Royce Yudkoff:

Welcome to Think Big, Buy Small, a podcast from Harvard Business School about entrepreneurship through acquisition. We’re your hosts, Royce Yudkoff…

Rick Ruback:

…and Rick Ruback.

Royce Yudkoff:

As we like to teach our students here at Harvard Business School, if you decide to become an entrepreneur through acquisition, you'll be searching for a good business to buy, owned by someone who is willing to sell at a realistic market price. So, today's episode focuses on sellers – who they are, why they choose to sell a good business, and what they want in addition to the financial rewards of selling. We have with us today, Greg Edwards, Founder and Owner of Onsight Healthcare, which he plans to sell. He is joined by Jim Cumbee, CEO of Tennessee Valley Group, which is a merger and acquisition advisor to smaller firms, informally referred to as a business broker. Greg has retained Jim's firm to advise him on selling Onsight Healthcare later this year, so both of them will have an interesting perspective and insights to share.

Rick Ruback:

Royce, let's get to the conversation.

Royce Yudkoff:

Welcome Jim and Greg.

Rick Ruback:

Yeah, thank you guys for joining us. Jim, oftentimes listeners to this podcast are potential acquirers and they always wonder how you find the businesses. And we tell them to look for people like you. You're a business broker. What is it that you do?

Jim Cumbee:

Well, it is a bit of a finding a needle in a haystack. But, you know, when business owners decide they want to look at their options to exit from their business, they will oftentimes, you know, reach out to people that can guide them to help them through the process. I think the kind of businesses that a searcher would want to buy should probably be represented because to find a business not represented, the owner's not demonstrated a desire to sell, necessarily. But once an owner has retained an advisor like me, they're demonstrating some sense of commitment to the process. The kind of work I do is very reactive. I mean, people find me through wealth planners, lawyers, accountants, other business owners. They reach out and say, "Hey, how does this process work? Are you the right guy to help me?" And that launches the process.

Rick Ruback:

I've always said that finding a committed seller is much harder than finding a good business. And so your advice is the way you find a committed seller is that committed sellers reach out to people like you. That's how you know they're committed.

Jim Cumbee:

Yes. The problem is that by retaining someone like me, they are demonstrating commitment, but there are a lot of brokers, intermediaries who will take anybody and everybody. And that's not evidence of commitment, much less quality. So, there's a lot of folks that do what I do that have a pocket full of listings, as they call them, but that does not necessarily translate to quality. Just because a business owner has retained a broker does not mean that the business is a good opportunity. So, it's not a foolproof strategy to find a good business to work through business brokers but I think you have a higher chance of successfully identifying a good opportunity if you’ve gone through responsible M&A intermediaries.

Rick Ruback:

And a good one like you, I sort of think of you as part accountant, part lawyer, part marketeer, part psychologist, part wealth manager…are there other parts?

Jim Cumbee:

Pastor, rabbi, you know, priest.

Rick Ruback:

Yeah, yeah. There's a religious piece to all of this, isn't there?

Jim Cumbee:

Did you say marriage counselor?

Rick Ruback:

I didn't.

Jim Cumbee:

On a personal level, that's why I love this, because working with business owners brings out all the intellectual and emotional senses of a good advisor. You've got to use your financial skills and you've got to use your research skills, you've got to use all those emotional skills that they don't teach at Harvard Business School, or didn't back in my day anyway. But look, let's be fair about it. It's an incredibly difficult, long, emotionally trying process. So sure, a business owner is going to go through all sorts of ups and downs, emotionally and intellectually. And the business will go through ups and downs. The business owner's immediate family and/or team will go through ups and downs. So, expecting this to be an easy, smooth ride is really naive.

Rick Ruback:

So, could you just take us through the arc of a typical engagement? Someone like Greg reaches out to you, call that Day One. What happens? And when does it happen? And how long does it take? And that sort of thing.

Jim Cumbee:

Again, every situation's different. Some business owners will call and say, "I'm ready to go to market. What's my business worth?" They may be looking at other intermediaries to interview for the engagement. They say, "Tell me what the number is and tell me what your strategy is and let's get going." And others will call and say, "Listen, here's what I'm kind of thinking about. Is this a good time? Should we wait until next year? What's the situation with my business? Can I improve my valuation?" Sometimes I get a call and a business owner has said, "I have an offer on my table and what do I do with it? How do I respond to it?" But in any of those situations, once you work through whether this is the right time, you really want to look at the valuation, what's the business worth. And in my process, I always look at valuation and buyers at the same time because valuation without a context of who the potential buyers are is completely pointless because, you know, the nature of the buyer can affect the nature of the valuation. So, once you have that kind of defined and in front of a business owner, then they decide if they want to become a client. In my case, Rick, now I think other advisors may do it differently, I won't take an engagement, I won't ask for a commitment to be engaged until the business owner and I are in sync on valuation and we have a consensus view on outreach strategy, who the potential buyers are. So once the engagement's in place, then you start that process of developing the executive summary teaser and the nondisclosure agreement and the SIM, and then off you go in the outreach.

Rick Ruback:

And how many of those processes take less than three months from start to finish?

Jim Cumbee:

That would be zero.

Rick Ruback:

How many take less than six months?

Jim Cumbee:

That would be zero.

Rick Ruback:

How many take less than nine months? So, you know what I'm trying to get at. How long is it?

Jim Cumbee:

Listen, the reason I’m hesitating, I had coffee last week, true story, this is kind of a serendipitous moment, had coffee last week with a guy that does what I do, and he says that they have their average down now to seven months. And either he is not representing the truth or he is selling Subway franchises.

Rick Ruback:

Oh, way too quickly?

