Jon Stoddard sits down with Jed Morris—a veteran who swapped the military for business ownership. He thought buying a business would be his golden ticket. Instead? A crash course in what not to do.

Jed dives into his journey through ETA (Entrepreneurship Through Acquisition), finding and acquiring a landscaping business, and the hard truth: just because a business looks “boring” doesn’t mean it’s easy.

He learned the hard way about seller relationships, cash flow crunches, and the real risks of business ownership. Turns out, running a business isn’t just about numbers—it’s about people, trust, and knowing what you’re really getting into before you sign on the dotted line.

From bankruptcy to bouncing back, Jed shares why patience, due diligence, and having the right mentors make all the difference. If you think buying a business is a fast track to wealth, think again. This is a masterclass in what happens when things don’t go as planned—and how to come out stronger on the other side.

Takeaways

Jed Morris transitioned from military service to business acquisition.
He discovered ETA during his MBA program at NYU.
The landscaping business is more complex than it appears.
Building relationships with business owners is crucial.
Sellers often want to stay involved post-sale.
Understanding risks and potential bankruptcy is essential.
Cultural integration is a significant challenge in roll-ups.
Personal guarantees can be a double-edged sword.
Time is needed to grow into the ownership role.
Stress levels in business ownership can be overwhelming. Relying on key employees is crucial during transitions.
Financing strategies can significantly impact cash flow.
Many entrepreneurs face similar challenges after business failures.
Trust is the most important factor in seller dynamics.
Understanding cash flow constraints is vital for business success.
Patience is essential when growing a business portfolio.
Transforming failure into lessons can guide future decisions.
The first business acquisition is often the riskiest.
Investing in quality of earnings is crucial before buying a business.
Mentorship can provide valuable insights and guidance.

Watch the Interview:

Transcript

Jon Stoddard (00:01.213)
Welcome to Top &A Entrepreneurs. Today my guest is Jed Morris. Jed is a, let's say, ETA-er, business buyer, who's got a great story about what not to do, but he's also a veteran and he works in the tech world and pretty active on LinkedIn and all the other social medias. But Jed also has a book out called Lessons from Failed Business Buyers. I think that's coming out pretty soon. So Jed, I wanna welcome you.      Get Jed's Book at: https://failed-business-buyer-lessons.carrd.co/

And then just tell me your story.

[email protected] (00:34.19)
Thanks, John. Happy to be here. And just to clarify, yes, putting a book together, pre-sale is available, but it's book is scheduled to come out this fall right around the Halloween timeframe. So really excited to get that out there. But yeah, thanks for having me.

Jon Stoddard (00:43.828)
Love it.

Jon Stoddard (00:48.027)
I it. all right, let's rewind a little bit. And I'm sure you've told this story a lot of times in your head. So how did this start? How did you become like, okay, I'm just going to leave W2 or the military status and then buy a business.

[email protected] (01:04.792)
I think it started the way it starts for a lot of people. I was a 10 year Air Force veteran, got out in 2019, wasn't sure exactly where I wanted to go, but I knew that spending the next 20 years in the DoD was not the future I wanted. Although it was like laid out in front of me, right? So I joined NYU CERNs. Yeah, exactly. yeah, and even better, I left the Air Force and walked directly into a GS-13 spot right near the Pentagon. So like I was set. I knew that like, you

Jon Stoddard (01:21.747)
Yeah, just 10 more years. Just 10 more years and you get a nice, yeah.

[email protected] (01:33.934)
GS 15 was around the corner. know, the whole, whatever I wanted was right in front of me. Um, as long as I was okay with working in the Pentagon and DC for the rest of my career. And, uh, it's just, I wanted something else, you know, I was right. I was ready to move on and do something else, but had no idea what that was. Uh, joined NYU Stern's executive MBA program in DC, uh, which was a great fit because, I wasn't looking for, you know, consulting or finance recruiting. So that was a good fit. And then, um, I stumbled across ETA on accident really because, uh,

You know, this was 2020, like right in the heart of COVID. And this was before buying a business was cool online, right? You know, like Harvard, Chicago, Stanford, these guys have been doing it for a long time, but, you know, nobody was on LinkedIn or, you YouTube saying, Hey, you should go buy a business. Boring business was not a term. And so I found it on accident. I was going through an entrepreneurial finance class at NYU and buried in the back of one of the textbooks was this chapter on M &A multiples for the lower middle market.

Jon Stoddard (02:11.379)
Yeah, yeah.

[email protected] (02:32.683)
And it just kind of clicked. was like, wait a second, people are buying and selling? Yeah, I'll people are buying and selling. mean, we're talking like, you know, a couple million dollars of top line revenue and you're actually getting like multiple expansion. It just clicked. I was like, my God, I can, I can buy a business. And then that led me to discovering a HBS is a TA conference, which I attended in the fall of 21. And then the same conference at Chicago the following year, reach out to a bunch of people.

Jon Stoddard (02:34.505)
Whoa, those are high!

Jon Stoddard (02:55.155)
Yeah.

[email protected] (03:00.566)
in those circles who are already, you know, either investors or searchers, people who had been successful. And one thing led to another and I was hooked.

Jon Stoddard (03:08.307)
Yeah. Yeah. All right. So you went to New York Stern's goal now you're and you then you're these other courses. What's the first start? I got to start looking for a business to buy.

[email protected] (03:20.746)
No, in fact, the first thing was, you know, setting up a career while I was at NYU, I got recruited by Microsoft. And so there was no way I was going to turn that down. And I went to Microsoft, you know, you know, got into software development, started building the cloud that led to a career at AWS and HP. So I'd built up a pretty good, you know, big tech career, but at the same time, you know, I was still very much like researching, you know, the self-funded route, which is what I had kind of like determined was going to be the right route for me.

Jon Stoddard (03:27.471)
okay. Yeah, yeah.

[email protected] (03:49.87)
And so, you know, while I was working my job, I started a self-funded search right around, um, right around 2022. And so, you know, and that was the right fit for me because, you know, some people say that you need to quit your job and search full time and that works if you're traditionally funded. Um, but you know, I had a wife, I had a family and I was already used to, going to school full time while working full time. So, you know, for me, it was just replacing school with searching. And so I put in the effort to search part-time.

Jon Stoddard (03:57.065)
Yeah, okay.

Jon Stoddard (04:16.201)
Right.

[email protected] (04:18.439)
while I was working my job. That was the right risk analysis for me.

Jon Stoddard (04:22.239)
All right. And you're looking off hours for businesses in your area or where you trying to go to a new geographic area?

[email protected] (04:30.99)
Yeah, no, was looking regionally specific in Southern California because that was home. That was the one area thing that I was not willing to negotiate on. But I originally started looking in defense, defense tech, and anything that's IT enabled government services, because my background in the Air Force was doing acquisitions with defense contractors and financial management. So I was already very familiar with that space. And then obviously my time working in big tech, you know, I knew how to code, knew how IT infrastructure worked.

Jon Stoddard (04:48.169)
Yeah.

[email protected] (04:59.628)
And so it kind of made sense looking in that route. And I looked at a bunch of businesses during that time, didn't find anything that really fit what I was looking for. And then just chance, you know, had me cross an owner of a landscaping company. You know, I was doing a, we were planning on doing a renovation of our home in San Diego. And I called this gentleman, came out, obviously the owner of a small firm that we had hired in the past. And I tell people, it's kind of like when you,

Jon Stoddard (05:14.11)
Yeah.

[email protected] (05:27.054)
when you decide you're going to buy a car and then you see that car everywhere. mean, this guy walked in. Yeah, exactly. He walked in our house. We started talking and then it just clicked. was like, this guy owns the business. He's 75. Like, what is he doing? And my surgeon.

Jon Stoddard (05:30.569)
Yeah, yeah, reticular activity. Yes, yeah.

Jon Stoddard (05:41.897)
But that's a clue in itself. Like what's a 75 year old doing in my home, bidding on a business? Yeah.

