My Story: The Sequel to the "Owning Unsexy Businesses" Thread

Hey everyone,

About six months ago I created a thread on WSO that ended up having a profound impact on my life. The thread was about owning and operating relatively "unsexy" businesses, and my goal was to pick the brain of other users to hear any thoughts or experiences they could offer (link: http://www.wallstreetoasis.com/forums/gas-station-car-wash-fast-food-ow…).

The idea for the thread came to me after working on a couple specific sell-side deals. These companies were in relatively boring industries, yet they were generating millions for founders that seemed to have a pretty chill lifestyle (i.e., they certainly weren't turning comments to a CIM at 3:00am). More importantly, these guys weren't super brilliant or anything like that; in banking, you quickly realize that founders/C-level types aren't nearly as smart as you think they should be. If they could do it, I felt like I could too.

So during a few 3:00am nights I began to realize that: a) I didn't want to do banking forever, b) I wanted to be my own boss, and c) I wanted to start a company in one of these "unsexy" businesses that was easy to understand and offered consolidation opportunities (almost all of the unsexy success stories I had seen were basically just roll-ups). I didn't have the faintest idea of what I actually wanted to do though, so I started the WSO thread to help jog my brain.

The thread had some great dialogue including a few ideas I had not previously thought of, in addition to a few websites for small business listings. I went to one of the listing websites and searched for businesses back in my home state (Tennessee), and after about 10 minutes stumbled on a listing that caught my eye: an established billboard company in an area of rural Tennessee that I knew very well. It was generating ~$125k in gross revenue and ~$100k in EBITDA, and was priced at ~$500k. I didn't know the first thing about billboards until reading that listing, but I did some due diligence and shortly became convinced that this business satisfied every qualification I was looking for: passive business model, location agnostic, niche industry that most people did not understand, opportunity for consolidation, and of course high cash flow.

I ended up having a few diligence calls with the owner before deciding I wanted to go for it. I drafted a comprehensive business plan and applied for an SBA loan with 10+ banks. The process was grueling; I had always heard that SBA loans are sometimes more trouble than they were worth, and I can now attest to it. Everything moves at a snail's pace, and the seller's taxes were a mess so I was having to walk the loan officers through all the adjustments (it was tough to even schedule these calls during my work day). That said, SBA also provides 80% financing with 6% interest, much better than I could do on a standard commercial loan with no track record and minimal collateral. Fortunately the seller signed an LOI with exclusivity, so we went far enough down the path that an extra month or two before closing did not cause him to walk away (but he was very close!).

After about six months from start to finish, I finally was approved by the bank and closed on the deal. I have owned it for about two weeks now, and it still shocks me that I actually went through with it. There were so many opportunities to walk away: can I actually do this? will I have enough money? what if I suck? what if I go bankrupt? what if all the customers leave? what in the hell am I doing??? But at some point you need to just take the plunge, and I am proud of myself for doing it.

My current plan is to work my banking job for another 1.5 years, collect two more bonuses, than quit to move back home and work on the business full-time. I need to grow organically to reach my annual income goal, and it is hard to do that from another state (not to mention while working a grueling IB job). As cheesy as it sounds, banking helped me realize that I am a "work to live", not "live to work" type guy, and I am looking forward to getting my free time back while making a nice income.

Sorry for the long post, this ended up being much longer than I anticipated. But I felt like I needed to post a follow up given how helpful the prior thread was for me.

If anyone has any questions, please fire away!

 
packmate:

Sounds pretty awesome man. Just one question, if this billboard company is grossing 125k and netting 100k ebitda, who is operating it? I would assume that operating costs are very low therefore implying a low amount of employees

You don't need to hire anyone to run a passive business such as this. Operating expenses are probably almost all rent & marketing supplies/expenses.

 

That's definitely a solid point, but will the OP be able to manage these expenses while simultaneously working in IB? You can only outsource so much and I'm curious as to how he plans on operating this business without cutting those margins. I'm sure the entrepreneur who sold it put a lot of man-hours developing and managing the company that wouldn't be reported on any financial statements

 

Nice work. How are you managing the business? Are there any employees? I assume you have to have calls with customers? Do you do those from work?

