How to 4x EBITDA in 3 Years Without Growing Sales

Speaker A: Today's guest had a phenomenal run buying a business using a traditional search fund. But his ownership started ominously soon after closing on the asset rental business with a supposed $2.5 million in earnings, Ned Tomasovich realized that in fact earnings were more like $1.5 million. We hear how that terrifying crisis affected

Speaker B: Ned as a young first time CEO

Speaker A: and how he pushed through on the positive side, we also hear how a key insight unlocked earnings in dramatic fashion. In just three years, Ned grew EBITDA from 1.5 million to 6 million and almost all of that was in margin improvement, not new sales, which is to say a key change to the business's existing function. Quadrupled EBITDA without revenue growth. A great reminder that revenue is vanity, profit is sanity. Today, Ned is a search fund investor and we spend time on his perspective from that side of the table. Listen for his caution that you should do search as an end in itself, not as a means to some other

Speaker B: end like becoming an investor.

Speaker A: Here is Ned Tomasiewicz, former CEO of easyrack and and general partner at Searchers

Speaker B: Fund

Speaker A: Webinars When SBA lenders consider a searcher's acquisition, they're not just underwriting the business, they're underwriting you. In a webinar today, Thursday, June 25, leading SBA loan broker Heather Anderson will explain how lenders evaluate a buyer's background when deciding whether to approve an acquisition loan. Topics covered to include how SBA lenders evaluate buyer experience, how to frame your resume for lender confidence, common buyer weaknesses that raise concerns, and how lenders think about leadership, operations and industry experience, or lack thereof. The webinar is transferable Crafting your resume for SBA lenders and it is today, Thursday, June 23, noon Eastern. Link to register is right at the top of this episode's show notes or on the Acquiring Minds homepage. Acquiringminds Co. Welcome to Acquiring Minds, a podcast about buying businesses. My name is Will Smith. Acquiring an existing business is an awesome opportunity for many entrepreneurs, and on this podcast I talk to the people who do it. Running payroll, paying your bills, closing your books, and producing financials. These are critical tasks every business owner must do or oversee. But spending time on them distracts you from the leadership in growth work you want to do. So let system 6 do it for you. Owned and led by a former Searcher, Chris Williams, System 6 is a leading outsourced finance team for hundreds of SMBs, including over 50 searcher acquired businesses. Chris, Tim and the System 6 team understand firsthand the challenges the Opportunities of jumping into a business as its new owner. So whether you own your business already or have one under LOI, talk to System 6 about how they can give you time back and improve your financial operations. Mention Acquiring Minds and they'll provide a free review of your books and financial ops, a $500 value. Check out system6.com link in the show notes or email helloystem6.com Ned Tomasovich, welcome to Acquiring Minds.

Speaker C: Thanks for having me, Ned.

Speaker A: You bought a business as a traditional

Speaker B: search fund entrepreneur, had a great exit

Speaker A: there, and today you invest in other traditional searchers.

Speaker B: You are a traditional search fund investor. Today we're going to cover both chapters of your career. Let's begin by going all the way back to before your search. Give us some background on you, please, Ned, and what it was that led you to buy a business.

Speaker C: Wow. All right, uh, a little stroll down memory lane. Uh, let's see. So I going all the way back, like, I think a lot of searchers, um, or folks interested in eta, um, first generation American, Serbian, um, Serbian descent. And my family, and basically my parents, my sister were born in Serbia. I was the American of the family. And, um, my, the community was fairly entrepreneurial, so I got to see it. And my dad and my uncle were very much of the mind that I needed to study and go to school before starting anything. So that was always the mantra was just like, study, study, study, learn, and then do. And I found myself curious, uh, about business. I went into investment banking first, then a stint in consulting, and then got to work with a family office. I worked for a billionaire family here on the west coast and out of Malibu. And, uh, I learned a ton by doing. It was, it was awesome. And it really planted that seed that, you know, I wanted to go run something on my own. I hate to say it, but I was a little arrogant. I was like, man, if these guys can do it, I can definitely do it. And, um, and went to business school. Um, Jim Southern was kind enough to, to fly out and talk about search funds after I invited him. And that really lit a spark. I mean, him, him basically saying that, um, that I, I should really think hard about doing my own search opened the door for me. And then I started talking to all the folks who had done search. And like most of us, it just kind of worms its way in your brain and you can't get it out. And for me, um, after, you know, after a number of calls, I was, I couldn't think of anything else. It was just what I wanted to do so. Um, so yeah, I, I committed to running a search and, and, and that was it.

Speaker B: Ah, please. For the, for people who don't know who is Jim Southern and why is he significant?

Speaker C: Yeah. So Jim was if not the first searcher, one of the first few. And he run. He at the time, um, invested individually and now through his fund Pacific Lake. And um, um, yeah, like he, he was, he was really helping to build search. So we're talking this is 2013-15 and he was one of the investors that was getting out on a plane talking to folks where they were. And uh, that was a relatively new concept. And back then I remember talking about search in business school and talking about Jim Southern like he was an important person or all the other folks in search and people looking at me like what are you doing? Like this makes no sense. Everyone's either doing a startup, going to consulting, it just wasn't as popular as it is today. So it was ah, you were the odd person out when you were talking about search back then.

Speaker B: And where did you learn about search?

Speaker C: Um, I learned about it. I, I think I, I probably the first time someone was pitching RPE fund on partnering or doing a minority stake in a deal and they pitched it as like, oh, it's, this is kind of like a search fund. And I didn't know what that was and I got curious and, and I think that planted the seed and you know, just kind of going all the way back. I always knew like I liked leading and I was okay at it and I felt like I kept getting better. I was pretty humble. So there was something about me that I just didn't want to be a spreadsheet minor for the rest of my life. Like I really wanted to be with people and um, I wanted to change people's lives for the better if I could. That was really like how I, how I felt back then. And I felt the most impactful way to do that was by running a business.

Speaker A: Mhm.

Speaker B: Well, I feel like that continues today. You are a big part of your investing is also coaching. Um, so, so the leadership is a, is a through line there. Going back Ned, to how you even in business school back then people looked at you like you had two heads when you talked about this thing. We were introduced through one of your business school compatriots, uh, with David Miller, who, who, who also said that, you know, he didn't really at the time, uh, understand what it was you were getting up to, but he's followed along your career and, and of course Is. Has, uh, been convinced. Um, so. Pretty interesting.

Speaker C: Yeah, I think back then, you know, it's humbling, right, because everyone is interviewing and you're this weird person calling people and learning about business models and what made them successful and why they fail and, and they're working on case interviews. And I, I must have just been such an alien. I remember my friends being like, what are you doing? You're not taking any interviews. And I think the only interview I took was with the CIA. I thought that was pretty cool.

Speaker B: And I'm gonna buy a plumbing business or become a spy.

Speaker C: Yeah, apparently. Apparently I wasn't to their standards, so.

Speaker B: So plumbing business, it was.

Speaker A: Yeah.

Speaker C: But then, you know, it's interesting because then, you know, I, I'm sure I felt a little arrogant back then, like, oh, you guys are all interviewing. Um, and I wasn't. And then the. It's. It's funny how life has a way of circling back, right? Because then in search, all you're doing is this interview. You're meeting all the investors and being interviewed. Then you're, um, meeting, you know, thousands of business owners and, and being interviewed. And then you're on this, like, lifelong interview of running, uh, a business and being in the arena, and your employees are kind of interviewing you daily. Like, is this a place I should work? Your customers are interviewing you. So, you know, never. Never really ends.

