E177: Serial Founder Max Koutny Shares His Entrepreneurial Journey and Acquisition Criteria

[00:00:00] Ronald Skelton: Hello and welcome to the How2Exit podcast today. I'm here with Max Koutny. 

You've done, you've founded multiple companies. You're a serial founder. You've,created a few and now you're out there looking for acquisitions and stuff. So we're going to have an interesting conversation today about that process. 

You know, your history and kind of what you're looking for. So I'm looking forward to this. Usually I have advisors and lawyers and other stuff on there, but lately I've been trying to get some people that are right in the mix of things and, it'll be fun. We'll brainstorm some stuff too. Uh, what's, What's working for you.

What's not working for you. So thank you for being here today. 

[00:00:33] Max Koutney: Pleasure. Thanks for having me, ron. 

[00:00:36] Ronald Skelton: So let's start off with that. The ongoing joke is always the origin story, right? Like you were born and now you ended up on a show about mergers and acquisitions. How the hell do you end up on my show?

Like fill in the gap for us. Tell us how you, got it to be an entrepreneur and kind of fill in the journey a little bit of, you know, from your beginning entrepreneur, uh, adventures till now. 

[00:00:55] Max Koutney: I guess I was born an entrepreneur. I started, uh, I went to college. My dad always used to joke with me and say, yeah, used to watch, watch all these shows about the success stories of different entrepreneurs.

And so I ran out of college. I studied architecture and I went to, I actually left and went to London. And, in London you know, I was going to conquer the world. Not sure how yet, but I was going to find out something. And so in London, I started working for Domino's pizza at night and I hired a, rented a small, little office at the time, shared office space.

And this was just sort of in the age of PCs. Shows my age, but, and, uh, so I even remember going and buying a second hand, an old typewriter must have been 30 years old and way to, a way to turn, grab that typewriter, pulled it across on the tube on London. And I started typing letters and looking for opportunities.

And I came across, I found some ex friends of mine, or they're colleagues. They weren't even friends that were associates that I sort of met in passing when I was leaving. And they had a quarry, a granite quarry in South Africa, and I started selling their granite, to Italian producers in Carrara. So I'd go over to Carrara, and I did very well. Got a lot of orders, got some orders out of, uh, Scotland as well. Then it was, it came to light after supplying of some of the products that there was a imperfection in the granite.

Anyway, long story short, ended up taking some geologists back to analyze the quarry and see if we could find a solution to this problem. And they couldn't. So that, that collapsed. And I started my next business when I was 26 at the end. And I, that business was basically specialty, especially spackling product.

Actually, it was a DIY product used for repairing buildings and patching holes. And I started that business. I lived in my,office. I had a small office that I was renting with a small little warehouse space. And I lived there for about a year. My staff would, you know, wake up, I'd wake up in the morning and my staff would arrive and we'd work. And I did that and I big strapped that business from one employee to about a hundred full time employees.

In some of the stories, I later hired an, an astute gentleman who was a chemist and, he would look at the formulas that I had created because I created all these formulas myself. And he would shake his head and he didn't understand how I'd achieved all this without a chemical engineer. And it really was trial and error and I think that's the but I can say anything about entrepreneurship.

It's trial and error, right? You try something. It works. You continue to do. It doesn't work. You fail. You try again. And you just carry on doing that cycle until you get some sort of traction and results. And then later on, while I had that business, I started another business in health and wellness. We were one of the first certified USDA organic products, in the U. S supplements.

And one of the first, USDA certified skincare products, on the market. And, took a few years, a couple of years to develop that, worked very closely with the certifying agencies. And then grew that and was busy growing it. This was in the internet age. I actually, was writing a ton of, content is doing all white hat SEO techniques, search engine optimization techniques to make sure we were featuring right at the top of the search engines and doing very well in that exceptional growth.

Um, and actually it was number 1, 2, 3, 4, the first 10 top results, we were number, we were on the first page of keywords like natural vitamin, organic vitamin, organic skincare, natural, you know, organic,natural skincare. And then I think Google didn't like what we were doing. Although it was all white hat techniques and we, they essentially blacklisted us and so we had to find alternatives.

So once again, had a failure and then had to find alternatives to try and grow and continue growing. Then I went through a divorce and I ended up selling all my businesses and now I'm back in it. I'm looking for opportunities and I've teamed up with Novo Stone Capital. We're a family office out of Zurich, Switzerland. And they supporting me on my search and I'm looking for a business in those areas that I have expertise.

That's health and wellness products, personal care and beauty products, food and beverage, specialty chemicals. And I'm also looking opportunistically as,alternative health, sorry, alternative energy and green energy or renewable energy plays either directly or indirectly. 

[00:05:39] Ronald Skelton: So how did you find the, the backer? How did you find on your financial backer?

Did you already know them? Was a relationship there? Did you reach out? Like, how did you discover? The, uh, private equity group or family office. 

[00:05:51] Max Koutney: Yeah. The truth is, I've never really had capital, any backing. I've done it all bootstrapped in my own, my own means. Of course, maybe a line of credit from a bank, but that's about all.

And so,actually connected by chance. Somehow I ended up on their website. Saw it a few times, I think they were, connecting me, got a couple of emails, and eventually I said, oh, let me try, let me see what happens. And, did the application.It was grueling. It took about six months, it was like a mini MBA, I believe, you know, we've been told. About 800 applicants in total, and they whittled that down, whittled that down over six months, and we came through with five of us in my cohort.

And then I was one of the first,to apply a start. And then some of the people that call us, I think you've interviewed them actually from a cohort. So, yeah,that's how I got involved in that. And I knew, to be honest, I knew very little about search funds. And all the whole program. And I've learned so much since I've started. 

