Q&A: Unpaid Intern to Building a $2MM EBITDA Business: My Journey Beyond Wall Street
Hello everyone,
I've been an active participant in this vibrant community for quite some time (though I'm posting under a new account now). For a while, I've been contemplating sharing my experience of embarking on an alternative path that I believe is significantly overlooked. Today, I'm finally stepping up to the podium for an AMA session, hoping to enlighten those of us who have become singularly focused on traditional tracks like IB, PE, HF, tech, etc., and stimulate a discussion on the validity of less-trodden paths.
A bit about me:
- First-generation immigrant, in my very early thirties, journeyed from a non-target state school to an unpaid internship, and finally to a BB industry group
- Veered off the beaten path as a second-year associate to acquire a small, cash-flow positive business with recurring revenue
- Now into my fifth year, I'm anticipating approximately $2MM in EBITDA this year, achieved exclusively through organic growth (~10x) although I'm exploring some acquisition opportunities as industry consolidation has always been part of my plan
- My venture is in the 'commercial & industrial services' sector, an arena where individuals with Wall Street backgrounds are few and far between, particularly among clients, vendors, and competitors. This unique positioning has greatly helped me stand out
- I work 4-5 days a week, clocking in between 30 to 60 hours depending on my weekly goals and mood; I make it a point to take a month-long sabbatical every summer, maintaining minimal contact for emergencies
- I've been fortunate to build a solid team and implement efficient systems, allowing me to focus on what I love: strategic planning, business development, and visionary pursuits
My journey hasn't been an easy one, and it certainly isn't a path everyone would be comfortable pursuing. There were countless challenges to overcome, with plenty of late nights and setbacks that tested my resolve. Yes, there were moments of doubt, but each step, each decision, and perhaps a little bit of luck, brought me to where I am today. This venture has been as much a lesson in personal growth as it has been in professional development.
I should make it clear: this is not an attempt to glorify my experience, but rather to illustrate that the road less traveled can indeed lead to rewarding destinations, and to encourage a wider perspective on career choices.
If this thread sparks interest, I would be happy to delve deeper into my experiences, perhaps turning this into a series that chronicles my journey, challenges, and learnings. I believe many of you may find it insightful and potentially inspiring as you consider your own career trajectories.
So, feel free to ask me anything. Let's ignite a thoughtful conversation about our career choices and the multitude of paths available.
Looking forward to your questions and comments!
Thank you for your questions. While these queries would indeed require a comprehensive discussion for full clarification, I hope to provide some high-level insights in the following response:
Our business operates on a delivery model. We generate nearly $2 million in EBITDA with just over $1 million in equipment debt, typically financed at 5-7 years, 100% LTV. Whether that's considered "asset-heavy" is subjective and I'll let you be the judge of it.
Our sales process mirrors the standard B2B model, which involves lead generation, qualification, negotiation, and closing. Our business is relationship-centric, much like most B2B businesses. The combination of a unique selling proposition and personal likability gives us a significant competitive advantage. I've always had a knack for sales and hustling, and I find these traits are commonly shared by those in IB as well.
We have seen approximately 50% organic growth year-over-year. In addition to this, we explore growth through the acquisition of competitors or the introduction of new business lines, often at attractive valuations of 3-6x EBITDA. I am currently considering an acquisition that could potentially double our size to about $5MM. Our strategy is straightforward: acquire cash flow at the right price and enhance returns through organic growth. I firmly believe that a few years of experience in high finance provide the necessary skills to execute this strategy.
While we fall into the category of "extremely lower middle-market", the size does not diminish the significance of our company. We are more than just a statistic on a pitchbook. We support the livelihoods of 25 families, which is invaluable to me. Moreover, I believe my level of autonomy, lifestyle and quality of life far surpasses that of most MDs, though that's a discussion for another time. Besides I don't really answer to anyone except my clients but that's another story...
In terms of net income, we indeed have a positive figure. Nonetheless, every December, we undertake an exercise to strategize how to lower our tax burden, typically through Section 179 depreciation. It's crucial to maintain a certain level of positive net income for bankability and to assure vendors of our creditworthiness. Interestingly, our vendors' credit departments show a peculiar interest in SE, despite operating in a high-depreciation industry where most companies are family-owned and often do not report high net incomes.
