00:28:07 · David Flickinger
[00:28:07] S1: The short answer is yes. And this example is a lot of fun because this engagement was predicated on a request from the roofing business' customers that they respond to more proposals. In other words, they work with these general contractors that have a a wide net that they cast in terms of the jobs that they're trying to win, and so they want their roofing subcontractor who they really like working with to bid all these. But, of course, in the absence of AI, that's almost impossible without hiring a big team, which doesn't make sense ahead of winning that work. And so the idea was, hey. Can you send out more proposals? Thus, more jobs, but also satisfy a customer request by using AI. And I would tell you, absolutely, they've been able to send out more proposals. But beyond just the volume of proposals out the door, the amount of one business has been tremendous. This company has doubled the size of their commercial contract win rate, and this business will be double the size next year. And I think you directly attribute that to an AI tool that was well architected and well implemented, and they haven't hired any additional people. And that's that's really, I think, one of the promises of AI too is not that you replace a workforce, but you're able to grow productivity in a way that doesn't bloat your overhead. I think that's what so many small business owners, mid sized business owners are looking for. Because as I... Aside from AI, when I talk to business owners and in my own businesses, you always reach these inflection points where you really believe, and you're right. You could grow here. But you reach this inflection point where, okay, to grow there, I've gotta hire all this additional overhead infrastructure staff. And so you end up staying and topping out at a certain size, and that is different for everybody based on their individual market, their vertical. But almost every business runs into this problem. And I think the beauty of these AI implementations is that you can blow through that ceiling that previously to blow through it, you would have to hire a bunch of people ahead of doing that. You can now drive that growth without additional overhead. Will you never have to hire another person? Of course not. But as you grow, now you can justify it.
00:30:39 · David Flickinger
And I think growing from a place of efficiency where you're an AI first business growing in to a new revenue category or threshold is very different from where you see a lot of businesses that are at this massive threshold. They've already got a lot of overhead, and now they're implementing AI as a means to reduce headcount. That that story exists out there. We hear it in the news. But the much more interesting story that I think we'll start to see in this lower middle market space is companies grow with an AI first infrastructure. Because they had the AI layer that empowered their growth, that empowered productivity and efficiency in their business, they were able to jump to a new revenue threshold that otherwise wouldn't have been possible without bloating the overhead. And so to do that with an AI first mentality and infrastructure, you can then hire in a very smart, efficient way that, of course, supports that new revenue threshold or tier that you're in, but you haven't had to bloat your overhead in a way that, well, now you have to do layoffs in a year or something like that. But it's really interesting. We're starting to see that happen in businesses with whom we're engaged, and it's really fun to see them grow just to these total new revenue categories that even they didn't think was possible, but now they're doing without adding a headcount. Or maybe they're adding one or two, but it's after they've already grown 40, 50, 60% year over year.
00:32:17 · Mikk
[00:32:17] S0: We have a lot of folks listening and obviously the the previous guests as well. They just... They buy a lot of businesses. And the very obvious problem in in most every SMB and what private equity and overall business buyers have spent decades to to reduce is the key man risk. And now listening from your end that you can just put all this data into those... Into AI and educate this AI agent, and what you do pretty much is get all this knowledge and experience from the from the business owner's head and put it into AI. It... I can see it makes a big difference. Obviously, you you you can't replace the in person relationships, which someone has built over over decades. But when it comes to business multiples and the overall key man risk, maybe you can talk what you have seen there.
00:33:13 · David Flickinger
[00:33:13] S1: I think it's it's a great point. One of the things, of course, you're right. You're not gonna totally eliminate a key man risk in a business. Of course, these human to human relationships are so critical as I... As I've said. But I think when you can distill what's in that owner's mind over time into this memory layer such that you better understand how they make decisions, how they evaluate risks in the business, how they see opportunities, you can start to value and think about that business differently. And I think a lot of the discount that a buyer gives to a business is just a lack of, I don't understand what drives risk or decision making. I don't understand what drives success. That guy does. So I need him. Not only because he has the relationships, but he or she understands what is gonna be a successful project or job or whatever in this business. And I'm not sure I understand that for this particular business. Maybe understand it in a category, but for this little business and this little market, you're not sure you understand it, so you apply a discount. And I very much believe that a well deployed AI architecture can distill and extract that knowledge into a layer that a buyer can look at, can interact with, can use their own AI agent as they do diligence to connect into that layer and really start to understand the nuances and the specifics of that individual business. Like people, all these businesses are individuals, and they're different. And they have their own nuances, and they have their own risks. And so there's often not a one size fits all approach, but to the extent you can more deeply understand what makes this business successful, what makes it risky, what makes it a tremendous opportunity. If you could only do x, y, or z, you can more fairly value that business. And that's a win for the buyer and the seller. And so I think the opportunity to deploy these architectures, particularly in the lower middle market where you see these massive discounts on purchase prices, I think benefits both both parties because you're getting a better deal. The buyer more deeply and more confidently understands what they're buying, and the seller has set up their business in such a way that it's more likely to succeed in the hands of another buyer, of another owner. And I think that part maybe is lost a little bit too.
00:35:48 · David Flickinger, Mikk
It's not just, well, how do I get an extra turn on the sale of my business? I wanna do this. Typically, you have some maybe rolled equity as an example, and you wanna make sure that you maximize that. And so you care deeply as well as a seller about making your business more valuable in the hands of another owner. And so why wouldn't you want an architecture that gives you more predictability with respect to how to run your business? And I I think that's where a lot of our customers and requests are really focused, especially these individually owned businesses is I wanna make sure I get the most value for my business when I sell it, but I also wanna make sure that it's really successful in the hands of another owner. [00:36:36] S0: Let's say someone is listening, thinking of selling maybe one of their portfolio companies within the next twelve to twenty four months, and what they hear is like, okay. It makes a total sense. But where do I start? What knowledge or data should I be putting into AI to make sure in twelve to twenty four months, my business would be a bit more valuable, for example?
00:37:00 · David Flickinger
[00:37:00] S1: Well, I can't believe that people are just using an off the shelf tool and calling it AI in their business. So if you're doing that, great. It's better than doing nothing. But that certainly doesn't provide any real value enhancement to your business. What I think folks like that ought to be thinking about is how do I have a real AI architecture in my business? In other words, how do I have my own memory layer, not somebody else's memory layer, somebody else's tool that I'm just using as if it were a SaaS subscription? How do I have my own memory layer? How do I have my own architecture? How do I have an AI agent that connects in to all the systems that run my business such that when I ask it a question or in eighteen months when a potential buyer asks it a question, it has all the relevant context, answers, and with a high degree of confidence can produce an output or work product that's very closely aligned with what my business does, that's very specific to my business and is not some generic answer. That, I think, makes a business more valuable subscribing to an AI product or maybe even building a little homegrown SaaS product. Sure. May... Maybe there's something to that. It's better than nothing, but I think having a real agentic architecture and you start to hear this buzzword more and more about agentic AI, that's really what agentic AI is, is having your systems connected to sub agents that all connect up to a main orchestration point that you or your employees interact with that can give you answers, create work product, and provide insights about your business that are real, relevant, and context rich based on real things that your business has.