[00:06:53] Ronald Skelton: It's interesting. I've interviewed a lot of people about search funds and I learned a lot. And one of the things I learned is they actually have a timeline. There is a mini MBA, like a lot of times they pull, they're pulling people straight out of MBA courses, but they have their own education.

There's a certain level of skills and preparedness. They want that individual to have, to be, to prepare them, to be the CEO of a company. So a lot of people think they're going to go get a funded search and buy a business in six months. And I'm like, well, you probably shouldn't tell the search funders that because they have a criteria in their head.

They have a, a process in their head to groom you to be that investor, to be that,CEO operator. I've talked to, you know, dozens by this point, uh, people who have done the search fund route. I've even talked to some people that started that search fund. The whole process. Dave Dodson, his, his episode will come out any day now, by the time this one's out, it's probably going to be out.

But, he's the Stanford professor that teaches ETA and search funds. He was also, he created the second or third search fund ever. The first one came out of Harvard. I don't know if you know that. Yeah. And, He actually went and met with them, they decided to create their own, and it was either the second or third, search fund ever. but, um, one of the lessons I did learn is that whole, you said it was a mini MBA?

There is a training, there, there's a vetting process and a training process where they know they're placing bets on you. Like they'll fund your search, but they're also want to be first in line to contribute funds to the actual acquisition most of the time. 

[00:08:26] Max Koutney: Correct. Correct. So they're investing a lot of money. And you know, I, I'm not a, I'm not a traditional search.You know, the traditional search, uh, much younger.Maybe five years of experience, new MBA, younger. and there's reasoning behind that. The Stanford studies, they've done, you know, whole and a lot. I noticed that our program is a little older. We typically have 20, 25 years of experience and most of us in late forties and older. So a little bit of a different model, but I think value in both. Obviously I'm biased, but I don't think the old dog should be kicked out just yet.

And I think we bring a lot of value. But I think the vetting process that you're talking about, I think what's important and I've spoken to a lot of aspiring search funders and some young guys that are actually launched the search fund successfully. And actually they found they've actually report, giving me feedback on one of the things the sort of common denominator was.

It was easier for them to raise the money than it was for them to find the business. And that, that's interesting because for me, it was always the other way around, right? I always struggled with capital, but I think because they come out of these universities that have such a strong, community around the search fund community, those universities have massive amounts of capital and a lot of skill and support for those search funders. 

So I think it's fantastic program and the more you learn about it, the more you get into it. The more, uh, you know, the more you fall in love with it for sure. 

[00:09:50] Ronald Skelton: I think up until about, maybe I'm wrong here. Somebody that listened to this can send me an email and tell me I'm totally wrong. That's okay. I think until probably 10, maybe 15 years ago, it was nearly exclusively Ivy league. I graduated my master's degree, my MBA was in 2007, I think. I don't recall like ever hearing about ETA, you know, and I have an MBA in marketing. I never heard about, like, we didn't discuss acquiring companies and all that stuff.

If there was a course on that, I probably would've taken it. I'm an entrepreneur at heart. I did marketing 'cause it was the thing that at my time, at that time was my weakest point. And I thought, well, I gotta do something to support my entrepreneurial side. So it's either accounting or marketing and there's better looking women in the marketing program. So I went that way. So I was single at the time, right? 

[00:10:35] Max Koutney: Yeah, no. I'm even, I've got some interns that I work with and I've been through a few interns and I encourage them. I said, look, find out if there's anything at your university, if there isn't, start a group, start up a discussion. Maybe talk to some of the business professors, uh, you know, and try and get them involved.

And absolutely, if the university doesn't have it, I'd encourage, I encourage all those young students now while they're at school, at college, start the process now. You don't have to wait till you graduate. You can actually start developing the connections and the infrastructure and the learning experience that you need in order to be successful. 

Cause I think what's, what, what is different is,a good search, uh, searcher is not only a good manager and operator, but he's also a good entrepreneur. And he has an entrepreneurial spirit to get that outsized return that, you know, that investors are looking for.

[00:11:26] Ronald Skelton: It's a lot safer for the investor too. You're buying something that's already up running, and they're going to help that those, the investors will help you bet if they're not going to back or help you invest in something they don't believe in too. In the world of founders, you've done it five, six times now, right?

In the world of founding a business, you've got to find an idea, act upon the idea, put it, create a product or a service, put it in front of the market, get product market fit, get some traction, all that stuff. Right? So it's yours to create. In this business acquisition world, that's all already up and done and done and you're buying something.

And what I like to joke and say, the difference between buying a company and funding one is you, or building one, is if you build it, you got to figure it all out. It's yours to create. And if you buy it, it's yours to mess up. 

[00:12:12] Max Koutney: But you know, I've done both founded businesses and it's a massive undertaking. It's an enormous amount of energy required to get that initial, 1, 000, 000 in sales, even $100, 000 in sales. it's really quite a, because you've got to create it and you've got to market it and you've got to really get traction in a, you know, but once you buy it and I've bought a few businesses and one of the mistakes I will say is just be careful not to make too many changes too quickly.

You come in, we're coming with a little bit of arrogance, and maybe that's where the older good dogs have a bit of experience. Sometimes you make small changes that you think, Oh, you know, this is much better, but not necessarily for the consumer or the customer, right? Or the employees or even the suppliers.

So you've got to be very careful. And I think, I bought a business in Florida, one of my first business in the US and, and we had an agreement. They would, I was pulled out of the deal and I wanted to, but anyway, I went ahead with it because I was brand new in the US. And, they trained me for whatever it was, three months and everything was great.

And then she walked out of the door. And I realized as she walked out, I was like, there goes half my business. RIght? And the reason was she brought, she had the relationship with some of those customers, the key customers for years. And that relationship hadn't transferred yet. And so it's very important.

