Lessons from 24 Acquisition Nightmares | Jed Morris Interview
The one thing to remember
Do not let a successful first close turn you into a roll-up buyer before you have truly learned the cash, people, and operating rhythm of the first business.
What happened
Jed Morris, a former Air Force officer and tech employee, bought a small landscaping business around the end of 2023 and then quickly bought a second local landscaping company as an add-on. The first deal was about $400K with one-third cash and two-thirds seller note; the second price is not disclosed, and Jed is limited by an NDA from explaining the exact failure trigger. He says he moved too quickly, underestimated cash and integration demands, relied on messy books and trust, and did not fully understand day-to-day operations before scaling. The companies failed, the matter ended in settlement, and he estimates the personal cost at about $750K cash plus several hundred thousand dollars of debt, roughly $1M all-in.
Who's telling it: Jed Morris, the buyer and first-time small-business acquirer This is mainly the buyer Jed Morris's account; the sellers, employees, investors, lenders, and other stakeholders are not heard, and an NDA/settlement limits the facts he can disclose.
Timeline
- Thesis
Jed originally wanted a Southwest U.S. defense technology or defense IT-enabled services business where his military and tech background gave him buyer-operator fit.
- Sourcing
After finding defense opportunities too large or too scarce, he pivoted into landscaping, attracted by a fragmented local market and possible consolidation path.
- Due diligence
He built a relationship with the first landscaping owner, helped with CRM, ads, website, and customer data, and agreed on a price option before deciding to buy.
- Closing
He bought the first landscaping business for just over $400K, structured as roughly one-third cash and two-thirds seller note, personally guaranteed.
- Integration
Within weeks, other local landscaping owners expressed interest in selling, and Jed sent multiple LOIs and bought a second business about five weeks after the first.
- Operations
The combined business faced the realities of debt service, cash conversion, low-margin maintenance work, integration, operational learning, and slower-than-expected process changes.
- Exit
The business failed and moved into settlement; Jed says he lost his home, liquidated assets, moved in with family, and was left with substantial debt.
stage where a mistake was made
What went wrong 7 issues
Bought add-on too quickly
After buying the first landscaping company, Jed quickly moved into deal-making mode and acquired a second company about five weeks later. He later said he should have paused and repeated the relationship-building and learning process he had used on the first business over 12 to 24 months.
Mistake made at Integration → showed up at Operations
“I bought the second business five weeks after the first one”
Warning signs
- He had owned the first business only weeks, not long enough to understand normal operations, cash flow, people, or seasonality.
- The add-on opportunity felt urgent because owners were approaching him, but he later called that urgency manufactured.
How to prevent it
- Before closing the first acquisition, the buyer should adopt a written rule that no add-on LOIs can be signed until the first company has at least two quarters of stable cash flow, payroll, reporting, and customer retention.
- If an add-on opportunity appears early, the buyer should ask an advisor or board to review whether the base business is actually stabilized before any LOI goes out.
Underfunded roll-up model
Jed says he did not fully respect that moving into add-on acquisitions changed the fundamental model. A roll-up required more capital and active integration of teams, management, systems, and culture than he had prepared for.
Mistake made at Financing → showed up at Integration
“you need a lot more Capital”
Warning signs
- The strategy changed from owning one small business to combining multiple local landscaping companies.
- The first and second businesses had different revenue models: project construction versus low-margin commercial HOA maintenance.
How to prevent it
- Before signing an add-on LOI, the buyer should build a combined-company integration budget covering payroll, systems, customer communication, management overlap, legal fees, and six months of unexpected losses.
- The buyer or CFO should model the roll-up as a new business model, not as a simple continuation of the original single-company acquisition.
Cash cycle underestimated
The business worked differently after acquisition because it now had debt service and a new owner. Jed later emphasized that buyers must understand how quickly sales become usable cash, because AR delays, payroll timing, and payment changes can consume working capital fast.
Mistake made at Due diligence → showed up at Operations
“now my cash conversion cycle has really expanded”
Warning signs
- The acquired business had historically run debt-free, so post-closing debt service changed how much cash it needed.
- Customers were used to paying by cash or check, which made collection speed less predictable.
How to prevent it
- During due diligence, the buyer should map cash conversion step by step: quote, deposit, materials, labor, invoice, customer payment, bank clearing, payroll, vendor payment, and debt service.
- Before closing, the buyer should secure enough working capital or a line of credit to cover at least one full slow collection cycle plus debt service and payroll.
Weak books obscured earnings
The first business had poor back-office systems, no CRM, weak bookkeeping, and unclear SDE. Jed got comfortable because he had access and trust, but the messy records reduced the precision of valuation, margin analysis, and working-capital planning.
Mistake made at Due diligence → showed up at Operations
“you know like for instance you know the books weren't great”
Warning signs
- Jed knew there was no consistent bookkeeping and said there was no real way to see SDE cleanly.
- Pricing and job costs had not been tracked properly, making margins hard to verify.
How to prevent it
- Before agreeing on value, the buyer should reconstruct historical profitability from bank records, invoices, tax returns, and job-level costs rather than relying on incomplete bookkeeping.
- The buyer should hire a small-business QoE or bookkeeping specialist before closing if SDE cannot be clearly calculated from the seller’s records.
Didn’t learn daily operations
Jed did a useful pre-close internship, but it did not fully expose him to the hardest owner duties in a project-based landscaping operation. Once inside, he had to learn crew management, suppliers, project scheduling, and cost control while also carrying acquisition debt.
Mistake made at Due diligence → showed up at Operations
“it wasn't until I was in the business store I was like all right well this is the actual day-to-day”
Warning signs
- His pre-close internship focused heavily on digital and back-office work, not managing crews or suppliers.
- He later said he had not stopped by the supply shop or fully learned project scheduling before owning the business.
How to prevent it
- Before closing, the buyer should personally run through the owner’s weekly operating calendar, including crew management, scheduling, supplier purchasing, estimating, and job closeout.
- The buyer should require the seller to document the first 90 days of recurring operating decisions and train the buyer on them before transition payments are released.
Digital change was slower
Jed saw digital invoicing and payment collection as obvious low-hanging fruit, but customers and employees did not switch quickly. The change required phone calls, trust-building, training, and time, reducing the immediate cash-flow benefit.
Mistake made at Integration → showed up at Operations
“what I found was over half my customers I had to get on phone call”
Warning signs
- Customers and employees had been using cash, checks, mailed invoices, and legacy routines for years.
- HOA and property-management customers had their own payment processes that the buyer could not simply change unilaterally.
How to prevent it
- Before assuming faster collections from digital invoicing, the buyer should test the change with a sample of customers and measure adoption, objections, and payment timing.
- The integration plan should include scripts, customer notices, employee training, and a fallback process for customers who continue paying by check.
Fallback plan too optimistic
Jed had war-gamed a worst case, but he later said he overestimated how easy it would be to get another high-paying job. After the business failed, he was still unemployed months later and had to rebuild from a much worse personal position than expected.
Mistake made at Financing → showed up at Exit
“I was too optimistic on the market”
Warning signs
- Jed assumed his clearance, MBA, coding skills, and tech background would let him recover quickly if the business failed.
- The tech hiring market changed between his pre-acquisition risk analysis and the post-failure job search.
How to prevent it
- Before leaving a high-paying job, the buyer should test the fallback employment plan with current job-market data, active recruiter conversations, and a written timeline for reemployment.
- Before closing, the buyer and spouse should decide what happens if the business fails and the buyer cannot quickly replace prior income.
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Thesis
Due diligence
Financing
Closing
Integration
Operations
Transcript 3171 lines · 23652 words · auto-generated captions
Jed Morris welcome to acquiring minds
will thanks for having me Jed thank you
for agreeing to do this your story is
one of an acquisition gone wrong these
days you are out there rightfully
warning buyers of The Perils of this
path and so today we're going to hear
the story of your own walk down this
path how does the story begin Jed how
did you decide to buy business it begins
in business school you know I'm I'm a
10-year Air Force veteran I did
financial management um and acquisition
when I was in the Air Force and when I
got out you know I wasn't really sure
what the next step was going to be so I
went into business school and right on
the tail end of that is where I happened
to stumble across rush prip through
acquisition and uh total accident and
you know like a lot of people I I found
myself uh reading the hbrr guide I
attended the Harvard Business School
Conference in the fall of 2021 uh which
led attending the Chicago conference the
following uh that the following year and
uh he did a lot of my own you know due
diligence at the time you this is 2021
not that long ago but the ETA space has
grown so much since then you know back
then you know this wasn't something that
people talked about a lot online you
know yeah um it was very much reserved
for that those like higher level NBA
circles and so I was reaching out to
Searchers Who had who had done the
process who had acquired businesses um
learning from their successes U un
fortunately there were no failures that
I could find and to be honest I don't I
don't know if I would had the
wherewithal to really look for them at
the time and just doing everything I
could to really learn about the process
and it really clicked and I was like wow
this is a really interesting path and
one I want to pursue and so did you
immediately pursue it no I did not uh I
kept doing my my research um but while I
was in the NBA program I got recruited
at Microsoft and I was like this is a
fantastic opportunity I have to take it
I had no computer science background so
at the time Microsoft just needed people
with top secret clearances which I had
one and so the whole idea was they
recruited me in this class and they're
like we're going to teach you how to
code we're gonna teach you how to build
the cloud and you're gonna come do that
for us and I was like sign me up you
know you know one of the top companies
in the world yeah I'll do that and it
was a a fantastic opportunity um and at
the same time I stumbled across ETA in
my final class of my MBA school I was
taking an entrepreneurial finance class
at NYU Stern which is not an ETA school
and definitely was not then um and there
was a chapter in there on small business
m&a multiples and it just kind of
clicked a little bit and I was like wait
a second people are buying these things
how does that work which led to the hbrr
guide which led to the conferences and
so um as I was wrapping up the NBA I was
then just now like really diving into
what does this space look like and that
helped Drive the next question which
drove the next question which uh you
know and the big question for me was you
know what is my what is my optimal
outcome look like and you know I talk
with a lot of Searchers now and a lot of
times when I ask hey what's your buy box
it's the same thing it's the you know
chapter three from the hbrr GU you know
it's I'm looking for recurring revenue
and all this you know all the numbers
but uh you know we all know that like a
good deal for you is not a good deal for
me and for me it was okay well it has to
be regionally specific it has to be
within this type of you know
profitability frame it it has to have
these types of characteristics that were
specific to what I was going to look for
um and obviously that meant that I was
going to have to let go of a few things
that other people would think that were
necessary and required and so you know
really taking the time to really
determine what my buybox was and then
start searching on my own terms um you
know my my big Tech Career allowed me to
do that you know I didn't feel rushed
like I have to make a deal now and I
want to actually hear specifically about
what your buy box was and what you let
go of but first just on the chronology
of this so if you say you discovered
search in 2021 and went to work for
Microsoft instead or as a as a
intermediate step for three
years so you bought the business in 24
and here we are in 25 this short this it
was a short right at the end of 23 so it
was a very short experience yeah it was
it really was all right just to set set
the table there back to your buy box so
tell us what it was if you could give us
specifics and those things that you had
to let let go of how did you choose what
were they and how did you choose that
those were the things that you could be
flexible on sure um my buy box was I was
looking for something that was in
defense Tech or or defense it enabled
Services um that was the industry I was
going to go after because I felt like I
had a unique skill set in that area
because of my decade of experience
working in in the in the Air Force
working directly with defense
contractors and now obviously being in
Tech so I felt pretty comfortable in
that space um and then the next piece
was it has to be region so for me that
meant the Southwest United States
California was optimal but it had to be
the Southwest United States um and
because I'd spent a decade in the Air
Force on active duty and not not
controlling where I was going to live
and so this was something that was not
flexible for me I was like I I've spent
a long time going where I had to go for
work and I'm done doing that I'm picking
my location and so picking the location
was super important um and then beyond
that you know the other things I was a
little bit more flexible on you know I
wasn't as hardcore about curring Revenue
as a lot of people are I felt like
Project based revenue is totally fine to
me as long as there was you know
Diversified customer based consistent
cash flow you know things like that that
I could build on um and then the final
thing was I had this Epiphany moment I
was sitting on the couch talk to my wife
about this and I realized I'm like look
everybody's looking everyone's looking
for Cinderella right everyone's looking
for that perfect business um we all know
those don't exist and if they do then
they've already sold for 14 times
somewhere else you're not going to find
it um especially is a self-funded search
I'm like I understand the the capital
constraint I'm on and so with that in
