Today's guest came to entrepreneurship through acquisition by way of 0-1 entrepreneurship. For seven years, Fred Begill built an online real estate brokerage from scratch. He was also a real estate investor on the side, in this immersion in real estate meant that he'd worked with many tradespeople as his vendors. So when he set his sights on by a business, the trades were an easy choice. You'll hear how he zeroed in on electrical services, developing a thesis on an industry often overshadowed by its cousins, HVAC and plumbing. We also go deep on two of the big challenges confronting any would-be buyer of a trades business, licensing and hiring, and how Fred has tackled them both. So today's conversation is a pretty good model for buying a home services trades business yourself. Here is Fred Begill owner of Bray Electrical Services. Announcements. Chelsea Wood has run the acquisition lab for five years, and in that time has witnessed the searches of hundreds of aspiring buyers and had calls with thousands of them. So Chelsea knows what separates those who succeed in closing a deal from those who don't. And today, Thursday, December 12th, she's hosting a webinar with acquiring minds to share her observations with us. In this one hour session, Chelsea will dive into the key mistakes she sees searchers make, and how to avoid them to ensure a successful close and ownership period. This is part two of Chelsea's presentation last month on the same topic. There was so much to say, we split it into a two-parter. And it's not just a presentation, it's a live office hours with time for Q&A. So bring your questions and take a big step forward in your acquisition journey. Come learn from Chelsea's expertise and avoid the missteps that trip up many first-time buyers. It is today, Thursday, December 12th, 11 a.m. Eastern. That's 11 a.m. an hour earlier than our usual noon time. The link to register is in today's show notes or on the acquiring minds homepage acquiring minds dot CEO. Welcome to acquiring minds, a podcast about buying businesses. My name is Will Smith. Acquiring an existing business is an awesome opportunity for many entrepreneurs and on this podcast, I talk to the people who do it. What do the following acquiring minds guests all have in common? Doug Johns, Morley DeSai, Tim Erickson, Sharag Shah, Shane Ursem. They all went through the acquisition lab, the accelerator and community for people serious about buying a business. But they represent just a sliver of the lab's success stories. The number of deals across the lab's cohorts now stands at over 120, with over $300 million in aggregate transaction value. The acquisition lab was founded by WalkerDibble, author of By Then Build, the book that introduced so many of you to the very idea of buying a business. The lab offers a month-long intensive, almost daily Q&A sessions with advisors, live deal reviews with Walker, deal team introductions, and an active community of serious searchers. Check out acquisitionlab.com, link in the notes, or email the lab's co-founder, Chelsea Wood, Chelsea at By Then Build.com. Fred McGill, welcome to acquiring minds. Thank you for having me. Pleasure to be here. Fred, you came from a long slog as a zero to one entrepreneur to most recently by a trades business, electrical specifically. You'd actually developed a thesis around that industry. So let's get right into it, Fred. Start us off with some background on you, please. Absolutely. Yes. And thanks for having me. As I mentioned, the pre-call, listen to a bunch of these episodes. A lot of stuff related to home services. So certainly drew a lot of inspiration from some of the other guests you've had. But yes, stoked to be here. And yes, we co-founder of mine and I started actually a former roommate of mine started a company called Simple Showing through Real Estate Brokridge based in Atlanta, which is where I'm at. That was about almost seven years ago. So we raised capital, started from scratch, had literally had no product, no app, nothing, and grew that company to expand into three states. And basically, and it still is, the company still exists. But it is a tech-oriented real estate brokerage based in Atlanta, operates in Texas and Florida as well. And so I had that experience right of going from, you know, that as you call it, year to one. And it was in my opinion, a bit of a slog. And we finally got it over the hump. But about a year ago, from going that company, I had installed a general manager, and really had an opportunity to sort of step back from the business. And I'm still involved, still on the board and that sort of thing. And still love the real estate space. But, you know, began thinking for like, hey, what's the next step, right? And one of the cool things about being in this real estate company is I had the opportunity to interface with just a lot of these home services companies, whether it be plumbing businesses, HVAC businesses, electrical contractors, you know, that sort of thing and gained a good appreciation for what they do. And also through a bit of research discovered that there's a lot of, you know, upside in some of these companies. And certainly there's opportunity to, you know, to introduce technology and digital marketing and things like that and and have a good front. Can I let me stop you there? This, this, your research into the trades and learning that there's upside to these businesses, putting in digital technology, among many other levers to pull. Was that part of your introduction to ETA or was this a separate, was this kind of a separate rabbit hole, a separate realization? I think I would, I would probably, yeah, say that it was a lot to do with research into ETA and research into. So, so I did, I didn't have the kind of formal, you know, entrepreneurship through acquisition style of intro, like a lot of these business school folks have had, even though I did go to business school, but it was several years ago and it was not is, you know, on trend as it is today. But I think, yeah, I think it's probably, it was, it was related to all the, the sexy things you see online, you know, on Twitter and Instagram and things like that. You know, talking about people buying these trades businesses. So, I hate to say that that did play a role in, in kind of drawing me in, but I think having, pairing that with some of my actual direct experience certainly helped a lot. So, yeah, I think that that would probably be how I describe the research part of it for sure. Yeah. Okay. And I don't know if you were going to get to it, forgive me if so, but I just want to make sure you share with us your introduction to ETA, why it appealed and so on. Yeah. You know, I think the big thing I would say, the big headline for the past business anyway versus this one is that, I think I mentioned this to you a bit on the pre-call is that, you know, starting a startup and I know there's a lot of people that listeners that have probably done both or have considered both. And for me, and I'm know everyone's experience is totally unique and different, but our startup experience was, I mean, a very difficult and arduous, you know, process from the perspective of just starting from scratch and building something from scratch, raising capital, which we did through primarily through crowdfunding and angel investors, and just building that team from absolutely nothing and understanding how to get your Uniteconomics in line in terms of digital marketing and hiring and all those things, almost none of it unfortunately came easy. But like I said, you know, we got the business into a spot where it had sort of, I would say evolved into more of a lifestyle business, not this sort of big, you know, monster exit opportunity that a lot of startup founders, I think, within the tech space, certainly if you're building a SaaS app or a, you know, AI app or some sort of, you know, blockchain type, startup, you're looking for this huge exit and we really never experienced that unfortunately, but we did get to where the business became profitable. So just the thought of the research was sort of the backdrop of that research was just knowing that I've gone through all of this, you know, arduous path of the startup land and realizing like, do I really want to do that again? Do I really want to, you know, create a website and then create a brand new product from scratch and try to bring it to where it's introduce a product to market and bring it to profitability or do I want to just buy something that's already profitable and that already has an established brand, that already has a team in place. And so that has become for me anyway a much deeper contrast because, and I think, certainly for someone who created a startup or multiple startups and had really easy exits, they probably would want to go ahead and do that again.
