7 Acquisitions & Buy Then Build E:16 Walker Deibel Top M&A Entrepreneurs

Hold on. So, uh, welcome to the podcast. This is Walker Deil Dial. You screwed me up. Today I have a guest is Walker Tybal. Walker, welcome to the show. How are you? John, thank you so much for having me. I'm super excited to be here and and uh honored to be hanging out with you today. Well, I gotta tell you, so here's why I have Walker Tyl on the podcast. It's because he's written a book called uh By then Build, and I, he's also, if you go to Forbes, he's one of the five top recommended books to read, by then build. Yeah, it's a great read. I get it. Yeah, I'd run to, uh, Amazon. I am not an affiliate, but I'd run to Amazon and get this book because it's a really great, great, uh, comprehensive. So Walker, I wanna talk to you about, uh, how you got into this, uh, buy then build and your story about Viewpoint, cause I'm familiar with Viewpoint. I've been in technology all my life. I lived in Silicon Valley, raised some capital, uh, I was part of a startup called TurboSquid, uh, eventually sold it to Shutterstock long, long ago, but, uh, viewpoint, I do remember. So tell, tell me about that story. Yeah, so, so if, if you really want to learn about sort of like my genesis and acquisition entrepreneurship, I would actually go, go back a number of years. Do you, do you want to go back or you talk about? OK, OK, OK. So it, it really was all about um. Uh, when I went, I went to Washington University in St. Louis to get my MBA, right? And while I was there, I was, I was, you know, I, I sort of, um, had a couple of concentrations. One was in entrepreneurship, right? I, I knew I wanted my own business, you know, I knew, I knew that, uh, um, uh, this was the direction I want to go. And I sort of learned two things going through the NBA program. Number one, is that MBA programs are really sort of engineered for, you know, middle management in large organizations or there's a sort of niche in entrepreneurship, which is all about like, we are going to raise capital from, from venture capital and sort of swing for the fences type innovative, you know, startup companies, right? And this, this, these were really the two paths. And um The problem, of course, with the sort of, you know, the, the startup model is that it, it, it's got an extremely high failure rate, right? If you really start to unpack it, I started to learn like, OK, this is actually a venture capital game. Venture capital are the ones that actually win, and any given entrepreneur has a, has the strong. likelihood of failure, right? And it turns out that 96% of, of all companies in the United States never exceed $1 million in revenue, OK? And when you start to look at the venture capital companies themselves, uh, 75% of VC backed firms go completely to zero, right? So, so, you know, we started this company, I kind of used it, used my MBA as sort of like a resume shield, you know, to, to, to, to start a company. Me and me and a few uh classmates got the license to using um what is now called real 3D, right? Like you go to the movie theater and you wear the, the 3D glasses. We had that in 2003, but used for point of purchase advertising. OK. So we were licensing this technology, we were in, we were in, you know, big talks with the, with a national retailer who, I don't think I'm allowed to say who it is. I'll just say it rhymes with Walmart. And, you know, they were gonna kind of like roll it out nationwide and we had these sort of point of purchase, you know, 3D things we learned it really like increased retention, like, you know, like, like tenfold, right? Um. We lost the license. Like, basically in one day, OK? And they never, and I can't even tell you if it's the same company or the same exact technology that went on to become real 3D. But like, I like to imagine that they were like, listen, we're talking to James Cameron. We've decided we're gonna go make Avatar. We don't need you 3 MBA students in St. Louis. You know what I mean? So, so, so this was like my first big failure. There was an Achilles heel. Uh, we Came in 2nd in the business plan competition. We, we, we had a customer on the hook. We had, uh, uh, financing starting to line up and the whole thing ended in failure, which, you know, if you read or, or, or listen to the top entrepreneurs, like the iconoclastic entrepreneurs, they will often say, I just took a lot of that bats, right? Cause it's all about failing. It's about learning from your failures and getting out there and trying again, OK? When I graduated, um, I was one of, I think, two students who didn't, who didn't actually look for a job during, during school, right? So, so I, you know, I had this really promising startup, uh, and I went from being like an MBA student with a really promising startup to being completely unemployed and not a student. Uh, like in, in, in, in a, in a couple of weeks, right? And so it was one of these things where I knew that I had already like sort of pounded the pavement to raise a bunch of capital. I, I didn't have another idea that felt like, that, that wasn't, you know, I, all my ideas were like too big, you know what I'm saying? And, and so I knew there was a way to sort of acquire an existing business. And once I started to think about it, I was like, these existing companies, they're bankable. Like I can go. Go to the bank and just get the money. I don't have to do it, you know, a 12 to 14 month roadshow. Um, you know, it's got existing cash flows, it's got existing customers. It's got product market fit, and it has the infrastructure and all of the things that we as startup entrepreneurs are trying to build from scratch. So why wouldn't we sort of like start on first base, right? Almost like a, almost like a, a sabermetrics, but for entrepreneurship. Yeah, yeah, I don't know. Do you follow Keith Cunningham out of Texas, that guy? I, I hate to say that I don't. I don't know who that is. Like great guy he calls it, uh, buying a plane that's already flying versus trying to buying a plane on the ground, like it's never been to take off. Yeah, well, it's sort of like the, the, the rocket analogy, right? Like rockets will use 90% of their fuel or a little more, I think, to actually get out of orbit, right? And so, so it's only 67 miles up. That's right, that's right. 