mind I was like all right well if I'm
not looking for Cinderella I'm looking
for one step below that what does that
look like and for me I wrote down the
whole list of items from the hbr guide
of what I should be looking for and I
was like which one of these things is
the one that I can just cross out which
one is can I cross out and by that I
mean which one did I feel like if that
wasn't a strength of the business would
I be uniquely qualified to help solve
for me it was owner it was the owner
risk part I wasn't really scared away
with a business where the owner was
intimately involved in the business for
a couple of reasons one because I knew
going into it that whatever business I
bought I was going to be that guy I was
GNA get intimately involved in the
business and that was an okay trade for
me the second reason because I also
understood that I the goal was to build
myself out of that build management
around me and I also knew that a lot of
the businesses I was going to be
interacting with because I've been
searching for a little while at this
time they're going to be they're going
to need that digital transformation that
Tech enablement it's going to require me
to roll my sleeves and really be in it
um because I was going to be the person
implementing a lot of that work and so I
felt like that was the key that I was
going to kind of really hone in on what
about size so size I also felt like I
could take a step back now this is a big
debate a lot some people say you should
buy small because that's a good way to
get learning uh some people say buy as
big as you can because that's going to
help protect you um because there's
there's there's more room for error so
to speak I'm definitely on that second
track I felt like for me if I was going
to sign an SBA loan that was five
million that's no different than signing
one for one like I if I'm signing the
personal guarantee then I'm in no matter
what so I might as well find the biggest
best business I can find and so for me I
was going to try to Target towards the
top end of that Spectrum as much as
possible and I even built out
relationships with mezanine lenders and
knowing that like look if things really
hit the fan and I find a fantastic
opportunity then there are opportunities
for mezzanine debt or bringing in
additional Equity partners and I felt
like if that happened then I could go as
high as eight or even 10 if I found the
right deal um but I definitely was
looking towards the higher end so what
was your your floor how how small were
you willing to look the smallest was 500
of SD I felt like if I could do that
then I knew that you know based on the
numbers if there was 500 vde then 45% of
that would automatically go out the door
for debt payment that left me with
$250,000 to help move forward the
business depending on the capital
requirements of the business that could
work but obviously each deal is deal by
deal specific and and what were you
expecting to pay yourself so I was
expecting to pay myself $125,000 a year
um I for how long for as long as it took
for as long as it took and this was a a
personal realization for me because at
this point I was making much much more
than that working in Tech um but the
realization I had um was that my I
realized that my tech salary wasn't
going to provide what I was looking for
and it's kind of a a mental growth
activity for me but I was constantly
chasing the higher salary you I I got up
to you know 120 I was like wow I've made
it and I got to 180 and wow I've made it
by the time I walked away from Tech
completely I was pulling in just over
four and what I had realized was that it
didn't really matter how high the salary
went um because half of it went to taxes
and you know you weren't really building
anything substantial and although I was
doing all the right things I was putting
my money in 401ks I was maximizing my
HSA plenty of things I could have done
better but I was still doing the right
things but the thing that really hung
over my head was that I was well aware
of the fact that I was working in the
private sector and at any given point I
could lose my job and like man that
that's a risk that's a huge risk that I
just did not I was not comfortable with
I was just not comfortable with the fact
of putting my entire Financial future in
someone else's hands and saying hey
trust me you know things will be fine
for the next 30 40 years and even if I
had built out the skills and I thought I
had that would make me employable for
the long term well what happens if a
Black Swan event impacts you know what
if car accidents personal tragedies all
these kinds of things that could happen
and uh and most likely will happen at
some point in life and so I wanted to
have a little bit more control a little
bit more it was a risk analysis for me
you know and that's not the right answer
for everybody but for me it was I was
like I'm I'm totally fine scaling back
my personal da like salary income if it
means building out something that is
going to be a better long-term asset for
me and my family even though this
long-term asset of small business of
course is going to be subject to Black
Squan events as well but the difference
being that in a business when you're W2
it's thinking of yourself as a as a as a
oneperson business yeah it's 100%
customer concentration and a single
decision can drop your Revenue to zero
cuz you're salary goes away whereas in a
small business you felt like it wouldn't
be it it's just not quite so fragile
because there's going to be not going to
be 100% customer concentration sure and
you know I went through I went through
this moment where I watched this um I
watched this YouTube video of Tim Ferris
back in like 2008 and he's talking about
fear setting and it was a risk analysis
exercise and he was like you know when
you step away from whatever you're
afraid of and you just write down all
the the craziest things that could
happen and then imagine if all those
things came true how would it actually
impact your decision and for me I was
like all right well if I bought a
business if I left my high-paying job
and I buy this business and let's assume
that the business fails and I lose all
my money and I sign a personal guarantee
and I and I lose on that too and I'm
bankrupt let's assume that happens I did
not think that was gonna happen but I
did this exercise at the time and
hypothetical it it ended up not being
hypothetical but at the time it was and
I remember thinking well I have a few
unique strengths I was like one I have a
top secret clearance and so I felt
reasonably confident that if everything
went to hell then I could get a job
working for a defense contractor and
sure I probably wouldn't like it it's
not what I want to do but I could pay
the bills yeah I had an NBA from a top
institution I was like all right great
I've got a great credential there I've
got a network so that's helpful I had
learned how to code I learned how to
build the cloud it's the fastest growing
industry in America and I felt very
confident in those skills and so my
thought process was if all of this fails
I have all these I have these unique
advantages for me specifically where I
feel like it I would be able to recover
relatively quickly because I'm like look
there could be second or third or
effects of going through like a personal
bankruptcy but at least I'm getting paid
I could get a job I and and in my mind I
may have losed I may lose the money I
have today but I will basically just
come full circle and so that's kind of
and Jed was that risk
analysis accurate correct yes and no
well what did you what were you too
optimistic on I was too optimistic on
the market I'll just say that at the
time I was getting an offer every week
to go to go work somewhere you know and
after my business failed you know the
tech Market has turned dramatically
since then um I I've put rums out there
it's
been uh it's been eight months and I
still haven't gotten an offer I've
gotten to the final round of Google I've
gotten to the final round at a couple
different places no offer um even with
my clearance and so the truth is is that
it's not as I was right in the sense
that like I do have a few unique
advantages and I was wrong in the sense
that the market has changed a lot since
2022 to 2025 and it's not a it's not a
employee hiring Hot Market anymore and
uh yeah that that hasn't helped as much
as I thought it might let's get into the
actual search itself there was I know
there was one business that you didn't
buy do you want to share anything about
that business or should we jump straight
to the subject business
here what I will say is uh maybe not
sure about that specific business but
just kind of how I pivoted I told you I
was I was looking in defense I was
looking in IT enabl services I felt like
that was something that I could I could
jump into and had a lot of experience in
one business that I considered buying
was one that they were a prime candidate
to be a defense contractor but they
hadn't taken that route and I've and the
owner at the time said I just don't want
to sit in those meetings you know and I
was thinking I spent a decade sitting in
those meetings I can do that not a
problem you know so especially for
experimental aircraft or something like
that I could do that that works um but
ultimately I just didn't find a business
that was the right fit and ended up
pivoting into Landscaping on almost on
accident um I uh I found a couple owners
who were in the space I got to know them
and that pivoted my my mindset to
thinking wow okay well you know this
looks like a highly fragmented industry
um I've know people now who are in this
industry and then I started searching in
that one and that's how I I pivoted from
an industry that I had a little bit more
subject matter expertise in to an
industry that was completely different
and right now one of the big questions
for Searchers is should I buy an IND an
industry that I know already or should I
you know buy my first business in an
industry that's completely new and while
I would say that like you absolutely can
buy in a new industry and that can work
for you and we see success of that
happening all the time but I would ask
Searchers to be just more aware of the
fact that you're adding in a whole
another layer of risk because when you
dive in as the operator well now it's
going to be a lot harder for me to roll
up my sleeves and really get into the
work on day one as opposed to something
else where I've got a little bit more
expertise and and so you pivoted out uh
because you had such great business
buyer fit and that is something that we
really celebrate and and promote um you
had such great business buyer fit
looking for a defense business in
defense you just found that the Pickins
were too slim so you were kind of forced
to Pivot out of it and look
okay yeah exactly and the ones that I
did find were much bigger than what I
was looking for and to what you're
pointing about to your point about
Landscaping I'm sure this will come up
later but in fact that you didn't know
the industry you felt is that part of
your story is that is that part of the
hardship of the story that you were an
outsider to the landscaping business you
know it it's not specific to my story
and I will say like like I was brand new
to the industry um I was lucky in the
sense though because when I ended up
acquiring my first business business I
met the owner n months before I actually
bought the business and I used that time
because I wasn't planning on buying that
business I just met the owner we built
up a relationship and so it became a
situation where I was like hey how would
I just come help you do some of your
stuff well J so is that I really want to
spend some time on your quote unquote
internship because this is it is it is
such a a unique setup and a promising
one it would
seem why don't you just back up a sec
though and so how did did when you
pivoted into Landscaping anything more
to say about that before the business
that you were about to tell us about
comes across your desk or do do we just
jump jump in there well what I will say
is when I pivoted into Landscaping I
found an industry that was highly
fragmented um definitely on the smaller
side because there seem to be a lot of
big players and small players and that's
because it's really hard to be a
middle-sized player in that space um
because if you're a small you're a small
player as long as you're licensed if
you're on the project construction side
you need a license and a small team you
can get to work and you can do
relatively well you can get above one
to2 million in annual revenue you can do
okay and then on the commercial side
though you don't need the license but
it's much harder to turn a profit on the
commercial side you're competing with
the big companies and those companies
can can afford to under underprice your
your competition and so it's very very
tough so you end up finding a lot of mom
and pop shops and then a lot of large
players and very few in the middle and
so what I realized was like this is a
good a good Market where there was a lot
of this like unique owner fit where
perhaps I could SC I could step in and
then end up scaling that way wait and so
by targeting some of the Mom and Pops so
that's the the part of the market you
would so you you'd go after a mom and
pop business which is very fragmented
and build something in to larger into
maybe that middle tier and Beyond right
because I thought you know I'm building
in in the smaller businesses I can
probably do a little bit better than the
owner who's already in that space and if
that's the case then I also have maybe
potentially an exit strategy because now
I'm building something smaller into that
middle space where now I might become a
strategic Target so yeah I was like
maybe that could be an exit strategy but
we'll see well given how much there is a
lot of PE activity in landscaping so the
idea that you look at it and it's a very
large industry I heard you say that it
was small but it did I misunderstand you
because I think it's a huge industry a
lot of the the actual you know
businesses are relatively small anywhere
from 2 to 10 million in total revenue uh
on tight margins too um but the industry
is massive so but the idea that there
could that there would be a a likely
buyer if you're able to fulfill your
plan to to to build something to
professionalize something and build
something and maybe both inorganic and
organic growth y seemed like a sound a
sound kind of North Star for this whole
Venture yeah and as soon as I started
looking at it too you know I I had
pitched it to a couple friends of mine
who had been through business school
before and it turned out that one of
them was a uh he was a certified
accountant who had actually worked on
the m&a deal that took Bright View
public and so when I told him what I was
doing he's like oh yeah that makes a lot
of sense you know that yeah and it
wasn't so much that oh we're gonna go do
a rollup but it was it was in the sense
that like yeah there is a space here and
there is precedent for taking smaller
businesses like this and growing them
you know even organically into the point
to where you can become a Target uh
strategically uh because a lot of times
you know especially on the commercial
side landscape C customers are
incredibly sticky and so it's hard to
grow organically and what you find is
that
one of the best ways for a larger
company to you know end up growing is
simply to acquire sure and for the
audience Bright View is probably the
biggest name in Commercial Landscaping a
huge rollup uh that has that has since
gone public I guess um okay
great so what'd you find what kind of
what kind of deals were you looking at I
was looking at deals that were anywhere
between 2 and 10 million Revenue uh most
of them were Commercial Landscaping most
of them services HOAs um not a lot of uh
you know businesses but a lot of
homeowners associations that was kind of
like the bread and butter of what most
people did um what I ended up finding
though uh which led to the internship
that we referred to earlier was I found
a uh project construction company and uh
so not commercial maintenance not
recurring Revenue um but this particular
