Private Equity Is Coming for Home Services | C. Suite Unfiltered 116

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Big news dropped this week that KKR is reportedly buying A1 garage doors from Tommy Mello and his partners.
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I really hope this doesn't turn into this...
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typical private equity story, which is they come along, the founder gets mad because they do stuff weird or different or they don't like it.
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If Tommy bounces and they have to replace leadership there, oh man, I could see being a little ticked off because private equity does come into markets, does flood the market with money.
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They can't undercut people.
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They do take the best talent.
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They do overspend on advertising.
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Almost all of them say they wake up the next day and nothing's changed, but they've lost their team.
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They've lost their mission.
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There's no dollar amount where I'd walk away from this.
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The mission's not done.
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That's where, like, getting bought out is, like, nothing.
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Like, not even a thought.
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It's not a thought to me.
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But, like, I would hate giving away control.
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I would never give away control, man.
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Not a chance.
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Welcome back.
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Another episode of the C-Suite Unfiltered with Mike Andes.
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Good morning, sir.
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How are we doing?
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Good, good.
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After I dashed your hopes of a great episode last week.
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Yeah, so YouTube changed their algorithm.
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So anybody who clicked on this video, that's a view now.
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If you're watching by now, you are an engaged viewer already.
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Yeah.
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Perfect.
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We love that.
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No drop off.
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We'll get straight into the content so we don't lose you today.
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You sent a very funny video to the leadership team just now.
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I'm just going to bring it up.
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I don't know if you're willing to let the team put it in because it was very, you know, behind the scenes, my candies moment.
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But it was basically you acting like a kid on Christmas looking at what I assume was an ad for an orange Homeworks Orange Corvette.
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Yes, so I'm add it was a local car.
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That's for sale.
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Okay.
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Just doing a price check I was just a price check kicking the tires I'm not even Digitally digitally digitally kicking the tires today.
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I know we've talked about cars before on the pod This isn't what I plan on talking about today.
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So that's like the car if you want to know No, I'm not tied to any car.
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I'm not a car guy
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I think the most, the wisest decision would get a Tesla that can do self-driving so I can work while I'm driving.
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But every Tesla looks the same.
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Fair.
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They're all the same.
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Even if you get the nicer versions of them.
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And so if I got a Tesla, I'd definitely get the cheapest one possible for $35,000 or whatever it is.
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Just so I can help self self-driving like hook me up that $99 amount subscription, pump it in, let's go.
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Um, that would be the wisest decision.
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And then the other side, I'm like, I want a second car that I can like take Brienne out with, you know, go roll around on Chuck not drive.
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But, um, that's probably a few years away.
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So.
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I instantly replied approved.
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Yes, do it.
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Like, go, go, go.
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That's all.
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Yeah, I will say, you know, sometimes I am the type of person.
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So don't don't yuck my yum.
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But I have a type of person.
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I have a type of person where I like to look at those like lofty goals of like, it would be fun to X.
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And then there's also like the what do you call it?
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The what's the word I'm looking for?
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Phil philanthropic side of me Oh yeah That's like oh I want to like donate and do this and that And then there's the selfish side of me The other day Nick and I were looking at Lotus You can like go to the factory in England And drive on their track And then you can order your car
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I was looking at that.
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Because Lotuses are basically a smaller version of a Corvette.
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They're just like a zippy or smaller version.
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Less top speed, but better like cornering and handling.
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The original Roadster was built on that.
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Yeah.
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I love Lotuses.
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And I'm not a car guy.
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I wish I was, but I know enough to be like, I'd like a Lotus over like an Audi or something.
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What's crazy about a Corvette, this is why I like a Corvette, I'll be honest, is because I don't feel bad about racking miles on it.
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Cheap it's relatively cheap.
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So a year old you can get under 60 grand 65 Yeah, and like a year old under 20,000 miles like you're in it brand new you need 80 to 90 but like it's crazy dude and it's a like one of the cheapest mid-engine cars and
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Yeah, that's the thing.
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The mid-engine is nice.
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We're getting into territory that I can't say anything beyond that.
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So let me just look.
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I'm going to see if I can find it.
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Now that I have the computer, I brought the computer.
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Did you put orange Corvette on top because there's one in Anacortes?
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Corvette for sale.
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I thought there's a red one.
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Anyways.
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Yeah.
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65.
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This is 65 grand for 2023.
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Only 11,000 miles.
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Yeah.
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2025 even.
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You can get it for 65, 70,000.
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Okay.
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Well, anyways, we got way off the rails there.
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So this is a business podcast.
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It's a variety show.
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Mostly business.
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But we're going to get into some topics now.
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Big news dropped this week.
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that KKR is reportedly buying A1 garage doors from Tommy Mello and his partners.
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And I know that you kind of personally know Tommy, he spoke at our conference, you've been on his podcast.
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So I wanted to just jump straight into that, get your take on it, talk about valuation, how they came up with that number, how Tommy got to that size, all the things.
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So do you view this, like initial reaction, do you view this as a positive signal for the home service industry, a negative signal, or basically kind of irrelevant for the average owner?
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I think it depends on what lens you want to see it through.
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I don't know.
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I think for myself, who's trying to go big as well, it's a very good thing.
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I think for people who feel that private equity ruins the world, they probably aren't a huge fan.
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If I was in the garage door industry, I would probably see this differently.
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I could see being a little ticked off because private equity does come into markets, does flood the market with money.
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They can't undercut people.
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They do take the best talent.
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They do overspend on advertising.
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And three years ago, another firm had bought a big chunk of the business.
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And so they used that.
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It was a growth round, meaning you take, I think it was 300 million.
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I forget.
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It was a lot of money.
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And they just started buying people out.
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And so when that happens, that does increase everyone's valuation typically when there's buying pressure in the market.
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So maybe as a garage door person, I'd be happy if I was big enough to where I'd actually be trying to sell.
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Yeah.
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When you have private equity moving, typically your valuation goes up because now everyone else is like, ooh, we have a multiple we can work with.
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And so when you set a precedent for a multiple, typically then other firms can start picking people off.
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And so good, bad, I'm indifferent.
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I think it's overall just shows that like home services, there's more attention moving towards it and has for the past five years because it's less disruptive than – less disruptible from AI.
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Yeah.
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And so I think that we're seeing, we're gonna continue seeing a lot of money pour into it.
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So we've been talking about this for ages.
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Like this is not new news.
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And like it happened three and a half years ago when Tommy came to conference, he was going to his first round and going to PE.
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And so we talked a little bit about like what that valuation was, et cetera.
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And so they obviously took all that money and then they just went on an absolute buying tear.
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So like if I had to guess, most of his day is just acquiring companies Enzo.
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So he's buying out independently owned and operated garage door businesses and then just converting them to A1.
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I believe they're doing a two-pronged approach.
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I haven't talked to him in the past couple of years, so I don't want to speak too much to it.
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But I believe it's both approaches.
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Grow heavily in new markets, but also buy out markets.
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They tried to go into Portland.
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It happened to not go well.
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And so I think they've really reverted to the...
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acquisition, go into a market, make sure you need to have some sort of a footprint and then expand.
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And they dump money.
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Like it's expensive.
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So if they're expanding in a new market, it's hub and spoke?
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I don't know how they do when they go to the market because I know they still fly out all their technicians to Phoenix for training.
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But typically, I think they move more towards you buy out a big guy in the local area and then they keep growing versus just start with A1 from day one.
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Man, that's not actually yes, yeah, but that's kind of catchy though.
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Well, it is that's what they say That's what they say.
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Okay, is the thing sorry.
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Okay, I didn't mean to use their slogan A1 from day one is their their deal, but all that say I think overall it's a good thing It just depends on whether whether you're in the industry if you think private equity is bad etc and KKR
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I don't know if I like them.
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They just put their track record, but we'll see.
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Yeah, and KKR is the major shareholder equity owner of Neighborly Brands, correct?
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Yeah.
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Yeah, okay.
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So anyways, now you had already mentioned, and I don't want to- But Tommy's staying.
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Right.
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And so from what I can see, he's staying and he's fully engaged, which can usually keep private equity at bay.
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It'll be interesting to see how long he can put up with them because he's not going to want to put up with a lot and he's a minority.
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Yeah.
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So yeah, so I do want to get into that the founder piece, but I want to take a quick pivot to something you said.
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And I'm not asking you to disclose any information if you had private conversations with Tommy or Tex or whatever.
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But we did know that, yeah, three and a half years ago, private equity had already invested into A1.
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does he get to a $2 billion valuation in that same timeline without private equity?
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Oh, I think that first round.
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Oh no, no.
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You would definitely, I don't think he would ever claim that private equity comes in.
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They don't use to use their money.
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They take their money and then they leverage it a bunch.
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So there's a ton of debt.
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And, but when you can go from 300 million to 2 billion in a few years, it's okay.
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Yeah.
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They're okay.
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Yeah.
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Yeah, I mean, I follow Tommy on socials.
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I love the fact he's got his custom build home in Sandpoint, Idaho, which is just like beautiful.
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His boat.
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Yeah, his custom boat.
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That thing's sick.
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So shout out to Tommy.
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Like, this isn't me.
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This is me not yucking his yum.
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Like, I want...
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I want successful business owners to make money.
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I think you put in the blood, sweat, tears, the whole nine, the ranks of riches story, whatever you want to call it.
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This isn't me knocking Tommy.
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This is me looking at the actual analytics of it.
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So from your perspective, what do you think A1 built that made it so attractive to KKR?
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Oh, well, based upon what we're seeing.
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It's about 23% to 25% EBITDA.
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Now, EBITDA, they have huge debt service, etc.
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But the business as itself is pretty profitable.
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I think very profitable.
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It's growing extremely fast because of the way that they're buying people out.
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And they've proven that that works over the past three years.
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And so once you have a model that is like, hey, if you dump more money in this, it can double or triple again.
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That's where it makes it really like valuable, like your multiple.
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So they got basically a 20x multiple.
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So about a 7x on revenue and a 20x on profit.
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And so definitely I'll be using that in our valuation this year when I go to the evaluators because it's like, okay, they do home service, but they're tech enabled.
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You know.
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Yeah, like the valuation came down to the fact that they're growing extremely fast and they're profitable.
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If you have those two things, like you're very valuable.
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And so most home service businesses might get a two to five multiple.
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But as you grow in size, just size alone, but then also showing that you're still profitable at a larger size, you just get great multiples.
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Mostly because...
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That money otherwise in the past would have always gone to software.
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And now, like, software is so disrupted, and it's going to just get harder and harder to differentiate versus home services, where it's like, until we get robots, even then.
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Something like as custom as repairing your garage door, it's a long ways away.
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One thing that I thought was interesting, and I'd love to know your perspective, and this could be pure speculation, so I'll just put the asterisk there up front, is I thought it was interesting because A1 isn't necessarily recurring-based.
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They do, from what I understand, they work with a lot of contractors for new builds, which is great.
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So that's kind of almost an element of recurring.
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If it's like, hey, this contractor is building a 40-home unit.
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expansion, suburban expansion.
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So you just locked in 40 garage doors, right?
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If you have a relationship with them, but that's not recurring.
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That's like the 40 garage doors.
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And so I thought that was interesting that it's more one-time services where you're heavily focused on recurring.
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And we see a lot of massive valuations or multiples when there is that locked in element of recurring.
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So what are your thoughts on how they did that?
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So well, is it the relationships they built?
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Is it the fact that a garage door is just a ideal ticket size?
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Like, what are your thoughts on that?
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00:12:49.886 --> 00:12:51.788
I think they know their customer acquisition costs very well.
227
00:12:52.328 --> 00:12:57.873
And so if you know your customer acquisition costs, it's basically occurring because, you know, every time you put that much money in, you get a customer.
