Ujwal Velagapudi – “I’ll close in 2 emails”

Live Oak Bank — Live Oak Bank is a seasoned SMB lender providing SBA and conventional financing for search funds, independent sponsors, private equity firms, and individuals looking to acquire lower middle-market companies. Live Oak has closed billions of dollars in SBA financing and is actively looking to help more small company investors across the country. If you are in the process of acquiring a company or thinking about starting a search, contact Lisa Forrest or Heather Endresen directly to start a conversation or go to www.liveoakbank.com/think.

Hood & Strong, LLP — Hood & Strong is a CPA firm with a long history of working with search funds and private equity firms on diligence, assurance, tax services, and more. Hood & Strong is highly skilled in working with search funds, providing quality of earnings and due diligence services during the search, along with assurance and tax services post-acquisition. They offer a unique way to approach acquisition diligence and manage costs effectively. To learn more about how Hood & Strong can help your search, acquisition, and beyond, please email one of their partners Jerry Zhou at [email protected]. 

Oberle Risk Strategies– Oberle is the leading specialty insurance brokerage catering to search funds and the broader ETA community, providing complimentary due diligence assessments of the target company’s commercial insurance and employee benefits programs. Over the past decade, August Felker and his team have engaged with hundreds of searchers to provide due diligence and ultimately place the most competitive insurance program at closing. Given August’s experience as a searcher himself, he and his team understand all that goes into buying a business and pride themselves on making the insurance portion of closing seamless and hassle-free.

If you are under LOI, please reach out to August to learn more about how Oberle can help with insurance due diligence at oberle-risk.com. Or reach out to August directly at [email protected].

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(4:20) – Ujwal’s acquisition off of MicroAcquire and other businesses he’s bought

(10:06) – What did the business do when you acquired it and what have you grown it to?

(12:05) – What did you do before you decided to start buying companies?

(13:31) – How are you getting the capital for these deals?

(16:49) – Do you still live off of $1500 per month?

(17:26) – What stands out to you now in a potential acquisition vs. when you first started?

(18:45) – What businesses do you stay away from?

(19:35) – Can you share more information on your vending business?

(21:28) – What types of machines are the most profitable?

(23:41) – How does the operations structure for the Vending business work?

(25:10) – How many employees are in your portfolio?

(25:44) – What have you learned about management during this journey?

(28:15) – How do you onboard new employees at your companies?

(30:58) – Where do you see things needing to improve?

(32:56) – What’s the growth plan?

(37:15) – How much would the average machine earn in net profit for the restaurant on a monthly basis?

(41:46) – What are some mistakes you’ve made that could have been “nails in the coffin” for your business?

(45:53) – What college class would you teach if it could be on anything?

(47:37) – What’s a strongly held belief that you’ve changed your mind on?

(49:38) – What’s the best business you’ve ever seen?

Alex Bridgeman: It was fun to meet at SMBash. There was a business you were talking to us about that you bought off MicroAquire and has done really well. I would love to hear, let’s just start off with that one. And then can walk us through the other businesses that you bought and how you got into them and what made them exciting to you?

Ujwal Velagapudi : Yeah, so the MicroAcquire one, that’s a company called hibyron.com, and I bought that at the beginning of 2021 on January 1st. So, it was simply a little project that started off as I wanted to test my thesis. I’ve had, prior to that, I bought four different businesses, and some went okay, some went not so okay. So, I said I need to pilot or test run my little thesis so that when I go in and jump into a much larger business, I’ll be able to do it with confidence. And so, I went out trying to buy a smaller business and eventually found one on MicroAcquire, knew the second that I saw it that it was simply the one that I wanted. It was on Christmas Eve, I believe. And I reached out to the seller, put in an offer, and within 12 hours, I think we ended up getting it under contract, had a purchase agreement signed, and closed in five days. So, we were working all through Christmas, Christmas Eve, all the way until New Year’s Eve. It was a very small company, but it’s a prioritized service. So, it’s got virtual assistants that are a hundred percent US-based, US college educated. And the goal was simply on the front end, can I source a good deal? Can I actually go through the diligence and make sure that everything vets out, everything checks out, and go through a proper seller transition? And this was probably the cleanest business that I’ve ever been a part of. And just the whole transaction was great.

Alex Bridgeman: And you needed to be pretty fast too, right? Like this was still, it was early days MicroAquire, but it was still like there was a lot of volume on that site. And so, you had to be pretty quick and pretty wide ranging in the ways that you reached out to the seller. Can you walk through some of the ways you did that?