It's subtle things like that, that are so important to transfer. And so I think it's, I'm now I'm rambling a little bit, but I go back to Warren Buffett as an example. Warren Buffett buys a business. He tells the existing staff and management carry on doing what you've been doing for the past 10 years for the next 10 years, and I'll see you later.

So there is there's validity and there's a good reason to continue doing what was being done. Because obviously it was proving and making money and it's, it's one thing to improve on it, but one has to be very careful not to destroy it because it's quite easily done. 

[00:14:01] Ronald Skelton: I'm a huge fan of the three questions and sometimes four.

I told you before the podcast, we'll ask some of the, some of those about some of the projects you've worked on. But I think the same thing goes when you acquire a company. I haven't bought anything this big yet. So, you know, my goal is buy something eventually that has, 30, 40 employees. Sit down with them and run through the same questions.

What are we doing really well? Like just, just have them dump everything they think that the company is doing really well. It's like, cool. What can we do better? So my, my four questions are always, What are we doing really well? What can we do better? And what are we totally missing?

What does our customer need that we just don't do? And then the fourth one is occasionally you need to ask, what are we totally doing that's a waste of time and money? Right. What are we doing right now that just isn't working? 

We just, that's pretty much the agenda of almost every call and meeting. 

[00:14:43] Max Koutney: Sometimes what you're doing well is not always self evident. Sometimes it's might be customer service. It might be the way you approach it. It might be just that, you know, service that you give that, you don't realize. So it's very, it's an absolutely amazing question. I love the whole question. 

[00:14:58] Ronald Skelton: And then, I plan on like, even with this podcast and with the, newsletters I run and everything like that, we're green up right now to do that with some of the listeners. Get eight or 10 of them on the call, like a zoom call and that's the agenda.

What are we doing well? What can we do better? What are we totally missing? What do you guys need to move your game forward? Right. That we're not talking about and we're not giving you that information because we're here to serve. So I think if you did that, when you acquire a company to is, go to the customers and go, what are we doing really well? You know.

[00:15:24] Max Koutney: Absolutely. Customers will tell you what they need, right? Hey, you know, or it would be nice if I, instead of having to the companies, you'd both these services or both these products, and I wouldn't have to have two supplies. It's simple things like that. And you're like, yeah.

[00:15:39] Ronald Skelton: Absolutely. And when you say, what are we missing? A lot of times they'll tell you, like, Hey, I'm, I'm using three suppliers to build my product. You make gear number one, but you don't make anything bigger than X, Y, and Z. I need one that's almost twice that size. I get it from this other company.

If you guys made that at the quality you make the other one, we'd go with you in a heartbeat, right? You're missing business by not asking your customers. And then, you know, that's the, what are we totally missing? That's the third question in that series is like, what do we, what could we improve upon?

Like you don't answer our calls or whatever it is like customer service or whatever. The fourth one is, is, uh, for my employees. A lot of times it's like, what are we just totally missing? But I mean, what are we like, what are we doing that's wasting money and time? So let's go to your,I think one of the things you did in your first business, you're talking about the granite. You had a problem.

The granite had imperfections that wouldn't, basically made it not resellable. You sent engineers there. I didn't even think of that, that a lot of times, even though you might have a rock quarry, your slabs might be, maybe it's granite, like you said, but the slab's not of quality to have, consistent piece that would work in construction.

Maybe it's better to, I don't know what else you use granite for. 

[00:16:45] Max Koutney: They had a, they had a very, a cutting edge technology of essentially cutting the granite out of the ground. Wherein, using dynamite and an older tech and it wasn't great. And so they were hoping to be able to find a deposit out of the whole deposit that didn't have the imperfection and essentially cut that out and mine that aspect to it.

Proved they couldn't do it. It was just too technically challenging, but yeah. 

[00:17:11] Ronald Skelton: So then, you didn't have a pivot at that point. So you said you ended up having to shut that one down?

[00:17:16] Max Koutney: Yeah. I mean, I was what, 23, 24 years old. And, uh, yeah, so I started again. And so what I did is actually started five opportunities. 

And I was like, well, one of them, I'll see which one gets traction. and so I, I did five different things sort of simultaneously. And the one that took traction is the one I put mom, you know, which eventually put more energy into. And ran with that, but, that was, that's my strategy and I do it even today. I look at five opportunity.

I mean, even joining Novastone was one opportunity of others and, that one gained traction and that's where I ran. So, um, yeah, sometimes that's how I run. 

[00:17:57] Ronald Skelton: So when you said you bought a company in the United States, is that how you got your product to the United States? It's one of the easiest ways to like to get into another market or in other countries.

You buy a company there and then you got, now you got a channel to put your product through. Is that how you brought your organic products to the United States? Or did you already have them here? 

[00:18:14] Max Koutney: No, that's exactly right. I bought it as a channel. I initially started with a joint venture, distributing, but the truth is I didn't know the U S market.

I didn't know the market. I mean, it was completely different. I didn't live here at the time. So I bought it and then moved here. I met a girl, and so that helped. And, uh, but it was my school fees. And so,buying a business, if you hadn't had the experience in the industry, and that's, I find that fascinating about the search model, to be honest, because I,I think it's, It's fascinating to get involved in the industry you don't know and then having to learn the industry. Because there's definitely school fees that have to be paid.

And hopefully you can do it and not bankrupt the investors. Right. So, uh,I think that's probably one also a, a, a quality of a good searchers to be able to learn quickly and from mistakes and adjust and move forward. But so, yeah, and so I, the mistake I made, well, a couple of mistakes.

So one is I underestimated the relationship situation. But it taught me the industry and then from that, I was able to transfer, form that company, which was essentially a retail company into a manufacturing company. And so that was a massive transformation and I was able to do that, but it wasn't ideal. It wouldn't have been a good search model for sure.

[00:19:32] Ronald Skelton: So at this stage, how did you overcome, her walking away with all those relationships. Did you call her back in and tell her to introduce you to everybody? Or how did you overcome that?

