Latest / The Turn: Blue Collar to Billions / Most Owners Are Terrified to Do This. He Did It Anyway.

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Most Owners Are Terrified to Do This. He Did It Anyway. · The Turn: Blue Collar to Billions

• 0:00
  SPEAKER_00: That process of sharing the data and then incentivizing the behavior around the data was the single biggest thing we've done in the company.
• 0:07
  SPEAKER_00: It literally went from a couple people managing every aspect of the business and making every decision to now we've got 20 super competent people all managing the business, all taking action.
• 0:17
  SPEAKER_01: Today we talked to Chris Lee.
• 0:19
  SPEAKER_01: He starts with his family business in this truly mom and pop company.
• 0:24
  SPEAKER_01: It's a few hundred thousand in revenue when he got in there 25, 26 years ago.
• 0:29
  SPEAKER_01: He arrives, there's essentially no systems in place, no marketing, no accounting, they have no idea how they're doing on projects in real time.
• 0:38
  SPEAKER_01: Fast forward over the next 25 or so years, he builds a 40 plus million dollar revenue company, he opens multiple new locations, and he has a truly transformational transaction to one of the largest players in the country.
• 0:52
  SPEAKER_01: I'm excited for you to hear it.
• 0:55
  SPEAKER_01: Welcome back to The Turn.
• 0:56
  SPEAKER_01: I'm Corey Mitchell of Iconic Founders.
• 0:59
  SPEAKER_01: The Turn is where blue collar founders talk about the businesses they've built, the value they've created, and what comes next after they sell.
• 1:09
  SPEAKER_01: Chris Lee, thanks for joining us on The Turn.
• 1:12
  SPEAKER_01: Really appreciate it.
• 1:13
  SPEAKER_00: Yeah, thanks for having me.
• 1:14
  SPEAKER_01: I know a little bit about your background, but I'd love for you to tell us a little bit about you and how you found yourself in the family biz.
• 1:22
  SPEAKER_00: Started a commercial landscape business back in the it's 1979.
• 1:26
  SPEAKER_00: At the time it was a residential landscape company.
• 1:28
  SPEAKER_00: You know, it was the typical, you know, my stepdad borrowed$1,200 from his mom and got an old trailer and a lawnmower and went out mowing yards.
• 1:36
  SPEAKER_00: I'd kind of had a different path, graduated high school and gotten into sales and uh some things like that.
• 1:41
  SPEAKER_00: And really, like kind of like you said, I really had no interest in the family business or landscaping or any of that.
• 1:48
  SPEAKER_00: It actually kind of hit a little bit of a crossroads.
• 1:50
  SPEAKER_00: I was living in Idaho Falls, Idaho, of all places.
• 1:53
  SPEAKER_00: This is like uh early 1998.
• 1:55
  SPEAKER_00: And uh I'd accepted a job, I'd left, quit the sales job I was in, and I'd accepted a job in Little Rock, Arkansas to be a to be trained as a business consultant for All Tel.
• 2:05
  SPEAKER_00: And I thought, you know, that would give me get me in the consulting world and then the corporate world, and then I'd go change the world and all that good stuff.
• 2:13
  SPEAKER_00: And literally had the U-Haul loaded in the driveway.
• 2:15
  SPEAKER_00: Uh, everything's done.
• 2:17
  SPEAKER_00: I've accepted the job, and my mom called.
• 2:20
  SPEAKER_00: She's like, I really wish you'd have a serious talk with your dad and I about about our business and this business.
• 2:25
  SPEAKER_00: And, you know, we think we've got something here, but we've we've also got some struggles.
• 2:29
  SPEAKER_00: I think there's maybe an opportunity for everybody here to do something special.
• 2:32
  SPEAKER_00: You see, so we talked for probably an hour, hour and a half.
• 2:35
  SPEAKER_00: I expressed my concerns and I guess my vision of my future and where I needed to go.
• 2:41
  SPEAKER_00: And after that conversation, it all kind of made sense.
• 2:44
  SPEAKER_00: And I thought, hey, you know what?
• 2:45
  SPEAKER_00: This may be that path that I've been looking for.
• 2:47
  SPEAKER_00: I always knew where I wanted to go.
• 2:49
  SPEAKER_00: I just wasn't sure I was going to get there.
• 2:50
  SPEAKER_00: And so the U-Haul went to Texas instead of Arkansas.
• 2:53
  SPEAKER_00: And I guess as they say, the the rest is history.
• 2:56
  SPEAKER_00: We uh went to selling landscape work and executing landscape work, and we've had a pretty good run over the years.
• 3:02
  SPEAKER_01: So tell us a little bit about what you found.
• 3:05
  SPEAKER_01: You get there, you're in uh I think more of a mom and pop business when you arrived.
• 3:10
  SPEAKER_00: It was a small business.
• 3:11
  SPEAKER_00: I think we had about 25 employees, no real management team.
• 3:14
  SPEAKER_00: We didn't have a sales team.
• 3:16
  SPEAKER_00: My dad was fantastic with the work.
• 3:17
  SPEAKER_00: He's a hard, hardest working guy I've ever met, you know, real stickler for detail and quality control.
• 3:23
  SPEAKER_00: Like the product was great, but he doesn't necessarily tolerate people as well as some other people in the world.
• 3:30
  SPEAKER_00: That was not his strong suit.
• 3:32
  SPEAKER_00: And obviously, you, you know, when you're in a business that you're not being able to sell or deal with the clients on a regular basis or on a on terms that they're comfortable with is a restriction to growth.
• 3:42
  SPEAKER_00: And that's what I didn't know anything about landscape.
• 3:44
  SPEAKER_00: I didn't know about operations, I didn't know about production, but I did understand relationships and people and customer service.
• 3:50
  SPEAKER_00: Um, and I wasn't, you know, I like people.
• 3:52
  SPEAKER_00: I was I was happy to talk to the people.
• 3:55
  SPEAKER_00: That was really what to me made it an attractive option.