Ujwal Velagapudi : Yeah. My little secret was I think at the point he- even by the time that I reached out, he told me that he had well over 150 or something inquiries. So, what I did was I jumped off the platform and I got his name and the business. So, I hunted him down and got his email address, LinkedIn, and hit him on those platforms. But email, I said, my subject was Serious Cash Buyer, Will Closes Within Two Emails or something like that. And then the body was just hey, here’s two sentences about who I am, but here’s exactly what I’m going to do. I have cash, and I will close within two email transactions. So, I’m going to send out one email and I’ve got probably 15 to 20 questions that are very specific to exactly your business because I’ve already done my diligence in the last two hours that I initially seen this thing, went through the entire website. So very specific questions that hit. They weren’t just generic. I’m not copying and pasting this stuff. They were extremely specific, I mean, down to certain pages, some of the technical aspects, and he can see that I’ve done some diligence. And I’ve got the cash, and probably the best part is that I will actually purchase and have a signed contract within two emails. So, he saw that, and he responded to the first set of questions. He responded to my follow up questions. And then bam, I did what I said I was going to do, had a LOI, and then we went straight from that to the purchase agreement. So, then this was all from Christmas Eve to Christmas. So, it went pretty quickly.

Alex Bridgeman: Yeah. That’s just great copywriting too.

Ujwal Velagapudi : Yeah. In hindsight, it turned out to be.

Alex Bridgeman: Have you used that again since then?

Ujwal Velagapudi : I have on every single one that I’ve done since, because again, this was my thesis. Like this was- I didn’t even know what that word meant until I got onto Searchfunder and I started seeing everybody testing out these little theories, their thesis. And so, I said, all right, let me go about it the right way in a more formal structured way. Let me put together what I’ve learned in my first four purchases and try it out. This is like my little dummy run. It’s a five-figure business. It’s not that big. Let me test it out. And so, I took that same playbook and did it for the larger deals. The one little thing that I added to the larger deals was I put in a three-page document of exactly why Ujwal is the right buyer, why I am right for that particular business, that team, that industry, and why I’m able to work with the seller, and also a little bit about my background. So, this is not something that’s on my website, or this is something that is just cookie cutter. This is very custom tailored to my interaction with that seller, my interaction with the company, and why I love that company. Why calling out individuals, why I’ve had such a great interaction with my potential managers or my team, all of that. So, it was very- it was genuine, but I would say that stood out. I put in three legitimate offers last year and it stood out to every single one of them. I was either the front runner or the runner up.

Alex Bridgeman: That’s amazing. And so, what does this company- you said there are VA’s that are US-based, but what does the company do and how big was it when you acquired it? And since then, what’s it done?

Ujwal Velagapudi : Yeah, so this was about 2,500 in MRR. And since then, we’re right now at about 45,000, creeping up on passing 50,000 MRR. And so this was started in 2016, and you’re able to go on and purchase a block of hours for virtual assistants that are a hundred percent US-based, US college educated. And mainly, they know a specific tool. So, by tool, I mean they are people that know QuickBooks. They can work, they can do some bookkeeping work. They work on various CRMs, Zoho, Salesforce, HubSpot, whatever it is, and various other software tools that we utilize. So, it’s not- although we do provide administrative basic data entry, things like that, it’s more specific to a particular software tool that we utilize. And not that any one of our team members are experts because like a Salesforce expert, for example, they’re going to be 50, 100, 150, 200 bucks an hour. So, we’re not experts, but we can do the basic maintenance and administrative work for you guys. So that’s really what differentiates us, that were specific to certain products and that we are US-based, that we’re going to be working in the same time zone. Everybody’s got virtual assistant experience for at least three years as well. And we vet every team member internally. So, it’s not like we’re just picking people up off the streets. No, we vet them internally, project by project, and then they’re able to get onto longer-term projects with us.

Alex Bridgeman: What work were you doing before buying these companies? It sounds like you’ve gotten a couple at this point.

Ujwal Velagapudi : So, I went to school for supply chain management, started off with aerospace companies, and then went into automotive companies. And I think it was less than, or just over a year into working full-time that I realized I wanted to do something else. I wanted to invest in other opportunities. So, I invested in commercial real estate about a year out of college, and that snowballed into buying additional properties. And then one day, I was searching on Craigslist because that’s where I bought my first few properties, all commercial real estate, and I was in the business section and stumbled across a pizza shop. So that was my first foray into that. Just got the ball rolling. Okay, checked out the pizza shop, didn’t like that. Checked out a restaurant, that didn’t come to fruition. Checked out a club, that didn’t come to fruition after a long time vested in that deal. And then finally closed on my first business, which was a sports bar. And from there, bought a gym, bought an insurance software company, and then Byron, and then an e-commerce company as well and made about another four purchases in the last six months.

Alex Bridgeman: So, where’s this capital coming from? Is this just income being thrown off from each previous deal, or what else is going on here?