228
00:12:58.534 --> 00:13:08.343
And so the nice thing about garage doors is like you have your spring, summer of people wanting to do home improvements, but you also have winter when things break.
229
00:13:09.132 --> 00:13:10.333
And so because it gets cold.
230
00:13:11.093 --> 00:13:14.056
And if your garage door is not working, you're going to get it fixed.
231
00:13:14.276 --> 00:13:20.420
It's kind of like HVAC to a certain degree of like you're not going to let your house go cold or 105 degrees inside.
232
00:13:20.440 --> 00:13:21.461
Like you're going to get it fixed.
233
00:13:22.021 --> 00:13:23.823
So there's a level of urgency there.
234
00:13:24.003 --> 00:13:29.047
I think that is different than something like, oh, like, you know, I can need pressure washing.
235
00:13:29.087 --> 00:13:32.429
Yeah, but I could also do it next week or the week after that or in three months from now.
236
00:13:32.829 --> 00:13:37.393
Pressure washing is one of those things that typically it's like it's discretionary to some degree or I can push it off.
237
00:13:37.813 --> 00:13:40.014
Because you're not pushing off your garage door getting fixed.
238
00:13:40.734 --> 00:13:42.455
So they know their customer-recording cost.
239
00:13:42.575 --> 00:13:43.916
There's urgency around the fix.
240
00:13:44.576 --> 00:13:52.581
And then the other thing is what happens to that, though, when a recession happens?
241
00:13:53.321 --> 00:13:55.962
I think the repairs will continue to go.
242
00:13:55.982 --> 00:13:57.163
They can do both.
243
00:13:57.423 --> 00:13:59.024
They're doing repairs and they're doing installation.
244
00:14:00.004 --> 00:14:02.026
And so I see repairs as basically maintenance.
245
00:14:02.506 --> 00:14:05.268
I see that as recurring to some degree, whether it's every few years.
246
00:14:05.308 --> 00:14:06.709
They can sell subscriptions.
247
00:14:07.690 --> 00:14:11.073
They get them back in the house to do the warranties, and they're trying to sell more stuff.
248
00:14:11.653 --> 00:14:13.034
So that's very strong.
249
00:14:13.174 --> 00:14:14.816
That's like basically recurring revenue.
250
00:14:15.636 --> 00:14:19.760
And then the repair side – or sorry, the replacement side, like the high-ticket stuff –
251
00:14:20.659 --> 00:14:21.679
Would that get hurt in a recession?
252
00:14:21.699 --> 00:14:22.519
Yeah, it probably would.
253
00:14:23.060 --> 00:14:28.281
But as long as you know your customer action costs and you know that that's dependable, you'll have resiliency.
254
00:14:28.621 --> 00:14:28.821
Yeah.
255
00:14:29.201 --> 00:14:32.022
And I think there's enough of a technical element as well.
256
00:14:32.482 --> 00:14:38.743
So even if you are in a recession or there is economic downturn, like the average homeowner doesn't know how to replace their garage.
257
00:14:39.183 --> 00:14:41.604
Slash, they don't have the manpower to do it.
258
00:14:41.624 --> 00:14:42.644
Like it's a two-person job.
259
00:14:43.245 --> 00:14:46.688
It becomes, though, like, do you spend the money in a recession on your garage door?
260
00:14:46.768 --> 00:14:47.469
That's the question.
261
00:14:47.509 --> 00:14:48.570
Not whether or not you can do it.
262
00:14:48.950 --> 00:14:51.773
It's like, do most people need to replace your garage door?
263
00:14:51.953 --> 00:14:52.253
No.
264
00:14:52.874 --> 00:14:53.554
It's a remodel.
265
00:14:53.895 --> 00:14:58.659
And one of the things he always said that's such a good line is, like, the garage door is the smile to your house.
266
00:14:59.400 --> 00:15:00.541
It's like it's the first thing you see.
267
00:15:00.561 --> 00:15:01.461
It's such a big part.
268
00:15:01.601 --> 00:15:05.143
It's like relatively cheap compared to like doing the whole facade of your front of your house.
269
00:15:05.423 --> 00:15:08.224
Like the garage door, you do see it right away and it's big.
270
00:15:08.624 --> 00:15:11.505
And so if you're doing a remodel, it's a great place to start.
271
00:15:11.525 --> 00:15:15.787
Like if you're changing out from like a cheap one to like one with the glass in it or something like that.
272
00:15:16.668 --> 00:15:20.709
The question becomes, do you do that when you have less discretionary funds during a recession?
273
00:15:21.850 --> 00:15:22.330
Probably not.
274
00:15:22.650 --> 00:15:26.992
But I know they focus a lot also on repairs and maintenance and warranties and things like that.
275
00:15:27.112 --> 00:15:30.174
Yeah, I had a garage door spring snap on me.
276
00:15:30.214 --> 00:15:30.634
Oh, you did?
277
00:15:30.734 --> 00:15:31.175
Yeah, yeah.
278
00:15:31.315 --> 00:15:32.315
Let's go.
279
00:15:32.576 --> 00:15:38.659
And so I went to a local place, a hardware store that does garage doors out in Linden.
280
00:15:39.220 --> 00:15:41.561
And I was like, yeah, can I just order the springs?
281
00:15:41.581 --> 00:15:44.003
They were like, you realize how much torque is loaded in those springs?
282
00:15:44.103 --> 00:15:45.684
I was like, yeah, I know there's a lot.
283
00:15:45.704 --> 00:15:47.905
They were like, you shouldn't do it yourself.
284
00:15:47.945 --> 00:15:48.986
They instantly sold me.
285
00:15:49.006 --> 00:15:51.107
They were like, you could break your arm if you don't do it right.
286
00:15:51.187 --> 00:15:52.328
I was like, all right, you guys can do it.
287
00:15:52.608 --> 00:15:53.808
I was like, I don't care.
288
00:15:53.868 --> 00:15:54.869
That's a great sales pitch.
289
00:15:55.169 --> 00:15:57.909
Like I was like, I don't need to save the like 150 bucks on labor.
290
00:15:58.049 --> 00:15:59.209
I'll just pay you guys to do it.
291
00:15:59.509 --> 00:16:01.130
And they fixed it like an hour, which is great.
292
00:16:01.430 --> 00:16:03.670
But anyways, that's besides the point.
293
00:16:03.690 --> 00:16:06.491
So yeah, I would use that service if A1 was here.
294
00:16:07.671 --> 00:16:13.872
If a smaller operator was trying to say copy A1 in any home service, like what would you say?
295
00:16:13.932 --> 00:16:15.253
Like they did this right?
296
00:16:15.393 --> 00:16:16.613
Like follow that playbook.
297
00:16:18.970 --> 00:16:22.492
I don't think copying anyone is a wise move at that level.
298
00:16:22.732 --> 00:16:25.733
It's like saying I want to become like LeBron James.
299
00:16:25.993 --> 00:16:29.214
It's like, okay, well, first off, I would be disqualified.
300
00:16:29.714 --> 00:16:31.395
Like there are certain elements that are like,
301
00:16:32.450 --> 00:16:34.793
If you're trying to copy someone, you can use elements of what they have done.
302
00:16:35.113 --> 00:16:38.037
Certain playbooks, for example, to use what you just said.
303
00:16:38.417 --> 00:16:42.622
I think trying to copy someone is very dangerous, though, because you don't have all the ingredients they have.
304
00:16:43.363 --> 00:16:49.030
And it's not to say that you can't acquire the skills, but, like, Tommy's a special person, and also, like...
305
00:16:49.931 --> 00:16:53.512
There's so many things that go right for some, that kind of outcome to happen.
306
00:16:53.832 --> 00:16:57.473
And it's like the top 0.1, like 0.001%.
307
00:16:57.913 --> 00:17:04.515
And so to think that you're going to have that, I just, the reason I say this is because people have said that I'm going to build a $2 billion business and then they build a million dollar business.
308
00:17:04.555 --> 00:17:09.596
I feel like they're a loser or like they somehow are less than, or they don't have the skills or whatever.
309
00:17:10.136 --> 00:17:16.978
And I just want to make sure like not everyone needs to build a $2 billion business because it can hurt people psychologically and mentally and,
310
00:17:17.258 --> 00:17:17.879
All these other things.
311
00:17:18.359 --> 00:17:23.085
I think in terms of playbooks, some of the things that he has done, he has not...
312
00:17:23.826 --> 00:17:24.086
He is...
313
00:17:25.248 --> 00:17:25.428
Uh...
314
00:17:27.047 --> 00:17:30.109
He's not been afraid to swing very big and take huge risks.
315
00:17:30.709 --> 00:17:35.593
And so when you take private equity on for a growth round, like everyone always talks about the second dip.
316
00:17:35.993 --> 00:17:41.917
And Jonathan talked about this recently in the podcast, which is like you get private equity, you go really fast with them and you sell again.
317
00:17:41.937 --> 00:17:46.860
And then your second dip is basically more than your first dip, even though you only own a small chunk of the business.
318
00:17:47.180 --> 00:17:51.082
But because they 10x the multiple, even though you own half of it, you got to fight.
319
00:17:51.103 --> 00:17:53.184
Like you can make more money in the second dip.
320
00:17:53.924 --> 00:17:54.585
And that's what he did.
321
00:17:55.785 --> 00:18:03.129
The reason is, though, because he took a huge risk, which is you get the growth money from that round, and then you just double down.
322
00:18:03.589 --> 00:18:16.536
Most people do not have the intestinal fortitude that he has had over the past three years to do all these acquisitions, just be moving at such a high rate that it feels very risky, and he pulled it off really well.
323
00:18:16.957 --> 00:18:22.620
And so I think I would say most people will not swing as big or think as big or take as big a risk as he has.
324
00:18:23.865 --> 00:18:33.548
Yeah, it reminds me of a slide that you show at New Owner Training for Augusta, and I won't get into the numbers, but you say, hey, if you reinvested 60% of your profits into marketing.
325
00:18:33.888 --> 00:18:34.048
40.
326
00:18:34.088 --> 00:18:35.128
Is it 40?
327
00:18:35.248 --> 00:18:35.589
Is it 40?
328
00:18:35.649 --> 00:18:36.329
It might be 60.
329
00:18:36.389 --> 00:18:37.269
It might be 60.
330
00:18:37.309 --> 00:18:37.969
You might be right.
331
00:18:37.989 --> 00:18:38.349
40, 60.
332
00:18:38.369 --> 00:18:40.270
Either way, clearly we know what we're doing.
333
00:18:41.131 --> 00:18:41.972
I think it's 60.
334
00:18:42.652 --> 00:18:52.142
If you invested 60% of your profit back into marketing, and there's a lot of assumptions, but I'm just trying to use it as an example, you get to this one specific slide and you go, and this is when people stop investing in their business.
335
00:18:52.863 --> 00:19:00.331
And if you just did this one thing, assuming all these other variables, and we're not saying best case scenario, you like get this huge multiple.
336
00:19:00.511 --> 00:19:02.412
Like you effectively double the business at that point.
337
00:19:02.713 --> 00:19:05.254
But most people don't do it because like, oh, I got a little bit of profit.
338
00:19:05.575 --> 00:19:06.575
I need to stack that cash.
339
00:19:06.615 --> 00:19:07.396
It's not a bad thing.
340
00:19:07.496 --> 00:19:08.897
That's what we talk about with our owners at Augusta.
341
00:19:08.917 --> 00:19:11.659
It's like sometimes you need to pause and stack cash and like pay down that.
342
00:19:11.679 --> 00:19:12.680
Or they go buy that Corvette.
343
00:19:12.900 --> 00:19:13.981
Or they go buy that Corvette.