[email protected] (05:46.668)
Yeah, exactly. but I mean, he was wonderful, really nice guy. and that kind of completely pivoted my mentality. My search completely shifted, from defense tech to landscaping. And I did a full landscaping search, you know, and, after meeting this gentleman, we got lunch, like the very next week, we had a conversation and he's like, yeah, you know, I've always thought about selling, but you know, the right opportunity hadn't come up. We've been busy since COVID, you know, blah, blah. And,

Jon Stoddard (05:58.781)
Yeah.

[email protected] (06:15.51)
I wasn't certain it was a good business for me because, you know, he had a lot of things that were going really well for him. know, name recognition was great. you know, solid sales pipeline. but it was project-based work. You know, we all try to find, you know, the commercial stuff, but, and on the backside, you know, there was a lot of things to rebuild in the business. know, bookkeeping wasn't great. There were really no systems. And so after, after a few months of discussing it, we came to an agreement where, you know, I was going to come in and kind of.

Jon Stoddard (06:30.633)
Yeah.

[email protected] (06:44.614)
And I built a great relationship with him at this point. And so the idea was I was going to come in and, you know, kind of help his business part time and see what I could do. Because again, like I never ran a business before. I had all these thoughts and ideas and strategies, but you I never ran a business. And so I was like, all right, well, how about I come help you out a little bit? Maybe I help you build out some bookkeeping, build out a CRM, you know, build out your online presence, redo your website, things like that. Right. Yeah, exactly. How would I help you out a little bit?

Jon Stoddard (06:55.805)
Right, right.

Jon Stoddard (07:09.023)
Help you get ready for sale.

[email protected] (07:13.292)
And my thought was, and I told him right from the beginning, was like, look, I'm not sure I'm even gonna buy this business, but at the very least, this'll help you and your business. It'll help me get some practical experience. And if we decide it's a good way to make an acquisition, then we'll do that later. But for now, it's fine. And it was a good deal for both of us. And so that's what we did. And then I used that time to not only build a little bit in the business, but at the same time conduct a much more thorough search across landscaping.

Jon Stoddard (07:31.561)
Yeah.

[email protected] (07:42.286)
Now having this gentleman who had been in the business for almost 45 years, you and I could, could fact check stuff with him. Like, Hey, what do you think about this? Hey, what do think about that? You know, it's, was learning in the industry, which was invaluable.

Jon Stoddard (07:49.844)
Yeah.

Yeah, what was the story you told yourself going from tech to an easy understand business like landscaping? What did you tell yourself? It doesn't need to be sophisticated. It's very simple. Like how'd you convince yourself?

[email protected] (08:03.309)
Well...

[email protected] (08:07.726)
I think the story there, it wasn't that it was simple. And I think one thing I don't like is the whole idea of the boring business, because these businesses are anything but boring. They're not boring at all. And they're quite complicated, because all the things you remove on the tech side, you overcomplicate on the human performance side. You've got dozens of employees and projects going and tens of thousands of dollars on the line every single day with supplies and maintenance and customers and sales.

These are not boring activities. And the idea that you're going to be able to like kind of sleep through and walk through that is ridiculous. Like it requires your full attention from 5 a.m. in the morning until 7 p.m. at night. If you're lucky, you know, and you never know when a curveball is going to get thrown your way where, you know, maybe some storm comes through and all of a sudden your schedule is completely wiped out. Maybe there's a shortage of materials with supply and now your schedule is completely wiped out. All kinds of stuff that are just, you know, in your way. And at the same time, you're dealing with

Jon Stoddard (08:50.537)
Yeah, yeah.

[email protected] (09:07.246)
you know, not being tech enabled. Like I'm dealing with like, uh, you know, the owner, his, his wife had helped them put together a website back in the early two thousands and it was functional. It worked, but it definitely looked like it was built in 2001, you know, with like WordPress one-on-one. Um, and then, you know, they had a social media presence, but it wasn't, it wasn't great. Uh, they had never, all of their leads came from like Yelp and how's and like these other lead generators.

but they never once used Google local service ads or Facebook ads or any of that stuff from themselves. so there was like some very basic things we could do to help boost sales. One simple thing is there's no CRM. And this is a project-based business doing landscape construction for decades. And they had a fantastic reputation, over a hundred five-star reviews on Google Maps. And this is from like a team who's not out there like, hey guys, leave us a review. Like this is just natural, it's organic.

Jon Stoddard (09:47.283)
Yeah. Yeah.

[email protected] (10:05.646)
And with all that, they never followed up with a customer. so right off the bat, I hired a third party contractor to come in and it sucked for him. He went through all of our paper records for the past three years. I was like, all I want you to do is get the contact information from customers. That's it. And he took it all, put it in a HubSpot. We blast out an email, made seven sales within a week. They're just basics, just real basics like that.

Jon Stoddard (10:29.183)
Wow, wow. And did this guy, 75 year old guy, did he want that? I mean, did he was like, yeah, I'm receptive to doing more business or it was like, I got too much on my plate now. I don't really want any more work.

[email protected] (10:35.82)
Yeah, yeah.

[email protected] (10:42.508)
Well, and see, that was the thing. It was clear that I was not putting more stuff on his plate because that's definitely not what he would have wanted. What he wanted, which is something that I found for a lot of sellers, is that they're not looking to sell their business and then retire to Honduras. However, one person I did meet was exactly their plan because they had a retirement house in Honduras. The vast majority of sellers, you know, when they...

Jon Stoddard (11:03.835)
wow, okay.

[email protected] (11:07.82)
they understand that they need to sell either today, tomorrow or soon. They're older, they're ready to take a step back. But what they're not gonna do is sell their home and move away. They're not leaving the community. And they're also not interested in going and playing golf for the next three or four years until they break a hip or something. They're interested in doing the things that they enjoy doing and not doing the things they don't enjoy. And so for instance, with this particular owner, he was interested in meeting with customers. He was interested in doing sales.

Like he loves the people business, you know? He had fantastic relationships with customers and suppliers and his team. He loved being in the business, but he hates payroll and he hates bookkeeping and he hates, you know, all the tech and following up on stuff. Like he doesn't want to do any of that, any of the admin stuff. No, just take it away. And so the whole agreement from the beginning was like, Hey, I'm going to help build systems for all that backend stuff you don't want to deal with. And then ultimately, when we did decide to move forward with purchase, the idea was

Jon Stoddard (11:38.452)
Yeah.

[email protected] (12:04.27)
that he was gonna stay on, he stayed on as a minority owner, but his only role was A, making sure he was the license holder, especially for the first 12 months per the contract. That way it would give us time to either get a different license holder or for myself to become licensed. So that was key point number one. But the second was, the idea was that he would be able to continue doing sales calls if he wanted to, but only like a couple times a week, or to be like,

Jon Stoddard (12:19.869)
Right.

[email protected] (12:32.098)
you know, like a chairman of the board type guy, you know, like an actual like advisor, which was the kind of thing that he was well suited for. And so, you know, what owners want after, after they have a sale is going to be highly dependent on that owner. But I found after meeting with hundreds and hundreds of owners that the vast majority of them, you know, if you can build a good relationship, they're not trying to like flee town, you know, like you should build that relationship so that they can be helpful.

Jon Stoddard (12:39.007)
Yeah.

Jon Stoddard (12:56.381)
Yeah, when you looked at his books, were they clean? Where did you find anything or just were they just messy? Just not malicious, just unintentional errors. They were clean. Okay.

[email protected] (13:08.608)
they were clean. They were clean. The biggest issue was that they were largely incomplete, I guess is the right word to put it, because they weren't using a formal bookkeeping software. Like I said, he didn't want to deal with any of that stuff. So they ran everything off of a business checking account with a couple of business credit cards. And then every single month, they would just simply print off all their transaction history, send it to a local CPA and be like, put my P &L together. That was it. Yeah.

