Acquisitions Anonymous - #1 for business buying, selling and operating - Two Plumbing Companies for Sale - John Wilson of Wilson Companies - e49

Episode Date: October 28, 2021

Guest this week is John Wilson, CEO of Wilson Companies. It is a privately owned group of companies diversified in Construction, Home Service, Real Estate and Professional Services.We go deep in two plumbing home services businesses.Enjoy!Thank you to our sponsors this week: TINYACQUISITIONS.COM (buy small existing businesses for sale)Acquiring Minds Podcast (a great podcast)-----* 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]

Welcome back to another episode of Acquisitions Anonymous, the internet's number one podcast about evaluating and acquiring small businesses below $20 million of value. We have an awesome guest and two deals today. I am your host, Bill Alessandro. I'm here with my co-host, Mills Snell, and Michael Gurdley. And our guest today is John Wilson of Wilson companies. John is a serial acquire in the plumbing, HVAC, home services space. very active on Twitter, super sharp guy. So we were really happy to have him on the show today

to discuss two deals that are right over home play for him. Welcome, John. Yeah, guys, thanks for having me out. It's good to be back. Yeah, absolutely. So we'll do, we've got two sponsors today that we'd like to hear about, and then we'll do an intro from John

and dive right into the deals. So, Michael, if you could do our live reads on the sponsors, please. Oh, yeah. Okay, well, we got two sponsors today. One is actually another podcast. It is the Acquiring Minds podcast, and I love it when it's actually a listener writing the ad because they try to put jokes in.

So he wrote some stuff here. And so this is what he wanted us to share. So his name's Will. It's acquiring minds podcast. You can find it on Apple Podcasts and stuff. Listening to Mills, Bill, and me, he wrote this from my point, take apart deals every week.

You might think there is no small business worth buying. But entrepreneurs are buying small businesses all the time. And acquiring minds is a new podcast that tells their stories. It's one of the examples is a person named Casey Nykamp who acquired a 30-year-old fencing business in Ohio. Martin Bispels bought a relaunched an e-commerce brand to almost $2 million in sales, and you can see more stories and hear them like that on the Acquiring Minds podcast. So wherever your local podcasts are given away for free, you can get one.

And the second advertiser that we have for today is our first return advertiser. So it is the tiny acquisitions.com website where you can go and buy or sell a tiny business that is already started. And you can take those things and grow them. Most trade for under $5,000. And you can start cash flowing in under 24 hours at tinyacquisitions.com. And yeah, so thanks to both of our sponsors. So acquiring minds podcast and tinyacquisitions.com.

We appreciate you guys turning this podcast for my. money-losing enterprise to one that is almost breaking even. So we're very grateful. Yeah, thank you, Michael. You know, I got to say, those are some pretty relevant sponsors, right? I mean, and we got a repeat sponsor, which means that we're moving the needle. So if you want to sponsor this podcast, hit us up. It works. We got repeat customers. All right. So John Wilson, our guest today from the Wilson Companies. John, I'd love to you could just kind of take a minute or two and bring our listeners up to speed on who you are, you know, your background and what you do at Wilson companies.

Sure. I think, am I your first repeat guest on the show? I think so. Yeah, I think so. You teased it. You teased it for a long time and now you're doing it. I did. And I think I'm- You're the first one to show up at a Mr. Roger's sweater though. So just so you know. Yes, I'll put it back on for the listener. But I think the coolest part is not only am I the first repeat guest of acquisitions anonymous, but I acquired one of the one of the two deals that we talked about six months ago. So, so that's pretty cool. So if you guys want to know which, I ended up acquiring the septic company that we don't deep dove into. I don't, I have no idea what episode number it was. But yeah, we bought it. I don't feel like, I don't feel like you should use

the word septic and deep dive in the same phrase, but that's just me. No, no. Being in the industry, That is exactly how you use it. So now we need to go back and figure out whether we, again, no pun intended, whether we pooped on that deal and then how it turned out for you. I mean, it hasn't been a good one? It's been a good one. So I'll give like the brief background of me. So as you said in your intro, I buy home service companies in a really small geography in Ohio. So northeast Ohio.

So we're buying plumbing, septic, HVAC, electric companies. and we're just having a lot of fun. So this year we ended up quadrupling in total overall enterprise. It's been a really interesting journey for us, for me, as we figure out how to run a much larger company, mainly just humbling. And now we're sort of transitioning out of deal mode into this business of doing business mode, where we build out our exact team and perhaps still do a few more deals, but I don't want to quadruple again next year.

