Where Are They Now? A Conversation with Nick Wheeler 

Welcome to Think Big Buy Small, a podcast from Harvard Business School of that entrepreneurship through acquisition. We're your hosts, Royce Yudkov, and Rick Rubach. We last spoke with season one guest, Nick Wheeler, in June of 2024, when he was only a few months into his new role as president of Traycow, an accredited calibration lab that calibrates, repairs, cells, and leases test and measurement equipment. At the time, he was, as he said, drinking from a fire hose. We're going to check in with him today to see how things have gone over these past 14 months. Nick, we last spoke when you had just acquired your company and you were in the midst of both learning it and running it. And so, what more perfect searchers CEO could we find than someone who is now more than a year into owning the business to find out what's changed since those early days? Well, I'm sure we'll get into the details, but a year makes a huge difference. We're in a much better place than when I last spoke with you both. Just by happenstance, I was talking to another researcher who has a firm with a dozen and a half employees and they've lost a few since transition. And I remember from our first discussion, when you bought the company, you had nine employees and two of them were abducted by aliens or otherwise let go or quit within the first couple months. So when we talked to you, your workforce was down to seven. What's the workforce now? Yes. So, did not anticipate having the turnover I had coming in, granted no one's quit. These are all my calls to terminate some of the people that were here of the nine that I inherited only four remain. Wow. But I've added headcount, particularly in our lab, by more than double the technician headcount. I've built out a sales team. We have two really great young sales managers working for me now that effectively are doing probably 95% of what the prior owner was doing. We had some really difficult growing pains in the first year. It was clear that we did not have the right people on the bus. The biggest risk was the small headcount and the dependence upon the owner in this business and you have to learn everyone's job and turn a lot of folks over, it was difficult. But sitting where I'm at right now is absolutely the right move and I'm in a much better place today and how this business operates and it's frankly no longer dependent upon me. I really am not too involved in the day to day in the week stuff like the owner was. Tell us about how you replace the people and how you were able to grow because people talk about a real difficulty of hiring quality people. Did you have to pay more than people had been paid previously or go for a different kind of person? Well, both. There's a lot of operating expenses that you will inherit as you try to grow this business and scale it. So that is hiring the right people and so I have certainly brought on people at a higher pay than what the prior owner was paying people. I've wrote out healthcare for all my employees 401k but by doing that I've been able to attract much better talent, went over some phenomenal technicians from large competitors of mine. So it was a short term expense for sure and we wrote a little bit of a j curve but we're in a much better place for it. But you obviously have to be very deliberate about knowing who the right people are to let go of and what you need to bring on and oftentimes that doesn't become apparent until you've been operating for a few months. Was there something different about what the prior owner expected from people or how he interacted with them that caused him to retain these people but when you came in to run the business many of them were not a fit? When you pay people very low rates and you're having them do professional work, account management, customer service marketing, you're paying for what you get. That was very much what I inherited in our back office employees. My lab manager was truly the critical kind of MVP in my business. I've kept him, he's been great and kept all the technicians that we've grown that out. And then I think the other thing searchers have is kind of a superpower is your ability to attract really phenomenal talent that otherwise would not want to come work in one of these small businesses. If they're talented they probably have better options at a big company with better benefits and so on and so forth. But as a searcher with a new vision and energy you can attract people who want to join a growing company and have the opportunity to learn and grow with that company. We've definitely been able to do that here and that's probably the best thing I've been able to do in running this business is bring on people that are great and better than me at the task that they're doing. Getting back at the NICWILAR CEO in the first 90 days and the NICWILAR CEO now what's changed about the way you do your job, what's the difference? The first 90 days I was in learning mode right I had to ask questions I was learning everything the prior owner was doing which was almost everything but the actual technical service that we do. And I just inserted myself in every single micro process within this business so that I knew everyone's role as much as I possibly could in the short period of time. With the exception of I didn't learn how to become a calibration technician I've learned enough about their jobs to kind of understand it but thankfully I did not need to do that. But it made it clear to me pretty quickly while roles I needed to hire for what processes I needed to build out so that I could get myself out of the day to day and really build a true business. And I'd say we accomplished that within the first year. I could take the week off and the business would run just fine without me. I enjoy my weekends now much more oriented on growth both organic growth and pursuing M&A that keeps me busy but a lot of the tasks that I do I don't need to be in the office for so it's a much better balance now for sure but I can assure you the first two months that was not the case I was involved in everything. So