Nick Haschka
@NickHaschka
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Co-Owner @ Wright Gardner, LLC and Cub Investments. SMB-focused investor, tech+process builder and business efficiency fanatic
Los Gatos, CA
Joined April 2014
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ok folks... ideas for an SMB focused acquisition fund have been flying around a bunch on SMB twitter recently, with lots of discussion of the limitations of SBA, potential around SBIC, challenges of scale, operational traps, etc. Here's our current best strategy thinking ....
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[In case you haven't yet realized it ... this is a joke]. I left out the parts where half your staff quits, your 3 largest customers fire you, your accountant embezzles money, and your laziest, most incompetent employee sues you for looking at them funny. That's for another day.
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Want to know how to turn a $10k investment in a small business into $10M in 10 mo. It's damn easy. Here's how.
A thread —>
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Going to do a little SMB acquisition deal analysis in public. Based on searcher exchange ... 👇 Would love other thoughts...
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You're looking to buy a company and trying to understand: what are this seller's options? How is s/he evaluating and comparing them? Ever wish you could peak into the seller's notebook? Here's what I think I'd see...
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We are just about at 5 years since we initially decided to find and acquire a Bay Area blue collar small business from a retiring owner using our savings plus an SBA loan.
What’s changed since that decision?
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if you own-operate an SMB or portfolio of SMBs that you acquired - request to join our private operator network where you'll find others who do the same. Here you'll get access to articles, posts, and messaging with other operators.
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Thinking about rolling up commercial landscaping because of that sweet sweet recurring revenue? I was and bowed out early by exiting to a larger local player after 2 years. Here’s a list of non-obvious things I learned…
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Today we sold the commercial landscaping co we acquired exactly 2 years ago. I’ve written some about this over the last 2 yrs but I’ll write more about the details of the journey, learnings, mistakes, surprises, and successes soon. But now I’m gonna go consume liquids 🍻🇺🇸 🍾🥳
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You started in I-banking and just left your PE fund to pursue search acquisition. You've got a name. If not, try the following recipe: [Color] + [Name of a street you lived on] + Capital. I'm Blue Malibu Capital. Good name, right?
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Some folks have been posting asking for the ETA non-success stories no one writes about. Here’s one. ETA operator called me yesterday to catch up.
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People often ask me about Personal Guarantees (PG) in small business.... so, a few thoughts...
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People often ask me what my search criteria are. My current best simple answer: I want to find SMBs where the current owner is holding it back, not holding it together.
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Here's my best estimate at generalizing the search acquisition timelines in different ETA business models. The 4th emerging model seems to be the funded holdco which takes some of the advantages of each model, and should have a timeline somewhere in between.
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Today we closed our first landscaping add-on. Best part was that the seller was the younger brother of the seller of the our first landscaping acquisition. Now after 40 years of competing head to head, Dan and Andre (de)Vargas are no longer competitors.
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One thing I took from my time in strategy consulting: successful companies grow more by being where growth is than by competing harder or better. Put another way, it’s more important to be IN a good business than to BE a good business.
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ETA Myth Bust
#3
- Very small businesses have too much owner dependence to transfer.
This is conventional "wisdom" that gets people filtering out companies below $1M in EBITDA from consideration. I think it's often wrong.
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Wrote something new 7+ months ago. It was too ambitious, then realized thoughtful and published, however incomplete > unpublished. This documentation is all for my kids anyway...
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Survivorship Bias is IMO THE key thesis of acquisition entrepreneurship. By acquiring a business that has endured, you skip a lot of risks startup entrepreneurs have to survive - market, product, fit, timing, etc. But whats’s underneath it? A thread—>
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I finally spent the time to compiling our content along with all my favorite SMB resources I've discovered in the last 6 years into a single library. Check it out... - DM me with any good links or suggestions in the comments!
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Just talked to an ETA operator who caught a mistake in their SBA 7a loan docs before close: lender had slipped in a variable rate when the initial approval letter had a fixed rate. But, he caught it before signing and made the lender fix it. Read your docs folks! 😅
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As SMB owners, this is how we think about our business improvement cycle at the most basic level. We are constantly evaluating to see where we are weakest and where our best and easiest opportunities are, then focusing attention there. Focusing on all three is not focus.
