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Good day, fellow dealmakers! Welcome to the Deal Podcast. On today, we're gonna have a conversation with a friend that we've interviewed years ago, kind of coming back to do an update on what the heck is a QOE, and what is a search fund? What's a self-funded search fund? So we're gonna kind of dive in those topics. Elliot! Welcome to the new show, man!
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Good to be here, good to be talking to you again, and I'm excited we're in the same industry in a different way now, man. This is great.
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Yeah, dude. Yeah, it's so cool to see people, dealmakers, over the years, of how they, you know, level up, and how they, you know, kind of find their niches within the marketplace, and you found yours, and I really want to know more about it, and, you know, let's talk deals. Elliot, what do you do?
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Yeah, so, I am a professional BS caller.
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I do an audit-like service called Equality of Earnings, and when buyers are in the process of acquiring Small businesses that have no true standards that they have to adhere to in how they report.
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And when sellers are getting 3 to 7 times EBITDA, and so there's a huge incentive to tell stories about the EBITDA, I go in in a forensic way and make sure if they say it's a million dollars of EBITDA, it's actually a million dollars of EBITDA.
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And so, my company's called Guardian Due Diligence. We do quality of earnings, and… That's really what it is in layman's terms.
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Yeah, copy that. Now, why did you choose… you said, you know, the self-funded search. There's different types of searches.
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Kind of talk to us through what the different searches are, and why you chose self-funded.
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Yep, so… couple of reasons I chose Self-funded Search. The first is I think it allows poor people to get rich.
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The funded search side, you kind of have to come from a top 25, top 50 business school. I helped a caterer, buy a auto parts store last year. Like, that's… you know, probably 10x what he was earning, like, it's real impact for folks. And I didn't grow up with a silver spoon, so I can kind of get that.
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I was a former self-funded searcher, so it's kind of like the player coach kind of thing.
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The other piece is that if we describe Funded search and self-funded.
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funded, came out of Stanford Business School, been around 20, 30 years. It's a thing a lot of post-MBAs do, where they say, hey, instead of getting a job at Google.
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I'll go raise 2 years of salary from these search fund investors, I'll spend those 2 years looking for companies, those wealthy investors will put down the equity when I find one, and I will be the person running that business effectively for myself and for the investors.
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Self-funded is the wild, wild west. It's like, some dude gets off his couch, goes to YouTube, types in how to buy a business, spends, you know, 6 months getting smart, and now they can leverage a government loan program called the SBA7A, program to get 90% of the purchase price financed by that product, and they put down 10% of their own cash. And so I chose that niche because I thought it had the highest growth.
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The highest total addressable market.
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and the highest need for my services. So being a former private equity dude, a former independent sponsor, a former self-funded searcher.
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I've seen this SHIT for 16 years.
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My self-funded search customers are the only people in the buying and acquisition market that personally guarantee their bets.
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My private equity friends on Wall Street don't, independent sponsors don't, funded searches don't. So when these folks say, I want to buy this HVAC business, it's exuberant, right? But they gotta sign over, I'm betting my house.
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Oftentimes my retirement, all my accounts.
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And so, for those people, Doing the hard work of diligence feels more serious because of… the size of the bet I know they're making. Now, I rambled there, you'll edit out what makes sense, but that's… that's it.
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Yeah, man. I like this, Elliot.
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the… in the world of, you know, business, your customer acquisition, you know, you're working with first-time buyers, potentially, right? And they're learning from Hermozy and, you know, Frasier, these people, Morin Pober, these people who come on, and even Dan Pena, right? Like, these are some of the people.
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Yeah.
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Right, and they're talking about, you know, acquisition entrepreneurs. And, you know, these first-time buyers, they might be running a catering business, and they're buying an auto mechanic thing, right? So they might even be jumping industries.
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When it comes to the risks that are involved, they're personally guaranteeing house, car, net worth.
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Mmm.
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Kids' future, food on the table.
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Yes. On these deals.
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And that's where the urgency and importance of having a third party take a look at it comes in for them, right?
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That's it. When I work for families, right? It may be the father or the mother that hires me, but, like, those kids' future is gonna be different if I miss something, right? That marriage relationship will take way more hits if I miss something than if I catch it.
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So yeah, it's real.
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serious work. And then you alluded to… he's being nice, folks. He's like, hey, you big dummy.
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all of these other groups buy multiple businesses. Why the heck did you choose an industry where people are probably one-time customers all over the gosh darn place, and hard to educate? So, Josh is my buddy, he's being nice. Let me answer the question.
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I love you, Ellie. This is so cool, man. Go for it, bud.
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You know, in the 22 immutable Laws of Marketing, they say that you should want to be… Number one or number two in any market journey?
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I have seen that. I've been entrepreneurial for 14, 15 years. When you're the best.
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you get business. And in this part of the market, I'm the best. As a former person who's done it with this fancy Harvard degree.
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with the way I talk straight every single day, speak truth, and can get corrected, and switch up what I say tomorrow if Joshua teaches me something. I knew I could win this marketplace, and I knew that this marketplace was going to grow.
