When a $2.8m Acquisition Is More Like Zero to One | Dave Gilbert Interview
The one thing to remember
If the EBITDA, customers, people, and sales engine are not verified bottom-up, you may buy a “cash-flowing” business that is really a leveraged turnaround.
What happened
Dave Gilbert bought Proven CFO, a fractional CFO and accounting services business, in November 2023 for $2.8M using SBA financing, investor equity, a seller note, and working capital. The business looked like it had about $750K of EBITDA on $2.1M of revenue, but after close Dave says EBITDA was roughly half what he expected. The main problems were questionable family addbacks, hidden customer concentration, weak operations, underqualified service talent, and a sales engine that had to be rebuilt. Dave says the company survived because he cut costs, rebuilt the team, added revenue, and had raised extra working capital; he describes the company as now in a much better spot, though the first two years were painful.
Who's telling it: Dave Gilbert, the buyer/operator of Proven This is Dave Gilbert’s buyer-side account; the sellers, employees, customers, lender, and quality-of-earnings provider are not interviewed.
Timeline
- Thesis
Dave chose accounting and fractional CFO services because they seemed close to his background and could also create visibility into future acquisition targets.
- Sourcing
He contacted owners directly and says he held about 120 owner meetings over roughly a year and a half.
- Sourcing
He first met Proven’s sellers in November 2022, initially passed because of family-related red flags, then re-engaged after seeing the business listed for sale.
- LOI
Dave decided the family-related issues were deal “hair” he could mitigate rather than a reason to walk away.
- Due diligence
The buyer, investors, bank, and QoE process accepted the reported earnings and did not catch the full impact of family addbacks, variable compensation, and concentration risk.
- Financing
The deal used approx. $500K of equity, approx. $300K of SBA-funded working capital, an approx. 15% seller note, and the rest SBA debt.
- Closing
The acquisition closed in November 2023 at a $2.8M purchase price.
- Integration
In January after close, the first interest payment and financials showed the business was about $20K in the hole and EBITDA was far below expectations.
- Operations
Large grouped customers left, operations were reworked, the team was largely replaced, and Proven shifted toward a broader fractional executive services model.
- Operations
Dave says the company kept revenue and EBITDA roughly where they were at acquisition, not where he originally expected, and is now on a stronger foundation.
stage where a mistake was made
What went wrong 6 issues
EBITDA was about half
Dave says he expected about $750K of EBITDA, but after closing realized the true earnings power was roughly half that. Family addbacks and compensation assumptions made the business look much more profitable than it was.
Mistake made at Due diligence → showed up at Operations
“the ibida that we thought we got was not it was about half of what we thought we were getting”
Warning signs
- The buyer had already seen family involvement as a red flag before re-engaging with the deal.
- The reported EBITDA margin looked very high for a $2.1M revenue services business.
How to prevent it
- During due diligence, the buyer and QoE provider should rebuild EBITDA from payroll and benefits detail, showing which family costs are truly removable and which must continue.
- Before signing the purchase agreement, the buyer’s lawyer should require a schedule of all family-related compensation and a seller representation that each addback is non-recurring or unnecessary post-close.
- Before closing, the buyer should model post-close EBITDA using actual go-forward staffing, benefits, and management costs, not just seller addbacks.
Customer concentration was hidden
The buyer thought no customer concentration exceeded 10%, but related companies under the same owner or sponsor made real concentration closer to 30%. Two large relationships later left, creating a major revenue hole to replace.
Mistake made at Due diligence → showed up at Operations
“And so our concentration risk was about 30%.”
Warning signs
- The firm served private equity firms and family offices, where one relationship can control several portfolio companies.
- The customer concentration analysis treated related portfolio companies as separate customers.
How to prevent it
- During diligence, the buyer should group customers by ultimate owner, sponsor, family office, or decision-maker instead of counting each legal entity separately.
- Before financing, the buyer should run a downside case where the largest grouped relationship leaves and confirm the business can still service debt.
- Before closing, the buyer should require seller-assisted calls or retention checks with the top grouped customer relationships, with a holdback if access is denied.
Weak operations leadership
A family member was running operations, but Dave says that person was not the right fit. The buyer had to replace leadership and restructure delivery while trying not to disrupt a relationship-based service business.
Mistake made at Due diligence → showed up at Integration
“but he wasn't the right fit to run operations.”
Warning signs
- The head of operations was a seller family member rather than a clearly qualified accounting operations leader.
- The company had higher churn and operational problems that became visible only after close.
How to prevent it
- During diligence, the buyer should map every leadership role to the skills actually required and identify which roles need replacement immediately after close.
- Before closing, the buyer should budget for a qualified operations leader and include the timing in the 100-day plan.
- At integration, the buyer should communicate role changes to employees early and explain how the new structure improves client service.
Service talent was underqualified
Dave later concluded that some client-facing CFO talent lacked the prior executive experience customers expected. He spent the next year and a half recruiting more experienced fractional executives.
Mistake made at Due diligence → showed up at Operations
“had I known the CFOs had not been CFOs before working at Proven”
Warning signs
- The business’s model relied on training bookkeepers and accountants up into CFO roles.
- The target was selling fractional CFO services, but the buyer had not confirmed that the CFOs had actually been CFOs before.
How to prevent it
- During diligence, the buyer should review resumes and prior roles for all client-facing experts whose credentials drive the value proposition.
- A buyer-hired industry expert should review a sample of client deliverables and assess whether staff experience matches the advertised service.
- Before closing, the buyer should adjust price, working capital, and recruiting plans if key service employees need to be upgraded.
No repeatable sales engine
The buyer expected referral-driven lead flow, but after closing found it was not consistent enough. He had to build sales and marketing channels from scratch while also fixing operations.
Mistake made at Due diligence → showed up at Operations
“after closing I realized we were not getting a ton of referrals.”
Warning signs
- The sellers said most leads came from referrals, which is common but hard to verify.
- There was not enough consistent referral volume to offset churn or support meaningful growth.
How to prevent it
- During diligence, the buyer should request a 24-month lead-source report tying each new customer to referrals, outbound, paid marketing, or other channels.
- Before closing, the buyer should inspect CRM data, proposals, referral partner history, and new-customer cohorts to prove the sales engine exists.
- If sales relies on informal referrals, the buyer should build a funded post-close sales plan and reduce valuation for the missing repeatable channel.
Debt left little margin
This issue is an inference from Dave’s account: the SBA-backed debt made the earnings miss immediately painful. In January, after the first interest payment, the business was already about $20K in the hole.
Mistake made at Financing → showed up at Operations
“I realize we are uh $20,000 in the hole.”
Warning signs
- The first interest payment immediately exposed that the business was not producing enough post-close cash.
- The acquisition used an SBA loan, which Dave later described as riskier because of personal guarantees and less time to fix mistakes.
How to prevent it
- Before accepting SBA financing, the buyer should stress-test cash flow with EBITDA cut in half and confirm monthly debt service is still manageable.
- At financing, the buyer should raise extra working capital, negotiate a larger seller note, or add an earnout so debt payments do not overwhelm a surprise turnaround.
- Before closing, the buyer and lender should agree on a 13-week cash forecast for the first quarter after close.
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Thesis
Sourcing
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Financing
Closing
Operations
Transcript 1901 lines · 13327 words · auto-generated captions
Dave Gilbert, welcome to Acquiring
Minds.
>> Thanks, Will. Glad to be here.
>> Dave, you bought a fractional CFO
business. It looked good on paper, of
course, but it turned out to be
something of a turnaround, and we are
catching you as you emerge from this
painful 2-year experience. So much to
learn from your experience, Dave. Let's
dive in. Some background on you to
start, please.
