E235: Customer Focus: The Key to Transforming a Struggling HOA Company into a Success Story

[00:00:00] Ronald Skelton: Hello and welcome to How2Exit podcast. Today I'm here with Brian Shields. He's a seasoned acquisition entrepreneur and I'm here to learn from you today, man. So thank you for being here and I'm really interested in learning more about you and your story.

[00:00:13] Brian Shields: Right on. I'm excited to be here. Thanks for having me on Ronald.

[00:00:16] Ronald Skelton: Now you've been doing this for a little while now. 15 plus years. It looked like according to the notes you sent me. Could you give us a little of your origin? I'm going to give up my old standard joke. So there's been a joke for a long time, but, uh, we'll give up the standard joke and just say, can you fill us in on, how you got here and what you you've done to lead up to being on a show.

[00:00:34] Brian Shields: Sure. Yeah. So, I'm originally from Houston, Texas. I went to college at Morehouse in Atlanta. And so for the first half of my life, I spent a lot of time drinking sweet tea and, enjoying fried foods and peach cobbler and banana pudding. And when I got to college, I was introduced to thing called investment banking.

And when I was introduced to it, my reaction was like, well, why would I want to go be a teller at a bank? And, and then I quickly learned that that was not what that was. And so I moved to New York after college and spent about 10 years in investment banking and then at a private equity firm buying and selling companies. 

And so that's like the foundation of my career. And it's also where I learned what EBITDA was. Both from a value and analytics perspective and, from a hands on perspective. I worked within the portfolio after doing a bunch of deals on the deal side. I jumped in on the operating side and helped run different strategic projects in H. R. and sales and inventory.

And then went to one of the portfolio companies to open a division with them. And that kind of really taught me what it means to make money, right. And make the EBITDA on the page. And that really showed me that, the investors of the future, I thought needed to be like good operators, like people who understand how to run businesses.

So I moved to California. I, I'd ran growth at a few venture backed companies, you know, places that I could get a lot of autonomy and a lot of responsibility early in my career. And,had some success there. One of which, part of our growth strategy that I was leading was to acquire a bunch of companies.

And so in that time period, uh, I was there for about, just under three years. We bought 12 companies. And that was really successful. But that showed me that there are a lot of small businesses out there that are ready to transition from their owners to the next generation. And so I threw my hat in the ring.

I left the company. I bought an HOA management business. I bought another one, put them together. We set, we completely renovated the business. Like, I like to say, we ripped it down to the studs and rebuilt it. And what came out of it was a much better, much higher quality service business, and ultimately that got on the radar of some people who wanted to pay a premium for that and jump into the market with us. 

And so we had a successful exit with that. And, uh, and you know, my, my wife was very happy about that. And, uh, I was very happy about that. So, so yeah. so I'm really excited to share from all of those lessons learned, man.I've tripped, I've stumbled,I've, by no means have a perfect path or story, but, I have a lot of lessons learned that I'd love to share.

[00:03:13] Ronald Skelton: It's interesting that you said HOA management company. I don't know if you knew this. I didn't tell you this beforehand. I have a real estate background. So before mergers and acquisitions, I owned a real estate investment firm. And we specialize in doing short sales and when we first started, it was all investor backed and what's called an investor backed short sale. 

Towards the end, we almost couldn't do them because all the regulations changed. The banks just kept rejecting offers because they didn't want investors buying it. So we ended up buying other stuff and trying to find workarounds. And I eventually shut it down. Actually, I sold it to my business partner through like just an equity swap of, you know, I kept more houses, you know, gave him it.

And, cause I didn't think it was going to survive. A year or so later, he had to shut it down because it was just, the market was too hot to buy foreclosures, which is where we were specialized in.And, uh, it was just too competitive. I have a love hate relationship with HOAs, right? I love owning houses in them as a, as an investment, because now I know my, I usually owner finance my houses.

I know all my owner finance clients. I don't call them tenants because they're buying, I'm the banker in that situation. Those clients have to adhere to certain rules. So my house is going to get taken care of, right. So I don't mind that so much, but I have never, and will never own a house with an HOA. I don't like being told what to do.

I usually live in the woods. So I was telling you beforehand, we're mobile now. We live in the woods. Even before that, I had five acres out in the middle of nowhere in a un, like, unincorporated areas. Usually I, like, even the town I was telling you about, Guerneville, where I live now, uh, this is unincorporated, right?

This is an unincorporated, we don't have a mayor, we don't have a, you know, city police, it's just an unincorporated town. On the homeowners associations, a lot of people don't understand how powerful they truly are. Right? And, um, so you you created a business where you man, helped manage it.

So was it like a, uh, systems process SaaS or software, you know, type of tool, or what was the business around that? 

[00:05:03] Brian Shields: Yeah. So it's a pretty simple business. So, so for context for everyone, HOA is right. The homeowners associations, they're the entity that maintains all the shared spaces and shared amenities in communal living properties. That could be a high rise or mid rise. That could be a huge single family, planned community, et cetera. 

And so, the H. O. A. is in charge of making sure the grass is cut or the boiler gets replaced, or we plan to fix the roof in a year or two and things like that. So they have huge responsibilities to ensure both the financial resources are allocated correctly to these different projects and that the homeowners within are complying with the rules that, to your point, Ronald protect the asset, right?

So, hey, let's make sure that we're not painting things that make the property values go down. Or let's make sure we're not like punching holes in walls that aren't load bearing and then end up damaging like your unit and the neighboring unit or something like that. And so, within the context of that, that you can understand that there is a lot of people dynamics.

There's kind of conflicts between the board and the homeowners. Between homeowners and homeowners and everybody in between. So there's usually a lot of interest in getting a third party to mediate and play a role in taking the load off of the board, both operationally to make sure like money is collected and bills are paid.

