SUMMARY

In this conversation, Adam Coffey discusses his book 'Empire Builders: The Road to a Billion Dollars' and shares insights on building successful businesses. He emphasizes the importance of focusing on needs rather than wants, recurring revenue streams, and unit level economics. Coffey also highlights the significance of managing for culture and creating opportunities for growth within organizations. Additionally, he discusses the role of compensation plans in driving performance and shares his experience as a turnaround specialist. In this conversation, Adam Coffey discusses his experience as a turnaround specialist and the importance of sustained growth in the Fortune 500 world. He also shares how he used polynomial regression models to improve business metrics in the laundromat industry. Coffey emphasizes the role of technology in optimizing productivity and profitability in any business. He then explains the strategy of climbing the private equity pyramid through mergers and acquisitions to create outsized returns. Finally, Coffey offers valuable lessons learned and advice for entrepreneurs.

Takeaways

Focus on needs rather than wants when building a business
Create recurring revenue streams and prioritize unit level economics
Manage for culture and provide opportunities for growth
Implement compensation plans that align with performance In the Fortune 500 world, sustained growth is crucial, and executives are often evaluated based on their ability to impact the business within 18-month cycles.
Using polynomial regression models and data analysis can help determine optimal pricing and improve business metrics.
Investing in technology is essential for increasing productivity and profitability, allowing employees to focus on high-value work.
Climbing the private equity pyramid through mergers and acquisitions can create significant value and wealth.
Successful entrepreneurship involves knowing what good looks like, paying fair market price for good companies, and leveraging arbitrage.

 
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Transcript:

Jon Stoddard (00:01.752)
Welcome to the top M&A entrepreneurs. I have a guest back today is Adam Coffee with his third book, Empire Builders, The Road to a Billion Dollars. Welcome back, Adam Coffee.

Adam Coffey (00:12.738)
John, it's good to see you. It feels like an old friend. I gotta write books more often, or more importantly, one of these days, we gotta actually do something together.

Jon Stoddard (00:20.668)
Yeah, oh, I'd love to. I gotta tell you, I've got all three of your books on my desktop. I love them, they're great. And just yesterday somebody said, was an SMB builder, he's got three businesses in the service-based industry. And it's like, oh, who should I follow? And I go, Adam Coffee. Get on LinkedIn and Adam Coffee.

Adam Coffey (00:40.042)
Yeah, well, thank you. I appreciate that. Hello to all your listeners out there. It's good to be back for a sec. I think second time, right? This is my second time. But yeah, second. You know, every two years, brother, every two years, I take a year off in between, and then I go back at it and I always perfect my books as seminars first. So empire builder, no different February.

Jon Stoddard (00:45.606)
Alright!

This, this is the second time. Yeah. I don't know. You coming out with another book in the future? We'll just have you on the.

Adam Coffey (01:04.562)
Um, I had 350 people from 70 some odd countries come in to Dallas. We did a seminar called empire builder. And then I went pencils. So, you know, it's, it's like after the seminar was over in February, in March, I, you know, I started writing empire builder based on this 350 PowerPoint slide. Two day seminar that I taught that became empire builder.

Jon Stoddard (01:26.316)
So you kind of worked out the tweaks in a live audience.

Adam Coffey (01:29.53)
And that's how I always do it. You know, all my books started as college lectures or they started as seminars. And that creates the kind of the, the framework for the book and then what worked, what didn't, what do I need to expound upon? And that's my method. That's my creative method. You know, you know, start teaching, write a seminar that develops into the, the outline ultimately, you know, and it feeds the book.

Somebody was joking with me as like, you know, so you take a seminar that people pay thousands to go to and you turn it into a $4 Kindle book. I'm like, yeah, but a million people read this and only 300 come to my seminar. It's like, you know, it's people wanna engage in different ways. You know, they want free, hey, I got podcasts. You know, they wanna spend $3, you know, by the Kindle. You wanna come in person, come to a seminar.

You want the one-on-one coaching? Hey, I got that too. It's like people want to engage how they want to engage. It's up to us as entrepreneurs to give them the avenues that let them engage how they want.

Jon Stoddard (02:33.46)
Yeah, and I got to, we talked about this right before we went live was if you want that phone to ring, you got to be putting out that valuable content to help people get to where they want to go.

Adam Coffey (02:44.738)
You really do. And the question I get asked the most by people on LinkedIn is, hey, Adam, how do I penetrate the world of private equity? I read your first book, loved it. I'm Josh, or I'm Rose. It's like, how do I get in? How do I break in? And I tell people, LinkedIn, 900 million people on there, it has really become where business people connect. And...

You need to become a thought leader for your industry, for your area of expertise. You've got to be producing content that's helpful to people, not just an infomercial or a marketing piece. And if you can build a good presence on a platform like a LinkedIn, use the right keywords, set your flag open to work. Now your phone's gonna start ringing, people are gonna engage with you and the probability of success becomes much higher. And just finishing that thought.

I also tell people to reach out to the recruiters because no open sea level jobs in a private equity backed portfolio company are posted anywhere. They're all retained private searches. And so you got to have the right keywords and the content. So when recruiters are finding you on LinkedIn, they like what they see and they decide to reach out and contact you. And then you need to reach out to the recruiters direct and upload your resume to their portals.

And then you're in their database before they ever get to LinkedIn. And then you need to reach out to middle market PE firms that buy companies like the ones where you've got expertise and you need to send your resume to their portfolio support team and the people who are responsible for human capital, because they know when there's an opening first, then they engage the recruiter and then they come to Lincoln and do the search. You hit all three of those levels. I promise you. If you've got, you know, if you do those three things, you're going to wind up with your phone ringing all the time.

Jon Stoddard (04:34.428)
Yeah, especially if you're posting content and you're connected to that recruiter and they're seeing your content or exposed to your content, you're going to be top of mind awareness.

Adam Coffey (04:41.706)
Yeah. And, you know, so, you know, you've got a great podcast and I love, love talking shop with you, you know, and, and so, you know, this is, this is the other way. It's like, we've got to build that network. The network is everything in today's world. You know, the, the world that you and I grew up in is gone. Doesn't exist anymore. There's a new way to do this. And whether we like it or not, we got to play the game.

Jon Stoddard (04:48.973)
Thank you.

Jon Stoddard (05:07.86)
Yeah. I got to tell all those veterans getting out of the service. Hey man, you got to get used to being talking about yourself and sharing your story.

Adam Coffey (05:14.782)
Yes, yes, and adding value to the people who are out there.

Jon Stoddard (05:18.956)
Yeah. So, so I read the book. It's fantastic. Another one in this. So I want to just start going through this chapters that stuck out to me. So you had to forward to a guy named JT Fox. So who is he to you? That's who you started with. So tell me a little bit more about this guy.

Adam Coffey (05:34.622)
Yeah, you know, happy to. So, so JT, you know, when I was transitioning from call it the, the world of being a CEO in private equity, when you're, when you're there, you got blinders on, you got to ignore the world. You know, you're, you're focused on running your company. I leave the CEO cleats hanging on the wall. It's like I'm done. New world to explore. JT reached out to me early on, you know, hey, Adam read your book, you know, would love to love to do.