Jim Cumbee:

Well, yeah. When someone asks me, and believe me, I have this conversation every time I start an engagement, “How long does it take?”, I'll tell a client, “Nine to eighteen months.” Some have taken longer. I don't think I've ever done less than nine months.

Rick Ruback:

That's really helpful.

Royce Yudkoff:

Thank you, Jim.

Rick Ruback:

Royce, one of the things I was struck by in this conversation was just how hard it is to actually sell a business. Jim says it takes roughly 18 months, which is interesting because it takes roughly 18 months to find a business.

Royce Yudkoff:

That's a really interesting parallel you're making, Rick, because naturally you and I spend all our time talking to listeners and students about managing the process of buying and how hard that is. It's interesting to get a view on the other side that it's just as hard. And probably the biggest difference is the buyers have at least learned a lot about the process of buying a company. For the sellers, they're almost always business founders who are selling for the first time. They know nothing when they start this journey about what's involved. 

Rick Ruback:

Right, and they've not run their business to prepare it for sale. So oftentimes, there's accounting issues, there's management issues, there's control issues, there's diffuse ownership. There's all kinds of things that need to be cleaned up before the company can be brought to sale.

Royce Yudkoff:

I found that part of Jim's discussion really interesting, that he doesn't have a prospect walk in and they march to market. It's often a long consulting period where the owner is changing things to make the business more saleable.

Rick Ruback:

Right. And that can take a year or multiple years, depending what the situation is.

Royce Yudkoff:

And you and I have met a lot of intermediaries and like, in any other profession, there's a huge range of skills. You can get a sense that a skilled intermediary really performs a function of giving good advice to the seller all the way along the process. So, you deal with different kinds of sellers, you deal with different kinds of intermediaries. The process varies from person to person as you encounter them. 

Rick Ruback:

Brokers really do help a lot. A good broker is a huge asset.

Royce Yudkoff:

Yes. You know, the first thought a lot of buyers have is, “Oh no, there's a broker who's going to try and extract the maximum price”. But the benefits they bring are huge, right? They’re trying to make a deal work. They're not trying to get in the way of a deal, and they're teaching the owner a lot about what normal market terms are. That’s a really valuable function. And while most brokers are generalists and sell businesses in a certain size range across all industries, it's not uncommon to find brokers who have a specialty in a particular industry. And that's quite helpful because they know a lot in terms of preparing sellers for due diligence, in terms of knowing what market prices are. So, they can be very, very effective to both buyer and seller.

Rick Ruback:

Right, and one of the things about Jim is he knows the kind of companies he can represent best and the companies he wants to represent. As he says, he doesn't take all the people who call up and say, “Will you sell my business?” A lot of them he chooses not to accept as clients. This idea that they're part religious figure, part estate planner, part lawyer, part accountant – they serve so many functions and, you know, our experience is that a great broker does a really good job quieting the waters. You know, it might look like some white caps out there on the deal but a good broker is able to make that water be flat. I think the key thing when you're picking a broker, as somebody selling a business, you want to look for brokers that have sold businesses in approximately your size range. You want one approximately in your valuation range. And so I think the way you tell a good broker from a bad broker is in part by looking at their track record and seeing if the characteristics of the firms that they represent are similar to yours.

Royce Yudkoff:

Agreed, Rick. And I think when one is shopping for a broker, they should do what you do when you shop for any other big purchase, which you should ask them for two or three former clients whose deals they successfully closed and two or three former clients whose deals were withdrawn from market because they didn't close. And then you should call those people and ask how they felt, not so much about the deal, but the work the broker did. That's acid test feedback and something every seller should do.

Rick Ruback:

Royce, let’s get back to the conversation.

Roye Yudkoff:

Greg, let's turn to you. First of all, Greg, tell us about your journey prior to starting Onsight Healthcare. Things like where did you grow up? Were your parents entrepreneurs? What did you do before you founded the company? We'd love to know a little bit about your journey before you created your own business.

Greg Edwards:

Certainly. Thanks for the opportunity to chat with you all. Grew up in Rochester, New York. And after college was a sales guy for American Hospital Supply. Moved a bunch of times. I was the young guy that raised his hand and said, "Yeah, I'll take a promotion." My wife and I were talking recently that we've lived in eighteen different houses, you know. I've always moved for more opportunity. So, five years at American Hospital. Then I went to work for Pepsi for five years as a business development guy. And I had the entrepreneurial itch and moved to Buffalo, New York and started a business in the embroidery business. So, at Pepsi I used to buy promotional products, golf shirts with Pepsi logos. And I met a guy that was doing it, and he was slaying it, and you know it seemed like, “Man, he's got a good gig going”, he's selling shirts to corporate guys. And so I started to research it, got an SBA loan, and got into the embroidery business. It was the worst business model ever because I was in it for eleven years, I ran this company. And I worked so hard at that company, and every time the economy goes down, you know, the first thing a corporation does is, “Let's cut out the golf tournament or the golf shirts or the hats or the trinkets.” And I actually ended up going bankrupt after 9/11. It was just too much debt. These machines that sewed logos on garments were very expensive. You had fixed labor because, you know, when you had a slow month, you still had to keep your operators who knew how to run it. You know, you're always too busy in March and never busy in December kind of business, because it all tied to that corporate spend on golf shirts and what have you. We were doing like 3,000 shirts a day. We were one of the larger contract embroiderers in the US at one point. But anyway, and so I went to work for corporate America again and spent ten years with The Compass Group selling support services, outsourced services to hospitals: cleaning, maintenance, patient transport, biomedical engineer. Became National VP of Sales of one of their divisions, and that's before I decided to start this business.

Royce Yudkoff:

And Greg, tell us a little bit about Onsight Healthcare, the business that you've been operating since you started it. Tell us a little bit about the origin but also focus us on what the company does, its customers and what service it provides.

