Acquisitions Anonymous - #1 for business buying, selling and operating - We found a $1.2 Million Cardio Drumming Business for Sale: Sound deal or just noise? Acquisitions Anonymous 309

Episode Date: June 25, 2024

Are you ready to work... out a fitness business? In this episode, we looked at DrumFIT, a $1.2 million Cardio Drumming "SaaS" business. Is this fitness trend worth your investment? Join us and our special guest, Chelsea Wood, to find outThanks to this week's sponsor:Silent Quadrant offers integrated solutions that ensure your business's digital assets are secure without compromise. Their services include real-time threat detection, continuous compromise assessments, and expert IT management to maintain seamless operations and robust protection.Visit silentquadrant.com and tell them Acquisitions Anonymous sent you!Want to buy a business for the first time?You should check Michael's Buy a Business Course. Subscribe 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]

My concern on the IP side is, I don't know that this is really protectable. I think the right price for this business is $400,000 to $500,000. If I believe in myself enough, then it's, I'll buy this for this amount, which is no more than $500,000. Maybe I let you keep equity, so you get the benefit of the returns that I'm going to grow that maybe will get you to what you're asking for to retire on. But like, there's no way I'm giving you that amount right now. Hello, everyone, and welcome back to another episode of Acquisitions Anonymous. I am one of your host, Bill Dallessandro. And this week, we are with Chelsea Wood from Acquisition Lab as a guest

deal reviewer, as well as Mills, in a brief appearance by Heather in the beginning before her internet cuts out. The deal this week was very cool. It is an online fitness platform where they teach something called cardio drumming. So sort of think like Zumba, which is, you know, has kind of content around fitness. They are trying to make this thing called cardio drumming a thing. They've got $150,000 of SDE. We talk about kind of different end market. We could sell it into, how we would grow it. Is it a SaaS business? Is it a content business?

Kind of some interesting debates. And Chelsea's a really fun addition to the crew for this episode. Also, if you like us here on Acquisitions Anonymous, you are probably interested in learning about specific industries. We have just totally relaunched our website at ACQUanon.com. We now have all 300 back episodes of Acquisitions Anonymous indexed by industry and searchable. So if you are trying to buy a deal in an industry and you want to be a deal. want to know what we think about that industry, go on our website and find your industry and you

can find all the episodes we've ever done about everything from construction to restaurants, to e-commerce, to B2B services. Anything you can think of, it's all indexed on our website. So go check it out. And without further ado, please enjoy this episode of Acquisitions Anonymous. Today's episode is brought to by Silent Quadrant. As a business owner, managing IT and cybersecurity can be overwhelming. Silent Quadrant provides comprehensive managed IT services, effective cybersecurity, and integrated managed governance. With over 30 years of excellence, they ensure your business operates securely and efficiently. Silent Quadrant merges IT management with robust cybersecurity tailored to your needs.

Most of their clients has been with them for over 26 years, a testament to their trustworthiness, and they've also received the Inc. Power Partner Award for the past two years. You can experience similar peace of mind with Silent Quadrant's trusted services. Visit upon the web at Silent Quadrant.com and tell them that Acquisitions Anonymous sent you. Silent Quadrant, Compromise Nothing. All right. welcome to Acquisition Anonymous. We have a guest with us this week.

Thank you for being here, Chelsea. Thank you for inviting me. All right. So we've got, in addition to the normal crew, this is this fun episode of Acquisitions Anonymous. We have myself and Heather and Mills, but we also have Chelsea Wood from Acquisition Lab with us here today as a guest deal reviewer. So, Chelsea, can you tell us a little bit about yourself in an Acquisition Lab just before we get started? Yeah, so I'm the co-founder of Acquisition Lab with Walker Dival, author of Biden Build. And we run an accelerator for folks buying businesses.

So we work with buyers that are highly vetted and highly qualified to buy businesses. And we basically just hold their hand, right, as they do that. We help them figure out who they are and what they need to be buying. And then we have a team of 11 advisors that support them through the transaction. Oh, so you're going to be smarter than the three of us anyway. We'll just let you talk today. I mean, any lab member will tell you, I absolutely nerd out on deals. And so when I had the opportunity to come on, I was like, yes, please.