And social politically in being in between all of those little points of drama that happened with the people. So our company was a H. O. A. Management company. We would come in, serve the board and provide full financial support, operational support and compliance management with the given H. O. A.

So that's primarily a people business. We have people show up to board meetings and take minutes and make sure that once they have the to do list, make sure that to do list gets done. Follow up with people to make sure that they understand that they owe some money for dues or special assessments and then collect that money, etcetera.

And when we took over, the business had been around for about 30 years. And it was running fine, but it had a negative net promoter score of 50, like negative 50. That's not great. That's not great. And so, no. And so one of the things that I went around to do, and actually look, just to be clear to listeners, the part of the reason that's really important for this kind of business is, these businesses primarily grow through word of mouth.

You have somebody who's on the board of one HOA, they likely have another property, another HOA, or they know somebody who's in another HOA. Like they all know each other. And so if you are doing well, then board member A will recommend you to board member B. But if you have a negative net 50, net promoter score, then board member A is saying, do not work with that company to board member B.

So it was really important we fix that. So then I did a listening tour, right? Which I think anybody should do. If you're buying a company, you should sit with your customers immediately because, I'm a very customer first owner and operator. So I like to think about what does this person need or want? How are they getting the service?

And then what is the most efficient way we can deliver it at the highest quality possible, right? And so, I started having those conversations. And I would hear all of these things that were fairly simple. Things that we could be doing that we weren't. Like, following up or giving updates on projects or letting people know where things stand or just answering the phone or sending emails back and stuff like that.

And so on our side, what I recognized was that it was primarily a capacity and process flow issue. So, the company had been set up to do things in a very old school way. I mean, we're talking about like, to get a check paid and invoice had to be physically printed, dropped off to two different people for them to hand sign.

Return to somebody for them to print a physical check, fold everything, put it in an envelope, lick it, mail it. It was ridiculous. So, there was all those little things all over the company. And so we ended up, just like looking at ways to modernize the business. And so, and reallocate those people to more important, more valuable things.

So like we automated that invoice process and then allocated that person to the accounting team to do higher level work. We had, people who were project managing on like yellow legal notepads. And so we implemented a project management tool, use Asana. That then helped us stay on top of everything. It helped me see if person got assigned 10 requests from the clients, did they complete 10 requests?

And we opened it up to the client so the clients could see, Oh, I asked for 10 things. Seven of them are done. Here are the updates on the last three. And so that reduced phone calls to us and improve their happiness because they knew what they were paying for. And so, that just does a long answer to your question.

But that just paints the picture of like what a property manager in H. O. A. does and like how we approach kind of thinking about improving that.

[00:09:49] Ronald Skelton: Well, I'm excited that even asked a question because you had some real winners in there that, that listening tour. I'm a big, big proponent in building rapport, uh, throughout the process. To the point where I'll teach people on our team what it means to be a great listener and how to actually actively listen to another human being. Uh, a lot of people aren't ever trained to what that means. 

So to go out and actively listen to where you're really trying to understand not only what's coming out of their mouth, but what, what is the underlying motive and meaning and emotion beside, behind what they're talking, about to actually spend the time and energy to figure out where your customers stand is beautiful. I don't know what another word to explain that because it's so valuable in moving forward.

I think it was a brilliant thing for you to do and to bring up in this process. I think a lot of people miss out on that. A lot of people miss out on, they'll go through the due diligence, they'll talk to the business owner, and a lot of times they can't talk to the customer right away because of private, privacy issues, concerns with the owners, but the second you get a chance, you know, just, they'll do what you did. 

And go out and meet with all of them. And I, I think my management style, I have, I always jokingly say I've oversimplified management. I've, I've managed by four questions. I only asked three of them on every meeting. And about once a quarter, we do a fourth one. And it's, what do, we always pat ourselves on the back first.

What are we doing really well? Where can we improve? What can we do better? That's our second question, you know, and then what are we totally missing? So if you just did that with every single customer, hey, what are we doing good? What do you like about us? It gets them on a positive note. Okay, what can we do better?

There's, a lot of people won't start off, if you, if you ask what do we, what we could do better, they're a little hesitant. They don't want to offend you. But if they just blew you up like a balloon and told you everything they loved about you, they're going to feel a lot more comfortable going, yeah, and you can fix these things. 

So there's there's motive and mental you know work I've done about the sequence in which I ask these questions And then what are we totally missing is, man you know, we're doing x y and z and we just wish somebody else would take that over too. And then once a quarter I throw a fourth question in, I was like, what are we doing that we should probably just quit?

Something we're doing that's a total waste of time, energy, it hasn't worked. We've been doing it for the last three months and we're just doing it because that's the way we've always done it. 

[00:11:58] Brian Shields: Yeah, and good on you, man. Cause a lot of people don't ask those questions because I find like other operators, particularly people who are like deal people. They waffle between, they don't care or they're scared to ask, right. Cause it's like, Oh, this is people's stuff. And like, I like the numbers. But like, and implicit within that, right.

You kind of have to be willing to be vulnerable because that client could tell you, you're doing nothing good. Or here's like the list of 75 things that you're doing wrong. And then that as the operator and the owner, you're like, Oh man, now I'm freaking out. Cause did I buy a lemon or like, what's wrong?

Or can I fix this? Do they think badly of me? You start having all these internal kind of like narrative conversations with yourself that aren't productive, but, that's part of the, that's part of the responsibility of the owner, the person in charge. And you got to ask those things because then you don't get better.

And then if you don't ask, like, what should we stop doing? Then you end up in a place where you just have somebody folding invoices and checks and they keep doing it. Cause we've always done it. And like, why should we change it? Cause we've been doing it. Like you just get stuck in those habits.