I have a buddy that's pursuing some "unsexy" businesses. He bought some duplexes in South Central LA after the housing collapse. Basically picked up a bunch of places for $200Kish that were selling for $500K+ in 2006. Underwrote the deals with super cheap, 30 year fixed debt, so he's making a killing in rental income (like 20% on his equity). That's not to say it hasn't been easy. He has to chase people for rent all the time and has already had like four evictions.

Now he's moving into living facilities for special needs people. The government subsidizes it I believe so it's reasonably secure, and should net around $10K / month / facility once it's up and running.

Definitely money to be made out there if you're willing to cast prestige aside and focus on cash flow.

 
hiit:

What was the extent of your due diligence and how did you get comfortable putting up your own money?

Combination of industry, company, and geographic diligence. I started with a thesis and spent a lot of time trying to understand the nuances of the industry (state/county zoning and regulations). I came up with a detailed question list and had numerous calls with the seller to better understand the business and the upside opportunities. I also did some research on what the large national companies were charging in his area and realized that he was pricing well below their average market rate, which gave me confidence that there was an opportunity to squeeze out some more profit. I felt confident in my research and convinced myself that if I was terrible at operating the business I could turn around and sell it in a few years for what roughly what I spent on it.

packmate:

Sounds pretty awesome man. Just one question, if this billboard company is grossing 125k and netting 100k ebitda, who is operating it? I would assume that operating costs are very low therefore implying a low amount of employees

I am the only employee. I use vendors to design billboard graphics, print the billboard vinyl, and install the vinyl to a board. The previous owner used the same vendors so it was a total turnkey operation. I only need to pay when I land a new customer, which is another factor that was very attractive to me.

jckund:

Can I ask what websites you used to search for businesses for sale?

Try www.bizbuysell.com.

 
labanker:

Nice work. How are you managing the business? Are there any employees? I assume you have to have calls with customers? Do you do those from work?

I manage the business myself. Most of the day-to-day work can be done via email (invoicing customers, sending work requests to vendors, scouting for new customers). However I do have to hop on the phone occasionally, and when that happens I try to schedule the calls during lunch or on the weekend. Fortunately I live within walking distance to my office so I can go home during lunch and hold a call if needed.

hiit:

One more: how much of your own personal guarantee did you have to put up for the SBA loan?

SBA requires you to personally guarantee the entire loan. As I mentioned in a prior post, I was comfortable with this because I felt like I could sell the business for roughly what I paid for it if I was unsuccessful. The billboards will be valuable whether or not I am a good operator.

 

1) How much collateral did you have to put up and was there a specific net worth requirement for the loan?

2) Are there any stipulations on your personal guarantee and bankruptcy? For example, say for whatever reason the business becomes worthless and you declare bankruptcy. Do you still owe them anything?

If I were to do something like this and used a lot of leverage, I'd invest very heavily in my 401k because that can't be touched in the event of bankruptcy.

3) I've checked out a lot of small businesses as well. I've noticed for some businesses the seller is willing to provide financing. Do you think this is usually a good sign? If the seller is willing to provide financing, I'm taking that as a sign the seller is confident that pretty much anyone can run the business.

Competition is a sin. -John D. Rockefeller
 
Hooked on LEAPS:

1) How much collateral did you have to put up and was there a specific net worth requirement for the loan?

2) Are there any stipulations on your personal guarantee and bankruptcy? For example, say for whatever reason the business becomes worthless and you declare bankruptcy. Do you still owe them anything?

If I were to do something like this and used a lot of leverage, I'd invest very heavily in my 401k because that can't be touched in the event of bankruptcy.

3) I've checked out a lot of small businesses as well. I've noticed for some businesses the seller is willing to provide financing. Do you think this is usually a good sign? If the seller is willing to provide financing, I'm taking that as a sign the seller is confident that pretty much anyone can run the business.

  1. 20% equity was required for the loan, and I borrowed the majority of that from parents. I agreed on a five year repayment schedule with them including interest.

  2. Personal guarantees are required for all SBA loans. Agree with your comment on the 401k, but at the same time I don't think you should go into something like this with that mindset. I know I can be successful if I devote the time and resources to it, and the IRR on investing in the growth of my business will substantially surpass investing in my 401k. If you are going to do this, you need to be all in. No half measures (tip of the cap to Mike Ehrmantraut).

