How to Recover from a Fraudulent Seller | Jason Jackson Interview
The one thing to remember
If you see cracks in a seller’s integrity, do not try to price or structure around them—stop, verify, or walk.
What happened
Jason Jackson and his partner Eli Day raised a traditional search fund and bought a dental practice management business in 2017. Within two weeks, an employee revealed a Medicaid audit and insurance problems that led Jason to conclude the seller had committed insurance fraud. The business they thought had about $7 million of revenue and $1.5 million of EBITDA was, according to Jason, closer to $4.5 million of revenue and negative $0.5 million of EBITDA. They survived by cutting costs, rebuilding culture, replacing people, getting the seller note wiped away, and later pivoting the business during COVID. The company recovered, was sold in 2023, and Jason says it later reached a little over $4 million of EBITDA run rate under his partner’s continued leadership.
Who's telling it: Jason Jackson, the buyer and first-time search fund CEO This is mainly the buyer Jason Jackson’s account, with some host commentary; the seller’s, employees’, diligence providers’, lenders’, and regulators’ sides are not included.
Timeline
- Thesis
Jason and Eli first explored other industries, then pivoted into dental support organizations after hearing the thesis from an investor.
- Sourcing
They found the dental business through a broker.
- Due diligence
During diligence, they saw seller integrity and billing concerns, spent over $400,000 on diligence, and used a cheaper billing-and-chart auditor who missed the fraud.
- Closing
They bought the business in 2017 with roughly half the price paid in cash at close and a meaningful seller note.
- Integration
About two weeks after close, a $17-an-hour employee told Jason about a Medicaid audit and payer restrictions, revealing the alleged fraud.
- Operations
The buyers discovered the business was far smaller and unprofitable, removed reliance on the seller, tracked cash daily, and rebuilt the team and culture.
- Operations
They stopped pursuing litigation after concluding the time and energy were better spent growing EBITDA, while the seller note was wiped away.
- Operations
In 2019 they acquired four additional dental practices at a renegotiated lower price, then faced COVID shutdowns shortly afterward.
- Operations
They pivoted toward emergency and higher-value cash-pay procedures, reduced government reimbursement exposure, and returned to growth.
- Exit
In 2023 they sold the business; Eli stayed on as CEO and Jason remained on the board.
stage where a mistake was made
What went wrong 7 issues
Hidden insurance fraud
Two weeks after buying the dental business, an employee told Jason about a Medicaid audit and insurance problems. Jason says the seller had been committing insurance fraud, turning what they thought was a profitable $7 million revenue business into a much smaller, money-losing one.
Mistake made at Due diligence → showed up at Integration
“the seller had been committing um insurance fraud”
Warning signs
- The buyer had already seen seller integrity concerns and billing history issues before close.
- The post-close employee casually referred to a Medicaid audit and loss of access to large insurance payers.
How to prevent it
- During due diligence, have healthcare counsel and a specialist billing auditor verify claims compliance directly against patient charts, payer remittances, and audit history before closing.
- Before final investment approval, require the buyer, board, and counsel to review a fraud-risk memo summarizing all billing anomalies, payer restrictions, and unresolved investigations.
- At closing, make the deal contingent on written confirmation that there are no undisclosed payer audits, Medicaid investigations, or restrictions on treating insured patients.
Cheap audit missed fraud
Jason says they tried to save approx. $11,000 on the specialized billing-and-chart audit. The cheaper provider missed the core fraud issue and let the seller explain away problems rather than independently verifying them.
Mistake made at Due diligence → showed up at Integration
“the guy missed it. and he was allowing the seller when he would catch things”
Warning signs
- The buyer chose an independent auditor charging approx. $9,000 instead of a more expensive approx. $20,000 outfit.
- The auditor accepted the seller’s explanations for issues he found.
How to prevent it
- When diligencing a regulated healthcare business, the buyer should hire the most qualified field-specific billing-and-chart audit firm before accounting diligence starts, even if it costs more.
- The buyer should require the audit provider to document every exception, the independent evidence used to clear it, and any items cleared only by seller explanation.
- The buyer’s board or deal lead should review the billing audit workpapers before approving close, not just the summary conclusion.
Integrity red flags ignored
During diligence, the buyers saw integrity concerns and some billing history issues involving approx. $10,000. They explained the amount away as too small to matter and continued toward closing.
Mistake made at Due diligence → showed up at Integration
“there were some things with the seller that I was seeing that um just was not adding up”
Warning signs
- Jason says things about the seller did not add up from an integrity standpoint.
- Known billing issues existed, but the dollar amount appeared small.
How to prevent it
- Before close, the buyer should treat any seller integrity concern as a separate go/no-go workstream, not just a valuation adjustment.
- The buyer should expand diligence whenever even small billing or honesty issues appear, including deeper sampling, third-party references, and legal/regulatory checks.
- The investment committee or board should require a written explanation of why the buyer still trusts the seller before approving a close with integrity red flags.
Tried to structure around integrity
The buyers structured the deal with a meaningful seller note and limited cash at close, believing that would protect them. Jason later concluded that deal structure cannot compensate for a bad integrity foundation.
Mistake made at Closing → showed up at Integration
“thinking that you can kind of outstructure integrity”
Warning signs
- The buyers believed a large seller note and only approx. 40–50% cash at close would protect them against post-close issues.
- The seller’s integrity concerns were known before closing.
How to prevent it
- At LOI and again before signing definitive documents, the buyer should decide whether the seller is trustworthy enough to transact with, separate from economics and structure.
- The lawyer and board should make clear that seller notes, holdbacks, and escrows reduce loss after a problem but do not make a fraudulent seller safe.
- If integrity concerns remain unresolved by the bring-down diligence meeting, the buyer should delay closing or walk away rather than relying on structure.
Seller was key leader
The seller was not just the owner; he was supposed to stay as the clinical leader and help source future dental acquisitions. Once the fraud came to light, the buyers could no longer rely on him in that role.
Mistake made at Closing → showed up at Integration
“the clinician, the dentist that we thought was going to be the the the clinical leader”
Warning signs
- The seller was expected to remain and lead the dentists.
- The seller was also expected to help find future acquisition targets.
How to prevent it
- Before close, the buyer should identify whether the seller is mission-critical after closing and create a replacement plan for that role.
- For any seller staying as clinical leader, the buyer should run license, payer-sanction, malpractice, litigation, and reputation checks before signing definitive agreements.
- The buyer should condition close on having at least one independent clinical leader or advisor ready to step in if the seller exits or is removed.
Toxic performers stayed too long
During the turnaround, the buyers kept some money-making employees who did not fit the culture, including a manager and dentist who scared the team. Jason says they should have fired them about two years earlier.
Mistake made at Operations → showed up at Operations
“that was a fire we should have done two years before”
Warning signs
- Some high producers made money but terrified coworkers.
- New people who fit the desired culture started leaving.
How to prevent it
- Within the first 90 days, the CEO should define core values and role-level performance expectations for every manager and key employee.
- The CEO and leadership team should identify high-performing but values-violating employees and set a short, documented decision date for retaining or removing them.
- If new hires who fit the desired culture start leaving because of existing toxic employees, the CEO should treat that as a trigger to remove the toxic employees immediately.
Roll-up market was tougher
The dental support organization thesis looked attractive, but Jason says the market was already more private-equity-penetrated than they appreciated. That made add-on acquisitions harder and the operating environment more competitive.
Mistake made at Thesis → showed up at Operations
“the industry is really tough to compete in”
Warning signs
- Jason later said they underestimated private equity penetration in dental practices.
- They expected to compete with dentists but learned they were competing with PE funds and PE-backed strategics.
How to prevent it
- During thesis work, the buyer should identify actual competing acquirers in the niche, including PE-backed platforms, and model what they can pay versus what the search fund can pay.
- Before committing to a roll-up strategy, the buyer should test whether add-on targets can be bought at prices that still work without raising uneconomic capital.
- The buyer should update the labor and supply-cost model with current wage rates and vendor price sensitivity before approving any add-on acquisition.
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Thesis
LOI
Due diligence
Closing
Integration
Operations
Transcript 2023 lines · 14810 words · auto-generated captions
Jason Jackson, welcome to Acquiring
Minds. Thank you. Thank you for having
me. Jason, this is a packed story. Yours
was a traditional search. You uncovered
fraud very shortly after taking
ownership of the business. The whole
project was turned upside down. You
lived to tell the tale. Let's hear that
tale. Where does this story begin,
Jason? How did you get the notion you
wanted to buy a business in the first
place?
So, while I was doing like my NBA
program, I was also working full-time.
