Buyers and Builders
00:16:32 · S2
[00:16:32] S2: I think that AI rollups by itself, to be honest, is a new category that's being defined as we speak. And I think that it's a little bit early yet to say where the kind of AI rollups fail. I think that's still yet to kind of see where the kind of the potential challenge is going to be. I think that I can say where the general roll ups fail, specifically in our industry, if you put the technology aside. But I wouldn't be sharing anything new or insightful for you. I think that this is, like, challenges of the integration of the business, challenges of the cultural integration, of the transformation, of changing the processes, of unifying the ways of work, over levering the businesses, and then kind of should one kind of integration go wrong, and then effectively it has a domino principle on the whole business. So, kind of, this is the typical things. I think that the AI kind of transformation of the business on top adds just another layer of complexity that obviously kind of makes the business, I would say, even a bit harder to kind of to run and transform. Because it's not just kind of you building a roll up, but at the same time, you're also building, like, a tech enabled kind of transformation of the traditional service industry and effectively an AI kind of deployment and kind of transformation of the business. And I think it comes along with its own challenges. But kind of where would the pitfalls be? I think we're still yet to learn. Obvious things is that, obviously, your kind of HQ costs and your costs on technology and the product team is just much materially bigger than any traditional kind of P roll up, because you invest more into the kind of tech part of the business on the right kind of effectively bigger technological transformation of the business. So hence, user experience, faster growth, better EBITDA margin, etcetera, etcetera. But I think that the challenge wouldn't be kind of the typical that you're investing even more upfront costs into technology. You are kind of group level kind of money losing business. You effectively need more kind of capital to come in to become profitable. So I think it's just like same sort of challenges as with typical roll ups, but just heavier and chunkier HQ costs, effectively. And then you also require different skill sets to be able to kind of put it all together.
00:18:36 · S0
[00:18:36] S0: Okay, before talking about what type of companies you're looking to acquire, let's first take another step back about the integration. So far, you mentioned nine acquisitions. So maybe you can explain more about the post acquisition work, what exactly you do, what changes for those who become part of your organization, And then let's go and about, like, what type of company?
00:18:59 · S2
[00:18:59] S2: I think it kind of ideologically comes back to kind of who we are and what we build, because I think that you can say... And we've we've been asked this question by some of the private equity investors when we had some conversations. Hey, guys, but you already built some technology. Why do you need any more people? I mean, fire everyone, put the current technology in the maintenance mode and kind of that kind of works. Right? Why do you need to continue investing? I think it comes back to kind of who we are ideologically and kind of what we built. Because this is not a roll up with, like, a glimpse of technology on top. I think that this is rather kind of imagine that you're trying to think how the kind of lighting agency in the twenty first century should look like with AI, with all the modern technologies, with all the kind of changes that you can make. And rather, this is what we built. And then for us, going and buying the businesses is effectively as much as buying the customer base along with some of the kind of people coming along with this acquisition to put on our kind of technology, our product, on our target operating model and the way that we believe things need to be run. So, you know, this is rather what we build. And then existing CRMs, ERPs, whatever the business is using to be run that, we obviously kind of just put on hold and eliminate completely because, like, we don't need that anymore to run the business. It's fully run off of the back of the well. Or a well is effectively software that powers the business. And I think that that impacts quite significantly your mindset of how you think about things. Because effectively, what you buy then eventually, whenever you buy the business, you're buying not just the customers. You're also buying the processes, the people, the brand, the kind of some other things. In our case, yes, we do buy some glimpse of that as well. It's not just the customers, but it's obviously some of the great people that come along with the business. It's obviously kind of some of the brand and established kind of reputation and the kind of space that comes along with that. But primarily it's the customers.
00:20:46 · S2
And then effectively, we keep working and this is what our operations is, keep working on our effectively understanding of what is the target operating model and standard procedures of the business should look like. That effectively then, after we buy the business, we kind of move the customers to be run by the way that kind of we believe this business should be run -in a unified single way across all of the kind of family of agencies that we're acquiring and not kind of effectively preserving the different ways of work and different processes of how agencies were run historically. Because obviously, this is the nature of the service businesses. The more kind of businesses there are, the more different processes of how these businesses could be run. We're unifying all that. And effectively building one single operational process and one single product supporting this one operational process. So hence, kind of talking about the people and change management, we are kind of taking the people and the journey that exists on the business into kind of effectively somewhere changing roles and responsibilities, somewhere kind of upskilling, reskilling kind of the team to kind of... For them to align as close as possible to kind of how we believe the business should be run-in terms of the target operating procedures of the business.
00:21:52 · S0
[00:21:52] S0: I want to take a very quick pause from the podcast and talk about our today's sponsor. Now, one of the biggest ideas in this conversation with Dan is that great acquisition entrepreneurs are not simply buying businesses, they are building systems that can absorb businesses, improve them and compound value over time. In Tweli's case, that means combining local brands and local trust with software automation, and a much more scalable operating model. And that is exactly why Capitalbad fits this conversation. Capitalbad gives investors access to private operator layered acquisitions of real small and mid sized businesses. And that is what makes this so relevant to this episode is when you listen to Dan describe the challenge of buying agencies, preserving what already works and then layering in technology to unlock better margins and better customer experience, you are hearing the logic of modern business building. So it is not about financial engineering, it is about backing the right operators in the right markets with the right structure and the right long term mindset. So if you're an LP, family office or a serious accredited investor looking to deploy capital into aligned thoughtfully structured private market opportunities, Capital Bad is worth a look. You can learn more at capitalbad.com. I will also put the link in the show notes. Again, that is capitalbad.com. And now back to the conversation with Dan. Can you give some specific examples? Let's say the acquisition number nine you just completed. What this seller can expect to change, to improve within the next maybe thirty, sixty, ninety days now when they're part of your group organization?
00:23:44 · S2
[00:23:44] S2: Usually, the kind of big reason to sell an agency by the kind of agency owner or proprietor is quite often in our space, at least, is the retirement of an agency owner. So it's not unusual that the kind of person that was a significant shareholder of the business might potentially retire and will be looking for succession in the business, for someone to step up and run the business after. So it might not fully applicable to the former owner itself. But what's going to change? You can look at it as Valley being effectively this very weird AI first CRM that, rather than just being sold to an agency, instead goes and kind of buys them up to be able to transform them from the inside out rather than from the outside in. I think this is what is value. So, kind of, it, like, technology or CRM or whatever with a kind of toolkit of the standard processes that effectively kind of powers by this technology, that is brought into the business. And that is effectively what changes. So kind of in the broad strokes, if you're a landlord, if you're a tenant, for you, things are gonna be majorly unchanged. The only thing that you will notice is maybe the business would become kind of you as a tenant, as landlord would kind of receive the tenant or landlord portal and will start receiving more automated communications and more visibility about kind of the system. So experience would get better because effectively, kind of, there is just gonna be more visibility, more visibility, more touch points, more communication. You'll be able to kind of to talk to the kind of any agent 247 whenever you want and not just kind of whatever the agency is open. So kind of these sort of things. But kind of internally for the business, effectively, it's going to be the change of some processes, going to be the change of roles and responsibilities of some people, going to be the change of kind of the technology and the processes of how the business is run underneath.