Summary

In this conversation, Jon Stoddard interviews Trish Higgins, a partner at Chenmark, discussing the intricacies of mergers and acquisitions (M&A) and the unique approach of Chenmark in acquiring and managing small businesses. Trish shares insights into their investment philosophy, the challenges faced during acquisitions, and the long-term vision they have for their portfolio. The discussion also covers the importance of operational processes and the role of family in their business model. In this conversation, Jon Stoddard discusses the importance of leadership in small businesses, the challenges of finding the right CEOs, and the innovative Generalist Vice President Program designed to nurture future leaders. He emphasizes the need for strong communication and understanding of business performance metrics, as well as the value of fostering a supportive network among CEOs to facilitate growth and development.

Takeaways

No deal is better than a bad deal.
Chenmark was founded by a family team in 2015.
The investment thesis focuses on acquiring small businesses.
They aim to buy businesses with EBITDA of $1-3 million.
Cash flow from one business funds the next acquisition.
External capital can be a distraction from core operations.
Long-term vision is prioritized over rapid growth.
The first acquisition is often the toughest and most educational.
Negotiation processes can be complex and require patience.
Operational improvements take longer than expected. Whoever is running your business is the most important thing.
Finding the right CEO is crucial for business success.
The Generalist Vice President Program helps develop future leaders.
Strong communication with CEOs is essential for performance management.
Understanding business performance drivers is key to addressing issues.
Monthly CEO meetings foster connection and support among leaders.
A decentralized management approach empowers business leaders.
Building a strong leadership pipeline is vital for growth.
Chasing better is a core value that drives improvement.
Transparency in business challenges encourages problem-solving.

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Transcript

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Jon Stoddard (00:00.428)
Welcome to the top &A entrepreneurs. My name is John Stoddard and I'm your host today. And I want to open this up by just telling you that I got my first sponsor and that is doodlio at D-U-E-D-I-L-I-O.com. It's an &A diligence marketplace of service providers for acquisition entrepreneurs. It's free to use, free to sign up and you only pay when you engage with the service provider.

What I'd like to say is there's no, no deal is better than a bad deal. I'm not the first one to say that. And prices range from anywhere from $500 to $59 up. And it's online for online businesses and offline businesses. So I would suggest using somebody in due diligence. If you're going to borrow money, many will require that you have a due diligence package run in the business. So with that, I'd like to introduce you to my guest is Trish Higgins.

She is a partner at Chinmark. Chinmark is a, it's like it's a private equity fund investor that a team that has acquired small businesses committed to each other and to the constant pursuit of better. But I'm going to let her explain a little bit more about what Chinmark is. Hi Tris, welcome to the show. Hello, thanks so much for having me. Tell me a little bit more about what Chinmark is and what they do. Sure. So.

Chenmark was founded in 2015 by myself, my husband and my brother-in-law. So we are a strange founding team, but we are a family business and for us it works. We wouldn't have it any other way. The three of us all sort of got our start in more traditional finance in New York City. So kind of did the New York City finance thing for a little bit. I went to business school.

went back into finance afterwards and we're sort of, that was our track. We weren't in private equity. We were more in the market, stocks, bonds, currency trading, things like that. And we sort of came to a point where we felt like we wanted to do something a little different. And that came from a couple of different things. First was just an investment thesis. You we were trained to be constantly looking for interesting investments.

Jon Stoddard (02:19.894)
And this idea of buying up smaller businesses and holding them for the long term started off as something that was a compelling investment opportunity just because there's so much more supply of small businesses coming to market than organized capital to purchase those businesses. So you tend to be able to purchase them for fairly attractive valuations relative to sort of large big boy private equity and things like that.

And also we felt like we were sort of just sitting behind a desk, not really doing anything. And we'd had the privilege of going to some really good schools and worked in really great jobs. But we wanted to take some of those experiences and see how they fared out in the real world, which sometimes they fare well and sometimes they ideas that are hashed around.

a conference table fare very poorly when you're working in the real world. And that's something that we felt that we were missing and we wanted to get more, more of that in our lives. So that was kind of the foundation of Chenmark. So basically the idea from the beginning, buy small businesses from retiring owners for us, a small business is defined as about one to 3 million of earnings. So not really, you know, typically your local pizzeria shop, but

smaller than a traditional private equity firm would care about. Take over the business, either promote somebody internally to run it or bring in our own person to run it and build a portfolio of cash flowing businesses that we could own for the long term. something that's of unique about our model is that

We didn't raise a fund or anything. Our goal had always been to use the cash flows from the first business to buy the second business and the cash flows from the first two companies to buy the third business and so on and so forth. So we don't really have any external capital that's fueled our growth. We've been internally funded and as a holding company structure, we intend to own our businesses for the longterm and really just focus on sort of optimizing cashflow and

Jon Stoddard (04:35.458)
We can really only grow as quickly as our companies can generate cash. So if we perform well, we can grow. And if we don't, we can't. So today we have a collection of businesses in England and Western Canada, which is where I'm from originally. But we look all over the US and Canada and have a couple of things in the pipeline that are in completely different geographies, which is exciting for us. And yeah, it's been a fun ride so far. Beautiful.

