My guest Mike Botkin has recently acquired a landscaping company in Orlando, FL called B&B Landscaping and has finished his first 30 days in the business. One unique aspect of his deal is he raised his equity entirely through Twitter, which we talk about at the end of the episode. Mike and I discuss why he decided to acquire a landscaping business, what he’s learning from the seller and employees as he’s getting adjusted to being the new owner, building trust with employees and customers, and the roll-up potential of other landscaping companies in his area.
If you’re about to acquire a company and are curious on what your first few weeks are going to be like in the company, this is an episode you have to listen to.
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.
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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.
Thanks for joining us, Mike. First off, congrats for closing on your landscaping business. It’s very exciting. I’d love to hear about that and how you raised your money through Twitter and all that process and how your first 30 days are going. We’re a little over 30 days now, but the first month or so, your business is going to be fun to chat about. I want to first hear about your background and how you got into this and why you decided to go into landscaping.
Yeah, absolutely. Thanks for having me. It’s been a wild ride so far for sure. A little bit about me, born and raised in Orlando, Florida, single mom, two jobs, went to college at the University of South Alabama and the Harvard of Alabama, I like to say half-jokingly. I was super involved in sports my entire life, and growing up, my dream was to be a high school coach and teacher because the benefits of everything that a teacher has of salary and summers off and all that, I thought that was the best in the world. I did that after college and I just found out the education profession wasn’t for me after a few years. The incentives to continue high excellence growth of teaching is just not there and I like to challenge myself.
I left the educational world and ended up going to a startup called Krossover Intelligence based on in New York. I joined shortly after the Series A and we ended up growing the business to about just over 100 employees at the end of Series B. There was an exit to Blue Star Sports which was backed by Jerry Jones and the Dallas Cowboys. In that time going from the educational world to the startup of Krossover, at Krossover, it was very much, “Just get it done,” and I was in the education profession, a very systematic and just being in a, “Get it done” world where one day you’re cold calling, the next day you’re Handling biz-dev issues next day your handle marketing issues. It was very eye opening and very rewarding to see the progress that are made but also the compounding effect of everyone’s efforts of just getting things done and what that did for the company and definitely the space which our company has been reacquired from Microsoft supplier actually today is where its lives.
After Krossover old to Blue Star Sports, I joined a real estate development company in Orlando called Feltrim Group. The core of the company is real estate development where we bought raw land, entitled it, engineered it, master planned it and ended up selling it off to national builders. That’s a great business. It’s unbelievable business. They’re not growing more land, right? The finite amount of land available and the premium pricing you get on that is a really good return.
I ended up joining as the chief operating officer of the business and the primary goal of that was when you’re buying raw land, the outcome sometimes is anywhere from three to five to eight years later depending on national builders when they take you down with lots. What we created inside of that parent company was operating businesses a cashflow. This sounds a little crazy to say now, but a restaurant, a bar and grill, an event business, a resort. We had a full service resort. We had anywhere, depending on if we were buying and selling, 800 to 1,200 properties under management for property management company.
Amongst that, the managers reported to me of each of those businesses and industries, so I got to see a first level view of those industries. We’re talking about the restaurant industry, the hospitality industry, the service industry, the event industry with weddings and business meetings and the dynamics that all those intertwined with, but also the pros and cons of those businesses. One of the benefits as well of being there was being on the buy side of a lot of those investments and going down and looking in industries whether there was something we could purchase and acquire or if there was something we needed to create.
We ended up at the very tail end of my time there going into home service businesses which entailed full service, landscaping, housecleaning, maintenance, all these other sorts of businesses that you can bucket into home services and it really opened my eyes up into what that industry is. That’s what led me to landscaping in a roundabout way.
Once you decided to go into landscaping, what did you do to start looking for businesses to acquire?
Well, let me zoom out just a little bit for this part of the discussion. I don’t have some childhood dream of owning a landscaping business. I don’t know many people that do, but the industry in general, taking away the business that I bought, but the industry in general is super fragmented. I’ve said this on Twitter and it was an aha moment to me. COVID was happening and everything was shut down, especially in Orlando, tourism capital of the world with Disney and SeaWorld and everything else. We shut 80% of our staff down during that time. When you think about the industry that I said we were in, the restaurant industry, the event industry, the resort industry, our real estate company stayed going full functioning and our marketing team and all those people, but the core people we had to shut down.
That was a hard decision, but I’m going to the office a few times a week just to get out of the house and clear some headspace. I started noticing and it became an aha moment where every gas station I passed was just loaded with landscaping businesses. Our landscaping business that we acquired was also full working. They didn’t stop one day because grass grows, especially at that time in the summer. I looked at that and then I stepped back and I looked at the industry and the barrier to entry is, “Do you have a couple thousand bucks and can you get a loan?” That’s why there’s so much fragmentation, but if you look at it in terms of a funnel, you have the public companies for landscaping that do and there’s a big differentiating factor, your landscaping and lawn service are two completely different things.
