Heads In Beds Show - Here's What To Look For When Selling Your Vacation Rental Business

Starting point is 00:00:00 Welcome to the Heads of Med Show presented by Build Up Bookings. We teach you how to get more vacation rental properties, earn more revenue per property, master marketing, and increase your occupancy. Take your vacation rental marketing game to the next level by listening in. I'm your co-host Conrad. And I'm your co-host Paul. And the red light is blinking. We are alive. Paul Manzi. What's cooking? What's happening? Oh, you know, it's just another day here. We are just, we've gotten through our golf conversations here the last couple of days.

Starting point is 00:00:38 We've gotten through our vacation rental industry specific conversation. It's, it's been a good time. You know, we've had some good conversation. Now, I guess we've got to talk to everybody else. So I guess we've got to go through the learning part of the podcast and actually try to give people something of note or something that they'll at least come back to listen to. How are you doing, sir? Well, not so great.

Starting point is 00:00:58 as you know, before we hit the record button. Yeah, like, I don't know. There's days, you know, I think it's a common thing online that people will ask that or, you know, how everyone's wants to say their business is crushing it, everything going smoothly and amazing and we're growing and we're hiring and all the stuff. Nah, I just got like a big left hook yesterday.

Starting point is 00:01:13 I got a big right hook to the other eyeball today. And you know what? That's how it goes sometimes. And it's okay. I can still have a smile on a face, even if I feel that way. And, you know, all you can do. I've been dealt many a bad hand in my poker,

Starting point is 00:01:24 aka running a small business career. And I folded them and turned them into something better or the next stand. So that's kind of my mindset right now. So no, it is all good. I do think perspective is important on a serious note, though. So even when quote unquote, I feel like things are going bad or something bad happened, I have to deal with it, I have to react to it. It's like, I don't know, I'll have a moment where I'm just like, I don't know, like I got up here and walked out in the sunshine. Like when I'm 90, I would kill for that. You know, so I think just like perspective sometimes is important. And I like to think that when I'm having one

Starting point is 00:01:49 of those days, I can just kind of like circle it back to like what actually matters. And it's not an angry client, you know, or something like that. It's the actual like outcome we have in our life. We were getting really philosophical year to start the podcast today, but it's all good. So I'll be good. I'll be fine. But some of these days, it's just, it's just not your day. And I've had a week, probably this week. It wasn't my week.

Starting point is 00:02:08 And that's okay. Next week will be a little bit better. That's right. That's right. It's a coin flip. It's a 50-50. I had to do the side tail for just a second. I was doing the old coin flips with my boys.

Starting point is 00:02:18 And for a while, they hadn't one head, not one. And one had one all three or four. So we did the 20 flips or 25 flips and ended up pretty much 50-50. And I think it is. I think that's something that anything we talk about, you know, there's going to be some bad, there's going to be some good. I think that's the glass-half-full thing as well. And I think we're both pretty glass-half-full here.

Starting point is 00:02:38 But there's times when it's empty. Glass is empty here. So it's okay. You know what's interesting, though? The best day, I think, for a lot of our clients is a tough one for me. I've had this happen probably a dozen times in my career. And it's when a client sends me the email and they go, hey, some bad news. We sold their business.

Starting point is 00:02:56 Bad news for me, great news for them. because what happens when they sell their business, and again, I think this has happened about 12 or 13 times in my career is that they probably just got an amazing payday. And gosh, some clients really deserve it. You know,

Starting point is 00:03:05 I talked to some people over the years who've sold their business and have gotten a fat seven figure check, often from Vacasa, although it's not happening as much anymore. And I suspect it won't happen. You know, they're not in that mode that they were back in 21, two and three kind of that mode,

Starting point is 00:03:17 you know, where they just got a fat check. They can write off in the sunset and I'm super happy for them. But obviously, it often spells the end of our relationship. Certainly when we had clients in her space that sold to Vacasa,

Starting point is 00:03:26 it certainly would end the spell of our relationship because that brand was often going away and it was getting folded into it also. But in other situations, maybe they were merging with another company, that company had their own marketing stuff. Every once in a while I get a meeting out of it, you know, that has turned in some good relationship. So it's not been all bad.

Starting point is 00:03:38 But if I'm being honest, 80% of the time when a company is selling, it's probably bad news for me. So when a client says it to me, it's usually like, all right, there's your, there's a good news. Thank you. Appreciate everything you've done for me. I wouldn't have sold the company, you know, maybe for us much if you were helping on the marketing side.

