Ayo Phillips has the wildest story I’ve ever heard on the podcast. He’s from Nigeria, immigrated to the U.S. when he was young, worked in engineering before getting his MBA at Kellogg, acquired countertop and bathtub refinishing company called Perfect Surface in Houston while his wife had their second child in Chicago, and went on to discover major structural problems in the business including the use of strippers and suspicious financial activity. Oh, and he recently became a U.S. citizen. He has an incredible story we can all learn a lot from. In this episode we discuss his experience acquiring Perfect Surface, warning signs to look out for when buying a company, how he looks at hiring and growing his team, and so much more.
Live Oak Bank – Live Oak Bank is a seasoned SBA lender focused on search funds, independent sponsors, private equity firms, and individuals looking to acquire small 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].
Ayo Phillips has the wildest story I’ve ever heard on the podcast. He’s from Nigeria, emigrated to the US when he was young, worked in engineering before getting his MBA at Kellogg, acquired a countertop and bath refinishing company called Perfect Surface in Houston while his wife had their 2nd child in Chicago and went on to discover major structural problems in the business. Including the use of strippers and suspicious financial activity. Oh, and he recently became a US citizen. He has an incredible story we can all learn a lot from. In this episode, we discuss his experience acquiring Perfect Surface, warning signs to look our for when buying a company, how he looks at hiring and growing his team and so much more. Enjoy.
Thanks, Ayo, for joining us. Ever since talking to you for the first time and having our phone call, your story is pretty mind-blowing. There’s lots of elements to explore, so I’m super excited to chat with you today. Do you want to explain kind of your background and how you got into the business you’re in?
Excited to be here, Alex. Thanks for having me and really have loved getting to know you through this process as well, so the feeling’s mutual from that perspective. My story starts in Nigeria, which is where I grew up. I grew up in Nigeria and had a unique once-in-a-lifetime opportunity to move to the United States. One of the things that people say in the immigrant community is that once you get to the United States, it’s glass sailing from there, at least so they think. And another thing they do say is that it’s easier to get into heaven than it is to get into the United States. Recently, when I became an American, and it’s definitely been a top 10 life event for us, really exciting for my wife and I and our kids, that’s where the journey start. Started in Nigeria, my parents borrowed $1,500 and put me on a plane, and that’s how I ended up here. I came here, studied chemical engineering.
Just by virtue of background a little bit here.Back in Nigeria, the thought process around choosing careers is pretty simple. You need to go into the hard sciences or nothing at all. You’re either going to be a medical doctor or an engineer and a lawyer sometimes. That kind of the three career paths that most people find themselves fall into, mainly because when we looked at people that achieve some level of success in a clean way, which is a whole different topic, in a way without graft or bribes and that kind of thing, that’s typically the career paths that they’ve followed. I went into engineering, not because I loved it but because that was kind of a sure way of being able to earn a good living long term. And so, got to the United States, studied chemical engineering but always had a passion for entrepreneurship, mainly because my dad had instilled in us at a very young age that if we ever got the opportunity to own and run our own business that we should jump at the opportunity.
He never got the opportunity to do that. He worked for a very wealthy individual for 29 years but never owned a share of stock in the business and never really had the opportunity to be able to grow himself to do that. And so for him, his aspiration for us were always that the opportunity to do that would be living out a dream that he never got to live out. I think I internalized that from a very young age, and so that was also at the back of my mind, even through my time in college and moving on into a career. I had some entrepreneurial experiences while in college, which helped pay for school, but that’s not really where my true entrepreneurial zeal kind of really showed or really came to the fore. I think it’s really more recently in my acquisition, which I’ll talk about that, that it’s come to the fore.
After college, moved into corporate America as an engineer. I worked in food manufacturing, making products that a lot of people eat like Yoplait yogurt, Cheerios, and Lucky Charms. So started off as a line engineer and then progressed in my career to leadership of manufacturing facilities but always still had that passion for entrepreneurship and was going to find a way to pursue it. And so at the time, when I really started considering it, I was married. My wife and I lived in California at the time. We had a really good life, really great, fun life. I told her, I said, “Can we do this? Would it be okay if I could pursue some sort of entrepreneurial path at this point in my career?” Because I really felt like if I did not do it that it would be something that I always regret.
At that time, it seemed counterintuitive. I mean, I progressed to a certain level in the organization and when you start to get what they call the golden handcuffs, I guess. At that point, it was really a choice. It was a decision to make. It was one in which we had to really think through it. And so her deal with me was, “Okay, you can do it. But if you’re going to do it, you have to do it the safe way.” To her, the safe way meant not just leaving the workforce and going to start something. It meant giving myself some time and some space by going back to business school to explore what that next entrepreneurial adventure would be. And so with that and with her blessing, I transitioned. I went to business school with the idea that if my entrepreneurial transition wasn’t going to happen, at least I’d have a fallback option that was at least halfway decent from her perspective.
