Michael

Industries we avoid in the LMM: highly cyclical, single-customer dependent, commodity-priced, or heavily regulated with no moat. Not because they can't work — because the margin for error is too thin. #LMM #ETA

LMM sectors we like: B2B services, specialty distribution, niche manufacturing, healthcare services, and tech-enabled field services. Recurring revenue. Pricing power. Hard to replicate. #LowerMiddleMarket #ETA

@irentdumpsters Not sure how all of the gurus do it, but I could put $1000 into a minority stake in 100 businesses and have no control, responsibility, or influence. Each has an owner who is 100% committed. This is different than owning 100 businesses outright, and more likely to succeed.

A year ago I got on a call with a guy who told me he wanted to be the next Codie Sanchez 😂. He owned FIVE different businesses. Not a single one was doing over $10,000 a month. I just checked in with him. Three of the five are shut down. The other two are barely scraping $20,000 a month combined. Imagine if he took all of that energy. All of that time. All of that money. And put it into ONE business. He would not be struggling right now. This is the trap nobody talks about. Owning a bunch of businesses sounds cool on Twitter. It looks good in a bio. But when none of them are making real money you are just spreading yourself so thin that nothing gets the attention it needs to grow. One business. One offer. Full focus. That is how you get to $50K, $100K, $200K a month. Stop trying to be a portfolio guy before you have even built one thing that prints.

Most LMM businesses don't have a real management layer. One of the biggest value levers: hire or promote people who can run functions without you. Depth = enterprise value. #OperatorFirst #LMM #ETA

Seller staying post-close: valuable for transition, complicated long-term. Clean handoffs are often better. Define the role, the timeline, and the exit before you sign. Ambiguity is expensive. #ETA #LowerMiddleMarket

Employees fear ownership transitions. They worry about their jobs, culture, and the new boss. Communicate early. Be direct. Show up. The ones you keep in month one are usually the ones who build what comes next. #ETA

@pestctrlguy @KatyBasinger Bro, you can’t take it. What would you do? Watch soap operas all day and play golf for 50 hours a week? Unless you despise it, which I doubt, keep growing and you will be in a whole different ballpark in 10 years.

@KatyBasinger The truth is I’m 27. If somebody me and Kyle $12 mm to split, idk if I could take it because idk what I’d do for the next 50 years

When we were doing less than $1 million in revenue we were getting calls from searchers and PE companies every few weeks asking if we wanted to sell. We haven’t had that happen once in the last 8 months. Has the market cooled off or have we just successfully told enough people we are asking $12 million? And that is true. We are for sale for $12 million. When we get that offer we will accept it. Whether that’s tomorrow or 10 years from now.

@pestctrlguy If you are for sale today for $12 million and that’s a fair price, it’s more likely that your company would be worth $24 million in 10 years. Revenues would increase due to sales growth and inflation. Your EBITDA will be higher, thus the fair market value is higher.

@robbiehendricks It's very odd to me as an investor in real estate that people feel landlords are evil. Landlords develop and operate the homes that many people live in. Without them, the only choice would be ownership. Many people (and our tenants) DO NOT want the hassle of ownership.

Another post about real estate, another chorus of joyful people letting me know it's evil. Let's check in what’s okay vs. not okay: Growing food - okay to profit Building cars - okay to profit Doing OnlyFans - okay to profit Cutting grass - okay to profit Distilling alcohol - okay to profit Professionally eating hot dogs - okay to profit Making medicines - okay to profit Insider trading - okay to profit Pushing buttons on a computer - okay to profit Selling weed - okay to profit Building or improving housing - EVIL, ZERO PROFIT

@Jacob_Naviaux @theficouple That is true. It’s especially true for one or two employee businesses where the owner acts like an employee. Once you scale to several million in revenues with 15 or more employees, the business becomes easier to run. Micro businesses with less than three employees are tough.

@theficouple Could make a good argument the employe making $150k/yr working 40 hours is better off than a lot of business owners making and working the same. Most people aren’t cut out for running a business and would be much happier working for someone else’s company.

Myth: A salary is a drug they give you to forget your dreams. Fact: The person making $150k/yr working 40 hours a week is better off than the self-employed person making $60k/yr working 50+ hours a week. …And it’s not even close.

@theficouple I agree. I would also say if you’re making $60k working 50 hrs. per week you’re in the wrong business. Larger business with better margins allows you to make more income and do less work as you delegate roles. If you’re not in that business then keep your job.

First 90 days after closing: don't change everything. Listen. Learn the org. Keep the seller reachable. Stabilize before you optimize. The business ran without you before — respect that before you disrupt it. #ETA #LMM

@SpaceCoastCRE Love it. Let’s put a mobile home park in there.

@Jacob_Naviaux For us, we cannot offend the agent. There are only 15 or 20 primary agents in the whole United States for our industry.

With listed properties, I usually just make the offer right away bc I don’t really care if it offends the agent. More concerned about the wholesaler removing me from his buyers list bc he just thinks I come in too low all the time. But yeah 100% sometimes it’s best to wait to make the offer depending on who you’re working with.