[00:19:41] Max Koutney: Well, I jUst went forward and work with what I had,and made an effort to connect and build relationships, you know, as fast as I could. In hindsight, if I had to do it, look, she wasn't coming back, she was done. If I had stipulated that prior, yes, that would have. And that's why going forward in my search, I am looking to keep the founder on board.

I think the founder has and knows the business better than anybody that they created it. Or even if they're not the original founder, but they are, they have been running it for 10 years or 15 or 20 years. They're going to know the business and it takes time to transfer that and it's relationships with customer supplies and employees, of course, but it's also knowledge and deeper knowledge and a deep understanding of the industry.

If you're not an industry expert yourself. So I think that's very, very important is to keep that on board, keep those founders somehow involved all those, all those sellers.And just, you know, have an access point. Even if it's a sounding board. I think one of the lesson, one of my big takeaways of things I haven't done well in the past is I didn't have, everything, I was an individual.

I was self created, self funded. I had my staff around me and my employees around, my team around me, but I didn't have critical. I didn't have, have experienced entrepreneurs to be able to give me feedback and say, Hey, no, maybe do it this way, that way, that way. And so,I think keeping that founder on board, even as a sounding board is like, Hey, I'd like to do this.

And he's like, no, that's a stupid idea. And he'll give you a reasons why. It might sound critical, but if you can't overcome the founder, skepticism, and then at least it will fine tune you to know, okay, these are the issues, these are the problems, then you overcome those to move forward in my strategy.

[00:21:17] Ronald Skelton: It's interesting. One of the businesses you had kind of piqued my interest. I grew up a painter's son. So I've used, I've probably used more spackling than most people on the planet, right? From the time I was about, I worked for him, my father. Him and I, we worked together, oh, I was probably old enough to crawl up a ladder, probably 12 or 13.

But, um the spackling business, you said you created that. Was like you took gymsum or whatever they call it and made the paste itself. Or what is like? You actually formulated one or you bought something and resold it? 

[00:21:47] Max Koutney: No, I formulated it and I formulated a lot of products, but, but, you know, the interesting thing, I've left a little bit out of the story because of course of time, but it's interesting you tell me that about your father.

So my dad was in the industry and he had a retail shop. And,I said, Hey, I've had this idea. I actually got the idea in Europe. Ironically, I was running around Europe. Hey, I want to do this and this and this. And he's like, yeah, okay. It was, very dubious. And so he, he kind of helped finance the initial $50, 000 or whatever to get off the ground.

And, we actually had two separate companies. He did, he's, he did mostly paints and I do all the sundry products, waterproofing compounds. We did epoxies, we did even did lubricants, we even did artistic paints at some point. We did a wide range, about 100 different products and I would supply him.

And we kind of were, not to my, but he, we kind of were competing with each other to be honest, but he was in a different market. When I was big enough and I was manufacturing, we had massive machines and everything. 

And he actually went and got into trouble and I actually came and bought him out and merged him with me. So we eventually ended up merging together and working together and he did his side of the business. I had to leave him alone. I couldn't tell him what to do. Yeah. I could give him guidance, but basically, and then I ran the other side, but together, of course, we were stronger. 

[00:23:09] Ronald Skelton: So you grew up around a painting store and, my, my father, not one, I told you half the story.

He was a painter remodeler. And I did that. That, that was his side gig. So he actually worked for a company called anchor paint and we manufactured paint there. 44 or 46 years, he worked at a paint manufacturing company where, and I would work there on the, like, when I, by the time I was old enough to be there, right, I worked there during the summers.

And then, during the, from the time I graduated high school until I joined the military, I'd work there during the winter for sure. Most of the time, even during the summer, I'd put in hours over there. 

[00:23:43] Max Koutney: And, you know, talking about solvent based products.

So one of the things was, you know, I and I've done it in my organic business, was to find new products and new technology that are cleaner and greener and better and healthier. And so we developed a lot of at the time, you know, water based, a lot of the technology came out of the U. S. But We developed and worked with, and we were one of the first to market with some water based enamels and water based, epoxies and things like that, you know, to, to get away from that solvent based product. So interesting. 

[00:24:14] Ronald Skelton: Yeah. When I left there, they were starting to have to do that a lot. They still had an oil based side, but they were starting to have to make a lot of water based stuff and, and,water based enamels and that type of stuff. I've often thought about reaching out because now they're on the third or fourth generation.

I often thought about reaching out to, to them and saying, Hey, would you like to sell your company? Cause I think it'd be cool to buy the company my father worked at for the first few years. But uh, the other side of me says, yeah, that place has been there for 52 years now or something like. It was like it only opened for a few years before my, maybe 60 something years now because my dad's been gone for 15. But it's only, it was only open a few years before he went to work there. He worked there the whole time that place was open. It's been on the same site and same facility before EPA standards came in place. 

Let's talk about, uh, what you're looking for now? Like you've had a really cool wide variety. Everything from granite to, we both had the chemical paint, thing. That you move, you move from, something probably pretty harsh, chemical and pigments and paint to organic. And now you find yourself out there.

You're looking for your next acquisition. Let's talk about the search criteria. You mentioned it earlier, but revamp that real quick and then we're going to dive a little bit deeper into it. 

[00:25:21] Max Koutney: So basically looking for a business, two million EBITDA, about six million EBITDA enterprise value of about 15 to 50 million. And so part of my thesis, investment thesis is on shoring and new shoring.

I believe with new technologies, both with A. I. and robotics. That more and more technology can be applied to our manufacturing facilities here on the U. S. And become competitive. I think also Covid showed, I looked at some businesses during Covid. The competition, which is coming most of the stuff is coming out of the Far East. You know, container rates went from $2, 000 a container to $22, 000 a container.

