When Buying an Unsexy Business Becomes Sexy

Introduction:

This week, we talk to two people who walked away from promising careers to buy blue collar businesses. Long before search funds and sweaty startups became all the rage, Bob Schwartz left a Wall Street investment banking career to buy a chain of laundromats, SuperSuds, which operates in Delaware, Maryland, Pennsylvania, and Virginia. More recently, Mills Snell left a prominent private equity firm to buy a roofing contractor, Aqua Seal Manufacturing and Roofing, which is based in Columbia, South Carolina. In this conversation, Schwartz and Snell talk about what they were thinking, what they learned about buying a business, what they’ve learned about operating a business, and whether they’re looking for an exit.

— Loren Feldman

Producer:

Jess Thoubboron is founder of Blank Word Productions.

Full Transcript:

Loren Feldman:
Bob, let me start with you. You were working for Salomon Brothers as an investment banker when you decided to take this leap. What were you thinking?

Bob Schwartz:
My wife would ask me that at the same time, so I can totally appreciate that question. Fast forward 20-something years, it was the best decision I ever made. But when you’re in the middle of it, you start out and you ask yourself that a lot. So I was in Chicago working for Salomon, and this was in the 90’s. And I guess intuitively, I knew that I really wanted to own my own business of some sort. And this was, I guess, before the whole entrepreneurship-through-acquisition model that’s been so awesome right now and popular. It was more for me to get my feet wet. I had, fortunately, the safety net of my wife, who had a career. We were newly married, no kids. So we were living on peanut butter jelly sandwiches, and we could do that for several years while I got this business off the ground.

So it was a matter of whether I wanted to build this ground-up opportunity in the laundry industry, or I wanted to buy an existing store chain, which is what I ultimately ended up doing. I looked at the industry. I had exposure to that industry while I was at Salomon Brothers, coincidentally. It was a very old-line, mom-and-pop, hyper-local business that was not really professionally run. And so all those things kind of lined up, and I was like, “I can make this work.” But I learned about it at Salomon Brothers. And yes, I acquired a chain of stores in Virginia. We moved back East. My wife supported us for the first few years, and we’re off to the races since then.

Loren Feldman:
All right, we’re gonna pick that up. But first, Mills, you’re much closer. It’s only been seven months now, so I’m not sure how you’re feeling, but can you take us back seven months? What were you thinking when you decided to buy a roofing contractor?

Mills Snell:
We’re still in the honeymoon phase, so it’s going great. No problems! No, I’m just kidding. I’d been in the M&A space for a little over a decade. I owned a sell-side M&A advisory firm and helped small business owners, kind of hold their hand, and transition from, “Hey, I own this business. I don’t necessarily have kids or employees who want to take it over. How do I land the plane without crashing it?” Did that for a number of years, had a lot of fun, had really great clients.

We kind of served the segment in between business broker and investment bank, kind of that no man’s land in the middle, usually kind of a $5 million to $20 million or $25 million business enterprise value range. I sold that firm to my partners and went and joined a really unique private equity fund—Loren, you’ve interviewed Brent Beshore. That firm’s based in Missouri.

Loren Feldman:
It’s called Permanent Equity. It’s not your typical private equity firm.

Mills Snell:
Kind of the antithesis of traditional private equity. It’s buy and hold, buy with no intention of selling, and using no debt. Brent’s a good friend. We worked together for a number of years, and then this opportunity came up for me to buy into Aqua Seal Roofing. We actually looked at it at Permanent Equity, and it was in my hometown. While I was there and leading the deal team, we looked at about 5,500 companies for sale, and we bought four. So a very tight filtration process, very picky, if you will. We bought things that were boring, kind of non-sexy, things that are going to be around for decades. And we looked at a handful of commercial roofing contractors, and that’s what really started to be a recurring theme for me.

What I like about commercial roofing is that every building has a roof, and no roof lasts forever. So you’re kind of in a nice sweet spot, in terms of the demand. Usually, whenever somebody’s roof’s leaking, they want it fixed right away. Price is important, but your customer experience matters a lot when you’re dealing with somebody’s office, or their industrial building, or warehouse, or hospital, or whatever it may be.

I’ve always owned things, whether it’s real estate or operating businesses, and I knew I wanted to continue to optimize for that. And I got very, very comfortable, from the risk side of things, underwriting a deal and working on a transaction, because that’s kind of where I lived. And then I was increasingly familiar with operations. I’ve never run a roofing business before, never run a service-related business or a labor-focused business before. But yeah, I’m having a ton of fun doing it and learning a lot.