Ujwal Velagapudi : So, yeah, it sounds like a lot of acquisitions, and it kind of was, but the size was extremely small. So, my very first deal, a year out of college or right out of college, I was extremely frugal, was living in someone’s basement. My rent was 350, had a budget of 1500 a month. I mean, I was living extremely frugally, saved up 20 grand and sold in my car, downsized my car, saved up 20 grand. And that was my first commercial real estate purchase. So, I bought a three-unit strip, commercial strip, in the city of Detroit a year after they filed for bankruptcy. So, this was like the bottom of the bottom for the city and absolutely loved it. For me, the economics was extremely different. So got into that and that snowballed into my next few real estate purchases. And then the bar, the gym. I mean, everything that I purchased up until recently were all five figure deals, or at least the equity that I put into it. And I owned everything out right. There was one that had a note on it, which was technically going to be six figures, and then we ended up removing that note as well, so it ended up being a five-figure purchase overall. So, until last year where things kind of- I added a few zeros after that and started looking at deals that I’ve never done before or never even would have imagined that I would have done, but everything was very, very slow. I got laughed out when I went into Chase trying to ask for a $15,000 loan on my commercial retail building in the city of Detroit. I was 22 still. And one, I didn’t have the tax returns. I didn’t have the finances. And also, the property didn’t make sense for any lender, nor the size. So same thing with the bar. It had to be a cash deal, quick thing. The gym could have been SBA, but I just didn’t have the time, needed to close ASAP. So, in addition to the rents, the cashflow from the previous businesses, all of that, I also took out P2P loans. So, I took out, if you’ve heard of Upstart or SoFi, went to those places, got $35,000 here, got $50,000 here. I opened up, for whatever reason, right out of college, I opened up a bunch of credit cards and maxed out the lines. Like I increased them to 25,000 and 50,000 for, I don’t know why, but I had a really good credit score at the time. And then, so I would be getting the balance transfer cards through the mail. So, I would take those and just take out the balance transfers, 0% interest for 12 months, 15 months, 18 months. So, I maxed that out. That was like 70, 90 grand, I think, somewhere in that ballpark. And so that started in addition to what I had going on, a little bit of the cash that I was able to seed everything. And then one thing snowballed to the next one.

Alex Bridgeman: Do you still live off of 1500 bucks a month?

Ujwal Velagapudi : I wish I did. So, to be honest, I did last year for about six months. I was living in Mexico. And so, while I was searching for my latest business, I was living in Mexico for probably a little less than that, actually.

Alex Bridgeman: That’s nuts. That’s wild. So, is that just rice and beans? I guess in Mexico, eating street tacos or something like that. How does that work?

Ujwal Velagapudi : Oh, I ate well. I ate well in Mexico. Yeah, it was tacos. Yeah, I ate pretty well.

Alex Bridgeman: That’s awesome. And so, when you’re talking about the deals that you’re looking at now that are different than the ones you would have done previously, what stands out to you now versus a couple of years ago?

Ujwal Velagapudi : So, the funny part is nothing’s changed. I think back then, everything excited me, and today everything excites me. So, I mean, of course, I’ve got a lot more battle scars, so I know the types of deals that I don’t want to do and the types of industries or businesses that I don’t want to see, but still for the most part, a lot of stuff still excites me. And there are so many unique businesses that I’m still unaware of that I’m just every single day learning and getting exposed to that, holy cow, I want to be a part of that. I want to buy that type of business, or I want to be in that industry, in that country, or whatever it may be. So back then, I would spend a lot of time on Craigslist just buying up random buildings. And that’s how I got my start. I mean, there’s a few businesses that I did not end up purchasing that are still a few oddballs that just simply intrigued me for the business nature of it. So, I think that curiosity and that desire to want to learn and just get exposed to different types of weird businesses is still pretty much relevant.

Alex Bridgeman: So, what kinds of businesses do you not want to do now?

Ujwal Velagapudi : Definitely no retail, nothing that’s B2C, nothing that can be confined to a geographic footprint. So, I want it to be something that could be scaled across states or across country lines and wanting to see something that is not project-based. I’m not the best at sales. I’m actually pretty poor at sales and marketing. So, I want to see something that’s consistent. If I have a customer, I want them to be continuously purchasing from me or at least have the option to, versus going on project-based. One of my companies was very project-based, had large contracts when we got them, but when we didn’t, it was a drought. And I just hate going through that period of uncertainty of where’s my next contract coming from.

Alex Bridgeman: One of your businesses I know from just chatting with you is this interesting vending business, which I didn’t even know existed until you talked about it. Can you share a little bit about what that is and how that one’s grown?