The bigger companies tend more to be landscaping, especially with commercial and the very bottom of the funnel is Jim and his truck with his buddy maybe driving around and picking up lawns to do service as they can. I looked at the industry, the top and bottom of the funnel and then started looking in the middle of what was going on. There’s a clear difference between the guy in his truck and the guy that had six trucks or eight trucks or 10 trucks, and in large even the people with 10 trucks, they started in landscaping. They were 17, 18 years old. They were working for a guy or they had their own truck and they were going. Everyone acted the same.
It was big number on the side of their truck, if they even had anything on the side of their truck and you call. Maybe the answer and maybe they don’t. Their websites were very outdated if they had one. If you called and by the luck of your pants, someone actually answered, it was, “Yeah, let me get back to you in like a week.” I looked at the industry as … Someone put this on Twitter and it summarizes what I’m saying pretty well, “Go to a space where you’re not competing with MBAs and Stanford grads,” and there’s no disrespect to the landscaping industry, but there’s not many MBAs and Stanford grads in this industry.
That is what on the overview side led me into the landscaping industry. I get that question a ton, “Why are you leaving real estate where you are at as a CEO of this big company and going into landscaping?” and it’s, “Have you ever looked at landscaping because that’s right for the taking in a lot of ways? It’s very geo heavy, geo restraints because you have trucks. Unless you’re expanding and acquiring other areas, you can’t go to those areas just because it doesn’t make sense, but it’s still a good business because of the fragmentation.” I look at that as a positive or a lot of people look at it as a negative.
The biggest negative by far that I found in this industry, Alex, was the pricing factor. In the last 30 years pricing to do basic lawn service on your home has not changed at all, various levels, plus or minus. If it costs $100 to cut your yard in 2000. It cost $100 bucks to cut your yard today, maybe $105 if we’re lucky. The reason of that is the fragmentation. The customer acquisition costs is vital to growing your business. Another outlet that we’re looking to grow the business and which is another reason I’m jumping into landscaping was the acquisition of other businesses is the best way to acquire customers and our core belief. You’re taking a lot of the second tier funnel people that have three trucks, four trucks, five trucks and acquiring them and bringing their customers and then you start expanding your geographic touch and your wheel pegs going out in different directions.
Within your first 30 days in the business and probably a little bit more at this point, you’ve talked about having opportunities to begin acquiring these companies. Did that come a little faster than you perhaps expected?
Yeah, absolutely. Within the first week that I bought this business and this business has been around since 1975, it was extremely well known in the area. It does all the prominent businesses, right? The banks, the retail chains, the Starbucks, the Verizons, all the big name brand, the bank president’s house, so it’s very well known. The guy who sold, it was unexpected to the outside world and he’s 60-years-old who wants to take some chips off the table, wants to go fishing, very owner-operated dominated industry. When people found out he sold and it was to a younger guy like myself, 31 years old, I got a call instantly, “Do you want to buy my business? What’d you pay for this business?” which obviously is an interesting question to ask someone.
I got that. Second week, got another call. The third week was Christmas. I did not get a call. The fourth week was the first week of January, I got a call. You’re talking within the first couple of weeks, I’ve already gotten calls about buying other people’s businesses and we got to wait for the right ball to come before we swing, but we are going to be extremely aggressive and swinging at the right pitch. That’s our method of growth as of today.
You obviously looked at several businesses before buying this one. What made you decide to get this one?
There’s no shortage of landscape businesses for sale. You can go out any of the public sites and find 100 of them yourself. The factors that led me to this one was the longevity that it’s been around, the quality of service that it has. I looked at that in the form of, when I was going in due diligence and pulling the contracts, their clients in this business that have been here since the ’80s. I wasn’t born in the ’80s and there’s clients that have been here since the ’80s. That was unbelievable to me. The customer loyalty is very high here and the level of commercial clients.
When you talk about banks, or a Starbucks or the grocer down here, Publix, when you talk about those as being your clients, it means something because, a, they’re very price conscious because the competition. Someone can undercut you very easily in this industry. They get solicited all the time. The fact that this business was able to have those customers and keep those customers meant the service level was good and the reputation means something and that’s what drew me to the business, was a reputation first and foremost.
I remember before we’ve talked about the reputation of this business and then the owner in particular, can you describe the owner a little bit and how he interacted with the company and then the community around him?
Yeah, there’s challenges to this of what I’m going to say, but it’s also what built this business and built the reputation that it has. The original owner who started in 1975 passed away unexpectedly in 2000. Went to the doctor in the morning and then passed away that night. The seller that I bought it from started working with him when he was a kid and became the general manager in the ’90s and all the way through and then took over when the original owner died. There’s a level of trust when you’ve seen someone at your property or in your town for 34 years doing your property. Some of the challenges that I spoke about just a second ago that I’m facing as a new owner were the things that made him great in the sense of just handshake deals, knowing exactly what they wanted their property, when they wanted and those human efforts that coming from the COO of a real estate development company, I didn’t have a ton of those.