Starting point is 00:03:53 And we're canceling your contract. We're going to pay you one more month for your cancellation clause. good night. We'll stay in touch. That's what the thing. So, but anyways, in that situation, what I think is interesting, I find is like what actually makes a, what actually makes those transactions go well? What makes those transactions go poorly? And I've seen it all over the years. I've seen client get very close to selling, get all the way to the finish line. And then at somewhere the last minute, change the terms of the deal, try to, you know, say, oh, this count is not valid. I'm not counting this revenue and, you know, change the whole deal, kill it. And then they

Starting point is 00:04:22 had to go back to it. So I'm always on the lookout for this because I find this piece of it, you know, fascinating. And this idea in our space of all these mergers and acquisitions, a lot of went poorly. And so it was interesting to see this from the other perspective. So just for reference here, we put this outline together based on a list from Xavier Helgeson. I think I'm saying that correctly. He is the managing director at Enduring Ventures and his rules, like his top 15 rules or I forget exactly what the number is here, 28 rules. Excuse me. I was going to say yes. Yeah, 28 rules. Yeah. We shared on Twitter and I thought it was a fascinating look at like, you know, what someone who buys companies basically for a living thinks about and how we can pivot that back

Starting point is 00:04:55 into the vacation industry. So again, there's 28 rules. Some of these are very just quick, like one-line examples, but we thought we'd take a stab at it today of companies that we've seen acquire and it go well and they scale and continue to better, ones that have been acquired and it's gone very poorly and it's gone the wrong way. And then, yeah, who got a good deal? You know, like you would hope that, and I always hope this in our relationships, it's a win-win. I'm getting something out of it. You're getting something out of it. And we actually both benefited from this deal. And I think that's what we all want in a merger and acquisition world. I don't know if that always happens. But these are some interesting perspectives from the

Starting point is 00:05:24 perspective of the buyer of what that might look like. So, Paul, you can lead us off and let's go through as many as we can as much of time allows here and talk about these rules from Xavier. Yeah, yeah, yeah. So, I mean, I think, you know, looking at, I'm going to skip rule one, because I like real two, but only it is. Pick your favorite. Only buy from people who have demonstrated values of honesty, integrity throughout the process. Really, I think this is pretty straightforward. But that's not always easy to identify as well. I think, you know, anecdotally, you can say, oh, yeah, well, I've, you know, talked with a lot of people who have worked with this person. They seem to be in good shape there.

Starting point is 00:05:59 You know, we kind of have an advantage in the vacation rental space where you can. You can kind of go look at guest reviews. You can go look at glass door. Now you can do glass door everywhere and you can do some things like that. But, you know, we can kind of check on property owner retention rates and some things like that that really are going to be core to the business. If you are going to have a successful business and you are going to have successful owner relationships on the vacation rental side, those are going to go hand in hand. I think obviously there's a lot more to success in our space.

Starting point is 00:06:28 But at a very basic grassroots level, I think that's what it comes down to. And again, we saw it at the inventory bringing those new owners on and kind of establishing that right after that. So as you are getting to that exit point, hopefully you've been nurturing those relationships along. And again, you're working with talking to probably some vendors. you know, some agencies, some software providers. You're talking to some people who have worked with these business owners consistently throughout.

Starting point is 00:06:59 And hopefully you are getting a good evaluation. And that's something that if you're, I think this, what doesn't happen, if you're not following that rule is you get sold a bill of goods. You're not doing your due diligence. You're not ultimately able to find success because there were a lot of black holes that weren't financial, that weren't red and green, per se, but they just, those are the things that over time, that trust is eroded. And no matter how good a company you are coming in to buy this other company, you can't

Starting point is 00:07:34 overcome that. So I think that's the, I mean, honesty and integrity, we're big on that. You know, we've worked with a lot of great companies and we've worked with some that are not so great along the lines. And I think that that's as much as you can. you want to work with those companies, but if you're going to buy a company and take over for somebody, you certainly want to take over for someone that is thought of well within the industry, within all of the different parts of the business there. But what do you think

Starting point is 00:08:02 about? I mean, this might be a quick little rabbit fire, but what do you think about that? I mean, I think, again, that's number one for me, but what are you, what are your thoughts there? Yeah, no, I agree. So I'll track track over the one that you skipped and just nod my head on that one. Because this is me. So number one, owner operated businesses are super efficient. because the owner does six jobs, you're going to have to spend a lot more money to professionalize the business. So it's something that I'm trying to work away from. Certainly, in one point, I was doing six jobs. Maybe now I'm doing like four. So I'm making some progress. But, you know, it certainly is the case that, you know, as I built, build up,

