Walker Deibel shares his Secret to Making Acquisitions

Summary

In this conversation, Jon Stoddard interviews Walker Dybul, author of 'Buy Then Build', exploring his journey from startup failures to successful acquisition entrepreneurship. Walker shares insights on the importance of product market fit, the advantages of acquiring existing businesses, and the nuances of business valuations and negotiations. He emphasizes learning from failures, the significance of cash flow, and the strategic approach to building a business through acquisitions rather than starting from scratch. In this conversation, Jon Stoddard discusses his journey in business acquisition, emphasizing the importance of specialization and focusing on niche markets. He shares insights on managing multiple businesses, the significance of building equity, and the opportunities present in the old economy. Stoddard also highlights innovative business models and his future plans, including the launch of a new platform aimed at connecting investors with acquisition entrepreneurs.

Takeaways

Walker Dybul emphasizes the high failure rate of startups.
Acquisition entrepreneurship allows for leveraging existing cash flows.
Understanding product market fit is crucial for business success.
Buying an existing business can be more efficient than starting from scratch.
Valuations should not be the sole focus; terms are equally important.
Stress testing cash flow builds confidence in acquisition decisions.
The market for small businesses can be thin, affecting valuations.
Walker learned from his failures and pivoted to acquisition strategies.
Acquiring companies in the same vertical can lead to greater growth.
The importance of having a clear understanding of the business's financials before acquisition. Specialization in a niche is crucial for success.
Managing multiple businesses can lead to overwhelming challenges.
The magic of acquisition lies in what the CEO brings to the table.
Old economy businesses present significant opportunities for growth.
Building equity is similar to real estate investment.
Cash flow management is essential in the early years of acquisition.
Phantom equity can align interests without diluting ownership.
Innovative solutions can disrupt traditional markets, like plumbing.
Creating a community for acquisition entrepreneurs can enhance deal flow.
The private capital market offers better returns than other markets.

Watch the Interview

Transcript

Jon Stoddard (00:00.654)
Today I have a guest is Walker Dybul. Walker, welcome to the show. How are you? John, thank you so much for having me. I'm super excited to be here and honored to be hanging out with you today. Well, I gotta tell you, here's why have Walker Dybul on the podcast. It's because he's written a book called Buy Then Build. he's also, if you go to Forbes, he's one of the five top recommended books to read. Buy Then Build. Yeah.

It's a great read. get it. I'd run to Amazon. I am not an affiliate, but I'd run to Amazon and get this book because it's a really great, great comprehensive. So Walker, I want to talk to you about how you got into this buy then build and your story about viewpoint. Cause I'm familiar with you. I've been in technology all my life. I lived in Silicon Valley, raised some capital. I was part of a startup called TurboSquid.

eventually sold it to Shutterstock long ago, but viewpoint I do remember. So tell me about that story. Yeah. So if you really want to learn about sort of like my genesis into acquisition entrepreneurship, I would actually go back a number of years. Do you want to go back? let's go back. Yeah, we got time. So it really was all about when I went to Washington University in St. Louis to get my MBA, right?

And while I was there, I sort of had a couple of concentrations. One was in entrepreneurship. I knew I wanted my own business. I knew that this was the direction I wanted to go. And I sort of learned two things going through the MBA program. Number one is that MBA programs are really sort of engineered for middle management in large organizations. Or there's this sort of niche in entrepreneurship, which is all about like, we are going to raise capital from

from venture capital and sort of swing for the fences type innovative startup companies, right? And these were really the two paths. And the problem of course, with the sort of the startup model is that it's got an extremely high failure rate, right? If you really start to unpack it, I started to learn like, okay, this is actually a venture capital game. Venture capital are the ones that actually win and any given entrepreneur has the strong likelihood of failure, right?

Jon Stoddard (02:25.454)
And it turns out that 96 % of all companies in the United States never exceed $1 million in revenue. And when you start to look at the venture capital companies themselves, 75 % of VC backed firms go completely to zero. So we started this company, I kind of used it, used my MBA as sort of like a resume shield to start a company. and a few classmates got the license.

to using what is now called Real 3D, right? Like you go to the movie theater and you wear the 3D glasses. We had that in 2003, but used for point of purchase advertising, okay? So we were licensing this technology. We were in big talks with a national retailer who I don't think I'm allowed to say who it is. I'll just say it rhymes with Walmart. And they were gonna kind of like roll it out nationwide. And we had these sort of.

point of purchase, know, 3D things, we learned it really like increased retention, like, you know, like, like tenfold, right? We lost the license, like basically in one day, okay? And they never, and I can't even tell you if it's the same company or the same exact technology that went on to become real 3D, but like, I like to imagine.

that they were like, listen, we're talking to James Cameron. We've decided we're going to go make Avatar. We don't need you three MBA students in St. Louis. You know what I mean? So this was like my first big failure. There was an Achilles heel. We came in second in the business plan competition. We had a customer on the hook. had financing starting to line up and the whole thing ended in failure, which, know, if you read or listen to the top entrepreneurs, like the iconoclastic entrepreneurs, they will often say,

I just took a lot of at bats, right? Cause it's all about failing. It's about learning from your failures and getting out there and trying again. Okay. When I graduated, I was one of, think two students who didn't, who didn't actually look for a job during, during school. Right. So, so I, you know, I had this really promising startup and I went from being like an MBA student with a really promising startup to being completely unemployed and not a student, like in, in, in, in a couple of weeks. Right. And so was one of these things where

Jon Stoddard (04:41.984)
I knew that I had already like sort of pounded the pavement to raise a bunch of capital. I didn't have another idea that felt like that wasn't, know, all my ideas were like too big, you know what I'm saying? And so I knew there was a way to sort of acquire an existing business. And once I started to think about it, I was like these existing companies, they're bankable. Like I can go to the bank and just get the money. I don't have to do a 12 to 14 month road show. You know, it's got existing cash flows. It's got existing customers.

