David Horne and Marty Balkema Share the REAL Secret to Building a Profitable Empire

Summary

In this conversation, Jon Stoddard interviews Marty Balkema and David Horn, founders of Calm Capital, about their entrepreneurial journey, the formation of their holding company, and their strategies for acquiring and managing businesses. They discuss the importance of complementary skills, the structure of their company, and the role of mentorship in their success. The conversation also delves into their approach to hiring and operational excellence, emphasizing a decentralized management style. In this conversation, Jon Stoddard discusses the intricacies of business acquisition, emphasizing the importance of leadership, the challenges of financing, and the transition from an operator to an investor mindset. He shares insights on building a roster of operators, the significance of cash flow in business models, and the lessons learned during the pandemic. The discussion highlights the need for good leadership in businesses and the various ways to finance acquisitions, debunking common fears associated with the process.

Takeaways

The journey of Calm Capital began from a long-standing friendship.
Complementary skills between partners are crucial for success.
Simplicity in structure helps avoid typical pressures of capital structures.
Mentorship plays a vital role in guiding business decisions.
Acquisition strategy focuses on finding cash flow positive businesses.
Operational excellence is prioritized while maintaining decentralization.
Hiring should start with a profile rather than a specific person.
Networking and proactive recruiting are essential for finding talent.
Building patient, profitable, and purposeful companies is the goal.
Regular check-ins with mentors ensure alignment and accountability. Building a roster of operators is crucial for success.
Good leadership is a foundation for great companies.
Cash flow is essential for sustainable business growth.
Finding the right fit between leaders and businesses is key.
Financing is available for good businesses, even without capital.
Networking can reveal financing opportunities for acquisitions.
It's often easier to acquire larger businesses with better cash flow.
Transitioning from operator to investor requires a mindset shift.
Downtime can be valuable for strategic thinking and learning.
The pandemic presented unique challenges that required adaptability.

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Transcript:

Jon Stoddard (00:00.258)
Welcome to the top &A entrepreneurs. Today I have a couple guests, Marty Bocchemma, which is Dutch from Michigan, and David Horn, who both run Calm Capital. Now they have started a couple companies and then acquired a couple companies and into this holding company. So welcome to the show, guys. Yeah, thanks, John, for having us on. We really appreciate it. Enjoyed some of the previous episodes. thank you.

I appreciate it. So you guys, what kind of, let's start over. Where did you guys meet and decide, Hey, I like working with this guy. He's honest. He meets what I'm looking for. And I want to work with him. I want to grow a company with him, like Buffett and Munger. Yeah. That might be the first time and possibly the only time we're ever mentioned in those cats, but we'll take it, John.

I can jump in. was I was playing mini tour golf, professional golf very poorly in the early 2000s. And Marty had moved to North Carolina, where I where I lived to get a job as a software developer. And he liked golf and played golf growing up and was a fan of the game. And we just kind of met randomly in a store because I was on my way to a mini tour event.

I just come from practicing, had like golf clothes on back when golf shoes looked like saddle Oxfords and didn't look like tennis shoes. Was that a little flap in the front? I didn't have the flap. But they were like pretty much anyway. He kind of made a funny comment about my shoes and golf and that kind of kicked it off. So that's how we met. Start off a friendship. There you go. I love that. Yeah. Over the years, you know, I kind of went into

Attic after golf went into marketing at a technology company and didn't know a whole lot about technology. Marty did. So I would go to him to ask him a bunch of questions. And then I went out on my own in 2008 and Marty kind of rode the corporate train for a little while. And then we just always talked about businesses. We started, we tried to, we had kind of failure to launch for a golf SaaS product.

Jon Stoddard (02:27.082)
in there and then as we both kind of did more services, we always talked about, man, it'd be nice to be our own clients someday. that was kind of the seed of what became ComCapital. Yeah. So you guys were you guys in two different companies when you met? Yeah. Yeah. mean, you know, it's like David said, you know, we've been friends for over 20 years, but probably about halfway through that, we started really talking about

starting businesses, started, you know, reading lots of books about, about SAS companies and listening to podcasts as those that became a popular thing and going to some conferences and things like that. stayed in corporate America and, David actually helped me get, get my start to kind of leave, leave, leave the job, the, you know, life and, and, kind of go out on my own. David helped me with that through services businesses. And then.

and

Yeah. When did you guys start talking to like, who's the first one to say, hey, we should knock this startup stuff out, you know, because there's to me, like, I've done a couple startups, and there's a million ways to die in the West and startups just say, this is really frustrating to get from zero to one. It's still a lot of energy. And you guys, you built a couple companies, you kind of came together, who was the first one to say, hey, you know what, we should do a holding company.

and start acquiring. I give David the credit for it. we I think, you know, we definitely started reading and listening to other people and other examples who described what you just described. Right. So one of the one of the guys that we first started learning from was J.D. Graff. I don't know if you know that name. I've heard that.