And, lead times went from the three months to six months. If you could even get it. And then the other business I looked at, they were, they had new shoring, which wasn't in the US, but very close. Three hour flight, next day. So, you know, they, they place the order today, they get it tomorrow, essentially.

So, uh, my whole focus is new shoring and on shoring and essentially manufacturing. And I'm quite open. I have my sort of niche, but I'm, I'm really looking for a business. I can just look at it and get very passionate about. And I have a wide background and, and experience in manufacturing. So it might not be that I know it exactly, but I think I'll have sufficient background in order to learn and grow.

[00:26:36] Ronald Skelton: So there, there's where we verge. You want manufacturing and you want products. I don't believe in or that I want to mess with what I call S. I. B. about businesses, right? I'll be nice and call it stuff. So stuff in a box. So any business where I have to make stuff, put stuff in a box, put the box of stuff on the shelf, ship the box somewhere, maybe even to a warehouse and then ship it to the end party.

That whole logistics of, storage inventory, all that just doesn't appeal to me mainly because I watched what happened during COVID and what, and I've had a small business in that realm where you get the product shipped back to you. It's constant logistics. You know, there is a play inside of it.

I get it. There's people in the world that want to do it. That's awesome. It's not my thing. There's where we verge, right? We both had painting, paint related careers. We're both entrepreneurs. You want to be in the manufacturing space and, create stuff that goes in boxes and get shipped out.

I don't want anything to do with anything that has to be put in a box.

[00:27:29] Max Koutney: Well, I don't necessarily, I mean, it'll be in a box, but it doesn't have to be consumer facing. Ideally I'm looking business to business. So raw materials, uh, so anything business to business is my, my primary focus. 

[00:27:43] Ronald Skelton: I know some people that have done things like, they're the company in Tulsa that it's gone now.

I don't know what they're up to now, but, uh, they tried, recycling. So, uh, they would, it was called upcycled plastics and they would regrind and wash certain plastic and then sell it. And the problem with that, there's was anyways, the market was kind of up and down. So the price of the regrind eventually got to a point where it wasn't worth them the time, the energy and the labor it took to get it to a sellable product.

They couldn't produce it and still, cut a profits for what I understand. But, um, there's gotta be like a lot of stuff that meets the criteria of being a manufacturer and being in that green space, right? They're, 

[00:28:22] Max Koutney: Correct or with an opportunity to get into it, right? So maybe, maybe not in there right now, but there's a trend in that direction. New products, new techniques.Talking about painting, we both have painting backgrounds. I was reading about a company, that essentially has a robot to paint buildings, right? And so that, you know, because labor is very, very, very hard to come by nowadays in the U. S. So there's always a mechanization somewhere, and, and I, I like manufacturing, but I also like, distribution of products.

I just like a repeat, repeat steady business, but that's my background as well. So I tend to follow that. Services is a very interesting business. A lot of people do very well in it. And maybe there's a combination of it um, but I'm not, I must be honest, I'm not an expert in services. 

[00:29:08] Ronald Skelton: There's something in that recycling space.

I helped do a little bit of web work for them and I had some other people, friends of mine that did okay in the recycling space. I was really interested in it for a while. I had a friend that did electronics recycling. Basically, uh, took computers and all that from all the companies, torn down their basic components and then sold it to be like, metal extracted from it. 

And then some of the stuff just had to be, you know, basically waste as little as possible. Sell as much as you can from scrap metal. And then the plastic recycling company, the one thing that kept coming across the table, we've got offered, tons of like literally, we'll give you as many truckloads of you want was rubber tires.

Cause nobody knew what anything they could do with recycling rubber tires. 

[00:29:46] Max Koutney: I actually know somebody out of California that has a patent on something to using recycling tires and using it in, I won't even say it because it's, it's, I don't want to reveal it, but yeah, it's very interesting.

And I have actually looked at some businesses, that manufacture machinery, that is used to recycle equipment and cash and things like that. It's a very, it's an interesting business. It still seems to be in its infancy, but I think, I think there's a lot of growth potential going forward. 

[00:30:17] Ronald Skelton: So, there's two different styles of businesses though. You want to be in a business that's generating revenue, profits and sustains itself now. And there's businesses out that are trying to change the future. And I think Elon Musk did really good with Tesla. Like the whole point of Tesla, he's never really concerned, if you, if you listen to him, you don't, if I was one of his shareholders, I'd be scared snotless. 

I don't own, I don't own Tesla stocks because if you listen to him talk, he's like the pro the point of Tesla is isn't to make the most money possible. The point of tesla is to further the use of electric and electrical cars and electrical things that you know a lot of the technology they don't patent any other technologies.

They give them away Right. So any other like they're, they've got motors in that thing that are only designed by Tesla. They don't patent it stuff. They, um, there's solar roofs and their solar battery pack came from technology engineers that, they learn stuff by building the cars and better ways to store energy.

None of that stuff patent. All the other, all the other car makers and stuff can just look right at their, their stuff, their designs. They make, they basically open sourced all of it. 

[00:31:22] Max Koutney: Yeah, it's interesting model for sure. Yeah, visionary, I think, I think there's two types, I guess coming back to searches.

And I'm no expert on all searches. You probably have more insight on this than myself. But even managers generally, I think they're very, there's some managers that are just good operators and there's some managers that are good operators and visionaries. There's some managers that are bad operators and visionaries, but we'll ignore those for now.

But I think,you want to operate the business, grow the business organically in its existing sphere. But,as far as I'm concerned, when I want to, I'm, I want to buy a boring business and make it sexy. And by doing that, I want to apply technologies that might be cutting edge. So, you know, you're running, you're doing well in what supposed to be doing. 