I'm sure. But so for me, you know, it also helps that people like that have, if they've had exits, they're probably multimillionaires. So they also have more runway than the average human. I take it away. Yeah, yeah, exactly. Yeah. And unfortunately, we did not have, you know, that size, sizeable type of exit where I had, you know, this massive amount of cash sitting on the sidelines. But yeah. So yeah, so that was, that was the, I think the big contrast between just the startup world and wanting to just buy something that is, is working or ready, right? And that's already has that established track record. Fred, the business, your, you give us the name of your business, your real estate business, simple showing. Yeah, simple showing. Yep. Simple showing. You got it to profitability. Can you share with us how profitable? Can you, can you give us the numbers that it's we share here? I would say it, you know, it's, it's low single digits in terms of net profit. But we, low single digits, meaning low, like in the thousands or low millions, millions. Yeah. Okay. Yeah, yeah, low hundreds of thousands. I mean, basically the, the, the business does, and the irony is is that company to date actually generates less revenue than the company that I just acquired. So, or have a, you know, we'll get to that, but have been working for about eight, nine months now. But yeah, the business added kind of height, grew to about three million dollars in approaching three million dollars in top line revenue. And we monetize through primarily through real estate commissions, right? So buying and selling homes, there's some other, you know, sort of side revenue that is connected that through things like mortgage and title insurance and content and SEO and things like that and partnerships. But by and large, the company behaved from a revenue perspective, just like an ordinary real estate company would. And, but yes, it's, it's still a very, you know, small team about about 10 individuals, but we hire and employ agents that are 10, 99, you know, realtors. And, and yeah, so I mean, if you're looking to buy or sell a house and save money on commissions and somewhere in Texas, Florida, Georgia, hit us up. So, but, but yeah, that's, but it's not enough for you to live on. No, actually, it, it actually did, I think, have a pretty, you know, a decent living, you know, from the standpoint of, you know, what would be an attractive lifestyle from a compensation standpoint to me, but it just never reached that height where it was not going to deliver, you know, let's call it, you know, $500, you know, a lot of searchers are looking, you know, least $500,000 of EBITL, let's say, right? Or an FSD. And it never really got to that spot where it could deliver to me personally, a half million dollars of FSD. So that kind of, you know, creates a window in terms of the size of the company. Yeah. It was a decent lifestyle, and I still have a great love for the real estate space. And it, and it really compliments what the business that I bought as well, of course. But so still really love the space and still I'm involved a little bit in, and the way I've even got into that, not to go too far for off track, but I was doing rental properties and investment properties, home flips, things of that nature. And this is back a dozen, 15, almost 15 years ago before starting the simple showing company. So that's what got me into the space into starting simple showing, but then it's also the origin story in terms of my first interaction with home services businesses all the way back, you know, more than 10 years ago. Well, it's interesting because so many people who get into home service, by home services or trades businesses, so many people like that guests on acquiring mines and elsewhere are coming from white collar environment. So always that there's always that tension or cultural gap between people coming from an office environment and then working in a trades environment. And you, even though you were kind of behind the screen entrepreneur, you know, white collar, if you will, because it was the real estate industry, you actually had a lot of familiarity and comfort with the trades businesses. You dealt with a lot of trades people. So even though you weren't a trades guy, you were at home in a trades environment. Yeah, I'm putting words in your mouth. Is that fair? Yeah, I think that's fair. You know, I had before starting simple showing the business, I actually had worked for three different Fortune 500 companies, primarily in sales and marketing. So one of the more probably ones that someone actually would have heard of here would be salesource.com. I worked for them for four years and very corporate environment. Obviously, you know, software style business. This is many, many years ago, but I wouldn't say that that's why I'm probably kind of weird because I did work for company corporations, but then also worked around construction and houses. And my father was a general contractor back at the way back in the day before going into retirement whenever the housing crisis hit in 2008. But so that's the kind of weird thing. And also, I would say is a good point of encouragement for anyone considering the home services space is, I think you can certainly have a lot of success if you're white collar. Let's say you're a consultant or whatever a banker and you want to go and buy a roofing company. I still think there's a lot of tremendous amount of opportunity. I know that's what people on your show have experienced that. But I also think at the same time, you know, and I know this is common knowledge, but you really should buy something that you have a deep interest in or maybe not like you, you know, really, really, really, really love. I wanted to do yourself. Obviously, I'm not doing electrical work myself. But I still really fascinated by the trades and always really have been and comfortable around a job site. But there is a shift in terms of managing blue collar folks versus white collar. I mean, no doubt about that for sure. But that has not been super, I think, difficult in terms of that transition just because I'd had the opportunity to interface with these folks for such a long time. So anyway, it did somewhat become second nature, I think. But probably one thing you'll hear is that hiring has been a bit of a chore. So yeah, yeah, yeah, get to that, which is certainly a problem or something to confront in the trades. But a different problem than the one of just kind of it being an unfamiliar environment to so many would be acquisition entrepreneurs. An SBA loan broker, as opposed to a direct lender, doesn't work for a particular bank. Instead, the broker pairs you with the right SBA lender for your deal based on industry, terms, risk thresholds. Then helps you navigate the process better than many lenders themselves do. Matthias Smith of Pioneer Capital Advisory is just such a broker. Matthias worked at two of the countries top 10 SBA lenders. So he's been on the inside of the SBA process and knows well the pitfalls and hurdles and how to avoid them. He struck out on his own to laser focus on the ETA in search space. Our niche is his niche. You'll see Matthias at all the ETA conferences. He's closed over 30 search deals since starting Pioneer in May of 2022, including some acquiring mines guests. To learn more and get in touch, go to pioneercapitaladvisory.com or click the link in the notes. Back to your story, Fred. You don't want to go and do zero to one again. You hear about ETA. You like it for all the reasons so many of us like it. How does your search develop? Yeah, I think in one thing to pair onto that is that being from coming from the real estate space and having, for example, bought rental properties, right? The interesting thing, as I was beginning to research more about the financing of a business acquisition, the thing that I thought was really interesting is if you buy, let's say, for example, a $500,000 rental property, generally you're going to be putting down your down payment. It's going to be 20% or maybe 25% depending on who the lender is. That could be $100,000 or more, just on a $500,000 house. I'm sure there's people that have rental properties are significantly less expensive than that in certain markets. The point is you're putting down on a percentage basis. The down payment on rental property is going to be 20%, 25%. Versus as I'm sure you guys have discussed many, many times in this podcast, you can oftentimes acquire a small business for certainly 10% from an SBA loan, but sometimes potentially 5% or potentially even less. Generally, maybe that 5% to 10% range. So on a percentage basis, that's an attractive proposition. Then I think also when you think about the cash flow to be expected on a rental property, or even an apartment building, right? I think when you start to think about it that way, you really, the thought of buying a business becomes really attractive, right? Because let's say you have a rental property and it's cash flowing 700 bucks a month, which would be a pretty good
rental property, you're still not even hitting, you're still not even reaching $10,000 a year. Now, granted that property is being paid off, so there's some debt retirement that's attractive. But when I began really starting to think about that, like, man, buying a small business with a 10% down payment in terms of a cash and cash return, this is a really good situation, right? Given that you're using an SBA note, so that was the, I think, the impetus behind it is understanding the financing and how really doable it was because when you're starting to look at some of these prices of these businesses, $1 million, $2 million, whatever, even, even, you know, $3 million, or upwards of that cap on the SBA loan, it becomes doable for a lot of people. And so that was the same spot that I was in. Well, let's do some quick napkin math for people on buying a million dollar multi-unit versus a million dollar business, shall we? So a million dollar, you do the real estate one and I'll do the business one, okay? Sure. So a million dollar business, which would be a small business, let's say it does 20% margin, so it's a $200,000 SDE business and you buy it for 10% down, let's say we're being super napkinny here. So that's $100,000. $100,000. And then for 200 of SDE, let's do an unlever to make it super simple, unlever, so forget debt. Buy it a million dollars in cash and it generates, it generates $200,000 a year. That's 20% cash on cash return, delivered. What would be the equivalent if I wanted a million dollar multi-family? That's the thing, I think in terms of a parallel, you would really have to buy a close to a $10 million property potentially, right? Which is insane, because it is pretty difficult to get, let's say, $100,000 of. And I won't even. It's gonna be more measured in cap rates probably if you're buying a rental property, right? That's probably gonna be more common, but let's just talk about cash flow. If you're gonna try to get what would be, I guess that's $80, $8,300 per month to get to $100,000, right? I think that's right. So I said $200,000, actually. Oh, $200,000. $200,000, okay. There's really not. I mean, $17,000, $17,000 a month. Yeah. I mean, I think that $100,000 would be much more realistic from a comparison standpoint, and that would be even extremely difficult unless you're really just buying the property with cash. Which certainly there are a lot of investors out there. They're buying single-family residences for, you know, let's say a $300,000 property, $400,000 property with cash. That does happen all the time, certainly in our market. But I mean, in that situation, the rental, the rent rates, for example, at our market, $350,000 in our home is only going to be $2,400 bucks. Right? So, you're. I mean, it's just not even in the stratosphere in terms of a comparison. So, you really would need to buy a pretty big apartment building, multi-family apartment building, you know, called a 20-unit type building. And now you're looking at a $8-12 million purchase price, probably. And putting a huge amount of money down. So, you know, to get to the same $200,000 in cash. Yeah, I mean, I would say it would be very difficult. And usually, lately, I think what you've seen become more popular or a lot of the real estate, you know, kind of gurus out there that do a lot of these rental properties do cobbled together portfolios where they have, you know, 50 doors or 40 doors. And then yet, it does become pretty. I won't say easy, but it would become pretty common for people to have, you know, 200K in cash flow at that stage because you've got 40 doors, maybe you've got a dozen duplexes or whatever, right? And. but that is just. that's a bear because even if you buy an individual, you're generally going to be capped from a conventional lender's perspective at five rental properties. That's when they usually start. You have to get a portfolio loan and you have to go to bridge lenders or, you know, it becomes very difficult. And it also takes you years to get there, likely. This is somebody who's building a portfolio for years, as opposed to in one fell swoop buying a business that does it. Yeah. Now, the thing we're leaving out, of course, is that a business requires you to. not all cases, caveat, caveat, caveat, but basically requires you to quit and run it. So that's the difference. Whereas people who are assembling a real estate portfolio can do