E218: Nathan Lenahan Discusses Hiring Operators for Small Businesses

[00:00:00] Ronald Skelton: Hello and welcome to the How2Exit Podcast. Today I'm here with Nathan Lenahan and we're going to talk about, all things mergers and acquisitions. You've bought a couple companies, you've got some services and products that actually support people in your industry and you help, you got one really cool one I want to talk about when we get down that path, about helping others, helping people like us find great operators.

So, I think this would be a, a really fun and interesting conversations. So Nathan, thank you for being here today.

[00:00:27] Nathan Lenahan: Yeah. Thanks for having me on Ronald.

[00:00:29] Ronald Skelton: We always start with the origin story. You and I have a little bit of background. I don't ever talk about my military too much on here just because of the whole, like what I did in the military was classified.

So I don't want to ever say too much, but,you have a, you spent a couple of years in the army and ended up into the entrepreneurial space. I was the air force ended up in the entrepreneurial space. We both, it looks like we both worked at Lockheed. 

Uh, that said, similar paths. I want to hear your path. Tell us your origin story and kind of how you ended up on a show about mergers and acquisitions.

[00:00:56] Nathan Lenahan: Yeah. Not sure I ever expected myself to be in this space, but,I took off in 2001 to start college. I came from a military family and nine 11 hit. And so, I have a twin brother. He had actually joined the army before nine 11. And so I kind of followed his footsteps, jumped in the army and, yeah, I loved it.

I mean, did six years there, a couple of tours in Iraq and, and in the army, I learned about kind of real estate investing and this idea of an MBA. And so, I knew those were things that I wanted to pursue in the future. So, got out, finished my bachelor's degree, went to Lockheed Martin, just like you mentioned, and there they, I went through an operations leadership development program and they paid for my MBA.

So I went to the university of Texas at Austin, did my MBA there. That's where I learned about kind of entrepreneurship through acquisition. That sounds really fancy, but it was more like, Hey, one of my buddies was sitting next to me and he bought an irrigation company off BizBuySell for like 30 grand.

And I was like, what are you talking about? I need to know more about this. And, that didn't go super well, deal wise. But,I think he got his money back at least, but that was, it was a super interesting. And so ever since that part, that point, I was like, I gotta do this and buy a company at some point, or at least start one.

So, from the MBA, I went and actually started my first company. And, I was working at Lockheed at night and then I'd work on my property management company during the day with a close friend. We built that up pretty quickly over 18 months and then sold it to a private equity backed roll up in the property management space. Went off to WeWork.

So like huge growth story there. Learned what scale looked like,You know, two or 3 million in revenue to over 200 million in less than three years for the little region that I ran. So that was incredible and just as dramatic as you see in all the headlines and all that stuff. And then from there ended up at a small tech company.

Or like real estate brokerage tech enabled, which was really cool. Learned a lot as a senior leader and, went under contract on our, our LOI for our first deal and bought it as kind of COVID was rampaging the real estate market and really struggling. So, I exited that company and straight into buying our first company, which was an HVAC company called Bart's, heating and air.

And, and then we did an additional acquisition and we're working on our third right now.

[00:03:02] Ronald Skelton: That's awesome. And you're kind of in a hotbed, right? You're in, is it Dallas area? Yeah, you're in the Dallas Fort Worth area. I was there a couple of years ago. I kind of move around. I'm one of those digital nomad type guys, right? We live in a tiny home. This port, this studio you see me in, it's portable. It can be picked up and moved. 

And then when COVID hit about the same time, you're doing all this COVID hit, I already owned five acres in Oklahoma that was free and clear. We're a little farmhouse on it. We packed up our tiny home and moved it back to Oklahoma just to ride that out, right. 

So and I had a real estate business in the residential real estate business, buying and selling houses in Oklahoma anyway, that I was running remotely down in Dallas.

[00:03:40] Nathan Lenahan: 

[00:03:40] Ronald Skelton: So you're in the space now. You've got the heat and air company. You got a thing called smooth operators. When did that start? And what was the catalyst that said, you know what, we probably should go help other people do this.

[00:03:52] Nathan Lenahan: Yeah. So we hired a GM for Bart's heating and air, and that was going pretty well. And so when I shared that on Twitter, I had a whole bunch of people really interested in the idea. And so, I think you and I talked about this briefly, but there's this whole joke of like, I'm going to buy a business and then just hire an operator.

And so, it's that easy guys. Like it's super easy. And like, I think we both know it's not, but how could you make it maybe that easy? Or at least approach it, right. Someone that has experience. And so, I was thinking through it and, and I wasn't necessarily making a whole lot of money from Bart's because we hired a GM.

And so, I asked a few questions on Twitter. And said, who would be interested in hiring operators and who would be interested in being operators in small, medium businesses across the United States. Especially with a focus on veterans. So, uh, I ended up with 50 sales meetings from that, like, uh, one or two tweets, which was kind of blew my mind.

And so I took every single one of them.Probably about,two thirds of them were people looking to be operators. The other third was business owners looking for people and understanding, like, what does it mean for a general manager to come in or a VP of ops or, whatever it may be.

And, and so I think it was just really powerful to see that. So I wasn't sure if I really wanted to do that. That was October of last year. And, I took two contracts. I was like, okay, let me go see if I can help these guys. And it went pretty well. And people just kept hitting me up. I wasn't advertising.

I don't have a website, like nothing. And people, I just kept getting referrals and people kept hitting me up, asking questions. And so I took a little more serious and we're on pace for this year, like probably around six, 700 K and that's, I am not pushing it at all. Like, Hard. And so, but more importantly, margins above 90%.

So like, that's what makes a huge difference, right. And so I'm really enjoying it. My favorite part is talking to business owners and understanding their pain. And then, historically I've hired 1200 plus people over the last seven years from kind of C suite all the way down to entry level, commission based sales.