Loren Feldman:
You’re unusual, in that you had a lot of experience on both sides, both helping people buy and helping people sell. Did you know enough going in? Did the transaction go the way you expected it to?

Mills Snell:
Well, I think there are a few nuance differences. One is that, when it’s your own deal, it’s hard to be emotionally detached. As a buyer—really as a seller, too—you have to maintain the ability to walk away. Otherwise, you’re kind of up the creek without a paddle.

When I was doing deals, when we were deploying other people’s money and my paycheck, so to speak, didn’t depend on whether or not I closed that transaction I was working on, it was a lot easier to say, “Hey, we don’t want to burn a bridge, but it doesn’t seem like you’re ready to sell.” Or, “It seems like we’re too far apart,” or whatever it may be. “We’re not going anywhere. Come back at some time.”

I left Permanent Equity in order to work on this transaction full-time. So my wife going into it was like, “How long is this gonna take?” And I was like, “The average transaction? I don’t know, six to nine to 12 months.” And she’s like, “What are you talking about? This is crazy.” It took us 10 months to the day from when I left Permanent Equity to when we closed, and it was the right amount of time. I mean, it depends on the size of the business, how prepared the sellers are, all those things. But you learn something. If you’ve done 100 transactions, you still learn something with every transaction you do, whether you’re buying or selling.

And so, yeah, I continue to learn a lot. I’m learning a lot right now. But if you kind of wait—I’m of the mindset that if you wait until you’re ready, you’ll never do it. It’s like getting married or having kids or buying your first house or whatever. You have to get comfortable with mitigating risk in certain areas, and then at least define, “Hey, here are the things that I don’t know, at least that I know I don’t know. And am I comfortable with those?”

Ultimately, I got really comfortable. I was buying a business in my hometown. And so, there was a lot of due diligence I was able to do. The search fund model that Bob mentioned—or the entrepreneurship-through-acquisition—I wouldn’t say that I’m a searcher, but a lot of folks who fit that mold, they’re kind of, “Hey, I’ll buy a business anywhere in the Southeast or anywhere on the East Coast.” And I had a lot of roots here. I own property here, and it was not something that I wanted to move for. So I had some advantages that I think were maybe a little bit unique to me.

Loren Feldman:
Bob, how about you? You’ve told us that you got familiar with the industry in your previous job. Were you as familiar with the buying and selling of businesses? Was that comfortable?

Bob Schwartz:
No, I hadn’t done all that. Prior to Wall Street and prior to business school, I was in the commercial real estate side. So I was very familiar with acquiring real estate, and that was about it. I had never bought a business. So no, it was all new to me. Again, this was a long time ago. I think things have changed since then.

But yeah, like Mills said, I think it comes down to taking a leap of faith. You’re not going to get it all right. There are so many things I didn’t know. Had I known, I maybe would have gotten cold feet. I’m glad I didn’t. You kind of have to jump in and just make it work. There are things that you can’t plan for, but at the end of the day, I understood the industry. I understood the opportunity. I understood the risks. And we were at a time in our life where we could take those risks, so I think that has a lot to do with it, too.

Mills Snell:
Bob, can I ask a question?

Bob Schwartz:
Sure.

Mills Snell:
And you don’t have to go into detail if you don’t want to get too specific, but just generally, what size was the number of units? I don’t know how you would quantify it in the laundry space, but about what size acquisition was it? And how did you get comfortable with that, relative to the amount of risk you were taking?

Bob Schwartz:
Yeah, I mean, that’s one of the things that I wish I did differently. I’ll answer it this way: The industry is highly, highly fragmented. So it’s a $6 billion or $7 billion industry. There’s like 50,000 laundromats out there, so each one is not a big transaction. At the time, this was a five store deal, which was probably just over a million dollars in value. In hindsight, I wish I went bigger sooner.

Loren Feldman:
That’s what you would do differently?

Bob Schwartz:
In some respects, it’s easier or as much work to manage something that’s a little bigger than smaller. But, you know, you go with what’s given to you, and that was the opportunity that I had. I did know that there was a big runway of scale in this business or in this industry, so it was just a matter of a lot of bolt-on acquisitions and adding more stores. We literally just closed a deal in September that was pushing eight figures. So, they’re out there.

Loren Feldman:
That was a deal to buy a chain?