It's got product market fit and it has the infrastructure and all of the things that we as startup entrepreneurs are trying to build from scratch. So why wouldn't we sort of like start on first base, right? Almost like a Saber metrics, but for entrepreneurship. Yeah. Yeah. I don't know. Do you follow Keith Cunningham out of Texas, that guy? I hate to say that I don't. don't know who that is. Great guy. He calls it buying a plane that's already flying versus trying to buy a plane on the ground.

It's never been to take off. Yeah. Well, it's sort of like the rocket analogy, right? Like rockets will use 90 % of their fuel or a little more, I think, to actually get out of orbit. Right. And so, so it's only 67 miles up. That's right. That's right. 67, 68, whatever it takes. No, that's exactly right. So there's so much, it takes so much capital and so much effort to go from zero. They're like, why wouldn't you just go buy, know, if you buy a company that's doing a million dollars in revenue, okay.

When I was an MBA student, that was such a small company, I ignored it, right? It's larger than 96 % of all companies in the United States. It's such a low bar for being so extraordinary and exceptional. I know this is kind of an off shoot here, but what do you think of MicroAcquire? I mean, the guy is gaining a lot of traction, but a lot of these businesses like...

They're the rejects from the VCs. And I'm not saying that I'm not being mean by saying that I'm just saying they can't raise money because they're just not growing fast enough. Are they just on like a cigarette butt on their last type of life cycle on this? So, okay, if you look at traditional private equity.

Jon Stoddard (06:59.701)
Right? I mean, they really like to party in the sort of like middle market. Okay. So sort of like 25 million to 250 million in acquisition value. Right. Once you start getting below that, then you have this sort of like, you know, what you might call an acquisition entrepreneur and the sort of like main street markets sort of sub $5 million acquisitions. And when you are, know, when you've got to, when you, when you're going to do a transaction that's between like 6 million and 25 million, there's really sort of, that's where the barbell thins out.

the market gets even thinner, right? And so the thing is, like, you if you look at sort of the average, you know, deal size of a search fund, you know, you're looking at like 12 or $13 million, right? So something that's a little bit bigger than maybe a financial buyer, but something that's definitely smaller than traditional private equity, but you're still getting a couple million dollars in adjusted EBITDA, right? So these are very meaningful companies. It's just that these private equity firms have, I believe it's like $3 trillion now just in dry powder.

$3 trillion? yeah, yeah. So, since they put in 40 to 60 % equity infusion in every deal, you can take that 3 trillion, multiply it by two, that's how much money they need to deploy. Okay? So the thing is, is like, these are not bad companies. The private capital markets have had better returns than any other asset class in the world for decades. Okay? And so it's people who own companies or the people that are getting the best returns, period.

And the thing is, is that like by targeting under private equity, that's exactly what my whole career has been about, right? I mean, that's to me the gem where you can sort of get in, but there's not a whole bunch of institutional capital like driving the price up and sort of like fighting you for those opportunities. So if you can manage it and if you can get the capital, I think that's the golden ring right there. If you can get the capital, that's the biggest deal. So let's go back to that viewpoint. So what happened to this, the viewpoint where you-

I mean, you tried to raise the capital and then it just. Yeah, viewpoint was, viewpoint is great. So, backing up just a little bit, okay. I ended up going corporate after my MBA. Like I couldn't figure out how to actually buy a business. Like I started and I started realizing like this market is fragmented, it's opaque. I can't get any good information. And you know,

Jon Stoddard (09:19.213)
Everything from an investment banker to a business broker to an &A advisor. I just couldn't figure it out fast enough, right? So I ended up going to corporate. Just curious, were your parents in business, entrepreneurs? they buy or sell? You got it. You got it. So my dad ended up owning a company after two people died. He worked there. I'd say he worked there for 20 years and two people died and he ended up with the company.

The thing that maybe is maybe to your point, both of my grandfathers owned their own companies. Yeah, that's entrepreneurial steer. I'm not saying you can't do it, sometimes it's passed down this like, here's what you should be doing because that's right. That's right. I mean, the thing is, is that like, you'll see my book is actually dedicated to the memory of my grandfather, Bob Dible. And Bob bought he

he had a feed company, like while it was being like rolled up by these big firms, right? So he had like a cattle feed company, ended up selling it based off of the balance sheet, took the offer, sold the business, and then he went out and he acquired a filter company, okay? So he actually bought a small business and did this, right? And so the thing is, like, we look at all these iconoclastic entrepreneurs and we're just like, man, Jeff Bezos and...

like Elon Musk and all these things and like they grace the covers of these magazines and it's all about the startup. But the truth is, is these are exceptional people. These are exceptional results. And the thing is, is that like, if you want to, you know, just use the baseball analogy again, if you want to get in and swing for the fences with like the best hitters, you know, in the league, then like you can do that or you can focus on getting on base, right? And we all know, we've all seen Moneyball.

And I mean, know, this is how the sort of like underdog, you know, baseball teams were able to win World Series, right? So the thing is, and the thing that's slightly less well known, by the way, is that Elon Musk acquired PayPal and he acquired Tesla. These were small businesses that he bought, right?

Jon Stoddard (11:33.079)
So we all like to think like, he's a co-founder of all these things. He actually got sued by changing his title to co-founder of Tesla. He got sued by one of the real co-founders, right? So the thing is, it's not about starting from scratch. Like buying a company at a million dollars in revenue and accelerating the value creation is entrepreneurship at its purest form, right? So whether that be starting completely from zero or starting off the ground, you're still doing the same job.