Greg Edwards:

Yeah, I had an investor that recommended we go look for a business and I landed on valet parking at hospitals. I knew healthcare, I enjoy healthcare, and selling to healthcare, and so I picked valet parking. I used to go to hospitals all the time, and I noticed that the valet parking guys, in my opinion, weren't quite as professional as the corporate America group I worked with. And so I said, "You know, I think that's a business that I could really do well in." And that was ten years ago and we started by partnering with a firm out of Chicago that was in the valet parking business for hospitals. And we tried to buy them. They decided they didn't want to sell, interestingly, listening to Jim talk about finding someone that's represented, we spent a lot of energy trying to buy them, and then at the last minute they said, "Really not interested in selling." So, we decided to partner with them because we understood that to sell to healthcare, you need references. I don't care how good of a salesperson you are, how nice of an individual you are, you can't knock on the door of a hospital and say, "I'd like to valet park cars at your hospital." And they say, "Great, how many other accounts do you have?" And you go, "Well, the first one's looking good so far. And I really want to, really want to work with you." Nobody in healthcare wants to be the first. So, it worked out well, joining forces with someone that taught me the business and I could use their references. It actually took, which was so surprising to me, started the business in January of 2014, and I didn't get my first hospital until September, which was like mind-blowing to me because I know healthcare and I was passionate about what I did and what we could do. So, it was an interesting start, but then it just kept growing from there.

Royce Yudkoff:

And today, Greg, how many hospitals does Onsight Healthcare perform valet services for?

Greg Edwards:

We have eighty-five healthcare locations.

Royce Yudkoff:

Wow.

Rick Ruback:

All around the country or just in the northeast?

Greg Edwards:

Yeah, we're in twenty-two states.

Rick Ruback:

And do you still live in Buffalo, New York?

Greg Edwards:

I don't. I live in Nashville, Tennessee. So, I was in Philadelphia at the time when I decided to start this. And, you know, my wife and I had always talked about, someday we want to move south, when the kids are out of high school, you know, we wanted to move away from the snow. And, I could live anywhere I wanted to, I was starting my own business. I said to my wife, "You know, we always talk about moving south. What do you think about moving now, when the kids are in, you know, second and third grade and raising them in another city?" And a good friend of mine lived in Nashville and kept telling me, "You've got to do it, you've got to do it. Move here. I'm telling you it's awesome." And we're so happy we did.

Royce Yudkoff:

You know, the story you tell is so compelling, how hard it is to kind of get your first client because even though you had years of hospital outsourcing, sales experience, and even though you had created an affiliation with an experienced company in the business, it took a while to get that first over the threshold. But then once you do that, you were able to really build out a huge diverse book of clients.

Greg Edwards:

Yeah, it's true. And, you know, it's funny, looking back, buy a company. The start from zero, getting that flywheel rolling is so hard, you know, but buy a company, I'm telling you.

Rick Ruback:

You know, it's so funny you should say that because when you said it took you nine months to get the first contract, what came to my mind is that we have students who say to us, "I don't want to search, I don't want to spend nine months or a year looking for a business. I'd rather do a startup and get right at it." And I think to myself, “I got to introduce them to Greg here because they're going to learn that once they get the startup, even if they get the idea, even if they get the product, even if it's well-defined, even if they learn enough and have some experience in it, getting those first customers is so hard.” And when you buy a business, what you get is a customer list, a business model, perhaps you can improve it, but you have a business model that works. And when you're doing a startup, you got to discover that all by yourself. And just because it seems to make sense to you doesn't mean it's going to make sense to the customers and there's going to be a price at which it can be profitable. You got to discover all that. Not easy.

Jim Cumbee:

And that discovery process costs money.

Royce Yudkoff:

In losses usually, in early period losses.

Greg Edwards:

And I was going to add one other comment. I was just over fifty years old and, you know, I'm not living in an apartment wearing sneakers, eating pizza every night. I got kids, a wife, you know, I got overhead. And so that was the other thing, is I'm burning through startup money living for nine months or even beyond because, you know, I don't think we became profitable till end of year two. That's the hard part is, you know, you're at a different stage of life. You know, travel hockey is pretty expensive, right?

Rick Ruback:

How did it feel to come home every night and say, "Well, I didn't get that contract yet"?

Greg Edwards:

My wife, she's like, I'm the most positive guy ever, so, you know, the big joke in our family is I'd call her up from, you know, wherever I was, in Iowa or someplace, and she's like, "How'd it go? How'd the presentation go?" I’m like, "You're not going to believe this, they loved me." And it's like the same answer I give her every time, it’s "It went great, they loved me."

Rick Ruback:

And then would she say, "Did you get a signed contract?"

Greg Edwards:

Yeah, right. Show me.

Rick Ruback:

And the answer to that is, "Well, not yet."

Greg Edwards:

Yeah. "You know, hospitals don't react quickly, they take a while."

Rick Ruback:

I love your positive approach to so many things. It's, I think, really essential, whether you're searching for a business or developing a business, right, having that optimism that things are going to work and the confidence in yourself is probably the most important ingredient.

Royce Yudkoff:

Greg, tell our listeners, what makes Onsight Healthcare a good business? You've built it up to over eighty hospitals across the country using your valet services. What should a listener who's just getting acquainted with the business think about the company that's important to know, that makes it a good business?