Awesome. This is going to be fun. This will be great. This will be great. We're glad you're here. All right. So as we typically do in acquisition anonymous fashion, Chelsea has not seen this deal before the recording.

And in fairness, neither have I or Heather or Mills. So all the reactions you're getting today are fresh and unvarnished. So Mills did find a super cool deal today. that's pretty entertaining and comes with a video. So tune out on YouTube for the rest of this episode. So Mills, take it away. Tell us what you got today. This one was incredible.

We were scanning this like 30 seconds before we hit record and we're like, okay, niche SaaS marketing agency sounds good, niche B2B, you know, data platform. And then we were like, oh my gosh, this thing. And then Bill found that there's a video. So we're really excited about it. This is on Acquire.com. It's a SaaS startup located in Delaware. and it's an interactive wellness platform with 3,000 plus videos serving K through 12, seniors over 65,

and group fitness markets. The asking price is $1.2 million, which is 8.1 times profit or two times revenue. And they get right into it. They say we feel $1.2 million is a fair asking price for our track record, global brand recognition, and brand new tech investment. We have three marketing channels that have massive room for growth, education K through 12, healthy aging, senior wellness, and B to C instructor certifications. So the business over the last 12 months has had $58,000, trailing 12 month revenue.

Trailing 12 month profit is $149,000. Last month, they did $27, so that would mean their run rate is lagging a little bit, and last month's profit was $9,000. So maybe some seasonality or something like that. So it says the description on this company overview is the tool, this tool delivers engaging, easy to use video content aimed at enhancing physical activity and good mental health in two specific markets. We know education and healthy aging. They've been delivering video content to schools in the U.S. and Canada for over a decade and in the senior market since 2021. They recently invested in a new online platform to incorporate all the features.

Our customers have asked for for the last 10 plus years. They have their own app with a free trial, playlist sharing, activity trackers, filters, hierarchy accounts, full reporting. So we still don't really know what they do until we get a little bit further in. So they have an instructor certification. It seems like they're doing some community building. But the brand, which they tell us here, is drum fit. So they, I guess have three brands. K through 12 is Hey, Kanga.

Healthy aging is under DrumFit Classics, and then the instructor certifications are Drumfit Beat. Business has been around since 2014. They have between two and 20 employees or folks on the team, and we can get into a little bit more of these details and some of their tech stack and stuff like that later. But this is kind of hard to picture. And so Bill did a little bit of sleuthing because this is publicly available information. And in case you can't imagine what this is, tune into YouTube because we're pulling up a video that is going to blow your mind. So I will describe it briefly for the people who are audio only. What we basically have is a bunch of those exercise balls that are, you know, like two feet in diameter, like they're bouncing, like blue or green.

And you've got it sitting on top of a bucket. And then it is an exercise class whereby you drum on the ball. to the beat and work up a sweat. So I'm going to show this right out. So you guys got the idea. I think it's got to be upper body only, right? I mean, maybe some core, or they're running in place. So maybe a little bit of lower body.

But they're not kicking the ball, you know? This is just a giant exercise ball in a bucket and you're drumming on it. Yeah. It's the fat, I guess. I don't know. They do say on their website, the world's leading cardio drumming program, which is a niche. I will give them credit. That is a niche.

And they could very well be the largest. Yeah. Wait, wait. That video has them doing a lot more than ours. Yeah, there was some foot activity going on in that. So, I mean, I think what you've, this has been around since 2015. So I apologize for calling them a fad. I think what you've got here is, I mean, and they say it like it's good for kids.

It's good for elderly folks who are trying to keep their. mobility up. I mean, I think the drumming is as much to make it fun and interesting while you move your body. So I think this is something you would do in like a classroom setting. They're typically set up in like gyms or yoga studios. And they got people moving around. I saw some people sitting on the ball, drumming on the ball. Everybody has got two drumsticks. It seems like they made it fun. I wonder if do we think they've invented this? Do you think cardio drumming is their thing? or do you think they're kind of just the biggest one in it? I think they invented it.

I've never seen this before. And it just looks like they found some cool equipment around the gym and somebody made up a routine and then built a business out of it. That's my guess. I think that's pretty cool. Yeah, it is. So Drumfit Beat, which is they certify the business, they certify instructors to teach these classes.