It just so happened that on my path to studying in business school, I found out about private equity. I didn’t know anything about private equity before then; private equity and then this small subset of private equity called search funds, where you can actually buy a business and instead of you coming up with an idea and starting from scratch, you acquire a business, run it, grow it for the long term. To me, it was such a foreign concept at the time. I literally could not believe that there were people out there that were willing to put millions of dollars behind an unknown entity, someone who, yes, I had some experiences. But I mean, I did not really think of myself as having the kinds of experiences that would justify someone writing a check for millions of dollars to support me in pursuing really what was a dream and what is a dream, even today.
And so it kind of blew my mind, and it just kind of became my mission to kind of really understand it, accept it. The acceptance part was huge for me, because I mean, just again to rewind, I grew up in Nigeria. Okay? In many ways, I had lived out a lot of dreams. In my first job out of undergrad as an engineer, right? I was earning an income that was probably equal to six or seven times what my parents earned, so it was just mind-blowing for me having lived that dream and then having accomplished some other things along the line, where this was just another unbelievable thing in my estimation. Just another testament to what this country is and about from an opportunity perspective that someone who came from Africa has the opportunity to run an organization or a team or buy a business with the help of people that he does not know. It’s still mind-blowing to me today, and I’m still thankful to my investor. I have one investor, a family office investor, my company.
Now obviously, I have a better understanding of these things now. I understand that there are returns that they get from doing this, and I understand that there’s the availability of capital and all that. But still, I’ve never lost a sense of how, I don’t know if incredulous is the right word for this. So again, forgive my English as sometimes I have to translate from Yoruba to English in my head sometimes. But I’ve never lost that sense of how incredible the opportunity is to be in the position I’m in, and so I’m so grateful for it.
Then I went through business school, and then partnered with a family office, and then ended up searching for a business for a couple of years. And the search for a business was arduous for sure. I mean, obviously, very tough. Started off with a very narrow focus, because I wanted to focus more on my manufacturing-type businesses and supply chain heavy businesses, which is what I was familiar with, and I thought I could add the most value. But I quickly realized like many people looking for businesses that when you are looking for one business, you’re kind of limited to what’s available, not so much what you want. I mean, if you have an unlimited timeline to search for an acquisition, then obviously, you have more options, more options of businesses to acquire and to become a part of.
I went through my entire search process. I won’t dwell too much on that. Towards the end of my search and this actually ties into the story of what my experience has been running this visit, but towards the end of my search, probably about five months before, what would have been the official end of my search, I found this business through a business broker. It was a business that performed resurfacing services on bathtubs and countertops for apartment complexes. It was a business that, It was a niche that I never thought existed or knew existed, and so that was the initial attraction for me was, “Man, I’ve never heard of this.” As I started to think more about it. This makes total sense. Yes, people live in apartments. And when they leave apartments, certain things need to be done to the bathtubs and countertops to get them ready for the next resident to move in. And so that was the initial attraction to the business.
I started going down the due diligence process for the deal, ended up kind of meeting the owner. I got to visit the facility, but I was prevented from meeting the employees in any one-on-one type of setting at the time, which probably should have been a red flag for me. But at that time, I was too naive.
Frankly, I was living off the high of an opportunity that lay right in front of me to live out this dream, this dream that was my dad’s and that’s now mine. I mean, I think I tend to be pretty emotional. I’m pretty passionate about things, and I know this about myself, especially now that sometimes, it overwhelms kind of whatever I’m pursuing. In many cases, it can be good. In some cases, not so good. Obviously, in a due diligence process, I think you want to have an acute focus on making sure that the I’s are dotted and the T’s crossed. I went through this due diligence process. Didn’t get to meet any of the employees really in any real way, and I ended up closing the transaction in July of, August 2017, and so that’s where the fun began.
My wife and I were expecting our second son at the time. Well, she was nine months pregnant when the deal closed. The deal closed July 29th. She was nine months pregnant. And so one of the first things we did towards the time when we started to see that this deal was probably going to close was we scheduled the birth of our second son for a few different reasons. One, from a health perspective, it made sense to do that for my wife. And so we did it and we scheduled it for August 10th. So deal closed July 29th, second son born August 10th.
