Ep 559 The Good, Bad and Ugly of a $2.1M Searcher Deal | Built to Sell Radio

John Morlow You pay them a subscription fee of some sort, or like, how did they monetize you?

Dan Burnside Yeah. So they monetized initially, I think it was like $5,000. It was immaterial compared to the cost of a business. And so I, I paid that and then different stage gates, they like asked for more money. Eventually, eventually I ended up firing them, going my own way. But yeah, so you kind of do that. And then they had like a weekly seminar you would attend and talk with other people, just kind of on like what they're doing, what they're seeing. And so it was, it was like a network of people doing the same thing as me.

John Morlow What made you fire them?

Dan Burnside Well, After we integrated, their big value prop was that they would help me integrate and they didn't. They just wanted to pawn me off to other consultants who were gonna charge me more fees. And I was like, well, I actually have problems with cash flow. So a lot, a bunch of consultant fees exacerbate that issue. So that was, that was like why that ended.

John Morlow Got it. Okay. So you're get— you're getting webinars, you're getting educated. I'm assuming you're also getting excited. They, there's a sort of an excitement that, that goes into this ETA world as well. No?

Dan Burnside Yeah. Yeah. It, it's really exciting. I, so it was exciting enough that I, like, I participate in recreational adult sports. I stopped doing that and spent 4 hours a day before work every morning dedicated to the search. So I woke up at like 4 or 5 and worked on that until about 9 when my day job started. Then I did my day job. The kind of like impetus for this was I had a boss that I like loved. This guy was like one of my favorite people in the world and He quit and work wasn't as fun anymore. And then he, you know, me and him talked and he talked about like maybe me following him. I was like, no, no, no, you should do what I'm doing. So he now owns a business. I like talked him into doing it. And so it was kind of like, this is like, it felt right. And it seemed very logical at the time of like, yes, I like see how businesses work. I can do a lot of this. This is, this is like a very logical path as opposed to working for someone.

John Morlow But you didn't have an idea per se for a business of your own, unlike your grandfather and your father who were, you know, started something. You were like, I don't, like, I like the idea of being entrepreneurial, but maybe a franchise where there's a bit of a playbook or maybe buying a business where there's a little bit of an infrastructure that appealed to you.

Dan Burnside Yeah. I felt like, so I, I got my MBA around like 2015 to 2017. And I like studied entrepreneurship quite a bit through that. And like a large thing they talk about is like solving a pain in a market. And I felt like I was having trouble identifying specific pains that I thought were large enough I could scale a business or do something. And then also like my father did lead-based paint inspections for homes, which he started right before the great financial crisis and a bunch of homes got repossessed and had to be inspected. So it went great for him and he like found a really good niche and like But you can't scale that. That's like a one-person operation. And I wanted something where I could like scale and grow. And I'd read Build Then Buy or Buy Then Build.

John Morlow Great ebook.

Dan Burnside Yeah.

John Morlow Great book.

Dan Burnside So I was like, oh, and I also thought, and this was wrong, but I thought like, hey, I've 2 young kids. I have a wife, I have a family I need to provide for. I can't go multiple months or years without cash flow. I need be able to pay myself. And if I start something, there's going to be like a dip in my personal, like revenues. And so I want to buy something that's already cash flowing that way I can pay myself while I work on building it.

John Morlow Interesting. So you had a wife and a child that you were—

Dan Burnside Yeah, 2 at that time.

John Morlow Yes. Got it. So, so the idea of buying an ongoing business with revenue customers appealed. You've got some support from this consulting organization that's coaching you through this, providing some insight. Where does it go from there?

Dan Burnside So it took me about 7 months to land on the deal that I did. I had multiple LOIs prior to that.

John Morlow Back up a second. So I want to get to the deal you actually did, but let's just talk a little bit about the search process. I mean, for my listeners, they're often getting, they're on the receiving end of searchers' emails. And so part of my goal is to sort of get them inside your head as best I can. So when you're spending those 4 hours before work, like walk me through what you're doing. Is it all a, like what are you doing in that 4-hour window?

Dan Burnside So I went through BizBuySell and probably looked at every deal on BizBuySell. I was like geographically agnostic and I, I kind of wanted to be in the home service industry. I wasn't like fully sold on that. I would've done manufacturing or something else too, but I, yeah, I, I just went through and any other websites that listed businesses, I went and looked at those. And I reached out.

John Morlow What are you looking for? What, what, what are you looking for in addition to home services?

Dan Burnside So my criteria was that they had at least 10 employees. I thought it'd be hard to scale something without 10 employees. And I wanted at least a $500K of SDE. I figured that would leave me enough room to invest in the business and do some other, other pay myself. And maybe my, initially my assumption was I'd been part of the US Airways American merger early in my career. Half the employees left. So me and my peers that I'm biased to think were the good ones, I assumed there was going to be employee churn. And so I was going to invest more into employees right off the bat. And so that had been the plan of like, okay, I'm going to give you guys 401. I'm going to be healthcare right off the bat and raises. And so Those, that was kind of like why I wanted that EBITDA number so I could like comfortably do that.

John Morlow And just so I'm, for my listeners, they may not be familiar with SDE. That stands for seller's discretionary earnings. It's an expression of profit, which takes into consideration all the benefit, the economic benefit the owner gets. So it's a business with at least some profitability is what you were looking for. Got it. Okay. So 10 employees, $500K in SDE. Got it. And were you just independently wealthy? Did you have just a trust fund that you were going to fund this thing? Like, where are we going to get all the money? To buy a company that was generating half a million dollars of SDE.

Dan Burnside Yeah. So, I, that, this is what had kept me from buying businesses. And when I got linked with that group, one of the really good things they did was introduce me to, the SBA world. I didn't know that the SBA existed prior to that. I mean, like probably like most government agencies we don't know about, right? But, you know, I started researching and I could put 10% down for like a business, and then they would fund the remaining 90%, or there'd be some sort of seller earnout, or there's, you know, there's a bunch of different ways the deal can occur. But I was like, I was like, okay, well, how do I get 10% down? And then I was like, oh, well, I have a 401. I can do a transaction called a ROBS transaction, which is where it's a self-directed 401. So you don't pay taxes when you take it out and you redirect it and invest it into a business. And my thought was, like I don't control large macro markets. Things happen outside of my control. And I worked in economic forecasting. I'm like, we're inevitably headed for like a downturn. Yeah. It turns out like that is like, we're still waiting on that one.

John Morlow Still around the corner.

Dan Burnside Yeah. Yeah. But I was like, I think the market's going to go down and I actually like shield my assets if I take it out and put it into this business was my thought. And so I did that and then I also liquidated my house and used the revenues from my house

John Morlow Wow. So how much of a nest egg did you have that you were working with that you were prepared to kind of invest?

Dan Burnside I went all in. So I had probably like between my personal savings, like getting lucky with some crypto and my 401 was probably about $200-something thousand. And then I probably had about $100,000 equity in my house. at the time that I sold it.

John Morlow Got it. So you've got sort of a max of about $300,000 and the SBA will finance 90%, it sounds like. So your top end is $3 million. Is that, that would've been like all in, like, so it's probably south of $3 million would've been the— yeah, got it. Got it. Got it. Okay. So you're out there, you're searching through the marketplaces, BizBuySell being an online marketplace. There are others, Acquire, et cetera. So there you're searching through, you're looking for 10 employees, $500 grand at SDE. Got it. And have you got a sense of geography? Is there any other criteria you're looking at?