I'm on stages all around the world. You know, this is what I do. And, you know, at first he's larger than life. And so, you know, he tells the story. It's funny, you know, when we're together, you know, in an audience, you know, or on a stage and you'll say, you know, the guy ghosted me for six months. Well, you know, think about like Billy Mays or one of these pitch men, you know, the guy, you turn on your TV and it's the flex seal, you know, guy who's selling you the, he's driving around in his boat on the lake that's got a screen door bottom with flex seal on it. It's like,

Jon Stoddard (06:18.636)
Ha ha!

Adam Coffey (06:30.658)
JT is like a larger than life promoter. He's a very successful business coach and a very wealthy guy, very good at what he does. And Adam Coffee wants to do a seminar and three people wanna come. JT hosts a seminar with Adam Coffee on the stage and the room's filled with a thousand people. So he was very instrumental in getting me kinda out of my shell.

And, and engaging in with the public in a broader, newer, new, new kind of format. And he's the one who hosted the original empire builder seminar. And so, you know, he created the stage. I created the content. I tell people, you know, he's the world's best pitch, man. I'm the content. I'm the product. You know, he fills the stage, the stadium, you know, the empire builder was the content. So I have to give, you know, I.

He says best book in the world, because the first line is, I dedicate this book to JT Foxx. Right? That's it, drop the book, you don't need it. Don't need to read anymore. So, you know, he's a Tony Robbins, you know, he's a Grant Cardone, he's a business coach, successful entrepreneur, he does care about people, tries really hard to help them. He came after me for like a year before I finally agreed. You know, I got on a stage with him in Anaheim with a thousand people. It was magical. And so,

Jon Stoddard (07:29.568)
That's exactly it. I got it to, so we have to ask about JT.

Adam Coffey (07:54.038)
that led to the seminar which led to the book. So he's the catalyst behind the book.

Jon Stoddard (07:59.348)
Fantastic. All right, let's get to talk about a little details in here. In the first chapters, you talk about build what you know people need and only go for fragmented industries. And this is something like the essential businesses, HVAC, and you also did laundromats. Why is that the key to focus on?

Adam Coffey (08:22.21)
So in case anybody hasn't noticed lately, our world's in turmoil. And economic cycles, there's peaks, there's troughs. It's like, boy, we're in a volatile world with a volatile economy. And so I tell people, if you don't have a business today and you're starting something, or you're gonna go buy something and you're coming out of the Fortune 500 world, you're gonna buy your first small business, you're gonna be an entrepreneur. What do I buy? What do I focus on? I tell people, invest in what you know.

Invest in what you know people need needs versus want. So think about that for a second. I want a new truck. I want monster tires for my monster truck. I want a new outfit because I'm going out on Friday night. There's things I want and there's things I need. And if the economy goes south and I've got to cut back my spending, Joe, consumer is cutting back on a lot of spending

led businesses are cycling down right now. Started in the summer, you know, so the consumer's not spending as much money. Hey, it was just Black Friday. I was out there looking at stores. It's like, where's the crowds? You know, it wasn't all that crowded out there. And so, look, if you focus on once, if I'm a tough economy, I don't have to spend. I can delay that spend forever. So if I'm going to build a business, build an empire, I want to focus on needs. Because at the end of the day,

I learned this in laundry, by the way. So unemployed people don't do as much laundry as employed people do. Let's start there. But everybody on the planet has to do laundry at some point. So it's insulated from the ups and downs of the broader economy. So if we focus on needs not once, we're not going to cycle as much. We're not going to get killed.

when the economy goes south, we're going to be able to ride out kind of that economic distress that goes on, seems to be more frequently in the world. So focus on needs, not wants. Next, focus on recurring revenue streams, not project-based businesses. So it's a need, but if it's project-based, a lot of projects get delayed during, call it, a downturn. So think about like a pest control company. It's a need. I live in Texas.

Jon Stoddard (10:42.484)
It's a need. I live in Texas.

Adam Coffey (10:44.674)
There's fricking bugs here that look like I'm in Vietnam, and they're giant, and centipedes that look like snakes, and snakes that will kill you, copperheads and what have you. It's like, there's bugs everywhere, and so it's like, I need pest control. Matter of fact, my wife gets freaked out when this stuff gets in the house, and so it's like, I have two pest control companies.

And I actually haven't come different months. And it's like, they think they're the only one, but it's like I'm double nuking my perimeter. And it's like, I need pest control. I live in Florida. I got a bug net over my backyard. And it's like, I need pest control because I could put a saddle on a cockroach. So I need it. But then I sign a contract. And every month, that pest control company hits my credit card. And so I don't have to chase revenue. Every event, when I'm a project-based business,

And hey, I've made a lot of money in project-based businesses, so don't get me wrong. But the reason I focus on needs is because I want you to be successful. And then recurrent revenue, because I don't want you to have to find a new customer every time you need revenue. I want you to keep going back to the same customer and hitting their credit card. So that 90% of your revenue is just being billed on the first of the month and collected. And so if I have needs, not wants, I'm insulated from the economy. If I have recurrent revenue, it's.

You know, I find this thing which is difficult, which is a customer, and I've got a regular revenue stream from that same customer. Wall Street, private equity, loves businesses with recurrent revenue. So whenever I sell this thing, I am going to get maximum value because I'm a needs-based business that has a recurrent revenue stream. So these are the things that I tell people. And some statistics that might scare people when you actually look at them, it's like there's 33 million small businesses in the country, in the US.

And only 7% have a million in revenue. And these three, yeah, as a tiny, and only 4% of those get to 10 million. And I'm thinking I built billion dollar businesses. Why the hell is it so hard for people to get it right? And so I focused on those early chapters too, about unit level economics. And it's like, you gotta get a business working small before you worry about building a big empire. And if you can't make it work in the first hundred grand or the first million.

Jon Stoddard (12:36.122)
Yeah, that's tiny. Yeah.

Adam Coffey (13:00.938)
You're never getting to 10 million or 100 million or a billion. And the one thing none of us in life can buy is time. And so we need to understand if our business is flawed, let's find out early before we waste too much time, before we invest too much money. Let's move on to something else. And so to do that, I have this thing I call the 30-20-10 rule. I want at least 30 percent gross profit. So I've got revenue. Let's use my pest control company as an example. I got.