67, 68, whatever it takes. No, it's exactly right. So it's, there's so much, it takes so much capital and so much effort to go from zero. They're like, why wouldn't you just go buy, you know, if you buy a company that's doing a million dollars in revenue, OK? When I was an MBA student, that was such a small company, I ignored it, right? It's larger than 96% of all companies in the United States. It's such a low bar for being so extraordinary and exceptional. I know this is kind of a uh uh uh offshoot here, but what do you think of micro chore I mean the guy is uh gaining a lot of traction, but a lot of these businesses like They're the, you know, rejects from the VCs, uh, and I'm not saying that. I'm not being mean by saying that. I'm just saying that they can't raise money, uh, because they're just not growing fast enough. Do they, are they just on like a cigarette butt on their last type of Uh, you know, life cycle on this. So, OK, if you look at traditional private equity, right? I mean, they really like to party in the sort of like middle market. OK, so sort of like $25 million to $250 million in acquisition value, right? Um, once you start getting below that, then you have this sort of like, you know, what you might call an acquisition entrepreneur and the sort of like Main Street market sort of sub $5 million dollar acquisitions. And when you are, you know, when you've got a, when you, when you're gonna Do a transaction that's between like $6 million.25 million dollars. There's really sort of, that's where the barbell thins out. The market gets even thinner, right? And so the thing is, is like, you know, if you look at sort of the average, you know, deal size of a search fund, you know, you're looking at like $12 or $13 million right? So, something that's a little bit bigger than maybe a financial buyer, uh, but something that's definitely smaller than traditional private equity. Uh, but, uh, you're still getting a couple million dollars in adjusted Ebita, right? So these are very meaningful. Companies, um, it's just that these, these, uh, private equity firms have, uh, I believe it's like $3 trillion now just in dry powder. So, yeah, yeah, yeah. So yes, since they put in 40 to 60% equity infusion in every deal, you can take that $3 trillion multiply it by 2. That's how much money they need to deploy, OK? So the thing is, is like, these are not bad companies. The private capital markets have had better returns than any other. asset class in the world for decades, OK? And so it's people who own companies or the people that are getting the best returns, period. And the thing is, is that like by, by targeting under private equity, that's exactly what my whole career has been about, right? I mean, that, that's, that's to me the, the gem where you can sort of get in, but there's not a whole bunch of institutional capital, like driving the price up, um, and, and, and sort of like fighting you for those opportunities. So if you can manage it, and if you can get the capital, I think that's the That's the golden ring right there. If you can get the Capitol, that's the biggest deal. So let's go back to that viewpoint. So what happened to this, the viewpoint where you, I mean you tried to raise the, the Capitol and then it just Yeah, Viewpoint was Viewpoint is great. So, so, so backing up just a little bit, OK. I, I ended up going corporate after, after uh my MBA. Like I couldn't figure out how to actually buy a business. Like, like I started and, and I started realizing like this market is fragmented, it's opaque. I can't get any good information and, you know, um, everything from, you know, an investment. banker to a business broker to an M&A advisor, like, like I just couldn't figure it out fast enough, right? So I ended up going corporate. Just curious, were your parents in business entrepreneurs? Did they buy or you got it. You got it. So my dad ended up owning a company after uh two people died. He works there, he works there. I'd say he worked there for 20 years, um, and, uh, 2 people died and he ended up with the company. Uh, the thing that, that maybe is maybe to your point, both of my grandfathers owned their own companies. Yeah, that's the entrepreneurial. I'm not saying you can't do it, but sometimes it's passed down this like, here's what you should be doing because that's right. That's right. I, I, I mean, the, the thing is, is that like you'll see my book is actually Dedicated to the memory of my grandfather, Bob Dale. And, um, uh, Bob, uh, bought, he, he, he, uh, he had a, a feed company, like, like, like while it was being like, like rolled up by these big firms, right? So like a cattle feed company ended up selling it based off of the balance sheet, took the offer, sold the business, and then he went out and he, and he acquired a filter company. OK. So we actually bought a small business and did this, right? And so the thing is, it's like, you know, we look at, you know, all these iconoclastic entrepreneurs, and we're just like, oh man, you know, Jeff Bezos and like, like, like Elon Musk and all these, all these things and like they grace the covers of these magazines and it's all about the startup. But the, the truth is, is these are exceptional people. These are exceptional results. And the thing is, is that like if, if you want to, you know, just you The baseball analogy again. If you, if you want to get in and, and, and swing for the fences with like the best hitters, you know, in the league, then like you, you can do that, uh, or you can focus on getting on base, right? And we all know, you know, we've all seen Moneyball, and I mean, you know, you know, this is how, this is how the sort of like underdog, you know, baseball teams were able to win World Series, right? So, so the thing is, and the the thing that's slightly less well known, by the way, is that, um, Elon Musk, uh, acquired PayPal. And he acquired Tesla. These were small businesses that he bought, right? So we all like to think like, oh, he's a co-founder of all these things. He actually got sued by by uh uh changing his title to co-founder of Tesla. He got sued by one of the real co-founders, right? So the thing is, it's like, it's, it's not about, it's not about, you know. Starting from scratch, like buying, buying a company at a million dollars in revenue and, you know, accelerating the value creation is entrepreneurship at its purest form, right? So whether, whether that be, you know, starting completely from zero or starting off the ground, you're still doing the same job. Yeah. Your question was about, uh, uh, viewpoint. I'm sorry. Let me circle back. OK, help it around because when you mention this, it's like, OK, if I set myself in the shoes of Elon Musk and I'm looking at All these companies on micro acquire, where there's no broker dealer relationship, they just charged $300 to get on there and I like, wow, if I can identify a trending opportunity where the guys already got it started, that could be a good opportunity, just like Eli. Yeah, exactly. Um, and, and I, you know, I think that, um, you know, through my career. Uh, I have ended up acquiring $16.5 million in revenue. OK. And it, it ended up being over, you know, 7 different companies and like 3 or 4 different verticals, right? And frankly, I, if I did it again, instead of, instead of acquiring and instead of, instead of thinking of myself as sort of like the smallest little private equity firm that no one's heard of, I wish I had bought all in one vertical, right? Because that that's a huge company and and you get multiple expansion or evaluation expansion as you get bigger in a different pockets, right? So, um, Uh, you know, pulling it back around. Uh, I went corporate, and then I started looking for a business to acquire while I was working. And I ended up, I, we can go into the story if you want, but I ended up buying my company, well, hold on, I ended up buying my first company which was Corley Printing Company, OK? Chorley Printing Company. Yeah, and I ran this company for 7 years, OK. Um, and then I ended up exiting to an acquisition target. OK. What happened was, when I exited in 2013, Um, uh, between you and me and everyone listening to this, I, I, it was the same month that I paid the last payment on the, on the debt to acquire the business. OK? So I had an exit, uh, uh, you know, a meaningful exit on that day. And the thing was, was, I