Yeah. Your question was about a viewpoint. I'm sorry. I mean, circle back. Help it around because when you mentioned this, it's like, okay, if I set myself in the shoes of Elon Musk and I'm looking at all these companies on micro acquire where there's no broker dealer relationship, they just charged 300 bucks to get on there. And I got like, well, if I can identify a trending opportunity where the guy's already got it started, that could be a good opportunity, just like Elon. Yeah, exactly.

And I think that through my career, I have ended up acquiring $16.5 million in revenue. And it ended up being over seven different companies and like three or four different verticals. And frankly, if I did it again, instead of thinking of myself as sort of like the smallest little private equity firm that no one's heard of,

I wish I had bought all in one vertical, right? Because that's a huge company and you get multiple expansion or valuation expansion as you get bigger into different pockets, right? you know, pulling it back around, I went corporate and then I started looking for a business to acquire while I was working. And I ended up, we can go into the story if you want, but I ended up buying my, well, hold on. I ended up buying my first company which was Corley Printing Company, okay?

Early printing company. Yeah, and I ran this company for seven years, okay? And then I ended up exiting to an acquisition target, okay? What happened was when I exited in 2013, between you and me and everyone listening to this, it was the same month that I paid the last payment on the debt to acquire the business, okay? So I had an exit, a meaningful exit on that day.

Jon Stoddard (13:57.325)
And the thing was, I was like, all right, what am I gonna do with this? And this is where Viewpoint came along. I did the startup thing again, okay? You already know how this ended. We already know. That was the only we this ends, Yeah, so Viewpoint, I mean, what Viewpoint had going for it was a great technology, a proven dev team. We had the CTO of a publicly traded company working with our dev team. We recruited a Microsoft executive to be our CEO.

We went through one of the top 10 accelerator programs in the world. We oversubscribed the capital raise and we couldn't actually get anyone to go from a free beta to actually paying for it. Okay. And I think that like a lot of times people are like, know, like not, didn't have product market fit or whatever. Our core issue with that company was that users loved it. They relished the experience at viewpoint.

The problem was that our target market was multiple users inside huge companies. So we needed the CTO of these companies to sort of like take half an hour with us and allow us to integrate it into their SharePoint system on their server. Okay. That's all we needed. And the thing was, was that like, what we concluded was the users loved it. It was never important enough for a CTO to become like one of the top three things that a CTO was spending time on, right?

And so when we pivoted to try to sell it directly to consumers, we ended up shutting down SharePoint servers across the country with different companies. And that was, you know, hashtag fail. Don't do that. So it's sort of like our end users wanted it, but the one person sort of like holding the purse strings and like access to the server, like we were never important enough for them. So it completely fell apart. No customers.

Yeah, I we were running beta programs at, you I don't want to name them, but like, you know, if I said that these firms, you would know all of them, right? I mean, they were big companies. We just couldn't couldn't get it around the corner. So we ended up selling, you know, the I say I've had two and a half exits, viewpoint being a half, because we sold the we sold the code base for 10 cents on the dollar, right? geez. Yeah. Yeah. Why did they take any of the acquires with them?

Jon Stoddard (16:17.207)
programmers or just total? Yeah, it was actually the employer of the third party development team that was also a minority shareholder that ended up acquiring the thing. yeah, exactly. So they took it in-house and went with it that way, which was the right move. We were just glad that they wanted to buy it. I don't know the status of it now. I don't know. So I wish I could tell you. Well, I have a story on that.

I was part of Intuit and my buddy launched Step Up, which was, this is where the early days of the internet, goes like, it's helped small businesses get found on the internet. And Intuit bought the company for $60 million, shut everything down in one year and kept the two developers. just, technology didn't do what we thought it could do. Yeah. And...

you know, just the way the internet was moving this day, but they did keep a couple of the programmers and that's it. But he made out with $10 million. Well, that's nice. That's nice. Yeah, I mean, it's like, like, it still had legs and, you know, whatever. But coming back to my journey, it was one of these where I was like, how come, like, look, every time I start a company, I can't get it to work. And not only that, but like, look at the empirical evidence. It's the same as everybody else.

Right? so million ways to die in the West startups, man. Yeah. So that's when I was like, look, I mean, you when I, when I, when I, you, when you buy an existing company, you've got all the benefits that I just talked about. And, know, I I've taken a couple of really strong at bats here with, with, startups. And so I'm to go out and buy companies. And so I went out and I bought six companies over, over about, I don't know, three to five years.

What's the first one that you bought? The first one I bought was, it was a fulfillment company based out of Springfield, Missouri. And the thing is, is that when I went down there, so it was a broker that I knew and had worked with in the past, right. And he called me and he said, how's that startup going? And I was like, Gary, it's on the rocks. And he said, good, there's a business down here. You got to see it. It's a perfect fit for you. Get down here.

Jon Stoddard (18:37.355)
And I went down and I sort of walked it, I pulled up and I sort of looked at the place and it was this very, like, what's where I'm looking for? Unassuming building, right? mean, just run of the mill, small business, right? And I walked in and I met the two owners and my first hot take was, there's no way, like this is not gonna work, right? But it was one of these where I had driven down there and I had a couple of hours with them. And so I ended up figuring out

that they had this really archaic sort of legacy ordering system that like all of their customers were actually using. And it needed to be, what I ended up seeing was like, okay, if we can upgrade this software, then what we can do is create an Amazon like experience for inside businesses to use with multiple locations. Okay.

I got to ask you, I know where you're going to this because I've done that before. Are you applying your startup expertise on saying I'm going to really. Exactly. Yeah, exactly. So the thing is, like, you know, when I think about what should I acquire or where should we grow or like why startups work or not, it's really all about trying to harness the trends that are happening. Right. And, you know, if you go back in your mind to like 2013 or 14.