gentleman had been running his business
for 40 years and he had a license he had
a broad license to do a lot of
construction ruction and he had a small
team that he'd been working with for a
long time and they did phenomenal work
mostly residential work um but they did
a lot of landscape construction work uh
there wasn't really an area in that
space that they didn't have experience
in and so they had a lot of experience
in that space they had a fantastic
reputation um and I met them almost on
accident and uh built up a relationship
with the owner and what happened with
that with that relationship well what I
found was the owner was a wonderful
individual
um and I found a business that was
really great on the front end and needed
some work on the back end you can
imagine you know the books weren't great
there was no CRM there was no
advertising they got all their leads you
know through you know Yelp and house and
things like that and so there was a lot
of space that I felt I was like all
right well there's a lot of space for
improvement um but it was not the kind
of business I was looking for I was not
looking to buy this business and so um
you said you you said you weren't scared
of Project based Revenue I wasn't scared
of the Project based I was it was a
small business um and there were things
about it that you know like for instance
you know the books weren't great and so
if the there was no real way to see what
the SD was because they didn't have
consistent bookkeeping there were things
like that that made me feel like this
wasn't the right business to buy um but
at the same time I started talking to
the owner I knew that he was older he
was ready ready to get out met him met
his wife and uh they were great people
and so we kind of struck up a deal where
I was like look I'm looking to buy I'm
not sure yours is the right business to
buy but that said I'm still new to this
industry and how what would it look like
for me to come in and kind of help out a
little bit you know while I'm searching
I'll help out you know what I get out of
it I get to test out a few ideas that I
have about strategy because I've never
ran a business before um I get to learn
a little bit more about the industry and
then at this and if I don't end up
buying this business then hopefully this
helps you out a little bit you know
helps build out some some different
systems and plays it helps you as well
and so we agreed to that and at that
point had you quit Microsoft so at that
point ID moved from Microsoft to hu
Packard so okay and so I was still
working at hu Packard during that time
and one of the things that made it
possible was that the my job at H Packer
was not very intensive I mean it was
just I kind of got into a corporate role
to where there wasn't a whole lot needed
of me so I was able to fully you know
fulfill my work there while also you
know working on some of the stuff for
this other guy while doing my search and
that helped because now that I was
actually you know helping out in his
business a little bit I got to see like
how he thought about his invoicing how
he thought about you know different
projects that he was doing which made me
better talking to owners later
on and so you when you talk about this
internship it doesn't necessarily mean
at his shop or at his location it means
remotely in doing marketing and
bookkeeping and back office stuff yeah
exactly so we we weren't we were
geographically relatively close and so I
did get to go see his facilities I got
to meet the team I kind of got to see
what was happening but almost all the
work I was doing was uh remotely uh
because a lot of the work that needed to
be done was digital and Tech work okay
well Jed this is the idea of interning
for the business for a small business uh
and particularly the the one that you
are going to consider buying although
you at this point didn't think that
you'd buy this one um but maybe but you
were focused on this industry I mean
this is this is kind of the gold
standard of of you know drisking the
decision in terms of you know do I
actually like this industry do I
actually understand what it means to be
in a small business and own a small
business do I um and if you are
interested in this particular business
you get to see you know you know a bit
of a taste of the business before you
actually sign on the dotted line so very
few people are in a position to be able
to do that which is why you don't hear
about it more often but certainly I
think anyone would love to at least in
theory be able to try before they buy um
the business the industry small business
in general um so so you were getting
that opportunity and yet still things
didn't go your way but not in this
business we'll get there so you you you
in turn tell us is there more to say
about that how does that go how long
does that last and how does that lead to
a conversation about okay actually maybe
I am the buyer of this business yeah
well it started off with an agreement so
we we signed an agreement that said hey
this is what we agreed the value of the
business was and I was like look I don't
know how this is going to turn out but
we're going to do some stuff let's
assume that if I come in I create value
I don't want to then pay for the value I
created so let's agree ahead of time
that if I decide to buy within the next
12 months this is the purchase price and
generally speaking these are the terms
so we kind of sell like it was almost
like we signed an option for the sale
right and so with that in place I went
in the business um and started doing a
couple basic things set up a CRM um you
know put started doing some digital ads
turned on Google local service ads for
the first time and and I saw success you
know I saw like our individual sales
calls will go up 34% and when your when
your average s like project is$ four to
$5,000 of Revenue you don't care about
you know $125 of you know per sale call
from Google you know that that makes
sense right yeah and so I was like wow
that really helps I I was really yeah
34% yeah I mean one of the big questions
I had was like look if I've got a
business that especially if it's Project
based and it's heavily dependent on
leads from y and house which I do not
want like can I convert that into
something where I can be in charge of
leads can I successfully run ads and
bring in my own leads can I build out
word of mouth and bring in my own leads
and so that's what I was really trying
to test and so starting off you know
started with Google local service ads
saw success there and then I put in a
CRM and hired a uh a contractor to come
in and like this guy went through all
the digital records for the last 36
months and it was just it's just paper
invoices um that they had scanned to
like Microsoft One drive right and so
they had all these invoices that were
either word or PDF and I was like look
just go through each one of these
invoices for every job we've ever done
get the name address email phone number
whatever contact information you can get
for that customer and put them in the
CRM we were using HubSpot just build out
HubSpot and then uh it took them a few
weeks at the end of it I just emailed
everybody in the hubs HubSpot I was like
hey you know you know this is our
company and thanks for being a customer
we're having a sale if you're interested
in having some more projects done we're
running 10% off for the rest of the
month got seven sales right off the bat
just like that amazing like wow so this
does work I was like lot the low hanging
fruit is available and at the same time
I'm I'm using what I had learned while
doing this to again have better
discussions while in my conversations
with other owners as I'm still searching
and so you know you touched on it really
well but you know a lot of people don't
get the opportunity to work in a
business or do an internship and that
makes sense especially for self-funded
Searchers and I didn't expect this to
happen but what I do tell everybody now
if you are planning on buying a company
especially in an industry that you don't
know like definitely take the time if
whether it's a weekend two weekends
whatever you can do to put boots on the
ground and walk hand inand with that
owner especially if it's an ETA
acquisition owner and find out what
their day-to-day is like because that
will really inform you into the industry
that you're looking at and it's a small
thing that you can do to help mitigate
you know the millions of dollars of risk
that you may be willing to take on just
take some time and and and really figure
out what that day-to-day is like and
luckily I was able to do that although
Jed let me press you on that because it
sounds the the image I have is of you
working at your other job uh you know
doing the QuickBooks or the you know the
managing the upwork guy to put
everything into the
CRM uh so not actually managing the
cruise or doing any of the the front
line or even seeing having exposure to
any of that Frontline true nitty-gritty
this is what running a landscaping
business is like am I wrong I I feel
like you were doing exactly right so I
did get out there I did spend some time
with the crews I got to meet them I I
went to a couple work sites I got to see
what kinds of things that they were
doing and you know they'd be like we put
down Turf this way and we have to use
this type of mesh because of XYZ or uh
you know we get a lot of jobs in this
area doing these types of retaining wall
construction and I got to see what that
looked like but no I was not managing
the crew I was not managing the team and
there were definitely a lot of things I
could have done during that time to get
a better Hands-On feel for what
ownership would feel like especially
when it came to managing the teams of a
very much in the trenches kind of
industry uh and and I didn't do that and
I should have taken advantage of it like
what like running a team like so I did
do a couple things I went on a couple
sales calls like I followed up on a
couple of those you know there was a
point where the owner went on vacation
for a few days and and normally he just
kind of turns off the phone for a while
um but since I was there I was like I'll
do it so I got to follow with some
customers do some sales calls but uh I
never actually got out there and was
like all right well you know managing
the team what does that look like you
know we've got a a foreman we've got a
team of of a few people like what kind
of projects are we scheduling like I
never stopped by the supply shop to see
like you know how do we buy our supplies
you know how long do we have to get them
before we actually need them for a
project what does that turnaround look
like it wasn't until I was in the
business store I was like all right well
this is the actual day-to-day of running
a large project-based construction
business and so yeah I I wish you know
in hindsight I wish i' had spent a lot
more time doing that and to be clear
then when you shook hands to do this
this quasi internship you there was a
conversation or the possibility that you
would in fact buy the business it wasn't
like I'm not going to buy this business
but I'll be your intern it was like I
doesn't feel like this business is right
for me but maybe and so let's agree now
as to you know kind of a handshake on
what the acquisition price would be
that's exactly and I love the option
that you put in there that if you that
let's agree now to what the business is
today because if I'm going to be pouring
all this value into the business now I'd
like that to be I'd like to capture that
value rather than have it go to you yeah
and there was I wasn't even certain that
that was going to work I was like yeah I
because I felt like I had never done
this before I never run a business you
know in theory I was like yeah I know
how to build a CRM I know how to do I
knew how to do digital ads I knew how to
you know I rebuilt the website I knew
how to do things like that but I had no
guarantee that those were going to work
and actually turn into leads I'd never
drawn a customer before J on digital
marketing marketing you said you wanted
to get away from relying on Yelp and
house why because you were paying Google
so it's just from one platform to
another G give us 30 seconds on how to
think about leads from the various
digital channels yeah and this is
something that a lot of contractors run
into I am staunchly against focusing on
lead aggregators such as Yelp or house
for your leads uh I don't think there's
anything wrong with getting leads from
there but if I'm going to pay for leads
I'm going to pay for leads that are
direct to me so if I'm using a company
like Yelp to generate my leads
especially if it's a bulk of my leads
I'm not getting those leads exclusively
those leads are being farmed out to
other contractors as well it far it
falls on me to not just outc compete
those other contractors but get that
lead and I'm still paying so I'd rather
again back to like I want ownership of
the business I want something to where
if Yelp turns off our leads We're Not
Dead in the Water I've got Facebook ads
running I've got Google ads running I've
got word of mouth growing I've got a lot
of other areas where I can start
bringing in those leads as opposed to
just having a single source of failure
yeah
yeah and so for the audience who's never
maybe used Yelp or house the idea is you
as
consumer you know I need I need some
Landscaping work done and then you can
basically put in a kind of a request for
quote if you will yeah that is sent out
to three or five local landscapers via
yelp's platform and then they come back
at you with bids um and so you basically
wanted to avoid these little that
auction process absolutely and not just
because it's an auction process but
because yes I'm competing with other
contractors to get those jobs but now I
have no pricing power at all and and it
doesn't reflect on me as the business so
one of the things that I really liked
about the business from the beginning
was that it had over 100 festar reviews
on Google Maps that was phenomenal I I
couldn't believe that he had actually
been able to put that together because
it wasn't something I was focused on it
just a organic development from doing
quity work for a long time and so I saw
that I was like let's leverage this
let's really let's put this out there if
I can if I can create a powerful ad
campaign that's both digital ads and
paper ads and and getting our name out
there all I need to do is make sure that
when someone click like Googles us or
clicks on us they see a professional
website they see our Google MK reviews
and then it's on us to get this customer
and I was like I was firmly in in that
boat I don't want to be ring on somebody
else to hand us our customers I want to
go out there and get them ourselves at
the risk of being too academic about
marketing funnel but isn't Google
effectively the same thing because if I
search landscaper near me I'm going to
see you plus a bunch of
competitors and I'm likely to re likely
I guess the consumer would probably
reach out to a few so isn't it
effectively the same experience and and
while you might not be in a formal
auction process you are de facto
competing with with all these other
people that are coming up when I Google
landscape or near me on price yes yes
and no so you know how do people mostly
find people they're going to buy from
they're going to go on Google Maps and
they're usually going to search for
something in their local area if it's an
HVAC contractor a plumber or landscaper
that's mostly how you do it and then you
start looking for Star reviews so what I
want to do is I want to make sure that
um my leads are not coming from someone
who's aggravating just toward the top of
a Google search you're either going to
find my name or you're gonna find yelp's
name so I want to make sure that my name
is high as high as high as possible so
the big difference there is that yes if
I move away from Yelp yes I'm avoiding
the auction but now still competing on
reputation and search volume so that's
where the Google comes in now if I just
simply transferred everything from Yelp
to Google then yeah I've avoided I've
avoided the auction but I haven't fixed
the whole single source of failure but
