E139: Krystof Bartos Shares His Journey From Financial Advisory And Real Estate To The World Of M&A

[00:00:00] Ronald Skelton: Welcome to the How2Exit Podcast. Today I'm here with Krystof Bartos. He is a m and a investor, and, been doing this for a few years now. I'm looking forward to having a conversation with you and learning what you're doing, what you've done, what you've learned, kind of lesson learned, and, thank you for being on the show.

[00:00:15] Krystof Bartos: Yeah, thanks for having me. Super excited to talk. The best subject on the planet, right? So let's keep rolling. 

[00:00:21] Ronald Skelton: It's funny as I, I was working on a book a long time ago and I kind of halfway made it through it and then I switched into this. I might fire it back up and use, it was about real estate mostly. 

[00:00:30] The subject line fits the same there, and it's called Get Rich Quick, My Ass. And it was the name of the book. So it was about real estate and all that. There's a lot to learn and a lot to do, and it's not just a quick and easy type of thing. I think it applies to this industry too. Maybe I'll fire it back up, add a few chapters to it about this and release it about just business in general.

[00:00:47] Let's start with, kind of your origin story, man. I always joke on here and say, Hey, you were born then you ended up on a show about mergers and acquisitions. Can you tell me about the gap in between there? So, who are you, how did you get into this space? And we'll just start there. 

[00:01:00] Krystof Bartos: I'm glad that we scheduled 20 hours. So, quick story short. So basically I was interested in investment and business after high school. I have not went to college. Here in Czech Republic that's where I'm originally from. Then before Covid, I was a lot in the US. Now I'm finally able to travel back.

[00:01:17] I am kind of like global citizen I guess. But now I have all the businesses in the US. I exit last business here in Czech. So just to, give a perspective on the location as well, and started as a, in a financial advisor business, like basically selling and stuff. Then hate it, hate how it was done. So exit. And yeah, went to real estate as well. So I would say like before M and A, it was like a lot of tests, trials, errors, and just like gaining street smile mark, so to speak. And kind of like 10 years ago, topic necessary right now after him being a president. But I read the Donald Trump book. Art of the Deal, right?

[00:01:58] When he was still famous. And I kind of grasped something. Not about buying the,the skyscrapers and stuff, but I was like, Hey, New York and US, that's interesting. And I was always like, where's the biggest gain for the,like working smart? So that why that starts the, I want to do a business in the US. Try multiple things, been successful, failed a couple of times, and stuff like that. So that leads me to focusing on the US. Also in the meantime doing, working, starting some businesses. I kind of realized like I am much better working with something that already exists, than started from scratch. Our exit one deal that wasn't true.

[00:02:38] So I should change my limiting beliefs as well. But it was something like, it's probably at some point financial market owe all the investment assets that kind of imagine. And in the, in a stock market, I was like able to look into the companies and see what's working, what's not, and decision and felt like I'm good on that. And if you have the resources, some resources that you can leverage to go to the next level, it's always easier. But some people enjoy starting the businesses, right? Or starting from scratch. I kind of like it, but I think there are people that are much better like a startup artist than I am. Which leads also to, me liking the numbers when I was in real estate was about numbers and finances. Financial markets, it was about numbers.

[00:03:26] Now on the m and a side, I'm more like on the finance number side. Even though I was in the sales and have done marketing for my own businesses. So for me it's like all over the place, literally. From real estate to financial markets to this. But,actually it happened that I end up on my first course, in m and a was I was looking to start business in the US. And it was turning the small homes into assisted living homes, right? And I went to US and have done research location and stuff. I returned back and I was like, why I'm still trying to start everything from scratch? When I don't feel it's great. 

[00:04:06] I was like, can I buy a business? Like I am not, I don't know, maybe. And I Google it out, find some person and start learning that. So that's the gap between I get to do, introduce to it and it kind of fit nicely into me being interested in business, have the financial background, because most small business owners, that's not their strength, to be honest. And also the creativity of it. When you're trading stocks, you just, and stuff like that. So it was back and be able to, to add some value. And then it started the journey and that's another 10 minutes me talking about what happened during that time. But that should give a background at least. I hope so. 

[00:04:49] Ronald Skelton: Yeah. Yeah. So what was it like? I mean, was it a culture shock? You were born in Czech Republic and then, now you're here. Like the business done differently or is there, like, I'm assuming most of it is parallel, but there's gotta be some cultural differences, right?

[00:05:07] Krystof Bartos: There are, but, originally, when I started learning about it, there were like people, like in Czech, everybody start to, wants to be creative. Even employees that that you don't want them to be creative, they don't want to follow the rules. And in the US it's a little different. And I dunno whether I still have a, not that enough experience.

[00:05:25] You have more opportunities. But that, I would say something specific, I don't know. Like I just like the combination of both worlds. So people in Czech will, have a discussion about turbo taxes. And I'm like, come on, this is how it is to really something else, right? And all people in the US will kill for taxes like we have here. But on the other hand, you have the opportunities here, it's a little bit smaller. And then you can do a business in the US much better after covid as well with all the zooms and stuff and still live outside. And have low, lower cost of living and it's kind of fun. I think it was a disadvantage for a long time, but I finally think I kind of overcome it.

[00:06:08] But from the negotiation standpoint or stuff like that, I don't know something that I would kind of point out. Like being more straightforward. It's about people, not about nationality type, I would say. 

[00:06:22] Ronald Skelton: You said it's, people more straightforward. Is that in Czech or here?

[00:06:24] Krystof Bartos: I would say like, it depends on the individual people more. But I think, oh, that's tough call. Most people will listen it from US, right? I don't know. I know good people and bad people in Czech and the same in the US.

[00:06:37] Ronald Skelton: It's the same here too.

[00:06:37] Krystof Bartos: It's more about finding the deal, finding the right people.

[00:06:40] Ronald Skelton: Here, we were talking about what, who's more honest. When I said, Americans lie more, I'm talking about like on their financial reports and stuff. You're gonna discover things and, non-disclose things on our financials more so than what I've seen in Europe and stuff. Now in Europe, they have like what they call that company's house or whatever. They're accustomed to being audited and have their books looked at.