You're growing organically where you're supposed to be growing and you're looking for opportunities, joint ventures and all new technologies, which you can apply to your industry to change the dynamic and become a market leader in your area. And I think if you're able to do that, it's very difficult to do, but if you're able to do that, I think there's a huge opportunity.

So it's almost like having a private equity play with a venture capital mindset as well. 

[00:32:30] Ronald Skelton: So it's right. I can get that. I can see doing something like, a lot of, there's a lot of industries out there that are very common. They're very toxic as far as the materials and products they have to produce. The one that's coming to my mind tonight, like it was roofing. It's like the people who make asphalt shingles and that stuff.

Horrible, horrible, like, you know, thing, but in order to last 25, 30 years on the roof, they use chemicals and tar and other stuff on those shingles that eventually gets, rinsed off. And that stuff gets in the, a lot of people don't realize that that stuff gets into the ground water and everything else. Right. 

Now, The question is, could you buy a roofing company that does, roofing and then like introduce a green product to it? Like, you know, or at least, you know, something less toxic or even an upcycled product like the tire. Like the, you know, the recycling tires and the roofing or something.

That would be an interesting play to consider. 

[00:33:21] Max Koutney: Absolutely. And I think that's a, a good example. We've take a mundane product and create, I mean, that's essentially what all these new technologies do, right? They take outside of tech, of course, in, in electronics and software.

But in mundane products, I think the new technology that's gonna start happening is we're gonna recreate products that are mundane and make them better, safe and greener. And, I think there's huge opportunity in that, you know, whatever one does, do it in a greener way. And then look, all the corporations and all these huge companies and medium sized businesses are already pushing that, that way.

But I think smaller companies aren't doing it. So if you buy a smaller company, there's an opportunity to do it. It's much harder to rectify a big shift that's been, a massive production. Than to start with a smaller company and then grow that, that as a new opportunity on your product.

So I do, I, I'm very, I'm very passionate about being green, when I green, I don't like to greenwash stuff, but practical, real, uh, changing, you know, not something that's just top line. Oh, it sounds great, but something that has real value either saves money, saves, makes it more efficient. It has to make economic sense.

If we can find solutions that make economic sense, they'll be implemented much, much faster and more effectively than if they don't. 

[00:34:32] Ronald Skelton: And that's the real trick, right? It's one thing to say, this solves this problem, but to say, to find something that both solves a problem and makes financial, good business, right?

It's the whole recycling business. A lot of people don't get how dirty the recycling business is. A lot of times, we all put our stuff in the tubs and we need to see all these exposes where they follow those tubs and most of those tubs end up at the dump anyway. It's just because a lot of that stuff is inherently hard to recycle.

It's not economically viable with the current technologies. So solving that problem would be amazing. 

[00:35:05] Max Koutney: Well, another another example if I may Ron is, for example, buying a plastics company and then finding a green plastic that's biodegradable, right? And moving in that direction, because that's my passion.

Microplastics in the environment are huge concern. They're getting they're getting in every way. I was reading some sort of papers on it where microplastics are now so small and they break down. Plastic doesn't actually break down completely, but the UV breaks it down to these small, small pieces getting into the fish.

It's getting into our food supplies, getting into our kidneys and livers and all that. So it's essentially a toxicity to the whole planet. And one way of doing is getting away from plastic altogether, where we have a true biodegradable product. And so that's sort of one of my, was one of my ideas. Buy a plastics company and then use new technologies where we start offering a green product and then slowly introduce that. But it has to be economically viable, has to work fairly effectively, and it has to be price competitive. So, you know, there's a lot of hurdles to overcome, but I think it is possible.

I think, I think importantly touching on, you know, these different technologies might sound a little highfalutin, but I think the point is if you're running a business and there's opportunity, there's so many opportunities to, to find either new efficiencies, you know, reducing efficient, uh, you know, labor costs.

[00:36:20] Max Koutney: And or just creating new products that have, a better for the environment. And I, I think small businesses possibly have an advantage. I don't know if they do. They used to before Google. You know, you do a search on Google and it's all just corporations. 10 to 15 years ago, you do the search and there's all these small companies.

So I don't know how long the small advantage to small business will last, but for now just being more creative. And I think it's important to be a good operator, but I think it's also important to have a bit of vision and be creative and look for new opportunities as well. 

[00:36:50] Ronald Skelton: Are there any businesses in that realm? You're just like where there's red flags, like I'm not interested in X, right? So I know like, for instance, I have a buying criteria for buying criteria for websites, blogs, newsletters and stuff and stuff I'm looking for. But, uh, I kind of have, a criteria where if it takes more than five people to, uh, to run it, then I'm, it better be pretty big, right?

I'm looking for things that are very efficient in that space. Anything less than a 75 percent profit margin is running really poorly. Most of the time, these things run on really high profit margin. That said, occasionally you'll find somebody who has a six figure blog and the thing's barely making any money because he's got six writers and he's just doing it all wrong.

Is there anything inside of the space, inside of your search that says, you know, I'm looking for X, Y, and Z, but I won't buy, like I'm looking for blogs and newsletters and stuff, but I don't do anything that's risque. I don't do any adult stuff. I'm not interested in any, you know, political stuff. Anything that's very, racially or, um, spiritually biased one way or the other.

I'm just not interested in any of that garbage. To me, it's just a, it's an energy drain. It might be very profitable, but to me, I see it as like, that's just going to suck energy out of my life. Are there things inside of your search criteria is like, I'm not interested in going down this path? 

[00:38:10] Max Koutney: Yeah. I mean, there's a lot, there's a long list of not, not interests.

I think there's a much shorter list of interests. Okay. I've looked at some cannabis companies. Amazing companies growing exponentially.Very profitable. Just not, not, not my area of expertise. I think you've got to be able to use the product to know that to sell the product and I don't use it.

