Acquisitions Anonymous - #1 for business buying, selling and operating - Pool Construction Company for Sale - Xavier Helgesen Co-CEO Enduring Ventures - e56

Episode Date: December 16, 2021

It's a pool construction company episode!Joined by Xavier Helgesen, we go deep into this business as well as learn a ton about his holding company model.Thanks to our sponsors this week:SMBash.com - THE conference for buying, operating, and investing in the SMB and Micro-PE space.CloudBookkeeping - https://cloudbookkeeping.com/ - Strengthen Your Business With Meaningful Growth By Elevating Your Bookkeeping.-----* Do you love Acquanon and want to see our smiling faces? Subscribe to our Youtube channel.* Do you enjoy our content? Rate our show!* Follow us on twitter @acquanon Learnings about small business acquisitions and operations.-----Past guests on Acquanon include Nick Huber, Brent Beshore, Aaron Rubin, Mike Botkin, Ari Ozick, Mitchell Baldridge, Xavier Helgelsen, Mike Loftus, Steve Divitkos, Dzmitry Miranovich, Morgan Tate and more.-----Additional episodes you might enjoy:#62 Two Landscaping Businesses for Sale - Mike Loftus CEO of Connor's Landscaping#66 Analyzing Software Businesses for Sale with Steve Divitkos, experienced industry CEO#42 $900k Moving and Storage Company / $500k Rural Mini-Storage#61 Two Manufacturing Businesses for Sale - Brent Beshore - Founder and CEO at Permanent Equity#24 $5mm pool services and lifeguard staffing co / $2mm septic services business -  featuring baller @WilsonCompanies as a special guest!#45 $800k/yr cleaning business in Midland, TX / a $565k/yr window cleaning business in San Antonio, TX #48 Two Landscaping Businesses for Sale - Mike Botkin of Benchmark Group--- Support this podcast: https://anchor.fm/dealtalk/supportSubscribe to weekly our Newsletter and get curated deals in your inboxAdvertise with us by clicking here Do you love Acquanon and want to see our smiling faces? Subscribe to our Youtube channel. Do you enjoy our content? Rate our show! Follow us on Twitter @acquanon Learnings about small business acquisitions and operations. For inquiries or suggestions, email us at [e-mail]

All right, welcome back, everybody, to another episode of Acquisitions Anonymous. I'm Mills Snell, one of your co-hosts, joined by Bill De Alessandro and Michael Girdley. Acquisitions Anonymous is, we quickly became somehow the number one podcast on M&A because there are not that many. And we talk about small businesses for sale. We're usually joined by a guest, and we have an awesome guest today, Xavier Helgeson from Enduring Ventures. That I'll let Xavier kind of describe you guys. holding company structure and the way that you approach things, but we're really glad you're here with us today, and we have some fun deals to talk about. Really glad to be here, Mills.

Yeah, briefly on Enduring Ventures, it's a long-term holding company. We aspire to be a baby Berkshire, so we kind of uniquely do both tech and non-tech businesses. So we have, which sort of plays to my background. So I found a large e-commerce seller called Betterwell Books, which has a very heavy logistics component to it, physically shipping books all over the country. And then I also founded a solar company in Africa called Zola Electric that went down the venture-funded path and raised a lot of money. It serves about a million people in Africa with electric light. And so, yeah, so we found it during ventures, I founded with Sjavac Kaczynski about two and a half years ago now. And we've been pretty active. We've done 10 acquisitions and started two companies out of it.

That's awesome. So whenever my ears kind of perk up, right, when somebody says, I want to start a long-term holding company, because a lot of times people say that and they haven't, they don't necessarily have a critical mass, right? It's not a holding company. It's just like, I'm looking to do my first deal and I want to start a long-term hold co. And you guys are actually doing it and have done it for a number of years. So I'm really glad you're here today and excited to have your insights. Before we get into our deals, Michael's got a word from our sponsors in our never-ending quest to break even on the podcast. Yeah, we could do it. We're going to make it. Yeah, so first sponsor this week is SM Bash. So we've talked about this event for the past couple of episodes, but it is a niche event for small business, M&A, so search funders and small business operators, buyers, and that sort of thing.