I love that. By the way, she does have a pretty nice scholastic pedigree, Yale University political science and Harvard Business School. So that's pretty impressive right there. I tell most small business owners to not hold that against me. Yeah, you're not going to see a lot of small business owners doing three million. But yeah, I know. Let me make sure that the one to three million in earnings and is that EBITDA or net income? Just to clarify.

Yeah, so for us, that's usually EBITDA. Most of the businesses we look at have some sort of capex requirements. So we're always looking at sort of the conversion of EBITDA to cash flow. But that one to three million is EBITDA range. But we wouldn't really look at anything that had less than a million of cash flow, unless it was a tuck-in or something like that.

Why is that? Is that something that you learned by purchasing somebody or just you made that like, let's sit around the table and this is our criteria because less than three million, they don't have processes in place. They're working 90 hours, et cetera. Yeah, was that it certainly was something that was that many, many people told us when we before we started that we were.

you know, that when you have a company that has less than a million, it tends to just be one person. There tends not to be a team and a lot of processes. And so it's a very difficult thing to acquire because you're really more, you know, buying somebody's life as opposed to a business. So obviously there could be exceptions to that, but it's just a general kind of rule of thumb that we have certainly found plays out. Now that said, just because you have 3 million of earnings doesn't

Jon Stoddard (06:53.298)
You could also have a business that has very poor processes and is really run by one guy who's running around like crazy that has 3 million burnings. That could happen too. It's just less likely. So that's why that threshold for us. I've got a question about now, and I love this that you've done it just by the cashflow of the first business and that's your limit to growth. I mean, that's beautiful. At this point though,

are banks, hedge funds, or any private equity coming to you and say, hey, here, please take my money and purchase faster? Yeah. So it's always an interesting tension between do we want to work with a provider of external capital and grow a lot faster? Or do we want to retain ownership and grow a little bit slower?

To be honest, it was actually a little bit more of a discussion a couple of years ago, when we were a little bit smaller and the appeal of raising sort of a fund from people meant, hey, we could kind of accelerate growth by five years or something and go out. And every time we sort of had some of those conversations, we found them to be a little bit of a distraction and realized we could probably just generate more equity if we just or value

if we just focus on operating our businesses well and growing them that way. And I think that the lessons that we've learned about how we want to actually operate our businesses and what sort of owners we want to be and how our compensation plans work and what our values are and all those sorts of things have really been gelled and informed by our experiences having to grow ourselves over the past.

five-ish years. And I think that if we had raised capital, I'm not sure those lessons would have had as much of an impact. for us, it sort of worked. But I won't lie, it sounds very, very appealing to if somebody emails us in, we get cold emails quite often saying, hey, are you looking for capital? you looking for capital?

Jon Stoddard (09:13.166)
Yeah, it's at 6%. I know somebody's offering at 6%. And then I go, OK. Yeah. So yeah, right now, just seems like we'd rather retain ownership and grow a little bit slower because we're thinking of this as a 20, 30-year endeavor. And if we think out that long, for us,

it's worthwhile growing a little bit slower in the early days so that we can maintain ownership. Yeah, that's amazing. You guys set those, that value system up. mean, who did you look to? I mean, it's easy to say, Hey, we love what Warren Buffett's doing, right? Yeah. Yeah. Or Charlie Munger and those guys is it was, who's your inspiration for looking at a 20 year road?

So one, think the fact that we're family and, you know, family is probably the most enduring thing that there is. So the fact that we're family sort of made this, you know, this isn't something we wanted to do for, you know, five, 10 years and then sell and move on to our next thing. know, James Palmer and I were really thinking about what did we want to do kind of full stop? What did we want to spend our days doing? What did we want to build? And

to us that just naturally came to be something that was a multi-decade long thing. so then when you look at, obviously, Warren Buffett and Berkshire is probably the biggest model out there, but there are numerous companies that have grown over time that we take inspiration from. So there would be kind of all the sort of normal names like

like

Jon Stoddard (11:36.05)
know, Constellation will buy a $1 million business. So it's a little more similar and we've taken a lot of inspiration from what they've done. And I'd love to talk to that. I got to like, I'd love to talk to that guy and ask him about that 1 million. Mark and just understand what the business model is. Is he just taking the product and fit it into his platform or what's he doing?

Yeah, so it seems like they have different business lines. I'm not an expert at this, but it seems like they have different business lines. And it's all software. So there obviously are kind of a lot of similarities in what they're doing. And then a business gets put into the business line. But then they have just individual people that continue to run those businesses, but within that business line. it becomes almost like, in my mind, it's like, I have friends who went to like craft

but they ran a business within Kraft like some whatever pet food product or whatever it might be. To me, it's a little bit like that. kids love. Yeah. Something like that. Yeah. So where are you guys at now? I I looked at PitchBook and I see that you guys purchased a business called, where's my notes here? Seabreeze Properties. mean, how many businesses have you purchased?

