Mike Jamieson from USAF Pilot to M&A Entrepreneur

 Summary

In this conversation, Jon Stoddard interviews Mike Jamieson, who shares his journey from being a pilot in the Air Force to becoming an entrepreneur through the acquisition of Personal Touch Landscaping. Mike discusses the differences between traditional and self-funded search models, the challenges he faced in securing financing, and the dynamics of working with investors. He also elaborates on his extensive search process for finding the right business and the lessons learned along the way. In this conversation, Jon Stoddard shares his journey of acquiring a business, detailing the challenges and insights gained throughout the process. He discusses the importance of brokers, the criteria for selecting a business, and the dynamics of seller negotiations. Jon also reflects on operational challenges faced post-acquisition and how his military background helped him manage stress and decision-making. He concludes with aspirations for future growth and potential acquisitions.

Takeaways

Mike transitioned from a military career to entrepreneurship after business school.
He discovered the search fund model through a classmate's suggestion.
The search fund model allows individuals to buy small businesses with investor backing.
Self-funded searches enable greater ownership and control for the entrepreneur.
Mike faced challenges in securing financing for his initial business acquisition.
Investors in search funds are typically sophisticated and understand the market.
The search process can involve looking at thousands of businesses.
Mike's filters for evaluating businesses included financial metrics and industry stability.
The average investor may only have one opportunity to invest in a search fund.
The potential returns for investors in search funds can be significantly higher than traditional investments. Most local brokers don't have a lock on good deals.
Out of thousands of listings, only a few are viable.
Direct outreach to businesses can be effective.
Recurring revenue is key in any industry.
Building rapport with sellers is crucial.
Skipping the LOI can be risky but sometimes necessary.
Seller notes can align interests between buyer and seller.
Operational challenges are common in the early days.
Stress management techniques can help in business.
Future growth may involve acquiring additional businesses.

Watch the Interview:

Transcript:

Jon Stoddard (00:02.926)
right, recording in progress. Welcome to the top &A Entrepreneurs podcast. My name is John Stoddard. got a guest today is Mike Jamieson. Mike and I met a couple months ago through SearchFunder. Mike just bought a company, Personal Touch Landscaping. So welcome, Mike, to the show. Hi, John. Thanks for having me. Yeah. So tell me, you know, you and I met on SearchFunder. You had some financial Excel spreadsheets to do some modeling.

Tell me about you. Did you just bought the business? Personal touch. Tell me landscaping. Tell me a lot about that. Yeah, so you know about the business itself. I had been looking for businesses a little bit larger. But my wife came across this one which was in her hometown. And it seemed like the owners were. Trying to put in place some of the things that. Will lead to businesses being bigger. There's.

there's kind of like a gulf between small businesses and which are under 500,000 EBITDA and then those that start to get above a million dollars with EBITDA. And that basically means the difference between a mom and pop company where if you take out mom and pop, you don't really have a company and companies that have some layer of professional management. So that if you were to take out mom and pop and replace them with a searcher or a new CEO,

things continue to run pretty well. And so even though this business was significantly smaller than my target, it seemed like they were doing some of the things that would be necessary to get to that next level. So that interested me. I ran the numbers, realized that it could work out. And then once my wife and I had the initial conversation with the sellers,

we decided that we felt comfortable with buying a business that was a little bit smaller, in this case, a lot smaller than we had been aiming for. that as long as our assumptions were correct, as we did our diligence, that we would be good with it. So we decided to move forward with it. And then we closed at the very end of May. And my first day on the job was the first day of June after.

Jon Stoddard (02:29.516)
Memorial Day. Let's rewind a little bit. A little about my key is an air been in the Air Force. And then you went to Harvard Business School. And now an entrepreneur just bought a business. So how did you go from Harvard? Did you say, I don't want to work for a Fortune 500 company. I want to my own business. I I'm curious to learn about that process that decision making.

Yeah, was actually really straightforward. I was a pilot in the Air Force. I had decided that it was time to separate and settle down. Decided that business school was the right route for me. Got to business school, knew that I didn't want to go do investment banking or consulting like the majority of the graduates go do.

And I was at a veterans club event and one of my fellow classmates was like, hey Mike, you should do search. You'd be a great searcher. like, what the heck is that? He told me about it I was like, that sounds amazing because that's exactly what I want to do. As I had been doing interviews for internships, the internships were all aimed at 27 somethings.

super top tier talent, but young and experienced, couldn't lead their way out of a paper bag. And most of them were very regimented. It'll be five years, seven years before you're a general manager, before you're in charge of anything. And I just didn't like that. Once I found out about Search, I'm like, wait, you can just go buy a company? I didn't realize you could do that. Okay. So.