Ujwal Velagapudi : Yeah. So, this is my latest one. This is what I spent the first half of last year really diligencing and working on. And this is an amusement vending company. And what that means is we have pool tables, jukeboxes, ATMs, arcade games, et cetera, all over bars, restaurants, clubs, movie theaters, bowling alleys, fraternal organizations, all of those places. So again, this is retail, but for me, it’s a little bit different because this is more B2B. So, I give this one a little exemption. But we put in our equipment at no cost to the customer, and we do a profit split, a 50/50 split, on whatever net profits we get to. And our team takes care of everything on the service side. So, you got anything down, we’ll take care of it.

Alex Bridgeman: That’s just a net profit. So, after you’ve paid all your expenses for that particular piece of equipment, then you split 50/50?

Ujwal Velagapudi : Yeah. So we’ll take out sales tax. We’ll take out, for example, we have some of the claw games, the kitty claw games, we’ll have our stuffed animals in there, or we might have expensive electronics, Beats, iPads, iPhones, whatever it is, in there, so we have to remove the product fees or the product expenses. And then we’ll split the, I guess it’s gross profit. We don’t go all the way down to the granular level of our service technicians have come out here four times so we’re going to charge you for that. That’s just our fee that we eat.

Alex Bridgeman: What types of machines have been performing the best of the claw machines, ATMs, jukeboxes? Like what machines tend to be the most interesting or profitable to you?

Ujwal Velagapudi : So, for us, the claw machines are always good. Those, we call them redemption games. So, you are receiving some sort of prize at the end of the day. So those are always going to do well. And historically, they’ve done very well over the years because you’ve got your little five-year-old banging on it until you pay for it. So, they’re always going to do well. The juke boxes are doing really well. And we’ve seen a transition in that. Jukeboxes have been around for a hundred years, but the last five years, it’s really gone towards mobile. And so, I think that has helped significantly to be able to upsell, to be able to get more plays. You don’t have to get up out of your seat. You can literally be sitting there two feet away, and I’ve seen this, people are literally two feet away from the jukebox, yet they use their mobile app. So, the mobile aspect of the digital payment aspect has really helped that portion of the business. The ATMs are not my favorite. I do feel like that’s a little bit of a decaying market, but record numbers year over year, 2021, 2022. So those have been doing pretty strong. And the pool tables are always going to be consistent. We host our own leagues. So, we have pool leagues, and likewise, we have dart leagues as well. So, the dart boards, they do extremely well at the bars. There’re games called Golden Tees, SSPs. Those are more bar centric games for the adult crowd. And those also have leagues. So, for all of these things, we like to put our equipment in there, but not just put it in there, we also like to coordinate the leagues and we hold the league charter so that we can generate more traffic there, not just for us, but also for our customers, the bar owners themselves so that they can linger around, buy their food, buy their drinks, all of that. So, it’s a full service that we provide, and that’s what we really like to take care of for our customers.

Alex Bridgeman: So, who runs this? Is this someone that you’ve hired as a kind of general manager type role or service person? Or like how does this run itself?

Ujwal Velagapudi : The company, so when I took over, it’s an over 20-year-old company, the first one that I purchased. And so, I assumed the full operations. And so, I was taking over that GM role or the operations role. And then, I purchased another one or I guess my third one. My second one I purchased, it was a little tuck in. I absorbed that right in. My third one, it was a completely different branch altogether, about an hour and a half away. So I went into the new location, and to backfill me at the original branch, I had hired someone externally to come in as the ops manager. And so gave him the keys for two months. And literally, I think seven weeks after he had started, he was supposed to take over. And so, he’s been doing a great job of taking over the full operations, end to end, full PNL, but also the full operations. And I spend one day a week physically at that location. And then I’m about to do the same thing with this branch as well. So, I’ve got two ops managers, I’ve got a couple dozen service techs, people who collect the money, there’s a back office team that takes care of the administrative staff, the bookkeeping, et cetera.

Alex Bridgeman: How many folks work at all of your companies combined if you look at it as a portfolio?

Ujwal Velagapudi : With the amusement vending company, it’s just about 25-30. And then with Byron, to be honest, I’m not a hundred percent sure on that, but I think it’s about 25, 30 as well, but not fully. Byron’s got part-time and full-time, split half and half roughly. And then for the amusement company, it’s all full time with a handful of contractors.

Alex Bridgeman: It’s pretty amazing. That’s incredible. What kinds of things have you learned about managing teams like that? Where it’s like they’re not all doing all 60- 80 folks aren’t doing the same tasks. They’re not all in the same company. You’ll have like almost context switching across these different teams of companies. How do you manage that context switching?