Sure. So Pitchbook emails us all the time. I don't think we've ever responded. their information's a little off, but we did buy Seabreeze. That was our first company. And the one thing I'll just kind of, think important to mention that the business, type of businesses we buy, our businesses, we feel comfortable owning for the long-term. So that kind of leads us towards certain types of businesses. Seabreeze is a,

commercial landscape, and it's no removal business up here in Maine. So that's something that we feel confident will be around for a long period of time, this or demand for those services. So that's why that particular company and we don't do anything that has a lot of, you know, it's based in technology or has a lot of legislative risk or things that we can't really see ourselves owning for a long period of time. So that's just kind of a preamble.

Jon Stoddard (14:00.34)
Right now we own seven sort of what we would call platform businesses. Platform is a business that has its own CEO, has done its own management team, keeps its own name, like sort of all those sorts of things. And we have a of a collection of those that are in what I call quote unquote, like the green space. So lawn care to mosquito control,

property services, snow removal, sort of different companies kind of under that banner that all operate independently. We have a tourism business here in Maine. We have a food manufacturing company out in Canada and a heat distribution business out in Western Canada. So collection of businesses and I'd say probably our total number of acquisitions is

I don't know the exact number, but probably somewhere around 30, I'd say, because some of our companies have grown significantly through sort of smaller tuck-in acquisitions. The landscaping and lawn care space is much more ripe for opportunity with a sort of smaller tuck-in growth strategy. So certainly a number of sort of smaller deals on that side of things. And those would range anywhere from

I don't know, a couple hundred thousand of revenue to, you know, maybe one to two, three million of revenues would be sort of the range there. And it's interesting that the smaller ones are always the ones that take the most work. yeah. Hey, let's go back to the Seabreeze properties because that's the first one. And the first one is kind of always toughest and always takes the expectations. It's like driving to a new place. it takes, seems like it takes forever.

You know, and they're, they're, you're just roller coaster. How did you guys find that business? And tell me the story about, you know, your first, you know, communication with the seller and how that go, how long it took and you know, how you made that transaction, what the financing looked like. Sure. So let's see. So we first met the company. I was probably like early 2015. We closed on it.

Jon Stoddard (16:25.657)
end of September, 2015. We were all still working at the time, living in Connecticut, sort of New York suburbs. This company is up in Portland, Maine. It was actually through a broker. We had first met the broker through another deal that was in a similar space in a different geography. And he...

we kind of kept in touch and he let us know, hey, I have this other one that's coming to market, wasn't sort of officially on the market yet. Would this be interesting? So it's a little bit, I'd say it was a brokered search, but it wasn't sort of a widely marketed deal, I think, just because we kind of got in a little bit early. We also were, I think, a little lucky that in 2015, the landscaping space wasn't as interesting to

Yeah. It's like the fifth time I've interviewed somebody and I love it because it's reoccurring revenue and it's never going away. Exactly. In 2015, we faced a lot more questions about it than now, on the corollary is there wasn't any much demand for the business. it kind of worked out. And so Brothers founded the company. We're looking to kind of move on. They've been running it for

I don't know, 20, 20 plus years. How old were they? They were in their... The older one was in his mid to late 50s and the younger one was sort of, I think, just turned 50s or something like that. Did they both want out? Sometimes you get this like, they both wanted out? Well, so let me rephrase that. At the time of the deal, they did not want out.

they were supposed to stay on to run the business very quickly thereafter. It became apparent they did not want to run the business. So they wanted out. you know, five years down the road, it all worked out that first 12 months. There was a fair amount of volatility, I'd say. So, yeah, so we worked on the deal. was a 50 % equity.

Jon Stoddard (18:48.909)
The owners ruled some equity and then the rest was seller financing. So we didn't use a bank, which I think actually worked out well because in the original, like again, back in 2015, first of all, we had no operating or even private equity experience. We were this weird husband, wife, brother-in-law team. And at the time, landscaping was considered, was not an interesting space.

and sort of dismissed by a lot of people. I don't need, maybe we could have gotten bank financing, but I don't really know what the terms would have been like. And I think it would have been harder for us at that time because it's a lot easier now. So the sell of financing really worked. We ended up purchasing, I forget the exact timeline, but we ended up purchasing the remaining equity out and refinancing the whole deal, I think like a year or so afterwards. And

So you put some cash down for 50 % of it, right? Yeah. Was at that time, five years ago, landscaping, was the multiple lower than it is today? Now people value it more? Yeah, yeah, yeah. So at the time it was more, I'd say like around, like four times was like a full multiple. Now I think it's more like five to eight times for a landscaping business. Yeah. Wow. Yeah. So, yeah.

got in before it got expensive, I guess. Yeah. And how did that negotiations go back and forth? So you started at the beginning of the year and then in September it closed, right? Is that what you said? So how did that negotiations go? It like, we'd like to buy your business. We're going to present you in an LOI and here are the terms. Did they accept the first terms or did they say, Yeah. Yeah. Well, I'm going to have to think back to my memory a little bit here and just

remember the specifics, because it's kind of, when it's happening, it all feels very, very important. And then like six months later, you kind of forget all the specifics. It's like 30 years later, go like, wow, why did that take so long? Why did it cause so much stress on me? 30 acquisitions. Yeah. So it was sometime in the first quarter when we first met them. A little bit of it was, I think,