And I was working for an entrepreneur
that was buying businesses and he would
buy the business. He would put a good
amount of of leverage on the business
and he would operate the business. And
so, I was overseeing sales for one of
his um businesses in his portfolio. And
so, I was familiar with entrepreneurship
through acquisition through him. I just
I didn't have language for it at the
time. And for me, I always wanted to be
an entrepreneur. Didn't have the idea. A
lot of people can relate to the same
story when they find ETA. Um, and so I
was going to one of my accounting
courses and um there was a a guy that
was speaking at my accounting course
named Matt Eastep who's become a really
good friend of mine. Matt Eastep was um
a 2008 HBS grad and had done a
traditional search fund. um sold his
business after operating it for like two
and a half years. Just a a really
amazing success story, Matty Steppp. Um
and so he was talking about uh about the
search model and I had never heard about
the search model before and so it was
just very compelling. his story was very
compelling uh as he was speaking to our
class. And so that's when I just kept
bugging him and he said, "Look, if
you're if you're this interested, come
to the first ever Chicago Booth ETA
conference." Um and I still remember
going to it October 14th, 2014. And uh I
was just hooked. Called my partner and
um that that would become my partner,
Ali Lwal, and said, "This is the thing
that we've been thinking about working
on together. uh this is what it is. I
explained the model to him and the rest
is history. So you guys had you know had
the conversations we'll do something
together something in business together
we'll partner. Don't know what it is but
uh and then this ended up being I found
it was kind of your was your sensation.
This is the thing that we should sink
our teeth teeth into. And that 2014
booth Chicago uh booth ETA conference
first one how many people were there
because that's now a big conference.
Yeah, I I I want to say it was like 75
people. Yeah. At the time. And and I
remember the joke was that the the room
was too small for the 75 people. 75 to
100. I'm It's directionally accurate. Um
and so they were like, "Oh, next year
we're probably going to need a bigger
room." And there was just kind of
laughter and things of that nature. And
I just went there like last year, so
like 10 years later, and it was like
over a thousand people. Yeah. So, it's
wild how it's grown. That's great. I
mean, I know that's that and I and I
think Harvards are the two two biggest
ones. Um, I have not been to either,
though. I think I will be at the Booth
one this I think it's November. It's
happening this year. Yeah. Yeah. Great.
Do you go? Uh, will you go? Yeah, I'll
be there. Great. Okay, cool. And of
course, we met at uh MIT's ETA
conference a month or so ago, I guess,
back in February. Um, and you were on a
panel about what, you know, what to do
when it all goes south. Um, and gave a
great great, you know, just a really
strong presence on the panel. So, hence
why we're we're talking here today. I
wanted to hear the story uh, in all its
detail. Back to that story. So, okay,
Jason. So, you call and your partner's
name again? Ali Day. Ali. Yeah. Ali Day.
Okay. So, is he easily convinced by the
way of this ETA thing? Yeah, you know,
you know, we had always talked about we
we thought we were going to work on like
a nonprofit organization together. Um
or, you know, something of that of that
nature and we had, you know, went back
and forth with a couple of different
ideas. And so when I called him, I was
like, "Okay, I found it." And so I
explained it to him. He was convinced
after a week. We had to convince his
wife. Um and so she became convinced as
well that this was the right
opportunity. And so then we pursued it,
raised a traditional search fund uh in
2015. It was actually uh we started in
April of 2015, so 10 years now. Um
bought our business in 2017 uh in the
dental practice management space. Um and
so that's when the the story began.
Yeah. And the you chose traditional
search fund, I'll assume, correct me,
because at the time that was the kind of
the default. So self-funded was barely
happening. It didn't even really have a
name. If you were going to do this path,
it was going to be according to this
model, the traditional model that was
starting to be taught and talked about
so much. Yeah, it was the traditional
model. It was the traditional model for
a few reasons. One is is um you know,
there was some self-funded stuff that
was just starting at that time, I
remember. Um but it was a traditional
model for me for a couple of reasons.
One is is that um I was familiar with it
from, you know, Mattie step. The second
though is that um uh there was pattern
recognition that I I I knew I could
leverage from the other investors that
was going to be different than me doing
it on my own. And then the third is I
simply didn't have the money to do a
self-funded search. So, uh that was kind
of out of the question for me, right?
And people will understand what you mean
there, but just to be super clear, with
a traditional search fund, one of the
big features of it is that your
investors who choose to back you fund
the search, which is why we call
self-funded search, self-funded because
nobody's paying you anything. But with a
traditional model, you have the the re
resources for basically a two-year
search. Um, so you can basically have no
money and go off and do this thing. Um,
and that's a big reason why a lot of
people choose it, among others. Okay.
So you uh bought in 2017. So tell us a
little bit about the search uh first
before we get into the business itself.
Yeah. So we had started off um like most
uh people that do search um even
self-funded searches, we had started off
with a thesis that we were going to look
in certain industries. Our our
industries at the time were like water
reclamation
um electronics recycling I think was the
second industry. Um, but as we were
doing a search, it just pivoted into
something different. And so, um, I
remember getting a text message or a
call from Kent Weaver. Um he was talking
about uh this new thing called um uh you
know dental dental support organizations
and was talking about how it was
something new um to ETA and he had seen
various different models whether it be
veterary practice management optometry
and thought dentistry was very
compelling and so that's what started
the the whole kind of dental support
organization uh search and when I say
dental support organization it's just a
fancy way of saying that it's um a way
for business people to partner with uh
clinicians, dentists to uh basically buy
and and run dental practices. And so the
idea is that the dentist will be the
clinical leader of the dental practice
and that the business person will be the
business leader of the dental practices
as they go and acquire them and and um
hopefully get to some scale. And was
this dental service organization
DSO concept just one that like ETA had
discovered or was it actually a new sort
of regulation that enabled this to
happen? Why then why did that grab Kent
and then later your attention in that
moment? So it it was it was something
that there was a good amount of private
equity penetration already. And what we
learned when we uh bought the when we
started Unified Dentl was that there was
actually way more private equity
penetration than we had uh fully
appreciated. Um but it was just
something that was different because
there were some attributes that were
similar to search funds. Even though it
was more kind of B to C, there were
still some elements like, you know, um
there was the the the the gray the gray
wave of all of these dentists that were
going to be selling off their dental
practices. They did not have traditional
um exit alternatives to sell it to like
the new up and cominging dentists
because more dentists were graduating
with student loans uh like higher
student loan debt than they were before.
Um, second was that more dentists were
looking for flexibility and so it just
didn't allow for traditional exit
alternatives and so that's why there was
an uh an opportunity for uh search funds
to provide um some solutions from that
standpoint. Great. Well, um, as you
said, despite the fact that,
um, it seemed like there was still o
good opportunity in search, we do hear
the these days, 10 years later, that
dental and DSOs have been have been a
big private equity play. Um, so I guess
it was even already well underway 10
years ago. Okay. And so how did you uh
find the business? Anything more to say
about the search or should we just get
into how you found the business that you
did? Yeah, let's get into the business.
So, we we found the business through um
a broker and um you know, candidly, when
we were going through our due diligence,
there were some things with the seller
that I was seeing that um just was not
adding up um from an integrity
standpoint, things um some some
background history um that we had seen
with some issues with with billing. Um
but the the issues had amounted to a
total of like $10,000. And so, you know,
we we kind of just explained it away as
as look, I mean, it's only $10,000.
Like, that's a dimminimous amount of
money. And so, we continued forward with
diligence. And frankly, we had we had
done some things where we thought that
we were going to structure around any
potential issues that we thought um
might come up after we buy the business.
And so, we felt like we had structured
the deal well. We had a good amount of
the um purchase price in the form of a
seller note. Um and you know we
effectively were paying you know like
40% to 50% cash at close um when we when
we were going to buy the business. It
was it was I think that was
directionally accurate. It was about 50%
at the time. Uh and so we thought look
if there was any issues that we uncover
after we buy the business like we've
we've effectively you know structured
around uh what we might uncover and so
made the business purchase. Um you know
side note right here um I was a new
father. My son was uh 18 months old at
the time and then we had just had uh our
second child who was like 11 days old
when we purchased the business. All
right. So this was just like a really um
pivotal moment from a from a family
perspective, a personal perspective in
my life. And so we we purchased this
business um and not having a lot of
sleep and all of those kind of things.