Greg Edwards:

Well, I talked about how horrible the embroidery business was, right? So, you know, embroidery business, you had customers that relied on you but if they got a cheaper price on a big order, they're going to go there. I mean, it's just money in their pocket. And if the economy goes down, your business goes down. There's two things about healthcare services that I think are fantastic and why I love this business. One, it really truly is recurring revenue. Once you get a contract and you are performing well, you become part of that caregiving team, you're part of the hospital's team. You're not just a vendor that some guy in procurement is looking at how much it costs and saying, "I think I can get it for, you know, $50,000 less a year." And healthcare has so many moving parts and so many things to focus on to get better. They're not going to focus on something that's going well. If you're getting good patient experience scores, the team is integrated into the healthcare environment there, they're not looking to switch. So, it really is a sticky, recurring revenue business. And then the other thing is they pay well. Ten years, never had a bad debt, $0 in bad debt, because a hundred percent of our customers are hospitals or healthcare-type facilities. And so, you know, knock on wood, it's been great. You know, it's the right kind of client, business to business, very professional. And they need you to do a good job. And once you do, you stick around a long time. Covid threw some things in there, of course, so we lost some business…

Rick Ruback:

I've heard of Covid.

Greg Edwards:

Yeah, they had to make some changes. But, in general, it's a very sticky business.

Rick Ruback:

Has it come back?

Greg Edwards:

It has. It’s coming back in a very nice, positive way. Patients, visitors and guests are coming back to hospitals and they're relaxing the visitation policy. You know, during Covid, you're allowed either no one or one person to visit someone in the hospital. And now more and more people are allowed to come back to visit, which increases the number of vehicles that are showing up at healthcare facilities and increases a company like mine’s revenue.

Royce Yudkoff:

And Greg, maybe you could speak to this Covid experience, because Rick and I know, but the listeners don't yet know, how you pivoted the services of the business when you were faced with this Covid threat, that diminished the number of people coming up with their cars to the hospital and were cutting into that source of revenue, you did something to sort of offset that. Maybe you could describe that and then describe how that has evolved since Covid.

Greg Edwards:

Yeah, so Covid hit in March, 2020, and I'll never forget, this little teeny hospital called me up and said, "Greg, we're trying to staff all of our entrances with people that can take temperatures of people entering the facility and enforce our visitation policy. Could you give me a quote? They want me to go to a local temp agency, but I'd rather work with you, we love you guys." "Sure, give me the scope of work." And this hospital was $46,000 a year in revenue, it's our tiny little account. We basically drove a shuttle bus, I think, on Saturdays and Sundays or something. It was very small. I said, "Sure, talk to me about the scope." "Well, we have ten entrances, 24/7, 365." It was like a $860,000 quote, you know, to do, I was just like, "Oh man, there's something here." And so, we started promoting that we do Covid screening, Covid testing, and that kind of launched this staffing business. Instead of being outside the hospital parking vehicles, we started to get a lot of business inside the hospital doing other things. And once Covid kind of slowed down and they didn't need that, it's kind of like TSA, right? You know, at one point there was no TSA guys working at every airport, and now there's a huge number. And so we kind of felt the same way back in the summer of 2020. And it lasted, you know, through 2021. And as hospitals started to decrease that expense, as Covid and the unknown kind of became known, they started to cut back, and we kind of pivoted even again with some of those employees to do other things inside the hospital. And patient sitters is the one that really popped up, as hard-to-get nurses, we're short-staffed, we have critically ill patients, what if we put a $16, $17 an hour person sitting in the room with that patient, we don't need as many nurses and clinical staff to watch over them. And so they started to use patient sitters throughout healthcare and we were able to tap into that and grow that business.

Rick Ruback:

You know, one of the things I think is remarkable about that story, Greg, is how you were nimble enough to take advantage of the changing environment. And one of the things Royce and I always talk about is that when you run a small business, if you keep your eyes open, you'll see opportunities that you just can't see from the outside. And you can use that nimbleness to both solve problems, as you did in your case - “How do I keep my employees busy when my core business is shrinking?” - but at the same time, it's a potentially great profit opportunity. You're going to find things that you would never have known existed if you were on the outside. So, I applaud you. That's fabulous, and it shows one of the great advantages of being a nimble, small business person.

Greg Edwards:

Nimble helps you gain more business.

Royce Yudkoff:

Well, and talking to customers regularly, right? Because when you talk to customers, you get to ask them, “How else can we help you? What other problems do you have with transport in and around the hospital?” And one entrepreneur you and I know said that all of their great ideas for products started with a customer saying, “I have a problem.” Just before we dive into the sale itself, Greg, maybe take a moment and tell us how hard is it going to be for someone else to learn your business and do the important things that you do? Tell us a little bit about how someone who's looking to buy your company and become the entrepreneur owner, how they will do the stuff that is the most important parts of your job. What is that?

Greg Edwards:

I'm sure there are some businesses where you can run remotely but I guess, maybe it's my personality, maybe it's how I go about things, but I love details, I get involved in the details, and over the last ten years, I've parked a ton of cars. And I think when I meet prospective new customers, I think they quickly get that I understand the business. And I would think, as a new owner buying any business, if it's a machine shop or a valet company or what it is, if you don't dig in and really get your hands dirty with the business, I think it's going to be, one, hard to grow, hard to communicate to customers that you're the one with the passion about patient experience and what it's like to come to a hospital and be scared. You just have to understand the market you're in so that you relate to prospective customers and you relate to your employees. I think the employees love when I'm out by the curb, you know, I'm at a location, I'm parking a few cars with them. And I've had guys say, "This is so cool, the owner of the company is parking cars with us today." And I'm like, "Yeah, I love this stuff." So, I think you just have to be that kind of individual to really excel, both with the current staff and with prospective growth opportunities. I think the customers are going to spot somebody who's not emotionally connected to the program.

Royce Yudkoff:

And Greg, would you be willing to stick around for some period of time after a sale to show a new buyer the ropes in the business, to be by their side on the first set of hospital sales calls or inspections to parking valet operations that you have?