it on the side. Yeah. Is that a fair generalization? Absolutely. And I would say that once. you know, you see people and I have several friends. In fact, my co-founder of the Simple Showing Company has nine doors. And, you know, so it's not to the point where he. you know, it's not a full-time job. But I do think when you start to approach a dozen or so doors, then it probably does become more of a very active management situation because, you know, one lease comes up to expire. One of them, you've got to go renovate, you know, that kind of thing. But. and you're going to be probably doing, potentially doing dispositions along the way or refinances along the way. But. so I guess my point is, yeah, it could lead to that over time. But there's a lot of small mom and pop. In fact, like 60% of the rental properties in the US are owned by. everyone thinks that they're owned by hedge funds, which of course, many of them are hundreds of thousands of owns. But somewhere around two thirds, or a little less than two thirds of the houses in America that are rental property, single family are owned just by mom and pop, you know, Joe Blow just has two rental properties that are one rental property. So I'm still a huge fan, huge advocate of rental income and having that home appreciate every time and having a tenant pay it off and building wealth that way and do it myself. But I still think that, you know, it's just. you cannot match in terms of the cash flow of a handful of rental properties like you can in a small business. Yeah. Right. Okay, Fred. So take us back to your story, then. You're sure? Yeah, so I had a few. look through BizBizel primarily connected with a couple brokers here and I'm in the Atlanta market and connect with a few brokers here that do a little bit more deal flow in the trades, plumbing HVAC, roofing, etc. And I probably had. excuse me, had calls on interviews, but had calls with probably like seven, maybe seven or eight different sellers and a couple of them were HVAC, a couple of them were electrical contractors, did one that was in the kitchen and bathroom innovation space, cladding it and go that route. But that same. the theme there was certainly within the home services. And the one that I landed on, which ended up acquiring in February of 2024, was it just kind of hit the sweet spot in terms of the. for me anyway, in terms of the acquisition price, in terms of the team, the size of the team, the size of the revenue, the style of work that they did as well. And then also, I think that I could more clearly see a path to doubling, excuse me, doubling the business, at least for the. in terms of top line revenue, I had a very. I think clear path in terms of how to double that. And all those things kind of lined up and it was a good. I think it was a good fit in terms of the relationship of getting to know the seller and. Well, the Fred, before we get too much into the business that you bought and why you liked it so much, because I'm going to want to hear even more detail there. I wanted you to share with us how you kind of developed a thesis around electrical. So you liked the trades, but you got narrower there and really developed a belief in electrical and went after electrical, as I recall. So tell us that bit. Yeah, I think that was the. probably tip of the spear. That was a leading style. I think when, you know, across all the trades that I was looking at and the reason why, I think was maybe a little bit of a contrarian perspective against HVAC, because that seems to always be that style of company seems to be very popular among searchers, which I totally get it because I know the average ticket sale, the average, you know, actual job is typically higher, right? There's a lot of. you know, there could be opportunity for memberships or sort of recurring revenue through memberships, which is also, I think, very attractive for searchers. So I don't want to discount that space because I think that vertical, because it could be really good. But for me, you know, in my market specifically, you know, it seems very crowded. It seems very competitive. There's a lot of big players. I think if I was in a. so I'm in the Southeast from U.S. if I was in, let's say maybe Greenville, South Carolina, a smaller market, there was a really nice looking HAC business. You know, that would probably. I would probably have a different tack in terms of maybe I would pursue that. But being in Atlanta, there's a lot of really big multi-trade, so people that do, you know, HVAC electrical plumbing, they do it all right.
There's a lot of really big businesses like that. And then I feel like the multiples were a little bit higher on HVAC businesses as well. And so obviously, and there's a lot of inventory considerations because you're buying air handlers and furnaces and condensers and things like that. So that was why that one kind of, I steer away from that a little bit, but the electrical specifically to answer your question is I like the, first of all, the regulatory tailwinds, I think on a federal and also state basis. So whether you believe in or are gonna vote for the Green New Deal, right? Or however the politicians, you know, however whatever direction that goes, eventually things that are of that ilk or that flavor politically, I think, you know, regulatory wise, I think will continue to be advanced, right? Whether it's now under this administration, next administration, whenever it's gonna, it's gonna keep going that direction. So that tends to result in, I think, federal funding for EVs, EV chargers, residential commercial, solar, both residential and commercial, could be rebates related to that. It could be just federal funding that's provided for certain projects. So I like that a lot. I also think that there's a, this, this advenant of like the smart home, you know, people began putting a ring doorbells in and nest thermostats. And the same thing I think is happening with things like LED lights, you know, conversion of LED lights and also installation of smart panels, smart electrical panels as well. And so it's introduced all of these kind of like side pockets of revenue on top of the install base or traditional work, which would be like breaking repair, you know, fixed repair stuff like my outlets broken or installing fixtures, which is like, I want a new chandelier, that's always going to be there. But there's a new demand. A lot of new demand. A lot of new demand and a lot of, you know, even, you know, I think that on a more global scale, I don't know how this will take a while to trickle down, right? But like, if you think about these big companies that are producing AI through using their, they're creating these deals with basically local municipalities that are able to do either, you know, some have very high output of energy. Like actually here in Georgia, the local utility provider, which is Southern Company, just introduced or rolled out the newest nuclear power plant, which is in the southern part of the state. This is about six months ago. And it's the first nuclear plant and like a decade or something like that. And there's belief around there's going to be, you know, upgrades to the power grid and use of nuclear and things like that to kind of, to feed these, these big data, data farms, which in here in Atlanta, we have, you know, Facebook, data farms, AWS, Amazon, all those. And so they just keep building them. So we've, we've actually bid on one project, which we didn't get, but there's, there's, there's tailwinds with that. And then I think there's, there's state funding that's going to trickle down to both homeowners and businesses as well, even to the extent where I think you may even see people that, you know, to put it in a new McDonald's or Starbucks or store or whatever they're going to say, they may be like, in order to get your, you know, your CEO or a permit, you need to have one, you know, EV per every five parking spaces or whatever, right? So you're even seeing that happening in multi-family buildings and apartment buildings. So there's this new, you know, new work that has sort of just, you know, blossomed out of nowhere I'd say the last five years. And I think that's going to continue. So that's kind of the, I guess the thesis around electrical along I like it so much. Now Fred, when I, I'm hearing there too, is that always with the these trades businesses is, is it, the question is, is it residential focused or commercial or a blend? A lot of what you just identified there was actually commercial. So did that mean that you were looking for a electrical contractor with blended offerings or one or the other, or you'd take, you'd look at all of them? Well, the interesting thing is the biz by cell listing for this company. And I think it is true. And the broker head had sort of positioned this as, they do it all. This company does it all. Which is kind of could be good and bad. Exactly. Because I like that. Yeah. Could be good and bad, but they, but the point that I liked about it was there's some versatility in the revenue. And there's also some versatility in the staff. So in other words, so we have 16 techs, electrical techs and a couple of subs. But there's people that I have a couple of guys that have done solar, worked for big solar installation and service companies. The bulk of the people that we have working with us are doing residential service work and remodeling. And then I have a couple of guys that come from a commercial electrical background. So there's sort of the ability to potentially do anything if an opportunity presents or if there's, if we're flat in another spot. So I like that the ability to, if we needed to pivot and have more allocation of revenue within commercial, we could or more around solar, we could. But currently the revenue mix is about 80% residential, 20% commercial. So we are primarily doing residential. OK. All right. Yeah. But it doesn't sound like that was a strict criteria criterion for you. Anything more to say about the thesis that was pretty compelling. And by the way, I'll say as a side point, I feel like I'm seeing this more and more searchers and sponsors who have some thesis rooted in this enormous macro tailwind of a demand for electrical. So I'm, there's a few deals and mines capital we're looking at that have kind of a thesis. That sort of thesis at root, Nikashka in California, rolling of generator companies, same kind of thing. That one is kind of more based on the grid being older and aged and they're just going to increasingly fail. So we're going to need more as the demand for electrical grows. But the grid in the grid won't be able to keep up. We're going to, there's going to be a need for more kind of alternative or hyper localized solutions, namely generators attached to your building or home. Anyway, so this, this, yeah, this seems like a pretty, pretty big trend shift to electrical. That shows up in a lot of searcher stories. Okay, great. So now we're turned to this business, please. And tell us more about what you liked about it. Maybe start with some numbers around this business if you would. Sure. So the company at the time of acquisition is doing about or was doing about $3 million in top line revenue. The team is, at the time was 14 texts, most of which are service texts. I want to say service, I'm talking about going into homes, just residential properties to do service work. And we operate it was, we're based in Atlanta, or East Atlanta specifically, in a town called Decatur, but we service most all the northern part of Atlanta, the city. So the, also I think important for a lot of trades businesses, a lot of times people like to measure, how many trucks or how many vans. And we currently have 10 on about the company we had seven. So that's I think a typical metric to look at, because occasionally people will look at revenue per van, which is a little dicey, a little tricky to get to around us, because we have apprentices and helpers, which, you know, can throw the number off a little bit versus a lot of other companies have just one human operating, one van, it gets a lot cleaner to measure revenue per truck. And then in terms of the business itself, the history, it had been around for 19 years, the prior owner, who's a master electrician, primarily grew it through relationships with home builders. So people that were primarily doing remodel jobs. So in the end town market in Atlanta, we have, there's some very affordable housing in the Atlanta suburbs. You know, you can still get an entry-level home for a 350 to $400,000. But in the end town market's a little bit more expensive. And so you're seeing a lot of these old homes that are, you know, built in the 20s, 30s, 40s. And they're, you know, call it million dollar properties. And the homeowner is now doing, you know, a pretty large, large scale renovation or remodel. And that's represent probably almost 50% of what we do. So big, big properties we go in and do, you know, rewire the house, rewire our portion of the house, and also upgrade the electrical panel, the service, all the fixtures, right? All the, you know, all the breakers in the panel and also all the, you know, receptacles and things like that. So that's how the previous owner built the business was those relationships of builders. Where the previous owner was not as successful was around growing the service side of the business, which again is, is you're directly doing work with homeowners, not won't.