And and so two weeks into uh you know
having bought the business, we were
doing these things where we were going
around speaking to all the employees um
doing kind of like this whole kind of
like red light, green light, yellow
light type of exercise. meaning, you
know, what would you what do you suggest
we stop doing? What do you think we
should keep doing? What do you think we
should look uh into? And so, we're
having those conversations, and that's
when I had learned more about our
business postacquisition from a $17 an
hour employee than I had learned from
over $400,000 of uh due diligence. And
that was that the seller had been
committing um insurance fraud. How did
this person reveal this to you? Yeah.
So, basically I was in the office and
then I I you know was asking this
employee. I was like, "Hey, so what are
you doing right now? Just you know, let
me in on on on your role today." Um, and
I had previously told the employees, the
staff when we had first purchased the
business that um, do not get overwhelmed
uh, or feel like there's more to it when
I ask questions because for my first
couple of months, a lot of what I'm
going to say is going to end in question
marks and not periods because I'm just
trying to learn the business. So, I'm
not questioning you. I'm just trying to
learn the business. And so, I did that.
And so I popped into the office and I
said, "Hey, you know, what are you doing
today?" She had like a huge stack of
papers. She was doing things that like
looked really important. I was like,
"Yeah, like what are you up to?" She's
like, "Yeah, I'm just doing the stuff
for like the the uh Medicaid audit that
we had had." I said, "Medicate audit?
Like what are you talking about?" She's
like, "You know, the stuff with the
whole, you know, uh Medicaid audit, uh
which is why, you know, we're unable to
see uh some of the the large
insuranceances at this location." It's
like, "What do you mean?" She's like,
"You didn't know." And so that's when
she unveils basically all that had taken
place. And um you know, that was
effectively hidden from the diligence
because uh there was not there was a
pending litigation that was taking
place. There was no way to kind of find
it at the time um from a legal
perspective. And so that's when it all
hit me like, "Wow, there's more that's
taking place here." And so that began
our um our you know investigation into
really the scope of how big this issue
was. And it was a big issue for a couple
of different reasons. It was a big issue
from a dollar standpoint because what we
had uncovered was that we thought we
were buying like a $7 million revenue
business ended up being like four and a
half million of revenue. We thought we
were buying like a $1.5 million IBIDA
business. Ended up being like negative
half a million in IBIDA. And so that's
what we had bought basically. And so
that was that was the big issue from the
dollar standpoint, right? The big issue
from um uh like a future kind of like
orc chart standpoint was that the
clinician, the dentist that we thought
was going to be the the the clinical
leader uh we could no longer have be the
clinical leader. Um and so that was
Yeah. Well, because he was committing
fraud. It was the seller. The the the
fraud the the the seller was the dentist
that was supposed to be the clinical
leader. So the seller was going to stay
with you. his mother was supposed to
stay with us to lead all of the
dentists, help find other dental
practices for us to acquire in the
future. And so that was the that was the
big issue that we uncover. Okay. All
right. Le let's unpack some of this,
Jason. Uh first of all, what's it feel
like when you when you just have this
horrible revelation and you're already
walked through a door that is a one-way
door? There's no undo button. Yeah. Um,
so it's it's actually a very interesting
question because the first thing that we
were trying to figure out was is there
is there a legal is there a legal
mechanism for us to kind of put the toys
back in the box and to give it back? And
we found out that there wasn't, right?
We quickly realized that there wasn't.
Um, the second thing that was difficult
was just all of the things that I just
described as being a a new, you know,
new parent at that time. You know,
having your second child that was a
newborn, that was incredibly stressful.
My wife was back at home working, but
also taking care of our kids in Chicago.
My partner's wife was holding things
down for for his family in San Diego.
And so now we were moving in and in in
um to Detroit metro area. Um, you know,
we had been working like 18 hour days
already. We were staying in this like
70s something dollar a night Priceel
line hotel that we were sharing together
to save money. And so you you hear all
this information in light of all of the
the sacrifice that you know you had made
and also your investors more importantly
had put like invested in you. They had
decided to back you. They trusted you
and so the feeling was completely like
overwhelming. Um, I remember for like
the first 18 months, um, for me to go
through one day with only one panic
attack, it was just like it was like a
huge feat for me. I was literally having
panic attacks several times a day where
I couldn't breathe, I wasn't getting any
sleep. Um, and you know, you you're
you're in this situation where you're a
firsttime
CEO, but then you realize within a
couple of weeks that now you're a
turnaround CEO. And so it was incredibly
um difficult to go through and until
this day, you know, I I give a lot of
credit to a couple of different things.
One, I give a lot of credit to uh my
faith in God. Um and so my faith um uh
and Jesus like really helped me get
through the situation. Um the second
thing I I give a lot of credit to is
just the investors and the board members
that I had. Um, you know, Todd Tracy was
an amazing board member, Search One
Partners that, um, would would meet with
us several times each week. Um, uh, and
was incredibly sharp, incredibly
empathetic. You know, Michael Aubrey
was, um, on our board, was several board
meetings ahead and would know kind of
strategy. This is what we need to do.
Um, and, um, was just, I mean, had such
sage advice. He was always available. Um
but the first call that I had made to
tell the investors um was to David
Dodson. Um and I we had decided my
partner and I to call David first
because um we we didn't think it was
going to get any worse. You know, the
the other investors that we had like
looked up to to David and we knew that
if you know they were going to go to him
for advice on a situation as dire as as
we were in at that moment. And so Jason,
David Dodson, give the audience context
for those who don't know who he is. He's
kind of a big deal in search fund land.
Yeah. David Dodson was the f the third
person to ever do a search fund. Um
bought his uh business called Smith
Alarm. Gez back in I think I want to say
it was the 80s. Um and had a really good
exit. He did three search funds. He was
on the board of Asurion. um you know
he's he's since been on the board of
like I want to say like a hundred
different businesses and so he's been in
the space for for a while and he was one
of my largest investors. In fact he was
he was tied for like the largest
investor that I had uh David Dodson and
Susan Pullmmyer and so we had decided
that we were going to call David first
because we had sent this email to our
investors basically giving as little
detail as possible because we just
didn't have a lot of detail. one, two,
we wanted to be able to like share more
detail on on the call. And so my partner
and I, Eli Day, we had practiced what we
were going to tell the investors. We
were basically going to uh share what we
had uncovered. We were going to pause,
allow them to curse us out for the next
20 seconds. Um, and then we were going
to go back into our pitch and say,
"Okay, we we're really sorry we got you
into this situation, but this is what
we're going to do to get us out of this
situation." And so, um, we we had gotten
our pitch down, decided to call David
up, phone rings. Um, I remember I could
physically feel like my heart beating,
like I was just so nervous. And so David
answers the phone and he says, "Hey, is
this the Michigan Attorney General's
office?" And he starts laughing and I'm
like, "What?" Like I looked at Ali in
the hotel. I'm like, "What?" Like, and
so we had rehearsed for like every kind
of reaction, but we had not rehearsed
for um you know,
Yeah. And so like so so then part of me
was like look maybe he's going to use
this as like anesthesia before he does
surgery on us. So you know put your
guard back up. And so I was like um yeah
uh sorry David we um this is what
happened. We're really sorry we got you
into this situation. He said you know
what I'm not going to let you finish
because we were partners getting into
this situation. We're going to be
partners getting out of this situation.
And so I I didn't tell David this until
maybe a couple years ago. I put the
phone on mute and I literally started
crying. I started balling. And I started
crying for the reason that, you know,
most of the listeners are going to
realize, which is that, you know, you're
in this incredibly difficult situation
and to have an investor that's
supportive is amazing. But I was
actually crying for an even bigger
reason for me personally. And that's the
reason is because, you know, a lot of
folks that have my background um that um
come from uh underrepresented uh you
know, neighborhoods, underrepresented
backgrounds, uh being black that don't
have access to the same opportunities,
which is a different story for a
different podcast as other people. Um,
this was my chance to like pay back a
lot of people that had made a difference
in my life to get me to this to the
place that I was at in life. And the
issue with a lot of people that come
from these backgrounds that pursue
entrepreneurship and even folks that um
maybe don't don't come from the same
ethnic background but can relate to this
is that when you think about pursuing
entrepreneurship a lot of times you have
this thing that you want to fall back on
have something to fall back on. But when
you come from the background that I came
from not only did I not have anything to
fall back on I was the the safety net
for other people to fall back on. And so
when David had said, "Look, it's okay.
We're going to get out of this situation
together." What I had heard was that you
did not ruin the opportunity for people
to fall back on you to be the safety net
when so many people were there for you.
And so that sheer weight of that, I just
started balling and crying and Elida had
to take over the phone call at that
point. That's so powerful,
Jason. Wow. David Dodson.
Little did he know one joke would be
would would would land with such force.
I mean, that's a really beautiful story.