So, yeah, so that's me, and that's been the last six months. Septic business we bought in July, so we talked about that in April, I think, on the show. And it's been really good. Stunningly profitable business, really interesting cash flow issues on top of that. So once you get the money, it's stunningly profitable. And there were some issues that we identified, like going into it that we thought might be problematic, namely staffing. Staffing is always a problem in our industry.

So when somebody tells me, hey, I have a staffing problem, I just can't recruit this position. I'm like, yeah, sure. I mean, that's been us for a decade. But these guys were not messing around. Septic Drivers is the single hardest position that we've ever had to hire for.

So that's been a humbling experience finding this ridiculously niche trained person. But besides that, it's been good. So driving a septic truck, you can't be trained to do that? You need like 10 years of experience. Like I couldn't get behind the wheel and just start slinging poop all over town? No, so you need the CDLB or CDLA drivers. And you can train them. I have yet to see a single trained septic driver resume come across our desk. But we are getting a lot of CDL drivers. But the issue is with drivers, they're, They're imagining, hey, I'm going to drive from here to there, right? That's a driver job. And we're saying, yeah, you totally have to do that. And it's a route-based business. But when you get there, you have to sling poop for like 30 minutes. And it smells horrible. So it's really hard to get these drivers interested when they could just go drive a clean delivery truck or, you know, long-haul trucking or do whatever. Because that's our competition is that type of business.

for employees yeah for employees yeah yeah so it's a tough sell it's a tough sell yep um and i guess if you don't get them the poop's just filling up poop is just filling up yeah and uh we're gonna so all of our deals next year are going to be in septic so we have three or four right now that we're getting ready to sort of schedule closings on and they're all in septic so we're trying to make make a really big step into this industry but we have to solve this driver problem first. All right.

Well, I think that's a great segue to our first deal, which is also poop-related. So we're throwing it back over to Mills to introduce it. Maybe kind of poop-related. It's a cleaning and restoration business, but maybe, yeah, I think you're right. Hopefully not every time is it poop-related. Half the time. So this is the deal that John brought. It's brawlers cleaning and restoration.

They're a locally owned, family-operated cleaning, restoration and remodeling company located near downtown. Is that Massalian? Is that how do you pronounce that town? I've never heard of that. Massel, Masselan. Masselan, Ohio. They provide quality, disaster cleaning and repair, including 24-hour emergency service. They offer fire, water, wind, vandalism, and other damage repair services, as well as providing commercial and residential carpet, furniture, and air duct cleaning services. They do some home and business remodeling services. They do some home and business remodeling services for their clients too. They've been around for over 40 years. Revenue over the last few years, if you're looking on YouTube, you'll be able to see this, see what we're seeing. But

they've given some recast financials, at least on this executive summary, and then they provide more detail. But revenue in 2016 was $1.17 million, and they had gross margin of 42% and change. But the adjusted evadda was $7,000. My reason, my reason, Isn't that right? It's funny when they show it in decimal form on the millions. But, and that'd be $70,000. Yeah, I think that's $70,000. And then 2017 was $1.16 million in revenue, about $130,000 in adjusted EBITDA. 2018, they did $1.39 million in revenue, $240,000 in adjusted EBITDA. 2019, they had a nice bump. They went to $2 million in revenue and about $470,000 in a just to diva da. And then they're actually showing, this is kind of responsible, and I like,

I like when people do this, but the pro forma drops back down. So you basically have 2018 revenue of 1.3 million, 2019 revenue of 2 million. 2020 estimated revenue for when this deck was made was not just up into the right, but they reset back to kind of the 2018 level of around 1.3 million. So be curious, John, as we get into it to hear if they had some explanation for that. What does that word recast mean here? Like, I understand recasting your forecast, but they're recasting their previous years, or maybe this is an old SIM. It's adjusted.

Yeah, it's basically just adjusted. That's just an Ohio word for adjusted. Got it. Well, no, typically with recast, it's more than just the adjustments to EBITDA. Like, they may recast some of the revenue from a, a timing and recognition standpoint. Or they may be saying, you know, we had, I don't know, probably not in this case, but we had a related party, you know, that did some of the work for us and they weren't charging us. And so we need to recast the financials to make it representative

of what actually would be the case. A little bit more intensive typically than just adding back some expenses, like changing from cash to accrual or removing related party stuff, et cetera. That's typically recast. What's interesting to me about this one, if you scroll away, way, way down to get to their mix of revenue by segment. And there's, there's a lot of information here that we're, we're not really going to get completely into in this episode. But it's, let's see, it's page 29. The sales by service, so they talk about a lot of this, you know, as though it's maybe equally distributed, or at least that's where my mind goes. But cleaning is 10% of their revenue. Remodeling is 24%. Mitigation, which is probably the like, hey, my house just flood

type stuff is 21% and then reconstruction is 45%. And maybe the reconstruction is different than remodeling in the sense that it comes after mitigation. I'm guessing. But if you look at this, that's how it works. They've got, right? I mean, they've got 70% of their revenue. They're a construction business. That's the thing that really jumps out of me.