with a builder. So it's the beta c versus beta b, almost as a, I think, a better way of thinking about it. And that's sort of where I know I spoke a lot about the commercial aspect, which is certainly good. And we may delve into, but the initial view into the company was, hey, I think that my hypothesis was, I think I can grow the company by primarily focusing on this service work or the homeowner style work. And that's mostly where I've been putting my efforts the first nine months of owning the company. Can you tell us how profitable the business was what the earnings looked like? And the margins are in a business like this? Yeah. The business was doing a little over 10%, about 12%. I think it was $380,000 of SD whenever I bought it. We should finish this year at around $4 million in revenue. And I would say probably something kind of comparable in terms of a, on a percentage basis lower, but on a raw number, SDE probably something kind of similar. I have made some efforts around spending some of our earnings to go towards digital marketing and buying bands, hiring things like that. But the goal really is to, I would love, it's a bit of a big goal, but for next year, we have a $5 million top line, isn't my goal for 2025? We'll see if we get there, but we're on the press abyss of being able to hit $4 million for this year. Well, friend, I mean, if you get to $4 million this year, going from three to four is a bigger jump than from four to five. So this year will be more of an accomplishment, 33% growth and growing 25% next year. And to be fair, I think the actual number that, in terms of the tax return for 2023, was like $3.2 million. But yeah, still, I mean, I think the fear was, first year, there's just so much, transitioned difficulty in understanding how the company operates, the unit economics in terms of how do we acquire leads, which jobs we profitable on. And I think, honestly, I was kind of going in, like if we could just squeak out, five or 10% growth in the first year, I'd probably be happy with that. Consistent with what everyone says around, like having this J curve, right? Like kind of was prepared for that, but luckily we've been at a little bit better success than not five to 10% growth this year. Running payroll, paying your bills, closing your bucks and producing financials. These are critical tasks every business owner must do or oversee, but spending time on them distracts you from the leadership in growth work you wanna do. So let System Six do it for you, owned and led by a former researcher, Chris Williams, System Six is a leading outsourced finance team for hundreds of SMBs, including over 50 search required businesses. Chris, Tim and the System Six team understand first hand, the challenges, the opportunities of jumping into a business as its new owner. So whether you own your business already or have one under L.O.I. talk to System Six about how they can give you time back and improve your financial operations. Mention acquiring minds and they'll provide a free review of your books in financial ops, a $500 value. Check out system6.com, link in the show notes or email
[email protected]. Did you look at a number of electrical companies or 'cause you was a geographic search, you were gonna stay in Atlanta. So how many, and you develop, I mean, you really wanted a business in a particular industry. Now it's not like electrical is super, super niche either, a lot of electrical businesses, but in one geography, four sale, for a reasonable price, if the size you're looking for, 'cause you're not gonna buy a chuck and a truck, it needs to be of somewhat size, have a few hundred thousand SDE I assume. There aren't gonna be that many businesses like that for sale at any given time. So did you just get lucky, how many electrical businesses do you look at? - So I actually talked to three, and this was the, this was actually was the middle one in terms of revenue and really align more in terms of, I mean, there's always, I think that the personal limitation of what you can stomach in terms of, you know, your personal guarantee and what you can come up with in terms of cash, right? I mean, obviously you have to be realistic when people are like, I'm only gonna go after a million dollar net, you know, SDE, I mean, yeah, I'd love that too, but you know, I think that, you know, when you have those discussions, my wife is great and she lived through the startup years, so you know, when prompted with like, hey, where do you need this amount of money, I'm gonna have to like, you know, extract for working capital and for the down payment. So I did look at a company that was a little bit larger, but you know, I had a little bit of heartburn over coming up with that amount of cash, and then also on the other side, I had to talk with the business that was very heavily reliant on the, so a lot of, I think, key man risk with respect to the owner being really the face of the business and the wife was like the bookkeeper and office manager and answer the phones. And so I'm thinking like, now I'm gonna have to like, solve for both of those. I don't know, and it was, you know, probably about half the size of this business. So I think it was doing like $1.8 million or something like that, but it was a very attractive price that they were asking, and I probably had maybe four calls with them, and it just did not, you know, I didn't even end up making a, I was considering L.O.I. and just did not end up pursuing it, but so yeah, I think this was just a sweet spot, even though I did talk to other ones, and I think they're realistically talking to the other ones was really helpful because they reveal things that you probably would have never known about electrical contracting businesses unless you worked for one. So it was really cool to be able to ask a bunch of questions and have them describe the nature of their business, and then take that back to the company I ultimately bought. So it was helpful in all this while, you know, I mean, I still had a, you know, quote unquote, full time job because I was still running my other startup, even though I had, you know, had some people in place, but it was still, I would say, a 20 to 30 hour a week job that I was, you know, doing on top of this. Gotcha. And okay, so the one, braille electrical that you bought is, was kind of the Goldilocks in terms of, the one was too small, one was too big among other, among other things you didn't like about them. But it also sounds like you felt that there was a, you saw an opportunity and also to grow this one on, in its residential business, which I think is what you've done because of you, and you felt that because of your own experience in doing online marketing in the very competitive real estate category. Why did you feel you could, that that was particularly a particularly juicy thing to bite into for you in particular? Well, first of all, I think that's spot on. And I think that the, the first thing is, I, you know, upon looking at the, the PNL and then looking at, you know, how they operated their business, which I think was a good thing, which is that most of the business was derived from repeat customers and just, in terms of builders, and then also just generally people that are right in the back yard of where the company was located. In other words, they found them on Google, but it's just because you look them up and the prox in me was there, and that's how GMB, and that's how Google typically will reward the company as, as distance. And as long as you have decent reviews, right? So, so I liked the fact that, that the previous owner had not spent, let's say, you know, a quarter million dollars a year in marketing, you know, and was still able to maintain that pace and have decent year-over-year growth. Yeah. And it did sort of present like an opportunity to me and having that experience within the real estate space of this hyper competitive, you know, we, we could spend a lot of money. There was periods of times in my last startup where, and keep in mind, we had raised capital so that, you know, we wouldn't have done this every month otherwise, but there were periods of time where we spent, you know, $20,000 a month on Facebook ads, right? And so I kind of knew that space in terms of digital marketing and understanding customer acquisition costs and how to measure the cost per click and measure the cost per acquisition, the cost per lead, and just track the marketing funnel, right? So that was where I saw the opportunity, and we've obviously implemented a lot of that in terms of paid ads. And we've also leveraged some of the normal stuff that people use to like LSA, which is the local service ads or Google, we do that as well. But so yeah, so that's kind of where I saw the opportunity was like, hey, let's grow the service business, let's market to consumers and not have this, you know, heavy reliance on builders. Great. Well, I want to return to how you've grown it. Maybe you just gave us the answer, but I suspect there's some other things you've done too. But that still is on the other side of your transaction, which I want to hear about. So please tell us what the business was selling for and how you structured the deal. Yeah, so the business was originally selling for, in terms of the biz by sale listing for 1.5 million, and that buying it for 1.3 million. At the time, the SBA had recently introduced, so this would have been,