Revenue, I'm charging these homeowners, or these businesses for the pest control contract. My unit level economics are one person in one truck, a sprayer on the back of the truck, and I'm out there servicing this revenue. What's my cost to operate that truck? What's my cost for salary, wages, benefits, all the things I need to pay? What's my direct operating cost to service that revenue and call it mine? And so I take, what's the revenue potential at the unit level?

minus my direct operating costs, it better yield at least a 30% gross profit margin. If it doesn't, then I need to work on price or work on lowering my direct operating costs, but I want at least a 30% gross margin. If I don't have it, walk away. It's like this is not a business I can scale because I need at least 30% gross profit. Then I look down and I look at my SG&A, my back office, my cost of acquiring a customer.

my cost of servicing the back office, paying, doing APAR, all that stuff. And that must be 20% or less at the SG&A line. If it's not, I got to focus on delivering the back office part of my business better, more efficiently, or figure out a cheaper way to acquire my customers. And so 20% or less. Why? Because I must earn at least $0.10 on a dollar.

you know, kind of at the bottom in order for this business to be something that's scalable. And I have a lot of entrepreneurs, John, they tell me, look, Adam, I don't make any money. I'll figure it out when I get bigger. It's like, no, hell you will. If you, you know, your problems will get bigger. Your problems will get bigger. You can't make it work small. It'll never work big. And so where I'm going with this in the early chapters of that book is I'm wanting people to focus on needs, recurrent revenue streams.

Jon Stoddard (15:03.516)
No, that doesn't work. Yeah.

Adam Coffey (15:19.778)
get the pieces of their business in the correct balance. Now I can say, I want a million in revenue. How many crews, how many pest control trucks, what's the revenue potential per truck? That's my unit level economic. How many do I need to get to a million? And then I can build a revenue plan. What's my capital expenditures? I gotta buy the trucks. I gotta buy the sprayers in the back of the truck, the backpack, it's like I gotta equip my people. It's like, so I can build a capital expenditure plan.

I can build a revenue plan to the first million. I can build it to the 10 million mark. I need six trucks to get to a million with my pest control business. I need 51 trucks to get to 10 million in my pest control business. What I can do is I can reduce success. I can build a formula where 93% of the American businesses fail to get to a million. I can build a formula that creates certainty to success.

and I can build it for 4% of only of those people get to 10 million. We can build the early stage formulas. And as I'm getting bigger, I'm going to create operating leverage, which means I'm going to become more profitable because when I buy 50 trucks, it's cheaper than when I buy six or cheaper than when I buy one. And so as I'm getting bigger, I can actually create an increased level of profitability as I'm scaling. But if I can make a business work small, John, I guarantee you, you can build a billion dollar empire.

Jon Stoddard (16:47.764)
Let me ask you about that unit level economics in these businesses. Most of them 90 plus, just get to a million dollars. So what stops them going to the second million dollars? Because you know that they're a small business. They've worked out their unit level economics and is it, what's the percentage just to say, I'm comfortable with my lifestyle, the accoutrements, I don't want to grow anymore, I don't want to manage more people.

I just don't have the will.

Adam Coffey (17:20.702)
So all of the above, right? So I'll call it a lifestyle business we're working to in income. And we're content when we get there. And I see that all the time in companies that I work with, especially in the sales arena. So if I've got a protected territory, one person goes into that territory and they produce $300,000 a year in income.

You know, another person goes in and they produce 100,000 a year in income. It's like, why does one get 100 and the other gets 300? Well, the guy who gets 100, he's happy at 100. He's out playing golf three days a week. What a great life I've got. I'm earning 100, you know, 100 grand. And so I don't have the ambition to get any farther. That's certainly a problem in entrepreneurial businesses, too. I'd say there's a total lack of accountability, personal accountability. So if I'm the CEO of a company and I'm not performing and I'm just telling my board, hey, you know,

I'm not going to grow this year. I'm happy. I'm content. It's like, your shareholders aren't going to get any return on their investment, but don't worry. Life's good. I'm going to get fired. Well, if I'm an entrepreneur and I decide that I've arrived and I'm not going to work very hard, who's going to hold me accountable? Who's going to fire me for not going back at it? So I think there's some degree of, it's a lifestyle business or I just don't know how I know how to get any bigger. I'm working really hard.

and I'm producing a million and that gives me, you know, 150,000 income and I'm good with that. And so I just, you know, I'm already working, I got no bandwidth and that's because, you know, I'm not working smart. You know, I don't have my unit level economics dialed in because if I did, I'd have time, I'd have bandwidth, I'd have a successful small business and growth becomes easy. And so, you know, I really, when I wrote that book, I focused on getting out of the gates because it's so...

because 93% don't get to the million, it's like, let me make the million easy, because the million is easy. Let's make the 10 million easy. Let me talk to you about how you get to 100 million, and then take 100 million to someplace else, on the way to a billion. And all businesses start, and they work, or they fail in the first 100,000. And so I did a lot of research on this. I bought 58 companies, remember, and so a lot of entrepreneurs. I find most entrepreneurs don't stop at a million.

Adam Coffey (19:36.034)
Those who are successful, those who beat the odds, those who get to a million, and then they get to 10 million. Most of them kind of top out at about 20 to 30 million, and then that's it, they plateau. What's the difference between 20 and 30 million and 100 million? And I'll tell you that to get out of the gates, to make that first million, to make that first 10 million, they're anal retentive control freaks, and they have to be.

to make sure, I call it the happy meal effect, we gotta make sure that we're consistent in everything that we do so that we're replicating our success model. But then I run out of bandwidth and it's usually around 20 or 30 million in the kind of companies that I buy where I find entrepreneurs, they run out of bandwidth and that's it, growth kind of stops from that point on. And I tell people at that point, they gotta learn how to find the gear shifter, and they gotta learn how to go from being an anal retentive control freak.

who manages every minute detail of their business to now becoming a conductor of an orchestra, a manager of process, hire the good team and give them the vision, but cut them loose and start managing process, not transactions and not.

Jon Stoddard (20:48.164)
Yeah, let me talk about that because you've got a chapter in culture. Manage for culture, not revenue. I got to hear about this four-legged stool, fair wages, excellent benefits, retirement, and opportunities for growth.

Adam Coffey (21:01.858)
So what's the biggest problem we got in any industry today? The world doesn't wanna work anymore, John. Yeah, everybody wants to be a TikTok, social media influencer star that makes millions, but doesn't really do anything else than that. And nobody wants to work very hard. So the hardest thing if we're growing an empire is to get good people who are motivated to work hard. And...

Jon Stoddard (21:08.98)
No, that's like, don't.

Adam Coffey (21:29.234)
I learned this early in my career. So I'm going back decades now. I learned that if I wanna grow revenue, I gotta have people. If I wanna have people working hard for me, I gotta have a good culture. I gotta have a strong culture to get an engaged workforce. Engaged workforce takes care of customers. Customers like being taken care of. They give me more stuff, revenue range from the skies. It's like, that's my formula for success. But 20 years ago, I was kind of an odd duck.

to think that way. Today, that's how everybody thinks. Not all companies really, they pay at lip service sometimes, but people wanna know what you're doing, what you believe in, how they fit in. It's like they wanna have a voice. They want you to care about them. And it's like, if you truly build a strong culture, you can attract the people that you need. And generally, simple guy, I have one goal, hire somebody. I wanna create an environment where they can spend their entire career.

