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:

Today Rick and I are delighted to have as our guest Will Young, who executed a self-funded search and has acquired a very interesting business that's a template for many searchers. We're going to talk to Will about his journey from beginning to the current day, and I think we'll learn a lot about searching and buying and then operating a business. And listeners, just as a heads up, both Rick and I have an investment in Will Young's company, and we don't want the interview to go forward without you being aware of that. So, Will, welcome aboard! Rick and I are delighted to have you here.

Rick Ruback:

Yes, it's a delight to have you here.

Will Young:

Thank you for having me. I'm excited to be here.

Royce Yudkoff:

Can you tell us a little bit about your journey, beginning with where you grew up, what your family was like, where you lived, and how you made your way to the point where you decided to search for a business of your own?

Will Young:

Sure. I grew up in Dallas. I didn't grow up in a very entrepreneurial family or anything like that. But I went to college at Duke and when I was at college, as a precursor to searching, I guess, I bought a very small business with two buddies, moving people into and out of their dorm rooms at Duke and then moving them back and forth along the East coast. And so we ran that for a couple of years and then actually sold it to younger students. And so I had had a very small taste of running a very small business, and really enjoyed that. And then I went and worked for Audax Group, private equity in Boston, out of college, and worked there for a couple of years, and then went to work for a portfolio company of theirs in Houston, helping do acquisitions and helping get that company sold in an auction sale process. And then decided to go get my MBA at HBS and took the search fund class and decided that that was the direction I wanted to head.

Royce Yudkoff:

Will, what was it that made you decide to become an acquisition entrepreneur, because you could have done something else, you certainly could have gotten a job in private equity and gone on and done acquisitions for a living. What was it that made you switch over and say, “I actually want to use this skill to have a business of my own”?

Will Young:

When I had been at the private equity firm, I really enjoyed my experience there and learned a ton. But I knew at that point that I would rather get my hands dirty in a business than work on just acquiring businesses. And so I had already made that jump to a portfolio company and then working in a business, you know, obviously much bigger than, you know, a search fund sized business, but I was already pretty well down that path. And, you know, when I went to HBS, my thought process, you know, “Maybe I'll go and become a private equity portfolio company C-suite person, and maybe work my way up to CEO”, and then found out about ETA and was like, "Oh, this is exactly what I want to do." So finding out about search, I never even thought about anything else as a career path.

Royce Yudkoff:

And tell us a little bit about your search. You chose to do self-funded searching. Rick and I would love to learn why you chose that instead of a traditional funded search? And what else came with that decision? Were you doing a geographical search? Was there a focus on a particular type of company or industry? Breathe some life into that decision for us, if you would.

Will Young:

I had kind of a unique search journey. I started out as a partnered search with a section mate of mine from HBS. He was also local in Dallas. So, I moved back to Dallas, where I grew up, and searched with him for a year and a half. And we were primarily brokered search and we were also geographically constrained. We were looking at contiguous states as well, but mostly Texas. You know, Texas is a huge state so we thought that we could find something in Texas via the brokered search. And we had two deals that we signed under letter of intent, and neither one of them closed, for various reasons. After about a year and a half, we split up and we were going in different directions. And so I relaunched on my own. This would've been in January of 2020, so really great timing. And when I relaunched, I did a primarily proprietary geographically constrained search, mostly focused on Dallas-Fort Worth, and then Boston, which is where my at-the-time girlfriend, now wife, is from. And so we were just letting fate decide where we were going to end up.

Rick Ruback:

So much easier than fighting about it, right?

Will Young:

It is, right. And so after six months, I actually found the company that I ended up buying and went through the deal process and then closed it in January of 2021, here in the Dallas-Fort Worth area.

Royce Yudkoff:

Will, I just want to pause on this decision for one second. I realize it's slightly tangential to search, but it's fascinating, which is you came from Dallas, your wife came from the Boston area, you were committed to live somewhere where there was family, but it could have been either one of your families, right?

Will Young:

Yeah. And it was really hard for us, especially when we were partnered search. You know, we were looking in Texas but we had a deal under LOI, the furthest we got was in Kansas City, which we had no connection there. And then my partner, his at-the-time girlfriend was from West Texas, so then we were pulling all these different directions, which is I think part of the reason why a partnered search is very hard. And when you're in your late 20s, life kind of happens. You know, my partner got engaged during the course of that search, and married, and so his life was changing. And then I got engaged. When I relaunched on my own, it kind of got simpler and it was like, “Okay, look, we'd already been doing this long distance thing.” It had been very challenging on us, personally. But to be able to control at least the places we look. You know, we were talking, “Oh, what do you think about Chicago or Washington DC or Miami or whatever?” Like, we were adding cities to the list but, you know, at least at that point it was a little bit more two people rather than four making the decision. And fortunately we ended up finding a place close to where my family is, and it could have easily happened in the Boston area too.

Rick Ruback:

Can I slide backwards, Will, and talk a little bit about the difference between the partnered search and the solo search?

Will Young:

Sure.

Rick Ruback:

My first question is, the business you bought, Aerowave, had that arrived during the first partnered search, would you have bought it?

Will Young:

Yes. I think we would have. I just don't think we would've found it, as a partnered search.

Rick Ruback:

Tell me why.

Will Young:

So, I bought Aerowave out of a proprietary outreach campaign. And this is shame on me – I took the class, I was in the club, you know, I read the books, all that stuff. And despite all that, I made a bunch of mistakes, I think, when I was searching. And, you know, one of the things I knew was that we were going to have a hard time, after a while, finding a deal via brokers. Like that was a path, but that shouldn't have been our only path. I think we had a little bit of a collective action problem, where we weren't both equally committed to the search. My partner had a startup he was working on and now he's running that full time, and so he was very distracted by that. And he didn't want to go and do the grunt work to set up a proprietary search, which is two or three months probably of work to build your list and get the tech stack set up and all that stuff. I think we would've bought Aerowave together – it fit all the profile of what we were looking for – but I don't think we would've found Aerowave because Aerowave was not going to be a broker deal ever. And that was part of when I reset was, “I'm going to do a proprietary search and I'll keep my eye on the broker market, but I've already tried this.” The broker market didn't work for us, you know, for whatever reason, and lo and behold, that's how I found the company and ended up acquiring it.