And actually the three of us, Xavier, are going to be speakers on both days. Friday and Saturday. Friday is about finding deals and Saturday is about operating the deals. So Bill is given a talk on Saturday. I'm giving a talk about hiring on Saturday and then we're recording an episode on Friday. So it's February 3rd through the 6th in Orlando. Tickets are pretty reasonable and it's going to be nice and intimate and fun. So definitely thank you to these guys for sponsoring and encourage everybody to give the show a chance. I think it'll be pretty cool. Looks, looks great. If you need a way to bribe your spouse to let you go, I told you my wife I was going. She was like, cool, I'm going to go to Orlando and go to Disney World with the kids.

So have fun. We have four kids. That's how we should market this. This is basically Disney World for small business people. All right. So we have a great deal today. Bill, you're taking our first deal, right? Yes, sir. So Gurley, please throw it up on the screen for the folks that are watching on YouTube, but I will walk you through it if you were in audio-only mode. As a reminder, this podcast is on YouTube as well. and you can see our horrifying faces and Xavier's beautiful face, but the three of us and also the screen share of all the Sims we talk about. So the first one, this is really interesting.

This is a pool construction business. This sim is from 2019. It's a company called Dolphin Pools, and they're based in Arizona outside of Phoenix. And they build pools in your backyard. And if you're on YouTube, you can see them. They're beautiful pools. Really nice.

the trajectory of their sales. In 2016, they did 14 million of pools. In 2017, they did 16 million of pools. In 2018, they did about 19 million of pools. And then as this went to market in mid-2019, they had done almost 11 million, so they're probably tracking for around 20 to 21 million full year. So, you know, really nice, stable growth. They've also shared some metrics in here about the permits in their area, which are growing nicely at kind of single digits as far as permits in the Phoenix area for pools. You know, it kind of shows the size of their market. They also show that the average price of one of the pools that they put in has risen from $35,000 in 2016, peaked at about $40,000 in 2018 and is net like $39,000 in 2019 as they're selling the

business. Company's been around since 1984, which is pretty impressive, so really tenure. They've built over 7,500 pools in the Phoenix area, which is a lot of pools. Everybody in Phoenix has a pool if you've ever been to Phoenix. Great market for pools. They're projecting $21 million in sales for 2019 and $2.7 million of EBITDA. So, you know, decent margins, a little north of 10% kind of low teens margins. They're run by a tenured management team. They've got over 30 years growing dolphin pools.

They've got reviewed financials from an accounting firm, which is not something you see very often, although you can't always. trust it, but it's better than QuickBooks Dub. Some great stats in here about kind of the growth opportunities. They say they want to get into, you know, commercial pools and expand there. They want to expand in their premier series, which is their $100,000 plus pools. You recall their average pools about $40,000. I want to do some vertical integration.

You know, they're sub and a lot of stuff out. They're saying, hey, maybe we can do some of that on our own and save the sub fee. And they say you can do better online marketing, as everybody says. Also, they could buy other pool companies. to roll them up. They're exploring a complete or majority sale of the business. So as management is looking for acquiring, can apply capital and expertise.

They don't really go into whether management's going to stick around or not. And then the rest of the deck kind of talks about, you know, their customers, they're mostly residential. So recall that one of their gross sectors was going into commercial. But to me, I mean, this looks like very, very stable, kind of year-round, get holes in the ground, filling them with concrete and water over and over again in a market

where the demand for pools seems to be growing as measured by the number of permits granted in Phoenix Metro. So what do you guys think about this deal? So are they just doing new builds only? So build design or is there also any sort of recurring revenue that comes from this? So my understanding is this is only build design. So essentially pure new new build pools. So no service. Not necessarily new big build homes though, right? Like if I have a home with no pool, that's still a new pool, right?

That's still a new pool. And that's the most common situation. So there are some true new build homes where there's developers at the same time, you know, buying a pool to sell it. But a lot of times someone buys a house, they remodel it and then they put a pool in and to increase the value. That's the classic Phoenix flip. New kitchen, new pool.

Flip you. I mean, a new master bath if you're lucky. So what kind of, what kind of team comes with this? I mean, that's one of the questions kind of I ask a lot about a lot of deals. What am I actually buying? Am I getting a management team? Am I getting staff here? Obviously, I'm getting brand and experience in the market.

What other things, Xavier, do I maybe get to see when I buy this business? Yeah, so this one, this one there is, there is a team. It's a very operational team that you get with this business. It's people that really know how to execute the day-to-day, building pools, and selling a pools. This is also a sales-intensive business because you can imagine when you get a lead from the website, it's a long way from there to signing a $40-50,000 contract to build something in your backyard. And so that's sort of a big, this is more sales-driven than most SMB and so I would say. Xavier, how does this business handle the actual labor component?