Jon Stoddard (21:16.033)
Yeah, I think we went back and forth a couple of times on the offer and the structure and those sorts of things. A big part of it was because they were staying on kind of what their conversation agreements would be like when they stayed on and all that sort of stuff. That was certainly a stumbling block. And I remember a meeting where we'd gone up to Portland to meet with them to go over the proposals and all this stuff. And they went very poorly. And we sort of thought it

because the deal was dead. they kind of like most owners, like they had primarily been paying themselves off of the distributions of the company and had like a modest salary. you know, I think for an owner who's been living off of distributions, then to have someone come and say, hey, this is what your salary should be. There can sometimes be a mismatch between what they their perception of their value is and what.

our perception of their value. That never happens. I've never seen that. You've never seen that? Yeah, of course. I think we've seen that in every deal. Every instance. Yeah. But it was our first time, so it felt worse. But we got the deal back on track. I would say that the broker in this situation, I know a lot of people look down on broker searches, and we've done some proprietary, some brokered.

This was certainly a situation where the broker really helped because he had a good relationship with the owners. He was good at communicating and he was good at, you know, telling us like, Hey, this isn't going to work for them. But he was also on whatever particular issue was coming up. But there was also, you know, he had the ability to go back to the owners and say, Hey, you know, what they're asking for is not ridiculous. Like I've seen a lot of deals. This seems like this is normal.

If you want a deal to happen with these people or anyone else, this is this is the reality of what a deal looks like. So I think he was fair and certainly earned his commission. I don't think a deal would have happened if he hadn't been able to be that bridge in communicating between us. And we certainly have had deals, proprietary deals, we said it would be really helpful to have a broker figure right now, because there's something in the legal terms that we think is

Jon Stoddard (23:35.853)
perfectly standard and normal and the owner is freaking out about, and there's nobody to say like, hey, if you don't want to accept these terms, that's fine, but everybody else is going to ask for the same thing. You've made a really good point there because that's very valuable. It's like making a big sale in a big company. You got to have a champion to manage expectations of the people. Like, hey, brokers saying these are legitimate people, they got the financing, and this is a

you know, a good deal. It's not a bad deal. It's not an irrational deal. It's a good deal. Right. And having that voice is very important. And we found that sometimes, you know, obviously sellers will have a lawyer, but we found that very often the lawyer one often doesn't actually have that much experience with transactions or this is the largest transaction they've ever done. So

sometimes the lawyers seem to be more about kind of like winning the argument as opposed to like getting the deal closed. And so, yeah, the broker role or somebody playing that role could be very helpful. So anyways, we went through that a bunch and we ended up, I forget exactly why, but we came to a bit of an impasse. But

since it was our first deal, we wanted to be close to the operations because we're very aware we had no operational experience. We actually ended up, James and I sold our house in Connecticut and we moved up to Maine. And that actually, think that like symbolic act of us actually moving there and being committed and all that stuff, I think showed them that like we were really serious about doing the transaction.

Because think before we'd sort of been like these people from Connecticut that like they weren't really sure. People are going to be owners and then I'm just going to answer somebody telling me what to do, right? Exactly. And I think that when we sort of made the show, showed how committed we were to this, wasn't just a side project. This is what we wanted to do. I think that kind of helped emotionally get them more comfortable with them.

Jon Stoddard (25:55.405)
with the transaction and it was a little bit of a leap of faith from our perspective, but it all worked out. yeah, we are. The seller financing, how many years was that over a year, two or three years? So our standard, I forget exactly what theirs was at the beginning, but our standard seller financing is five years. Five years interest only. Five years is fast, right? So that your guys are finished, yeah.

Yeah, five years, usually interest only with a bullet payment at the end. Yeah. What was that payment at the end? kind of? In terms of like dollar value or? Compared to what the seller financing. You know, maybe you have to give a number, was it? Bigger than the.

I can't give the number just because I know that I'm kind of bound by them. But no, was a site. Well, we ended up actually just refinancing it. So, So that's kind of what we tend to do with our seller notes is we have a facility with a bank and we end up as they come do, we just refinance them out. Right. And by that time, so five years later, now you're running the business.

But you said like, I don't have operation experience. And I had this, I didn't have this conversation, a friend had this conversation with a billionaire and he goes like, hey, you need three superstars. You need one for acquisition, you need two delivery and you need one for operations. And three superstars and you'll have a billion dollar business. And where were you guys at? Did you guys able to grow the business over five years? Did you do more tuck-ins for this guy or what, this business or what happened?

Yeah. So for this, this business now is larger than when we purchased it. It certainly, it was not a straight line up. I would say there was a couple of dips is in the first business that we bought. We didn't really know what we were looking for. And I think that this company didn't have sort of as much there in terms of processes. Like we were talking about at the beginning of the conversation, like didn't have quite as much there.