They have Drumfit Classics, which I think means that they are making view. videos about this. I guess you can do at home or play in your old folks home or, you know, kind of stand in for an instructor. I mean, this is a digital business model and a certifier business model. As far as I can tell, there's no inventory. It's kind of interesting. Yeah, I don't think they sell. I think it's like, hey, you, you become an instructor or like, let's say I'm really enterprising and I go to the school district and say, you guys, I have this great thing. We need to start doing in the elementary school.

And the kids are going to love it. Here's the data. And we're going to buy a bunch of exercise balls and buckets. And I'll bring the drumsticks. Like, I don't think there's any, I don't think there's any actual, like, branded product. You know, it's not like a specific exercise product. I think they're cobbling it together is what it looks like. Yeah.

So if we, if we keep bringing the listing, it says this tool delivers each engaging easy to use content aimed at enhancing physical activity and good mental health in two markets, K through 12 and senior aging. We've been delivering video content to the schools for over a decade and to a senior market since 2021. And we recently built the new platform. It says that they sell cardio drumming equipment to those markets in addition to the SaaS platform of the video subscriptions.

We have eliminated the need for costly warehouses and 3PL and now have direct relationships with our manufacturer to drop ship directly to our. our customers and still maintain a 52% net profit margin. This opens the door for global expansion. And they say they have the certification program. All right. Let me throw it over to Chelsea here. Chelsea, what's your take on this thing?

Do you like it? So I'm intrigued by these types of businesses, just right? Like it's tied to an eternally profitable type of a space, right? Fitness. Everyone's always going to, there's always going to be people wanting to be healthy, live healthy lifestyles. We'll say that instead of dieting and stuff like that. But where my brain went, which is why I'm fascinating by this, is that it appears to be low impact.

Yes. And there's markets, right, that need low impact. And it's always a struggle trying to kind of figure out. And that's why they're niching to the senior market. But I could also see this playing in physical therapy, in rehabilitation. And so I do think that there's a business here, obviously, right? I was originally wondering if they were certifying coaches. I keep thinking of Zumba, and I'm going to date myself horribly by thinking about Zumba,

but I can't help but think about Zumba, right? Like, how long will it be around? I'm not entirely sure, right? But like Zumba, I'm pretty sure is still around. And I think I went to Zumba classes 20 years ago. So it seems to be doing fine, right? And so the fact that they're certifying was where my mind went automatically, just wondering if they were.

And so I have to wonder if, oh, go noodle, like, that's huge in our school district. Like my kids, that got us through COVID, man. And so I do actually like the business model. I have more questions, which I always have when I'm looking at a listing. But like innately, I like the deal, right? Yeah. The multiple doesn't seem bad for a SaaS product. The fact that it's actually, it has a recurring revenue model.

I like that. I like that it's more of a BSC, I mean a B2B, right? Because it's serving schools and potentially elderly community, elder communities. that's not a good word. Healthy aging. Healthy aging. That's what I call it. Yeah.

So I don't hate it, right? I don't personally love the size of it, right? Like I, but like our members that are acquiring SaaS are acquiring SaaS of the size, right? Because they can't afford to acquire a larger SaaS that's putting off the kind of money they want. So they buy a company like this and then they scale it so that they can exit at the larger SaaS multiples.

So, I mean, I like it at first glance. I have a gazillion questions on whether I'd buy it, but I like the listing. What do you guys make of this? We have never had a strong marketing department or a big enough sales team. Some of these resources will go a long way to reaching a wider customer base. They also mention a couple other things they seem to think you should do immediately. And they kind of frame it as these are very expensive things, but then they list the cost and it's not. So the two things they think you should do is invest in a learning management system integration, which would allow them to tap into the large virtual school market in the United States who need to offer an good online PE program to offer to their students.