• 3:59
  SPEAKER_00: But we had an answering machine, I had a pager, I had a roll of quarters in my truck, and uh the someone would call the office, the answering machine would page me, and I had to go to the closest gas station, put 35 cents in the thing or 25 or whatever it was, and I'd make my phone call, and that's it.
• 4:17
  SPEAKER_01: We were we were you just lost 90% of the audience.
• 4:20
  SPEAKER_01: They're like, what the hell?
• 4:21
  SPEAKER_01: What's a what's a pager?
• 4:24
  SPEAKER_01: What's a pager?
• 4:25
  SPEAKER_00: Yeah, we have story time around Earthworks, where I'll tell all the young kids, but it was a very, very different world.
• 4:30
  SPEAKER_00: You know, we typed our bids in uh like an old DOS Word program and hand-wrote checks.
• 4:35
  SPEAKER_00: It was uh it was it was as mom and pop as you get.
• 4:39
  SPEAKER_01: What were some of the things that you brought to the business?
• 4:42
  SPEAKER_01: And how did how would you say you impacted the company?
• 4:45
  SPEAKER_01: What were some of those key things that you did when you got there that improved the company?
• 4:50
  SPEAKER_00: They had a little bit of a philosophy of of I guess I don't want to say um no growth, but it was it was they were very restrictive on the work that they would take on it.
• 5:00
  SPEAKER_00: It had to be a certain size, it had to be a certain, you know, it had to be class A, it had to be this, it had to be that, it had to be in this geographical region.
• 5:07
  SPEAKER_00: One of the first things that I saw was I'm like, hey, there's not enough of that work for all of us.
• 5:10
  SPEAKER_00: Like that's a that's really going to restrict what we can do with this business if we focus on that target market.
• 5:16
  SPEAKER_00: Um, so we need to expand our demographic.
• 5:18
  SPEAKER_00: I understand we need to make money, but like if somebody else wants to pay us what we need to make to operate and to be profitable, it, you know, I don't understand why we would limit ourselves based on you know these other factors.
• 5:29
  SPEAKER_00: There were some concerns about, you know, hey, if we get upside this geographical area, we're gonna, you know, it's it's gonna be more expensive, we're gonna have windshield time, we're gonna have fuel and maintenance depreciation on the vehicles.
• 5:40
  SPEAKER_00: And and I kind of convinced them that that's part of the price of growth.
• 5:44
  SPEAKER_00: Like we will, we will spend that money until it turns into a payment on a facility that's closer to the work, then we'll buy a facility closer to the work, and then we'll do it again and we'll do it again.
• 5:54
  SPEAKER_00: And that's how this is gonna work out.
• 5:56
  SPEAKER_01: What kind of uh tools were you able to put in place and how did that impact how you ran the business?
• 6:01
  SPEAKER_00: Yeah, so probably let's see, 98, probably by 2002, 2007, 2008, we invested in our first, I guess what you call an ERP system.
• 6:12
  SPEAKER_00: Um that's pretty basic, but it did give us insight into the jobs.
• 6:15
  SPEAKER_00: It gave us our first job costing on non-maintenance accounts.
• 6:18
  SPEAKER_00: It gave us um, you know, we could close the month and see what last month was versus getting to the end of the year.
• 6:25
  SPEAKER_00: Um that that was a you know, obviously a game changer because you're you're not driving blind anymore.
• 6:31
  SPEAKER_00: You've got data, you've got intelligence.
• 6:33
  SPEAKER_00: Yep.
• 6:34
  SPEAKER_00: So then it was just a matter of taking action on the data, which then you quickly realize that if you're the only person analyzing the data, you're the bottleneck and you're really holding your team back.
• 6:44
  SPEAKER_00: So then it was a matter of sharing the data and sharing the data in a way that people could understand it and that they could then take action on it or think about ways to take action on it.
• 6:54
  SPEAKER_00: And then tying comp to those actions and to that uh and driving those metrics was kind of the final piece.
• 7:00
  SPEAKER_00: So getting the data into the people's hands that are on the front line and then incentivizing them to use it properly really made a huge difference for us.
• 7:08
  SPEAKER_01: High quality data in real time, and then transparency, which you which you touched on, and finally tying that data to how you pay your team.
• 7:22
  SPEAKER_01: What's your philosophy around sharing the information with your employees?
• 7:28
  SPEAKER_01: How do you think about sharing data?
• 7:30
  SPEAKER_01: And then what's your philosophy on how you pay a team to incentivize behavior?
• 7:36
  SPEAKER_00: So, and this is kind of interesting.
• 7:38
  SPEAKER_00: I I've I've always felt in my heart that if people had data and they had a good understanding of it, they would do good things with it.
• 7:44
  SPEAKER_00: But there was also exactly what you said.
• 7:46
  SPEAKER_00: For years we were terrified of man, if they see these numbers, if they get an idea, like they're not gonna understand, they're gonna think we're getting rich, like they don't understand reinvestment, they don't understand capital.
• 7:56
  SPEAKER_00: And so we we really were really closed book.
• 7:59
  SPEAKER_00: So we we decided to have a, you know, just a accounting 101 was how we kicked it off.
• 8:04
  SPEAKER_00: Like, all right, guys, let's talk about what a PL is, let's talk about what it looks like.
• 8:07
  SPEAKER_00: And even before we do that, let's talk about cash flow, because that's what a lot of people don't understand.
• 8:12
  SPEAKER_00: There's a difference between profit and cash flow.
• 8:14
  SPEAKER_00: And so I kind of wrote an example, you know, we we did 10 million in sales, we made a million dollars in profit, and and now we got to pay taxes, and now we got to reinvest, and now we got to do this, and now we got to, and like at the end of the day, you're like negative 100 grand.
• 8:28
  SPEAKER_00: You're like seeing guys like you thought we were making all this money, but the reality is it actually cost us 100 grand in cash flow to operate last year.
• 8:36
  SPEAKER_01: Yeah, and then everyone told us.
• 8:40
  SPEAKER_00: Nothing left, yeah.
• 8:42
  SPEAKER_00: Um so that's kind of where it started, uh, you know, helping them understand, you know, that that where the money goes, and we you know, that these big numbers aren't as big as they seem by the time you know it all it all gets processed.