Bob Schwartz:
The stores and the real estate with it. So it can get up there.

Loren Feldman:
When you made that first acquisition, was your intention to be here 20-plus years later, running the operation? What was the plan at the time?

Bob Schwartz:
Yeah, no, that’s a good… I could talk for hours on that. One of the mistakes, in hindsight, I made was, they always say, “Well, you should look with the exit in mind.” And I did not do that. I didn’t have a clear exit strategy. I was young in my early 30’s, and I considered myself more of a deal person. I was good with numbers, good with finance, structuring the deal. And so it involved doing a lot of deals to get some scale, so I liked all that. But at the end of the day, 10 years go down, and you’re like, “Okay, how do I get out of this thing?” Or, “What is the exit strategy?” And now 20 years later, I’m still answering that question, as I keep growing. So I think there is an exit strategy, if I want to take it.

Loren Feldman:
Well, let me interrupt you, I’m sorry. But has that been a pain point? Have you wanted that exit strategy? Or did you find that you enjoyed operating the business?

Bob Schwartz:
Here’s the thing—and this is what happened with me, Loren. The first whatever number of years—5, 10 years—it was fun, because we were doing deals. We were buying stores. But at the end of the day, business is about people. And I think that you add a tremendous amount of value by operating the business well. And in order to do that, you have to lead. You have to manage. You have to have people.

Business is people. And I was never taught that. I was taught finance and deal structure. I was never taught the bricks and mortar of managing people, managing a structure, motivating culture, all that stuff that’s so hugely important. I learned it years later, and it was the best thing that I ever did, and I learned it from our friend Jack Stack—The Great Game of Business. And it really helped our business, and it made it to the point where I enjoy doing what I’m doing now.

Loren Feldman:
For those that don’t know, you’re talking about open-book management.

Bob Schwartz:
Open-book management, The Great Game of Business, and we’ve created a structure. It’s really kind of escalated the playing field for us, and so I’m having fun doing what I’m doing. And you know, if it’s a good business, why exit? Right? So that’s kind of where my headspace is right now.

Loren Feldman:
Mills, is that where you are, too? Are you adopting that philosophy that you saw at Permanent Equity of buy and hold? Or are you looking to flip the business at some point?

Mills Snell:
Yeah, I mean, very, very congruent with what Bob’s saying and what you’re asking. I would have just major alarm bells going off—or you should, or the listener should—if I said, “No, this is a platform acquisition. I’m doing three bolt-ons in the next three years. We’re going to double revenue and triple EBITDA, and then we’re going to sell upmarket.” There are so many things that can go wrong in that scenario. It’s so fragile, and not to mention, it’s highly levered. It relies on incredibly onerous amounts of senior debt or junior mezzanine debt, and there’s a lot that could go wrong.

So to me, I’m content owning and operating Aqua Seal for the next few decades and finding ways to build a team that can continue to do that. Then we just have tons of opportunities to grow organically. And maybe the acquisition—I’m not taking that off the table. It’s just, usually when people want to do a roll-up or a consolidation or grow via acquisitions, it only works if they can grow under that model, because it’s so funded by debt, and they have to basically exit before that debt really matures. I’m not interested in a model like that.

Loren Feldman:
Bob, have you grown mostly through acquisition?

Bob Schwartz:
Yes. But one thing I did do right—and it was probably more by luck than anything—is when we acquired our first tranche of stores, we learned the business. And then the cash flow allowed us to take chances. And for us, chances were finding virgin sites, building stores ground up.

And I would not have done that in the beginning. For me, that was too risky. That’s putting all the chips on the table. Later on, with the cash flow, I could innovate more and take more risk. And that was, for us, new builds, new site-selection-type stuff, and we were glad it worked out that way.

Loren Feldman:
Mills, did you have the same kind of learning curve, in terms of managing people and sort of the non-numbers soft side of the business that Bob was referring to?

Mills Snell:
I’m in it right now. I could give you the flavor of the week.

Loren Feldman:
What’s the flavor of this week?

Mills Snell:
It’s people, right? It’s normal people stuff. So my deal was very unique and probably different than most, in that the two sellers—the two founders of Aqua Seal Roofing—are still involved. They’re still employees. They’re still very significant owners of the business, and they’re going to phase out over time. They didn’t have children or managers or anybody who was going to take over.