  3. Theoretically it is a good sign, right? It implies that they are confident enough in the business's long-term success that they would be willing to receive payment over time. However, the seller may need all the money upfront for a medical expense, or they may be old and want the money before they do, or maybe they realize that the business is so attractive that they do not need to make a concession like that. There are a lot of variables here, so I wouldn't let seller financing be a big factor in your decision-making process.

Another point I will throw out is that you almost have to change your mindset a bit when you deal with most small business owners, as well as their customers. The majority of these guys do not have elite degrees or have work experience in IB or PE. They are just regular guys. Putting together a DCF or a comps analysis to help bring my seller's price down would have done no good at all. You have to get in their mindset and understand what is important to them like a typical IB/PE negotiation, but you also need to come off as more down to earth and approachable than we need to be in the finance world. You are more likely to scare a small business owner off by going too deep with financial analysis and diligence requests than to convince him you are correct.

 

Congratulations for taking the plunge. Owning and creating opportunity and running anything requires a unique mentality. I am finishing up MBA (part time) from a ranked school. My current engineering job (10yrs of experience) is boring me although it gets me around 120k. I am looking to transition into banking and move to NY. If I don't get call backs/interviews etc, last resort would be to set up a shop/small biz here. House that I bought in 2010 already puts me at 200k+equity which can help with SBA loan. All this in the background when I came across this website which is phenomenal.. This thread and website helps putting banking jobs in perspective.

 
UnclePanda:

how much EBITDA did the billboards generate during the GFC period? volatile earnings? why did the seller sell?

Dipped a bit during the recession but not as much as I would have expected. Billboards are the cheapest form of advertising and the majority of my customers are local small businesses, so they have to advertise to get travelers to even know they exist.

Seller was elderly and is retiring from the business, but I still had him sign a non-compete. I would advise anyone else to do the same.

 

First off I wanna say congrats on taking the plunge. My question for you though, is, how do you stop birds from taking a shit on your billboards?? Honestly, I don't think I've ever seen a billboard with bird droppings on it..

 

Props and keep us updated. I wish I had know about the whole "unsexy" business thing earlier. Reading WSO it's easy to get this mindset that you must follow a predetermined path to become successful (Target School -> GS TMT -> PE -> H/S/W B-School -> ...) when that couldn't be further from the truth. The most successful people (in terms of money, work-life balance, autonomy, and fulfillment) I know run (or ran and sold) their own businesses, often in fields that I've seen openly mocked on here. If I had realized this sooner, I wouldn't have wasted all this time pursuing finance jobs and trying to trick myself into developing a passion for it.

 
MStanfield:

How do you have time to manage the operational aspects of your business if you're working a full time ib job I'm a different state? Good for you for executing; one of the biggest concern I have is not having time to run the business successfully while still performing well in my breadwinning job.

Great question. It is very difficult, probably more difficult than I expected. Fortunately most of the day-to-day work can be done over email - send invoices to customers (once a month), send printing requests to my printing company, have my installer put up or take down a billboard vinyl.

However, where my full-time job hurts me the most is actually growing the business. I simply don't have the flexibility to pop out of the office during the day and make phone calls to new potential customers. I've come to realize that my goal for the next year should simply be to maintain the business until I have the time to focus on it full-time. There is so much I want to do, but my IB job doesn't afford me the time.

 

Damn, this is really what I want to do. Save some money for several years (I'll be starting Big 4 audit, so I'd have to save longer than someone in IB like you), and start doing something like this. I really don't wanna work for "the man." My dad was a small business owner, I feel like its in my blood.

 
Best Response

Hey everyone. Sorry for not responding for so long. Can't believe my last post was in January!

Everything is going about as well as can be expected with my business right now given that I am still at my IB job. My main goal is to be able to keep the business stable so I can make my loan payments, and I have been able to do that every month without dipping into any personal cash. That is a success in my book.

I am proud of the work I have done up to this point, but as all of you can likely imagine, there are times where I am getting crushed at my "real" job and can't do anything productive with the billboard business other than send out monthly invoices. My occupancy is lower than I would like and I can't do much about it right now other than hope people respond to current "Ad Here" signs on empty boards. It is frustrating to know I can be doing so much better but simply don't have the time to devote to it due to the responsibilities of my current IB role.