Jon Stoddard (13:33.609)
Yeah, so here's our cash in, here's our cash out. please take all the deductions we are allowed to and let me know what taxes I need to pay. Yeah.

[email protected] (13:40.908)
Yeah. Yeah. It sounds a little ridiculous, but you know, when you're, when you've been doing project-based work for decades, then you already have a good idea of what your pipeline looks like. And let's be clear, he has no debt. So at the worst case scenario, if there's no work to do, the guys just stay home, you know, and, sometimes that happens, especially if we have bad weather or something. So it's like, he wasn't really running any risk here. You know, it just wasn't optimized.

Jon Stoddard (13:57.801)
Yeah.

Jon Stoddard (14:06.931)
Yeah, did he have an office or industrial park or some trucks or anything or was it run out of his house?

[email protected] (14:13.154)
So he used to have an office, but he was kicked out of his commercial space during COVID. Like there was warehouse issue that the lease tenant was like, no, we want to move on. everything was crazy at that point. And so at that point, he took a bunch of the cash in the business that he had been using and he simply rebuilt a warehouse on his own property. Not a big space, but he built a warehouse on his own property where he could park the trucks and he'd have a place where he put supplies in a small like two man office.

Jon Stoddard (14:32.319)
okay.

Jon Stoddard (14:40.915)
Yeah. All right. So what happened? What's going on with this business? Yeah.

[email protected] (14:45.752)
All right, so here's what happened. After about eight or so months of working in the business, building a great relationship with this owner, and then also proving to myself that I could actually make an impact in this business, I decided it was worth the opportunity to make the acquisition. And so he and I, came to a deal and we were able to close that deal. Deal structure was primarily like about one third cash and then two thirds seller note. Now,

We did it that way, one, because I always plan to use the SBA. But two reasons. One, I didn't need to use the SBA because the transaction wasn't big enough for it to really matter. And the second reason was because I was still, like I said, was rebuilding the books. It wasn't really financeable because there weren't like three years of like, not through SBA. Yeah. So like I had rebuilt the books there, but it wasn't something that anyone would lend them. And so that was the other reason. But at the same time, you and this is what I tell people, like,

Jon Stoddard (15:30.803)
Not through SBA. They're gonna need to, yeah.

[email protected] (15:43.31)
In the lower middle market, it's the wild west of capitalism. You could put anything you want in a deal. That being said, there are some people out there who take advantage of sellers. And one of the key things that I did with my seller that a lot of people, they try to avoid is we put a personal guarantee on the sellers. And I felt that was perfectly legitimate. Personal guarantee on a seller is exactly the same as it is on an SBA loan.

We were coming to a point where I'm like, if two thirds of the value of this deal is going to be in the seller's note, and you don't expect me to have more skin in the game, then there's not a lot of trust there. And so that was one of the things we decided to move forward with.

Jon Stoddard (16:23.283)
Yeah, let me ask you how that went, that conversation with your wife. Cause I know how went with my wife, cause she's just thinking security. Like if the house goes, the cars go, if everything goes, like what are we left with? How did that conversation?

[email protected] (16:35.214)
in

[email protected] (16:39.096)
So the conversation went kind of like this. had had the conversation when I first started searching about what things would look like if I failed. And to be very fair, we could have had a much deeper conversation on that. And I find that a lot of people don't actually think about the risks involved, especially with a personal guarantee. And I'm not super special in the sense that I didn't have extra analysis about the risk involved.

I at least did take the time to think about like, you know, what would happen if I failed? And for me, it was like, all right, well, if I acquire a business and that business does not succeed and we go into bankruptcy, then, and let's say we lose everything, what does that look like? Well, I'm like, all right, well, I still have a top 10 MBA. I still have a top secret clearance from the defense department. So working for a government contractor is probably a good move. And I still have all this experience in big tech. So I felt pretty confident that my advantages, you know,

from that perspective would allow me to rebound and get back on my feet pretty quick. That said, we had that conversation, but I didn't dive any deeper. I didn't think about what does chapter seven and chapter 11 look like? What does insolvency look like? And that's one of things I really harp on now on LinkedIn and to other current and future searchers. I'm I'm not sitting here saying that you should dive into the minutia of what insolvency looks like.

Jon Stoddard (17:43.038)
Yeah.

[email protected] (18:06.584)
But if you don't take the time to really think about what that is, then you're not, in my opinion, you're not actually having a risk analysis. You're not actually looking at the pros and the cons of your deal.

Jon Stoddard (18:12.5)
Yeah.

Jon Stoddard (18:16.371)
Worst case scenario. Worst case. Yeah.

[email protected] (18:18.636)
Yeah. So for instance, right now, you know, I talk with, I talk with people who are currently going through bankruptcy on SBA guaranteed debt. And I always start off by telling them, look, you have to expect that you're going to lose everything. You have to go into it understanding that when you file, you're probably going to lose your house, your cars, maybe, maybe, maybe your pension, like all this stuff. have to assume it's all gone. Now that being said,

Jon Stoddard (18:26.591)
Yeah.

[email protected] (18:45.708)
Different states have different laws when it comes to homestead. Maybe you get to keep your home. Maybe it wasn't actually written out on your SBA PG, if you're not over that 20 % equity threshold. Some states have reservations when it comes to 401ks and retirement accounts. And so there are some possibilities there where you can be able to retain some of your critical assets and still move through bankruptcy. But you are putting everything into the hands of the executor.

of the person who is running that bankruptcy hearing. And so you need to understand.

Jon Stoddard (19:16.159)
Yeah, and you can't really put anything into a trust, To hide that? No.

[email protected] (19:23.582)
You can, and this is the part where I say that I am not an attorney, but I have spoken with searchers who have tried to take a few extra steps to help protect themselves. For instance, putting the bulk of their assets in a trust that they don't have control of, or moving their assets into the direct ownership of a spouse or a family member. Can that work? I guess. mean, theoretically it can.

Jon Stoddard (19:36.446)
Yeah.

[email protected] (19:50.38)
Yeah, I think it just really depends on the person in the situation. Again, speak with your attorney because then we're talking about like what is actually covered on your personal guarantee, what can and cannot be pierced by the corporate bail. There's a lot of questions there.

Jon Stoddard (20:01.011)
Yeah, that's a... Yeah, they need some kind of collateral and if you take your name out of it, they... it's not collateral anymore!

[email protected] (20:05.792)
Yeah.

[email protected] (20:09.3)
Exactly, you're exactly right. mean, the personal guarantee is the collateral. And so is it possible that you could find a killer deal that a bank would love to lend on and you don't have any collateral, but you still sign the personal guarantee? Sure, there's probably an SBA lender who'd take you up on that. But I mean, good luck, man. Every deal is different.

Jon Stoddard (20:32.029)
Yeah, but you didn't use SBA, you did seller financing and a third down. So you take over this business, everything looks, you know, rosy. Where does it start showing off? It's going off the rails.

[email protected] (20:51.47)
Almost immediately and almost immediately and it it's entirely my fault and this is why One of the things I learned is that once you buy a business all of a sudden you get a certain level of Accreditation that everyone else doesn't have so for instance I've been doing a search for well over a year at this point hundreds of sellers, you know several Lois but once I bought my first business then

Jon Stoddard (20:53.593)
no, argh.

[email protected] (21:20.216)
People noticed, brokers noticed, owners noticed, like, this guy actually bought a business, right? And that word gets out quickly. So for instance, within the first 30 days after buying the first business, word had spread throughout the entire area that I had acquired this landscaping company. And about four or five other landscaping companies in the same area all noticed and started questioning whether or not they could have a similar outcome, right? And so...

Jon Stoddard (21:25.055)
Yeah, yeah.

[email protected] (21:47.626)
One of the things you realize is these are very tight-knit communities. Three of the five owners of these businesses all went to high school together in the 70s. The guy who owned the first business, his wife used to be a secretary for the guy who owned business number three. It's like they all know each other. And so word spreads. Yeah, exactly. They know each other, yeah. They've all been working in the same industry in the same area for decades.