Speaker B: Yeah, no, I'd never heard it put quite that way. I have heard, of course, that we're all selling all the time, which is kind of another, another way of saying the same thing. I mean, uh, we're in the, we're all in the business of persuasion in every conversation, whether or not we realize it. Yeah, yeah. So great, Ned. Okay, so oddball career decision to go off and buy a business. And just to underline, um, Jim Southern in Pacific Lake. Of course, Pacific Lake today is one of the, if not the biggest, name in search fund dedicated funds. Yeah.

Speaker C: Great.

Speaker B: So that's kind of the origin story or an early, early story of Pacific Lake. Great. Okay, tell us about, uh, the, the search itself.

Speaker C: I remember early on there weren't a lot of us. There's maybe like 20 searchers, right. And as you're talking to people, you start to figure out like, what. What's their box? How did they do, you know, how did they search? What was their secret sauce? Like, what was working for them? And it's a pretty sharing community. So you're going to take what works and leave what doesn't. And, and early search was kind of tinkering you know, getting in front of, of owners, being confident in how you talk to them. Um, so early search felt. Felt like a lot of failure. Right. It was just a lot of repetitions and then you start to learn and reflect. And what was really helpful, I think some of my investors scheduled calls with me and they was either like monthly or every couple weeks or whatever. But it made me show up prepared. It introduced a little bit of accountability. But more than that, it really made me reflect on what I did and the activities I did in the last few weeks or quarter. And then they would share their experiences like, hey, cool, you're trying to buy a business from a neurosurgeon. All right, here's my experience. Trying to buy a business from a neurosurgeon who's very involved and wants to have a, uh, lot of control over the business. And it's hard. So, you know, getting those, like the activity gets you in the door and then the conversations get deeper and deeper, uh, upon reflection. And you're doing it live with investors who have a ton of pattern recognition. So I'd say early years was figuring that out. Skinning my knee, a bunch, um, of learning from these other searchers. I took a high volume approach back then. You know, you could get a lot of shots on goal by getting a lot of proprietary outreach out and then looking at a broker deal. So I, I hate to admit this, but I think I was one of the searchers that like pushed the limits on how many interns you could have. I, I had like 20 interns. And um, and for me it was kind of like a dry run at what would it be like to run the organization. I, you know, people doing different things and you know, working together. But ultimately the real, what I learned was that my gift or the piece that I had to do was just build relationships with potential sellers. And that was a ton of fun. And um, yeah, I'd say early on getting to An LOI was the goal. And then once I got there, then it was all about diligence and closing and, and all the rest of it. But, um, um, I think I was one of the few, yeah, there's, there's a few of us out there that actually enjoyed searching. I think I was one of them

Speaker B: because of your, the interfacing you got to do with owners.

Speaker C: Yeah, and I think it was just like I got experience from these investors who most of them were operators and I could talk about like real case studies and real life stuff with them and, and they were very Raw and, and um, and. And sharing. So, um. So yeah, I think the owner interface combined with um, learning, I mean it was, it was, it was a ton of fun.

Speaker B: Well, we're not going to be able to hear the ins and outs of, of the. The acquisition deal itself. This was a while ago now. And like I said, we want to hear the search story and then also about you as an investor today. So let's jump to the business that you found and what you can tell us about it. We'll go into your operations of it.

Speaker C: Yeah, um, so I found it through proprietary search. I, I was looking uh, in reverse logistics, kind of this niche that I found interesting. And then I liked asset rental. And this had both. Um, so it was a company that um, had uh, a founder and a president and the president happened to be from my hometown in Brookfield, Wisconsin.

Speaker B: And.

Speaker C: And um, we started chatting. They were really pleasant. They built this uh, business, uh, together over time. And I really. It just felt like the American dream. Like they started it from nothing and built it and grew it and um, created a really nice livelihood for them and their employees. And like you could tell they're really passionate about it. And the business was in the nursery horticulture space. Uh, basically they owned racks that, that uh, plant growers would uh, ship their plants from their fields to Home Depot, Lowe's and kind of retailer all around the country. And it was, it was really innovative. Like at the. Before this company, a lot of growers were shipping in. They uh, were just filling trucks with plants and they'd get damaged and there's all these problems. So the um, they solve that problem, uh, the damage problem. Home, uh, Depot and Lowe's were growing, so they, they need a lot of plants. So growers were expanding and they were shipping all around the country. And anyway, um, the business solved a lot of these issues by having this uh, this rack and then the service layer wrapped around it was, Was uh, really interesting because they would ship, let's say a grower in California would ship to Denver. Well, you're not getting that rack back. So they had a whole recovery network all around the country where they could get these things back. And it was just really fas. Um, the economics of it were, Were really compelling. Um, so yeah, I found it like really intellectually interesting and I kind of bought into the story. Um, that was really how it got started.

Speaker A: The team at Aspen HR recently published a short white paper targeted at searchers Entitled A New CEO's Guide to Human Resources. It lays out the key Items you should be thinking about as you transition into CEO and owner of the business you bought. The link to download that is in the show notes Aspen HR is a professional employer organization or PEO, which provides HR compliance, flawless payroll, robust HR technology and Fortune 500 caliber benefits all for a fraction of the cost compared to using multiple vendors. Reach out to Aspen HR for your complimentary HR diligence checklist and benchmarking analysis. Go to aspenhr.com or contact Jenny Thier directly at. Ah jennypenhr.com and how big a business

Speaker C: was, was about a million and a half of EBITDA. Um, little under 15 million in revenue,

Speaker B: so not too big. Um, that would be considered smallish today and probably maybe even a little bit smaller back then because I feel like the criterias loosened a little bit as search has gotten more competitive today.

Speaker C: Yeah, it's, it's uh, so a couple things there. Um, we had about 15 employees, so about a million dollars of revenue per employee, which was great. But um, I thought when I was buying it that it was about two and a half million of ebitda. Ah, um, unfortunately those really nice um, owners uh, of the business, um, and I had a disagreement on uh, a balance sheet item and uh, we ended up going to court over it and we settled favorably for us. Um, but, but that was rough. Um, so I stepped into the business my first day, um, got introduced to the company, met the team, sat in on a production meeting and then learned that there was this inventory discrepancy. And immediately like my, like the folks in the room said, I just turned white. And uh, because I, I knew the working capital adjustments by heart, I knew everything and I knew that there was something wrong here. So I called the owners, we talked about it and um, and you could tell it was something, something was fishy. So um, unfortunately that turned into about an 18 month lawsuit. And uh, that was a, that was my first real big challenge.

Speaker B: And in the outcome or what you were pushing for was to claw back some of the purchase price I assume.

Speaker C: Yeah, it was, you know, it was about a 30% purchase price adjustment. So it was, it was, it was big, it was meaningful.

Speaker B: And that size, um, and, and by the way, let's say what the purchase price was, what was the multiple that you bought the business for?

Speaker C: It was um, let's see, it was about four times, uh, ebitda.

Speaker B: Four times what you thought EBITDA was.

Speaker C: Exactly.

Speaker B: So are we talking. Okay, so $10 million, give or take.

Speaker C: Yeah.