• 8:55
  SPEAKER_00: And then from there, um, you know, we started the process of just kind of giving them the data and seeing what they did.
• 9:01
  SPEAKER_00: But we're starting to throw this data out on month on a monthly basis.
• 9:05
  SPEAKER_00: And then starting to give them access to look, do stuff and look around, just kind of in the interim.
• 9:09
  SPEAKER_00: They could they had you know reports that they could run and things.
• 9:12
  SPEAKER_00: And noticed that we started to get some really good feedback and feedback on some things that maybe weren't visible to us from where we were sitting.
• 9:20
  SPEAKER_00: And so we expanded kind of what we were doing there.
• 9:23
  SPEAKER_00: And then I guess after about 12 months of that process, then we brought in the comp piece where we said, okay, now that you guys understand the data, you've had a year to work with the data and to understand how it moves and how it affects the business.
• 9:36
  SPEAKER_00: Now we're gonna ask you to use that data to improve the business and we're gonna pay you to do that.
• 9:41
  SPEAKER_00: So, you know, I think getting into the comp side of it, I think it's really important.
• 9:45
  SPEAKER_00: And you know this, and I think a lot of people know this, is you can't necessarily have variable comp that people don't have control over.
• 9:53
  SPEAKER_00: Like if you give them a variable piece and they have no real ability to affect that variable piece, you might as well give them nothing because you're not gonna motivate them, they're not gonna do anything special for you.
• 10:02
  SPEAKER_00: But um, you know, if that comp is tied to actionable behavior, things that they can control and things that make the business better, once you get them to understand that, then the decision making gets even even more focused, it gets even better, you know, and then they they reap the rewards.
• 10:20
  SPEAKER_00: They almost become uh it almost, you know, and I want to be careful how I say this because nobody has an owner's mentality truly except the owners, and they shouldn't really.
• 10:28
  SPEAKER_00: I mean, it's not fair to ask an employee, even if you're paying a whole lot of money, to think like you do or to care like you do.
• 10:34
  SPEAKER_00: It's just not it's it's it's not realistic.
• 10:37
  SPEAKER_00: But if you incentivize them through comp and through through things like that, it gets you kind of that pseudo-owner mentality where you know no, no, they're not gonna care as much as you, but they care and they are they're they and their success is tied to your success.
• 10:52
  SPEAKER_00: So the moves they're making that are good for them are good for the business, and vice versa.
• 10:57
  SPEAKER_00: Uh and it creates your alignment.
• 10:59
  SPEAKER_01: So what changed?
• 11:02
  SPEAKER_01: What changed for the team?
• 11:03
  SPEAKER_01: Did you see any different behavior when you changed that comp plan?
• 11:07
  SPEAKER_00: That's what we yeah, it was that was the that process of sharing the data and then incentivizing the behavior around the data was the single biggest thing we've done in the company.
• 11:17
  SPEAKER_00: I mean, it absolutely was hard for me, like it's still hard looking back for me to understand how much of a difference that made.
• 11:24
  SPEAKER_00: I mean, because it literally went from, you know, a couple people managing every aspect of the business and making every decision to now we've got 20 super competent people all managing the business, all taking action, you know, again on things that weren't even visible to me from where I'm sitting.
• 11:38
  SPEAKER_00: Because I'm not, you know, I was two layers removed from the front line.
• 11:42
  SPEAKER_00: So I'm not seeing what those guys are seeing.
• 11:44
  SPEAKER_00: And and then I think the the other really important part that I think we did a nice job on is we didn't punish people for mistakes.
• 11:50
  SPEAKER_00: We we, you know, we expected people to fall down, we expected them to stub their toe.
• 11:55
  SPEAKER_00: We really tried to create an environment around that information and the comp and everything that was a safe environment where, yeah, we know you're gonna screw up.
• 12:03
  SPEAKER_00: Like we all do, we're all people.
• 12:06
  SPEAKER_00: But you know, the expectations you learn from it, you know, make the same mistake over and over.
• 12:10
  SPEAKER_00: And I think a couple of things came out of that.
• 12:13
  SPEAKER_00: You know, I think just the willingness to try something new is huge.
• 12:18
  SPEAKER_00: Um, and if if people are constantly being criticized, or if they're they're not in an environment where they're comfortable going out on a limb and trying something new and taking ownership of it and like really driving that new process.
• 12:30
  SPEAKER_00: But again, you go back to the one or two guys are making every decision and every initiative, and it it just you can't scale a business that way.
• 12:38
  SPEAKER_01: One of the things we hear over and over in these interviews is how data transparency changes everything.
• 12:45
  SPEAKER_01: I would argue that's probably what Chris Lee would call the turn in his case.
• 12:51
  SPEAKER_01: He basically goes from driving blind, not knowing how the company's doing until year end, to a position of having real information in real time about actual jobs and job costs, and then he ties it into compensation.
• 13:05
  SPEAKER_01: And that's where he really sees behavior change.
• 13:09
  SPEAKER_01: And it drives a tremendous amount of growth.
• 13:12
  SPEAKER_01: What the heck do people mean by transparency?
• 13:15
  SPEAKER_01: We hear this big buzzword all the time, but I bet you ask 20 people that question and you're gonna get 20 answers.
• 13:22
  SPEAKER_01: I think what Chris means when he's talking about transparency is he has all the real-time information about how the projects are doing, how the business is doing, and how individual project managers are running their jobs so that everyone is driving in the same direction and they know how the business is gonna be paid and how they themselves will be compensated accordingly.
• 13:45
  SPEAKER_01: And so in this case, I think transparency means that.
• 13:50
  SPEAKER_01: So I want to go back in time a little bit.
• 13:52
  SPEAKER_01: So you're in a family business.
• 13:54
  SPEAKER_01: Family businesses are hard.
• 13:56
  SPEAKER_01: How was your relationship with your family through this process of growing with the business?
• 14:01
  SPEAKER_00: There were times where we got along great, and there were times where we didn't necessarily get along all that well because there was, you know, I was trying to spread my wings and you know, they're trying to exert their authority, and you know, we didn't always see eye to eye.