and about almost a probably a year and a half ago in terms of when they made this change, but they provided us guidance so their SOP changed around partial change of ownership. And I think in the past, the SBA was resistant to doing any sort of partial buyout and not to, I'm sure the lenders can give much more insight into why, but won't spend time on that. But opening up that aperture in terms of being able to give creative financing solutions, especially for needing a qualifier, right? And so we obviously need a qualifier and an actual state license. - What do you mean by that? - What's a qualifier? - So for electrical and electrical plumbing HVAC, you need a master electrician or a master plumber or someone who certified HVAC at the state level. And I know each state is a little bit different, but for us, it's one human can qualify one entity or one LLC or corporation within the state. And otherwise, I couldn't go out and just start a electrical company from scratch unless I had someone who was a qualifier and would get that state license. So that was what-- - You say qualifier, but when people talk, two people generally the word thrown around is the license, but it's one in the same problem. You need somebody at the organization who qualifies to hold the license. Yeah, that's what we're talking about here. - Yeah, totally. And so the previous owner had an appetite, I guess, and if a matter of words, no, a lot of sellers will just want to cash or check and piece out, but this seller was able to have an agreement where we have 18 months worth of qualifying the business. They get a certain monthly payment essentially to hold that license. And so they're kind of stuck to the business on one level just from the perspective of licensure, but then the other aspect is through the seller note, which for us was around, between like 15 and 20%, I was trying to get the exact percentage, but so it was a decent chunk of money that the seller was able to finance and that's the arrangement we have as the payments don't start until 24 months. So I have some time to ramp up for that, but the funny part is quick aside here is, when I think whenever you're going through your bank diligence, you're the number in terms of the SBA payment, at least for me anyway, which is like, "Oh my gosh, this is going to be $10,000 a month SBA payment." And you're really like, it seems like a big number. And I think once I bought the business, I literally have not even thought about that number. I've thought about all the other things, right? Like payroll, which is a bigger number, or we use our supplier who we buy, a lot of materials from every month, a much bigger number than $10,000. So I think it's interesting how you can really get hung up on, like is your SBA payment going to be $10,000 or $11,500, or nine, you know, it's like, I really don't think that, I wish I wouldn't have kind of spent so much time agonizing over that because once you're close, I mean, you just never look back, but. - Interesting. - Yeah, it was structured in such a way where obviously the bank was happy, the seller's also seller note, the seller's still connected to the company from the perspective of a licensure. And then there's some lead time. And I neglected to mention that one of the other attractive parts for me anyway was the set up in terms of the team, there was an office manager, still is an office manager who had been with the business for like seven years. And so, you know, didn't have to worry about answering the phone, didn't have to worry about managing some of the back office stuff. That was attractive. And there was also a project manager that had been with the business for eight years. So, two longstanding employees, both that are still with us, one that handles some of the office type stuff, administrative and one that handles more of the, you know, keeping the projects on track, initiating the projects, closing them out, stuff like that. And then the third thing that's somewhat related to that, not so much personnel, but is the business had a software called Service Titan. And a lot of, I think entrepreneurs that are looking in home service, they think, well, I'm going to go in and as you guys say it, like we're going to unplug the fax machine and, you know, do all these wonderful things. And one of the things that a lot of home services people do is they implement Service Titan. Well, this seller, I think in preparation for selling the company had been advised that, hey, you might want to implement this because people are going to want to look at this and get these reports and figure out what you're doing. And so, about a year before I bought the company, the seller had gone through that legwork, which is way better than me doing it as the brand new guy coming in like, hey, by the way, we're going to go ahead and change everything you're doing. We're about to start using Service Titan now. So that was kind of cool because, you know, they had already gone through that, you know, that agony of having to adapt to that, which is, you know, using the iPads to collect payment, you know, everything is dispatched through a software. It's GPS tracked, right? So like, so that had already been set up, which was really cool as well. - Yeah, it's interesting because that is a common one that you'll hear buyers of trades businesses say is one of the first things they did was implement Service Titan and it's, yeah, it is a bear. It's not just like putting in a CRM. It really, it's tentacles reach all aspects of the business, which is why it's powerful, but it goes all the way into the field. And, you know, all your techs have to use it, get on board, track information in it. So it's a big, it is a big intrusion into the process of the business, but ultimately people swear by it. I mean, it just seems like it's a best practice, best in class or. - Yeah. - Back to the deal, you've given us a lot of detail, but I still didn't hear, first of all, what was your down payment? That's question one and then I have another follow up. - 10%, so was, you know, 130,000, which is 10% of the purchase price. Obviously I still had to contribute some working capital as well. So the actual number was higher than that, but. And then the seller, so when you said partial buyout, that those new SBA laws mean that the seller can retain a piece of the business, often four cases like this, where there's some sort of licensure bottleneck. Is that what happened here? Did she also, she also retain a piece of the business? So the seller retained 10% of the company under the new LLC, but we have some provisions in the operating agreement where it's structured such that 'cause you still have to, you know, I think, pacify the bank. And so a lot of it largely was, of course, the lawyers drew it up, but they have to bless it, right? And so the seller is unable to take any owner draws, any distributions from the standpoint of profit, but does get those monthly payments, which are, you know, fair reasonable payments. And then the buyout clause is such that I could basically buy out the seller for $1. So in effect, the on paper, she owns 10% of the business, but in practice and reality, I could sort of buy her out at any time, but basically the bank wants to keep her on paper from a state perspective. Like you're still an owner, that's why you're holding the license. So that's sort of how it works. I think eventually, you know, the intention would be eventually to, you know, buy out those shares and then install a new licensee. But really there's no rush in doing it right now. There's no reason to do it, but. - And the monthly payment that she's getting for these 18 months is just sort of, to keep her motivated with the license bit and she's not doing any work or she's still remaining active in the business. - Nope, not really active and not really doing any work. However, any permit that gets pulled is really pulled under her license, right? Which is pretty. - Very often, right? Like a couple of times per week, that we have to pull permits. And so that would be under the seller's name in terms of their license. So a license is really connected, well, at least in Georgia, I don't know how it is in other states, but it's really connected to a human. It's not connected to a business necessarily. So that's kind of how it's set up as we're still pulling permits every week, really. But luckily I do have, and I think this is important to note for anyone considering something in the trades, is we do actually have one person that's on our team that is licensed in the state of Georgia. So if there were ever any issues, now, I agree, and I would have to have a, the bank says we'll have to have an employment agreement with them if that ever comes to it, and then I swap to that person. And then there's also, I think, creative things that people have done around renting licenses. I think you have to be cautious with that, but there are states that allow multiple, one human to basically qualify multiple businesses. I think in Florida, it's like either two, I think it's three, two or three in Florida. So. - Okay. - So that's one consideration too. Well, let me let me let's distill how you did this.