So, I feel like I'm a good partner and,people going through the whole acquisitionspace and building their businesses.

[00:05:47] Ronald Skelton: I get it. And one of the things that a lot of people don't get when they say things and throw an operator in there is, picking the right ones is critical. And that search can take, if you're not good, I mean, you're an experienced hiring manager.By all means, if you've hired that many people, you've been through that many interviews.

You've got this BS meter built in, I would say, like a gut feeling when you talk to somebody as to whether or not, this is going to be a good employee. And yeah, we all make mistakes. I've hired, I still hire a much older, probably hired as many people, if not more, just because I've worked at some big companies with some big divisions that, that, uh, worked for me. I've had to say on, many hires and many layoffs. I still make mistakes. There's still a few times where like, you know, some people just interview really well.

[00:06:29] Nathan Lenahan: Yep. 

[00:06:29] Ronald Skelton: And then when they show up, yep. And then when they show up, so, I always tell people in this space, like, yeah, that sounds great. Just understand that anything you buy, be willing to move there and run it for six months to 18 months in the event that you don't get the right operator in place soon enough. 

[00:06:45] Nathan Lenahan: And don't buy anything you couldn't operate. So, because there's a good chance there's be times, multiple times over the next year, two years, five years, 10 years of your ownership tenure, that you're going to be the operator. 

And if you don't understand the business, that's the, that's the best way to get taken advantage of and not find the right person in the first place. So, 

[00:07:01] Ronald Skelton: And there's no such thing as passive income. So a lot of times when people tell me they're going to hire, buy something and turn it in, I'm going to buy it, put an operator in it, it's just going to be passive income. And I was like, yeah, I just don't believe in that phrase. That's one of those,it's a unicorn phrase, right?

Yeah. It sounds cool. It's mythical. It's probably a beautiful creature, but, there is not really, even in the real estate space. I've owned real estate for years. It's not passive. I gotta, I gotta go out there and work and do things and jump through hurdles and like, things happen even with property managers or certain things they won't do with you have to.

[00:07:31] Nathan Lenahan: Yep. I've got, I've got 35 units out on the border in Texarkana. So Arkansas, Texas. And we have a property manager and I was out there, enjoying that passive income, working my tail off the last, you know, three months. Like every, every two or three weeks I'm out there doing stuff right now. So it's, uh, yeah, passive is a myth.

[00:07:49] Ronald Skelton: Let's talk about the process you guys go through. If somebody wants to pick an operator, let's just say for your heat and air business and stuff, what did that entail?

When you sit down, you thought, okay, I'm gonna hire a general manager. Did you hire internally? Did you bring somebody from the outside?

[00:08:03] Nathan Lenahan: Yeah, we, uh, we brought someone from the outside. And part of the, I think the thesis behind getting into recruiting as well as we knew we were going to be acquiring more businesses. So, if you think of any deal with three legs of a stool, right. There's the,the deal itself, there's the people.

And then there's the capital, that makes all this, uh, go together. And so, well, we are decent at finding deals and, and then everyone's struggling to find people. And so if we had a chance to figure out a way to be like mixed in with the talent or, in that circle, I think that'd be a really powerful one.

So it's already paid dividends for us, overall. But yeah, I think the assessment always starts with the owner first, and are you actually ready for someone? Can you afford someone and have you prepped them for success? Like, have you prepared the role for success? And so that comes down to,it's really easy for me to do all the work for an owner and say like, I'll, I'll write a job description for you.

Because I know what a GM should do, but in all honesty, they need to know what they're doing. Like it's an exercise, not of me, not wanting to do the work. It's an exercise of you knowing what you want and need. And are you willing to let go? Because like one of the biggest problems is like, oftentimes they have the budget for it and they're just not ready to let go and have someone step in and, build the trust that they need over time.

And so I think the assessment starts with, yeah, what do you need? Are you actually ready for that? And,are you willing to pay for it? And then the assessment of people starts after that. You know, and so, Hey, do you have anyone in, in, internally that, maybe you just need more training for them to help elevate. Or do you need to go outside?

Do you wanted someone that is hardcore in the industry that has experience in your, your sector. So skill trades, like I really focus on kind of blue collar industries, sweaty industries.And then I do roles, so like general managers, like my sweet spot, but I also do like manager roles underneath that, that flow into like a general manager.

So I think of those 2 pillars typically as operations or sales.you know, so like a sales manager, ops manager, Ops director, sales director, et cetera, all flowing into a potential GM role in the future. So, so it's internal assessments and then it's external. What are you really looking for?

What's the profile that you want? Let me understand the culture and, of your business. What are your growth plans? Like, what are they actually going to do? So I can really sell this to people because there's a real appetite for working in these small businesses. Like people want to be, feel like they make an impact.

So that's a really quick kind of, surface level, but, at the end of the day, this is all about the owner or whoever the hiring leader is. And making sure that we understand what they want and need and also give them feedback on whether that's realistic or not.

[00:10:31] Ronald Skelton: I think the big thing is a lot of people, you run your business for a long time. You just bought a business. Say you run a dozen businesses and you've been hiring the entire time. There's a difference between hiring somebody who wants to come in, do a job and go home every day, then hiring a leader that can take a company to the next level, grow it and do what you need to do if you're going to be a general manager.

Do what you're going to need to do if you're going to be the VP of sales, right. Which is, maintain and growth, right? You got to maintain standard operating procedures and get everything done that's on the table. But, to be able to have enough vision and drive to grow. I think there's a certain skill set and mentality that you're looking for in an operator. How do you identify that? How do I, if I wouldn't, you know, if I'm picking an operator for somebody, I'm not looking for somebody to keep its status quo. I'm looking for somebody can, technically be smarter than me in this space and then take it to the next level. And I'm going to incentivize them in some way to do so.

