E201: Trading Treadmills for Acquisitions: Reid Tileston's Journey to Entrepreneurial Success

[00:00:00] Ronald Skelton: Hello and welcome to the How2Exit Podcast. Today I'm here with Reid Tileston and we're going to talk about everything mergers and acquisitions, buying and selling companies and what that means. Thank you for being here today, Reid.

[00:00:10] Reid Tileston: My pleasure. Thank you so much for having me.

[00:00:13] Ronald Skelton: Awesome. Awesome. We always start off with the origin story. The joke everybody's sick of hearing it's like you were born and then you ended up on a show about mergers and acquisitions. How in the hell did he end up here? It's like, give us your background, man. Tell us, and I read about it.

It looks pretty cool. So tell us, tell us who you are and how you ended up here.

[00:00:28] Reid Tileston: Well, you want to know the real origin story is that late 1970s in Palo Alto, so not too far from where you are. My dad and his first cousin were at the starting line of a running race. It was a hot day and they were dressing their seventies attire, short shorts, tank tops, all kinds of body hair. They're worried about chafing.

Okay. So they had like a big bottle of Vaseline and they're lubing up their inner armpits, inner thighs and their nipples to avoid chafing. No joke, Ron. My mother comes up and was like, my future mother was like, Hey guys, I forgot my Vaseline at home. Can I borrow some of yours? So I'm like the child of two Northern California hippie runner people.

And then I was out at San Francisco's second oldest pub on battery street in 2007 called the Old Ship Saloon. It's pretty cool, Ron. They have a mass outside the pub that was from a ship that sunk during the gold rush. So pretty cool stuff. I was, at the time I was 23 years old. I'd gone to UC Berkeley undergrad.

I was working in finance and had 100, 000 bucks saved up right through my work. It was good situation. I was working at this trend setting venture capital, private equity firm called Industry Ventures. They now, by the way, have like 1. 3 billion under management. Back then it was like 30 million.

So they've done some good growth. I was out with two private equity pros that were looking at acquiring franchisors. They were looking at anytime fitness in particular. At that point in my life, I just wasn't quite sure what I wanted to do. I loved Industry Ventures. I didn't really want to be a spreadsheet jockey.

I was very much like an on the ground, hands on kind of individual. And also, my parents might run a marathon. So I like fitness. So as they were talking about these opportunities, they were looking at the franchise locations and how they were performing. And it became pretty clear that these things could be a really good financial return.

So long story short, I, we ended up partnering. I ended up leaving my job in San Francisco. Kept of course, my finance salary I was going to keep. So it all was good. We had a third equity and we went out, I went out into the California Central Valley. And opened up a fitness club in Sacramento in December, 2007.

Right when the great recession began. That's when I had my core identity that I was, at that point, I was what I'll call an equity employee. I didn't control the business. I had good equity upside in it, but there were three partners. That's when I had my identity that I'm a business owner, because what I did to have that club make money, is I dressed up in a purple superhero suit called captain running man.

Pounded the pavement, as you can appreciate, in like the 95 degree Sacramento summer heat. Got the club to make a couple thousand bucks a month which is not a great ROI or a great IRR for me or the partners. But I learned so many lessons about how to run a business, how to choose a site, the whole nine yards, that I was able to go out on my own during the Great Recession and become a multi unit anytime fitness club owner operator.

So I've bought and sold four businesses. But what I have to tell people is that, why am I here? Because I want to engage your audience and help them to achieve what their American dream is. At my core, over 16 years of doing this, I've got to live my American dream and I'm stoked about that and grateful for it.

So, now I'm just happy to engage with people on how they can do the same through what I'll call entrepreneurial business ownership. And, after my last exit, I thought it'd be fun to write a book about it. It's called Grid At Done Low Risk Guide to Entrepreneurial Success. You can get it at gridatdone.com. Cost 99 cents through the end of May, and that's my life story.

[00:04:03] Ronald Skelton: Awesome, man. Awesome. And I've seen those anywhere that, that, uh, franchise kind of took off. It's what it reminds me of the Anytime Fitness is remind me of kind of like the,the little,markets that pop up and the little dollar generals and stuff that pop up in the little areas. They had Anytime Fitnesses pop up in the middle, middle times, towns all the time.

So, uh, I don't know how many, Anytime Fitness franchises there are today. I have to assume it's in the thousands.

[00:04:28] Reid Tileston: Yeah. It's um, and I sold my very last one in March of 2022. You'll appreciate it. It's not too far from you in the great town of Winters, California, which if you haven't checked out yet, Ron, you got to go to. This is, I'm hesitant to say this, it's like the coolest under the radar town, I think in all of Northern California. I owned a business there for 12 years, big fan. But yeah, Anytime Fitness Clubs, and I think these opportunities have been gone for a number of years.

The bottom line is, they do exceptionally well in small towns, as little as 4, 000 people, quite frankly, where there's limited to no competition. So it's a great concept, just merged with Orange Theory Fitness actually. I think they announced it two weeks ago. So they got some private equity money. Maybe, I don't know, don't quote me on it 10 ish years ago.

So they've been work capital as a minority investment and work has kind of pushed them to do some very interesting things. So yeah, great brand certainly treated me well. But the fun part about Anytime Fitness and also with other endeavors I've been involved in, so fulfilling Ron to open these clubs in small towns like Winters, we'll use that as an example.

These towns, people are driving 20 minutes to get a workout in. And because of that, they're not achieving their goals. And you open a club like that, provide a good service, get super involved in the community, have the chance to improve the, you know, improve lives and have the fun. I mean, 90 percent of the fun for me about small business ownership, is just the relationships that I make and the positive impact I can have on my team members and my customers.

As time goes on, funny story, one of the best team members that I ever had the chance to hire with a fitness business, I was sitting in a coffee shop. Really cool coffee shop. It's like where everybody in town hangs out. Like the mayor's there. You can catch the gossip. You can kind of get everything going.

And I go into the story in the book as well, but I'm in the coffee shop. Just kind of listening to people and understanding what the towns were like, because I'm an outsider. Like, what do I know? And I'm sitting there. I'm actually at my laptop and I'm doing some calculations about, tenant improvement costs and this and that.