>> Sure, happy to. I'm 45 and uh like most
people when they were in their 20s that
are my age, I was endeavored endeavored
by uh the tech industry. So I spent
about 20 years in tech uh building
companies in tech. Uh the biggest
company I built was a credit risk
software company and I spent about 10
years doing that and we were the biggest
analytics company for credit unions in
the country. So um that kind of got me
started in tech. I started a few other
companies and spent uh five or six years
at a global cyber security company where
I managed teams all over the world which
was super fun as well. Then uh read buy
then build and decided to dive into
buying companies which is I started with
proven CFO which is now proven and in a
nutshell that is my background. That was
great, Dave. And so why did you find ETA
so compelling, especially given that it
sounds like you'd had success in 0ero to
one tech land?
>> 0ero to one is hard. So is ETA,
especially a turnaround. Um [laughter]
0 to one
when I started in tech was all about
building a unicorn. So it was growth at
all costs. It was raising capital. And I
really didn't I I liked having really
smart people around me all the time cuz
in tech you do. Um what I didn't like is
trying to grow to be a billion dollar
unicorn and having the pressure of
growing at 80 to 100% year-over-year,
raising capital versus building for
profit. Um that wasn't attractive to me.
So what attracted me to the ETA space
really was um here was a world that I
wasn't familiar with. I mean, obviously
in tech there are a lot of acquisitions
that happen. Um, but a world that I
wasn't familiar with as far as building
for profitability, building with
everyday people that aren't, you know,
didn't go to Harvard, didn't go to
Stanford, didn't
>> aren't trying to be the next Facebook,
aren't trying to be the next Google,
right? Yeah.
>> It was a world that were very attracted
to me because I always don't like being
in the spotlight and with tech, you kind
of have to be in the spotlight if you
want to grow. Say say more about that.
What do you mean? Because here you are.
I got a spotlight on you right now,
Dave. [laughter]
>> That's true. Um, so when I was in tech,
I I flew around the US. I was in most
states. I was speaking a lot at big
conferences u for credit unions because
that's primarily who we served. Um, even
when I was at a big cyber security firm,
you know, I spent a lot of time globally
going to a lot of conferences and you
end up speaking and it sounds cool, you
know. Um, yeah,
>> world travel is not that fun by
yourself. And also speaking, um, like I
said, it sounds cool to speak at a lot
of conferences, but at the end of the
day, I just wanted to have, uh, my job
where I could interact with people that
I really like to work with.
>> And over time, I realized like that was
what was important to me. It's not
having a really big company, you know,
having u a, a product that tons of
people use. It was it was providing a
service of value but really working with
people that I cared about and people
that I wanted to work with on a
day-to-day basis. And I didn't mean need
to be a billion dollar company in order
to do that, right? And so this idea
that was that basically
in techland you you need to be out there
so much more because there's a lot of
kind of the splashiness is is part of
the game. So there's a lot more kind of
uh persuasion because you're often
introducing a new business or new
business model to the market. Whereas in
in our world, a lot of these businesses
in accounting practice, people already
understand what that is and you're
serving an an existing demand rather
than trying to create demand.
>> Yeah. And I think some of my favorite
stories from like the book Buy Then
Build and others that have kind of led
the way in this space is, you know, um I
can't remember who it was, but one one
person was out golfing. They were
talking about how um they were golfing
with a guy who had started a um I think
it was a insulation business and he was
talking about his $2 million house up on
the hill, right? And nobody knows who he
is. Nobody knows about his business
other than his customers, right? But
it's it's different when in tech, you
know, everybody knows who Mark
Zuckerberg is. Everybody knows who Jeff
Bezos is or or Elon Musk. Um, everybody
knows who they are in their spotlight
and they do that intentionally, right?
Where me, I would much rather be the guy
who nobody knows who is privately
wealthy. So, one of the things I
realized in being in tech is all of our
investors in tech and other investors
that I knew or people that had built a2
billion $3 billion company and sold,
they all did the exact same thing after
selling their company. They all became
investors and the primary thing they
were looking for is cash flowing
businesses or vehicles
>> and then they used a part of their
wealth for whatifs for the unicorn and
for angel investing right for the
possibility of hitting number two or
number three.
>> But those were not what they were using
to sustain their life. They were look
they were looking at cash flowing
businesses right or cash flowing assets.
And so that occurred to me was like why
try and build what they got lucky quite
frankly like a lot of it has to do with
luck. I mean you go through the number
of startups that fell and it's it's a
big number right most of them do not
become a unicorn but the ones that do
they all reinvest and they all have to
become investors. So to me as I looked
at that I was like why don't I just go
for that initially? Why do you need to
go the unicorn? Just
>> skip straight to the cash flow uh
businesses, which is what they're all
trying to do, and learn about that
business versus trying to build
something where the likelihood of you
succeeding is very, very low.
>> Well, if there is anybody out there who
is struggling with um becoming an
investor, there's this fund called Minds
Capital you might take a look at. Think
>> I've heard good things about the
founders.
>> Thank you, Dave. [laughter]
appreciate you letting me use your air
time for that. So you are taken with
ETA. What does your search look like? Do
you have a thesis? How do you go about
this?
>> Yeah. So I read Buy them build, you
know, and what's funny is I just
happened across that book. It wasn't,
you know, I saw somebody on Twitter that
I had followed uh mentioned that they
were reading buy them build and I was
like, "Oh, that's an interesting book.
It looks like an interesting book. I'll
read it." So I just I devoured that in a
couple days and as I read it I started
thinking okay you know probably like
most people do as they stumble across
ETA like I'll just start looking for
businesses. So I started looking.
I I gave it a little more thought than
just looking for businesses though or as
I started looking I started thinking
about what you know with my background
in tech spent a lot of time in marketing
in operations. Um I thought well do I
really want to go buy a bluecollar
business
where I I have no experience like zero
experience in doing anything? I mean, I
know from having built going from zero
to one, I mean, I had my butt handled to
me a few times where I tried to build
build a business and failed, right? As I
was studying, you know, what I wanted to
buy was something close to what my
background was. So, keep in mind going
back to my background, I built a credit
risk analytics company for credit
unions. So, you know, there's a lot of
math involved, a lot of analytics. you
know, I had a a a business partner who
was a PhD in finance, built a lot of our
models. Um, so as I thought about that,
I thought something in the analysis
space in the small business would
probably fit that. What I came down to
is accounting. I I kept thinking about,
okay, what's going to be needed long
term?
What is an essential service? um what is
kind of boring and I just kept coming
back to accounting and then the other
thing that the reason I focused on
accounting is I thought of this this
whole game of ETA it's all about deal
sourcing right that's the hardest part
about ETA I mean arguably uh I don't
think raising capital is is the
difficult part I think if you have a
good deal you can raise capital and I
don't think that's exclusive to ETA I
think that's across the board tech, real
estate, you name it, right? Um, and so
it occurred to me that having deal flow
is really how you play this game long
term. And I thought, what better way of
having deal flow than if you're doing
the financials for a company that is
going to sell in 2 years, in 3 years, in
5 years, in 10 years. You'll know the
ins and outs of the business. You'll
know uh when they're wanting to sell.
you can probably get a better deal on
those businesses when they do want to
sell than the market. So to me, as I
looked at one, what kind of business do
I want to buy based on my background?
What kind of business do I want to have
and what do I want to do long term?
Accounting seemed to fit that narrative
and that's why I decided on accounting.
So that's ultimately how I decided on
the uh industry that I wanted to start
with in ETA. Well, your point about deal
flow, uh, Dave, is is backed up by the
fact that one of the, uh, sort of go-to
or one of the best practices for deal
flow, for generating deal flow is to ask
accounting firms. We say that this is
one of the sources of deal flow for all
all the reasons that you just described.
So, if you can actually own an
accounting firm, the closer to the
deals. So, uh, point taken. We're going
to hear if that has come true.
And then so you you narrowed in on
accounting. How did what did the
mechanics of the search to find an
accounting business look like?