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I knew that the unique skills of a former deal professional Doing accounting work when people needed deal advisory.
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I knew that would sell without me having to explain it.
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And then, I'll tell you a quicker side story.
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Yeah.
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Last time we met, we were all in Atlanta.
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Would John…
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Right, awesome.
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It's in.
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That's right, that's right. Yeah. So, what up, John? And, I got introduced to… the salesperson at one of the top QoE accounting firms in Atlanta.
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And couldn't be more polar opposites, man. Just… Old school… regular guy and this young black brother, and we're at the big steakhouse, and we're having a ball, having boozy brunches and everything.
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And… The way he sold, and still sells, is… he's doing… 7-8 breakfasts, 7-8 lunches, 7-8 coffee chats, 7-8 dinners, 7-8, you know, pull up on somebody's office.
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Each week.
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Wow.
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And so he is getting in front of people all the time, going to conferences, they're opening up new offices in different cities. He's in hand-to-hand combat.
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for QoEs. Well, my concept was that There's a very… significant difficulty in selling my customers that I haven't even mentioned yet.
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And the only way to do it efficiently was through digital marketing, which is why you and I met in the first place, because my podcast guesting was part of that digital. Because here's the other thing.
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That makes me even more silly.
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So, Josh, if you're a business buyer.
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And let's say you come across my YouTube channel, and you're like, gosh, this guy's a fresh voice amongst all this BS out here.
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This is my QoE guy. You could put it on your wall, on your mirror, when you wake up in the morning.
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But you might not get a deal on a letter of intent for 9 months.
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12 months.
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So I've sold you But I don't get the fruits of that for maybe 9 months. And so, what I said is, if I can get a digital marketing-sized audience.
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that even with those hindrances, I'll be able to… earn a living. And so, although it was… Controversial, maybe, is the right word? Maybe a little silly?
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I thought it would work.
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Now, that's cool, man, and I love how you've built over the years of being in QoE. Now, you ran your own, you know, search, you were in private equity, you know, why did you… why did you choose QOVE in general?
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Because I failed.
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Okay, let's walk through a few.
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Cold enough to say it, just, without all the bells and whistles now, so… I was probably one of the first self-funded searchers, so when I was at Harvard Business School, they have a pretty significant program around self-funded search now.
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Yeah.
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They're like, oh, Ellie, did you take the class?
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They weren't…
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classes when I was at Harvard.
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So, I predated a lot of that stuff. When I left Harvard, everybody was saying any business under $2 million in EBITDA is a waste of time because the administrative burden will eat up any profit.
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I'm a poor dude from Ann Arbor, Michigan. I'm like… So a million dollars ain't enough? It's a whole lot for me. So I attempted a self-funded search.
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in 2015, when there was only one bank in the nation that did acquisition loans using the SBA 7A product.
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they were Westtown out of North Carolina, but you couldn't go directly to them. You had to go through Windsor Advantage, a consulting company out of Chicago. So anybody who understands agency issues around lending will understand that, wait, you don't go to the bank, you go to… Yeah, so I went through all of that stuff. I had a great deal lined up, durable medical equipment, so, like, the place your grandma may go get her wheelchair, or they put the bar in her shower so she doesn't fall, CPAP, PPAP machines for some of us guys that snore like crazy people.
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And, The financing was very hard to line up, because I was early, and then, my deal got torpedoed by a nefarious investor.
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So, I failed. I was driving Lyft, 8, 9 years out of Harvard Business School, was sleeping on my mom's couch. It was really bad, so I had overextended myself.
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And then I took these skills that I had and started Guardian to be the way to monetize them.
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And so, when you asked me, sort of, why did I get into this, it was… Private equity and even independent sponsor, which is kind of like private equity without a fund.
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Here's the reality of it.
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As a private equity investor.
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you are actually not investing your equity, really. You're investing the equity of pension funds that gave their money to you, for you to invest, and you put a little sliver in with them, and you are an asset class that you're not taking the full risk on, and if you hit Completely amazing deals, particularly as a mid-level career professional.
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You get 50 grand, 75 grand, so there's not a scenario where one deal sets you up for, like.
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Independent sponsors, you get a little bit better economics, but you're less diversified, but the same thing.
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And self-funded search, if you… Take on a million dollar bet.
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On a business, and you pay off that debt.
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you are a millionaire. If you grow that business from 1 million to 2, you are two times a millionaire. You, Joshua.
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2 millionaire.
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Yeah, exactly.
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And so, when I thought about 30 years of a career.
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And how many times I thought I'd be, like, tremendously right. I was like, I'm not gonna have, like, an infinite amount of times I'm gonna be, like, tremendously right. If I'm gonna take on all this risk, let me have an opportunity where if I'm tremendously right, I can take enough cash off the table, then I'd have to be betting all the time. And so, both… that's why I chose it.
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And also, and you can hear it in my voice, that's why I love it, because my clients did the same math, and they're like.
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If I do this $1 million thing and make it right, my whole family is set up differently.
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Yeah.
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Whew, man, thanks for sharing that story. I've had, I've had a lot of failures myself. I think we were talking about this in Atlanta, at that lunch place, that, really cool sandwich shop wherever we had, man. They had the biggest brownies ever, man. That place was awesome, I forget where it was.