But John, steer us in the right direction. So that's basically, so we operate inside this industry in one of our. verticals. And this business came on the market, started talking to them. And what we want is more of the mitigation slice of the pie, that 21 percent. Because from a, you know, you can break this down by gross profit. So that remodeling section, their gross profit might be 20 to 25 percent. You know, remodeling, they're the GC, the actual carpenter guy. So low gross profit. Reconstruction might be a little bit better. You're getting paid by insurance. You operate off of the insurance rates. But mitigation, it's an 80% gross profit business.

It's absolutely incredible. That's the part where you go in with some water damage. You're slicing something out. You're getting it out of there. You're dropping fans. And then you just rent those fans to insurance for three to five days. So very little labor. And it's all just these $200 fans.

And then the cleaning, that's like carpet cleaning. Again, high gross profit, but low volume. Any idea about the revenue bump on this one? So the revenue bump was, and this is 2019. I don't think 2020 is in here. Yeah, it was just in the pro forma. So they did a couple interesting things for revenue bump. They had some really big projects, and I think that's why they dropped their, you know,

they expected it to drop back down. So they had some really big projects come in from insurance and remodeling. And then they launched a new division called for contents. And contents are, when you have a fire in your house, house and you have smoke damage on blankets or clothes or really anything or a flood and stuff has to come out of your home. Contents is where they process that and then store it. So it's an extremely profitable part of these businesses, very high gross profit, where it's literally just a cleaning facility. You can think of it like a dry cleaner or steam cleaner where they bring it in,

clean it, get rid of all the scents, odors, whatever. They box it up, package it, and then they sell storage to the insurance company for however long the project is going to take. So they added that in 2018. Is that furniture too? Like hard goods like everything or mostly just, you know, duvets and curtains and stuff? It's usually everything. So you see it a lot on really big claims when there's just a lot of homeowner, you know, materials.

So they have to pull that stuff out of there so they can begin reconstruction and get down to the actual, you know, whatever the base is going to be before they do the rebrandals. build. So this is, this is interesting to me. It seems to me like, as you describe it, you're renting fans to insurance. We bill insurance for storage. It seems to me, insurance here is really your customer more so than the homeowner. Is that accurate? That's how it's supposed to look. So the way ours looks is ours does maybe $700,000 a year in sales. It's a very small vertical for us, but our plumbers go out to a job. We find water damage. Our restoration company comes in we check homeowners insurance, you know, make sure it'll cover it, whatever. And then we're

basically just working for insurance. So it all gets billed and collected out of insurance, which is good because there's a preset rate. You get high rates for your equipment every day and obviously high gross profit, like I've said. The downside is payment terms are terrible. And you might get paid 60 to 90 days out from whenever you're actually completing the work. Okay. So that's where I was going. I was wondering if it was in some ways like health insurance where there's kind of an agreed upon rate for all of these services because most of these disasters are relatively standardized if your insurance company and seen a billion of them. So do you really not have much pricing power here, but it doesn't matter

because the prices are already so good? Pretty much. Yeah. But it's only good, and this is an important distinction, because this is basically why we backed out of this deal. It's only good on the mitigation side. So when you have like a serve pro or, you know, all these big folks in this industry, their whole job is to get the mitigation part. They want the water damage. They want to come in, clean up water, cut out moldy stuff and put fans and dehumidifiers. And then they want to get the hell out of there. And somebody else can deal with the rebuild because all of the pricing power is up front and the backside is very low gross profit, just general construction stuff. Because almost anyone can do it. It's not really specialized. It's not specialized and there's no,

the thing that makes the mitigation part nice is the equipment rental. So I can go buy a fan for $200 and I can rent that fan to insurance for $180 a day. Wow. It's unbelievable. Yeah. So it's just unbelievable. And it takes, you know, on a $5,000 project, which is our average ticket currently, it might only take three hours of work. So you're only dropping three hours of man labor in there. And then you're putting 20 fans and five or six dehumidifiers there for five days. And like, that's the whole business. And the reason that this business works that way is because you have to be on call, right?