>> So I started talking and reaching out to
owners through calling, through email,
through LinkedIn. Um I was I probably
had
120
meetings with owners over the course of
a year and a half. So, this is
offmarket, just sellers that I had
reached out to and that were willing to
meet with me and talk to me about their
business. And what I've found is, and I
still have those meetings, I still have
um I don't know probably
between five and 10 per week. And
really,
>> a lot of times those result those don't
result in acquisition. Obviously, I'm
not buying a company every month. That'd
be awesome. Um, but they result in
really good conversations. And I think
at the end of the day, what people
forget is people just want to talk to
people that are willing to talk to them
and network, right? And I try to keep
everything I do really personal. Um, so
when I reach out to them, it's it's not
a very blanketed generalized outreach.
It's very personal about who I am, my
background, what I do, and what my
intentions are, and why I'd like to meet
with them. You know, I've found
investors that way. I've found friends
and partners. And so, even though they
don't result in acquisitions, I'm still
talking to owners that I met with 3
years ago and we're still in
conversations. And it's and what that
does is it's creating a relationship
with them so that when they are ready to
sell, I'll probably be one of their
first calls to sell because they know
who I am. We've been talking for several
years and I've created a relationship
with them over that time. tell us about
Proven in the business you found and how
you found it.
>> So, um I said I had about 120 meetings.
So, one of those meetings was with the
sellers of Proven. Um I met with them in
November of 2022
and we met at uh you know just just an
offsite building. I met there was two of
them and I met with them and at and I
thought we had a good conversation. They
went back and decided they weren't
interested. there wasn't the time this
wanted to sell. I moved on. [snorts] Um
May of the following year, they sent me
an email. Hey Dave, I think we're ready
to sell. And I said, "Okay, great."
There were some red flags for me
initially that I I was a little
concerned with. And so I told them no,
funny enough.
>> Um they they had a lot of family members
involved into their business and I was
concerned with that. Um so I told them
no. So, I kept looking and about a month
later, I was looking on one marketplace
and I saw their business come for sale
and I knew exactly who it was cuz I had
already looked at the numbers. I didn't
have the information on the sellers, but
I knew. So, I reached out to the broker.
I said, "Hey, I know who this is. I'm
I'm ready. You know, I I want to buy.
Tell so and so that um I'm interested."
Right.
>> Wait, but what changed, Dave?
>> Well, I think what I came to conclusion
is all deals have hair. It's how much
you can deal with that. So, I was
looking for the perfect business, right?
I didn't want to find any I didn't want
to have any red flags. I you know, and
that doesn't exist. Like, the perfect
business does not exist. And if they do,
they're not selling that business. Why
would they? Right? So, I think I finally
came to the conclusion that I can look
for 10 years and I'm never going to find
the perfect business. I have to get
comfortable with hair on some businesses
and what I can do to get mitigate that
risk. And so ultimately I decided the
red flags that I saw were mostly around
family. I thought they were um I could
mitigate those risks. And so that's when
I came back to that business.
>> Painful to hear you say that now Dave.
>> It is. Yes. We'll get into that. Right.
>> Okay. So tell us give us the bullet
points on the business, please.
>> Okay. So we closed in November of 2023.
Uh 2.8 8 million. Um the IBIDA was 750
at least the IBIDA we thought we were
getting and um went through the SBA
process. We actually went through two
different SBA banks. So little lesson in
here is um
some people would argue just work with
one bank. I would argue if you're going
through the process, work with a couple
until you're up to closing. And some
banks, you know, some brokers would tell
you don't do that. Some banks would tell
you, I would absolutely do that because
we we were used to that. And we didn't
do that at first and it kind of cost us
some time and probably cost us a little
bit of interest. Um, one of the banks
>> and and to be clear, Dave, the reason
not to do it is because there's a little
bit like your whatever bank you don't go
with, you've kind of led on, wasted
their time.
>> But, you know, I was this the second
time around. So, we went through one
bank. It was one of the biggest lenders
in the country. and the person we were
working with during our process left
during the bank. And so the underwriter
didn't know our story. We didn't have
that person to help us push it push it
through. And so we followed him to the
new bank, which is the bank we ended up
going with. But the second time around,
we ended up doing it through a few
different banks. And I told them, I was
very upfront, you know, I told them,
"Hey, we're talking to a few other
banks." And they they were fine with
that. They knew like the process. And
they said, "Yeah, that we're that's
that's pretty common." So despite what
you hear from brokers that don't want
you to do that, they're doing that on
the back end, too, right? They're
talking to multiple banks.
>> And um it was good that we did cuz we we
did have some some favorable terms
because there was some competition, but
also uh we had to, you know, we lost
time because we had to go through that
banking process. So we finally closed in
November of 2023 um on the on the loan.
And what was the what did the purchase
look like
>> um in terms of the interest
>> acquisition price in in structure?
>> Oh yeah. So the acquisition price was
2.8 million.
>> Oh I thought that was the revenue. Sorry
when you said that
>> the revenue the revenue was 2.1 million.
>> Wow. 750,000 on 2.1 million. That looks
really compelling on paper.
>> On paper. Right.
>> Okay. Okay. But 2.8 million was the
acquisition price. So you're you're
buying it for a little under 4x, you
think?
>> Yeah, we thought that was a fair price,
right?
>> Yeah, exactly.
>> Yeah, it's a fair price and um you know,
we had lots of competition. You know,
they picked picked me because they liked
me at the end of the day. Like the
sellers liked me. They thought um I
could I could continue their legacy and
we had, you know, PU firms that were
bidding on it and other people. So that
was what won the deal at the end of the
day.
>> And how did you structure it? So the SBA
loan was what percentage did you have
investors? Can you show the cap table?
>> Sure. So, we raised about half a million
dollars of equity. Um, we had about
300,000 of working capital. That was
part of the SBA loan. Um, we had a
sellers note that was approximately 15%
and the rest was the SBA loan
>> and the equity was friends and family.
Talk to us about that experience. Yeah.
So, um, like I said, I, you know, if you
find a good deal, I think capital is
easy to raise. Uh, most of the capital
that, or all the capital we raised were
from friends that I had met, uh, through
networking online. So, most of it was
from people that I met on Twitter before
we found this c this this company. And I
reached out to a few of them and they
were interested in investing with us.
They're in interested in this this
company specifically. And so it took us
about a week to raise capital. It wasn't
very long. Um it was really really
quick. And I had the deck put put
together on what it was we were raising,
the risks that that were in inherent in
the company. Um how we plan to mitigate
those um what the ROI was, what the what
the step up in capital had it all ready
to go. So it didn't take us long to
raise. Um, when we reached out,
>> this deck that you put together, I of
course now see a lot of these for
independent sponsors mostly, but was
this your first time putting together a
deck like this?
>> No, because I've done that for startups,
right? So, I was used to kind of putting
together capital decks for raising. So,
and and you know, there's a lot of
information that you can find online on
what a deck should look like. And at the
end of the day, you just have to think
like if you're an investor, what do you
want to see? You know, what do you want
to know? You want to know the risks of
the business? Do you want to know how
much how much money you're going to make
on the capital you're investing? How
long you're going to get it in how long
it's going to take for you to get that
capital returned to you. You're going to
want to know like what's the market
risks? How big's the market? What's the
TAM? So, I kind of knew what an investor
would want to see, right? And so, I put
that deck together, got some feedback on
it, of course, and just sent that to the
investors that were considering
investing with us. And um at the time, I
mean, it still is. Accounting is still a
hot industry. you know,
>> multiples are up, lots of people are
buying them, lots of people are gobbling
them up,
>> and so it wasn't very hard for us to
raise.
>> And these Twitter relationships that you
developed, how much time or what did
your kind of publication schedule on
Twitter look like? I mean, were you
prolific there or what? So before I
bought, I was at Twitter at the time was
um
it was a hobbed for conversations about
ETA, you know,
>> and I think it's trickled off a little
bit, but at the time it was really hot.