Dan Burnside So because I saw what private equity was doing, I said, I don't want to compete with them. I want to go to a market that I know they're not going to play in because like we just went over my personal liquidity situation. They can outlast me any day of the week. And I'm, I'd be like, I'm just, I'm not going to win that battle. So my thought was, I would like to go away from large metros. Like, I wanna go to rural America. Now, this ended up being a fatal flaw, which we'll discuss later on, but that was like my thesis was if I'm not playing against like the big boys, it'll give me a little bit more opportunity to have wiggle room. I also thought I'll have like a captive audience. Like if I'm in a rural area, my tech quits, like what's he gonna do? Like go work at the local Love's gas station? You know, that was, that was kind of my thought in doing that, that It would insulate me a little bit from some of the other like headwinds that I'd face elsewhere.

John Morlow What was the first business that you really got serious about?

Dan Burnside The first one was a, was a roofing business and kind of, you know, storm chasers. They went all that, that was like location agnostic. Like they go where the storm is kind of thing. And then that one he sold to someone else that had experience in the industry, which was probably the right move on his choice. I don't blame him.

John Morlow Before we go to how he ultimately sold, I'd love to know what you like. So you liked it because it was in home services that it met your criteria. Where were they roughly on SDE?

Dan Burnside Man, they were like $1.2 million on SDE.

John Morlow Okay. But, but, but not recurring, like very lumpy. It sounds like if it's chasing storms, it's like—

Dan Burnside Well, he had, they had year over year growth every year.

John Morlow Okay. But no recurring revenue.

Dan Burnside Yeah, they were doing good. And his like, The thing where he had, like, where he believed he had edge was that he had gotten down really good the insurance adjusting systems and would bid specifically on the maximum amount insurance would pay and knew how to like do all that. And that was like the process that I'd be buying. And he had sales reps that went and the sales reps were like pre-insurance adjuster kind of people. He hired people that had been insurance adjusters to be his sales reps.

John Morlow Interesting.

Dan Burnside To go do that. And I was like, oh, that's like a pretty smart play.

John Morlow And did you put an offer in? Did you actually, like, what did you bid on it?

Dan Burnside Man, I don't remember the exact amount of that, but I want to say it was like he was asking $3 million and I think I bid $3 million.

John Morlow Wow. Okay.

Dan Burnside And he, like, someone else bid the same amount. I, he was only on market for like less than a month.

John Morlow So

Dan Burnside He went fast.

John Morlow If you'd gotten that, like, what was your calculus around actually financing it? Because literally you would've had to liquidate every penny in your 401 and every in your home equity line. Like, was that the plan or did you plan to raise money externally to sort of bridge the gap? Or were you literally going to basically start?

Dan Burnside Yeah, I was going to swing for the fences. I think too, it's helpful to understand that, like, I mean, I'm a millennial. I was saddled with student debt coming out and my net worth had been negative the majority of my life. I just got it in the positive. So going back to nothing, like it's not that long I've had any wealth. Right.

John Morlow Got it. Okay. So you're comfortable Living sort of hand to mouth and on a very thin razor's edge.

Dan Burnside Well, I don't know if I'd say comfortable, but accustomed.

John Morlow Accustomed. Yeah. Accustomed may be a better word. Okay. So, but in that roofing company, it sounds like you made an offer, but they went with another buyer who had more industry experience. Okay. Tell me about that. I understand there was a second business you got under an LLC. Maybe walk me through that one.

Dan Burnside That one. Yeah.

John Morlow Oh, just before we, just before we go on to the second one, You mentioned, in the, in the case of the roofing company, you, did you get them into, into like a signed letter of intent where you went to due diligence or did they, they accepted the other LOI, competing LOI effectively?

Dan Burnside Yeah, I think they got 5 LOIs that week and they evaluated them against each other. Like the brokers were good. It was well priced. It was a good, good business. Like, yeah, it was going to sell fast. And like at this time too, there was a zeitgeist and I feel like it kind of exists now, but I think it's calmed down a lot of a lot of ETA searchers going really hard. I was competing with a bunch of other people like me and then like sometimes lower private equity, not as many independent sponsors did I come against. But during that first deal, the thing that was valuable is I established relationships with a bunch of banks and got, they don't do a pre-qual letter, but essentially like a pre-commitment that they would fund me based on my, like I had like an 850 credit score. I I had like this much liquidity. They were able to see it. I did my personal financial statement to them. So I had 5 banks that I already had vetted. If one didn't work out, I could swap to the others. So unlike a lot of other ETA searchers, I came ready when I went and talked to a broker.

John Morlow Okay, great. So you sent him an LOI and he chose one of the other competing LOIs. So you plow on. What was the next business that you got excited about?

Dan Burnside The next business, Was not in home services. It was in refrigerated trucking. They like repaired reefer trailers.

John Morlow What is a reefer trailer? That's a refrigeration trailer?

Dan Burnside Yeah. Refrigeration trailer.

John Morlow I've never heard that euphemism before. Reefer trailers. Love it. Okay. So it's a refrigeration, they've got trucks with coolers inside to keep meat cold as they transport it. Is that the basic gist?

Dan Burnside Yep. So they repaired the reefers and then they also owned a lot of trailers that they would rent out to food distribution warehouses when they ran out of space in the warehouse.

John Morlow Interesting.

Dan Burnside And I was like, oh, like I'd worked at Amazon in the past, knew Amazon rented trailers all the time for that kind of stuff. I was like, oh man, that's like really smart. That's like a super, there's always gonna be that need because you, that's like you do that right before you construct something new. Someone's gonna need that all the time. And so I was like, okay, this, this'll work. I really liked that owner. I really liked that broker.

John Morlow SDE?

Dan Burnside The SDE on that was, I think it was just at $500,000. It was lower. And they, I think they wanted $1.5 million and they were unique in that they did not want to deal with the SBA. They wanted to do all seller financing. And it was like, I think a favorable, it was like similar to Fed funds rate, rate. And they, it was going to fund his retirement, like almost like an annuity that he would draw from. And it was like, the argument I thought was fascinating in that they're like, well, They agreed with me that like the market's more volatile. This is like steady cash flows that he'll have that he can do whatever he wants with. And I was like, oh, okay. Like, I really liked that. The downside was shortly after we signed LOI, he only had 5 employees and his most tenured employee passed. And it made that no longer a viable transaction for me. It was rural as well. Which meant I'm not just gonna be able to hire someone from a local vo-tech school to like backfill that.

John Morlow The one person who passed away, he or she had some technical knowledge that you didn't think you could replace. Is that right?

Dan Burnside They, they were, they were the like leading technician behind the owner, which like now I've learned enough about refrigeration. I'm like, nah, I could have done that. But at the time I was like, that's gonna be a large, that's gonna be difficult to do that. So,

John Morlow Okay. So you gave the owner a letter of intent. What was the structure of the letter of intent? Were you offering his asking price, which is $1.5 million and most of it financed, or like, how did you structure the actual LOI?

Dan Burnside So I structured all my, all of my LOIs I structured with, I pretty much always offered asking price and I said contingent on verification of like diligence, and the asking price is a reflection of this 2-year multiple trailing of SDE. And so if something came out in diligence where it was less than that, like if I uncovered something, then the purchase price would notably be adjusted congruent with the multiple that was reflective of the SDE.