When out of nowhere, someone grabs my, they grabbed my bicep. I look up and I was like, Hey. And she was like, sorry to bother you. My name is X, Y, Z. And I hear that you're the guy that's like looking at opening a, a club here in town. Is that right? And I'm like, yeah, yeah. We got to go through some like permitting, but we're just about there.

She's like, I want to be your first member. I'm really excited to sign up. So we kept the conversation going and she ended up being a club manager for me for 12 years until I sold the club. And also even after the club is sold, she's still one of, she's still, we still have an excellent relationship. So one thing I think people don't always realize about being a entrepreneurial business owner, is that you'll get the freedom and the autonomy.

If you, if you do it right, you can certainly get those things. That's why I think a lot of people do end up doing it, but ultimately the people that you, that I've met along the process is really what drives that fulfillment. Whether it be entrepreneurial employee team members, like the ones that I mentioned, customers, fun podcast hosts that I meet in the process. Journey of small business ownership can be about the people so much.

[00:07:41] Ronald Skelton: Well, I was telling you before they, hit the record button that my wife mentioned that she wanted to get into the food business, buy a food truck. My wife's one of these people who just isn't entrepreneurial by nature. And if you ask her what her goal was, you know, she's not goal driven either.

So my initial response was very poor, very horrible. My initial response was your diet, she's like, I said, you want to do what? And she's like, yeah, I want to do a food truck. You remember that guy you had on your podcast talking about the donut trucks? I think we want to do that. 

She said, Caleb and I will run it. I said, sweetheart, you're diabetic and I'm overweight. We do not need to own a donut truck. And I shut the whole idea down. And then I saw it, started thinking about this is the first time she actually like, brought something to, like that to me that it was very doable.

She does arts and crafts and other stuff too, but like, this is really doable. And this is something we could, probably pull off. I was like, you know what, why do I have to, why do I have to assume we're going to eat this stuff, right? We can own something, build it, and build a business around it without having to like taste every serving that goes out the door.

So, uh, you know, the reason I even brought it up is that's like, my second sentence to her was like, we shouldn't be buying a food truck. We should be buying a damn gym.Like we need to surround ourselves with fitness, right? So,

[00:08:52] Reid Tileston: Yeah, it's funny. I looked at an acquisition also in Northern California. The LLC name for this fitness center, Three Fat Guys, comma LLC. And the three individuals, they definitely lived up to that reputation. So yeah. Half the fun is figuring out what you want to name something, what you want to name something, right?

[00:09:08] Ronald Skelton: Well, I think we're, we're well on this path. So let's talk about, you've done the, so that was a franchise model. So you've done the franchise model you did pre, before the franchise, you were working in the kind of venture capital. So you got the startup model.

And then I know from reading your bio and some other stuff, you actually done some industrial stuff too. Was that on the franchise side or was that non franchise? 

[00:09:27] Reid Tileston: On the investor side, it's been on both. What I'm happy to do is, cause I've been lucky enough to have my own capital to invest is that, mainly for people that are down and willing to sign the SBA personal guarantee for a 7a loan. And, they need help filling that equity gap. Sometimes because they don't have the money to do it.

Although I tell people just, you can scrap and find family and friends. I'm happy to fill that equity gap. So I do some investing around that. In addition, I think that a lot of operators are really smart, even if they have the money to have 100 percent ownership. To give up some of those, some of that ownership upside. 

Some of it, not all of it, but some of it for individuals that can help mentor and coach them through the process. Business ownership can be lonely. When I was multi unit Anytime Fitness Club owner, I had the franchisor, and I knew a lot of club owners around and I would always dress up in that purple superhero suit for their grand openings or this and that.

I mean, it was fun, but what I really lacked Ron, is I lacked a group like an EO or a YPO or that right community for me. So I ended up going to business school to find that. And I have no regrets about business school. I mean, Chicago booth, it was absolutely fantastic. Had some life altering events there for me in the acquisition space.

But I always do wonder if I'd had a good peer group of advisors around me, what they might have, what ideas might have come out of the fact that I was a multi unit club owner with excellent cash flow and full freedom and everything like that. It's just interesting to think about what those, what those counterfactuals would, uh, would be.

So big key takeaway, I go into it in the book a lot and I just can't stress it enough. Both when you're searching for a business to buy and when you operate the business. Find the right peer group to do that with. If you want to have an extra challenge and you like loneliness, I don't know, I don't know anyone that does, but maybe you do then do this alone.

But do a lot of diligence on that. And don't just my, my guidance is, don't just join the first one that you see, but talk to a bunch of them. There's a lot of them out there. A lot of people that teach this, a lot of conferences, there's a lot of MBA programs if you want to go that route, but really take the time to try to find that right peer fit.

Because if you are able to, the sky is the limit for what those relationships can end up doing. And I've experienced it and I've seen it happen to others as well. It's one of those things where the possibilities truly become endless. I know you do networking as part of your podcast. You did one together.

I mean, that stuff is just great and go to as many of those as possible. It's like a critical part of diligence and operating. So want to, um, be careful to, be careful with that.

[00:12:02] Ronald Skelton: Yeah, I do. We do that twice a month. It's free. And I do it to meet the listeners. And we have a lot of times, the guests like yourself will pop into those. So usually there's about 25 to 30 people show up. We do them twice a month. And not heavily promoted, but it is on LinkedIn and on meetup. So, but it's usually listeners and one or two of the previous, you know, host.

So, I've had, some really cool people show up too. Like some really, high end authors and stuff show up in there and hang out with us and answer questions. I do that for which is exactly what you said. As an entrepreneur, like if, if I have an epiphany in the middle of the day, I can't call my wife cause my wife still does work a full time job.

That's where we get our benefits and dental and vision and all that stuff. We always, wherever we live, we find the place that has the best benefits and that's where she goes to work, right? I can't call. Most of my friends are either, at work because they have a job. Like all my old military buddies and stuff.