The business is in Houston, family is in Chicago, just to kind of give some context there. I’m there for the first week or so running the business, and then I fly back for the birth of our second son. I fly back a couple of days before he was supposed to be born, take my wife to the hospital. He’s born on August 10th, and the plan was I was just going to be in Chicago for three days and then fly back to Houston to keep running the business. Well, there were some complications with my second son’s birth that led to my wife been in a medically induced coma for five days after the birth of our second son. She was in surgery for 11 hours as part of this ordeal prior to being in a medically induced coma after my son was born, and I didn’t realize the gravity of this, but I was in the hospital. Outside the operating room, everyone had left. It was nighttime, probably around one AM.
The surgery had been going on for about three hours, and then they had the chaplain for the hospital come sit with me. Obviously, that was not a good sign, but he sat with me for a few hours. I guess, by the grace of God, eight hours later, the doctor comes out and says, “Hey, you’re lucky. She’s alive. She’s fine. She’s going to live.” But for the five days while she was in a medically induced coma, obviously, I’m trying to operate the business from the ICU.
And I apologize to all the doctors and everyone else, every medical person that is listening to this. Yes, I know my cell phone should not have been on while I was in the ICU, but the way I think about it is I had two babies. I had a baby that was being born. Obviously, I had my wife who obviously is, without her, I mean, much of what I did today is not really worth doing. But I also had this baby that was the business that needed me. And I was taking calls, getting calls. In the midst of being in the ICU, one of the calls that I had to take was the fact that our bank was refusing to cash the checks of our technicians, which was going to cause a mutiny. So I had to find a way around that and take care of that in addition to some of the other issues that come up on a day-in-and-day-out basis, dealing with those things.
That was kind of the first two weeks of being an operator in this business. Most of it was being done remotely before Zoom became cool. I wasn’t using Zoom at the time, but we were on conference calls daily and just taking calls throughout the course of the day at that time. And so that actually, in some ways, set the trajectory for what the journey has been so far, a journey of complete unexpected twists and turns and amazing ups and downs through it.
The next thing that happened in the journey was I was then able to fly back to Houston. After being in the hospital with my wife, grandma was now at home, and we had some other help as well coming to the house to help my wife, which again, in hindsight, maybe I should have stayed longer. But again, when you think about the business as a baby. Maybe I shouldn’t have thought about it in that way, but that’s how I thought about it. It was, I have a newborn, yes. My wife just got out of the hospital, yes. Put some resources in place to help with that support, and it felt to me like business needed me. So I flew back to Houston, and at that point is when I really started to kind of dig into the business and what I began to learn about the business.
One of the first things I did, and I remember the day. I went back and check the date, because it was a day where we had, I went on a ride along with one of our technicians and one of our supervisors in the field when I got back to Houston, and it was August 21. I went back. I checked the date because there was an eclipse of the sun of that day or the moon went behind the sun. I went back and looked at what the date was and it was August 21st. I remember that date so vividly because it was a ride-along with the supervisor where we were driving through the city, kind of going customer by customer, and I’m having conversations with him.
By the way, a quick tip. Ride-alongs are an incredible tool and the reason that they are an incredible tool is not just because you’re going to, obviously, you’re going to learn things from your customers or from your people and all that. But one of the things that makes them an incredible tool is the lack of eye contact between the driver and the passenger. There is something magical about that that makes people more open to saying things that they otherwise would not say. And so I just wanted to couch that in what I’m about to say that I learned during this ride-along. And some of the other folks who’ve done ride-alongs probably can relate to why ride-alongs are great. And this is just kind of a tip that I’ve learned through that process.
One of the things I learned in that ride-along as I was asking him questions about the business. So again, for a bit of context, prior to me acquiring the business, it had declined a little bit prior to acquiring it, which it should have been kind of a red flashing light not to continue to pursue the acquisition. But again, I did and hindsight is 20/20 now, but I did. It had declined a little bit. And so I was asking this particular supervisor, “What are some things that you think that we can do to grow sales and really get us into more customer locations and that kind of thing?” He proceeded to share that, “Well, you could do what we used to do a few years ago,” and I asked him, “Well, what exactly was that? What did you do a few years ago?” And he’s like, “Well, you could hire girls to go close deals with the maintenance guys,” and I said, “Can you explain exactly what you mean by that, by close the deals?”
I’m not going to explain it, but it’s exactly what you think it is. Essentially hiring people who have, I guess, no skill and no talent, except for the fact that they looked a certain way to go out and entice people to buy our services. I mean, it’s still incredulous to me today, obviously, that that was a significant way that business was won. And so that was the beginning of a journey of just exploration and finding out just a ton of things that I really did not want about this business.
