Ellen Rohr and Howard Partridge | Buying and Selling Home Services Businesses
Josh Smith (00:07):
Josh Smith (00:08):
Hello everyone. Welcome back to the sharpest tool where we take the sting out of marketing. My name is Josh Smith. I am your host and the vice president of marketing for home services over at scorpion today. We're welcoming back two amazing guests. First, we have the COO of zoom drain franchising, LLC, and business marketing makeover, expert Ellen Rohr. She has a whole wide variety of experience in working in and consulting home service businesses and as a contributor to many business journals and magazines such as Wells Fargo, HGTV, and plumbing and mechanical magazine, and a frequent contributor to the sharpest tool. So welcome Ellen. It's good to have you back. Hey, and second, we have international business coach and number one, amazon.com bestselling author and conference speaker Howard Partridge started his first business really out of his trunk of his car, turned it into a multi-million dollar turnkey enterprise, his own nine small businesses and helped other small business owners for over two decades. Howard, welcome back to the sharpest tool. Good to have you good to be here. Thank you. So last time we had John was a little bit earlier this year. How you both banned?
Ellen Rohr (01:15):
Well, my hair's longer. I've got four here.
Josh Smith (01:20):
I've managed to get a haircut here and there. Somehow I am a nominal. Of course my wife is getting her modern hairstylist ons. One thing I love about my wife is like being married to my wife. She can play all these roles that she kind of was like, oh, I want to be a hairdresser someday. I'm like, cut my hair, go for it. Knock yourself out
Ellen Rohr (01:38):
Your hair. Looks great. Thank you. That will give you your wife. Yes.
Josh Smith (01:44):
Yeah. So today we got a really, uh, exciting and quite honestly possibly a stressful topic for some business owners who are listening depending on where your company's at in their growth, that is growth through acquisition. Now I know this, this is going to hit home with some business owners and to others. It might be this kind of pipe dream, or it might be something that has been talked about, or maybe they're even being looked into as being a company that's acquired. And so I think this is a really important thing for us to discuss. I've seen no shortage of businesses, turnkey businesses are coming in and they're buying up home service businesses and kind of pooling them together. It seems to be a very, fairly recent phenomenon that we're seeing a lot more of. So let's just, I just want to kind of kick it off and get each of your thoughts on this and how it pertains to the current landscape for small businesses. Alan, let's go ahead and start with you. Oh,
Ellen Rohr (02:33):
I love this topic so much. Thanks for, for having me come on and explore this. I love what you said about, um, the two sides of the coin, one being buying companies and the other being perhaps selling your company and now is a perfect time to explore this and what it takes to be someone who can acquire companies, a consolidator, as well as set the stage to open yourself up to the maximum number of wealth building options. We have a common mentor, Howard, Michael Gerber says you want to build your business so that you could sell it. And then you may not want to. So what are companies buying? What do you want to buy? These are good questions to have. So just to, just to kick that off, to sell your company someday, what they're looking for bay, you know, people who are buying companies, big corporations, private equity, venture capitalists, publicly held companies.
Ellen Rohr (03:26):
They're looking for cash and profits predictably consistently turn key. The more you can do to set your business up, to check off those boxes, the more valuable your company is. And if that's the case, if you accomplish that and you might just want to keep it because what they're buying is that cash and profit that you're generating. Now when you're buying companies, I like to think of it as well. I want to introduce this topic. It's so multilayered, but as we buy companies at zoom drain, what we're looking at are the maybe undervalued houses in a great neighborhood. COVID certainly made a big impact on so many businesses. And right now there are business owners who were like, I've had it forget about it. I don't want to do it anymore. And they may have built something. That's not quite sellable to one of the consolidators or private equity, but it may be a perfect fit for you that if you could buy those calls, maybe have a couple of cool people in their company decide to work with you. You may be able to quantum leap your company. So very hot topic. And I liked the way you introduced it as being a little intimidating. I find that to be true as well, Josh, so let's make this a little less frightening. Shall we? Yeah.