How do I do that? Four things, four legged stool. Pay a fair wage. If I don't pay a fair wage, I'm gonna lose talent. I don't want mediocre people because I can get them cheap. I want good people who are gonna work hard and if I gotta pay them a certain wage to get them, then I need to pay that wage. And if I can't afford to pay that wage, I need to raise the price on my product. Let's go back to unit level economics. You know, it's like, I need to have good people, especially in a growth company. So pay a fair wage.

But I also have to have good benefits. You know, we all get old. I'm 59. Hell, I hurt in places I didn't know existed 20 years ago. But, you know, I still look out the eyes of a young guy, but there's an old guy looking back at me now. So it's like, we all need good healthcare. I never have like different benefits for executives. I make, when I'm running a company, the same decision that the janitor in a plant's gonna make. And if my wife wants good healthcare and I want good healthcare, then by God, my lowest level employee is gonna have good healthcare too.

And so I need healthcare. I need good retirement plan. Cause we all want to eventually think, Hey, we can stop doing what we're doing. Go fishing or go sit by the pool, you know, or go see the grandkids. And so, you know, we all at some point want to hope that we can retire because we had enough money. And so I always believe in having a rich retirement plan, you know, and, and then fourth, even if I did those three things, I still lose good people. Because some people.

Adam Coffey (23:51.39)
are looking for promotional opportunities. The fourth leg of the stool, probably the most important, is we got to create opportunity. And growth is what creates that opportunity. So as I'm building a company that's scaling from 10 million to 100 million to a billion, I need, I'm building structure up underneath. And it's like, hey, that person was really good in the truck. They become a service manager. Hey, they were a good service manager. They become a vice president of operations.

Hey, that vice president of operations becomes a COO someday, and that COO becomes a CEO, and how do I know this? I'm that guy. I was the guy who started in the truck, service technician, and so I need to create a path for growth. They don't have to take it. I need the person who says, I'm gonna be an HVAC tech for the next 30 years. God bless you, you're the journeyman that will teach the next generation of apprentices how to do that job.

But I also need to create that path of opportunity that lets the young person who wants to one day be that CEO. They got to have that path of growth and growth in the company creates the personal growth path for the individual. And so I find if I do those four things, um, if I create that, that environment where they can stay forever by doing these four things, what I get is very engaged employees and employees who work hard in support of the business.

And then growth starts to happen. It's pretty magical. I never have a problem hiring people because my culture speaks for itself. My employees go out and they tell their friends, they tell their family members, this is a great place to work. Adam's a great guy. He takes care of us. He cares about us and it's genuine John. And that's where, you know, companies who are paying lip service to this today, you know, as you can see right through that, there are people who care about employees, there are people that don't, but they try to.

pretend that they do, it only takes them so far. But if I'm gonna build an empire, I'm gonna need employees and I want good people and I wanna attract good people. We talked about HVAC. That HVAC company that I went in to run, when I first got there, turnover was over 40%. And within 12 months, we had it down in the teens.

Jon Stoddard (25:53.782)
Thanks for watching!

Jon Stoddard (26:02.282)
So let me ask you what you did there. You saw what the problem was because of the turnover. It wasn't fair wages, excellent benefits, retirement options, and opportunities for growth. You turned all of that around, but it changes your unit level economics. Is it going back and forth going, hey, to keep these people managed for culture, but all of a sudden it goes.

beyond the limits of your unit level economics 30, 20, 10, you gotta adjust the prices as you back and forth.

Adam Coffey (26:33.954)
No, you absolutely. And as a matter of fact, all the levers of growth that I talk about then in the future chapters here, it's like, you're doing all this concurrently. Yeah. And so, but, but I got to stop the bleeding. So what's the priority? I can't have 40% of my workforce quitting every year. I mean, how, how can I sustain a company let alone grow? You know, the sales team told me I can sell all day long. That's not my problem. Problem is we don't get enough guys in trucks to do the work. And so I, I'm not going to sell it, piss off a customer because I don't have the guys in the truck and.

Jon Stoddard (26:41.28)
Yeah.

Adam Coffey (27:02.71)
with 40% of your people leaving all HR is, is a recruiting effort, trying to keep enough butts in trucks to make it work. And so, Hey, get in there, start figuring out what's wrong. And it was different in different parts of the country too. So in the Pacific Northwest, there was a lot of union competition, higher wage scales. We were the non union employer and they're picking off our people. And so it's like, Hey, we got to adjust price. We got to make it economically viable for them to say no to unions. Stay with us.

I had other markets where, like in Texas, it wasn't wage. It was we don't get sick days. And in California, people who work in California, because it's mandated by the state, they get three, I don't remember if it was three days, five days, of paid sick time. And I'm like, the company was doing the minimally required by law in each country, each part of the country. And I'm like, well, if these employees have got sick time, then give every employee sick time.

And let's pay a fair wage based upon the market wage scales for the different parts of the country that we have. And hey, look, when an employer, I'm not saying this was my HVAC company, but just when I look at a 401k, I can tell you whether or not an employer cares about their employees by looking at the 401k. So if they say, look, I'm going to match a quarter on a dollar up to like 10% or 8%, I know they don't care about their employees. You come into my company, I'm going to give you a dollar.

for a dollar up to 3% because I know life is tough in LA, you know, or in New York or in some place like that. And I know you can't afford to give up 8% of your salary and I want you to save for retirement. So if I give you a dollar on a dollar, hey, that math works pretty good, you know, and everybody gets that they like that and all they got to do is give up 3% to max out the potential. And in any company that I've run for the number of employees that I had.

you know, the banks or the people who manage my 401k plans, they were always blown away by how much money was in them. And I'm like, you know, obviously you're doing something right. Because for the number of employees you got, you got like this astronomically high, you know, 401k plan. I'm like, I care about my people. I know it's tough. They can't afford to give up 10% of their pay, you know, to retirement and, and to maximize. And so when an employer is doing a plan like that, they're saying, I don't want to have to pay much.

Adam Coffey (29:27.062)
And so I'll make it this way so that not as many people will contribute. I know that employer doesn't give a damn about their people. You know, so it's like, it's, you know, all of these things that you do, you know, some costs money. And so when I get into a company early, usually I, you know, I buy something or I'm running something. I'm going to make a lot of these tweaks early and a lot of them are going to be positive and they're going to say, you know, Hey, you know, I can see he's investing in me, so I'll take earnings even lower.

Because they see what I'm doing. And then I'll slap them with a change or two. Hey guys, we're being lazy over here. We need to work harder, or I need to restructure this or redo that. But I'm giving them, they're seeing the yin with the yang. They're demonstrating, I'm walking the walk, I care about what's going on. I wanna build a strong culture because in my world, in my belief system, a strong culture is the key to revenue. And I...

You know, that, and that's rare to hear. I think sometimes people think of private equity to think, well, they're going to squeeze every potential dollar dime out of a workforce that they can.

Jon Stoddard (30:32.441)
That's the, that's the, you know, usually the template, right? They come in, they borrow a lot of money to buy the company and they got to go on cost reduction.