• 14:13
  SPEAKER_00: But, you know, I think one of the things that was really, really nice is that around 2007, you know, we we've had a family farm in Colorado since I was a kid.
• 14:21
  SPEAKER_00: That's always been my stepdad's dream is the farm.
• 14:24
  SPEAKER_00: And we actually had a deal on the table in 06.
• 14:27
  SPEAKER_00: We had our first LOI, we signed it, ready to go.
• 14:30
  SPEAKER_00: And then Sunday before due diligence starts, we called, we're like, we're not doing it.
• 14:33
  SPEAKER_00: We're out.
• 14:34
  SPEAKER_00: We got too many things to finish here.
• 14:36
  SPEAKER_00: But he took that opportunity to say, you know what, you're gonna finish those things, and I'm going to Colorado.
• 14:40
  SPEAKER_00: I'm not, I'm not delaying my dream of running the farm any longer, like have at it.
• 14:45
  SPEAKER_00: It was a really powerful conversation.
• 14:47
  SPEAKER_00: He said there's been one rule at Earthworks since day one, and that's I cash my check last.
• 14:52
  SPEAKER_00: So if there's no money left at the end of the day, my check's the one that doesn't get cashed.
• 14:56
  SPEAKER_00: So there's a new rule starting today.
• 14:58
  SPEAKER_00: My check gets cashed first, yours gets cashed last.
• 15:01
  SPEAKER_00: Good luck.
• 15:02
  SPEAKER_00: I love that.
• 15:03
  SPEAKER_00: Yeah, that was that was pretty powerful.
• 15:05
  SPEAKER_00: I mean, it kind of like it all hit me right there in that moment, like, wow.
• 15:09
  SPEAKER_00: So that's how it is.
• 15:13
  SPEAKER_01: I love this quote that Chris had where he talks about the owner mentality.
• 15:20
  SPEAKER_01: This resonated so much with me because it's really true.
• 15:23
  SPEAKER_01: I've always wondered to myself, why isn't my best performing salesperson my competitor?
• 15:28
  SPEAKER_01: Why don't they go out and start their own business?
• 15:30
  SPEAKER_01: This ain't that hard.
• 15:31
  SPEAKER_01: But the reality is most people don't have that owner mentality that you, as the founder, have.
• 15:38
  SPEAKER_01: And I love the line that he says is what you get to do when you're the owner is you cash the last check.
• 15:46
  SPEAKER_01: That means you're putting all of your team in front of yourself.
• 15:49
  SPEAKER_01: And I think that it's one of the big misconceptions people have about these rich owners that own these contracting businesses.
• 15:57
  SPEAKER_01: They see that all of these dollars are coming into business, they see that there's this gross margin on their projects, and they think, well, God, the owner of this company is just making a fortune.
• 16:08
  SPEAKER_01: But the reality is, is that growth is expensive.
• 16:12
  SPEAKER_01: Even though you might be making a ton of money on paper, in reality it's actually costing you money to grow.
• 16:18
  SPEAKER_01: And so the biggest challenge of growth is actually how do I have enough cash to keep up with this level of growth?
• 16:24
  SPEAKER_01: And it usually means there's actually no money or negative money left over at the end of the year.
• 16:30
  SPEAKER_01: And so that commitment to cashing your check lasts, that's the owner's mentality.
• 16:38
  SPEAKER_01: Okay, but f fine.
• 16:39
  SPEAKER_01: But does that come with any ownership in the business?
• 16:42
  SPEAKER_00: Well, yeah, that was the other piece that we worked through and never really had anything in writing, but we did make an agreement, you know, based on all right, so when we hit X revenue, I start to earn equity, and everything over X is going to be a third, a third, a third.
• 16:55
  SPEAKER_00: We're partners three ways.
• 16:56
  SPEAKER_00: And um, so yeah, we were able to hammer that stuff out as well at the time.
• 17:01
  SPEAKER_01: Was there ever any heartburn over the equity piece?
• 17:04
  SPEAKER_01: And then how do you ink that you want to get paid on your your equity and you don't want it to be a taxable event.
• 17:10
  SPEAKER_01: So how do you get that inked over time?
• 17:12
  SPEAKER_00: So there's a lot of trust involved, obviously.
• 17:14
  SPEAKER_00: We we never did put anything on paper.
• 17:16
  SPEAKER_00: We did have multiple conversations over the years, and then yeah, we we had several more as we worked through the transaction because it's not all it's not all super cut and dry.
• 17:25
  SPEAKER_00: It's not just like here's a check for X amount, and you guys split it up, you know, a third, a third, a third.
• 17:30
  SPEAKER_00: Um, and we had my brother joined us about uh 13 years ago and kind of had joined the equity club, but it wasn't super defined.
• 17:38
  SPEAKER_00: So one of the things we did, and we were really intentional about our sale process, was you know, we we probably it was probably two years from the time we decided we're gonna do this until really until we actually went to market.
• 17:49
  SPEAKER_00: Um, but a lot of that time was all right, we got to get on the same page as a family.
• 17:53
  SPEAKER_00: You know, there was a lot of time around financial planning and things like that, which you have to understand what the equity is gonna look like before you can make the financial plan.
• 18:02
  SPEAKER_00: So before we went to market, we had all that stuff pretty well dialed in, you know, with the understanding that we don't know exactly what the deal's gonna look like.
• 18:09
  SPEAKER_00: Uh, but you know, we had percentages and and agreements made uh uh that everyone was was was good with.
• 18:15
  SPEAKER_00: Literally right up until the day before closing.
• 18:18
  SPEAKER_00: Like, all right, well, now they did this.
• 18:19
  SPEAKER_00: What about this?
• 18:20
  SPEAKER_00: Or is everybody good with that?
• 18:21
  SPEAKER_00: Yeah, we're all good with that.
• 18:22
  SPEAKER_01: So so in in the end, you know, everyone walked away happy.
• 18:27
  SPEAKER_01: Okay.
• 18:28
  SPEAKER_00: Yeah, and we still, you know, I'm sure we'll get into this, but we've still got more coming.