These things don't only happen nine to five. So somebody calls and you can't be like, all right, let me. give me a day. I'm going to go put together a crew and we'll show up with the fans. It's like, no, we're going to be there within an hour probably. And we have to cut, you know, cut back your sheet rock and pull out the insulation and get the fans in place. And so how do you mitigate that? I'm like, I'm looking at their employee list, John. They've got 21 employees. I think this is a hard business to grow, right? In a lot of ways, because you have to add the employees before you can actually go start selling the work. Yeah. It's, it's a tough.

business for a lot of different reasons. The 24-7 thing is definitely a big part of it. We launched ours in 2020, and payment terms are tough, high gross profit, but slow pay. Employees are tough, and the 24-7's tough. And the way we handle it is very different than how any standalone company would have it, because ours is basically just an inside sales organization. So ours completely operates off of the lead flow inside our companies because we have enough plumbers and water damage claims every single day that we don't have to go solicit work from the outside, which is awesome. That's not typical. These guys, it is really tough to grow. You have to make connections with plumbing companies. You have to make connections with insurance companies,

and you have to be very responsive. So yeah, I think it's very difficult to grow. I think it's a decent growth by acquisition candidate. What I really like the most about it is just the tack on. This is a great tuck-in for, I mean, obviously for plumbing businesses. Like it works super well for us. But I've seen a construction company in our area that does rebuild, remodel, and all that stuff. They're a $10 million a year company.

And they went and bought a small franchise in order to serve up lead flow for them. So that way they could keep their guys busy with this type of work. So I think it's a really good tuck in. Stand alone, I think it's a tough business. And would you say from the serve pro side of things and some of the franchisors that have come in this space, it seems fairly saturated to me. When I see these for sale in like very, very, very small markets, you know, like serve pros change hands all the time from the franchise perspective. When I see those in a town with, you know, 20 or 30,000 people, it makes you realize like serve pro's done their job, so to speak.

And so if I was looking at one of these, I'd be wanting to figure out how have you differentiated from the folks who have kind of written the playbook, so to speak. Yeah. And I think that's where it comes into where does it fit. I don't think they're good standalone companies. And it's really how does it fit into either your portfolio or your lead generation for whatever your other activities are? Because that's the differentiator for us is the only reason we have a restoration business is because we have internal lead flow and we don't have to differentiate. We really don't sell to outside parties. John, looking through the SIM here, page 25 caught my eye. The top two customers are 40% of their business, so number one and number five on the sheet here.

In most other industries, that is a terrifying amount of customer concentration, though. That's terrifying here, too. Yeah, okay. I was like, is something weird in this industry that we just don't know about? No, that's weird. You've got 20 and 40 years of a relationship tenure here. I mean, that's crazy. Yeah, it's like car.

carpet cleaning, remodeling. I think these were property management companies that they got linked up with a few decades ago, and they do some turnover stuff for them. Again, we went into this deal expecting a remediation and mitigation company. We found a construction company. So it was a little surprising. But yeah, the customer concentration, that was not like insurance companies that would refer them all their work or brokers.

That was the end user, and it was pretty surprising. So is there a scenario in which you would do this deal? So when we were talking, we wanted to buy the mitigation division and the contents division because they had just dumped $400,000 into the content side, which was really interesting to us because it's just a huge investment that I didn't want to have to make. And they had a lot of... What's the nature of that investment, John? What do you...

I mean, is it like steam cleaners? I mean, how do you end up spending $4? $400,000 on that. Yeah, it's a buildout and it's equipment and then it's the storage facility. So you have to build out a clean room, basically, that you can detox all this stuff. It has to go through this really specific cleaning equipment, and that was like 50 grand. And then everything has to be cataloged and stored in this very specific storage system because you, you know, you're holding on to people's stuff for months. So you might have 500 customers things inside your warehouse.

So it has to be cataloged very specifically. So insurance can document it all. And then if you know, you don't want to lose it. Suddenly that blanket was a priceless Persian blanket. Yeah. So it's a laundromat with a warehouse. It's a laundromat. Yeah.

So we were really interested in the contents division. And we were really interested in the mitigation division. I have no interest in remodeling or the rebranding. for the rebuild because it's just a lot of hassle to me. But they had a ton of relationship lead generation that we didn't have, still don't have, for their mitigation work. Because the mitigation was basically what fed the rest of the company. They get, you know, 20% of their work is the actual mitt,

but then it turns into much higher dollar value jobs. The construction work and everything on the back end. The construction work. Yeah. What's interesting to me is you've sort of described this like entire, value chain of home services from like a pipe leak, so you need the plumber, so then you need the water, then you need the mitigation, then you need the construction. I'm sure there are even more steps in the value chain. So what's interesting is that a savvy investor acquire in this space,

you're trying to basically like pick the spots where the margin is. The margin isn't evenly distributed across the entire value chain and home services. So you're trying to reach in and go, well, I just want mitigation. I don't want, but then sometimes you've got to do the whole chain to get the good work, it sounds like. Yeah, I think that's more, this is a good example of it. Another good example would be HVAC. I don't think we're talking about an HVAC deal today, but HVAC service, you divide HVAC and service and install. So service is like break fix or annual maintenance. Companies lose money on that. So I lose 10 to 15 percent every day running an HVAC service division. because you're constantly competing for those $99 tuneups, right?