I hope this information is helpful, and I'm open to delving deeper into any specific areas you'd like more information on.
How did you come up with the funds to acquire the business in the first place as an IB associate? What convinced you to commit to this FT instead of staying in banking or going to the buyside?
I've always had an entrepreneurial spirit, which I felt was somewhat stifled during my time in IB. Growing up in a country where most people own their own businesses out of necessity, due to the lack of well-paying jobs, has shaped my perspectives. This landscape is slowly changing with more options becoming available, including IB, but this shift is a more recent development compared to the situation in the 90s. This was when my family moved here after our own family business went bankrupt.
I did aim for a career in PE and found myself as a finalist in numerous selection processes. Unfortunately, things didn't pan out with the funds that I had set my sights on. In retrospect, I see this as a blessing in disguise.
How did you go about acquiring the business? What were the legal / accounting costs?
For now, regarding legal costs, they totaled around $20k at the time. It's crucial to bear in mind that legal fees have significantly risen since then. I was fortunate to have a superb lawyer who provided a fantastic deal, given that my growth strategy was rooted in acquisitions. However, we parted ways last year (he fired me) when I questioned the more than twofold increase in his rate.
As for financial due diligence, I handled most of it myself. I hired a CPA solely for bank reconciliation to ensure the numbers matched, which cost about $2.5k.
In the post-Covid era, I would expect these costs to be higher. Nonetheless, the depth of the work—and consequently, the cost—largely depends on your requirements. You definitely won't have high-finance level closing documents, nor would it be worth it. Are you genuinely going to sue someone for misrepresentation resulting in a $30k discrepancy in EBITDA, even if it represents about 15% of your initial EBITDA? Probably not...
IDK what you are complaining about. BMW prices have nearly gone up twofold, which we all know is an operating cost for competent lawyers.
Source: https://www.cargurus.com/Cars/price-trends/BMW-M3-d390
What resources did you utilize when you first acquired your business? What other resources would you recommend?
Did you initially plan on your current strategy of rolling up competitors before buying your business? Do you plan on selling the business to lower MM PE at some point or have an exit strategy / "number"?
Congratulations on your success!
Great questions. When it comes to resources, once you step into the "self-help" sector of the real economy, it can be challenging to find quality resources like WSO or M&I. I've made it a point to steer clear of platforms like Reddit or advice in the vein of Grant Cardone, however I've found valuable insights in studying how tech companies build their modern sales teams. One particular book that comes to mind is "Predictable Revenue." I'm currently incorporating some of these techniques into my more traditional industry.
Remember, the diligence process learned in investment banking remains crucial and will set you apart from others. Engage with stakeholders at every level of the supply chain you're involved with or interested in. Whenever I encounter a problem that's difficult to solve, I always ask myself: "Who can offer free advice on this issue, and genuinely has my best interests at heart?" The answer typically points me to one of my vendors.
As for your second question, yes, the original plan was always to roll up competitors. However, I found that driving organic growth is not only more cost-effective but also more enjoyable. Like a managing director, I invest significant time in phone conversations with my clients, brainstorming ideas. Despite my product being commoditized, it's the value-added services, innovative ideas, and relationship building that keeps clients with us.
Regarding an exit strategy, I initially envisioned selling at an EBITDA of 10 MM for 8x. However, upon reflection, exiting at that point doesn't entirely resonate with me. I'd still be in my 30s and would need to find another venture. My current plan is to continue buying cash flow, either within this industry or a parallel one, and see how far I can stretch. The concept of building a large succession-like (lol) empire is increasingly appealing .
bump
Thanks for sharing.
Could you possibly give us a bit more context behind what motivated the change from WS to your new venture?
Thanks.
Hey guys, thanks for all the questions, will get to work on giving you some more answers tomorrow…
Interesting you don’t want to talk about daddy’s funds used for the acquisition
Who hurt you, bro?
Could you please give more color on:
Thanks for sharing your story!