was like, right, what am I gonna do with this? And this is where Viewpoint came along. I, I did the startup thing again, OK? You already know how this, how this ended. Oh yeah, yeah, yeah, so Viewpoint, I mean what Viewpoint had going for it was um A great technology, a proven dev team, uh, we had the CTO of a of a publicly traded company working with our dev team. We recruited a Microsoft executive to be our CEO. We went through one of the top 10 accelerator programs in the world. We oversubscribed the capital raise and we couldn't actually get anyone to go from a free, you know, beta to actually paying for it. OK, and, and, and I think that like a lot of times people are like, oh, you know, like, not we didn't have product market fit or whatever, but our core issue uh with that company was that Users loved it. They relished the experience of Viewpoint. The problem was that our target market was multiple users inside huge companies. So we needed the CTO of these companies to sort of like take half an hour with us and allow us to integrate it into their SharePoint system on their server, OK? That's all we needed. Um, and the thing was, was that like what we concluded was Because the users loved it. It was never important enough for a CTO to, to become like one of the top 3 things that a CTO is spending time on, right? And so, and so when we pivoted to try to sell it directly to consumers, we ended up shutting down uh SharePoint servers across the country with different, uh, companies, and that was, um, you know, hashtag fail, don't do that. So it's sort of like our, our end users wanted it, but the one person sort of like holding the purse strings and like access to the server, like we were never important enough for them. So it completely fell apart. No key customers. Yeah, I mean, we were running beta programs at, you know, I don't want to name them, but like, you know, if I said that these firms, you would know all of them, right? I mean, they were big companies. Um, we just couldn't, couldn't get it around the corner. Um, so we ended up selling, you know, the, the, I, I say I've had 2.5 exits, uh, viewpoint being a half, cause we sold the, we sold the, uh, codebase for 10 cents on the dollar, right? Oh jeez, yeah. Yeah, did they take any of the aqua hires with them, the programmers, or just total just yeah the develop it was actually the um the employer of the third party development team that was also a minority shareholder that ended up acquiring the thing. All right, yeah, exactly. So they took it in-house and uh uh went with it that way, which, which was the right move. We were just glad that they wanted to buy it. Um, I don't know the status of it now. I don't know, so I wish I could tell you. Well I I I have a story on that, uh, I was part of Intuit and my buddy uh launched Step Up, which was, this is where the early days of the internet, he goes like it it's helps small businesses get found on the internet. And Intuit bought the company for $60 million shut everything down in one year, and kept the two developers. It's just technology didn't do what it, what we thought it could do. Yeah. And you know, the just the way the internet was moving this day, but uh they did keep couple of programmers and that's it. Mhm, mhm. But he made out with $10 million. Well, that's nice, that's nice. And yeah, I mean it's like, it's like, it still had legs and and uh um uh you know, whatever, but but coming back to my journey, it was one of these where I was like, how come? Like, look, every time I start a company, I can't get it to work. And not only that, but like, look at the empirical evidence. It's the same as everybody else, right? And so a million ways to die in the west, and a million ways startups, man. Yeah. So, so that's when I was like, look, I mean, you know, when I, when I, when I, when you, when you buy an existing company, and you've got all the benefits that I just talked about and, you know, I, I, I've taken a couple of really strong at bats here with, with, with startups. Um, and, uh, so I'm gonna go out and buy companies. And so I went out and I bought 6 companies over. Over about, uh, I don't know, 3 to 5 years. Yeah, what's the first one that you bought? Uh, the first one I bought was, um, it was a fulfillment company, uh, based out of, uh, Springfield, Missouri, OK? And the thing is, is that when I went down there, so, so it was a broker that I knew and had worked with in the past, right? And he called me and he said, uh, how's that startup going? And I was like, oh, Gary, it's, it's on the rocks. And he said, good, there's a business down here, you gotta see it. It's a perfect fit for you. Get down here. And I went down and I, and I sort of walked it, you know, I pulled up and I, I sort of looked at the place and it was this very, you know, like, um, what's what I'm looking for? Um, um, unassuming building, right? I mean, just, you know, run of the mill small business, right? And I walked in and, and I met the, I met the two owners and, and my, my first hot take was, there's no way, like this is not gonna work, right? Uh, but it was one of these where, you know, I'd driven down there and I had a couple of hours with them, and so I ended up figuring out. That they had this really archaic sort of legacy ordering system that like all of their customers were actually using, OK? And uh it needed to be what I ended up seeing was like, OK, if we can upgrade this software. Then what we can do is create an Amazon-like experience for inside businesses to use with multiple locations, OK? I gotta ask you cause I know where you're going in this cause I've done that before. Are you applying your startup expertise on saying I'm gonna Really, exactly. Yeah, exactly. So the thing is, is like, you know, when I think about what should I acquire or where should we grow or like why startups work or not, it's really all about trying to harness the trends that are happening, right? And, you know, if you go back in your mind to like 2013 or 2014, right? I mean, Amazon was, was exploding, right? And so this was like, OK, let's do this in the B2B space. And so I bought the company. I used the cash flow of the company to build a, um, you know, a proprietary e-commerce storefront. So we then rolled out to, uh, once it was built, we rolled it out to all of our customers and we had over 20,000 users in the first week. OK, let me go I I wanna say one thing, one thing which is everything we were trying to accomplish at Viewpoint. I did it in 8 months by buying a small business and then, you know, using the cash flow to build the whole product and then rolled it out to existing customers. Your eyeballs just like like boom, man, what a, what a time difference and a. Absence of frustration. Yeah, so how did that negotiation go with the guy? I mean, uh, the cash flow of the business, was it SBA loan or uh yeah, I took it, I, I mean it was, it was textbook by then built strategy. You know, I put 10% down. I put a 10%, um, uh, cash infusion into the business, took an SBA loan for 90%, including accounts receivable, minus payables, plus inventory, plus a little extra working capital cash. A lot of cars, yeah, OK, yeah, yeah. So, um, finance the, the, you know, 90% of the whole thing, um, uh, I exit the, yeah, he exited completely. I, yeah, I wrote him a check that day. I won't say never