As I looked into it more, I decided I wanted to do it. I confirmed my hypothesis that I didn't want to work for a Fortune 500 company by working for Danaher for the summer in between my first and second year. It's a great company. I super respect them and I learned a lot of really useful things about change and improvement that I will continue to use forever, but

Jon Stoddard (04:49.646)
I realized that if I wanted to be in a bureaucracy, I was better off in the Air Force. I've been there. Yeah. And so then I dedicated my second year to taking the classes that I would need in order to round myself out. took the private equity modeling class, the CFO class, basically anything that had to do with numbers that seemed relevant to buying a business.

to the point that I could close my eyes and do a 10 year private equity model, leverage buyout model right now. And by the time I actually started my search, I was extremely comfortable with that. And that's, think you mentioned how we met is I had posted a couple of like blank models on search funder or had mentioned it. And that's just how we kind of started talking.

Yeah, and the last time we talked, there was, I want to cue on something that you mentioned, and I went out and bought it. It was that book, the HBR Guide to Buying a Small Business. Think big, buy small. It's like the granddaddy of all business buying books. absolutely. That was our textbook for the entrepreneurship through acquisition class taught by, we called them Rick and Royce. So Rick for Richard.

and Royce. if you notice, if you've heard of the private equity firm, Avery, the RY in Avery is Royce Yudkoff. He's one of the co-founders of Avery. interesting. Yeah. So this is all like, you know, I was doing the &A stuff before that. And then I didn't even know about a lot about the search funder stuff that you can get funded to search for businesses. Absolutely.

But the model came from this guy Royce because, mean, tell me this story again, because he was looking for deal sourcing and it wasn't working. So he changed it to the search funder business model. Yeah. So basically the story of the search fund goes back to the early eighties when private equity was in its Wolf of Wall Street days kind of stuff. And

Jon Stoddard (07:10.476)
So private equity was this new amazing thing. were a few people, there was a specific Stanford professor, I forget his name, realized that the same model could work with top tier and top tier at that point meant Harvard and Stanford only graduates, MBA graduates. So he basically said to a couple of his outstanding students, hey, look.

I'll give you the money that you need to search for two years, right? You'll basically become a one person private equity firm. You'll look for a small business to buy, recurring revenue, stable customers, all the kinds of things that are now baked in, like it's the traditional model. And then that gives me first crack at, you know, whatever business you buy. And there are some...

amazing stories. Iron Mountain was a search fund. Yeah, storage, right? Yep, absolutely. was, know, guy bought a small little location in upstate New York named Iron Mountain and grew it into a many, many billions of dollar, you worldwide business. The cell phone insurance company, you know, they say, Hey, do want insurance with that purchase?

That was a search fund. Yes, get it for nine months. Anyway, that's off the subject, but get it for nine months. Yeah. And so those were the model. The model worked. Basically, it proved that with smart investors and a smart CEO, you could buy a small company and grow it. So the difference, though, that's the traditional or funded search story.

Rick and Royce basically realized that there was room in the market for something slightly different because the traditional search fund will get conventional debt. So Rick and Royce realized that if you, as a student, purchased a smaller business that was within the SBA rules and kept your investors below the 20 % minimum,

Jon Stoddard (09:34.102)
or the 20 % maximum, sorry, then you could effectively own 80 to 100 % of your business. You just have to have a smaller business. And instead of flipping it and selling it after five to seven years or growing it into a public company, you can just continue to grow it. And the economics work out quite similarly for the searcher.

and they actually work pretty well for the investors. The IRRs are similar, the multiples on invested capital are similar. It's just that it's a smaller business. You have a little bit less of a safety net in the form of a board and investors, but you also can't be fired by your board who are actually the owners of the company. And so it's a different take. call it the self-funded model.

And they effectively invented that and have been teaching that for about 20 years at Harvard. And so then some people will say you have the Stanford model, which is the traditional or funded model. And then you have the Harvard model, which is the self-funded model. And both of them work quite well just for different people with different personalities. Yeah. Now, what did you do? Did the search model or the self-funded model? So I had decided to do a

traditional funded search. I had lined up my 15 investors. I was ready to write my PPM. And then the CFO of Jackson Hewitt came by campus fishing for new franchisees. And long story short, I kept stiff arming my investors saying, I'll write my PPM next month. Okay, I'll write it next month. And by the summer after I graduated, had signed an LOI with Jackson Hewitt.

to purchase 11 full markets or about 360 units, stores of their tax business. I would have been the largest franchisee by double on day one. COVID kind of killed that because the CARES Act meant that all of the banks that did SBA loans were just completely swamped with CARES Act stuff. And the timing of