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But, you know, as you go through a failure, how does, you know, how did you… how'd you bounce back, right? Because, you know, going from Harvard.
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to Mama's couch.
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Is… is challenging on your mindset, on your identity. How did you bounce back from that?
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I went through all the emotions of anybody who's failed. If anybody ever wants to email me, and we can talk about all the same 10 levels of emotions, I promise you.
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all of them, I felt, and when I… So, a couple of things, Josh. I'll tell you that, when you go to fancy places like Harvard.
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If you do anything off the track.
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They're really good at judging you and calling you out.
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So, because my journey had been slower than some other people, I had had to get accustomed to being called out and looked at silly, and you go to your reunions, and… Hi, Elliot! Everything okay? Kind of thing. And so, I had had to get used to some of that.
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I also had seen enough marketplace activity, Josh, that I knew… I'll say it this way.
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Success has many parents. Failure is an orphan.
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And what that means to me is the guys who win, everybody talks about the time that they bought them lunch, or they hung out with them at the ball game, or they gave them some great piece of information.
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The guys who fail.
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nobody talks about those same things that they did or interacted with those people. And so, for me, it became very clear that, Elliot, you either win or you're stupid. There's nothing in between here. So, like, don't… don't think that you're gonna get a consolation prize if you don't win.
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And then I think when I finally kind of got out of my funk after that deal failed.
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I think the voice… kicking me was that I really thought I was good at this.
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And I had seen some points of validation that had validated. They hadn't paid off, but there were rooms I had been in situations where I figure stuff out.
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advice I had given friends that was market on market for this niche, and I was like.
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Dude, if you're any good, you gotta play your hand. Just… Try it again.
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I also… I think you'll probably like this.
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what's the frickin' alternative, man? Go get a job and hate your life? Like, once you live in the free world.
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you know, we could have a 3-hour lunch that day, I think we did. I gotta have to run back to an office. It's like…
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Yeah.
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I will fight… And with endless energy.
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to stay free. So, I went through all the emotions, bro.
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There's also… that wasn't some beach house my mom had, you know, in the Hamptons. That was a regular old Atlanta apartment, so if I wanted to have any of these nice things.
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I had to get off that couch and go make some money.
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Yeah.
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Yeah, man, it's true. An entrepreneur is anybody who will work What is it? 5 in the morning to 9 o'clock at night to avoid a 9-to-5 job?
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You know, I call it… I call it freedom, you know, I was working at 4 in the morning this morning, you know, sending out messages, getting people on podcast shows, setting up the next sponsorship, setting up the next program, and it's a lot of work, and sometimes I'd take a little nappy nap, getting to get an old guy. But man, I love this world, right?
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Oh, love it.
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I did take a nap.
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Nice!
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Because I was up at 4 o'clock sending step 2, and…
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You look great, Elliot!
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Thank you. The good Lord blessed me, man. You look good, too. You look… you look… you look, you look, You look like business is good. You look… you look rich, you look wealthy, you look sturdy, man.
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man.
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I think guys like us that have… Seen failure, seen success, been around money, been around stuff we don't want to do.
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Seeing fads come and go, understand, like, sustainable business models and ones that aren't sustainable.
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Yeah.
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been pooped on, called crazy, had those, like, super win days that nobody else could understand your story of why that day was a win, because it wasn't, like, a million dollars, it was just a relationship you needed, a collaboration that worked out. I think you get to a place where it's, like.
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Alright, I got my stripes now. There's no guarantee tomorrow's gonna be okay, but… I've learned enough.
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that I would bet on me in a fight.
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Yeah.
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Yeah. Yeah, man, I'd bet on you too.
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So, let's go to, you know, the first-time buyer, right? Now, a lot of the people in, you know, who are listening in, they might be a little bit further down where they're, you know, bought, built, sold tons of businesses. We've interviewed a guy who Built a company, sold it for $230 million, built another one, sold it for $80 million, now he's building another one with his kids, right? Like, so this guy…
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Yeah.
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I don't have that success stories, right? So, like, for… for people who are, you know, kind of, like, on the front end of that, but they want to get there, man, they've got this drive, they've got this internal conviction that there's something bigger out there for them, and they're gonna pursue it, bet their, you know, bet their house on it, bet their thing on it. But they can use someone in their camp.
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to look at the numbers, because there's certain things that the P&L, or the financials, will reveal to those who know how to decipher it.
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Talk to us about what are those things in a small business, maybe less than, you know, a million in EBITDA.
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That… talk to us about the financials of things that you look for that… Guys like me might not see.
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Sure. So I've gotten better at explaining this over the years. So… novices, and even after I got out of Harvard, I was a novice. It wasn't like I had built QuickBooks for businesses, right? I was taking out sports out of… You know, way more fancy financial system than just doing all my financial modeling.
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So, when you… when people look at QuickBooks, like, oh, QuickBooks is the answer. That's the financial system.
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you know, Joshua's business, I'm trying to buy it, whatever QuickBooks says is real, because QuickBooks is connected to the bank statements, how could it be wrong?