These are all great questions. The decision to leave IB came after a lateral switch that led to a quick burnout. A few months later, I found myself discussing an exit with my boss. I was granted some time to explore other opportunities, but both internally and externally, it was a challenge to convince myself and others that I wanted to continue in the same vein.
When I consider my initial projections from when I first acquired the business, we've outperformed them by a factor of at least 2x. It's an insightful realization to see that the 80+ hours a week you spend in high finance can be channeled into more rewarding ventures.
As for your last question, the future is always somewhat uncertain. My company's value proposition has always been our competitiveness and transparency. Clients appreciate knowing that they aren't being taken advantage of. Our adherence to this mission has led to consistent growth, even during periods of market instability such as the pandemic or the conflict in Russia. Companies often lose sight of fair pricing during tumultuous times, making them vulnerable to greedy vendors. This provided us an opportunity to steadily increase our market share while others were exploiting the situation.
The risk/reward calculation was straightforward for me: the objective was to earn a comparable net income while running my own company, instead of laboring over logo arrangements until the early hours of the morning. Plus, when the day comes that I choose to step back, I'll have something of value to sell. In contrast, the day you decide to leave finance, the paychecks stop. I still remember a story from my old boss; as a VP, he was having his firstborn, his associate brought a financial model to the hospital for them to review together. That was a clear signal for me to exit.
Reflect on why you initially chose to work in IB. For me, my current role marries the salesmanship of IB and the principal investing of PE without the grueling 80-hour weeks spent on minor details for someone else. In my view, I have the best job in the world.
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OP, thank you for taking the time. I've been considering an SMB acquisition myself so would love to hear more about your experience.
1. How did you finance the acquisition and at what multiple? Did you use an SBA loan? If so, what was your LTV? How did you fund your equity commitment?
2. What were some difficulties of the business going in you were aware of in diligence? What were some difficulties that arose you didn't anticipate after close?
3. How did you find the company? Were there any issues you had with the seller? How long did it take to close the transaction, from first meeting to signed LOI to wiring the cash?
See responses below.
Bump
Start by looking for a business that has a cash flow of roughly $200k-$300k before factoring in your growth projections. This cash flow should include any salary that the current owner pays themselves, which would be your future salary, remaining profit, and addbacks. Despite my second-year associate salary being higher than the estimated cash flow from the business, my lifestyle didn't change drastically since running your own business is significantly more tax effective. During the first year, you might see growth from fixing small issues (underpricing, billing practices, salespeople conflicts of interest, etc.) and adding a few customers. However, prepare yourself—it might take a year to become fully comfortable and deeply understand the business.
Depending on the quality of the business and the industry, I'd recommend paying a maximum of 3x for a business of this size. As an associate, you likely have close to $200k in savings. The remaining 2x can be structured in a variety of ways: 1x from loans and maybe 1x in seller financing/earnout. I personally avoided the SBA route as it seemed cumbersome at the time. Keep in mind, you'll probably need additional capital for working capital. You can increase the loan size or the equity contribution through friends and family, mentors, etc.
The entire transaction took about six months to complete. I had a backup acquisition option at a much more favorable valuation, but I'm glad things worked out with the current one. As the saying goes, you usually get what you pay for.
Remember, these are just high-level insights. The actual process involves a lot more detail and personalized strategies that I can't fully cover in a public forum. If you're interested in discussing this in more depth or have specific queries, feel free to drop me a private message.
The combo of financing options you outline is a general recommendation, not your specific story, right? If you didn’t do SBA, I’m guessing you had a very generous friends and family round. Since you seem reluctant to specify numbers- can you at least share your fundraising prices?
The combination of financing options I discussed is quite similar to my personal experience. However, as I've mentioned, each opportunity has unique nuances that can't be completely covered here. In my case, although the sellers initially agreed to a form of seller financing, it ended up being an all-cash deal due to some complications. As a result, I had to increase the non-SBA loan amount. I felt strongly about the business I was acquiring, so I decided to proceed even though this deviated from my initial recommendation for someone on this path.
As for your question about 'fundraising prices,' I must admit I'm not entirely sure what you're referring to. I'd be happy to discuss further if you could clarify a bit.
Hey man! You mentioned:
“my lifestyle didn't change drastically since running your own business is significantly more tax effective.”