I was getting to know people on Twitter
as I was reaching out and as I was going
through other deals and LOI and quality
of earnings and dealing with banks. So,
I got to know a lot of people on Twitter
just through, hey, do you want to meet
and let's talk about this? And so, I
just got to know a lot of people through
uh just publishing my uh my outreach and
my process of going through buying a
company.
>> Mhm. But it sounds like actually what
you were publishing often was questions,
your own questions.
>> Yeah.
>> I wasn't I wasn't publishing like quick
tips or you know, most people that are
trying to build content, they're trying
to build, you know, they're trying to
publish content of show their expertise.
That's not what I'm like,
>> hey, I'm an idiot when it comes to
buying a business. So, please help me
understand
>> what are these red what are the red
flags I should be looking for? How does
this process work? Or how does the SBA
process? What's an SBA loan? I don't
even know. Or what's kind of sponsor
versus self-funded searcher? You know,
>> learning those terms, learning the
terminology,
I think it the more open you are, the
more people are willing to help you.
Especially in this community, it's a
tight community. lots of people, you
know, you go to the conferences, you see
lots of the same people there, um, that
have been in the space for a while and I
think that will probably continue and
lots of people are willing to help you
if you'll just ask for help.
>> So, shall we get into
>> proven the the into proven into the
discovery of what was behind the behind
the
>> curtain?
>> Yep. So, what did you find?
>> So, we closed November 2023. Um, we were
anticipating 750,000 of IPITA. Like I
said, uh, December was kind of a wash.
You know, there was no interest payments
due on our loan. Um, we were moving
into,
uh, the holidays and I was just trying
to get through December. We had a they
had a Christmas party they typically
did. And so, I was I was kind of doing
all the things that you would do post
close, which is don't change anything.
Kind of learn what's going on and then
assess the situation, right? So comes
January, uh, we have our first interest
payment due. I get the financials, and
by the way, I'm buying an accounting
firm. So the people I'm buying from, one
is, you know, a CFO, you know, so I'm
saying, "Can you help me with the books?
Get this all set up." And we get to the
end of January and I realize we are uh
$20,000 in the hole.
>> Not profitable
after our interest payments. And so my
stomach kind of tightened up pretty
tight and I realized um the ibida that
we thought we got was not it was about
half of what we thought we were getting.
Um and so I went to work went to work on
cutting costs went to work on building
revenue. Um well Dave so what was the
what was the discrepancy there? Why was
it?
>> Good question.
>> Half of what you thought it was for what
you bought.
>> So, as I said there, the red flags in
the beginning were family. So, this
company had a lot of family members
working at the business. Um, a lot of
the adbacks were from family that were
not that were not working in the
business but were getting paid from the
business, right? So, spouses, um, mom
and dad, um, sons, um, brother-in-laws,
they were all working in the business or
they were getting paid from the
business, right? So, there were benefit
adbacks, there were salary adbacks. Um,
some of those
uh
there was also uh the way we compensated
our CFOs at the time, um there was a
variable comp to their compensation and
that changed right after we closed. Not
I don't think it was the seller's intent
to change it, but just the way the
revenue was set up changed right after
we right after we closed. So there were
some nuances to the business that was
that were tough to surface when we were
doing our due diligence. Tough to
surface in the quality of earnings. We
missed it. The bank missed it. Investors
missed it. Quality earnings missed it.
Right? So, as we closed and I I went
back and looked at, okay, what were what
did we think we were getting in the
financials? What were the financials?
And as I looked, those were the those
were the discrepancies that um the
adbacks for the benefits for the
salaries for the CFO variable comp.
Those were the things that um were
different when we closed versus when we
thought, well, we were thought we were
getting before.
>> So, so let me repeat that back to you,
Dave, to make sure I have it. the a lot
of people working being paid by the
business. And the sellers argued that a
lot of that was just kind of family
benefit and they weren't really
doing much in the business and so that
those those payments could be added back
to the business and were actually should
be considered profit to the business.
And you discovered late later that in
fact no what those folks were being paid
for were real costs that needed to
continue to be paid for.
>> Yeah. And yeah, it it
>> and then and then the other piece was
the change in the change in your your
own fee structure like the model of the
fee structure.
>> That's right.
>> Changed right as you took ownership or
just before you took ownership. Um well
we had new so there were some new CFOs
in the company and so their variable
comp was starting to kick in and also um
some of the existing CFOs the variable
comp the way they were paid um it had a
new threshold right after we closed. So
there was an increase in in variable
comp for them that was not factored into
the analysis before we closed on the
business. So, the tough thing about this
is we really needed to dig into the
compensation a little bit further and
the way it was structured. It was it was
really confusing to me. I mean, now that
I know how it's set up and how it works,
it's it's I understand it completely and
we've completely changed it now,
>> but um when we bought it, I it was it
was very confusing comp model. Um so,
that was that was tougher to to get
through. Now, the the adbacks um with
the family, I I don't think if I bought
another company, I would buy another
company with a lot of family involved.
Um not that that that can be a blessing
and a curse, I think. Um and not that I
wouldn't do that myself. You know, if I
had a company, would I have family work
with me? Maybe. I mean, I've had really
bad experiences with that and not sure
that I would, but [laughter] I know a
lot of people do really well with that,
right? Like I know plenty of family that
own businesses and they have another
family work there and they do great. So
I I I just think buying a company with a
lot of family, you have to be really
careful about really making sure you
understand.
>> But but to be clear, Dave, it sounds
like the problem wasn't necessarily
inherently the family piece, but that
the family a lot of what the cost the
compensation going to the family members
was counted as an adback when it
shouldn't have been. That's right. So,
there were other things with the
business that were wrong because of the
family um that we had to fix, right? So,
probably be helpful if I go through a
few of those.
>> Yeah, please.
>> So, it wasn't just the IBIDA was lower,
it was also our concentration risk was a
lot higher. So, we thought the
concentration risk was under 10%. you
know, talk to everybody on in the ETA
space and great, you know, if you're
under 10% that's good, you know, check
check the box. Uh the problem was is
because we're an we were an accounting
firm, we were working with private
equity firms, right, and family offices.
And a lot of times when you're working
with pre private equity firms or family
offices, uh you're working with multiple
businesses underneath them. So, if
you're Will Smith and you own five
businesses and we do your accounting and
we're your fractional CFO um and you
have those five businesses that we're
also doing those books with books for,
technically those are all separate
companies, right?
But
>> yeah,
>> if you leave and you don't want to work
with us anymore, likelihood of us
working with your um companies
underneath you is really low. And so our
concentration risk was about 30%. Well,
it turns out um so that year we had both
of those companies leave. Um one was a
family office where uh the guy who owned
these portfolio companies, he passed
away. They were liquidating those
companies. Nothing we could do about
that. Um the other one was a company
that had been with us for 7 years, was
fairly big, and they were at a point
where they were just bringing their
stuff in house. So, um, they were
considering that. I think the sellers
thought they could keep them on for
quite a bit longer and they would always
need us, but that really wasn't the
case. Um, they were ready to leave and
so they did stay on for another year,
but then they they left.
>> Mhm.
>> Wow.
>> So, that was
>> So, how much how much revenue did those
those exiting customers represent?
>> Um, about half a million dollars.
half a million of the TW two 2.1.
>> Yeah.
>> So, what is that like 23% just walks out
the door? Yeah. Wow.
>> Brutal.
>> So, that was that was revenue we had to
replace. Um, so that was that was
another thing that we, you know, we
didn't see going in and and obviously
like when you're buying a company,
people are hesitant to share customer
lists and share the names and everything
uh beforehand. So, as much as you can
dig into uh those things, I think it's
helpful and to just discover things that
maybe you wouldn't think of beforehand.
Um, another thing that so what when I
mentioned the family, so one of the
problems we had is um they had uh a head
of operations who was their dad, right?