[00:06:59] And I also mean not, if you ask a human a question here in the United States, it's the same. Some are good, some are bad, some will lie to your face and some won't. But when you look at things like their LinkedIn profiles or what they put on, websites and stuff like that, their revenue and stuff like that's like filled in surveys and stuff. Almost all of 'em bump it up a little bit. You start digging into it. I was just talking to a business owner, he is like, yeah, yeah, we're doing, a hundred thousand dollars a year. And like, okay, cool. We started getting close to the conversations.

[00:07:26] He realizes, I'm serious. And he is like, we're the next conversation, well, we're doing about $67,000 a year. And they're like, cool. We'll get into that when we do due diligence and you realize I'm gonna do a, I'm gonna look at everything. And later on in the conversation, he is like, well, we're doing about $58,000 a year. So we went from a hundred thousand profit, like to 58 profit. I'm getting more serious about looking at your financials stages this conversation. To be honest, he wasn't for sale. I do that a lot to people. I'll find out like, oh, you own so-and-so website?

[00:07:55] Cool. like, tell me all about it. And they tell me all about it. And then I'm like, what do you wanna do with it? You wanna sell it? And they'd never thought about it. They boasted this up 'cause it's their baby. They're talking story, right? They're telling me a story about their website. And at the end of the story, I'm like, so you wanna sell it?

[00:08:09] And then all of a sudden they realize, okay, well they may have exaggerated a little bit, to inflate their ego. It's nothing right, wrong, good or bad. I don't even say anything to the people that do it. But, I think I catch 'em off guard. 'Cause they didn't know I was in the market to buy it. They just thought they were sharing something about something they built.

[00:08:26] Krystof Bartos: But culturally, like if you are asking somebody here how he is doing, you can honestly answer. In the US, in English speaking countries, you should just say wonderful and go. It's like just a, just a good marriage I guess.

[00:08:39] But here, in Czech, I mean, It's like, how are you doing? And then you hear the whole story about how bad it is, which I'm like, that's why I'm not, I wasn't asking. Correct. But when you go deep, deeper into negotiations and stuff, I don't know.

[00:08:53] Ronald Skelton: Yeah, it cleans up. I mean, they know we're gonna look. I'm just saying, like when you're doing lead generation and hunting down lists and stuff, and you look at, what they put out on, for instance, LinkedIn, a lot of people are using LinkedIn for lead sourcing. And they say, LinkedIn says, you'll find on LinkedIn, they're like, oh yeah, we're doing, $150,000, a quarter.

[00:09:11] Or they'll make a statement, Hey, this is our best quarter ever. We hit 150,000. You're looking at these past statements and when you start looking at 'em, they weren't there, right? Or, they're like, Hey, we just hired our 50th employee. And you look on their, on their profile and they've got five showing up, and you start talking to 'em a little bit and you realize they have 12. 

[00:09:26] But somewhere along the way they posted, they boast. And it's a lot to do with the sites I'm looking at. I'm looking at, blogs and websites and newsletters and podcasts and the servicing companies that run 'em. Maybe a little less of your seasoned entrepreneurs. So you went from, like starting things, trying to do different things to buying companies.

[00:09:45] I did the same path. I did a little different reason than you I think. I'm probably a good 15, 20 years older than you. I'm 51. And, I realized I don't want to go through that realm. I've try to try five or six good businesses before I get one that gets some traction and works. Can you spend a year or two on each one and you're turning gears trying to think things out. When I got out of the real estate space, I was like, okay. I'd say this all the time, I hired a performance coach. I wasn't positive whether the market was turning on the real estate.

[00:10:11] It was at the very edge of when the market was starting to turn. And,I hired a performance coach and I was, looking at, do I want to get out of this? Do I wanna do something different? And I thought I was burned out. And one of the things he said to me, he is like, you should be playing a bigger game.

[00:10:25] So I started looking for a bigger game. Funny thing was, I say this all the time. We would flip a house or something and put a big check in our account as a business. And it might be 30, $40,000 for a little real estate flip or something. And in the back of my head I'd hear his voice like, but you should be playing a bigger game.

[00:10:42] Krystof Bartos: He was a good coach. 

[00:10:43] Ronald Skelton: Yeah. So I got into this space 'cause I was like, I don't want us to do another startup. I say that I'm always playing around with little things, but I want, I want to take things that are running really well and maintain them and maintain the legacy of them, merge 'em together.

[00:10:58] Make something, good out of them. Or keep them, keep the good that's there and improve upon them. And, that appeals to me more than, five years of 60, 70, 80 hour weeks to do another startup. And then to only find out I didn't have product market fit, raise a bunch of capital. All that, that's a young man's game. 

[00:11:15] Krystof Bartos: It happens to me all the time. Like I can tell you that I dunno whether all of them, but the, I remember those. So the businesses that I would start and would not be a fit at that time. Somebody else, for example, one specifically right now, it's working perfectly. It was just too early. For example, for the, I took a lot of things from US.

[00:11:35] I want to apply it here. It was like the first strategy. Yeah, teaching people here about financial market was bad idea seven years ago. Now people are making a lot of money because the market shift, right? And it's like, is it really worth it when you can look at companies that are, it's always interesting like when you look at the statistics, right? Like if you are doing over $1 million of revenue in the US you are like four to 5%.

[00:12:02] Like when I say something like, to somebody they, that's not right. Like if you are just having over $1 million of debt, you're such a rare unicorn. But that, there are all the 95% of other businesses that haven't made it right. The same is over 10 years that just like 5%. So I dunno whether they are the same companies or different. It's like over 10 years, over $1 million of revenue, you are like, Two to three, 5% best businesses in the US. And then if you sell it, then you are like super rare unicorn, right? So, how you can get there faster, and there's a reason why in the US you have things like SBA loans that always put less and lesser restrictions because all those people retiring and, but your audience knows it.