Just for those many people out there who are interested in buying a trades business and don't have the license themselves And need to solve that problem. So you Fred became interested in buying an electrical business you find one So this is how you've done it the the seller previous owner There are a few pieces retains 10% of the business formally Which makes her a partial owner in the business that helps satisfy the That's not been enabled been allowed by those the change in SBA rules So she's an owner in the business and the license is under her name still so so that satisfies the licensing requirement of the business She technically owns 10% but she's not entitled to any Distributions or any of the profit of the business you have the right after 18 months to buy her equity from her for a dollar And so so basically the point there is those 18 months are about you Finding some replacement for her as an as a as a permanent solution so finding a permanent solution to the license holder So she's really only holding this 10% equity to on paper be an owner but not because of any economic value because you're gonna Basically get it from her for a dollar and in the meantime too. She's also getting a stipend or so you know License fee of some kind of monthly fee Compensation for 18 months which you probably call the consulting agreement maybe But that is just to incentivize her and to pay her for the for this Continue to be the license holder of the business. She's not active in the business at all. Yep. That's fair Did I miss anything? No, it's perfect. Okay, great. Well, that's it. That sounds like a pretty good model. I'm not sure I'd heard that one. Yeah Yeah That's yeah, that's spot on okay. Okay, great. How the transition go? So you know, I think I mentioned to you a little bit before that the having that experience within the startup world and Kind of going through that that slog a little bit Even though we you know came out on the other side. Okay, but You know, it's sort of like getting kicked in the balls every day. You know when you're you're doing a startup It's just it's it can be very challenging to to find product market fit to create something from scratch, you know to hire to do marketing all those things and I think that that probably helped because You hear so many things about like and even on your podcast right? I've heard some of the coolest funny stories Not funny. I shouldn't say that but you know Yeah, entertaining stories of because they end up making it right but like you know the office manager leaves on the first day or you know someone You know stills money or whatever right and and luckily we didn't have any of that. I mean there's some weird things like you know They wrecked a van like two weeks before we closed and you know we had to solve for stuff like that but And certainly there's a lot of surprise. I mean everyone was definitely stunned that the seller sold the company because The appearance was that it was her identity and it's the name of the company is the person's Who sold it to me right? And so I think they were very surprised and also the seller wasn't really all I mean the early 60s but it's not like Um, you know, she was I think 61 you know when she sold it but but didn't know suffer for any sort of health challenges It was kind of in that spot that was she was ready to retire and so So the the common stuff was there in terms of you know, just reassuring the team that we are going to continue the legacy of what had been created before and There would not be these wholesale changes. I mean I can't or tell you how many times the first week of me starting of people were like Are we going to change the name are we going to change this is this going to change is that going to change and it's just You know, it was just constant reassurance of like you know by and large there you know obviously we're going to optimize some things right but like You know in terms of your you know, you're not going to get fired. We're not going to change your pay drastically We're not going to take this away from you, you know, so a lot of that They were all traumatized by the service Titan experience of a year earlier Probably so yeah no doubt but but several long-term employees are changed though There it is the fear of change that just most people have sorry. Go ahead. Yeah, I think that's that spot on and And I also think that you know, I have to play my best part of adapting and you know and being you know welcoming and and humble and and Align with other people's personalities and culture and stuff because you know the previous previous seller was a was a woman There's a new very like you know kind of um You know the the the area of town is of of Atlanta is I mean I come from like it I'm just like this you know white dude who got his MBA from Georgia tech and it's that's not really like a good look when you go And into buy an electrical company. I think a primarily blue collar Whereas the previous person was you know, it's a woman much more you know probably of the liberal ilk Yeah, I love her. She's great. I've been highly supportive. We talk all the time But just very different personalities um right and and so I think that in and of itself, you know when you're trying to I mean you you you can never be the seller you can never Um, yeah from a knowledge perspective from a personality perspective from a you know just everything It's just you're gonna have these shortcomings in almost every aspect And so you know, I think you have to really lean on what your strengths are and and um You know Bring on this new identity in terms of how you're going to push the company forward and and it just takes some time to kind of reassure everyone So luckily there there weren't any um, I did have someone quit like after the fact that it was like three months in But uh, so I don't think related to the transition, but you know nothing really catastrophic like that um and in the transition by and large has gone really well. I've been really pleased with the The team the performance, you know And I think the only thing that I might have mentioned you on the pre-call that was a little bit You know of a of a of a bear um, it's just Probably miscalculating I know people talk about miscalculating Working capital. I think we actually got that right Uh, in terms of what we had allocated there and and financed, but the the AR aspect so Um, certainly I knew what the AR was coming in, but as I mentioned before we have a service aspect of the business Which is really pay on the man on demand, you know Um, you got us someone's house you fix x y and z or you let's install some fixtures and you swipe a card You get paid and it hits your bank out the next day Uh, well the other half of our company is more project oriented and so it may take you know you may Take 10 days to do the job and in those situations we typically will invoice net 30 Uh to a builder and so I think that was a little bit miscalculated and I would sort of you know caution people are at least not caution you But you know make sure to really look at that very closely because um You know at the time I'm looking at like okay Well, though I'm buying the business and there's You know 150 to $200,000 of AR that's out there right Well, when you close, you know, and my and and certainly I was aware of this well that AR is going to go to the seller All the work was delivered while the seller on the business not when I own the business But it was just that painful, you know the checks come in or the a ch payments come in and And you're You're you just started the company so you're wanting like let's get some revenue in right? Let's get some let's get some money in and then boom You get a 32,000 dollar check But then it's like oh wait this this goes to the seller And then you get a you know 15,000 dollar check and like oh wait now this one's For the seller and certainly that's to be expected the first week or two but the bomber was when you're You've been in the driver's seat for a month or you know a month and a half or whatever even even approaching two months And you're still getting these you know this revenue that's coming in and it's and you actually just pass it across the fence to You know the seller so that's the That you know, it's is what it is but um I think it to be clear Fred what we're talking about here. That's kind of a A psychological Cost that you're warning people against where you didn't miscalculate you did a good job on the working capital calculation This wasn't hurt in the business, but it was hurt in your hopes and dreams and expectations every time you went to the mailbox or you saw something coming on a C.H. It should be tens of thousands of dollars Yeah, you'd be like great you're money that I can put into the business and oh no the check is written out to the previous owner sort of Yeah, and so it's just like that frustrating experience that you're telling people to be aware of if they if they don't buy a Exactly. Yeah, and it it almost made me rethink like should I have bought the a r or a portion of it or you know But then I think there's also risk there too because like what if that a r never comes in right? Exactly. It's really bad that and so anyway all that being said yeah That was a little bit of a bummer, but we finally got over the hump there and and you know no more checks But that was uh no more checks of the seller, but So that was probably the only you know sort of difficult transition and then other than that It's just been the typical stuff like Adapting to understanding how to hire for the trade right because it is Very I think different than you know, you make the contrast of white collar Uh, you know world right and I've hired you know dozens of and managed dozens of you know salespeople and business development reps and marketing people and You know, it's it's just a different I think the mechanics are a little bit different in terms of how to Find someone you know how