Are they self-performing or subbing most of the labor? It's all subbed. The internal construction management kind of stops at, I guess you'd call it the general contractor. So they're essentially acting as a general contractor and subbing out all the plumbing and the shakry and everything else that needs to be done to build the pool. You brought up a good point there. So I'm pretty sure in this market, it's pretty much all Shock Creek and Gunnite, right? Concrete pools.

It's not fiberglass liners or anything like that. No, not for the most part. Exactly. It's a lot of Shock Creek. Now, the ground is very, very hard in this market. So sometimes you have to dig out rocks. And, you know, so that is one thing that can slow down the process. But in the spectrum of margins for pool construction,

Shot Creek and Gunnight, at least in my experience, is definitely where you want to be. If I looked at somebody and all they were doing was like vinyl pools, I would be very, very concerned. You know, we actually looked at one in the Northeast that was doing doing very, very well on the vinyl pools, but they were selling, they were selling high-end stuff.

So it wasn't uncommon for them to have a quarter million dollar pool. Wow. Mills, why do you say that about vinyl pools as opposed to the concrete pools? It depends a lot geographically, but price point and margin are a really big factor there.

Like, you could, I think you can get a vinyl pool for half of what their average ticket is or maybe $20,000. Okay. Now, there's a whole lot of things that go into it, right? like what's the hardscaping around it, what kind of surfaces it, you know, what type of, you know, guts does the pool have in terms of filtration and, you know, chemicals and everything, what type of system? But typically, right, if you're dealing with a lot of shot creight and gunite and

rebar, it's going to be a premium pool and those folks are willing to spend a little bit more money, at least in our, and my geography in the southeast, they're willing to spend a little bit more money and then they're willing to spend a little bit more money on the surround and the margin on, you know, the tile installation could be, you know, a really nice kind of kicker. Yeah, that's the real key in this business I've seen. So we looked at this one and another one was, you know, everything around it, right? The barbecue pit and the pagoda and whatever else gets done in the backyard, all of that is usually really high margin once someone has committed to actually building the pool.

And so it's trying to get that base level pool as reasonable as possible and then building up from there. One thing that's really, really cool about this, the pool business in general is this permits that we have on the screen. So not every job that happens on a residential property is permitted. Like if you, right, if you own a garage door business and you want to know your target market, you can look at how many houses are in the zip code, but you don't necessarily know how many have garages. But this tells you, right, this is how many permits were pulled for pools and you can look at it historically. and it gives you a pretty good barometer of what the total addressable market is and what's happening to it over time. But like window installation, like there's a lot of home services, right, that you just don't pull a permit and the permitting information isn't readily available, even if it is. You know, there's actually a little company in the area that does a power rankings for pool construction.

And so they'll list out all the companies and how many permits they pulled this year and this month and stack them up. So everybody knows exactly how they're doing against their competition, which is pretty interesting. What is this company's sales funnel like, Xavier? Like, is it is it kind of broad-based? Is it billboards? Like, what's their funnel like? So it's surprisingly, given the overall presentation of the business, has really good internet marketing. And one of the, there's a company that essentially only does one, you know, one,

per market. And so for whatever reason, they had found a really good company and partnered up with them and actually was driving basically as many leads as they could, you know, field with the service team and actually build. Yeah, so leads will come in and then salespeople are highly incentivized to get out there on site, meet with the customer, and, you know, and basically design a pool very quickly. At least there's some software you can use to design what, you know, what it's going to look like and what things they might like to add and what color it's going to be. And so really the, you know, the funnel is primarily online. And I think that's, you know, I think that's where more and more people look if there, it also has been around so long that there are tons of people who

refer dolphin pools because it's, it's well known in the area. I would say my, my lift driver hit rate was over 50% about knowing about dolphin pools and knowing that it existed. That's a good gauge. So Xavier, you know, what pattern I've noticed is this sim shows there's kind of three pool construction companies in Phoenix that kind of matter and then everybody else's noise. It's actually the same way here in San Antonio. Like there's three pool contractors that matter and then actually they're all related. So they were like family and got squabbles and started their own companies.

but anyway, don't worry about that. But is there some dynamic of this business that causes that type of concentration where there's just a handful of majority ones that matter per market, or is it just dumb luck that it's that way in these two sunbelt cities? I think there's a kind of few local maxima here

around the size that is effective. Because you can be a kind of one-man show and you can go out and sell five or ten pools and essentially manage the projects yourself and subcontract them. And that can be a way that a guy can earn a living. So there's a long tail where there's a bunch of people doing five, 10, 20 pools a year or they do it as part of a general contracting operation.