Rick Ruback:

So let me unpack that a little bit because there are so many interesting thoughts and ideas there. The first thing that comes to my mind is that one of the differences between you and your partner was you were very committed to Dallas and Boston. Sounded like he was a little more open to different geographies. And so I get there's a difference in search strategy because if you're deeply committed to a particular geography, then it's belt and suspenders time. You do everything to find every potential deal in that geography. Certainly, you keep on looking at the brokers, but you also do the proprietary outreach of the kind you described. And I suppose you should also do the Chamber of Commerce, you should do the business breakfasts, you should do whatever you can find to put you in front of people in the region, particularly organizations that might have firms that are the size you're interested in. So, it makes sense that if you had some difference in commitment to, for example, the Dallas region, it was hard to do a really focused geographic search with two of you because that really wasn't his agenda.

Will Young:

Yeah. I think Dallas was the part of the bullseye that we both wanted to live in, but he and his wife were willing to look at other areas than maybe me and my now-wife were willing to look. So, I think we were both geographically constrained. It's just that we weren't the same geographically constrained.

Rick Ruback:

I mean, I see the Venn diagram with Dallas as the overlapping piece. But then the rest of the circle is not so much. My recollection is the business was around a million dollars in pre-tax profits when you bought it. Is that about right?

Will Young:

It's about a million and a half.

Rick Ruback:

About a million and a half. So, would it have been big enough for two of you? It fits you like a glove, but would it have worked for two?

Will Young:

When we were searching together as a partnership, we had a pretty firm rule that we weren't going to go much below a million bucks of EBITDA, and this was true when I was by myself too. I just didn't want to buy a job. You've got kind of a small window where you're trying to find something big enough to be dynamic enough that it's not just a job, but it's not so big that you can't afford it with SBA debt. And so you're in that like million to million and a half, $2 million EBITDA range. And so anything far above two, I think you have a hard time taking it down without SBA debt. And so that sort of changes the model. I think Aerowave, in particular, was run by a husband and wife. And so at the beginning for sure, I thought, “Well, having a partner would be helpful because we could split up the roles and each fill different gaps.” I think we would've bought a business like Aerowave or Aerowave had it come across our plate but, you know, we didn't. And so I bought it by myself because it fit really well for me, you know, from a size perspective.

Rick Ruback:

So, can you tell us a little bit about the company?

Will Young:

Sure. We're a safety security technology solutions company, mostly focused on two-way radios in the K-to-twelve education, hospitality, healthcare, industrial spaces – not public safety at all. And then we also do surveillance cameras, access control, and a few other things. But we're a Motorola channel partner, so Motorola is kind of the straw that stirs our drink, if you will. And so we're selling effectively Motorola walkie-talkies and systems and stuff like that to enterprise clients, across Texas mostly but some across the country as well.

Rick Ruback:

So, is it primarily safety focused if a business is using two-way radios as part of their ordinary communications?

Will Young:

Yeah. It's actually one of the things that has changed since I bought the company, is narrowly defining what we do as opposed to, you know, lots of people buy walkie-talkies for lots of different reasons, but if you're going to spend $1,500 on a radio or seven figures on a system, you're probably doing it to keep people safe. Like, there are tangential benefits in terms of efficiency and, you know, there are certainly reasons a manufacturing plant or something like that would want it to make their operations run more smoothly. But the main thing is risk mitigation, in particular, making sure that something terrible doesn't happen to somebody. And we're really big into schools. Like, over half our revenue is in schools. And so that story that we're communicating and that we're hearing is about keeping students safe at a school campus. And so there are other reasons to buy radio, but the reason that we define our target market and what we do is really focused on safety.

Rick Ruback:

So, can we dig into that a little bit?

Will Young:

Sure.

Rick Ruback:

I don't know much about two-way radios, but I know there's a frequency and the radio is tuned by usually a professional to that frequency. And people who share that frequency can hear it. I don't think it's a very secure communication, is it? Or what you do is make it secure?

Will Young:

It depends. So, public safety, this is not our world. We've dabbled in it a little bit, but it's a different thing.

Rick Ruback:

And by public safety, you mean like police…

Will Young:

Police, fire...like, I know y'all had Mike Orzetti on. He and I are pretty good friends because we're in the same world, but he's very focused on public safety. That's all encrypted. So, all the police and fire radios, that's a specific frequency band that they operate in that's all encrypted, so it's very secure. What we do is UHF mostly, ultra-high frequency stuff. You're still getting licensed by the FCC for a very specific frequency at a very specific location. And there's some ways that we can set it up to where it'd be very, very hard to listen to the communication. It's all very custom to what each client uses. And we file, I don't know, twenty or twenty-five FCC licenses a week. So, there's tons of these things out there. So, it's not as secure as public safety but it is a fairly secure communication avenue.

Rick Ruback:

What is the difference between a business that uses two-way radios for their night watchman and a radio system you'd put in a school?

Will Young:

They're not really different. Like, one of our biggest clients is a huge school district with seventy-seven campuses. So, what they need versus what the night watchman at a 50,000 square foot warehouse needs is completely different. And so how you set it up, that's the secret sauce. That's why we exist, right? Because you can go buy the same equipment from anybody, but what we do is we'll set up the system specific to whatever your needs are. So, if you're trying to cover in-building radio coverage across seventy-six campuses and, you know, a hundred square miles, that's a completely different need than somebody who needs six radios to make sure that their plant isn't getting broken into or that if a machine goes down that, you know, you're telling the maintenance people, “Hey, come over here and check it.” So, even though the building blocks are basically the same, the equipment is more or less the same, how you put it together and the scale and the scope of that is completely different.