You just have to sort of churn it only to get to the 50% gross profit install. So it's sort of the same thing. When the thing breaks so you can sell them a new one, basically. Yeah. And I'm sure Mills has to deal with this in his business where you have to be the guy that fixes. Like everybody just wants the $200,000 replacement, but you have to be the guy that does the $1,000. dollar repair too in order to get capture the lead in order to turn into it. John, is this, as I think about just taking a step back from like the people that have been

running this business. Like, you know, I think we, we covered like in 2016, you know, they made $70,000 as owners. It seems like a lot of risk to have a job where you make less than your average second year attorney, you know? So like, is this just, is this just a tiny, somewhat mismanaged corner of the industry, or is this very much so kind of what a lot of these, you know, folks in this corner of the home services business, is this what they're

economic, is this typical for their economics, or is this an outlier of, in terms of size? I personally, I think it's typical in these type of, because if we're looking at it holistically, it's primarily a construction company. So I think that's pretty typical. The cash flow is too tight. They've probably never felt comfortable going any bigger. And the type of work they do, they can't, it's really hard to standardize remodels and rebuilds because every single job is different. So you have to have all this custom nonsense. And so you can't scale. You just can't get very big. Yeah. Well, there's a Twitter meme that comes up every once in a while where people are like, more smart people should go get into the subscale contracting business. And like, I would just go kill it in

that. And then these same people go back to their financial. or analyst or like junior attorney job. And like, I think this is a great case in point. Whenever I see that meme, I'm like, guys, like go look at the numbers. Like, it doesn't make sense at all. But it's romantic, Michael. You can be your own boss. You can be covered in shit on your own dime.

On your dime. Yeah, I think this is a great example. Everybody gets really worked. Yeah, like you just said, everyone's like, yeah, let's go buy home service companies. This is a great example of a home service company you don't want to buy. Like, this would be tough. unless you've got a really great thesis around somehow it tacks into an existing organization just beautifully. Yeah, I'm good. I wouldn't mind the lead flow for their mitigation, though.

That would be sweet. All right. Well, let's wrap this one up and move on to our second deal, which John also graciously brought in his bid to win guest of the month. So Michael, do you want to introduce this one to us? Sure. All right. So this, I love, first of all, just as a commentary, I love it when listings come through with this sort of stuff. Like, it's like 2003 PowerPoint combined with some MS paint that was put together. Just clip art. They searched confidential in Google images and dropped it right on the top here. Chef's Kiss, yeah, absolutely.

But you can pull it up on their website. Chef's Kiss. All right. So this one is a profitable Philly Sewer and Plumbing Service company dash relocatable. So we're off to a good start. That's confusing. Yeah. So, John, tell me more about this first sentence.

How does this work? Like, you're just going to pick up this whole small business and move everything, some other place? Or I guess we'll get there. I think it's like a forced relocation because they ran out of his house. So it was like, hey, relocatable. Like, you need to relocate. You don't have to go home, but you can't stay here. Yeah, that's right.

This one's off to a great start. Okay. Affordable sewer services at 4291 Paul Street, Philadelphia, Pennsylvania, 19125, and the owner, I guess, lives at 4291 Paul Street. Perfect. Okay, the business is offered for sale at $179,000 with seller financing available and a picture of a drain bill taken from the same clip art place that they also got the confidential stamp.

So we're starting off grade here. So affordable sewer services is a longstanding and fully operational outfit that has two inside crews and two outside crews that are constantly working year round all over the Delaware Valley. This company has a long term great reputation with a huge database of past and current customers and has the same phone number since 1986. By the way, I totally wish I could do a Philly accent because when the word outfit showed up, I was like, oh, I could just hear this person's voice in my head. This low overhead business is relocatable and can be operated from your home, so no lease to worry about and no rent to be paid. The seller has to move out of state, hopefully not due to legal or jurisdictional issues. So don't hesitate on this excellent opportunity. Well, we'll just lead off here with the business operations hours.