Jon Stoddard (04:45.57)
But, you know, check him out. We've learned a ton from reading his stuff and listening to him talk about these kind of topics. So that was one example. But I think David gets the credit for most of the good ideas from a like, what if we did this or should we do this? And then already gets the credit if they become successful. That's the deal we have. I get all the credit for the failures.

And Marty gets all the credit. You learn more then. yes. That's what I that's what I tell my wife when she wants to go buy something, I said. But I have learned so much. Yeah. You just saw Marty. Don't do this. That's it. Yeah, that's right. That's right. Yeah. So I got to ask you today, you know, you're sitting in your home and you're looking for a partner and you just meet a guy you don't.

put him through any test of metal like the Navy SEALs do. They go through a training, he goes, this guy's not qualified, doesn't work with others, he's got too big of an ego, thinks of himself. He hasn't been tested in an environment that may require some skills or the right aptitude to be able to make it through. How did you guys do that and know that you guys can work, be successful together? Yeah, I mean, think when we met, we kind of

had lot of shared a lot of the same worldviews, values, kind of how we saw family and what we wanted kind of from a lifestyle standpoint. So think that was a bit of a beginning point. And then, you know, we just always talked about these things and I was learning things kind of struggling and figuring things out on my own, on my entrepreneurial side, which I think, you know, kind of helped.

Marty with some ideas that he could apply in his jobs as he was gaining more responsibility in corporate. But I was just like winging it. And so he would bring all this great operational excellence and and like kind of leadership stuff around people and teams and all those kinds of things that I was able to apply in my businesses as they started to grow because he was doing this. And so

Jon Stoddard (07:11.564)
Those were things that we kind of said, man, we really have a lot of complimentary skill sets. And then when he went out on his own and started his software company and I had a marketing advertising design shop, we just collaborated on a bunch of projects. you know, we, our families have spent a lot of time together. We've vacationed together. We've just, you know, it's been kind of a friendship and, and a business partnership from, you know, for 10.

10 years or so before we started hatching the idea of capital. Yeah. So you, yeah, I feel like there's a bit of, I feel like there's a better John. think there's also like this, this kind of ham and egg or, you know, like complimenting each other aspect to like David and I are pretty self-aware of our shortcomings or our kind of weak spots and our things that we're not naturally talented or we don't, aren't passionate about being great at. And, and those things are

somewhat opposite from like gifts and talents and skills and that kind of work that we like doing. And so it's a really good fit. We fill the gaps, so to speak, on where needed. But then at the base of all of it, it's what David said to answer your question is, we're really equally yoked on the important foundational stuff about

you know, what we're trying to accomplish, the role of business in our life, the role of what we're trying to accomplish long-term. If anything, we talk a lot about Calm Capital being almost like a two-family family office more than any other structure is hopefully how we see it long-term. yeah, anyway, we know what we're good at and what we're not, and we really appreciate each other, I think.

doesn't mean we don't, I'm sure roughly each other's feathers, probably me doing the ruffling more often than not, but we get over it pretty quickly because we know where we both want to head with our future. I think what I've seen already, I'm just like 10 minutes into this, you guys are humble, which means you're coachable to each other, even to somebody that's your peer.

Jon Stoddard (09:36.002)
I think so. mean, we, yeah, I think we, we, we've, we've answered the question other way, other times where we say together, we're a whole person, a whole businessman. but, we really, we really, that's part of what we're having fun with, I think too, is to realize that we know what we want to build and we're persistent and patient and building it. but we also know that neither one of us have a finance background or

decades and decades of big business successes, but we're willing to, we're willing to give it a go, you know, and we're willing to learn, learn from everybody we can. Yeah. So you guys had a, David, by the way, I was looking on your LinkedIn. You were the professor of marketing at some point. Yeah. I've taught, I've taught a handful of college courses in marketing and, in writing. Yeah.

Interesting. Well, writing, you can make a fortune with writing. I've heard. too. I can say I heard too. I haven't been able to write direct mail campaigns that make a lot of money like Dan Kennedy or somebody else. yeah. Let me ask you about you guys had a couple of companies and you decided to just bring them under a holding company. What did that look like when you started?

structuring this, bringing it all together. Yeah, so we really, we really didn't know a lot about how we wanted or like the technical aspects of how we wanted to do it. We just knew we wanted to keep it simple. We wanted to not put ourselves in a situation where we had a lot of the typical maybe pressures of

certain capital structures, if you will. And so that was kind of our starting point. And basically what we did is we just created a simple LLC. There's no fund or anything like that. We put some of our own capital in as well as the value and equity, if you will, of the shares of the other LLCs that we had started.