Speaker B: And so 30% of purchase price is $3 million, $3 million is worth going after. And so that's always the calculation in litigation. Right? Is it going to be worth the time, the distraction and the money to. Even if you win your case and in this case, the end. That's a pretty easy yes. Uh, and by the way, on that point of distraction, as justified as it was, did you find that you were just spending an inordinate amount of time on this. On this, on this lawsuit in your early months of ownership, when you should have been focused, or would you. I ideally would have otherwise been focused on the business.

Speaker C: Yeah. This was a huge lesson for me. So, I mean, can I get a little kind of vulnerable and personal here? Like when, yeah, when I, when I found out about it, I, um, was working with a coach at the time. I was just kind of getting started and, um, he happened to just call me and I just talked to the sellers and he called me. He's like, how's it going? And I started telling him what had happened. And I don't even know what happened. I basically kind of blacked out. And all of a sudden I remember him saying, okay, let's start breathing. And I had a full on panic attack. And he, he got me to breathe again, brought me back in. He's like, great, what are you going to do next? And we started thinking through it and, uh, that was the first time where I was just like, whoa, wow. Like, this is really meaningful to me. This is a big deal. There's pressure here. Um, one of my investors called me when we closed and he said, uh, you know, the buck stops with you. And I think in that moment I realized it, it really hit home. Um, so I learned a lot.

Speaker B: It's interesting that it's almost like your body recognized it before you did.

Speaker C: Intellectually, consciously, 100, a hundred percent. I find that a lot. And like, we'll get into what I do today, but when I'm, when I'm working with CEOs, like that, that's a huge connection, is where do you feel stress in your body? Right. Like your body will tell you before your mind gets it for sure. So as a rookie CEO, this is a terrifying thing. And you already have imposter syndrome. You have all these things and now you've, you've gotten your investors into a, into, you know, a bad deal. So it feels terrible. Um, that was the lesson. You know, kind of first lesson was how to regulate and manage through stressful situations. The second was, um, I remember writing down a list of all the things I thought I needed to do. And I looked at that list and at the end, when I got on the other side of this, 18 month, uh, 18 months later, I look back at that list and had I done those things, like 90% chance we'd have been in bankruptcy. And I'm a pretty, I'd like to think I was a pretty smart guy with some experience. And I guarantee you we would have been backwards. We actually, and I think the key learn there was some of my investors had already been through this and they normalized it for me and we took the emotion out of it. And once I realized that the focusing on the business and like really helping that thing get back on track and growing EBITDA had a much bigger impact than the balance sheet dollars I would get back. So like $3 million potentially is meaningful. But if I grew an extra million of EBITDA plus a multiple, that value creation is worth way more and potentially even more than that. Who knows, right? So that mindset shift, um, came from M. Dave Dodson, who was one of my early, one of my investors, teaches, uh, at Stanford, runs foodalufu. And uh, he had been through some of this stuff. So again, he just normalized it for me, talked me through it. And um, man, once I got on the other side of that, it was like a m. Mindset shift. And as a CEO, one of the biggest things you can do is maintain presence and a, uh, clear mindset. And that put me in the right, the right mood. Then I was like, okay, that happened. Let's go day, day one.

Speaker B: But you did do the lawsuit anyway?

Speaker C: Had to. Yeah, that's the, that's your fiduciary responsibility to your shareholders. But I didn't overinvest in it. I didn't like, sit there and opine about what I should have done. It was just like, okay, this is what we're doing. And then I learned from the investors kind of the playbook of what works and what didn't. And I knew some guard rails and obviously you have to manage through it, but it wasn't the weight of the world on, uh, me. I recognized that all these other successful people had been through this. And it's just kind of part. Unfortunately, some people experience this and then what was cool about it is on the other side of that, I became like the, you know, the person that, um, when these deals go a little sideways, people would call and I could help the board and the CEO kind of manage through some of that stuff. So that, that felt like a, you know, it, it Felt like it had a lot of value for me and, and not just monetarily, but also just being able to give back and make sure other people don't freak out. Because it can be tough.

Speaker B: Yeah. Isn't it annoying that it's uh, you, you got to go through hell to, to get uh, all that value on the other side, you know, like.

Speaker C: Yes. And Right. I'm on the other side of it. If you caught me back then, I probably would have been saying a little bit of woe was me and all that. But I think looking back, like every entrepreneur I've ever worked with has something in their journey that they're going to grow from and they're. Everyone's got this like, you know, hero's journey they have to go through. And uh, and that was just part of mine. But um, I think that's what this thing's all about. Right. Like you don't, you don't get out of it without paying a cost. There's going to be something, time, family, uh, other aspirations, whatever. You're gonna have to pay a cost to lead. And um, you know, hopefully on the other side it's worth it. But usually it's never the money. That's the like the money's nice, don't get me wrong. But usually it's uh, it's these intangibles that allowed you to. Allow you to do other things with your life. Mhm. Sorry, I got a little preacher there.

Speaker B: Not. No, not at all. I just have a couple more things I to follow up all of that with First. Do you know Jason Jackson at Foodaloofa?

Speaker C: I do, yeah.

Speaker B: Yeah. So. So. So you probably already know where this is going.

Speaker C: Yeah.

Speaker B: But Jason has been on the podcast. Jason bought a. And his partner bought a dental practice of some size. Discovered seller fraud.

Speaker C: Yep.

Speaker B: And were deci. And and had David Dodson as an investor. Jason now works with David at foodalufuk. Were deciding whether or not to litigate and David basically said the same, essentially the same thing. And this, this is kind of like the takeaway from Jason's interview is the energy that you're going to invest in this lawsuit. If you can take that energy and just um, grow ebitda, uh by this much. Instead you will have corrected the, the financial pain or the financial damage. You will have corrected it and more so.

Speaker C: Oh yeah.

Speaker B: Uh, and more than so. So just always be thinking when you're trying to um. Correct. When you're trying to minimize or damage or claw back um, some lost dollars. Ask yourself how hard would it be to grow ebitda? This m much apply the same multiplier that I bought the business to, and what is the value creation I can do? So if I bought the business for 4x and I can grow EBITDA by half a million bucks, that's $2 million of value creation.

Speaker C: And.

Speaker B: And it might be easier for me to. To grow EBITDA by half a million bucks than it would be to spend two years in a lawsuit sort of thing. Yeah, it's a great anal. It's. It's so obvious when you say it, but it's such a great clarifying analysis.

Speaker C: Couple m things. Jason probably told his story way cooler than I did, and David probably said it like, he says it so eloquently. That's what makes him a professor. So those guys are great. I remember talking to Jason after it happened, and, um, it's just, I think at the end of the day, you have to devote time to it. Right? Like, there's no way around it. It's part of that. And I think that's what teaches you some prioritization and time management. Right. Like, you're always going to have things coming at you. This is just another one of those things. So how do you manage it? Like, we start thinking about, you know, importance and urgency and all that. A lot of CEOs I know really think about the size of the prize and the amount of effort or likelihood of success as you. You know, we're all. Yeah, we've all been consultants, so we all, two by two, this thing. But the hard part is actually doing it, like actually spending your time on those things. And that takes some time. So for like rookie CEOs and ETA and search, like, these things sound scary, like a lawsuit or whatever, but. But there's just another thing. And going through it really hardens you on these core basic managerial and leadership principles. So, um, they're scary and they suck, but they really make you much more objective as a leader.

Speaker B: Great. And Ned, before we move away from this painful chapter, just that balance sheet issue, as you put it, was that a. Is there anything to learn from that itself? Like, was this a diligence miss? Yeah. Or was this seller misdirection, intentional misdirection or what?