Starting point is 00:08:31 like there's been a lot of time periods where I was doing everything. I mean, there's a period. I brought someone on a little while ago to help with like all the accounting and invoicing and sort of the payment side of things, which is not really my favorite thing to do. And I kid you not, there'd be clients where I was working with them for two months. They're like, I never got an invoice from you. And I'm like, oh, yeah, I forgot to send the invoice. So sometimes the owner is doing six jobs, but in my case in the past, I've done six jobs, maybe two or three of them very poorly, and then hopefully I've done the four or five that are really hiring me for quite well. So, you know, that's a good thing, I guess, in a way. But

Starting point is 00:08:57 yeah, that that's one that really speaks to me. I will touch on yours very quickly, though, before we go to the next one here, which is that, like, if you don't have someone honest, I kind of feel that this may very strange comparison, but it's like, I find this same with, um, anyone who's, like, dishonest with about small details is usually dishonest about big details. Anyone who's like unfaithful in their relationship, I find that to be like a red flag of like, okay, I'm not married to you, you know, if I'm dealing with someone in business, but it's like if you're willing to just break the trust of that person, imagine how you break the trust of me and we're just, you know, whatever, doing marketing

Starting point is 00:09:25 together. You know, there could be a lot of things that go on there. So, yeah, I couldn't be a bigger fan of number two there. And what a hard thing to come back from when someone has proven that they are willing to cover things up, lie, be dishonest, you know, that sort thing. Now, does that mean you tell them everything? That's where maybe there's more of a gray area. That's a Dan Kennedy thing that he talks about at length, which is like 5% of people are so honest they can't help themselves. Five percent of people are so dishonest, they can't help themselves, you know, cheat, lie and steal about everything. And then the rest of the 90% of us are always in the middle. There's always, you know, where our ethics are somewhat fungible

Starting point is 00:09:53 depending on exactly the situation. You know, do you only ever go 45 or sometimes do you go 55 in the 45? You know, it's like there's some people who would never do that. Other people feel like that's a completely reasonable way to break the law, right? So it's all relative. But I certainly wouldn't steal a pack of gum from the grocery store. You know what I mean? Like, so it's all one of those things on that way. But yeah, I don't know much about number three. I won't really speak to it, but just for the benefit of the reader here, number three, stock purchases should be at least 25% cheaper than asset purchases. You can't write off the acquisition price, plus you assume historical liability.

Starting point is 00:10:20 So I just don't think that's something very common in our space. But in theory, I have heard of things like that in our space where every once in a while, you hear about up someone who, oh, I got X dollars up front, and then I also own 20% of this new entity or something like that. I don't know if you have any knowledge there, but that's one that I personally don't have a lot of experience with. No, I think we're good there. I mean, I'll blow through rule four here just the same, just because, again, this is not

Starting point is 00:10:41 I am not Jacobiola. I am not any of the people who are doing the experts. Talk to the experts if you're actually trying to do this, by the way. But adjusted EBDA does not equal EBTA does not equal cash flow. Look for cash flow. I mean, I think we see that very much so because of the seasonality in our space. And I think that's something that if you're in a San Diego where you've got 365 days of travel, awesome. The reality is that is not the case for let's say 80% of our markets. So when people, season right here is generating 67% of your annual revenue then you're going to have to figure out where what that working capital fluctuation is and how much you need to kind of spread that out throughout a 12 month cycle because obviously that's not how you know business isn't going to work in three four months cycles really you have to keep it running over that whole 12 months there so that's kind of the look for cash flow no don't be worried about the ebita and that and ebita is a big topic in our space when we do talk about mergers and acquisitions So cash flow is kind of still king in gold.

Starting point is 00:11:44 If content is king, cash flow is king, we'll say. Yeah, well, I think I've told this story very quickly before on the, on the show about the scorecard that I do, like the EOS style scorecard, I do for buildup, and the first item on that scorecard is the date. The second item, that scorecard is cash in the bank. So I have two accounts. One's like kind of a backup account, you know, it's almost like the emergency rainy day fund, and then I have the main operating account. And I take those two numbers, sum I'm up, and that's my number. How much cash do I have in there? Because whatever is billed or whatever's been sent out or whatever,

Starting point is 00:12:11 I've said I'm going to collect is all great. It's all good theory. But when the money actually clears and hits the bank account, that's when it really matters. So when you think of a vacational business too, cash flow, think about like how long if they get a lot of Airbnb bookings, they get bookings on their calendars that they don't have the money for. You know, they're going to get that money later. It's like that's another reason why, you know, direct booking is so powerful on the cash side of things. If you think about the business structure is that you're actually holding that money, probably in a trust account or something like that, but you actually have the money, you know, and then it's, you're in more control