that's where Facebook comes in and then
that's where you know physical ads come
in that's where I can start expanding
more from from there I don't ever want
to have one but I definitely don't want
to be uh beholden to an auction that's
for sure yeah so you are I guess
encouraged by how much you know all this
low hanging fruit that successfully
plucked from the tree when do you decide
that okay maybe this is the business I
buy yeah U by towards the end of that
year I had seen success there and I was
like wow this is uh you know the my
theories and of how this could actually
develop were in place like the website
was there um the leads were coming in um
and the biggest thing with project is
just making sure you've got the calendar
filled and so the calendar was filling
in and I was like wow this is this is
actually working we're building a CRM
this is actually working and so yeah it
was smaller business but then I started
thinking about like look I've got a
great relationship with the seller um
I've tested some theories here this
makes sense why not move forward here
this makes sense I I can actually I can
make this deal work and uh and like all
the things we talked about like i'
already been already been in the
business I I knew that there were no
skeletons in the closet I'd seen the
books I'd been in the bank like the
owner had given me access to the bank
account like I'd seen all the numbers
and
so there was a high level of trust there
was a high level of diligence there you
know like I I was in the business like
there was there was there were no
secrets yeah right right right and so in
that sense it's it's kind of it it's
working out it's why you would try to
intern it a potential Target it's
because you you you've mitigated or you
in the bus you've yeah so so you then
proceed with a number that you guys had
had Shook on y months before y proceed
can you tell us what that number was can
you give us some numbers around the
business itself and then the terms of
this acquisition yeah the business was
uh we we we F we kind of highlighted
what we thought SD was and then we did a
two and a half times that so the total
cost was just over 400,000 so it was
relatively small um doing just over a
around 1.2 million Topline and so
because of the size of the deal I I came
into this from the beginning think I was
going to do SBA maybe and especially if
it was at the top I was going to do
mezanine dead bring in equity investors
I didn't even do any of that so we came
to a deal where uh it was one3 Cash 2/3
uh seller note and then you know we
decided on the on the length of that
seller note and that was it it was
pretty straightforward and one3 cash 2/3
seller note acquisition price of 400 you
said yep 400k Y and uh two and a half
times so that puts SD at what is that 17
something like that yeah 170 excuse me
yeah that was the best assessment I
could get at the time I felt like it was
going to be better uh because I'd been
in at the time I'd been in the books and
you know we there's a lot of Basics we
weren't doing properly you know we're
not properly tracking costs we're not
properly properly looking at pricing um
one of the big things with small
businesses is we they haven't updated
the pricing in like eight years and so
you know our margins were unnecessarily
small and so there were a lot of things
there I was like look there's a lot of
room to run and so I felt pretty
confident with that and um and then you
know I was able to raise some cash from
friends and family people I'd served in
the Air Force with a couple people I had
gone to business school with and so I
felt good about it yeah
yep H and so the the money that you
would have needed to raise would have
been what is that 80 no excuse me
130ish yeah exactly okay
um and this is small this is a this is a
quite small SD as as elusive as it was
to pinned down because of of the books
let's say it was 150 to 200 that's very
small so you also had to get comfortable
with that I guess working at the
business was one more way that actually
seeing inside the business helped you
get comfortable with that ex yes it's
tiny but I I see what it is and I'm I
can do it it was a big Journey like I
thought I was going to go big with a
defense contractor and then by the time
I actually sign a first agreement it's
very small with a landscaping firm but
like you said that just comes from just
getting really comfortable with the
opportunity and I feel like this is a
business I know this is I'm in it I know
the owner um this makes a lot of sense
to me um I have the cash available um
let's do
this the two3 seller notes the other 270
that came from the seller note
personally guaranteed personally
guaranteed and this is where how long
and how long was it it was five years so
we we amzed it over 10 but then we put a
balloon on month 61 um okay and uh you
know obviously the big question is like
well how does how does a seller like
trust you with a seller's note like that
even though it's not a large transaction
but for them it is you know yeah and so
it was the personal guarantee and I had
planned on using the SBA from the
beginning so the idea of signing a
personal guarantee on the note was
always part of the cards and I also
didn't think it was fair otherwise
because otherwise how am I bringing any
real impact to the business I'm bringing
the cash but I need to be able to prove
that I'm on the hook to make sure this
is going to be successful so that really
helped build trust uh you know
especially on the transaction part of it
well as as much as we hate personal
guarantees and as onerous as they can
feel and as truly terrifying as they are
if it comes to that um there's a logic
to them and you know I I some some
people who are who are what would you
say hawkish or doish hawkish on on
personal guarantees you know I remember
an early guest saying listen everybody
you're buying a business for millions of
dollars yeah an industry you probably
don't know you're young and
inexperienced uh count your blessings
that that there's a system that allows
you to do that of course at the very
least you know the at the very least you
can give the bank a personal
guarantee I always tell search but it
does seem like you see that logic even
even though it's conversation yeah it's
a big conversation and I tell Searchers
all the time look I understand not
wanting to sign a personal guarantee
because there is a huge risk involved
but I also I want you to understand that
is no program in America that will allow
you to borrow $5 million for little more
than a signature and some decent credit
and in order to have access to that type
of Leverage you need to be willing to at
least sign on the dotted line that says
you know I'm personally on the hook for
this and maybe that's not the right tool
later in your career but on your first
acquisition with no experience in an
industry you don't have you're probably
not fluent in um I feel like in a lot of
cases that's the least you can do and so
as the buyer you instead of you know
moaning about the personal guarantee go
find a business that's worth signing a
personal guarantee for stop trying to
find mediocre businesses you know and
and then boning the guarantee find
something that's worth signing the deal
for then everyone can be a winner well
put jet tell us about now taking over
and becoming operator and owner of this
business yeah I tell people it's you
know it's kind of like a startup there's
that jcurve effect where it's like you
have to expect things to kind of slump
and then they're kind of gonna pick up
in as you keep going and you know when
you there's the jcurve of being an owner
then there's the jcurve of being in a
new industry uh the new industry
experience that was tough that was
really tough in the sense because you
have a lot to learn really quickly and
you're downloading I was downloading
experience from someone who had been in
the industry for decades and had always
done something in a very specific way
and had been had been successful it's
you know it's hard to tell somebody you
know in 40 years you've been doing it a
certain way and that's that's really
working but now we need to do it in a
different way and so I didn't do that
instead I'm like all right well how do I
how do I really figure out what our what
our costs are how do I really dive into
you know working with suppliers and
working with building all the
relationships that this person already
had in place and so that takes time the
other part is the ownership part when
you're finally in the seat I tell you
know I tell Searchers now I'm like it's
kind of like joining the military I can
tell you what it's like to put on a
uniform I can tell you what it's like to
go on deployments but until you've done
it you have no idea what I'm talking
about no clue and it's it's same thing's
true for business ownership and until
you're the one responsible for the debt
until you're the one responsible for
payroll until you're the one making
those decisions about profitability you
just don't understand and so that's a
learning curve well Jed indulge me and
and try to put this this very hard to
experience experience into
words yeah so how do you know when to
take the advice of people who have been
in the industry for a long time and when
do you know to trust your gut that's a
big one and not just for me but for a
lot of people I talk with you know one
of the things we see is that you know as
a bonus when you when you buy a business
is there one or two key employees who
have been there for a long time that can
really help and that can be a Big Boon
to your business because you're like all
right well I'm new to I'm new to this
industry this person's been there for a
long time um I have ass assurances that
they're going to stay then and I I'm
counting that person to be a foreman a
GM a a manager of some kind to help keep
these Crews moving while I as the new
buyer you know not just the ownership
piece but the new industry piece but
that also comes back the other way too
because what happens if that person or
people you know they've they've been
doing something a specific way for a
long time what happens when they tell
you hey this is what I would do but for
you it just just doesn't set right you
know and so you're constantly walking
this fine line of like I just bought
this business I I don't know what I
don't know and I definitely know what I
do what I don't know so how do I follow
what I believe is the best advice you
know per the hbr guide and other surgers
just don't break anything for for the
first 12 months how do I follow that
advice while also doing what I think is
best for the business and so a lot of
times it means deferring to the
knowledge and experience of people who
are already there um and and why is that
such a hard decision Jed because why
isn't the answer
simply even if these even if these
seasoned people have been doing it a
dumb way for all this time and I can see
that with my new eyes and they just
can't see it um the business has made it
this far doing it the dumb way it can
survive another 6 months doing it the
dumb way let me just and yet and yet the
risk of me implementing what I think is
better based on my naive judgment yeah
has the risk of alienating everybody and
has the risk of being wrong and all of
these unintended consequences that we
hear about when people are like when
Searchers buy business and they're like
let's change this and then you know all
these second and third order effects um
so why can't you just bite your tongue
for six months the dumb way that it's
being done can't be that dumb if the
business gotten that far that's a great
question uh and I would start off by
saying it's usually not a dumb way it's
just an old way um there's a one really
key reason and usually it's because
before you buy a business it's running
debt-free and now that you've bought the
business there's debt and so in the past
if uh business was slow low or
profitability waned the team could just
stay home the team could just you know
not come in today if we don't have a
project it's not a big deal we're just
we're not getting paid you're not
getting paid everybody understands you
know the business itself is not going
into any Dire Straits but now that
you've got debt on the business well now
that changes everything um and we know
that you know conceptually through an
lbo or through a leverage buyout but
when it's in practice okay well now it
means that all those customers of mine
that were paying by cash and check well
now I need to speed them into a digital
payment structure because now my cash
conversion cycle has really expanded and
if if that and so that's one aspect of
it now um if I'm not taking payment
upfront or at least some sort of payment
upfront now I'm I'm basically floating
that payroll until I can get to a point
where I can collect the cash so the
accounts receivable are really Weighing
on me or my team this is like my team
has been running on weekly payroll
Cycles now now I know that I need to
move to bi-weekly payroll Cycles to make
this cash conversion like to make the
cash actually work so that's an inter
interpersonal relationship issue it's
not uh people don't like when you mess
with their personal money yeah sure and
then there's plenty of things that you
know I didn't think about before I
bought the business so for one when I
was doing my financial assessment I was
looking at the I did I did the ADB backs
I did all kinds of you know all the
things we normally do but insurance was
one I missed and so I I took the
insurance that the business was already
paying because you know we're bonded
we're licensed um there's liability
insurance there's 's auto insurance um
there's all kinds of different types of
workman comp insurances and so with all
those insurances going forward I took
what we were paying I was like oh well
that's what we're going to pay that's
not true because the insurance company
had Decades of experience with the
previous owner I'm brand new so I've got
a much larger Insurance liability so my
insurance went up 30% the moment I
bought the business wow I didn't think
about that um yeah and there's these the
kind of the but this is expected these
are the kind of things that you know as
a first-time buyer and operator you
don't know about them so you don't think
about them and these are the lessons
that you learn and these lessons aren't
fatal but they are things that like you
want to start changing a little bit and
you want to start kind of you know
making the cash work a little bit better
for you as opposed to you know getting
so low to where you're like man are we
really like running running low to
payroll next week like how do I actually
maximize this cash flow a little bit and
so that that's one example of of how the
previous way it was done wasn't bad it's
just not conducive to how you're doing
business going forward
yeah it's such a great Point Jed and and
I'm surprised at how little uh it's been
made on this podcast that the business
that you buy is uh is different before
and after you buy it for the obvious
reason that you're you you are a
different owner um but the very
quantitative reason that it is now
burdened under a debt payment and so the
entire Financial structure of the
business um can feel and and and in fact
be different um now that there's this
this you know SBA payment that's got to
go out every month not to mention maybe
increased insurance premiums such a such
an important reminder and I knew that I
just I knew the debt part of it I I
expected that I just didn't expect the
smaller things and again these weren't
fatal but those are the things that you
don't think about when you're a
first-time buyer and you expect to mess
up you you don't you don't know you
expect to not you know make that
adjustment for insurance you expect to
you know maybe you didn't walk through
the full cash conversion cycle from the
moment you make a sale to the moment
that that pay that that money goes out
of the business maybe you didn't go step
by step through it so now you're kind of
catching up on that um but yeah that's
part of the learning experience and yeah
you you need to know how those things
are going to impact your cash yeah so
how does it go once you find yourself in