Howard Partridge (04:43):
Yeah. Howard, what are your thoughts? What do you even begin when it comes to this broad topic of acquisition? Well, I've learned so much about this from Ellen. And the thing is, is that I learned that after I acquired companies and I would have been able to do it better and easier simpler if I had done it after learning from Helen, but, uh, what happened with me and I think the biggest reason that service companies ought to think about this, especially right now during COVID. I think Ellen's exactly right, is that a lot of people weren't ready for COVID-19 if you have a strong service business and you know, you've got a solid client base, you have repeat and referral business, you're positioned well and you know, you've got good leadership, good infrastructure, all that kind of stuff. You probably didn't suffer as much. Uh, you know, there's always going to be these storms that come like the recession.
Howard Partridge (05:41):
There are many people that went out of business or they just sold because they weren't able to survive. And so having a business that strong financially and it's predictable is so, so important. But the fact is is that like Ellen said, other people haven't been that fortunate and creates a perfect opportunity to acquire. Now, the biggest reason in my mind to acquire another company is the client base instant increase in revenue. And what I've learned from Alan, and what I've learned from experience is that you don't have to shell out a bunch of money either. There are many, many ways to do this, where you can grow through acquisition and get all these different benefits in addition to the immediate growth. So if I acquired someone, let's say that's doing a million dollars a year. I just increased my revenue by a million dollars instantly. Now what you'd pay for that and knowing the numbers that some of the ins and outs of, of all of this, I do also know from the other side of it, companies that have tried to acquire us, one of the things that they're looking for is growth opportunities. And so that's one of the things you want to look for also, but it's not hard as simple, really, when you understand just a few things about it, which again, I've learned mostly from Ellen. Yeah.
Josh Smith (07:14):
Yeah. Alan, I want to toss it back over your way. How do you, how do you know when the timing is right? Let's take the angle of the business owner. Who's looking to potentially acquire a potentially to get in, into somebody else's book and acquire a business to kind of bring it all under one umbrella, or even operate to two different businesses. How do you know when the timing is right? And as a subsequent step, how do you get the conversation started and, and finding somebody. And then once you find a prospect engaging in a conversation,
Ellen Rohr (07:46):
Um, the reason you would acquire companies is really for that client base, the ringing phone. So who isn't doing marketing, it's the ultimate marketing play. So, you know, the idea of acquiring companies is really so that you don't have to spend that marketing elsewhere. So what is the time? Right. Always, always fishing, always looking if I, you know, and we're doing this with zoom drain, if we want to go into a new market acquisition right now is our strategy on minute one. As soon as we decide the letters, go out, the phone calls start being made. We start nurturing a list of people who might want to have this conversation. So our recommendation is that you get a list together. You make up that list, you get it from a list service, or you go through, um, search your market area for your competitors and you assemble a list.
Ellen Rohr (08:40):
And then you're going to reach out and try and make a friend. Now what could happen. So if you have a list of say 30 people on that list, and you start calling them up and saying, we're looking for strategic partners, I'm looking to grow my business. I know you've been in this area for no bad thing. This is, I got this line from Al levy. No bad thing comes when a couple of, uh, smart contractors get together and have lunch. How about if I treat and let's talk, and what you're looking to do is find a friend Zig Ziglar says, you can have everything in life you want, if you will just help enough other people get what they want. So you don't have to have any pressure on this. You just want to meet people. Maybe they'll become a referral partner. Maybe their kid wants to come work for you instead of their dad. Maybe you could turn them on to another resource. And those relationships are where these acquisitions will ultimately come from. So that's why I, you know, we can really take this thing out of it now, by reminding you that this is just about making friends, it's just about making relationships. So that's where I would start put a list together and start fishing that list by seeing how you could be of service to the people on that list and go from there at some point, someone's going to say, why don't you just buy my company?
Howard Partridge (09:56):
You know, as I was learning from Allen, I had an experience. I did that. I sent out a bunch of letters and everything got a bunch of calls. And there was a, this one lady that I met with and this horrible divorce story and everything. And I was like, I don't want this business at all. And, and, but what happened was the husband eventually took the business and whatever, but she needed a great place to work. And she worked for me for like seven years. So I got a phenomenal part-time employee out of the deal that already knew the industry. So even though it was an acquisition of a company, it was acquisition of a great person that could help us. Yeah.