what was the hardest thing to get off your plate? I think the pricing and quoting which the owner still did all of that. So I've hired two sales managers one handles are equipment sales which is pretty consultative and it takes a lot of time to put those quotes together and then he actually recruited one of his friends and I wasn't planning to hire this role originally but he's my account manager and he handles all of the calibration customers and all of the quoting and pricing for that which is really time consuming we weren't doing a great job of that beforehand because the owner was so inundated that he couldn't keep up with the customer. So now we have this really great customer service where they have a dedicated person that answers all the questions and can get them a quote quickly. So I handed it off after about five or six months but learning that because a lot of it was in the seller's head was very difficult. So I had to learn it first document it, systematize it and teach it to the guy I brought on and when I did that my time opened up immensely it was the best hire I could have made in the first year. Do you have daily emergencies or no? Not too many thankfully. When I came into the business I felt like there was always emergencies but it was self-inflicted. If I had an HVAC or plumbing or truly field service business where I had a fleet of guys out every day I think there would be more emergencies but we do onsite work so our emergencies are relatively few and far between, there's not many fires for me to put out anymore. I bought a highly technically nuanced business but the business model itself is actually quite simple because most of the work either comes to my lab, we pick it up or get shipped here or we might have a technician but they're on site for a day or two and we're not managing a fleet so it makes life a little easier for me. Rick and I hear from a number of searchers who take over companies that the first few months are so difficult in part because they don't yet know what's important and their hours are long and they're constantly under stress to get things done and over time they get a clear beat on what really matters and therefore they can narrow their focus. As you look back on your journey, is there truth to that? Yeah, you learn over time what's important. There's some things that are kind of smoldering fires and you just have to walk by them and know that you'll get to them eventually and then there's the actual dumpster fire that you know needs to be put out sooner than the others and that's where kind of the judgment comes in as an entrepreneur. For me, obviously personnel is super important, making sure you have the right people focusing on how you're collecting cash early on. I spent a lot of time on that because our day sales outstanding were crazy high when I did the QAV and financial due diligence. So I spent the first few months with my lab administrator, she sends out all the invoices and I physically did them with her to see how we do it, where we're sending it and why it was taking so long and what I found was it was mostly on RN, you know, we'd send it to the wrong place or we didn't have our accounting online so we made it more difficult to pay. So I focused on a few things early on that were more important and then I kind of figured out the stuff that's less important and I think a lot of people struggle with that and there's still things like that need improvement, right? Nothing's ever perfect in any business, just focusing on the few that are highest priority highest value. It's critical that you just spend your time on that and that's a judgment column what those things are. Nick, as you reflect on the work you've had to do over the last year in particular, you know, what you've done that's really contributed to the success of the business, what advice would you give prospective searchers on the kind of skills that are going to be most important to success in running the small business that you acquire. And maybe I could just remind you of what you told Rick and me a little over a year ago when we talked about a similar subject, which is that a few months in, you felt like leading a team of people was the most important. important skill, the ability to sort of step in and get people to perform under your supervision. You're now a little over year in. What do you think? What would you advise a prospective researcher are the skills that are most valuable? Yeah, it's still say leadership number one, because your success is predicated upon your ability to win trust and rapport, and that's so important in these companies where you're coming in as an outsider. It's probably even harder when you buy a bigger business in many respects because you have to win over, maybe 30 or 40 employees, and you have to influence mid-level management. Your ability to lead people and build trust and influence them is the number one thing. I'd say the second is selling, and not necessarily just in the traditional sense of how to sell a potential customer, but selling your employees or your potential employees. So for me, the big bottleneck to growth is recruiting technicians, selling the business and your vision to potential employees is a really important skill. Perhaps a close third would be this is probably more music to your year's financial management. It's nearly impossible to make data informed decisions when you don't have good accounting and good financial management. I would say that's the third skill that's required in running one of these small businesses. My question related to that is what is it that you wish you knew when you closed that you know now? Thankfully, we did not get anything majorly wrong with our due diligence. All of the risk I identified in my PPM turned out to be the right rest to identify, but I wish I knew just how difficult it is to grow a highly recurring B2B service business organically, which we've grown quite a bit this year, but it takes a lot of effort. If you're enjoying sticky, recurring revenue throughout your customers, there's a likelihood that your competitors have that same