But my exploration into these matters was kind of cut short because within four days of finding this information out, so it was August 21st. On August 25th was a 500-year flood in Houston called Hurricane Harvey. So I’m trying to get into the groove of things, learning about this business. I’m living in an Airbnb, and they say, “Well, Hurricane Harvey is coming, get out, get to safety. Go be with your loved ones,” type of thing. Hurricane Harvey happens. I fly out of Houston the night before the storm comes in. I was back in Chicago and kind of really just watching horror from afar, kind of how the hurricane devastated the city of Houston at the time. Luckily, our employees at that time, there was one that was kind of affected by it with some flooding, but it wasn’t extensive damage to our facilities. Many other employees were fine. They didn’t see too much of an impact from the hurricane. But it was a devastating thing to the city of Houston at the time.
So there was seven days of that, me back in Chicago. I couldn’t fly back in. Flights were shut down. You couldn’t get back into the city. It took some time for the flux to recede. Got back to the city, picking up the pieces from that and trying to support our customers as best as we could. Mind you, I didn’t know that much. I’m literally, at this point, I’m less than a month into running this business, and I didn’t know how they were going to react or what they needed. All we could do at the time was just calling to them and see if they needed us. That month, the month of September ended up being one of our worst months since I acquired the business, obviously, because customers were reeling from that experience of Hurricane Harvey. And the fact that city was practically shut down and they were trying to figure out how to get back up and running and up to speed with their properties.
You have a 90-day plan, and what you expect to do. Well, obviously, I did nothing on my 90-day plan. It was nothing on my 90-day plan that I actually got to do during that period of time. It really was more about people management, dealing with employees, wondering if work was going to be coming back soon and the uncertainty around that time. And then we ended up in a situation which in October, we had a banner month because customers started to get their resurfacing and refinishing done again for units that were damaged during the storm. And so that was a great month for us and great month for our employees and for our technicians. That was good. Then we keep moving along this journey.
I’m kind of learning more about this business. Obviously, fighting fires, like every new owner does, just trying to figure out what I should be focused on, because the things I thought I was going to be focused on, no chance I could be focused on those things. I mean, the one thing that was clear to me at the time was that we needed to fill the top of the funnel. We needed to figure out a way to grow our sales, and obviously, I was not going to hire women to grow our sales in an illicit manner.
Yeah, it’s not sustainable.
Yeah. I don’t think so. Not in long haul. Well, this guy did it for quite a while and kind of garnered a share of the market that was frankly, there was inelastic demand that share of the market he owned. They weren’t as price conscious, obviously. They didn’t really care about volume. They would create work that needed to be created just to kind of maintain those touch points. And touch points are a euphemism for some not so great things. So, learning more about the business. So, one of the things I tried to do to generate sales was there was an annual expo that we typically went to with our employees. And we went to that expo, took a few of our employees, introducing us as the new team and getting to know people.
There were a couple of things that stood out to me from that event again, as I’m learning more about this business. So, as these maintenance guys are walking by, they’re asking the question, “So, are you guys still closing the deal? Are you guys still closing the deal?” That was where the closing the deal kind of word came, was what do you mean by closing the deal? And I started to learn more about kind of tied it back to what the supervisor had told me as that’s what it meant. And our booth neighbor came and talked to me and said, “Hey listen man. I appreciate you for not doing what you guys have done in past years.” I was like, “What is that?” Like, “Well, you guys used to have strippers stand here and no one would ever come to my booth because they had strippers.” Literally had strippers on the side of the booth. Yeah. Obviously, it was the attraction of the whole event.
There were people that loved it and there were people that hated it and obviously, I came to find that out as I took on some of the sales responsibility. And I would visit customers and we’d find that in the marketplace, there were people that have absolutely sworn off of using us, using our services and there were those that would only use our services as long as they got the extra benefits, so to speak. That was kind of the first time when the stripper question came into the lexicon and I started to find out, “Oh my God. This problem is bigger than I think it is, than I thought it was.” And then, that was later confirmed when I was in the process of trying to acquire one of our competitors locally. And he put the whole picture in frame for me. He had known the ex owner of the business for a long, long time. And he was the one that kind of let me in on what the customer acquisition strategy was for this owner. So, in addition to kind of the women going out, well, he also had a second office at the strip club.
So at booth, that was a sign to him where, on a weekly basis, he would bring people in and that was how they gained new relationships and maintained the relationships that they had in the past. And so I was watching my customer count decrease and not really understanding why I fully kind of got what this guy’s customer acquisition strategy was by kind of learning of this and learning the story. And so obviously, so many thoughts cross your mind. What have I done here? How am I going to fix this? I don’t want to fail and a lot of vulnerable thoughts of, how do we get out of this? And so, at that time, what I decided to do was, I went on a customer visit just to try and understand if there are any additional things that we do that the customers like and love. Obviously, there were things that, no company’s ever all bad. And there were things that we did well and that, okay. Can we capitalize on those things, then continue to do them more and see if we will be able to win other customers as a result of doing those things?