They are Monday through Friday. Saturday, they're 8 a.m. to 4 and Sunday, they are closed. Is this just a guy with a job and this is when he answers the phone? Is that basically what we've got here? I think. This is amazing. By the numbers, this business is for sale for $179,000. In 2018, they did $476,000 in revenue.

His seller's discretionary earnings was $154,000. So this business is trading for about 1.1 times earnings. And it was established in 1986 and another clip art. misshapen picture of a guy with a wrench. Cool. All right. So they just reiterated the things we talked about. They also take credit cards.

Building sector is growing through 2019. More clip art. And here's all the services they do. So they run crews and they go out and do specialized services in terms of, I guess, John, you were talking about the replacements. And then they also go do one time and recurring services on all these different things. everything from catch basins and traps to AC compressors and many more services with five ellipsies after it.

So residential commercial folks coming as customers and they are finally implementing since 1986 some referral programs and advertising and marketing initiatives. If you had a website and did some advertisement, the broker thinks you could grow your business, you could create an app to streamline business. the word app is spelled with only one P. Pretty fantastic.

I got to say, though, typically, if you pull up a SIM and it's a good business and the first bullet under growth opportunities is create a website, like at this point, I'm salivating, right? Typically, you're like, oh, my God, they don't have a website and they've gotten this far. So, fair. Two inside crews and two outside crews. John, what is the difference between an inside crew and an outside crew? So outside cruiser are the guys doing the replacements of the pipe. So if you have a, if you're, they're excavation basically. So they're replacing downspouts or they're replacing drains outside.

Got it. And then what do the inside people do? Those are the actual either plumbers or they're cleaning the drains. Oh, this is literally inside the house or outside the house, not like an inside sales team that's in the office. Yeah. Wow. Yeah. I feel, this is it. I feel very not blue collar right now for not understanding that. Look, this build, this is just that type of outfit. You have to focus on. Yeah. Okay, so this is probably important. The seller is a master plumber and responsible for managing these business operations,

work schedules for the crews. So is plumbing like this, John, a situation in which you have to have a licensed master plumber on the staff in order to be able to deliver these services? So usually not. I brought this one to the table because I think there's a lot to talk about with drains. but one of the attractions of drains versus plumbing or HVC or electrical is you don't need a license to go clean a drain. So this is a- And so let's talk about the difference.

Let's talk about the difference between plumbing and drain cleaning. So plumbing is like I need a fixture replaced or I need a new, you know, a new waterline run. Whereas cleaning drains is my thing is clogged, whatever it is, toilet or shower or whatever. And I don't know how to snake a drain or I don't know what to clean out. is or whatever. I just need you to come do this for me. Pretty much. That's basically a roto-ruder, right? It's like the franchise? Yeah, Rotor-Ruter does a lot of plumbing, but yeah, most of their stuff is drain. So you pretty much described it. So if you don't have hot water, if your toilets having problems,

if you've got a weird sink thing or a leak, that's a plumber. That's a, you've got an expert tradesman in your home. Drain cleaning is just a little bit of a lower barrier because you have to just go in and clean the drain. You have to know how to run the equipment. Basic understanding of drainage, but those are not interchangeable tradesmen. Then I think we have, if you keep scrolling, I think we have the first actual image, non-stock image, don't you think? This might be a real picture. I think he took that picture. Yeah, I think he took that. And right underneath it, it's highly confidential. So, you know, we got to watch that picture.

Everything I know about this looks legit. Okay, we're good. This business is growing, right? So it's grown over the past three years. It's gone from $342,000 of revenue to almost $500,000 worth of revenue and $150,000 of gross margin to $180. So like, I guess he's doing something right. He's doing something that something that's confusing to me is I don't see labor or payroll anywhere inside this P&L. So we've got, unless it's like tucked in to purchases, I'm not totally sure where they have the four people that he stated that he had. Well, John, what does it have got to be. What does gross margin seem like on this type of business, right? If he's doing half a million, you know, what would, it says cost of, you know, cost of services entirely purchases? And I assume that's cost of equipment. And he's got, you know, like a 40% roughly gross margin on that stuff. So that's pretty rough.

That's pretty bad. So drain cleaning, I tried to bring two high gross profit trades today. So drain cleaning is a very high gross profit trade because you don't really sell anything but labor. So you'll have guys go out and do a $250 drain cleaning, and it might take 30 minutes. You just sort of blow through it. So it's supposed to be profitable. There's very few goods or equipment sold for the most part. So it's very likely his cost of services here includes the labor if he's down to a 40% gross profit.