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QuickBooks is a summation of tens of thousands or millions of debits and credits over 2, 4, 10 years.
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that seller on today, when they know they're getting 3 to 7 times EBITDA, Do you think they haven't spent a year trying to make sure that EBITDA number looks as big as it can be?
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And I'm not talking about the honorable, great.
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You know, deacon in the church sellers, there's some great sellers out there. But let's just all be capitalists for a minute.
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There are some people that don't care about integrity and care about money.
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And they can very easily, particularly up against a first-time buyer who won't look, who wants things to be easy, who is used to W-2 job land, where even if you poop the bag, where you get a 10% demotion and a performance improvement plan.
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They are banking on people not doing due diligence, not doing quality of earnings. And the reality is… Even Elliot, the Harvard Business School dude, didn't learn this skill there. This is on-the-job training. So we're looking at what is the validity of their process to fill out their financial system, QuickBooks or others.
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how closely does it match to the bank statements, which I love, because you can't go in on March 1 and be like, hold up, hold up, hold up, put this money on February 28th, please.
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So the rigidity of the bank statements gives you some credibility, the taxes give you some information, and then there's typically other operating systems. You know, if you have a marketing dashboard, then we would look at that. And what we're saying is.
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Revenue should be represented in all of those systems. Help me understand why the number isn't the same.
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Costs should be the same, and several of these systems. Help me understand why it's not the same. And then… Because we're a little bit better than some others. As a deal for person, I'm saying… How is this HVAC business doing 60% margins? Those are software margins.
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what cost should be there that isn't? Or… How are these inventory inflows and outflows looking kind of sporadic when this business is selling the same amount of stuff every month?
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Let's dig into this, or the latest one that's been really big.
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Project-based businesses, where the project may last over a month.
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So it may be part in April, part in May.
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How tight is their control over project planning and cost?
00:22:03.640 --> 00:22:10.900
And if it's not tight, how do you know they didn't open up 10 projects, tell you they're 90% done when they're 10% done?
00:22:11.750 --> 00:22:14.079
fake EBITDA all over the place.
00:22:14.210 --> 00:22:20.588
And you wouldn't know the better. So, hopefully what I'm conveying is, like, there's the QuickBooks check.
00:22:21.210 --> 00:22:23.819
Then there's, like, the common sense checks.
00:22:24.079 --> 00:22:36.628
And then the third layer is really… I'll tell a story, because it's easier. So… Client came to me, paid me for the QoE, He was buying a distribution business.
00:22:36.990 --> 00:22:42.900
So, before we kicked off, I'm like, alright, so tell me about the deal. He's like, alright, so I'm buying it from a foreign national.
00:22:43.140 --> 00:22:51.160
So, somebody who was born in China, but is a nationalized U.S. citizen, cool. So, the distribution business focuses on, let's called automotive, right?
00:22:51.329 --> 00:22:59.519
He supplies the business. Oh, what percentage of the business does he supply? Oh, I don't know. Okay.
00:22:59.920 --> 00:23:06.419
how much of his supply goes to the business? Oh, I don't know, but he said it wasn't everything, at least, so it's not everything.
00:23:07.549 --> 00:23:15.398
Okay, keep going. He's got a… he's got another distribution business, but they focus on appliances, so it's a different end-use market, so they don't compete.
00:23:16.910 --> 00:23:23.449
And so I want you to look at the numbers to tell me if it's a million dollars of EBITDA so that I can buy it for four times.
00:23:23.829 --> 00:23:26.730
And I'm like, let me just give you your money back.
00:23:27.430 --> 00:23:33.058
He's like, what are you talking about? I'm like, okay, so… Unless you're gonna fly to China.
00:23:33.640 --> 00:23:40.479
and check the exports off of his manufacturing floor. You have no idea if he's supplying just this business or others.
00:23:40.670 --> 00:23:43.170
You'll have no idea if it's at market price.
00:23:43.329 --> 00:23:46.410
But if he's supplying and he's a major supplier.
00:23:46.589 --> 00:23:59.049
the day you buy it, even if it is a million dollars of cash flow, he raises the price 50%, half of that goes, what are you gonna do? You're gonna resource a new set of things in real time? No, you're gonna take his price increase.
00:23:59.170 --> 00:24:15.259
And then that competing business in a different end-use market. Let me just tell you what happens the day you sell, or you buy. He's like, oh, we're gonna open up a new division in automotive, and he's gonna take the other half, and so even though historically the EBITDA was a million dollars plus or minus.
00:24:15.589 --> 00:24:35.920
it wouldn't be anything like that post-close. So the third level, and this is where a deal person running a QOE firm Can do a much better job is that QOE would have told somebody the accounting work that there's a million dollars of EBITDA. But that was probably the worst deal I saw last year, because that was gonna evaporate in 10 minutes.
00:24:36.630 --> 00:24:40.558
My goodness. You saved that person, right?
00:24:42.180 --> 00:24:48.669
Wow. What… or potentially, who knows, right? I… sounds like it to me.
