The Home Service Expert Podcast - Planning Your Business Exit to Maximize Profit and Cut Losses

Episode Date: December 24, 2021

Adam Coffey has spent over the last two decades serving as President and CEO of three national private equity backed service companies across different industries. He is the best selling author of The Private Equity Playbook, and has just released his new book, The Exit Strategy Playbook. He was also named one of the most influential leaders by the Orange County Business Journal from 2018-2020. In this episode, we talked about private equity, asset diversification, having a building-to-sell mentality...

part of the rationale behind bringing in a partner is getting asset diversification, getting some money out to protect your family in case something weird happens. I don't know, like COVID that happens to destroy your business and you didn't see it coming. That's why you want the asset diversification. And you roll over enough based on the model that's put in place to yield a second bite of the apple that's bigger than the first, because that makes life interesting. You don't want to be an entrepreneur who doesn't roll over enough to where it's like, eh, I don't really care what happens to this million. I already got 95% of my equity out. But I really think, Tommy, that's probably

one of the biggest mistakes entrepreneurs make, because they think about selling their business as a one-time event. And they think, I'm building my empire. I sell it. I cash out my chips. I ride out the back door and I go do something else. And that's the mistake because they know the business they built. Why not continue to work with it, continue to run it, but to find creative new ways to juice up the growth profile and make even more money than you could on your own. Welcome to the Home Service Expert, where each week, Tommy chats with world-class entrepreneurs and experts in various fields like marketing, sales, hiring, and leadership to find out what's really behind their success in business. Now, your host host the home service millionaire tommy mellow it's time i always wanted to do that uh got my good buddy here adam coffee back on for the second

time i've been trying to hunt this guy down uh covid happened and he said i could come hang on california one of these days But since Adam was on last time, I keep getting phone calls from companies and large, large, large companies and best practice groups. And they say, hey, are we allowed to use your podcast from Adam in our trainings? And I say, of course. And I've been begging Adam to come back on. And today is a very special day because he's not only back on, but he's coming out with a new book. So I had the pleasant surprise here to receive his book in the mail. It's not the one that you're going to get, but I printed it out actually. Adam is an expert

in leadership, mergers and acquisitions, private equity. He wrote the private equity playbook, new business development, strategic planning, and Operations Management. He's based in Dallas-Fort Worth. I thought you were in California, but we'll check in on that in a minute. That's one of my COVID surprises, Tommy, right there. Okay, so I'll have to go to Dallas. So CoolSys Refrigeration HVAC Systems, he's a president and CEO from 2016 to present. As far as I'm concerned, it's the largest commercial HVAC company in the world. Washed multifamily laundry. He was a president and CEO for about 13 years starting in 2003 where he was involved in private equity. Master plan incorporated president and COO from 2001 to 2003.

And before that, he worked for GE Healthcare. That's where my brother's actually, my brother-in-law, he's a CIO over there. Adam's the best-selling author of the Private Equity Playbook, and he just released his new book, The Exit Strategy Playbook. Over the last two decades, he served as a president and CEO of three national private equity-backed service companies across different industries. As a president, he leads Cooloolstis, a commercial refrigeration and HVAC service company. During his four-year tenure, Koolstis has acquired 19 companies, achieved a 239% revenue increase, a 376% increase in EBITDA, and has grown to more than 2,800 employees. And that was April 2019. He's led through the private equity sale of CoolSys and Audax Group of Boston to R as management.

And he was named one of the most influential leaders by the Orange County Business Journal 2008, 2019, 2020. To their prestigious OC Top 50. Oh, my gosh. So much here. So I analyzed the whole book. I went through it page by page. I took a lot of notes. I think what you're bringing to the listeners here is super important because everybody I know right now is trying to figure out, do they stay in? Supply chain is screwed up. They can't get employees, but there's customers. It's just a weird time. How the hell are you anyway?

I want to just catch up with you a little bit, and then we'll let you kind of tell everybody who you are. So Tommy, my man, hello to you. Greetings to all your listeners out there. What I love about you, brother, is that you're a doer. You're building quite an empire yourself. Other than assembling a team of people that are helping you, I mean, you're really kind of just doing this on your own. So congratulations

to you on the empire that you're building. Yeah. You know, it's been a while since you and I caught up. And to be honest with you, what I learned during COVID was I can run my empire from anywhere, no matter where I am. I am where 99% of my employees are not. Even if I'm sitting in a headquarters building with 100 plus people, I got 2,800, 2,900 other employees who are all over the United States. And so from my perspective, if there was anything good that came out of COVID, anything positive that you could grasp onto it was really this whole concept of employers just loosening up and thinking differently about talent. And there are certain jobs that have

to take place in an office or in a warehouse or in a specific place. God bless our guys in trucks who are out there every day visiting all our customer locations. But for those of us who are kind of desk jockeys or folks that are in command and control, really, we could be anywhere. And for me, our company's growth is really east. It's east of the Rockies. It's east of the Mississippi in most respects. We're over 21 acquisitions now.

And by being in the Dallas-Fort Worth area, I am two and a half hours from anywhere in North America. And things that used to be overnight trips can now be day trips. So I'm a lot more efficient with building the empire by being kind of in the central United States. I can get to New York for a meeting in the day, be home at night, be in a different part of the country the next day. So just a lot more efficient. So that was one of the positive learnings that came out of COVID. And that's why I'm not in California and I'm now in Texas. And I tell people around here, I'm an old Texas boy who came home after 20 years on the left coast. So it's good to be back. It's

good to be in Tejas and be close to everywhere in the empire. So life is good. I think for all of us, Tommy, you said it best. It's a really strange time right now in the world's history, I think. This is our modern version of what it must have been like in the medieval times during a plague. And the fact that we've just gone through so many different gyrations, There are 9 million jobs in America today that aren't filled, that are open, that are just not filled. So it is a weird time for sure. So during COVID, during this last year period, so many people around the globe reached out to me with follow-up questions that came from the private equity playbook. And it was really their questions all kept asking me the same type of thing. And they were in similar sets of circumstances. And it was because of those questions that this guy actually

got written. And I actually like this one better myself. I think it was better written. I'm getting a little better at the craft now. All my cheap sports analogies are gone. There's some better stories in this one. It's not all about private equity. Private equity is just a little piece of it, broader topic. But so many entrepreneurs said, hey, thanks for that primer on private equity, but let's now start talking about exiting. And it led to this book. So great to be here. Great to be back on the show and miss you, brother. Hope things are going well over there for you in Phoenix. Oh man. So good. I can't even tell you. It's like hanging out with guys like you, you know, somebody asked me the other day, they go, what's your, what's your

secret sauce? And I said, secret sauce is really a big piece of it's the podcast. And then I'll fly across the country to hang out with successful people. And I could ask them a bunch of questions that they're experts in and they don't mind helping me. And you said something to me when we were off camera that to me was really valuable. You're going to cross a hundred million dollars in revenue this year, you know, in your own empire. And I was doing some statistics for the entrepreneurs that have joined CoolSys, the 21 folks that we have acquired. And, you know, only about 7% of entrepreneurs that start a business, actually open a business, ever achieve a million dollars in revenue. But when you go up to $10 million, that number drops off the map. And when you get to $100 million,

you're going to join this year, Tommy, such a select group of people, it's like one-tenth of one percent. And here's an unusual statistic I bet you most people would be shocked by. There are only 2,500 companies on the planet that have a billion dollars of revenue or more. CoolSys will join that club next year. But for you, to be an entrepreneur, your own empire, not owned by anybody, and to hit 100 million in revenue is just absolutely rare and incredible. So again, congrats to you. Yeah, you know what? I'll tell you what, they're falling in my lap. I know everybody's saying their industry's been hit hard, but when you can't find springs, the lifeblood of a garage. We're 16 weeks out on any garage doors. And here's the real facts, Adam. Human capital has become impossible for most. So we were fortunate last week to have