Great guy, love him to death personally,
but he wasn't the right fit to run
operations. So when I came in, we had
some higher churn than what we wanted
and a lot of that had to do with our
operations which we had to go through
and fix. Um mostly with our accounting
and the way it was set up, right? Um he
wasn't an accountant by trade, which is
is fine. Um but we needed somebody that
really understood that operation. So I
had to go and find somebody which this
takes time. And there's also, you know,
when you, and you know this, but and for
the listeners, like when you buy a
company, all the employees are nervous
about what's going to happen. You know,
am I going to have a job? Um, how's the
culture going to change? And so causing
change upon change
is a little bit nerve-wracking for
employees, you know, and the way the the
company was structured with um our the
accountants. So the way the way it was
structured originally was we had a CFO,
we'd had an accounting manager, an
accountant and a bookkeeper. Um we were
too topheavy. Um mainly because most of
the CFOs were doing work that were was
accountant level work or controller
level work versus CFO level work. And so
it would really be okay for a controller
to do that or what we call an a client
lead and accounting manager now to do
that work. You didn't need to be a CFO
and then move the CFOs to doing more CFO
level work. So we had we had to
restructure the teams um as well um at
the time, right? And so all this
disruption is really uh especially for
accountants um you know certain
industries certain people are adaptive
to change and certain people are not and
accountants do not like change right
they do not like to have things changing
all the time. They like to have
structure and they like to have
consistency. And so us coming in and
realizing okay we need to make some
changes for profitability but also this
is structured wrong and where we want to
go in order to get there we need to make
some changes for operations for the
structure of the team. So we had to
completely redo the structure of the
team. So to give you an idea, we have
had um you know, we had about 20
employees um when we bought the company.
We have two that are left from when we
bought the company.
>> This is a service-based organization,
right? So what that means is it's not
like we can change that overnight or we
would lose all of our clients, right? Um
>> why?
>> Well, because it's a relationship based,
right? It's like if I'm your CFO or if
I'm your accountant and I'm doing your
books, it's not just about it's not just
transactional, right? I can do your AP,
I can do your payroll, I can forecast
for you, I can help you raise capital.
Um, but you also probably like working
with me, too. And so if I leave, there's
a certain portion of you like, yeah, I
like Proven or I like this company or
this company and they do a good job and
they have a good process and they have
good tech, which we do, right? we have
good process and good tech, but I also
really like working with Dave. And if
Dave leaves,
>> you know, that's going to question
whether or not I want to leave. And so
with the service,
>> you know, and that's a strike, I guess,
Dave, in against kind of white collar
services businesses. Recall at the top
we talked about how you um were drawn to
white collar versus blue collar trady
businesses. Um, but this would be a
strike because on the blueco collar
side, clients don't necessarily have the
same
uh relationship with the plumber that
they do with the fractional the
fractional CFO. So, we had to completely
restructure the team to be what we
needed it to be and to be what the
clients thought they were getting and to
give them improved value, increased
efficiency and that just took time and
it also caused turnover. And so I had to
be very meticulous about how much time
we could do that, how long it would
take, who we needed to do that. So we
had to put the structure in place with
the head of operations um restructuring
the team. The technology we were using
was actually pretty good. Um so we
didn't restructure that a whole lot, but
we had to completely restructure the
teams. Um and we also wanted to bring in
another another nuance to this was
um the sellers had this vision of
building this company where they would
start um a bookkeeper and then teach
them how to be an accountant, then teach
them how to be a controller, then teach
them how to be a CFO. Well, the problem
with that is most of those roles are can
roll up. It's really tough to teach
somebody to be a CFO though for multiple
companies. So if you come to me, you're
Will, and Will comes to me and you want
a CFO, you want a CFO that knows your
industry, that's been through what
you're trying to do. You want a CFO
that's raised half a billion dollars of
capital if that's what you're trying to
do or has taken a company public. You
don't want someone that's learned that
academically. You want someone that's
actually done it. So what I realized is
the CFOs that we had, they were really
talented, really good, but they didn't
have the experience that the companies
wanted. So I spent the last year and a
half recruiting a players that have the
experience that have done what people
want to be on their team cuz who doesn't
want an A player on their team?
Everybody wants the best of the best.
That's how companies grow. That's why
companies are are better than other
companies. That's why some of the big
public companies, they pay so much for
the salaries of these AI engineers,
right? Cuz they want the best of the
best, right? So, I spent the last year
and a half recruiting the best of the
best for all of our fractional
executives
>> because I know people want to work with
the best. And we have the best
fractional executives, I would say, in
the world. Like people that have taken
company public, right? that have solved
really really hard problems that have
turned companies around that have built
companies from zero to half million
dollars or half a billion dollars,
right? Um, and so my vision for Proven
was really turning it into a lower
middle market, mid-market consulting
company where a company can come to us
and yeah, we can do their accounting, we
can do their bookkeeping, but we can
help them with HR, we can help them with
their fractional executives. And my
vision for proven is really like I
realized after bought it that
10, 15 years ago, most companies would
have to hire their executives to come in
full-time, right? You want a CFO, you
want a CMO, you want to grow in
marketing, you need to hire those
people. And they're expensive. They're
not cheap, right? But I realized that in
the next 10 to 15 years with the the
onset of AI, with all the technology,
the way it's progressing with remote
work, most companies will be built and
they'll want to stay lean and mean. And
in order to do that, they don't need to
go hire a full-time CFO or a CMO or or a
CHRO or, you know, you go down the list.
they can hire they can't well number one
they probably can't afford to hire the
best talent um but they'd want to use
them because they want to be the best of
whatever they're doing and so a lot of
these companies my theory is that will
be built using the fractional model and
using outsourcing not their core
competencies over the next 15 20 years
and that what got me super excited about
proven and about how to build this out
for the long term and the vision that we
have for it for the future Dave you're
pulling point about family or your
experience with family and the fact that
you just have two people who remain from
when you bought the business. was there
were was also what you were saying that
the fact that you were restructuring the
roles but also kind of repositioning the
entire business was made harder because
when you make changes at a business that
you just bought that's hard enough but
when there's a fabric of blood relation
there as well it's even it's even more
friction it's even more fabric that has
to tear it forgive the violence but but
it's like nobody likes to see you Susie
from accounting leave. But if it's also
your aunt, it's that much worse sort of
thing.
>> Yeah, it it that is hard especially, you
know, I mean the business we bought, the
seller's mom and dad both worked there
and I had to let them go, you know, and
that's hard. You know, it's like if I
buy Will's HVAC company and you've had
your mom and dad working there who in
their late 70s um and you've been paying
them and maybe it's not super valuable,
but there's value there, right, to the
company that they're providing,
>> but they're not the best of the best,
right? And you have to let them go.
That's hard, right? I mean, there's no
way there's no easy way to go back to
Will and say, "Hey, Will, I'm sorry I
had to let your mom and dad go." Right?
I mean,
>> and what did that do for morale?
Um, it was okay. I mean, their it was
okay. Their
>> their mom was just part-time. She was
just doing some office things. That
wasn't too bad. Their and their dad
wasn't really close to a lot of the
employees, even though he probably
should have been closer. So, I think
that was okay. They rec the employees
recognized that what we were trying to
do was improve the business and the
value. And so a lot of that came down to
communicating the vision of where we
were trying to go and making sure that
they understood um the changes that we
were making and really listened to them.
You know, did they like our office? Did
they like the process that we we were
putting in place for the employees? What
was our culture like? Um how did we
onboard employees? And how do we onboard
clients? And what were the people that
were really dragging us down? Which were
the people that were really doing the
the best? And it's you can't always do
everything that they want. But I tried
to really listen to their complaints
because I came in just fresh just not
knowing what the sellers had promised or
what the employees at least thought they
had been promised. Not from the sale,
but just in general like where's the
company going? What are we going to get
out of this? You know, why what are the
things that we like about this? So I
tried to listen to them and make the
improvements that they wanted and needed
in the company. And some of those were
great. But then as we changed more, some
of them didn't work for them. So we had
to be really thoughtful about how we
made the changes, who we're making the
changes for, and keeping them engaged
while we were making the changes.