Adam Coffey (30:41.578)
Yeah, but I have demonstrated over decades that profit and taking care of employees, profit and culture are not mutually exclusive, you can do both. And if you are in a service environment, you can't store your product in a box and put it on a shelf, your product's people. So if I have a strong workforce and a strong culture, they work harder, they generate more revenue and that generates higher profits. And so I've lived the dream that you can do both. And I would tell you, I've debunked that just a little bit.

I'll go back to COVID. So I'm owned by Aries Management. Aries is the world's largest non-bank lender, top tier PE firm as well. And during COVID, they actually helped me start a foundation for my employees. And they seeded it with their own money so that I could help my employees who were negatively impacted by COVID. It was beyond the scope of what the company could do itself.

Adam Coffey (31:39.67)
You know, talk about that's different than what you hear about in the news, right? It's like, yeah, they're not squeezing. They're helping me. They're giving me money to give away to employees impacted by COVID. So it's like, I'll tell you that not all PE firms, you know, are created equal. There's good, there's bad, there's small, there's large. And, and there are a lot of firms out there who also recognize in today's world. You know, I saw, I read recently, you know, KKR started actually taking kind of a management shareholder pool.

and giving profit to all employees of a company. I think it was KKR that did that recently. And so I would tell you that as the world continues to evolve, human capital is the most important thing that we need to build an empire. And the better we treat them, the better revenue outcome is. But there are plenty of firms out there who don't think that way. But I do. And so that's why I'm leading the charge.

that you can take care of people and make money, you know, and PE can be a part of that and you can have a good outcome.

Jon Stoddard (32:44.464)
Let me ask you about the comp plan. Charlie Munger used to say that, show me the compensation plan, I'll show you the outcome. And I'll give you anecdotal evidence. I had a conversation with a guy that owned 50 franchises of cleaning franchises, and first year, he did not do well. And then he tied the plan, comp plan, to how good of a review the cleaner did. The higher the review,

the more they got comped. What's your philosophy about comp plans?

Adam Coffey (33:18.19)
I am all about pay for performance. So I think we need to establish in any company of any size, what is our metric system? So first of all, what are my initiatives? What am I gonna focus on to drive growth and value creation? And then what's the measuring system I'm gonna put in place to know whether or not I'm winning the game? And then I need to make sure from a visibility and transparency perspective that I educate my employee base really well.

about why it's important for our company to grow and find financial success. You want to raise next year. Where am I going to get that money? You want a new truck? Where am I going to get that money? You want new tools? You want training? How can I take you off the road for a week to send you to school and pay for your training? You know, I need money for all of this. So I make sure that people understand at the most granular level when the company is doing well, what's in it for them?

It's raises, it's trucks, it's tools, it's training, new job opportunities. We open a new branch. I need a manager. It's like, you know, I, I have to paint the picture so that everybody understands that being a growth oriented profitable company doesn't make you evil. You know, that it actually helps and serves their needs too. And then I, I like to create some type of a competitive tension in the workforce. So if I've got 10 salespeople.

You know, it's like, you know, I want to, you know, here's my metrics and let's put them up on the wall for everybody to see. And, you know, magically, the person on the bottom doesn't want to be on the bottom anymore. And so they work a little bit harder. The person on the top's got pride in being number one. They work a little harder because they got competition chasing them. And so I create I call it pay for performance. You know, so let me give you a real life example. Let's assume I got 10 employees.

And I buy, I've had 10 guys in trucks and employees are out there doing something. And I buy two new trucks a year. Well, how do most companies give out those two new trucks? They go to the oldest trucks and they're replacing. And so the employee who's driving the oldest truck with the highest mileage gets the new truck. Not in my world, in my world, who's got the best metrics? Who's, who's producing the most revenue? Who's got the highest margin? Who's got the fewest callbacks? Who is really killing it? They're getting the new truck. And.

Adam Coffey (35:39.022)
You know, if that person is my top rated number one person every year, I'll give them a new truck every year. And the oldest truck shuffled down to my poorest performers. And so I tie incentive at all levels to behavior, you know, and I, and I try to be transparent about this is why it matters, you know, we have to be profitable to grow. Growth gives you raises, job opportunities, training, promotional opportunities.

You know, so I get granular. I take, you know, what is a high level rolled up with thousands of employees might equal a really good shareholder return, you know, also has to impact employees. Another thing I did at that last company, we not only had ownership and stock being held by executives, I took less than my entitled amount and to spread it deeper into the organization. But again, my sponsor who was generous created a separate pool for line employees.

And we couldn't give equity to non-accredited investors, but we gave an equity-like instrument that as the stock value went up, it tracked this incentive unit that we created. And so if a person was awarded a stock grant for working hard or an incentive unit, if the stock price was gonna go from 10 to 40, then they're gonna get 30 bucks as a bonus. And...

You know, and they didn't have to be an accredited investor because it was taxed as ordinary income is we created the vehicle, but the point of the matter is, is that in a business to be successful, we have to explain what we're trying to accomplish, we have to explain how we're going to keep score, we have to explain to the people what's in it for them. And then we have to make, you know, their performance, uh, tied to their compensation, to their pay, to their, to their perks, their benefits. And if we can do that.

Then you'd be amazed at how growth starts to happen and how people push harder.

Jon Stoddard (37:30.888)
Yeah. And you worked at General Electric for a long time under Jack Welch. Let me ask you about how he became notorious or infamous for that 10%, just lopping off every 10% here.

Adam Coffey (37:37.912)
Yeah.

Adam Coffey (37:43.55)
Yeah. And so I'll tell you that in the early days, that was true. That mean that the forced turnover, it was kind of like, we're going to force you to prune the bush because we're not going to get what we need if we don't. But after doing that for a while, I would tell you that really kind of went away. It still had the fame out there. But hey, when I looked at my work group, I didn't have C players anymore. I had A players and B players.

Jon Stoddard (37:59.222)
Right.

Adam Coffey (38:12.522)
You know, I can't create a work group of all A players. You know, there's going to be people of varying degrees. And so our bottom performers were actually pretty good. And so we stopped kind of enforcing that. But but, you know, and I'll tell you that pay performance and measuring systems. I'll go back to G.E. and Jack and say that this is where I learned how to do this. And keep in mind that the world's largest company, number one on the Fortune 500 list under Jack's tenure. This is before tech.

was growing so fast, it was doubling in size every 2.8 years. Literally, the world's largest company is growing at 30 plus percent, and it's doubling in size, the stock is doubling every 2.8 years. And if the world's largest company can grow at that pace, then nobody out there listening to this podcast can tell me that their business can't grow at 30%. It's not possible. Well, if it's not possible, you're not dreaming big enough, you're not thinking big enough, time for a new leader.

Jon Stoddard (39:00.472)
Couldn't, yeah, should be able to do it.