how to figure out if they know what they're doing because it's very hands on and sometimes it's difficult to, they may look good on paper, but it's like you're going to be sent into a complex electrical, some sort of troubleshooting or difficult installation and you can't really afford to hire someone that you're gonna send into this job and they really don't actually know how to do it. Because obviously there's some dangers just from a safety perspective and then, and they're gonna send us a big job, so you want them to be able to deliver the work and actually be able to do it. So I think that would say, as part of the transition, it took me a while to kind of understand how to identify talent because in the beginning, I'm like, I don't know how to hire an electrician, I got to figure out this from scratch. So that was a little bit before. - Well, we'll give us 60 seconds on how you do that 'cause that is certainly something that a lot of people will be wondering. When I get into this business, this trade business, how the heck am I supposed to figure out who to hire? Who's good, who's not? So what'd you learn? - Well, I think I was very tempted in the beginning to hire more entry level or what we would call an apprentice or a helper and someone that has a little bit of an electric experience that I could have a, you know, kind of a low cost basis, cost burden in terms of that person. And I think what I discovered is, while there's definitely a need for that and we'll continue hiring those folks, I think it's maybe potentially better to, the ones that I've paid more, sometimes significantly more, have actually delivered because they do have deep experience. They know what they're doing, they require less, you know, oversight, you're not worrying about their production, you're not worried about if they're gonna mess something up. And I think there's a lot of peace of mind that comes with that. And so I kind of shift perspectives in that a little bit and then started really looking for more senior people and then structured the narrative around the job requisite, you know, saying, you know, highly experienced person, senior tech needed, you know, 10 plus years. And I, you know, one example is in the first couple of interviews we did, and this is something they did before me, but they would make a person wire a three way switch. And we have like a faux, I mean, it's actually a real wall, but it's like a fake three way switch. And it's a studded up wall and with a receptacle in a junction box in another light, like two light fixtures and a junction box in the middle. And you have to tell the guy like, when we spring it on them, so we don't tell them they're gonna do anything, you know, when they get there, and we're gonna tell them back your background. Okay, now we're gonna do a hands-on tool, you know, interview, the tool portion, like, "Oh, I didn't bring my tools, don't worry, we have them." You know, and so we've got all the typical, you know, wire cutters and we got your, you know, we have the actual materials that you would need to, you know, wire caps, you know, wire nuts, everything. And then, like, okay. And they would, some people would struggle with it. And, and that's like, - Even I can tell that's a pretty basic test, right? - Yeah, yeah, I mean, and there's some of it, they would, sometimes they would actually be able to get it to work. In other words, you could flip this switch and turn on the light and then this other one in turn off, it would work, a three way switch would work. But, but then you'd discover that, of course, I was not leading this, I was just supervising and watching, right? But they would, my guys would show me that, oh, well, you, you got it to work, but, 'cause there's like four or five ways you can actually do it. But the problem is there would be like, three code violations, right? So like, even though it works, here's all the things you did wrong. And then we'd also have like a little test of the M 'cause we'd leave a broom like on the edge and just be like, let's see if they clean up at the end, you know? And, you know, most of the time they wouldn't as though we'd always have to correct them. Like, hey, the most important, you know, the second most important tool you have is the, is the broom. But, you know, so I think one of the things I'd discover from that is that you really do have to test with hands-on type things. And also, I structured my questions a lot differently. So I'm beginning to be like, how many, I would say, can you do a panel swap or panel change? It's basically just you're taking out the old electrical panel, putting in a brand new one, you know, let's say on a 50 year old home, with new breakers and everything. And, of course, naturally, everyone's like, you know, if I ask you, can you do it? Have you ever done a panel swap? Are you capable of doing it? Yeah, of course I am. And then I started rephrasing my questions to how many panel swaps have you done? And if they tell me, oh, I've done, and I've done five or six, I probably 10, that's way different than when someone's like, I mean, I have one of the more recent guys I'd hired, who was one of the more senior guys, I asked him the same question, he was like, like, everyone, I was like, yeah, like, in total, your whole life's electrician, he's like, like, 300, something like that. Then you know, you're not lying. If you told me you're done five or six, I'm like, this guy's probably done one. And he has someone helping him. The old divide by three rule, whatever they say. Yeah, exactly. So you know, stuff like that, you know, you can really, so I think that's been a definite learning curve is trying to understand how to hire and account for experience. Well, Fred, that's all well and good to hire experience, but you pay up for it and there are fewer of those people out there. So your pipeline is thinner. Are you just kind of eating that? It's an investment that's worth it to get better guys, even if, or gals, even if you have to wait longer for them. And pay more for them. Early indication is that it seems like the move makes sense, you know, in terms of the payback and economics around a higher, let's say paying someone, for example, $35 an hour versus $20 an hour, right? Seems pretty, I mean, it is a pretty significant jump. And those are realistic numbers too. But it appears, you know, the last few months that that is working. I will say that the reason why sometimes you can still find people is a lot of the big corporate type trades companies or multi-trade companies that are doing HVC electric plumbing, these really big businesses that have, you know, 300, 400 employees. A lot of them are straight commission for these techs. Whether it be HVAC techs, plumbers, electricians, you wouldn't think that, but a lot of times they are. And they're really paid on truck revenue. And that can be good. And I think there's definitely a, there's something to that. But we have a bit of a hybrid pay scenario where they have a reliable base salary, you know, hourly rate that's going to get paid like no matter what. I mean, assuming they are working their hours, right? But they're going to get that no matter what. And so I think that, you know, I've got a couple of guys that have come over from straight commission businesses because they had a couple of weeks here and there where they had some big weeks in months, but they had some that were like really light. And then you really feel it in the paycheck. And so having that kind of linear, you know, more predictable comp plan, I think for some people is attractive, but the, you know, you have to balance that with you don't want to find someone who's lazy, you want to find someone who's still motivated. And a lot of those people who are in commission style roles are typically good communicators and are kind of hungry. So it's definitely a balancing act. And I think getting both type on the team is useful too because they can kind of bring the other guys up. Yeah. This is great, right? This is an education, but we're going to start rounding out now. I did want to hear how you grew from three or three two to a projected four million in revenue by the end of the year and year one. That is 30 to 33% growth in year one. Was it all about turning on digital marketing? I think that was a half of the equation, I would say. I think there's probably two or three things that I would sort of point to. I think the first is it's hard to sort of do marketing really well digital marketing, or really, I guess any marketing, unless you get the brand dialed in. And I actually like the brand before acquisition was a little dated. I don't know if you've seen this brush gripped. Some of these really old school, if you use Microsoft Word, you see these really 80s looking fonts. That was like how the logo, God bless you because I love the previous seller. But the logo just looked really dated and the trucks looked really dated, not only the age of the trucks, but also just the branding on the truck in terms of the wrap. Some of the email communication, website, things like that. And then that gets multiplied across multiple channels or web assets because it's the website, but then it's also next door. Then it's also thumbtack or Angie or Google my business. So all those things, right? And when I bought the business, there were 30-- I have a screenshot of somewhere, but it was like 38 reviews on Google, which is extremely low for a 19-year-old business. And it also kind of points to, well, maybe they weren't doing a lot of service work. Because that's typically going to obviously give you your reviews as homeowners, not builders. And so now we're at 160 as of this morning, and we're hopefully going to end the year at 200. But I guess my point is, I think getting the brand dialed in, so we had to re-wrap all the trucks, which there's, of course, a big cost to that wrapping 10 trucks. We did the branding in terms of the logo and cleaned up the website a little bit. There's still some to be left to be done. Introduce online booking on the website, stuff like that. And then once we did that, then I turned on some of the digital ads, which would primarily be Google, a little bit of social Facebook ads and stuff like that.