Yeah. And look, I would just say this.
It was one thing for for for, you know,
him to say that, but it was another
thing for him and then, you know, Todd
and Michael Aubrey and other investors
that I had to make good on that promise.
And so every two weeks I was jumping on
calls with David to talk through complex
uh operational issues. Um you know and
and just the pattern recognition was
just completely it it was so helpful.
And the the best way that I can liken it
to is is that um I was trying to teach
my son how to play chess uh a couple of
years ago. And the reason why I was
trying to teach him how to play chess
was because I don't know how to play
chess. And so I was reading this book
and it was saying that the difference
between a grand chess master and like a
less experienced uh opponent is that a
grand chess master can make uh a series
of 10 moves within seconds of their
opponent making moves. And the reason
why is because a grand chess master is
spending about 99% of her time uh on on
pattern recognition and the less
experienced person is spending 99% of
their time on
calculation. And so there was a lot of
time that I was spending on calculation
and we would be mulling over complex
operational issues for weeks at a time.
But you call David, you called Michael,
you called Todd, and it was like they
were able to solve it in like a matter
of moments because of all the pattern
recognition. So that's what eventually
helped us get through um the next couple
of years to kind of turn things around.
What a fascinating uh comment on the
value of pattern recognition, the value
of experience, and how a lot of it, you
know, other words for that might be kind
of muscle memory or, you know, they
they're just they've seen this movie
enough times, they know they know the
motion to go through. Um, it's
interesting because this may just be a
Silicon Valley thing, but you often hear
pattern recognition used in a negative
way when it comes to investors, at least
VCs. It's they all invest in the same it
kind of like herd mentality. they all
invest in the same thing. Um, you know,
and and this probably is more a
commentary on VC where it pays to be,
you know, to to to think outside the
box. Um, but it it it's it's a
refreshing take on how it can be
valuable. So many reps can be so
incredibly valuable. Calculation versus
pattern recognition. It feels like you
got really fortunate with these
investors, which I think which I think
you did. Um what do you think others can
learn from in terms of uh in terms of
your experience with your investors that
that to choose carefully to um to share
more openly? You know, you're probably
most first-time entrepreneurs are so
scared to reveal bad news to their
investors. Maybe they should be less so
because investors see you as a partner,
see you entrepreneur as a partner. what
can we take away from your your
experience with your investors and just
how actual value how much value they
added in this crisis? So the way that I
can liken it is almost like a pickup
basketball game if if if you can stay
with me for a second here. So like
pickup basketball is like you go to a
court and if you if there are people
that are playing but you go there alone
or you go there with maybe one other
partner and you need five people on the
team though and so you're you're
basically looking out for other people
that are playing and you're asking
yourself a series of three questions.
The first question you're asking
yourself is um who who is playing right
now that can join my team on the next
game that can complement my skill sets
the best. Second question you're asking
is is who can increase my likelihood of
of winning? Um and then the third
question you're asking yourself is who
do I think I'd have the most fun with
over the next kind of, you know, two
hours? And so it's literally the same
questions. It's just the implications
are bigger because you're talking about
the next 10 years of your life. And so
you're asking yourself, you know, who
can complement my skill sets? Who's
going to help me win? But who am I going
to enjoy this with? And the way that I
would say enjoying this with is because
a lot of people talk about having smart
investors. And smart investors is is is
is it's hard to come by, right? And
that's something that we're really
really blessed with in the search fund
space. But I think what's what's also a
step above that, a step forward from
that is is it's it's one thing to have
investors that can root for you as
you're learning from from your
successes. It's another thing to have
investors that can still cheer you on as
you're learning from mistakes. And so
smart investors with empathy is even
more rare. And so I just think that um
you know looking for those investors
that have empathy that can say look you
think you messed up that time let me
tell you about the time I did X Y and Z
and and as long as you're working hard
and as long as you're teachable like
they're going to support you and they're
going to like that is that is so rare to
come by and so that's the thing that I I
always encourage people to try to
diligence is okay yes smartness and
pattern recognition is so important but
what is the empathy level because you're
going to learn a lot and you're going to
learn from a lot of mistakes. And you'll
hear from traditional searchers that one
of the value propositions of investors
of the search fund investor community is
uh all the support that that they're
going to provide. But then you'll hear
from search fund traditional search fund
entrepreneurs. Well, they say that but
they really don't provide much value.
They provide the capital and it it it
stops there. So, um you know, everyone
is basically just speaking from their
own singular experience. So it's not you
have to look at this kind of in totality
this data set but um and and I don't
think it takes away from your point but
I I I in fact I think it reinforces your
point that that when so many um
traditional searchers experience with
their investors is that they didn't
really provide much other than the money
uh be extra careful that add empathy as
you said to the list of criteria for
when choosing your your search fund
investors. Is that the right takeaway?
Well, I think that's a good takeaway,
but I also think a different takeaway
too from from what I was giving with the
the pattern recognition and being on
calls and uh and stuff is that it
morphed from just being on calls um in
particular, especially with with um with
with David um and and even with with
Michael because he he had started to
take over this uh veterary practice um
uh rollup that had 20 locations and he
would eventually grow that to 400
locations. Right. So it
it just
provid back in the day like 10 years ago
you were a great search fund investor
traditional search fund investor if you
lent two things to the entrepreneur. If
you gave them your phone book and you
gave them your checkbook. Your phone
book meaning call me anytime or call my
network anytime. What what has changed
over the last several years is now
you're a great search fund investor if
you provide a phone book, a checkbook,
and playbooks. And playbooks were the
things that I was literally starting to
get from David. I was starting to get
from Michael. You know, Todd had
playbooks on that he helped us with uh
initially as well on um on on
on basically like lean manufacturing and
and applying that to our patient weight
times. And so that's the support that I
think you should be trying to get from
your investors. Yes, the phone book is
important, the checkbook is important,
but what are the playbooks?
That's great. And and um I'll just for a
little more context uh on Michael, the
investor you keep mentioning, Michael
Aubrey, is now at Shore Capital. Yeah.
The very wellknown and wellrespected
Shore Capital who's doing who's who's
starting to make moves in the search
space and Michael's heading that up. So
I I think it's it's still unfolding, but
people should who are interested in
traditional search should keep their
eyes peeled. Um I had a conversation
with Michael a few weeks ago. Wonderful
wonderful conversation, wonderful guy.
Um incredible reputation. Okay, let's
now before we move on with the story,
let's also spend some time, Jason,
on the diligence, how this happened.
Okay. So, we heard you say
$400,000 in due diligence and this was
missed and you get and you kind of
talked about why it was missed. Um, do
you in retrospect feel like it was it
was missable or do you feel like
diligence should catch should have
caught this understanding that it was
whatever it was? As you said, the the
legal status was in limbo or whatever.
So, it wasn't in any official recording,
but still it feels like, you know, your
$17 an hour employee just like just just
shared it with you readily. So, so it
actually it's not like it was hidden
exactly. Although the seller, I'm sure,
was trying to offiscate it, but but
anyway. So, how do you react to this
this diligence miss if it is even that?
Yeah. So, it was a diligence miss. And
and there's a takeaway here that I think
is applicable to anyone that is buying a
business that I I'll give in a few
moments. Um and it basically uh first
off, let me just summarize the the
takeaway. The takeaway is is that not
all the time is the more expensive
diligence provider the best diligence
provider. But that being said, you only
pay for quality once. Okay. So let me
let me share why. So we had structured
our diligence that we were going to do
billing and chart audits first. Uh and
billing and chart audits in this in this
world is basically just trying to make
sure that the way that they make their
money is compliant. Okay. So that's the
first the first thing that we were going
to do. Second thing we were going to do
is accounting diligence to to make sure
that all the money that they said they
had was was really there. Um and then
the third thing that we're going to do
was legal diligence. So, but the first
part is where we messed up and we could
have paid money to have like a more
expensive $20,000 outfit do our um
billing and chart audits to see if the
billing was there was erroneous billing
and things of that nature. It's a very
kind of um uh it's an expertise like you
have to have expertise in that
particular field with that particular
billing for for dentistry in particular.
All right. So, so we had the opportunity
to choose this this outfit that was
going to cost us $20,000 or this this
guy that had done billing and chart
audits for the state of New York for
like the last 30ome years that was an
independent contractor that was going to
charge us 9 grand. And I went, same
thing, you know, $11,000 less. Um, we're
going to go with this guy. And the issue
was that the guy missed it. and he was
allowing the seller when he would catch
things, he was allowing the seller who
was the dentist to like just explain
away things. And so he's like, "Yeah, I
think I think you're good to go." And
and and he gave us a a detailed summary,
but he said, "I had these issues, but
then he explained it, you know, this
way." And what I So that was the miss.