Jon Stoddard (11:56.225)
the tax season meant that we just had to close by middle of October or I wouldn't be ready for tax season. Well, end of September rolls around. We've been working on this deal for three months. We're hoping to close soon. And then both of my bankers who are ready and willing and want to do the deal say, got it. We can close you by end of November, mid December latest. So that deal just blew up in my face. I said to my wife, okay, that's fine. I'll just call up my investors and they'll

They'll give me the $600,000, $700,000 that we need to last for two, two and a half years in this market as a searcher. And then we'll be good. And she said, well, let's just see what we find on like BizBizell and Transworld and other stuff. we did that for a couple of weeks, found enough stuff to be interested. Yeah. Kept me busy for about a month. And when that stuff

when I finished tracking through all those dead ends, I was like, okay, I'm gonna go now. And she's like, no, just try it another two weeks. And so we just kind of rolled that by the end of November, almost had an LOI with a Christmas light company up in Steamboat in Colorado. Then got beat out by a strategic with an all cash offer, ended up signing an LOI with

a software company in New York City, worked on that deal for three and a half, four months when that one finally fell through. Why did that fall through? That one fell through because the business was too good and the banks couldn't understand it. Yeah. So the business was doing 1.2 million of EBITDA off of 1.6 million in revenue. my God. Really? Two founders, two employees.

And they wanted to sell it for how much? Six million. That's still a deal. It sounds like me. That is a steal of a deal. The problem was, is that the founders had in 2017 founded the company, made no money. 2018 made three, 400,000 profit. 2019. No, I'm off. I'm off by a year. So in 2020, they made 1.2 million.

Jon Stoddard (14:22.445)
So trailing 12 months was 1.2 million. The 12 months before that was 300,000. The 12 months before that was 500,000. So first year they made no money. Second year they made a pretty good amount. Third year, they took a year off the business and left their two employees hanging by themselves. No supervision, just left them alone for two years. Started another company. Actually they purchased another company.

tried running that for a year, realized that their first business was better, came back to it with even the slightest bit of attention grew from 300,000 of profit to 1.2 million. That made just not enough history to it. Yeah. And so the banks just didn't understand it. I got 100 different stories about why they didn't like it. The worst one was we think you're overpaying. And that made me know that they had no idea what they were doing.

Yeah, that's a 6x multiple for software. That's not unheard of. Well, it's 4x on the profit. I had 2 million of capital that was coming in of equity. I only needed 2.5 million from the bank and I had a $2 million selling up. Those numbers are slightly off, but it was right about there.

The bank said you're just you're paying too much. So when we finally ran out of the end of our exclusivity period, the owner shopped it around within two weeks was under contract. Seven million dollars, all cash, no strings. Holy crap. Yeah. What kind of what kind of software were they doing? I don't want to get too much in detail, but what they did was help fulfill by Amazon sellers. So, for example,

Not an old dinosaur industry, but a growing industry. So, hey, I got to ask you about the investors you had. Now, were these people that you knew from Harvard that

Jon Stoddard (16:38.285)
Some, yes, but the typical funded search fund investor is very sophisticated.

exacts very clear terms from the searcher. If you make these hurdles, you'll get this much carry. If you make these hurdles, you'll get that much carry, et cetera, et cetera. They're generally sophisticated. And if they're not doing it professionally, they did something like private equity or hedge funds or something. so they're very aware of the market. Yeah, not the first rarity.

Exactly. Now, if you compare that to the average self-funded investor, the average self-funded investor looks a lot more like a well-to-do business person, but not with many multiples of millions of dollars, or a doctor or lawyer or banker. If, for example, you wanted to invest in alternates or private equity,

You need to have at least a million dollars to be a limited partner. And the rule of thumb is you only want to have 10 % of your net worth or your investable assets in alternates. And so then you have to have at least $10 million to your name before you're going to be able to play in private equity. And that's just to be the bottom end of the smallest fund. With a self-funded investor, maybe you've got two to $4 million.

which means you have, you know, two to $400,000 that you can invest. And so then what you'll do is you'll write a check of 25 to a hundred thousand typically to a searcher. And so then a searcher, someone like me, but if I was buying a bigger business, I would have needed this, but I actually was able to fund the 5 % from my own personal savings.