Adam Coffey (39:08.69)
You know, and so every company I've run, I could get growing at plus 30%. Some of that was M and A, you know, some of it's organic, some of it's margin improvement, it's a balanced approach. It can't be all one thing or the other. But at the end of the day, it is possible to grow companies at 30%, which means that, you know, and I used an example in the book, you know, if I had a company with a million dollars in revenue, if I'm growing at 10% in 7.2 years, I'm at 2 million in revenue.

And at 14.4 years, I'm now at 4 million of revenue. And at 21 point whatever it is, it's like now I'm at 8 million. I haven't even got to 10 million. And I'm 21 years into it. If I'm growing at 30%, I double in size in 2.8, I triple in size in 3.4, I quadruple in size in 5.2. And a five year hold period is a typical PE hold period. If I can quadruple the size of a company in four years,

Jon Stoddard (39:46.464)
Root.

Adam Coffey (40:05.022)
I'm guaranteed a good multiple of invested capital, a great return for my shareholders, a great outcome for my employees. I can tell you with a strong culture, my employees are having fun, they're making money, there's promotional opportunities. It's like I can solve all problems in life with 30% growth every year.

Jon Stoddard (40:21.172)
Yeah, the rule of 72, folks, the rule of 72. So how did you, back to GE, how did you get the reputation for the turnaround guy? I mean, did they just give you companies and say, hey, this is on our portfolio, go fix it? Or did you volunteer for it? Yeah.

Adam Coffey (40:23.818)
Yes.

Adam Coffey (40:30.262)
Well, it's...

Adam Coffey (40:35.378)
Yeah, kind of like that. No, you know, I was volunteered for it the first time around and then I became it after. So, you know, when I was, uh, you know, going through, you know, I call it your management training programs and, you know, it's like, I was a really, really good engineer, uh, it was a tough decision to make to stop being an engineer that was really, really good top of his field and go compete with Harvard MBAs and all these other, you know, really smart people. Cause I was a dude from a truck, you know? And, and so I remember my, my corporate mentor was an ex.

professional football player. He played for the Cleveland Browns. His name was Mike Martin. Hi Mike, if you're out there, I don't know what happened to you, I lost track of you. But at any rate, Mike, I remember he's like, he called me in his office and he's like, Adam, if I give you something good to run, I'll never know what you got. I'm gonna give you the worst business I got. The worst thing I own, you're gonna take it over and you're gonna run that thing.

And so there were 21 business units in GE Medical Systems is what it was called at the time, GE Healthcare Now. And not to, so I'm running a three state service business. It's Arkansas, Missouri, and Kansas. And it's number 21 out of 21. And my goal was worst to first. And in 12 months, we were number three in the country. And

And I did it without whacking the entire staff and rehiring. It was like all pure motivation and brute, you know, just brute raw energy of this young buck. And if the guy could take the armpit business, you know, 21 out of 21 business units and take it to number three. So first of all, there's always somebody who's riding the wave. That's got a great market. You know, they got number one, you know, another perennial favorites getting number two. I got Arkansas.

You know, Suey and I got Missouri and I got Kansas. And I take that to number three in 12 months. And so I immediately got typecast as a turnaround guy. And then they just gave me bigger stuff that was broken from there. And so that's. That's.

Jon Stoddard (42:38.54)
Did that sustain the growth? I mean, sometimes you can come in with a breath of fresh air and push it to the up there, but you leave, it goes back down to 21, right?

Adam Coffey (42:44.95)
Well, that's the key, right? Yeah. Well, so, so that's, that is a key, John, but in the fortune 500 world, um, your life is built in 18 month rotations. And so once I'm out of it, I don't know what the hell happened to it. Not, not my problem. Somebody else's problem. That's the world of the fortune 500 world. You know, I'm onto the next thing, you know, and I got one cycle.

Jon Stoddard (43:04.162)
Yeah.

Adam Coffey (43:09.026)
to demonstrate my ability to impact the business. And so the reason I say 18 months is because you generally don't start something on January 1st, you start mid-year. You have a partial year and then you got one year that's under your planning, under your guidance and based on that outcome, if you did well, you're probably being promoted to the next thing. And in the Fortune 500 world, that's like an 18 month cycle for promotions. And so if you're a young buck who's

climbing the corporate ladder about every 18 months, you're making a vertical step. And that was just the way of the world. So what happened to that business? Did it sustain it? I don't know. But I have run companies for as long as 13 years, and I was able to sustain that growth through three different sets of shareholders. And so I'd say yes, fundamentally a strong company that's well-built, well-orchestrated, other than the broader impacts of a macro economic event. So I was running,

A company when planes flew into buildings, you know, during the pandemic, you know, during the great recession of Oh, wait, it's like, there are things that cause a business to stunt their growth or cycle down, but generally speaking, I'm able to bend the curve and hold it because the, the way I attack that, which, which I lay out in the book is sustainable, it's not one and done. It's sustained.

Jon Stoddard (44:29.768)
Yeah, yeah, yeah. Yeah. Let me, let me jump over to the story about the laundromats. And when you took over this group and grew it through M and A and everything else is you used a polynomial regression models to improve the metrics of the business, like what did that look like? I mean, and the reason I asked that is I remember I was the, uh, co-founder of a startup called TurboSquid and we're, we had, uh,

It was a startup, so we had all kinds of inventory of the 3D assets, but we had no customers. And this really smart guy came to me with all the metrics and I go, that's great, but we have nobody buying.

Adam Coffey (45:08.934)
Yeah, yeah. So what, you know, what happened? We had 70,000 locations, you know, in North America. And, you know, essentially what we were is mini laundromats inside your apartment complex. So you live in an apartment complex, you don't have a washer dryer unit hook up in your apartment, you've got a common area laundry room. It's a mini laundromat. And I own 70,000 of those. I also own a chain of laundromats, you know, so the traditional laundromat, you know, that, that it's out there as well.

And so your choices when you got to do your laundry are you stay home and you do it in your own complex because it's easy, there's convenience factor, or I get in a car and I drive and I go to a local laundromat. And trying to determine how to price and what was the maximum amount of price that we could charge to do a load of laundry, you know, was a very complex issue. And so we hired data scientists and said,

We need to figure out the mathematical formula, with a high degree of statistical certainty that tells us, that guides us, that informs us, what's the maximum amount we can charge for a load of laundry? Because we're not a charity, we don't do laundry for free, we want the maximum revenue. The building owner's getting a split of that revenue, or our laundromat's competing with people in other buildings not owned by us, and it's like, how do I get the most revenue from?

And so we brought in data scientists and they started cutting through, calling through our data that we had, as well as macroeconomic data. And they came up with five things that were statistically significant impactors of how much a person would pay for a load of laundry. And it was interesting because one of them included like the price of gasoline. How much gasoline was charged had a direct bearing on whether or not someone would do laundry at home.

in their common area laundry room at the apartment complex or whether they would get in a car and start it and drive, you know, to, to go, you know, if gasoline's yeah, whatever it was, they'll pay 75 cents more to do a load of laundry at home than they'll pay to get in a car, start it and have to go somewhere. And because gasoline's expensive, they don't want to drive the car, you know? So it's like, that was one unemployment, you know, the level of unemployment was another.