[00:12:49] But again, and think like why everybody start the business and that's the way how to do it . Which obviously it's statistically not.

[00:12:59] Ronald Skelton: Okay. Still having a little bit of, you broke up there for that conversation a little bit.

[00:13:03] If you're listening to the show, we're talking about some really cool stuff. I'm gonna keep going, but, just apologize for any of the audio issues we're having at the moment. So for the listeners listening to it, hang in there with us. We're gonna have this conversation and hopefully we can clean it up enough that it's not too annoying when you listen to it. So, but you are chopping up some. So now what are we up to? So you are, you're in the space. You were in the financial sector.

[00:13:26] I talked to you a little bit before the show. I know where you went to. And it's something that's near and dear to my heart. My master's degree is in marketing. The first big project I played with was a big marketing roll up. I know a little bit about marketing agencies. I created one of my own. And that's how I got into real estate is my biggest client bought me. Bought my marketing agency, and brought me in house. So he basically, he came down two or three different times. Said, Hey, why don't you just come upstairs? 'Cause he actually rented this space. I think he had this plan for a while.

[00:13:53] 'Cause he moved for his office to the floor above mine. And he would always have me come up there and work with him and do stuff for his, his team. And then one day he came down and said, why don't you just, why don't you just come up there and work, be part of our team? And I was like, well I'm doing this thing. And he is like, well, I'll buy you out. So he got off, and we had, I had a baby on the way. My wife was probably six, seven months pregnant at this point. So, he gave me like, okay, I'll give you steady income. 'Cause when you're starting to marketing the agency just hit and miss, right?

[00:14:19] And,we did seminars and stuff. But, anyway, he gave me a steady income, gave me some cash up front, and did some other stuff. And I was like, okay, I'll go up there. So the one thing about real estate that's always good as a marketing nerd is you could be really bad at marketing and still make a lot of money in real estate.

[00:14:35] 'Cause the margins are so high, right? So you could be sending lots of direct mail out and lots of things out. And, you like, I look like a genius because all I had to do was kick off the activities. And even if we had mediocre results, the profit was great. And I used to tease him about that.

[00:14:51] I was like, I'm not the genius you think I am. We send 3000 letters out a month. We're gonna get some phone calls. But anyway. So you're in the marketing agency space now. What have you learned in that space? And we'll have some discussion around that just because I know some, downfalls and issues in that space you gotta really watch out for. And I'm curious on how you're gonna address them when you get there. So, tell me the kind of marketing agencies you guys are looking at? What you've acquired or looking to acquire?

[00:15:17] Krystof Bartos: So, originally, as I said, I was looking for, healthcare companies and stuff like that. At the beginning, but then I realized it's a little bit easier to do deals in the business to business sectors.

[00:15:29] And then I was like, Hey, we probably need, sorry, the financial issues, right? Distress deals, whatever. A lot of those issues. But when you are talking with small business owners, they always think the revenue is the solution. I dunno why. I think it's the biggest myth in the business. Like everybody's like, if I grow revenue by except amount, I will be without cashflow issues. Not, it's not the case. They'll probably have more cashflow issues if you're business even like, okay, so what about we add the marketing you, and you kind of give the people what they want and then they, you support what they actually need, right?

[00:16:06] Which is something completely different. Or not people, but the companies if we are buying a hundred percent. So we decided to go into that route and because we wanted to, like SBA loans, you need to have some experience. Like it's kind of mandatory. So we went to that part just from the premise of everybody else will need the marketing as well.

[00:16:27] Right now we start to, not hard, but little bit into manufacturing companies because I like it. No, we like the sector, but also the marketing agency support manufacturing, it's one of those verticals. So for the manufacturing, we can really support all of that. So I guess at the beginning I was more esoteric about the business, right?

[00:16:46] Like, I want to do this and I want to be free, and stuff like that. A little bit later, I started to be more pragmatic, like find a vehicle that, that descends. We bought the digital marketing agency in December last year. First six months is great. It's digital marketing company we have CRM on in place that was there for the 10 years.

[00:17:08] And I think, I don't know what issues you mean. But a lot of those issues I think with any business is just pipeline, right? So we are fortunate enough to have 80% of free qlink revenues. Doesn't mean that they cannot go away next month, they can. But you don't need to, we can survive without having good sales processes.

[00:17:31] In the terms of companies that we look at in the marketing, I would say most marketing companies doesn't market themselves well. They don't have the business, business development sort out. They just, it's usually a lifestyle business at that point and they don't want to grow, don't want to manage 20 employees again.

[00:17:50] So, kind of like stable. but the most, definitely one, definite one is again, the finances because they usually dunno what's happening. And now with the company that we bought, I kind of had to do new QuickBooks because for some issues that wasn't problematic short term, but long term like for the financial intelligence would not be great.

[00:18:13] So we are doing it from the scratch basically. And for the first six months, I really don't have that much intelligence as I would like to have from the financial standpoint. So I look at the bank account and I'm super not happy about it, but that's how most business owners are running their business.

[00:18:30] They just pay the bills, look at the bank account, and if there is amount of capital that they want to have, it's good. Second part is they get the financial returns at the end of the year. They look at the, below the line number, right? And if the number is great, they have a drink. And if they, if it's wrong, they have to drink.

[00:18:49] So, which is not me, that's Keith Cunningham quote, which I just like, a lot. So they don't know that, that's really tough and that's what we can improve relatively quickly from the cash collection, cashflow perspective and stuff like that. So I would say these two are the biggest. And then, also being small players, it's kind of limiting factor.

[00:19:11] Ronald Skelton: Yeah, that's where I was gonna go with it. So the two biggest things I see with the market agencies is one, like you said, they're usually lifestyle businesses, it sounds like you've got some someones, that actually do recurring revenue.

[00:19:27] So the digital and doing ad placement and that type of stuff, SEO work and different stuff, that's ongoing. But a lot of them have, the artistic side, the logos and stuff. So you're doing a lot of one-time work. So that's the one side of it, but the biggest problem is there's a artificial glass ceiling to marketing agencies.