[00:13:05] Ronald Skelton: Yeah, and a lot of people don't understand that just because you don't ask a question about a problem, doesn't mean the problem doesn't exist. It's the you don't know what you don't know, right? So a lot of people are afraid to ask, you know, what are we doing wrong? Because they're afraid of what's being told but those problems will exist whether you ask the question or not, right?

So, I can't fix it. I don't know what I don't know. I can't, it can't be addressed. I might accidentally fix something because it's a quirk and I didn't like it, right. But to intentionally make a change, that's, that's something that, you know, you have to be both intentional about seeking out what's going on and attention upon the action of what you're going to do to change it. 

So let's move forward in the game. So, you bought this, you've made some changes. It's growing. What was the first indication that you might, you know, you're, you're from investment banking, did you know from day one, you're going to sell it at some point? 

[00:13:56] Brian Shields: That's a great question. No. That was like very much a, we ended up there situation. And, so when we acquired the company, my partner and I bought this like completely out of pocket. So we were, in, in the context of nomenclature. We were self funded searchers basically.

And happy to talk about the process and how we found the business, but we went into it with the intention of turning it into a cash machine, right? We just wanted to pick up checks and let it run and not mess it up. And then it would be great. And so, all of, a lot of the changes we also put in place were for us to be able to manage the business remotely.

I had had a bunch of conversations before closing on this one with operators who had had their businesses for like 10, 15 years and had successfully removed themselves. They're just kind of like, I check the finances once or twice a month and make sure everything's cool checking with the team, but I don't do everything.

And I was like, that's what we're looking for. That takes work, but we were willing to do it. So we came into it with that intention. We bought the second company to help us get some scale to continue down that path. And actually, so I mentioned to you, I used to live in the Bay area and now I live in LA. So my partner, same, same thing.

So he was in the Bay area. He moved to LA and then I was, my wife and I were like, well, maybe we should move. So we moved. And part of that was to stress test if we could remove ourselves from the day to day. Which effectively we were able to. But because we were also running a really good business,we, we had turned that, uh, negative 50 net promoter score into a breakeven net promoter score in six months.

And, we had started to see things like people actually referring new clients to us. Getting positive reviews on Yelp and Google and stuff like that. So we were like, okay, this is actually working. We then realize that, we could like, we had a good business and it would run and that got people's attention.

So then we started getting calls from search funders and then we got calls from private equity firms. And we said, no, because as I mentioned, our intention was to have this business forever. And then we eventually got on the radar of a couple of strategics in the Bay area who were actively looking to get into HOA market.

And,initially the conversation was like, no, thank you. And then, their side of it, the offers got a little bit more intriguing. And so we then said, well, all right, maybe let's talk about it. And I make that point to say, like, I had a foundation. If you just go into this thinking, look, let's make sure that we're running a good business, that it's doing the things it's supposed to, that is serving the clients in the way it's supposed to.

You end up having options, right? We could have just kept it and stayed down here in LA and added on to it. We chose to take an opportunity to be acquired. And,this, my partner, this was his second major exit. For me this is my first. And it was like, great to have that because,seeing the ball go through the hoop for all of you entrepreneurs out there, like, you know, it's working, you're getting paid and stuff like that, but you never, there's like this feeling of completion when you do get a liquidity event, because, then you get validated intellectually, at least for all the decisions you're making, all the risk you took.

And it let, it allowed me to then start thinking about more stuff. And I was like, Oh man, I could do even more. I could do this and get creative and have confidence that whatever I set out to do next, like I have a higher likelihood of being successful because I at least know what it feels like to do something to a successful exit.

[00:17:08] Ronald Skelton: So you, at this point in the story, you've been through the investment banking. You work for some other kind of investment banking, PE type of stuff, doing acquisitions. Now you've bought your own company. Fixed it and made it, made it what you needed it to be. You know, uh, very efficient, running well. 

You get, you get your customer satisfaction up to at least you're starting to get referrals and then you sell it. There's usually this thing of, did you have the seller's remorse afterwards? At some point you hit, you hit yourself like, Oh shit, what am I going to do now?

[00:17:39] Brian Shields: That's a great question. Nobody's ever asked me that. That's a really great question, Ronald. So, uh, yes, the answer is yes.

[00:17:48] Ronald Skelton: Well, you got money. So that's one thing, but there's still this thing that's mental, like I'm bored. It's not now, right? Like,

[00:17:54] Brian Shields: You know it's interesting. It's been less about the boredom, and more about the, should I just, should I just have kept that asset? And you know, like I mentioned earlier, right? Like the, the, my like definition of freedom in a lot of cases is you have this thing and it's producing for you, but you're not like in the day to day all the time.

Right? And we were kind of pretty close to that with, where we were with the last business. And so in my mind, sometimes I have the thought of like, Oh, maybe I should just held onto that and then, figured out how to do this other thing. In hindsight it's definitely 2020, but I think to your point, and like, I'll just speak this for all the people who are thinking about buying a business.

There is a lot of value in seeing the ball go through the hoop all the way and actually getting the check. It's validating it is, it creates like a little bit of like space, right? Just, I took a year sabbatical after we sold the company, cause I was super burned out, but, just the ability to do that, right?

Like, would not have been possible if we hadn't had that exit. And, and then, you know, just like we have two kids, like just having things set up for them financially and just feeling like that's out of the way, like that stuff is really useful. But yeah, definitely the times when I think about, okay, what am I going to do next and things like that?

I'm like, man, I should have kept that asset and kept picking up checks. But,there's always opportunity to do it again. So, so I'm just focusing on that. But yeah, I mean, that's a, that's a really good question because nobody really talks about that.