Ujwal Velagapudi : I’m still learning. I think that it’s been definitely a huge learning curve because the companies that I’ve had before have been all across the spectrum. Professionally, as my professional career, before I quit, I didn’t have any management experience, but I did at my bar; I had my entire team, and all my companies, I did have that experience. But this was the first one where walking into it first day, I had about 20 people staring at me and it was just so- a little overwhelming to be able to walk into that and take all that in. But I think, to what you’re asking, the team was so- they’re such experts and a lot of these companies that are decades old with some sort of scale, they are truly experts in what they do. And so, for me, it was just such a luxury to be able to walk in, all right, you all know exactly what you do very well, and they can take up that entire department and do it extremely well. So, for me, it was just managing each department, each one of the pieces, as opposed to getting into the nitty gritty and figuring out the tactical level. But for example, the one that I just purchased, it is very tactical because there’s not that big of a team. So, I’ve been hiring a bunch to fill it out because the most recent one that I purchased was a [car [RD1] 27:25]. And so, there were a lot of shared resources, which I did not inherit. So, I’m having to go out externally and hire a lot more folks to really fill out the team that they were using shared resources for before. So, for me, it’s just been really relying on the two ops managers with this company. And then for Byron, that’s more also relying on the ops managers. For me, I just use Slack. I probably spend no more than about 20 minutes a week, maybe a few minutes a day, checking, looking at my Stripe account, maybe sending a message or two on Slack and that’s it. So the ops manager does such a great job as well as the operator that I put in place to oversee the full operations of that company as well.

Alex Bridgeman: How do you onboard new employees at each of your companies?

Ujwal Velagapudi : For Byron, we have everything digitized. So, I’ve got to say, the founder that I bought it from did such an amazing job of having amazing SOPs that we’ve reiterated and just compounded on that. But we have videos, we have full documentation, and so the onboarding is completely automated. What we want to get away from, we have been doing some Facetime and just having that personal touch and showing the platform and all that, but we’ve gotten to the point where we can provide just a video of every single aspect of our platform, what to do, what not to do, how to interact with clients, all of that completely either on video or in a manual. So, what’s some SOP? So, I love that onboarding just because we want to be- we want to make it as automated as possible. Whereas on the physical side of things, with the amusement company, for example, we just hired someone, a new service technician. It takes about a month for someone to really learn the ropes. We tour them around with every single service technician so that they get a flavor for how everybody on the team works. This person’s an expert in jukeboxes. This person’s an expert in crane machines. This person’s an expert in re-felting and recovering pool tables. So, we’re going to spend the week with them. So, we’ll go around each department and kind of put that person with an individual whose core competency or who’s an expert in one set of machines and go around with the team until they can start to get a rough understanding of every single piece of equipment. And I’ve done that with the ops managers as well. So, the ops manager, I did not even give them access to a lot of the company, of the P&L, or the financials, or anything until they spent three weeks with the entire team, driving around, one full day with every single team member. And I think that’s worked out amazingly well, just because for me, I didn’t have that luxury. I had to jump in. I didn’t really get to spend a full one-on-one, a full day or a couple of days or anything with any of the team members. I just had to jump in and work on transitioning the vendors, transitioning the customers, all of that. So I said, all right, when I bring someone else on board, I want to be able to give them the luxury that I want to do everything until they have really felt out every single role within the company.

Alex Bridgeman: And so, what do you feel like needs to still improve in that process? It sounds like a pretty well thought through process, but there’s always places to improve. Like what comes to mind as ways it could be better?

Ujwal Velagapudi : I think a little bit more documentation, and yeah, I think it’s a little bit more of the documentation and more operationally. For example, if you see our set of keys, it is going to make your head spin. We’ve got probably maybe 40, 50 sets of keys. So operationally, we’re trying to train somebody and how in the world- I mean, the guys joke that the toughest part of the job is figuring out which key goes to which machine. And that truly is one of the biggest issues that we have because we have so many types of equipment out there through acquisition or through purchasing a different type of machine from a different vendor, the keys are different, the locks are different, and it’s just not unique throughout the entire organization. So that’s one huge element that we want to make it synonymous across the board, coast to coast, throughout the entire organization, so that when someone comes in, we’re not having to train them on keys. It’s not slowing them down. And it might seem like such a trivial thing, but it actually is such a big component of onboarding, but it does slow down individuals quite a bit. But in addition to that, it’s just putting together a manual and kind of an SOP or video tutorials for each and every different type of equipment, making sure that they get access; to fix an ATM or fix a jukebox, you need certain online credentials and access. So, getting everybody onboarded before they even start, having everything ready to go. Simple things like that. Simple HR things where since there is no HR team here, it’s something that really falls on me or some of our other team members to make sure that before someone gets started, they have all that ready to go on day one.

Alex Bridgeman: When you’re looking to expand this business, are you just buying new machines and calling up bars and restaurants to see if they’ll put in a machine into their space, or what’s that growth plan look like?