Starting point is 00:12:38 of everything in the business because of that. So I can agree more. number five and six feel similar to me, so I'll group them together just in the interest of time. Number five is look for rich owners. So that's number five in the list here from Xavier. And then number six is look for businesses that have survived multiple economic cycles. I think those things are related. Because if you're an owner that has been doing this for a long time, let's say you own your vacational company for 10 years, 15 years, that sort of thing. And you've survived kind of some up and downs, the most recent one, obviously being this kind of COVID boom and, I'll say bust, but like we'll call it slowdown that's occurred kind of this post,

Starting point is 00:13:05 COVID environment that we're in right now. Any vacational company that's doing well today, probably was doing really well two years ago, I would imagine. And it's probably going to be doing really well two years from now, right? Because they've got their business set up in a way that's producing cash flow back to the fourth point, right? It's, you know, performing well, happy guests, happy owners. Those are all what we're after. And then rich owner, yeah, why not, right? Like someone desperate for money is one thing.

Starting point is 00:13:25 And I think an owner that's able to pay him or herself a great salary or make a lot of money from the business. And the team is happy, I think is like the utopia of any small business, right? Like we want to be, if we're running it, we're dealing with all the headache, all the risk, all the pain. Like, we certainly hope that there's compensation attached to that. and it's not just a payday at the end, but it's, you know, revenue that we can generate and drive out of the business on a regular basis. And then, you have people that are happy working for you as well. That's great. I've certainly been in a situation where, you know, working for different people in the past where they were making a lot of money. They were paying

Starting point is 00:13:51 the staff very little money. And there was this like, you know, attention that occurred, I think, in that. So I think what you want to do is, you know, have that set up in your business where people like working for you. But yeah, it also generates a lot of revenue for you. Otherwise, what's the point when wonders, may as well, may as well just go work for somebody else in my perspective. So yeah, that's kind of my my thoughts in five and six, but anything to add in there before you. Yeah. I mean, I think and six is tricky. The kind of the look for the businesses who have to survive multiple economic cycles because we have a lot of businesses in the space that kind of came up after a pretty big economic cycle and really haven't seen the big cycle. I haven't

Starting point is 00:14:26 seen a true cycle since then, a true two year cycle, three year cycle, something like that. And I think that's a minimum at which you can really measure because there is a so much fluctuation and especially post-COVID, we see just a lot. So, I mean, again, if you have a two or three-year-old company that hasn't been through a financial crisis, I hear quotes there, pandemic, anything like that, it's tough to say, does it have the resilience to last long term? And again, a lot of these quick growth companies in the vacation rental space have taken, you know, zero to 50 in a year and a half or zero to 100 in two and a half years, something like

Starting point is 00:15:03 that. Okay. Are those really viable companies that you want to be exploring or is that just a flash in the pan type of thing? So I think that that's more difficult in today's vacation rental space just because, again, maybe pre-COVID, you did have much more or many more companies that were five to 10 years of experience and or been, they had been around that long, that much longevity. Now that is not as much the case here. So I think that's something that's, that's something that we have to consider in our space, certainly. Rule 7, we've talked about this very, very frequently. Make sure you are not in a commodity business, avoid businesses with no pricing power or differentiation.

Starting point is 00:15:44 What else is there to say? You need to be able to differentiate it. Yeah. You have no pricing power to be able to say, okay, I'm going to charge $500 for this two-bedroom condo, one-bedroom condo when all of the other properties are renting for $150. Can't do anything about that. You really do. you need to make sure that you are unique.

Starting point is 00:16:04 And that is so much more important, I think now as people are looking for more unique, I mean, that's, that's, they're looking for vacation rentals still, but now they're looking for unique vacation rentals. And I do think that in that commodity business, your hands are tied. You don't have the ability outside of putting more capital into your investment. That's really the only way you're going to take it away from a commodity business there. Absolutely. You yourself want to not be commodity in the sense of the service.

Starting point is 00:16:31 you offer and what you do for your customers, for your clients, both on the guest side and the homeowner side, and you want to make sure that the properties that you're managing are not commodities either. If you have both, all three of those things nailed down, you have unique properties, you deliver a really good experience for the guest and you deliver what the homeowner wants as well, then yeah, you're absolutely in great shape. And any of those weaknesses are very evident as you go along there. All right, I'll take the next one then. Number eight, everything is negotiable. We've done 90% seller financing three times. Maybe that's more advice for the property manager. Interesting. I personally would never be interested if someone was like,

Starting point is 00:17:00 hey, I want to buy your company, and it'll give you 10% of the money that I might have a give you. That would have a really hard time with that. Unless that 90% was coming very soon after and I really trusted that person. Like, you know, they're paying me 30% three months from now, not 30% three months from now and then something like that, maybe. But gosh, I would be very hesitant with that unless I really believe that they could deliver. But that being said, you know, I think that everything is negotiable is an interesting way to get a deal done.