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Fixed our general landscape laborer application-thru-onboarding process today.
For a year it’s been a manual, error proned, inefficient, highly redundant, and unreliable process. No more.
Wish I would have tackled it sooner.
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Who’s in the market for SMB debt? It’s crazy out there and I went down a multi-month research rabbit hole trying to find all the best loan options and lenders for ETA folks. Now I’m making my findings available to you all ->
Via Collab w/
@SoraFinanceUS
@strickland_dan
here's a longer term lookback on a larger dataset, but narrowed to acquisition loans rather than all 7a loans
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EtA Myth Bust Series
#6
- If I buy a business that's too small, I'll be trapped working in the business.
I hear this over and over when I tell searchers they're looking for something too big for a first acquisition. I think it's (H)BS caused by the HBS CityWide Case.
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1 yr ago we acquired a portfolio of hotel+restaurant monthly service accounts. Within 3 weeks 93% of what we acquired was gone. They say experience is what you get when you don't get what you were hoping for. This one is experience I'd be okay not having.
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1/ Acquisition entrepreneurship is a lot like buying a house. Once you own it, you can change anything and everything about it, except the neighborhood you're in. If you're thinking long term, sometimes it pays just to get into the neighborhood and figure out the rest once there.
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Looking to do some industry and general background research on a specific small biz or type of small biz (e.g companies that do X)? Here's a unique data source that is ridiculously valuable and most people don't even think to look .. FDDs! 🧵...
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The greatest feeling of smallbiz ownership is when you see potential in a team member that they never even saw themselves, you empower them to grab it, and they nail it. It’s not always obvious when it’s there - you have to really look, experiment, and observe.
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If you're searching off-market for small businesses to buy, or are generally just curious about private businesses and like to snoop... check this out:
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💩 seriously hit the fan today in a demonstration of SMB fragility. We're talking like near March 16, 2020 type of lows. You'll have to join the operator network to get the gory details.
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Just built my first automation in
@Integromat
- I think I might be in love - any other SMB owners out there already using it?
@nocodedevs
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I’ve got a draft paper proposing a new valuation framework for self funded search equity investing… who wants to read and comment? DM me your email.
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ETA Myth Bust # 9 - Conventional ETA wisdom says to get the biggest company you can get a hold of in your first acquisition, and put as much leverage on it as the deal can support.
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If
#SMBTwit
bands together to form a captive mutual P&C insurer (like a credit union but for business insurance), who’s in and ~how much premium can you bring (total $ per year for all lines)? I’m in for at least $70k/year
@WilsonCompanies
@kelceylehrich
@Sam_Rosati
@DevinWanzor
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I'm going to post a series challenging some emerging (or well entrenched) acquisition entrepreneur conventional wisdom. Will refer to as ETA myth busting here. Idea 1: "the deals are better off market". Interested in additional thoughts on why this is bad advice. My take...
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For searchers structuring preferred equity deals: 8% coupon needs to be 10% or prime+margin floating. Conversion to 20% common doesn’t work anymore. Recommend switching to an MOIC-based waterfall.
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We’ve been focused on retirement succession buyout deals for 6+ years. Overall, 12 deals later, I’d call it a success. But times change.
It’s time to pivot. We’re now looking for partnership buy-in opportunities with younger owners.
Leads, suggestions, intros welcome!
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Ever wonder, do deals like this get done? Who makes those loans? What are the terms? SBA publishes 7a data under a “Frequent FOIA Requests” section of their site. This is a treasure trove of data. scroll to the very bottom for the good stuff!
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Raising money (or planning to raise money) from LPs for your SMB acquisition?