John Morlow I see. So you stated upfront, look, my understanding of the SDE is X and Y over the last 2 years. So if I come to discover something in diligence that's materially different to that, then my offer either drops or is no longer valid. It's non-binding LOIs anyways, but you're basically saying upfront you're walking away or going to retrade.

Dan Burnside Yep. Yeah. Which I felt like was fair. And I mean, on his end, he was like really hesitant on that, but as we went through it, I think his broker kind of talked him into like, no, that's like very logical. So he was He was good. That would've been a good one to do. Should've done that.

John Morlow And how would you structure the actual cash flow? You mentioned he wanted most of it financed. So were you going to put 10% down, 20% down? Like how were you planning? How much equity were you going to put in?

Dan Burnside That one, I think they wanted 10% down.

John Morlow Got it. So you're in for $150,000 and then the balance you were going to pay out over time with an interest rate commensurate with whatever the prime rate was and how long was that payback period that he was asking for? 10 years. 10 years. Okay.

Dan Burnside Which is similar to an SBA loan. SBA loans are 10 years. So for me, I mean, I was like, oh man, I'd rather like that former owner that's selling me a value-added business takes the BIPS than a bank. Like I work for a bank. Like let's keep this economy as localized as we can. And so I liked that. And that broker was like insistent that that was the only way to do business. And part I learned later when I was talking with my advisors, that part of the reason for that is then they don't have to go through the scrutiny that the SBA has. And sometimes if it's a like more suspect deal, it's a little easier to get across the finish

John Morlow Line. Right. Because the SBA has the, they evaluate deals stringently, the government, et cetera. So I got it. Okay. Interesting. So, so as we come to find out later, maybe there was a reason they didn't want To deal with the SBA that—

Dan Burnside I, I didn't get down that point. Hmm. When the, like the, the employee passed of unnatural causes and it was kind of a, like, I don't want to, this, this is a mess I don't want to get into kind of situation. I'm like, like that. And I feel bad for that poor owner. He had to deal with that and me walking away from the sale at the same time. That was like around Thanksgiving weekend. That had to be a terrible week for him.

John Morlow And how did you handle that conversation?

Dan Burnside When I like told him I was no longer going to, well, I had started asking for the first couple of things in diligence and, and he, and it took him a minute to get back to me. And then, the broker had said like, oh, there's been a death of one of his employees. And I had had an experience in my career where I got to handle that. It was the same circumstance under which an employee died that he had died. And that was awful. And I was like, I'm not gonna touch this again. Like I, and so I, I told the broker, I was like, hey, look, I'm sorry. I can't pursue this anymore. And also I think it's gonna be really hard to train someone given the geography you're in. And that's gonna make the owner have to stand longer. It like, it doesn't, it's too risky for me. I have to step out. And they, they understood. I, I think honestly, he probably, I don't know, I didn't check, but I imagine he probably took it off the market for a minute while he dealt with that problem and then put it back on.

John Morlow And so what was the broker's reaction? They kind of understood where you're coming from? Like they weren't bummed out?

Dan Burnside Yeah, she got it.

John Morlow Yeah. Yeah. Okay. That makes sense. Where does it go from there?

Dan Burnside So then I found like an idealistic company to acquire in a beautiful mountain town, like an hour or 2 away from me, that me and my wife had always talked about moving to. It was an electrical contractor. I really liked it. I went up on— this was like closer to Christmas time. So it was like December. I like went up, I met the owner, spent the day with him. Really cool dude. Turns out me and him had a lot more in common than like our LinkedIns would have like disclosed. Like really, really good. That one was doing roughly a million SDE and they were asking $3.5 million. So I was going to have to figure out some other financing, how I was going to have to do that. And I was talking with some people that, so the group that I was like a part of, they also had investors that may come in alongside of you as long as it's less than 20%, so they don't get scrutinized by the SBA. So that was how I was—

John Morlow Don't have to sign the—

Dan Burnside Yeah. The

John Morlow Personal guarantee associated with the SBA loan. Got it. And that's a 20% sort of ceiling. So as long as it's below that, they can, they can invest without signing a personal guarantee. Okay. That makes sense. So you thought maybe you'd get some co-investors to buy this business? Go.

Dan Burnside Mm-hmm. Got it. So we went through it, signed LOI, and then the guy got his revised numbers for the year and his SDE went down between June and December. Like for the number he had in June, like it went, it went from $1 million to like $600,000, which is like a big dip. And he's like, oh, that's because I buy equipment at the end of the year. And that's a way that like, that's an accounting thing. That's how, and I'm like, That may be the case, but that means your most recent year is actually less than your previous year and less than the previous year than that. And like, that shows a declining business. On my end, I can't offer you— I was still willing to do it, just not at the same price. And he would like not budge on his price so that the deal fell apart there.

John Morlow Isn't that interesting? Because equipment would be capitalized in most cases, so it wouldn't actually— yeah, go ahead.

Dan Burnside I guess not equipment, materials. So it was like his wires and stuff like that he bought.

John Morlow Interesting. And he was probably using cash accounting as opposed to accrual accounting. I'm not an accountant. I'm out over my skis even asking that question.

Dan Burnside At that point, I didn't even get into the details of it. It was just, this is a material change in valuation for me. And we didn't even get into like, that's what he said happened. I had a suspicion that to drop that much, something else happened. And so it was kind of like a, man, I would, I would've loved to have done this. But at the same time I was doing that, Parker Mechanical came up and I had started evaluating them. And I was just like, okay, well, I'm like, I can't, I can't pursue this. Like, this is like, if you're not willing to budge on price after having that material of something like this, we're, we haven't even done the like purchase agreement yet. Negotiations are gonna It's going to fall apart there.

John Morlow Interesting. So, so let me, let me understand where you were at with him. You had, you provided him with like a letter of intent at that point?

Dan Burnside We had a signed LOI and we had, and I was doing diligence at that time.

John Morlow Okay. Which is where the, it was revealed that the SDE was not actually $1 million. It was now $600,000 and the purchase price of $3.5 million hadn't been adjusted downward. He was stick— he was saying, no, I'm not moving that. Got it.

Dan Burnside He ended up selling to PE and staying on as their general manager. And I'm like, that does not seem like that was not at all what you were trying to do with me, man. I think you may have made the wrong choice, but you know, whatever.

John Morlow Interesting. What was his reaction when you said, look, I can't honor the original LOI because the SDE is so much lower?

Dan Burnside Well, my LOI had the same thing where it mentioned a multiple of earnings and I said like, this is material to change. Like that changes the multiple. And he was like, well, no, it doesn't. I was like, and he, I think he was con— he'd had interest from other people. And so I think he had like a, like, okay, well, if you don't want to do this, someone else will kind of attitude. And I mean, someone did.

John Morlow And your LOI, did that include your standard LOI? Did that include a no-shop clause where you insisted that once he signed it, he stopped negotiating with other parties?

Dan Burnside I don't remember. I do know it said once we hit diligence, that, that, and like I started spending money, that was the case. But I, there was like a period after we accepted the LOI before diligence that this occurred. And so it, it, it was like shortly before that, that period had, I think it was like 2 weeks or something that it happened because this was all happening like at the end of the year, end of the calendar year, his accountants are getting his books ready and stuff.

John Morlow And when you do diligence on a deal, were you hiring an outside firm to do a quality of earnings or were you doing your own diligence on the firm?

Dan Burnside So I never made it to quality of earnings with him, but when I bought Parker Mechanical, I hired an outside firm to do a QOE.