>> So is it a red flag uh to buy a business
with so much family? You thought it was
a you thought it was a red flag, which
is why you dismissed it out of hand.
Then you went back and decided it was
something that you could mitigate the
risk of, but as it turns out, it it you
feel like it did bite you. Do you feel
like that's a generalizable red flag for
the audience?
>> I think so. Yeah. Um, I think it's
probably more often a red flag than it
is not. It doesn't mean that you can't
buy a business with a lot of family
involved. I think you just have to do
more diligence, a lot more diligence on
their positions, um, what that means and
how involved they are with the business,
right? Um, and also one thing I didn't
touch on that I want to circle back to
is uh
looking at the resumes of the people
that you're buying in the business.
Right? So for us,
had I known the CFOs had not been CFOs
before
working at Proven, I don't know that I
would have [clears throat]
I would have put a bigger risk to the
business,
>> right? So, you can you can go buy an
HVAC company or a plumbing company and
assume you're you're buying a company
with licensed plumbers, for example,
right? Um, I would do a lot more
research into whether or not they are
licensed plumbers, how much experience
they have, what they've done before,
rather than just assuming
that the seller has taken care of that
cuz that's not always the case, right?
Like they it's not that the sellers were
wrong. they just had a different vision
and they thought that they could build a
business by teaching those CFOs how to
be CFOs. Um maybe they could have maybe
that's something that I couldn't have do
but I I came in thinking
well if I'm a company I I want you to
have experience in my industry. I want
you to know how to do this not in theory
know how to do this right.
>> Yeah. Yeah. And so I think understanding
the people's background of the companies
you're buying is a super super important
point that probably most people overlook
because they assume that the sellers
they've been working this way for 20
years or however long the business has
been in business and it probably works
right probably is the key term there. Um
>> well and I I um it's difficult of course
because kind of diligencing every member
of the team um is that much more of a
lift and who knows how much access
you'll get to them and so on. Even
though I I understand you're you're not
saying that you'd actually connect with
the employees personally of a business
of a target that you're looking to
acquire. um you would do it from a
distance. But um
but I the point is taken. I think what
probably a lot of searchers do is they
just look for proxies like fivestar
reviews. And so if the internet is
saying that this business does a good
job, that's the proxy most searchers go
with. Okay, I guess they provide a
quality service. Um and yours yours and
I I'm not trying to um disagree with
your point here, Dave. I'm just I'm just
thinking this through. Um but also I do
think that your business was an
interesting um was kind of a
idiosyncratic one because of this model
this internal model they had where they
thought that they could train CFOs from
within from bookkeeper all the way to
the top which is probably a pretty
unusual model. If you think that you're
buying a business that that does
fractional CFOs, you [snorts] I would
think that just that that just without
knowing anything about the business that
it was a business working with
experienced CFOs almost like a
marketplace to pair them into client
businesses, not this, you know, I can
turn a bookkeeper into CFO over a couple
years thing. Well, and it is a nuanced
thing with um and this was not a CPA
firm, but this is a nuanced thing with
CPA firms as well because fractional CFO
work is more common now. A lot of older
CPA firms think that I'm a CPA. I know
how to do taxes. I know how to do
accounting. I know how to do P&Ls. I
know how to close the books. I know how
to do payroll. Could I be a CFO? Sure.
I'll charge extra money and I'll be an
adviser. Right? So, it's this mentality
of I can be an adviser because anybody
can give advice, right? Whether or not
you're qualified to give advice advice
is a whole another question, right? And
I I always look at people that I take
advice from is what's their background
and what makes them qualified to give me
that advice. It's not that they have to
go take a test. Test to me does not
qualify someone to give advice, but
their experience is what qualifies them
to give advice, right? And so, it's not
this. It's not that the sellers were
wrong. It's just most CPA firms and most
accounting firms that start doing this
think that they're qualified when
they're not. Right? What you and it's
not based on because they're not
talented or they're not capable. It's
just they don't have the experience. So,
what I realized is
>> I've got to go find people with the
experience that I would want myself. And
then that's where real value is created
is when they have the experience to get
you to where you want to go. Oh man,
that's that's [snorts] precious, right?
And if you can have that in finance, if
you can have that in operations, if you
can have that in HR, etc., you got an A
team that you can't lose with.
>> So Dave, when I characterized your
proven as an accounting business, that's
inaccurate.
>> It is now, but when we bought it, it
wasn't. So I would classify
fractional CFO accounting business. We
rebranded from proven CFO to proven and
we now offer additional services in the
fractional space. We offer debt
sourcing. We offer deal sourcing. We do
quality of earnings which we didn't do
that before. And we focus really heavily
on our fractional executives because we
believe that longterm that's where
companies are going to see the most
value is from these people that have 20
25 years of experience and they've done
these things in all the industries that
you you would want them to have
experience in.
>> So to be clear on what happened here
Dave, it's not that the seller
intentionally,
>> you know, sold you a lemon. Th this was
this was a this was a a more kind of
nuanced case of miscommunication than
than that.
>> Well, I think it goes beyond that. I
think um this is where it's tough
diligence because sellers sellers had a
vision. They believed in their vision
and I'm still friends with them. I I
like them a lot, you know, but they were
building toward a vision. They had
family involved. Would I not have family
involved? I don't know. I mean, can't
fault them for wanting to pay their mom
and dad for helping out and providing
value, right? Or their son or whoever
else was involved, right? There were
quite a few. Um, but they just had a
vision that I don't think worked um long
term. And so, can you get a seller to
tell you that their vision won't work
long term? No way. That's never going to
happen.
>> Yeah.
>> Right. You're never going to get someone
It's like a CEO saying, "Hey, I'm too
busy. I need a a COO, right? Like could
that happen? Sometimes sometimes might,
you know, some people will realize that,
hey, I need some help, but getting a
seller to to say that their vision is
not going to work long term or the
vision that you have is not going to mix
with their vision. like maybe they're
maybe they could realize their vision u
and maybe it would work with them still
running it with their family but for me
objectively looking at it as a third
party it didn't translate to a third
party using their vision I had to come
up with a vision that I thought would
work right and it wasn't their vision
and that's a further bummer Dave because
part of the value proposition of ETA is
that you're buying product market fit
you're buying a business model that's
already proven in the market And here
you buy a business where you need to
rethink the entire model.
>> Yep. You
>> I mean, you still have raw ingredients,
but but really you you kind of stripped
this thing down to the studs and started
over in some sense.
>> I did. Yeah. Absolutely. There's no
question about I absolutely did. And
that was one of the bummers for me as I
was buying the business is because I
went from Z I I came from 0ero to one,
which is probably one of the reasons we
didn't fail is because I came from 0 to
one. I knew how to start.
>> Interesting point, right?
>> Yeah. Yeah.
>> And like for example, when we bought the
business, I asked the sellers, you know,
what do you do for lead flow? How does
that work? Well, the response was we get
most of our leads from referrals and
maybe they did historically. In fact, if
you talk to most accounting firms, they
will say a lot of a lot of them will say
we get most of our clients from
referrals. Right? That's not so so it
wasn't surprising to me to hear them say
that. Keep in mind I had met with 120
different owners before this, right? So
I was used to hearing that talk track of
where do you how do you do yourselves in
marketing? How does lead flow work? Um
well after closing I realized we were
not getting a ton of referrals. Like we
we did have referrals but it wasn't
consistent. It wasn't enough that we
were you know revenue was growing
substantially. So I had to start from
scratch on really learning what would
work for us to get leads, right? I mean
part of it and you know coming from
marketing in sales and SAS it's
completely different. And what I found
is like every time you start a new
marketing channel, new sales channel,
it's it's a lot of it's trial and error
even if you know what you're doing. Like
I I've ran $20 million paid advertising
budgets globally, right? I know how to
run ads. It's not knowing how to run
ads. It's knowing how to find your ICP
and where their watering holes are and
then how to reach them and how to
message them and how to get them to
understand the value that you're
providing. So, a lot of marketing is
trial and error, right? And so, the same
with this business, like I knew how to
do these things. I know how to set up
email campaigns. I know how to do direct
mail. I know how to do LinkedIn content,
etc. But a lot of it's learning what
works, what doesn't. And a lot of that
just takes time and trial and error,
right? And so for me it was starting
from scratch on our structure, starting
from scratch on our sales and marketing,
starting from scratch on our value
proposition of what we're providing to
the the company and doing in a way where
the company doesn't fall apart while
you're restructuring it.