Jon Stoddard (47:09.832)
A dollar a gallon, whatever it was. So $5 a gallon, yeah.

Adam Coffey (47:29.014)
distance from your apartment complex to the closest laundromat certainly was one. And so they came up with all these factors. And then the data scientists created these polynomial regression models. And it helped us then determine what the optimal Venn price was for every location we had in North America. And then we would find data streams from the government, like the employment rate, the price of gas, consumer price index, whatever these were.

And every month we would download the information from the latest database and that would cause the lopper to recalculate what the current optimal Venn price was. And this is in the days of manual Venn price changes in quarters. Someone had to go out and change the Venn price. Well, in today's world, you have electronic payment systems, connected laundry rooms. You could now take that to a different level and say, hey,

what price should I be charging for what time of day and what day a week, and I could remotely change the Venn price, you know, five times a day, you know, and it's like, boy, everybody wants to go Saturday morning so I make it really expensive. And then nobody goes on Monday morning, so let's make it cheaper so that some people will come and go use it there so others can have the opportunity to do it on Saturday morning and pay more. And it's like, you can optimize the revenue coming out of the room.

And what we used to have to do from a capital expenditure perspective is put in enough machines to handle that brief period of top capacity, and then we would have a lot of underutilized assets throughout the week. And so let's learn how to get people to do laundry on a more level-loaded basis, get the maximum revenue we can, but now I can put in half the number of machines to meet the peak demand, and I'm making more money and I don't have to buy more capital equipment to put in this laundry room.

that's getting low usage. And so it's like, how can I optimize profit? And so you can get really sophisticated, even in a business that's not sexy. And I remember, because I was in some Microsoft TV commercials back at the time. And Sacha Nadella was going around the world, and he had a set of a washer and dryer that we laser cut in half. And then we put plexiglass and little blue neon lights in them so you could look inside the laundromat.

Adam Coffey (49:48.054)
And he was talking about all this cool stuff. And we were a big Microsoft house and we were using all Microsoft's technology. And they're like, you know, we were an award winner, you know, the most visionary business and we were a laundry company. And I think the tie was not sexy industry, but using technology to completely change the profitability profile of the company. Isn't that cool? Let's make that a commercial, you know. And so, you know, it's like you can.

You can use technology to really alter. And so I'm a big technology guy. And I believe in any business, a part of my getting to 30% growth and earnings involves investing in technology so that my employees who work very hard every day, spend their time doing what I call high value work. You know, if I got HVAC techs, I want them sitting in front of broken equipment, fixing HVAC because that's their skill. I don't want them driving. I don't want them filling out paperwork. I don't want them ordering parts or running to get parts. It's like whatever I can do.

to get more time in front of broken equipment and less time doing stuff. And if I can automate that stuff, and be more predictive, then I'm gonna increase my profitability. So there's always a technology component in any company I build or buy or run, geared towards making employees more productive.

Jon Stoddard (51:02.848)
Did you write that software or do you, is there sometimes off the shelf or do you have to?

Adam Coffey (51:08.61)
So it was interesting. I had MIT data scientists working in our company because they thought what we were doing was cool. I had Microsoft's data scientists working in there because they wanted to figure out how to monetize what we were doing and create a product. And it was like early adopters, I would like to think that we're part of the reason why BI 360 exists is that companies like us were pushing the envelope. So back in the day,

We had an ERP because we didn't want to do data entry a bunch of times. Now I've been collecting data for 10 years. What can I do with the data? And so as we learned what to do with the data, those data analytical tools started showing up, you know, in the different products and different software platforms. And it's kind of like, you know, it's, you have to ask a question and solve for it in order to ask the next question. And so there's this iterative process of.

investing in technology to become more productive and then using your data to learn how to become even more profitable, but you can't get to that step until you start being a data-driven company to begin with. And so there's this evolutionary process that I think all businesses go through, and as they scale and get bigger, there's more opportunities to create operating leverage by leveraging the data, by focusing on high-value work.

being done by people, low value work being outsourced or turned into a technological solution so that we're balanced with, we're doing good things that add revenue or service customers and delight them and we're not spending as much time wasting time doing low value stuff that doesn't add revenue. Needs to be done, but not adding revenue. So I think there's always a technology angle to me. There's a buy and build, promise you I'm always gonna be buying stuff and putting them together.

Jon Stoddard (52:49.73)
Yeah.

Adam Coffey (52:58.23)
but I'm also going to be trying to improve margins. And that involves investing in technology and process improvement and all those boring things like Six Sigma that you hear about, but do companies ever really embrace that and use it? It's like, I got to grow top line. I got to reduce my operating costs in order to increase my bottom line. A piece of its buy and build, a piece of its volume, some of its pricing, some of its process improvement, margin improvement.

I'm a cook in a kitchen. I've got to have all of these ingredients at play in order to be successful.

Jon Stoddard (53:32.788)
that look when you were buying these HVAC companies because, you know, one HVAC company in California is using a different software than this company. And you know, somebody in the Southeast is using completely different.

Adam Coffey (53:47.554)
Well, first thing I'll tell you, John, is that growth is messy. And, you know, for, for people who like everything in its place, you know, very neat and tidy and my desk has to have everything in the right spot. It's like, if you're doing a buy-in build or you're growing an empire, um, all that goes out the window because growth is messy. And so if I'm buying, you know, in that particular company, we bought 23 companies during my run.

You know, and we bought eight in the first three years, we bought 15 in the next two. You know, so it even accelerates. And it's like, as you're learning how to do it, you do more of it, you get better at it. But you're always gonna have companies that are partially integrated, not integrated, fully integrated. It's like, it's a process, it's an ongoing thing. And it really revolves around process. You know, do I have a good process for getting through an integration? And in an interim period,

Because at any given time, a company like that I'm building has got some companies on one ERP, some on another, you know, there might be some on QuickBooks, there's five, there's eight flavors of ice cream out there. And so I'm gonna integrate companies in a region to get them together, you know, to start, and then I'm gonna slowly integrate that into the mothership. There's different levels of integration. So some people do, hey, I'm a collection of companies, I'm proud of it, and I'm not gonna try to pretend I'm anything different. I'm a holding company that has 23,

separate companies and that's what I am. And then there's others that say, I'm a partially integrated empire. I've got a common financial system, I've got common HR platforms, I've got an ERP for the finance, but operationally, I'm letting each company kind of do their own thing because they're all slightly different, they have different needs. And then you've got others that say, hey, I'm gonna fully integrate. And so I'll tell you when I'm doing a buy and build,

I'm really focused on do I have a scalable platform? If I do, then I want to fully integrate because I can create operating leverage. But if I'm not fully, if I don't have a scalable platform, to what level should I integrate because I don't want to push what I cannot do and fail? So sometimes I'm doing integration light, sometimes I'm doing integration heavy. And it depends on that base company I've built, how scalable is it? And I'm always involved in

Adam Coffey (56:06.19)
transforming the platform at the mothership. I'm just sometimes I'm doing the buy and build and I'm not done yet building the mothership. And so I'll have different strategies at different times as to how far I can go on integration. What's most important though is just to have a plan, to have a strategy and that strategy can evolve.