They say that they can charge a per student seat price for these schools, and some of these schools range in size from 1,000 to 30,000. 18 states have already started statewide virtual schools. the estimated cost for this integration is only $7,000. And then the next thing is a lesson plan feature. They want to finish the lesson plan integration with their Hay Kanga app, which makes the online PE class model very appealing to Canadian European schools who do not have specialized PE teachers leading the subject. The feature is already fully developed in UIUX, U.I.U.S. Lesson plans,

learning outcomes, and progression charts, and all this is produced. The remaining app development needed for this feature has been estimated at $10,000. So what I'm sensing here is like these guys say like, look, we're bad at marketing. You'll be better at marketing. We haven't built the $17,000 worth of stuff. All you need to do is spend $17,000 and instantly you will be in all of these new markets. I feel like this is a story I've heard before. I was going to say, I feel like I've seen this before time and time again.

And what do you make of it? I mean, like, do you buy it? I think it depends, obviously, right? I'm a consultant at heart. So like it depends on the buyer. And whether or not the buyer is strong, have they done B to C sales? Like we get a lot of SaaS sales folks, right,

who have kind of built their career doing sales and SaaS. Maybe. Maybe they have connections. Maybe they sold an education SaaS. And they have a huge connection, a huge network of education folks that would buy it. That could be a good fit for them, right? I think this is obviously a business listed by the sellers, right?

And so I love sell. I'm a business owner. Like we all think that everything's, you know, super wonderful and we all want, you know, 20x for our businesses. So do I think it's as simple as they're saying? Obviously not. Like it seems like they're probably declining. They're struggling.

It sales the problem. It's a SaaS product or is there a bigger problem, right? And so somebody with some kind of SaaS knowledge is going to need to dig into this deeper to make sure that you're not buying falling knives because it is a SaaS product. And so this is why I don't know. But people that don't have SaaS background should go out and buy SaaS products and rely on other people to tell them if it's a great resource. And if it breaks, be like, what do we do now?

I think the biggest thing here, like the two things that come to mind for me are distribution and IP. Like on the distribution side, you nailed it, Chelsea. Like if somebody, if somebody has an end with somebody who already has a distribution model into, you know, early childhood P.E., this is like a slam dunk because you go, we already have, you know, the emails or the eyeballs or the subscription, you know, of this huge installed base that maybe, I don't know, is buying PE equipment or is already subscribing to some other content or something like that. And you could just, you know, plug this in and expand the

offering. My concern on the IP side is, I don't know that this is really protectable, you know, the name maybe, but you can't say it's pat, you know, patented, you know, ball on a, you know, on a, on a, a base. And so is there like a first mover advantage and protection to this? Or could somebody very easily, you know, come in and the brand is not, it's not CrossFit, right? It's not like people try and rip off CrossFit, but the name really means something because this just isn't that developed. Yeah. I mean, I worry, I would worry about, is it a fat. I mean, it is a fad. They've been saying they've been doing since 2014, but anytime you see a business like this that is declining, you do start to wonder if it's ever coming back or if people are just kind of over

cardio drumming. But I think you're right, Mills. Like, can they build a library of content that is that actually creates a moat that is valuable and protectable? And then can they also sell it in? I mean, that's the other thing about schools as a N-market. It takes forever. Like, their buying cycles can be so long if you have to go through the schools. I know there are others that sell the teachers and sometimes like a teacher can buy a thing. for $12 and have it in their per PE class tomorrow. But it doesn't seem like that's the way they're going to market. They're trying to, and I also don't know their business model when they go to school.

Are they trying to charge just for the video subscription? Are they trying to just sell them the equipment? You know, I'd be interested in sort of where this revenue really comes from. So one interesting thing I'm kind of thinking back to is when you say fad, I'm thinking like there's jump rope for heart. Do you guys remember that? Yes. And it was like, hey, let's, you know, they come in and say, we'll help you raise money, you know, and it'll be exercise kind of centric.

There was jump road for heart. There was dance marathon, I think was another one where it's just like, hey, we'll go in the gym and have like a two hour long dance thing and we'll raise money for it. There's a really big company in the southeast. I don't know how far they've grown now, but called booster or boosterathon. And they come in and they have a massive, massive sales team that, like, kind of overwhelms these schools with support and they help them raise money. But the mechanism is students go and raise money for like every lap they run, you know,

around like a set track. And it raises money for the schools versus like selling, you know, Sally Foster wrapping paper and, you know, popcorn and stuff. So just off the top of my head, I could think of three or four. And so I think this could be kind of kind of fad driven. And again, That's not bad per se if you're early and you could ride the wave. What you just raised there, though, so I'm on the board for my son's school and we struggle