Ujwal Velagapudi : It’s non-existent as of today. So, for the past 5, 10 years, it’s been non-existent. It’s a hundred percent been inbound. And for me as well, I’ve just been soaking everything in, just learning, just getting the hang of the business. And actually, today was my first time interviewing someone for a sales position, which in the industry, I don’t think anybody does true, true sales, outbound sales, like hiring a six-figure salaried person to do purely sales. Usually, what it is the owner- a lot of these companies are one man shows. So, the owners do a little bit of everything, and he’s hitting the streets and knocking on doors and asking for bars, restaurants, and hey, can I put my stuff in your place? We’ll do this, et cetera, et cetera. But I think we’re at the scale where we have enough inbound coming in, but to be able to really crank it up a notch, we have to go out bound. And so, the plan that we’re starting to put in place is having some sort of digital presence. I think that’s going to be pretty significant, especially since nobody has any presence. You will not find any of these companies online. It’s always someone’s cell number that hasn’t changed in the past 20 years that you’re calling up. So having a good digital presence is going to be key. Maybe not for today, since a lot of customers are still relatively old school in how they find you, but going forward for a lot of the newer establishment customers, it’s going to make a pretty significant difference. And then having a door-to-door salesperson to actually hit every one of our locations and maintain those relationships, because maybe this owner doesn’t actually go with us today, but bars change hands quite frequently. Restaurants do as well, ice cream parlors, theaters, fraternal organizations. I mean, all of these places will change either guards or ownership or management, where we will be able to come in at some point and provide them our services. So that’s really been the organic way. But I will say I’m not good at sales, again, or marketing. And I don’t like organic growth, and we have more than doubled in just the past six months because we simply bought a new company that was the same size. So that’s how we’ve been growing. And I think growing through acquisition is probably the easiest way for me right now, and then organically, that’s the way I want to- I really want to incorporate the sales aspect of it so that we have the organic as well, especially if there’s any market fluctuations, if I don’t have enough capital at the time to be able to make another purchase, I think that’s going to be pretty key that we have an actual robust sales group internally working on these new accounts.

Alex Bridgeman: So, when you say that there’s no web presence, but there’s still inbound, are you putting your company name and phone number on each of these machines and people just see them and think it’s interesting and call you?

Ujwal Velagapudi : Yeah. So, every one of our pieces of equipment has our sticker on there, and so that’s one element. So, I’m a bar owner, I’m sitting down at somebody else’s bar or restaurant, and I see this, now I’m going to call that number. Or the bar community is small. A lot of these hospitality business owners, it’s a small community. So, oh, hey, who are you guys using? Okay, well, I’m going to call them too. So, it’s just kind of a little word of mouth thing that spreads as well. And just being in the industry, one company was over 20 years old. Another company was 35 years old. So, it’s just being in the industry, I think, is going to get your name out there. By inbound, I’m still- for example, there were two owners that I bought out, smaller level, smaller companies, one person, two people operators, and they’re still getting inbounds, so they pass those leads on to us.

Alex Bridgeman: How much would the average machine earn in net profit for the restaurant on a monthly basis? Because I would imagine that helps with retention if they’re making a few hundred bucks or a few thousand bucks even on a monthly basis, I’m sure they’re just excited for you to keep that machine there as long as possible.

Ujwal Velagapudi : Yeah, it’s going to vary considerably. There’re locations that barely scrape by. Depending on how much we have in there, a hundred bucks, a couple hundred bucks. And then there’s some that are doing thousands a month, net, their side. So, it just really depends on how busy their location is, the type of demographics, and their demographics and volume overlaid on what type of equipment that we have in there. So, it’s really going to benefit us for us to get a true understanding of that particular location and know that, okay, this is a little kid’s restaurant. Having this particular type of equipment is not going to be the most applicable, whereas we can put this in maybe a bar and it’s going to do 10 times better. And vice versa, we can put these types of equipment at this type of restaurant in this certain city with their type of clientele. That’s going to do a lot better. For example, little rookie mistakes that we’ve done, putting in a Terminator game at a bounce house that only has five-year-olds or below coming in. So, it was those little head-scratching moves that you just kind of do because, oh well, we got this extra piece, let’s throw it in there. It doesn’t have to be in our warehouse, it can make a buck or two. Well, it’s literally making a buck or two. But yeah, it’s going to vary. And that’s why the sell is relatively easy. I was telling the sales guy that came in this morning, if you can’t sell this, I don’t know what to tell you, because we are putting in tens of thousands, sometimes hundreds of thousands, of dollars’ worth of equipment at your facility at zero cost to you, fully taken care of by a pretty substantial team, and we are available all the way up until 11:00 PM at night, seven days a week, 365 days a year, including holidays, and we’ll split everything 50/50. I mean, as long as you have the real estate in your business, that’s all you need and you will make a substantial amount. So, it’s kind of a no brainer, but of course, some of the rejections that we do get are, well, I don’t have the space, or they just don’t understand it quite yet. Or maybe legitimately they don’t have the right type of clientele. This is a pizza shop that’s more of a to-go spot. Well, okay, it’s not really going to make sense to put a lot of equipment in there. So it’s like you said, we are truly the second biggest revenue source for most of our customers. And so, when we walk in someplace, it’s like they’ve got a smile on their face because they know that we’re about to pay them, and that can’t be said for most vendors. Most vendors, they come in and it’s like, man, this guy’s coming in again, he’s about to ask for money. But for us we give money. So, it’s a little bit of a different relationship, different financial relationship. We are truly in bed together financially. And so that allows us to have a little kind of a different sort of relationship than other vendors that they may have because we’re in it together. You want to make money, and so do we, so we’re going to advise you the right type of equipment. We want to hear your feedback on who’s coming in, who’s not, so that we can provide you guys and us the best feedback. We don’t want anything down. So, if a machine’s down, call us, call us right now, as soon as it goes down. Not two days from now because that’s two days of lost revenue. So little things like that truly make it a little partnership for whatever, a small portion of the revenue that we are for them.