Me: “I can offer $80k.” Wholesaler: “That’s way too low. ARV is $250k, rehab is $80k. We have interest much closer to our $120k ask.” Me: “Okay no worries. Just let me know if anything changes.” Wholesaler: “How do you expect to buy anything offering so low?” Me: “I disagree with your ARV and rehab figures, but it’s all good. Not going to see eye-to-eye on everything.” I naturally want to make the offer, but I’ve learned over the years that with the emotional type, it’s better to just say not interested and wait for the next one. Otherwise you risk them taking you off their buyers list.

@RandBusiness @BoilerPlateCPA Removing a long-term good employee is terrifying. Owner objective should be to make sure everyone has a backup, and can be replaced. I have found that anytime somebody quits or gets fired the outcome is an improvement - bad habits leave, processes improve, and morale improves.

Some observations on key man risk in SMB acquisitions: I’ve had a bunch of these conversations in our peer groups. I see the same setup again and again and again. You acquire a business where one person, usually a long-tenured estimator or sales rep, controls somewhere around 30% of revenue. This person has been in the same market, at the same company for a decade or two, everyone in your market knows him. At some point a lot of customers stopped calling the main phone line and just call this person's cell. The relationships are his, not the company's. Then the new owner comes in and starts trying to improve things. Implement a 50% deposit requirement, take photos at a job site, document new estimates, enter quotes into the CRM. Basic stuff. And that person just doesn't do it. Not openly defiant or spiteful. They just don't do it. They've been doing things their way for 20 years, they know how much money they bring into the business, and they have some amount of “Fuck You” leverage. What I've noticed is that most new acquirers recognize the problem immediately and they know they need to fire that person (this is after many direct 1:1 conversations that don’t result in changed behavior). But they hold onto them for months because the math feels terrifying. They have this big SBA loan every month and if this person leaves and takes 30% of revenue with them, they’re going to be screwed immediately. So they drag their feet, hope it improves. But at the same time they’re asking every other employee to follow and adapt new systems, procedures, use new tools, hold them accountable, etc. All while this other person (the key man) does whatever they want. Enter new business problem: shitty culture One of our holdco guys described this on a call earlier this year while he was still in the middle of it. He said the rest of the team could see that this person wasn't being held to the same standard as everyone else. Another member said “it’s poison”. If people see that you say something but there are no consequences for ignoring it, that becomes your actual culture. Congratulations, now your employees feel mistreated, or worse, start becoming disobedient. And you’re not the leader anymore. No one is. Every owner I've spoken with who eventually let that person go has said roughly the same thing. “Most of the customers stayed. The team rallied, and several of them told me afterwards they’re glad that person is gone.” It's not uncommon for high performing salespeople to also be a big PITA that other employees are quietly tolerating. And most owners said they wished they'd let them go much earlier. One of them fired his version of this person at the end of March. Almost every customer stayed, record sales months followed, and most importantly that owner felt the first sense of relief he’d felt since owning this business. I hope this is helpful for some of you out there, whether it's just seeing “What's happening in SMB Land” or you're in this exact situation yourself.

Investors ask: what's the return? Operators ask: what needs to get done today? The best LMM buyers are both. You have to run the business before you can grow it. Mindset matters more than the model. #ETA #OperatorFirst

@StrongpointRich New ownership is a tough transition. 🚢Issues keep piling up and you don't know what to tackle first. Over time, you learn what is just noise 💨 and what actually requires your attention 🎯.You will get there. Hang on and drive the ship through the storm until you do. ⛈️

It's 11:30pm and I just got off the phone with a recent biz buyer who's feeling the pain right now. Some takeaways: + Mindset matters. Do not allow yourself to feel like a victim. Do not get caught on your heels. Always better to lean forward and attack the problems in front of you. + Confidence is born from competence. Get competent on every role in the business. Start with the ones held by those with bad attitudes - you'll feel better armed to replace them. + Scar tissue is earned. Know that many of the top operators you look up to are who they are because they rode the same lightning you're riding now. + A single producer is not solely responsible for his production. If a top tech walks, you *might* lose his incremental lift. You won't lose all the revenue he produced. It's not at bad as you think it is. + Have a friend you can call when you feel like the walls are closing in. An outside perspective can make all the difference.

@ConnorAbene Spot on. It takes an external shock to break the habit. Trapped in the weeds? A forced offline vacation triggers a "fly-by-wire" mindset. You stop doing the work and spend 15 minutes reviewing morning reports instead. That constraint catalyzes the entire shift.

You’re not the same founder at $1M as you are at $5M. At $1M, doing everything yourself is survival. At $5M, doing everything yourself is the problem. The trap is nobody tells you when to stop doing the thing that got you here. You just wake up one day and realize you’ve been running the wrong playbook for 2 years.

@MikeHoffmann Agree 100%. It’s funny when you’re in this position and you have kids. I work at home and have to go out of state every 4-5 months for a day or two and my kids say I travel a lot. I remind them, I go to your sports games, pick you up from school at 3, and make your dinner.

Everyone wants the sexy business. The app. The brand. The thing they can post about. Meanwhile, the guy with 3 laundromats is quietly clearing six figures and home by 4pm.