dynamic. And it's a relatively small tam. There's a finite group of customers for whom we're a critical service. So if we've tripled the capacity in my lab over the last nine months, now we're looking to really grow and bring on more major accounts on the way of the capacity for it. And that's proven to be a challenge. We're growing pretty significantly this year, but to continue that, I'm going to have to really be creative about building relationships and figuring out how to get in front of the right people. Yeah, if I had learned how to do B2B, recurring revenue sales and a service business before this, that probably would have been a helpful thing to have a background in. What I'm finding is it's just consistently doing the little things right every day and that's across the whole business. It's continuing to follow up and getting quotes back quickly, setting up an outbound B2B email campaign, improving your SEO, putting in a newsletter, figuring out what your customers really care about and what they want. I mean, it's just little things and you keep chipping away and chipping away. We've had some really big wins this year. While keeping all of our top 25 customers, I still have that I inherited with the business. Yeah, you don't win new business easily. You've got to really work for it. It's just generally a lot of little things done really well over and over and over again and then hiring people who can execute on that for you. So what I find really interesting about your answer is you have a background in the military, your green beret, you didn't spend time doing Excel models for an investment bank or a private equity firm. And one of the things I'm intrigued by is so many of our students say, well, I can't go out and do this. I need to get more experience. I need to learn something more. And many of those have had consulting or banking or private equity experience and yet they've still feel like they need to know more. You had none of that pre-business school experience. I know you went to an excellent business school and had outstanding faculty. But beyond that, you're the largely self-taught and you didn't feel like there was, I really wish I had another accounting course or I really wish I had some more Excel modeling. You figured that stuff out as you needed to. That's the crux of being an entrepreneur is you figure it out as you go. You're never going to be fully ready. And it's ultimately kind of a leap of faith in yourself to be able to figure things out when you come across roadblocks. There's still things that I'm figuring out will continue to figure it out as we grow. Your business looks fundamentally different as you go through different stages of growth and I'm going to have to figure out what running a bigger type of these businesses looks like or how do I do integration in M&A if I find another one of these labs that has similar characteristics. To me, that's the fun part. And what do you tell the veteran, the Army veteran who said, I just don't have any business experience so I can't do this. For veterans in particular, the financial management aspect is the area where we are typically most lacking. So for me, going to business school and taking my finance curriculum very seriously was really important for me. I mean, I don't think you need an MBA to learn that. But I don't think anyone should buy a business that doesn't understand the three financial statements and can't build a basic model. You know, this is not for the faint of heart. There's real risk involved. So I think you need a basic level of financial management. And for anyone from another background that doesn't feel like they have the proper training or prerequisites, well, learn those things to the best you can. But know that ultimately most people are good on this path are first time CEOs and anyone that's advanced in any sort of career field. You're always like a first time at whatever that job is. You're never really properly trained completely. A lot of it's on the job and it's a matter of can you figure it out when you get there. I think you just have to have the confidence in yourself and kind of thrive in that environment of uncertainty. Yeah, I think confidence is really a big deal. If you don't believe in yourself, it's hard to convince others to sell the vision to all that you encounter. I agree. And I think that very few people become a CEO who have had experience in every functional area that they're now responsible for. People usually come up through some functional area and therefore new to big parts of the CEO job. And that's one of the things I've loved the most about this is I get to dip my hands into all of those different areas, which I've learned an incredible amount doing that. On any given day, I could go from recruiting, which is an HR function to finance, to marketing, to sales, to operations. I love that. If you like to do a little bit of everything, that's what's cool about being a CEO and you learn so much while doing that. It's great. Are we going to let him ask a question? Sure. And so my question is, you know, you've seen hundreds at this point of search acquired deals invested in several. How much of the value do you think is created by the operator versus the quality of the business they buy in the way they structured it from the onset? Said differently, it's most of the value creation occurring before you even step in on day one. You know, it's really interesting, Nick. I spent a lot of my time, particularly in the middle of the night when I can't sleep thinking about the opposite question, which is when a business does poorly, is it because of bad luck, a bad industry, something we miss in due diligence or a bad operator? And I've never come to firm conclusion I can on any given day convinced myself any one of those stories are true. And usually when things go sideways, really great managers are able to pivot quickly and effectively and have executive control that's sufficient to overcome whatever that hurdle is. But I haven't fought that much on the flip side, which is when things go really well, is it because it's a great business or a