And so we found a structure that was win-win where they were able to phase out over time and continue to have upside as the business grows. And it was as much de-risking for me as it was for them. The more I think of the people-related challenges or opportunities—whatever you want to call them—have to do with just different styles of management, different philosophies of doing business. The founder has grown an incredibly successful business, just a wildly successful business, through command-and-control style leadership. And that’s not my style of leadership, and so figuring out: At what point does the pendulum kind of tip to change?

Loren Feldman:
So you took over a successful business that was being operated by the people who started it—and with the idea that you would change the way it’s operated, despite its success?

Mills Snell:
Yes and no. I knew going in there’s nothing broken here. I have friends who do turn-around work. This is not turn-around. This company isn’t insolvent, the balance sheet isn’t under water, the income statement is profitable, all those things. But they were knowingly and acknowledging the fact that, “Hey, if we grow, we can’t keep doing things the way that we’ve been doing them.” Our infrastructure is half the size of our revenue. If it were right-sized, we would be growing our infrastructure. We would be professionalizing certain things. We would be adopting systems and technology. And so they were saying, “Look, something has to change. We can’t keep doing what we’re doing.”

But the devil’s in the details of how all that gets vetted out. And it’s been good. It’s been phenomenally great so far. And seven, eight months in, it should be, right? We did due diligence, and we’ve hashed a lot of these things out. But there will be areas where I’m saying, “Hey, look, in order to grow, in order to standardize this thing…” We do 52 pay periods a year, and we’re still on paper timesheets, running about $5 million a year in payroll. So there’s a lot of room for improvement.

But my mentality coming in was, “I don’t want to change anything for the first six months. Let me just get in, learn the business, build relationships, build trust.” And then I’ll be in a better place because people will be telling me, “Hey, I’ve been here a long time, this is my issue. What can we do to fix it?” I want to help them fix it, not come in there and say, “Hey, I’ve been studying this business for 10 months, and I’ve been here two weeks, let me tell you what’s wrong with it.” You know, it’s just a fool’s errand.

Bob Schwartz:
I’m curious, Mills. Is there a planned exit? Are you going to buy them out?

Mills Snell:
Yes. What took us a long time in our actual transaction itself was documenting all of that. And I mean, I’ve been involved in a number of deals, so I was very curious and very fastidious about these specific details. But yeah, so they will continue to get bought down over time, based on a schedule and based on an evaluation formula.

Bob Schwartz:
Nice.

Loren Feldman:
Mills, you hit on something that I find really interesting. You were talking about operations and that there’s room for improvement and professionalization, and maybe up the technology a little bit. And I think that’s a common thing that people look for. They look for opportunities where the business is basically healthy, but there’s room for improvement.

But there’s kind of an interesting tension between people who do that looking for ways to professionalize an operation versus people who really know the industry. I don’t think either of you were expert in the particular industry you went into. To what extent do you think one is more important than the other: the knowledge of the industry versus being able to professionalize operations?

Bob Schwartz:
Well, my two cents worth is, I guess it depends on the industry. Personally, I couldn’t get into the high tech world—software or something—I would have no clue, and I think I would probably fail miserably. But if it’s a basic service business, kind of the service businesses we’re talking about, I think, regardless of the business, we could figure out how to add value, ultimately, if you give us enough time.

That’s where patience comes in. If you’re in this for the long-term and can set it up to give yourself a long runway—maybe without investors saying, “When am I gonna get paid?”—then you can figure this thing out. Things take longer than you plan, but ultimately, you’ve got to figure it out. So I think you can do it. It’s just, I wouldn’t do it in a business that is so foreign to me, like software, medical, or something unrelated.

Mills Snell:
I think it depends on the size of business, too. So I mean, Bob, you probably could have stepped in and run, let’s just say, a $10 million laundry.

Bob Schwartz:
Right.

Mill Snell
Because it probably wouldn’t rely on much knowledge about laundry itself. You would have managers and layers of middle management who would be overseeing that. That’s the way Aqua Seal is. They didn’t need the foremost roofing expert in the Southeast to come step in and help them. They’ve got that covered. What they needed is, they needed somebody to come in and say, “Hey, how do we do more of what we’re good at? How do we increase our yield on labor? How do we estimate better? How do we make sure, from a customer service perspective, that we’re actually just calling people back and they aren’t falling through the cracks?”