Josh Smith (10:38):
Howard, how do you, uh, evaluate some of the problems and reasons why a company wants to be acquired? Like what should,
Howard Partridge (10:46):
Well, what I learned from Allen is cute. You keep
Ellen Rohr (10:52):
Learning from everybody else too.
Howard Partridge (10:53):
I've learned so much from her, but I look for two things. First of all, I don't make any assumptions. One of the things I learned from Ellen is just have the conversation, because you never know, there may be a debt issue. There may be a marriage issue. There may be who knows what the issues are, but here's one thing that I do know. I do know that most small businesses, most service companies, don't market to their existing clients. So I know that if they've got a decent service experience, that I can immediately double that business just by marketing to the client base also know that they're probably not doing referral marketing so I can find the people who are referring them and I can start building a relationship with those referral sources. So I've got two immediate strategies that I can implement and probably double that business in a very short amount of time, because know people aren't doing that some business owners are, this is so typical.
Howard Partridge (11:57):
And going back to Michael Gerber, you know, his whole thing about the technician had an entrepreneurial seizure decided to go on the business for themselves, but they're really a technician. And, uh, they they're great technically, but just running a business is that their thing, they don't understand leadership. They've got employee problems and they just want that headache off their plate. So they're down right now. COVID-19 they're down, you know, 20%, 30%, 40%. They probably, unless they've studied Eleanor's financial systems, probably not weathered that storm very well. And when that PPP money runs out, then, uh, they got an issue. So what I'm looking for is the opportunities I'm looking for. Are they marketing they're cloud based? So they do on referral marketing. Is it profitable? Can it be profitable? And when you understand how to read the financials and figure out, you know, what's going on with that, it's really simple math at that point. Can I, if I can increase the revenue and increase the profits, what do I have to pay for it? And there's many, many different ways to compensate someone for that opportunity.
Ellen Rohr (13:15):
That's a good point. Now, when you, when you go to the other side of the coin, this is going to be very general, but $5 million in total sales with really solid double digit net profits, turnkey, systematic, there are a lot of people knocking on your door right now, if you're in that position. And on that side of the coin, you're going to hear terms like EBITDA and traditional valuation systems. On the other side of the coin, you know, we got a mom pop shop. There may be all those issues that Howard talked about, a troubled company, ready to go. You can get very creative with financing and it comes down to most of those deals. You can create an owner finance arrangement because it can be very advantageous for that retiring person, for instance, to take a, in an income stream instead of having a lump sum of money.
Ellen Rohr (14:07):
So no matter where you are, you know, I don't have enough money to acquire companies. It imagine a marketing tool where you only pay for results. You don't have to pay if the sale doesn't come in, you can create arrangements like that. That are gosh, PERT near foolproof. When it comes to some of these relationships, if you're willing to seek first to understand then to be understood, as Stephen Covey says, you know, one tip I'd like to give is that zoom. We have crafted manuals cause we're into manuals and systems and procedures. And it's been colored very much by Allie V and my partner, Jim Canadian, all the acquisitions I've been privy to over the years, which is a whole bunch. The more you automate the system, the better results you're going to have for it, because what will happen. It's kind of like if you lose a good service tech leaves and you think, oh, I better start recruiting.
Ellen Rohr (14:57):
Well, you're behind the eight ball at that point. So the same with acquisition. If you've got these relationships going, there's no pressure. You don't have to say yes to any deals, but when they, something changes in their life, you're at the ready suppose this happens. And it will, if you do this, you call a bunch of folks and someone gets insulted that you would call them and ask to buy their company. What do you mean? I'm not for sale? What's this about? That can happen. That might be one of the reasons why you, dear listener might not want to do this, but you're going to be polite and loving and, and uh, soft in this approach. They will have heard this. You go out to lunch and you say, we're looking to buy companies. I don't know if you've got an exit strategy or you might be interested in exploring one and they're put off by that.