344
00:19:14.161 --> 00:19:21.706
And so to your point, what you're saying is like Tommy did that example you give a new owner training, which is like this is the point where you can double down or not.
345
00:19:21.926 --> 00:19:24.108
If you double down, this is what's on the other side.
346
00:19:24.228 --> 00:19:24.388
Yeah.
347
00:19:24.608 --> 00:19:25.549
It's going to be a lot of pain.
348
00:19:25.589 --> 00:19:28.212
It's going to be a lot of work, but you can get to that other side.
349
00:19:28.312 --> 00:19:29.954
If you don't double down, that's fine.
350
00:19:30.055 --> 00:19:31.036
It's just going to take longer.
351
00:19:31.316 --> 00:19:34.460
And you're saying like Tommy had that just tenacity to just like double down.
352
00:19:34.820 --> 00:19:38.104
And like when he had the money, it wasn't a it wasn't a payday.
353
00:19:38.405 --> 00:19:43.591
It was almost like he treated it as if it wasn't a payday, which I think is important.
354
00:19:43.791 --> 00:19:45.512
Yeah, which will be interesting to see if he can do that again.
355
00:19:45.532 --> 00:19:46.492
I hope he can.
356
00:19:47.212 --> 00:19:55.696
Um, it's just, he's going to have a very small part of the business and he's up with KKR, which is a very different beast than the other partners he's with.
357
00:19:56.076 --> 00:20:00.197
So I really hope they can work well together, but it'll be interesting in three to five years.
358
00:20:00.717 --> 00:20:09.621
I really hope this doesn't turn into this typical private equity story, which is they come along, the founder gets mad because they do stuff weird or different, or they don't like it.
359
00:20:10.141 --> 00:20:12.662
If Tommy bounces and they have to replace leadership there.
360
00:20:15.884 --> 00:20:17.565
It could be a really bad story in 3-5.
361
00:20:17.625 --> 00:20:18.546
I hope that doesn't happen.
362
00:20:18.846 --> 00:20:20.288
I hope Tommy can...
363
00:20:20.668 --> 00:20:21.709
He has worked with...
364
00:20:21.729 --> 00:20:23.550
The good thing about this is it's his second round.
365
00:20:23.850 --> 00:20:25.131
He has worked with Private Equity before.
366
00:20:25.312 --> 00:20:26.553
So I feel like he has the stomach for it.
367
00:20:26.593 --> 00:20:27.453
He knows what to expect.
368
00:20:27.473 --> 00:20:28.534
He's not going to be surprised.
369
00:20:28.854 --> 00:20:29.955
And he knows the playbook.
370
00:20:30.456 --> 00:20:33.158
So I'm really hoping... And it's based on everything I've seen.
371
00:20:33.218 --> 00:20:34.639
That's where it will go.
372
00:20:35.099 --> 00:20:37.341
I just hope and pray it doesn't go the way of Neighborly.
373
00:20:37.721 --> 00:20:39.183
Which is like everyone left...
374
00:20:39.903 --> 00:20:41.644
It's a shell of what it used to be before.
375
00:20:41.844 --> 00:20:42.825
No one's happy now.
376
00:20:43.225 --> 00:20:47.208
The brand is like, it'll be fine because it's making tens of millions of dollars.
377
00:20:48.049 --> 00:20:49.430
And so it has so much momentum.
378
00:20:49.450 --> 00:20:51.611
It'll continue carrying on for 10, 20 years.
379
00:20:52.292 --> 00:20:53.913
But it's a shell of what it used to be.
380
00:20:54.393 --> 00:20:56.194
Does he have a pretty established leadership team?
381
00:20:56.374 --> 00:20:56.635
Do you know?
382
00:20:56.675 --> 00:20:56.815
Yeah.
383
00:20:56.835 --> 00:20:57.055
Oh, yeah.
384
00:20:57.275 --> 00:20:57.515
Yeah.
385
00:20:57.555 --> 00:20:57.755
Very.
386
00:20:57.835 --> 00:20:59.316
Like people that have been with him for a long time.
387
00:20:59.456 --> 00:21:01.678
And that typically the founder leaves, though, they all leave.
388
00:21:01.698 --> 00:21:02.438
That's what happened with.
389
00:21:02.659 --> 00:21:02.799
Yeah.
390
00:21:02.859 --> 00:21:04.200
It happens a lot of private equity.
391
00:21:04.220 --> 00:21:04.380
Yeah.
392
00:21:04.760 --> 00:21:04.920
Yeah.
393
00:21:05.241 --> 00:21:12.647
So that was going to be one of my questions because you said in quote, like Tom's a special guy, which I agree with my very brief interaction I got to have with him at your conference.
394
00:21:13.708 --> 00:21:22.295
In a deal like this, do you think and not specifically KKR, but just like private equity firm in general, do you think they want the founder to stay deeply involved?
395
00:21:22.436 --> 00:21:27.440
Do you think they want them to transition out or do they want them to just become more of like a figurehead?
396
00:21:28.032 --> 00:21:29.012
It just depends on the private equity.
397
00:21:29.032 --> 00:21:30.453
Every private equity firm is different.
398
00:21:30.913 --> 00:21:35.994
And so I've looked heavily at KKR because they have Neighborly.
399
00:21:36.515 --> 00:21:39.956
And so I've looked at all their portfolio, all the different deals.
400
00:21:39.996 --> 00:21:42.777
I've looked at where their founders come in when they exit.
401
00:21:43.277 --> 00:21:44.157
It is a mixed bag.
402
00:21:44.677 --> 00:21:47.238
So I'm hoping we fall on the positive side.
403
00:21:47.258 --> 00:21:50.219
Yeah, perfect.
404
00:21:50.579 --> 00:21:54.363
Well, let's pivot from that specifically to more private equity.
405
00:21:54.383 --> 00:21:55.124
Okay.
406
00:21:55.384 --> 00:21:57.406
Because last week at the time of recording here.
407
00:21:57.426 --> 00:21:57.686
Oh, sorry.
408
00:21:57.706 --> 00:21:58.447
I have to say one thing.
409
00:21:58.467 --> 00:21:59.028
You're good.
410
00:21:59.048 --> 00:22:04.273
There's a, so I haven't done the mastermind yet today, but I opened up the day to see how many questions were in the first one there.
411
00:22:04.293 --> 00:22:04.654
It was there.
412
00:22:04.674 --> 00:22:07.176
It was like, dude, just take private equity.
413
00:22:07.196 --> 00:22:08.678
Just make the money and leave.
414
00:22:09.078 --> 00:22:09.719
That's what it was.
415
00:22:10.179 --> 00:22:10.680
He's like, oh.
416
00:22:10.760 --> 00:22:11.981
I was like, oh my goodness.
417
00:22:12.441 --> 00:22:13.622
I just don't think I could take it.
418
00:22:13.682 --> 00:22:15.603
Like this is where I respect Tommy a lot.
419
00:22:15.843 --> 00:22:19.505
He's able, he's threaded the needle with private equity where he's able to work with them.
420
00:22:19.845 --> 00:22:24.608
Most founders can't and I don't blame them because they have a different playbook.
421
00:22:25.149 --> 00:22:26.850
And so I could never handle it.
422
00:22:27.230 --> 00:22:30.292
And I would venture to believe that if I left, you'd probably leave too.
423
00:22:31.192 --> 00:22:32.853
Um, I'd stick around.
424
00:22:32.893 --> 00:22:34.955
I think it depends on the conditions under which you left.
425
00:22:35.475 --> 00:22:37.096
I think I would stick around if it were
426
00:22:39.188 --> 00:22:42.972
If there was a way for us to control the culture that we currently have and it wasn't specifically.
427
00:22:43.332 --> 00:22:43.592
All right.
428
00:22:43.612 --> 00:22:45.994
We are maximizing profit and we're going to squeeze it out of the owners.
429
00:22:46.014 --> 00:22:46.235
Yeah.
430
00:22:46.275 --> 00:22:49.037
That's why I would go on command center fees tripled.
431
00:22:49.097 --> 00:22:49.758
Yeah.
432
00:22:49.778 --> 00:22:53.781
Like if I left because of those things, like all the teams like we're out.
433
00:22:53.821 --> 00:22:54.042
Yeah.
434
00:22:54.162 --> 00:22:54.722
Yeah.
435
00:22:54.762 --> 00:22:55.423
No, I agree with you.
436
00:22:55.583 --> 00:22:59.405
So that's where I would, that's my concern and my hope that does not happen.
437
00:22:59.765 --> 00:23:01.986
I have hope though, because they have done a previous round.
438
00:23:02.126 --> 00:23:09.790
Real quick, if you are watching this episode and you have a million plus dollar home service business, I'd love to invite you to join Home Service Boardroom.
439
00:23:10.210 --> 00:23:14.432
These are topics that I'm talking about with Lee when it comes to private equity, all of them just on enterprise value.
440
00:23:14.652 --> 00:23:20.597
And the reason that Tommy was able to build a $2 billion business is because of the systems, the procedures, the people that he put in place.
441
00:23:20.977 --> 00:23:24.560
And that's the exact topics that we discuss inside Home Service Boardroom.
442
00:23:24.900 --> 00:23:36.729
In fact, course number three that you do in the third month actually talks about how to come up with your enterprise value and then work on both your earnings and your multiple to ensure that you also are building an actual business that's worth something.
443
00:23:37.029 --> 00:23:37.790
So go check it out.
444
00:23:38.090 --> 00:23:38.931
Link is down in the description.
445
00:23:39.431 --> 00:23:40.952
I'd stick around if they give me your job.
446
00:23:41.112 --> 00:23:42.753
Just kidding.
447
00:23:43.053 --> 00:23:43.854
Don't quote that.
448
00:23:44.134 --> 00:23:44.874
I don't want it.
449
00:23:44.894 --> 00:23:46.915
I would be a great private.
450
00:23:46.935 --> 00:23:48.156
Heavy lays the crown.
451
00:23:48.416 --> 00:23:49.577
Heavy lays the crown.
452
00:23:49.617 --> 00:23:50.557
Don't want it.
453
00:23:50.817 --> 00:23:51.458
Never been there.
454
00:23:51.838 --> 00:23:53.179
The owners in Augusta are freaking out.
455
00:23:53.199 --> 00:23:54.039
They're like, please no.
456
00:23:54.059 --> 00:23:54.639
No.
457
00:23:58.021 --> 00:23:59.002
A lot of thoughts there.
458
00:23:59.302 --> 00:23:59.782
Okay.
459
00:23:59.862 --> 00:24:01.883
So I don't know.
460
00:24:01.924 --> 00:24:04.905
I guess maybe I almost want to zoom in on that instead of pivoting to what I had prepared.
461
00:24:04.925 --> 00:24:05.806
That's why I had the computer.
462
00:24:06.226 --> 00:24:08.688
It's like, is there a number for my candies?
463
00:24:08.748 --> 00:24:12.570
Or is it like the goal is so clear that the path to the IPO is there.
464
00:24:12.630 --> 00:24:14.351
Like, I don't need private equity.
465
00:24:14.731 --> 00:24:15.572
I can hold my breath.
466
00:24:16.032 --> 00:24:20.115
Dude, everyone goes for this IPO or like goes for like the big number.
467
00:24:20.595 --> 00:24:33.725
But they like everyone you talk to that has done this before, almost all of them say they wake up the next day and nothing's changed, but they've lost their team, they've lost their mission, they know what to do, they just have to go find where to put the money they just got in the bank account.
468
00:24:34.045 --> 00:24:35.566
Like how unfun is that?
469
00:24:35.726 --> 00:24:35.926
Yeah.
470
00:24:36.767 --> 00:24:41.370
Like there's nothing, there's no dollar amount where I would walk away from this.
471
00:24:43.111 --> 00:24:45.333
And like it just, like the mission's not done.