John Morlow Got it. Quality of earnings for folks who don't know that acronym. Okay. So we go to Parker. So we go from one electrical contractor where the guy's got inflated sense of what Things worse after a material downgrade in the profitability. And tell me about Parker Mechanical. So what was it about that that you liked?

Dan Burnside So it was rural, but it happened to be not too far from my parents. And I was like, oh man, I haven't lived close to my parents since I was a teenager. That could be kind of nice. I have little kids now. And when I, the broker was awesome. If anyone's in Colorado, they need a good broker. I know a guy. He was really good. And the seller, when I met him, it was just very straightforward, cut and dry, very practical. And so, and then as I met him, I and him had other things in common. I think one thing we actually, I felt like we bonded over more than maybe he did, but we were both Eagle Scouts. That was something that we'd both done. And we talked about that a little bit and we talked about wrestling in high school, things like that. Like, I was like, okay, this guy seems somewhat similar to me.

John Morlow Eagle Scouts is, is a pretty big deal in the US as I understand it. It's like a, it, it requires a lot of discipline, a lot of like stick-to-itiveness. Like it's not an easy thing to earn if I understand it correctly.

Dan Burnside Yeah. Yeah. It's like, it's like the, I guess there's accolades higher, but it's usually the highest most people achieve in like Boy Scouts. And I'm like, if not apparent, I'm a very accolade-driven individual. So I was like, Yeah, that was something I, I really enjoyed. I learned a lot from it. I loved it. I'd been a Scoutmaster and participated in that community thereafter.

John Morlow So you felt you bonded on, on the Eagle Scout thing, like you had a lot in common. That was sort of a shortcut. You're like, this, this guy's, you know, legit.

Dan Burnside Yeah. Well then, I mean, that's also like a telltale sign of like usually someone's political leanings and also like, if you were in Scouts, there's, you, you camped at least 21 nights, you probably have some outdoorsiness to you. And so like we bonded over that, like hunting and fishing and stuff. So it was, it was—

John Morlow Got it. Okay.

Dan Burnside It

John Morlow Was a feel like kindred spirits, a bit of a, yeah, your soulmate kind of thing. Okay. Got it. What happens next? So where is, where is, where's Parker Mechanical at in terms of SDE?

Dan Burnside SDE. So the year before I bought, so like the year they were closing in this, like right after that other one fell through, I think it's like January-ish time, maybe like maybe late December, they had ended in the high 800s. So they're almost 900 SDE. I think it was like 8,

John Morlow 60-something. And they're an HVAC company. They do residential, like air conditioning units, that kind of stuff.

Dan Burnside So they're an HVAC company, but because they're rural, I, my, I had wanted to focus on residential. But when you're rural, you, they, they were the default only people that could do most things. And so they did commercial. They also did refrigeration, which is like a whole nother line and, and ice makers and stuff like that. So they did pretty much everything that has Freon in it, with the exception of reefer trailers. So they, they did, they did quite a bit. And the way that like kind of came across to me as a buyer was, oh, diversification of risk. There's less risk if I'm in more markets that are doing more things. That's, that's, that's, I, I saw that as good.

John Morlow Got it. So it's a, it's a nice profitable business, $900K in SDE against roughly where were they on revenue?

Dan Burnside So I think they, they'd done $2.1 million the year before. So they were—

John Morlow Nice and profitable.

Dan Burnside Very profitable.

John Morlow $2.1 million revenue, $900K SDE, rural home services, residential, commercial refrigeration. Like this is ticking all of your boxes that you originally laid out. Got it. I understand why it was attractive. So where does it go from there?

Dan Burnside So I spoke with, I spoke with him. I met him. I, when I found out that his son worked in the business, I'm like, Okay. So I went and met the son, like I drove out to middle of nowhere, Colorado. This is like 3.5 hours from an airport. Met them. I involved the group that was like consulting me. We went through like kind of due diligence checklists. I paid someone for QOE. The group that only had— say again?

John Morlow How much did that cost, the QV?

Dan Burnside I think it was, it was about $10,000.

John Morlow Got it. Okay.

Dan Burnside So I, and, and I, I had you know, I was working with a lawyer drafting up loan. I had like, I had a very favorable situation in that I got a fixed rate loan. I shopped around banks quite a bit and I found one that do a fixed rate loan. What I didn't know is the reason they offered that was because their customer service sucked and it took forever to close the deal. But like a, yeah, I had to line up quite a few ducks. I had to sell my house in Phoenix. I had to find a residence there so the bank would fund me, which included like moving my family across country, I had to— there's, there's like a lot of hoops that make you jump through if you're funding with the SBA. I had to show that licensure would carry over, which was part of the reason Colorado worked for me because it didn't require a license for HVAC. So I could be the owner without requiring the key man to stay on. I believe that rule has since changed in the SBA.

John Morlow What were they asking for the business? $900 grand, $2.1 million in revenue? What did you, what was the Asking for?

Dan Burnside The, the initial ask was $200, or sorry, not $200, $2 million. $200 would've been a steal.

John Morlow Yeah.

Dan Burnside So $2 million. And then I was bidding against someone else and got bid up to $2.1. So I got bid up to 1 year revenue.

John Morlow Okay. So, you're jumping through all these hoops. Did you, did you presented an LOI, I'm assuming? And, and what was the reaction? Obviously you, you had this little bidding war and then he accepted your $2.1 million offer.

Dan Burnside So the conclusion of why he went with me over the other guy, who I think actually ended up bidding higher than me, was that I seen the, the, what they said was that I, I seemed like I was like more likely to have the business be successful. I had, I was also, I think I was actually more likely to be able to fund it because I'd already lined up banks. I think is what actually happened. But like, you know, I led operations at Amazon. I had significant work experience outside of this. Like, they're like, oh yeah, this will probably work.

John Morlow And structure of the deal, how much equity and how much debt, and did he take on some seller financing? Just walk through that if you wouldn't mind.

Dan Burnside So this was a fatal flaw of mine. I put 10% down and then the SBA said they were willing to fund the entire remainder of the amount, the other 90%, and that he wouldn't have to do a seller carry. And I was like, oh, if that's easier for him and that like sweetens the deal, cool, let's do it. Like there's no loss to me doing that. Which later on was like a huge mistake, but I figured like, oh, if he can get his cash sooner, like he can do something with it, that's good for him. So let's do that. The agreement was that he would stay on for 6 months and, and like kind of help train me up. And that, that was like really important to me. And then he'd be available on the phone for like the, the like year thereafter.

John Morlow Got it. And I understand the reason the SBA sometimes usually prefers the seller to take a seller's note, or in other words, take some of their cash over time, is because that'll motivate the former owner to make sure that the new owner, in this case you, is successful in integrating the business. That's my understanding. Did you find out why the SBA dropped that requirement or, not that it's a requirement, it's a preference, but did you find out ever why they were willing to do that without the seller financing in place?

Dan Burnside They never explicitly said, I think it was the bank that I went with. I honestly, like the questions the bank asked, it's apparent they're not like looking forward. They're like, oh, how much exposure does he have to new builds from the like 2008 housing crisis? And you're like, none. It's in a rural area. No one's building. This is like a dumb question. Why don't you like ask relevant? So like, I think this is something that like having worked in banking, I think you just see a lot is like they don't, they're asking the question about the last crisis, not about the next one. And so it's like almost arbitrary rules that mechanisms are already in place to prevent. They didn't— yeah.