Ellen Rohr (15:43):
They go home and they tell their partner about it. They're forever changed. They have a door that on a bad day, someone's going to bring up, why don't you call Ellen back? You know, just see, you know, that you've planted that seed. And that's why systematically, you're sending out letters. You're making phone calls. You're having these lunch meetings. You're developing these relationships because you know, it's like fishing. You could throw a one line in the water and hope that somebody finds that some fish finds it, or you could change your laurels. You can throw some more lines in and you can just keep this actively going. You can change the pond. You're fishing in. I could go on with that cliche for a while. So let me turn it back over to you.
Josh Smith (16:28):
Yeah, no, that's a really good thought. And you know, the other thing too, that I think a lot of business owners might face it, they might be thinking is like, if I acquire this business, what's the best strategy for incorporating it? Do I incorporate it into my current operation? Do I keep it as a standalone? Under what circumstances would you want to potentially merge the business with your existing business versus keeping the brand and everything separate, um, Howard, I'll jump to you for this one.
Howard Partridge (16:55):
Well, I can just tell you what I did. As I was thinking about this episode. I was reminded that the first acquisition I made was, uh, my supplier. So when I first started my business, I was buying these supplies from this one place. And it was a small company. The guy ran it by himself and I was as big as customer. And when I found that out and I found out what, you know, I can buy the supplies from what, uh, for, and, and where I could get them from and all that I decided to buy the company. He sold the company to me. I paid them a certain amount of money on a promissory note. I think it was. And so I immediately got this huge discount on all my supplies. So cause I'm getting direct from the manufacturer. It didn't even matter if I sold anything to anybody else.
Howard Partridge (17:46):
And then my service company, when I first started it myself, out of the trunk of my car and I built it up to, I was doing a whopping $360,000 a year. Yay. Well, if you're doing $360,000 a year, good for you. And I don't want to be little that okay. Because, but if you want to grow, you can, there's lots of different ways to grow. And I had this vision for like the ultimate service company and I started networking with some other guys in the associations having this conversation. And one guy in particular, we decided to merge and, uh, I actually acquired his company. Another guy heard about it and he said, I want to get out on the party. So I took on two partners at one time and I kept them under my brand because my brand was more well-known. It was more polished and all of that.
Howard Partridge (18:43):
And together, I think they were doing about a hundred thousand each. I was doing about 360. Let's say so, whatever the numbers are on that 560,000, we went over a million, immediately went to over 2 million. And I ended up taking that, those, those two, about $4 million. We did almost 4 million last year and I've bought them out after eight years. So they got a great deal. I got a great deal. And that company is turnkey today. And along the way, I bought another little company just to acquire his database. And so along the way, I've done a lot of those kinds of things, but I really grew, uh, initially. And the cool thing about that first merger was I got an office manager partner and I got an operations manager, a partner because I was the marketing sales guy. I knew I couldn't do it all now.
Howard Partridge (19:36):
It was great. And uh, you know, I've done a lot of joint venture type things through the years that weren't exactly mergers or exactly, uh, acquisitions, but same principles apply, you know? And so if you want to grow, this is like one of the best ways you can do it. It's instantaneous. You just got to make the right financial deal. And so you need to understand the numbers and you need to understand the marketing and sales and like you'll look at some companies. And, and the reason I know this is not because I've acquired a bunch of companies, but because I coach small business owners and home services every single day. And, uh, what I know is that some businesses, some service companies, they have like this humongous account, you know, they lose that one account there, suck, you know? And so you want to look for predictable revenue that comes in day in and day out. And because again, because they aren't doing some of the things they need to be doing, they're not going as deep into that. Well, as they could be, and we know how to
Josh Smith (20:47):
Do that. Yeah. You guys are almost convinced than me. I need to start acquiring some more.
Ellen Rohr (20:52):
Yeah. Every time I talk about it, I'm like, this is what I'm thinking too. We need to do more and more and more like any human be. It can't be systematized. As far as the branding goes. I'm so sold on my brand. I mean, I never say never because I've eaten that word several times. I don't see in our strategy how it would be of service to us to commit to another brand because you've got to do the manuals and the, the standards and you've got a market. And now, you know, our strategy is going to be to bring those people into our brand. But I will tell you that it is an emotional conversation. You know, some of these companies it's daddy's name and his daddy before him. So I think you can have the conversation. You can be clear on the intention that the advantage of this deal for us is that we're going to increase our market share.