I've submitted a few job postings at local colleges back in Tennessee to try and get some help on selling my open boards. I'm trying to hire independent contractors that will work purely on commission rather than actual employees that will get paid by the hour. I don't think I'm in any position to manage employees right now but I see limited downside to getting contractors out there dialing for dollars. I'm in the early stages of this process but hopefully I can one or two and get some leverage out of them.

March 2015 has been circled on my calendar since I bought the business almost one year ago, as that is when I plan to collect my final bonus and start working on my business full-time. However, to be perfectly honest, it is a little scary to think about losing the security of two checks deposited directly into my checking account each month. I was much braver when this reality was 1.5 years away; now that it is 6 months away it is becoming much more real. I absolutely will still go through with the plan, but it would be naive to not consider that there is a chance I fail miserably. I'm sure these are thoughts that everyone considers when they are planning to leave the comfort of a full-time job for the excitement and uncertainty of owning a business, but it is definitely more "real" now than it was back then.

At the same time, I am extremely excited and can't wait for that day to come. I have so many goals and new ideas that I want to take on and execute. The next six months are likely going to fly by, and I can't wait to roll up my sleeves and see what I am capable of building.

 
Bowser:

Hey everyone. Sorry for not responding for so long. Can't believe my last post was in January!

Everything is going about as well as can be expected with my business right now given that I am still at my IB job. My main goal is to be able to keep the business stable so I can make my loan payments, and I have been able to do that every month without dipping into any personal cash. That is a success in my book.

I am proud of the work I have done up to this point, but as all of you can likely imagine, there are times where I am getting crushed at my "real" job and can't do anything productive with the billboard business other than send out monthly invoices. My occupancy is lower than I would like and I can't do much about it right now other than hope people respond to current "Ad Here" signs on empty boards. It is frustrating to know I can be doing so much better but simply don't have the time to devote to it due to the responsibilities of my current IB role.

I've submitted a few job postings at local colleges back in Tennessee to try and get some help on selling my open boards. I'm trying to hire independent contractors that will work purely on commission rather than actual employees that will get paid by the hour. I don't think I'm in any position to manage employees right now but I see limited downside to getting contractors out there dialing for dollars. I'm in the early stages of this process but hopefully I can one or two and get some leverage out of them.

March 2015 has been circled on my calendar since I bought the business almost one year ago, as that is when I plan to collect my final bonus and start working on my business full-time. However, to be perfectly honest, it is a little scary to think about losing the security of two checks deposited directly into my checking account each month. I was much braver when this reality was 1.5 years away; now that it is 6 months away it is becoming much more real. I absolutely will still go through with the plan, but it would be naive to not consider that there is a chance I fail miserably. I'm sure these are thoughts that everyone considers when they are planning to leave the comfort of a full-time job for the excitement and uncertainty of owning a business, but it is definitely more "real" now than it was back then.

At the same time, I am extremely excited and can't wait for that day to come. I have so many goals and new ideas that I want to take on and execute. The next six months are likely going to fly by, and I can't wait to roll up my sleeves and see what I am capable of building.

Cool, man! Can't wait to hear more

 
Bowser:

...

I've submitted a few job postings at local colleges back in Tennessee to try and get some help on selling my open boards. I'm trying to hire independent contractors that will work purely on commission rather than actual employees that will get paid by the hour. I don't think I'm in any position to manage employees right now but I see limited downside to getting contractors out there dialing for dollars. I'm in the early stages of this process but hopefully I can one or two and get some leverage out of them.

...

May I suggest finding door to door pest control or Security system/home automation salesmen or Kirby vaccums? They are used to working strictly off commission. Offer a handsome commission and they will do the leg work, 1099 them as a contractor to cover your end.

IF you find someone in the area by your signs they may already have contacts/possible target customers.

Just a thought.

 

I was an analyst at a business brokerage firm and saw tons of these small businesses opportunities. Now I'm a 3rd year analyst in a TMT and looking to walk down the same path as you. I plan to run a company while working fulltime. It would be great to get an update on some successes/failures and where you are today. On a personal note, I'd be interested in speaking with you to ask more specific questions as I begin to look at opportunities.

 

Great thread! Any updates now that it's March?

What is your plan for growing the business? I assume most locations are already built out so you would need to acquire existing billboards. What percent of the market is owned by national players vs mom and pop?

What is your lease structure like? Do you pay the land owner a fixed rate or give a % of sales?

 

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