And we had done several acquisitions
afterward. And myself and my partner, we
caught ah this is really billing. So,
you know, we knew from what we had
experienced before. And so, again, like
you only pay for quality once and like I
have we ended up paying a multiple of
that $11,000 because we were just trying
to skimp on due diligence dollars. So,
that's where it was missed. Well, and
and and so interestingly, it sounds like
his miss was that he just trusted the
seller, trusted the seller's handwaving
and explaining away this these these
errors. Uh, and you'd think that a
diligence provider like that would be
the very thing that they would be skept
that they wouldn't trust. I mean,
they're there to precisely so that you
can stress test what the seller is
telling you. So, if they just then turn
around and believe everything the seller
says, it's like, you know, that was your
one job, dude. I digress. Let's talk
about your gut reaction to the seller.
You quantified it. you said, "Well, you
know, the the it's only about 10 grand."
The the the diligence that you guys did,
the light kind of the the the um
discrepancies that you found were about
10 grand. So, you explained it away that
way, but still your gut was telling you
something. And one of the cliches in our
world is listen to your gut on on a
seller, you know, ju just um because
while if you can pinpoint something um
something
uh unethical or or or dishonest that
they've done, but it's small, you should
still assume or extrapolate that from
that that that's not the only thing that
that's the one thing that you found. But
if they've done it in one place, they've
done it at a
hundred. React to that? No, I think that
that's fair. I think that that's that's
really wise and that's why I think um
I'm way more sensitive to that with
sellers today, right? Uh for for good
reason. Um and you know, the the other
thing too is is just thinking that you
can kind of outstructure integrity.
Well, like
structure just like it is with with any
building. um it it it it relies on a
foundation and it happens to be in our
world the foundation is integrity the
seller's integrity and so if that
foundation is off it doesn't matter how
you structure and you build on top of
that with the structure and so that's
the issue that we we faced yeah you know
I I'm reminded of a of a a line almost a
quip that we heard one of the other
panelists at our panel badge stone said
I don't know if it he coined it or he's
just heard it around himself But you
can't structure around
integrity. Precisely what you guys tried
to do. You know, the rule of thumb
should actually be if there's an
integrity problem to to your other word,
it goes to the very structure of the
organization. You can't and so you can't
I'm using the structure in two ways. You
can't structure your deal around the
crumbly structure of an organization.
And if the the structure of the
organization is crumbly, if there's
integrity problems. So I I that really
that line of badges really stayed with
me. You cannot structure you cannot deal
structure around integrity. It's a deal
breakaker. Bad said a thousand wise
things there. But yeah, that was my line
that I I learned. And the reason why I
take that line is is because I earned it
with my bald
head. And so I got I have to take every
bit of credit for my baldness that I
can. Yeah. From the stress that I
received from from operating the
business. It's such a good line. Uh you
you cannot structure around integrity.
Uh Jason Jackson said those who said
those words. Thank you. Um by the way,
you're very quotable. I also love uh
when you told your team, this is a line
that you listener should use when you in
your transition. A lot of what I say to
you, new team person, new employee is
going to be ending in question marks,
not periods. uh for the next whatever
however long it is, six months, three
months. Uh great line. Um and really and
really and it gets to the point that you
need to reinforce to your team that your
nosiness, your curiosity is just an
exercise and education because employees
are likely to receive that defensively.
It's like, oh, you know, the new boss is
asking me why I'm doing it this way. You
know, I can imagine being in their
shoes. It's like you get defensive. So,
you got to disarm it. Great way to do
so. I wanted to ask you about Jason this
red light, yellow light, green light
system. Uh, just say more about that.
That sounds like a
wise kind of system to bring into a
transition. Yeah, I mean I it's it's not
it's not something we invented. It's
just something that we just framed
different. But, you know, basically um
just wanting to hear a way that you can
get feedback from from the team, right?
to to learn the business because
um the the the whole idea behind that is
is that really your ability to grow your
business will will likely fall down to
two things. Your ability to learn the
business, your ability and your second
your ability to learn how to be an
effective CEO. So on your ability to
learn the business like you know asking
these questions which are are you know
what do you think we should do? What do
you think we should continue doing that
is working well? what do you think we
should stop doing and what do you think
we should look into more um that you
you're just unsure of whether or not
it's working just elicits all of these
uh comments and feedback that I just
don't think you would otherwise have
gotten. And so that that was basically
the main um the main intent behind that
question. Yeah. No, and and it's pretty
straightforward, but it's just a great
kind of it's a great, you know,
methodology uh to to to basically try to
collect that that advice from the team.
Good stuff. Okay, pick us back up. So
you So what how do you try
to turn around a business that not only
is not making the million and a half of
IBIDA you thought it was, it's actually
in the red by a half a million dollars a
year. It is a business that is losing
money.
So we we really focused on three things.
Um you know we focused on we we would
call them like the three C's. Cash
culture, communication. Um, on the cash
side, what we had to do is is we were
getting at the end of every day, our
accountant would send us how much cash
we had in the bank. And it it really
yes, it was about the cash, but it was
also about the the the uh the questions
that the the cash amount makes you think
through. So, for instance, why was it up
today? You know, what was happening on
the revenue side? You know, you what did
the doctors do in terms of production?
How many patients did we see? Um, you
know, why was it down? Oh, it's because
we paid this payable. Then you look into
the AP and then you realize that you
didn't need to pay for another, you
know, 3 weeks. Okay. Well, now let's
start paying this, you know, if it's if
you have to pay with with between the 30
to to 60-day bucket, pay on day 59,
right? Um because it looks the same in
their AR ledger. And so if you pay day
59, it's the same as if you pay 31,
right? And so it's all of those things
that you start to uncover by just
looking at the cash every single day.
Um, second thing that we focused on was
culture. Um, and and there was a couple
of lessons. The reason why we focus on
culture a lot, well, first off, everyone
knows about the the importance of
culture, I would I would imagine. Um,
but the reason why we focus on culture
and it was so crucial at that moment was
because um, we didn't want to waste um,
uh, you know, a disaster and
there's there's a political politician
never never let a good crisis go to
waste or something. There you go.
There's some um and and so we didn't
want to waste that because like if for
us to say that ethics and integrity was
one of our core values, right? Yeah.
Everyone like okay everyone says that
like Enron said, you know, uh ethics and
integrity was a core value, right? And
so everyone just kind of scoffs at it.
They're like, "Yeah, right." But when we
were like literally losing money and
there was uh an ability for us to bill
uh patients or bill the insurance ahead
of time for a procedure which is what
you know a lot of dental practices would
do. They would uh like they would bill
for a procedure ahead of time as if they
had done it so that they can collect
payment uh particularly with crowns,
right? I'm getting a little technical
here. And we said we're not going to do
that because that's not going by the
book. They're like what? And so when
they see that you're losing money and
you're saying that ethics and integrity
is a core value, like now we know you
mean it. Whether or not I agree with it,
I know you mean it right now. And so so
that was a big thing for us. The second
thing though from a culture standpoint
is that we quickly learned that if you
have to change a person in order to get
them to fit with your culture, it means
you have to change that person. Meaning
you have to fire that person, right? And
and that was a big lesson that we had to
start um we had to we had to learn in
our first 18 months. And so in our first
18 months we had um a team of about 90
employees at the time. And in the first
18 months um we had let go and rehired
over 45 new employees during that time
frame. And a lot of it came down to
culture. Okay. Um yeah. Yeah. Jason,
when you say you had to learn that or
learn it the hard way, what did you mean
that you that you thought that people
were that were maybe a little bit
ethically not 100% you could teach to be
ethically 100% but you can't sort of
Well, no. Well, so we also had other
core values too which one of our other
core values was respect. And one of the
core values with respect meant that we
would um uh we would treat each and
every person we everyone's everyone's uh
every voice mattered right so whether or
not you were the front desk person or
whether or not you were the CEO your
voice mattered and there was an
opportunity for your voice to be heard
in our meetings right and um and and
then we also had things like you know we
didn't have to walk on eggshells around
each other you could speak the truth
without having to walk on eggshells
without being afraid
Um uh but you also were were you were
respectfully candid was a was a phrase
that we used. Be respectfully candid. So
tell the truth, be respectful about it.