John Morlow Sorry, Dan, I didn't mean to cut you off. Maybe just help me understand. So my understanding is that when you borrow to buy a business with the SBA as the lender, you're required to write a personal guarantee on that debt. Did you, at the time of doing the deal, understand that fully, that you were signing a personal guarantee?

Dan Burnside I did. And my thought was, well, if all these numbers are right and I screw this up, that's like my fault, right? Like that's the risk of being in business. That's why you have high reward is because you like are taking on that risk. What I didn't anticipate was I thought like I have this draft purchase agreement, I have this purchase agreement that has all these stipulations, has these warranties and reps, and if like he violates something, I'll just like bring that up and then that'll cover it. Like teaser, that's not how it works.

John Morlow What were this? So the reps and warranties in the share purchase agreement were things that he was representing to be true and that in the event that you discovered they were not true, you would have legal recourse. Is that right?

Dan Burnside Yep. Yeah. Yeah. So it's essentially saying that all the things that you showed me during diligence are accurate, they're fact-checked, and that there's nothing there. One of the really big things was like a material— I forget, I forget the exact wording of this, but it's like a material change to the nature of the business prior to close date. That's like, that's, that's like the really big one that's in there. There's some about like numbers. There's something about like doing illegal or like all the work that you do is like legal bonded and, and that sort of stuff. That's mostly what the like reps and warranties cover, just making sure that like you're not like dealing pot and that's how you're making all your money. Yeah.

John Morlow Yeah. Yeah. So you've got a good lawyer writing an SPA, sure pitch, screening up for you. You're feeling pretty solid about this. They've represented, warranted a variety of things. So you're feeling like this is, this is pretty much locked in. Did you talk to your spouse, your, I think it was your, you mentioned your wife about the personal guarantee. Like, walk me through that conversation. Like, get me inside the—

Dan Burnside Yeah. So

John Morlow The kitchen table conversation around that one.

Dan Burnside So this only worked because I had like a really good job at Amazon in the height of the pandemic and quit without a job to go to. And then found an even better job like a month or two later. And that galvanized faith in her. or her faith in me that I was going to take care of her regardless of what happened. And so she was like, okay, well, like it really, we were actually supposed to buy a house in that community. And the day we were supposed to close is the day SVB fell. And so it was like, oh, okay, I guess we're not going to have a house, period. So we're going to be renting anyways. Now that was frustrating. And it like, she was like nervous about it, but at the same time, like I'm, I've been the sole provider since our children have been born. Like she works part of that. And so, I mean, she's kind of dependent on what I do, not that she couldn't on her own. And that's just kind of like the roles we played. And yeah, I mean, she wasn't thrilled about it, but she realized that was what was requisite. And, you know, a lot of discussions about it. We read a, I don't know if you've ever heard of The Alchemist, but like, that's a,

John Morlow I have, I've heard of it, but I don't, I've never read it.

Dan Burnside But we'd like read that together. It's an like allegory for like taking risks in life and how things play out. And so we're like, and I mean, I'm like, I'm inherently predisposed. Every time I've played it safe in my life, I've gotten burned really bad. I went to school for something that had 100% like graduation rate and hire rate into that field. And the year I graduated, they said they were no longer hiring those applicants and good luck, your degree's worthless. And so like, okay. Like, and other times in my career when I've played it safe, I've gotten burned. And so I'm like, Really, I don't know that playing it safe is any better than not. I'm going to get burned either way. I may as well have fun doing it.

John Morlow Interesting, because when we started off the conversation, you'd shared that, you know, whether your father and grandfather were very entrepreneurial, you were a little more inclined to like, give me the playbook. I want a franchise where there's a system or maybe an existing business where there's like, there's revenue. Like I'm not starting from total greenfield. Yet in this deal with the specter of a personal guarantee, it sounds like some of those inclinations dropped and you were like, you know what, let's go all in and get the, like, let's, do you see the curve? Like the—

Dan Burnside Yeah. Hindsight's really 20/20 on that one, right?

John Morlow Yeah. Yeah, for sure. Just like, do you have any sense of—

Dan Burnside Well, like I'm willing to take risks. I, it's never like a risk aversion that I've had, but I think it's more like I didn't have anything I was excited about to like start, start a business.

John Morlow Hmm. Okay.

Dan Burnside It was just like I was indifferent about most other things, or I didn't feel like I had enough knowledge about any specific area to be competitive.

John Morlow And when you're looking at this HVAC company, what do we call it? Parker Mechanical. Have you got a long-term vision for how you will monetize your investment? Like, is it your vision that you are going to run this for 30 years and then sell it to retire or stack it on with other, like, what's the big strategy?

Dan Burnside The dream was the boss I mentioned previously, me and him were both buying businesses. We'd wrap them together, we'd start rolling businesses and start our own private equity firm. That was the dream.

John Morlow Okay.

Dan Burnside That we'd go do this. And I figured like, I'm going to learn a lot this first one. It's critical that this first one works out. Otherwise there won't be subsequent ones. And like, this is like, that's why I was like, okay, I want to like increase probability of success by going to a rural market. Maybe in the future I'll move into metro areas, but like, I need to like figure out how to do this and do this well. And that's a lot of what the consulting group that I was working with Advised was like, get it. Well, they, their, their pitch was that they help professionalize the business and have a like general manager in place such that you aren't running it. I think now that I've done this and I've spoken with a lot of people, and I'm, I'm sure a lot of the audience of the show knows, if you have a general manager, especially in a space like this, and then they know everything about how the business runs, if they have any gumption, they're gonna turn around and become your competitor. I talked to a lot of people that that happened to, and that doesn't happen with everyone, but I think I was overly optimistic on the ability to hire a general manager that would like stick around and play.

John Morlow But that was part of the thesis is over time you'll hire somebody. Your second business. Okay. So let's walk through what happened next. So you close on this deal.

Dan Burnside What happened? So I closed on the deal on a Friday. And so naturally, like, I'm, I'm excited to get started. I go there to the office that Saturday and I start digging through things and they have this, one of the other things I was like, oh, professionalized. Everything's on paper. There's like whiteboards everywhere. Like I can like implement technology and increase this business. So on the whiteboard, there's, this is spring by the time I closed, takes a long time. There's one that says like no heat. There's another one that says no cool. And there's one that says WH and I'm like, WH, what's that? And the owner was there, or the previous owner. And he is like, oh, that's a water heater. And I and him had had discussions previously in his sim. He actually highlighted one of the things that would be valuable is if you got a plumber, that way you could do plumbing and add on your business. And I was like, water heater? Like, I thought you guys couldn't do that. Like, I thought that was like a plumbing thing. He's like, oh no, it's really not that big a deal. We do them. And Like nobody checks, nobody pulls a permit, which is accurate. That is accurate. Like Wild West in rural America. No one, no one's going to check that. But, I was like, man, okay. Like, and so like the business calculus went off. I'm like, I wonder if there's a fine I pay and if that like justifies the cost of doing this. I looked it up and like, yeah, there's a fine and potential jail time. Like I ain't going to do jail time here. So I had to make a decision real fast. And this is, this was one of my huge pain points is There was nothing in the data anywhere that he had given me in the Excel sheets or anything that said how much of the business was plumbing at any point in time. And the law had changed 2 years prior. It had been legal for him to do that, and that changed and he just continued doing it. And I couldn't, I had no idea the magnitude of this, but I only saw the sample set I have is there's like 30 jobs on the board and one of them is a water heater. So I don't know what magnitude this is. He says it's infrequent. I didn't really know. And so I'm like, okay. So,

John Morlow And just to be clear, in the share purchase agreement, one of the reps was that, you know, the industry we're in, in this case HVAC, is in fact the industry we're in and we're not, you know, also dealing pot on the side or whatever. Was this a contravention of that representation? Like, was this—

Dan Burnside Yeah, this was a violation of the reps and warranty. I called it that.