I still take and talk to actors or their other entrepreneurs and they're busy trying to run their daggum business during the day. So it is very, it is very lonely of you. Like in that, in the realm of, especially when you're in between, like, I don't have 30 employees right now. I've run a couple of small things that are just a few people.

So, having that peer group and that people you can, and I participate in more than just mine. So I go to about three of those a week. Where I, I go sit in with other entrepreneurs and I take an advisory role or a peer role. I'm just one of the peers. So, it is critical. I think you're running yourself with people in this space.

And people who are, even the people that are one step behind you. Like I was looking at your profile, you do some adjunct professoring and stuff. That's inspiring too. And I did it a little while. About two years, I did adjunct professoring. What do you find when you are around people who are trying to get into the space, but not quite there yet?

[00:13:42] Reid Tileston: Yeah, I find a couple of things. One is that validating exactly what you said. The fun part about being a teacher, is that the students push the teacher to get better. It is fantastic. In order to teach something, you have to know it really well. So students that are out there listening to this, the burden is on you.

Come prepared to class, do the hard work because then you're going to level up the existence for your teacher as well. And I cannot stress enough that, it is enjoyable to teach when the students are engaged. And I'll do my part to give energy and give my experience shares and to share my story and share the stories of others.

But bring your A game and that's how you can create these special containers in the classroom. And also talk about the peer groups. These classes that I teach, right? I always tell people you don't realize the power of the peers that are around you right now. These connections can matter so much. Like talk to me.

That's fine. I'm here for you. Reach out. But engage with your classmates. Let's build a special container here. When I was doing diligence on a business that I bought some years later, an industrial services business, one of my classmates from business school, we TA the very first class at Chicago booth on entrepreneurship through acquisition. Which by the way, Ron, Since 2015, building curriculum from the ground up on, on anything is difficult, but to a group of Chicago Booth students, I mean, this has turned into like a 40 hour a week endeavor. Great relationship with the TA and the, and the two first time adjuncts that was just transformational for me.

And it inspired me to go out and buy another business after business school. But you know, since I did that, that's where I really got the intrinsic drive to say, you know what, once I've been, not that I wasn't successful with the fitness clubs, but once I attain a level of success like these two professors have, which, I would argue I've done now.

I want to go back and teach this. So teaching is fantastic. And I'm just, I'm blessed and honored that I have the opportunity to do it and to be able to see the impact that the class have that that has on the people that I'm able to teach is just is, is great. And, um, we have a lot of fun.

We have a lot of fun in the process as well. But last thing I'll say, what I've also learned is that you have to know 1 percent more than the students, just 1 percent more. That's a, that's it. As long as you're on that, you're a, you're set and good to go. And no joke, I recently got invited, this is maybe two or three months ago, to do a panel on entrepreneurship through acquisition.

So I was on an investor panel, a pitch competition for high school kids. So it was the first high school pitch competition ETA that I'd ever seen at a university or at a school out in Cleveland. And I got to tell you, these kids, I give them a 10 out of 10. They talked about the traditional, traditional stuff we hear about all the time.

I want to do a roll up in the HVAC space. Cool. That's awesome. But some of the unique businesses I'd never even heard of, they actually, one group found a company that collects golf balls that are in lakes at golf courses. I had no idea. And I know a lot, I mean, I see like unique companies all the time. I had no idea that this company, a company like that even existed.

They broke down the, the major players in the space, the fragmentation. It's just like a group of 17 year olds. I was like, wow. So, it's very cool to be inspired by students. So students out there, if you ever take one of my classes, the burden is on you to come prepared, drive that engagement. That is how you'll get a ton out of it as well.

And by the way, being on your podcast right now, it's the same thing. You know, you mentioned the podcast is all about the guests, right? To me, the podcast is all about the audience out there, and I want to make sure that I bring my A game, so I can make it as easy as a process. It is for you to get value, the audience out there. 

[00:17:14] Ronald Skelton: Let's go back to your, you mentioned that you admired, uh, was that an industrial servicing company? What kind of, what was that?

[00:17:21] Reid Tileston: Oh, it's the best kind of business, Ron. It's the dirty work that keeps the country running. So it's things like grease trap pumping, kitchen hood exhaust cleaning, factory maintenance, dock cleaning, factor trucks, catch basins, you name it, that this company did it. Absolutely fantastic business. Bought it with my own equity and levered up with a very big SBA loan.

It really hit all the criteria that I look for in businesses. And I coach people that I teach and invest to. Fragmented customer base, recurring revenue. Pretty stable, I mean, stable management team. There's definitely CapEx in the space cause you got, pumper trucks and backhoe trucks, but very manageable as well.

So yeah, just really hit. And I have, there's a lot of tools out there, scorecards that could be used to analyze businesses. I have my own. I call it the double diamond. It's in the book. You can find it on the website. You put in your email, all that good stuff. It works really well for me. So I encourage people to check it out or find a tool that you have.

And this business just hits super high on all those tools. So moved across the country to the Midwest, bought it. It was already a great business when I bought it. I grew it through the pandemic. It was an essential business. Big, relied on food service a lot. Actually more than half the business was food service, but still managed to significantly grow through the pandemic.

I was high margin when I bought it. It was higher margin when I sold it. So revenue, EBITDA margins, headcount, whole nine yards. Wanted to sell it, so debating if I want to sell it to a strategic acquirer or to an ESOP. I'm very big on employee ownership and this is a dirty business.

So I think the people that are doing that kind of dirty work should be the owners of it. I got an ESOP approved through credit with an SBA lender for a seven, eight deal. Which no joke Ron, no joke would have actually improved cash flows to the business, even though the interest rates were higher. And the loan principle was higher as well because the business was worth more than when I bought it.

But because with ESOPs, and again, if you hate taxes, you'll love ESOPs. It's the only debt instrument that I know of and maybe one of your listeners or guests could correct me, we're both the interest. And the debt itself are tax free. So I had this cool ESOP deal set up. I couldn't pull the trigger on it because I didn't, even though I could monetize the governance costs of an ESOP, because I thought, Hey, you literally have to have someone who's going to be in charge of the ESOP as a full time job.