Speaker C: Yeah. Um, look, as. As I went back over and replayed it in my head, I. I think, um, I think what I come away from is you're going to do the best job at diligence as you can, and you have to make a great relationship with your sellers. And if you ever have that feeling in your gut that something's not going right, and even if you're in the final innings of your deal, you gotta just like take a breath, talk to your investors, talk to, you know, your legal team, whoever, and just get another read. It's always worth it. And I'd say in my case, I did that and I felt really confident. Like I, I talked to our QOV people, one of my investors interviewed the sellers before and like, we were like, all right, may, maybe there's some lack of knowledge here or whatever, but we felt comfortable moving forward. So look, I'm not going to spend the rest of my life beating myself up over diligence, but I learned a lot over that, uh, experience. And I know I did it with my, you know, all our best intentions and I felt good about everything, but I'd say if I were more experienced and I, and uh, I've done deals since where, if my spidey sense is tingling back to the body brain thing, right. If you just know something doesn't feel right, I'm way more confident and comfortable talking about it because I've been through that repetition. So I think first time searchers, it's just going to be hard. It's just you're not going to have that built up like pattern recognition to go back to. So something that like might feel slightly okay or slightly off might be a bigger thing than you think. Um, but uh, I, I would just say hey, stop, dig into it, explore it and hopefully, you know, hopefully it doesn't sink the ship.

Speaker B: Well, it's so hard because the cliche is there's, you know, no perfect business. So any business you buy is going to have some problems with it.

Speaker C: Yeah.

Speaker B: And so there's that. So you know, how big a problem is too big a problem. Because there's going to be some problems, uh, you know, that you, that you go into knowing about or, or expecting that you, that there will be problems that you don't know about. I mean this is going to be messy and perfect and hard no matter what. So it's how to know if, if, if, if, if the doubt you're feeling is above the threshold of the doubt you should be feeling.

Speaker C: Yeah.

Speaker B: The other thing is you're, you're almost certainly going to feel doubt because this is just such a big decision. It's like, you know, you know, how, how can you not have, have a little bit of your, you know, a little, feel a little shaky going down, going to the closing table. So, um, very Hard. Um, so. Okay, Ned, talk to us a little bit about an asset rental business model. M. Um, just, just kind of broad strokes, pros and cons of the business model. It's a common one, but we haven't, we don't spend a lot of time unpacking it. Let's just have a, just a quick primer.

Speaker C: Yeah, yeah. So let's see. I like large asset rental for long periods of time if I can actually. Um, so the downsides are typically there's a capex investment. Um, it's challenging to think about useful life, like the useful life of the asset. There's um, a lot of assumptions made, um, on useful life. Those are, those are kind of the two big levers that um, that are challenging uh, to think about. Maybe the third is like custody of ownership, right? Because you don't, you know, you're, you're renting it. So it's, it's leaving, it's leaving you at some point going out in the world. But the advantages are, you know, really sticky customer, um, dynamics, right? If it's mission critical or, or there's an asset that, that um, that a customer really needs, um, you're, you're a core part of their operations. Um, because if they don't want to buy it, they're renting it from you for a reason. Um, typically you can extract a, like a higher economic value from it because there's levers that you can pull with pricing, um, time, right? Think about going to like a budget. Rent a car, right? Like you think you're paying $40 for something, uh, per day to rent the car, but in reality you're probably paying 80 or 100 because of all the additional fees and, and whatever. Um, that's not always a great experience that, that kind of uh, that fee experience. But as an owner, um, you can choose to show the customer those. You can be transparent, you can be less transparent. Um, so that gives you, uh, as a business owner, some architecture and how you want to go to market. And depending on the customer base, you can be fully transparent. You can not. Most of your customer, most of my customers own some of these assets. So they understood the dynamics, uh, which I liked because then you could have frank conversations and you can tell them, hey, you actually don't want to invest here or you don't want to, um, you don't want to rent here, here, you might want to invest in your business, etc. And you can be really open book and be a, a true partner to them. And most of our Customers have been around for 15 plus years and I feel like that relationship has value. So an asset rental um, you have, you have some interesting choice architecture with pricing and I'd say the last piece is kind of this customer service mindset. I think the service layer around asset rental is, is really great. Um, it can be incredibly sticky. You can upsell, you can um, you can solve their business problems and extract value from it. So uh, when I think about asset rental as a business model uh for those that really want to dig into it it can be really attractive and interesting. Um but those downsides are, are there right? Like you can lose your assets, you cannot get, you cannot recover your assets, you can uh, overpay for Capex. You know there um, there, there's some things there but for folks that really like kind of financial engineering you can nerd out all day on trying to maximize your return on your investment with an asset rental business.

Speaker B: Well and, and I was waiting for you to say um utilization or, or capacity.

Speaker C: Right.

Speaker B: Because that, that is the, that is game getting the, the asset that your capital asset that you bought that you're now going to rent. The, the more you rent it, the better you're doing, the faster you're generating profit off that asset.

Speaker C: It's all about, yeah it's all about utilization and turn days. Uh uh. So that's when I was talking about the economic model that that's really what it is. How, how, how many times can you utilize the asset before you have to replace it?

Speaker B: And this point of being like helping solve your customers problems and, and kind of being more of a solution, solution provider in quotes that because you, because often they're renting something that is really actually intrinsic to their business. They're renting something from you that is intrinsic to their business. So you become quite embedded with them. Um which of course is a great position to be in. And then the uh, oversimplifying question. So is this recurring or reoccurring or neither Revenue.

Speaker C: When we first bought the business it was all repeat. So over the first three years we moved to longer term contracts. Um which again like adds a ton of value. As a searcher I think we you know as a, as a CEO that um, that limited our downside risks. Um it improved the quality of our revenue which was great. Um some unintended consequences is like some of our larger customers wanted to really have uh they're great like think about a plant nursery at scale. Um all they're doing is negotiating every single thing. Freight rates, ah, seed water all these things. So they're really great negotiators. A lot of them are like culturally, uh, Dutch and they love to negotiate. So it was a fun, it was. You know, I got kind of a second MBA in negotiations there. Um, but um, but where I'm going with this is um, if, if you can extend the life of the contract, the customer also has a lot to say then especially if they're a larger customer and they know your cost to some degree. So it kind of opens you up to a more broader protracted negotiation if you're not ready for it. Um, so again that's one of those things where as a CEO, a rookie CEO, an ETA or search, you're probably going to lose some of those negotiations in the beginning but over time you get really good, you know your walk away and you, you get a lot better. But um, but yeah, it becomes a um. Unfortunately some, some of the long tail asset rental becomes a masterclass in negotiation. Mm mhm.

Speaker B: I'm reminded of the, the Jeff Bezos ism. Your margin is my opportunity.

Speaker C: Yeah.

Speaker B: It sounds like how some of your customers, your longer term big customers would, would see these negotiations.