[00:11:26] Nathan Lenahan: Yeah. So I think, I mean, number one, you just hit one of them is, look for any behavior and behavior follows incentive. So making sure that you understand like how that is aligned and that you're incentivizing the right behavior, I think is a huge one that you always have to go after. And that's one of the benefits of being here is I get to see how other owners are thinking through this.

And then I get to give them my feedback of what I'm talking to with, tens, you know, dozens of other owners as well. So, I think that's a really great insight. The other piece is like, I have this, I have this little kind of, infographic and it's all about the, the life cycle of a business and it's an S curve.

And so, there's people who are really well fashioned towards like startup, like, Hey, I am zero to one and I'm really good at that. There's other people who are growth, people who are like, Hey, you've got the foundation of a business and a product that people like, and I just need to go sell it or, and scale and go faster.

And then there's like the run, maintain. And so, when you get to that, like high end of the S curve, whether you're at run maintain, it's either you innovate another product and you create another S and you keep going, or, like those are just three different types of operators. And some people can trans, transcend them, but that's very, very rare.

So I think number one, understanding like, Hey, what do you like doing and what phase of business are you best at? And then, and then how do your soft skills support that? And then how do your hard skills and experience actually show the know how of what you're doing. So like, do they get it? Do they want it? Do they have the capacity to do it?

[00:12:50] Ronald Skelton: Brilliant. You see this in all aspects of business. If you, if you, the thing that comes to my mind is the venture capitalist world where VCs are funding founders. You'll see that there's a different person that goes from the innovative ideas like the zero to one, right? They've got the idea, they're developing the software, they're in there pulling 60, 80 hour weeks, they're creating the invention. 

It's very often in the VC world that that guy ends up being replaced because he can't adopt because now you're at a point where you got to start generating revenue and the guy that takes it from one to, you know, $1, 000, 000 a year to $5, 000, 000 a year typically has a different mindset. So I believe that in those cycles.

And then, I love what you said about creating another S curve that you're, you have to have, if you keep that innovator in place, you got to give them something to do. And then you need your operator, your guy who can keep the status quo, make sure that, the widgets still turn the way the widgets were designed to turn that got you where you're going. And, too often what happens is, and a lot of times the reason these businesses come for sale actually is the owner is a creator, a zero to one or a zero to $5 million guy. And he's got it up and running. Now he's bored. 

He's created this side hustle and the side hustle is starting to get really busy and you need this time. And he's more interested in it because that's where his passion's at. So, you know, two of the calls I've been on in the last week and a half where that, that was the case, right? The guy's got some other project that's going to, Oh, this one's gonna be way bigger than that one. 

Yeah, I see that cycle. What are some of the key traits that you look for the, to identify who fits in what? I guess job history is, is part of it, but are there other skills or traits that you can say, If this exists, he's probably a zero to one guy. If this exists, he's probably a one to, five to 10 million guy.

And this guy is the steady flow. Are there certain traits you look for?

[00:14:37] Nathan Lenahan: Yeah. I mean, I start with like, what are the markers both from experience and, and like what I guess energizes them and comes out in an interview. And it's hard, it's hard to pull that out sometimes of like what gets them most excited. Cause it's just like you said, some of them just interview, some people just interview incredible. 

Right. And so, if all they've done is work for large companies and shown, 10 to 15 percent growth, like I'm not going to, that's not going to be my startup guy. If I'm adding plumbing to,like an HVAC company or something, he is not the guy I'm looking to go do that.

He might run the, the $5 million, $10 million HVAC division, but he's not going to be the plumbing guy who starts that up. And so, uh, so I think it's experience in the background, like, what do they talk about wanting to do when you give them like some blue, uh,some greenfield. I love doing whiteboard sessions of, you know, lots of people, they want to do like the homework assignments and send them one assignment. 

I want to work with you right now. Like show me how fast your brain moves on a subject that you're supposedly very knowledgeable about. So let's work through this problem together. Let me see how you think, let me see where your mind goes to. And zero to one, I would say the biggest indicator of zero to one is absolute lack of patience.

There's no email going out. I'm calling you three times right now to make sure that this happens. And I have a twin brother and the dude is the most impatient guy I ever know. And like most of the time it is an absolute benefit to him. Other times he's just a pain in the ass because of it. So, I think that's a hard, hard needle to thread, but I'd say impatience is a huge one and you got to balance out with culture, right?

Like if you're in a business where we're not, absolutely overly aggressive and that's not what we're going to build. You got to figure out what the right mix of that may be.So I think that's a, patience has been a huge one that I've seen. Responsiveness, another one. So people who are slower to respond, that's a run maintained person, at best. 

May not be a cultural fit at all, honestly. But I'd say those are two really big ones and just hungry. Like those, like how hungry are they are? Are they money motivated? Cause I do want someone a little bit money motivated. I don't want them to be a hundred percent coin operated, but,I want them to be a little hungry for that.

I want them to want better for their families and to take care of them and be willing to sacrifice and work hard for that. And so, lots of people are not willing to sacrifice for a job or a career. And, I think that becomes really apparent really quick. So,obviously I don't need everyone to be like that.

But my leader, that, that leader needs to be bought in. And it doesn't matter if something goes wrong at midnight on a Tuesday, but you're responsible just like I am.

[00:17:00] Ronald Skelton: I get that. I've seen something in the sales world that I think translates to all the different industries. Is people hit a certain comfort zone and then they'll plateau out. So when I, like, when we were looking at salespeople, I always looked at, like, especially somebody that's been seasoned in sales, I want to see that each job they had, they excelled past their previous one. 