Starting point is 00:17:21 If you are trying to sell your company and maybe the person that you want to sell it to, doesn't have all the money. Maybe you can get creative and you can say, you know what? I want to sell to my local competitor in town who I have a lot of respect for, who I think will take care of my homeowners, care of my guests and I have, you know, respect for that person. Maybe that's a cool thing where you say, hey, what if you paid me, again, 20% now and then you paid me, you know, $4,000 a month for the next five years or whatever that math does

Starting point is 00:17:39 work out. Maybe there's someone that wants to do that in the business. So I can't speak to that as far as, like, being in that seat of, like, having someone in my, you know, inbox ready to actually wire something over, then they want to wire up for very little. But interesting note, I guess when you're selling your business, maybe there's very creative ways to do it. And you might widen your pool a little bit of people that can buy your business if you're

Starting point is 00:17:56 willing to do a little bit more creative on the financing side. I think that makes that makes sense again I'm also not I have not been a part of those deals so I don't know how much is negotiable and I don't know whether you do want to make everything negotiable but yeah again for every for every buyer for every seller there's going to be a different number and a different negotiation threshold that they'll be happy with there so um rule nine everybody wants to raise after you take over budget for increased compensation costs this is I think especially when it's a bigger company that's coming in and I think we've definitely seen this in the on the vendor side of things with VC coming in and and I think that's that's kind of the standard is that oh a whole bunch of money a whole bunch of capital is coming into the business that means it's coming for us right well hopefully maybe that's the case and I think the companies that are truly coming in acquiring and looking to grow the business further that is going to be one of the things you're going to do you want to take care of the people you want to maintain you want to do these things if it is just a straight we're going to flip it play

Starting point is 00:19:03 who knows but yeah i i think that this is something we certainly i i didn't get to see it firsthand but i saw the exodus at some companies that that were expecting this and didn't get it and and you know there were some people that have been waiting for a long time for that you know, for that budget increase or their increase in how much they're being compensated. So, I mean, I think it does speak to a little bit what we talked about before with, you know, you want the rich owner, but you want a team that has been taken care of as well there. And it is if they have been taken care of, I think rule nine is less important. I think everybody's still going to want to evaluate it a little bit.

Starting point is 00:19:47 It's a new face. It's a new name. You want to test and see what you can do. You know, we're all, we're capitalists at heart here. We want to make more money. So I think it's not, that's not to say you have to increase your, your compensation costs, but I think you should evaluate it as part of the whole situation there, we'll say.

Starting point is 00:20:06 So if I made one piece of advice, I think that people miss that I've had to learn this the hard way myself too is understand what leverage you do and don't have. So if you're going in and saying, I want to race because I've been here for two years and I've had this happen to my own company, you know, then my logic would go, if I'm being just completely the bump with people, it's like how easy are you to replace, right? If you're very easy to replace, then your ability to drive extra compensation for yourself

Starting point is 00:20:26 is going to be pretty minimal. Maybe someone will, hey, it'd be a pain for us to retrain someone in your role. I'm sure I'll give you a five or, you know, six percent raises like a token, thank you.

Starting point is 00:20:34 But if you actually want a real raise when, you know, if someone were to buy your business or, you know, purchase a business that you're involved in and you want to stay on, you actually have to figure out what your leverage actually is and, you know, go from there.

Starting point is 00:20:44 And I think you, the words should come out of, what happens if XYZ person left, the next word's coming out of the person's mouth would be like, oh, we're screwed. Then you're in a great position to ask for race. If they go, ah, we find another one. If another person do that role, then you're probably not in the best position. So that'd be my advice, people on that side of things.

Starting point is 00:20:58 And yeah, I get why that might be something that people would do. And I've seen that happen. Again, I've seen companies that have been purchased. And in some case, it's been a good thing. I recall a company that I worked with a while ago sold to Vacasa. And their team was thrilled because they actually got benefits. And this property manager before wasn't even the many benefits at all. Then all of a sudden, they, Vakasa agreed to the same compensation they were getting.