Jon Stoddard (28:15.465)
as we probably would want in a company if we purchased it today. And I think we were a little naive in coming in and being like, well, all these things are so easy. Like, it'll be very easy to implement these changes. Digitizing, know, like putting everything onto an ERP system and, you know, cleaning up billing practices and all these things. And those things are all very doable. And we've certainly done them a number of times, but

it is takes longer than you might think when you haven't done it before. So that kind of took up the first couple of years of a lot of those types of projects. And now that those have kind of happened, the company has certainly grown. It's bought a lot of its competitors. It's grown into a lot of geographies. Yeah, and it's doing it's doing very well now. But the first, I'd say the first

12 to 24 months, was a little up and down there. And so these guys, did they stay the whole period of the earn out or did they want to get out sooner? No, there was no technical earn out or anything like that. So- me, seller financing. Did they stay through the seller financing? Yeah. No, they left. I forget. It was probably a little over a year and we were just like, you guys don't want to do this. They were like, no, we don't want to do it.

They exited, we found somebody else to come in and run the business. And- that take, that process? I mean, this is great because when I do get to talk to Andrew Wilkinson, he said that my job is to hire and fire CEOs. Yeah. He said that in the shortest amount of words possible what his job is. Yeah. Yeah.

Essentially, is, well, primarily right now, that's James, my husband's job, because he's kind of taken on that role, but that's his job. Your question of finding the person. Yeah, how long did that take to find, hey, I need somebody to take over this landscaping business doing, you know, one to three million in EBITDA. Can you grow it too? Yeah, so that's an interesting question.

Jon Stoddard (30:38.677)
It's very easy to find the wrong person, I'd say. It doesn't take much time at all. And we certainly learned that lesson. And in these small businesses, who's running them is really the most important thing. It makes or breaks it. This is not Nestle and whoever's CEO doesn't matter because there's,

a lot of momentum and there's a machine that's just working there and you can create people in and out. into a little bucket right there in a large corporation. I just want you to do these three things. You go home, get your paycheck. But when you become CEO, there got so many things going on. It's a very unique job. It's very demanding. I think it can be very lonely. And it is hard to hire for. And so we

certainly had a couple of false starts on that front, not with Seabreeze specifically, but just in general with the companies and came to a realization probably about two years ago that, know, if we, first of all, at the time I was leading up our deal sourcing and we had so many deals that we said this would be really interesting, but we don't have anybody to run it that both has the skill set and that we trust. that we trust part of that is,

the most important aspect because we run a pretty decentralized system. When people become the leader of one of our businesses, they're in charge of the business. They have a lot of autonomy. We're not looking over their shoulder telling them what to do. Isn't that frustrating to find a great deal? Because I look at software companies and very profitable, but the guy wants to leave, doesn't want anything to do with it. It's like, I don't have anybody to replace him and I'm not going to do it.

Exactly. So we really felt like we were sort of stagnating and we're like, well, we can't achieve what we want to achieve with Chedmark if we don't solve this problem. And I'll give the credit all to James because he really kind of masterminded this program. But we started it's called the Generalist Vice President Program or GBP program to start. It's like a rolling hiring that we do. And we hire people who are sort of interested in

Jon Stoddard (33:01.387)
A lot of them are interested in doing a search fund, but are maybe want something a little bit different. Some of them are people who are sort of call them like disaffected private equity or investment banking associates, things like that. Hold on one second, we lost your video there. there we go. Yeah, I just got another call. And so the program is they come in, they work in Portland, Maine with us.

for a period of time. And that's more of like a doing a deal sourcing, due diligence, all that sort of stuff, and then working on supporting our businesses. And then they go from there into an operating rule in one of our businesses. So there is a CFO, head of sales, branch manager, whatever, something comes up. And from there, when we have a new deal that opens up, we...

send out a note to all of the people who are eligible and say, hey, we have this business. It looks like it is at a point now where we need to be thinking about leadership. This is what the business does. This is where it is, all that sort of stuff. And then either somebody in that group raises their hand and says, yeah, I want to do that, or they don't. And we don't proceed with the deal. So it's kind of a contingent on that group of people. And for us, the benefit is

By time somebody is one of our CEOs, we know them very well. We trust their decision-making capabilities. They understand what we're trying to do at Chedmark, which is maximize free cashflow. We don't really care about revenue. We want to own business for the long-term. We want to treat people well. All of these things that are important to us, they understand it because they've been living it for a period of time. And then they become the CEO.

so far has worked out very well for us and has allowed us to be a bit more aggressive in looking for deals. And I like that you guys created this production and nurturing of CEOs, kind of like McDonald's University, just exactly. That's a mini, mini Chenmark version. That's very cool. I like that. I mean, if you go backwards, like that, what's the problem we're having? What's the bottleneck? Well, we need to produce, you know, CEOs.

Jon Stoddard (35:24.865)
Yeah, and it's even CEOs, but then we also find that, you know, somebody, you know, we can attract some really interesting, talented people into the program who saying, Hey, you know what, like, I just graduated from business school. I don't want to do consulting. Like I want to go and are having the exact same feeling that I had a year out of graduating business school, which was like, I'm sitting at a desk and I don't feel like I'm doing anything. Like I want to have an impact. want to interact with people. I want to lead a team. want to, you know, I actually want to do

something and are feeling a little restless in a more traditional role. So by a lot, you know, those people then coming in and, being CFO at a small landscaping company, you know, they can be really effective at that role, but they also learn a ton. And so then it's both the CEO, but then in a lot of other sort of more executive roles, I feel like we've been able to

bring in a lot of really talented people to those roles who otherwise would never be in those roles. So it ends up making our companies overall stronger, even though, you know, the goal for those people are very similar to a military assignment is to like, you know, leave it better than where you found it and document everything so that, you know, an opportunity comes up, you could go do that new opportunity and a new person could step in and kind of take over your role. And then their job is to make it a little better. So we're about the program.