this J curve yeah so it honestly it goes
pretty well like right from the
beginning um one thing I didn't expect
was uh after acquiring the business um
you're perceived completely differently
once you buy a business I spent the
better part of two years searching you
know like calling Brokers and calling
business owners directly and you know
I'm pretty good on the phone so most
Brokers just you know they they would
listen to me and they they knew that
like I was serious and I had Capital
behind me and I was ready to to make a
deal happen um so they they the vast
majority of the time they didn't think I
was a tire kicker so that was helpful
but there was also the fact that I'd
never bought a business and so you know
there's a different level of seriousness
involved Y Man the moment I bought a
business the seriousness went right
through the roof I got contacted by
Brokers and all kinds of people are like
wow this is a person who actually closed
and so your reputation completely
changes and not just that when you when
you buy in an industry you learn very
quickly that the the industries are much
smaller than you realize especially when
they're local you know if you own an
HVAC company in your local city you
probably know a lot of the other owners
of HVAC companies in your city you've
seen their trucks you've you know their
Crews your employees know their
employees so what I discovered very
quickly was that you know the other
Landscaping owners in the area they all
knew each other because of course they
would several of them went to high
school together in the 70s um the
employees all knew each other they'd all
been you working on projects next to
each other for a long time and not just
knew each other they knew oh well that
company they got that you know HOA
contract back in like 83 and they've had
it since then we competed on it but we
didn't win it hopefully we'll get it
blah blah blah you there all this all
this you know stuff and and uh they all
used the same suppliers and so they all
knew each other and so I say that to say
that once I bought the once I bought a
business you know the heads perked up
and they're like oh who's this new guy
buying this landscaping business and so
you know I I found out very quickly
Through the Grapevine that there were
other owners who were interested in
having an exit as well and I started
getting reach out um from those owners
directly and some of their senior
employees like hey I think I think we're
interested in a sale are you interested
in buying and so I was surprised at at
how fast that happened well it's a
dynamic that we've heard a lot on this
podast podcast to to varying degrees
sometimes it seems to happen a lot other
times people never mention it um but it
is it can be a really happy outcome if
you are if you are acquisitive and and
you're kind of want to start building
the business so quickly in your
case seemed good you acted on it uh it
ended up maybe not being so good should
we jump to that part of the story yeah
it seemed good I I immediately uh had
identified four additional owners who
were all in the area within a 50 mile
radius with varying leveling sizes of
companies but I did the math real fast I
was like look if we find a way to
combine all these companies into one you
know that's a 12 to 15 million Topline
business and now we're competitive and
so I tell people I'm like uh it became
an accidental role of strategy because I
was not anticipating that whatsoever but
here I am I'm like and they're reaching
out to me and I'm like wow if we were to
pull this off then that would be pretty
incredible and so um that's kind of
where I went with it and you know
immediately had you know three or four
Lois out the door and just started
having conversations with with some of
these other owners about you know what
an exit would look like and then started
thinking from a high level how these
businesses might fit together and
complement each other and how long into
your ownership did you let's say put out
that first Loi of of of an add-on uh
three weeks after buying one yeah I
actually I bought the second business
five weeks after the first one and uh
I know how that sounds and that sounds
silly saying it um it's crazy it's uh
one of the very first lessons like I
tell people I'm like look when I look
back there were plenty of things I did
wrong and there were plenty of things I
did right but one of the key things I
did wrong was I moved way too quickly
when I realized the situation I was in I
was like and other people were
interested I immediately went into deal
making mode I was like okay well they're
interested I'm interested let's move
forward and what I should have was just
take a huge pause I should have just
taken a huge pause and say all right
well you know business number one is
successful all of these businesses that
all these other ones have all they're
all successful they've been successful
for a long time um the more important
thing would be for me to really
establish business number one really get
my arms around that and at the same time
building out those same types of
relationships with owners of two three
four and five just like I did with the
first one I if IID really just repeated
what I done with the first business on
the others and spread that timeline out
over 12 to 24 months then we could have
had potentially a different outcome that
would have made a lot more sense in
other words Jed you felt
like there was you felt urgency when
there really wasn't urgency yeah it was
manufactured I felt like the urgency was
there because in a like it was it was I
made it up almost because I had been
searching for so long that I was like
the they're all available now the owners
are reaching out to me now if I don't
move quickly this may not be an
opportunity 6 months from now or 12
months from now well and it's so
frustrating it must have been so
frustrating because search the process
of search teaches you to move fast move
fast move fast this is a competitive
market there's other searches if you you
know you need to demonstrate seriousness
you you know only Tire kickers don't get
back to people after you know quick
turns on their emails so so you are
trained in moving very quickly and
decisively on a business that you want
um and and so you were just you know you
built that muscle and and and also yeah
it's just like you go from feeling like
any starving like a starving man to now
you an abundance of of leads and so it's
like you just want to Feast part of you
just kind of wants to sink your teeth in
yeah and and I didn't fully respect the
fact that by moving forward with
additional add-on businesses I was
changing my fundamental business model
because up until then it was all about
acquiring a business it was all about
buying one business and assur that that
business was going to be successful but
the moment you P you you pivot into
Acquisitions especially if they're going
to be quick and you move into that
rollup type model that's a completely
different acquisition model you would
the reason the things that make that
successful a you need a lot more Capital
because you have to assume that these
things are going to go bad or that
there's going to be unintended
consequences and so you need a lot more
Capital to fall back on yes which I was
not prepared for and then the second
piece is that which I think is honestly
the most important piece is that the m&
involved like it's it's not just buying
the different businesses and like oh now
we've got a big one it's integrating
those teams it's integrating those
management teams it's integrating the
working teams and there's culture is a
huge issue from all those J Let Me
interrupt you because we're gonna I want
to hear about what you found and why the
integration was so hard anything to say
about these four Lois that went out you
closed on one anything in there to say
about the the negotiation with all these
other owners or should we jump right to
the acquisition you nothing really need
to add they were all very similar to the
first deal okay okay and why did you
choose the one you did and not any of
the others expediency I actually met
them first um not a great answer but it
it's true I I met them first uh
conversations went fast um you know they
opened up their books I got to look at
those um I felt pretty confident in the
space already I was already there and I
was like look this makes sense and they
were ready to leave and I was like all
right cool well then let's just move I'm
a dealmaker now says Jed um so the and
the size of that business it was uh
similar to the size of business number
one the only real difference is that
business number one was project
construction and business number two was
almost entirely commercial HOA
maintenance and so for me I was I saw
that as it as a big positive because
then you know the downside with project
business is that it's not recurring the
downside with commercial maintenance is
that the margins are tiny so now I had
an opportunity to basically buy my
customers and do project maintenance on
a commercial maintenance property and so
um it allows both teams to feed off each
other in the same customer so um that
ended up being true and uh so I thought
that was going to be a good uh
complimentary business so the first
business you bought was about 1.2 in
Revenue this one was about the same size
so now you buy this second business just
a few weeks into ownership and you're
now a$2 and a. half million do business
you've made this strategic move where
you've Diversified Revenue so now you're
you half of bit revenue's project half
is this nice recurring yep you're
envisioning all this wonderful cross-
selling you're going to be able to do
the kind the clients of each are going
to feed the other um it all sounds good
interesting to hear that it actually did
work out that way but um so so why don't
you take us there tell us because there
are there were wins to this this wasn't
a crazy strategy as it turns out other
than moving too quickly the the strategy
was pretty sound it seemed so tell us
the how it went well first yeah so my
original thesis on this ended up being
true um it was true
that the commercial clients you know our
Revenue was our our profitability was
very small the margins were small we're
talking below 10% typically around five
and that's just kind of the business it
was a small commercial maintenance
business and they're P they're competing
directly with the big guys and the big
guys are always you know under bidding
on new projects and so it had taken you
know decades for this company to build
up to the point to where they were at
that at when I found them and so uh my
thought was all right so there
they've built up to this point but the
profitability is bad um but on the
bright side you know business number one
high profit margins which is great
because it's project construction but
the downside is that typically in the
winters in the slow season you know
things do slow down and so we get the
bulk of our business you know between
April and November really and so why why
can we not you know be basically be able
to use both project both customer bases
and feed ourselves and so the HOA side
on commercial maintenance it's almost
always just cut and blow it's very basic
you know and but there's a lot of
add-ons that a lot of times get
subcontracted out such as you know
irrigation repair or tree trimming or
concrete laying or especially if there's
any kind of construction type of work
all of that work could be done by
business number one because that's what
they did and so you know especially when
we're looking in you know those slower
winter months well now all my project
Crews can do the work for the commercial
maintenance properties and vice versa so
that helps and then vice versa we can
also still take residential work from
the project cruise and that allows us to
be more profitable and that was true you
know we we basically got to you know use
the customer base from the commercial
side to feed the project
side and on business number one Project
based
business I heard you they a grab bag of
services so give us examples you said
tree trimming irrigation services so
they did Sprinklers and trees and what
else did you say um sprinklers trees
turfing the bread and butter was the
true construction work like imagine
you've got like a brand new uh uh uh
residential house that's been built out
and like it's just a a blank slate on
the back or somebody who really wants to
completely renovate everything that's
where the that's where these teams could
really work they can put in you know
retaining walls they can dig for pool
areas they can they can do everything
bring in trees all kinds of stuff and so
with that kind of skill set you know
they were used to using artificial
turfing or regular turfing they they
could sod they could mesh they could do
fencing they could do walls they could
do all of it and so when it came to the
commercial side you know it's like you
need someone to do tree triming we can
do that you need someone to put in Turf
we can do that you need someone to
replace all of your concrete driveway we
can do that so it really brought a a
level of inhouse work that we no longer
had to sub out yeah I don't want to
divert us too much but I have to ask Jed
just thinking about I'm I'm I'm I'm
interested in your business number one
the Project based business the variety
of services because we think of tree
trimming as a type of business and
that's all they do we think of um
irrigation and sprinklers as a type of
business and that's all they do was the
positioning of this of your business
number one at all week because you guys
did offered a grab bag you were you
weren't specialized in anything just
give me a minute on on that yes
absolutely so we I did have you know
thoughts later on where I was like all
right what would it look like to spin
off like a completely a completely
separate you know just irrigation
business because the margins are high
and we have got a couple techs who are
really good at that um the specialty of
of the current business was in that
residential you know full construction
model and so it's hard to really
especially when you're going to start
doing advertising it's hard to really
narrow in on like what we do and I
really wanted us to narrow in on you
know our our ideal customer is the
high-end residential customer when it
comes to Full Construction pieces and so
I was like that should be the primary
piece of the business and then all the
extra stuff that we could do would be
for our commercial businesses so then
then the question becomes all right well
you know are we going to do you know
random irrigation jobs for
non-commercial customers and in the
beginning the answer was yes just
because we were taking whatever business
we could get but then as we were growing
the idea was to completely cut that out
and so okay we would no longer be doing
irrigation calls for customers that were
not ours or tree trimming for customers
that were not ours we just do it for our
customers and then the specialty piece
of the would be the residential
construction piece and so yeah that was
the thought because it became difficult
to really narrow on and say all right
well who's the primary customer and then
because you have to know that if you're
going to advertise to them yeah yeah
yeah yeah gotcha great thank you what
doesn't go well yeah so this is this is
the part where I and this is the whole
reason we're talking
um when businesses don't go well
especially when you buy uh as they
collapse you get into a place where
there's a lot of stakeholders involved
there's you as the buyer there's
typically the seller seller there's the
lender there's investors um there's
other people who have debts against the
business and as a result when you move
into insolvency um everyone's got a
claim and litigation is expensive and so
a lot of times what happens is you move
into a settlement and so what happens is
when you move into a settlement there's
almost always a non-disparagement
non-disclosure agreement and that's
where I'm at um and I did not know this
because I'd never been through it um but
it wasn't until a few months after I'd
gone through my settlement agreement
where I started getting back on LinkedIn