69 ride-alongs. We've got a class of 22 that just showed up. I've got 35 coming in in October and 50 new technicians coming in in November. And what we're doing is we're putting together best practices for the garage industry, getting everybody on one CRM, getting them to where, I think you know where I'm going with this, but making them sound act and talk alike, measuring KPIs, making sure we're a buyer's group.

And I think this formula allows us to get to a billion rather quickly. It allows you to learn from each other. You see, it's not A1 GarageBars that's building this. It's the communication and the winning of everybody. So I learned a lot. You know, not a lot of people know this, but I was on a plane one day and I read a lot of books. I mean, I've got a pile here that I haven't started yet, but I was reading the private equity

playbook and I said, gosh, darn it. I got to get ahold of this Adam coffee guy. And I just called every guy I knew. I called the founders of service Titan. I called the biggest HVAC companies in the United States. I call it the biggest 10. And interestingly enough, I couldn't get ahold of them. So I said, I don't know. I guess I'll try on LinkedIn. So I took a picture there, selfie with his book, and he got a hold of me. And he said, I always wanted someone to take a picture with my book on a plane. You know what? I wanted to walk on a plane and see somebody reading my book.

And talk about as an author, that was one of those moments, I think, that I wanted to see. And because of COVID, you know, it probably wasn't practical, but you were right, Johnny, on the spot, sending me a photo with it. So I think that checks that box for me, I'm telling you. You know, I've learned so much from your two books, and I can talk about a lot about the book. I want to jump into some cool things here because when you're selling a great business, I want to talk mostly about home service because that's the listenership here. You've got a lot of choices as far as what kind of money you're going to take. You've got strategic buyers, you've got private equity, and you go through all these different ways to do it. And you're a firm believer in the

first book you talked about. I think the ratio you say the owner, if you're going to roll back into it, what would you say? 34% was it? If you use the average private equity return of three times multiple of invested capital, then 34 cents is that perfect number. That means your second bite of the apple will be bigger than the first. 34 times three is a buck two. So whatever you get for selling your company, if you roll 34 cents forward and you get a straight up the middle of the fairway, three times private equity return, your second check is bigger than the first. That's always, I think, my goal and rule of thumb. What's stopping somebody from saying, look, I love bringing on a strategic partner like a private equity company, the strategic way to roll up into the platform.

What's stopping you from wanting to say, I want to do 49.9%? What would be bad about that? Because you'd have enough money for the rest of your life 10 times over again. I would say that the 34% to me, it's the right number. So part of the reason why you're selling your business in the first place is to generate, call it asset diversification. Let's be honest. COVID really killed some businesses. And let's think of movie theaters, folks. Movie theaters, I don't know if they were the healthiest businesses before the pandemic, but they sure as heck aren't the healthiest businesses during a pandemic or after a pandemic. So many different industries changed dramatically, some of them now permanently,

as a result of COVID. COVID was something we never saw coming. You couldn't have planned for that. And so the real reason you contemplate taking on a partner, it's twofold if you're an entrepreneur. One is you want to use someone else's capital and you want to be able to diversify your assets, take some money off the table. But it also potentially opens up new avenues of growth. When I talk to entrepreneurs, the vast majority of entrepreneurs focus primarily on organic growth only. And it's the easy thing to do. Mergers and acquisitions are not something typically an entrepreneur will take on and do

on their own. And when you work with a partner, whether it's a strategic who is buying many companies in an industry or a private equity group that's out buying a platform company to then build from, there are so many different avenues for growth that you can pursue. And I think I had this conversation with you once upon a time privately when I said, you know, hey, take a spreadsheet and just envision and imagine what your company is going to do on its own with you there. And then what could it do if it took on a partner? And be realistic. What's your growth trajectory going to be like as an entrepreneur? And if you take a partner,

what new avenues of growth and piles of cash are going to come your way to let you go out and do things like a buy and build? I've bought 21 companies at Cool Assist in a little over four years and we'll buy plenty more and run that spreadsheet and kind of see what's the size of the company if you hold it for five years on your own? What's the size of your company if you partner with somebody? What's your rollover equity do in different scenarios? And I think in most cases, what you get by partnering with other people is you get the protection, the downside protection of the asset diversification. You get some chips off the table, you get to invest them elsewhere and keep growing

your business. But now you can be even more aggressive on the strategies that you play out. So there's nothing wrong with rolling over more than 34 cents. I don't want someone to think that that's the wrong thing. But if you're going to sell the private equity and it's a buyout fund, it's going to be less than 49%, 49.9% because a buyout fund by its very nature has to have control. So you're going to give up control in order to bring in that private equity, call it an investor, if you're going to be a platform company of a buyout fund. VC funds are different. They work differently and they invest in different stage companies. But you take someone like you who's got lots of revenue, lots of employees, a track record.

Your target is not a VC fund. It's a buyout fund. And they're going to come in and say, Tommy, I'm going to back you. I'm going to give you piles of cash. And we're going to grow that puppy even faster than you're growing it today. And they have to have control just by nature of how they're structured. So I would say rolling over between, call it 34% to 49%, nothing wrong being in that window.

However, let's also talk about a business that is growing faster. And if your model, if the private equity model or the strategic model for your rollover says, instead of a three times return, we're going to do a four times return or a five times return. And that's what we're modeling. And it's realistic. Your rollover could be much lower and you could still get a second check, which is bigger than the first. And you could pull more chips off the table. So for me, part of the rationale behind bringing in a partner is getting asset diversification, getting some money out to protect your family in case something weird happens, I don't know, like COVID, that happens to destroy your business and you didn't see it coming. That's why you want the asset diversification.

And you roll over enough based on the model that's put in place to yield a second bite of the apple that's bigger than the first, because that makes life interesting. You don't want to be an entrepreneur who doesn't roll over enough to where it's like, eh, I don't really care what happens to this million. I already got 95% of my equity out. But I really think, Tommy, that's probably one of the biggest mistakes entrepreneurs make, because they think about selling their business as a one-time event. And they think, I'm building my empire. I sell it. I cash out my chips. I ride out the back door and I go do

something else. And that's the mistake, because they know the business they built. Why not continue to work with it, continue to run it, but to find creative new ways to juice up the growth profile and make even more money than you could on your own. Oh boy, this is so good. I don't even know. I got all my notes spread out and everything. Do you know what the 1202 exclusion is? I do.

