How to grow a Holding Company to $75MM+ within 5 Years w/ Justin Turner | CEO @ Traction Capital

Speaker 1 Partners, all of us have been operators. All of us have worked in businesses. All of us have been responsible for payroll, and shipping products out the door and making sure the business of business actually happens. And so we're happy to roll up our sleeves. Speaker 2 Thank you so much for tuning in to Journey with Chris and a podcast. I'm your host, Christian D Evans. This next guest is the managing partner of traction Capital, which has almost 75 to 80 million dollars worth of top-line Revenue in their portfolio. In the hold Co, we're so excited about a diving into his thesis. Because before he actually started traction Capital, he was actually worked in a variety of Finance investment rules as a VP of finance and several plastic manufacturing businesses and a consumer products e-commerce business and because of this the way they analyze And look at deals, the very industry agnostic. And so we're very excited about having him on unpacking, all of his thought processes, the way he looks at deals, how he's able underwrite them, and not in a specific vertical, but really agnostic, but also very, very successful and the growth please. Welcome my next guest, the managing partner of traction, private Equity, Firm, Justin, Turner, how you doing today, Justin, Speaker 1 I'm good Christian, thanks for, thanks for having me Speaker 2 on, man. I'm looking forward to this conversation because you know what? I found very interesting, right off the bat is, you guys have a very unorthodox approach. Where you're not coming in, in the typical private Equity, where a deploy Capital, you know, acquire that company five to seven, five to seven years and exit, right? So Justin was that at the beginning of traction, when you first establish it, build it, that that became the DNA where I was like, I want to buy it and I want to hold it for a longer time Horizon. Where did that DNA or that approach? Come from Speaker 1 you. I think we've had we've definitely had that approach from the beginning. You know, I think Ink. We were influenced early on, you know, by some of the other certainly some larger groups doing similar things to what we are that have that permanent approach and I think hearing some of their stories seeing some of the larger, you know, more famous holding company structures and just the cost of doing a transaction. Both from a Time standpoint, a tax standpoint a you know you turn off that. That compounding engine when you sell something. So, you know, I think from the beginning, we've had the mindset of, we want to be multi-decade owners of these businesses and not saying, we'd never sell something, but our goal going into it and our goal when we're working on strategy is, you know, how do we build a long-term compounding business that generates, you know, increasing free cash flow over a multi-decade whole period? Speaker 2 Where do you see that compared to the typical Orthodox? You know, five to seven-year exit. Did you find that having it more of a multi-decade approach is like, you mentioned more compounding effect and you saw like obviously the numbers work in that favor. What was your rationale? How did you come to that conclusion? I'm just Speaker 1 curious. yeah, I think, you know, you look at the, I think AJ wasserstein as it has a great article on the compounding side of things and the long-term benefits of, you know, a 20-year hold versus a five-year-old, you know, the other piece that I think that, that resonated for us and for me, you know, I've worked in private Equity previously and It can be especially with the size businesses that were working with. It can be a challenge to really come in and try and drive a ton of changes with the goal of driving, you know, rapid increases in profitability leading to an exit and three to five years. That can be really hard on the team at these companies. And I didn't love that experience when I was in private Equity, because I felt like, hey, like there's, there's real people that are involved in running these businesses and you can't just run them over because you're trying to achieve a certain thing. And there's no, I mean, traditional private Equity has generated, you know, great returns, for LPS, over the last 15-20 years, so there's not one right answer to, how do you generate Wealth and returns. I think the longer term approach, you know, resonated with us and how we want to treat people, how we want to treat the employees, how we want to treat the business owners that we work with. And I think I don't think we realized this as much going into it, but that longer term time frame has really resonated with the entrepreneurs that we've partnered with as well. You know, I think we're a great fit for companies that care about you. What happens with their business with their employees, with the community that they're in? After they sell, we're probably not the greatest fit. If somebody is just worried about maximizing, the dollar that they receive when they close. And so the having that long-term mindset means, you have to be focused on the culture, side of things, you have to be focused on the employee retention. The employee teaching and training so that you're continually elevating the teams and given that more opportunity. Once you once you make that, At investment because you know with small businesses the owner and the couple key employees really are the business, they really are key to making that thing go. And so you have to figure out ways to continue to take care of them and continue to provide opportunities for them to earn more money. Learn new things grow in their responsibilities. So yeah, I think having that longer term whole just resurrect it resonated with us on how we want to do business, how we want People. And we've only been doing this for four and a half years. So we're still very, very early and do this, but so far, it's I think it's worked out. Speaker 2 Well, that's why it's so impressive. That's one of the reason why I want to have you on is not only because you're really relatively newer, but the reality though, is you've been able to hit massive, acquisition and massive scale, pretty quickly. 