It’s refreshing to see that deals can be done still like that and people trust people like that very, very day-to-day operated business with him. There was a level of a comment that he made that I thought was so true was, we were riding the truck in the first two weeks and he told me this, “When the original owner died and I was the general manager, I never filled the owner role. I stayed as a general manager in all aspects of the business without knowing it.” I thought that was great self-reflection and it was so true. It made the service great. They kept the reputation good, but the business side and the backend and the growth levels that owners go through of pushing forward or not were not there. That’s part of the challenge of what I’m walking to but also opportunistic. I’m excited about it, but it also makes you going to lose sleep at night as well.
When you were riding around with the owner in those first two weeks, how did you get a sense for what this person’s role was in the company? Can you fill it? What things are you really going to have to learn in order to take over this business properly?
Every owner during due diligence and selling it downplays their role, “Yeah, I’m never there. I’m hunting and fishing all day. This is easy. You can walk in and do this.” Acquiring a landscaping business before on a previous company, I knew there was some BS to that. I also knew some of it was true because it’s close enough to where my previous office was that I spied on these guys a little bit before pulling the trigger. I thought I knew it all, but I walked in the first day, and when he told the guys, he started crying. I was like, “Oh, man, this guy’s not as absent as I thought he was. He’s very into this business.”
I learned that, and every day that went on, I learned it more and more. It’s because he liked. There was this passion. He’s done it since he was 15 years old. It’s a challenge that I have to overcome, but you also have to know where your strengths lie and where your weaknesses are. My strength is not where his were, so I have to be able to read the room and read the guys and read the situation and determine, “Can anyone currently here fill that role of a ‘general manager’ or some of those services that he does?” but it’s also benefiting me in the sense that I’m getting back to boots on the ground and filling a lot of that void today while I’m learning the crew and the guys because our goal with this is to expand.
It’s good for me to see what happens on a day-to-day basis and not just sitting in the office and playing with models and looking at different companies, but this initial stage of working in the business just as much as working on the business. I wouldn’t have said that prior to buying the business, but it’s a reality. It’s one of the curveballs that comes up with small businesses. You walk in with a list of 100 things to do and every day something takes your list back because you’re dealing with humans, you’re dealing with real problems, you’re dealing with a guy has to miss a day because he has to take his kid into school. Well, I didn’t model someone missing the second day because they have to take their kid to school. You have to understand the human element to it and you will adjust accordingly. Things don’t adjust to you. I quickly learned.
How did you adjust to the way he ran the actual operations of the business? Because you said that, as the general manager role, the actual quality of the business was really good, they did good work, their customers like them, lots of loyalty there. What was this company doing prior to buying that they were doing right in that regard?
I’m not going to say the word micromanaging the guys, but it was very micromanaging the guys of how to do things, but he built … There are six trucks and there’s four main supervisors. Two of them were with him 15 plus years. They learned everything about him. Now while I say all that on the flipside which is a benefit of my strengths being that they are being very systematic and being very process oriented, unbelievable at the service, but there is no job list. There is no work order process. There was no extra service process. It was a guy on the crew or the crew supervisor remembering that he fixed a sprinkler head and then telling the boss and then the boss has to remember to bill that client and then the boss has remembered to collect the money from the client.
There was too many unknown variables or things that could slip up in that process. It’s been a wild ride of blending that high quality of service with process. Quite frankly, letting those supervisors know like, “My strength is not this. You know how to add, your you know how to reduce someone’s plans, you know how to do hardscaping a lot better than I ever will and I’ve never researched, but here’s what I do know. I know I can make you more efficient by adjusting your route. I know I can make them more efficient by sourcing things better and getting them to you quicker and getting you the right resources and adjusting timelines better. It’s not just, ‘Hey, on your route, don’t forget to swing by and do this.’ You do it with excellence, but let’s have a process of why we’re doing it and when we’re doing it.”
I think that’s helped a ton with the guys is me, a, admitting what my weaknesses are which is hard for them because they’ve been with someone that their strength is a complete opposite of mine, so that’s what they’ve always leaned on, but they’re slowly seeing the impact of processes and systematic changes that are going on in the business and how that affects them. It wasn’t an easy transition even though it’s only been a short time, but they are starting to see the benefits of that.
Can you talk more about some of the system and business debt that you saw in the company when you first got there and how the operation side was good, but there were some shortcomings on the business side that needed to be shored up.
It’s almost easier to say there’s nothing there than saying what you don’t want to spot. One of the key things, I put this on Twitter and I got some reaction on it, when I was doing due diligence, I was walking through the warehouse and seeing everything. I see the phone on the desk in the office and you just keep walking because it’s a phone and I know there’s a phone number. Well, the first day I was there, it’s not a phone, it’s a fax machine. I was like, “Where’s the phone in here? I need to make a call. I just want to see the monitor and the volume of calls and start tracking this.” It wasn’t it. It’s a fax machine. I had an answering machine.