There’s a bunch of stuff you should do to put your best foot forward…
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This week we acquired and began running
@onpointgen
’s first acquisition: Conte’s Generator Service - w/ the one and only
@DFergoosin
serving the Monterey Peninsula and beautiful Central Coast. Thanks to all the investors here on X who helped build this thesis and believed in us
I love the 1-chart business concept -
@thesamparr
@ShaanVP
- working on an acquisition venture in backup power - here's my 1 chart. DM me if interested in learning more - looking to meet LPs, esp newer folks interested in investing in the
#SMB
space
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The biggest theme I’ve heard over the past week from talking to other SMB operators is the difficulties of solo search+acquire+operate. Biggest problem? It’s lonely. I ran the same partner vs go it alone models as everyone else and threw them out. They all say to go alone. —>
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Numerous self-funded search LPs in my orbit are pulling back & halting, rethinking, or pivoting entirely their search investing model. I'm seeing more investors moving to majority control deals that look more like a traditional search fund structure or full own-operate w/ GM
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We're looking for early career professional to join us in the Bay Area for a finance+ops+admin+support role to work across our SMB portfolio. 1st holdco oppty of its kind! Huge growth & learning potential. Know someone? Plz RT or refer. DMs open.
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Searcher pro tip - use your state's secretary of state website to figure out who the owner is, exact legal names, corporate history, and other useful to know things about a business. I use this site at least once a day for intel gathering -
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I’m increasingly convinced that searchers with a narrow thesis-driven and industry-focused search are more likely to succeed.
I’ve seen it several times now and am experiencing first hand. 🧵 —>
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After 8 weeks waiting, finally got an opportunity to snag a work truck. MSRP: 29K, dealer offer: 42K take it or leave it.
This is only going to get crazier until supply comes back and the backlog clears. My guess is 18-24 months
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ETA myth bust
#2
:
The very small businesses (e.g. <500K SDE) have insufficient infrastructure to transition and are generally just one-man bands (and I don't play any of those instruments)
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I’ve been complaining on here recently about used truck madness. Just sold my ‘13 Civic Lx for 12,700. Bought new for 18,200, we drove it 80k miles over almost 9 years. <$.07/mi of depreciation. Hard to beat that!
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In general I really like business services, but one corner I can't stand is servicing HOAs. Here's why. Imagine you have a group of 100 customers. They form a committee to manage the service providers and appoint the 3 most outspoken and available people to represent them.
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Hey SMBTwit - We're recruiting for an Operating Partner/CEO/equity partner for our Bay Area commercial landscaping venture. It could start as soon as Jan 1. If interested, fill out our interest form:
It's going to be a fun ride 🚀
Plz Like+RT 😎
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There’s this guy occasionally in the Saturday spin class I attend. He’s an animal on the bike. His energy is infectious. I noticed it the first day I ever overlapped with him in class. Since then I started tracking. When he attends, my total kW output is +10-15%. The class is 20+
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Today we lost 2 great landscapers who came to us early in the pandemic desperate for work after being laid off from their jobs as chefs. We trained them and they worked their butts off for nearly 2 years for us. Sad to see them go but happy they’re back doing what they love most
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…. Then today happened and 0 of our 3 new hires made it to work on their start date. 💩🤬🤢
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If you run an SMB and you aren’t raising prices right now or aren’t at least preparing to raise prices right now, let this be your warning - take a deep breath - you’re gonna have to raise prices.
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We’re looking for a COO for a new SMB platform in trailer distribution in NorCal. Will work with me and
@mcrandon
on the ground in the Sac/Lodi/Stockton area. Any ETA-curious operators out there looking to jump aboard and learn SMB leadership? This is gonna be a good one! DM and
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@threadreaderapp
@karloteran
@Sam_Rosati
@BrentBeshore
@NepFin
@ConorNeu
A few people asked so here's a more detailed overview of my thoughts on this.
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Getting into 2021 ops planning reminded me how much I love checklists. I want there to be a thorough checklist for every process we repeat, and then actually use them to execute. Examples... on- and off-boarding of customers/vendors/employees, weekly/monthly/quarterly tasks
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The most important pro forma in evaluating an SMB acquisition is not the one that corrects the financials to calculate the previous owner's discretionary earnings, but rather the one that calculates what your earnings would be if you had been the owner and run it your way.
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If you're looking to up your game adopting tech tools to drive business efficiency, I'd highly recommend you get into
@joshuamschultz
's amazing site . This makes going ninja on tech way less intimidating. Endlessly useful.
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I'm going wild with ChatGPT Advanced Analysis analyzing the new SBA data that came out yesterday for Q3 2023. What do you folks want to know?