Jon Stoddard (11:54.606)
And, we just kept it really simple. We actually had conversations with, a friend and mentor of David's, who ended up bringing in a second gentleman. So we have two other partners at calm capital that are, you know, limited partners as well as mentors to us. These guys have been very successful in previous, aspects of business throughout their lives. And, they, we got to know them.

over, almost a year of breakfast meetings, where we talked about the idea of calm capital for a long time. And, until we kind of, to your answer, your question kind of dialed in what the, what the, what the structure would be and how we would kind of fund it and, what the expectations of management of it and the expectations of, to the investors, the four of us essentially.

would be and we just kept it really simple. So I'll start with that. How did you slice up the pie? I'm a I have an affinity for pumpkin pie and I always seem to slice my side a little bit bigger than the other people I'm serving. It just I don't know why I do that, but I do. I love pumpkin pie. How did that look when you were bringing in these new mentors? Yeah, I mean Marty and I are have majority interest.

equally and then the other two partners have minority interest equally. And they're kind of at the point in their careers where, you know, we kind of came to them and said, you guys have been around business for a long time and have succeeded. And there are all these examples of offline businesses that are 50, 60, 70 years old, you know, they're long-term stable businesses. Those that's the businesses world y'all came from.

We were kind of in this technology creative services side. There isn't, it doesn't even exist to have an internet business that's 70 years old yet, but that's what we want to go try to find and acquire. We want to do what you've done, find good businesses, turn them into great companies in kind of the real world. And we we'd like to do that with maybe some more kind of modern businesses. and so how do we do that? And they like that idea.

Jon Stoddard (14:20.366)
But they're also like, we don't really, we're not looking to get super involved. So we kind of put all of our stuff on the table, all of our equity, all of our cash. And we just came up with something that made sense where it's meaningful for them. They have provided invaluable mentorship to us, but we don't report to them.

They don't report to us. We, you to check in with them or just wait till they, there's a problem. I think we, I think.

I mean, we check in with them monthly and then quarterly because we feel like that's the fidicious thing. Is that the right word? That's the right thing to do kind of in this relationship. And so it's interesting because Marty and I, way Comm Capital is capitalized, Marty and I and our two partners, I don't mind mentioning their names, Mike and Steve, we all put into Comm Capital. And so when we acquire a company,

the four of us put in to acquire the company under Calm Capital. So it's not like we just like capitalize Calm Capital infinitely and everything kind of runs under that. It's still, you it's very much a holding company and then we look at things individually and align and unify around the acquisitions or exits or what we're gonna do from that aspect. Does that kind of help?

Is, they, are these mentors, are kind of more, more like a board of directors where their nose in fingers out, or are they driving a mandate said, you probably should be growing 50 % doing three acquisitions a year. No, it's, it's very much the latter. I mean, we come to them and say, Hey, this is what should this look like? You guys have been a part of these. Like we want to build a long-term holding company. Y'all have already built these companies.

Jon Stoddard (16:29.517)
You know, what do you all think? And so it's really been a sounding board. But all of the the goals and the direction and all that comes from mostly Marty and I. And then we just have a great sounding board who who is emotionally detached enough that they can bring a objective perspective, but they're vested enough that they care. Right. And so, yeah, they're they're good. They're.

amazing folks. I knew Mike for years before we ever started this. he was more than generous with his time. so it's worked out to be a great relationship. did they structure it? Were the investors saying, look, I'm looking for a return on invested capital over five years, seven years, or, look, let's keep doing this till I die.

You know? Yeah, I'll take that. It's case by case. So far, it's been more of I wouldn't say it's I'll keep doing this till I die or anything, but it's not putting the traditional time constraints on it where I need to in order for it's not when we when we come up with the different ways we could do a deal.

The sentences of possibilities don't start with in order for me to do this, I need this return over this amount of time. Right. It's much more of, think this is something I'd be interested in. Now, you know, I don't want to put like intentions or words in anybody's mouth. Maybe there are those calculations and thoughts about return in time in their mind because that's smart. Right. that all of us should be thinking that because we're

weighing our opportunity costs of how we could deploy this capital elsewhere, right? That's your job is an allocation of capital, right? Exactly. but I just, guess I'm trying to make the point that the relationship and the way that we talk to each other and the way that we work through solving these problems is not, you know, very if then kind of thing. It's much more of like, Hey, does this make sense? What could the return be?