[00:19:20] Ronald Skelton: And aren't there certain lessons you only, only learn by seeing the, you know, the ball go through the hoop, as you say. Like the tax, like let's do this one. You sell the thing and all of a sudden now you gotta do the taxes on it. Right? I bet you didn't set that up as what they call a qualified, I'm gonna totally drawing in a blank here, the qualified something.

There's a way to sell it and you get to keep the first 5 million without being a, uh, capital gains because you did this qualified purchase and you know, you'd invested a certain way. Um,

[00:19:47] Brian Shields: We did not do that. And the challenge, and so part of the challenge too, man, is that, so a lot of these acquisitions, like a bunch of the ones I did when I was buying those 12 companies I mentioned earlier. and the second acquisition we did with this property management business, were asset sales, right?

And so you can do that, I think, I think it's a qualified small business purchase or something like that. Um, yeah, forgive me. I don't know enough about tax to be dangerous on that. But, um, there's that. And like, if you buy the equity, then you can qualify for that stuff and then figure out the cap gains of protection.

But with the asset sale, you end up getting taxed at the corporate level. And that was the biggest pain in the butt. So to your point, you said taxes and like, everybody feels some kind of way about taxes. But as an, when you sell the business, you're like, all right, man, I made all this money. And then you're like, wait, how much did I keep?

It's not great. It's not great. So that just, that honestly taught me that you just got to add a zero to the target exit and then, and then shoot, shoot a little higher. 

[00:20:47] Ronald Skelton: Now, now you go into this next phase of your life. You, you've come out of the burnout phase. Uh, at some point, you know, you took a year off. At some point, your mind just starts working again. I I only know because when I did my, uh, real estate investment firm, transferred assets, I, we had, I had already paid, we paid cash for our tiny, we did it the hard, the hard way. We lowered our, our needs way down. Paid cash for cars, paid house for our house. Or even our, even our farmhouse was paid, paid in full.

And, uh, we have minor debts and stuff, but we were pretty low. So, you know, in my mind, I was going to work projects and, and just, kind of semi retire, um, both for, burnout reasons and some medical reasons. I'd been in a really bad car wreck and was trying to recover. But I found out really quick that you can get bored really quick doing even things you love. Right? I don't care what you say. You're not going to golf every day. You're not going to fish every day. Even if you're catching them every day, you're eventually going to just get really bored with it unless you're traveling and going to new places to do it. So some point in that year, you must've had a thing.

Like I've got to do something. I'm just, I'm going to, you know, mine was COVID hit and my wife said, if you don't get out of this house and do something, I'm going to murder you. You're driving me nuts. Four of us live in 380 square feet, right? 360, I don't even know what it is. But, uh, you know, she's like, you got to find something to keep you busy.

Cause I can see that you're not happy. At some point, what, what, what was the catalyst to come out of that, that year off?

[00:22:14] Brian Shields: You know, I took this year off.I basically started when my son was born. So,kind of watched him grow up. That was great. And I was tinkering with stuff here and there. At some point I was like, I'm going to be a coach and a coach, business owners. Like how to prove their business and these executives, how not to burn out.

And like, I had some progress with that. I still have some corporate clients with that, but, that wasn't, to your point, it was like, that was cool, but it felt more like a project. Then a thing, the thing that I wanted to build. And then I was tinkering with this, um, I had lost my father, that was part of why I burned out.

Like I had drained myself so emotionally turning around that business that I wasn't, I didn't have solid feet to stand on when real life stuff came at me. So I lost my father and, I was processing that. So I started a fatherhood podcast and had like a community of good men who were getting together to just like improve and share tips about their fatherhood.

And that was cool. Similarly felt like a project. But what I didn't realize until later was that these projects were helping me build my conditioning and my capacity backup. So I was, I was kind of like, I would take time and do like little notes and doodles and write in my journal about like things that were interesting to me or how I would think about what I wanted my life to look like going forward.

Uh, this one, this one coach and friend of mine back in New York,he would have me do this exercise called the ideal day. And it suggests you write out your ideal day in as much detail as possible. Like down to the minutia, like I'm going to put on these kinds of clothes and then I'm going to eat this for breakfast and blah, blah, blah, blah.

And so I had like these things that I'd collected over the year where I just like written them in scattered points. And I started like recognizing that I was wanting to do more. I had felt a little more covered and I was like, Oh, I'm taking more business calls, I'm like entertaining these ideas. I'm trying to like going to networking events and like, I wanted to go.

So something energetic in me shifted. And so I sat down and I would like reviewed, all of the notes that I'd taken. And this is, my son and my birthday are a few weeks apart. So I turned 40 pretty close to when he turned one. And so I sat down and was like, kind of review my notes around that time. And, I was like, man, I think that, I think I should go buy some companies.

Like I know I had said, I'm not doing that anymore, but it's pretty clear. That's all I'm thinking about. And I think I just want to have a fund to do this in that I can work with other entrepreneurs and like put them into roles. Kind of like me where it's like my first swag. But it taught me a lot about making my own money.

Taking charge and ownership of the decisions I'm making and what it takes to be successful in the partnerships. I was like, I want to do that. And so I was like, Oh, no, it kind of freaked me out. Right? Because when I sold the business, I was so just tired and exhausted. I was like, I don't want to ever do that again.

And to come back to realize that I not only did I actually want to do that, but I wanted to go bigger, was a huge shock to me, but it took like, those activities, like you said, like the fishing, the doing the things like, my versions of those projects to then accumulate all of this, like self awareness to recognize, Oh, this is, I should just go do this thing again. Like clearly that's what I want to do.

[00:25:21] Ronald Skelton: Awesome. So, uh, yeah, I get that. I see that you, you know, you took the time to do those things. I did that same little self exploration. What is my perfect day? I think I picked it up from I think, Frank Kern or somebody weird had it on some episode. Where he was talking about, somebody put him through it and I was like, you know, that's and he had the question there. And I did it because, and I know I've done a bunch of like Tony Robbins things and other stuff, too. 