@EndresenHeather
@sbabmarks
@SBALenderLyons
@SBA_Ray
@SoraFinanceUS
@rohitgagarwal
Here are some fun ones....
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Before you send an LOI, make sure you look up the biz and find the names of all the owners and include them in both the letter and on the signature line, esp if there’s a spouse!
I had a seller’s spouse tell me she knew we were the right buyer when she saw that we included her
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I had a weak moment recently and entertained a sales call from a Verizon rep to discuss mobile data plans. Got an offer that cut our total spend 60%. Took it back to current provider and said beat it or lose. They beat it.
2 calls. 40 bps of margin. Every little bit counts.
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We had an awesome recruiting week last week in landscaping. If you haven’t heard, finding labor is real hard, so I was pretty jazzed about this 🧵 on successful tactics for finding labor in this difficult market …
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ETA Myth Bust
#8
- Show me that contracted revenue! PE people (think they) love contracted revenue. It's a sure thing. We're not so sure. I used to think I liked it until running a business that has both.
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ETA Myth Bust Series
#7
- Conventional ETA wisdom says you better make the most of your search and get yourself into an amazing deal you can focus on for decades.
I think this is a setup for a high likelihood of disappointment.
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The industrials supply chain is wild right now. Just paid New MSRP+2k on a used 1 year old work truck. Need a skid steer? Ha. Unfortunately this is not getting better anytime soon. Get ready for a flood of dealers selling their biz in mid 2022 off their TTM earnings multiple!
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So many forces are conspiring to make 2024 the biggest year ever for search SMB investing.
Some of them:
- a 🔥 deal market
- support from many prominent B schools teaching ETA
- better platforms and tools than ever before
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Here’s how I generally think about valuation and pricing proposals for our small business acquisitions ...
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First external deal pushed thru this process came in at 6.6% fixed for 10y vs the prior not awful quote the entrepreneur had in hand at Prime+175 variable (10.25%). Hundreds of thousands of dollars saved.
Who’s in the market for SMB debt? It’s crazy out there and I went down a multi-month research rabbit hole trying to find all the best loan options and lenders for ETA folks. Now I’m making my findings available to you all ->
Via Collab w/
@SoraFinanceUS
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The tech tools of
#nocode
have gotten better than I ever could have imagined. You can customize ops technology to streamline overhead and improve core processes like never before with barely any coding knowhow. These computers just don’t forget things like humans do. 🤯
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Here’s a new one that DD missed. Key employee way underpaid. Knew that. What we didn’t know: he was renting a house from the seller, paying way below market rent. Business sells, rent ⬆️ arrives, then eviction notice. pay issue fixed, but 🏡 issue is tough 🤬
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One of the most valuable things I’ve done as a business owner is get to know the owners at our local competitors —-> yep, you heard me….
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I use QBO Payments for CC processing and am always annoyed by how much fees are. Today I called and magically I qualified for a rate review… and magically my new rate was lower. Very ROI positive 10 min call! Sometimes you just gotta ask.
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SMB-Twitter: looking to collect some insights on a typical CEO comp for situation where CEO is majority but has minority investors on deals 500k-1M EBITDA w/ 30-50 employees
@tludwigphoto
@tludwigphoto
@tludwigphoto
@girdley
@RobRybergg
@steveressler
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Finally got our new truck. Got a 2020 Chevy Silverado 1500 w/ 10k miles. Price … New MSRP+2K … who knew asset value on a vehicle could ever go up!??
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For new SMB acquisition entrepreneurs looking for that first deal, can't stress enough the value of focusing on brokered deals and more importantly realizing that you are probably the broker's worst nightmare. Read on --> thx
@FetaFund
for the bump 👊
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@patrick_oshag
The Collapse of Parenting: How We Hurt Our Kids When We Treat Them Like Grown-Ups
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Why do people hire out QoE work for small biz acquisitions? Is it a CYA thing for LPs? Is it blindly doing the PE process they know? I’ve always done my own QoE and never want to outsource critical thinking and analysis on anything. Saves $ & speeds things up too.
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ETA Myth Bust
#4
- Once you acquire, watch and learn for 6 months before you change anything.
This is what the "best" literature says, but I think this creates a huge missed opportunity to chart a new course.