[00:19:44] And that, if you bring in creatives, you bring in guys, you bring in people who you're training, to be experts in the field. And as they get better and better, they're ready to take on bigger and bigger clients. Unfortunately, there's a glass ceiling in a lot of the big companies, you're a $5 million marketing, so you don't care if you've been in, in business for 20 years and you have experts on staff and you're ready. Technically and skill-wise, a Coca-Cola is not gonna let you do their marketing.

[00:20:13] Right? You're just too small to play in their field. And that's the glass ceiling. I've always seen inside of it is, they're ripe for mergers and acquisitions in that realm. Anything under $10 million a year is just ripe. Because they kind of just can't, either have to merge with somebody else that's vigor and,get that clout or they have to, really play the game and try to figure out a way to get around that, that glass ceiling.

[00:20:37] Because what happens is, you're talking about not wanting to hire new employees and stuff. What happens to these business owners is they bring these guys up, they train 'em and get 'em good. They're really good. They're real proficient in doing their job. Now they can't get the clients to give those employees fulfillment and the employees leave and go to the bigger firms.

[00:20:52] So they become a training center for the bigger firms and it just burns the owner out as like, I just spent 15 years, or 10 years or five years to get this guy really good at his job, but I don't have the clients to keep him. Right? So that's the inherent problem inside of marketing agencies. And one of the things we were, I hate to use the word exploiting.

[00:21:11] One of the things we were using to do the rollup is like, look, we'll just create a big conglomeration of market agencies that, what we were doing in that rollup was like, you get to wear your hat that you created. Your brand, your logo. We're gonna give you two-sided business card.

[00:21:25] When you want to be small and do your local player and do things with your current clients locally, awesome. But when you're ready to pitch one of the big guys or be on a team with our other agencies that pitch a big guy, let's turn the card over and you're part of this bigger overall marketing agency that is doing the numbers and has the staff and, international and everything else.

[00:21:44] So we were helping them break that artificial ceiling inside of there and help 'em, let their employees stay because they get the chance to work on some of the bigger projects. 

[00:21:52] Krystof Bartos: Yeah, definitely the same thing that we see. And it was always when we bought the business, and we discussed the plans with the team, they immediately saw that the glass ceiling is kind of gone.

[00:22:05] And I'm not talking about your glass ceiling with the Coca-Cola and stuff. The company is not in the place to even think about it. If we would have Coca-Cola, they would own us basically. Like basically they own every supplier, I believe. But you know what I mean, right. They wouldn't be that, but even the glass ceiling of the seller that was ready to retire.

[00:22:21] So there's multiple glass ceilings that you can break and then that's exactly the plan. And usually those companies are good at something and they are not good at every other stuff. Also, a nice concept that I was kind of halfway joking was, it's good to have two marketing companies because they can do marketing for each other because they suck so much to doing marketing for themself.

[00:22:45] That's maybe better to have second one that would do a marketing for them. So, but it's all the opportunities that are there, right? Like, if it would be perfect business, it wouldn't be for sale or I wouldn't have any way to finance that part. So those one to five, one to 10, as you said companies, you have a lot of, you get a lot of leverage once you have it.

[00:23:09] And I just do that once you have deal in that sector, then every other deal is easier. Just if I compare the the discussions that we have right now as agency owners than before, when it was like, we want to get into it, it's different. But yeah, definitely agree with those opportunities, I would say. But there are also challenges for it. People that don't have those strategies that we are talking about today. So agree. 

[00:23:36] Ronald Skelton: Cool. Are these gonna be, these agencies, are they part of a HoldCo? Are you gonna hold 'em for long term and use them to grow like, the one reason I would buy a marketing agency is put it in my HoldCo to market all the businesses I want in my HoldCo.

[00:23:47] It's like a good, like, wouldn't be bad to have a good accounting firm. Right? Because all these businesses need good accounting, a good marketing agency that's well diverse. And I like your thing that, not everybody does everything well. That's the one thing we asked, every marketing agency in the rollup we'd interview. Like, what's one thing you do world class better than anybody else? And a lot of 'em would always start off, well, we do everything world class. Like no you don't. You're really good at one or two things and you're okay at the rest. But what is like, what is your selling point?

[00:24:12] What is the thing you take, you go to market with and get people to come to you? Yeah you fulfill the other elements they need, but they're there because they think this is most important. And most agencies, unless they've acquired other ones or they've got a really diverse team, they're really good at one or two things. They're really good at SEO or they're really good at ad placement or they're really good at, brand and logo design. But usually they're really good at one or two things. 

[00:24:37] Krystof Bartos: Yeah. Or the sector, right? Specific. So the plan, there's a lot of models that you can use. Like once you buy them companies and you optimize the cost base and do synergies and you will because (?) Dollar company. I don't like that particularly, I'm looking at it from the, like being investor side.

[00:24:54] And for me it's upside. It is great potential. So even as we are right now working on 10 to $25 million private equity fund, just to be able to buy up bigger companies. I'm like approaching it, Hey investors, like get in for the past and these are all the opportunities, but put an actual numbers in it, I think, maybe it's great. To make a made up number, but for me it's like made up. So approach it from this perspective. I approach it the same way, or we I should say, with my business partner and our team is, the exit the same way. So I have couple of ways to do it and I'm not set at either of them.

[00:25:34] But I like the idea that you set as well, which was our original one and still is the highest probability is to keep it, grow it and support any other business that we do. When we chat before we start a, start the podcast, we will go into other business services as well as accounting and stuff like that, which is cool.

[00:25:52] For example, right now, like fraction CFO. Then he bought a couple of accounting firms himself. So we were thinking maybe we can kind of partner up together to buy more of them, right? So we have definitely ways to do it. So that's the plan. That's the bigger goal. Obviously if you are looking to raise capital at some point it'll be great to have a success story of you bought five, you put it together and sell it for two times more than you bought it.