really hard with funding and fundraising and doing something that's active. And one of the pushbacks on one of the fundraising companies that we chose was that they took so much of the profits, right? But they organized everything for you, but it wasn't active. It was what you kind of said, right? They run around you pay per lap and like, woo-hoo, we raise a lot of money. And so is there a way to position this differently? also is there a way they don't really talk about how they have all this content but like they're not

making that much money god love them they've been around a long time and the reason they can't grow is because they're not making very much earnings right yeah and so is there a way to take all of this IP they said they have so many videos right like it was 3,000 yeah 3,000 and like can you actually not that I want to get rid of this ass but could you compliment it by creating a content company, a YouTube channel, a subscription base. Because like, to your point, I've got an exercise ball and I got a bucket, man. Like, I could do this in my house and drum like crazy. And so, like, are there other revenue streams, right, that somebody that doesn't need a shit time, sorry, a lot of money from a business. We're not PG. See, it's hard for me to filter myself.

And, but they don't need a lot of money. Like, this could be a great business for the right buyer, right? It could be a horrible business for the wrong buyer. What do you guys? Oh, and the other thing that I keep, sorry, that I keep thinking about is I love that it's playing in the school market, because I think there are some creative things you can do there. I love that it's playing in the aging one because there's a lot that you can do there partnering with Alfs and residential facilities and coming in and doing their programming. And so we also get a lot of members that have real estate backgrounds and Alps assisted living, sorry, come from health care. This is living facilities and skilled nursing facilities have programming, right, where people will come in and do things.

And this is a low impact situation where that could work. The other place I think that they're not touching that could be really fascinating is rehab facilities. Right. So like I went through a massive rehabbing, not, you know, due to substance abuse, but I broke my back when I was a kid. And so I had to go for like three weeks and live in this residential facility where I could learn all my things again. And so like this would be a great thing to do to get people that are rehabbing back in shape because it is low impact and that could be really hard. And so do I think it's fatty possibly? Do I think it could potentially not be if they partnered with like a PT company and pitched it more as low impact rehabilitation or they pitched it with, you know, so I like the business, but I think to grow it, it starts to feel a little startupy to me.

And so you have to, when you're buying a company like that, that recognize that you're not necessarily doing the buy-then build approach, right? You're kind of buying a company to potentially do some spinoff startups and there's risk there. But if you have the right skill set, it could totally work. So when I look at this, they called it a SaaS startup. You know, we've kind of talked about it as far as SaaS, but the more I think about it, I think that misunderstands the business. I don't agree. This is a SaaS business at all. I think this is a SaaS business at all. I think this is a, a business that needs some software in order to deliver its product. This is a cardio drumming business. The entire success of this business is based on whether you can sell the concept of cardio drumming into all the places you just mentioned, Chelsea, and convince them to give you money in some way. I also suspect that if you pull, the more I think about it, you pull the curtains back on this business, you will find they have built a ton of custom software that they

never needed to build at all. Yeah, do you need your own app for this? I don't know. Yeah. And like, there are, but there are tons of learning management. I mean, if you want to launch your own course, like, there's tons of platforms you can gate access to videos. Yeah. Right? On the internet, like, I bet there is some seriously 95% good enough off-the-shelf software. I wonder how much cost and ongoing pain in the butt you could take out of this business by deep-sixing all the custom software, moving everything to becoming a customer of some other online course. Like Gumroad or something like that.

Yes. Some other online course, Podia. There's a ton of Kijiji. There's a ton of these. And more that are probably even more custom for, I bet there's one for fitness people who want to do exercise videos and sell access to those. That's what this is. So like you would find one of those.

you don't have to continually write the $17,000 checks they're talking about writing here, and then go out and freaking sell this stuff to Chelsea's point to old folks homes and rehab facilities and schools and you sell them figure out like it's a monthly subscription and we're going to sell you 30 of the ball and bucket things and like that's our pitch and this is a sales job. Like here we go. And rec centers like communities have rec centers that also offer classes. Right. And so it's like I think to your point,

everybody wants to own a SaaS company because of the SaaS valuations. And they're just trying to sell this at a SaaS multiple because realistically, you would pay 200. I would probably, what, the earnings were 150, right? Yeah, 150. So like I'm looking, I'd say on like a good day, what, 350, 150 times three. 450. Yeah.