And then to actually professionalize your sales, professionalize your marketing, professionalize your construction management, you need some pretty significant volume of business. You need to be essentially building 100 plus pools a year for that to make sense. because it's not a super high margin business, no matter how well you run it. And so I think that's probably where these other companies sort of land is they've made that leap over time to professionalizing those functions.

And actually, number one in Phoenix is none other than Brent Bishore, known to many of us. They own presidential pools, which is sort of the king of the Phoenix pool market. Yeah, so it's either if you think Brent's a good capital allocator, great business will buy, or if you're afraid of competing with Brent, you know, maybe this is runaway screaming. Xavier, I think you might have an opinion. I, in fact, both are true. So I'm both absolutely terrified of Brent and I think that Phoenix is a wonderful bet.

So we did dive in. This was fun to share this because, see, Ava and I did dive in. in and work out a deal with the owners. So I can tell you a little bit of the post-mortem what happened. So we closed on Dolphin at the end of last year. And it has been the greatest gift we got was they said, hey, we really don't want to run our full earnout here. We had worked out a two-year earnout on this business.

And they said, you know, there's a guy who's so good that we would trust him with our earnout and we'll actually bonus him out of our earnout to come in and run this business. And so they essentially said, here's your guy with 40 years experience in the pool industry who we think is amazing and is ready to run his own show. And he'd actually looked at buying out dolphin himself and hadn't, you know, hadn't quite been able to pull together the backers and so on to do it. So it's been a really, it's been a really wonderful partnership with Jeff Mano who runs,

runs this business. So this has the, both the Phoenix wind at its back and the COVID wind at its back. So this year permits have been up 60% in the local market. So it's just, we've also grown around 60%. So we're literally just keeping up with the growth in the overall market. How did you find the deal? And could you walk us through kind of everything from your original, like becoming aware of it, pursuing it, and then kind of getting to closing?

Well, it's really a funny story because we actually went almost to the finish line with another pool construction company. And so that was where we learned about the business. And we thought, hey, actually, these are run well. There's some pretty good economics in this. And we got very close and it was the owner just deciding not to sell at the end, which just happened to us a couple times, actually. if somebody is, you know, is at retirement, but in the end, they just don't want to let it go. And so we said, okay, well, have we seen any other pool deals? And this was a broker deal that had come to Sea Aven. We fished it back out and said, hey, this actually, there might be something here.

And so, you know, as you can see, the SIM was actually, this was the SIM that we got, which was about six months old and we got it. And they had actually beat their numbers for the year. So they, when we bought it, they were. at now that I think about this, this may actually be a year and a half old, this, the sim that we have, but this was the last sim that was published. And so I think they were marketing it mainly to, you know, to strategic buyers and they just couldn't quite find the right one. And so we became aware of it. And they were at 20 million in revenue and three in EBITDA and, you know, kind of had the wind at their back. So we were a lot, we've looked at some other construction businesses and there's a lot of things, you know, that aren't great about those, like long cash cycles and need for bonding

and need for deep industry expertise. And pool construction, you need somebody running it, really, really, really knows what they're doing. I will say that. Jeff, Jeff has had to be very on top of his supply chain in particular and his subcontractors because it's been a crazy, it's been a crazy market. And they need to be very customer focused because people are impatient when their backyard is dug up for six months plus, as you can imagine. But in general, we were able to work out a deal that got us comfortable with it, and we really liked the price point. You know, these are $40,000 or $50,000 construction projects. Our price point is, average price point is now over 50. So we've been able to work up market a bit. We're also doing

remodels now, which are higher margin than new construction. And we thought the most obvious thing was to get pool service in place, and we haven't done it yet. So another business we looked at, they build a million dollars of pool service on January 1st every year, just auto-builded. But I think the Phoenix market is so pool-oriented that there's so many providers, and there's some logistics to getting around and servicing them.