So let's go back to the, you know, you went through this cycle. Now you figured out you're going to like, you know, almost at one point you're like, why am I doing this again? You're just driven to do something because, you know it's the right thing to do. You know you want to do it, but there's some logical side of yourself and your brain that says, you know, am I just a glutton for punishment? Right. 

So, cause I get the same feeling sometimes when somebody says, you know, Well, you know, you're 53, you're living out in the country. Why are you looking to buy more businesses once you do something simpler? Uh, I was like, cause this is just something I enjoy doing. 

[00:26:17] Brian Shields: Yeah, yeah, I would, I would agree with that. I mean, I've, for me, it's about how do you create freedom? Right. And in the capitalist society, ownership creates freedom, just fundamentally. And so, I've been thinking a lot about, how to do that? How to create an institution that does that? And also, you know, there are, all these entrepreneurs out there, man, that, have built something.

And having now done that myself, I respect, you know, I did it for like, I own the business for about two and a half years, but if somebody comes to me and is like, Hey, I've had this business for 20, you know, it's like 10 X what I had. And I'm like, you earn this, here's a check. And more importantly, like, how can we continue to utilize your knowledge and expertise and all those battle scars you have to help myself or other people go further.

And so, that kind of vision for an ecosystem that, self reinforces and supports the next generation, like that gets me out of bed. And it's, uh,like the how we do it, I think is how I allow myself to not get burned out again. Being really clear, I think you said this earlier, right? Like being clear about the things that I should stop doing.

And you know, what am I really good at? Just like do that and then just cut everything off. But, uh, there's like, if I can do, if I can do that and then progress with more opportunities and businesses and growth, then I feel like that could be really successful. So I'm on a mission, man. I'm on a mission right now.

[00:27:46] Ronald Skelton: It's funny. Is it, once you decide what you really good at, what you enjoy doing, uh, it can be extremely powerful. There's a book out there by Dan Sullivan called Who Not How, it changed everything about me. And, uh, what I, what I've decided is I'm a visionary and I, I won't usually in my business is to find myself with this, but I'm going to say it here on the podcast.

There you go. Great. Great. That's a, that's a great followup, to the, to the Who Not How. But, so do you use impact filters? Did you, does it talk about the impact filters inside of that? Cause I use those to the day, to this day.

[00:28:18] Brian Shields: Oh yeah. So, um, so just for people who are listening and then watch, I held up the book, 10 X is Easier Than Two X, which also by Dan Sullivan. That was like, big game changer for me this year. That plus Who, Not How. And yeah, they talk about impact filters. It's completely changed how I think about working with other people. 

Cause like I thought, like, I think, you know, like intuitively I'm pretty good at dictating and being clear, like, Hey, I need you to do X or Y and like putting people in positions of success. But it was like, it was like somebody who's naturally good at basketball. And it's like, Oh yeah, I have like, a good feel for the shot.

And like, you know, I'm tall. And then that person getting with a professional trainer, like Michael Jordan's trainer, and then it's like, Oh, now there's a new level that I can see. I know what to do with my skills. That was what like a lot of that Dan Sullivan work kind of unlocked for me. Where I was like, Oh, I can see not only how I need to function and where like my 20 percent is, versus everybody else's zone of genius.

But also here are some tools. Here's some processes. Here's some specifics of how to enhance what I'm, I'm the team, people, parts, person, and partnerships often. So, now I know how to use an impact filter and be very specific about like, what I need you to do, what we're trying to accomplish, your role, success, what I need to not be doing and what I need to be doing. Like it was great. I love that thing.

[00:29:36] Ronald Skelton: So in all that exploration, I figured out, I really love solving certain problems. Actually to find myself as a problem solver, but I don't, and I hate doing the same thing over and over and over again. As far as this podcast goes, I'm at the point now where I get on the mic pretty much, uh, unless we're having an issue, like I need more guests or something. I get on the mic, the team edits it, they schedule everything, uh, they market it,uh, and then I, I work with the team. But that book changed a lot of things.

Cause a lot of times you just do things on your own, cause you know you're good at it. Or you, you know, you wanted to delegate. Now I delegate pretty much everything that I don't enjoy. If I really enjoy doing it and I'm good at it, I'll do it. Uh, if I, if it's high value, but if I have to do it more than two or three times, I even try to find a way to delegate some of that stuff.

So let's talk about your new fund and kind of, before you bought the home, uh, homeowner associations company, did you have, did your search actually say, we're going to go out and find something in real estate that was recurring revenue? You know, did you have a buyer's box that matched? Or did you, how did you stumble across that search that landed the homeowners association? And then we're, we're going to use that to build on what are you searching for now? And how's that, how's that definition of what you're looking for?

[00:30:51] Brian Shields: Totally. So, that is not where I started my search. Where I started my search, you know, like if you go out there and google search funds, they'll tell you like, here come up with a criteria list and blah blah blah blah. You know having been in private equity I knew like what things tend to make more stable and higher value businesses.

So you hit on them, right? Like recurring revenue, diverse customer base, ideally a fragmented industry because then you have the opportunity to both have a smaller business, but also you can consolidate and grow up in that. You know, ideally a growing market, blah, blah, blah, blah, blah. So those were kind of like the, the academic checkboxes I started with.

And then I said, Okay, cool. What industries do I know? And because of the private equity firm experience, the firm I was at focused on health care and business technology and services. So I was like, cool, I'll look at that. Those are my spaces. I've bought companies through that, that firm in those spaces.

Let me just look at this. And specifically, I was thinking, if I needed to make a phone call to get perspective on something, I have this great resource at my disposal. I can call someone and just ask them, Hey, what do you think about this versus that? So the first really serious business I came close to was a dental lab.