great operator. Royce? Well, first of all, it's true. Rick not only thinks about this during the middle of the night, but he and I end up talking about this a lot. And it's a really complicated question, right? Because it's tough to tease apart. My opinion, after a lot of these discussions with Rick, is that the types of businesses that highly trained searchers like yourself and other graduates of our program buy are all businesses that are anywhere from pretty good to really good. And so we're dealing with the population of businesses that have quite a range, but are pretty good. And I've come to think that in that population, the different outcomes are due to the quality of the manager. And the way I've finally gotten there is I've tried to think back to businesses on day one that had challenges and businesses that have done really well and proven to be fine businesses. On those opening days, we couldn't tell, was that a really fine business, and the other were not a fine. They both kind of looked alike, but they performed differently. And the managers were different in our eyes. And I've just come to the conclusion that it's the manager when you're dealing with any business that's reasonably good and better. I also think there are some businesses that present unusual opportunities from technology or technological change or societal change that turn out to be really great. I'll give you an extreme example. There are some businesses that benefited enormously from COVID. For example, domestic property management businesses did great during COVID. I don't think you could have sat down and modeled that and say, "Well, you know, if we have a pandemic, we have this really big upside." Because it's like a such a unusual and hopefully once in a lifetime event. So I think there's luck involved. I also think that you could be in a situation like that and a manager choose not to make the decisions and allow them to capture the value that circumstances have created, right? So you need both. You need reasonable circumstances and a manager who's really willing to work hard and is creative and nimble enough to pivot. And I will just say there are some businesses that have key employees or seem to face HR challenges and those HR challenges become crippling over time. HR challenges, customer concentration challenges. Those are the kinds of things where I find people really struggle to get around. - I was curious to get your feedback on that. I was just having that conversation last week with another searcher. So there are definitely some businesses that I have friends that are running. It seems like they've gotta push a heavier rock up hill to make things work. It's usually non-recurring revenue businesses. - And remember what happens is the businesses don't line up so that you now have the six L-O-I's that are all signed and you can AB test and decide which ones the best for you. Come sequentially. And so sometimes people end up with businesses which are not the ones they wanted, but then it's that or no deal and they can make it work. - Makes sense. - Well Nick, we're really happy with this catch up because it's a wonderful story not only of how you went out and bought a really high quality business but then powered through the sort of initial learning phase and I've gotten it to a place where the business is more professional and successful and your life is CEO is better. It's kind of a nice model for people thinking about search to look at and see that it can be done. - Yes, well the story is still being written but so far so good it was challenging the first few months. I think that's the case for everyone but we've grown our recurring revenue more than I probably could have expected a hoath for this year and hopefully that will continue when its life's gotten a little bit easier and I would double click on the power of high quality and ideally recurring revenue when you buy one of these businesses. I think I underappreciated that when I would hear you guys talking about it but my business is a phenomenal case study in that we have a recurring revenue line of the business and a more sickness line of the business and the one that's cyclical in subject to economic swings which we've seen the first half of this year with kind of the economic uncertainty. That part of the business has not done well but we're all on track to double the recurring part of the business and in the critical nature of it we keep seeing the same customers of the same equipment coming in. So that grew within the first year as I was learning the business and it's growing significantly this year. So if you can find something with that right mix of revenue and hopefully recurring revenue it allows you to make mistakes and learn all the things you have to learn those first six months. So thank goodness I found one of those types of businesses. - Great news. - Nick Wheeler, thank you so much for joining Rick and me in this episode. - You're gonna do great 'cause you're a great manager and a great business. - Well thanks. (upbeat music) - That was such a great conversation with Nick. I so much enjoyed learning how his role and the business has evolved and how what seems so difficult and frustrating has become manageable and the challenges have become really strong opportunities and the initial problems are far behind him. It seems to have been a great evolution over that first year. It's just thrilling to see the success. And listeners, stay tuned for season three. It launches September 8th, it's gonna be a great season and we have some fascinating conversations. Our first episode of season three features Jeff Homer. Jeff has done a roll up of music schools in a very creative and interesting way that I think will intrigue you all. - You've been listening to Think Big by Small. We're your hosts Royce Yudkopf and Rick Rubak. Katie Zanbergen produced today's episode. - Craig McDonald is our audio engineer. - If you have any questions, comments, thoughts, feel free to just email us. Rick and Royce, all one word at hbs.edu. We'll be back next week with another episode of Think Big by Small. (upbeat music)