• 18:31
  SPEAKER_00: You know, we did uh we rolled over a nice piece, and so there's there's still a second bike coming for for us.
• 18:37
  SPEAKER_01: You mentioned going out and starting kind of new locations.
• 18:43
  SPEAKER_01: Curious what makes for a successful new location?
• 18:48
  SPEAKER_00: Yeah, so one of them was in a different market, it was in Houston.
• 18:51
  SPEAKER_00: But the first two branches that we opened were in Dallas, so it was a little bit different.
• 18:55
  SPEAKER_00: It wasn't the typical process of you know, hang a sign, go sell a bunch of work and try to make this thing work.
• 19:00
  SPEAKER_00: We we already had the business.
• 19:01
  SPEAKER_00: We already had the work.
• 19:02
  SPEAKER_00: Now it was just the opportunity to move that part of the business closer to the work.
• 19:07
  SPEAKER_00: So location obviously was important, but then just having the right person to run it, but just having that right person.
• 19:13
  SPEAKER_00: And then for us, you know, we start off with two crews, move a third crew, move a fourth crew.
• 19:17
  SPEAKER_00: And so they kind of started off as almost like satellite locations and developed into full branches.
• 19:21
  SPEAKER_00: Houston was completely different.
• 19:23
  SPEAKER_00: We did have a client that offered us a chunk of work that seemed to make sense to as a footprint, but we had nothing else down there.
• 19:29
  SPEAKER_00: And we went down there with one operator and a foreman and rented some space, and that was a true greenfield.
• 19:36
  SPEAKER_00: We knew nobody didn't have any connections, and you know, that's turned into a uh you know a$10 million branch over the last seven years without uh doing a whole lot.
• 19:45
  SPEAKER_00: So it's worked out well.
• 19:46
  SPEAKER_00: And again, having the right person being in multiple MSAs obviously made a difference, and being able to indicate that we could run multiple branches made a difference.
• 19:55
  SPEAKER_00: I mean, it absolutely added value.
• 19:57
  SPEAKER_01: You mentioned you're super thoughtful about your process of selling.
• 20:01
  SPEAKER_01: What does that look like?
• 20:02
  SPEAKER_01: Can you walk us through what a strategic plan might look like and what some of the key things of planning that made your exit successful?
• 20:10
  SPEAKER_00: If you go back four and a half years before the transaction, we had started uh our five-year strategic planning.
• 20:17
  SPEAKER_00: And we'd kind of come through at the end of the strategic planning, we're like, okay, we've got we've got about five years.
• 20:24
  SPEAKER_00: If we do all the things that we're supposed to do and we hit all these revenue markers, in about five years, we're gonna be maxed out from a facility standpoint and operation standpoint.
• 20:32
  SPEAKER_00: Where you know, there's not gonna be any more space to operate more crews, like we're gonna be, we're gonna be kind of done, short of investing significant capital in whether it's acquisitions or new facilities, which all that stuff's crazy expensive.
• 20:45
  SPEAKER_00: You know, even you know, facilities these days is three or four million bucks for a you know, a couple acres in a metal building, which is crazy.
• 20:52
  SPEAKER_00: So we realized a couple of things at the end of the strategic planning process.
• 20:55
  SPEAKER_00: One, we realized we're gonna need a significant amount of capital to keep this thing going uh if we want to continue what we're doing.
• 21:02
  SPEAKER_00: Um, two, my parents probably aren't gonna be the source of that capital because they're in their 70s and they're not looking to take on risk.
• 21:09
  SPEAKER_00: They're looking to, you know, retire and relax and uh take away risk.
• 21:14
  SPEAKER_00: Yeah, and we also we've done a really nice job.
• 21:17
  SPEAKER_00: We've been intentional about bench strength and building the bench.
• 21:20
  SPEAKER_00: And we were like, man, we've got we've got these this team of really young, up-and-coming people that have a lot of ambition.
• 21:26
  SPEAKER_00: And so the other thing is if we don't grow, they're gonna go somewhere else.
• 21:29
  SPEAKER_00: Like we, if we don't create the opportunities that they need for their lives, they're gonna find a place that will.
• 21:34
  SPEAKER_00: And like we're not gonna invest all this time and effort into these great people and then watch them walk off and make our competitors better.
• 21:40
  SPEAKER_00: So we we have to grow, we have to find the capital.
• 21:43
  SPEAKER_00: And frankly, you know, we're gonna need some more expertise.
• 21:45
  SPEAKER_00: You know, we don't understand acquisitions.
• 21:48
  SPEAKER_00: You know, we're we don't have a sales team.
• 21:49
  SPEAKER_00: We everything we've done, we've done through word of mouth and referrals.
• 21:53
  SPEAKER_00: And we could use uh, you know, maybe someone who's scaled a business beyond 40 million before, because we haven't.
• 21:58
  SPEAKER_00: We really don't know what that looks like, but now it's Now we're talking about real money.
• 22:01
  SPEAKER_00: So that was the first thing that kind of led us down the path of hey, we we're gonna have to find a different way to do this.
• 22:07
  SPEAKER_00: And I had one conversation that kind of, you know, I had in my head this perfect vision of we gotta it's gotta be a culture fit.
• 22:14
  SPEAKER_00: They have to leave us alone, they have to give us money, they have like all these things, right?
• 22:18
  SPEAKER_00: Um, you know, that you know, at the time I didn't know were realistic.
• 22:22
  SPEAKER_00: Um, and in fact, thought they probably weren't.
• 22:25
  SPEAKER_00: Then I had one conversation that led me to believe that, hey, you I think you can do all of those things that you want to do.
• 22:32
  SPEAKER_00: But, you know, here's how you need to do it.
• 22:34
  SPEAKER_00: You know, you're gonna have to be the prettiest girl at the dance, you're gonna have to have all your ducks in a row, you're gonna have to show up to that thing dialed in.
• 22:41
  SPEAKER_00: So that's where the methodical process of, you know, starting with financials, and then just, you know, we we engaged uh an advisor early on in the process, and we just went through like literally everything we have.