I would think I'm not sure what else's would be inside purchases. I didn't ask him about this one. but yeah, I would assume, and maybe other expenses baked in there, too, and they just didn't know how to lay out of, you know. But they really don't talk at anywhere on this sim. They don't talk about the team, and they don't talk about, you know, there's no payroll. There's no, this person's been with me for two years. There's no discussion of the team. So what I wonder is if maybe it is truly purchases and they're vendors, like 1099 subcontractors.

Well, if they're that, that's why they would show up. you're saying they wouldn't show up in this line or they're just makes sense that they're showing up in the cogs line it would still be cogs but i'm just surprised that they sort of mentioned the crew but nothing about about the crew besides hey they exist yeah well if there are his buddies or 1099 people they should show up appear right in in cogs because they vary yeah yeah they should they show up in cogs john kind of take us through you know if you were to buy this i mean you guys do this business right you do sewer and drain? Yeah.

I love the drain business. So tell us why you love the drain. Like, why is this a good business? How do the leads come from? Like, how do you grow a business like this? Because, I mean, I have like some drains in my yard, like some French drains. And I got clogged. And so my yard was flooding.

I paid Rotoruder. It was like $4 or $500. This guy came out here for like 30 minutes. And then he gave him the bill and my jaw hit the floor. Yeah. So I'm like, I believe you that it's a very good business. So tell us about how this business works. So the drain business, I love the drain business so much.

So the way the drain business works is, it's similar to how I described HVAC earlier, but there is this ridiculous value chain with the drain business, and you make so much money on each step. So it starts off with a clogged main drain, which is, let's just say you're, that's the drain going from your house to either your septic or your city sewer system. So you have a clogged main drain. For us to go out there, maybe it's, let's say, 200 bucks.

So we go out and we just cable it using the classic cable machines, everyone's seen them, seen pictures of them, whatever. So that's like the beginning of what can happen with that drain. And that's obviously the majority of the volume that these drain businesses will do. But what starts happening after that is if there's an issue, you can sell a camera. So that camera, it's just like a drain camera. You stick it down there. You can see everything that's going on in there. So maybe you have roots or there's a break or a belly, which is where some of the water, like the sewers caved in underneath. And so there's water sitting like this,

which is preventing velocity. But you can sell a camera. So maybe that's another $200. You can sell what's called a jet. So that that would be $500. And that's a super high pressure water that cleans it out and you can cut roots with it. So that's where that comes in or grease from either like a kitchen drain or in restaurants. So we're not even like fixing anything. And we have a few different ways that we can make extra money off of just a clogged drain. So but that's low stuff. What can start happening after that is you start finding actual broken sewers and you can start repairing them. And those are extremely profitable as well because it's hard. It's hard work. So you're you're there digging and it's dangerous because there's, you know, you're dealing with a variety of OSHA laws and you have to,

you know, submit to all of them. So those are 60% gross profit jobs where you're breaking ground. You're going in replacing pipe or you're just doing spot repairs. But, but like let's walk back through this. I get a call for your drain today. Hey, my main's backed up. We go out. That job could be a $200 job to a $10,000 job, and you do eight of those a day. So it's just lottery tickets every time you show up.

Pretty much. It's wild. I mean, it's absolutely wild. And none of them, unlike the mitigation business that we just talked about, none of them are low gross profit. The only issue is it's all equipment-based. So in order to do everything that I just said, You need a lot of equipment or you need access to that equipment by rental.

But, you know, drain machines are three grand. Cameras are 15 grand. Jetting machines are 40 grand. And excavation, a full excavation set is 100. So in order to play in this field, you have to really either you have to lease it or you have to be able to rent it from a tool place or just fork out. So you had $200,000 of Kappax to kind of address the full value chain. Pretty much.

when you start breaking ground on those big sewer repairs, at that point, are you a master plumber and licensed? Because you're actually swapping pipe. No. So you just need a sewer replacement license, typically. Depends on your municipality. So if you're listening to this and you're not in Ohio, like go check. But around here, we just need a sewer replacement license. Okay. John, we've had this thing happening here locally, which I'm sure is happening in every municipality, where the city of Columbia sends out these notices that they have contracted with a third party because, hey, we just want to remind you that you are aware and it's your liability to handle your sewer line and your water supply lines from the main to your house. And it could, you know, scary numbers,

it could cost you $15,000 if you have to replace these, but you can insure it for $4 a month. What has that phenomenon kind of impacted you guys at all? And how do you capitalize on it instead of just missing out. So I would say it hasn't affected us very much. I think if our excavation business was a larger part of what we did, it would become a real problem. Right now, we only do maybe a million and a half or two million in total excavation. But if we were trying to do 15 or 20 in our same geography, it'd become a real issue. So currently we're okay. The people that are contracting us are the folks that want to choose the contractor that works in their yard. And if you sign up for those programs, you cannot.