Jon Stoddard (18:49.221)
But if I was buying a business for $4 million, right, and I need a million, I don't have a million dollars, so I'm going to put in my 50 to 100,000 so the banker is happy with me that I've got skin in the game, and then my investors are going to make up the rest. So I'm going to get 10 people to chip in $100,000. And the way the model works is I will give them a small

So I have to give them their money back before I make anything other than my salary. I'm going to give them a small coupon, you know, in the range of four to six, maybe 8%, depending on how risky it is. And then I will offer them say, you know, 15, well, 10, really market is closer to 10 right now, 10 to 20, 25 % of the common equity of the company after they've gotten their

preferred return back and that's called the equity step up. And what that effectively means is that if you do well and just pay your loan off, you'll be able to pay back your equity investors generally in the three to five year range, making two to three times their money, two to five times really. And that's a tidy little IRR, much better than the stock market. And that's

Yeah, riskless isn't the right term, but it is much lower in risk because it's based off of paying off the loan. If the searcher is able to pay off the loan and grow the company a little bit, then that equity portion starts to mean a little bit more. you know, these folks can get closer to 10X returns. You know, so that means you would have chipped in $100,000 and

If I, you know, to buy a $5 million company and if I grow the company to $20 million company, but I've paid off all the debt, you know, my 1 million has gone to, well, you don't even have to do that. If you buy a $5 million, it's a million dollars. Yeah. Well, if you buy a $5 million company with $1 million of equity, right. And then you pay off the debt and grow it to a $10 million company. Then the 1 million of equity has multiplied by 10. Right. Now as the searcher, I'm going to take 75 % of, of

Jon Stoddard (21:14.635)
the common equity after I've paid you guys back your 1 million. But say I grow the company to $20 million, which isn't unreasonable, that's only four times, then you as an investor might get seven, eight, nine times the money you put in. And so it's a nice little model. mean, and kudos to Rick and Royce for coming up with it as a variation on the funded search. I get to keep the ownership and control of the company.

It allows people who are a little bit too small to play in private equity to have some alternates and do private markets. And all around it works quite well. Yeah. How many, how many, if an investor says, you know, they're not just going to put it into one entrepreneur, usually how many do they invest in to spread their risk? So there are a good number of investors who have started to do it semi-professionally.

Yeah, invest in search funds, they will try or in self funded searches, right? They will, they seem to fund five to 10, you know, a small enough number that they can keep track of it. But I would say the average investor gets presented with this opportunity once in their lifetime. well.

because you're a doctor or lawyer have three, four million bucks. Somebody is buying a business in your community and they say to the seller, hey, I need some equity investors. Is there anyone that you'd like to refer me to? Otherwise I'll go and jump on my own. And for most upper middle class folks in the United States, they don't have opportunities like this more than once ever, if ever.

$1,000 into a million or 10X in a company? No, no. And just to be clear, the 10X, that's not typical. Typical is more like your $100,000 becomes $200 to $300. Right, right. But $200 $300 return within three to four years, where else are you going to find that? You don't. You don't find it in index fund. No, that's going to take a lot longer. What do you think about? I'm just curious your opinion about the being

Jon Stoddard (23:41.665)
funded by a search funder because I ran into another guy reached out to me on search funder and he said, hey, I got a ton of deal flow deals. just haven't found anything I want. I go, well, how many do you have? And he said, a thousand. said, what do mean? You went through a thousand businesses and he told me, he goes, well, and I got 300,000. If I don't find a business in the next month, I'm going to lose it. Cause his term, whatever it was came to an end.

Sounds like he was doing, I mean, it's just specific to him, but it sounds like he was doing too particular about what business he was looking for. I actually think that that sounds about right. I would say that in the year that I searched, I looked at 40,000 businesses. Holy crap, 40,000. There you go. And the thing is, is that the average amount of time that I spent on NOS was

five seconds or less. So if you take BizBizel, which is what I would do, I would run out of leads. I would give the internet a couple of weeks to backfill stuff that I hadn't looked at yet. I would take everything new in the last two or three weeks, which is in the entire country, which is maybe 10,000, right? Maybe not quite that, maybe 7,000. But I would...

I would filter out anything over 20 million asking price. I can't afford that as a self-funded searcher. Filter out anything below.

five, 600,000 of EBITDA because it's not gonna be able to afford, the business won't be able to pay me a salary that I can live off of with four kids and pay back my student loans and pay off the loan. So those were effectively my minimums. And then what I would do is I would say, I need a business that's asking prices less than 5X. I need a business where the margins are 20 % or better.

Jon Stoddard (25:44.461)
I need a business that's non-cyclical, so I would eliminate things like construction or things that I don't understand, manufacturing, things that I don't want to be in restaurants. And then if it met those three hurdles or those three filters, which is very few, you know, so out of 7,000, you know, I'm spending a few seconds, like, you know, single digit seconds on each

on each listing on BizBuySell, finding the ones that meet those three filters. If it does, then what I do is I open up my model and I will plug in the purchase, the asking price, the EBITDA, and an estimate for working capital, FFNE, CAPEX, that kind of stuff, just based off of the industry. And BizBuySell will usually say that.

And I plug it in and out of a hundred, so say there's a thousand that I've looked at, there's a hundred that meet the first five or those first three filters. Of those hundred, 50 to 80 will not make it through my first hack model. The point of the first hack model is to get to know quickly. So this won't make enough money for me after 10 years.