talk to him again, but, you know, basically never talked to him again. Uh, he left, um, he was a great guy, very innovative guy, um. But uh I think, you know, I think he, what, you know, I don't say about him. I, I, I think one of his parents died and he exited and then he like bought a boat and with his wife and they moved on to like the Pacific Ocean somewhere. I don't know. OK. That's one of the top 10 reasons why you leave the business. Yeah, exactly, exactly. So he, he had a good exit, um, negotiation. Um, it was pretty, so look, a lot of people ask me like, You know, like in the acquisition lab, I work with, with, you know, a number of of financial buyers who are looking, you know, how do I, how do I get this done? How do I buy a company? And I'll work with a lot of them, and, and a lot of times, the question is sort of like, well, you know, I don't know, like, what do you think? Like this business, you know, there's a list price on it, and they're asking like a 3.2 times. Like, shouldn't I see if I can get a 2.9 times or 3 times earnings or like, what do you think? Like, is it too expensive? John, I just want to tell you, like, more often than not, we're talking about like, like a 3 times earnings is basically 3 years of earnings, OK? 3.2 times earnings or 2.9 times earnings, you're talking about months, OK? I, I don't get hung up with that. I look at the cash flow, I stress test it, and I'm like, OK, here's the asking price, fine, let's do it. So almost every single company I've bought. I've just paid the asking price. I, I don't get hung up in, in trying to negotiate the deal. I just, you know, people like I offer, and I'm like, what's the asking price? Like maybe throw that at them, right? I, I, look, you mentioned the stress test like 2 or 3 times in your book. I love this what you do for a company, because you know already I'm gonna go, look, I'm gonna finance this with debt or the cash flow of the company, and let's put it under stress test. And it's like I'd recommend buying this book because he talks about. That's exactly what you should do. If you can find a business that's doing 5 million bucks, whatever, because like, I need to borrow this money. Can the cash flow or the debt handle the business? Handle that loan. The best way to, the best way to build confidence in yourself is to take that business and just break it in an Excel sheet. What does it take to break it? And the thing is, is like. You know, when you really start to look at that, um, it builds in a tremendous amount of confidence. Cause I mean, a lot of these businesses, you know, they can drop, you know, 35% before you're really in trouble, right? And I, and, and, and based on an acquisition with maximizing the debt like that, you know. So, so, you know, I'm not, I'm, I'm not saying like run out and buy whatever, you know, but, but I think that if you want to build your confidence in, in terms of like, should you buy this company or not, you know, look at the um Uh, look at the cash conversion cycle and then just break it in a spreadsheet, break the business, see what really needs to happen. And you kind of related to a margin of safety that, uh, Warren Buffett talks about and his mentor that wrote the book. So, yeah. Safety. If you're gonna buy a publicly traded company right now, you know, I don't know what Apple's trading at, um, but it's probably like a 27, uh, you know, PE um price earnings ratio. Uh, if you buy, you know, fulfillment company in Springfield, Missouri, you might be paying, you know, 2.7 times. Instead of 27 times, right? So, I mean, it's just like the margin of safety is simply in the fact that the market is thin, that these things are hard to transfer, and that, you know, it, you know, when I went to sell that company, you know, I was really looking for someone within a 90 mile radius of Springfield, Missouri, who knew how to buy companies, who knew that it made sense, who wanted to get in this particular company, right? And I mean, we had a number of people that, that we were talking to, but You know, when you go to sell a company like this, like a bricks and mortar, you know, style company, the, the, the, the market's pretty thin. You might be talking to one person, you might be talking to maybe 3, you know, but, but you're looking for a very specific that guy just a year ago. Yeah, that's right. That's right. So, um, you know, I don't, I don't, I don't look, you know, it's, it's, it's probably a downfall of mine, but I, I, I typically don't get too hung up on the valuations when I, when I'm buying or when I'm selling. I don't try to, I don't try to drip every piece of juice out of the thing. Right. Now, is it, you know, the price terms ratio, if they get the price, you get the terms or if you get the terms, they get the, yeah, good. So the purchase price is really the sort of like um You know, I mean, you know, that's like the country club number, right? You, you walk around the country club saying like, oh, I sold my business for, you know, $25 million right? Well, you know, what if there was a, a, a, a, a, a 25% equity rollover, uh, you know, the inventory was getting paid on consignment. There's, there's a 20% earnout, there's, uh, you know, and then you gotta still work in the business for another 3 years and they're paying you $100,000 and And it's, and then there's an earnout component and I mean it's just sort of like what, what really happened. So I mean, you know, I've done deals, you know, where, you know, we'll sell a company for, let's just pick a number, OK, $20 million but they're, you know, they're only walking with 10 at closing and then that 10 gets taxed. They've got $5 million but like they can walk around the country club and say, hey, I sold for $20 million and it's true. It's all in the terms, right? All in the terms, yeah. Are you seeing that change right now with the froth evaluations? I mean, especially you, the private equity would $3 trillion encroaching on, I ain't see, I got a lot of friends that, and this happened to me. I was looking at an IT firm that was doing $5 million. He gets an offer from a private equity firm. They just threw out a number right at the front to lock him up. And then, you know, then they'll go through this, uh, the due diligence to go, no, you know, the couch is dirty over there and there's a blah blah blah and then it's down and by that time he's committed. So if, if you are a seller. And you're selling to a private equity firm, and you know, let's just say they're based in, you know, Chicago, and, and they run you through the mud, right? And you got to do all the like really hard ultra due diligence stuff with private equity firms, and they're paying a really high multiple, OK, like, like a, like a, like a high valuation compared to market. Um, and then they say, OK, uh, we've been in diligence for, you know, uh, 4 months, and it's been a grueling experience for you. We're gonna close. Why doesn't everyone fly out to Chicago and then we'll just close in the morning? You're about to get screwed. You're about to get screwed. That is the demo, man. That's when they walk in, you're sitting there at the closing table, and they walk in and they're like, oh. We need to change it, just a couple of these things here, right? Cause now they got you, right? And by the way, I need you to stay on for 3 years. What? exactly. Yes. So