Starting point is 00:21:16 Plus, they got all these benefits. they weren't getting before, and the team was actually super excited about it. So obviously, every small business is going to run a little bit differently. You know, I know in some of their situations, you know, there was another company I worked with that sold to another at large, you know, conglomerate, if you will. And all their vacation time got reset between the old payroll system, the new payroll system. And they weren't anticipating giving them back the vacation time that they had owed. And there was someone who was like getting married and like, but, you know, banked up like a

Starting point is 00:21:39 week and a half of vacation time, two weeks of vacation time. They told him or heard that they couldn't take that vacation time, you know, in their new policy. And yeah, that person left the company because they were. we're so burned by that situation. So really messy, you know, it can be really messy, but there's something there, I think, to understanding what's what's underneath the surface so you can really deliver, do a good job, you know. Number 10, make sure management only gets paid bonuses when they distribute cash flow to owners. I think that's a good one. You know, it kind of harkens back a little bit to number five, looking for rich owners and, you know,

Starting point is 00:22:06 number four, look for cash flow, right? If the business is doing well, then why not share that, you know, additional revenue, additional cash flow profit with management or with leadership? I like that idea a lot. And it's something that we do, you know, and earn business at the end of the year, I take a cash pile that's that's in that operating account. I take a portion of it split it up based on seniority and send everybody out, you know, a nice Christmas bonus type thing. And I think that, you know, build some goodwill in my own company. I think that's something that you want to do. But yeah, we had a year where we didn't do it, 2020, you know, because that was the year that everything went sideways for us in terms of demand and losing

Starting point is 00:22:34 revenue and we didn't lay anybody off. But it also meant that at the end of the year, that account was looking pretty slim and that we couldn't make it happen. And then we've done it every year since. So, yeah, I think, you know, I've been in that shoe, those shoes before and I kind of understand how that can be. But yeah, when you can say we had a good year, and here's your portion of me helping make this such a great year. I think that's a really good feeling. But maybe different businesses might do that differently, quarterly or monthly. Maybe it's a smaller amount, whatever the case may be.

Starting point is 00:22:56 But I like that one for sure. Yeah, I think the key in that is it's aligning your incentives. I mean, it's making sure that, like, you don't have someone who is getting incentivized heavily for not doing. I mean, just because they are, just because. Like, that's not the reason for incentive, for someone to be incentivized because they have this name because they are this. the role that's that's not it so I think that's something where hopefully I'm from the outside looking in you are going to be able to understand what that is understand the you know what that person is generating it from a cash flow perspective what kind of satisfaction they're helping

Starting point is 00:23:34 to drive for the business so as long as those aren't aligned yeah I think you're probably in good shape to be looking at buying that business there you know going to the structural side of things of the structure of the deal pay for a really good but very efficient lawyer essential for a proper deal structure yeah i i mean this is one of those things where i i don't want to pay anybody that charges hundreds of maybe thousands of dollars an hour to be sitting and sitting at and looking at contracts for hours and hours hours out of time yeah i want i want the best but time is a factor when we're talking about things like that especially on the legal side of things that is something again i i haven't had to deal with that but i am sure that you

Starting point is 00:24:15 want someone who is good, but reasonably quick on the legal side of things. So I don't know if you run into that at all. I think I've told the story in the podcast before about lawyers. I had to do with a non-compete agreement many years ago when I was starting buildup nine years ago. And I had to talk to a business lawyer and give some advice, you know, about what, what it was allowed, what was not allowed, and so and so forth. $600 an hour, one of the best of the North Carolina, according to his LinkedIn profile and his legal website. And you wanted to chitchat at the beginning of the call. And I was like, my dude, I cannot afford this anyways. We're not chit-chat at the beginning I just dive right in.

Starting point is 00:24:46 So I paid for a really good lawyer before who gave me a lot of peace of mind and really did educate me. So that's $600 an hour as high as that was. And the fact that it was paying, it was $600 more an hour than I was paying myself at the moment of time, obviously, when I hired that person. It was great to actually get that confidence and feedback of like this someone who really knows what they're talking about. They looked at my case. They studied it. They understood it. And again, that information was quite solid.

Starting point is 00:25:04 So, yeah, I'm with you on that. I haven't felt the need to have a lawyer since as far as like on retain or anything like that in my business. But maybe that's something that down the road. Maybe that's a bit of a good problem to have, you know, to have that kind of thing. All right, we'll skip. I can skip over maybe the next to you relatively quickly. There's one I really want to get to. So maybe I'll skip around a little bit here to try to get to them. So number 12 is kind of similar number 11. Pay for quality of earnings on small deals. I think that's kind of like an audit of some kind, like a financial audit of some kind.