472
00:24:46.097 --> 00:24:46.297
Yeah.
473
00:24:47.278 --> 00:24:47.538
Fair.
474
00:24:48.318 --> 00:24:49.939
I just, I think it's hilarious.
475
00:24:50.439 --> 00:24:54.882
I think there's such a small group of people that have actually done a successful exit with, like, a big number like Tommy.
476
00:24:55.542 --> 00:24:56.643
There's such a small number of people.
477
00:24:56.743 --> 00:25:01.326
However, you talk to them, and 90% of them say, like, it didn't change anything about the way they spent money.
478
00:25:01.966 --> 00:25:03.827
It didn't change anything about their lifestyle.
479
00:25:04.347 --> 00:25:06.889
They just woke up the next day and were like, okay, so now what?
480
00:25:07.509 --> 00:25:10.251
I don't have the team that I've been working on with for decades.
481
00:25:10.271 --> 00:25:10.931
Yeah.
482
00:25:11.131 --> 00:25:12.692
they all have to stay with the other company.
483
00:25:12.772 --> 00:25:15.533
In fact, I have to make sure they stay with the other companies.
484
00:25:15.553 --> 00:25:17.194
So I have to like incentivize them.
485
00:25:17.214 --> 00:25:19.295
I have to tell them everything's going to be okay.
486
00:25:19.555 --> 00:25:23.937
Like, and then I don't have this mission that I've been driving for for so long.
487
00:25:24.217 --> 00:25:26.598
And to go restart something from something else, like, oh, let's start something off.
488
00:25:26.698 --> 00:25:27.038
Okay, great.
489
00:25:27.678 --> 00:25:33.000
You've now got to spend all the energy to get up to the same level of momentum that your current business has.
490
00:25:33.461 --> 00:25:36.602
And so five years, 10 years go by to get back up to that spot.
491
00:25:37.042 --> 00:25:38.763
What if you would just stay with the existing business?
492
00:25:39.611 --> 00:25:43.032
And so I will be thinking about this a lot in five years or so.
493
00:25:43.052 --> 00:25:53.557
And that is like, how can I make this where I can, the business can serve me enough to where I don't feel like there's any monetary change that happens if I was a sellout.
494
00:25:54.397 --> 00:25:59.920
Because you usually, if you're going to have, like Tommy's lifestyle is not going to change from last week to next week.
495
00:26:01.260 --> 00:26:02.021
It's the same.
496
00:26:02.661 --> 00:26:11.545
And so there's a certain level of money, unless you're trying to live very lavishly, that you don't need extra money to have the lifestyle you want.
497
00:26:12.005 --> 00:26:13.546
And so my goal is to eventually get there.
498
00:26:13.926 --> 00:26:16.388
That's why the Corvette would be, you know, I'm just saying.
499
00:26:17.268 --> 00:26:20.410
So the day you pull out the Corvette, it's like, all right, we're good.
500
00:26:20.430 --> 00:26:21.191
It's a way to lock in.
501
00:26:21.211 --> 00:26:22.592
Like, I've thought about this a lot.
502
00:26:22.792 --> 00:26:24.413
Taking half days on Friday.
503
00:26:24.593 --> 00:26:25.954
It's not coming into the office.
504
00:26:26.134 --> 00:26:28.035
No, like, that's the opposite for me.
505
00:26:28.075 --> 00:26:29.976
I want to be here so bad.
506
00:26:29.996 --> 00:26:34.099
So I think it's like, how can I create the lifestyle where I never want to?
507
00:26:34.820 --> 00:26:36.781
The temptation to sell out is never there.
508
00:26:37.241 --> 00:26:39.763
And I think where some people, they starve themselves too long.
509
00:26:40.203 --> 00:26:43.045
And then it's like, okay, I've just got to, like, I've just got to camp.
510
00:26:43.989 --> 00:26:44.570
I'm just so done.
511
00:26:44.590 --> 00:26:45.291
I need liquidity.
512
00:26:45.831 --> 00:26:51.258
And so I've thought a lot about like, how much money do I need to make sure that I can keep my head in the game forever?
513
00:26:51.318 --> 00:26:57.546
And I never have that desire of like, I'm just so beat up and so wore out and it's not worth the squeeze and I just need a set.
514
00:26:57.646 --> 00:27:01.150
Because that gets tempting when you're getting calls from private equity.
515
00:27:01.170 --> 00:27:01.331
Yeah.
516
00:27:01.771 --> 00:27:05.095
So you said, okay, there is a dollar amount.
517
00:27:05.135 --> 00:27:06.757
The money I need is what you said.
518
00:27:07.297 --> 00:27:10.781
That the money I need is there, that it is a non-factor, essentially.
519
00:27:11.041 --> 00:27:12.182
Have you reached that point?
520
00:27:12.403 --> 00:27:15.306
Like, do you have enough in, and I don't want to get too personal.
521
00:27:15.326 --> 00:27:16.327
I don't have the Corvette.
522
00:27:16.347 --> 00:27:17.288
Yeah, you don't have the Corvette.
523
00:27:17.428 --> 00:27:22.374
But what I'm saying is like, do you have enough in like personal savings stocks, investment accounts?
524
00:27:22.655 --> 00:27:29.263
Like we don't have to go super far down that road, but just generally speaking, because I think too, like, you know, the iced coffee hour, they talk about that.
525
00:27:29.283 --> 00:27:33.688
Like Grant Graham Stephan, he always says like, I think if you can put away five million, you're good.
526
00:27:34.009 --> 00:27:36.372
I think that was actually a decent cadence impression there.
527
00:27:36.612 --> 00:27:39.176
I think if you can put away five million, you're good.
528
00:27:40.798 --> 00:27:42.481
But that's like his number.
529
00:27:42.761 --> 00:27:43.683
That's what he tells people.
530
00:27:43.703 --> 00:27:48.910
He's like, if you can just put that away and just put it into your stocks, your bonds, your REITs, whatever.
531
00:27:49.211 --> 00:27:51.675
He's like, you're good as long as you don't need to live lavishly.
532
00:27:52.215 --> 00:27:54.996
But then Jack, who's like, no, I want at least 10, 15 million.
533
00:27:55.036 --> 00:28:02.939
And then Dave Ramsey's like 1.5 to 2 if you stay, you know, if you keep a full time job, like you full time job plus 1.5 to 2.
534
00:28:03.239 --> 00:28:05.580
And this is me generalizing a lot of financial advice right now.
535
00:28:05.960 --> 00:28:09.422
But that's what I've seen is like anywhere between like 2 million to like 10 million.
536
00:28:09.702 --> 00:28:11.903
Most gurus say if you can have that invested, you're good.
537
00:28:12.243 --> 00:28:20.206
So not trying to get in like your personal finances, but you feel like there's a number where plus a Corvette, a number plus a Corvette where you're like, OK, like now I'm bulletproof.
538
00:28:20.686 --> 00:28:26.748
Like I have put enough in a safe savings and stocks and bonds that like I'm good.
539
00:28:27.789 --> 00:28:32.731
I think like psychologically I've passed the point where like if I lost everything, I know I could come back from it.
540
00:28:33.131 --> 00:28:34.331
I feel like I have enough skills.
541
00:28:34.871 --> 00:28:36.952
Like I've crossed that point of like, oh, I can lose it.
542
00:28:37.032 --> 00:28:39.593
I don't really have that anymore because I'm very confident.
543
00:28:39.613 --> 00:28:44.335
Like if it was all taken away tomorrow and something crazy happened, I feel like I could still provide for my family.
544
00:28:44.679 --> 00:28:46.120
But let me just interject there.
545
00:28:46.140 --> 00:28:48.082
You have a mortgage and you have a wife now.
546
00:28:48.162 --> 00:28:48.502
I don't.
547
00:28:49.703 --> 00:28:51.785
Oh, I didn't know that.
548
00:28:51.885 --> 00:28:52.205
Nice.
549
00:28:53.366 --> 00:28:56.148
So that's an asset that you could immediately liquidate.
550
00:28:56.388 --> 00:28:57.209
Almost immediately.
551
00:28:57.529 --> 00:28:58.370
If I had to, yeah.
552
00:28:58.390 --> 00:29:02.653
If you had, I'm just saying, like, if all the chips were down, like, if it all blew up tomorrow, hypothetically.
553
00:29:02.673 --> 00:29:03.714
Yeah, like this.
554
00:29:04.074 --> 00:29:04.434
Yeah.
555
00:29:04.534 --> 00:29:06.316
You always make sure there's guarding.
556
00:29:06.396 --> 00:29:07.437
I'm very conservative financially.
557
00:29:07.477 --> 00:29:08.658
Did you just come up with a cash offer?
558
00:29:08.678 --> 00:29:09.038
Yeah.
559
00:29:09.278 --> 00:29:10.799
Yeah, nice.
560
00:29:11.520 --> 00:29:13.061
Well, you know, someone buys a home.
561
00:29:13.081 --> 00:29:15.783
You're like, so work me through the details.
562
00:29:16.163 --> 00:29:16.744
That's exciting.
563
00:29:16.944 --> 00:29:17.404
Yeah, dude.
564
00:29:17.444 --> 00:29:19.606
I was and then they were trying to like negotiate up.
565
00:29:19.646 --> 00:29:21.267
I'm like, no, this is a cash offer.
566
00:29:21.347 --> 00:29:22.868
I know your other offer is a cash.
567
00:29:23.189 --> 00:29:26.211
And no, you just got burned by someone else leaving because they didn't get financing.
568
00:29:26.271 --> 00:29:29.213
So that's awesome.
569
00:29:29.533 --> 00:29:35.458
So so you're saying there isn't specifically a number because, you know, you have the skill set to like go do it again.
570
00:29:35.678 --> 00:29:37.082
You know, and it's all comparative.
571
00:29:37.102 --> 00:29:40.831
Like, I don't come, like, I came from always looking for every penny.
572
00:29:42.210 --> 00:30:06.027
eating out very much like i came from not a lot and like um brianna too like neither of our families had a lot of money or have a lot of money and so we are both like thrilled of our mind with our current status of living thrilled of our mind it's like if i just kept my current payroll i'd be we'd both be like thrilled out of our mind so once you've hit that level it's like okay would i be how much more happy would i be with the corvette
573
00:30:07.077 --> 00:30:11.541
Like once a week when I drive it, I'd be like marginally happy, but it doesn't move the needle.
574
00:30:11.721 --> 00:30:11.921
Yeah.
575
00:30:12.001 --> 00:30:17.446
Like we are so much happier now financially than like we've ever been in our life.
576
00:30:18.247 --> 00:30:23.652
And so like I, for example, getting the cold plunge, that was like a huge, huge, huge,
577
00:30:23.792 --> 00:30:26.214
Like for me, spending $3,000 is crazy.
578
00:30:26.354 --> 00:30:27.996
Like I am very conservative on that.
579
00:30:28.436 --> 00:30:30.117
But like I get a lot of joy out of that thing.
580
00:30:30.418 --> 00:30:31.398
I use it every day.
581
00:30:31.659 --> 00:30:32.820
I am so happy with it.
582
00:30:33.280 --> 00:30:36.483
And so trying to find those things is like very valuable to me right now.
583
00:30:36.623 --> 00:30:41.427
It's like where can I get $2,000 or $3,000 and get like this huge unlock of just happiness?
584
00:30:42.327 --> 00:30:44.089
Um, and there's not a lot of places like that.
585
00:30:44.349 --> 00:30:45.450
Like the next thing is a sauna.
586
00:30:45.690 --> 00:30:45.890
Yeah.
587
00:30:45.950 --> 00:30:46.851
I'm looking forward to it, dude.
588
00:30:46.891 --> 00:30:50.133
I need 10 grand to do a little like concrete thing in the back of the house.