75 to almost. Now, almost 80 million dollar run rate, Top Line, that's very impressive and I wanted to kind of dive into your Thisis little bit Justin because some of your portfolio companies and acquisition. I may miss a few is like see Western firefighting equipment swag, you know, which is sales Channel directed business, you know, home hobbyist. You also have Toni Lynn Paving and then as well as stumped in mattress. So a lot of different basic what I'm seeing is a lot of different verticals, so that tells me Justin, when you're looking at a company, not looking at industry specific, you're looking at Methodology or principles and seen it as these specific companies, hit those those that that checklist. If you will that traction obviously has that methodology. That filter process. Could you unpack the way you and your team? Look at a lot of these deals how you come to the conclusions. That okay, this company is worth investing. What do you look at? What are some of the the green flags in the red flags? Let's dive into your methodology. In your principles on, on underwriting the deal. Deal. Speaker 1 Yeah, again, we're happy to talk about each of those specific ones and what we liked and the two new ones that aren't on our website yet either. But, you know, you and I chatted a little bit off line before starting we, we really try and have a lot of price discipline when we're going into these things, I think you can di risk yourself a lot based on how you buy these and not overpaying for them. And so there's been some great businesses that we've seen that we would have loved to own but we We didn't feel good about trying to own them at the price that they were going to trade for. And I think that's great for the seller. I, you know, whenever we have to have that conversation with a banker and say, hey, we're out because of the valuation side of things. We wholeheartedly mean it. When we say, hey, we hope you get that outcome for the seller because that's an amazing amazing valuation and Legacy that they're going to get to have based on that, selling price. So, we're happy for the sellers, you know, we would love to be owners of that business. Us. But at the price we just you don't think it's appropriate for us you know with our C with C Western that was our first deal and so you know did we go into it thinking hey we want to have an investment in a public safety distribution business that sells equipment to fire departments, we weren't looking for that business. But you know, the more we dug into the industry, you know, who the customer is, it's very easy to be supportive of firefighters especially firefighters that are in your local community. You know it's not an industry that's going to be going away, there's all there's going to be an increasing amount and increasing dollars flowing to the public the public safety side of things, you know, I think we got fortunate, we bought a business that had been around since the And he's and we have a great CEO of that business that still owns a chunk of it even after selling to us. So yeah, I think we price disappointed drives a lot of it when we're thinking through you know when we first see a teaser up something while we're not industry-focused we definitely try and get up to speed on an industry. And so we have kind of an industry map that we go through. And we're diving deep on something we want to understand you know what are some of the major deals that have happened in that industry? What are if there's any roll ups that are happening in that industry who are investors that we know that are investing in that industry we try and understand what are the different business models that operate you know in a given industry and how do businesses actually generate cash. What does that process and how different companies in the industry? Go about that. And if we're Looking at a specific company in that industry, how does their business model compared to some of the highest performing companies that are in that space. We look for regulatory headwinds or Tailwinds. And so we we come back with a two to three page document that outlines kind of high level. You know what's happening at industry, who's buying things, what are some opportunities? What are some risks? So, while we're not, you know, focus on any specific industry. We do try and Dive in and become at least like a little bit knowledgeable about it once we once we really start spending time on a Speaker 2 deal so when you're looking at these businesses it's almost like you're looking for not the the perfect little shiny thing, where you're going to get the top dollar, it's really your investing into a company at the really good price and expecting a value-add almost approach. When you walk in and acquire. That is that correct? Justin Speaker 1 I mean, we do want to figure out how to grow them for sure. You know, we're not going into it saying, Hey, how do we change certain things to drive a higher multiple, if we want to sell? But we do come in and think about, hey, where do we need to improve the processes? Where do we need it? You know, clean up their financials and financial reporting. You know, where do we need to add people to the team? A lot of times with these small businesses they're operated very Only the owners while they may not be experts financially. They understand that every dollar that they're writing out in Annex as an expense as a dollar that's not ending up in their bank account at the end of the day, not that drives everything that they do but they're very aware of the costs and the margin. And so a lot of times with these businesses you know take a business that's generating two million dollars 8-bit data on our side when we're modeling it out we're probably saying hey there's an extra 250,000 or more of expenses that we're going to add to this business, because they need to continue to build out their team more than they have right now. And a lot of that is, you know, the owners wearing multiple hats the owner's wife is, maybe getting paid, maybe not, but it's probably doing something in the business and a lot of those things just have to change. Once they sell, they're not going to have the same incentive to do everything that they've done. In the business. And so we know on our side, we've got a model in more costs for maybe a GM, maybe a controller. Maybe, you know, XYZ person to take something off the plate of the owner, or the owner spouse, or somebody else that's going to be stepping out of it. So, you almost Speaker 2 experience AJ curve a little bit. When you acquire these overtures in obviously on a Speaker 1 I think on every deal we've done. Maybe other than one, there's been a J curve. Speaker 2 So with that being instead, let's dive into that. That j-curve kind of timeline is there, is there something that you kind of contingency? It's a okay. Hey, within six months, eight months, we anticipate that kind of down and then we're going to be pushing back around forward. And really, you know, hitting back at the foundation level and being able to scale or is that more of anticipating almost a 12-month kind of time Horizon timeline for that j-curve. What what does that look like Justin? Speaker 1 Yeah, I think it's different for every business I think and also the size of the business you know a company that's three million and even do that. You need to add 250,000 and expenses you know, if they're on a historical growth rate of 10 to 20% a year, you're probably going to make that up in the first