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I was asked recently my thoughts on buying AR in an SMB acquisition. The person asking suggested the biz should come with AR... after all you're gonna need it, so it's gotta be part of a deal. I've always felt the opposite. I hate buying AR. Here's why...
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@tsludwig
if
@verdadcap
's observations that PE-firm reported EBITDA (eg. adjusted ebitda) is systematically 25-30% higher than real EBITDA, that puts the real
#s
at 15x for EV and 9x for debt. woah.
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Every month I look forward to going through the
@genequityco
deal flipbook. There’s so much incredible potential in here - - warning, this can get addicting 🤣
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When I started in small business, I was floored at the low value multiples vs. public stocks. I recently recorded a meeting with
@LaingCallum
of
@MBH_Corporation
, who's earning public company valuation, while acquiring at SMB multiples. Genius. Watch it:
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First time searchers need to use location as a competitive advantage. There are way more buyers outside your geo than inside, so find businesses that will be easier to take over if operating locally. If a biz would be easy for an OOT buyer, I'd steer clear.
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The real answer here may not actually be a fund structure, but rather a more traditional holdco. Nevertheless, I think shared support functions is very important.
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A huge chunk of the ‘Silver tsunami’ opportunity is now behind us.
There are waaaaay more buyers, especially highly educated early and mid career professionals running the same strategy
There are now lots of investors funding individual self-funded search deals.
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More businesses need a no a-hole rule.
Eg… If you come in here and are rude to us, we will politely ask you to leave and not come back. You are not entitled to service from us.
If this was normal, people would conduct themselves so much more civilly.
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Looking for SMB focused investors and funds new to (or interested in entering) the self funded ETA world as investors. Show yourselves, or tag em here, or DM me!
@bentigg
@Sam_Rosati
@HockJohannes
@girdley
@SMB_Attorney
@Slackwatercap
@whentheresawill
@cappaert
@steveressler
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Here's a radical point of view I'm not sure whether I agree with but have experienced first hand:
Low/No Code Will Destroy the Enterprise Vertical SaaS business.
🧵--->
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This is spot on. One thing I love about retirement deals for entrepreneurial buyers is when new ownership can reinvigorate a business with passion, energy, and a bright vision for the future of a business that had eroded in the previous owner’s later years.
Don't forget: Hiring is sales. Don't delegate to anyone who can't sell your company to talent.
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This whole thing seems very inefficient and way harder than it needs to be. Props to the people who've pulled it off, but seriously, this seems like either hubris or masochism.
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I’ve seen others in SMBTwit posting recently about dad and family stuff. I’ve been writing notes and stories for myself for the past 5 years and finally decided to launch a dad-focused Twitter account:
@smbdadsplainer
Follows and RTs appreciated, I hope not to disappoint!
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Went to a rare customer meeting today. Beginning of meeting: customer very mad with ridiculous and unreasonable complaints.
Middle: me very mad, nearly walked out multiple times
End: Customer begging us not to fire him, thanking us, and apologizing for mistreating us
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@RyanHausen81
@girdley
How about this… the entire thrust of the mental health movement is an attempt to medicalize all thoughts, decisions for and behaviors in order to create new profit centers for the health care industry with no actual health benefits
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SMB pro tip - if you request Corp Amex cards online, it takes 10 days. If you request via phone, you'll get them tomorrow.
@AmericanExpress
when I add employee cards, do I really need to listen to your entire T&Cs? I've heard it >50x and really just need the new cards. Thx!
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Has anyone else gone through a google my business listing verification anytime recently? Their new process and requirements are truly insane. Took 3 attempts, 2 support inquiries, and then a 45 minute call just to verify a legit business.
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I’ve been curious about the SMB equipment finance world, so I mystery shopped a piece of landscaping equipment I was interested in. They were willing to lend to me at an effective rate of 37% APR for 5 years. Time to pivot?!!
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Meeting w/ Intuit CEO today to talk SMB trends, tools, and strategy.
1) what would you want to ask/know?
2) what message(s) would you want to convey? What does SMB need from Intuit?
@marketplunger1
@Slackwatercap
@cappaert
@tsludwig
@bentigg
@RegZeller
@aebridgeman
@girdley
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