00:24:48.670 --> 00:24:56.328
We all know it. Anybody who's a real entrepreneur knows what would have happened. It's only the people that don't live entrepreneurial lives that question it.
00:24:56.759 --> 00:25:04.259
Well, man, I went through scenarios where I just went on trust and a handshake, and man, that's the kind of guy that I am, and that's the kind of guy I want to be.
00:25:04.980 --> 00:25:15.559
But, man, people forget what hand they shook and when. Even if they're a decent person, our memories get really bad, especially as we get older and we don't have our naps.
00:25:15.559 --> 00:25:26.930
Like, I'm telling you, man, people's memories get really bad. It could be a best friend, and you're buying something from them, or… and you realize, wow, man, you told me that your business does this in profit. Man.
00:25:27.000 --> 00:25:34.480
It's not even close, and it didn't even include you paying out these expenses and all that. I mean, it's… That could get tough.
00:25:34.480 --> 00:25:43.259
And I'll take it a step further. So… If you use, like, a relationship analogy.
00:25:43.509 --> 00:25:48.338
If you get married to someone, one thing that's promised is they're gonna change over the years.
00:25:48.599 --> 00:25:49.339
Amen.
00:25:50.039 --> 00:25:59.719
So, you buy a business on a handshake, and here's the reality. That person may have intended to do everything that they said, and be generally a man or woman of their word.
00:26:00.029 --> 00:26:08.888
But if financials hit them such that Their house might not be able to pay the note, their kids can't go to the school they want to.
00:26:09.930 --> 00:26:14.108
Their other thing that they were gonna do instead of this business doesn't work out.
00:26:14.309 --> 00:26:23.039
You have to know that the thing they know how to do, and they did for 20, 30 years before you bought the business, is make money inside of a business that looks just like yours.
00:26:23.490 --> 00:26:35.318
And so I've had several clients where I've had to tell them that, hey, look, this person is still an able-bodied working individual, and I… I actually agree with you. I think they don't want to compete with you.
00:26:35.779 --> 00:26:54.670
But you should know, as a human, if that next thing that that person says they're gonna do doesn't work out, they're not gonna starve to honor that commitment. Their kids aren't gonna starve to honor that commitment, because you wouldn't go that far either. That's not even nefarious or malicious. That's a whole other thing that we'll talk about another day.
00:26:54.710 --> 00:26:58.398
So you have to start understanding this. The other thing, Josh.
00:26:59.089 --> 00:27:08.650
A lot of owners are good salespeople, not necessarily, like, project managers or financial people, so sometimes the seller will tell you something that they believe is true.
00:27:09.670 --> 00:27:10.910
That ain't true.
00:27:11.460 --> 00:27:21.419
not even malicious, just, you asked me a question, I don't feel comfortable saying I don't know something about my baby. So I answered it, but I don't really have the Carfax on that.
00:27:21.630 --> 00:27:32.009
So there's a lot of ways that both honorable people and dishonorable people can put buyers in And pickles, so it's really important that you do excellent diligence.
00:27:32.960 --> 00:27:52.588
When would a… yeah, I appreciate you sharing that. So, you know, we… I get the point of when, you know, especially if they're buying first-time business, and they might… they… they really want the insurance of going, hey man, how good of a business this is? You know, and this is the due diligence, right? This is you walk through, and you're… you're adding different layers of common sense.
00:27:52.589 --> 00:27:58.419
financial sense, and you're just pushing it back to me. You're like, look, I ended up on my mother's couch before, me too.
00:27:58.490 --> 00:28:02.798
With a family… a family of five having to move back in with mom and dad, it's not fun.
00:28:03.849 --> 00:28:06.888
And we don't want that for you, first-time buyer.
00:28:06.940 --> 00:28:24.599
Right? So they kind of go through your program, and you kind of just show them, hey, this is what my thoughts are, do with it what you want. When would you ever be brought in for maybe another type of client, or maybe even a seller? Would a seller ever engage with you to… talk to us about that. Why would a seller know.
00:28:24.599 --> 00:28:25.588
Great question.
00:28:25.809 --> 00:28:30.750
So, 25% of my business are from sellers.
00:28:31.349 --> 00:28:37.138
So you know how marketing goes. You always talk about your business more narrowly than 100% of what you do.
00:28:37.140 --> 00:28:37.549
Yeah.
00:28:37.549 --> 00:28:46.919
So, sell-side quality of earnings is that, if Joshua wants to sell his business, and he knows he's gonna come up against Elliott on the buy side.
00:28:47.009 --> 00:29:19.410
a very smart choice is, before I gotta come up in front of Elliot on the buy-side quality of earnings, why don't I pay Elliot to get my stuff in order, so now the buyers have a third-party Non-biased, reputable company that's taken my… whatever financials, and I got whatever financials internally at Guardian, too. Put them into the exact format, banks, equity, everybody's used to, so now when Joshua goes to market, he's like, here's the… the story of my business to send.
00:29:19.980 --> 00:29:34.318
But you might not believe that. Here's the third-party accounting audit that I paid for, because I know my stuff is solid. Buyers, what will you pay for this now that I've taken a lot of the risk out of it relative to somebody who wouldn't pay for the sell-side quality of earnings?