Um and so we had this uh manager, office
manager that was really good at making
money. We had this dentist that was
really good at making money, but
everyone was terrified of them. And uh
and so we would hire these new people
that fit the core values, but then they
were starting to leave. And it was we
had great performers. They were they
were ethical. They had integrity, but
they were not respectful at all. And so
we fired both that office manager and
both the dentist, right? And we went
through uh you know a a dip for a couple
of quarters from from a revenue and in
Ebida standpoint. Um but it was it was
worth it because we needed to imbue the
culture that we were setting for the
team. Well, that that I I feel like that
took a lot of courage because when
you're trying to turn around, you're a
bit you're an entrepreneur, you bought
this business, you're trying to turn it
around, it's just this
crisis to
then you're kind of talking about J
curve here. You're you're basically
turning over a lot of the team, which is
extremely expensive, especially if some
of the top earners are people that
you're letting go. So you're basically
putting in more cost right as you're
trying to claw your way back to
profitability. You're you're absorbing
even more cost by all this culture
reversal. Um, so it just took foresight
and foresight and and real um kind of
fortitude
to foresight that like no, yes, this is
going to be it means we're not going to
get back to profitability as quickly,
but long-term obviously this is us
rebuilding the foundation. Just just a
humility standpoint. Will you're exactly
right, but just from a humility
standpoint, just to be completely
transparent, that that was a fire we
should have done two years before. But
from that standpoint, we're like, "Man,
they're making us money. Like, we can't
do this." And so, we let the team turn
over new people. And we would just kind
of explain it away like, "Uh, we're
making this money though, you know?" And
and and and that's when we realized if
we wanted to keep the team or get a team
that we wanted from a culture
perspective and a performance
perspective, keep a team that we wanted
from a culture and performance
perspective, we were going to need to
get rid of them. So, it took us two
years to fire these people. So, that was
the two people. Yeah, it took us way too
long.
Great. Yeah, I mean it must have been
just a
completely broken culture in a place
where there's this fraud going on.
Um may maybe I think that's pretty clear
to the audience already, but maybe just
give us 30 seconds on the on the culture
as it was when you found it. Yeah, I
mean look, there were people that were
just complicit in the fraud because they
um were just, you know, uh unethical.
There were some people that were
complicit in the fraud. Um and yes, they
were unethical because of what they did,
but also he was capitalizing on the fact
that they were uh single mothers that
were, you know, were not college
educated. Um you know, and so I'm going
to pay you more per hour in order to do
this job as long as you keep your mouth
shut. Like that's a very difficult
situation to put people in. And so there
were people that we just knew were not
going to be able to stay with us. But
then there were people that we said,
"Hey, look, you know, like that was
yesterday. The slate is clean. We all
have done some things that we're not
proud of and stuff." And so I'm we're
willing to give you this opportunity
here and to do things the right way. Um,
and there were, you know, to be honest
with you, there were several of them
that still ended up, we had to
unfortunately, um, um, uh, end our
partnership with them, but there were
several people that stayed on and they
took the opportunity and just advanced
in the ORC chart, which was great to
see. Mhm. And so, um, we've heard you
say two years that you there some bad
actors that you should have let go two
years earlier or disrespectful people
when turning around a culture like kind
of at the risk of oversimplifying, how
long does it take or how long did it
take in this 90 person organization to
turn around a culture? I don't think
that there's a time uh there's a time
frame. I think that there's more of a
framework. um you know but but the but
the the realization the the reality is
excuse me is that that it should be your
top priority. And so for us um you know
what we had done is we had created an
ORC chart like a really detailed ORC
chart with every
employee and then we had a color code
system where green meant that they were
doing great. They were rock stars. Red
meant that or yellow meant that we
needed to fire them within the next 90
days. Red meant that we needed to fire
them uh uh as ASAP. Um purple meant that
there were vacancies in the role and
gray meant that we you know we still
didn't know. How did we come up with a
color code system? Well, let me back up
um you know uh a bit. So what we did is
uh Elida and myself we really went
through each and every role in the
organization except for a dentist and a
hygienist and then we learned um you
know what was necessary in order to be
good at that role what we were looking
for like what was the goal we created uh
policies and procedures around each role
and we said okay this is this is how
you're going to be graded based on these
policies policies and procedures uh
based upon this performance and based
upon these core values and if you do
well then you're going to you know get
raises you're going to get promotions.
If you don't do well then we're going to
have conversations about performance and
then ultimately that might uh lead to
separation. Um so once we did that
that's how we knew how to how to color
code uh each and every person in the org
chart based upon that. And so from
there, we just started like really being
um militant and focused about, you know,
getting rid of the reds. Uh then getting
uh rid of the yellows next and replacing
them with people that we thought were
greens. And the color coding that was
only for internal for for you and Alida
to see and use. Yeah. Yeah. Yeah. But
but but but in fact all the employees
knew that they were of course going to
be their performance was going to be
judged as every in every organization.
But it wasn't like the what color grade
they had was something that they knew.
No, they just knew. Yeah. It wasn't like
you know we're we're coming and and you
know you know we're like hey you're
leaving green or anything of that
nature. Yeah, for sure. And the
performance reviews and the thing about
it was in the performance reviews by by
the time we had gotten there, we had it
annually just so that we we could have
it. Um, you know, there was like a a a
place marker there, but they knew where
they where they stood before then
because we had had conversations, you
know, they had either gotten written up
or we had said, you know, hey, this is
where you need to improve on your
performance. We need to see this take
place. And so there were times where,
you know, you know, the running joke was
that a lot of people fired themselves,
you know, because after the second time
we had told them, they were just like,
"Yeah, we're leaving. Like we're going
to find a different job." Mhm. Well, th
this system seems like it could be good
even outside of a crisis. Like it's not
necessarily uh only in a turnaround
where you might want to where a
searcher, a new owner might want to use
something like this. Do do you agree? Or
was there something about it that was I
mean obviously it was particularly
helpful in a case where there was going
to be a lot of turnover but do you feel
like it could be applied into a already
healthy organization just as the
performance absolutely kind of operating
system? Absolutely. Yeah. And and how
did you guys so you went through
systematically role by roll by role and
and and defined what kind of the KPIs of
that role the performance expectations
were as well as the cultural
expectations. How but how for some of
these like how did you have the
knowledge of every single role? I mean I
I guess that's just what being an owner
is. We did them like we we literally we
did them. Um so like we would map out
you know what the front desk should say
right and listen to the phone calls. We
would you know hop on calls or we would
call patients up ourselves. We would try
to do that. Like I literally have a
picture of a lie who is uh 66 6'5 um who
who was sitting in a dental assisting uh
who was sitting uh in a a dental chair
assisting the dentist with like his big
like he was tucking his body in like
this like holding uh the patient's mouth
open like um doing like the suctioning
and things of that nature painting the
the instruments and so we did each role.
And you did each role as part of the
crisis management or is that something?
No, I I I I you know, well, we did each
role just because we, you know, we
really needed to see and plus we didn't
have the ibida at the time, you know,
and so we were like, hey, like we need
to do this and we need to really get
this right. Um, but absolutely I think
that, you know, understanding each role
and what is what does success look like
in each role from a performance
standpoint? um you know what are going
to be the two to three uh key drivers
here in this role that make you good
what what makes you kind of average and
understanding that being able to
quantify that um is really key. Yeah.
And so to to to use your system the one
that we are the color coding system
probably requires you as owner to have
done all the roles. Obviously not the
technical roles. You guys weren't
dentists or dental hygienists. You did
everything but those two roles. No, I I
I don't think that it requires you to do
that in in in each. In fact, what I
would say too is is you know, ideally
what we eventually gravitated towards we
we graduated toward uh to doing rather
is that we started um just doing that
with uh the middle management and like
the senior team. And so we were cut
color coding the senior team and it was
it was the onus was on them to do that
exercise with their team, right? And so
uh and so because of that now I don't
need to know every role like the front
desk and the dental assistant. Now we're
just managing through our middle
management and through our senior team.
Ah great great and this was a system you
guys came up with? I don't know that we
came up with it. Um I'm sure other
people have done it but in terms of the
color code system like I I don't recall
hearing it from uh somewhere in
particular but it's it's not something
that we've patented. Okay. Okay. Well, I
I just mean like is it is there a book
written on this or something that people
can go read? We didn't have a framework
at the time. The manager's handbook was
not written at the time. The manager's
handbook was written afterward. I wish
David hadn't written it because I work
closely with David. David's one of my
partners. Um and so I always feel like
it's kind of like a shameless plug when
I when I put him in. So I wish he hadn't
written it, but he did. Um but there's a
way better framework for what we were
doing that I wish we had used at that
time. You wish he hadn't written it.