Let’s just say, if you buy a million-dollar plumbing business, for one, in most states, you have to be a licensed plumber. But two, you need to know something about plumbing, because there’s not enough revenue to account for management that can help insulate you from that. But if you’re at $30 million of revenue in a plumbing business, you really don’t need to know that much about plumbing, because you’re going to have multiple master plumbers. You’re going to have guys who’ve been in the field for decades, who are on staff, who aren’t in the field, who can be supervisors, superintendents, foremen, those kinds of things. So the size really matters a lot, I think, on whether or not you need specific technical knowledge and experience.

Loren Feldman:
Mills, can you tell us something about the roofing industry that you didn’t know going in, that you figured out, and now is important to the success of a roofing contractor?

Mills Snell:
The big one right now, which is a little bit idiosyncratic, is that material availability has gone just berzerk. All the supply chain is really bad right now. Roofing, for a handful of different reasons, is kind of the most suffering kind of segment. We have materials that used to take one to two weeks to get in that now have a 40- to 50-week lead time. And it’s like, “Do not pass go, do not collect $200.” You can’t do this roofing project without these types of materials.

Loren Feldman:
Where are they coming from?

Mills Snell:
It’s mainly internationally sourced raw ingredients, and then locally manufactured or handled finished goods. So for example, if you looked at what was happening in the timber industry not all that long ago, lumber prices were sky high. In almost all cases, lumber just has one ingredient, right?

For example, you look at a roof system, it may have dozens of different components that go into it. You’ve got, for example, roofing fasteners. We use screws that could cost $1 to $2 apiece, and a large roof might have 80,000 of them. But you have the raw ingredient, which is a rod—raw steel that comes in a rod that gets threaded in a specific way, heat treated in another way, and then gets coated. Most of those coatings are an oil derivative, a petroleum derivative. So lots of different people have to touch it along the process, and that has contributed to longer and longer lead times. And most people are used to thinking, “Hey, I need to put my roof under contract as a part of this new construction or this renovation project,” and it might be two to three months out. I mean, you’re having to plan roofing before you plan site work right now, or before you order a steel package, which is just kind of unheard of.

Bob Schwartz:
Do you guys do new construction, as well as repair work?

Mills Snell:
Yeah, we do both. Part of the reason that I liked Aqua Seal is that we’re probably 60 to 70 percent re-roof. And a lot of that is we still do large municipal—schools, hospitals—bigger square footage projects, but it’s a mix of re-roof and new construction.

Bob Schwartz:
And so you’re bidding on jobs that may not, like you said—it could be months out before you get to them.

Mills Snell:
Exactly. So typically, what we would do is, we’d go to a supply house, and we’d say, “Hey, we need prices.” And they’d say, “Great, we’re gonna guarantee these prices for three to six months,” which usually is completely irrelevant because they have them, and you’re going to get them in time. Or it may take a little while. You get awarded the job, and they say, “We still are gonna honor the prices.” Now, what’s happening is we go to the supply house, and they say, “Look, we can’t give you a firm price. It’s going to be whatever the price is on delivery date, and we don’t know when the delivery date’s gonna be.”

For example, we know that fasteners have a 25-percent increase in the first quarter of 2022 and a 35 percent increase in the second quarter of 2022. We have to try and educate and communicate with a customer, an end user, a GC, to say, “Hey, these prices are high, and they may seem high. But we’re not going to come back and give you a change order that’s gonna make your head explode in six months when it’s actually time to do the project. Or we’re gonna try and minimize that as much as possible.”

Loren Feldman:
Bob, tell us about your industry. What did you learn that you didn’t know going in?

Bob Schwartz:
Two things have happened: One more currently and one from day one. I underestimated the importance of employees in stores. Again, I’m kind of coming from a numbers perspective, and I always felt like, “Hey, if you’ve got the right great, shiny location with brand new equipment on the corner of Fifth and Main and all that stuff lines up, that you’re going to kill it.” And most times, that has a big effect, but I underestimated the importance of employees, and at least in a B2C world, how important customer service is—even in a self-serve laundry operation. It’s huge. So I had to learn that, and it’s really made a huge difference—again, in a B2C world, how important employees are to driving revenue. It’s dramatic.

The second thing, which is exciting for us, is the technology. When I got into the industry, I knew it was an antiquated kind of old-line industry, which I was fine with. But finally, technology has caught up to this industry, so now there’s so much interest in it, because of the scalability and the different features that we can do now: Basically, pickup and delivery to people’s homes. It’s all app-based. There are now SaaS programs that control everything from your machines, to point of sale, to pick up and delivery to your route drivers. None of that existed 5, 7, 8, 10 years ago. So that’s exciting for me, that we’re bringing another level of sophistication to where we’re at.