John Morlow That was Saturday. Yeah.

Dan Burnside And then like, Monday was a busy day. So I didn't call the lawyer until Tuesday because Monday was the day I introduced myself to him. I called the lawyer Tuesday and he's like, and he walked me through like the scenario I was actually in, like, and that's when gravity really hit. The lawyer's like, yes, you can completely take him to court for that. We're going to have to figure out, like, you won't be able to, like, I, I was like, can I just like return this business, get out of this? Like, because that Monday had gone terrible too. And I'm like, I, You got that like gut feeling. Like, I just like, this is going to be rough. I like, I don't know if you've ever been in a car crash, but when it becomes unavoidable and you like clench, that's like, that's like where I was at. But the lawyer said, here's the reality. You have to figure out what magnitude that is of sales. And then we can ask for that percentage of the purchase price back, which I'm like, oh gosh, how am I going to figure that out? And then the other issue is you, you're going to have to litigate this guy. Your key employee is his son, which we can talk about like why that became the situation shortly thereafter, which was another misrepresentation. But like, and then it's a small community. He's known in the community and you aren't. Suing him is not going to be good for you. And it's going to take a couple of years and you're going to have to keep the business stable in that time period. And so my thought was, okay, this is 1 outta 30. That sucks. I knew this was a risk. That was the like dice roll I had. Looks like I'm gonna have to put on my big boy pants and deal with it.

John Morlow You mentioned in passing that the conversation with the team on the Monday did not go as, as you'd hoped it would. Maybe walk me through how that went.

Dan Burnside Yeah. So he staged it such that, he talked to all of them. He, he wanted to like have a like heart-to-heart with them before I got there. And then I showed up and when I showed up, you know, it was all like morose faces. No one was like really excited. Which I kind of expected that. And I came in.

John Morlow How many people?

Dan Burnside So that day, not everyone was there, which like is another part of the story later on. But I think it was like 10 people that were there that day. And so I introduced myself, talked, you know, hey, this we're gonna do like, and then I announced that I was giving everyone a $2 raise, which most of them were making like 18 to 20. So that's like a 10% raise. And I'd never seen people less excited about that magnitude of a raise in my life. And I was like, hmm, interesting. Like, and so my first, my first thought was like, these guys seem like a little ungrateful, but okay, cool. I didn't, I didn't have to do that. And then, you know, I got like a, I had everyone write their numbers on the board. So I would have everyone's numbers and I like put it in my phone and, they all just saved me as new boss. No one, no one remembered my name. So I was like, okay, whatever. But, and then, you know, we like have this standup meeting and then they have like jobs they're going to that day. It's not like a, Celebrate Me Day. So like everyone goes outta their jobs and like, I, like, my plan is initially like, I'm gonna get one-on-one time with each of these guys and build relationships. And so that's like, that's like what I did the first like couple weeks, just going and riding with different guys and like, man, they would like leave before I could ride with them. They would like just anything they could. And I was like, this is really like, you know, I'm the guy signing your paycheck, right? Like, this is kind of like weird behavior. But it ended up being like a, like to my folly of like going for a small market, it ended up being like a, like outsider versus insider thing. Even more so than it was like a boss versus employee thing. It was like, this guy's some big city slicker. We don't want anything to do with him. Kind of, kind of thing.

John Morlow How did you attempt to break down that sentiment among the employees? I mean,

Dan Burnside Did you start wearing cowboy boots

John Morlow And,

Dan Burnside You know, chewing tobacco and, you know, like, what, like, what did you do to try to like ingratiate yourself? Well, I, I had spoken with his son in advance, the owner's son, and the owner's son mentioned one of his favorite things about the business was Beer Time Fridays, where they would clock out on Fridays. Someone would buy beer from the local liquor store and they'd all hang out. And I was like, shoot, I'll fund beer, like Beer Time Fridays. That's a great idea. Like, what's a, what's a pack of beer cost me? And so I, I did that a couple times. I threw a retirement party for the owner. And then in those like drives out with the guys, you know, I just, just talked and got to know them. And then I also was very clear, like, hey, what's like the crappiest part of this job? Make me do that. I wanted to show them that I wasn't afraid to get my hands dirty. I crawled under a, trailer that had a, like a, like sewer leak and crawled through crap to like go fix this stuff. Like, I, you know, I was very like, okay, I'm gonna like, and I went in a I'd never like sealed duct before with like that sticky. I went and did that too. And, you know, I actually think I won over several of them, but not the key. There was like 2 key employees I never won over that like probably still curse my name to this day. I did, however, win over one guy who later became kind of like the general manager seat. He wasn't able to do everything I would've liked a general manager to do, but he was a critical employee who you know, built some rapport with and I, I, I genuinely really respected the guy and liked the guy. But that was, yeah, I, I spent a lot of like individual time with them riding in their trucks and like—

John Morlow And how was the business performing as you're trying to build relationships with the key people?

Dan Burnside Yeah. So this was really awesome. Just great timing. The summer I went there was the coolest summer in that region's history in 25 years. We have less calls at that time than we've had almost like, and everyone's like, oh, this is weird. This never happens. And I thought like, ah, crap. Like it's something going on locally, especially because there were jobs lined up. And when the owner left, I got calls saying like, hey, I heard you're a new guy. I don't want to go with you. Like, don't, don't come by today. And I'm like, I'm like losing booked revenue because I'm the new, like, this is weird. And the owner is like, Like, so another like caveat, like I had that 6 months, I'd already moved there shortly, like right before the deal closes. He's like, I'll give you 2 weeks. Like, I'm not going to stick around longer than that. I'm like, whoa, that's going to be like, I should have walked away. I should have said like, go pound sand, man. Later. But I didn't. And I think he knew there were some things going on that I wasn't aware of that were material changes to the business. Namely, one of those key employees that wasn't there my first day wasn't there because he was building his business. The owner had alerted him of the sale, tried to sell to him prior to listing on the market. And that guy had been building his business on the side, took all of the most profitable customers. Like he let, he, he gave me 2 weeks, but he, he only worked 3 days a week. So it wasn't like that helpful. Took all the most profitable customers, which were like McDonald's, the local hospital, the, like the refrigeration clients, and ran his own business on the side. And the, and I like went through the books later on. I was like, oh, the owner had been selling him parts, which he had been using to do this over the last couple years. Like, you are—

John Morlow So like this key employee Hold on. Let me understand this. This key employee left you and went up to set up a directly competitive business, another HVAC company. And not only that, but also took some of the clients with him. Is that right?

Dan Burnside Only the high margin clients. Like I late—

John Morlow Well, that's good of him.

Dan Burnside Yeah. I, I, I, I later on discovered like, like he knew a lot. He and the owner knew a lot more than was disclosed.

John Morlow And what was the economic relationship between the owner and the, the, the competitor? Did the, the, the, the owner that you bought from, did he have an economic interest in the competitor's business?

Dan Burnside Not to my knowledge.