what was, so 7 different businesses, but when did you find that, gosh, I just need to specialize in a niche, you bought this fulfillment company, I get out. What was next and what was next? I go like. I need to focus. Honestly, I didn't really want to even sell the fulfillment company. It just became like, um, you know, I, I sort of like lost a key man and uh it was like 3.5 hours from my house, and I had like, like, again, my, my mistake was buying in too many verticals, and so, um, I'm gonna quote um Uh, the movie Print the Legends, if you, if you, it's a, it's, it's like the second ever Netflix original, and uh, it starts off with this quote that says, um, when you're a leader, when you're CEO, every day something comes up and smacks you in the face, right? And, and the thing is, is that's true, OK? And when you own, you know, 3 different companies and 3 different Verticals with 3 different business, uh, value propositions, 3 different customer profiles, 3 different suppliers, you know, you know, all the rest of it. My head was just on swivel all the time, right? The thing is, it's like my phone would ring and it'd be like, All right, what's up? And it was just like having to solve problems. It was just a problem. It was just a problem. So I, I, I really needed to. Get start to get things off my plate, right? So today I own two companies, um, well, that I've acquired, uh, and I, in a weird twist of irony, I started the acquisition lab to teach people how to buy businesses. Uh, but anyway, it's, it's, uh, you know, so I own, um, a railing company. We do a fabricated aluminum railing, and then we also, I also own a um uh an online uh uh e-commerce business where I sell toilets. OK, that's really interesting. Mhm this is funny because I talked to Joe Valley. I was talking to him and I go, OK, Joe, this company that you built up to 1000 employees, you said it's digestive. What the heck was that? He goes, uh, colon cleanse. That's great. So you guys are in the same kind of business. Me and Joe, we're in the same thing. He was in the Cola clans, so you're in the toilet. Yeah, exactly, exactly, yeah, exactly. I'm the receiver. So, uh, he's the giver. I'm the receiver. Can I say that on the air? Yeah, it's like a, oh, I immediately regret that. So, uh, what's uh the railing business. Now why did that, why were you attracted to that? That sounds like another, you know, like physical manufacturing plant with lots of employees, which I love. I mean, I mean a couple of reasons. Look, number one, so if you're on the coast, OK. You have, uh, you, you've got saltwater and you have to have custom built fabricated aluminum railing that's powder coated so that it doesn't corrode and rust, OK? You have to have it. Yeah, the Golden State Bridge is is painted every year with this, yeah, OK. So, so, so the thing is, is like that's where that product lives, but once you get into the middle of the United States, you really have two options, uh, steel or like, you know, rickety screw together aluminum. Steel is often rusted right when you put it in, OK? You, you start putting in um this rickety screw together aluminum stuff in, in Saint Louis, and it gets hot, it gets cold, it gets hot, it gets cold, and it's just like a really inferior experience, right? So the thing is, is like I bought this company because it wasn't reinventing the wheel, but it really is the only one supplying the superior product. It's got like a 25 year shelf life kind of a thing, right? And And it just looks absolutely fantastic compared to anything else. So we do, we do awnings, we do screen rooms, we do railing, we do single piece spiral staircases, um, and we've got the, the largest powder coat oven in the Midwest that I know of, right? So we'll put the entire, we'll put the entire staircase in the powder coat oven all at once, right? And it's just a big powder coat oven. Exactly. And so the thing is is like you can, let's go back to startups. Feel free to run out and buy a large powder coat oven and try to sell services or, you know, go by a company that's already doing 7 figures in revenue and and say like, OK, you know, I can, I can, this is a great product, no one else is doing it, um, and, and I can, uh, you know, I, I, I know how to grow it. How, how did you find that one? Through a broker or, or it was, it was actually, um, so when I uh ended up selling the, yeah, through a broker, so, so. The thing with deal flow is that once you get it, you can't ever turn it off. Why, why is that? Tell me about that. Well, it's just one of these things where, um, you know, like, you know, in the, in the, in the book I talk a lot about, um, uh, you know, figuring out what, you know, the business plus you, right? A lot of times we, we spend, we spend all this time looking at the business trying to figure out like what's the intrinsic value of this business. It's the wrong question. The magic is not in de-risking the acquisition. It's what do you bring to the table as the CEO of this company, OK? And so you need to figure that out. And what happened was, you know, I like a broker that I had met, I don't know, I mean, let's just say 5 years ago or more, I got an email from him, cause I've just, you know, you're out looking for a deal, you start getting on all these email lists and all of a sudden this email shows up and and it's, you know, I'm looking at it and I'm like, hmm, I know exactly who should manage this company. And I called him up and I said, hey, uh, you know, don't, didn't, I mean, wouldn't you say that you've done, you know, more aluminum fabrication and and finishing than like maybe anyone else in in the regional Midwest? And he said, yeah. And I said, hey, there's this company for sale. You want to go look at it with me? He said, yes. And we drove out there and we looked at it, and we walked through, and he's really, you know, his background is like operational excellence and like just really making companies hum. And uh we're walking through and I'm thinking in my head like, OK, as we're walking through, when we, when we debrief later, he's gonna tell me that, that, and that, right? And we got in the car and he said uh Walker. This is like the 2nd best opportunity I've ever seen. So I bought the company, put him in as the manager, um, and then, you know, we just like increased throughput. And, and, um, he, he is actually no longer with the business. He, he went on and, and did other things. But, but, uh, I bought it because we knew that we could get in there and improve profitability and throughput immediately. And so now, you know, um, you know, a job for him or did you offer him equity or? Yeah. So he actually had um Phantom equity, uh, which is what I I like I never applied it, but yeah, I like Phantom equity. And the reason why for, for those listening, stock only matters, you know, really on the day of exit, right? I mean, that's, that's, you know, that's when you get the reward, right? I mean, every other time there's really no benefit to owning equity, I guess unless there's a whole bunch of equity holders and you need like, you know, the, the politics of it, um. But so the thing is, is with with phantom stock, what it means is, is like, look, you work here, you add value, we exit, like you get this piece of the company, right? Uh, but if you quit, Then you're walking away from the