If I'm going to do this for 10 years and come out with $1.2 million, I would have been better off being a consultant. I should have just done that. Is it going to work for my investors? Am I going to be able to pay them off within five years under reasonable conditions? Are they going to get 25 or greater IRR? And then does it work for banks? Is my debt service coverage ratio above 1.25 better if it's above 1.5?

So by the time you impose those three constraints, is it good for me, investors, if any, and the bank, that eliminates 50 to 80 out of the 100, which were out of the 7,000. So now I'm down to 20 to 30 maybe that I send emails to the brokers requesting a SIEM. Now on those,

Jon Stoddard (28:08.893)
most regional, like local and regional brokers don't have a lock on good stuff. They stumble upon it once in a while, they know it's good, and there are people waiting in the wings telling those brokers, hey, if you see something that looks like this, that meets these criteria, tell me right away. So of the 20 or 30 emails I would send, things that

meet all my criteria, the basic criteria to look at the SIEM, half of them at least are already under contract by the time I even see it. Yeah, yeah. Okay. The other half, I get the SIEM, I open up, so now out of 7,000, I'm opening seven to 10 SIEMs. Well, two thirds of those I reject immediately. Yeah. It's crap. One of the things I saw was 1.2 million of people asking,

3X, open up the SIM, it's a million dollars of ad-backs.

the guy was putting every single personal expense he had through the business. And I was like, look, that's his choice. But if he'll lie to the IRS that bad, lie to me. So. Yeah, I like that rule. I don't even want to know. OK, it's a million dollars Vipa done. There's $100,000, $150,000 of addbacks. That's totally reasonable. Those are justifiable business expenses. I got a fancy

401k and healthcare plan. Okay, got it. I don't have to have that stuff that counts, but you know, three family members on payroll. No, I don't, I don't buy it. Yeah. So then I end up with out of 7,000 things that I've gone through, and this is like in three days, I end up with a small handful, you know, two to 10 that are actually still for sale and I'm actually interested in. So

Jon Stoddard (30:12.109)
Then I'll schedule a broker call. Then that almost always goes well, as long as the broker doesn't say like, actually, I think they're lying. They usually say they don't think they are. to the owner. then my conversion from owner conversation to IOI submitted, or just like a, hey, I think that your company might be worth this much. Let me know if I'm in the right ballpark.

if it's worth continuing the conversation, it was almost 100%. I would submit an offer almost every time I spoke to an owner, except for a few owners that didn't have brokers to compile a SIEM. And so I spoke with them and I'm like, whoa, no way. This is not the right business for me as soon as I found out the basics. Yeah. Well, how much did you do any direct to mailings or reach out directly to business at the same time with its brokers?

You know, all of my buddies are, and I think that that's a very important and valid way to do things for most searchers, whether it be funded or self-funded. However, I didn't because I was just busy enough that I didn't need that. You know, you weren't looking for any specific industry that, hey, I love working in the landscape industry. You just look for whatever.

matched your financial criteria. Exactly. Exactly. My general leadership skills in the Air Force were not going to make the SBA happy about any industry. And so there was no reason to focus on an industry. mean, it's just agnostic as long as the numbers look right. As long as. And the thing is, is that I mean,

The, you can have a good recurring revenue, high margin, B2B business in any industry, right? You know, you find that a lot in software, but it's in other stuff too. This business, landscaping business that I'm in, it's B2C. Most, all of our customers are residential, but the majority of them are on automatically renewing one-year contracts.

Jon Stoddard (32:39.925)
Yeah, this is beautiful. So where did you find this one? This was on this fire? I don't remember which website my my intern slash wife, I used to joke that she's my intern. You know, we would both cruise the websites. I don't remember which one she found it on, but she sent it over to me might have been biz by cell or touchdown or whatever it was. But when we initially contacted it was actually gone. It was it was under contract. And

But the broker sent me the same anyway. looked and I was like, actually, I really like this. It's very small, but it gives us the chance to live near my wife's family. So we're willing to deal with the smallness. And a couple of weeks later, the broker sends out an email blast. Hey, everyone on this email previously expressed interest in this business. Give me a call back. And I probably called back within 10 minutes.

And within a day or two, had the owner conversation with the sellers and my wife. And the next day submitted an IOI and went under contract right away. We skipped the LOI, went straight to the asset purchase agreement, which maybe is, I don't know. I don't know how to have an opinion on whether that's right or wrong, but to each his own, that's what the broker wanted. And within a couple of weeks, we were, we had a signed asset purchase agreement.

That's amazing. I gotta go back to the conversation. You met your wife. She sounds like a go getter. I she's like pushing you a little bit farther than you think you can go sometimes. I mean, I wanted the I wanted the safety net of the funded search. Yeah, you know, I was, you know, concerned about health care for the kids and that kind of stuff and legitimate care. yeah. I mean, we were on Medicaid or yeah, Medicare.