Mills Snell:
So I’m just thinking about, you’ve been in it 20 years, you kind of inherited it as it was analog, and you’ve made those upgrades and probably started to reap the benefits of it. With where you are right now, how do you make the decision about the kind of cost—which is probably very substantial—of that reinvestment to modernize facilities or to kind of take that next new upgrade? How do you balance that against your time horizon? And I mean, you’re not an old guy by any means, but I’m just thinking, it’s not like those upgrades are gonna last the next 20 years. They’re probably gonna continue to be increasingly obsolete, and I’m just curious how you balance that when they’re capital intensive.

Bob Schwartz:
Yeah, that’s a great question. That’s where, for me, I’m at the point where I’m not looking to sell the business and create kind of a legacy asset, potentially. So if you have that mindset, I think it makes the decision. If it’s a really good location and the equipment’s 10 or 12 years old, you’ve got to put in new equipment. And the reinvestment at one location is easily half a million to three quarters of a million dollars. So, if you said, “I want to exit in five years,” you’re going to start to think about that.

Mills Snell:
Yeah, yeah.

Bob Schwartz:
So for me, it’s made it easier if I know that I potentially want to keep the legacy asset here for my family. How all that shakes out is to be determined. But it’s one less decision I need to make, and it makes the decision easier to reinvest, which ironically, is better for the customer, which then creates more value to the business.

Loren Feldman:
Bob you referred to it before as a self-serve laundromat. But then you were talking about the app and customer relations. What percentage is people coming in and doing their own laundry?

Bob Schwartz:
Yeah, I mean, any store that we’re buying or building now, I would say, it’s more than fully staffed by one person all the time, 24 hours a day. We offer pickup and delivery and drop-off laundry and commercial laundry applications. So it’s a full suite of services where the industry is called the self-serve laundry industry. But really, that’s maybe 75 percent of it. The growth, the trajectory, the industry is a very flatline, stable, decent margin business, a good margin business. But as Mills knows, it’s leverageable, and it’s heavily capital intensive. But the growth is actually in the very non-capital-intensive side. That’s the holy grail in this industry, is cracking the code on all this pickup and delivery.

I mean, our whole world now is pickup and delivery, whether it’s Amazon or Uber, DoorDash, or everything else. And so the industry knows that people’s laundry is going to be potentially outsourced, and we’re seeing those trends dramatically impact our industry. How you monetize it, that’s what we’re figuring out. We’re now in the route business. We’re in the logistics business. We were in a capital-intensive business. Now we’re all about optimizing trucks and delivery and all that stuff, which we read about in restaurants and all that. So we’re trying to figure it out.

Loren Feldman:
Did the pandemic accelerate that?

Bob Schwartz:
Yeah, it did, and it’s increasing month over month. So orders are going up everywhere on that pickup and delivery side.

Loren Feldman:
How have you both done, in terms of labor, during this difficult period? How about you, Mills? Has it been an issue?

Mills Snell:
We can always use more people. We have about 100 full-time employees. We probably have enough demand—if we had materials—for probably 150 to 175. But we just don’t have the infrastructure to support that much production right now. But we have really good people. We have people who’ve been with Aqua Seal for almost 30 years, since the company has been around.

We pay higher than average wages. In South Carolina, I don’t know how it compares to other parts of the country necessarily, but you could probably make $9, $10 an hour working at a fast food restaurant. We pay $14.50 an hour starting out for somebody who has no construction experience, no high school diploma, GED, anything like that.

And then we are U.S. Department of Labor registered apprenticeship providers—one of the first things I didt—and the two requirements of that are wage progression and on-the-job training. It allows us to take advantage of a state tax credit, but also we get scholarship funds to our technical college network so we can basically completely subsidize continuing education around OSHA certification for the certification, things like that, to put people on a faster track to increase their skills. But we don’t lose people based on pay. The folks we lose, they just don’t want to come to work. They kind of stop coming to work.

Bob Schwartz:
Right, yeah.

Loren Feldman:
I guess you weren’t there, but was the business able to keep operating at full speed during the pandemic?

Mills Snell:
Yeah, so some kind of smaller hiccups, like job-site-related safety for a little while. OSHA wasn’t clear on what precautions they wanted people to take on job sites. But yeah, we’ve been largely uninterrupted.