So explain to us what that is. I want people to start thinking the biggest enemy of selling a business is taxes. Well, let's just talk about taxes in general, because this is a great year example. This is what I think is going to happen. It's about right now. So we're in September where a bunch of entrepreneurs are going to wake up and say, you know what? All of a sudden, at the end of the year, the Trump tax cuts expire and cap gains are going to go up.

Joe Biden earlier in the year said something like 43%. Well, I don't think that's going to pass. I don't think that- 28% is what we're thinking, right? Yes. Because I think what happens is nobody's going to put through that kind of legislation that's going to jack up cap gains rate to 40, 43%. So by doing nothing, you run the clock out on the Trump tax cuts and taxes go from 20 to 28. I think a lot of people are going to wake up real quick and say, oh my God, if I was going to sell in the next five years or three or four years, I got to do it before the end of the year. I'm actually telling my legal team, can we figure out a document where someone could wake up in December and come to me and sell me a business by signing one piece of paper? And it would be subject to a giant holdback because we would still have to do diligence and all the stuff that we need to do. But I could do it after

the fact to preserve the tax savings for the person selling the company. So I think that if you have a longer horizon, then tax rates are going to do what they're going to do. And periodically, there's a cycle. They go up depending on who's in office or what the mood of the country is. So it should be a driver, but not an overarching decision factor. Then really, when you think about selling a company, there's two primary ways that you do it. Either it's a stock sale or it's an asset sale. And a lot of entrepreneurs go to a tax advisor and a tax advisor will say, well, you need to do a stock deal. Or a lawyer will say, geez, you need to do a stock deal so you

can dump all your trailing potential liabilities. Problem is the buyer universe doesn't want to do a stock deal. And they would vastly prefer to be doing an asset deal. You're in business today, whatever your trailing liabilities are, you already own them and you're going to continue to own them. And so from an asset deal perspective, people can do calculations to determine what's the difference really from a tax perspective. And most of the buyer universe will then work with you creatively to structure something that makes sense for you and makes sense for them. So different types of exclusions. God, we don't want to start talking about taxes and accounting things because that's

not my area of expertise. That's why I also talk about in my book about building a team of experts to help guide you. Yeah, you do talk about that. I want to go through kind of, I think this is important. So if you're thinking about selling your business, you really got to understand where you're at. There's four levers you talk about. Lever one is organic growth. Lever two is margin expansion. Level three is buy and build. Level four is work with consultants. I just want to talk a little bit about most home service companies that I've experienced right now, and they're not the platform companies. Platform to me means that you've got a duplicatable process to be able to take another

company, show them your ways, and they will repeat, rent it, do it again, and you start stacking up lots and lots of dollars. You find the holes, conversion rate, booking rate, average ticket cost per acquisition. You increase all those things. You could triple a company overnight. But most of these companies are, I'm thinking, three to five times even, Dan, that's generous. A company that I'm working on right now that we're closing on. Hopefully soon. We did about five times projected. Here's a fancy word.

TTM. Ha. Trailing 12 months. Because right now I can't go further than that. Cause everybody's having a record year and other people want to buy. So explain to me the process that these people that are thinking about selling a lot of people right now are getting shit on they can't find inventory their employees are quitting they never built up their culture so they weren't prepared for this and now they can't find anybody and

people are just there's a guy i talked to yesterday he said he had 27 voicemails he got back to that day two days before i looked at their booking rate for the year so far on service end was 26% because they don't have employees to run the calls. They can't get there. So what does someone do in this situation? Because the listeners might be saying to themselves, I've got a good business, but it's dwindling as we speak. It might be a great time for me to exit, but it kind of sucks because I'm selling it because I have to. What do you do in a situation like that? In my book, I talk about preparing to sell a business two to three years in advance. And I think in your case, as I'm watching you grow the business that you're running today, you're thinking long-term, you're thinking ahead, and you're doing a lot of the things that

I talk about in both of my books, and you're actively making that a part of your world now. So you're building to sell, and you are really positioning yourself. And so regardless of what market conditions are in the future, you'll maximize that opportunity. I was laughing inside when you were talking about COVID and the impacts, because for those who read the first book or the second book, or have some astute level of understanding of their finances, there was EBITDA. And now you're hearing a term called EBITDAC and EBITDA plus COVID. So it's kind of like earnings before interest depreciation, amortization, and COVID. And people are looking at, okay, here's my historic run rate for revenue. Here's

my historic run rate for earnings. And then boom, COVID hit. And my revenue tanked. It fell this percent and my earnings tanked this percent. And people are calling that the COVID impact. And they're actually adding it back to their earnings and saying, here's my normal world earnings and revenue and earnings. And here's my normal growth rate. And if I adjust for the COVID anomaly, here's where I'm at. Now, virtually every company on the planet this year has higher revenue than last year. But what's happening is people originally, when we came into 2021, thought, hey, shots are out. Yeah, we're going to have a little bit more disruption.

But then by summertime, we're going to be back to normal. It's going to be a more normal year. Every company I sit on the board of, other boards of directors that I participate in, where I know other directors who sit on other boards, it seems like every company on the planet is doing better than they were doing last year, top line. And most of them are dialing back their projections for full year because the COVID impact is still being felt drastically throughout. And you talked about supply chain. Boy, it impacts me every day. I would tell you that imagine a still pond, and that was the global supply chain. And the whole world built themselves on just-in-time manufacturing. So literally, in a plant, a truck would show up, and within a matter of hours, whatever inventory came off that truck would find its way on an assembly line, and the

product would be out the door, and a new truck would be rolling in. Now imagine taking a cinder block and throwing it in the middle of that calm pond and calling that ripple as it ripples through the pond. That's the COVID impact of the supply chain. But now throw a thousand cinder blocks into this still pond. And that's what we're seeing today. So the good news for your listeners who feel like they have to sell, first of all, most people aren't in a position where they have to sell. They could keep on going for a little while, but if they just did, if there was just some reason why they had to get out now, I would tell you that the universe of buyers, this is a level playing field for most.