Can you detail how in particular it is more tax effective?
I am the founder of a VC backed startup, so my capital structure is a bit different, but I’m curious if I’m leaving any money on the table tax-wise that you’ve wisely captured.
I will send you a DM
Pro vs. cons of starting your own business vs. acquiring one?
Thanks for this AMA. Some questions from somebody also trying out entrepreneurship:
1) What made you settle on entrepreneurship through acquisition instead of building something from scratch? Was it a serendipitous decision from encountering the opportunity in the wild or something that you intentionally pursue right from the beginning?
2) Did you enter the business with any non-business hard skills / experience related to your business? Since you positioned your business within 'commercial and industrial services', could you have provided, in part at least, the service that your business provide to your customers by yourself? If not, how did you overcome this barrier?
3) As someone who tried to build a tech startup right after college, had trouble to really get going, and am now looking break into IB via MBA, can you say more on how your time in IB helped? Is there anything you could have done while in IB that might help the transition back to entrepreneurship?
4) What sort of business would work well with this strategy? What industry or vertical etc or what financial ratios do you pay particular attention to?
Thanks once again for coming. I'm learning a lot from your responses so far.
I'm glad you're finding this AMA helpful and your questions are quite insightful. Here are my thoughts:
1.
Part 1: Choosing acquisition over starting from scratch made all the difference for me. I suspect the effort it took to build the business to the point I bought it at wasn't vastly different from the work I put in to scale it after acquisition. Within a week of purchasing, I found myself in a meeting with one of our largest clients and had employees and existing systems in place to evaluate. Starting from zero in an industry you're not familiar with is quite challenging, especially considering the negative cash flow you would incur while establishing a profitable client base.
Part 2:
I had some family exposure to a related business, so this industry was a deliberate choice. However, I wouldn't suggest limiting your options. Define the characteristics you want in a business (for me, it was recurring revenue and a high CLV), then search for businesses that fit those criteria. Once you have some ideas, underwrite the business as you would in IB/PE (pro tip: Porter's Five Forces is extremely underrated).
2. I didn't possess the technical skills required to offer my company's services myself. Interestingly, some friendly competitors initially suggested I acquire these skills to better manage my workforce. I didn't follow this advice, and I've since outgrown many of those competitors. This is another argument for acquisition over starting from scratch: with more size, you can focus more on managerial and visionary tasks rather than operational ones.
3. Since I started in IB straight out of college, I'd estimate that about 65% of its value was in shaping my professional thinking. The other 35% was the technical skills I gained, like modeling, valuation, and transactional abilities. Whether IB will be useful for you depends on your prior experience. Can you interpret contracts? Can you navigate financial statements? Can you identify what makes your business attractive for growth and acquisition, and create a detailed presentation about it? As a CEO, you're always selling to someone (vendors, clients, investors, etc.), but you need to fundamentally understand what you're talking about.
4. Any industry that fits the criteria I mentioned earlier and is amenable to growth through a private equity model could be a good fit for this strategy. However, my advice doesn't extend to the venture capital model, where you're raising capital and operating at a loss until you can prove a concept at scale.
Not sure if you answered this clearly, but where did you get the funds? And what % Equity v Debt, and how much of your own money down. Thanks so much.
I touched on this topic a few responses above. If you have any specific questions, I would be happy to give you further insight.
This post is super encouraging. I am still in undergrad but really always thought entrepreneurship in some vein was what I wanted long term. I just am curious about how risky you felt this was. obviously things have gone tremendously, but that was never a guarantee of course. I am curious how likely it was you were just going to fail completely? also curious what I can do in the next 6-10 years to prepare myself for an opportunity like this? (besides saving my money of course)
It's interesting to see so many comments focusing on the risk aspect of this topic. Personally, I'm quite surprised by it. I most likely have some competitors that didn't attend college or only went to a local uni / community college. I believe there's no reason why an IB analyst/associate shouldn't be capable of, at the very least, maintaining an already profitable business they acquire.
Now, when it comes to preparing yourself for running a business, my recommendation would be to spend at least two years in investment banking, preferably at a top-notch bank or group.
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why do you work?
What do you mean?
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