So, you know, I, and that type of thing, and I think generally speaking, if I just look at the business and if you have to have a good feel for it, and if it's something you feel you can be passionate about that you can, you see a vision for it and you really want to get involved in it, then I think then it's a good fit.

But if it's something where you look at it, you're like, I don't really know the industry that well, I find fascinating in the search industry in the traditional search industry because I'm not in my area of expertise in those stone. We are very focused on our past experience and sort of all around that past experience.

But in the traditional search,a lot of the searches are industry agnostic. And I've spoken to a few of them and a lot of them end up in SaaS after six months of deciding what to do. So just a memo to you guys, maybe start in SaaS, you know, just joking. Uh,but the point is that I think it's a little more difficult if you industry agnostic completely.

And you have to find an industry you're passionate for. And I think that's probably the first phase of the search in a traditional search is you've got to find an industry you're really excited about and then focus in that area. I do believe you've got to have passion and because passion leads to creativity, creativity leads to new opportunities. So, you know, that's just my view.

[00:39:42] Ronald Skelton: It's very common in Oklahoma. All my real estate investor buddies like, Hey, we should get in here, open this cannabis shop with you.

I wasn't interested. I was like, one, it's still not federally okay. So you've got a lot of problems. And the secondly, because it's not federally okay, you got to be careful going state to state. Most of the people, at least in Oklahoma, most of the people are operating one, we're operating something like it before it was legal at all.

So their mentality is that they still do things they probably shouldn't. I have friends right now that are in trouble because they partnered with somebody else that knew the space and the person knew in the space was taking stuff in or out of the state and now they're facing charges, right? And because they're a partner in it or invested in it or funded it, they face the same charges as the guy that like was, own it and did the, broke the law so they can go to jail.

Not interested in that at all. But inside of that space, there's something I would be interested in seeing a lot more happen with, and that's hemp. Hemp paper, hemp concrete, there's just, there's a tremendous amount of use for that fiber. We used to use, many, many years ago, we used it really well. We made clothes out of it, rope out it and everything else.

And then we fell out of favor in it. I think it's better than trees. I think we could make paper and other products out of it way better. So that might be a play that if you bought like a paper manufacturer or somebody that did,cardboard manufacturer, whatever, and then switch the, the fiber over to something that's green and re reproducible, that'd be fun to see happen.

[00:41:01] Max Koutney: That, that is very interesting. I did look, uh, you know, was a feedstock for something in one of the projects I was working on. And I considered that as well. And, I'm not a expert on it, but I believe it grows very quickly, too. As you say, I mean, that could be a whole play, uh, you know, as a replacement for trees and foresting.

Um, so, yeah, that's the kind of lateral and new thinking that I think is required, or I'd like to think anyway. I think, I'm self funded. Well, I'm not self funded right now, but I was, I was bootstrapped my entire life. So every single cent counted, I would, mentality is ingrained in me is I have to spend this 10 cents.

Am I going to get 15 cents in return? Right. And I might not get it now. I might get, five years down the line, but, or am I going to get a, I'm going to get a 30 cents return, whatever it is. But you've got it, you've got to make sure you're getting a return on your investment. So it's not pie in the sky thinking these things can be done on the side as new developments and new product and R and D.

I think one of the things I did do well was developing new and unique products. And that put us on the map in my businesses or some of the areas I didn't do well. I can lose a long list of those, but it's, but so, so I think it's important to, to be open and be creative. And drive it from the top because you are in the department one thing, but you know, your holes, I mean, that's Musk does, right?

I mean, that's what he does very well. He takes his businesses and he drives the vision of where he wants the future of that company to go. He's not sitting in the lab actually doing a lot of this stuff, but he's involved in it to a point where he understands it and then he, he can drive it where he feels it's appropriate.

And I think it's important to understand your business. I always find it fascinating when, when a CEO doesn't even know how to manufacture something, right? You see the shows, the hidden, the CEO undercover and the CEO goes and he has to be on the line and does all this stuff and he realizes, my gosh, this is actually a lot of work. And there's, there's ways we could make this far more efficient. And so I think you gotta be,you gotta have a holistic approach to the business, understand all aspects of it and, uh, and be able to, uh, be creative as well. If you truly understand it, you're also creative. 

[00:43:17] Ronald Skelton: You brought up an interesting point that I share with people when they, because people still pitch me for ideas and stuff like, Hey, I got this idea. I want you to fund it and tell them I don't, but I'll hear your idea and we'll, we'll play the brainstorming game.

I'll help you with it. The end of the story is most of the time I'll tell them most of their ideas are products or something they want to create. And I usually tell them, go find a company. You said this or kind of in passing in your statement there is, go find a company that's already producing something similar. That would be a beneficial product to be in their product line. But it's already up. It's already running and preferably it's so profitable that it can fund your idea for your new product. Now you've got a bunch of different things right. Now you've got a company with existing customers, product market fit, loyalty and rapport with those customers. You introduce something new, your idea you're buying the company because you know it fits to that customer criteria. And you're going to find out within weeks as opposed to you create a minimal viable product, basically the minimum thing you can get to a customer in front of them and see if they use it and get the feedback. You'll know right away whether or not it was a, a win or a loss.

And then you can expand on it. The same thing you can do if you wanted to add green products and stuff is find a space in it that, could use that improvement. Now you come up with your own little product ideas that say, I could approve it doing this. Meanwhile, it's generating revenue and it can afford to pay for your, your idea lab.

Your, uh, visionary side of it instead of the operator side, right? 

[00:44:40] Max Koutney: I agree. I mean, use it as part of your R& D. You know, you should always do R and D and new development. And if it's a product or a service or a software, it doesn't matter. You R and D more of the time. And the best feedback to get is from customers because they're going to use it and then tell you, no, this is terrible.