But what you'll find in a lot of sales guys is they hit a certain lifestyle or comfort zone and they'll plateau out. So if the guy earned $200, 000 a year in sales at his last two companies, you can count on him getting the zero to 200, 000 at your company in six months, 12 months, 18 months max. He's going to get there because that's what he needs to survive on. But you can also count on that he's not going to, there's no other year above it, usually for those guys, right. So, they're going to, they're going to get that level and maintain that level.

There's a maintenance. They're going to maintain that and sometimes that's okay. I believe that to some extent everybody has that, that they're wiring. There's a certain sense of self worth of value. I'm looking for somebody that's hungry and entrepreneurial and their expectations of where they're going to get is way above anything they've already done or anybody, that fits in my comfort zone, right? If I'm taking a, your heat and air business, and I want to see it triple, if your salary income and everything hits your comfort zone at half that, are you really going to continue to push? 

[00:18:24] Nathan Lenahan: A hundred percent. Yeah. I think, for our GM, it was, that was every time we give him a goal, he's like, Oh, whatever goal you're giving me, like I have my own goal. That's a bigger than that in the background. And so he,I've had to pull it out of him sometime, but he's always sharing that as well now.

And that just gives me more comfort because he does really care and he's not happy with,cause we talked about the recruiting. I'm like, Hey, it's, uh, it's going well, it's a good business. And he's like, well, why not do more? I'm like, well, I don't know. I think I might've hit that level where, I learned in the last job I had, I don't care about the money that much.

Like all my bonus was predicated on, EBITDA margin and like all this stuff. And I did what I thought was right at the time, which at the time actually, negatively impacted my bonus, right. And so, it's a really hard one cause I'm not as coin operated as, as,maybe sometimes I want on my team. I've had different motivations.

[00:19:11] Ronald Skelton: Yeah I'm 52 and i realized that I've made tons of money at certain times in my life and I've made low, like I've been at the bottom too. That said, um, there's a reason I'm out here at 52 still hustling and, trying to do deals and stuff, cause, I'm not where I want to be now. But, uh,I'm the same as you.

I don't think that money is my hundred percent motivator. I think, like I said, I've made tons of money before and I've had little money. And I'll tell you, there's no direct correlation after a certain point. There's no direct correlation to happiness. I'm happier being able to take my kids to the beach anytime I want to and do what they want to do and spend time with them while I'm still dad, dad that's cool, right. Cause I have a 13 year old and an eight year old. I'm still, there still, the 13 year old I'm not as cool in his world as often as my eight year old but my little girl, is daddy's daddy's little girl. So she wants to go to the beach or something I can do that. It's hard to do that in a realm where you're all about numbers.

You're driven a hundred percent. I'm also, if I put myself in your scale from like zero to one, that, that growth guy or the plateau guy, I'm definitely not your plateau guy, right? I hate doing the same thing over and over again. I love solving problems, but I don't think I have the patience anymore to be the zero to one guy, either.

The guy that comes up with the idea and tries it because I know the math behind it. I know that it's going to take 10 startups to get one that gets real traction. You're going to think nine of them, the market's going to love and want, and they don't. And then that one that you think that they didn't, that this one might be takes off like crazy. And next thing you know, you're knee deep into that one. 

So I'd rather go from the acquisition world. I'd rather go from that 1, 000, 000 to a higher number, but as soon as we're doing the exact same thing every day, I want a general operator in there to take over the day to day operations because I'm really horrible at doing the same thing more than once.

[00:21:01] Nathan Lenahan: Same. I'm a growth guy. Zero to one is probably my second best. And that's, the biggest problems I've had with zero to one is just making sure I have enough income to worry about life. So I don't have to have like a side hustle to pay for life and then also try and work on the zero to one thing. And so, 

[00:21:17] Ronald Skelton: So, what's the biggest red flag you see with an operator? Like, can you tell, cause there's, there's one thing about interviewing well, but usually within the first, probably, I want to say 21 days I've ever had an employee, I kind of knew the writing on the wall. Sometimes I was slower to react, in my older age, I'm fast to react now.

If I see the writing on the wall, it's not fitting, I actually start doing the search before I tell them. I start looking, I started interviewing replacements pretty daggum quick cause I just know it's not working. That that meter is there now. That's that gut, that gut feeling, I always call it a BS meter, but it's more of a gut feeling like this is, this just isn't going to work. What are some of the red flags for you in the first couple of weeks of somebody? So if an operator comes in and, have you had cases where you're like, I just didn't get this right, I probably ought to do something else.

[00:22:01] Nathan Lenahan: Yeah. We hired a, an ops manager last year for one of our companies and like, very, very well regarded. Came as a referral. Literally called out in, in some books, like her name is a reference for that. And, and she's incredibly knowledgeable and just knows how to run a business a certain way.

And it just wasn't our way. And so, despite like knowing, like we were just going to ask wondering pretty quickly. What is she doing? I don't understand, like, this is a lot different than our expectations. Like what's going on? So, I think that was, that was it. But the things that matter to me or flags typically is, in, in the beginning, like it, she should be in like a constant state of curiosity.

So like asking questions, how's it done here? Why is it done that way? And just learning. It should be, making sure expectations are clear and that you're meeting them, right. And, and then I think just having a path for quick wins. And so if you're not, if you're not taking the time to do those things and just building a solid relationship with the team and, building trust. I mean, there's nothing more important than just building trust. If people are complaining about you pretty quickly, or you're just going against the grain for the, for whatever reason, cause that's how you've always done it then, all huge flags. 

So, for me, that's, that's the big ones. And, even a placement recently that, within probably a week or two, I knew it wasn't a great fit.The leader knew it wasn't a great fit and, and the person knew it wasn't a great fit.They didn't last long.