Jon Stoddard (18:52.833)
Let's structure it like this to share the risk on both sides and both sides, meaning with calm and it's, it's for owners, but also with the sellers that we're acquiring it from. Right. There's a lot of that that we discuss as well. So, yeah, like I said, it's a, it's a, or like David said, it's a, it's a case by case basis that we have a, like, like right now, for example,

We're very much in the mode of, you know, really working on the output and success of the companies we already have for the last several months. But David and I are still looking at deals every week, you know, and we're still looking at new paths. We're just trying to be very, very patient. And also just take time to

consider what we're learning about the ones that the businesses we've already acquired. And so it'll be fun to know when the next big transaction is going to happen. Let me ask you about the three or four businesses that you were started. You rolled into the holding company. Were they cashflow positive? They're all cashflow positive? Yeah, exactly.

Where did you start saying, we we should start acquiring versus growing. How did you know at some of these companies, like they're okay. This is tapped out, you know, every dollar we put in used to get every dollar, get a $3 now it only gets $2.99 and it's seems like it's tapped out and to grow this company, we'll probably have to acquire and it's a holding company, which is a portfolio of unrelated companies.

Right? Right. Correct. Correct. Yeah. Yeah. So they know there's no synergy in between them, except maybe some operational excellence. Yeah. I mean, I think that sometimes they, yeah, go ahead, David. I was just saying the nature of the, started businesses out of our core businesses, solving problems that we saw in the market. So they're not necessarily related, but they're, they're somewhat in the same universe, a couple of them. So it's not, they're not completely.

Jon Stoddard (21:20.587)
you know, disparate. That said, I mean, the operational excellence, our goal is to run them as decentralized as possible. know, you're aforementioned Munger and Buffett, you know, listening to guys like Andrew Wilkinson and what they he's done at Tiny and, you know, Constellation Software and

I don't in Canada. I don't remember what's. Yeah. Mark Leonard is quite amazing. I don't know. Yeah. I mean, you talk about Hall of Fame. mean, the Hall of Fame. Yeah. 40, 40 % per year over a 10, 15, 20 year period. Yeah. And and then like JD Graph home and some of those things. So so we want them to be as autonomous and decentralized as possible. But at the same time,

we feel like that's part of our role. If we can help them gain efficiencies through other things, we want to be a resource center and a capital center for them as well. And that goes into the equation of what type of return can we get out of our resource? We have time, Marty and I's time. We have our

financial resources, have infrastructure type resources. How are we going to get the best return out of growing the total enterprise value of Comm Capital? And if that grows, then we feel like that will benefit all of the companies. And if the companies don't fit into that idea of helping grow the total enterprise value of Comm Capital in the way that we want to work.

Right? Like if we were to acquire something or one of our businesses got into a position where it just didn't align with the way we want to build, you know, patient, profitable and purposeful companies, then, you know, it's going, we'll have to, we'll figure out what to do with that. So we, our intent is to go in with kind of a buy and hold mentality, but at the same time, you know, we've got to look at, and that's one of the things that we've learned from our

Jon Stoddard (23:40.223)
actual mentors and then stuff we read and those, you know, once you have this holding company, you're no longer operating one business. It's, you have to have the enterprise value of the whole go up to. If you've heard the phrase, like, no, we're not interested. It doesn't move the needle. Yeah. Yeah. Yeah. So these startup companies that you guys had, at some point you said, I need somebody to replace me because now I need to be the chairman.

of the holding company and I need a CEO or president or general manager or something like that. How did you go about that process of finding people to replace you? Marty's the expert on that. I'll let him. Yeah. Yeah. And that man, that's a great question, John. And that that is is has and will in the future prove to be one of the most important things that we need to continue to be great at. And

To answer your question, how, how is we've obviously, developed a decent network. And so, I think in all cases, they are hires have come from our network. and we're also, which has gone pretty well, you know, we've had, we knew, we knew some people that, or really aligned with what we were doing at column capital. think that's number one.

and to have the skills and track record of success. And so, so far it's been pretty straightforward from a funding standpoint. That was a little bit of the main initial funding that we, you know, to start the holding company, right? Where David and I needed to be able to, you know, give

back those salaries to the operations of each of those businesses that were paying for paying the bills in our lives, give those up, receive paychecks from Calm Capital and use those paychecks that we were receiving to hire these people, right? So that's the basics of like how we got started there. Yeah, it's easy enough to say, well, yeah, I just find somebody to replace me, but who's going to pay your bills?