This could be improved and then you could improve the product. So yeah, I agree with you. But at the same time, be careful because you got to do it gently and you got to do it slowly because if you can't just replace you got to do what you, what the business is doing. Do well continue to do it and grow it and then add to it. But don't just try and add to it and destroy that other business or neglect that other side 

[00:45:18] Ronald Skelton: Yeah, a lot of people they jump into something and they buy something to go, or they you know, they get on the call with me and go, Hey, I'm, I've got an LOI.

When I get to hold this business, I'm going to do X, Y, Z. And then I really, my first thing is how fast are you going to do all that? Right. And I like to play a game with them. I was like, cool. That guy that you just bought that business from and has been running her for one, the one that comes to my mind, the guy's been running this business for 42 years.

So the guy's been, he's, it was his first business they ever started. He had a home run their first shot and he's been running his whole life. Right. He's in his seventies, maybe close to 80 now. And he's thinking about selling it. 42 years, he's been running this business and you're going to go in and make all these changes on day one.

What makes you think right out of college, more than somebody that's been in that industry knows that industry and been running this and making two to 3 million a year profit every year for the last 30 something of the 40 something years. 

[00:46:05] Max Koutney: Probably tried in those 40 years. He's probably tried half the things you've already going to try now. So he probably could give you feedback and tell you why it didn't work at the time.

And, sometimes ideas don't work as a timing and maybe it was too early and you've got to try it later or you've got to improve it or you've got to tweak it. But yeah, I agree. And that, coming back, that's why you've got to keep that founder on board. Use them as a sounding board, use that experience because it, even, even as a seasoned entrepreneur, such as myself, I think the biggest mistake any, anybody can take, do as a CEO or as a searcher was running a new business is being arrogant that you think you know better than everybody else. You've got to be very careful. 

[00:46:43] Ronald Skelton: So let's talk about, we're going to run out of time here, but let's just talk about one more thing before we wrap this up is, what are you doing now for your search?

How are you sourcing deals? What is your process look like? So that other search funders can kind of get some ideas from, for you, from you on how they, they go out and find things. 

[00:47:00] Max Koutney: Well, I'm, I'm finding a fair amount of traction in proprietary outreach. A lot of the deals are too small, although, you know, a lot of the responses are getting too small, but I still think they're very valuable.

I will say I've learned so much in the last six months. I've just enormous amount of information and knowledge speaking to other entrepreneurs. I've spoken to some, uh, he grew his business over 10, 15 years to a 20 million a year business. And then he had a CFO, fractional CFO, wasn't keeping his eye on the ball.

And now he's in, you know, chapter 11, trying to work his way out of that. I've had others that have done very, very well just pre COVID. The sales were doing this, but they were in the airline industry was the bulk of their customers and COVID 19 hit and everything fell apart. So it's just been fantastic to hear the stories of different people, learn from those stories, learn, learn and connect.

And so, I would say, you know, proprietary outreach. And if even if they're not, I speak to everybody as far as proprietary outreach, because even if it's not right from the beginning, I'll see and see it's not a good fit for me. I still talk to them because first of all, it's connection. First of all, and secondly, I learned something and thirdly, maybe if I'm in that space later on down the line,maybe there's a joint venture opportunity or a bolt on opportunity later on.

So be open minded. And I use, of course, broken networks, but I also I'm reaching out to a lot of, um, other searches that maybe I, for example, gave a deal to a colleague of mine in Austin. And they're under LOI and he's busy going through due diligence and probably close. You transfer some businesses to others that, that isn't your experience, not your profile.

They'll do better with it because it's their experience and vice versa, they'll give you stuff that's not in their wheelhouse and is in your wheelhouse. So, you know, that's a lot of the deals that are being sourced just through colleagues and, and contacts and, and business brokers to an extent. And, and, an outreach. 

[00:49:01] Ronald Skelton: Awesome. Awesome. I get that you say proprietary outreach, you do cold outreach and that type of stuff. Something you guys built in house with your, with the project you're on or?

[00:49:08] Max Koutney: There's something built in house, but, I mean, it's not that difficult, it's just a matter of having a genuine message.

I think that's important. I think if you come at, look, you know, getting somebody to sell in your business is not about money. Right? Because in many cases, search funds don't offer more money, especially if you're in the higher end and you're in a 20, 30, $40 million space. Founders don't necessarily want to sell to the highest bid.

I sold my first, the business I had 100 employees on, I sold that business to a strategic. And within a year, that alienated my brand, that alienated my employees, and that alienated my customers. I didn't even know what the hell they were doing. But there was arrogance. And so you've got to build the confidence of the seller, right?

So it's not just building the confidence of the investors, but you've also got to build the confidence of the seller. And I think be real and in your outreach, be real, be yourself and, you know, offer something that, that others aren't offering. And that's essentially PE firms aren't offering and that's, that's a connection. 

[00:50:11] Ronald Skelton: How do people reach out to you? What's the best way for somebody? If they, they heard, they heard something that they know there's a business out there you might want to see, or they want to connect with you and help you in your search or for whatever reason, if somebody wants to reach out to you, what's the best way you want them to do that?

[00:50:25] Max Koutney: Yeah. I mean, other searches, anybody who has a business, brokers, investors. You name it. Probably LinkedIn, uh, my LinkedIn page, probably the fastest and most efficient, uh, just cause I get so much email. I might miss it, but it's the LinkedIn. I'll get around to it. 

[00:50:39] Ronald Skelton: And your LinkedIn is linkedin. com slash in slash max, M A X dash business.

And, uh, I'll, uh, put that in the show notes for people that can see that. 

[00:50:49] Max Koutney: Thank you very much, Ron. Great conversation. As always, very interesting and, appreciate your time. 

[00:50:56] Ronald Skelton: Well, hang out for a few minutes after the show. We'll call that a show. And, uh, thank you very much. 

[00:51:01] Max Koutney: Thanks, Ron.