equity, right? And now I, who have a personal guarantee on, you know, the acquisition capital, OK? Um, I get to retain all of my company and I don't have like a vesting schedule, and now, now that you're fully vested, you left me, right? I don't, I don't want pieces of my company flying around elsewhere, right? So you either stay with me or you don't. Um, he ended up getting an an amazing offer that I would have taken, uh, if I were in his shoes. It's just, you know, so, so he ended up leaving, uh, but John, the point is, is that like, so many of these baby boomer companies had product market fit, you know, before the internet, OK? And so the thing is, is like, I think that the sort of like golden ring. Uh, that is the greatest opportunity of our lifetime is not only the fact that you've got $10 trillion OK, it's like 46% of the of the economy needs to change hands by the end of the by the end of the day. Yeah, the baby boomers, yeah, huge. But the, but the thing is, is that like, these companies were all built in the sort of old economy. And by using new economy, uh, uh, uh, levers of value acceleration, OK, if you can, if you can take that old economy, uh, infrastructure and grow it using the new economy frameworks that we have, that right there is the biggest opportunity that we have. If you can get that right. So that guy that you hired, I mean, it's a big part of finding a business. You trusted him. With your business to build to like look for the uh look for the ways he can improve and to grow it, and did he, did he just like, hey, I'm leaving, I'm gonna take this, and he tell you up front or was it nice? No, no, no, very, very stand up uh uh exchange. I mean, he couldn't have done better. It it was one of these where, you know, he, he had been chased and chased and ultimately, you know, um, uh, the guy who ended up hiring him ended up in a hospital bed and just basically called him and said, what's it gonna take? He, he couldn't, I mean, yeah, so, so he just had a, a different opportunity and went a different way, but he, he, um, he told me what was happening. He exited perfectly, um, you know, he even, um, uh, helped me hire his replacement, uh, uh, but I didn't, I didn't hire those people anyway. I had someone else that I pulled from my bench. So, you guys took it over. Did you grow it? Would you say after the, how many years have you owned it? Yeah, um, I, let's see, I've owned that for, um, Let's say, what year is it? It's 2021. I probably bought it in in 2016. Um, so you have to understand like when you have, um, the first, the first piece of acquisitions is that you get equity build up just like real estate, right? So, so the thing is, it's like if you buy a business with debt, even if you don't grow it, and the and the value of that company stays exactly the same, just by, just by the company bringing cash in and paying, paying the debt down, you're building up equity so that when you go to exit at that same dollar figure, you get all of that money, right? leverage. I love that. That's step one. That's step one. Step two is appreciation of the asset, right? So like, how do we grow this thing? Um, we've definitely grown it. Um, we definitely have a very strong culture now. Um, and you know, what, how much have we grown it? I, I'm on the spot, so I don't know, but I would say we've probably grown it 25% to 30% over the last 5 years. And the people working there, good salt of the earth, people that I, I mean, it's a fantastic. I mean, like I love this company. Like there's nothing. There's, I mean, look, I, I've got an e-commerce company. Like I love the 4 hour work week model as well, right? The thing is like when you walk, I've got 3 buildings, like, like when you go out there, I've got 3 different buildings, I got guys sparking metal, you know, it's just like seeing the physical product and like the stuff coming out of the ovens. I mean, you know, the, the guys come out and they've just got like paint all over their faces, you know, it's just like, yes, like there's just something about. You know, making things that, that, that has gotten lost in the new economy, you know, and I just, you know, that's a kind of point I wanna make, you know, there's a contract to say contrast to building an internet company where you just go like, it's dead, move on, I don't care. It's dead, move on, let's go. That's right, yeah, but these people, you're actually, you have people on your payroll and they become, would you say they're family or just still employees? I mean. Um, friends, or you keep that distance? You have to keep that distance. Um, I, I have never crossed that line, right? Like, like, I don't, I don't, um, and it's not like the thing is, it's like, I wanna work with people that I respect, but I don't necessarily, we don't necessarily need to be friends. Like we're all there with an agenda, which is to create value, right? Um, so it's it's never been my goal to do that. And in fact, Um, you know, like, I'm, I'm on the board of a company where, um, it was just, it's a startup. It's a very successful startup, and the CEO found out that uh the employees were going out and like having drinks and like, weren't inviting them. And it was one of these where it's like, yes, that's exactly right. Like like they no interest in attending a bunch of exactly like like it kind of hurt his feelings. Like he was like, I thought we were friends and it's like, no, you're not friends. Like there's employees and there's owner operators, right? Like that's that's the difference and as much as you can pretend that that line isn't there, it's there, it's there. And the thing is is that like You know, when, when my employees, who I love and value and respect, go home at night and go to sleep, they're not up thinking about like what's coming at me. Like, like how, how do I manage the cash flow of this business? How do I grow this business? Um, I've got a personal guarantee on, you know, whatever, you know, 85, 90% of this company, you know, I mean, it's real problems, right? And you've owned that for 5 years. Is that uh uh loan almost paid off? Uh, it's a 10 year SBA note, so halfway. It's all downhill now. Yeah, yeah, yeah, by the way, I want to say something, um, you know, when I buy a company, I, I don't want people to think like, oh, this sounds great. I'm gonna run out and, you know, buy a company doing half a million dollars and, and, and then I'm just gonna start paying myself like hot and heavy right away. I really focus and promote, eat ramen noodles. OK, make this, make this like a bootstrapping exercise. Build up cash. Don't make a mistake, right? So you want to build up cash and, and, you know, don't, don't jump in and start paying yourself like a huge salary right away, OK, because you, you will succeed, OK, as long as you live low on that totem pole at the beginning. OK, I, I, I'm gonna completely agreement on the same side. Like, if you read anything about Warren Buffett, he spent a total of $300,000 on Office, everything in the last 30 years. I mean, he's incredible. He applies capital capital allocation is just like it needs to be reinvested in the business or given back to the investors, yeah. That's right. That's right. So, but the thing is, is that like the, like, look, I mean the, the default rate on, on, on acquisitions with SBA loans has remained below 2% for