The truth about it was that in our market, what I found was that there was quite a bit of price sensitivity, which this prior owner had avoided because of some of these things and was able to kind of maintain prices at a certain level. So, regardless of the quality level that you provided, these property managers and facility managers have a set budget of how much they got to spend on certain things, except if they get additional benefits and they move things around. So it becomes a little tougher to do that. So at that point was when I said, “Okay, well, got to treat this like a start-up.” Got to treat this like we’re not going to win these customers back. Our brand image is baked in the minds of the people in the marketplace. Growing the customer base with this brand is going to be tough. I’ve got to find different business. I’ve got to do something else.
So that was when I started trying a bunch of things. Went out and found kind of a different customer type that was not primarily apartment specific, but that was more in the single family space that required services that were somewhat like ours but a lot more of them. So we did resurfacing and refinishing services at the time and there is this broader industry called the Turn Industry, which is essentially, like I said, you go in and you prepare apartments for homes for the next resident to move in. So you are doing painting. You’re doing housekeeping. You’re doing maintenance and handyman type activities and then some resurfacing as well. And so basically, found some technicians and we went door to door knocking on these real estate investment trusts. Literally went door to door knocking on this real estate investment trust and told them, “Hey listen. We can offer this service. We’ve been doing turn activity for 40 years even though we were just doing resurfacing. We can perform these services for you.”
We got an opportunity to get into one customer performing these services and then that turned into two, turned into four, turned into six. Within four months, that turned into a seven figure run business for us. That was kind of our first foray to finding that we didn’t have to rely on the core business that we had bought. But now we could expand into this larger more interesting segment. Then I started to hire some project managers to kind of support that business. And now, in 2021, it’s going to be a larger portion of revenue than the core business that we acquired is currently today. That’s two and a half years later from starting that business where we’ve been able to kind of move in that different direction and be able to kind of mute the impacts of that initial business.
Sometimes I think it may have been, honestly, if you look at the numbers, I mean it may have made sense to just do this as a start-up versus buying something and then trying to pivot into this. But still grateful for the foundation that the business that I acquired provided and now, enabling us to try a bunch of other things that are now yielding different results for the business from where we initially had it.
It’s a pretty wild story. I know you’ve dealt with a whole lot more in that business too. I’d be curious if there’s other things that have come up over time. But I’m also curious too on, with a company that has a brand that was stripper acquisition for new customers for a long time and now it’s your brand, how do you repair that with some of the customers who have sworn off your services because of that? How do you start to repair that? I know it’s a slow process, but I’m curious of different steps you’ve taken to fix that image.
That brand in question is such an important one because we can’t just change the name because there is some brand equity that’s positive. We still have some customers that still like us that don’t completely subscribe to the stripper piece of it. And in our marketplace, a new entrance is a new entrance. It can be relatively tough to kind of win new business. So there’s a few things that we did. So the first thing was, under new management. [inaudible 00:31:29]. Under new management. Not the same old management. It’s new management now. So that’s the first piece of it.
We put an ad in the industry magazines saying, “Hey listen. We’re different. We’re new. This is our new team. Nothing like the old team.” That’s been a big part of a few of the things that we have done. Honestly, I still question. I still wonder if doing a complete rebrand would be the appropriate thing at this point, but I’m too timid to make that call now. I think as the new businesses grow and as it becomes a smaller and smaller portion of our revenue, I think I’ll be more comfortable making that move. But still it’s a cash run business. It still earns an income and that part of the business is significantly small today than when we acquired it. But it still generates a return and the customers are there and they continue to generate return for us.
So I think it’s very possible that in the future that we do a full rebrand, but I want to wait until we have a certain level of growth and stability in some of the newer things that we’ve started out with to toy around with doing that. That’s kind of the way I’m thinking about it for now, but definitely welcome different thoughts as to how to do that. It’s something that I’ve wrestled with throughout the course of my time here. Obviously, we don’t want to be known for that kind of work. So I do think that over the course of time that the impact of those practices have dissipated, but our industry is one in which it’s relatively, especially in this market. So in the Houston market specifically, which we’re in three markets now, but started out in Houston. And the Houston market specifically, it’s one that you kind of have to be careful about how you monkey around with your brand so that it doesn’t overly harm what you could look like in the future.
Got you. And then other areas of professionalization is another piece I’m curious about. So now that you have, once you’ve got the business kind of under your footing a little better and you’re starting to look at more growth phases, what systems or processed or areas of your business have you added professionalization to? I know that traction, EOS is part of what you’re doing now but curious of other areas too.
