um
to protect your whatever assets you have
and at that time was just just my
domicile in Texas um that was protected
but
with SBA that was still at risk and so I
needed to protect that and the only way
to do that was to file Chapter 7 um and
you meant you asked me about the
difference between seven and 11 on the
preall um just for our listeners seven
is complete um discharging of the debt
11 is reorganizing restructuring the
debt and continuing operations of the
business
which at that I was not I may have been
willing to do that up front but he was
going to take the company and so I
didn't even consider that um and then at
that time he already he was being sued
by other thankfully my name was it
wasn't but the business was on it so the
llc's business name was already
tarnished um and there's like there's no
point even Tak he's like you can have it
you can have the name he's like I don't
even want want any like well it's it's
really nothing any at this point so so
he he had had lawsuits he had caused
lawsuits against the company in his
tenure two years of running the business
correct what
um so taking out loans and not paying
them and so they put leans on some of
the some of the outstanding work that
was still coming in he was waiting to
get paid on a couple of deals that never
came through and it was always somebody
else's fault it was never his um it's
like he never able to look in the mirror
and like say this I'm like and even me I
was like listen what could I have done
differently this was the first time in
my professional career that I really
haven't been able to connect with
another human being and get work past
our differences it was just untenable
like it and and I was like what how
could I have done handled this
differently um and really is just going
back to how I could have prevented it on
the front end um Y and from a diligence
standpoint and so yeah we get through he
sounds like a person who's just kind of
Beyond uh he's not somebody who's very
reachable or or somebody that can you
can kind
of resolve your differences it sounds
like he he's just a combative person and
that's how he responds to everything not
to mention other vices he has so
yeah and then he mentioned to me too
like when he's like I really want to
make sure that this nothing happens to
our friendship because he didn't have a
lot of friends which was another red
flag and he's like he admitted he's like
I don't have a lot of friends he like I
make sure that we're good like we're
always good I'm like okay like well
sounds good like what could possibly
break up what happen to us that would
you know break up this friendship you
know that's just kind of really forming
I'm like but clearly there were ways for
him to do that and
so it was important to him like he just
wasn't able to do this so I felt sad for
him too I'm like all right I was one I
was a friend potentially um you know a
son figure where he was be able to hand
down his trade and watch you know watch
the business like he taught me how to
Plum and watch me grow a business and he
could step back in retirement and say
yep that was his kind of Capstone
project on his career um so but that
just didn't happen and so like I can't
like I can't work in this environment
like you've clearly this is it wasn't
just one time you repeatedly verbally
abused me like if you can't talk to me
like that as an adult you can't talk to
your customers like that you definitely
can't talk to employees like that so um
and everybody tolerated as long as they
could and left at various points of the
um the operation but I mean I think he
ended up shutting doing like he's walked
he walked away in April of March of 2022
and so we were winding down the company
wrapping up taxes and I think this year
um 2023 sorry
2023 he finished in 2022 we hadn't um
then we shut defaulted on the loan at
the end of 2022 and then
2023 he just completely stopped
operating and trying to run the business
and so um this year we finally closed
the books on and the chapter on that LLC
um couple of months ago and I ended up
putting the bill on the accounting fees
and making sure we were closing out all
our tax returns
but um so what what what is the result
of chapter seven for you Jos so as it
stands now um I yeah I've got I filed
bankruptcy it's it impacted my credit
it's going to be on my credit history
for the next seven seven years um 10
years depending on what you're trying to
use credit for and so um I'm now on The
Black List with the
SBA and so SBA financing I'm as you know
I'm still like alluded to earlier this
is only you know the beginning chapters
of my story um as it relates to Eta but
I'm going to have to get creative with
deal structure moving forward um and so
the SBA um financing is not on the table
but I do plan as a you know I love my
country
and I hate the fact that I wasn't I was
able that I was I short of the American
people you and rest of our listeners
here and I absolutely plan on paying
back the SBA every cent plus interest um
and that's why I'm really headstrong
into diving into this next operation I
don't I know what my enough bar is
driving this business driving this next
operation to the point where yeah it's
throwing off enough capital to where I
can grow that Enterprise then I can make
um myself whole with the SBA and the
American people but well um that's a
noble a noble uh sense of responsibility
Josh um and I I guess as a taxpayer I I