I'm sorry, what do you see in as far as people that are coming out of your program are disaffected Wall Street or actual people from, you know, Bangor, Portland, Maine? I've been to Portland, Maine. It was freaking cold in July. Yeah, it is not a warm place. But I grew up in Canada, so it's relatively warmer here than where my parents are right now. So

It's a lot of people who are graduating from business school. So we've got a couple of Harvard guys, some Yale guys, and Tuck guy. Business school is a natural recruiting ground for us because people are looking for jobs and they're aware of what a search fund is and that sort of thing. But that's not really like a...

Jon Stoddard (37:47.565)
prerequisite to being in the program by any stretch of imagination. It's just something, it's an area for that we have interested people. And then it is a lot of, you know, people who are in, you know, we have one guy who was sort of mid career private equity, just wanted to do something a little different. Had a a family

who was involved with small business, so kind of understood that and liked it and was drawn towards more of that space. And so I'd say a common thread is most people who come to work with us have some sort of prior personal exposure to small business. And are find that appealing. Is this an official program or you have to go through Chenmark or did it? The reason I brought this up is,

I had a guy from search funder reach out to me and said, Hey, look, I got a ton of businesses and I got on the phone with them and he goes, yeah, I've got, I'm a search funder and you know, I've gone through a thousand businesses and I just can't find anything. I go, well, that's a lot of businesses. What do you really want? I, I just want to work for like a CEO or president of the company and help it grow. I go, he sounds like a perfect guy for a program like this. Yeah.

Because he doesn't really want to acquire something because he doesn't know how. He needs somebody else to teach him how to do it like you guys do and then maybe do it later. Yeah, that's kind of what when we talk to people who are interested in search funds, like some people just want to do their own search fund and you know, that's fine. I think for us, when we talk to people, it's sort of, hey, you know, you can come and instead of doing spending 12 to 24 months doing a search, you could come in, you could spend some time doing

deal related stuff. You could spend some time actually working in a business. And then when a company comes up for you to run, you know, if you fast forward two years from now, you'll likely be in the CEO seat anyways. But you'll have spent your 12 to 24 months getting more tangible experience. That's not just, you close a deal? So you're kind of part of the Chedmark network.

Jon Stoddard (40:10.369)
Yeah. How many times does the CEO talk to you guys? they, know, Warren Buffett would say, look, I just want you to send the numbers at the end of month. Yeah. Or, you know, problem come to me before it gets too big. Something. So that's something that is certainly something we've had to think a lot about. So when we first started being informed by Buffett and whatnot, you know, it was certainly the sort of

you know, more hands off the better. Send me the financial statements. Like all's good. And like we very quickly came to realize like, you know, we don't own Geico, right? Like we own small landscaping business and things are different. And so what we needed to kind of like orient ourselves or like, what are the controls we have in place to make sure that everything in the company is working well? Cause things can go.

bad quickly in a small business setting. So what are the controls that we have in place to make sure that, you know, there's not accounting fraud going on, that, you know, the financial performance is like within the realm of what we think it should be, that all of these things are kind of happening in a sort of sustainable way, while not actually being the ones who are running the business, which is tricky and is a little bit of what I think we learned

in a much more comprehensive way than we would have learned if we'd actually had a lot of external capital and been just focusing on deals and then like think about the operations later. yeah, I can go off more into this. Where the tricky part is, you're running a $3 million EBITDA business and it's a trendy like profit margin or gross margin.

or net income, it starts trending down and you're not seeing that. I mean, it's boiling some, you know, like a crab, you know, you don't know what's happening and it's still way, it's way too late. Right. Then you have a crisis and there's something structural. so what we kind of do is, you know, when the company is first purchased, it's like, okay, the first thing we need is reliable and accurate financial data reporting, which

Jon Stoddard (42:39.009)
can take a little while to get up, get up and running. So operational and financial performance. Is that standardized through all your companies now? It's standardized that they have it. It's not standardized. Like it's not because they're different businesses. Like what would be standardized is like every week at the end of the week, we got a cash dashboard and it tells us how much cash we've got. AR, AP kind of like

cash conversion cycle things. Cause from a cash management perspective, like you can see problems coming. Like if a company has like way more AP than AR and that's trading in the wrong direction, like the cash balance might be fine right now, but you can see that it's, you're going to have a problem in whatever a month. so- Let me add kind of the system over 30 businesses or acquisitions. Are you using like QuickBooks or White Plains or something? So everybody has their own.

Most people are on QuickBooks, but some are on different platforms. We've got one on Sage, some on Xero. It's all different, but the reports that come out of them with the information to standardize. So we say, hey, you know what? You've been on Sage for whatever, 10 years. I don't care what program you use as long as it provides the outputs that we need it to. So the cache dashboard is like a weekly thing.