year. So you're probably at the end of the first year of own it, you're going to be back above the ebitda threshold that you bought it at if it's a million and a half and ebitda, It's been growing but not growing a ton adding 250,000 expenses, you may not get that back for 23 years depending on, you know the business. We like that j-curve period to be as short as possible, the steeper the better on that, but it's very business dependent. You know, there's yeah we try and we try and keep it to a minimum but it depends a lot of Speaker 2 factors also. Let's dive in to see Western and help me understand how you guys looked at that because what I found and underwriting any business, it all these numbers and all this data tells a story, and obviously with your experience expertise, you have to identify what that story is telling you what those numbers, right? And so now, when you're looking at companies, obviously, some people I've talked to in private Equity, they gravitate more toward the the, you know, SAS World mainly because the margins are pretty high. It's pretty defensible. Depending upon what what industry you're in or what kind of product out. Like and so forth, as well as the mrr in the eye. You know, ARR is really sexy as well. With that being said, let's talk a see Western. Okay, what did you see that? Really kind of said, okay hey I see this. I think you mentioned a few things, there was a defensible mo where they have some Enterprise contracts what else did you see that? You said okay hey you know what, we see this long-term a good value a but also long-term growth because that's like you mentioned. So help me understand how you thought that through and then Then obviously, you take that same, it's very contextual, I know depending upon each business but let's start with C Western Speaker 1 there. yeah, we we started by trying to understand the industry a little bit. It was very easy to be like, okay, I get it, they sell equipment to fire department so then it was trying to understand. Okay who else does this you know what is the market like? How long is the sales process? And so we we pretty quickly like okay we like the End customer, we feel like that's not a customer that's going away from a process. And point their back, office was pieces of paper that moved in Stacks through the back office and, you know, eventually ended up with, you know, some information going into QuickBooks. So we knew there was a lot of opportunity to clean up the accounting side of things to help get a better understanding of, you know what our best performing products. What's the trend with products, where our margins actually at the other piece of it, It was owned by a brother and sister. They were the children of the founder. Business has been around since the 70s and we got a good sense from spending time with them and some of their key employees that, you know, they were really reticent to spend the money necessary to invest in the infrastructure, invest in the systems to be able to expand the business. So when we bought it, it was pretty much exclusively Washington and Oregon where they serve to customers. And so, we felt There's the ability to implement an Erp system to make it so that we could potentially scale the geography that we we serviced the challenges when we were first looking at it. They had historically been kind of the sole distributor and their market for a certain product line that they had and call it six months. Six to 12 months, before we got introduced to it, a very large competitor in the industry. Is also granted the territories that they had. And so, we knew that there was going to be competitive Dynamics. We knew that there would probably be margin compression given that they wouldn't be the only distributor, and then market. So it would be a more competitive process and selling to these fire departments. But we felt like there was the ability to ultimately grow, you know, the gross margin side of things by expanding the territory. Even if the current territory was going to have some Margin compression. And we really liked the, the sister wanted to transition out, the brother wanted to stick around and continue to run the sales side of things, he ultimately became CEO that business for us. And so, we've been able to, you know, there's it hasn't been all up until the right, but we've been able to transform that business, since we've owned it, we've got an Erp that runs the business. Now we've got, you know, so Software tools that we've built. That make the sales, people's lives a lot easier and we've been able to utilize those systems to be able to go from just selling in Washington and Oregon to being in nine of the western states with our sales team and product. So that one that one worked out, you know, I think a lot of like when we put together our package to go out to investors on. Hey, here's what we think. The growth opportunities are we've been able to execute And most of those, which doesn't always happen. But yeah that one's that one's worked out pretty Speaker 2 well for this incredible and it kind of helped me understand a little bit. What you're what you were looking at. Now, I do know the acquisition getting to, that goal line is really only the beginning when you acquire. Then it's actually about scale and really implementing it. So obviously do a lot of underwriting. We could dive into that a little bit further, but I really want to talk a little bit about once you acquire it, Justin, you and your team. You guys have incredible team of, I mean, Years of experience from CFO to another individual. That's been in the private Equity World working with black stone. So, a lot of big players on your team attraction, which is really incredible. But Justin when you're looking at let's again, let's just take see western or whatever. Where, you know, when you're looking at that company, there's obviously the marking the sales, the operations, the system's, the process is the execution, the growth trajectory, a lot of private Equity very well known for, you know, putting up piling on a lot of debt leveraging. That debt and really obviously maximizing it. That's their growth. Since your growth strategies tremendously different, you have a longer time Horizon, which is awesome. It's a, you can build a better structured business, some in the Silicon Valley structure, they always think, grow at all cost. And I think your approach and I want to obviously just make sure you correct me if I'm wrong, your approaches grow at a consistent Pace more than grow at a consistent grow at all cost. Is that correct? Justin in regards to that strategy. Speaker 1 Yeah, I mean we want to we want to do more than just top-line growth, we want to drive free, cash flow growth. And so, you know, a big part of our job is understanding, where do we actually generate margin and the business and, you know, is