Call it 80K a year. You got to pay the annual valuations. I just could never get comfortable with the board and the governance structure of it. I thought it would just slow the business down too much. So long story short, I figured out the present value of what employee ownership would be worth to the team members.

Then I went out to a strategic and, I basically did it. I proposed a price to them. That was the same of what I would have gotten out of the ESOP when I adjusted for taxes and just my like personal cashflow out of it, which was going to be a solid exit. That I figured out what the present value of what I thought employee ownership was worth.

And I asked him for an increase of price, where I could pay the team members retention, cash retention bonuses, that worth the same discounted monetary value of ESOP ownership. And I did that. And ultimately, the deal closed at that price, even though I grew the business a lot from signed LOI to close time.

And it was also nice because, we all know that closing the business is a quack. And people always think that like selling a successful business is going to be easy, right? You think it'd be like a victory lap. Heck no! It's a quagmire and a half, right. But it was really nice for me because the entire time I, I had this ESOP that I was just like almost, I was literally like, I could do this.

I could do this. So I always had a really viable alternative. So if challenges came about, I was just ready to move. So great experience. But again, the most, the best part of it for me is that, I didn't need to do this. I look at it as a, working on the business versus in the business activity, because it's such a dirty technician driven business.

If you knew me before I bought it, Ron, I'm the fitness kid from California. I didn't even know, no joke, I didn't know what mechanically inclined even meant. Like, let that sink in for a second. Let that sink in for your listeners. I didn't know what mechanically inclined even actually meant.But, and I was searching mainly at this point in businesses and fitness and franchising.

I think that there are great spaces and I knew a lot about them. But I also kept 20 percent of my search open for opportunistic things that would come up and this was one. It was a broker deal from a generational. But I didn't know anything about the space. But when I bought it, I was like, I'm going to, I'm going to get out in the field and I'm going to get my CDL.

And I'm going to do that one so I can build the kind of culture I want to. And be so I can be a better leader and see, because, I think that in order to really be effective in a business like this, I can crush it. If I have that, like, spend time in the field when I need to. So I had ton of fun doing that.

Ton of fun, uh, just doing some of the, what I'll call the people projects with individuals that I really, you know, invested in. Whether it be helping them get driver's licenses or getting their own CDLs or getting more certifications and things like that. Help one guy files unpaid taxes, which is a whole interesting thing to go through.

So it was just fun in that business. Like, the people projects and getting out in the field was completely the fun part of it. And I also think that it's why ultimately, I was able to do so well in that business. Because for example, I bought the business and all the scheduling, this business was doing, it was doing a little bit less than a million bucks in EBITDA, right.

When I bought it. So this is,and I had, I had a bid against strategics to win the deal, right. So this is a very good business. All the fundamentals just, I mean, there's challenges, but the fundamentals were good. But I think a reason I was able to be successful with it is because like, for example, and I want to take the business from pencil and paper scheduling, right?

And to the cloud, and there's all kinds of field service options out there. I wanted to know exactly what that was going to feel like and be like for the technicians, so that the transition was successful. So I was, I think it's important that working, when you want to sell a business, it's critical that you are redundant, right? 

You don't need to be there. So it's always critical to make sure that you're working on the business and not in the business. But in this industrial services firm, I think that working in the business was working on the business at the same time. So it was,it was fun to go through.

So that was, that was May 2022 when that business got sold. Strategic's happy. All the retention bonuses got paid. I'm happy. And then You know, since that point I've been, I've been investing, that's when I started teaching. That's when I started writing the book. And I also, cause I like challenges I'm working on a, I'm working on a PhD at Case Western Reserve University, which will be done in two years where I'm, I basically studying entrepreneurship through acquisition.

And the lens I start with it at is, I don't think anyone had ever talked to sellers before of successful businesses about if they were satisfied with their sale or not. And I'm not talking about, selling the, uh, I'll joke selling the food truck that was, you didn't really enjoy. But, businesses that are making at least 500 K of EBITDA and most of these businesses are making in the millions.

So I did some cool qualitative work, which I'm building on now about what drives satisfaction for business sales. And I got to tell you, and I analyzed about a 32 transactions, 30 sellers, really, really, really cool stuff that came out of that. So bottom line, I'm just like a small business enthusiast. I think that 43 percent point, 43. 5 percent of the U S economy is GDP is from businesses with less than 500 people. And the amount of, I think attention that gets is just not enough, right? So I'm just very passionate about the space overall and trying to, teach and empower people to, uh, to get into it. And by the way, what institution Ron, do you think Americans have the most faith in of any most confidence in rather of any U S institution?

[00:25:04] Ronald Skelton: I'm not even sure. The, uh, SBA maybe, I don't know. Guessing.

[00:25:10] Reid Tileston: Yeah, yeah, you're close. You're close. No joke. Gallup polls, it polls Americans every summer and it has consistently been a small business as an institution. 65 percent last year religion gets 32%. Congress gets 8 percent. And small business has been the highest. Pretty consistently for, I'd say 10 plus years.

So I joke it's like you're to be the most popular person. Okay. If you, I tell you that, if you follow the steps in the book or you get the right education and you're thoughtful that, you can, you can minimize your risk relative the alternatives. You're going to have great freedom, great autonomy, you're going to potentially be able to help some people in the process.

Also, as I know, you can appreciate and a lot of your other guests and listeners can. The pile of paperwork in a small business is like this high. So you see how the sausage of our great country is made. And I think it certainly made me a heck of a lot more civic minded. So I just view this opportunity as a great thing that everyone should at least consider doing when the time is right for them.

And we can talk about the silver tsunami and the demographic changes that exist for acquisitions and supply. There's a lot of companies, there's a lot of buyers as well. But I really think that, this is a great option for people to do. And not just for the people, by the way, that are, looking to buy like a $2 million EBITDA business, but take the end of like, take the average American who's making $1, 118 a week in wages. 

And let's gross it up to 70 K a year with benefits and the such. I would tell you my opinion is that if that person goes out and levers up with an SBA 7a loan, and they buy a business making 500 K a year, and of course, they got to have some equity to put into it, right. 