And, it was just a miss on some of the cultural things. That like, this was a third party placement, so harder to get grass from one of those things, but went from, he was going from incredible residential private equity backed. Like kind of roving GM to a commercial private equity backed, and so like the, the day to day activities were much different.

The level of accountability was different. The reporting was, everything was different. And so it just ended up being a, not a great fit. And, something that I learned a lot from, trying to make sure we don't make that mistake again. But, uh, yeah, it's,it's hard. I'm not going to tell anyone it's easy, but the, there's a lot of indicators that, that we look for in the beginning to try and avoid those problems.

[00:24:09] Ronald Skelton: To a lot of your customers that smooth operators, they end up being private equity and they're looking for operators to come in? Or do you do a lot with the acquisition entrepreneurial world where like this is their fourth or fifth acquisition and they're doing a roll up or a holding company or something like that?

[00:24:25] Nathan Lenahan: Yeah, almost, almost exclusively, like small business owners. And so the, even the private equity one, it was an independent sponsor. I was friends with the CEO of that one. And it was just one of the portfolio companies just helping doing some hiring for him. And so, that guy was awesome, like really close with the owner or the, the president of that company along with the CEO. 

But, yeah, primarily, let me think about this, almost exclusively been first time, second time buyers and like on the ETA side. So, purely acquisition, like we did a roofing company GM, we did an HVAC GM. We did, sales manager for a foundation repair company. Playground installation company, a project manager slash, operations manager salesperson for them.

Yeah. I mean, just lots of locksmith company, operations manager, director of operations. So it's all been, yeah, small businesses, which is really cool.

[00:25:18] Ronald Skelton: I know in the technical recruitment space back at, because I ran tech companies for a long time, but I told you, we both work at Lockheed. When I left there, I became like Senior Director of Operations for some of the big dot com world for a while. And hired and fired a lot of people. The search funds that we used back then for tech when it was hot and we had to pay hiring bonuses, those were expensive. We would end up paying the search, you know, like the executive of the placement company, sometimes 40, 50 percent of a year's salary to help us get a placement in. I know a buddy of mine who just him and his, uh, now ex-wife, they sold their engineering placement company. 

And I asked them what theirs was and they said it was about 33%. So in this space, is it somewhere, you don't have to get disclosed like proprietary information, but is it somewhere in that realm as to what it costs to get a placement?How does that work out?

[00:26:09] Nathan Lenahan: Yeah, I mean, I'm an open book, so I don't care about any of that stuff. So for me, like I charged 25 percent of first year salary. And typically in this space, you're going to see, it just depends. It totally depends on how big and what kind of executive this person is considered. So I have been doing for the most part, except for one, a contingency based search.

So I've not done a, I'm not doing retained search right now, which would be for like larger, like, you know, executives at private equity companies to C suite and above maybe VP and above. And so 25%, I think that's, it's probably slightly on the high end for contingency side. Typically, 18 to 20%, um, you're going to go under 20 percent probably for higher volume companies. So if they're going to do multiple positions with you, but, yeah, I mean, I'm, I think I've, I've done discounts for veteran owners only, pretty much. And anyone that'll do,that's been the only place I've really had to do discounts on.

So, 25 percent for me. And then if you're doing a retained search, like that might be a little bit different where it could go 25 to 30% depending and the payment structure is, obviously different there than,contingency where it's just a success.

[00:27:14] Ronald Skelton: So sell me on the search business. Why would I want to acquire not just yours? But I'll give you my underlying motive because you are very open book. I danced around that whole other question and you're like, I just asked the damn question. So, so anyway, so this question, there's one actually right now listed in our area that say, the numbers don't seem right.

So they listed it for themselves in Craigslist. They said that their 2023 revenue is 2. 2 million. They do placement. So they're a staffing firm. They got six employees. I think it's four full time, two part time, and they want to sell it. And the listing price on Craigslist was like $150, 000. And I'm thinking, even at, you know, a horrible profit margin in staffing, let's just say they're doing 20%, they still should be cutting, Four or five hundred thousand dollars a year in revenue.

Why is it so cheap? So I haven't called them yet, but why would, because I don't know if I want to be in the staffing business. Why would somebody want to be in the staffing business?

[00:28:11] Nathan Lenahan: Well, first, send me that listing.

[00:28:14] Ronald Skelton: Oh, yeah, absolutely. Well,

[00:28:16] Nathan Lenahan: Um, second, look, I'm still learning a lot. And so there's, I'm learning. There's a lot of terminology that, that is, is used places that may not mean the same thing, or it may mean the same thing. So staffing, yes, recruiting is technically staffing, but when I think of staffing, it's high volume, usually low skilled.Like contract, temp staffing versus like, full time permanent placement.

So like I focus on full time permanent placement. I met like an awesome dude from Twitter, Nick Shabro. He's up in Michigan and he does more staffing cause there's lots of manufacturing companies up there who are constantly having turnover and they just need awesome people. And so Nick does an incredible job staffing those.

And then they take a markup on the hours. So like they have, Nick's company actually pays the team members until their contract is bought out and they become a permanent placement to that company. And so my, that would be my first question for you on that role on, on that company is what kind of recruiting do they do?

Because if they have contractual agreements where they actually have some kind of predictive amount of revenue going forward, then that's probably incredibly undervalued. Those are going to be the highest value type companies. Anything that has obviously contractual revenue. You can get, you can see those go up to, we'll say six to eight X multiples.

And then mine is probably like a contingency placement firm with, revenue, like you're going to see three to four X probably tops. So, uh, but I would imagine their profit margins much better than 20%. I would expect much higher. So, I mean, we're running at about 96 percent this year so far, but that's straight up contingency.