So it seems like it's a less valuable proposition than it was for the other one we looked at. And low barrier to entry. Yeah. Yeah. Bizby-sell, which I think I'm butchering the name again for you, Mills. Like, I went to go look for pool deals before this episode, because I wanted to talk about one today.

And, like, it's pool route after pool route after pool route. Like, there's just a red ocean going on there. So Xavier, in terms of actually, like, precisely, like, how did you find the deal? Was it like, were you guys cold calling brokers? Was it web searches? Like, what was it? This was, this was a, so we had. So we had gone and talked to a lot of brokers when we started looking for transactions to do and built some relationships.

And so this one originally came in through my partners. So I know that it was a broker inbound to him. So he had been sent a summary and said, hey, you guys might be interested in this. And I think we passed it at the first look. And then when the other pool company didn't work out, then he went back. I was like, hey, are there any other pool companies we've seen? and we dove a bit deeper and we called them up and hey they hadn't been sold yet they were really wanted to get a deal done before the end of the year they um and i think we just really liked the founders

they were really just salt to the earth one of them was said i will not work a day after i sell this business i'm going to the golf course like steve will stick around and transition but i'm out and i have to really respect that to be honest but it sounds like Also, you did a great job of not buying jobs for you two guys, and that this general manager, local market CEO, it seems like the critical thing to have that happen. So you fortunately got lucky that they had an employee who was ready. What sort of things have you done to structure the deal to make it to where, you know, him leaving doesn't become a risk for you guys in terms of making the deal work? You know, the main thing we've done is make his job so good that he will,

At least we tried to say, you know, this will be so lucrative for you to grow this business and over a sufficiently, you know, long period of time that, you know, ideally you'll love your job and you won't want to leave, you know, until, you know, at some point he'll retire, but hopefully he's, he's having fun. So I think, I think the thing that we've done well is we've been, you know, we have monthly board meetings, but we're awfully hands off. I don't think we've made a single decision for him or told him a single thing, no, you shouldn't do this. I think what we found generally is the number one way to not buy yourself a job, which is probably the biggest danger in trying to build a conglomerate out of small businesses, is really overhire for the

CEO, if anything. So Jeff was running about an $80 million P&L at a public company before he joined us. So he knew what that looked like. And so, we paid up a lot more than you would just pay for a general manager. We paid for proper CEO and basically built that into the into the business model. But that has worked out well. Xavier, why did what did the sellers want to sell? They were really at retirement age. They really, they're 50-50 and they were working in their retirement. You know, they weren't like, oh, I'm 55 and I want to retire early. They were like ready to be retired. And, you know, this, This was something where they couldn't quite, you know, maybe they could have handed it over to Jeff themselves and worked this out.

But I think they were ready to just take some money off the table and be done. Yeah. So as you look back on this experience of, you know, going to the altar with another deal, doing this deal. And then it's turned out, I think, better than you probably modeled it. It sounds like maybe even better than your optimistic case. What sort of one or two things do you feel like you guys really learned from this experience in this deal so far? There's, I would say, three great learnings. One is like just having the wind at your back is so helpful. And so it's really focused us on markets that are growing just organically.

The market is expanding. So I've seen some great businesses in contracting markets. And you realize that it's, even if they're a great business, it's so hard to grow because there's more, established companies fighting for fewer customers, whereas we're essentially just riding on the back of the growth of Phoenix and doesn't look like that's going to slow down anytime soon. So that's one thing. I would say the second thing is that Jeff is really the model for the kind of CEO we want to seek out to the extent that we're now trying to find Jeff Manos even before we find a deal.

Because if we had been partnered with Jeff, we would have found a pool company for him to run. and that would have been, if we needed to raise money for it, it would have been the easiest raise in the world. But this company without Jeff, you know, is not nearly as valuable. And so I think that trying to line up that CEO at the same time as you line up an acquisition is like 1 plus 1 equals 5. Xavier, we've had some folks on the podcast who, you know, have kind of gone the SBA route. They're buying one business. It's their first transaction. They're kind of scraping together, raising equity and then signing a personal guarantee and having, you know, kind of just traditional recourse loans in the world of kind of this postmodern conglomerate, which I really like that term.