Alex Bridgeman: That’s awesome. I remember in my college internship, one of my jobs was to send out the reimbursement checks for employee expenses. So, someone would like pay for parking somewhere and they had got a reimbursement, I’d walk around the office and drop them all off and quickly became the favorite intern in the office, which was really fun. I imagine that’s the same feeling your team gets. What are some of the, not even just in this business, but broadly, what are some mistakes you’ve made where perhaps things got- like, it was a strong learning experience for you that maybe not could to have bankrupted you, but just like, it sounds like you’ve had to kind of like live off the skin of your teeth for a little while. I’d love to hear any sort of moments along that journey where things could have gone much more south than they obviously did.

Ujwal Velagapudi : So, I actually keep a spreadsheet. I call it my Lessons Learned spreadsheet, and I’ve had it since my first business. And so, it’s got details about every single business from the real estate to now the nine businesses that I’ve purchased over the years with the good things and the bad things of every single one. Because even on a good purchase, you can have a bunch of lessons learned. There’s so many, but some of the biggest ones – just don’t believe it’s over until it’s absolutely over. And I see this a lot today where people get super excited for a contract being signed or this and that being completed within a deal. But for me, I’ve been on the front end and the bad end of so many deals that I know that it’s not truly over until it’s absolutely over. I’ve got the keys, the money’s wired over, in their account, not just wired from my end, but it’s in their account. It’s settled. All of that. I mean, I’ve got PTSD with just so many terrible scenarios where my deals have not closed, that all of those things need to happen. And actually, my second deal ever, it was a small apartment complex, it burned down in front of me four days before closing. Our realtor calls me and he says, “Yeah, turn on the news, man. Unfortunately, we’re not closing in four days on this Friday.” And so, I turn it on and there it is, my building’s burning down. So, that taught me early on, all right, it’s actually got to close. Just because you got a closing date, even though you’re a few days away, it doesn’t mean anything. So that’s one thing, whether it’s a little contract that we’re signing or it’s a business that we’re purchasing, whatever it is, I mean, it could be an employee that we’ve offered. Well, I don’t care if they accepted, they’ve got to start and they’ve got to actually work a few weeks before I feel like, okay, they’re actually a part of the team. I mean, you have people jumping ship all the time. So those experiences have taught me that, all right, you’ve actually got to completely see it through, if it’s a deal or make sure that it’s completely done. In addition to that, just having contracts. I remember making an investment, a small angel investment, literally off of what this person told me, had a few good conversations, and then a full year goes by before I got a contract, and I’ve done that a couple of times. And so that was a pretty big lesson learned where I need to have something on paper. And I’ve heard that, you hear it all the time, you got to put it on paper, but it was a surprising that I actually did it foolishly, without putting something on paper and gave out little good chunk of money. And so that as well as firing people quickly, that’s one thing that I wish I would still do sooner than later. I think I keep people; I’m just not the best manager. And I think I was just, oh, well, they’re doing all right, let me just keep them around. You know what, I think, ultimately net, they’re actually harmful to the team, whether it’s culturally or just not bringing A game; they are a C player or a B minus, and they shouldn’t be around, but because they’ve been acclimated some way into your organization, I keep them around. And that’s one thing that I think I really need to work on, of cutting the cord a lot sooner.

Alex Bridgeman: Yeah, moving to the closing questions. What college class would you teach if it could be about any subject you wanted?

Ujwal Velagapudi : I would definitely do business acquisition. I think that’s the one thing that I might not be the greatest at, but I absolutely love to do. I would find a class, I’ve been thinking about this, where it can be paid for, for the actual purchase of a business, and you help students actually go through that entire purchase and to go on with the actual operation of the business.