It's just me, I'm just doing all the work. So,it's pretty incredible, but I would still expect to be north of 25, 30%, at least in a staffing company. 

[00:30:00] Ronald Skelton: I got a game we can play. Click on that chat button on the bottom right.There's the listing right there. Can you see that one? So it says successful employment staffing agency listed for sale in Santa Rosa, California. World class. Franchise business offers a line of staffing services. Aha, franchise.

That might be another reason why I kind of backed away from without, without cold calling them. I usually just call these and just have a chat with people.But temporary flexible direct hire, you see the listing?

[00:30:26] Nathan Lenahan: No, I do. Yeah. I'm looking through it. Yeah gross revenue is at 2. 1. Yeah. I mean, they're not asking much for it. So I would be curious on just like what the, yeah, what's going on. I mean, it's probably not financiable. Potentially. That'd be one of my guesses. Open in 2017. 

[00:30:42] Ronald Skelton: That might be why they're asking for 149. 9 is they,they want, just want, they want to check, but it's, you know, it all depends on the franchise too. It says franchise, franchised business. So you got to work with their franchisor.

[00:30:53] Nathan Lenahan: Yeah. So who knows what that means, I guess. And then, so, yeah. I mean, that's two headwind right there. Can you put debt on it and actually finance it? What's the, how much pain is involved for the franchise transition? And then professional office for train office staff.

Yeah. I mean, 2. 1 million, I mean, that could easily be a home run. But, who knows?

[00:31:16] Ronald Skelton: So anyway, um, no I just curious because that's seen that not the only he's in that space. I wonder what he would think about that. Cause it seems like the numbers are off. 

[00:31:24] Nathan Lenahan: Let's go, let's go into some other aspects of what you got going. Your strategy for growth on these businesses, are you looking to acquire? Acquire to grow? I mean, you got the skillset, you've already made some acquisitions. It's a brilliant way to, it's like the, look at the PE boys. They're doing something right there. If the average PE looks to grow 30 percent year over year and I don't know another way to do that without doing acquisitions. 

Yeah, I think 30 percent is a perfect number. That's kind of our number that we use as well. And so the, in tech, there's actually a good number. It's, uh, I think it's called the rule of 40 or something like that. So, every percentage you want to grow more than 40%, you have to take it out of your, or no, excuse me, your growth rate plus EBITDA percentage has to equal 40%.

And so if you want to grow 40%, then you're not making any money. If you want to grow 20%, you could make 20 percent EBITDA. It's like, that's the rule of 40 there. And I, like, I think that's interesting, but you can't do 40 naturally for the most part on, in our industry. So in HVAC, we think 30 percent and we think 30 percent is achievable for the most part organically. Until you start hitting larger numbers, you get to 30, 40, 50 million, I think it gets a little bit harder.

But, there's lots of opportunities to continue to grow. So like for us, we have our organic strategy and we have our acquisition strategy. So 30 percent organic ideally. And we currently only have one trade. So we operate in the Northwest quadrant of DFW, we have HVAC. And so, there's clear paths of opportunity for 30 percent growth for a long time in front of us.

We just need to do HVAC across all of DFW. What if we add plumbing in just the Northwest quadrant? And then what if we had plumbing in the half the quadrant? So, uh, that's how we think of the organic side. And then we are working on our third acquisition right now, which would be by far our biggest one so far.

And, and that will be like, that'll put us into eight digits in revenue, and really just turn the corner. And that would only be an HVAC still. So like, we're going to add plumbing,here in the near future, and build on that, hopefully like really strong customer base. And then continue to look for acquisitions. Cause we'd love to add electrical in the future. And then, you,

[00:33:28] Ronald Skelton: Let's say electrical will be the next one, right? It's logical.

Almost, every electric, I mean, every heat and air guy knows how to do some electrical to start with. He has to do his job, right. And he has to do basic plumbing too, because he has to be able to weld, free online or whatever they call it now.

It's not free on, I'm old. And whatever the chemical they put on them now. They have to be able tosolder those lines and stuff. So they've got some of the skills. So I think those are the two logical.Electrical and plumbing. 

You know, you're talking about earlier about setting expectations and clear communications with your operators. I seen in one of your things, you said you like a good dad joke. I have a, one of my favorite things to tell people is the reason that hires fail and business partners fail is very similar to marriage. So what's the number one cause for divorce? 

[00:34:12] Nathan Lenahan: Money? 

[00:34:14] Ronald Skelton: The number one cause for divorce is marriage. Cause you can't get divorced unless you're already married. Right? The number two cause, the number two cause for a divorce is unmet expectations. So each party has certain expectations of how this is going to go once, once we're done. And it's either not communicated well, or like you've got an internal community, like expectations, you've never done it. It's the same way with every employee I've ever hired and everybody who's ever went to work for me. They have certain expectations of what their job's going to be like. I have certain expectations of what their delivery is going to be.

And if we don't communicate those well and continue communicating them as they develop, those unmet expectationss are what, is the monkey wrench in the whole gears. And I know that, I know that's what you said earlier, inside of like picking these, picking the right guy. One of the things I see in acquisitions is very often these business owners already know that they don't have the right butts in the right seats.

That's the key thing about being an owner is like,sometimes it's not even getting rid of people. Sometimes it's just like, somebody's in the wrong position, right? They've outgrown their spot and they would do much better in another person, or they got put in a spot they should have never been in and they would excel somewhere else. So, you know, in another position in the company. 

How do you do with that inside of, you know, the acquisitions you make and how do you avoid that with your staffing firm?

[00:35:35] Nathan Lenahan: Yeah. I think, I mean, it's asking a lot of questions. So we care a ton about the people and what that transition plan looks like. And I think intentionally you want to keep everyone in an acquisition in the beginning, but, as you evaluate talent, like you're going to find people may not want to be there through this transition.