• 22:52
  SPEAKER_00: We did a basically we did our own due diligence before we went to market, just because we wanted to know what people were gonna find.
• 22:59
  SPEAKER_00: We wanted to know what people were gonna see.
• 23:00
  SPEAKER_00: We wanted to see what we could fix, you know, what things we could tweak, what things needed to be changed.
• 23:05
  SPEAKER_00: And by going through that process, I believe by it being such a thoughtful process, when we did go to market, we were able to get all the things that we were looking for.
• 23:14
  SPEAKER_00: And we and we had more than one person willing to do that for us.
• 23:17
  SPEAKER_00: You know, so it really became a situation where we got to make the call that we felt was right for us.
• 23:23
  SPEAKER_01: How much in advance of doing the deal did you hire them?
• 23:26
  SPEAKER_01: Two years.
• 23:27
  SPEAKER_01: Two years.
• 23:28
  SPEAKER_01: Okay.
• 23:28
  SPEAKER_01: Give us a few of the examples of things that you you determined would be good to change about your business to get a higher valuation.
• 23:36
  SPEAKER_00: What we wanted to do is we wanted to make sure our quality of earnings was was bulletproof, so to speak, or or you know, somewhat above reproach, because that obviously kills a lot of deals.
• 23:43
  SPEAKER_00: You know, people aren't great with financials, they're good at business, what have you.
• 23:47
  SPEAKER_00: But so we wanted to make sure the quality of earnings was good.
• 23:50
  SPEAKER_00: There's also in our industry, especially in Texas, being a non-e-verified state, there's a lot of deals that are going sideways because of I-9 compliance and and and immigration, or or I guess not immigration, but um work authorization, you know what I'm trying to say.
• 24:06
  SPEAKER_00: Anyway, I9 on the I do.
• 24:07
  SPEAKER_01: Yes, and I I had my own deal go south in Texas over exactly that kind of issue.
• 24:12
  SPEAKER_01: So I know exactly what you're talking about.
• 24:13
  SPEAKER_00: There you go.
• 24:14
  SPEAKER_00: So in having an advisor, we got that information soon, like, hey, this is something that's changed.
• 24:18
  SPEAKER_00: This was literally just since Trump, the Trump administration came in, all of that started to change.
• 24:23
  SPEAKER_00: And the enforcement picked up, and that made people more nervous.
• 24:26
  SPEAKER_00: So we went through and did a full I-9 audit.
• 24:29
  SPEAKER_00: Um, you know, we looked at our hiring practices, all that looked good.
• 24:32
  SPEAKER_00: You know, and from there it was really just tightening up expenses.
• 24:35
  SPEAKER_00: You know, hey, what kind of things can we do over?
• 24:37
  SPEAKER_00: You know, we we understood they're gonna be looking at our trailing 12, you know, so it's now's the time to tighten it up.
• 24:44
  SPEAKER_01: He mentions trailing 12 months.
• 24:46
  SPEAKER_01: I don't think most of us think about businesses being run in a trailing 12 months.
• 24:51
  SPEAKER_01: What does it mean?
• 24:51
  SPEAKER_01: All businesses are bought and sold on trailing 12 months, or it's often called TTM or LTM.
• 24:59
  SPEAKER_01: What that means is how has the business performed over the last 12 months?
• 25:04
  SPEAKER_01: It sounds simple, but it's rolling.
• 25:06
  SPEAKER_01: Every single month, your TTM changes a little bit.
• 25:10
  SPEAKER_01: And so you're always performing this month against the previous year in that month.
• 25:15
  SPEAKER_01: And that can have a big impact on your revenue and profitability, and it's changing every month.
• 25:20
  SPEAKER_01: And so you don't buy or sell a business on January through December unless you're selling in December.
• 25:26
  SPEAKER_01: You're doing it from this month a year ago, and it's always being rolled forward month after month.
• 25:33
  SPEAKER_01: And so that's something that hasn't come up on this show before, and I thought it was worth calling out.
• 25:39
  SPEAKER_00: Yeah, we still have to operate the business and we still have to do the right things, but you know, we all know that there's um, you know, especially in a in a family-held business, there's plenty of things that get expensed that won't necessarily be there when there's a new owner, right?
• 25:53
  SPEAKER_00: So we try to start cleaning that stuff.
• 25:56
  SPEAKER_01: One of the most painful things about selling for most owners is getting rid of those little perks.
• 26:00
  SPEAKER_00: The perks, yeah, yeah, yeah.
• 26:01
  SPEAKER_00: That's that's that's still to this day what's killing my parents the most.
• 26:04
  SPEAKER_00: It's not, it's like, I just don't have anybody like now I gotta get the oil changed on my car.
• 26:08
  SPEAKER_00: I used to have somebody to do that for me.
• 26:10
  SPEAKER_00: I'm like, I'll handle it.
• 26:12
  SPEAKER_01: Yeah, but yeah, but you know what, uh, mom, you got a big check.
• 26:15
  SPEAKER_01: Yeah, yeah, yeah.
• 26:16
  SPEAKER_01: You can hire three full-time people.
• 26:18
  SPEAKER_01: Yeah, people want the check without it making any changes in their lifestyle.
• 26:22
  SPEAKER_01: And it just doesn't work that way, unfortunately.
• 26:26
  SPEAKER_01: Do you think it was worth having an advisor to take you to market?
• 26:30
  SPEAKER_00: Very important.
• 26:31
  SPEAKER_00: Now, what I will caveat that with is just having somebody kind of on you, somebody that's been through the process before, somebody that knows what to expect that can kind of guide you.
• 26:42
  SPEAKER_00: I think is I I couldn't imagine trying to do it without that.
• 26:45
  SPEAKER_00: We'd have never gotten across the finish line.
• 26:47
  SPEAKER_00: There's no way.
• 26:50
  SPEAKER_01: Chris talks about the fact that he hired an advisor.
• 26:53
  SPEAKER_01: And I think it's something just to really note.
• 26:56
  SPEAKER_01: At Iconic Founders Group, we advise specialty contractors specifically.
• 27:02
  SPEAKER_01: That's all we take on.