Just think about the number one way in this industry customer find you and you book business and you grow the business is a phone call. Obviously, people are trying to change it with the emails and signups and all that, but it’s a phone call. This business did not have a phone. It had an answering machine. The owners respond back when I asked, “I see you’re not in the office all day. How do you get the phone?” He’s like, “I just check it every couple days, the answering machine.” Customer had to call you. They had to find your number somewhere, which are funny side quick story about that is on one of the trucks, there was no area code because 30 years ago, you didn’t need an area code.
That’s how outdated this was, but they had to find your phone number, call you, want to leave a voicemail, which Alex and I are roughly the same age, I don’t know how many times we leave voicemails, you had to check the voicemail, call them back if they left you their phone number and then book the client and go through all that process. It was an awful, awful, painstaking process to get a client, yet this business was going almost a million dollars a year by not having an area code on the side of their truck and didn’t have a phone. It was strictly based off reputation service. Customers really went out of their way to find this business to book them and the idea for me is, “Well, now let’s go pick up all that low-hanging fruit. Let’s go out and actively be aggressive in getting these clients. A phone is helpful.”
That was one of the first things I did was put a phone, but everything was a work order process, the clocking in and out of time cards and I know this sounds maybe rudimentary, but they would come in and just like, “Hey, yeah, I’m here at 7:00 and I’m leaving at 3:30,” and again someone has to remember that or write it down like on a little notepad. Putting in a new payroll system where you have to physically put your fingerprint in and clock in and clock out, a, that holds your employees accountable, b, it pays them fair wages for what they work and it also makes us more efficient, so we’re not overpaying people.
It’s one of those things that in the beginning the employees really take that like, “Oh, you don’t trust us? Why are we doing this? I’ve never done this before. I just told the guy what my hours were.” I’d go, “Okay, that’s definitely a way to do it. That’s not going to be this way to do it. We manage our money here and we’re going to manage our money. I will pay you for every hour you ever work in this business, regular time or overtime, but it will be monitored. This is the way we’re doing it.” They slowly start to come around to it. I wasn’t being disrespectful when I said they did nothing, but from my stance and my role coming in, it’s a complete overhaul really.
Those are some of the ideas that you added to the business. What were some that they told you about the business that they think could be improved?
It’s easy to see when I walked in that I’m not a lifelong landscaping guy. Those guys can sniff this out super quick and they clearly sniffed me out. The longest tenured crew supervisor there I felt like has a shot and improve the company and move up in the company and put together and all these sort of things, but I needed them to get to know me more than, I’m going to call it a boss level relationship. The first Saturday, I jumped in the truck with them, with this crew and I told the seller we’re still in our transition. I said, “Hey, stay home today. I’m jumping the truck with the guys.” I told him, “Treat me like it is my first day.”
I was picking up trash. I was throwing mulch down, doing rock, all those sort of things. They started asking me personal questions like, “Where are you from? What’s your family like?” and I started asking them personal questions and getting to know each other. I asked the question, “What would you do differently here? What can improve this business?” and the supervisor, a pretty squared away guy, said, “I care about this business. I love this business. I love the previous seller. I’ve been here almost 20 years, but it’s tough when you have a couple kids and I’m not getting paid any extra if I bring on clients or not. I’ve brought on clients before. It just makes me not want to do it because the effort it takes.”
“Okay, fair point, rightfully, if you bring on a customer in my world, you should get paid for that. The company is going to benefit, you’re going to benefit. We instantly put in a commission program for the supervisors to start of commission for new clients. If a neighbor sees that you’re doing a good job in your quality of service, listen, they know you more than they know me. If a client joins us because of your work, then there should be a level of reward for that. I immediately put that in. Then one of the other things, just the financial reward that’s hard in this industry is finding good health and good talent because of the price point you’re at in a lot of regards. We instituted an employee referral fee. It’s $150 bucks if you refer an employee and they stick out for 30 days with us.
Two days later, we had an employee referred, interviewed and hired a week later and the guy that referred him takes him under his wing and shows him the ropes and guides him so to speak and mentorship him. It’s just little things like that that don’t mean a ton in the grand scheme of things in the sense of the idea of it, paying someone $150 bucks for an employee, but the effect that it has long lasting, they’re going to mentor that employee. They’re going to make sure the right people show up in this business. They’re going to make sure they get the client next door because, hey, they’re also going to get a couple more bucks in their pocket. Doing those sorts of things I think will make this company grow quicker even on what’s planned.
Is there anything that the previous owner did to make sure that the quality of work done with customers was good? Did he have some training program? Was there an incentive thing that he did or is there something that you’re going to carry on to help continue that?
Nothing systematics that was done. A lot of the client relations part of this business in the previous seller’s world was done by his cellphone or just by seeing them at the local grocery store, “Hey, how do you do? How are our guys?” and him driving to every single property within a two-week span. You’re talking over 300 properties that this guy has to drive with plus all add-on services or landscaping jobs that he oversees internally. There wasn’t anything previously for that. Moving forward obviously, keeping that line of communication open early is crucial but also sending notifications to the clients when we’re leaving the job.