Starting point is 00:25:27 So trust but verify, I think we can all agree on that. You know, people say what they're going to do and we hope that that's all legitimate, but go back through and double check everything they say that's accurate. Actually is accurate. It seems like a really good idea. This is an interesting one. The best way to find a CEO for the business is to ask the seller who was asked about buying in the past. So kind of like networking out and saying like, hey, we might want to find, you know, when the owner leaves that business, you know,

Starting point is 00:25:47 I've seen this happen where a client was purchased and then that owner eventually up the business. They had to put a new person in charge. What they did was actually promote from within, but from a different area, which I thought was interesting. So it took the GM, the director of another area. His kind of number two in command got bumped up to like the director of that area. Then he moved over from, I think he was in Virginia at the time, down in North Carolina to be the CEO of that business. And it worked very well, but that could be another creative way of doing it. Any experience on that one, when you see companies kind of change hands and it not beat of a custom model, but just like that model of

Starting point is 00:26:14 a new CEO coming from, you know, existing network connections, basically, as opposed to starting a search from a new and experience there. I mean, I think that the times that I've seen, I've seen it come from out of sector. And I've seen it come from in sector. Out of sector, there was some disruption. Again, that was not CEO. That was still C-suite. But I think that's the thing is that you have to consider what the end goal is in finding that

Starting point is 00:26:42 leadership? Are you trying to, you know, upset the apple card? Are you trying to kind of keep things aligned? Where are you going with that? I do. I think the benefit in our space, we have a lot of people who have various experience at different companies. So it is. I think you have to align that leadership personality with the goals that you're looking to accomplish. And it is. If you're looking to kind of revamp the business, maybe not side is where you should be looking. And is that something that the other thing, you know, the other note on this leverage existing relationships, that's something we are really good at.

Starting point is 00:27:21 And I think as a space, maybe we are, I've said it many times, we're maybe a little too incestuous. But that also does allow us to really dive down deep and feel comfortable asking, hey, is this guy on the epitome? Is this guy not on the epitome? Is she good? Are we, what are we doing there? maintaining relationship with the industry and that closing yourself out after you've come in

Starting point is 00:27:49 is certainly beneficial in our space. Yeah, kind of more. I'm going to skip around a little bit here if you're okay with it. Just the greatest hits of what's left, ones that I find particularly interesting. So I thought this was a good one. Number 23 in his list is don't take single channel risk, which in his example was like a business that only works off Facebook ads. Obviously in our world, we know what that would be. Don't take single channel risk, one Airbnb account, and then all your properties in that one Airbnb account, they get all their bookings from Airbnb and Verbo. That could potentially be a reason that Xavier would not do a deal. Again, interesting to hear that from the buyer side or someone who typically acquires businesses. It's something that I've

Starting point is 00:28:23 always thought. And I've seen, you know, some companies that are mostly Airbnb sell, but I also feel like, you know, years ago when Picasso was buying a lot more, they seemed to be targeting companies that had a little bit more healthy of a mix of some direct, of course. And then certainly we're still getting a lot of bookings on Airbnb, Verbo and the like. And we talked about this before. The old Vacasa, again, the previous iteration of it, was getting a lot of direct bookings. There didn't really a lot of direct booking. So I think they had both kind of figured some of those things out. And as they were crying companies, what I thought was really interesting years ago is Macaosa would take that website 301 and they were getting a lot of

Starting point is 00:28:51 SEO benefit from that. So they bought a company that I worked with in Steamboat Springs, for example, many, many years ago. And they took all the SEO work that we did on Steamboat Springs. I think it was Steamboat Vacation rentals.net 311 that domain over to the Steamboat page on Picasso. I think if you do the search today, like they rank really well. But before that acquisition, I promise you they did not rank well in Steamboat. This client that we'd worked with her sometimes. His name is Brad had done quite well in that market. in Steamboat and, you know, I had driven a lot of SEO value out of it. So I thought that was interesting.

Starting point is 00:29:16 A few of these things were somewhat duplicative. So feel free if you like Paul to kind of skip around to the one that you think is most interesting. I'll kind of maybe give us two more to part with here. Honor your word, even if it costs you money. I thought that kind of is a nice bookend to the first part. Don't deal with a person on the seller side who's not honest and integral. And if you say something and then it ends up costing you money, meaning on the buyer side,

Starting point is 00:29:34 you say, hey, you know, we agreed to this. And then you go back later and realize you couldn't have done that, you couldn't do that or you shouldn't have done that. But you honor that agreement anyway. I think that's really a great way to kind of go through it because certainly if you're trying to be honest and open and transparent on the seller side and say here's what I'm offering you. Here's the price. Here's what

Starting point is 00:29:48 let's agree on this. And everyone agrees. And then the person on the flip side, the buyer side is changing the terms. That's obviously a bad thing. Again, I've had that happen before. Klein who was very far along the process, you know, thought he was going to sell the very last minute. I guess this is a common tactic in this world, the M&A world. Oh, hey, we found something we didn't know before. We're going to go ahead and reduce our offer by, you know,

Starting point is 00:30:04 hundreds of thousands of dollars because we feel like there's risk here. And there was no, they knew this information before. It wasn't new information. they just wanted to, you know, I guess kind of get that person in their head thinking that they got the business sold and then screwing with the last minute. And I would never, ever recommend that that client, any client I work with in the future sell to this company because of what they pulled there. And, you know, maybe they got that deal done.