How do you guys think about sources of capital? Is it all cash flow from operations from your existing business? Do you use a mix of, you know, cash that accumulates and debt? Do you use third-party money? Like, how does it work for you guys as much as you're willing to share? Yeah, no, it's, I can share most of it. So, you know, it's a tricky thing to bootstrap, because ideally you have one really well cash flow in business and then that just funds everything. You know, like Andrew Wilkinson found a tiny because he had a agency that was that was spinning off cash and he wanted to diversify into longer term, you know, business ownership. So for us, we have done a few SBA deals. So that was part of our bargain with our initial investors was, hey, we will, we will be. be willing to personally guarantee some deals to sort of bootstrap. What we've found doing it is if we're creative enough, we can actually get most deals done with some combination of debt, seller financing. We have two deals we've done that are 90% seller financed, which I would never would have expected. We have, we've had deals. I'm trying to think if we've closed one,

but there have been a few cases where you could completely finance the deal through reasonable leverage, either because the seller wants to keep an equity stake or, you know, they're willing to sell a significant part. And then, of course, cash flow helps. So Dolphin's a great example of one that just, it doesn't require CAPEX. Gurdly, you posted about this recently. Dolphin is the classic example of the low CAPX, high cash flow, small, business. Like we we couldn't really spend cap bucks on that business we tried other than actually

the business Brent's group owns. They built a giant pool park. That apparently does sell pools. So at some point that that may be what happens. But besides that, we we find it really hard to spend capax on on dolphin pools. Have you been able to keep from having to cross collateralize your businesses. And like when I say that just for listeners, you know, you have businesses maybe that have less loan to value or less leverage on the balance sheet. If you cross-collateralize, it's using that, you know, another company's balance sheet to borrow, you know, in order to do a different transaction or in this case, we have several balance sheets, right? Yeah, that's been, that's been the holy grail. So sometimes it's kind of a funny, we'll cross-collateralize ourselves as, as

guarantors before we'll cross-collateralize the holding company as a, so there's no debt. on the books of the holding company and there never will be. But there is, you know, there's only equity at the holding company. And so then each company, the other thing that we found is that we can raise money into subsidiaries, sometimes more easily than we can raise it into the holding company because it's a sector focused investor or an investor that likes the CEO or likes the deal. So we didn't raise any money into dolphin pools, but we, I think we pretty easily could have. And we could today, if we were selling offshares and dolphin pools today, I think we could find buyers for that.

So we have another group that does software and marketplace, and we're talking to one investor that really likes those specific things. And when you talk about, well, enduring ventures has like, you know, a pool construction company. They're like, I don't want to deal with that. Yeah. Give me the software. All right.

I've continued to berate you with questions on this. So do you guys, we have, another deal. You guys want to keep talking? Is everybody okay on Tom? I think you keep doing this. I mean, this is interesting. I can berate Xavier with questions too on whole closed structures. And I think our audience is probably into it. All right. Let's keep, let's keep going on this for a few more minutes and we'll table the other deal, the payday lender for another day for people who are interested in that. It'll be on a future episode. Yeah. So, Mills, can I get one in here, Pepper Xavier? I'm sorry. I'm sorry. So Xavier, I'm interested. You got a pool company. You got a software company. You said there's, you know, know, there's no debt at the parent whole code level. What is at the whole code level? Do you have any

shared services? Do you do any kind of billbacks, you know, intercompany, any accounting at all, whereas the whole code just holds equity and everything runs totally on its own? So we have, we've been heavily inspired by Constellation Software in particular, which runs a famously small head office. Obviously, Berkshire runs a small head office. And so we have one CPA. we have one legal operations guy who basically manages deals. I actually went to law school. He doesn't have a JD, but he knows enough about the law to do docs himself and then also manage external counsel. And then we have one kind of people and culture person.

So I would say the only semi-shared service is like the shared HR, sort of both tactical HR and like strategic HR. and everything else, it's like go find your own accountants, go find your own, you know, if your accounting really sucks, then our guy will come in and fix it. But, you know, in general, he's more of a backstop than a front line. So he's more like at a controller level. And we also have one, one M&A guy. That's the other thing. So he's almost, he's almost like a minority partner in some ways, like he takes equity in some deals when he's involved in them. And one of the cool things But the whole co structures, you can do equity on a deal-by-deal basis. So we have a number of, you know, people who have equity in individual companies in the structure

without without having the same share of equity in the whole co. Yeah. It's, I've noticed, so our, my business elements brands also structured a whole co, but we have done it all in one entity. So we just buy all the assets in and it's just one big thing. You know, there are advantages to that because I can move resources back and forth without doing intercompany accounting. The downside is I don't have the flexibility that you just described, which is really interesting, of different cap tables at each company level. And it seems like you kind of have to do one or the other or you sign up for accounting health.