I mean, Amazon was exploding, right? And so this was like, okay, let's do this in the B2B space. And so I bought the company, I used the cashflow of the company to build a proprietary e-commerce storefront that we then rolled out to, once it was built, we rolled it out to all of our customers and we had over 20,000 users in the first week, okay? Let me go back. I wanna say one thing, one thing, which is,

everything we were trying to accomplish at Viewpoint. I did it in eight months by buying a small business and then using the cashflow to build the whole product and then rolled it out to existing customers. Your eyeballs just like, boom, man. What a time difference and absence of frustration. Yeah. So how did that negotiation go with the guy? mean, the cashflow out of the business, was it an SBA loan or? Yeah, I took it. I mean, it was textbook.

Jon Stoddard (20:58.903)
buy then build strategy. You know, I put 10 % down, I put a 10 % cash infusion into the business, took an SBA loan for 90%, including accounts receivable, minus payables, plus inventory, plus a little extra working capital cash. A lot of carve outs. okay. Yeah. So finance, you know, 90 % of the whole thing. Did the guy exit the... Yeah, he exited completely. Yeah, I wrote him a check that day.

I won't say never talk to him again, but you know, basically never talk to him again. He left. He was a great guy, very innovative guy. But I I think he, you know, I don't know what say about him. I think one of his parents died and he exited and then he like bought a boat with his wife and they moved out to like the Pacific Ocean somewhere. I don't know. Okay. That's one of the top 10 reasons why you leave a business. Yeah. Exactly. Exactly. So he had a good exit.

Negotiation. was pretty, so look, a lot of people will ask me like, you know, like in the acquisition lab, I work with, with, you know, a number of financial buyers who are looking, you know, how do I, how do I get this done? How do I buy a company? And I'll work with a lot of them. And a lot of times the question is sort of like, well, you know, I don't know. Like, what do you think? Like this business, you know, there's a list price on it and they're asking like a 3.2 times, like, shouldn't I see if I can get a 2.9 times or a

three times earnings or like, do you think? Like, is it too expensive? John, I just want to tell you like more often than not, we're talking about like, like a three times earnings is basically three years of earnings. Okay. 3.2 times earnings or 2.9 times earnings. You're talking about months. Okay. I, I don't get hung up with that. I look at the cashflow, I stress test it and I'm like, okay, here's the asking price. Fine.

Let's do it. So almost every single company I've bought, I've just paid the asking price. I don't get hung up in trying to negotiate the deal. just, you know, people like should I offer? And I'm like, what's the asking price? Like maybe throw that at them. Right. I look, you mentioned the stress test, like two or three times in your book. I love this, what you do for a company. Cause you know, already I'm going to go, look, I'm going to finance this with debt or the cashflow of the company and let's put it under stress test.

Jon Stoddard (23:22.027)
And I was like, I'd recommend buying this book because he talks about, that's exactly what you should do. If you couldn't find a business, it's doing 5 million bucks, whatever. And goes like, I need to borrow this money. Can the cash flow or debt handle the business? Handle that loan. The best way to build confidence in yourself is to take that business and just break it in an Excel sheet. What does it take to break it? And the thing is, like,

when you really start to look at that, it builds in a tremendous amount of confidence. Because I mean, a lot of these businesses, they can drop 35 % before you're really in trouble, right? And based on an acquisition with maximizing the debt like that. So I'm not saying like run out and buy whatever, but I think that if you wanna build your confidence in terms of like, should you buy this company or not, look at the...

look at the cash conversion cycle and then just break it in a spreadsheet, break the business, see what really needs to happen. And you kind of relate it to a margin of safety that Warren Buffett talks about and his mentor that wrote the book. So, margin of safety. If you're gonna buy a publicly traded company right now, I don't know what Apple's trading at, but it's probably like a 27 PE price to earnings ratio. If you buy for a filming company in Springfield, Missouri, you might be paying,

2.7 times instead of 27 times, right? So I mean, it's just like the margin of safety is simply in the fact that the market is thin, that these things are hard to transfer. And that, know, when I went to sell that company, you know, I was really looking for someone within a 90 mile radius of Springfield, Missouri, who knew how to buy companies, who knew that it made sense, who wanted to get in this particular company, right?

And I mean, we had a number of people that we were talking to, but when you go to sell a company like this, like a bricks and mortar style company, the market's pretty thin. You might be talking to one person. You might be talking to maybe three. But you're looking for a very specific- You were that guy just a year ago. That's right. That's right. I don't look, it's probably a downfall of mine, but I typically don't get too hung up on evaluations when I'm buying or when I'm selling. I don't try to-

Jon Stoddard (25:41.869)
I don't try to drip every piece of juice out of the thing. Right. Now, is it, you know, the price terms ratio, if they get the price, you get the terms or if you get the terms, you get the good. Yeah. Good. So the purchase price is really the sort of like, you know, I mean, you know, that's like the country club number, right? You, walk around the country club saying like, I sold my business for, know, $25 million. Right. Well,

you know, what if there was a 25 % equity rollover? You know, the inventory was getting paid on consignment. There's a 20 % earn out. There's, you know, and then you got to still work in the business for another three years and they're paying you $100,000 and then there's an earn out component. And I mean, it's just sort of like what really happened? So, I mean, you know, I've done deals, you know, where, you know, we'll sell a company for, let's just pick a number, okay, $20 million.

but they're only walking with 10 at closing and then that 10 gets taxed. They've got 5 million bucks, but like they can walk around the country club and say, hey, I sold for 20 million. And it's true. It's all in the terms. All in the terms. Are you seeing that change right now with the froth evaluations? mean, private equity with $3 trillion and Croteinon, I'm seeing, I got a lot of friends that

And this happened to me, I was looking at an IT firm that was doing $5 million. He gets an offer from a private equity firm. They just threw out a number right at the front to lock them up. And then, you know, then they'll go through this due diligence to go, no, you know, the couch is dirty over there. There's a blah, blah, blah. And then it's down. And by that time he's committed. So if you are a seller,

and you're selling to a private equity firm and, you know, let's just say they're based in, you know, Chicago and, and they run you through the mud, right. And you got to do all the like really hard ultra due diligence stuff with private equity firms. And they're paying a really high multiple. Okay. Like, like, like a, like like a high valuation compared to market. And then they say, okay, we've been in diligence for, you know, four months and it's been a grueling experience for you. We're going to close. Why doesn't everyone fly up to Chicago?