decades. OK. Uh, the highest it ever went to was like 1.7%. The number one lender that I work with, um, has had one, default, OK? When you start with a company bank that you would like to mention. Um, so, uh, different realms, so, so, so I, I don't want to confuse everybody. So, so, um, there's plenty of awesome banks out there. It just depends on what you're, what you're looking for, right? So, so, um, but the point is, is that like if you look at, um, the, the data coming out of Stanford, OK, there's a lot of data that's going into uh search fund, the search fund community, right? Yeah, yeah. The thing is, is that like, the thing, you know, you can start looking at returns and you'll see that, you know, on our fulfillment business, we've got a 52% compounded annual growth rate during the five years I owned it, right? You can look at, you know, 10% of these acquisitions are getting 10%, you know, IRRs, OK? Um, if you look at internal rate of return, OK? Um, when you look at, um, the, the About 30% of them though, OK? 25% to 30% of these acquisitions are just kind of breaking even. Like they're, they're not, you know, so then you've got about 70% of them, it's actually 69% that are more than doubling their money while they do this, OK? But the 30% is kind of clawed by. The point is, is that your risk is not in defaulting. Your risk is in becoming one of the 30% that isn't doing very much, right? And so the thing is, is that like you, you need to protect yourself and the way you protect yourself is not fail. And so rule one is gonna be pay yourself nothing, build up cash during that first couple of years, and, and, and build up strength in your margin of safety so that you don't you, how much time do you spend with that railing company? Uh, not a lot right now, cause I have an excellent CEO in there, so I'm, uh, I probably spend An hour a week and then probably another um like half a day meeting once every 60 days. Yeah, I think, you know, time is the the one commodity you can't be any buy-in of and that's really important to that and see that, yeah. And especially if you're gonna, if you're going to, if you're gonna buy a company based on sellers' discretionary earnings and then you put in a manager, now, now you're really operating off of adjusted EIDA, OK? And those numbers are different. OK. And the thing is, is that like, uh, it becomes even more important to, to, you know, uh, not take cash out and just build up cash and let the company start to build equity over time. So the, the thing is, is there's sort of a scale or a spectrum. And I think on the one hand, you can say like, OK, I'm gonna own this business, I'm gonna operate this business, and I'm gonna pay myself to do it, OK? On the other hand, you can say like, all right, I'm gonna acquire this business. I'm gonna put someone else in. I'm gonna keep all my time, but I'm not gonna take any cash. We're gonna leave it all there and then just build up cash and then once you hit a point where um your, your, your cash balance is exceeding your sort of working capital needs. That's when you start taking distribution. Yeah, right. Do you have any plans to take this railing business and look at her other agency type businesses or, or, you know, competitors in the area. So you get it to a level where it's, you're gonna get the best payout with the private equity. Yeah, so I think that, um, you know, the thing is is that like the the the the upside potential of this business is actually enormous, right? So, um, I think that it's all about making decisions around, um, how we want to do that. And, and, you know, I, I'll leave it vague and just say we have, we have a number of different options that could, that we could go to grow it aggressively and we just need to kind of decide which one. Yeah, I, I, the only reason I brought that up because if you said, hey, I got a company doing railings and then an e-commerce company selling toilets, the private equity company would offer you the biggest price goes, hm. I'm not seeing the synergy between those two. Yeah, well, those are different, different legal entities, by the way, my company is a different legal entity. How did you come across the, uh, the toilet cover? Why the toilet? Yeah. So, um, again, you know, I've got this sort of passion for old economy meets new economy, right? And, you know, when I ran the printing company, um, you know, we had, we had a book printing company, and the thing is, is during that time. You know, um, the iPad came out, the Kindle came out, you know, I mean, you know, like there, like newspapers are going out of business and like in that last act of desperation, they started going after our customers. So we had a lot of technological innovations sort of coming at us, right? Um, I, I ended up using that to sort of create the strategy of the company, different story. The point is, There is no technological innovation on the horizon that will keep us from needing to poop and pee every day. Oh my God. You are a Warren Buffett fan because he talks about I look for businesses where the behaviors don't change. Like if I buy a gum, they're gonna be chewing gum for the next 100 years. That's right. They're gonna be buying insurance, they're gonna be traveling on trains, etc. Yeah. So the thing is, is that, is, you know, my, my site is called uh Santa Flow Depot, OK? And basically, what, what the Santa Flow product does is it allows you to, to install a toilet anywhere. Uh, at about 1/10 of the cost, OK? So instead of, instead of bringing a plumber in with a jackhammer and like running new pipes in your house, OK, that's gonna take, you know, 4 or 5 days, maybe 8 to 120. This is like $1200.04 hour DIY install and you're done, OK? And the, and the thing is is that it discharges out the back into a macerator. Garbage disposal. And then it and then it pumps it up through PVC piping and you just run it to your existing stack. Yeah, so you're done. So, so just by, by rethinking, so no longer clogged toilets. You don't have to bring somebody out there like that snake. Yeah, that's right. I thought about making a YouTube video, like, will it eat that just like flush like an iPhone and you know, I I haven't done it, but. It's so, it's so gross. You might get a, you might go viral. Yeah, yeah. So, so it's, it's, it's one of these things where just by rethinking, you know, the toilet and, and plumbing, you know, we're able to save people a bunch of money. So like you're finishing your basement or, you know, you know, you, you, you want to turn a closet into a bathroom, or, you know, um, you know, someone gets injured and they have to live on the first floor, you know, whatever, whatever the application might be. So, yeah, cool. And then that was through a broker you found? That was actually through quiet like brokerage, which that was through, yeah, my favorite, yeah. So what happened was um it was a private, it was sort of a, it was sort of a private listing, um, and by the way, I gotta stop because I did ask Joe that question. No, we don't do that anymore because we want to get the best price. So this was, this was actually asked, that's true. We don't do that at Qu light cause I'm with Qu light as well, but the, the point is this was a buyer. That very specifically didn't want it out there, OK, so this this rarely happens. And so she um wanted or seller, I'm