thank you for that and I and I mean that
um it's also nice to hear that somebody
who's gone through such a financial
trauma is still thinking about other
other people uh usually we we focus just
on on on the trauma and on what the what
the principal has experienced but you're
you're also focused on on making
everybody whole so that's a as I said
it's a noble reaction Josh before we
start getting to some wrap-up questions
I did want to ask you about something
you said early in the interview which
was your self-confidence in figuring
stuff out so in your professional life
you'd been plopped into a number of
situations and and figured it out and
thrived um but a common pattern in ETA
is buying a bluecollar business a
technical blue collar business bu HVAC
is is kind of the example but shortly
short not far behind is Plumbing
Plumbing's extremely
technical putting all this horrible
stuff with a partner aside and and the
kind of the the story of what happened
here but just the the technical
knowledge and the ability to learn to
run a plumbing business as a non-
plumber were you overly confident or no
you could have figured that out too if
all of that terrible partner stuff
hadn't happened
yeah I I think I I would have absolutely
figured it out and then the key with me
is I was I would have learned just
enough to been dangerous but then I
would have been smart enough to hire
someone else I would have promoted any
one of the two master plumbers there to
to that role and had the seller teach
one of them like which ended up being
his brother I'm teaching him how to
actually accurately bid these projects
and then and then take that off of my
plate that's not my area of expertise
let me kind of work above the business
um start talking to you um socializing
and Network working with other business
owners and look for the next acquisition
opportunity
um but so so you would tell other
Searchers who who might be looking at a
pretty technical blue collar business
like plumbing and they're a white collar
Searcher who have come from corporate or
whatever that it's doable that they
shouldn't be that that this is
absolutely something that can be done
with zero Plumbing
knowledge no Absol absolutely you just
have to make sure that you have the
right there's the right team in place
and so going back to like if I bought
small and there there's a good team
there too but if you buy a little bit
bigger there's a management layer in
place and so you can absolutely step
into a field where you don't have the
technical knoow or that you could you
could navigate that learning curve and
absolutely still do that and apply your
individual skill set to it um it's just
like anything else like if you hire
people are hiring vas now like hey I
don't like doing this or I'm not good at
that let me hire someone else or just
delegate that out to someone else and
just focus on the things that you're
that you're good at um but no I'm still
looking for a business um I'm actively
looking my B box has changed um I'm now
looking for the typical you know 750 to
two million in eida
um I'm open to I like construction a lot
I just like the space um I think we're
the where we're headed now as a country
I think manufacturing is a good spot to
be in as well light manufacturing and
Industrial um as well as Healthcare
that's my my my background has been in
healthcare sales and management the past
15 years but again um taking an an
addressable Market um identifying with
those customers are doing the customer
segmentation and then flushing out a
true Way Forward um that's what I'm good
at I can do that within any space once
I've you know get through it and I say
that I'm bragging on myself there but
I'm humbly stepping in like I don't know
this get to know and understand that
business and then like all right now I
feel like I've got traction here I could
step in and um taking take things to the
next level or look for the right in
person if I don't already know who that
is and plug them into that space even if
I could do the job like I need to hire a
general manager or a salesperson to be
out there to do that so um and Josh but
why not go right back to Plumbing since
you now have experience in that industry
you had a thesis around it you got into
a plumbing business that thesis was not
disproven so you probably feel even more
confidence in that initial thesis you
had now that you've seen the industry
from the inside um there are plumbing
companies everywhere you know it's it's
not a it's you know it's a it's a giant
Tam why not go right back to the market
and and just uh kind of repeat repeat
the thesis just now with you know older
wiser with better partner selection or
no
Partners yeah I think I'm open to it um
I think a lot of the things that are on
market now the the the price tag is a
little higher now than versus buying Now
versus in 2020 um I think private Equity
is has entered into the space and then
they've even dropped down into the you
know below the $2 million ebit range to
kind of pick up some of those companies
and so the expectation I think well you
know some of these sellers is like oh I
can sell my you know subm million dollar
ebit of business for you know five SX or
something and so if you can catch them
off market and you can kind of walk
through and get to know you that's not
really about the multiple it's about
them selling to you it's like anytime
you're selling I think maybe one of your