• 27:03
  SPEAKER_01: And we advise them through the value creation part of their business, that meaning the year or two that Chris was talking about before a transaction, but we also help them get through the transaction itself.
• 27:15
  SPEAKER_01: One of the things that's a little bit different about how we do it is almost all of the fees go on the buyer as opposed to the seller.
• 27:22
  SPEAKER_01: It makes it so much more palatable because one, you know, we're paid on a percentage of the deal, but we're paid by the buyer traditionally, and it still completely aligns us with the seller because we're trying to get the highest and best value for the company.
• 27:37
  SPEAKER_01: And so we still, you know, bring several buyers to the table.
• 27:41
  SPEAKER_01: That keeps that pressure on to make sure we're getting the highest and best price and getting what the business is worth.
• 27:46
  SPEAKER_01: But at the same time, we're trying to make a simpler, more relationship-based approach to the sale process so that you, as the owner, can keep running your business so that your revenue and profit can continue to go up and to the right, and you keep more of the transaction dollars in your pocket because the buyer's paying most of our fees.
• 28:06
  SPEAKER_01: That's the iconic founder's difference.
• 28:10
  SPEAKER_01: What's it like getting through that final push to close the deal?
• 28:13
  SPEAKER_01: And how do you decide who your who your next partner is in the buyer?
• 28:17
  SPEAKER_01: Yeah.
• 28:18
  SPEAKER_00: We went into the final stage with a really good idea.
• 28:20
  SPEAKER_00: I mean, we we uh like like frankly, we had we're there were three that we were going to pick from.
• 28:25
  SPEAKER_00: We did end up inviting a fourth to man to have the management meetings just for, you know, add in a you know, another variable or another thought process.
• 28:33
  SPEAKER_00: We spent uh a fair amount of time going both ways.
• 28:36
  SPEAKER_00: We spent we took our leadership team out to their facilities and spent a day or two, had them come out to our facilities and did the you know, the normal management meetings, and we peppered them with questions and they peppered us with questions.
• 28:48
  SPEAKER_00: And um, you know, at the end of the day, we we uh um we met with four.
• 28:53
  SPEAKER_00: We got four LOIs.
• 28:55
  SPEAKER_00: Three of the four were, I mean, essentially identical.
• 28:58
  SPEAKER_00: Though there was one that was a little bit of an outlier.
• 29:00
  SPEAKER_00: So we really had we had four different paths that all the money was the same.
• 29:03
  SPEAKER_00: Um, so really it just came down to comfort and culture, and you know, it was really important to us.
• 29:09
  SPEAKER_00: Our brand was important, the way we operate was important, you know.
• 29:13
  SPEAKER_00: And there was two of the two of the partners were were willing to let us keep our brand and kind of become a sub-platform or the Texas market platform for the entity.
• 29:22
  SPEAKER_00: And honestly, you know, I I said I mentioned earlier that it one conversation changed my mind and kind of allowed me, gave me the vision that we can really do all of this.
• 29:32
  SPEAKER_00: That's the company we ended up transacting with two and a half years ago.
• 29:35
  SPEAKER_00: Okay.
• 29:36
  SPEAKER_00: What did they say that changed your mind?
• 29:38
  SPEAKER_00: The reason we ended up where we ended up wasn't so much anything that changed our mind to just lock in and say, okay, here's what we're gonna do.
• 29:45
  SPEAKER_00: But I had seen it, it was a person, it was a guy I'd known for, you know, 15 years through the industry.
• 29:50
  SPEAKER_00: I'd seen him transact five or six years ago.
• 29:53
  SPEAKER_00: I knew all of his management team.
• 29:55
  SPEAKER_00: I still was in touch with his management team and seen him on a regular basis.
• 29:59
  SPEAKER_00: So I'd seen them go through this, I'd seen them come out of it seemingly exactly how I had envisioned coming out of it.
• 30:06
  SPEAKER_00: They seemed happy.
• 30:07
  SPEAKER_00: You know, three years down the road, all the senior leaders were still there, they're still engaged, they're still fired up, they still enjoy the ride, they're still doing things kind of the way they used to, you know, for the most part, operationally, still doing the things the same way.
• 30:20
  SPEAKER_00: Everybody has a great song and dance and a great pitch about how awesome everything was gonna be.
• 30:25
  SPEAKER_00: But being able to see the proof that I've seen it happen with these guys, I've seen what I've seen the reality and it and it seems good.
• 30:33
  SPEAKER_00: That that was the that was ultimately the the deciding factor.
• 30:37
  SPEAKER_00: And there was there was another one that I felt great about.
• 30:39
  SPEAKER_00: I love the guy that the CEO is one of my favorite, maybe my favorite guy in the industry, but it was gonna be a different deal.
• 30:44
  SPEAKER_00: We were gonna be part of a bigger company, we were gonna rebrand, we were gonna change systems, and that just wasn't what we were interested in.
• 30:51
  SPEAKER_01: Got it.
• 30:51
  SPEAKER_01: So so you're you're cons what's considered an add-on acquisition to to another platform.
• 30:56
  SPEAKER_01: Is that right?
• 30:57
  SPEAKER_00: Correct.
• 30:57
  SPEAKER_00: Well, so so the way they're Ospreay Landscape Group is the parent company.
• 31:02
  SPEAKER_00: But the kind of the idea is they started in the Pacific Northwest, and um, obviously Texas was their second market, but then the idea is to fill in the blanks like California, New Mexico, Arizona, kind of become a Southwest regional platform or regional player.
• 31:18
  SPEAKER_00: Each market, each state will be a separate platform.
• 31:21
  SPEAKER_00: So in the Pacific Northwest, Pacific landscape, Bob Rover, they're the they're the platform in Washington and Oregon.
• 31:28
  SPEAKER_00: We're the platform in Texas.
• 31:30
  SPEAKER_01: Close the deal.
• 31:32
  SPEAKER_01: Does it still feel good?
• 31:33
  SPEAKER_01: Does it still feel like that culture you were hoping for?
• 31:36
  SPEAKER_00: It does.