their products that maybe the team feels like a really high margin. Just got feel on it. That isn't actually driving the margin that we thought. So we do want to grow but it's definitely you know, how do we grow profitably and we kind of internally Target 5 to 10% a year. Organic growth within the existing portfolio. We've we've certainly had periods of time where it's or businesses have done way more than that and that helps you build helps you improve your systems because everything breaks when you go through a ton of growth Our, our swag business, grew, 50% in 2020 and you know, I wouldn't say every system broke but a lot of a lot of things broke and had to be rebuilt and had to refocus on. Okay, what is this system? Look like if we grow 50% again, if the business is twice the size, does this process that we have actually work going forwards? And so yeah, I mean, I think you try and understand the business as best you can during diligence and then once you actually own it you actually start to understand what the business does and what it actually does. And the Dynamics of each business, we talked about buying the company's the easy part. What? Once you own it, the actual hard work starts. Speaker 2 So let's talk about that because and you mentioned this and I want to kind of loop Back around on it, obviously, skeletons in the closet right? There are. Certain when you acquire company, maybe might be six, maybe 12 months down the road, all of a sudden, maybe retention, maybe some employees decide to leave whatever. Like there's something happens, some sort of skeletons in the closet and its really a matter of. How do you pivot? How do you adapt? And obviously at the macro economy right now we're you know, fighting potential recession, few years back, we were fighting against covid, right? There's always something happening, right? So it's really a matter of navigating these portfolio companies in uncertain times, which is all the time. So Justin when you're, when you're navigating that, how do you guys look at that? What do you guys do? Obviously, you mentioned, you really want to streamline the business increase that margin? It's not really about the top-line growth. It is part of that but by increasing the cash flow, obviously you're able to you know, kind of compound that effect and growth. So help me understand how you navigate that and maybe a certain circumstances or situation or story. Just, you could share with our audience where you did have a skeleton in the closet. It shown itself a like, okay, well this is what we have to do and it was just kind of run with the punches. Speaker 1 Yeah, I mean I think there's always certain things that you find out after you buy it that maybe we're different than what you, you know, we're led to understand or believe about the business before you bought it. You know, one of the bigger challenges that we had early on with our Paving business was an employee Exodus after we bought the business. and, The difference in culture from what we understood about the business, the day before we closed versus, you know, being there the day after you bought, it was very different. And so we know myself and one of my partners are there, you know, six in the morning, the crew is getting ready to go out to the jobs for the day and, you know, we're meeting everybody for the first time, you know, some of the Please, this is when they're just now finding out that the business sold, which there's, there's a lot of nervousness and sometimes you know, resentment when companies find out that the business is sold and you know what that business? It was Apparent from that first morning. Hey we're going to have some challenges on the people side of things and we had some really key employees that that quit, you know, within a week. Week after we bought the business and kind of just got to roll up your sleeves. And okay, this is our new reality like We got to figure out a solvent. So yeah, there's always there's always Speaker 2 challenges. How did you solve it? How did you solve it? If you don't want me asking Justin, Speaker 1 It took a long time. Yeah, it took a long time, we've been able to, you know, recruit and bring in some great people to the team. And I would say we go on that business for a little over a year and a half. It probably took us a year to work through a lot of that. And even now, you know, we're still bringing great people on to the team and trying to get better there, but it's it's tough to change a culture in. Our Market, it's been tough to find really skilled leaders on the paving side of things that want to work in a non-union business. You lose a lot of employees to the union side of things because of the perceived benefits of going that route. Which You know, whether that act is true in reality, I questioned that. But yeah, we've had a lot of people turning over in that business. I think we've finally gotten to a place where you feel really good about the team that's there and are excited about the opportunities with that business going forward. But it's yeah, it's a challenge and there's no like, Silver Bullet. It's easy to say, oh yeah, we'll recruit somebody. Okay, sure. You might be able to do that but it's, I mean those people like key leaders are not just walking around looking for jobs, they're not knocking on your door saying, hey, I would love to come work with you and I'm really good at what I'm doing. So it was, it was, it was a challenging that acquisition as well as during this time line. What were the positives? And the negatives that you learn from it. That obviously, you're going to apply By those boundaries or systems, or thoughts to the next next acquisition that may be in the same same industry. Yeah, you got it. I mean as best as you can you got to try and meet, you know as many people within the business as you can. And sometimes odor owners are really hesitant to let people in that they want to sell, which we totally understand. We push really hard to be able to meet folks, and that usually happens right at the end of the process. When everybody's, you know, hey, this is going to close. So, it's one of the last things that we do as part of our diligence process is get to spend some I'm with people other than the owner and part of that is you've got to build up the trust and the relationship with the seller so that he feels really comfortable about bringing you in as an outside. Third party, that's now going to be owning and ultimately responsible for what happens with this business. So, yeah, meeting the team trying to get a much better understanding of what the culture is. Is, and that's, that's really hard to figure out, you know, you try and have folks talk to competitors. You try and have folks talk to customers without giving away. Hey, we're looking at by in this business. So there's, there's firms out there that will help