Jon Stoddard (26:01.293)
Exactly, right? So that's that's that was like the the primary initial pre making acquisitions like that first those first that first year or so was really that right there right and then and then the acquisitions were taken at Beyond that we were taking those as individual decisions now looking now It's been a couple years and to answer the question about hiring

managers and operators now. Man, we've learned a lot and we think that, you know, we will very much start with a profile in mind versus a person in mind, right? I think that's super important. Starting with like, what is the person needed or what's the profile of the person versus going and handpicking like I want this person to work.

for me as an operator. think that that is something we'll probably do in the future. I think that that profile needs to include having a track record of growing a similar business to, you know, three, four, five times the size than we care for it to be. If that makes sense, like they have have success greater than our ambitions, so to speak.

and then I think the other thing we'll spend a lot of time on and we've, we've listened to Andrew Wilkinson talk a lot about this from tiny about just the, way that you set up the structure of compensation and incentives. Right. And we've spent a ton of time, David and I reading and thinking about that so that we're prepared for that, in our next, our next situation. and I think that the other thing, just like, just like constantly looking at deals.

Even before we're to pull the, you know, imminently ready to pull the trigger, we're doing the same thing with talent. So we think that it's really important to take all the meetings that we can about potential people. So even though I'm on one side of my mouth, I'm saying we're going to have a profile. Man, that networking and proactive recruiting and, and getting the name out there. So we take a lot of meetings from people.

Jon Stoddard (28:26.977)
who come to us and say, like what you're all about. I like what Calm Capital talks about. And if I ever have the opportunity, I'd like to be considered to be one of your operators. So we've got a pretty good roster going of people like that, which leads us to other things we've been talking about, just to play with that a little bit, is when we meet the right person that fits a profile,

could we match them with a acquisition, right? Where it reduces the risk when we know we've got a particular Yeah, absolutely. Why require it if you don't have anybody to run it, right? Well, and I would say that's And bring them in, And that's been the biggest thing we've learned. Like, business, you know, we don't... It's not a startup, we're not a venture fund, we're not a PE fund, search fund, anything like that. So the business is just... They just need to grow. They just...

but they don't have to double or anything like that, Businesses, like good businesses, one of the foundations or earmarks of a good business that turns into a great company is leadership. So where we have good leadership, things go well. Where we don't have good leadership, it takes a lot more work. And so that's one of the things that we've, to Marty's point about.

as we meet and identify these, and again, this is a little bit of, we're still young enough to where we're experimenting and we can, obviously we don't wanna make like terrible bets because that's not good, but finding good leaders and then finding a good company to place those leaders.

I mean, are about hypothesis. That's going to be a greater outcome than potentially a great, a good business with an okay. Or a great business with a, with a poor leader. So I agree with you. was like, you guys know the story app sumo where the guy that started app sumo hired that guy and it grew to over a hundred million dollars in revenue. Yeah. Yeah. Yeah. And he's like, I couldn't do that. I was only doing, you know, you know, a couple million or I don't know what the number was, but this guy, he hired.

Jon Stoddard (30:47.361)
took it to amazing heights. Yeah. You know, I think another thing that's important to us, and it might not be important to everybody else in that you interview or in your audience, but I can just speak for David and I and for Calm Capital to tie a couple of things we're talking about together to tie them together is.

We also have this cash flowing model, right? So you're taught, you asked like the, when we founded the company and the holding company, the companies that we brought in were, were cashflow positive and the things we acquire a cashflow positive. well, if they, if they, aren't a good fit, a lot of times it's because they either aren't, they're going, you know, showing signs where they're some point in the future, not going to be cashflow positive, right?

Or it's just not enough excess cash to pay for the leader we were just talking about. Right. So, so we actually, in this time last year, took stock and like really identified the different businesses Calm was in where it was no longer a good fit for our model because we have a cash flowing model. Right. And, and I don't mean like they literally weren't cashflow positive, but in the

the amount of excess cash and the growth rate for the leader we needed to have success, which could just be a few percent month over month growth. And so we got out of a few businesses, right? In the first half of 22 because of that very reason. Let me interject on that. Yeah. why not

And this is back to Andrew Wilkinson. I haven't had him on my show, but I've seen a number of his podcasts where he goes, you know, my any laments about this is like my job is to hire and fire CEOs. Yeah. Yeah. Why didn't you just go hire and fire this person in this role? And it was just like, it's a tough decision because the end of the day, there's a number there, but it's people. Yeah, I'll answer that is because of in that case, they were

Jon Stoddard (33:04.235)
they were all small enough where the margin, the free cash flow wasn't enough to hire to afford the right person. Okay. Gotcha. Yep. Yeah. And that goes all the way to like the other part of us finding the right leader is someone who understands our model and our operating model and our financial model and can succeed inside of it. Right. Because there's people that have grown amazing

or had amazing success growing companies, but they've done it inside of a different model, right? A model where it was okay to not make profit for many, many years, right? And it was okay to throw, you know, 30 engineers at the problem and have a huge burn rate. And if we don't make profit for a while, it's okay. Well, that's not the kind of leader that's just not a fit for it. I'm not saying that's wrong. It's just not our model, right? So that's an important part, right? When we're

When we're thinking about how do we find the right person? we want to know that they're okay. And they're not going to have this conflict with that model, right? Where they're going to take the resources that they have, the free cashflow that they have, and they're going to be able to grow the team at maybe a slower pace, right? Or they're going to be able to be okay with not being, on a, you know, we got to grow, we got to double every year pace because

There's a lot of great leaders. That's the only environment they've been in for the last decade. Yeah. Now, what we're finding as we're having conversations with these operators, I just had one last week where same thing. He just left a decade of Silicon Valley venture backed startups. He's got an amazing track record and he is. Tired of having to go at that pace.