I’m going to use you as an example, “Alex just finished a service at your house. Can you give a thumbs up if pleased with the service? If not, please let us know and we can fix it,” and building in that automation tool to send that notification after every time a job is complete. Our supervisors are aware of this obviously, but it’s making sure that everyone’s accountable through the customers’ eyes because that’s the only performance matters in a lot of ways. I tell the guys, “Landscaping is a funny business because your performance is so binary. It’s one or zero. It’s you did the job or you didn’t. There’s no half job of this. If you did it half, you didn’t do it. It’s so visible. It’s the first thing people notice when they pull up to a house. Do a good job.”
One of my comments to especially the supervisors is, “Take care of the properties, take care of the trucks and I’ll take care of you and I’ll take care of this business.” I’m hoping that means something to them because it means a lot to me. I’m hoping moving forward that really holds true with them.
I’m curious one thing that first time acquirers are a little nervous of is making sure that clients will accept them as the new owner when the previous owner had all the relationships. I’m curious in your case, did you have any customer stop their service with you because you became the owner instead of the old owner?
To answer your question, no, but I was very, very conscious of this, a, in this industry, anytime you buy a landscaping business, because the contracts are the way they are with the fragmentation, you’re always very nervous of clients fleeing and go back to a comment I said, they know the guy in the truck who cuts your lawn a lot more than they know me or they know the general previous seller, “My previous seller is very different because he was so hands on.” This comment I’m going to make shows why the quality of service is so high. He cares so much about the business and so much about the name and the community that he has went above and beyond even what our contractual agreement of assisting me in the transition was and making sure I met the key customers and making sure I had coffee with the bank president to make sure that we have 15 banks that we do.
I had coffee with a bank president to make sure there was a smooth transition. It was all orchestrated by the previous seller. I was definitely fearful. I even modeled 70% of turnover initially in the first 60 days. Thankfully, we’re nowhere near that. We’ve only had two people dropping because they moved out of state and I’m trying to take the people that have moved back in their home. No one has blatantly left and the seller has been awesome. Again, that reputation the business has been so much more than what … They don’t know me from Joe and the previous hour leaving. They’re really believing in the reputation of the business, the quality of service they’ve had for 20 years some and the guys that are around the field performing the job.
What questions did the customers have for you when you told them that you were the new owner or did they just say, “Okay, sounds good”?
Some, yeah. Well, I’m dealing with change on our employee sides, our internal side with new processes, new systems. While I believe in them wholeheartedly, and I know it’s going to improve us sometimes, whereas I discussed previously, the employees aren’t so sure. Well, there’s also change on the customer side because the previous seller would mail their invoice. Think about this, it’s time for Alex to pay his invoice. Me the accountant or person doing the billing prints your invoice, writes it or prints it, puts it in an envelope, stamps it, goes to the post office, mails it. You get the mail. We’re only accepting checks previously. Alex has to see his invoice. Remember to pay it because I know you’re going to stick it in your drawer or on your fridge or wherever you stick it and then also write the check, envelope it, stamp it, go to the post office, mail it. I got to get it back.
We’re going on anywhere from the earliest five days, the latest 45 days of payments being out in for cash-flowing business like this. That was awful. It’s one of the very, very first things that I needed to change with very high priority. The conversations with customers somewhere beyond happy, “You’re going to get an email invoice and you can pay online. You never have to write another check in your life to us.” Others are like, “Well, I like writing checks. I like going to the post office because I’m 65 years old, 75 years old. That’s part of my day is I go to the post office and that’s what I like to do.” Getting all the customers over is harder than what I imagined because I’m dealing with people that have done it only one way for 20 years, 15 years, 10 years. The demographic of the customer is a little older. It’s just different change for them.
I fought some resistance on that, but in terms of the service, the question was, “Is the same guys cutting my yard the same day and the same time?” “Yes, ma’am. Yes, ma’am. Yes, ma’am.” “Great. I hope I never see you.” “Okay. All right.” That was pretty much the conversations with the customers and the painstaking moments of trying to transition in from checks to online payments, a, easy for them, but, b, the cashflow management in this business is crucial. In this business, if anyone’s ever going to get into, I’d say it comes down to labor costs, fuel costs, route density and that is beyond crucial and then your cashflow and how long your cash is out and not. I have to shore those three items pretty quickly.
If the previous owner only accepted checks, what methods do you accept now and why?
Believe or not, we do accept all forms of payments, credit cards, ACA chain, cash although I do not like cash. I do not like the cash being handed over multiple times. Listen, as simple as something like QuickBooks has made life a lot easier than what it was for the previous seller. Again, this is more about efficiency and streamlining everything. Again, customer adoption to it is slow, but we’re getting there towards 100% of customers potentially one-day paying all credit cards [inaudible] invoice. Then I want my complaint to be, “We’re paying too much in credit card processing fees,” versus, “I have to go to the post office and pick up 250 checks.”