that for remarketing, for re-targeting people that have been to the website. And then creating campaigns around specific things. So it's one thing to create a campaign around electrician near me, which is super broad, super precise search, or electrician, and then name the city, which electrician Atlanta. It's an extremely expensive click. So, yeah, we really focus more on long-tail keywords and more specific channel campaigns, like EV installation, Decatur, which is the city we're in. And so that seems to be, and it's consistent with what I did in my last business when you're doing real estate marketing. You're not going to do real estate agent Atlanta. That would be insane. You get demolished on that. But you may do real estate agent and then plug in the small county or market or whatever at the end. So a lot of that, a lot of those sort of like more custom campaigns. And then using some of those other lead gen channels to fill the schedule. Because of any trades business, one of the biggest things, hiring is certainly one of the most important things that you'll do. And you'll learn how to do well, hopefully. And then making the phone ring is, I mean, that's literally like 70% of what you do in a home services business is higher good techs and make the phone ring. And then the other operational things, certainly there's more things that are important. But I think that's two thirds the equation. And so we've been able to make the inbound calls ramp up. And a lot of those calls are paid, you know, call some of them are SEO generated. But that's where we've focused is on those long tail keywords and more specific campaigns. Not just doing electrician near me where we're going to get clobbered by some of the big guys. Well, I have to say Fred, that's impressive dangerously. Dangerously, it's seductive because some of the the what you hear about in buying a trades business or buying really any any business from her time owner, this whole category of ETA is that, you know, do some digital marketing and, you know, sprinkle on a little digital marketing and it's to the moon. And we always cautioned about how it's so much more than that. And there isn't a single lever to pull or whatever. And it seems like that one lever now you also talked about your hiring improvement, but that that one lever has indeed in your case been tremendous. I mean, 330% revenue growth in a year is really a lot. Well, I don't I wouldn't say that it's been that easy because you really do and we certainly have as well. We've had a test channels because and there's been time for we've we've dialed back and cranked up and or pause. And I think that's common, you know, to do that where you may run a you may run, like, for example, like I even ran a LinkedIn hiring campaign and discovered like, you know, that didn't work and I ran a certain Facebook campaign that I was curious I thought would work by targeting a certain demo on Facebook and it it worked, but the clicks were so expensive that it just didn't make sense in terms of, you know, what that, you know, in customer would deliver in terms of, you know, the actual job. So you really do have to test those channels and and constantly monitor Google ads or local service ads and I've heard of a lot of people. I'm actually in like a I had to join a electricians like mastermind business owners group just to kind of just to help learn more about the trade, right? And I've heard from other business owners that that they had historically relied very heavily on LSA, which is these you will see like if you just Google in your area, let's see your in DC and you're say, you know, you know, HVAC company false church Virginia and then it's like Google guaranteed Joe blows HVAC, well, they're paying for that obviously, but it's not a it's not a PPC ad it's a local service ad. And so you have to you have to go through this process to get approved for it. And so we did all that and their periods where it's like, you can you can allocate a budget of like $5,000 a month and it only spent like 500 and you're thinking like, is this thing working? So it's sometimes not as easy as just putting a budget together and thinking that you're going to you know, Google is going to use all that spin to give you phone calls because there's so many other factors like Google reviews proximity to your shop to you know to your address. The style of search, you know, you're the style of your service. So I definitely would caution people that it is not as easy as and it's also not easy to farm it out and I actually do it myself. That's one of the main things I do. So I may eventually farm it out to a there's a lot of trades agencies and all they do is SEO and paper click and they manage it for you typically charge you a percent of spend 10 to 20% of your monthly spend. So I would caution doing that because if you're just farming out and you have no idea how it works, that's probably not good. Like you need to deeply understand how to do digital marketing. If you're business is going to rely heavily on it, I think home services, it's almost impossible to succeed or to grow sorry without some degree of digital marketing. As part of your marketing mix. That's interesting Fred that that's actually a really, really strong point that you just made because most the conventional wisdom would be the danger here is the lack of knowledge around the trade itself, but you're saying that not knowing digital marketing should be more of a stopper for people. And that's going to just wait a lot of people listening because I was going to say before we took the words out of my mouth, you're really evidencing here how how fluent you are in digital marketing. And most people know the concepts, but they don't know the various tools and they don't get in there and tinker and they don't have years of experience doing it like you do. I mean your hands really where it's clear where you're getting your hands dirty in this business is is running those campaigns doing the experimentation yourself. And if you're arguing that other buyers of trades businesses out there should expect to do the same that that is going to give people pause. And so you just don't think that it's outsourcible. I mean this is this is the value proposition of digital agencies that they'll just they're better at it. They do it all day long. They do it across the portfolio of clients. You don't believe that their their value proposition is a good one. No, I do think that it probably makes sense for a lot of people and I do think there there is a lot of value and I actually have spoken to a couple myself. I haven't you know took the plunge yet, but I may eventually if I can find a you know called boutique agency that there's a lot of really big agencies that have 300 home service customers many in my backyard. And so they build your website for you and they manage your SEO and you know and it's like seven eight thousand dollars a month and that's excluding the actual spend I mean it's not it's really extraordinarily high but I would say I would just say learn the space because I think everyone really as I mentioned before around like the SBA payment right which I had a lot of heartburn over like oh my god this you know whatever $10 dollars a month or whatever it was right. And realistically and certainly you're going to you know probably worry about pay making payroll and stuff like that which you know we have not had that challenge luckily but but I think really what keeps you up at night specifically in this space if you're trying to grow the business which of course hopefully everyone is. It's making a phone ring that is the actual sure there's other there's hiring there's you know you know all the things we discuss right but I really think can you make the phone ring or can you implement or outsource a strategy that effectively economically makes that happen on your behalf right so. So yeah I just think making a phone ring is so critical it's a great it's a great point yeah yeah you you know a good exercise to do when buying a business is to really track a dollar into the business where does it originate how does it originate and then track it all the way through the other business until you know that 15 cents drops out at the bottom into your pocket yeah yeah but but it all starts with figuring out where does that dollar originate how does it work. It's actually not something we spend a lot of time on here maybe it's because it seems self evident while you do marketing but you are definitely more much more digital marketing forward than then most of my guests that I've talked to if not all so that was that was great to hear you on that Fred last question what is the plan what's the vision. Oh gosh you know I think I may have mentioned that in terms of I know a lot of people will try to build a hold co or maybe buy multiple businesses and I don't necessarily know that you know I'm itching to buy like a second you know company anytime soon I do think that it could be like you use the terms of it's it's it's very appealing and sometimes tempting like I will pop on biz by sell and be like well I wonder if I can do a bolt on because as many listeners will probably know once you've owned your business for one year then and you haven't reached the cap the $5.9 or cap which you know we have not then you can actually buy the next company of it's in the same nice code and it's same for you.
footprint of the market you serve and precludes you from putting that 10% or 20% or whatever you're putting down. So, in effect, you can finance the entire acquisition without a lot of, and you use the working capital out of your current business. So, of course, there's still going to have to value your business and make sure it makes sense to do it. But, so I've looked at some other-- It's a pretty good deal, right? I mean, we don't talk about that enough. It's a real problem. I've looked and there was a low voltage, which is another offshoot of electrical was low voltage type wiring. And something we don't do a ton of, but sometimes it's profitable. And I was tempted to like, "Oh, I should contact this broker and I resist the urge." But I was like, "Oh, this would be a perfect bolt on." So, that could be in the cards. Maybe in the future is a very small bolt on acquisition. Atlanta is a very big market in terms of being spread out. And so, if there was another one that was 30, 40 miles away from our shop and could pair well with us and already had a couple of good texts, that could be really attractive. But I think eventually, who knows? It could be 10 years from now if we get some crazy offer from a big private equity or some roll-up business. And it makes sense from a culture, from a fit perspective, maybe that could be the route to take. But really, the goal in the intermediate term is to improve profitability and make the business a little bit more passive over time so that I can extract myself a little bit because it's currently certainly a 40-hour week type scenario, which has been great. But I'd love to get it to 20 hours a week, right? Wouldn't we all, Fred? Yeah, I doubt. Just the only other quick thing to say about kind of a bolt on or a second acquisition in the same geography and the same nakes good. One other thing people in your shoes will say is why those can be attractive is not just, "Oh, I want to build a wholeto co." It's a hire. It's basically a hire an indirect way to hire, to get more hire. Yeah. It's kind of an aquahire to use the word from Techland. You're basically buying another business, another electrical business for the talent alone. That's really the value to you in solving another way of solving the hiring problem, which is so acute in trades land. Yeah. Anything we didn't get to, Fred, that you wanted to share? This has been great. Nope. It's been, yeah, it's been a great experience. I appreciate all the inspo we've gotten from your guests and all the stuff that you've been putting out there. Keep it, keep it coming. I'll keep listening to, but yeah, no, it's been great. Anyone that wants connect, if you're thinking about buying electrical, plumbing, HVC, roofing, etc. Definitely hit me up. I'd mentioned to you earlier, a buddy and I started a group called Blue Collar Advisory. I didn't have as much. I know that a lot of your guests are awesome because, and I think I might have even tweeted somebody or linked in someone almost a year ago and they did respond back. I've hit up probably five or six people and just people are helpful, super helpful, but they're not going to be able to dig super deep with you. That's kind of a miss. I think a little bit of a mini gap in the market is helping buyers who are really searching and they're serious. They have the capital. They want to buy, but need a tiny bit more handholding or a little just sounding board, really. So, hit me up at Fred at Blue Collar Advisory because that's something I'm passionate about is specific to the trades, anybody in the home services category. So, we want to try and help them. We've done this with a few people. This is brand new, but helping people with your L.O.I. or doing the call of the seller, talking to the lenders, and structuring a deal. I'm just seeing if the deal makes sense for you. But if you can get that, I'm also happy to do a quick call for you for just for the hell of it if you're just wanting to kick around some ideas, too. Great. To be clear, the Blue Collar Advisory is kind of a light coaching practice that you've launched for other people interested in buying a trades business. I would call it light consulting. We're not selling a course or selling any actual coaching. I call it lightweight advisory, just to get you over the hump to actually buy the business. Great. You can say the email again that they should reach out to you. Fred at bluecollaradvisory.com. We'll have that in the show notes. Let me up on LinkedIn or Twitter on all those as well. What are you on Twitter? Freddie McGill, I think, is me. Yeah. Freddie McGill. Yeah. FREDDDY. That's my mom calls me anyway. We'll have all that in the show notes. Fred McGill, congratulations on the acquisition. And especially on that great growth since acquisition. Really impressive and been an education. Thank you, sir. Thanks, Phil. Appreciate it, man.
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