>> And so how do you reflect now on ETA
versus 0ero to one? May maybe maybe your
case isn't maybe I should retract the
question because
you bought a distress business
unintentional effectively uh [laughter]
um unintentionally and therefore this
isn't exactly an ETA story because you
know under the hood all this stuff
needed to be redone from scratch. So it
ended up being closer to a 0ero to1
story but but still obviously you did
buy the business. So reflect on 0 to1
versus ETA now that you're on the other
side of of both.
>> So you know I think the conference we
were both at someone asked me what's
harder 0ero to1 or or this and I think
this was a little harder a turnaround is
a little bit is a little bit harder. Um
and and let me tell you why. From 0ero
to one, when you're building a company
where you're raising capital from
venture or angels or whatever, um you
have a lot of smart people on your board
and a lot of smart people rooting for
you to succeed. When you buy a business,
um depending on your if you have
investors or not,
you're going to be by yourself. So, a
lot of what you're doing is you've got
to figure out how to do it alone. you
don't have a board. I mean, you could
create a board um that can help you,
which I've tried to do, and it's still
challenging um depending on how you
compensate them. Um but a turnaround,
there's so much that you have to get
right um for it to be successful. Where
a zero to one, if you're raising capital
from VC, um there's always other rounds.
There's always more money you can raise.
Uh there's p you can pivot. You have a
lot of smart people working on your
products. Um,
>> and there isn't debt.
>> And there isn't debt. Exactly. And
personalities.
>> Right. Right. [laughter]
>> Right.
>> Yeah.
>> And and also in 0ero to1 land, at least
in in the tech version of 0ero to1 with
the fundraising and u rounds of capital,
there's the ex expectation of
experimentation that it's still being
figured out. So there's going to be a
lot of failure um along the way. And so,
um, that's just kind of like part of the
game and and you don't and you don't
feel so hung up when you hit a failure.
Okay, let's just try the next thing.
Whereas here, we're supposed to have
skipped over all of that stuff.
>> We're wrapping up here, Dave, but one
thing that you haven't said that I know
to be true is that during all of this
turnover and turmoil, you basically kept
revenue and IBIDA
where it was when you bought the
business, right?
>> Yeah, we did. We were super lucky. Um,
you know, we we've been we've gone
through the J curve and um it's been
painful and I've lost
>> Is it a J curve when you're re
rethinking and reconstructing an entire
business?
>> Call it [laughter] what you want. Call
it J curve, call it a U curve, I don't
know. Um but we yeah it was I lost
plenty of sleep, plenty of um
sleepless nights over wondering how this
is going to work out and how to make it
work. And it just took thinking through
it really slowly um over time and we're
in a much better spot now. Like we've
built the foundation of what we can
build on. And you know, the the biggest
thing to me is um yeah, we kept revenue
and we kept Ebida roughly where it was
when we bought it. Um and I wish I could
say it was because I was a genius, but
it's not. It was just lucky.
>> Well, how so how well wait but how how
did you do it?
>> Uh we kept revenue coming in, right? We
restructured expenses. So there's two
ways you can add to your bottom line,
right? It's not rocket science. You add
more revenue, you cut your expenses,
right? That's it. So, and you did both.
We did both, right? We added revenue and
we cut our expenses and we continue to
do that. Like I look at where we can cut
expenses all the time. That doesn't mean
I'm cutting them at the expense of our
culture. We're cutting them at the
expense of the value that we provide to
our clients. But part of running a
company is just being as efficient as
possible, right? And the value gets
created with your clients, with your
with your employees, with your culture.
as you do that, as you improve, you
know, I think a lot of first-time
managers have a hard time letting people
go. But to me, it's like you can either
let that person go or or they're going
to drag down your five best people where
eventually you're going to pay for that
long term. And so, it's creating a an
environment where your best people can
succeed and you get more of those people
and it's a snowball effect, right? And
then it just keeps turnurning and
turnurning. the value you create keeps
enlarging over time because you improve
the culture, right? And I think that's
what we're doing now, right? Yeah. We
kept our revenue
good, kept our IBIDA good, wasn't at
where we wanted it to be when we bought
it. But now that we have the foundation,
we're building on that where it's not
only going to be where we wanted it to
be. It's going to be way further down
the line.
>> Sure.
>> Of where it could be and had we just
kept going as business as usual.
>> Yeah. Okay. Um, but so in terms of the
expenses, you let people go where
necessary and who weren't going to be a
culture fit for
>> proven 2.0.
>> Mhm.
>> Um, you went virtual.
>> Mhm. We did. Yeah. We still we still
have an office, but it's it's just for
mail. We don't have a a physical office
any longer.
>> Uh, and then you looked for other places
to cut expenses. And then on the revenue
side, like when 25% of the revenue
walked out the door, you I assume
probably you personally just started
selling aggressively, maybe more than
than than the previous company had.
>> Yep. Yeah, we you know, we uh it was a
lot of trial and error on figuring out
which channels worked for us and um and
we figured that out, right? It's not
perfect. We're not a perfect company,
but we've definitely spent a lot of time
figuring out the channels that work and
bringing in the revenue that we need to
and adding the value that we need to to
the clients that deserve it.
>> Dave, a few more questions now to uh
just step back and reflect on the whole
journey. Uh in no particular order, you
used the expression with me drinking the
SBA Kool-Aid uh in our pre-call. uh why
is it Kool-Aid and how do you reflect on
uh SBA now SBA acquisitions?
>> Good question. Um
you know it's it's funny. I I I go back
and forth on this depending on who I
talk to
>> um and their opinion and and how they
look at the world, but I was looking I
was drinking the SBA Kool-Aid. I was
drinking the
um
own the majority of the company, get an
SBA loan, low risk, high reward. um
likelihood of failure is low, especially
compared to 0ero to one. Uh you don't
need a lot of money. Um and you can grow
that over time and improve your wealth.
Great. I drank that same Kool-Aid. I
drank the same Kool-Aid, by the way,
with the tech companies as well, right?
Um, since then in talking to a lot of
people that have gone through the
independent sponsor route and people
that I know that have been doing that
for years,
I
came to the conclusion for me bigger
companies are usually lower risk because
as I went through with proven they have
those processes dialed in. They have
sales and marketing department, they
have an IT department, they have an
accounting department, right? And when
you have to build those from scratch or
you have to do wear multiple hats, um
that's a lot more risky and you have to
build those up. Whereas a bigger
company, you're not going to have those.
So if you ask me today, I get the
question all the time like, should I go
the SBA route? Should I go the
independent sponsor route? I'm always
going to say the independent sponsor
route now.
>> Um because I believe that buying a
bigger company, you're going to have
less risk and there's going to be more
value to be created and you're going to
have a longer runway if you make
mistakes. And you will make mistakes.
Um, everybody will make mistakes. And
whereas the SBA route, it's a little
more uh, lean and mean. You got a
personal guarantee. Um, you're going to
have less time to fix those mistakes if
you make them. And you better hope you
bought a good company and you've got a
good team that will support you and you
can support while you're building.