And if they get investment, it's going to dilute them. But if you do that and assume no growth, just assume it stays stable, they're going to make more money while they own it. They're going to have, I would tell you if they do some smart things and they spend time in the business, then eventually they can get to a point where the business works more for them than they do for the business.

They're going to make more money. They're going to have more autonomy and freedom. They're also again, going to be able to improve some lives, become more civic minded and a year 10 Ron, when the SBA debts paid off, even if they don't grow it at all and they bought it for the multiple that they sell it for what the multiple they bought it at, it's going to be like a seven figure exit in some way.

So I just think that, every individual should have this on their radar screen at some point in their career. So that's why I get, that's why I get inspired about. And that's, uh, it's kind of why I'm having conversations like this right here. Cause, I do a lot around this stuff, but I really think there's no, there's no problem for people trying to buy a great business.

But there's a lot of good opportunities for, yeah, for businesses that I think are still, still to an extent, an extent off the radar. 

[00:27:51] Ronald Skelton: Let's talk a little bit about something you, you brought up there. You've surveyed 30 something exits. I've interviewed over 200 people. Some of them were exits. Some of them were, a lot of them were advisors and people like you have exited in the past. What are some of the aha moments of those? What satisfied them in the exit and what did they regret? Because when I first started it, you asked, if you'd asked me on day one, when I took and hired a mentor, I bought a company, then I hired a mentor to teach me how to buy companies cause I did it wrong. Yeah, I did the same thing you did though.

When I bought it, it's like, I bought that pest control company. First thing I did, is we had some liability issues with the previous owner. I was like, I can't write on his shirt, tell at all. We were going to hang our title or our licenses on him. Cause he was on a kind of semi retire and let us do that, but he wasn't doing things right.

So I was like, no, no, no, no. So we ended up just getting the equipment and some of his customer lists, which was, anyways, that's another story. But, I went out and got all the licenses and I've never touched a chemical in my life. I don't want to. My guys do that, but I wanted to know what it was and what I had to pass and what my guys had to do.

So I went and took all the tests and I'm really good at taking tests so that, I read something, I can pass the test. So I went and took all the, you know, the six or eight tests we had to take to have all the licenses. Hung them on my hat for the first two, two and a half years. And now there's somebody else doing that.

That said, I, you know, didn't want to hang that on there and not know what they wanted to do. So there's something to say about you getting your CDL and going on the drive and the route a couple of times. I've tried those routing software too. Did you, if you're working blue collar, did you have to teach people how to use tablets and how to use electronics?

Cause that's one of the things, I bought, I bought the routing software and had to teach my guys like, no, no, no. This is how you use it. I had to show them how to use a tablet.

[00:29:24] Reid Tileston: Yeah no, totally. And the key is that, and again, I wasn't even, I didn't, I mean, of course they want you to buy tablets, right? But I was like, why would I buy a tablet? I'm going to go out and see if I can do this on my phone. Oh, well. Just so you know, 90 percent of our customers don't do it on their phone. I get it.

I hear you loud and clear. I want to try. Right? So I went out and I would on my own, just do it. And I would come across the pain points with it. And then, then like, and like, you know what, those 10 percent of customers that argued on the phone, I want to talk to them. I want to know what's going on.

So I think that again, in a business, it's all about doing, you know, what Stephen Covey calls the quadrant two activities, what's important, but not urgent. And I think it's just critical to understand what those priorities are for entrepreneurial business owners, and then just mercilessly focus on those.

And that's where the results really get driven. Cause I believe that what gets, what gets focused, gets done. And in the case of that business field service management, I mean, I'm a booth guy. Right? So part of these very quantitatively driven, I could just see, like 300 basis points of EBITDA margin.

You know what I mean? Like, right there. If we got this thing right. I could also see by the way, negative 500 basis points of EBITDA margin if we got it wrong. And, in a lot of the, uh, owner CEO groups I'm a part of, it's like, so fun to see. I would tell you that,most people and I, and believe me, I, we had our challenges in field service management too, particularly with the ones I was experimenting with.

But so many times people, it takes them twice as long to roll it out. Cost them twice as much and they achieve happy upside. I mean, going to the cloud, it sounds easy on a business plan and it sounds easy to do. It's like, Oh, young person buys business and goes to the cloud. And they ultimately do. It is a quagmire to do though.

And I've seen a lot of people spend a lot of money messing it up. Which is why, by the way,I bought this business profit margins were amazing, 45%, no joke.CapEx adjusted EBITDA margins were 45%. So it's good to buy, and I'm not saying buy business without much profitability. I mean, there's just not that many out there.

With that said, though, don't buy that business like you were talking about with the restaurant. So that's 3 to 5%. Because if you're an inexperienced operator, even if you're an experienced operator, and you don't know the space, or even if you are an experienced operator, and you do know the space, there's just things that are that I want to say 100%.

But, I'm not. I'm going to say 99. 999%. Cause one thing about academic studies is the, they gotta be scrutinized, right? So I gotta be careful what I say. Things are going to come up that you don't know. You will probably make mistakes and those mistakes are going to eat into your margins. And you want to have, you want to have some, some fat there.

So if you can make some mistakes, you can learn, you can become a better operator without putting you in a tough cash position. So that's one reason I always encourage people not to go for low margin businesses. Cause you want to give yourself leeway as a, you want to give yourself leeway as an operator.

[00:32:19] Ronald Skelton: I a hundred percent agree. I don't look at anything I can't get to the 25 and above percent profit margin. And that cuts out a lot of businesses. And reason is, is, I'm human and I have flaws and I want to, you know, when you acquire it, when you start a business, it's yours to figure it out. But when you acquire the business, it's yours to screw up.

I need some leeway to learn some, for some tough lessons learned. And so, I a hundred percent agree with that. Not all companies have that, but if you can hunt down that even in the industries where you think that, we were talking about food services. Even in industries where you think that's not possible.

There are food industries out there that have high profit margins, right? It's typically your bakeries, sandwiches, pasta, things that are really low cost food costs. And,don't have seating where you have a bunch of waiters and waitresses that pay, you pay hourly wages and stuff on. 