Ellen Rohr (21:46):
Uh, let me pause long enough to say, I understand there may be some grief about losing that family name and at least acknowledging that as part of the relationship. I think too, this is kind of a sad fact. Most customers are not as loyal as we hope they are. If they called and they were looking for Bob's drain cleaning, and now Bob strain cleaning, zoom, drain cleaning. This is how it usually goes. We'll answer the phone. Good afternoon, zoom drain cleaning. This is Ellen. And they say, isn't this Bob's drain cleaning. And we would say, you've called the right place. Bob has worked out an agreement that I'm going to take really good care of you and he's going to retire so he can see his grandkids. And he wanted to make sure he found a partner who was going to take really good care of his customer.
Ellen Rohr (22:30):
Tell me what's happening. They don't pause. They don't even pause. It's kind of, it's almost heartbreaking to a degree that they get it. They like Bob. They might even say, is Bob still around? How's he doing? But they've got a drain problem. You know, this is where, if you don't take care of your customer, they're gonna go elsewhere. They're not gonna just wait for you. Is one of the things that we have to deal with in this industry. And I, I, you know, just an encouragement, don't neglect to be kind and empathetic, but if that doesn't fit your strategy, don't start building two brands because that can be a lot of wasted time and energy.
Josh Smith (23:10):
Yeah. That's, that's really, really good practical advice. That's one of the things that is a constant point of confusion of reason why I've seen business owners, they buy a business and then they want to merge, but then they're nervous about it. And that's such a good way to put it. Ellen. I want, there's so much good information here. I know we could go on for another hour. I want to, I want to wrap this up with a really, really solid boat because there's a lot of business owners that get into it. Maybe they were, they grew up in the trades, it was a family business, or they don't think about a lot of this aspect of business. When you think about it, what are some things that they need to be aware of when they go into the negotiating room and they're at the negotiating table, I know nobody wants to be undervalued, but they want to make sure they're getting a fair deal. If they're selling, or if they're buying, they want to make sure they're getting the best deal. What are some of the things that they need to be aware of that were maybe common pitfalls that you weren't aware of in your first deal that you started to learn after the fact, give us some practical advice there, we'll start with LNM, we'll wrap up with our
Ellen Rohr (24:11):
It's a sale. If you're trying to buy a company, think of it in terms of the sales process. So find out what's needed and wanted. Is it that somebody is going to take good care of the team members who choose to work for you or their customers, or just make the pain go away? No, what is it that's needed and wanted for some people it's the money. And they may have a, um, inflated idea of what their company is worth. So when you're at the table and someone says, I've got 360,000 in sales, and I would walk away for a million dollars, just write that number down. That's what they want. And don't disrespect them. Don't say, what are you kidding? There's nothing there. Are you crazy? In fact, if you say anything you might say, well, you've probably put $10 million worth of blood, sweat, and tears in that business.
Ellen Rohr (25:01):
And I appreciate that. And you write down a million dollars now, maybe you're just going to buy their ringing phone. And for that, you might pay them a percentage of sales on that phone number or a flat rate of $20,000. And that's your offer. You might come back and say, I know you want a million dollars if I were in a position to do so, I would do that. This is what I can do. Here's how you may be able to maximize some more wealth out of your company. And you let them decide, maybe even put a little timeline on it. I'll continue to market at your all. Continue to look for companies. You have 60 days to take a look at this and see if it works for you. I mean, no disrespect that moment. I tell you what so many people blow it at that moment and then end up with an antagonizing, a relationship by just being disrespectful, right? So like, just do what you can do, put an offer on the table. Don't come up with the offer on the spot. But when you do come up, so you deserve that. I get it. And here's what I can do. And then go from there. Does that make sense? Because that's where a lot of deals blow up. Is this idea he's crazy. I'm never going to, so what it's okay. So come up with an offer and see would happen. Have you ever sold a piece of real estate for less than you hoped?
Ellen Rohr (26:11):
Yeah, we all have. So Howard, you can give the last bit of golden wisdom here.