One of the first things that we did was implement a software tool for dispatching operations. So when I first got here, the way dispatching was done was in our office, we have this really long bar. It’s probably about four feet high and the way we dispatched was we would take orders in a database that was an access database. It was an access database that we’d take orders in. We would print all the orders out, okay? On this bar, we would have the names of our 18 technicians for Houston on there. We would have their names on there and then we would have the, call it 60 jobs for the day and we would literally by hand put each sheet of paper to fit with each technician. So 60 jobs, 18 technicians.
Let’s call that roughly three jobs a technician per day. Okay? So you would put that up on the bar and that was your schedule. Now, imagine this. The next morning after kind of scheduling the jobs, a technician would call and say, “Oh, well I can’t make it into work today.” Well, that completely destroys the guy’s schedule. And so you do the reshuffling. So one of the first things that we absolutely had to do was to kind of implement some kind of system. Our first foray of doing that was a tool called Jobber. It’s a dispatching tool where we can record our orders and then kind of dispatch from that tool. Has a mapping process and technology there. That’s one piece. That was one key thing that we did early on.
Another key thing that we did early on was a standardization of our recruiting processes. So as I learned more about the business, I learned more about the types of people that I wanted to be a part of the organization. One of the things was that I needed to codify that by having a standardized process for doing that. So one of the tools that we use for that as part of our process is Predictive Index. So Predictive Index is a tool that allows you to put in framework for the behavioral and cognitive characters that you need for someone that would excel in a particular role to have. So now we run all potential employees through Predictive Index as a way to kind of measure their fit from a skill perspective and then we use other tools for culture. So Predictive Index. We do something that we call a Day in the Life for anyone that’s going to be hired here, which means they’re going to spend at least four to six hours shadowing someone else during the job process.
We have questionnaires as part of the interview process which takes some of the work from us. If you send out a prompt and you have them answer five or six questions, you can compare multiple different people without having to talk to every single person. Allows us to screen easier, move on to the phone screen process and then a Day in the Life allows us to kind of then select the best candidates. I got to this through a lot of pain. I’ve turned over my entire team twice. So it got to the point where I became the most senior member of the team aside from a bookkeeper who we still have for a few different reasons. Obviously, as you’re trying to change the culture from what it was before and obviously some mistakes I made. I recruited industry people to replace industry people and that didn’t work out so well and then decided that no, we were going to build from scratch. We were going to build with people who were not from the industry, but people who had the behavioral and cultural characteristics and we’ll teach them everything else that we need them to know to be effective in the role and the job in the jobs they would be taking on.
So the people processes, the technology processes, those are two key things. Now we’re evolving our technology processes even more. We’re using a tool called Apshe today to kind of take our scheduling and dispatching to the next level. It’s a tool. It’s a no quote platform that allows you to truly customize your end to end workflow systems and also allows us to have connectivity between our back office accounting systems and then the front end customer entry processes as well. So those are, I’d say two big things. Technology and people processes for us, I think have enabled a significant portion of the transformation that we’re continuing to work on achieving.
If you think of the company as it stands today, what do you feel you still need to get better at?
I think one of the things for us as we think about skill and growing is, we are going to have to enter new markets, many more markets than we already have. So in my time here, we’ve entered two additional markets. We’re in Oklahoma, as well as Dallas, Texas. And there have been a lot of learnings through those processes of the differences in how geographies work, how you recruit technicians in each geography, how you recruit effective sales people in geography, how you manage resources in different geographies. All kind of KPIs are effective. How to have effective meetings with someone that you don’t see every day and that you’re not managing their hours. With our technicians, it’s a lot easier. I mean, they have to upload photos of every job that they do. But with salaried resources, it’s a little bit more difficult. With sales, it’s kind of easy. They’re kind of objective metrics. But when you have project managers and supervisors in other markets, I think we continue to fine tune how we think about their role and how to make them more effective.
And then the question around one of the things that you should centralize and the things that you should not centralize, that continues to be a work in progress for us. It’s different depending on what market you’re talking about for us. One of the things that I want to be careful about is not to make each market its own entity. I mean, if we’re going to do that, then we should be running a franchise organization or something different. And so the question that I still have about scale is how to effectively do it in these new markets. As we get into them and what approach would work and what standard practices could we implement to ensure that they’re applicable in different markets?
As you think of yourself as a searcher who is now operating a company, perhaps advising a searcher in the future, how do you teach them to look for warning signs within a businesS? Because now you’ve, I’m sure you’ve noticed some of those warning signs leading up to the deal and have seen some of the behind the scenes. What questions or things that you think you would have done to better identify some of these issues? Or do you think there was anything you could have done?