John Morlow He wasn't a shareholder or—

Dan Burnside Their, their shops were right next to each other. He had like, he had like a, he had like the shop that I worked out of, then he had a personal shop, which was right next to this guy's new headquarters of operations. They were like, I mean, they'd been good friends for decades. So, yeah, like I, it would've been really hard to prove nefarious activity, but it would've been impossible for the owner not to have known that this was happening. And, and the owner had like, he, like, he, he ghosted. He, he knew this was happening. This is, and I think that guy told him that he had 2 weeks and that's kind of like why he disappeared. And so it was like, okay, I now have this happening. But at the time I also didn't know how many customers he was taking. I, there was, everything was on paper, so I couldn't like query and see what had happened. I just knew like, okay. We got the water heater that was directionally bad. We got this guy leaving. That too is directionally bad. We have customers canceling and going with this guy that left me. That's directionally bad. And then, man, it's just not very hot this summer. It's like raining every day. That's not good for the industry. And I, I later, like, talking with my suppliers found, fortunately, that wasn't a just me thing, like the entire region. was like down, but that was, that was rough. And so like the whole thing, if we go back, like the reason I was buying a business was so I would have cash flow. I couldn't go without a cash flow. I didn't take a paycheck for the first 8 months and I just depleted my savings through that time period. And, and I remember like, I should have just started a business, would've been better off. Talk

John Morlow To me about like kitchen table conversations you had with your wife at that time? Because from what I experienced, you know, entrepreneurs, oftentimes you don't get a chance to talk to anybody else, right? Like there, you can't talk to your employees. Are you sharing all the,

Dan Burnside You know,

John Morlow The worst of it with her?

Dan Burnside I wish that the kitchen table conversations I was having with her about my business were the most pressing issues that we were facing at that time. But the reality was moving to a small rural community. She had become super isolated. It was like ultra depressing. Like no one, no one wants to make friends with the outsiders. And like when she'd like go to a park and take the kids, like the, the people playing in the park are like, they're, they're not our kind. They're not like gonna mix with us. They're like going and doing like, it was, it was the weirdest ostracization I've ever experienced in my life. And I was a Mormon missionary knocking doors. So like I've had some weird ostracization. And she, she had a really hard time with that. To compound that, my daughter started kindergarten that year and there were several things going on in the rural school district that would never be considered remotely acceptable in like any school I'd gone to in my life. And so we were dealing with that. She ended up taking my daughter out in like November of that year and deciding to homeschool her, which compounded the isolation. So it was, The being in the area made everything so much worse. And my, I and my wife talked about it. We had like a convenient situation where my wife left and went and lived in my parents' house for a couple, well, for about a year and a half while I continued trying to figure things out in the business because she couldn't stay in that community anymore. And it sucked. It was awful, but it was the right decision. It was in her best interest and our children's best interest.

John Morlow Dan, this sounds like a nightmare for me. It's one thing to have a business fail or struggle, but to go home to a happy home life and a spouse who's happy and a kid who's healthy and, you know, like that's, that's one thing, but to, to deal with a business failing and then a home life that is struggling. And I'm sure at some point you felt kind of guilty about like, you're the one who picked up the kids and brought them to this rural community and brought your wife out of a good environment into this situation. I mean, you must've had—

Dan Burnside Yeah. Full culpability on my end. That's like entirely my fault. It, yeah, it sucked. It was, it was awful. It sucked. I would drive up, like, it, the story goes on. I figured out like before they'd moved there, I realized how much we were spending on shipping. And I started driving and doing runs myself because it was essentially the equivalent of an employee's salary. And so I started just tacking that on. That was my weekend. I drive up, I get stuff from my supplier, hang out with my wife and kids over the weekend and drive back Sunday night. And Sunday nights just sucked. That was just, so people talk about the Sunday scaries. Yeah. like, yeah, it's worse when you're like 3 hours in a car driving in the dark with a trailer that's like swaying with all this HVAC equipment on the back. Like, don't tell me about your Sunday scaries.

John Morlow Yeah. There's some town nobody likes you in and all your employees are now competing with you. I mean, this sounds— how did it ultimately end? Like, I'm assuming business started to drop. Did you get foreclosed by a bank or like what happened?

Dan Burnside It's actually kind of, so Endured the terrible first year. Business actually picked up the next year because I figured stuff out. I'd made a bunch of cost-cutting efforts. Once I finally got the data together to make informed decisions, I was like, like, you know, I mentioned I eliminated some office staff by automating some roles. I made partnerships with an electrician who was a really cool guy, made a partnership with a GC who, like, when I ultimately went under, he's who I went and hung out with him and the electrician and like complain my woes and like they were, they became like friends. They were an hour away from me, but you know, that was close in that, in that area. So I, you know, things picked up a little bit, but it's still at that time I'm like, okay, if I'm ever going to pay myself, I need to be making a lot more than this. Revenue would drop drastically. And like when I looked at the cost basis, I was like, once I was able to go back and back solve the magnitude of those early impediments, like man, it was over half the value of the business disappeared. And so like, it just, it just wasn't viable. And so I knew I, I, I had a revolver that I'd been tapping to fund the business.

John Morlow I was gonna say, you know, hopefully a line of credit as opposed to it. Yeah. Okay. Got it.

Dan Burnside And, and so I knew what, like, pretty good at math, knew what my expiration date was gonna be. And I said, I'm gonna have to get a second job. So if the, if, as if this situation where I'm spending 6 hours in a car a week to see my kids on weekends and working all day in the business is not bad enough, let's make this better and get another 40-hour-a-week job. So, I had a very con— like convenient blessing fall in my lap where a friend from a former life that I knew needed someone to work part-time remotely. And it happened to be something like really fun that I was super interested in. And so he was, he was nice enough to like take a risk and hire me on like a part-time contractor basis to, to go work for him. So I started doing that. And for me, that was like what I needed to be like, okay, I have, I have income. I'm actually making more money working part-time for him than I am in the business that I'm working full-time in. I, I had done some stuff where I had planned to like move the business to a metro. I'd lined up with unions. I'd lined up with, an estimator getting that ready. But like when I did the math, like I didn't have the burn rate to make it there and I didn't want to go try and raise more funds. And I'd spoken with a lawyer the year previously when my wife was going to live in my parents' house. And he'd said like, oh, I know guys like you, you pull it out of the hat. You'll, you'll pull a trick outta the hat this year. And you'll come see me next year. And I, that thought resonated with me the whole year because that's exactly what I'd done. And I was like, okay, well, let's give him a call. This guy knows what's up. And I started preparing to claim bankruptcy well before the bank knew, well before anything. Like, I had already gotten a lawyer lined up and started filing paperwork before I missed a payment. Like, I knew it was going to happen. It was like the inevitable end. I had already cashed out my savings. I didn't really have like, all that was going to happen was they're going to take the assets of this business, which like is a couple of vans, which I don't know what I even could have resold for, tools. I had a bunch of inventory that was slow-moving inventory because it was dated and would never be used again. But I was like, you know what? I'm just going to break and walk away. And it helped too that like, so that was like January of the last year I was in. I started working with this guy. And by April I had saved enough money. I could put a down payment on a different house. And I was like, okay, I'm just going to quit doing this. I fired the employees that had been headaches the entire time. I let the other guys know what was happening that like, hey, this inevitably is going to end. But I like, just so I'm like, if I'm going down, there's no reason for me to take you with me. You guys have like 6 to 8 weeks to find a job and I'll keep you on the payroll and we'll do like menial work between now and then. Like to make this worse too, my secretary got injured and was out for several months during this time period. So it was just me running all the books after I'd like gotten rid of the other ones, got it optimized. So it was very busy. It was really, really difficult in the end. Like just from a time standpoint, I'm like, man, I was not sleeping very much, but I was able to do well. And then like when I left, I already had a job. I went from full-time. I flexed from part-time into full-time at the job I'd been doing with the guy who's now my business partner at that time, I was just like a contractor for him.