Medicaid. Yeah, Medicaid's the one for poor people. That's where we were for that year. Like I called up the county and was like, my income is zero. My assets weren't zero. So we didn't get food stamps or anything like that. But they put the kids on state Medicaid so we could take them to the hospital if we needed to. she was like, my wife was like, well, let's just give it a try. Let's give it two weeks.

Jon Stoddard (35:01.453)
I guess maybe she just felt a prompting or a pull to give it a shot. And she was obviously right because less than nine months later, here we are. Yeah. So this business, you skipped the LOI, went all the way to the asset purchase agreement. Did anything turn out different than what you saw in the reps and warranties or anything else in the business? Not really.

I personally would have preferred to have an ROI. think that's a valid step, but the broker had his own preconceived notions and had convinced the sellers that that was the right way to do things. Yeah, that sounds kind of odd. mean, that's, you know, this it's a conceptual agreement to say, Hey, you know, we're going to be ethical towards each other. It's a non-binding. It's just like, can we work together? Yeah. And, and I like it as a

One of the issues I had with the asset purchase agreement was getting the non-binding part from, and they wanted $10,000 in earnest money too. The broker obviously came from a real estate background. That's kind of the way that real estate functions is you don't have a, an LOI is, what you do is you negotiate an LOI and it sets the structure for the asset purchase agreement or

Well, that's the thing. You don't even know if you want an asset purchase agreement or a stock purchase agreement yet, right? You haven't opened up the hoods of the financial and that kind of stuff. An LOI usually gets you exclusivity so that you know that you're not going to get undercut by somebody else while you're doing the super basic stuff. But it basically says like, hey, these are the general terms that we want in an asset purchase agreement.

this is the price, this is the multiple, this is how much time you'll work after we close, that kind of stuff. Are we all in agreement? Yeah. or no? Yeah. Yeah, exactly. Like, is this about right? And, you know, that can take a couple of weeks to negotiate. And the thing is, is that we basically just skipped that, went straight to the asset purchase agreement. But I had to get the clauses

Jon Stoddard (37:25.323)
the protections for me that are baked into an LOI because it's non-binding and get those put into the asset purchase agreement. But in an LOI, you have 30, 60, 90 days to do your diligence and you haven't given them any money. And so if you decide not to buy it for any reason or no reason, that's just the end of it. With the asset purchase agreement, I had to give them $10,000. And so I had to say, look, you have to give me

At least 20 days, right? And I can kill the deal for any reason or no reason. I had to get my lawyer because I had a good draft of an L. I. But I had to get my lawyer in on this one. Like how can I protect myself? Because I'm going to give them $10,000 and I have to make sure that they're going to give it back to me if I don't like this because the vast majority of the businesses that I look at the financials you don't like. Yeah, yeah. Why was the guy selling? The is husband and wife.

both of them were working in the business for 30 years and they decided that it was time to retire. was there any, how did you, I mean, was this a emotional rapport connection with them? Like, hey, we like this guy the best cause he's got four kids, he's in the air force and something, or was it just financially? They didn't care who was sitting on the other side. They very much cared about who was on the other side.

I think I also had the highest offer. offered 25,000 over asking. Yeah. Which in, realistically is a very small percent over, but I wanted to get it off the market right away. And so I said, look, I will give you everything you asked before plus 25,000. but they didn't want to sell or not. And I said, I'm not going to do a deal without a seller note. So that's one of the reasons I'll give you, I'll give you a higher purchase price in exchange for a seller note.

And what that effectively meant is they're going to get pretty close to the same cash out at close that they would have gotten with no seller note but the lower purchase price. But it still means that I owe them money, which means that they still retain an incentive for me not to go bankrupt. Yeah, that's curious. How long was the seller note? Two to three years or?

Jon Stoddard (39:48.981)
No, I negotiated that it would be fully subordinated to the 10-year SBA term. wow. Do they... The reality of that isn't I'm not going to wait 10 years to pay them back because what will happen is in most cases, or I guess the average SBA loan is they're all for 10 years, but the average one gets paid back before seven years, five to seven years. And so...

I will either have it paid off or refinance by about the fifth year, which means that, you know, in reality, their 5 % is only on the hook for five years. Do they have any covenants or conditions about being able to see the books to make sure you're paying or is it just sending them a paycheck? Or a loan repayment debt? Yep, exactly. So they did ask for quarterly financials, which is one of the reasons that I

specifically, I'm going to try and get it repaid as quick as possible because I'd like to grow the company. Two, three years from now, I don't think it's their business how much money I'm making anymore. Right. They don't need to know that. Exactly. How is it going so far? Consistently cashflow, met your debt obligations, paying back, how are you planning on growing? What can you see there?