589
00:30:50.593 --> 00:30:52.435
I want to build a fence cause it's not super private.
590
00:30:52.815 --> 00:30:54.856
And I want to get a really nice sauna from Costco.
591
00:30:54.876 --> 00:30:55.957
Nice.
592
00:30:56.037 --> 00:30:56.517
Yeah.
593
00:30:56.618 --> 00:30:59.620
It's the red light sauna or like a sauna sauna.
594
00:30:59.640 --> 00:31:00.080
Hot sauna.
595
00:31:00.220 --> 00:31:00.360
Yeah.
596
00:31:00.380 --> 00:31:01.081
Like a real one.
597
00:31:01.141 --> 00:31:01.941
I had the cheap one.
598
00:31:02.021 --> 00:31:02.962
It was $900.
599
00:31:03.162 --> 00:31:04.463
The one person thing in the corner.
600
00:31:04.623 --> 00:31:06.164
It took like 30 minutes to warm up.
601
00:31:06.184 --> 00:31:07.045
They only got to 135 degrees.
602
00:31:07.065 --> 00:31:07.665
I want to go like real.
603
00:31:07.685 --> 00:31:07.906
Yeah.
604
00:31:10.047 --> 00:31:11.848
Like that would be an unlock of happiness.
605
00:31:11.968 --> 00:31:15.949
I think, you know, when you actually start thinking, I can think of like one or two things.
606
00:31:15.969 --> 00:31:17.109
The next thing is like a mattress.
607
00:31:17.149 --> 00:31:19.570
I would like to get the cold thing, like the eight mattress thing.
608
00:31:19.850 --> 00:31:21.370
That's probably three or four grand.
609
00:31:21.390 --> 00:31:21.790
I don't know.
610
00:31:21.870 --> 00:31:22.310
Two grand.
611
00:31:22.330 --> 00:31:22.690
I don't know.
612
00:31:23.030 --> 00:31:25.631
Like that would be another, like I could really enjoy that.
613
00:31:26.171 --> 00:31:28.692
But there's not a lot of things like that in life for me personally.
614
00:31:29.032 --> 00:31:30.593
Like when you eat better food.
615
00:31:30.633 --> 00:31:31.793
No, we have whatever food we want.
616
00:31:31.893 --> 00:31:31.993
Yeah.
617
00:31:32.013 --> 00:31:32.153
Yeah.
618
00:31:32.473 --> 00:31:33.934
So like you don't have so much steak.
619
00:31:34.174 --> 00:31:35.174
Yeah.
620
00:31:35.694 --> 00:31:36.995
You can only buy so many cows.
621
00:31:37.035 --> 00:31:37.395
Yeah.
622
00:31:37.435 --> 00:31:39.136
So like we have already hit that point.
623
00:31:39.376 --> 00:31:41.577
And like realistically, I could afford the thing.
624
00:31:41.617 --> 00:31:42.998
Two things I just mentioned pretty easily.
625
00:31:43.058 --> 00:31:43.398
Right.
626
00:31:43.418 --> 00:31:45.199
Like it's not like it's a big deal.
627
00:31:45.519 --> 00:31:50.121
I don't think me having $2 billion tomorrow changed my life in any meaningful way from a happiness perspective.
628
00:31:50.461 --> 00:31:56.263
And so I get a lot more joy derived from seeing you, Nick, Lee, sorry, Liz.
629
00:31:56.684 --> 00:31:57.644
Those are all else now.
630
00:31:57.884 --> 00:32:06.926
So, and the other leadership team, other members of the team growing, members of Augusta Nation growing their business, that I get way more joy from that than getting a Corvette.
631
00:32:07.706 --> 00:32:08.066
And so.
632
00:32:08.687 --> 00:32:19.509
Yeah, I think it's interesting, I guess, let's maybe talk about the psyche of it because your net worth and what you take home versus mine is not even comparable, but I have- Our take home is relatively the same.
633
00:32:19.569 --> 00:32:20.049
Okay, fair.
634
00:32:23.010 --> 00:32:23.250
Fair.
635
00:32:23.270 --> 00:32:24.971
But- Now you're doing math.
636
00:32:25.011 --> 00:32:26.051
I am doing math in my head.
637
00:32:26.991 --> 00:32:31.214
But what I was going to say is like your thing, like I could buy that $10,000 sauna tomorrow.
638
00:32:31.334 --> 00:32:32.195
I could buy that.
639
00:32:32.976 --> 00:32:34.076
What was the other thing you said?
640
00:32:34.117 --> 00:32:34.757
The $3,000.
641
00:32:34.837 --> 00:32:35.638
Oh, the mattress.
642
00:32:35.658 --> 00:32:36.158
The mattress.
643
00:32:36.178 --> 00:32:36.859
Yeah, the mattress.
644
00:32:37.099 --> 00:32:37.839
You could buy this tomorrow.
645
00:32:38.340 --> 00:32:38.660
I could.
646
00:32:38.720 --> 00:32:40.521
This is going to be a horrible comparison.
647
00:32:40.782 --> 00:32:45.145
But I've been like mentally like I'm going to buy myself a new pair of Oakley sunglasses.
648
00:32:45.545 --> 00:32:47.226
Yeah, like I could go buy that to like 200 $300.
649
00:32:47.326 --> 00:32:53.468
It wouldn't it's I can say it's a drop in the bucket, but it's not a major purchase I have to consider and budget for at this point.
650
00:32:54.028 --> 00:32:55.769
But I haven't bought them for like two years.
651
00:32:55.789 --> 00:32:59.350
Like I just keep buying like cheap Amazon and Target glasses.
652
00:32:59.430 --> 00:33:03.192
And I think there's like this weird balance of like it won't it won't satisfy me.
653
00:33:03.532 --> 00:33:03.692
Yeah.
654
00:33:03.812 --> 00:33:07.435
Like it would be cool to have Oakley's because I always like idealized them.
655
00:33:07.455 --> 00:33:08.476
They're a cool brand.
656
00:33:08.697 --> 00:33:12.640
Like I do believe like the actual technology of the sunglasses is really good.
657
00:33:12.741 --> 00:33:14.502
If you actually do the research.
658
00:33:14.622 --> 00:33:15.403
I'm sure you have.
659
00:33:15.423 --> 00:33:17.385
If you do the research.
660
00:33:17.565 --> 00:33:19.447
But it just doesn't like scratch the itch.
661
00:33:19.747 --> 00:33:26.136
So I think what I'm trying to get at from a psychological perspective is not necessarily the like, let's get into like the feel good, love the work.
662
00:33:26.496 --> 00:33:28.018
But how do you keep yourself motivated?
663
00:33:28.038 --> 00:33:32.764
Because there are times where I'm like, I don't have that next thing that I'm like super motivated for.
664
00:33:32.824 --> 00:33:35.207
It's like, I just want to be like a good husband, a good father.
665
00:33:35.948 --> 00:33:42.351
And even using like financial or, you know, purchases as rewards don't really do it for me anymore.
666
00:33:42.371 --> 00:33:43.012
Does that make sense?
667
00:33:43.032 --> 00:33:44.772
It's like, how do you stay motivated?
668
00:33:44.812 --> 00:33:48.975
Is it just like falling in love with the game, the repetition, the impact that it's going to have on others?
669
00:33:48.995 --> 00:33:49.835
Like, what are your thoughts on that?
670
00:33:50.167 --> 00:33:53.049
I'm just trying to maximize for like how I feel, dude.
671
00:33:53.229 --> 00:33:53.950
And I feel better.
672
00:33:54.090 --> 00:34:02.036
I feel better when I see other people winning because the work I'm doing, I get more joy out of that than more material things.
673
00:34:02.296 --> 00:34:07.880
And I think everyone knows that because everyone says that, but yet everyone's actions don't align with that.
674
00:34:08.441 --> 00:34:12.644
And that's why like getting bought out means is like nothing, like not even a thought.
675
00:34:12.804 --> 00:34:13.805
It's not a thought to me.
676
00:34:14.465 --> 00:34:15.305
I have seen enough people.
677
00:34:15.325 --> 00:34:16.005
I've heard enough people.
678
00:34:16.085 --> 00:34:17.926
I have seen it in my own life where I get something.
679
00:34:18.226 --> 00:34:22.067
I enjoy it, but like I don't have to like sacrifice all this other good in my life.
680
00:34:22.667 --> 00:34:24.748
Like my identity is wrapped in the businesses.
681
00:34:25.168 --> 00:34:26.668
And that's why I know Tommy's is.
682
00:34:26.808 --> 00:34:28.849
And so I'm seeing I'm watching how he handles it.
683
00:34:29.189 --> 00:34:36.550
He I think he will be able to navigate, you know, being a founder led company, but also being owned with the majority of private equity.
684
00:34:36.970 --> 00:34:38.971
But like I would hate giving away control.
685
00:34:39.091 --> 00:34:41.692
I would never give away control, man.
686
00:34:41.932 --> 00:34:42.812
Not a chance.
687
00:34:42.932 --> 00:34:43.112
No.
688
00:34:43.775 --> 00:34:44.475
All right.
689
00:34:44.495 --> 00:34:46.436
Well, I appreciate you letting us go down that rabbit trail.
690
00:34:46.476 --> 00:34:50.797
Wasn't planning that, but you know, that's what a good podcast host does is they pivot in real time.
691
00:34:51.197 --> 00:34:52.417
So we're going to pivot back.
692
00:34:52.437 --> 00:34:53.498
My goal is to die.
693
00:34:53.598 --> 00:34:57.059
My, my goal right now is to die with control of the business.
694
00:34:57.319 --> 00:34:57.499
Yeah.
695
00:34:57.579 --> 00:35:01.940
That's just what you can do if you IPO and keep majority voting shares.
696
00:35:02.180 --> 00:35:02.360
Yeah.
697
00:35:02.733 --> 00:35:04.054
Well, yeah, I'll have 100% of them.
698
00:35:04.074 --> 00:35:07.015
You're going to throw like a half a percent my way.
699
00:35:07.115 --> 00:35:08.116
Not voting, bro.
700
00:35:08.236 --> 00:35:08.696
I'm sorry.
701
00:35:08.736 --> 00:35:10.537
I love you, but not that much.
702
00:35:10.577 --> 00:35:13.018
When I die, when I die, you can have my voting chair.
703
00:35:13.178 --> 00:35:14.619
I appreciate that.
704
00:35:14.679 --> 00:35:15.359
I'll take a little bit.
705
00:35:15.399 --> 00:35:17.780
Just some scraps from the table.
706
00:35:18.180 --> 00:35:23.503
It's like, did you ever watch, have you ever watched or seen clips from the HBO show Succession?
707
00:35:25.223 --> 00:35:25.644
I love it.
708
00:35:25.804 --> 00:35:26.924
I'm like, oh, it's so good.
709
00:35:26.944 --> 00:35:28.085
I've watched it way too many times.
710
00:35:28.825 --> 00:35:30.626
You've watched a video more than one time.
711
00:35:30.986 --> 00:35:33.146
It's a, well, it's a series.
712
00:35:33.186 --> 00:35:35.147
Four seasons, eight to ten episodes each.
713
00:35:35.207 --> 00:35:36.027
I watched it, dude.
714
00:35:36.167 --> 00:35:37.367
You watched it more than one time.
715
00:35:37.487 --> 00:35:40.548
I am the type of person where I could rewatch the same things.
716
00:35:40.728 --> 00:35:41.668
That's crazy.
717
00:35:41.788 --> 00:35:43.449
I put like ten things on rotation.
718
00:35:43.749 --> 00:35:44.429
Sarah hates it.
719
00:35:44.549 --> 00:35:44.929
What?