Rick Ruback:

So, it's bigger, more complex installations that you specialize in.

Will Young:

Correct.

Royce Yudkoff:

Will, could you take Rick and I to sort of the moment of contact with the founder-owners of the business? You had pivoted from working through brokers to outbound proprietary calls. Tell us where you caught this business in the seller's journey, why they were selling, and tell us a little bit about how you got them to engage with you.

Will Young:

Yeah, that's a funny story. I had built this email outreach campaign system, that I'd learned from another searcher, that was very good at getting at least people to respond. And so I would get on the phone with folks and talk to them about their business. And you learn pretty quickly whether or not these are serious sellers. Usually within the first couple of questions I would ask them, "How much revenue do you have?" And if they said, "Oh, well, last year was tough but two years ago we did a million and a half," I knew it was almost certainly too small. And then I would always try to end the first call with an NDA and a commitment to share financials or tax returns. And so if they wouldn't share that, then I knew they weren't really serious about selling and so I would disqualify them, leave them on the back burner, and maybe they would change their mind. This was like April, May, June of 2020. So, like part of me was thinking, “Okay, I'm not going to be able to buy a business right now. This is COVID, but at least I can be talking to people and building relationships.” I mean, I was two years into effectively a failed search, so far. And so I was pretty desperate and I was like, "Look, I’ve got to build some deal flow, and maybe I'll get lucky and one of these businesses won't be impacted by COVID and they'll still sell it." So, when I reached out to the husband and wife who owned Aerowave and said, "Hey, let's have a phone call, feel each other out” they were in the hospital with COVID. And so I was thinking, “This is not an auspicious start.” But again, at this point, it's one of twenty phone calls you're having in a week. But we rescheduled the call and it was very clear, very quickly like, “Okay, this fits a lot of the profile that I'm looking for.” They told me what the size range was from a revenue perspective. They shared their tax returns very quickly. We started talking valuation and we were in the same ballpark. I thought that they had a good reason for selling, and that turned out to be a little bit more of a bugaboo than I realized. They had been running the business for twenty years. The husband had worked for his dad's company that was similar for thirteen years, so they had been doing it for a long time. The business was growing.

It was really attractive from all those perspectives. The Motorola thing was a big deal to me because Motorola is the 800 pound gorilla in our industry. And so, you know, it was very clear there was something here, right? We worked our way very quickly through the IOI process and signed a letter of intent, and this was in September of 2020. And they wanted to get the deal done before the tax law might change. They wanted to make sure we closed in 2020. So, it moved pretty quickly. The QoE showed up nothing. It was very, very clean. So, that was good. But, you know, I had to build this relationship and ask them questions, and you're not going through a broker, but they seemed very serious about selling. And that was always my concern. But one of the deals I'd had under LOI in the broker deal, the guy had gotten cold feet in the last month we were under LOI, so I wasn't really sure that just because you have a broker means you're committed to selling. I have a lot of scars and war wounds from the search process. And so, you know, this one fit and ended up, of course, closing it and buying it.

Royce Yudkoff:

And, Will, you are one of these searchers who's done both brokered search extensively and proprietary search extensively. And this is one of the great divides in search. You know, people believe that brokers are a more efficient way to get to prospects. Others think you just do better finding someone who's ready to sell but hasn't gotten started. And, of course, if it was an easy answer, the world would unite around one of these. The obvious answer is that both have merits. But how do you evaluate these two paths to buying your own business?

Will Young:

I think that if you're a zealot on one or the other, you're probably wrong because, at the end of the day, you're trying to buy one company. And so however you get it is the way you should get it. And I hadn't given up on the broker channel. I monitored it but I wasn't committed to it like I was before. But, you know, if you're going to do a nationwide search or something like that and you're going to get a ton of flow, then I think brokers are great. And if you're doing a local search, you're going to have to do some proprietary stuff in order to find the right deal. And so I don't think there's a right or wrong answer. The right answer is the one that gets you the deal that you buy because ultimately it's about getting into the game, not being on the sideline.

Rick Ruback:

So, you just said that for the year and a half you had searched with a partner and then six months into your own solo search, you weren't feeling like you were getting a lot of traction. What did you say? You were a failed searcher?

Will Young:

Yeah. Until you buy one, you fail.

Royce Yudkoff:

That seems harsh.

Will Young:

I'll put it this way. You know, my classmates have done all these amazing things. It's not the ones who got a job at Apollo or something that you're thinking about. It's the guy who bought the business six months in and he's been really successful and blah, blah, blah. Because that's like, “Why did he do it and I couldn't?” There's that. I had this tough, long-distance relationship thing that now fortunately is in the rear view completely and everything's great, but that was really hard. And so I'm being a little bit tongue-in-cheek when I say I was a failed searcher, but you feel like that every day. The one thing I will say that I'm super grateful for – because I said it's a binary outcome. It's not. There's three outcomes. There's don't buy a business, which is a bad outcome. There's buy a good business, which is a good outcome. And then there's buy a bad business, which is a really bad outcome, right? And so I had avoided that. I wasn't so on tilt that I had gotten that desperate to buy just a crappy business. But you take that home with you or, if you’re like me and you work from home, you literally never leave it. And so it's a tough thing.

Rick Ruback:

And at that time, your now-wife…?

Will Young:

She was in Boston. So, we got engaged in November of 2020, way under LOI. Like, we were in the last month of diligence. I was going to propose to her, regardless of where the diligence stood. I wouldn't recommend that you combine those. Those are independent outcomes.

Rick Ruback:

You didn't think about it as one more LOI?

Will Young:

No. The screwy thing is it does feel like your whole life is kind of on hold during the search. It is very hard on your significant other to say, "Oh, well, we're going to buy maybe some business somewhere and we're not going to make very much money at first. We're going to have a lot of debt. It's going to be personally guaranteed, but one day it'll work out." And so you've got to be able to communicate that well.