Certainly, and to the point about the credit card fees, if it means if you pay 3% credit card fee, but you get cash 45 days earlier than you probably would otherwise or even 30 or 20 days, that’s going to be pretty significant. Have you seen any trickle down effects from having cash earlier in the conversion cycle than you did previously? Have you seen some operational benefit or just a little bit more headroom? What does that look like on a day-to-day basis?
Good question. I haven’t seen the full fruit of it yet just because we were so well prepared for it, the first 90 days what it’ll look like. We were well equipped to handle all needs of capital, but I’ve moved invoicing dates up so the previous seller was invoicing on the last day of the month for that previous month’s service. When you really look at it, go back to what I said, anywhere from five days to 45 days, the previous seller was floating service of that customer for 35 to 75 days sometimes a free service. I’ve incrementally moved the invoice dates up to the 15th of the month. We’re fronting you two weeks. You’re up paying two weeks. There will be a day come where we’re invoicing on the first of the month where we’re actually going to provide the service versus billing in arrears.
I haven’t seen on a day-to-day basis the fruit of moving invoice dates and doing credit card processing up yet, but there’s a substantial number of customers that have paid ahead of time with what they normally are. We are tracking the age of what accounts are and when they paid previously and when they’re paying now. We are definitely seeing an uptick in that. It’s one of those, yes, the 3% suck sometimes, but right now, I’ll pay that 3% 100 out of 100 times to get our cash flow stabilized and get customer adoption on a good customer behavior to a certain level.
Yeah, certainly. That’s going to be a fun discussion as you keep going in your business. I want to ask you about Twitter though because you mentioned that you raised the entire equity installment all from Twitter. The equity deal portion of buying this business, you raised entirely from Twitter. Can you talk a little bit about that experience?
I did. I pinched myself all the time thinking about it because five years ago, no one ever would have thought to raise money on a social media platform, at least in my role. I had the idea, I found the business, talked to the broker about it, went through a little bit of due diligence and put the deck together. Listen, man, I grew up dirt poor. I don’t have friends and family that have a ton of money laying around to invest. Again, I’m 31, so the people I grew up with are just now getting into the fruits of their careers. Capital just wasn’t easily attainable from other people other than myself, being just lucky and landing the job that I landed.
I had that outside capital and I did not want to go SBA for a very specific reason. I got asked this a ton. Being the first acquisition and the goal of this, listen, there’s a short-term goal, a long-term goal. The short-term goal was to acquire a good business and stabilize it and grow. The long-term goal was to be in an industry where acquisition of other companies within that industry are easily attainable and performing a whole company. Think of all the things I’ve talked about landscape businesses need, it fits nicely under a whole company, a whole code that can do those sorts of things or a parent company.
Jumping back to the Twitter, I sent it to a guy named Nick Huber, who’s Sweaty Startup. He’s becoming very famous on Twitter for some of his posts and the comments he has, but his brothers in landscaping. He made a post one night about his brother and I sent it to him and I’m like, “Hey, Nick,” and Nick and I followed each other. We spoke before because we’re both in real estate. I sent it to him and he looked at it. He’s like, “That’s an unbelievable business. Where are you at with it?” I said, “Nowhere. I can’t raise a capital for it.” I looked at SBA as a transactional partner not as a partner to have in the business and to help me grow and get to a long-term goal.
SBA would be great on the second deal, not the first deal for me because what I needed to call someone to talk about payment processes or structures, the SBA is not going to pick up the phone. They’re going to say, “Is it February 1st yet? We need our loan payment back,” whereas a true investor would pick up that call and jam with me and talk things through, talk me off the ledge if I needed to. Nick really encouraged me to post it on Twitter. My follower account was not 30,000, 40,000, 50,000 I had a couple 1000 followers and all majority from the real estate world. He encouraged me to post on Twitter and I thought he was nuts.
I’m lying in bed one night and I just posed, “Hey, found this business. Really interesting. Here’s what I would do, ABC. Here’s the pros. Here’s the cons.” I put my phone down and I’m lying in bed with my wife and my phone just blown on, buzzing, buzzing, buzzing. The result of that thread was about 350 people reaching out through direct message. I made an effort to get their emails or contact every single one of them. It ended up being at the end of it about 25 real multiple conversations with people going very in depth, just like a normal financial or capital raise would be the real estate world or development world, it became very similar for this.
Within 45 days of that post, I had all capital that I needed raised and the investors JD Ross from Opendoor and I couldn’t have asked for a better investor, better partner. He’s a hyper growth guy. He is forward thinking and he’s pushing limits. He’s very aggressive. That’s something that I highly value and respect and couldn’t be happier to have him as a partner.
Certainly. Can you describe a little more about the types of people you heard from? Because if I remember from our previous discussions, they weren’t followers of yours, for the most part.