720
00:35:45.089 --> 00:35:45.349
Yeah.
721
00:35:45.629 --> 00:35:47.750
You put like the same ten shows on rotation?
722
00:35:48.050 --> 00:35:48.890
Yeah, and movies.
723
00:35:49.110 --> 00:35:52.311
So like my number one rotate is just Lord of the Rings.
724
00:35:52.751 --> 00:36:11.288
That's so good Dude the Lord of the Rings trilogy is amazing It is like the storytelling Everything about it It's like that's on repeat Yeah but it's such a good story With videos I can like remember Frames and words Like really well I can literally like re-dictate words Like
725
00:36:11.848 --> 00:36:13.669
Oh, no, but that's the thing is it's amazing.
726
00:36:13.709 --> 00:36:16.131
It's like revisiting some of the best lines.
727
00:36:16.211 --> 00:36:19.713
Like my brother-in-law, Matt, who used to work first back in the day.
728
00:36:19.734 --> 00:36:23.936
Dude, we both like talk about tearing up at one specific line in Lord of the Rings.
729
00:36:24.177 --> 00:36:27.439
That like if you're a Lord of the Rings fan, you know exactly which line it is.
730
00:36:27.479 --> 00:36:31.121
And it's in Return of the King where Aragorn says, my friends, you bow to no one.
731
00:36:31.281 --> 00:36:38.767
And it's just like this like perfect encapsulation of like masculinity and service and humility.
732
00:36:38.847 --> 00:36:39.207
Anyways.
733
00:36:39.407 --> 00:36:40.188
It's a beautiful story.
734
00:36:40.488 --> 00:36:44.872
But anyways, in succession, this is just going to be a one-off joke.
735
00:36:44.912 --> 00:36:46.333
And now we went down the road.
736
00:36:46.933 --> 00:36:56.121
In succession, there's this scene where Kendall, the eldest son of the mogul, Logan Roy.
737
00:36:56.141 --> 00:36:57.222
Do you even know the context of the show?
738
00:36:57.242 --> 00:36:57.582
No, I do.
739
00:36:57.722 --> 00:37:00.523
It's a multi-billion dollar empire and it's a dysfunctional family.
740
00:37:00.703 --> 00:37:00.944
Okay.
741
00:37:00.964 --> 00:37:01.664
That's really honest.
742
00:37:01.844 --> 00:37:04.885
So Kendall's the oldest son and he's trying to basically take over from his dad.
743
00:37:04.925 --> 00:37:06.686
His dad won't give him the succession plan.
744
00:37:06.726 --> 00:37:09.007
His dad won't give him the business or let him be CEO.
745
00:37:09.067 --> 00:37:11.529
So it's all, they're just a massively dysfunctional family.
746
00:37:11.549 --> 00:37:12.269
They all need therapy.
747
00:37:12.789 --> 00:37:14.170
Well, actually try it and it doesn't go well.
748
00:37:15.651 --> 00:37:22.333
And Kendall basically says to his right-hand man, he's like, you will not have a position of power.
749
00:37:22.393 --> 00:37:23.734
Basically, you won't get voting shares.
750
00:37:24.034 --> 00:37:28.876
He's like, you will be my dog, and you will eat the scraps from my table, but the scraps will be millions.
751
00:37:29.577 --> 00:37:31.517
And I'm like, I love that.
752
00:37:31.677 --> 00:37:33.498
I was like, I will be that guy.
753
00:37:34.759 --> 00:37:37.400
So anyways, it's a little derogatory, but kind of funny.
754
00:37:37.860 --> 00:37:40.724
So we're going to pivot to one final thing here.
755
00:37:41.285 --> 00:37:46.592
And this is Lawn and Landscape magazine put out an article that relates to Tommy and his bio.
756
00:37:46.932 --> 00:37:52.359
And that is, is private the private equity gold rush over for the landscaping businesses?
757
00:37:52.479 --> 00:37:53.441
So I thought this was interesting.
758
00:37:53.621 --> 00:37:54.342
Figured I'd bring it up.
759
00:37:55.182 --> 00:37:58.685
And in this article, they basically say this gold rush is over.
760
00:37:58.905 --> 00:38:00.967
The winds of valuation have changed.
761
00:38:01.207 --> 00:38:02.208
That's like good language there.
762
00:38:03.389 --> 00:38:07.892
Do you agree that the winds of valuation are starting to change in lawn care and landscaping?
763
00:38:08.375 --> 00:38:09.756
I don't think it's long landscaping.
764
00:38:09.856 --> 00:38:15.041
I think in general right now with interest rates going up so high, treasuries are going very high.
765
00:38:15.481 --> 00:38:23.969
So when treasuries are at 5 plus percent, which is quote unquote risk free money, you have to have a very good business now.
766
00:38:24.169 --> 00:38:29.854
And like the valuations of those businesses drop because the money moves more towards more secure assets.
767
00:38:30.415 --> 00:38:32.517
And in general, typically buying a business is less expensive.
768
00:38:33.265 --> 00:38:37.869
historically less or is more risky than buying a treasury.
769
00:38:38.229 --> 00:38:47.697
And so if risk-free money is getting 5%, if your business is going to only offer 10%, risk-adjusted returns would move money in a safer direction.
770
00:38:48.137 --> 00:38:56.003
And so I think it's just the economic climate right now is not great with the interest rates being so high, energy costs being so high, inflation going back up.
771
00:38:57.044 --> 00:39:01.508
And so do I think more money as an aggregate will continue moving in the landscape industry?
772
00:39:01.528 --> 00:39:01.928
Yes, I do.
773
00:39:02.901 --> 00:39:15.425
Do you think there was like a little bit of a evaluation inflation kind of post COVID when you look at it from the angle of like essential services and this now new concept of like, oh, it's AI proof, like lawn care and landscaping is AI proof.
774
00:39:15.685 --> 00:39:17.245
And I generally agree with that premise.
775
00:39:17.585 --> 00:39:20.706
But do you think that that made some companies look better than they actually are?
776
00:39:22.187 --> 00:39:23.407
From a valuation perspective.
777
00:39:24.542 --> 00:39:28.126
I think everything was in a bubble during COVID.
778
00:39:28.226 --> 00:39:33.971
So if there has been any reset on multiples, I think that is a normal behavior after it going up so high.
779
00:39:34.612 --> 00:39:40.037
But in 2020 and 2021, COVID, AI wasn't even a word we were using.
780
00:39:40.798 --> 00:39:43.839
So I think it's decoupled from AI.
781
00:39:43.859 --> 00:39:53.082
I think that we will continue to see more money move in because of AI and the multiples on AI companies being absurd.
782
00:39:53.182 --> 00:39:56.803
And like most of them will never see actual money returned back to shareholders.
783
00:39:57.163 --> 00:40:16.896
and once that settles in they'll be like okay where can we make sure we actually get a return on this money because they have to spend money for their fund and get returns on their fund as a private equity firm and they'll be like okay let's make sure you'll get like a garage door company because we know that's not going away let's make sure we're gonna landscape because the grass will keep growing and then we can go make some bigger bets on stuff that might go to 100 billion
784
00:40:17.596 --> 00:40:18.657
That's my two cents.
785
00:40:18.697 --> 00:40:18.897
Yeah.
786
00:40:19.277 --> 00:40:22.360
So the article lists top things that buyers care about.
787
00:40:22.760 --> 00:40:25.122
And this is kind of the list that I condensed from the article.
788
00:40:25.482 --> 00:40:36.551
They said recurring commercial revenue, owner independence, clean books, CRM based operations, route density and fleet discipline.
789
00:40:36.731 --> 00:40:38.433
So kind of fleet standardization.
790
00:40:39.213 --> 00:40:43.457
If you had to pick the top two, what would you say matters the most?
791
00:40:43.497 --> 00:40:44.738
Recurring and owner independence.
792
00:40:45.323 --> 00:40:47.752
No, they said commercial recurring, which I thought was interesting.
793
00:40:49.297 --> 00:40:51.224
I don't believe that at all.
794
00:40:52.355 --> 00:40:52.595
Why?
795
00:40:52.955 --> 00:40:55.576
Because A1 is mostly residential.
796
00:40:56.556 --> 00:40:58.036
As just like, because we're talking about them.
797
00:40:58.076 --> 00:40:58.976
Yeah, yeah.
798
00:40:59.296 --> 00:41:03.457
I think that commercial in general gets squeezed the hardest.
799
00:41:04.357 --> 00:41:06.257
It is the biggest opportunity to grow fast.
800
00:41:06.297 --> 00:41:07.398
And that's why private equity likes it.
801
00:41:07.418 --> 00:41:12.038
Because yes, you can go into a market and you can get 30 contracts and have a $20 million business.
802
00:41:12.558 --> 00:41:15.239
So like they do go commercial because of growth and revenue.
803
00:41:15.679 --> 00:41:17.879
But we are seeing, I believe, a higher multiple.
804
00:41:17.979 --> 00:41:21.160
Like multiples are going to keep moving up on residential side, in my opinion.
805
00:41:22.241 --> 00:41:35.702
And as we are in a K-shaped economy where the top 10% of the market of residential customers will drive all of the – commercial companies, if you ever saw a correction or companies are having a harder time –
806
00:41:36.463 --> 00:41:42.586
hitting numbers, doing dividends, returning money to their shareholders, they're going to cut on their commercial maintenance.
807
00:41:43.246 --> 00:41:46.088
The top 10% of homeowners are going to be just fine.
808
00:41:46.528 --> 00:41:47.428
They're going to keep making money.
809
00:41:47.729 --> 00:41:50.070
And if you're serving that customer, you're going to do good.
810
00:41:50.490 --> 00:41:52.931
And that's who A1 serves.
811
00:41:53.051 --> 00:41:53.872
They're not cheap.
812
00:41:53.952 --> 00:41:55.913
They are premium to homeowners.
813
00:41:55.933 --> 00:41:56.393
Mm-hmm.
814
00:41:57.045 --> 00:42:03.708
Yeah, I thought it was interesting what they said here, and I appreciate you kind of making that distinction of commercial, and I don't want to make that like the core of what we're talking about here.
815
00:42:04.008 --> 00:42:07.029
But I thought it was interesting when you look at like the list of what they said.
816
00:42:07.049 --> 00:42:08.510
This is what top buyers care about.
817
00:42:08.650 --> 00:42:10.290
It just feels like basic business principles.
818
00:42:10.310 --> 00:42:10.850
Yeah, I know.
819
00:42:10.890 --> 00:42:12.111
I was going to say that.
820
00:42:12.131 --> 00:42:13.051
I didn't want to like.
821
00:42:13.351 --> 00:42:14.692
But no, in that story.
822
00:42:14.932 --> 00:42:16.313
And this is me summarizing an article.
823
00:42:16.353 --> 00:42:17.054
It's well written.
824
00:42:17.094 --> 00:42:17.934
It's much longer.
825
00:42:18.255 --> 00:42:22.878
I'm reducing it at the risk of making it sound less detailed than it was.
826
00:42:23.219 --> 00:42:26.021
But recurring revenue, owner independence, clean books.
827
00:42:26.561 --> 00:42:28.523
And I would say, you know, let's maybe define those.
828
00:42:28.543 --> 00:42:33.087
But like recurring revenue, owner independence, clean books, CRM-based operations, route density, fleet discipline.
829
00:42:33.107 --> 00:42:34.047
It's like six things.
830
00:42:34.508 --> 00:42:40.753
So I think that, you know, when we look at, you know, like Augusta, like those are just inherent to how we operate.
831
00:42:41.153 --> 00:42:42.673
Like it's a recurring revenue model.
832
00:42:42.894 --> 00:42:45.194
It's like we have systems to create owner independence.
833
00:42:45.214 --> 00:42:46.435
We have the 21 stages of success.