Wait, what? Well, the reason why I wish
he hadn't written it is just because
like it sounds like I'm just like kind
of like sucking up or something to him
because he's my partner. But like he he
did write it and it is a fantastic book
that outlines a lot of frameworks that
we started to use in our last couple of
years. And then there's even stuff that
you know we weren't even doing like 30%
of the stuff that was in the book
frankly. Okay. Okay. So, manager
handbook written by David Dodson is
has even an even perhaps even better
system than the one you described.
Absolutely. You are a little hesitant to
say so because it seems like you're
biased because he's your partner, but
but we're taking you at your word that
it's objective that it is a that it is a
better system in that book. And the
manager handbook is is now taught in a
lot of the ETA courses around the
business schools. So, it's not just you
saying it's a good book. It's actually
one that that ETA academia has has uh
adopted.
Exactly. Thank you. Okay. So, do you at
any point explore suing the seller? What
what is that?
Yeah. So, we we did and um and so we had
started the process of litigation. Um,
and what we quickly learned was that we
had to get in line because he had uh
defrauded other entities that were just
a little bit bigger than us like the
state of Michigan. Um, and so we were
likely not going to get um, you know,
any any any money back or any type of
recourse other than the seller note. So,
the seller note was a a great uh thing
that we were able to get uh forgiven.
And I hesitate to say forgiven because
um it would I I would just say wiped
away, right? Because there was no
forgiveness needed uh from from us uh
for us. Um but then when we were trying
to go through litigation, what we
quickly recognized, um after having a
conversation again with David, um you
know, David had said to us like, "Hey,
you're spending all this time like on
litigation and this has taken up a lot
of your energy like like how much do you
think like in a best case scenario
you'll get back out of the total
purchase price uh from from uh
litigation And so we said about $1
million, which represented like 20% of
the purchase
price. And um he said, "Okay, $1
million." Okay. And when you go to sell
the business, how much do you think
you'll sell uh the business for as a as
a multiple of EBIDA? We said, "Uh maybe
6x." So he said, "Okay, so if you take 1
million, you divide it by six, that's
about
$166,000. Um, so wouldn't you be better
off uh building IBIDA by
$166,000 and then just, you know, moving
forward and focused on growing the
business because at the end of the day,
that's really what's going to add
shareholder value is growing the
business by $166,000 of Evida. And we
went, "Oh," you know, but but still like
part of me was like, "Man, let let's
just get back at this guy because like,
you know, look at look at how he did us.
Like, you know, the situation I'm in."
And and so when we came to the to the to
the to the realization that we were
going to make a logical kind of business
decision and not an emotional decision,
that freed us up to really focus on
trying to grow the business from there.
Mhm. But but you're saying even with
this very compelling argument, logical,
rational argument, you had to you had
to control your emotions cuz you really
just wanted to get back at this guy.
Yeah. It took us it took us a month
probably after that to just say, "Okay,
like we're done and we're going to, you
know, move forward." Yeah. It's that is
such a that was such good advice. Um and
and you know you can you can kind of
abstract away and it's like anytime
you're deci you're you're evaluating a
business decision it's like what is the
basically kind of the net present value
of this decision or the time I'm
investing here and you guys were doing
all this effort to maybe claw back a
million bucks all this effort and it was
and and so how else could that energy
and time and attention have been
directed to make a million bucks just
you grow if you think you can exit this
business by sexxx grow the thing
$166,000 in in ibita what a what a great
insight that that can be applied all
over the place I love that um and of
course it also reinforces the point that
litigation just often just isn't worth
it sadly sadly for those who have been
wronged you know happily I guess for the
for the fraudsters what happened to the
seller can you share where he ended up
Um yeah. So um so he literally was um
he when he learned that we were going to
aid the state of Michigan in their
investigation, he decided to uh flee the
United States. So 6 months later he was
um found by uh US marshals in the
Dominican Republic and was extradited
back to the US to be dried. So yeah,
that was uh it's wild. I mean, he was a
he was a legit criminal. A a legit fraud
fraudster. Yeah. Uh and where is he did
he end up being tried? Um he he ended up
getting like a slap on the wrist. He had
like a payment plan that ended up taking
place. And so yeah, um you know, he was
he was incarcerated for um almost a year
though before they ended up settling.
Yeah.
Um we're getting toward the end of your
story here, Jason. We um but I want to
um
just before we return to the plot and
close out the story here two things.
First in
Medicaid or yeah I I guess kind of
health re regulated health industries be
it dental be it home care which of
course we all know is very popular um
with searchers. Is there something to
say about like
um from your something to draw from your
experience that people just need to be
super super careful about these
businesses? Maybe back to your earlier
point who you choose your diligence
provider to be. You have to diligence
you know the Medicaid or the government
billing or the you know that stuff super
carefully. Something to to a message to
share people who might look at a uh
regulated business. No, I I don't think
there's anything additional to add just
to be you know hyper viligent diligent
about um those um you know the
compliance factor. I mean it's all it's
all about compliance like with these
businesses and making money profitably
because a lot of times when it's uh
these kind of compliance or uh
healthcare excuse me um healthcare
government reimbursement businesses.
Yeah. From a healthcare perspective,
it's kind of like high volume, low pay.
And that model has the opportunity to uh
be really
um really tainted, if you will, um from
a from a business perspective to make
the the economics work out. And so, uh
just be very careful from that
standpoint. And feel free to give me a
call uh if you want to have a a deeper
discussion about that in particular.
Okay. Okay. And anything to say about
the dental category? Is this um is there
still opportunity here? We started the
top by saying that even back in 2015 it
was already um private equity was
already very active. What what do you
just give us give us 60 seconds on the
industry today and if any opportunity
still exists for searchers? Well, I mean
the industry is really tough to compete
in because we thought that we were going
to be competing against other dentists
to buy dental practices. What we quickly
learned is that we were competing
against other private equity funds that
were looking to get in or other private
equity backed strategics. And so like
that was very difficult. And so if
you're not capitalized well enough, um
if you're not willing to kind of pay
higher multiples, I think it's a really
tough space to get in. Um I think that
the um the cost of labor has increased.
we were paying um you know $26 an hour
for like a dental hygienist when we
initially got in and then it it
increased to like you know $38 an hour
for a dental hygienist you know from
after COVID took place. Um, I think that
there's a lot to be said right now about
dental supplies and the tariff
environment that we're in right now with
this administration that we're that the
the business that I'm still on the board
of is is really nervous about um in that
in that industry because a lot of the
supplies come from China. Um, so yeah, I
think it's a really really tough
business to operate as a search fun
entrepreneur candidly. Okay. Okay.
Great. Well, that was very clear. Thank
you. So, pick us back up. Do you do you
successfully complete this turnaround or
you know what what does it look like a
few years postacquisition?
So basically what we did to trying to
turn things around is um so the first
two years were us just trying to learn
the business the ins and out of the
business and trying to um upgrade our
org chart. And then um about 2019 we had
decided okay after two years we we're
we're we've grown the practices you know
um you we've grown same location growth
at the practices um at or ahead of of
what the industry average was um and so
like now we can go and make an
acquisition. So, we had looked and found
this this um acquisition where we were
going to purchase like four additional
dental practices um at once and they
were not doing very well. It was a
turnaround situation, but we felt like,
hey, we've been here before. Um we know
how to do this. There's not any fraud
here. So, we know what we're kind of
getting ourselves into because we could
turn ourselves. Yeah, we're turnaround
guys. And we knew that we could do that
without raising additional equity, which
would help us with our MOIC and help us
with our returns. And so that's why it
was really important for us. And so we
were about to buy this business. We were
about to pay like a a million dollars
for this turnaround. We're going to be
buying like $3 million of revenue, but
it was only doing like maybe like
$200,000 in Ebida, right? And so we had
our work cut out for us. And um and so I
remember Susan Pullmire um you know,
kind of flew down to meet with us and we
were about to you know uh purchase the
business. She was like, you know, you're
about to pay a million dollars. I don't
think it's worth a million. I think it's
worth half a million. And at first I was
like really like why are you like you're
going to tell us that now and stuff like
um and so we were like you know what
we're going to try to renegotiate and
get it down to half a million dollars.
They're never going to accept it. If
they don't we'll just take it as a sign.
They did. They accepted it. So we took
it over. And so we were turning things
around. Uh we made the acquisition. We
were turning things around. And when we
got to like day 90 of our Gant chart,
that's when we had kind of said, okay,
we have a playbook for same location
growth. We now have a playbook for
buying and integrating dental practices.