Loren Feldman:
How about you, Bob? Did you have labor issues?

Bob Schwartz:
Yeah, we had a scare, I would say, in mid 2020, when COVID, ground zero, everything was hitting. I remember distinctly, because if you recall, remember the term “essential services?” And if you were considered an essential business, and it was done state by state, and the governor would determine if your business… We have stores in Pennsylvania, and I remember that governor overnight woke up and said, “Everything is shut down.” And I mean everything, every single business, unless you’re health care, hospital, or whatever. And so we had to shut our stores down. It lasted about maybe less than a week, and you know, they woke up and they said, “Okay, laundry is an essential service.” So that was amazing, and that helped us out. But that was scary. I mean, we were like literally shut. So I have complete respect for all these restaurants. I mean, that’s just brutal. I just don’t know how these folks have… you know, God bless them to get through it.

Loren Feldman:
Not all of them have.

Bob Schwartz:
Shutting your doors and just closing it down was just ridiculous. But anyway, we got through that. Labor, it’s a little what Mills said. Our core 80 percent have been with us a while. We provide what I think is a great culture, and they don’t turn over.

We have about 125 employees, so we’re looking for about five positions right now, which isn’t a dramatic amount. We could add another five on top of that. But what ends up happening is, when we build or buy stores, that’s when we have to kind of get in there and do a culture fit with the people who we’re acquiring. Hopefully, they’ll be with us, but if not, that’s where we have to kind of go out and put the pedal to the metal and upgrade the employees at the store, depending upon what we’re getting.

Mills Snell:
Is there a mechanism that you use for that, that kind of cultural assimilation?

Bob Schwartz:
Yeah, it’s tough. We have a game plan, a little playbook. Again, it’s fundamentally The Great Game of Business and open-book management is how we kind of structure it. We have a deck that we go through with all new hires. We have a buddy system, kind of a mentorship inside the stores. And we have area managers that are indoctrinated in how we do it. It’s not easy, it’s not perfect, but it works. It just takes time.

Loren Feldman:
In The Great Game playbook, the ultimate last step of it for many companies is employee ownership. Is that something that you’ve considered as an exit?

Bob Schwartz:
Yeah, I’ve looked at that really deeply in the last couple years, and I’m not going to say no, but I’ve heard pros and cons. I’ve heard both sides. I’m not committed to it right now, to answer your question. I’m not sold on it.

Loren Feldman:
What’s the biggest concern?

Bob Schwartz:
Just the complexity, and sometimes you’re adding a level of complexity that is not necessarily valued. You can achieve the same end result with less complexity doing other things, whether it’s a better bonus structure or another plan that they have out there that is less involved and less complex than an ESOP. Now, I know a lot of ESOP owners who love it, so I could be persuaded either way, but I’m not completely sold on it yet.

Loren Feldman:
With both employee ownership and open-book management, which you have adopted, one of the interesting things I’ve learned through the years is that oftentimes, the most difficult people to sell on it are the employees themselves.

Bob Schwartz:
That’s right.

Loren Feldman:
They don’t necessarily want to have the added burden of understanding what drives the business and how the books are looking, and they wonder why management wants them to take over that responsibility, instead of doing their job the way they’re supposed to.

Bob Schwartz:
Yeah.

Loren Feldman:
You’re in kind of an interesting business to implement this, and I’m wondering what kind of reaction you got from your employees when you told them you wanted to open the books and involve them.

Bob Schwartz:
Yeah, it’s a learning curve. It’s taken us three, four years of hard work, but it paid off. You can create an ownership culture without necessarily having to go with an ESOP. And I think we’ve done that. What The Great Game and open-book has done for us is, it creates a high level of trust and transparency. So our employees can trust us, the owners, so to speak, that we’re all in this together.

It’s a very shared wisdom. It’s the collective wisdom of the crowd, so I think there’s a lot of buy in. It takes time. It’s a lot of work. It’s very rewarding. It’s very worth it. But you’re right. At the end of the day, some employees don’t want, necessarily, the burden of that. But they like the idea that you’re transparent, you’re open with them. We know where everything stands. It’s very easy. There’s a lot of value to that from an emotional standpoint, from the culture you’re trying to create.

Loren Feldman:
Bob, you mentioned software before. We pay so much attention to venture-backed companies in Silicon Valley. You guys chose to take a different route, and I guess I’m curious about two things. One: Did you do that because you saw it as kind of an unappreciated area where people didn’t realize how much value there is? That’s one question. And the other question is: Was that difficult psychologically? Was it hard to explain to people in your lives why you were choosing to buy laundromats or a roofing business?

