00:31:27 · Mikk, Greg Geronemus
[00:31:27] S0: Now let's talk a little bit about you going from being this journalist in in the first year and then becoming an operator. And I I I wanna talk about this because we just had this part one episode done with you as well where you said you're, if I remember correctly, one of the most active, like, in a way operationally, a fund backing those independent sponsors. So what it means to you, like, being an operator, one from the lens of your own experience and maybe bringing all this to today, to summer twenty twenty six. [00:32:08] S1: Yeah. Mean, I think I really do continue to believe in sort of go slow before you go fast. And I wouldn't change... I would change a bunch of decisions that we made, and I'll I'll get back to that in a second. But one thing I wouldn't change was this sort of slow, deliberate learning early on, especially because of the magnitude of the key key person risk. The people that we inherited on the team were great, but there was... But they were... It was woefully understaffed. I mean, wildly understaffed. And there was so much still wrapped up in the seller. We we needed to take our time. And, you know, if if we didn't soak up a lot of information, if if he left in a in a hurry, now I think we were confident he wouldn't do that because of the size of the seller note. But if if things went poorly with that transition and there was... It would have been a disaster. And so the the combination of the... This sort [00:33:23] S0: of
00:33:23 · Mikk, Greg Geronemus
[00:33:23] S0: of [00:33:23] S1: profound key person risk and a well structured deal, I think we did absolutely the right thing in year one. Now, I don't think we've invested in a business since that has had the degree of the key person risk that that smarTours had. And I think when, you know, when there's more of an established team, established processes, established systems, you can move a little bit faster. But I think still erring on the side of going slow before you go fast really never hurt anybody. Now sometimes you don't have the luxury of that. You know, you... Sometimes there's... You you inherit a crisis. You know, when you when you buy a business, that's often a tremendous shock to the system. And sometimes people, you know, employees flee or customers leave or... And you don't have the time of just sort of being a journalist and jotting down notes. Thankfully, things were pretty calm, and so we had that luxury. But, you know, that's... From time to time, and and and frankly, you know, more often than I think people appreciate, there's a lot of commotion and and in some cases, chaos caused by the transition from a experienced sort of retiring owner operator to a younger ETA entrepreneur. And you're sort of thrust into, you know, managing through some difficult stuff, you can't just sort of sit back and learn as much as you'd like to. [00:35:15] S0: So this owner stayed for a year, right? [00:35:21] S1: Yeah. A little under a year in the end.
00:35:21 · Greg Geronemus, Mikk
[00:35:21] S1: Yeah. A little under a year in the end. [00:35:23] S0: Yeah. Okay. What happened the day he didn't show up to the office anymore? What what were the things you started changing? You... Now you've been learning and observing all the information about the business, the market, the industry. So what happened next when it comes to maybe you can go more specific. Yeah, sure.
00:35:42 · Greg Geronemus
[00:35:42] S1: I think we knew our goals for year one was soaking up information, year two was, we had two main priorities. One was we realized that the business could no longer exist, let alone scale on paper and pen with a splash of Excel that we needed to grow up a bit. And so we worked on identifying and then implementing a new system, a real sort of ERP, and we did that. And then we started looking at how do we sort of take bets, test, and learn on ways to accelerate growth? Our initial hypothesis, especially as sort of two younger entrepreneurs, was that digital marketing would be the way forward. That paid search, paid social, a more active social media presence broadly, that would just open the floodgates. We'll take the website from a 1996 or 1997 vintage, and we'll bring it into the modern era era. We did all of that. We tested all of that. None of that seemed to really move the needle. Now it's a little bit hard to disaggregate because there were some global events. We were sending people to all over the world. One of our biggest destinations was... Actually, our biggest destination was South Africa. That was about 25% of our revenue, maybe 30% of our EBITDA. And e... Ebola hit around that time, and if you're confused why Ebola would matter for South Africa, you should be confused because Ebola was nowhere near South Africa, thousands of miles away. But try telling that to the relatively poorly informed American traveler. They just saw Ebola Africa and freaked out. And so people started canceling their trips en masse to South Africa, which was which was sort of our first, yeah, our first mini crisis. But we're really, you know, all all sort of all told, year two, the big win was systems. We learned that digital marketing was not going to be the silver bullet. And we had our first experience navigating some challenging geopolitical or public health events. Revenue was basically flat. We were able to improve our cost of goods sold and grow gross profit and grow EBITDA. And then delever dramatically and create a lot of equity value. But we had of had this sort of stubborn top line. And a lot of that persisted into the next year or so. We're still trying to figure out digital marketing not working. We had some other geopolitical and public health issues. Zika popped up in Central America, that was a thorn in our side.
00:39:08 · Greg Geronemus
There was some terrorism in Europe, the European migrant crisis. There were a lot of things that were creating some headwinds to our business. But that year, we figured out that we had two things, and these were the big sort of unlocks for the business and from a top line perspective. One, sort of going back going back to the future, we we discovered the power of direct mail. So our instinct was digital, but the actual silver bullet was direct mail. We we learned that's really what resonated with our audience with the older traveler. They like something... Even in the digital age, they like to have something physical that they could hold on to. And we also identified that there was a significant opportunity instead of selling all of our products direct to consumer to harness the power of the b to b to c distribution model. And by that, mean selling through universities, church and synagogue groups, retirement communities, chambers of commerce, companies that would would take trips as... For their... With their team, and so on and so forth. We hired a salesperson and and really ramped up that effort. And in year three, going into year four, we we started to see some really accelerated top line growth, which was very gratifying. Continued margin improvement, continued delevering, and then we got a we got a knock on our door in in late twenty sixteen from a potential buyer that then sort of resulted in the next part of our journey.
00:41:16 · Mikk, Greg Geronemus
[00:41:16] S0: But when it comes to running this cyclical business, again, you said you dealt with Ebola, terrorism, Zika, regional crisis. This... Did did those experiences change how you think about leverage when it comes to running this type of businesses? [00:41:38] S1: You know, the business has held up. I mean, we more or less grew EBITDA every single year. We didn't grow the top line every year. I don't think it necessarily changed how we viewed leverage per se. I think it changed how we viewed the challenge of growing the top line. And not to take it for granted. We a... Aside from a little bit of elevated exposure to South Africa, we had a pretty well diversified business across the globe. And so, you know, one regional, geopolitical, or public health event was not, you know, was not gonna really be terribly problematic. It was just gonna make it harder to grow. And we had such a loyal customer base that more often than not, when there was something going on in one part of the world, travelers would just sort of reshuffle their bucket list and say, okay. I'm not going to South Africa in this year, but I'll I'll go to Thailand this year. I'll... Hopefully, things will be fine in South Africa the following year. And so it made us appreciate the challenge of of growing the top line, but not necessarily, again, not necessarily sort of the leverage question. [00:43:12] S0: And the debt you were able to pay, like, $45,000,000 down every single year while owning the business?