Buyers and Builders
00:03:51 · Nathan Lindley
And so we did really, really well in that property. So that was in Portland. So we ended up selling that property, made like 350,000 on it, which was like all the money in the world to me at the time. I couldn't even imagine having that kind of money previous to that. And so we we took that equity and we moved to Texas and we bought our first acquisition that was in February 2020. And I followed the right playbook, but I did everything wrong, if that makes sense. Like, I had an operating partner. I had some guy consulting with me who I thought knew the industry, but I just didn't do a very good job of vetting him. And and also, you know, I... Because I didn't have a private equity or an investment banking background, I didn't understand the concept of a platform or anything like that. So my logic was, I'm gonna dip my toe into this and just kind of learn it on the cheap. And so I ended up buying a very small operation. It was the owner and one technician. And my logic was, well, this business has been around for thirty years, so I'm just gonna buy it, not change anything. The technician already knows how the business should be run anyway. So I'm just going to let him do what he does every day and I'm just not going to not mess with anything and it shouldn't break. And it makes so much sense on the surface, but it just absolutely doesn't happen in reality. Like, there's there's so much stuff that falls apart, like, almost immediately. And so one of the things that I noticed was the the owner was the guy who would answer the phone every day. And so the second that contract was signed and he stepped away and now I'm answering the phone, well, you know, I'm not John. And, you know, so there's this this this... In this immediate incongruity between, you know, in in the transition that all of my customers immediately picked up on. And then on top of that, my technician who's, you know, the guy I was relying on to kind of steer the ship for me, he knew that his boss didn't know anything. And so he could kind of just start doing whatever he wanted and he could just tell me whatever he wanted me to believe. And I didn't really have a lot of baseline. And it turned out that my my partner that I had brought on as kind of a consultant, he's very good technically, but he has kinda just, like, stayed alive for twenty years in the industry.
00:06:05 · Nathan Lindley, Mikk
And I didn't really understand that until I kinda got into it. I started asking him about KPIs. You know, like, how many calls a day should we be running? What should our average transaction value be? And, you know, what what what should be my my different expectations in in all of these areas? And he didn't have any answers for me because he had never thought to measure these things in his own business. And so that's when the veil was kind of lifted from my eyes, and I realized kinda what I had gotten myself into. And, you know, I had taken out this, you know, $850,000 SBA note on a company that, you know, was rapidly losing value. And it it got really intense really quickly. So [00:06:44] S0: So this company just had this owner and one technician. That's all? [00:06:48] S1: Correct. Yeah. Correct. [00:06:51] S0: Correct me if I'm wrong. Why you ever considered acquiring this business instead of just maybe hiring one technician and just started doing those sales calls yourself?
00:06:51 · Mikk, Nathan Lindley
[00:06:51] S0: Correct me if I'm wrong. Why you ever considered acquiring this business instead of just maybe hiring one technician and just started doing those sales calls yourself? [00:07:03] S1: Well, I mean, that's that's a it's a great question. And my my rationale at the time... And and actually, there's still aspects of this that I that I subscribed to is that that phone will ring tomorrow and people people know this phone number and know this... The name of this company as their HVAC provider. And and so that was that was my rationale versus going out and you're greenfielding something where you're starting it from scratch. I didn't know how to make the phone ring, you know? And so that was really what I was buying was just the assurance that tomorrow the phone's gonna ring. That was the rationale. Also, again, my my logic was I'm just not gonna change anything. This company had made $250,000 a year for the last bunch of years. And so if I don't change anything, I should get the same result. Was was my my logic. Now, again, I'm not saying that I was I was clearly very wrong in my logic because that was the logic trend that I was pursuing. And so as long as they don't change anything, that phone should ring tomorrow, I should make $250,000 a [00:07:58] S0: So how much revenue did you lose within the next ninety to a hundred and twenty days post post acquisition?