[00:26:19] So at some point where it'll be sellable again which is not right now,we will definitely look into it. But also that's what I like about the fund structure because we can potentially buy like the, with the SBA loans and other stuff, we can buy those companies like one, two, three, 4 million revenue, less than million dollars of profit, couple of them for $5 million. And then for four times multiple, 3.5 times multiple, stuff like that.

[00:26:50] And potentially put it into the fund for six times or so. But then the fund is buying those companies for six to 10 times and pile it up to the bigger pie that you can eventually sell to private equity or take it public. So that's kind of the stepping stone that I see, but I don't want to like, Hey, this is the plan and this is what we will do a hundred percent because, one thing is guaranteed, everything will change. Right. 

[00:27:15] So I think the flexibility is a power. So either keep it, grow it, buy other, and just have a strong marketing arm that we can just leverage as much as possible to getting pieces of the other businesses as well and stuff like that. And at finance, at hr, at other consulting for example. Because we are playing with some management things as well that can potentially solve the issues that you are talking about as well from the team perspective.

[00:27:43] That's one thing. Second thing would be the, with the fund, those that we can take it public or eventually sell it at some point. Probably we'll sell it if you don't take it public. But it's like the overall plan picture, I think all those ways are profitable and we'll see what will make sense at that time.

[00:28:03] Because we can raise the capital, raise the funds and buy 25 million revenue business, marketing agency. Then it's hard to put the million dollar companies into it where like at some point you will be like, what it adds up? I don't want necessarily to do that, but just thinking there, there might be ways that might change from the good side that will be like, can we take just a good things out of it, like a team and then sub the client base or kind of combine it like, so I think the flexibility is the way out and having the fund, taking public, selling it.

[00:28:37] At some point you play the arbitrage game in each of them because you are buying lower and solving those problems and potentially having more value. Even if you have the value only on their personal balance sheet and you don't sell it, you still own something that is much more valuable, much more reliable.

[00:28:55] But to me, interesting part is having those 5, 10, 15 sellers that sold to us, their baby. And we promise to them we will take care of it. That's why we call the, our Fund Guardians of Legacy because that's what we are doing. And we promise we will grow it. We will take care, good care of it. And then eventually they want to see their baby be growing as well. Solving all those issues and everything, right?

[00:29:21] So my non-financial plan is to have the boardroom of all those sellers that sell to us, and they are kind of cheers on the sideline that we take their baby to the next level and everybody won. Right? The team, then clients, so. 

[00:29:39] Ronald Skelton: Well, we did the marketing rollup. There was a team of us, it was like eight or nine of us, and we did a lot of research.

[00:29:43] We spent probably before we talked to the first agency, we spent six or eight months like learning it, building our model. And our model was all a really complex. We were basically buying agencies, bringing them in under a, kind of a stock exchange and only participating in the upside. So we would bring them in under this company that we've created. And, do a what's called a waterfall,effect that basically, we would get a percentage of the,that arbitrage split, you said.

[00:30:15] We brought 'em in. They're making $5 million a year. We get a percentage of any of the upsell, cross sell 'and things that they do from, to the other agencies and working with the other agencies. And when we go to sell it, we gave 'em a basis price and then like, what we, you came in at this and now you're at seven times that we get a certain percentage of that. 

[00:30:34] So, but that said, we ruled out taking it public, not because of the financial side of it. You know, it could cost 500 to $750,000 to take it public. But because marketing agencies in general are not treated well on stock, on the US stock market. Meaning they're not traded at high multiples, there's volume of trade is low.

[00:30:53] We talked to some people in the space. We talked to Jeremy Harbor,Roland Frasier and some other people who had either taken agencies public before or looked into it. And they all said, yeah, There's not loved on Wall Street. So, the biggest exits we could find, were selling off to strategic.

[00:31:10] So build it up, sell it off to one of the big guys. Make it interesting into, to one of the, the top players. And, like the strategic acquisition, they'll pay a higher multiple. Some of 'em are even public, but they will still pay a higher multiple than anything we were gonna look at from that, the IPO standpoint.

[00:31:28] Krystof Bartos: Yeah. And watching that, like from a side, those smaller IPOs, I wouldn't do that. It's just like, I think you are selling a lot for a lot of uncertainty if you build it. And it wasn't that successful as I originally thought it would be from just watching on the side.

[00:31:44] When on the other side you have a, you have a trade buyers or bigger private equity companies and they want to buy. They want to buy a lot, but they don't have the deal flow because there is not that many companies that you can justify buying for 150 million plus. Right. That's the statistics that you were talking about.

[00:32:02] So from the fund perspective, even position, like we are solving issues for the business owners that are retiring on the smaller scale. We are solving issues for you, Mr. Investor, because you have real estate, you have stocks, you have everything, you have bonds. But the best in the business, like Ray Dalio was saying, you have to find 2025 uncorrelated assets and you don't have that.

[00:32:25] So we have one for you that you don't own because you either don't own private equity at all, or you own it through stocks, which is staying volatile as the stocks. Or you own your own small business that you run, which is not the investment. Or you own those, only the big ones.

[00:32:43] So you don't have a passive way to hold smaller companies and have a, that upside that is there. Obviously there's a little bit or there's more risk to it. And then they are solving it for the bigger market that looks to buy and there's a bunch of money to, to be used to buying bigger companies, but they don't have a deal flow.

[00:33:02] Because there's not that many companies. So these are the three problems that I see in the market as a, if we are talking about it as having it as a business. And how you can scratch that is those three things and be flexible on that approach. But obviously we will do it, learn it, and tweak it. So this version of it, it'll evolve over time. 

[00:33:25] Ronald Skelton: The one thing we got really good in that and, in our process was, getting our agencies on the phone to talk to us about selling. And less than 200 and, probably 200, 220 days, I don't remember the exact number now. We had over 200 conversations.

[00:33:41] We had a team, there's at least three or four of us that were on the phone five days a week, couple times a day with different agencies. We had well over 20 plus LOIs in the process. And,probably at that point, 27 to $30 million worth of revenue under LOI. And, one of our partners decided to wanna buy us out.