you with that kind of industry, research and customer research, that can be done in a way that doesn't give away that the business that you're talking about is is for sale. and you start to, I mean, You start to get a feel for it. Once you've done a number of these deals, you can start to get a sense for ok. Like The owners saying this we We Trust and Believe like him like you can get a sense for some people like you ask certain questions and they shy away from it, you like bullets. We need to highlight that in our notes so that we remember to Circle back and try and get a better understanding there, but some of it comes down to just experience. You had to go through a number of these. And we still I mean I would say we, you know, we're trying to improve our process every time we do a deal and we certainly don't like we're definitely not perfect. We definitely still make A lot of mistakes and sometimes some rookie mistakes. But yeah, you try and get better and improve your process every time you go through Speaker 2 it. Yeah. I appreciate the humility and the transparency that you shared because I have someone else that was on my podcast and he said he almost the exact same thing. In regards to navigating, we talked about all the underwriting of the metrics in the kpis and all the, you know, the financial side of things. And then we looked at the culture and we didn't really do too much or maybe it was like we didn't navigate that property the way we should have and so appreciate. But obviously you learn and you That and that's, that's just awesome. Just into to see the evolution. I want to ask this because I've seen I've talked to every private Equity. They all have different ways to approach their portfolio company. And what I mean by the obviously you have a very Hands-On approach. But how so, how much as in the operations the systems of processes? Would you like to normally find a team and that obviously is really good at that industry, almost like that Warren Buffett approach where hey they've already got the team established. They already know the ins and outs of that the you know, ins and outs of that business. Business. And then basically you're the whole Co and you take more of a passive role, but you're the one that's able to help them facilitate, maybe different ways of thinking about the Business Etcetera, or do you guys take very active position. It sounds like you take a very active position. Even when hiring or firing in your in your portfolio. What is your? What is your approach? I would say it's in the process of evolving. I think early on when we bought our second business, our third, and our fourth, and started to have more than just one or two in the portfolio. I think we thought initially and we we executed on this initially of hey we want to try and centralize some of these things and in our mind, a lot of it on the Finance and Accounting side. The insurance side, the benefit side Speaker 1 Said, hey, you know, we know these are paying points for these businesses. We felt like we could hire, you know, maybe a higher level of talent at the traction side of things, and split them amongst multiple companies to help. We're now pivoting back to a much more decentralized approach on that. So, we're in the process of recruiting controllers and CFOs across the portfolio. Outside of the Finance and Accounting side of things. You know, we all of us have been, you know, of the partners. All of us have been operators. All of us have worked in businesses. All of us have been responsible for payroll, and shipping products out the door and making sure the business of business actually happens. And so we're happy to roll up our sleeves. We are as quickly as possible trying to make it so we don't have to do anything, you know, day-to-day week-to-week in the business, we want to be a resource, you know, we want to help we'll help you know, find the accounting people. We don't want to do the accounting on the traction side, we will help bring people in. We feel really strongly that we can help you find the talent that you need. There you have some of it comes down. We don't want to be, we'll roll up our sleeves and we don't want to be the operators of these businesses. We're not experts in the industry. We are not staffed to deploy people into full-time positions and so it comes down to, you know, can we evaluate the team and some of that evaluation happens? You know, after we close we we bought a business where the owner said, hey I want to work for a year but that I want to be done. So we need to find somebody to come in and run it and And we said, hey, we agree like we're fine with you just working for 12 months, but we're not going to hire that person until we've owned the business for a few months so that we can actually have somebody from our team there. You know, almost every day, interacting with you interacting, with the team and coming up with. Hey, what do we think the person that's going to take your job? What are they actually need to be good at? What are their skills need to be? And so we've had some success with that of. Hey, let's will come in We'll spend a lot of time in the business, the first few months and then we'll help find that key person that you miss. So some of that evaluation happens after we buy the business. And yeah, I think that the ideal role for for us now is being a resource on problem-solving projects. Hey, I've got this issue. How should we try and solve it? We helped come up with incentive and compensation plans, for key employees, we've had with one of the businesses we just bought The owner came to us saying, Hey I want to make this key higher on the sales side of things. Here's his expectations for comp. How should we, how should we put that together? And so we help them think through and put together an offer letter that we think aligns, you know what we want to achieve in the outcomes that we want to have happen with that role. But also if that person was successful, gives them above and beyond kind of where their expectations were on the compensation side. You know, looking at add on Acquisitions, looking at different growth Avenues. We would love to help out with those things but I don't think we can be effective if somebody from our team is key to the operations going forward and I would say earlier on we were way more involved or trying to fully build out the teams so that we're not having to do that because that I don't think that scales. As we acquire more Speaker 2 businesses. And that's really cool, and you're in the evolution phase right now, and you're seeing that obviously building now and sustain those teams and the importance of those. And, and I appreciate can explain very much appreciate explaining. Very, so, when you would, let's, let's talk about this Justin, because there is this, like Talent acquisition plus obviously, the product in