Rick Ruback:

Yeah. What an interesting personal journey. I mean, you're a pretty psychologically sturdy human being, but it feels like that was trying.

Will Young:

Yeah. You just carry it around with you all the time and it's tough. But I don't think I would've stopped. I never really thought about what else would I do in my professional career because this is all I ever wanted to do. I think that was part of the reason why I was able to keep going, is this was what I was going to do, no matter, come hell or high water.

Rick Ruback:

Yeah. This is what you were built to do.

Will Young:

Right.

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Royce Yudkoff:

Rick, Will spends a lot of time vividly describing how long and difficult the search was, and I'm sure a lot of listeners are going to be wondering, “How can it be that there are so many tens of thousands of smaller businesses that come up for sale each year, and yet it takes on average eighteen months to close on a business – longer in Will's case. How can you at once have a difficult journey to buy and such a tsunami wave of small businesses pouring over you?” And Rick, as you know, when we're faced with a difficult question, I like you to go first.

Rick Ruback:

Yeah, I love that discussion on Will and I will say that it resonated to me personally, not because I've ever felt that frustration of searching for a business but I did write a PhD thesis and I will say that even today, when I'm working on something and it's taking longer than it should and my frustration levels are pretty high and I'm not sleeping well, I wake up in the morning after a night of tossing and turning and I say out loud, “I've got to finish my thesis. I've got to finish my thesis.” Now, I finished my thesis when I was 25 years old. I’m 70 now, but I still remember that emotion, that frustration of needing to get this thing over the finish line and it just being so slow. So, I empathize with Will's frustration a lot. And I think the analogy is not a bad one in the sense that just as writing a PhD thesis takes some time, when you're buying a business, you have to find the business, and a business that might work for Will won't work for me, and one that works for you might not work for me. So, it’s a very personal decision. I have to find the business that's going to fit me, that's in the size, and the place, in the industry that I'm comfortable in. And the nature of businesses is they don’t come up for sale all at the same time, where you could just look through the menu and say, “Aha, yeah, that's the best one for me.” So, there's this uncertainty about when they arrive, the fact that they're all so different. In other episodes, I know we've talked about the real estate market as a very bad analogy, and this is another example of where it's a bad analogy, right?

Royce Yudkoff:

You can see all the houses for sale at once. But with a business, you're always asking, “Is this good enough or should I search onward?”

Rick Ruback:

Right. And if you look at the condo in Back Bay in Boston and you decide not to buy it, and then three months later you wish you had purchased that condo in Back Bay, it's not a problem because one very similar is going to come up. Because there are a lot of condos in Back Bay. You know, it's just a different analogy, right? It's not the same.

Royce Yudkoff:

Right. Now, let’s get back to the conversation.

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Rick Ruback:

Tell us a little bit about running the company. As I recall, it was a bit of a challenging transition.

Will Young:

Yeah. And I've talked to lots of other searchers, and you’re buying a business that is built for someone else. Not for you. And so, for me, Aerowave was built around a husband and wife that had done it for, in the husband's case, thirty-five years, the wife's case, twenty. They were the nerve center of everything. There were about twenty employees when I bought it. The business was growing, and nothing from a process perspective or a hiring perspective had been, I’d say, systematized. And so, you know, the year before I bought it – this is one of the things I missed during due diligence – was that about fifteen of the twenty employees were new within a year of me showing up. And so the business already, internally, had a lot of cracks in it. I bought it in the middle of COVID, where we supply electronics, right? And so that supply chain, when I bought the company, for Motorola was like a week. Well, later that year and in 2022, it was like twenty-eight weeks. And so that just changed your whole perspective on like the way we do business. And so I took a lot of lumps that first year. The business was built around these two people. They're still there, but they're not running the business. They want to run the business, but they don't want to run the business. That was really confusing and difficult. The whole business was built around a homegrown ERP CRM that they had written, and then the wife had all the major accounts, they were her personal relationships, basically.

And it's a technical product. I didn't know anything about radio. It's not super technical in that you can't learn it, but I didn't know anything about it when I bought the company. And so, you know, I had to keep them around for a while and try to pull some of that knowledge in. And I didn't want to lose our ERP CRM system. And then we had the supply chain problem. So, we had to start building inventory when we didn't have a lot of cash. And then Motorola, in 2022, raised the prices 45% across four price increases. It was challenging. I had a very rough start in that I think a lot of the bookings have been done early, before I bought the company. And I know there's ways to protect yourself but, again, I had these two people I had to play nice with, right? And so I wasn't going to start trying to pursue legal action to get $200,000 or something from them to make up for the lost revenue. It was really painful at first. Financially, the first three or four months were not good. And then the business basically just bounced right back to what it had done forever before that and we've been on an upper trajectory ever since. And we had a culture problem. And changing cultures oftentimes means changing people. So that was a very long, slow process.

Rick Ruback:

Wow, there's so much there. So, let's peel this onion back a little bit, if we can. There's so many layers to it. It seems like a perfect storm. You have sellers who were not only involved in the day-to-day operations of the business, but it sounds like they were the nexus of the business. That is, everything went through them. And so replacing them meant you somehow had to become that nexus, but that was really hard because they were still there.

Will Young:

I started going and talking to our clients. And one of the things that attracted me to Aerowave was we have these really great, blue-chip clients that have been around for a long time that keep buying from us. They're big school districts and hospitality chains and stuff like that, that had been working with us for fifteen years. And so, you know, I knew that there was a lot of stickiness, but what I didn't know is are they buying from Aerowave or they buying from the old owners? And so you've got to be really careful and thoughtful about that because at first you're really always worried about risk mitigation, right? Like, nobody's worried about, “Can I triple the EBITDA of this business in five years?”, because I got to make sure that we can make payroll, you know? And so that’s what you’re really worried about. Basically, part of it was I just sort of did a little bit of everything to figure it out. And there were a lot of headwinds that we've talked about, but there are also tailwinds that we haven't, which is that we are in school safety and school safety is a really good place to be. So, I don't want to sit here and say like, “Oh, it was all bad.” It wasn't. There were good things that were happening as well. And so as you take over this business, demand's stabilized and then you're trying to worry about one thing at a time. And so we, after about six months, we started looking at EOS, which is entrepreneurial operating system, and actually started implementing that. And that allowed us to, instead of worrying about everything at once, you worry about one thing at a time and worry about, “Okay, this quarter we're going to focus on getting an Operations Director.”