Greg Edwards:

Yeah, I think that's how you can maximize the value of your company, is transferring it to someone who knows, one, the business is going to stay around. I mean, you're not going to say, "All right, thanks, great. I just saw the wire hit my bank account. I'll talk to you later." And you're out. I mean, to really get the most value for your company, I think you have to be part of a transition to allow the acquirer to maximize their investment and make sure that it’s a solid investment. So yeah, I definitely want to be involved. I'm not ready to, you know, play golf every day. I love business, I love this business, and I'd like to stick around and have some way to maximize the value.

Rick Ruback:

So that makes me want to ask, Greg, why are you selling? It seems like you've got the business on a great trajectory, you enjoy it, you love it, you're happy in it. You're living in a place you want to live, making a good living. Why rock the boat? Why sell it?

Greg Edwards:

Well, at some point you got to sell, right? And I think -

Rick Ruback:

Another decade, you could do it for another decade!

Greg Edwards:

Well, I'm 62, yeah, I could be 72, and I'm the old valet guy.

Rick Ruback:

Hey, be careful, be careful. Just tread lightly here on somebody who's just turned 70. It's a sensitive spot for me. But yeah.

Greg Edwards:

I have to say, you know, when Jim was talking about how long it takes, part of, I think, the benefit of starting early in this process has been what I've learned from Jim, from potential acquirers. Jim and I met with one acquirer, it was so interesting to me how they looked at the business and the things that they valued and the things they didn't value. And it's given me the opportunity to take a second look at our business and say, "Why do I have this if an acquirer's not interested in that? Why am I making these big investments in the future when they're valuing me on today and only today?" One small example would be, why am I trying to develop a training program from the ground up? Is there not something already done that I can use and not spend that kind of money to have the best training program in America, when an acquirer's going to look at the P&L and say, "Yeah, it looks like you have a lot of overhead here on some training people. You know, I’m going to remove that once I own it." And that's just one small example but I think going through this process has been really informative because you only do this once, right? You only sell your company once and so yes, I agree with Jim, definitely you need a broker to train you, to help you, to guide you. And two, you don't know what you don't know. And so I think starting early, “Do I want to sell next month?” No. But I definitely want to make sure I'm focused and setting the company up and growing the company with the sale in mind.

Rick Ruback:

Okay. Can we talk about some of the details? Because I love your business but I think it’s had a really interesting evolution. As you described, and you’ll correct me if I've got this wrong, but you took a while to get traction, you got some traction pre-Covid, you had pretty good traction on the valet side of the business, but then had to pivot away from that, and have repositioned both as these Covid security people and then internal, non-professional, I don't know what to call them, non-professional -

Greg Edwards:

Non-clinical.

Rick Ruback:

Non-clinical workers in the hospital. And now you're pivoting again, I think, back to more valet-centric. So, if I'm evaluating the business, should I be looking just at the valet business? And if I do that, I've got a pretty uneven history, right?

Greg Edwards:

Yeah, it's true. And I would look at what contracts you have. And I'd say, “OK, what are the likelihood of those contracts sticking around? What are they delivering in terms of EBITDA? And what's that worth?” And then look at contracts that maybe aren't as sticky, maybe some staffing contracts that you have and say, “What are the likelihood of those sticking around?” And you're right, there might be two multiples. The valet business might be a higher multiple than some of the staffing business because the staffing business has shown to not be as sticky and as long-term of a relationship with hospitals as the valet and the employee shuttle and the parking enforcement business.

Rick Ruback:

So Jim, as you think about selling this business, this history over the last five years creates a little bit more complexity for you. So, what do you say? How do you position it? Is this a situation where you might advise Greg to wait two or three years? Because then as the valet business grows and the staffing business declines and we get further away from the Covid experience, that everything's just going to look better and simpler?

Jim Cumbee:

Well, waiting in the face of growth is always in theory a good strategy. If you could predict the future and know exactly when you're going to peak your growth, then you would wait. The fundamental question all buyers have in any situation is the resiliency of the of the revenue model. And Greg has demonstrated resiliency. As we've talked, you go through Covid, then you find another way to kind of plug that hole. That’s one good thing. But then you begin to rebuild what was lost during Covid, that’s a really, really good story. And frankly, I don’t see it all that often, where you really have a really clear demonstrated track record of resiliency. Resiliency is a real asset, if you will, when looking at a potential acquisition opportunity because any buyer is going to be concerned that when they take over the business that something will happen and the business will fall apart, or that the business model does not have a lot of underlying strength. So, when Greg and I look at this business together, I go, "Oh my goodness, he got through Covid.” And then he figured out a way to stay profitable during Covid, which is a feat unto itself. Then he found a way to morph away from that, kind of back to the core business, and that continues to grow. So, all in all, you want to sell a company when you're demonstrating growth and you're demonstrating resilience, as opposed to trying to find that exact point of optimization. So, I would never tell a business owner, “Now is the time to make the leap and sell” because you never know. But I think the fact that Greg is demonstrating resiliency and literally every month, he's adding new contracts and the pipeline's getting richer and deeper. And that’s what a buyer wants to see.

Rick Ruback:

Royce, how do you react to that resiliency versus simplicity?

Royce Yudkoff:

You know, simplicity is always so tempting because -

Rick Ruback:

It is. It makes me excited to understand something, you know.

Royce Yudkoff:

Yeah, it is very tempting. But I’m impressed with the fact that, when the valet parking business goes down because of this pandemic, new needs are created, like health security needs at the hospital, and the business pivots and offsets that. And then when the pandemic recedes, a lot of those healthcare security needs drop but the valet parking comes back. I sort of feel like the business has a specialty in parking but has this ability to sort of find other needs for temporary or medium-temporary workers in the hospital.

Rick Ruback:

Like the New York City street vendor who sells sunglasses and umbrellas.