00:29:36.230 --> 00:29:46.509
Additional thing is, Josh, if I'm a buy-side QoE provider, I'm asking you a bunch of Very specific questions about your business, right?
00:29:47.089 --> 00:29:53.778
But if you pay me for a sell-side QoE, when that buyer shows up and they're asking questions, they don't ask questions to you, Josh.
00:29:53.970 --> 00:29:55.460
They asked him to meet.
00:29:55.740 --> 00:30:01.068
So you're able to outsource some of those tough financial questions you probably never wanted to answer anyway.
00:30:01.450 --> 00:30:19.848
By paying a small amount of money relative to what you're gonna get, both in proceeds from the sale, but also, like, headaches, because You know, we're not 25 anymore, but seeing that guy 22 years old, fresh out of college, telling you that you should have done something differently can eat at you in a certain kind of way?
00:30:19.849 --> 00:30:20.250
Yeah.
00:30:20.250 --> 00:30:23.669
You can outsource that to me for a very nominal fee.
00:30:23.940 --> 00:30:24.750
There you go.
00:30:25.819 --> 00:30:26.420
At what point?
00:30:26.420 --> 00:30:35.380
I also work for private equity, so about 5% of my business, maybe 10-some years, are private equity, family offices, independent sponsors.
00:30:35.609 --> 00:30:50.450
So… the pitch for them is different. It's not the first-time buyer pitch, it's not the personal guaranteed pitch, it's… I've done the same work that you're doing. You get not just a QoE, but basically a fractional thought partner.
00:30:50.789 --> 00:30:56.098
on your deal, so we can talk at deal level, even though I'm doing an accounting piece of work.
00:30:56.789 --> 00:31:07.589
anybody in the deal world knows, you ask an accountant, hey, is that a thing that's gonna affect, like, 10% of EBITDA or 40? Two hours later, you still won't have an answer. I can answer those questions directly.
00:31:07.750 --> 00:31:19.230
I can predict issues that we'll have two weeks down the road sometimes, and we can, as deal professionals, handle it proactively, where a first-time buyer would be nervous to do that.
00:31:19.299 --> 00:31:33.979
And so, for… for clients who understand the value of that, or sometimes… sometimes one or two dudes in a private equity firm are trying to invest, like, 500 million bucks, and they know they're strapped, they're like, I get a thought partner and a QOE? Oh, this is a no-brainer.
00:31:35.329 --> 00:31:53.849
Man, that's cool. What size company, at what point, like, does it make sense to start thinking QOVE? Because there might be something too small. I'm buying a lemonade stand, bro, it's 25 bucks, I set it up with my kids in the front yard, like, I don't know if my daughter's ever gonna pay back the supply. Is it worth doing a QoE for the lemonade stand in the front yard?
00:31:53.849 --> 00:31:57.109
25 grand QoE on that, for sure.
00:31:57.569 --> 00:32:02.689
No, not at all. I think around… so here's how I describe it in layman's terms.
00:32:02.690 --> 00:32:03.309
Yeah.
00:32:03.650 --> 00:32:10.980
Somewhere between 500,000 and a million bucks, you hit a number that you can't lose.
00:32:11.089 --> 00:32:12.489
And be the same.
00:32:13.299 --> 00:32:13.900
Yeah.
00:32:14.089 --> 00:32:27.828
And I think that's the size deal when you need a QoE. Now, we can argue about, do you get the A-plus Guardian Elliott Holland QOE, or somebody else's that's rated some other thing, but I think when you start getting to a moment where I can't lose this money.
00:32:29.069 --> 00:32:37.838
that's the size that I think you have to start continuing, or start doing QoE. When I first got into this, Josh, there was a lot of debate on LinkedIn and Twitter, like.
00:32:37.990 --> 00:32:49.170
Well, for deals under $2 million, it's really the economics on it don't make sense for a QOE. I mean, it's just too expensive relative to the purchase price. And I was like, hey, raise your hand if you can stand to lose a million dollars.
00:32:51.000 --> 00:32:51.819
Always.
00:32:51.819 --> 00:32:52.829
That sucks.
00:32:53.130 --> 00:33:02.209
Who's got it in their pocket? And hey, if you got a million dollars to lose, I got a business to sell you, Josh, I promise you.
00:33:02.210 --> 00:33:03.539
It's crazy, right?
00:33:04.250 --> 00:33:16.700
Yeah, so that's really the layman's term thing. I think you were also kind of asking me what size deals do I work on, so my average deal is probably in between $2 and $3 million, which is probably right down the fairway for self-funded search.
00:33:16.809 --> 00:33:32.490
But my range is crazy. My range is from $500,000 to over $100 million. Why is that range so wild? Because I'm a unique tool. I am a tool for a person that wants a deal-oriented person doing due diligence.
00:33:32.710 --> 00:33:49.469
And if that person's buying a $100 million business, I can be that tool as well as I can be on a $500,000 one. And since I've professionally worked on deals in that spectrum before I did QoE, incredible, relevant, and heck, Josh.