He listened to something that we talked about and saw, saw, you know, ran into us somewhere along the line and said, man, and he just cold reached out or cold outreached and said, booked a call with us and said, Hey, if there's ever anything I can work on with you guys, I really like it. And, and man, I'm, you know, I'm starting a family, and I just want to have a different pace of life, but I know how to grow. And I'm like, that's so, that, that's what, that's what we're looking for. Yeah.

Jon Stoddard (35:30.753)
Yeah, you're two ends of the spectrum and you're kind of creating these guardrails where this is going to be our niche and we're the road we're going to go. Yep. I mean, time will tell if it's a it's a equation. But if it's it's it's what it's what we want to do. Yeah. I mean, this is what it's just talking about this yesterday. Warren Buffett used to say for 20, 30 years, I'm not going to invest in technology. He's an Apple. He's an IBM. So, you know,

whatever works. Let's talk about some of the obstacles. Well, first, kind of fears did you have? Because because my audience is a lot of people that would love to acquire business. And for some reason, the biggest fear they have is it's a they create a mountain out of a molehill kind of deal. Like, what is that fear that you realize that wasn't as big as I thought it was?

Jon Stoddard (36:33.901)
I don't I mean, I don't have anything. I have things that are still challenging. I don't know if I inflated one. I would say one of the things is when you when you come from a bootstrapped background. Financing is one of the things that you. Always have concerned about like I can never. Money with a VC. You got to do this. I can never require business because I don't have the money. Yeah.

Like to a bank and get a loan or whatever. And the reality is. What we've learned or found so far is if it's a good business, there's money available like just as there are people that contact us or that we reach out to who are operators. There are also people whose job is to take the money and. And liquid resources they have and deploy those into said businesses.

And so I think we, one of the things that was a fear of ours is like, if we do this, how are we ever going to find the money? mean, we had cash flowing businesses, but it's different. That's a different thing than having $10 million to buy something or $5 million to buy something. Right. If you want to go ahead and jump in to making that purchase. And so I would say that's one of the things is just that good businesses.

You can find a way to finance an acquisition if you don't have all the capital. The very first thing we ever did, it was actually before Calm Capital, Marty and I were talking about the idea. I had the opportunity to acquire a design website. It was really small. It cash flowed like, I don't know, $2,800 a month or $3,000 a month or something in that range.

And I mean, I could have bought it, but then I was like, well, that depletes too much of my kind of savings and stuff. So don't really want to do that. I wonder if I can find it. So I was able to get it financed and I paid the, with the pay for it with the cash flows of the business. And that was like, wow. So if there, if it was a good business, there's usually ways to finance that, whether it's finding other people who have money that they'd like to get a return on, or a lot of times a seller.

Jon Stoddard (39:02.097)
is willing to work with you. I just think that's a fear that I've heard many people talk about who are wanting to kind of get into acquiring something and is a huge blocker. it doesn't seem, it doesn't need to be. If you're having trouble financing something, it's not the right deal. It's probably not a good deal. Yeah. And you know, that's not too different. What Marty talked about is finding, you know,

Operators for good deals and there's once that match those two together people will give you money Yeah, I Totally agree with to answer your question and kind of I Guess encourage your audience that is you know not coming from a finance background or anything like that at all I It seemed like a mountain right it seems so so difficult to

you know, buy businesses like this. and the reality is between what I've experienced in the last couple of years and what I've, read and listened to, that is, it is one of the least hard problems to solve, right? Like it is, it is not the thing to block you. You might not know how, but if you, if you

And it'll take work, but it doesn't mean that it's a blocker. Right? mean, if you can focus on constantly networking and constantly describing to people in different spheres and in your network about what you're trying to accomplish, it'll start to reveal itself. I mean, there's traditional ways to

have kind of public capital, right? And public credit, if you will, and debt financing. There's, there is so much private credit now available, which is, you know, there's, there's just a lot of different ways than traditional VC or funds to get deals done in addition to the seller financing options to cash flowing businesses, right? So I think that's the number one.