I want to go back to the thing I started to ask you a question then I,

[00:33:07] Reid Tileston: Oh, yeah. About the study.

[00:33:09] Ronald Skelton: Yeah, so based off your personal experience because you've sold a few businesses and the study you've done, what do you think are the key things, we have a lot of buyers listening to us. What are the key things that, really move the needle on the seller's behalf that buyers should be aware of it and to, to work towards?

[00:33:26] Reid Tileston: Yeah. So great question. So first and foremost, I would say that every seller is first and foremost different. They all have their own unique idiosyncrasies and it's critical to have a relationship, where you can understand what those are and then you can make your offer both the monetary side of it and the non monetary side of it geared towards that.

So qualify the sellers. We are all people. We all have our own unique things, right? With that said, a couple of interesting themes that came out of the, of the qualitative study is, one, in the low to no satisfaction group. A very common theme was being what I'll call blinded by the price. So for example, buyer comes in and says, you know what, I'm going to pay you nine times EBITDA for this business.

Whoa! Ron, this, this buyer has no idea what they're talking about. This business is not worth nine times at all. I wouldn't pay four times for it. This is like, Oh my God. I could do so much with that. Say it was making a million bucks of EBITDA. But I could do so much with that extra 5 million. This is like the best.

Awesome. Great. So you have that blinded by the price theme. What that is associated with, is that, because they're blinded by the price, they forget about those intangible things that actually mattered in the business. And so those transactions that happened with hindsight tended to be associated with the theme of, being, having a high price come in and go into that deal because they thought that money could compensate.

Now, I think that that's something that's, some will find it surprising. Some definitely won't find it surprising, but that was a very clear theme that, that came out of it. Second, which dynamically goes with blinded by the price is, and I want to preface this with a very critical word. Competence, uses competent help.

There's a lot of intermediaries out there. Some are fantastic. I mean, great. They are, I would pay them 10 times the fees that I did. They're great. There's some in the middle and there's some, I think might do a better job if they were in a different career. I think the world would be better off for them if they were, right.

The high sentiment transactions had competent help as part of it. And what I would argue is part of the causal link, which, again, academic research is a different ballgame than practitioner research. So you actually have to prove things before you can say them. And academics, by the way, they're very I'm careful when I say they're very critical. They're very mean, right? They point out flaws. I gotta be very careful what you say, but I think one hypothesized causal link is that, if you have competent help, then competent help, true competent help will help you avoid it being blinded by the price. And that will lead to more satisfaction from the seller on the, on the backend.

So those are kind of like two of the cool findings from it. One is that being blinded by the price. So getting a high price can lead to lower sediment on the back end. And then the using competent help. And with a competent help thing, it goes both ways. So many transactions in this study, and I won't talk about the ones outside of it, which I've been a part of.

If you have the wrong help, it can function to either just completely kill the deal or delay it. So a critical thing is that, we're all going to make mistakes and we're all going to surround yourself by the wrong people at times. I'll just speak for myself. I've made the mistake of surrounding myself by the wrong people in various aspects of my life, business, personal, whole nine yards.

I think a part of it, that's not talked about a lot, which by the way, I'm moderating a panel of BYU tomorrow on ETA with a couple pretty big intermediaries in space. And we're going to hit this theme really hard, is what do you do If you have bad help around you in the deal, that either it's your intermediary or it's someone else? How do you deal with that?

Right? I think it's something that, that is not necessarily, it's always easy to be like, oh yeah, I found a great broker or an intermediary or a banker or whatever, and they're pushing the deal forward. But what do you do when you love the business? You have a good rapport with the owner, but there's these incompetent intermediaries out and it's so interesting to have done this study.

And by the way, these studies are, confidentiality is, it's a hundred percent guarantee. It's like, like national defense work. It's like that scrutinized on, on, on privacy. Which is really cool because, the sellers will legitly tell you, they'll tell you things they're not telling their wife, or they're not telling anyone else.

So you really get like the meat of it, but it's so interesting to see the road that those bad intermarial relationships can take. Both to prevent the deal, to slow it down, or to be issues that cause headaches afterwards as well. So I can't stress enough that,doing it yourself is a fine option.

Although people that did achieve the higher satisfaction levels, tended to have intermediaries, believe it or not. So for any intermediaries on this call, I'll be like, yes, it shows that intermediaries are a good thing, right? So those that achieve the higher, yeah, the right one, but the right one, absolutely.

So I tell you that the framework is bad one or mediocre one's the worst. Having none is better than that. But if you can find that right one, that's where you're there. So find the right one that will prevent you from being blinded by the price. That's like the tentative framework that came out of this study.

[00:38:39] Ronald Skelton: I have a tendency to tell people what's on my mind. So there's been more than one time where I walked away from a deal and then I had a heart to heart with one of the intermediaries on the other side. Like the attorneys, a lot of times it's been the attorney. A lot of times people pick attorneys that have no business in M& A.

It's their family attorney or the guy that set up the LLC. Has no business in it. I call them after, like I'm, after I've already said, yeah, this is a no go. And I tell them what I think. I just like, I'm not rude and mean. I just like, look, you're not helping this person. You're hurting them. You have no business being in this deal and you're going to kill this deal.

Like you have no knowledge of the space. You don't even know the right terms and terminology and you're hurting your friend. You call him your friend. You said you know him for 20 years. You're screwing him over. Get away from this deal. Make him go find somebody who knows what they're doing. I've done it to brokers too.

I've had them, more often than not the brokers are hanging off on me cause they don't want to hear it. But I don't, I won't allow, I love my entrepreneur partners and friends in the world. I won't let an entrepreneur not hear that. And I'll even tell the entrepreneur that after at the end of the game. Like hey, I'm not walking away because your business is bad or maybe like hey, this isn't a fit for me. It's not because you have a bad business or anything. You didn't do anything wrong. But I want you to know heart to heart your advisor is going to mess this over time after time after again.