Alex Bridgeman: You can just put your spreadsheet up on the slide and just call it good there.

Ujwal Velagapudi : Yeah. What, the lessons learned?

Alex Bridgeman: Yeah. Just put up every lesson, every failure, every success as well, like put them all up on this massive like few hundred row spreadsheet and just dive into one like every day in class and talk about it.

Ujwal Velagapudi : Yeah. I mean, for me, I learned so much by burning my own hand that I would want others to burn their hands too. I’d rather have them learn through doing.

Alex Bridgeman: It is kind of funny, everyone, you’ll hear like experiences or lessons where someone had to learn the hard way to do something. And you think, when you hear that, you think, oh, okay, that means I won’t make that mistake when it eventually happens to me. And 95% of the time you make the exact same mistake, even though you’ve heard it over and over. And there’s something about like learning just through experience and burning your hand as you say that you just can’t get through hearing that lesson from someone else. Like someone can tell you straight to your face to avoid this mistake and you’ll still do it so consistently.

Ujwal Velagapudi : I’ve done it, yeah.

Alex Bridgeman: It is really hard. I need to work on that one too. What’s a strongly held belief you’ve changed your mind on?

Ujwal Velagapudi : I think starting off, when you had asked me, how’d you finance these, it was all cash, and then oddball debt here and there, but I’ve never had a true loan before, until last year. And I was always like, okay, it’s got to be cash purchases. That’s a lot safer. It’s a lot easier to work with. Even though I had odd ball debt here and there, until I got my last business, obviously I couldn’t finance seven-figure EBITDA, seven figure purchase or eight figure purchase. So, I was like, I needed some debt, so I took that on. And then most recently, I bought an equally substantial business a hundred percent financed, pure debt. I had literally four digits in my bank account, so it was a hundred percent financed. I think two things over there, it’s to be able to use the debt, to be able to actually get to what I want and simultaneously without losing any equity. So, I think that’s one thing that I was willing to do before, to give up some equity, even though I never had before. This time around, I said, no, you know what, I’m going to get everything a hundred percent financed, but while still actually retaining a hundred percent equity. So, I think that’s, as I move forward, I think something that I’ve opened up to, financing portion, which I’ve never taken on debt that like that before. And once I’ve done it, I love it. As long as I’m being conservative and the multiples are there, the debt service ratios are there, the coverage ratios are there, and I’m playing within certain comfort levels, I’ve liked really liked it so far.

Alex Bridgeman: Yeah, it seems like something that you’re nervous about the first time, but I remember Bill D’Alessandro talked about how much he loves SBA debt; it’s the greatest thing he’s ever seen. That’s awesome. What’s the best business you’ve ever seen?

Ujwal Velagapudi : Best business I’ve ever seen, this was about 18 months ago. I stumbled across this business where it was nearly an eight figure EBITDA business. It was a husband and wife team that had been at it for almost 30 years selling rice. And it was this- they were importing rice from Asia and selling it in the States. And it just blew my mind. I mean, one, the scale just, period, that just absolutely blew my mind that they grew it to that size. And then to compound on that, they were operating it a hundred percent out of their basement. So, they were in their 70s operating out of their basement. They had two part-time staff. I mean, the whole thing, the whole thing. And immigrant couple, barely knew the language, and also operationally, just not even light. I mean, this was just, they had nothing except for their laptops and their paperwork. That’s it. So, they held zero inventory. Weren’t even drop-shipping it. It was just a pickup at the ports from the customers. So overall, just operationally light, moving around eight figures worth of rice and various product, and by this elderly couple that, I don’t know, I just thought it was beautiful how they grew it to that scale over the past few decades.

Alex Bridgeman: That’s incredible. And so, did you offer to buy it?

Ujwal Velagapudi : I did not put in an offer. For me, I just thought it was- I mean, it did have a little COVID bump. So, I think it increased by 70, 80% due to COVID, and this was end of 2020, so I’m sure 2021 would have been even larger. So, it probably would have been an okay purchase had I made it, but for me, it was just a little bit too much to chew off. That one, it would’ve needed private equity or additional capital or other partners to be part of it. So, one, I wouldn’t have been a hundred percent equity owner, which I didn’t necessarily like at that time. And also thought it was a little bit misvalued. But overall, still a beautiful business.

Alex Bridgeman: Yeah, no kidding. That’s a pretty incredible business. That’s one of the best I’ve heard on this show so far. Well, thank you so much for sharing a little bit of time. I always love getting to chat, and it was fun to meet you at SMBash. I hope to see you next year and hear about the half a dozen other new businesses that you’ve probably bought in the meantime. It feels like you’re always up to something so good to hear a little bit about it so far.

Ujwal Velagapudi : Yep. You too, Alex. Appreciate it.