450. Yeah. I think the right price for this business is $400,000 to $500,000. A hundred percent agreed. 100% agree. But for that, I'll pay that all day long because I have a vision for this

and I think I could pull off growing this as a human, right? So it's like they're just, it's wrongly categorized because it's listed by the owner. And honestly, I've seen brokers misclassification. I mean, nice try, right? I'm not faulting them, right? Nice try. You miss 100% of the drum beats that you don't take, right?

So I don't blame them. But yeah, I think it's misclassified to your point for sure. It's also got this thing here at the top, which just it reeks of listed by owner, but I call this the business is worth sort of what's left the balance on my mortgage. We feel $1.2 million is a fair price because of our track record, our global brand recognition, and our brand new tech investment, none of which are hard business metrics at all. Yeah. Right? Like, at all. Track record should be free cash for. So let me let me re.

Let me rewrite the sentence. We feel $1.2 million is a fair price for our demonstrated long history of no growth, our untrademarkable cardio drumming thing, and our sunk cost tech investment. But how many listings have you seen by owner that's not a 10X or more? Like literally, they're almost always a 10X. Some owners get realistic. But is that their own doing or have they had a conversation with an accountant or? or somebody that says like, hey, by the way, don't ask for 10X.

No one's going to do that. Well, I think that there's always that dynamic. You said, I mean, we all three own businesses, right? Nobody can convince me that my baby is ugly. And so, but sometimes, right, people have to go out there and get disappointed. And I've had tons of conversations with sellers where I'm like, I mean, maybe, maybe somebody will come pay that price and those terms. But more than likely, you have to go and just be perpetually disappointed that people see the

world in your business differently than you do. On Acquire.com, they usually have, and we had Andrew Gazdecki on, and I don't even know if that episode's been released yet, but we were asking him about usually at the top of these listings, Chelsea, and I don't know if you look at their deals from time to time, but they, like, we've been like, wow, they all seem really hot. And maybe those are just the ones we're attracted to, but it'll be like 76 people, you know, are like, things are getting, things are getting interesting. 76 people are interested in this. And so we're asking Andrew, like, what, I mean, is that just people who've opened the link? It's more than that. But this one doesn't have it, which makes me think, you know, has it been, is it been up for a while?

You know, are they kind of in that? We got to get used to, you know, what the market will actually pay phase. Yeah. And that's, it's the biggest deal killer, in my opinion of owner represented deals is just this massive valuation gap. And like, I get the psychology. They've been at this thing since 2014, and they need $1.2 million to retire, which it says retirement is the reason for selling. And so it has to be worth $1.2 million. So that, right? Correct. Because they've been out of a decade. But that doesn't mean that that's where the market clears. So a lot of times you just, a lot of times I don't even like with a gap like this, it's almost not even worth spending your time. They want two and a half times what you guys are saying feels like a reasonable

price. Oh, exactly. You know, they want to I think it's funny because like in this scenario, and I'm a big believer in every deal is a good deal as long as the structure's right. Like if they need to retire and I have a clear path of growth, I see this as a service business more than anything. I can grow service businesses. I have a service background. Like if I believe in myself enough, then it's I'll buy this for this amount, which is no more than 500 grand. Maybe I let you keep equity. So you get the benefit of, you know, the returns that I'm going to grow that maybe will get you to what you're asking.

for to retire on. But like, there's no way I'm giving you that amount right now. It's just, it can't happen. The math doesn't math. I tell our lab members all the time, it's math and logic guys. If it doesn't math, you have to walk away, right? The thing is tough here too is it's got 150K of TTM profit and I would bet money that's actually SDE. So that's why they can't make a $17,000 investment to their software with a learning management system. They have no money. Because they like they have just enough. And if I go to the team page here, they have a team page on their website, and, you know, they're very nice

people. But there's like four people. They are lovely. You know? Exactly. So like, there's just not a lot of oxygen here. I can't find it. But on their website, I think it's on the homepage. Yeah. So like they got a founder. They got a director of ops, director programming. They got a creative