and started connecting with other
business owners who had been in the same
situation I had been in and started to
realize how common my situation was and
that's why I started you know really
getting out and talking about these
things more broadly and I say all that
just to say that there's a lot more
business failure out there than you
realize it's just those owners aren't
they're not allowed to talk about it
they can't tell you what happened
because they have legally signed away
those rights and so the whole point of
the book I'm writing is to take those
stories anonymize them take the lessons
learned and get those into print so that
current and future Searchers can see
what does happen when those things go
wrong while also protecting the identity
of those owners and so as we go forward
from here there were a lot of things
that I did wrong there were some things
that happened outside of my control um
and I can't dive into the details but
what I can do and what I will do is that
since since my business has failed I
have been I've talked to 24 different
people at at this point who have bought
a business and then that business has fa
failed in the last five years and there
are Trends and from those stories I'm
putting those stories together to put
into a book but at the same time I'm
trying to pull as much data as possible
from those stories to get some lessons
learned and what I'm finding is you know
some of the things I experienced were
unique to me um but most of it wasn't
most of the experiences are there's a
pretty good line that goes right through
the middle of them and and that's what
I'll be speaking to going forward
because you know there are
three big things that I've identified
that were true about my story as well as
the stories of the people I've talked to
um that led to 75% of these business
failures okay great Jed well we're going
to get into it but tell us the name of
the book have you named it yet right now
I've called it buyer beware uh lessons
of real business failure
um I think it'll probably stay that as
the title I've got the pre-sale out um
you know but uh I really like I said I
really just want to capture these
stories and make sure that people get a
really good look at what happens when
things don't go according to plan yeah
going to be such a powerful document Jed
really really a great concept um you
know one of the things that I say here
is that it's that the audience really
appreciates really values stories like
yours and so I'm always looking for them
but it's hard to find they're hard to
find and we assume they're hard to find
because people like you don't really
it's not very pleasant to go up on stage
and talk about your business failure
which is true true but also according to
what you just said it sounds like
there's good legal reasons that people
don't go out and talk about it because
they're basically is that what we call a
gag order or is that something else
essentially yes essentially because what
you don't realize is that when you move
into litigation there's only two ways
that that's going to that's going to end
either you're going to go into court and
there's going to be a winner or a loser
or you're going to have a settlement and
nine times out of 10 there's a
settlement in place because litigation
is expensive and the outcomes are not
guaranteed and so what we do is all the
parties involved we say all right well
you know regardless of how we got here
what assets are at play with those
assets how can we find a place where we
can all walk away and avoid a costly
litigation and so that's that's how we
get there and as a result no party is
you know we're all there because we
believe we're right but no part is going
to admit you know any kind of fault and
so we walk away and say all right well
we've we've fixed this we've divided up
the assets we've divided up the
liabilities and now we're not going to
go after each other you know for any
kind of civil damages that we may feel
or warranted or not we're just going to
put a bow on this and we're not going to
talk about and we're going to walk away
and yeah you know we say that a lot you
know and I've talked to you know the
people I've talked to have been both
self-funded and traditional and
sometimes there's other reasons for that
I mean in a traditional search it's very
common to bring on LPS and investors and
a lot of times you know you know there's
reputation involved you know a lot of us
are going to move forward like imagine
if you bought a business and that
business failed like you don't want that
hanging over your head as a negative you
know you want to be able to move forward
same thing with an investor same thing
with a large debt holder and so there's
a lot of reasons why people you know
they want to come to a solution but at
the same time they're not going to admit
failure publicly and we're all just
really looking forward to moving forward
and putting this behind us sure although
I will say Jed uh to totally take that
point I've never been through it myself
so I'm I'm speaking out of turn a little
bit here but it it's top of mind because
I'm I Was preparing with the panel for
mit's uh ETA conferences coming up in a
couple weeks I'm going to be moderating
a panel about this very topic what it
looks like when it goes wrong yeah and
one of the topics that we all agree that
we should talk about is how to manage
how to manage the implosion and then in
fact for some Searchers business buyers
if they had investors managing that
process well um Crash Landing that plane
well and respectfully actually
grew their reputation in their
Investor's eyes absolutely not to say
that they're going to be out there
talking about their business failure but
in some backwards way it it has served
their reputations well as opposed to
being something that they'd rather hide
frankly from the resume you're exactly
right will I mean Joe Odell story is a
great example of that you know someone
who took on a traditional search uh
ultimately led into a failure but was
very honest with his investors and his
board to the point to where they were
ready to give him more money and he said
no this this is not the right move we
need to close and that has developed
into it builds trust it builds trust
people and and now he's doing quite well
for himself you know as a consultant for
go to market you know PE backed
businesses because he was able to build
that trust and I think that is the right
move you know yeah again you know we're
a country that understands that like
failure happens but it's how you work
through that failure that determines
whether or not uh you can be trusted and
be successful going forward yeah yeah uh
and Jed you're able to talk about it
where people other people aren't because
you didn't have a such a tight
settlement or because you aren't talking
about sensitive things why are you out
here and the other 23 people aren't I'm
out here because at this point of the
conversation I still signed an NDA I
still signed a non-disparagement and so
I'm not going to talk about the things
that that led to the failure what I am
going to do is I'm going to talk about
uh my the things that went wrong for me
as well as the things that went wrong
for other people in aggregate sense and
so you're exactly right the number one
reason people don't talk about it is
because it sucks no one gets on LinkedIn
and says I'm pleased to announce that my
business failed you know like that is
not fun um it's a story you bring up a
decade from now when you're actually
successful and you can talk about that
one time when you're business failed um
but not in the moment um so that's
probably the thing that's made me
different from the other 23 people um
okay but the second thing is that that
legal piece I'm no different from them
and so that's exactly why you know I'm
not going to sit here and tell you
exactly what happened in my business but
what I have found is that a lot of the
things I experienced were pretty pretty
close to things that other people
experienced and those takeaway lessons
are absolutely valuable great well we're
we're so eager to hear them let's let's
dive in all right so again I've spoken
with 24 people at this point who have
lost a business or that business has
failed at that point across those 24 in
65% of those cases or more um the number
one reason for failure is a misalignment
with the seller that's the number one
reason for failure um it's not always
because uh there was a outright fraud or
there was like you know some some sort
of misrepresentation but sometimes it's
because you know maybe the seller had
agreed to stay on and do a transition
and then didn't do that so misalignment
with the seller or um maybe you know the
seller had said that they were expecting
Revenue to grow because you know XYZ
customer was coming online or or XYZ
customer was not going to leave and then
that did in fact happen and so they
weren't actively misleading you they
just gave you a false impression of the
business um however in the majority of
the cases there is outright
misinformation and I'm not going to say
well I can't say that it's fraud because
I'm not a lawyer and I'm certainly not
in a position to say what is and is not
fraud but when someone tells you that a
business operates in a certain way and
then it turns out that it's
fundamentally different I don't know if
there's a better word for it and so for
instance um I spoke with a a business
owner who bought a bought a business and
uh it turned out that the actual product
that was being sold uh was not the case
like the margin simply was not there the
the owner had told them that they were
selling a certain product to a certain
customer and then collecting the margin
when in reality they were selling an
inferior product saying it was the
product and then selling it to the
customer so it was outright fraud and so
the new buyer discovered that um I've
talked to two people at this point who
signed non-compete dislo non compete
agreements the in the first case the
seller set up a shop within a week of
selling the business directly competing
with the first business and stole 40% of
the customers in the second situation
the seller set up a competing shop three
years after they bought when there's a
five-year non-compete and that also led
to a material collapse of the first
business it's funny because I feel like
I'm I'm
always a little um doubtful that a
seller will go off and compete with you
just because it's like they they I just
feel like you know they most sellers
just probably want to get out of there
now of course it does happen um and and
there have been stories on here where
there's been some of that I feel like
the more common threat is that the
number two the foreman some key person
within the business you bought goes out
and competes with you because they're
not subject to the non-compete generally
um and and that feels like a much more
realistic not a much more common threat
or uh or
uh or risk than your actual seller just
getting right back in the game yeah but
it sounds like in fact it's more common
than my instincts would say yeah I would
say in theory that makes more sense
because you know the number two employee
knows how to do the business and the
number two employee is not bound by the
non-compete but in reality and again I
have to caveat the fact that my data is
not scientific I've I've talked to 24
people who shared their story a few more
than that who have come forward so and I
can't tell you how big the environment
is and so it's not scientific it's an
doal but in those stories and in my own
personal experience what I found is that
a lot of times the number two employee
the if they were going to start a
business they would have done it by now
they would have gone out there and got
that lead generation they would have set
up shop the fact that they haven't done
it already says they're probably not
going to do it again um not to say that
they won't but the it's it's more about
the behavioral Finance portion and I
tell people I'm like look if if everyone
acted in their own Financial
self-interest then your purchase
agreement and your representations and
warranties and your non-compete clauses
those would be great but the truth is is
that people act against their own
Financial outcomes all the time and
sometimes they do it out of Pride
sometimes they do it out of arrogance
and sometimes they do it because they
sell a business and even though they've
gotten that Financial windfall that they
were expecting they realize now that the
monthly cash flow they they used to have
is not what they have now and they're
like well I only know how to do one
thing I'm gonna go do that thing yeah
and this comes back to the point I keep
telling people uh brand new Searchers is
that you know a person agreement is
important you need to have uh strong
legal agreements on your side you need
to make sure that non-competes are there
you need to make sure that you protect
yourself through seller notes or earn
outs or whatever you think is
appropriate and you should absolutely do
those things but you also need to keep
in mind that the only recourse for you
is litigation that's it so all of those
you know legal protections all they
provide is a foundation for you to sue
you still have to Sue and so a lot
sometimes sellers take that as an
opportunity to take advantage of you
because if that's the case then
litigation is expensive and it's long it
takes months and if they are if the
seller has impacted the business in a
material way you're still on the hook
for the business you still put the money
in you're still on the hook for the debt
and so and you're also pursuing
litigation against the seller or against
someone else and at while that's
happening you're kind of in over your
head and so there's no guarantee that
you'll win that I mean you had Justin
willness on your pod not not too long
ago
and he had an ironclad case and lost
right so you know we have to remember
that the only recourse is litigation and
recour and litigation is not a guarantee
and it's very expensive and it takes a
long time um right before I got on this
call with you I was talking with
somebody who is currently in litigation
they own the business that they bought
uh they believe that they acquired that
business and the business was fraudulent
they're in litigation with the seller
and right now they've been they're eight
months into litigation they've gone
through four different teams because
their legal teams just weren't pulling
the weight and just found out that their
key employee is going to leave because
of all the instability and so wow
they're trying to keep this business
afloat while the business is barely
pulling in any money and they're going
in litigation with the seller so um the
most important thing you can do while
putting all those Protections in place
the most important thing you can do is
make sure you're doing business and have
doing deals with people that you can
trust yeah and I don't know the better
the the right way to know if it's
someone you can trust but if you if the
arm if the hair stands on your arms if
there's one too many yellow flags if
something just doesn't feel right then
trust your gut and walk away one more
time on the numbers 65% of these 24
stories was due to misalignment with the
sellers yes and then more than half of
that 65% so that's what 33% or more of
the total of the total 24 was outright
call it dishonesty of some kind by the
seller okay
yeah nakedly unethical behavior and to
be clear that dishonesty was materially
impactful to the business so it wasn't
like they you know they told you they
had a piece of equipment and they didn't
have it and it's like oh it cost me two
grand it was materially impacting the
business in a very real way okay okay
everybody so a fully a third of bad bus
Bad Business outcomes are due to a
material um lie essentially yeah and
honestly I did not expect it to be that
High um no but recently I came across
the 2014 Stanford study where they were
looking at again only traditional
searches but they found something
similar you know in their in their
limited anecdotal evidence but it was it
was something for them it was something
like two-thirds of deals went sour