Jon Stoddard (28:09.185)
and then we'll just close in the morning. You're to get screwed. You're about to get screwed. That is demo, That's when they walk in, you're sitting there at the closing table and they walk in and they're like, we need to change it. Just a couple of these things here, right? Cause now they got you, right? And by the way, I need you to stay on for three years. Exactly. Yes. So what was, so seven different businesses, but

When did you find that, gosh, I just need to specialize in a niche, you bought this fulfillment company, I get out. What was next and what was next? And go like, I need to focus. Honestly, I didn't really want to even sell the fulfillment company. It just became like, I sort of like lost a key man and it was like three and a half hours from my house. I had like, again, my mistake was buying in too many verticals. And so I'm gonna quote,

the movie, print the legends. It's like the second ever Netflix original. And it starts off with this quote that says, when you're a leader, when you're CEO, every day something comes up and smacks you in the face. And the thing is, is that's true. And when you own three different companies and three different verticals with three different business value propositions, three different customer profiles, three different suppliers, all the rest of it,

My head was just on swivel all the time, right? The thing is, it's like my phone would ring and it would be like, all right, what's up? And it was just like having to solve problems. It was just a problem. It was just a problem. So I really needed to get started to get things off my plate, right? So today I own two companies, well, that I've acquired. And in a weird twist of irony, I started the acquisition lab to teach people how to buy businesses. But anyway, it's a...

You know, so I own a railing company. do a fabricated aluminum railing. And then we also, I also own a an online e-commerce business where I sell toilets. Okay. That's really funny because I talked to Joe Valley. was talking to him and I go, okay, Joe.

Jon Stoddard (30:29.365)
This company that you built up to a thousand employees, you said is Digestive. What the heck was that? He goes, it's colon cleanse. That's great. You guys are in the same kind of business. Me and Joe? We're in the same business. He was in the colon cleanse and you're in the toilet business. Yeah, exactly. Exactly. Yeah, exactly. I'm the receiver. So, he's the giver. the receiver. Can I say that on the air?

Yeah, like, I immediately regret that. what's the railing business now? Why did that? Why were you attracted to that? That sounds like another, you know, like physical manufacturing with lots of employees, which I love. mean, mean, a couple of reasons. Look, number one. So if you're on the coast, okay, you have you've got saltwater and you have to have custom built

fabricated aluminum railing that's powder coated so that it doesn't corrode and rust. Okay. You have to have it. Yeah. The Golden State Bridge is painted every year with this. Yeah. Okay. So the thing is, like, that's where that product lives. But once you get into the middle of the United States, you really have two options, steel or like, know, rickety screw together aluminum. Steel is often rusted right when you put it in. Okay.

you start putting in this rickety screw together aluminum stuff in St. Louis and it gets hot, it gets cold, it gets hot, it gets cold. And it's just like a really inferior experience, right? So the thing is, is like, I bought this company because it wasn't reinventing the wheel, but it really is the only one supplying the superior product. It's got like a 25 year shelf life kind of a thing, right? And it just looks absolutely fantastic compared to anything else. So we do...

We do awnings, we do screen rooms, we do railing, we do single piece spiral staircases. And we've got the largest powder coat oven in the Midwest that I know of, right? So we'll put the entire staircase in the powder coat oven all at once, right? And it's just- the big powder coat oven. Exactly. And so the thing is, like, can, let's go back to startups. Feel free to run out and buy a large powder coat oven and try to sell services or-

Jon Stoddard (32:47.319)
you know, go buy a company that's already doing seven figures in revenue and say like, okay, you know, I can, I can, this is a great product. No one else is doing it. And I can, you know, I know how to grow it. How did you find that one through a broker or network? It was actually, so when I ended up selling the, yeah, through a broker. the thing with Deal Flow is that once you get it, you can't ever turn it off.

Why is that? me about that. Well, it's just one of these things where, know, like, you know, in the book, I talk a lot about, you know, figuring out what, you know, the business plus you, right? A lot of times we spend all this time looking at the business trying to figure out like, what's the intrinsic value of this business? It's the wrong question. The magic is not in de-risking the acquisition. It's what do you bring to the table as the CEO of this company? Okay.

And so you need to figure that out. And what happened was, you know, like a broker that I had met, I don't know. I mean, let's just say five years ago or more, I got an email from them because I've just, you know, you're out looking for a deal. You start getting on all these email lists and all of sudden this email shows up and it's, you know, I'm looking at it I'm like, Hmm, I know exactly who should manage this company. And I called him up and I said, Hey, you know, don't didn't, I mean, wouldn't you say that you've done more.

aluminum fabrication and finishing than like maybe anyone else in the regional Midwest. And you said, yeah. And I said, Hey, there's this company for sale. You want to go look at it with me? He said, yes. And we drove out there and we looked at it we walked through and he's really, you know, his background is like operational excellence and like just really making companies home. And we're walking through and I'm thinking in my head like, okay, as we're walking through, we debrief later, he's going to tell me that, that and that, right?