Mills Snell:
No, I mean, I’m wearing Carhartt right now, wearing boots, and I’m driving our most beaten up truck in our fleet. I think it depends on what you want to optimize for. I’m married. I have four kids. I wasn’t trying to find the most interesting thing to talk about at the bar with people, or something like that.

Loren Feldman:
Although, maybe you did.

Mills Snell:
Yeah, well, ironically, I guess it does kind of turn that way. But what was important for me was de-risking. So I wanted to invest in something and put my time and energy and capital into something that I could understand, and that wasn’t subject to the whims of change. Everybody has a roof, no roof lasts forever.

My kids are much more likely to pick and invest in the next hot app than I am. I bring no edge to the table. I do happen to know a bunch of property owners in South Carolina. That’s an edge that I bring to roofing. So to me, it was just logical and it de-risked, based on my criteria. But we talk about a lot, in some of the circles I run in, buyer-business fit is so critical. I can’t stress that enough: buyer-business fit. Because you could get sideways really fast buying the wrong type of business for you.

Loren Feldman:
How about you, Bob?

Bob Schwartz:
It was interesting at first going from the investment banking world to the coin laundry industry. But here’s what I would say: At the end of the day, a couple things: One, as I’m getting older, as well as the business fit, you have to create a life plan or a personal plan. My dad wasn’t the most—how shall I say this—he was a workaholic who was more of an absentee. And I do not want to do that with my two boys and my wife, so I wanted to create a structure in a company or an environment that fit my life, versus having my life fit the business. So that was number one, and that was very important.

Loren Feldman:
Were you able to do that?

Bob Schwartz:
One hundred percent, yeah. It’s ironic, because we have offices now, but I had a home office for the first 5, 6, 7 years when our kids were young. I was around. I went to every single baseball game, soccer, lacrosse, you name it. I had the flexibility to do that. When I was on Wall Street, no way. And let me tell you the other thing: At least in my world, when I was on Wall Street, you look to the right, and you look to the left, everybody’s smart, everybody’s hard working.

There was no edge, like what Mills said. I felt like I needed an edge, and I’d rather go into a basic service business that had a bigger upside, as far as professionalism, versus competing head to head with everybody else who had a great college degree and all that. Why compete on a level playing field? And I wanted that business to fit my lifestyle, so that’s what mattered to me. And that’s how I looked at it.

Loren Feldman:
Those are great answers. Mills, would you have any specific advice at this point for somebody who’s interested in setting down a similar path?

Mills Snell:
You know, there’s kind of no substitute for—to use Warren Buffett’s analogy—standing at the plate and watching pitches come by. If you’re wanting to buy rental homes, you can sit on Zillow all day long and analyze those deals to death. But at the end of the day, you’ve got to walk inside a house. You’ve got to make an offer. You’ve got to write a contract. You’ve got to get burned somewhere along the way. So putting yourself on a learning curve, I think, ultimately probably seems unappealing in this vein of conversation, but I think it’s critically important.

Loren Feldman:
How about you, Bob?

Bob Schwartz:
I would second that. I wanted to add, though, that personally, for me what I think is really important is if a person can uncover what their unique ability is. I’ve had some great coaches who I look up to, mentors, and one is a fellow named Dan Sullivan, a strategic coach. Years ago, he helped me work through what my unique ability is, and everybody has a unique ability. It’s what you do that’s just really, really good, and everybody has one. It’s where you operate, you’re in the top 95 percent.

So I think it would be very helpful to understand what each person’s unique ability is, and you can bring that to any operating business. The key is, you operate in that unique ability, and then offload everything else as best you can. And when you can do that, then you’re in your sweet spot, and then it really becomes fun.

Loren Feldman:
Was it always fun? Or did you have a moment when you really questioned why you’d done this?

Bob Schwartz:
The first few years were a lot of fun. And then when I got into the management side, it became work. Because that, I would say, wasn’t my unique ability. And as we got scale, I could hire people who were really good at it. And I could put the open-book structure around them, and I could get back to doing what I was really good at. And now it’s fun. So I’ve kind of come full circle.

Loren Feldman:
My thanks to Bob Schwartz of SuperSuds and Mills Snell of Aqua Seal. Really appreciate your taking the time, guys, and sharing your experiences.