Jon Stoddard (41:28.415)
thing, fear or obstacle or whatever that I personally had to overcome. And once we overcame it, man, it really changes. And you know, the other thing is, we realized in this last acquisition is within months of closing the deal and taking ownership and beginning to operate the business, David and I said to each other and had other people say to us, why didn't you build

buy a business that was two, three, four, five times bigger, might've been easier. And so like getting over that, getting over that financing thing, right? And having that, the capital being a big deal to find, you realize that you could buy a larger business, have more free cashflow to hire better leaders and put the team together that you need post transaction and

It's basically the same amount of work to find that bigger deal and close that bigger capital. And so some of the deals were a little bit smaller that you worked on originally and then now you're moving up in size. Well, what is the range now that you look for? Yeah, I think now we need to... It doesn't mean we won't dabble. I want to caveat.

caveat that David and feel free to correct me because you answer this question more often. just kind of was already jumping in, but I think definitely, you know, a business is above 2 million ARR in size. A team of, you know, five to 10 people. And, you know, those businesses, if they're a SaaS business have pretty good margins. So you can kind of do the

valuation estimate, yeah, above 2 million ARR, 2 to 10 is kind of what we talk about. I think I'm not speaking out of turn there, David. mean, size is one factor. mean, a lot of it is the free cash flow because of our cash flow model. So if it's a smaller business, but it's got a

Jon Stoddard (43:52.871)
wide moat and tons of, know, proportionally tons of free cashflow. We would still still look at it, but that really goes back to the keeping things simple, being able to be patient and not having to. Feel like we're running a startup or turn around or something like that. I think that's kind of the biggest thing. That said, you know, the larger businesses, there's a base level of work.

regardless of the size of the good. And when I say good business, mean any good business, all good businesses have a baseline of work and energy that's involved to keep them going. But there's a lot more, you know, energy you got to put into a startup company than in it. Yeah, right. And so we're kind of looking for. You know, it's already gone zero to one. It's it's it's after one, but probably before 10.

So, you know, and right now we've kind of been in the two to four range. And I think next time, if we're looking at like life cycle, I think we'll probably look at businesses that are, you know, four to eight. I got a question for you that you have a couple of mentors in, you know, offline boring type of businesses. And then when you bring them a 2 million ARR SaaS company, they look at the multiple and go, what? Yeah.

How do they, what's the argument there and how do you say this is a good deal? Then they go, how can that be a good deal? Well, they're intrigued. They're agnostic when it comes to the industry. mean, they can look at the proportions and the equations and percentages, I guess, if you will. we haven't had a whole lot of issues. I think the things that they marvel at is

How can there only be a couple of employees? How can their monthly expenses only be like there's no cost of goods? The cost of goods is like 1%. What is that? How does that happen? Yeah. How do you have a gross profit of 97 % gross margin percentage? Yeah, I took a I was trying to buy a business. It was courses on Udemy. The guy had already sold a million courses. He sells two million a year.

Jon Stoddard (46:17.599)
And it was basically to him, 97 % profit because you didn't. He brought all the traffic. And then at that point, he wasn't writing the courses anymore. He just had people come to him and say, can I sell my courses through yours? Yeah. He created like a marketplace for me. He created a marketplace within a marketplace. He's sold over 2 million now. Wow. Wow. Yeah. Yeah. And the people just, when I showed him the deck, I said, yeah, we're trying to raise money to get a loan to buy this.

What? No, I don't believe you can do 87 % 97 % profit. No. Yep. Yeah. Yeah. It you're right though. Like it, it, it, takes a little bit of, but I think one of the things is important when you ask that question, the situation there was, like I said, we talked to, we talked to these guys.

Mike and Steve for almost a year before we started the company. So it was a lot of like us bringing example deals before Calm was even a thing. Like there was a lot of like just war games and, you know, scenario situational things that we did. And, and then it was them just, you know, asking us questions. Well, how would you grow that or how would you staff that or how would, you know, how would you operate? How would you handle this HR thing? Just getting to know how we.

thought about and the decision making that we would play in supporting these businesses. And so we had kind of covered a lot of that thing that you're just talking about that, wait, 100 % profit, how's that possible? That's not real. We had covered a lot of that. And they're sharp too, as far as watching the text. Just like you said, like Buffett and those guys.

investing in tech because at some point you just you got to throw your hat in the ring and see what happens right and because you want to get a piece of it even if you don't fully understand it I think that's that's the thing yeah well let me ask you about some kind of obstacle or challenge this is a little bit different than in fear it's just where it hits you head-on and you guys thought man it's dead we're gonna close the doors or