And we got in the car and he said, Walker, this is like the second best opportunity I've ever seen. So I bought the company, put him in as the manager. And then, you know, we just like increased throughput and he is actually no longer with the business. He went on and did other things, but I bought it because we knew that we could get in there and improve profitability and throughput immediately. And so now, you know,

Jon Stoddard (35:08.129)
You know, it a job for him or did you offer him equity or? Yeah. So he actually had, Phantom equity, which is where I like it. I never applied it, but yeah, I like Phantom equity. And the reason why for those listening, stock only matters, you know, really on the day of exit, right? I mean, that's, that's, you know, that's when you get the reward, right? I mean, every other time there's really no benefit to owning equity. I guess, unless there's a whole bunch of equity holders and you need like, you know, the, the politics of it.

but so the thing is, is with, with Phantom stock, what it means is, is like, look, you work here, you add value, we exit, like you get this piece of the company, right? but if you quit, then you're walking away from the equity, right? And now I, who have a personal guarantee on, you know, the acquisition capital, okay. I get to retain all of my company and I don't have like a vesting schedule. now, now that you're fully vested, you left me.

I don't want pieces of my company flying around elsewhere. So you either stay with me or you don't. He ended up getting an amazing offer that I would have taken if I were in his shoes. So he ended up leaving. But John, the point is that so many of these baby boomer companies had product market fit before the internet. And so the thing is, I think that the golden ring

that is the greatest opportunity of our lifetime is not only the fact that you've got $10 trillion. Okay, it's like 46 % of the economy needs to change hands by the end of the day. Yeah, the baby boomers, yeah. Huge. But the thing is, that like these companies were all built in this sort of old economy. And by using new economy levers of value acceleration, okay, if you can take that old economy infrastructure,

and grow it using the new economy frameworks that we have, that right there is the biggest opportunity that we have. If you can get that right. So that guy that you hired, mean, it's a big part of finding a business. You trusted him with your business to build, to like look for the ways he can approve and to grow it. did he, did he just like, hey, I'm leaving, I'm gonna take this. And he tell you upfront or was it nice? No, no, no, very, very stand up.

Jon Stoddard (37:30.589)
exchange. I he couldn't have done better. It was one of these where, you know, he, he had been chased and chased and ultimately, you know, the guy who ended up hiring him ended up in a hospital bed and just basically called him and said, what's it going to take? He couldn't, I mean, yeah. So, so he just had a different opportunity and went a different way, but he, he, he told me what was happening. He exited perfectly. you know, he even, helped me.

hire his replacement, but I didn't hire those people anyway. I had someone else that I pulled from my bench. So you guys took it over. Did you grow it? Would you say after the, how many years have you owned it? Yeah. Let's see. I've owned that for, let's say, what year is it? It's 2021. I probably bought it in 2016. So you have to understand like when you have

The first piece of acquisitions is that you get equity buildup just like real estate, right? So the thing is, it's like if you buy a business with debt, even if you don't grow it and the value of that company stays exactly the same, just by the company bringing cash in and paying the debt down, you're building up equity so that when you go to exit at that same dollar figure, you get all of that money, right? It's leverage. I love that. That's step one. That's step one. Step two is appreciation of the asset, right?

So like, how do we grow this thing? We've definitely grown it. We definitely have a very strong culture now. And how much have we grown it? I'm on the spot, so I don't know, but I would say we've probably grown it 25 to 30 % over the last five years. And the people working there, good salt of the earth people. I mean, it's a fantastic, I like I love this company. there's nothing, there's nothing. I mean, look, I've got an e-commerce company. Like I love the four hour work week model as well.

Right? The thing is, like when you walk, I've got three buildings, like when you go out there, I've got three different buildings. got guys sparking metal, you know, it's just like seeing the physical product and like the stuff coming out of the ovens. mean, you know, the guys come out and they've just got like paint all over their faces. You know, it's just like, yes, like there's just something about, you know, making things that has gotten lost in the new economy, you know? I just think- You know, that's what kind of point I want make. You know, there's a contract to say contrast of building an internet company where you just go like,

Jon Stoddard (39:55.679)
It's dead, move on, I don't care. It's dead, move on, let's go. That's right. Yeah. But this people, actually, you have people on your payroll and they become, would you say they're family or just still employees? mean, friends or you keep that distance? You have to keep that distance. I have never crossed that line, right? Like, I don't, don't.

And it's not like the thing is, is like, I wanna work with people that I respect, but I don't necessarily, we don't necessarily need to be friends. Like we're all there with an agenda, which is to create value, right? So it's never been my goal to do that. And in fact, you know, like I'm on the board of a company where it was just, it's a startup. It's a very successful startup. And the CEO found out that the employees were going out and like having drinks and like weren't inviting them.

And it was one of these where it's like, yes, that's exactly right. like, I have no interest in attending a bunch of employees. Exactly. Like, like it kind of hurt his feelings. Like he was like, I thought we were friends. And it's like, no, you're not friends. Like there's employees and there's owner operators, right? Like that's, that's the difference. And as much as you can pretend that that line isn't there, it's there, it's there. And the thing is, that like, you know, when, when my employees who I love and value and respect,

go home at night and go to sleep, they're not up thinking about like, what's coming at me? Like, like, how do I manage the cashflow of this business? How do I grow this business? I've got a personal guarantee on you know, whatever, you know, 85 90 % of this company, you know, I mean, it's real problems, You've owned that for five years. Is that a loan almost paid off? It's a 10 year SBA notes. It's all downhill now. Yeah. Yeah. Beautiful.

Yeah, by the way, I want to say something. You know, when I buy a company, I don't want people to think like, this sounds great. I'm going to run out and buy a company doing half a million dollars. And then I'm just going to start paying myself like hot and heavy right away. I really focus and promote eat ramen noodles. OK, make this make this like a bootstrapping exercise. Build up cash. Don't make a mistake. Right. So you want to build up cash and and, you know, don't.