And I didn't know this before I bought the company, but I learned how to sell reasonably quickly. And it's not incredibly hard to sell if you're the owner or CEO of a business. I could do that and I could build the relationships with the clients, and all that kind of stuff. And I found I can't replace two people, especially one of them was super technical, and so I'm not a very super technical person. And we found somebody to come in and learn the technical and to run our technicians, and so that part went away. Eventually we moved into a new ERP, so that risk went away. But you had to do this one block at a time. I was always worried that the sellers were going to do something that was going to mess up the business, but we had a big seller's note that protected us. My lawyer did a good job of making sure that the ERP was going to have an evergreen license that they couldn't pull. But I was terrified. Just because it says legally they're not going to do this, or just because they have this seller note, it doesn't mean that emotions aren't going to get running because it was very emotional for everybody at that point in time because you're taking over their business, they don't want to leave. Any change you make is, “Oh, your baby's ugly”, which isn't necessarily true. Like, I have a ton of respect for what they did. But I also need to run the business the way I think I should run it. There's nothing wrong with either approach. It just, it wasn't going to work for me to run it the way they were running it. The challenging part was, you know, how do you get through that process? Because I think a lot of sellers are like, "Here's the keys. I'm out of here." And some of them are not like that at all. And that was kind of more my experience.

Royce Yudkoff:

Your transition with the seller was at the long end of what Rick and I see. Usually it's sort of, I don't know, Rick, three to six months would be more common. And you ran about a year.

Will Young:

I ran over a year. Yeah. I mean, the husband, who was kind of the technical resource, wasn't here very much. He had a role, you know, which was maintaining his ERP for almost two years after I bought it. I didn't think I had another path, other than trying to make nice for a long time to make sure it worked.

Rick Ruback:

And then you had the employee turnover to deal with. And you relate that to culture, but doesn't it take time to find and train employees? That must have been a challenging moment, particularly that it's occurring in the midst of COVID.

Will Young:

Yeah. It was and remains challenging, right? Like, it’s never over.

Rick Ruback:

Never ends, right? It's great to get that client, but then you have to find the…

Will Young:

Somebody's going to move, a health thing's going to come up, like, you're never really done with it. You know, we're in a pretty niche industry. Like, there's not a lot of radio RF technicians that are just on the street walking around, right? The biggest thing, at first, we rebuilt the business from the inside out, so we focused primarily on the operations side first. And a lot of the technicians that worked here had recently been hired. They weren't very good, but I couldn't really tell because I didn't think our operations guy was very good. And so then we had to replace him, and then the new operations guy, who's still here, fortunately, started to ferret out like, “Okay, this guy's good, this guy's not, we can work with him. Here's where we need to go.” So, I got a lot of help in that and I was very lucky that we found a really good operations guy very quickly to start to stabilize that. But it took him two years to find the right technicians, figure out what the profile of that person should be. Now we have enough of them and they're really good that it's a lot easier to take a risk on a technician. A, there's already a culture established. B, there's already knowledge that can be transferred from the other guys. And you're recruiting out of an abundance mindset rather than a scarcity mindset. It's really, really hard to find somebody when you really, really need them. Because every minute you don't have them you feel it all the time. And so it's gotten a lot easier of late. Fortunately, all that time, our clients were still here buying from us. We were still doing stuff. I was still getting out in front of them and building relationships with them and figuring out what the world looks like for them, and was able to stabilize, maintain, and then start to grow the business throughout that whole process.

Rick Ruback:

Wow. What a process.

Will Young:

And there was a chip shortage. Everybody knew about this back then. And then inflation was crazy, and especially in electronics. And so we had to start building inventory because I looked at this and when I bought the company, we had about $200,000 of inventory on the shelf. They were just in time, basically. And then at the end of 2022, we had $2.8 million in inventory. So, we built fourteen times our starting inventory balance over two years, which was a huge suck on cash, right? And so that made it really challenging. But my view on it was, “Look, if we don't have radios, we don't have revenue.” And I would much rather have low cash than low revenue. And it has since become a pretty major competitive advantage for us, that we were able to spin a negative into a positive and that a lot of our competitors didn't do that. And we just won our biggest deal because we can deploy faster than anybody else can. So, we took a weakness and it was painful, but we've turned it into a strength, you know, over the course of the last couple of years.

Rick Ruback:

So, that sounds like a great accomplishment. So, your transition challenges – you basically had to replace two embedded owners, you had to turn over your workforce almost entirely, and you had to reinvent your business model.

Will Young:

And put in a new ERP system too.

Rick Ruback:

And put in a new ERP system. That's a pretty aggressive couple years.

Will Young:

Yeah. It sounds a lot harder, in retrospect. I mean, it was hard. I don't want to understate that. But we had demand. We had clients that wanted to buy from us that kept buying from us. If you didn't have to do any of that stuff, but there was no demand or the demand was dropping, that's a way harder problem, in my opinion, to solve than the ones we had. I always tell people, when I talk to other searchers or even employees that we’re interviewing, I missed two things on the diligence side. One was the fact that all the names on the payroll registers were different when I bought the company than what I was looking at in the payroll registers. So, there's this culture problem. And then the second thing, but on the positive side, was that I thought I was buying an old economy walkie-talkie business, which I did, but that we were in this cool inflection point to where there's all this demand, the market's changing pretty quickly. Our competitors, I think, are not incredibly tough. And we have all these other growth levers we can pull that Motorola exposes you to. Like, we're attached to this company that when I bought it, Motorola was like a $40 billion company. Now, four years later, they're like $77 billion. And so there's just all this cool stuff that's going on in our industry. You can fix the culture thing. You can't fix the demand side of this. And so that's why I'm more rejuvenated today than I was back then, because I see this huge growth avenue for us to continue to do what we do.