But we've now gotten introduced to a
situation where no one seems to have a
playbook for, which is CO 19. And so now
we had to go through lockdowns. And so
we had to shut down all of our dental
practices at that time. And like we had
just made this acquisition like it was
an incredibly stressful time that we had
gone through. So we had gone through
this huge dip when we learned that the
business was fraudulent. Half million of
Ebada kind of grew the business back up.
Now we go through this huge dip where
our practices are shut down and we have
no revenue coming in and we just have
expenses. So it was incredibly stressful
time. Um and so we were going through
that situation and then we were we were
able to uh open up our practices for
emergency um uh um procedures only in
the state of Michigan. And so now we had
to like pivot our our business um to
where we were doing high volume uh lower
cost procedures to lower volume higher
cost procedures. And so I give a lot of
credit to a lightwe my my partner that
had the vision to say okay this is how
we can kind of make this pivot to kind
of turn it down uh turn this practice
around because I didn't think we could
do it and you know if we just do these
procedures we hire this type of implant
specialist if we do this then we can do
it and we can um we're going to have to
spruce up the offices invest in you know
updating the offices a little bit more
invest in this team member and I was
like wait more costs like this like what
like more costs on top of like we're
bleeding money again like we haven't
been bleeding money for like you know a
year and a half. Um he's like no no no
we need to do it. So we pivoted the
business and we started doing that and
so we got it from you know receiving a
lot of uh government reimbursements to
like little to like 1% like literally 1%
government reimbursements and we had
increased our cash pay by like 10x that
from what we were see receiving before
and we made that pivot and so now 2022
has rolled around and if you can imagine
we had had one huge like thing that we
had went through where we had gotten
beat up that was like effectively our
fault right um for not catching it
something that we couldn't control with
co 19 we had gotten that um um but like
we were now we had the right team we
were delegating the right way we had
pivoted our business and now we were
growing uh the business literally from a
revenue standpoint at like 40%. Okay,
from a revenue p perspective like 40%
each year the money that we had paid uh
for that acquisition even with co we had
made back that money right and so now
we're making distributions to our equity
holders um and stuff it was an extremely
stressful time I had gone through a
stressful time with we had all gone
through a stressful time with the the
the the you know initial acquisition
with co now that had hit us and so I'm
like I feel like I just need a reset a
refresh in life right Now, like this has
been incredibly stressful. Like, it's
been tough on my mental health. Um, it's
been tough on me physically. Um, I've
had some health issues now. Um, and so
like I I I just need to reset. And so,
that's when we went back to the
investors. We said, you know, we had
talked about like kind of having um, you
know, an equity infusion to to make
these acquisitions. Um, but we think
we'll just sell. You know, this is what
it's going to be. They were like, "Guys,
like, we didn't think that you were
going to even stay this long. If you
guys had just returned back dollar for a
dollar, that would have been incredible.
You guys have been making distributions
over the last couple of years. Like,
this is incredible." And so, it was
really humbling to hear that feedback
from them. If you look at Ibida, you
know, you've grown IBIDA by almost like
you could argue, you know, from a from a
math perspective by infinity by
infinity, right? because it was like
nothing. It was like in fact you were
losing money. So now you have this, you
know, $2 half million Ibida business
that you grew from a half a million
dollars of IBIDA, you know, that you're
selling from negative negative from
negative ebida, you know, and it wasn't
even it was a runway rate of of run rate
of of two like it was like literally
when we were selling like that was what
it was doing from like uh a trilling it
was roughly that from a trilling 12
months perspective. It was like um and a
little bit over that from like um I
think it was like a 9-month run rate
perspective, but you know, not a one-mon
run rate, right? Um and so they're like,
"Guys, like if you want to sell this
thing, like you know, like we're
extremely proud of you." And so
emotionally, like that was what I needed
to hear because they were with us in a
very difficult situation because they
had the response that they had. We were
like, "We're going to run through brick
walls for you guys. We're going to stay
faithful. We're going to, you know, see
this thing through." And so, um, that's
when we had decided to to have an exit
in 2023. And, uh, exiting a business
like this, is it is it pretty
straightforward? You call a banker, they
package it, and there's kind of given
how much PE there is in in this space,
there's just it's it's pretty easy to
find a willing buyer for a reasonable
multiple. We were at this interesting
place where um you know from so we were
not able to just hire like an a bank
because we were like a little too small
for a bank but we were too big for like
uh the brokers and so we had to do a lot
of it ourselves honestly but you know
from from a strategic standpoint through
through the help of other investors we
were playing kind of investment bank
ourselves. Um but yeah, we were able to
sell it and um you know, frankly, you
know, um my my partner Elida, he stayed
on with the business. I'm still on the
board of the company. He stayed on with
the business um and in operating it as
as uh you know, CEO of the company and
you know, it's doing much better. Like
it's at a a run rate today. Like so this
was two years ago, less than two years
ago because we sold in December of 2023.
Um, now the business is at a run rate of
a little over $4 million aida. Oh,
fantastic. Yeah. So, it's it's And Elite
is still CEO. Elida is still CEO. He's
still still faithful and and uh still
doing an excellent job. Um, an
incredible he's an incredible human
being, an incredible business person.
Phenomenal. We we'll link to his
LinkedIn uh in the show notes. I'm
breathing a sigh of relief uh Jason on
your behalf at the end of the story. Uh,
and now you today you're at Fudalfu,
which is David Dodson's
uh, search fund investing fund. Yeah, it
was started off as a family office with
David uh, David Dodson's family office.
Um, and then um, it had turned to a
search fund uh, fund of funds, a private
equity fund that uh, David Dodson and
Susan PMer co-founded in 2014. And um,
so since 2014 they've been investing in
search fun entrepreneurs. they invested
in myself, one of my largest investors,
uh, back in 2015. And so, um, worked
with them for 10 years and signed up for
another 10 to 15 years with them. And
so, you your dayto-day today is looking
at wouldbe traditional searchers
and considering who to back and not and
then of course on the other side of
transactions, helping the searchers who
are then in your portfolio. Yeah,
absolutely. Yeah, that's what I'm doing
and trying to uh help people to learn
all the lessons from my my bald head
that I hacked out as a result of of my
time as a a search fun entrepreneur.
Great. Uh well, if such people want to
reach out or prospective searchers,
LinkedIn is the best. How do you like
people to reach out? Yeah, LinkedIn is
perfect. Um LinkedIn um my email which I
I think is on our website as well would
be a good uh way to reach out to me as
well. Great. Anything more to add,
Jason, from this incredible story? Did
we not hit something? No, I I I mean,
look, I just would just summarize again
like, you know, faith was an important
reason as to how we were able to turn
things around. I think um you know, um
the pattern recognition uh from
investors uh in our community, I think
was incredible. And then just to
summarize, I think having a great
partner honestly um I don't think that
you know when you look at the Stanford
case study um yes it it shows that
partnerships have outperformed but one
of my concerns that I have seen is that
sometimes people decide to become
partners either in a self-funded venture
or um in a traditional um uh search fund
just because they kind of hit it off
over a case study that they worked on
together and For me, I don't think like
this is the time to kind of play Love is
Blind Search Fun Edition over the next
10 and a half years of your life because
the things that you encounter, right, as
a partner is like really, really
difficult. And so, if you are a solo
search fund entrepreneur and you want to
have a partner, I think that you're
better off um doing it alone rather than
manufacturing a relationship. And the
way that you can kind of um you can kind
of fill for either like um a job
description gap or a skill gap is
through hiring. But the other the way
that you can kind of solve for you know
the whole loneliness factor and you know
needing um uh uh you know someone to
kind of walk along the journey that is
that has an interest in you and not just
a vest vested interest in the fund. I've
been seeing an uptick of search fun
entrepreneurs hiring executive coaches
um uh during their search process and
just having a budget for that. Um and so
I think it's a great opportunity to do
that as well just just to have some type
of camaraderie as you're going through
the journey. And then the last thing I
would just say is one of the things that
I love about our space is the amount of
of camaraderie that you have. Even
though uh a person like Keith Burns was
not on my cap table, I would call him up
and uh I don't know I think you've had
have you had Keith or Michael Curry.
Okay. So Mike Curry. Yeah. Mike Curry.
Yes. So there are
partners would would answer the phone
for me like for years and has become one
of my closest friends in the search fund
space. Um Marcus Scott would do the same
thing. would would jump on the line with
me and he would help me out with Excel
issues and you know say hey think about
the issue this way and so it's just you
know it's just an
amazing environment that we have and if
you are humble enough to say I need help
and here's where I need help um the the
space is generous enough to provide it
self-funded traditional or not wonderful
point to end on Jason Jackson thank you
very much for coming on really
appreciate the time thank you so much
will thank you for having
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