Speaker C: That's exactly right. That's exactly. And there's like, there's that fine zone of agreement that you got to get into. And this is also a hyper seasonal business. So um, we, we ultimately diversified from our seasonality. But that was a big risk in the business was um, you know we make most like 80% of our EBITDA in 100 days. And um, yeah, we needed other things to do for the rest of the year. So we started recovering other assets. Uh, lawnmower, tractor parts, um, motorcycle, uh, like Harley Davidson crates and cages. And um, that, that was really what, what continued to, to build value for us was you know, taking the, the core knowledge of asset rental and utilization and then applying that as a service for much larger, um, larger asset pools

Speaker B: but totally in different industries. Then you're not, you're now you're outside

Speaker C: of the uh, in different industries but similar like core use cases where something is left at a third party, a dealership or um, um, somewhere where there's assets piling up and someone needs to consolidate them, um, create efficient routes back to the manufacturing sites. So it became this really fun um, challenge of uh, you know, supply, seasonal supply chain management. Um, so you could, you could really get um, a PhD in uh, supply chain management in our business and economics.

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Speaker B: So they had developed a proprietary metal rack, metal racking system. A, a racking system that got a lot of traction. I mean did it sort of become a standard even? Or that's probably too generous but. Or did it.

Speaker C: Yeah, at its core it became a bit of a duopoly. So we had uh, the company was called Easy Rack and it was a pallet based racking system. And then uh, which was great for heavy plants like trees, shrubs. The one behind you in your office there's the lighter stuff is more grown in a greenhouse. So those get shipped on uh, these cart systems. There's another company that controlled that part of the market. And at its most simplest form it was a duopoly. And then you got to really understand um, what you know, kind of what, yeah duopoly economics look like, what coopetition looks like. Um, so it's a, it any one of these ETA based businesses becomes um, enlightening because you, you get to apply these concepts that you learn in school but now you get to bring them to these you know, small to medium sized businesses. So there's a, there's always like a friction of you know, delivering the service the way it's always been done. But then also really thinking through um, um changing the business to a, in a new direction. And what I love about ETA and, and search is that typically you're just kind of learning the business for the first two years you're trying not to, you know, not to break anything. And all of a sudden kind of year two or three you're starting to make your bets. Well in my business because I, you know I had to start running it right away. I had like a one year like really tough cycle and then I actually got to start making some bets earlier and fortunately those paid off because we went from you Know essentially like a 15% EBITDA margin to close to 40 and went from a million and a half of EBITDA to almost six in three years. So you're, you're, you're getting to kind of learn and make changes quickly.

Speaker B: Quadrupling EBITDA uh, in three years is um, uh, just a fantastic outcome. Um, and, and just to not, not um, let the, let the episode go too far on what the outcome was. You know, you came in at 4x and you exited at what multiple?

Speaker C: Uh, 8x, about 6 million of EBITA.

Speaker B: 8x 6 million. So that's 48 million and we know that you paid about 10 million for it. So $38 million of value creation.

Speaker C: Yeah.

Speaker B: In three years.

Speaker C: Yeah. With some debt paid down. But I mean, yes, raw.

Speaker B: Raw, of course, just phenomenal then. Um, so, and so let's hear some of the, the bets that you placed. You've already told us about the, the seasonality in, in getting into other um, asset utilization markets. Were, were there other two or three that are worth calling out?

Speaker C: Yeah, um, a lot of them was just operational. Like it, it was interestingly a lot of what the business was already doing or wanted to do, but they just couldn't kind of organize themselves to do it. Um, there wasn't real clear accountability in the business. So having a new leader that didn't have any of the legacy baggage, I, I could kind of come in and, and really help them clarify conversations. So a great example as I stepped in and we had one of our first meetings, um, I bought the business under the economic assumption of what is Iraq, right? It's a certain number of components of, you know, corner post shelf, etc. And I then dug in deeper. Right when we're in these production meetings, Operations saw Rack as a certain number of, you know, 28 components. Sales was selling 36 components and finance was accounting for 22 components. So you had this like massive mismatch in how we did business. So what did that really mean? Well, sales is making a promise to the world that you're going to get this many components, operation is delivering something else. And finance and accounting is accounting for something totally different. So now like getting your stories straight was wild. And the net result was we had a lot of shrink. Ah, so shrink asset, um, loss or just inability to know exactly where things were at a certain given time because we were seasonal, some of that would flow back in. So over a two or three year period it kind of looked okay. But you could never really get a death grip. On inventory. So what I did was we just locked everyone in a room and said, all right, what's Iraq? And I just let them argue it out for two or three hours. And, uh, we went to lunch. Everyone was fully exhausted. We came back and I said, what do you guys think about this number? And then we debated, and we finally came up with what Iraq was. So we went from about 15 to 20% shrink annually, which is a big number, to 3%. And then it stated around 3%. So some of that stuff, like, it's, you know, I didn't need an MBA to do that. It was just, you know, looking for misalignment in the company and seeking to gain clarity wherever I could, and then just driving a freight train through that. Like, okay, cool, this is what we're doing now. Let's update all our processes and procedures. Let's update our marketing and, you know, I think in checklists a lot. So then it was like, all right, cool. But that's done. Now that we've agreed, let's move forward. And what's the checklist to getting this done rather than, you know, in a new business? I. I see this a lot where, um, a leader wants to just say, like, okay, cool, now you go figure it out. And they delegate the problem to someone who's already been wrestling with it, clearly hasn't been able to solve it, and you're not giving them any tools. So I just tried to, like, go in and simplify as best I could. And usually that worked pretty well. But, you know, every. Every use case was different. So to me, it was more like. I could say it was like operations, uh, an operation solve that got us the value creation. But I think a lot of it was really just management, like basic management.

Speaker B: But, Ned, that, uh, as powerful as that solve seems to be, that seems like how you would capture more margin. So you took your margins from 10 or 15% to 40%. But that doesn't explain net new revenue, new sales. How did you. How did you quadruple sales?

Speaker C: We didn't. We didn't. Quadruple sales stayed the same. So EBITDA went up, not revenue. Revenue crept up slightly. So we, like, this was an operations case for the first three years. We couldn't. I couldn't.

Speaker B: Right. Because I. I guess. I guess if margins are 10% and then they're 40, that's four times I could.

Speaker C: I couldn't crack the code on sales. We grew a little bit, but, like, no faster than the market, you know, than, you know, the growth rates. I'd assume so. This is actually a pretty common thing for ETA and search folks like me with my background, these heavy finance backgrounds were really comfortable figuring out all these little niches. We're not great at listening to the customers and translating that into value right away. So it took me a while to unlock that. And I'd say a pattern as an investor now that's kind of a pattern. I see. And um, I'm much more vocal earlier with like private equity or banker background people because we're, we're comfortable. That's our, that's our jam. We can go and figure out how to make things more profitable. Growing revenue, go to market, changing all those motions. That's really different. Um, that's a different skill set. So anyway, I don't want to detract us too much, but, um, but the, you know, operations lever was the one I pulled and we couldn't quite crack revenue at that point. Took us, took us a few more years.

Speaker B: Okay, Ned, so I want to get to your investing chapter now, but, um, you quadrupled EBITDA by, by quadrupling the margins, um, and sold for an 8x on uh, 6 million of EBITDA. 48 million. Um, M. Who did you sell to? How does that chapter end?

Speaker C: Yeah, we sold to a private equity fund out of Chicago, kind of middle market PE fund. And um, we went. So from when I bought the business to when I ultimately, uh, we, we sold it again, um, to, to our largest LP. We went from 15 employees when I first started to 250 at the end. Um, along the way we diversified into different, um, kind of business models. We built our own software, we had some wins, we had some losses managed through Covid, but, um, but you know, net. Net. It was, it was a great outcome. Um, and uh, and once, once I was done and transitioned to the new CEO, um, you know, I took a year off and uh, really thought about what I wanted to do.