If you keep separate cap tables and then have a bunch of shared services, you're like, you've got like, you know, your white color information workers with like time clocks on their desk. You know, like trying to do allocation. It's kind of miserable. Is that kind of how you thought about it? You said, we've got to do one or the other and you pick that side of the barbell? I think we knew that we would have different cap tables and different, you know, just just different structures. Like each company that we bought would be its own situation with its own shareholders, which could include the CEO or not. It could include different lenders, et cetera.

So that needs its own set of books. So I think from the beginning it was saying, hey, we're willing to sign up for that existing overhead of more tax returns, more of everything. honestly, we don't consolidate the books of the whole hold code that often because it's not even that useful. We eventually will. You know, obviously you have to consolidate on a yearly basis. So we'll eventually get that engine humming really well. But it's more important that the individual companies keep their books square. So you know what's going on. Yeah. So you kind of get to choose financing flexibility with separate cap tables and the structure you've chosen or a little bit more operational flexibility and the ability to flow human assets and

and resources in between poor coes. If you try to go down the middle, you kind of end up in messy town. Yeah, I think that's a really stute way of saying it. Because we do sometimes share humans. So we have some folks on our team, we call operating partners,

and they're more on a tour of duty than as like a long-term member of an individual team. So typically a specialist in something. And they'll go either, I think we have one, you know, We have a few of equity in multiple companies where they've worked for six or 12 months, and they've gotten the stake and then gone to the next thing.

So we even have one who started a business with us after working in one of the companies. And we finance the startup. Cool. All right. What other questions we got? Mills, you got another question for Xavier or Michael? How do you feel about the changes to QSBS? Oh.

And maybe we talked about what QSBAS is. Yeah. So in the category of pitchforks and torches at Congress, That's what we need to storm the capital on, guys, is QSBS. I mean, we just need to barricade the doors. Do you want to say what it is real fast? Yeah, sure. So QSBS, for those you don't know, is a, if you invest in a C-Corp or you found a C-Corp

and you hold the shares for five years, you individually can be at zero percent cap gains up to either $10 million or 10x your investment, whichever is greater. So if you invest $2 million in an early state Seacorp and that grows in value, you can take $20 million out cap gains free. Now, some people might say, well, is that just making the richer? And the answer is, well, sometimes yes, but what it's doing is preferentially, it's making small business and startup investment preferential to big business because we can all go buy shares of Apple and Tesla and whatever else with our incremental capital. but that doesn't necessarily help the economy grow the next Apple and Tesla. And so giving preferential treatment to startup investment is something that countries all over the world do. Many do it, frankly, much better than the U.S.

And so we're essentially sacrificing our last great startup incentive at the altar of everyone who makes over $400,000 in a year is unfathomably rich, and we should tax them as highly as humanly possible, which is where at least Congress came out on that. So the Senate, I've been telling, I've been telling everyone who listens. It's important. Yeah, go ahead. I was going to add, the QSBSs is getting, got killed in that bill that came out of the house, but big private equity guys carried interest did not get hurt. And their loophole scouts.

They're not protected. Yeah. There is one rule in any new legislation is that small business owners get it in the rear every time. And in that. Sorry, Xavier. Talk about the Senate. Yeah, so I was going to say, so this is going to the Senate, and as anybody who follows us knows, the Senate is literally 50-50.

So if only one Democratic senator, including Mark Warner, used to be a venture capitalist and benefited from QSBS, if any of them just stand up and say, this is bullshit, we should protect U.SBS, then that will not become law, and we can keep QSBS in the books. So just because eventually someone will actually know a senator, I encourage everyone to at the minimum, tweet at them and at the maximum, call your local senator and say, we actually care about this. This matters to small business and both as investors in small businesses and as owners of them. So it's my piece on that. Xavier, maybe as a way to wrap up, will you kind of tell us what your strike zone looks like?