And so, the firm that I used to be at actually used to own the second largest dental lab in the country. People in California that I was still close with were on the board of that. I'd like could, I had a text relationship with them. I would just like check in with them and be like, Hey, this is what I'm looking at.

This is what I'm thinking. What do you think about it? So that was super helpful. However, Ronald, what, what deterred me from that was, this point, and this is the most important thing I always tell people who are searching. I realized that you can talk yourself into anything on paper, but you really have to focus on like, if you are the right person for this, and do you have some kind of unfair advantage to take, to use in this specific business?

And that became clear to me because I was talking to the seller of this business. And I was talking, I was asking him about where the techs came from. You know, where you get people to work on the teeth molds and stuff. And he was like, Oh, yeah, I have a relationship with the school in Korea. Where he's from and they send me students like new grads.

I sponsor their visas and then you know, effectively like I get under market cost of labor. And I was like, oh man. Like, if he leaves am I going to be able to keep that? And then if he leaves and I step in, which for those of you not watching, I'm certainly not Korean. My mother's filipino, but I'm not Korean. And uh, I was like, everybody might leave. And then what do I do?

And so, then that made the EBITDA go from like a really attractive level to nowhere near an attractive level, very quickly. And I did not have anything in my toolkit or my back pocket to be able to replace that quickly. And so that taught me that lesson. And so, like, you know, we, we negotiated to try to structure the price that made sense for that.

And it just didn't really work out. But that pivoted my search beyond just the academic checkboxes. Beyond the like, who can I call to kind of give me advice into also focusing on me, on Brian. What can Brian do well, that will help contribute to this business to have it an out, to give it an out, outsized return potential.

And so that's how I ended up with the property management business. The company that I was at, the startup that I was at, that was, that we bought 12 companies at, was a property management business for rentals. So I had understood the motion to find these businesses. I understood the motion to own and operate these businesses.

I was pretty heavy handed with the operations team there too. And so, and I knew that if people left, I would at least have some pathway to call people, to help support this. And given there's a lot of legal issues with HOA, I had a network of specific like property and HOA lawyers that I could call who are friends to help support me.

So I was like, this could be a really interesting opportunity. So then I started searching for those businesses specifically. And through my network, I actually found one really, really quickly. So we, I left my company to focus full time on search in August of 2019.I had planned for two years, like the normal, what everybody says.

And then I ended up closing on this acquisition in December of 2019. And so really, really focusing on like, what I could do well. Like I planted my foot squarely in something that I knew that I could have an unfair advantage in, that wouldn't take a lot of effort, relatively speaking, given my network and access to find something in, that could also check all those boxes.

And so then I pivoted and then landed on something that worked. And then to answer your earlier other question, so we're, we're kind of expanding that box a little bit. So that business was a B2B business and it was a services business. So we're primarily looking at businesses like that. My partner in the new fund that we're doing, as a wealth management firm.

And so, some of the people who are clients of his are entrepreneurs in business services. So have, we're, we've been building an investor base who primarily represent a few different industries in services and in people services businesses, so that when we buy a company like a concrete pouring company or a bookkeeping company, or, you know, something in between, that's like a B2B, also, like people, heavy business.

We have people we can put on the boards and surround us with more of those unfair advantages. The additional component is like, look, I can't run all these businesses. Right? So that's real. But we have a network of people who are experienced that we can then plug in to support the business with their relevant experience.

So we're taking it on ourselves to filter and create the, this, the, the ecosystem around these companies, that have people who have unfair advantages, both at a senior level and an operating level. And that can help us create a unique advantage so that the business, A, doesn't go away tomorrow. Which is a very important. 

Like, nobody wants to lose money. And then B, that allows us to see what the market's going to do without having a bunch of data. Which is ultimately what that like, unfair advantage comes down to is your intuition on a market. So yeah, that's kind of been, it's been an interesting journey.

And whenever I talk to people searching, I'm very, very like, strict about and discerning about, like, the industries they're picking. And are they the right person for this industry? Because, you can talk yourself into anything and I've done it. So I'm guilty of it too, but I'm just here to help you not make the same mistake I did.

[00:37:13] Ronald Skelton: So, uh, interestingly when I, my, my background is really diverse. So, served in the military, did military intelligence, um, got out of the military. Was a defense contractor, did the tech world. Ended up raising, or going kind of, up in that tech world. Becoming director of operations for some of the cool startups around, uh, tech, you know, the tech startups around back when excite. com was head to head with Yahoo. 

I run the excite, uh, data centers and stuff. That said, got burned out on that totally. Got a master's degree in marketing. Ended up, you know, of all places back in Oklahoma, away from the tech industry. No check jobs around. And, uh, ended up through multiple steps, of course, ended up owning a real estate business.

So when I decided to get into mergers and acquisitions, I tried to do the, I was gonna buy some property management companies. And, uh, so I, in Oklahoma, you have to have a broker's license to be a property manager. So I found a broker I liked and friend of mine, she let me hang our business shingle on that. 

We had quite a few properties of our own. So we started with ours, started to take on some properties, our friends, and quickly learned that I am not the right guy to run a property management company. I detest being called, uh, you know, to schedule a maintenance call to send somebody over because a light fixture switch swears up and down, it's not the light bulb and my maintenance guy says, I just twisted the light a little tighter and it came on, right. 

And so, what's different now that we're, like you're, you're out of the, you're, looking for B2B, um, servicing type of, uh, companies. Have you made any acquisitions in the fund? Or you still setting this up? 

[00:38:51] Brian Shields: We're still setting it up. We're entering into kind of a couple of diligence phases with, of two companies right now. And,this was a pretty recent decision. So, like I kind of committed to this with my partner in January of this year. We're pretty close to, we should have all the fun stuff set up by the end of next month, paperwork wise. 