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Royce Yudkoff:

Rick, you and I talk a lot, some people would say endlessly, about how it's important to buy a business that has recurring revenues, stable customers, low economic cyclicality, low customer concentration – or, as we like to sum it up, is an enduringly profitable business. And there are a lot of obvious reasons why we think that's important but Will is giving us an additional reason, and that is when one owner hands off the business to another owner, there's going to be a lot of learning, a lot of change, a lot of shakiness right at that moment, and you want to buy a business that will power right through that.

Rick Ruback:

One of the things that I found really refreshing about Will's discussion there is that that occurred during COVID and so there was this sea change in the way business was being done. You know, a lot of his customers are schools and the schools in lots of the world were closed. And yet what he did was say to himself, “Self, when I did my due diligence, I was convinced that these are sticky customers who are reoccurring sources of revenue and they will come back. I can just be patient. I'm just going to float on this, let the wave go by, and then I'm going to get back to work.” And that's exactly what happened. But it would have been so easy to overreact because he doesn't know the business very well at that moment, right? It would have been so easy to say, “Well, maybe I got this reoccurring nature wrong.” But he didn't get it wrong, and he had confidence in his knowledge of the underlying business, from due diligence and the stickiness of the customers, and he knew he could just wait it out.

Royce Yudkoff:

Yeah. He was very disciplined in not making any big, hard-to-reverse decisions early on, before he really understood the business.

Rick Ruback:

Royce, let’s get back to the conversation.

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Royce Yudkoff:

Will, you're now just wrapping up your fourth year with the company. Rick and I have spent a bunch of time drawing you out on what that first year and a half was like, and you've portrayed that really clearly. Tell us what the company looks like now.

Will Young:

We are, let's see, about 70% bigger than we were when I bought it. Fortunately, revenue grew, but EBITDA margin went down and now we're clawing it back, you know, and it's headed back in the right direction. Like, I was running payroll back then. I was running commission reports every couple of weeks. I literally spent an entire day in an IDF closet at the Fort Worth Botanical Gardens, trying to fix a phone patch for the radio system with one of our technicians, which if that doesn't tell you what self-funded search is like, then I don't know what else does. I don't do that stuff anymore, right? Now I have a leadership team that I trust. We're continuing to grow organically within the two-way radio side of the business really well. We've started to do some real marketing pushes. We are trying to really crack the code on the surveillance and access control side because I think the total addressable market - like how many surveillance cameras are there on commercial and industrial and education buildings in DFW? It's, you know, hundreds of thousands, if not millions. So, that's a big growth lever we are trying to figure out. So, we're actually focused on growth rather than making sure that we don't run into the rocks. One of the things – and Royce, you told me this when I first bought the company – is that you should get out and spend time with the clients and effectively sell. Like, I had to sell, and I started doing that the first year, and I still do it. And I think that's the most valuable thing a CEO can do, no matter what stage you're in. You need to make time to go hear from the clients because that's where you figure out what they want or where their pain points are and you can position your business that way. And so I still spend a lot of time dealing with clients. We haven't completely filled out our sales team, so I'm still a primary sales rep in a lot of projects. That's the last bit of the reconstruction, if you will. That's the hardest. For some reason, it's just so hard to hire salespeople

Rick Ruback:

Oh, is it ever.

Will Young:

And especially for what we do. It's a long sales cycle. It's somewhat technical and you got to stick around a while to learn it. But you know it's way more enjoyable. And I could see a path to where we're going. And then selfishly, I guess, I now have two kids. My daughter just turned two, my son just turned eight months old. And so, you know, I want to be able to go home and see them at the end of the day, before they go to bed. And that's something that I think the old owners weren't able to do because they’re working until 2:00 in the morning every day. So, for me personally, it's a lot less stressful than it used to be, and that's really important to me, to be able to spend time with them. And, you know, I don't get that time back.

Royce Yudkoff:

And that's partly because you built a leadership team but probably also because, with several years under your belt, you now know what matters and what matters less, which is hard to tell when you first take over a business.

Will Young:

And the other thing is, at least for me, I think a lot of this stuff that we were struggling with was self-inflicted. We would sell something we couldn't support very well, or it was a one-off, and we had a lot of one-offs. And you figure out like, “Okay, let's just standardize this. And if we lose one or two clients over that, which I don't think happens, then okay.” It's worth losing a little bit of revenue in the short run to make everything smoother in the long run. And so you just figure that kind of stuff out.

Rick Ruback:

It's so interesting. So, you got to build the world that you want to live in. It took you a few years to get there, but you did it. Is it your hope that you'll stay in this business for a while?

Will Young:

I'd like to. I mean, first of all, I searched for two and a half years. I don't want to go do that again.

Rick Ruback:

You didn't enjoy that.

Will Young:

I still don't have any other career aspirations, right? I like what we do. Part of what's cool about us is we're somewhat of a mission-driven company. And this is one of the things that we've defined over time. We keep students safe. We empower those who protect others. That's a pretty cool story to tell to prospective employees, to clients, to prospects, whatever. I do think we make a difference to our clients. And, you know, if a school district calls us we can make their life a lot easier and safer – and we do. And we hear it all the time. And so that's the fun part. And so for me, I like the company. And again, I don't know why I'd look elsewhere, at this point. So, that’s where I am.

Rick Ruback:

I don't know why you’d look elsewhere either. It's been what effectively was a six-year journey to get where you are now. And, you know, as you say, you have to build the company in a way that works for you and you've done that. So why ever sell?

Will Young:

Right. Right.