00:07:58 · Mikk, Nathan Lindley
[00:07:58] S0: So how much revenue did you lose within the next ninety to a hundred and twenty days post post acquisition? [00:08:03] S1: Oh, man. I don't even know. But what what I... Again, there's just... You know, you don't know what you don't know. One of the things that I didn't really fully appreciate was how much of this guy's revenue came from general contractor relationships that he had and that I was not successful in in carrying on. And that was probably 40% of his revenue. And so it got cut massively in that transition period. And so, yeah, that was... [00:08:31] S0: Yeah. So going from not knowing how to make the phone ring, you had to very, very quickly make sure the phone starts ringing. Otherwise, you're in a big trouble. So what
00:08:44 · Nathan Lindley
[00:08:44] S1: did you do? Yeah. Exactly. And so remember too, like, you know, I'm I'm in a new city because I'm I'm from Portland, and now I'm living in Dallas. And I'm in a new industry. And so I don't know I don't know what normal looks like. And and then we have COVID going on. So there's there's zero baseline for anything. And so, you know, it's the middle of February and the phone's not ringing. Because I I closed on my deal in in February, like February 12 or something like that. And the phone's not ringing. Is that normal? Should it be ringing? Should it not be ringing? And I'm calling, you know, all these these guys that I know and they're like, oh, yeah. It's normal. Just kinda wait around for the phone to ring and eventually it'll ring. Like, okay. So you're kinda, you know, sitting there toiling your thumbs waiting for something to happen. You know? And then finally, March, April rolls around and it kinda starts to ring a little bit. But again, you don't know if this is if this is normal or if, you know, if it's if it's high, if it's low, if, you know, COVID has, you know, killed your company or if if everyone found out that the new owner's in town and they've gone elsewhere, you know, so it was it was impossible to know what to expect. And so you don't know if you're doing well or not doing well because you have no no baseline for your expectation. It took about two years to realize how badly things were going. I think the other thing too that I had assumed was that if I was angering customers and they were going away that I'd be seeing that coming up on Google. Like, I'd be seeing all these one star reviews showing up on on my Google profile and they weren't. And that kind of made me think that things this must just be normal otherwise I'd be hearing about it. And what I found out much later on is that customers will leave you and not say anything. And so that was, you know, another eye opener. So but along the way, so we closed in February and it... You don't know, you don't know. And so I I was falsely confident and around November, we had this deal come up down in Austin. I we had a location in Dallas. This deal came up in Austin that looked really attractive. So I got my dad to invest his retirement into this Austin deal. And it was a great deal, actually. I mean, even in retrospect, like that was a tremendous blessing.
00:10:53 · Nathan Lindley
But it was also the thing that it scaled us from... You know, the the first company we bought was doing around 1,000,000. The second company we bought was doing about 2.5 to three. As we scale, that's when all of the leaks in the bucket got really big. You know, you all of a sudden, all of them that you started to scale all of your mistakes. And that's when things really got crazy, like super scary, super quickly. And and that was when when the bleeding really accelerated. And so we ended up running out of cash. Boy, I can't remember exactly when. It was like sometime around that summer. I was just like like out... Completely out of money. And, so a friend of mine back in Oregon, he... I've been kinda keeping him in the loop and and, again, kinda falsely confident thinking that things were gonna turn around and this is just kinda part of the industry or whatever, not really realizing how how bad a shape I was in. So he had he had been wanting to invest. And so finally, I was I was actually out of money. Was like, Actually, I... You know, now would be a great time to to get some of that money. And so he had he had invested a $100,000 of his wife's inheritance from her grandfather into into our company. And and so that that kept the lights on for us for a little while longer. Well, as I was kinda talking to the team and saying, hey, guys, we're not we're not making that. We need to do better. We need more more revenue coming in, all this kind of stuff. And then, oh, yeah. Yeah. Yeah. We got you. You know? And then they go back out in the field and we just do terribly. And and finally, I I ran out of this $100,000 that my buddy had given me from his wife's inheritance. So this was, you know, kind of very sacred money. And so for the second time in less than a year, I was out, out, out of money. And I had an $800,000 SBA loan that I was a personal guarantor on. And that was when things really like hit the fan super hard. And part of the issue had been I'd I'd be sitting down. I'm watching this money just like leaving our bank account every single day. I'm trying to figure out what to do about it. And I'm sitting down trying to make an Excel spreadsheet for how to solve this. And the thing that I realized was it was impossible for me to predict my cost of goods because all of my employees were on hourly.