And, that's definitely a testament of like, know what you're good at and then get out of the way of people who do know what they're doing. So we brought on a really awesome lawyer to do that stuff. And so, yeah, so, so right now we're just primarily focusing on, on finding great businesses and having conversations with them to, to get to a place where we can have an LOI in place.

We have a couple of bids out right now. And you know, I will say that the, the market broadly is a little different. I saw something recently that was like, largest number of search funds raised ever in 2023. And so we run into a little bit of that. And as a derivative of that, the valuations creep up a little bit.

But I think you and I were talking about this before, like, there are companies that just shouldn't be, they're not worth like four times or five times, or, you know, the favorite phrase that people, especially some brokers like to throw into their memorandums is like, this is tech enabled. And it's like, no, it's not.

It's a, it's a staffing business. Like, there's not a lot of tech involved in this. So, but yeah, now it should be like worth more. And it's like, dude, no, it's not. So, so that part of the market is, has definitely shifted. Like, there's a lot more of a conversation around buying businesses. There's a lot more capital starting to think about how to attack, acquiring these businesses at this level.

We just think about ourselves as people who have actually operated and exited and like successfully transitioned these businesses from retiring entrepreneurs. Like, my partner, in addition to managing capital for a bunch of entrepreneurs,he owns a couple of small businesses that he's acquired himself. You know, I've done this a few times now.

So we, we know like when we're sitting across the table from a seller, who's thinking about retiring and they think about, they're thinking about what's going to happen to my team. Are you guys serious? And are you actually going to close this deal? You know, we can tell them stories and point to the things that we've done and say, Hey, look like, we're not going to get this perfect, but we'll be up front with you.

And this is what we've been able to do. And, you know, if you were going to ask for seller financing, but you can't trust that, we'll hold up our end of the bargain because here's our track record. And that that's been really, really advantageous for us.

[00:41:15] Ronald Skelton: Interesting. I know that really helps a lot. We have a, an international group where we're buying up cabinetry companies of all things. Companies that make kitchen and bath cabinets and stuff.

I'm just a shareholder and a partner in this, but, uh, the group started before me, before I got involved. And, uh, kind of, they, they they recruited me a long time ago and I said, go buy something and show me you're going to get something done.

Because I played this realm where like, I was looking at those, uh, real estate related businesses and stuff like that to do some form of roll up. And got pulled into a, a roll up of buying marketing agencies. And through, you know, two years of work, we had 26 LOIs signed. We were in closing. We had contra, you know, lawyers going back and forth. We were really making headway. 

And, uh, some of the executives on the team seeing the dollar signs and seeing we had too big of an executive team and decided they were going to buy us out and caused a big problem. So it was, we got our money back. I learned a lot of lessons, but I also learned the lesson of don't get involved with something, you know, that's going to take two to three years to see money coming out of. Unless you really, unless you really have a hundred percent control of it. 

So you have that now you're going out and to talk to people, you have the story to tell, you have the credentials, it's not like, look, I've got the academics for it, right?

I've got the industry experience for it. Now you've like, look, not only do I have the industry experience, the academics for it and the job experience, we've actually physically done this. We've bought one, we've taken it through the process, we've improved it. We sold it for more than we bought it for. 

That's a safe pair of hands. And that's a critical thing. A lot of these small to medium business owners are hunting for. They want to know that whatever they created, this, 20, 30 years of their legacy, maybe even two or three generations can be 30, 40, 50, 60 years of, you know, mom built or mom or dad built it.

Grandpa built it. Great grandpa built it. They're not going to hand that over to just anybody. A lot of those guys won't touch a PE firm, right? They're scared of the PE firm's gonna, run it into the ground or chop it up into pieces and sell it to the highest bidder. 

So you become a fairly interesting, safe pair of hands. You said a couple of times you're finding qualified operators to run this, these, these companies you're looking to acquire. What is that process? You know, how do you, how do you go about identifying somebody who's, a quote unquote, a qualified operator?

[00:43:35] Brian Shields: Yeah. I mean, you know, there are a bunch of like standard things that we look for, right? Like have you run a P and L of a size at, or greater than the business we're talking about? And like, have you hired people? But the kind of like key things that we like to talk about internally is have you sold before?

Have you served before? And do you care how the sausage gets made? Right? And, watching people having to sell their ideas or sell for revenue, even if they have like a side business. Like you can be a general manager in a company, but if you have like a little side business, it's helpful because you understand what it means to go out there and actually earn what you get, right?

Like, provide something that's meaningful, tell people about it, help them understand that it's valuable to what they need and then get the money. Like that's massive. Additionally, like being able to sell your ideas to the team is really critical. So we just look for that. Service is really important.

I'm listening to you talk about that seller who's worried about who they're going to hand the keys over to. Like, that's really important to us. We use the phrase, um, stewardship a lot in our firm. And we talk about like, how can we be good stewards of this person's business, this capital, this person's time, et cetera.

We talk about that a lot. And so, seeing that people are about that service life, whether it's something they do through their church or in their community, or just how they treat, the people they work with, like that matters because we don't want like, you know, there's no assholes policy. But that, the opposite of that is someone who really is about service and like can understand both the client's need for service, but their teams need for service.And then the sausage point, you know, I mentioned earlier, like we just want to see people who actually care about how the thing gets done. Because if you understand that, then you can better understand and create policies that account for ultimately what's going on, right?

Like, if I'm going to run a burger joint, like if you find, if you just decide, Hey, I'm going to get new meat from this new place. Then, but it might be lower quality, then you're impacting the,the burger. Or if it's like, Hey, we're going to get this, but it's cold instead of coming fresh. And that impacts your process time and your packing of the, of the patty's time and stuff like that.