So the cash flow is not as consistent as I was hoping. Yeah. But that was because of a couple of management missteps by me in the month of July. And we've got those hopefully fixed and we're back on track. But yeah. You don't have to be specific about those errors because we all make mistakes. What kind of of what error do you think you mean? Unforced error?

no, I think it might've been something that we had to do, but effectively the, the mom was the garden manager and she had a supervisor that worked under her and the pop was the landscape manager and he had a supervisor that worked under him. Okay. On day one, we fired the landscape supervisor because he stole a truck and drove it halfway across the state. It's part of.

Jon Stoddard (42:18.861)
Part funny, but it's parts. Yep. a small business. Yeah. So then we took one of our foremen and we promoted him to supervisor. He did great. After the truck, did you get the truck back? Yeah, we got the truck back. He pulled out the tracker and smashed it on the ground in the parking lot before he left. But whatever. So he got fired and took no accountability. so one of the foremen stepped up to the supervisor role.

and was not all the way trained as supervisor before the end of the 30 day period where mom and pop are still working for the business. I mean, the first two weeks were whirlwind. have no idea what happened. I got a question for you about that because you're still paying the, you have a seller note and he's still kind of out there like available for advice. This happens. Was he any help or was he just totally out of it? Well, that wasn't in

I don't think he would have recognized that it was an error because I told them what I was doing. So I'll get to the error itself here. At the end of the 30 days, I needed to have, so I guess the two sellers were each doing two full-time jobs. So the mom was,

She ran all the finances of the company and she was in charge of all the gardening and the gardening sales. The pop was in charge of all of landscaping, a lot of the HR and marketing and landscape sales. So between the two of them, they were doing three and a half to four people's worth of work. Never took a vacation in 20 years during the summertime, all that kind of stuff.

That's too much for me. And they were doing that with the experience. So what I did was I took that landscape supervisor who was brand new and I elevated him to a landscape manager position and had him start training a supervisor below him. And in hindsight, that was too much for him to handle because a lot of balls got dropped and a lot of balls that cost us a lot of money got dropped.

Jon Stoddard (44:46.601)
And so by the end of July, when I realized that the cash flow had gone from 120,000 in the month of June to zero, we had to fix some stuff. So my salesperson had previously been the landscape supervisor, had been elevated to sales. So I took him, put him back in charge of landscaping. So he's the landscape manager, took the guy,

who is still on track for his promotion to landscape manager made him back a supervisor and kind of retrenched in let's make sure that we get this right and have the person who is more qualified to define the ambiguous what a landscape manager does, have him do it, and then the guy below him can come up once it's been defined. So that I think will help.

quite a bit. Things have already gotten better in the last two, three weeks moving in this direction. So we will, we're definitely going to be fine going forward, you know, but that kind of misstep early on can certainly cost you. yeah. Was your wife or were you panicked about it? Like, crap, doesn't that turn out to be? I mean, a couple of nights of very little sleep. But, you know, at the same time,

That's kind of, at first I was like super stressed and I was like, how can this be more stressful than flying a giant cargo plane into Afghanistan with people shooting at you? And then I realized it's not. I'm letting it stress me out more. Worse, I was like, look, worst case scenario, I go bankrupt. Everybody's healthy, everybody's happy. Everyone that works for me will go find another job. Nobody died. Nobody will die. you know who also told me that is like it.

He said, you know, I never done entrepreneurs stuff before this Navy SEALs like, my God, I've been in Iraq three times, There's not losing a business and going close and going bankrupt. Not half as scary as being in Iraq. Yeah, absolutely. Absolutely. And the thing was, is I let it, I let it freak me out. And as soon as I made the decision that it wasn't stressful, this is not like once I decided, no, this isn't a stressful situation.

Jon Stoddard (47:15.809)
Like the worst that can happen here is not that bad for anyone involved. It can be bad, but it's not life or limb. It's not health and those kinds of things. so once I stopped letting the stress run me, which it did for a couple of days, I was able to say, you know what? I have the right person for this job. He's already on staff. I'll just have him take over the landscaping.

have him teach the supervisor how to do these things. Because when he was in charge, he was running it just fine. It was a profitable division of the company. And so I just put him back in charge and have been mentoring my two new managers and the supervisors that are coming up behind them. And so you asked earlier about what the plan for growth for the company is. plan.

is to, I've realized that this is the right size for this business. The square footage, the number of trucks, the number of managers that we have. I feel confident that this is the right size. We can fill it out a little bit. But the plan is to get a good structure in place where we have a general manager, two division managers, and two supervisors under each of those division managers with a bookkeeper and a salesperson.