Speaker B: Um, and let me pause you there. So, so you, as a search CEO, you grew. The quadrupling of the EBITDA was a three year run. An incredible three years. Yeah. And then you sold it to the middle market private equity firm and stayed on as CEO.

Speaker C: Yeah, stayed on for about five years.

Speaker B: For about five years. Okay, so you were eight years in. In, in the business. Okay, gotcha Y. Um, so great. And, and, and you. And eventually at the end of that eight year tenure, the business was at 250 employees, having started at 15 when you bought it eight years earlier.

Speaker C: Wow.

Speaker B: Okay, great. What a Run what A run.

Speaker C: Yeah.

Speaker B: Okay. Thank you. So you. So you have this great exit, and then you probably have when the business exits again, and your CEO with a private equity firm, a second bite at the apple. And then you. I heard you say you handed it over to a different CEO, and you take a year off to contemplate your next steps. Okay, let's hear how you thought about that.

Speaker C: Oh, well, my, uh, wife was amazing. I was like, I thought I'd take three months off and then start running a business. And I was just thinking about what kind of business, and she was like, look, you. You've done this. Like, what else? Think about what you really want to do. And I was like, all right, I'll take some more time. So that three months turned into a year. And Will, it was amazing. Like, you get these offers to go run things that blow your mind. And. And I didn't know I didn't have a framework for thinking about it. So I talked to kind of my old mentors, investors, and I got, again, just got kind of feedback on how people approach this. And ultimately, I came up with, all right, let me kind of come up with, like, five things that my next. My next journey, whatever my next thing is, has to have. And, um, I won't share them with you because I. If anyone finds value in this, I think the idea is just come up with some. Something for you. For me, it was. It was, you know, creating some impact, some financial things and some life balance things how I want to spend my time at this point. I had three little kids, and it was meaningful me to. It was meaningful for me to be around them. So, yeah, um, so, uh, it was. It was wild. Like, I was getting offers where I would run back to my wife and say, oh, my God, like, this is great. I'm so excited. I get to run this massive business and look at this pay package and blah, blah, blah, blah. And then she's her. And actually one of my best friends kind of held me accountable. And we'd look at. We look at it, and I'd have to answer it against these five criteria. And there were times when it only met one, but in my mind, it met all five. And it. It just really showed me that my ego was driving me. Like, I. I still had some stuff I had to deal with because, like, I wanted something and I didn't know why. And in a lot of ways, I'd kind of won the game, um, from like, a. Where I thought what I thought winning looked like. So I had to do Some inner work and really think about, like, all right, what do I. What do I truly want? And why can't I see? Like, I. I wrote it on paper, but why can't I see it? So, um, so that was.

Speaker B: That's so interesting.

Speaker C: That was wild for me.

Speaker B: And so how did you finally reconcile this for me?

Speaker C: I had to figure out where my drive was coming from. And once I got my hands around that, I felt like I could do anything. And interestingly, the things that started to speak to me were the things that I love to do is, okay, well, I love being around operators. I don't really want the burden of running something right now. But how do I stay around operators? How do I, you know, is share knowledge? How do I help them on their journey? What does that look like? Um, so that was a driving force for me. Um, and. And then ultimately I. I landed on coaching. Uh, I ran my business on eos. My coach was amazing and really nudged me in the direction of coaching. And I had a personal coach who also encouraged me, and I was like, all right, I'll give it a shot. And right away I drank the Kool Aid and I was fully in, um, and I loved it. And I'd always been investing in search funds along the way, but honestly, I felt a little disconnected. I was an individual investor, and I'd say in about a third of the deals, I was really engaged. I was either on the board or speaking with the entrepreneur pretty regularly. About another third, few times a year, whenever they needed me, and then another third. I didn't really hear from them very often. Um, so I was just a check. And I didn't really like that. I wanted more full contact. I wanted more. So, um, I had to rethink how I wanted to invest. And by this point, I had invested in almost 40, you know, kind of between 40 to 50 operating companies. And, um, and I just got really clear about what I wanted to do. I wanted to be people's best board member, whether I was on the board or not. I just wanted to be that. Dave Dodson, writer um, you know, the board members that really impacted me, um, like, uh, M.K. m. O', Connell, search fund Partners, um, uh, Tom Cassette, cassette, Cassette. And Dave, uh, Lazier. Um, these guys just meant so much to me, and. And I wanted to be that for someone else. So, um, yeah, I created a fund with other operators, and then we mentor and help CEOs uh, that do traditional search, um, just help them, you know, run a great business, run a great life. And I just don't think business should be that hard. So we're really direct with them, um, but we're there for them. We have compassion and empathy for the journey, Ned, so.

Speaker B: But you had invested in a few dozen deals as an individual investor.

Speaker C: Oh, yeah.

Speaker B: Why did, why, why did formalizing into a fundamental, uh, close the gap between what you weren't getting as an individual investor and what you wanted?

Speaker C: I think it was weird to be like, hey, I'm Ned, and here's my buddies. You know, I'm gonna. That we're gonna help you out. Because I knew from a capacity standpoint, I couldn't. I couldn't bring full energy to every opportunity that I wanted to be in. So there was a mismatch. And in a fun structure, people understand it. Um, and while I didn't want to be, um, kind of a typical private equity fund, I did need. I did need the benefits of the structure to, like, link it all together and really just define the rules of the game, how we invest. I think the core ethos of any fund or any investor, you know, really has to be out there and people have to understand it. And for me, I, I don't really don't want to invest in someone just to be in their search. Deal. I want to be in. I want to be in their life. Deal. I want to know. I want to be, um. I want to be able to help, um, them get through this part and then whatever they want to do next. And honestly, that's been the most fun. Um, there's a kind of cliche saying in Eos, like, um, you know, do what you love with people you love. And. Hm, man, the older I get, these cliches make more sense to me. Um, so I get to. I get to be around people that I got to see, go through their. Like from when they were searching all the way through selling, getting married, having kids, um, you know, some of the. Some of the uglier points of life too, and being there in the tough times, and then I get to see them do the next thing. And some people go into real estate or they start up an idea that they had, or, or they take over a family business, and maybe I get to be part of that. Maybe I get to be part of that story. And, and that's a lot more fun to me.

Speaker B: And so the, the coaching, the eos, the formal EOS coaching, and then the. Maybe more informal, just being a great advisor, being on the board or. Or being the best board member who's not on the board. Um, all of that is the, uh. Would you say that that's kind of the, uh, the brand, the differentiator of. And what's the name of the fund?

Speaker C: Oh, uh, it's called Searchers Fund. Again, revenue and marketing was not my thing, so I was pretty direct. A bunch of searchers helping searchers through the search.

Speaker B: Great. Um, but that, that is what its brand is in the market.

Speaker C: Yeah. Yeah.

Speaker B: What did you mean by business shouldn't be this hard? I thought it was supposed to be, uh, hard and difficult and challenging. That's what I tell people constantly on the podcast.

Speaker C: I think it is. And, and let me just get this out there. I don't think everyone is meant for search. I think some people are and some people are at different times of their life. And I think the beauty of where we are today with ETA and traditional search and um, fundless sponsors and the options that people have, it's amazing. I love that. But I meet a lot of people that just aren't really ready to do this. They haven't mentally prepared for it. They maybe don't have all the skill sets yet. And that's what I mean by time like this. You might be curious about it, but it might not be your time to do that. Um, so what I love is that people can get all these different points of feedback, whether from traditional ETA investors, um, traditional search investors, um, that they're getting a lot of feedback and a lot more, um, uh, constructive criticism that allows them to be better. So I, I think this is a wonderful time to be in search.