director. They got it. And then they got some consultant. Everybody's a director. It's not a big team. They're welcome to Small Business America. You know, $150,000 SD is not a lot to go around. Like, they have to, I, what I'm, I wouldn't guess the story of this business is they fell in love with or invented cardio drumming early and have kind of evangelized it for a while. And probably sadly, over the last 10 years, have kind of fallen into that founder trap where instead of just selling, they probably have spent hundreds of thousands of. on this app and the software platform and developers and all of this stuff when really they

just need to be selling, selling, selling. And so what you end up with is after 10 years, a business with a lot of sunk cost that is smaller than the founders wish it was and it leads you to a valuation gap because they feel all the sunk cost and you don't ascribe any value to it. and all the buyer ascribe's value to is SDE and revenue. And so I just found it's very hard to get these deals done. Because you just can't get the seller to not just the ugly baby syndrome mills, but just like 10 years.

And hundreds of thousands of dollars in this, they're like, but look at this technology and you're like, I don't care. Yeah. Yeah, it doesn't matter. I think somebody who is space adjacent to this, you know, would probably be the best buyer. Like, maybe they don't have their own content, but maybe they're already, one of a business that I am always going to feel like got away. I looked at this really interesting dietitian business.

And they had, it was like 25 dietitians on staff. And they would go to the assisted living facilities and the skilled nursing care facilities. And they had to build, you know, and it wasn't like recreate the wheel every single time. But they had to build low sodium diet menus. They had to build heart-healthy meal plans and give them to the kitchen, but they had to provide the nutritional info. It was becoming like a more and more regulated thing for insurance reimbursement. And they were really emmished. I mean, really emmished into like the, you know, and now a lot of those are owned by multi-unit operators or reets.

And so if you're already in the door and you're like, hey, by the way, we're kind of doing this. We also want to offer this thing that's just a little bit adjacent. This would be a very easy. I mean, I say it's not that easy. It'd be a lot easier than me buying it. It was like, I don't know anyone in this space and I would be recreating the wheel, so to speak. And the other thing I don't love about it is that it depends on, like, we all have balls, balls and buckets, right?

And so like, I don't love the scalability of a product, a fitness product that requires product, if that makes sense, right? Like even having a content site is challenging if people have to buy a drum and a basket from you. Right. And so I don't love that. That's the nice thing about Zumba is you don't need anything to do. Exactly. Like you just start by an instructor.

Everybody shows up in the studio and here we go. We're doing Zumba. Exactly. And so I don't love like that alone. It probably turns me off of the deal because it does limit the capabilities of pivoting into anything other than selling to SNFs and Alfs and schools. I think the ones who have done that well, though, is like TRX bands, you know, but it's small. And so you can wrap it up and, like, put it in the closet or under your bed. If you, like, if you're trying to market this B to C, like, hey, you know, subscribe for $15 a month and you can do this workout at home, you got to keep the exercise ball somewhere.

You know, it's not like easily stowable. Yeah. I mean, maybe some places already have exercise balls. Yeah. maybe some of these same types of places have a fleet of 10 of these things. And then you just sell them the base. I saw on the website, like you can either put it in a bucket or there's like a circle base that you can put it in.

So maybe, but like then you're limiting your Tam. You can only sell into people who already have 10 plus exercise balls. I mean, it's, it can be a fine business, I think. It's got to be bigger. They've got to make it bigger. Maybe you could get it to half a million of SD or a million bucks of SD. in your niche, in which case if you're one person that owns it, you don't have a lot of debt on it. Like, not a bad lifestyle business.

And you're the cardio drumming guy or gal. But you got to really want to be that person. Yeah, this is not a deal I would finance it a million years. Chelsea, you talk to a ton of buyers who are looking at stuff like this. I can't, my mind goes to, you know, if you're buying a business like this, and I would guess a lot of the people that you guys work with, they're thinking about exit. Right. Like you've got to, you've got to kind of look ahead and go, okay, in three to five to seven years, who is my buyer? You know, when I'm turning the tables and becoming the seller, this to me seems like one of those that's kind of like, let's say you get to a million dollars in SD. Who is buying this? Well, the good news is it doesn't require a skilled background. Like anybody could buy it. It's hitting a ball with a stick. Right. And so I actually like that it doesn't require like a niche sort of thing. or any kind of educational background.