Royce Yudkoff:

It's sort of like that. It's not as simple a story as just selling sunglasses, but in a way it's better.

Rick Ruback:

Yeah, very cool.

Royce Yudkoff:

There's a lot, I know, you and I like about this business, like the reoccurring customers, their credit-worthiness, their non-cyclicality.

Rick Ruback:

I love all that.

Royce Yudkoff:

I love all that. One thing that has me scratching my head, Greg, and maybe you could address this, is in the provision of your services, the hospitals want that valet experience to be a positive one for the patient and the patient's family. That's a big part of the reason they're employing Onsight Healthcare. How challenging is it to run a widely distributed labor force that's dealing with thousands of hospital patients every day and trying to provide a positive experience? I imagine that a lot of these patients are probably old and cranky.

Rick Ruback:

Like you. Like you.

Royce Yudkoff:

I was going to say like you, Rick. And it's hard to satisfy them, right? Who shows up at the hospital in a really good optimistic mood? Is it difficult to keep that service promise?

Greg Edwards:

It's funny you say that because I always talk kind of about, if you're a valet parking company that deals with steak houses, everybody's in a good mood. They're out on a Saturday night, they're driving a nice car, you know, they’re loving life. And our clientele, the customers, the patients, visitors and guests that show up to a hospital, are not in a good mood. And they are nervous. They don't know where they're going. So, I think the way you hire is different. Because it's Monday through Friday at most hospitals - they don't have valet on Saturday and Sunday because they don't have a need, there's plenty of parking spots up close - we're able to hire full-time people. Not younger people that are trying to get a side job on a Friday and a Saturday night. And because of that, they're from the local community, they start to learn the hospital, they help with way-finding. When someone shows up to Entrance A and they're supposed to be in Entrance B, they guide them and say, "Oh, actually you're here for radiology? This is where you want to go." And so I think our workforce is different than you might think from going to restaurants and using valet in those areas. We just have more of a caregiving feel to our workforce. I don't know. It's not really by design, it's just people that want a full-time job Monday through Friday at a healthcare facility typically are more in line with that. And they understand that environment that they're working in and enjoy it.

Royce Yudkoff:

That makes sense to me. I am convinced by what Greg said. I think having a full-time, nine-to-five workforce is different from, you know, the Saturday night from 6:00pm to midnight workforce.

Rick Ruback:

I think that's right. I wonder, how do you get new clients? Is it mainly you? Are you the chief salesperson?

Greg Edwards:

For the last ten years I've tried all sorts of ways to contact hospitals. And you certainly can't convince a hospital that doesn't have a parking problem to hire valet or to decide to launch a valet program. It's hospitals that were built a long time ago, never imagined how many patients, visitors, and guests would be coming to their facility, all the employees they have, they have parking problems. And to build a deck is expensive. And so they look other ways. “How can we help patients? How can we have a fair chance at giving them a good patient experience when they're so upset before they even get in the front door because they're late because they couldn't find a parking place?” And so the hospitals have a need. They know they have a problem. And we use mostly e-mail marketing, and when they get an e-mail from us, I can't tell you how many times it's happened, someone calls me and says, "Greg, I got your e-mail and I can't believe it, but we were just talking about this this morning, valet parking, and we got your e-mail about valet parking." And so I think half of the new customers we get currently don't have valet and they're looking to add it because they have a parking problem. And then the other half are ones where, for whatever reason, their current operator has lost their way and has not been able to find employees that represent the hospital and have the patients in mind, and they just get so frustrated. Or they're trying to pay individuals too little and so they have huge turnover. And that hurts a valet operation, when you have all new people every day. But e-mail marketing has been our kind of secret sauce.

Rick Ruback:

But I get the sense you're the closer because they're going to call you and they're going to actually reach you. They're not going to reach some mid-level salesperson. They're going to reach you, the owner of the company.

Greg Edwards:

Yeah, I love the sales process and so yes, I probably stick my nose in there where the other salespeople are like, "Oh, here comes Greg again." But I just love it. And I think when I talk to prospective customers, they're looking to see if you understand their world. And I've never been the fly on the wall in a sales presentation with another company that's trying to convince them to use their valet service. But I just guarantee you, they don't understand healthcare as well as we do. I just have that feeling. And it's not something that I was born with. I mean, it's pretty easy to get it. If you just get out there, you can talk about cardiac rehab patients. You guys wouldn't think about that for valet but that's someone who comes to the hospital three times a week, you know, they're going through rehab for their cardiac issue. So when they start to hear that you understand their world, I think they feel much more comfortable picking your company to help them with this patient parking issue.

Rick Ruback:

So, the buyer has to be somebody who's willing to so engage with customers?

Greg Edwards:

I think so.

Rick Ruback:

I do too.

Greg Edwards:

As I think we joked one time, you can't run this company on an iPad from Tibet. You just need to get in there and be the leading force. I didn't know anything about valet parking ten years ago. You know, I figured it out. You can figure it out. You're willing to do the work, it's not that hard.

Rick Ruback:

So, let's talk roughly about price expectations. Can we do that? Just let’s keep it general, if we can. So, the profitability of this business annually is about two-ish million dollars?

Greg Edwards:

Yeah, right around there.

Rick Ruback:

Right around that. Is that fair, Jim?

Jim Cumbee:

Yeah, yeah.

Rick Ruback:

And if I go back pre-Covid, 2019?

Greg Edwards:

I'd say it was probably…

Rick Ruback:

About a million?

Greg Edwards:

A million bucks, yeah. I was going to say 1.1. 

Rick Ruback:

Yeah, about a million. So, it's doubled in the last five years?

Greg Edwards:

Yeah.