Most companies, revenues up, earnings may be down. You have stretched resources. You're trying to get around supply chain problems, but maybe you're driving faster. Maybe the fewer employees you've got who showed up to work are working more overtime because you're trying to get by with fewer people, disrupted supply chain. So your actual costs have gone up. So the good news is for anybody who's in that position would really be that you're no different than anybody else on the planet today. So the buyer universe is adjusting for that. The expectations are being adjusted. You're hearing new terms, like I said, like EBIT

DAC, and people are adding back COVID differentials, or just talking about, in the first book and in the second book, if you talk about peak to trough, most buyers want to know what's going to happen to a business I'm going to buy during a recession. What's going to happen to that business during now a global pandemic? And we're still living through that global pandemic. And as a result of that, the buyer universe is adjusting. But the good news is, if there's a good news for someone who's forced to have to sell in today's market, is the fact that there is so much capital flowing into private equity firms and funds that the buyer universe is just so desperate to also find decent companies to buy,

the multiples are at record highs. So maybe your earnings are down 10% and you're trying to get some credit for a COVID adjustment. Multiples have gone up fairly high magnitudes for larger companies. And so like you say, smaller companies, when there's a fragmented industry and thousands of them, they're maybe selling for three to five times. In my world, maybe it's five to six times, but the price is being paid. What I sold a few years ago for 14 times, today sells for 18 to 20 times. So a big company in my space, maybe your earnings or your growth rates are a little bit moderated because of COVID. But the end result of the higher multiple and slightly lower earnings could actually yield a higher purchase price or what I would even call a normal purchase

price in a pre-COVID market. So I would say for most folks, better to ride out the storm if you can. But if you really feel you must sell, there's other dynamics that play beyond just COVID. And it's a level playing field and you should be okay. From my perspective, we're in a very, very fortunate right now. I think you might have mentioned this to me, but there's about $4 trillion sitting on the sidelines waiting to get into investments. Private equity is like everybody and their brother is doing it like if you meet a father and son that made up 10 million dollars 10 years ago that they're private equity now you know we became this essential service no matter what during covid and we're one of the we weren't like movie theaters

weren't like restaurants weren't like bars weren't like hotels and um i think they just came out with the 29th variant shot so we'll see how soon this thing gets done because you know i didn't get the shot because i have coveted and they've they've proven over and over it's 18 times more effective than the shot but you know i'm gonna go get tested for antibodies and that stuff but i would say that if the economy has more issues than they i heard heard Biden's going back to masks today for all government jobs. He actually has a mandate. Any company with more than 100 employees mandated vaccination. So we'll see how that works its way through the courts.

Yeah. You know what I will do if they start shutting down businesses is I will continue to triple my marketing because that's when you take market share. It's just when everybody else stops, the cost per TV, radio billboards cuts to a fifth and the people at home watching it quadruple. So you're getting like 20 times the exposure for the same cost. So I think there's just so much that people miss for every opportunity, for every bad thing that happens to someone else's opportunity when it's a buyer's market you could make a lot of freaking money during any great

depression when it's a seller's market everybody's kind of doing good i believe we're still in a seller's market i mean it's obvious maricopa county is the number one market out of all private equity they do these studies i'm sitting right now in the best market and um i bought a house last year that happens to be in the number one zip code in Maricopa County. And I think on all spectrums across the country and globalization, the United States is the best investment out of all countries. So I decided to sell that house. But you weren't alone. A lot of people said, hey, record prices, let's take some money off the table. Well, I'm taking the capital gains, rolling it into the building next door,

which is 37,000 square feet, which is in an opportunity zone. We got some cool things going on here. I don't want to complicate things, but I'd love to talk to you a little bit about there's certain structures you could do. You could keep the hold co, the acquisition company. You could throw an IP company and you could throw in the SaaS, like some type of

SaaS company. And I don't know if that makes sense because software as a service is hard to do in home service unless you're offering some type of software that everybody can use. So you could really structure things in a way where you could sell off the garage drawer company or whatever it is. I'm just learning about all these cool things you can do with a business once it starts getting very, very, very large. I'd love to ask you, and I'm going off on a couple of things here just because my brain, I just, I never spread out so many things at once on my desk to be able to kind of ask questions. And I know I got a limited time here. If I wanted to become a platform company, let's just say I'm a pool cleaner. You know, what is a platform company? It's somebody that I could, and we've kind of been

over this, but right now I have 10 employees. I've got a pretty good bookkeeper. I've got a good gal to answer phones. I've got loyal employees. What do I need to do in the next two years to be attractive to an investor to consider me a platform company that they want to roll companies underneath me? So I think size matters. And when you're talking about platforms, if you think about the universe of buyers, and you're talking a lot about private equity, so let's just stick there. So there are 6,000 private equity firms at work in the planet and not all in the United States, but vast majority of them, you know, have the ability and capability to invest here in the United States.

They come in all different sizes and shapes. You know, they could be a mega firm, you know, that has funds that are greater than 10 billion. So people like KKR, Apollo, Carlyle, you know, would be a few names that come to mind. Or they could be, you know, a micro firm, as you said, some guy did well, you know, they formed their own little family office or somebody who was a partner at a big firm, you know, took 50 million of his own money and started a micro PE firm. So there's a lot of small firms, big firms, and everywhere in between in these 6,000. There's good ones, there's bad ones. And all of these people are looking for platforms. Now, if you're a pool

cleaner business was your example. So I got 10 employees, you know, and let's say I'm doing a million dollars a year in revenue. Well, KKR, Apollo, and Carlisle is not going to talk to me. They're not going to answer the phone because they're 10 to $25 billion funds. They typically are gonna buy 10, 12 companies per fund. You're not big enough. They can't write a big enough check or put enough money to work. So they're off the table a lot. And so depending on the size of your business,

that's kind of the key driver as to which size firm you're gonna be talking to. And everybody's looking for platforms. So small PE firms are looking for small platform companies that they can build from. Now, if you're going to be a platform and you want to be attractive to someone as a platform, what you really need is a business that is scalable. So it's a business that's in an industry. It's fragmented, which means we can put a bunch of them together because a really small firm growing organically, the growth rate you're looking for is about 30% per year.

And if you can grow at 30% per year, you're going to double in size. And I think it's 2.87 years. And average private equity hold period is, call know, call it three to five years, three to seven years, average five. And if you just keep doing one times 1.3 times 1.3 times 1.3, and you do that five times, you'll see that you can quadruple a company in about a five-year period, you know, from the start. So in order to grow at that pace, to give the type of return the private equity firm is looking for, you better be able to scale. So if you have problems today with 10 employees, imagine yourself with 100 employees. Those problems are going to get bigger.

And so what I tell people is focus on unit level economics. Are you good at what you do small? If you're good at what you do when you're small, then scaling becomes something that is predictable. But if you have choke points or bottlenecks in processes or in software or in the way you're operating the business today at small size, then a bigger size creates bigger problems. And so you need to really focus on being a very clean operator, having, I call it the happy meal effect. You know, it's, if I go to any McDonald's in the United States today and order a happy meal, I know I'm going to get the same red box, yellow handle, cardboard hamburger, the little apple pack and the fries. And, you know and I get my drink. It's going to be identical everywhere. You need to be identical with all of your service interactions with your customers. So that pool

company needs to be a company that customers can trust. They're going to be at the location on time. They're going to take care of the pool and they're going to give predictable, good, happy meal service. So they're going to give the same service on a repetitive basis, week in, week out, no matter whether it's this employee or that employee in this city or that city. When you have perfected your unit level economics at a small scale, you're ready to be a bigger company. And then when it comes to growth, a small company that's growing organically at 30%, God bless you, you're already there. In 2.87 years, your company will double in size.