Jon Stoddard (22:04.553)
Yeah, it's like the HVAC business here in Tucson. They know, they either worked at that or yeah.

[email protected] (22:15.234)
You know, and it's not just them, the employees know each other, the suppliers know each other, everybody knows. And so very quickly I found myself and I tell people, found myself in an accidental roll up because they're like, this young guy just bought this business. Maybe he'll buy ours. Right. And they weren't wrong. I was like, I was like, wow. Okay, cool. You know, it's.

Jon Stoddard (22:34.559)
You gotta go back to those multiple expansions you saw and that's what was driving you.

[email protected] (22:39.68)
Right, exactly. like business number one was doing just over one and half million top line. And I'm thinking, okay, cool. Well, this opportunity, if I was to then acquire businesses, you know, two through five, now I'm looking at 12 to 15 top line. And, you know, there's a lot of, there's a lot of mechanics and details when it comes to combining so many businesses together. But you know, the numbers start rolling and I start thinking like, wow, that's really cool. And so, you know, mistake number one was just not taking a breath.

I should have taken a big step back and a big breath and taken the time to really make sure that business number one was built out to be an appropriate platform before acquiring and expanding. But I didn't do that.

Jon Stoddard (23:21.427)
Yeah. Let me ask you on that. There's no set time, but do you recommend, you know, six months, 12 months, or just wait till you get to your seal eggs or what?

[email protected] (23:32.974)
Yeah, I agree. There's no set time. think here's what I would say. When you buy, there's two different types of growth that need to happen. One, there needs to be the business growth. So like when you buy, have to learn, especially if you're new to the industry, you have to learn the industry, you have to learn the business, you have to learn the ins and outs. And I'd already been kind of working in this business a little bit, part time for like eight months. I had a pretty good feel for it. But I was still very fresh to the industry. And I was definitely fresh with being in the owner. And then the other part of that growth,

is the personal growth of like taking on the responsibility of ownership, understanding like, okay, well, what projects are we going to take? What kind of deals are we going have? What kind of marketing are we going to do? When is it time to fire this person? When is it time to hire somebody? Like all of these questions, you know, it takes time for you if you've never been in the seat of ownership to actually get comfortable in that seat and then understand like how to move forward effectively. And so

Jon Stoddard (24:29.759)
Yeah.

[email protected] (24:30.646)
I can't tell you how much time that's going to take. I spoke with Nathan Lindley, I spoke with him a couple of weeks ago and he's doing a fantastic HVAC roll up in Texas. And he talks about how the personal growth for him took two years. And in the meantime, his first business, everybody, it took him two years and it almost failed in those first two years because it took him time to really understand how to be the owner.

The best analogy I can give you is it's kind of like the military. Like I can tell you what it's like to put on the uniform. I can tell you what it's like to deploy, but until you've done it, you have no idea what I'm talking about. And so I would say, give yourself some time, jump in there, give yourself at least 12 months, not just so that you can build the business and make it, you know, a firm foundation to expand or do whatever you want to do going forward, experience a full fiscal year cycle, but also so you have time getting comfortable with making some tough decisions. Hopefully one or two.

Jon Stoddard (25:04.895)
Yeah.

[email protected] (25:25.122)
headwinds hits you in those first 12 months, and you gotta make some tough calls, and you learn from those, and you start really getting your arms around this business. So that's probably what I would go with.

Jon Stoddard (25:37.107)
Yeah, I think it's a little naive. I always kind of squash. I've got some students that, know, buy a business and say, hey, look, don't worry about your second one. We're trying to get the first one here and you got to get your C-Legs. And for instance, like this one right here, the guy you bought it through has gone through four cycles. If you take a cycle every 10 years, that's 40 years of learning. There's no way that's too arrogant to think that you're going to be able to understand all of what he's learned in 40 years.

[email protected] (25:47.501)
Yeah.

[email protected] (25:58.402)
Yeah.

[email protected] (26:04.722)
You're exactly right. And that's why I tell people the very first mistake was my mistake. It was just new buyer areas, thinking that I could just jump in and make this big difference like right off the bat, taking a break, taking a step back and really taking the time to not just learn the industry, but also, you know, allow myself to grow into the ownership role would have been a huge advantage.

Jon Stoddard (26:27.123)
Yeah. So what happens? Does sales start dropping? You're losing clients. You can't get clients? Or what's happening in this project base?

[email protected] (26:34.862)
No, mean here's what happened. So within five weeks after buying the first business, I had already had LOI due diligence and bought business number two. So that's what happened. And here's what I tell people. And I love that you brought up the buyers who are like, hey, I wanna have a hold co, hey, I wanna do a roll up. I never expected to do a roll up. I learned about him at Stern. I never expected to do that. I had thought about hold co's. But buy business number one. know, buy the first one.

Jon Stoddard (26:43.057)
yeah.

[email protected] (27:02.402)
build a platform and then once that's solid, then we can start talking about whole codes or roll ups or whatever you want to talk about. But if it's your very first business, let's just knock that one out of the park first. Because the riskiest business is business number one. So here's what happens. So I buy business number two and as a brand new buyer and a first time roll up er, there were a lot of things that I took for granted and did not understand. The first one being

Jon Stoddard (27:15.315)
Yeah.

[email protected] (27:31.372)
Just because the finances look good does not mean it's a good acquisition. Especially in a roll up. Because when you're doing a roll up and you're combining companies, culture plays a significant role. You have to make sure that when you're buying a company, the culture of that company is a direct reflection of the owner themselves. And so they've put the systems in place or not. They've hired employees and they've fired employees. They have a certain way that they do things.

even if it's in the same industry and they're doing the same jobs, they have a way that they do things and that culture comes from the top all the way down to the bottom. And the idea, and this is true for anybody, if you're gonna buy a business, the idea that you're gonna change that culture is ludicrous. It is gonna take time to turn that ship. And you can do it, but it takes 12, 36 months. It takes time to be able to, unless you're planning on firing 80 % of employees within the first week.

Jon Stoddard (28:18.025)
can do it, but it takes 12.

[email protected] (28:28.142)
you're taking over something that's already been built. And so that culture is important. That culture, it's very, very sticky. And so you're dealing with personalities, you're dealing with relationships, and being able to merge those together is incredibly difficult. And I really underestimated what I was getting myself into. And that's beyond. And you notice how I talked about culture first. I didn't talk about systems. I didn't talk about integrating payroll, integrating insurance, integrating CRMs.

integrating payment structures, none of that, which all has to get done very, very quickly. And by the way, in landscaping, if you're buying and you're the only tech enabled individual in the business, that's you, my friend. You're doing all that work. You're the one combining all the payroll systems, combining all this stuff. That's you. If you think that your employee who's running Admin, who's been doing it for 50 years is going to...

Jon Stoddard (29:11.431)
Yeah.

[email protected] (29:23.842)
you're going to trust them to understand how to combine your payroll and negotiate insurance rates for you, I doubt it. You're going to be doing it yourself.

Jon Stoddard (29:30.099)
Yeah. So what were some of the initial culture conflicts, roadblocks that you just ran into going, my God, I thought that was going to work. I got to try something else.

[email protected] (29:41.42)
Yeah, mean, you know, teams not willing to work together, teams not used to trading off leads. There was a little bit of the analysis that I did in the beginning, which I thought would be a big positive, which was true. For instance, business number one was a project-based landscape construction company. And so, you know, the good thing there is that margins are high. The bad thing, though, is that it's project-based, so you're always out there winning new work. Business number two was a strictly commercial maintenance company.

Jon Stoddard (30:07.678)
Yeah, yeah.