Rick Ruback:

And we've talked about that journey. So, on the edge of businesses that you might buy through a self-funded search or a single entrepreneur might buy, it's probably in the middle to the upper end of that range. So, what are you thinking, Jim? What do you think you'll sell this business for? I know if I ask Greg what a fair price is, he's going to say, you know, twenty times. But that's just because he's a good salesman and rational.

Jim Cumbee:

My starting point is always to look at EBITDA relative to what the profit level of the EBITDA is. And is the business scalable as it grows? Does it get more profitable as it grows? In Greg's case, the answer is it's a profitable business and it gets more profitable as it grows. And I think you take that phenomenon, along with the fact that this is contracted revenue - these are annual contracts, and they're seldom broken, so there's pretty reliable contract expectation. You put all that together, I think you go to market with an expectation somewhere in the six to seven range. And I've always advised my clients that you find the right strategic, they'll likely pay more and if your buy set is financial buyers, you just have to have a process where you have several at the table. And one of those two factors will get you, you know, the higher multiple range.

Royce Yudkoff:

And so Jim, when you say six to seven, you mean six to seven times the pre-tax profit of the business?

Jim Cumbee:

Yeah, correct.

Rick Ruback:

So, for example, somebody who wanted to buy their own small business, you would think about that as a financial buyer?

Jim Cumbee:

Yeah. You know, all buyers, strategic or financial, have a financial focus. A strategic I would characterize as a buyer who's already in the space or has some service closely affiliated with the space that makes an add-on easy, and therefore because of some affiliation, because of some strategic reason, they might pay a little bit more. A financial buyer is entering the space for the first time or maybe they're adding on another acquisition, but there's not a lot of synergy between the income statement of the two businesses. It’s a loose definition, and I think everybody you talk to that does what I do would give you a different take on the difference.

Rick Ruback:

Right. A strategic buyer has some cost savings, cross-marketing, some opportunity to combine Greg's business with their existing business to get a little more profit than Greg got as a stand-alone business. Whereas a financial buyer, the way you use the term, is somebody who would buy the business and get pretty much the same cash flows that Greg got until they changed it?

Jim Cumbee:

Right. Until they improve the operations somehow or grow the business. I've seen competitors take out competitors, literally take them out, buy them for a good number and close them. I mean, I've seen that happen. I've seen strategics consolidate and, you know, eliminate workforce as a way to add value. I've seen suppliers buy customers. So, there's always some angle by which they look at the acquisition that adds value beyond just, “What’s a good multiple on the EBITDA?”

Rick Ruback:

And Greg, when you think about buyers, I imagine you care about price, certainty of closing, you'd like to not enter the process only to have it fail at the last minute because the buyer can't get financing or tries to renegotiate at the very last minute. So, I get price and I get certainty of closing. Are there any other considerations? If Jim brought you two buyers, one offered 10% more but was a strategic that might reduce your workforce, for example, or do something to your front office staff, and then there was somebody who was going to pay less but was going to keep your existing operations largely intact, at least for the short run, which would you pick? Is it just price?

Greg Edwards:

No. I think, as I alluded before, my willingness to stay on, I think I'd pick the buyer who I think, because of whatever reason, could grow it significantly and I could be involved in that growth somehow, roll some equity, be involved, help grow it, and maybe get a second bite at the apple, you know, four or five years later.

Rick Ruback:

So, you want to like the buyer. You want the buyer to be somebody you'd be happy to have lunch with.

Greg Edwards:

Yeah, of course. And also believe they have the skills to maintain and grow it if I'm going to stay on and be either financially putting some of my equity into them, it'd be a pretty important job interview to make sure that I'm on the right team. You're going to make an investment of let's say 30% of what you think it's worth and you're going to roll it, you better make sure that those individuals know what they're doing, are capable, and believe that it’s the right partner.

Rick Ruback:

So, it's almost a two-way interview. They're interviewing you to see if they want to buy your business, but you are interviewing them to see if they're what you think is the right fit for the business, and whether they have the same vision that you do or a vision that's complementary?

Greg Edwards:

Yeah, for sure. And I have had the experience of introductory meetings with some folks that are interested, and, you know, after they walked out, I turned to Jim and I'm like, "There's no way that guy's going to, you know..." So yeah, for sure.

Rick Ruback:

Would you sell it to a searcher? Would you sell it to somebody who's cobbled together the money, might not have owned a business or even managed a business before? Would that give you a pause or would it be, “Wow, this is great, a young person with so much energy!”?

Greg Edwards:

You know, I think the answer is “Yes” if they were bright, you know, enthusiastic. Like I said, I didn't know anything about this business when I got involved, and through hard work and passion and energy, and “the harder you work, the luckier you get” kind of theory, yeah. I mean, if it's that guy or gal, sure, I'd jump on board with that.

Royce Yudkoff:

I think that's a really important lesson for people interested in buying a business, that it's not just about the money. It's also about instilling confidence, particularly in an owner who wants some kind of ongoing interest in the business and involvement. I don't think that's necessarily obvious to people. I know we're about out of time here. Any other questions or comments on your part?

Rick Ruback:

No, I think it's a really interesting business and thank you guys for sharing your process of selling. I know our listeners, who are always thinking about buying businesses, always wonder what's going on in the seller's mind, and thank you for sharing a little glimpse of that.

Royce Yudkoff:

And Greg, congratulations on your accomplishment in building this fine business. That’s a really wonderful thing to have done.

Greg Edwards:

Thank you.

Royce Yudkoff:

Jim, it's always great to see you, thank you. And gentlemen, be well.

Rick Ruback:

Yeah. Thank you.