In five years, it's going to be whatever it is, four times bigger. And you're going to achieve the type of return that an investor is looking for in a platform company. If you don't have it organically at the 30% mark, so the bigger you get, the harder it is to grow at that kind of level organically, that's where a buy and build strategy can come into play. Buy and build also can help you build massive scale quickly using other people's money. Organic growth tends to be fairly expensive. You have to hire more employees, you have to buy more trucks, you have to get more supplies. And so you have to acquire those customers and there's a cost to do that. In a short period of time to drive a high level of return,

buying other companies that already exist, maybe they're not quite the happy meal you are, or maybe they're better at something than you are and you can buy them and you can take their best practices and permeate your own business. Always be on the lookout for that. So I would say it's the predictable happy meal effect. Perfect yourself at the lowest level unit economics that you can, and then focus on, can I get to a 30% growth rate or better?

If you're already at a 30% growth rate, imagine if you then added buy and build on top of that and you could get to 40 or 50% kind of compound annual growth rate, then your returns aren't gonna be the three to four times return. You're probably gonna be six to eight times multiple of invested capital,

even more attractive to the buyer universe because you're the home run. You're the unicorn. So that's how I think about it. At any size, a smaller company can be sold to a strategic buyer who is doing a roll up and they can do a rollover investment just like being a platform company and or they can do a rollover investment, just like being a platform company, and or they can find a small financial buyer, sell to them as a platform, the money that is going to be earned in the end typically is going to be similar. The difference is risk. If you're the company and you're the platform, 100% of the risk of execution belongs to you.

However, if you sell to a strategic who's doing a buy and build, and I happen to be owned by a financial sponsor, a big private equity firm, but I'm a strategic buyer because I'm a company buying companies, small companies join us all the time, do rollover investments, and they get the benefit of that rollover investment, and they get the benefit of that rollover investment and they get the benefit of what it would be like to be a platform, but they're now disseminating their risk because I bought 21 companies over the last four and a half years. And they're also getting to benefit from those other acquisitions that we're making. And so it's a very similar situation, but it's a huge diversification of the risk profile. So I talk about in the new book, you know, who's the universe of buyers, there's strategic buyers, there's

financial buyers, you know, what are the pros and cons, there's owner operators, there's IPOs, there's SPACs, you know, there's all these different potential exit paths for a business. And oftentimes, there's multiple paths for any company that they could pursue. And you as an individual need to understand all these paths. You need to understand what each of those different buyer classes are looking for and how each different type of class of buyer might impact you or your employees post-close. And you need to really be thinking through all of this before you ever get to a position to where you're going to sell to try to figure out in your own head, look, I could sell the five different potential buyers, different classes of buyers.

But for me, this is the best situation. And if you know that upfront, you'll spare yourself a lot of dead brain cells trying to figure it out when it's actually playing out. Yeah. In the book, I thought it was really clever. You broke this little section here out. It's kind of hard to see, but it says, I want to stay working. And it gives you strategic lights on, strategic lights off, financial alternative. I want to retire soon. I want top dollar. I'm concerned about employees. I can't find a buyer. I want to roll over a portion of sales. I want some consulting income. I want to lease my real estate. So you went through all this stuff. Some of the other things here I wanted to just go over that you went over is

your behavior can kill the deal. You went over a one-page teaser to get it out to different companies if you're thinking about selling. You talk a lot about one of the things I don't think people understand when you go to sell a company is it needs to be a plan. You told me this, whatever, a year and a half ago, is we've got to have a plan. So we have a plan. And what does this plan mean?

It means we're going to the big four. We're starting to get audited. We want an internal audit. We switched to accrual early a year and a half, two years ago. We are making sure that every single thing has a process. We are building a team that can be interviewed because you're right. Attitude, behavior could kill a deal. We want very, very sound decisions.

We've created a board that makes sure that they understand why, because it takes liability off me. These little things that we do make a huge impact in what the multiple will be. I've got a buddy of mine that I'm pretty sure is going to get over 20 times. And I always told you, I was going to the bank, I'm getting a $50 million line, but I'm learning how to buy companies for nothing. Because if I can promise you, this is pretty interesting, Adam. And this is really, I wanted to ask you this question no matter what, because I think this is important. And I think the audience will get so much out of this. What if I told you, Adam, right now you're doing $400,000 bottom line. You pay yourself a hundred grand a year i think i'd give you five

times so you're worth about two million what do you hate more in the world than anything you probably hate like most people you can't get supplies you've lost human capital you don't love you're doing taxes you don't love the call bookings but you know the things you love what have i told you i could pay you a four hundred thousand dollar salary for the next three years i want an opportunity to buy your company i'll give you everything in the bank account and your ar i'll come up with the operating capital and i'll give you a note to buy it at this right that's right to buy and i'll solve all those issues out there now this is typically a company under a million dollars of evita but it's such a good deal because I'll give you $3 million instead of $2 million.

Now, what am I going to do? Now, hopefully, I can look at some things and say, I'm only buying controlling interest, but I'm buying 20%. I want to be able to make decisions. I could look at your company and say, your booking rate is 62%. I'm at 88%. Your conversion rate is this. Your average ticket is this. You're not even answering most of calls your closed sundays you don't answer the phone past five i love that stuff and i'm just that's opportunity there's so many opportunities though and i wanted to hear your creative ways you talked about a lot of stuff in the book but i'm just curious see when you're working at a company that you're darn near a billion to buy $500,000 of EBITDA doesn't really make sense. But if I could turn that into 4 million within six months, because we hire 10 employees,

get those KPIs dialed in, you know, $4 million EBITDA for me as a platform might be worth 80 million if I'm able to get to that 20. I just use that for the sake of math. So that's a lot of freaking money. You buy $500500,000 company turned into 4 million. You get the 20 times. That's a shit ton of arbitrage. So I'm just curious. You've seen this done a lot of times. What are some of the cool ways you've seen?

You know, we thought about just calling it powered by a one and we could go take on any company in every company and still have. Now we don't need to change the name. We don't have to worry about IP. There's not any of that stuff. We don't have the problems, but what are your thoughts? So in a financial back situation, whether it's your capital or it's private capital coming from somebody else, doesn't really matter. Capital's capital. When I think of buy and build, I'm in a fragmented industry. Most service businesses are in highly fragmented industries. You talked about pool cleaners. God, there's probably a billion of them all across the

world. I'm being facetious, but there's lots of them. There's thousands of them. There's 4,500 companies that do what CoolSys does in the United States, but the vast majority of them were started by individuals who drove a truck and they knew how to fix HVAC and refrigeration equipment. They hung out their own shingle. They're baby boomers and now they're getting close to retirement age. And so there's all these little companies with 10 to $30 million of revenue, and they've got one to $3 million of EBITDA and they've grown an empire to a certain size. They're very comfortable. They're taking enough money home every year. They got enough employees, enough work.

And so they kind of top down. And as a result of that, of being so fragmented, not a lot of acquirers out there. So I mean, I'm paying, it's called five times, right? I'm worth, I sold for 14. I believe I'm gonna be worth 20 times next time I go out to the market too. So there's an arbitrage multiple of 15, you know, the accretiveness.