Starting point is 00:30:22 Maybe there was some middle ground they landed on. But gosh, did they burn that bridge? So I think that's a good one there. But any other left here that are kind of your favorite hits before we put a bow on this one. Yeah, I think, I mean, the kind of big one, don't underestimate how little you know about any given industry, Real 16. And I think that's not just any given industry. it's any given market. It's any given destination. Find that expertise to help you. I think too often

Starting point is 00:30:46 people do just get sucked into the idea that I've grown this X, I've grown it here, I've grown it there, I've grown it everywhere. I can grow it everywhere. I can either be national or I can take what I learned in Smokies and I can apply that to steamboat or I can apply that to Vail and Breckenridge or Park City or wherever we're going. I think what we know and we've understood is that every market is so different. I mean, it's, I mean, whether you talk about the homeowners, whether you're talking about the travelers, going there, whether you're, see also, see also, see also. And listen to 140 some episodes we've done. We have talked about that at length. So I do think that understanding where you're not an expert, hey, you may be an expert in market. Hey, you may be

Starting point is 00:31:30 an expert in sales. Hey, you may be an expert in scaling businesses. But do you know the vacation rental business? Do you know the hospitality business? Do you know all the things that go in into running the day-to-day operations. Okay, you can look at a monthly scorecard, a dashboard, something like that. But can you actually dig in and understand this owner is furious that they made more the week after the 4th of July than they did the week of 4th of July? It's those types of things that you're dealing with. I mean, yeah, sure, you want to get to the end of the month, end of the year,

Starting point is 00:32:03 and the cash on the books being where it needs to be. but that is one very small part of these businesses so I do I think that you may think you're the expert I guarantee you're not surround yourself with experts that's it yeah good agree more I mean I've looked at some you know really bad deals I'll give you a good example of that by the way I have a client who's more of a family friend that I worked with many years ago who sold a beachfront motel and you know there was someone in the office you know who very small office in the front of the building it's about 30 rooms of memory it recall something like that 28 30 rooms and even he or someone was there 24-7, you know, for the most part.

Starting point is 00:32:38 And, you know, the company that bought that property from him a few years ago thought, oh, we don't need that. That's an unnecessary expense. We're going to get rid of that person in the property. We're going to give everyone keyless lock systems, door codes. We don't need someone there. You know, there'll be some housekeepers on site, but that's it. And, you know, they've since they've, they're renovating the property right now. So they kind of like shut it down and they're renovating it.

Starting point is 00:32:55 But I've never seen more negative reviews come in than wait a second. There's nobody here at all, you know, to help me. And in this, you know, in this asset class, these kind of small beachfront hotels, that was not an acceptable thing from the customer's mind. And, yeah, sure, they saved the salary of that person or the hourly wage of that person who was sitting there. But they, I think, shot themselves in the foot in so many ways. And it was a hard lesson maybe for them to learn. And, you know, they were going to renovate it anyways.

Starting point is 00:33:15 But I think it accelerated their timeline of just like, oh, boy, like we really, you know, that was a bad decision. But it seemed like they couldn't undo it. Once they did it, it was, like, hard for them to undo it. And I think that's what a lot of, you know, you buy it. You can figure it out and way to run it better. And obviously, you look, you're only buying because you feel like there's an opportunity for you. But there's a lot of damage that can occur in the backside of that as you get going. So we didn't cover every rule, but that's okay.

Starting point is 00:33:34 What I'll do, Paul, maybe for the benefit of the listener, I'll put the raw list that I found on Twitter from Xavier in the show notes. I'll link to Xavier's LinkedIn profile as well. Seems like a really interesting. Kat didn't talk with him, but just thought that rule list was super interesting. So thank you, dear listener, for making it all the way to the end. Maybe you are selling your business one day. But until you do that, you probably want some good marketing.

Starting point is 00:33:49 So if you do, you can reach out to us. There's a link in the show notes to build up bookings. You can reach out to myself. Paul, we've got his LinkedIn profile linked as well. If you're looking for assistance on the homework side, I probably want to reach out to him. and you can assist you on that side of things. One more thing before you depart, a review.

Starting point is 00:34:02 Go to your podcast, have the choice. iTunes, Spotify, we get the most downloads. We appreciate a review there. Click five stars, leave us a review. And that way we can keep doing these fun podcast episodes on always engaging in new topics. Thank you. We appreciate it and have an awesome rest of your time.

Heads In Beds Show - Here's What To Look For When Selling Your Vacation Rental Business

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.