Royce Yudkoff:

One of the due diligence steps all buyers should do, beyond just looking at the books and understanding the customers and the business, is looking at that owner operator and asking yourself, “After some reasonable transfer period with the seller, could I be effective at running that business?” And if the answer is “no”, that's a really good reason to walk away. And if the answer is “yes”, that's a big check mark in the box. So Rick, what's your take on this? Could a reasonable person replace Greg Edwards or is that a really difficult hill to climb?

Rick Ruback:

Well, at one level, as I think about this business, this seems like a business that lots of people could run. It's a parking valet business, so it doesn't seem very complicated. It seems like a straightforward business. But as you meet Greg, a couple things really come out. First, he's got decades of experience in selling to hospitals and hospitals are his exclusive client. So, I don't know what's special to hospitals but I would imagine they have their own rhythm, so you do find these circumstances where sales get concentrated in an industry and there's kind of an expertise around that industry.

Royce Yudkoff:

And in every sales call, there's at least one big testing moment where the prospective customer says, “So Greg, how long have you been involved in providing services to hospitals?” And the right answer is Greg's - “Well, I've been doing outsourced services to hospitals for twenty years and only valet parking for ten years.” And the wrong answer is, “Well, you're my first customer or you're my third customer.”

Rick Ruback:

Hahaha! “I've never done this before!”

Royce Yudkoff:

“I've never done this, but I'm a quick study!” And, by the way, they may not even get to that question because if you're a Greg, your use of language probably conveys to them immediately that he gets me. So that's the piece that's difficult to replace. I would say these are also big sales, right? This is not a business of, you know, five hundred small orders. You are getting a $20,000 a month hospital so the lifetime value of closing that sale is hundreds and hundreds of thousands of dollars. My guess would be that you need a deal solution to this piece of the problem. It's not, “I'm going to walk away because it would take me years to do that.” It's probably, as part of the deal, having an earnout where Greg gets paid over the next couple of years for the new orders, the new hospitals he brings in, while you learn this business. And when you get that question, you get to say, “Well, the business has been in business for a dozen years doing nothing but valet parking, and I've been the CEO for a couple of years, and my senior advisor is my predecessor who's done it for a decade.” And then you get by on that question. But I think you need to contractually fix that. 

Rick Ruback:

Right and there are a few other things that Greg brings to the table that I think are hard to replicate. One is he has a vision of what the product is. So, he would not say, I don't think, that the product is really valet parking. He says the valet parking is their first experience at the hospital. So, the cardiology patient who's left in the wheelchair in the freezing rain, not a good look for the hospital. The cardiology patient who's wheeled into the lobby and kept safe and helped is a much better look. And, as Greg talks about, he's not dealing with people who are out for dinner on Saturday night. He's dealing with people who are at the hospital, they're under stress. And his vision of this as a face of the hospital is, I think, really unique and a very strong value proposition for hospitals. The other thing that Greg does that I think is very special is Greg's a great salesperson. He's not only a great salesperson, he projects this likeability, which, you know, basketball players are tall, football players are big, great salespeople are inherently likable. And you look at Greg and you say, “What a nice guy.” And this instant likability is such an asset.

Royce Yudkoff:

Right.

Rick Ruback:

So, Royce, do you think Greg could raise prices 20%?

Royce Yudkoff:

I don't. I think that that's an essential question because surely this company has predictable recurring revenue. It's non-cyclical. There isn't a lot of customer concentration - a lot of things you and I really like and advise acquisition entrepreneurs to look for early on in a business. The one thing their revenue streams are missing is high switching costs for the customer, right? It's not a commodity but it's also not a business where if you put out a request for proposal from a few other parking valet companies that you'd bear a lot of cost by switching. And I think the prompt to switching is if you felt that prices had gotten out of line.

Rick Ruback:

Or service decline. I think Greg's business model and vision of the firm as the face of the hospital provides a bigger barrier. I think, for example, somebody who does valet parking for sporting events or valet parking for restaurants would not be a very good substitute. So, I think he has that edge going for him. He's interestingly defining his business in a way which enhances the barrier to entry, which is just great. It's brilliant. Every owner should do that. But I do wonder if that gives him much pricing power. I suspect you're right. From the hospital's perspective, it's probably, “This works and they're really nice people to work with and we don't get any complaints, so why would we switch?” But at 20% higher, it might not work. 

Royce Yudkoff:

Yeah, exactly. So, to a buyer, I think what that should say is, you know, this is a business which if we were just focusing on recurring quality of revenue, they should be willing to pay above average multiple for a smaller firm, but not a dramatically higher than average multiple because it's certainly better than average revenue but not the best quality of revenue you and I see. Those are in businesses where it’s really painful for the customer to unplug and move, things like having to change out software and retrain your organization or get government permits that allow you to change some component. Those businesses deserve the maximum premium. This certainly above average, certainly good, lodged somewhere there.

Rick Ruback:

Right. Royce, that was a great conversation with Jim and Greg. I think getting the seller's perspective and a broker's perspective will really help searchers frame their offers and think about the transaction in a broader, more thoughtful way. Next week, we have our last episode with a guest. And that guest is Jerod Pierce. It is a remarkable success story of going from dumpster diving to riches and I think everybody's going to enjoy it. And Royce, our last episode of the season is going to be us answering the questions that we hear from our listeners. So listeners, please send your questions. Our email is rickandroyce at hbs dot edu.

Royce Yudkoff:

You’ve been listening to Think Big, Buy Small. We’re your hosts, Royce Yudkoff…

Rick Ruback:

…and Rick Ruback.

Royce Yudkoff:

Katie Zandbergen produced today’s episode. 

Rick Ruback:

Our audio engineers are Mari Shear and Craig McDonald. If you have any questions, comments, thoughts, feel free to just e-mail us – rickandroyce at hbs.edu.

Royce Yudkoff:

We’ll be back next week with another episode of Think Big, Buy Small.