If you had a great advisor I might put up with going a little further in this and see if we can correct some of the things that are roadblocks right now, but the combination, the stew, you've got a bad ingredient in the stew that just makes it taste so bad. I don't want to see if I can flavor that out, right. He's going to kill the deal.

And I'll, I'll say it to the business owner and I say, okay, I don't say anything to a human being that I won't say to their face. I won't say anything to you or about you behind your back that I won't call you and tell you about. So I said, I don't have, I don't want you to have to have this conversation with your broker.

So I'm calling him, right? Just understand that he's gonna hit my guts after this and he'll tell you never to do business with me. That's okay. He didn't burn the deal. It's just not gonna work. And a lot of times they don't want to hear it, but I just, I have to say what's on my mind. I've always said what's on my mind and I'm gonna be honest with people. 

So what are some of the others? So we talked about rapport, you know, rapport is one, right. Earlier we talked about that. We talked about the blindness of, offer so big, I'm going to overlook everything else.

And then we talked about having the right advisor. What were, what are some of the other findings?

[00:40:41] Reid Tileston: Yeah, absolutely. And I want to say two things to respond to what you said. So first and foremost, I'm both excited and fearful to ask you for feedback after this podcast, by the way. Cause you're going to call it how I see it. So I'm very excited. And,

[00:40:54] Ronald Skelton: We always do it.

[00:40:55] Reid Tileston: Yep. And you, and, um, Hey, good, better, best, right. 

And, it also goes to something you said about teaching as well. It's like one bad student in the class can like ruin the entire class in the same way that one bad, one bad actor in a deal can ruin the, ruin the entire deal. So it's interesting. Another fascinating fact about, um,self high seller sentiment is, look at the journey of how the buyer or excuse me, how the seller actually started their own entrepreneurial journey. So if they intentionally wanted to become a business owner, either through starting a business or through acquisition, then after the sale, they would just have no to low sentiment to begin with.

Whereas those that, on a binary level, we're more opportunistic in how they came about it, right? Maybe they lost a job or this or that, and that's what they got them into it, they tended to have, higher sentiment in the deal. So it's interesting when you look at what the psychological profile is and the history of the seller to understand that, you know what, in all likelihood, if this individual wanted to go down this path, they're just not going to be happier with a sale independent of any other factors.

And if you're an intermediary, maybe you don't want to take on a client like that. And if you're a buyer, now you want to think, all right, well, this is the kind of thing where I really want them to have, like, I'm going to give them all cash and I want them to have a one month transition. So that when they have that, negative depressed moment and they're not happy, they are not involved in the business in any capacity.

So again, it's just so important going to the key takeaway is qualify the seller. Understand their story. Realize that, it's easy to get focused on getting the deal done and getting across the finish line. But as all the research in this space, you know, you read the Stanford Search Fund Study, you talk to the hundreds of practitioners you've talked to. You listen to your podcast. Transitions are tough and transitions can be a significant.

I'd love to study transitions academically, by the way. I mean, there's so much stuff I'd love to study, but transitions can be rough and it can be bad. And it's a big reason that these deals underperform. So think about the seller, even before you close a deal about how you're going to manage that, right. 

I mean, you want to think about the employees obviously. That relationship with the seller is critically important. So you run, you get me fired up thinking about how to kind of study that stuff. But yeah, so if they intentionally became an entrepreneur, tends to became a business owner, there is more likely to not be happy with the sale. So, plan accordingly.

[00:43:22] Ronald Skelton: I love it. I'll tell you the, and I've taken two different mentoring like, programs on it. I haven't been to an ETA program. I interviewed David Dodson and Stanford is not that far away. I asked him if I could, like audit his course. Apparently, uh, his thing at Stanford, like, do a sit in. Apparently he has a two year waiting list on his, and it's not too far.

Otherwise,I know somebody that actually snuck into his course and he knows it too. So I interviewed a guy who, basically just walked in and sat in the back of the room as if he was audited and they don't take roll in those or attendance cause it's a big group. And he went through the whole program.

He did that both there and at,I forgot what the other one was. Anyway, he went to two different ETA programs. He was just scrappy. He couldn't afford it. So he just showed up and sat in the back of the room, took notes for the, for the classes and took the programs. Not that I would recommend that, but it was pretty scrappy. He did it.

One of the things I think a lot of these are missing, is how important rapport is. I think you could actually give, and that includes the negotiation. If you look at any of the top negotiations, they talk about how to build rapport. But any business situation, especially these acquiring these businesses, really getting the rapport down, getting to a relationship with the, the seller. In so many cases, you kind of need that seller to be on track. Maybe even past that 30 or 60, 90 days afterwards, that one month, the two months afterwards. You need to be able to have a deep enough rapport with them. If something kind of goes sideways, you lose a major client. Six months down the road, you can call him up and go, Hey, you help me, you might help me get this guy back on track. 

Rapport is the key to all this and not, I honestly think you could do two or three days, like if you had a seven day program on teaching people how to buy businesses where they, they have to go to seven X, four hour sessions or whatever. If you did something, you know, or an ETA program, I think you could do a third of it on just how to build deep relationships with individuals.

Cause it's, it's a kill missing, especially in our youth. Like my kids, I'm so worried about them. They spend so much time at a tablet. My, my son's finally got into the things where he's going, he's 13, he's just getting back in that stage where he played basketball. He's doing some boxing stuff at a public gym.

And now he's, of all things, he's got a little nerd in him too. He's doing a group D and D. A Dungeons and Dragons, but I love it because he's actually interacting with real human beings again, instead of being on his daggum X Box, right? 

[00:45:29] Reid Tileston: No, you hit the nail on the head. I mean, I can't hit this enough. Like business, entrepreneurial business ownership is about the people. And the most fulfilling part for me has been the people. And I want to hit on David Dodson for a second, by the way. You talk about someone who you want to have like in your corner, on like a board or as an advisor.

I mean, that's like the individual that you want. But I want to hit on a second thing about entrepreneurship through acquisition and buying small businesses. Dodson, okay, made his first amount of money in the, septic grease trap pumping space, right? That was a long time ago. Fast forward to the year 2019.