previous guests mentioned this but
people buy from people and they buy from
people that they like and so they
getting we can figure out the number um
so even if you're paying a premium for
it if it's a solid business you have a
good relationship with the seller um
they've got some skin in the game either
through retained Equity or a seller's
note um yeah Plumbing is definitely
still on the on the on the table I'm
just I guess I've expanded my box
talking to I think was it Adam previous
guest where he's like listen like people
are we were doing the you're trying to
accelerate your search in two months
it's like listen anything that's making
two million dollar I'm looking at and
and so to take that
approach um yeah Plumbing is a part of
that but I'm looking at manufacturing I
have a box but I'm keeping my eyes open
for the right opportunity um there's a
I've submitted a couple of Lois right
now and really it's just about coming
back we have those conversations they
like me I'm like all right great I've
got a list on my whiteboard here of
different Capital sources we can go to
and figure out how we can creatively
structure the deal um and get to Clowes
and transact on it and Josh what about
you being the operator for for somebody
else for a Searcher or a sponsor and
participating in the equity but not
being the majority owner yeah I'm a th%
open to that too like um I was kind of
had blinders on like hey I need to be
the guy I need to be an owner operator
and I need to have 100% Equity but as
I've kind of Revisited I guess I kind of
rebooted everything last
June um and my search i' you know I've
narrowed my search down and kind of
kissed a lot of frog so to speak and I'm
I haven't put a couple Lois in but I
haven't closed anything yet and so if
there's a situation given my chapter 7
status um I'm not going to be on be able
to be on the loan documents initially so
I have to take a 19 and a half percent
stake or some other stake or earn out
where I'm not there initially and so
whatever caral Capital Partner um um
kind of hitch my wagon
to they're going to have to kind of take
on the brunt of the underwriting and so
and then we figure out a a capital
structure where eventually through time
I earn back the majority Equity stake
and they're comfortable with that and so
in a 3 to five maybe sevene span the
dynamic shifts from 60 6040 to 4060 from
their perspective and I'm okay with
having a 60% Equity stake in in my
operation because yeah not they're
buying in and investing in me the
holding company and I'll take 60% of a
larger piece of pie and so now with
their expertise and their Capital now we
can continue to go on and and roll up
and expand the operation and so um I
don't necessarily need to be the one
diving in my 40K or rolling that um
doing a robs but you know leveraging
other people's money that are out there
just through search fun the other day
they're like looking for they're looking
for operators like they're like there's
a ton of people that want to be LPS that
don't want anything to do with the
day-to-day but they're looking for
someone that's capable and willing to to
run that and you know right I raise my
hand I was like absolutely let's talk
let's see if there's a fit here if you
like me people talking to they see me on
the YouTube I listen to the the podcast
and I I think one of the webinars the
first time I actually saw you but if you
see me like me think that we might get
along let's talk well that's great Josh
and I and I think you you could
absolutely be an appealing candidate as
somebody who for to be an operator in
somebody's business Josh reflect for us
a little bit just on I guess the Life
Learning here so so we we we've heard a
lot of the specific tactical learnings
here
operating agreement better proper
operating
agreement better proper neutral
Council uh much deeper diligence on a
prospective partner not being 50-50
avoiding that the 50-50 split uh I'm
probably forgetting others um but what
are there any other kind of Deeper Life
Lessons here
um trust but verify I guess would be a
big one just in everything trust but
trust but verify you're a very trusting
guy as we've talked about you you'll
probably be a little bit uh sadly
probably lost a little bit of that um
but maybe that's what wisdom
is yeah and like I I I don't that's not
who I want to be that's not who I want
to be as this La just cynical person
where I'm looking at looking around the
corner waiting for the other shoe to
drop I want to be optimistic and trust
you know whoever I'm sitting across the
table with or sitting next to until to
the point where you can't and so yeah I
don't think that I'll change that much
and so but yeah one ey my eyes are
definitely open and um just need to take
the steps to be deal um just take your
time on the front end um and just do the
best you can like there's just some
things you even get into business you
can't just I mean there case and point
you just can't see happening and so um
just do the best that you can um Deeper
Life Lesson is just like um there's I'm
I'm just a big I'm a um huge Faith guy
and so like my I know at the end of the
day I'm just a steward of where of all
of this and so God to he takes you
through all these ups and downs for a
reason and yeah he's sitting here I
think I'm a better father I think I'm
definitely be a better business partner
moving forward um business I think my my
sense of awareness has improved and