[email protected] (30:11.374)
And so the good thing there is that a recurring revenue is solid. had about a million in recurring revenue just on that piece. The downside is that the margins are terrible. We're talking single digit margins. And not just that, when you're a small business, it's really hard to acquire new clients in that space because large competitors like Brightview will underbid you for two or three years just to gain a client. And you can't work in negative cash flow. And so you run into a lot of issues there. And one of my thoughts was, well, if I could bring my project-based team,

and combine them with a commercial based team, then I basically have acquired customers from my project based team. Right? And so most commercial businesses, they're doing the standard cut and blow, right? They're doing lawn maintenance, they're cutting, they're trimming, but the real margins are in the tree trimming, the turf, the irrigation, the lighting, all that extra stuff, you know, especially if we're going to lay concrete or something like that. And a lot of commercial businesses will subcontract for that work. Well, now we don't have to, we subcontract that internally.

so the mechanics of the business structure did make sense and we did see some progress there, but building the systems that allow those teams to share leads, to think of themselves internally first before moving to an outside contractor, to allow it like thinking, well, I don't do that work, but maybe our other team does, you know, like I've got a commercial client who wants to put in, you know, brand new concrete driveways. Well, instead of just telling them, no, we don't do that.

Maybe say, yes, we do that actually. We have a whole team for that. So it's definitely a learning curve. And especially when you have people who are used to being, you know, the senior leaders in charge, you know, well, who's in charge now with your foreman, right? You know, so who's the top dog, so to speak. So working through a lot of those relationships can be difficult.

Jon Stoddard (31:41.147)
Great.

Jon Stoddard (31:58.612)
Yeah, let me ask you about this because then it's the point you feel really alone. It's your vision and you're trying to share your vision and recruit people to your vision doing this. Now you're alone. Like what was the stress and the life like during that coming home thinking about it 24 hours a day? I mean, you look at Elon, goes, he slept at SpaceX. He slept at Tesla, round the clock.

[email protected] (32:27.052)
Yeah, it's hard to understand the stress level until you've been in it. Until you start at the ceiling wondering if payroll is gonna clear. Until that happens, it's a whole different level. It's really hard to understand where you're coming from. And not just because you want things to work out, but because you signed for the debt, so payroll doesn't clear and people leave, then you're on the hook. And so...

Jon Stoddard (32:31.773)
Yeah.

Jon Stoddard (32:37.918)
Yeah.

[email protected] (32:55.522)
It's keeping up with sales. But it also means like you're taking a lot of faith on your employees because a lot of people are buying into industries where they don't have experience. And as a result, it's really helpful if you've got one or two key employees who have a lot of experience who can help keep the ship moving forward as you're learning. But make no mistake, they kind of got you. They kind of got you during that time. And so like,

Jon Stoddard (33:21.375)
Yeah.

[email protected] (33:23.296)
I really relied on my key employees to keep the business moving and they did fantastic jobs at doing that. But at the same time, like I'm trying to get the backend of the business, you know, not only integrated, but fixed. And so while I'm doing that, I'm not, you know, I'm not, I'm not working on supplies. I'm not working with the form and I'm not working with the teams. I'm working on insurance and sales and CRMs and things like, and web presence and, marketing and

and advertising and trying to keep the back end of the business going while also building QuickBooks for the first time. So it definitely is a whole different level of stress because you're trying to patch the holes in the ship while trusting that the crew that you just hired is going to keep the ship floating long enough for you to keep get it patched up and moving in the right direction.

Jon Stoddard (34:01.075)
Yeah.

Jon Stoddard (34:12.359)
and you don't even know anybody about those. It's not like you grew up with them. Yeah. So you buy this second commercial business, was that with an SBA loan?

[email protected] (34:16.204)
Yeah,

[email protected] (34:25.71)
No, same structure. again, I had planned on using the SBA, but in the same search scenario, this one would have been financeable, but I didn't need to. I'd already learned enough about the business and I had a positive impact on the first one. And I was like, I went into it like, all right, well, this structure worked on the first time, let's try it again. And the owner went for it. Now again, signing a personal guarantee on the seller's note, but that allows me to get much better terms.

Jon Stoddard (34:27.411)
Uh-huh.

Jon Stoddard (34:48.084)
Yeah.

[email protected] (34:54.83)
Let me clarify. yes, of course I signed a personal guarantee for the seller's note. But one of the advantages here is that it allowed me to negotiate the seller's note. So with the seller's note, I negotiated a 15 year amortization in the note, right? But with a 61 month balloon. So that really helps with cash flow. So that really helps me say, all right, well, we're gonna spread this out a lot, but at the same time, not make you wait 15 years to get paid.

Jon Stoddard (35:22.783)
Right.

[email protected] (35:23.838)
So it allows you to do things that you couldn't do with the SBA, which made sense in this scenario. But again, that worked for the seller and that worked for me. If it hadn't, we would have had to negotiate something else.

Jon Stoddard (35:36.551)
Yeah. What was their condition like? Well, what happens if, you you kill the business? I mean, I don't really want to want it back, but I also have some oil to me to, to my employees. I like, I don't want them to lose their job. What was the conditions to help them? Yeah.

[email protected] (35:54.476)
Well, and here's where things get a little tricky. the vast majority, so let me find the right way to put this. Since my business failed, I've gone through insolvency, bankruptcy, a settlement, and now I'm on the other side. And what I've learned since getting out is that I've met with dozens of people who have had a business fail, who have bought a business in last five years and that business has failed.

What I did not expect was that over 75 % of us have the same experience, which is when you go through a business failure, you're most likely gonna have a settlement, and that settlement is gonna include a non-disclosure, non-disclosure agreement. And so there's two reasons why you don't hear people talk about why their business failed. One is because it sucks. No one wants to get on LinkedIn and be like, hey, I'd to tell everybody that my business failed. Now I'm incredibly underwater. It doesn't.

Jon Stoddard (36:49.599)
That doesn't get as many followers as, hey, just sold my whole coal company for a billion. Yeah. Yeah.

[email protected] (36:54.324)
It doesn't. It's not fun. But the second reason is because they can't, legally. And so if you're wondering why you don't hear a lot of the negative stories, it's because a lot of times they can't talk about it legally, which is one of the reasons why I'm writing my book. It's filled with these stories that are anonymized but accurate, right? And so what I hear, and I say that because what happens forward is the part that I can't talk.

Jon Stoddard (37:08.317)
Yeah.

[email protected] (37:22.828)
But what I can say is that based on my experience and the experience of the people that I've already talked to, that I've been interviewing for the book, that all these stories that I've put together, I can start to give you the overall trend analysis that I've found that tends to be the reasons why these deals don't work out.

Jon Stoddard (37:41.939)
What is that? The overall trends analysis.

[email protected] (37:44.622)
Alright, so number one, in 65 % of cases between the 22 people that I've already interviewed, including myself, in 65 % of these cases, the business failure is the direct result of a misalignment with the seller. Now, it's not always a misunderstanding or fraud from the seller, but it's a misalignment. In over half those cases, it's outright fraud.

And you may not call it fraud. may not be called like, that's why we have a settlement. That's why, you know, we're not going through actual litigation. There's a settlement, but that's what it is. If, if you sign a non-compete and then your seller opens up the exact same shop across the street day one after signing, well, that's fraud. You messed up. And so that happens.

Jon Stoddard (38:32.253)
That actually I have a story for that.

[email protected] (38:35.01)
Yeah, well, exactly. That's exactly what I'm talking about. if you've got a bunch of liabilities in the business that you don't disclose that are material, and then afterwards you buy that business and you discover them, well, that's misrepresentation. And so one of the things that buyers, especially first time buyers miss is that they think that they're protecting themselves with purchase agreement. They think that, you know, if my lawyer writes my purchase agreement and puts all my representations and warranties in there to protect me and puts non-compete clauses,

and puts clawbacks and urnouts and all this stuff and I protect myself, then I'm safe. And the answer is you're not safe. All you've done is

Jon Stoddard (39:13.303)
You're not safe. I'll tell you, and I got a student that just one year later after he bought the business, opened a shop, doing the exact same thing. He had a reps and warranty insurance, strong asset purchase agreement, and a pretty strong lawyer. And he still did it.