the R&D and so forth, and all that fun stuff to really build it out. And you guys want to be in that CEO role, where it's more that Visionary, where we growing it. And there's obviously different phases of that. Let's talk about it. When you Acquire a company. I would imagine right off the bat, you're looking at the numbers, okay. Hey, we can Implement an accounting software. We can go ahead and get rid of some people. We can hire better acquisition taking, oh, kind of really increase those margins and then like phase two is, okay. Hey, are we going to grow through? You know, she'll be more money back into sales and adds to really be able to acquire more clients or grow through. Ma what is that look like that Evolution when you've actually acquired it. What are those stages and I'm talking and let's picture out a portfolio company that you require 5 10, 15 years. How does traction cap you guys? Look at that, in regards to that, length of the company. I would imagine there are certain key apis are certain metrics that you're looking. And I'm not talking just in a 12-month, I'm talking over a five seven year period. As hey, this is our Phase 1, we get that dialed in Phase 2, boom. We get that dialed in Phase 3 and then go from there. Just lay that out for me. Justin. Speaker 1 Yeah, I think there's a couple different stages in their, yeah. You know, we would, we want to be, you know, the board of advisors. We want to be a resource. We want to have great CEOs, that are responsible for that business, that, you know, own everything that happens with that business. And we want to be, you know, an external resource, that can help with whatever challenges they're having can help them look at acquisitions. We want to really get to a point where our job is hiring. Great leaders sometimes having to fire leaders, unfortunately, setting kind of incentive and comp plans for our CEOs and then Capital, allocation, where we going to buy more companies, where are we re investing in the businesses that we do own on, whether it's capex or Ma? And so, you know, we think the first call it, Six to 18 months, once we buy a business theirs. Not a lot of things were really going to try and change in a in a meaningful way. Outside of probably the accounting side of things and the accounting side needs to change largely just because we've got to get it to Gap. You've got to get a team there that can actually, you know, accurately report, the financials monthly. And that may mean different things at different businesses. Some of the ones we acquire, they've got a great teacher. Team, does it by Gap? They know how to do it. They may just need. Hey, like, the expectation is not 30 days on close, it might be 15 days. So how do we change some of the process to make that happen but to really understand the business? It's tough to start going after a lot of those growth drivers in our opinion with these small businesses until you owned it for at least six months because there's so many things that break. There's so many things you have to navigate through once you actually own the I apologize. I'm kind of Meandering on your question, you know, we, we feel like traction itself is a start-up like our business is four and a half years old and in some cases where buying businesses that have been around since the 70s. And so, on the one hand, we have these businesses that have a very long history, very deep culture, tons of Industry experience, and that have got traction. That's four and a half years old. That's Seven people and we're still very much trying to figure out like, how does traction work, what are we actually doing? So it's it's I don't know how to accurately communicate, that piece of it. But we are very much in the early stage with what we're trying to do. We are still trying to figure it out. You know, I think one of your questions was the long-term growth piece of it, you know. Part of that. We want to be organic with the core business, that we're buying and then, you know, where it's appropriate, we want to do, you know, add on Acquisitions as well. One of the two, we just close this year, is a we call it an add-on. It's a bigger business than the one we already own, but we've owned Toni Lynn Paving for about a year and a half now. And we just bought a business Called Ground Up road construction, and we really like the collect infrastructure Services side of things, you know, when we look at Industries like we don't think roads and Paving are going away anytime soon. And I think that, you know, as we think about macro events, you know, spending for infrastructure, spending for roads highways, Tillett he's that's not going away. There's an increase on the government side of things to spend more money and those areas. And we think there's the ability to build a really big business and that space the our existing, Paving business, is truly just a Paving business. We do roads highways. Driveways parking lots airports. With the business, we bought is on the grinding and soil stabilization side of things. So, we think there's the ability to cross-sell and provide a broader Suite of services to a lot of our existing customers. On both, on both sides of things, you know what the restoration business. We bought, we knew going into it, that add on Acquisitions. Would be a big part of the growth strategy there. And we've got a, you know, a CEO that we partnered with their who, Very driven and growth focused and is very entrepreneurial. He wants to go out to start. This new thing, build this new thing, and then build the team that makes it keep going so that he can get on to the next kind of growth initiative. So, you know, we've only we've owned that business for see it's April 6th, two and a half months. You know, we've been out multiple site visits for add on Acquisitions already, we've got an IO eye out on an add-on for that business. And so that one, we think add on Acquisitions are going to be a huge part of the business that business had really good operating systems already. We have to clean up some things on the accounting side of things, but not anything major. So, you know, we felt a lot better about coming in and trying to grow drive a lot of growth initiatives early on because they had a lot of the systems and team already in place that they needed. So it really it really depends on the business with see, Western, we knew long-term growth was going to be, how do we expand the geography that we cover and how do we add to our product line with swag off-road? Its hey, how do we continue to develop new products to person to this channel? Because we got a very loyal Compassionate customer base. And so we need to figure out what other products do. They want? What other products do they want to buy from us? That we can push out to the market. So it's a little bit different for for each business. And it's that's that's part of