so I think it's Mandela that coin the
phrase or maybe gota um ascribe to him
but um you either win or you learn right
and so anytime like I I hate being an
ex-athlete I hate I hate losing I hate
losing but um anytime that it's
inevitable that you were going to win
lose some sometimes you want to win the
majority of the times that you lose and
so um those times that you do fall a
little short you got to make sure that
you're you're you're taking note and
then you make the proper adjustments to
so you don't lose that way again and so
you know suffices to say I absolutely
will not lose this way again um and then
making sure that I like I have strong
people around me just having a more
formal um Advisory Board which already
have um people that are way smarter than
me NBA from whon um Duke
SMU that I can run every deal by that I
uses a sounding board and it can kind of
be kind of keep me on my um straight and
narrow and be my true north as we as I
move forward through operating whatever
um Enterprise that is around the
corner
great well Josh you you seem to me as
somebody who uh not surprised to hear
that you're grounded in faith because
you seem to
be um calm wouldn't be the right word
but
um I don't know what the right word is
but you seem to have processed all of
this rather philosophically and you know
just to contrast you with
your partner who who was the busted pipe
or whatever the pipe under pressure and
it busted or whatever who clearly
couldn't his reaction to to adversity
and life was the the polar opposite of
yours which is with humility and and
calm I know we're we're also talking to
you now uh a good year plus later so
you've had time to process it but you
come off that way at least I applaud you
for that yeah thanks well I appreciate
that I think the other thing too is I
had to get to the point where I've had
to forgive
him um for my own peace of mind like it
was being in that situation was
stressful enough and but then harboring
any resentment um yeah just at the point
is just Lessons Learned and like
forgiving him like he's a human he's a
child of God I had to forgive him so I
could move actually truly move forward
and so I could go into this next stage
of my life this next um chapter of my
journey with with clear eyes and so um
forgiveness I think would be a huge part
of this as
well well we could we could spend a lot
of time on that that that's also your
again your faith talking I'm not sure I
I would have that I have that particular
muscle as well developed I'm not sure I
could I could find my way to forgive
this person my moments but trust me I'm
human where I've used a lot of
four-letter words um but you know again
ultimately I know you just got to move
forward and forgive him and sometimes
that forgiveness I've probably forgiven
him hundreds of times because tomorrow
I'll be sitting here it's gotten better
as you're alluding to over time I've
gotten to the point where I'm like okay
like yeah this this suck that that
happened um what can I learn from it um
it happened to him too um and so he has
a perspective on it too like We Just
Disagree we completely disagree like a
lot of people do in a political climate
like they have a different way forward
and so yeah his way forward hadn't
proven successful to that point and so
he just wasn't able to see a different
path or allow me space to do that and um
know had we had the proper agreement in
place we could have move both moved
forward on with our lives and maybe
still been friends to this day but yeah
again he's forgiven um wishing the best
for him and in his next whatever
Endeavors he's wherever he's going on in
life and um I'll do the same here with
me and my family beautiful perspective
let's call it there Josh uh if people
want to reach out to you maybe if
somebody else is struggling maybe if
they want to talk to you about an
opportunity or something in between what
what how do you prefer they do
that yeah I'm on LinkedIn uh Josh key um
email great way to get a hold of me too
my email is Josh Castle key holdings.com
maybe drop that in the show notes but um
email or LinkedIn would be the best way
and then from there we'll connect via
phone and I'm an open book I'm talk to
anybody I'm willing to help anybody like
I truly believe in the reason why I
wanted to do this kind of part A with
you now just to help anybody else that
avoid any missteps that that I made in
their in their journey to towards
entrepreneurship and yeah I I truly wish
everyone the best um and again thank you
for this opportunity it's been in just
the episodes that I listen to here has
been an education and the connections
and even how we got connected here
through Adam um it's been phenomenal so
um the future is bright for everyone in
this space um you just gota um take them
nice appropriate steps and um you know I
think more often than not this will turn
out better than it U than it did for did
in my case but story is still Unwritten
the rest of my story is still Unwritten
that's right Josh key thank you very
much again for doing this for the
community very generous of you we we
really appreciate this story we really
appreciate these anybody who's gone
through a really challenging experience
and is willing to share it up here on
stage it's really really uh a selfless
Act of you so thank you my pleasure I
hope you enjoy that interview make sure
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