And then financial reporting happens monthly. And what we have it just like export systems. And we have somebody who basically like aggregates those into reports for us. And because they're all coming from different systems. And so the reports we get are standardized. And I'd say that when things are going well, we're fairly hands off.

we kind of interact standing kind of like check-in call with the CEO once a week, see how things are going. If somebody, let's say they're going through a pricing increase, they want a lot more help and you might be talking to them every single day because they want someone to talk to about how they're communicating their price increase. And then that goes through and then you kind of go back to a check-in call once a week. And sometimes that might be 10 minutes, hey, how are the kids?

Jon Stoddard (44:54.869)
the path's lost and I don't know. What about our things that work? They got to come to you for tuck-ins like say, hey man, this guy has got this nice route and he's won three, five people doing that and it's really high profile customer list. Yeah, we would be involved with tuck-ins. So like capital allocation decision. So we would be involved with tuck-ins, not necessarily doing the negotiations or anything like that, but.

Certainly, we've actually never had a situation where somebody really wanted to do a tuck-in and we didn't think it was a good idea. But we would be helping probably with diligence, because a lot of our companies don't have that capability in-house. one of our people would help with, and in that GVP program, that's what somebody would be helping with. So an example is right now, one of our businesses is looking at a tuck-in. So one of our GVP

people who eventually will be CEO is working with a current CEO to do all the diligence and the analysis for this tuck-in. So it's not somebody in his company that's helping him, it's somebody at sort of Chedmark HQ that's helping him with that analysis. But when you start to see the data go the wrong way, then the conversation is...

really try and understand why is that happening. When do you raise the red flag on, mean, small businesses, it's not uncommon to see trends going down 5 % and go, but don't panic. 5 % is no big deal. That's why it's a great thing when not public. Things are volatile in small business. It's more about understanding. It's not so much when something's down.

it's understanding your business. So can the person who's leading it or on the management team talk about, hey, you know, we thought we were going to make a hundred dollars this month, but we actually made $300. That would be honestly somewhat surprising as well. If you couldn't really articulate why that happened, because it also means that if then you made $50 instead of a hundred, you also don't really understand that. for us, it's one,

Jon Stoddard (47:19.211)
does the person understand the drivers of their business and what's causing variability either year over year or relative to their budget? Because everybody has to put together a budget once a year. And the budget is really also a way to say, do you understand the drivers in your business? And do you have a way of tracking whether you're, or of knowing whether you're on track or off track? So like in the landscape business, being able to track your gross profit is super important. So right now, like our CEOs would all be looking at like,

gross profit by job, gross profit by business line, all those sorts of things. So we would basically be understanding like what the drivers are. And then if there is a problem, it's let's say landscaping business, hey, like, you know, it turns out that we're down, what are the drivers of that? So what part of, you know, the income, like what division is causing it? You know, and maybe

An example could be, hey, we dove into it. We're really starting to underperform. And it turns out it's because last season we had a new estimator come in. He actually like drastically underpriced, all of our Mo contracts. just making this example of Mo contracts, whatever systems we had in place, didn't catch it. And now we're seeing the results. Cause he basically like gave away, our

gave away our profit and all mo accounts for the next 12 months. Clearly that's a problem. could a hundred percent happen, in one of our businesses, but at least then we know what it is and we say, okay, well, what do we do to fix it? We have to wait for those contracts to roll off. there any, could renegotiate. Can we change the scope? You know, and then you kind of go into those conversations. So for us, it's not so much about the performance is declining. It's about understanding the drivers for that decline and then being able to say, okay,

These are the things that we need to do to fix it. And then actually seeing the person who's in a leadership position, actually go and fix it and work towards it and all those sorts of things. Cause obviously in a small business setting, it, you know, crazy stuff happens, know, mistakes, yeah. Mistakes happen. You might have a little bit of underperformant sometime. It's not like freaking out. It's more like, you understand the driver and are you actually fixing that problem? And then do you not make that mistake again?

Jon Stoddard (49:45.121)
That's really kind of how we think about it. But you'd be having a lot more interaction with us if you were performing poorly. yeah, I bet. you got a program for finding hiring CEOs. Now that with you've got 30 plus acquisitions, do all these CEOs, do they still come to you guys or is that kind of a mastermind that you created? And the reason I bring this up is I had this great conversation with this,

a company doing $5 million, digital marketing, and he wants to retire, but he also wants to grow. But the thinking that got you to $5 million is not going to get you an attempt. You've got to work with people that have built $50 million, $100 million businesses. They just give you ideas that go, holy crap, I didn't really think that way. What do you guys have for CEOs in the place for them to see, here's how I grow my business? So a couple of things. First,

If any of our business, our CEOs want to be, there are a lot of like industry peer groups. And so if anybody wants to be an industry peer group, we're fully supportive of that. Internally, I think one of the things we're excited about and something that we feel that we can build and will have more value as we get larger is basically building that within Chedmark. So right now, you know,