834
00:42:46.715 --> 00:42:50.896
We have specific systems that you and your team can follow to slowly remove the owner from the actual operations.
835
00:42:51.236 --> 00:42:51.736
Clean books.
836
00:42:52.076 --> 00:42:54.597
I mean, the way I would define that is like literally just have a bookkeeper.
837
00:42:54.877 --> 00:42:56.157
That's solved for Augusta owners.
838
00:42:56.437 --> 00:42:57.518
CRM-based operations.
839
00:42:57.678 --> 00:42:58.398
Shout out homeworks.
840
00:42:58.418 --> 00:43:00.138
Like that seems second nature at this point.
841
00:43:00.459 --> 00:43:01.059
Route density.
842
00:43:01.339 --> 00:43:04.340
We preach that and talk about that even with our territory designation at Augusta.
843
00:43:04.600 --> 00:43:05.560
And then fleet discipline.
844
00:43:06.020 --> 00:43:07.763
I thought that that one was interesting for Augusta.
845
00:43:07.783 --> 00:43:12.270
I feel like we've become more disciplined with our fleets and like telling owners how to get set up and started.
846
00:43:12.611 --> 00:43:15.956
But is there anything you would add or like take away or like devalue from that?
847
00:43:16.677 --> 00:43:20.480
Um, so yeah, like this is course three of home service boardroom.
848
00:43:20.620 --> 00:43:27.004
I talk about enterprise value and I create a metric for them to be able to value their business based on all these things.
849
00:43:27.624 --> 00:43:29.786
And so you always use have earnings and you have multiple.
850
00:43:29.806 --> 00:43:31.267
That's what you come up with enterprise value.
851
00:43:31.647 --> 00:43:33.988
And so like, how much did you make and what multiple are you giving it?
852
00:43:34.209 --> 00:43:37.411
The part that for most of us is blurry is what multiple do I give my business?
853
00:43:38.031 --> 00:43:40.694
And so we create a framework and a rubric in the course video.
854
00:43:40.714 --> 00:43:50.146
I'll actually figure out, Oh, like this year I'm going to make the same amount of earnings, but if my multiple go from a two to a three, I unlock an extra $500,000 enterprise value.
855
00:43:50.166 --> 00:43:51.047
I.
856
00:43:51.087 --> 00:43:52.649
My net worth goes up by five over a grand.
857
00:43:52.669 --> 00:43:53.510
That's tax free.
858
00:43:54.631 --> 00:43:56.853
And that's valuable even though my earnings stayed the same.
859
00:43:56.913 --> 00:44:00.215
But the reason is because the quality of the earnings, i.e.
860
00:44:00.475 --> 00:44:01.936
the multiple increased.
861
00:44:02.477 --> 00:44:04.638
And that might be you shift more towards recurring revenue.
862
00:44:04.838 --> 00:44:08.261
That might be that you reduce services so that you're less owner dependent.
863
00:44:08.661 --> 00:44:11.183
You do these other things in the business that don't show up on the P&L.
864
00:44:11.983 --> 00:44:14.023
but they increase the quality of the earnings, i.e.
865
00:44:14.043 --> 00:44:14.584
the multiple.
866
00:44:14.964 --> 00:44:18.685
And that's why Tommy gets a 20X on his, on profit.
867
00:44:18.925 --> 00:44:25.546
Like most home services will not get that because of size and because the quality of those earnings, that's why he'll get that 20X multiple.
868
00:44:26.226 --> 00:44:29.627
So what about a business owner that might be listening right now or just in general?
869
00:44:30.047 --> 00:44:32.008
They say, hey, I'm not planning to sell.
870
00:44:32.488 --> 00:44:33.888
Why should I care about enterprise value?
871
00:44:33.908 --> 00:44:34.128
Yeah.
872
00:44:34.914 --> 00:44:37.578
Because enterprise value is the one thing in our country that's still not taxed.
873
00:44:39.300 --> 00:44:44.626
And so every dollar you take out of the business, especially for an S-corp, it's just passed through.
874
00:44:44.646 --> 00:44:46.889
So every dollar of profit, you're going to get taxed on.
875
00:44:46.909 --> 00:44:50.353
So as that number goes up, 20, 30, 40% of it's going to the government.
876
00:44:51.194 --> 00:44:59.224
And if I can protect that by saying, hey, I'm actually going to focus on growing the business, making it better and better, increasing the multiple.
877
00:44:59.244 --> 00:45:04.610
So maybe I take less profit, but now I have a leadership team in place that can run the operations without me being there.
878
00:45:04.951 --> 00:45:07.073
And that doubles or triples my enterprise value.
879
00:45:07.614 --> 00:45:09.936
Most people don't even think about enterprise value because they never sell their business.
880
00:45:10.617 --> 00:45:16.140
And when they go to sell their business, they get a valuation and there's like five things and it's all revolving around what you just mentioned.
881
00:45:16.420 --> 00:45:17.541
Hey, cut the service out.
882
00:45:17.861 --> 00:45:21.182
Hey, you can't be there as much as you're too dependent.
883
00:45:21.242 --> 00:45:22.463
Like the ads are dependent on you.
884
00:45:22.783 --> 00:45:24.124
The operations are dependent on you.
885
00:45:24.544 --> 00:45:28.866
And they just get a list of the things that they have to change in order to double the valuation of the business.
886
00:45:29.346 --> 00:45:39.832
And so this is eye-opening to me and why inside of Home Service Boardroom I made this course is now when I get my annual valuation because we do the 409A evaluation third party for the Hold Co because now we have investors.
887
00:45:40.672 --> 00:45:45.659
And it has been eye-opening to me because they always tell me, here's why you're getting deducted.
888
00:45:46.520 --> 00:45:48.522
And that's like basically the thing you got to go do.
889
00:45:49.619 --> 00:45:58.567
And so when, you know, we look at when last year, they're like, yeah, you are about 60 to 80% under pricing your software.
890
00:45:59.168 --> 00:46:01.350
Based on all of the comps we have made my, oh snap.
891
00:46:01.690 --> 00:46:07.615
So like, we have to adjust that and that will unlock, you know, how much it is, a huge chunk of net worth, IE enterprise value.
892
00:46:08.176 --> 00:46:10.638
And everyone thinks about that at the largest has businesses.
893
00:46:10.658 --> 00:46:14.461
But the question is, is it that they are large because they think that way or
894
00:46:15.362 --> 00:46:16.864
Or is it are they thinking that way?
895
00:46:17.064 --> 00:46:17.824
Because they are large.
896
00:46:18.305 --> 00:46:25.231
I happen to believe it's the former, which is the reason they have a big business is because they think about enterprise value instead of just how much money do I take out of this business.
897
00:46:26.412 --> 00:46:26.893
And, um,
898
00:46:28.540 --> 00:46:32.083
For a smaller business owner, you will build a better business if you think about enterprise value.
899
00:46:32.663 --> 00:46:39.968
And the likelihood of you having an outcome like Tommy is higher if you build a business that can run without you, has recurring revenue, and has all those other elements that you talked about.
900
00:46:41.089 --> 00:46:43.651
And no one talks about that and they think about, well, how much profit?
901
00:46:43.671 --> 00:46:45.953
Like anytime someone talks about how much profit do you make?
902
00:46:46.233 --> 00:46:46.773
I agree.
903
00:46:46.853 --> 00:46:47.914
Like profit is sanity.
904
00:46:48.114 --> 00:46:48.955
I agree with you.
905
00:46:50.636 --> 00:46:54.900
If you're trying to go big and you want to have these kind of multiples, you need to think about enterprise value.
906
00:46:55.441 --> 00:46:59.444
Tommy did not get to a $2 billion outcome because he was really profitable.
907
00:46:59.664 --> 00:47:06.411
He got it because he has built a business that grows very fast, has a great leadership team, has great numbers, knows software.
908
00:47:07.031 --> 00:47:08.453
That's why he gets a 20x multiple.
909
00:47:08.933 --> 00:47:10.874
Not because he's really profitable.
910
00:47:11.034 --> 00:47:12.154
I got the really good margins.
911
00:47:12.414 --> 00:47:14.575
Like I can guarantee you on paper, they lost money.
912
00:47:15.075 --> 00:47:23.718
EBITDA, they're 20, 30, 25%, but they lost money because they are growing like extremely fast and investing heavily into infrastructure.
913
00:47:23.738 --> 00:47:24.078
Mm-hmm.
914
00:47:24.808 --> 00:47:29.490
So would you say, to go like a layer deeper, is cash flow, i.e.
915
00:47:30.011 --> 00:47:34.013
we'll summarize cash flow as like profit, like at the end of the year or end of the quarter or whatever.
916
00:47:34.693 --> 00:47:37.374
Are profit and enterprise value ever in conflict with each other?
917
00:47:37.754 --> 00:47:38.435
Yeah, 100%.
918
00:47:38.855 --> 00:47:44.278
Because if I'm trying to solve enterprise value, I have to – this is why every one of my businesses from –
919
00:47:45.138 --> 00:47:58.023
the game augusta has lost money for the first three years it's because you have to build it in a way that is different than if you're just seeking cash flow and for most people that are willing to build a one to three million dollar business they should just think about cash flow
920
00:47:59.196 --> 00:48:03.640
But by doing so, you will build a business that usually handcuffs the owner to daily operations.
921
00:48:04.061 --> 00:48:06.943
You can't go away for a two months hiatus.
922
00:48:07.364 --> 00:48:08.205
You don't have a leadership team.
923
00:48:08.225 --> 00:48:09.146
You don't have mid-level management.
924
00:48:09.166 --> 00:48:12.749
But you're very profitable because the owner is still juggling a lot of things and is the operator.
925
00:48:13.089 --> 00:48:15.131
For a lot of people, that's actually what meets their goals.
926
00:48:15.992 --> 00:48:17.493
I'm talking to very small percentage of people.
927
00:48:17.573 --> 00:48:21.516
They're like, I want to grow a massive company or I want an exit like Tommy.
928
00:48:21.716 --> 00:48:23.497
You have to think about the business very differently.
929
00:48:24.017 --> 00:48:33.143
And so like I was talking to Jordan a couple, uh, weeks ago, uh, cause he has, his goal is to sell the private equity and build out a chain and, and, and over the next 10 years.
930
00:48:33.623 --> 00:48:39.887
And so he thinks very differently about cashflow for the next six to seven years, but then try he'll, he will switch the profit.
931
00:48:40.207 --> 00:48:42.329
in the last couple of years to show a higher earnings.
932
00:48:42.990 --> 00:48:58.026
But in the next six to eight years, he's only focused on revenue growth and those intangibles that increases multiple to build the business in a way that when he turns on the profit mode and gets a multiple on a higher amount of earnings, it's meaningful.
933
00:48:58.307 --> 00:48:58.447
Mm-hmm.
934
00:48:58.767 --> 00:49:01.088
And so it's just a very different way of thinking about business.
935
00:49:01.128 --> 00:49:03.148
I think it's only for the people that is trying to go big.
936
00:49:03.588 --> 00:49:10.250
I think, again, all my content almost talks about like being in profit mode because most people should build a million dollar business.
937
00:49:10.270 --> 00:49:13.471
That's $200,000, $300,000 in net distributions to them.
938
00:49:13.751 --> 00:49:14.912
And that's a great business for them.
939
00:49:15.652 --> 00:49:18.913
That's still a hard business to sell for a lot of home service business owners.
940
00:49:19.193 --> 00:49:20.674
Yeah, it's funny.
941
00:49:21.375 --> 00:49:25.838
Somebody in the home service boardroom messaged me privately and had some questions about Augusta and things.
942
00:49:26.278 --> 00:49:29.180
And what you said is effectively how I responded to one of their questions.