[00:34:01] They're still on doing it, but they wanted to take a smaller team to, to do it differently. We basically, had the choice of saying yes or suing each other. So, we kind of disband the team and sold off our interest to the other partners and, they're still working on it a couple years later. It was a three to five year project. So I don't know where they're at possible. But one thing I would say is sourcing the deals, I've never seen anything so efficient to get marketing agencies on the phone. But we were using LinkedIn outreach. 

[00:34:32] Krystof Bartos: It was LinkedIn? And it was LinkedIn before they changed their restrictions or after? Because I was,

[00:34:37] Ronald Skelton: Was right in the middle of it. Right in the middle of it. Like they, we started, the first week we started, they were letting us contact, three, 400 person. And then bam, it was like a hundred people per week, per person.

[00:34:47] We used three different accounts. My account,I was the chief marketing and sales officer, the CEO's account, and anytime you put CEO you get more response. 'Cause everybody wants to talk to the CEO. They don't wanna talk to the chief marketing and sales officer 'cause they think you're gonna sell 'em something, right?

[00:35:02] So mine would get less response. And then when we had our CTO's account, we were using his too. And, we were all maxing out. Now I'll tell you, they say that their limit is a hundred per, per week. But if you really tweak your scores, even today I can send out 180 to a hundred, almost 200 connections per week.

[00:35:18] But I just keep my, what they call social selling index score and some other stuff really high and really interacting. I don't do much automated right now 'cause I don't have a big project going on. Occasionally I'll do a little blast where I send out a bunch of requests to other acquisition entrepreneurs or people like brokers in this space and stuff.

[00:35:34] But, the marketing agencies, they're on there 'cause they're b2b right? The LinkedIn's where they should be hanging out. So they're on there and they do respond.

[00:35:42] Krystof Bartos: Yeah, I had a great success before the limit restrictions. Now we have approached, like, we get the database and then basically the VA is sending emails, LinkedIn, calling and basically, the goal is, this is the list and convert it to discussion at some point. 

[00:36:00] The LinkedIn before the restriction, that was fun way to do it. I know when I started 2019, I had like, also like five, 10 conversation a week, it was brutal. But that was the way how to learn it. Some people, like, we haven't discussed that, but some people like, Hey, if I want to start, like how I will learn. Like, do it. You have to have tons of conversation to dial it in. Which I was coaching a couple of people that started in that.

[00:36:27] That's how I met my business partner and the successful ones had discussions. The unsuccessful, spent hours and months, working on their LinkedIn bio. So that's the difference. 

[00:36:40] Ronald Skelton: You'd be surprised on how many, like we used, we did use automation tools. I'll just admit it.

[00:36:44] There's a free course on my, on our newsletter, on the hub. Which is the hub dot acq hub.com. But there's a free course on there how to set up LinkedIn automated outreach, for anybody that signs up for that. And it's an hour and a half on how to do it. But we use the automation tools to start the conversation.

[00:37:00] I don't recommend, and I, not some people try it, but it's not a good idea to try to automate the entire process. But if you just wanna reach out to people and say, Hey, I want to connect with you. I'm this type of investor. I'm looking for this type of acquisition. Are you interested in connecting with me? And having some form of conversation. 

[00:37:16] And less words than that I guess. But, you can get, you'll get a lot of connections and you'll get a lot of, Hey, I'd like to chat with you. And the real trick is, with the automation tools can help with some of those limits and stuff 'cause it can, you can only have so many connection requests out at any given time so they can clean up.

[00:37:31] Like you can tell it's, only keep the connection requests for 21 days, if they don't respond by then delete 'em. So that you always can play, play at the maximum of your a hundred per week. Like I said, I can jump into, I use a tool called Meet Alfred. I used to use Dux Soup, but it's too simplistic.

[00:37:45] Matter of fact, Dux Soup reached out and had a call with me to be one of their influencer sponsors and like, we had a conversation around, I was like, until you fix some of your stuff. Now it's supposed to, there's a release that was supposed to come out in July that put it in the cloud, so maybe they fixed it, but I haven't seen the, I haven't seen the new better version.

[00:38:01] Krystof Bartos: Yeah, I have done the same, but I, at some point I run into issues with LinkedIn. And, I've profile locked a couple of times and I was like, I'm not doing it. I have too many connections to, to mess up with it. So now it's VA doing it manually. I dunno, like they have done a lot to prohibit us doing that. Exactly this what we are talking about. 

[00:38:21] Ronald Skelton: Yeah, I have at least, I have like 15 or 12 or 15,000 followers and probably at many or more connections on there. So it's important that I don't mess mine up. I just know their limitations and I throttle everything on the automation tools. And if you look at it, if you look at their terms of service, they say they don't allow it, but they do allow all these APIs to hook into it. So they know that they're running.

[00:38:42] It's just, you gotta, like, it can't be spammy if people start submitting or telling it,clicking on there and reporting it then, you're not talking to the right people. So it's really about targeting, like when we were doing marketing agencies, we had a very specific profile that we're looking for 'cause we knew they had a problem. 

[00:38:58] They were in this zone where they were facing the problem we solved, and they'd want to talk to us. Right? So we weren't reaching out to every marketing agency or marketing agencies way big that would never apply. We were really trying to tone that in and really create detailed searches. So that, our message would appeal to the people receiving it.

[00:39:19] One of the problems people get all the time, they get locked, their accounts locked and everything on LinkedIn, is they go, I want to talk to every marketing agency, or I want to talk to this broad of a selection. Well, if your message doesn't appeal to them, then it's very spammy to just reach out and say, Hey, I've got a message for you.

[00:39:33] But if you can get to a point where you can target, like these people, this particular laser focus market, has problem X, Y, and Z, and I have a solution for it, you can get results out of it. So the problem is when everybody else starts doing it, it's like right now I get a dozen a week people connecting to me. I can SEO your YouTube better.