00:33:49.730 --> 00:33:56.720
Some of the lenders, investors, and other people you'll be talking to are people I've known for 15 years, so that's another benefit you get.
00:33:57.410 --> 00:34:02.419
Yeah, man. It's cool. What'd you do for fun, Elliot?
00:34:02.680 --> 00:34:03.709
When you're not working.
00:34:05.059 --> 00:34:16.418
Travel, I love traveling. I, am increasingly… prioritizing… Time with my closest friends.
00:34:16.929 --> 00:34:24.289
And making sure that I have, you know, days where I don't have to be on my phone or laptop to just spend that time.
00:34:24.630 --> 00:34:28.809
I enjoy great food and great music, wherever I can find it.
00:34:32.039 --> 00:34:36.778
And I kind of love these kind of conversations, which is why, as much as this is a podcast.
00:34:37.119 --> 00:34:40.108
Talking to other entrepreneurs.
00:34:40.429 --> 00:34:54.378
sharpens my toolkit, but also, I think you realize that you're… the story of going back and living with your mom, the story of overcoming failure, is so common that all of a sudden, it's like, oh, we can do the… we live back with our mom handshake now. Cool.
00:34:54.659 --> 00:35:00.730
Yeah, it's a handshake you don't want to show anybody. You know, like, it's a secret, secret handshake!
00:35:00.730 --> 00:35:02.070
That's right, that's right.
00:35:02.070 --> 00:35:09.838
But, you know, that happens to a lot of people, man. And, you know, like… I wouldn't take it… I wouldn't take any of it back.
00:35:10.460 --> 00:35:11.309
Agreed.
00:35:11.309 --> 00:35:17.829
You know, there's one deal I wouldn't have done, because it dishonored my wife in terms of, like, she said, I don't think we should do it, and I said, you know, submit.
00:35:17.860 --> 00:35:31.349
I'd take that back. She's my partner. I made that mistake. Deal makers don't do that, by the way. But, you know, I too love, you know, reconnecting with friends in the industry, and as you're looking to do that.
00:35:31.519 --> 00:35:36.599
Elliot, what kind of music, you mentioned music, what kind of music do you like?
00:35:37.440 --> 00:35:40.579
Oh, I'm 90s hip-hop dude, primarily.
00:35:41.949 --> 00:35:44.110
You're not gonna believe this, bro.
00:35:44.349 --> 00:35:44.940
Tucks.
00:35:45.900 --> 00:35:50.010
Sunday, we're going to a 90s hip-hop symphony.
00:35:50.389 --> 00:36:03.989
Stringed quartet, stringed instrument, 90s hip-hop. I'm gonna go out and buy some big gold, fake gold chains, and I'm gonna get some overalls, and some Timberland boots, and I'm gonna rock out, look like a hip-hop star, dude.
00:36:03.989 --> 00:36:04.989
Yes.
00:36:05.190 --> 00:36:11.039
you should absolutely do that, and I would even say that if I had known that's where you were going.
00:36:11.039 --> 00:36:12.050
Come!
00:36:12.440 --> 00:36:16.889
I love the remixes of 90s hip-hop music with symphonies.
00:36:17.099 --> 00:36:17.469
Yeah.
00:36:17.469 --> 00:36:40.090
DJ sets. I like dressing up and going getting my fake gold chains and throwing on the stuff from the 90s. It's back-end style, actually, so you can actually get some of it at the mall. And being a kid again, man, like, remembering when that Biggie album dropped, or… Snoop Dogg dropped, or whoever your people are that first time, and the nostalgia of that moment coming right back to you, I, I love it.
00:36:40.090 --> 00:36:55.998
Yeah, well, alright, name a song that, when it comes on your MP3 player, your Apple, whatever that was back in the day, the Touch, the wheel, or whatever, your Zune, what's a… what's a… what's a jam that, when you hear it, man, it just brings you joy?
00:36:56.800 --> 00:36:59.780
Tupac, I get around.
00:37:00.679 --> 00:37:01.949
Tupac, man. RIP.
00:37:01.949 --> 00:37:08.829
happy-go-lucky party track, that I think allowed a lot of us to meet Tupac for the first time.
00:37:09.150 --> 00:37:09.849
Yeah.
00:37:10.500 --> 00:37:12.369
Yeah, good stuff, man.
00:37:12.369 --> 00:37:15.980
Question back to you. You can't ask me that, and I don't get the opportunity to ask you.
00:37:15.980 --> 00:37:22.898
Absolutely. Alright, let's just stay with Tupac. When California Love came out, and the music video of that.
00:37:23.230 --> 00:37:36.539
was so cool. I remember that came on before school, we would go to my friend's house, and we would carpool together. In California, Love came on the TV, and we're watching this, it was Mad Max meets, like, the Gladiator Arena.
00:37:36.539 --> 00:37:42.409
Yes, yes, wildfire, leather suits, Tupac's out.
00:37:42.659 --> 00:37:43.500
Bro, I got the chills.
00:37:43.500 --> 00:37:47.148
On death row with Dre doing the beats, are you serious?