Jon Stoddard (48:40.093)
head a different direction. Go back to W2. And how did you guys work through that? Yeah. Everybody has them. Yeah. I'm going to jump in. You know, I don't know if mine. Yeah, just because I'm curious what you're going to say. Yeah. think mine's maybe a little more personal and vulnerable, but I think it's, you know, biggest challenges is moving from being an operator to

more of an investor mindset and just, you I was a bootstrapper. I would, you know, start stuff in a weekend and get my first customers by the following week. I mean, that was kind of the mode where you are not necessarily good at everything, but you did everything. You did everything. You did the cut. Yeah, you got to figure it out. You got one thing to solve and you go figure out how to solve it.

and I think there's some challenge in moving to where, know, you're cultivating leaders and letting them make decisions and mistakes and not doing things for them. And I read a book, a great book called multipliers, by Liz starts with a W, but she was like, had a talent at Oracle. I think when they had one of their big growth spurts.

And, and it really kind of helped me rethink as we were moving to more roles where I just gave up my job in a company that I had built to someone else. Right. So I always played kind of the role of founder. And so it's, it's been a challenge to kind of get out of that mindset and think, you know, a little more,

broadly from a leadership standpoint, that's one of things that, you know, I've been able to kind of lean on Marty with him, his experience in corporate America and being in leadership roles where he did some of that inside another company. I don't know if it was as much of a challenge for him, you know, kind of shifting those, those gears, or at least he didn't make it seem like it. You always had an answer when I had questions and stuff. And so I think that that's been one of the things is just

Jon Stoddard (51:07.905)
kind of moving out of a doer. We're still working in the businesses and we, Martin and I are enough of operators and people who like to our hands dirty that I find it hard to believe we won't do anything. mean, what I enjoy, the one thing I enjoy now is being able to like cherry pick and drop in and help out on the things that sound exciting and not have to do some of the stuff that I used to have to do. But.

As a whole, it is a bit of a shift of a mindset of looking at things more from an investor long-term versus as a bootstrapper where you're just trying to survive and plan. You you're planning the next quarter or the next month, not two years. Yeah. What did you, what did you learn about yourself, you know, evolving or maturing to this new role?

I mean, I think the just thinking slower and when I'm not like a Daniel Kahneman, no, who wrote Think Fast, Think Slow book, can't remember. But not so much that, like slowing down, taking time, thinking slower. I think that's been the thing that has.

help the most in kind of cultivating that to be able to to remove myself, you know, a layer from from being an operator. Interesting. What about you, Marty?

Jon Stoddard (52:45.463)
Yeah, I think, you you, you, talked about an example of when, when it was like hard. I'll just throw out a couple of, that's okay, quick. Yeah, we only got a couple of minutes too. my God is, is, you know, we started in 20, January, 2020. So as soon as we started our company, COVID hit, right. And, we were in pandemic state and obviously businesses are affected by that with customers and budgets and.

just workers and people's families being affected. So that was definitely something we had to work through, The distraction alone and giving people space to deal with it personally, and then creating the cash and financial situations, working through all the things that small businesses had to work through during those times. So that's one. And then the other thing is just really having

a focus on multiple businesses, cashflow forecast, right? And so like really, really just watching, watching everyone's cashflow and helping them focus on those things. and the other thing I think about us is we have the luxury of being a team, David and I, right? And so as long as we don't both both quit on the same day, as they say, one of us feels like

There's a hard, hopeless situation. The other one doesn't that day and vice versa. And that's super important. I, if people are a single owner and they're doing this kind of work, make sure you have a mentor or a coach or something to help you with that. think that's important. and then I would say, you know, the other thing, the last thing is just that we, you know, I had to learn how to be okay with, with downtime.

And it's okay to not be constantly powering through a to-do list because in this role, if I'm not operating these businesses in the minutiae and the details, there's still tons of ways to add value to Calm Capital, add value to the businesses. And I had to personally had to teach myself to not just be grinding all the time, but I

Jon Stoddard (55:13.129)
I need it because I had to learn new things. had to meet new people, right? had to do different work than I had ever done before. And so being okay with with thinking time and learning time and creative space, that's been hard for me. Wow. Guys, I want to thank you very much for being on my podcast. And that's a wealth of knowledge you both shared over the last hour. Really greatly appreciate it.

Yeah, we appreciate you inviting us on and hopefully, you know, this was valuable for you. I know we got a lot out of it. Thanks for pulling some of that stuff out of it. Cause when you're working on it, you don't think about it as much. Yeah. Well, thank you guys the fun, Yeah. Pleasure. Take care. Best of success too. Thanks. All right. Thank you. Cheers. Thanks for watching this video. Make sure you're a subscriber by clicking on this button right here down below.

And if you want to watch more serial acquirer interviews, click on this button right here. If you're ready to buy your first business, get my course at dealflowsystem.net right here. Take care. Cheers, John.