I mean, I think in hindsight, yes. There are things that I could have done. The primary thing I could have done was not do the deal. But I would say this. There’s a few different things. Number one, it’s always a red flag if they don’t want you to have any meaningful interactions with their employees. There’s always an excuse around their life. I don’t want them to know that I’m selling because they may not be happy that I’m selling and that could cause problems for you. At least that was kind of the story that was told to me. But that’s always a warning sign. Number two, don’t buy a business that’s declining. Regardless of how much it’s declining, don’t. I mean maybe the COVID environment, maybe there’s a different way of looking at businesses post COVID, but in a pre COVID environment, I think there’s no reason to buy a business that’s declining. That’s a couple of things.
Then there’s another piece here that I think is really important. So I think we all think about customer concentration from the perspective of, “Okay, is this person two percent of sales or five percent of sales or 15% of sales?” Well, there is also relationship concentration. So not just that the customer is two percent or 10% or five percent of your sales, but it’s relationship concentration. So I will give you an example of what I mean. And let’s put the strip club kind of thing to the side for a second. If the owner, essentially his way of maintaining relationships with his customers is by them spending time in the sauna once a week. And all the customers all know each other and they all spend time together and they’re all friends. Yes, each customer may be worth two or three percent of your business. But there’s relationship concentration. And not just relationship concentration from the perspective that the owner’s the one that’s maintaining the relationships, but from the perspective that they all know each other.
So if you can’t replicate exactly how those relationships are being maintained and executed and driven forward, you should walk away from the business fast in my mind. So I would just add an additional line. So, yes. When you pull your spreadsheet out and you have each customer and their percentage of revenue, you should have another column that says, who are the touchpoints to all these customers, each of these customers? When, how and where do those relationships occur and happen and how are they maintained? So, that would be one big thing that I would say you definitely want to do. And to be frank, I think that the search fund model itself, when I look back on it, again this is on me. So when I look back on it, it’s not designed for businesses like mine. My business is not a recurring revenue business. It’s a repeat revenue business. It’s not a business in a massively growing market or a massively growing industry. It’s a business that’s really labor intensive.
So there’s a lot of things that, for the typical searcher, this is not the type of business you want to buy. So I think again, in hindsight, as I think about things and as I’m wiser about things today, those would be some things that I would say, try not to deviate too much from the model. I think obviously with different incentive, you can pursue many different types of businesses. Right? I would say for the typical search investment, things like this are not the types of things that you want to pursue because you end up in a situation in which you are completely reinventing the wheel. And frankly, obviously I’ve learned a lot in the last three years. Last three years have felt like 15 years. But the typical searcher which I am or was is not a pro. You really haven’t run anything. You may think you have, but there’s so many differences between my role as a leader of manufacturing facilities and what I do today in my small business.
I recently tweeted something out saying my time in business school and to a certain extent, my time in corporate America did not prepare me for the journey that I’ve been on as much as my time living in a third world country. That’s kind of more of kind of how to really think about it. And I would say try to avoid businesses for the typical searcher that don’t meet some of those criteria that have been put forth and kind of look for some of the signs. And definitely watch out for relationship concentration.
Would you be willing to dive into any of the other skeletons in the closet that you found in the business and perhaps some warning signs for those? I know there was more than just the stripper strategy.
I am willing to dive into some of that. One of the programs that we have as part of our business, we have a rebate program for customers who spend a certain amount of money with us, pay their bills on time and allow us to manage their entire portfolio of properties or us do work at the entire portfolio of properties. And so, we give them at the end of the year, if they meet those three criteria, we write a check back to them, which is essentially like a cash back rebate to say, “Hey. Thanks for treating us as your primary provider of resurfacing and turn services.”
So I wrote one of these checks or we wrote one of these checks, I signed one of these checks, sent it to one of our customers who met the criteria for getting the rebates. And I got a call from his CFO saying, “Hey. We don’t accept these checks. Do what the prior owner used to do with the checks.” And I started to ask, “What do you mean? What exactly do you mean, what he used to do with the checks?” Well, then he said, “Well, you need to send the check to this other entity.” He gave me kind of the name of the entity that he wanted me to send it to. And so this entity is in New Jersey. This customer is in Houston. Okay, well so what is this entity? He wasn’t giving me any information about the entity and I’m thinking to myself, “Okay. Well, I better try and find out what I’m getting myself into.” Because typically, the customer gets this rebate check and that’s the end of the story and we’re done with it.