sorry, she wanted a really small pool of buyers and Mark Dow, the founder, asked the other brokers like, hey, who's looking right now, who's a good buyer? And I just talked to Joe Valley, uh, on a, on a deal, and Joe told Mark, hey, uh, you, you should call Walker with this one, like he's he's fantastic, um, that's what he told me he said, yeah. Anyway, um. I got the I got the prospectus on, let's just say, um, Thursday afternoon. Um, I, I had Mark Doust on the phone on Friday. I talked with the seller Friday afternoon. I put in an LOI full price on Saturday, and, you know, we were under LOI by. You were already approved for uh SBA loan on that? No, cause that's, that's not how it worked back then, right? But, but, you know, you just, you needed the deal first, but the, the point was, was that like, Here's the point. When you're a first time buyer, you can't make a decision that fast. You don't understand what you're looking at, you know what I mean? And so the thing is, is that like it was just, I looked at it and I was like this, and I bought it. And I think, I think on 3 different occasions, I've seen a prospectus, I've talked to the seller, and I've put an LOI at 3 at full price, 3 different times. Well, that's, I mean, I mean like in like 48 hours, you like just boom, right? So that's exactly what the seller wanted. Yeah, exactly. So the thing is, is that like, like, think about, think about the goodwill that I just built with the seller as well. It's like, all right, we're not screwing around on price. I don't care if it's a, a 3 or 3.2 or 2.9 or a 3.4%. I don't really care. It's about, it's about like, you know, how did the evaluation or Joe if he's involved, and they are pretty good about that. Yeah, an accurate valuation for the business. That's right, because of their formula they put on a business. Now they've probably modified that formula over the years, but 8000 conversations later. Yeah, and I mean, you know, the, the, the, the, the valuation that I paid was a little hot. But, you know, it was a little hot by months. You know what I mean? Like, like it wasn't, I mean, you know, I mean, let's just say own the company for 10 years. I, you know, you don't die with a company. I mean, I have no plans to sell it, but like, you know, if I owned that company for, for 10 years and I ended up giving the seller, you know, 90 days' worth of earnings over what I should have paid, who cares? Who cares? Not me. So what's next? I mean, what's next on the next, uh, type of acquisition? I you gotta be out there somewhere, but, uh, yeah, so, so, so my life kind of moves in, I've got 3 buckets that I operate in, right? So, so my first bucket is sort of like businesses that I've acquired. So we talked about that. I own, I own 2 right now. Um, the second bucket, um, is I'm a, I'm actually a broker, an M&A advisor with Quiet Li, OK? And so I help online entrepreneurs exit their businesses, all right. And then the third thing is, um, Everything's sort of buy then build related, right? So, so, so, um, you know, I teach at, at, at WashU. I teach acquisition entrepreneurship, um, you know, I, I do speaking engagements on buy thenBuild and, uh, the sort of magnum opus is this, is the acquisition lab where, you know, uh, first time buyers kind of apply to work with us. And it's the first do it with you by site advisory service, right? So it's, it's world-class education, it's coaching, it's tools, and it's community. And we really have even at like 150 people, we have the single largest bedded community of buyers, right? Um, because no one's done it before. That's why I can do it, you know, so low. But so I've got about 150 buyers. Um, and the irony, of course, which, which we mentioned is, is now I've got a start up again, right? You know, the acquisition lab. But, but here's the thing, what's next for me, which was your question. I, um, I just quietly launched a website called Searchlist.com, OK? And the concept is the following. The private capital markets have better returns than than any other market, right? But in order to get involved with that, you have to buy a privately held company, right? Um, I've got 150 people right now that I'm working with they're actively looking for for businesses to acquire. They would welcome, you know, equity investment. Why wouldn't they? Now they can buy bigger deals, they can, they can uh reduce their risk on, on, you know, earnings. Maybe they have to come up with no, you know, zero out of pocket cash. And so the point of Search List is to, um, uh, generate a newsletter that has uh investors signing up so that we can match uh as soon as, as soon as. My buyers get deals under contract, we can run a newsletter and invite, invite, uh, incoming, um, capital. So we closed our first deal and had $5 million in, in capital raise, uh, and our second one right now looks like it's going to raise about 7, right? It's, it's like an angel list and a syndicate. That's exactly what it is. I want to create the angel list for, for, uh, uh. Lower middle and and and Main Street private market. That's great. That's it. Are you taking a piece of the company also in that with the value you bring, or yeah, I'm, I'm still working through the business model, frankly, John, I mean, I'm just trying to like get deals done right now, um, but the way it's currently priced is we're taking 2% on the equity rate. So not, not big dollars at, you know, 5 $7 million. No one, no one cares about the 2%, but um. Uh, we'll see how it goes. I want to start, what I'm doing is I'm, I'm, I'm actually following uh how Angel Lis started, which was a newsletter, and then they started getting deals done, and then they created the platform, right? So, so, you know, you look at, say, like Searchfunder.com, and I think that's, it's, it's a fabulous site. I think it, it's, it's more like LinkedIn for that kind of, you know, NBA. Group of of searchers, um, um, but I think Search List is, is the, the sort of angel list for, for these types of deals. God, I love that idea, man. That's great. I've been a part of Angel List for a long time and it's funny how they go, gosh, I got a list of 50,000. Some are very wealthy. What should I do with it? Right, exactly. Exactly. Yeah, I mean, we, I mean, we've got about 40 investors on search list right now. And, um, I like, I don't know for sure, but, but I, I look at the names and I know the size of some of these people and firms. And I mean, there's, there's already over 100 million, um, signed up, just looking to invest. So now I'm just trying to figure out like, OK, how do we get them the deals they want and how do we sort of, you know, get, get these acquisition entrepreneurs, the money that they're after, right? Yeah. And then you're kind of doing cradle to grave with being associated with this part and the deal flow with the book with the accent, yeah. And and everything in between. Yeah, well, look, it's, it's, I've already talked to you for 1 hour and I think I could go for 2 hours, but I appreciate your time on this. This is Joe, thank you so much. I like I love talking about nothing else. I, I, I have to recommend everybody get out and buy this book on Amazon. I am not an affiliate, so I don't make any commission on it. I just enjoyed the read. It's very good. by then both. Thanks, Walker. And thank you so much. Great to be with you. Cheers. Bye.