the fun of. It is understanding the business that you now own the industry that you're now a part of and figuring out what works best for business, on the growth side of things. And what are they appropriate? Things that go Speaker 2 after. I appreciate just that your humility you know obviously you see traction capital is still navigating the waters but it's so interesting that you say that it's been four years but you've been able to acquire, you know, Top Line almost you know, 70 80 90 100 Million dollar portfolio, which is very impressive. So that growth is is quite impressive. So, even though you're, you're humble, I just want to reiterate that. You guys have been able to establish incredible team already, but also I do acknowledge where it's it is. So contextual that's why it is these these these conversations these dialogues. It's very interesting. That's why I wanted to learn how, you know, you and Justin and traction Capital you guys look at these businesses and obviously playing chess if you will and putting the puzzle. The pieces of the puzzle together to say okay. Hey this is where we're at. With this company and there's alignment in your portfolio companies. In there can be upsells and even within acquiring other companies that maybe like, you mentioned on upsells. What else do these customers want? What else do they want to? How can we serve them more? And you just mention even see Western which is a really good example of what other, what other products. So we can increase that LTV of the customer so which is really, really incredible. I want to ask you, you said you gravitate a little bit toward, you know, Cyril, you know Services, which I definitely understand. However, though, on that point I would imagine there's a lot of capital expenditures, a lot of equipment that is needed to, you know? So that's obviously the margins than our kind of light. Unless I'm mistaken unless you see something different, you see more of hey you know what, we know this is a good mode moat because again it's doesn't matter what industry. If it goes up or down, people are going to be still needing to buy this because it's constructional. So is that how you look? Cat it or because I would imagine like I just mentioned, you know, it is very, you know, you got a lot of equipment, a lot of assets but it's it's very capital expenditure on the front end. So how do you how do you, how do you think through that process just specifically and the in both those Acquisitions that you mentioned? Speaker 1 For sure, capex is definitely a big part of those businesses you know with the with the first one, we bought Toni Lynn, Paving we we knew that going in, you know, one of the things that was great about that business you know at least for the first year and a half, two years of owning it the, the owner had spent a lot of money in the two preceding years to us, buying it on new equipment. And so we in our Do we felt like hey outside of maybe some lighter duty trucks, there's probably not going to be a ton of major capex for the first year or two in the business and that's proved out so far. With the add-on acquisition, did we we worked with the owners a lot on the front end when before we even had the LOI sign of hey, you know, we can see that you guys are spending, you know, X percent of even data every year on capex. So when we think about valuation for that business, we're going to be looking at ebitda less cap X as the number that we're working off of. And it took, you know, a lot of conversations, but they intuitively knew as the owners. Yeah, that's right. Like we see on paper that we made X, Y, and Z, but really, we're spending a big chunk of that. Every year on, you know, whether it's growth or maintenance, we can do that, we're spending x amount per year on the capex side of things. So it's definitely something you have to plan for, you know, we assumed 20 to 25% of the data is going to have to be plowed back into capex for that business, some of its growth, some of its maintenance. And so yeah. I mean that's that's definitely our most capital-intensive business that we have I think you have to try and price your excuse me here, you know your work appropriately, so you're still making margin, you know, on top of that. But yeah, they can still be they can still be great great businesses. They're very, they're not the traditional like hey this is what a search fund is looking for like it's not all reoccurring Revenue, it's a lot of contracts. It some even construction which makes most Until he ran away. We we feel like if you price the business of like appropriately when you buy it, those can be great. And plan for the lump, like you're going to have in construction businesses, you're going to have huge years, you're going to really lean years. Like, so if you can buy it, appropriately of structured, appropriately, I would buy those businesses all day Speaker 2 long. I appreciate that, I appreciate. Yeah, because I'm not too familiar with the construction side. So I just wanted to ask you that because I do know like it is very, you know, Capital intensive but the way you look at it is you're doing your underwriting and then as well as your And he's kind of bringing that into context, so you're anticipating that which is, which is really good. I appreciate kind of emphasizing that just I I really like you being on our podcast but I want to ask you before. I let you go fully and being able to understand, you've obviously been able to acquire Incredible Hulk of 66 Acquisitions in a very short period of time in retrospect and now that you've been able to acquire some of the, you know, money and revenue and so forth and you're getting some things. How do you guys like to allocate that? At Capitol. And what I mean, is new acquisition, new portfolio, in a new Venture, new business or putting that money back into certain companies, really helping them grow and scale, you know, and restructuring it or obviously, you know, sitting out to dividends with LPS. How do you guys look at that in regards to when you guys do have that, that that cash flow where to allocate that and the capital allocation aspect of Speaker 1 it? Yeah, I know we, I mean, we we definitely evaluate, you know, within the business that's generating, the cash, you know, where are there opportunities to deploy that to generate, you know, a return on that investment Capital. We with how we structure our investment. There are distributions that we pay out to LPS as a percentage of their Equity that are in the deal, you know? Again, we're four and a half years in, so it's not like there's been major distributions that have happened for shareholders. There's been some, which is great, but we really want to do as much as we can, keep the free cash flow inside of either, the business or inside of traction to be able to go by whether it's new equipment. Go by