And so I start to do a little bit of digging into kind of the prior processes of the ex owner of this business. It turned out that what was happening was the owner of my business was essentially giving that rebate to a third party. And that third party, after I did some investigation, I found out that it was kind of a gambling ring out in New Jersey that was tied to some nefarious activity. So if I had written a check to this entity not knowing exactly who they are, what they are, what’s happening and that comes back on us to say, “Well, yeah. You wrote the check to them,” and start being asked questions, what would I do in that circumstance? So I decided that I was not going to write the check, ended up losing the customer along with a significant portion of our revenue. And that was another thing that just told me about how this business was run. It was kind of the mentality of anything to make the extra dollar. Anything to maintain the relationship. It didn’t really matter. It was making these choices all across the board.
So that’s another story of something that happened on my watch that kind of proceeded to kind of lead to other questions, of finding out other things.
Moving into some closing questions. What class would you teach in college if you could teach about any subject you wanted?
I’ve spent some time thinking about this and I’m not sure if it’s a class but it probably would be independent study. And it’s something that’s akin to, I’m not sure if you’ve seen the show Amazing Race, The Amazing Race, but I would probably create some sort of independent study of something like The Amazing Race where you have an end target that you have to reach or accomplish or a goal that you have to meet. But it’s not given to you how you’re going to accomplish those goals. So I think about my journey here to this point and I think that when I think about all the formalized educational things from my education that I’ve had along the way, the most impact that I’ve had is from the things that have been unexpected. Or the most learning that I’ve got has been from things that have been unexpected. So I think about from growing up in Nigeria in Africa and moving to the United States and then kind of the journey to this point, it’s all been about the unexpected events and the ability to react to those things. It’d probably be The Amazing Race something. Amazing Race Physical, Mental, Social and Relational because I think about the future.
I think the world is continuing to get increasingly complex and I think the past modes of learning are not going to fit in the new world. And a lot of the learning that needs to happen has to happen by people really digging deep and tapping into their level or increasing their grit quotients to a certain extent in order to be able to drive real benefits for whatever they want to accomplish long term in their lives. So I think that’s what it’d be.
I like it. What’s a belief you still hold strong or that you’ve changed your mind on?
Okay. So this one is the idea of enough. So how do we define enough? How do we define contentment? In the past, I think I would have defined contentment when I was 16, 17 moving to the United States, I think I defined enough by saying, “I got here.” Like I mentioned, I mean there’s millions and millions of people that are trying to make it to the United States and are doing all kinds of things, including risking their lives to make it here. I would have thought that that would have been enough. But then, I set a new target of what the new enough is and what drives contentment.
And so I would say enough is not tied for me anymore to a specific goal or success metric. I think my perspective on enough is, am I fulfilling my God given potential? Am I fulfilling what my abilities, the abilities that have been given to me allow me to fulfill? And so that’s how I measure enough. And if I am not doing that, then it’s not enough. So it’s not based on numbers anymore. It’s not based on dollars or being married and having a family or all these other things that people used to attribute what enough is for them. It’s more about, am I living to my full potential, living out my days to my full potential? And if I’m not doing that, then I’ve got to get there. So that would be it.
I like that mindset shift. That’s a good one. What’s the best business you’ve ever seen?
I will talk about one that I saw during my search that now, I wish I bought even though the metrics suggested I shouldn’t have bought it. It’s hair extensions for black women and basically, you need to ask any black women and you will understand that that’s a recession resistant industry. I mean, I have a black wife. So I’m kind of speaking because I know a little bit about this. There is almost no expense that they would not spare to ensure that they have the right look. And I think this is probably women in general, but I can speak. I probably shouldn’t even be speaking in this level of generalities, but I saw a business that did this in Atlanta. It was doing 15 million dollars in revenue but the owner had tax problems. And again, this one was declining. It was declining significantly and he was looking for someone to bail him out from his tax trouble. And obviously the search model is not conducive to that. But the business today is a nine figure business. In many ways, I wish I would have acquired that business.
Another one I would say is Bloomberg. Any business that provides actionable information that allows people to either earn more or save money in a sophisticated way, maybe sophisticated is not the right word, but in a way that you can’t easily find elsewhere, I think it’s a fantastic business. I think that’s another recession resistant business. Those would be a couple.
That’s fantastic. Thank you so much Ayo for sharing your time with us and congratulations on becoming a recent US citizen. That’s also hugely exciting. It’s been great to hear your story on the show and all the different things you’ve had to go through with this business. So thank you for being willing to share them with us but also, thank you for your time. This has been fantastic.
Thank you so much Alex. Thanks for having me.
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Ayo Phillips has the wildest story I’ve ever heard on the podcast.