So if I buy a company with 10 million of revenue and it has 2 million of EBITDA and I pay five times, you know, two times five is 10. Yeah. If I'm worth 20, you know, 20 times, then two times 20. It's a $30 million net. Yeah. Yeah. If I'm worth 20, you know, 20 times, then two times 20. That's a $30 million net. Yeah. Yeah. I mean, so I can borrow 100% of the money to buy the company from the bank. The bank gives me the credit for my multiple and the increase in earnings at my multiple. And I'm not using any capital at all. I bought 21 companies, folks, and I have not written an equity check to buy 21 companies. And so when I think about shareholder value creation, let's remember, you may have a small entrepreneur out there who

owns a small business in a fragmented industry, and they're looking at five times and they're saying, that's not very sexy. That's not very attractive. I want more. Okay. Become a rollover investor in the company that's buying you and leverage then the multiple arbitrage as a shareholder of their company, the next 20 companies that they buy, and you're getting to ride the coattails of the parent. And oftentimes when you bring in a financial sponsor, a private equity firm, that's essentially what you're doing. And in my case, so I use my classic example, Sam, God bless you, making wine up in California, Northern California. I paid 16 million for his company. He took 12 million home. He rolled 4 million forward. I bought eight companies in about

the next couple of years and then sold it for a four times multiple of invested capital. So Sam's $4 million rollover paid him another $16 million. So he sold the business for $16, rolled four, took 12 home. 27 months later, sold it for four times again and got $16 million more. So $16 plus 12, he got 28 million for a business he would have been content selling at a one-time headline price of 16. Take all your money, walk away. Now, if you take his multiple that he was paid across that, he essentially doubled the multiple he got paid in under three years by becoming a rollover investor. Well, why wouldn't he have done it again?

Well, he is. He's rolled over again and is still an investor in CoolSys. God bless him. And next time I go to market, if it's another four bagger, based on his rollover, he's going to pull another $20 million out. And then he'd be $16 minus four equals $12 plus $16 minus five rollover plus $ 20 more. I don't know what all that is. I think if I remember right, the math is it's 48 million. Yeah. 50. Yeah. Here's another reason to want to partner with somebody or to want to become a part of something that's growing bigger.

Like in your world, why would a small garage door company want to become a part of your garage door company? Well, let me tell you, I just explained it because their business by itself is so small in a fragmented industry, it's going to trade for a low multiple. And instead of just riding off to the sunset with your small bag of gold, how about rolling over into Tommy and then taking a piece of the action on the next 20 companies Tommy buys, and then you get another bag the action on the next 20 companies Tommy buys. And then you get another bag of gold and it's bigger. And when you put that bag of gold together with the first bag of gold, now you got something. So even in an industry that's fragmented with low multiples,

you know, that's even more reason not to ride off into the sunset and to partner up with others because the bigger company trades for higher multiples. Well, I think it's important to explain. So what you're saying is doing private equity. So I own A1, I own 100%. I've got equity incentive program going, but I want to explain that if I was the first company, call it company A to buy into A1. Now, I would be diluting A1 shares. I'd be giving them shares for the purchase price. And then B, company B comes in, and those shares are more diluted. Then C comes in, they're more diluted.

But I'm giving up a little bit each time. So B gets a better deal than C, as the alphabet goes. I prefer, because it's blue collar and I'm not discounting anybody of just saying your company's worth 3 million. Let me give you four and a half. Let me give you a lot of money today. Yeah. Because for me, and then another deal is, I guess I'm kind of greedy in a way because I'd rather go to my bank. That's willing to lever me four times as long as they hit the queue of quality of earnings. They're willing to lever me four times as long as they hit the queue of quality of earnings. They're willing to lever me four times on current EBITDA. And then they're willing to give me

three and a half times on anything else that I bring to them. So if I'm given six, I pull out of my own line. But you are much more conservative than me. I got enough on the side that it doesn't really matter. But you're saying, Tom, take the money and roll it back in. You're still the guy. You know, I know two guys, two separate stories, A and B. One guy did a deal, got an airplane, got NASCAR tickets, stayed in control. They used him in control. They let him run the culture, do everything. B b they had him out within six months all of a sudden he went from ceo to a consultant to sitting on the sideline he still owned it and it's not because he wasn't qualified it's because you know they put some younger they just thought there's something

that i think private equity companies miss is the culture and the loyalty of certain people instead of just cutting things like the breakfasts and the lunches. But I just think it's so important to find the right partner. And the reason I say that, Adam, is if you're like me in a good spot, I'd rather take a less multiple up front and roll the 34% forward and be with the right partner to know that my second check is going to be bigger than the first. Isn't that important? It is always important to have the right partner. If we're talking private equity, again, with 6,000 firms out there, there are good, there are bad, and there are ugly. And so not all returns are created equal. Not all firms are created equal. An entrepreneur who wants

to become a platform, who wants to partner with a financial buyer needs to do a whole lot of homework. And here you go. Yeah, right here. Well, and you know, Tommy, let's be honest, you're actually doing everything in my book. I mean, you're, you're preparing the business to sell. You're building the business to one day sell. And actually, by the way, even if you don't sell, you're running a better company as a result. Well, yeah. And you gotta look what I love the most about what Adam's done for us. Example questions for a strategic buyer. What is the long-term vision of the company? What is the strategy of acquisition to every company? And how

does mine fit into that narrative? This goes on for pages of the questions you should ask. And it's on his book. I'm telling you. You know what, Tommy? I've bought 100 companies. So I've had this conversation with 100 entrepreneurs. And at some point in that meeting, the tables turn.

You talk a little bit about your company or the firm that you're working with or for. And then you ask, do you have any questions? And out of 100 times, the number of questions that we get back is really small. And then more than not, more than 50% of the time, we get no substantive questions at all, which means the seller's doing no diligence at all. And it's not because they're not smart people. They don't know what to ask. They don't know where the pitfalls are because they've never sold their business before. They've never taken on a partner before. They don't know where the potholes are that they could fall into or the manhole covers

that are missing. And so as a result of not knowing, they just don't know what to ask. And too many times what I see are bad results. So the one person you talked about who gets kicked off to the curb and set aside, even though he was good, maybe that person picked the wrong partner. And maybe it goes back to, do you have any questions? Well, no.