Absolutely. They were not. I had guys that were private equity guys, that were hedge fund guys, that were analysts at very prominent venture capital firms. You’re talking this Sequoias of the world, high net worth individuals, guys that were in the different industry and they own their own business and made some money and had some to spare. Lawyers, quite a few lawyers reached out. My post very distinctively talk about landscaping. I just put it all out there. To get PE guys and VC guys and hedge fund analyst and the children of guys that are worth 20 billion reaching out was just shocking to me. “This cannot be where your deal flow is coming from, is my post on Twitter. You don’t even follow me.”
It gained a lot of traction and the comment I got back when going into the deeper conversation and showing my models and showing with a plan is long term of rolling up these landscaping businesses as well as a short-term of proving I can do this. It became apparent that good deals are hard to find, but backing the right plan and the right industry when they took a second to be openminded to landscaping business, they made a lot of sense to a lot of people. Then it just came down to risk tolerance for the money required to invest versus not. Did they believe in me really because you’re backing me more than the idea sometimes?”
Very good reception. I was very pleased with. It’s shocking. I still talk to a lot of them today. I probably left a lot of money on the table and the raise and maybe it was the inexperience of the raise for this industry. A lot of investors wanted to come in at different levels. A, I didn’t want to take on … In my mindset, I don’t want to take on more money than what’s needed because it’s the first one and I need to see how this goes. I also didn’t want to be handcuffed by someone wanting to have an hour-long conversation every three days because they put their last bit of money available into this business. I needed room to work and room to implement these ideas. I knew it would take some time to do that, so I needed someone that had blind trust really because of COVID identity, anyone face to face, believe in a model, believe in the idea, but also give me room to work and believe in the bigger picture.
If we’re successful, which I firmly believe obviously by putting my own stuff into it and putting my own neck on the line, then we’re going to grow and we’re going to prosper this accordingly. That’s how I looked at it. I think I left money on the table and it’s positively because it’s not what was needed and the raise was what was needed, but in the traditional capital raise world versus raise as much money as possible and be oversubscribed, I felt like that would have been a negative.
Certainly. How do you plan on using Twitter in the future in regards to capital specifically?
Going back, the long-term goal of stabilizing this business and becoming a holding company for future landscaping and other home service businesses, we’re not blocking yourself out of other businesses like HVAC and plumbing and pool service. I know you’ve had a lot of great guests on. Collin Hathaway is one, Rich Jordan and other. I definitely admire those guys, but using the network effect that Twitter has, think about this, a guy that posted about landscaping ended up getting inquiries from all realms of the finance world and investing world to back this idea and back this person. The ability that we have to raise more money is going to be strictly based on the success we have in the first venture. It goes into the mindset again of why I didn’t take on more investors when I probably could have is because myself and JD are very focused on proving to be a success and then being able to go raise further if needed, whether that’s through SBA or through private outreach on Twitter to succeed in our long-term goal of rolling up other landscaping businesses.
I would definitely use Twitter again. The outreach is growing. I think being active on Twitter, it’s not, “Oh, you’re on social media all day. You’re building a brand,” which I hate that word as much as anything, but you are building a brand. It only helps, but none of that matters if I can’t prove success of this first business.
Moving into some closing questions. What class would you teach in college if you could teach about any subject you wanted?
Yeah, I told you’re going to hate me for this, but I’m going to hijack it and I would not teach a class in college, but as a former educator, I can do this to you, I would teach a class in high school how to get rich without going to college. I believe in college. I believe what it stands for. If you had a plan and a path of going to college and a way to pay for it, you should go to college and it’s an unbelievable life experience. I went to college, could not afford college and ended up having to play poker to supplement college. I don’t know if it was needed or not.
It’s a tragedy that I looked at it that way, but I think there’s other people and I don’t think college is for everyone. I have friends that are in investment banking today that other friends or people we know that our plumbers or our landscapers or our roofers make way more money than the guys that are in the investment banking world. Obviously, there’s opposite ends of the spectrum there, but the gist of the class would be, “Find what you’re good at and can make money on and don’t go into debt. There are other paths. While they are unsexy, there are other paths where you can make a good living for yourself and don’t be forced into this one hole.”
I like that class. That’s be really fun.
It would be the most popular class in school I guarantee you.
It definitely would be. Absolutely. You mentioned poker there, I realized you never talked about poker. Are there some lessons from playing poker that you’ve started to apply to that business or just working with people?
100%. I started in the mid-2000s much like everyone on the online poker, the 5¢, 10¢ online games and then gradually grew out of it. At the end, pretty recent before COVID, I was playing in private rooms with guys you see on ESPN and quasi-famous people. The discipline that poker taught me of reading people, reading situations, your risk tolerance, your betting size is much like your investment size and the patterns that that holds. In today’s business that I have, the ability to read the room and just shut up and listen is so impactful for me that I really learned and honed in poker. The guy that talks most at a table is not normally the best player at the table and the most successful player, so shut up and listen and watch.
Being able to do that in this business has helped a ton. I credit majority of that to my poker life sort of speak of being disciplined and understanding risk-reward and how to read people for sure.
Did you have any mentors in poker or did you just learn for yourself with books and YouTube and whatnot?
