Inspired with Alexa von Tobel
00:13:13 · Alexa von Tobel, Michael Brown
[00:13:13] S1: And you are buying, obviously, dozens over the years, but you could buy a lot more. Absolutely. Yeah. Mean growth very, very quickly. [00:13:26] S0: And that's one of the things that's actually really changed. So back when we met you guys, right, I think the first sort of in 1Q of twenty twenty, we were closing a company a month with just a couple of us and a WeWork. And there are five of us in total, including me. And so which in hindsight was a very interesting time to start a company. But, the [00:13:47] S1: I'm pretty sure we wired right before COVID. Is that right? Do you remember that, where we made the decision of March 2020? [00:13:54] S0: And Timing... Timing's everything. Yeah. [00:13:57] S1: But everything. That's right.
00:13:57 · Alexa von Tobel, Michael Brown
[00:13:57] S1: But everything. That's right. [00:13:59] S0: Yeah. Good and bad. But, so those first three companies, those were about 200,000 of of of operating profit or EBITDA. As we've got further along, you know, the the the sort of the rules of our credit facilities and our ability to go get other capital have allowed us to expand the range. And so now we really focus on sort of 500,000 to 5,000,000. We've gone as big as 7,000,000 of EBITDA. I think the core principle of the model is that the companies need to be, each of them, kind of financially immaterial, right, so that you're not betting the farm on a single company. That's the key thing. That's the differentiator versus large strategic M and A, which has a very tough track record of doing large competitive acquisitions. Those you end up paying so much. And they're premised upon, quote, synergies that don't always come to fruition, whereas we're just buying a great business, transitioning it, handling the transition risk, making sure there's go forward leadership, and then converting the companies to financials, and then building growth on top of that of what's already a great business but at a very reasonable price that the seller and Teamshares agree on.
00:15:08 · Alexa von Tobel, Michael Brown
[00:15:08] S1: I want to just quickly make sure everyone listening has a really clear sense of these businesses. And I'm going to take some of the stats. On average, these businesses are thirty plus years, right? And it's where an owner, it's their main asset for their family, they're retiring. And now that you are, again, seven years into building the company, you've learned a lot. You've done almost 100 transitions across 30 states, 40 plus industries, as you said, over 400,000,000 of combined revenue. What are one to two things that you now believe about small businesses that you didn't see earlier? [00:15:50] S0: Yeah. Great question. I mean, I think the one thing that comes to mind is we always knew from inception that there was sort of what people call key person risk, that these small founder owned or second generation owned businesses, you know, the owners are doing a lot. I mean, honestly, even if you were to leave Inspired tomorrow, multiple people would need to replace you. Just founders are effective and all that stuff. [00:16:17] S1: I hope my husband heard that.
00:16:19 · Michael Brown
[00:16:19] S0: Yeah. Exactly. No. But it's true. And I think it's true of even larger companies. And so if you dial that back to a smaller company, I think that we came to appreciate that it's multiple people to replace a founder. And so then we had to work that into our math about what we thought the profit would be going forward. And I think we had to get really good at trying to decipher what type of key person risk there is because it always exists. That wasn't news to us. I think that we just got much better at figuring out what type of key person risk there is. And was it general big person on campus key person risk? And maybe not all the processes are written down. And we can handle that. We have a really strong transition playbook to handle that. We buy businesses that have a great bench of middle managers, and we bring in a president two out of three times. So that we can handle. But I think that it became very burned into our memories cases where we underappreciated how much the owner was driving the revenue. In some cases, they're actually even driving the gross margin or the profit. And so for competitive reasons, I don't want to spell out exactly how we do that. But we have figured out a repeatable playbook for figuring out which businesses have just general key person risk and which ones is the owner really driving the revenue and the profit and those type we just can't do. So that's probably the main thing that comes to mind. I think the other thing too is that maybe to a surprising amount, I think that the world is focused on industry. And I think we think more about business models. And so I think that there's a lot of different industries out there, a thousand. I don't know many SIC codes are. I'm sure there are 4,000 or more, a lot. But it may only be a couple dozen business models. And so we try and actually always think in both dimensions too. And so I think that that served us really well to actually think in business models. And it helps you identify patterns across... So if you see danger in one particular industry, but you say, oh, it's actually really the business model here, then you can say, oh, well, in this industry, that actually has the same business model. This is actually a risky business model. So
00:18:40 · Alexa von Tobel, Michael Brown
[00:18:40] S1: I like that a lot. So... Okay. Let's take a big step back. Sure. We're an inning one. You're gonna go public. Mhmm. What I know, and I will never forget, we were sitting at a coffee shop at Grey Dog... No. At News Bar Cafe. [00:18:56] S0: News Bar. [00:18:57] S1: And we decided to invest, and I just absolutely loved your vision. And you had said, Alexa, I hope... You go, one day, I'm gonna make it so that you wish you gave me $10,000,000 today, not the maybe 5 that we gave you. And that really sat with me. And I know that you truly feel like you're an inning one here. Let's talk a little bit about where do you want the company to be in a decade? What does this look like? We get the ingredients, which is business model actually, your business model gets better when you're public, which is a pretty unique unlock. There are ample companies. You have really no competitors, and you have an incredible core team that is so focused. [00:19:46] S0: Great team. We're very [00:19:47] S1: You have the you have the best two cofounders as well that the three of you kind... Really are like brothers in some way. That's very much how we've thought about it. [00:19:57] S0: I call it a marriage, actually. It's... I mean, it's a very... Like, we've been we've been through a lot. So [00:20:03] S1: what does the next decade look like, Michael? Where are we gonna go?
00:20:06 · Michael Brown
[00:20:06] S0: Yeah. So I mean, I think actually just like on that point. Right? So like the the reason why I've always had just like on con... And this this ties into the question too. Right? So like why I've always had conviction about raising capital for Teamshares is I know what we can deliver. The main risk in Teamshares as far as I see it, maybe not the list of all the risks and the prospectus, but just as human to human. When I always think about, like, what's the risk of Teamshares, it's usually that things take longer than we hoped. That's what I found over and over again is that, But we've always had conviction that the market's there, that we want to do this for the rest of our careers. We really believe in what we're doing. And so that's why we've always had a high conviction that when we go to raise capital from people, that it's not some like, oh, we'll hope this works out sort of institutional philosophy. It's like we view it as these are relationships that we're building from investors that's taking capital, whether it's their own or money they're managing, right? And that we have a fiduciary and a moral obligation to do our best to build returns for the investors we take on capital. So that's where that strong belief has come from. And I would say it remains today because now we're at this point that's really interesting where we're right at the point where the company is approaching free cash flow breakeven. That's been challenging, obviously, to build a profitable but free cash flow negative business due to interest. So we're now at the point where we're approaching the public markets, free cash flow breakeven. Our pipeline of companies remains as robust as ever. And in fact, now that we have this new tool of businesses sort of up to 5,000,000 of EBITDA, over the long run, it it it helps at a minimum sort of ensure that we can, you know, meet the sorts of targets that we've set out to meet and and and maybe in the long long term more. And and then we've got, hopefully, these these, you know, capital callouts on the debt and the equity side. So we put out a forecast, right, over the next two years, right, to say, okay. We wanna get to, you know, from 19,000,000 of corporate EBITDA in 2025 to 100 or more in 2027. And in that forecast, we say, you know, it'll be sort of adding up to 50,000,000 of EBITDA in 2027.