Speaker B: What I also wanted to hear was the skills that you sometimes see lacking in would be searchers.

Speaker C: Oh.

Speaker B: Because. Because they're not, they're not at the right time in their careers yet. But I'm going to press you. And so, so what are some of the skills that you see that, that would be searchers sometimes, like more most commonly. I know you're. It's case by case, but kind of. Is there any sort of trend to be observed?

Speaker C: Yeah, I mean, look, I'm a, I'm a traditional search fund investor exclusively. I've invested in other things. I've just learned this is what I'm really good at. And I want to go deep in, in, in this segment. Um, this, what I, I really think about this in three dimensions. Like, do people really understand search? A lot of times people maybe listen to the podcast, but they haven't really talked to people, they haven't interned. They haven't really. Like, there's so many ways to get involved so when I'm meeting with someone and let's say they want to invest in a surrogacy business, uh, but they haven't talked to any of the people in traditional search that have done it, do you really get it? Like, the power of the network is that you can actually have access to these people and they don't even know the models. And I. I feel like. Like they really have to get it. You have to do your homework. I. I feel like that connects you to this. Um, you have to really want it. And that's a tough thing to think through. You really have to. There has to be some drive, something about your story or why that has to just exude from you. Like, I've got to feel that I'm going to want to work with you not just for a short period of time, but honestly for the rest of my life. And whatever your driving force is, I really want to understand that. And if you can't communicate that to me, how are you going to convince a seller to sell me to sell you their business? Right. Like, you're dedicating the next 3, 5, 10 years of your life to being a leader. And if I can't understand why you want to do this, there's something wrong. And usually, sometimes a person just hasn't, like, understood that themselves. They're running away from something, running away from a job, running away from something that they've done. But they. And this feels like the right thing, but it's often. It's often not. So the people that are really clear about why they're doing it, those tend to be successful. And then the right capacity to do this thing, like, do they have the right skill sets? Do they have the EQ and iq? Um, you're not gonna be perfect at everything. So just being aware of what you're not good at is half the battle. I want to hear about that. Like, I can't grow revenue. I don't even think I can today. So. All right, how do you, uh, you know, how are you gonna. How are you gonna compensate for that? All right, well, I'm gonna get a partner, and here's what they're really good at, and here's what makes us great. Okay, cool. Like, I think the mental exercise into the, like, what is going to make you great. I think people are lacking, and that's why I think it's a time thing. So it's a people. If someone really wants this, you can get it, but now might not be your time. Maybe you're. Maybe you're coming in at a lower level than you'd like on some of those dimensions I just talked about. But those are all things that you can, you can put work into and increase.

Speaker B: Even if somebody is willing to Ned, uh, go and, and go off for a few years and fill whatever gaps they have to be a, uh, good searcher, traditional searcher, future CEO. Isn't there a risk that I'll age myself out of this window that you, the search investor community likes to see?

Speaker C: Totally. Heck yeah.

Speaker B: I mean, yeah, I appreciate, I appreciate

Speaker C: your care if it took you five years to get there. You know, like, maybe, maybe traditional search isn't your jam. Maybe independent sponsor or something else is. You're going to work for one of these funds or, you know, that's okay. That's just life giving you feedback like that door might close for you, but it might not. If you built those relationships and I've known you and I've watched you work like hell to get there. And, um, and you kept in contact with me.

Speaker B: Yeah.

Speaker C: I guarantee you I'm going to be your biggest cheerleader and I'm going to help you figure out how to. If you really want to make a traditional fund work search, uh, work, you're gonna, you're gonna put one hell of a shot at that thing. And that's what this is all about. Like, if traditional is good for you, if that's really what you want, you can go get. Might not look like the newly minted NBA. It might look different, but you can get there. And I think that's, uh, that like the, the willingness to do this is the willingness to run through a wall to get there. Like the best searchers are the ones like in the beginning, like you talked about, like, difficulty and like how hard this is in the beginning. And it is hard and not everyone should do it. But hard is a relative term. Right? Like sometimes we make things hard on ourselves by not making decisions or maybe we don't have the experience. And, and learning is ugly. When you learn, it's not always a straight line. Like all businesses don't grow from A to B on, uh, this like, beautiful curve. They're like a stock ticker. They go up and down. And when they go up and down like that in search, that's learning. And in the first few years, really great searchers and search investors understand that and we're going to have that conversation. So we give you some space to hopefully incubate and go from rookie to, you know, to, to franchise player. And then once you're there like we're helping you be great. Um, but I, I, I think, I think some people make it a zero sum game. I have to do search now. This is my time. And, and they're rushing it and you know, um, hopefully investors are, are thoughtful and they're voting. We're all voting with our dollars. No one's giving them all their money. So they've got a raise and they've got to go through the process and uh, in an ideal world, if they're not able to raise, that's the world giving them feedback that this isn't for you right now and then get curious, figure that out. Okay, what am I missing? What do I really. Those searchers that go back, process that feedback and come back, those are some of the best transactions. Some of the best CEOs I've been involved with, like the ones that just like, hey, I finished grad school, I'm raising a search, I'm going in the search and all of a sudden it's just a rocket ship and I'm done. That's rare. Like that doesn't really happen. You're going to learn something along this thing that kind of goes back to the, you know, this is going to take a cost out of you. You're going to get hit along the way somewhere, so you just don't know where.

Speaker B: One example Ned of people kind of a pattern that you've seen where the would be searcher might, might not be, um, ready or they might not really want this, as you put it, is that they're doing a search to become an investor.

Speaker C: Yes.

Speaker B: So their goal really is not being a small business buyer, owner, grower, CEO, but is to be an investor. And this is just the step to get there. Say more about that.

Speaker C: Yeah, uh, I, I have not had luck with this profile of searcher and I think my anecdotal experience is they, there's something missing with an investor mindset and like relating to people, customers, etc there, there's some manager or leadership gap that even through the maturity process they're not quite getting. And I don't know what that is. It's unique to everybody. But if you are totally motivated by being an investor, you're not totally motivated about being a leader. And at the end of the day you're leading people, processes, systems. This whole thing, this isn't, you know, there are some people that go to business school and then they become consultants in order to be something else. They go to Bain or McKinsey or whatever. Okay, search isn't that this isn't. Come here, get your stamp and then go to the next thing. Right. Like the thing's called search. At the end of the day, we're looking for companies, we're looking for ourselves. We're growing, we're maturing. Like there's this whole thing and um, it's not a, it's not a check the box. The, the really successful ones don't, don't seem to work out that way. So I, I think that it's a mindset shift and switching less from how do I get to this point in my career, but how do I actually lead? Well, is it serves people better?

Speaker B: And you said to me that you actually, when you look at a searcher and a deal, you're. You're really more investing in the searcher.

Speaker C: Yes.

Speaker B: Thank you. The deal. Obviously, I'm sure that's an oversimplification if it's a terrible deal. Although, then you might argue if a searcher brought me a terrible deal, then the problem is this. Still the searcher. Yeah, they should, they should have known better. Um, but uh, and you know, in the investing cliche, this is, this is investing in the jockey more than the horse as the, as it goes. So, uh, so, um, is there anything to, to elaborate on that or is that, is that just a kind of a crystallization of what we've. We heard you say?