They may not want to be part of your plan or vision for the future. And so, I think just having really honest conversations with people and being transparent on where we are and where we're going, is the start. And then, you know, being super candid, you know, my, my partners even give mea tough time sometimes about being too blunt. 

Like I wouldn't say I'm ever mean or anything, but you know, at the end of the day, if we have a problem, as an example, like our GM, there was an issue with a installation for an HVAC system on Saturday and he wasn't reachable. And I'm going to be honest with you, like we pay this guy a lot of money. That's bullshit. I don't want to hear about that like ever again. And so, some of those things, it's like, Hey, this isn't like a, really a conversation. That was a clear set expectation. I don't want to hear it about again, like figure it out. Tell me the plan. Like let's work through that together, but like not acceptable, you know?

And then there's other things where it's like, Hey man, wow. We both had different expectations of what was going on here. How do we work through this together? And so,I think making sure that they want to be here. So like, do they get it? Do they want it? Do they have the capacity to do it?

So, that's like the three I always go back to. And a lot of people get it and have the capacity to do it. And they may not want it.They're just here to collect that paycheck and sorry, that's not going to work for me. And so I think for us it's easier and for clients, man, they're not always forthcoming with all those details, right. And so you try your best to put those people in front of them. Like, Hey, this is who I think they would like. This is what I think would be a fit. But I've never seen the real culture in their, their office environment or what it looks like when something goes wrong. And so, that can be really tough to overcome. And, I'm really hard on myself when we get it wrong.

[00:37:21] Ronald Skelton: And bigger companies when that happens when you, you can have a delegate, right? You can have somebody say like, if you can't get ahold of me in the first 25 minutes, call this guy. I give him authority. If you can't reach me and then you can prove to me you, you tried, you know, Joe over here can make the decision and get something done, right. I'll delegate that authority to him. That way we at least have a third or, or a second pair of eyes on the problem. 

So, I get that, you know, the communication inside of these general, it goes back to what we talked about earlier, right? Is,you had to be, somebody had to reach out to you.

You had to find out about this so much. So your GM, in the perfect world, everything's are going to hire a GM and there's never, they're never going to see a problem again. You're still managing people. You're the, you're now effectively the Chairman of the Board. But when, the chairman of the board has to replace the CEO occasionally, that's just the way companies work.

[00:38:10] Nathan Lenahan: Hundred percent. No. And it's a great point because,the failure there wasn't necessarily like, Hey, things happen, totally get it. You know, like it happens. But you know, when three, like those, uh, all the delegates, so we have three delegates in place and every one of them failed. And then the guy that this GM was replacing, like, that's the guy having to answer it, on a weekend, this is like the first weekend that he's really supposed to be running this thing, it's his show and he missed the mark.

Like that's, that's where I have the problem. It's not the fact that there's a miss, like the misses happen. I just know that. But like, what, how are you doing better? Because, one time, okay. Well, it happened again, I don't know, like two weekends later. And it's all right. Now, I won't say two data points make a trend, but we're still, we're definitely starting down a path that I don't like.

So, how are you going to fix this? Because I don't want to hear that's not, that's not a data point. I'm going to accept. Expectation wise, you need to take care of that. You need to make sure that it's taken care of and done in a way. And if we're failing you on the support that you need to do that, then like, let's go, let's talk through that.

But yeah, like that's a, that's an output that is not accepted.

[00:39:13] Ronald Skelton: I get that. Let's talk about, um, you've got these multiple things, but how many companies do you guys control right now? Besides smooth operators? And the, and Bart's, is it just the two right now?

[00:39:23] Nathan Lenahan: Yeah, that's the main two. We do have like a little tech company that we've been working on, but that's, that's been lower on the list. Bootstrapped and,it doesn't provide revenue or pay the bills. So it gets, it gets less attention.

[00:39:35] Ronald Skelton: So,is your growth strategy in the heat and air space to grow organically, or are you going to acquire competitors in the space? Cause that's a tough spot. The PE guys are all over you. They're trying to buy those up too. You're going to go ahead anything that's sizable, you're going to go to head to head and bid against the PE guy. 

[00:39:50] Nathan Lenahan: You'd think so. I'm working through a deal right now and, like I said, it'll, it'll over double our revenue and it's going to be the best acquisition. It might be the best business I've looked at so far in this space. And, it's off market. Like we're not, they're not talking to any PE people or anything like that.

And not necessarily everyone wants to sell to PE. And I think, for us, we have been learning from others of like, what is our real pitch here? And I think we're really good at a few things, but like, number one, we're going to give you a fair price With terms that we know we can close. Number two, we're going to take care of your people because that's who takes care of everything.

Number three, we're going to take care of your customers. Number four, we're going to honor your legacy in a way that we, we both agreed to. And, and then I'm a veteran, like people kind of love that. I, you know, I am very proud of like the, our country and the things that we do. I come from a military family, so always selling that, but we have a great track record with the owners that we've done acquisitions with so far.

And so, not everyone's always looking for just the most dollars. They want their team taken care of. And I got to tell you, I have a bunch of friends. We're in like, group chats who own companies as well, doing the same thing, acquisitions throughout the country. And there's just all kinds of stories of PE coming and buying that family owned operated company. Changing everything, increasing prices, the whole team leaves, customers are pissed off and that's our favorite story ever because now I'm getting high quality talent and I'm getting their customers. So come on, private equity, let's go.

[00:41:09] Ronald Skelton: I love that you're doing the safe pair of hands. Cause that's, that's critical in the small business, mergers and acquisitions.

If you're new to the show and you haven't listened to a thing, I'll tell you two, the two skills you can, can get faster than anything, is building rapport with the sellers. And, crafting your story where the seller knows you're a safe pair of hands to hand that business over. It's going to be, you got to have to pay for it.