because of a misalignment with the
seller and so I was a little bit
encouraged the fact that like okay well
I'm not self- selecting people who just
had bad experiences with their seller it
just tends to be a trend that was the
2014 Sanford it's 2014 it's a I I'll get
the the actual link for you it was a it
was a study from stf business school
yeah yeah okay great finding number two
finding number two is Cash conversion
cycle and this should make all the sense
this is what I thought number one was
going to be um it is the number one
reason why a small business goes out of
business because you run out of cash and
this one almost always falls on the
buyer uh because you misunderstood the
cash conversion of the business you
misunderstood uh the accounts receivable
how much money you were going to need to
operate um and one thing that we're
really good at that we talk a lot about
as surgers is working capital but one
but we're really bad about talking about
cash conversion cycle and those are
different things the working capital is
the cash you need in the business to
operate the cash conversion cycle is how
fast you can turn sales into cash and
then hold on to that cash before you
spend it and very few Searchers take the
time to really walk step by step through
that cash conversion cycle to understand
exactly how much cash they need in the
business what that window looks like and
how fast they can hold on to it and but
Jad isn't the working capital the
working capital needs of the business so
if you do a good proper thorough working
capital assessment of the business you
arrive at a peg with the seller um
shouldn't that shouldn't the cash
conversion cycle be baked into that
number yes so so they're they're very
tightly correlated so you shouldn't get
one if you get working capital really
dialed in and really right it should be
enough to cover the cash conversion
cycle because it's what the it's the wor
Capital that's been in the business
dealing with such Cash Cash conversion
cycle historically yes and this is where
I encourage SE Searchers to step away
from their spreadsheets and get in the
business because in theory yes you're
right but in reality when you do an
asset purchase agreement you're moving
all of your accounts over so imagine
like right when you buy a business you
you have the cash you have your working
capital hopefully you've got you know
SBA Express lines of credit all these
extra things that you have as buffers
right but in the meantime you're
switching your accounts you're switch if
your account receivable you're putting
in new processes and maybe you find out
that your accounts receivable don't
liquidate as fast as you thought one of
the things I found was that cash moves a
lot slower than you expect you know like
one of the things you see in a business
is that if you see a business That's
Heavy cash focused or heavy you know
check focused you think wow this is a
great opportunity for digital
transformation but then you realize well
if those customers have been paying by
check for 20 years telling them to pay
by stripe or by QuickBooks invoice they
don't for for whatever reason they just
don't trust you and it takes time to get
them to do that you know they want to do
things the way they've always done it um
another thing is uh you know if you're
bringing in physical checks how long are
those physical checks sitting in your
bank account before your bank clears
them you know all of these things if you
don't take the time to really walk
through what that cash conversion cycle
looks like they'll eat up all your
working capital within the first quarter
and so you really need to see how fast
you can actually convert that AR why the
previous owner has so much AR you know
they'll tell you oh is coming with a
certain amount of accounts receivable
but a has the work already been done or
are you buying work that hasn't been
done that's a key piece and then B how
fast is that that was accounts
receivable how fast are they really
being liquidated is it simply because
you're not following up on your invoices
or is it more because you know maybe
there's a there's a process in place
that isn't ideal that you need to change
so one way or the other um one tool that
can help really mitigate this is making
sure you've got a 13-month Rolling Cash
Flow you know in you know in the
business knowing like where your cash is
and how fast it's coming that'll help
offset unexpected expenses like you know
like I mentioned how I didn't expect
Insurance to be more expensive than it
was and then it turned out to be the
case that's not that's not Material
that's not something that's going to
kill the business but it will impact
your cash flow and so making sure you
understand those and have have an
appreciation for that cash conversion
cycle so that you can absorb those types
of impacts is really important and so
you'd be surprised how many people you
know just they just don't have a handle
on what that that cycle looks like and
couldn't tell you how long it takes to
turn AR Into Cash how long they get to
hold on that cash how long until they
pay it out in some for either to payroll
or some sort of liability if you don't
know what those days are then uh you're
behind the ball well one of the things
that you just mentioned Jed and I know
that from your story was was something
um you had struggled with was that this
was a cashy business a checky business
and so you saw opport there in in
digitizing that process but it was
harder than it seemed putting aside this
question of the cash conversion cycle
like we we like point taken um but in
making that change to digital is this
one of these not as easy as it seems
absolutely absolutely it's not as easy
as it seems because the vendor excuse me
your your customers don't trust you to
to do that I think you touched on that a
second ago it's everybody involved it's
everybody involved so you know it begins
with the customer you have to start off
by getting the customer to start paying
you digitally as opposed to by cash or
by check instead of putting a check in
the mail and mailing it to me can you do
this digital invoice uh I you know being
a first-time buyer thought that that'd
be a pretty easy sell like hey just you
know pay by card pay connect your bank
account you know do something like that
and what I found was over half my
customers I had to get on phone call
with them and really walking through
like hey this is legit this is not this
is not you know fake this is actual
invoicing we can do this and um what I
discovered was that some people don't
want to do that some people they don't
want to change the way they've done
business for a long time especially if
the payment is through an intermediary
if my customer is in HOA and they use a
Property Management Service well then it
comes to the property management service
and they want to do it the way they want
to do it and so um maybe that's not in
line with the way you want to do it so
that's barrier number one um barrier
number two is all right well instead of
mailing out our invoices now we're going
to do them digitally well old businesses
come with people who've been doing
things that way for a long time so you
know
how do you get your your employees who
have always done things one way to do
things a completely different way
especially if it means learning a new
software system maybe they don't want to
learn that maybe it feels hard maybe it
adds complexity that they don't want to
do you know that can be an issue
um so all of these things start
compounding and so what feels like a
very easy digital transformation ends up
taking months and lots of effort and
lots of work on your part and uh you
know and you're not going to be 100%
successful very quickly and finally
number
three number three is simply the market
you'd be surprised at how many how many
times you Black Swan event just happens
you know I mentioned Joe Odell earlier
you he bought a business where you know
very quickly 80% of his Revenue just
disappeared because his number one
supplier changed their prices and so
that's difficult that's a risk that you
anticipate going into it that you know
is a risk that you mitigate as much as
possible but you're aware of it but then
the market falls out under anyway you
know know that's a risk that you
understand um and so of your 24 how many
people have experienced six little
little black swans in there six 25% yep
six people and so that that was your
point that it's more common than it
seems yeah it's more common than you
think and you know and sometimes you're
buying into an industry that you know
it's not as longterm as some others you
know like HVAC industry is not changing
over like a whole lot that's it's one of
the reasons people like it um but solar
does solar changes quite a bit you know
um if you're buying into a manufacturing
company that you know builds airplane
parts then you know you've got typically
you're taking the risk of having a
single soul uh customer right maybe it's
Boeing there's only really two so maybe
that's your customer but you understand
that that's a risk that you're okay with
because they've always bought for 30
years and now you're fine but what
happens when the regulations from the
FAA change well that may upend your
whole business model and so those types
of things do happen um I think they're
probably over represented in my data but
they absolutely do happen and that's a
risk that you kind of expect going into
it but you still need to mitigate as
much as possible um one of them is a
defense contractor you know if your
number one customer is the government
and they're buying 70% of your goods and
services well what happens if they
cancel your contract you know we see in
the news right now the government
working hard to cancel contracts um it
used to be the case to where and I still
think it kind of is even if you're a
government contractor you can spread out
your risk by having contracts with
different agencies maybe Department
State maybe DOD maybe local you know
local state agencies or uh you know
local services that does help um but you
know it's still the
risk and why do you think your six are
an over representation of how often that
happens I really don't know I really
don't know and that leads to the point
of like perhaps it's not perhaps it's
not yeah um right what I do know is that
buying a business has become much more
popular in the last five years than it
has been in the last 20 um due to his
explosion online and so it could just be
that there's a lot more people searching
for a lot more opportunities willing to
make a deal on a deal that maybe
wouldn't have been an ideal opportunity
five or six years ago very powerful Jen
um anything more to say about the the
key takeaways from your 24 interviews I
want to make sure we get the end of your
story kind of where things the things I
really drive home are first and foremost
if you're if you're a Searcher and
you're looking to buy a business you
really need to understand the risk
involved you need to understand what
happens if you take out a personally
guaranteed debt and you fail at that
debt and you need to you need to
understand you know what chapter 7even
and chapter 11 mean for you personally
um what it means for your family have
that conversation with your spouse have
that conversation with your investors
understand that you know one of the
things we love about ETA is that it
takes a lot of the risk away from a
startup you know you got product Market
fit we we like the success metrics but
just just because the success success
metrics are higher doesn't mean that
they're 100% and people do fail and if
you don't take the time to do a proper
risk assessment then I would argue that
you're not making investment you're
gambling you need to know what your true
downside is and that's the first thing
and then the other beyond that I would
just tell people pay attention to the
biggest red flags pay attention to the
biggest things that could have the
biggest opportunity to mess up your deal
and then understand how to mitigate
those appropriately you know whether it
means doing a deal with somebody that
you feel is untrustworthy I tell people
it's kind of like you know you know we
talk about in personal relationships but
you know if if someone cheated on their
wife they're probably going to cheat on
you too if someone has a reputation for
stiffing their suppliers they probably
were going to stiff you too if someone
has a bad reputation with other people
you know in in the area there's probably
a reason for that and even if not if
there's something in you that makes you
feel
like I like the deal but I don't like
the owner and it's going to be okay
because I'm the owner is going to be
gone and I'm going to take over and it's
going to be totally fine that's a red
flag that's a red flag a business is the
direct reflection of its owner every
single time that person has built the
business they've hired the employees
they've built systems or not built
systems they have created an entity that
is a reflection of themselves and so the
idea that the owner is simply going to
step away and then you're going to step
in and you're not going to be
responsible for however they built that
business
is irresponsible so
understand um that that is the in my
experience the number one risk that
you're going to run into beyond that do
everything you can to learn how the
business actually functions as much as
possible um and that means you know an
internship if you can that means getting
your hands dirty in a small business
because until you've been in the
operator seat there's just going to be
too many variables that you're unaware
of um I had a conversation with Nathan
Lindley not too long ago he's doing a a
fantastic job in Texas with HVAC
companies and he tells me about how you
know he bought his first business his
first HVAC business and hemorrhaged
money for the first two years because
the learning curve of being an owner is
so Steep and we talk a lot about how you
know you have to learn the industry but
you have to learn how to be an owner too
you have to learn when is the right time
to fire an employee when's the right
time to change a business model when's
the right time to really change systems
um and until you get to a point to where
you either out of necessity or out of
insight realize that you have to take
full ownership of this business and you
need to be The Driver um going forward
until that point happens you're not
going to see a lot of success and so
sometimes that that happens you know
relatively quickly in Nathan's case he
talks about how it took two years of him
losing money before his entire staff
finally quit and then he's like okay I I
really need to stop trusting other
people and just do things my way and
he's been successful since then so it's
it it really is a steep learning curve
of being an owner if you've always been
an employee and that's one of the things
I like about veterans in the space
because they have direct leadership
experience they've they've LED teams
they understand how to dive into those
types of unique experiences so yeah
Nathan is a veteran though he is yeah
and it's still a it's still a transition
it's it's an incredibly different thing
and that's why I tell people until
you've been in the seat you just don't
understand Jed one just followup to
everything you just said which was
fantastic the
really uh playing out War gaming the
worst outcome uh you know educating
yourself on chapter 7 chapter 11 can you
be more specific what what does a true
war game look like how what what should
people do that they don't because
everyone would say well I don't want the
bad outcome I'd lose my house and we'd
have to figure out where to go and I'd
go get a job what more should they be
doing the first and most important thing
you should be doing is having a
very very deep heart-to-heart
conversation with your spouse
because when things do go bad um the
part that you're probably not talking
about is how it's going to impact you
and your family um when my business went
under I moved in with my brother we lost
our house in the settlement we lost all
of our financial assets I've got two
little boys that are four and two and
I've got a wife and we had nowhere to go
