Inspired with Alexa von Tobel
00:10:10 · Michael Brown
And so there's sort of two dynamics that happen for Teamshares when we go public. It's, first of all, the availability and this may take time. It may take a couple of years. I don't know that it's a light switch, but feels something that we can hopefully earn our way into a lower cost of debt that's available to us in the private markets and just a much bigger market. It happens... Sometimes things take two to three quarters to put together a debt facility in the private markets. And and things happen once you're a seasoned issuer in the public markets in a matter of weeks. It's it's literally incomparable. Right? I think everyone knows the cost bet. I don't know that everyone knows the knows the speed bet. And for us, that's very, very helpful because it's the raw material companies and acquisition financing is the raw raw material. And then on the equity side too, I think we're certainly going public with the intention that the equity we raise will get us to free cash flow positive. And I think there's a fairly good math case there. But if there are opportunities in the future to raise more capital and put it to work, That's available. We also now have stock that we can pay for businesses with. So it gives us a it gives us a really nice set of tools. And so what's really interesting, you know, I I don't wanna name example companies, but think of a famous company that goes public. Right? That famous company you think of that goes public, generally, the act of being public doesn't help actually catalyze the business. Maybe more people know the company now. Maybe there's higher trust in the company because you see their financials. And certainly, it's a changing in the guard and opportunity for the shareholders and the employees to have liquidity. But it doesn't actually drive... In most cases, it doesn't actually drive the business model. If you think of us as sort of a factory, a tech enabled factory where businesses and capital come in at one side
00:11:59 · Alexa von Tobel, Michael Brown
[00:11:59] S1: This is my favorite part, Michael. [00:12:01] S0: Right. And so so, like, we've always had the businesses. Where we've had shortfalls versus where we've wanted to be is on the capital. And the capital that has come has been slow and unpredictable. So we have to earn the... Our job is now to earn the trust of public markets investors, right, which is, I think, a multiyear journey. But it's it's a much bigger stage with a totally different cost of capital. And that's really, really exciting to be able to apply that capital to this, what we think, a very productive use for the small to midsize business economy. [00:12:34] S1: Michael, that's a really great point that very few companies can say, which is that actually going public, the act of going public Mhmm. It it supercharges your business model and the levers that you have to continue to grow quickly. And I just wanna hit those numbers again just because they're so big. So there are 6,000,000 small businesses [00:12:57] S0: With employees. Yep. [00:12:58] S1: With employees that are in the category that you go... You're going after. 475,000 have already come through your system in the last five years. [00:13:07] S0: Actively for sale. So that's not just like, hey. There's a business in Chicago. It's like, those are businesses that are actively for sale. Right? [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.
00:13:13 · 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