I mean, you kind of hold assets at either end of the spectrum of the privately held universe, at least. If somebody says, hey, what type of deal should I send to you, right? Or if a broker asking you that. How do you define your strike zone? I define my strikes in as DMs are open and I will give you a very quick answer. I mean, we've done, we have done as small as 600K as big as $15 million deal size. So we're pretty omnivorous in that way. Let's see what else can I say? We are definitely actively looking. We like operational turnarounds. We don't mind those at all as long as we can see a clear path. And sometimes, so I really love anytime a venture funded company doesn't, has revenue,

but can't get any more venture capital, those, those I really love. We did one deal up council that I wrote about that you can find on my Twitter. And I would love to do more of those. What else to say about deals? We are flexible around the U.S. too. So we like to look at a lot of stuff and say, does this feel special? I guess is the best way to say it. Does it feel like a really good market,

a really good team, a business we can understand, reasonable multiple on cash flow? How do you describe what you do? Like, what's the category? Because you and I do pretty similar stuff, and I have no clue how to describe it. So how do you do it?

It's really hard at the cocktail parties, honestly. I think your Berkshire Hathaway on Acid is like the best description that I've now adopted that. as a description of what I do. I deleted it from my profile because it doesn't work. I've tried it like 10 times and people are like, what? Like, are you the Chili's guy? Like, that's what I guess reaction again?

Oh, my God. Well, you've pigeonled yourself there already, so no matter what you do. The internet did it to me. You know, so I say we buy and we grow beautiful businesses. Like, that's probably the simplest way I can say it. small and beautiful businesses usually. Sometimes I use the word small, sometimes I don't because I think business is beautiful. It doesn't have to be qualified as small.

And I think like, you know, Dolphin Pools does, well, it did 20 million in revenue before we bought it. It'll do probably 30 next year. That's not that small of a business. And so I think, you know, small is a relative term. But I think, you know, beautiful businesses generally founded and ready for ownership transition is, you know, it's a good description. I think that's a great place to end it. Xavier, that's a really, really fun discussion, man. I'm really glad you came on. What can our listeners do to support you? How can they follow you and stay up to date with what you're doing? Well, you can follow me on Twitter, which I really only became a passionate user of in the past year, but has been amazing for my life. So it's at Xavier, I'm the only Xavier Huggison on the internet, which is really helpful. So if you just, it's valuable thing. It really is. So Twitter, If you can spell my name, you can find me on the internet, certainly on LinkedIn, but I love LinkedIn. So Twitter is a better place to find me.

Let's see. Obviously, if you DM me any opportunity to talk about buying a business or recapitalizing a business, that's very exciting. We, let's see, we may be looking for a CFO for one of our portfolio companies, especially if they have background in home services. If anybody meets that criteria, we'd love to talk to you. I'm also always looking for more folks who have experience running a P&L in the corporate world, 15 or 20 years and want to go buy a business and maybe need a partner to help them find the business and finance the acquisition. I would love to talk to anybody who meets that criteria. Those are some good leads.

Thanks. That's awesome. You won the award for the most asks of any guests. You didn't even get to the one minute of beatboxing I suggested in the print meeting. I can keep going, Gurley. I'll just hijack this. It's all good, man. I don't have to pay for it.

The SMB Bash guys. This is the only free one I get. It's awesome. I mean, I think my opinion about this podcast is the more helpful the three of us can be to people in your shoes who are doing cool stuff and making cool stuff happen, the better the podcast will be. So we're happy to do it. Well, I'm grateful you guys are doing this. Do we have any other sponsor announcements? Oh, we do.

We do. We got so into cross-examining Xavier that we forgot. Yeah, so our other sponsors, a first-time sponsor, and believe it or not, it is my neighbor who got to know me by listening to this podcast. So his name's Charlie Perrin. You didn't know your neighbor before the podcast? Dude, it's a three million person city. I don't know everybody here.

I thought literally like your next-door neighbor. Oh, no, like three blocks away. I don't know. I talk on Twitter. I don't go talk to real people. I'll give me a break. So anyway, he's a cool guy. He's a former CPA that worked for other people and branched out on his own a few years ago and does fully cloud-based bookkeeping. So he's cloudbookkeeping.com. His name's Charlie. Super cool guy runs operations here all in the U.S. And if you are a small business that sucks at bookkeeping, he has tons of clients just like you. and he can help you take care of that through, you know, just a very good service from, you know, our lunch together. And again, check out them cloudbookkeeping.com and his name's Charlie.

So I'm super excited for them to be a sponsor today. Thanks, Charlie. All right. So we'll wrap there. Thanks again to Cloud Bookkeeping and S&Bash and to Xavier. Really fun one. And we'll see you guys next time. All right.

Thank you, gentlemen. Thanks, Samuel. All right.