Okay. I made a lot of money in like the grease trap septic pumping space. And entrepreneurship through acquisition, there was a very, history can repeat itself. With these businesses that are not sexy and not, you know, growing 20 percent per year for the industry. There is great opportunities, so you don't always have to reinvent the wheel.

Just take as a data point that you've had like two very successful exits, among the same industry from like two individuals there. So I always like to point that out when, uh, when David Dodson's around. And also too, you talked about trying to audit the class at Stanford, right? One thing is that this is also a, I don't talk about it quite as much, but another reason that I wrote the book is that, people always, people like a David Dodson would always do phone calls with me when I was looking at buying businesses, right. 

They'd always take a 30 or 45 minutes. Sometimes I had to wait a month to get it, but they'd always do it. And it was so useful for me over the years. So I will always do it as well. If anyone reaches out, I'll always make the time for the call. What I find though, is that about 90 percent of them just aren't a good use of their time or my time. Because people just don't always, they're at such different levels.

And at the, in the process now. One in 10 of those are absolutely amazing. And I get so stoked when I get one of those great ones. But now what I tell people is cool, spend 99 cents. All right. By the end of May, buy this book. It takes three hours to read. It's a quick, easy read. And then book the call with me.

You're going to get so much more out of a call with someone like me or someone like David Dodson or the other practitioners that are on this show. You're going to get so much more out of the call if you are prepared for it, right? Because then you can pick our brain in a way that is going to be so much more valuable. And we're going to want to like engage with you.

We're going to want to invest in you. I'll be like, you know what? I want you to come take like a class with me. You're like the kind of student that I want. So spend the time. If you want to talk to me, read the book.Be prepared for these calls, because again, I like MBAs. I got an MBA.

I teach MBAs. I think MBAs are great. But ultimately, you know, this book is the most cost effective, time efficient first step for anyone looking going through this process. And it should lay the groundwork for what you decide is the next step. Whether it be going to a conference, taking a course, getting an MBA. Deciding you're like, I don't want to do all this work.

This whole small business ownership thing does not seem like the right path for me. I want to just, go back to my job at Google or, 3M wherever you're working. But that's, you know, kind of something to keep in mind with those people think about as your listeners think about what the right path forward is for them.

[00:48:36] Ronald Skelton: I often say things without realizing, you've met me an hour ago and barely know me and don't know why I go to these things. I've got a master's degree. I've got more education than the average fool should have, right? I've got multiple degrees like you. I've got my MBA. I've taken more, I regularly pay for, somebody who's got a four day course on ETA or something.

I'll pay this five or six grand and I'll go take the course. And it's not because I think I need another course. I want to meet the people and they're doing it. I want to, they, these guys have networks, 2000, 3000. I was listening to a guy yesterday. It was in one of the, one of the mentors guys, his audience, like consortium of people who've been through this course over the years and the collection of people, there's almost 11, 000 people. 

Those are resources. Those are people doing what you're doing. Those are potential JV partners. Those are potential investors. Those are potential guys that, they'll answer questions. And I've rarely had an intelligent question where I can call, called somebody and they didn't want to help me answer it.

So long as I prepared myself, like you said, I kind of know the individual, I've called in the right guy. I know it's his bailiwick. And sometimes, you know, sometimes they want to charge cause that's just what they do if that's how they make their money. And sometimes they just want to help. Very often, more often than not, I've never seen a phone number I don't like.

I'll cold call somebody in a heartbeat. Kind of how I got this podcast started, right. It was one of those, I want to learn more about this. I did it wrong. I took a couple of courses. I still had questions. I'm just going to interview some people and the interviews were interesting enough.

I think other people want to see this. So we started recording them. And now, two years later, 200 episodes later, I won't ever quit this because I enjoy meeting people like I been there, done that. I'll learn something from every one of these shows. And,maybe someday when I hit the next zeros and I, I get to be a billionaire status or something, maybe this will be boring, but I don't know.

I don't think so. Matter of fact, I'm actually working on setting up a second podcast. It's just about, it's called fascinate me, if anybody's interested. But, uh, it's fascinate. me is where it'll be. It's just about stuff that I find interesting, right? it's random. Some of it's random. People who travel the world, climb mountains, just random stuff.

But, um, I'll probably continue doing this. I love that you got the book out. I love that you're actually helping this space and giving back. There's something to be said about being in service of other human beings. So that's what small business is about. And, do you continue that after you've had a couple exits and quite frankly, don't need to,is brilliant.

And some says a lot about your character and who you are. So thank you for being here. We've covered a lot. Before we go, I want to do two things. First of all, somebody can only remember one or two things, maybe three, what would you want the key takeaways of today to be?

[00:51:02] Reid Tileston: If you're not all in to being an entrepreneurial business owner, you are in the way. If you are not all in, you are in the way. Start out with the assessment part of it, figure out, am I an employee? Am I an entrepreneurial or am I an equity employee? Am I a CEO? Am I a business owner? Or am I an entrepreneurial business owner?

Understand what it is you want out of this endeavor. How much money you make? If you're willing to sign a personal guarantee, where are you willing to go? Get the assessment done right. It's outlined in the book. If you're not all in though, you're in the way. And do not do yourself the disservice by going into this with only one foot in because then only one foot is out.

So that is simple. Second one is, which I think you're probably going to ask anyway, is, where can you find me? Buy the book, grititdone. com. 99 cents at the end, through the end of May. I'm pretty active on LinkedIn, so you can follow me there. I'm also getting active on X and Twitter. I looked at that community a lot when I've been operating from the sidelines, but now that I got a little more time on my hands, I'm having fun sending some tweets out.

So big fan of that community. So many just, awesome dynamic personalities there. So I'll start playing around there more. And, yeah, read the book. And then if you want to book a call with me, happy to do it. Just come prepared. I'm an Eagle scout, so be prepared as a scout model.

[00:52:19] Ronald Skelton: Awesome. Well, we'll make sure we get all your contact information in the show notes and, that way people can reach out to you and thank you for being here today. Hang out for just a minute. We'll call that a show.

[00:52:28] Reid Tileston: Thank you.