Jon Stoddard (56:26.868)
Let me talk about that climbing the PE pyramid and M&A. And this is, I have to be honest with you, my students that are coming here and they, there's the funnels here, by the time they get to the business, it's pretty small because they all wanna buy the business, but they don't know what a good deal is. Yeah, what's your, yeah.

Adam Coffey (56:45.388)
Yeah.

So, so first of all, everybody wants to do buy and build and very few people are really, really good at it. So it starts by knowing what good looks like before I ever try to buy anything. And I would tell your listeners out there too, even if you're a small company, you can do buy and build on a small scale, you know, and you can get bigger and bulk up and grow faster by buying a company or two in your industry. I was buying them 20 at a time, 30 at a time. But.

You know, not everybody can do that, but I'm helping a lot of entrepreneurs make their first acquisition or make their first two or three acquisitions. And it works really well, you know, at the small scale too. I'm working with an entrepreneur right now. We're hiring a banker. You know, we're probably looking at 150 to $160 million exit. They had less than $2 million of EBITDA 18 months ago. You know, we're over 10, you know? And so it's like, this can really get a company growing fast. It's the single largest value creation tool.

that private equity has in their quiver, in their toolbox. And so, starts with know what good looks like. Do not buy a fixer-upper. Do not buy a bad company. Don't think you're gonna fix it. We want good companies run by good people who think like we do, have good reputations in the marketplace, and we wanna pay fair market price for it. So I'm not looking for a deal. I'm looking for good companies, and I'll pay fair market price. Because arbitrage.

is going to be the friend that gives me the return. So you go back to like the HVAC world, I buy 23 companies average price paid five times. I sell it 14 times. So for every dollar of earnings I buy, I bring in $14 at exit. So if I pay five times, $5 is returning a $14 later. Why buy a fixer upper to make an extra buck? I'm getting $9 on every dollar I'm buying.

Adam Coffey (58:42.886)
I let size and arbitrage work to my advantage. So how does that work? Well, we talked about 33 million small companies in America. There's only 3000 companies on the planet with a billion in revenue. You know, total 33 million just in our country are small. They're at the bottom of the pyramid. There's anywhere there's high fragmentation and lots of companies in an industry, there are not enough buyers to drive up the prices. And so prices stay low because small companies sell for a small price.

not as much activity, not as many buyers. But as I build and put them together, I'm climbing the capital of the P.E. pyramid, I'm getting bigger, I'm rewarded with a higher multiple. Why is that? Well, there's $6 trillion in private equity capital, there's thousands of firms, and big firms and small firms all do the same thing. They invest eight, you know, six to 8% of their fund in any one company.

They can't invest more than 12 because of asset diversification rules that they build into their own, you know, bylaws of the fund. And so they're all buying, you know, about six to 8% of their capital from the fund is going into one company at a time. Well, if I'm KKR or a Carlisle or Apollo and I got a $30 billion fund, six to 8% of my fund is a big ass number. And I've only got 10 years to do all of this.

I can't buy small companies. I'd have to buy 10,000 of them to put my money to work. And so big firms buy big companies, small firms buy small companies. Small companies trade for a smaller multiple because they're plentiful, there's more of them. I buy 20 of them, put them together, I climb the pyramid and my multiple, I'm paying down at the bottom is five, the multiple I'm selling at is 14. I'm getting, again, $9 of profit on every dollar, I'm paying $5 for, I'm getting 14 back. And that alone...

is creating the massive amount of shareholder return on equity and the, and the, the multiple of invested capital. That's where the magic is. Sprinkle in some organic growth. You know, can I get the double digits please? Sprinkle in some margin improvement, add in the M and a component. And I've got the perfect ingredients for a outsized return, even in private equity speak that guarantees me wealth creation. And it guarantees my employees.

Adam Coffey (01:01:02.246)
Lots of money, lots of opportunities for growth, and raises, and new trucks, and training, and all that stuff we talked about. And so I think it is the single best tool that we've got. But it's also one of the most misused tools by people, simply because they don't have a working understanding of how to do it. And that's where guys like me come in, guys like you. It's like, we help people do this.

and become successful doing it. And why do we know? Because I've already made every mistake you can make. And so I haven't learned these lessons because I woke up smarter than you. I learned these lessons because I've spent decades doing it and I learned, oh, that hurt. Don't do that again. Let me teach you lay person for $2.99, how the hell it's done and how to avoid the potholes.

Jon Stoddard (01:01:35.832)
I've already made every mistake you've committed.

Jon Stoddard (01:01:44.984)
Thanks for watching!

Adam Coffey (01:01:58.25)
so that you can have a higher success rate faster. I wish somebody would have given me my books when I was starting out in my career. Because the one question I get asked a lot, John, is people say, if you could do it all over again, what's one thing you would do differently? I would have left the CEO seat 10 years ago. Instead of being a CEO for 21, I would have left 10 years ago. Because now that the blinders are off and I no longer have to just focus on one company, my goal was to impact multiple companies at a time.

Jon Stoddard (01:02:14.293)
Yeah.

Adam Coffey (01:02:27.83)
Good Lord, take off the blinders and opportunities are falling out of the sky at me. I bet you I make more in the next 10 years than I made my entire career combined. You know, and, you know, that's already, you know, I make more today than I did as a CEO. I'm having fun again, which is, which was the main goal and objective. And it's because I'm not constrained to just one company. I can do multiple things at a time now.

Jon Stoddard (01:02:39.369)
Yeah, yeah, yeah.

Jon Stoddard (01:02:53.672)
Yeah, that's fantastic. That's why you're on top M&A Entrepreneurs. Ladies and gentlemen, go out to Amazon, get his books, get all three of them. Just don't settle for one if you don't have all of them. Just get them all. Nine bucks. Nine dollars.

Adam Coffey (01:03:06.398)
Nine bucks, not gonna set you back too much. And I give all my, I get.

Jon Stoddard (01:03:10.912)
Well, I'll tell you what, you gotta get the printed version because I always, when I get the printed version, I always mark it up, so, and it sits on my desktop, so. Yeah.

Adam Coffey (01:03:17.61)
There you go. And I can tell you 80% of people that buy books still buy paper copies. It's only 20% who buy the eBooks and then a smaller percentage do audiobooks.

Jon Stoddard (01:03:26.069)
Yeah.

Jon Stoddard (01:03:29.98)
Adam Coffee, thanks for joining us on top M&A entrepreneurs.

Adam Coffey (01:03:33.962)
It's good to be here, John. Good to see you again. Let's do something real together.

Jon Stoddard (01:03:37.897)
I'm serious, let's do it. Let me stop and make.

Adam Coffey (01:03:39.454)
Okay, take care everybody.