Rick Ruback:

That's great. Well, congratulations on such a successful journey. You’ve accomplished so much. And I remember you came up to campus to come to one of our classes, and it was just towards the tail end of that first year. You were not the most cheerful person on earth, I will just say. But you're looking much better today, in spite of an eight-month-old. So, you're probably not sleeping much, but you still look pretty good.

Will Young:

Yeah. That's the other thing. Kids, they make you realize, that e-mail? You don't need to stay late to send it. You could send it in the morning. You rebalance on what's really, really important. I guess that's more of a life thing and a fatherhood thing, but that part's been wonderful.

Rick Ruback:

Well, you can't do it if you have a boss that says you got to get this done by 7:00.

Will Young:

Yeah. Right. Or if you have to go travel. I travel a little bit for work, but not much. You know, I don't have to get on a plane to San Francisco, which is what my life would've been if I had worked in private equity, right? I'd be going to Detroit tomorrow and then San Francisco the next day and then Nashville and, you know, all that kind of stuff.

Royce Yudkoff:

You'd be perpetually searching, is what you'd be doing.

Will Young:

That's right. You'd be perpetually searching and perpetually doing add-ons and perpetually selling. And again, I came from that world. I know it and appreciate, have a lot of friends that do it. It's just, for me, this was the right path and, you know, I was fortunate enough to figure that out fourteen seconds after I walked onto HBS campus.

Rick Ruback:

Well, and you'd be doing it for somebody else's pocketbook instead of your own.

Will Young:

Right. Right.

Rick Ruback:

That must help too.

Royce Yudkoff:

It's wonderful that we've really heard the whole arc of Will's journey, although there's more to come and we look forward to following that. Will, Rick and I have a habit of generally ending our interviews by asking our guest if they have any questions for us? If you want to turn the tables on us, you're welcome.

Will Young:

Yeah, I have a question. I come to campus and keep up with you guys pretty well. It sounds like there's a big groundswell of growth in the search world. And Dallas has a pretty robust search community that's not necessarily HBS, but there's lots of people that go to the happy hours and there's people interested in it that are maybe not the traditional HBS searchers, but mid-career or coming out of local business schools and stuff like that. So, I guess my question is, how much runway do you think there is for the search world to continue to grow? Or do you think we're getting close to a peak? Or is there just so much baby boomer illiquid wealth that's tied up that there's almost limitless runway still for searching to continue to grow?

Royce Yudkoff:

We get asked that question a lot because it's such a sensible question to ask, particularly for prospective searchers. And I'd offer two quick thoughts on it. One is that as we watch the prices at which businesses of different sizes trade for, with just a few exceptions in very specific niches, we're not seeing those prices rise that much. So, for example, businesses that have one to one and a half million dollars of EBITDA traded for four to five times four years ago, and they generally trade for four to five times today. And to us that's the canary in the coal mine when there gets to be too much demand, that more demand leads to higher prices. So, we think that there's a lot of businesses out there owned by people in their 60s and 70s, relative to the number of searchers. And the other point that I just add to that is, for the searchers, they need access to equity capital and debt capital. And the supply of that for searchers has increased dramatically, faster than the number of searchers. So, their raw material is becoming easier to access even though there are more searchers today for sure than there were four years ago. Rick, would you add anything to that or take a different view on that?

Rick Ruback:

I agree with all of that. I think there are more potential sellers, and I think there are more searchers. I don't think the market is so different. I do think that in the size of Aerowave, the business you bought and the way you bought it as an unfunded searcher, I think that market has lots of room to grow. I think in the funded market, it's a more complicated story because they're going up market, they're buying bigger and bigger companies, and as you buy bigger companies, you bump into smaller private equity more often. So, those multiples are, I would say, if you're looking at a business in the $3 to $5 million EBITDA range with, say, 75% recurring customers. What do you think the price of that is Royce?

Royce Yudkoff:

$3 to $5 million? I think it's going to be somewhere between six and eight times.

Rick Ruback:

Yeah. Good revenue quality. I think it might be seven, eight, nine times. And so, in that end of the space, the world is being crowded by independent sponsors, by smaller private equity firms, and by funded searchers. So, I think there's some more evolution to go in that market, as the various institutional forms of ownership sort themselves out. But in the unfunded market, I think there’s enormous amounts of runway. In the, you know, $750,000 to a million dollar, a million and a half dollars of EBITDA, I think, there's lots of companies for sale and lots of searchers. As you know, it’s hard to find a good one. That's why it took you two years plus. It's not easy to find a good one, and one that fits you as well as Aerowave fits you. That's a challenge. But I think they're there.

Royce Yudkoff:

I’d just add one point to what Rick said, which is underneath all this, there's an interesting opportunity for talented, hard-working searchers who can buy one to one and a half million dollars EBITDA business at a very attractive economical multiple and over five, six, seven years build it to be a two and a half or $3 million business. Not only is it bigger and more professional and obviously more profitable, but at that point you move into a new zone of multiples at which these businesses sell. So, you get paid not only for the higher EBITDA, but buyers will come along who will pay a higher multiple for that business, and it’s a big reward for searchers who are able to do that.

Will Young:

Yeah. That's exactly what I was going to say, is that you can buy at four times for a million and a half of EBITDA and then, over time, if you can sell it for seven or eight at three, and you basically put in almost nothing personally because of the SBA and all that kind of stuff, then your opportunity for a lot of wealth creation is there. Obviously, I'm compelled.

Rick Ruback:

The part that's really interesting to me these days is there’s a sub $750,000 of EBITDA businesses. So, my guess is that they're being acquired in a robust marketplace. It's a little bit different than the marketplace that an HBS graduate would look at. But I think there are lots of high-quality firms there, and we're seeing increasingly a strategy where somebody says, “Instead of buying a million dollars of EBITDA in one company, I'm going to try to buy three companies – maybe related, maybe not – that have three or $400,000 of EBITDA each, and I'm going to buy those at three times, and that's better than buying one company at a million dollars of EBITDA, and I'm going to spend one day a week at each portfolio business.” I don't know. That's an interesting strategy, but I have seen it increasingly.