I like that it plays in the school space because I think like the company that we did that fundraiser with, I mean, we raised 50 grand through this fundraiser. And they kept a big portion of it. It sold. And they have a new owner. And so it's this parent in the district bought the company, right? And so I think that there's, I wouldn't worry so much about the exit if it's big enough. I don't think it's big enough any lab member to look at it, right?

Because typically they need more money than this is putting off to just to keep their lights on. And so it's not big enough. I think it would be a fun, like, oh, I don't want to say that that way. I think it would be an interesting kind of entree point into the space. I don't know. I was going to go the side hustle route, but I wouldn't recommend anyone buy it and try it to side hustle either.

I think it needs more attention than that. But I do like it. I think it's interesting. But I'm intrigued by business. Like, I would like to go see if I could make it work. because that's who I am as a human. But I certainly wouldn't finance it. We run into that a lot.

I'll have conversations with people, both lab members and not where I'm like, not every deal should be financed. You know, some deals should be seller financed because the risks inherent in the business. And some deals are okay to do all cash, right? And so, I don't know.

I don't hate the deal, to be honest. I think they did a great job with the brand. I think that I've never heard of it. I feel like they could do, you know, like they said, right? Sales and marketing, which is great. That's a big need in a lot of businesses in the space. So people with sales and marketing experience, specifically sales and building out sales teams, like you can have the luxury of being fairly industry agnostic if you could do that

because so many small businesses have never had a sales team. All right. So we think it's worth four to 500K roughly. Yeah, I think so. Something like that. Uh-huh. Yep. So interesting, but probably not 1.2 mill. Yeah. Not so much. I think even for like it like if the stars align and the perfect buyer comes along, they're not they're not paying that. The other the other just quick anecdotal story I have, I have a friend here in South Carolina who is a board certified PE teacher. He's got his master's undergrad and he's board certified and he's an elementary school PE teacher. And he started a side hustle, creating content, lesson plans and. So, selling them on a subscription to other PE teachers. And it's an amazing business. Like,

it allowed his wife, you know, to not have to work and all these kind of things. And even like, even that, right, he, he would be a perfect buyer for something like this because he's already got a, you know, a whole network of hundreds of elementary school PE teachers who could just immediately plug this in. But like, even, even that kind of scenario, I don't think you pay up. Because it's like, we talk about this a lot. You want me to pay for the opportunity cost that I'm bringing, not the opportunity costs that currently exist within the ecosystem of your business. Well, and all we saw was trillion 12 months. Like, if we look at the financials and there's not historical performance, then it's

even lower than what we said. Right? If they're selling at a high point, like a lot of business owners do, it's not even worth what we said. Yeah. Yeah. Good point. Now, with that buyer as the perfect buyer, I would maybe support financing it if he has

a clear plan, maybe, but not at the asking for that they're asking. Yeah. All right. Well, I think we've kind of figured out where we land on this one. Yeah, I think so. Yeah, we beat that drum in. Yeah, we beat the exercise ball plenty on this. So with that, if you guys enjoyed this episode and are interested in buying a business, please check out Chelsea and Acquisition Lab.

Chelsea, how can people find you guys on the internet? Go to AcquisitionLab.com and explore. If you're interested in applying, click apply. Fill out an application and jump on a call with us. Awesome. We've known Chelsea for a little while in Acquisition Lab and Walker, her co-founder, and they really do good work and they have done it themselves, not just gurus telling you how to do something they haven't done,

but they have bought, acquired, and exited businesses themselves and literally written the book on it. Yeah, literally. Walker's book, Buy and Bill, is a great read. So if you enjoyed this episode, of course, find Chelsea in Acquisition Lab. You can also find us online at our new website, ACQ, ACQU, Anon.com. The new thing is that all of our episodes are indexed by industry, and there's a search. So you can go search over 300 episodes of Acquisitions Anonymous

on our website for the industry that you are interested in, and hear our takes on your industry. This is something listeners have been asking for for a really long time. and Gustavo and crew just launched it earlier this week. So go check it out. It's amazing. A-C-Q-U-Nan.com, and then you can go to the episodes library out there. Thanks for listening, and we'll see you next time.