[00:39:51] Once everybody starts doing it, then it just, you basically tune it out, right? When I'm ready for a better SEO on my YouTube, I won't pick any of those guys 'cause there's so many of 'em. You go to their channel and they got, less followers than you do, and you're like, why are you marketing to me? Going back to the, how you reach out to 'em, I have never seen anything work better on that one. We tried some of the other stuff. We actually had cold callers and stuff like that. And we didn't get that much results from those guys.

[00:40:18] Krystof Bartos: Yeah. It's like you have to test it out, right? I think when we get into issues was, I would send no, no invites and then start sending even the limit invites, right? And that'll always pick it up.

[00:40:29] And also not having premium LinkedIn, that was probably stupid of us to not have that. Like I think if you pay them, they will be a little bit more.

[00:40:38] Ronald Skelton: Yeah. I was paying for all of it. Like sales navigator premium and some of the other stuff. I think even I had was paying, I had an ad account on there.

[00:40:45] I was buying some ads for other stuff. I guess they don't wanna lose you if you're sending them money on a regular basis. Between sales navigator, premium and ads, that's probably spending two, $300 a month with them. Right? Nothing huge, but also not nothing. So there is that, and there's a ramp up period.

[00:41:01] If you pick the right software, the right software won't allow you to just blast a hundred for the first week. Especially if they notice you don't have that four or 500 connections or a thousand connections. There's a percentage, it's not a hundred for everybody. The per week, if you started a new account today, you couldn't send out a hundred requests.

[00:41:17] There's a number of requests per, like how many followers and connections you have. So there's some math behind it. And the good tools, like Meet Alfred, and some of the others, they know that, and they'll give you a warning if you start messing with the throttles. They'll say, don't do that if you don't know what you're doing. 'Cause you can get your account locked. To the default ramp up period.

[00:41:34] Krystof Bartos: That's valuable discussion for everybody. It's important sourcing deals. 

[00:41:38] Ronald Skelton: Yeah. The other one thing is there's other industries where you just can't find them on there. Right? Like I own a small pest control company.

[00:41:44] I say I own it, it's mostly my relatives now. But, I bought it to employ some relatives and to help 'em out. And I try to grow it by, 'cause we bought it way too small. I try to grow it by reaching out. And there's like, out of the 35 in that market that I would want, like, that would fit what I'm looking for.

[00:42:02] Only two of 'em were on LinkedIn and they hadn't like, posted anything in a year or two. So it was just, for that, the lead source was small town. I joke around about this all the time. Small town, brick and mortar company, your best lead sources go grab one of those old yellow bricks they put at your front door, the yellow pages. Anybody old enough to still advertise in that is probably a lead for mergers and acquisitions target. 

[00:42:23] Krystof Bartos: That's brilliant. That's right. Yeah.

[00:42:25] Ronald Skelton: Right. So you just pick it up and it'll tell you inside of the, inside of that yellow lead list thing, they call it the yellow pages, but that yellow lead list book, it'll say in business 25 years. And here's my phone number.

[00:42:34] So like, you just dial 'em up or here's an email address. You even have that on something. You can dial it up or put the email in there and send 'em a message and go, Hey, I'm looking to acquire said companies in this market. Are you interested in having a conversation? I haven't called 'em in a while, but for a while there, I would just call everybody and go, hey, it's me again. You ready to retire yet? Because they're so used to hearing from me and they'd already told me no. But, I'd call 35 of those guys like, Hey, it's me again.

[00:42:57] Krystof Bartos: You can call them after a, after summer break and after new year. Like, Are you not tired and go back to work again?

[00:43:03] Ronald Skelton: I'm kind of, I have a different personality and different sense of humor. A lot of people can't pull off. My wife gets in trouble trying to mimic my personality all the time. Unless you just, people know you well enough, it doesn't fly for most people. But I'll call 'em up and go, Hey, I'm just calling to see if you're dead yet.

[00:43:15] Like, what do you mean dead yet? I'm like, well if you're gonna work in that place until you, you're croak in that chair, right? And they're like, no. And I was like, okay, well when you're ready to retire, let me know. They know I'm playing. Yeah, right. But it's just, I made friends outta a lot of the guys.

[00:43:28] But, so, what's next for you, man? You've got a marketing agency digital, you're gonna acquire a few more of those or are you, I mean, what's your game plan right now? What you guys currently working on? 

[00:43:37] Krystof Bartos: Yeah, so, now currently we are working on three deals. We'll see how it went, how it will work.

[00:43:43] Sourcing, that's the focus all the time, right? But yeah, the agencies, like, we still have some SBA power left, so to speak. So we will like to use it for marketing just to stay in that space. And in the meantime, we are working on that $25 million fund. And starting that, we take it as a longer strategy, right?

[00:44:03] Like now we are okay to buy what we need. We don't need a fund. But on the other hand, then you max it out and you say like, what's next? And that will, it'll take you three years to get to some level, right? So I'm not like the person that would do something for 20 years, again, again, again. Which is why it, this business fits my personality well. 

[00:44:27] I was like, I was always starting the new thing. My mom was saying like, you never stick with anything. I was like, eh, it's because it sucks, right? And now it changes because I can stick with one thing m and a, but it's still new and fresh and you can grow. Which fits very well.

[00:44:44] Real estate fit very well in that regard as well. But this is even more unique because you have more levers that you can play than real estate. That's why I left real estate, so to speak. They'll get back eventually at some point, but not now. And so the fund and yeah obviously making sure that the company we bought is growing. So I would say juggling three balls right now. More deals, growing the business we have, raising capital. Like that's what where we are. 

[00:45:13] Ronald Skelton: So let's talk about your fundraiser. Where are you guys at in that? Have you already have your private placement memorandum out or?

[00:45:19] Krystof Bartos: Yeah, finishing that out. Have some soft commitments. And I would say we are doing better than expected. But on the other hand, we are business people, so we would rather do 10x better.

[00:45:30] So, yeah. Now we are in the situation of, we have some deals on the table. We have some investors, on the table. We are finalizing the documents. So now we'll be more about juggling the, those three things at the same time, so we can open the fund with the first close four investors and buy a deal.