add on Acquisitions or bring it up to the traction level and deploy to go. New portfolio companies for us. And we talked earlier about the compounding side of things, we want to keep as much of that cash as we can. So that we can go by the next thing that we want to own for the next 10, 20 years. So it's again, it varies business-to-business, you know, you have the, do we go buy something, do we buy more equipment? Do we pay down debt faster? You know it's a balancing act and it's a discussion within each each business for sure, for Speaker 2 sure. Yeah, I'm always curious. I you know everybody you know when you have the money it's like now where do I allocate it accordingly? You know, do we? Because the compound in fact I think that's why Warren Buffett, a lot of people don't understand, he doesn't pay out dividends in any of that. That's why he's just keep gambling money and money and money, even for his shareholders, and so forth. So that same same structure, you want to keep most of it in house, so then of course you can allocate, and obviously, you do. Some sum payout to LPS and so forth. But depending upon each, yeah, we we, yeah, we do distribute, you know, some out in excess of whatever tax distributions have to happen. But yeah, we want to compare and we want to put that money back to work, you know, to generate returns for us, in our help ease. Speaker 1 And again, we're four and a half years in like, we, you say, things like 80 million and like, I hear that and I know that we've done that. But I'm also like, well, we're like, we're four and a half years at like, we've barely just gotten started. Like we haven't even gone through a full life cycle on on anything yet and I tell people all the time like we'll find out if we're actually any good in 5 to 10 years from now. Like the most part we've been investing in an economy that's been up into the right. There's been some blips along the way, but, you know, we'll find out if we're actually any good in 5 to 10 Speaker 2 years. Jess, I love it. I love a man. And obviously got a good team as well for those that want to reach out to you and be part of what you got going on. Learn a little bit more about traction capital a little bit about you and the team and what you guys got going on. How do they reach out to you? My man. Yeah, I'm active on Twitter as a, you know, Irene consume a lot on Twitter. I'm not a Content producer on Twitter but I'm on their, send me a DM. I think my emails on our website, shoot, me an email, always happy to chat. I've had a lot of people that early in my career were tremendously helpful and you know, being willing to spend 30 minutes with the young guy that was trying to figure it out and even Speaker 1 You know, today, there's companies that are way further ahead of us that, you know, are kind enough to let me ask them some questions so we can try and learn and get better. So happy to pay that forward to other folks that have questions or trying to figure out how to buy a business. Trying to figure out how to buy multiple businesses. Yeah. Want to want to be helpful to those that are trying to navigate this entrepreneurship through acquisition hold code search fund private Speaker 2 Matisse, awesome, awesome, guys. Those links are in the description of put all of his Twitter, his email, his website, and is linked in down there. So you guys can take a look and I would highly recommend connecting with them. I'll put his website because they get all their portfolio companies on there as well, so you can get an idea of kind of his thesis in lineman and where it is. Obviously we talked a lot about it today. Just again, I really appreciate being on here. Just sharing your knowledge. I really appreciate your humility, obviously. You've done very, very incredible things. I know you keep saying, just for years, but I am a standard. Bye in four years. How much you've been able to acquire and really scale up to the right. And but I want to ask you. You've done very well for yourself this far. You have a large large trajectory where you going? What if you think about that, young, Justin that, you know, to to now the Justin you are. Now, what insecurities did you have to overcome to become the successful? Justin Turner that you are now today? Speaker 1 That's a great question. Well one I appreciate you having me on this. Been a lot of fun. You know, I think early on in my career. You know, I was I was young and I also looked really young and, you know, there was times when I was on the investment banking side of things where, you know, we'd be in board meetings with CEOs and owners of these businesses and the CEOs wouldn't flat-out be like, why is this, why is this kid in this meeting? And I felt from early on in my career like I have to be the most prepared. I've Me the most knowledgeable person in that room so that you can't hold anything against me even though I'm young and so early on in my career, I worked really hard for that to be the case. I wanted to be able to add value to the conversation, add value to the businesses that we were working with even though I was really young and really inexperienced. So I'd say that put a little chip on my shoulder and I think the other piece I was I've always been, you know, somewhat entrepreneurial starting businesses when I was in high school, starting businesses, when I was in college and traction, I think is that, you know, scratches some of that entrepreneurial itch. For me it's something that we started from nothing and now get the opportunity to work with a lot of amazing leaders across the portfolio and hopefully more down the road. So it's been a lot of fun. I I'm amazed, you know, every time we sit down with a new entrepreneur here and their story of how they were good at making something good at servicing, something or building something. And, you know, for them, it was, hey, I think I can make more money, starting something on my own than working for somebody else and I'm Amazed by just the amazing entrepreneurs that are out there building businesses that You've never even heard of the employee 100 people and it's awesome to hear their stories. So it's been it's been a lot of fun. I've been super fortunate, for sure. Speaker 2 It's been very eye-opening to be on the Forefront of that and and seeing all the fun fun creative things. And it's unbelievable. How many some of these businesses make you know, top line revenue of you know, eight figures like I've never even heard of you, this is incredible. So that's awesome. Justin and obviously the instant he had overcome to become the Justin Turner. You are guys, that is the managing partner at traction. Capital my friend, Justin Turner as that Journey with Krishna was podcast until next time, be uncommon if you can. Capital my friend, Justin Turner as that Journey with Krishna was podcast until next time, be uncommon if you can.