[email protected] (39:30.508)
Yep, exactly. And here's why, because you have all of the purchase agreement and those warranties due for you is they give you the legal foundation to sue, but you still have to sue. It still falls on you if you want to get some sort of judgment. And it's not a guarantee that you're gonna win. And even if it is, it's expensive. Litigation is very expensive, and it takes time. I mean, if you're gonna move as quickly as possible, then you're looking at months of you litigating this.

Jon Stoddard (39:51.699)
Yeah.

[email protected] (39:59.724)
with the person that you bought the business from, and in the meantime, you're still dealing with the negative consequences, whatever that happened to be. And so, you're trying to keep this business afloat.

Jon Stoddard (40:08.419)
That's why a lot of people, those no judgment, just say, let's move on. Like, let's move forward. Yeah. Yeah.

[email protected] (40:12.556)
Yeah, exactly. I mean, that's why we have settlements because you get to a point to where you're like, you know, the buyer wants out, the seller wants out. We all just want to stop and we're like, all right, cool. We're done. And, know, we're just going to settlement and we're done, you know, and, and that's a story I've heard over and over and over and over again. I tell people, you know, if everyone acted in their own financial self-interest, then you wouldn't hear these stories. And also behavioral finance wouldn't be a discipline, but it is.

Jon Stoddard (40:41.404)
It is.

[email protected] (40:41.422)
because we all do whatever we want all the time, regardless of the impact, right? And so a really great example of that is Justin Willis. He was on Aquarium Mines just a few weeks ago, bought a business over $8 million top line, immediately went into battles with the seller about things that were disclosed. Ultimately lost his business. And so like, I think that's the number one most important thing in over 65 % of these cases.

Jon Stoddard (40:44.435)
Yeah. All right.

Jon Stoddard (41:02.099)
Yeah, yeah.

[email protected] (41:08.96)
It's because there's a misalignment with the seller. And I tell people, look, the number one red flag is there are 29 million businesses in America. Do business with someone you can trust. Because as the buyer, you're always at an information disadvantage. There's always asymmetry of information. And so always do business with someone you can trust. And if you ever feel like the seller of a business is lying to you or is not representing something correctly, or maybe there's just like,

the hairs are standing on your arm, walk away. It's just not worth it. So that's the number one thing.

Jon Stoddard (41:42.557)
Yeah. Let me ask you a question because your radar is pretty attuned to that. So I had another student, we were looking at a business, I won't say what industry, but some kind of red flags, individually, they didn't mean anything. So I said, let's keep looking at this and I'll list these off you. And I said, there was no spend on marketing at all.

I asked the broker how the seller gets her business. And he was elusive about that. He goes, that's the secret sauce. The broker early in the conversation revealed that the husband or the father has multiple multimillion dollar businesses. So I thought maybe there was, maybe, okay, maybe she leaned on that for that. That's okay.

Then I found out the reviews on Google were all kind of similar with the same last names. And there weren't very many of them. And then I did a look up on Data Axle, Reference USA, zero records of that incorporation and no social media presence at all, zero. Like nothing on X, nothing on LinkedIn, nothing anywhere.

I said, look, individually, I'm just telling the buyers like individually, they're not red flags, but you put them together. What's your thoughts on that? Yeah. Yeah.

[email protected] (43:18.988)
You're painting a picture. You're painting a picture. Now, I agree. think several of those individually would be red flags for me. But at the same time, you're right. It's you're painting a mosaic. And, know, I talk to searchers almost every day. And one of the things that people ask me now, and they're like, hey, based on all of these stories that you've researched, how do I know that? What are the things I should be looking for with when it comes to the integrity of the seller? And I tell them, like, look, a lot of it's just the basics when it comes to due diligence. But

this is where EQ comes in. You know, like this is where EQ comes in. This is where you have to put in the reps of talking to hundreds of sellers and brokers and really having these, building the relationship to know like, this person, does they give you the warm fuzzies? Is there something about them that's off? Like you have to really kind of hone that skillset. And I can't really tell you how best to do that. What I can tell you is that we all have a...

like a sixth sense when it comes to someone who is not being, not acting in integrity. And, you know, it is totally possible for someone to hoodwink you. And that's fine. I get that. But the vast majority of people are pretty straightforward. And how they do one thing is how they do everything else. You know, if someone's got a reputation for stiffing their suppliers, they probably will stiff you. You know, that's why we laugh about like, you know, if someone cheated on their wife, they're probably going to cheat on you. know, people generally, who they are is who they are.

Jon Stoddard (44:46.033)
No, no, he's not gonna do that

[email protected] (44:48.511)
Yeah, so, you know, take some time to learn about the person on the other side of the table and then use your EQ to kind of feel out, is this someone that I can trust? I don't know, only you can answer that question.

Jon Stoddard (45:01.087)
Yeah, yeah, that's a good point. All right, number two, what was the other kind of, yeah.

[email protected] (45:05.068)
Number two, number two is huge and it's probably the one that impacted me the most, cash flow constraint. And it's also the number one reason why small businesses go out of business. So cash conversion cycle. If you don't know what that means, you are not ready to buy a business. It is the amount of time from when you make a sale, from the moment you make that sale, to where that account's receivable goes all the way through into actual cash in your bank and then paid out in some sort of payable.

Jon Stoddard (45:11.506)
Uh-huh.

Jon Stoddard (45:33.661)
And if there's anything left.

[email protected] (45:35.31)
And if there's anything left, you need to know how long that takes. That's the cash conversion cycle. And if you don't know how long that takes, that's step one. And then step two is how much liquidity do I need from the moment that starts to the moment that ends? That's called working capital. You need to know what that is. If you don't know that, it doesn't matter what business you buy, you will fail. Because you can have a million and a half in accounts receivable, but if you've got $1 in your bank account, you're doomed. You're done. It's over.

Jon Stoddard (45:40.884)
Yeah.

Jon Stoddard (46:01.183)
Yeah, that's why if you go to a balance sheet, it's the very first line on like, what's your assets? And if you're running a million dollar business, another student was looking at a nice business and I go, there's only 4,000, these guys are taking a million and half, but there's only 4,000 on the account. That's a problem.

[email protected] (46:06.925)
Mm-hmm.

[email protected] (46:19.308)
Yeah, that's a problem. That's a big problem. And, you know, it's one of those things that's overlooked, you know, and I think searchers are getting better at understanding working capital. And that's a tough conversation with sellers. But I see no improvement over first time buyers becoming more understanding of cash conversion cycle. It's more than just your working capital. How does your accounts payable, excuse me, your accounts receivable turn into cash? Let me give you an example.

Jon Stoddard (46:22.237)
Yeah.

[email protected] (46:48.856)
So one of the things we love to see in older businesses that aren't sophisticated is a lack of technology. Because when you see that, you're like, hey, I can implement technology and I can create efficiencies, I can speed things up, I can create value, blah, blah, blah. And that is true. But it's also not easy and it takes time. So for instance, one of the issues I ran into my business was that 95 % of our accounts receivable were all in cash or physical checks, right? And so I look at that and I'm like, my goodness, if we just put in some automatic billing.

and it's amazing, we're gonna cut our cash conversion cycle, our AR, like in half, and we'll really speed up the efficiency of cash. Okay, that's great, but here's the problem you run into. So one, if your customers have all been paying by check for over 10 years, getting them to pay by strike is really tough. I don't know what it is about the average person going onto amazon.com and thinking, not thinking twice about buying something, but then going to your digital invoice thinking.

Jon Stoddard (47:36.923)
Like what? Stripe?