[00:45:47] So everybody's kind of on that standby of like, and we are updating them. So I don't know whether I'm even, I should just talk about fund. But yeah, it's just what we are planning that's not- 

[00:45:59] Ronald Skelton: Yeah, that's fine. I was asking mainly 'cause if you were just like, you got all your planning done and you're ready to find somebody.

[00:46:04] I actually have interviewed somebody on the show recently that I think they've got their act together. They've been doing it for a long time. They're great. They have the team to do the private placement memorandum and the thing that sets 'em apart from everybody else is, they went out and got all the SEC license.

[00:46:17] Not only just do the, to raise capital and to raise debt, to do crowdfunding and all the other cool stuff you can do, but they also went out and got the SEC licenses to do secondaries. And if you know what secondaries are, a lot of times it's basically selling that investment to another investor before you exit.

[00:46:34] So as secondaries are, critical when you have investors who are, maybe they're accredited, but they're got other projects going on and they don't want to be tied up with anything right now for 5, 10, 15 years. They don't know what your long-term goal is. You have to really define like, this is a three-year play. This is a five-year play. 

[00:46:51] If you're fund manager, the person who actually helps you build and raise the funds, it's their license to do secondaries. You have that clause's like, look, if you have to sell it, need to sell it, whatever, we just go back to these guys. They have not only do they have a license to do it, they built a marketplace for people looking for the secondaries.

[00:47:06] So, I was just curious where you're at on that. I've interviewed quite a few people and I've only seen one or two that actually, went the extra mile to get the, all the different licenses to do the full spectrum of not just raising capital for VC and stuff. I don't know if I'll go down that path.

[00:47:21] Here's the reason why I'm building a HoldCo right now. I'm wanting to hold this stuff. I don't have intentions on, like selling these right away. And I, I interviewed the guys for, the space I'm in, the big player I would think. One of the bigger players is companies like, Treasure Hunters. I interviewed one of their founders. And two days later he pitches something to all of us, not just me, but to a lot of people.

[00:47:42] They're selling one of their better entities. And I'm like, man, this thing's really good. I didn't want it 'cause he'd already done everything I wanted to do. He's selling it at the top. He bought it, he cleaned it up, got better ads. Really, really made it nice. And now he isselling it at a higher multiple than I would be interested.

[00:47:56] I reached out to him and said, why are you selling it, right? It's a great product. He goes, well, it's on our first, one of our first round raises and we have a commitment to, to make those investors liquid. So, when you buy stuff like that, you have promises that, okay, it's a five year project or a three year project. You'll end up selling something you would, might wanna really hold onto.

[00:48:14] Krystof Bartos: You can always set up like a second fund. And so to that. There's like vice around it, but I know what you mean. Obviously if, yeah, you can do only distress deals and consulting equity forever. I think there is a limit to that. We haven't touched on it, but I have done it on not distress deal, but even if I could, but the like, partial consulting for equity and stuff like that. And like if the, just think about all those things that you want to clear up in the business, but the seller is still staying. Like you will have some friction.

[00:48:44] They will think that you don't know what they are, what you are doing. And it's, it looks nice and maybe it was just me not being specific enough and stuff like that. So definitely can be better. But I would rather take a risk by the business and if you are doing great job, do great. If you are doing poor job, do it poorly, right? 

[00:49:04] Buy more and buy the successful ones. At some point you will need more capital. Especially if I don't want to be stuck in the one to $10 million revenue companies forever. I need to grow. But, I understand that. We were talking about it a lot, whether it's worth it or not.

[00:49:20] I think as a long game, it's worth it and doesn't mean that you need to put, buy everything with the fund if you want to keep it forever, right. You can be creative for stuff like that. So that's the plan. 

[00:49:31] Ronald Skelton: Okay. Cool. Well, is there any way, right now, I don't know what series you raised or how you did your, or like what form of private placement memorandums?

[00:49:39] I don't know what you can or advertise or can't advertise anything. But if for other than, soliciting for investment. If somebody wants to reach out to you and work with you or, I don't want you to get in trouble with the SECs for soliciting for investment, depending on how you set your private placement memorandum. You may or may not be able to do that.

[00:49:54] But, if they just want to hang out with you, work with you, sell you a marketing agencies or whatever, how do you want people to reach out to you? What's the best way to contact you? 

[00:50:01] Krystof Bartos: Yeah, LinkedIn is the best, best thing. And then most reliable email is krystof.bartos@gmail.com. I don't, I hate the corporate website because, it always crashes and I don't receive any messages. But LinkedIn, the name in the below of the screen is correct. And yeah, happy to discuss, connect. Other than solicit investors, obviously. 

[00:50:23] Ronald Skelton: You need to find yourself a better nerd. All my, domain name emails are run by Gmail. So even like the me@4sale2sold.com and all the ones you like, you see me, I actually point my MX records over to, and I do it myself 'cause I am that nerd. But I point my MX records over to Gmail. It's a Gmail underlying system. So I get all their reliability, but I get them run on my brand. 

[00:50:44] Krystof Bartos: Yeah, that's right and we are working on that. We are like, kind of in this space where we are thinking, well, we still position ourself as a Krystof and Mark buying it, or put little bit more like corporate umbrella on top of that.

[00:50:57] I think it serves different purposes with brokers. And stuff, I think it's better to, and investors, it better to be like corporate. But if you are calling people, I think it's better to be like, like a person. So we are kind of in the space of thinking like, are we big enough to start labeling us as a PE company?

[00:51:15] And scare people away in some cases, right? So but in the beginning like it's better to just approach us. Me as a Krystof, as a business owner looking to buy a business to grow to the next level. So yeah, reach out. I will be happy to talk and thanks very much for having me here.

[00:51:32] Ronald Skelton: All right. Well I want to thank you for being here today. Sorry we had some technical difficulties, but I think we did fairly well. I appreciate it. Hang out for a few seconds. We'll call that a show. 

[00:51:40] Krystof Bartos: Thank you. Thank you.