Jon Stoddard (42:13.869)
Don't jump in and start paying yourself like a huge salary right away. You will succeed, okay? As long as you live low on that totem pole at the beginning. Okay? I am a completely agree. I'm on the same side. If you read anything about Warren Buffett, he spent a total of $300,000 on office, everything in the last 30 years. mean, he's... incredible.

He applies capital allocation is just like, it needs to be reinvested to business or given back to the investors. Yeah. That's right. That's right. So, but the thing is, that like the I mean, the default rate on acquisitions with SBA loans has remained below 2 % for decades. Okay. The highest it ever went to was like 1.7%. The number one lender that I work with has had one default. you start with a company.

bank that you would like to mention? So different realms. So I don't want to confuse everybody. So there's plenty of awesome banks out there. It just depends on what you're looking for. But the point is that if you look at the data coming out of Stanford, there's a lot of data that's going into Search Fund, the Search Fund community. The thing is that like the thing

You can start looking at returns and you'll see that on the after fulfillment business, we got a 52 % compounded annual growth rate during the five years I owned it. You can look at 10 % of these acquisitions are getting 10 % IRRs. If you look at internal rate of return, when you look at about 30 % of them though, 25 to 30 % of these acquisitions are just kind of breaking even.

So then you've got about 70 % of them. It's actually 69 % that are more than doubling their money while they do this. But the 30 % is kind of clawed by. The point is, is that your risk is not in defaulting. Your risk is in becoming one of the 30 % that isn't doing very much. And so the thing is, is that you need to protect yourself and the way you protect yourself is not fail. And so rule one is gonna be pay yourself nothing.

Jon Stoddard (44:31.021)
build up cash during that first couple of years and build up strength in your margin of safety so that you don't have to back the situation. How much time do you spend with that railing company? Not a lot right now, because I have an excellent CEO in there. So I probably spend an hour a week and then probably another half a day meeting once every 60 days. Yeah, I think time is the one commodity you can't really buy in a

And that's really important to that. Yeah. And see that. And especially if you're going to, if you're going to, if you're going to buy a company based on seller's discretionary earnings, and then you put in a manager, now, now you're really operating off of adjusted EBITDA. Okay. And those numbers are different. Okay. And the thing is, is that like, becomes even more important to, to, you know, not take cash out and just build up cash and let the company start to build equity over time. So the thing is, is there's sort of a scale or spectrum.

And I think on the one hand, can say like, okay, I'm going to own this business. I'm going to operate this business and I'm going to pay myself to do it. Okay. On the other hand, you can say like, all right, I'm going to acquire this business. I'm going to put someone else in. I'm going to keep all my time, but I'm not going to take any cash. We're going to leave it all there and then just build up cash. And then once you hit a point where, your, your, your cash balance is exceeding your sort of working capital needs, that's when you start taking distribution.

Do you have any plans to take this railing business and look at her other agency type businesses or competitors in the area? So you get it to a level where you're going to get the best payout with the private equity? Yeah. I think that the thing is that the upside potential of this business is actually enormous. So I think that it's all about

making decisions around how we want to do that. And, you know, I'll leave it vague and just say we have, we have a number of different options that could that we could go to grow it aggressively and we need to kind of decide which one. Yeah, I the only reason I brought that up because if you said, Hey, I got a company doing railings and then a ecommerce company selling toilets, the private equity company who'd offer you the biggest price goes, I'm not seeing the synergy between those two. Yeah, well, those are different.

Jon Stoddard (46:53.505)
different legal entities, by the way. I buy companies at different legal entities. How did you come across the toilet company? Why the toilet company? Yeah. So again, you know, I've got this sort of passion for old economy meets new economy, right? And, know, when I ran the printing company, you know, we had a book printing company. And the thing is, is during that time, you know, the iPad came out, the Kindle came out.

I mean, know, newspapers are going out of business and like in a last act of desperation, they started going after our customers. So we had a lot of technological innovations sort of coming at us, right? I ended up using that to sort of create the strategy of the company, different story. The point is there is no technological innovation on the horizon that will keep us from needing to poop and pee every day. my God.

You are a Warren Buffett fan because he talks about, I look for businesses where the behaviors don't change. Like, if I buy a gum, they're going to be chewing gum for the next hundred years. That's right. They're going to be buying insurance. They're going to be traveling on trains, et cetera. Yeah. So the thing is, you know, my, my site is called Santa Flo Depot. Okay. And basically what, what the Santa Flo product does is it allows you to, to install a toilet anywhere.

at about a 10th of the cost. So instead of, instead of bringing a plumber in with a jackhammer and like running new pipes in your house, okay. That's going to take, you know, four or five days, maybe eight to 12 grand. This is like 1200 bucks, four hour DIY install and you're done. Okay. And the, and the thing is, is that it discharges out the back into a macerator garbage disposal.

And then it pumps it up through PVC piping and you just run it to your existing stack. So you're done. So just by rethinking. So no longer clogged toilets. You don't have to bring somebody out there like that pretty snake. That's right. I thought about making a YouTube video. Like, will it eat that? Just like blush like an iPhone and you know, I haven't done it, but. It's so gross. might get a, you might go viral. Yeah. Yeah. So it's.

Jon Stoddard (49:11.455)
It's one of these things where just by rethinking the toilet and plumbing, we're able to save people a bunch of money. So like you're finishing your basement or you want to turn a closet into a bathroom or someone gets injured and they have to live on the first floor, whatever the application might be. So, cool. And then that was through a broker you found? It was through Quiet Light Brokerage. That was through Quiet Brokerage, yeah. My favorite, yeah.