and so it was just fortunate that my
brother owns his own home and has space
for us and so we stayed with him uh that
will and you were you had been in
Southern California and you moved car so
you moved ACR the country to do this yep
exactly and so and that's where you're
speaking to me I'm in North Carolina
right now at his house yep and that will
impact you that will impact you and your
family in ways that you've never
experienced before you know what is that
that's a completely different outcome um
and it sucks I'll just tell you straight
up it just sucks um from so first and
foremost it's the business side because
let's be clear if you lose everything
financially you haven't lost everything
you still have your family you're going
to be okay like you're going to come
back you're going to get a job you're
going to be able to be successful
there's always more money to make so the
first thing you need to do is have a
real honest conversation about what
failure looks like for your family um
that's the first thing the second thing
is getting a better understanding about
what the process looks like legally
first once you start moving into
business failure you move into an area
called insolvency and it's kind of a
gray area but it's an area where as the
owner of the business you when you start
to realize that you may not be
sustainable you may not be making
payroll you may not be able to continue
operations that's insolvency when you
get to that point your fiduciary duty to
the business changes now you actually
are a fiduciary for the debt and capital
stack and so you need to be start you
have to start making decisions that are
in the best interest of the debt holders
not just you so if and that and that's
something you have to be able to argue
in court if it comes to that and so if
you're moving into the PO point to where
you as the owner believe that you're
going to go out of business soon or
you're going to be in solvent soon the
decisions you make after that they have
to be in line with the best interest of
the business not you the best interest
of your debt and your Capital providers
and not you otherwise that's going to
come back to bite you when you go into
bankruptcy because the judge and who or
whoever is litigating is going to say
hey at what point did you realize that
things were going bad and you're under
oath you have to be able to answer those
questions and you have to be able to
talk about the fact that like if you say
you're an say you have SBA debt like if
you know that you're not going to make
payroll and you know that things aren't
going to go well then you better be
ready to speak to every single
expenditure you're making in your
business so and be able to be able to
defend those things um in some states
like the state of California payroll is
Paramount you have to pay payroll if
someone is working you have to pay them
and that is one thing that it doesn't
matter if you go bankrupt they can
always come after you for that and so
that is Paramount um the next things you
need to think about is you and your
personal assets I tell people one of the
Silver Linings since this has happened
and since I've been public about my
failure is that I've had so many
conversations with people who not who
have not just gone through failure but
people who are actively going through
failure I had somebody call me on
Thanksgiving Day in 2024 and say I'm
fining for bankruptcy now
and business ownership is incredibly
lonely we know that it's 10 times more
lonely when you're going through
bankruptcy and you're staring down the
abyss of the unknown and you don't know
what how this is going to turn out and
a silver lining has been that I've
talked
to three PE four as of today four people
who are actively going through either
litigation or bankruptcy and being able
to talk to them and say hey it's going
to be okay you know you have to assume
that you're going to lose everything go
into it with that mindset go into it
with the mindset that I'm going to lose
my home I'm going to lose my all my cash
I'm gonna lose all my assets I'm going
to start over if you do that then even
if you don't lose everything then at
least it sets you up mentally for that
outcome
and helps you understand that like all
right well if that's the worst case then
I'm going to be okay you know there is
Noor prison in America you're gonna
there is going to be a resolution to
this matter as long as you don't break
the law you're not in any real any real
issues here and so don't do that um and
then on the other side of this you're
going to survive and so just hearing
those kind of words they really do help
people
so that said some states have
protections for Homestead if you have a
if you have a house um sometimes you
sign that away on a personal guarantee
depending on your equity and we talk
about that a lot um some states have
protections for you know protected
retirement accounts 401ks and things
like that um and there's a difference
between chapter seven and chapter 11 um
there's also a difference when it comes
to your SB if you have an SBA loan the
amount of uh uh requirement you have on
that SBA Loans are backed by the
government between 70 and 75% so
depending on the amount of Leverage you
took out you may not actually need to
pay back the full amount maybe there's a
Delta there where you know the SBA is
going to back stop your lender to that
70% and that leaves you with the 10% so
you can find a selement for that last
10% you know maybe you could find a way
that way um so just going into it
understanding that like you know just
like in Deal making there's a deal to be
had on the backside there's something
there where no one's going to be happy
but we're going to be able to find a way
to find a resolution to this matter and
so understand that um those the biggest
takeway
this this is gold um can you share other
than losing your house and moving to
North Carolina um which is already a big
share with us can you share anything
more about your final outcome any
numbers yeah I would I would tell people
that whatever you think the worst case
scenario is expect it to be a little
worse you know I I told you that you
know I've got a great NBA and I've got a
top secret clearance and I've got all
this experience I can code and I've LED
software teams but I'm still unemployed
and I've been putting out rums for a
while now but sometimes the market
changes and so assume that things could
be worse it's not as easy as just
getting a job like you had before and so
I put too much faith on that and so if
that's you I would caution you in that
in that respect um I would also say that
you know you do have options I have not
declared personal bankruptcy um that
does mean that I have several hundred
thousands dollars of debt um but at this
point I could we could declare
bankruptcy in the future we've elected
not to do that at this point we're going
to try to you know pull out of this um
working on a couple things of my own to
try to generate some income so um what I
will can you share how much money this
whole thing cost you yeah when you think
about man I did the math before it was
right around
$750,000 of cash out of my pocket
whether that's you know selling our home
liquidating our assets cash that I put
in the business to try to keep it going
when it should have been insolvent um
you know yeah about
$750,000 and then the multi 00,000
liability that you still have hanging
over your head y exactly so all in all
about a million and so when you put that
in and say all right well that's four
times what I spent on my MBA but I will
tell you like I have learned so much I
have learned a lot about what it looks
like not just operating the business
what right looks like things I would do
differently and you know one of the
things that when you're on the other
side of it you're able to look back and
kind of look at it from a objective
perspective and say these are the things
I did wrong and there were a lot of them
there were things I did wrong and I can
say I shouldn't have made that change I
should have fired that person I should
have hired this person I should not have
moved that quickly I looted that already
um yeah plenty of things I could have
done better but it's also important to
look at the things that maybe that
weren't your fault that just happen
sometimes bad luck happens sometimes bad
you know there's risk for a reason you
know sometimes that risk come back comes
back to get you and so understanding
like hey you know these are the things
that I did wrong and these are things
that are outside my control but but the
things I did wrong only Amplified the
bad things that were outside of my
control and so uh people ask me all the
time hey would you buy another business
and the answer is yes I spent a million
dollars learning how to do it the the
wrong way and the right way you know it
would be foolish to throw away all that
knowledge and so you know I it has been
an invaluable experience
um it has been a painful experience well
Jed to to that point as a final question
how do you reflect now on
ETA broadly and um yeah the value
proposition now that you've seen the
worst possible outcome I think that ETA
is a fantastic opportunity for the right
buyer and the right business um it's
everything I thought it was when I
started searching and we see those
positive stories all the time and that's
a wonderful thing and it really is true
that there's a lot of opportunity out
there there's a lot of sellers out there
a lot of good people looking for a good
exit and um if you are willing to roll
up your sleeves especially in the
self-funded search space and be an owner
operator then you Absolut we need you
get out there and buy a business um but
as you know um things have become
saturated the last couple years and not
not so much in saturated in deals
saturated in influence everywhere you
look there's somebody telling you to go
buy a business it is the fast track to
wealth it is you know no money down 100%
passive bu hire a GM to do the work for
you like all the things you see online
that just push and push people towards
deals be as if it's like you know the
the magical Gateway that's going to
solve all your financial problems and
build that generational wealth that we
hear so much about and the biggest red
flag is that there's a kernel of truth
to it there really is but the problem is
that in the fervor and excitement of
buying a business so many of us whether
we have fantastic fancy degrees or not
we get really we put those Rose colored
glasses on and we forget to look at the
risk we forget to look at the downside
we forget to look at the diligence and I
tell people I'm like look one thing
that's really key in a lot of the
situations not just mine but other
people is that you can do diligence all
the right ways you can find you can you
can get quality of earnings checks you
can get legal reviews you can get in
there and you can figure things out but
there will always be things you don't
know and that is risk that is that is
the risk you take and that's assuming
you're doing the right d diligence to
begin with and so I would caution people
to make sure that they're doing their
appropriate due diligence make sure that
they're really diving into their
opportunities make sure that they
understand that there's a level of risk
that you can't mitigate away and be
comfortable with that risk because it's
real and then also understand
that your F the most important thing
with your first deal is just being
successful that's it you don't need to
be a Millionaire on Deal One in fact I
would I would tell people now and this
is some of the feedback I get from
people now which is don't over lever
there's no point in going 90% on your
leverage on your your first deal like
there's just not raise more cash yeah
Equity is more expensive but you know
what more expensive failure like make
sure that first deal there's so much
asymmetry of information for you as the
buyer because you've never done it
before put yourself in the best possible
situation to be successful you know take
less Equity take more cash take a safer
deal you know and and I say like don't
lever up as much as you can um don't
skip Q of don't the people that I see
who are willing to sign three and4
million loans but aren't willing to
spend 40,000 on the quality of earnings
your your aspect of risk is flawed it is
wrong and if your answer is oh I just
don't have the cash for that then I
would argue that you're not ready to buy
a business and so really understand the
risk involved understand you know what
the tradeoffs are understand how much
you don't know make your deal as
successful as possible that way when
you've won on Deal one you've learned
you understand you've had the experience
of being the operator go kill it on
deals 2 3 4 five Go 100% lever if you
have to like it's I get it you know
there are expansive opportunities out
there you know but not on Deal one
there's just there's so much you don't
know make deal one a winner D remind us
the name of the book buyer beware
lessons from failed business buyers um
the working title may change working
title yes uh I've got it available for
pre-order um I'm expecting to have it
out uh this fall trying to line it up
right with some of the ETA conferences
in the fall so my my hope is that you
know this will help illuminate some of
those stories of how things can go wrong
um there's a million ways that things
can go wrong but by having a few of
those stories out there that are case
studies and then towards the end of each
chapter some real takeaway from the
actual buyer themselves are saying if I
knew then what I know now here's the
things I would think about you know it's
gonna be so I want that to be a
reference I mean I read by build I read
the hbr guide they were invaluable but I
I never met somebody who had a failed
business yeah yeah excellent excellent
project Jed uh and you are going to do a
live Q&A uh for listeners of this
interview yep so we will put that in the
show notes we'll in the intro to and
outro to this episode I will tell people
when the exact date of that is but it'll
be within around two weeks of when this
episode actually airs so you'll be in a
live Zoom call uh probably with me and
people who have just been listening to
your intervie for the last hour and a
half will can come and ask their
questions directly to you so thank you
for being willing to do that too Chad um
and if people can't wait for that or
can't make that what is another way to
get in touch with you how do you like
people to do that you can find me on
LinkedIn um you can shoot me a direct
message I try to reply to as many as
possible sometimes if I don't reply it's
because I just got so many that I missed
you so please just shoot me another
message uh beyond that I you I try to do
one-on-one calls as much as possible but
um I'm actually getting ready to start a
Thursday live call so if if oneone is
you know if that isn't a thing for you
you can join a group call and we'll try
to you know walk through some of the
things that you know I talk about just
so help get more of that information out
there because one of the things I
realized is that when you do one-on-one
calls uh you get overwhelmed very
quickly well and that's part of what the
live q&as are going to be about a lot of
my guests get a lot of inbound and
requests for calls and generously take
them but it doesn't scale very well so
we're going
to yeah Jed Morris thank you for coming
on thank you especially for this project
it's it's such a great idea to distill
24 people's horrible experiences into
some key learnings um you do that
project well and it will be the third
book in the Canon behind by then build
and and the hbr guide this is really has
a lot of potential I hope so will and
thanks for having me you know Russell
Brunson talks about turning your mess
into the message and and that's kind of
what uh my mission is for this year
great great work Jed thanks very much
thanks for having me I hope you enjoy
that interview make sure you subscribe
to the acquiring minds Channel below we
are now publishing twice a week so tons
of new interviews and stories to come
stories that will help you along your
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