943
00:49:29.881 --> 00:49:33.544
I said, keep in mind the franchise didn't make a profit for the first three plus years.
944
00:49:33.904 --> 00:49:36.206
The goal of Augusta is changing the level of professionalism in the industry.
945
00:49:36.506 --> 00:49:38.667
Mike's personal goal is to make home service business owners rich.
946
00:49:38.948 --> 00:49:39.848
We do both those things.
947
00:49:40.008 --> 00:49:40.629
The money will come.
948
00:49:42.089 --> 00:49:43.430
And it's just a different game.
949
00:49:43.470 --> 00:49:44.791
It's a different way of looking at it.
950
00:49:45.232 --> 00:49:49.695
And so I think that's the switch that people have to make is, okay, am I optimizing for cash flow slash profit?
951
00:49:50.136 --> 00:49:51.997
Or am I optimizing for that long-term enterprise value?
952
00:49:52.157 --> 00:49:56.781
If so, there may be some regrets or some cuts that I have to make in the short term to make up for the long term.
953
00:49:57.042 --> 00:50:02.026
So I think it just goes back to like defining like your reason for being in business and your why, really, at the end of the day.
954
00:50:02.046 --> 00:50:03.287
I look forward to the day when you go public.
955
00:50:04.027 --> 00:50:06.349
Because like Tommy can't – this is one thing I was talking to Brian.
956
00:50:06.369 --> 00:50:10.553
I'm like one of the things I have learned about this whole acquisition with Tommy is he can't talk about it.
957
00:50:10.773 --> 00:50:10.934
Yeah.
958
00:50:11.155 --> 00:50:12.379
Because it's all private equity stuff.
959
00:50:13.452 --> 00:50:14.532
I can't wait till we go public.
960
00:50:14.572 --> 00:50:16.413
And I'm like, all right, I get open up all the books.
961
00:50:16.553 --> 00:50:19.813
I get to see how deep in the red I was on every single one of these entities.
962
00:50:20.253 --> 00:50:20.993
I can't wait to do that.
963
00:50:21.153 --> 00:50:22.834
I'll have controlling interest.
964
00:50:22.854 --> 00:50:23.634
I can do whatever I want.
965
00:50:24.254 --> 00:50:26.934
And when we go public, it's all gonna be public anyways.
966
00:50:26.994 --> 00:50:27.735
It's not private.
967
00:50:28.295 --> 00:50:28.495
Right?
968
00:50:28.575 --> 00:50:32.455
So I can just, I can't wait to look, I still look forward to it.
969
00:50:32.596 --> 00:50:39.897
And then, yeah, I think it would give people a different perspective of like, oh, like the amount of investment is like millions and millions of dollars in the red for every one of the entities.
970
00:50:40.217 --> 00:50:40.437
Yeah.
971
00:50:41.476 --> 00:50:46.398
That's my reaction when you sent the article to the leadership team about Tommy getting bought out by KKR.
972
00:50:46.698 --> 00:50:51.159
I said, wild, any chance you can reach out to Tommy for a private comment?
973
00:50:52.119 --> 00:50:52.739
Just wanted to see.
974
00:50:52.759 --> 00:50:55.520
You know, it'd be nice to look under the hood.
975
00:50:55.660 --> 00:50:57.461
I'm not like a texting buddy who's with Tommy.
976
00:50:57.881 --> 00:50:58.121
Yeah.
977
00:50:58.241 --> 00:50:59.381
So we'll get there.
978
00:50:59.482 --> 00:50:59.942
We'll get there.
979
00:51:00.082 --> 00:51:00.522
We'll get there.
980
00:51:00.642 --> 00:51:01.622
It'd be nice.
981
00:51:01.782 --> 00:51:03.823
You got to get invited to his house, dude, out in Idaho.
982
00:51:03.983 --> 00:51:04.523
All right.
983
00:51:04.603 --> 00:51:09.905
Well, I appreciate you going down many different rabbit trails, private equity, Lord of the Rings, Corvettes.
984
00:51:09.925 --> 00:51:11.145
This is a wild episode.
985
00:51:11.165 --> 00:51:11.665
Succession.
986
00:51:11.705 --> 00:51:12.225
Is that what it's called?
987
00:51:12.246 --> 00:51:12.706
Succession.
988
00:51:12.746 --> 00:51:13.686
Do I, would I enjoy it?
989
00:51:13.966 --> 00:51:14.826
I think you would.
990
00:51:14.846 --> 00:51:16.107
It might be too dramedy for you.
991
00:51:16.367 --> 00:51:17.607
Oh, man.
992
00:51:17.867 --> 00:51:19.207
But it's HBO.
993
00:51:19.227 --> 00:51:21.268
Have you ever watched any HBO shows before?
994
00:51:21.628 --> 00:51:22.848
They're very serious.
995
00:51:23.308 --> 00:51:25.729
So they brought in, I will say this about Succession.
996
00:51:26.469 --> 00:51:26.749
There you go.
997
00:51:26.769 --> 00:51:27.830
There's my not financial advice.
998
00:51:27.870 --> 00:51:29.190
Watch the pilot of Succession.
999
00:51:29.370 --> 00:51:30.910
It's a great start to the show.
1000
00:51:32.411 --> 00:51:37.272
But they brought in actual private equity people, people from publicly traded companies, business consultants.
1001
00:51:37.592 --> 00:51:39.874
They brought in like very high level people to like consult.
1002
00:51:39.894 --> 00:51:42.796
If they have business like roots, I might be interested.
1003
00:51:43.236 --> 00:51:44.117
I think you'd like it.
1004
00:51:45.097 --> 00:51:48.399
I worry that if you don't like it, you're going to judge me for liking it so much.
1005
00:51:48.679 --> 00:51:54.241
Because it's very much a dramatization of, and there's some elements that are not so family friendly.
1006
00:51:54.281 --> 00:51:54.982
I will say that.
1007
00:51:56.142 --> 00:51:59.504
So definitely it is rated M for mature.
1008
00:51:59.984 --> 00:52:03.686
Mostly due to language, which I think is unnecessary, obviously.
1009
00:52:04.186 --> 00:52:06.267
But overall, it's like an awesome story.
1010
00:52:06.367 --> 00:52:07.328
Like an awesome story.
1011
00:52:07.348 --> 00:52:07.688
So yeah.
1012
00:52:08.128 --> 00:52:09.789
But I don't know where I was going with that.
1013
00:52:09.909 --> 00:52:10.889
That's your non-financial advice.
1014
00:52:10.909 --> 00:52:11.970
That's my non-financial advice.
1015
00:52:12.010 --> 00:52:12.170
Okay.
1016
00:52:12.550 --> 00:52:17.796
My real non-financial advice is practice a little extreme ownership, which I did before we started recording.
1017
00:52:17.876 --> 00:52:19.518
And it was a throwaway, but it helps.
1018
00:52:19.618 --> 00:52:21.220
It helps clear the mind.
1019
00:52:21.860 --> 00:52:23.082
So you don't even remember it, which is great.
1020
00:52:23.422 --> 00:52:28.588
Me practicing extreme ownership helped clear my mind to just continue moving forward.
1021
00:52:28.988 --> 00:52:36.272
Yesterday you came to my desk, we talked about something, and there was a throwaway question that you gave me, and I responded incorrectly.
1022
00:52:36.772 --> 00:52:42.395
And internally, like if I'm just being like really harsh, I was like, I basically lied to you, but it was just an incorrect response.
1023
00:52:42.876 --> 00:52:44.417
And so this morning I just practiced ownership.
1024
00:52:44.437 --> 00:52:48.058
I was like, hey, by the way, yesterday, I know I said this, I actually, I dropped the ball.
1025
00:52:48.299 --> 00:52:50.060
So I was just practicing extreme ownership.
1026
00:52:50.520 --> 00:52:52.081
Cleared my conscience, I guess.
1027
00:52:52.501 --> 00:52:53.241
Makes me feel better.
1028
00:52:54.942 --> 00:53:00.325
So sorry, it's that like fight-or-flight response, you know that you have where it's like I was like no I haven't even said that.
1029
00:53:00.345 --> 00:53:01.125
Why did I say that?
1030
00:53:01.285 --> 00:53:08.889
I got a thought about coming back to your office I don't know why I just said that it was like such a weird reaction Oh no, it was because I was it was off the cuff.
1031
00:53:09.189 --> 00:53:11.890
Yeah, you were just Well, I was going to do it.
1032
00:53:12.070 --> 00:53:14.051
I was going to it's all my to-do list.
1033
00:53:14.071 --> 00:53:14.531
It's right.
1034
00:53:14.551 --> 00:53:17.413
It's basically done No, I've got a couple things come up.
1035
00:53:17.433 --> 00:53:20.794
You know, I've you know, let little fires burn AI will get to it.
1036
00:53:20.914 --> 00:53:21.775
Yeah, yeah
1037
00:53:22.455 --> 00:53:23.836
So my apologies.
1038
00:53:23.916 --> 00:53:28.100
I wasn't intentionally lying, but I intentionally omitted.
1039
00:53:28.140 --> 00:53:30.582
And that is me asking for forgiveness.
1040
00:53:30.882 --> 00:53:33.965
And I will pay whatever penance you expect of me.
1041
00:53:35.867 --> 00:53:37.468
Just trying to get some voting shares.
1042
00:53:39.109 --> 00:53:40.150
Non-financial advice.
1043
00:53:40.551 --> 00:53:40.751
Um...
1044
00:53:41.778 --> 00:53:43.578
I guess it'd be look at a car you really like.
1045
00:53:44.279 --> 00:53:45.479
It's orange for homeworks.
1046
00:53:45.659 --> 00:53:46.139
I saw that.
1047
00:53:46.219 --> 00:53:46.539
Yeah.
1048
00:53:47.099 --> 00:53:48.920
You can give it, you can give the clip to the media team.
1049
00:53:48.940 --> 00:53:56.161
If you made it this far, you can see the private clip of me looking at a Corvette in our kitchen and not knowing Brianna was videoing me.
1050
00:53:56.201 --> 00:53:56.421
Yeah.
1051
00:53:59.962 --> 00:54:00.502
Look at that.
1052
00:54:00.722 --> 00:54:03.383
Sexiness and it's homeworks colors.
1053
00:54:06.298 --> 00:54:08.521
So that's to not financialize is just look at Corvettes.
1054
00:54:08.921 --> 00:54:10.603
No, look at cars you might enjoy down the road.
1055
00:54:11.324 --> 00:54:14.168
And just ask yourself, like, how happy would you be if you actually had it?
1056
00:54:14.348 --> 00:54:15.730
Yeah.
1057
00:54:15.810 --> 00:54:16.531
I would be happier.
1058
00:54:16.811 --> 00:54:17.492
But how much?
1059
00:54:17.993 --> 00:54:18.193
Yeah.
1060
00:54:18.894 --> 00:54:23.579
I would be happier right now with a sauna or a mattress than a Corvette.
1061
00:54:23.880 --> 00:54:24.100
Fair.
1062
00:54:24.841 --> 00:54:26.083
Even though the values are way different.
1063
00:54:26.103 --> 00:54:26.283
Yeah.
1064
00:54:26.603 --> 00:54:27.665
So I'm still working towards that.
1065
00:54:27.945 --> 00:54:28.105
Yeah.
1066
00:54:28.566 --> 00:54:28.826
All right.
1067
00:54:28.986 --> 00:54:29.607
One day we'll get there.
1068
00:54:29.907 --> 00:54:30.248
Perfect.
1069
00:54:30.268 --> 00:54:31.209
When I get a raise from Lee.
1070
00:54:31.670 --> 00:54:33.492
All right.
1071
00:54:33.732 --> 00:54:34.373
Like and subscribe.