A lot of early losses taught me a lot of lessons, man. Thankfully, we’re at the 5¢, 10¢ stage and I didn’t need the money. I was playing more for fun. As I gradually got older and needed it to pay for college and supplement my lifestyle as a teacher, I got more serious into, doing all the things that curious people do, reading the books, going on YouTube, watching the shows on ESPN and I correlate this part to basketball or sports or football, fans watch the game for entertainment. Coaches, players, scouts, they watch the game to learn and to pick things up. I would watch those things, right?
I’m watching ESPN and I’m seeing where their hand motions are, where their chips are set, how they put their cards away, all the little nuances that can make you successful poker player or at least remove the risk. I have a really big investment philosophy and there’s also a sports philosophy as a coach and a poker philosophy. There’s a million books that tell you how to succeed. All these books, I tell you how to win in business, how to win in life, in every story, there’s always a variable reasons why you fail, but there’s always a few core reasons on why you fail in anything.
For me, what taught me was whatever you’re doing, find out what causes failure the most, whatever failure means to you in that particular thing you’re doing in life and do everything you can to be opposite of that. What you’re left with is, if you remove everything that causes you to fail, the only thing you’re left with is then you must win. I play defense to a degree by removing things that make you lose, cashflow management being awful, high customer acquisition cost, bad people skills. If you’re good at those things that remove reasons why businesses fail, underpricing, then the only alternative is we win in or we’re successful. Poker definitely taught me that, studying the game taught me that and I’m hopefully translating that over.
That’s wonderful. I need to get better at poker. I’m hoping you can teach me a little bit over time.
I don’t know how good of a teacher. I’ll definitely try. I’ll definitely try.
There’s got to be something I can learn from you. What’s a belief you use to hold fairly strongly that you’ve changed your mind on?
Again, I think this ties back to my coaching days in a previous life and I took it right to business of hire the most talented people and they’ll figure it out. I made a lot of mistakes, I think, in retrospect of just hiring the most talented people. I killed at the time, but I believe in that philosophy still to this day, but I would change it just a little bit. You have to hire the most talented people you can find, but you have to do a good job or I have to do a good job of guiding them still and putting them in the right situation, the right resources. That healthy person will explode the roof and take you somewhere you’ve never thought that position can take you.
Previously, I was hire the most talented person and just be blind about everything else. Take all the negatives. They’ll figure it out. They’re talented. Let them do what talented people do. Whereas now, I’m hire the most talented people you can, but you still have to guide, you still have to put them in position to succeed.
I like that. What’s the best business you’ve ever seen?
I thought about this. I knew you were going to ask this and I’ve thought about this. I struggled with it on the investor side because I was so real estate heavy in it. I’m going to hijack this question again to you and you’re going to kill me, but I’m actually going to go with a very popular business that I hate. I cannot stand this business I’m about to say. It’s the property management business of real estate. A lot of people are getting into the business and it’s very, on the outside, very popular because, “I’m a landlord essentially and I’m collecting a check once a month and I’m passing a big part of the check over to the owner, but I’m keeping fees. I’m going to make money in fees.”
I think that business is awful. I was in it. I was the COO of one that had buying and selling years, anywhere from 800 to 1,200 units, ranging from $600 condos in bad parts of towns to $15,000 a month mansions in the best part of towns of Orlando. I was on all ends of the spectrum. You have multiple people to answer to. You have a tenant that wants everything the cheapest, the quickest and it’s not their fault ever. You have an owner that wants everything the cheapest on his expense side, but he wants you to get the most rent possible. There’s never a reason why his property should send a day open ever, no matter what’s going. The day someone moves out, you should have someone in there. It’s just a very bad marketplace, I think.
A ton of people are getting into it and I’m very vocal about it on Twitter, “Do not do it, do not do it, do not do it.” I understand the benefits at scale. Obviously, collecting fees for just being there and collecting a check is great, but generally, those are the worst type of property managers. You have to be very involved and all you’re doing on the financial side is passing the bill over. You’re really not making any more money on a given month. No matter how great you are, you’re never going to get $1 more than that fee. If you’re bad, then obviously all the things that come with being a bad property manager exists. I hate that business when I was in that business. I’m sorry to hijack the last question but do not get in the property management business. I beg you.
Go for it. That’s a great place to stop because we haven’t talked about property management in this podcast yet. Maybe you’ll be the one to give it a slam one of these days, but thank you so much, Mike for joining. It’s been really fun to hear about your first few weeks in the business and raising your investment off Twitter and all that stuff. I’m so excited to watch it go through and I’m excited that you got to share a little bit today.
Absolutely. Thanks, Alex. I do have to say I learned a ton from your previous guests. I need to give a shout out to some of them. The Aspen Creek Landscaping gentlemen and Collin Hathaway and Trish from Chenmark. I definitely listened quietly or respectfully to some of those episodes when I was going through due diligence of my business. Definitely shout out to you and your previous guests because they’re very insightful.
They’re very insightful people. That’s a great grip. I love having folks like that on and I’m excited for you to join that landscaping group on the podcast.