What's your bid? I want the highest bid. Sometimes as entrepreneurs, I think we focus on the wrong things. And to our detriment, entrepreneurs sometimes, they're experts in their own business, they created their own empire, but because they've never sold their own company, they're novices at selling a company. But they think because of the expertise they had in operating and building a company, that they're therefore an expert in everything, including selling a company. And as a result, I don't want to call

it arrogance because that's a negative term, but it's that false thinking that they know all there is to know because they're successful, that they totally missed the boat on picking a partner or picking the right exit path. And as a result, they have a very bad experience or a very bad outcome. And that's why in my books, I'm all about entrepreneur education and entrepreneurs leveling the playing field. You're gonna deal with sophisticated buyers,

check your ego at the door, assemble a team of really good professionals because they will level the playing field for you on your behalf and make sure you get the right partner and the right outcome. You said it. Your ego is not your amigo, my friends. The Exit Strategy Playbook is the name of the book. You guys got to get this book. One thing I'd recommend if you are a sophisticated company and you're going to go to market and you're looking for a great multiple, get audited by one of the big

four. Make sure you've got everything in hand possible and do your own quality of earnings. They're going to want to check on it, but that way they can't beat you up and you've been through the process and you know how to answer the questions. In the book, he's got, I just, I didn't go through even half of what I got. I mean, it just keeps going, going and going, but there's so many good things in this book. I got some notes right here. It just talks about the transactions,

harvesting synergies, SPAC versus IPO versus strategic. Oh man, just what to ask for for your CPA accountants and lawyers, because lawyers are your worst enemy, honestly, that they could drive the bill up so much. And they're charging you four or five, six, seven hundred dollars an hour. And it's just costing both parties. So what I recommend, too, is trying to handle as much of this outside of the lawyers. And then once it comes to the contract, but try to find somebody strategic like Adam,

who's done this before, who's got some of these agreements in place, because if you're not a big company, lawyers just tend to take advantage, don't they, Adam? Yeah, I don't want to talk bad about any profession. I've got a lot of good friends who are lawyers. Lawyers are like doctors. And that's the analogy I use in the book, because everybody gets it. If you need brain surgery, you don't go to your dentist. And if you need brain surgery, you don't go to your dentist. And if you need brain surgery, you don't go to your family doctor and say, hey, I need to save some money. Can you chop open my head and take this tumor out? When it comes to healthcare, people understand the role of a

specialist versus a generalist. And what I think people miss in the practice of law is they assume a lawyer is a lawyer is a lawyer. And my good buddy that handles my slip and falls, that helps me with my HR manual and my policies and procedures guide and takes care of the occasional lawsuit when I have it, that guy's gonna be the best place to go to sell my business. And selling business is brain surgery. It is a specialty area of practice.

And these guys cost a lot, but it's a blended cost. So the partner also has associates and there's different hours charged depending on who's doing the work. If you're with a small firm and a small partner, you're paying the partner's rate for the whole damn thing because he doesn't have a team of people potentially. But what you need is competence. You need someone who gets up every morning and deals with buying and selling companies as a lawyer because although they may charge you more per hour, like a brain surgeon charges more than a family practitioner, they're so much more efficient with time

and they're so much better at navigating. And oftentimes I see in deals, again, I've bought over a hundred companies, bought and sold over a hundred companies. I can tell just instantly when there's an unsophisticated party on the other side. I'm a good guy. I don't take advantage of them, but people out there do. And they would sleep well at night and say, caveat emptor, if the guy's not smart and he's got bad representation, I am going to take advantage of him. And that's fair game. And just a few words different in a typical indemnification clause could cost an entrepreneur

literally millions, you know, post close. So competent legal advice, specializing in the buying and selling of businesses is really, really important here in this area. You know, we've talked about a lot of stuff and it's all outlined in the book. I've lived it. I've breathed it. I mean, I'm going through this stuff. I'm learning so much. I've read a lot of books. Your book is definitely, it really does. It sounds like you just kind of took all those questions and decided to really, you wrote it in a way that it's all methodical. You put everything in order for people to understand it. It's written in layman's terms.

You outline a couple of words that people talk about in the industry and make sure to define what they're talking about. And you've got everything in there. I mean, literally both books combined. I tend to look at private equity because I just feel like IPOs aren't very, very, you got to be a hundred million plus.

You outlined that in the book. SPACs are usually 70 million plus. That's a strategic, yeah, that's like a smaller IPO. Private equity, you get multiple turns. It just makes sense. So I think for the home service crowd, that's why we stick to this private equity talk. But I always get a lot out of these talks and I call you up probably, I called you a couple of times in between. And the one thing you always

say is, dude, get a plan, get a plan. And I'm happy to say that I do have a timeline here. And what's nice about it is I don't plan on going anywhere. I'm still going to sit at my same desk. I'm still going to be in charge. So someone said, I don't see the book anywhere. You know, I'm not, I'm still going to sit at my same desk. I'm still going to be in charge. So someone said, I don't see the book, the exit strategy playbook anywhere, or can I get it? Well, the exit strategy playbook comes out September 14th. You know, so we're trying to suppress sales right now as you're gearing up the machine, the publisher.

If you went to Amazon right this second, it's not the 14th of September yet, you'd find it available. You can order the hardcover, the softcover, you know, the Kindle version. Kindle version won't load on your computer till the 14th, but you can buy the other two versions today. But I'm launching officially on the 14th. We're gonna have a promotion with low prices on the 14th.

So right now today, it's really kind of an Amazon-only thing. But next week, come Tuesday, it'll be everywhere fine books are sold. Any online retailer will have it. There is an audiobook that's been recorded. I'm pleased to say that my narrator from the first book, an award-winning guy, Ronnie Butler, he's back to read the second book. And that one will be coming out. It takes

about a month longer for the audiobook version to come out. But all those versions are coming out. They'll be heavily discounted the first week. And you'll be able to find it on Amazon or Apple or Borders or anywhere that you want to go. And you know what? To you, Tommy, I appreciate the chance to be on your show and to talk to your listeners all the time. Happy to come back anytime. We don't have to wait for another book. We can certainly continue this conversation. We can make it a monthly serial podcast. Adam and Tommy going at it about topics of the day or do a live version and get some other people on and ask some questions. Happy to do anything you want to do. But to all your listeners out there, hey, it's called the Exit Strategy Playbook.

If you hadn't read the first one, the Private Equity Playbook, it was number one for two years in a row on Amazon and up to like eight different business categories. Thank you. You know, I was blessed. And the second book really came from questions from readers of the first book.

So reach out to me on LinkedIn, adamcoffee, C-O-F-F-E-Y.com. Happy to reach out, happy to talk. I talk to people from all over the globe all the time. They make me smile. So I appreciate it. Thank you for having me on. Thank you to your listeners for supporting my book. I really appreciate it. Well, Adam, you're a genius. You know what's funny about Adam is first time I called him after the podcast, I asked him what kind of software he's running for the HVAC company. And he said, I'm not really. I mean, I know what I think, but I'm not really sure.

And he goes, it's just so funny because his mind goes, he said he had a comprehensive list of over 150 things he does when he buys a company. He's got 22 people on his team for acquisitions. And that's their sole purpose is to go find great tuck-ins. And that's how serious he's such an expert of the subject matter of what we're talking about. And to get him on here is a real treasure. I just think that if you guys listen to these things, you read these books and you figure out a way to strategically compound your business by stacking it underneath or not. You know, some of you guys are listening right now. You might be 60, 70. You might, you might just had a bad year in Minnesota because of snow or whatever. There's things you should be asking potential people that are going to buy your business. Well, Tommy, somebody once

told me not too long ago, Marty Wolf is his name. He told me, Adam, everybody is going to sell their business. Everybody, 100% of the people, you know, at some point you're going to die in it or it's going to eventually be sold. Or if you die in it, you know, your heirs are going to sell it. And so all people will one day sell a business. You are doing something, which is you're learning about the process and you're applying it to your own business. You may or may not choose to sell it later. You're building a better business.