Speaker C: I, I think it's more of a crystallization. But what I might add is if I'm committed to you as a searcher, it, like I owe you. Like if you're bringing like B or C deals consistently and I'm not giving you hard feedback and I'm not telling you, uh, like what's wrong with this and I'm not, I'm not sitting down and, and like helping you sharpen the saw to get better and better. I'm not a good investor. Uh, like I'm not showing up for you. So like that's our job is to help you learn and mature. I'm not expecting anyone to be great at search. I just expect you to be coachable and willing to take in these data points and process them all and reflect on and get better. That's what it's all about. But if you're not getting better and, and it's just you, it's not working. Like the likelihood of one, finding a company to getting investors to back in three being successful goes way down.

Speaker B: One of the reasons that people are, don't want to do a traditional search and might tend toward A self funded search instead is, is because of the perception of being, um, the c, the conventional format in a traditional search conventional kind of corporate format where you are a CEO and you have a board behind you who are in some sense your bosses, you're reporting to these board members. Um, and for the very autonomous oriented types, they might, they might chafe at that. But of course the, the answer to that is if it's a healthy relationship between CEO and board. It's, it's a very value add relationship and in, in both directions, but at least that the board should be offering you a CEO value. Kind of like what you just said about helping a searcher, coaching a searcher along and giving them feedback. So, so what do you, how do you react to that? What do you see as the value of, of a board? Kind of convince the skeptic who's, who wants to do a self funded search so they, they don't have to report to anybody. Uh,

Speaker C: convince the skeptic that does. Self funded so they don't have to report. Uh, yeah, I mean it, it's just the premise is, is, is wrong. Right? This isn't about reporting or like having a boss. Like you're always gonna have a boss. Like there's someone that you're holding that's holding you accountable and it could be anyone, it could be your customers, it could be the bank, it could be, you know, your, your spouse. Ultimately, hopefully it's just you like you're holding yourself accountable for what you want. But look, I drank the Kool Aid on traditional. I did it. I, I've, what I love about it is for all its faults and what it was, you know, we can debate that all day and that's not really why I'm here. But um, but for all its faults, like these investors really care for the most part, I'd uh, say they, they know how to play in the same sandbox together 80% of the time. And as a searcher, I found a ton of value in knowing who they were or at least their reputation. And when things went the wrong way or they went outside of that, I could challenge them and say, hey, I thought you were this kind of investor. It seems like this is out of shape for you what's going on here. Now. I, I, there's some comfort in that. There's, there's um, there's value in that, right? Being able to um, know who you're investing with and in, and how they react in that relationship. What I've seen when I invest in other Forms of, of search, broader eta. For me, I just don't know all the investors, I don't know the board members, I don't know how they react. And some of the decisions that I've been around just haven't always made sense to me. And then it's, it's honestly for me just a lot of noise. Like I have to go meet this person, figure this out and go through the, you know, and it's, they're created more friction versus what I was already doing. So I don't know if they're better or worse. But um, but I think as a traditional searcher there's value in the experience from the investors, there's value in the community. It's up to you as the searcher to unlock that. But, um, but there's also some kind of rules of the game and, and um, and ways to play. And I honestly think that's helpful that choice architecture being limited allows you to really be great at what you do.

Speaker B: Couple more questions for you, Ned, then I'll let you go. Let's zoom out a little bit and um, just kind of consider lower middle market or small business investing broadly. The opportunity in AI you are excited about. What is your take on that?

Speaker C: Look, I have a feeling that someone's going to come back to this and be like, oh, this is what Ned said at this point. Like I don't think anyone can really predict exactly where AI is going, but I do. Look, there has been this silver tsunami, there's this baby boomer retirement search is rising to fill that gap and has been A.I. i think enables a rookie to great CEO, uh, with more tools and I think leaders can do the things that they want to do. I think in my cohort of searchers we talk about it like mind blowing. Like imagine if you could have been the product manager in your business back then, what would that have looked like? Like creating minimum viable products, working through things so much faster than we could have, um, going through our traditional leadership structures and all that stuff. And I think a lot of things are going to break, but I think we're going to fail faster and learn quicker and I'm really excited for that. Um, if I really pan back the macro like America has given me so much, like there is this massive age gap and like this is, this is kind of an opportunity for a lot more people to live the American dream. And whether that's through traditional search or broader eta, I think there's just a lot more knowledge and awareness around this and like whether AI Um, is a force for good or evil. M They'll park that. But it's going to make really strong CEOs and leadership teams even better. And I'm excited about that. And I think like as an investor, I want to invest in people who I already knew were going to be great. Now they have better tools. Let's go. This sounds awesome.

Speaker B: M. Mm, that's a, that's a great way to be thinking about it. Basically. Great searchers, great CEOs enabled with better tools is essentially what this, what this is. What's not to be excited about? Ned, you just mentioned American Dream and that was something the theme that came up in our pre call and we were riffing on how ETA is. Um, maybe if you zoom out a little bit, it's a lot of what's going on here is really just another generation of people getting re excited by small businesses essentially. Um, and, and I, I, I do think of that way with acquiring minds more and more, thinking about it a little bit more expansively that this is about small business entrepreneurship more than it is about the way in that that you bought a business, what model, et cetera. And, and you son, uh, of immigrants to have a, have a particular, uh, kind of emotional resonance with the, with the American dream. So how do you think about, yeah, where ETA intersects with the American Dream?

Speaker C: Yeah, I, I, I, I really enjoyed our, our last conversation on it and I would encourage you to expand your aperture because I think it could be really cool and the service you're doing to this community and just entrepreneurs is, is awesome. Not to pander, but I, I've, I've really enjoyed it. Look, at the end of the day, it's not just wealth creation. Right? Like there was one of my employees that um, a couple years in operating came up to me with, with like tears in his eyes and he's like, hey, I just want to let you know I'm buying a house. And um, and that's, that's because I'm confident that I'm gonna continue to have a job here and I've never had that. And like that ability to help people move through stations of life is a lot of what this is all about. So you know, not having to worry about basic needs and being able to follow your passion and be really great at something or choose to be a role player, whatever that looks like, like, but if we could all have time for our passions and for our work, um, how amazing would that be? You know, if we could be more balanced humans, um, we could put a real dent in the universe as a leader just by amplifying the impact that we have through our employees, through our customers, etc. And um, I haven't met a lot of, like, bad people in search. I think these are genuinely really good people that want to do something good and they want to be great leaders. And sometimes we talk about running a business that, um, it doesn't have to be hard like this hard to run a business. Sometimes it gets hard and sometimes they get scared and they don't have the confidence to make great decisions. And they might not be the best version of themselves. But I really think that as you go through this journey, you become a really cool version of yourself. And if that multiplies, I don't know, maybe a little kumbaya here. But like, that's a, that's a pretty good message for America and, ah, that's the America I want to live in, where people are less stressed, um, have time for their passions and they're excited about what they do for their vocation. Like, why not inject that into, uh, in a search? I think that's a big part of it.

Speaker B: What a perfect message to end on. Ned, I love that last point so much. So thank you for answering it and, uh, thank you very much for coming on Acquiring Minds and sharing both your search journey and your investor journey. Really, uh, a great, great perspective and a great run you've had in early days yet. So lots more to come.

Speaker C: Thanks for having m Me, Will. It's been a pleasure.

Speaker B: Hope you enjoyed that interview.

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