Like there, there are all these downstream things that some numbers on a page might tell you to make a decision towards, but then like the reality of how it actually happens dictates that you do something differently. So those are the three important things that we do. And we've, we have seminars that we run periodically just to kind of like meet people.

And I think, like literally this, How2Exit is like a conversation we talk about where it's like, you're a mid career executive. Maybe you don't have the risk profile of you and me or some of the searchers to go out and like take a year to hopefully find a business. But if you can be in our network, we'll take care of that part for you. 

And then we'll give you a soft landing. You can bring all of this great expertise and training here, and then you can just like have a playground to run in. And if you take good care of it and are a good steward of it, then it'll feed your family and more for the next generation.

[00:46:31] Ronald Skelton: One of the guru type of guys that I went through, they actually taught a process of where you can sell a piece of the company and buy the operators. For instance, uh, we were looking at a concrete plant and, uh, unfortunately some tax issues and some other stuff stopped us during due diligence from purchasing it. 

They told us yes on the LOI, but, uh, they had some debts and stuff to the IRS and other people that kind of killed it off. Um, that said, part of the process was we had actually taken on somebody who had a great operational experience running manufacturing type of companies, similar industry. Had taken a company from, I think, like, I want to say about almost 10 million, uh, in revenue, P and L requirements. 

Uh, he was their lead. Uh, if he started off as their general manager on the floor and ended up being their, uh, head of sales. So they went from 10 million to a hundred million dollars in like eight years. So like this guy wanted to own his own business, but didn't know how to do the search. Uh, he had spent $300,000 on the table for part of this purchase and we're going to give him equity. 

So he's buying a piece of the equity. We were negotiating the deal and he was going to be the operator and the way that we was working it out with him, uh, in the longterm was over a few years. He would probably become, if he hit his goals, he'd be chump, he would eventually become the majority shareholder of that.

We'd still own a piece. But, uh, how does the equity work and how do you structure the, uh, like how, what, what's in it for the operator? Are they getting a piece of equity in a salary? Are they, are they going to participate in like, uh, some planned exit you have? Kind of what's the game plan?

[00:48:06] Brian Shields: Yeah, so, we're prioritizing cashflow. So, and for the LPs. And so, we, A, look for people who can co invest and we're not looking for everybody to come in with a million bucks, but it's like, what's meaningful to you? Please can co invest that. Then there's a bonus structure that is part of equity.

So, you know, you get a salary. You have your co investment and then ideally with that bonus structure, as you perform, then your total cash take home will increase, but that's also because of the total cash of the business is increasing. And that's kind of our priority is making sure that these turn into, high distribution vehicles.

[00:48:38] Ronald Skelton: And our, is it sell by opportunity or is it engineered to sell from the start? Like you're going to sell some of them, of course, because people are going to come across you just like your, your whole HOA business. Somebody is going to make you an offer you can't refuse, right? You're going to be stupid not to sell.

You know, if you engineer it from day one to this is very sellable, then both you have a very, very well managed company. Maybe not the best tax strategy in the planet, but you have a well managed company and a company position to maximize value when when you sell. 

[00:49:09] Brian Shields: Yeah, we're, we're really focused on long term hold ownership. So the, I will say that I personally believe that there's a high overlap in building a company that will last and sellability.

Like getting that offer you can't refuse. But, you know, a lot of people, and this is the one, a big difference between like what we're trying to do and like private equity, for example. It, and search funds candidly is, we're not trying to aggressively grow out of the gate, right?

When you do that, that obviously has a meaningful impact on the potential exit value, but that comes at sacrifice, right? Like there's infrastructure sacrifices that can be made. There's cashflow sacrifices that can be made. There's,like unclear sustainability of growth curve sacrifices that can be made.

And that's not what we're focused on. We're just like, look, let's, we want these businesses to be around for 30 years. How can we improve the customer service or the service delivery so that we can continue to earn people's business for the foreseeable future? And let's grow it at a rate that if there is a downturn or some unpredictable unforeseen thing happens, we can weather that.

So we buy these companies, all equity. We don't put any, we put only leverage we put on as a seller note just to make sure that there's skin in the game. But that, that allows us the flexibility to, manage the business in a way where we can make some investments and take risks, but it won't necessarily impact like our ability to pay our debt, and then we ended up losing the business for some nonsense.

[00:50:27] Ronald Skelton: So, Hey, we're running out of time now. One of the things we ought to do is make sure that people know how to get ahold of you, right? So if somebody wants to work with you, they want to be one of your operators.

They want to invest in your fund or anything like that, um, how do they get ahold of you? What's the best way for people to kind of, to, to reach out to you and know what you're working on and be, be a role in it?

[00:50:47] Brian Shields: Yeah. So, we're getting our website and stuff set up now, you know, securities law, so we're working through that, but, it's easiest to find me on LinkedIn, uh, Brian Lee Shields. Brian with an I, L E E, Shields, on LinkedIn. Just find me there. And I am super responsive and I post updates there pretty frequently.

I will definitely share the show on there and, yeah, I'm always happy to chat with people who are interested in any aspect of the acquisition journey.

[00:51:12] Ronald Skelton: And I'd love to have you back on as we, you know, maybe six months or a year from now. As you're starting to acquire things, see how it's going and do updates because, uh, both you're extremely intelligent. I want to thank you for being here and sharing the knowledge and experience you've had. And it was, uh, you're also very humble. So, uh, thank you very much for being here, taking your time and your energy and sharing your knowledge and wisdom with us. And I'd love to see where it goes. I'd love to see, you know, uh, how it succeeds and and what's going on. So let's, let's plan for that. 

[00:51:40] Brian Shields: I'm in.

[00:51:40] Ronald Skelton: That's cool. With that, thank you for being here. Let's call that a show. Don't jump off right away. We have to wait for the files.