You're running a better company as a result of being prepared. So entrepreneurs, even if you're not selling, there's a lot of valuable information out there, including my two books, many others, to help you just run and build a better business. Whether you choose to partner with someone or not, that's your choice.

People oftentimes don't think about selling their business until they reach a certain age. And then all of a sudden it's, I want to sell my business. And Tommy mentioned some things like quality of earnings and some of these things that may be foreign language to you today, but they're important. And at some point, instead of you just calling somebody and saying, I want to sell my business, give me an offer. You should already know what that offer is going to be. You should know the difference between what a good offer is and what

a bad offer is and how you determine that and the questions you need to be able to answer yourself in order to take a company to a sophisticated buyer. You should, a good seller already knows what the outcome is before they ever even call the first person. And you don't need to be a seller to learn that and to learn how to maximize your potential. And then once you do maximize your potential, you decide what to do with the business from there. Tommy's doing that right now. Well, it's funny because I get calls so often and I'm like, what's your profit a year? Well, somewhere around here. What are you looking to get for it?

Four million. You got everything. You got the price figured out, but you don't know anything else. Yeah. And if they got this number and it's like i guess i don't know who told them this like some type of broker or are they just picking up out of thin air like i feel like it's cheap and readily available well you know what's interesting and i'll end it here but i always hear this word come up goodwill and they think that there's this great big black

matter that lives out there called goodwill that's just worth millions and millions of dollars to a small business and you could definitely attribute certain things to goodwill but i've had people call me and they're like yeah i'm not really making a profit right now but i i've got 30 years of customer base i've got loyal customers i'm like well the only way i would buy your company it's still a value to me because if i could go in there and turn the knobs you know i met ken goodrich with kettle he said tommy do not always think in terms of multiple of even sometimes you have to think about what you could do with a business but what i don't like the most adam is when somebody tells me what i could do with the

business well you're gonna make it a 10 million million company. I know what I'm going to do, but you can't do it without me. So what is it? It's kind of like, yes, I don't, I don't pay for my own upside. Yeah. I love that. We should put that on a wall. I don't pay for my own upside. So you know what, but your friend is right from one perspective though, when he said, sometimes you have to think strategic. That's true. Sometimes for you, it might be, hey, this is a critical market I want to be in, or this company has a specific, either customer vertical or a technology or a way of doing things that in my hands is going to yield a great result. And so for strategic reasons,

even though it's a high multiple, given the earnings, I still want the asset. And how do you base something like that? See, when you do a quality of earnings, it's pretty straightforward. I'll give you four. I can give you five based on this. I'll give you some ad backs. It's an equation, but how do you value... I could do this all day. This is my last question. I'm sorry. But how do you value something like that when you're like, they're not making anything after the owner makes his salary. So what can you put a value on for something like that? How would you go about doing that? It's difficult. There's no secret formula I could give you that would give you a hard answer. Really what it comes down to, if a business has no earnings from an intangible perspective,

five times, 10 times, 100 times, nothing is still nothing. So there's a zero purchase price. Then I try to think about it in terms of the individual I'm buying from. What's their age? What are they trying to accomplish? What are they taking out as income? And then I think about it in terms of, so like, let's take, for example, let's say a business has 10 million in revenue and they earn literally nothing, but they've been paying themselves $250,000 a year. Now, in your hands, you believe that that 10 million worth of

revenue, maybe you're going to sell it something new. Maybe you're going to tweak the knobs and the levers and yield a different outcome. And certainly, if the entrepreneur is no longer there because they retired or left and it's now the Tommy show, you're not going to pay that quarter million. So when you adjust the earnings, if it's still, it just yields the tangible value is probably zero. Then I think about it as multiple of revenue. So if this guy's 65 years old or 62, and he's trying to get to 65, and he's pulling out a quarter million a year, then I might say to him, you know what?

I'm gonna give you a consulting agreement for X amount of dollars per year. I'm gonna guarantee the first year or guarantee the first two years. Third year's an option. You gotta be adding value for me to continue this. And somehow I'm going to solve a problem for them. And it yields some type of a purchase price, but it's no longer based on, I'm not going to pay a multiple of revenue for something that earns nothing. And if there are no earnings, I can't pay a multiple of earnings.

So I look at their situation and try to help them out. And I've done this. I've done this in the past year, where really what I was buying was service technicians, trucks in a market I wasn't in, but I had a customer base that I could bring with me. This person really just was tired of running a business, was spinning his wheels, not making anything. And so we paid him a few hundred thousand dollars and it was kind of a multiple of salary that he was taking out and just kind of helped him out, threw him a bone, took the weight off his shoulders and were able to, for us to then get headcount in trucks in a market where it was really valuable to us. So I would say if it's not a multiple of earnings in a traditional sense, then it's really just who's the entrepreneur selling? What's their age? What are they trying

to accomplish? What's the income they've been pulling out? And how do I give them some kind of multiple of that income that they're deriving, which yields a purchase price that me as a buyer can stomach because I know I'm going to do something with the asset. I like that multiple salary. And for sure, that's an asset purchase only. They're not making anything. Well, Adam, I definitely want to do this at least a couple of times a year. I'm definitely going to give you a buzz here in the next week. I think you're absolutely phenomenal. I do not blame you whatsoever for leaving California and going to Texas. I think that's a smart move. I don't

dislike California. I think it's a beautiful state. I just was in San Diego two weeks ago. I think it's hard for a business owner to work there when you're not used to it. They just passed a law recently that you got to write someone up five times to get rid of them. And you got to put two weeks in between each one. They make it really hard. I don't know. I don't want to go into this. It's a black hole for me. But I got to tell you, if you haven't read the book, the private equity playbook, you got to read the book, read that one first. And then you'll get a lot of questions. And then if you read the exit strategy playbook, that'll be all your questions answered. I think it's well written. It was great. I literally printed out the whole book both pages and it's just it's an amazing

read if you guys have not you had a chance to buy it yet you got to go buy it i'm gonna endorse the crap out of it hopefully give me a gold-plated copy and you know what's funny is on the week of september 14th both books will, if you're a Kindle reader, 99 cents each. Two bucks. Can't beat that. Two bucks. Two bucks.

Next week. Two bucks if you're a Kindle reader. But look, if you're like me, you want to buy the real thing. It's still up here. The one I read. The one I took a picture with. But Anna, I appreciate you very much, brother. Thank you.

I appreciate you. Good luck to you. And thank you to all your listeners again. We'll talk with. But Anna, I appreciate you very much, brother. Thank you. I appreciate you. Good luck to you. And thank you to all your listeners again. We'll talk soon. All right, buddy. Thank you, brother. Hey, guys, I just wanted to thank you real quick for listening to the podcast. From the bottom of my heart, it means a lot to me.

And I hope you're getting as much as I am out of this podcast. Our goal is to enrich your lives and enrich your businesses and your internal customers, which is your staff. And if you get a chance, please, please, please subscribe. You're going to find out all the new podcasts. You're going to be able to ask me questions to ask the next guest coming on. And do me a quick favor. Leave a quick review.

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