So what happened was it was a private, it was sort of a, it was sort of a private listing. And, by the way, I got to stop because I did ask Joe that question. No, he, we don't do that anymore because we want to get the best price. So this was, this was actually asked, that's true. We don't do that at QuiteLite cause I'm with QuiteLite as well. But the point is, is this was a buyer that very specifically didn't want it out there. Okay. So this rarely happens.

And so she wanted, or seller, I'm sorry, she wanted a really small pool of buyers. And Mark Douse, the founder, asked the other brokers like, hey, who's looking right now? Who's a good buyer? And I just talked to Joe Valley on a deal and Joe told Mark, hey, you should call Walker with this one. Like he's fantastic. That's what he told me he said. Anyway, I got the prospectus on, let's just say Thursday afternoon.

I had Mark Doust on the phone on Friday. I talked with the seller Friday afternoon. I put in an LOI full price on Saturday and we were under LOI by Friday. You were already approved for SBA loan on that? No, because that's not how it worked back then. But you needed the deal first. the point was that like, here's the point. When you're a first time buyer, you can't make a decision that fast. You don't understand what you're looking at.

You know what I mean? And so the thing is, that like, it was just, looked at it and I was like this and I bought it. And I think, I think on three different occasions, I've seen a prospectus, I've talked to the seller and I've put it in LOI at full price, three different times. I mean, like in like 48 hours, like just boom, right? So That's exactly what the seller wanted. Yeah, exactly. So the thing is, that like, like think about, think about the goodwill that I just built with the seller as well.

Jon Stoddard (51:34.061)
It's like, all right, we're not screwing around on price. I don't care if it's a three or 3.2 or 2.9 or 3.4. I don't really care. It's about like, you how is Mark did the valuation or Joe, if he's involved and they are pretty good about that. Yeah. And accurate valuation for the business. That's right. Because of their formula, they put on a business. Now they've probably modified that formula over the years, but 8,000 conversations later.

Yeah, and I mean, you know, the valuation that I paid was a little hot, but you know, it was a little hot by months. You know what I mean? Like it wasn't, I mean, you know, I mean, let's just say, own the company for 10 years. I mean, you know, don't die with a company. I mean, I have no plans to sell it, but like, you know, if I own that company for 10 years and I ended up giving the seller, you know, 90 days worth of earnings over what I should have paid, who cares? Who cares? Not me.

So what's next? mean, what's next on the next type of acquisition? You got to be out there somewhere, but. Yeah, so my life kind of moves in, I've got three buckets that I operate in, right? So my first bucket is sort of like businesses that I've acquired. So we talked about that, I own two right now. The second bucket is I'm actually a broker, an &A advisor with Quiet Light, okay? And so I help online entrepreneurs exit their businesses, all right?

And then the third thing is everything sort of buy then build related, right? So, you know, I teach it at WashU, I teach acquisition entrepreneurship, you know, I do speaking engagements on buy then build and the sort of magnum opus is the acquisition lab where, you know, first time buyers kind of apply to work with us and it's the first do it with you buy site advisory service, right? So it's world-class education, it's coaching, it's tools and it's community.

And we really have, even at like 150 people, we have the single largest bedded community of buyers, right? Cause no one's done it before. That's why I can do it so low. But so I've got about 150 buyers. And the irony of course, which we mentioned is now I've got a startup again, right? You know, the acquisition lab, but here's the thing. What's next for me, which was your question is I just quietly launched a website called searchlist.com. Okay. And the concept is the following.

Jon Stoddard (53:56.651)
The private capital markets have better returns than any other market, right? But in order to get involved with that, you have to buy a privately held company, right? I've got 150 people right now that I'm working with that are actively looking for businesses to acquire. They would welcome, you know, equity investment. Why wouldn't they? Now they can buy bigger deals. They can reduce their risk on earnings. Maybe they have to come up with no zero out of pocket cash. And so the point of search list is to

generate a newsletter that has investors signing up so that we can match as soon as my buyers get deals under contract, we can run a newsletter and invite incoming capital. So we closed our first deal and had 5 million in capital raise. And our second one right now looks like it's going to raise about 7. It's like an angel list in a syndicate. That's exactly what it is. I want to create the angel list for lower middle and Main Street private market.

I love that. That's great. That's it. Are you taking a piece of the company also within that value you bring or? I'm still working through the business model. Frankly, John, I mean, I'm trying to like get deals done right now. But the way it's currently priced is we're taking 2 % on the equity raised. Yeah, so not big dollars that you know, five, seven million, no one cares about the 2%. But we'll see how it goes. I want to start

What I'm doing is I'm actually following how AngelList started, which was a newsletter. And then they started getting deals done and then they created the platform, right? So, you you look at say like searchfunder.com and I think that's, it's a fabulous site. I think it's more like LinkedIn or that kind of, you know, NBA group of searchers. But I think searchlist is the sort of AngelList for.

for these types of deals. God, I love that idea, man. That's great. I've been a part of Angel List for a long time and it's funny how they go, gosh, I got a list of 50,000, some are very wealthy. What should I do with it? Right, exactly. Exactly. Yeah, I we've got about 40 investors on search list right now. like, I don't know for sure, but I look at the names and I know the size of some of these people and firms. And I mean, there's already over a hundred million.

Jon Stoddard (56:14.989)
signed up just looking to invest. Now I'm just trying to figure out how do we get them the deals they want and how do we get these acquisition entrepreneurs the money that they're after. Yeah. Then you're doing cradle to grave with being associated with this part and the deal flow with the hook, with the exit. Yeah. So everything in between. Well, look.

It's it's I've already talked to you for an hour and I think I could go for two hours, but I appreciate your time on this. is fantastic. Thank you so much. I like I love talking about nothing else. I have to recommend everybody get out and buy this book on Amazon. I am not an affiliate, so I don't make any commission on it. I just enjoyed the read. It's very good. Bye then, don't. Thanks, Walker. Thank you so much. Great to be with you.