And then that will be the template that gets replicated. So once we get enough customers, in this case, we're aiming for the north end of town. That's where we have a nice little concentration of customers. The plan is to try and build that neighborhood out to the point where it can support another location. Then what we'll do is make like a bacteria and split into take half of our employees in trucks and move them up there to a new location. And then

and then backfill, then train the next generation below them until we have two fully operating locations. And maybe by that time, you know, and then after that, those two locations hopefully grow. And then we split one or both of them again. And that's the way that we'll grow. And I suspect you've run some modeling numbers on when that split in your bacteria will be. I haven't yet. But again,

Jon Stoddard (49:39.467)
you know, we're not even three months into owning the company. So we're still getting a handle on day-to-day operations and making sure that we're profitable each day. But I feel confident, well, I know for sure that it won't be next season that we're able to do this, but I feel confident that the following spring, so that'll be spring of 2023,

that will be to the point where we're considering, you know, where and if to go ahead and open a new location. Yeah. How's your wife feel? Does she feel comfortable, confident, or is it, you know, the life of an entrepreneur watching the bank account go up and down sometimes? It can be kind of a, you know, emotional roller coaster. Yeah. So she, she solves part of that by not watching it.

I had an entrepreneur in front of mine. He's owned two businesses, 20 million. He goes, you know, my therapist told me to take my wife off my business account.

Yeah. I mean, she knows like she could log, she could log in with my credentials whenever she wants, but she doesn't. We, she, she works in the business part-time. She's getting an MBA herself. And, you know, she, she's got a lot of ballot input, but she tries to stay off the highs and lows by staying out of the bank account. Because like you said, it varies wildly.

very, very wildly. you have to just, you have to be okay with that. I'm just curious how you centered yourself back, you know, when it's a stressful, hey, I made a mistake. How do I correct the error? It looks like instead of like the world falling apart to like, my God, this is not as bad as I thought. I mean, how did you re-centered yourself? Like what was your inspiration like to get your head out of that?

Jon Stoddard (51:48.273)
fear, and doubt stage? Well, I mean, I walk in my office every day and I've got all my leftover military paraphernalia. You know, my Academy plaque, you know, I've got a I don't know if you ever saw the movie Tuskegee Airmen, but I have a signed litho from one of the Tuskegee Airmen on the wall. And, you know, it's literally one plane shooting down another like life and death, you know, and

You know, you just realize you're like, wait a minute. Like I've had people shoot missiles at my airplane in Afghanistan. Like that's scary. And I wasn't scared then. And so I, I'm like, tell myself, look, I, how can I be more stressed now than I ever was in the air force? You know? And then I'm like, wait, I shouldn't be. This is life and death. I'm not killing anybody. Nobody's killing me.

We're not crashing any airplanes into mountains, no bombs dropping. And as soon as I, literally the second I was like, wait, this isn't life and death. And I said to myself, well, what's the worst case? And I described it. I described it all the way out. Like what happens? Like, okay, my bookkeeper goes and gets another job. The bank takes the keys to the building. They get all the pickup trucks and have to deal with disposing of those. They're like 1994 pickup trucks, some of them.

and all of my employees are great, they'll all go get other jobs. Like I will give them all great recommendations. I will go get a job at a Fortune 500 company and I'll never be a multimillionaire, but we'll be fine. And once I described out what would happen in a worst case scenario, I was like, that is not so bad. Why am I scared of that? Yeah. And it's like, that's a great tool to shrink that time the next time it will come again.

But to shrink that time, you're in that stage. like, yeah. Absolutely. Yeah. Well, do you have any plans to acquire other businesses to add on to it? know, I don't know yet. I know myself. So I suspect that this will not be the first time I purchase a business. Well, I'm certain that this will not be the first time I purchase a business.

Jon Stoddard (54:11.053)
or rather the last, this won't be the last time I purchase a business. whether that is we start to grow and then we grow through acquisition to a certain point or whether that is I get this business operating well, two, three locations, hire an MBA from a local good, but not, you know, top seven MBA school to be CEO and start building out the management.

and then that frees up my time. get bored and I go buy another business. I don't know what that looks like, but I'm relatively certain that if this venture is successful, I will be buying other businesses in the future. Yeah. I want to wish you the best of luck. And we're almost out of the time. So Mike, thank you so much for your time. Especially thanks for your service. And I want to wish you the best in your business. Yeah. Thanks so much for having me on, John.

Anybody who hears this and is interested, you can probably find me on SearchFunder. like to comment on stuff or on LinkedIn. I love chatting with people and helping them out. by the way, and Mike has, you'll have to ask him. I'm not going to forward it, but he has some great financial spreadsheet models that you can run for your business through. But you need to reach out to Mike on SearchFunder or LinkedIn.

So thank you, Mike. Thank you very much. Have a great day. Thanks for having me. You too. Cheers.