>> Convincing. Um, but what [clears throat]
what about but but what about the two
features uh that you were drawn to in
SBA ownership that you lose in going to
independent sponsorship namely namely
owning it all
>> um and not having to really be
accountable to anybody. You had
investors, but the investors in SBA
deals are way less demanding and their
expectations are are frankly lower, I
would say, at being that's true being an
investor in independent sponsor deals
than indep investors in independent
sponsor deals who are who are going to
expect you to show how you're going to
exit the business again in 5 years and
what the IR is going to be. You said you
had Mo and IR in your previous slides,
but it's a it's a different frankly a
different category uh of expectation in
independent sponsor land. So you go from
being somebody who is captain of his own
ship and has a a much more autonomy to
somebody whose future is a little bit
more prescribed or Yeah. I I don't know
how to put that exactly, but you take my
point.
>> Yeah. Um and I think you have to choose
what you're more comfortable with,
right? Um,
a lot of people want to have the
ownership and so they're going to go the
SBA route. And I don't think there's
anything wrong with that. It's just
with the extra
uh equity that you get comes the extra
risk. Um, with an independent sponsor,
if you're not performing,
can you lose your upside? Yes. But
you're also not going to go bankrupt. Um
whereas with an SBA loan, you can go
bankrupt and lose everything. So a lot
of it comes down to the point that you
are in life. I went to lunch the other
day with a a professor that's building
an ETA program and he said ETA is
perfect for students when they're buying
SDE below half million dollars because
they have nothing to lose. They don't
have house, they don't have kids, you
know, it's really early on in their life
and so they can afford to fail if they
fail. And most private equity firms,
most ETA searchers that are bigger than
them, they're not looking for those
smaller companies. So in that route,
yeah, I would go SBA. You know, if
you're early on in life, if you have a
lot much more to lose, it doesn't, you
know, I don't know if people, most
people, less listeners know this, but it
doesn't matter if you have a real estate
portfolio $50 million or $100 million or
$5 million. The SBA's going to come for
it if you fail, right? Collateralize
your loan. So that's just a matter of
fact. And what about the difference in
expectations by your investors that if
you went the independent sponsor route,
you you're basically expected to exit in
5 years.
>> Yeah. And I think that's something you
have to come to terms with. But if you
know there's a term like live to play
another day, right? Um and I think going
into buying a company the first time,
you're not going to know what's coming.
And so if you go the independent sponsor
route, are they expecting you to exit in
five years? Yeah. Um, but what if you
buy a business, it takes you five years
to turn around and you're in no better
spot than you were before you bought the
business with an SBA route. So I think I
could argue either side, you know, with
the SBA or the independent sponsor. Um,
I would like to, you know, it's a it I
look at it as like, do you want to
create a $10 million company that you're
going to own 80% of, or do you want to
or would you be okay owning a $100
million company where you own 20% of
that or 10% or 15%. Right? Um, it's
going to it's going to look differently.
You might have more demands from
investors, but I think most people that
are going to buy a business are up for a
challenge either way. So, I think you
just have to decide what you're more
comfortable with um at the end of the
day. And for me, you know, having gone
through the cell phone search route and
gone from 0ero to one, I know what
having investors is like and I'm more
and I'm comfortable with that. What I'm
not comfortable with is telling my kids,
"Sorry guys, we got to move because your
dad was an idiot and he bought a company
that
>> we now have to go bankrupt." I' I'd
rather not have that conversation.
>> Yeah. You told us how you wanted to buy
a white collar business um because of
the transferability of your skills. You
thought um and a blueco collar business
you didn't feel like you had much to
transfer and that it would be hubris to
buy such a business. Of course, blue
collar trades businesses is a very
common target for people in search land.
>> Do you still feel the way you did on the
other side of this experience that that
was
>> No, really. I mean, maybe you do. Maybe
you do. I mean
I
I guess what I realized is
operationally the services that we
provide very transferable as far as what
I've done in the past right so
operationally yes I know how to provide
a P&L I know how to do payroll and how
to do AP right that wasn't that that's
kind of the process that I thought
wasn't hard now do I know how to fix
heavy equipment if I bought a leasing
company or equipment rental company? No,
I'd have to hire somebody to do that.
Um, and I'm I'm not mechanical, so I
wouldn't go figure it out on my own. So,
I think some of the operations, yes,
absolutely, are transferable. Uh, I
think what I overlooked is
the skills for building one business
don't necessarily translate into
building another business. So I had to
learn, okay,
how does it work with churn, for
example, in a service business versus a
SAS business? How does the sales and
marketing channels differ in a sales
business versus a service business? What
is the value you're creating? Um, and
and how do you increase that value over
time versus So does it translate? Yes,
but it's not 100%. So I do I think it
would translate to a service business or
a um a blue collar business? Yeah,
somewhat. I don't know if it'd be the
same um as a service business that we're
doing today, but it' probably translate
I I think it would be fair to buy a blue
collar business as it would a white
collar business.
>> Okay. So, you've actually your
experience going through this has
softened you on that point a little bit.
>> It has. Yeah.
And finally, Dave, your thesis uh that
buying a
fractional CFO firm as it was at the
time or a firm that has the visibility
into other client businesses and other
industries that you might want to
acquire into acquire targets in. Uh does
that feel like it's proven out? Haha. Uh
[laughter]
>> no pun intended. Um
yes and no. We're not. So
I do know of clients that are looking to
sell in the next few years. So in that
thesis, yes. Have we gone into
industries that I want to buy in that we
could acquire those businesses in the
future? Not yet. So I think the thesis
will is TBD to hold up whether or not
it's been proven long term.
Theoretically, I think it still works,
but we still have to prove whether or
not we can go into the industries that
we could potentially buy into and prove
that out. But theoretically, we still
have we still have companies that I know
are going for sale that um are
interesting, but not ones that we buy.
>> Anything we didn't get to, Dave, that
you wanted to?
>> I don't think so, Will. I think I think
you've got most of the information out
of me that [laughter]
about about our company. You know, it's
it's been a really good experience. I've
I've loved it. I I really have. It's
been
>> Well, say more because there if if you
hadn't just said that there, I think we
would have ended on a on a a note of
caution, but it seems like you're
actually you reflect on it with some
sort of I don't know, positivity.
>> One one of the things that we did really
well was we over capitalized on working
capital and that helped us, right? Um as
we were going through that $300,000 you
said, right?
>> Yeah. Yeah. And people ask me, well,
why, you know, I remember one of our
investors who is since advocating for
more working capital with other other
people they're investing in asked me, do
you really need that much working
capital? And I said, I I don't know, but
I'd rather have it and not need it than
want it and not get it right.
>> Sure.
>> Um,
>> and so it's been a good learning
experience for me. Um, obviously I wish
it was cash flow better. I wish we could
pay back our investors quicker. you
know, there's certain aspects of it that
I haven't liked. But has it been a good
experience? Yeah, it's been a good
experience. It's been a good experience
learning um how to not have these
pitfalls in the future when we acquire
other companies um and what red flags
look out out for cuz you don't always
get those with just listening to a
podcast or reading a book or listening
to others who have gone through it. You
kind of have to go through some of these
on your own and then come out the other
side. And there's several there's
several people I've talked to that
started with what they thought was a
cash flowing and it ended up being a
turnaround and that's all they do now is
turnarounds.
>> Great. Dave, what is the URL where
people can uh find Proven?
>> So Proven is proven.co. Pretty simple.
Povn.co.
Um you can email me again contact with
me daveproven.co as well. Happy to meet
with anybody, talk to anybody. And I'm
on LinkedIn as well.
>> Great Dave. We'll include links uh to
your LinkedIn and to proven uh and your
email address there in the show notes so
people can uh refer to those. Dave
Gilbert, thank you very much for coming
on and sharing uh this unusual story.
Congratulations on pulling it out uh and
being where you are today. We appreciate
it.
>> Thanks, Will. I appreciate it. Thanks
for having me on.
>> Hope you enjoyed that interview. Don't
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