[email protected] (47:48.398)
It's probably a scam. I'm not kidding. It happens. And so here's what happens. If your customers are paying by check and they put that check in the mail, even if you're in the same city, well, now you got to wait for them to actually mail that check. All right. That can take a couple of days. Then you have to wait at least one full day for that check to arrive from their place to your place. And then once that check arrives, you got to sprint to your local bank to deposit it or you can deposit mobile. You can do that.

Jon Stoddard (47:51.603)
Yeah.

[email protected] (48:17.678)
You gotta get that check deposited. And then for us, it would take two to four days for Chase to clear it.

Jon Stoddard (48:23.881)
Yeah, hold on, you forgot to mention you actually have to remind your account a few times.

[email protected] (48:29.986)
That's after you followed up to get him to pay!

Jon Stoddard (48:32.063)
Yeah, hey man, can you write the check? It's a it's a week. Hey, man Can you write the check?

[email protected] (48:36.078)
Yeah, yeah, and in the meantime, you know, this is one of the things we talk about with high capex companies. I've got trucks breaking every day. I've got machinery breaking every day. I've got, you know, I've got payroll. We're running payroll weekly when I took over. And so, you know, one of the things like I had to do about 60 days after I took over was we had to move to buy weekly payroll because our cash couldn't support a weekly payroll.

It just couldn't do it. And that sucks. Now you're impacting your employees and you're letting them know, instead of every week, expect every two weeks. That again impacts your culture. But at the same time, you don't have a choice. It's either that or the business goes under. Your cash conversion cannot sustain that. And so these are the types of things that we're talking about. And you're doing all of this while trying to keep the business moving forward. so understanding your cash conversion cycle, understanding how that impacts working capital,

Jon Stoddard (49:05.779)
Yeah.

Jon Stoddard (49:16.659)
Yeah, I tell you. Yeah.

Jon Stoddard (49:30.835)
Yeah.

[email protected] (49:35.5)
And then making sure that you've got the appropriate amount of liquidity to get you there is vitally important. So if you're buying a business, and 95 % of that is gonna be through SBA, if you're buying a business, make sure that when you buy that you go ahead and get that SBA express line of credit, even if you don't need it, especially if you don't need it. Like make sure you're just sitting in the back. Banks love giving you money when you don't need it. They hate giving you money when you do need it. So just have the extra firepower just in case.

Jon Stoddard (50:01.726)
Yeah.

[email protected] (50:04.362)
If you're looking at a debt service coverage ratio of 1.5, maybe boost it up to 1.7, maybe 2. Give yourself a little extra space. Do what you can. Spread it out.

Jon Stoddard (50:13.999)
I tell you what, you know Adam Coffee, man. He says don't go for any deal under two.

[email protected] (50:19.566)
Yeah, I get it. You know and one of the conversations I had with Joe Odell last in last November, you know He's a big proponent of this now like I understand the leverage buyout but one thing he did a traditional search but a lot of the people we talked to you are doing self-funded searches and You know, we know that you can lever up a 85 90 % You know, we know you can do that

Jon Stoddard (50:26.227)
Yeah, I know Joe. Yeah.

[email protected] (50:44.206)
And it's possible to find a deal that you can lever 90 % and find a 1.5 DSCR. That doesn't mean you should do it, because the riskiest deal you ever do is your first one. There is so much you don't understand about how to run a business, your temperament as an owner, the learning curve. You need to do everything you can to give yourself as much space as possible to be successful. And if that means giving up a little bit of the economic upside, fucking do it.

Because what's the alternative? The alternative is bankruptcy. just give yourself every possible advantage to win on deal one. And then if you win, then dude, deal two, three, four, five, 10, you're gonna crush it. It's okay. You don't need to get all the chips on the first play. So just give yourself some space. Leveraged buyouts are already incredibly financially tough. There's no need to make it more difficult, especially for someone who's never done one.

Jon Stoddard (51:17.363)
Yeah!

Jon Stoddard (51:31.433)
Yeah.

Jon Stoddard (51:42.633)
So this, let me ask you this. So you had this high margin business, you merged with the low margin business, that changed your conversion cycle there. You say, what would you say? Never do a deal like this, just buy another high margin business or how could that be done? Yeah.

[email protected] (51:50.667)
Absolutely.

[email protected] (51:57.964)
No, I would say that it can absolutely be done. And this is the thing, my very first point was arrogance of the buyer. If I had just taken the time, six, eight, even 12 months, if I had just taken that time to really build business number one, really make sure that our systems were solid, our cash conversion cycle was solid, our CRM was solid, everything about this business was solid. If I had just done that, and at the same time,

built relationships with owners two, three, four, and five, if I had just done that, then it's very possible that over the next 12 to 24 months, I could have acquired all five businesses, know, systematically. And done it in a way, yeah, do it in a way that allows you to actually digest the business as you bring it in, to really be very clear about what is the culture I want in my business? Who does fit that mold?

Jon Stoddard (52:38.365)
You had to give yourself a little more time to digest. Yeah.

[email protected] (52:51.822)
Have I built a platform that's strong enough to where if there's somebody who's not gonna play ball the way I want to play can I afford to just let them go without feeling that it's gonna risk the revenue of the company like Understand the you know you understand that have to take time to build the first business and then once you do that you have all kinds of options if I had just waited six to twelve months built business number one while also nurturing businesses two through five through you know building relationships with those owners and understanding their businesses

Today I'd probably be running a $15 million landscaping company in Southern California. I'd probably be doing that.

Jon Stoddard (53:24.393)
So you tried to purchase three, four, and five that you did. okay. Yeah. So you can't.

[email protected] (53:27.598)
I had LOIs out the door. Yeah. Yeah. When the business ultimately went into bankruptcy, I was under LOI with another business that was eight million. That was right across the street. And so we were, and they had just agreed to sign the LOI. like, you know, one of my very first phone calls was to them and be like, hey guys, we can't do this. Like situation has changed. That sucks.

Jon Stoddard (53:40.425)
Wow.

Jon Stoddard (53:50.002)
Yeah.

What was the conversation with the first owner, the 75 year old guy? How was that?

[email protected] (53:58.536)
It was tough. It was really tough. mean, you can imagine he'd put 40, he's a wonderful individual. He put 45 years into building this business and, you know, luckily for him, he had some other assets. So it wasn't financially ruinous, but it certainly hurt.

Jon Stoddard (53:59.955)
Yeah.

Jon Stoddard (54:13.331)
Yeah. Here's a guy spent 40 years building a high margin business, you know, and run on like small little expenses. Yeah.

[email protected] (54:21.964)
Yep. And here I go, I lever it and I crash it. So that sucked, especially since, you know, we had taken the time to build a relationship. And we had also like, you I'd met his family. We had spent time together. And then we had had those eight months ahead of time to really kind of work together. And we had a lot of optimism for the way this could turn out, you know? And so that was really unfortunate. And when things really did hit the fan,

Jon Stoddard (54:27.177)
Yeah.

Jon Stoddard (54:46.365)
Yeah.

[email protected] (54:50.72)
I went out of my way to make sure that as we were going through insolvency, I made sure that I carved out as much financial upside for him as possible. I didn't necessarily have to do that, but I did everything I could to make sure that he at least had something as a cushion on that one. But it sucks. And that's the other part that we don't talk about is that when you fail, all your employees get laid off. Your other investors get screwed.

Jon Stoddard (54:59.444)
Yeah.

[email protected] (55:18.146)
Like it's not just, you know, it's not just owner number one and owner number two. I took out, I borrowed $200,000 from friends and family, you know, like from business school colleagues, from veterans I served with. And so that's a tough phone call when you call somebody up and like, Hey man, you remember that 50 grand you gave me? Remember? Yeah. You remember how, how I told you this was going to be great. You remember how I told you, you could trust me. And then I took your $50,000 and you know, flush it down the toilet.

Jon Stoddard (55:26.537)
Yeah.

Jon Stoddard (55:33.873)
It's the NFL. It's the NFL club, man. No friends left.

Jon Stoddard (55:45.555)
Yeah.