Will Young:

Yeah. You'd have to hire somebody to run those businesses because…

Rick Ruback:

Right. They need general managers.

Will Young:

…they probably need more TLC than even Aerowave did, because it's just smaller.

Rick Ruback:

Yeah. But they can't afford much more TLC. That's the problem. So, you have this general manager who's there every day and the owner parachutes in one day a week and says, "Tell me all the problems and I'll solve them."

Will Young:

Yeah, good luck solving all the problems one day a week.

Rick Ruback:

Yeah. That's right.

Royce Yudkoff:

Well, Will, thank you so much for sharing your journey with us and for investing the time with Rick and me. It's a pleasure to see you again and hear your story and how well it's gone.

Will Young:

Yeah. Thank you. I really appreciate it. It was fun.

Rick Ruback:

Yeah. What a wonderful job you've done. Congratulations.

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Rick Ruback:

Royce, one of the things I'm intrigued about that Will did was that during this transition in his early years of managing the firm, he really recast the firm to one that fits him as a human being. It aligns with his skills, it lets him do what he can do best, and adapts the business to the life he wants to lead.

Royce Yudkoff:

I agree, Rick, and you and I see this a lot when searchers buy a business, because in small firms, they're operated around the way the owner operates. And when you change owners, they have different requirements for accountability, they have different levels of delegation, there's a whole sort of set of management style differences. And often employees will just make a decision that they want to work in a different environment or the owner will simply need to change some of the employees. It's not really a bad thing. It's part of the evolution and growth in a smaller business.

Rick Ruback:

That's right. When you start up a business, as the sellers had, you know, you put one step in front of the other and you probably never have the occasion to take a step back and say, “Does it make sense that every decision about how to service these customers has to go through me?” My guess is the seller never asked that question.

Royce Yudkoff:

And you and I often see businesses being bought and sold at that moment where the founder / owner cannot grow them any further because they've sort of maxed out in how many decisions they can make, and so the business sort of starts to go sideways.

Rick Ruback:

Right, but I think about it as like that frog in the heating water. If the frog looks in and touches that boiling water, the frog will say, “I don't want to be in that water.” But if you just turn it up slowly, the frog, it never gets hot enough, until it's too late for the frog to hop out. And I think the seller was like the frog in the hot water. As the business grew and it got more complex and more difficult to manage, that seller never had the occasion to step back and take a fresh look. Whereas Will, a new owner, takes a fresh look and says, “Wow, I can reorganize this business and make it much, much better.”

Royce Yudkoff:

Yeah, because I think the owner is making it work. He's on top of all these decisions. It's just that it's getting in the way of doing anything else with the business.

Rick Ruback:

The other thing that's related to this is that when Will reconfigured his activities, he went out and talked to customers. And I thought it was a really interesting description – because he never said it but his conversation really reflects it – that being the CEO and owner of a business is a superpower. And the fact that he didn't have the technical expertise, at least at the beginning, was small relative to the superpower.

Royce Yudkoff:

Well, and the fact that the owner is showing up in a customer's office is very respectful and flattering to that customer so…

Rick Ruback:

You bet.

Royce Yudkoff:

…they're kind of immediately in a good mood. Their instinct is not to test you on your knowledge of radio frequencies. Their instinct is, when asked, to talk about what you're doing well, what you could do better, other problems you could solve. And it's just a very positive interaction for customers.

Rick Ruback:

Right. “What do you, the customer, need? What's your willingness to pay? Are you happy? Are we providing an essential service in a way that satisfies and delights you?” Those are the questions. They're not going to give you two wires and say, “Let’s see how cleanly you can solder these together.”

Royce Yudkoff:

And Rick, you'll remember this. It was a huge moment in my learning, and perhaps yours as well. We had a guest in class who was a former researcher and bought a business and talked about how as soon as he had bought his business, he went out and introduced himself to each customer and asked them what else they could do for that customer. And then he said, “Every single good idea we ever implemented in this business came from a customer.” And that was the moment I realized this isn't just about selling, it isn't just about measuring customer satisfaction. Those are very important, but it's about knowing what to do next. The customers are going to tell you what to do next. And that's a huge benefit of meeting them.

Rick Ruback:

And what I find interesting is that some businesses think they can get that information through surveys. Let's ask the customer if they're happy. If they give us a five out of five, they're happy. And the truth is those surveys don't work nearly as well as a conversation because nobody wants to fill in the survey but when you're sitting in my office, it's really hard not to tell you what I'm unhappy about. And it's not a number you want. You want the nuance.

Royce Yudkoff:

I think the final knock-on effect of sort of getting out and bathing in your customers' opinions is that it gives you greater control of your organization, because you constantly have managers and employees coming to you thinking that a certain direction is right. But if you've talked to the customer, you are the one who understands what's important, better than they do. And it allows you to really run your organization internally.

Rick Ruback:

Yeah, you build the business in a way that makes sense from the customer's standpoint, not from some hypothetical standpoint.

Royce Yudkoff:

Rick, what a great conversation we had with Will Young. That was fun and interesting.

Rick Ruback:

He's terrific.

Royce Yudkoff:

Next week we group together and we interview the married couple, Connor McCarthy and Caroline Matthews, who talk about not only being married but running a consolidation of summer camps across North America.

Rick Ruback:

Looking forward to that. And Royce, I think now is a good time to ask our listeners to send us in some questions. Our last episode of the season is going to be us answering the questions that we hear from our listeners.

Royce Yudkoff:

That’s wonderful.

Rick Ruback:

Listeners, please send your questions. Our e-mail 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:

Craig McDonald is our audio engineer. If you have any questions, comments, thoughts feel free to just e-mail us, rickandroyce at hbs dot edu.

Royce Yudkoff:

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