And having your yard torn up is, it takes one day, but it's stuck with you for 12 months. So all your hardscape has gone, your sidewalks are messed up, and you have a mound of dirt for 12 months. And, you know, companies can do that well by removing all the roots, tamping it down, and post-seating it, or they can do it. terribly because they're on an insurance plan where they just dig it up. You've got bricks and stones and roots and all this nasty stuff and they just throw it all back down. Yeah. So you guys don't court the insurance work. We do not. Yeah. Makes sense. So in this business with,

you know, we're talking about this little thing, the thesis here would be, or really anybody anywhere, is finding a small company that all they do is clean drains and then start adding more of the value chain as you go. Because you can go in a media. and go buy a hydrojetting machine or lease it. And then you can, if you do six train calls a day, which is pretty common, two of those will become a $500 hydrojet. So these trucks can start running $2,000 a day very profitably. So this one, John, was this a candidate for that?

Or were they already, you know, what was the deal with this one when you talk to the guy? Yeah, this would have been a candidate for that. Yep. Okay. Yep. So it's small, you know, 150K of SDE and 400 grand of revenue. but, you know, kind of depend. I imagine you would look at, you know, density of an age of homes in the area to figure

out if, you know, this is a target-rich environment, you know, or if you happen to live here, and then say, hey, maybe I'm going to capitalize this with another $100,000 to buy some machines, expand the value chain, launch a website, as the broker suggests, and try to get some leads, right? Some Google reviews. Yeah. And it's not rocket science, right? It's not rocket science.

It's just knowing if you're cleaning drains. You should know all of the other ways that that business can make you money. And you see a ton of these little operators that just all they do is go out and clean drains and they've never had the money to invest into that equipment to do more. So it's kind of an easy thing to do. So when I'm looking at them, we're looking at leads run. That's sort of the most important. That's the most important thing because we have the data just from our own business of doing this for years now,

where we know out of 10 leads run, what percentage of, going to turn into a repair, whether it's excavation or a spot repair. And we know what percentage we can convert to a hydrojet and what percentage we can convert to a camera. So when I'm looking at these and this guy's running 10 drains a day between two crews, I know exactly what we're able to turn that business into if we invest in equipment. So this is this is sort of like you know the winning. Like he might value or he might be realizing, you know, $100 of EBDA from every lead he runs. But you know that under your ownership, if you have all this extra equipment and you run it

your way, you're going to fully exploit the lottery tickets and get $500 per, and you just five X the business without increasing the number of customers at all. Right. So this was the thesis that we ran with when we bought that septic company. So they didn't complete the value chain. So we came in and we did. And we doubled their business overnight. And you already had it.

What kept you from buying this one? It's too small and too far. Yeah, if it was closer, I probably would have grabbed it, if nothing else, just for the phone to keep ringing. Because you know, out of X amount of leads, you can turn it into this, this, and this. Yeah. Awesome. That's very interesting. All right.

Let's wrap this one up for the day. Michael, will you please thank our sponsors again for letting us afford editing? Yes. Thank you, number one, to the acquiring minds podcast. You can find that at acquiring minds.co or on your favorite podcast app. So thanks to Will and his team for supporting us and also making fun of me. I deserve it. And then also to tinyacquisitions.com where you can go to buy a small business and start cash flowing tomorrow.

So appreciate both of our sponsors today for helping us get close to breaking even. Thank you to our sponsors. So, John, thank you for being our first repeat guest. So guests of the month for October 2021. Where can people find you on the internet? You know, take a minute or two to tell people how to connect with you and how they can help you out. I don't know that I need a ton of help unless you want to come be my associate. Actually, maybe I will talk about that.

So you can find me on Twitter at Wilson Companies. And right now, I need two associates. So what we do is we hire people and we train them up for six months into our entrepreneur were in residence program and you can either go off. You learned all the tricks of the trade. I'll invest in whatever you buy or start or whatever, or you can run one of our verticals. So we had two EIRs and we just placed them both. So now I need two new EIRs. So if you're listening, reach out to me at at Wilson Companies on Twitter. That is a hell of an opportunity for the right person. And if that doesn't flush your boat and you want to drive a truck, a septic truck,

they're also hiring for that, I understand. We are very much hiring for that. Yeah. It might pay better than an entrepreneur and residence. It pays a lot better, unfortunately. All right. Thank you, John. Well, that'll do it for another episode of Acquisitions Anonymous. Thanks for being here. Have a great day.