[email protected] (55:45.718)
And the best thing I can tell you is that, I'll get it back to you somehow. That's a really tough phone call. That sucks.

Jon Stoddard (55:53.119)
Yeah.

Do you have to make amends with those people with that money or is the settlement in place?

[email protected] (56:00.834)
You don't have to. Look, mean, let's be clear. when people engage in business transactions, we all know that when you make an investment or when a business goes under, don't like, we all know the risks involved. And even if you don't know the risks involved, that's capitalism for you. So you're going to work either, you're going to learn on your own or the market is going to teach you. But again,

Jon Stoddard (56:24.381)
Yeah, I've raised money before and then somebody taught me to say this, like, what's the chance I lose my honor? And I said, tell them right up front, just say a hundred percent. There's a hundred percent chance you're going to lose your money.

[email protected] (56:34.062)
100%. Absolutely. But here's the other aspect of that. I remember I mentioned the behavioral finance part. It's like, didn't borrow money from professional investors or institutions. I borrowed money from friends and family. And so for me, it's a question of integrity. Like they trusted me with their cash. These are not rich people. And so I don't know what the future is gonna hold, but I do know that I'm gonna pay them.

Jon Stoddard (56:47.358)
Yeah.

Jon Stoddard (56:58.035)
Yeah. So you go through this bankruptcy and the settlement and the dust is a little bit settled. What are you doing now to like move forward? What's different about your

[email protected] (57:12.878)
All right, so two things I'm doing. First and foremost, I'm taking everything I've learned and trying to help current and future buyers, mostly first time buyers, understand the realities of what it means when they sign on the data line and buy a business. I'm a huge fan of buying businesses. I think ETA is a fantastic opportunity for the right buyer and the right business. But as you see, John, like everybody online out there is telling you to go buy a business and not just buy a business, buy a risky one.

Jon Stoddard (57:27.901)
Yeah.

[email protected] (57:42.72)
sign a personal guarantee, buy 12 of them, build a portfolio of businesses. And there's zero conversation about risk. We hear things tossed around like passive income and buying with no money down and 100 % seller financing and just ridiculousness. And after my business failed, I kind of pulled away. I pulled away for a few months, trying to figure things out. And around September of 2024, I re-emerged, logged on to LinkedIn.

And I was just being bombarded with this like, buy a business BS that you see from influencers everywhere. And with zero regard for the risk involved, no conversation about risk at all. And it really bothered me. It really got me passionate about it. And that's why you see me like just posting about it on LinkedIn all the time, because if you're not having a clear understanding of the risks, then you're not making an investment. You're gambling.

Jon Stoddard (58:16.144)
Yes

Jon Stoddard (58:39.219)
Yeah. You know, Russell Brunson calls that turning your mess into the message. Yeah. Yeah. There's a huge amount of risk, man. Like my business almost failed and I had this come to Jesus with my suppliers and my investors and I had about here at my house talking like, here's my plan. I need a little room.

[email protected] (58:44.514)
Yep, that's exactly it. Yeah.

[email protected] (59:01.518)
Yeah, I mean, so here's a great example. I saw a post this morning from someone who was like, you having a job is way more risky than buying a business because your job can fire you at any time. And I'm like, look, I understand where you're coming from. Like, know what? The priest of this choir, right?

[email protected] (59:23.168)
Yeah, I mean, you definitely need to understand that when you're an employee, it is right to work. You can be laid off at any time for any reason. You have to protect yourself. You have to build your own assets. But the idea that it's quote, riskier than buying a business is ludicrous because when you get laid off, obviously, you know, it could take time for you to find another business. Obviously, it's an impact to your finances and your savings and everything else. But you're almost never on the hook for personally guaranteed debt.

in associate with that business, right? Like that is a completely different playing field here. Now I'm not telling you you shouldn't buy a business, but I am saying that if someone out there is telling you that the only way for you to be financially secure is to leave your job and buy a business, then they've got something to sell you. Because you could use your income and buy some rental properties. You could invest in low cost ETFs and tax sheltered accounts. You could do all kinds of things. And it might be slower.

Jon Stoddard (01:00:10.242)
Yeah, that's just close.

[email protected] (01:00:21.42)
but the risk profile is different. But again, I mean, if you really think business ownership is for you, then take the time to find the right business that's the right fit for you, and you've done the proper risk analysis to make that as successful as possible on move number one. Don't think that it's like this panacea where things are just gonna work out, because that's the other thing we fall into. We see the low default rates of SBA loans, and we think, well, it's a done deal. It's easy. Like, over 90 % I'm gonna be successful.

Jon Stoddard (01:00:36.243)
Yeah.

[email protected] (01:00:51.522)
You know what it feels like to be one of those 9 % who defaults on a $4 million SBA debt? It is life changing. It is life changing. And those stories are in the book as well.

Jon Stoddard (01:00:59.913)
Yeah.

Jon Stoddard (01:01:04.125)
Yeah, fantastic. So what was the name of that book again?

[email protected] (01:01:08.536)
So it's called buyer beware. It's on pre-sale now, but it'll be launched this fall right around Halloween. We're trying to line it up with the HBS conference.

Jon Stoddard (01:01:18.335)
Awesome. I'm going to put the link to the book in the notes and the YouTube and my site. So, Jen, thank you very much for sharing your story. I really appreciate that. Words of warning.

[email protected] (01:01:30.168)
Well, thanks, John. Thanks for having me. I appreciate it. You know, like I said, some people, sometimes people look and see what I'm doing online and they think that I'm against the buying a business space. And I'm a huge proponent. I'm just against the rose colored glasses that it feels like everybody's looking at it.

Jon Stoddard (01:01:46.577)
Yeah, it's just like a lot of the click bait stuff that you say, you know, going from, a hundred percent seller financing to there's no risk that there is there's huge and you've got to understand or mitigate the risk or, like just say no, it's better to just say no.

[email protected] (01:02:02.242)
Yeah, just say no. Yeah, you mitigate as much risk as you possibly can. You understand that there's always risk and you can't mitigate all of it. And then you also understand that the worst deal is a deal that's a bad deal. The worst deal is not stepping away. The worst deal is a bad deal. And so here's a great example. I run into people all the time who are hoping to buy their first business and they're totally fine. They don't think twice about signing a personal guarantee for three, four, five million dollars.

but then they stress about spending $20,000 on a quality of earnings. That is a fundamental misalignment of risk. You can't spend $20,000 on a quality of earnings, but you're ready to sign for three, $4 million of debt. And if your answer is, I don't have $20,000 cash for quality of earnings, then my argument would be you're not ready to buy this.

Jon Stoddard (01:02:49.417)
That's right. Yeah. Hey, I do have one more question before we go. Did you have mentors or advisors that you could go to during this? Yeah.

[email protected] (01:02:57.442)
Yeah, yeah, I was lucky. I had a lot of great mentors and advisors. Like I said, I had spent a lot of time reaching out to searchers who had been successful. And even when I pivoted into landscaping, I reached out to a couple different people who had bought landscaping firms as ETA searchers. And they were really, really helpful. That's one of the things I love about the space is that, you know, there's a lot of people out there who, you know, if you message them, they're more than happy to hop on a call with you and talk to you. Now, granted, it's a lot better now.

I mean, when I started, know, there weren't like, you know, the ecosystem has grown so much, you know, with the involvement of like small business focused law firms and CPA firms and quality of earnings. Like there wasn't a lot of that even five years ago. And so now the space has grown so much that there's, there's so much professional service. Yeah.

Jon Stoddard (01:03:43.293)
Yeah, there's new asset classes too. Yeah. New asset class for down payments. whole bunch of new service offerings around that. Jed, thank you so much for being on the show.

[email protected] (01:03:51.682)
Yep, exactly.

[email protected] (01:03:56.248)
John, thanks for having me. Pleasure to be here.

Jon Stoddard (01:03:58.367)
All right, let me...