John Morlow So, and it went great. I don't know. I don't know all the idiosyncrasies and the nuances of declaring personal bankruptcy, but when, so this lawyer you went to filed for personal bankruptcy because you had a, a, a personal guarantee on the SBA loan. Is that, am I getting that correct?

Dan Burnside Yeah. You just, you just dissolve the business and, and then The only thing they have to go after is you personally. And that's why you have to. And if, if I hadn't had a personal guarantee, I would have like, it wouldn't have mattered. I would have just dissolved. There would have been a couple. I had a couple of my vendors, interesting, like the uniform vendor, came and tried to collect and I'm like, but you got all your uniforms and I was renting them from you. And they tried to collect like the next like 4 years of payment. And I was like, all right, get in line. It's not gonna work. I, I can tell you this bank that has multiple millions of dollars like with me is going to be ahead of you from a preferential standpoint. Good luck, man.

John Morlow And, and help me understand, are you at all personally liable for severance to the employees? Or is, are they effectively, you know, they're out in the cold because the business declared bankruptcy?

Dan Burnside No, every single one of the employees, I had enough runway that they found jobs except for one who went into retirement. And like, that was, there, there is no liability for that, but I just felt like I want to give them what I can and I know I have this much time. I'm going to give them that time. But like there was no, I didn't have to do any of that. I could have done something else with that cash, kept running maybe a month or two longer or whatever. But—

John Morlow And what if you don't, what is the downside of having a personal bankruptcy? That means you can't borrow money personally, or like what is the downside of that?

Dan Burnside Pretty sure I'm blacklisted from ever getting an SBA loan again. I'm pretty sure.

John Morlow Okay. That's off the table. What about buying a house? What about like a car? Can you do any of that stuff?

Dan Burnside So I, I bought a car and a house on my good credit before I claimed bankruptcy because I knew I wasn't gonna have credit for a long time.

John Morlow Okay. Got it.

Dan Burnside And so like, yeah, it would be, I mean, I won't be able to refi— I have a terrible rate on my house. I'm not going to refinance it anytime soon. That's, that's the nature of this. So like, yeah, like it's going to be much more expensive for me to borrow. In the future. And the really crappy ramification for me is that oftentimes during background checks for jobs, they'll do credit checks and it'll come up as I claim bankruptcy. So that's not, at some point that may be unpleasant in the future.

John Morlow Yeah. Yeah. What a story, Dan. I just, I'm, there's so much wealth pornography online about buying a business and it makes it sound so easy. But Your story is a cautionary tale for sure. Have you, yeah. Have you thought about like if you rewound the clock, is there any decision? A lot of things were clearly out of your control. Is there anything you might do differently? I think you mentioned one being you'd make sure there was a seller note to the seller so that he had some skin in the game.

Dan Burnside You know, I think if I, if I pause and look back at it now, like, I guess there's, I mean, I wouldn't have bought the business to begin with. That would've, that would've been the initial decision. And I think for me, if I had bought something in a large metro, I probably would've been okay. But because I was handcuffed by the, by the community, like that's the people I'm like trying to sell to. If they don't like me, that sucks. And that I couldn't change out employees because I have this small base and I think if I'd done, if I had like changed my search to also not force my family to move to middle of nowhere, 'cause that, that created a lot of extra pressure of like, oh

John Morlow Man,

Dan Burnside Get this done. Get, get, get the rollup going fast. Get a general manager in place. You gotta go. That I think would've really changed the calculus. And I think I probably could have been successful otherwise. It's easy to say that maybe that's like overconfidence, which is what got me in this problem in the first place. Right. But, you know, I think, I, I think my fatal flaw was in my thesis in going to a role market to avoid private equity.

John Morlow Yeah. Interesting. Interesting. Dare I ask, how's it going with your spouse? Did you guys, like, how does she deal with the bankruptcy claim?

Dan Burnside Yeah, I'd say just galvanized our relationship further because like I mentioned with the story of leaving Amazon, I already had a job making good money when I left this. Like there was, it did suck, but now like I mentioned in the beginning of this, I live in DFW. I chose bad last move. We now live 6 minutes from my in-laws. Perfect. You know,

John Morlow Yeah, you're, you're kind of in the doghouse. So she gets to decide where you're going to live next time.

Dan Burnside No, I'd say, I'd say like, I, I, I had a very clear decision to make between like my business and my family. And if given to do it over again, sorry, I choked up. Every single time I choose my family. And it's, yeah, it sucked. I had to like endure the pain of like the business failure and we'll like deal with the ramifications of that the rest of my career. But I would much rather deal with that than having let my marriage go or like being any further estranged from my kids. Like it sucked when they were little being gone multiple days a week, but that's not the case now. And like, things are better. Like the sun comes up the next day. It's okay. I survived.

John Morlow Yeah. And I appreciate you sharing the story. It must be hard to retell in some ways, but, but talking about the sun coming up, you've got a new business that you're starting and it sounds really cool. So describe what you're up to now. What's the What's the new business do?

Dan Burnside Yeah. So I guess circling back to the earlier point of like not knowing what a pain was, I really experienced some pain that I think can be solved in the marketplace. So my new business is, I mentioned that I work with this other guy that I'd been working with. We consulted utilities doing analytics. My career prior to this had been in analytics. And so I'm doing analytics and AI specifically, we are building chatbots for business owners that will take all of the information you have that, you know, your emails or your documents, if you have procedures written down, how you do it, getting answers to standard questions people are going to ask and putting that into a chatbot such that that can live on in your business behind you. The idea we had for this is this actually came partially like from my experience, but also partially one of our clients that we consult, has people that work their whole career and then retire from there. And then all the knowledge walks out the door with that person. And the new person's only been there a couple months. And so we're like, hey, if you have this chatbot, you can like retain that knowledge, retain that value. And so like, I think to your audience, that's a huge value. I like, if I was looking at a business that had something like that, that would be insanely valuable. And I would probably be more okay with someone leaving sooner than sticking around as long.

John Morlow I love it. What's, what's the name of the product or the company? Where could people learn about it? Is there a website or what's, what's—

Dan Burnside So datalever.ai is the business, that, that particular product I call Owner's Brain. We do a variety of other products. A lot of, a lot of what I do is more on the buyer side of the transaction, but like to the, the seller audience, there's, there's value as well. And so,

John Morlow And, and Dan, if people wanted to reach out to you, are you more of a LinkedIn guy or are you Instagram? What's the best social for you?

Dan Burnside I'm on LinkedIn. I'm also on SearchFunder. I'm, your audience probably isn't on that as much. It's more of like an ETA site, but those are, those are where I'm most active, LinkedIn and SearchFunder. And you, you can also go to my website and send an inquiry if it's something you're interested in. I'll get back pretty fast.

John Morlow And Dan, we'll put all of your coordinates, including datalever.ai, Owner's Brain, your LinkedIn and SearchFunder links, all in the show notes at builttosell.com. Dan, thanks for doing this.

Dan Burnside Yeah, I appreciate it, Jon. Thank you.