You're going to have, you're going to have to come up with funds and stuff. But those two elements I think are more critical than even the money. I've seen many a deals go to the second or third down in the tier of most highest bid because they trusted the, the operator. They touched the, individually, they trusted Nathan better than they did some guy at PE, right.

[00:41:50] Nathan Lenahan: A hundred percent. Every time I will say that's been the biggest, the biggest mover in any kind of deals that we've had have always been meeting the sellers in person because like, we're just normal, genuine guys. Like I'm not any different when shit hits the fan than I am right now. And so, we crack jokes, we have a good time.

We care a lot about the people. We ask lots of questions about the people and that's not just a, you know, a strategy that's because that's what matters. And so, uh, yeah, I don't know, I think people are really, they like that. They like people that they feel like they enjoy and and want to do business with.

And that's what's pushed us over most of the time, as long as we have a fair offer.

[00:42:24] Ronald Skelton: So let's do a couple of scenarios here just because, for Bart's, your heat and air company. If somebody is in the greater Dallas area, what would, and they're thinking about retiring, selling or any other reason accident, and they got a good business. What is your buy criteria? Is it a heat and air? Plumbing? Maybe electrical? So give me your buy box in case somebody is listening to this and they're wanting out of the space.

[00:42:46] Nathan Lenahan: Yeah. I mean, our ideal buy box isprobably three to 5 million plus in revenue. 5 million plus would be incredible, but, in plumbing, it's really hard to find many companies. There's very few plumbing companies coming across the market that I see. So, anything that's sizable, honestly, one and a half, 2 million, we'd be open to that as well.

It's gotta be profitable over the last three years. You can't have a, you can't have a weird, unprofitable year because of COVID or anything like that. It's gotta be financeable and then you, uh, you gotta be ready to leave the business because we're not necessarily looking for people who want to sell and then stay on.If so, if you want to partner with someone who's going to, you know, take great care of your people and your customers and continue to build an incredible reputation, then, we'd love to speak with you.

But yeah, plumbing, HVAC, electrical. Like our big strategy for acquisitions now is we either need to be adding a new service or a new geography. And so we're in Northwest DFW. So, the rest of that kind of, you know, noon, 12 o'clock to, 9 PM essentially of the rest of DFW is, uh, geography that we need to go cover and we'd be open to acquisitions there as well. 

[00:43:52] Ronald Skelton: So how do people reach out to you to tell you about something they've got in that space. The heat, air, plumbing, electrical.

[00:43:58] Nathan Lenahan: Yeah. So you can, you can find me on Twitter at Nate Lenahan and the number eight, Lenahan. You can find me on LinkedIn or you can shoot me an email at Nathan at Bart's HVAC. com.

[00:44:08] Ronald Skelton: Cool. And now let's go to Smooth Operators, right? I really love the name of that. 

If somebody is out there and they're looking to hire an operator, do you guys only operate out of your area? Is it national? Is it, I got a lot of international listeners in the UK and Dubai and Australia. Where do you operate out of and what does that look like on that space? 

[00:44:28] Nathan Lenahan: We do focus across the U. S. So, so no, like geographically agnostic. I would say industry wise. We tend to focus on, like more like blue collar industry, sweaty industries. So manufacturing, skilled trades, logistics,facility management, cleaning, like those types of companies, um, I'll say focus. We're open to other industries. That's just where we have like the deepest experience.

[00:44:52] Ronald Skelton: Awesome. Awesome. And then is there a different way that you want people to contact you for that, or is LinkedIn fine?

[00:44:59] Nathan Lenahan: LinkedIn is fine, but you can do Nathan at smooth operators. co as well. We couldn't afford the M on .Com. So just .Co, Nathan at smooth operators. co. 

[00:45:07] Ronald Skelton: Wrapping up, if somebody can only remember a couple of things from our conversation, what would you want their key takeaways to be? 

[00:45:12] Nathan Lenahan: I think for acquisitions, knowing who you are makes it really easy to attract who you want. So whether that's people or acquisitions, and that's why I can give you like the four things we focus on for an acquisition really quickly. Like we're going to give you a fair price on terms we can close on.

We're going to take care of your customer or your people. We're going to take care of your customers. We're going to honor your legacy. It's like having that pitch down and knowing who we are is really important. For our company, Bart's as an example, we know exactly who we are now. It took a long time to figure that out, but our mission is change lives to the trades, create smiles, do it every day.

We have our values. We have our kind of compensation approach. And so it makes so much easier to attract high performers to, to Bart's as a company, because we know exactly who we are and, you kind of get what you seek, right? And so, I think knowing who you are as a, an acquirer and then as a company is really, really critical.

And then, I'd say on the operation side, if you're looking for an operator, sounds really cool. It's, it's maybe not as hard as people make it out to be, but it's certainly not as easy as people make it out to be. And I would tell you, make sure that you are ready. And the way you can do that is by writing a job description or what the perfect candidate would look like. How much you're willing to pay? Is that in the budget and whether that makes sense for you. And then,you know, like what great looks like.

And we have this exercise that I do called you, me, we. And, uh, and it's just three columns, right? Like you take a new owner and a new GM and what does that person do? What does that person do individually? And then what do they do together? So an example might be, Hey, as a GM, you can approve any expense up to $10, 000.

Anything above 10, 000, we need to do that together. You can hire up to VP, but anything above that, we have to do that together. And then the owner may, you know, take care of other things as well. So like, that's been a great exercise that I've done with people where just gives you an idea of what they do, what you do and what you do together.

[00:46:57] Ronald Skelton: Awesome. Awesome. Well, I think that's a, some great advice and,we'll call that the official show.