Howard Partridge (26:19):
Well, I started thinking about all of our coaching clients that we've helped through this process. And so I've done it more for other people that I've done it for myself, but it really comes down to what do they want and what do you want? It's simple as that. And if you just approach it from that mindset that let's get the ego off the table, like Ellen said, just forget that and just figure out what they want. I mean, making an agreement with someone that benefits both parties, it was just simply about let's understand what each person wants. Uh, have a client and started with me at $250,000 a year. That's almost, they were doing, they grew to three and a half million dollars a year. And using our programs, they just locked out the competition. And one of their big competitors came to their office and said, I don't know what you're doing, how you're doing it.
Howard Partridge (27:19):
But I got to have this company and they had a big, big check in hand. And my buddy looked at it. My client looked at it and he said, Howard, it was a big check. He said, but one thing I learned is don't ever say yes on the spot. He said, if you really want this company, come back with a bigger check. And they did. And it was a humongous check. What did he want? He wanted to make sure that if you're going to buy me out and I'm going to be out of this industry and I'm going to go do something else, it's gotta be worth my while, but everybody wants something different. Maybe they want to just get rid of the debt. Maybe they just want to get rid of the stress. Maybe they want to go do something that they've always wanted to do. And just never had the opportunity. I have another client. I mean, COVID-19, he's got two businesses. One of them is wrapped in way up and the other one just completely died and COVID-19, and he was struggling with this. I did a coaching call with him and I was like, Chris, do you see what's happening? Because he rebuilds something very important to me. And that was that he never liked that first business to start with.
Howard Partridge (28:37):
And he always wanted to do something else. And it does read a book that I sent him about, uh, Ben, you know, midlife crisis and everything. I said, your dream is right here on the table on a silver platter. And he was like, oh my gosh, he didn't even see it. You see? So you just find out what they want, be clear on what you want. And that's so important is that we have to have clearly defined goals, really understand the why behind you even want to acquire another company, you know? And it needs to be about more than money. Yeah. Right. And if you're going to be acquired and needs to be more than about money, I've got a guy pursuing me right now. And I'm just, you know, to buy my service company. I'm just like, Hey man, for a variety of reasons, I don't want to sell it. A few extra zeros in my bank account are not going to make the kind of difference I can make in the lives of those people there, you know? And so he's going to have to really get creative to acquire my company.
Josh Smith (29:43):
Yeah. Yeah. Well guys, this has been awesome, really helpful, powerful advice, Ellen working, where can people find you and learn more about if they have questions? Okay.
Ellen Rohr (29:54):
Um, to zoom drain.com, Ellen firstname.lastname@example.org. And, um, I'm happy to answer questions and, and, uh, be of service to everything Howard said was like, oh, I wish I had said that too. I'm so glad you're here. We were a good combo today, Howard.
Josh Smith (30:11):
Ellen Rohr (30:12):
I mean, we both learned a lot and well, I learned it from a lot of other folks too. So shout out to the folk, but I love what Howard said about too, about finding partners, like the sum, the deal to take all sorts of shapes and sizes. But I know some really awesome deals where that synergistic moment after the acquisition and this company really takes off new manpower comes to play. It's so exciting. So yeah. Very cool.
Josh Smith (30:37):
And Howard, where can people find out more about you and getting
Howard Partridge (30:41):
[inaudible] dot com Howard parches.com opt-in and we'll take you on the path of phenomenal success and business and life. Awesome.
Josh Smith (30:52):
Well, that's a new tagline. He's been working on that one for you, Allen.
Ellen Rohr (30:59):
Josh Smith (31:01):
Thank you. Thank you both for being here. I appreciate your time. And I know our listeners do too really appreciate it. And everybody listening definitely hit the like button wherever you might be listening at and to hit the subscribe button. So you can continue to get more of this awesome content, getting pumped out to you by the sharpest tool. And if this a, there was a lot of valuable information and step. So you found it valuable and you know, somebody who needs to hear it, definitely share it around, tag your friends and be sure to leave some reviews over on the iTunes channel. Some more people can get in contact with the sharpest tool where we take the sting out of marketing. So that way you can help elevate and grow your business, hitting all the goals and longterm objectives that you're hoping to do from all of us here at the, so my name is Josh Smith. We'll talk to you soon. Thanks.
Josh Smith (31:49):