00:37:47.699 --> 00:38:03.688
So good! So good. And then, I mean, even the fun stuff, you know, you got Biz Marquee, you had, you had some really fun guys throw out some stuff. You had DJ Jazzy Jeff and the Fresh Prince rockin'.
00:38:03.690 --> 00:38:08.960
And then I'm a Detroit dude, so Jay Diller Beats, all the Tribe Called Quest.
00:38:08.960 --> 00:38:10.000
Oh, try!
00:38:10.000 --> 00:38:22.480
It's Erica Badu… a lot of, janet Jackson did a couple of songs on J. Diller Beats, and so for a guy from Detroit, grew up in Ann Arbor, when I hear those, it's like a special nostalgia for him.
00:38:22.480 --> 00:38:39.599
I was just rocking the Tribe the other day, can I kick it? And I had that going on when I was driving around. Dude, I feel so cool listening to some of this music. It reminds me back in the day, buddy. Oh, I love you, this is so fun. I'll be thinking about you when I'm rocking out at the 90s orchestra.
00:38:39.599 --> 00:38:41.280
That's right. What city is it in?
00:38:41.280 --> 00:38:42.400
In Ocala.
00:38:42.960 --> 00:38:43.480
Okay.
00:38:43.480 --> 00:38:47.699
It's about 6 hours south of you, so… it's not too bad of a drive.
00:38:47.699 --> 00:38:52.059
That sounds like a great location for that party, sir. Enjoy that.
00:38:52.059 --> 00:39:05.579
Yeah, yeah, so good. I'm curious, man, When it comes to… back to deals, when it comes to the kind of work, how many deals do you think you review a year?
00:39:07.019 --> 00:39:11.380
Probably review 75, work on 40 or so.
00:39:11.380 --> 00:39:12.340
Okay, cool.
00:39:15.809 --> 00:39:18.909
What are your favorite types of deals to review?
00:39:20.880 --> 00:39:27.019
So I'll give you industry, and then I'll give you situations.
00:39:27.019 --> 00:39:27.530
Yup.
00:39:27.530 --> 00:39:36.619
So, industry, I like, messy stuff that's got high margins, so I like portable toilet rentals, septic tank service, like hauling poop around.
00:39:38.489 --> 00:39:45.199
I like durable medical equipment, I still like it. You know, helping mom, grandma, uncles, and aunts take care of their health in their home.
00:39:45.460 --> 00:40:01.318
Right now, I like… I like landscaping and hardscaping, so people who, like, not only cut your grass, but, like, will put, like, a rock wall there and set up some cute trees. I think the combination has some stickiness and some value.
00:40:01.519 --> 00:40:15.659
And then the situations I like the most, particularly because I work with self-funded searchers, are, like, where there's some vector that the buyer has that makes the deal Almost a no-brainer.
00:40:16.119 --> 00:40:22.050
So, like, I was helping an engineer that had an MBA, kind of like me, buy the company he had worked for for a decade.
00:40:22.050 --> 00:40:22.739
Oh, crazy.
00:40:22.739 --> 00:40:39.759
he's been doing diligence for a decade, like, that's gonna work. Or I was… I presented at the University of Chicago booth, and one of the students took a liking, he got a deal on their letter of intent, and he was buying a company that him and his dad had sold into the end industry.
00:40:39.860 --> 00:40:49.918
For 20 or 30 years. So it's like, yeah, we're checking to make sure the numbers are right, but you guys have probably a way better chance of 2Xing this thing than taking a 20% hit.
00:40:50.409 --> 00:40:51.179
Yeah.
00:40:51.860 --> 00:40:53.199
That's cool, man.
00:40:53.489 --> 00:41:04.309
Where can people go to connect with you and, maybe start talking about a deal? Like, hey man, we're in the middle of a deal, and we could use a QOE and, have a chat with the deal guy. Where could they find you?
00:41:04.309 --> 00:41:14.309
I'm your guy, so go to YouTube first. That's where you're gonna get the most unfiltered, fun, no BS, Elliot. In 3-5 minute videos, I'm not wasting a moment of your time.
00:41:14.340 --> 00:41:32.108
YouTube slash at Guardian DueDiligence, or put Elliot Hahn into the search bar. I'm also active on LinkedIn, and unlike a bunch of other fools, my phone number and my email are on the bottom of my website at Guardian Due Diligence, so you can just call me or text me. If I pick up, we're talking.
00:41:32.110 --> 00:41:38.219
If I miss you, I'll text you back and get with you, so I want to talk to you as bad as you want to talk to me if you have a deal underwriting team.
00:41:38.409 --> 00:41:40.570
Cool. We gotta change your ringtone.
00:41:40.900 --> 00:41:42.320
to some Tupac.
00:41:42.860 --> 00:41:51.800
And until then, everybody, as always, reach out to our guests, say thanks for being on the show. If you need some help with some QoE, reach out to my boy Elliot.
00:41:51.809 --> 00:42:07.878
All the contact information will be in the show notes. If you have questions, guy wants to chat with you. If you have a conversation around a deal or a deal type that you'd like to talk about here on The Deal Podcast, head over to thedealPodcast.com, fill out a quick form, maybe get you on the show. See ya!