• 31:36
  SPEAKER_00: It's not been as easy as I thought in some instances.
• 31:40
  SPEAKER_00: Um, and that's really not anything to do with them, just more the mentality switch when you've been the guy that makes all the decisions for for a really long time and you're not used to checking with people and you're not used to having to answer to people.
• 31:54
  SPEAKER_00: It's a it's different.
• 31:55
  SPEAKER_00: Um, certainly.
• 31:56
  SPEAKER_00: Any issues that we've had have probably been my own mental issues more than anything.
• 32:01
  SPEAKER_00: Um, it is a change, but no, it's it's been great, but we've also that's come along with a bunch of new data that's great that we didn't have before, and that's very actionable.
• 32:09
  SPEAKER_00: And and from an operational standpoint, there's literally been no changes.
• 32:13
  SPEAKER_00: Like we operate exactly the same way today as we did, you know, a year ago in the field.
• 32:17
  SPEAKER_00: So yeah, all things considered, I'd say it was everything was as advertised.
• 32:22
  SPEAKER_00: You know, expenses or whatever, a truck or whatever.
• 32:25
  SPEAKER_00: Yeah.
• 32:25
  SPEAKER_00: That's a deep hard shift.
• 32:27
  SPEAKER_00: Yeah, it's different.
• 32:29
  SPEAKER_01: So on the personal side though, so you you close your deal, you rolled equity.
• 32:34
  SPEAKER_01: How has it felt?
• 32:36
  SPEAKER_01: You know, you're still working, right?
• 32:38
  SPEAKER_01: Has there been this big change, or has there been a weight lifted because you've got some financial security that's changed?
• 32:45
  SPEAKER_01: Like what personally has shifted for you?
• 32:48
  SPEAKER_00: I don't feel any different, I don't feel any less pressure, I don't feel any less stress, but there is a nice ability to when I feel when I'm in the middle of it and I you know getting overwhelmed to think that you know what?
• 33:01
  SPEAKER_00: Not that I'm going to, but I can walk out the door right now and like and my life is gonna be great.
• 33:07
  SPEAKER_00: Like nobody can take that away from me at this point.
• 33:10
  SPEAKER_00: Now, a year ago that wasn't the case because essentially all of my net worth net worth was tied up in this deal.
• 33:17
  SPEAKER_00: So if something catastrophic happens, like that's it, you know, it's start overtime.
• 33:21
  SPEAKER_00: There's a nice level of comfort in having the deal done and having money in the bank.
• 33:25
  SPEAKER_00: There's no doubt.
• 33:26
  SPEAKER_00: But I don't I don't feel any less pressure to perform or to operate the business, which I thought I would, honestly.
• 33:34
  SPEAKER_00: I thought like there'd be like I'm just not gonna care as much, but but it's probably not wired that way, and that's maybe that's why we are where we are now.
• 33:42
  SPEAKER_01: Yeah, I get it.
• 33:44
  SPEAKER_01: You're gonna have the same problems on Monday when you go back to work, and you know, you still gotta solve the issue of like succession and delegating and the the data tools and all the things it takes to run your business better.
• 33:56
  SPEAKER_01: So people people are always amazed when they find out wait, wait a minute, I just go back to work Monday and kind of feels a lot like you know, the last Monday.
• 34:05
  SPEAKER_00: I'm actually working more than I did pre-close right now.
• 34:09
  SPEAKER_00: You know, I I had it kind of dialed back to where I was probably working, you know, 30 hours a week.
• 34:14
  SPEAKER_00: It was a pretty good deal, and now they want me to work full-time.
• 34:18
  SPEAKER_00: It's terrible.
• 34:19
  SPEAKER_01: Yeah, it it's it's so common.
• 34:22
  SPEAKER_01: I mean, I see it in almost every deal I do.
• 34:25
  SPEAKER_01: And then, you know, there's this, there's a pressure for legacy, and you want your business to perform.
• 34:30
  SPEAKER_01: And of course, you got your rollover equity, which is an incentive, but it's almost yeah, you're almost driven in a different way because now you have someone watching you, and there's this thing also about wanting the the big guy that owns you now to, you know, be satisfied with your business and wanting to prove to the other.
• 34:48
  SPEAKER_01: So there's all this crap that you'd never think of in a million years.
• 34:52
  SPEAKER_00: You gotta prove they made the right decision by a new deal, right?
• 34:54
  SPEAKER_00: You know, yeah.
• 34:56
  SPEAKER_00: Yeah, no, a hundred percent.
• 34:57
  SPEAKER_00: It it is very different, but it is no less.
• 35:00
  SPEAKER_00: It like in a in a weird way, there's almost more pressure now because I have other people I have to explain things to where before I didn't.
• 35:07
  SPEAKER_00: So in a in a weird way, there's a little bit, it feels a little bit, you know, a little more pressure packed.
• 35:14
  SPEAKER_01: Well, listen, Chris, I love this conversation.
• 35:16
  SPEAKER_01: There's so many things.
• 35:17
  SPEAKER_01: I mean, I'm I'm scribbling notes like crazy.
• 35:20
  SPEAKER_01: There's so many like lessons that you were able to talk about, you know, in in one hour.
• 35:24
  SPEAKER_01: I think our listeners are gonna be super grateful for some of these lessons learned that you brought.
• 35:29
  SPEAKER_01: And I'm you know, I'm super appreciative uh of your time.
• 35:33
  SPEAKER_01: I'm excited to you know see how you do next and and how your next bite at the apple goes.
• 35:41
  SPEAKER_01: But Chris, uh grateful for your time today.
• 35:44
  SPEAKER_01: And um, on that note, let's win.
• 35:47
  SPEAKER_01: Let's win.
• 35:48
  SPEAKER_00: I appreciate the time.
• 35:49
  SPEAKER_00: Thank you.
• 35:50
  SPEAKER_01: If you've made it this far in the episode, thanks for watching the turn.
• 35:54
  SPEAKER_01: And once again, I'd appreciate it if you'd click like and subscribe and forward this on to a friend who'd enjoy it.
• 36:00
  SPEAKER_01: And until next time, let's win.