COVID put a little bit of a hamper on this, but we're starting to kind of kick it back up again over the past year. As we have monthly CEO meetings. And so that's a forum for our CEOs to come together. That's sort of like a guided conversation that I don't know if you're familiar with YPO, but we're part of YPO. We've basically taken a lot of their like forum structure discussions about kind of

checking in, everybody sharing, picking a topic, diving into that topic. So we've kind of taken the forum structure that both James and I have experienced with and tweaked it a little bit, but used, I'd say 80 % of it as kind of the framework for our CEO meetings, which I think has been really effective and had a positive impact on everybody, both in terms of their own personal and professional development, but also in terms of

Jon Stoddard (52:07.597)
building connections between the teams, because people need to be a little bit vulnerable in those settings to be able to make those connections. So when we just kind of get together and just talk business, I feel like, everything's great, blah, We don't really have That's red flag. It's always a red flag. Yeah. And so when somebody comes and says, hey, I'm here and it,

whatever, my grandmother is ill and I'm having trouble with this employee that's, I've been with her a long time, but they're really not performing. And like, we're trying to create and facilitate a forum where people have that type of relationship where they can go with the real things that are happening and help each other through whatever struggles they might be going through at the time. But then also have somebody that I can celebrate, you know, a group that celebrates all the wins and all that sort of stuff. And so

We're excited about that and are excited about kind of what we can, that can become over time. Yeah. I, I, I love that because what happens is, and you go back to my working in startup days, like the, the red flag started when they stopped being transparent about what was happening. Cause you knew something bad was happening because they were afraid to show, share bad news, create an environment, a nurturing environment. Well, hey, it's okay.

Like this happens in business. It's not, you're not the first person to see a dip in sales ever. So don't worry about it, right? But the thing is what can we do about it? Right. Exactly. Yeah. We're one of our core values is what we call like to chase better, which is that we kind of believe that like wherever you are, it's like a snapshot in time. It's not like a judgment for you for the rest of your life. It's just.

something that like this is where you are at right now. And then like, what can you do to improve on that wherever you are? And that's kind of one of our core values that, you we always believe that kind of no matter what we can work to improve, like we have the ability to improve. And so that's kind of core to how we think about the performance of our businesses.

Jon Stoddard (54:23.213)
I love that because they actually was one of mine is chasing my better self. And if I'm going to be a better husband to my wife, I actually have to be a better person or transparent to myself. So I love that. So let me let me ask you a couple of questions. We're kind of running out of time here. So what do you know now that you didn't know then? mean, how it's like I wish it was like a measure. I'm so much more wiser on a scale of 10. But, know, what would you summarize and say it's like

if your daughter or son came to you or somebody wanted to work with you, you're just like, hey, here's the golden rules. Like Warren Buffett has golden rules. He's like, don't lose money and fall number rule to him. Don't forget the rule number one, right? Yeah. So we kind of touched on this, but I mean, the one thing that has really hammered home is in small business, whoever is running your business is

the very, it is the most important thing. If James Palmer and I make the wrong decision on that, the company is gonna struggle. And if we have the right people in place, a lot of things just go a lot easier. Even when the company has poor performance, if you have the right person in place, you can work through it. If you have the wrong person in place, things can kind of go sideways. And so it sounds obvious, but having lived it, I think that

had to choose one thing, getting that CEO spot is, you know, kind of betting on the jockey and identifying the jockey and all that stuff is, the by far the most important thing that I've realized I always knew was important. But I think what I've learned is the the amount of importance is the number one thing as opposed to kind of a list of 10 or 20 things. I got a question for that because I'm running out of time with you. But yeah, so do you guys

interview the CEO together or independently and then like, you know, you got a veto vote and say, God, I got a weird feeling about that guy. You know, he looks clean on social media. He's not talking about Nazis or he's not doing anything like that. But I just got a weird vibe about it. Yeah. Yeah. So, well, the benefit of our new program is that anybody who's in a CEO role, we've all worked with and know. So that helps. We between the three of us,

Jon Stoddard (56:50.445)
we all have like a veto. So on deals and people. if somebody's just like, you know what, like person looks great, but I just have a bad feeling about it. can't articulate it and I just can't move forward with it. Then we don't. So that's been pretty, and then the other two don't hold it against them for, you know, forever. so that's how we kind of make that decision internally is just how can we, you know, if

we either are all in or we're all out. And if one person's of like a little bit like not sure, then we do something which was called disagree, but commit, which is, Hey, you know what? I kind of disagree. I'm not sure, but I'm going to commit to this decision. And I'm not going to bring up like three months from now how I didn't want to do it. You guys wanted to, you know, that kind of like snide comment of like, I never wanted to do this anyways. That's like,

Yeah. Yeah. So that really doesn't find a group. So it's either I'm fully out and we can't move forward or, you know, if somebody's a little bit unsure, then they don't have super strong feelings about it. They'll just say like, you know, I kind of disagree slightly, but I'll commit and I'm behind, the others on this decision. So it's, it's not an easy thing. No, no Trish. I want to thank you. I've taken an hour's worth of your time and I hope this is valuable to whoever's watching this.

Trish Higgins, partner at Chenmark Capital Management, definitely a top &A entrepreneur. So thank you so much, Trish, for this time. Thank you. Appreciate it. It was enjoyable, great conversation. And thanks for doing this. All right. We'll take care. Thanks. You too. Bye.